H2O RETAILING CORPORATIONFINANCIALREPORT 2021

Profile
Hankyu Department Stores, Inc. was established in 1929 in Umeda Osaka, as theworld’s first railway terminal department store by Mr. Ichizo Kobayashi, the founderof the Hankyu Corporation. Helped by the ability of a railway terminal to attract
customers, the store grew together with the Umeda area, and a succession of storesin other areas were subsequently opened. In 1947, the Company was spun off from
Hankyu Corporation and the Hankyu Department Stores Group was formed.
On 1st October 2007, Hankyu Department Stores, Inc. changed its name to H2O
RETAILING CORPORATION and became a holding company in accordance with the
management integration between Hankyu Department Stores, Inc. and Hanshin
Department Store, Ltd.
On 1st June 2014, H2O RETAILING CORPORATION had a management
integration with Izumiya, Co., Ltd.
On 1st October 2017, the Group purchased the businesses of Sogo Kobe and
Seibu Takatsuki stores from Sogo & Seibu Co., Ltd.
Currently, the Group consists of 50 subsidiaries and 8 affiliates that operate retailbusinesses, including its core department store operations, supermarket operations
and shopping centre operations.

Contents
General Business Conditions

01

Corporate Governance System

12Five-Year Summary

44

Consolidated Balance Sheets

45

Consolidated Statements of Operations

47

Consolidated Statements of Comprehensive Income

48

Consolidated Statements of Changes in Net Assets

49

Consolidated Statements of Cash Flows

50

Notes to the Consolidated Financial Statements

52

Corporate Data

124

General Business Conditions
1. Management Analysis of Financial Position, Business Performance and Cash FlowsThe future information contained in these materials reflects judgements made at the end of fiscal year ended 31st March
2021.

(1)

Accounting estimates that significantly affect the consolidated financial statements

In preparing the Group’s consolidated financial statements, management makes various estimates that affect thereported amounts of assets and liabilities as of the balance sheet date, the disclosure of contingent assets and liabilities,
and income and expenses for the reporting period.
Out of these accounting estimates, items deemed to contain a risk of significantly affecting the consolidated financial
statements for the next fiscal year are described in “Notes to the Consolidated Financial Statements (Significant
Accounting Estimates)” in the Consolidated Financial Statements. In addition, assumptions used to reflect the impact of
COVID-19 in these estimates, which are applicable across accounting estimates, are described in “Notes to theConsolidated Financial Statements (Additional Information)” in the Consolidated Financial Statements.

(2)

Business Performance for Reporting Period

Consolidated business performance for the fiscal year
(Millions of yen)

Department StoreBusiness
Supermarket Business
Shopping Centre
Business
Other Businesses
Net sales
Department StoreBusiness
Supermarket Business
Shopping Centre
Business
Other Businesses
Adjustment
Operating income (loss)
Ordinary income (loss)

March 2019
Cumulative
AmountMarch 2020
Cumulative
AmountMarch 2021 Cumulative494,608

473,225

347,76873.5%(125,457)

103.8%+12,768

367,580

354,115

281,116

79.4%(72,999)

100.4%+1,116

8,736

8,725

63,262725.1%+54,537

100.4%+262

55,94861,222

47,051

76.9%(14,171)

90.5%(4,948)926,872

897,289

739,198

82.4%(158,090)

101.3%+9,19817,883

11,486(1,903)-(13,390)-+4,096(438)(2,503)

4,170-+6,674104.3%

+170

4,281

4,141

(113)

-

(4,254)

-

+886

5,030
(6,335)
20,422

2,903(4,856)
11,171(2,690)(3,901)(4,438)-(5,594)+955(15,610)-+1,309(901)+5,561-+7,092-(2,791)

AmountYOY

Change21,376

11,831(2,907)-(14,738)

Extraordinary income
Extraordinary losses

895
14,221

1,707
22,875

3,049
24,172178.6%
105.7%+1,342+1,296

Profit (loss) attributable toowners of parent

2,162(13,150)(24,791)-(11,640)

Versusforecast

Change* Net sales refer to sales to external customers.

1 Net sales
Consolidated net sales for the fiscal year ended 31st March 2021 decreased by 17.6% to ¥739,198 million. Due to
COVID-19, declaration of state of emergency (in April 2020 and January 2021) and voluntary restraint of going out
caused sluggish sales of department stores.
 Operating income / ordinary income
The Company generated a consolidated operating loss of ¥4,438 million (operating income of ¥11,171 million in theprevious year) and a consolidated ordinary loss of ¥2,907 million (ordinary income of ¥11,831 million in the previousyear) on account of a decrease in gross profits led by net sales decrease.
Department Store Business
Cumulative net sales were ¥347,768 million, decreased by 26.5% YOY.
Due to COVID-19 expansion, a state of emergency was declared in April 2020. Following the declaration, the Company
decided that some stores would be fully closed temporarily and close temporarily except food halls for other stores. The
Company re-opened all stores from the end of May with placing the highest priority on the health and safety of ourcustomers and all employees.
The Company made its operating hours back to normal and re-started to hold events and sales promotions graduallyfrom the second quarter. There were signs of a recovery in the trend at a time when the number of newly infected people
was on a downward trend. Due to the re-expansion of the “second wave” of infections in July 2020 and the re-declarationof state of emergency in January 2021 following the “third wave,” the number of customers of commuters to offices,seniors and families decreased. As a result, the number of customers has remained at a low level in the metropolitan
area. On the other hand, stores in suburban areas were comparatively strong since those stores place inneighbourhoods of residential area and have a high component ratio of food floors.
The Company made efforts to reduce costs such as advertising and decoration expenses and business consignment
expenses, resulting in a cumulative operating loss of ¥1,903 million (operating income of ¥11,486 million in the previousyear).
Supermarket Business
Food manufacturing companies decreased in sales and operating income in line with the demand decrease of a readyto-eat meal and the closure of wholesale merchants. On the other hand, operating income in three companies operatingsupermarket stores increased by ¥7,932 million year on year. Net sales of existing stores such as Izumiya Co., Ltd. andHankyu Oasis Co., Ltd. were good because of the high demand for eating at home associated with the COVID-19
outbreak. Also, Izumiya restructuring had the effect of increasing operating income.

* Izumiya Co., Ltd. was divided into three companies on 1st April 2020. The former Izumiya Co., Ltd., which had operated
general merchandise stores selling apparel and home products in addition to groceries, was included in the
Supermarket Business segment in the previous fiscal year. The results of the new Izumiya Co., Ltd., which operates
only supermarkets, is included in this segment in the fiscal year ended 31st March 2021.

2

Shopping Centre Business
Cumulative sales increased and operating income decreased because H2O Shopping Center Development Co., Ltd.,
which operates management of tenants and sales of apparel and home products at Izumiya stores, is included in thissegment in the fiscal year ended 31st March 2021 due to the above mentioned Izumiya Co., Ltd. separation.
At Hankyu Shopping Center Development Co., Ltd., operating income fell due to the closure or shortened opening hoursof shopping centres and reduction of rent fees from tenants.
Other Businesses
Sales and operating income in Other Business decreased compared with those of the previous year. At Hankyu Kitchen
Yell Kansai, Inc., the grocery home delivery service company, sales rose by 39.6% year on year led by a growth ofmembers and operating rates due to COVID-19 spread. However, Oi Development Co., Ltd. which operates thebusiness hotel “ours inn Hankyu” decreased operating income due to a decrease of tourists and business trip use. Alsoat H2O Retailing Corporation, a holding company, dividends from its subsidiaries decreased.
Profit (loss) attributable to owners of parent

While the Company recorded extraordinary income of ¥2,683 million as subsidies for employment adjustment regarding
personnel expenses during closing stores, the Company recorded extraordinary losses of ¥24,172 million including
impairment loss of ¥14,771 million and loss related to COVID-19 of ¥5,353 million, resulted in loss attributable to ownersof parent of ¥24,791 million.
Extraordinary income and losses(Millions of yen)
Item
Extraordinary income
Subsidy income

Amount3,049
2,683

Penalty income

366

Extraordinary losses
Impairment loss
Loss related to COVID-19
Loss on store closings
Loss on retirement of noncurrent assets

24,172
14,7715,353
2,103

Main contents(Up ¥1,342 million from the previous fiscal year)
Employment adjustment subsidies
Termination fees from tenants who leave the space in the
middle of the lease term
(Up ¥1,296 million from the previous fiscal year)
Kobe Hankyu, Takatsuki Hankyu, Izumiya
Hankyu Hanshin Department Stores
Izumiya

1,944

Track records of production, orders received and sales are as follows.
(i)

Track record of production
The track record of production in the fiscal year ended 31st March 2021 by business segment is as follows:

Name of business segment
Supermarket BusinessAmount of production(millions of yen)
32,28032,280

Product

Foods
Total

3

YOY %
96.6
96.6

Notes:1.

The above amounts do not include consumption taxes.

2.

The amounts are based on selling price.

3.

There is no applicable information for business segments other than the above segment.

(ii) Status of orders received
There is no applicable information for the fiscal year ended 31st March 2021.
For the Supermarket Business (food manufacturing business), make-to-stock production is conducted based on thepast track records of sales.
(iii) Track record of sales
The track record of sales in the fiscal year ended 31st March 2021 by business segment is as follows:
Name of businesssegment

Department StoreBusiness

Supermarket
Business

Shopping Centre
Business

Other Businesses

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

Notes:
1. The above amounts do not include consumption taxes.

4

Net sales(millions of yen)
83,134
63,962
9,520
118,315
4,747
63,071
5,292(276)
347,786
279,168
10,045274(8,372)
281,116
15,3508,289
51,085(11,462)
63,262
2,010
4,132
2,027
927
9,187
1,533
48,701(21,469)
47,051
739,198

YOY %
66.4
74.0
73.1
82.6
49.2
71.1
74.6
101.2
73.5
80.4
104.8
11.2
160.7
79.4
115.7
67.4
–
68.1
725.1
38.5
62.0
64.5
80.0
120.8
67.5
91.2
83.6
76.9
82.4

2. On 1st April 2020, the businesses of Izumiya Co., Ltd. that operate sales of apparel and home products andmanagement of tenants were transferred to H2O Shopping Center Development Co., Ltd. Due to this separation,
net sales of these businesses, which were included in the “Supermarket Business” segment in the previous fiscal
year, are included in the “Shopping Centre Business” segment from the current fiscal year.

(3)

Financial Position(Millions of yen)

Cash anddeposits

31st March

31st March

31st March

31st March

31st March

31st March

2019

2020

2021

2019

2020

2021

Notes and
55,22925,95849,991accounts payable

49,88644,44554,385and bonds

33,92029,68823,339Total current assets

150,003112,116

139,291

513,331474,788486,653

663,335

586,904

625,945

Total assets

164,920

151,713

188,547

383,731342,270

396,667

239,755

221,732

192,763279,603

244,634

229,277

663,335

586,904

625,945

payableInventories

assets48,996Loans payable

receivable - trade

Total non-current

43,917- tradeNotes andaccounts

59,732

Total liabilities
Shareholders’equityTotal net assets
Total liabilities and net
assetsTotal assets as of 31st March 2021 increased by ¥39,040 million from the end of the previous fiscal year to ¥625,945
million. This was primarily attributable to an increase in cash and deposits of ¥24,033 million due to an increase in loans
payable and an increase in investment securities of ¥18,907 million due to an increase of unrealized gain.
Total liabilities amounted to ¥396,667 million, up ¥54,397 million from the end of the previous fiscal year. This was mainly
attributable to increases in loans payable and bonds of ¥36,834 million and notes and accounts payable – trade of¥5,078 million.
Total net assets stood at ¥229,277 million, a decline of ¥15,356 million from the end of the previous fiscal year. Althoughvaluation difference on available-for-sale securities increased by ¥13,233 million, retained earnings decreased by¥24,791 million due to loss attributable to owners of parent.
For the fiscal year under review, all indicators of capital efficiency and asset efficiency deteriorated, with return on equity(ROE) was -10.5% (previous fiscal year: -5.0%), return on assets (ROA) was -0.5% (previous fiscal year: 1.9%), andreturn on invested capital (ROIC) was -0.8% (previous fiscal year: 2.0%). These results followed a decrease in profits
due to the impact of COVID-19.

5

(4)

Cash Flows(Millions of yen)

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

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

March 2020
9,871
(9,337)
18,51914,196

March 2021
12,755(24,030)
18,141
14,771(3,017)

4,857(10,365)

968

3,783

6,248

(2,249)(14,955)

5,326(7,304)(36,682)(30,289)(3,713)(696)(5,525)(22,451)(26,675)(6,938)(2,685)(1,858)(20,761)(13,952)(4,087)(4,402)

1,412

9,138

1,429

9,581

(16,440)

31,859

8,000

7,000

(15,000)(22,624)
20,040(4,941)(11,707)55,229(20,375)
98(4,944)(29,020)
25,958(18,175)
70,000(4,018)23,85349,991

As of 31st March 2021, cash and cash equivalents stood at ¥49,991 million, an increase of ¥24,033 million year on year.
Net cash provided by operating activities was ¥12,755 million, up ¥2,883 million year on year.
Net cash used in investing activities was ¥20,761 million, down ¥1,689 million year on year, due in part to purchase ofproperty, plant and equipment in conjunction with the reconstruction of the Hanshin Umeda Main Store.
Net cash provided by financing activities was ¥31,859 million year on year (¥16,440 million in cash flows used infinancing activities for the previous fiscal year) due in part to receipt of new loans.
With regard to the source of capital required for long-term projects such as the reconstruction of the Hanshin Umeda
Main Store, the Group has decided to raise the funds with cash flows provided by operating activities and external loans.

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

2017
41.2%

2018
42.4%

2019
42.0%

2020
41.5%

2021
36.4%

34.6%

36.4%

28.7%

16.7%

18.1%

4.3

4.9

11.3

16.9

15.9

36.1

32.5

21.1

12.9

16.6

Equity ratio: Equity / Total assets
Equity ratio based on market price: Market capitalization / Total assets
Interest-bearing debt to cash flow ratio: Interest-bearing debt / Operating cash flows
Interest coverage ratio: Operating cash flows / Interest expenses paid
*1 These indicators are calculated based on figures from the consolidated financial statements.
*2 Market capitalization is calculated as the stock price at the end of the period multiplied by the number of shares
outstanding at the end of the period (excluding treasury shares).
*3 Operating cash flows are the cash flows from operating activities as indicated in the consolidated statements of cash
flows. Interest-bearing debt is all liabilities reflected on the consolidated balance sheets that are subject to interest
payments. Interest expenses paid is the amount of interest expenses paid in the consolidated statements of cash
flows.
*4 The “Partial Amendments to the Accounting Standard for Tax Effect Accounting” (ASBJ Statement No. 28, issued
on 16th February 2018), etc., have been applied from the beginning of the fiscal year ended 31st March 2019.
Accordingly, total assets in the fiscal year ended 31st March 2018 and prior fiscal years are those after retrospective
application.

2. Management Policies and Management Issues to be Resolved
The future information contained in this material reflects judgments made by H2O Retailing Corporation at the end of
fiscal year ended 31st March 2021.

(1)

The Company’s Basic Management Policy

The Basic Philosophy of the Group is “To remain indispensable to the local communities through our activities ofproviding a model of lifestyle to local residents.” Guided by this philosophy, the Group established a vision; “To be acustomer’s lifestyle partner to enrich their hearts through offering ‘fun, happy and tasty’ experiences, contributing to the
future of the local community, children and our planet.” The Group strives to enhance competitiveness following thevision.
Furthermore, the Group will promote management for sustainability of the Group and society through building strong
ties with local community aiming for No.1 in local customer’s mind share and strengthen efforts for socially important
issues, such as “decarbonisation,” “going plastic free,” “food loss reduction” and “diversity & inclusion.”

7

(2)

Our Target Business Indicators

The Group conducts business in mature markets. To continue to enhance its enterprise value within such markets, theGroup is working to improve its profitability and growth potential, focusing its corporate activities on operating income
and operating income margin by business segment. The Group also aims to improve its consolidated return on equity(ROE) by realising increased operating income.

(3)

The Company’s Medium- to Long-term Management Strategy and Management Issues to be Resolved

In Department Store Business, we aim for the most enjoyable department store by realizing joyful and affluent lifestylefor customer, enriching their hearts and empowering their future. In order to realize this vision, we are promoting value
creation and OMO (Online Merges with Offline) business model. Centring on Hankyu Umeda Main Store which isflagship store of our group and Hanshin Umeda Main Store which is going to be grand open in autumn 2021 after
rebuilding, we promote providing brand new shopping experience and developing new business model, through creating
value on brick-and-mortar stores continuously and strengthen online communication with customers.
Furthermore, we try to lead Ningbo Hankyu, which opened in April 2021 in China, success through strengthening sales
activities to the wealthy and upper class by leveraging our ability in Hankyu Umeda Main Store in merchandising,customer services and information on customers and market. In addition, we promote grand open of Hanshin Umeda
Main Store in autumn 2021 and renovation of Kobe Hankyu and Takatsuki Hankyu after 2022. We will also continue to
implement cost structure reforms in order to lower our break-even point.
In Supermarket Business, aiming to increase operating income, we will work to further strengthen the competitivenessand improve the profitability of our mainstay food supermarkets. We will further promote the integration of thesupermarket management functions of Izumiya Co., Ltd. and Hankyu Oasis Co., Ltd. We will also accelerate thedevelopment of a business model with enhanced market responsiveness, rebuild our chain operation management
capabilities, and strengthen our sales capabilities through integrated manufacturing and sales operations. Furthermore,
we will promote initiatives for smart shopping and operational efficiency through the use of digital technology, including
the full-scale start of in-store demonstration tests of a next generation “image recognition AI shopping cart” equippedwith cutting-edge technology.
In H2O Shopping Center Development Co., Ltd. which was divided from Izumiya Co., Ltd. in April 2020, we will increase
profitability by downsizing our direct operations and promoting the shift to shopping centre from general merchandise
store, and at the same time, we will improve our customer mind share by promoting activities to build strong ties withthe community. In Oi Development Co., Ltd. which operates a business hotel, we will strive to improve profitability withan eye on the after-corona business through low-cost operations using IT and strengthening corporate sales.
Furthermore, we try to develop new customer service business through digital technologies by leveraging ouruniqueness point which has variety touch points with customers in Kansai region. In other words, we challenge new
business area as a group for finding synergy with real stores.
The Company has been facing a never experienced situation with a drastic change in the social and economic
environment by COVID-19 outbreak since 2020. For a while, the Company will operate businesses as appropriate
following the requests from the government and local authorities, with prioritizing customers’ and employees’ safety andhealth. Besides, the Company will strive to enhance management efficiency through reducing costs including fixed costs,
revision of capital investment and reducing underperforming assets.

8

3. Business Risk
Of matters concerning the overview of business, financial information, etc., provided in the financial report, matterswhich may have significant effects on investors’ judgment include those described below. However, risks and uncertainty
that may be caused on future operating results and financial position are not limited to these matters. Furthermore, theextent and period of the possibility of risk materialization presented below as well as the impact on operating results are
not presented as they are difficult to reasonably estimate.
Matters concerning the future in the text were judged by the Group as of the date of filing of the financial report.

(1)

Business Environment

Environment surrounding retail businesses
As for the environment surrounding Japan’s retail businesses, significant changes are expected, including aging
population, polarization of consumption structure and tightening competition beyond business categories. Thesechanges are expected to have considerable effects on the Group’s operating results. In addition, the prolonged impact
of COVID-19 may cause drastic changes to consumer lifestyles and workstyles, with refraining from going out, remote
work, online shopping, and online communication taking root.
In order to respond to the changes in this environment, the Group will utilise one of its unique characteristics, in which
it has various points of contact with customers in the Kansai region, and strive to build up new customer relationships
and business models that fuse brick-and-mortar stores and digital technologies. Furthermore, the Company will achieve
an increased market share in the Kansai region by refining and strengthening the Department Store Business, its corebusiness, and the Supermarket Business, which is centred on food supermarkets.

(2)
(i)

Laws and Regulations, and Legal Revisions
Laws and regulations such as the Act on the Measures by Large-Scale Retail Stores for Preservation of Living
Environment
Opening of department stores and supermarkets by the Group is subject to regulation under the Act on the
Measures by Large-Scale Retail Stores for Preservation of Living Environment. Under the act, in cases where a
new store with store space of more than 1,000 m2 is opened and where the store space of an existing store isincreased to more than 1,000 m2, local prefectural governments or ordinance-designated cities examine andcontrol traffic congestion, noise, waste management and other matters from the standpoint of protecting the living
environment of neighbourhood residents. Accordingly, the Group’s future plans to open stores may be affected bysuch laws and regulations.
Besides, the Group is subject to laws and regulations such as the Antimonopoly Act, the Subcontract Act,environment and recycle related laws and regulations, and the Act against Unjustifiable Premiums and Misleading
Representations and other laws and regulations related to consumer protection, and may also be affected by theselaws and regulations.
The Group will strive to respond in a timely and appropriate manner while closely observing the legislative revision
trends that affect these business activities.

9

(ii)

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

(3)
(i)

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

(ii)

Unusual weather such as cool summer and warm winterMany of clothing items, which are the Group’s mainline products, are highly fashionable and seasonable, and salesof these items are affected by weather to some extent. Therefore, cool summer, warm winter and other unusual
weather may have negative effects on the Group’s net sales.

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

(4)
(i)

OthersRefusal to renew a lease agreement
Many of the Group’s stores and facilities are leasehold properties. If lessors including owners of buildings and land
refuse to renew (in the case of fixed-term building lease agreement, refuse to resign) an agreement due toexpiration of the lease period, operation of the store, etc. may become unable to be continued.

10

(ii)

Safety of goods soldGeneral consumers’ heightened sense of concern about foods due to outbreaks of BSE, bird flu and other diseases,
occurrence of accidents such as food poisoning and health hazards, and a decrease in customer satisfaction orconfidence stemming from defects in goods sold may have negative effects on the Group’s net sales. As for quality
control and hygiene control of goods sold, “Quality Control Promotion Subcommittee” and “Food Hygiene Quality
Control Promotion Subcommittee” have been set up within the Group to aggressively promote measures to ensure
safety and security of goods for customers.

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

(iv) Information system
The Group utilises information systems in each field to promote streamlining of operations and provide high-quality
services. However, if any unforeseeable contingency, such as earthquake, fire, massive blackout or computer virus,
disrupts the smooth operation of information system, this may have negative effects on the Group’s operating
results.

(v)

Overseas business risk

The Group operates stores in China. Therefore, the political climate, economic environment, changes in laws andregulations, terrorist acts and other factors in China may have negative effects on its operating results and financial
position.
In addition, items denominated in the local currency including net sales, expenses and assets of stores in China
are converted into yen to prepare consolidated financial statements. Exchange rate fluctuations at the time of
conversion may affect these items.

