H2O RETAILING CORPORATIONFINANCIALREPORT 2020

Contents
FINANCIAL REPORT for the 101st fiscal term

I. Overview of the Company .........................................................................................................................................2
1. Summary of business results ............................................................................................................................................. 2
2. History ............................................................................................................................................................................... 4
3. Description of business...................................................................................................................................................... 6
4. Overview of subsidiaries and associates............................................................................................................................ 9
5. Information about employees .......................................................................................................................................... 12
II. Overview of Business.............................................................................................................................................14
1. Management policies, management environment and issues to be resolved, etc. ......................................................14
2. Business risk ......................................................................................................................................................15
3. Management analysis of financial position, business performance and cash flows ....................................................17
4. Critical contracts for operation .............................................................................................................................26
5. Research and development activities ....................................................................................................................26
III. Information About Facilities ..................................................................................................................................27
1. Overview of capital expenditures, etc. ..................................................................................................................27
2. Major facilities ...................................................................................................................................................27
3. Planned additions, retirements, etc. of facilities .....................................................................................................31
IV. Information About Reporting Company ..................................................................................................................32
1. Information about shares, etc. ..............................................................................................................................32
2. Acquisitions, etc. of treasury shares......................................................................................................................57
3. Dividend policy ..................................................................................................................................................58
4. Explanation about corporate governance, etc. ........................................................................................................59
V. Financial Information........................................................................................................................................90
Consolidated Balance Sheets.............................................................................................................................90
Consolidated Statements of Operations ...........................................................................................................92
Consolidated Statements of Comprehensive income .......................................................................................93
Consolidated Statements of Changes in Net Assets ........................................................................................94
Consolidated Statements of Cash Flows ..........................................................................................................96
Notes to the Consolidated Financial Statements ...........................................................................................98
Independent Auditors’ Report ....................................................................................................................... 170
Supplemental information ................................................................................................................................ 173

1

I. Overview of the Company
1. Summary of business results(1) Business results of H2O RETAILING CORPORATION and Consolidated Subsidiaries
H2O RETAILING CORPORATION and Consolidated Subsidiaries

Five-Year Summary
Thousands of
U.S. dollars(Note 1)Millions of yen
Years ended 31st March

2016

2017

2018

2019

2020

2020

For the year:
Net sales¥915,690¥901,221¥921,871¥926,872¥897,289$8,232,009

Ordinary income

23,06021,72524,272

21,376¥11,831

108,541

Profit (loss) attributable to owners of parent

14,053

14,298

14,636

2,162(¥13,150)(120,642)

Comprehensive income

4,966

16,192

21,3803,592(30,174)(276,825)

Net assets

252,587

264,323

280,807279,603

244,634

2,244,348

Total assets

595,247

639,305

659,582

663,335

586,904

5,384,440

Net assets per share (in yen and U.S. dollars)

2,038.83

2,131.97

2,263.95

2,252.28

1,967.90

18.05

Basic profit (loss) per share (in yen and U.S. dollars)

113.93115.84118.5417.50(106.38)(0.97)

Diluted profit per share (in yen and U.S. dollars)

113.39115.28117.90

17.39

-

-

Equity ratio (%)

42.3

41.2

42.4

42.0

41.5

Return on equity (%)

5.6

5.6

5.4

0.8

(5.0)

Price earnings ratio (times)

17.1

15.5

16.4

88.1

-

Cash flows from operating activities

24,53938,742

32,73915,392

9,871

90,559Cash flows from investing activities

5,852(25,325)(35,492)(36,682)(22,451)(205,972)

Cash flows from financing activities(26,207)21,703(13,812)

9,581(16,440)(150,825)

Cash and cash equivalents at end of year

48,492

83,462

67,15055,22925,958238,146

Number of employees

8,456

8,528

8,868

9,634

9,570

[19,120][18,608][17,792][15,816][15,291][Separately, average number of temporary employees]
Notes:

1. U.S. dollar amounts represent translations of yen amounts at the rate of \109.00 to U.S.$1.00.
2. Amounts less than one million yen and one thousand dollars are rounded down.
3. Net sales do not include consumption taxes.
4. The “Partial Amendments to Accounting Standard for Tax Effect Accounting” (ASBJ Statement No. 28, issued on 16th February 2018)
and relevant guidances have been applied from the beginning of the fiscal year ended 31st March 2019, and principal
management indexes from the fiscal year ended 31st March 2018 and earlier show the values, etc., to which the said accounting standard
and guidances have also been retrospectively applied.
5. Diluted profit per share for the fiscal year ended 31st March 2020 is not presented because the Company recorded a basic loss
per share although the Company had potential dilutive shares.
6. Price earnings ratio for the fiscal year ended 31st March 2020 is not presented because loss attributable to owners of parent wasrecorded for the fiscal year.

2(2) Business results of H2O RETAILING CORPORATIONH2O RETAILING CORPORATION

Five-Year Summary
Thousands of
U.S. dollars(Note 1)Millions of yen
Years ended 31st March

2016

2017

2018

2019

2020

2020

Operating revenue¥9,869¥11,029¥12,262¥13,556¥13,194$121,045

Ordinary income

3,894

4,771

5,786

2,334

3,760

34,495

Profit

6,053

1,182

2,396

405

1,196

10,972

Capital stock

17,796

17,796

17,796

17,796

17,796

163,266

Total number of shares issued (thousand shares)

125,201

125,201

125,201

125,201

125,201

Net assets

223,913

221,539

225,606

226,428

205,389

1,884,302

Total assets

362,737

421,266

443,434

470,291

435,538

3,995,761

Net assets per share (in yen and U.S. dollars)

1,806.46

1,785.47

1,816.96

1,822.07

1,650.53

15.14

Dividends per share (in yen and U.S. dollars)

35.00

40.00

40.00

40.00

40.00

0.36

[17.50][20.00][20.00][20.00][20.00][0.18]

Basic profit per share (in yen and U.S. dollars)

49.07

9.58

19.41

3.29

9.68

0.08

Diluted profit per share (in yen and U.S. dollars)

48.84

9.53

19.30

3.27

9.61

0.08

Equity ratio (%)

61.4

52.3

50.6

47.9

46.9

[Interim dividends per share]

Return on equity (%)

2.7

0.5

1.1

0.2

0.6

Price earnings ratio (times)

39.6

186.8

100.3

469.3

81.8

Dividend payout ratio (%)

71.3

417.5

206.1

1,217.3

413.4

Number of employees

64

75

84

82

92

[Separately, average number of temporary employees]

[10]

[11]

[13]

[13]

[14]

Total shareholder return (%)

87.4

82.4

91.0

75.0

43.6

[Comparative index: TOPIX including dividend] (%)[89.2][102.3][118.5][112.5][101.8]Highest share price (in yen and U.S. dollars)

2,976

1,989

2,445

2,213

1,572

14,422Lowest share price (in yen and U.S. dollars)

1,705

1,281

1,724

1,466

660

6,055

Notes:
1. U.S. dollar amounts represent translations of yen amounts at the rate of \109.00 to U.S.$1.00.
2. Amounts less than one million yen and one thousand dollars are rounded down.
3. Operating revenue does not include consumption taxes.
4. The “Partial Amendments to Accounting Standard for Tax Effect Accounting” (ASBJ Statement No. 28, issued
on 16th February 2018) and relevant guidances have been applied from the beginning of the fiscal year ended 31st March 2019,and principal management indexes from the fiscal year ended 31st March 2018 and earlier show the values, etc., to which thesaid accounting standard and guidances have also been retrospectively applied.
5. The highest and lowest share prices were those recorded on the first section of the Tokyo Stock Exchange.

32. History
Apr. 1929

Hankyu Department Store, the department division of Hanshin Kyuko Railway Co., Ltd. (currently Hankyu
Hanshin Holdings, Inc.) opened in Umeda, Osaka

Apr. 1936

Opened Kobe Branch (Sannomiya Hankyu)

Nov. 1939

Established Ueda Narazuke Manufacturing Co., Ltd. (Hankyu Foods Industry Co., Ltd. (subsidiary))Mar. 1947

Department division of Keihanshin Kyuko Railway Co., Ltd (currently Hankyu Hanshin Holdings, Inc.) became
independent through spin-off and Hankyu Department Stores, Inc. was establishedApr. 1947

Hankyu Department Stores, Inc. started operations

May 1949

Hankyu Department Stores, Inc. was listed on the First Section of the Osaka Securities ExchangeAug. 1952

Hankyu Bussan Co., Ltd. and Hankyu Kyoei Pharmaceuticals Co., Ltd. merged into Hankyu Kyoei Bussan Co.,
Ltd. (subsidiary)Nov. 1953

Opened Tokyo Oi Store (Oi Hankyu)

May 1956

Opened Sukiyabashi Hankyu

Oct. 1960

Established Hankyu Oasis Co., Ltd. (subsidiary)Sep. 1962

Hankyu Department Stores, Inc. was listed on the First Section of the Tokyo Stock ExchangeMar. 1970

Opened Senri Hankyu

Oct. 1976

Opened Shijo Kawaramachi Hankyu

Oct. 1982

Opened Hankyu Ings (Hankyu Department Store Ings Building)

Oct. 1984

Opened Yurakucho Hankyu

Apr. 1989

Opened Kawanishi Hankyu

Oct. 1992

Opened Kobe Hankyu
Established HD Development Co., Ltd. (currently Hankyu Shopping Center Development Co., Ltd. (subsidiary))

Apr. 1993

Opened Takarazuka Hankyu

Jan. 1995

Closed Sannomiya Hankyu (due to Great Hanshin-Awaji Earthquake)

Mar. 2000

Opened Tsuzuki Hankyu

Oct. 2002

Converted Hankyu Kyoei Bussan Co., Ltd. into a wholly owned subsidiary through share exchangeJan. 2003

Hankyu Kyoei Bussan Co., Ltd. split and established five companies including Hankyu Family Store Co., Ltd. (allare subsidiaries)

Mar. 2003

Merged Hankyu Kyoei Bussan Co., Ltd.

Mar. 2004

Converted Hankyu Foods Industry Co., Ltd. into a wholly owned subsidiary through share exchange

Oct. 2004

Opened Mosaic Ginza Hankyu (by converting Sukiyabashi Hankyu into a shopping centre)
Opened Sakai Kitahanada Hankyu

Sep. 2005

Opened Sanda Hankyu

Jun. 2006

Hankyu Foods Industry Co., Ltd. transferred operations to three subsidiaries including Hankyu Foods, Inc. througha company split

Jul. 2006

Converted Nissho Co., Ltd. (Hankyu Nissho Store Co., Ltd.) into a subsidiary through acquisition of sharesSep. 2006

Established Hanshoku Co., Ltd. (subsidiary)Oct. 2007

Had management integration with Hanshin Department Store, Ltd., through share exchange and converting it into
a subsidiary4Changed its name to H2O Retailing Corporation and shifted to a holding company structure
Newly established Hankyu Department Stores, Inc. (subsidiary) through a company split
Established Oi Development Co., Ltd. (subsidiary)Feb. 2008

Opened Hankyu Department Store Men’s (currently Hankyu Men’s Osaka)Mar. 2008

Closed Oi Hankyu Food Hall (due to the Redevelopment project for the area around the JR Oimachi Station)
Merged Hankyu Foods Industry Co., Ltd.

Oct. 2008

Hankyu Department Stores, Inc. and Hanshin Department Store, Ltd. merged and changed the trade name toHankyu Hanshin Department Stores, Inc.
Hanshoku Co., Ltd., Hankyu Oasis Co., Ltd., Hankyu Nissho Store Co., Ltd., Hankyu Family Store Co., Ltd., andHankyu Fresh Yell Co., Ltd. merged

Nov. 2008

Opened Nishinomiya Hankyu

Feb. 2009

Merged Mosaic Realty Co., Ltd. (subsidiary)Oct. 2009

Opened Amagasaki HanshinAug. 2010

Closed Shijo Kawaramachi Hankyu

Dec. 2010

Closed Sannomiya Hanshin Food Hall

Mar. 2011

Opened Hakata Hankyu

Mar. 2011

Opened Hankyu Oimachi Garden (first phase) (Ours Inn Hankyu opened, Hankyu Department Store Oi Food Hall
opened)Apr. 2011

Converted EveryD.com, Inc. (currently Hankyu Kitchen Yell Kyushu, Inc.) into a subsidiary through acquisitionof shares

Sep. 2011

Converted KAZOKUTEI CO., LTD. into a subsidiary through acquisition of shares

Oct. 2011

Opened Hankyu Men’s Tokyo (by full renovation of Yurakucho Hankyu)

Mar. 2012

Closed Kobe Hankyu

Aug. 2012

Closed due to the closure of Mosaic Ginza Hankyu

Nov. 2012

Hankyu Umeda Main Store completed reconstruction and underwent grand opening
Closed Hankyu Ings with the relocation of sporting goods and baby and children’s clothing floors to Hankyu
Umeda Main StoreMar. 2014

Hankyu Oimachi Garden had grand opening (Ours Inn Hankyu Twin Hall opened)

Jun. 2014

Had a management integration with Izumiya, Co., Ltd. through share exchange, converting it into a subsidiary

Apr. 2016

Established H2O Foods Group Co., Ltd. (subsidiary)

Jul. 2016

Former Izumiya Co., Ltd. transferred operations to new Izumiya Co., Ltd. (subsidiary) and changed the trade nameto H2O Asset Management Co., Ltd.

Jul. 2017

Closed Sakai Kitahanada Hankyu

Oct. 2017

Purchased businesses of Sogo Kobe and Seibu Takatsuki stores from Sogo & Seibu Co., Ltd.

Aug. 2019

Succession of asnas Business from Eki Retail Service Hankyu Hanshin Co., Ltd.

Oct. 2019

Sogo Kobe renamed to Kobe Hankyu, Seibu Takatsuki renamed to Takatsuki Hankyu

Dec. 2019

Opened Hankyu Rakuhoku SquareFeb. 2020

Transferred all shares of KAZOKUTEI CO., LTD. and Sun Laurie Co., Ltd. through share exchange53. Description of business
The Group consists of the Company, 55 subsidiaries and 7 affiliated companies that engage in business activities including the
Department Store Business, Supermarket Business, Shopping Centre Business and Other Businesses.
The position of the businesses of the Group and their relation to the segments are as follows. The categories shown below are thesame categories as the segments.
The classification of reportable segments was changed in the fiscal year under review. For details, please refer to “1. General
information about reportable segments, (3) Change in reportable segments” in “V. Financial Information, 1. Notes to theConsolidated Financial Statements, Segment Information.”
Furthermore, the Company is a specified listed company. As such, among the criteria for immateriality of significant facts relating
to insider trading regulations, the numerical standards determined based on comparisons of a listed company’s scale are judged
based on consolidated figures.

Department Store Business:
The subsidiary Hankyu Hanshin Department Stores, Inc. is engaged in department stores.
Supermarket Business:
The subsidiary Hankyu Oasis Co., Ltd. is engaged in supermarkets and acts as a food procurement agency for Hankyu Hanshin
Department Stores, Inc. and others. The subsidiaries Izumiya Co., Ltd. and Qanat Co., Ltd. are engaged in general supermarkets.
The subsidiaries Hankyu Foods, Inc., Hankyu delica i, Inc., Hankyu Bakery Co., Ltd. and Yamanami Co., Ltd. produce and process
food, and sell it to the subsidiaries Hankyu Oasis Co., Ltd., Izumiya Co., Ltd. and Hankyu Hanshin Department Stores, Inc.
Shopping Centre Business:
The subsidiary H2O Asset Management Co., Ltd. is engaged in commercial real estate rental management. The subsidiary Hankyu
Shopping Center Development Co., Ltd. is engaged in the development of shopping centres. The subsidiary Kanso Co., Ltd. isengaged in the maintenance, security and cleaning of buildings, facilities, etc. Furthermore, the Group outsources the upkeep,
cleaning and security operations of stores to its subsidiary Hankyu Maintenance Service Co., Ltd.
Other Businesses:
The subsidiary Oi Development Co., Ltd. is engaged in hotel operations. The subsidiary Hankyu Kensou Co., Ltd. is contracted toengage in interior finishing work, the subsidiary Heart Dining, Inc. is engaged in business establishments serving food and drink
such as the operation of a portion of the cafes, restaurants and staff cafeteria in stores belonging to the subsidiary Hankyu Hanshin
Department Stores, Inc., and the subsidiary Hankyu Hanshin Department Stores Tomonokai, Inc. acts as an agent for the sale andpurchase of prepaid products with the aim of providing a variety of services. Furthermore, the subsidiary Hankyu Kitchen Yell
Kansai, Inc. is engaged in individual home delivery in the Kansai region. In addition, the subsidiary EveryD.com, Inc. is engaged
in the home delivery platform business. The subsidiary Hankyu Home Styling Co., Ltd. is engaged in the sale of household furniture,and sells its products to the subsidiary Hankyu Hanshin Department Stores, Inc. The subsidiary F.G.J Co., Ltd. is engaged in thesale of cosmetics in stores belonging to the subsidiary Hankyu Hanshin Department Stores, Inc., other commercial facilities, etc.
The subsidiary Hankyu Department Stores Uniform is engaged in the sale of school and work uniforms in stores belonging to thesubsidiary Hankyu Hanshin Department Stores, Inc. The subsidiary Hankyu Hello Dog Co., Ltd. is engaged in the sale of pet
accessories, pet grooming, etc.; the subsidiary Hankyu Wedding is engaged in rental clothes; the subsidiary Hankyu Quality Support
is engaged in the inspection of products such as food and clothing; the subsidiary Hankyu Act For is engaged in general affairs,

6personnel and accounting of group companies; and the subsidiary Persona Co., Ltd. is engaged in the management of Persona card
members. The affiliated company JR East Japan Commercial Development Co., Ltd. is engaged in the operation and managementof commercial facilities. The subsidiary Suzhou Izumiya Co., Ltd. is engaged in the operation of department stores in Suzhou, China.
Furthermore, the Group outsources a portion of sales operations to the subsidiary Hankyu Job Yell Co., Ltd.

7

The business organization chart is as follows.

[Reporting entity of the consolidated financial statements]
H2O Retailing Corporation
Management and corporate planningof group companies

Payment of group operating
contribution, etc.

Department Store Business

Hankyu Hanshin Department Stores, Inc.
H2O Asset Management Co., Ltd.
Shinko Management, Inc.

Sales of goods andservice, etc.

Supermarket Business
H2O Foods Group
Co., Ltd.
Hankyu Oasis Co., Ltd.
Hankyu Foods, Inc.
Hankyu delica i, Inc.
Hankyu Bakery Co., Ltd.

Other Businesses

Sales of food products

Hankyu Food process
Co., Ltd.
Izumiya Co., Ltd.
Qanat Co., Ltd.

Sales of goods andservice, etc.

and one other company

Leasing of real estate,etc.

Leasing of real estate,
etc.

Oi Development Co., Ltd.
asnas Co., Ltd
Heart Dining, Inc.
Hankyu Kitchen Yell Kansai, Inc.
EveryD.com, Inc.
Hankyu B&C Planning
Hankyu Wedding
Hankyu Hello Dog Co., Ltd.
Hankyu Home Styling Co., Ltd.
F.G.J Co., Ltd.
Be-U Co., Ltd.
Suzhou Izumiya Co., Ltd.
Hankyu Quality Support
Hankyu Job Yell Co., Ltd.
Hankyu Kensou Co., Ltd.
Hankyu Sennan Green Farm
Hankyu Department Stores
Uniform
Hankyu Hanshin Department
Stores Tomonokai, Inc.
Hankyu Act For
Persona Co., Ltd.

and 16 other companies

Shopping Centre Business
H2O Asset Management Co., Ltd.
Hankyu Shopping Center Development Co., Ltd.
Kanso Co., Ltd.
Hankyu Maintenance Service Co., Ltd.

Sales of goods andservice, etc.

and four other companies(Affiliated Companies)
Ningbo Development Co., Ltd.
Hankyu Hanshin Point Co., Ltd.
JR East Japan Commercial
Development Co., Ltd.
and four other companies

Other Affiliated Company
Hankyu Hanshin Holdings, Inc.

Note:

Hankyu Corporation and others, which are subsidiaries of Hankyu Hanshin Holdings, Inc., are engaged in the leasingof real estate to the Company, Hankyu Hanshin Department Stores, Inc. and others.

8

4. Overview of subsidiaries and associates

Company nameLocation

Capitalstock orinvestments
in capital(Millions ofyen)(Consolidated
subsidiaries)
Hankyu Hanshin
Department Stores, Inc.
(Notes 3 and 5)
Shinko Management,
Inc.

Kita-ku,
Osaka City

200

Kita-ku,
Osaka City

1

H2O Asset
Management Co., Ltd.

Nishinari-ku,
Osaka City

100

Primarybusiness
activities

Department
Store Business
Department
Store Business
Department
Store Business
Shopping
CentreBusiness

Percentage
of votingrightsholding[held] (%)

Interlocking directorate: 3 persons
100.00100.00 Development and management of real estate(100.00) Interlocking directorate: 4 persons
Development and management of real estate,borrowing of funds from the Company
100.00 Interlocking directorate: 3 persons

H2O Foods Group Co.,Ltd.

Kita-ku,
Osaka City

100

Supermarket
Business

100.00Hankyu Oasis Co., Ltd.
(Note 5)Kita-ku,
Osaka City

100

Supermarket
Business

100.00(100.00)

Hankyu Foods, Inc.

Kita-ku,
Osaka City

10

Supermarket
Business

100.00(100.00)

Hankyu delica i, Inc.

Kita-ku,
Osaka City

20

Supermarket
Business

100.00(100.00)

Hankyu Bakery Co.,Ltd.

Kita-ku,
Osaka City

10

Supermarket
Business

100.00(100.00)

Hankyu Food process
Co., Ltd.

Kita-ku,
Osaka City

10

Supermarket
Business

100.00(100.00)

Yamanami Co., Ltd.

Kita-ku,
Osaka City

10

Supermarket
Business

100.00(100.00)

Supermarket
Business
Supermarket
Business
Shopping
CentreBusiness

100.00(100.00)
100.00(100.00)

Izumiya Co., Ltd. (Note Nishinari-ku,
5)
Osaka City
Suminoe-ku,
Qanat Co., Ltd.
Osaka City
Hankyu Shopping
Kawanishi
Center Development
City, Hyogo
Co., Ltd.

100
10
50

9

Relationship100.00Intermediate holding company, corporate
planning and management of theSupermarket Business, borrowing of funds
from the Company
Interlocking directorate: 4 persons
Purchase of food from Hankyu Foods, Inc.,
Hankyu delica i, Inc., Hankyu Bakery Co.,
Ltd. and others, borrowing of funds from theCompany
Interlocking directorate: 3 persons
Sale of food to Hankyu Hanshin Department
Stores, Inc., Hankyu Oasis Co., Ltd. andothersInterlocking directorate: 1 person
Sale of food to Hankyu Hanshin Department
Stores, Inc., Hankyu Oasis Co., Ltd. andothersInterlocking directorate: 1 person
Sale of food to Hankyu Hanshin Department
Stores, Inc. and others, borrowing of funds
from the Company
Interlocking directorate: 2 persons
Processing and sale of perishable foods,
borrowing of funds from the Company
Contracted for the production and processingof food by Hankyu Foods, Inc.
Interlocking directorate: 1 person
Borrowing of funds from the Company
Interlocking directorate: 5 persons
Supply of products from Izumiya Co., Ltd.,borrowing of funds from the Company
Leasing of stores with Hankyu Hanshin
Department Stores, Inc.
Interlocking directorate: 2 persons

Company nameLocation

Capitalstock orinvestments
in capital(Millions ofyen)Primarybusiness
activities

Hankyu Maintenance
Service Co., Ltd.

Kita-ku,
Osaka City

10

Shopping
CentreBusiness

Kanso Co., Ltd.

Nishinari-ku,
Osaka City

100

Shopping
CentreBusiness

Kanso Sakai Co., Ltd.

Sakai-ku,
Sakai City

5

Shopping
CentreBusinessOi Development Co.,Ltd.

Kita-ku,
Osaka City

100

Other
Businesses

Hankyu Kensou Co.,Ltd.

Kita-ku,
Osaka City

20

Other
Businesses

Heart Dining, Inc.

Kita-ku,
Osaka City

10

Other
Businesses

Hankyu Hanshin
Department Stores
Tomonokai, Inc.

Kita-ku,
Osaka City

50

Other
Businesses

Hankyu Kitchen Yell
Kansai, Inc.
EveryD.com, Inc.

Kita-ku,
Osaka City
Kita-ku,
Osaka City

10
10

Other
Businesses
Other
Businesses

Hankyu Job Yell Co.,Ltd.

Kita-ku,
Osaka City

10

Other
Businesses

Hankyu B&C Planning

Kita-ku,
Osaka City

10

Other
Businesses

Hankyu Wedding

Kita-ku,
Osaka City

10

Other
Businesses

Hankyu Home StylingCo., Ltd.

Kita-ku,
Osaka City

10

Other
Businesses

10

Percentage
of votingrightsholding[held] (%)

Relationship

Contracted for the upkeep, cleaning, facility
management and security of stores belonging
100.00 to Hankyu Hanshin Department Stores, Inc.
and others
Interlocking directorate: 1 person
Security, maintenance, cleaning, money
collection and distribution, etc. for stores
100.00belonging to Izumiya Co., Ltd., rental of land
(100.00)
and buildings used for stores to Izumiya Co.,
Ltd.
Security, maintenance, cleaning, money
100.00 collection and distribution, etc. for stores(100.00) belonging to Izumiya Co., Ltd., rental ofbuildings used for stores to Izumiya Co., Ltd.
Borrowing of funds from the Company
100.00Interlocking directorate: 2 persons
Contracted for interior finishing work forstores by Hankyu Hanshin Department
100.00Stores, Inc. and others
Interlocking directorate: 2 persons
Operation of cafes, business establishments
serving food and drink and staff cafeterias
100.00 belonging to Hankyu Hanshin Department
Stores, Inc.
Interlocking directorate: 3 persons
Commission income from Hankyu Hanshin
Department Stores, Inc. and Hankyu Oasis
100.00Co., Ltd.
Interlocking directorate: 2 persons
Borrowing of funds from the Company
100.00Interlocking directorate: 2 persons
Borrowing of funds from the Company
100.00Interlocking directorate: 5 persons
Contracted for personnel recruitment andoperations for Hankyu Hanshin Department
100.00Stores, Inc.
Interlocking directorate: 3 persons
Purchase of food from Hankyu Bakery Co.,
100.00 Ltd., borrowing of funds from the Company
Interlocking directorate: 2 persons
Contracted to operate bridal salons by
Hankyu Hanshin Department Stores, Inc.,
100.00borrowing of funds from the Company
Interlocking directorate: 2 persons
Sale of household furniture to Hankyu
Hanshin Department Stores, Inc., borrowing
100.00of funds from the Company
Interlocking directorate: 2 persons

Company nameLocation

Capitalstock orinvestments
in capital(Millions ofyen)Primarybusiness
activities

Percentage
of votingrightsholding[held] (%)

Relationship

Hankyu Department
Stores Uniform

Kita-ku,
Osaka City

10

Other
Businesses

Hankyu Quality
SupportKita-ku,
Osaka City

10

Other
Businesses

Persona Co., Ltd.

Kita-ku,
Osaka City

20

Other
Businesses

Hankyu Act For

Kita-ku,
Osaka City

10

Other
Businesses

Hankyu Hello Dog Co.,Ltd.

Kita-ku,
Osaka City

10

Other
Businesses

asnas Co., Ltd

Kita-ku,
Osaka City

10

Other
Businesses

F.G.J Co., Ltd.

Minato-ku,
Tokyo

5

Other
Businesses

3,377

Other
Businesses

Planning and sale of school and work
uniforms at Hankyu Hanshin Department
100.00 Stores, Inc., borrowing of funds from theCompany
Interlocking directorate: 2 persons
Contracted for the inspection of products
such as food and clothing from Hankyu
100.00Hanshin Department Stores, Inc. and others
Interlocking directorate: 2 persons
Contracted to manage card members by
100.00 Hankyu Hanshin Department Stores, Inc.,(100.00) borrowing of funds from the Company
Interlocking directorate: 2 persons
Contracted for accounting work by the
100.00 Company and each subsidiary
Interlocking directorate: 5 persons
Sale of pet accessories at Hankyu Hanshin
Department Stores, Inc., borrowing of funds
100.00from the Company
Interlocking directorate: 2 persons
Borrowing of funds from the Company
100.00Interlocking directorate: 4 persons
Sale of cosmetics at Hankyu Hanshin
Department Stores, Inc., borrowing of funds
80.00
from the Company
Interlocking directorate: 2 persons
Borrowing of funds from the Company
100.00 Interlocking directorate: 4 persons(100.00)

5,892

Other
Businesses

100.00(100.00)

H2O (China)
Investment Co., Ltd.
(Note 3)Suzhou Izumiya Co.,
Ltd. (Note 3)
20 other companies(Affiliates accounted
for using the equity
method)Ningbo Development
Co., Ltd.
JR East Japan
Commercial
Development Co., Ltd.
5 other companies(Other AffiliatedCompany)
Hankyu Hanshin
Holdings, Inc. (Note 4)

Suzhou City,
Jiangsu
Province,
China
Suzhou City,
Jiangsu
Province,
China–

Operation of department stores in Suzhou

–

–

–

Kita-ku,
Osaka City

10

Other
Businesses

47.56

Tachikawa
City, Tokyo

1,140

Other
Businesses

15.15

–

–

–

–

–

Ikeda City,
Osaka

–

99,474

Urban
Transportation
Business,others11–

Interlocking directorate: 3 persons

Leasing of real estate between subsidiaries
1.74 Hankyu Corporation and Hanshin Electric[20.34 Railway Co., Ltd., and Hankyu Hanshin(11.96)] Department Stores, Inc. and others
Interlocking directorate: 2 persons

Notes:
1. Segment names are presented in the “Primary business activities” column.
2. The number within the parentheses under the “Percentage of voting rights holding [held]” column is the percentage ofindirectly held voting rights.
3. This company qualifies as a specified subsidiary.
4. This company files the securities report.
5. The percentage of net sales (excluding internal sales between consolidated companies) to consolidated net sales for
Hankyu Hanshin Department Stores, Inc., Hankyu Oasis Co., Ltd. and Izumiya Co., Ltd. exceeded 10%.
Primary profit and loss information, etc.
Hankyu Hanshin

Hankyu Oasis Co., Ltd.

Izumiya Co., Ltd.

Department Stores, Inc.
(1) Net sales

452,409 million yen

116,453 million yen

225,467 million yen(2) Ordinary income (loss)

10,515 million yen(353) million yen(3,359) million yen(3) Profit (loss)

3,428 million yen(6,000) million yen(9,741) million yen(4) Net assets

104,550 million yen

13,041 million yen(250) million yen(5) Total assets

163,915 million yen

51,520 million yen

69,242 million yen

6. The address is based on the registered head office.

5. Information about employees(1) Consolidated companies(as of 31st March 2020)
Name of business segment
Department Store BusinessSupermarket Business
Shopping Centre Business
Other Businesses
Total

Number of employees (persons)
4,195
(949)
3,399 (10,560)
348
(909)
1,628
(2,873)9,570 (15,291)

Notes:
1. The number of employees represents full-time and part-time staff working within consolidated companies and includes
employees seconded to consolidated companies and executive officers, but does not include employees seconded to othercompanies.
2. The number in the bracket in the “Number of employees” column refers to the yearly average number of temporary
employees.
3. Kobe and Takatsuki Business segment has been integrated into Department Store Business segment because thebusinesses of Kobe Hankyu (former Sogo Kobe store) and Takatsuki Hankyu (former Seibu Takatsuki store) weretransferred to Hankyu Hanshin Department Stores, Inc. on 1st October 2019.

12

(2) Information about reporting company(as of 31st March 2020)
Number of employees(persons)
92(14)

Average age(years old)

Average years of service(years)21.3

47.8

Name of business segment

Average annual salary
(yen)
8,588

Number of employees (persons)
92
(14)
92
(14)

Other Businesses
Total
Notes:

1. The number of employees represents full-time and part-time staff working within the reporting company and includes
employees seconded from outside the Company.
2. Average annual salary includes bonuses and surplus wages.
3. The number in the bracket in the “Number of employees” column refers to the yearly average number of temporary
employees.
4. The number of employees has increased by 10 compared to the end of the previous fiscal year. The primary reason forthis was the expansion of business.

(3) Status of trade union
The Hankyu Hanshin Department Stores Trade Union, Hankyu Foods Trade Union, Hankyu Maintenance Service Trade Union,
Heart Dining Trade Union, Izumiya Trade Union and Qanat Trade Union are in the Group, and the H2O Retailing Group Trade
Union Federation is composed of these four labour unions (excluding the Izumiya Trade Union and Qanat Trade Union).
Furthermore, this trade federation, the Izumiya Trade Union and Qanat Trade Union have joined UA ZENSEN.
These companies have no other particular labour-management issues to note.

13II. Overview of Business
1. Management policies, management environment and issues to be resolved, etc.
The future information contained in this material reflects judgements made by H2O Retailing Group at the end of fiscal year ended
31st March 2020.

(1) The Company’s basic management policy
The Basic Philosophy of the Group is “To remain indispensable to the local communities through our activities of providing a modelof lifestyle to local residents.” Guided by this philosophy, the Group established a vision: “To be a customer’s lifestyle partner toenrich their hearts through offering ‘fun, happy and tasty’ experiences, contributing to the future of the local community, children
and our planet.” The Group strives to enhance competitiveness and promotes each business, following the vision.

(2) Our target business indicators
The Group conducts business in mature markets. To continue to enhance its enterprise value within such markets, the Group 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) Management environment, the Company’s medium- to long-term management strategy and 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 order to respond to the various changes in this environment, the Group will utilise one of its unique characteristics, in which it
has various points of contact with customers in the Kansai region, strive to build up new customer relationships and business models
that fuse brick-and-mortar stores and digital technologies, and proceed with the realisation of a strategy for ensuring market
dominance in the Kansai region through the offering of its own unique values.
Furthermore, the Company will achieve an increased market share in the Kansai region by refining and strengthening the Department
Store Business, its core business, and the Supermarket Business.
On the other hand, the Company has been facing a never experienced situation with a drastic change in the social and economic
environment due to the spread of the novel coronavirus disease (COVID-19). For the time being, the Company will operatebusinesses as appropriate, following the requests from the government and local authorities, while prioritizing customers’ andemployees’ safety and health. In addition, the Company will strive to enhance management efficiency through the revision of capital
investment and the reduction of costs such as promotion costs, activity expenses, and fixed costs.
Moreover, the establishment of quarantine, remote working, online shopping, and online communication due to the spread of
COVID-19 has brought about a new lifestyle and new work style for consumers. In anticipation of the post-COVID-19 era, theCompany will engage in developing a new business style and promoting work style reforms to adapt to this new normal life. At thesame time, the Group is aiming to be a corporate group that can attain sustainable growth and enhance social values based on its
contribution to the community and the global environment.

14

2. Business risk
Of matters concerning the overview of business, financial information, etc., provided in the Annual Securities Report in Japanese,matters which may have significant effects on investors’ judgement include those described below. However, risks and uncertainty
that may be caused on future operating results and financial position are not limited to these matters. Furthermore, the extent andperiod of the possibility of risk materialization presented below as well as the impact on operating results are not presented as they
are difficult to reasonably estimate.
Matters concerning the future in the text were judged by the Group as of the date of filing of the Annual Securities Report in Japanese.

(1) Business environment
Environment surrounding retail businesses
As for the environment surrounding Japan’s retail businesses, significant changes are expected, including aging population, lower
birth rates, polarization of consumption structure and tightening competition beyond business categories. These changes are
expected to have considerable effects on the Group’s operating results.
In order to respond to the changes in this environment, the Group will utilise one of its unique characteristics, in which it has various
points of contact with customers in the Kansai region, and strive to build up new customer relationships and business models thatfuse brick-and-mortar stores and digital technologies. Furthermore, the Company will achieve an increased market share in the
Kansai region by refining and strengthening the Department Store Business, its core business, and the Supermarket Business.

