First Half Results for FY2019(Six months ended August 31, 2019)

Lawson, Inc.
October 10, 2019

Copyright (c) 2019 Lawson, Inc. All rights reserved.

Financial Results forFirst Half for FY2019
Satoshi Nakaniwa
Executive Managing Officer
Chief Financial Officer
Lawson, Inc.
Copyright (c) 2019 Lawson, Inc. All rights reserved.

Consolidated Financial Results for FY2019 1H（Billions of yen）

FY2018 1H

FY2019 1H

34.4
33.5
17.9

Act
36.7
35.1
20.1

y/y
+2.2
+1.6
+2.1

V. Plan
+3.2
+4.6
+4.6

Existing store sales
Gross profit margin

99.2%
31.4%

100.4%
31.2%

+1.2%
-0.2%

-0.1%
-0.3%

No. of CVS stores (Japan)

14,34014,721+381+62

Number of new store opening

525

307

-218

-23

Number of store closure

177

245

＋68

-85

Operating income
Ordinary income
Net income

Act(Non-consolidated %)Note: the Japan CVS total store numbers refers to the total number of stores operated by the Lawson Group.

1.Consolidated operating income 36.7 billion yen(1)Y/Y: income from the Japan CVS operation rose, as, despite higher SG&A costs relating to higher store numbers, andhigher IT costs, the operation reduced its food disposal support and worked to cut overall costs. Operating
income also rose on a consolidated basis thanks to strong results from group subsidiary firms.
(2) v. plan: Japan CVS gross profit margin (GPM) fell short of plan, but Lawson operating income exceeded expectations
on lower food disposal support and cost-cutting. Consolidated operating income also outstripped plan on strong
results from group subsidiaries.

2.Consolidated net income 20.1 billion yen(1)Y/Y: Net income up on large rise in operating profit, despite higher interest paid relating to Lawson Bank launch, andincreased store-closure losses.
(2)v. plan: Higher than plan due to on-plan operating income result and deferral of some store-closure losses, originally
expected in the 1H, until the 2H.
Copyright (c) 2019 Lawson, Inc. All rights reserved.

3

Factors affecting FY2019 Consolidated Operating Income
Initial plan

Approx.
+2.0
Impact ofclosing
low-profit
stores, etc.

Approx.
+4.0

60.8

Impact of
improved
daily sales,
GPM, etc.

（Billion of Yen）
Highersubsidiary
profits

Approx.
-4.0

Approx.
（transforming store -2.0
IT costs

computers, etc. Measures(labor-saving*etc.）＊Main labor-saving measures
・Replace MACHI café facilities（self-serve MACHI café）
・More smartphone checkout stores
・Introduce self-serve FF cabinets, etc.

FY2018
Consolidated*Financial image rounded to the nearest 0.5 billion yen
Operating Income
for clear viewing
Copyright (c) 2019 Lawson, Inc. All rights reserved.

60.8

FY2019(E)Consolidated
Operating Income
4Progress on FY2019 Initiatives
FY2019 1H
FY2019 initial plan

ActualDifference

33.5

36.7

＋3.2

Various measures

Initiatives taken and progress madeEvaluation

Improve daily
sales, GPM, etc.

 Existing-store daily sales +0.4% YoY, gross profit margin
31.2%. Both below plan, but overall result was above plan
thanks to lower food disposal at franchise stores and costcutting, etc.

△

＋0.5

Reorganize/close
low-profitability
stores Closed 245 stores, less than the planned 330 closures.
 Expect large 2H profit impact, but 1H was roughly on plan

△

±0

Group
subsidiaries
contributions

 Strong performances from Seijo Ishii and entertainmentrelated businesses

○

＋2.0

IT costs

 Completed introduction of new store computers○±0Countermeasures(including tightlabor supply) Largely in line with plan. The cost for some measures,
originally planned for the 1H, will now be incurred in 2H

△

＋0.5

(Billion of yen)

Operating income*Financial image rounded to the nearest 0.5 billion yen for clear viewing
Copyright (c) 2019 Lawson, Inc. All rights reserved.

