INTEGRATED REPORT 2018

Creating Happiness and Harmony in Our Communities

LAWSON will continue to be “an essential part of ourcommunities offering a full range of daily-life necessities.”
For LAWSON to remain an “essential part” of community life will require it to do evenmore than serve the community as a convenience store that stays open 24 hours a
day and provides convenience as well as peace of mind to our customers. It mustalso respond quickly to customers’ desires expressed in such terms as, “Do you
think it would be possible.”
Lawson seeks to serve as a community hub, where all the key community
functions are available and where people come together naturally and happily.
We will continue to pursue the things that are uniquely possible to Lawson.

Responding to the diverse
needs of the community

Always nearby with thenecessities on hand

Supporting community
residents’ ability to live insafety with peace of mind

Most homes have a LAWSON store stockedwith all the daily necessities within walking
distance. We offer convenience for young
people and seniors as well as for working
women. From a morning coffee and a boxed
meal for lunch to prepared foods for dinner,
our nearby stores are prepared to meet all
our customers’ daily needs.

LAWSON keeps its lights on 24 hours a day
and serves as a cornerstone of community
infrastructure. In addition to concluding theAgreement on Cooperation in Supplying Daily
Necessities in Case of Disasters, Etc., withlocal governments, our stores keep a supply
of disaster equipment and manuals on hand.

Supporting our communities
as a shopping venue

We respond to a diverse range of community
needs with a product lineup ranging fromfoods and daily necessities to magazines aswell as bill settlement agency services, bankATMs and event ticket sales. Some storesare even equipped to handle a range of OTC
pharmaceuticals.

We also provide “community watch” services
comprising mobile stores in regions without
nearby convenience stores as well as regular
visits to senior households. Other services
include the community revitalization andsenior household support activities we
conduct through our stores.

Treasuring the warmth
flowing through ourcommunity roots
Many of our franchise store (FC) owners
and store managers and crew are people
from the local community. These roots in thecommunity are the source of our knowledgeof its needs, and the origin of our warm
relations with community residents.

Stores with Machikado
Chubo In-store Kitchens

4,249 stores

HMV stores

54 stores

Seijo Ishii

140 stores

LAWSON stores (domestic)

13,992 stores

Stores handling OTC
pharmaceuticals
LAWSON ATMs

12,733176 stores

United Cinemas

351 screens* Figures for LAWSON services are current as of end February 2018.

CONTENTS
Challenges Facing Lawson in Its Efforts toRealize Its Vision

Lawson Communication Media
Lawson Website
Presents information and data not covered by Lawson publications.
Integrated Report

Financial Section

Top Management Perspectives...................................Page 2•	Working together as one, we shall strive to realize our Corporate Philosophy byreinforcing the foundation we have built to date.

Message from the President.......................................Page 4•	This will be a year for finalizing our various efforts under the 1,000-Day Action Plan
we introduced in fiscal 2016 to improve our product offering, reinforce our store
capabilities, and increase support for newly opened and franchise stores.

Message from the CFO...............................................Page 8•	As our investment for growth continues, we shall build a stable business
management foundation by adhering to proper financial discipline.

Consolidated Business Performance..........................Page 9

E S G
An overview of the Lawson
Group’s business activities rooted
in local communities and theoutlook for sustainable future
growthES

A report on industry trends andthe Lawson Group’s businessinitiatives and financial positionin the relevant years, as well as
projected earnings assessments/
analyses and the outlook for the
next fiscal year

Living in Harmony with
Communities: Initiatives Report
A simple, clearly written report on our activities in
response to the social and environmental challenges
facing our communities.

Lawson in Data
Financial Highlights and Non-financial Data............Page 10
Eleven-Year Financial Summary...............................Page 12

Corporate Governance G
Management team underpinningsustainable growth.................................................Page 14
Outside Directors’ Perspectives................................Page 16•	I expect Lawson to achieve further growth by redefining its special corporate powers.
(Keiko Hayashi, Representative Director, DoCLASSE Ltd.)•	Further enhancement of the partnership fostered with Mitsubishi Corporation willlead Lawson to sustainable growth.
(Yutaka Kyoya, Executive Vice President, Mitsubishi Corporation)

Corporate Governance..............................................Page 18
Lawson has been adopted as a constituent of the
ESG investment stock price index.