(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 Measures by Large-Scale
Retail Stores for Preservation of Living Environment. Under the act, in cases where a new store with store 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 m 2, local prefectural governments orordinance-designated cities examine and control traffic congestion, noise, waste management and other matters from the standpointof protecting the living environment of neighbourhood residents. Accordingly, the Group’s future plans to open stores may beaffected by such laws and regulations.
Besides, the Group is subject to laws and regulations such as the Antimonopoly Act, the Subcontract Act, environment and recycle
related laws and regulations, and the Act against Unjustifiable Premiums and Misleading Representations and other laws andregulations related to consumer protection, and may also be affected by these laws and regulations.
The Group will strive to respond in a timely and appropriate manner while closely observing the legislative revision trends that
affect these business activities.

(ii) Increase in the consumption tax rate resulting from the tax system revision
There is a possibility that the consumption tax rate will be raised gradually to secure the financial resources needed for future social
welfare. This may cause a decline in personal consumption and have negative effects on the Group’s net sales.

15(3) Natural environment and accidents(i) Risk of infection
There is a possibility that the spread of infectious diseases, such as COVID-19, will cause a significant negative impact on operating
results, mainly in Department Store Business, which is one of the Group’s major businesses, due to stores refraining from operating
and the decrease in both domestic and inbound demand.
Furthermore, there is a possibility that the Shopping Centre Business, in which rents in commercial facilities are one source ofprofits, will face a significant negative impact on operating results due to a decrease in rents collected, tenants leaving, etc. as aresult of refraining from operating as well as other factors.
On the other hand, assuming that operations will continue amid the spread of infection, the Group believes that the impact of
COVID-19 on the operating results of the Supermarket Business, which is responsible for functions that serve as daily lifelines, will
be relatively small. However, there is a possibility that costs will increase significantly due to this situation as a special response isnecessary for the continuation of operations under this environment where infection is spreading, such as measures to prevent the
spread of infection to customers and employees in store facilities, a response in the case that someone is infected, and a response in
the case that difficulties arise in product procurement due to supply chain disruption, etc.
Based on the know-how regarding business continuity amid the spread of infection gained through the response to COVID-19 thistime, the Group will work to reduce the impact when these same risks manifest in the future.

(ii) 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 of these 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.

(iii) Natural disasters and accidents
If business facilities including stores are damaged by unforeseeable disasters or accident such as earthquake, flood, typhoon or fire,
this may have negative effects on the Group’s operating results. As preparation to respond to these natural disasters and accidents,
the Group is taking measures such as formulating a response manual, etc. and taking out property insurance.

(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 re-sign) an agreement due to expiration of the lease period, operationof the store, etc. may become unable to be continued.

(ii) Safety of goods soldGeneral consumers’ heightened sense of concern about foods due to outbreaks of BSE, bird flu and other diseases, occurrence ofaccidents such as food poisoning and health hazards, and a decrease in customer satisfaction or confidence stemming from defects
in goods sold may have negative effects on the Group’s net sales. As 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 toaggressively promote measures to ensure safety and security of goods for customers

16

(iii) Management of customer information
If customer information is leaked to outsiders as a result of any unpredictable accident or contingent event, this may cause a reduction
in credibility of the Group and have negative effects on its net sales. As for management of customer information, the Group ensures
the strict operation of rules and the education of employees based on the personal information management regulations and the
management manual and strives to comply with the Act on the Protection of Personal Information.

(iv) Information system
The Group utilises information systems in each field to promote streamlining of operations and provide high-quality 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 and regulations,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 are converted into
yen to prepare consolidated financial statements. Exchange rate fluctuations at the time of conversion may affect these items.

3. Management analysis of financial position, business performance and cash flows
The future information contained in these materials reflects judgements made at the end of fiscal year ended 31st March 2020.

(1) Accounting estimates that significantly affect the consolidated financial statements
In preparing the Group’s consolidated financial statements and financial statements, management makes various estimates that affectthe reported amounts of assets and liabilities as of the balance sheet date, the disclosure of contingent assets and liabilities, andincome and expenses for the reporting period.
Despite making estimates based on various factors deemed to be suitable, such as previous experiences and the situation at the time,
discrepancies may occur between estimates and actual performance in the case that there are signs of change regarding assumptions,the business environment, or other factors.
Accounting policies regarding estimates that significantly affect the consolidated financial statements are as follows. However, not
all accounting policies at the Company and its consolidated subsidiaries are comprehensively presented. Significant account policies
at the Company and its consolidated subsidiaries are described in “Significant accounting policies for preparation of consolidated
financial statements, 4. Summary of significant accounting policies” in Notes to the Consolidated Financial Statements.

(i) Impairment of non-current assets
The Group operates various types of retail stores such as department stores, general merchandise stores (GMS), supermarkets, etc.,
and for these, the Group makes constant capital investments such as investments for new stores and investments for renovations.
The assessment of impairment of non-current assets recorded due to these capital investments is carried out using stores as theassessment unit in principle.
In the assessment of impairment, for stores that showed signs of impairment, such as two consecutive periods of operating losses,
the future planned value of operating cash flow for each store to which headquarters expenses that are common expenses are17

allocated is estimated over the remaining economic life of the main non-current assets of the store, and if this value is lower thanthe carrying amount of the store assets at the fiscal year-end, impairment losses are recorded for the store.
The amount recorded for impairment loss is the value of the difference between the future planned value of operating cash flow
after headquarters expense allocation by individual store, discounted to present value using the weighted average capital cost
(WACC) as the discount rate, and the year-end balance of store assets.
The planned value by store reflects all ascertainable factors that impact store performance, such as changes in the external
environment including the status of competitor store openings in the local area and population trends in the catchment area, basedon recent customer trends, and the effects of cost reduction measures and customer attraction measures enacted to counterenvironmental changes.
In addition, the discount rate is calculated by taking the weighted average of the stock capital cost calculated using the capital asset
pricing model (CAPM) based on the Group’s debt to equity ratio (D/E ratio) at fiscal year-end and the debt cost calculated based on
the actual borrowing interest rate. For the fiscal year under review, a rate of 3.4% was used.
Notwithstanding the above, for stores that the Company has decided to withdraw or sell and other assets, impairment losses arerecorded up to the disposable value based on the real estate appraisal value, etc.

(ii) Recoverability of deferred tax assets
The Group has significant deductible temporary differences such as loss on impairment for stores whose profitability declined, tax
loss carryforwards, etc.
In recording these deferred tax assets, each Group company is categorised into five steps in accordance with the “Guidance on
Recoverability of Deferred Tax Assets” (ASBJ Guidance No. 26) based on the historical taxable income level, the status of
deductible temporary differences at the end of the period, and the presence of any important loss carryforwards, and so forth. In
accordance with this classification, the taxable income and expected elimination of deductible temporary differences for respective
Group companies are scheduled and the expected recoverable amounts are recorded as deferred tax assets.
To calculate the expected amount of future taxable income of each Group company, the status of each company’s earnings to date,expected external environmental changes going forward, and the impact of strategies to realise earnings increases in response toexternal environmental changes are carefully considered.

(iii) Impact of COVID-19
The Group makes accounting estimates regarding the recoverability of the above impairment of non-current assets and deferred tax
assets based on information available at the end of each fiscal year.
Regarding the impact of COVID-19 on the Group’s businesses, the Group made accounting estimates based on the assumption thatthe impact will continue for around six months in the Department Store Business, where the impact of the decrease of operating
income, etc. was large, and the situation will gradually recover after that period of time.

18

(2) Business performance for reporting period
Consolidated business performance for the fiscal year
(Millions of yen)March 2018
Cumulative
AmountMarch 2019
Cumulative
Amount

469,604
386,552
10,36755,346494,608
367,580
8,736
55,948473,225
354,115
8,725
61,222

95.7%
96.3%
99.9%
109.4%(21,382)(13,464)(10)+5,274

Net sales

921,871926,872

897,28996.8%(29,583)96.7%(30,710)Department Store BusinessSupermarket Business
Shopping Centre Business
Other Businesses
Adjustment
Operating income

18,624
1,104
4,985
3,098
(5,047)22,765

17,883
(438)
4,281
5,030
(6,335)
20,422

11,486(2,503)
4,141
2,903(4,856)
11,171

64.2%
96.7%
57.7%
54.7%

(6,397)(2,064)(139)(2,127)+1,478(9,250)69.8%(4,828)

Ordinary income

24,272

21,376

11,831

55.3%(9,545)73.0%(4,368)Extraordinary income
Extraordinary losses

5,243
6,296

895
14,221

1,707
22,875190.6%
160.9%+811+8,654

Profit (loss) attributable toowners of parent

14,636

2,162(13,150)-(15,312)-(18,150)

Department Store BusinessSupermarket Business
Shopping Centre Business
Other Businesses

March 2020 Cumulative
AmountYOY

ChangeVersusforecast

Change* Net sales refer to sales to external customers.
Net sales

Consolidated net sales for the fiscal year ended 31st March 2020 were ¥897,289 million (-3.2% year on year). Sales up to the endof the second quarter exceeded those for the same period of the previous fiscal year and benefited from solid domestic consumer
spending, increased inbound spending and a last-minute surge in demand before the consumption tax hike. However, sales in thethird quarter onward declined as they were affected by a downturn in consumer sentiment following the consumption tax hike in
October 2019 and a warm winter. Furthermore, in the fourth quarter, the Company shortened its operating hours or restrained somepart of its department store operation due to the spread of COVID-19, and this brought a huge impact on sales.
Operating income / ordinary income

Consolidated operating income was ¥11,171 million (-45.3% year on year) as a result of a drop in gross profits due to a decrease in
net sales, temporary closures due to the reconstruction of Izumiya Co., Ltd.’s stores, an increase of depreciation for Hanshin Umeda
Main Store Wing 1 at Hankyu Hanshin Department Stores, Inc., as well as other factors. Consolidated ordinary income was ¥11,831
million (-44.7% year on year).

Department Store Business
At Hankyu Main Store, net sales decreased by 3.8% year on year. Sales grew until the end of the second quarter backed up by solid
domestic and inbound demand, particularly for fashion, and a last-minute surge in demand before the consumption tax hike
implemented in October 2019. However, sluggish sales of apparel due to the fallback in demand following the consumption tax hikeand a warm winter from the third quarter onward, in addition to shortening operating hours and restraints of operation to prevent
COVID-19 from spreading in the fourth quarter, resulted in a full-year net sales decline.
At Hanshin Umeda Main Store, sales decreased by 9.8% year on year. The negative repercussion after the opening boom of Wing
1 in June 2018 and restraints of operation and other measures, similar to what Hankyu Main Store had done, affected net sales.

19On the other hand, at branch stores, net sales, mainly in food halls, were relatively less affected despite the fact some suburban
stores took countermeasures to prevent COVID-19 from spreading, such as shortening operating hours and restraints of operation.
Also, renovations of food halls at Kobe Hankyu (former Sogo Kobe store) and Takatsuki Hankyu (former Seibu Takatsuki store),
which were rebranded in October 2019, proved successful.
Furthermore, sales and profit decreased as a result of a decrease in gross profit due to a decrease in sales, in addition to increases in
temporary expenses such as those for depreciation for Hanshin Umeda Main Store, the renaming of Kobe Hankyu and Takatsuki
Hankyu, and renovations.

*Kobe and Takatsuki Business segment has been integrated into Department Store Business segment since the fiscal year ended
31st March 2020 because the businesses of Kobe Hankyu (former Sogo Kobe store) and Takatsuki Hankyu (former Seibu Takatsuki
store) were transferred to Hankyu Hanshin Department Stores, Inc. on 1st October 2019. In accordance with this change, the resultsof the previous fiscal year have been reclassified in line with the revised segment.

Supermarket Business
Sales and profit in the Supermarket Business decreased from the previous fiscal year.
Izumiya Co., Ltd. (Izumiya) recorded an operating loss, continuing from the previous fiscal year. In the fiscal year under review,
Izumiya opened, renovated/rebuilt 5 stores including Izumifuchu store (Izumiotsu City, Osaka), Hanazono store (Nishinari-ku,
Osaka City), and Hankyu Rakuhoku Square (Sakyo-ku, Kyoto City) as part of proceeding with store rebuilding and the model
conversion. Also, the Company newly opened Shinchujo store (Ibaraki City, Osaka) in May 2019. Nevertheless, sales at existing
stores struggled due to intensified competition, and both sales and profit were affected by the reduction in the amount of sales
space for non-food segment, such as apparel and home products, due to the promotion of the conversion of the business model for
general merchandise stores (GMS).
Although Hankyu Oasis Co., Ltd. (Hankyu Oasis) proceeded with the review of the pricing policy and cost-reductions, sales andprofit decreased because sales at existing stores were lacklustre mainly due to the intensified competition. Hankyu Oasis newly
opened Fukushima Fukumarudori 57 store (Fukushima-ku, Osaka City), Kisela Kawanishi store (Kawanishi City, Hyogo), and reopened Ibaraki Higashi-Nara store (Ibaraki City, Osaka) and Minami-Ibaraki store (Ibaraki City, Osaka), which had been temporarilyclosed due to the Osaka Earthquake that occurred in June 2018.

Shopping Centre Business
Sales and profit in the Shopping Centre Business decreased from the previous fiscal year.
Sales decreased mainly due to the decrease in rental revenues at Centre Limited Liability Company, which is the beneficiary of
the trust of SELCY, a shopping centre in the Senri-chuo area of Osaka, associated with the closure of SELCY on 31st May 2019
for an on-going redevelopment project. Hankyu Shopping Center Development Co., Ltd. has reopened Hankyu Rakuhoku Square(Sakyo-ku, Kyoto City, former Qanat Rakuhoku) in December 2019 with a larger floor area, and it has earned a good reputationfrom neighbourhood customers. However, lost business days, construction expenses, and an increase of depreciation in line withthis renewal led to an operating loss.

20

Other Businesses
Sales increased and profit decreased in Other Businesses overall.
Hankyu Freds Co., Ltd. operating bakery and cafe and asnas Co., Ltd operating convenience store and kiosk have become
consolidated subsidiaries since the fiscal year under review, while KAZOKUTEI CO., LTD. and Sun Laurie Co., Ltd. weretransferred to SRS HOLDINGS CO., LTD. through a share exchange as of 1st February 2020.
At Persona Co., Ltd., credit transaction volume increased owing to a cashless payment program with cash-back benefits, pushingup sales and profit. Sales and profit in Hankyu Kensou Co., Ltd. also increased because orders for the interior of hotels andrestaurants grew. Nevertheless, Oi Development Co., Ltd. operating “Ours Inn Hankyu” the business hotel which had been
maintaining a high occupancy rate until the end of the third quarter decreased in profit since the number of business travellers andforeign visitors plummeted in the fourth quarter due to COVID-19 expansion. At the Company, which is a holding company,
dividends received from subsidiaries decreased.
Profit (loss) attributable to owners of parent

The Company recorded a loss attributable to owners of parent of ¥13,150 million. Extraordinary losses totalled ¥22,875 million,
including impairment losses of ¥14,196 million regarding Izumiya and Hankyu Oasis stores and others and business restructuring
expenses of ¥3,854 million associated with the implementation of early retirement as part of the Izumiya model conversion.

21Extraordinary income and losses(Millions of yen)
Item
Extraordinary income
Gain on sales of non-current
assetsGain on sales of investment
securities
Gain on bargain purchase
Extraordinary losses
Impairment loss
Business restructuring expenses
Loss on retirement of noncurrent assets
Loss on sales of non-current
assetsLoss on liquidation of businessAmount1,707
997

Main contents(Up ¥811 million from the previous fiscal year)
Izumiya Izumisano store, Wakaeiwata store

693
17
22,875
14,196
3,854
1,848
930
821

Loss on store closings
Loss on share exchanges

747
477

(Up ¥8,654 million from the previous fiscal year)
Izumiya, Hankyu Oasis, Hankyu Hanshin Department Stores
Izumiya: early retirement bonus, valuation loss on goods
Hankyu Hanshin Department Stores, Izumiya, Hankyu Shopping
Center Development
Izumiya Daito store
Liquidation of business of Hankyu Kitchen Yell Kyushu, transferof business of With System
SELCY rebuilding, Izumiya store reorganisationa share exchange between KAZOKUTEI CO., LTD./ Sun Laurie
Co., Ltd. and SRS HOLDINGS CO., LTD.

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 2020 by business segment is as follows:
Name of business segment
Supermarket Business

Product

Amount of production(millions of yen)
33,41033,410

Foods
Total

YOY %
97.7
97.7

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 2020.
For the Supermarket Business (food manufacturing business), make-to-stock production is conducted based on the past track recordsof sales.

22

(iii) Track record of sales
The track record of sales in the fiscal year ended 31st March 2020 by business segment is as follows:
Name of businesssegment

Department StoreBusiness

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
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
OthersElimination
Total
Total

Net sales(millions of yen)
125,268
86,452
13,024
143,281
9,642
88,7387,089(272)
473,225
347,298
9,584
2,441(5,208)354,115
13,266
12,299(16,840)
8,725
5,222
6,660
3,143
1,160
7,605
7,436
2,273
53,408(25,687)
61,222897,289

YOY %
92.4
96.7
93.2
98.1
93.2
96.1
98.2
82.7
95.7
96.4
98.3
92.0
103.5
96.3
100.1
94.3
95.9
99.9
96.0
106.6
100.6
70.6
80.9
83.9
108.8
119.2
97.7
109.4
96.8

Notes:
1. The above amounts do not include consumption taxes.
2. Kobe and Takatsuki Business segment has been integrated into Department Store Business segment since the fiscal year
ended 31st March 2020 because the businesses of Kobe Hankyu (former Sogo Kobe store) and Takatsuki Hankyu (former
Seibu Takatsuki store) were transferred to Hankyu Hanshin Department Stores, Inc. on 1st October 2019. In accordancewith this change, the results of the previous fiscal year have been reclassified in line with the revised segment.

23

(3) Financial position(Millions of yen)

Cash and deposits

31st March

31st March

2019

2020

Change55,22925,958(29,270)

49,88644,445(5,440)Inventories

33,92029,688(4,232)

Total current assets

150,003112,116(37,887)

Total non-current assets

513,331474,788(38,543)

663,335

586,904(76,431)

Notes and accounts
receivable - trade

Total assets

Notes and accounts
payable - trade
Loans payable andbonds
Total liabilities
Shareholders’equityTotal net assets
Total liabilities and net
assets31st March

31st March

2019

2020

Change59,732

43,917(15,815)

164,920

151,713(13,206)

383,731342,270(41,461)

239,755

221,732(18,022)279,603

244,634(34,969)

663,335

586,904(76,431)

Total assets as of 31st March 2020 decreased by ¥76,431 million from the end of the previous fiscal year to ¥586,904 million.
This was primarily attributable to decreases in cash and deposits of ¥29,270 million due to capital investment and repayments ofloans payable, property, plant and equipment of ¥11,695 million on account of sales of Izumiya Izumisano store, Izumiya Higashi
Neyagawa store and Izumiya Daito store, and investment securities of ¥25,308 million due to the sales of shares and the fall in thestock prices of shares held by the Company.
Total liabilities amounted to ¥342,270 million, down ¥41,461 million from the end of the previous fiscal year. This was mainly
attributable to decreases in notes and accounts payable – trade of ¥15,815 million due to a decline in purchases, and loans payable
and bonds of ¥13,206 million owing to repayments of loans payable.
Total net assets stood at ¥244,634 million, a decline of ¥34,969 million from the end of the previous fiscal year. This was mainly
attributable to decreases in retained earnings of ¥18,094 million due to a recording of net loss, and valuation difference on availablefor-sale securities of ¥17,429 million mainly due to the fall in the stock prices.
For the fiscal year under review, all indicators of capital efficiency and asset efficiency deteriorated, with return on equity (ROE)
was -5.0% (previous fiscal year: 0.8%), return on assets (ROA) was 1.9% (previous fiscal year: 3.2%), and return on invested capital(ROIC) was 2.0% (previous fiscal year: 3.5%). These results followed a decrease in profits due to the impact of COVID-19.

24

(4) Cash flows(Millions of yen)
Major items
Cash flows from operating activities
Profit (loss) before income taxes
Depreciation
Impairment loss
Decrease (increase) in notes and accounts
receivable - trade
Decrease (increase) in inventories
Increase (decrease) in notes and accounts payable trade
Income taxes paid
Cash flows from investing activities
Purchase of property, plant and equipment
Purchase of intangible assets
Payments for acquisition of businesses
Proceeds from sales of property, plant andequipment
Cash flows from financing activities
Net increase (decrease) in short-term loans
payableRepayments of long-term loans payable
Proceeds from long-term loans payable
Cash dividends paid
Operating CF + investing CF + financing CF
Cash and cash equivalents at end of year

March 2018
32,73923,21916,2233,479

March 201915,392
8,050
17,3992,592

March 2020
9,871
(9,337)
18,51914,196(2,248)(3,017)

4,857

1,796

968

3,783

833

(2,249)(14,955)(5,721)(35,492)(19,197)(4,009)(14,536)(7,304)(36,682)(30,289)(3,713)–(5,525)(22,451)(26,675)(6,938)
(648)

3,259

1,412

9,138

(13,812)

9,581(16,440)(2,000)

8,000

7,000

(29,578)
30,150(4,938)(16,565)
67,150(22,624)
20,040(4,941)(11,707)55,229(20,375)
98(4,944)(29,020)
25,958

As of 31st March 2020, cash and cash equivalents stood at ¥25,958 million, a decrease of ¥29,270 million year on year.
Net cash provided by operating activities was ¥9,871 million, down ¥5,521 million year on year.
Net cash used in investing activities was ¥22,451 million, down ¥14,230 million year on year, due in part to purchase of property,
plant and equipment in conjunction with the opening of an expansion of Hankyu Rakuhoku Square.
Net cash used in financing activities was ¥16,440 million (¥9,581 million in cash flows provided by financing activities for theprevious fiscal year) due in part to repayments of long-term loans payable and cash dividends paid.
With regard to the source of capital required for long-term projects such as the reconstruction of the Hanshin Umeda Main Storeand 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.

25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)

2016
42.3%

2017
41.2%

2018
42.4%

2019
42.0%

2020
41.5%

40.3%

34.6%

36.4%

28.7%

16.7%

5.6

4.3

4.9

11.3

16.9

19.8

36.1

32.5

21.1

12.9

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 of cash flows.
Interest-bearing debt is all liabilities reflected on the consolidated balance sheets that are subject to interest payments. Interest
expenses paid is the amount of interest expenses paid in the consolidated statements of cash flows.
*4 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, total assets
in the fiscal year ended 31st March 2018 and prior fiscal years are those after retrospective application.

4. Critical contracts for operation
Not applicable.

5. Research and development activities
No items to report.

26

III. Information About Facilities
1. Overview of capital expenditures, etc.
As a result of the remodelling work on Hankyu Umeda Main Store, Kobe Hankyu and Takatsuki Hankyu in the Department StoreBusiness; the floor remodelling of existing stores and construction of new stores in Izumiya and Hankyu Oasis in the Supermarket
Business; the reconstruction of Izumiya stores in the Shopping Centre Business; and system investment, floor remodelling ofexisting stores and construction of new stores in Other Businesses, the total capital investment in the fiscal year ended 31st March
2020 was ¥35,125 million (including both property, plant and equipment and intangible assets).

Capital expenditures by business segment are as follows:(Millions of yen)Amount8,508

Department Store BusinessSupermarket Business

8,655

Shopping Centre Business

9,511

Other Businesses
Adjustment
Total

8,541
(92)
35,125Main contents
Remodelling of Hankyu Umeda Main Store, Kobe Hankyu and
Takatsuki Hankyu
Opening of new stores in Hankyu Oasis, reconstruction of
Izumiya stores
Expansion of Hankyu Rakuhoku Square, reconstruction of the
Izumiya stores
System investment for H2O Retailing Corporation
Elimination of intersegment transactions

2. Major facilities(1) Reporting company(as of 31st March 2020)
Carrying amount (millions of yen)
Office nameName of business(Location)

segment

Buildings Machinery,
Facilities

andequipment

structures

and

Land

Others

Total

Number of
employees(m2)(persons)

vehiclesSenri Hankyu (Toyonaka City,

Other Businesses

Store

–

–

–

–

224

–

Osaka)
Kawanishi Hankyu (Kawanishi Other Businesses

Store

City, Hyogo)
Izumiya Hirakata store

Other Businesses

Store(Hirakata City, Osaka)

267(4,420)5,500(6,042)
5,361(14,840)

–

267

–

–

5,500

–

–

5,585

–

Notes:
1. Carrying amount does not include construction in progress.
2. The above assets are mainly rented to Hankyu Hanshin Department Stores, Inc. and Izumiya Co., Ltd.

27

(2) Domestic subsidiaries(as of 31st March 2020)
Carrying amount (millions of yen)
Office name
(Location)

Name ofCompany namebusiness

Facilities

Buildings
andsegment

structures
Hankyu Main Store Hankyu Hanshin(Kita-ku, Osaka

Department Stores,

City)

Inc.

Hanshin Umeda
Main Store(Kita-ku, OsakaCity)

Hankyu Hanshin
Department Stores,
Inc.
Hankyu Hanshin
Department Stores,

Senri Hankyu

Inc.

Department
Store Business

Department
Store Business

Department
Store Business

Number of

Machinery,equipment

Land

and

(m2)

employees
OthersTotal(persons)

vehicles
953

Store

15,807

43

–

1,550

17,401

Store

11,256

54

–

1,776

13,087

Store

738

11

–

549

1,299

Store

732

–

–

–

732

Store

946

9

–

137

1,092

Store

693

–

–

–

693

Store

2,860

14

–

336

3,212

Store

1,554

7

–

122

1,684

Store

400

–

–

4,920

–

Store

329

–

–

6,755

–

[175]

368
[93]

184
[49]

(Toyonaka City,
Osaka)H2O Asset

Shopping

Management Co.,

CentreLtd.

Business

Hankyu Hanshin
Department Stores,
Kawanishi Hankyu

Inc.

Department
Store Business

–

217
[72]

(Kawanishi City,
Hyogo)H2O Asset

Shopping

Management Co.,

CentreLtd.

Business

Hakata Hankyu

Hankyu Hanshin(Hakata-ku,

Department Stores,

Fukuoka City)

Inc.
Hankyu Hanshin
Department Stores,
Inc.

Kobe Hankyu(Chuo-ku, Kobe
City)

Department
Store Business

Department
Store Business

H2O Asset

Shopping

Management Co.,

CentreLtd.

Business

ShinkoDepartment

Management, Inc.

Store Business

28

4,520
(2,824)
6,425(5,712)

–

301
[67]

293
[110]

Carrying amount (millions of yen)
Office name
(Location)

Name ofCompany namebusiness

Facilities

Buildings
andsegment

structures
Hankyu Hanshin

Department

Takatsuki Hankyu

Department Stores,(Takatsuki City,

Inc.

Osaka)

ShinkoDepartment

Management, Inc.

Store BusinessIzumiya Hirakata

Izumiya Co., Ltd.

Store BusinessSupermarket
Business

Number of

Machinery,equipment

Land

and

(m2)

employees
OthersTotal(persons)

vehicles

Store

1,380

22

Store

1,277

–

Store

382

0

Store

–

–

Store

287

2

Store

1,295

–

Store

327

3

Store

2,240

–

10,376

4–

5,102(18,338)
–

149

1,552

–

6,379

42

426

2

3

52

342

–

6,035

40

371

–

7,270

251

15,459

148
[62]

–
50
[87]

store
(Hirakata City,
Osaka)H2O Asset

Shopping

Management Co.,

CentreLtd.

Business

Izumiya Wakayama Izumiya Co., Ltd.

Supermarket
Business

1
(35)

–

–

56
[73]

store
(Wakayama City,
Wakayama)

Izumiya Nishikobe

H2O Asset

Shopping

Management Co.,

CentreLtd.

Business

Izumiya Co., Ltd.

Supermarket
Business

4,740(27,868)

–

–

51
[83]

store
(Nishi-ku, Kobe
City)
Ours Inn Hankyu(Shinagawa-ku,
Tokyo)H2O Asset

Shopping

Management Co.,

CentreLtd.

BusinessOi Development

Other

Hotel,

Co., Ltd.

Businesses

etc.

5,030
(42,669)4,826(9,856)

Notes:
1. Carrying amount does not include construction in progress.
2. The number within the brackets above represents the yearly average number of temporary employees.

(3) Foreign subsidiaries
As there are no principal facilities at overseas consolidated subsidiaries, they are not presented.

29

–

47
[54]

In addition to the above, major leasehold details are as follows.
(1) Reporting company
Not applicable.

(2) Domestic subsidiaries(as of 31st March 2020)
Company name

Office nameName of businessLessors

segment

Leasedproperties

Area (m2)Hankyu Corporation
Hankyu Hanshin Properties
Hankyu Main Store

Department StoreCorp.

Business

Hankyu Hanshin Properties
Corp.

Store building

144,262

Store building

17,816

Toho Co., Ltd.

Hankyu Hanshin

Hanshin Umeda Main

Department StoreStore

Business

Hankyu Men’s Tokyo

Department Stores,
Inc.
Nishinomiya Hankyu

Hakata Hankyu

Hanshin Electric Railway Co.,Ltd.
Hankyu Corporation

Department Store

Toho Co., Ltd.

Business
Department Store

Hankyu Corporation

Business
Department StoreJR HAKATA CITY Co., Ltd.

Business

Store building,etc.

58,118Store building

18,049Store building

38,643

Store building

54,710Hanshin Electric Railway Co.,
Kobe Hankyu

Department StoreLtd.

Store building,Business

Muromachi Building Co., Ltd., etc.

65,356etc.
Takatsuki Hankyu

Izumiya Yao store

Department Store

MUL Property Co., Ltd.

Business

Store building,etc.

Supermarket BusinessIzumiya Senrioka store Supermarket Business

Sumitomo Mitsui Trust Bank,Store building,

Limitedetc.

Sumitomo Mitsui Trust Bank,Store building,

Limitedetc.

Sumitomo Mitsui Trust Bank,Store building,

Limitedetc.

Hankyu Corporation

Store building,

23,65934,19824,399

Izumiya Co., Ltd.
Izumiya Hakubaicho
store
Izumiya Nishinomiya
Gardens store

Supermarket BusinessSupermarket Business

30

etc.

16,525

15,916

Company nameShinko Management,
Inc.
Hankyu Shopping
Center Development
Co., Ltd.

Office name

Takatsuki Hankyu

Name of businessLessors

segment

NIPPON EXPRESS CO., LTD.

Department Store

Muromachi Building Co., Ltd.,Business

MOSAICMALL

Shopping Centre

KohokuBusinessetc.
Daiichi Kyodo Kaihatsu Co.,Ltd.

Leasedproperties
Store building,etc.

Store building,etc.

Area (m2)4,592

108,765

3. Planned additions, retirements, etc. of facilities
The planned capital investment amount for the fiscal year ending 31st March 2021 is undecided as of the date of filing of the Annual
Securities Report in Japanese as it is difficult to rationally calculate it due to the large number of uncertainties, such as the lack ofclarity regarding the timing of the end of the COVID-19 pandemic.

31

IV. Information About Reporting Company
1. Information about shares, etc.
(1) Total number of shares, etc.
(i) Total number of shares
Class

Total number of authorised shares (shares)

Common stock

150,000,000

Total

150,000,000(ii) Issued shares
Name of financial
instruments
exchange where theClass

Number of issued

Number of issued

shares of theshares as of theshares as of the dateCompany is tradedfiscal year-end

of filingor the name of(shares)(shares)authorised financial(31st March 2020)(15th July 2020)

instruments firms

Details

association where
the Company isregisteredFirst Section of theCommon stock

125,201,396

125,201,396

Tokyo Stock
Exchange

Total
Note:

125,201,396

125,201,396

Shares with full voting rights, inwhich shareholders have unlimited
standard rights. The number of shares
per share unit is 100 shares.

――

Number of issued shares as of the date of filing does not include shares issued upon exercise of subscription rights toshares from 1st July 2020 until the filing date of this Annual Securities Report in Japanese.

(2) Subscription rights to shares, etc.
(i) Details of stock option program
To allow for higher incentives for improving medium- to long-term performance, at the Board of Directors’ meeting on 13th May
2008, the Company resolved to replace its retirement benefits system for executives with strong seniority-based and fixed elementswith a system of stock option based compensation linked to stock price, and subsequently issued subscription rights to shares 11
times based on this system.
After this, at the Board of Directors’ meeting on 14th May 2019, the Group revised the stock compensation system aiming to achievesustainable growth and increase in corporate value, and to enhance awareness of shareholders, and resolved to introduce two types

32

of stock option based compensation with a long-service condition and a performance based condition as a new stock compensation
system. Subscription rights to shares based on this system were issued in July 2019.
The number of shares to be issued upon exercise of subscription rights to shares is as follows:
As of 31st March 2020 (shares)
Subscription rights to shares issued in

As of 30th June 2020 (shares)

10,50010,50020,00018,00030,50026,50033,50029,50046,00042,00056,00050,00090,50082,500104,000

101,000

100,500

100,500

100,500

100,500

98,50098,500111,500

111,500

41,00041,000843,000

812,000

March 2009 as stock options
Subscription rights to shares issued in
March 2010 as stock options
Subscription rights to shares issued in
March 2011 as stock options
Subscription rights to shares issued in
February 2012 as stock options
Subscription rights to shares issued in
March 2013 as stock options
Subscription rights to shares issued in
March 2014 as stock options
Subscription rights to shares issued in
March 2015 as stock options
Subscription rights to shares issued in
March 2016 as stock options
Subscription rights to shares issued in
March 2017 as stock options
Subscription rights to shares issued in
March 2018 as stock options
Subscription rights to shares issued inJune 2018 as stock options
Subscription rights to shares (A) issued inJuly 2019 as stock options
Subscription rights to shares (B) issued inJuly 2019 as stock options
Total

33

The subscription rights to shares issued in accordance with the stock option based compensation system are as follows.

Subscription rights to shares issued in March 2009 as stock options
Resolution date

30th January 2009

Title and number of grantees (persons)

5 directors, 1 executive officer of the Company and4 directors, 8 executive officers of its subsidiary

Number of subscription rights to shares (unit)*

21

Number of shares to be issued upon exercise of

500 (Note 1) (Note 9)

one subscription right to shares (shares)
Class, details and number of shares underlying

Common stock 10,500 (Note 1) (Note 9)

the subscription rights to shares (shares)*
Amount to be paid in upon exercise of

1 per sharesubscription rights to shares (yen)*
Exercise period of subscription rights to shares*

1st April 2009 - 31st March 2039

Issue price of shares and additional paid-in

Issue price 987 (Note 9)

capital in cases where shares are issued upon

Additional paid-in capital (Note 2)

exercise of subscription rights to shares (yen)*
Conditions for exercising subscription rights to(Note 3) (Note 6)

shares*Matters regarding transfer of subscription rights

Acquisition of subscription rights to shares through transfer shall be subject

to shares*

to approval by the resolution of the Company’s Board of Directors.

Matters regarding delivery of subscription rights(Note 8)to shares accompanied by act of organisational
restructuring*34

Subscription rights to shares issued in March 2010 as stock options
Resolution date

28th January 2010

Title and number of grantees (persons)

6 directors, 1 executive officer of the Company and4 directors, 16 executive officers of its subsidiary

Number of subscription rights to shares (unit)*

40 [36]

Number of shares to be issued upon exercise of

500 (Note 1) (Note 9)

one subscription right to shares (shares)
Class, details and number of shares underlying

Common stock 20,000 [18,000] (Note 1) (Note 9)

the subscription rights to shares (shares)*
Amount to be paid in upon exercise of

1 per sharesubscription rights to shares (yen)*
Exercise period of subscription rights to shares*

1st April 2010 - 31st March 2040

Issue price of shares and additional paid-in

Issue price 1,137 (Note 9)

capital in cases where shares are issued upon

Additional paid-in capital (Note 2)

exercise of subscription rights to shares (yen)*
Conditions for exercising subscription rights to(Note 3) (Note 6)

shares*Matters regarding transfer of subscription rights

Acquisition of subscription rights to shares through transfer shall be subject

to shares*

to approval by the resolution of the Company’s Board of Directors.

