During the year, the earthquake of March 2011 made customers newly appreciative of nationwide convenience store chains as a part of their social infrastructure which provides them with easy access to daily essentials. Another important development was that Lawson strived to develop new products by using customer purchasing data, and to introduce fresh foods and our private brand "Lawson select" products to stores. These efforts resulted in successfully expanding our customer base by attracting more housewives and elderly customers.

As a result, existing-store sales increased by 5.4% year-on-year in fiscal 2011. The gross profit margin, however, decreased by 0.5 percentage points compared to the previous year to 30.1%, due to a 1.0% drop caused by the higher contribution of cigarettes sales after the tobacco tax increase in October 2010. The gross profit margin on products excluding cigarettes exceeded our forecast and improved by 0.5 percentage points compared to the previous year. This can be attributed to improved business terms due to improvement of purchase order planning; the improvement was achieved by use of our multi-partner shopping points program, Ponta cards, as well as continued success in efforts to raise added value through procurement of raw materials.

As such, consolidated operating profit increased by 11.2% year-on-year to 61.7 billion yen, renewing a record high profit and resulting in the ninth consecutive year of growth. Despite disaster-caused loss of 3.4 billion yen that was associated with the Great East Japan Earthquake and posting of 8.2 billion yen for asset retirement obligations of prior years, we managed to increase pretax profit by 4.2% year-on-year to 46.2 billion yen. Net profit, however, decreased by 2.0% to 24.8 billion yen because of 1.6 billion yen negative impact from a reversal of deferred tax assets arising from decrease in corporate income tax rate. Excluding the impact of extraordinary loss items caused by special reasons, real ROE was 15.1%, surpassing our 15% target.

We aim to achieve sustainable medium- to long-term growth by promoting customer relationship management (CRM) by analysis of data provided by users of Ponta cards and by reforming supply chain management (SCM).

Specifically, we intend to grow convenience store operations by expanding our customer base for female and senior customers. We also identify entertainment and e-commerce operations and overseas operations as medium-term growth areas and will promote such business. Our major initiatives are as follows:

【Promoting CRM by use of Ponta card members' data】

We will continue to develop marketing analysis and sales promotion by use of data obtained through customers' use of Ponta cards. The number of Ponta cards issued reached 40 million and sales to these members represent more than 40% of Lawson's store sales, enhancing statistical significance in analysis of purchasing activities of our customers. Such detailed data analysis enables to differentiate us from our competitors. Through the analysis, we will develop merchandise assortments based on profiles and preferences of customers in different communities.

In addition to merchandise development, Ponta card data analysis is also used for reducing opportunity losses, which arise when a product desired by customers is out of stock. In fiscal 2010 we renovated our backbone IT system in order to quantify and then reduce opportunity loss. We are striving to improve accuracy in order placement through such efforts on a company-wide scale. We call this innovative operation process the PRiSM.

In and after fiscal 2012, we will continue to minimize opportunity loss through improvement in order placement accuracy. We believe that by creating merchandise assortments that match the customer needs, we can raise customer satisfaction, raise the store's reputation, and boost sales.

【Structural reform in the supply chain to enhance operating efficiency and improve earnings】

The Ponta card data analysis is also utilized to advance our unique structural reform activities connected to the supply chain, and enhance added value. Due to an increase in the number of stores and an expansion in merchandise categories, our supply chain, which spans from raw material procurement to production, distribution, and store sales, has become more complex. As a result, we see that waste occurs in different forms such as merchandise disposal and redundant work. We will strive to eliminate such waste and enhance operational efficiency. At the same time, we will complete creating the unique Lawson's manufacturing retailer-model that extends from raw material purchasing to store sales. We believe this will also contribute for us to realize medium- to long-term sustainable earnings growth.

【Expanding customer base to women and seniors】

Another initiative is to develop store formats and merchandise assortments that are attractive to female and senior customers who have tended to use convenience stores less frequently up to now.

In fresh food-type convenience stores which have high growth potential, Lawson was the frontrunner in the industry to strengthen offering of fresh food items, partly by consolidating Ninety-nine Plus, Inc., the pioneer in the industry as a subsidiary. We will continue to develop more LAWSON STORE 100 and fresh food-type LAWSON stores mainly in residential areas.

We will also introduce more fresh foods and enhance our private brand "Lawson select," which includes prepared foods, processed foods, and daily necessities. By doing so, we will satisfy customers' needs in dining-in (cooking and eating at home) and expand our customer base to include more female and senior customers.

Regarding demand for pharmaceuticals and healthcare, we will expand sales of pharmaceuticals and strengthen development and sales of health-oriented foods by utilizing accumulated know-how at NATURAL LAWSON for helping to realize healthy and comfortable lifestyle that customers are seeking.

In addition to sales of over-the-counter medications at convenience stores, we intend to expand full-scale healthcare business by opening convenience stores that combine a drug-dispensing pharmacy.

【Expanding entertainment and e-commerce related business】

In our group, the entertainment and e-commerce related businesses are identified as important growth areas. Loppi, which indicates the multi-media kiosk terminals installed in stores as well as the LAWSON on-line shopping mall, has enabled us to offer virtual (online) store services. We can sell not only tickets to concerts and music/video software, but also merchandise that are not provided at the limited shelf space at real stores.

A wider range of merchandise will then become available for Ponta card members and more shopping points can be accumulated. We hope those member will become more loyal customers of Lawson.

Leveraging our strength in terms of the long accumulated trust and reputation for reliability felt by our customers toward LAWSON stores, we are committed to providing convenience to those customers also in e-commerce, and aim to grow earnings thereby.

【Overseas expansion】

In 1996, we opened our first convenience store in Shanghai, China, where the number of LAWSON stores reached 314 at the end of February 2012, by overcoming challenges of inadequate infrastructure and cultural difference. In addition to Shanghai and Chongqing, we opened in Dalian, China, and Indonesia in fiscal 2011. In fiscal 2012, we plan to open 500 stores in areas such as Shanghai, Chongqing, Dalian, and Indonesia. We envision opening more stores in major cities in China and expanding to other countries in Asia, based on our standard for return on investment.

We expect to increase our operating profit for the tenth straight year to 66 billion yen (up 6.8% year on year) by strengthening our merchandise offerings and reducing sales opportunity loss through further implementation of the PRiSM reform. In order to make sure our shareholders to support us over the medium to long term, we plan to raise our full-year dividend by ten yen for the ongoing fiscal year to February 28, 2013 to 190 yen per share.

In the upcoming re-election of directors and auditors, we plan to newly elect Genichi Tamatsuka, Senior Executive Vice President, Chief Operating Officer, as Director, and Emi Osono, Professor of International Business Strategy at Hitotsubashi University's Graduate School, as Outside Director, and Shinichi Hokari as Outside Corporate Auditor. Upon approval at the General Shareholders Meeting of May 29, 2012, the planned changes will become effective.

Once implemented, we will have three women among our team of seven directors and four auditors. We will continue to promote diversity and enhance corporate governance.

We thank you, our shareholders and investors, for your continuing understanding and support.

April 12, 2012

Takeshi Niinami
President & Chief Executive Officer

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