11

Corporate Governance System(1)

Outline of Corporate Governance System(i)

Corporate Governance System

a. Basic views on corporate governance
The Company’s basic philosophy is “To remain indispensable to the local communities through our activities ofproviding a model of lifestyle to local residents,” and under its new vision of “To be a customer’s lifestyle partner
to enrich their hearts through offering ‘fun, happy and tasty’ experiences, contributing to the future of the local
community, children and our planet,” the Company considers that its purpose is to contribute to society overall
while meeting the expectations of its stakeholders, who are customers, shareholders, business partners, andemployees.
Based on the basic philosophy and management vision, the Company will perform swift, efficient and strongminded decision making and work to increase its medium- to long-term corporate value, while meeting various
stakeholders’ expectations and emphasising compliance. To this end, the Company will also ensure theenhancement of corporate governance.
b. Outline and rationale of corporate governance system
In the H2O Retailing Group, H2O Retailing Corporation (the Company), a holding company, is responsible forthe business planning, management and oversight of the entire Group. It seeks through proper and legal means
to raise the corporate value of Group companies by building a corporate governance system that facilitates fastacting and efficient companies.
The Company has adopted a “Company with an Audit and Supervisory Committee” (hereinafter, “ASC”) systemwith a view to increasing its corporate value over the medium to long term.
The Company’s Board of Directors consists of 10 directors (five (5) directors are ASC members), including four(4) outside directors (four (4) outside directors are ASC members). Thus, more than one-third of directors on the
Board of Directors will be outside directors. For names of the members, please see “(2) Status of Officers, (i)Officers.” The Chairman of the Board of Directors is Mr. Atsushi Suzuki, Chairman of the Board and the Chairmanof the ASC is Mr. Toshimitsu Konishi, Director, full-time ASC member.
To ensure the fairness and transparency of the process of appointing directors and deciding compensation for
directors, the Company will continue to have a voluntary Nominating and Compensation Advisory Committee(Note 1). Regarding the agenda on appointing candidates for directors or compensation for directors, in view ofthe basic principles regarding the corporate governance stipulated by the Company, the Nominating andCompensation Advisory Committee considers the agenda and advises the Board of Directors before the Boardof Directors makes a decision. As for directors who are ASC members, decisions concerning their nominations
are made with the consent of the ASC, and decisions concerning their compensation are made throughdiscussion among ASC members.
In addition, for quick decision making and efficient management of the Group, the Group Management meeting(Note 2) was established as the fronting body for the Board of Directors, making decisions on important matters
for Group companies. Group companies, including H2O Retailing Corporation, have clearly defined business12

responsibilities established through the adoption of an executive officer system. The directors and the Board of
Directors of each company have adopted this system for man aging and overseeing the business execution of
the executive officers.
The ASC audits and supervises business execution through means such as the exercise of voting rights held by
ASC members at Board of Directors’ meetings and the exercise of the right to state opinions on personnel affairs
and compensation of directors who are not ASC members.
■Corporate Governance Framework
General Shareholders' Meeting
Appointment/dismissal

Nominating
andCompensation
Advisory
Committee

Appointment/dismissal

Board of Directors

AdviceAudit and Supervisory
Committee

Oversight

Audit andSupervisory
Committee
OfficePresident and Representative Director

Group Management Meeting
Sustainability Management
Promotion Committee
IT and Digital Management
Committee
Compliance and Risk Management
Committee
Rules and Ethics Committee

Cooperation

Appointment/dismissal

Independent
Auditor

Audit

Audit

Executive Officers
Group Companies
Divisions

Note 1:

Nominating and Compensation Advisory Committee
The committee consists of independent outside directors (Mr. Naoshi Ban and Mr. Kenjiro Nakano),
which comprise the majority of the committee, and Mr. Naoya Araki, President and Representative
Director. The Chairman is Mr. Naoshi Ban, independent outside director.

Note 2:

Group Management Meeting
The meeting consists of the Company’s full-time directors (Mr. Atsushi Suzuki, Mr. Naoya Araki, Mr.
Katsuhiro Hayashi and Mr. Toshihiko Yamaguchi) and Audit and Supervisory Committee Member (Mr.
Toshimitsu Konishi) and the Company’s executive officer (Mr. Hiroyasu Kuromatsu, Mr. Kenji Uno, Mr.
Gaku Watanabe, Mr. Hideki Kashihara and Mr. Toru Koyama). The Chairman is Mr. Naoya Araki,
President and Representative Director.

13

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

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

A. Ensuring performance of duties by directors and employees in full compliance with laws andregulations as well as the Company’s Articles of Incorporation
Compliance
Audit and Supervisory
Committee

Board of Directors
President (Management Meeting)ManagerComplianceof Complianceand Risk Management
and Risk Management
ManagerCompliance and Risk Management Committee
Hotline (internal andexternal)

Audit and Supervisory
Committee OfficeSecretariat of Complianceand Risk Management

Fair Trade Promotion Subcommittee
Food Hygiene Quality Control Promotion
Subcommittee
Quality Control Promotion Subcommittee
Information Security Subcommittee
Disaster Prevention and Pandemics Subcommittee
Work Environment Subcommittee
Rules and Ethics Committee

Department StoreBusiness

Supermarket Business

Shopping Centre
Business

Other Businesses

Compliance and Risk
ManagerCompliance and Risk
ManagerCompliance and Risk
ManagerCompliance and Risk
Manager

Staff in charge of eachsubcommittee

Staff in charge of eachsubcommittee

Staff in charge of eachsubcommittee

Staff in charge of eachsubcommittee

Corporate Auditor

The H2O Retailing Group has a code of conduct stipulating basic principles so that executives and employees
will act in accordance with the Companies’ code of ethics, laws, rules and regulations. We have also compiled
the Group Compliance Regulations, establishing basic policies and rules to ensure Group-wide compliance. In
addition, we appoint outside directors with the necessary knowledge and experience to help the Group ensure
full compliance.
In addition to establishing the “Compliance and Risk Management Committee” (Note 1) to take the lead inbuilding and developing a compliance system, each business of the Company and the Group has a person in
charge of carrying out compliance policy and sharing information.
In addition, the Group has set up a whistle-blowing system and established rules for disciplinary action in thecase of legal and regulatory violations or instances of fraud committed by Group executives or employees.

14

The Company has an internal audit function and audits the status of compliance in accordance with the newly
established “Internal Audit Policy.”

Ensuring the reliability of financial reportingAt each company in the Group, we have set up internal control systems to ensure the reliability of financial
reporting. At the Company, we carry out appraisals of the implementation and operational status of internal
controls related to financial reporting on a Group-wide basis in accordance with the Financial Instruments andExchange Act and related laws and regulations.

Eliminating antisocial forces
The “H2O Retailing Group code of conduct” explicitly prohibits any accession by the Group to unacceptabledemands made by antisocial elements that threaten public order and safety. We are also strengthening ourpartnerships with specialist external organisations such as the police and lawyers, and have created systems
for insulating ourselves from all contact with antisocial elements.

Note 1:

Compliance and Risk Management Committee
The committee consists of officers of the Company and major subsidiaries (Mr. Katsuhiro Hayashi, Mr.
Toshihiko Yamaguchi, Mr. Kimihiko Kitabe, Mr. Norifumi Morii, Mr. Yukichika Sato, Mr. Masaru Ikejima,
and Mr. Tomoyuki Umemoto). The Chairman is Mr. Katsuhiro Hayashi, Representative Director andExecutive Vice President of the Company, who is in charge of compliance and risk management for
the Group.

B. Storage and management of information related to execution of duties by directors
Internal documentation related to the execution of duties by directors and executives and other information isstored and managed based on laws and regulations for archiving.

C. Regulations and other systems for management of risk of loss
Risk management systems
We have compiled a framework of risk management procedures which establishes principles for the preventionof risk events, reporting when risk events occur and dealing with the consequences of risk event occurrence.
Basic policies and regulations for risk management enable Group companies to take precautionary measuresagainst risk and to minimise losses when risk events occur. The Compliance and Risk Management Committee
collates risk related information and prepares countermeasures while Group companies voluntarily create theirown systematic measures to deal with risk based on individual Group company characteristics. Concurrently, asystem for pooling information regarding risk faced by all companies in the Group is in place.

D. Ensuring effective performance of duties by Directors
In order to clarify the management supervisory responsibilities of directors and the responsibilities of executive
officers and to promote more efficient performance of duties by directors, an executive officer system has been

15

introduced at all Group companies, with the Group Management meeting responsible for effective businessdecision-making for the Company and the Group. This body manages business performance on a monthly andquarterly basis and assesses the progress of business plans at the Board of Directors meetings and GroupManagement meetings, making revisions to targets as necessary.
Authority and responsibility have also been clarified based on approval procedures for the issuing andacceptance of management instructions based on job grade.
E. Ensuring sound conduct of business in the Group companies
Based on Group company management protocol, business planning, marketing policies and other important
operational matters at Group companies are taken up or reported at Group Management meetings and Boardof Directors’ meetings.
The Company’s internal auditing, compliance and risk management systems apply to all companies in the Group.

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

G. Reporting to the ASC by directors who are not ASC members and employees, other reporting to the ASC
and ensuring such reporting will not become the basis for any unfair treatment
ASC members regularly hold meetings with representative directors, dedicated ASC staff members, staff
members of internal control divisions (Finance and Accounting, General Affairs, Human Resources andInformation Technology Promotion, etc.) and the Group Corporate Auditors Committee, attend important
meetings such as Group Management meetings and review the approval documents and minutes of GroupManagement meetings and other committee meetings.
When requested by the ASC, the Group’s directors and employees shall promptly report to the ASC regarding
matters related to the administration of business. Upon discovering any issue such as the violation of laws andregulations which may cause significant loss to the Company or Group companies, the Group’s directors andemployees shall report to ASC members or corporate auditors of the respective companies of the Group who
subsequently report to the Company’s ASC.
The status of the Group’s internal audits, compliance, risk management and internal whistle-blower system isregularly reported to the Company’s ASC.
All members of the Group are informed that it is strictly prohibited to treat any director, officer or employee
unfairly on the grounds that they have provided a relevant report for the ASC or corporate auditors.

H. System to ensure that audits by ASC are executed effectively
Based on requests from the ASC, dedicated ASC staff members are designated as corporate auditors of eachcompany of the Group. When the ASC requests the hiring of outside experts such as lawyers or certified public
accountants as their advisors and when ASC members request relevant expenses to fulfil their roles in advance,16

the Company promptly bears such costs in accordance with applicable laws and regulations. The Company
establishes an annual budget for such costs for ASC members.

The following summarises the status of operations for the year ended 31st March 2021.

(1) In order to ensure proper operations, the Company prescribed the internal rules of “H2O Retailing Group Codeof Conduct” and “Group Compliance Regulations” and established the Group’s operations rules, whichsummarise the basic matters with which each of Group companies shall comply. All directors and employees
are informed of these rules.
The Group has facilitated the use of mobile devices and other efforts to enable diverse workstyles and efficient
operations. In the fiscal year ended 31st March 2021, following the spread of COVID-19, the Group advanced
the development of a remote working environment that gives the means to continue operations and share
information despite these circumstances, such as by introducing systems, including electronic approvals and aninternal communication portal. In addition, the Company reviewed the Group company management protocol,
which stipulates the rules for the reporting of business planning, marketing policies and other important
operational matters at Group companies to the Company.
Furthermore, the Group revised its compliance and risk management structure to centralise risk related
information within the Group, flexibly address the occurrence of a pandemic such as COVID-19 and changes in
the work environment, and develop human resources involved in compliance and risk management. In an effort
to prevent the materialization of risks and minimize losses when a risk manifests, the Compliance and Risk
Management Committee will collate risk related information within the Group and prepare countermeasures.
The Company also worked to further enhance its structure by setting up the “Disaster Prevention and Pandemics
Subcommittee” and the “Work Environment Subcommittee,” new specialised subcommittees to address recent
issues such as COVID-19, earthquakes, typhoons and floods, as well as harassment and changes in the work
environment.

(2) As compliance and risk management initiatives, the Company promotes measures for various fields

including fair trading, quality control, information security, harassment, disaster prevention and pandemics,
and shares information.
In the fiscal year ended 31st March 2021, the Company set up a Group taskforce led by the President andRepresentative Director to address the spread of COVID-19. With ensuring the safety of customers, employees
and business partners as the top priority, the taskforce formulated and implemented various measures according
to changes in the state of infections, and worked to prevent the spread of COVID-19.
Moreover, the Company reviewed the content of its Social Media Policy to prevent risks associated with theincreased use of social media for communicating information, and continued efforts from the previous year tobuild awareness to prevent harassment and share information, including policies on initiatives in response to17

the amendment to labour-related laws.
The Companies have a whistle-blower hotline named “Compliance Hotline,” and the Company and some major
subsidiaries have divisions in charge of the Hotline. This internal whistle-blowing system is in continuous
operation, and the status of whistle-blowing is regularly reported to Representative Directors and a full-time ASC
member.
In order to ensure the reliability of financial reporting, we carried out an evaluation of the status of the Group’s
control, such as by carrying out the development and evaluations of the internal control of H2O Shopping Center
Development Co., Ltd. and H2O Foods Group Co., Ltd., who were added to the scope of our assessments ofgroup-wide controls, and carried out an evaluation of the status of development and operation of internal controls,
primarily of Hankyu Hanshin Department Stores, Inc., Izumiya Co., Ltd. and Hankyu Oasis Co., Ltd., on abusiness process level.
In relation to antisocial forces, the Company continues to ensure that clauses for the elimination of organised
crime groups are included in relevant contracts and documents.
(3) With respect to the audit system, the Company continues to assign thirteen (13) dedicated staff members who
support the duties of the ASC as requested by the ASC and designate each staff member as a corporate auditor
or a person taking responsibility of internal audit function.
Additionally, ASC members periodically hold meetings with Representative Directors and staff members in theinternal control divisions (Business Strategy Division, Management Planning Division, Finance Division, System
Division, General Affairs and Human Resources Division and J-SOX Division) while the full-time ASC member
attends important meetings such as Group Management meetings.

(ii)

Outline of the Liability Limitation Agreements
As of 22nd June 2016, the Company entered into a liability agreement with each outside director in accordancewith Article 427(1) of the Companies Act (“Act”) for the purpose of limiting liability as prescribed in Article 423(1) of
the Act. Under the agreement, the maximum amount of liability of an outside director shall be limited to the amountprescribed in the Act.

(iii) Outline of the Directors and Officers Liability Insurance Agreement
The Company has entered into a directors and officers liability insurance agreement as stipulated in Article 430-3,
paragraph (1) of the Act. An outline of the agreement is as follows.
a. Scope of the insured
All directors (including ASC members), corporate auditors and executive officers of the Company and the Groupb. Effective share of insurance premiums paid by the insured
Insurance premiums for the insured who belong to the Company (directors including ASC members andexecutive officers of the Company) are fully paid by the Company, including premiums for riders.
c. Outline of insured events eligible for compensation
The insurance policy compensates for damages that may be incurred by the insured due to the insured
assuming liability for the execution of their duties or receiving a claim in relation to the pursuit of such liability.

18

There are certain exemptions, including events arising from criminal acts committed by the insured and events
arising from acts committed by the insured with the knowledge that such acts are in violation of laws andregulations.
d. Measures to ensure the appropriateness of the execution of duties by directors and officers is maintained
In addition to the exemptions described in c., the agreement stipulates a deductible, and damages up to the
deductible will not be compensated.

(iv) Exemption from Liability of Directors
The Company provides in the Articles of Incorporation that, at a resolution of the Board of Directors’ meeting, theliability of directors (including former directors) who fail to perform their duties shall be exempt by a statutory limit
based on Article 426(1) of the Act. This provision enables directors to perform their duties without the effects ofanxiety and allows the Company to continue inviting outside directors with deep insights and a wealth of experience.
The above provision also applies to the corporate auditors (including former corporate auditors) before a resolutionof the 97th Ordinary General Shareholders’ Meeting held on 22nd June 2016.

(v)

Number of Directors as Provided in the Articles of Incorporation

The Company provides in the Articles of Incorporation that the number of directors excluding directors who are
ASC members shall be ten (10) or less and that of directors who are ASC members shall be five (5) or less.

(vi) Selection of Directors
The Company provides in the Articles of Incorporation that a resolution of a Shareholders’ Meeting shall be madeby a majority of the votes of the shareholders present at meetings where shareholders holding one third or moreof the votes of the shareholders entitled to exercise voting rights are present. It is also provided in the Articles ofIncorporation that directors shall not be appointed by cumulative voting.

(vii) Matters Regarding Dividends
For the purpose of implementing a dividend policy corresponding to the status of business operations, theCompany provides in the Articles of Incorporation that matters regarding dividends, including matters prescribedin Article 459(1) of the Act, shall be resolved at a Board of Directors’ meeting regardless of a resolution by a
Shareholders’ Meeting unless otherwise prescribed in the Act.

(viii) Requirement for Resolution of a Special Proposal at a Shareholders’ Meeting
For the purpose of smooth deliberations regarding a special proposal at a Shareholders’ Meeting, the Company
provides in the Articles of Incorporation that a special proposal submitted at a Shareholders’ Meeting as prescribedin Article 309(2) of the Act shall be resolved by a majority of two thirds or more of the votes of the shareholders
present at meetings where the shareholders holding one third or more of the votes of the shareholders entitled toexercise voting rights are present.

19

(2)
(i)

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

Chairman of the Board,
Chairman of the Board of
Directors

President andRepresentative Director

Name

Atsushi Suzuki

Naoya Araki

Date of birth

5 April 1956

14 May 1957

Brief history
Apr. 1980

Joined Hankyu Department Stores,
Inc.

Oct. 2000

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

Apr. 2003

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

Apr. 2006

Executive Officer, Hankyu
Department Stores, Inc.

Oct. 2008

Executive Officer, Hankyu Hanshin
Department Stores, Inc.

Apr. 2013

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

Mar. 2014

Director, H2O RETAILINGCORPORATION

Apr. 2014

President and Representative
Director, H2O RETAILINGCORPORATION

Apr. 2020

Chairman of the Board, Chairman of
the Board of Directors, H2O
RETAILING CORPORATION(present position)

Apr. 1981

Joined Hankyu Department Stores,
Inc.

Apr. 2003

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

Apr. 2004

Executive Officer, Hankyu
Department Stores, Inc.

Oct. 2008

Executive Officer, Hankyu Hanshin
Department Stores, Inc.

Jun. 2010

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

Mar. 2012

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

Jun. 2012

Representative Director, H2O
RETAILING CORPORATION

Apr. 2020

President and Representative
Director, H2O RETAILINGCORPORATION (present position)

Apr. 2020

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

20

Term ofofficeNumber ofcompany
shares held

(Note) 2

26,100(Note) 2

13,400TitleRepresentative Directorand Executive Vice
President
In charge of the FoodBusiness

Name

Katsuhiro Hayashi

Representative Director
In charge of the
Toshihiko Yamaguchi
Department Store Business

Date of birth

20 January
1958

Brief history
Apr. 1982

Joined Hankyu Department Stores,
Inc.

Apr. 2002

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

Apr. 2005

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

Jun. 2009

Director and Executive Officer, H2O
RETAILING CORPORATION

Jun. 2009

Executive Officer, Hankyu Hanshin
Department Stores, Inc.

Apr. 2012

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

Apr. 2014

Director and Managing Executive
Officer, H2O RETAILINGCORPORATION

Apr. 2014

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

Apr. 2015

Representative Director and Senior
Managing Executive Officer, H2O
RETAILING CORPORATION

Apr. 2015

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

Apr. 2015

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

Apr. 2017

Representative Director and Executive
Vice President, H2O RETAILINGCORPORATION (present position)

Nov. 2019

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

Apr. 1986

Joined Hankyu Department Stores,
Inc.

Apr. 2009

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

Apr. 2011

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

Aug. 2011

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

21 August 1963 Apr. 2012

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

Apr. 2014

Executive Officer, Hankyu Hanshin
Department Stores, Inc.

Apr. 2018

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

Apr. 2020

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

Jun. 2020

Representative Director, H2O
RETAILING CORPORATION (present
position)

21

Term ofofficeNumber ofcompany
shares held

(Note) 2

16,900(Note) 2

5,600

TitleDirector

Name

Kazuo Sumi

Date of birth

19 April 1949

Brief history

Apr. 1973

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

Jun. 2000

Director, Hankyu Corporation

Jun. 2002

Managing Director, Hankyu
Corporation

Jun. 2003

President and Representative
Director, Hankyu Corporation

Oct. 2007

Director, H2O RETAILINGCORPORATION (present
position)

Jun. 2017

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

Apr. 1967

Joined Hankyu Department
Stores, Inc.

Term ofofficeNumber ofcompany
shares held

(Note) 2

28,700(Note) 3

27,600Sep. 1988 General Manager, Accounting
Department, Hankyu
Department Stores, Inc.

DirectorStanding Audit andSupervisory
Committee Member

Toshimitsu Konishi 17 April 1944

Jun. 2000

Director, Hankyu Department
Stores, Inc.

Apr. 2002

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

Jun. 2002

Adviser, Hankyu Department
Stores, Inc.

Jun. 2004

Standing Corporate Auditor,
Hankyu Department Stores, Inc.

Oct. 2007

Standing Auditor, H2O
RETAILING CORPORATION

Oct. 2008

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

Jun. 2016

Director and Standing Audit andSupervisory Committee
Member, H2O RETAILINGCORPORATION (present
position)22

TitleDirector
Audit and Supervisory
Committee Member

Director
Audit and Supervisory
Committee Member

Name

Naoshi Ban

Kenjiro Nakano

Date of birth30
September1946

13 August
1947

Brief history

Apr. 1969

Joined Mitsubishi Logistics
Corporation

Jun. 2000

Director, Mitsubishi Logistics
Corporation

Jun. 2001

Managing Director, Mitsubishi
Logistics Corporation

Jun. 2003

President and Representative
Director, Mitsubishi Logistics
Corporation

Jun. 2008

Representative Director andChairman, Mitsubishi Logistics
Corporation

Jun. 2010

Chairman of the Board, Mitsubishi
Logistics Corporation

Apr. 2013

Director and Senior Corporate
Advisor, Mitsubishi Logistics
Corporation

Jun. 2013

Senior Corporate Advisor,
Mitsubishi Logistics Corporation

Jun. 2015

Director, H2O RETAILINGCORPORATION

Jun. 2016

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

Apr. 2018

Special Advisor, Mitsubishi
Logistics Corporation

Apr. 1971

Joined Sumitomo Bank, Ltd.

Apr. 1998

Director, Sumitomo Bank, Ltd.

Jun. 2002

Managing Executive Officer,
Sumitomo Mitsui Banking
Corporation

Jun. 2004

Managing Director cum Managing
Executive Officer, Sumitomo
Mitsui Banking Corporation

Jun. 2005

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

Apr. 2006

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

Apr. 2008

Representative Director cum
Deputy Chairman, Sumitomo
Mitsui Banking Corporation

Jun. 2010

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

Jun. 2013

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

Jun. 2016

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

Jun. 2016

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

23

Term ofofficeNumber ofcompany
shares held

(Note) 3

13,200(Note) 3

4,200

TitleDirector
Audit and Supervisory
Committee Member

Name

Mayumi Ishihara

Date of birth

Brief history

Apr. 1997

Registered as attorney with the
Osaka Bar Association

Apr. 1997

Joined Oh-Ebashi LPC &Partners

Jun. 2013

Outside Auditor, Morishita
Jintan Co., Ltd.

Feb. 2016

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

Apr. 2016

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

3 May 1963
Jun. 2016

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

Jun. 2018

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

24

Term ofofficeNumber ofcompany
shares held

(Note) 3

500

TitleDirector
Audit and Supervisory
Committee Member

Name

Nobuko Sekiguchi

Date of birth

Brief history

Nov. 2005

Joined Capcom Co., Ltd.

Oct. 2007

Accounting Manager, Capcom
Co., Ltd.

Apr. 2011

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

Apr. 2016

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

3 July 1968
Mar. 2019

Left Capcom Co., Ltd.

Jun. 2019

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

Jun. 2020

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

Term ofofficeNumber ofcompany
shares held

(Note) 30

Total

136,200

Notes:
1. Mr. Naoshi Ban, Mr. Kenjiro Nakano, Ms. Mayumi Ishihara and Ms. Nobuko Sekiguchi are outside directors.
2. One year from the conclusion of the Ordinary General Shareholders’ Meeting held on 22nd June 2021.
3. Two years from the conclusion of the Ordinary General Shareholders’ Meeting held on 23rd June 2020.
4. The Chairman of the Board of Directors is Mr. Atsushi Suzuki.
5. The Company is a Company with an Audit and Supervisory Committee. The Chairman of the Audit andSupervisory Committee is Mr. Toshimitsu Konishi. The members of the Audit and Supervisory Committee are
Mr. Naoshi Ban, Mr. Kenjiro Nakano, Ms. Mayumi Ishihara and Ms. Nobuko Sekiguchi.