Matters regarding delivery of subscription rights(Note 8)to shares accompanied by act of organisational
restructuring*35

Subscription rights to shares issued in March 2011 as stock options
Resolution date

24th February 2011

Title and number of grantees (persons)

6 directors of the Company and
10 directors, 7 executive officers of its subsidiary

Number of subscription rights to shares (unit)*

61 [53]

Number of shares to be issued upon exercise of

500 (Note 1) (Note 9)

one subscription right to shares (shares)
Class, details and number of shares underlying

Common stock 30,500 [26,500] (Note 1) (Note 9)

the subscription rights to shares (shares)*
Amount to be paid in upon exercise of

1 per sharesubscription rights to shares (yen)*
Exercise period of subscription rights to shares*

1st April 2011 - 31st March 2041

Issue price of shares and additional paid-in

Issue price 985 (Note 9)

capital in cases where shares are issued upon

Additional paid-in capital (Note 2)

exercise of subscription rights to shares (yen)*
Conditions for exercising subscription rights to(Note 3) (Note 6)

shares*Matters regarding transfer of subscription rights

Acquisition of subscription rights to shares through transfer shall be subject

to shares*

to approval by the resolution of the Company’s Board of Directors.

Matters regarding delivery of subscription rights(Note 8)to shares accompanied by act of organisational
restructuring*36

Subscription rights to shares issued in February 2012 as stock options
Resolution date

26th January 2012

Title and number of grantees (persons)

6 directors, 1 executive officer of the Company and9 directors, 8 executive officers of its subsidiary

Number of subscription rights to shares (unit)*

67 [59]Number of shares to be issued upon exercise of

500 (Note 1) (Note 9)

one subscription right to shares (shares)
Class, details and number of shares underlying

Common stock 33,500 [29,500] (Note 1) (Note 9)

the subscription rights to shares (shares)*
Amount to be paid in upon exercise of

1 per sharesubscription rights to shares (yen)*
Exercise period of subscription rights to shares*

1st March 2012 - 28th February 2042

Issue price of shares and additional paid-in

Issue price 1,101 (Note 9)

capital in cases where shares are issued upon

Additional paid-in capital (Note 2)

exercise of subscription rights to shares (yen)*
Conditions for exercising subscription rights to(Note 3) (Note 6)

shares*Matters regarding transfer of subscription rights

Acquisition of subscription rights to shares through transfer shall be subject

to shares*

to approval by the resolution of the Company’s Board of Directors.

Matters regarding delivery of subscription rights(Note 8)to shares accompanied by act of organisational
restructuring*37

Subscription rights to shares issued in March 2013 as stock options
Resolution date

31st January 2013

Title and number of grantees (persons)

6 directors of the Company and8 directors, 9 executive officers of its subsidiary

Number of subscription rights to shares (unit)*

92 [84]

Number of shares to be issued upon exercise of

500 (Note 1) (Note 9)

one subscription right to shares (shares)
Class, details and number of shares underlying

Common stock 46,000 [42,000] (Note 1) (Note 9)

the subscription rights to shares (shares)*
Amount to be paid in upon exercise of

1 per sharesubscription rights to shares (yen)*
Exercise period of subscription rights to shares*

1st April 2013 - 31st March 2043

Issue price of shares and additional paid-in

Issue price 1,933 (Note 9)

capital in cases where shares are issued upon

Additional paid-in capital (Note 2)

exercise of subscription rights to shares (yen)*
Conditions for exercising subscription rights to(Note 3) (Note 6)

shares*Matters regarding transfer of subscription rights

Acquisition of subscription rights to shares through transfer shall be subject

to shares*

to approval by the resolution of the Company’s Board of Directors.

Matters regarding delivery of subscription rights(Note 8)to shares accompanied by act of organisational
restructuring*38

Subscription rights to shares issued in March 2014 as stock options
Resolution date

31st January 2014

Title and number of grantees (persons)

6 directors of the Company and
10 directors, 7 executive officers of its subsidiary

Number of subscription rights to shares (unit)*

112 [100]

Number of shares to be issued upon exercise of

500 (Note 1) (Note 9)

one subscription right to shares (shares)
Class, details and number of shares underlying

Common stock 56,000 [50,000] (Note 1) (Note 9)

the subscription rights to shares (shares)*
Amount to be paid in upon exercise of

1 per sharesubscription rights to shares (yen)*
Exercise period of subscription rights to shares*

1st April 2014 - 31st March 2044

Issue price of shares and additional paid-in

Issue price 1,567 (Note 9)

capital in cases where shares are issued upon

Additional paid-in capital (Note 2)

exercise of subscription rights to shares (yen)*
Conditions for exercising subscription rights to(Note 3) (Note 6)

shares*Matters regarding transfer of subscription rights

Acquisition of subscription rights to shares through transfer shall be subject

to shares*

to approval by the resolution of the Company’s Board of Directors.

Matters regarding delivery of subscription rights(Note 8)to shares accompanied by act of organisational
restructuring*39

Subscription rights to shares issued in March 2015 as stock options
Resolution date

30th January 2015

Title and number of grantees (persons)

6 directors of the Company and9 directors, 11 executive officers of its subsidiary

Number of subscription rights to shares (unit)*

181 [165]

Number of shares to be issued upon exercise of

500 (Note 1)

one subscription right to shares (shares)
Class, details and number of shares underlying

Common stock 90,500 [82,500] (Note 1)

the subscription rights to shares (shares)*
Amount to be paid in upon exercise of

1 per sharesubscription rights to shares (yen)*
Exercise period of subscription rights to shares*

1st April 2015 - 31st March 2045

Issue price of shares and additional paid-in

Issue price 2,142

capital in cases where shares are issued upon

Additional paid-in capital (Note 2)

exercise of subscription rights to shares (yen)*
Conditions for exercising subscription rights to(Note 3) (Note 6)

shares*Matters regarding transfer of subscription rights

Acquisition of subscription rights to shares through transfer shall be subject

to shares*

to approval by the resolution of the Company’s Board of Directors.

Matters regarding delivery of subscription rights(Note 8)to shares accompanied by act of organisational
restructuring*40Subscription rights to shares issued in March 2016 as stock options
Resolution date

28th January 2016

Title and number of grantees (persons)

5 directors, 1 executive officer of the Company and7 directors, 14 executive officers of its subsidiary

Number of subscription rights to shares (unit)*

208 [202]

Number of shares to be issued upon exercise of

500 (Note 1)

one subscription right to shares (shares)
Class, details and number of shares underlying

Common stock 104,000 [101,000] (Note 1)

the subscription rights to shares (shares)*
Amount to be paid in upon exercise of

1 per sharesubscription rights to shares (yen)*
Exercise period of subscription rights to shares*

1st April 2016 - 31st March 2046

Issue price of shares and additional paid-in

Issue price 1,799

capital in cases where shares are issued upon

Additional paid-in capital (Note 2)

exercise of subscription rights to shares (yen)*
Conditions for exercising subscription rights to(Note 3) (Note 6)

shares*Matters regarding transfer of subscription rights

Acquisition of subscription rights to shares through transfer shall be subject

to shares*

to approval by the resolution of the Company’s Board of Directors.

Matters regarding delivery of subscription rights(Note 8)to shares accompanied by act of organisational
restructuring*41

Subscription rights to shares issued in March 2017 as stock options
Resolution date

26th January 2017

Title and number of grantees (persons)

4 directors, 2 executive officers of the Company and7 directors, 13 executive officers of its subsidiary

Number of subscription rights to shares (unit)*

201

Number of shares to be issued upon exercise of

500 (Note 1)

one subscription right to shares (shares)
Class, details and number of shares underlying

Common stock 100,500 (Note 1)

the subscription rights to shares (shares)*
Amount to be paid in upon exercise of

1 per sharesubscription rights to shares (yen)*
Exercise period of subscription rights to shares*

1st April 2017 - 31st March 2047

Issue price of shares and additional paid-in

Issue price 1,646

capital in cases where shares are issued upon

Additional paid-in capital (Note 2)

exercise of subscription rights to shares (yen)*
Conditions for exercising subscription rights to(Note 3) (Note 6)

shares*Matters regarding transfer of subscription rights

Acquisition of subscription rights to shares through transfer shall be subject

to shares*

to approval by the resolution of the Company’s Board of Directors.

Matters regarding delivery of subscription rights(Note 8)to shares accompanied by act of organisational
restructuring*42

Subscription rights to shares issued in March 2018 as stock options
Resolution date

28th September 2017

Title and number of grantees (persons)

3 directors, 3 executive officers of the Company and7 directors, 12 executive officers of its subsidiary

Number of subscription rights to shares (unit)*

201

Number of shares to be issued upon exercise of

500 (Note 1)

one subscription right to shares (shares)
Class, details and number of shares underlying

Common stock 100,500 (Note 1)

the subscription rights to shares (shares)*
Amount to be paid in upon exercise of

1 per sharesubscription rights to shares (yen)*
Exercise period of subscription rights to shares*

1st April 2018 - 31st March 2048

Issue price of shares and additional paid-in

Issue price 1,792

capital in cases where shares are issued upon

Additional paid-in capital (Note 2)

exercise of subscription rights to shares (yen)*
Conditions for exercising subscription rights to(Note 3) (Note 6)

shares*Matters regarding transfer of subscription rights

Acquisition of subscription rights to shares through transfer shall be subject

to shares*

to approval by the resolution of the Company’s Board of Directors.

Matters regarding delivery of subscription rights(Note 8)to shares accompanied by act of organisational
restructuring*43

Subscription rights to shares issued in June 2018 as stock options
Resolution date

22nd June 2018

Title and number of grantees (persons)

3 directors, 3 executive officers of the Company and8 directors, 10 executive officers of its subsidiary

Number of subscription rights to shares (unit)*

197

Number of shares to be issued upon exercise of

500 (Note 1)

one subscription right to shares (shares)
Class, details and number of shares underlying

Common stock 98,500 (Note 1)

the subscription rights to shares (shares)*
Amount to be paid in upon exercise of

1 per sharesubscription rights to shares (yen)*
Exercise period of subscription rights to shares*

1st July 2018 - 30th June 2048

Issue price of shares and additional paid-in

Issue price 1,616

capital in cases where shares are issued upon

Additional paid-in capital (Note 2)

exercise of subscription rights to shares (yen)*
Conditions for exercising subscription rights to(Note 3) (Note 6)

shares*Matters regarding transfer of subscription rights

Acquisition of subscription rights to shares through transfer shall be subject

to shares*

to approval by the resolution of the Company’s Board of Directors.

Matters regarding delivery of subscription rights(Note 8)to shares accompanied by act of organisational
restructuring*44

Subscription rights to shares (A) issued in July 2019 as stock options(Stock option based compensation with continuous service conditions)
Resolution date

26th June 2019

Title and number of grantees (persons)

5 directors (excluding audit and supervisory committee members), 4 directors
who are audit and supervisory committee members, 4 executive officers of
the Company and9 directors, 1 corporate auditor, 11 executive officers of its subsidiary

Number of subscription rights to shares (unit)*

1,115

Number of shares to be issued upon exercise of

100 (Note 1)

one subscription right to shares (shares)
Class, details and number of shares underlying

Common stock 111,500 (Note 1)

the subscription rights to shares (shares)*
Amount to be paid in upon exercise of

1 per sharesubscription rights to shares (yen)*
Exercise period of subscription rights to shares*

16th July 2019 - 15th July 2049

Issue price of shares and additional paid-in

Issue price 996

capital in cases where shares are issued upon

Additional paid-in capital (Note 2)

exercise of subscription rights to shares (yen)*
Conditions for exercising subscription rights to(Note 4) (Note 7)

shares*Matters regarding transfer of subscription rights

Acquisition of subscription rights to shares through transfer shall be subject

to shares*

to approval by the resolution of the Company’s Board of Directors.

Matters regarding delivery of subscription rights(Note 8)to shares accompanied by act of organisational
restructuring*45

Subscription rights to shares (B) issued in July 2019 as stock options(Stock option based compensation with performance-based conditions)
Resolution date

26th June 2019

Title and number of grantees (persons)

3 directors (excluding non-executive directors), 4 executive officers of theCompany and8 directors (excluding non-executive directors), 11 executive officers of its
subsidiary

Number of subscription rights to shares (unit)*

410

Number of shares to be issued upon exercise of

100 (Note 1)

one subscription right to shares (shares)
Class, details and number of shares underlying

Common stock 41,000 (Note 1)

the subscription rights to shares (shares)*
Amount to be paid in upon exercise of

1 per sharesubscription rights to shares (yen)*
Exercise period of subscription rights to shares*

16th July 2019 - 15th July 2049

Issue price of shares and additional paid-in

Issue price 986

capital in cases where shares are issued upon

Additional paid-in capital (Note 2)

exercise of subscription rights to shares (yen)*
Conditions for exercising subscription rights to(Note 5) (Note 7)

shares*Matters regarding transfer of subscription rights

Acquisition of subscription rights to shares through transfer shall be subject

to shares*

to approval by the resolution of the Company’s Board of Directors.

Matters regarding delivery of subscription rights(Note 8)to shares accompanied by act of organisational
restructuring**

Details as of the end of the fiscal year (31st March 2020) are presented. The details of matters that have been changed as of theend of the month preceding the submission date (30th June 2020) after the end of the fiscal year are presented in brackets. There
have been no changes to the details of other matters as of the end of the fiscal year.

46

Subscription rights to shares (A) issued in July 2020 as stock options(Stock option based compensation with continuous service conditions)
Resolution date

23rd June 2020

Title and number of grantees (persons)

4 directors (excluding audit and supervisory committee members), 5 directors
who are audit and supervisory committee members, 4 executive officers of
the Company and9 directors, 1 corporate auditor, 10 executive officers of its subsidiary

Number of subscription rights to shares (unit)

1,130

Number of shares to be issued upon exercise of

100 (Note 1)

one subscription right to shares (shares)
Class, details and number of shares underlying

Common stock 113,000 (Note 1)

the subscription rights to shares (shares)
Amount to be paid in upon exercise of

1 per sharesubscription rights to shares (yen)Exercise period of subscription rights to shares

16th July 2020 - 15th July 2050

Issue price of shares and additional paid-in

Issue pricecapital in cases where shares are issued upon

The fair value of the subscription rights to shares calculated according to theexercise of subscription rights to shares (yen)Black-Scholes model on the date of allocation of the subscription rights toshares (15th July 2020)
Additional paid-in capital (Note 2)

Conditions for exercising subscription rights to(Note 4) (Note 7)

sharesMatters regarding transfer of subscription rights

Acquisition of subscription rights to shares through transfer shall be subject

to shares

to approval by the resolution of the Company’s Board of Directors.

Matters regarding delivery of subscription rights(Note 8)to shares accompanied by act of organisational
restructuring47

Subscription rights to shares (B) issued in July 2020 as stock options(Stock option based compensation with performance-based conditions)
Resolution date

23rd June 2020

Title and number of grantees (persons)

3 directors (excluding non-executive directors), 4 executive officers of theCompany and8 directors (excluding non-executive directors), 10 executive officers of its
subsidiary

Number of subscription rights to shares (unit)390

Number of shares to be issued upon exercise of

100 (Note 1)

one subscription right to shares (shares)
Class, details and number of shares underlying

Common stock 39,000 (Note 1)

the subscription rights to shares (shares)
Amount to be paid in upon exercise of

1 per sharesubscription rights to shares (yen)Exercise period of subscription rights to shares

16th July 2020 - 15th July 2050

Issue price of shares and additional paid-in

Issue pricecapital in cases where shares are issued upon

The fair value of the subscription rights to shares calculated according to theexercise of subscription rights to shares (yen)Black-Scholes model on the date of allocation of the subscription rights toshares (15th July 2020)
Additional paid-in capital (Note 2)

Conditions for exercising subscription rights to(Note 5) (Note 7)

sharesMatters regarding transfer of subscription rights

Acquisition of subscription rights to shares through transfer shall be subject

to shares

to approval by the resolution of the Company’s Board of Directors.

Matters regarding delivery of subscription rights(Note 8)to shares accompanied by act of organisational
restructuring

Notes:
1. After the allotment date, in the event of a share split (including an allotment without contribution of the Company’scommon stock; the same applies hereinafter) or share consolidation, the number of shares subject to each offeredsubscription right to shares shall be adjusted using the following equation.
Number of shares after adjustment = Number of shares prior to adjustment x Ratio of split/consolidation
In the case of a stock split, the number of shares after adjustment shall be applied on and after the date following the basedate, while in the case of stock consolidation, it shall be applied on and after the effective date.
Furthermore, if any unavoidable event other than those set forth above arises after the allotment date of each offeredsubscription right to shares that makes it necessary to adjust the number of shares, the Company shall adjust the number48

of shares subject to each offered subscription right to shares to the extent reasonable. Fractional shares less than one shareresulting from the above adjustment shall be rounded down.
Furthermore, when adjusting the number of shares subject to each offered subscription right to shares, the Company
shall notify holders of each offered subscription right to shares (hereinafter, the “Subscription rights to shares Holder”)
being recorded in the registry of subscription rights to shares or make public notice of necessary information by the date
before the date on which the number of shares after adjustment is applied. However, in cases where the notification or
public notice cannot be made by the date before the date of the application, the notification or public notice shall bemade promptly afterward.
2. Matters concerning the amount of increase in capital and capital surplus resulting from issuance of shares upon exercise
of offered subscription rights to shares(1) The amount of increase in capital resulting from the issuance of shares upon exercise of the offered subscription rights
to shares shall be one-half of the maximum amount of increase in capital, etc. as calculated pursuant to Article 17,
paragraph (1) of the Regulation on Corporate Accounting. Any fraction of less than ¥1 shall be rounded up to thenearest yen.
(2) The amount of increase in capital surplus resulting from the issuance of shares upon exercise of offered subscription
rights to shares shall be the maximum amount of increase in capital, etc. as provided in (1) above less the amount of
increase in capital as determined in (1) above.
3. Conditions for exercising offered subscription rights to shares (Portion issued in or before June 2018)(1) The Subscription rights to shares Holder may exercise the offered subscription rights to shares only for a period offive years reckoning from the day following the date when they lose their position as Director, corporate auditor,
executive officer, etc. of the Company and the subsidiary Hankyu Hanshin Department Stores, Inc. (hereinafter, the“Exercise Start Date”).
(2) Notwithstanding (1) above, in the event of the following (i) or (ii), Subscription rights to shares Holders may exercise
offered subscription rights to shares for the period stipulated below. (However, (ii) does not apply to cases wheresubscription rights to shares will be issued by a restructured company to Subscription rights to shares Holders incompliance with Note 8 below.)(i) In the event that the Exercise Start Date does not become effective by the day one year prior to the last day of theexercise period of the Subscription rights to shares Holder
From the day following the day one year prior to the last day of the exercise period until the last day of theexercise period(ii) In the event that an agenda item of a merger agreement (under which the Company becomes an absorbed
company) or an agenda item of an equity-swap agreement and/or an equity transfer plan (under which theCompany becomes a wholly owned subsidiary of another company) is approved at a General Meeting of
Shareholders of the Company (or at a Board of Directors’ meeting if a decision at a shareholders’ meeting is notnecessary)
15 days from the day following the approval date(3) In case a Subscription rights to shares Holder has waived his/her offered subscription rights to shares, he/she cannot
exercise such offered subscription rights to shares.

49

4. Conditions for exercising offered subscription rights to shares (Subscription rights to shares A issued in or after July 2019)(1) The Subscription rights to shares Holder may exercise the offered subscription rights to shares only for a period offive years reckoning from the day following the date when they lose their position as Director (including Audit andSupervisory Committee Member), corporate auditor, executive officer, etc. of the Company and its subsidiary (butprovided that the loss is for retirement due to expiration of the terms of office or any other valid reason accepted by
the Company) (hereinafter, the “Exercise Start Date”).
(2) Notwithstanding (1) above, in the event of the following (i) or (ii), Subscription rights to shares Holders may exercise
offered subscription rights to shares for the period stipulated below. (However, (ii) does not apply to cases wheresubscription rights to shares will be issued by a restructured company to Subscription rights to shares Holders incompliance with Note 8 below.)(i) In the event that the Exercise Start Date does not become effective by the day one year prior to the last day of theexercise period of the Subscription rights to shares Holder
From the day following the day one year prior to the last day of the exercise period until the last day of theexercise period(ii) In the event that an agenda item of a merger agreement (under which the Company becomes an absorbed
company) or an agenda item of an equity-swap agreement and/or an equity transfer plan (under which theCompany becomes a wholly owned subsidiary of another company) is approved at a General Meeting of
Shareholders of the Company (or at a Board of Directors’ meeting if a decision at a shareholders’ meeting is notnecessary)
15 days from the day following the approval date or resolution date(3) Notwithstanding (1) (2) above, in the event that, as of the final day of the fiscal year on which the allotment datefalls, the Subscription rights to shares Holder does not hold a position of company officer, etc., at the company
where the Subscription rights to shares Holder became the grantee, the subscription rights to shares Holder may not
exercise the subscription rights to shares unless determined otherwise by the Company.
5. Conditions for exercising offered subscription rights to shares (Subscription rights to shares B issued in or after July 2019)(1) The Subscription rights to shares Holder may exercise the offered subscription rights to shares only for a period offive years reckoning from the day following the date when they lose their position as Director (including Audit andSupervisory Committee Member), corporate auditor, executive officer, etc. of the Company and its subsidiaries (butprovided that the loss is for retirement due to expiration of the terms of office or any other valid reason accepted by
the Company). Within the abovementioned exercise period, the Subscription rights to shares Holders may exercise
the number of exercisable units determined within the range of 0 to 100% of allotted subscription rights to shares inaccordance with achievement levels of management indicators targeted in the final fiscal year of the mid-term planand other indicators predetermined by the Company’s Board of Directors.
The performance-based indicators are as follows.
Performance-based criteria for fiscal 2020 to 2022
Indicator

Target for fiscal 2022

Weight(i) Consolidated ordinary income¥25.0 billion

50%

4.0%

50%

(ii) Consolidated ROIC50

(2) Notwithstanding (1) above, in the event of the following (i) or (ii), Subscription rights to shares Holders may
exercise offered subscription rights to shares for the period stipulated below. (However, (ii) does not apply to cases
where subscription rights to shares will be issued by a restructured company to Subscription rights to shares Holders
in compliance with Note 8 below.)(i) In the event that the Exercise Start Date does not become effective by the day one year prior to the last day of theexercise period of the Subscription rights to shares Holder
From the day following the day one year prior to the last day of the exercise period until the last day of theexercise period(ii) In the event that an agenda item of a merger agreement (under which the Company becomes an absorbed
company) or an agenda item of an equity-swap agreement and/or an equity transfer plan (under which theCompany becomes a wholly owned subsidiary of another company) is approved at a General Meeting of
Shareholders of the Company (or at a Board of Directors’ meeting if a decision at a shareholders’ meeting is notnecessary)
15 days from the day following the approval date or resolution date(3) Notwithstanding (1) (2) above, until the time that the following conditions are met, the Subscription rights to shares
Holder may not exercise the subscription rights to shares unless determined otherwise by the Company.
(i) The exercisable number of subscription rights to shares is determined.
(ii) The Subscription rights to shares Holder holds a position of company officer, etc. at the company at which the
Subscription rights to shares Holder became a grantee.
6. Provisions for acquiring offered subscription rights to shares (Portion issued in or before June 2018)
In cases where proposal (i) - (v) below is approved at the General Meeting of Shareholders of the Company (if a resolution
by the General Meeting of Shareholders is not necessary, it is read as “in cases where the resolution of the Board of
Directors is made”), the Company may acquire offered subscription rights to shares without consideration on the dateseparately provided for by the Board of Directors.
(i)A merger agreement proposal under which the Company becomes an absorbed company(ii) A proposal for approval of a contract or plan of company split where the Company would be the split company(iii) A proposal for approval of a share exchange agreement or share transfer plan whereby the Company becomes
the wholly owned subsidiary(iv) A proposal for approval of an amendment to the Articles of Incorporation in order to establish the provision thatan acquisition by way of transfer of all shares to be issued by the Company shall require the approval of theCompany(v) A proposal for approval of an amendment to the Articles of Incorporation in order to establish the provision thatan acquisition by way of transfer of a class of shares to be delivered upon exercise of the subscription right toshares shall require the approval of the Company or that the Company may acquire all of such class of shares byresolution at a General Meeting of Shareholders
7. Provisions for acquiring offered subscription rights to shares (Portion issued in or after July 2019)In cases where proposal (i) - (vii) below is approved at the General Meeting of Shareholders of the Company (if aresolution by the General Meeting of Shareholders is not necessary, it is read as “in cases where the resolution of the51

Board of Directors is made”), the Company may acquire offered subscription rights to shares without consideration on
the date separately provided for by the Board of Directors.
(i)A merger agreement proposal under which the Company becomes an absorbed company(ii) A proposal for approval of a contract or plan of company split where the Company would be the split company(iii) A proposal for approval of a share exchange agreement or share transfer plan whereby the Company becomes
the wholly owned subsidiary(iv) A proposal for approval of an amendment to the Articles of Incorporation in order to establish the provision thatan acquisition by way of transfer of all shares to be issued by the Company shall require the approval of theCompany(v) A proposal for approval of an amendment to the Articles of Incorporation in order to establish the provision thatan acquisition by way of transfer of a class of shares to be delivered upon exercise of the subscription right toshares shall require the approval of the Company or that the Company may acquire all of such class of shares byresolution at a General Meeting of Shareholders(vi) A proposal for approval of a share consolidation affecting the class of shares to be issued upon exercise of thesubscription rights to shares (limited to those in which fractional shares less than one share arise when
multiplying the share unit of the affected shares by the share consolidation ratio).
(vii) A proposal for approval of a request to sell shares by a special controlling shareholder
8. The Company, in the case of a merger (limited only to cases in which the Company is dissolved by merger), an absorptiontype company split/incorporation-type company split (limited to cases where the Company is the splitting company), a
share exchange or share transfer (limited to cases in which the Company becomes a wholly owned subsidiary) (hereinafter
the above cases are collectively called “organisational restructuring”), may issue the subscription rights to shares of thestock companies listed in Article 236, paragraph (1), item (viii) (a) through (e) of the Companies Act (hereinafter,“restructured company”) to each Subscription rights to shares Holder (hereinafter, “remaining subscription rights toshares”) that remain outstanding immediately preceding the day that effects of the organisational restructuring arise, foreach case thereof, based on the conditions set forth below. In such case, the remaining subscription rights to shares shallbecome null and void and the restructured companies shall issue new subscription rights to shares. However, this will
apply only to the case that a provision of issuance of the subscription rights to shares of the restructured companies isprovided in the absorption-type merger agreement, incorporation-type merger agreement, absorption-type split agreement,
incorporation-type split plan, share exchange agreement, or share transfer plan, in accordance with the conditions set forth
below.
(1) Number of subscription rights to shares of restructured companies
The same number of subscription rights to shares as that of remaining subscription rights to shares held by a
Subscription rights to shares Holder(2) Class of shares of restructured companies underlying subscription rights to shares
Common stock of restructured companies(3) Number of shares of restructured companies underlying subscription rights to shares
To be determined in the same manner as the matters set forth in Note 1 above, taking into consideration the terms andconditions of organisational restructuring.
(4) The amount of assets to be contributed upon exercise of subscription rights to shares

52

The value of the property to be contributed when each subscription right to shares to be delivered is exercised shallbe the amount obtained by multiplying the paid-in amount after restructuring as specified below by the number ofshares of a restructured company to be issued upon exercise of each subscription right to shares, which is decided
pursuant to (3) above. The paid-in amount after restructuring shall be ¥1 per share of the shares of the restructured
company that would be delivered by exercising the delivered subscription rights to shares.
(5) Exercise period of subscription rights to shares
The offered subscription right to shares determined in (4) above can be exercised from the later of the commencement
date of the exercise period of the offered subscription right to shares determined in (4) above or the effective date of
the organisational restructuring to the expiration date of the period.
(6) Matters concerning the amount of increase in capital and capital surplus resulting from issuance of shares upon
exercise of subscription right to shares
To be determined in the same manner as the matters set forth in Note 2 above.
(7) Restriction on the acquisition of subscription rights to shares through transfer
Acquisition of subscription rights to shares through transfer shall require the approval by resolution of the Board of
Directors of restructured companies.
(8) Provisions for acquiring subscription rights to shares
To be determined in the same manner as the provisions for acquiring offered subscription rights to shares set forth
above.
(9) Other conditions for exercising subscription rights to shares
To be determined in the same manner as the conditions for exercising offered subscription rights to shares set forth
above.

9. The Company made adjustments due to a share consolidation (consolidation of two shares into one share) with an effective
date of 1st September 2014.

(ii) Description of rights plan
Not applicable.

(iii) Other information about subscription rights to shares, etc.
Not applicable.

(3) Exercises, etc. of moving strike convertible bonds, etc.
Not applicable.

53

(4) Changes in the number of issued shares, capital stock, etc.
Change in the
Date

1st September 2014

Balance of the

Change inBalance of

Change in legal

total number of total number ofcapital stock

capital stock

capital surplus

issued sharesissued shares(millions of(millions of(millions of(shares)(shares)

yen)

yen)

yen)

(125,201,397)

125,201,396–

17,796

Balance oflegal capitalsurplus(millions ofyen)–

72,495

Note:
This was due to a share consolidation (consolidation of two shares into one share) executed on 1st September 2014 as a resultof a resolution at the Annual General Meeting of Shareholders held on June 24, 2014.

(5) Shareholding by shareholder category(as of 31st March 2020)
Shareholding status (Number of shares per share unit: 100 shares)
Financial
Category

Shares lessForeign investors, etc.

PublicFinancial

instruments

Other

sectorinstitutions

business

corporations

operators

Companies,
etc.

Individuals,
Individuals

etc.

than one
Total

unit
(shares)Number ofshareholders

1

50

30

631

228

22

39,04740,009–538

316,402

10,219410,784

186,58063

324,160

1,248,746

326,796

0.04

25.34

0.82

32.90

14.94

0.01

25.96

100.00–(persons)
Number ofshares held
(units)Shareholding
ratio (%)
Notes:
1. 1,558,219 treasury shares include 15,582 units under “Individuals, etc.” and 19 shares under “Shares less than one unit.”
1,558,219 treasury shares are the same as the number of shares substantially held as of 31st March 2020.
2. “Other corporations” column above includes 17 units of shares held in the name of Japan Securities Depository Center,
Incorporated.

54

(6) Status of major shareholders(as of 31st March 2020)
The percentage
Number of shares
Name

Location

held(Thousandshares)of the number ofshares held to thetotal number ofshares issued
excludingtreasury shares

Hanshin Electric Railway Co., Ltd.

1-1-24 Ebie, Fukushima-ku, Osaka
City, Osaka

Hankyu Hanshin Holdings, Inc.

1-1 Sakaemachi, Ikeda City, Osaka

The Master Trust Bank of Japan, Ltd.

2-11-3 Hamamatsucho, Minato-ku,(Trust Account)

Tokyo

Takashimaya Co., Ltd.

2-4-1 Nihonbashi, Chuo-ku, TokyoJapan Trustee Services Bank, Ltd.

1-8-11 Harumi, Chuo-ku, Tokyo(Trust account)
Japan Trustee Services Bank, Ltd.

1-8-11 Harumi, Chuo-ku, Tokyo(Trust account 9)
Company's Kyowakai Assn.
Japan Trustee Services Bank, Ltd.

1-4-4 Hanazonominami, Nishinari-ku,
Osaka City, Osaka
1-8-11 Harumi, Chuo-ku, Tokyo(Trust account 5)
H2O Retailing Group Employees’ Shareholding
Association

14,74911.9%

10,336

8.4%

7,274

5.9%

6,259

5.1%

5,256

4.3%

3,528

2.9%

2,737

2.2%

1,909

1.5%

1,668

1.3%

1,414

1.1%

55,13444.6%

H2O Retailing Corporation
8-7 Kakuda-cho, Kita-ku, Osaka City,
Osaka
PALISADES WEST 6300, BEE

DFA INTL SMALL CAP VALUE PORTFOLIOCAVE ROAD(Standing proxy: Citibank, N.A., Tokyo Branch)

BUILDING ONE AUSTIN TX 78746
US

Total

―

55

(7) Voting rights(i) Issued shares(as of 31st March 2020)
Category

Number of shares

Number of voting rights(shares)(units)Shares without voting rights
Shares with restricted voting rights(Treasury shares, etc.)
Shares with restricted voting rights(Other)Shares with full voting rights(Shares in treasury)(Treasury shares, etc.)

Common stock

Details

–

–

―

–

–

―

–

–

―
The Company’s standard class of–shares with no rights limitations

1,558,200
Shares with full voting rights

Common stock(Other)

1,233,164

123,316,400

Shares less than one unit

Common stock–

326,796

Same as above

Same as above

Total number of issued shares

125,201,396–―

Total number of voting rights–

1,233,164―

Notes:
1. Common stock in “Shares with full voting rights (other)” includes 1,700 shares (17 units of voting rights) held in the nameof Japan Securities Depository Center, Incorporated.
2. Common stock in “Shares less than one unit” includes 19 shares of treasury shares held by the Company.

(ii) Treasury shares, etc.
(as of 31st March 2020)
Number of shares Number of shares
Name of shareholder(Shares in treasury)

Address of shareholder

8-7 Kakuda-cho, Kita-ku,

H2O Retailing Corporation Osaka
Total

–

held under own

held under thenamename of others(shares)(shares)

Total number ofshares held
(shares)

Shareholding
ratio (%)

1,558,200–

1,558,200

1.24

1,558,200–

1,558,200

1.24

56

2. Acquisitions, etc. of treasury sharesClass of shares, etc.

Acquisition of common stock by demand for purchase of shares less than one unit, which falls under
Article 155, item (vii) of the Companies Act(1) Acquisition by resolution of shareholders meeting
Not applizcable.

(2) Acquisitions by resolution of Board of Directors meeting
Not applicable.

(3) Acquisitions not based on resolution of shareholders meeting or Board of Directors meeting
Category

Number of shares (shares)

Treasury shares acquired during the fiscal year ended 31st
March 2020

Total amount (yen)

2,230

2,734,654

353

289,752

Treasury shares acquired during the period from 1st April
2020 until the filing date of the Annual Securities Report inJapanese
Note:

Treasury shares acquired during the period from 1st April 2020 until the filing date of the Annual Securities Report inJapanese do not include shares resulting from the purchase of shares less than one unit between 1st July 2020 and thefiling date of the Annual Securities Report in Japanese.

(4) Disposals or holding of acquired treasury sharesFiscal year ended 31st March 2020

From 1st April 2020 until the filing dateof the Annual Securities Report in Japanese

Category

Acquired treasury shares offered forsubscription
Acquired treasury shares that werecancelled

Number of shares

Total disposal

Number of shares

Total disposal(shares)amount (yen)(shares)amount (yen)

–

–

–

–

–

–

–

–

–

–

–

–

53,30874,441,929

31,16050,411,165

1,558,219–

1,527,412–

Acquired treasury shares transferred formerger, share exchange and company
split
Other (Note 1)
Treasury shares held (Note 2)57

Notes:1. During the fiscal year ended 31st March 2020, some were disposed of due to exercise of stock options (number of shares:
53,000, total disposal amount: ¥74,092,000), and some were disposed of due to the sales of fractional shares (number ofshares: 308, total disposal amount: ¥349,929). Furthermore, from 1st April 2020 until the filing date of the Annual
Securities Report in Japanese, some were disposed of due to exercise of stock options (number of shares: 31,000, total
disposal amount: ¥50,285,000), and some were disposed of due to the sales of fractional shares (number of shares: 160,
total disposal amount: ¥126,165).
2. The number of treasury shares held from 1st July 2020 until the filing date of the Annual Securities Report in Japanese
does not include shares through purchase and sales of fractional shares and exercise of stock options.

3. Dividend policy
The Company’s basic policy is to implement stable profit distribution while considering cash flow which is necessary for establishing
an appropriate financial base over the medium to long term and investment for growth, based on the performance of each fiscal year.
The Company will implement an appropriate profit distribution under the consideration of an overall medium- and long-term plan,for profit attributable to owners of parent, consolidated net assets, and consolidated cash flow.
Dividends are scheduled to be distributed twice a year, with the interim dividend being distributed in November and the year-end
dividend being distributed in June. In addition, the Company’s Articles of Incorporation include the provision that the Board of
Directors can resolve to pay dividends from surpluses, etc., in accordance with the provisions of Article 459 of the Companies Act.
The consolidated results for the fiscal year under review are a significant loss as loss attributable to owners of parent following therecording of extraordinary losses such as business restructuring expenses associated with the business model conversion of Izumiya
Co., Ltd., and impairment losses at supermarkets and other stores. However, the Company secured consolidated operating income
and consolidated cash flows, and has therefore decided to continue an annual dividend of ¥40 per share for the fiscal year ended 31st
March 2020, the same level as the previous fiscal year.