v. plan+approx. 3.0
billion yen
5FY2019 Full-year Plan
FY2019Plan(Billion of yen)

Difference

60.8

±0.0

45.3

-0.4

Seijo Ishii

8.5

+0.3

Lawson Entertainment

2.3

±0.0

United Cinemas

2.7

+0.1

18.0
150 yen-7.5

Consolidated operating income
Main company operations
Lawson parent*

Consolidated net income
Dividend per share
Note: Existing-store sales Y/Y ：+0.5％（diff.＋1.0PP）
Gross profit margin： 31.3％（diff.＋0.1PP）

Store numbers：Opening 700

Closure 700

Net change 0

Reorganization losses relating to store closure losses (recorded as non-operating
costs or special losses): Some store closures originally planned for 1H weredeferred to 2H. As a result, full-year net income forecast remains unchanged.
Copyright (c) 2019 Lawson, Inc. All rights reserved.

6

Factors affecting FY2019 Consolidated Operating Income
No change from the initial plan

Approx.
+2.0
Approx.
+4.0

60.8

Impact of
improved
daily sales,
GPM, etc.
(including
cost-cutting)

Impact ofclosing
low-profit
stores, etc.

（Billion of Yen）
Highersubsidiary
profits

Approx.
-4.0

Approx.
（transforming store -2.0
IT costs

computers, etc.

Measures(labor-saving*etc.）＊Main labor-saving measures
・Replace MACHI café facilities（self-serve MACHI café）
・More smartphone checkout stores
・Introduce self-serve FF cabinets, etc.

FY2018
Consolidated*Financial image rounded to the nearest 0.5 billion yen
Operating Income
for clear viewing
Copyright (c) 2019 Lawson, Inc. All rights reserved.

60.8

FY2019(E)Consolidated
Operating Income
7

FY2019 Initiatives
Sadanobu Takemasu
President and CEO
Representative Director
Chairman of the Board
Lawson, Inc.
Copyright (c) 2019 Lawson, Inc. All rights reserved.

Issues Facing Franchise Stores

Risingpersonnel
costs

Nurturinghuman
resources

24-hr
operation

DisposallossesCopyright (c) 2019 Lawson, Inc. All rights reserved.

9

Labor
shortageLawson’s Ultimate Goals

The No.1 recommendationfrom all customers
Promise 1

Superior
taste

Promise 2

Humankindness

Promise 3
Environmental(machi)friendlinessInspire franchise
store work
Copyright (c) 2019 Lawson, Inc. All rights reserved.

10

The Three Promises
Promise 1

Superior
taste
Machi-no-pan

Promise 2

Humankindness

Environmental(machi)friendliness

Service & Cleanliness

new bakery series

BASCHEE
20 million+

Promise 3

Stronger improvement

Reducing foodwaste
Reducing plastic
use

Super
karaage-kun
Copyright (c) 2019 Lawson, Inc. All rights reserved.

11

Promise 1: Superior Taste
Sales up/waste down
⇒ franchise store profits up
Daily sales Daily sales Food
(Evening/nighttime)

100.1%

Y/Y(all day) disposal

100.4%

93.0%

Franchise profits
Per
store

Per
owner

100％

* Daily sales and disposal amounts per day/store* Evening/nighttime period (16：00 - 24：00)
Copyright (c) 2019 Lawson, Inc. All rights reserved.

12

Promise 1: Superior Taste Stronger Products
November

October

September

BreadsBakeryNew
straight
from theoven series

New full,scatter-styleseriesFruitsandwiches

November

Microwave cheese
cocotte with pepper& onionNovember

Rice balls
Kinshari
with new,betterfilings

Torosabamackerel（grilled miso)
Copyright (c) 2019 Lawson, Inc. All rights reserved.