* Current as of February 2018

Its adoption accords to all three selection indicators for ESG investments made by the Government Pension
Investment Fund (GPIF).
“FTSE Russell confirms that Lawson, Inc. has been independently assessed according to the index criteria,
and has satisfied the requirements to become a constituent of the FTSE Blossom Japan Index. Created by
the global index and data provider FTSE Russell, the FTSE Blossom Japan Index is designed to measure
the performance of companies demonstrating strong Environmental, Social and Governance (ESG)
practices. The FTSE Blossom Japan Index is used by a wide variety of market participants to create andassess responsible investment funds and other products.”

The MSCI Japan Empowering Women Index represents
the performance of companies that provide leadership in
promoting and maintaining gender diversity in their GICS®
sector.

The MSCI Japan Empowering Women Select Index represents
the performance of companies that provide leadership in
promoting and maintaining gender diversity in their GICS®
sector, while also meeting certain quality factor criteria.

*	THE INCLUSION OF LAWSON, INC. IN ANY MSCI INDEX, AND THE USE OF MSCI LOGOS, TRADEMARKS, SERVICE MARKS OR INDEX NAMESHEREIN, DO NOT CONSTITUTE A SPONSORSHIP, ENDORSEMENT OR PROMOTION OF LAWSON, INC. BY MSCI OR ANY OF ITS AFFILIATES. THE
MSCI INDEXES ARE THE EXCLUSIVE PROPERTY OF MSCI. MSCI AND THE MSCI INDEX NAMES AND LOGOS ARE TRADEMARKS OR SERVICEMARKS OF MSCI OR ITS AFFILIATES.
*	GICS is the Global Industry Classification Standard, an industry classification system created jointly in 1999 by the U.S.-based Standard and Poor’s
credit rating firm and the global financial group Morgan Stanley Capital International.
®

Sustainable Growth and Business Model

Reinforcing the Foundation for
Sustainable Growth
Responding to Various Community Feedback..........Page 26- Challenges for Lawson -Expanding the Customer Base...........................Page 27
Lawson’s Characteristic Strengthening
In-store Kitchens................................................Page 28
Enhanced Evening and Nighttime Operation......Page 30
Digital Innovation...............................................Page 32
Balance of Business and Working
Environment in Supply Chain...........................Page 34
Unique Multiple Store Management andthe Management Owner Program ...................Page 36

Foundation Supporting Growth E S GDeveloping Human Capital.......................................Page 38
Social and Environmental Activities.........................Page 40•	Contributing to a Sustainable Society through the Stores•	Social and Environmental Initiatives in Our Core Business

Compliance and Risk Management..........................Page 42

Corporate Information.....................................Page 46•	Corporate Data
• Share Information• Main Lawson Group Member Companies• Store Network Development• Main Businesses and Services

Sustainable Growth and Business Model.................Page 22•	Next-Generation LAWSON Convenience Store model.

Corporate Value Creation Cycle................................Page 24•	Lawson contributes to happiness and harmony in its communities by creating added
value through its customer-oriented business model.

Range of the report

Although portions of this report were produced in cooperation with business
partners in fields such as logistics, food manufacturing and waste disposal,
its focus is primarily on the business activities of Lawson, its franchise storesand certain affiliated companies.

Reporting period

This report covers fiscal year 2017 (March 1, 2017 ~ February 28, 2018),
with some reporting on activities before and after this period. See theLawson website for further details:

http://www.lawson.co.jp/en/

LAWSON1

INTEGRATED REPORT 2018

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 plans and perspectives
at the time of publication. These forecasts represent assumptions andviewpoints 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 English version of the Financial Section is the official version, whereas
the Japanese version does not contain notes to the financial statements.
Refer to the Company’s securities report for details concerning the notes.

Top Management Perspectives

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
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.

LAWSON2

INTEGRATED REPORT 2018

Working together as one, we will strive
to realize our Corporate Philosophy byreinforcing the foundation we have built
to date.