(ii)

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

a. Relationship with outside directors
Mr. Naoshi Ban has actively given advice and opinions at Board of Directors’ meetings, etc., as an outside
director based on his extensive management experience and his broad insights. The Company has appointed
him again as an outside director and ASC member, judging that he would contribute to increasing the Group’s
corporate value by utilising his experience, etc. in the supervision and audit of the Group. Furthermore, since hefulfils the requirements as prescribed in the below mentioned “Independence Criteria for Outside Directors,” theCompany appointed Mr. Ban as an independent director. Mr. Ban has no special interests in the Company.
Mr. Kenjiro Nakano has actively given advice and opinions at Board of Directors’ meetings, etc., as an outside
director based on his extensive experience and his broad insights as the manager of a financial institution. The
Company has appointed him again as an outside director and ASC member, judging that he would contribute toincreasing the Group’s corporate value by utilising his experience, etc. in the supervision and audit of the Group.
Mr. Nakano is a former director of Sumitomo Mitsui Banking Corporation, which is one of the main banks of theCompany. However, he has never served with the bank, even as an advisor, since his retirement 11 years ago

25

in June 2010. Thus, he fulfils the requirements as prescribed in the below mentioned “Independence Criteria for
Outside Directors,” and the Company appointed Mr. Nakano as an independent director. Mr. Nakano has no
special interests in the Company. Mr. Nakano is a Chairman of Keihanshin Building Co., Ltd. There are no
particular conflicts of interest that require disclosure between Keihanshin Building Co., Ltd. and the Company.
Ms. Mayumi Ishihara has actively given advice and opinions at Board of Directors’ meetings, etc., as an outside
director based on her professional knowledge, experience and broad insights as an attorney-at-law, although
she has no experience in corporate management except as an outside director. The Company has appointed
her again as an outside director and ASC member, judging that she would contribute to increasing the Group’s
corporate value by utilising her experience, etc. in the supervision and audit of the Group. Since she fulfils therequirements as prescribed in the below mentioned “Independence Criteria for Outside Directors,” the Company
appointed Ms. Ishihara as an independent director. Ms. Ishihara has no special interests in the Company.
Ms. Nobuko Sekiguchi has extensive experience, accomplishments, and knowledge, etc. of accounting,corporate planning, and personnel system reforms in operating companies and management consulting. The
Company has appointed her as an outside director and ASC member, judging that she would contribute toincreasing the Group’s corporate value by drawing on these attributes in the supervision and audit of the Group.
Since she fulfils the requirements as prescribed in the below mentioned “Independence Criteria for Outside
Directors,” the Company appointed Ms. Sekiguchi as an independent director. Ms. Sekiguchi has no special
interests in the Company.

For details regarding shareholdings of each outside director, please see “(i) Officers.”
The Company has established the independence criteria for outside directors as follows:

Independence Criteria for Outside Directors
To maintain their independence from the Company, outside directors of the Company shall not meet any of thefollowing criteria.
(1) A person for whom the Company and its subsidiaries (collectively, “the Group”) is a principal business partner(Note 1) or an executing person (“the executing person”) of such party, including a managing director, an
executive officer, a person who has similar authority, a manager or an employee.
(2) A principal business partner (Note 2) of the Group or the executing person of such party.
(3) An expert such as an attorney-at-law, a certified public accountant, a certified tax accountant or a consultant

who receives a certain amount (Note 3) of money or other property from the Group in addition tocompensation for being a director and/or corporate auditor.
(4) A person who belongs to the audit firm which is the statutory accounting auditor of the Group and conducts

audit work for the Group.
(5) A major shareholder of the Company (directly or indirectly holding 10% or more of the total voting rights) or

the executing person of such major shareholder.
(6) An executing person of a company of which the Group is the major shareholder.
(7) In cases in which the Group’s executive director, a director who is a full-time ASC member or a full-time26

corporate auditor also holds the post of outside director or outside auditor of other companies, the executing
person of such companies.
(8) The executing person of Hankyu Hanshin Toho Group (including the Group).
(9) A person receiving more than a defined amount (Note 4) of donations from the Group or, in cases in which

the person is a corporation or an association, the executing person of the party.
(10) Any person identified in any of (1) to (9) above in the past five years or any executing person of the Groupin the past ten years.
(11) Any person whose spouse or relatives within the second degree of kinship are identified in any of (1) to (10)above (limited to key persons (Note 5), excluding above (3) and (4)).
(12) Any person with whom any special circumstances exist that would result in a conflict of interest with theCompany.

Notes:
1. “A person for whom the Group is a principal business partner” means a party offering products and/or
services to the Group whose total amount of transactions with the Group in the previous fiscal year
exceeds the greater of ¥100 million or 2% of the consolidated sales of the party.
2. “A principal business partner” means (a) a party to whom the Group offers products and/or services
whose total amount of transactions with the Group in the previous fiscal year exceeds 2% of theconsolidated sales of the Company and (b) a party to whom the Group owes liabilities as loans of 2%
or more of the consolidated total assets of the Company as of the previous fiscal year end.
3. “Certain amount” means (a) ¥10 million a year of compensation (except director’s remuneration)
received from the Group in the previous fiscal year in cases in which the expert is an individual offering
services to the Group or (b) the total amount of compensation received from the Group in the previous
fiscal year reaches 2% of the total revenue of a party in cases in which the expert belongs to a party
such as a corporation or association offering services to the Group.
4. “Defined amount” means ¥10 million a year in the previous fiscal year.
5. “Key person” means an executing person with relevant authority as a director, operating officer,
executive officer and/or senior manager.

27

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

Name

Main Activities

Director who is an

Naoshi Ban

Attended all 11 Board of Directors’ meetings (excluding written
resolutions) and all 12 ASC meetings held during the reporting

ASC member

period to raise issues from a wide range of perspectives, suchas managerial challenges for each business, administration ofsubsidiaries and ideal functions as a holding company, giving
his opinions on measures and asking questions based on his
extensive management experience of having served as a
President and Chairman of a business enterprise. In addition,
he chaired the Nominating and Compensation Advisory
Committee, a voluntary committee, offering appropriate advice
at the committee’s meetings and striving to improve thetransparency and objectivity for personnel affairs andcompensation of the management.
Director who is an

KenjiroAttended all 11 Board of Directors’ meetings (excluding written

ASC member

Nakanoresolutions) and all 12 ASC meetings held during the reporting
period to raise issues on matters including management
strategies of the holding company and each business, financeand management administration after the businessrestructuring, giving his opinions on measures and asking
questions based on his extensive management experience as
an executive of a financial institution. In addition, he served asa member of the Nominating and Compensation Advisory
Committee, a voluntary committee, offering appropriate advice
at the committee’s meetings and striving to improve thetransparency and objectivity for personnel affairs andcompensation of the management.

Director who is an

Mayumi

Attended all 11 Board of Directors’ meetings (excluding written

ASC member

Ishihara

resolutions) and all 12 ASC meetings held during the reporting
period not only to make remarks on governance, complianceand legal risks in the business based on her knowledge andexperience as an attorney, but also to raise issues fromperspectives including a consumer perspective and aperspective on diversity, giving her opinions on measures andasking questions.

28Director who is an

NobukoAttended all nine (9) Board of Directors’ meetings (excluding

ASC member

Sekiguchi

written resolutions) and all nine (9) ASC meetings held during
the reporting period after her appointment as a director toraise issues on various challenges with a particular focus on
personnel affairs and IT strategies based on her experience atbusiness enterprises and in consulting work, giving her
opinions on measures and asking questions. In addition, she
attended meetings for business reports from executive
divisions such as the Finance Office and the Management
Planning Office of the Company.

29

(3)
(i)

Status of Audits
Internal audits and ASC’s audits
The Company has five (5) ASC members, consisting of four (4) outside directors and one (1) director (full-time
ASC member). The Company assigns professionals with corporate management experience and specialised
knowledge of law and other subjects as outside directors. Mr. Toshimitsu Konishi, who has substantial knowledgeof finance and accounting who has served as an accounting manager in the Company for approximately 30 years
has been assigned as the full-time ASC member. The full-time ASC member is assigned as an ASC member withthe authority to be reported to and to investigate. In addition, 13 assistant employees, consisting of six (6) dedicatedauditors, each of whom serves as corporate auditor of four (4) to five (5) subsidiaries besides administrative
operation of the ASC, and seven (7) persons taking responsibility of internal audit function, assist the full-time ASC
member at the ASC Office.
The office in charge of financial reporting, as stipulated in the Financial Instruments and Exchange Act (J-SOX)(seven (7) members), is established to secure the reliability of financial reporting. They work to strengthen the audit
function by making proposals for improvements based on regular interviews and on-site audits and assessing
internal controls in financial reporting and in business processes.
With regard to activities of the ASC, the ASC developed audit plans and implemented focused audits and ordinary
audits in accordance with the standards for ASC’s audits, etc., the standards for audits of internal control systemand others. Outside directors who are ASC members attended Board of Directors’ meetings and regular meetings
with representative directors, and gave their opinions and asked questions as necessary from the standpoint of
attorneys and specialists with extensive business management experience. A full-time ASC member attends themonthly “Group Management meeting” and the “Group Compliance Committee meeting,” which are held as needed.
The full-time ASC member expresses his opinions at these meetings as necessary and inspected final decision
reports on key matters as well as the minutes of the meetings, and heard reports regarding the execution ofoperations directly from internal control divisions.
The ASC meeting was held 12 times during the reporting period. Of these, Mr. Toshimitsu Konishi, Mr. Naoshi Ban,
Mr. Kenjiro Nakano and Ms. Mayumi Ishihara attended all 12 meetings, and Ms. Nobuko Sekiguchi attended allnine meetings held after her appointment as a director who is an ASC member. At each meeting, the full-time ASC
member spent approximately two (2) hours making an explanation on the content of agendas for the Board of
Directors’ meeting and a detailed report on the status of audits. Concurrently, a consensus on the ASC’s opinion
in consideration of the supervisory function over executives was formed through discussions about management
issues, and the ASC provided advice and recommendations on the role of the holding company to representative
directors for embodiment of the management philosophy as necessary.
In addition, two (2) outside directors who are ASC members have become the Chairman and a member of thevoluntary Nominating and Compensation Advisory Committee, and at ASC meetings, they discussed policy on
determining nominations and remuneration to consolidate their opinions, as well as discussing an idealorganisational structure that enables practice of aggressive governance, and providing advice andrecommendations to representative directors as necessary.
Regarding the auditing of subsidiaries, the full-time ASC member concurrently serves as a corporate auditor ofHankyu Hanshin Department Stores, Inc. and Izumiya Co., Ltd., the core subsidiaries, while the standing corporate30auditor or dedicated staff members who are assistant employees assume the position of corporate auditors of othersubsidiaries, leading to augmentation of the reporting system to the full-time ASC member by closely monitoring
the site through auditing visits. At the same time, these corporate auditors work to perform more effective audits
by holding Group Board of Corporate Auditors’ meetings where appropriate and verifying the progress of audit
plans through individual opinion exchanges with the full-time ASC member and corporate auditors of subsidiaries.
Regarding the coordination with the internal audit division, the full-time ASC member weekly receives a report on
assessment of internal control concerning financial reporting and internal control concerning business processes
from the function in charge of J-SOX, which was established to secure the reliability of financial reporting, and areport on the method and results of business audits from an assistant employee in charge of internal audits who
coordinates with the internal audit function of major companies while conducting activities centred on businessaudits of Hankyu Hanshin Department Stores.
In terms of liaison with the independent auditors, the ASC members maintained a close exchange of opinions. For
example, they exchange opinions about key audit matters when drafting the audit plan, while the full-time ASC
member confirms the progress of the audit procedures and exchanges opinions on issues in audits once a monthin principle, and at ASC meetings, close coordination is maintained through discussion about major issues inauditing and the audit procedures on a quarterly basis.

(ii)

Accounting auditsa. Name of the auditing firm
KPMG AZSA LLC.
b. Continuous auditing period
46 yearsThis number of years covers the period from the establishment of KPMG AZSA LLC.’s predecessor, Shinwa
Audit Corporation, but a possibility remains that the continuous auditing period exceeds this period due to theremarkable difficulty in conducting an investigation.
c. Certified public accountants who executed the audits
Mr. Motoharu Iyomasa, Mr. Koji Narumoto and Ms. Aki Yuged. Composition of assistants with the audits
18 other certified public accountants and 24 other staff members

e. Selection policy and evaluation of auditing firm
In appointing an auditing firm, the Company takes into account the independence of the independent auditors,
status of quality management, appropriateness of audit execution structure, ample auditing experience in otherindustries and companies, enriched relevant services, appropriateness of audit fees, and others.
If the independent auditors fall under any of the matter set forth in each item of Article 340, paragraph (1) of theCompanies Act, the ASC dismisses the independent auditors. In addition, if quality and efficiency of audits might31

be lowered and there is no prospect for improvement in consideration of the independent audit’s number ofyears of continuous audits, audit fees and others, or if the ASC judges, in light of assessment of the independent
auditors, that a change of the independent audit is reasonable to further increase the appropriateness of audits,
the ASC determines the content of proposal for dismissal or non-reappointment of the independent auditors tobe submitted to a General Shareholders’ Meeting.
Based on these policies, the ASC deliberated on the appropriateness of the independent auditors based on an
evaluation of their score on 20 evaluation items following the “Practical Guide for Audit & Supervisory Board
Members, etc., Regarding Evaluation and Formulation of Selection Standards for Accounting Auditors” issued
by the Japan Audit & Supervisory Board Members Association. As a result, the ASC judged the selection of
KPMG AZSA LLC. as the independent auditor to be appropriate.

(iii) Fees paid to independent auditors
a. Details of fees paid to certified public accountants, etc.
For the year ended 31st March 2020
Classification

Audit fees
(millions of yen)

The Company
Consolidated
subsidiaries
Total

For the year ended 31st March 2021

Fees for non-audit
services(millions of yen)

Audit fees
(millions of yen)

Fees for non-audit
services(millions of yen)

63

7

67

―

156

―

142

―

220

7

210

―

The details of non-audit services for which the Company paid fees to certified public accountants consisted of“financial due diligence services” for the year ended 31st March 2020.

b. Details of fees paid to certified public accountants, etc. and their network (KPMG International) (excluding a.)
For the year ended 31st March 2020
Classification

Audit fees
(millions of yen)

The Company
Consolidated
subsidiaries
Total

Fees for non-audit
services(millions of yen)

For the year ended 31st March 2021
Audit fees
(millions of yen)

Fees for non-audit
services(millions of yen)

―

―

―

―

11

―

11

―

11

―

11

―

c. Other significant fees paid
For the year ended 31st March 2020
Suzhou Izumiya Co., Ltd., H2O (China) Investment Co., Ltd. and Suzhou Izumiya Supermarkets Co., Ltd.,
consolidated subsidiaries of the Company, paid ¥11 million in fees to a member firm of KPMG to which certified
public accountants acting as the Company’s independent auditors belong.

32

For the year ended 31st March 2021
Suzhou Izumiya Co., Ltd., H2O (China) Investment Co., Ltd. and Suzhou Izumiya Supermarkets Co., Ltd.,
consolidated subsidiaries of the Company, paid ¥11 million in fees to a member firm of KPMG to which certified
public accountants acting as the Company’s independent auditors belong.
d. Policy to determine audit fees
Audit fees to independent auditors are determined based on the items to be audited, the contents andprocedures of the audits, the number of days required for audits and the appropriateness of the audit feesconsidering the scale and characteristics of the business of the Company.
e. Reasons for consent to the independent auditors’ remuneration by the ASC
In accordance with the “Practical Guide for Cooperation with Accounting Auditors” issued by the Japan Audit &Supervisory Board Members Association, the Company’s ASC examined the number of hours required for audits
in the past, evaluated audit results, reviewed fee trends in the past and compared the fees with those paid byother companies in the same business. The ASC also had an interview with the independent auditors to evaluate
their credentials and examined the appropriateness and reasonableness of fee calculations and the basis ofestimates, including the number of hours and staff estimated in the audit planning and audit procedures for
significant audit issues. As a result, the Company’s ASC agreed to the amounts of fees to the independent
auditors.

33

(4)

Compensation for Directors(i)Compensation paid to directors
Total
compensation(millions of yen)Classification

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

Total compensation by type (millions of yen)Non-monetary
Basic
Performancecompensationcompensation
based(stock option(fixedcompensation
based
compensation)(bonus)compensation)

Number of
directors

137

126

—

10

6

26

25

—

0

1

34

33

—

1

4

Note: Non-monetary compensation
The Company grants stock option-based compensation as non-monetary compensation. There are two (2) typesof stock option-based compensation, namely the stock option-based compensation with continuous service
conditions, for which all directors, including ASC members, are eligible, and the stock option-based compensation
with performance-based conditions, for which executive directors are eligible. The performance-based indicators
for the stock option-based compensation with performance-based conditions (allotment in July 2019 and July 2020)
shall be as follows, and will be determined based on business results in the fiscal year ending 31st March 2022.
As consolidated ordinary income is one of the target income indicators, and consolidated ROIC is an indicator of
capital efficiency, these two indicators have been chosen.

Performance-based criteria for fiscal 2019 to 2020
Indicator

Target for fiscal 2021

Weight(i) Consolidated ordinary income¥25.0 billion

50%

4.0%

50%

(ii) Consolidated ROIC

Because the Company resolved to withdraw the mid-term plan, Phase 2 of Stage II in the GP 10 Plan (fiscal year
ended 31st March 2020 to fiscal year ending 31st March 2022), at the Board of Directors’ meeting held on 30th
October 2020, the Company reversed all of the expenses for the stock option-based compensation withperformance-based conditions. Accordingly, the entire amount of non-monetary compensation described in thetable of “(i) Compensation paid to directors” is only for the stock option-based compensation with continuous
service conditions.

(ii)

Matters regarding Policy on Determining Compensation for Directors

1) Method to determine policy on determining individual compensation for directors
At the Board of Directors’ meeting held on 25th February 2021, the Company decided on the Policy on
Determining Individual Compensation for Directors (the “Decision-making Policy”).

342) Outline of the Decision-making Policy
Compensation for the Company’s directors is designed based on the views on compensation for directors
stipulated in the basic principles regarding corporate governance as well as the following basic policy. The
compensation is comprised of monthly basic compensation, an annual bonus that reflects single-year
performance and other factors, stock option-based compensation with continuous service conditions, and stock
option-based compensation with performance-based conditions. These types of compensation are combined
according to each director’s expected duties.
[Basic policy]The plan should contribute to the sustainable growth and to the improvement of medium- to long-term
corporate value of the Company group.

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

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

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

[Types of compensation, timing of payment and recipients]

compensation

Executive

Non-executive

payment

Directors, etc.

Directors



–







–





Annually

Performance-based stock options

Stock

Timing of(July)

Continuous service-based stock options

Annually(July)

Bonus (performance-based

AnnuallyCashcompensation)(June)

compensation

Basic compensation (fixedMonthly

compensation)* Executive directors and executive officers are referred to as “Executive Directors, etc.” and directors other than
Executive Directors, etc., such as outside directors and directors who are ASC members, are referred to as“Non-executive Directors.”
Policy on determining the ratio of each type of compensation against individual compensation for
directors
Regarding compensation for Executive Directors, etc., approximately 50% is basic compensation, which is a
fixed compensation, and approximately 50% is the annual bonus and stock compensation, which are types ofcompensation linked to business results and stock prices.

35

Amount of individual compensation or policy on determining calculation method thereof<Basic compensation>
Basic compensation is set in accordance with individual job responsibility and position. For Executive Directors,
etc., basic compensation is revised every April in accordance with an assessment for previous fiscal year on thebasis of the compensation table according to stages of the amount of consolidated operating income. To Nonexecutive Directors, compensation shall be paid in accordance with individual role.
<Bonus>Bonuses shall be compensation paid according to consolidated operating results for one fiscal year, determinedin accordance with position and assessment based on a compensation table corresponding to the level ofconsolidated operating income. In addition, profit attributable to owners of parent and other factors shall beconsidered. Approval of the total amount of bonuses for directors shall be obtained at a General Shareholders’Meeting each year. Because consolidated operating income and profit attributable to owners of parent are target
indicators for single-year performance, they have been chosen as indicator for performance-based
compensation.
<Stock option-based compensation>
Stock compensation shall be the following two (2) types of stock options: Stock option-based compensation with continuous service conditions
Subscription rights to shares, which can be exercised by any eligible person for allotment of the subscription
rights to shares after losing any position as officer, such as director (including ASC member), corporate
auditor and executive officer of the Company and its subsidiaries (but provided that the loss is for retirement
due to expiration of the terms of office or any other valid reason accepted by the Company), are granted to
Executive Directors, etc. and Non-executive Directors in accordance with the position each year.
 Stock option-based compensation with performance-based conditions
In terms of management indicators targeted in the mid-term plan and other indicators predetermined by theCompany’s Board of Directors (such as consolidated net sales, each stage of income, ROE and ROIC), thenumber of exercisable units is determined within the range of 0 to 100% of allotted subscription rights toshares in accordance with achievement levels of the indicators in the final fiscal year for the mid-term plan,and subscription rights to shares, which can be exercised after losing any position as officer, such as director(including ASC member), corporate auditor and executive officer of the Company and its subsidiaries (butprovided that the loss is for retirement due to expiration of the terms of office or any other valid reason
accepted by the Company), are granted to Executive Directors, etc. in accordance with the position eachyear.
Method of determining individual compensation
As for compensation for directors, etc., the Board of Directors decides the agenda for the General Shareholders’Meeting and individual amounts of compensation after consideration by the Nominating and Compensation

36

Advisory Committee. As for compensation for directors who are ASC members, individual amounts are
determined through discussion by directors who are ASC members.

Reasons the Board of Directors determined that individual compensation for directors pertaining to thecurrent fiscal year is in line with the decision-making policy
The Nominating and Compensation Advisory Committee, a majority of whose members are independent outside
directors, conducts deliberation and advises the Board of Directors with regard to individual compensation for
directors, which in turn makes a resolution based on the advice.
In deliberating on individual compensation for directors, the Nominating and Compensation Advisory Committee
considers factors such as the level of compensation for other executives and employees within the industry andthe Company, while evaluating whether such individual compensation is consistent and in line with the decisionmaking policy. In addition, the Board of Directors also verifies that the individual compensation for directors is inline with the decision-making policy before deciding on individual compensation.
The maximum compensation based on a resolution of the General Shareholders’ Meeting is outlined below.
a. At the 97th Ordinary General Shareholders’ Meeting held on 22nd June 2016, the total amount of basic
compensation for directors excluding directors who are ASC members was set at a maximum of ¥300 million
per year (of which a maximum of ¥50 million is for outside directors), and basic compensation for directors
who are ASC members was set at a maximum of ¥90 million per year. As of the conclusion of the 97th
Ordinary General Shareholders’ Meeting, the number of directors was eight (8), including one (1) outside
director, and the number of directors who are ASC members was four (4).
b. Bonus amounts are decided at a Shareholders’ Meeting each time they are paid.
c. At the 102nd Ordinary General Shareholders’ Meeting held on 22nd June 2021, it was resolved as described
below that stock option based compensation would be based on a different framework from the monthly
compensation described above.
 Total amount of compensation for directors (excluding directors who are ASC members)
It was resolved that the upper limit will be set at ¥129 million per year (including ¥9 million for outside
directors). Of the amount, the upper limit of ¥93 million per year will be set for continuous service-based
stock options (including ¥9 million for outside directors) and the upper limit of ¥36 million per year will be set
for performance-based stock options. As of the conclusion of the 102nd Ordinary General Shareholders’Meeting, the number of directors excluding directors who are ASC members was five (5), none of whomwere outside directors. Although outside directors other than directors who are ASC members were notappointed at the time of the resolution, the amount of compensation was set with an eye to the possibility of
future appointment.
 Total amount of compensation for directors who are ASC members
It was resolved that the upper limit will be set at ¥22.5 million per year. As of the conclusion of the 102nd
Ordinary General Shareholders’ Meeting, the number of directors who are ASC members was five (5).

37

(5)

Holding Status(i)

Criteria and idea for division of investment securities
With regard to division of investment securities held for portfolio investment purposes and those held for other thanportfolio investment purposes, the Company classifies investment securities which are held for the purpose of gainon sale as portfolio investment purposes and those which are held for the purpose of building good relationships
with business partners and related parties such as business alliance partners and contributing to smooth promotionof the Company group’s businesses and improvement of corporate value over the medium to long term as purposes
other than portfolio investment purposes.
In principle, as its policy, the Company does not hold investment securities which are held for portfolio investment
purposes.

