During the twelve months from March 2018 to February 2019, Lawson, Inc. has pursued business activities that give concrete shape to our corporate philosophy; “Creating Happiness and Harmony in Our Communities”. We wound up this the third and final year of our “1000-Day Action Plan” by transforming our overall supply-chain structure to facilitate changes to product order cut-off and store delivery times to our convenience stores in Japan. We also sought to alleviate the burden of instore business processes by introducing new automated point-of-sales (POS) cash registers in all our stores aimed to help boost store cash management efficiency.

Looking at store numbers, the Lawson Group opened 1,067 stores and closed 400 stores in FY2018, resulting in a net increase of 667 stores and a total number of 14,659 convenience stores in Japan at the end of February 2019. Store numbers outside Japan increased by a net 614 to 2,210 stores at the end of February 2019, due largely to an expansion of store numbers in China. We also extended the number Machikado Chubo, in-store kitchens, to approximately 6,000 stores as part of the “1000-Day Action Plan” project. The net increase in overall store numbers helped generate year-on-year gains in both consolidated net sales of convenience sales and gross operating revenue, with net sales of convenience sales reaching 2.4245 trillion yen (+6.2% year on year) and gross operating revenue expanding to 700.6 billion yen (+6.6%) in FY2018.

Meanwhile, FY2018 existing-store sales in Japan (excluding ticket and gift-card sales etc.) declined by 0.5% year on year as customer numbers declined in the face of persistently severe competition from other convenience store chains and new cross-industry entrants. Despite that, average customer spend increased year on year as strong sales of rice balls and boxed meals proved our efforts to strengthen evening and night-time food ranges had started to bear fruit, and our expanded food ranges designed to strengthen our support of everyday living helped generate strong sales of both daily delicatessen and frozen food items.

On the profit front, FY2018 operating profit declined 7.7% year on year to 60.8 billion yen. While we enjoyed strong profit contributions from our growing Seijo Ishii upmarket supermarket subsidiary and our entertainment business, we also increased leading investment in next-generation systems aimed at securing sustainable growth, recorded expenses relating to the launch of Lawson Bank, and saw franchisee support costs rise as a result of our ongoing commitment to shoulder a portion of franchisee disposal losses. However, thanks to lower expenditure on existing IT systems, full-year operating profit exceeded our initial estimate by 0.7 billion yen.

Key focuses for FY2019

Our overall business environment remains severe with a tight labor supply, rising personnel costs and increased competition from outside the traditional convenience store industry. Against that background, we intend to build on the three-year groundwork put in place by our “1000-Day Action Plan” project to further strengthen evening and nighttime ranges in our stores by developing products that meet customer needs, and deepen our support for everyday living. We intend to strengthen support for our franchise stores by using digital technologies to boost store efficiency, and we aim to optimize the value of our nationwide physical store network, which serves as a precious venue for communicating with our customers.

In terms of product development, we are pursuing ultimate tasty food by strengthening our range of frozen foods and original Lawson goods designed to satisfy predicted customer needs at different times of the day and for different target groups. We are also determined to create store displays to satisfy any customer by focusing not only on superior taste, but also on developing menus based around three key health axes: low salt, low-carb, and fewer additives. We are serious about introducing meaningful measures to help protect the environment, such as changing the packaging for some of our MACHI cafe ice products from plastic to paper.

We intend to resolve store-related issues by pursuing more detailed and regular cooperation with franchise-store owners, from single owners to multiple-store owners, including Management Owners. Paying particular attention to the problem of tight labor supply, we will be looking to strengthen labor supply support for franchise store owners and crew by promoting more labor-saving and automation processes. In FY2019, we intend to use the POS registers that we introduced into all stores last year to enable customers to self-checkout by reading product barcodes. This system should be extended to all stores by fall 2019. We are also keen to introduce a Lawson’s mobile payment service, “Lawson smartphone cash register” that allows customers to pay by mobile app, something we expect will reduce instore cash management burdens, alleviate checkout queues, and improve overall convenience for our customers. Broadly speaking, we are embracing the challenge of building a new fundamental framework for a new Lawson, pursuing constant innovation through cutting-edge digital technologies.

Lawson entered the financial industry with the launch of Lawson Bank in October 2018. In FY2019, we will be looking to install more ATMs, including in locations outside LAWSON stores, in order to expand our ATM revenue stream, and attract more customers by increasing cooperation with regional financial institutions. Another facet of our financial operation development will focus on exploring possible payment methods befitting the steady trend towards a cashless society. As for our overseas operation, we entered a new stage of business development after our Shanghai-based China subsidiary moved into the black in FY2018, and our network across China topped 2,000 stores. We aim is to continue developing our overseas operations primarily in China and promote operational growth for the Lawson Group as a whole.

FY2019 profit and dividend estimates

Looking at our business estimates for FY2019, we forecast existing-store sales from LAWSON business will increase 0.5% year on year, and the gross profit margin will improve by 0.2 point. However, owing to our decision to tackle tight labor supply at franchise stores by making store operations more efficient and investing in labor-saving business processes, we forecast consolidated operating profit will remain flat in FY2019 at 60.8 billion yen. We expect consolidated net profit will decline 29.6% year on year to 18.0 billion yen based on our decision to encourage more profitable franchise store owners, and wind up low profit stores.

Our FY2018 dividend payment remains unchanged from the beginning of the period at 255 yen per share. While providing strong focus on shareholders and capital efficiency, we intend to offer a dividend of 150 yen per share in FY2019. This reflects our expectations for a decline in consolidated net profit for the year, and our decision to continue investments for future franchisee support.

Finally, I would like to take this opportunity to thank all our shareholders and investors for their continued support and understanding of our management strategy and our committed corporate philosophy for “Creating Happiness and Harmony in Our Communities”.