H2O Retailing : Consolidated Financial Statements of the Fiscal Year Ended March 31, 2023

Consolidated Financial Statements

of the Fiscal Year Ended March 31, 2023

(Japanese accounting standards)

May 11, 2023

Corporate Name : H2O Retailing Corporation

Securities Code : 8242 (Tokyo Stock Exchange)

URL : http://www.h2o-retailing.co.jp/en

Representative : Naoya Araki, President and Representative Director

Contact : Hiroyuki Yoshimatsu, Executive Officer

TEL : [phone]

Scheduled date of shareholders' meeting : June 28, 2023

Scheduled date of filing of the financial report : June 28, 2023

Scheduled date of dividend payment : June 7, 2023

Preparation of supplementary materials : Yes

Briefing session on financial results : Yes (for institutional investors and analysts）

(Figures are rounded down to the nearest million yen.)

1. Consolidated Business Results of the Fiscal Year ended March 31, 2023 （From April 1, 2022 to March 31, 2023）

（1）Consolidated operating results (Cumulative total)			(Percentages indicate year-on-year changes.)
	Net Sales			Operating Profit		Ordinary Profit	Profit attributable
				to owners of parent
	Millions of yen	%		Millions of yen	%	Millions of yen	%	Millions of yen	%
FY2023	628,089	21.1		11,388	-	13,004	454.3	16,382	65.9
FY2022	518,447	-		740	-	2,346	-	9,872	-
Note : Comprehensive income FY2023 25,778 million yen, 179.1% , FY2022	9,235 million yen, -%

Note : The Company has applied "Accounting Standard for Revenue Recognition" (ASBJ Statement No. 29, March 31, 2020) and other standards from the beginning of the first quarter of FY2022. As for FY2022, the percentage change from the same period of the previous fiscal year in net sales is not shown due to the significant impact on net sales.

	Net Income	Net Income per	Return on Equity	Ratio of Ordinary Profit	Ratio of Operating Profit
	per Share	Share(Diluted)	to Total Assets	to Net Sales
	Yen	Yen	%	%	%
FY2023	135.85	134.81	6.7	1.9	1.8
FY2022	79.84	79.26	4.2	0.4	0.1

Reference : Equity in earnings of affiliates FY2023 △281 million yen , FY2022 △901 million yen

（2）Consolidated financial position

		Total Assets	Net Assets	Owner's Equity Ratio	Net Assets per Share
		Millions of yen	Millions of yen	%	Yen
FY2023		686,423	272,814	36.2	2,137.87
FY2022		654,558	260,938	36.2	1,922.25
Reference : Owner's equity	FY2023 248,821 million yen, FY2022 236,844 million yen
（3）Consolidated cash flows
		Cash flows from	Cash flows from investing	Cash flows from	Cash and cash equivalents at
		operating activities	activities	financing activities	end of year
		Millions of yen	Millions of yen	Millions of yen	Millions of yen
FY2023		30,295	5,782	(12,549)	57,020
FY2022		6,465	(5,203)	(28,578)	33,174

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2. Dividends

		Annual Dividends		Total Dividends	Payout Ratio	Ratio of Dividends
	First	Second	Third	Fiscal Year-	Total	Payment	to Net Assets
	(Consolidated)
	Quarter	Quarter	Quarter	End	(Annual)	(Consolidated)
	Yen	Yen	Yen	Yen	Yen	Millions of yen	％	％
FY2022	-	12.50	-	12.50	25.00	3,086	31.3	1.3
FY2023	-	12.50	-	12.50	25.00	2,995	18.4	1.2
FY2024(Forecast)		12.50		12.50	25.00		36.4

3. Forecast of Consolidated Business Results for the Fiscal Year ending March 31, 2023 （From April 1, 2023 to March 31, 2024）

	Net Sales		Operating Profit	Ordinary Profit	Profit attributable to	Net Income
		owners of parent	per Share
	Millions of yen	％	Millions of yen	％	Millions of yen	％	Millions of yen	％	Yen
Half Year	322,000	5.8	4,800	330.9	4,500	58.7	500	(82.1)	4.30
Full Year	675,000	7.5	17,000	49.3	16,500	26.9	8,000	(51.2)	68.74

Note : The Company has applied "Accounting Standard for Revenue Recognition" (ASBJ Statement No. 29, March 31, 2020) and other standards from the beginning of the first quarter of FY2022.