About four decades have passed since Japan’s first convenience store opened.
The ongoing diversification of customer needs through the years has made today’s
convenience store much more than a convenient place to shop. As a facility
whose lights stay on 24 hours a day, and which serves as a reliable cornerstone ofcommunity infrastructure in emergencies and times of disaster, the convenience
store has emerged as an “essential part of people’s daily lives.” The role it isexpected to play has expanded to unprecedented significance.
Always carefully monitoring these social trends, and striving to realize its
Corporate Philosophy of “Creating Happiness and Harmony in Our Communities,”
Lawson has consistently been among the first to undertake various new ventures.
The business environment has been changing almost daily in recent years, as
exemplified by the labor shortage due to the combination of a declining birthratewith an aging population, the structural reorganization of industry, and innovations
in digital technologies. Determined to achieve sustainable growth while continuing
to meet the needs of society, Lawson launched its 1,000-Day Action Plan in fiscal
2016. The Plan is designed to realize our Corporate Philosophy through creationof a Next-Generation LAWSON Convenience Store model that satisfies the needs
customers encounter in every aspect of daily life.
Fiscal 2018 is the final year of the Plan. We are continuing to build on the firm
foundation we have established over the years by reinforcing our product lineup,sales floor functions and newly opened store operations while upgrading all ourstores’ productivity through introduction of next-generation systems.
Deployment of the latest technologies will contribute to maintaining
LAWSON’s signature warm hospitality by reducing stress on both our stores andour customers.
We cannot achieve all this on our own. Full implementation of our 1,000Day Action Plan will be accomplished through the combined efforts of everyone
associated with the Lawson Group, including our franchise owners, store crews
and suppliers, such as our boxed meal makers and delivery centers, as well as ourparent company, Mitsubishi Corporation.
All Lawson personnel are without exception warmhearted members of
the community who provide essential ongoing support for the daily lives of its
residents. Going forward, we will continue our efforts to realize our Vision, “To be aleading company in execution,” and to increase our corporate value.
President and CEO, Representative Director,
Chairman of the Board

LAWSON3

INTEGRATED REPORT 2018

Message from the President
Creating a Next-Generation LAWSON Convenience Store model.
Advancing our pursuit ofsustainable growth
The convenience store based on a small
commercial area model is, together with
e-commerce, without doubt one of ahandful of growth models in Japan’s retailmarket today. With the birthrate declining
and the population aging rapidly, growing
numbers of customers would rather walk toa neighborhood store than drive to a distantsupermarket for shopping. Since doubleincome households now account for overhalf the nation’s households, meanwhile,
more and more people who are busy juggling
work with housekeeping and child-rearing
responsibilities choose to stop in on their
way home to buy the food items they needto prepare dinner or breakfast. Propelled bythis tailwind, the convenience store market
expanded to approximately 12 trillion yen in2017, an increase of 2.4% from the previous

store structure through the addition of
NATURAL LAWSON and LAWSON STORE
100 as well as HMV stores, United Cinemas
Co., Ltd. and SEIJO ISHII CO., LTD. Lawson’s
corporate culture and climate encourageongoing efforts to challenge introduction ofsuch innovations.
Against the backdrop of a declining
working-age population, meanwhile, ashortage of human resources and resultant
rise in labor costs are becoming major issues.
This has created a pressing need to improve
store productivity. If we are to continue offering
products and services that satisfy customer
needs, we must make full use of leading-edge
IT and digital technologies and construct a
new model for operations that breaks withconventional thinking. This will mean further
mechanizing and automating tasks machines
can handle, while assigning crew to tasks
human beings should handle, thus managing
LAWSON stores with human hands in orderto provide the warmhearted services for which

year. The domestic LAWSON store chain has
enjoyed particularly rapid growth, recording
approximately 2.2 trillion yen in overall sales infiscal 2017, 1.5 times the level 10 years earlier.
At the same time, however, Japan’scontracting population makes it difficult toanticipate significant growth in any market
involving food distribution, including the foodservice industry. Competition is intensifying
every year, not only among convenience
stores but also across different industries, as
exemplified by forays into new categories bydrugstores and food supermarkets and theintroduction of new Internet-based services.
LAWSON has adapted to social changes as
they occur by introducing such new services
as in-store ticket sales and customer pickup
services for Internet purchases, for example,
and developing unique, wholesome products
such as bran bread in response to customers’
growing health consciousness. It has met thevaried needs of customers in its communities
by developing a Group with a multi-format

LAWSON4

INTEGRATED REPORT 2018

LAWSON is known. Guided by this thinking,we are advancing the creation of a unique
Next-Generation LAWSON Convenience Storemodel and working together with our franchiseowners and store crews to achieve sustainablegrowth.

