Creating Happiness and Harmony in Our Communities

INTEGRATED REPORT 2017

1

INTEGRATED REPORT 2017

CONTENTS
3

Top Management Perspectives

4

A Conversation with the President

10 Message from the CFO
13 Lawson in Data
15 Executives
17 Outside Directors’ Views
19

Corporate Governance23

Sustainable Growth and the
Next Business Model

25

Corporate Value Creation Cycle

27

Community Infrastructure

Lawson will become an essential part of ourcommunities offering a full range of daily-lifeessentials

41 The Foundation Supporting Lawson
42 Developing Human Capital
44 The FC System Supporting Lawson

29

Support for Active Women“I can get things I need just when I need them.”

45 Social and Environmental Activities

31

Catering to Health-conscious Customers

46 Compliance and Risk Management

Providing our communities with “delicious andhealthful” foods and beverages

50 Corporate Data

33

Response to the Rapidly Aging Society

35

Response to the Declining Working Population

37

Combatting Climate Change

39

Contributing to a “fulfilling community life”

2017 MD&A

Lawson is making it easier for “anyone to work.”
Pursuing a sustainable society to pass down anabundant Earth to future generations
Balancing Business and Environmental Concerns
in the Supply Chain

Efforts to construct a business model as amanufacturing retailer of good-quality, affordable,
eco-friendly products

Lawson communication media
Living in Harmony
with Communities:
Initiatives Report
A simple, clearly
written report on our
responses to social andenvironmental challenges

INTEGRATED REPORT
An overview of the Lawson
Group’s business activities
in local communities and theoutlook for sustainable growth

Financial section
Report on industry
trends and theGroup’s businessinitiatives andfinancial position in
relevant years, as wellas projected earnings
assessment/analysis
and outlook for next
fiscal year

Lawson website

Presents information and data not covered by Lawson publications.

Report coverage
The information in this report concerns primarily business activities conducted by Lawson, Inc. and some of its affiliates
as well as its franchise stores. It also extends to operations of the Lawson Group’s business partners in the logistics, food
manufacturing and waste-processing fields for which the partners have consented to disclosure.

Reporting period
This report covers the fiscal year from March 1, 2016 to February 28, 2017, with some reporting on activities before andafter this period. For further details, please visit our website:
http://lawson.jp/en/

Future forecasts, projections and plans
This report’s coverage extends beyond current information and data for the Lawson Group to future forecasts based on its plansand perspectives at the time of publication. These forecasts represent assumptions and viewpoints arrived at based on information
available as of the report’s writing. The actual results may differ from the forecasts due to various circumstances and external environmental factors.

Financial section
The data in the financial section of this English language report constitute official information. The Japanese-language
version does not contain notes to the financial statements. Please consult the Japanese-language Lawson, Inc. Securities
Report for these materials.

2

INTEGRATED REPORT 2017

How about

Genkotsu croquettes tonight?
Or Deka yakitori?

Generating & Conserving energy in our stores’

Awesome!

Super!

quality strictly controlled.

Each & every person’s

Enjoy choosing with your family!

Cool!
Terrific!

Each & every item’s

37

P

work and environment considered.
We gather the world’s mostdesirable products.
For the community’s future: We contribute
through eco-friendly model stores.

When you need it, Lawson has it.
Terrific!

Cool!

Wow! Really?

Awesome!

Super!

P

39

Creating happinessand harmony in
our world communities.

The fun never ends!

29

P

Contributing to thesuccess of female workers
in the community.

No more checkout lines?
No more cash registers?
We’re working on it!

35

P

Improving the community’s
working environment.

27

P

Really?

Lawson presents great
entertainment, too!
Wow!

Meeting the needs of thewhole community.

Super!

Bran bread andGreen Smoothies

Basic essentials in the daily diet.

We support
community health.

31

P

We build vibrant communities
where everyone can thrive.

33

P

Top Management Perspectives

INTEGRATED REPORT 20173

Corporate Philosophy

Creating Happiness and Harmony in Our Communities
VisionTo be a leading company in execution
Think through customers’ needs and changes,
execute with speed and become an essential part of our communities.

Code of Conduct

Sadanobu Takemasu

1. Think as customers, communities and stores.
2. Master the basics and strive to innovate.
3. Improve the quality and speed of the Plan-Do-Check-Act cycle.
4. Act with discipline, take initiative and succeed as a team.
5. Grow as individuals and support the growth of our team members.

President and CEO, Representative Director, Chairman of the Board

Lawson is continuously evolving as an “essential part of ourcommunities,” supporting the lives of people in local neighborhoods.
The convenience store has evolved from its beginnings
as a “convenient” store for quick shopping into an“essential part of people’s daily lives.” And the roles it isrelied on to play continue to expand. The convenience
store shoulders responsibility for Japan’s day-to-day
life as a facility whose lights stay on 24 hours a day andwhere everyone from children to seniors can drop in to
make purchases at will. It also serves as a reliable partof the community infrastructure in emergencies or timesof disaster.
The environment surrounding Lawson is changing
from moment to moment, meanwhile, as exemplified by
Japan’s declining birthrate and aging population as well
as by the advance of digital technologies and industrial
reorganization. In the midst of all these changes, Lawson
launched a 1,000-Day Action Plan in 2016, embarking on
the creation of a Next-Generation LAWSON Convenience
Store model that can satisfy customers’ overall lifestyleneeds. This year, fiscal 2017, marks the second year of
the Plan. We will build on the firm foundation we haveestablished over the years by improving our productoffering, reinforcing our store capabilities through theintroduction of next-generation systems and increasing
support for newly opened stores.
Going forward, we must leverage the combined
knowledge of all our Group members and unite toengage in an all-out battle as a single force guided by
the wisdom of many. We are determined to complete
implementation of our 1,000-Day Action Plan throughthe individual and combined efforts of everyone
associated with Lawson, including our franchise owners,
store crews, supervisors, and suppliers, such as boxed
meal manufacturers and delivery centers, as well as ourparent company, Mitsubishi Corporation.
We will strive to increase our corporate value
further in order to realize our Corporate Philosophy of“Creating Happiness and Harmony in Our Communities”
by supporting people’s daily lives as an essential part ofour communities, with each and every member of ourpersonnel providing warmhearted service to customers.

A Conversation with the President

INTEGRATED REPORT 20174

How do you view the changes in the external environment
surrounding the convenience store industry?

Sadanobu Takemasu
President and CEO,
Representative Director,
Chairman of the Board

How do you think Lawson should differentiate itself
from other companies?
I believe Lawson’s strength lies in the “warmth”
found at every LAWSON store. Lawson has
grown into a retail chain that currently operates
approximately 13,000 stores in Japan andover 1,000 stores overseas, with total store
sales amounting to over 2 trillion yen. The
most important question for us now is whether
or not each of these stores is contributing
support for the daily life of the community it
serves. In the past, we had local shopping
streets in communities throughout Japan. I
myself have fond memories of being treatedwith warmhearted friendliness by the elderly
owner of a neighborhood store as a child. Thissame friendliness is now found at LAWSON
stores. Many LAWSON franchise owners
have firm roots in the communities where
they conduct business. Some who beganwith a single store now operate 10 or more

stores in their area, thus playing a significant
role in supporting the life of the community
as a whole. Each of these LAWSON storesis striving to establish itself as a preferredstore that its customers love and rely on. It is
to support this kind of development that ourheadquarters and franchise stores work as one
to realize a warmhearted retail chain whose
personnel take pride in their work. I want toensure that Lawson remains this kind of store.

The convenience store has evolved
continuously in response to changes insociety throughout its history of nearly halfa century. The stores are open in a nearby
location 24 hours a day, enabling customers
to shop whenever they like without travelinglong distances to large stores to purchaseitems such as delicious boxed meals, cold
beverages, desserts, stationery goods, daily
necessities and frozen foods. Customers
can also acquire concert tickets and accesscopiers and ATMs at the stores. Friendly
interactions, replete with bright smiles, are afamiliar part of the experience.
Since opening its first store in January
1975, Lawson has expanded its productand service offerings in an effort to satisfy
every customer’s everyday needs. Today’s
convenience stores, their lights burning roundthe clock, are expected to serve as part of thecommunity’s social infrastructure in the eventof disasters. Our roles include keeping a close
eye on the children who shoulder responsibility
for Japan’s future, providing 24-hour support
for the working generations with theirincreasingly busy lives, and offering a place forthe senior citizens who developed Japan intosuch a wonderful country to relax in. Much
remains to be done to fully realize our goals,

and I view this challenge as a tremendous
opportunity.
The convenience store based on asmall commercial area model is, together with
e-commerce, without doubt one of a handfulof growth models in the retail market. In fact,
the food distribution market, including thefood service industry, is currently contracting
in the face of the declining population. The
convenience store’s share of Japan’s foodservice market grew annually to reach 8.1% in2016 compared with 6.5% five years earlier,and it seems likely that this trend will continue
into the future. This in itself does not, however,assure Lawson’s survival. We face competition
not only from other major convenience store
chains but also from drugstores and foodsupermarkets, and new competitors in theform of Internet-based services have also
emerged.
It is not easy to attract growing numbersof customers to our stores in a climate likethis. Lawson is responding proactively tothis challenge by developing innovative
new services ahead of the times and byconstructing a sustainable profitability model.
The following are just a few of our many ideas
for achieving these objectives: the Machikado
Chubo in-store kitchen with its value-addedINTEGRATED REPORT 2017

A Conversation with the President
menu of delicious, in-store cooked dishes; an
expanded offering of OTC non-prescription
medicines; home-delivery services;
customer Internet order receipt and pickup
services; development of more convenient,
unconventional payment methods; andprovision of new financial services. Realizingthese ideas as a sustainable profitability model
will require us to abandon our conventionalframeworks and generally accepted businessmodels. The 1,000-Day Action Plan calls forreform of our operational frameworks, working
styles and corporate culture. We cannot
achieve growth if we continue to operate as wehave in the past. We are determined to meetcustomers’ expectations by implementing
full-scale reforms extending from our
product offering and sales floors to our store
operations and manufacturing, distribution
and IT systems. The Lawson Group will unify
its forces to take up this challenge earnestly as
it seeks to solidify its position as an essential
part of our communities by fully implementing
the 1,000-Day Action Plan.

Growth of convenience stores’ share ofJapan’s retail industry

2021

Fiscal 2016

10%

8.1%

* Lawson estimation

Major three companies* percentage ofwhole convenience store market

84.6%* Total amount of Seven-Eleven Japan Co., Ltd.
and Family Mart Co., Ltd., Lawson, Inc.
(Unit: Billion yen)

Annual convenience store sales volume: 11,445
Annual retail sales volume: 139,877* Sources: Ministry of Economy, Trade and Industry (METI),
Current Survey of Commerce; Japan Food Service
Association, Estimated Market Scale of the Food
Service Industry

What can you tell us about Lawson’s strategies for the current
ﬁscal year, the second year of the 1,000-Day Action Plan?
I will approach it as a year for further
accelerating the advance of the 1,000-Day
Action Plan we introduced last year. Efforts
to expand the stores’ product offering during
the past year included raising the height ofthe store shelves, increasing the number ofrefrigerated showcases for products such as
milk and eggs, and adding new freezer cases.
These efforts contributed to expanding thenumber of products available at the storesfrom 3,000 to 3,500 items. This year, we arereinforcing our offering of such convenience

store staples as boxed meals and rice balls,
while also enhancing our lineup of over-thecounter fast foods, which is already unrivalledby our competitors.
Strengthening our product offering isamong our key strategies for surviving thefierce competition from other retail businesses,
including our direct competitors as well othermembers of the food service industry, In
addition to reinforcing all our current products
one by one, moreover, we will be required
to expand our merchandise selection. The

offering must extend beyond products to meetcustomers’ lunch needs, for example, suchas our familiar large-volume boxed meals andthe deli salads and soups that have attracted
so many female customers in recent years. It
must also include side dishes for serving aspart of more leisurely meals, or as snacks toaccompany alcoholic beverages, as well as
milk, eggs and other items for breakfast thenext morning.
In the OTC fast-food category,meanwhile, we need to stock more trendy
products such as MACHI café fresh-brewed
coffee and snacks such as Kara-age Kun (friedchicken nuggets) and L-Chicki as well as items
that can be served as main dishes at dinner.
We responded to this demand by adding
Deka Yakitori (mega grilled chicken) and Deka
Kushikatsu (mega skewered deep-fried pork)
to such existing staple dinner favorites as
Genkotsu Menchi (“clenched fist” minced-beef
patties), Genkotsu Croquettes and deep-friedchicken. We are also expanding our seafoodmenu with new items such as deep-fried horsemackerel and deep-fried squid.

5

We will, at the same time, continue ourefforts to strengthen our store capabilities.
It is particularly important that we keep the
shelves full in the late afternoon and evening,when customers have time for more leisurely
shopping. We introduced the semi-automaticordering system in fiscal 2015, which further
improved the accuracy of our demand
forecasting. We are increasing ties among
franchise owners, meanwhile, by sharing
successful strategies and other information
at area meetings held by stores in our sales
regions nationwide. We have also worked to
upgrade productivity among the supervisors
responsible for providing guidance for stores.
Our thoroughgoing efforts to reduce theon-site workload have included classifying
approximately 300 tasks as work to beeliminated, work to be systematized andwork to be outsourced or handled by different
departments. This has created an environment
in which our supervisors and franchise owners
can cooperate more effectively in solving
problems and increasing individual stores’
sales and profits.

A Conversation with the President
1,000-Day Action Plan

Becoming an essential part of our communities
Construction of a Next-Generation LAWSON Convenience Store model
Establishment of stores for late afternoon and evening shopping
Improvingproduct offering
Improving stores’
productivity

Reinforcing
store capabilities

Increasing support
for newly
opened stores

Strengthening
support for
franchise stores

Improving overall
competitiveness

One Lawson ~ Companywide operational reform
Fully executing the basics, Responding to change, Challenging further growth

When dealing with store operationand management issues, we inevitably
encounter the problem of manpower
shortages. Lawson’s 1,000-Day Action Plan
consequently designates next-generation
system development as one of the major
issues for resolution. This will involve reforming
the systems supporting everything fromstore operations to the supply chain as awhole, including our product manufacturing
processes and the distribution systems
employed to deliver merchandise to the stores.
Beginning this fiscal year, our responses
include the installation of tablets and advanced
point-of-sales (POS) cash registers in thestores. Installing the tablets, an advance aimed
at increasing efficiency in managing work
shifts and OTC fast-food cooking operations,will eventually enable order placement andvarious other operations to be performed

INTEGRATED REPORT 2017from anywhere in the store. The new POS
cash registers, meanwhile, will incorporate
automatic change machines as well as amultilingual capability. These advances canbe expected to increase the efficiency ofcheckout and cash management operations
at the checkout counter.
The above measures to strengthen ourstore capabilities will be implemented at newly
opened stores as well as at existing stores.
We plan to open 1,400 stores, including
converting brands from other convenience
store chains to the LAWSON brand. We haveorganized Store Opening Teams (SOTs) for
the specific purpose of firmly establishingthese new stores. These teams of experts
specializing in store-launching operations
work closely with the franchise owners andsupervisors concerned to provide efficient
support for new store openings. Headquarters
has also begun offering greater support for
more aggressive actions by owners of newly
opening franchise stores to strengthen theirstore capabilities, including helping themcover costs associated with food waste.
This consistent, well-considered support
for every new store is reinforcing the stores’
preparatory work in such areas as crew
education, operating proficiency enhancement
and appropriate inventory investment. Theseand other measures are aimed at preparing
new LAWSON stores to become an essential
part of the communities they serve quickly
by responding accurately to customers’
expectations.
We hope to achieve our current fiscal
year’s targets—same-store sales increases of
1% and gross profit margin increases of 0.3%
year-on-year—through reinforcement of our
product offering, store capabilities and newstore opening procedures.

6

INTEGRATED REPORT 2017

A Conversation with the President

Mid-term Management Vision : Growing image of consolidated oparating profit
Investment Phase

Progress Phase

Investment period

Payback period

7

Over

¥100
billionPrimary targets (Fiscal 2021)•Consolidated operating profit:
over 100 billion yen¥73.7
billion•Average daily store sales in Japan:
600,000 yen¥68.5•Number of domestic stores:
18,000 storesbillion•D/E ratio: under 1•ROE: over 15%
Fiscal 2016

Fiscal 2017

Fiscal 2018

Fiscal 2019

Fiscal 2020

Fiscal 2021

Next, we would like you to describe the Mid-term Management
Vision and your business plan for ﬁscal 2017.
We developed the Mid-term Management
Vision in April 2017 to serve as a benchmark
for measuring Lawson’s future operations.
This benchmark anticipates management
objectives through fiscal 2021, three years
beyond the 1,000-Day Action Plan. The
Vision clearly states our aim of achieving
average daily sales per store of 600,000 yen
by LAWSON stores in Japan, increasing
the number of stores to 18,000 and earning
consolidated operating profit of over 100 billion
yen, while maintaining the D/E (debt/equity)
ratio at under 1 and achieving an ROE (returnon equity) of over 15% by exercising financial
discipline. Among these objectives, we place
the highest priority on achieving average daily
sales per store of 600,000 yen. The number ofstores is important, of course, but even should
the size of the chain as a whole expand, wewould have no future if the individual stores
did not meet customers’ expectations. This
600,000-yen target, which represents anincrease in daily sales of nearly 10%, will be far
from easy to achieve, but we must achieve it
at all costs if we are to compete successfully
with our major competitors. I believe we
can do this only by uniting the capabilities ofeveryone affiliated with the Lawson Group.
The forecast for our fiscal 2017 businessperformance calls for operating profit of 68.5
billion yen, down 7.1% from fiscal 2016. As
I mentioned, we plan to improve same store
sales and the gross profit margin registered byour domestic convenience store business, andwe consequently expect our convenience store
operations to see an increase in consolidated
operating profit of approximately 6 billion yen,with loss reduction in our overseas operations
taken into account. We project an overall
decrease in profit, however, due largely tothe following and other investments targeting
future growth: investments in next-generation
systems; anticipatory costs assumed in thefinancial services business leading to losses
in new business-related fields; and initialexpenses associated with brand conversion
from other convenience store chains to the
LAWSON store brand. Additional factors
include the effects of a change in the
final month of a consolidated subsidiary’s
fiscal year and the pro forma standard tax.

Investments in such advances as introductionof next-generation systems, entry into new
businesses, and conversion from other chains
will certainly be essential if we are to achieve
mid- to long-term growth. Although our shortterm business results for fiscal 2017 and 2018
will most likely be extremely austere due tosuch expenditures for investment in future
growth, however, we have decided that now
is the time for investments we cannot avoid
making if we are to realize average daily salesof 600,000 yen and consolidated operating
profit of 100 billion yen—the targets specified
in our Mid-term Management Vision.

A Conversation with the President
Could you also tell us something about the LAWSON stores’
efforts to contribute to health and wellness in their communities?
It is safe to say that health has become a major
concern among members of every generation,from young people to seniors, in recent years.
Considered from another perspective, we
can also say that rising healthcare costs are a
growing problem for Japan, a country with arapidly aging population. Seeking to contributeto health and wellness in our communities,
Lawson takes a two-pronged approach toaddressing the health issues facing Japan: a“meal solutions” approach involving promotionof health through healthful foods, and a “selfmedication” approach centered on provisionof medical support through sales of over-thecounter medicines and various health-related
services. In the area of meal solutions, we havecontinuously developed delicious and healthfulfoods and beverages, including such hit
products as bran bread and Green Smoothies.
In pursuing the self-medication approach,meanwhile, we are promoting partnerships
with pharmacies and drugstore chains as wellas with major nursing care businesses to meetthe needs of customers who want to purchase
medications for such minor health conditions
as a slight fever or to receive consultations on
various caregiving issues without hesitation ina non-institutional environment. Despite thedifficulty of increasing the number of stores
adopting the healthcare-focused LAWSON or
Care LAWSON model due to regulations, wewill continue to work in this direction to meet
the burgeoning need for such services.
The efforts to promote health describedabove will be of no value, however, unless
we ourselves are healthy. We not only
require employees to undergo regular
medical checkup, therefore, but we havealso implemented programs to promote thehealth of our franchise owners. We intend tocontinue these efforts, including those aimed
at improving employees’ working efficiency
and work-life balance, in the future to ensure
the ability of all the Lawson Group’s humancapital to lead vital, healthy lives every day.

Next, we wonder what actions Lawson is taking to achieve
Companywide diversity?
We have employees from diverse backgrounds
at Lawson headquarters, including myself.
Some have spent their entire careers at Lawson
since joining the company as new graduates.
Some are professional human capital whobegan their careers at other companies.
Still others came to Lawson from Mitsubishi
Corporation, as I did. The circle of our Group
companies is expanding, and there are a great
many people supporting it, including business

partners and associates who are outside theGroup. Everyone involved in our businessworks together as “One Lawson” to realize our
Corporate Philosophy of “Creating Happinessand Harmony in Our Communities,” regardlessof their background or place of origin. Copingwith the rapid changes in society and taking up
new challenges one after another requires anorganization comprising a wide range of humancapital and a richly diversified team. As in the

INTEGRATED REPORT 2017

past, Lawson will continue to create pleasantwork environments for all its personnel, andto make proactive efforts to hire and promotewomen and foreign nationals.
We also seek to assure diversity inemployee working styles. In our belief that men
as well as women should participate actively
in child-rearing, for example, we encourage
our male employees to take childcare leaves.
The ratio of fathers of babies or young children
who take childcare leaves now exceeds 80%,
which suggests it is becoming a commonly
accepted practice.
We are also concerned about the issueof making efficient use of limited working

8hours. I send out messages about thenecessity of a work-life balance at every
opportunity, and all Lawson Group member
companies are engaged in efforts to improve
the work environment and promote highly
productive working styles.

What environmental initiatives is Lawson implementing
as part of its social mission?
Every company is now required to implement
a CSV (Creating Shared Value) management
style that seeks to solve social issues throughbusiness activities. Lawson is proactively
taking up challenges toward realization of asustainable society. We have made effective
use of the United Nations’ Sustainable
Development Goals (SDGs) adopted
in September 2015 to grasp risks anddiscover new opportunities. We are working
in accordance with the Lawson Group
Environmental Policy we formulated in 2010 toimprove our operations in the areas of energy
efficiency, resources conservation and waste
reduction as well as to curb CO2 emissions
at every stage of the supply chain, from raw
materials purchasing, manufacturing and sales
to final disposal. All these efforts reflect the fullconsideration we give to our impact on thenatural environment and local communities.
We promote social and environmental training

for headquarters employees, franchiseowners, and store managers and crews,
moreover, while also encouraging them totake external examinations.
Electricity is indispensable forconvenience store operation. Not only
do stores need electricity to operate theirrefrigerators, freezers and air-conditioners, but
their position as 24-hour neighborhood stores
responsible for the security and safety of theircommunities requires them to keep their lights
burning brightly through the night. At a time
when awareness of the need to respond toclimate change is growing, we are committed
to reducing CO2 emissions resulting fromelectricity use by the stores. As a mediumterm energy-saving target, therefore, Lawson
is implementing the Ten Energy-saving Rules
and introducing energy-efficient store facilities
to meet its goal of reducing per-store electricity
consumption by 20% by 2020 (compared with

A Conversation with the President
gradually reflected in our existing and newly
opened stores. The many other measures
we have introduced to reduce our burden on
the global environment include convertingfood waste to feed and fertilizer, reducing
the number of deliveries to stores and using
imperfect vegetables.

2010 levels). These efforts are symbolized byeco-friendly model stores focused on energy
generation and energy savings. They are partof ongoing trials aimed at developing stores
equipped with solar power systems, LED
lighting, freezer and refrigeration systems
using CO2 refrigerants. The results will beContributing as infrastructure to regional society
Lifeline
in times ofdisasterChildcare
supportCrime
prevention
center

Attached
nursing
care
centerHome
deliveryservices andmobilesales

Response tosocial issues

HealthsupportINTEGRATED REPORT 2017

decade. Mitsubishi Corporation sees great
potential in the convenience store business,
one of the few growth markets in the retailsector. For its part, Lawson has found it
advisable to gird itself for a fierce battle,
with Mitsubishi Corporation more deeply
involved than ever, to assure its survival in an
unprecedentedly competitive environment.
Implementation of our strategy ofcreating a Next-Generation LAWSONConvenience Store model can be accelerated
further by leveraging the networks andresources of the Mitsubishi Corporation
Group, which operates a global network offood raw materials procurement routes andconducts business with a number of foodsupermarket chains in Japan.

Lawson has retained its listing on theFirst Section of the Tokyo Stock Exchange,
meanwhile, even since becoming a subsidiaryof Mitsubishi Corporation. Maintaining
transparency and independence as a listedcompany is of enormous significance fora convenience store operator, which is
supported by many stakeholders, including
franchise owners, and which is expected toserve as a part of the community infrastructure.
Three of the eight members of Lawson’s
Board of Directors are independent directors,
moreover, and five of the six members of
the Nomination and Compensation Advisory
Committee are independent officers. Thus, wehave given ample consideration to ensuring
properly functioning corporate governance.

Is there anything you wish to say in conclusion?
Agricultural
undertakings
Energyconservation
andgeneration

Greening
activities

Socialinfrastructure

Environmental
conservation

What changes do you anticipate in the Group’s future strategies
now that Mitsubishi Corporation has become
Lawson’s parent company?
Both our direction and strategies willremain unchanged. Mitsubishi Corporationand Lawson have maintained a close-knit
partnership since completing a businessalliance agreement in 2000. Following
deliberations by the Board of Directors,

including the independent officers, Lawson
accepted Mitsubishi Corporation’s offer toacquire a majority stake through a friendly
takeover bid. This was possible only becauseof the existing foundation of mutual trust
established over a period of more than a

Lawson is a convenience store chain thatis supported by an extensive group of
warmhearted franchise stores and employees.
Today is a time of enormous opportunity forconvenience stores. Customers have great
expectations of us. It is also true, however,that we are operating in a highly competitiveenvironment, including competition frombusinesses outside our sector. Although wehave forecast austere operating results forthe next two years, in particular, which wehave designated as an investment period, I
firmly believe that a highly positive outcome
awaits us after that. We will continue to strive,
drawing on the experience and expertise
accumulated over Lawson’s 42-year history
and with everyone joining in the challenge, toestablish Lawson as a leading store in every
region in which we operate.

9Message from the CFO

INTEGRATED REPORT 2017

Satoshi Nakaniwa
Senior Vice President, CFO

Lawson is targeting an ROE of over 15% in ﬁscal 2021,
while maintaining appropriate ﬁnancial discipline asstated in our Mid-term Management Vision.

increase of 16.0%), with an ROE of 13.5%.
Net sales by existing LAWSON storesin Japan—the Company’s core business—maintained positive growth of 0.6% in
the fourth quarter, compared with thecorresponding period of the previous year.
In a reflection of the severe environment
surrounding the industry, however, net sales
by existing stores fell by 0.2% year-on-year
on a full financial year basis, due primarily tothe effect of a decline in ticket sales during
the first half in reaction to an upsurge in theprevious year. The gross profit margin, on theother hand, improved by 0.1 percentage point
to 31.4% compared with the year before.
The Lawson Group opened 1,143 storesand closed 427 stores, a net increase of 716
stores. The total number of LAWSON storesin Japan stood at 13,111 as of the end of
February 2017.

Fiscal 2016 (Consolidated)(Unit: Million yen)2017.2

Review of ﬁscal 2016
Lawson’s consolidated operating profit of
73.7 billion yen in fiscal 2016 (the year ended
February 2017) exceeded the previous year’slevel. Measures implemented during theterm, the first year of our 1,000-Day Action
Plan, included aggressive remodeling of
our existing stores, including installation of
additional refrigeration and freezer cases
and raising the heights of the store shelves,and drastic expansion of our productoffering to satisfy the full range of customers’

everyday needs. Our aggressive investment
in store remodeling and our advertising andpromotional expenses exerted a considerable
impact on our results. Non-consolidated
operating profit remained nearly unchanged
at 57.4 billion yen (up 0.3% from the previousyear). We recorded consolidated operating
profit of 73.7 billion yen (up 1.7%), a yearon-year increase of 1.2 billion yen due
primarily to contributions from consolidated
subsidiaries such as Seijo Ishii. Consolidated
net profit totaled 36.4 billion yen, exceeding
its previous-year level by 5.0 billion yen (anYoY

2016.2Gross operating
631,288
revenues+8.2%

583,452

Operating profit

73,772+1.7%

72,541

Recurring profit

73,014+4.9%

69,622

Net income

36,400 +16.0%

31,381

10

Mid-term Management Vision
Lawson formulated the Mid-term Management
Vision to delineate its objectives for the next
few years. The targets the Company will
strive to achieve by fiscal 2021, three years
after completion in fiscal 2018 of the 1,000Day Action Plan, begin with construction of
the Next-generation LAWSON Convenience
Store model. We anticipate average daily
sales per store of 600,000 yen with 18,000
stores in operation in Japan. Our consolidated
operating profit is expected to exceed 100
billion yen. In addition, the Vision sets a D/E
ratio under 1 as financial discipline, and an
ROE of over 15% as a benchmark to beachieved through a combination of earnings
growth and improved capital efficiency. We
will advance corporate structural reform
through efforts encompassing the following:
improvement in store productivity using newgeneration systems that make full use ofleading-edge technologies; supply chain
reformation extending from raw materials
procurement and product manufacturing to
distribution; initiation of new businesses suchas financial services and in-store parcel pickup services; reinforcement of store networks,
including pursuit of alliances with otherchains; increasing the profitability of overseas
businesses; and strengthening ties with ourparent company, Mitsubishi Corporation.

Message from the CFO

Plans for ﬁscal 2017
Our profitability planning for fiscal 2017 (theyear ending February 2018) projects a decline
in consolidated operating profit to 68.5 billion
yen (down 7.1% from the preceding year). We
anticipate an upturn in average daily sales due
to an improved product offering, reinforced
store capabilities and strengthened support for
newly opened stores. Outlays are neverthelessexpected to exceed profits due to a number ofadvance investments we plan to conduct witha view to the future.
We will seek to achieve 1.0% growthin sales by existing stores compared to theprevious year and a gross profit margin of
31.7%. First, we will take full advantage ofthe semi-automatic ordering system we haveintroduced and the expanded product offeringthat has enhanced support for customers’
everyday needs. Next, we will reinforce ourover–the-counter fast-food business—a
special LAWSON strength—and improve coreproducts such as boxed meals.
In addition, we plan to open 1,400 new
stores, a net increase of 900 stores, including
stores converted from other convenience
store chains through business alliances, andto expand the number of LAWSON storesin Japan to 14,000. We expect operating
profit by our existing convenience store
business to grow by some 6 billion yen due toenhancement of our domestic operations andimproved profitability of our overseas business.
We will also accelerate our program offorward-looking investments in fiscal 2017
toward the goals stated in the Mid-termManagement Vision of creating an original

11

INTEGRATED REPORT 2017

Lawson business model and pursuing
growth toward daily sales of 600,000 yen.
These investments will encompass spendingon next-generation systems, including the
introduction of tablets and new point-ofsales cash registers, for example, to improve
store productivity; increased expenditures for
introducing new businesses such as financial
services and healthcare support in response
to a widening range of customer needs; andinitial costs associated with business allianceswith other chains. An approximately 8.5 billion
yen increase in spending will be required
during the term to cover these investments
Thus, besides projecting increased daily
sales by existing stores and a higher grossprofit margin, our fiscal 2017 projections
incorporate higher up-front expenditures. We
consequently foresee consolidated operating
profit of 68.5 billion yen in fiscal 2017, down
5.2 billion yen (7.1%) from the preceding year
and consolidated net profit of 33.5 billion yen,down 2.9 billion yen (8.0%). This planned
decline in short-term profit will be implemented
to expand the future sales of existing storesand increase the stores’ gross profit margins,
while also developing new-generation systems
to realize consolidated operating profit inexcess of 100 billion yen in fiscal 2021.

Fiscal 2017 Plan

Fiscal 2017
Improve existing-store sales
and gross profit margin
Invest in future growth

Operating profit

68.5 billion yen
Fiscal 2021

Fiscal 2015—2016
Strengthen CVS•Semi-automatic ordering•Reinforce support
for everyday life
•Expand SKU•New FC contracts•More competitive
supervisors
Strong stores,
strong products,
strong franchise support

CVS
profitincrease•Japan: existing-store sales +1.0%•Gross profit margin +0.3%p•Overseas: Reduce loss
Approx.
on operation+6.0 billion yen•New business approx.

-2.0 billion yen

Investment •Brand changes approx. -2.5 billion yen
for growth •Systems upgrade approx. -4.0 billion yen

Approx.
-8.5 billion yen

Unavoid-able•Change in subsidiary term-end,
tax systems, etc.

Approx.
-2.5 billion yen

Mid-term
Management Vision

Operating
Profitdown
approx.
-5.0 billion yen•Operating profitOver
100 billion yen•Daily sales

600,000

yen/per store

Message from the CFO

Financial discipline andreturns to shareholders
Lawson anticipates consolidated operating
cash flows of 120 billion yen in fiscal 2017, anamount exceeding our expected consolidated
investment cash flows of 110 billion, including
new store investments associated with anincreased number of store openings andinvestments in development of next-generation
systems. In order to secure liquidity on hand,
we recorded short-term borrowings of 30
billion yen as of the end of February 2017. We
are considering obtaining additional bank loans
to secure further liquidity on hand, dependingon circumstances such as expanded capital
expenditures, but we are determined tomaintain proper financial discipline asindicated by the D/E ratio of under 1 specified
in our Mid-term Management Vision. We will
strive to achieve an ROE of above the 15%
specified in the Mid-term Management Visionby maintaining a healthy balance between
earnings growth through value creation andreturns to shareholders.
Lawson is committed to realizing
earnings growth at all costs in the medium
term, and to achieving operating profit greaterthan the 100 billion yen specified in the Midterm Management Vision. While projecting
negative growth for a single fiscal year, we plan
to increase the dividend by 5 yen, as in theprevious year, and pay a dividend of 255 yen
for fiscal 2017. Going forward, while working
to improve corporate value in the medium andlong terms, we intend to maintain our current
policy of stable dividend payments.

12

INTEGRATED REPORT 2017

Transitions in cash dividends per share and dividend yield

255 yen(5 yen increase)
(%)

(Yen)

260
240
220
200
180
160
140
120
100
80
60
40
20
0

5.0

Cash dividends per share (left axis)
Dividend yield (right axis)

160

70
41

41

2002

2003

90

100

160

170

180

200

220

240

245

250

255
4.0
3.0
2.0

110

1.0
0.0

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017 (FY)(Forecast)Lawson in Data

13

INTEGRATED REPORT 2017

Mid-term Management
Vision (Fiscal 2021)
Financial Data

Consolidated operating profit:

Consolidated net sales by all stores

overConsolidated operating profit

Consolidated net sales by all stores (left axis)
Consolidated operating profit ratio (right axis)(Billion yen)
2,250
1,906.5

2,000

1,945.3

1,750
3.5

1,500

3.6

3.5

1,250

1,961.9

2,049.5

Average daily per-store sales in Japan:

2,157.9

60

3.0

40

2.5

20

2.0
2016 (Fiscal year)

0

3.5

250
0

2012

2013

2014

2015

Payout ratio
(Yen)
250

100

50

0

Number of domestic stores:

18,000 stores

73.7

D/E ratio: underbillion yen

2012

2013

2014

2015

ROE: over

240

250

245

200

73.4

(%)
100

(Yen)
500

68.7

80

2016 (Fiscal year)

%

2013

2014

2015

200

20

100

0

2016 (Fiscal year)

0

363
326

yen

2013

2014

6,000

313

363

2012

(Yen)
8,000

(%)
20.0
16.1

380

4,780

40

7,750

7,060

300

57.9

68.7
2012

400
332

60

60.2

15 %

ROE (return on equity)
7,820

6,890
78.1

1

Cash dividends applicable to the year (left axis)
Lawson Inc. share price*1 (right axis)

220

150

70.4

600,000 yen

73.7

Net income per share

Cash dividends applicable to the year (left axis)
Payout ratio (right axis)

200

68.1

72.5

3.4

torillion yen

500(Billion yen)
80

3.5

2

750

(%)
4.0

66.2

Approx.

1,000

100 billion yen

2015

16.0

13.5

15.2

12.0

13.0

4,000

13.5

8.0
2,000

0

2016 (Fiscal year)*1 The Lawson stock prices are closing prices at the end of February of each year.

%

4.0

0

12.0

2012

2013

2014

2015

2016 (Fiscal year)

Lawson in Data

14

INTEGRATED REPORT 2017

Non-financial Data
Electricity use (index) and CO2 emissions per store
Annual electricity use index (left axis)
CO2 emissions (right axis)(%)
100

Base year

80

68.2

120
100

82.6

60
100.0

92.4

40

80.0

80

(%)
50

60

40

40

30

44.3

0

20

2010

0

2016

Number of working mothers & their proportion
among female employees(Persons)
160

120

Number of working mothers (left axis)
Percentage of working mothers amongfemale employees (right axis)

21.9

22.5

16.0

80

21.9
151

40

0

8.4
4.6

67

20

2005

2010

billion yen
8.6

6.6

6.0

0

3.0

0

2.0
0.02

1992

2002

3

(%)
100
80

40

5

20
0

70.4

2012

2016 (Fiscal year)

Ratio of independent directors
among directors

%

10

0

(Billion yen)
9.0

8.6

80.3
60

2016 (Fiscal year)

2016 (Fiscal year)

Percentage of male employees
taking paternity leave

15

23

10

2001

2007

30
25

5,000

8,309

10

Approx.

10,00015,033(%)
35%

15,000Base year

02020 (Fiscal year)(Stores)
20,000% 44.320
20

Total customer donations received since 1992

(including disaster relief funds)

Number of stores implementing (right axis)
Waste oil recycling
Conversion to animal feed and fertilizer
Heat recovery
Rate of implementation of activities
such as food recycling (left axis)(t-CO 2)20%
reduction
targeted

95.4

Rate of food recycling & number ofparticipating stores

80.3

8

16.1
0.0

2013

2014

2015

2016 (Fiscal year)

LAWSON stores in numbers*
Number of domestic stores

Approx.

13,000storesApprox.

10

millionNumber of items

Number of store crew

Number of customers(per day, all stores)

Approx.

Approx.

Number of
franchise owners

Approx.

6,000

200,000

3,500

Store size

Approx.

120m

2* The figures for LAWSON stores are rounded off as of end February 2017.