Dessert<CUPKE>
New styledesserts

Dessert in cup withlarge chestnut

DecemberOver-the-counter fast food
Healthy,easy to eat,trendyＬ chikiTaiwanese style

New easyto-eat
roast
chicken
Golden chicken:
roast leg13

Promise 2: Human Kindness Improve store operations

Nov.: Use self-checkouts
Promote otherself-services
Reducecheckout work

Cashlesspayment only

Self-operated
shopping system

Improve
cashless ratio
No change toattentive
customer service

startPartial use
Copyright (c) 2019 Lawson, Inc. All rights reserved.

Expand use
1 manhour/person

More efficient
operations
14

Promise 2: Human Kindness Address labor shortage
Multi-faceted response: Daily man-hour savings
Lawson Staff（est. 2016）

Staff dispatch

x20 use cases
compared to former
owner support service
Covers over 200 shifts/day

POS cashregisters with
automatic change
dispensers

1.5man-hr/day

Lawsonsmartphonecheckout

Reduce checkout
time by 1/4

Introduce
new storecomputers

3.0man-hr/day(account squaring,
spot register checks)

Now in 116 stores nationwide

Copyright (c) 2019 Lawson, Inc. All rights reserved.

Future initiatives
Selfcheckout

Nov. 2019 (continual version upgrades)

3.0man-hr/day

Self-serve
fast foodcabinets

1.0man-hr/day

New overthe-counter,etc.

1.0man-hr/day

Unmannedstore trial

5.0man-hr/day
15

Promise 2: Human Kindness Replace low-profit stores
 Stricter selection of new store candidates
 Must clear all new store standards
 Improved new store daily sales

 Close low-profitability stores
FY2019 progress(stores)

1H

Full-year Plan

Opening

307

700

Closure245

700

Net change

62

0

Copyright (c) 2019 Lawson, Inc. All rights reserved.

16

Promise 2: Human Kindness Promote multiple store franchises
 Steady rise in multiple store
franchise owners

OthersSingle store owner
Approx 3,700…

 Approx. 70% stores operated by multiple store owners

Multi store owner
Approx. 9,600
stores More stores operated by multiple（Management ownerapprox. 2,000 stores）

store- and management owners

Approx. 13,900

Ratio of franchise owners operating
multiple stores
43.5％(excl. LS100, 2019 August)*Multiple store owners/total owners

7 years ago
Approx. 30％
FY2015
Copyright (c) 2019 Lawson, Inc. All rights reserved.

FY2016FY2017FY2018FY201917

Promise 2: Human Kindness 24-hour operation issues
Initiatives to facilitate 24-hour operation
 Reducing working hours at stores
 Switching to non-24-hour contracts to suit
individual store conditions: 98 stores （as of October 1, 2019）

 Experimenting with non-24hr store operation
August 2019 -Smart store（nighttime labor-saving store)
Trial：1 store in Yokohama
Unmanned hours: 0～5am（excl. some products)
Payment: Lawson smartphonecheckout, self-checkout
Store entry: certified via
LAWSON app, face recognition
Copyright (c) 2019 Lawson, Inc. All rights reserved.

18

Promise 2: Human Kindness

January 1, 2020
Trial New Year’s Day
store closures
100 stores nationwide
Select from nationwide franchise stores mainly in urban
areas where customers visits fall on New Year’s Day

Depending on results, will consider
action for next financial year and beyond
Copyright (c) 2019 Lawson, Inc. All rights reserved.

19

Promise 3: Environment (machi) Friendliness
Reduce food waste, plastics use
Reducing food waste Reduce food waste by encouraging instore selloff operations, and extending permitted retailperiod from stock ⇒ sell
 Give customers points for buying goods new
their use-by date/donate portion of sales tochild-support organizations(trial in Okinawa and Ehime)

2030

50％
reduction
v.2018

Reducing plastic use

 Reduce plastic cups and packaging
Plan to reduce plastics by approx. 1,000 tons
/year by switching MACHI café S-sized ice coffee
to a paper cup, or switching to original cups
 Reducing single-use plastic bags
Some Natural Lawson plastic bags made ofpolyethylene from sugarcane
Copyright (c) 2019 Lawson, Inc. All rights reserved.

