Integrated Report 2019

H2O Retailing Corporation

Business
Philosophy/
Code of Conduct

Group
Introduction

President's
MessageFinancial
Highlights

ESG Topics
Safety andPeace of Mind

Environment

SocialContribution

Human
Resources

GovernanceBusiness Philosophy
To remain indispensable to the local communities through our activities ofproviding a model of lifestyle to local residents
Our driving motivation is to satisfy the expectations of our customers and shareholders, as well as our business partners,
employees and all other stakeholders, while contributing to society as a whole.

H2O Retailing Group Code of Conduct
Everything we do is for the sake of satisfying the expectations and earning the trust of
our customers.
1) We seek to always accurately identify our customers' needs and to provide superior products and services to meet theseneeds2) We faithfully honor the promises we make to customers and work to accommodate their requests via prompt, sincere
service.
3) Safety and peace of mind are of paramount importance in our products, services and sales spaces.
4) We both accurately depict and appropriately explain our products and services.
5) We ensure that customers' personal information is managed and utilized in an appropriate manner.

We pursue our business with a sincere heart and motivated spirit.
1) As times change, so do we via perpetually forward-looking and effective ideas that are the result of independent thinking
and initiative.
2) We stay properly informed about, and adhere to, social norms and laws, as well as work regulations and other corporate
rules.
3) We ensure that the management and use of corporate assets, such as products, money and physical goods, as well as
important data, is both appropriate and ethical.

We all work together to create and maintain the optimal workplace environment forthe business we pursue.
1) We strive to create work spaces which are vibrant and full of communication.
2) We respect the distinctiveness of each individual and are committed to protecting their rights and their privacy.
3) We pledge not to engage in conduct that could lead to discrimination or harassment, including sexual and power
harassment.

We adhere to the rules governing fair and honest business transactions and seek tocultivate partnerships with our clients.
1) We do not take advantage of power dynamics to make unreasonable demands of clients. Further, we do not engage inunfair business practices, for example involving association with cartels or bid-rigging.
2) We maintain right and proper relationships with clients and do not accept any gifts or hospitality which common sense
would deem inappropriate.
3) We do not infringe on other parties’ copyrights, trademarks, or other intellectual property rights.

We are proactive about contributing to society.
1) We do not conceal information, rather we disclose it in a proper and timely manner to build good relationships withstakeholders both inside and outside the company.
2) We actively take the initiative in protecting the environment, contributing to society, and otherwise working to realize asustainable society.
3) Under no circumstances do we accommodate the unreasonable demands of antisocial groups or individuals.

Origin of Our
Company
Name

Integrated Report 2019

We adopted the name “H2O Retailing” to express how our basic philosophy is to be as essential as water (H2O) to society.
With our core business built around the Hankyu and Hanshin Department Stores, we engage in competition and cooperationthat enriches customers’ lives and maintains our position within local communities as an essential source of information
about the urbane and fashionable.

1

H2O Retailing Corporation

Business
Philosophy/
Code of Conduct

Group
Introduction

President's
MessageFinancial
Highlights

ESG Topics
Safety andPeace of Mind

Environment

SocialContribution

Human
Resources

GovernanceGroup Introduction
Group Business
The H2O Retailing Group engages in a variety of retail-related business, including department stores, supermarkets, shopping centers,
hotels, and restaurants, primarily in the Kansai region of Japan.

H2O Retailing Corporation
Corporate Planning, Administration and Supervision for the Overall Group

Department
Store
Business

Hankyu Hanshin Department Stores, Inc. operates a total of 16 department stores, including
Hankyu Department Store, which has eight stores in the Kansai region, three in the Kanto
region, and one in Kyushu, and Hanshin Department Store, which has four stores in the Kansai
region. Effective October 1, 2019, Sogo Kobe changed its name to Kobe Hankyu, and Seibu
Takatsuki changed its name to Takatsuki Hankyu.
The Hankyu Umeda Main Store is not only a retailer of goods and services, it underwent a
grand opening in 2012 as a “theater-like department store” which delivers the cultural value
underlying those goods and services. It is the flagship store which serves as the face of ourcorporate group and which draws customers from throughout Japan and the world.
In addition, the Hanshin Umeda Main Store began reconstruction in 2014, with the completed
sections of the first phase opening for business in 2018 and the grand opening of all sections
scheduled for fall of 2021.
These two main stores are the hubs of the H2O Retailing Group. In conjunction with thesuburban branch stores which we have established in the key centers of the
Kyoto-Osaka-Kobe area where we are dominant, our business is widespread and conveniently
located, allowing us to continue expanding our dominating market share in the Kansai region.

HankyuDepartment StoreSupermarket
Business

12 stores

Hanshin
Department Store

4 stores

Foods are a key area for our group, and our ever-growing, food-related business spans
everything from manufacturing and processing to GMS and supermarket operation.
Izumiya Co., Ltd. operates 109 GMS, supermarkets and super centers (including Qanat Co.,
Ltd.) located primarily in the Kansai region as part of its goal to provide “Goodly Goods at a
Nice Price” the company is currently undertaking a food-focused renewal and restructuring.
Hankyu Oasis Co., Ltd. operates 79 supermarkets in the Kyoto-Osaka-Kobe region. The
company strives to develop each store as a high-quality food specialist offering specialization,
lively ambience and informative service. Joint product procurement and system integration is
implemented between these two companies to enable both to streamline their operations.
Furthermore, the companies themselves manufacture daily dishes, packed lunches, breads, dry
foods and other food items sold in supermarkets and department stores, which allows them toprovide their products more quickly and efficiently.

Izumiya109
storesHankyu Oasis

79
stores4

Food
manufacturer companies*includes Qanat Co., Ltd.

Shopping
CenterBusiness

We undertake a variety of real estate development, operation and management-related
business, including shopping center operation and building maintenance services.
Hankyu Shopping Center Development Co., Ltd. performs location and target-specificshopping center development, and they operate the shopping centers “MOSAIC MALL
Kohoku” and “MOSAIC BOX.”In addition, H2O Asset Management Co., Ltd. promotes the effective utilization of H2O RetailingGroup-owned real estate and supermarket business shops, vacant facilities and land resulting
from business restructuring and other assets.

Other
Business

We undertake a variety of other retail-focused business development,such as the business hotel, restaurant and home-delivery service
operation.
Companies like Kazokutei Inc., which operates “Kazokutei,”“Toku-Toku” and other national restaurant chains specializing in soba
and udon noodles and Japanese cuisine, and F.G.J. Co., Ltd., which
operates “Fruit GATHERING” chain of cosmetics and accessories
retail shops, allow us to expand our specialty shop business into
commercial facilities outside of the H2O Retailing Group.
Store numbers: as of October 1, 2019

Integrated Report 2019

2

H2O Retailing Corporation

Business
Philosophy/
Code of Conduct

Group
Introduction

President's
MessageFinancial
Highlights

ESG Topics
Safety andPeace of Mind

Environment

SocialContribution

Human
Resources

GovernanceBusiness Domains
Our group is primarily based in the Kansai
market, which is a major metropolitan areahome to more than around 20 million people,
as well as being easily accessible fromoverseas.
In particular, Umeda district in Osaka, where
the main Hankyu and Hanshin Department
Stores are located, has undergone significant
redevelopment in recent years, transforming it
into one of the most commercially competitive
areas in Japan. But even amidst this fierce
competition in an area which boasts the largest
sales volume in all of western Japan, theHankyu Umeda Main Store outperforms allother stores.
We are using Umeda as a base from which weare integrating consumer businesses toenhance the Quality of Kansai people’s life
comprised of about 200 stores (including
department stores, GMS, and supermarkets)and other retail business throughout the entire
Kansai region.

Kyushu region
Department stores:

1 storeKanto region
Department stores:

3 storesKansai region

Number of stores in the
Kansai region where H2ORetailing has a dominantmarket share
Department stores

12 stores

GMS andsupermarkets

186 stores

Department stores
IzumiyaHankyu Oasis

Store numbers: as of October 1, 2019

Integrated Report 20193

H2O Retailing Corporation

Business
Philosophy/
Code of Conduct

Group
Introduction

President's
MessageFinancial
Highlights

ESG Topics
Safety andPeace of Mind

SocialContribution

Environment

Human
Resources

Governance

The H2O Retailing Group is a member of the “Hankyu Hanshin Toho
Group” which is adding culture to lifestyle.

202

Group
Composition companies

5

organizations

Sales

1.9646
trillion JPY

Employees

34,626(as of March 31, 2019)

The Hankyu Hanshin Toho Group is a corporate group centered on Hankyu Hanshin Holdings, H2O Retailing and Toho. The
group utilizes a variety of business ventures, including department stores, supermarkets, urban transport, real estate, hotels andentertainment, to facilitate appealing urban development.

Urban Transport Business

Retail Business“Hankyu Railway” and “Hanshin Electric Railway” are at thecenter of the group's urban transport business. This businesscomprises a network of trains, buses and taxis covering the
Kansai region.

“H2O Retailing” is at the center of the group's retail business.
This business is carried out by a retail group consisting of 16
department stores operated by “Hankyu Department Stores” and“Hanshin Department Stores” as well as approximately 200
supermarkets such as “Izumiya” and “Hankyu Oasis.”

Real Estate BusinessTravel Business

The focus of this business is twofold: providing excellent housing
built along the group's expanding rail network, and actively
managing highly profitable rental buildings. The group owns
roughly 800,000 m2 of rental space within Umeda district in Osaka.

At the center of the group's travel business is “Hankyu Travel
International,” one of Japan's busiest and most popular travel
agencies.

Hotel Business

International Freight

The “Hankyu-Hanshin-Daiichi HotelGroup” is one of Japan's largest hotel
operators, with around 11,000 rooms in
47 hotels nationwide.

With more than 100 facilities in 28
countries and regions, we offer fast, safeinternational freight services worldwide,
including through partner agents.

Hankyu Hanshin Toho GroupEntertainment Business
Film

Takarazuka Revue“Toho” is one of the largest film producers,
distributors and exhibitors in Japan, boasting
more than 680 screens in theaters throughout
the country.
The great many
entertainment properties
produced anddistributed by Toho,such as its iconic
Godzilla films, offer
universal appeal andcontinued inspirationand excitement toaudiences.

Chibi Godzilla is a trademark ofToho Co., Ltd. © Toho Co., Ltd.

Integrated Report 2019

Hanshin Tigers

As one of the few all-female theatercompanies in the world, the “Takarazuka
Revue” brings dreams and excitement tothe stage for audiences far and wide. The
troupe has held 27 performances in 18
different countries and regions, garneringhigh praise from around the world.

The “Hanshin Tigers” are one of the most popular
professional baseball teams in Japan. The Tigers'
players' enthralling style of play, combined with theirhome ground of Hanshin Koshien Stadium - thehallowed site of countless fiercely contested
high-school baseball tournaments - continue tocontribute to the development of Japanese baseball.