Executives

15

INTEGRATED REPORT 2017

A new management team exhibiting a balance of diversity,
expertise and independence
The management team led by the President
represents human capital appointed for its varied
experience and expertise to ensure the diversity
required to facilitate appropriate decision-making
and supervision. Several independent officers
who have no potential conﬂicts of interest with thegeneral shareholders are also appointed to ensure
management transparency and fairness. To add
further assurance, there are three independent
directors, a number comprising over one-third of thetotal of eight directors; and four of the twelve officers,
including the corporate auditors, are women.
Under the Executive Officer System, meanwhile,
the roles of the members responsible for executionof business and those responsible for corporate
management are separated and clarified. Lawson
limits the size of the Board to enable speedy businessdecision-making.
*As of June 1, 2017/The number of Company’s shares held is as of February 28, 2017

Sadanobu Takemasu

Katsuyuki Imada

President and CEO,
Representative Director,
Chairman of the Board

Member of the Board
Senior Executive Vice President,
Director of Corporate Strategy

Years on Board: 3Company’s shares held: 700

Years on Board: 0Company’s shares held: 1,600

2014, Senior Executive Vice
President, Representative Director;
2016, appointed President and CEO,
Representative Director. Joined Lawson
from Mitsubishi Corporation.

In addition to experience in the employ of
Mitsubishi Corporation, Katsuyuki Imada has
extensive experience acquired during nine
years as Lawson’s CFO; Director, Corporate
Strategy Division; and General
Manager, Next-Generation CVS
Newly
appointed
Promotion Division.

Satoshi Nakaniwa
Member of the Board
Senior Vice President,
Chief Financial Officer
Years on Board: 0Company’s shares held: 0

Satoshi Nakaniwa has extensive knowledgeof finance and accounting as well as ofbusiness investment and evaluation acquiredin the employ of Mitsubishi Corporation.
Reinstatement

Newly
appointed

Executives

16

INTEGRATED REPORT 2017

Emi Osono

Keiko Hayashi

Masakatsu Gonai

Outside Director

Outside Director

Standing Corporate Auditor

Years on Board: 5Company’s shares held: 300

Years on Board: 1
Company’s shares held: 0Years as auditor: 0Company’s shares held: 1,400

Emi Osono is an academic with in-depth
knowledge of global corporate management,
corporate strategies and organizational
behavior.

Founder of DoCLASSE, Keiko Hayashi has
experience and expertise in corporate
management and an in-depth knowledge ofmarketing.

In addition to his deep understanding of
Lawson’s operations based on experienceacquired as branch manager and in CR andhuman resources management, Masakatsu
Gonai has expertise in risk management andhuman resources development.

Reinstatement

OutsideIndependent

Reinstatement

OutsideNewly
appointed

Independent

Yutaka Kyoya

Kazunori Nishio

Tetsuo Ozawa

Outside Director

Outside Director

Outside Corporate Auditor

Years on Board: 4Company’s shares held: 0Years on Board: 1
Company’s shares held: 0Years as auditor: 14
Company’s shares held: 500

Yutaka Kyoya has a broad understandingof the living essentials field, primarily as it
relates to foods, acquired in the employ of
Mitsubishi Corporation

Kazunori Nishio has extensive knowledge ofthe living essentials field with specializationin the retail industry acquired throughexperience in the employ of Mitsubishi
Corporation.

Tetsuo Ozawa is an attorney withspecialization in the fields of corporate
law and risk management and extensive
knowledge in the areas of corporate financeand accounting.

Reinstatement

Reinstatement

OutsideSakie Akiyama

Toshio Takahashi

Eiko Tsujiyama

Outside Director

Standing Corporate
Auditor (Outside)

Outside Corporate Auditor

Years on Board: 3Company’s shares held: 300

Reinstatement

Years as auditor: 6Company’s shares held: 600

Years as auditor: 1Company’s shares held: 0Founder and CEO of Saki Corporation, Sakie
Akiyama has extensive experience andexpertise in corporate management acquired
as an entrepreneur and manager.

OutsideIndependent

IndependentToshio Takahashi has years of experience
as an employee of a major bank and as astanding corporate auditor for a major IT
company as well as extensive knowledge
in the fields of corporate finance andaccounting.
OutsideIndependent

Eiko Tsujiyama is an academic with indepth knowledge of corporate finance andaccounting and experience working for theBusiness Accounting Council of the Japanese
Financial Services Agency as well as for the
National Tax Council of the Japanese National
Tax Agency.
OutsideIndependent

Outside Directors’ Views

INTEGRATED REPORT 2017

Please begin by sharing your views of thecurrent state of the convenience store
industry, and of the challenges it faces andpotential it offers.

Sakie Akiyama

Emi Osono

Keiko Hayashi

Founder and CEO,Saki Corporation

Professor,
Graduate School of International
Corporate Strategy,
Hitotsubashi University

President and CEO,DoCLASSE Corporation

We see immense future potential in
Lawson, as it continues to take up
challenges in pursuit of mediumand long-term growth.

Akiyama: I’ve observed a conspicuous
movement toward reorganization of theindustry accompanying the recent maturationof the market. You might say that theconvenience store industry is operating in ahighly dynamic environment.
Osono: I agree completely. When we consider
the industry as a whole, we see that thismovement toward reorganization or integration
has made significant progress. It is not yet
completely clear what form the system willtake by the time this movement settles down
at some point in the future. This is where
the distinctive characters of the individualcompanies can be expected to shine through.
Akiyama: The range of products and services
offered by the convenience store, which is
uniquely integrated into the community, has
expanded impressively. Still, not only do
community needs differ among metropolitan
areas, smaller cities and suburbs, but personalneeds vary from one customer to another. I
believe the ability of every convenience store
chain, including Lawson, to remain involvedin the lives of its individual customers will
become increasingly important in the future.
Hayashi: So, the question is how to respondto changes in customers’ needs as well as toregional differences. Should it be by expanding
the product lineup or developing new services,
for instance? It will be important to identify themost significant emerging trends, including

17

technological advances, and to decide what
to relinquish and what to retain.
Osono: I see an unlimited number of things
that can and should be done. The convenience
store, which supports the lives of community
residents as a neighborhood store, will continue
to play an enormous role in the future.

How do you rate Lawson’s management
strategy against this background?
Osono: One of LAWSON’s products thatis particularly popular among highly healthconscious customers is the Green Smoothie.
It debuted at NATURAL LAWSON and thenspread to LAWSON stores throughout thecountry. Stores with diversified formats serving
a varied range of customers without adhering
rigidly to a set style or standard — this kind offlexibility appears to be a Lawson strong point.
Akiyama: Having a culture and environmentthat enable employees to respond accurately
to new needs is another Lawson strength.
Going forward, I want to see us take up
challenges aggressively to develop products
and services that stand apart from ourcompetitors.
Hayashi: Speaking of challenges, the mosteffective strategy will be to increase awarenessin categories where Lawson already has astrong presence.
Akiyama: In that sense, sweets are among
Lawson’s specialties. I understand the Roll
Cake Lawson developed in collaboration withthe major premium chocolate brand GODIVA
received considerable attention. This is one
example of a challenge that made the most of
Lawson’s sterling reputation for sweets.

Outside Directors’ Views

Hayashi: I think it would be a good idea for
Lawson to push its unique Lawson characterto the forefront more strongly. By this I mean
redefining the market and reinforcing areasin which Lawson has a strong presence.
Lawson is constantly taking up challenges
that generate innovative new trends. Its entry
into financial services is expected to open
up various possibilities, for example. We
outside directors will follow up with a rigorous
investigation to determine whether or notthese new measures are truly worthwhile from
Lawson’s perspective.
Osono: Physicalfitness is aprerequisite
for meetingthese kindsof challenges.
With investment
in both new
businesses andnext-generation
systems set togrow, this fiscal
year might be a good time to build up “corestrength,” as they say in the fitness training
field. I consider this an unavoidable direction inlight of Lawson’s future growth requirements.
Hayashi: Yes, I also see it as an appropriate
direction. The Board of Directors has
discussed its investment plans with aneye to the future, and I believe them to benecessary from both medium- and long-term
perspectives. These plans offer a great deal ofpotential for the future.

INTEGRATED REPORT 2017

Akiyama: I agree. Lawson has set a course
toward steady progress, while carefully
safeguarding its essential requirements forsustainable growth.

What expectations do you have for the
future now that Mitsubishi Corporation has
become the parent company?
Akiyama: I expect Mitsubishi Corporation
to supply resources and networks in suchnew fields for Lawson as financial services.
Business tie-ups with different industries
should be strengthened as well. We canalso look for an accelerated turnaround in
the profitability of our overseas operations
to be supported by leveraging Mitsubishi
Corporation’s resources.
Osono: As a manufacturing retailer based ona small commercial area model, Lawson canalso be expected to make greater use thanever of Mitsubishi Corporation’s raw materials
procurement capabilities and manufacturing
and distribution networks.
Hayashi: The same goal of increasing
Lawson’s corporate value is shared by
Lawson’s parent company and individual
shareholders. As in the past, the other outside
directors and I intend to pay close attention
to make sure the strategy is one that can beclearly explained to all the shareholders.

Osono: Lawson has maintained a relationshipwith Mitsubishi Corporation for over 15 years
as a strategy for raising Lawson’s corporate
value on a long-term basis. Although theparent company’s ownership share now
exceeds 50%, there is no reason to expect
any sudden or dramatic change. The
atmosphere of the Board of Directors remains
virtually the same as before. We find it easy totalk about anything we want, and President
Takemasu responds sincerely to our remarks.
Hayashi: We feelthe atmosphereof the Board of
Directors is truly
wholesome,enabling us toexpress any
opinion with nohesitation. We feel
free to speak up
frankly if we havequestions. The
management accommodates us in an open
manner and is eager to hear our ideas. I feel
we make a superb team.
Akiyama: I think openness like this is one of
Lawson’s distinctive characteristics. I hope to
see it remain a leading company in the realmof corporate governance.

Finally, please tell us how you personallyenvision the future of Lawson.
Osono: Lawson is not just a part of thesocial infrastructure but a place where every
customer is greeted with warmhearted
hospitality. It will be important to place greater
stress on Lawson’s unique positive attributes
to bring them to the attention of more people.
Akiyama: Yes,
precisely. And I
would also like to
see Lawson go
beyond merely
maintaining
a positive
atmosphere andbegin making
proactive efforts
to create anenvironment
in which everyone in its employ takes up
challenges enthusiastically.
Hayashi: We live in a tumultuous age, shaken
up by advancing technologies. This represents
a great opportunity to uncover newly emerging
needs and develop commercial or business
responses. You might even say that this is themost exciting time ever. Lawson’s culture isconducive to generating positive challenges,
and I have the highest expectations.

*“Uchi Café SWEETS×GODIVA Chocolate Roll Cake”
LAWSON stores sold a limited number of 2.5 million pieces of Uchi CaféSWEETS×GODIVA Chocolate Roll Cake, crafted with ingredients of uncompromisingquality in collaboration with GODIVA. This collaborative product with its Ichigo-Ichie*
theme reflected a desire to offer a special product that customers could find at theirneighborhood LAWSON stores only during a specified period.
*“Treasure every meeting, for it will never recur.”18Corporate Governance(1) Reduction of number of directors to lessthan half

Lawson’s corporate governance
Characteristics of Corporate Governancevaried fields to ensure the diversity required
to facilitate appropriate supervision. Our
selections comply not only with the judgment
criteria specified in the Tokyo Stock Exchange
guidelines, but also with Lawson’s own
Judgment Criteria Regarding Independence.
Several independent officers are appointed toensure management transparency and fairness.
As concerns the number of directors,
the Articles of Incorporation specify that
there shall be no more than eleven. Thus, wehave constructed a system that enables fullconsideration and deliberation by the Board of
Directors at their meetings without lessening
their responsive. By introducing the Executive
Officer System, meanwhile, we have divided

How do we raise the value we offer Lawson’s
stakeholders in accordance with our
Corporate Philosophy of "Creating Happinessand Harmony in Our Communities"? We
believe realization of this goal will lead tohigher corporate value. Realizing it will require
us to enhance our management soundness,transparency and corporate governancethrough actions taken in consideration of the
Corporate Philosophy and Lawson Codeof Ethics, and with full disclosure based on
the Basic Principles Concerning Information
Disclosure, while maintaining compliance withlaws, regulations and societal norms.
We select candidates for the Board of
Directors with experience and expertise inmanagement and supervision from businessexecution to enable quick decision-making
and business execution. It should be notedwith respect to the auditors that we electcandidates for the position of corporate auditor
based on their possession of the extensive
financial, accounting, risk management and/or
legal expertise and experience required to fulfill
auditors’ duties.
Although Lawson became a consolidated
subsidiary of Mitsubishi Corporation on
February 15, 2017, from the perspective ofprotection of minority shareholders, we willcontinue our efforts to assure appropriate
governance as an independent listed company.

Directors:
Outside directors:

2000

2001

2002

18

20

8

9

3

5

2

2004

2005

2006

2007

2009

2010

2011

2013

2014

2015

9*
4

1

2

1

2016

18

8
2000

2017

(2) Reinforced independence through anincreased ratio of outside officers
Increasing the ratio of outside officers with diverse
backgrounds who bring a high level of expertise to theiroffice has produced a system capable of verifying theappropriateness of business execution and supervising
the observance of laws from an independent, objective
viewpoint.

8

6

8

3
2017

5
2000

(3) Active appointment of female officers

32014 – Nomination and Compensation
Advisory Committee established2005 – Directors’ retirement bonus system discontinued

Stressing diversity in its management, the Company
is proactive in its appointment of female officers. We
also make ongoing efforts to promote other female
employees’ career advancement, increasing the ratio of
women in managerial positions.

Ratio of female officers

2005 - Share-based system for directors’ compensation introduced

18

Outside2012 - Auditors’ retirement bonus system discontinued(independent)

68
As of April 20172001 Mitsubishi Corporation largest shareholder:

33.4%
2000

Outside(independent)

2017

3
2

2002 – Compensation Committee

Mitsubishi Corporation
shareholding ratio(notable movements)

2012

3

Independent officers:

Ensuring
transparencyof executive
remuneration

Number of directors

18

2008

7

Female directors:

In order to realize flexible management decisionmaking by promoting separation between management
and business execution and limiting the number of
directors, we have maintained the number at 10 or
fewer since 2002.

Composition of outside officers

Main initiatives concerning corporate governance since 2000
2003

19

INTEGRATED REPORT 2017

2017

As of
February 201750.1%

* The number of directors is as of the end of the General Meeting of Shareholders of each year. In 2014, however, the number was 9 until July 31 and 8 from August 1 forward.

33%

Out
18

20

Corporate Governance20

INTEGRATED REPORT 2017

Corporate governance system
LAWSON has moved more quickly than its
competitors to construct a highly flexible
and transparent corporate governancesystem. Six independent officers who are
considered to have no conflict of interest
with the general shareholders comprisehalf the total of 12 directors and corporate
auditors. Four women have been appointed
to the positions of director or corporate
auditor, moreover, with a view to promoting
diversity with the composition of theexecutive officers taken into consideration.
They are contributing to reinforcing thecorporate governance system from various
perspectives. Following the establishment of
the Nomination and Compensation Advisory
Committee to recommend candidates forthe positions of director and representative
director on the Board of Directors, meanwhile,
independent officers have been selected
to fill five of the six positions as Committee
members, thus creating a system that canmake recommendations with a high degreeof independence. Going forward, we willcontinue our efforts to ensure managementtransparency and independence, andto improve corporate value to meet the
expectations of all our stakeholders.

Board of Directors
member (inside)

1. Rights and equality of shareholders
2. Appropriate collaboration withstakeholders other than shareholders
3. Ensuring appropriate information
disclosure and transparency
4. Board of Directors’ responsibilities
5. Dialog with shareholders

InsideauditorOutside auditor(independent)

General Meeting of Shareholders
Appointment/
removalNomination andCompensation
Advisory Committee

Appointment/
removalBoard ofDirectors
Consultation

Audit

Appointment/
removalBoard ofCorporate
Auditors

Audit
RemovalRecommendation

Certified public
accountant
Financial audit

Appointment/removal/
supervision

Discussion/report

Audit

Business
execution organization

PresidentInternal Audit Division

Management meeting

CR Executive Officer*

Business/corporate divisions

Formulation and promotionof compliance and risk
management measures

Compliance & Risk
Management Committee

Internal audit and guidance
for improvements

Planning and promotion of compliance andrisk management policies, etc
Funding* Compliance and Risk Executive Officer (See page 48.)

Affiliated companies

Corporate Governance Code
[Five general principles]

Outside director(independent)

The Corporate Governance Code (CG Code) isa set of guidelines applied to listed companies
as of June 2015. Lawson implements all fivebasic rules specified by the Code. Lawson’s
efforts are also published in various reports,
including corporate governance reports,
meeting notices to shareholders and securities
reports. Please visit the following URL to see
the content of disclosure items related to theindividual rules in the CG Code.

URL
http://www.lawson.co.jp/company/corporate/
system/governance/pdf/governance_201706.pdf(In Japanese only)

Opinions

Lawyers

Corporate Governance

INTEGRATED REPORT 2017

Basic policy for determining directors’ compensation
Lawson’s policy is to design its remuneration
system in a manner that links directors’compensation with returns to shareholders,
while retaining its function as an incentive forenhancement of corporate value, continuous
growth and improvement of corporate
performance and ensuring an appropriate
level of remuneration to reward individual
directors for the duties they perform. Thebase compensation includes a variable
compensation component linked to theCompany’s performance, moreover, as well
as a fixed compensation component. To
reflect the directors’ contribution to improving
shareholder value more accurately, variable
compensation is linked to such earnings
indicators as EPS (earnings per share). Sharebased stock options—share price-linked
compensation—are also incorporated as partof the remuneration to strengthen the linkage
with returns to shareholders.

Details of directors’ compensation
Directors’ compensation paid by Lawson
consists of (A) base compensation throughcash payments and (B) share price-linked
compensation through stock option allocations.
A
A

B

Details of officers’ compensation (Fiscal 2016)

Directors’compensation

Base compensation

Fixed compensation (about 60%)

Disclosure method for directors’compensation
Total amounts of officers’ compensation arelisted in the Company’s securities reports andbusiness reports.

+ Variable compensation (about 40%)

Total compensation, total amounts by type ofcompensation and number of eligible directors
per company director category(Millions of yen)Fixed compensation: A fixed amount commensurate with the position
determined based on internal rules
Variable compensation: Performance-based remuneration linked to theCompany’s performance, including EPS (earnings per share), in the fiscal
period concerned. (To ensure linkage between directors’ compensationand shareholders’ interests)
B

Share price-linked compensation
Stock options offered through allocation of shares(Recognized as compensation linked to medium- and long-term
improvement in corporate value)

Exercise price per share: 1 yen
Number of shares allocated: Determined according to the director’s
position
Exercise period: Exercisable only within a predetermined period after
leaving the company(Not exercisable during tenure in office)Note that no performance-linked variable
compensation is paid to Nomination andCompensation Advisory Committee members,
who support the representative directors andBoard of Directors in a specialized supervisory
and advisory capacity.
Details of auditors’ compensation
Auditors’ compensation is determinedaccording to a basic policy of paying
compensation at a sufficient and appropriate
level in consideration of the duties performed
by individual auditors. It comprises basecompensation (fixed compensation)
paid in cash. The amount is determinedthrough consultation with the auditors, withconsideration given to such factors as full-timeor part-time status and share of the auditing
work, within a range approved by the General
Meeting of Shareholders.

Category

Total by type ofcompensation
Total
compensation
Basic
Stock
compensation
options

Numberof eligible
officers

Directors (excluding
outside directors)
Auditors (excluding
outside auditors)

226
24

24

—

1

Outside officers

108

92

15

11

Total

359

264

94

15

147

78

3

Note) There were 8 directors and 4 auditors as of end February
2017.

Total consolidated compensation paid to a
director in amounts totaling 100 million yen or
above(Millions of yen)Amount by type of
Total
Director Company consolidated compensation consolidated
Full name category
category
Basic
Stock compensationcompensation options
Genichi Director Reporting
71
45
116
company
Tamatsuka

21

Status of internal control systemdevelopment
The construction and maintenance of aninternal control system is considered an
important issue for management to ensure
healthy, sustainable business growth. In
accordance with the provisions of the Financial
Instruments and Exchange Act, in addition
to the Companies Act and Ordinance for
Enforcement of the Companies Act, a Basic
Policy for Maintaining the Internal Control
System is determined each fiscal year (seepage 48).
These policies are subject to frequent
revision in accordance with changes in thebusiness environment in order to ensure theeffectiveness, efficiency and appropriatenessof business. Efforts to develop an effective,
rational internal control system contribute tomaintaining and increasing corporate value.

Corporate Governance22

INTEGRATED REPORT 2017

Policy on nomination and standards for appointment and independence of candidates for director
Lawson has established criteria for appointing
officers and for making judgments regarding
independence. The Nomination andCompensation Advisory Committee serves
as an advisory body, moreover, that makes
recommendations to the Board of Directors
regarding nominations of candidates forthe positions of director and representative
director. Since five of the six members are
independent officers, this system also enables
the Committee to make recommendations
with a high degree of independence. It
should be noted with respect to candidates
for auditor that they are individuals with thefinancial, accounting, risk management and/or legal experience and expertise required tofulfill the duties of auditors whose candidacy isapproved by the Board of Corporate Auditors.
<Appointment criteria for officers>
Persons whose views resonate deeply with
the Lawson Group’s Corporate Philosophy,“Creating Happiness and Harmony in Our
Communities.”

Persons who can to contribute tosustainable growth of the Lawson Groupand enhance its corporate value.
Persons with good mental and physicalhealth that will not interfere with pursuit of
their corporate duties.
Respected persons with dignity andhigh ethical standards who comply
conscientiously with laws and regulations.
Persons capable of making objective
judgments, and endowed with excellent
foresight and insight.
Persons possessed of a wealth ofexperience and expertise in corporate
management or specialized fields.
Persons who are able to ensure sufficient
time to conduct their duties.
Persons to whom none of the grounds fordisqualification specified in the Companies
Act apply.
As concerns independent officers, persons
in compliance with the Judgment Criteria
Regarding Independence stipulated by
Lawson.

Special circumstances with the potential to seriously impact corporate governance
Mitsubishi Corporation increased its shareof the Company’s voting rights to 50.1%
through a tender offer conducted during theperiod from December 2016 to February
2017, and Lawson became a consolidated
subsidiary of the Company as of February
15, 2017. Mitsubishi Corporation cooperates
with Lawson in human resources exchanges

and raw materials procurement as well as insharing of information on retail properties andother matters based on a comprehensive
business alliance. Lawson makes management
decisions independently, however, in its
capacity as a listed company.

<Judgment criteria regarding
independence>
A major business partner of the Lawson
Group or its business executors: A group ofbusiness partners that provides products orservices to the Lawson Group, the amountof which group's transactions with theLawson Group in the previous business year
exceeds 2% of the consolidated sales of thegroup of business partners concerned.
A major business partner of the Lawson
Group or its business executors: A groupof business partners to which the Lawson
Group provides products or services,
the amount of the Lawson Group'stransactions with which business group in
the previous business year exceeds 2%of the consolidated sales (gross operating
revenues) of the Lawson Group.
Consultants, accounting experts and legal
experts who have received large sumsof money and other assets other than

executive compensation from the Lawson
Group: Consultants, accounting specialists
such as CPAs and legal specialists such as
attorneys who receive money and assets
other than executive compensation from theLawson Group, and whose remunerationfrom the Lawson Group has amounted to 5
million yen or more annually for the past two
years.
Major shareholders of Lawson or, in cases
in which the major shareholder in question
is a corporation, the corporation’s businessexecutors.
Close relatives of the business executors of
the Lawson Group.
Close relatives of non-business executing
members of the Board or accounting
advisors, in the case of outside corporate
auditors, of the Lawson Group.

Board of Directors and Board of Auditors meetings held and attendance rates
Number of meetings held
Attendance rate

Board of Directors

Board of Corporate Auditors

14

15

Outside directors

91.2%

—

Outside auditors

95.2%

100%

Related sites
For details of basic principles concerning information disclosure

http://www.lawson.co.jp/company/corporate/system/disclose/
For details concerning trade policies

http://www.lawson.co.jp/company/corporate/system/torihiki/(In Japanese only)Sustainable Growth and the Next Business Model23

INTEGRATED REPORT 2017

Lawson continues to discern social trends and toadvance and grow without interruption as it develops
its business model as a “Next-Generation LAWSONConvenience Store.”
Lawson has responded proactively to changes in society since its founding, continually identifying customer needs
and developing new products and services. It has become an essential part of its communities over the years bysupporting the lives of residents in various ways. As the future unfolds, we will continue to work from the customer’s
perspective toward construction of the Next-Generation LAWSON Convenience Store model.
1975-

2000-

2010-

24-hourInnovation

The “fourth component”
of infrastructure

Growth as a conventional
convenience store

Evolution as a manufacturing retailer
based on a small commercial area

Going forward

Contributing to communities as a neighborhood store

In 1975, Lawson opened its first outlet as a “store that stays open 24 hours a day year round.”As time passed, it started carrying a widening variety of food and daily necessities, which had
formerly been sold in separate stores organized by industry. It also broadened its services toinclude temporary holding of parcels for customer pick-up, public utility payment services,
installation of ATMs and postboxes and handling of concert tickets. Thus, LAWSON took root in
its communities as a “neighborhood store.”
In response to social changes such as the aging society and increasing participation by
women, it introduced NATURAL LAWSON, a health-oriented convenience store, in 2001 andLAWSON STORE100, a perishable foods convenience store, in 2005. These moves gave it
access to a wider range of customers. Through these efforts and others, such as customerdriven research and development of products and services, Lawson has advanced to becomea manufacturing retailer based on a small commercial area model. With the Great East Japan
Earthquake of 2011, people began to see convenience stores as the fourth component of
infrastructure following electricity, gas and water supply services. The disaster also madeLawson strongly aware of the importance of its mission as an essential component of regional
infrastructure. As people became increasingly health conscious, the Company began to open
stores with a stronger focus on health care and original merchandise development, designatingthese as stores providing “Health and Wellness in Our Communities.” It has also introduced
unique services, such as the Machikado Chubo in-store kitchen and MACHI café service.
Entering the entertainment industry, meanwhile, it began engaging in ticket and DVD sales,and even movie theater management. These wide-ranging initiatives are expected to reinforce
Lawson’s role as a neighborhood store frequented by community residents.

We will continue to advancein our role as an essential
part of our communities.

Changes in sales by all convenience stores versus sales by LAWSON convenience stores(100 million yen)

120,000(10,000 people)

Sales by all CVS stores (left axis)
Sales by Lawson (left axis)
Total population (right axis)

13,000100,000

80,00012,00060,00040,00020,000

0

1975

2000

2010

2017

11,000(year)

Source: “Population Estimates,” Statistics Bureau, Ministry of Internal Affairs and Communications
Source: “Current Survey of Commerce,” Ministry of Economy, Trade and Industry

Sustainable Growth and the Next Business Model24

INTEGRATED REPORT 2017

Meeting daily life needs

Next-Generation LAWSONConvenience Store model“A place where daily-life essentials are always available, even at night.” This is the conventionalview of the convenience store. Lawson is not satisfied with that definition; instead, we strive
to be a neighborhood store that anyone might find indispensable at any time in the daily life of
the community. For this reason, Lawson increased the number of products on its shelves by
about 15% to 3,500 items over the past year. We stock essential products for daily-life, while
also making every effort to meet particular needs for such items as healthful, small-portioned
products, especially for elderly customers who are unable to travel long distances for shoppingand customers with limited time. Lawson is expanding its services at the stores as well, adding
new offerings such as ATM and financial services and temporary reception of Internet orders forcustomer pick-up. By transitioning from a “merely convenient” store to an “essential part of ourcommunities,” Lawson is helping community residents live safe, healthy lives.

Meeting daily
life needs

Developing
Human CapitalInternet shopping

Within walking
distance

A manufacturing retailer based on a small commercial area model

A Manufacturing
Retailer Based on a
Small Commercial
Area model

Innovation

Supermarket

Unique market
model

Customeroriented
Achievinghigh store
productivity

Competingconvenience store

Franchise (FC)
SystemCompliance and Risk Management
Corporate Governance
Environmental Management System (EMS)

As a neighborhood store located within easy walking distance of customers’ homes andworkplaces, Lawson offers the most appropriate items from a unique product and service lineup
closely related to customers’ daily lives in a timely manner to a wide range of customers—
including elderly neighbors and working housewives as well as young community residents.
To fulfill this aim, we need a mechanism for managing the overall supply-chain processes,
from product design, raw materials procurement and manufacturing to distribution and sales,
so that finished products are delivered safely and reliably. We will increase our commitment
to optimizing raw materials procurement and manufacturing while reviewing our system ofcontrolling temperatures throughout the distribution process. We will also adopt an information
system capable of monitoring overall supply-chain processes. Lawson is determined to continue
improving added value as a manufacturing retailer.

Achieving high store productivity
It is the individual stores that encounter customers in their communities. As products andservices grow in number and variety and store operations increase in complexity, improving store
productivity has become an important issue. To provide our increasingly diversified human capitalwith ample opportunities to utilize their capabilities, we seek to develop simplified operations
that anyone can handle easily through the use of leading-edge digital technologies. Lawson willcontinue to improve its store productivity by leaving the tasks machinery can take care of tomachinery, while focusing on warmhearted service that only human beings can provide.

350 m

Elderly
residents
Males in their
20s to 30s
Homemakers
Working
women

Drugstore

Home ordering anddelivery services

Logistics

Manufacturing
plant
Raw materials
procurement

Constructing a Next-Generation
LAWSON Convenience Store model

Digital:Restructuring ouroperationalframeworks

Mastering the basics
Responding to change
Rising to the challenge
for future growth

Strengthening
the storecapabilities

Improving
the productoffering

Humancentered:

Changing ourworking styles

Enhancingnew stores’
capabilities

Providing better support for franchise owners

Corporate Value Creation Cycle

INTEGRATED REPORT 201725

Lawson contributes to happiness and harmony in its communities
by creating added value through its customer-oriented business model.
Lawson will continue to increase its corporate value by leveraging its unique customer-oriented business model as a Manufacturing Retailer Based ona Small Commercial Area model. This means meeting daily life needs and achieving high store productivity while executing appropriate management
strategies. Lawson’s business model is designed to increase both its visible capital, including physical assets and funds specified in the financial statements,
and its invisible but tangible capital, such as human capital and information, through appropriate investment in these areas. Lawson will continue tocontribute to its customers’ local communities as an essential company through continued application of its corporate value creation cycle.

Next-Generation
LAWSON Convenience
Store model

InputsFinancial capital (funds)
Capital raised to fund business activities throughsales of shares and borrowing

Necessary tangible assets for conducting
business activities, generally referred to as“infrastructure,” including land, buildings,
machinery and IT

Human capital (human resources)
Employees’ collective skills and capabilities, personal
motivation and organizational experience that
contribute to sustainable corporate growthIntellectual capital (technologies and brands)
General intangible assets including brands,
reputation, intellectual property and software

Social capital (resources and social norms)
Natural resources, social norms, and relationships of trust established with stakeholders

Capital allocation based on return on
investment (ROI)

Manufacturing capital (IT and infrastructure)

Corporate
strategy

Investment determined according to capital discipline
to meet the expectations of the equity market• Creating sufficient cash flow
• Establishing a firm financial footing

Meeting daily
life needs

Customeroriented
Achievinghigh store
productivity

Developing
human capital

A Manufacturing
Retailer Based on a
Small Commercial
Area model

Innovation

Outputs

Franchise(FC) system

Compliance and risk
Corporate governance
Environmental management system (EMS)

Leveraging the full supply chain to develop products thatmeet local community needs• Optimizing of the supply chain through integrated production and sales• Manufacturing original products with high added value
Nurturing human resources who are self-motivated andinnovative to satisfy local community needs appropriately• Nurturing next-generation management candidates and leaders• Development of human resources under supportive personnel management systems• Success of franchise owners
Cultivating innovation based on prompt perception ofchanges in local communities• Enhancing the Lawson brand• Pursuing store development that responds to community needs• Analyzing Ponta data
Contributing to communities as social infrastructure in
careful consideration of society and the environment• Considering the environment throughout the supply chain• Revitalizing communities through enhanced social infrastructure functions

Corporate Value Creation Cycle“Creating Happinessand Harmony in
Our Communities”

Social challenges Lawson is tackling
A number of worries persist about the effects on
people’s lives of future developments, such as global
environmental issues and the serious challenges facing
Japan due to its low birthrate and aging population.

Decreasing number of nearby stores
Decline in the number of retailers
Compared to 1991

Approx. 40 % decrease

Empowerment of women
Increase in number of double-income households
Compared to 1991 Approx. 1.3 times

Rise in health consciousness
Medical expenses
Projected rate of decline
by 2025 compared with 1990

Approx. 2.5 times

Rapidly aging society
Increase in the population of residents aged 75 or older
Projected rate of decline
by 2025 compared with 1990

Approx. 3.6 times

Employed people aged 15 to 64:
Projected rate of
decline by 2025
compared with 1990

Approx. 20 % decrease

Rise in average global temperatures
Long-term global goals determined by the Paris Agreement of December 2015
Compared with thepre-industrial era

Contributions as a nearby neighborhood store
and a component of social infrastructure
LAWSON stores contribute to their local communities and society as neighborhood stores wheresenior citizens and busy customers with time constraints can purchase foods and daily
necessities, and as emergency evacuation sites in times of disaster.

2˚C or lessLawson’s business is supported by seven core
stakeholders, including the community as a whole(local society).
We will continue to provide unique new value by
leveraging our stores’ accessibility to local community
residents to address a variety of challenges facing
society and our customers.

Responding to lifestyle diversification accompanying
the empowerment of women and other initiatives
Working women and single-person households find it convenient to have a store that offers
daily-life essentials in their neighborhood. LAWSON grasps these changing trends and social
needs and provides appropriate lifestyle support services.

Developing products and stores dedicated to promoting healthLawson is developing menus and stores offering a focus on customer health. We are working to help them
maintain good physical health through a healthful daily diet, while also selling pharmaceutical products, operating
stores with dispensing pharmacies on the premises, and strengthening partnerships with local municipalities.

Supporting senior citizens’ efforts to lead fulfilling lives
in a comfortable environment
Lawson promotes measures that respond to the needs of senior citizens by offering smaller, more healthful meal products
and introducing stores that sell pharmaceuticals and provide health consultation services. It also contributes to creation ofa social environment in which senior citizens do not have to live in isolation by employing staff over the age of 60.

Seeking to improve employee productivity andto create an environment in which anyone can work

Declining labor force

26

INTEGRATED REPORT 2017

Lawson is creating an environment that provides jobs for a diverse range of human capital—
including senior citizens, women, young people and foreign nationals—by realizing store operations
that anyone can conduct easily through such means as digital technologies.

Considering the environment in every aspect of operations,
including store operation, manufacturing and distribution
Lawson contributes to realizing a sustainable society by addressing environmental issues from every perspective,
including installing store equipment such as refrigeration and freezer systems that use natural (CO2) refrigerants andemploying eco-friendly containers and packaging materials, manufacturing platforms and distribution procedures.

Suppliers/
business
partners

Store crew

Local
communities(Part-time andtemporaryworkers)

FranchiseownersEmployees
Shareholders

Customers

The Sustainable Development Goals (SDGs) were adopted
unanimously by 193 member countries of the United Nations
Sustainable Development Summit convened at the United Nations
Headquarters in September 2015. The Summit set 17 goals and
169 targets for achieving the SDGs on a global scale by 2030.
Lawson is contributing proactively to these efforts in the areas of
economy, society, environment, human rights and governance.

INTEGRATED REPORT 2017

Community Infrastructure

Lawson will become an essential part of ourcommunities offering a full rangeof daily-life essentials.
“Becoming an essential part of all our communities”
We will not be satisfied with simply offering convenience and comfort, a role played by 24-hour
convenience stores in general; but we will also respond swiftly to potential customer needs
generated by such sentiments as, “It would be more convenient if we could…” Lawson wants to be
a community center, serving all the functions communities require and filled with the happy faces of
local residents. We will continue our earnest efforts to do things only Lawson can do.

27

28

INTEGRATED REPORT 2017

Community Infrastructure

A conveniently small store stocked with daily-life essentials
at all times and located right in the neighborhood, Lawson
responds to lifestyles of every variety.
It is open 24 hours/day, 7 days a week; easily accessible on foot for picking up any necessary
item early in the morning or late at night; welcoming of elderly residents shopping for dailylife essentials, working women stopping by on their way home and young people living alone;offering a wide range of foods, from morning coffee to boxed lunches and prepared meals for thedinner table; and stocked with all the daily-life essentials in the proper quantity.

Building warm relationships with deep roots in the community
Lawson is supported by immense numbers of local residents. Most of the franchise owners
managing individual LAWSON stores are from local families who have lived in the neighborhood foryears. Store managers and crews also have roots in the local communities. This is why Lawson has
such a deep understanding of community needs, and the things that matter most to its residents.
These relationships with their local roots are a source of warm interactions with customers. We
believe we are making communities safer with our casual greetings of local residents.

Meeting communities’ varied needs

Ensuring the “safety and security” of communities

Communities require a wide range of functions. Besides foods, LAWSON stores stock daily
necessities, magazines and cigarettes. They also provide convenient services—including public
utility payment services, bank ATMs and ticket sales. Some stores have initiated sales of OTC
pharmaceuticals (self-medication products). We have also entered into new businesses outside thepurview of LAWSON stores, including management of HMV stores as well as operation of United
Cinemas movie theaters. Lawson is making every effort to meet its communities’ various needs.

As a member of the local community with its lights on 24 hours a day, Lawson serves as part ofthe community infrastructure. We have signed the “Agreement on Cooperation in Supplying Daily
Necessities in Case of Disasters, etc.” with many municipalities. We have also prepared fixtures andfittings necessary for emergencies and disaster-prevention manuals. In cases of emergency, we willsecure safety and do our utmost to resume our functions as a lifeline as soon as possible.

Supporting communities through shoppingWith the society aging and the number of privately operated neighborhood shops shrinking, Lawson
is working on initiatives rooted in its communities. We have started a mobile sales service for remoteareas where stores are scarce and introduced a “community watch service” that dispatches staff
to pay visits to elderly households. Lawson also cooperates with the Urban Renaissance Agency incommunity revitalization activities and provides assistance to the elderly at stores located in public
housing complexes.

Services provided by Lawson (*)
LAWSON GroupLAWSON STORE 100

NATURAL LAWSON

13,111 stores

798 stores

141 stores

United Cinema
movie theaters
screens

340

HMV

Lawson ATMs

Seijo Ishii

55 stores

11,912132 stores

Machikado Chubo
in-store kitchen service
stores3,443

OTC medicine sales

Management owners

157 stores

167* Figures for services, etc., developed by Lawson are as of end February 2017.

INTEGRATED REPORT 2017

Support for Active Women

I can get “things
I need just when
I need” themWith the number of working-couple households growing,
the time available for household chores and shopping isincreasingly limited. Family members are looking for astore within walking distance they can stop by easily on
their way home from work and, moreover, purchase safe,
good-tasting products. Lawson supports everyone in
the family by stocking 3,500 items essential for daily life
as well as by further improving its menu of value-added
store-cooked side dishes.