2030

30％
reduction
v. 201720

Growth as a Group
Seijo Ishii

Entertainment

Finance

GlobalChina
Shanghai, Chongqing,
Dalian, Beijing,
Wuhan, Nanjing, Hefei, YangtzeSoutheast Asia
© 2019 WYFP
Copyright (c) 2019 Lawson, Inc. All rights reserved.

Indonesia, Thailand,
the Philippines
21

Seijo Ishii Business
Popular own-made deli
items and breads(100MYen)
60

(Y/Y)

Operating income

50

+1.5%

Existing store sales

+1.5%
+3.3%

40
30
20
10
0
Store nos.

20171H

20181H

20191H

137

142

151

Copyright (c) 2019 Lawson, Inc. All rights reserved.

Products
95.0%
in focus

22Entertainment Businesses

 Entertainment distribution:
Customer satisfaction: No.1

 Highly realistic United Cinema 4DX

sportstheatreconcerts

travelleisure Expanding business(100MYEN)
10

Operating income

50FY171H
20171HFY181H
20181H

Copyright (c) 2019 Lawson, Inc. All rights reserved.

FY191H
20191H© 2019 WYFP
23

Lawson SDGs Targets (KPI)LAWSON Blue Challenge 2050!
Save our blue planet!

2030■Reduce foodwaste
■Reduceplastics
Plastic carrier bags

■Reduce CO2
emissions
CO2 volume per store

Copyright (c) 2019 Lawson, Inc. All rights reserved.

v. 2018 levels

Reduce by 50％

Where we want to be by

2050

Reduce by 100％

v. 2017 plastic for packaging levels

Reduce by 30％

Original Lawson containers/packaging,Eco-friendly materials

Original Lawson containers/packaging,Eco-friendly materials

50% usage

100% Usage

Reduce by 100％-----

v. 2013 levels

Reduce by 30％

Reduce by 100％24

Lawson's Material Issues

Copyright (c) 2019 Lawson, Inc. All rights reserved.

25

Shareholder Return
FY2019 Dividend Policy
Reward shareholders by offering aminimum stable dividend of 150 yen per
share dividend and targeting a consolidated
dividend payout ratio of 50%.
Lawson management places great store on returning a portionof our profits to our shareholders, and has paid out stabledividends on an annual basis.
While our fundamental stance has not changed, moving
forward, we have decided to introduce a consolidated dividend
payout ratio to make our profit-sharing stance even clearer forour shareholders, and to ensure we pursue a strategy thatboth maintains financial soundness and returns an appropriate
portion of profits to our shareholders that directly reflects
corporate performance.
Copyright (c) 2019 Lawson, Inc. All rights reserved.

26

Creating Happiness and Harmony in
Our Communities

Copyright (c) 2019 Lawson, Inc. All rights reserved.

27

Reference Materials

Copyright (c) 2019 Lawson, Inc. All rights reserved.

28

Earnings Summary: FY2019 1H Results & FY2019 Forecast
FY2019-1H

FY2018-1H
Actual
1,224.5
34.4
2.8%
33.5

Actual
1,276.9
36.7
2.9%
35.1

Y/Y
104.3%
106.6%+0.1%P
104.8%FY2019Forecast
2,520.0
60.8
2.4%
54.5

Net income

17.9

20.1

112.1%

18.0

EPS (Yen)

179.32200.95+21.63179.88

Total no. of stores in Japan

14,34014,721+381

14,659

525
177
348

307
245
62

-218
+68
-286

700
700
0

Existing store sales (Y/Y)

99.2%

100.4%-

100.5%

Gross profit at existing stores (Y/Y)

98.4%

100.8%-

101.0%

Gross profit margin

31.4%

31.2%

-0.2%P

31.3%±0.0%P+0.1%P-+0.2%P(Consolidated：Billions of yen)
Net sales of convenience store
Operating income
Operating income ratio
Ordinary income

Opening
ClosureNet Increase(Non-consolidated*)*excluding LAWSON STORE100 business

difference excl. cigarette sales (Y/Y)

Note: Total chain store sales (Net sales of all stores) include sales from the convenience store operation in Japan,
international operations and sales from Seijo Ishii (consolidated items only). Regarding Seijo Ishii,
only the store sales of directly operation are included.
Note: The number of stores is the total number of convenience stores in Japan operated by the Lawson Group.
Note: Net sales at existing stores (YoY) do not include the impact of tickets, etc.
Note: Figures in italic indicate the revised figures from the initial plan.