(ii)

Investment securities which are held for other than portfolio investment purposesa. Holding policy and method for verification of reasonableness of holdings as well as details of verification by the
Board of Directors, etc., in relation to whether or not the holding of individual stock is appropriate
 When the Company considers that holding the stock helps build a good relationship with business partners
and related parties such as business alliance partners and contributes to smooth promotion of the Company
group’s businesses and improvement of corporate value over the medium to long term, it may hold the stockof the business partner, etc., as a policy-holding shares.
 The Company judges whether or not to exercise voting rights for stocks held as a policy-holding shares, foreach proposal from a viewpoint of whether doing so contributes to improvement of the Company group’s
corporate value over the medium to long term, also taking into account the holding purpose.
 If a company that holds stock of the Company as a policy-holding shares (hereinafter, the “policy-holding
shareholder”) expresses its intention to sell that stock, the Company shall not perform actions such as
indicating a reduction in transactions with this company as a means for preventing the sale.
 For transactions with policy-holding shareholders, economic reasonableness of the transactions is fully
verified so that any transactions that may harm the common interests of the Company and shareholders are
not conducted.
 The Company has been pushing forward reduction in stocks of which the holding necessity is consideredlow. The Board of Directors will continue to verify holding purposes, details of transactions, dividend yields,
holding risks and other matters, and consider selling stocks of which the holding necessity is considered low
in view of market trends and other factors, also taking into account the Company’s capital cost.

38

b. Number of investment securities and balance sheet value

Unlisted shares
Shares other thanunlisted shares

Number of

Total amount ofdifferent stocks

balance sheet value(stock)(millions of yen)

26

4,742

15

83,216

Stocks of which the number of shares increased in the fiscal year ended 31st March 2021.
Number ofdifferent stocks(stock)Unlisted shares
Shares other thanunlisted shares

Total amount of acquisition
cost related to the increase inReason for the increase in thethe number of shares

number of shares(millions of yen)

1

211

1

8

To strengthen business management
relationshipTo strengthen business management
relationship

Stocks of which the number of shares decreased in the fiscal year ended 31st March 2021.
Number ofdifferent stocks(stock)Unlisted shares
Shares other thanunlisted shares

Total amount of sale value
related to the decrease in thenumber of shares(millions of yen)

—

—

—

—

39

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

Stock

For the year
ended 31st
March 2021
Number ofsharesBalance sheetvalue

For the year
ended 31st
March 2020
Number ofsharesBalance sheet
value(millions of yen)(millions of yen)

13,664,280

13,664,280

Toho Co., Ltd.
61,35245,092

8,887,000

8,887,000

Takashimaya Co.,Ltd.
10,4958,647

3,200,000

3,200,000

Kansai Super Market
Ltd.

SRS HOLDINGS
CO., LTD.

3,593

3,264

2,557,404

2,557,404

2,196

2,309

40

Purpose of holding, quantitative effects
of holding, and reason for the increasein the number of shares(Purpose of holding) To strengthen
relationship with the Hankyu Hanshin
Toho Group from a group-wide
perspective(Method of verifying reasonableness ofholding) Based on the relationship ofthe Hankyu Hanshin Toho Group, theCompany has judged that there arepositive effects of holding the stock.
(Purpose of holding) To strengthen
relationship between both companies
through business alliance, mainly in the
Department Store Business segment(Method of verifying reasonableness ofholding) The Company has determinedthat there are certain positive effects on
promotion of businesses, such as a
joint effort for products in the businessalliance.
(Purpose of holding) To strengthen
relationship between both companies
through business alliance, mainly in the
Supermarket Business segment(Method of verifying reasonableness ofholding) The Company has consideredthat there are positive effects of holding
in promotion of the Company group’sbusiness strategy, such as introductionof the Company group’s joint point
system, sale of the Company group’s
products, etc., through the businessalliance.
(Purpose of holding)
To strengthen the business
management relationship from a groupwide perspective(Method of verifying reasonableness ofholding) As a result of taking into
account the business relationship withthis company, the Company has
considered that there are positiveeffects of holding the stock.

Whether or
not the stockof theCompany is
held

None

Yes

Yes

None

StockMitsubishi UFJ
Financial Group, Inc.

Kato Sangyo Co.,Ltd.

Asahi Group
Holdings, Ltd.

Sumitomo Mitsui
Financial Group, Inc.

Umenohana Co.,
Ltd.

Joshin Denki Co.,Ltd.

For the year
ended 31st
March 2021
Number ofsharesBalance sheetvalue

For the year
ended 31st
March 2020
Number ofsharesBalance sheet
value(millions of yen)(millions of yen)

3,012,740

3,012,740

1,782

1,214

363,300

363,300

1,298

1,237

217,360

217,360

1,013

762

120,528

120,528482

316

374,500

374,500

422

540

56,00056,000

176

116

41

Purpose of holding, quantitative effects
of holding, and reason for the increasein the number of shares

Although the Company held the stock
for group-wide financial policy reasons,the Company is not holding any shares
as of the date of filing of this reportbecause it sold all the shares by thefiling date.
(Purpose of holding) To strengthen thebusiness management relationship,
mainly in the Supermarket Businesssegment(Method of verifying reasonableness ofholding) As a result of taking into
account the business relationship withthis company (transaction for purchaseof goods), the Company has consideredthat there are positive effects of holding
the stock.
Although the Company held the stock tostrengthen the business management
relationship, mainly in the Department
Store Business segment, the Company
is not holding any shares as of the dateof filing of this report because it sold all
the shares by the filing date.
Although the Company held the stock
for group-wide financial policy reasons,the Company is not holding any shares
as of the date of filing of this reportbecause it sold all the shares by thefiling date.
(Purpose of holding) To strengthen
relationship between both companies
through business alliance, mainly in the
Department Store Business segment(Method of verifying reasonableness ofholding) As a result of taking into
account the business relationship withthis company (transaction for purchaseof goods), the Company has consideredthat there are positive effects of holding
the stock.
Although the Company held the stock tostrengthen the business management
relationship from a group-wide
perspective, the Company is notholding any shares as of the date offiling of this report because it sold all
the shares by the filing date.

Whether or
not the stockof theCompany is
held

None
(Note)

Yes

None(Note)

None(Note)None

None

Stockcocokara fine Inc.

Sumitomo Mitsui
Trust Holdings, Inc.

Onward Holdings
Co., Ltd.

Toyo Seikan Group
Holdings, Ltd.

Tokyo Rakutenchi
Co., Ltd.

For the year
ended 31st
March 2021
Number ofsharesBalance sheetvalue

For the year
ended 31st
March 2020
Number ofsharesBalance sheet
value(millions of yen)(millions of yen)

20,20020,200171

113

25,37025,37097

79

193,417

164,372

60

78

33,00033,000

43

40

5,500

5,500

26

22

Purpose of holding, quantitative effects
of holding, and reason for the increasein the number of shares(Purpose of holding) To strengthen
relationship between both companies
through business alliance, mainly in the
Supermarket Business segment(Method of verifying reasonableness ofholding) As a result of taking into
account the business relationship withthis company, the Company has
considered that there are positiveeffects of holding the stock.
Although the Company held the stock
for group-wide financial policy reasons,the Company is not holding any shares
as of the date of filing of this reportbecause it sold all the shares by thefiling date.
(Purpose of holding) To strengthen thebusiness management relationship,
mainly in the Department StoreBusiness segment(Method of verifying reasonableness ofholding) As a result of taking into
account the business relationship withthis company (transaction for purchaseof goods), the Company has consideredthat there are positive effects of holding
the stock.
(Reason for the increase in shares)
This is because the Company has
participated in the business partners
shareholding association andadditionally acquires shares on aregular basis.
Although the Company held the stock tofacilitate business activity, mainly in the
Department Store Business segment,
the Company is not holding any shares
as of the date of filing of this reportbecause it sold all the shares by thefiling date.
(Purpose of holding) To strengthen
relationship with the Hankyu Hanshin
Toho Group from a group-wide
perspective(Method of verifying reasonableness ofholding) Based on the relationship ofthe Hankyu Hanshin Toho Group, theCompany has judged that there arepositive effects of holding the stock.

Whether or
not the stockof theCompany is
held

None
(Note)

None(Note)

Yes

None

None

* For stocks for which it is difficult to describe quantitative effects of holding, the method of verifying reasonableness of42

holding has been provided.
Note: A Group company holds stock of the Company(iii) Investment securities which are held for portfolio investment purposesNone(iv) Investment securities whose purpose for holding was changed from portfolio investment purposes to purposes
other than portfolio investment purposes during the fiscal year ended 31st March 2021
None

(v)

Investment securities whose purpose for holding was changed from purposes other than portfolio investment
purposes to portfolio investment purposes during the fiscal year ended 31st March 2021

None

43

H2O RETAILING CORPORATION and Consolidated Subsidiaries

Five-Year Summary

Millions of yen
Years ended 31st March

2017

2018

2019

2020

2021

Net sales¥901,221¥921,871¥926,872¥897,289¥739,198

Cost of sales

637,837

655,646

660,636

641,253

527,294

Gross profit

263,384

266,224

266,235

256,035

211,903

Selling, general and administrative expenses

240,841

243,459

245,813244,863

216,342Interest expenses

1,081

1,003

728

772

848

Profit before income taxes

20,00523,2198,050(9,337)(24,030)

Profit attributable to owners of parent

14,298

14,636

2,162(13,150)(24,791)

Comprehensive income

16,192

21,3803,592(30,174)(11,005)

Basic profit per share

115.84118.5417.50(106.38)(200.45)

Diluted profit per share

115.28117.90

17.39

-

-

Cash dividends

40.00

40.00

40.00

40.00

25.00

Inventories¥35,292¥35,295¥33,919¥29,687¥23,337

Property, plant and equipment (book value)

258,961

280,661

284,860

273,165

261,386

Total assets

639,305

659,582

663,335

586,904

625,945

Long-term debt

118,593

106,931

136,718

118,613

142,133

Shareholders' equity

232,786

242,390239,755

221,732

192,763

Gross profit / Net sales (%)

29.23

28.88

28.72

28.53

28.67

Profit (loss) before income taxes / Net sales (%)

2.22

2.52

0.87

(1.04)(3.25)

Profit (loss) attributable to owners of parent / Net sales (%)

1.59

1.59

0.23

(1.47)(3.35)

Profit (loss) attributable to owners of parent / Total assets (%)

2.32

2.25

0.33

(2.10)(4.09)

Profit (loss) attributable to owners of parent / Shareholders' equity (%)

6.27

6.16

0.90

(5.70)(11.96)

Shareholders' equity / Total assets (%)

36.41

36.75

36.14

37.78

30.80

Long-term debt / Shareholders' equity (times)

0.51

0.44

0.57

0.53

0.74

Net sales / Inventories (times)

25.54

26.12

27.33

30.22

31.67

Net sales / Total assets (times)

1.41

1.40

1.40

1.53

1.18

For the year:

Per share information (in yen and U.S. dollars)

At year-end:

Ratio analysis:

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

44

Consolidated Balance Sheets
H2O RETAILING CORPORATION and Consolidated Subsidiaries
Millions of yen

As of 31st March, 2020 and 2021
AssetsCurrent assets
Cash and deposits (Notes 12 and 14)
Notes and accounts receivable - trade (Note 14)
Merchandise and finished goods
Work in process
Raw materials and supplies
Accounts receivable - other (Note 14)
Other
Allowance for doubtful accounts (Note 14)
Total current assets\

Non-current assets
Property, plant and equipment (Notes 8 and 26)
Buildings and structures
Accumulated depreciation
Buildings and structures, net
Machinery, equipment and vehicles
Accumulated depreciation
Machinery, equipment and vehicles, net
LandConstruction in progress
Other
Accumulated depreciation
Other, net
Property, plant and equipment, net
Intangible assets
Goodwill
Other
Total intangible assets
Investments and other assets
Investment securities (Notes 8, 14 and 15)
Long-term loans receivable
Guarantee deposits (Notes 8 and 24)
Net defined benefit asset (Note 17)
Deferred tax assets (Note 19)
Other
Allowance for doubtful accounts
Total investments and other assets
Total non-current assets
Total assets\

See accompanying notes.

45

2020

2021

25,958 \44,44527,732
348
1,607
7,618
4,740
(335)
112,116

49,991
54,385
21,546
118
1,673
7,025
4,811
(261)
139,291

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

297,009(195,136)
101,873
7,726(5,186)
2,539
139,126
8,684
42,867(33,706)
9,161
261,386

3,305
15,862
19,1682,704
14,024
16,72995,841
7,026
70,42560
10,0082,020(2,927)
182,454474,788586,904 \114,748
11,25370,0291,898
11,4532,000(2,845)208,538
486,653625,945

Millions of yen

Liabilities
Current liabilities
Notes and accounts payable - trade (Notes 8 and 14)
Short-term loans payable (Notes 14 and 25)
Current portion of long-term loans payable (Notes 8, 14 and 25)
Accounts payable - other (Note 14)
Lease obligations (Notes 13 and 25)
Income taxes payable (Note 19)
Gift certificates
Provision for bonuses
Provision for directors' bonuses
Provision for loss on store closings
Provision for point card certificates
Asset retirement obligations (Note 20)
Other (Note 8)
Total current liabilities\

Non-current liabilities
Bonds payable (Notes 14 and 25)
Long-term loans payable (Notes 14 and 25)
Deferred tax liabilities (Note 19)
Deferred tax liabilities for land revaluation (Note 8)
Provision for directors' retirement benefits
Provision for redemption of gift certificates
Net defined benefit liability (Note 17)
Long-term accounts payable - other (Note 17)
Lease obligations (Notes 13 and 25)
Long-term guarantee deposited
Asset retirement obligations (Note 20)
Other (Note 8)
Total non-current liabilities
Total liabilities
Net assets (Note 11)
Shareholders' equity
Capital stock:

2020

2021

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

48,996
46,41426,890910
1,678
28,077
3,284
23
348
1,854
940
25,113
184,531

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

20,000122,133
23,805
266
172
4,635
12,839158
12,883
9,530
3,193
2,517
212,136
396,667

17,796

17,79692,650114,184(2,899)92,63385,065(2,732)

221,732

192,763

Common stock,
Authorised - 150,000,000 shares,
Issued - 125,201,396 shares in 2020 and 2021

Capital surplus
Retained earnings
Treasury shares- 1,558,219 shares in 2020
- 1,469,808 shares in 2021

Total shareholders' equity
Accumulated other comprehensive income (Note 10)
Valuation difference on available-for-sale securities
Deferred gains or losses on hedges
Revaluation reserve for land (Note 8)
Foreign currency translation adjustment
Remeasurements of defined benefit plans
Total accumulated other comprehensive income
Subscription rights to shares
Non-controlling interests
Total net assets
Total liabilities and nets assets

25,43538,668-\See accompanying notes.

46

124(1,128)(2,846)
21,5841,312
4244,634
586,904 \

124
(960)
(2,462)35,3701,138
4
229,277
625,945

Consolidated Statements of Operations
H2O RETAILING CORPORATION and Consolidated Subsidiaries

Millions of yen

Years ended 31st March, 2020 and 2021
Net sales2020
897,289 \

2021
739,198

Cost of sales (Note 9)
Gross profit

641,253
256,035

527,294
211,903

Selling, general and administrative expenses
Salaries and allowances
Rent expenses

75,73840,28665,03236,365

128,838

114,943244,863
11,171

216,342(4,438)\

Other
Total selling, general and administrative expenses
Operating income (loss)
Non-operating income
Interest income
Dividend income
Gain on debt settlement

169

371

1,314
1,487

1,418
1,862

884

1,410

3,855

5,062

Other
Total non-operating income
Non-operating expenses
Interest expenses

772

848

1,058
226

1,068
561

1,138
3,196
11,831

1,052
3,530(2,907)

Subsidy income

-

2,683

Penalty income-

366

Gain on sales of non-current assets

997-

Gain on sales of investment securities
Gain on bargain purchase

693
17

-

Total extraordinary income

1,707

3,049

Extraordinary losses (Note 9)
Impairment loss

14,196

14,771

-

5,353

747
1,848
3,854

2,103
1,944
-

930
821

-

Provision for redemption of gift certificates
Share of loss of entities accounted for using equity method
Other
Total non-operating expenses
Ordinary income (loss)
Extraordinary income (Note 9)

Loss due to COVID-19
Loss on store closings
Loss on retirement of non-current assets
Business restructuring expenses
Loss on sale of non-current assets
Loss on liquidation of business
Loss on share exchanges

477-

Total extraordinary losses
Loss before income taxes

22,875(9,337)

24,172(24,030)

Income taxes - current (Note 19)

3,550

1,467

Income taxes - deferred (Note 19)
Total income taxes

262
3,813

(706)
761

Loss

(13,150)(24,791)

Profit attributable to non-controlling interests
Loss attributable to owners of parent

0(13,150) \0(24,791)\

See accompanying notes.

47

Consolidated Statements of Comprehensive Income
H2O RETAILING CORPORATION and Consolidated Subsidiaries

Millions of yen

Years ended 31st March, 2020 and 2021
Loss
Other comprehensive income (loss) (Note 10)
Valuation difference on available-for-sale securities
Foreign currency translation adjustment
Remeasurements of defined benefit plans, net of tax
Share of other comprehensive income (loss) of entities accounted for using equity method
Total other comprehensive income (loss)
Comprehensive income (loss)
Comprehensive income (loss) attributable to:
Owners of parent
Non-controlling interests\

2020(13,150) \2021(24,791)\(17,429)
(47)
744
(291)
(17,024)(30,174) \13,23352
384
115
13,786(11,005)(30,174) \0(11,005)
0\

See accompanying notes.

48Consolidated Statements of Changes in Net Assets
H2O RETAILING CORPORATION and Consolidated Subsidiaries
Millions of yen

Shareholders' equity
Capital stock
Years ended 31st March 2020 and 2021
Balance at 1st April 2019
Changes of items during period
Dividends of surplus
Loss attributable to owners of parent
Purchase and disposal of treasury shares
Net changes of items other than shareholders' equity
Total changes of items during period
Balance at 31st March 2020
Balance at 1st April 2020
Cumulative effects of changes in accounting policies
Restated balance
Changes of items during period
Dividends of surplus
Loss attributable to owners of parent
Purchase and disposal of treasury shares
Net changes of items other than shareholders' equity
Total changes of items during period
Balance at 31st March 2021

¥17,796

Capitalsurplus¥92,675

Retainedearnings

Total
Treasuryshareholders
shares' equity¥132,278¥(2,995)(4,944)(13,150)(24)¥17,796¥17,796(24)¥92,650¥92,650

17,79692,65096(18,094)¥114,184¥114,184(308)
113,87596¥(2,899)¥(2,899)(2,899)(4,018)(24,791)(17)¥17,796(17)¥92,633

167(28,810)¥85,065167¥(2,732)¥239,755(4,944)(13,150)71(18,022)¥221,732¥221,732(308)
221,424(4,018)(24,791)
149(28,660)¥192,763

Millions of yen

Balance at 1st April 2019
Changes of items during period
Dividends of surplus
Loss attributable to owners of parent
Purchase and disposal of treasury shares
Net changes of items other than shareholders' equity
Total changes of items during period
Balance at 31st March 2020
Balance at 1st April 2020
Cumulative effects of changes in accounting policies
Restated balance
Changes of items during period
Dividends of surplus
Loss attributable to owners of parent
Purchase and disposal of treasury shares
Net changes of items other than shareholders' equity
Total changes of items during period
Balance at 31st March 2021

Accumulated other comprehensive income
Remeasure
Total
Valuation
Foreign
Revaluation
accumulated Subscription
Nondifference on
currency
ments of
Total netreserve forotherrights tocontrolling
available-fortranslation defined
assetslandcomprehensharesinterests
sale securities
adjustment
benefitsive income
plans¥42,864¥124¥(788) ¥(3,591)¥38,608¥1,235¥4 ¥279,603(17,429)(17,429)¥25,435¥25,435

¥124
¥124

(339)
(339)
¥(1,128)¥(1,128)744
744¥(2,846)¥(2,846)(17,024)(17,024)¥21,584¥21,584

77
77¥1,312¥1,31200¥4¥425,435124(1,128)(2,846)

21,5841,312

4(4,944)(13,150)71(16,946)(34,969)¥244,634¥244,634(308)
244,3250
0¥4(4,018)(24,791)
149
13,611(15,048)¥229,277

13,233
13,233¥38,668

¥124

49

168
168
¥(960)

384
384¥(2,462)

13,786
13,786¥35,370

(174)
(174)
¥1,138

Consolidated Statements of Cash FlowsH2O RETAILING CORPORATION and Consolidated Subsidiaries
Millions of yen

Years ended 31st March 2020 and 2021

2020

2021

Cash flows from operating activities\

Loss before income taxes
Depreciation
Impairment loss
Loss on store closings
Amortisation of goodwill
Increase (decrease) in allowance for doubtful accounts
Increase (decrease) in provision for bonuses
Increase (decrease) in provision for directors' bonuses(9,337) \18,519(24,030)
18,141

14,196

14,771

170
581

1,603
546

(103)
(1,001)

(156)
(630)

(66)

(66)

Increase (decrease) in net defined benefit liability
Increase (decrease) in remeasurements of defined benefit plans
Increase (decrease) in provision for directors' retirement benefits(2,626)
744
(7)

(766)
384
16

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

213
(889)
129

401
269
(97)

(1,483)(1,789)Interest and dividend income
Interest expenses

772

848

Subsidy income
Penalty income-(2,683)(366)

Loss due to COVID-19

-

4,865

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

(69)
2
226

561

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

(692)
(66)

(0)
(56)

Loss on retirement of non-current assets
Business restructuring expenses

773
3,854

1,114
-

375

-

461
4,857
3,783

(10,365)
6,248

Increase (decrease) in notes and accounts payable - trade
Increase (decrease) in accrued consumption taxes
Increase (decrease) in gift certificates(14,955)566(1,799)

5,326
2,714
201

Increase (decrease) in advances received
Other

69
(2,411)

(847)
2,663

SubtotalInterest and dividend income received
Interest expenses paid

14,785
1,368(766)

18,8201,640(769)

Income taxes paid
Subsidies received
Penalty income received(5,525)-(1,858)
2,683
366

-

(4,848)(3,279)

69
(60)
9,871

12,755

Loss on liquidation of business
Loss (income) on share exchanges
Decrease (increase) in notes and accounts receivable - trade
Decrease (increase) in inventories

Payments for loss due to COVID-19
Payments for additional retirement benefit for early retirement
Proceeds from insurance income
Payments for loss on disaster
Cash flows from operating activities

50

Millions of yen

2020

2021

Cash flows from investing activities
Decrease (increase) in time deposits
Purchase of property, plant and equipment
Proceeds from sales of property, plant and equipment
Purchase of intangible assets
Proceeds from sales of intangible assets
Payments for asset retirement obligations
Purchase of investment securities
Proceeds from sale and redemption of investment securities
Payments for transfer of business (Note 12)
Payments for transfer of business (Note 12)
Payments of long-term loans receivableCollection of long-term loans receivable
Payments for guarantee deposits
Proceeds from collection of guarantee deposits
Payments for sale of shares of subsidiaries resulting in change in scope of consolidation
Other
Cash flows from investing activities(26,675)
9,138(6,938)0(205)(1,288)3,699(648)(2,685)
2,554
(962)
1,549
(23)
35
(22,451)(13,952)
1,429(4,087)
(158)
(219)
(150)
(4,402)
449
(317)
695
(47)
(20,761)

Cash flows from financing activities
Net increase (decrease) in short-term loans payable
Proceeds from long-term loans payable
Repayments of long-term loans payable
Proceeds from issuance of bonds
Redemption of bonds
Proceeds from sales of treasury shares
Purchase of treasury shares
Cash dividends paid
Repayments of lease obligations
Proceeds from sale and leaseback transactions
Payments from changes in ownership interests in subsidiaries that do not result in change in scope of consolidation
Cash flows from financing activities
Effect of exchange rate change on cash and cash equivalents
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Decrease in cash and cash equivalents resulting from exclusion of subsidiaries from consolidation
Cash and cash equivalents at end of year (Note 12)

7,000
98
(20,375)
0(2)(4,944)(959)
2,742(16,440)(119)(29,139)
55,229(130) \
25,958 \(15,000)
70,000(18,175)0(1)(4,018)(943)
31,859179
24,03325,95849,991

See accompanying notes.