Grilled salt-cured Sockeye salmon

Expanding the product lineup with such items as in-store prepareddishes to meet busy women’s lifestyle needs and frozen foods and daily
life necessities contributes to attainment of the following SDGs: Goal 3:
Ensure healthy lives and promote well-being for all at all ages. Goal 5:
Achieve gender equality and empower all women and girls. Goal 9: Build
resilient infrastructure, promote inclusive, sustainable industrialization andfoster innovation.

Boiled hijiki dried
seaweedColorful 10-item salad

Simmered pumpkin

Deka yakitori

Low-salt miso paste soup

Extra-meaty Genkotsu-korokke

29

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INTEGRATED REPORT 2017

Support for Active Women

A product offering that meets all the needs of daily life
“I can just step out, even in the middle ofhousework, to buy things I’ve run out of.” “I candrop in before or after work to pick up whatever
we need for lunch, dinner or tomorrow’s
breakfast.” Lawson aspires to be this kind ofneighborhood store, where customers canpurchase the things they need whenever theneed arises. These range from ready-to-eat
pre-cut vegetables, side dishes, frozen foods,
and milk, eggs and other breakfast essentials
to seasonings and household necessities suchas detergents and toilet paper. Lawson has
responded to these diverse needs by adding
new products to its Lawson Select line, making
capital expenditures for such purposes asincreasing the number of refrigeration andfreezer cases in the stores, and, in fiscal
2016, expanding the stores’ product offering
by approximately 15% to 3,500 items. We

have also developed new meal products suchas soups and salads with special appeal for
women. These have been positively received
since their addition to our conventional boxed
meals and rice balls on the shelves.
Daily deliveredfoods

Pre-cut vegetables with
uncompromising quality
With the exception of certain products andregions, Lawson’s pre-cut vegetables areprepared from produce cultivated according to
the Nakashima method. This method focuses on
growing wholesome vegetables in healthy soil
with a good mineral balance. Lawson is currently
promoting introduction of the Nakashima method
at its Company-operated “Lawson Farms.”

Daily necessities

Cooked or prepared fresh in the store with a stress on good taste
Fast-food side dishes prepared at the counter,
including “Tori-kara” (deep-fried chicken),“Genkotsu-korokke” (“clenched fist” croquettes)
and “Genkotsu-menchi” (“clenched fist” mincedbeef patties), are ready-to-eat staples whose
high-quality ingredients have made them highly
popular. In 2017 “Deka yakitori” (mega grilled
chicken) and “Deka kushikatsu” (mega skewered
deep-fried pork) were newly added to the lineup.
Some 3,500 LAWSON stores are now operating“Machikado Chubo” in-store kitchens, moreover,where various food items are cooked fresh onsite—a service conventional convenience storescannot offer. Boxed meals and sandwiches
made with freshly cooked ingredients suchas rice, thick-sliced pork cutlets and kakiage(seafood-and-mixed-vegetable tempura)are popular for their fresh, good taste that is
possible only with an in-store kitchen.

Restaurant-quality side dishes for
informal eating pleasure (Seijo Ishii)
Seijo Ishii selects its side dishes based on theconcept of “no-frills enjoyment of good-tasting
professional-level cooking.” It also offers a
range of homemade products prepared with
uncompromising care. Popular favorites include
breads made from scratch (starting with mixing
the ﬂour and other ingredients to prepare andbake the dough) and sausages made from
fresh pork and natural sheep intestines with thefewest possible
additives, andsmoked withwood chips
imported from
Germany.

Further enhanced community support

CHALLENGE

01

Hitoshi Fujii,
Director, Merchandising Division

Yuko Washizu,
General Manager, OTC Fast Foods Dept.

We aspire to be a reliablecommunity store, where women
who are busy with work orchildrearing can drop in easily
to purchase anything they need.
Recommended favorite menu
items include Deka yakitori,
the largest grilled chicken
ever offered by Lawson, andour in-store kitchen’s Kaisen
kakiage-don (seafood-andmixed-vegetable tempura onrice), which is prepared onsite with a little extra time andeffort. We will pursue ongoingproduct development to provide
customers with delicious foods
prepared with special care.

INTEGRATED REPORT 2017

Catering to Health-conscious Customers

Providing our communities with “delicious
and healthful” foods and beverages
Lawson believes that pursuing various support initiatives
to help people in its communities lead healthy lives is anatural component of its mission as an entity responsible
for creating happiness and harmony in its communities.
Dedicated to promoting health maintenance as only aneighborhood store can, Lawson will reinforce the twoaxes of “meal solutions” and “self-medication solutions“in accordance with its role in supporting “Health andWellness in our Communities.”

Promoting delicious, health-conscious products at local stores andparticipating in employees’ and franchise owners' health management
contribute to attainment of the following SDGs: Goal 2: End hunger,
achieve food security and improved nutrition and promote sustainableagriculture. Goal 3: Ensure healthy lives and promote well-being for all at
all ages. Goal 8: Promote sustained, inclusive and sustainable economic
growth, full and productive employment and decent work for all.

31

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INTEGRATED REPORT 2017

Catering to Health-conscious Customers

Delicious products contributing
to healthReliability in time of need with
24-hour OTC medicine shopping

Advocating meal solutions that help people
maintain physical health through their daily diet,
Lawson has developed bran bread sandwiches
and steamed bran buns suited to low-carb(restricted carbohydrate) diets as well asGreen Smoothie Off & Plus, a lactobacillus-richbeverage that packs in the vegetable content
of a full meal* with lower carbohydrates andcalories. Lawson is continuing to pursue productdevelopment in accordance with 11 healththemes it has identified, including “Let’s eat
vegetables,” “Delicious low-carb foods” and “Useless salt.”

The first in the industry to open stores in
hospitals in 2000, Lawson has continued toprovide “self-medication solutions” to help
community residents maintain and manage theirpersonal health. As of the end of February 2017,
we were selling OTC medicines at 157 LAWSON
stores, 41 of which had dispensing pharmacies
on the premises, in partnership with dispensing
pharmacy chains and drugstores. Our aim is
to become a reliable source of medicines forcommunity residents when a sudden fever or
unexpected illness strikes at night or other times
when their doctor is not available.

* Recommended daily requirement: Over 350g.
Source: Ministry of Health, Labour and Welfare, Kenko
Nippon 21 (“Health Japan 21”) Campaign

Sales store of
OTC medicines
Stores with a dispensing
pharmacy on thepremises(“Pharmacy Lawson”)
Bran bread

Green Smoothie
Off & Plus

Low-carb menu selections Excerpt from Rocabo Nikki (“Low-Carb Diary”),

a blog on low-carb diets centered on Lawson products (May 23, 2017)

Lawson Select Hogushi (“ﬂaked”) salad chicken: ……… Glucide content 0.1 g (90 g per package)
Lawson Select dry-cured pork loin ham: ……………… Carbohydrate content 2.5 g (50 g per package)
Lawson Select 6P cheese with Camembert: …………… Carbohydrate content 0.5 g (18 g per piece)
NL avocado and cream cheese-ﬂavored rusks: ………… Glucide content 5.6 g (30 g per bag)
NL unsalted roasted mixed nuts (4 nut varieties): ……… Glucide content 11.9 g (75 g per bag)
The displayed nutritional content is that reported by the raw material producers. Since the content varies with the product, all numbers
should be considered approximate indications. The values shown are for products sold in the Kanto Region, moreover, and may differ
from those for other regions.
*”Low-carb” refers to a moderate restriction on glucide content recommended by the Eat & Fun Health Association. Glucides arecarbohydrates with the dietary fiber removed.
Presented on Lawson’s “Health and Wellness in our Communities” Website blog. https://www.lawson.co.jp/lab/kenko/

Implementing health andproductivity management topromote employee and franchiseowner wellness
As a company committed to contributing tocustomers’ health, Lawson recognizes its
responsibility for assuring its own employees’
health first and foremost. It reinforced its
employee health promotion measures in 2012,beginning with a program encouraging all
employees to take physical checkup. In 2015,
it established Lawson Healthcare Points, ahealth service business that manages day-today healthcare. It followed this initiative in 2016
by implementing the “90-Day Health Challenge”
aimed at raising health awareness Companywide.
In recognition of these and other efforts, Lawson
was honored with the 2017 Health & Productivity
Stock Selection, an award presented jointly by
the Ministry of Economy, Trade and Industry and
the Tokyo Stock Exchange to companies thatengage in strategic efforts toward employee
health management. This made Lawson the
only retail business to receive the award in
three consecutive years. We also strive topromote the health of our franchise owners andstore employees through the Lawson Owner
Welfare Association by subsidizing full physicalexaminations and other medical checkups andpreparing health support menus.

Further enhanced community support

CHALLENGE

02

Yuichi Wada,
Senior Executive Officer, Director, StoreOperations Division

Besides providing products that
contribute to health, Lawson
supports the health of community
residents through sales of OTC
medicines. Supporting the healthof others requires everyone
involved in Lawson, from
franchise owners and store crews
to headquarters employees, tobe in good health themselves,both physically and mentally.
Our aim is to be a retail chain inwhich everyone plays an activerole cheerfully and energetically,
while maintaining the customer’s
perspective at all times.

INTEGRATED REPORT 2017

Response to the Rapidly Aging Society

Contributing toa “fulfilling
community life”
We live in an era in which people place a higher value on
enjoying special times and experiences than on pursuingmaterial possessions. With the numbers of active seniors
increasing among our customers in addition to young
people and families, we have become increasingly
concerned with ensuring their ability to lead energetic,
fulfilled lives, enriching their personal time and interactingwith friends in the community. Lawson seeks to provide
support in everything from their dietary life and everyday
community activities to the movies and hobbies thatenrich their world.

Besides helping to make our communities healthier and more pleasant foreveryone, including senior citizens, providing opportunities to enjoy events
such as concerts and movies contributes to attainment of the following
SDGs: Goal 3: Ensure healthy lives and promote well-being for all at
all ages. Goal 4: Ensure inclusive and equitable quality education andpromote lifelong learning opportunities for all. Goal 11: Make cities andhuman settlements inclusive, safe, resilient and sustainable.

Location: United Cinemas Toyosu

33

INTEGRATED REPORT 201734

Response to the Rapidly Aging SocietyEntertaining active seniors
At a time when people are seeking to enhancetheir quality of life through activities such as
events and entertainments, rather than throughmaterial consumption, Lawson has positioned
itself to satisfy their needs. Lawson Group
companies whose business centers on enrichingcustomers’ personal lives include Lawson Ticket,
which engages in sales of concert, sports eventand theater tickets; the United Cinemas movie
theater chain; and HMV, a store specialized insales of CDs, DVDs and books.
We provide everyone from young people
and families to senior citizens with the means toenrich their lives.

A range of small-portion foodproducts with uncompromising
taste and quality
The pleasure of eating provides the basis fora fulfilling life. The side dishes in the private“Lawson Select” brand are popular among
seniors who want to eat delicious, healthfulfoods in just the right quantity, as well as amongsmall households. These include Japaneseside dishes such as broiled fish, chikuzen-ni(simmered root vegetables with chicken)
and nizakana (fish boiled in broth), all sold insmall portions for casual dining. At LAWSONSTORE100, meanwhile, which supports
customers’ lives with good-value 100-yen
products, vegetables and other perishable foods
are sold in small packages and appropriatequantities. The store also brings together many
good-quality 100-yen products under its private“Value Line” brand, which enables customers toenjoy good-value daily dining.

Value Line“Mix Salad”

Value Line
“Spinach”

Support for communitywide
personal satisfaction
To assure people’s ability to continue living
satisfying lives in their familiar communities,
Lawson has introduced the LAWSON store
with a nursing care center (“Care LAWSON”).
These stores feature on-site nursing careconsultation windows, where care managers
are always on duty, and accompanying salon
spaces. We also provide a mobile sales service,
which currently operates 24 Mobile “LawsonGo” vehicles nationwide (as of end June 2017).
The service enables elderly customers for whomleaving home is difficult to enjoy shopping. The“Community Safety Watch-over Agreement” wehave concluded with a number of municipalities,
meanwhile, helps to protect seniors and children
from crimes and accidents.

LAWSON stores with nursing care consultation windows“Mobile Lawson-Go”

Further enhanced community support

CHALLENGE

03

Yasuhiko Hirokane,
Director, Healthcare Business Division

Although grouped together inthe rapidly aging society, seniorcitizens have widely varying
needs. These differ among active
seniors, seniors requiring careor assistance, and their family
members. Besides establishingnursing care windows on “CareLAWSON” store premises andoffering nursing care products,
we host healthcare-related
events in our salon spaces. We
hope senior citizens’ families
and others in the communities
will make the most of the CareLAWSON stores’ care-focused
LAWSON for Senior Citizens
program, as a venue for friendly
communications. We initiated theprogram in 2015 and are currently
operating 10 Care LAWSON
stores (as of end June 2017), withplans to expand the service tomore stores in the future.

INTEGRATED REPORT 201735

Response to the Declining Working Population

Lawson is making it easier for“anyone to work”
We pride ourselves on the warmhearted service
customers receive from each and every member of the
LAWSON store crews in communities everywhere. With
the ongoing decline in Japan’s working population,
meanwhile, a more diverse range of personnel,
including seniors and people of foreign nationalities,
are participating in store management. Faced with adeclining population of working-age people, Lawson will
make effective use of digital technologies to boost its
store productivity, while also implementing measures toimprove staff satisfaction.

Installing state-of-the-art digital workplace operation systems anyone canuse as well as dependable training and support systems for diversified
human capital contributes to attainment of the following SDGs: Goal 3:
Ensure healthy lives and promote well-being for all at all ages. Goal 4:
Ensure inclusive and equitable quality education and promote lifelong
learning opportunities for all. Goal 8: Promote sustained, inclusive andsustainable economic growth, full and productive employment and decent
work for all. Goal 9: Build resilient infrastructure, promote inclusive andsustainable industrialization and foster innovation.

RFID (Radio Frequency IDentification) is a system that identifies individual products through wireless detection of
information stored in electronic tags. The price and other information is inscribed in small tags on each product as data
to be read by electromagnetic wave radiation. This system is
expected to reduce the crews’ workload significantly, not only at
the checkout counter but also in their inspection and stocktaking duties. At the initiative of the
Ministry of Economy, Trade and Industry, five convenience store chains (Seven-Eleven Japan
Co., Ltd., FamilyMart Co., Ltd., Ministop Co., Ltd. JR East Retail Net Co., Ltd. (operator of New
Days CVS chains), and Lawson) have formulated the “Declaration of Plan to Introduce 100 Billion
Electronic Tags for Products in Convenience Stores” aimed at regularizing use of RFID for all
convenience store products (an estimated 100 billion tags/year) by 2025.
Graphic image of RFID-tagged products

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INTEGRATED REPORT 2017

Response to the Declining Working Population

A focus on “services only
people can provide” with theintroduction of leading-edge
digital technologies
The declining birthrate and aging population havecombined to shrink the size of Japan’s workingage population. If we are to improve our productoffering and services to meet community needsin this environment, we will have to streamline
operations to let our crews focus on services only
people can provide. Lawson has introduced asemi-automatic ordering system employing Ponta
data-based demand forecasting to simplify andimprove the accuracy of the ordering process.
We will also introduce tablets and replace thecurrent generation of cash registers with POS
registers equipped with automatic changedispensing machines. Nor will we concentratesolely on in-store work. We will also enhance
efficiency throughout the supply chain, including
optimizing our delivery schedules and automating
our production lines.

Upending conventional thinking
with RFIDIn February 2017, Lawson conducted verification
testing of Regi-robo®, the industry’s first fully
automated self-checkout register, and RFID
at the LAWSON Panasonic-mae Store (Osaka
Prefecture). Calculations of the system’s
performance suggest that its use could reduce
work at the cash register dramatically, both byeliminating the need to scan products one at atime and by automating the bagging process. Itsability to read product inventory information during
delivery inspections and stocktaking should
contribute to more efficient inventory control aswell. When large numbers of convenience storesand other retail outlets adopt RFID for productsales and merchandise management, store
operations will clearly evolve beyond conventional
expectations.

Regi-Robo® fully automated self-checkout register

Support to enable diversiﬁed
human capital to “work withpeace of mind”
Responding to social change and continuing totake up new challenges will require us to create
diversified organizations in which it is normal tofind women, senior citizens and foreign nationals
working at both headquarters and stores. It will
also be important, however, to address unease
concerning such issues as language and culturalbarriers and handling of complicated tasks such as
cash register work. Lawson Staff, Inc., a Lawson
Group company, is prepared to provide a variety
of support and events, as well as pre-employment
training and follow-up training for crews after they
begin work, to help people who want to work but
feel somewhat uneasy at the prospect. These
programs enable them to work at LAWSON“with a smile and peace of mind for many years,”
regardless of their age, gender or nationality.

Further enhanced community support

CHALLENGE

04

Katsuyuki Imada,Member of the Board, Director,
Corporate Strategy and Planning Division

Throughout its history of over
40 years, the convenience store
has responded without fail tothe needs of its core customers
and changes in the social
environment. The most pressingchange we face today is a
declining population. Lawson is
responding by identifying andadopting the most appropriate
leading-edge technologies andby promoting efficiency andreform at every stage of the
supply chain. Going forward,
Lawson will continue to conduct
management in which tasks
machines can do are handled bymachines and those only people
can do are done by the human
hand, with the aim of “creatinghappiness in our communities”
through warmhearted service.

37

INTEGRATED REPORT 2017

Combatting Climate Change

Pursuing asustainable society
to pass down anabundant Earth tofuture generations
Lawson’s Corporate Philosophy of “Creating Happinessand Harmony in Our Communities” makes consideration
for society and the environment an inevitable factor in
our business activities. In responding to global climatechange, in particular, we are introducing state-of-the-art
equipment to promote energy conservation and generateenergy at the stores, while also conserving energy inour daily work, to ensure that the children of the next
generation will continue to enjoy the benefits of anabundant Mother Earth.

The newest environmentally conscious model store:
Kodaira Tenjincho 2-chome store (Kodaira, Tokyo)

Energy-saving objectives
20% reduction in per-store electricity use in
fiscal 2020 compared with fiscal 2010
Lawson is implementing energy conservation andgeneration measures with the goal of achieving a
reduction in per-store electricity consumption of
20% in fiscal 2020 compared with fiscal 2010.

Per-store electricity consumption(index) and CO2 emissions*1(%)

Annual electricity consumption index (left axis)
CO2 emissions volume (right axis)

120

120

100
80

Responding to global climate change, energy conservation and generation
efforts and reduction of food waste contribute to attainment of thefollowing SDGs: Goal 7: Ensure access to affordable, reliable, sustainable
and modern energy for all. Goal 12: Ensure sustainable consumption
and production patterns. Goal 13: Take urgent action to combat
climate change and its impacts by regulating emissions and promoting
developments in renewable energy.

68.2

95.4

82.6

60
40
20
0

(t-CO2)

As part of this effort, we open an eco-friendly
model store that brings together state-of-theart technologies to examine their energy-saving
effects. We then introduce technologies that exhibit
high energy efficiency to new stores and others
to help to reduce their electricity consumption.
Our objectives at our newest eco-friendly model
store (Kodaira Tenjincho 2-chome store) opened
in February 2017 are twofold: 1) to save (andgenerate) electric power through automatic controlof rechargeable batteries and LED lighting with IoT technology; and 2) to deploy
state-of-the-art energy conservation measures to reduce per-store electricity
consumption by approximately 60% compared to fiscal 2015 levels (nationwide
average per store).

Lawson became the first
convenience store to acquire
5 stars and +ZEB certification*
under the Building-Housing
Energy-efficiency Labeling System(BELS) awarded to buildings withhigh energy-saving performance.
* The energy-saving performance ofbuildings is evaluated in five stages,
with 5 stars as the highest rating.
The ZEB (Zero Energy Building)evaluation takes renewable energy
into consideration. ZEB (awarded
to Lawson) is the highest of threerankings, followed by Nearly ZEB
and ZEB Ready.

100
80
60

Base year

100.0

92.4

2010

2016

Target

40

80.0

20

2020 ( FY * )02*1: CO2 emissions derived using adjusted coefficients forreceiving-end terminals published by the Federation of ElectricPower Companies of Japan. The figures for fiscal 2016 and2020 are estimated based on coefficients for fiscal 2015.
*2: Calculated for the year from April 1 to March 31 to coincidewith the administrative fiscal year.

A sloped ceiling promotes natural ventilation,and the skylight introduces natural light.

Double-pane glass enclosing the cold cases
significantly limits leakage of cooled air.

Radiant ceiling panels cool the store efficiently
in summer and dehumidify it simultaneously
by draining off the generated condensation.

38

INTEGRATED REPORT 2017

Introduction of CO2 freezer andrefrigeration systems

Use of solar power systems togenerate energy

Lawson began installing highly energy-efficientFreon-free freezer and refrigeration systems
cooled by CO2 refrigerants that do not emit
chlorofluorocarbons (CFCs) in fiscal 2010. As ofthe end of February 2017, they were installedin approximately 2,000 stores. Reduction of theuse of HFC* will be required by law beginning infiscal 2019. Lawson will contribute to combatting
climate change by successively replacing therefrigerants currently used for cooling with nonCFC refrigerants.
These systems significantly reduce greenhouse gas emissions, moreover, because CO2
refrigerants exert a global-warming impact about
1/4,000 that of CFC refrigerants. They also excel
in energy-saving performance, and can reduce
electricity consumption by the store as a wholeby 12%.

Lawson is engaged in an active program of
installing solar power systems in the stores,
approximately 2,000 of which had solar panels on
their roofs by fiscal 2016. The panels can generate a total of 12 kW of electric power, 2 kW for
use in the store and an additional 10 kW (5 kW ×
2 lines) for selling to electric power suppliers.

* HFC (hydrofluorocarbon) is often referred to as “substituteFreon.” Although it does not damage the ozone layer,
its reduction is required by law due to its significant
greenhouse effect.

Freezing and refrigeration systems using CO2 coolant

Reduction of electricity consumption
through use of CO2 coolant
12%
reduction

27%
reduction
Refrigerationequipment

Electricity consumption
at all stores

Refrigerationequipment

Electricity consumption
by cooling systems

Solar panels with a 22 kW* power-generation capacity
at the Kodaira Tenjincho 2-chome store* Power generation by the store exceeds the usual 12 kW.

Implementing the Ten Energysaving Rules to promote energy
conservation at every store
Lawson has formulated and implemented the“Ten Energy-saving Rules” to improve the operating efficiency of the cooling and air-conditioning
systems installed in its stores and reduce wasteful electricity consumption throughout the store
operation.
Every store is
responsible for keeping
the filters of its cooling andair-conditioning systems
compliant with the standards and for maintaining
the recommended heating
and cooling temperature
settings in daily operation.

Recycling to reduce food waste

Further enhanced community support

CHALLENGE

Lawson is working to limit waste generation andencourage recycling in order to reduce the volume
of food waste (11 kg/day per store) discarded
by Lawson stores. These efforts have included
introducing a new ordering system to improve
the accuracy of our product ordering and help tocontrol waste. Any surplus food that remains isdelivered to recycling plants for conversion into
animal feed and fertilizer, and waste oil is recycled as a feed additive. These efforts resulted in afood-recycling ratio of 44.3% in fiscal 2016, well
above our 38.5% target.

Transitions in number of stores implementing
Lawson Group’s food-recycling activities(Number of stores)

(%)

103

15,000170

174

12,0002,475
11,0592,381
11,47012,348

44.7

41.1

44.3

36.5

38.5

40.5

2014

2015

2016 (FY)*

9,000

906

6,000

7,403

3,000
0

100

2,582

80
60
40
20

22.5
2007

2

0

(Base year)
Conversion to animal feed and fertilizer (left axis)
Waste oil recycling (left axis)
Heat recovery (left axis)
Rate of implementation of activities
Regulatory target (right axis)
such as food recycling*1 (right axis)*1 Figures for the implementation rate of food recycling activities exclude figures for
Lawson Okinawa, Inc., Lawson Minami-Kyushu, Inc. Lawson Kochi, Inc.
and Lawson Sanin, Inc.
*2 Calculated for April 1 to March 31 to coincide with the administrative fiscal year.

05

Toshihiko Chihiro,
Executive Officer
Director, Development Division

Our efforts to combat climatechange and reduce greenhousegas emissions will require us
to pursue energy conservationand generation at all the Lawson
Group’s 13,000 stores. This will
mean creating a mechanismthat can be implemented easily.
We are currently experimenting
with an energy-saving activity
support system at about 90
stores for this reason. Besides
instructing tablets installed in
the stores to implement energysaving measures, the systemsaves power automatically bycontrolling heating-and-coolingequipment and lighting during
peak demand hours. We willcontinue to introduce leadingedge technologies to make ourstores environmentally friendly.

INTEGRATED REPORT 201739

Balancing Business and Environmental Concerns in the Supply Chain

Efforts to construct a business model as a manufacturingretailer of good-quality, affordable, eco-friendly products
Lawson is seeking to realize itself as a Manufacturing Retailer Based on a Small
Commercial Area model that pays close attention to the quality and cost of
our products, and to their impact on society and the environment. We deliver
high value-added products and sell them through neighborhood stores. We will
structure a supply chain that can coexist synergistically with society by engaging
fully in all the processes concerned, from product development and raw materials
procurement to manufacturing and distribution.

Our customers’ needs are highly diversified. They seek food products that are delicious,
safe, reliable, healthful and inexpensive. Lawson always plans and develops original products
from the customer’s perspective, and one-third of our total sales are sales of original Lawson
products. These original products not only differentiate Lawson from other companies,
but they also provide higher gross profit margins. Higher profitability generated upstream
and midstream in the supply chain by operations including raw materials procurement,
manufacture and distribution enables us to provide such time-consuming products andservices with high added value as in-store cooking and over-the-counter fast foods.
We are approaching an optimal balance between environmentally friendly processes,
reflected in reduced CO2 emissions and improved fuel efficiency, and product quality
enhancement at lower cost through three key strategies: close involvement in every facet ofthe supply chain, fully transparent operations, and strict control over inefficiencies and waste.
Going forward, we will continue to reinforce our collaboration with the Mitsubishi
Corporation Group further and advance our evolution as a Manufacturing Retailer Based on a
Small Commercial Area model.

Social and environmental consideration in raw materials procurement

Seeking to reduce the burden it places on society and the environment to the greatest extent possible, theLawson Group pursues energy conservation, resources saving and waste reduction in every stage of the
supply chain. Since CO2 emissions from raw materials are particularly high, we give special consideration tosociety and the environment at the raw materials procurement stage.
Our MACHI café fresh-brewed coffee service, for example, uses only coffee beans from Rainforest
Alliance Certified™ plantations.* This certification is awarded only to farms that seek to preserve biodiversity
through tree planting and other activities, and that establish work environments in which workers can performtheir jobs safely. The standards include SDG 2: End hunger, achieve food security and improved nutrition andpromote sustainable agriculture. The applicable targets are SDG 2 Target 12: Attain sustainable production
and Target 15: Pursue protection, recovery and sustainable use of terrestrial eco systems. The Lawson
Group will continue to promote sustainable development at every stage ofthe supply chain, including raw materials procurement.
* Single origin series—caffeine-free series are not eligible.

40

INTEGRATED REPORT 2017

Balancing Business and Environmental Concerns in the Supply Chain

Business
perspective
Constructing afully rounded
Manufacturing
Retailer modelthrough participationin every segment of
the supply chain

Raw materials procurement

Manufacturing

Logistics

Customers

Planning / development

StoresInsistence on high product quality

Waste-free cooking with highquality raw materials

Active participation in the
production process

Improving efﬁciency throughlogistics transparency

Signiﬁcant reduction of
in-store workloads

In addition to using Ponta member
purchase data to determine repeat
rates, we analyze customer feedback
obtained through social networking
media and
apply it inour productdevelopment.

The professionals at SCI, Inc., a Lawson
subsidiary, conduct daily purchasing of
high-quality raw materials directly fromthe producers at optimal cost. Meritsof scale obtained by selling products inlarge numbers through LAWSON storesnationwide and processes introduced
to reduce waste in our use of materials
are contributing further to higher grossprofit margins.

We are reinforcing our partnerships
with subsidiaries of three large-scale
food producers with food-processing
facilities that produce our boxed
meals and prepared foods. We arealso expanding our participation in
the manufacturing field, including
our collaboration with Mitsubishi
Corporation Group in enhancement of
the supply chain.

Our aim is to optimize efficiency in thedelivery of products to our stores nationwide.
It will also be essential to improve theefficiency of our distribution center work
procedures and delivery truck routing. We areplanning to implement dramatic reforms of
our logistic operations, meanwhile, by making
them transparent, a process made possibleby the opening of a distribution center underLawson’s own management in 2016.

We are introducing a variety of measures toraise operating efficiency at the stores, including
introduction of tablets and point-of-sales cash
registers with automatic change machines.
Eliminating waste and improving productivity
will create a systemthat frees store crews
to pay greater attention
to matters such as
customer service.

CompostSocial &environmental
consideration
Full supply chaintransparency andcomprehensive
considerationof society & theenvironment

While continuing to emphasize
good taste and health, our productdevelopment maintains a strong focus
on avoiding waste of raw materials.
We use imperfect vegetables produced
at Lawson Farms in products suchas salads, pickles and pet foods toreduce waste.

We use domestic seasonal ingredientsfor our boxed meals, rice balls, desserts
and other items to the greatest
extent possible. This leads to regional
revitalization of the various places of
production, while also reducing energy
consumption compared to transporting
raw materials from overseas.

At the manufacturing stage, we haveintroduced a manufacturing processing
management system to control thevolume of raw materials input onto
the lines. We have also adopted
various mechanisms to reduce waste
generation by restraining excess
production.

In addition to reducing delivery
frequencies, we have introduced ecofriendly tires to improve our trucks’
fuel efficiency. We are endeavoring tosystemize eco-driving, moreover, byimplementing an on-board operation
management system and providing
training programs that teach drivers toturn off their engines when stopped,among other eco-friendly procedures.

We are conducting food recycling
to reduce the volume of food waste
discarded by the stores. Activities inthis area include converting unsold foodinto feed and fertilizer and regenerating
waste edible oil as feed additives (feedmaterials) and biodiesel fuel. Lawson
Farm Tottori uses compost made from
unsold food from the stores to growdaikon radishes for oden.

CO2 emissions from our supply chain in fiscal 2016
Electricity consumption by 20.47%[1,020.4]
franchise stores (Scope 3)

Stocked raw materials

74.46% [3,711.8] *1(Private and national brand products, plastic shopping bags, etc.) (Scope 3* )2

OUTPUT

Approximately
Total CO2 emissions 4,985.1 thousand tons
*1 Figures in brackets [ ] indicate CO2 emissions (thousand tons)*2 Scope 1-3: Greenhouse gas emissions in the supply chain are classified by source.

Method of calculating greenhouse gas emissions in supply chain
Calculations based on “Explanations by Industry (Retail Industry)
for the Basic Guidelines on Accounting for Greenhouse
Gas Emissions throughout the Supply Chain,” Ver. 1.0.

Energy consumption
by delivery centers(Scope 3)

1.73% [86.6]

Disposal of containers,
disposable chopsticks
and plastic
shopping bags (Scope 3)

0.69% [34.6]

Waste materials
generated by storesand industrial waste
generated at timesof store closuresand remodeling(Scope 3)0.53% [26.3]

Electricity consumption
by Headquarters,
regional offices,branch offices andCompany-operated
stores (Scope 2)

0.51% [25.3]

Gasoline consumption Business trips
by Company vehicles (Scope 3)(Scope 1)0.01% [0.5]0.11% [5.3]Electricity
consumption
associated withprocurement ofelectric power(Scope 3)
1.49% [74.3]

CO2 emissions calculation rules
Scope of Use of Company vehicles,
inspection LAWSON, NATURAL LAWSON
and LAWSON STORE100(13,492 stores), purchased
goods and services for store sales
TargetFrom April 1, 2016
periodto March 31, 2017
(administrative year)
TargetGasoline consumption
items
by Company vehicles,
electricity consumption
by stores and CO2
emissions from purchased
goods and services

Greenhouse Gas Emission
Verification Statement

INTEGRATED REPORT 201741

The Foundation Supporting Lawson
Developing Human Capital
To put its Corporate Philosophy into practice, Lawson has adopted supportive
personnel management systems that contribute to a corporate culture in which
individual employees are encouraged to think and act voluntarily. We haveclarified the scope of employees’ responsibilities and the role they should playaccording to individual duties. Their performance and skills are evaluated inaccordance with this clarified scope and role.

Developing
Human Capital

Innovation

Franchise (FC)
SystemCompliance and Risk Management
Corporate Governance
Environmental Management System (EMS)

Lawson’s customer-based business model issupported by various foundations, including
its innovative human capital and strong
franchise system.

Innovation
Lawson has sought innovation that takes social change into consideration in
conducting a number of advanced investments and experiments. These efforts
are not confined to the development of new businesses such as NATURALLAWSON and new products such as bran breads; we are also working toestablish a completely new store operating system based on IC tags.

Franchise (FC) System
Lawson’s franchise (FC) system is designed to enable the franchise stores—
which know their communities best—and headquarters to grow together in a
spirit of cooperative business. We are building strong relationships through theManagement Owner (MO) system, which assists entrepreneurial franchise owners
in managing multiple stores, as well as through various other support systems.

Compliance andRisk Management
Besides establishing the Compliance and Risk Management Office andInformation Security Management Office at headquarters, the Group has
assigned a CRO (compliance and risk management officer) to each department
in every area. Faced with increasing risk as society changes and the Lawson
Group’s business expands, Lawson is establishing a system capable of graspingrisk information promptly and responding to it in the shortest time possible.

Corporate GovernanceLawson has led the industry in constructing a responsive, highly transparent
corporate governance system. The recent introduction of the Executive Officer
System has separated the executive and management functions. Of the 12
officers comprising the Board of Directors and Corporate Auditors, six are
independent officers and four are female officers, a balance established topromote diversity.

Environmental Management
System (EMS)
In accordance with its Environmental Policy, Lawson actively conducts
business with consideration for society and the environment. We implement
the ISO 14001 Environmental Management System in pursuing achievementof a sustainable society and contributing to maintaining happiness in ourcommunities and on Earth as a whole.

Development of human capital that contributes tocorporate growth through self-motivation and innovation
Both our Corporate Philosophy and our Codeof Conduct formulated to contribute to its
achievement have been implemented positively
and systematically, with accompanying efforts
to develop human capital to become core
participants in activities to this end.
The image of human capital Lawson
seeks to realize is of personnel capable ofmanifesting the Company’s values throughteamwork, continuous innovation to create
value and determined action to achieve goals.
The key behavioral characteristics of these
personnel are self-motivation and innovation.
We have introduced a personnel
development program to train all our
employees to become more self-motivatedand innovative. This equips them to identify
appropriate employee behavior for achieving
the Corporate Philosophy and for fulfilling theirindividual duties in order to complete theirobjectives for the year.
We have also developed an employee
behavior and skill level evaluation program
under our personnel management systemwith the aim of creating a culture thatencourages self-motivation and innovation
among employees. The program also seeks
to clarify the scope of their responsibilities andthe roles they must play to fulfill the duties of
their respective posts. The manner of fostering
employees as human capital is determinedbased on two evaluations: an evaluation of
their behavior on the job and an evaluation of
the business results they achieve.
We employ a Career Development Sheetto ensure employees’ ability to determine theirown career paths, and individual employees
are also asked to specify their goals for the
future in light of their personal histories and42

INTEGRATED REPORT 2017

Developing Human Capitalcurrent positions. Interviews are conducted tosupport their growth as individuals.

Lawson’s corporate awards
program was reformed in 2015
with the creation of the Awards
for Promotion of Self-motivated
Innovation.
The award is aimed at encouraging employees
to take up challenges voluntarily. Profoundeffects may result from an ingenuous change
in work procedures, for example, no matter
how small, or from an effort to improve
operating efficiency in an area that has
been neglected, even though the need for
improvement is widely recognized.
Every Lawson employee is eligible toapply for the award. Those who pass a firstand second screening attend a presentationcompetition, where their ideas are evaluatedby executive officers. Award winners havean opportunity to present their suggestionsat an annual business policy briefing session
attended by all Lawson employees.

Promoting diversity
Contributing to the successof diversified human capital,
including female employees andemployees of foreign nationalities;
encouraging male employees totake paternity leave

leave, a program that has contributed to an
80% ratio of paternity leaves among eligible
men, the level targeted for fiscal 2016.

Lawson promotes diversity in order to create
an organization in which employees witha wide range of values can realize their fullpotential. Besides conducting active hiring of
women and people of foreign nationalities,
Lawson has established a special subsidiary
to promote employment of people withdisabilities. The Company has also created avenue for labor-management consultations
concerning improvement of operating
efficiency and work environments. Discussion
meetings are organized nationwide with theaim of deepening understanding of diversity.
In its efforts to help female employees
remain active while raising children, Lawson
is implementing initiatives to support theirsuccess. These include career developmenttraining for young employees, distribution of
information from the Company to employees
on maternity leave, group training sessions
for career formation after these employees
return to work and training sessions to enable
selected employees improve their businessskills. Since 2014, moreover, Lawson has
operated onsite childcare facilities. Throughthese initiatives, Lawson seeks to attain a ratioof 30% women in management positions byfiscal 2020.
Lawson does not concentrate its efforts
for change on women alone, but is committed
to raising awareness among male employees
as well. Initiatives in this area include
encouraging Lawson men to take paternity

HR officer

System for promoting diversity
President

Marketing
Division

Human Resources
Division
Diversity promotion
officerMarketing teamDiversity teamGenki Leader Committee
Under the President’s leadership, the Human Resources Division designs andoperates a system for promoting diversity and determines employees’ positions
accordingly. The Marketing Division, meanwhile, takes charge of creating
new value based on ideas generated by female employees.

The President participated in a training session for selected
female employees.

Ikumen promotion posters displayed in every officeINTEGRATED REPORT 2017

Developing Human Capital

Activities contributing to the health of employees and franchise owners
Lawson’s efforts begin withpromotion of healthy operations for
employees and franchise owners.
Since Lawson’s mission is to help customers
lead healthy lives, we consider it essential to
begin by promoting healthy lifestyles among
our employees. With this in mind, we havecompleted agreements between labor andmanagement to enhance work efficiency andeliminate excessive working hours, while alsoestablishing a cooperative health union tocreate a mechanism for sustaining employees’
long-term health.
We have been implementing thismechanism to strengthen measures forpromoting employee health since October
2012. Our efforts have involved establishing auser-friendly environment in which employees
can get medical checkups without hesitation.
We strongly encourage employees who failto meet certain health criteria to retake theexaminations.
We also introduced the Lawson
Healthcare Point program in April 2015. In
developing this program, Lawson, the Labor
Union, and the Lawson Health InsuranceSociety cooperate in efforts to raise employee
awareness of health issues, and to motivatethem to maintain their health and to continue
their work at Lawson.