Completing reinforcement of
our foundation for growth in
the final year of the 1,000-Day
Action Plan
This is the last year of the 1,000-Day Action
Plan we introduced in fiscal 2016. It will be ayear for finalizing our various efforts to improve
our product offering, reinforce our store
capabilities, and increase support for new
store opening operations and franchise stores.
Let us take a moment to review some of ouraccomplishments so far: First, we introduced
the semi-automatic ordering system as acornerstone of our new business model infiscal 2015, the year before implementation

Message from the Presidentof the Plan, and conducted a review of ourfranchise contract packages. We followed thisby introducing measures for construction of a
Next-Generation LAWSON Convenience Storemodel one after another beginning with thelaunch of the Plan in fiscal 2016. We carriedout renovations at almost all the LAWSON
stores to reinforce their ability to receive daily
deliveries of fresh and frozen foods. This
involved such measures as installing additional
freezer cases and refrigerated showcases andincreasing the number of items on the shelvesto as many as 3,500 SKUs, or 15% above theprevious level. In fiscal 2017, we introduced
tablet devices into all the LAWSON storesand made tremendous strides in our brandconversion of stores joining us from otherconvenience store chains and our preparations

only selling products and providing services
over the counter, but of enabling customers
to pay for them conveniently as well. Thus,
having designated fiscal 2018 as our first yearof digital operations, we are making optimaluse of leading-edge technologies to realize
them.

for entry into the financial services field. We
began to accelerate our efforts to incorporate
leading-edge digital technologies, moreover,including verification testing of RFID tracking
and establishment of the Lawson Open
Innovation Center.
In fiscal 2018, we plan to install new
POS cash registers equipped with automaticchange-dispensing machines in all thestores. The rebranding of stores from theSave On chain is expected to be completeby fiscal year-end, raising the number of
LAWSON stores in Japan to nearly 15,000.
The preparations for entry into the financial
services business we began last year are
well under way, while experiments with instore remote smartphone payments have also
begun. We are taking up the challenge of not

1,000-Day Action Plan

Completing reinforcement of
our foundation for the futureand resumption of an earnings
growth trend after fiscal 2019

payments, deployment of the latest digitaltechnologies and initiation of LAWSON Fresh
Pick. Since all these undertakings incur upfront expenses, we project a decrease inoperating profit for fiscal 2018, as in theprevious year. Although this will place us in adifficult situation in the short term, it cannot
be avoided if we are to realize sustainablegrowth into the future. We will strive to achieve
our Mid-term Management Vision, and willcertainly attain results and return to profit
growth after fiscal 2019.

Clearly then, the 1,000-Day Action Plan callsfor various investments in IT systems, andwe continue to face an array of challenges
involving them, including entry into the financial
services business, introduction of smartphone

Growing image of consolidated operating profit

Becoming an essential part of our communities
Construction of a Next-Generation LAWSON Convenience Store model
Realization of stores needed during evening and nighttime
Improving the
product offering

Improving stores’
productivity

Reinforcing
store
capabilities
Strengthening
support for
franchise stores

Increasing support
for newly
opened stores

To remain an
essential partof the community(Billion yen)

1,000

800

600

400

Improving overall
competitiveness

One Lawson ~ Companywide operational reform

200

0*The years following fiscal 2019are forecast images.

Fiscal 2016

Fiscal 2017

Fiscal 2018

Fiscal 2019

Fiscal 2020

Fiscal 2021

(Estimate)

Reinforcing our foundation

Fully executing the basics, Responding to change, Challenging further growth
LAWSON5

INTEGRATED REPORT 2018

Making a leap forward

Creating a sales floor thatmeets customer needs during
the evening and nighttime
LAWSON stores are responding to theneeds of a new generation of female andsenior customers who rely on us especiallyduring evening and nighttime hours, when
the convenience store has traditionally donecomparatively little business. In the past,
LAWSON stores have also arranged theirsales floors with an eye to meeting demandduring the morning commuting and lunchtime
hours. More recently, however, we havefound it advisable to shift our focus to theevening-to-nighttime period. But it takes
more than a call for change to motivate actual
sales floor renovation. The stores’ relatively
small crews are kept busy with tasks from
attending customers and operating cash
registers to placing inventory orders, receiving
merchandise and straightening display shelves.

begin to bear fruit gradually in the relatively
near future.