Note:

The payment of dividends from surplus resolved at a Board of Directors meeting with record dates falling in the fiscal
year under review are as follows:
Resolution date

Total amount of

Dividends per share

dividends(yen)(millions of yen)
Resolution of Board of Directors Meeting held on
31st October 2019
Resolution of Board of Directors Meeting held on
25th May 2020

58

2,472

20.00

2,472

20.00

4. Explanation about corporate governance, etc.
(1) Outline of corporate governance system(i) Corporate governance system
a. Basic views on corporate governance
The Company’s basic philosophy is “To remain indispensable to the local communities through our activities of providing a modelof lifestyle to local residents,” and under its new vision of “To be a customer’s lifestyle partner to enrich their hearts throughoffering ‘fun, happy and tasty’ experiences, contributing to the future of the local community, children and our planet,” theCompany considers that its purpose is to contribute to society overall while meeting the expectations of its stakeholders, who are
customers, shareholders, business partners, and employees.
Based on the basic philosophy and management vision, the Company will perform swift, efficient and strong-minded decisionmaking and work to increase its medium- to long-term corporate value, while meeting various stakeholders’ expectations andemphasising 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 the business 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 and efficient companies.
The Company has adopted a “Company with an Audit and Supervisory Committee” (hereinafter, “ASC”) system with a view toincreasing its corporate value over the medium to long term.
The Company’s Board of Directors consists of 10 directors (five (5) directors are ASC members), including four (4) outside directors(four (4) 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, Chairman of the Board 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). Regarding 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 (Note 2) wasestablished 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 ofan executive officer system. The directors and the Board of Directors of each company have adopted this system for managing andoverseeing 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.

59

■Corporate Governance Framework

General Shareholders' Meeting
Appointment/dismissal

Appointment/dismissal

Cooperation

Board of Directors

Nominating
andCompensation

Appointment/dismissal

AdviceAudit and Supervisory Committee

Advisory Committee

Independent
AuditorOversight

President andRepresentative Director

Group
Compliance
Committee

Audit

Audit andSupervisory
Committee
Office

Audit

Group
Management Meeting

Executive Officers
Group Companies
Divisions

Note 1:

Nominating and Compensation Advisory Committee
The committee consists of independent outside directors (Mr. Naoshi Ban and Mr. Kenjiro Nakano), which comprise themajority of the committee, and Mr. Naoya Araki, President and Representative Director. The Chairman is Mr. Naoshi
Ban, 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. Toshihiko Yamaguchi) and Audit and Supervisory Committee Member (Mr. Toshimitsu Konishi) and theCompany’s executive officers (Mr. Hiroyasu Kuromatsu, Mr. Kenji Uno and Mr. Gaku Watanabe). The Chairman is Mr.
Naoya Araki, President and Representative Director.

60

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 and regulations as well as theCompany’s Articles of Incorporation

Compliance
The H2O Retailing Group has a code of conduct stipulating basic principles so that executives and employees will act inaccordance 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 for ensuring
compliance throughout the Group, the presidents of Group companies and executives in charge of general affairs 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 of legal andregulatory violations or instances of fraud committed by Group executives or employees.

61

The Company has an internal audit function and audits the status of compliance in accordance with the “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 theCompany, we carry out appraisals of the implementation and operational status of internal controls related to financial reportingon a Group-wide basis in accordance with the Financial Instruments and Exchange Act and related laws and regulations.

Eliminating antisocial forces
The H2O Retailing Group Code of Conduct explicitly prohibits any accession by the Group to unacceptable demands made byantisocial elements that threaten public order and safety. We are also strengthening our partnerships with specialist externalorganisations such as the police and lawyers, and have created systems for insulating ourselves from 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 of generalaffairs of the Company and major subsidiaries (Mr. Katsuhiro Hayashi, Mr. Masaru Ikejima, Mr. Katsuya Nishitani
and Mr. Yasuto Nagata). Chairman is Mr. Naoya Araki, President and Representative 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 of risk events,
reporting when risk events occur and dealing with the consequences of risk event occurrence. Basic policies and regulations forrisk management enable Group companies to take precautionary measures against risk and to minimise losses when risk eventsoccur. The Group Compliance Committee collates risk related information and 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 officers and topromote 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 business decision-making for the Company and theGroup. This body manages business performance on a monthly and quarterly basis and assesses the progress of business plans at
the Board of Directors meetings and Group Management meetings, making revisions to targets as necessary.

62

Authority and responsibility have also been clarified based on approval procedures for the issuing and acceptance of management
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 notreport 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 of internal
control divisions (Finance and Accounting Division, General Affairs and Human Resources Division and Information
Technology Promotion Office, etc.) and the Group Corporate Auditors Committee, attend important meetings such as GroupManagement meetings and review the approval documents and minutes of Group Management meetings and other committee
meetings.

When requested by the ASC, the Group’s directors and employees shall promptly report to the ASC regarding matters related tothe administration of business. Upon discovering any issue such as the violation of laws and regulations which may causesignificant loss to the Company or Group companies, the Group’s directors and employees 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 is regularly reported
to the Company’s ASC.

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 each company of theGroup. When the ASC requests the hiring of outside experts such as lawyers or certified public accountants as their advisors andwhen ASC members request relevant expenses to fulfil their roles in advance, the Company promptly bears such costs inaccordance with applicable laws and regulations. The Company establishes an annual budget for such costs for ASC members.

63

The following summarises the status of operations for the year ended 31st March 2020.
(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 the basic matters with which
each of Group companies shall comply. All directors and employees are informed of these rules.

In the fiscal year ended 31st March 2020, based on the analysis and results of the effectiveness evaluation of the Board of
Directors, the Company worked to improve and stimulate deliberation in the Board of Directors meetings by taking steps torevise the proposal materials, provide them at an earlier time, and by providing opportunities for freely exchanging opinions
and sharing information not only on resolutions and reports at the Board of Directors meeting, but also about medium- andlong-term management issues, and so forth.

(2) As compliance and risk management initiatives, the Company has various committees in connection with fair trading, quality
control and information security which promotes measures for each field and shares information.

In the fiscal year ended 31st March 2020, in response to expected revisions of relevant laws and regulations, the Group
implemented study sessions for the presidents of each Group company, who are compliance officers, and for the persons
responsible for promoting harassment prevention. The study sessions covered basic knowledge and practical responses for theprevention of harassment, primarily power harassment. Moreover, the Group established a policy for handling the issue ofachieving equal wages for the same work. We promoted awareness of this issue throughout Group companies and shared
information about the revisions to the Civil Code and the Act on the Protection of Personal Information.

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 continued this year to conduct
verification of risks and hearing for each Group company, confirmed the status of progress of each company’s initiatives fromthe previous fiscal year, and worked to reduce risks by sharing information and making response policies clear to all at theGroup Compliance Contact Meeting, based on continuing issues and newly recognised issues.

The Companies have a whistle-blower hotline named “Compliance Hotline,” and the Company and some major subsidiaries
have divisions in charge of the Hotline. This internal whistle-blowing system is in continuous operation, and the status ofwhistle-blowing is regularly reported to Representative Directors and a full-time ASC member.

In order to ensure the reliability of financial reporting, in carrying out our evaluation of the status and operation of the Group’s
internal control systems, we added Hankyu Shopping Center Development Co., Ltd. and asnas Co., Ltd. to the scope of ourassessments of group-wide controls, and in our evaluation of business process controls, we added Hankyu Oasis Co., Ltd. to thescope of evaluation along with the previous two companies, Hankyu Hanshin Department Stores, Inc. and Izumiya Co., Ltd.

In relation to antisocial forces, the Company continues to ensure that clauses for the elimination of organised crime groups areincluded in relevant contracts and documents.

64(3) With respect to the audit system, the Company assigns 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 the Group companies.

Additionally, ASC members periodically hold meetings with Representative Directors and staff members in the internal 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 suchas Group Management meetings.

(ii) Outline of the liability limitation agreements
The Company entered into a liability agreement with each outside director in accordance with Article 427, paragraph (1) of theCompanies Act (“Act”) for the purpose of limiting liability as prescribed in Article 423, paragraph (1) of the Act. Under theagreement, the maximum amount of liability of an outside director shall be limited to the amount prescribed in 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, the liability of
directors (including former directors) who fail to perform their duties shall be exempt by a statutory limit based on Article 426,
paragraph (1) of the Act. This provision enables directors to perform their duties without the effects of anxiety and allows theCompany to continue inviting outside directors with deep insights and a wealth of experience. The above provision also applies tothe corporate auditors (including former corporate auditors) before a resolution of the 97th Annual General Meeting of Shareholders
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 shallbe 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 a majority ofthe votes of the shareholders present at meetings where shareholders holding one third or more of the votes of 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, paragraph (1) of the Act,
shall be resolved at a Board of Directors’ meeting regardless of a resolution by a Shareholders’ Meeting unless otherwise prescribedin the Act.

65

(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, paragraph (2) ofthe Act shall be resolved by a majority of two thirds or more of the votes of the shareholders present at meetings where theshareholders holding one third or more of the votes of the shareholders entitled to exercise voting rights are present.

66

(2) Status of officers(i) Officers
Male: 8; Female: 2 (The ratio of female officers is 20.0%)
Title

Name

Chairman of the Board,
Chairman of the Board of
Directors
Atsushi Suzuki
In charge of Overseas
Business Promotion
OfficePresident andRepresentative Director
In charge of Information
Technology Promotion
OfficeNaoya Araki

Date of birth

5 April 1956

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.

Oct. 2008

Executive Officer, Hankyu
Hanshin Department Stores, Inc.

Apr. 2013

Director and Managing
Executive Officer, Hankyu
Hanshin Department Stores, Inc.

Mar. 2014

Director, H2O RETAILINGCORPORATION

Apr. 2014

President and Representative
Director, H2O RETAILINGCORPORATION

Apr. 2020

Chairman of the Board,
Chairman of the Board of
Directors, 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.

Oct. 2008

Executive Officer, Hankyu
Hanshin Department Stores, Inc.

Jun. 2010

Director and Executive Officer,
Hankyu Hanshin Department
Stores, Inc.

14 May 1957 Mar. 2012

President and Representative
Director, Hankyu Hanshin
Department Stores, Inc.

Jun. 2012

Representative Director, H2O
RETAILING CORPORATION

Apr. 2020

President and Representative
Director, H2O RETAILINGCORPORATION (present
position)

Apr. 2020

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

67

Term ofofficeNumber ofcompany
shares held

(Note) 2

24,900(Note) 2

11,800TitleName

Representative Directorand Executive Vice
President
In charge of the Food
Katsuhiro Hayashi
Business and the General
Affairs and Human
Resources Office

Representative Director
In charge of the
Department StoreBusiness

Toshihiko Yamaguchi

Date of birth

20 January
1958

Brief history
Apr. 1982

Joined Hankyu Department
Stores, Inc.

Apr. 2002

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

Apr. 2005

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

Jun. 2009

Director and Executive Officer,
H2O RETAILINGCORPORATION

Jun. 2009

Executive Officer, Hankyu
Hanshin Department Stores, Inc.

Apr. 2012

Director and Executive Officer,
Hankyu Hanshin Department
Stores, Inc.

Apr. 2014

Director and Managing
Executive Officer, H2O
RETAILING CORPORATION

Apr. 2014

Director and Managing
Executive Officer, Hankyu
Hanshin Department Stores, Inc.

Apr. 2015

Representative Director andSenior Managing Executive
Officer, H2O RETAILINGCORPORATION

Apr. 2015

In charge of the General Affairs
and Human Resources Office(present position) and the
Public Relations Office, H2O
RETAILING CORPORATION

Apr. 2015

Representative Director andSenior Managing Executive
Officer, Hankyu Hanshin
Department Stores, Inc.

Apr. 2017

Representative Director andExecutive Vice President, H2O
RETAILING CORPORATION(present position)

Nov. 2019

President and Representative
Director, H2O Foods Group Co.,
Ltd. (present position)

Apr. 1986

Joined Hankyu Department
Stores, Inc.

Apr. 2009

Store Manager, Kawanishi
Hankyu Department Store ofHankyu Hanshin Department
Stores, Inc.

Apr. 2011

Sales Service Executive
Manager, Yurakucho Hankyu
Department Store of Hankyu
Hanshin Department Stores, Inc.

21 August1963
Aug. 2011

Sales Service Executive
Manager, Hankyu Men’s Tokyo
of Hankyu Hanshin Department
Stores, Inc.

Apr. 2012

Store Manager, Hankyu Men’s
Tokyo of Hankyu Hanshin
Department Stores, Inc.

68

Term ofofficeNumber ofcompany
shares held

(Note) 2

13,600(Note) 2

3,500

TitleName

Date of birth

Brief history
Apr. 2014

Executive Officer, Hankyu
Hanshin Department Stores, Inc.

Apr. 2018

Director and Executive Officer,
Hankyu Hanshin Department
Stores, Inc.

Apr. 2020

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

Jun. 2020

Representative Director, H2O
RETAILING CORPORATION(present position)

69

Term ofofficeNumber ofcompany
shares heldTitleDirector

DirectorStanding Audit andSupervisory Committee
MemberName

Kazuo Sumi

Toshimitsu Konishi

Date of birth

19 April 1949

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. 1967

Joined Hankyu Department
Stores, Inc.

Sep. 1988

General Manager, 30, 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.

17 April 1944 Jun. 2004

Standing Corporate Auditor,
Hankyu Department Stores, Inc.

Oct. 2007

Standing Auditor, H2O
RETAILING CORPORATION

Oct. 2008

Auditor, Hankyu Hanshin
Department Stores, Inc. (present
position)

Jun. 2016

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

70

Term ofofficeNumber ofcompany
shares held

(Note) 2

24,700(Note) 3

22,900TitleDirector
Audit and Supervisory
Committee Member

Director
Audit and Supervisory
Committee Member

Name

Naoshi Ban

Kenjiro Nakano

Date of birth

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

30 September
Apr. 20131946

13 August1947

Director and Senior Corporate
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)

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. 2013

Outside Director of Maruichi
Steel Tube Ltd. (present
position)

Jun. 2016

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

71

Term ofofficeNumber ofcompany
shares held

(Note) 3

10,000(Note) 3

2,600

TitleDirector
Audit and Supervisory
Committee Member

Name

Mayumi Ishihara

Date of birth

Brief history
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. 2013

Outside Auditor, Morishita Jintan
Co., Ltd.

Feb. 2016

Outside Director, Morito Co.,
Ltd. (present position)

Apr. 2016

Outside Director (Audit andSupervisory Committee
Member), OS Co., Ltd. (present
position)

3 May 1963
Jun. 2016

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

Jun. 2018

Outside Director (Audit andSupervisory Committee
Member), Morishita Jintan Co.,
Ltd.
(present position)

72

Term ofofficeNumber ofcompany
shares held

(Note) 3

500

TitleDirector
Audit and Supervisory
Committee Member

Name

Nobuko Sekiguchi

Date of birth

Brief history
Nov. 2005

Joined Capcom Co., Ltd.

Oct. 2007

Accounting Manager, Capcom
Co., Ltd.

Apr. 2011

Corporate Officer inManagement of Corporate
Planning, Capcom Co., Ltd.

Apr. 2016

Managing Corporate Officer inManager of Corporate Planning& Manager of Human Resources
Division, Capcom Co., Ltd.

3 July 1968
Mar. 2019

Left Capcom Co., Ltd.

Jun. 2019

Outside Director, Duskin Co.,
Ltd. (present position)

Jun. 2020

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

Term ofofficeNumber ofcompany
shares held

(Note) 3

Total

0103,000

Notes:
1. Mr. Naoshi Ban, Mr. Kenjiro Nakano, Ms. Mayumi Ishihara and Ms. Nobuko Sekiguchi are outside directors.
2. One year from the conclusion of the Annual General Meeting of Shareholders held on 23rd June 2020.
3. Two years from the conclusion of the Annual General Meeting of Shareholders held on 23rd June 2020.
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 and Supervisory
Committee is Mr. Toshimitsu Konishi. The members of the Audit and Supervisory Committee are Mr. Naoshi Ban, Mr.
Kenjiro Nakano, Ms. Mayumi Ishihara and Ms. Nobuko Sekiguchi.

73

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

a. Relationship with outside directors
Mr. Naoshi Ban has actively given advice and opinions at Board of Directors’ meetings, etc., as an outside director based on his
extensive management experience and his broad insights. The Company has appointed him again as an outside director and ASC
member, judging that he would contribute to increasing the Group’s corporate value by utilising his experience, etc. in the
supervision and audit of the 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 Advisor of Mitsubishi Logistics Corporation. The Company owned 554,500 sharesof Mitsubishi Logistics Corporation, which, however, have been all sold, and as of the end of March 2020, the Company does not
own any shares of Mitsubishi Logistics Corporation. Furthermore, Mitsubishi Logistics Corporation does not hold any shares of theCompany as of the end of March 2020. There are no particular conflicts of interest that require disclosure between Mitsubishi
Logistics Corporation and the Company.

Mr. Kenjiro Nakano has actively given advice and opinions at Board of Directors’ meetings, etc., as an outside director based on
his extensive experience and his broad insights as the manager of a financial institution. The Company has appointed him again as
an outside director and ASC member, judging that he would contribute to increasing the Group’s corporate value by utilising his
experience, etc. in the supervision and audit of the 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 an advisor, since his retirement
10 years ago in June 2010. 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 of Keihanshin Building Co., Ltd. There are no particular conflicts of interest that require disclosure
between Keihanshin Building Co., Ltd. and the Company.

Ms. Mayumi Ishihara has actively given advice and opinions at Board of Directors’ meetings, etc., as an outside director based on
her professional knowledge, experience and broad insights as an attorney-at-law, although she has no experience in corporate
management except as an outside director. The Company has appointed her again as an outside director and ASC member, judging
that she would contribute to increasing the Group’s corporate value by utilising her experience, etc. in the supervision and audit of
the Group. 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.

Ms. Nobuko Sekiguchi has extensive experience, accomplishments, and knowledge, etc. of accounting, corporate planning, andpersonnel system reforms in operating companies and management consulting. The Company has appointed her as an outside
director and ASC member, judging that she would contribute to increasing the Group’s corporate value by drawing on these
attributes in the supervision and audit of the Group. Since she fulfils the requirements as prescribed in the below mentioned“Independence Criteria for Outside Directors,” the Company appointed Ms. Sekiguchi as an independent director. Ms. Sekiguchi
has no special interests in the Company.

74For details regarding shareholdings of each outside director, please see “(i) Officers.”

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 the following 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 hassimilar 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 acertain amount (Note 3) of money or other property from the Group in addition to compensation for being 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 theGroup.

(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 such companies.

(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 the person 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 the past 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 greater of ¥100 million or 2% of
the consolidated sales of the party.

75

2. “A principal business partner” means (a) a party to whom the Group offers products and/or services whose total amount oftransactions with the Group in the previous fiscal year exceeds 2% of the consolidated sales of the Company 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 from the Groupin the previous fiscal year in cases in which the expert is an individual offering services to the Group or (b) the total amountof compensation received from the Group in the previous fiscal year reaches 2% of the total revenue of a party in cases inwhich 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.

76

b. Main activities of outside directors during the reporting period
Classification

Name

Director who is an

Naoshi Ban

ASC member

Main Activities
Attended all 11 Board of Directors’ meetings (excluding written
resolutions) and all 12 ASC meetings held during the reporting
period, giving his opinions on measures and asking questions basedon his extensive management experience. In addition, he chaired theNominating and Compensation Advisory Committee, a voluntarycommittee, offering appropriate advice at the committee’s meetingsand striving to improve the transparency and objectivity for
personnel affairs and compensation of the management.

Director who is an

Kenjiro Nakano Attended all 11 Board of Directors’ meetings (excluding written

ASC member

resolutions) and 11 of 12 ASC meetings held during the reporting
period, giving his opinions on measures and asking questions basedon his extensive management experience. On 31st October 2019, he
was appointed as a member of the Nominating and Compensation
Advisory Committee, and has been offering appropriate advice at thecommittee’s meetings and striving to improve the transparency andobjectivity for personnel affairs and compensation of the
management.

Director who is an

Mayumi

Attended all 11 Board of Directors’ meetings (excluding written

ASC member

Ishihara

resolutions) and all 12 ASC meetings held during the reporting
period, giving her opinions on measures and asking questions based
primarily on her specialised knowledge as an attorney.

77

(3) Status of audits(i) Internal audits and ASC’s audits
The Company has five (5) ASC members, consisting of four (4) outside directors and one (1) director (full-time ASC member). The
Company assigns professionals with corporate management experience and specialised knowledge of law and other subjects as
outside directors. Mr. Toshimitsu Konishi, who has substantial knowledge of finance and accounting and has served as an accounting
manager during his approximately 30 years career at Accounting Department in the Company, has been assigned as the full-time
ASC member. The full-time ASC member is assigned as an ASC member with the authority to be reported to and to investigate. In
addition, ten (10) assistant employees, consisting of six (6) dedicated auditors, each of whom serves as corporate auditor of four (4)to five (5) subsidiaries besides administrative operation of the ASC, and four (4) 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 by making
proposals for improvements based on regular interviews and on-site audits and assessing internal controls in financial reporting andin business processes.

With regard to activities of the ASC, the ASC developed audit plans and implemented focused audits and ordinary audits inaccordance with the standards for ASC’s audits, etc., the standards for audits of internal control system and others. Outside directors
who are ASC members attended Board of Directors’ meetings and regular meetings with representative directors, and gave theiropinions and asked questions as necessary from the standpoint of attorneys and specialists with extensive business management
experience. In addition, a full-time ASC member attends the monthly “Group Management meeting” and the “Group Compliance
Committee meeting,” which are held as needed. The full-time ASC member expresses his opinions at these meetings as necessary
and inspects final decision reports on key matters as well as the minutes of the meetings, and hears reports regarding the executionof operations directly from internal control divisions.

The ASC meeting was held 12 times during the reporting period. Of these, Mr. Toshimitsu Konishi, Mr. Naoshi Ban, and Ms.
Mayumi Ishihara attended all 12 meetings, and Mr. Kenjiro Nakano attended 11. At each meeting, the full-time ASC member spentapproximately two (2) hours making an explanation on the content of agendas for the Board of Directors’ meeting and a detailed
report on the status of audits. Concurrently, a consensus on the ASC’s opinion in consideration of the supervisory function over the
executing person was formed through discussions about management issues, and the full-time ASC member provided advice andrecommendations on the role of the holding company to representative directors for embodiment of the management philosophy asnecessary.

In addition, two (2) outside directors who are ASC members have become the Chairman and a member of the voluntary Nominating
and Compensation Advisory Committee, and at ASC meetings, they discussed policy on determining nominations and remuneration
to consolidate their opinions, as well as discussing an ideal organisational structure that enables practice of aggressive governance,and providing advice and recommendations to representative directors as necessary.

78

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 through auditing visits. At the same time, these corporate auditors
work to perform more effective audits by holding Group Corporate Auditors Committee meetings where appropriate and verifying
the progress of audit plans through individual opinion exchanges with the full-time ASC member and corporate auditors ofsubsidiaries.

Regarding the coordination with the internal audit division, the full-time ASC member weekly receives a report on assessment ofinternal control concerning financial reporting and internal control concerning business processes from the function in charge of JSOX, 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 terms of liaison with the independent auditors, the ASC members maintained a close exchange of opinions. For example, theyexchange opinions about key audit matters when drafting the audit plan, while the full-time ASC member confirms the progress of
the audit procedures and exchanges opinions on issues in audits once a month in principle, and at ASC meetings, close coordination
is maintained through discussion about major issues in auditing and the audit procedures on a quarterly basis.

(ii) Accounting auditsa. Name of the auditing firm
KPMG AZSA LLC

b. Continuous auditing period
45 yearsThis number of years covers the period from the establishment of KPMG AZSA LLC’s predecessor, Shinwa Audit Corporation,
but a possibility remains that the continuous auditing period exceeds this period due to the remarkable difficulty in conducting
an investigation.

c. Certified public accountants who executed the audits
Mr. Motoharu Iyomasa, Mr. Naoki Sugita and Ms. Aki Yuged. Composition of assistants with the audits
14 other certified public accountants and 12 other staff members

e. Selection policy and evaluation of auditing firm
In appointing an auditing firm, the Company takes into account the independence of the independent auditors, status of quality
management, appropriateness of audit execution structure, ample auditing experience in other industries and companies,
enriched relevant services, appropriateness of audit fees, and others.

79

If the independent auditors fall under any of the matter set forth in each item of Article 340, paragraph (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 in consideration of the independent audit’s number of years of continuous audits, audit fees andothers, or if the ASC judges, in light of assessment of the independent auditors, that a change of the independent audit isreasonable to further increase the appropriateness of audits, the ASC determines the content of proposal for dismissal or nonreappointment of the independent auditors to be submitted to a General Shareholders’ Meeting.
Based on these policies, the ASC deliberated on the appropriateness of the independent auditors based on an evaluation of theirscore on 20 evaluation items following the “Practical Guide for Audit & Supervisory Board Members, etc., Regarding
Evaluation and Formulation of Selection Standards for Accounting Auditors” issued by the Japan Audit & Supervisory Board
Members Association. As a result, the ASC judged the selection of KPMG AZSA LLC as the independent auditor to beappropriate.

(iii) Fees paid to independent auditors
a. Details of fees paid to certified public accountants, etc.
For the year ended 31st March 2019
Classification

Audit fees
(millions of yen)

The Company
Consolidated
subsidiaries
Total

For the year ended 31st March 2020

Fees for non-audit
services(millions of yen)

Audit fees
(millions of yen)

Fees for non-audit
services(millions of yen)

67

3

63

7

158

―

156

―

226

3

220

7

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” for the year ended 31st March 2019 and “financial due diligence services” for theyear ended 31st March 2020.

b. Details of fees paid to certified public accountants, etc. and their network (KPMG International) (excluding a.)
For the year ended 31st March 2019
Classification

The Company
Consolidated
subsidiaries
Total

Audit fees
(millions of yen)

For the year ended 31st March 2020

Fees for non-audit
services(millions of yen)

Audit fees
(millions of yen)

Fees for non-audit
services(millions of yen)

―

―

―

―

11

―

11

―

11

―

11

―

80

c. Other significant fees paid
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.

For the year ended 31st March 2020
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.

d. 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 and characteristics of thebusiness of the Company.

e. 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 the past, evaluated audit
results, reviewed fee trends in the past and compared the fees with those paid by other companies in the same business. The
ASC also had an interview with the independent auditors to evaluate their credentials and examined the appropriateness andreasonableness 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.

(4) Compensation for directors(i) Compensation paid to directors

Classification

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

Total compensation by type (millions of yen)
Stock option based
Total
compensation
Basic
compensation compensation
with
with
Bonus
(millions of yen)(fixedcontinuous performancecompensation)
service-basedconditions
conditions

Number of
directors

163

116

19

7

19

5

27

26

0

—

—

1

34

31

2

—

—

4

81

(ii) Matters regarding policy on determining compensation for directors
In order to provide higher incentives to improve short- and medium- to long-term performance, the compensation of the Company’s
executive directors and executive officers (“executive directors”) combine monthly basic compensation with annual bonus thatreflects single-year performance and other factors and stock option based compensation that is linked to stock price, and thecompensation 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-term plan that starts in fiscal 2020 to review the new stockcompensation 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 theCompany 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 and of achieving
sustainable growth.

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

As for compensation for directors, etc., the Board of Directors decides the agenda for the General Shareholders’ Meeting andindividual amounts of compensation after consideration by the Nominating and Compensation Advisory Committee. As forcompensation for directors who are ASC members, individual amounts are determined through discussion 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 level of compensation of otherofficers in the Company.

Regarding compensation for executive directors, 50% is monthly basic compensation and 50% is annual bonus and stockcompensation. 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)





82

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 fiscal year on the basis of thecompensation 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 to achievementlevels of consolidated operating income, and determined in accordance with position and assessment in consideration 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 option based 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 and executive officer of theCompany and its subsidiaries (but provided that the loss is for retirement due to expiration of the terms of office or any othervalid reason accepted by the Company), are granted to executive directors and non-executive directors in accordance with theposition 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 the Company’s Boardof Directors (such as consolidated net sales, each stage of income, ROE and ROIC), the number of exercisable units is determinedwithin the range of 0 to 100% of allotted subscription rights to shares in accordance 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(but provided that the loss is for retirement due to expiration of the terms of office or any other valid reason accepted by theCompany), are granted to executive directors in accordance with the position each year.
The performance-based indicators for allotment in July 2019 shall be as follows, and will be determined based on results in thefiscal year ending 31st March 2021, the final year for the mid-term 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 2020 to 2022
Indicator(i) Consolidated ordinary income(ii) Consolidated ROIC

Target for fiscal 2022

Weight¥25.0 billion

50%

4.0%

50%

83

The maximum compensation based on a resolution of the General Shareholders’ Meeting is outlined below.
a. At the 97th Annual General Meeting of Shareholders 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 per year (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 Annual General Meeting of Shareholders held on 20th June 2019, it was resolved as described below that the amountof the stock option based compensation would be based on a different framework from the monthly compensation describedabove.


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 ¥9million for outside directors) and the upper limit of ¥36 million per year will be set for performance-based stock options.



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.

(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 than portfolio
investment purposes, the Company classifies investment securities which are held for the purpose of gain on sale as portfolio
investment purposes and those which are held for the purpose of building good relationships with business partners and relatedparties such as business alliance partners and contributing to smooth promotion of the Company group’s businesses andimprovement of corporate value over the medium to long term as purposes other than 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 and related parties
such as business alliance partners and contributes to smooth promotion of the Company group’s businesses and improvement ofcorporate 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 tolong term, also taking into account the holding purpose.

84

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 in transactions with thiscompany 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 and other matters, andconsider 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 than unlisted
sharesNumber of

Total amount ofdifferent stocks

balance sheet value(stock)(millions of yen)

26

4,558

15

63,833

Stocks of which the number of shares increased in the fiscal year ended 31st March 2020
Total amount of
Number ofacquisition cost relateddifferent stocks

to the increase in the(stock)number of shares

Reason for the increase in the number of shares(millions of yen)
Unlisted shares
Shares other than unlisted
shares

1

187

3

1,095

To strengthen business management relationshipTo strengthen business management relationship

Stocks of which the number of shares decreased in the fiscal year ended 31st March 2020
Total amount of sale
Number ofvalue related to thedifferent stocks

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

Unlisted shares
Shares other than unlisted
shares

2

1,500

3

2,194

85

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

Stock

For the year ended
31st March 2020
Number of shares

For the year ended
31st March 2019
Number of shares

Balance sheet value Balance sheet value(millions of yen)(millions of yen)
13,664,280

13,664,280

Toho Co., Ltd.
45,09260,737

8,887,000

8,887,000

Takashimaya Co., Ltd.
8,647

13,0993,200,000

3,200,000

Kansai Super Market
Ltd.

SRS HOLDINGS CO.,
LTD.

3,264

3,299

2,557,404

–

2,309

–

86

Purpose of holding, quantitative effects ofholding, and reason for the increase in thenumber of shares(Purpose of holding) To strengthen
relationship with the Hankyu Hanshin Toho
Group from a group-wide perspective(Method of verifying reasonableness ofholding) Based on the relationship of the
Hankyu Hanshin Toho Group, the Company
has judged that there are positive effects ofholding the stock.
(Purpose of holding) To strengthen
relationship between both companies
through business alliance, mainly in the
Department Store Business segment(Method of verifying reasonableness ofholding) The Company has determined that
there are certain positive effects on
promotion of businesses, such as a joint
effort for products in the business alliance.
(Purpose of holding) To strengthen
relationship between both companies
through business alliance, mainly in the
Supermarket Business segment(Method of verifying reasonableness ofholding) The Company has considered that
there are positive effects of holding inpromotion of the Company group’sbusiness strategy, such as introduction of
the Company group’s joint point system,
sale of the Company group’s products, etc.,
through the business alliance.
(Purpose of holding)
To strengthen the business management
relationship from a group-wide perspective(Method of verifying reasonableness ofholding) As a result of taking into accountthe business relationship with this company,
the Company has considered that there arepositive effects of holding the stock.
(Reason for the increase in shares) The
Company acquired shares under a capitaland business alliance.

Whether or not
the stock of theCompany is
held

None

Yes

Yes

None

StockFor the year ended
31st March 2020
Number of shares

For the year ended
31st March 2019
Number of shares

Balance sheet value Balance sheet value(millions of yen)(millions of yen)
363,300

363,300

1,237

1,326

3,012,740

3,012,740

Kato Sangyo Co., Ltd.

Mitsubishi UFJ
Financial Group, Inc.

Asahi Group Holdings,
Ltd.

1,214

1,657

217,360

217,360

762

1,071

374,500

374,500

540

1,011

120,528

120,528316

467

Umenohana Co., Ltd.

Sumitomo Mitsui
Financial Group, Inc.

87

Purpose of holding, quantitative effects ofholding, and reason for the increase in thenumber of shares(Purpose of holding) To strengthen thebusiness management relationship, mainlyin the Supermarket Business segment(Method of verifying reasonableness ofholding) As a result of taking into accountthe business relationship with this company(transaction for purchase of goods), theCompany has considered that there arepositive effects of holding the stock.
(Purpose of holding) For group-wide
financial policy reasons(Method of verifying reasonableness ofholding) As a result of taking into accountthe business relationship with this company(borrowing transaction), the Company has
considered that there are positive effects ofholding the stock.
(Purpose of holding) To strengthen thebusiness management relationship, mainlyin the Department Store Business segment(Method of verifying reasonableness ofholding) As a result of taking into accountthe business relationship with this company(transaction for purchase of goods), theCompany has considered that there arepositive effects of holding the stock.
(Purpose of holding) To strengthen
relationship between both companies
through business alliance, mainly in the
Department Store Business segment(Method of verifying reasonableness ofholding) As a result of taking into accountthe business relationship with this company(transaction for purchase of goods), theCompany has considered that there arepositive effects of holding the stock.
(Purpose of holding) For group-wide
financial policy reasons(Method of verifying reasonableness ofholding) As a result of taking into accountthe business relationship with this company(borrowing transaction), the Company has
considered that there are positive effects ofholding the stock.

Whether or not
the stock of theCompany is
held

Yes

None (Note)

None (Note)

None

None (Note)

StockFor the year ended
31st March 2020
Number of shares

For the year ended
31st March 2019
Number of shares

Balance sheet value Balance sheet value(millions of yen)(millions of yen)
56,00056,000116

142

20,200–113–

25,37025,37079100

164,372

150,252

78

87

33,00033,00040

74

Joshin Denki Co., Ltd.

cocokara fine Inc.

Sumitomo Mitsui TrustHoldings, Inc.

Onward Holdings Co.,Ltd.

Toyo Seikan Group
Holdings, Ltd.

88

Purpose of holding, quantitative effects ofholding, and reason for the increase in thenumber of shares(Purpose of holding) To strengthen thebusiness management relationship from agroup-wide perspective(Method of verifying reasonableness ofholding) As a result of taking into accountthe business relationship with this company,
the Company has considered that there arepositive effects of holding the stock.
(Purpose of holding) To strengthen
relationship between both companies
through business alliance, mainly in the
Supermarket Business segment(Method of verifying reasonableness ofholding) As a result of taking into accountthe business relationship with this company,
the Company has considered that there arepositive effects of holding the stock.
(Reason for the increase in shares) The
Company acquired shares under a capitaland business alliance.
(Purpose of holding) For group-wide
financial policy reasons(Method of verifying reasonableness ofholding) As a result of taking into accountthe business relationship with this company(borrowing transaction), the Company has
considered that there are positive effects ofholding the stock.
(Purpose of holding) To strengthen thebusiness management relationship, mainlyin the Department Store Business segment(Method of verifying reasonableness ofholding) As a result of taking into accountthe business relationship with this company(transaction for purchase of goods), theCompany has considered that there arepositive effects of holding the stock.
(Reason for the increase in shares) This isbecause the Company has participated in
the business partners shareholding
association and additionally acquires shareson a regular basis.
(Purpose of holding) To facilitate businessactivity, mainly in the Department StoreBusiness segment(Method of verifying reasonableness ofholding) As a result of taking into accountthe business relationship with this company,
the Company has considered that there arepositive effects of holding the stock.

Whether or not
the stock of theCompany is
held

Yes

None (Note)

None (Note)

Yes

None

StockFor the year ended
31st March 2020
Number of shares

For the year ended
31st March 2019
Number of shares

Balance sheet value Balance sheet value(millions of yen)(millions of yen)

Tokyo Rakutenchi Co.,
Ltd.