51

\
\

Notes to the Consolidated Financial Statements
H 2 O RETAILING CORPORATION and Consolidated Subsidiaries

1. Basis of Presenting Consolidated Financial Statements
The accompanying consolidated financial statements have been prepared in accordance with the provisions set
forth in the Japanese Financial Instruments and Exchange Act and its related accounting regulations and in
conformity with accounting principles generally accepted in Japan (“Japanese GAAP”), which are different incertain respects as to application and disclosure requirements from International Financial Reporting Standards.
H2O RETAILING CORPORATION (“the Company”) and its consolidated domestic subsidiaries maintain theirofficial accounting records in Japanese yen. The accompanying consolidated financial statements have been
restructured and translated into English, with some expanded descriptions, from the consolidated financial
statements of the Company prepared in accordance with Japanese GAAP and filed with the appropriate Local
Finance Bureau of the Ministry of Finance as required by the Financial Instruments and Exchange Act. Certain
supplementary information included in the statutory Japanese language consolidated financial statements, but notrequired for fair presentation, is not presented in the accompanying consolidated financial statements.
As permitted by the regulations under the Financial Instruments and Exchange Act of Japan, amounts of less than
one million yen have been omitted. As a result, the totals shown in the accompanying consolidated financial
statements in yen do not necessarily agree with the sums of the individual amounts.

2. Summary of Significant Accounting Policies
Consolidation and investments in associates
The accompanying consolidated financial statements include the accounts of the Company and significant
companies (together, “the Companies”) over which the Company has power of control through majority voting
rights or the existence of certain other conditions evidencing control by the Company. Investments in associates
over which the Company has the ability to exercise significant influence over operating and financial policies areaccounted for by the equity method.
The consolidated financial statements include the accounts of the Company and its 50 (55 in 2020) majority owned
subsidiaries. All significant intercompany transactions and accounts have been eliminated in consolidation. The
principal subsidiaries are Hankyu Hanshin Department Stores, Inc., Izumiya Co., Ltd. and Hankyu Oasis Co., Ltd.
From the year ended 31st March 2021, the following companies have been excluded from the scope of consolidation.
Profit and losses and cash flows for the period until liquidation were included in the consolidated statements of52

operations, consolidated statements of comprehensive income and consolidated statements of cash flows.
⚫

CFIZ Co., Ltd. (due to sale of shares)⚫

CARNET CO., LTD. (due to liquidation)⚫

Hankyu Kitchen Yell Kyushu, Inc. (due to liquidation)⚫

Izumiya Research Institute Co., Ltd. (due to liquidation)⚫

Hankyu Design Systems Co., Ltd. (due to liquidation)

The equity method was applied to 8 (7 in 2020) associates for the year ended 31st March 2021. The principal
associates were Ningbo Development Co., Ltd. and Hankyu Hanshin Point Co., Ltd.
From the year ended 31st March 2021, the following company has been included in associates accounted for using
equity method.
⚫

CFIZ Co., Ltd. (as a result of transfer to an equity method associate due to sale of shares)

In the year ended 31st March 2021, 4 (4 in 2020) consolidated subsidiaries had a financial year ending on 31st
December. With respect to the period from the subsidiary’s year-end to 31st March, necessary adjustments weremade for significant transactions to reflect them appropriately in the consolidated financial statements.
Securities
Investment securities consist principally of marketable and nonmarketable equity securities. The Companies
categorise the securities as “available-for-sale.” Available-for-sale securities with fair market values are stated at fairvalue. Unrealised holding gains and losses on these securities are reported, net of applicable income taxes, as aseparate component of net assets. Realised gains and losses on sales of such securities are determined principally by
the average cost method. Available-for-sale securities with no fair market value are stated at average cost.
If the fair market value of available-for-sale securities declines significantly, the securities are stated at fair market
value, and the difference between fair market value and the carrying amount is recognised as loss in the period of
decline. If the net asset value of available-for-sale securities with no available fair market value declines significantly,
the securities are written down to the net asset value and charged to income. In these cases, the fair market value or
the net asset value will be carried forward as book value to the next year.
Inventories
Inventories are stated at cost. The book value of inventories is reduced on the basis of declines in profitability and isdetermined principally by the retail method for merchandise and finished goods and the weighted average method
for work in process and raw materials and supplies.
Property, plant and equipment
Property, plant and equipment, excluding lease assets, are carried at cost. Depreciation is computed principally by
the straight-line method at rates based on the estimated useful life of the asset. Expenditures for maintenance and53

repairs, including minor replacements and betterments, are charged to income as incurred. The estimated useful
lives of buildings and structures, machinery, equipment and vehicles, and other assets are 1 to 60 years, 2 to 17 years,
and 1 to 20 years, respectively.
Software
Software is amortised using the straight-line method over the estimated useful life of 5 years.
Leased assets
Leased assets under lease contracts that do not transfer ownership of the leased property to the lessee are depreciatedusing the straight-line method over the period of the lease with a residual value at zero.
Allowance for doubtful accounts
The allowance for doubtful accounts is provided in amounts management considers sufficient to cover possible losses
on collection. With respect to normal trade accounts receivable, it is stated at an amount based on the actual rate ofhistorical bad debts, and for certain doubtful receivables, the uncollectible amounts are individually estimated.
Provision for bonuses
The Companies accrue estimated amounts of employee bonuses based on the estimated amount to be paid in thesubsequent period.
Provision for directors' bonuses
The Companies accrue bonuses for directors based on estimated payments to be made after the end of the year.
Provision for loss on store closings
The Companies provide provision for loss on the closing of stores based on the estimated amount to be incurred in
the future.
Provision for point card certificates
The Companies provide provision for point card certificates based on the estimated amount to be incurred for sales
promotion expenses from the use of points given to customers.
Provision for directors’ retirement benefits
With regard to retirement benefits for directors of some consolidated subsidiaries, the liability for lump-sum
payments is stated at the amount which would be required to be paid if they retired as of the balance sheet date. The
amount of provision for executive officers' severance and retirement benefits as of 31st March 2020 and 2021 was¥15 million and ¥15 million, respectively.
Provision for redemption of gift certificates
The Companies record a liability for gift certificates upon the issuance of the certificates to its customers. If the gift54certificates are not redeemed by customers within a certain time period, the Companies reverse the liability andrecognise a gain. A provision is recorded by the Companies for the unredeemed gift certificates previously
recognised as gain based on the estimated future redemption of those certificates.
Retirement benefits
The Companies apply the benefit formula to attribute the estimated amount of retirement benefits to the fiscal year
upon calculation of projected benefit obligation. Past service cost is recognised in expenses in equal amounts within
the average of the estimated remaining service years. Actuarial gains and losses are recognised in expenses in equalamounts within the average of the estimated remaining service years commencing with the following period.
Unrecognised actuarial gains and losses and unrecognised past service cost are recorded in “Remeasurements ofdefined benefit plans” in “Accumulated other comprehensive income” under “Net assets” with the tax effectadjustments.
Translation of foreign currencies
Monetary assets and liabilities denominated in foreign currency are translated into Japanese yen at the rates
prevailing at each balance sheet date, and the resulting translation gains and losses are charged to income. In thetranslation of the financial statements of the overseas subsidiary, assets and liabilities are translated at the rates
prevailing at the subsidiary's balance sheet date, revenue and expenses are translated using the average exchange
rate for the fiscal year, and shareholders' equity accounts are translated at historical rates. The resulting foreign
currency translation adjustment is shown as a separate component of net assets.
Hedge accounting(a) Accounting method
Deferral hedge accounting is adopted for hedge transactions. The Company applies the designation method forforeign exchange forward contracts and for currency swaps in cases in which the specific requirements for thistreatment are fulfilled. The Company applies the special accounting treatment for interest rate swaps in cases inwhich the specific requirements for this treatment are fulfilled.
(b) Hedging instruments and hedged items(1)Hedging instruments: Interest rate swaps, currency swaps
Hedged items: Loans payable(2)Hedging instruments: Foreign exchange forward contracts
Hedged items: Monetary assets and liabilities denominated in foreign currency(c) Policies on hedges
As for interest related derivatives, interest rate swaps are used to exchange floating rates to fixed rates. In addition,
foreign exchange forward contracts and currency swaps are used to avoid losses from foreign exchange market
fluctuation. As a policy, the Company does not enter derivatives for speculative purpose or with a high leverage
effect.
55

(d) Evaluation of hedge effectiveness
The Companies assess hedge effectiveness by comparing the cumulative variation in cash flows of hedged items andthe cumulative variation in cash flows of the hedging instruments. The Companies do not evaluate the effectivenessof hedges for interest rate swaps under special accounting treatment since the interest payments and terms of theswaps are consistent with those of the hedged items.
Goodwill
The difference between the cost of investments in consolidated subsidiaries and the equity in their net assets at thedate of acquisition is generally amortised over 10 to 20 years. However, if the amount is insignificant, it is charged
as expense as incurred.
Cash flow statements
In preparing the consolidated statements of cash flows, cash on hand, readily available deposits and short-term
highly liquid investments with maturities not exceeding three months at the time of purchase are considered to be
cash and cash equivalents.
Consumption taxes
Consumption taxes are excluded from revenue and expense accounts, which are subject to such taxes. However, thenon-deductible portion of consumption taxes is accounted for as expense in the same year the taxes are incurred.
Per share information
Computations of basic profit per share are based on the weighted average number of shares outstanding during eachperiod. For diluted profit per share for the years ended 31st March 2020 and 2021, see Note 23.
Cash dividends per share presented in the five-year summary of the accompanying consolidated financial statements
are dividends applicable to the respective years, including dividends to be paid after the end of the year.

3. Significant Accounting Estimates
Impairment on non-current assets(1) Amounts recorded in the consolidated financial statements for the year ended 31st March 2021
The Group operates various types of retail stores such as department stores, GMS, supermarkets, etc., andconstantly makes capital investments in new stores, renewal of facilities, etc.
As for non-current assets recorded from such capital investments, recoverable amounts (useable values or net
saleable values) are estimated and book values as of the balance sheet date are recorded in the consolidated balance
sheets to the extent that the assets are deemed to have a recoverable amount capable of exceeding that book value.
56

The amounts recorded in the consolidated balance sheet after the above estimates and valuations as of 31st March
2021 were as follows:
Property, plant and equipment: ¥261,386 million
Intangible assets: ¥16,729 million(2) Methods used to estimate the recoverable amounts
The recoverability of non-current assets is determined on each measuring unit principally based on stores.
When there is an indication of impairment such as incurring operating losses for two consecutive fiscal years in acertain store, future expected operating cash flows by store after allocating corporate expenses as common
department are estimated over the economic remaining useable years of the major non-current assets of therelevant store. Impairment losses are recorded for the store where the estimated future operating cash flows are
below book values of store assets as of the balance sheet date.
The recorded amounts of the impairment losses are calculated as difference between the present values of the
future expected operating cash flows by store after allocating corporate expenses discounted using WACC andbook values of store assets as of the balance sheet date.
Expected amounts by store reflect every identifiable element which effects store operations including new store
openings by competitors in neighborhood areas, changes in external circumstances such as demographic trends intrade areas, effects of policies to decrease costs corresponding to environmental changes and measures to attract
customers, etc. based on the recent customer trends.
Discount rates are calculated using the weighted average methods with the cost of equity calculated using thecapital asset pricing model (CAPM) and the cost of debt calculated using the actual borrowing rates based on thedebt equity ratio (D/E ratio) of the Group as of the balance sheet date. 3.6% is used for the year ended 31st March
2021.
Regardless of the above, for stores and other assets on which the decision of closing or sales were made,
impairment loss is recognised to reduce the book value to the recoverable amount which is measured at the net
saleable values primarily based on the value appraised by real estate appraisers.
(3) Effects on the consolidated financial statements for the year ending 31st March 2022
The estimates could be affected by changes in the future uncertain economic conditions, etc. There could besignificant effects on the consolidated financial statements for the year ending 31st March 2022 if timing or
amounts of the actual cash flows differ from the estimates or the discount rates fluctuate significantly due tofluctuation in share prices or borrowing rates, etc.
Recoverability of deferred tax assets
57

(1) Amounts recorded in the consolidated financial statements
Each entity of the Group has temporary deductible differences derived from impairment losses on stores whose
profitability has declined, tax loss carryforwards, etc. Deferred tax assets are recognised to the extent that theamounts are reasonably expected to reduce the future tax burden by estimating the amounts of future taxable
income and timing and amounts of utilising temporary deductible differences.
The amounts of deferred tax assets are same as those described in Note 19. “Income Taxes.”(2) Methods used to estimate the recoverable amounts
To determine the recognition of deferred tax assets, each entity of the Group is classified into five categories inaccordance with “Implementation Guidance on Recoverability of Deferred Tax Assets” (Accounting Standards
Board of Japan (“ASBJ”) Guidance No. 26) based on level of taxable income in prior years, situation of temporary
deductible differences, situation of significant tax loss carryforwards, etc. According to the classification,scheduling of expected utilization of taxable income and temporary deductible differences of each entity of theGroup is projected and only the amounts that are expected to be recoverable are recorded.
Calculation of estimated future taxable income of each entity of the Group is provided carefully considering thetrends of operating results of each entity to date, expected changes in the external circumstances in the future andthe effects of measures, etc. to improve profitability corresponding to changes in the external circumstances.
(3) Effects on the consolidated financial statements for the year ending 31st March 2022
The estimates could be affected by changes in the future uncertain economic conditions, etc. There could besignificant effects on the consolidated financial statements for the year ending 31st March 2022 if timing or
amounts of the actual taxable income differ from the estimates.

4. Additional Information
Accounting Estimates Relating to the Spread of the Novel Coronavirus (COVID-19)
The Company made accounting estimates based on the assumption that the effects of the COVID-19 on theoperating results will continue for a certain period while the situation will gradually recover towards the end of theyear ending 31th March 2022. The actual results may be different from this assumption since there are uncertain
factors for estimating the timing when the COVID-19 is ending, etc.

5. Change in Accounting Policies
Change in Valuation Criteria and Valuation Methods for Inventories
For a certain consolidated subsidiary of the Company, inventories were stated at cost and the book value of
inventories was reduced based on the declines in profitability and determined principally by the retail method.
58

From the beginning of the year ended 31st March 2021, the valuation method is changed to the lower of cost or
market method and the book value of inventories is reduced based on the declines in profitability and determinedprincipally by the retail method since required information became available as a result of system integration ofsupermarket business.
It is practically impossible to retroactively adopt this accounting policy since the integrated system does notcontain the required data for prior years. Accordingly, the cumulative effects calculated based on the difference
between the book value of inventories as of the beginning of the year ended 31st March 2021 under the new
valuation method and the book value of inventories as of the end of the year ended 31st March 2020 has beenreflected in the beginning balance for the year ended 31st March 2021.
As a result of this change, retained earnings as of the beginning of the year ended 31st March 2021 decreased by\308 million. The effect on the cost of sales, each step profits or loss and per share information for the year ended
31st March 2021 was immaterial.

6. Accounting Standards not yet Applied“Accounting Standard for Revenue Recognition” (ASBJ Statement No. 29, 30th March 2018)“Implementation Guidance on Accounting Standard for Revenue Recognition” (ASBJ Guidance No. 30, 30th
March 2018)(Overview)
This is a comprehensive accounting standard for revenue recognition. Revenue is recognised by applying thefollowing five steps:
Step 1: Identify the contract with customers.
Step 2: Identify the performance obligations in the contract.
Step 3: Determine the transaction price.
Step 4: Allocate the transaction price to the performance obligations in the contract.
Step 5: Recognise revenue when (or as) the entity satisfies performance obligations.
(Date of Application)
The Company will apply the accounting standard and the implementation guidance from the beginning of theyear ending 31st March 2022.
(Effect of Application)
The Company is in the process of determining the effect of the application.
“Accounting Standard for Fair Value Measurement” (ASBJ Statement No. 30, 4th July 2019)59

“Implementation Guidance on Accounting Standard for Fair Value Measurement” (ASBJ Guidance No. 31, 4thJuly 2019)“Accounting Standard for Measurement of Inventories” (ASBJ Statement No. 9, 4th July 2019)“Accounting Standard for Financial Instruments” (ASBJ Statement No. 10, 4th July 2019)“Implementation Guidance on Disclosures about Fair Value of Financial Instruments” (ASBJ Guidance No. 19,
31th March 2020)(Overview)
In order to enhance comparability with internationally recognised accounting standards, “Accounting Standard for Fair Value
Measurement” and “Implementation Guidance on Accounting Standard for Fair Value Measurement” (together, hereinafterreferred to as “Fair Value Accounting Standards”) were developed and guidance on methods measuring fair value was issued.
Fair Value Accounting Standards are applicable to the fair value measurement of the following items:- Financial instruments in “Accounting Standard for Financial Instruments”; and- Inventories held for trading purposes in “Accounting Standard for Measurement of Inventories.”(Date of Application)
The Company will apply the accounting standard and the implementation guidance from the beginning of theyear ending 31st March 2022.
(Effect of Application)
The Company is in the process of determining the effect of the application.

60

7. Changes in Presentation
Application of “Accounting Standard for Disclosure of Accounting Estimates”
The Company and its subsidiaries adopted "Accounting Standard for Disclosure of Accounting Estimates" (ASBJ
Statement No. 31, 31th March 2020) to the consolidated financial statements for the year ended 31th March 2021,
and therefore significant accounting estimates are disclosed in the note to the consolidated financial statements.
The note does not include information for the year ended 31th March 2020 in accordance with the transitional
provision set out in paragraph 11 of the Accounting Standard.

8. Matters Related to Consolidated Balance Sheets1.

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

2020
Reduction entry amount:

2.

\

2021
568 \

568

Buildings and structures

368

407

Machinery, equipment and vehicles

64

64

Land

44

58

Construction in progress

52

－

Other

38

38

Assets related to associates were as follows:
Millions of yen

2020
Investment securities (stocks)\[Investments in entities under common control]

61

2021

10,388 \10,106[9,480][9,191]

3.

Pledged assets

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

2020
Buildings and structures\

1,756 \

－

2,230

－

\

3,986 \－\

1,900 \－\

1,900 \－

Land

Current portion of long-term loans payable2021

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

2020
Guarantee deposits

\

2021
134 \

134

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

2020
Guarantee deposits

\

2021
10 \

10

Deposits under the Travel Business Act were as follows:
Millions of yen

2020
Guarantee deposits

4.

\

2021
2 \

2

Land revaluation

In accordance with the Act on Revaluation of Land and Act on Partial Amendment to the Act on Revaluation ofLand, land used for business owned by the Company and some consolidated subsidiaries was revaluated. The
unrealised gains and losses, net of deferred taxes, were excluded from the statements of operations and reported as“Revaluation reserve for land” in net assets, and the relevant deferred taxes were shown as “Deferred tax liabilities
for land revaluation” in liabilities at 31st March 2020 and 2021.

62

Related information was as follows:
Millions of yen

2020

Date of revaluations: 28th February 2002 and 31st March 2002
Difference between book value of land after revaluation and market value of land

5.

\

2021
(826)

\

(792)

Commitment agreements

In order to obtain working funds efficiently, the Company had loan commitment agreements with 3 (2 in 2020)
financial institutions. The loan commitment facilities and unused balances as of 31st March 2020 and 2021 were as
follows:
Millions of yen

2020
Total loan commitment facilities\

20,000 \Outstanding balances
Unused balances

2021
50,0006,000\－

14,000 \50,000Some consolidated subsidiaries provide financial services using card loans and credit cards. The overdraft
commitment facilities and unused balances as of 31st March 2020 and 2021 were as follows:
Millions of yen

2020
Total overdraft commitment facilities\

Outstanding balances
Unused balances

\

2021

5,632 \

12,795416

406

5,215 \

12,388The overdraft commitment facilities include overdraft contracts that are executed subject to the customer's use offunds and credit condition. Thus, the total facilities are not always executed.

6.

Specified accounts pertaining to business combination

For the years ended 31st March 2020 and 2021, due to the business transfer from Sogo & Seibu Co., Ltd. effective
on 1st October 2017, specified accounts pertaining to business combination were recorded for expenses necessary
for replacing customer credit cards (new issuance) in the amount of \665 million and \443 million, respectively. In
the consolidated balance sheets, they were recorded in “Other” under “Non-current liabilities.”63

9. Matters Related to Consolidated Statements of Operations
1.

Reduction in the book value of inventories

Reduction in book value of inventories held for ordinary sale due to a decline in profitability for the years ended
31st March 2020 and 2021 was as follows:
Millions of yen

2020
Cost of sales

2.

\

2021
596 \

706

Subsidy income

Subsidy income for the year ended 31st March 2021 consisted of employment adjustment subsidy for personnel
expenses for employees on leave.

3.

Penalty income

Penalty income for the year ended 31st March 2021 consisted mainly of penalty income Hankyu Oasis Co., Ltd.
received due to tenants closing before the end of lease agreements.

4.

Gain on sales of non-current assets

Gain on sales of non-current assets for the year ended 31st March 2020 consisted mainly of gains on the sales ofbuildings and structures, as well as land of H2O Asset Management Co., Ltd.

5.

Gain on sales of investment securities

Gain on sales of investment securities for the year ended 31st March 2020 consisted of gains on the sales of sharesof Mitsubishi Logistics Corporation and Wacoal Holdings Corp. by H2O RETAILING CORPORATION.

64

6. Impairment loss
The Companies recognise asset groups based on certain rules. As for stores and others, asset groups are based on
the management unit of performance. As for the idle assets and the assets to be sold, each individual asset
constitutes an asset group.
The Companies recorded impairment loss for the year ended 31st March 2020 as follows:
Millions ofCompany

Asset Group

Use

Location

Type of Assets
yen

Koryo store,

Buildings and structures

Katata store,
Izumiya Co., Ltd.

Kitakatsuragi-gun, Machinery, equipment and vehicles¥5,182
81

Store
Okubo store andNara and other
Other

911

other
Itamikonoike

Buildings and structures

store,

Machinery, equipment and vehicles

294

Other

581

Kitchen &Hankyu Oasis Co., Ltd.

¥3,892Itami City andStore

Market Lucua

other

Osaka store andotherHankyu Men's

Buildings and structures

Tokyo,

Machinery, equipment and vehicles

Hankyu Hanshin¥1,967
5

Chiyoda-ku, Tokyo
Takarazuka

Store

Department Stores, Inc.

and other
Hankyu and

Other

252

Buildings and structures

¥558

Land

165

Buildings and structures

¥200

other
Store
H2O Asset Management

Kawachinagano

Co., Ltd.

store and other

Kawachinagano
and landCity and otherfor rent
Store

Izumiotsu store
Qanat Co., Ltd. and otherIzumiotsu City andandand other

Machinery, equipment and vehicles

25

Other

246

other
other

For Izumiya Co., Ltd., Hankyu Oasis Co., Ltd., Qanat Co., Ltd. and other companies, impairment loss wasrecognised for asset groups in stores with continuous negative cash flows from operating activities and asset groups
in closed stores.
For Hankyu Hanshin Department Stores, Inc., impairment loss was recognised for asset groups in stores with
continuous negative cash flows from operating activities.
For H2O Asset Management Co., Ltd., impairment loss was recognised for asset groups in stores with continuous
negative cash flows from operating activities and certain land resulting from a decline in market value.
65

The recoverable amounts of assets were principally the present value of expected cash flows from on-going use andsubsequent disposal of the assets based on a discount rate of 3.4%. For some asset groups, the recoverable amounts
were the net saleable values based on the expected sales amounts and the real estate appraisal value, etc.
As a result, the Group recognised a total of \14,366 million of impairment loss, of which, \170 million in connection
with the closing of Hankyu Oasis Co., Ltd. and other stores was included in “Loss on store closings” and \14,196
million was included in “Impairment loss” under “Extraordinary losses” in the consolidated statement of operations.

66

The Companies recorded impairment loss for the year ended 31st March 2021 as follows:
Company

Asset Group

Hankyu Hanshin

Takatsuki Hankyu,

Department Stores,

Kobe Hankyu andUse

Location

Type of Assets

Millions of yen

Buildings and structures¥3,938

Takatsuki City, Osaka Machinery, equipment and
37

Store
vehiclesand other
Inc.

other
Other
Buildings and structures

Nishinomiya¥2,732

Machinery, equipment andGardens store,
H2O Shopping Center

Osaka City, Osaka
Fukumachi store,

310

Store

Development Co., Ltd.

and other
Hakubaicho store
and other17
vehicles
Land

293

Other

304

Buildings and structures¥1,432

Hankyu Shopping
Rakuhoku Hankyu
Center Development

Kyoto City, Kyoto

Machinery, equipment andand othervehiclesStore
Square and other112

Co., Ltd.
Land
Kyuedosaki store,andH2O Asset

Other

304

Buildings and structures

¥782

Land

662

Other

37

Inashiki City, Ibaraki
Okubo store andbuildings

otherfor rent,

Management Co., Ltd.

and otherand store
Buildings and structures

Izumifuchu store,
Shinchujo store,
Izumiya Co., Ltd.

