H2O Retailing : Integrated Report 2023

H2O RETAILING

Integrated Report 2023

Integrated Report

2023

Table of Contents

1. - The Path So Far and at Present - (Introduction)
2. Basic Philosophy / Group Vision
3. Our Conduct
4. Company Prole
5. Business Summary
6. Our Business Foundation

1. Our Value Creation Transition
2. - The Future of H2O RETAILING -

(Value Creation Stories and Company-wide Strategies)

11 Interview: Top Management

1. Value Creation Process
2. Sustainability Management

16 Long-term Business Plan 2030

18 Mid-term Management Plan (FY2022 to FY2024)

1. - Foundation for Supporting Value Creation of H2O RETAILING - (Functional Strategy & Governance)
2. Sustainability Strategy

29 Environment

34 Social

1. Message from an External Expert
2. IT and Digital Strategy

43 Human Capital Strategy

47 Corporate Governance

53 Compliance and Risk Management

1. - Business Strategies for H2O RETAILING's Value Creation -
2. Department Store Business

58 Supermarket Business

1. Shopping Center Business

1. - Data Collection -

63 Data

68 Integrated Report 2023 Editorial Policies

H2O RETAILING Integrated Report 2023

Table of Contents

01

Introduction

The Path So Far and at Present

Integrated Report

2023

labelBasic Philosophy / Group Vision labelOur Conduct

labelCompany Prole labelBusiness Summary labelOur Business Foundation

labelOur Value Creation Transition

H2O RETAILING Integrated Report 2023

The Path So Far and at Present

02

Basic Philosophy / Group Vision

Basic Philosophy

Group Vision

To remain indispensable to the local communities through our activities of providing

a model of lifestyle to local residents.

To be a customer'lifestyle partner to enrich their hearts through offering

"fun, happy and tasty" experiences.

H2O RETAILING Integrated Report 2023

The Path So Far and at Present

03

Our Conduct

Our Conduct

H2O RETAILING Group Code of Conduct

We endeavor to act in the best interest of our customers and live up to their trusts and expectations.

1We will always accurately assess the needs of our customers and provide better products and services.

2We will always keep our promises to our customers and respond to their requests promptly and in good faith.

3We will place the highest priority on safety and security for all our products, services, and sales floor environments.

4We will correctly display and appropriately explain our products and services. 5We will manage and utilize customers' personal information appropriately.

We will observe the rules of fair trade and

build good partnerships with our business partners.

1We will not abuse our superior position and will not make unreasonable demands to our business partners. We will not engage in unfair transactions, such as cartels or bid rigging.

2We will be polite and moderate in our dealings with suppliers and will not accept gifts or entertainment that is out of line with social norms.

3We will not violate the intellectual property rights of others, including copyrights and trademarks.

H2O RETAILING Integrated Report 2023

We will conduct our business with sincerity and a challenging spirit.

1We will be sensitive to the changes of the times, always be positive, think and act independently, and produce results.

2We will correctly understand and comply with social norms, laws, regulations, work regulations, and other company rules.

3We will properly manage and operate the company's assets such as products, finances, goods, and important information, and will not miss-use them.

	We will all participate to maintain a work environment in which
	we can always perform at our best.
1	We will strive to create an open and cheerful workplace with rich communication.
2	We will value the individuality of each person and be concerned about human rights and privacy.
3	We will not engage in sexual harassment, abuse of authority, or other acts that lead to
	harassment or discrimination.

We will act proactively to contribute to society.

1We will not hide information, but present it correctly and in a timely manner, and build good relationships with internal and external stakeholders.

2We will act proactively to protect the environment and contribute to society to realize a sustainable society.

3We will not respond to any unreasonable demands from antisocial organizations, groups, or individuals.

The Path So Far and at Present

04

Company Prole

Company	Company Name	H2O RETAILING CORPORATION
Profile
Head Oce Address	8-7,Kakuda-cho,Kita-ku, Osaka City
	Date of Establishment	March 7, 1947
		October 1, 2007, Trade name change
	Capital Stock	17,796 million yen
	Number of	24,732 (9,485 fulltime employees,
	Group Employees	15,247 temporary employees* )
		*8-hour equivalent, average during the period
	URL	https://www.h2o-retailing.co.jp

Distribution of Shares by Shareholder

Treasury stock 7.0%

						Financial institutions
						19.1％
Individuals				Financial instruments
& others
			dealers
28.8%
			1.1%

H2O RETAILING Integrated Report 2023

Main

Group

Companies

HANKYU HANSHIN DEPARTMENT STORES, INC. KANSAI FOOD MARKET LTD.