5,500

5,500

22

27

Purpose of holding, quantitative effects ofholding, and reason for the increase in thenumber of shares

Whether or not
the stock of theCompany isheld(Purpose of holding) To strengthen
relationship with the Hankyu Hanshin Toho
Group from a group-wide perspective(Method of verifying reasonableness ofholding) Based on the relationship of the
Hankyu Hanshin Toho Group, the Company
has judged that there are positive effects ofholding the stock.

None* For stocks for which it is difficult to describe quantitative effects of holding, the method of verifying reasonableness of holding
has been provided.
Note: A Group company holds stock of the Company(iii) Investment securities which are held for portfolio investment purposes
Not applicable.

(iv) Investment securities whose purpose for holding was changed from portfolio investment purposes to purposes other thanportfolio investment purposes during the fiscal year ended 31st March 2020
Not applicable.

(v) Investment securities whose purpose for holding was changed from purposes other than portfolio investment purposes toportfolio investment purposes during the fiscal year ended 31st March 2020
Not applicable.

89

V. Financial Information
Consolidated Balance Sheets
H2O RETAILING CORPORATION and Consolidated Subsidiaries
Thousands of U.S.
dollars

Millions of yen

As of 31st March 2019 and 2020
AssetsCurrent assets
Cash and deposits
Notes and accounts receivable - trade
Merchandise and finished goods
Work in process
Raw materials and supplies
Accounts receivable - other
Other (Note 5)
Allowance for doubtful accounts
Total current assets\

Non-current assets
Property, plant and equipment
Buildings and structures (Notes 1 and 3)
Accumulated depreciation
Buildings and structures, net
Machinery, equipment and vehicles (Note 1)
Accumulated depreciation
Machinery, equipment and vehicles, net
Land (Notes 1, 3 and 4)
Construction in progress (Note 1)
Other (Notes 1 and 3)
Accumulated depreciation
Other, net
Property, plant and equipment, net
Intangible assets
Goodwill
Other
Total intangible assets
Investments and other assets
Investment securities (Note 2)Long-term loans receivable
Guarantee deposits (Note 3)
Net defined benefit asset
Deferred tax assets
Other
Allowance for doubtful accounts
Total investments and other assets
Total non-current assets
Total assets\

See accompanying notes.

90

2019

2020

55,229 \49,886
31,600
329
1,990
6,778
4,643
(454)
150,003

25,95844,44527,732
348
1,607
7,618
4,740
(335)
112,116

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

308,287(190,311)
117,976
7,956(4,992)
2,964
139,351
1,248
47,145(35,520)
11,624273,165

2,828,321(1,745,972)
1,082,348
72,990(45,798)
27,192
1,278,449
11,449432,522(325,871)
106,6422,506,100

4,076
14,68518,762

3,305
15,862
19,16830,321
145,522
175,853

121,149
4,571
72,29095,841
7,026
70,42560
10,0082,020(2,927)
182,454474,788586,904

879,275
64,458646,100
550
91,816
18,532(26,853)
1,673,889
4,355,853
5,384,440

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

2020

$

$

238,146
407,752
254,422
3,192
14,74369,88943,486(3,073)
1,028,587

Thousands of U.S.
dollars

Millions of yen

Liabilities
Current liabilities
Notes and accounts payable - trade (Note 3)
Short-term loans payable (Note 5)
Current portion of long-term loans payable (Note 3)
Accounts payable - other
Lease obligations
Income taxes payable
Gift certificates
Provision for bonuses
Provision for directors' bonuses
Provision for loss on store closings
Provision for point card certificates
Asset retirement obligations
Other
Total current liabilities\

Non-current liabilities
Bonds payable
Long-term loans payable (Note 3)
Deferred tax liabilities
Deferred tax liabilities for land revaluation (Note 4)
Provision for directors' retirement benefits
Provision for redemption of gift certificates
Net defined benefit liability
Long-term accounts payable - other
Lease obligations
Long-term guarantee deposits
Asset retirement obligations
Other (Note 6)
Total non-current liabilities
Total liabilities
Net assets
Shareholders' equity
Capital stock:

2019

2020

2020

59,732 \8,000
20,201
19,655749
4,151
29,676
5,018
156
967
1,823
68
23,888174,092

43,917
15,00018,10021,976910
2,267
27,872
3,953
90
78
1,951
90
21,930158,139

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

20,00098,613
17,108
266
164
4,233
13,993287
13,806
9,632
3,165
2,858
184,131342,270

183,486
904,706
156,9542,440
1,504
38,834
128,376
2,633
126,660
88,36629,036
26,2201,689,275
3,140,091

17,796

17,796

163,266

92,675132,278(2,995)92,650114,184(2,899)850,000
1,047,559(26,596)239,755

221,732

2,034,238

42,86425,435

233,348124(788)(3,591)
38,6081,235
4
279,603
663,335 \124(1,128)(2,846)
21,5841,312
4244,634
586,904

1,137(10,348)(26,110)
198,018
12,03636
2,244,348
5,384,440$

402,908
137,614
166,055
201,614
8,348
20,798
255,706
36,266825
715
17,899825
201,192
1,450,816

Common stock,
Authorised - 150,000,000 shares,
Issued - 125,201,396 shares in 2019 and 2020

Capital surplus
Retained earnings
Treasury shares- 1,609,297 shares in 2019
- 1,558,219 shares in 2020

Total shareholders' equity
Accumulated other comprehensive income
Valuation difference on available-for-sale securities
Revaluation reserve for land (Note 4)
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 net assets
See accompanying notes.

\

91

$

Consolidated Statements of Operations
H2O RETAILING CORPORATION and Consolidated Subsidiaries
Thousands of U.S.
dollars

Millions of yen

Years ended 31st March 2019 and 2020
Net sales2019
926,872 \2020
897,289

660,636
266,235

641,253
256,035

5,883,055
2,348,944

77,05939,30675,73840,286

694,844369,596

129,448245,813
20,422

128,838
244,863
11,171

1,182,000
2,246,449
102,486

80

169

1,550

Dividend income
Gain on debt settlement
Other

1,326
1,429
1,051

1,314
1,487
884

12,055
13,642
8,110

Total non-operating income
Non-operating expenses
Interest expenses

3,887

3,855

35,366\

Cost of sales (Note 1)
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$

2020
8,232,009

728

772

7,082

1,066
179
958

1,058
226
1,138

9,706
2,073
10,4402,932
21,376

3,196
11,831

29,321
108,541

-

997

9,146

895

693
17
-

6,357
155
-

895

1,707

15,6602,592

14,196130,238

Business restructuring expenses (Note 6)
Loss on retirement of non-current assets (Notes 7 and 10)
Loss on sales of non-current assets (Note 8)

1,266
-

3,854
1,848
930

35,357
16,954
8,532

Loss on liquidation of business (Note 9)
Loss on store closings (Notes 5, 7 and 10)
Loss on share exchanges (Note 11)

546
7,228
-

821
747
477

7,532
6,853
4,376

Loss on disaster (Note 12)
Outplacement expenses (Note 13)

1,402
672

-

-

Expenses for store openings (Note 14)
Total extraordinary losses

514
14,221

22,875

209,862

Profit (loss) before income taxes

8,050(9,337)(85,660)

Income taxes - current

4,696

3,550

32,568

Income taxes - deferred
Total income taxes
Profit (loss)
Profit attributable to non-controlling interests

1,192
5,888
2,162
0

262
3,813
(13,150)
0

2,403
34,981(120,642)
02,162 \

(13,150)

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
Gain on sales of non-current assets (Note 2)
Gain on sales of investment securities (Note 3)
Gain on bargain purchase
Insurance income (Note 4)
Total extraordinary income
Extraordinary losses
Impairment loss (Notes 5 and 10)\

Profit (loss) attributable to owners of parent
See accompanying notes.

92$(120,642)

Consolidated Statements of Comprehensive Income
H2O RETAILING CORPORATION and Consolidated Subsidiaries
Thousands of U.S.
dollars

Millions of yen

Years ended 31st March 2019 and 2020
Profit (loss)
Other comprehensive income
Valuation difference on available-for-sale securities
Deferred gains or losses on hedges
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 (Note)
Comprehensive income
Comprehensive income attributable to:
Owners of parent
Non-controlling interests

\

\

\

See accompanying notes.

93

2019
2,162 \

2020
(13,150)

5,201
(59)
(110)
(2,932)(17,429)(47)
744(159,899)
(431)
6,825

(669)

(291)

(2,669)1,429
3,592 \

(17,024)(30,174)

3,592 \
0(30,174)
0

$

$

$

2020
(120,642)(156,183)(276,825)(276,825)0Consolidated Statements of Changes in Net Assets
H2O RETAILING CORPORATION and Consolidated Subsidiaries
Millions of yen

Shareholders' equity
Capital stock
Years ended 31st March 2019 and 2020
Balance at 1st April 2018
Changes 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 in items other than shareholders' equity
Total changes during period
Balance at 31st March 2019
Balance at 1st April 2019
Changes during period
Dividends of surplus
Loss attributable to owners of parent
Purchase and disposal of treasury shares
Net changes in items other than shareholders' equity
Total changes during period
Balance at 31st March 2020

¥17,796

Capitalsurplus¥92,726

Retainedearnings

TreasurysharesTotalshareholders'equity¥135,057¥(3,190)¥242,390

194(4,941)
2,162
154(4,941)
2,162(40)¥17,796¥17,796

(10)

(10)

(0)

(0)

(50)
¥92,675¥92,675(2,778)¥132,278¥132,278

194¥(2,995)¥(2,995)(4,944)(13,150)(24)¥17,796(24)¥92,65096(18,094)¥114,184

96¥(2,899)(2,634)¥239,755¥239,755(4,944)(13,150)71(18,022)¥221,732

Millions of yen

Accumulated other comprehensive income
Valuationdifference on
available-forsale
securities
Balance at 1st April 2018
Changes 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 in items other than shareholders' equity
Total changes during period
Balance at 31st March 2019
Balance at 1st April 2019
Changes during period
Dividends of surplus
Loss attributable to owners of parent
Purchase and disposal of treasury shares
Net changes in items other than shareholders' equity
Total changes during period
Balance at 31st March 2020

¥37,662

Deferred
gains orlosses onhedges

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

¥59

¥124

¥(8)

¥(658)¥37,178¥1,234¥3

Total net
assets¥280,807(4,941)
2,162
154
(10)

5,201
5,201
¥42,864¥42,864

(59)
(59)
-

¥124
¥124

(17,429)(17,429)¥25,435

¥124

94

(779)
(779)
¥(788)¥(788)(339)(339)¥(1,128)(2,932)(2,932)¥(3,591)¥(3,591)744
744¥(2,846)

1,429
1,429
¥38,608¥38,608(17,024)(17,024)¥21,584

1
1¥1,235¥1,23577
77¥1,312

0
0
¥4
¥4

(0)
1,430
(1,204)¥279,603¥279,603

00¥4(4,944)(13,150)71(16,946)(34,969)¥244,634

Thousands of U.S. dollars

Shareholders' equity
Capital stockYear ended 31st March 2020
Balance at 1st April 2019
Changes during period
Dividends of surplus
Loss attributable to owners of parent
Purchase and disposal of treasury shares
Net changes in items other than shareholders' equity
Total changes during period
Balance at 31st March 2020

$163,266

CapitalsurplusRetainedearnings$850,229 $1,213,559

TreasurysharesTotalshareholders'equity$(27,477)$2,199,587(45,357)(120,642)(220)$163,266880(220) (166,000)$850,000 $1,047,559

880$(26,596)(45,357)(120,642)
651(165,339)$2,034,238

Thousands of U.S. dollars

Accumulated other comprehensive income
Valuationdifference on
available-forsale
securities
Balance at 1st April 2019
Changes during period
Dividends of surplus
Loss attributable to owners of parent
Purchase and disposal of treasury shares
Net changes in items other than shareholders' equity
Total changes during period
Balance at 31st March 2020

$393,247(159,899)(159,899)$233,348

Deferred
gains orlosses onhedges

Total
Foreign
RemeasureRevaluation
accumulated Subscription
Noncurrency
ments ofreserve forotherrights tocontrollingtranslation
definedlandcomprehensharesinterests
adjustment benefit plans
sive income$1,137$1,137

See accompanying notes.

95$(7,229)(3,110)(3,110)$(10,348)$(32,944)

6,825
6,825
$(26,110)$354,201(156,183)(156,183)$198,018$11,330706
706$12,036

Total net
assets$36$2,565,165

0
0
$36

(45,357)(120,642)
651(155,467)(320,816)$2,244,348

Consolidated Statements of Cash FlowsH2O RETAILING CORPORATION and Consolidated Subsidiaries
Thousands of U.S.
dollars

Millions of yen

Years ended 31st March 2019 and 20202019

Cash flows from operating activities
Profit (loss) before income taxes

\

2020

2020

8,050 \

(9,337)

Depreciation
Impairment loss

17,3992,592

18,51914,196

169,899
130,238

Loss on store closings
Amortisation of goodwill
Increase (decrease) in allowance for doubtful accounts

4,398
570
46

170
581
(103)

1,559
5,330
(944)

Increase (decrease) in provision for bonuses
Increase (decrease) in provision for directors' bonuses

(74)
(3)

(1,001)(66)(9,183)(605)

Increase (decrease) in net defined benefit liability
Increase (decrease) in remeasurements of defined benefit plans

2,001(2,932)(2,626)744(24,091)
6,825

Increase (decrease) in provision for directors' retirement benefits
Increase (decrease) in provision for redemption of gift certificates

(6)
292

(7)
213

(64)
1,954

Increase (decrease) in provision for loss on store closings
Increase (decrease) in provision for point card certificates

851
(135)

(889)
129

(8,155)1,183(1,406)(1,483)(13,605)

Interest expenses
Insurance income

728
(895)

772
(69)

7,082
(633)

Loss on disaster
Share of (profit) loss of entities accounted for using equity method

1,402
179

2
226

18
2,073

343

(692)
(66)
773

(6,348)
(605)
7,091

Business restructuring expenses

-

3,854

35,357

Loss on liquidation of business

546

375

3,440

(3,017)

461
4,857

4,229
44,559Interest and dividend income

Loss (gain) on sales of investment securities
Loss (gain) on sales of non-current assets
Loss on retirement of non-current assets

Loss (gain) on share exchanges
Decrease (increase) in notes and accounts receivable - trade
Decrease (increase) in inventories$(85,660)

968

3,783

34,706

Increase (decrease) in notes and accounts payable - trade(2,249)(14,955)(137,201)

Increase (decrease) in accrued consumption taxes
Increase (decrease) in gift certificates
Increase (decrease) in advances received

(429)

566

5,192

(4,193)(3,316)(1,799)69(16,504)
633

Other
Subtotal

762
22,473(2,411)
14,785(22,119)
135,642Interest and dividend income received
Interest expenses paid

1,401
(730)

1,368
(766)

12,550(7,027)

Income taxes paid
Proceeds from insurance income(7,304)895(5,525)
69(50,688)
633

Payments for loss on disaster
Cash flows from operating activities(1,343)
15,392

(60)
9,871

(550)
90,559See accompanying notes.

96Thousands of U.S.
dollars

Millions of yen

2019

2020

2020

Purchase of property, plant and equipment
Proceeds from sales of property, plant and equipment(30,289)
1,412(26,675)
9,138(244,724)
83,834Purchase of intangible assets
Proceeds from sales of intangible assets(3,713)-(6,938)
0(63,651)
0

Payments for asset retirement obligations

(374)

(205)

(1,880)Purchase of investment securities(37)(1,288)(11,816)

0

3,699

33,935

Cash flows from investing activities

Proceeds from sales and redemption of investment securities
Payments for transfer of businesses (Note 2)

(45)

-

-

-

(648)

(5,944)

-

(23)

(211)

(696)
147

(2,685)
2,554(24,633)
23,431

Payments for guarantee deposits(6,335)(962)(8,825)

Proceeds from collection of guarantee deposits

3,712

1,549

14,211

Other

(463)

35

321

(36,682)(22,451)(205,972)

8,000

7,000

64,22020,040(22,624)98(20,375)

899(186,926)

9,946

-

-

0

0

0

(3)
(4,941)(2)(4,944)(18)(45,357)

Payments for acquisition of businesses (Note 3)
Payments for sales of shares of subsidiaries resulting in change in scopeof consolidation
Payments of long-term loans receivableCollection of long-term loans receivable

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
Proceeds from sales of treasury shares
Purchase of treasury shares
Cash dividends paid
Repayments of lease obligations
Proceeds from sale and leaseback transactions
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
Decrease in cash and cash equivalents resulting from exclusion ofsubsidiaries from consolidation (Note 4)
Cash and cash equivalents at end of year (Note 1)
See accompanying notes.

97

\

(836)

(959)

(8,798)-

2,742

25,155

(0)

-

-

9,581

(16,440)(150,825)(213)(11,921)
67,150(119)(29,139)
55,229(1,091)(267,330)
506,688-(130)(1,192)55,229 \25,958$238,146

Notes to the Consolidated Financial Statements
H2O RETAILING CORPORATION and Consolidated Subsidiaries

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.
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
in yen 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 ¥109 to U.S. $1.00, using
the prevailing exchange rate at 31st March 2020, 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 theindividual amounts. The translations of the Japanese yen amounts into U.S. dollar amounts are included solely forthe convenience 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.

Significant accounting policies for preparation of consolidated financial statements
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.
1. Scope of consolidation
Number of consolidated subsidiaries: 55 companies
The names of principal consolidated subsidiaries are omitted here because they are provided in “4. Overview ofsubsidiaries and associates” under “I. Overview of the Company.”
From the year ended 31st March 2020, the following company has been included in the scope of consolidation:• asnas Co., Ltd. (due to new establishment)98• H2O Shopping Center Development Co., Ltd. (due to new establishment)• CFIZ Co., Ltd. (due to new establishment)
From the year ended 31st March 2020, the following company has been excluded from the scope of consolidation:• Withsystem Inc. (due to sale of shares held)• Sun Laurie Co., Ltd. (due to share exchange)• KAZOKUTEI CO., Ltd. (due to share exchange)
2. Application of equity method
Number of associates accounted for using equity method: 7 companies
Principal companies: Ningbo Development Co., Ltd. and Hankyu Hanshin Point Co., Ltd.
From the year ended 31st March 2020, the following company has been included in associates accounted for using
equity method:• Chuan-lian Hankyu Bakery Co., Ltd. (due to new establishment)• hankyu hanshin marketing solutions Inc. (due to new establishment)
3. Fiscal years, etc., of consolidated subsidiaries
In the year ended 31st March 2020, 4 consolidated subsidiaries had a financial year ending on 31st December.
For subsidiaries that have different closing date than the consolidated closing date, with respect to the period fromthe subsidiary’s year-end to 31st March, necessary adjustments were made to reflect significant transactions in the
consolidated financial statements.
4. Summary of significant accounting policies(1) Valuation bases and methods for significant assets(i)Securities
Available-for-sale securities
Available-for-sale securities with fair market values are stated at fair value. Unrealised holding gains andlosses 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 values are stated at average cost.

If the fair market value of available-for-sale securities declines significantly, the securities are stated at fairmarket value, and the difference between fair market value and the carrying amount is recognised as loss inthe 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 thesecases, the fair market value or the net asset value will be carried forward as book value to the next year.
(ii)

Derivative transactions
Derivative transactions are stated at fair value.

(iii) Inventories
Inventories are stated at cost. The book value of inventories is reduced on the basis of declines in profitability
and is determined principally by the retail method for merchandise and finished goods and the weighted
average method for work in process and raw materials and supplies.

99

(2) Depreciation and amortisation methods for significant depreciable and amortisable assets(i)

Property, plant and equipment, excluding lease assets
Property, plant and equipment, excluding lease assets, are carried at cost. Depreciation is computed
principally by the straight-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 of buildings and structures is 1 to 60 years. The estimated useful life ofmachinery, equipment and vehicles is 2 to 17 years, and the estimated useful life of other assets is 1 to 20
years.

(ii)

Intangible assets, excluding lease assets
Intangible assets, excluding lease assets, are carried at cost. Amortisation is computed principally by thestraight-line method.
Software for internal use is amortised using the straight-line method over the estimated useful life of 5 years.

(iii) Leased assets
Leased assets under finance lease contracts that do not transfer ownership of the leased property to the lessee
are depreciated 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 wereconcluded prior to 1st April 2008 are accounted for by the same method as that applied to ordinary operatingleases.
(3) Accounting policy for significant provisions(i)

Allowance for doubtful accounts
The allowance for doubtful accounts is provided in amounts management considers sufficient to coverpossible losses on collection. With respect to normal trade accounts receivable, it is stated at an amount basedon the actual rate of historical bad debts, and for certain doubtful receivables, the uncollectible amounts areindividually estimated.

(ii)

Provision for bonuses
The Companies accrue estimated amounts of employee bonuses based on the estimated amount to be paid in
the subsequent period.

(iii) Provision for directors’ bonuses
The Companies accrue bonuses for directors based on estimated payments to be made after the end of theyear.
(iv) 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.
(v)

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.

(vi) Provision for directors’ retirement benefits
With regard to retirement benefits for directors and executive officers of some consolidated subsidiaries, theliability for lump-sum payments is based on internal rules and stated at the amount which would be required100

to be paid if they retired as of the balance sheet date. The amount of provision for executive officers’
severance and retirement benefits as of 31st March 2020 was ¥15 million ($137 thousand).
(vii) 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 theliability and recognise a gain. A provision is recorded by the Companies for the unredeemed gift certificatespreviously recognised as gain based on the estimated future redemption of those certificates.
(4) Accounting policy for retirement benefits(i)Method to attribute estimated amount of retirement benefits to period of services
The Companies apply the benefit formula to attribute the estimated amount of retirement benefits to the fiscal
year upon calculation of projected benefit obligation.

(ii)

Accounting method for actuarial gains and losses and past service cost
Actuarial gains and losses are recognised in expenses in equal amounts within the average of the estimatedremaining service years commencing with the following period. Past service cost is recognised in expenses
in equal amounts within the average of the estimated remaining service years.

(iii) Accounting method for unrecognised actuarial gains and losses and unrecognised past service cost
Unrecognised actuarial gains and losses and unrecognised past service cost are recorded in remeasurementsof defined benefits plans under accumulated other comprehensive income in net assets, after tax effects areadjusted.
(5) Accounting policy for foreign currency translation
Monetary assets and liabilities denominated in foreign currency are translated into Japanese yen at the rates
prevailing at each balance sheet date, and the resulting translation differences are charged to gains or losses. In
the translation of the financial statements of the overseas subsidiary, assets and liabilities are translated at therates prevailing at the subsidiary’s balance sheet date, revenue and expenses are translated using the averageexchange 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 as foreign currencytranslation adjustment.
(6) Hedge accounting(i)

Accounting policy for hedging
Deferral hedge accounting is adopted for hedge transactions in principle. The Company applies thedesignation method for foreign exchange forward contracts and for currency swaps in cases in which thespecific requirements for this treatment are fulfilled. The Company applies the special accounting treatment
for interest rate swaps in cases in which the specific requirements for this treatment are fulfilled.

(ii)

Hedging instruments and hedged items
For the year ended 31st March 2020, hedging instruments and hedged items to which hedge accounting isapplied are as follows:a

Hedging instruments: Interest rate swaps, currency swaps
Hedged items: Loans payable

101

b

Hedging instruments: Foreign exchange forward contracts
Hedged items: Monetary assets and liabilities denominated in foreign currency(iii) Policies on hedges
As for interest related derivatives, interest rate swaps are used to change floating rates to fixed rates. In
addition, foreign exchange forward contracts and currency swaps are used to avoid losses from foreignexchange market fluctuation. As a policy, the Company does not enter derivatives for speculative purposesor those with a high leverage effect.
(iv) Evaluation of hedge effectiveness
The Companies assess hedge effectiveness by comparing the cumulative variation in cash flows of hedged
items and the cumulative variation in cash flows of the hedging instruments. The Companies do not evaluate
the effectiveness of 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.
(7) Amortisation method and period of goodwill
The difference between the cost of investments in consolidated subsidiaries and the equity in their net assets atthe date of acquisition is generally amortised over 10 to 20 years. However, if the amount is insignificant, it ischarged as expense in the year of the acquisition.
(8) Scope of cash and cash equivalents in consolidated statement of cash flows
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 tobe cash and cash equivalents.
(9) Other significant matters for preparing the consolidated financial statements
Accounting policy for consumption taxes
Consumption taxes are excluded from revenue and expense accounts, which are subject to such taxes. However,the non-deductible portion of consumption taxes is accounted for as expense in the same year the taxes are
incurred.

Accounting standards not yet applied“Accounting Standard for Revenue Recognition” (Accounting Standards Board of Japan (“ASBJ”) Statement No. 29,
31st March 2020)“Implementation Guidance on Accounting Standard for Revenue Recognition” (ASBJ Guidance No. 30, 31st March
2020)(1) 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.

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Step 5: Recognise revenue when (or as) the entity satisfies performance obligations.
(2) Date of application
The Company and its consolidated domestic subsidiaries will apply the accounting standard and theimplementation guidance from the beginning of the year ending 31st March 2022.
(3) Effect of application
The Company and its consolidated domestic subsidiaries are in the process of determining the effect of theapplication.

“Accounting Standard for Fair Value Measurement” (ASBJ Statement No. 30, 4th July 2019)“Implementation Guidance on Accounting Standard for Fair Value Measurement” (ASBJ Guidance No. 31, 4th July
2019)
“Accounting Standard for Measurement of Inventories” (ASBJ Statement No. 9, 4th July 2019)“Accounting Standard for Financial Instruments” (ASBJ Statement No. 10, 4th July 2019)“Implementation Guidance on Disclosures about Fair Value of Financial Instruments” (ASBJ Guidance No. 19, 31st
March 2020)(1) Overview
To increase comparability with provisions of international accounting standards, the “Accounting Standard for
Fair Value Measurement” and “Implementation Guidance on Accounting Standard for Fair Value Measurement”(hereinafter, the “Accounting Standard for Fair Value Measurement, etc.”) were developed, and guidance on thefair value measurement method and others were provided. The Accounting Standard for Fair Value Measurement,
etc., is applied to fair values of the following items:
Financial instruments in the “Accounting Standard for Financial Instruments”
Inventories held for trading in the “Accounting Standard for Measurement of Inventories”
In addition, the “Implementation Guidance on Disclosures about Fair Value of Financial Instruments” was revised,and notes on the breakdown of fair values of financial instruments by level and other items were specified.
(2) Date of application
The Company and its consolidated domestic subsidiaries will apply the accounting standard and theimplementation guidance from the beginning of the year ending 31st March 2022.
(3) Effect of application
The Company and its consolidated domestic subsidiaries are in the process of determining the effect of theapplication.

“Accounting Standard for Accounting Policy Disclosures, Accounting Changes and Error Corrections” (ASBJ
Statement No. 24, 31st March 2020)(1) Overview
This standard aims to show the overview of principle and procedures for accounting treatment used in cases inwhich the provisions of relevant accounting standards, etc., are not clear.

103

(2) Date of application
The Company and its consolidated domestic subsidiaries will apply the accounting standard from the end of theyear ending 31st March 2021.

“Accounting Standard for Disclosure of Accounting Estimates” (ASBJ Statement No. 31, 31st March 2020)(1) Overview
Of items whose amounts recorded in the financial statements for the current year are based on accounting
estimates, as for such items that have a risk of having a significant impact on the financial statements for thefollowing year, this standard aims to disclose information on details of accounting estimates that contributes tothe understanding of financial statement users.
(2) Date of application
The Company and its consolidated domestic subsidiaries will apply the accounting standard from the end of theyear ending 31st March 2021.

Changes in presentation
Consolidated statements of operations
The accounting title of “Loss on transfer of business” under “Extraordinary losses,” which was separately recordedin the previous year, has been changed to “Loss on liquidation of business” from the current year to provide apresentation that better reflects actual conditions. The respective amount for the previous year was reclassified toconform to the current year’s presentation.

Consolidated statements of cash flows
The accounting title of “Loss (gain) on transfer of business” under “Cash flows from operating activities,” which was
separately recorded in the previous year, has been changed to “Loss on liquidation of business” from the current year
to provide a presentation that better reflects actual conditions. The respective amount for the previous year wasreclassified to conform to the current year’s presentation.

Additional information
Accounting estimates related to the impact of the growing spread of infections of COVID-19
The Group (the Company, consolidated subsidiaries and entities accounted for using equity method) has madeaccounting estimates on impairment accounting and recoverability of deferred tax assets based on information
available as at the time of preparing the consolidated financial statements.
With regard to the impact of COVID-19 on the Group’s businesses, the Group has made accounting estimates basedon the assumption that in the Department Store Business, which is largely affected through a decrease in operating
revenue and others, the impact will last for around six months and then the business will make a gradual recovery.

104

Consolidated balance sheets
Note 1. Reduction entry amount of national subsidies, etc.
Of assets acquired in the years ended 31st March 2019 and 2020, the reduction entry amount of national subsidies,etc., is set forth in the table below. This reduction entry amount was deducted from the book values recorded in the
consolidated balance sheets.
Thousands of
U.S. dollars

Millions of yen

2019
Reduction entry amount:
Buildings and structures
Machinery, equipment and vehicles
Land
Construction in progress
Other

¥

2020
490 ¥
296
59
44
52
37

2020
568
368
64
44
52
38

$

5,211
3,376
587
403
477
348

Note 2. Assets related to associates
Assets related to associates were as follows:
Thousands of
U.S. dollars

Millions of yen

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

2019
10,439 ¥[9,898]2020
10,388[9,480]$2020
95,302[86,972]

Note 3. Pledged assets(1) Assets pledged as collateral for the current portion of long-term loans payable and long-term loans payable
Thousands of
U.S. dollars

Millions of yen

2019

1,756
2,230
–
3,986

$

¥

1,960 ¥
16,9900
18,951 ¥$2020
16,11020,458–36,568¥20,201 ¥

1,900$

17,431

Buildings and structures
Land
Other
Total

¥

Current portion of long-term loans payable
Long-term loans payable

2020

1,900

Total

¥

–

22,101 ¥

1,900

–
$

17,431(2) Deposits under the Installment Sales Act
Thousands of
U.S. dollars

Millions of yen

2019
Guarantee deposits

¥

2020
152 ¥

2020
134

$

1,229

(3) Deposits to secure accounts payable for the purchase of fruit and vegetables
Thousands of
U.S. dollars

Millions of yen

2019
Guarantee deposits

¥

105

2020
10 ¥

2020
–

$

–

(4) Deposits under the Real Estate Brokerage Act
Thousands of
U.S. dollars

Millions of yen

2019
Guarantee deposits

2020

¥

10 ¥

2020
10

$

91

(5) Deposits under the Travel Agency Act
Thousands of
U.S. dollars

Millions of yen

2019
Guarantee deposits

2020

¥

– ¥

2020
2

$

18

Note 4. Land revaluation
In accordance with the Act on Revaluation of Land (Act No. 34, issued on 31st March 1998) and Act on Partial
Amendment to the Act on Revaluation of Land (Act No. 19, issued on 31st March 2001), land used for businessowned by the Company and some consolidated subsidiaries was revaluated. The unrealised gains and losses, net ofdeferred 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 2019 and 2020.
Revaluation method:

Calculated by making reasonable adjustments to roadside land prices and appraisal
values for property tax specified in Article 2, Item 3 and Item 4 of the “Order for
Enforcement of the Act on Revaluation of Land” (Cabinet Order No. 119, issued on
31st March 1998).

Dates of revaluation:

28th February 2002 and 31st March 2002

Related information was as follows:
Thousands of
U.S. dollars

Millions of yen

2019
Difference between book value of land after revaluationand market value of land¥

2020(826) ¥

2020
(826)

$

(7,577)Note 5. Commitment agreements
In order to obtain working funds efficiently, the Company had loan commitment agreements with 2 financial
institutions in 2019 and 2020. The loan commitment facilities and unused balances as of 31st March 2019 and 2020
were as follows:
Thousands of
U.S. dollars

Millions of yen

Total loan commitment facilities
Outstanding balances
Unused balances

¥
¥

106

2019
20,000 ¥8,000
12,000 ¥2020
20,0006,000
14,000$$2020
183,486
55,045
128,440

Some consolidated subsidiaries provide financial services using card loans and credit cards. The overdraft
commitment facilities and unused balances as of 31st March 2019 and 2020 were as follows:
Thousands of
U.S. dollars

Millions of yen

2019
Total overdraft commitment facilities
Outstanding balances
Unused balances¥

2020
4,472 ¥
378
4,094 ¥

¥

5,632
416
5,215

$
$

2020
51,6693,816
47,844Since overdraft commitment facilities include overdraft contracts that are executed subject to examination of thecustomer’s use of funds, credit condition and other matters (unused balance as of 31st March 2019: ¥4,094 million,
unused balance as of 31st March 2020: ¥5,215 million ($47,844 thousand)), the total facilities are not always executed.
Note 6. Specified accounts pertaining to business combination
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. In the consolidated balance sheets, they were recorded in “Other” under “Non-current
liabilities.”
For the fiscal year ended 31st March 2020
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 ¥665 million ($6,100 thousand). In the consolidated balance sheets, they were recorded in “Other”
under “Non-current liabilities.”

Consolidated statements of operations
Note 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 2019 and 2020 was as follows:
Thousands of
U.S. dollars

Millions of yen

2019
Cost of sales

¥

2020
422 ¥

2020
596

$

5,467

Note 2. Gain on sales of non-current assets
For the fiscal year ended 31st March 2020
Gain on sales of non-current assets consisted mainly of gain on the sale of buildings and structures as well as land of
H2O Asset Management Co., Ltd. for the year ended 31st March 2020.
Note 3. Gain on sales of investment securities
For the fiscal year ended 31st March 2020
Gain on sales of investment securities for the year ended 31st March 2020 consisted mainly of the gain on the sale ofstocks of Mitsubishi Warehouse Co., Ltd. and Wacoal Holdings Corp. by H2O RETAILING CORPORATION.

107

Note 4. Insurance income
For the fiscal year ended 31st March 2019
Insurance income for the year ended 31st March 2019 consisted mainly of insurance income received for damages tomerchandise, buildings, etc., caused by disasters such as the Northern Osaka Prefecture Earthquake and Typhoon
JEBI.

108

Note 5. Impairment loss
For the fiscal year ended 31st March 2019
The Companies recorded impairment loss for the year ended 31st March 2019 as follows:
Company

Centre LLC

Asset Group

SELCY

Use

Store

Location

Toyonaka City, Osaka

Kita-ku, Kyoto Cityand other

H2O Asset
Management Co., Ushiku store and otherLtd.

Ushiku City, Ibaraki
and other

Enmachi store, Suitahonami
Hankyu Oasis Co.,
store, Takadono store and Store
Ltd.
other
Qanat Co., Ltd.
and other

Sumiyoshi store and other

H2O RETAILING Higashiyodogawa-ku,
CORPORATION Osaka City(the Company)
Land

Millions of yen

Buildings and structures¥2,465

Other
Buildings and structures

Senbon-Kitaoji store,
Senbon-Nakadachiuri store,
Izumiya Co., Ltd.
Store
Kii-Kawanabe store and
other
Store

Type of Assets

Nakagyo-ku, Kyoto
City and other

Store and Sumiyoshi-ku, Osaka
other
City and other

11
¥907

Machinery, equipment and vehicles

19

Other

507

Buildings and structures

¥658

Land

672

Other
Buildings and structures

61
¥814

Machinery, equipment and vehicles

82

Other

117

Buildings and structures¥165

Machinery, equipment and vehicles

13

Other

170

Land for Higashiyodogawa-ku,
Land
rent
Osaka City

¥323

The Group recognises asset groups based on certain criteria. 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.
For Izumiya Co., Ltd., impairment loss was recognised for asset groups in unprofitable stores with continuous losses
from operating activities and asset groups in closed stores.
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 of impairment loss, of which ¥4,398 million in connection
with the closing of SELCY of Centre LLC and other stores was included in “Loss on store closings” and ¥2,592
million was included in “Impairment loss” under “Extraordinary losses” in the consolidated statement of operations.

109

For the fiscal year ended 31st March 2020
The Companies recorded impairment loss for the year ended 31st March 2020 as follows:
Company

Izumiya Co.,
Ltd.