Izumiotsu City,

Machinery, equipment andOsaka and othervehiclesStore
Harayamadai store

58

and other
Shinko Management,

Other

Takatsuki Hankyu
and Kobe Hankyu

Buildings and structures\1,217

Buildings and structures\551

and other

Fukushima
Osaka City, Osaka
Hankyu Oasis Co., Ltd. Fukumarudori

Store

Machinery, equipment and26
vehiclesand other
Store and other

Land

69

Other

282

Buildings and structures
Hanshin Umeda\1,290Machinery, equipment and

Store

45

Osaka City, Osakaasnas Co., Ltd.

297

Takatsuki City, Osaka
Store

Inc.

¥925

vehiclesHigashiguchi Store andand otherand other

other

67

Goodwill

54

Other

589

For Hankyu Hanshin Department Stores, Inc., H2O Shopping Center Development Co., Ltd., Hankyu Shopping
Center Development Co., Ltd., Izumiya Co., Ltd., Hankyu Oasis Co., Ltd., asnas Co., Ltd. and other companies,
impairment loss was recognised to the recoverable amounts for asset groups in stores with continuous negative cash
flows from operating activities and asset groups in closed stores.
For H2O Asset Management Co., Ltd. and Shinko Management, Inc., impairment loss was recognised to therecoverable amounts for asset groups in stores with continuous negative cash flows from operating activities.
The recoverable amounts of assets were principally the present value of expected cash flows from on-going use andsubsequent disposal of the assets based on a discount rate of 3.6%. For some asset groups, the recoverable amounts
were the net saleable values.
As a result, the Group recognised a total of \16,374 million of impairment loss, of which, \1,603 million inconnection with the closing of H2O Shopping Center Development Co., Ltd. and other stores was included in “Losson store closings” and \14,771 million was included in “Impairment loss” under “Extraordinary losses” in the
consolidated statement of operations.

7.

Loss due to COVID-19

Loss due to COVID-19 for the year ended 31st March 2021 is summarised below:
Millions of yen

2021\

Personnel expenses for employees on leave
Rent and depreciation expenses while businesses were closed

1,728

Other (Store decontamination expenses, event cancellation fees and other)

339
\

Total

8.

3,285

5,353

Loss on store closings

Loss on store closings for the years ended 31st March 2020 and 2021 is summarised below:
Millions of yen

2020
Izumiya Stores

210 \

1,466

Hankyu Oasis Stores

104

164

SELCY

194

44

Other

238

427

Total

\

2021

\

(*1) 747 \(*2) 2,103*1. The amount included an impairment loss of \170 million, rent penalty and other of \43 million, expenses forstore closing of \334 million and a loss on retirement of non-current assets of \93 million in connection withstore closings for the year ended 31st March 2020.
68*2. The amount included an impairment loss of \1,603 million, rent penalty and other of \162 million, expenses
for store closings of \154 million and a loss on retirement of non-current assets of \78 million in connection
with store closings for the year ended 31st March 2021.

9.

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

2020
Buildings and structures\

Machinery, equipment and vehicles

2021
557 \

531

17

23

(*1)

Removal cost
Other

199
\

Total

(*2)

1,168

584
\

(*1) 1,941

882

(*2)
2,02
2

*1. The amounts included a loss on retirement of non-current assets for Izumiya Miyazaki store and other of \93million for the year ended 31st March 2020, which is presented in “Loss on store closings” under “Extraordinary
losses.”*2. The amounts included a loss on retirement of non-current assets for Yao Mall store and other of Qanat Co. Ltd.
of \78 million for the year ended 31st March 2021, which is presented in “Loss on store closings” under“Extraordinary losses.”
10. Business restructuring expenses

For the year ended 31st March 2020, business restructuring expenses consisted of the additional payment for early
retirement of \3,289 million and a loss on valuation of goods of \560 million in connection with business model
conversion of Izumiya Co., Ltd.
11. Loss on sale of non-current assets

For the year ended 31st March 2020, the amount of loss on sale of non-current assets consisted mainly of loss onsale of buildings and structures, land and other of H2O Asset Management Co., Ltd.
12. Loss on liquidation of business

For the year ended 31st March 2020, the amount of loss on liquidation of business related to liquidation of Hankyu
Kitchen Yell Kyushu, Inc. of \417 million and sale of shares of Withsystem Inc. of \241 million.
13. Loss on share exchanges

For the year ended 31st March 2020, the amount of loss on share exchanges related to share exchanges of
KAZOKUTEI CO., LTD. and Sun Laurie Co., Ltd. with SRS HOLDINGS CO., LTD.

69

10. Matters Related to Consolidated Statements of Comprehensive Income
The recycling and effect of deferred income taxes on other comprehensive income for the years ended 31st March
2020 and 2021 is summarised as follows:
Millions of yen

2020

2021

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

Reclassification adjustments(24,422)\

19,068(692)－(25,114)19,068

7,684(5,834)(17,429)

13,233

Amount arising for the year

(47)

52

Reclassification adjustments

－

－

(47)

52

－

－

(47)

52

Amount arising for the year

469

(123)

Reclassification adjustments

618

573

1,088

450

(343)

(66)

744

384

(291)

115

Amount before the effect of deferred income tax
Effect of deferred income tax
Valuation difference on available-for-sale securities
Foreign currency translation adjustment

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

Amount before the effect of deferred income tax
Effect of deferred income tax
Remeasurements of defined benefit plans, net of tax
Share of other comprehensive income of entities accounted forusing equity method

Amount arising for the year
Total other comprehensive income\

70(17,024)\

13,786

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

Changes in number of shares issued and outstanding during the years ended 31st March 2020 and 2021
were as follows:

Common stock outstanding

Number of shares

2020

2021

125,201,396

125,201,396

Increase––

Decrease––

125,201,396

125,201,396

Balance at beginning of year

Balance at end of year

Treasury shares outstanding

Number of shares

2020

2021

1,609,297

1,558,219

Increase due to purchase of odd-lot shares

2,230

2,414

Decrease due to sales of odd-lot shares

(308)

(325)

Decrease due to exercise of stock options(53,000)(90,500)

Balance at end of year

1,558,219

1,469,808

Balance at beginning of year

71

2.

Subscription rights to shares
Millions of yen

2020

2021

H2O Retailing Corporation:
March 2009 stock options

\

10

\

8

March 2010 stock options

22

17

March 2011 stock options

30

22

February 2012 stock options

36

28

March 2013 stock options

88

65

March 2014 stock options

87

61

March 2015 stock options

193

144

March 2016 stock options

186

145

March 2017 stock options

165

160

March 2018 stock options

179

174

June 2018 stock options

159

152

110

106

40

–

–

50

July 2019 stock options A (stock-based compensation withseniority-based conditions)
July 2019 stock options B (stock-based compensation withperformance-based vesting conditions)
July 2020 stock options A (stock-based compensation withseniority-based conditions)
Total

3.

\

\

1,138

Record date

Effective date

31st March

30th May

2019

2019

30th

29th

1,312

Dividends

Dividends paid in the year ended 31st March 2020

Resolution

Millions of yen

Yen

Class of shares

Total dividends

Dividend per share

Common stock\2,471\20.0014th May 2019
Board ofDirectors’
meeting
31st October
2019
Board ofCommon stock\2,472\20.00

Directors’

September November
2019

meeting72

2019

Dividends with a record date in the year ended 31st March 2020 but an effective date in the year ended 31st March
2021
Millions of yen

Yen

Total dividends

Dividend per share

Class of
Resolution

Effective
SourceRecord datesharesdate

25th May 2020
Board ofCommonRetained

Directors’

stockearnings\2,472\20.0031st March

9th June

2020

2020

meeting
Dividends paid in the year ended 31st March 2021
Millions of yen

Yen

Dividend per
Resolution

Class of shares

Total dividends

Record date

Effective date

31st March

9th June

2020

2020

share

25th May 2020
Board ofCommonDirectors’

stock\2,472\20.00\1,545\12.50meeting
30th October
2020
Board ofDirectors’Commonstock

30th September 30th November
2020

2020

meeting
Dividends with a record date in the year ended 31st March 2021 but an effective date in the year ending 31st March
2022

Resolution

Class of shares

Millions of yen

Yen

Total

Dividend per

dividends

share\1,546\12.50SourceRecord date

Effective date

31st March

1st June

2021

2021

11th May 2021
Board ofCommonRetained

Directors’

stockearnings

meeting73

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

74

12. Cash Flows Information
1.

The reconciliation of cash and deposits shown in the consolidated balance sheets and cash and cash
equivalents shown in the consolidated statements of cash flows as of 31st March 2020 and 2021 was asfollows:
Millions of yen

2020\

Cash and deposits

25,958Time deposits with maturities exceeding three months\–\

Cash and cash equivalents

2.

2021

25,95849,991–\

49,991

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

The following is a summary of assets and liabilities related to a transfer of the HBC business and other of Izumiya
Co., Ltd., the amount of business transferred and the payments for the business transfer:
Millions of yen

2021
Current assets\

202

Non-current assets

84

Current liabilities(45)

Non-current liabilities

(285)

Other

44

Amount of business transferred1Cash and cash equivalents
Diff: Payments for transfer of business

(151)
\

150

75

3.

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

The following is a summary of assets and liabilities acquired by asnas Co., Ltd. and Hankyu Freds Co., Ltd. related
to a business transfer (acquisition), the amount of business acquired and the payments for the business transfer:
Millions of yen

2020
Current assets\

569

Non-current assets

967

Current liabilities(852)

Non-current liabilities(21)

Goodwill

91

Gain on bargain purchase(17)

Amount of business acquired

737

Cash and cash equivalents(89)

Diff: Payments for transfer of business

4.

648

\

Major components of the assets and liabilities at the time of exclusion from consolidation of subsidiaries
which became non-consolidated subsidiaries due to share exchanges

The following is a summary of assets and liabilities at the time of exclusion from consolidation of Sun Laurie Co.,
Ltd. and KAZOKUTEI CO., LTD., which became non-consolidated subsidiaries due to share exchanges:
Millions of yen

2020
Current assets (Note)

\

1,441

Non-current assets

5,433

Total assets

\

6,875

Current liabilities

\

1,406

Non-current liabilities
Total liabilities

3,382
\

4,789

Note: Cash and cash equivalents of \130 million is included and presented in “Decrease in cash and cash equivalents
resulting from exclusion of subsidiaries from consolidation” in the consolidated statements of cash flows.

5.

Significant noncash transactions were as follows:
Millions of yen

2020
Assets and liabilities in connection with financelease transactions\

Asset retirement obligations

76

2021

5,654 \

5

845

986

13. Lease Transactions
Finance lease transactions
The Group as lessee
Finance leases that are not deemed to transfer ownership of the lease property to the lessee(1) Breakdown of lease investment assets
Property, plant and equipment
Store facilities (buildings and structures) and merchandise display shelves and computers (other) in the
supermarket business are included in property, plant and equipment.
(2) Method of depreciation of leased assets
Leased assets under lease contracts that do not transfer ownership of the leased property to the lessee are depreciatedusing the straight-line method over the period of the lease with a residual value at zero.
Operating lease transactions
Future lease payments for non-cancellable operating leases:
The Group as lessee
Millions of yen

2020
Payments due within one year\

Payments due after one year
Total

\

2021

14,863 \14,87961,48552,27976,349 \67,159The Group as lessor
Millions of yen

2020
Payments due within one year\

Payments due after one year
Total

\

77

2021

2,828 \

2,382

13,137

10,953

15,965 \13,336

14. Financial Instruments
1. Matters related to financial instruments(1) Policies for financial instruments
In accordance with its capital investment plan, the Group procures needed funds primarily through loans frombanks, commercial papers and the issuance of bonds. Temporary surplus funds are invested in highly secure
financial assets. Derivative transactions are carried out within the confines of real demand according to internal
control regulations, and no speculative transactions are performed.
(2) Financial instruments and their risks
Notes and accounts receivable - trade, which are operating receivables, and accounts receivable - other are subject
to credit risk. Investment securities are subject to market price volatility risk.
Notes and accounts payable - trade, which are operating payables, and accounts payable - other are almost all
subject to payment deadlines of one year or less. Commercial papers are used to procure necessary funds mainly
for short-term operations. Long-term loans payable and bonds payable are mainly for capital investment.
Repayment deadlines are at most 15 years and 11 months after the closing of accounts. Some are subject to interest
rate risk because of floating interest rates. Moreover, notes and accounts payable - trade, accounts payable - other,long-term loans payable and bonds payable are subject to the liquidity risk of the inability to make payment by thepayment due date.
The Company enters into interest rate swap transactions to hedge the fluctuation risk of interests on loans. The
Company also enters into foreign exchange forward contracts and currency swap transactions to hedge foreignexchange market fluctuation risk of monetary assets and liabilities denominated in foreign currency. Hedging
instruments and hedged items, policies on hedges and the evaluation of hedge effectiveness are stated in Note 2,“Summary of Significant Accounting Policies.”(3) Risk management system for financial instruments
Management of credit risk (risk of customer default on contract)
At Hankyu Hanshin Department Stores, Inc., a consolidated subsidiary, the management of customer service units
cooperates with the accounting office concerning notes and accounts receivable - trade arising from sales activities
according to sales management guidelines and credit management guidelines and routinely monitors the status of
key customers by managing due dates and balances for each. At the same time, this company attempts to quickly
determine if there are concerns about the collection of payment from particular customers due to worsening
financial conditions. Other consolidated subsidiaries also manage credit risk in the same way.
Management of market risk (risk of fluctuation in interest rates and foreign exchange markets)
To limit the risk of fluctuation in interest rate payments for long-term loans payable and bonds payable and to limit78the risk of foreign exchange market fluctuation of monetary assets and liabilities denominated in foreign currency,
the Company conducts derivative transactions only with major and highly trusted financial institutions according
to derivative management guidance.
Management of price volatility risk
The Company and Hankyu Hanshin Department Stores, Inc. invest in and manage securities and investment
securities according to securities management guidance. Other consolidated subsidiaries also manage pricevolatility risk in the same way.
Management of liquidity risk
The Company and Hankyu Hanshin Department Stores, Inc., manage liquidity risk for accounts payable - tradeand long-term loans payable following a cash management plan that the financial department prepares and updates
based on reports provided by all departments in accordance with accounting rules. Other consolidated subsidiaries
also manage liquidity risk in the same way.

79

2. Matters related to fair value of financial instruments
The book values recorded in the consolidated balance sheets for the years ended 31st March 2020 and 2021 (theconsolidated closing date for the reporting term) and fair values and differences between them are set forth in thetable below. Figures for which fair value was not readily determinable were not included in the chart (See “Note 2.
Financial instruments whose fair value is not readily determinable” shown below).
Millions of yen

2020
Book value(1) Cash and deposits\

Fair value

25,958(2) Notes and accounts receivable - trade44,445

Allowance for doubtful accounts

(165)

\

44,280(3) Accounts receivable - other

Difference

25,958\–44,280

–

7,462

7,462

–

79,127

79,127–

7,618

Allowance for doubtful accounts(156)(4) Investment securities
Available-for-sale securities
Total assets\

156,829\

156,829\–(1) Notes and accounts payable - trade\

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

21,976

21,976–(3) Short-term loans payable

15,00015,000–(4) Bonds payable

20,00020,210(210)(5) Long-term loans payable (*1)

116,713

117,017(304)

Total liabilities\

217,608\

218,122

\

(514)

\

–

\

–

\

–

\

–

\

–

\

–

Derivative transactions:
Hedge accounting is applied
Total derivative transactions

80

Millions of yen

2021
Book value(1) Cash and deposits\

Fair value

49,991(2) Notes and accounts receivable - trade54,385

Allowance for doubtful accounts

(205)

\

54,180(3) Accounts receivable - other

Difference

49,991\–

54,180

–

6,985

6,985

–

98,131

98,131–

7,025

Allowance for doubtful accounts(39)(4) Investment securities
Available-for-sale securities
Total assets\

209,289\

209,289\–(1) Notes and accounts payable - trade\

48,996\48,996\–(2) Accounts payable - other

26,89026,890–(3) Short-term loans payable

–

–

–

(4) Bonds payable

20,00020,050(50)(5) Long-term loans payable (*1)

168,547

168,555(7)

Total liabilities\

264,434\

264,492

\

(57)

\

–

\

–

\

–

\

–

\

–

\

–

Derivative transactions:
Hedge accounting is applied
Total derivative transactions*1. Figures shown include current portion of long-term loans payable.
Notes: 1. Matters related to the methods used to calculate fair value and derivative transactions of financial
instruments
Assets(1) Cash and deposits, (2) Notes and accounts receivable - trade and (3) Accounts receivable - otherBecause these items have short repayment periods, the fair value approximates book value. Therefore, the bookvalue is deemed to be the fair value.
(4) Investment securities
The fair value of these securities depends on their stock market price, while the fair value of bonds depends on theirstock market price or the price submitted by the correspondent financial institution.

81

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

Unlisted shares

2020

2021

Book value

Book value\

16,713\

16,616

Guarantee deposits

70,42570,029Long-term guarantee deposited

9,632

9,530

82

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

2020

Within 1 year

Cash and deposits\

Over 1 year but

Over 5 years but

within 5 years

within 10 years

Over 10 years

25,958

\

–

\

–

\

–

Notes and accounts receivable - trade44,445–––

Accounts receivable - other

7,618

–

–

–

Total

\

78,023

\

–

\

–

\

–

Millions of yen

2021

Within 1 year

Cash and deposits\

Over 1 year but

Over 5 years but

within 5 years

within 10 years

Over 10 years

49,991

\

–

\

–

\

–

Notes and accounts receivable - trade54,385–––

Accounts receivable - other

7,025

–

–

–

Total

\

111,402

83

\

–

\

–

\

–

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

2020
Short-term loans payable

Within 1 year

\ 15,000

Bonds payable
Long-term loans payable
Lease obligations
Total

Over 1 year

Over 2 years

Over 3 years

Over 4 years

but within 2

but within 3

but within 4

but within 5

years

years

years

years

– \

–

–

–

–

–

10,00010,00018,10046,35175

15,07575

37,080

910

940

912

1,755

652

9,545

\ 47,292 \987\ 16,831\ 10,728\ 56,626\ 34,010

\

\

–

\

–

Over 5 years\–

Millions of yen

2021
Short-term loans payable
Bonds payable
Long-term loans payable
Lease obligations
Total

Within 1 year\–

Over 1 year

Over 2 years

Over 3 years

Over 4 years

but within 2

but within 3

but within 4

but within 5

years

years

years

years

– \

–

–

–

–

10,000–10,00046,414365

15,289289

27,78978,457

910

926

1,757

653

675

8,870

\ 10,943 \ 28,465\ 97,328\ 47,324\\

1,292 \ 17,047

84

\

–

\

–

Over 5 years\–15. Investment Securities
The following tables summarise acquisition cost and book value (fair value) of available-for-sale securities withavailable fair values as of 31st March 2020 and 2021.

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

2020
Acquisition cost

Equity securities

\

Total

\

20,931

20,931

2021

Book value

Difference

Acquisition cost

Book value

Difference

\

\

\

\

\

63,972\43,040\63,97243,040\21,254

21,254\81,363\81,36360,10860,108Available-for-sale securities with book value not exceeding acquisition cost:
Millions of yen

2020
Acquisition cost

Equity securities

\

Total

\

21,572

21,5722021

Book value

Difference

\

\

\

15,15515,155\(6,417)(6,417)

Acquisition cost\\

21,185
21,185

Book value

Difference

\

\

\

16,768\

16,768(4,417)(4,417)

Unlisted securities (¥6,325 million in 2020 and ¥6,510 million in 2021) are not included in the above tables since
they do not have available fair values and it is extremely difficult to determine fair values.

The following table summarises sales of available-for-sale securities for the years ended 31st March 2020 and 2021:
Millions of yen

2020
Sales

Equity securities\

2,194 \

Gains of
sales

2021
Losses on sales

693 \

1 \

Gains of

Sales

sales

– \

Losses on sales– \–The Companies recognise impairment loss on investment securities when the market value of securities decreases
by 50% or more of the acquisition cost as of the balance sheet date or the market value continues to decrease by
30% or more throughout the fiscal year.
The “acquisition cost” which appears in the tables above is the book value after impairment loss. There was no85

impairment loss for the year ended 31st March 2020. Impairment loss for the year ended 31st March 2021 wasinsignificant and its disclosure was omitted.

8616. Derivative Transactions
Derivatives for which hedge accounting is applied(1) Currency related
For the year ended 31st March 2020
Millions of yen

2020
Type of derivative

Method of hedge accounting

Designation method for foreign exchange
forward contract

Note:

Hedged items

transactions

Currency swaps

Long-term

Receive USD/ Pay

loans

JPY

Contract

Due after one

Fairamount

year

value

3,500

(Note)

\

3,500

\

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

For the year ended 31st March 2021
Millions of yen

2021
Type of derivative

Method of hedge accounting

transactions

Designation method for foreign exchange
forward contract

Note:

Hedged items

Currency swaps
Receive USD/ Pay
JPYLong-term
loans

Contract

Due after one

amount

year

\

3,500

\

–

Fair value(Note)

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

(2) Interest related
For the year ended 31st March 2020
Millions of yen

2020
Method of hedge
accounting

Exceptional method forinterest rate swaps

Note:

Type of derivative transactions

Hedged items

Contract

Due after

amountone year

Fair value

Interest rate swaps
Pay fixed/ Receive

Long-term loans \

3,500

\

3,500

(Note)

floating

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

87For the year ended 31st March 2021
Millions of yen

2021
Method of hedge
accounting

Type of derivative transactions

Exceptional method forInterest rate swaps

interest rate swaps

Pay fixed/ Receive floating

Note:

Hedged items

Long-term loans \Contract

Due after

amountone year

3,500

\

–

Fair value(Note)

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

8817. Employees’ Severance and Retirement Benefits
The Companies provide three types of retirement benefit plans, unfunded lump-sum payment plans, defined
benefit pension plans and defined contribution pension plans, under which all eligible employees are entitled tobenefits based on the level of wages and salary at the time of retirement or termination, length of service and certain
other factors.
The Company and Hankyu Hanshin Department Stores, Inc. have retirement benefits plans which consist ofunfunded lump-sum payment plans, defined benefit pension plans and defined contribution pension plans. Izumiya
Co., Ltd. and H2O Shopping Center Development Co., Ltd. have unfunded lump-sum payment plans, defined
benefit pension plans and defined contribution pension plans. In April 2017, these companies transferred a portionof the defined benefit pension plans and unfunded lump-sum payment plans to defined contribution plans. Other
subsidiaries also have unfunded lump-sum payment plans, defined benefit pension plans or defined contribution
pension plans. The Company, Hankyu Hanshin Department Stores, Inc. and Izumiya Co., Ltd. each have aretirement benefit trust in their retirement benefit plans. Additional retirement benefits may be provided upon theretirement of employees, where those benefits are not considered to be retirement benefit obligations as calculated
under actuarial methods in accordance with the accounting standard for retirement benefits. The employees of theCompany, who are seconded from the subsidiaries, are provided with the respective subsidiaries’ retirement benefit
plans. The simplified method is used to calculate net defined benefit liability and retirement benefit cost for defined
benefit pension plans and unfunded lump-sum payment plans of the Company and unfunded lump-sum payment
plans of some subsidiaries.

89

1.