In 2016, we began analyzing numerical
data concerning our various initiatives and thechanges in all Lawson employees’ medical
conditions. The data is used to publicize thestatus of progress toward our targets, as wellas the results based on our Data Health Plan,
through publication in an annual employee
health white paper.
Among efforts to promote participation
by women in the workplace, Lawson holds the
Women and Health Seminar to help female
employees take advantage of workplace
opportunities while pursuing health at thesame time.

Promoting industrial safety andhygieneWe seek to assure safe, worker-friendly
workplaces by implementing the “5S
Methodology”—which consists of “sorting,setting in order, shining, standardizing andsustaining”—and by providing the stores withmanuals that illustrate operating procedures.
We also hold safety management meetings
to raise awareness of the importance ofsafe driving among store supervisors whosejobs involve driving. Those with no historyof accidents or traffic violations also receive
official commendations.
Should any work-related accident occur,
we investigate, analyze and share informationon the cause internally with the aim ofpreventing recurrences.

Promoting the health of FC owners

Women and Health Seminar

Lawson places a high priority on promoting
the health of its FC owners. The Company
provides an assistance program for medical
examinations and health support through theLawson Owner Welfare Association, which isoperated in a spirit of mutual assistance by the
FC owners themselves.

43

44

INTEGRATED REPORT 2017

The FC System Supporting Lawson

Lawson’s unique Management Owner system
to the LAWSON chain as a whole. It sets an
example for successful business operation,for example, as well as sharing knowhow on human capital development withother FC stores and transmitting proposals
for improvements from the store crews toheadquarters. Headquarters, in turn, provides
advice and suggestions from management
consultants and supports the MOs’ activities
by introducing the information systems andvarious support systems required for multistore management. We will continue topursue growth in collaboration with our FC
owners, who are intimately familiar with theircommunities, and with the crews who engage
in daily interaction with customers at thestores, while providing support to strengthen
the FC stores’ management.

Maintaining close ties with
communities through multi-store
business operations
While maintaining close communications
between headquarters and the FC stores,
Lawson shows respect for the FC owners’
independence in its store operation. Most
notably, Management Owners (MOs)engage in community-based multi-store
operation through a stronger partnershipwith headquarters, with the MO systemserving as a framework that supports them inmanaging multiple stores as a “corporation”
instead of a “family business.” Not only
does the MO system realize a model store
and merchandise assortment, but it also
assumes an important role in contributing

Lawson Corporate Philosophy“Creating Happiness and Harmony in Our Communities”

Know-how onorganizational establishment
and management

Knowledge of successful
cases of businessand business management

SC
Store manager

Know-how on
recruitment &fostering of
human capital

Product, service andIT improvements

Know-how concerning
store operation andmerchandise assortments

MO

As an MO responsible for managing 27 stores,
I am committed to enlivening Lawson through neighborhood FC store operation.
I started thinking of becoming a business owner when I was a sophomore in college, and I later selected Lawson on therecommendation of a longtime acquaintance who was already a Lawson FC owner. I opened my first store in August of
the year I graduated and gradually increased the number of stores under my management. The Management Owner (MO)system was established about the time I opened my fourth store in 2010, and I joined the system as one of its earliest
members. This system has enabled me to grow my business. Today, I own 21 LAWSON and six NATURAL LAWSON
stores. I currently operate these 27 stores with 45 employees and about 400 crews.
Developing multiple stores as an MO enables me to manage them muchdifferently from the way I did as a single-store owner, even though they are all
LAWSON stores. MOs can adjust their multiple stores’ ordering or personnel,
for example, based on analysis of their overall store data. Since we have close
communication with headquarters and other MOs, moreover, we can take advantageof shared know-how to improve our capabilities. I consider it an enormous
advantage, unique to Lawson, for MOs to take the initiative in enlivening FC storesin their communities. I hope to use the MO system to continue to enhance mycompany’s business capabilities, expand my business further and grow together withthe local residents.

This organization provides franchise stores with a range of welfare benefits centered on the three principles
of “comfort,” “health” and “peace of mind.” It offers a range of benefits for member franchise owners andtheir families as well as for store crew and staff. These include subsidies to encourage medical checkups
and the use of preferred discounts for health promotion activities.

LawsonHeadquarters

High QSC that serves as a model MO制度
for all FC stores under management

Mitsuo Inoue, President, MKL Co., Ltd. Manager of 27 stores, including the LAWSON Denen-Chofu 1-chome store

The Lawson Owner Welfare Association

Store crews’ suggestions
for improvement

MO

Message from a Management Owner

Headquarters
Infrastructure/system
for multi-store operation• Subsidy system for use of sports facilities• Subsidy system for full physical examinations and healthcheckups• Health promotion: Hosting of parent/child events &seminars for women• System to facilitate employee travel/holiday
accommodation• Correspondence course subsidy system• Congratulatory and condolence payment system• Voluntary group insurance system for FC stores• Discount/preferential systems for leisure activities,
entertainment, child-rearing, nursing care and other liferelated facilities

Above: A pamphleton the Lawson
Owner Welfare
Association
Below: The
Association holds
seminars on healthpromotion.

45

INTEGRATED REPORT 2017

Social and Environmental Activities

Lawson’s social and environmental initiatives
Social and environmental initiatives
in our core business
Based on our Environmental Policy, weare seeking to pass on the blessings of
our abundant Earth to future generations
by conducting efforts in our core businessaimed at realizing a sustainable society
and through social contribution activities
conducted in our local communities. We
employ the ISO 14001 Environmental
Management System to promote businessactivities that are considerate of society andthe environment and implement the PDCA
(Plan-Do-Check-Action) cycle to promotea harmonious relationship with society andreduce the environmental burden. In addition
to conducting internal audits several times a
year, we invite third-party audits by an externalorganization as part of ongoing efforts to verify
the status of our activities and identify ways toimprove them.
Lawson updated and registered its
certification to the new fiscal 2015 standard
after successfully undergoing a third-party
audit in fiscal 2016.

Lawson Group Environmental Policy
Our Commitment
To sustain the blessings of Earth for future generations, the Lawson Group will consider the environment in every aspect of our business activities
and strive to achieve sustainable development andcoexistence with local communities.

Our principles
1. Creation of a low-carbon society
2. Consideration in the development of products and services
3. Active participation in social contribution activities
4. Continuous improvements
5. Observance of laws and regulations
6. Promotion of communication

Scope of ISO 14001 certification (as ofMarch 1, 2017)
Headquarters, 20 main offices / offices, 8
areas, 4 Group companies, 13,111 stores (asof February 28, 2017)

Promotion of social andenvironmental education
High levels of awareness, knowledge andinformation are essential for contributing tosociety and the environment. The Lawson
Group provides social and environmental education for Headquarters’ employees as well
as for franchise owners and store managers
and crew. For Headquarters employees,
education begins with new employee training
and extends to annual general environmental
training of all employees through e-learning.
Training is provided at the time of store openings for franchise owners and store managers and crew, who also receive a continuous
flow of information through in-house magazines and the Company’s social and environmental reports.
Lawson encourages the representatives
responsible for promoting CSV* activities in thevarious departments to deepen their knowledge by acquiring both internal and external
training and taking the eco test.

CSV (Creating Shared Value)
Subcommittee
With the CSR Promotion Department of theBusiness Operations Support Division serving asa secretariat, the CSV Subcommittee convenes
monthly meetings attended by representatives of
Headquarters, the various areas and the Group
companies responsible for CSV promotion. Its
principal activities include managing progressand sharing information concerning social andenvironmental objectives, providing guidance
and assistance for stores, responding to internal
and third-party audits, and promoting social andenvironmental education.

* CSV (Creating Shared Value)

Support for greenery and children through social contribution activities
The LAWSON Group promotes social contribution activities centered on
support for greenery and children. Among these, the Lawson Group’s“Happiness in Communities” fundraising combines customers’ benevolence
received through donation boxes placed beside store
checkout counters with funds donated by headquarters
and contributes them to NGOs.
In July 2017, we established the Single-Parent
Family Scholarship Program under the auspices of
our Support Dreams Fund to provide scholarships
to children from single-parent (mainly single-mother)families with no repayment requirement to help themrealize their dream of furthering their education.

Lawson Green FundTOMODACHI Fund

Support Dreams Fund

Support Dreams Fund

Recipient: The National Land Afforestation
Promotion Organization

Recipient: U.S.-Japan Council (Japan)(Great East Japan Earthquake Scholarship Program)
Recipient: Civic Force(Single-Parent Family Scholarship Program)
Recipient: General Incorporated Foundation
National Council of Mother and Child and Widows Welfare

Provides support for elementary school andjunior high school greening activities nationwide,and for forest maintenance activities conductedby volunteer groups.

Conducts educational and cultural exchanges
between Japan and the United States forstudents from the Tohoku region.

Provides scholarships for approximately 1,000
students from the three Tohoku districts affectedby the Great East Japan Earthquake, andconducts support programs in these districts.

Supports the dreams of children from singleparent (mainly single-mother) families by
providing scholarships for a total of 400 juniorhigh school (3rd-year) and high school students
with no repayment requirement.

46

INTEGRATED REPORT 2017

Compliance and Risk Management

Risk preparedness and responses
Responses to emergencies
Lawson places particular emphasis on“food safety and hygiene management,”“information security” and “disaster relief,” andit has prepared a structure for responding toemergencies and resolving problems rapidly.
Meetings of the Compliance and Risk
Management Committee and the Information
Security Committee as well as of the four
subcommittees are convened under ordinary
circumstances to assess risks and to formulate
and promote measures to avoid them andprevent their occurrence.
Should a serious risk situation arise, an
Emergency Risk Management Committee
is organized to resolve issues swiftly andminimize damage. Once the problems havebeen resolved, the Company analyzes thefactors contributing to the occurrence andreviews and improves the relevant measures
to prevent any recurrence.

designed to enable personnel to respond while thedisaster situation is being confirmed in real-time
to conduct safety checks, ascertain the nature of
the damage, and implement support measures forshops, factories and delivery centers.
At the same time, we respond swiftly toresume operations as early as possible at storesin affected areas to fulfill our mission of serving as
an essential lifeline for the community.

Disaster relief manual

Disaster preparedness andresponse
When large-scale disasters occur, our first priority
is to confirm the safety of Lawson employees
and our FC owners and crews. Lawson
conducts Companywide training three times ayear in which participants acquire experience in
implementing a variety of measures, including
responding by telephone, email, and disastermessage dialing and applying the safety checksystem. This prepares every individual to respondsmoothly should emergencies arise. Manuals
elucidating the requisite disaster preparedness
and responses are distributed to the stores.
When disasters occur, disaster relief
headquarters are set up immediately in threelocations in the affected area: headquarters,
regional offices and local sites. Lawson takes
advantage of a Disaster Information Map System

Disaster Information Map System
A comprehensive Disaster Information Map System for
mapping disaster information in real time. The information ismonitored and collected 24 hours a day, 365 days a year.

Improvement of the information
security framework
The “Lawson Group Privacy Policy” has beenformulated to promote protection of personal
information. To ensure that the relevant
personnel understand specific details of thecontents and are prepared to implement them,
the Company publishes potential mistakes
and complaints that may arise at the stores,
accompanied by practical responses to them,in various manuals produced for the storesin an effort to raise awareness. Headquarters
employees are tested periodically to ensurethat they are all acting reliably based on the“Lawson Office Security Rules,” in whichmatters to be observed are compiled.
We have established a system forspecifying methods of gathering andstoring information as well as information
storage periods and for designating persons
responsible for handling customers’ valuable
information in each instance after advancechecking by specialist departments.
When consigning responsibility for storing
personal information to outside organizations,
we require that a detailed investigation of
the organization’s security framework be
conducted in advance and that consignmentof the responsibility be made only toorganizations that satisfy Lawson’s conditions.
An onsite or documented inspection isconducted annually, moreover, to ensure thatthe conditions are maintained.
Upon enforcement of the revised Act on
the Protection of Personal Information in May
2017, we communicated the revised provisions
to all members of the Lawson Group andensured that Lawson and its Group companies
revised their own internal rules accordingly.
We are also evaluating our information

security framework from a variety of otherperspectives to ensure that it remains robust
by implementing information security audits by
our internal audit departments and employing
specialized outside companies to carry out
unannounced surveys of office security anddiagnose any vulnerabilities in our information
systems.

Crime prevention at stores
We conduct education to ensure that store
personnel act with the highest priority placed on
personal safety and with crime prevention in mind,
in ways such as greeting customers in a cheerfuland spirited manner. We are cooperating with thepolice and the Japan Franchise Association inefforts to prevent crimes against the convenience
store industry as a whole.
Actions taken as crime prevention measures
1. Promotion of security camera installation
Security cameras are installed at every store to
discourage potential perpetrators from committing
crimes and to support investigations that may leadto the arrest of perpetrators in the unlikely event an
incident should occur.
2. Creation of an environment for store crew education
Reminders to raise awareness of crime prevention
are distributed for display on POS cash registers
and store computers, and crime prevention DVDs
are also delivered to stores for use in educating theircrews. Various tools and manuals, such as crime
prevention self-check lists, have also been prepared.
3. Enhancing guidance provision during patrols
Crime prevention guidance is also provided during
store patrols to raise awareness at franchise stores.

A DVD on measures to prevent
robberies and other crimes

A crime prevention self-check list

Compliance and Risk Management

INTEGRATED REPORT 201747

Assuring continuity of business operations
Fundamental policies andobjectives for maintaining business
continuity (BC)Interruption of important business activities
shall be avoided, even when emergency
situations involving serious damage occur,
while maintaining a priority on securing
people’s safety and wellbeing. Even if business
operations are unavoidably interrupted, critical
functions shall be resumed quickly in order toavoid undermining our customers’ satisfaction
or corporate value.
Three main goals for maintaining business
continuity (BC)Fulfilling Lawson’s mission as a “community
lifeline”
We will endeavor to ensure uninterrupted provisionof products and services to customers by keeping
stores open whenever possible.
Continuation of the franchise (FC) businessWe will determine specific periods and methods forresuming operations and maintain the requisite level ofFC headquarters operations.
Securing appropriate earnings
We have implemented measures in consideration of

the impact emergencies could exert on earnings andof social conditions in order to secure an appropriate
level of earnings necessary to the Company’s survival.

Practical procedures are compiled in theBusiness Continuity Plan (BCP), and we are
pursuing efforts to establish a BC framework inline with the BCP, and to sustain and enhance
it, as important issues for management.

Formulation of BCP guidelines
Lawson has formulated the “BCP Guidelines”
as a practical action manual describing
responses to emergency situations basedon the Business Continuity Plan. The
current guidelines summarize in an easy-tounderstand manner appropriate responses by
the responsible personnel to such hypotheticalemergency situations
as the occurrenceof an earthquake
under the Tokyo
Metropolitan Area, theappearance of a newstrain of influenza, and BCP Guidelines“Resilience certification”
Lawson is certified as an enterprise that contributes to the building of national resilience against disasters
In the spirit of building national resilience against disasters, the government’s National Resilience Promotion
Office, Cabinet Secretariat established a system for “certifying groups contributing to the building of national
resilience against disasters (resilience certification).” This system certifies businesses that are actively engaged ona regular basis in efforts related to business continuity in preparation for large-scale natural disasters and so on as“organizations contributing to the building of national resilience against disasters.” The February 2016 “Guidelines
relating to certification of groups contributing to the building of national resilience against disasters” were enacted
by this office.
Lawson has received confirmation from the National Resilience Promotion Office, Cabinet
Secretariat to the effect that it conforms to the “requirements of a certified organization” stipulatedby the above guidelines. Lawson was recognized by the Association for Resilience Japan as thefirst convenience store to contribute to the building of national resilience against disasters.
In March 2017, moreover, Lawson was honored at the Japan Resilience Award ceremony
with a Best Resilience Award in the Risk Communication Information category. Lawson’s selection
was based on the judges’ evaluation of our Disaster Information Map System disaster informationsharing infrastructure.

such events as deep offshore earthquakes,
nuclear power plant accidents, volcanic
eruptions and heavy flooding.

Mechanism for enhancing BC
capabilities
Activities conducted to improve response
capabilities are essential for sustaining a
corporate climate adapted to responding
sensitively to a variety of crises. Lawson
is continually reviewing such businesscomponents as “hardware” factors involving
office buildings and lifelines, “software” factors
involving its BCP and manuals, and “skills”
factors involving employees and FC stores.
The Company uses its findings to implement
improvements in crisis response capabilities
throughout the Group.

Cooperation with local
governments at times of disaster
In its capacity as a community lifeline, Lawson
is making progress toward concluding
agreements with local governments
concerning cooperation in the provision of
goods and assistance to stranded commutersin times of disaster.
<Entities concluding agreements on provision of
goods in times of disasters>
Local governments: 47 prefectures, 17 cities andwards
Others: Tokyo Fire Department and Japan GroundSelf-Defense Force
Mass transit systems: 8
Electric power companies: 2<Entities concluding agreements on assistance tostranded commuters>
Local governments: 41 prefectures, 10 ordinancedesignated cities(As of March 1, 2017)

Shuichi Imagawa,Senior Vice President, CR Executive Officer and Director,
Human Resources

The problems facing society have escalated
remarkably in recent years, and new risks
continue to emerge. We are respondingby reinforcing internal controls acrossthe whole Group, strengthening ourcompliance and risk management systems,
and increasing our emphasis on three key
factors: quality and hygiene management,
information security, and disaster
preparedness. We are procuring andproviding emergency supplies in preparation
for disasters resulting from major
earthquakes or extreme weather, especially,
while also conducting restoration activities
in areas affected by past disasters. We arealso using the time between disasters to
implement disaster prevention work plans,
create a mechanism for grasping disaster
information in real time, conduct disaster
drills and introduce other measures to meet
our responsibilities as a lifeline supporting
the lives of people in our communities.

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INTEGRATED REPORT 2017

Compliance and Risk Management

Internal control
Basic policy regarding the internal
control system

Clarification of the purpose of BusinessContinuity Management (BCM)
Convenience stores are increasingly expected
to serve as components of infrastructure that
support people’s lives in times of disaster. To
meet these expectations, we have clarified
the purpose of BCM as “managementthat minimizes the duration of businesssuspensions and maintains the convenience
store’s function as social infrastructure.”
Establishment of a system for reporting to
the parent company
We have added establishment of a system for
notifying the parent company of any event that
may threaten severe damage to Lawson or its
subsidiaries and affiliates as soon as any party
concerned learns of such an event.

Board ofCorporate Auditors
Auditors

Internal control audits/regular meetings

Reports on important issues

Board of Directors
President and CEO
CR Executive
Officer*1

Compliance & Risk Management Committee
Mutual understanding/information exchange

The Lawson Group has established the“Basic Policy for Maintaining the Internal
Control System” to support its efforts toachieve healthy, sustainable growth as anentity with business characteristics that
require observation of a diverse range oflaws and regulations and responses to wideranging risks.
We are promoting maintenance of
our internal control system based on thispolicy, while responding to changes in ourmanagement environment, conducting
periodical reviews of the policy itself, andendeavoring to maintain and enhance aneffective, practical internal control system.
The main revisions of the “Basic Policy
for Maintaining the Internal Control System”
implemented in fiscal 2017 are described below.

Lawson’s internal control system (as of June 1, 2017)

Compliance & Risk Management
Committee Meeting• Food Safety and Hygiene
Management Subcommittee• BC Subcommittee• Regional Office Crime Prevention
and Disaster Defense Subcommittee• CSV (Creating Shared Value)
Subcommittee

Compliance & Risk Management OfficeInformation Security Management OfficeInformation Security Committee
CRO*2 (Divisions and Areas)

Information Security Committee Meeting
Emergency Risk Management Committee(Emergency circumstances)
Internal
control audits

Internal Audit Division

Guidance/
supportAffiliated companies
Affiliated Company Compliance Officers Meeting

Franchise stores
Close communications/basic management policy*1 CR Executive Officer: The executive with overall responsibility for the development and implementation of a framework for identifying misconduct and problems concerning legal
compliance and preventing risks from arising*2 CROs (compliance and risk management officers): Persons responsible for compliance in the various divisions who support the CR Executive Officer and assume overall
responsibility for the development and execution of a frameworks for identifying misconduct and problems concerning legal compliance and preventing risks from arising

Emergency Risk Management Committee Meeting

Compliance and Risk Management

INTEGRATED REPORT 201749

Lawson’s compliance and risk management system
Lawson has established a compliance andrisk management framework based on its
Corporate Conduct Charter and Code of
Ethics. We seek to conduct business asa good corporate citizen, acting honestly
and considerately according to high ethicalstandards, implementing the PDCA (Plan-DoCheck-Action) cycle, and organically linking
our behavioral standards with our educationand training programs, communication
functions and monitoring activities.

Management organization
Behavioral standards formulation (including the
Corporate Philosophy, Code of Ethics, others)
Review and improvement of measures

Departmental
enlightenment
activities conductedby leaders

Verification of progress/
monitoring of implemented measures

Establishmentof contacts for
consultations

Conduct of duties based on
behavioral standards(implementing measures)

Formulation of compliance and risk
management measures by therespective departments

Emergency preparedness
and response

Post-emergency review

Education, training, practiceFormulation of behavioral standards
We have established the Code of Ethics,
Lawson Group Privacy Policy and Lawson
Group Purchasing Policy to ensure proper
conduct of business throughout the Group.
We have compiled these in the “Lawson GroupC&R Handbook”
and distributed it toall our employees
to attain theirunderstanding of thepolicies.
Lawson Group C&R Handbook

Appointment of CR promotion officers
We have appointed an executive officer
responsible for CR (compliance and risk)
with responsibility for promoting complianceand risk management. Compliance and risk
management officers (CROs) assigned to eachdepartment at headquarters and the regional
offices are tasked with establishing andraising awareness of compliance measuresand risk countermeasures in their respective
departments and with contributing to creationof a culture that emphasizes compliance withsocial norms.

Full implementation of educationand training
Lawson conducts compliance and risk
management training for all its employees
each year for the purpose of improving
their ethical awareness and risk response
capabilities. It has developed a training system
to support structured, systematic learning,
moreover, that begins with training of newly
recruited employee and extends to training of
newly appointed management personnel andspecialized occupational training as well as
biannual compliance training for management
members provided by outside instructors.
Our ongoing implementation of these training
programs is designed to encourage personnel
in every position and with every job description
to share in the problem-solving process
leading to business enhancement.

Establishing and raisingawareness of the Consultation/
Whistleblower Hotline
In addition to Human Resources Department
personnel who specialize in consulting
concerning sexual harassment and abuseof power and legal personnel who provide
consultations on legal matters, Lawson has
established consultation contacts to receive
internal notifications and provide consultations
concerning compliance and risk management
issues. Besides establishing the Lawson
Group Outside Consultation/Whistleblower
Hotline involving law firms and other externalorganizations, it has created a framework forproviding business partners’ employees withanonymous consultations.
Lawson is working harder today thanever to increase awareness and understandingof these services and frameworks bycommunicating about them with employees
and other concerned parties.

Reinforced operational
management and monitoring
Lawson has established the Compliance andRisk Management Office and the Information
Security Management Office and staffed themwith specialized personnel under the directionof the CR Executive Officer. As the entities
responsible for promoting and assuring
compliance as well as for conducting risk
management, these offices serve as crossdepartmental secretariats for the Complianceand Risk Management Committees Meetingand Information Security Committees Meetingand manage the progress of measures
implemented in these areas by individual
departments throughout the Group.
Four separate subcommittees (theFood Safety and Hygiene Management
Subcommittee, the BC Subcommittee,
the Regional Office Crime Prevention andDisaster Defense Subcommittee, and theCSV Subcommittee) have been establishedunder the Compliance and Risk Management
Committees Meeting and tasked withmanaging the progress of important measureswhile preventing the emergence of risks.
The subcommittees collaborate with the
Corporate Auditors Office, moreover, receiving
reports on the results of compliance audits asneeded while also providing detailed guidance
for implementing measures and offering
proposals for improvements.
Besides awareness surveys involving
all the employees, the monitoring activities
extend to circulation of questionnaires among
business partners concerning such matters
as delivery of merchandise to stores and store
construction as part of efforts to review thecompliance systems from a broad perspective.

Enhanced cooperation among
Group companies
Officers responsible for compliance andrisk management have been appointed by
the Group companies as well, and Lawson
also holds meetings of affiliated companies’
compliance officers. Besides formulating
codes of ethics and providing training toheighten employee awareness, it conducts
the same employee awareness surveys andbusiness partner questionnaires at the Group
companies as at Lawson. The Corporate
Auditors Office conducts audits of operational
duties at the Group companies, whose boardsof auditors convene meetings to provide
guidance and assistance in establishing andimproving their compliance, risk management
and information security frameworks.

A meeting of affiliated company compliance officers

Corporate Data

Lawson Group Overview
Company name
Headquarters

As of February 28, 2017/Consolidated(Representative as of May 31, 2017)

Business activities

Lawson, Inc.
East Tower, Gate City Ohsaki,
11-2, Osaki 1-chome, Shinagawa-ku,
Tokyo 141-8643, Japan

Franchise chain development of LAWSON,
NATURAL LAWSON and LAWSONSTORE100
Net sales for all stores ¥2,157.9 billion (consolidated)
Number of stores
14,267 (worldwide)
Operating areas
All 47 prefectures in Japan, China (Shanghai, Chongqing, Dalian, Beijing, Wuhan),Indonesia, Hawaii, Thailand, Philippines

President and CEO,
Representative Director, Sadanobu Takemasu
Chairman of the Board
Established
April 15, 1975
Capital¥58,506.644 million
Number of employees 9,403

Note 1:	Net sales for all stores is the sum of total sales by the domestic convenience store business, overseas business and Seijo Ishii stores (consolidated
subsidiaries only). For the Seijo Ishii business, only the total for its Company-operated stores is included.
2:	The total number of stores in Japan is the total of 1 2 3 : 1 LAWSON, NATURAL LAWSON and LAWSON STORE100 stores operated by
Lawson, Inc.; 2 LAWSON stores operated by Lawson Sanin, Inc., Lawson Okinawa, Inc., Lawson Minami-Kyushu, Inc., Lawson Kochi, Inc.; and3 Seijo Ishii stores operated directly by SEIJO ISHII, CO., LTD.
				 The number of overseas stores is the number of LAWSON brand stores run by the operating company in each region.

Share information

Main Lawson Group companies As of February 28, 2017/Consolidated
Category

Name of company

Domestic convenience store Lawson, Inc.
business
Lawson Store100, Inc.
SCI, Inc
Lawson Sanin, Inc.
Lawson Okinawa, Inc.
Lawson Minami-Kyushu, Inc.
Lawson Kochi, Inc.

409,300,000

Shares issued

100,300,000

Shareholders

28,971

Stock exchange
listings

Lawson ATM Networks, Inc.

Consolidated subsidiary

Consulting business

BestPractice, Inc.

Consolidated subsidiary

Overseas business

Lawson (China) Holdings, Inc.
Shanghai Hualian Lawson, Inc.

Consolidated subsidiary

Lawson HMV Entertainment, Inc.)

Saha Lawson Co., Ltd.

(Consolidated subsidiary of
Lawson (China) Holdings, Inc.)(Consolidated subsidiary of
Lawson (China) Holdings, Inc.)(Consolidated subsidiary of
Lawson (China) Holdings, Inc.)(Consolidated subsidiary of
Lawson (China) Holdings, Inc.)
Consolidated subsidiary

SEIJO ISHII CO., LTD.

Consolidated subsidiary

2.7

SEIJO ISHII business

2,360

2.4

Executive Officers

2,092

2.1

1,394

1.4

Senior Executive
Vice President
Executive Vice President

Masahiro Oyama

Senior Vice President

Shuichi Imagawa

Senior Vice President

Zhang Joshua

Executive Vice President

Jun Miyazaki

Senior Vice President

Hajime Kawamura

Senior Vice President

Yuichi Wada

Senior Vice President

Atsushi Maeda

Senior Vice President

Motonobu Miyake

Senior Vice President

Yasuhiro Iseki

Senior Vice President

Norikazu Nishiguchi

Senior Vice President

Takuya Shiraishi

Senior Vice President

Akihito Watanabe

Senior Vice President

Naotaka Honda

Senior Vice President

Yasuhiko Hirokane

Senior Vice President

Other domestic entities

53.6%

0.3%

Kazuhiro Wakui

Senior Vice President

Tatsushi Sato

Senior Vice President

Masayuki Sawada

The Master Trust Bank of Japan, Ltd.
(Trust account)
STATE STREET BANK WEST CLIENT —TREATY 505234

National Mutual Insurance Federation of
6
Agricultural Cooperatives

1,001

1.0

Merrill Lynch Japan Securities Co., Ltd.
(MLJS)

933

0.9

7

20.3%

Beijing Lawson, Inc.

2,657

5

Treasury shares

Dalian Lawson, Inc.
Number of shares Percentages ofheld (Thousands) total shares held

Japan Trustee Services Bank, Ltd.
2
(Trust account)

4 NTT DOCOMO, INC.

Foreign entities

Equity-method affiliate

50.1

Distribution of shareholders by type
Securities companies
1.8%
Individuals, others 7.5%

Equity-method affiliate

50,1503

16.5%

Equity-method affiliate

1 Mitsubishi Corporation

Mitsubishi UFJ Trust and Banking Corporation
Stock transfer agent 4-5, Marunouchi 1-chome,
Chiyoda-ku, Tokyo 100-8212, Japan

Financial institutions

Consolidated subsidiary

Financial services business

Major shareholders (Top 10)

Tokyo Stock Exchange (1st Section)

Consolidated subsidiary

Lawson HMV Entertainment, Inc. Consolidated subsidiary(Consolidated subsidiary ofUnited Cinemas Co., Ltd.

As of February 28, 2017/Non-consolidated

Shareholder name

Consolidated subsidiaryEntertainment business

Chongqing Lawson, Inc.
Authorized shares

50

INTEGRATED REPORT 2017

Japan Trustee Services Bank, Ltd.
8
(Trust account 7)

816

0.8

9 Employee Ownership

754

0.8

Japan Trustee Services Bank, Ltd.
10
(Trust account 1)

733

0.7

As of March 1, 2017

Keita Kamoi(Excluding directors’ additional posts)

Corporate DataStore network expansion area
Total number of stores (worldwide)

14,267 stores

As of February 28, 2017

Stores in Japan

13,111 stores

Overseas stores

1,156 stores

Beijing 48 stores

Dalian 82 stores

Chongqing 136 stores

Thailand 85 stores

51

INTEGRATED REPORT 2017

Shanghai 665 stores
Wuhan 72 stores
Phillippines 30 stores

Hawaii 2 stores

Main businesses and services
A nearby “neighborhood store” that seeks to realize its
Corporate Philosophy of “Creating Happiness and Harmony in
Our Communities” by conducting business as a manufacturingretailer based on a small commercial area model

As of February 28, 2017
A nearby store, observing a “daily and reliably”
concept, that supports customer lifestyles
embracing “beauty, health, and comfort”

Operating companies

Operating company

Lawson, Inc.
Lawson Okinawa, Inc.
Lawson Minami-Kyushu, Inc.
Lawson Kochi, Inc.
Lawson Sanin, Inc.

Lawson, Inc.

A store that contributes to savings and aneasy, convenient daily life by selling a range of
products such as perishable foods, preparedfoods and daily necessities at a uniform priceof 100 yen (108 yen, including tax)

A food-lifestyle supermarket for people whocare about food, providing food from aroundthe world at affordable prices

Operating company

Operating company

Lawson Store100, Inc.

SEIJO ISHII CO., LTD.

A home-delivery service providing healthfuland delicious food. An all-round home delivery
site on which customers can purchase not
only Lawson Fresh products but also food,daily necessities and other items handled by
the Lawson Group.

Twenty-three farms nationwide producing
fresh fruit and vegetables for Lawson Group
storesOperating companies

Operating company

Lawson, Inc.

Individual LAWSON farms

55 stores nationwide specializing in CDs,
DVDs, and books.

Sales of the full range of entertainment tickets,
including tickets to concerts, sports events,
plays and movies

Indonesia 36 stores* The total number of stores in Japan is the total of 1 2 3 : 1 LAWSON, NATURALLAWSON and LAWSON STORE100 stores operated by Lawson, Inc.; 2 LAWSON storesoperated by Lawson Sanin, Inc., Lawson Okinawa, Inc., Lawson Minami-Kyushu, Inc.,
Lawson Kochi, Inc.; and 3 Seijo Ishii stores operated directly by SEIJO ISHII, CO., LTD.
* The number of overseas stores is the number of LAWSON brand stores run by theoperating company in each region.

Operating company

Operating company

Lawson HMV Entertainment, Inc.

Lawson HMV Entertainment, Inc.

Comprehensive entertainment e-commerce
website selling CDs, DVDs, and books as wellas concert, sport, and theatre tickets.

Operation of multiplex movie theaters offering
not only film entertainment but also such
enriching experiences as 4DX® (experiential
viewing) and various contents other thanmoviesOperating company

Operating company

Lawson HMV Entertainment, Inc.

United Cinemas Co., Ltd.

A business that provides installation, management and operation of ATMs installed at
LAWSON stores in cooperation with banks

Delivery of products handled by the Lawson
Group and home-delivery items handled by
Sagawa Express Co., Ltd. and other services
related to shopping and housing/living with
LAWSON stores as the starting point.

Operating company

Operating company

Lawson ATM Networks, Inc.

SG Lawson Co., Ltd.

2017 MD&A
Management’s Discussion and Analysis

1 Eleven-Year Financial Summary

13 Cash Flows

3 Industry Trends

13 Capital Policy: Dividend and Treasury Stock Retirement

4 Management Policies for Fiscal 201614 Overview of Major Consolidated Subsidiaries and Equity Method Affiliates

4 Overview of Merchandise and Services

18 Future Outlook

4 Overview of Store Operations

19 Consolidated Balance Sheet

5 Overview of Store Development

21 Consolidated Statement of Income

6 Other Initiatives in Our Convenience Store Business22 Consolidated Statement of Comprehensive Income

8 Overview of Performance Figures

23 Consolidated Statement of Changes in Equity

9 Other Businesses

25 Consolidated Statement of Cash Flows

10 Items of the Consolidated Statement of Income

27 Notes to Consolidated Financial Statements

11 Items of the Consolidated Balance Sheet
12 Capital Expenditures (Including Investments/Advances and Lease Asset
Acquisition Costs)

Eleven-Year Financial Summary(Millions of yen)

2016

(Fiscal year)

2015(Thousands of
U.S. dollars 1)(Millions of yen)

2014

2013

2012

2011

2010

2009

2008

2007

2006

2016

For the year:
Gross operating revenues
		 Franchise commissions from franchise stores¥

Net sales
Other

Total operating revenues
Operating profit
Net profit
Net cash provided by operating activities
Net cash used in investing activities
Net cash used in financing activities
Capital expenditures
Depreciation and amortization 2

275,312254,169
101,806
631,288
73,77236,40099,865(76,228)(25,638)
119,784
56,199¥866,577
285,995
31.7%
67,692
13,111
9,403

¥

364
250
68.7%

¥

261,681
227,606
94,166
583,453
72,542
31,381
112,205(68,657)(50,201)
106,747
49,293¥803,212272,997
32.9%
69,793
12,395
8,377

¥

314
245
78.1%

¥

247,681
174,044
76,188497,91370,482
32,687
110,568(100,434)(3,289)141,251
41,826¥764,614
263,798
33.5%
76,755
12,276
7,606

¥

327
240
73.4%

¥

242,079
168,159
75,010485,248
68,12737,966
81,503(47,924)(39,650)
84,03247,889¥620,993
250,498
39.5%
68,76011,606
6,336

¥

380
220
57.9%

¥

230,003
192,942
64,500487,445
66,24633,18385,189(54,196)(31,980)
77,36143,886¥

579,810230,182
39.1%
72,766
11,130
6,404

¥

332
200
60.2%

¥

215,574
208,063
55,320478,957
61,76924,88586,357¥（52,912）（27,545）
74,572
37,846

197,673
192,330
51,275441,278
55,541
25,387
72,210¥（30,522）（28,799）
50,32633,084

185,656
233,694
47,842
467,192
50,276
12,562
40,696¥

186,928
119,944
42,604349,476
49,18623,80751,717（42,596）（27,239）
71,39927,468¥（15,647）（14,911）42,907
20,879177,443
84,266
39,468301,177
46,61022,11955,771¥（36,525）（31,973）
64,413
21,469174,32575,85832,870283,053
44,513
20,98347,596$2,445,913
2,258,075
904,460
5,608,457
655,401
323,383
887,216（31,754）（736）
49,822
21,352(677,221)(227,772)
1,064,179
499,280

At year-end:¥

Total assets
Net assets
Shareholders’ equity ratio
Cash and cash equivalents
Total number of stores in Japan
Number of employees (full-time)

531,454214,663
39.7%
73,67010,457
6,475

¥

249
180
72.2%

¥

476,037
208,467
42.7%
67,712
9,994
5,703

¥

255
170
66.8%

¥

448,132
198,13642.8%
54,843
9,761
5,236

¥

127
160
126.3%¥

436,096
201,16744.8%
83,982
9,527
5,186

¥

240
160
66.6%

¥

397,108
188,574
46.6%
62,823
8,587
3,735

¥

215
110
51.2%

¥

398,258
199,49349.0%
75,547
8,564
3,614

$

202
100
49.6%

$

7,698,800
2,540,822
601,386

Per share data:
Net profit (yen/ U.S. dollars 1)¥

Cash dividends (yen/ U.S. dollars 1)
Payout ratio

3.23
2.22

Financial data:
12.0%
4.0%

13.5%
4.4%

Return on equity (ROE)
Return on assets (ROA)

13.0%
4.7%

16.1%
6.3%

15.2%
6.0%

12.0%
4.9%

12.8%
5.5%

6.5%
2.8%

12.5%
5.7%

11.6%
5.6%

11.3%
5.4%

Net sales of all stores(Domestic convenience store business ):Net sales by store format
		Franchise stores 3¥

Company-operated stores¥

1,969,920
188,030

1,880,395
79,872¥

1,827,779
105,019¥

1,810,418
126,873¥

1,747,915
156,339¥

1,651,433
173,820¥

1,499,576
183,205¥

1,433,678
232,459¥

1,434,166
124,614¥1,331,785
83,321¥

1,311,479
75,151$ 17,501,066

705,155
324,993
155,575
200,907
1,386,630
3.2%

9,533,084

1,670,487

Net sales by product category 3
		Processed foods
		Fast foods
		 Daily delivered foods
		Non-food products

Net sales of all stores¥

Ratio of operating profit to net sales of all stores

1,073,044
481,267
294,141
194,833
2,043,287
3.4%

1,033,449
463,432
276,886
186,500
1,960,267
3.5%

¥

¥

1,034,355
429,212277,210
192,020
1,932,798
3.6%

1,060,455
408,672
275,437
192,726
1,937,292
3.5%

¥

¥

1,063,120
372,706
271,920
196,506
1,904,254
3.5%

1,022,378
345,226
263,101
194,546
1,825,253
3.4%

¥

¥

897,415
321,851
264,166
199,348
1,682,782
3.3%¥

902,306
324,197
239,088
200,544
1,666,136
3.0%¥

844,324
332,894
186,109
195,453
1,558,781
3.2%¥

726,750
327,501
162,625
198,230
1,415,106
3.3%¥

4,275,648
2,613,193
1,730,925$ 18,152,869

Notes: 1. The U.S. dollar amounts represent Japanese yen exchange rate against the US dollar as of February 28, 2017 ($1 = ¥112.56).
2. These figures include depreciation and amortization of intangible assets.
3. These figures include sales reported by franchise stores and are unaudited.