All these tasks have been standardized in thepast based on the assumption that morningand early afternoon were the peak hours. Nor
was this assumption limited to the stores: ourentire supply chain—from the boxed meal
and rice ball manufacturers to the delivery
centers that ship these products to stores—
had streamlined their operations according
to these conditions. More recently, however,
we have dared to change these assumptions
dramatically. We altered the deadlines fororder placements along with the timing oftruck deliveries to enable optimization of
the sales floor by 4:00 p.m. to cater to theneeds of evening and nighttime shoppers.
This project is aimed at reconstructing
conventional systems throughout the Lawson
Group, including our franchise headquarters
and suppliers such as factories and delivery
centers. After more than a half-year of careful
preparation, we implemented the new system
in June 2018. I feel sure that the switch will

LAWSON

Moving forward as a company
in which diverse human capitalwork together enthusiasticallyAchieving diversity is more than a matter ofincreasing the ratio of female and foreign
national employees; it also involves acquiring
new insights and new value throughclashes between different perspectives inan organization. Guided by its Corporate
Philosophy, Lawson has instituted a systemof promoting diversity and introduced One
Lawson management involving participationby all its employees, regardless of gender,
nationality, place of origin or background.
Determined to become a company where
women remain active over the long term,
for example, it pursues measures aimed atdiversifying working styles, such as providing

6

INTEGRATED REPORT 2018

leadership training for selected employees,
while reinforcing the maternity leave systemand encouraging male employees to takepaternity leave. Mental and physical health isanother extremely important issue. Not only do
we support customers’ general health throughLAWSON stores in their role as “community
health hubs,” but we also promote employees’compliance with regular medical checkups
and implement a health promotion programfor franchise owners. Going forward, we willcontinue our efforts to streamline operations
and achieve a positive work/life balance thatenables all Lawson personnel to lead cheerful,energetic daily lives. I will personally transmit
messages to this effect Group-wide at every
opportunity. Every Lawson Group entity will
strive to promote diversity, improve work
environments and challenge achievement ofhighly productive working styles.

Message from the President

Continuing to challenge
realization of a sustainable
society
The convenience store, which keeps its lights
on 24 hours a day and supports people withvarious daily life services while also serving as
a community emergency lifeline, has become
an indispensable community institution.
Committed to “Creating Happiness andHarmony in Our Communities,” Lawson must
develop stores that satisfy customer needs
more fully while striving to realize a sustainable
society. Assured that these efforts will lead torealization of the Sustainable Development
Goals (SDGs) adopted in September 2015, weare pursuing challenges in various areas.
With respect to the global environment,in particular, we recognize reducing CO2

emissions from electricity consumption at thestores as a major issue. We have responded
by targeting a 20% reduction (compared withfiscal 2010) in electricity consumption per
store by fiscal 2020. Specific measures tothis end have included formulating the Ten
Energy-saving Rules and implementing themat every store as well as introducing moreenergy-efficient store equipment, such as
freezer and refrigeration systems cooled by
CO2 refrigerants. We recognize the necessity,
moreover, of communicating a high levelof awareness and knowledge as well as of
pertinent information to individuals throughout
the Lawson Group. We seek to achieve theseaims by conducting social and environmental
education targeting not only Headquarters
employees but also franchise owners, store
managers and crews.