© Takarazuka Revue Company© Hanshin Koshien Stadium

4

H2O Retailing Corporation

Business
Philosophy/
Code of Conduct

Group
Introduction

President's
MessageFinancial
Highlights

ESG Topics
Safety andPeace of Mind

Environment

SocialContribution

Human
Resources

Governance

Message from the President
Deepening Our Strategy for Dominancein the Kansai Region While Pursuing
Growth in New Business Domains
Atsushi Suzuki

President and Representative Director

Business Plan GP10
“To remain indispensable to the local communities through our activities ofproviding a model of lifestyle to local residents.”
H2O Retailing Corporation operates its department store- andsupermarket-centered business primarily in the Kansai region based on
this business philosophy. Our goal is to develop a comprehensive range ofindustry-scale lifestyle services that are intimately connected to every
aspect of life, from daily life to the opposite (extraordinary life), by
operating a variety of businesses, including shopping centers, hotels,
cosmetic boutiques, and restaurants.
However, the business environment is undergoing structural and otherchanges at a dizzying pace, posing challenges including the maturing of
the market, the diversification of consumer lifestyles, the aging of the
population, a declining birthrate, and a shrinking population. In order to
respond to these changes with a high degree of sensitivity and to more
effectively anticipate the needs of the coming era, the Group has been
implementing the 10-year GP10 (Grand Prix 10) Plan since FY2006.
This section looks back on some initiatives we’ve taken to date and offersa detailed explanation of GP10-II Phase 2, the medium-term business planthat we began implementing in FY2020.

Store, took over operation of Sogo Kobe and Seibu Takatsuki, reorganized
our Izumiya chain to build a food business, and launched the Group’s“litta” e-money program as well as “S-point,” a multi-partner point programfor consumers in the Kansai region.

GP10-II Phase 2 (FY2020 to FY2022)
During the GP10-II Phase 2 medium-term business plan that began in
FY2020, we will look to further implement our “Kansai Dominance
Strategy” as we build a business ecosystem with connections throughout
the lives of customers in the Kansai region by establishing a dominantposition in our core businesses and expanding our network of alliances.
We’ve identified the Department store business and the Supermarket
business as core businesses to strengthen on a sustained basis. With
regard to the Department store business, we’re working to deliver unusual
appeal and fun shopping experiences. With regard to the Supermarket
business, our goal is to provide the convenience of one-stop shopping atstores that are closer to consumers than competitors’ locations by building
supermarkets that sell frequently-purchased food products. We will work tostrengthen these two core businesses because they offer true
brick-and-mortar value and because consumers will continue to consider
them essential going forward.
With core businesses that exist at the twin poles of the daily grocery
shopping and fun special shopping, we’re taking advantage of allianceswith outside partners to gain contacts with customer lifestyles in the retailbusinesses that lie in between those two extremes. Specifically, we willseek to reinforce relationships with customers by pursuing initiatives withoutside partners that are developing competitive positions in various
segments of the retail sector with a focus on S-point, our multi-partner
point program that targets consumers in the Kansai region. In addition tothis network of retail alliances, we’ll be working to expand the market shareof businesses to which we contribute in the Kansai region by broadening
our alliances with lifestyle service businesses.

GP10-I (FY2006 to FY2015)
In GP10 Plan Stage I, which covered FY2006 to FY2015, we focused on
establishing and strengthening our department store business, for example
by embarking on a rebuilding project for the Hankyu Umeda Main Store,
the Group’s flagship location, and on scrap-and-build projects for various
branch locations.

GP10-II Phase 1(FY2016 to FY2019)
In GP10 Plan Stage II, which began in
FY2016, we sought to expand our market
share by building a network of stores toincrease our points of contact withcustomers in the Kansai region and to serve
customer needs ranging from daily life to
the opposite (extraordinary life), as part ofour “Kansai Dominance Strategy.”
Under the GP10-II Phase 1 medium-termbusiness plan, which ran from FY2016 toFY2019, we strengthened the Hankyu
Umeda Main Store’s ability to attract
customers from a large geographic area,
began rebuilding the Hanshin Umeda Main

Policy Priorities
1 Strengthening Department store businesses
2 Building a supermarket operational platform
3 Business model conversion of Izumiya GMS stores
4 Building a business ecosystem
Hankyu Umeda Main Store

GP10 Long-term Business Plan

GP10-I
FY2006 to FY2015

Strengthen department
store business

GP10-II
FY2016 to FY2025

Implement the “Kansai
Dominance Strategy”
FY2016 to FY2019
Phase 1

Integrated Report 2019

FY2020 to FY2022
Phase 2

5

GP10-IIIFY2026 to FY2035
Develop overseas
businesses

FY2023 to FY2025
Phase 3H2O Retailing Corporation

Business
Philosophy/
Code of Conduct

Group
Introduction

President's
MessageFinancial
Highlights

ESG Topics
Safety andPeace of Mind

Environment

SocialContribution

Human
Resources

GovernanceKey policies under GP10-II Phase 2 (FY2020 to FY2022)

1

Strengthening Department
store business

Department store business that constitutes one of our corebusinesses attract customers from a large geographic area
because they deliver unusual appeal and fun shopping
experiences. We operate department stores in the Umeda districtof Osaka, a major hub in the Kansai region, and in four otherlocations in the Hokusetsu/Hanshin area (Senri-Chuo in Osaka,
Nishinomiya Kitaguchi in Hyogo Prefecture, Kobe Sannomiya in
Hyogo Prefecture, and Takatsuki in Osaka). We will work steadily
to grow our customer base by continuing to invest in these stores,
reflecting the key role that these cities will continue to play in the
Kansai region.
We operate the Hankyu and Hanshin Main Stores in Osaka’s
Umeda area, the Kansai region’s largest shopping district. The
rebuilding of the Hanshin Umeda Main Store, which is part of aneffort to strengthen our presence in the Umeda area, is proceedingaccording to plan, with the Phase 1 Building opening in June 2018
and a grand opening scheduled for fall 2021.
In Kobe’s Sannomiya area and Osaka’s Takatsuki area, which aresecond only to the Umeda area in their ability to attract customers
from a large geographic area, we took over operation of Sogo
Kobe and Seibu Takatsuki in October 2017 and changed theirnames to Kobe Hankyu and Takatsuki Hankyu in October 2019,reflecting their new role as Hanshin Hankyu Department Stores
locations. Recognizing the value of the two stores locations next tomajor train stations, we’ve already started remodeling theirbasement food floors, which are highly appealing to consumers,
and we’ll progressively remodel other floors going forward.
We’re also pursuing a large-scale redevelopment project in the
Senri-Chuo area. Senri New Town, which was completed in 1970,
succeeded in revitalizing the area, driving an inflow of newresidents and rejuvenating the surrounding community. We’repursuing an integrated redevelopment project focusing on Senri
Hankyu, which is located in the Senri-Chuo area, and SELCY, anadjacent shopping mall. Studies are underway to open a regional
shopping center (RSC) with the department store as an anchor
tenant several years from now.

2

Takatsuki Hankyu

Nishinomiya Hankyu

Takatsuki
Nishonomiya
Kitaguchi

Senri-Chuo

Fall 2021
Grand opening of the
Hanshin Umeda Main Store

Umeda

Kobe
Sannomiya

Hankyu Umeda
Main Store
Kobe Hankyu

Artist’s conceptionof completed store

Building a supermarket
operational platform

Izumiya(groceries)

Hankyu
Oasis

Qanat

.......

Flexible store
development
Supermarket platform

Supermarket business, our other core business, consists ofsupermarkets such as Izumiya and Hankyu Oasis, as well as food
manufacturers. Together, Hankyu Oasis and Izumiya, which theGroup acquired in 2014, comprise some 200 locations, giving theGroup one of the largest selections of food products of any retailer
in the Kansai region. Although we tried to leverage the merger todeliver synergistic benefits by implementing joint purchasing andintegrating the two companies’ processing and prepared food
manufacturing operations, those efforts failed to generate sufficientscale advantages due to differences in product management andoperational styles. Instead, we will now reorganize Izumiya to spin
off a company specializing in supermarket operations. Thatcompany and Hankyu Oasis will then launch a new sales system in
FY2021 and integrate their product management and otheroperations. Adoption of a shared supermarket operational platform
will facilitate joint product procurement, streamline distribution
center operations, and allow us to roll out stores that meet local
needs in a more flexible manner.

3

Senri Hankyu and
SELCY integrated
redevelopment

Distribution
centerBusiness
partners

Product
development

Food
manufacturing
plantsBack-end
systemProductmanagement

Operations

Realization ofscale advantages

Integration startingin FY2021

Business model conversion of Izumiya GMS stores

Under the GP10-II Phase 1 plan, we reorganized our portfolio of stores witha focus on Izumiya GMS (general supermarket) locations. We took somemeasures that included closing stores outside areas where we enjoy
dominant market share and converting outdated stores to NSC, resulting intrimming the footprint of 47 GMS stores operating at the time of the merger
down to 32 locations. However, the existing GMS business model has
been unable to compete with stores specializing in clothing and householdproducts. Despite efforts to remodel grocery sales areas, shrink theamount of directly-managed space dedicated to sales of non-foodproducts, narrow the range of products offered, and lease some space totenants, the ability of the GMS business model, which is founded on direct
sales of clothing, groceries, and household products, to attract customers
has been declining, preventing us from taking advantage of the strengths
afforded by stores’ favorable locations. Furthermore, in operating shopping
centers, changes such as the diversification of consumer preferences anddemographic shifts have made it essential to be able to launch a diverse

Integrated Report 2019

range of content, including services as well as product sales, so that we
can respond to market conditions in a flexible manner. In order to addressthese issues in a more fundamental manner, we will transform the GMS
business model by splitting Izumiya into separate grocery, non-foodproduct, and property management divisions in FY2021.
The grocery division will be spun off so that it can specialize insupermarket operations, and we’ll look to boost efficiency throughintegration with Hankyu Oasis and to increase profitability further as a corebusiness. With regard to frequently-purchased daily necessities in thehousehold products category, we will launch a joint venture with Cocokara
Fine Inc. and utilize that company’s drugstore operations expertise andproduct procurement capabilities to redevelop locations into new stores.
The property management division will work to create appealing shopping
centers that take advantage of the strengths afforded by favorable
locations by quickly eliminating the non-food product division’s structurallosses and adding tenants that meet market conditions.

6

H2O Retailing Corporation

Business
Philosophy/
Code of Conduct

4

Group
Introduction

President's
MessageFinancial
Highlights

Building a business ecosystem
Nursing
care

ESG Topics
Safety andPeace of Mind

Environment

SocialContribution

Education

TravelLifestyle network

HousingLife
milestones

Retail network
Large urban
businesses•Department stores•Regional shopping
centers (RSCs)

Extraordinary/ fun

Governance

Alliance initiatives

Transportation
Healthcare

Human
Resources

Alliance initiatives
Drugstores
Convenience stores
Big-box retailers¥100 shops FurnitureHome centers Restaurants
Online shopping, etc.

Finance

Food•Supermarkets

Daily life/ convenience• Shared customer services(point programs, payment methods, up-coming services)• Shared business infrastructure(distribution, back-end systems…)

Customers in the Kansai region
Fun shopping and lifestyles / Convenience shopping and lifestyles
In the course of their daily lives, consumers patronize not only
department stores and supermarkets, but also other retail shops andservice businesses. We will take advantage of alliances with outside
partners to gain points of contact with customers’ lifestyles insegments of the economy such as these that lie outside our corebusinesses.
The S-point program that the Hankyu Hanshin Group launched as amulti-partner point service in 2016, which currently has about 7.5
million members and counts among its member businesses 7-Elevenand Kansai Super Market, is enjoying growing transaction volume in
the Kansai area. In addition to encouraging customers from Kobe
Hankyu and Takatsuki Hankyu, which became Hankyu Hanshin

Department Stores locations in October 2019, to sign up for S-point
cards, we’re preparing to launch the S-point service for stores of two
new partners: SRS Holdings Co.,Ltd. and Cocokara Fine Inc. By
growing membership and adding new member stores in order toestablish S-point as a highly convenient point service and by
developing not only point incentives, but also payment options andup-coming customer services that utilize the management resourcesof our group and alliance partners, we will build a service platform thatcan be shared by businesses in the Kansai region and create abusiness ecosystem with strong appeal for both customers andbusinesses.

