Top Management Message April 9, 2015

Today, Lawson announced its financial results for fiscal 2014 ended February 28, 2015.
A summary of our consolidated results for fiscal 2014 is:

• Operating profit 70.4 billion yen
(+3.5% y/y)
• Recurring profit 71.7 billion yen
(+4.1% y/y)
• Net profit 32.6 billion yen
(-13.9% y/y)

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During fiscal 2014, Lawson Inc. enjoyed considerable success in its drive to better satisfy local “MACHI” or community needs through a variety of strategies, including the wider introduction of freshly-ground and personally-brewed MACHI café services, and the expansion of quality ready-made meals and delicatessen items that can be eaten in the home. We also worked hard to broaden our customer base and provide product mixes to suit individual local regions and stores. Despite this positive sales strategy, the continued decline in cigarette sales, inclement summer weather and strong competition in the convenience store industry brought down existing-store sales by 1.0% year on year in fiscal 2014. The Lawson Group in Japan opened 1,010 new stores and closed 422 in fiscal 2014, resulting in a net increase of 588 stores at the end of February 2015, which was roughly in line with our initial plans. We also enjoyed a further significant year-on-year improvement in our gross profit margin of 0.3 percentage point.

Steady new store openings and improvement of gross margins, along with changes in our depreciation accounting, helped boost consolidated operating profit by an impressive 2.3 billion yen, or 3.5% year on year, to 70.4 billion yen in fiscal 2014. That marks the rising profits to yet another record profit level. At the same time, consolidated net profit contracted by 5.2 billion yen year on year to 32.6 billion yen, due largely to an approximate 4.0 billion yen special loss relating to the restructuring of LAWSON MART and LAWSON STORE100’s outlets. As a result, return on investment (ROE) contracted to 13.0%.

■Key initiatives toward future growth

Lawson is committed to expanding profits in its convenience store business to help realize sustainable growth for the company as a whole, and is focused on strengthening its basic convenience store model and responding swiftly to ever-changing local community needs.

Restructuring and strengthening our fundamental convenience store model:
Going forward, we shall be looking to strengthen our fundamental convenience store model by restructuring sustainable stores that are popular with customers according to the following three parameters: strengthening the attractiveness and sales power of stores, strengthening the product power of our stores, and strengthening links with franchise stores.

When I became President and CEO last year, I committed to strengthen the bonds of trust between Lawson and its affiliate stores and to ensure mutual growth and development. With that pledge in mind, the Lawson head office is looking to help relieve the burden on franchise stores in terms of electricity costs and losses related to food disposal. New franchise contracts will continue to be further introduced even before renewal of older contracts in order to ensure that Lawson shares risks with its franchise stores, as part of a system to help expand and grow profits for all concerned. We are also working to introduce semi-automated order placement systems based on Ponta member data for individual stores, in order to help perfect product mixes at individual stores and boost overall sales.

As for our products, we are always looking to strengthen the range of suitable products on offer in convenience stores. We are always ready to go that extra mile to offer our customers something extra special, including our insistence on high value-added ingredients, the provision of quality fast food, and the expansion of freshly brewed MACHI café outlets and Machikado Chubo in-store cooking that provide the ready-made items that best suit local customer needs. In fiscal 2015, we will be instigating some radical changes throughout our organization in order to facilitate a speedy, determined restructuring of our entire convenience store business from operations to development and individual product lines.

Fiscal 2015 is the year for us to consolidate a new firm basis upon which Lawson and its franchise stores can build and develop a solid new system to help serve our customers better, and strive further to gain customer trust.

Supporting local community needs and lifestyles:
We are working to strengthen LAWSON stores in residential areas by offering a greater range of cooked delicatessen items, daily foodstuffs and frozen foods than in our regular stores. In order to house this broader product range, we plan to invest in new fixtures and displays for approximately 2,000 stores in fiscal 2015. Our ultimate aim is to support customers’ daily lives by offering a solid range of foods that people eat every day, and goods that they use on a daily basis.

Promoting community healthcare stores:
As part of our commitment to contribute to health and wellness in our communities, we are looking to develop stores jointly with dispensing pharmacies, and expand the number of our own stores that carry general medicines. One such strategy would be to join forces with regional drugstore chains to create new stores with a strong healthcare focus. These stores would offer approximately 5,000 different products, or double the normal total for a typical LAWSON store, and would include general medicines, beauty products and everyday items. We aim to support our customers’ health by developing products such as our “Bran-bread” high-fiber bread range, and food products for specified health uses. We are also aiming to provide a full range of healthcare goods and daily necessities in as many stores as possible.

Aggressive development of home-convenience services:
On April 7, 2015, Lawson signed a business collaboration agreement with a leading logistics company; SG Group Holdings Co., Ltd., which has Sagawa Express Co., Ltd. as one of the core group companies, to further develop convenience services for home delivery. We are also working with them to develop new home convenience services by capitalizing on our nationwide store network. In fiscal 2015, we intend to work with our Lawson group’s services such as Lawson Fresh business, DAICHI wo MAMORU KAI (organic food delivery), and Radishbo-ya (organic and preservative-free food for home-delivery), as well as external mail-order companies to build an efficient open platform which we can use to improve home delivery convenience services.

■Fiscal 2015 profit and dividend estimates

In fiscal 2015, we aim to achieve our year-on-year growth in consolidated operating profit, with a target of 71.0 billion yen (+0.7% y/y).

In terms of our dividend policy, while net profit declined in fiscal 2014, we intend to uphold the scheduled full-year dividend of 240 yen per share which we announced at the beginning of the fiscal period. Looking forward, Lawson remains committed to its medium-term ROE target of 20%, and places great store on rewarding its shareholders for their loyalty by providing consistent increased returns. Therefore, Lawson intends to increase its fiscal 2015 dividend by 5 yen, to 245 yen per share.

I very much appreciate the consistent, unwavering support of our shareholders and investors. I am determined to continue building on the trust placed in me, and the company as a whole, by vigorously pursuing our Corporate Philosophy to “Create Happiness and Harmony in our Communities.”

Genichi Tamatsuka
Representative Director
President and CEO
April 9, 2015

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