Consolidated gross sales, which is equivalent to net sales up to FY2021 excluding the effects of

changes in accounting policies, amounted to ¥496,000 million (up 7.5％ year on year) for the half year and ¥1,040,000

million

(up 6.2％ year on year) for the full year.

These financial statements have been prepared for reference only in accordance with accounting principles and practices generally accepted in Japan.

Notes

(1) Changes in significant subsidiaries during the period

(changes in specified subsidiaries resulting in the change in scope of consolidation) : No

1. Changes in accounting policies, changes in accounting estimates or restatements
2. 1. Changes in accounting policies due to changes in consolidated accounting standards : No
   2. Changes other than (a) : Yes
   3. Changes in accounting estimates : No
   4. Restatements due to correction : No
3. Number of shares issued and outstanding (common stock)
4. 1. Number of shares issued at the end of the period (including treasury stock)

FY2023	125,201,396 shares
FY2022	125,201,396 shares

(b) Number of shares of treasury stock at the end of the period

FY2023	8,813,548 shares
FY2022	1,989,253 shares

(c) Average number of shares during the period

FY2023	120,589,216 shares
FY2022	123,651,665 shares

Note : These consolidated financial results are outside the scope of audit by certified public accountants or auditing firms.

Note : Explanation regarding the appropriate use of forecast

The above-mentioned forecast is based on the information available to the company at present,

and including a potential risk and uncertainty. Actual achievements may differ from these forecasts due to many factors.

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1.Consolidated Financial Results

Following the business integration through a share exchange with Kansai Super Market Ltd. in December 2021, consolidated results for the previous year include the result of 4Q of Kansai Food Market Ltd, Kansai Super Market Ltd. and Kansai Super Premium Co., Ltd.

▶Sales

Consolidated net sales of FY2023 was ¥628,089 million, increased by 21.1% YOY.

Consolidated gross sales, which is equivalent to net sales up to the fiscal year before the application of Accounting Standard for Revenue Recognition, excluding the effects of changes in accounting policies, amounted to ¥979,723 million, increased by 24.3% YOY. In Department store Business segment, sales increased significantly,with Hankyu Main Store achieving record high sales. In Supermarket Business segment, consolidated sales increased significantly since the new consolidation of Kansai Super Market Ltd. started from 4Q of FY2022.

▶Operating Profit and Ordinary Profit

As a result of an increase in gross profit due to higher sales and controlling selling, general and administrative expenses less than planned in Department store Business segment, operating profit was ¥11,388 million (operating profit of ¥740 million in the previous fiscal year) and ordinary profit was ¥ 13,004 million, increased by 454.3% YOY.

(Department store business)

With the impact of the COVID-19 easing and society returning to pre-COVID-19 levels, domestic sales remained strong throughout the period and domestic sales for the full year exceeded FY2019 results. Furthermore, in the second half of the year, inbound sales also recovered to more than 80% of pre- COVID-19 sales, and total sales also exceeded FY2019 results. At Hankyu Main Store, sales of women's fashion, in particular, performed well with the increase in commuting and opportunities to go out, in addition to the increased needs for wedding or graduation ceremonies. Sales of high-end items such as jewelry, watches and luxuries also increased significantly. As a result, Hankyu Main Store exceeded record sales for the full year.

Hanshin Umeda Main Store celebrated its grand opening of entire building in April, 2022. Efforts to strengthen the value of experiences centered on food, which is offered on four floors, resulted in a wide range of customers visiting the store. Although sales of non-food items were lower than expected, measures to enhance the customer experience are steadily attracting new customers and increase customer loyalty.

Selling, general and administrative expenses increased compared with the previous fiscal year due to the decrease of the transfer to extraordinary losses related to COVID-19 infection, the increase of depreciation cost with the opening of the Hanshin Umeda Main Store and heating and lighting expenses rise. Selling, general and administrative expenses were lower than planned by reducing costs such as advertising expenses while improving efficiency, despite the increase of sales commission cost due to sales increase.