Battling to overcome fierce
market competition withsupport from Mitsubishi
Corporation, while maintaining
independence as a listedcompany
Although a year has passed since Mitsubishi
Corporation became our parent company
through ownership of a majority of Lawsonshares, our development strategy remains
substantially unchanged. Maintaining
transparency and independence as acompany listed on the First Section of
the Tokyo Stock Exchange is obviously ofenormous significance in light of the support
we receive from our many stakeholders,
including our franchise owners, and the
expectation that we serve as a cornerstoneof the community infrastructure. Three of theeight members of Lawson’s Board of Directors
are independent directors, for example, andfive of the six members of our Nomination
and Compensation Advisory Committee are
independent officers. We are committed
to maintaining such considerations for
ensuring proper functioning of our corporate
governance. Our partnership with Mitsubishi

Contributing as infrastructure to regional societyChildcare
supportLifeline
in times ofdisasterCrime
prevention
center

Attached
nursing
care
centerHome
deliveryservices andmobilesales

Response tosocial issues

HealthsupportAgricultural
undertakings
Energyconservation
andgeneration

Greening
activities

Social infrastructure

Environmental
conservation

LAWSON7

INTEGRATED REPORT 2018

Corporation dates back many years to theconclusion of a business alliance agreementin 2000. As we engage in fierce competition
to survive and flourish in our harsh operating
environment, we will make full use of Mitsubishi
Corporation’s resources to construct a NextGeneration LAWSON Convenience Storemodel supported by a global network of food
raw material procurement routes and a fully
developed food distribution network in Japan.

Message from the CFO
As our investment for growth continues, we willbuild a stable business management foundation byadhering to proper financial discipline.

Satoshi Nakaniwa
Member of the Board
Senior Vice President, CFO

Review of fiscal 2017
Lawson suffered negative business results in fiscal
2017, with both consolidated operating profit
and consolidated net profit falling below theirprevious-year levels. In the domestic convenience
store business—the Company’s core business—
existing store sales were nearly unchanged at 0.1
percentage point down from the previous year andthe Lawson Group added a total of 1,250 stores.
At the same time, however, an increase in the costof supporting franchise stores, combined with aheavy burden on the Company’s finances fromnew business ventures such as preparations forentry into the financial services business, pushed
down consolidated operating profit by 7.9 billion

and networks 24 hours a day, 365 days a year
at our approximately 14,000 stores in Japan,
however, which forced us to record impairment
losses for parts of the next-generation systems
we had already developed. Development of IT
systems employing leading-edge technologies
is nevertheless essential if we are to achievesustainable growth in an environment ofintensifying cross-industry competition andworkforce contraction that requires us to improve
our store productivity year after year. After thisinitial experience with cloud computing, we planto pursue phased conversion to the cloud andincrease our ranks of IT staff in order to pursue IT
system development supported by appropriate
risk control.

yen from the previous year to 65.8 billion yen.
Consolidated net profit also turned
downward, falling by 9.5 billion yen from theprevious year to 26.8 billion yen, due primarily to
an extraordinary loss resulting from an IT systemrelated impairment loss of 6 billion yen. These
austere business results notwithstanding, thefruits of measures implemented under the 1,000Day Action Plan also began to appear during theyear. These included a recovery in sales of suchstaple products as boxed meals and rice balls,
an expanded range of supermarket-alternative
products, and daily delivered fresh and frozen
foods, introduction of next-generation systems
such as tablet devices, and preparations for entry
into the financial services business led by Lawson
Bank Preparatory Company.

Financial discipline and returns
to shareholders
We expect to record consolidated operating
profit of 60 billion yen in fiscal 2018, falling shortof the previous year’s level once more due tothe considerable impact of our investments forsustainable growth. We anticipate consolidated
operating cash flows of 128 billion yen underthese circumstances, however, mainly fromthe domestic convenience store business. This

Impact of an IT system-related
impairment loss
A key factor contributing to the decrease in
net profit was an IT system-related impairment
loss. Investment in next-generation systems
in accordance with the 1,000-Day Action Planconceived in fiscal 2015 has been pursued asa Companywide project on a scale expected toreach tens of billions of yen in the three-to-fouryear period from fiscal 2016 forward. The project
has already begun to bear fruit in such ways as
improved store operating efficiency stemmingfrom the introduction of hardware such as tablet
devices and new POS cash registers. We also
made an unprecedented effort to achieve fullconversion of our next-generation systems to
the cloud. We encountered a greater variety oftechnical difficulties than we had anticipatedin ensuring reliable operation of our systems
LAWSON

