H2O Retailing : Presentation Materials（Mid term Management Plan FY2025 FY2027）

Medium-Term Management Plan

FY2025-2027

May. 15, 2024

H2O RETAILING CORPORATION

Topics

1. Review of Mid-term Management Plan FY2022-2024
2. 1. Achieved of Targets
   2. Review of Key Initiatives

1. Toward Achieving Long-term Business Plan 2030
2. 1. Long-termBusiness Plan 2030 (Ver.1)
   2. Business Environment Changes and Awareness of Issues
   3. Long-termBusiness Plan 2030 Ver.2
   4. Positioning of Mid-term Management Plan FY2025-2027

1. Mid-termManagement Plan FY2025-2027
2. 1. Policies and Key Initiatives
   2. Targets
   3. Investment Plan
   4. Key Initiatives
   5. 1. Deepen existing businesses "domestic customers and store business"
      2. Focus on and strengthen overseas customer businesses with high growth potential
      3. Develop and deploy new revenue sources
      4. Development and utilization of Group infrastructure to sustain business
      5. Strengthen initiatives for "Management Conscious of Cost of capital and Stock Price"

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2

1. Review of Mid-term Management Plan FY2022-2024
   -1. Achieved of Targets

• Significantly exceeded all set indicators
• Restructuring of the Department Store Business and turning the Supermarket Business into a second pillar of the business are on the horizon, resulting in significant growth in sales and operating profit.

(Unit: 100 million yen)

Mid-term

Management

Plan

Target

FY2024 Amount

Vs. target

Sales (100 millions of yen)

3,050

4,256

Other

Shopping Center

Supermarket

Gross sales	9,300	10,739	+15%
Operating	170	262	+92
profit

5,300

5,771

Department

Stores

Ordinary	140	279	+139
profit
Profit	―	219	―
ROE	2.6%	8.5%	+5.9pt
ROIC	3.0%	4.7%	+1.7pt

Mid-term Management Plan	FY2024
Targets

Operating profit (100 millions of yen)

				37	Shopping Center
						Supermarket
				79
	18
	62
				216		Department
	135					Stores
	▲ 20			▲ 0			Other
Mid-term Management Plan
	FY2024
	Targets

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3

1. Review of Mid-term Management Plan FY2022-2024
   -2. Review of Key Initiatives

Achieved above-planned results on a consolidated total,

building a solid business foundation, centered on the restructuring of existing businesses

Key Initiatives

Review

		• Performance far exceeded planed, including a return to over-the-counter due to the COVID-19 convergence,
			an active domestic upper market due to soaring asset prices, and record-high inbound sales due to tourism
	1. Restructuring of Department		promotion and a depreciating yen.
	Store Business	• Progress in building a foundation (corporate culture, organization, structure, IT) to evolve into a customer-
			based business model that continuously connects with customers through OMO
		→ The challenge is to realize the next growth strategy and a new business model in response to market changes.
		•	Expanded to become one of the largest supermarket groups in Kansai area through business integration with
	2. Turning the Supermarket		Kansai Super Market.
	Business into a second pillar	• Strongly promoted business reforms at Izumiya and Hankyu Oasis and achieved profit improvement results
	of the business	→ The "second pillar" of Supermarket Business are on the horizon, next step is to pursuit the effect of
			integrating the operations of four supermarkets.
		• Ningbo Hankyu holds the position of the best store in Ningbo area, further strengthening measures by making
	3. Challenge to a new business		Ningbo Hankyu a subsidiary
	•	Launched a food service application in the Takatsuki area as the first step in online customer service and
	model for future growth
		started collecting customer data as the next step.
		→ To materialize customer service business and customer data utilization business
		• IT and digital infrastructure development and enhancement is 80% completed
	4. Promote IT and digitalization		(customer data infrastructure, new work environment, security and governance system, etc.)
	as a foundation	→ To the stage of business utilization at operating companies using the platform
			(application, data utilization, etc.)

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4

1. Toward Achieving Long-term Business Plan 2030 -1. Long-term Business Plan 2030 (Ver.1)

to become a "Communication Retailer"

Develop direct communication with customers and deepen relationship

Market

●Target

●KPI in 2030

・the rich

Active customer

10 millions of people

EC

related

・small mass

②

business

・mass

OP ￥30-35 billion

・

Dept.

over ¥15 bn.

●Development

New

Ningbo

・

Supermarket

over ¥10bn.

The rich

・

SC

¥3bn.

・IT, digital, OMO

Hankyu

・

Ningbo

¥3bn.

(Ningbo・

・Customer database

・

Customer Service ¥3bn.

Zhejiang)

・Connections with locals

ROE 6-7％

Customer

contents

into

(High-end, Japan)

B2B business

strategy for market dominance

①

in the Kansai region

Existing

Super

contents

Shopping

Department

market

0

(Food)

Customer

(Kansai

Center

Store

Service

area)

※partnership with

Lawson, Inc

Home delivery

Osaka pref.