Net sales of all stores(Domestic convenience store business)(billions of yen)
2,000

1,904.2

20,432

Operating profit

Net profit

Total assets(billions of yen)
80(billions of yen)
40

(billions of yen)
300

1,937.2 1,932.7 1,960.2

66.2
60

1,800

68.1

70.4

72.5

73.7

37.9

33.1

36.4
32.6

250.4
31.3

263.7

272.9

285.9

Return on equity (ROE)
Return on assets (ROA)

555

ROE

(%)
20.0

230.1

30

15.2

16.1

20
10.0

6.0

10

20

1

2013

2014

2015

2016

(Fiscal year)

Lawson, Inc. Integrated Report 2017

0

2012

2013

2014

2015

2016

(Fiscal year)

0

245

250
80

220
73.4

(%)
100

78.1

68.7

180

60

60.2

12.0

57.9
120

40

60

20

5.0

4.7

2012

13.5

6.3

200

0

240

240

13.0

100

Annual dividends per share (left axis)
Payout ratio (right axis)

(yen)
300

200

1,600

1,400

ROA

15.0

200

40

Payout ratio and dividends

2012

2013

2014

2015

2016
(Fiscal year)

0

2012

2013

2014

2015

2016

(Fiscal year)

0.0

2012

2013

2014

4.0

4.4

2015

2016

(Fiscal year)

0

2012

2013

2014

2015

2016

0

(Fiscal year)

Lawson, Inc. Integrated Report 20172

Financial Section

Management’s Discussion and Analysis
Industry Trends

Management Policies for Fiscal 2016

Although Japanese economy enjoyed a moderate recovery

the country's convenience store industry expanded in

We launched the 1,000-Day Action Plan in fiscal 2016 andWe regard the three years from fiscal 2016 as ain fiscal 2016 thanks to improvement in the employment

the calendar year 2016 (January to December). Industry-

implemented business activities toward building a Next-

significant period. Under the “1,000-Day Action Plan”, weenvironment and an increase in wages, there was awide sales were buoyant, amounting to 11,445.6 billion

Generation LAWSON Convenience Store model. Todayʼswill advance the evolution of our business model founded

persistent budget-minded trend of consumer spending

yen, up 4.1% from the previous year. The total number ofconvenience store industry is in a period of dramaticon the concept of a Manufacturing Retailer Based on Smalldue to future uncertainty, which kept the retail industry

stores as of the end of December 2016 stood at 55,636,

change. Not only are we witnessing such changes in theCommercial Areas and realize sophisticated, one-of-a-severe situations.

up 2.0% year on year. Net sales of existing stores forcommunity as an aging population and an increasingkind store productivity. At the same time, we will pursue to2016 rose 0.5% compared to the previous year, thenumber of nuclear families, but we are also experiencing a

become an essential part of our communities that cansecond consecutive year-on-year gain.

drastic change in our industry.

satisfy customers everyday needs.

Under these circumstances, as there was progressin industry consolidation and fiercer competition, top
chain operators opened new stores aggressively. And

Overview of Merchandise and Services
Retail industry market size and convenience store share 1(Billions of yen)

2016

2015

2014

2013

2012

2011

2010

2009

2008

2007

2006 2

We upgraded the assortment of merchandise mainly in thewere awarded the GAP Initiative Award 2016 of Asia GAP

Total retail industry annual sales

139,877

140,666

141,219

138,897

137,585

135,157

136,479

132,961

136,019

135,417

134,911daily purchased categories such as daily delivered foods

Research Institute for their contribution to dissemination

Convenience store sector
annual sales

11,445

10,995

10,423

9,872

9,477

8,775

8,114

7,981

7,943

7,490

7,399

and frozen foods under the private Lawson Select brand.

of GAP1. The Lawson Group will pursue providing safe,

Convenience store share

8.1%

7.8%

7.3%

7.1%

6.9%

6.5%

5.9%

6.0%

5.8%

5.5%

5.5%

We also reinforced our product offerings in the delicatessen

reliable products through these initiatives.

Source: “Current Survey of Commerce,” Ministry of Economy, Trade and Industry
Notes: 1. Annual sales amounts of the retail industry and the convenience store sector are on a calendar-year basis.
2. The figures above reflect the revision of the figures in 2004 and onwards that the Ministry of Economy, Trade and Industry compiled in March 2013.

The net sales of all stores among the top four chains in the convenience store industry

1

category such as Japanese side dishes and salads. In

In addition to these merchandise-upgrading efforts,

addition, we remained committed to selling merchandise

Lawson enhanced services. Sales of gift cards2 remainedthat takes customers ʼ health into consideration. For

strong.

(Billions of yen)example, the Green Smoothie, a Natural Lawson brand

In January 2017, all Lawson stores began to accept
payments via Alipay, the world s largest mobile payment

2016

2015

2014

2013

2012

2011

2010

2009

2008

2007

2006

item allowing the customer to easily consume vegetables,

Lawson

2,157

2,049

1,961

1,945

1,907

1,826

1,683

1,666

1,559

1,415

1,387

was received well by many customers composed mainly

service platform, and barcode-type payments via Line Pay

Seven-Eleven Japan

4,515

4,291

4,008

3,781

3,508

3,281

2,948

2,785

2,763

2,574

2,534

of female and highly health-conscious consumers. Niku

in the communication application LINE, for the first time in

2,006

1,860

1,722

1,585

1,535

1,440

1,274

1,246

1,122

1,069

Yasai Bento, a stir-fried meat and vegetables boxed lunch

the industry.

975

944

951

947

980

923

902

940

902

911

allowing the customer to eat one half of the daily vegetable

As a sales promotion initiative, we held a monthly

intake, was also popular. In the over-the-counter fast foodLawson Tokuichi! campaign, where a 10% discount was

category, we launched Deka-Yakitori, the grilled chicken

offered on Lawson Select chilled/frozen foods as wellon a skewer which weighs approx. 20% more than usualas some items offered in the counter cases, as part ofproducts. Deka-Yakitori is the largest in Lawsonʼs history

our efforts to increase the number of purchased items per

and has been popular with many consumers since its

customer. Other sales promotions comprised those highly

launch in January 2017.

capable of attracting customers such as the Rice Ball 100

FamilyMart

3,009

Circle K Sunkus

2

Total of the top 4 chains

9,682

9,321

8,773

8,399

7,947

7,622

6,994

6,627

6,508

6,013

5,901

Total market share of the
top 4 chains

84.6%

84.8%

84.2%

85.1%

83.9%

86.9%

86.2%

83.0%

81.9%

80.3%

79.8%

Source: Data published by each company
Note: 1. The figures for the top four chains are on a fiscal-year basis, while the total market share of the top four chains is the proportion in convenience store sector annual sales on acalendar-year basis.
2. On September 1, 2016, all Circle K Sunkus stores have been renamed to FamilyMart as the result of the merger of FamilyMart Co. and Uny Group Holdings Co.

Number of convenience stores

Number of convenience stores(Stores)

Lawson Farms are operated in 23 locations acrossYen Sale event, the Instant Lottery themed on E-girls and

2016

2015

2014

2013

2012

2011

2010

2009

2008

2007

2006

Japan, and play the role of supplying safe, fresh fruits andSandaime J Soul Brothers from EXILE TRIBE, a lottery

55,63654,50552,72550,23447,801

43,37342,347

41,72440,74540,40540,183vegetables to Lawson Group stores as well as factories for

program in which Lawson leveraged its strength in theour original products. In order to construct an adequate

entertainment field, and the campaign rewarding Ponta

Lawson Farm management system, Lawson is pursuing

Card members with five times more points on purchases in

efforts to obtain certification for the JGAP agricultural

evenings and at night.

Source: “Current Survey of Commerce,” Ministry of Economy, Trade and Industry

Non-consolidated operating results(Millions of yen)2016

As a percentage
of all stores

2,027,504

100.0%

1,960,267

100.0%

1,932,798

100.0%

1,758,656

100.0%

1,693,435

100.0%

Gross operating revenues

356,18617.5%

333,85617.0%

316,340

16.4%

298,779

17.0%

282,752

16.7%

Gross operating profit

325,71616.0%

308,88915.7%

293,93815.2%

275,44215.7%

258,061

15.2%

Selling, general and administrative expenses

268,29613.2%

251,64212.8%

232,97212.1%

213,99912.2%

198,730

11.7%

Advertising and promotional expenses

13,8080.6%

14,705

0.7%

8,227

0.4%

9,023

0.5%

10,691

0.6%

Personnel expenses

41,5272.0%

39,2482.0%

36,6911.9%

35,8522.0%

34,931

2.1%

In store operations, we enhanced the Three Essential

existing stores involving the installation of more refrigerated

Facility expenses

150,182

7.4%

142,073

7.2%

132,941

6.9%

123,444

7.0%

113,321

6.7%

Practices of (1) serving customers courteously; (2)showcases as well as the introduction of flatbed freezers

Other SG&A expenses

62,7793.1%

55,616

2.8%

55,1122.9%

45,6802.6%

39,784

2.3%

providing a quality product offering that meets communityand higher shelves to increase the number of racks,

Operating profit

57,4192.8%

57,2472.9%

60,966

3.2%

61,443

3.5%

59,331

3.5%

needs; and (3) keeping our stores and communities clean.

broadening the range of prepared foods, frozen foods,

Recurring profit

56,4592.7%

54,9832.8%

61,6493.2%

62,171

3.5%

59,4593.5%

Net profit

19,0880.9%

21,802

1.1%

26,2001.4%

33,6251.9%30,314

1.8%

In addition, we conducted aggressive renovations inseasonings and other products.

(Fiscal year)

Net sales of all stores

3

Lawson, Inc. Integrated Report 2017

2015

2014

2013

2012

production process management technique. In July 2016,
Lawson and the President and CEO of Lawson Farm

1 GAP: Good Agricultural Practice (A set of agricultural production process management
techniques)
2 Gift cards: Collective terms for prepaid cards that can be used for online payments

Overview of Store Operations

Lawson, Inc. Integrated Report 20174

Financial Section

Overview of Store Development

Number of convenience stores in Japan

In developing (opening) new stores, the Group continued

offering non-prescription drugs, including such healthcare-

to prioritize profitability.

focused stores, reached 157 as of the end of February(Stores)(Fiscal year)

2016 5Stores

In partnerships with other convenience store chain2017 (of which 41 stores were Pharmacy Lawson stores

Lawson, Inc.

operators, under a mega-franchise contract with SAVE ON

equipped with drug-dispensing pharmacies). The number

Company-operated stores

Corp. in fiscal 2015, we converted 54 SAVE ON stores inof LAWSON stores equipped with a care (nursing care)

operation in Yamagata, Fukushima, and Ibaraki Prefectures

service facility incorporating a nursing care consultation

into LAWSON stores on a step-by-step basis. In the fourthcounter reached nine as of the end of February 2017,

quarter, we additionally entered a mega-franchise contract
for stores in operation in Gunma, Tochigi, Niigata, Saitama

Net increasein the term 3
Share

Stores2015 4
Stores

2014 2
ShareStoresShare

LAWSON

248

1.9%

82

166

1.3%

123

1.0%

NATURAL LAWSON

30

0.2%

0

30

0.2%

32

0.3%

Type B

1,306

10.0%

115

1,191

9.6%

1,286

10.5%

including LAWSON Kure Hironagahama Store, the firstType G

1,680

12.8%

-141

1,821

14.7%

1,988

16.2%

Lawson equipped with a care (nursing care) service facility

Type C

8,115

61.9%

356

7,759

62.6%

7,236

58.9%

and Chiba Prefectures. We will convert 503 SAVE ON

in Hiroshima Prefecture in July 2017. We continue to

NATURAL LAWSON

111

0.8%

7

104

0.8%

84

0.7%

stores in these areas (as of the end of December 2016,

build a LAWSON Convenience Store model that meets

LAWSON STORE100 1

798

6.1%

-11

809

6.5%

1,151

9.4%

including two stores in Nagano Prefecture) into LAWSON

customer needs associated with social changes such as

12,28893.7%

408

11,88095.8%

11,90096.9%

Lawson Sanin, Inc.

stores from around summer in 2017 to the end of 2018 on

an aging population and rising health consciousness.

Company-operated storesFranchise stores

Subtotal

5

0.0%

5

—

—

—

—

As for LAWSON STORE100, we continued from fiscal

Franchise stores

282

2.2%

282

—

—

—

—

2015 to 1) meet customer needs for good value by offering

Subtotal

287

2.2%

287

—

—

—

—

converted 23 Three-F stores into LAWSON stores by

a product assortment containing an increased proportion

Lawson Kochi, Inc.

February 2017. L･TF Co., Ltd, the joint venture establishedof adequate-volume and small-lot products priced at 100

in September 2016, operates 89 LAWSON Three-F stores

yen excluding tax; and 2) stepped up sales of fruits and(as of the end of February 2017) that were formerly Three-F

vegetables, a category much loved by customers. As a

Lawson Minami-Kyushu, Inc.

stores.

result, net sales of existing stores under the brand for fiscal

Company-operated stores2016 under review grew year on year.

Franchise stores
Subtotala step-by-step basis.
Under our partnership with Three-F Co., Ltd., we

Under our partnership with Poplar Co., Ltd., Lawson

5

0.0%

0

5

0.0%

—

—

Franchise stores

130

1.0%

3

127

1.0%

—

—

Subtotal

135

1.0%

3

132

1.1%

—

—

1

0.0%

0

1

0.0%

1

0.0%

190

1.4%

-1

191

1.5%

201

1.6%

191

1.5%

-1

192

1.5%

202

1.6%

Company-operated stores

Sanin, Inc., the company established by Lawson, Inc. and

The total number of LAWSON, NATURAL LAWSON,

Poplar Co., Ltd. in the form of joint investment, started

and LAWSON STORE100 stores opened and closed ina regional franchise business in Tottori and Shimane

Japan during the fiscal year under review stood at 1,143

regions. Lawson Sanin, Inc. merged the POPLAR-

and 427 stores, respectively, with the total number ofbrand convenience stores that wished to transfer to a

stores in the country reaching 13,111 as of the end of

Total number of convenience stores in Japan

joint LAWSON POPLAR brand and the LAWSON stores

February 2017.

Notes: 1. The number of stores of LAWSON STORE 100 includes that of LAWSON STORE 100 and Lawson Mart.

operated by Lawson s Tottori and Shimane branch

Furthermore, as of the same date, LAWSON chain

offices. As of the end of February 2017, Lawson Sanin,

stores run in Kochi Prefecture by Lawson Kochi, Inc., an

Inc. operated 287 stores (including 56 LAWSON POPLAR

affiliated company accounted for by the equity method,stores).

totaled 135 with 191 LAWSON chain stores run by

Furthermore, through partnerships with prescription

equity-method affiliate Lawson Minami-Kyushu, Inc. indrug pharmacy and drug store chains, we continued

Kagoshima Prefecture and 210 LAWSON chain stores by

to expand healthcare-focused stores offering a wider

equity-method affiliate Lawson Okinawa, Inc. in Okinawa

merchandise selection than in ordinary LAWSON stores, byPrefecture.

Lawson Okinawa, Inc.

3

0.0%

1

2

0.0%

2

0.0%

Franchise stores

207

1.6%

18

189

1.5%

172

1.4%

Subtotal

210

1.6%

19

191

1.5%

174

1.4%

13,111100.0%

429

12,395100.0%

12,276100.0%

Company-operated stores

2. “Total number of convenience stores in Japan” includes the number of stores operated by Lawson Kumamoto, Inc. that was absorbed into the parent company in March 2014.
3.	Reflecting the change in the store counting standard from fiscal 2014, the 2014 data in this table also include small stores (82 stores as of March 1, 2014). Due to the abovechange, these 82 stores are excluded in the net increase (decrease) figure. Moreover, 24 stores operated by Lawson Kumamoto, Inc. were absorbed by Lawson, Inc., and 120
stores operated by Lawson, Inc. in Kagoshima Prefecture were transferred to Lawson Minami-Kyushu, Inc. in March 2014.
4. In April 2015, Lawson, Inc. transferred 128 stores to Lawson Kochi, Inc.
5. In November 2016, Lawson, Inc. transferred 234 stores to Lawson Sanin, Inc.

Other Initiatives in Our Convenience Store Businessadding such items as non-prescription drugs, cosmetics,

With regard to our home convenience service initiative,and daily necessities. The number of LAWSON stores

we strived to build the Open Platform utilizing the service

In building a Next-Generation LAWSON Convenience

network for LAWSON ' s store-based order intake,Store model, we conducted the industry-first demonstration

merchandise receipt, and home delivery, and provide

experiment of Reji-Robo®, an entirely automated checkout

improved convenience to customers.

system using RFIDs (electronic tags), at LAWSON

Number of stores in the convenience store business in Japan(Stores)

productivity.

2016

2015

2014

2013

2012

Total number of stores

13,111

12,395

12,276

11,606

11,130As our logistics initiative, in March 2016, we opened

Panasonic-Mae Store (Moriguchi City, Osaka). To promote

Openings

1,143

1,007

1,010

869

938

a three temperature-range distribution center that handles

a revolution in productivity to deliver improved convenience

Closings

427

888

422

393

265

Net increase

716

119

588

476

673

products with three shipping temperatures: room, chilled

to customers and increase the efficiency of the convenienceand frozen. Through efforts in the Company-operated

store operations in which complexity is growing, we will

distribution center and other initiatives, we will further

eliminate the need of product scanning at the time of

improve the efficiency of the entire supply chain and store

settlements and shorten the payment process.

(Fiscal year)

Note:	Including the number of stores operated by Ninety-nine Plus, Inc., Lawson Mart, Inc., Lawson Kochi, Inc., Lawson Okinawa, Inc., Lawson Minami-Kyushu, Inc., Lawson Kumamoto,Inc., and Lawson Sanin, Inc.

5

Lawson, Inc. Integrated Report 2017

Lawson, Inc. Integrated Report 20176

Financial Section

Overview of Sales Figures

Types of Lawson contracts(Previous contracts)
Contract typeC

G

Contract termB

10 years from store opening day

Requirements for FC owners

At least 20 years old, 2 full-time store workers

Land and buildings

Provided by headquarters

Prepared by a franchise store

Investment in store construction and interior
decoration expenses

Borne by headquarters

Borne by a franchise store

Signs and business fixtures

Provided by headquarters

Payment by a franchise store at Franchise feetime of contract 1
Investment¥1.5 million (Contract fee, training expenses, and store opening preparation commission, each ¥500,000) (excluding tax)
¥1.5 million (Including payment for some merchandise purchased on behalf of the store)

Guarantee deposit provided by a franchise store
Headquarters income 2

Not required

Average monthly sales x 2 months

Not required

Gross profit x 50%

Gross profit x 45%

Gross profit x 34%

Burden of utility expenses

A franchise store

Minimum guarantee (annual) 2 (thousands of yen)

21,00022,20022,200(New contracts)
Contract typeCn

Contract term

B4
10 years from store opening day

Requirements for FC owners

105

100.6

Investment in store construction and interior
decoration expenses

Borne by headquarters

Borne by a franchise store

Signs and business fixtures

100.5

99.2 99.0

Prepared by a franchise store

95
90

Provided by headquarters

Payment by a franchise store attime of contract 1

Franchise fee

Partial guarantee for expenses associated withproduct disposal losses

Headquarters income 2

Burden of utility expenses¥1.5 million (Contract fee, training expenses, and store opening preparation commission, each ¥500,000)(excluding tax)
Headquarters will bear the following percentage of clearance anddisposal costs according to their proportion in merchandise sales:• Greater than 2.0% up to 3.0%: 20%—• Greater than 3.0% up to 4.0%: 30%• Greater than 4.0%: 55%
The following percentage of gross profit:• ¥3.0 million or less: 45%
Gross profit x 34%• Greater than ¥3.0 million up to ¥4.5 million: 70%• Greater than ¥4.5 million: 60%
50% 3 of electricity expenses and store air conditioning energy expenses
A franchise store
are borne by headquarters

Minimum guarantee (annual) 2 (thousands of yen)

18,60022,200Notes: 1.	The amount is paid by the franchise store to headquarters at the time of the franchising contract. In addition, the franchise store needs to separately provide a total of about¥500,000, including the cash register float, at the time of store opening.
2. The headquarters income and minimum guarantee apply to stores operating on a 24-hour basis.
3. The ceiling on the monthly amount borne by headquarters is ¥250,000.

LAWSON STORE100 contracts
Contract type

VL-J

Land and buildings

VL-B

Provided by headquarters

Contract stores

New opening stores or stores already being operated by the company

Contract term

A franchise store uses its own landand building
Land and building owned by afranchise store

10 years from store opening day
Payment by afranchise store attime of contract 4

Franchise fee ¥1.0 million (excluding tax)
Breakdown Contract fee ¥250,000/Training expenses ¥250,000/Store opening preparation commission¥500,000

Other expenses

Store opening preparation expenses: Approx. ¥500,000 (e.g., change, licensing fee for operation)

Store construction
and interior decoration
expenses

Borne by headquarters

Business fixtures

Headquarters income 5

Support to franchise stores (Operating
expenses of a franchise store partially borne byheadquarters)¥20.4 million per year
[Sliding scale] The following percentage of gross profit (monthly):¥1–¥3,000,000: Gross profit x 27%¥3,000,001–¥3,500,000: Gross profit x 68%¥3,500,001–¥4,500,000: Gross profit x 62%¥4,500,001 or greater: Gross profit x 48%
Headquarters will bear the following percentage of clearance and disposal
costs according to their proportion in monthly merchandise sales:• Greater than 1.5% up to 2.0%: 30%• Greater than 2.0%: 60%
Headquarters will pay up to ¥100,000 a month.

Notes: 4.	The amount is paid by the franchise store to headquarters at the time of the franchising contract.
5. The minimum guarantee and headquarters income apply to stores operating on a 24-hour basis.

Lawson, Inc. Integrated Report 2017

0

1Q

2Q

3Q

4Q

1Q

2011

2Q

3Q

4Q

1Q

2012

Net sales of existing stores

2Q

3Q

4Q

1Q

2013

Average number of customers

2Q

3Q

4Q

1Q

2014

2Q

3Q

4Q

1Q

2015

2Q

3Q

4Q

2016

Average spending per customer

Growth rate of net sales of existing stores, average number of customers, and average spending per customer (Non-consolidated) *
2016

2015

2014

2013

2012

Net sales of existing stores (YoY)

99.8%

101.4%

99.0%

99.8%

100.0%

Average number of customers

99.0%

100.9%

98.0%

99.0%

99.4%

Average spending per customer

100.8%

100.4%

101.0%

100.8%

100.6%(Fiscal year)* The total of LAWSON and NATURAL LAWSON.

Regarding consolidated results by product category, sales offast foods increased by 3.8% from the previous fiscal year. Salesof daily delivered foods grew by 6.2%, sales of processed foods
grew by 3.6% and sales of non-food products grew by 4.5%,
respectively from the previous fiscal year. The main categories ofwhich both net sales of all stores and existing stores exceeded
the previous year results are as follows.
Sales of bakery items in the fast food category increased fromthe previous fiscal year, as sales of sandwiches and other breads
increased as a result of sales promotion measures such as the
Point Collecting Campaign.
To enhance supermarket alternative functions, werenovated stores and improved merchandise selections. As aresult, sales of daily delivered foods and frozen foods in the daily
delivered food category and sales of delicatessen items in thefast food category increased significantly from the previous fiscal
year.
Sales of soft drinks in the processed food category also grewfrom the previous fiscal year, mainly driven by the successful
Receipt Stamp Campaign. In addition, sales of chilled beverages
in the processed food category grew from the previous fiscal
year, driven by strong sales of the Green Smoothie which
satisfied highly health-conscious consumers.

Sales by product category (Consolidated, total net sales in Japan)(Millions of yen)

Borne by a franchise store

Provided by headquarters

Minimum guarantee 5

7

(%)

110

100

Provided by headquarters

Investment

YoY changes in net sales of existing stores, average number of customers and average spending per customer(total of domestic convenience stores)

At least 20 years old, 2 full-time store workers

Land and buildings

Necessary expenses

Sales of existing stores for fiscal 2016 (non-consolidated
basis) decreased by 0.2% from the previous fiscal year andwas 0.3% short of the plan due to the significant impact of thedecrease in ticket sales in the first half of the year.
Sales of existing stores for fiscal 2016 (excluding theimpact of the decrease in ticket sales and other factors)
increased 0.3% throughout fiscal 2016, although these figures
were the internally managed values.

Net Sales
Net sales of all LAWSON stores (consolidated) for fiscal 2016
amounted to 2,157,900 million yen (up 5.7% from the previous
fiscal year). This year-on-year sales growth was achieved as
the number of LAWSON stores in Japan increased to 13,243(including the stores of all Group companies and those of the
Seijo Ishii business), a gain of 728 compared to the previous
fiscal year, among other factors.

¥22.2 million per year

Gross profit x 27%—(Fiscal year)

2016

2015

2014

2013

2012

Fast foods (share)

481,267

23.6%

463,432

23.6%

429,21222.2%

408,67221.1%

373,385

19.6%

Daily delivered foods (share)

294,141

14.4%

276,886

14.1%

277,21014.4%

275,437

14.2%

272,31214.3%

Processed foods (share)

1,073,044

52.5%

1,033,449

52.7%

1,034,355

53.5%

1,060,455

54.7%

1,064,133

55.8%(Cigarettes) (share)

487,27123.9%

476,17624.3%

482,75025.0%

459,100

23.7%

496,971

26.1%

Total food sales (share)

1,848,452

90.4%

1,773,767

90.4%

1,740,778

90.1%

1,744,564

90.1%

1,709,830

89.7%

Non-food products (share)

194,833

9.5%

186,500

9.5%

192,0209.9%

192,7269.9%

196,716

10.3%

Net sales of all stores (share)

2,043,287

100.0%

1,960,267

100.0%

1,932,798

100.0%

1,937,292

100.0%

1,906,547

100.0%

Lawson, Inc. Integrated Report 20178

Financial Section

Product categories
Category

Products included

Fast foods

Rice dishes, noodles, sandwiches, delicatessen items, over-the-counter fast foods, etc.

Daily delivered foods

Bakery items, desserts, ice cream, fresh foods, etc.

Processed foods

Soft drinks, alcoholic beverages, cigarettes, processed foods, confectionery, etc.

Non-food products

Daily necessities, books, magazines, gift cards,etc.

Gross profit margin by product category(Non-consolidated basis)*

The gross profit margin stood at 31.4%, up 0.1% froma higher gross profit margin did not reach the plan. The

the previous fiscal year and down 0.1% compared to thegross profit margin for non-cigarette product categories

plan. This was attributable to the fact that sales of cigaretteremained unchanged compared to the previous fiscal year.

products with a lower gross profit margin exceeded theNotes: * The total of LAWSON and NATURAL LAWSON.

plan while sales of the over-the-counter fast foods with

Gross profit margin by product category (Non-consolidated) *
2016

2015

2014

2013

2012

Fast foods

38.4%

38.4%

38.9%

38.9%

38.4%

Daily delivered foods

34.0%

34.0%

34.1%

34.1%

34.4%

Processed foods

24.1%

24.0%

24.1%

24.0%

23.9%

Non-food products

49.1%

49.7%

48.9%

47.7%

45.6%

Gross profit margin

31.4%

31.3%

31.3%

31.0%

30.5%

(Fiscal year)

Third party bill settlement services (Non-consolidated) *
2016

2015

2014

2013

2012

2,132,450

2,088,693

2,073,049

1,979,384

1,879,679

Number of transactions (millions)

202.0

198.3

198.9

196.1

190.4

Commission revenues (millions of yen)

10,788

10,671

10,77910,585

10,192(Fiscal year)
Bill settlements (millions of yen)

Other Businesses
In addition to the domestic convenience store business, theGroup is also involved in other businesses, including theentertainment-related business, Seijo Ishii business, overseas
business, and financial services business.
With regard to entertainment-related business, Lawson
HMV Entertainment, which forms the core of the business,
continued to secure the top position in the ticketing industry.
HMV, which sells music CDs and DVDs, opened its second
HMV record shop specialized in second-hand analog records
and CDs in Shinjuku. The shop was received well. The numberof HMV stores totaled 55 as of the end of February 2017. We
will strive to better respond to customer needs by, for example,
expanding an even wider selection of products and services inthe entertainment business. United Cinema Co., Ltd. opened theJapan’s first new style cinema theater, called “Premium Dining
Cinema” in Fukuoka City in April 2016 where people can enjoy
a movie while tasting meals. The company operates a total of
38 sites and 340 screens at its cinemas nationwide (including
screens operated on commission) as of the end of February
2017.

9

Lawson, Inc. Integrated Report 2017

Regarding the Seijo Ishii business, the company-operated
stores of Seijo Ishii totaled 132 as of the end of February 2017.
Sales remained strong. In April 2016, we opened the first hybrid
store in a combination of Seijo Ishii and Le Bar a Vin 52 at theAtre Ebisu West Building. With respect to merchandise, welaunched desica, a new private brand (PB) which achieved
strong sales. We promoted the collaboration between domestic
convenience store business and the Seijo Ishii business inthe form of arranging for wine products on sale at Seijo Ishii
supermarkets to be offered at NATURAL LAWSON stores,
and of having both businesses import confectionery items anddevelop nut and cup soup products, each on a joint basis. We
will further strive to enhance the brand appeal and corporate
value of SEIJO ISHII CO., LTD which is celebrating its 90th year
in business in February 2017. At the same time, we will leverage
its strengths, including product development capabilities,
knowhow as a manufacturing retailer, and sales techniques, inorder to strengthen the domestic convenience store business.
SEIJO ISHII CO., LTD changed the fiscal year end in fiscal
2016. As a result of the change, segment profit represented a

14-month period.
With regard to the overseas business, LAWSON storesare operated by regional operators in Thailand, Indonesia, thePeople’s Republic of China, the Philippines and Hawaii in the
United States. In the People’s Republic of China, the Groupmarked its 20th anniversary in July 2016 as the first Japaneseconvenience store opened in Shanghai. In May 2016, the first
LAWSON stores opened in Wuhan, Hubei Province. In February
2017, the total number of LAWSON stores in the People’s
Republic of China exceeded the 1,000-mark.
Lawson ATM Networks, Inc., which operates the financial
services business, increased the number of ATMs installed

at LAWSON stores and other locations. We promoted new
partnerships with financial institutions, bringing the total numberof our financial institution partners, including online banks, to 87
nationwide (up seven from the end of the previous fiscal year),and the number of ATMs installed nationwide to 11,912 (up711 from the end of the previous fiscal year) as of the end of
February 2017. In November 2016, we established Lawson Bank
Preparatory Company, Inc. with the aim of establishing a bankleveraging Lawson’s previous experience in financial service, andmeeting necessary preconditions for obtaining approval from therelevant authorities.

Items of the Consolidated Statement of Income
Gross Operating Revenues
For the year ended February 28, 2017, gross operating revenues
consisting of net sales, franchise commissions from franchise
stores, and “Other” stood at 631.2 billion yen, an increase of
47.8 billion yen, and 10.7 billion yen short of the plan. Of these
items, net sales amounted to 254.1 billion yen, higher year on
year, which was attributable to the fact that 1) the number ofstores increased as we opened non-consolidated stores, 2)revenues of franchise stores increased to 275.3 billion yen, 3)
the number of Company-operated, non-consolidated storesincreased and 4) sales of SEIJO ISHII increased because thecompany changed the fiscal year end and 14-month accounts
were consolidated, among other factors.
Selling, General, and Administrative Expenses
For the year under review, consolidated selling, general, andadministrative expenses stood at 383.2 billion yen, an increaseof 28.2 billion yen compared to the year-ago period, and approx.
3 billion yen short of the plan. Of the increase of 28.2 billion yen,approx.16.6 billion yen is accounted for by non-consolidated
accounts. The remainder totaling approx. 4.6 billion yen is
attributable to the selling, general, and administrative expensesof SEIJO ISHII CO., LTD. because 14-month accounts wereconsolidated.
Non-consolidated selling, general, and administrative
expenses amounted to 268.2 billion yen, an increase of 16.6
billion yen, or 6.5%, compared to the year-ago period, andapprox. 2.6 billion yen short of the plan.
Non-consolidated advertising and promotional expenses
stood at 13.8 billion yen. In the first half of the year, nonconsolidated advertising and promotional expenses increased
from the previous fiscal year due to the cost to support franchise
stores to sustain the amount of inventory as part of our initiative
to assist consumers’ living. However, we conducted efficient
expense control in the second half of the year, reducing nonconsolidated advertising and promotional expenses by approx.
900 million yen throughout the fiscal year.
Non-consolidated personnel expenses amounted to41.5 billion yen, an increase of 2.2 billion yen and almost flatcompared to the plan, which was attributable to a growth in thenumber of employees, among other factors. Non-consolidated

information technology (IT) costs stood at 9.3 billion yen, adecrease of 2 billion yen compared to the year-ago period
and 1.4 billion yen short of the plan, which was attributableto reduction of operational costs, end of the hardware leaseterm and other facts as well as partial schedule changes indevelopment of next-generation systems. Non-consolidated
facilities costs (excluding part of IT costs) totaled 144.3 billion
yen, an increase of 8.7 billion yen compared to the year-ago
period on the back of the rising number of stores, yet came in 1.7
billion yen short of the plan.
The remainder of non-consolidated costs and expenses
grew by 8.6 billion yen compared to the year-ago period andby 2.8 billion yen compared to the plan, which was attributable
to the fact that the amount paid by headquarters in new FC
packages increased by 3.6 billion yen and the amount of pro
forma standard tax increased by 800 million yen from theprevious fiscal year, among other factors.
The difference between consolidated and non-consolidated
selling, general, and administrative expenses was 114.9 billion
yen, an increase of 11.6 billion yen compared to the year-ago
period but 400 million yen below the plan. This was attributable
to the fact that selling, general, and administrative expenses in
Seijo Ishii and the overseas business was below the plan, among
other factors.

Lawson, Inc. Integrated Report 201710

Financial Section

Breakdown of Selling, General, and Administrative expenses(Millions of Yen)

2016

2015

2014

2013

2012

73,893

68,99460,84758,99060,013

19.2%

19.4%

20.3%

20.3%

21.7%

30,59429,461

16,71817,734

16,607

7.9%

8.3%

5.6%

6.1%

6.0%

115,926

108,795

96,87789,48584,578

30.2%

30.6%

32.3%

30.8%

30.6%

2,149

2,763

3,579

4,494

5,914

Percentage composition

0.5%

0.8%

1.2%

1.5%

2.1%

Depreciation and amortization

55,51649,157

41,78847,88943,886Percentage composition

14.5%

13.8%

14.0%

16.5%

15.9%

44,65240,27032,95937,872

34,030Percentage composition

11.6%

11.3%

11.0%

13.0%

12.3%

Amortization of intangible assets

10,864

8,886

8,830

10,017

9,856

2.8%

2.5%

3.0%

3.5%

3.6%

105,182

95,791

79,506

71,89265,315(Fiscal Year)
Personnel expenses
Percentage composition
Advertising and promotional expenses
Percentage composition
Rent
Percentage composition
Equipment lease	Depreciation of property and store
equipment*				Percentage composition

Other
Percentage composition
Total
Percentage composition

27.4%

27.0%

26.6%

24.8%

23.7%

383,260

354,961

299,315

290,483

276,314100%

100.0%

100.0%

100.0%

100.0%

Operating Profit
Operating profit for fiscal 2016 stood at 73.7 billion yen, an
increase of 1.2 billion yen, or 1.6 %, compared to the year-ago
period because the non-consolidated operating profit remained
the same as the previous fiscal year and subsidiaries such as
SEIJO ISHII CO., LTD. contributed to profits. However, operating
profit was 2.2 billion yen short of the plan, which was greatly
attributable to the fact that net sales and gross profit margin in
the domestic convenience store business did not reach the plan.
Recurring Profit
Recurring profit for the year under review stood at 73 billion yen,
an increase of 3.3 billion yen, or 4.8%, compared to the yearago period, and flat compared to the plan. Non-operating loss
improved by 2.1 billion yen from the previous fiscal year due toreduction of foreign exchange loss and a decrease in loss on
lease contract termination stemming from store shutdowns,
among other factors. The amount of loss reduced by 2.2 billion

yen compared to the plan because of the smaller number ofclosings than originally planned. Recurring profit reduced only by
700 million yen.
Income before Income Taxes and Minority Interests
Although operating profit and recurring profit increased,
consolidated extraordinary losses amounted to 14.5 billion yen,
an increase of 300 million yen from the previous fiscal year, due
mainly to greater impairment of stores than planned. As a result,consolidated income before income taxes and minority interests
for fiscal 2016 stood at 58.4 billion yen, an increase of 3 billion
yen or 5.5% from the previous fiscal year.
Net Income
As a result, net income attributable to owners of the parent for
the year under review stood at 36.4 billion yen, an increase of
5 billion yen or 16.0%, compared to the year-ago period. Net
income per share amounted to 363.96 yen.

end of the previous fiscal year, which was mainly attributable tothe fact that short-term bank loans increased by 29.1 billion yen.
Long-term Liabilities
Long-term liabilities as of February 28, 2017 amounted to 223.7
billion yen, an increase of 13.1 billion yen, or 6.2%, compared tothe end of the previous fiscal year, which was mainly attributable
to the fact that lease obligations grew by 11.9 billion yen. As
a result, total liabilities as of February 28, 2017 stood at 580.5
billion yen, an increase of 50.3 billion yen, compared to the endof the previous fiscal year.
Net Assets
Net assets as of February 28, 2017 amounted to 285.9 billion
yen, an increase of 12.9 billion yen, or 4.7%, compared to theend of the previous fiscal year. This was mainly attributable tothe fact that retained earnings increased by 10.5 billion yen. As
a result, the shareholders’ equity ratio as of February 28, 2017
stood at 31.7% (compared to 32.9% at the end of the previous
fiscal year).
Accounts Specific to the Company’s Consolidated
Balance Sheet
Shown below are accounts that are specific to the Company’sbalance sheet.

accounts payable-due to franchise stores, an account for
franchise stores. However, accounts receivable-other include allcredit card-related accounts receivable relating to both directly
operated and franchise stores. This is because, being party toagreements with credit card companies, Lawson, Inc. is theholder of all accounts receivable from them.
As of February 28, 2017, accounts receivable-otheramounted to 78.3 billion yen, an increase of 10.6 billion yen
compared to the end of the previous fiscal year.
Long-term Loans Receivable
Long-term loans receivable consist mainly of store construction
cooperation money for landlords (store land and building owners)
and of headquarters loans to franchise stores. Money deposited
with the landlord at the time of a new store opening waspreviously recorded in lease deposits, yet it is currently recorded
in long-term loans receivable. Long-term loans receivable as ofFebruary 28, 2017 stood at 44.4 billion yen, an increase of 3.6
billion yen compared to the end of the previous fiscal year.
Lease Deposits
When entering into a lease agreement with the landlord, theCompany deposits with the former a security deposit worth
several months’ rent for the property. Lease deposits as ofFebruary 28, 2017 totaled 95.5 billion yen, an increase of 3.1
billion yen compared to the end of the previous fiscal year.

