H2O RETAILING CORPORATION FINANCIAL REPORT 2020 Contents FINANCIAL REPORT for the 101st fiscal term I. Overview of the Company .........................................................................................................................................2 1. Summary of business results ............................................................................................................................................. 2 2. History ............................................................................................................................................................................... 4 3. Description of business ...................................................................................................................................................... 6 4. Overview of subsidiaries and associates............................................................................................................................ 9 5. Information about employees .......................................................................................................................................... 12 II. Overview of Business .............................................................................................................................................14 1. Management policies, management environment and issues to be resolved, etc. ......................................................14 2. Business risk ......................................................................................................................................................15 3. Management analysis of financial position, business performance and cash flows ....................................................17 4. Critical contracts for operation .............................................................................................................................26 5. Research and development activities ....................................................................................................................26 III. Information About Facilities ..................................................................................................................................27 1. Overview of capital expenditures, etc. ..................................................................................................................27 2. Major facilities ...................................................................................................................................................27 3. Planned additions, retirements, etc. of facilities .....................................................................................................31 IV. Information About Reporting Company ..................................................................................................................32 1. Information about shares, etc. ..............................................................................................................................32 2. Acquisitions, etc. of treasury shares ......................................................................................................................57 3. Dividend policy ..................................................................................................................................................58 4. Explanation about corporate governance, etc. ........................................................................................................59 V. Financial Information ........................................................................................................................................90 Consolidated Balance Sheets .............................................................................................................................90 Consolidated Statements of Operations ...........................................................................................................92 Consolidated Statements of Comprehensive income .......................................................................................93 Consolidated Statements of Changes in Net Assets ........................................................................................94 Consolidated Statements of Cash Flows ..........................................................................................................96 Notes to the Consolidated Financial Statements ...........................................................................................98 Independent Auditors’ Report ....................................................................................................................... 170 Supplemental information ................................................................................................................................ 173 1 I. Overview of the Company 1. Summary of business results (1) Business results of H2O RETAILING CORPORATION and Consolidated Subsidiaries H2O RETAILING CORPORATION and Consolidated Subsidiaries Five-Year Summary Thousands of U.S. dollars Millions of yen (Note 1) Years ended 31st March 2016 2017 2018 2019 2020 2020 For the year: Net sales ¥915,690 ¥901,221 ¥921,871 ¥926,872 ¥897,289 $8,232,009 Ordinary income 23,060 21,725 24,272 21,376 ¥11,831 108,541 Profit (loss) attributable to owners of parent 14,053 14,298 14,636 2,162 (¥13,150) (120,642) Comprehensive income 4,966 16,192 21,380 3,592 (30,174) (276,825) Net assets 252,587 264,323 280,807 279,603 244,634 2,244,348 Total assets 595,247 639,305 659,582 663,335 586,904 5,384,440 Net assets per share (in yen and U.S. dollars) 2,038.83 2,131.97 2,263.95 2,252.28 1,967.90 18.05 Basic profit (loss) per share (in yen and U.S. dollars) 113.93 115.84 118.54 17.50 (106.38) (0.97) Diluted profit per share (in yen and U.S. dollars) 113.39 115.28 117.90 17.39 - - Equity ratio (%) 42.3 41.2 42.4 42.0 41.5 Return on equity (%) 5.6 5.6 5.4 0.8 (5.0) Price earnings ratio (times) 17.1 15.5 16.4 88.1 - Cash flows from operating activities 24,539 38,742 32,739 15,392 9,871 90,559 Cash flows from investing activities 5,852 (25,325) (35,492) (36,682) (22,451) (205,972) Cash flows from financing activities (26,207) 21,703 (13,812) 9,581 (16,440) (150,825) Cash and cash equivalents at end of year 48,492 83,462 67,150 55,229 25,958 238,146 Number of employees 8,456 8,528 8,868 9,634 9,570 [Separately, average number of temporary employees] [19,120] [18,608] [17,792] [15,816] [15,291] Notes: 1. U.S. dollar amounts represent translations of yen amounts at the rate of \109.00 to U.S.$1.00. 2. Amounts less than one million yen and one thousand dollars are rounded down. 3. Net sales do not include consumption taxes. 4. The “Partial Amendments to Accounting Standard for Tax Effect Accounting” (ASBJ Statement No. 28, issued on 16th February 2018) and relevant guidances have been applied from the beginning of the fiscal year ended 31st March 2019, and principal management indexes from the fiscal year ended 31st March 2018 and earlier show the values, etc., to which the said accounting standard and guidances have also been retrospectively applied. 5. Diluted profit per share for the fiscal year ended 31st March 2020 is not presented because the Company recorded a basic loss per share although the Company had potential dilutive shares. 6. Price earnings ratio for the fiscal year ended 31st March 2020 is not presented because loss attributable to owners of parent was recorded for the fiscal year. 2 (2) Business results of H2O RETAILING CORPORATION H2O RETAILING CORPORATION Five-Year Summary Thousands of U.S. dollars Millions of yen (Note 1) Years ended 31st March 2016 2017 2018 2019 2020 2020 Operating revenue ¥9,869 ¥11,029 ¥12,262 ¥13,556 ¥13,194 $121,045 Ordinary income 3,894 4,771 5,786 2,334 3,760 34,495 Profit 6,053 1,182 2,396 405 1,196 10,972 Capital stock 17,796 17,796 17,796 17,796 17,796 163,266 Total number of shares issued (thousand shares) 125,201 125,201 125,201 125,201 125,201 Net assets 223,913 221,539 225,606 226,428 205,389 1,884,302 Total assets 362,737 421,266 443,434 470,291 435,538 3,995,761 Net assets per share (in yen and U.S. dollars) 1,806.46 1,785.47 1,816.96 1,822.07 1,650.53 15.14 Dividends per share (in yen and U.S. dollars) 35.00 40.00 40.00 40.00 40.00 0.36 [Interim dividends per share] [17.50] [20.00] [20.00] [20.00] [20.00] [0.18] Basic profit per share (in yen and U.S. dollars) 49.07 9.58 19.41 3.29 9.68 0.08 Diluted profit per share (in yen and U.S. dollars) 48.84 9.53 19.30 3.27 9.61 0.08 Equity ratio (%) 61.4 52.3 50.6 47.9 46.9 Return on equity (%) 2.7 0.5 1.1 0.2 0.6 Price earnings ratio (times) 39.6 186.8 100.3 469.3 81.8 Dividend payout ratio (%) 71.3 417.5 206.1 1,217.3 413.4 Number of employees 64 75 84 82 92 [Separately, average number of temporary employees] [10] [11] [13] [13] [14] Total shareholder return (%) 87.4 82.4 91.0 75.0 43.6 [Comparative index: TOPIX including dividend] (%) [89.2] [102.3] [118.5] [112.5] [101.8] Highest share price (in yen and U.S. dollars) 2,976 1,989 2,445 2,213 1,572 14,422 Lowest share price (in yen and U.S. dollars) 1,705 1,281 1,724 1,466 660 6,055 Notes: 1. U.S. dollar amounts represent translations of yen amounts at the rate of \109.00 to U.S.$1.00. 2. Amounts less than one million yen and one thousand dollars are rounded down. 3. Operating revenue does not include consumption taxes. 4. The “Partial Amendments to Accounting Standard for Tax Effect Accounting” (ASBJ Statement No. 28, issued on 16th February 2018) and relevant