KANSAI SUPER MARKET LTD.

IZUMIYA ･ HANKYU OASIS, INC.

H2O Shopping Center Development Co., Ltd.

Operation of department stores Business planning and management of supermarket companies

Operation of food supermarkets

Operation of food supermarkets Operation of commercial facilities, sales of apparel and home products

Other corporations

27.6%

Foreign corporations, etc 16.3%

Outline of

Shares

※For other group companies, please refer to the website.
Major Shareholders (as of March 31, 2023)	Number of	Investment
Shares Held	Ratio
Hanshin Electric Railway Co., Ltd.	(thousand shares)	（％）
14,749	12.67
The Master Trust Bank of Japan, Ltd. (Trust account)	13,688	11.76
Hankyu Hanshin Holdings, Inc.	10,336	8.88
Custody Bank of Japan, Ltd. (Trust account)	5,753	4.94
Izumiya Kyowakai Assn.	3,090	2.66
H2O Retailing Group Employees' Shareholding Association	1,855	1.59
BNYM AS AGT/CLTS NON-TREATY JASDEC	1,796	1.54
GOVERNMENT OF NORWAY	1,765	1.52
STATE STREET BANK WEST CLIENT-TREATY 505234	1,212	1.04
Nippon Life Insurance Company	1,133	0.97

Total number of shares authorized to be issued・・150,000,000 shares

Total number of shares issued・・・・・・・125,201,396 shares

Listed securities trading・・・・・・・・・・・・・Tokyo Stock Exchange

Prime Market

Stock code・・・・・・・・・・・・・・・・・・・・・・・・・・・8242

The Company holds treasury stock but excludes them from the above major shareholders.

The investment ratio is calculated based on the total number of shares issued excluding treasury stock (8,813,548 shares).

The Path So Far and at Present

05

Business summary

Business summary

Department Store Business

Supermarket Business

Shopping Center Business

H2O RETAILING Integrated Report 2023

Hankyu Hanshin Department Stores operate a total of 15 department stores, including Hankyu Department Stores and Hanshin Department Stores. We strive to become the No.1 fun department store to make our customers lives also fun and enriched by energizing their future. In addition to the agship Hankyu Umeda Main Store, we have a wide variety of stores, including the Hanshin Umeda Main Store, Kobe Hankyu, and Hakata Hankyu stores in the city center, as well as suburban stores that are close to the lives of the community.

outlined_flag Number of stores by trade name

Hankyu Department Store	11stores
Hanshin Department Store	4stores
※Number of stores: As of June 30, 2023

From manufacturing and processing to sales and home delivery in food supermarkets, we are developing businesses related to "food". As indispensable infrastructure to the community, we operate a total of 236 food supermarkets in various locations in the Keihanshin area (Kyoto, Osaka and Kobe area) such as residential areas, station fronts, and roadside areas.

outlined_flag Number of stores by trade name

Izumiya※	96stores
Hankyu Oasis	77stores
Kansai Super Market	63stores

※Number of stores: As of June 30, 2023

※Including stores of Qanat Co., Ltd. and H2O Shopping Center Development Co., Ltd.

We are engaged in businesses related to the development, operation, and management of commercial facilities such as shopping centers and the "Ours Inn Hankyu" business hotel.

Other Business

We operate a variety of businesses, including cosmetics stores, "Fruit GATHERING," convenience stores, furniture, pet supplies, and other retail and related services.

The Path So Far and at Present

06

Our Business Foundation

As a company rooted in the Kansai region for 100 years

Based on the basic philosophy of "continuing to be an indispensable presence in the local community by providing lifestyle models to local residents,

" the group is developing a variety of businesses centered on the Department Store Business and Supermarket Business, concentrated in the Kansai area.