Accounts Receivable-Due from Franchise Stores
Merchandise ordered by individual franchise stores are procuredby the Company in a centralized manner, which in turn calculates
the amount of payments to individual suppliers on behalf offranchise stores before performing proxy payment service forthem. This is followed by the franchise headquarters collecting
the payment amount from each franchise store as “accounts
receivable-due from franchise stores,” which essentiallyconstitutes their obligation to the franchise headquarters. As
of February 28, 2017, accounts receivable-due from franchise
stores stood at 39.9 billion yen, an increase of 9.4 billion yen
compared to the end of the previous fiscal year.

Accounts Payable-Due to Franchise Stores
Accounts payable-due to franchise stores refer to theheadquarters’ obligation to franchise stores. All franchise stores’
daily sales proceeds are sent to the headquarters, and exceed,on occasion, “accounts receivable-due from franchise stores.”In such event, the Company records the amount in “accounts
payable-due to franchise stores” on the consolidated balance
sheet, as part of outstanding liabilities. Accounts payable-due tofranchise stores as of February 28, 2017 totaled 1.6 billion yen, adecrease of 300 million yen compared to the end of the previous
fiscal year.

Accounts Receivable-Other“Accounts receivable-other” include accounts receivablefrom business partners, such as certain accounts receivablefrom franchise stores (franchise store credit card-based sales
proceeds). Accounts payable are composed of accounts
payable-trade, an account for directly operated stores, andMoney Held as Agent
Money held as agent is composed chiefly of money received for
utility bill agent payment service and money received as the priceof tickets for concerts and so forth. The agency payment service
handling amount stood at 2,132.4 billion yen, an increase of 2.1%
compared to a year-ago period, supported by the rising

Items of the Consolidated Balance Sheet
Consolidated Balance Sheet
Current Assets
Current assets as of February 28, 2017 stood at 249.2 billion
yen, an increase of 25 billion yen, or 11.1%, compared to theend of the previous fiscal year. This was attributable mainly tothe fact that accounts receivable-due from franchise storesincreased by 9.4 billion yen and accounts receivable-otherincreased by 10.6 billion yen.

the end of the previous fiscal year, which was mainly attributable
to the fact that property and store equipment such as buildings
grew by 21.7 billion yen due to new store openings, andintangible non-current assets such as software increased by
10.2 billion yen due to investments related to next-generation
systems. As a result, total assets as of February 28, 2017 stoodat 866.5 billion yen, an increase of 63.3 billion yen, compared tothe end of the previous fiscal year.

Non-current assets
Non-current assets as of February 28, 2017 amounted to 617.2
billion yen, an increase of 38.2 billion yen, or 6.5%, compared toCurrent Liabilities
Current liabilities as of February 28, 2017 stood at 356.7 billion
yen, an increase of 37.1 billion yen, or 11.6%, compared to the11

Lawson, Inc. Integrated Report 2017

Capital Expenditures (Including Investments/Advances and Lease Asset Acquisition Costs)
Total consolidated capital expenditures for the year ended
February 28, 2017 stood at 119.7 billion yen, an increase of 13
billion yen compared to a year-ago period.
Investments in new stores amounted to 47.5 billion yen,
an increase of 7.1 billion yen compared to a year-ago period
as the number of store openings was higher year-on-year.
Investments in existing stores totaled 7.2 billion yen, an increaseof 500 million yen compared to a year-ago period. IT-related
investments came to 19.2 billion yen, an increase of 3.4 billion

yen compared to a year-ago period due mainly to investments
in next-generation systems. Lease transactions stood at 42.6
billion yen, an increase of 4.5 billion yen compared to a yearago period due mainly to aggressive renovations for bolstering
our customer living assistance service. New investments andadvances amounted to 1.5 billion yen, a decrease of 2.6 billion
yen compared to a year-ago period.
Shown below is the breakdown of the main capital
expenditures.

Lawson, Inc. Integrated Report 201712

Financial Section

Capital Expenditures(Millions of Yen)

2016

2015

2014

2013

2012

New store investments

47,594

40,46049,01432,23033,133

Existing store investments

7,233

6,727

5,840

7,078

8,769

IT-related investments

19,261

15,882

8,218

5,362

5,907

Other investments

1,464

1,466

2,752

2,067

3,238

Sub-total investments

75,55464,53565,823

46,73651,047

Investments and advances

1,594

4,122

42,610

5,189

1,550

Leases*42,63438,08932,81832,107

24,765

Total

119,784

106,747

141,251

84,03277,361(Fiscal Year)*	Leases are shown in an amount equivalent to the acquisition costs for the lease assets acquired during each accounting period. For the year ended February 29, 2016, expenditures for
repayment of lease obligations stood at 30,054 million yen.

Breakdown of depreciation and amortization(Millions of Yen)

2016

2015

2014

2013

2012

Depreciation of property and store
equipment

44,79240,39632,97737,872

34,030

Amortization of intangible assets

11,406

8,897

8,849

10,017

9,856

Total depreciation and amortization

56,19949,293

41,82647,88943,886(Fiscal Year)

Cash FlowsNet cash provided by operating activities for the year ended
February 28, 2017 stood at a cash inflow of 99.8 billion yen,a cash decrease of 12.3 billion yen compared to a year-ago
period, due mainly to changes in accounts receivable andaccounts payable.
Net cash used in investing activities for the year ended
February 28, 2017 amounted to a cash outflow of 76.2 billion
yen, a cash increase of 7.5 billion yen compared to a yearago period, which was due, among others, to an increase in
expenditures for acquisition of property and store equipment andintangible non-current assets.
Net cash used in financing activities for the year ended
February 28, 2017 amounted to a cash outflow of 25.6 billion
yen, a cash decrease of 24.5 billion yen compared to a year-ago
period, which was due, among other reasons, to a net increase/decrease of short-term bank loans.
As a result, cash and cash equivalents as of February 28,
2017, stood at 67.6 billion yen, a decrease of 2.1 billion yen
compared to February 29, 2016.

Capital Policy: Dividend and Treasury Stock Retirement
To return profits to shareholders is deemed by the Company
to be one of its top priority business management policies.
Thus, management runs the organization with due regard to thelevels of capital cost reflecting what investors expect from theCompany in terms of investment returns.
For this reason, we use ROE (Return on Equity), one of
the return on capital metrics, as the Company’s top priority
business management indicator in an effort to selectively pursue
businesses offering ROI above the cost of capital.
Based on a rigorous selection process, we will makeinvestments offering the prospect of superior investment returns
towards achieving corporate growth that is sustainable in themedium- to long-term. As a result, we strive to grow cash
flows from operating activities in a sustainable manner while
continuing to generate free cash flows, and continue to preserve
the stability of its financial position. Moreover, based on a capitalcomposition deemed appropriate by management, the Company
will distribute dividends of surplus, purchase its own shares astreasury stock and retire them while striving to achieve return on
capital above the cost of capital, thereby aiming to improve ROE
in the medium-term.

13

Lawson, Inc. Integrated Report 2017

The Company’s dividend policy does not have any specificdividend payout ratio target. Through the process of making
investments necessary for its sustainable growth, the Company
aims to increase its dividend payments stably as a means of
distributing its ample free cash flows to shareholders. The
fundamental concept of its capital policy is that such process
will allow the organization to improve return on capital without
needlessly holding surplus cash internally. For the year ending
February 28, 2018, the Company intends to pay a per-share
dividend of 255 yen, an increase of 5 yen compared to the fiscal
year 2016.
The Company purchased its own shares worth approx.
43.0 billion yen as treasury stock to retire them during a periodof four years from the year ended February 28, 2002 to the year
ended February 28, 2005. Moreover, it purchased its own sharesworth approx. 21.0 billion yen (approx. 5.3 million shares) as
treasury stock during the period from October 2007 to January
2008 before retiring a total of 5.0 million of such shares in
February 2008. The Company will continue to consider acquiring
its own shares as treasury stock to retire them in the future as ameans of achieving higher ROE.

Annual dividends per share & payout ratio
(Yen)

(%)

150

500

126.3
120

400

300

66.8

66.6
200

35.3
100

0

49.6

51.2

90

100

110

2005

2006

2007

41.8

70

2004

Annual dividends per share (left axis)

160

160

170

72.2
180

200

220

60.2

57.9

240
73.4

245
78.1

250
68.7

90

60

30

2008

2009

2010

2011

2012

2013

2014

2015

2016

0

(Fiscal Year)

Payout ratio (right axis)

Overview of major consolidated subsidiaries and equity method affiliates
Consolidated financial results for the year ended February
28, 2017 include the financial results of 23 group companies
comprising 20 consolidated subsidiaries and three equity method
affiliates. The principal business activities of Lawson, Inc.’s
subsidiaries and affiliates consist of the domestic convenience
store business, Seijo Ishii business, entertainment business,overseas business and financial service business. The following
paragraphs outline the business activities and financial results of
Lawson, Inc.’s major consolidated subsidiaries and affiliates.
Lawson Store100, Inc. (consolidated subsidiary)
Established on November 14, 2013, Lawson Store100, Inc.
succeeded to the operational functions of Ninety-nine Plus,
Inc., including its store operation and product development, on
February 1, 2014 through an absorption-type company split. The
former succeeded to the latter’s store-related assets including
franchise agreements for the LAWSON STORE 100 (including
Lawson Mart). Effective March 2016, the corporate name waschanged from Lawson Mart, Inc. to Lawson Store100, Inc.
LAWSON STORE 100 meets the needs of a wide range ofcustomers from children to senior citizens, with a focus on single
person and homemaker customers, by offering three types ofvalue, the “diverse merchandise selection” of a supermarket,
the “convenience” of a convenience store and the easy-tounderstand “standardized prices” of a 100-yen shop.
For the year ended February 28, 2017, Lawson Store100,
Inc. had a total of 798 stores at the period-end date, andoperating profit stood at 500 million yen, an increase of 45.3%
compared to a year-ago period.
Lawson Store100, Inc.

(Millions of Yen)

(Fiscal Year)2017.2

2016.2

2015.2Gross operating revenues

48,111

50,67578,232

Operating profit

545

375

1,763

Net income

441

286

985

*Consolidated starting from February 2013

SCI, Inc. (consolidated subsidiary)
SCI, Inc. (“SCI”) was established by Lawson, Inc. in July 2012 as asupply chain management function subsidiary aimed at enabling

Lawson, Inc. to involve itself in supply chain business activities
as an influential player and to help streamline the manufacturing
and logistics operations, with the objective of becoming the“Manufacturing Retailer Based on Small Commercial Areas.”
The Company aims to build a manufacturing retailer businessmodel that coherently covers the entire supply chain from the
upstream to the downstream, reducing inefficiencies suchas waste and redundant work that occur in the supply chain
from raw materials procurement to manufacturing to logistics
to the store. Added value generated through this supply chain
management reform initiative will be leveraged by Lawson, Inc.
for attaining greater product competitiveness and assisting thesales promotion efforts of franchise owners. In the medium term,
the Company will use the know-how in this area to grow thebusiness of supplying raw materials and merchandise to nongroup customers.
For the year ended February 28, 2017, operating profit
amounted to 1.8 billion yen, a decrease of 21.3% compared to a
year-ago period.
SCI, Inc.

(Millions of Yen)

(Fiscal Year)2017.2

2016.2

2015.2

2014.2Gross operating revenue

256,143

191,299

87,63874,460Operating profit

1,860

2,365

1,128

509

Ordinary profit

2,065

2,369

1,128

510

Net income

1,395

1,423

687

300

*Consolidated starting from September 2012

Lawson Sanin, Inc. (consolidated subsidiary)
In September 2016, Lawson Inc. established Lawson Sanin,
Inc. in Yonago City, Tottori Prefecture based on joint investment
with Poplar Co., Ltd., a convenience store operator based in
Hiroshima City. In November 2016, Lawson Sanin, Inc. started
a regional franchise business. In addition to two experimental
double-brand convenience stores opened in November 2015, 52
LAWSON stores in Tottori, Shimane and Yamaguchi Prefectures
were transferred to a joint LAWSON POPLAR brand. Lawson
Sanin, Inc. operates 287 stores (including existing LAWSON
stores in Tottori and Shimane Prefectures). LAWSON POPLAR
brand stores are function-reinforcing stores selling POP Ben

Lawson, Inc. Integrated Report 201714

Financial Section

boxed lunches that are prepared on site, under LAWSON FC
packages. Sales of the two experimental stores remain strong
due to high synergistic effects of the customer drawing powersof both companies. Lawson, Inc. has strengths in attracting
female and senior customers, while Poplar Co., Ltd., has theadvantage of gathering male
Lawson Sanin, Inc.
customers.
(Millions of Yen)
For the year ended(Fiscal Year) 2017.2
February 28, 2017, operating
Gross operating revenues
2,460
loss for four months amounted
Operating profit (loss)（56）
to approx. 60 million yen, due,
Net income (loss)（75）
among others, to expenses at*	Income began to be reflected in the
consolidated accounts, starting fromthe time of start-up.
November 2016
Lawson Okinawa, Inc. (equity-method affiliate)
In January 2009, Lawson, Inc. entered into a business allianceagreement with SAN-A CO., LTD. (“SAN-A”), the largest
integrated retailer in Okinawa, concerning operations in theprefecture. Through this alliance with SAN-A, an unrivalled
player there with a loyal customer following, we desire to deliver
services better suiting local needs and to offer a merchandiseand store environment befitting local consumer tastes, in aprefecture that has unique lifestyle and food preferences. To
this end, we established Lawson Okinawa, Inc. in October 2009as a wholly-owned subsidiary of Lawson, Inc. Subsequently, in
December 2009, 51% of the total shares outstanding in Lawson
Okinawa, Inc. were sold to SAN-A for the former to be run as a
joint venture.
For the year ended February 28, 2017, Lawson Okinawa,
Inc. had a total of 210 stores at the period-end date, andoperating profit stood at 1.6 billion yen, an increase of 16.4%
compared to a year-ago period. We will continue to haveLawson Okinawa, Inc. strive to build a store environment
meeting local needs appropriately, thus growing Lawson chain
stores in Okinawa in the coming years.
Lawson Okinawa, Inc.

(Millions of Yen)

(Fiscal Year)2017.2

2016.2

2015.2

2014.2

2013.2Gross operating revenues

6,509

5,605

4,674

4,199

3,954

Operating profit

1,637

1,407

1,183

1,051

924

Net income

1,081

954

738

792

799

Lawson Minamikyushu, Inc. (equity method affiliate)
Lawson Minamikyushu, Inc. (“Lawson Minamikyushu”) wasestablished in May 2013 as a wholly-owned subsidiary of
Lawson, Inc. before launching Lawson store operations in
Kagoshima in August the same year. Subsequently, in March
2014, Nangoku Corporation took a 51% equity participationin Lawson Minamikyushu (Lawson, Inc.’s equity interest ratio
became 49%) to acquire Lawson, Inc.’s Kagoshima operations
before starting to run Lawson stores in the prefecture in the formof a joint venture with it.
For the year ended February 28, 2017, Lawson
Minamikyushu had a total of 191 stores at the period-end date,and operating profit turned positive and stood at 100 million
yen, despite a loss in the previous fiscal year. We will continue tohave Lawson Minamikyushu strive to build a store environment
meeting local needs appropriately, thus growing Lawson chain
stores in Kagoshima in the coming years.

15

Lawson, Inc. Integrated Report 2017

Lawson Minamikyushu, Inc.

(Millions of Yen)SEIJO ISHII CO., LTD.

(Fiscal Year)2017.2

2016.2

2015.2(Fiscal Year)2017.2

2015.122014.12(Fiscal Year)2017.2

2016.2

2015.2

2014.2

2013.2Gross operating revenues

4,007

3,756

3,595

Gross operating revenues

85,824

68,993

17,881Gross operating revenues

50,42350,20546,01845,31445,481

Operating profit (loss)

94

（183）

（422）

Operating profit

7,795

5,795

1,547

Operating profit

2,119

2,469

3,094

2,819

2,446

（93）

（591）

（472）

Net income

4,616

2,625

1,086

Net income

1,466

1,644

2,918

2,450

2,450

Net income (loss)*	Income began to be reflected in the consolidated accounts,

starting from March 2014

Lawson Kochi, Inc. (equity-method affiliate)
In December 2014, Lawson, Inc. entered into a corporate
franchise contract with SUNNY MART Co., Ltd. (“SUNNY
MART”), which was a supermarket operator serving chiefly Kochi
Prefecture and was the parent of Three-F Chu-Shikoku Co., Ltd.
This was followed by SUNNY MART converting Three-F storesoperated by the company into LAWSON stores on a step-bystep basis. In April 2015, Lawson Kochi, Inc. was established asa joint venture between SUNNY MART and Lawson, Inc. (withthe former and the latter holding 51% and 49% equity stakes in
the joint venture, respectively). Thus, all LAWSON stores in Kochi
Prefecture began to be operated by Lawson Kochi, Inc.
For the year ended February 28, 2017, the number of
LAWSON stores in the prefecture stood at 135 at the period-end
date, and the operating profit of Lawson Kochi, Inc. amounted to
400 million yen, an increase of 7.6% compared to the previous
fiscal year.
We will continue
Lawson Kochi, Inc.
(Millions of Yen)
to have Lawson(Fiscal Year) 2017.2
2016.2Kochi strive to build
Gross operating revenues
4,482
4,208
a store environment
Operating profit
463
430
meeting local needs
Net income
298
286
appropriately, thus
* Income began to be reflected in the
consolidated accounts, starting from April
growing Lawson
2015
chain stores in Kochi
in the coming years.
SEIJO ISHII CO., LTD. (consolidated subsidiary)
SEIJO ISHII CO., LTD (“Seijo Ishii”)celebrated its 90th year inbusiness in February 2017. The company further strives toenhance the brand appeal and corporate value. At the sametime, the company leverages its strengths, including productdevelopment capabilities, knowhow as a manufacturing retailer,and sales techniques, in order to strengthen the domestic
convenience store business.
For the year ended February 28, 2017, Seijo Ishii opened
the first hybrid store in a combination of Seijo Ishii and Le Bar a
Vin 52 at the Atre Ebisu West Building in April 2016. It launched
desica, a new private brand (PB) which achieved strong sales. It
promoted the collaboration between the domestic convenience
store business and the Seijo Ishii business in the form ofarranging for wine products on sale at Seijo Ishii supermarkets
to be offered at NATURAL LAWSON stores, and of having bothbusinesses import confectionery items and develop nut and cup
soup products, each on a joint basis.
Operating profit stood at 7.7 billion yen, an increase of
2 billion yen, or 34.5% compared to the previous fiscal year,
which was attributable to the fact that 14-month accounts wereconsolidated as a result of the change in the fiscal year ended infiscal 2016.

(Millions of Yen)

Lawson HMV Entertainment, Inc.

(Millions of Yen)

*Consolidated starting from February 2013

Lawson HMV Entertainment, Inc. (consolidated subsidiary)
Lawson HMV Entertainment, Inc. (“Lawson HMV Entertainment”)
distributes tickets for concerts, sporting events, theaters andcinemas mainly through the multimedia information terminal“Loppi” in Lawson stores and the “L-Tike.com” website. The
company is particularly strong in the areas of J-pop and sporting
event ticket sales. Holding a top-class position in the industry
in ticket sales quantity, Lawson HMV Entertainment has been
expanding its operations in a steady manner.
Established in 1992 as RIZA JAPAN, primarily a ticket
distributor, the company changed its name to Lawson Ticketin 1996 before being included in Lawson, Inc.’s scope of
consolidation as a subsidiary in 1997.
In order to make the most of the customer interface
provided by Lawson Ticket as well as the e-commerce businessknow-how and mechanism developed by i-Convenience,
Inc., then a wholly-owned Lawson, Inc. subsidiary, these two
subsidiaries merged in March 2009, with Lawson Ticket as thesurviving company. In July 2009, the company changed its nameto Lawson Entermedia, Inc. It was listed on the Osaka Securities
Exchange JASDAQ Market but was delisted in June 2010. The
company then became a wholly-owned subsidiary of Lawson,
Inc. in July 2010 through a share swap transaction.
In September 2011, Lawson Entermedia, Inc. and our
subsidiary HMV Japan K.K.* merged to form Lawson HMVEntertainment with the aim of achieving increased synergy
between the entertainment and e-commerce businesses of theLawson Group, going forward. Lawson HMV Entertainment in
the future will be able to leverage the Group’s solid e-commercebusiness platform to provide one-stop shopping convenience tocustomers by, for instance, enabling those now buying concert
tickets and CDs for a given artist separately to make purchases
in one single location. The company is likely to generate goodsynergy between the HMV brand’s competitive edge in the
CD music industry and Lawson Ticket’s prowess in the ticket
distribution industry.
As for Lawson HMV Entertainment’s revenue structure,commission revenues on ticket sales currently account for thebulk of its revenues. Its operating revenues mainly comprisingcommissions are recorded as “operating revenues-other” in the
consolidated statement of income of Lawson, Inc.
For the year ended February 28, 2017, the company
opened its second HMV record shop specialized in secondhand analog records and CDs in Shinjuku. The number of HMV
stores totaled 55 as of the end of February 2017. Operating
profit stood at 2.1 billion yen, a decrease of 14.1% compared tothe previous fiscal year, due mainly to an increase in amortization
costs related to next-generation ticket systems.
* 	HMV Japan K.K. (a consolidated subsidiary of Lawson, Inc. until August 31, 2011) was aretailer selling CDs and DVDs under the “HMV” brand. Established in 1990, the firm opened
its first store in Shibuya, Tokyo that year. The company in 1999 launched the “HMV Online”
service to commence its current e-commerce business. In 2007, HMV Japan Holdings Co.,
Ltd., all shares of which were owned directly or indirectly by Daiwa Securities SMBC Principal
Investments Co., Ltd., acquired all shares in HMV Japan K.K. In December 2010, Lawson,
Inc. acquired all of the shares from HMV Japan Holdings Co., Ltd. in an effort to reinforce its
entertainment business and achieve increased synergies with Lawson Entermedia, Inc.

Lawson ATM Networks, Inc. (consolidated subsidiary)
Lawson ATM Networks, Inc. (“Lawson ATM Networks”)
was established in 2001 with investments from Mitsubishi
Corporation, partner banks and Lawson, Inc., as a provider of
automated teller machine (ATM) services for Lawson stores. The
company installed ATMs at certain Lawson stores that year tolaunch an ATM service. It engages in the installation of multibank
ATMs at Lawson stores in areas for which an ATM installationagreement is reached with individual partner banks. Revenues,
consisting mainly of an ATM operation service fee from suchbanks, are recorded as “operating revenues-other” in Lawson,
Inc.’s consolidated statement of income. Principal expenses arecomposed chiefly of operation center contract service fees, ATMline costs and ATM equipment lease fees.
Operating income for the year ended February 28, 2017,
stood at 5.9 billion yen, a decrease of 3.1% compared to a yearago period.
During the year, Lawson ATM Networks continued to add
to its list of ATM service partner banks, bringing the total to 87
banks based in Japan, including online banks, as of February
28, 2017, an increase of seven banks compared to a year ago.
The number of ATMs in operation at Lawson stores nationwide
totaled 11,912, an increase of 711 year-on-year.
Lawson ATM Networks, Inc.

(Millions of Yen)

(Fiscal Year)2017.2

2016.2

2015.2

2014.2

2013.2Gross operating revenues

25,722

24,68823,56724,18823,975

Operating profit

5,991

6,188

5,935

6,089

4,753

Net income

3,857

3,877

3,605

3,690

2,712

United Cinemas Co., Ltd. (consolidated subsidiary)
In August 2014, Lawson, Inc. acquired all shares in UnitedEntertainment Holdings, Inc., a holding company of cinema
operator United Cinemas Co., Ltd. (“UC”), in a deal conducted
via Lawson HMV Entertainment United Cinemas Holdings, Inc.,a firm newly established by Lawson HMV Entertainment, Inc.
Adding the firm to the Lawson Group steps up its contents
holder service as an integrated entertainment distributor
and boosts its existing business lines’ customer drawing
power through collaborating with movie contents holders
and encouraging its Lawson, HMV, e-commerce and cinema
operations to guide customers to each other’s service.
or the year ended February 28, 2017, UC opened theJapan’s first new style cinema theater, called “Premium Dining
Cinema” in Fukuoka City in April 2016 where people can enjoy amovie while tasting meals. UC operates a total of 38 sites and 340
screens at its cinemas nationwide (including screens operated
on commission) as of the end of February 2017. Operating profit
amounted to 2.4 billion yen, an increase of 100 million yen fromthe previous fiscal year. UC changed the fiscal year end. The
financial results for the year under review included the 12-month
operating profit, while the financial results for fiscal 2015 included

Lawson, Inc. Integrated Report 201716

Financial Section

the 14-month operating profit. However, operating profit increased
because the company enjoyed hits and enhanced expense
control.
United Cinemas Co., Ltd.

(Millions of Yen)

(Fiscal Year)2017.2

2016.2

2014.12Gross operating revenues

22,637

24,9605,773

Operating profit

2,457

2,338

156

Net income (loss)

2,137

2,260

（112）

* Consolidated starting from September 2014

Shanghai Lawson, Inc. (consolidated subsidiary)
We were the first Japanese convenience store company togain a foothold in China with our first store opening in 1996.
We established a joint venture, Shanghai Hualian Lawson, Inc.
(“Shanghai Hualian Lawson”) in Shanghai, with Lawson, Inc.
taking a 70.0% equity stake in the firm and China Hualian Group
Co., Ltd. (“Hualian Group”)*, a Shanghai city government-relatedcompany, the remaining 30.0% equity stake in it.
With the aim of acquiring land and buildings in good
locations and motivating local employees better, we transferred,in 2004, to the Hualian Group 21.0% of equity interest in
Shanghai Hualian Lawson, out of our 70.0% equity interest in
the firm, reducing our ownership in it to 49.0%. Subsequently,
in response to changes in China’s (Shanghai’s) economic
environment, we recognized the need to reinforce the Japanesestyle convenience store concept. Accordingly, in September
2011, we began to again acquire incremental shares in Shanghai
Hualian Lawson to regain management control of the company.
After we brought our equity interest in Shanghai Hualian Lawson
to 85.0%, the company was included in Lawson, Inc.’s scopeof consolidation as a subsidiary. Lawson, Inc. carried out theabove-mentioned incremental share acquisition program inorder to accelerate its efforts to pursue the Japanese-style
convenience store business model that is superior in productdevelopment, customer interaction, and cleanliness. This
program, aimed at strengthening and expanding our China
business, was performed by concluding a share transfer
agreement with Bailian Group Co., Ltd. (“Bailian Group”)*, whose
retail division restructuring was underway. Our equity interestin Shanghai Hualian Lawson was raised even further since,
standing at 100% as of February 28, 2017. On February 27,
2017, Shanghai Hualian Lawson, Inc. changed its corporatename to Shanghai Lawson, Inc.
From now on, the company aims to upgrade the quality of
Lawson stores in Shanghai, the economic center of China, andachieve increased store brand appeal while focusing on ROI, acriterion used for new store openings in the country, as in Japan.
The total number of Lawson stores in operation stood at 665 asof February 28, 2017.
* Through a restructuring of China’s retail industry driven by the national government, theHualian Group was merged into the Bailian Group. In the course of this restructuring, allshares in the Hualian Group were transferred to the Bailian Group in December 2008.

Shanghai Lawson, Inc.

(Millions of Yen)

Chongqing Lawson, Inc. (consolidated subsidiary)
Populated by 34 million people (2015 JETRO survey), Chongqing
is one of the world’s biggest cities, and is the fourth directcontrolled municipality of China after Beijing, Shanghai and
Tianjin. The city has continued to enjoy double-digit economic
growth for 10 consecutive years (2015 JETRO survey). This
double-digit economic growth rate exceeds the national averageand that of coastal cities such as Shanghai. It is against thisbackdrop that potential demand for convenience stores in
China’s fast-growing inland cities is increasing.
We established Chongqing Lawson, Inc. in April 2010 togain a foothold in inland China as the first Japanese convenience
store company to operate there at the invitation of the city. The
first local Lawson store was opened in July the same year asa store equipped with a staff training facility. The Lawson store
network has continued to grow steadily since, bringing the total
store count to 136 as of February 28, 2017.
Chongqing Lawson, Inc.
(Fiscal Year) 2016.12

2015.122014.122013.12Gross operating revenues

3,586

4,400

3,474

1,843

977

Operating profit (loss)

（452）

（778）

（904）

（840）

（671）

Net income (loss)（623）（973） （1,047）

（833）

（775）

Dalian Lawson, Inc.
516

176

Operating profit (loss)

（183）

（313）

（313）

（227）

（163）

Net income (loss)

（190）

（345）

（338）

（211）

（196）

Saha Lawson Co., Ltd. (consolidated subsidiary)
In Thailand, we established Saha Lawson Co., Ltd. in November
2012 as a joint venture principally with the SAHA Group,
Thailand’s leading consumer goods distributor. In March 2013,
this joint venture launched Lawson convenience stores under the“LAWSON 108” brand in Bangkok. The number of stores stoodat 85 as of February 28, 2017.
■Saha Lawson Co., Ltd.

2012.12

1,360

1,290

903

（756）

（646）

（404）

（574）

Gross operating revenues（925） （1,568） （2,034）

Lawson, Inc. Integrated Report 20172012.12

995

8,532

17

2013.12

1,503

Gross operating revenues 13,561*	Starting from the year ended December 31, 2015, the profits (losses) of Shanghai Le
Song Trading Co., Ltd., Shang Hai Gong Hui Trading Co., Ltd. and Zhejiang Lawson,
Inc., each located in Shanghai and surrounding area, were added to the profit (loss) of
Shanghai Hualian Lawson, Inc.

2014.122,043

2013.12（1,347） （1,100）

2015.12Gross operating revenues

2014.12Net income (loss)(Millions of Yen)

(Fiscal Year) 2016.12

2015.12（555）

2012.12

Dalian Lawson, Inc. (consolidated subsidiary)With a population of some six million (2015 JETRO survey),
Dalian is the biggest port city in Northeast China. Following
an invitation by the city of Dalian to commence convenience
store operations there, we established Dalian Lawson, Inc. in
September 2011 as a joint venture with local enterprise Dalian
Acasia Fast Foods Co., Ltd. before opening the first local
Lawson store in November the same year. Currently, our equity
stake in the company is 98.3%. The number of its Lawson storesstood at 82 as of February 28, 2017.
In the city of Beijing, we established Beijing Lawson, Inc. (nonconsolidated company) in May 2013. The company opened 14
stores in the year ended February 28, 2017, bringing the total
number of stores to 48 as of the date.

(Fiscal Year) 2016.12

Operating profit (loss)(Millions of Yen)

(Fiscal Year) 2016.12(Millions of Yen)

2015.122014.12

7,171

6,963

7,800

5,959

Operating profit (loss)

（305）

（251）

（655）

（338）

Net income (loss)

（396）

（309）

（831）

（525）

* Consolidated starting from January 20132013.12Future Outlook
We believe the three years from fiscal 2016 through fiscal 2018
will greatly influence our future. As for the “1,000-Day Action
Plan” launched with the aim of becoming an essential part ofour communities, net sales and operating profit fell short of theplanned targets for the first year of the plan. However, we saw
an increase in sales of our broadened product lineups such as
daily delivered foods and improved delicatessen items, as well as
a rise in the average spending per customer, from the previous
year, which has given us confidence in the initiative. In the year
ending February 2018, we will advance this project, based on
the foundations built in the first year.
Mid-term Management Vision
The business environment we are faced with is changing
dramatically, even during this year alone. Such social changes
include the worsening labor shortage caused by the shrinking
working-age population, declining birthrate, and aging of theoverall population. In the convenience store industry, many
alliances are taking place. Newly developed technologies such as
artificial intelligence and electronic tagging may change the way
we do our business. With all this in mind, we have formulated the
Mid-term Management Vision, which incorporates the “1,000Day Action Plan” and sets out clear targets to be achieved byfiscal 2021.
By building our unique Next-Generation LAWSONConvenience Store model, we will work to achieve a consolidated
operating profit of over 100 billion yen, average daily sales per
store of 600,000 yen, and 18,000 domestic convenience storesby fiscal 2021. As for our financial strategy, we will continue to
distribute profits to shareholders by paying dividends steadily while
utilizing bank loans required for establishing our business model andinvesting in future growth. We aim to maintain the D/E ratio under 1
and achieve an ROE of over 15% by fiscal 2021.

Furthermore, we will open 1,400 new stores including thoseunder business partnerships with SAVE ON Corp. and Three-F Co.,
Ltd., achieve a net increase of 900 stores, and increase the numberof domestic LAWSON stores to 14,000. In the existing convenience
store business, operating profit is projected to grow, due mainly tothe enhancement of the domestic convenience store business andprofitability improvement in the overseas business.
Business Performance Outlook for Fiscal 2017
For fiscal 2017 ending February 2018, consolidated operating
profit is projected to be 68.5 billion yen, a decrease of 5.2 billion
yen, or 7.1% year on year. Consolidated net profit is expected
to be 33.5 billion yen, a decrease of 2.9 billion yen, or 8.0%
from the previous fiscal year. These projections reflect the cost
increase associated with our future growth strategy, although
average daily convenience store sales and gross profit margin
will be improved.
Non-consolidated operating profit is planned to be 52 billion
yen, a decrease of 5.4 billion yen, or 9.4% year on year. The
difference between consolidated and non-consolidated operating
profits is planned to be 16.5 billion yen, almost the same level of theprevious fiscal year.
With regard to subsidiaries, a decrease in the operating
profit of SEIJO ISHII CO., LTD. is projected because an irregularaccounting period of 14 months will return to the normal 12-month
period, and Lawson Bank Preparatory Company, Inc. will beconsolidated, which are among other factors behind the decline
in profit. For the overseas business, operating loss is projected todecrease mainly because the business in Shanghai will turn positive.
With regard to cash flow, consolidated cash flow fromoperating activities is projected to be 120 billion yen, which isgreater than the 110 billion yen of projected consolidated cash flowfrom investment activities including investments in increasing newstore openings and in next-generation systems.

Investments in Growth toward the Future
The year ending February 2018 will see our investments
becoming more aggressive in building the business model
stated in the Mid-term Management Vision and in achieving thetargeted average daily sales per store of 600,000 yen.
Accordingly, costs and expenses are projected to increase forinvestments in next generation systems, including the installation oftablets and new POS cash registers to improve store productivity,
for new services to respond to the wider daily life needs of ourconsumers, such as financial and health care businesses, and forthe launch of business alliances with other chain operators.
Enhancement of Existing Convenience Store Business
Meanwhile, we will make the best use of the fruits of our past
initiatives such as the semi-automatic ordering system andexpanded merchandise selection to support our customers’
everyday needs. At the same time, we will strengthen the overthe-counter fast foods, one of our strong points, and the boxed
meals, our core products. Thus, we plan to achieve a 1%
increase in net sales of existing stores compared to the previous
fiscal year and a gross profit margin of 31.7% in the year ending
February 2018.

Lawson, Inc. Integrated Report 201718

Financial Section

Consolidated Balance Sheet
Lawson, Inc. and Consolidated Subsidiaries
February 28, 2017

Thousands of
U.S. Dollars(Note 1)Millions of Yen

ASSETS

2017

2017

2016

Cash and cash equivalents
Time deposits

2017

2016

2017

CURRENT LIABILITIES:¥67,692¥69,793$601,386

423

4

3,758

Accounts receivable:
Due from franchised stores (Note 4)

39,98330,547355,215

Other

78,36467,736696,198

(50)

(8)

(444)

Allowance for doubtful accounts

Millions of Yen

LIABILITIES AND EQUITYCURRENT ASSETS:

Thousands of
U.S. Dollars(Note 1)

Accounts payable:¥110,835¥112,225$984,675

Due to franchised stores (Note 9)

1,611

1,998

14,312Other59,54659,407529,016

Trade (Notes 8 and 19)

Short-term bank loans (Note 10)

31,1801,990

277,008

Current portion of long-term debt (Note 10)28,58824,473

253,980

Lease receivables

12,336

5,906

109,595

Income taxes payable

9,877

8,501

87,749Inventories

18,131

17,977161,079

Money held as agent

103,157

101,909916,462

Other (Note 12)

Deferred tax assets (Note 15)

3,907

4,525

34,710Other

28,49327,729253,135

249,279

224,2092,214,632

Total current assets

11,9909,104

106,521356,784

319,6073,169,723

13,084

12,187116,240

332

413

2,950

Long-term debt (Note 10)

156,687

145,623

1,392,031

Asset retirement obligations (Note 12)26,95824,665

239,499

Total current liabilities

LONG-TERM LIABILITIES:Net defined benefit liability (Note 11)

PROPERTY AND STORE EQUIPMENT:
9,701

9,794

86,185

Buildings (Note 6)

347,086

331,133

3,083,564

Furniture, fixtures, and equipment (Note 6)

74,98873,627666,205

Lease assets (Note 6)

186,344

179,244

1,655,508

743

619

6,602

618,862

594,417

5,498,064(294,351)(291,655)(2,615,059)

324,511

302,7622,883,005

Land (Notes 6 and 7)

Other (Note 6)
Total
Accumulated depreciation
Net property and store equipment

Allowance for retirement benefits to executive officers
and audit and supervisory board members

Deferred tax liabilities (Note 15)

958

8,511

25,77927,720229,024

223,798

210,608

1,988,255

Common stock̶authorized, 409,300,000 shares in 2017and 2016; issued, 100,300,000 shares in 2017 and 2016

58,50758,507519,785

49,08447,697436,070

Other
Total long-term liabilities

EQUITY (Note 13):INVESTMENTS AND OTHER ASSETS:
Investment securities (Note 5)

8,781

10,12078,012

Capital surplus

Investments in associated companies

14,151

15,600125,720

Stock acquisition rights

315

307

2,798

165,162

154,609

1,467,324(1,211)(1,280)(10,759)

Long-term loans receivable

44,49540,886395,300

Retained earnings

Goodwill (Note 6)

46,042

46,310409,044

Software (Note 6)

37,56826,377

333,760

Treasury stock̶at cost, 285,191 shares in 2017 and
301,897 shares in 2016

Trademark right

10,691

11,381

94,980

Accumulated other comprehensive income:Lease deposits

95,59492,495849,271

Net unrealized gain on available-for-sale securities

274

801

2,434

Deferred tax assets (Note 15)

23,13922,017

205,570

Land revaluation difference (Note 7)

(619)

(566)

(5,499)Other (Note 6)

13,295

11,915

118,116

Foreign currency translation adjustments

4,611

5,531

40,965

(968)

(860)

(8,600)Defined retirement benefit plans

(928)

(906)

(8,244)

292,788276,241

2,601,173

275,195

264,700

2,444,874

10,801

8,297

95,958

Allowance for doubtful accounts
Total investments and other assets
TOTAL
See notes to consolidated financial statements.