Going forward
As described above, the Group will come together to implement its “Kansai
Dominance Strategy,” strengthen its position, and offer services that
customers find pleasant and convenient based on the four policy priorities set
forth in the GP10-II Phase 2 plan.
We will continue to embrace the challenge of expanding new businesses andincreasing corporate value so that theGroup can continue to play an essential
role in society, just as the substance forwhich it is named (H2O) is essential to theregion’s environment.
We ask all of our stakeholders for theircontinued understanding and support as
we undertake these initiatives for the
future.

Integrated Report 20197

H2O Retailing Corporation

Business
Philosophy/
Code of Conduct

Group
Introduction

President's
MessageFinancial
Highlights

ESG Topics
Safety andPeace of Mind

Environment

SocialContribution

Human
Resources

Financial Highlights (consolidated basis)
Fiscal Year

Governance

Unit: Millions of yen

2015

2016

2017

2018

2019

March 2015

March 2016

March 2017

March 2018

March 2019

Sales

844,819

915,690901,221921,871926,872

Operating income

21,35823,82522,542

22,765

20,422

Ordinary income

21,21923,06021,72524,272

21,376

Profit attributable to owners of parent

11,586

14,053

14,298

14,6362,162

Net assets

251,659

252,587

264,323

280,807279,603

Owner’s equity

250,762251,554263,220

279,569

278,364

Total assets

630,017595,247

639,305

659,582

663,335

Capital investment

38,914

20,11028,06026,44332,039Depreciation

15,14916,23015,857

16,223

17,399Net assets per share (yen)2,033.25

2,038.83

2,131.97

2,263.95

2,252.28

Net income per share (yen)98.06

113.93115.84118.54

17.50

Diluted net income per share (yen)97.64

113.39115.28117.9017.39

Dividends (yen)

25.00

35.00

40.00

40.00

40.00

Ratio of operating income to
net sales (%)

2.5

2.6

2.5

2.5

2.2

Owner’s equity ratio (%)

39.8

42.3

41.2

42.4

42.0

Return on equity (%)

5.4

5.6

5.6

5.4

0.8

Ratio of ordinary income tototal assets (%)

4.2

3.8

3.5

3.7

3.2

Consolidated dividend payout
ratio (%)

25.5

30.7

34.5

33.7

228.5

8,590

8,456

8,528

8,868

8,793

Fiscal years ended

Per-share
data

Financial
indicators

No. of employees

Integrated Report 20198

H2O Retailing Corporation

Business
Philosophy/
Code of Conduct

Group
Introduction

President's
MessageFinancial
Highlights

ESG Topics
Safety andPeace of Mind

Environment

SocialContribution

Human
Resources

Governance

Quality Improvement Initiatives of the H2O Retailing GroupOf all the initiatives we undertake which revolve around the environment, society and corporate governance, we put particularemphasis on those initiatives aimed at providing safety and peace of mind as well as personnel development. Our group strives toensure the safety and peace of mind of our customers as they shop for everything from food to clothing to miscellaneous goods,
and we do so through a variety of initiatives focused on thorough and systematic product quality control, as well as initiatives
which reflect the importance of personnel development in providing high quality, satisfying customer service.

Ensuring Safety and Peace of Mind
Food Safety and Peace of Mind
Advanced Quality Control System“QUALITA” Food Quality Database for Peace of Mind
This database, which is easily accessible via PC and smartphone,
gives users peace of mind with their shopping by allowing them tolook up the ingredients, place of origin, allergenic content(*), additives,
expiration dates, storage methods and nutritional content of mid-year
and year-end gift catalog products, “Flavors of Hankyu” PB products
and other products.

We have put in place a Group Food Hygiene Quality Control
Promotion Committee which maintains the group's overall quality
control system, as well as discusses how to accommodate regulatorychanges, in an effort to prevent food-related incidents.

Hankyu Hanshin Department Stores*Allergenic data is provided for not only the seven legally mandated allergenic materials
but also for the additional 20 recommended materials.

In addition to regular bacteriological testing of randomly selected
in-store products, we use outside third parties to perform inspection
testing of suppliers' facilities once a year and store kitcheninspections twice a year. In the event of an unfavorable result, theparty receiving that result must make improvements and then submit
a report about those improvements.

Quality Control at Food Manufacturing Facilities
The Takatsuki manufacturing facility where Hankyu Bakery makes its
bread has obtained FSSC 22000 certification according to theinternational food safety management system standards overseen by
the safety certification governing body based in the Netherlands.
Additionally, the Ikeda and Nanko manufacturing facilities where
Hankyu delica-i makes daily dishes and other processed foodproducts strict adhere to HACCP quality control and have acquired
Food Safety and Security Certification from the Osaka Prefectural
Government in order to ensure the safety and peace of mind ofcustomers purchasing their products.

IzumiyaIzumiya's outsourced production and sales of “good-i” and in-store
processed food products are subjected to thorough and systematic
quality control from the development phase all the way to sales. The
food processing areas in stores undergo twice annual health andhygiene inspections.

Hankyu Green Farm for Organically Grown Vegetables

Hankyu Oasis

In 2003, Hankyu Sennan Green Farm was established in the city of
Sennan in Osaka Prefecture with the aim of offering safe, reliable
quality salad vegetables that are naturally delicious. Since then they
have been growing organic vegetables in Sennan City, Tajiri Town andWakayama City. The company focuses primarily on lettuce, mesclun,
salad kale and other salad vegetables which it grows via organic,
reduced agrochemical and non-agrochemical means; these are thendelivered to not only the group's department stores and supermarkets
but also to companies and stores outside the group.

A Product Control Supervisor is installed within the Merchandise
Department, and he or she performs regular quality checks of PB
products at each stage from development through sales. Also, anInternal Auditing Department conducts rotating inspections of quality
labeling, kitchen food hygiene and other matters to ensure thethoroughness of quality control.

Comprehensive Quality Control Consulting
from Hankyu Quality Support

Safety and Peace of Mind for Non-FoodHankyu Quality Support is a comprehensive consultancy company
which offers assistance with food, clothing and miscellaneous productquality control. They provide guidance on product inspection and foodhygiene and quality control duties at companies, commercial facilities,
etc., both within and outside of the H2O Retailing Group.
Having a quality control specialist company within the group allows us
to maintain an even higher level of systematic quality control, andHankyu Quality Support is able to draw on the roughly 50 years ofretailing, food manufacturing and food service business experience ofour group to provide a variety of seminars which both our groupcompanies and clients find extremely helpful.

For our clothing and miscellaneous products, as well, we haveestablished a Group Quality Control Promotion Committee similar tothat which exists for our food products. This committee oversees
product and advertising display and representation optimization
inspections and garment product manufacturing inspections.
As a result of these inspections, our department stores eliminate
around 17,500 items a year for not meeting product standards inadvance. We also perform on-site inspections of production facilities
in China and other countries overseas to eliminate sub-standard
products from among those being delivered to our stores.

Shopping Safety and Peace of Mind
Disaster Safety Systems

Safety and peace of mind applies to more than just the products
themselves. We also seek to ensure customers have safety and peaceof mind while they are shopping; thus, in addition to regular disastersafety drills, we have installed the latest disaster safety systems in the
Hankyu Umeda Main Store and the sections of the Hanshin Umeda
Main Store that had their Phase 1 limited opening in June 2018.

A pressurization smoke control system has been installed to remove
smoke from inside rooms during fires, as well as to keep evacuationroutes free of smoke via the use of pressurization fans. These andother disaster safety systems have been put in place to ensure safe
evacuation in the event of a fire.

Disaster Safety Drills

Earthquake Resistant

Each week, safety drills focused on earthquakes, fires, tsunamis andother disaster scenarios are held at both the Hankyu and Hanshin
Main Stores. In addition, regular drills are held at department store
branches, GMS, supermarkets and other business facilities in order toensure a systematic approach to safe customer evacuation in theevent of a disaster during business hours.
Integrated Report 2019

The Umeda Twin Towers, which houses the Hankyu Umeda Main
Store and Hanshin Umeda Main Store, are equipped with vibration
dampers and other seismic damping design elements to enable themto withstand even an earthquake with a seismic intensity of 7.

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Making shopping more pleasant and enjoyable
Our department stores, GMS and supermarkets are visited by a diverse array of customers every day. Customers with disabilities, customers withsmall children, customers from overseas...no matter who it is, we work to provide an accessible shopping environment and a varied range ofservices to ensure all of our customers enjoy their shopping experience.

Pleasant Shopping Environment
We have added a number of touches to the
Hankyu Umeda Main Store for its
reconstruction grand opening which createa more pleasant shopping experience forcustomers.
In terms of hard infrastructure, we created amore pleasant environment through theaddition of barrier-free designs, easily
visible and understandable in-store
signage, 300+ seating rest space andenough toilet booths and powder areas ofsufficient size to address the pre-renovation
issue of crowded toilets.
Also, to make the store more accessible forthose in wheelchairs or pushing baby
strollers, we expanded the hallway and aisle
width, added wheelchair and baby stroller
rental services and installed priority-use
elevators.

Rest space with about 300 seats

Further, to enhance the shopping experience for the growing numberof customers coming from overseas, we have introduced new services
at the Hankyu Umeda Main Store, including offering in-store guidance
using artificial intelligence (AI) via a smartphone app, accepting orders
and payment at restaurants by scanning 2D codes, and allowing
customers to make appointments to pick up cosmetics. At other major
stores, we enhance the scope of service we offer, such as by adding
translations in three languages to the store guides and in-store
signage, employing multilingual sales staff, issuing tax refunds tocredit cards, offering a phone interpretation hotline and free Wi-Fi
service, and accepting online applications for Foreign Customers’ VIP
Club.

Mechanisms for Responding to Customer
Feedback

Easy-to-understandin-store signs

Our department stores, GMS and supermarkets maintain dedicatedcustomer inquiry offices and resources, such as contact options on
our website, that allow us to hear the varied opinions and ideas of ourcustomers.
Hankyu Hanshin Department Stores provide sales staff with
“Information Memos” which they can use to write down what they glean
from their interactions with customers regarding how to improve service
or solve problems.
These Information Memos have been responsible for a variety of
improvements, including adding the option to box (gift wrap) together
products purchased at the Hankyu Umeda Main Store and Hanshin
Umeda Main Store, and to add an image attachment feature to theinquiry form on the website.

Priority-use elevators

Environmental Efforts
We believe that we are called to protect the earth's natural beauty as an inheritance for future generations, and we use our businessactivities as a vehicle for the promotion of various environmental conservation activities. In addition to hard infrastructure-focused
initiatives, such as the introduction of highly energy-efficient facilities and equipment, we are contributing to CO2 reductions via
initiatives which utilize the distinctive characteristics of retail business to allow us to incorporate our customers.

H2O Retailing Group Environmental Policies
We strive to contribute to the global environment through the following environmental conservation activities carriedout in line with our Group Code of Conduct.