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

2020
Projected benefit obligation - beginning balance

\

2021

50,754 \46,918Service cost

1,914

1,785

Interest cost

138

112

Changes in actuarial differences(2,977)(343)

Retirement benefits paid

(2,910)(3,515)－(665)

46,918 \44,984

Decrease due to business divesture
Projected benefit obligation - ending balance\(2) Changes in plan assets were as follows:
Millions of yen

2020
Plan assets - beginning balance

\

2021

35,843 \34,845

Expected return on plan assets

1,133

1,076

Changes in actuarial differences(2,508)225

Employers' contributions

2,620

2,497

Retirement benefits paid

(2,242)(2,466)－(425)

34,845 \35,752

Decrease due to business divesture
Plan assets - ending balance\90

(3) Ending balances of projected benefit obligation and plan assets and amounts included in the consolidatedbalance sheets as of 31st March 2020 and 2021 were as follows:
Millions of yen

2020
Projected benefit obligation under funded plans

\

2021

38,038 \Plan assets
Projected benefit obligation under non-funded plans

35,309(34,845)(35,752)

3,192

(443)

8,879

9,675

Net balance in the consolidated balance sheet\

12,072 \9,232

Net defined benefit liability\

12,133 \11,130(60)(1,898)12,072 \9,232

Net defined benefit asset
Net balance in the consolidated balance sheet\(4) Components of retirement benefit cost were as follows:
Millions of yen

2020
Service cost

\

2021

1,914 \

1,785

138

112

(1,133)(1,076)

Amortisation of actuarial differences

696

670

Amortisation of past service cost

(77)

(73)

24

38

Interest cost
Expected return on plan assets

Other
Retirement benefit cost\

1,563 \

1,456

Additional payment for early retirement (Note)\

3,289 \－

Note:

Additional payment for early retirement was included in “Extraordinary losses.”91

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

2020
Past service cost\(77) \

Actuarial differences
Total

2021

\

(105)

1,165

555

1,088 \

450

(6) Remeasurements of defined benefit plans in accumulated comprehensive income before the effect of deferredincome tax were as follows:
Millions of yen

2020
Unrecognised past service cost\

Unrecognised actuarial differences
Total

\

2021

(588) \

(482)

4,625

4,069

4,036 \

3,586

(7) Information on plan assets was as follows:(i) The breakdown of plan assets by major category was as follows:
2020

2021

General account of life insurance

39%

38%

Debt securities

29%

34%

Real estate investment funds

14%

14%

Cash and deposits

16%

12%

Equity securities

1%

2%

Other

1%

0%

Total

100%

100%

Total plan assets include 3% and 2% contribution to the retirement benefit trust in the retirement benefit plans forthe years ended 31st March 2020 and 2021, respectively.
(ii) Long-term expected rate of return on plan assets is determined based on the current and future allocation ofplan assets and the current and long-term return on various components of the assets.

92

(8) Actuarial assumptions (weighted-average rate) were as follows:
2020

2021

Discount rate

0.25%

0.25%

Long-term expected rate of return

3.14%

3.12%

1.15%

1.12%

Estimated rate of salary increase

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

2.

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

2020
Projected benefit obligation - beginning balance

\

2021
1,916

Defined benefit cost

\

1,859

360

248

Retirement benefits paid

(189)

(231)

Employers’ contributions

(1)

(1)

Decrease due to business divestiture

－

(147)

Decrease due to share exchanges

(195)

－

Other

(30)

(18)

Projected benefit obligation - ending balance

\

1,859

\

1,709

(2) Ending balances of projected benefit obligation and plan assets and amounts included in the consolidatedbalance sheets as of 31st March 2020 and 2021 were as follows:
Millions of yen

2020
Projected benefit obligation under funded plans\

Plan assets

2021
87

\

74

(15)

(15)

71

59

Projected benefit obligation under non-funded plans

1,788

1,650

Net balance in the consolidated balance sheet

1,859

1,709

Net defined benefit liability

1,859

1,709

Net balance in the consolidated balance sheet

\

1,859

\

1,709

(3) Retirement benefit cost calculated by the simplified method was ¥360 million and ¥248 million for the years
ended 31st March 2020 and 2021, respectively.
93

3.

The amount required for contributions to the defined contribution plans of the Company and its
consolidated subsidiaries was ¥667 million and ¥548 million for the years ended 31st March 2020 and
2021, respectively.

4.

With the transfer of a portion of the unfunded lump-sum payment plans to defined contribution plans,
the plan assets to be transferred to the defined contribution plans amounted to ¥387 million and areplanned to be transferred over 8 years beginning from the year ended 31st March 2018. The plan assets
not yet transferred amounted to ¥226 million and ¥93 million as of 31st March 2020 and 2021,
respectively, and were recorded under “Long-term accounts payable - other.”

18. Stock Options
1.

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

2020
Selling, general and administrative expenses

2.

¥

2021
151

¥

50

The amount of income from forfeiture due to non-exercise of options and its presentation in the
consolidated statements of operations
Millions of yen

2020“Other” under “Non-operating income”

¥

94

2021
－

¥

32

3.

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

Subscription rights to shares issued in March 2009 as stock options
Title and number of grantees

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

Number of stock options(Note 1) 46,000 common shares

Date of issue

31st March 2009

Exercise conditions

No provisions (Note 2)

Intended service period

No provisions

Exercise period

From 1st April 2009 to 31st March 2039

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

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

Number of stock options(Note 1)

82,500 common shares

Date of issue

31st March 2010

Exercise conditions

No provisions (Note 2)

Intended service period

No provisions

Exercise period

From 1st April 2010 to 31st March 2040

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

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

Number of stock options(Note 1)

97,000 common shares

Date of issue

31st March 2011

Exercise conditions

No provisions (Note 2)

Intended service period

No provisions

Exercise period

From 1st April 2011 to 31st March 2041

95

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

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

Number of stock options(Note 1)

99,500 common shares

Date of issue

29th February 2012

Exercise conditions

No provisions (Note 2)

Intended service period

No provisions

Exercise period

From 1st March 2012 to 28th February 2042

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

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

Number of stock options(Note 1)

99,000 common shares

Date of issue

31st March 2013

Exercise conditions

No provisions (Note 2)

Intended service period

No provisions

Exercise period

From 1st April 2013 to 31st March 2043

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

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

Number of stock options(Note 1)

101,000 common shares

Date of issue

31st March 2014

Exercise conditions

No provisions (Note 2)

Intended service period

No provisions

Exercise period

From 1st April 2014 to 31st March 2044

96

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

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

Number of stock options(Note 1)109,000 common shares

Date of issue

31st March 2015

Exercise conditions

No provisions (Note 2)

Intended service period

No provisions

Exercise period

From 1st April 2015 to 31st March 2045

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

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

Number of stock options(Note 1)110,000 common shares

Date of issue

31st March 2016

Exercise conditions

No provisions (Note 2)

Intended service period

No provisions

Exercise period

From 1st April 2016 to 31st March 2046

Subscription rights to shares issued in March 2017 as stock options
Title and number of grantees
Number of stock options(Note 1)

4 directors, 2 executive officers of the Company and7 directors, 13 executive officers of Hankyu Hanshin Department Stores, Inc.
106,500 common shares

Date of issue

31st March 2017

Exercise conditions

No provisions (Note 2)

Intended service period

No provisions

Exercise period

From 1st April 2017 to 31st March 2047

97

Subscription rights to shares issued in March 2018 as stock options
Title and number of grantees
Number of stock options(Note 1)3 directors, 3 executive officers of the Company and7 directors, 12 executive officers of Hankyu Hanshin Department Stores, Inc.
100,500 common shares

Date of issue

31st March 2018

Exercise conditions

No provisions (Note 2)

Intended service period

No provisions

Exercise period

From 1st April 2018 to 31st March 2048

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

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

Number of stock options(Note 1)

98,500 common shares

Date of issue

30th June 2018

Exercise conditions

No provisions (Note 2)

Intended service period

No provisions

Exercise period

From 1st July 2018 to 30th June 2048

Subscription rights to shares issued in July 2019 as stock options (A)(stock-based compensation with seniority-based conditions)
5 directors (excluding audit and supervisory committee (“ASC”) members),
Title and number of grantees

4 directors as ASC members, 4 executive officers of the Company and9 directors, 1 corporate auditor, 11 executive officers of Hankyu Hanshin
Department Stores, Inc.

Number of stock options(Note 1)

112,500 common shares

Date of issue

15th July 2019

Exercise conditions

Note 3

Intended service period

No provisions

Exercise period

From 16th July 2019 to 15th July 2049

Subscription rights to shares issued in July 2019 as stock options (B)(stock-based compensation with performance-based vesting conditions)98

3 directors (excluding non-executive officers), 4 executive officers of the
Title and number of grantees

Company and8 directors (excluding non-executive officers), 11 executive officers ofHankyu Hanshin Department Stores, Inc.

Number of stock options(Note 1)

41,000 common shares

Date of issue

15th July 2019

Exercise conditions

Note 4

Intended service period

No provisions

Exercise period

From 16th July 2019 to 15th July 2049

Subscription rights to shares issued in July 2020 as stock options (A)(stock-based compensation with seniority-based conditions)
4 directors (excluding ASC members), 5 directors as ASC members,
Title and number of grantees

4 executive officers of the Company and9 directors, 1 corporate auditor, 10 executive officers of Hankyu
Hanshin Department Stores, Inc.

Number of stock options(Note 1)

113,000 common shares

Date of issue

15th July 2020

Exercise conditions

Note 3

Intended service period

No provisions

Exercise period

From 16th July 2020 to 15th July 2050

99

Subscription rights to shares issued in July 2020 as stock options (B)(stock-based compensation with performance-based vesting conditions)
3 directors (excluding non-executive officers), 4 executive officers of the
Title and number of grantees

Company and8 directors (excluding non-executive officers), 10 executive officers ofHankyu Hanshin Department Stores, Inc.

Number of stock options(Note 1)39,000 common shares

Date of issue

15th July 2020

Exercise conditions

Note 4

Intended service period

No provisions

Exercise period

From 16th July 2020 to 15th July 2050

Notes:
1. Number of options is listed as number of shares.
2. Exercise is subject to the following conditions.
(1) The grantee can exercise subscription rights to shares only for five years from the following day of thedate the grantee loses the position either as directors, corporate auditors or executive officers of theCompany or Hankyu Hanshin Department Stores, Inc., a subsidiary of the Company, (“thecommencement date of exercise”) within the above exercise period of the subscription rights to shares.
(2) Regardless of (1), the grantee can exercise subscription rights to shares only for each of the following
period when stipulated in the following (a) or (b) (except in case of (b) that subscription rights to sharesof the target company of reorganisation are granted to the grantee in accordance with note 8 below).
(a) In case the commencement date of exercise does not come before the date one year prior to the last dayof the exercise period
From the following day of the date one year prior to the last day of the exercise period until the last
day of the exercise period(b) In case a resolution of a merger agreement in which the Company becomes a disappearing company, or
share exchange agreement or share transfer plan in which the Company becomes a wholly-owned
subsidiary is approved by the shareholders’ meeting of the Company (or resolved by the Board of
Directors’ meeting if the resolution by the shareholders’ meeting is not required)
Within 15 days from the following day of the date of the approval(3) The grantee cannot exercise the subscription rights to shares if the grantee renounces the subscription
rights to shares.
3. Exercise is subject to the following conditions.
(1) The grantee can exercise subscription rights to shares only for five years from the following day of thedate the grantee loses the position either as directors (including ASC members), corporate auditors or100executive officers of the Company or subsidiaries of the Company, (“the commencement date of
exercise”) within the above exercise period of the subscription rights to shares.
(2) Regardless of (1), the grantee can exercise subscription rights to shares only for each of the following
period when stipulated in the following (a) or (b) (except in case of (b) that subscription rights to sharesof the target company of reorganisation are granted to the grantee in accordance with note 8 below).
(a) In case the commencement date of exercise does not come before the date one year prior to the last dayof the exercise period
From the following day of the date one year prior to the last day of the exercise period until the last
day of the exercise period(b) In case a resolution of a merger agreement in which the Company becomes a disappearing company, or
share exchange agreement or share transfer plan in which the Company becomes a wholly-owned
subsidiary is approved by the shareholders’ meeting of the Company (or resolved by the Board of
Directors’ meeting if the resolution by the shareholders’ meeting is not required)
Within 15 days from the following day of the date of the approval(3) Regardless of the above (1) and (2), the grantee cannot exercise the subscription rights to shares if the
grantee does not have a position as directors, etc. of the target company as of the end of the fiscal year
in which the date of allotment is pertaining to, except in case where there is a separate arrangement.
4. Exercise is subject to the following conditions(1) The grantee can exercise number of exercisable rights fixed within the rage from 0% to 100% of theallotted subscription rights to shares, depending on a degree of achievement of the management
indicator or other indicator that is preassigned in the mid-term plan by the Board of Directors of theCompany, in the final year of the mid-term plan only for five years from the following day of the date
the grantee loses the position (only when resignation due to expiration of term of office or other
legitimate reason that the Company permits) either as directors (including ASC members), corporate
auditors or executive officers of the Company or subsidiaries of the Company, (“the commencement dateof exercise”) within the above exercise period of the subscription rights to shares.
The performance-based indicators are as follows:
Performance-based criteria for 2019 to 2021
Indicator(a) Consolidated ordinary
income(b) Consolidated ROIC

Target figure

Proportion\25 billion

50%

4.0%

50%

(2) Regardless of (1), the grantee can exercise subscription rights to shares only for each of the following
period when stipulated in the following (a) or (b) (except in case of (b) that subscription rights to sharesof the target company of reorganisation are granted to the grantee in accordance with note 8 below).
(a) In case the commencement date of exercise does not come before the date one year prior to the last dayof the exercise period
101

From the following day of the date one year prior to the last day of the exercise period until the last
day of the exercise period(b) In case a resolution of a merger agreement in which the Company becomes a disappearing company, or
share exchange agreement or share transfer plan in which the Company becomes a wholly-owned
subsidiary is approved by the shareholders’ meeting of the Company (or resolved by the Board of
Directors’ meeting if the resolution by the shareholders’ meeting is not required)
Within 15 days from the following day of the date of the approval(3) Regardless of the above (1) and (2), the grantee cannot exercise the subscription rights to shares until
the following conditions are satisfied, except in case where there is a separate arrangement.
(a) The number of exercisable rights is fixed.
(b) The grantee maintains a position of directors, etc. at the target company as of the end of the fiscal year
in which the date of allotment is pertaining to.

102

4.

Scale and changes in stock options

The following table describes the scale and changes in stock options that existed during the year ended 31st March
2021. The number of stock options has been translated into number of shares and is adjusted for the reverse stock
split (two-to-one share) executed on 1st September 2014.

In the year ended 31st
March 2021:

March 2009

March 2010

March 2011

stock options stock options stock options

February 2012 March 2013

March 2014

March 2015 March 2016

March 2017 March 2018

June 2018

stock options stock options stock options stock options stock options stock options stock options stock options

Before vested
As of 31st March

－

－

－

－

－

－

－

－

－

－

－

Granted2020 220202020
Forfeited

－

－

－

－

－

－

－

－

－

－

－

－

－

－

－

－

－

－

－

－

－

－

Vested

－

－

－

－

－

－

－

－

－

－

－

Outstanding

－

－

－

－

－

－

－

－

－

－

－

10,500After vested
As of 31st March

20,00030,50033,50046,00056,000

Vested2020
Exercised

－

－

－

－

－

－

－

－

2,000

4,500

7,500

7,500

12,00017,00020,00020,000－－－Forfeited

－

－

－

－

－

－

3,000

3,000

3,000

3,000

4,000

8,500

15,50023,00026,00034,00039,00067,50081,00097,500 97,500 94,500

Outstanding

In the year ended 31st
March 2021:

90,500 104,000 100,500 100,500 98,500－－－

July 2019 stock options (A)July 2019 stock options (B)July 2020 stock options (A)July 2020 stock options (B)(stock-based compensation with(stock-based compensation with(stock-based compensation with(stock-based compensation withseniority-based conditions)performance-based vesting conditions)seniority-based conditions)performance-based vesting conditions)

Before vested
As of 31st March－

41,000－－Granted2020
Forfeited－－

113,000

39,000

－

2,000

4,000

2,000

VestedOutstanding－－

109,000－－

39,000－37,000111,500－－－

After vested
As of 31st March
Vested2020
Exercised－－

109,000

－

－

－

－

－

Forfeited

4,000

－

－

－

107,500－

109,000－

Outstanding

Price information
Yen

In the year ended
31st March 2021:
Exercise price
Average exercise price
Fair value at the grant
dateMarch 2009

March 2010

March 2011

stock options stock options stock options

February 2012 March 2013

March 2014

March 2015 March 2016

March 2017 March 2018

June 2018

stock options stock options stock options stock options stock options stock options stock options stock options

\1

\1

\1

\1

\1

\1

\1

\1

\1

\1

\1

\693

\745

\762

\762

\820

\798

\777

\816

\－

\－

\－

\986

\1,136\984\1,100\1,932\1,566\2,141\1,798103\1,645 \1,791 \1,615

Yen

In the year ended 31st
March 2021:

July 2019 stock options (A)July 2019 stock options (B)July 2020 stock options (A)July 2020 stock options (B)(stock-based compensation with(stock-based compensation with(stock-based compensation with(stock-based compensation withseniority-based conditions)performance-based vesting conditions)seniority-based conditions)performance-based vesting conditions)

Exercise price

\1

\1

\1

\1

Average exercise price

－

－

－

－

\995

\985

\460

\452

Fair value at the grant date5.

Valuation method for estimating per share fair value of stock options

Valuation technique used for valuating fair value of subscription rights to shares issued in July 2020 as stock options
and granted during the year ended 31th March 2021 was as follows:

Stock options (A) (stock-based compensation with seniority-based conditions)
Valuation method used was Adjusted Black-Scholes option-pricing model.
Principal parameters and estimation method

July 2020
stock options (A)Expected volatility of the underlying stock (Note 1)

31.86%

Remaining expected life of the option (Note 2)

7.3 years

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

Risk-free interest rate during the expected option term (Note 4)(0.105)%

Notes: 1. In the year ended 31st March 2021, the fair value of stock options was calculated on the basis of theCompany's weekly share price movements from March 2013 to July 2020.
2. This period has been calculated using the average period of service for directors (or executive officers)of the Company and the average period of service for directors (or executive officers) from allotment
date to retirement date as of the issuing date of the stock options.
3. In the year ended 31st March 2021, the amount of expected dividends was calculated based on theactual dividends paid as the interim dividend and the final dividend for the year ended 31st March
2020.
4. This rate has been calculated using the compound interest rate on Japanese Government Bonds whose
remaining period is similar to that of the stock options.

104

Stock options (B) (stock-based compensation with performance-based vesting conditions)
Valuation method used was Adjusted Black-Scholes option-pricing model.
Principal parameters and estimation method

July 2020
stock options (B)Expected volatility of the underlying stock (Note 1)

32.41%

Remaining expected life of the option (Note 2)

7.6 years

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

Risk-free interest rate during the expected option term (Note 4)(0.089)%Notes: 1. In the year ended 31st March 2021, the fair value of stock options was calculated on the basis of theCompany's weekly share price movements from December 2012 to July 2020.
2. This period has been calculated using the average period of service for directors (or executive officers)of the Company and the average period of service for directors (or executive officers) from allotment
date to retirement date as of the issuing date of the stock options.
3. In the year ended 31st March 2021, the amount of expected dividends was calculated based on theactual dividends paid as the interim dividend and the final dividend for the year ended 31st March
2020.
4. This rate has been calculated using the compound interest rate on Japanese Government Bonds whose
remaining period is similar to that of the stock options.

5. Method used to estimate the number of vested subscription rights to shares
Because it is difficult to estimate the number of forfeitures in the future reasonably, only actual number of
forfeitures is reflected to estimate the number of vested subscription rights to shares. For stock options (B) (stockbased compensation with performance-based vesting conditions), number of forfeitures due to non-vesting isestimated, considering vesting conditions.

19. Income Taxes
Income taxes consist of corporation, inhabitants and enterprise taxes.
Significant components of the Companies’ deferred tax assets and liabilities as of 31st March 2020 and 2021 wereas follows:105Millions of yen
2020

2021

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

16,997\

23,577

Provision for redemption of gift certificates

1,354

1,481

Provision for bonuses

1,263

1,055

Net defined benefit liability

6,275

4,230

Depreciation

432

570

Impairment loss

12,081

10,651Retirement benefit trust assets

81

88

Provision for loss on store closings

32

120

Asset retirement obligations

1,211

1,431

Shares in subsidiaries

1,357

1,358

Valuation on the consolidation

1,028

734

Provision for point card certificates

602

565

Allowance for doubtful accounts

1,110

1,050

12,30814,056

1,733

157

234

161

4,539

4,407

62,64565,698(13,142)(17,706)(28,907)(27,033)(42,050)(44,739)

20,594

20,958Reserve for advanced depreciation of non-current assets(4,705)(4,539)Valuation differences of fair value in consolidation(5,861)(5,702)

retirement benefit trust assets (equity securities)(3,511)(3,511)

Valuation difference on available-for-sale securities(11,277)(17,112)

(992)

(992)

(1,345)(1,452)(27,694)(33,311)

Unrealised gains and losses on intercompany asset transfers

Reserved loss of subsidiaries
Specified accounts pertaining to business combination
Other

Valuation allowance pertaining to tax loss carryforwards (Note 2)
Valuation allowance pertaining to total amount of temporary deductible
differences
Valuation allowance (Note 1)
Total deferred tax assets
Deferred tax liabilities:

Valuation gain on investment securities resulting from conversion of

Unrealised gains and losses on intercompany asset transfers
Other
Total deferred tax liabilities
Net deferred tax assets (liabilities)\

Changes in Presentation
106(7,100)\(12,352)

“Deferred loss on sales of shares of subsidiaries and associates based on Group Taxation Rule” that was separately
presented under deferred tax assets in the year ended 31st March 2020 is included in “Unrealised gains and losses
on intercompany asset transfers” in the year ended 31st March 2021 due to revision of the presentation method
in order to improve the intelligibility. Also, “Unrealised gains and losses on intercompany asset transfers” that was
included in “Other” and “Deferred gain on sales of shares of subsidiaries and associates based on Group Taxation
Rule” that was separately presented under deferred tax liabilities in the year ended 31st March 2020 are included
in “Unrealised gains and losses on intercompany asset transfers” in the year ended 31st March 2021 from the same
viewpoint. In order to reflect these changes in presentation method, the notes to the consolidated financial
statement for the year ended 31st March 2020 have been reclassified.
As a result, \12,308 million that was presented as “Deferred loss on sales of shares of subsidiaries and associates
based on Group Taxation Rule” under deferred tax assets for the year ended 31st March 2020 has been reclassified
to “Unrealised gains and losses on intercompany asset transfers.” \(1,347) million that was presented as “Other”
and \(991) million that was presented as “Deferred gain on sales of shares of subsidiaries and associates based onGroup Taxation Rule” under deferred tax liabilities for the year ended 31st March 2020 have been reclassified to\(1) million of “Unrealised gains and losses on intercompany asset transfers” and \(1,345) million of “Other,”and \(991) million of “Unrealised gains and losses on intercompany asset transfers,” respectively.
Notes:

1.

Valuation allowance increased by \2,689 million mainly due to the valuation allowance pertaining

to tax loss carryforwards in the amount of \4,563 million recognised by the consolidated subsidiaries andpertaining to decrease of impairment loss in the amount of \2,532 million.
2. Expected maturity of the deferred tax assets after the balance sheet date for tax loss carryforwards
Millions of yen

2020

Over 1 year

Over 2 years

Over 3 years

Over 4 years

Within 1 year but within 2

but within 3

but within 4

but within 5

years

years

years

years

Tax loss carryforwards (*1)

\

36

\

246

\

634

\

962

\

3,063

Over 5 years\

12,054

Total\

16,997

Valuation allowance

(24)

(246)

(454)

(781)

(1,224)(10,411)(13,142)

Deferred tax assets

11

–

179

181

1,838

1,642

(*2) 3,854*1. The amount of tax loss carryforwards was calculated by using the statutory tax rate.
*2. For tax loss carryforwards of \16,997 million (applying the statutory tax rate), deferred tax assets of \5,871
million were recorded which mainly consisted of deferred tax assets related to tax loss carryforwards of \3,854
million recognised by H2O Asset Management Co., Ltd. The tax loss carryforwards were incurred because
impairment losses, etc., which were previously not allowed to be deducted for tax purposes were permitted to
be deducted from the year ended 31st March 2016 at H2O Asset Management Co., Ltd. The Company judged
the respective deferred tax assets related to tax loss carryforwards as recoverable based on the estimated futuretaxable income.
107

Millions of yen

2021

Over 1 year

Over 2 years

Over 3 years

Over 4 years

Within 1 year but within 2

but within 3

but within 4

but within 5

years

years

years

years

Tax loss carryforwards (*1)

\

156

\

221

\

720

\

2,502

\

1,748

Over 5 years\

18,227

Total\

23,577

Valuation allowance

(156)

(158)

(646)

(1,911)(1,619)(13,213)(17,706)

Deferred tax assets

–

62

74

590

128

5,014

(*2) 5,871*1. The amount of tax loss carryforwards was calculated by using the statutory tax rate.
*2. For tax loss carryforwards of \23,577 million (applying the statutory tax rate), deferred tax assets of \5,871
million were recorded which mainly consisted of deferred tax assets related to tax loss carryforwards of \4,799
million recognised by the Company and Hankyu Hanshin Department Stores, Inc. The Company judged therespective deferred tax assets related to tax loss carryforwards as recoverable based on the estimated futuretaxable income.
Reconciliation of the differences between the statutory tax rate and the effective income tax rate was omitted
because loss before income taxes was recognised for the years ended 31st March 2020 and 2021.