H2O RETAILING Integrated

Strategy for market dominance in the Kansai region

Customer Base and Management Resources in Kansai

Working with the locals to enhance the appeal of the Kansai area

Report 2023

Our group has grown based in the Kansai region for almost 100 years. Our core

businesses, Department Stores for "urban large-scale commerce" and Supermarkets for "Supermarket Business," were both founded in the Kansai region.

Kansai is a metropolitan area with a population of about 20 million. To respond to the recent dizzying changes in the business environment, such as the maturation of the market and the diversification of lifestyles, we have formulated the "Strategy for market dominance in the Kansai region".

Establishing a dominant position will allow us to be involved in the lives of our customers in all aspects and expand our market share, by building a store network that responds to everything from daily life to non-everyday consumption, and by expanding alliances with business partners and local governments. Additionally, we aim to expand mindshare by promoting sustainability management initiatives, which customers can relate to.

Hankyu and Hanshin Department Stores both originated from railroad companies

in the Kansai region. They have developed their business from the Umeda area, which boasts the largest concentration of commerce in the region. Hankyu Department Store was founded as the world's first "Terminus" department store. The trains together with urban development along the railway line, and the novel products offered in its spectacular store environments have enriched the lives of locals. With the opening of Senri Hankyu, we have expanded into the suburbs, lives, and hearts of more customers. The fact that the Hankyu Umeda Main Store was able to achieve the highest sales in western Japan is the result of the brand power we have cultivated over many years and the strong support of customers in the Kansai region.

The Supermarket Business core companies Kansai Super Market, Izumiya, and Hankyu Oasis each have a growing number of stores based in the Kansai region, and all have points

of contact with the daily lives of their customers. In addition to the accumulated customer base, the combination of the three companies' leading sales capabilities and store networks will enable us to take advantage of economies of scale and improve logistics and cost efficiency.

Most of the group's employees live in the Kansai area. We aim to be an indispensable presence in the local community, by being able to work with a sense of understanding and attachment to the land rooted in each region, and to collaborate with companies and local governments that share the same appreciation for the region, is a source of value creation. We will continue to be an essential part of the lives of our customers and grow as the most familiar distribution group in the Kansai region, whilst striving to make the lives of local communities more convenient and affluent.

T he Kansai area has not been spared from the nationwide trend of its population

aging, birthrates and population declining. As lifestyles and purchasing behavior change drastically, various developments are conceivable to the characteristics of each region.

As the base of our group's Department Store Business, Umeda is expected to become more attractive with the planned integrated development of the Ume-Kita district, the Hankyu Osaka Umeda Station area, and various transportation infrastructure improvements associated with the Naniwa-suji Line development.The Osaka-Kansai Expo scheduled to be held in 2025 is expected to increase the flow of people from Japan and abroad, and represents an excellent opportunity for our group, which operates in urban areas. We will work together with the people of the Kansai area to contribute to improving the attractiveness of the region and seize this opportunity.

07

Hanshin Umeda Main Store	Suburban Department Stores
This has been rebuilt and reopened in April 2022 as	Unlike the Hankyu Umeda Main Store, which
the "department store that makes every day happy".	embodies the extraordinary, the suburban
We are further evolving our "Food Hanshin" such as	department store proposes a sophisticated everyday
the "Food Festival Terrace" where you can enjoy food	lifestyle. The compact stores, themed to be aligned
entertainment on a weekly basis. "Navigators" who	to the local community lifestyle for those who
convey the charm of the store connect with	purchase fresh food and prepared foods, allows
customers and provide content that enriches their	customers to enjoy a relaxed shopping atmosphere.
daily lives, to ultimately establish a fan community.

Kansai dominant area

Food Supermarket

Our supermarkets can be found in various locations, including residential areas, in front of train stations, and on roadsides. Based on the concept of managing stores that consider its local customers, we handle fresh local vegetables and oer a full lineup of prepared foods, frozen foods, and Japanese and Western confectionery for souvenirs.

Hankyu Kitchen Yell	Customer Service
The online supermarket that handles	Business ("Machiuma")
everything from daily groceries to	This is a new in-store and online business for
department store sweets, side dishes,
consumers in the Kansai region. Starting with the
and daily miscellaneous goods. Main
"Machiuma" app, which aims to maximize the
users include those busy with childcare,
"delicious experience" of stores, we will continue
work, and the elderly.
to develop services that consider customer
	needs, whilst aiming to develop into a B2B
	business that utilizes the customer data obtained.