Copyright (c) 2019 Lawson, Inc. All rights reserved.

29

Key Components of SG&A Expenses
FY2018-1H
Actual(Billions of yen)
Selling, general & administrative expenses

FY2019-1H
Actual

FY2019Y/Y

Forecast

Non-consolidated

150.1

155.4

+5.2

Increase 5-10%

Personnel expenses

23.0

23.4

+0.3

Increase 0-5%

IT-related expenses

3.5

5.0

+1.5

Increase 50-60%

Advertising and promotional expenses

7.2

7.6

+0.4

Increase 15-20%

Sales commission

10.6

9.6

-1.0

Decrease 5-10%

Facilities expenses

81.8

86.2

+4.3

Increase 0-5%

217.8

229.5

+11.7

Increase 5-10%＜Major Expenses＞(Hardware leasing, software amortization, maintenance, etc.)

Consolidated SG&A expenses
Note: Figures in italic indicate the revised figures from the initial plan.

We changed some recorded items relating to A&P and sales commissions following a review of our business contracts consolidated subsidiaries,
and full-year forecasts have been changed accordingly (No impact on consolidated results.)

vs. Forecast

Y/Y
Non-consolidated

IT-related costs: Rose on higher depreciation costs on POS registers introduced
in FY2018 and new store computers.
A&P: While some of expected A&P expenses were unused, A&P increased onchange in items relating to review of business contracts with consolidated subsidiaries
Sales commissions: Declined Y/Y. While store numbers increased, sales commissions
decreased due to reduction of food disposal support costs, and change in items
relating to review of business contracts with consolidated subsidiaries.
Facilities expenses: Stores rents and other items rose on increase in store numbers

Non-consolidated

IT-related costs: In line with forecast
A&P: A portion of allocated funds not used in 1H
Sales commissions: Lower than forecast on reduction in fooddisposal support costs

Consolidated

In addition to the above non-consolidated upward factors,
amortization expenses on software relating to the launch of
Lawson Bank also increased

Consolidated

See above factors

Copyright (c) 2019 Lawson, Inc. All rights reserved.

30

Segment profit(Billions of yen)Domestic convenience store business
Seijo Ishii businessEntertainment-related business
Financial services business
Other business
Total

Domestic convenience store business

Seijo Ishii business

FY2019 1H
Actual
Y/Y
29.5
+0.8
3.8
+0.6
3.6
+1.1
1.2
-0.4
-1.6
+0.0
36.7
+2.2

FY2019Forecast
48.0
7.7
4.5
1.0
-0.4
60.8

Despite higher SG&A expenses in line with increased store numbers, and higher IT costs, profit rose on
reduced food disposal support and cost-cutting efforts, etc.

Thanks to strong sales of original deli items, etc., Seijo Ishii Co., Ltd.’s existing-store sales rose a firm 3.3%
YoY, and store openings were favorable. Profit increased.

Entertainment-related businessProfit higher as Lawson Entertainment, Inc. secured large-scale contents and United Cinemas Co., Ltd. handledsome hit products.

Financial services businessProfit down following the recording of depreciation expenses relating to systems introduced for the launch of
Lawson Bank, Inc., which were not recorded in the previous business year.

Other business

International business recorded an operating loss on higher facilities expenses and other store opening costs.
Plan to curb FY2019 loss by reforming business structures from 2H onwards.

Copyright (c) 2019 Lawson, Inc. All rights reserved.