Development of Environmental
Management

Promotion of Environmental
Conservation Activities

In order to reduce the environmental burden
created by our business activities, wedevelop and maintain systems for promoting
environmental management which we utilize
in achieving independent targets establishedfor each of the following.

We capitalize on characteristic aspects of ourbusiness to promote activities which
contribute to the solution of environmental
issues.

● CO2 emissions reduction, energy and● Community-based environmental

resources conservation● Waste reduction and recycling● Green purchasing

Integrated Report 2019

● Environmentally-friendly products andlifestyle ideas
conservation activities

Awareness-Raising
Activities andInformation
Disclosure
We ensure all employees areaware of our environmental
policies, and we areproactive about disclosing
the content and results of
our activities.

● Woodland and water resources protection

and other nature conservation activities

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Energy-Saving Initiatives
We promote switching over all basic lighting in our group department stores, GMS and supermarkets to LED lighting, as well as switching over tohighly energy-efficient equipment, as a means of reducing store CO2 emissions.

Switchover to LED Lighting

Energy-Saving Measures in Supermarkets
For supermarkets, in addition to introducing LED lighting, we arepromoting the use of energy-saving in-store equipment, such as
refrigerator and freezer cases.
When we open new stores, our energy-saving measures extend evento the smaller details, such as installing reach-in freezer cases (showcases with glass doors),
ensuring all lighting uses
LEDs and using
energy-saving control
equipment. For existing
stores, as well, in addition tosteadily introducing the sameenergy-saving equipment
into existing stores, we aretaking other steps, likecovering open refrigerator
cases with a curtain at night
to prevent heat gain.

Hankyu Hanshin Department Stores are promoting the adoption of
LED lighting in sales areas, and the newly built section of the Hanshin
Umeda Main Store which was opened in June 2018 following thecompletion of Phase 1 utilizes only LED lighting for its sales area
ceiling lighting. (amount of LED lighting prior to the Phase 1 limited
opening: 29%)

Change in Total Store LED Lighting for Hankyu Hanshin
Department Stores
FY2017FY2018FY2019LED adoption

46%

51%

61%

Impact on reduction(year-on-year)(41)kW(360)kW(110)kW

Environmentally-friendly Building for the
Hankyu Umeda Main StoreThe Umeda Hankyu Building, within which the Hankyu Umeda Main
Store is located, has an 'S' ranking according to the CASBEE
environmental performance evaluation system used for buildings.
Thanks to this, CO2 emissions have been reduced by 45% despite
20% more floor space in the Main Store following the reconstruction.

Reach-in freezer cases

CO2 Reduction via Emission Credits

Major examples

Izumiya is charging for shopping bags, running customer-participation
prize campaigns, selling PB products accompanied by emissions
credits and taking other measures which generate money that is thenused to purchase emissions credits to reduce CO2.
In FY2019, we purchased credits in a variety of areas, such as Miyagi
and Iwate Prefecture, and then voluntarily transferred these to theJapanese government.

● Introduction of LED lighting● Introduction of high-efficiency equipment (turbo refrigeration equipment,

gas absorption-type water cooler/heater, etc.)● Power-saving systems (motion-activated service hallway ceiling lighting)● Power-saving systems (introduction of an ice thermal storage system

which draws power at night and cuts daytime peak power usage)● Water-saving systems (introduction of waste water filtration devices toredirect restaurant wastewater for use in toilets)● Greening (creation of green rooftop spaces and greening of walls in stores)

Total emissions credits purchased in FY2019

1,190t (FY2018: 1,189t)

Efforts to Reduce Container and Packaging Materials
In the H2O Retailing Group, we revise our packaging materials accordingly to make them lighter and more environmentally-friendly. Currently, we aretaking steps to reduce our packaging materials via approaches which involve the participation of customers, such as charging for shopping bags.

Efforts to Cut Down on Supermarket
Shopping Bags

Revision of Packaging Materials
At Hankyu Hanshin Department Stores, in addition to reducing thenumber of items using packaging materials by 60%, we are working to
cut the number of varieties of plastic products we use, shrink and thin
our paper bags, thin our plastic shopping bags and reduce the overall
amount used.
We are working to promote more appropriate mid-year and year-end
gift wrapping, such as by appealing to customers to choose more
simple wrapping options.

At Izumiya and Hankyu Oasis, we encourage customers to bring theirown shopping bags, and some of our stores have been charging forbags.
In 2018, the “Hokusetsu Region(*) Shopping Bag Reuse and Reduction
Promotion Agreement” was signed by nine businesses, and Izumiya
and Hankyu Oasis were among them. As a result, since June 2018,the supermarkets in the Hokusetsu region have stopped providing
shopping bags free of charge.

Effective Resource Usage via Container
Collection*Hokusetsu region: Suita City, Toyonaka City, Takatsuki City, Ibaraki City, Settsu City,
Minoh City, Ikeda City, Nose Town, Shimamoto Town, Toyono Town

At Izumiya and Hankyu Oasis, we collect food trays, milk cartons, PET
bottles, aluminum can and other used containers. The collected trays
are recycled at a recycling company and then purchased for reuse.
At Izumiya, recycled trays make up around 41% of the trays used infood sales areas (vegetable, meat, seafood, daily foods and take-out
side dishes sections).

Bring-your-own-bag adoption No. of stores charging for bags
(FY2019)(as of June 2019)

Izumiya55.4%

24 stores

Hankyu Oasis

61.8%

41 stores

Integrated Report 201911

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Recycling Initiatives
Recycling Food Waste

Recycling Business Aimed at “Adapting to a
Circular Economy”

At Hankyu Hanshin Department Stores, Izumiya and Hankyu Oasis, inaddition to working to reduce the amount of food waste generated, we
promote efforts to recycle this waste as fuel and animal feed.
At the Izumiya Katsurazaka Store, the food waste generated by thestore is turned into animal feed
which is used to feed the chickens
Food recycling ratethat produce the eggs the store(FY2019)
sells. This recycling loop has been
Hankyu Hanshin
61.6%
Department Storesrecognized by the Ministry of
Economy, Trade and Industry, theIzumiya
29.7%
Ministry of Agriculture, Forestry and
Fisheries and the Ministry of the
Hankyu Oasis
38.2%
Environment.

At Kanso Co., Ltd., we are undertaking recycling business which is
aimed at helping us “adapt to a circular economy.” At Kanso's Tsumori
Eco-Center, waste materials from companies inside and outside thegroup are taken in and recycled, including styrene foam, which isground up, dissolved and turned into flat blocks, and drink cans, milk
cartons, and other containers, which are collected from store
customers and pulverized. In addition, materials such as paper andoutdated ledgers are recycled. As another initiative to help realize a
recycling-based society, the Tsumori Eco-Center earned ISO14001
certification.

Customer Awareness-Raising Activities
Izumiya has designated June and October as “Eco-Months” in which to carry out more robust environmental initiatives. During these months, Izumiya
conducts awareness-raising activities aimed at customers and local children.

Hosting Eco Workshops and Environmental
Awareness-Raising Events

Eco-Tours Held in Conjunction with Clients
With the help of our businessclients, we run eco-tours ofrecycling plants and production
facilities to give customers
enjoyable opportunities to learn
about the environment.

Izumiya holds an Eco Workshop to teach children about theimportance of caring for nature and the environment and to introduce
them to actual environmental initiatives being undertaken by Izumiya.
FY2019No. of events: 82

Participants: 4,795

Kyoto Eco-Tour(Gekkeikan Okura Sake Museum+ the Izumiya Yawata Store)

Additionally, 15 families participated in an overnight bus tour in May
2019 during which children had an opportunity to plant rice in Toyama
Prefecture as part of a dietary education event that was jointly hosted
by Izumiya, Hankyu Oasis, and Zen-Noh Pearl Rice.

Participation in Nationwide CO2 Reduction Activities
Initiatives with the Japan Department Stores
Association

Participation in the “One Million Person Candle
Night,” the Ministry of the Environment's CO2
Reduction “Light Down Campaign”

The Japan Department Stores Association supports the government's“Cool Choice” national campaign to fight global warming, withdepartment stores nationwide implementing “Cool Biz” (which
involves setting air-conditioning at an appropriate temperature). Our
department stores, as well, increase their air-conditioning temperatureby one to two degrees for five months between May and September inorder to help reduce CO2.

Integrated Report 2019

At Hankyu Hanshin Department Stores, we participate in various
nationwide CO2 reduction activities, such as the “Light Down
Campaign” and the “One Million Person Candle Night.” During the
One Million Person Candle Night in Umeda district in Osaka, thelighting on the exterior signs of the Hankyu Umeda Main Store,
Hankyu Men’s Osaka and Hanshin Umeda Main Store is turned off tocontribute to CO2 reductions.

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Resources

Governance

Environmental Data (FY2019)
Hankyu Hanshin
Department Stores

IzumiyaHankyu Oasis

14

85

79

(kl)

39,18550,681

21,750(thousand kWh)

129,313

176,678

80,092Gas(m3)

1,964,013

4,519,000

989,222

Localized heating and cooling(GJ)

152,876──

Water (total)(m3)

805,304

1,000,000

339,248

Packaging materials (total)

(t)

1,397

1,872

1,392

Paper

(t)

737

66 *1

196

Wrapping paper

(t)

128

─

─

Shopping bags

(t)

122

651

265

Plastic Trays and wrapping

(t)

148

1,155

846

Other

(t)

262

─

85

(t)

20

114

57

INPUT

Units

No. of target stores
Energy consumption (total)
Electricity

Office paper (photocopying paper)*1 includes paper containers

OUTPUT

Units

Hankyu Hanshin
Department Stores

IzumiyaHankyu Oasis

CO2 emissions volume(t-CO2)

67,68386,98142,972

Waste (total)(t)12,263

21,77010,941

Recycling (total)

(t)

7,519

14,698

6,923

Cardboard

(t)

4,127

12,726

5,864

Paper

(t)

580

─ *2

37

Plastic

(t)

495

800

237

Food waste

(t)

2,064

3,422

785

Other

(t)

253

─

─
*2 included in cardboard

Units

Hankyu Hanshin
Department Stores

IzumiyaHankyu Oasis

Trays

(t)

1.1

163

237

Milk cartons

(t)

1.9

175

68

PET bottles

(t)

4.0

418

372

Recovered in-store

Integrated Report 201913

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Key Environmental Targets (FY2019)
Hankyu Hanshin Department Stores
Key Items

Energy Savings
Energy usage

Resource Savings
Container packaging usage

Waste Recycling
Improvement

FY2019Environmental Target

ResultAssessment

FY2020
Environmental Target

0.0262 *1

0.0256○Year-on-year
1% reduction
0.02533.19 *2

3.09○

Year-on-year
1% reduction
3.06

70.2%

61.6%

×

Year-on-year
1% increase
62.6%

Food waste recycling rate

*1 Total usage (kl conversion) / Total floor space × Business hours*2 Total usage (kg) / Sales (millions of yen)Izumiya
Key Items

FY2019Environmental Target

ResultAssessment

FY2020
Environmental Target

Energy Savings

FY2014 comparison
20% reduction

33.2% reduction○

FY2014 comparison
21% reduction

Stores: CO2

Energy Savings
Head Office:Power consumption

Resource Savings
Bring-your-own-bag adoption(CO2 conversion)(CO2 conversion)(CO2 conversion)

FY2014 comparison
20% reduction

22.6% reduction○

FY2014 comparison
21% reduction

53.5%

55.4%

○

54.0%

FY2019Environmental Target

ResultAssessment

FY2020
Environmental Target

0.0271 *3

0.0256○Year-on-year
1% reduction
0.0253

52.0%

61.8%

○

62.0%

44.8%

38.2%

×

44.8%

Hankyu Oasis
Key Items

Energy Conservation
Energy usage

Resource Conservation
Bring-your-own-bag adoption

Waste Recycling
Improvement

Food waste recycling rate

*3 Total usage (kl conversion) / Total floor space × Business hours

Integrated Report 201914

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Resources

GovernanceCorporate Social Responsibility Initiatives
A key mission of the H2O Retailing Group is to contribute to society through the betterment of people's lives.
As a member of the local community, we prioritize interaction with, as well as support for, local residents, undertaking a variety ofactivities aimed at achieving this, from help with cultural events to disaster recovery. We hope that such activities will contribute to
our group remaining an essential part of our local communities.