¥866,578¥803,212$7,698,810

Total
Noncontrolling interests
Total equity
TOTAL

19

Lawson, Inc. Integrated Report 2017285,996

272,997

2,540,832¥866,578¥803,212$7,698,810

Lawson, Inc. Integrated Report 201720

Financial Section

Consolidated Statement of Income

Consolidated Statement of Comprehensive Income

Lawson, Inc. and Consolidated Subsidiaries
Year Ended February 28, 2017

Lawson, Inc. and Consolidated Subsidiaries
Year Ended February 28, 2017

Thousands of
U.S. Dollars(Note 1)Millions of Yen

2017

2017
NET INCOME

Franchise commissions from franchised stores¥275,312¥261,681$2,445,913

Net sales

254,169

227,606

2,258,076

Other

101,807

94,166904,469

631,288583,453

5,608,458

Total operating revenues

Millions of Yen

2017

2016

OPERATING REVENUES:COSTS AND OPERATING EXPENSES:
Cost of sales (Note 19)

174,255

155,949

1,548,108

Selling, general, and administrative expenses

383,261

354,9623,404,948

Total costs and operating expenses

557,516

510,911

4,953,056

Operating income

73,772

72,542

655,402

Unrealized gain (loss) on available-for-sale securities(1,103)(1,072)(9,799)Compensation income

524

646

4,655

(1,275)(1,953)(11,327)

Equity in earnings of unconsolidated subsidiaries andassociated companies

602

293

5,348

Loss on sales of non-current assets

(295)

(229)

(2,621)

Loss on cancellation of leases

Loss on disposal of property and store equipment(3,554)(4,342)(31,574)

Impairment of long-lived assets (Note 6)(9,535)(10,542)(84,710)Gain on valuation of derivatives

409

3,634

Loss on disaster(772)(6,859)Other̶net

(317)

59

(2,817)(15,316)(17,140)(136,070)

58,45655,402519,332

18,92919,234

168,168

Other expenses̶net
INCOME BEFORE INCOME TAXES¥32,136$329,371

(527)

1,195

(4,682)(8,253)

Land revaluation difference(53)

Foreign currency translation adjustments

(929)

(16)

Remeasurements of defined benefit plans

(22)

(387)

(195)

Total other comprehensive income(1,531)

792(13,601)¥35,543¥32,928$315,770¥34,879¥32,227$309,871

664

701

5,899

COMPREHENSIVE INCOME(471)

TOTAL COMPREHENSIVE INCOME ATTRIBUTABLE TO(Note 17):
Noncontrolling interests

Interest expense̶net

2017

2016

¥37,074

OTHER COMPREHENSIVE INCOME:

Owners of the parent
OTHER INCOME (EXPENSES):

Thousands of
U.S. Dollars(Note 1)

See notes to consolidated financial statements.

INCOME TAXES (Note 15):
Current
Deferred
Total income taxes
NET INCOME

2,453

4,032

21,793

21,382

23,266

189,961

37,07432,136329,371

(674)

(755)

(5,988)¥36,400¥31,381$323,383

NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTSNET INCOME ATTRIBUTABLE TO OWNERS OF THE PARENT

Yen

2017

U.S. Dollars

2016

2017

PER SHARE OF COMMON STOCK (Notes 2.u and 21):
Net income̶basic¥363.96¥313.82$3.23

Net income̶diluted

363.71

313.57

3.23

Cash dividends applicable to the year

250.00245.002.22

See notes to consolidated financial statements.

21

Lawson, Inc. Integrated Report 2017

Lawson, Inc. Integrated Report 201722

Financial Section

Consolidated Statement of Changes in Equity
Lawson, Inc. and Consolidated Subsidiaries
Year Ended February 28, 2017

Thousands of Shares/Millions of Yen
Common Stock

BALANCE, MARCH 1, 2015
Net income attributable to owners of the parent
Year-end cash dividends, ¥120 per share
Interim cash dividends, ¥122.5 per share
Change of scope of equity method
Exercise of stock acquisition rights to shares (delivery of treasury stock)
Disposal of treasury stock
Others̶net
BALANCE, FEBRUARY 29, 2016 (MARCH 1, 2016, as previously reported)
BALANCE, MARCH 1, 2016 (as restated)
Net income attributable to owners of the parent

SharesAmount100,300¥58,507¥47,697¥223

Retained
Earnings¥148,589
31,381(12,000)(12,250)(1,111)058,50758,507

Change in the parentʼs ownership interest due totransactions with noncontrolling interests
Year-end cash dividends, ¥122.5 per share
Interim cash dividends, ¥125 per share
Change of scope of consolidation
Reversal of land revaluation difference
Purchase of treasury stock
Exercise of stock acquisition rights to shares (delivery of treasury stock)
Others̶net
BALANCE, FEBRUARY 28, 2017

Stock
Acquisition
RightsCapitalSurplus100,300
100,300

Accumulated Other Comprehensive Income

Treasury Stock

47,697
47,69784307
307154,609
154,60936,400

AmountNet Unrealized
Gain (Loss) on
Available-forSale Securities

Land
Revaluation
Difference

Foreign
Currency
Translation
Adjustments

DefinedRetirement
Benefit Plans(301)¥ (1,272)¥ (394)¥ (566)¥5,493¥ (519)

(1)
0

(8)
0

(302)
(302)

(1,280)(1,280)

1,195
801
801

(566)
(566)

38
5,531
5,531

(387)
(906)
(906)

Shares

1,387(12,250)(12,502)(1,130)52(0)100,300¥58,507¥49,084

8
¥315

(17)

(1)
17

(3)
72

¥165,162(286)¥ (1,211)

(527)
¥274

(53)
¥ (619)(920)¥4,611(22)¥ (928)

Total

Noncontrolling
Interests

Total

Noncontrolling
Interests

Total
Equity¥7,452¥265,210
31,381(12,000)(12,250)(1,111)(8)
0
1,775
272,997
272,997
36,400¥257,758
31,381(12,000)(12,250)(1,111)(8)
0930
264,700
264,700
36,400

845
8,297
8,297

1,387

1,387

(12,250)(12,502)(1,130)52(3)55(1,514)¥275,195(12,250)(12,502)(1,130)
52
(3)
55
990
¥285,996

2,504¥10,801

Thousands of U.S. Dollars (Note 1)
Accumulated Other Comprehensive Income

CommonStock

BALANCE, FEBRUARY 29, 2016 (MARCH 1, 2015, as previously reported)
Net income attributable to owners of the parent$519,785

Change in the parentʼs ownership interest due totransactions with noncontrolling interests
Year-end cash dividends, $1.09 per share
Interim cash dividends, $1.11 per share
Change of scope of consolidation
Reversal of land revaluation difference
Purchase of treasury stock
Exercise of stock acquisition rights to shares (delivery of treasury stock)
Others̶net
BALANCE, FEBRUARY 28, 2017

Stock
Acquisition
RightsCapitalSurplus$423,747

Retained
Earnings$2,727 $1,373,570
323,383

TreasuryStock$ (11,372)

Net Unrealized
Gain (Loss) on
Available-forSale Securities$ 7,116

Land
Revaluation
Difference$ (5,028)

Foreign
Currency
Translation
Adjustments$49,138

DefinedRetirement
Benefit Plans$ (8,049)

12,322(108,831)(111,070)(10,039)462$519,785

1

(151)

(27)
640

$436,070

71$2,798 $1,467,324$ (10,759)(4,682)$2,434(471)$ (5,499)(8,173)$40,965(195)$ (8,244)$2,351,634
323,383$73,712

Total
Equity$2,425,346
323,383

12,322

12,322(108,831)(111,070)(10,039)
462
(27)
490
(13,450)$2,444,874(108,831)(111,070)(10,039)
462
(27)
490
8,796
$2,540,832

22,246$95,958

See notes to consolidated financial statements.

23

Lawson, Inc. Integrated Report 2017

Lawson, Inc. Integrated Report 201724

Financial Section

Consolidated Statement of Cash Flows
Lawson, Inc. and Consolidated Subsidiaries
Year Ended February 28, 2017

Thousands of
U.S. Dollars(Note 1)Millions of Yen

Thousands of
U.S. Dollars(Note 1)Millions of Yen

2017

2016

2017

¥58,456¥55,402$519,332

NET DECREASE IN CASH AND CASH EQUIVALENTS(2,437)(7,106)(21,651)

Income taxes paid

(18,204)(23,984)(161,727)

CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR

69,79376,755620,052

Depreciation and amortization

56,19949,293499,280

Impairment of long-lived assets

9,535

10,542

84,710CASH AND CASH EQUIVALENTS IN SUBSIDIARIES RESULTINGFROM CHANGE IN SCOPE OF CONSOLIDATION

336

144

2,985

Loss on disposal of property and store equipment

3,554

4,342

31,574

CASH AND CASH EQUIVALENTS, END OF YEAR

¥67,692¥69,793$601,386

Increase in accounts receivable(20,289)(6,312)(180,251)

Increase in accounts payable

5,051

21,952

44,874

Increase (decrease) in money held as agent

1,244(1,725)

11,052

666

742

5,917

OPERATING ACTIVITIES:
Income before income taxes and minority interests
Adjustments for:

Changes in assets and liabilities:

Increase in allowance for retirement benefits to employees
and executive officers and audit and supervisory board members
Other̶net

3,653

1,953

32,45556,803367,884¥99,865¥112,205$887,216

Payments into time deposits(842)(1,301)(7,480)

Proceeds from withdrawal of time deposits

1,764

1,301

15,672

Purchases of property and store equipment(42,064)(40,884)(373,703)

Purchases of software and other intangible assets(18,892)(15,609)(167,839)

Increase in long-term loans receivable(3,917)(3,632)(34,799)

Purchases of long-term prepaid expenses(3,112)(1,802)(27,647)

Acquisition of associated companies(1,805)(3,362)(16,036)

Other̶net(7,360)(3,368)(65,839)(76,228)(68,657)(677,221)

Net increase in short-term loans payable

29,190250

259,328

Repayments of long-term debt

(30,913)(26,165)(274,636)

Cash dividends paid

(24,752)(24,250)(219,901)

Net cash provided by operating activities

FOREIGN CURRENCY TRANSLATION ADJUSTMENTS
ON CASH AND CASH EQUIVALENTS

2017

2016

(436)

(453)

(3,874)

See notes to consolidated financial statements.

41,409Total adjustments

2017

INVESTING ACTIVITIES:Net cash used in investing activities
FINANCING ACTIVITIES:Other̶net
Net cash used in financing activities

25

Lawson, Inc. Integrated Report 2017

837

(36)

7,437

(25,638)(50,201)(227,772)

Lawson, Inc. Integrated Report 201726

Financial Section

Notes to Consolidated Financial Statements
Lawson, Inc. and Consolidated Subsidiaries
Year Ended February 28, 2017

1 BASIS OF PRESENTING CONSOLIDATED FINANCIAL STATEMENTS

BEIJING LUOSONG Co., Ltd. is December 31. In order to prepare the consolidated financial statements, theThe accompanying consolidated financial statements have been prepared in accordance with the provisions set forthCompany used these companies financial statements prepared as of such fiscal year end and significant

in the Japanese Financial Instruments and Exchange Act and its related accounting regulations and in accordance

transactions which occur between December 31, end and the consolidated fiscal year end are adjusted aswith accounting principles generally accepted in Japan (“Japanese GAAP”), which are different in certain respects as

required for consolidation.

to application and disclosure requirements from International Financial Reporting Standards.
Effective February 28, 2017 SEIJO ISHII CO., LTD. changed its fiscal year end from December 31 to February
In preparing these consolidated financial statements, certain reclassifications and rearrangements have been made28. Thus, its accounting period is 14 months (from January 1, 2016 to February 28, 2017) in this current

to the consolidated financial statements issued domestically in order to present them in a form which is more familiar

consolidated fiscal year. Furthermore, during the two-month period from January 1, 2017 to February 28,

to readers outside Japan. In addition, certain reclassifications have been made in the 2016 financial statements to2017, SEIJO ISHII CO., LTD reported operating revenue of 12,133 million yen, operating income of 1,114

conform to the classifications used in 2017.

million yen, and income before income taxes of 1,034 million yen.

The consolidated financial statements are stated in Japanese yen, the currency of the country in which Lawson, Inc.

The fiscal year end date for the other consolidated subsidiaries is the same as that of the Company.

(the “Company”) is incorporated and operates. The translations of Japanese yen amounts into U.S. dollar amounts areincluded solely for the convenience of readers outside Japan and have been made at the rate of ¥112.56 to $1, thec. Unification of Accounting Policies Applied to Foreign Subsidiaries for the Consolidated Financial

approximate rate of exchange at February 28, 2017. Such translations should not be construed as representations

Statements̶ In May 2006, the Accounting Standards Board of Japan (ASBJ) issued ASBJ Practicalthat the Japanese yen amounts could be converted into U.S. dollars at that or any other rate.

Issues Task Force (PITF) No. 18, “Practical Solution on Unification of Accounting Policies Applied to Foreign
Subsidiaries for the Consolidated Financial Statements.” PITF No. 18 prescribes that the accounting policies

Mitsubishi Corporation (“Mitsubishi”) owns 50,150 thousand shares of common stock of the Company (including

and procedures applied to a parent company and its subsidiaries for similar transactions and eventsindirect holdings) as of February 28, 2017, which represents 50.2% of the total voting rights of the Company.

under similar circumstances should in principle be unified for the preparation of the consolidated financial

Accordingly, Mitsubishi is the parent company.

statements. However, financial statements prepared by foreign subsidiaries in accordance with either
International Financial Reporting Standards or generally accepted accounting principles in the United Statesof America tentatively may be used for the consolidation process, except for the following items that should

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

be adjusted in the consolidation process so that net income is accounted for in accordance with Japanesea. Consolidation̶The consolidated financial statements include the accounts of the Company and its twenty

GAAP, unless they are not material: (a) amortization of goodwill; (b) scheduled amortization of actuarial gain(eighteen in 2016) subsidiaries (collectively, the “Companies”). Consolidation of the remaining subsidiaries would

or loss related to pensions that has been directly recorded in equity; (c) expensing capitalized development

not have a material effect on the accompanying consolidated financial statements.

costs of R&D; and (d) cancellation of the fair value model of accounting for property, plant and equipment andinvestment properties and incorporation of the cost model of accounting.

Under the control and influence concepts, those entities in which the Company, directly or indirectly, is able toexercise control over operations are fully consolidated, and those entities over which the Companies have theability to exercise significant influence are accounted for by the equity method.

d. Unification of Accounting Policies Applied to Foreign Associated Companies for the Equity Method̶In March 2008, the ASBJ issued ASBJ Statement No.16, “Accounting Standard for Equity Method of Accounting
for Investments.” The new standard requires adjustments to be made to conform the associateʼs accounting

Investments in three (three in 2016) associated companies are accounted for by the equity method. Investments

policies for similar transactions and events under similar circumstances to those of the parent company

in the remaining unconsolidated subsidiaries and associated companies are stated at cost. If the equity method

when the associateʼs financial statements are used in applying the equity method, unless it is impracticableof accounting had been applied to the investments in these entities, the effect on the accompanying consolidated

to determine adjustments. In addition, financial statements prepared by foreign associated companies infinancial statements would not be material.

accordance with either International Financial Reporting Standards or the generally accepted accounting
principles in the United States tentatively may be used in applying the equity method if the following items

All significant intercompany balances and transactions have been eliminated in consolidation. All material

are adjusted so that net income is accounted for in accordance with Japanese GAAP, unless they are

unrealized profit included in assets resulting from transactions within the Companies has been eliminated.

not material: (a) amortization of goodwill; (b) scheduled amortization of actuarial gain or loss of pensions
that has been directly recorded in the equity; (c) expensing capitalized development costs of of R&D; andThe excess of the cost of the Company's investments in consolidated subsidiaries and associated companies(d) cancellation of the fair value model of accounting for property, plant, and equipment and investment

over the fair value of the net assets at the dates of acquisition is being amortized over a period not exceeding 20

properties and incorporation of the cost model of accounting.

years.
e. Business Combination ̶ Business combinations are accounted for using the purchase method.

27

b. Fiscal Year End of the Consolidated Subsidiaries̶The fiscal year end of Chongqing Lawson, Inc., Shanghai

Acquisition-related costs, such as advisory fees or professional fees, are accounted for as expenses

Lawson, Inc., Dalian Lawson, Inc., Lawson (China) Holdings, Inc., Saha Lawson Co., Ltd., Shanghai Le Songin the periods in which the costs are incurred. If the initial accounting for a business combination is

Trading Co., Ltd., Shang Hai Gong Hui Trading Co., Ltd., Zhejiang Lawson, Inc., Beijing Lawson, Inc. andincomplete by the end of the reporting period in which the business combination occurs, an acquirer

Lawson, Inc. Integrated Report 2017

Lawson, Inc. Integrated Report 201728

Financial Section

shall report in its financial statements provisional amounts for the items for which the accounting is

not separately accounted for by the Company.

incomplete. During the measurement period, which shall not exceed one year from the acquisition, theacquirer shall retrospectively adjust the provisional amounts recognized at the acquisition date to reflect

g. Cash and Cash Equivalents̶Cash and cash equivalents include cash on hand, demand deposits, and

new information obtained about facts and circumstances that existed as of the acquisition date and thatshort-term investments, which mature or become due within three months of the date of acquisition andwould have affected the measurement of the amounts recognized as of that date. Such adjustments shallwhich are readily convertible into cash and are exposed to insignificant risk of changes in value.

be recognized as if the accounting for the business combination had been completed at the acquisition
date. The acquirer recognizes any bargain purchase gain in profit or loss immediately on the acquisition
date after reassessing and confirming that all of the assets acquired and all of the liabilities assumed

h. Inventories̶Substantially all inventories are stated at the lower of cost, determined by the retail method as
generally applied in the retail industry or by the gross average method, or net selling value.

have been identified after a review of the procedures used in the purchase price allocation. A parent's
ownership interest in a subsidiary might change if the parent purchases or sells ownership interests in its

i. Marketable and Investment Securities̶Marketable and investment securities are classified and accounted

subsidiary. The carrying amount of noncontrolling interest is adjusted to reflect the change in the parent's

for, depending on managementʼs intent, as follows: (1) held-to-maturity debt securities, which are expectedownership interest in its subsidiary while the parent retains its controlling interest in its subsidiary. Any

to be held to maturity with the positive intent and ability to hold to maturity are reported at amortized costdifference between the fair value of the consideration received or paid and the amount by which theand (2) available-for-sale securities, which are not classified as the aforementioned securities, are stated at

noncontrolling interest is adjusted is accounted for as capital surplus as long as the parent retains control

fair value based on market quotations. Unrealized gains and losses, net of applicable taxes, are reported

over its subsidiary.

in a separate component of equity. The cost of securities sold is determined based on the moving-averagemethod.

f. Franchise Agreement and Basis of Recognizing Franchise Commission ̶The Company operates
principally in a single industry referred to as the convenience store business with its own stores andNonmarketable investment securities are stated at cost determined by the moving-average method. For

franchised stores. The Company allows each independent franchisee to operate relatively small-sizedother than-temporary declines in fair value, nonmarketable investment securities are reduced to net realizable

convenience stores using specific designs and LAWSON brand names, and provides related managerial orvalue by a charge to income.

technical know-how under a franchise agreement. Under the agreement, all franchised stores are provided
with a variety of services and advice on the operation of convenience stores from the Company as thej. Property and Store Equipment̶Property and store equipment are stated at cost, except for land (seefranchisor. In return, such franchised stores are required to pay continuing franchise commissions to theNote 7). Depreciation is computed mainly by the straight-line method at rates based on the estimated usefulCompany based on certain percentages of the respective franchised storeʼs gross margin. As the franchisor,

lives of the assets. The range of useful lives is principally from 10 to 34 years for buildings and structures andthe Company accounts for franchise commissions on an accrual basis by reference to the gross margin

from 5 to 8 years for furniture, fixtures, and equipment.

earned by each franchised store and the applicable commission percentage. According to the franchise
agreement, a franchised store may pay additional guarantee deposits equal to twice the average monthly

The useful lives for lease assets are the terms of the respective leases.

sales amounts of the respective store and pay a lower commission percentage.
k. Long-Lived Assets̶The Companies review their long-lived assets for impairment whenever events or
The term of a franchise agreement is effective primarily for 10 years from the commencement date of achanges in circumstance indicate the carrying amount of an asset or asset group, mainly by each store,

new store's operation as a franchised store and may be extended or renewed upon expiration subject to

may not be recoverable. An impairment loss would be recognized if the carrying amount of an asset or asset

renegotiation of contract terms between the Company and the franchisee.

group exceeds the sum of the undiscounted future cash flows expected to result from the continued use andeventual disposition of the asset or asset group. The impairment loss is measured as the amount by which

The franchise agreement usually provides that the franchised store shall make a cash payment to thethe carrying amount of the asset exceeds its recoverable amount, which is the higher of the discounted cash

Company in the amount of ¥3 million upon commencement. Upon receipt of such payment, ¥1.5 million isflows from the continued use and eventual disposition of the assets or the net selling price at disposition.

credited to income of the Company as Operating revenues̶Franchise commissions from franchised storesfor services related to the opening of the LAWSON store. The remaining amount received by the Company
is credited to the Due to franchised stores account and then applied to working capital for purchases ofl. Software̶Software used by the Companies is amortized using the straight line method based on theestimated useful life (mainly five years).

merchandise and supplies for the franchised store.
m. Trademark rights̶Trademark rights are amortized using the straight-line method based on the estimatedAs part of the contractual obligations of the franchisor under the agreement, the Company generally

useful life (mainly twenty years).

provides franchisees with furniture, fixtures, and equipment designed for the LAWSON stores. In somecases, franchisees may also be provided with the land or buildings for the stores. However, the Company
does not require the franchisees to make lease payments related to the stores. Instead, a higher
percentage applicable to the gross margin would be used as the basis for determining the franchisecommissions. The portion of franchise commission attributable to property and store equipment leases is29

Lawson, Inc. Integrated Report 2017

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Financial Section

n. Net Defined Benefit Liability̶ In calculating the retirement benefit obligation, in order to attribute thes. Foreign Currency Financial Statements ̶ The balance sheet accounts of associated companies

estimated amount of retirement benefits in the period up to the end of the current fiscal year, the obligation isdenominated in foreign currencies are translated into Japanese yen at the current exchange rate as of

based on the benefit formula method.

the balance sheet date except for equity, which is translated at the historical rate. Differences arising fromsuch translation are shown as Foreign currency translation adjustments and Noncontrolling interests inPrior service cost is amortized starting from the fiscal year incurred mainly on a straight-line basis over aa separate component of equity. Revenue and expense accounts of affiliated companies denominated incertain period (10 years) within an average remaining service period of employees at the time of occurrence.

foreign currencies are translated into yen at the current exchange rate.

Actuarial differences are mainly amortized from the following fiscal year on a straight-line basis over a certain
period (10 years) within an average remaining service period of employees at the time of occurrence.
Certain consolidated subsidiaries apply the simplified method to estimate the amount required for voluntaryt. Per Share Information̶ Basic net income per share is computed by dividing net income available tocommon shareholders by the weighted-average number of common shares outstanding for the period.

resignations at the end of the fiscal year as the retirement benefit liability in order to calculate net defined
benefit liability and retirement benefit expenses.

The number of shares used in computing net income per share was 100,015 thousand shares for 2017 and99,998 thousand shares for 2016.

o. Allowance for Retirement Benefits to Executive Officers and Audit and Supervisory Board Members̶
The provisions are calculated as a liability at 100% of the amount that would be required if all executive

Diluted net income per share for the years ended February 28, 2017 and February 29, 2016 is computed

officers and audit and supervisory board members resigned as of each balance sheet date.

by using the weighted-average number of common shares outstanding adjusted to include the potentiallydilutive effect of stock options that were outstanding during the year.

p. Asset Retirement Obligations̶ An asset retirement obligation is recoded for a legal obligation imposed
either by law or contract that results from the acquisition, construction, development, and the normal

Cash dividends per share presented in the accompanying consolidated statement of income are dividends

operation of a tangible fixed asset and is associated with the retirement of such tangible fixed asset.

applicable to the respective years including dividends to be paid after the end of the year.

The asset retirement obligation is recognized as the sum of the discounted cash flows required for the future

u. Accounting Changes and Error Corrections̶ In December 2009, the ASBJ issued ASBJ Statement No.

asset retirement and is recorded in the period in which the obligation is incurred if a reasonable estimate

24, “Accounting Standard for Accounting Changes and Error Corrections”, and ASBJ Guidance No. 24,

can be made. If a reasonable estimate of the asset retirement obligation cannot be made in the period the“Guidance on Accounting Standard for Accounting Changes and Error Corrections”, Accounting treatments

asset retirement obligation is incurred, the liability should be recognized when a reasonable estimate of asset

under this standard and guidance are as follows:

retirement obligation can be made. Upon initial recognition of a liability for an asset retirement obligation,
an asset retirement cost is capitalized by increasing the carrying amount of the related fixed asset by the(1) Changes in accounting policies

amount of the liability. The asset retirement cost is subsequently allocated to expense through depreciation

When a new accounting policy is applied following the revision of an accounting standard, the new policy

over the remaining useful life of the asset. Over time, the liability is accreted to its present value each period.

is applied retrospectively unless the revised accounting standard includes specific transitional provisions,

Any subsequent revisions to the timing or the amount of the original estimate of undiscounted cash flows arein which case the entity shall comply with the specific transitional provisions.

reflected as an adjustment to the carrying amount of the liability and the capitalized amount of the related
asset retirement cost.

(2) Changes in presentation
When the presentation of financial statements is changed, prior-period financial statements are

q. Stock Options̶ Compensation expense for employee stock options which were granted on and after May 1,

reclassified in accordance with the new presentation.

2006 are recognized based on the fair value at the date of grant and over the vesting period as consideration
for receiving goods or services in accordance with ASBJ Statement No. 8, “Accounting Standard for Stock(3) Changes in accounting estimates

Options”. Stock options granted to nonemployees are accounted for based on the fair value of either the

A change in an accounting estimate is accounted for in the period of the change if the change affects

stock option or the goods or services received. In the balance sheet, the stock option is presented as a stockthat period only, and is accounted for prospectively if the change affects both the period of the changeacquisition right as a separate component of equity until exercised. The accounting standard allows unlisted

and future periods.

companies to measure options at their intrinsic value if they cannot reliably estimate fair value.
(4) Corrections of prior-period errors
r. Income Taxes̶ The Companies provide for income taxes applicable to all items included in the consolidated

When an error in prior-period financial statements is discovered, those statements are restated.

statement of income regardless of when such taxes are payable. Deferred income taxes are recorded toreflect the impact of temporary differences between assets and liabilities recognized for financial reporting
purposes and such amounts recognized for tax purposes. These deferred taxes are measured by applying
current income tax rates to the temporary differences.

31

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Financial Section

v. Reclassification of Prior Yearʼs Consolidated Financial Statements̶The Company has made changes

consolidated statement of cash flows for the previous fiscal year has been reclassified.

to the classification of amounts in the consolidated balance sheet, consolidated statement of income andAs a result, in the Cash flow from investing activities” section, the (1,801) million yen that had previously

the consolidated statement of cash flows for the year ended February 28, 2017. In order to conform to thebeen presented in Other-net” in the consolidated statement of cash flows for the previous fiscal year is now

presentation for the year ended February 28, 2017, the Company has reclassified the related amounts in thepresented as Purchase of long-term prepaid expenses.”consolidated balance sheet, the consolidated statement of income and the consolidated statement of cash
flows for the year ended February 29, 2016, as stated below.

In the “Cash flow from financing activities” section, “Net increase in short-term loans payable”was included
in “Other-net” in the previous fiscal year. Due to an increase in financial materiality, “Net increase in short-(Consolidated Balance Sheet)term loans payable” is now separately presented. To reflect this change in the method of presentation, theIn the “CURRENT ASSETS” section, “Lease Receivables” was included in “Other” in the previous fiscal year.

consolidated statement of cash flows for the previous fiscal year has been reclassified.

Due to an increase in financial materiality, “Lease Receivables” is now separately presented. To reflect thisAs a result, in the “Cash flow from financing activities” section, the 250 million yen that had previously beenchange in the method of presentation, the consolidated balance sheet for the previous fiscal year has beenpresented in “Other-net” in the consolidated statement of cash flows for the previous fiscal year is now

reclassified.

presented as “Net increase in short-term loans payable.”

As a result, in the “CURRENT ASSETS” section, the 5,906 million yen that had previously been presented
in “ Other ” in the consolidated balance sheet for the previous fiscal year is now presented as “ Lease
Receivables.”w. New Accounting Pronouncements
Tax Effect Accounting̶On March 28, 2016, the ASBJ issued ASBJ Guidance No. 26, “Guidance on(Consolidated Statement of Income)

Recoverability of Deferred Tax Assets”, which included certain revisions of the previous accounting andIn the “OTHER INCOME (EXPENSES)” section, “Store equipment related income” was presented separately

auditing guidance issued by JICPA. While the new guidance continues to follow the basic framework of thein the previous fiscal year. Due to a decline in financial materiality, “Store equipment related income” is now

previous guidance, it provides new guidance for the application of judgment in assessing the recoverability ofpresented in “Other-net.” To reflect this change in the method of presentation, the consolidated statement ofdeferred tax assets.

income for the previous fiscal year has been reclassified.
As a result, in the “OTHER INCOME (EXPENSES)” section, the 318 million yen that had previously been

The previous guidance provided a basic framework which included certain specific restrictions on recognizing

presented as “Store equipment related income” in the consolidated statement of income for the previous

deferred tax assets depending on the companyʼs classification in respect of its profitability, taxable profit andfiscal year is now presented in “Other-net.”

temporary difference, etc.

In the “OTHER INCOME (EXPENSES) section, “Foreign exchange gains (losses) was presented separately

The new guidance does not change such basic framework but, in limited cases, allows companies toin the previous fiscal year. Due to a decline in financial materiality, “Foreign exchange gains (losses) is now

recognize deferred tax assets even for deductible temporary differences for which it was specificallypresented in “Other-net. To reflect this change in the method of presentation, the consolidated statement ofprohibited to recognize deferred tax assets under the previous guidance, if the company can justify, withincome for the previous fiscal year has been reclassified.

reasonable grounds, that it is probable that the deductible temporary difference will be utilized against future

As a result, in the “OTHER INCOME (EXPENSES) section, the 914 million yen that had previously beentaxable profit in some future period.

presented as “Store equipment related income in the consolidated statement of income for the previous
fiscal year is now presented in “Other-net.

The new guidance is effective for the beginning of annual periods beginning on or after April 1, 2016. Earlier
application is permitted for annual periods ending on or after March 31, 2016. The new guidance shall not be(Consolidated Statement of Cash Flows)

applied retrospectively and any adjustments from the application of the new guidance at the beginning of the

In the “Cash flow from operating activities” section, “Provision for (reversal of) allowance for doubtful

reporting period shall be reflected within retained earnings or accumulated other comprehensive income ataccounts” was presented separately in the previous fiscal year. Due to a decline in financial materiality,

the beginning of the reporting period.

“Provision for (reversal of) allowance for doubtful accounts” is now included in “Other.” To reflect this change

in method of presentation, the consolidated statement of cash flows for the previous fiscal year have been

The Company expects to apply the new guidance on recoverability of deferred tax assets effective March

reclassified.

1, 2018, and there will be no effects of applying the new guidance on the income or loss for the fiscal year

As a result, in the “Cash flow from operating activities” section, the (311) million yen that had previously been

ending on or after February 28, 2018.

presented as “Provision for (reversal of) allowance for doubtful accounts” in the consolidated statement ofcash flows for the previous fiscal year is now included in “Other-net.”
In the “Cash flow from investing activities” section, “Purchase of long-term prepaid expenses” was included
in “Other-net” in the previous fiscal year. Due to an increase in financial materiality, “Purchase of long-term
prepaid expenses” is now separately presented. To reflect this change in the method of presentation, the33

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Financial Section

3 CHANGES IN ACCOUNTING POLICIES
Change in accounting policies

4 ACCOUNTS RECEIVABLE̶DUE FROM FRANCHISED STORES
Under the franchise agreement, the Company is responsible for providing architectural and design services
with respect to the franchised storesʼ facilities, for training of the franchiseesʼ personnel, and for the centralized

Application of Accounting Standard for Business Combinations

processing of invoices from suggested vendors of merchandise and subsequent payments of amounts payable

The Company adopted theto such vendors.

Accounting Standard for Business Combinations (ASBJ Statement No. 21,

September 13, 2013), the Accounting Standard for Consolidated Financial Statements (ASBJ Statement
No. 22, September 13, 2013), the Accounting Standard for Business Divestitures (ASBJ Statement No. 7,

The EDP system of the Company generates a record of merchandise purchased by each franchised store and

September 13, 2013), and other accounting standards. As a result, the Company now records any differences

accumulates the amounts payable to respective vendors. Under the franchise agreement, the Company, as aresulting from changes in its ownership interests in subsidiaries subject to ongoing control under capital

representative for all franchised stores, pays amounts payable to the vendors on the storesʼ behalf. When thesurplus, and records acquisition-related costs as expenses in the fiscal year in which they are incurred.

merchandise is received by each franchised store, the Company records the cost of the merchandise in the

Furthermore, for business combinations carried out on or after the beginning of the current fiscal year,“Accounts receivable ̶ Due from franchised stores” account since such costs shall be subsequently recovered

the Company now reflects the updated acquisition cost allocation based on finalization of the provisionalfrom the respective franchised stores.

accounting treatment in the consolidated financial statements for the fiscal year in which the businesscombination occurs.

The “Accounts receivable ̶ Due from franchised stores” account represents net amounts recoverable from thefranchised stores.

In addition, the company has made changes in the presentation of net income and other items and haschanged from presenting minority interests to presenting non-controlling interests. To reflect these changes inpresentation, the Company has reclassified the consolidated financial statements for the previous fiscal year.
The Company adopted the Accounting Standard for Business Combinations and other accounting standards
in line with transitional measures stipulated in Paragraph 58-2(4) of the Accounting Standard for Business
Combinations, Paragraph 44-5(4) of the Accounting Standard for Consolidated Financial Statements, andParagraph 57-4(4) of Accounting Standard for Business Divestitures. This application is effective from March
1, 2016. In the consolidated statements of cash flows for the current fiscal year, the Company lists cash flows
related to the purchase or sale of stock in subsidiaries not resulting in a change in the scope of consolidation in
the category of cash flows from financing activities, and cash flows related to acquisition-related costs for stockin subsidiaries resulting in a change in the scope of consolidation or expenses arising in relation to the purchaseor sale of stock in subsidiaries not resulting in a change in the scope of consolidation in the category of cash
flows from operating activities. Additionally, the Company is not reclassifying comparable information in the
consolidated statements of cash flows for the current fiscal year, in line with transitional measures stipulated in
Paragraph 26-4 of the Practical guidelines on Accounting Standards for Preparing Consolidated Statements ofCash Flows.
As a result, Capital surplus as of the end of this fiscal year increased by ¥1,387 million, while Income before
income taxes decreased by ¥2,583 million. In addition, Capital surplus at the end of the fiscal year increased by¥1,387 million in the consolidated statement of changes in equity of the current consolidated fiscal year.

35

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Financial Section

5 MARKETABLE AND INVESTMENT SECURITIES

6 LONG-LIVED ASSETS

Marketable and investment securities as of February 28, 2017 and February 29, 2016, consisted of the

The Companies mainly identify individual stores as the smallest cash generating units. The Companies recognize

following:

an impairment loss cases where the value of long-lived assets has declined, primarily as a result of continuous
Thousands of
U.S. Dollars

Millions of Yen

2017
Non-current̶Marketable and other equity securities

impairment loss is recorded in other expenses in the consolidated statement of income.

2017

2016

¥8,624¥ 9,848$76,617

157

272

1,395

Non-current̶Corporate bonds

operating losses. The carrying amounts of those assets are written down to the recoverable amounts and an

The Companies recognized an impairment loss in the following asset categories for the years ended February 28,
2017 and February 29, 2016:

Category

February 29, 2016, were as follows:

StoresMillions of Yen
Unrealized
Gains

February 28, 2017

Cost

Securities classified as available-for-sale ̶ Equity securities¥6,407

Unrealized
Losses¥1,099¥983

Fair Value¥6,523Thousands of
U.S. Dollars

Millions of Yen

The costs and aggregate fair values of marketable and investment securities as of February 28, 2017 and

Other

2017

Location

Buildings andFurniture, fixtures,and equipment

Tokyo¥1,703¥1,905$15,129

Osaka

1,442

1,621

12,811Others

6,390

6,509

56,770Land
SoftwareFebruary 29, 2016

Cost

Securities classified as available-for-sale ̶ Equity securities¥6,267

507

Goodwill

Millions of Yen
Unrealized
Gains

2017

2016

Related Assets

Unrealized
Losses¥1,049Total¥9,535¥10,542$84,710

Fair Value¥7,316

The above noted assets which incurred impairment losses for the years ended February 28, 2017 and February
29, 2016, consisted of the following:Thousands of U.S. Dollars
Unrealized
Gains

February 28, 2017

Cost

Securities classified as available-for-sale ̶ Equity securities$56,921

Unrealized
Losses$9,763$8,7332017

Fair Value$57,951

Buildings

The proceeds, realized gains and realized losses of the available-for-sale securities which were sold during theLease assets

years ended February 28, 2017 and February 29, 2016, were as follows:Land¥5,977$51,821

529

608

4,700

2,786

3,131

24,751

354

57

3,145

SoftwareMillions of Yen
February 28, 2017

Proceeds

Available-for-sale:
Equity securities¥560

Realized
Losses2017

2016¥5,833

Furniture, fixtures, and equipment

Realized
Gains

Thousands of
U.S. Dollars

Millions of Yen

680

Other

33

89

293

Total

¥9,535¥10,542$84,710

The recoverable amount of these assets was measured based on net selling price or value in use. The net selling¥89

price of land was calculated based on the appraised value by a real estate appraiser or an expected contract
price. The value in use was calculated by discounting estimated future cash flows. The discount rate used was

February 29, 2016

mainly 4.3% for the years ended February 28, 2017 and February 29, 2016.

Not applicable.
Thousands of U.S. Dollars
February 28, 2017

Available-for-sale:
Equity securities

37

Lawson, Inc. Integrated Report 2017

Proceeds$4,975

Realized
Gains

Realized
Losses$791

Lawson, Inc. Integrated Report 201738

Financial Section

7 LAND REVALUATION

10 SHORT-TERM BANK LOANS AND LONG-TERM DEBT

Under the “Law of Land Revaluation,” promulgated on March 31, 1998, and revised on March 31, 1999 andShort-term bank loans at February 28, 2017 and February 29, 2016, consisted of notes to banks.