Asset Group

Koryo store, Katata store,
Okubo store and other

Use

Store

Type of Assets

Millions of yen

Thousands of
U.S. dollars

Buildings and structures¥5,182$47,541

81

743

Location

Kitakatsuragi-gun,Nara and otherMachinery, equipment and vehicles
Other

Itamikounoike store, Kitchen &Hankyu Oasis
Market LUCUA Osaka store
StoreCo., Ltd.
and other

911

8,357

¥3,892$35,706

Machinery, equipment and vehicles

294

2,697

Other

581

5,330

¥1,967$18,045

5

45

Buildings and structures
Itami City and other

HankyuHanshin
Department
Stores, Inc.

Buildings and structures
Hankyu Men’s Tokyo,
Takarazuka Hankyu and other

H2O Asset
Management
Co., Ltd.

Store and
Kawachinagano City
Kawachinagano store and other land forand otherrent

Qanat Co.,
Izumiotsu City and otherLtd. and otherStore

Chiyoda-ku, Tokyoand other

Store and Izumiotsu City and
other
other

Machinery, equipment and vehicles
Other

252

2,311

Buildings and structures¥558$5,119

Land

165

1,513

Buildings and structures¥200$1,834

Machinery, equipment and vehicles

25

229

Other

246

2,256

The Group recognises asset groups based on certain criteria. 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.
For Izumiya Co., Ltd., Hankyu Oasis Co., Ltd., Qanat Co., Ltd. and other, impairment loss was recognised for asset
groups in unprofitable stores with continuous losses from operating activities and asset groups in closed stores.
For Hankyu Hanshin Department Stores, Inc., impairment loss was recognised for asset groups in unprofitable storeswith continuous losses from operating activities.
For H2O Asset Management Co., Ltd., impairment loss was recognised for asset groups in unprofitable stores with
continuous losses from operating activities and 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 3.4%. For some asset groups, the recoverable amounts
were the net saleable values based on the expected sales amounts and the real estate appraisal value, etc.
As a result, the Group recognised a total of ¥14,366 million ($131,798 thousand) of impairment loss, of which, ¥170
million ($1,559 thousand) in connection with the closing of the stores of Hankyu Oasis Co., Ltd. and other stores was
included in “Loss on store closings” and ¥14,196 million ($130,238 thousand) was included in “Impairment loss”
under “Extraordinary losses” in the consolidated statement of operations.
Note 6. Business restructuring expenses consisted of the following:
For the fiscal year ended 31st March 2020
Additional early retirement bonuses of ¥3,289 million ($30,174 thousand), loss on valuation of goods of ¥560 million($5,137 thousand) and others due to a business model shift of Izumiya Co., Ltd.

110

Note 7. Loss on retirement of non-current assets consisted of the following:Thousands ofMillions of yen
U.S. dollars

2019
Buildings and structures¥

Machinery, equipment and vehicles
Removal cost
Other
Total

¥

2020

2020

255 ¥

557

16

17

155

(*1) 1,783(*2) 1,168

10,715

143

199

1,825

(*1) 2,199 ¥(*2) 1,941

$

$

5,110

17,807*1. For the year ended 31st March 2019
The amounts included a loss on retirement of non-current assets for Izumiya Izumifuchu store and other of ¥932
million for the year ended 31st March 2019, which is presented in “Loss on store closings” under “Extraordinary
losses.”*2. For the year ended 31st March 2020
The amounts included a loss on retirement of non-current assets for Izumiya Miyazaki store and other of ¥93
million ($853 thousand) for the year ended 31st March 2020, which is presented in “Loss on store closings”
under “Extraordinary losses.”
Note 8. Loss on sales of non-current assets
For the year ended 31st March 2020
Loss on sales of non-current assets consisted mainly of loss on the sale of buildings and structures as well as land of
H2O Asset Management Co., Ltd.
Note 9. Loss on liquidation of business
For the year ended 31st March 2019
The amount of loss on liquidation of business related to the transfer of apparel and sportswear business of Be-U Co.,Ltd.
For the year ended 31st March 2020
The amount of loss on liquidation of business related to the ¥417 million ($3,825 thousand) in loss on the terminationof the business of Hankyu Kitchen Yell Kyushu, Inc. and the ¥241 million ($2,211 thousand) in loss on the sale ofshares of Withsystem Inc.

111

Notes 10. Loss on store closingsThousands of
U.S. dollars

Millions of yen

2019Store closing of SELCY for rebuilding
Store closing of Izumiya Wakaeiwata store
Store closing of Hankyu Oasis Yamashita store
Store closing of Izumiya Higashi Neyagawa store
Store closing of Izumiya Ushiku store
Store closing of Izumiya Shonai store for rebuilding
Store closing of Izumiya Izumifuchu store for rebuilding
Store closing of Izumiya Hanazono store for rebuilding
Store closing of Izumiya Fushimi store for rebuilding
Closing of certain floors of Izumiya Imafuku store
Store closing of Izumiya Suminodo store for rebuilding
Other
Total

¥

¥

3,728 ¥
286
165
165
1,185
327
403
269
174
104
31
385
(*1) 7,228 ¥

2020

(*2)

2020
194
107
36
9
6
0
–
–
–
–
–
393
747

$

$

1,779
981
330
82
55
0
–
–
–
–
–
3,605
6,853

*1. For the fiscal year ended 31st March 2019
The amount included an impairment loss of ¥4,398 million, expenses for store closings of ¥1,397 million and aloss on retirement of non-current assets of ¥932 million in connection with store closings for the year ended 31st
March 2019.
*2. For the fiscal year ended 31st March 2020
The amount included an impairment loss of ¥170 million ($1,559 thousand), expenses for store closings of ¥334
million ($3,064 thousand) and a loss on retirement of non-current assets of ¥93 million ($853 thousand) inconnection with store closings for the year ended 31st March 2020.
Note 11. Loss on share exchanges
For the year ended 31st March 2020
Loss on share exchanges is due to the share exchange between KAZOKUTEI CO., Ltd. and Sun Laurie Co., Ltd.,and SRS HOLDINGS CO., LTD.
Note 12. Loss on disasterFor the year ended 31st March 2019
The amount of loss on disaster consisted of losses from damages caused by disasters such as the Northern Osaka
Prefecture Earthquake and Typhoon JEBI.
Note 13. Outplacement expenses
For the year ended 31st March 2019
Outplacement expenses are additional retirement bonuses and support fees for employees’ new careers based on thespecial career planning support scheme.
Note 14. Expenses for store openings
For the year ended 31st March 2019
The amount of expenses for store openings related to the store re-opening of the first part of the remodelling of
Hanshin Umeda Main Store.

112

Consolidated statements of comprehensive income
Reclassification adjustments and tax effects related to other comprehensive income
Thousands ofMillions of yen
U.S. dollars

2019

2020

2020

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

7,494 ¥

(24,422)–(692)(6,348)Amount before the effect of deferred income tax

7,494(25,114)(230,403)

Effect of deferred income tax(2,293)

7,684

70,495

Valuation difference on available-for-sale securities

5,201(17,429)(159,899)

(90)

–

–

Effect of deferred income tax

31

–

–

Deferred gains or losses on hedges

(59)

–

–

Amount arising for the year

(110)

(47)

(431)

Reclassification adjustments

–

–

–

(110)

(47)

(431)

–

–

–

(110)

(47)

(431)

Amount arising for the year

(4,621)

469

4,302

Reclassification adjustments

351

618

5,669

Amount before the effect of deferred income tax(4,270)

1,088

9,981

Effect of deferred income tax

1,337

(343)

(3,146)

Remeasurements of defined benefit plans, net of tax(2,932)

744

6,825

(669)

(291)

(2,669)1,429 ¥

(17,024)

Reclassification adjustments$(224,055)

Deferred gains or losses on hedges
Amount arising for the year

Foreign currency translation adjustment

Amount before the effect of deferred income tax
Effect of deferred income tax
Foreign currency translation adjustment
Remeasurements of defined benefit plans, net of tax

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

¥

113

$

(156,183)

Consolidated statements of changes in net assets
Note. Changes in number of shares issued and outstanding during the years ended 31st March 2019 and 2020 wereas follows:1.

Shares issued and outstanding

Number of shares

2019

2020

125,201,396

125,201,396

Increase––

Decrease––

125,201,396

125,201,396

Balance at beginning of year

Balance at end of year

2.

Treasury shares outstanding

Number of shares

2019

2020

1,713,817

1,609,297

Increase due to purchase of odd-lot shares

2,117

2,230

Decrease due to sales of odd-lot shares

(137)

(308)

Decrease due to exercise of stock options(106,500)(53,000)

Balance at end of year

1,609,297

1,558,219

Balance at beginning of year

114

3.

Subscription rights to shares
Thousands ofMillions of yen
U.S. dollars

2019

2020

2020

H2O RETAILING CORPORATION
Subscription rights to shares issued in March 2009 as stock ¥options
Subscription rights to shares issued in March 2010 as stock
options
Subscription rights to shares issued in March 2011 as stock
options
Subscription rights to shares issued in February 2012 asstock options
Subscription rights to shares issued in March 2013 as stock
options
Subscription rights to shares issued in March 2014 as stock
options
Subscription rights to shares issued in March 2015 as stock
options
Subscription rights to shares issued in March 2016 as stock
options
Subscription rights to shares issued in March 2017 as stock
options
Subscription rights to shares issued in March 2018 as stock
options
Subscription rights to shares issued in June 2018 as stock
options
Subscription rights to shares (A) issued in July 2019 asstock options (share based compensation with continuous
service conditions)
Subscription rights to shares (B) issued in July 2019 asstock options (share based compensation with performancebased vesting conditions)
Total

¥

115

14 ¥

10

$

30

22

201

38

30

275

46

36

330

104

88

807

104

87

798

204

193

1,770

186

186

1,706

165

165

1,513

179

179

1,642

159

159

1,458

–

110

1,009

–

40

366

1,235 ¥

1,312

$

91

12,036

4.

Dividends(1) Dividends paid in the year ended 31st March 2019

Resolution

Millions of yen

Yen

Classes of shares

Total dividends

Dividend per share

Common stock¥2,469¥20.0015th May 2018
Board of

Record date

Effective date

31st March

1st June

2018

2018

30th

30th

September

November

2018

2018

Directors’ meeting
30th October 2018
Board ofCommon stock¥2,471¥20.00

Directors’ meeting(2) Dividends with a record date in the year ended 31st March 2019 but an effective date in the year ended 31st
March 2020
Millions of yen

Yen

Total dividends

Dividend per share¥2,471¥20.00Classes ofResolution

SourceRecord date

Effective date

31st March

30th May

2019

2019

Record date

Effective date

31st March

30th May

2019

2019

30th

29th

September

November

2019

2019

shares14th May 2019
Board ofDirectors’ meeting

CommonRetainedstock

earnings(3) Dividends paid in the year ended 31st March 2020

Resolution

14th May 2019
Board ofDirectors’ meeting
31st October 2019
Board ofDirectors’ meeting

Classes of shares

Commonstock

CommonstockMillions ofThousands ofyen

U.S. dollars

Yen

Total dividends¥2,471¥2,472$22,669$22,678

U.S. dollars

Dividend per share¥20.00$0.18¥20.00$0.18(4) Dividends with a record date in the year ended 31st March 2020 but an effective date in the year ending 31st
March 2021

Resolution

25th May 2020
Board of Directors’
meeting

Classes ofsharesMillions ofThousands ofyen

U.S. dollars

U.S.
Yen

dollars

Effective
SourceTotal dividends

Dividend per share

Record datedateCommonRetainedstock

earnings¥2,472

116$22,678¥20.00$0.18

31st March

9th June

2020

2020

5.

Net assets
Under Japanese laws and regulations, the entire amount paid for new shares is required to be designated ascommon stock. However, a company may, by a resolution of the Board of Directors, designate an amountnot exceeding one half of the price of the new shares as additional paid-in capital, which is included in capitalsurplus.
Under the Japanese Companies Act (the “Act”), in cases in which a dividend distribution of surplus is made,the smaller 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 capitalor 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, alladditional paid-in capital and all legal earnings reserve may be transferred to other capital surplus andretained earnings, respectively, which are potentially available for dividends. The maximum amount that theCompany can distribute as dividends is calculated based on the nonconsolidated financial statements of theCompany in accordance with the Act.

117

Consolidated statement of cash flows
Note 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 2019 and 2020 was as follows:
Thousands ofMillions of yen
U.S. dollars

2019
Cash and deposits

¥

2020

55,229 ¥Time deposits with maturities exceeding three months

25,958–Cash and cash equivalents¥

55,229 ¥2020$–
25,958238,146–$

238,146

Note 2. Major components of the assets and liabilities related to a business transfer in consideration of cash and cash
equivalents
For the year ended 31st March 2019
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:
Millions of yen

2019
Current assets¥

507

Non-current assets

161

Non-current liabilities

(124)

Other

1

Loss on liquidation of business(546)

Amount of business transferred0Cash and cash equivalents

44

Expenses for transfer of business

1

Diff: Payments for transfer of business

¥

118

45

Note 3. Major components of the assets and liabilities related to a business transfer (acquisition) in consideration of
cash and cash equivalents
For the year ended 31st March 2020
The following is a summary of the components of assets and liabilities acquired by asnas Co., Ltd. and Hankyu Freds
Co., Ltd. as a result of a business transfer (acquisition), the amount of business acquired and the payments for thebusiness transfer:
Thousands ofMillions of yen
U.S. dollars

2020
Current assets

¥

2020
569

$

5,220

Non-current assets

967

8,871

Current liabilities(852)(7,816)

Non-current liabilities

(21)

(192)

Goodwill

91

834

Gain on bargain purchase

(17)

(155)

Amount of business acquired

737

6,761

Cash and cash equivalents

(89)

(816)

Diff: Payments for transfer of business

¥

648

$

5,944

Note 4. Major components of the assets and liabilities of the companies that were excluded from consolidation due
to the implementation of a share exchange at the time of the exclusion
For the year ended 31st March 2020
Components of the assets and liabilities of Sun Laurie Co., Ltd. and KAZOKUTEI CO., Ltd. that were excluded fromconsolidation due to the implementation of the share exchange at the time of the exclusion are as follows:
Thousands ofMillions of yen
U.S. dollars

2020
Current assets

¥

2020
1,441

$

13,220Non-current assets

5,433

49,844

Total assets

6,875

63,073Current liabilities

1,406

12,899Non-current liabilities

3,382

31,027

Total liabilities

¥

4,789

$

43,935(Note) Cash and cash equivalents of ¥130 million ($1,192 thousand) are included and have been presented as“Decrease in cash and cash equivalents resulting from exclusion of subsidiaries from consolidation” in the
consolidated statements of cash flows.

119Note 5. Significant noncash transactions were as follows:
Thousands ofMillions of yen
U.S. dollars

2019
Assets and liabilities in connection with finance lease

2020

¥

transactions

39 ¥Asset retirement obligations

2020
5,654

144

$

51,871845

7,752

Lease transactions
Finance lease transactions

1.

The Group as lessee
Finance leases that are not deemed to transfer ownership of the leased property to the lessee(i)Breakdown of leased 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.

(ii)

Method of depreciation of leased assets
Method of depreciation of leased assets is as presented in “4. Summary of significant accounting policies,(2) Depreciation and amortisation methods for significant depreciable and amortisable assets” under“Significant accounting policies for preparation of consolidated financial statements.”
Finance lease transactions that do not transfer ownership of the leased property to the lessee and that wereconcluded prior to 1st April 2008 are accounted for by the same method as that applied to ordinary operatingleases. Information, as lessee, about non-capitalised finance leases at 31st March 2019 and 2020 was asfollows:(1) Acquisition costs, accumulated depreciation, accumulated impairment loss and net book value of the leased
property
As of 31st March 2019
Millions of yen

Buildings and

Other

Total

structures
Acquisition costs¥

1,199 ¥

4 ¥

1,203

Accumulated depreciation

767

4

771

Accumulated impairment loss

431

–

431

– ¥

–

Net book value¥– ¥As of 31st March 2020
None(2) Net book value of future lease payments and balance of accumulated impairment loss on leased assets at year
end
None

120

(3) Lease payments, depreciation and reversal of accumulated impairment loss on leased assets
Thousands ofMillions of yen
U.S. dollars

2019
Lease payments¥

Depreciation
Reversal of accumulated impairment loss on leased assets

¥

2020

2020

7 ¥

–

0

–

7 ¥

–

$

–
–

$

–

(4) Method for calculating depreciation
Depreciation is calculated using the straight-line method with the lease period as the useful life and the residual
value at zero.
Operating lease transactions

2.

Future lease payments for non-cancellable operating leases:
The Group as lessee
Thousands ofMillions of yen
U.S. dollars

2019
Payments due within one year¥

Payments due after one year
Total

¥

2020

2020

14,207 ¥

14,86353,66861,48567,876 ¥76,349$136,357
564,082$

700,449

The Group as lessor
Thousands ofMillions of yen
U.S. dollars

2019
Payments due within one year¥

Payments due after one year
Total

¥

2020

2020

2,456 ¥

2,828

11,10813,137

13,564 ¥15,965$25,944
120,522$

146,467

Financial instruments
1.

Status of financial instruments(1) Matters related to financial instruments
In accordance with its capital investment plan, the Group procures needed funds primarily through loans frombanks, 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
to credit 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

121for short-term operations. Long-term loans payable and bonds payable are mainly for capital investment.
Repayment deadlines are at most 16 years and 11 months after the closing of accounts. Some are subject tointerest rate risk because of floating interest rates.
Moreover, notes and accounts payable - trade, accounts payable - other, long-term loans payable and bonds
payable, which are operating payables, are subject to the liquidity risk of the inability to make payment by thepayment 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 and currency swap transactions to hedge foreignexchange 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 “4.
Summary of significant accounting policies, (6) Hedge accounting” under “Significant accounting policies for
preparation of consolidated financial statements.”(3) Risk management system for financial instruments(i)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 fromsales 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, thecompany attempts to quickly determine and mitigate 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.

(ii)

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 andto limit the risk of foreign exchange market fluctuation of monetary assets and liabilities denominated inforeign currency, the Company conducts derivative transactions only with major and highly trusted financial
institutions according to derivative management guidance.

(iii) 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 pricevolatility risk in the same way.
(iv) Management of liquidity risk
The Company and Hankyu Hanshin Department Stores, Inc., manage liquidity risk for accounts payable trade and long-term loans payable following a cash management plan that the financial department preparesand updates based on reports provided by all departments in accordance with accounting rules. Other
consolidated subsidiaries also manage liquidity risk in the same way.

122

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 2019 and 2020and fair values and differences between them are set forth in the table below. Figures for which fair value was notreadily determinable were not included in the chart (See “Note 2. Financial instruments whose fair value is not readily
determinable” shown below).
As of 31st March 2019
Millions of yen

2019Book value(1) Cash and deposits¥

Fair value

55,229(2) Notes and accounts receivable - trade

49,886

Allowance for doubtful accounts

(255)

¥

49,631(3) Accounts receivable - other

Difference

55,229¥–49,631

–

6,617

6,617

–

103,013103,013–

6,778

Allowance for doubtful accounts(160)(4) Investment securities
Available-for-sale securities
Total assets¥

214,491¥

214,491¥–(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

8,000

–

(4) Bonds payable

20,00020,170(170)(5) Long-term loans payable (*)

136,920

136,670249

Total liabilities¥

244,308¥244,229¥

78

Hedge accounting applied

¥

–

¥

–

¥

–

Total derivative transactions

¥

–

¥

–

¥

–

Derivative transactions*

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

123

As of 31st March 2020
Millions of yen

Thousands of U.S. dollars

2020

2020

Book value(1) Cash and deposits¥

Fair value

25,958 ¥Difference

25,958 ¥–Book value$

238,146 $(2) Notes and accounts receivable - trade44,445

407,752

Allowance for doubtful accounts(165)(1,513)44,280(3) Accounts receivable - other
Allowance for doubtful accounts

44,280406,238–

7,618

69,889(156)(1,431)

Fair value

Difference

238,146 $–406,238

–

7,462

7,462

–

68,45868,458–79,127

79,127–725,935

725,935–(4) Investment securities
Available-for-sale securities
Total assets¥ 156,829 ¥ 156,829 ¥–$ 1,438,798 $ 1,438,798 $–(1) Notes and accounts payable - trade¥$

43,917 ¥43,917 ¥–(2) Accounts payable - other

21,976

21,976(3) Short-term loans payable

15,000(4) Bonds payable(5) Long-term loans payable (*)
Total liabilities

402,908 $402,908 $––201,614201,614–

15,000–137,614

137,614–20,00020,210(210)

183,486

185,412(1,926)

116,713

117,017(304)

1,070,761

1,073,550(2,788)¥ 217,608 ¥ 218,122 ¥(514)$ 1,996,403 $ 2,001,119 $(4,715)Derivative transactions
Hedge accounting applied

¥

– ¥

– ¥

–

$

– $

– $

–

Total derivative transactions

¥

– ¥

– ¥

–

$

– $

– $

–

*

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

Notes: 1. Matters related to the methods used to calculate fair value of financial instruments and derivative transactions
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 bookvalue 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 ontheir stock market price or the price submitted by the correspondent financial institution.

124

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 bookvalue is deemed 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 atthe assumed applicable interest rates should new bonds or loans be taken with the same total principal andinterest. 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 theseloans and as the fair value approximates book value, the book value is deemed to be the fair value. Furthermore,
long-term loans payable based on floating interest rates, which are subject to the special accounting treatment
for interest rate swaps, are calculated by discounting the total amount of principal and interest that have beenaccounted for as an integral part of the interest rate swaps at the reasonably estimated interest rate that would
be applied if a similar loan were executed.
Derivative transactions
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).
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
U.S. dollars

Classification

Unlisted shares

¥

2019

2020

2020

Book value

Book value

Book value

18,136¥

16,713$

153,330

Guarantee deposits

72,29070,425646,100

Long-term guarantee deposits

9,820

9,632

88,366125

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

As of 31st March 2019
Millions of yen

Over 1 year but

Over 5 years but

within 5 years

within 10 years

Within 1 year

Cash and deposits¥

55,229Over 10 years

¥

–

¥

–

¥

–

Notes and accounts receivable - trade

49,886–––

Accounts receivable - other

6,778

–

–

–

Total

¥

111,893

¥

–

¥

–

¥

–

As of 31st March 2020
Millions of yen

Over 1 year but

Over 5 years but

within 5 years

within 10 years

Within 1 year

Cash and deposits¥

25,958Over 10 years

¥

–

¥

–

¥

–

Notes and accounts receivable - trade44,445–––

Accounts receivable - other

7,618

–

–

–

Total

¥

78,023

¥

–

¥

–

¥

–

As of 31st March 2020
Thousands of U.S. dollars

Over 1 year but

Over 5 years but

within 5 years

within 10 years

Within 1 year

Cash and deposits$

238,146

Over 10 years

$

–

$

–

$

–

Notes and accounts receivable - trade407,752–––

Accounts receivable - other

69,889

–

–

–

Total

$

715,807

126

$

–

$

–

$

–

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

As of 31st March 2019
Millions of yen

Over 2 years

Over 3 years

Over 4 years

but within 3

but within 4

but within 5

years

years

years

Over 1 year but
Within 1 year

Over 5 years

within 2 years

Short-term loans payable¥

Bonds payable
Long-term loans payable
Lease obligations
Total

¥

8,000

¥

–

¥

–

¥

–

¥

–

¥

–

–

–

–

–

–

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¥

As of 31st March 2020
Millions of yen

Over 2 years

Over 3 years

Over 4 years

but within 3

but within 4

but within 5

years

years

years

Over 1 year but
Within 1 year

Over 5 years

within 2 years

Short-term loans payable¥

Bonds payable
Long-term loans payable
Lease obligations
Total

¥

15,000

¥

–

¥

–

¥

–

¥

–

¥

–

–

–

–

–

10,00010,00018,10046,35175

15,07575

37,080

910

940

912

1,755

652

9,545

34,010¥ 47,292987¥ 16,831

10,728¥ 56,626¥¥

As of 31st March 2020
Thousands of U.S. dollars

Over 2 years

Over 3 years

Over 4 years

but within 3

but within 4

but within 5

years

years

years

Over 1 year but
Within 1 year

Over 5 years

within 2 years

Short-term loans payable
Bonds payable
Long-term loans payable
Lease obligations
Total$ 137,614

$

–

$

–

$

–

$

–

$

–

–

–

–

–

91,74391,743

166,055

425,238688

138,302688

340,183

8,348

8,623

8,366

16,1005,981

87,568$ 312,018$ 433,871

9,055$ 154,412

98,422$ 519,504

127

$

$

Securities
1.

Available-for-sale securities

Available-for-sale securities with book value exceeding acquisition cost:
Millions of yen

Thousands of U.S. dollars

2019

2020

Acquisition
Book value
cost

2020

Acquisition
Book value
cost

Difference

Difference

Acquisition
Book value
cost

Difference

Equity securities¥ 35,988 ¥ 99,626 ¥ 63,638 ¥ 20,931 ¥ 63,972 ¥ 43,040 $ 192,027 $586,899 $ 394,862

Total¥ 35,988 ¥ 99,626 ¥ 63,638 ¥ 20,931 ¥ 63,972 ¥ 43,040 $ 192,027 $586,899 $ 394,862

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

Thousands of U.S. dollars

2019
Acquisition
cost

2020

Book value

Difference

Acquisition
cost

Book value

2020
Difference

Acquisition
cost

Book value

Difference

Equity securities¥ 5,287 ¥ 3,387 ¥ (1,900) ¥ 21,572 ¥ 15,155 ¥ (6,417) $197,908 $139,036 $ (58,871)

Total¥ 5,287 ¥ 3,387 ¥ (1,900) ¥ 21,572 ¥ 15,155 ¥ (6,417) $197,908 $139,036 $ (58,871)(Note)

Unlisted securities (¥7,696 million in 2019 and ¥6,325 million ($58,027 thousand) in 2020) are not includedin the above tables since they do not have available fair values and it is extremely difficult to determine fairvalues.

2.

The following table summarises sales of available-for-sale securities for the years ended 31st March 2019 and2020:
Millions of yen

Thousands of U.S. dollars

2019
Sales

Equity securities

3.

¥

2020

Gains of sales

0¥

Losses on
sales

0¥

Sales

–¥

Gains of sales

2,194 ¥

2020
Losses on
sales

693 ¥

Sales

Gains of sales

1 $ 20,128 $Losses on
sales

6,357 $

Securities for which impairment loss is recognised

The Group recognises impairment loss on investment securities when the market value of the 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 year ended 31st March 2019 was insignificant and its disclosure was omitted. There was nothing to report for theyear ended 31st March 2020.

128

9Derivative transactions

Derivatives for which hedge accounting is applied(1) Currency related
As of 31st March 2019
Millions of yen

2019
Method of hedge accounting

Designation method for foreignexchange forward contract(Note)

Type of derivativetransactions

Hedged items

Currency swaps
Receive USD/
Pay JPY

Long-term
loans
payableContract
amount¥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.

As of 31st March 2020

Method of hedge
accounting

Type ofderivativetransactions

Designation
method forforeignexchange
forward contract

Currency
swaps
Receive
USD/
Pay JPY(Note)

Hedgeditems

Long-term
loans
payableMillions of yen

Thousands of U.S. dollars

2020

2020

Contract
amount¥3,500

Due after
one year

Fair
value

3,500

(Note)¥$

Contract
amountDue after
one year

Fair
value

32,110$ 32,110(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
As of 31st March 2019
Millions of yen

2019
Method of hedge accounting

Type of derivative transactions

Exceptional method forinterest rate swaps

Interest rate swaps
Pay fixed/ Receive floating

Contract
amountHedged items

Long-term loans¥

Due after one
year

3,501

¥

3,501

Fair value(Note)

payable(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.

As of 31st March 2020

Method ofhedge
accounting
Exceptional
method forinterest rate
swaps

Type of derivativetransactions

Interest rate
swaps
Pay fixed/
Receive floating

Hedgeditems

Long-term ¥loanspayableContract
amount3,500

Millions of yen

Thousands of U.S. dollars

2020

2020

Due after
one year

Fair
value

¥

(Note)

129

3,500

Contract
amount$32,110$Due after
one year

Fair
value

32,110(Note)

(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.

Employees’ severance and retirement benefits
1.

Outline of retirement benefit plans

The Company and Hankyu Hanshin Department Stores, Inc. have retirement benefits plans which consist of unfunded
lump-sum payment plans, cash balance defined benefit pension plans and defined contribution pension plans.
Izumiya Co., Ltd. has unfunded lump-sum payment plans, defined benefit pension plans and defined contribution
pension plans. In April 2017, Izumiya Co., Ltd. transferred a portion of its 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 or defined contribution
pension plans.
The Company, Hankyu Hanshin Department Stores, Inc. and Izumiya Co., Ltd. each have a retirement benefit trustin their retirement benefit plans.
Additional retirement benefits may be provided upon the retirement of employees, where those benefits are notconsidered to be retirement benefit obligations as calculated under actuarial methods in accordance with theaccounting standard for retirement benefits.
The employees of the Company who are seconded from Hankyu Hanshin Department Stores, Inc., Izumiya Co., Ltd.,
Hankyu Act For, Persona Co., Ltd. or Izumiya Card Co., Ltd. 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.

130

2.

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

2019
Projected benefit obligation - beginning balance

¥

2020

2020

48,059 ¥50,754Service cost

1,772

1,914

17,559Interest cost

382

138

1,266

Changes in actuarial differences

3,528(2,977)(27,311)Retirement benefits paid

(2,988)(2,910)(26,697)

50,754 ¥46,918

Projected benefit obligation - ending balance

¥

$

$

465,633

430,440(2) Changes in plan assets were as follows:
Thousands ofMillions of yen
U.S. dollars

2019
Plan assets - beginning balance

¥

2020

2020

35,331 ¥35,843

Expected return on plan assets

1,120

1,133

10,394

Changes in actuarial gains and losses(1,093)(2,508)(23,009)

Employers’ contributions

2,614

2,620

24,036Retirement benefits paid

(2,129)(2,242)(20,568)

35,843 ¥34,845

Plan assets - ending balance

¥

131

$

$

328,834

319,678

(3) Ending balances of projected benefit obligation and plan assets and amounts included in the consolidated balance
sheets as of 31st March 2019 and 2020 were as follows:
Thousands ofMillions of yen
U.S. dollars

2019
Projected benefit obligation under funded plans¥

Plan assets

2020

2020

41,849 ¥38,038(35,843)(34,845)(319,678)

6,006

3,192

29,284

8,904

8,879

81,458

Projected benefit obligation under non-funded plans$

348,972

Net balance in the consolidated balance sheet¥

14,910 ¥12,072$

110,752

Net defined benefit liability¥

14,910 ¥12,133$111,311–(60)

14,910 ¥12,072

Net defined benefit asset
Net balance in the consolidated balance sheet

¥

(550)
$

110,752(4) Components of retirement benefit cost were as follows:
Thousands ofMillions of yen
U.S. dollars

2019
Service cost

¥

2020

2020

1,772 ¥

1,914

382

138

1,266

(1,120)(1,133)(10,394)

Amortisation of actuarial gains and losses

420

696

6,385

Amortisation of past service cost

(68)

(77)

(706)

Other

33

24

220

1,419 ¥

1,563

656

3,289

Interest cost
Expected return on plan assets

Retirement benefit cost¥

Additional retirement bonuses (Note 1)

Note 1. Additional retirement bonuses were included in “Extraordinary losses.”

132

$

$

17,55914,33930,174

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

2019
Past service cost

2020

¥

Actuarial gains and losses
Total

¥

(68) ¥

2020(77)(4,201)

1,165(4,270) ¥

1,088

$

(706)
10,688$9,981(6) Remeasurements of defined benefit plans
Remeasurements of defined benefit plans in accumulated other comprehensive income before the effect ofdeferred income tax were as follows:
Thousands ofMillions of yen
U.S. dollars

2019
Unrecognised past service cost

2020

¥

Unrecognised actuarial gains and losses
Total

¥

2020

(665) ¥

(588)

5,790

4,625

5,125 ¥

4,036$

(5,394)42,431$37,027(7) Information on plan assets(i)

Breakdown of plan assets
The breakdown of plan assets by major category was as follows:
2019

2020

General accounts of life insurance

43%

39%

Debt securities

24%

30%

Cash and deposits

17%

16%

Real estate investment funds

11%

13%

Equity securities

2%

1%

Other

2%

1%

Total

100%

100%

(Note) Total plan assets include 3% contribution to the retirement benefit trust in the retirement benefit plans for theyears ended 31st March 2019 and 2020.

(ii) Method of determining long-term expected rate of return on plan assets
Long-term expected rate of return on plan assets is determined based on the current and future allocation ofplan assets and the current and long-term return on various components of the assets.

133

(8) Actuarial assumptions
Actuarial assumptions (weighted-average rate) were as follows:
2019

2020

Discount rate

0.27%

0.25%

Long-term expected rate of return

3.17%

3.14%

Estimated rate of salary increase

1.10%

1.15%

(Note) Estimated rate of salary increase is an expected rate of increase in retirement benefit points.

3.

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
U.S. dollars

2019
Projected benefit obligation - beginning balance

¥

2020

2020

1,954 ¥

1,916

Retirement benefit cost

281

360

3,302

Retirement benefits paid

(203)

(189)

(1,733)

Decrease due to share exchanges

–

(195)

(1,788)Decrease due to business divestiture

(97)

–

–

Other

(18)

(31)

(284)

1,916 ¥

1,859

Projected benefit obligation - ending balance

¥

$

$

17,577

17,055(2) Ending balances of projected benefit obligation and plan assets and amounts included in the consolidated balance
sheets as of 31st March 2019 and 2020 were as follows:
Thousands ofMillions of yen
U.S. dollars

2019
Projected benefit obligation under funded plans

¥

2020

2020

– ¥

–

–

–

–

–

–

–

Projected benefit obligation under non-funded plans

1,916

1,859

17,055Net balance in the consolidated balance sheet

1,916

1,859

17,055Net defined benefit liability

1,916

1,859

17,055

1,916 ¥

1,859

Plan assets

Net balance in the consolidated balance sheet

¥

134

$

$

–

17,055

(3) Retirement benefit costThousands ofMillions of yen
U.S. dollars

2019
Retirement benefit cost calculated by the simplified method ¥

4.

2020
281 ¥

2020
360

$

3,302

Defined contribution plans
The amount required for contributions to the defined contribution plans of the Company and its consolidated
subsidiaries was ¥715 million and ¥667 million ($6,119 thousand) for the years ended 31st March 2019 and 2020,
respectively.

5.

Other information
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 plans amounted to ¥387 million and are planned to betransferred over 8 years beginning from the fiscal year ended 31st March 2018. The plan assets not yet transferred
amounted to ¥279 million and ¥226 million ($2,073 thousand) as of 31st March 2019 and 2020, respectively,
and were recorded under “Long-term accounts payable - other.”

Stock Options
1.

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

Thousands of
U.S. dollars

2019
Selling, general and administrative expenses

2.

2020
159

2020
151

1,385

Outline of stock options
The “Number” of shares means the total shares to be issued upon exercise of subscription rights to shares andadjusted for the reverse stock split (two-to-one share) executed on 1st September 2014.