H2O Retailing Group Corporate Social Responsibility Initiatives Policies
Within the H2O Retailing Group, we seek to address social issues through corporate social responsibility initiatives undertaken in line with ourGroup Code of Conduct and with respect to the following priorities and implementation criteria.

Priorities● Contribution to the local community● Conservation of the local environment● Support for children and their future● Support for cultural, artistic and sports promotion● Support for disaster recovery● Make use of corporate resources and business

Implementation characteristics● Ensure activity will be ongoingCriteria● Perform review, revision and improvement based on
activity results

Initiatives Capitalizing on Business Characteristics
Our group operates a number of large-scale commercial facilities, such as the Hankyu Umeda Main Store, which is visited by around 50 million
customers of all generations each year, and we use the customer drawing power and media visibility that these stores afford us to carry out
awareness-raising and information communication initiatives aimed at customers.

Charity Network H2O Santa

3 Introduction of Volunteering Opportunities

In 2012, we launched the H2O Santa initiative (incorporated as afoundation in 2015) with the aim of helping children, based on the
belief that, “anyone can be Santa.”
Through this initiative, we have worked to foster a“culture of charity” within local communities byusing our stores and other resources to showcase
the activities of philanthropic groups and toprovide customers with information about
volunteering opportunities. The connections thatthese efforts create between customers andvarious philanthropic groups are what lead to aculture of charity being built.

Through the H2O Santa website and H2O Santa events, we help connect
volunteers with available philanthropic groups.

4 Surveys and Presentations
We survey those involved in helping needy children in order to find out
about the issues these children face, and then we compile our findings
in booklets and blogs. In 2018, we held the second H2O Santa
Symposium, which was entitled “Initiatives in Other Countries toAddress Child Abuse, Poverty, and Foster Parent Programs,” in an effort
to bring together stakeholders in order to resolve issues facing children
who need society’s care.

Please visit the website to learn more about H2O Santa
activities.

Major Activities
1 Awareness-Raising and Fund-Raising Activities inConjunction with Philanthropic Groups

http://www.h2o-retailing.co.jp/h2o-santa/

The Hankyu Umeda Main Store has installed a permanent “H2O Santa
Charity Guide” on its 9th and 12th floors where the activities ofphilanthropic groups are showcased. In addition, the activities ofphilanthropic groups are presented at an “H2O Santa Charity Talk Event”
held every Saturday in the store's Festival Plaza.
Further, an “H2O Santa NPO Festival” is held twice a year; during the
FY2019 festivals, activities from 19 different NPOs were presented.

H2O Santa Charity Talk Event

GOOD for GREEN
Hankyu Umeda Main Store held astore-wide event in May 2019 entitled“GOOD for GREEN” to consider about what
we can do for the natural and social
environment when making, selling, andusing products while promoting initiatives
that let us make progress toward a better
tomorrow, one step at a time.
We created an eat-in area in the ninth floor
Festival Plaza where customers could enjoy
spicy curry made with rice from the “Grow
Rice Project,” which works to return fallow
rice paddies in Shiga Prefecture to
Festival Plaza on the
9th floor of the Hankyu
cultivation, and produce from Awaji Island
Umeda Main Storethat failed to meet standards for retail saleas part of a “Happy Fest!” program
designed to make participants happy. We
also held a workshop where participants could make masks out of
used cardboard boxes from the store and wreathes from waste gauze.
Other floors in the store showcased other initiatives, including stylish
bags made from discarded tire tubes and products made from organic
rice on the 1st-floor Koto-koto Stage 11 and toys made with natural
rubber that is not harmful if it is put in the mouth in the 11th-floor
Babies’ Collection.

H2O Santa NPO Festival

2 Events Held to Collect Donations
We hold events designed to collect donations in support of children inneed and for disaster relief. The money raised from entry fees and fromdonation boxes at the event are used to support the target cause.

Major events in FY2019● Charity Drive ● World’s Only Blythe Doll Charity Auction● 1st H2O Santa Charity Concert● 5th and 6th H2O Santa Charity Dance Festival

Integrated Report 201915

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Environment

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GovernanceSupporting Children and Child-Rearing
We actively provide support both the children who will inherit the future but also for the families raising those children.

Hankyu Umeda Main Store “Child-Rearing
Live School”

Joint Initiatives with Clients
We hold a variety of children's health promotion events in conjunction
with clients.
Hankyu Oasis and S&B Foods jointly host the annual “Hankyu Oasis
and S&B Cup - Young Children's Health Marathon,” in which morethan 2,000 elementary school students participate each year.
Also, Hankyu Oasis, Izumiya and Nisshin OilliO run a “Junior Soccer
School” together, which is
attended by around 100
elementary school students.
This school is a terrificopportunity for theparticipants, as they receive
direct coaching from former
members of Japan's nationalsoccer team who come for theday.

The Child-Rearing Live School in the Hankyu Umeda Main Store wasestablished with the intention of “creating a place where moms anddads can experientially learn about child-rearing, life and what toexpect in the future.”
Participants have personal consultations with Maternity Goods
Advisors, attend weaning food classes taught by nutritionists, hearideas and advice about baby-related goods and receive a variety ofother prenatal and postnatal support in a friendly, relaxed environment.

Field Trips and Work Experience
Izumiya and Hankyu Oasis host field trips and shopping experiences
for local elementary school students, as well as work experience
opportunities for local junior high school students. These sorts of“backyard” field trips and actual in-store work experiences convey thejoys and rigors of having a job to children en masse.

Junior Soccer School

Philanthropic Activities by Employees
Through H2O Santa activities, we showcase volunteer activities for customers; however, we also actively encourage our group employees to takepart in volunteer activities.
outside the Hankyu andHanshin Main Stores, thepublic thoroughfares and othernearby areas. Similar cleanup
activities also take place forthe public thoroughfares andenvirons around otherdepartments stores, shopping
centers, etc.

Promotion of Employee Volunteers
H2O Santa introduces our group employees and their families, as wellas the staff of our clients, to various volunteer activities.
Information about different activities, such as helping with NPO officeduties, caring for protected animals, assisting with event operation,etc., are disseminated via thein-house intranet and othermeans. Thus far, around 430
group employees, families andclient staff have participated involunteer activities.
Also, the staff of H2O Retailing
Corporation and Hankyu andHanshin Umeda Main Stores, itstrade unions and other relatedorganizations meet in themorning on the third Friday of
Helping with novelty item preparation
for an event to support children
each month to help clean up

Helping with swimming
lessons for disabled children

Establishment of the H2O Santa Employee FundAn employee fund provided for via monthly salary contributions by
employees on a voluntary basis (100-yen contributions, with a cap of
three contributions) has been established for H2O Retailing
Corporation and Hankyu Hanshin Department Stores employees inorder to financially support employee volunteer activities, philanthropic
groups, disaster relief efforts and the like.

Preserving Traditions and Cultural Assets
Because of the distinctive characteristics of our business, we recognize the important role our group has in showcasing and preserving Japanesetraditions, culture and technology for the general public.

Preserving Valuable Architecture for New Stores
The reconstructed Hankyu Umeda Main Store had its grand openingin September 2012; however, there were a number of beloved
architectural elements, such as the mosaic mural and grandchandeliers designed by architect Mr. Chuta Ito, which have a long
history stretching back roughly 80 years which were restored andpreserved for the new store.

Concourse prior to
the reconstruction

Hankyu Umeda Main Store: “A New Japanese
Aesthetic”
During spring of 2019, the Hankyu Umeda Main Store held astore-wide campaign based on the theme of “A New Japanese
Aesthetic.”
This campaign offers customers from Japan and overseas refined
lifestyles rooted in the Japanese aesthetic and created by combining
contemporary sensibilities with traditional Japanese culture andcraftsmanship that have been passed down for generations.
Integrated Report 2019

Restoration of mosaic murals

16

Relocation of the chandelier and mosaic
mural to the restaurant area of the new
Hankyu Umeda Main Store 13th floor

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ESG Topics
Safety andPeace of Mind

Environment

SocialContribution

Human
Resources

Governance

Promoting self-fulfillment and diverse workstyles
In addition to strengthening programs designed to foster the development of the human resources that are our greatest management
resource, we’re working to create an environment and mechanisms that make it possible for employees with diverse values to excel attheir jobs and bring their full individual skills and abilities to bear.

Personnel Development
We believe that personnel whose work contributes a sense of self-fulfillment will be able to perform at their best, and this fosters adaptiveness andthe creation of new value which, in turn, elevates corporate value. Towards this end, we run personnel development programs and various support
initiatives that help employees think about and achieve their own, individual career plans.

Establishment of Hankyu Hanshin College

Comprehensive Training Center

In FY2019, with the aim of facilitating ongoing, autonomous
career-minded training for personal development, the Hankyu andHanshin Department Stores began the Hankyu Hanshin College,
which features a diverse menu of skill development options.
The many skills-development programs offered complement ourconventional hierarchical and position-based training regimes withleadership, coaching and other business skills-development
programs, life stage-tailored career support training and much more,
all within an environment that encourages continuing education.

We maintain training facilities which are available to all of our groupcompanies. These facilities are well-equipped with large classrooms thatcan be adapted for different training content and sleeping
accommodations for longer training programs, and they are able to handle
up to 130 people at a time. Manygroup companies use thesefacilities not only as a dedicatedsite useful for advanced, highly
focused training, but also as avenue conducive to deeper
communication with and between
participants.
Training Center: Maishima School
Izumiya and Hankyu Oasis also
have their own dedicated training
centers which offer acomprehensive menu of programs
spanning everything fromvegetable, meat, seafood,delicatessen section, etc.,
processing techniques to practical
Processing techniques training
skills, such as display techniques
at the Izumiya Training Centerand register operations.

In-house Licensing System
The Hankyu Hanshin Department Stores have established an in-houselicensing system geared towards the creation of advisors whom
customers can reliably turn to as professional sales staff. With a totalof 1,455 employees (as of March 31, 2019) holding licenses obtained
via the in-house licensing system, the voluntarily accepted challengethat this system offers continues to contribute to improved technicalskill and motivation among sales personnel.

Main in-houselicensing

Coordination Advisor (men's and women's apparel)
Footwear Advisor, Formal Event Advisors, etc.