Suburban Department Malls

As a new model that combines the characteristics of conventional suburban department stores with a wide range of specialty stores, we aim to meet the diverse demands of daily life, such as child-rearing households and the elderly. We focus on product exhibitions, seasonal events, and lifestyle proposals, which are the specialties of department stores.

Hankyu Umeda

Main Store

It is a agship store that boasts the largest sales in western Japan, a "theater-like department store" that proposes products and its cultural values. Appealing with products and services that can only be obtained here in our sophisticated environment, made to invigorate the stimulated senses, we continue to rene our digital measures.

Izumiya SC (Shopping Center)

The shopping center, with Izumiya food supermarket as its core tenant, handles food, daily miscellaneous goods, clothing, etc. In addition to specialty store tenants such as drugstores and electronics retailers, we frequently hold events to attract customers in cooperation with local residents, businesses, and local governments.

The Path So Far and at Present

08

Individual food home delivery is now common- place. Hankyu Kitchen Yell started its service in 2002. Everything from fresh ingredients to department gourmet food delivered to your home, which is a service unique to the group.

Bringing the "Depachika" gourmet to your home

2030

Creating

"New Experience

Realization of a new business model "Communication Retailer"

From a business that adds value to products and sells them, to a business that supports customers' personal self-fulllment

through direct communication.

For details, refer to P17

Our Value Creation Transition

The H2O RETAILING Group will continue to evolve with the times.

H2O RETAILING

Since its founding, each group company has taken on the challenge of not only selling, but also constantly adding value to its products in accordance with the times and continues to evolve.

	A series of
	attractive sales areas
	centered on "food"
	The opening of the "National
	Famous Confectionery Town"
	and " Hanshin Sweet and Spicy
The world's	Town" at Hanshin Department	Building a
Store, which brought together
supermarket model
first terminal	specialty products and famous
stores with individuality and	in pursuit of freshness
department store	tradition from all over Japan,
To provide better products to
	was a groundbreaking
	experiment at the time that	customers who value freshness,
	gained popularity.		Kansai Super Market has
			undertaken several industry-lead-
			ing initiatives, such as developing
			its own processing system for
			fresh foods and being one of the
			rst to introduce refrigerated
Hankyu Department Store was born			cases for vegetables.	～
as the world's rst department store
		2000s
directly connected to a railway station
with the new idea of "inviting people
from along the railway." We			～
advertised in the newspaper that "we
		1960s
want to sell the best products at a	1929
～
lower price than anywhere else". The
	1950s
most popular dish in the large
cafeteria on the top oor was "Rice
Curry". It has become a signature
menu that is cheaper
than anywhere else.	The pursuit of
～
1920s	"aordable valuables"

Since its founding, Izumiya has continued to provide safe and secure products and services by pursuing a business path of "aordable valuables" so that local customers can lead healthy, enjoyable, and fullling lives.

Immersive excitement at a "Theater-like department store"

As an "information retailer" the Hankyu Umeda Main
Store, which was rebuilt and opened in 2012, erected a
four-story atrium "SHUKUSAI Plaza" (that provides
new lifestyle information, learning, and experiences),	～
facilities for disseminating information on lifestyle
2020s
and culture, as well as a theater like store
environment to take you away from
everyday life.	～
2010s

Expertise, liveliness, and information dissemination

In 2008, Hankyu Oasis worked on the development of a new store based on the concepts of "expertise," "liveliness," and "information dissemination."

Value"

At the Hanshin Umeda Main Store, which was rebuilt and grandly opened in 2022, "navigators" who deliver ideas and tips to enrich daily lives take on the challenge of two-way communication with customers through social media and events. We are creating a fan community that transcends the boundaries of salespeople, customers, and producers.

Integrated Report 2023

The Path So Far and at Present

09

Value Creation Stories and Company-wide Strategies

The Future of H2O RETAILING

Integrated Report

2023

labelInterview: Top Management labelValue Creation Process labelSustainability Management labelLong-term Business Plan 2030

labelMid-term Management Plan（FY2022-FY2024）

H2O RETAILING Integrated Report 2023

The Future of H2O RETAILING

10