2001, the Company opted for a one-time revaluation of its own-use land to a value based on real estate appraisal
information as of February 28, 2002.

The annual interest rates applicable to the short-term bank loans were 0.14% and 0.53% at February 28, 2017
and February 29, 2016, respectively.

The resulting land revaluation difference represents unrealized depreciation of land and is stated, net of income
taxes, as a component of equity. There was no effect on the consolidated statement of income. ContinuousLong-term debt at February 28, 2017 and February 29, 2016, consisted of the following:

readjustment is not permitted unless the land value subsequently declines significantly.

Thousands of
U.S. Dollars

Millions of Yen

2017

2016

2017

Loans from banks, due serially to 2020
with a weighted-average interest rate of 0.11% (2017)¥57,278¥58,137$508,866

Obligations under finance leases

127,997

111,959

1,137,145Less current portion(28,588)(24,473)(253,980)¥156,687¥145,623$1,392,031

As at February 28, 2017, the carrying amount of the land after the above one-time revaluation exceeded themarket value by ¥248 million ($2,203 thousand).

8 ACCOUNTS PAYABLE̶TRADE
The balances of “ Accounts payable ̶ trade ” represent the amounts payable to vendors for merchandiseLong-term debt, less current portion

purchased by the Company-operated stores and franchised stores. The Company centralizes all merchandisepurchasing procedures both for the Company-operated stores and franchised stores and makes collective

The aggregate annual maturities of long-term debt, excluding finance leases, at February 28, 2017 were as

payments to vendors (see Note 4).

follows:“Accounts payable ̶ trade” as of February 28, 2017 and February 29, 2016 were summarized below:

Year Ending February 28 or 29

Thousands of
U.S. Dollars

Millions of Yen

2017
Accounts payable ̶ trade for franchised stores¥95,107

Accounts payable ̶ trade for the Company-operated stores
Total

2016
¥92,265

Millions of Yen

Thousands of
U.S. Dollars

2018

¥575

$5,108

2019

575

5,108

2017

2020

56,128498,650$844,945

Total¥57,278$508,866

15,72819,960139,730¥110,835¥112,225$984,675

The aggregate annual maturities of finance lease obligations at February 28, 2017 were as follows:Year Ending February 28 or 29

9 ACCOUNTS PAYABLE̶DUE TO FRANCHISED STORESThe cost of merchandise supplied to franchised stores is recorded as “Accounts receivable̶Due from franchised
stores” as described in Note 4.
All franchised stores make remittances of cash proceeds from daily sales to the Company. In certain instances,
the remittance from a franchised store exceeds the balance of “Accounts receivable̶Due from franchised

Millions of Yen

Thousands of
U.S. Dollars

2018¥28,013$248,872

2019

25,717

228,474

2020

22,845

202,9592021

18,961

168,4522022 and thereafter
Total

32,461

288,388¥127,997$1,137,145

stores.” In the accompanying consolidated balance sheets, such excess balances are presented as “Accounts
payable ̶ Due to franchised stores.”

As of February 28, 2017, the carrying amounts of assets pledged as collateral for short-term bank loans and thecurrent portion of long-term debt of ¥575 million ($5,108 thousand) and long-term debt of ¥6,704 million ($59,555
thousand), were as follows:39

Lawson, Inc. Integrated Report 2017

Millions of Yen

Thousands of
U.S. Dollars

2017

2017

Cash and cash equivalents¥2,602$23,117

Shares of consolidated subsidiaries (Amount before elimination)

16,616

147,619

Total¥19,218$170,736

Lawson, Inc. Integrated Report 201740

Financial Section

11 EMPLOYEES RETIREMENT BENEFITS(3) Reconciliation between the liability recorded in the consolidated balance sheet and the balances of defined

For employees retirement benefits, the Company and certain consolidated subsidiaries adopt a funded or

benefit obligation and plan assets

unfunded defined benefit type lump-sum retirement allowance plan and a defined contribution-type pension plan.
The lump-sum retirement allowance plan (generally unfunded, with some plans being funded in accordance with
an employee pension trust) pays a lump sum as a retirement benefit based on salary and length of service of theemployee.

Funded defined benefit obligation
Plan assets
Unfunded defined benefit obligation

The lump-sum retirement allowance plan employed by some consolidated subsidiaries calculates liabilities related

Thousands of
U.S. Dollars

Millions of Yen

Net liability arising from defined benefit obligation¥16,920$150,320(5,587)(49,636)

11,333

100,684

1,497

13,300¥12,830$113,984

to retirement benefits and retirement benefit expenses by the simplified method.
Thousands of
U.S. Dollars

Millions of Yen

Year Ended February 28, 2017
(1) The changes in the defined benefit obligation for the year ended February 28, 2017 were as follows:
Millions of Yen

Balance at beginning of year (as restated)
Current service cost
Interest costThousands of
U.S. Dollars

Liability for retirement benefits¥12,830$113,984

Net liability arising from defined benefit obligation¥12,830$113,984(4) The components of net periodic benefit costs for the year ended February 28, 2017 were as follows:¥17,552$155,934

1,595

14,17054480Service costThousands of
U.S. Dollars

Millions of Yen

1,595

14,170

Actuarial losses

149

1,324

Interest cost

54

480

Benefits paid

(932)

(8,280)Recognized actuarial losses

140

1,244

OthersBalance at end of year

(1)

(9)

¥18,417$163,619

9

80

(20)

(178)

¥1,778$15,796

Amortization of prior service cost
OthersNet periodic benefit costs(2) The changes in plan assets for the year ended February 28, 2017 were as follows:
Millions of Yen

Balance at beginning of year
Actuarial gains
Balance at end of year

Thousands of
U.S. Dollars¥5,590$49,662(3)(26)¥5,587$49,636(5) Amounts recognized in other comprehensive income (before income tax effect) in respect of defined retirement
benefit plans for the year ended February 28, 2017
Millions of Yen

Prior service costThousands of
U.S. Dollars

¥10

$89

Actuarial losses

(12)

(107)

Total

¥ (2)

$(18)

(6) Amounts recognized in accumulated other comprehensive income (before income tax effect) in respect ofdefined retirement benefit plans as of February 28, 2017
Millions of Yen

Unrecognized prior service cost

41

Lawson, Inc. Integrated Report 2017

¥11

Thousands of
U.S. Dollars$98

Unrecognized actuarial losses

1,295

11,505

Total¥1,306$11,603

Lawson, Inc. Integrated Report 201742

Financial Section(7) Plan assets(3) Reconciliation between the liability recorded in the consolidated balance sheet and the balances of defined
benefit obligation and plan assets

a. Components of plan assets
Plan assets consisted of the following:
Cash and cash equivalents

100%

Total

100%

Millions of Yen

Funded defined benefit obligation¥16,241

Plan assets(5,590)10,651b. Method of determining the expected rate of return on plan assets
The expected rate of return on plan assets is determined considering the long-term rates of return which
are expected currently and in the future from the various components of the plan assets.

Unfunded defined benefit obligation

1,312

Net liability arising from defined benefit obligation(8) Assumptions used for the year ended February 28, 2017 were set forth as follows:¥11,963

Millions of Yen

Discount rate

0.5% (mainly)

Expected rate of return on plan assets

0%Liability for retirement benefits¥11,963

Net liability arising from defined benefit obligation¥11,963(9) Contributions to the defined contribution pension plan for the year ended February 28, 2017 were as follows:
Millions of Yen

Net periodic benefit cost¥483(4) The components of net periodic benefit costs for the year ended February 29, 2016 were as follows:

Thousands of
U.S. Dollars$4,291

Year Ended February 29, 2016
(1) The changes in defined benefit obligation for the year ended February 29, 2016 were as follows:

Cumulative effects of changes in accounting policies
Balance at beginning of year (as restated)
Current service cost
Interest costService cost

¥1,503

Interest cost

93

Recognized actuarial losses

91

Amortization of prior service cost

13

Others96

Net periodic benefit costs

Millions of Yen

Balance at beginning of year (as previously reported)

Millions of Yen¥18,348(2,131)
16,217
1,503(5) Amounts recognized in other comprehensive income (before income tax effect) in respect of defined retirement
benefit plans for the year ended February 29, 2016

93

Millions of Yen

Actuarial losses

663

Prior service cost

Benefits paid

(931)

Actuarial losses

Prior service cost

4

Others3

Balance at end of year

¥1,796¥17,552

Total

¥9
(571)
¥ (562)(6) Amounts recognized in accumulated other comprehensive income (before income tax effect) in respect ofdefined retirement benefit plans as of February 29, 2016

(2) The changes in plan assets for the year ended February 29, 2016 were as follows:

Millions of Yen

Unrecognized prior service cost

Millions of Yen

Balance at beginning of year
Actuarial gains
Balance at end of year

43

Lawson, Inc. Integrated Report 2017

¥5,5891¥21

Unrecognized actuarial losses

1,283

Total

¥1,304¥5,590Lawson, Inc. Integrated Report 201744

Financial Section

13 EQUITY(7) Plan assets

Japanese companies are subject to the Companies Act of Japan (the “Companies Act”). The significant provisions

c. Components of plan assets
Plan assets consisted of the following:in the Companies Act that affect financial and accounting matters are summarized below:

Cash and cash equivalents

100%

Total

100%

a. Dividends
Under the Companies Act, companies can pay dividends at any time during the fiscal year in addition to theyear-end dividend upon resolution at the shareholders'meeting. For companies that meet certain criteria

d. Method of determining the expected rate of return on plan assets
The expected rate of return on plan assets is determined considering the long-term rates of return whichsuch as (1) having a Board of the normal Directors, (2) having independent auditors, (3) having an Audit &are expected currently and in the future from the various components of the plan assets.

Supervisory Board, and (4) the term of service of the directors being prescribed as one year rather than thenormal two-year term by its articles of incorporation, the Board of Directors may declare dividends (except(8) Assumptions used for the year ended February 29, 2016 were set forth as follows:for dividends in kind) at any time during the fiscal year if the company has prescribed so in its articles ofDiscount rate

0.5% (mainly)

Expected rate of return on plan assets

incorporation.

0%

The Companies Act permits companies to distribute dividends-in-kind (noncash assets) to shareholders(9) Contributions to the defined contribution pension plan for the year ended February 29, 2016 were as follows:
Millions of Yen

Net periodic benefit cost

¥436

subject to a certain limitation and additional requirements.
Semiannual interim dividends may also be paid once a year upon resolution by the Board of Directors if thearticles of incorporation of the company so stipulate. The Companies Act provides certain limitations on theamounts available for dividends or the purchase of treasury stock. The limitation is defined as the amountavailable for distribution to the shareholders, but the amount of net assets after dividends must be maintained

12 ASSET RETIREMENT OBLIGATIONS

at no less than ¥3 million.

The changes in asset retirement obligations for the years ended February 28, 2017 and February 29, 2016 wereas follows:b. Increases/Decreases and Transfer of Common Stock, Reserve, and Surplus
Thousands of
U.S. Dollars

Millions of Yen

The Companies Act requires that an amount equal to 10% of dividends must be appropriated as a legal
reserve (a component of retained earnings) or as additional paid-in capital (a component of capital surplus)

2017

2016

2017

depending on the equity account charged upon the payment of such dividends until the total of aggregate¥24,721¥21,553$ 219,625

amount of legal reserve and additional paid-in capital equals 25% of the common stock. Under the Companies

2,625

1,961

23,321

Reconciliation associated with passage of time

393

400

3,491

Reduction associated with settlement of asset
retirement obligations(716)(1,836)(6,361)

Balance at beginning of year
Additional provisions associated with the acquisition of property,
plant, and equipment

Additional provisions associated with changes inaccounting estimates
Total
Less current portion
Asset retirement obligations, less current portion

Act, the total amount of additional paid-in capital and legal reserve may be reversed without limitation. The
Companies Act also provides that common stock, legal reserve, additional paid-in capital, other capitalsurplus, and retained earnings can be transferred among the accounts within equity under certain conditions
upon resolution of the shareholders.
c. Treasury Stock and Treasury Stock Acquisition Rights

2,643
27,02324,721240,076

(65)

(56)

(577)

¥26,958¥24,665$239,499

The Companies Act also provides for companies to purchase treasury stock and dispose of such treasury
stock by resolution of the Board of Directors. The amount of treasury stock purchased cannot exceed theamount available for distribution to the shareholders which is determined by a specific formula. Under theCompanies Act, stock acquisition rights are presented as a separate component of equity. The Companies
Act also provides that companies can purchase both treasury stock acquisition rights and treasury stock.
Such treasury stock acquisition rights are presented as a separate component of equity or deducted directlyfrom stock acquisition rights.

45

Lawson, Inc. Integrated Report 2017

Lawson, Inc. Integrated Report 201746

Financial Section

14 STOCK OPTIONSThe stock option activity is as follows:
5th
Stock
OptionThe Company has stock option plans as an incentive for directors, executive officers, and selected employees.
The stock options outstanding as of February 28, 2017 were as follows:
Persons Granted

Number of
Options Granted

Date of Grant

Exercise Price

5th Stock
Option9 directors

22,400 shares2005.10.12¥1($0.01)

From October 13, 2005
to May 31, 2025

6th (a) Stock
Option9 directors

21,300 shares2006.10.26¥1($0.01)

From October 27, 2006
to May 26, 2026

7th (a) Stock
Option7 directors

18,000 shares2007.9.5¥1($0.01)

From September 6, 2007
to August 20, 2027
From January 17, 2009
to December 15, 2028
From February 18, 2010
to February 1, 2030

VestedFebruary 28, 2015̶
Outstanding

8th (a) Stock
Option7 directors

26,400 shares2009.1.16¥1($0.01)

9th Stock
Option7 directors

21,500 shares2010.2.17¥1($0.01)

10th Stock
Option7 directors

18,900 shares2011.2.2¥1($0.01)

From February 26, 2011
to February 10, 2031

11th Stock
Option7 directors

27,000 shares2012.2.17¥1($0.01)

From February 18, 2012
to February 1, 2032

12th Stock
Option7 directors

26,900 shares2013.4.12¥1($0.01)

From April 12, 2013
to March 26, 2033

13th Stock
Option7 directors

25,400 shares2014.4.10¥1($0.01)

From April 10, 2014
to March 23, 2034

2015.4.10¥1($0.01)

From April 10, 2015
to March 24, 2035
From June 10, 2015
to May 25, 2035
From May 2, 2016
to April 12, 2036

14th Stock
Option8 directors

12,400 shares

15th Stock
Option1 director

1,100 shares2015.6.10¥1($0.01)

16th Stock
Option8 director

15,100 shares2016.5.2¥1($0.01)7th (a)Stock
Option8th (a)Stock
Option9th
Stock
Option10th
Stock
Option11th
Stock
Option12th
Stock
Option13th
Stock
Option14th
Stock
Option15th
Stock
Option12,4001,100

12,4001,100

12,4001,100

12,400

1,100

16th
Stock
OptionYear Ended February
29, 2016

Stock Option

Exercise Period

6th (a)Stock
OptionNon-vested
February 28, 2015̶
Outstanding
GrantedCanceled
VestedFebruary 29, 2016̶
Outstanding

3,800

9,900

6,600

9,200

6,300

5,900

7,100

8,500

7,300

VestedExercised
Canceled
February 29, 2016̶
Outstanding

3,800

9,900

6,600

9,200

6,300

5,900

7,100

8,500

7,300

Year Ended February
28, 2017
Non-vested
February 29, 2016̶
Outstanding

15,100GrantedCanceled

15,100

VestedFebruary 28, 2017̶
Outstanding
VestedFebruary 29, 2016̶
Outstanding

3,800

9,900

6,600

9,200

6,300

5,900

7,100

8,500

7,300

12,4001,100

Exercised

500

400

2,500

3,400

4,200

3,600

500

500

500

500

500

Canceled

1,700

5,800

1,000

500

500

500

1,600

3,700

7,000

6,300

11,40015,100

VestedFebruary 28, 2017̶
Outstanding
Exercise price

4,100

5,800

2,100

2,300

6,600

1,100

14,100

¥1

¥1

¥1

¥1

¥1

¥1

¥1

¥1

¥1

¥1

¥1

¥1

($0.01)($0.01)($0.01)($0.01)($0.01)($0.01)($0.01)($0.01)($0.01)($0.01)($0.01)($0.01)¥3,178¥2,852¥3,477¥2,652¥2,689¥3,339¥5,516¥5,146¥6,251¥6,310¥6,254

Average stock priceat exercise
Fair value price at
grant date47

Lawson, Inc. Integrated Report 2017($28.23) ($25.34) ($30.89) ($23.56) ($23.89) ($29.66) ($49.01) ($45.72) ($55.54) ($56.06) ($55.56)

Lawson, Inc. Integrated Report 201748

Financial Section

The assumptions used to measure the fair value of the 16th stock options were as follows:

A reconciliation between the normal effective statutory tax rates and the actual effective tax rates reflected in the

16th Stock Option

accompanying consolidated statement of income for the years ended February 29, 2016 and February 28, 2015

Estimate method

Black-Scholes option
pricing modelis as follows:

Volatility of stock price24.01%

Normal effective statutory tax rate

33.1%

35.6%

Estimated remaining outstanding period

10 years

Change in valuation allowance

(0.3)

(0.9)

Estimated dividend¥242.5 per share

Expenses not deductible for income tax purposes

0.4

0.5

Risk-free interest rate

-0.12%

Per-capita inhabitant tax

0.6

0.6

Difference in tax rates of foreign consolidated subsidiaries

0.5

0.8

Reduction of ending deferred tax balance due to change in statutory tax rate

3.1

4.1

Amortization of goodwill

1.2

1.7

The Company and its domestic subsidiaries are subject to a number of different taxes based on income, which

Other̶net

(2.0)

(0.4)

in the aggregate, resulted in a normal statutory tax rate of approximately 33.1% and 35.6% for the years ended

Actual effective tax rate

36.6%

42.0%

2016

2017

15 INCOME TAXES

February 28, 2017 and February 29, 2016, respectively.
New tax reform laws enacted in 2016 in Japan changed the normal effective statutory tax rate for the fiscal year
The tax effects of significant temporary differences and tax loss carryforwards, which resulted in deferred tax

beginning on or after March 1, 2017, to approximately 30.9% and for the fiscal year beginning on or after March 1,

assets and liabilities at February 28, 2017 and February 29, 2016, are as follows:

2019, to approximately 30.6%.
Thousands of
U.S. Dollars

Millions of Yen

2017

2016

2017

Deferred tax assets:

¥875

¥727

$7,774

Accrued employees' bonuses

1,054

1,244

9,364

Excess of depreciation

11,04813,38898,152

410

517

3,643

Employees' retirement benefits

5,633

5,761

50,044

Allowance for doubtful accounts

310

285

2,754

Impairment loss

5,248

4,149

46,624

Tax loss carryforwards

10,901

14,073

96,846

Other

5,954

3,848

52,896(12,114)(13,816)(107,623)

29,31930,176

260,474

Trademark rights

3,231

3,634

28,705Net deferred tax assets¥26,088¥26,542$231,769

Less valuation allowance

Total
Deferred tax liabilities:

49

Lawson, Inc. Integrated Report 2017

net of deferred tax liabilities, by ¥1,804 million ($16,024 thousand), to increase income taxes̶deferred in the
consolidated statement of income by ¥1,784 million ($15,847 thousand) and to decrease accumulated othercomprehensive income̶defined retirement benefit plans by ¥20 million ($180 thousand).

Accrued enterprise taxes

Excess of amortization of software

The effect of these changes as of for the year ended February 28, 2017 was to decrease deferred tax assets,

At February 28, 2017, certain domestic subsidiaries have tax loss carryforwards aggregating approximately¥36,072 million ($320,469 thousand) which are available to be offset against taxable income of such subsidiaries
in future years. These tax loss carryforwards, if not utilized, will expire as follows:Year Ending February 28 or 29

Millions of Yen

Thousands of
U.S. Dollars

2018¥3,085$27,408

2019

3,094

27,488

2020

6,852

60,874

2021

7,003

62,2162022

11,741

104,309

2023

442

3,927

2024

2,987

26,537

2025

575

5,108

2026

293

2,602

Total

¥36,072$320,469

Lawson, Inc. Integrated Report 201750

Financial Section

16 SUPPLEMENTAL CASH FLOW INFORMATION

18 SEGMENT INFORMATION(1) Finance lease assets and finance lease obligations regarded as non-cash transactions incurred for the year

In March 2008, the ASBJ revised ASBJ Statement No. 17, Accounting Standard for Segment Information
Disclosures”, and issued ASBJ Guidance No. 20, Guidance on Accounting Standard for Segment Information

ended February 28, 2017, amounted to ¥42,636 million ($378,785 thousand).

Disclosures. Under the standard and guidance, an entity is required to report financial and descriptive information(2) Asset retirement obligations regarded as non-cash transactions incurred for the year ended February 28,
2017, amounted to ¥2,636 million ($23,419 thousand).

about its reportable segments. Reportable segments are operating segments or aggregations of operating
segments that meet specified criteria. Operating segments are components of an entity about which separate
financial information is available and such information is evaluated regularly by the chief operating decisionmakerin deciding how to allocate resources and in assessing performance. Generally, segment information is required to

17 OTHER COMPREHENSIVE INCOME

be reported on the same basis as is used internally for evaluating operating segment performance and deciding

The components of other comprehensive income for the years ended February 28, 2017 and February 29, 2016,

how to allocate resources to operating segments.

were as follows:
Thousands of
U.S. Dollars

Millions of Yen

2017

2016

2017

¥(1,059)¥1,587$(9,409)

Reclassification adjustments to profit or loss

244

239

2,168

Amount before income tax effect

(815)

1,826

(7,241)

Income tax effect

288

(631)

2,559

¥(527)¥1,195$(4,682)

Total

evaluation. The Company primarily operates the Domestic Convenience Store Business, Seijo Ishii BusinessLand revaluation difference
Adjustments arising during the year
Total

(53)

(471)

¥(53)

$(471)

Foreign currency translation adjustments
Adjustments arising during the year
Reclassification adjustments to profit or loss¥(906)

¥(16)

(23)

$(8,049)(204)¥(929)¥(16)$(8,253)¥ (151)¥(662)$(1,342)

149

100

1,324

Amount before income tax effect

(2)

(562)

(18)

Income tax effect

(20)

175

(177)

¥ (22)¥(387)$(195)¥(1,531)¥792$(13,601)

Total
Remeasurements of defined benefit plans
Losses arising during the year
Reclassification adjustments to profit or loss

Total
Total other comprehensive income

The Company's financial information is provided separately by reporting segment and is subject to regularreview by the board of directors with regard to the allocation of managerial resources and performance

Unrealized gain (loss) on available-for-sale securities
Gains (losses) arising during the year(a) Description of reportable segments

and Entertainment-related Business while incorporating other related businesses.
Therefore, the Company has made the Domestic Convenience Store Business, Seijo Ishii Business andEntertainment-related Business its reportable segments based on consideration of financial characteristics andthe nature of the services provided.
Regarding the Domestic Convenience Store Business, Lawson, Inc. operates a franchise system as well as
undertakes direct management of stores in Japan as the parent company of LAWSON, NATURAL LAWSON
and LAWSON STORE100. Lawson Sanin, Inc. undertakes the direct management of Lawson stores in Saninarea. Lawson Store100, Inc. undertakes the direct management of LAWSON STORE100 stores. SCI, Inc. is a
subsidiary that serves the function of rationally managing the process from procurement to sale, and aims to
improve the efficiency of and optimize the process.
Regarding the Seijo Ishii Business, SEIJO ISHII CO., LTD. operates the SEIJO ISHII supermarket.
Regarding the Entertainment related Business, Lawson HMV Entertainment, Inc. manages the sale of concert
tickets at LAWSON stores and others, music and video at HMV stores and others. In addition, United Cinemas
Co., Ltd. operates multiplex movie theatres.
(b) Methods of measurement for the amounts of sales, profit, assets, and other items for each reportable segment
The accounting policies of each reportable segment are basically consistent with those disclosed in Note 2,
Summary of Significant Accounting Policies.
Segment profit is determined in the same manner as operating income. Intersegment sales or transfers arecalculated based on market price.
The Company changed the method of calculating segment profit or loss in accordance with the accountingchange in the treatments of business combinations as described in Note 3.
The impact of this change on segment profit for the current fiscal year is immaterial.

51

Lawson, Inc. Integrated Report 2017

Lawson, Inc. Integrated Report 201752

Financial Section(c) Information about sales, profit (loss), assets, and other items is as follows:

Thousands of U.S. Dollars

Millions of Yen

2017

2017

Reportable Segments

Reportable Segments
Domestic
Convenience
Store Business

Seijo Ishii
Business

Entertainment
relatedBusiness

Other

Total

Reconciliations

Consolidated

Sales:
Sales to external customers
Intersegment sales or transfers¥85,825¥71,545

4,918

1,391

¥54,227 ¥631,288
920

7,229

¥631,288

Intersegment sales or transfers$481,761 $5,608,458
8,173

64,222$5,608,458$(64,222)$647,974$489,934 $5,672,680$61,407$35,430$26,644$655,340$62$655,402¥73,772

Segment assets

7,110,732

521,544553,225

505,730

8,691,231(992,421)

7,698,810

978,285 (111,707)

866,578

Other:
397,983

17,822

20,24730,082

466,134

466,134

3,386

52,46852,468

Amortization of goodwill

8,102

14,8994,451

880

28,33228,332

99

3,189

3,189

Investments in associatedcompanies

43,72843,72843,728

4,922

4,922

60,95560,955

IIncrease in property, plant, andequipment and intangible assets

492,972

541,533

541,533¥6,912¥3,988¥2,999¥72,534¥7

Segment assets

800,384

58,70562,271

56,92544,797

2,006

2,279

Amortization of goodwill

912

1,677

501

Investments in associatedcompanies

4,922

Increase in property, plant, andequipment and intangible assets

55,489Other:

Depreciation

2,928

9,373

13,17526,013$(64,222) $5,608,458

Notes: 1.	The “Other” category refers to business segments that do not fall under the main reporting segments and includes the Financial Services-related Business
operated by Lawson ATM Networks, Inc., Overseas Business operated by Shanghai Lawson, Inc. and others.
2. Reconciliation to segment profit and segment assets is the balance of elimination of intra-segment transactions

Millions of Yen

3. The segment profit is adjusted against consolidated operating income.

2016
Reportable Segments(d) Information regarding loss on impairment of long-lived assets of reportable segments
Other

Total

Reconciliations

Millions of Yen

Consolidated

2017

Sales:
Intersegment sales or transfers

12,357$762,482¥59,866

Sales to external customers

43,692$531,859

Segment profit

Seijo Ishii
Business

Consolidated$3,772,290¥55,147 ¥638,517

Entertainment
relatedBusiness$635,617

Reconciliations

Segment profit¥72,936

Domestic
Convenience
Store Business$762,482

Total

Total

¥85,825

1,483$3,728,598

Other¥(7,229) ¥631,288¥424,609

1,055Entertainment
relatedBusiness¥(7,229)

Total

Depreciation

Seijo Ishii
Business

Sales:
Sales to external customers¥419,691

Domestic
Convenience
Store Business

Reportable Segments¥395,057¥68,994

3,580¥73,6391,401¥45,763 ¥583,453
1,158

6,139

¥583,453

Domestic
Convenience
Store
Business¥(6,139)Total¥398,637¥68,994¥75,040¥46,921 ¥589,592¥(6,139) ¥583,453

Segment profit¥59,994¥5,037¥4,076¥3,427¥72,534¥8¥72,542

Segment assets

738,876

65,01664,55953,680922,131(118,919)

803,21240,769

1,756

1,375

2,591

46,49146,491

596

1,437

665

104

2,802

2,802

Loss on impairment oflong-lived assets¥9,035

Seijo Ishii
Business

Entertainment
relatedBusiness

¥62

¥208

Other

¥230

Total

Reconciliations¥9,535

Consolidated¥9,535

Other:
Depreciation
Amortization of goodwill
Investments in associatedcompanies

4,746

Increase in property, plant, andequipment and intangible assets

48,468

521

4,347

3,157

4,746

4,746

56,49356,493

Millions of Yen

2016
Reportable Segments
Domestic
Convenience
Store
Business

Loss on impairment oflong-lived assets

53

Lawson, Inc. Integrated Report 2017

¥9,155

Seijo Ishii
Business¥80

Entertainment
relatedBusiness

¥570

Other

¥737

Total

¥10,542

Reconciliations

Consolidated¥10,542

Lawson, Inc. Integrated Report 201754

Financial Section

19 RELATED PARTY TRANSACTIONS

Thousands of U.S. Dollars

Balances and transactions of the Company with a subsidiary of Mitsubishi Corporation as of and for the years

2017

ended February 28, 2017 and February 29, 2016 were as follows:

Reportable Segments
Domestic
Convenience
Store
Business

Loss on impairment oflong-lived assets

Seijo Ishii
Business

Entertainment
relatedBusiness

Other

Total

Reconciliations(1) Transactions between the Company and a related party
Consolidated

Thousands of
U.S. Dollars

Millions of Yen$80,268$551$1,848$2,043$84,710$84,710

2017

2016

2017

Accounts payable̶trade¥54,257¥50,022$482,027

Purchases

654,902614,452

5,818,248

Mitsubishi Shokuhin Co., Ltd.:(e) Information regarding the carrying amount of goodwill by reportable segments
Millions of Yen

2017

Purchase prices and other conditions are determined on an arm's-length basis.

Reportable Segments
Domestic
Convenience
Store
Business

Goodwill at February 28, 2017¥11,269

Seijo Ishii
Business

Entertainment
relatedBusiness¥25,270

Other¥8,690

¥813

Total

Reconciliations¥46,042(2) Transactions between subsidiaries and a related party
Consolidated¥46,0422017

Goodwill at February 29, 2016

¥8,589Seijo Ishii
Business

2017

Mitsubishi Shokuhin Co., Ltd.:

2016

Accounts receivable-Other¥12,850¥8,015$114,161

Sales of processed food, etc.

120,219

67,163

1,068,044

Entertainment
relatedBusiness¥26,947

2016

Millions of Yen

Reportable Segments
Domestic
Convenience
Store
Business

Thousands of
U.S. Dollars

Millions of Yen¥9,192

Other

Total

¥1,582¥46,310

Reconciliations

Sales prices and other conditions are determined on an arm's-length basis.
Consolidated¥46,31020 FINANCIAL INSTRUMENTS AND RELATED DISCLOSURES(1) Policy for Financial Instruments

Thousands of U.S. Dollars

2017

The Company primarily uses short-term deposits, etc., to manage its funds and raises funds as necessary
through borrowings from financial institutions and leasing according to the financing plan.

Reportable Segments
Domestic
Convenience
Store
Business

Goodwill at February 28, 2017

Seijo Ishii
Business$100,115 $224,502

Entertainment
relatedBusiness$77,203

Other

Total

$7,224 $409,044

Reconciliations(2) Nature, Extent of Risk, and Risk Management System for Financial Instruments
Consolidated$409,044

Trade receivables, such as accounts receivable-other, are exposed to credit risk from business counterparties.
Long-term loans receivable (mainly construction assistance fund receivables and loans to franchised stores)

The amount under Other is attributable to the overseas business.

and lease deposits are exposed to credit risks of borrowers and landlords, etc. With regard to this risk, theCompany manages credit on a daily basis at the relevant division and aims to identify and minimize collection
concerns arising from deterioration in the financial situation, etc. in the early stages.
Investment securities are primarily shares of companies with which the Company has business relationships
and listed shares which are exposed to the risk of market price fluctuation. With regard to this risk, theCompany monitors the financial conditions of business counterparties on a regular basis.
Among trade payables, most of the accounts payable-trade, accounts payable-trade for franchised stores,
accounts payable-other and money held as agent as a result of bill settlement services have payment due
dates within one month, while most deposits received held as a result of ticket sales transactions havepayment due dates within six months.

55

Lawson, Inc. Integrated Report 2017

Lawson, Inc. Integrated Report 201756

Financial Section

Long-term loans from banks payable are mainly for the purpose of funding M&A, and are due within four years.

Thousands of U.S. Dollars

The primary purpose of lease obligations related to finance lease transactions is securing the funds required

February 28, 2017

Carrying
Amountfor capital investments and the maximum redemption period is 15 years after the consolidated balance sheet

Cash and cash equivalents$601,386$601,386

date.

Time deposits

3,758

3,758

1,050,960

1,050,960

394,998

394,856

Accounts receivable

With regard to the liquidity risk associated with fundraising (risk that payments cannot be executed on theLong-term loans receivable

Fair Value

Unrealized
Gain/Loss$(142)

payment due dates), the Company prepares and updates financial plans on a timely basis and manages

Investment securities

57,951

57,951liquidity risk by measures including maintaining adequate liquidity on hand.

Lease deposits

845,602840,512(5,090)Total$2,954,655$2,949,423$(5,232)

Accounts payable

1,513,691

1,513,691(3) Fair Values of Financial Instruments
Fair values of financial instruments are based on quoted prices in active markets. If a quoted price is notavailable, other rational valuation techniques are used instead. Since multiple factors are considered in theestimation of fair value, the results of the estimation might differ if other valuation techniques were used.
Carrying
AmountCash and cash equivalents¥67,692

Unrealized
Gain/Loss

Fair Value

423

423

118,296

118,296

Long-term loans receivable

44,46144,445Investment securities

6,523

6,523

$39,260

Total$4,076,164$4,036,904$39,260

The carrying values of cash and cash equivalents, time deposits, and accounts receivable (including allowance for
doubtful accounts) approximate fair value because of their short maturities.
Long-term loans receivable
The fair values of long-term loans receivable (including allowance for doubtful accounts) are determined by¥(16)

95,181

94,608

(572)

Total

¥332,576¥331,987¥(589)

Accounts payable¥170,381¥170,381

Money held as agent

103,157

103,157

Long-term debt (including current portion of long-term debt)

185,275

180,856¥4,419

Total¥458,813¥454,394¥4,419Lease deposits

1,606,751¥67,692

Accounts receivable

Time deposits

916,462

1,646,011

Cash and cash equivalents, time deposits, and accounts receivable

Millions of Yen
February 28, 2017

916,462

Long-term debt (including current portion of long-term debt)

Money held as agent

discounting the cash flows related to the obligations at the Companies assumed corporate discount rate.
Investment securities
The fair values of investment securities are measured at the quoted market price on the stock exchange for theequity instruments, and at the quoted price obtained from the financial institution for certain debt instruments.
Lease deposits
The fair values of lease deposits (including allowance for doubtful accounts) are determined by discounting future
cash flows, which reflect the collectability, using the yield rate of government bonds for the remaining period.

Millions of Yen
February 29, 2016

Carrying
AmountCash and cash equivalents¥69,793¥69,79344

Accounts receivable

98,276

98,276Long-term loans receivable

40,83140,817

Investment securities

7,316

7,316

Lease deposits

92,12189,375(2,746)

Total¥308,341¥305,581¥(2,760)

Accounts payable¥173,630¥173,630

Money held as agent

101,909

101,909

Time deposits

57

Unrealized
Gain/Loss

Fair Value

The carrying values of accounts payable and money held as agent approximate fair value because of their shortmaturities.
Long-term debt (including current portion of long-term debt)¥(14)

Long-term debt (including current portion of long-term debt)

170,096

170,711

¥615

Total

¥445,635¥446,250¥615

Lawson, Inc. Integrated Report 2017

Accounts payable and money held as agent

The fair values of long-term debt are determined by discounting the cash flows related to the debt at theCompanies assumed corporate discount rate.

Lawson, Inc. Integrated Report 201758

Financial Section

21 NET INCOME PER SHARE(4) Financial Instruments Whose Fair Value Cannot Be Reliably Determined

Reconciliation of the differences between basic and diluted net income per share (“EPS”) for the years ended

Carrying AmountThousands of
U.S. Dollars

Millions of Yen

2017
Investments in equity instruments that do nothave a quoted market price in an active market

2016

February 28, 2017 and February 29, 2016, is as follows:

2017

¥945

¥1,412$8,396

Year Ended February 28, 2017

Investments in unconsolidated subsidiaries and affiliated companies

14,151

15,600125,720

Others

1,313

1,392

11,665

Basic EPS̶Net income available to commonshareholders

Thousandsof Shares

Net Income

WeightedAverage Shares¥36,400

100,009¥36,400

100,080

Effect of dilutive securities̶Stock options
Diluted EPS̶Net income for computation(5) Maturity Analysis for Financial Assets and Securities with Contractual Maturities

Millions of Yen

Yen

U.S. Dollars
EPS¥363.97$3.23¥363.71$3.23

71

Millions of Yen

2017
Due in1 Yearor Less

Cash and cash equivalents
Time deposits
Accounts receivable
Long-term loans receivable
Lease deposits
Total

Due after
1 Year through5 Years

Due after
5 Years through10 Years

Due after
10 Years¥67,692

Year Ended February 29, 2016

Basic EPS̶Net income available to commonshareholders

423
118,347

Millions of Yen

Thousandsof Shares

Yen

Net Income

WeightedAverage Shares

EPS¥31,381

Effect of dilutive securities̶Stock options

450¥14,901¥14,408¥14,736

5,481

20,70824,80944,596¥192,393¥35,609¥39,217¥59,332

Diluted EPS̶Net income for computation

99,998¥313.8278¥31,381

100,076¥313.57

22 SUBSEQUENT EVENT
Appropriation of Retained Earnings

Millions of Yen

2016
Due in1 Yearor Less

Cash and cash equivalents

Long-term loans receivable
Lease deposits
Total

Due after
5 Years through10 Years

The following appropriation of retained earnings was approved at the general shareholders meeting held on May
Due after
10 Years

30, 2017:¥69,793

Millions of Yen

4Time deposits
Accounts receivable

Due after
1 Year through5 Years

Cash dividends, ¥125.0 ($1.11) per share

98,283351¥14,427¥12,829¥12,502

Thousands of
U.S. Dollars$111,070¥13,279

5,335

20,98722,15844,015¥173,766¥35,414¥34,987¥57,294

Thousands of U.S. Dollars

2017
Due in1 Yearor Less

Cash and cash equivalents
Time deposits
Accounts receivable

Due after
5 Years through10 Years

Due after
10 Years$601,386
3,758
1,051,413

Long-term loans receivable

3,998$132,382$128,003$130,917

Lease deposits

48,694

183,973

220,407396,197$1,709,249$316,355$348,410$527,114

Total

59

Due after
1 Year through5 Years

Lawson, Inc. Integrated Report 2017

Lawson, Inc. Integrated Report 201760

Independent Auditor’s Report61

Lawson, Inc. Integrated Report 2016

Lawson, Inc. Integrated Report 2016

62

East Tower, Gate City Ohsaki, 11-2, Osaki 1-chome,
Shinagawa-ku, Tokyo 141-8643 Japan

http://lawson.jp/en/
Published September 2017©1975-2017 Lawson, Inc. All rights reserved.
Printed in Japan