• Approach Strategies 〉
• Rebuild existing businesses

・Rebuild Department Store Business

・Make Supermarket Business as second pillar

• Challenges for new market

・Success of Ningbo Hankyu business ・Expand business into Ningbo and

Zhejiang prefecture（the rich、EC）

（working together with Hankyu Main store）

• Challenges for new business model

（1）Kansai region × Online × Service ・Service contents development ・Digital and Real stores

・Networking with alliance members （2）Develop B2B business

Build and utilize customer database platform

Existing

(Store Commerce)

New	Business model

(Service Commerce)(Database business)

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5

II. Toward Achieving Long-term Business Plan 2030

-2. Business Environment Changes and Awareness of Issues

Business Environment Changes	Awareness of the Issues
• Price hiking and high-cost environment continues	1.	Possible transition to an inflation-	i. Expectations of a positive impact on consumption
• Significant wage increases continue		based economy	ii.Creating added value that can absorb increased costs
• Toward a positive cycle of price hikes and wage increases			iii. Need for continuous cost efficiency
• Concern regarding market contraction due to declining	2. Gradual transition to a society with a	iv. Preparation and development of new business areas and models
population		declining population	v.Efforts to improve productivity and preparation for labor
• Labor shortage and rising labor costs			and labor savings
• Technological innovation and COVID-19 effects	3.	Rooting of digitally-based lifestyles	vi.Establishment of a business style that merges real and digital
		and communication	vii.Business environment corresponding to new lifestyles
• Asset effect →Expansion of affluent market	4.	Polarization of the consumer market	viii.Work on two polarized markets simultaneously
• Inflation Effect → Continued budget-minded
• The depreciation of the yen and the establishment of	5.	Rapid expansion of inbound	ix.Strengthen mid- to long-term initiatives, viewing overseas
Japan as a tourism nation		consumption	customer demand, which is expected to expand, as a growth
			market
• High tourism potential of the Kansai area and closeness to	6.	Expansion of domestic and overseas
Asia		tourism demand and advantages in
• Raise awareness of Osaka through Expo/IR		the Kansai area
• Grand Green Osaka opens; opening of Naniwa-suji Line
→ Improvement of Umeda's location advantage
• Management with SDGs in mind	7.	Increased demand from capital	x. Continue SDGs initiatives with clear KPI
• Management with human capital in mind		markets and stakeholders	xi. Pursuit of synergies between corporate growth and individual
• Management Conscious of Cost of Capital and Stock			growth
Price			x.Clarification of Growth Strategy, Capital Policy, and Shareholders'
			Return Policy

Status of the Company and Customers

• Hankyu Main Store Ranked No. 1 in Japan in inbound sales. (FY2024)
• Expansion of the scale of supermarkets through business integration
• While demand for high-value products and experience value is increasing, the daily lives of consumers continue to be deeply rooted in the desire for budget-minded.
• Signs of labor shortage in both value-added personnel and operations personnel
• PBR falls below 1x due to delays in Capital Strategy and other factors

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6

1. Toward Achieving Long-term Business Plan 2030 -3. Long-term Business Plan 2030 Ver.2

⚫Restructure Growth-Strategy	Customers are the company's most important asset; restructuring
	the business from the customer's point of view.

• The Group's Target Business Model: to become a " Communications Retailer"

Market	(Direct contact development with customers and continuous deepening of relations → Maximization of LTV*)
*Lifetime value provided to customers

	2	Overseas
	Customers
New
	Business

(1)	Ningbo Hankyu
(2)	Wealthy in Asia
(3)	Asian tourist

Focus and strengthen

4

Preparing and development

Customer Data Business (BtoB)

●Targets (2030)

Number of Group Active Customers 10 million

Operating profit ¥35~40 bn.

(after eliminations)

• Domestic Customer store ¥25 bn.
• Overseas Customers ¥20 bn.

				Deepening
1	Domestic Customers/		Development and deployment
Store Business
			3	Customer Service Business
Existing
(1) Department stores (domestic customers)	(1) Home delivery
(Domestic	(2) Online services (food, health, etc.),
customers)	(2) Supermarket	・・・
(Kansai area)
		(3) Shopping Center
				Strategy for market dominance in the Kansai region
									Business
			Existing		New
				Model
		(Store Commercial)	(Service Commercial) (Data Utilization Business)

• Customer Service

¥3 bn.

• Customer Data ROE 8% over
• Corporate Infrastructure Development
• Business use of IT and digital infrastructure
• Customer data collection and utilization
• Human Resource Strategies for Synergizing Corporate and Employee Growth

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II. Toward Achieving Long-term Business Plan 2030

-4. Positioning of Mid-term Management Plan FY2025-2027

Operating profit ¥26.2 bn.