(1) Outline of stock options
Subscription rights to shares issued in March 2009 as stock options
Title and number of grantees
Number of stock options

5 directors, 1 executive officer of the Company and 4 directors, 8 executive officersof Hankyu Hanshin Department Stores, Inc.
46,000 common shares(Note 1)
Date of issue

31st March 2009

Exercise conditions

No provisions (Note 2)

Intended service period

No provisions

Exercise period

From 1st April 2009 to 31st March 2039

135

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

6 directors, 1 executive officer of the Company and 4 directors,
16 executive officers of Hankyu Hanshin Department Stores, Inc.
82,500 common shares(Note 1)
Date of issue

31st March 2010

Exercise conditions

No provisions (Note 2)

Intended service period

No provisions

Exercise period

From 1st April 2010 to 31st March 2040

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

6 directors of the Company and 10 directors, 7 executive officersof Hankyu Hanshin Department Stores, Inc.
97,000 common shares(Note 1)
Date of issue

31st March 2011

Exercise conditions

No provisions (Note 2)

Intended service period

No provisions

Exercise period

From 1st April 2011 to 31st March 2041

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

6 directors, 1 executive officer of the Company and 9 directors,
8 executive officers of Hankyu Hanshin Department Stores, Inc.
99,500 common shares(Note 1)
Date of issue

29th February 2012

Exercise conditions

No provisions (Note 2)

Intended service period

No provisions

Exercise period

From 1st March 2012 to 28th February 2042

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

6 directors of the Company and 8 directors, 9 executive officers ofHankyu Hanshin Department Stores, Inc.
99,000 common shares(Note 1)
Date of issue

31st March 2013

Exercise conditions

No provisions (Note 2)136

Intended service period

No provisions

Exercise period

From 1st April 2013 to 31st March 2043

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

6 directors of the Company and 10 directors, 7 executive officers ofHankyu Hanshin Department Stores, Inc.
101,000 common shares(Note 1)
Date of issue

31st March 2014

Exercise conditions

No provisions (Note 2)

Intended service period

No provisions

Exercise period

From 1st April 2014 to 31st March 2044

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

6 directors of the Company and 9 directors, 11 executive officers ofHankyu Hanshin Department Stores, Inc.
109,000 common shares(Note 1)
Date of issue

31st March 2015

Exercise conditions

No provisions (Note 2)

Intended service period

No provisions

Exercise period

From 1st April 2015 to 31st March 2045

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

5 directors, 1 executive officer of the Company and 7 directors,
14 executive officers of Hankyu Hanshin Department Stores, Inc.
110,000 common shares(Note 1)
Date of issue

31st March 2016

Exercise conditions

No provisions (Note 2)

Intended service period

No provisions

Exercise period

From 1st April 2016 to 31st March 2046

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

4 directors, 2 executive officers of the Company and 7 directors,
13 executive officers of Hankyu Hanshin Department Stores, Inc.

137

Number of stock options

106,500 common shares(Note 1)
Date of issue

31st March 2017

Exercise conditions

No provisions (Note 2)

Intended service period

No provisions

Exercise period

From 1st April 2017 to 31st March 2047

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

3 directors, 3 executive officers of the Company and 7 directors,
12 executive officers of Hankyu Hanshin Department Stores, Inc.
100,500 common shares(Note 1)
Date of issue

31st March 2018

Exercise conditions

No provisions (Note 2)

Intended service period

No provisions

Exercise period

From 1st April 2018 to 31st March 2048

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

3 directors, 3 executive officers of the Company and 8 directors,
10 executive officers of Hankyu Hanshin Department Stores, Inc.
98,500 common shares(Note 1)
Date of issue

30th June 2018

Exercise conditions

No provisions (Note 2)

Intended service period

No provisions

Exercise period

From 1st July 2018 to 30th June 2048

Subscription rights to shares (A) issued in July 2019 as stock options(stock options based compensation with continuous service conditions)
5 directors (excluding ASC members), 4 directors serving as ASC members,
Title and number of grantees

4 executive officers of the Company and 9 directors, 1 corporate auditor,
11 executive officers of Hankyu Hanshin Department Stores, Inc.

Number of stock options

112,500 common shares(Note 1)
Date of issue

15th July 2019

Exercise conditions(Note 3)

Intended service period

No provisions

138

Exercise period

From 16th July 2019 to 15th July 2049

Subscription rights to shares (B) issued in July 2019 as stock options(stock options based compensation with performance-based vesting conditions)
3 directors (excluding non-executive directors), 4 executive officers ofTitle and number of grantees

the Company and 8 directors (excluding non-executive directors),
11 executive officers of Hankyu Hanshin Department Stores, Inc.

Number of stock options

41,000 common shares(Note 1)
Date of issue

15th July 2019

Exercise conditions(Note 4)

Intended service period

No provisions

Exercise period

From 16th July 2019 to 15th July 2049

Notes 1. The number of stock options has been translated into number of shares.
2. The following conditions are imposed for the exercise:(1) Within the above exercise period for subscription rights to shares, holders of subscription rights toshares may exercise the subscription rights to shares only during the period up to the date on which
five (5) years elapses from the day following the date on which the holder loses any position as director,
corporate auditor, executive officer, etc., of the Company and Hankyu Hanshin Department Stores,
Inc., a subsidiary of the Company, (hereinafter, the “Exercise Commencement Date”).
(2) Notwithstanding (1) above, in the case specified in (i) or (ii) below (for (ii), excluding the case inwhich subscription rights to shares of the Reorganised Company are granted to the holder ofsubscription rights to shares in accordance with Note 8 below), holders of subscription rights to sharesshall be able to exercise the subscription rights to shares only within the period stipulated in each item.
(i) Case in which the holder of subscription rights to shares did not reach the Exercise Commencement
Date by the day a year before the last day of the exercise period
From the day following the day a year before the last day of the exercise period to the last day of theexercise period(ii) Case in which a proposal for approval of an agreement of merger in which the Company will be anabsorbed company, or a share exchange agreement or plan for share transfer in which the Company
will be a wholly-owned subsidiary is approved at the Company’s general meeting of shareholders (ifa resolution at the general meeting of shareholders is not necessary, the case in which a resolution of
the Company’s Board of Directors is adopted)
15 days from the day following the date of approval(3) If a holder of subscription rights to shares forfeits the subscription rights to shares, the holder shall not
be able to exercise the subscription rights to shares.
3. The following conditions are imposed for the exercise of subscription rights:

139

(1) Within the above exercise period for subscription rights to shares, holders of subscription rights toshares may exercise the subscription rights to shares only during the period up to the date on which
five (5) years elapses from the day following the date on which the holder loses any position as officer,
such as director (including ASC member), corporate auditor and executive officer of the Company andits 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) (hereinafter, the “Exercise Commencement Date”).
(2) Notwithstanding (1) above, in the case specified in (i) or (ii) below (for (ii), excluding the case inwhich subscription rights to shares of the Reorganised Company are granted to the holder ofsubscription rights to shares in accordance with Note 8 below), holders of subscription rights to sharesshall be able to exercise the subscription rights to shares only within the period stipulated in each item.
(i) Case in which the holder of subscription rights to shares did not reach the Exercise Commencement
Date by the day a year before the last day of the exercise period
From the day following the day a year before the last day of the exercise period to the last day of theexercise period(ii) Case in which a proposal for approval of an agreement of merger in which the Company will be anabsorbed company, or a share exchange agreement or plan for share transfer in which the Company
will be a wholly-owned subsidiary is approved at the Company’s general meeting of shareholders (ifa resolution at the general meeting of shareholders is not necessary, the case in which a resolution of
the Company’s Board of Directors is adopted)
15 days from the day following the date of approval(3) Notwithstanding (1) (2) above, in the event that, as of the final day of the fiscal year on which theallotment date falls, the Subscription rights to shares Holder does not hold a position of company
officer, etc., at the company where the Subscription rights to shares Holder became the grantee, thesubscription rights to shares Holder may not exercise the subscription rights to shares unlessdetermined otherwise by the Company.
4. The following conditions are imposed for the exercise:(1) In terms of management indicators targeted in the mid-term plan and other indicators predeterminedby the Company’s Board of Directors, within the exercise period for subscription rights to shares,
holders of subscription rights to shares may exercise the subscription rights to shares in the number of
exercisable units 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,
only during the period up to the date on which five (5) years elapses from the day following the dateon which the holder loses any position as officer, such as director (including ASC members), corporate
auditor and 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)(hereinafter, the “Exercise Commencement Date”).
Performance-based indicators are as follows:
Performance-based criteria for fiscal 2020 to 2022

140

Indicator

Target for fiscal 2022

Weight(i) Consolidated ordinary income¥25.0 billion

50%

4.0%

50%

(ii) Consolidated ROIC

(2) Notwithstanding (1) above, in the case specified in (i) or (ii) below (for (ii), excluding the case inwhich subscription rights to shares of the Reorganised Company are granted to the holder ofsubscription rights to shares in accordance with Note 8 below), holders of subscription rights to sharesshall be able to exercise the subscription rights to shares only within the period stipulated in each item.
(i) Case in which the holder of subscription rights to shares did not reach the Exercise Commencement
Date by the day a year before the last day of the exercise period
From the day following the day a year before the last day of the exercise period to the last day of theexercise period(ii) Case in which a proposal for approval of an agreement of merger in which the Company will be anabsorbed company, or a share exchange agreement or plan for share transfer in which the Company
will be a wholly-owned subsidiary is approved at the Company’s general meeting of shareholders (ifa resolution at the general meeting of shareholders is not necessary, the case in which a resolution of
the Company’s Board of Directors is adopted)
15 days from the day following the date of the approval or resolution(3) Notwithstanding (1) (2) above, until the time that the following conditions are met, the Subscription
rights to shares Holder may not exercise the subscription rights to shares unless determined otherwise
by the Company.
(i) The exercisable number of subscription rights to shares is determined.
(ii) The Subscription rights to shares Holder holds a position of company officer, etc., at the company atwhich the Subscription rights to shares Holder became a grantee.

141

(2) 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 2020. The numbers of stock options have been translated into numbers of shares and is adjusted for thereverse stock split (two-to-one share) executed on 1st September 2014.
(i)

Number of stock options
Subscription rights to shares issued in

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 stock options stock options stock options

March 2016

March 2017

March 2018

June 2018

–
–
–
–
–

–
–
–
–
–

–
–
–
–
–

–
–
–
–
–

–
–
–
–
–

–
–
–
–
–

–
–
–
–
–

–
–
–
–
–

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

–

–

–

–

–

–

–

4,000

7,000

9,000

9,000

8,000

11,0005,000

March 2020:
Before vested
As of 31st March 2019
GrantedForfeited
VestedOutstanding

–
–
–
–
–

–
–
–
–
–

–
–
–
–
–

100,500 100,500

98,500After vested
As of 31st March 2019
VestedExercised
Forfeited
Outstanding

–

–

–

–

–

–

–

–
–
–

10,50020,00030,50033,50046,00056,00090,500104,000

Subscription rights to shares issued in
In the year ended 31st
March 2020:

July 2019 stock options (A)July 2019 stock options (B)(stock options based(stock options based

compensation with continuous compensation with performanceservice conditions)based vesting conditions)

Before vested––

112,500

41,000Forfeited

1,000

Vested111,500–––

41,000

–

–
–
–
–
–

As of 31st March 2019
GrantedOutstanding
After vested
As of 31st March 2019
VestedExercised
Forfeited
Outstanding

111,500––
111,500

142

–
–
–

–
–
–

–
–
–

100,500 100,500

98,500(ii) Price information
Yen

Subscription rights to shares issued in
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

March 2017

March 2018

June 2018

¥1

¥1

¥1

¥1

¥1

¥1

¥1

¥1

¥1

¥1

¥1

¥1,227¥1,227¥1,109¥867¥956¥1,030¥1,158

¥–

¥–

¥–

¥–

¥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

31st March 2020:
Exercise price
Average exercise price
Fair value at the grant
date

Yen

Subscription rights to shares issued in
In the year ended
31st March 2020:

July 2019 stock options (A)July 2019 stock options (B)(stock options based(stock options based

compensation with continuous compensation with performanceservice conditions)based vesting conditions)

Exercise price¥1¥1

Average exercise price
Fair value at the grant
date

¥–

¥–

¥995

¥985

U.S. dollars

Subscription rights to shares issued in
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

$11

$11

$10

$7

$8

$9

$10

$–

$–

$–

$–

$9

$10

$9

$10

$17

$14

$19

$16

$15

$16

$14

stock options stock options stock options

31st March 2020:
Exercise price
Average exercise price
Fair value at the grant
date

U.S. dollars

Subscription rights to shares issued in
In the year ended
31st March 2020:

July 2019 stock options (A)July 2019 stock options (B)(stock options based(stock options based

compensation with continuous compensation with performanceservice conditions)

Exercise price
Average exercise price
Fair value at the grant
datebased vesting conditions)$0.009$0.009

$–

$–

$9

$9

143

Valuation method for estimating per share fair value of stock options

3.

Valuation technique used for valuating fair value of subscription rights to shares issued in July 2019 during the fiscal
year ended 31st March 2020 as stock options was as follows: Stock options based compensation with continuous service conditions(i)

Valuation method used was Adjusted Black-Scholes option-pricing model.

(ii) Principal parameters and estimation method
July 2019 stock
options A

Expected volatility of the underlying stock (Note 1)

30.71%

Expected remaining expected life of the option (Note 2)
Expected dividends on the stock (Note 3)

7.9 years¥40.0 per share

Risk-free interest rate during the expected option term (Note 4)(0.228)%Notes 1. In the fiscal year ended 31st March 2020, the fair value of stock options was calculated on the basis of
the Company’s weekly share price movements over 8 years from August 2011 to July 2019.
2. This is the expected remaining expected life of the option of directors (or executive officers) of theCompany as at the issuing date of the stock options, which was calculated using the average period ofservice for directors (or executive officers) of the Company, the average period from the allotment dateto the retirement age of the eligible person for grant and other factors.
3. In the fiscal year ended 31st March 2020, 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 March
2019.
4. This rate was calculated using the compound interest rate on Japanese Government Bonds whose
remaining period is similar to that of the stock options.
 Stock options based compensation with performance-based vesting conditions(i)

Valuation method used was Adjusted Black-Scholes option-pricing model.

(ii) Principal parameters and estimation method
July 2019 stock
options B

Expected volatility of the underlying stock (Note 1)

30.79%

Expected remaining expected life of the option (Note 2)
Expected dividends on the stock (Note 3)

8.2 years¥40.0 per share

Risk-free interest rate during the expected option term (Note 4)(0.219)%Notes 1. In the fiscal year ended 31st March 2020, the fair value of stock options was calculated on the basis of
the Company’s weekly share price movements over 8 years from May 2011 to July 2019.
2. This is the expected remaining expected life of the option of directors (or executive officers) of theCompany as at the issuing date of the stock options, which was calculated using the average period of144

service for directors (or executive officers) of the Company, the average period from the allotment dateto the retirement age of the eligible person for grant and other factors.
3. In the fiscal year ended 31st March 2020, 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 March
2019.
4. This rate was calculated using the compound interest rate on Japanese Government Bonds whose
remaining period is similar to that of the stock options.

4.

Method used to estimate the number of vested share subscription rights

Because all of the share subscription rights were vested when granted, the number of vested share subscription rights
is equal to the number of granted share subscription rights.

145

Tax effect accounting
1.

Significant components of deferred tax assets and liabilities
Thousands ofMillions of yen
U.S. dollars

2019

2020

2020

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

12,623 ¥16,997

Provision for redemption of gift certificates

1,286

1,354

12,422

Provision for bonuses

1,606

1,263

11,587

Net defined benefit liability

6,056

6,275

57,568Depreciation

542

432

3,963

Impairment loss

9,992

12,081

110,834

Retirement benefit trust assets

81

81

743

Provision for loss on store closings

308

32

293

Asset retirement obligations

1,061

1,211

11,110Shares of subsidiaries

1,357

1,357

12,449

1,267

1,028

9,431

560

602

5,522

Allowance for doubtful accounts

1,135

1,110

10,183

Deferred loss on sales of shares of subsidiaries andassociates based on Group Taxation Rule

10,294

12,308112,917

Accumulated losses of subsidiaries

240

1,733

15,899Specified accounts pertaining to business combination

470

234

2,146

4,306

4,539

41,642

Valuation of assets and liabilities of consolidated
subsidiaries on acquisition
Provision for point card certificates

Other

$

155,935

Subtotal
Valuation allowance pertaining to tax loss carryforwards(Note 2)
Valuation allowance pertaining to total amount of
deductible temporary differences

53,19362,645

574,724(10,081)(13,142)(120,568)(21,166)(28,907)(265,201)

Valuation allowance (Note 1)(31,248)(42,050)(385,779)

Total deferred tax assets

21,945

20,594

188,935(4,981)(4,705)(43,165)(6,038)(5,861)(53,770)(3,511)(3,511)(32,211)(18,969)(11,277)(103,458)(1,036)(991)(9,091)(1,617)(1,347)(12,357)(36,156)(27,694)(254,073)(14,210) ¥(7,100)

Deferred tax liabilities:
Reserve for advanced depreciation of non-current assets
Valuation of assets and liabilities of consolidated
subsidiaries on acquisition
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)

¥

146

$

(65,137)

Changes in presentation“Accumulated losses of subsidiaries,” which was included in “Other” of deferred tax assets in the previous year, hasbeen separately presented from the current year due to the increase in its materiality. The respective amount in thenotes for the previous year was reclassified to conform to the current year’s presentation.
As a result of this change, “Other” of deferred tax assets in the amount of ¥4,547 million for the previous year
was reclassified to “Accumulated losses of subsidiaries” in the amount of ¥240 million and “Other” in the amount of¥4,306 million.

Notes 1. Valuation allowance increased by ¥10,802 million ($99,100 thousand) due mainly to the valuation
allowance pertaining to tax loss carryforwards in the amount of ¥3,060 million ($28,073 thousand)recognised by the consolidated subsidiaries, to increase in impairment loss in the amount of ¥4,115 million($37,752 thousand) and to increase in deferred loss on sales of shares of subsidiaries and associates basedon the Group Taxation Rule in the amount of ¥2,013 million ($18,467 thousand).

2. Expected maturity of the deferred tax assets after the balance sheet date for tax loss carryforwards
As of 31st March 2019
Millions of yen

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) ¥

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*1. The amount of tax loss carryforwards was calculated by multiplying the statutory tax rate.
*2. For tax loss carryforwards of ¥12,623 million (multiplying the statutory tax rate), deferred tax assets of ¥2,541
million were recorded which mainly consisted of deferred tax assets related to tax loss carryforwards of ¥1,912
million recognised by H2O Asset Management Co., Ltd. The tax loss carryforwards were 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
determined the respective deferred tax assets related to tax loss carryforwards as recoverable based on theestimated future taxable income.

147

As of 31st March 2020
Millions of yen

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) ¥

36 ¥

246 ¥

634 ¥

962 ¥

3,063 ¥ 12,054 ¥

16,997

Valuation allowance

(24)

(246)

(454)

(781)

(1,224)(10,411)(13,142)

Deferred tax assets

11

–

179

181

1,838

1,642

(*2) 3,854

Thousands of U.S. dollars

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) $330 $2,256 $

5,816 $

8,825 $ 28,100 $ 110,587 $

155,935

Valuation allowance(220)(2,256)(4,165)(7,165)(11,229)(95,513)(120,568)

Deferred tax assets

100

–

1,642

1,660

16,862

15,064(*2) 35,357*1. The amount of tax loss carryforwards was calculated by multiplying the statutory tax rate.
*2. For tax loss carryforwards of ¥16,997 million ($155,935 thousand) (multiplying the statutory tax rate), deferred
tax assets of ¥3,854 million ($35,357 thousand) were recorded which mainly consisted of deferred tax assets
related to tax loss carryforwards of ¥2,710 million ($24,862 thousand) recognised by H2O Asset Management
Co., Ltd. The tax loss carryforwards were incurred because impairment losses, etc., which were previously notallowed 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 determined the respective deferred tax assets related to
tax loss carryforwards as recoverable based on the estimated future taxable income.

2.

Reconciliation of the differences between the statutory tax rate and the effective income tax rate
2019

Statutory tax rate

2020

30.6%

–

Non-deductible expenses

1.7–

Permanent differences (including dividends)

(2.5)

–

Tax on inhabitants per capita

5.5–

Amortisation of goodwill

2.3–

Changes in valuation allowances

37.8

–

Other

(2.3)

–

73.1%

–

Increase (reduction) in taxes resulting from:

Effective income tax rate

Note: For the year ended 31st March 2020, information was omitted since a loss before income taxes was recorded.

Income taxes consist of corporation, inhabitants and enterprise taxes.

148

Business combination
For the year ended 31st March 2019
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 subsidiaryof the Company(c) Primary reason for business divestitureConsidering the low profitability and the environment with intense competition of the applicable businesses,
the Company came to a conclusion that the transfer of the respective businesses would lead to theimprovement of the Group’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 Asset Management 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.

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

Loss on transfer of business¥

546(b) Appropriate book value and breakdown of assets and liabilities of divested businessMillions of yen

Current assets¥

507

Non-current assets

161

Total assets

668

Non-current liabilities

124

Total liabilities

124

149

(c) Accounting treatment
Accounting Standard for Business Divestitures (ASBJ Statement No. 7, issued on 13th September 2013)
and Guidance on 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
Millions of yen

Net sales¥

Operating loss

999
(111)

For the year ended 31st March 2020
Business divestiture(1) Overview of the business divestiture(a) Corporate name of the counterparty of the business divestiture
SRS HOLDINGS CO., LTD.

(b) Lines of business divested
KAZOKUTEI CO., Ltd. and Sun Laurie Co., Ltd., wholly owned subsidiaries of the Company(c) Primary reason for business divestiture
The Company has judged that acceleration of growth and increase in the corporate value can be expected
through the integration of both companies into SRS HOLDINGS CO., LTD., which focuses on therestaurant business, through the share exchange. The Company can further enhance its relationship withSRS as an alliance partner to “develop the integrated lifestyle industry” in Japan’s Kansai area that theCompany aims for by strengthening its capital ties with SRS.

(d) Date of business divestiture
1st February 2020(e) Legal form of business divestiture
KAZOKUTEI CO., Ltd. and Sun Laurie Co., Ltd. each implemented a share exchange with SRS HOLDING
CO., LTD.

150

(2) Overview of accounting treatment(a) Loss on share exchanges
Thousands ofMillions of yen
U.S. dollars

Loss on transfer of business

¥

477

$

4,376

(b) Appropriate book value and breakdown of assets and liabilities of divested businessThousands ofMillions of yen
U.S. dollars

Current assets

¥

1,441

$

13,220Non-current assets

5,433

49,844

Total assets

6,875

63,073Current liabilities

1,406

12,899Non-current liabilities

3,382

31,027

Total liabilities

4,789

43,935(c) Accounting treatment
Accounting Standard for Business Divestitures (ASBJ Statement No. 7, issued on 13th September 2013)
and Guidance on 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
KAZOKUTEI CO., Ltd.: Other businesses
Sun Laurie Co., Ltd.:Supermarket business(4) Gain/loss of the business divesture recorded on the consolidated statement of operations for the fiscal year ended
31st March 2020
Thousands ofMillions of yen
U.S. dollars

Net sales¥

Operating income

9,563
287

151

$

87,733
2,633

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 2019 and 2020, an estimated usage period of 1 to 47 years and a discount rateof 0.00% 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 2019, asset retirement obligations increased by ¥66 million since it became
possible to estimate the restoration costs for the closed parking areas of Izumiya Co., Ltd. located on separate sites.
In addition, the acquisition of property, plant and equipment for the opening of branch shops by KAZOKUTEI CO.,LTD. also resulted in a ¥28 million increase in asset retirement obligations.
Decrease due to fulfilment of asset retirement obligations is related mainly to Izumiya Co., Ltd.
For the fiscal year ended 31st March 2020, asset retirement obligations increased by ¥158 million ($1,449 thousand)since it became possible to estimate the restoration costs for the closed stores of Group companies located on separate
sites. In addition, the acquisition of property, plant and equipment for the opening of branch shops by Hankyu Oasis
Co., Ltd. also resulted in a ¥659 million ($6,045 thousand) increase in asset retirement obligations.
Decrease due to fulfilment of asset retirement obligations is related mainly to Izumiya Co., Ltd.

Changes in the balances were as follows:
Thousands ofMillions of yen
U.S. dollars

2019
Balance at beginning of year

¥

2020

2020

3,327 ¥

2,824

Increase due to estimate changes

85

158

1,449

Increase due to acquisition of property, plant and equipment

59

687

6,302

Adjustments with passage of time

46

46

422

(667)

(152)

(1,394)–(309)(2,834)

(26)

1

9

Decrease due to fulfilment of asset retirement obligations
Decrease due to exclusion of subsidiaries fromconsolidation
Other increase (decrease)
Balance at end of year2.

¥2,824 ¥

3,255

$

$

25,90829,862

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 leaving152

is not yet planned, asset retirement obligations are not recorded as it is not possible to reasonably estimate the asset
retirement obligations.

Segment Information
Segment Information
1.

General information about reportable segments(1) Method for determining reportable segments
The Group’s 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 Group is expanding its business activities primarily in the department store business, but also in the supermarket
business, the shopping centre business and other businesses. Accordingly, “Department Store Business,”“Supermarket Business,” “Shopping Centre Business” and “Other Businesses” have been designated as reportablesegments.

(2) Type of products and services that belong to each reportable segment
The “Department Store Business” segment is primarily engaged in the sale of clothing, accessories, home furnishings,
foods and others. 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.

(3) Change in reportable segments
From the current year, reportable segments have been changed from the previous five segments of “Department StoreBusiness,” “Kobe Takatsuki Business,” “Supermarket Business,” “Shopping Centre Business” and “Other Businesses”
to four segments by integrating “Department Store Business” and “Kobe Takatsuki Business” into a single segment.
This change followed a review of categories for business performance management conducted from the beginning of
the current year, in line with the transfer of businesses of Sogo Kobe and Seibu Takatsuki to Hankyu Hanshin
Department Stores, Inc. as of 1st October 2019.
The disclosed segment information for the previous year was prepared based on reportable segments after the change.

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 “Significant
accounting policies for preparation of consolidated financial statements.”
Income by reportable segment is presented on an operating income basis. Intersegment sales and transfers arerecognised based on current market prices.
3.
3.

Information on net sales, segment income (loss), segment assets and other items by reportable segment

153

As of and for the year ended 31st March 2019
Millions of yen

Department

Supermarket

Store BusinessBusiness

Shopping
CentreBusiness

Other

Adjustments

Businesses(Note 1)Total

Net sales
External customers¥

Intersegment494,608 ¥367,580 ¥

8,736 ¥

55,948 ¥

293

– ¥

5,034

17,562

26,295(49,185)

926,872–

Total net sales¥

494,901 ¥372,614 ¥26,298 ¥82,243 ¥(49,185) ¥926,872

Segment income (loss)¥

17,883 ¥(438) ¥

4,281 ¥

5,030 ¥

(6,335) ¥20,422

Segment assets¥

204,372 ¥

142,867 ¥

174,503 ¥518,232 ¥ (376,641) ¥663,335¥

5,478 ¥

5,600 ¥

2,274 ¥

4,118 ¥

(71) ¥

17,399

–

507

–

62

–

570

Investments in entities accounted
for using equity method

243

–

–

10,195

Impairment loss

75

2,542

3,876

496

–

6,990

11,531 ¥9,048 ¥

6,727 ¥

4,857 ¥

(125) ¥

32,039Other items
Depreciation
Amortisation of goodwill

Increase in property, plant andequipment and intangible assets¥–

10,439Notes 1. Adjustments are as follows:(1) Adjustment of segment income (loss) was ¥(6,335) million for the year ended 31st March 2019 andcomprised the elimination of intersegment transactions.

(2) For the year ended 31st March 2019, adjustment of assets was ¥(376,641) million and included¥(183,038) million offset elimination of investments and capital, ¥(191,130) million offset eliminationof debts and credits and ¥(2,740) million adjustment for unrealised gains and losses on non-current assets.

(3) Adjustment of depreciation amounting to ¥(71) million and adjustment of increase in property, plant andequipment and intangible assets amounting to ¥(125) million consisted of the elimination of intersegment
transactions for the year ended 31st March 2019.

2. Segment income (loss) is reconciled to operating income in the consolidated statement of operations.

154As of and for the year ended 31st March 2020
Millions of yen

Department

Supermarket

Store BusinessBusiness

Shopping
CentreBusiness

Other

Adjustments

Businesses(Note 1)Total

Net sales
External customers¥

473,225 ¥354,115 ¥272

Intersegment

8,725 ¥

61,222 ¥

– ¥

5,208

16,84025,687(48,009)897,289–

Total net sales¥

473,498 ¥359,324 ¥

25,565 ¥86,910 ¥(48,009) ¥897,289

Segment income (loss)¥

11,486 ¥(2,503) ¥4,141 ¥

2,903 ¥

(4,856) ¥11,171

Segment assets¥

184,584 ¥

124,164 ¥

145,101 ¥479,882 ¥ (346,828) ¥586,904¥

6,063 ¥

5,748 ¥

1,920 ¥

4,837 ¥

(50) ¥

18,519

–

507

–

74

–

581

258

–

–

10,130–10,3882,226

11,087

724

327

–

14,366

8,508 ¥

8,655 ¥

9,511 ¥

8,541 ¥

(92) ¥

35,125

Other items
Depreciation
Amortisation of goodwill
Investments in entities accounted
for using equity method
Impairment loss
Increase in property, plant andequipment and intangible assets¥

As of and for the year ended 31st March 2020
Thousands of U.S. dollars

Department
Store

Shopping

Supermarket

CentreBusiness

Business

Business

Other

Adjustments

Businesses(Note 1)Total

Net sales
External customers$ 4,341,513 $

80,045 $561,669 $

47,779154,495

235,660(440,449)$ 4,344,018 $3,296,550 $

234,541 $

797,339 $(440,449) $ 8,232,009

Segment income (loss)$(22,963) $37,990 $26,633 $(44,550) $Segment assets$ 1,693,431 $Intersegment
Total net sales

2,495

105,376 $3,248,761 $

1,139,119 $ 1,331,201 $ 4,402,587 $– $ 8,232,009–

102,486(3,181,908) $ 5,384,440

Other items
Depreciation$

55,623 $52,733 $17,614 $44,376 $(458) $

169,899

–

4,651

–

678

–

5,330

Investments in entities accounted
for using equity method

2,366

–

–

92,935–95,302

Impairment loss

20,422

101,715

6,642

3,000

–

131,798

78,055 $79,403 $87,256 $78,357 $(844) $

322,247

Amortisation of goodwill

Increase in property, plant andequipment and intangible assets$

155Notes 1. Adjustments are as follows:(1) Adjustment of segment income (loss) was ¥(4,856) million ($(44,550) thousand) for the year ended 31st
March 2020 and comprised the elimination of intersegment transactions.

(2) For the year ended 31st March 2020, adjustment of assets was ¥(346,828) million ($(3,181,908)
thousand) and included¥(178,634) million ($(1,638,844) thousand) offset elimination of investments andcapital, ¥(165,679) million ($(1,519,990) thousand) offset elimination of debts and credits and ¥(2,781)
million ($(25,513) thousand) adjustment for unrealised gains and losses on non-current assets.

(3) Adjustment of depreciation amounting to ¥(50) million ($(458) thousand) and adjustment of increase inproperty, plant and equipment and intangible assets amounting to ¥(92) million ($(844) thousand)consisted of the elimination of intersegment transactions for the year ended 31st March 2020.

2. Segment income (loss) is reconciled to operating income in the consolidated statement of operations.

(Related Information)
As of and for the year ended 31st March 20191.

Information for each product or service

This information has been omitted since similar information has been disclosed in segment information.

2.

Information for each region(1) Net sales
This information has been omitted since net sales to external customers in Japan exceeded 90% of net sales in the
consolidated statements of operations.

(2) Property, plant and equipment
This information has been omitted since the amount of property, plant and equipment located in Japan exceeded 90%of the amount of property, plant and equipment in the consolidated balance sheets.

3.

Information for each of main customers

There is no applicable information to disclose since, among net sales to external customers, no customer accounted
for 10% or more of net sales in the consolidated statements of operations.

As of and for the year ended 31st March 2020
1.

Information for each product or service

This information has been omitted since similar information has been disclosed in segment information.

2.

Information for each region(1) Net sales

156

This information has been omitted since net sales to external customers in Japan exceeded 90% of net sales in the
consolidated statements of operations.

(2) Property, plant and equipment
This information has been omitted since the amount of property, plant and equipment located in Japan exceeded 90%of the amount of property, plant and equipment in the consolidated balance sheets.

3.

Information for each of main customers

There is no applicable information to disclose since, among net sales to external customers, no customer accounted
for 10% or more of net sales in the consolidated statements of operations.

Disclosure of impairment loss on non-current assets for each reportable segment
As of and for the year ended 31st March 2019
This information has been omitted since similar information has been disclosed in segment information.

As of and for the year ended 31st March 2020
This information has been omitted since similar information has been disclosed in segment information.

157

Amortisation of goodwill and unamortised balance by reportable segments

As of and for the year ended 31st March 2019
Millions of yen

Department

Supermarket

Store BusinessBusiness

Shopping
CentreBusiness

Other
Businesses

Adjustments

Total

Goodwill
Amortisation

¥

– ¥

507 ¥

– ¥

62 ¥

– ¥

570

Impairment

¥

– ¥

– ¥

– ¥

– ¥

– ¥

–

Unamortised balance¥– ¥3,719 ¥

– ¥

357 ¥

– ¥

4,076

As of and for the year ended 31st March 2020
Millions of yen

Department

Supermarket

Store BusinessBusiness

Shopping
CentreBusiness

Other
Businesses

Adjustments

Total

Goodwill
Amortisation

¥

– ¥

507 ¥

– ¥

74 ¥

– ¥

581

Impairment

¥

– ¥

– ¥

– ¥

– ¥

– ¥

–

Unamortised balance¥– ¥3,212 ¥

– ¥

93 ¥

– ¥

3,305

As of and for the year ended 31st March 2020
Thousands of U.S. dollars

Department

Supermarket

Store BusinessBusiness

Shopping
CentreBusiness

Other
Businesses

Adjustments

Total

Goodwill
Amortisation$– $4,651 $

– $

678 $

– $

5,330

Impairment

$

– $

– $

– $

- $

– $

–

Unamortised balance$– $29,467 $

– $

853 $

– $

30,321Note:

In “Other Businesses,” KAZOKUTEI CO., Ltd. was excluded from the scope of consolidation as a result of
the share exchange as of 1st February 2020. The amount of decrease in goodwill due to this event was ¥280
million ($2,568 thousand).

Gain on bargain purchase by reportable segments
As of and for the year ended 31st March 2019
Not applicable.

158

As of and for the year ended 31st March 2020
Information was omitted because gain on bargain purchase was insignificant.

Related Party Transactions
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 relatedparties(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
Class

Name ofcompany orindividual

Location

Capital orinvestment

Occupation orbusiness lines

Ownershipof votingrights (%)

Nature ofrelationship

Nature oftransactions

Rental expenses

HankyuCorporation

Kita-ku,
Osaka City

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

Subsidiaries
ofcompaniesthat havesignificant
stakes in thereportingentitySame person
serving
concurrently
as director or
corporate
auditor forboth parties,
Rental of real Fees for display
estateof signs, etc.

HANSHIN
ELECTRICRAILWAY
CO., LTD.

Fukushima-ku, OsakaCity

11.97%
shares oftheCompany
directly
held

159

Endingbalance

Accounts
receivable other¥19 million

Prepaid
expenses¥214 million¥9,661
million Accounts
payable other¥102 million

Accruedexpenses¥2 million

Prepaid
expenses¥0 million

Guarantee
deposits¥24,884
millionPrepaid
expenses¥64 million

Accounts¥3,061payable millionother¥210 million¥9 million

Deposits ofguarantee money¥1,579millionReturn ofguarantee money¥76
millionRental expenses
Railway
operations,real estate
rental and¥29,384 dealership
million operations,sportsbusiness,travelbusiness

Value of
Accounting
transactions designation

Same person
serving
Accruedconcurrently
expenses
as director or
corporate
auditor forFees for display
Prepaid¥1 million
both parties, of signs, etc.
expenses
Rental of realestateDeposits of¥3,505
guarantee money
million
Guarantee
deposits
Return of¥1,705
guarantee money
million¥40 million¥– million¥8,509million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.
2. Rent expenses for buildings are determined by current market rates.
3. All other matters are determined according to general terms and conditions.

160

For the year ended 31st March 2020
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 relatedparties(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
Class

Name ofcompany orindividual

Location

Capital orinvestment

Occupation orbusiness lines

Ownershipof votingrights (%)

Nature ofrelationship

Nature oftransactions

Value of
Accounting
transactions designation

Endingbalance

Accounts¥294 million
receivable ($2,697
otherthousand)Prepaid
expenses

HankyuCorporation

Kita-ku,
Osaka City

Railway
operations,¥100 real estate
million rental and($917 dealership
thousand) operations,stage revues,
retailing–

Same person Rental expenses
serving
concurrently
as director or
corporate
auditor forboth parties,
Rental of realestate¥9,821
million($90,100
Accounts
thousand)payable other¥– million($–
thousand)Fees for displayof signs, etc.

¥8 million
Prepaid($73
expenses
thousand)¥0 million($0
thousand)

Deposits ofguarantee money¥113
million Guarantee($1,036 deposits
thousand)¥24,873
million($228,192
thousand)Accounts
receivable other¥36 million($330
thousand)Prepaid¥2,797 expenses
Rental expenses

HANSHIN
ELECTRICRAILWAY
CO., LTD.