Improving Customer Service Skills
For department stores, GMS and supermarkets, in-store sales are the essential core of their business; thus, it is incredibly important that they
provide high-quality customer engagement and service. We utilize a variety of systems and motivational approaches to ensure that everyone whoworks within our group, including the sales personnel of our business clients, is fully aware and capable of providing superior customer
engagement and service.

Incentive System

Golden Name Badge System
In order to cultivate sales staff who go
above and beyond to help customers, theHankyu Hanshin Department Stores haveintroduced a Golden Name Badge System
which utilizes mystery shopper feedback
and other stringent criteria to identify
Golden Name Badge (sample)
Golden Name Badge Sales Personnel. Asof March 31, 2019, there are a total of 1,603 Golden Name Badge Sales
Personnel. They are recognized in a variety of ways, including receiving
special name badges and business cards and being awarded a varietyof perks, such as opportunities to participate in conferences andlectures. All of this contributes to even better customer service skills.

With the intent of improving sales and service, as well as achieving
business improvement, we utilize an incentive system in Hankyu andHanshin Department Stores which rewards good effort on the part ofall staff and sales personnel. Based on the results of each quarter,
those individuals and sales teams posting outstanding results are
publicly recognized, and an Incentivization Committee chooses someto receive special recognition.

Izumiya Fountain Festival and Hankyu Oasis
Festival
Every year, Izumiya holds the “FountainFestival” as a way of expressing
appreciation to its employees, while Hankyu
Oasis holds the “Hankyu Oasis Festival” asa way of publicly recognizing its exemplary
employees, such as those who met theirsales targets or who provided outstanding
quality control. These sorts of initiatives
provide motivation for the various contract
employees who work for these companies,
thus contributing to better store operations
and service.

Role-Playing Contests
Hankyu Hanshin Department Stores hold role-playing contests at eachstore as a way of enhancing the customer engagement skills, knowledge
and mindset of sales personnel.
Participants talk with 'customers' for fifteen
minutes about their lifestyle and needs andthen offer product recommendations basedon this. They receive a point evaluation of
how well they do, and the contests are held
repeatedly to foster higher levels of
Scenes from a role-playing contest
customer engagement.
Integrated Report 2019

Fountain Festival

Hankyu Oasis Festival

17

H2O Retailing Corporation

Business
Philosophy/
Code of Conduct

Group
Introduction

President's
MessageFinancial
Highlights

ESG Topics
Safety andPeace of Mind

Environment

SocialContribution

Human
Resources

GovernanceDiversity Promotion
Retail is the core business of our group, and we believe that women, in particular, are a key part of this business who need to be actively promoted
and supported. We, therefore, work to develop structures and foster attitudes which are supportive of the appointment of more women, as well as
the provision of greater life stage support for such needs as childbirth and childcare.

Promoting Female Participation

Workplace Childcare Facilities: “H2O Nursery
School”

At present, there are a total of eleven female corporate executive ofofficers within our group. Within Hankyu Hanshin Department Stores there
are 52 female senior managers and 422 middle and junior level managers,
and the percentage of female managers continues to climb each year.

Female senior managers

Percentage of all managers( ) last year( ) last year

Hankyu Hanshin
Department Stores

52 (53)15% (14%)

Izumiya24 (24)

9% (8%)

Hankyu Oasis

13 (13)

9% (9%)

After opening our first such facility at Daily Qanat Izumiya Abiko Storein January 2018, we launched two new H2O Nursery Schools at Qanat
Mall Izumi-Fuchu in April 2019 and in Oasis Town Kisera Kawanishi in
July. Flexible, on-site childcare that makes possible more diverse
workstyles has proved popular with store employees.
Going forward, we plan to make an even more significant contribution
to work-life balance by
opening these childcare
facilities to not only Group
employees, but also
employees of tenantcompanies and business
partners as well as local
residents.

(as of April 2019)

Employee-friendly Workplaces
Retail business is primarily operated by shift work; however, various
systems have been developed by the companies in our group toaccommodate childbirth, childcare and the other, varied life stages of
employees within a shift work structure to create work environments
which are employee-friendly. Here we provide a sample of the systems
used by Hankyu Hanshin Department Stores.

H2O Nursery School

Promoting Hiring of People with Disabilities

Major Systems Used by Hankyu Hanshin Department Stores

In 2016, H2O Smile was established as a special subsidiary to
calculate our group's hiring rate of people with disabilities. At present,
24 people with disabilities are employed in our group companies toperform office work and light duties, making the hiring rate of people
with disabilities 2.26% (as of June 2019) for the H2O Retailing
Corporation and subsidiaries certified as a group to calculate the rate.

Promoting a balance between work and childcare
In order to enable employees to balance work and childcare as
they pursue their careers, we have established various systems
which go above and beyond what is legally required.
Returnto workPregnancy Childbirth

Shortened
hours

Normalhours

Promoting Work-Life Balance
Normal hours

1

2

3

Maternity
leaveChildcareleave

Shortenedhours

4Hankyu Hanshin Department Stores encourage each employee todevelop a career plan that looks beyond just their job to include life
stages, hobbies, continuing education and other lifestyle elements. We
utilize interview tools, such as fields on application forms which ask
about personal health and lifestyle goals, to get all employees thinking
about their work-life balance.
Additionally, we’re working to plan time off in advance as a way to
encourage employees to take annual leave time in accordance with
the Act on the Arrangement of Related Acts to Promote Work Style
Reform.

Reinstatement-authorized
type-C employee(contract employee)changeover system

1 Allows leave to be taken from eight weeks before the due

date until ten weeks after birth

2 Can be used until end of May of the fiscal year the childturns four

3 Allows work hours to be reduced to 5/6/7 hours until end of

May of the fiscal year the child enters elementary school.
Also, allows a weekly work schedule of two full-time +short-time days, or a reduced work week (three or four
full-time days per week), to be taken until the end of thechild's third year of elementary school.
4 Allows changing to a contract employee schedule tailored
to one's personal situation, lasting from when the childstarts elementary school until he/she completes it, and thenreverting to full-time employee status

Physical and Mental Wellbeing
In addition to an annual health check, we go a step further by
providing employees with mental health checks as well.
We go beyond what is legally mandated by providing stress checksurveys even to offices with less than 50 employees, and some groupcompanies implement the H2O Retailing Group Benevolent Society's“Mental Health Survey” once every two years. All of this is carried out
for the prevention and early detection of mental health issues.
Additionally, we maintain a system of industrial counselors andindividually contracted industrial physicians specializing in mental
health who are readily available to any employee who is feelingphysically or mentally unwell.

In addition, flexible work scheduling such as flex time and adjusted
hours, which are designed to accommodate flexible workstyles, isavailable to not just female employees but to all employees, alongwith “Caregiver Leave” and “Caregiver Shortened Hour”
scheduling for employees requiring non-standard schedules, and arehiring system that allows employees to be rehired after leaving
their positions because of marriage, childbirth, childcare,
care-giving responsibilities, or other reasons.

Personnel Data (as of March 31, 2019)
No. of employees
Avrg. years of service

Hankyu Hanshin Department Stores

IzumiyaHankyu Oasis

Men

1,193

1,242

773

Women

1,924

673

288

Men

22 years and 7 months

22 years and 6 months

17 years and 9 months

Women

21 years and 11 months

18 years and 10 months

10 yearsChildcare leave claimants*

98

29

11

Caregiver leave claimants*

8

1

1

Paid leave claim rate

46.7%

29.8%

33.0%
* No. of claimants for FY2019

Integrated Report 201918

H2O Retailing Corporation

Business
Philosophy/
Code of Conduct

Group
Introduction

President's
MessageFinancial
Highlights

ESG Topics
Safety andPeace of Mind

Environment

SocialContribution

Human
Resources

GovernanceCorporate GovernanceIn line with our business philosophy to “to remain indispensable to the local communities through our activities of providing amodel of lifestyle to local residents,” we pursue a strategy of market share expansion via retail business diversification and realizationof domination within the Kansai region, striving to achieve this through constant operational innovations which comply with social
norms and laws while enabling rapid adaptation to a changing competitive landscape.
Based on this business philosophy and the vision we have for our business, we are working to enhance our corporate governancestructure according to the following.
4 Take steps, such as ensuring appropriate involvement

1 Respect the rights of shareholders and ensure equality

by independent outside directors, to strengthen theexecutive oversight functions of the Board of Directors
5 Engage in constructive dialog with shareholders whose
investment policies contribute to improved
medium-to-long-term corporate value

2 Consider the best interests of stakeholders, including

shareholders, and take action to incorporate themaccordingly
3 Ensure proper disclosure and transparency of corporate
information
Basic principles of corporate governancehttp://www.h2o-retailing.co.jp/governance/

Corporate Governance Structure
As the holding company for the H2O Retailing Group, we are responsible for overall group business planning, management and oversight, pursuinga governance structure that facilitates lawful and reasonable business operations conducted quickly and efficiently by each group company toimprove the group's corporate value. In June 2016, we further enhanced our capacity to perform business oversight by switching from using aboard of corporate auditors to using an audit and supervisory committee.

Audit and Supervisory Committee

Board of Directors
Our Board of Directors is comprised of ten Directors (four of whom serveon the Audit and Supervisory Committee), and of these, four are Outside
Directors (three of whom serve on the Audit and Supervisor Committee).
Thus, one-third of the Board of Directors are Outside Directors.
The switch to an audit and supervisory committee was used as anopportunity to undertake significant operational revisions, including
expanding the scope of reporting items, increasing the frequency andduration of meetings and providing explanations to Outside Directors
prior to board meetings. Additionally, we’re working to increase theeffectiveness of the Board of Directors, for example by revising
discussion standards to better address risk and by enhancing
discussion materials provided to Board members.
Further, we have established a Group Management Meeting involving
Representative Directors, Executive Directors and other top executives
from our group which meets in advance of the Board of Directors tocollectively deliberate and confirm each company's business plans,
marketing policies, investments and other important matters.
In addition, the H2O Retailing Corporation and other group companies
have introduced an Executive Officer System whereby executive
administrative responsibilities are clarified and the execution of these
responsibilities is monitored and reviewed by each company's Directors
and Board of Directors.

Our Audit and Supervisory Committee is comprised of four Directors.
In addition to attending Board of Director meetings, these Audit andSupervisory Committee members review the content of GroupManagement Meetings and other executive decisions as part of theirsupremely important oversight task of determining whether thesedecisions satisfy the business judgment rule.
Also, together with reviewing important matter-related written
approvals and important meeting minutes, as well as conducting
regular hearings about executive performance from internal control
divisions (Financial Affairs Office, General Affairs and Human
Resources Office, System Planning Office, etc.), as a rule, theStanding Audit and Supervisory Committee members meet once amonth with the Independent Auditor (chosen by KPMG AZSA LLC.),and the Audit and Supervisory Committee meets four times a year. Allof this foster close collaboration which, in turn, improves theeffectiveness of auditing.