• Rebuilding from COVID-19 disaster
• Strengthening of business foundation

¥32.0 bn.

• Deepening existing businesses
• Focus on and strengthen overseas customer business
• Development of new revenue sources
• Strengthen three corporate infrastructures
  - IT/digital, customer data, human resources

¥35~40 bn.

• Establish a new business portfolio as a communication retailer
• Establishment of second pillar of overseas customer business
• Establish new revenue sources through customer service and customer data

FY2022-2024	FY2025-2027	FY2028-2031
Operating profit ¥26.2 bn.	Operating profit ¥32 bn.	Operating profit: ¥35~40 bn.
ROE 8% over
Restructure of existing businesses	Expand into new markets and	Establish a new business structure from
new business models	the customer's point of view

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8

Ⅲ. Mid-term Management Plan FY2025-2027

-1. Policies and Key Initiatives

	Policy		Key Initiatives
			• Maximize LTV by developing points of contact and content through digital and real
			communication utilizing customer data, centered on affluent customers (communication retailer
			model)
		Department Store Business	• Hankyu Main Store → Upscaling and remodeling to become a "global department store" that
		serves as a destination for customers in a wide area both domestic and overseas.
		(Domestic customers)
		• Strengthen ability to attract customers and review business structure
			→Hanshin Umeda Main Store Revision and Renovation and Kawanishi Hankyu Remodel
i.	Deepening of existing		• Business aimed at expanding customer contact points and developing markets by utilizing the
	business		strengths of department stores
	"Domestic Customer		• Making Kansai Food Market a wholly owned subsidiary to promote business integration and
	and Store Business"	Supermarket Business	realize effects at 4 supermarkets
		• Organization of store positions and roles of 240 supermarkets, and development of price-
			appealing supermarkets
		Shopping Center Business	• Strengthen activities to connect with local communities and continue capital investment
		• Hotel renovation of Oi Development
		Management Efficiency and	• Preparation and deployment of labor-saving and energy-saving
		Productivity Improvement
ii.	Focus on and	Focus on overseas wealthy	• Full-scale efforts to realize the cycle of customer cultivation x personal communication x
	strengthen	content development, reinforcement of organization and human resources, and strengthening of
	customers
	"Overseas Customer	the network
	(Department Stores)
	(To triple sales of wealthy customers and 1.5 times sales of regular tourists in FY2027)
	Business"
	with high growth	Ningbo Hankyu	• Remodeling to strengthen response to affluent customers to establish the No.1 store in the area
	potential	(Made a subsidiary)
iii.	Development of new	Customer Service Business	• Continue to launch and develop service business ( through online) in the Kansai area with food
and health theme.
	revenue sources	Customer Data Business	• Startup of customer data business
			(Increase in human resources and development of IT infrastructure)

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Ⅲ. Mid-term Management Plan FY2025-2027

-1. Policies and Key Initiatives

		Policy		Key Initiatives
			Continue investing in IT/DX	• Implementation and utilization of the developed IT and digital infrastructure to transform
				and improve the business model of each business
				• Relationship between a company and an employee = "co-creation partners who enhance
				value and grow together
				• Established three policies for human resources strategy
	iv.	Development and use	Human resource development,	(i) Optimizing Organizational Performance
	development, and investment	(ⅱ) Activating Employee Engagement (ⅲ) Strengthen HR infrastructure
		of Group infrastructure		→Pursue synergies between Corporate and Employee Growth by strengthening human
		to support business		resource training and development
				• ¥6 bn. invested in 3 years for human resource
				• Concrete promotion of environmental measures to achieve KPIs
				• Strengthened CSR structure and promoted human rights DD, D&I, and health management
			Sustainability Management	• Reinforcing and further promoting the system of regional co-creation activities
				• Quantitative monitoring of the results of initiatives and disclosure of information to
				improve the level of initiatives
			Target of cost of shareholders'	• cost of shareholders' equity: 6.6%, ROE: FY2027 6.6% over, FY2031 8% over
			equity and ROE
				• In principle, the Company will pay out dividends based on a DOE of over 1.8% and will
				flexibly return profits to shareholders in accordance with business performance
	v.	Strengthen initiatives	Shareholder returns	• Dividends: Increased to ¥40 per share (started from FY2025)
		for "Management	• Acquisition of treasury stock: Scale of ¥30 bn. in 3 years
		Conscious of Cost of		Total payout ratio (including acquisition of treasury stock) to be approximately 60% for
			cumulative period
		Capital and Stock
		Price"	C/F Allocation	• Utilize cash generated from asset sales, etc. for M&A, etc.
			Build B/S in line with the targeted business portfolio and maximize synergies
			Expand the shareholder/investor	• Promoting Dialogue with the capital market
			• Enhancement of shareholder benefits and introduction of selection system
			base and improve communication
			• Implementation of measures to expand fan shareholders

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