31

Consolidated Capital Expenditures & Cash Flows● Consolidated Capital Expenditures（Billions of yen）

FY2017-1H
Actual28.6

FY2018-1H
Actual19.5

FY2019-1H
Actual13.4

30.0

Existing stores

2.2

6.7

4.2

13.0

IT-related

9.0

10.4

6.6

12.5

Other

4.6

0.3

0.6

0.0

Subtotal for capital expenditure

44.5

36.9

24.9

55.5

Leases

22.1

26.1

25.6

48.0

Depreciation and amortization

27.9

31.8

38.4

80.2

New stores● Consolidated Cash FlowsFY2019Forecast（Billions of yen）

Cash flows from operating activities

FY2017-1H
Actual119.1

FY2018-1H
Actual
88.0

FY2019-1H
Actual136.0

FY2019Forecast
Approx. 125.0

Cash flows from investing activities

-44.4

-40.5

-26.2

Approx. -60.0

Free cash flows

74.7

47.5

109.8

Approx. 65.0

Cash flows from financing activities

-67.0

-33.0

-89.5

Approx. -63.0(Cash dividends paid)

-12.5

-12.7

-12.7

Approx. -20.0

Cash and cash deposits

76.0

43.8

374.1

-

Note: Figures in italic indicate the revised figures from the initial plan.

Copyright (c) 2019 Lawson, Inc. All rights reserved.

32

Consolidated Balance Sheet at the end of FY2019 1H（Billions of yen）
Total current assets

As of Feb. As of Aug. Change
28, 2018 31, 2019 from Feb.
619.6
662.4
+42.8

Total current liabilities(Billions of yen)
As of Feb. As of Aug. Change
28, 2018 31, 2019 from Feb.
598.5
643.6
+45.0

(Cash and deposits)

354.2

374.1

+19.9

(Accounts payable-trade)

123.4

151.9

+28.5

(Accounts receivable)

120.9

164.5

+43.6

(Short-term loans payable)

126.6

78.1

-48.4

Total noncurrent assets

722.7

738.0

+15.3

(Deposits payable)

131.8

177.1

+45.3

Property, plant and equipment

382.3

404.0

+21.7

Total noncurrent liabilities

461.8

472.9

+11.1

Intangible assets

106.6

102.6

-4.0

260.0

260.0

±0.0

(Goodwill)

46.8

44.6

-2.2

Total liabilities

1,060.3

1,116.5+56.2

Investments and other assets

233.7

231.3

-2.3

Net Assets

281.9

283.9

+1.9

(Long-terms loans receivable)

44.0

44.5

+0.4

(Common stock)

58.5

58.5

±0.0

(Guatantee deposits)

107.0

107.5

+0.5

(Retained earnings)

166.1

172.9

+6.7

1,342.3

1,400.5+58.2

Liabilities and net assets

1,342.3

1,400.5+58.2

Total Assets(Long-term loans payable)

Note: Partial Amendments to Accounting Standard for Tax Effect Accounting, etc. have been applied to our consolidated financial statements since the beginning of the fiscal year 2019.
They have been retrospectively applied to major management indices related to the previous fiscal year.
Note: The amount of cash and deposits for financial services business as of August 31, 2019 is 328,460 millions of yen, most of which is used for refilling ATMs.
Note:The amount of loans payable for financial services business as of August 31, 2019 is 290,000 millions of yen.

Copyright (c) 2019 Lawson, Inc. All rights reserved.

33

Cautionary Statement
This presentation contains forward-looking statements and forecasts regarding the future plans, strategies and performances of
Lawson and its subsidiaries and affiliates. These statements and forecasts are not historical facts. They are expectations based onassumptions and beliefs derived from information currently available to the Company and are subject to risks and uncertainties
including, but not limited to, economic trends, heightened competition in the domestic convenience store sector, personal
consumption, market demand, the tax system and other legislation. As such, actual results may differ materially from estimates.
Figures in this presentation have been rounded down.
Copyright
Copyright(c)(c)2019
2019Lawson,
Lawson,Inc.
Inc.All
Allrights
rightsreserved.
reserved.

34 34