Fukushima-ku, OsakaCity

11.96%
shares oftheCompany
directly
heldSame person
serving
concurrently
as director or
corporate
auditor forboth parties,
Rental of real
Fees for display
estateof signs, etc.

million($25,660
Accounts
thousand)payable other¥63 million($577
thousand)¥2 million($18
thousand)Accruedexpenses¥31 million($284
thousand)¥0 million
Prepaid($0
expenses
thousand)¥– million($–
thousand)¥95
million($871
thousand) Guarantee
deposits¥2 million
Return of($18
guarantee money
thousand)¥8,575
million($78,669
thousand)

Deposits ofguarantee money

161¥20 million($183
thousand)Accruedexpenses

Subsidiaries
ofcompaniesthat havesignificant
stakes in thereportingentityRailway
operations,real estate¥29,384 rental andmillion dealership($269,577 operations,
thousand) sportsbusiness,travelbusiness¥231 million($2,119thousand)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.
2. Rent expenses for buildings are determined by current market rates.
3. All other matters are determined according to general terms and conditions.

162

Per Share Information

Yen

U.S. dollars

2019
BPS

2020

2,252.28 ¥1,967.90

Basic EPS

17.50

(106.38)(975)

Diluted EPS

17.39

–

–

1.

¥

2020
$

18,054

Diluted EPS for the year ended 31st March 2020 was not provided because there were dilutive shares, but loss
per share was recorded.

2.

Basic EPS and diluted EPS calculations for the years ended 31st March 2019 and 2020 were as follows:
Thousands ofMillions of yen
U.S. dollars

2019

2020

2020

Basic EPS
Profit (or loss) (numerator):
Profit (or loss) attributable to owners of parent¥

Amounts not belonging to common stockholders

2,162 ¥

(13,150)$(120,642)

–

–

–

2,162

(13,150)(120,642)

123,538,732

123,615,772

1,134,089,651

–

–

–

Assumed exercise of subscription rights to shares772,639–(Subscription rights to shares)(772,639)(–)

Profit (or loss) attributable to owners of parent
concerning common stock
Shares (denominator):
Weighted average number of shares

Diluted EPS
Profit (numerator):
Profit attributable to owners of parent

Overview of potentially dilutive shares that were notincluded in the computation of diluted EPS because they
have no dilutive effect

163

―

3.

Net assets per share (Book value Per Share “BPS”) calculations for the years ended 31st March 2019 and 2020
were as follows:
Thousands ofMillions of yen
U.S. dollars

2019
Net assets¥

244,634

1,239

1,317

12,082(1,235)(1,312)(12,036)

(4)

(4)

(36)

278,364

243,3172,232,266

123,592,099

123,643,177(Subscription rights to shares)(Non-controlling interests)
Net assets concerning common stock

share

2020

279,603 ¥Deduction from net assets

Number of shares used for the calculation of net assets per

2020$

2,244,348

Subsequent Events
For the year ended 31st March 2019
Grant of subscription rights to shares as stock options 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 options 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.

(Subscription rights to shares A issued in July 2019)
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 theCompany
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 in164accordance 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), minus the amount of capital stock to be increased pursuant to Paragraph (1) .
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.

(Subscription rights to shares B issued in July 2019)
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 toshares(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
in accordance with Article 17, Paragraph 1 of the Regulations on Accounting of Companies, and any
amounts of 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 increaseprovided in Paragraph (1), minus the amount of capital stock to be increased pursuant to Paragraph (1) .
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.

165

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.

For the year ended 31st March 2020
Grant of subscription rights to shares as stock options based compensation
The Company has decided to grant stock options based compensation that is linked to the value of shares of theCompany mainly for the purpose of the sustainable growth and the improvement of medium- to long-term corporate
value of the Group, and enhancement of an outlook that gives weight to the shareholder. At the Board of Directors’
meeting held on 23rd June 2020, the Company resolved on the grant of the following two systems of subscription
rights to shares in order to grant the stock options based compensation for the year ended 31st March 2020.

(Subscription rights to shares A issued in July 2020)
1. Grant date
15th July 2020
2. Number of subscription rights to shares issued
1,130 units (upper limit)
3. Type and number of shares subject to subscription rights to shares
113,000 shares of common stock of the Company (upper limit)
4. Exercise price¥1 per share
5. Exercise period
From 16th July 2020 to 15th July 2050
6. Title and number of grantees
4 directors (excluding ASC members), 5 directors serving as ASC members and 4 executive officers of theCompany
9 directors, 1 corporate auditor and 10 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 toshares(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
in accordance with Article 17, Paragraph 1 of the Regulations on Accounting of Companies, and any
amounts of less than ¥1 shall be rounded up.

(2)

The amount of capital surplus to be increased as a result of the issuance of shares upon the exercise ofsubscription rights to shares shall be calculated as the maximum amount of the capital stock increaseprovided in Paragraph (1) , minus the amount of capital stock to be increased pursuant to Paragraph (1) .

8. Calculation of payment price of subscription rights to shares

166

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 (including directors serving as ASC members) or executive officers of theCompany (“Officers of the Company”), the payable amount 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 (“Officers of the Subsidiaries”), the payable amount of the subsidiariesof 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.
(Subscription rights to shares B issued in July 2020)
1. Grant date
15th July 2020
2. Number of subscription rights to shares issued
390 units (upper limit)
3. Type and number of shares subject to subscription rights to shares
39,000 shares of common stock of the Company (upper limit)
4. Exercise price¥1 per share
5. Exercise period
From 16th July 2020 to 15th July 2050
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 10 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 toshares(1)

The amount of capital stock to be increased as the result of the issuance of share upon the exercise ofsubscription rights to shares shall be one half of the maximum amount of capital stock increase calculated
in accordance with Article 17, Paragraph 1 of the Regulations on Accounting of Companies, and any
amounts of 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 increaseprovided in Paragraph (1), minus the amount of capital stock to be increased pursuant to Paragraph (1) .

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.

167

Bonds payable, short-term and long-term loans and lease obligations
Schedule of bonds payableCompany

Stock

Issue date2019
H2O RETAILINGCORPORATION

First

19th

(%)

Security

Maturity

2020

¥

$

10,0002014

U.S. dollars

2020

¥

unsecured December
straight

Thousands of Interest rates

Millions of yen

91,743

10,0000.706

unsecured
bonds

19th
December
2024

bonds
H2O RETAILING Second
CORPORATION

21st

unsecured December
straight

10,0002018

91,743

10,0000.480

unsecured
bonds

21st
December
2028

bonds
Total

–

–

¥

20,000 ¥20,000 $ 183,486

–

–

–

Schedule of borrowings, etc.
Thousands ofMillions of yen
U.S. dollars

Average
2019

2020

2020

interest rates Payment term(%)

Short-term loans payable
Current portion of long-term loans payable
Current portion of lease obligations
Long-term loans payable, excluding current
portion8,000 ¥

15,00020,201
749$

137,6140.095–

18,100166,055

0.140

–

910

8,348

–

–
From November

116,718

98,613904,706

0.141 2021 to February
2037

Lease obligations, excluding current portion
Other interest bearing debts
Total

¥

From April 2021

8,686

13,806

126,660

–

–

–

–

–

–

154,356

146,430

1,343,394––

to March 2037

Notes 1. Average interest rates represent weighted average interest rates on the balance of loans payable at year end.
2. Average interest rates on lease obligations have not been provided because certain consolidated
subsidiaries record lease obligations in the consolidated balance sheets at the amount before deduction of
the amount equivalent to interest rates included in lease payments.

168

Schedule of asset retirement obligations
This schedule has been omitted since the amount of asset retirement obligations at the beginning and end of theyear ended 31st March 2020 was no more than 1% of the total amount of liabilities and net assets at the beginningand end of the year ended 31st March 2020.

169Independent auditor’s report
To the Board of Directors of H2O RETAILING CORPORATION:
OpinionWe have audited the accompanying consolidated financial statements of H2O RETAILINGCORPORATION (“the Company”) and its consolidated subsidiaries (collectively referred to as “theGroup"), which comprise the consolidated balance sheets as at March 31, 2020 and 2019, theconsolidated statements of operations, comprehensive income, changes in net assets and cash flows forthe years then ended, and notes, comprising a summary of significant accounting policies, otherexplanatory information.
In our opinion, the accompanying consolidated financial statements present fairly, in all material
respects, the consolidated financial position of the Group as at March 31, 2020 and 2019, and its
consolidated financial performance and cash flows for the years then ended in accordance withaccounting principles generally accepted in Japan.
Basis for Opinion
We conducted our audit in accordance with auditing standards generally accepted in Japan. Our
responsibilities under those standards are further described in the Auditor’s Responsibilities for the
Audit of the Consolidated Financial Statements section of our report. We are independent of the Groupin accordance with the ethical requirements that are relevant to our audit of the consolidated financial
statements in Japan, and we have fulfilled our other ethical responsibilities in accordance with theserequirements. We believe that the audit evidence we have obtained is sufficient and appropriate toprovide a basis for our opinion.
Responsibilities of Management and the audit and supervisory committee for the Consolidated
Financial Statements
Management is responsible for the preparation and fair presentation of the consolidated financial
statements in accordance with accounting principles generally accepted in Japan, and for such internal
control as management determines is necessary to enable the preparation of consolidated financial
statements that are free from material misstatement, whether due to fraud or error.
In preparing the consolidated financial statements, management is responsible for assessing the Group’s
ability to continue as a going concern, disclosing, as applicable, matters related to going concern inaccordance with accounting principles generally accepted in Japan and using the going concern basis ofaccounting unless management either intends to liquidate the Group or to cease operations, or has no
realistic alternative but to do so.
The audit and supervisory committee is responsible for overseeing the directors’ performance of theirduties including the design, implementation and maintenance of the Group’s financial reporting
process.

170

Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements
as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’sreport that includes our opinion. Reasonable assurance is a high level of assurance, but is not aguarantee that an audit conducted in accordance with auditing standards generally accepted in Japan
will always detect a material misstatement when it exists. Misstatements can arise from fraud or error
and are considered material if, individually or in the aggregate, they could reasonably be expected toinfluence the economic decisions of users taken on the basis of these consolidated financial statements.
As part of our audit in accordance with auditing standards generally accepted in Japan, we exercise
professional judgment and maintain professional skepticism throughout the audit. We also:

Identify and assess the risks of material misstatement of the consolidated financial statements,
whether due to fraud or error, design and perform audit procedures responsive to those risks, andobtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The riskof not detecting a material misstatement resulting from fraud is higher than for one resulting fromerror, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or theoverride of internal control.

Obtain an understanding of internal control relevant to the audit in order to design audit proceduresthat are appropriate in the circumstances, while the objective of the audit is not to express an
opinion on the effectiveness of the Group’s internal control.

Evaluate the appropriateness of accounting policies used and the reasonableness of accounting
estimates and related disclosures made by management.

Conclude on the appropriateness of management’s use of the going concern basis of accounting
and based on the audit evidence obtained, whether a material uncertainty exists related to events orconditions that may cast significant doubt on the Group’s ability to continue as a going concern. If
we conclude that a material uncertainty exists, we are required to draw attention in our auditor’sreport to the related disclosures in the consolidated financial statements or, if such disclosures are
inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to
the date of our auditor’s report. However, future events or conditions may cause the Group tocease to continue as a going concern.



Evaluate whether the presentation and disclosures in the consolidated financial statements are inaccordance with accounting standards generally accepted in Japan, the overall presentation,
structure and content of the consolidated financial statements, including the disclosures, andwhether the consolidated financial statements represent the underlying transactions and events in amanner that achieves fair presentation.

Obtain sufficient appropriate audit evidence regarding the financial information of the entities orbusiness activities within the Group to express an opinion on the consolidated financial statements.
We are responsible for the direction, supervision and performance of the group audit. We remainsolely responsible for our audit opinion.

We communicate with the audit and supervisory committee regarding, among other matters, theplanned scope and timing of the audit, significant audit findings, including any significant deficiencies
in internal control that we identify during our audit.
We also provide the audit and supervisory committee with a statement that we have complied with
relevant ethical requirements regarding independence, and communicate with them all relationships andother matters that may reasonably be thought to bear on our independence, and where applicable,
related safeguards.

171

Convenience Translation
The U.S. dollar amounts in the accompanying consolidated financial statements with respect to the year
ended March 31, 2020 are presented solely for convenience. Our audit also included the translation of
yen amounts into U.S. dollar amounts and, in our opinion, such translation has been made on the basis
described in Basis of presenting consolidated financial statements.
Interest required to be disclosed by the Certified Public Accountants Act of Japan
We do not have any interest in the Group which is required to be disclosed pursuant to the provisions of
the Certified Public Accountants Act of Japan.

Motoharu Iyomasa
Designated Engagement Partner
Certified Public Accountant

Naoki Sugita
Designated Engagement Partner
Certified Public Accountant

Aki Yuge
Designated Engagement Partner
Certified Public Accountant

KPMG AZSA LLC
Osaka Office, Japan
September 30, 2020

Notes to the Reader of Independent Auditor’s Report:
This is a copy of the Independent Auditor’s Report and the original copies are kept separately by theCompany and KPMG AZSA LLC.

172

Supplemental information
Non-consolidated Balance Sheets (Unaudited)
H2O RETAILING CORPORATION
Thousands of U.S.
dollars

Millions of yen

As of 31st March 2019 and 2020
AssetsCurrent assets
Cash and deposits
Trade accounts receivable (Note 1)
Prepaid expenses
Short-term loans receivable (Note 1)
Current portion of long-term loans receivable (Note 1)
Other (Note 1)
Allowance for doubtful accounts
Total current assets\

Non-current assets
Property, plant and equipment
Buildings and structures (Note 2)
Vehicles, furniture and fixtures (Note 2)
Land (Note 2)
Construction in progress
Property, plant and equipment, net
Intangible assets
SoftwareRight to use facilities
Software in progress
Total intangible assets
Investments and other assets
Investment securities
Shares of subsidiaries and associates
Investments in capital of subsidiaries and associates
Long-term loans receivable (Note 1)
Guarantee deposits
Long-term prepaid expenses
Other
Allowance for doubtful accounts
Total investments and other assets
Total non-current assets
Total assets
See accompanying notes.

173

\

2019

2020

2020

6,967 \
2,807
35
13,134
11,8181,089(1,645)34,207

11,7062,160
45
12,204
17,5681,383(3,350)41,7184,292
842
27,451
27
32,614

4,163
2,539
27,451
61
34,21638,192
23,293251,844559
313,908

6,067
9
1,586
7,663

8,415
21
1,112
9,549

77,201
192
10,20187,60591,482
167,682
16,467
127,891137
5
471(8,332)395,807436,084
470,291 \

68,391
165,868
15,955
109,456
142
0
50(9,811)350,054
393,820
435,538

627,440
1,521,724
146,376
1,004,183
1,302
0
458
(90,009)
3,211,504
3,613,027
3,995,761$$

107,394
19,816412
111,963
161,174
12,688(30,733)
382,733

Thousands of U.S.
dollars

Millions of yen

Liabilities
Current liabilities
Short-term loans payable (Note 3)
Current portion of long-term loans payable
Accounts payable - other (Note 1)
Accrued expenses
Income taxes payable
Advances received
Deposits received (Note 1)
Provision for bonuses
Provision for directors' bonuses
Other
Total current liabilities\

Non-current liabilities
Bonds payable
Long-term loans payable
Deferred tax liabilities
Deferred tax liabilities for land revaluation
Provision for retirement benefits
Provision for loss on business of subsidiaries andassociates
Long-term accounts payable - other
Long-term guarantee deposits
Total non-current liabilities
Total liabilities
Net assets
Shareholders' equity
Capital stock
Capital surplus
Legal capital surplus
Other capital surplus
Total other capital surplus
Retained earnings
Legal retained earnings
Other retained earnings
Reserve for tax purpose reduction entry of
non-current assets
General reserve
Retained earnings brought forward
Total retained earnings
Treasury shares
Total shareholders' equity
Valuation and translation adjustments
Valuation difference on available-for-sale securities
Revaluation reserve for land
Total valuation and translation adjustments
Subscription rights to shares
Total net assets
Total liabilities and net assets\

See accompanying notes.

174

2019

2020

2020

8,000 \
1,668
109
162
43
83,968115
37
094,10415,00016,200
1,362
92
110
135
72,930109
19
1105,961

20,000114,000
15,137266-

20,00097,7005,878
266
5183,486
896,330
53,926
2,440
45

27

56

513

17
310
149,758
243,86312
268
124,188
230,149110
2,458
1,139,339
2,111,458

17,796

17,796

163,266

72,495
20,464
92,96072,49520,44092,935665,091
187,522852,614

4,429

4,429

40,633

6,686

6,664

61,13744,05418,892
74,063(2,995)
181,824

44,054
15,16770,315(2,899)178,147

404,165
139,146
645,091(26,596)
1,634,376

42,764604
43,3681,235
226,428
470,291 \

25,323604
25,9281,312
205,389435,538

232,3215,541
237,871
12,036
1,884,302
3,995,761$$

137,614148,623
12,495
844
1,009
1,238
669,0821,000
174
9972,119

Non-consolidated Statements of Income (Unaudited)
H2O RETAILING CORPORATION
Thousands of U.S.
dollars

Millions of yen

Years ended 31st March 2019 and 2020
Operating revenue
Dividends from subsidiaries and associates

2019
\

2020

2020

3,897 \

3,460

2,128
2,535

1,495
2,438

13,71522,366

System usage fee income
Total operating revenue (Note 1)

4,995
13,556

5,799
13,19453,201
121,045

Total operating expenses (Notes 1 and 2)
Operating income

8,723
4,832

10,0483,145

92,18328,853

Revenue from group operating contribution
Real estate lease revenue$

31,743Non-operating income
Interest income

539

706

6,477

Dividend income
Other

1,316
129

1,303
251

11,954
2,302

1,985

2,261

20,743

721

818

7,504

3,532
230

512
315

4,697
2,889

4,484
2,334

1,646
3,760

15,10034,495

Total non-operating income (Note 1)
Non-operating expenses
Interest expenses
Loss on investments in silent partnerships
Other
Total non-operating expenses (Note 1)
Ordinary income
Extraordinary income
Gain on sales of investment securities

-

693

6,357

22
22

693

6,357

2,426
-

3,211
1,600

29,458
14,678Loss on retirement of non-current assets
Loss on sales of investment securities

40
-

19
1

174
9

Impairment loss
Loss on disaster

323
26

-

-

2,817
(460)
344
(1,211)

4,832
(378)
(5)
(1,568)44,330(3,467)(45)(14,385)(866)(1,574)

Insurance income
Total extraordinary income
Extraordinary losses
Loss on investments in subsidiaries and associates
Loss on share exchanges

Total extraordinary losses
Loss before income taxes
Income taxes - current
Income taxes - deferred
Total income taxes
Profit\See accompanying notes.

175

405 \

1,196

(14,440)$

10,972

Non-consolidated Statements of Changes in Net Assets (Unaudited)
H2O RETAILING CORPORATION
Millions of yen

Shareholders' equity
Retainedearnings

Capital surplus

Years ended 31st March 2019 and 2020
Balance at 1st April 2018
Changes during period
Dividends of surplus
ProfitPurchase and disposal of treasury shares
Reversal of reserve for tax purpose reduction entry of
non-current assets
Net changes in items other than shareholders' equity
Total changes during period
Balance at 31st March 2019
Balance at 1st April 2019
Changes during period
Dividends of surplus
ProfitPurchase and disposal of treasury shares
Reversal of reserve for tax purpose reduction entry of
non-current assets
Net changes in items other than shareholders' equity
Total changes during period
Balance at 31st March 2020

Capital stock

Legal capitalsurplus¥17,796¥72,495¥17,796¥17,796¥17,796¥72,495¥72,495¥72,495

Other
capitalsurplus

Total othercapitalsurplusLegalretainedearnings¥20,505¥93,000

(40)

(40)

(40)
¥20,464¥20,464(40)¥92,960¥92,960

(24)

(24)

(24)
¥20,440(24)¥92,935¥4,429¥4,429¥4,429¥4,429Millions of yen

Shareholders' equity
Retained earnings
Other retained earnings
Reserve foradvanceddepreciationof non-current
assetsBalance at 1st April 2018
Changes during period
Dividends of surplus
ProfitPurchase and disposal of treasury shares
Reversal of reserve for tax purpose reduction entry of
non-current assets
Net changes in items other than shareholders' equity
Total changes during period
Balance at 31st March 2019
Balance at 1st April 2019
Changes during period
Dividends of surplus
ProfitPurchase and disposal of treasury shares
Reversal of reserve for tax purpose reduction entry of
non-current assets
Net changes in items other than shareholders' equity
Total changes during period
Balance at 31st March 2020

¥6,711

Generalreserve¥44,054(24)(24)¥6,686¥6,686¥44,054¥44,054(22)(22)¥6,664176¥44,054

Retainedearnings
brought
forwardTotal
retainedearnings

Treasuryshares¥23,403¥78,598(4,941)405(4,941)405

24-(4,510)¥18,892¥18,892(4,535)¥74,063¥74,063(4,944)
1,196(4,944)
1,196

22

-

(3,725)¥15,167(3,748)¥70,315

Total
shareholders' equity¥(3,190)¥186,204194(4,941)
405
154
-

194
¥(2,995)¥(2,995)(4,380)¥181,824¥181,824

96(4,944)
1,196
71
-

96
¥(2,899)(3,676)¥178,147

Millions of yen

Balance at 1st April 2018
Changes during period
Dividends of surplus
ProfitPurchase and disposal of treasury shares
Reversal of reserve for tax purpose reduction entry of
non-current assets
Net changes in items other than shareholders' equity
Total changes during period
Balance at 31st March 2019
Balance at 1st April 2019
Changes during period
Dividends of surplus
ProfitPurchase and disposal of treasury shares
Reversal of reserve for tax purpose reduction entry of
non-current assets
Net changes in items other than shareholders' equity
Total changes during period
Balance at 31st March 2020

Valuation and translation adjustments
Valuation
Total
difference on Revaluation valuation Subscription
available-for- reserve forandrights tosalelandtranslation
sharessecurities
adjustments¥37,562¥604¥38,167¥1,234

Total net
assets¥225,606(4,941)
405
154
-

5,201
5,201
¥42,764¥42,764

¥604
¥604

5,201
5,201
¥43,368¥43,3681
1¥1,235¥1,2355,202
821¥226,428¥226,428(4,944)
1,196
71-(17,440)(17,440)¥25,323¥604(17,440)(17,440)¥25,928

77
77¥1,312(17,363)(21,039)¥205,389

Other
Total othercapitalcapitalsurplussurplus$187,743$852,844

Retainedearnings
Legalretainedearnings$40,633

Thousands of U.S. dollars

Shareholders' equity
Capital surplus

Years ended 31st 2020
Balance at 1st April 2019
Changes during period
Dividends of surplus
ProfitPurchase and disposal of treasury shares
Reversal of reserve for tax purpose reduction entry of
non-current assets
Net changes in items other than shareholders' equity
Total changes during period
Balance at 31st March 2020

Capital stock

Legal capitalsurplus$163,266$665,091$163,266

177$665,091

(220)

(220)

(220)
$187,522(220)$852,614$40,633

Thousands of U.S. dollars

Balance at 1st April 2019
Changes during period
Dividends of surplus
ProfitPurchase and disposal of treasury shares
Reversal of reserve for tax purpose reduction entry of
non-current assets
Net changes in items other than shareholders' equity
Total changes during period
Balance at 31st March 2020

Shareholders' equity
Retained earnings
Other retained earnings
Reserve for
Retained
advanced
Total
Generalearnings
depreciation
retainedreservebroughtof non-current
earnings
forwardassets$61,339$404,165 $173,321$679,477(45,357)
10,972(201)(201)$61,137$404,165

TreasurysharesTotalshareholders' equity$(27,477)$1,668,110

880(45,357)
10,972651(45,357)
10,972

201-(34,174)$139,146(34,385)$645,091

880$(26,596)

Thousands of U.S. dollars

Balance at 1st April 2019
Changes during period
Dividends of surplus
ProfitPurchase and disposal of treasury shares
Reversal of reserve for tax purpose reduction entry of
non-current assets
Net changes in items other than shareholders' equity
Total changes during period
Balance at 31st March 2020

Valuation and translation adjustments
Valuation
Total
difference on Revaluation valuation Subscription
available-for- reserve forandrights tosalelandtranslation
sharessecurities
adjustments$392,330$5,541 $397,871$11,330

Total net
assets$2,077,321(45,357)
10972
651
-

(160,000)(160,000)$232,321

178$5,541(160,000)(160,000)$237,871

706
706$12,036(159,293)(193,018)$1,884,302(33,724)$1,634,376

Notes to the Non-consolidated Financial Statements(Unaudited)
H2O RETAILING CORPORATION

Basis of presenting non-consolidated financial statements
The accompanying non-consolidated financial statements have been prepared in accordance with the provisions set
forth in the Japanese Financial Instruments and Exchange Act and its related accounting regulations and in conformity
with accounting principles generally accepted in Japan (“Japanese GAAP”), which are different in certain respects as
to application and disclosure requirements from International Financial Reporting Standards.
H2O RETAILING CORPORATION (“the Company”) maintains its official accounting records in Japanese yen. The
accompanying non-consolidated financial statements have been restructured and translated into English from the nonconsolidated financial statements of the Company prepared in accordance with Japanese GAAP and filed with theappropriate Local Finance Bureau of the Ministry of Finance as required by the Financial Instruments and ExchangeAct.
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 non-consolidated financial
statements in yen do not necessarily agree with the sums of the individual amounts.
The U.S. dollar amounts shown in the accompanying non-consolidated financial statements and notes thereto weretranslated from the presented Japanese yen amounts into U.S. dollar amounts at the rate of ¥109 to U.S. $1.00, using
the prevailing exchange rate at 31st March 2020, and were then rounded down. As a result, the totals shown in theaccompanying non-consolidated financial statements in U.S. dollars do not necessarily agree with the sums of theindividual amounts. The translations of the Japanese yen amounts into U.S. dollar amounts are included solely forthe convenience 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.

Significant accounting policies
Valuation bases and methods for assets

1.

(1) Derivatives
Derivatives are stated at fair value.
(2) Valuation bases and methods for securities(i)

Shares of subsidiaries and associates

Shares of subsidiaries and associate are stated at average cost.
(ii) Investments in capital of subsidiaries and associates
Information on investments in silent partnerships has been provided in “4. Other significant matters for preparing thefinancial statements.”179

(iii) Available-for-sale securities
Available-for-sale securities with fair market values are stated at fair value. Unrealised holding gains and losses onthese 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 values are stated at average cost.

2.

Method of depreciation of non-current assets(1) Property, plant and equipment, excluding lease assets
Property, plant and equipment, excluding lease assets, are depreciated principally by the declining-balance method.
The straight-line method is applied to buildings, excluding facilities attached to buildings, acquired on or after 1st
April 1998.
(2) Intangible assets, excluding lease assets
Intangible assets, excluding lease assets, are carried at cost. Amortisation is computed principally by the straight-line
method.
(3) Leased assets
Leased assets under finance lease contracts that do not transfer ownership of the leased property to the lessee aredepreciated using the straight-line method over the period of the lease with a residual value at zero.

3.

Accounting policy for provisions(1) 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.
(2) Provision for bonuses
The Company accrues estimated amounts of employee bonuses based on the estimated amount to be paid in thesubsequent period.
(3) Provision for directors’ bonuses
The Company accrues bonuses for directors based on estimated payments to be made after the end of the year.
(4) Provision for retirement benefits
The Company provides provision for retirement benefits for employees in the amount considered to have accrued at
the end of the current year based on the estimated amount of retirement benefit obligation and plan assets at the endof the current year. The estimated amount of retirement benefit obligation is recorded by the simplified method(method by which the amount required to be paid in association with the retirement benefits at the period-end isconsidered to be the retirement benefit obligation).
(5) Provision for loss on business of subsidiaries and associates
The Company provides provision for loss on business of subsidiaries and associates based on the estimated amountof loss to be borne by the Company in excess of receivables such as loans receivable from subsidiaries and associates.

4.

Other significant matters for preparing the financial statements(1) Method of hedge accounting

180

Deferral hedge accounting is adopted for hedge transactions in principle. The Company applies the designation
method for foreign exchange 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 specific requirements for this treatment are fulfilled.
(2) Accounting policy for 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.
(3) Accounting policy for investments in silent partnerships
For investments in silent partnerships, the amount equivalent to the share of silent partnership property is recorded
as “Investments in capital of subsidiaries and associates.” Profit or loss acquired by silent partnerships is recorded at
the amount equivalent to the share as non-operating income or loss, and the same amount is added to or deductedfrom “Investments in capital of subsidiaries and associates.”

Additional information
Accounting estimates related to the impact of the growing spread of infections of COVID-19
The Company has made accounting estimates on recoverability of deferred tax assets based on information available
as of 31st March 2020.
In estimating revenue from group operating contribution, which is one of the main revenue sources of the Company
as a holding company, we made the assumption that in the Department Store Business, which is largely affected
through a decrease in operating revenue and others, the impact of COVID-19 will last for around six months and thenthe business will make a gradual recovery.

181

Non-consolidated balance sheets
Note 1.

Monetary claims and liabilities to subsidiaries and associates
Thousands ofMillions of yen
U.S. dollars

2019
Short-term monetary claims

2020

27,895 ¥32,096Long-term monetary claims

127,890

109,454

1,004,165

Short-term monetary liabilities

84,151

73,153

671,128

Note 2.

¥

2020$

294,458

Reduction entry amount of national subsidies, etc.

Of assets acquired in the fiscal years ended 31st March 2019 and 2020, the reduction entry amount of national
subsidies, etc., is as follows. This reduction entry amount was deducted from the book values recorded in the nonconsolidated balance sheets.

Thousands ofMillions of yen
U.S. dollars

2019
Reduction entry amount:

¥

2020

2020

150 ¥

225

Buildings and structures

98

168

1,541

Vehicles, furniture and fixtures

7

12

110

Land

44

44

403

182

$

2,064

Note 3.

Commitment agreements

In order to obtain working funds efficiently, the Company had loan commitment agreements with 2 financial
institutions in 2019 and 2020. The loan commitment facilities and unused balances as of 31st March 2019 and 2020
were as follows:
Thousands ofMillions of yen
U.S. dollars

2019
Total loan commitment facilities

¥

2020

2020

20,000 ¥20,000$183,486

Outstanding balances

8,000

6,000

55,045

Unused balances

12,00014,000128,440

Non-consolidated statements of income
Note 1. Transactions with subsidiaries and associates
Thousands ofMillions of yen
U.S. dollars

2019

2020

2020

Operating transaction
Operating revenue¥

12,689 ¥12,436

841

1,000

9,174

1,406

5,206

47,761

Operating expenses
Non-operating transaction$

114,091

Notes 2. The major items and amounts in operating expenses were as follows:
Thousands ofMillions of yen
U.S. dollars

2019

Remuneration for directors, salaries and allowances for

¥

2020

2020

1,248 ¥

1,246

Repair expenses

162

171

1,568

Depreciation

2,444

3,141

28,816

Information system expenses

2,439

2,714

24,899Selling expenses

74.6%

75.9%

General and administrative expenses

25.4%

24.1%

employees

Approximate ratio (%)

183$

11,431Investment securities
Shares and investments in capital of subsidiaries and associates
As of 31st March 2019
Because shares of subsidiaries, shares of associates and investments in capital of subsidiaries and associates have nomarket price and the fair value is not readily determinable, their fair value has not been provided.
The book values of shares of subsidiaries, shares of associates and investments in capital of subsidiaries and associatesof which the fair value is not readily determinable are as follows:
Categories

Book value
Millions of yen

Shares of subsidiaries

139,219

Shares of associates

11,001

Investments in capital of

16,467

subsidiaries and associates
Total

166,689

As of 31st March 2020
Because shares of subsidiaries, shares of associates and investments in capital of subsidiaries and associates have nomarket price and the fair value is not readily determinable, their fair value has not been provided.
The book values of shares of subsidiaries, shares of associates and investments in capital of subsidiaries and associatesof which the fair value is not readily determinable are as follows:
Categories

Book value
Millions of yen[Thousands of U.S. dollars]

Shares of subsidiaries

139,104[1,276,183]

Shares of associates

11,469[105,220]

Investments in capital of

15,955subsidiaries and associates[146,376]

Total

166,530[1,527,798]

184

Tax effect accounting
1.

Significant components of deferred tax assets and liabilities
Thousands ofMillions of yen
U.S. dollars

2019

2020

2020

Deferred tax assets:
Shares of subsidiaries resulting from company split¥

8,668 ¥

8,668

3,053

4,026

36,935

8

17

155

1,080

651

5,972

555

555

5,091

―

500

4,587

Other

3,963

3,717

34,100Subtotal

17,33018,137

166,394

Valuation allowance(7,138)(6,397)(58,688)

Total deferred tax assets

10,191

11,740107,706(3,511)(3,511)(32,211)

Reserve for advanced depreciation of non-current assets(2,948)(2,938)(26,954)

Valuation difference on available-for-sale securities(18,854)(11,164)(102,422)

(4)

(3)

(27)

(9)

―

―

(25,329)(17,619)(161,642)(15,137) ¥(5,878)

Allowance for doubtful accounts
Provision for loss on business of subsidiaries andassociates
Loss on investments in silent partnerships
Deferred loss on transfer of assets based on Group
Taxation RuleTax loss carryforwards$

79,522

Deferred tax liabilities:
Valuation gain on investment securities resulting fromconversion of retirement benefit trust assets (equity
securities)

Deferred gain on transfer of assets based on Group
Taxation Rule
Other
Total deferred tax liabilities
Net deferred tax assets (liabilities)

2.

¥

$

(53,926)

Reconciliation of the differences between the statutory tax rate and the effective income tax rate

Note: Information for the fiscal years ended 31st March 2019 and 2020 has been omitted since loss before income
taxes was recorded.

185

Supplementary schedules
Schedule of property, plant and equipment, etc.
(Millions of yen)
Balance atIncrease

Decrease Depreciation Balance at

beginning

during theduring theduring theend ofof period

periodperiodperiodperiodCate-

Accumulated
Type of assets

Property, plant and equipment

goriesdepreciation
Buildings and structures

4,292

225

75

279

4,163

9,065

Vehicles, furniture and

842

2,138

8

432

2,539

4,771

27,451―――

27,451―

fixtures
Land

[870]

[870]

Construction in progress

27

34

―

―

61

―

Total property, plant and

32,614

2,397

83

711

34,216

13,836equipment

Intangible assets

[870]

[870]

6,067

4,806

25

2,432

8,415

―

Right to use facilities

9

15

―

3

21

―

Software in progress

1,586

2,853

3,327

―

1,112

―

Total intangible assets

7,663

7,675

3,353

2,436

9,549

―

SoftwareNotes 1. Of increase during the period, major increases
Increase due to renewal of point-of-sale (POS) system for the Supermarket Business
Vehicles, furniture and fixtures 1,056 million yen

Software 1,526 million yen

Software in progress 1,168 million yen
Increase due to adjustments of the system for transfer of Kobe Hankyu and Takatsuki Hankyu
Vehicles, furniture and fixtures 731 million yen

Software 444 million yen

Software in progress 144 million yen
Increase due to update of the accounting system
Software 553 million yen

Software in progress 158 million yen

2. Of decrease during the period, major decreases
Decrease due to reclassification of line items due to renewal of POS system for the Supermarket Business
Software in progress 1,612 million yen
3. The figures shown in square brackets in balance at beginning of period and balance at end of period forland represent differences with the book value before implementation of revaluation of land used forbusiness in accordance with the Act on Revaluation of Land (Act No. 34 issued on 31st March 1998) andAct on Partial Amendment to the Act on Revaluation of Land (Act No. 19 issued on 31st March 2001).

186

Schedule of allowances and provisions(Millions of yen)
Categories

Balance atIncrease during

Decrease duringbalance at end

beginning of

the period

the periodof period

periodAllowance for doubtful

9,977

3,232

48

13,161

Provision for bonuses

115

109

115

109

Provision for directors’

37

19

37

19

―

9

4

5

27

30

1

56

accounts

bonuses
Provision for retirement
benefits
Provision for loss on businessof subsidiaries and associates(Note)

The accounting policy for provisions has been provided in “Significant accounting policies” section.

187

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/188