The significant increase in earnings stood out, but what this improvement doesn't convey is how challenging a year it was. The biggest challenge management faced was how to deal with the spike in the price of rice. Ultimately, after much deliberation, I decided that Lawson would carry this burden. We had three other choices: ask franchise stores to take the load, pass the increase on to consumers or use lower-quality rice in our products. Motivated by a desire, first and foremost, not to undermine our relationships with franchise stores and customers over a temporary rise in rice prices, we rejected these options. I believe that our decision to bear the brunt of the rice price increase will create more Lawson brand equity and translate into tangible results in the future.

I'm about to embark on my third year as president of Lawson. Looking back over the past two years, I'm convinced that turning the company to focus more on customers and frontline operations was the correct decision. However, there is more work to be done. The speed of change in our markets has sometimes taken us by surprise, and more time is required for reforms aimed at making Lawson more responsive to market change. I intend to continue to push ahead with various initiatives, placing emphasis on our intangible assets—customer, people and organizational—that are so vital for successfully completing these reforms. That's because I strongly believe that the creation of an operating base that can deliver stable growth is the best way to increase enterprise value. I want to meet our shareholders' expectations, not with rapid growth, but through measured growth. This is why we plan to raise the cash dividend applicable to the year ending February 2005 from \41 per share to \70 per share. This would raise the payout ratio, which as basic policy has been 25% until now, to 36%. Combined with investments in the future and share buybacks premised on raising ROE, we will create more value for shareholders who have invested their hard-earned money in Lawson.

Lawson's vision is to become "the "hot" station in the neighborhood"—in tune with communities and local customers. We will develop a convenience store model in pursuit of this goal, and strive to respond to ever-changing market needs. As we work together with franchise stores, we aim to satisfy even more customers. In more tangible terms, our goals are to help franchise stores boost revenues and achieve our management plan.

April 15, 2004

Takeshi Niinami
President and CEO

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