General Shareholders’ Meeting

Nominating andCompensation
Advisory
Committee

AdviceAppointment/Dismissal

Appointment/Dismissal

Board of Directors

Audit and Supervisory Committee

President and Representative Director

Integrated Report 2019

Independent
Auditor

Audit

Audit

Group Management Meeting

Executive Officers
Divisions

Cooperation

Audit andSupervisory
Committee
OfficeOversight

Group
Compliance
Committee

Appointment/Dismissal

Group Companies

19

H2O Retailing Corporation

Business
Philosophy/
Code of Conduct

Group
Introduction

President's
MessageFinancial
Highlights

ESG Topics
Safety andPeace of Mind

Director Diversity

Stock
Cash

○

—

Continuous servicebased stock options○○

Annual bonus○—

Basic salary○○Committee
Members

MemberMakoto Yagi (Director: Outside)
Naoshi Ban (Director and Audit andSupervisory Committee: Outside)
Atsushi Suzuki (President andRepresentative Director)

Dialog with Shareholders
With the aim of fostering constructive dialog with our shareholders, wetake various steps to actively solicit feedback from institutional
investors in Japan and overseas, including establishing an IR Divisionthat serves as a point of contact, hosting a twice annual financial
results briefing which is attended by the President of H2O Retailing
Corporation and the presidents of our primary businesses,
undertaking overseas 'roadshows,' and attending conferences andconducting individual interviews.
Further, for individual shareholders, we conduct an annual shareholder
survey, as well as solicit inquiries and feedback via our website.

Policy on Shareholder Return
Our basic policy is to perform stable redistribution of profits based on
performance for the business year and in consideration of ensuring
the necessary cash flow for appropriate medium-to-long-term
financial structure development and growth investment.
Specifically, we look at consolidated net income, consolidated net
assets and consolidated cash flow medium-to-long-term planning andmake a comprehensive decision on optimal profit distribution.

Overview of compensation

Stock

Performance-based
stock options

Chairperson

Policies
The new stock compensation plan is designed to:· contribute to the sustained growth of the Group and to its mediumand long-term corporate value;· motivate Directors and executives responsible for the company’s
operations to achieve the goals set forth in the medium-termbusiness plan;· facilitate the recruitment and retention of human resources who aresuited to achieving the Group’s mission and realizing its sustained
growth; and· enhance recipients’ awareness of shareholders’ perspectives and of
the Group’s focus on its shareholders.

Cash

Non-executive
Directors(as of October 1, 2019)

We took advantage of the formulation of the new medium-termbusiness plan that begins in FY2020 to introduce a new stockcompensation plan in the form of stock option grants based oncontinuous service (“continuous service-based stock options”) andstock option grants based on performance (“performance-based
stock options”) as outlined by the policies listed below. We also
reviewed eligibility requirements.

Integrated Report 2019

Executive Directors
and Executive Officers

In order to ensure fairness and transparency when deciding on
Director nominating and compensation, we have established an
Nominating and Compensation Advisory Committee which serves avoluntary advisory committee comprised of the multiple independent
Outside Directors (includes Audit and Supervisory Committee ) and
the President.
The committee discusses topics such as the election, removal, anddismissal of Directors and nomination of candidates for Director
positions as well as policies related to Director compensation andspecific amounts and then reports to the Board of Directors.
Additionally, oversight of successor training plans is conducted basedon the opinions and recommendations of this committee to ensure
objectivity.

Executive Compensation

Basic salary

GovernanceNominating and Compensation Advisory Committee

In order to analyze and evaluate the effectiveness of the Board of
Directors, we administer a survey of all Directors to solicit their views
on subjects such as the composition and operation of the Board of
Directors and host regular meetings to allow Directors to exchange
views with Representative Directors and Outside Directors.
We’ve made improvements in various areas based on the results ofanalyzing these efforts, and in FY2019 we determined that the Boardof Directors was operating in an effective manner. That said, we alsoaffirmed the need to continue to make improvements, for example byoffering information about upcoming proposals available to Directors
sooner and by revising the format and content of such materials.

Annual bonus

Human
Resources

Compensation for Executive Directors is structured so that about 50%
consists of the monthly basic salary and about 50% consists of theannual bonus and stock compensation.
Compensation for individual Directors is determined based on a
proposal submitted to the General Shareholders’ Meeting by the
Board of Directors following discussion by the Nominating andCompensation Advisory Committee. Compensation for individual
Directors who are members of the Audit and Supervisory Committee
is determined in consultation with Directors who are members of the
Audit and Supervisory Committee.

Analysis and Evaluation of the Board of
Directors' EffectivenessContinuous
service-based
stock options

SocialContribution

Eligibility

We believe ensuring a diverse composition of executives is an
important part of remaining competitive and breaking free of convention
in a rapidly changing business environment, as it continually exposes us
to insights gleaned from new and varied perspectives.
We select Director candidates according to whether or not they havethe expertise and skill set needed for important decision-making within
a holding company such as our own, regardless of factors such as
gender, national origin, and age.
Candidates chosen from within the H2O Retailing Group are selectedfrom among those employees who demonstrate the appropriate skills,
experience and expertise to create and push forward group businessstrategies and proposals related to finance, accounting, andcompliance in a way that increases corporate value in a sustainedmanner, as well as from among representative members of key
subsidiaries.
From outside the H2O Retailing Group, we invite multiple distinguishedprofessionals, including experienced executives capable of operating inany business sector, lawyers, and those with specialized expertise
benefiting our corporate group. We choose a balanced and diverse
range of such professionals, while also keeping the number limited to asize which still allows for quick decision-making.
When choosing Directors to serve as Audit and Supervisory Committee
members, we ensure that at least one possesses ample financial andaccounting expertise and experience.

Performancebased stock
options

Environment

Directors, Auditors, Executive Officers, and otherofficers of the company and its subsidiaries are
granted stock options according to their position
that can be exercised once they leave that position.
The number of options that may be exercised (in therange of 0% to 100%) is determined based on theextent to which guidelines determined in advanceby the Board of Directors have been achieved in the
final fiscal year of the medium-term business plan.

Policy on Cross-Holdings and Exercise of Voting Rights
Our policy is to cross-hold shares of a given company if doing so will
foster a good relationship with a party connected with a client,business partner, etc., and thereby help facilitate group business andimprove the group's medium-to-long-term value.
However, we verify transaction terms, dividend yields, risks, and otherfactors to determine whether these shares are actually contributing
towards the purpose for which they are being held; if the shares are
deemed to be of little significance, we will look at market trends andother factors to investigate when and how to sell them.
We determine whether to exercise voting rights on a case-by-casebasis after considering the purpose for which the shares in question
are held and whether they are contributing to themedium-to-long-term growth in value of the group.

Directors, Auditors, Executive Officers, and otherofficers of the company and its subsidiaries are
granted stock options according to their positions
that can be exercised once they leave their position.
A bonus is paid based on consolidated financial
performance over one business year. (The bonus isbased primarily on consolidated operating income, but
net income for the fiscal year is also taken into account.)
Basic salaries are reviewed every April based on
responsibility and position.

20

H2O Retailing Corporation

Business
Philosophy/
Code of Conduct

Group
Introduction

President's
MessageFinancial
Highlights

ESG Topics
Safety andPeace of Mind

Environment

SocialContribution

Human
Resources

GovernanceSelection of Outside Directors
We select personnel who possess a wealth of experience, broad insights and advanced expertise, as well as character, outlook and skills
appropriate to supervising company operations.
Further, we assess each person's independence on the “Criteria for Independence of Outside Directors” which our company has established.

Reasons for Selection and Attendance (as of October 1, 2019)
Attendance in FY2019
Position

Top line: Board of Directors
Bottom line: Audit andSupervisory Committee

Name

Reasons for Selection

Makoto Yagi

As Chairman of The Kansai Electric Power Co., Inc., Mr. Yagi provides a wealth of businessadministration experience and broad insight which he draws upon as Outside Director toactively provide opinions, recommendations, etc., to the Board of Directors and others. He
has been selected based upon the assessment that the application of his experience andother qualities to the supervision of H2O Retailing Group operations contributes to anincrease in the group's corporate value.

10 of 11 meetingsーNaoshi Ban

Having served as President and Chairman of Mitsubishi Logistics Corporation, Mr. Ban
provides a wealth of business administration experience and broad insight which he draws
upon as an Audit and Supervisory Committee Member Director (Outside Director) toactively provide opinions, recommendations, etc., to the Board of Directors and others. He
has been selected based upon the assessment that the application of his experience andother qualities to the supervision and auditing of H2O Retailing Group operations
contributes to an increase in the group's corporate value.

11 of 11 meetings
12 of 12 meetings

Kenjiro Nakano

As a financial institution managing executive, Mr. Nakano provides a wealth of experienceand broad insight which he draws upon as an Audit and Supervisory Committee Member
Director (Outside Director) to actively provide opinions, recommendations, etc., to theBoard of Directors and others. He has been selected based upon the assessment that theapplication of his experience and other qualities to the supervision and auditing of H2O
Retailing Group operations contributes to an increase in the group's corporate value.

10 of 11 meetings
11 of 12 meetings

Director,
Audit andSupervisory Mayumi Ishihara
Committee
MemberAlthough Ms. Ishihara does not have experience with corporate management apart fromher service as Outside Director, as a lawyer, she provides specialized expertise, experienceand broad insight which she draws upon as an Audit and Supervisory Committee Member
Director (Outside Director) to actively provide opinions, recommendations, etc., to theBoard of Directors and others. She has been selected based upon the assessment that theapplication of her experience and other qualities to the supervision and auditing of H2O
Retailing Group operations contributes to an increase in the group's corporate value.

10 of 11 meetings
12 of 12 meetings

Director

Director,
Audit andSupervisory
Committee
MemberDirector,
Audit andSupervisory
Committee
Member

The above four persons satisfy our “Criteria for Independence of Outside Directors” and have been assigned as independent directors.

Criteria for Independence of Outside Directors
Anyone meeting one or more of the following criteria cannot be deemed independent as an Outside Director of H2O Retailing Corporation.
1 A party for whom H2O Retailing Corporation or its subsidiaries (“theGroup”) is a major client (note 1), or someone who is an executive
director, executive officer or equivalent, or any sort of manager or
employee (collectively, “Executor”) for such parties.

7 An Executor of a company for which an Executive Director, Standing
Audit and Supervisory Committee Member Director or Standing
Auditor of the Group serves as an Outside Director or Outside
Auditor.

2 A party who is a major client (note 2) of the Group, or who is an
Executor of said client.

8 An Executor of the Hankyu Hanshin Toho Group (including theGroup).

3 A lawyer, certified public accountant, tax accountant, consultant orother specialist who receives from the Group payment or otherfinancial benefit which is not part of his or her compensation as a
Director and which is above a set amount (note 3).

9 A recipient of contributions exceeding a set amount (note 4) provided
by the Group or, in the event that the recipient is a company,
association or other organization, the Executor of such a recipient.
10 A party for whom any of criteria 1 through 9 above has applied in
the past five years (past ten years in the case of an Executor for theGroup, as per 8 ).

4 A party working for an auditing firm which serves as an auditor for
the Group and who actually oversees auditing duties.
5 A party who is a major shareholder of H2O Retailing Corporation(defined as anyone with at least a 10% share of voting rights,
whether held directly or indirectly) or who is an Executor of such ashareholder.

11 The spouse of, or a family member separated by two degrees ofkinship or less from, someone to whom any of criteria 1 through 10
above apply (except 3 and 4 ; limited to major personnel (note 5)).
12 A party not meeting any of the above criteria but for whom special
circumstances exist which could create a conflict of interest with
H2O Retailing Corporation.