20. Asset Retirement Obligations
1. Asset retirement obligations recorded on the consolidated balance sheets(1) Outline of the asset retirement obligations
The obligation to restore properties to their original state pursuant to real estate lease agreements for store properties,etc.
(2) Calculation method for asset retirement obligations
For the years ended 31st March 2020 and 2021, an estimated usage period of 1 to 47 years and a discount rate of 0.0%
to 2.65% were used to calculate the amount of asset retirement obligations.
(3) Changes in the total amount of asset retirement obligations
For the year ended 31st March 2020, asset retirement obligations increased by ¥158 million since it became possible toestimate the restoration costs for closing of the group companies. In addition, the acquisition of property, plant andequipment for the opening of branch shops by Hankyu Oasis Co., Ltd. also resulted in a ¥ 659 million increase in asset
retirement obligations. Decrease due to fulfillment of asset retirement obligations is related mainly to Izumiya Co., Ltd.
For the year ended 31st March 2021, asset retirement obligations increased by ¥986 million since it became possible toestimate the restoration costs for closing of the group companies. Decrease due to fulfillment of asset retirement
108

obligations is related mainly to Izumiya Co., Ltd.
Changes in the balances were as follows:
Millions of yen

2020
Balance at beginning of year

\

2021
2,824

\

3,255

Increase due to estimate changes

158

986

Increase due to acquisition of property, plant and equipment

687–

Adjustments with passage of time46

47

Decrease due to fulfilment of asset retirement obligations

(152)

(150)

Decrease due to exclusion from consolidation

(309)

(4)

1

–

Other
Balance at end of year

\

3,255

\

4,134

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

10921. Segment Information
1.

General information about reportable segments

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

2.

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

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

110

3.

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

As of and for the year ended
31st March 2020

Department
Store

Shopping
Supermarket
Business

Business

Other
CentreAdjustments
Businesses

Business

Total

Net sales
External customers\

Intersegment473,225\

272

354,115

\

5,208

8,725

\

16,84061,222\–

25,687(48,009)\897,289–

Total net sales\

473,498\359,324\

25,565\86,910\ (48,009)\

897,289

Segment income (loss)\

11,486\(2,503)

\

4,141

\

2,903

\

(4,856)\

11,171

Segment assets\

184,584\

124,164\

145,101\

479,882\ (346,828)\

586,904

\

6,063

\

5,748

\

1,920

\

4,837

\

\

18,519Other items
Depreciation
Amortisation of goodwill

(50)

–

507

–

74

–

581

258

–

–

10,130–10,3882,226

11,087

724

327

–

14,366

8,508

8,655

9,511

8,541

(92)

35,125Investment in associatedcompanies accounted for by theequity method
Impairment loss
Increase in property, plant andequipment and intangible assets

Notes:

1.

Adjustments are as follows:

Adjustment of segment income (loss) was ¥(4,856) million for the year ended 31st March 2020 andcomprised the elimination of intersegment transactions.

For the year ended 31st March 2020, adjustment of assets was ¥(346,828) million and included ¥(178,634)
million offset elimination of investments and capital, ¥(165,679) million offset elimination of debts andcredits and ¥(2,781) million adjustment for unrealised gains and losses on non-current assets.
Adjustment of depreciation amounting to ¥(50) million and adjustment of increase in property, plant andequipment and intangible assets amounting to ¥(92) million consisted of the elimination of intersegment
transactions for the year ended 31st March 2020.
2. Segment income (loss) is reconciled to operating income in the consolidated statement of operations.

111

Millions of yen

Department
As of and for the year ended

Shopping
Supermarket

Store
31st March 2021

Businesses
Business

Other
CentreBusinesses
Business

Adjustments

Total

Net sales
External customers\

Intersegment

347,768 \

281,116

276

8,372

\

63,262\

11,462

47,051 \– \21,469(41,579)

739,198–

Total net sales\

348,044 \289,488\

74,724\

68,520 \(41,579) \739,198

Segment income (loss)\(1,903) \

4,170

\

(113)

\

(2,690) \(3,901) \(4,438)Segment assets\

184,775 \99,222\

165,179\

527,192 \(350,424) \625,945\

5,930 \

3,661

\

2,889

\

5,711 \

(51) \

18,141

–

507

–

39

–

546

257

–

–

9,849

–

10,106

6,056

2,567

6,127

1,622

–

16,374

10,305

3,690

2,728

6,053

(78)

22,699Other items
Depreciation
Amortisation of goodwill
Investment in associatedcompanies accounted for by theequity method
Impairment loss
Increase in property, plant andequipment and intangible assets

112Notes:1.

Adjustments are as follows:

Adjustment of segment income (loss) was ¥(3,901) million for the year ended 31st March 2021 andcomprised the elimination of intersegment transactions.

For the year ended 31st March 2021, adjustment of assets was ¥(350,424) million and included ¥(187,562)
million offset elimination of investments and capital, ¥(159,850) million offset elimination of debts andcredits and ¥(2,721) million adjustment for unrealised gains and losses on non-current assets.

Adjustment of depreciation amounting to ¥(51) million and adjustment of increase in property, plant andequipment and intangible assets amounting to ¥(78) million consisted of the elimination of intersegment
transactions for the year ended 31st March 2021.
2. Segment income (loss) is reconciled to operating income in the consolidated statement of operations.
3. Among the businesses of Izumiya Co., Ltd, which were included in the “Supermarket Business” segment
for the year ended 31st March 2020, clothing and home furnishings sales and tenant managementbusinesses were divested to H2O Shopping Center Development Co., Ltd. as of 1st April 2020. As a result,net sales of ¥59,981 million (net sales to external customers of ¥55,763 million and intersegment net salesof ¥4,218 million) and segment loss of ¥ (3,710) million, which were previously included in “Supermarket
Business” segment, are included in “Shopping Centre Business” segment for the year ended 31st March
2021. In addition, segment assets of “Shopping Centre Business” increased by ¥23,967 million while thoseof the “Supermarket Business” decreased by the same amount comparing to the end of the year ended
31st March 2020.

113

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

As of and for the year ended

Department

31st March 2020

Store

Shopping
Supermarket
CentreBusiness

Business

Business

Other
Businesses

Adjustments

Total

Goodwill
Amortisation

\

– \

507 \

– \

74 \

– \

581

Impairment

\

– \

– \

– \

– \

– \

–

Unamortised balance\– \3,212 \

– \

93 \

– \

3,305

Note: In “Other Businesses,” as of 1st February 2020, KAZOKUTEI CO., LTD. was excluded from thescope of consolidation as a result of the share exchanges which resulted in a decline in goodwill of\280 million.

Millions of yen

As of and for the year ended

Department

31st March 2021

Store

Shopping
Supermarket
CentreBusiness

Business

Business

Other
Businesses

Adjustments

Total

Goodwill
Amortisation

\

– \

507 \

– \

39 \

– \

546

Impairment

\

– \

– \

– \

54 \

– \

–

Unamortised balance\– \2,704 \

– \

– \

– \

2,704

114

22. Related Party Transactions
For the year ended 31st March 2020
Transactions with related parties(1) Transactions between the reporting entity of the consolidated financial statements and related parties: None
(2) Transactions between subsidiaries of the reporting entity of the consolidated financial statements and related parties(a) Directors, corporate auditors and major individual shareholders of the reporting entity of the consolidated
financial statements: None(b) Companies whose parent is the same as the parent of the reporting entity or the other related companies
Name ofClassificationcompany or

Location

individual

Capital or Occupation or
investment business lines

Ownershipof votingrights (%)

Nature of

Nature ofrelationshiptransactions

Accounting

Endingtransactions designation

Value ofbalance

Accounts
receivable- other
Prepaid¥231¥9,821 expenses
million Accounts

million¥20 million

Same person

HankyuCorporation

Kita-ku,
Osaka
City

RentalRailway

serving

operations,concurrently expenses

real estate

as director

payable -or corporate

other¥100 rental and–million dealershipauditor for

Accruedoperations,both parties,

expensesstage revues,

Fees forRental of real display ofretailing

estateDeposits ofofguarantee

companies¥8 million

signs, etc.

Subsidiaries

money

Prepaid
expenses¥113 Guarantee
million deposits

that have

Accounts

significant

receivablestakes in- otherthePrepaidreportingentity

HANSHIN

Fukushim

RailwaySame person

operations,servingreal estate

11.96%

rental andshares of as director

Rental¥2,797 expenses

expensesmillion Accounts
payable -concurrently

ELECTRIC a-ku,¥29,384 dealership

the

RAILWAYOsaka

million operations,Company auditor forCO., LTD.

City

sportsdirectlybusiness,held

AccruedexpensesFees fordisplay oftravelsigns, etc.
Rental of real Deposits ofbusiness

estateguarantee
money¥0 million

guarantee
money

115

¥0 million¥24,873
million¥36 million¥63 million¥2 million

Prepaid
expenses¥31 million–¥95
millionReturn ofBusiness terms and policies for determination of business terms

–

other

or corporate
both parties,¥294
million¥2 million

Guarantee¥8,575

deposits

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

116For the year ended 31st March 2021
Transactions with related parties(1) Transactions between the reporting entity of the consolidated financial statements and related parties: None
(2) Transactions between subsidiaries of the reporting entity of the consolidated financial statements and related parties(a) Directors, corporate auditors and major individual shareholders of the reporting entity of the consolidated
financial statements: None(b) Companies whose parent is the same as the parent of the reporting entity or the other related companies
Name ofClassificationcompany or

Location

individual

Capital or Occupation or
investment business lines

Ownershipof votingrights (%)

Nature of

Nature ofrelationshiptransactions

Accounting

Endingtransactions designation

Value ofbalance

Accounts
receivable¥706
million- other
Prepaid¥203

expensesmillionmillion Accounts
payable -¥20 million

Same person

HankyuCorporation

Kita-ku,
Osaka
City

RentalRailway

serving

operations,concurrently expenses

real estate

as director¥100 rental and–million dealership
operations,¥7,944otheror corporate
auditor for

Accruedboth parties,

expenses¥1 million

stage revues,
retailing

Rental of realestateFees fordisplay of¥7 million

Prepaid
expenses¥0 million

signs, etc.
Subsidiaries

Return ofofguarantee

companiesmoney¥6 million

that have

Guarantee¥24,865

deposits

millionAccounts

significant

receivablestakes in- other
PrepaidthereportingentityRentalSame person expenses
serving

Railway
operations,
HANSHIN

Fukushim

real estate

11.95%

rental andexpenses¥2,364 Accounts
million payable -shares of as director

AccruedELECTRIC a-ku,¥29,384 dealershiptheexpenses

RAILWAYOsaka

million operations,Company auditor forCO., LTD.

City

sportsdirectlybusiness,heldtravelbusinessor corporate¥0 million

Rental of real signs, etc.
Deposits ofestateguarantee

Prepaid
expenses¥19 million¥– million–
Guarantee¥8,575Return ofdeposits

million

money

117

¥1 million

money

guarantee

Business terms and policies for determination of business terms\65 million

otherconcurrently

both parties, Fees fordisplay of¥174
million–Notes 1. Transaction amounts are exclusive of consumption taxes; ending balances (exclusive of guarantee
deposits) include consumption taxes.
2. Rent expenses for buildings are determined by current market rates.
3. All other matters are determined according to general terms and conditions.

23. Per Share Information
Reconciliation of the difference between basic and diluted profit per share (Earnings Per Share “EPS”) for the years
ended 31st March 2020 and 2021 was as follows:
Millions of yen

2020

2021

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

Amounts not belonging to common stockholders
Profit (loss) attributable to owners of parent
concerning common stock(13,150)\(24,791)––(13,150)(24,791)

123,615,772

123,680,359

Shares (denominator):
Weighted average number of shares
Basic EPS (yen)\(106.38)\(200.45)

\

–

\

–

Diluted profit per share calculation:
Profit (numerator):
Profit attributable to owners of parent
Amounts not belonging to common stockholders

–

–

–

–

Effect of dilutive securities - convertible bonds––

Adjusted profit––

123,615,772

123,680,359––

123,615,772

123,680,359

Profit attributable to owners of parent
concerning common stock

Shares (denominator):
Weighted average number of shares
Assumed exercise of subscription rights to shares
Adjusted weighted average number of shares
Diluted EPS (yen)\Overview of potentially dilutive shares that were not included in thecomputation of diluted EPS because they have no dilutive effect118–
Subscription
rights to shares of
843,000 shares\–
Subscription
rights to shares of876,500 shares

Net assets per share (Book value Per Share “BPS”) calculation for the years ended 31st March 2020 and 2021 was
as follows:
Millions of yen

2020

2021

Net assets per share calculation:
Net assets\

Deduction from net assets(Subscription rights to shares)(Non-controlling interests)
Net assets concerning common stock
Number of shares used for the calculation of net assets per share
BPS (yen)244,634\

229,277

1,317

1,142

(1,312)(1,138)(4)(4)

243,317228,134

123,643,177

123,731,588

1,967.90

1,843.78

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

11925. Short-term and Long-term Loans, Bonds Payable and Lease Obligations
Short-term loans and long-term debt, including finance lease obligations, at 31st March 2020 and 2021 consistedof the following.
Millions of yen

2020\

Short-term loans payable (0.095% in 2020)

2021

15,000\–18,10046,414910

910

98,613

122,133

Lease obligations, excluding current portion, due through 2037

13,806

12,8830.706% H2O Retailing unsecured bonds, due 2024

10,00010,0000.480% H2O Retailing unsecured bonds, due 2028

10,00010,000Current portion of long-term loans payable (0.140% in 2020 and 0.135% in 2021)

Lease obligations, current portionLong-term loans payable (0.141% in 2020 and 0.251% in 2021), excluding
current portion, due through 2037

Notes:

1.

Interest rates on loans payable present weighted average interest rates as at the balance sheetdate.
2. Average interest rates on lease obligations have not been provided because certain consolidated
subsidiaries record lease obligations in the consolidated balance sheets at the amount before deduction of
the amount equivalent to interest rates included in lease payments.

Annual maturities of long-term debt including loans payable, long-term bonds payable and lease obligations as at
31st March 2021 were as follows:
Millions of yen

2021
2023

\

1,291

2024

17,046

2025

942

2026

28,464

26. Subsequent Events
Transfer of Shares
The Company transferred a part of common shares of Toho Co., Ltd. owned by the Company in accordance withthe resolution at the Board of Directors’ meeting held on 13th April 2021 as follows:(1) Method of the transfer
Application to a takeover bid for treasury shares by Toho Co., Ltd.
120

(2) Overview of the transfer
Number of shares transferred: 1,366,428 shares of common stock
Transfer price: ¥4,208 per share (total transfer price: ¥5,749,929,024)
Date of transfer: 8th June 2021
(3) Effect on profit or loss
Approximately ¥4,500 million of gain on sales is expected to be recorded under extraordinary income forthe first quarter ended 30th June 2021.
Transfer of Property, Plant and Equipment 1
The Company transferred the following property, plant and equipment in accordance with the resolution at theBoard of Directors’ meeting held on 30th March 2021:(1) Reason of the transfer
To improve an efficiency in the use of assets by effective allocation of management resources and tostrengthen the financial conditions(2) Overview of the transfer
Agreement date of transfer: 30th March 2021
Type of the assets (current status): Land (rental property)
Location of the assets: 1-4-3, Nakatsu, Kita-ku, Osaka City
Date of transfer: 31st May 2021
Transfer price and transferee: It cannot be disclosed due to confidentiality to the transferee; however,
the transferee and the transfer price are determined using a fair method by bidding.
(3) Effect on profit or loss
Approximately ¥4,700 million of gain on sales of property, plant and equipment is expected to berecorded under extraordinary income for the first quarter ended 30th June 2021.
Transfer of Property, Plant and Equipment 2
Hankyu Hanshin Department Stores, Inc., a consolidated subsidiary of the Company, transferred the following
property, plant and equipment in accordance with the resolution at the Board of Directors’ meeting held on 26th
April 2021:(1) Reason of the transfer
To improve an efficiency in the use of assets by effective allocation of management resources and tostrengthen the financial conditions(2) Overview of the transfer
Agreement date of transfer: 26th April 2021
Type of the assets (current status): Land (rental property)
Location of the assets: 1-1 and 1-2, Oyodo Minami, Kita-ku, Osaka City
Date of transfer: 31st May 2021
Transfer price and transferee: It cannot be disclosed due to confidentiality to the transferee; however,
the transferee and the transfer price are determined using a fair method by bidding.
121

(3) Effect on profit or loss
Approximately ¥3,800 million of gain on sales of property, plant and equipment is expected to berecorded under extraordinary income for the first quarter ended 30th June 2021.
Grant of Subscription Rights to Shares as Stock Option Based Compensation
The Company maintains stock option based compensation system, which links to the share price of the Company,
aiming for continued growth, improvement of corporate value in medium-to-long term and enhancing shareholder
focused mind of the Group. At the Board of Directors’ meeting held on 22nd June 2021, the Company resolved the
grant of subscription rights to shares as follows in order to grant the stock option based compensation for the year ending
31st March 2022.
1. Grant date
15th July 2021
2. Number of subscription rights to shares issued
1,095 units (the upper limit)
3. Type and number of shares subject to subscription rights to shares
109,500 shares of common stock of the Company (the upper limit)
4. Exercise price\1 per share
5. Exercise period
From 16th July 2021 to 15th July 2051
6. Title and number of grantees
4 directors (excluding ASC members), 5 directors serving as ASC members, and 4 executive officers of the Company
8 directors, 2 corporate auditors and 10 executive officers of the subsidiaries of the Company
7. Increase in shareholders’ equity as a result of the issuance of shares upon the exercise of subscription rights to shares(1) The amount of capital stock to be increased as the result of the issuance of shares upon the exercise ofsubscription rights to shares shall be one half of the maximum amount of capital stock increase calculated inaccordance with Article 17, Paragraph 1 of the Regulations on Accounting of Companies, and any amountsof less than \1 shall be rounded up.
(2) The amount of legal capital surplus to be increased as the result of the issuance of shares upon the exerciseof subscription rights to shares shall be calculated as the maximum amount of the capital stock increaseprovided in paragraph (1) above, minus the amount of capital stock to be increased pursuant to paragraph(1) above.
8. Calculation of payment price of subscription rights to shares
The payment price shall be the fair market value calculated in accordance with the Black-Scholes model as of the
grant date of the subscription rights to shares.
For the grantees who are directors (including directors serving as ASC members) or executive officers of theCompany (“Officers of the Company”), the payable amount for subscription rights to shares shall be offset by
the remuneration of Officers of the Company. For the grantees who are directors, corporate auditors or executive
122

officers of the subsidiaries of the Company (“Officers of the Subsidiaries”), the payable amount of thesubsidiaries of the Company for the remuneration shall be assumed by the Company and the payable amount for
subscription rights to shares shall be offset by the remuneration of the Officers of the Subsidiaries.

123Corporate Data
H 2 O RETAILING CORPORATION and Consolidated Subsidiaries

Outline of the Company (as of 31st March 2021)
Date of Establishment

March 1947

Stated Capital¥17,796 million

Authorised Shares

150,000,000

Issued and Outstanding Shares

125,201,396

Shareholders

47,97595 (H2O Retailing Corporation)

Employees

8,983 (Consolidated basis)

Principal Shareholders (as of 31st March 2021)
Shareholders

Number of shares

Ratio of(thousands of shares)

shareholdings

Hanshin Electric Railway Co., Ltd.

14,74911.9%

Hankyu Hanshin Holdings, Inc.

10,336

8.4%

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

7,291

5.9%

Takashimaya Co., Ltd.

6,259

5.1%

Custody Bank of Japan, Ltd. (Trust account)

4,256

3.4%

Izumiya Kyowakai Assn.

2,824

2.3%

1,855

1.5%

1,785

1.4%

Custody Bank of Japan, Ltd. (Trust account 5)

1,438

1.2%

MUFG Bank, Ltd.

1,365

1.1%

NORTHERN TRUST GLOBAL SERVICES SE,LUXEMBOURG RE LUDU RE: UCITS CLIENTS
15.315 PCT NON TREATY ACCOUNT(Standing proxy: The Hongkong and Shanghai
Banking Corporation Limited, Tokyo branch)
H2O

RetailingGroup

Employees'

Shareholding

Association

124

Principal Consolidated Subsidiaries
Subsidiary

Primary business activities

Department Store Business
Hankyu Hanshin Department Stores, Inc.

Department Stores

Kobe Takatsuki Business
H2O Asset Management Co., Ltd.

Management of department stores

Shinko Management, Inc.

Management of property

Supermarket Business
H2O Foods Group Co., Ltd.

Management planning and administration of the foodbusiness

Hankyu Oasis Co., Ltd.

Supermarkets

Izumiya Co., Ltd.

Generalmerchandise

stores,supermarkets

andsupercentres
Hankyu Foods, Inc.

Manufacture and sale of laver seaweed and dried foods

Hankyu Bakery Co., Ltd.

Manufacture and sale of bread

Hankyu delica i, Inc.

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

Process and sales of fresh food

Qanat Co., Ltd.

Supermarkets

Sun Laurie Co., Ltd.

Restaurants

Shopping Centre Business
H2O Asset Management Co., Ltd.

Management and development of property

Hankyu Maintenance Service Co., Ltd.

General building maintenanceHankyu Shopping Center Development Co., Operational management of commercial facilities
Ltd.
Kanso Co., Ltd.

General building maintenance

Other Businesses
Be-U Co., Ltd.

Sales of apparel, accessories, toys and sporting goods

CARNET CO., LTD.

Sales of ladies shoes and accessories

EveryD.com, Inc.

Supply of the system and the know-how of home125

delivery service
F.G.J Co., Ltd.

Sales of personal care products

H.D. Base Mode Ltd.

Product planning, production management and sales
operation of women's apparel

H2O Smile Co., Ltd.

Contractor engaged in office work and light work for thecompany

H2O STYLE NET Co., Ltd.

Operational management of internet shopping site

H2O System Co., Ltd.

Data processing and systems development

Hankyu Act For

Contractor engaged in bookkeeping and payroll
calculation

Hankyu B&C Planning

Sales of bread and management of cafe

Hankyu Department Stores Uniform

Sales of uniforms

Hankyu Design Systems Co., Ltd.

Commercial design, web design and production,
photographing & printing

Hankyu Freds Co., Ltd.
HankyuHanshin

Sales of bread and management of cafes
Department

Stores Membership organisation for customer service

Tomonokai, Inc.
Hankyu Hello Dog Co., Ltd.

Sales of pet-accessories

Hankyu Home Styling Co., Ltd.

Sales of furniture and interior goods

Hankyu Job Yell Co., Ltd.

Manpower dispatching and fee-charging employment
agencyHankyu Kensou Co., Ltd.

Manufacture and sales of furniture and furnishings

Hankyu Kitchen Yell Kansai, Inc.

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

Hankyu Kitchen Yell Kyushu, Inc.

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

Hankyu Quality Support

Quality testing and consulting service

Hankyu Sennan Green Farm

Production of organic farm products

Hankyu Trading Services Co., Ltd.

Foreign trade business

Hankyu Wedding

Costume salon for bridal use
126

Heart Dining, Inc.

Management of cafe, restaurants and company cafeteria

KAETOKU SERVICE Co., Ltd.

Sales of electronic gift certificates

KAZOKUTEI CO., LTD.

Restaurants mainly serving "Soba/Udon"

Oi Development Co., Ltd.

Operational management of a hotel

Persona Co., Ltd.

Management of services for members of Persona card

Souq Company Co., Ltd.

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

Suzhou Izumiya Co., Ltd.

A department store in Suzhou, China

127

H2O RETAILING CORPORATION
2-6-27, Shibata, Kita-ku, Osaka 530-0012
Telephone: +81 (0) 6 - 6365 - 8120
Facsimile: +81 (0) 6 - 6486 - 8320
URL: http://www.h2o-retailing.co.jp/128