As results of above, gross sales was ¥491,838 million, increased by 27.7% YOY and operating profit was ¥10,299 million (operating profit of ¥939 million in the previous fiscal year).

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(Supermarket business)

Gross sales was ¥416,139 million, increased by 27.2% YOY and operating profit was ¥5,469 million, increased by 2.7% YOY.

In the first half of the year, sales struggled due to the downturn after the increasing demand for eating at home at the previous year. On the other hand, in the second half of the year, existing store sales remained at the same level as the previous year because average sales per customer increased due to price hikes altough the number of customers decreased from the previous year at each company. Regarding stores opening and remodel, one store was opened and seven stores were remodeled. Existing store sales year-on-year for Izumiya Co., Ltd. were 97.1% (96.0% for the number of customers and 101.1% for the average spend per customer), and those for Hankyu Oasis Co., Ltd. were 94.3% (95.1% for the number of customers and 99.1% for the average spend per customer).

Both companies, worked to improve profits through thorough chain-store operation.That is, measures to increase sales and improve gross profit margin such as by restructuring merchandising, promoting purchasing integration, reducing labor costs by reviewing store operations, and reviewing other expenses.

Selling, general and administrative expenses were lower than both the previous year result and forecast due to efforts to reduce personnel costs by optimizing store staff organization through chain operations, while utility expenses increased at both companies.

Kansai Super Market Ltd. promoted measures based on three categories, "health management" (e.g. counseling health visitor), "productivity improvement" (e.g. installation of sliding shelves, expansion of steam convection systems), and "education" (e.g. training sessions for management executives and store managers to share information and unify their intentions).

Existing store sales were 99.0% (98.3% for the number of customers and 100.7% for the average spend per customer).

Selling, general and administrative expenses were lower than both the previous year result and forecast due to a review of expenses for consumables etc., while utility costs soared.

The food manufacturing subsidiaries, HANKYU delica i, Inc. and Hankyu Bakery Co.,Ltd. reported increases in wholesale sales to supermarket companies and specialty store sales, resulting in an increase in profit.

(Shopping Center business)

Gross sales was ¥35,574 million, decreased by 17.0% YOY and operating profit was ¥1,808 million, increased by 361.8% YOY.

In H2O Shopping Center Development Co., Ltd., which operates management of Izumiya SC and sales of apparel and home products at Izumiya stores, gross sales decreased due to closure of direct operation area and operating profit increased due to effective use of vacant tenant lots, reorganization of direct operation area and cost reduction by operational efficiency.

Oi Development Co., Ltd, which operates the business hotel, increased in gross sales and profit since occupancy rate improved and remained above 90% from October to March thanks to flexible pricing to capture demand and recovery of business and travel activities.

(Other business)

Gross sales was ¥36,169 million, increased by 9.8% YOY and operating loss was ¥3,100 million (operating loss of ¥3,409 million in the previous year).

The subsidiaries in the other businesses, excluding the Company as a holding company, posted an operating profit increase of ¥784 million, reflecting an increase in sales due to a reduction in the number and duration of COVID-19 related closed stores compared to the previous year.

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▶Profit attributable to owners of parent

The Companies recorded extraordinary income of ¥17,563 million including gain on sales of noncurrent assets of ¥13,543 million and gain on sale of investment securities of ¥3,819 million and extraordinary losses of ¥9,422 million including loss on store closings and others of ¥1,699 million and loss on retirement of noncurrent assets of ¥1,600 million. As a result, profit attributable to owners of parent was ¥16,382 million, increased 65.9% YOY, reached a record high due to profitability improved of each buniness segment centerd on Department store business, asset sales and review of tax effects associated with recovery of profitability.

2. Forecast of FY2024

Forecast of FY2024 are as follows: gross sales ¥675,000 million, operating profit ¥17,000 million, ordinary

profit ¥16,500 million and profit attributable to owners of the parent ¥8,000 million.

Forecast of dividends for FY2024 is ¥25 per share (second quarter ¥12.5 and fiscal year end ¥12.5), which is at the same amount as the previous year.

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