6 An Executor of a company for which the Group is a major
shareholder.

Note 1: “A party for whom the Group is a major client” is defined as a party who provides the Group with products or services and for whom transactions with the Group in the most recent businessyear exceeded 100 million yen or 2% of said client's annual consolidated sales, whichever is larger.
Note 2: “A party who is a major client of the Group” is defined as (1) a client to whom the Group provides products or services, with the amount of said transactions in the most recent business year
exceeding 2% of H2O Retailing Corporation's annual consolidated sales, and (2) a client to which the Group is indebted, with the amount of outstanding loan financing to the Group at theend of the most recent business year equaling or exceeding 2% of H2O Retailing Corporation's consolidated total assets.
Note 3: A “set amount” is defined as (1) 10 million yen in compensation value (excluding Director compensation) received by the specialist in question from the Group in the most recent businessyear for services which he or she, as an individual, rendered to the Group, or (2) in the case of a company, association or other organization to which the specialist in question belongs andwhich provides services to the Group, 2% of said organization's annual total revenue for the most recent business year coming from the Group.
Note 4: A “set amount” is defined as 10 million yen for the most recent business year.
Note 5: “Major personnel” is defined as any Executor who is a Director, Executive Officer, Operating Officer, General Manager or higher, or any Executor with equivalent authority to these positions.

Integrated Report 201921

H2O Retailing Corporation

Business
Philosophy/
Code of Conduct

Group
Introduction

President's
Message

ESG Topics

Financial
Highlights

Safety andPeace of Mind

SocialContribution

Environment

Human
Resources

GovernanceCompliance and Risk Management
We review these internal control systems as appropriate, as well as
draw up and vote on basic internal control policies and maintainframeworks for risk prevention and reduction, for all Group
companies, including those for which corporate law does not require
the Board of Directors to issue resolutions.

Within the H2O Retailing Group we believe that corporate growthdepends on business expansion and the development and proper
operation of corresponding internal control mechanisms; thus, we are
simultaneously focused on the realization of our growth strategies andthe strengthening of our underlying internal control systems.

Management System
Risk Management and Compliance Promotion
facilitate concrete action on risk prevention, damage minimization andcompliance system development and maintenance. The Presidents ofthe companies within the H2O Retailing Group (in the case of H2O
Retailing Corporation, Hankyu Hanshin Department Stores, Izumiya
and Hankyu Oasis, it is the General Affairs Director) have been
appointed as the compliance supervisors responsible for compliancepromotion within their respective companies, and they facilitate thepromotion of compliance-related measures and the sharing ofcompliance-related information. Furthermore, we have gone a stepfurther by establishing the Fair Trade Promotion Committee and otherspecialized committees.

We have created a Risk Management Manual to provide guidance
regarding risk prevention measures, risk reporting, risk response
principles, risk response implementation and other essential matters.
Additionally, as part of our efforts to promote compliance, we haveestablished the H2O Retailing Group Code of Conduct to clarify thebasic policies, ethics, laws, rules, etc., which apply to corporate
officers and employees in the H2O Retailing Group and how theyshould comply with them, as well as the Group Compliance
Regulation to stipulate the basic policies and rules relating tocompliance promotion within the H2O Retailing Group.
Also, we have established the Group Compliance Committee toOrganizational Chart

Audit andSupervisory Committee

Board of Directors
Group Management Meeting
President
Committees

Audit and Supervisory
Committee Office
Responsible Directors

Group Compliance Committee●Group Fair Trade Promotion Committee●Group Food Hygiene Quality Control Promotion Committee●Group Quality Control Promotion Committee

General Affairs andHuman Resources DivisionInternal Audit●Group Information Security Committee

Appointment

Control by committees
General Fair trading

Food

Control by divisions

Non food Information

Labor

Specificmatters

Department Stores Compliance staff

●

●

●

●

●

IzumiyaCompliance staff

●

●

●

●

●

▲

Hankyu Oasis

Compliance staff

●

●

●

●

●

▲

Group Company

Compliance staff

●

●

●

●

●

●

●

Group Company

Compliance staff

●

●

●

●

Information sharing / dissemination

Whistle-blowing

J-SOX

Focus

Compliance liaison meetings and Group-wide contact information list, Group intranet

Group Compliance Committee and Specialized Committee Initiatives
Committees

Major Initiatives of FY2019●The Group Compliance Committee reviews Board of Directors discussion standards and rules on loans to Group companies,

Group
Compliance
Committee
Group Fair
Trade Promotion
Committee
Group Food Hygiene
Quality Control
Promotion Committee
Group Quality Control
Promotion Committee
Group Information
Security Committee
Integrated Report 2019and it publicizes changes in rules about subjects such as use of social media at compliance liaison meetings to ensure they
are enforced.
●The General Affairs and Human Resources Office and Audit and Supervisory Committee Office work together to verify risks
at Group companies and interview associated personnel.
●The committee also conducts investigations to assess conditions and identify issues with human resources at Group
companies and offers guidance to help them develop and improve associated rules.
●The Group Fair Trade Promotion Committee disseminates information about the cease and desist order and surcharge

payment order issued to Hankyu Hanshin Department Stores by the Fair Trade Commission to compliance personnel atGroup companies.
●The committee also formulates Guidelines on Preventing Cartels and offers guidance on how to avoid participating inmeetings that could lead to the formation of a cartel.
●The Group Food Hygiene Quality Control Promotion Committee investigates whether product labeling complies with theFood Labeling Act and offers guidance on correcting non-compliance.
●The committee also undertakes initiatives related to introducing HACCP in response to the promulgation of revisions to the
Food Sanitation Act.
●The Group Quality Control Promotion Committee orchestrates research and training for group companies and identifies

non-compliant products, particularly cosmetics, in order to optimize advertisement content and language.

●The committee also compiles inspection manuals (for clothing, accessories, and household items) and clarifies theprocesses followed when defective products are discovered.

●The Group Information Security Committee develops the H2O Retailing Group’s social media policy in order to promote

appropriate use of social media.

●The committee also works to formulate rules used by group companies to utilize and manage social media.

22

H2O Retailing Corporation

Business
Philosophy/
Code of Conduct

Group
Introduction

President's
MessageFinancial
Highlights

ESG Topics
Safety andPeace of Mind

SocialContribution

Human
Resources

GovernanceInitiatives to Ensure Fair Trade Practices

Disaster Response

We have established a Group Fair Trade Promotion Committee whose
objective is to prevent violations of antitrust laws or other related laws,
and towards this end the committee carries out information sharing
and provides corrective guidance to companies within the group.
In October 2018, in response to subsidiary company Hankyu Hanshin
Department Stores raising the shipping fee obtained from customers
to delivery mid-year and year-end gifts, which was in violation of
antitrust laws, the Japan Fair Trade Commission issued a cease anddesist order to the company and ordered them to pay a surcharge
penalty.
In recognition of the gravity of this matter, Hankyu Hanshin
Department Stores instituted new rules aimed at preventing cartel
formation, implemented training for executives and employees, andstrengthened auditing structures, among other measures so as toprevent recurrence of this sort of situation. We’ve also redoubled
efforts to ensure fair business practices at Group companies,
including by holding compliance liaison meetings and by making
revisions to the H2O Retailing Group Code of Conduct.

Given that our group operates department stores, GMS, supermarkets
and a number of other commercial facilities visited by an unspecified
but large number of customers, we put great emphasis on being able
to respond to situations arising from natural disasters such as
earthquakes. In particular, we undertake a variety of efforts aimed atensuring each and every employee will be able to move independently
in the event of a disaster.
Further, our group companies (with the exception of somesubsidiaries) have installed safety confirmation systems, IP wirelesstelephones, and a system known as LINE WORKS to enablecommunication with the Head Office and confirmation of employee
safety status to be performed quickly following a disaster.
Based on reflections on our response to the 2018 northern Osaka
earthquake and the many other natural disasters that have struck inrecent years, we’ve begun to revise our first-response manual fordisasters and to develop systems to ensure business continuity andtimely recovery.

Internal Reporting System

Hankyu Hanshin Department Stores

In order to facilitate internal reporting from group employees (including
client company staff), we have established an H2O Retailing Group
Compliance Hotline which connects with consultation staff in the H2ORetailing Corporation and an outside law firm; these hotlines are alsoavailable in the group's core companies of Hankyu Hanshin
Department Stores, Izumiya and Hankyu Oasis.
In addition to protecting the privacy of the person submitting thereport, the President and Standing Audit and Supervisory Committee
members are regularly briefed about hotline reports to facilitate early
identification and escalation prevention of any illegal or unethicalbehavior taking place within the group.

Disaster Safety Drills
The Hankyu and Hanshin Main Stores have established safety
drills (earthquake early warning drills, fire evacuation guidance
drills, etc.) focused on enabling anyone to serve as a leader or totake on the role of someone else. They practice these drills
weekly.
Since FY2017, tsunami evacuation drills developed in
anticipation of a Nankai megathrust earthquake have been
incorporated, and in the case of the Hankyu and Hanshin Main
Stores, which receive a particularly large number of customers, a“Nankai Megathrust Earthquake Response Manual” has beencreated and safeguards have been put in place. Additionally, allemployees have been provided with a portable copy of the“Disaster Response Pocket Manual” which is used as part of ourefforts to raise disaster safety awareness.
Furthermore, we hold basic life-saving education courses,
first-aid training classes and other instructional events whichhave been taken by more than 1,300 people.

Initiatives to Exclude Antisocial Forces
The H2O Retailing Group Code of Conduct stipulates that we will notin any way accommodate the unreasonable demands of antisocialgroups or individuals.
Clauses which exclude involvement or association with antisocial
forces are a mandatory part of all agreements concluded by groupcompanies; also, at Hankyu Hanshin Department Stores steps such as
creating and checking lists of all mid-year and year-end gift giving toensure nothing is given to or received from antisocial forces are taken
to ensure the exclusion of antisocial forces.

Accommodating a Diversity of Customers and Employees
Our stores in urban areas where there are large numbers ofoverseas tourists are able to provide earthquake early warning
information and perform evacuation guidance in a variety oflanguages. Additionally, all of our stores maintain a stockpile ofessential disaster supplies in order to accommodate people
unable to return to their homes.

Management of Personal Information
In addition to instituting a privacy policy, a Group Information Security
Committee has been established for the purpose of improving theappropriate management and security of corporate information,
particularly personal information, within the group.
Additionally, within each group company personal information
management rules and personal information management supervisors
are established to help ensure the appropriate handling, protection,etc., of personal information, and employee training and othermeasures are also instituted to ensure widespread and thoroughawareness.
Furthermore, we take steps such as concluding memorandums withclients, subcontractors and others with whom we do business toensure their cooperation in utilizing and managing personal
information appropriately.

Izumiya and Hankyu Oasis
In addition to creating an earthquake response manual for
employees, every store performs regular fire and earthquake
safety drills.
In addition, we conclude disaster support agreements with thelocal governments about providing good and supplies, refuge
shelters, etc., in the event of disasters.
● Izumiya: 9 local governments (Osaka Prefecture, Kyoto

Prefecture, Nara Prefecture, Kobe City, etc.)● Hankyu Oasis: 7 local governments (Osaka Prefecture,

Toyonaka City, Minoh City, Nishinomiya City, etc.)

Integrated Report 2019

Environment23

H2O Retailing Corporation

H2O Retailing Corporation
8-7, Kakuda-cho, Kita-ku, Osaka 530-8350
http://www.h2o-retailing.co.jp

This report contains forecasts made by H2O Retailing Corporation based on information available at the timeof the report's creation, and no guarantee is made about the accuracy of this information or the forecast