exceeds our projected consolidated investment
cash flows of 95 billion yen, including investments
in new store openings and new-generation systemdevelopment. We recorded short-term borrowingsof 35 billion yen as of end February 2018 as ameans of securing liquidity. We are considering
increasing the amount of borrowings for capital
expenditures depending on future circumstances,
but we are determined not to rely excessively
on borrowings and to maintain proper financial
discipline indicated by a D/E ratio of below 1, as
specified in our Mid-Term Management Vision.
We will strive to achieve an ROE greater than the
15 percent specified in the Mid-term Management
Vision, meanwhile, by maintaining a healthybalance between earnings growth and returns toshareholders through value creation.
We will plan to pay a dividend of 255 yen
in fiscal 2018, unchanged from the year before.
While projecting negative growth for fiscal 2018,
we remain committed to realizing earnings growthin the medium term and to achieving operating
profit of above 100 billion yen as stated in our Midterm Management Vision. We intend to maintainstable dividend payments while enhancing ourcorporate value in the medium-to-long term.

Transitions in cash dividends per share and dividend yield(Yen)

Cash dividends per share (left axis)
Dividend payout ratio (right axis)
126.3

260
240
220
200
180

160

160

160

170

240

245

250

255

120

180

95.1
91.1

120

90

80
60
40

41.8

100

110
66.8

66.6

49.6

51.2

2006

2007

(%)

150

220
200

140
100

255

72.2

73.4
60.2

78.1

90

60

68.7

57.9
30

20
0

8

2005

2008

2009

INTEGRATED REPORT 2018

2010

2011

2012

2013

2014

2015

2016

2017

0
2018 (FY)(Forecast)Consolidated Financial Results
Lawson’s consolidated
financial results for the fiscal
year ended February 2018
Lawson recorded consolidated operating profitof 65.8 billion yen for the term ended February
2018 (down 10.8% from the previous year)
and consolidated net profit attributable toshareholders of the parent of 26.8 billion yen(down 26.3% from the previous year). ROE
was 9.7%, thus remaining at a relatively highlevel among domestic retailers.*
There were a total of 13,992 LAWSON
stores in Japan at end February 2018 (a netincrease of 881stores) as a result of store
openings, including brand conversions ofstores from other convenience store chainsthrough business alliances. Net sales byexisting LAWSON stores in Japan remained
nearly unchanged at 0.1% below of theprevious year’s level, while gross operating
revenues registered 657.3 billion yen (up 4.1%
from the previous year). Selling, general andadministrative expenses rose to a total of
410.1 billion yen (up 7.0% from the previousyear), meanwhile, driven upward by increased
equipment costs stemming from the additionof new stores as well by higher support costs
for franchise stores, including defrayment ofdisposal losses, and expenditures related to(Unit: Million yen)
2018.2

YoY

2017.2Gross operating
revenues

657,324

Operating profit

65,820–10.8%

Recurring profit

65,141–10.8%

73,014

Net income

26,828–26.3%

36,400+4.1% 631,288
73,772*Except for specialty shops

Consolidated business results
for the fiscal year ending
February 2019 (forecast)

LAWSONequipped with automatic change dispensing
machines in all LAWSON stores and increased
spending on new businesses such as theentry into the financial services business. Our
projections consequently call for operating
profit of 60 billion yen, down 5.8 billion yen
from the preceding year. We are forecastingnet income of 2.8 billion yen, up 1.1 billion yen
from the preceding year, meanwhile, primarily
in reaction to the IT-related impairment loss
recorded in the previous year.

Consolidated financial results for the fiscal year ending February 2019 (forecast)

We recognize the current fiscal year as ayear of conducting investments, as in thefiscal year ended February 2018, to fortify
our foundations for sustainable growth. Thus,
we project a decline in operating profit to 60
billion yen (down 8.8% from the precedingyear) due to the significant impact of increased
expenditures related to IT investment andnew businesses. Net profit attributable toshareholders of the parent, meanwhile, is
expected to increase to 28 billion yen (up 4.4%
from the preceding year).
In the domestic convenience store business,to begin with, we are determined to achieve a
1.0% year-on-year increase in sales by existing
stores and a gross profit margin of 31.4%
through continued efforts to strengthen the
product offering, reinforce store capabilities,
provide support for newly opened storesand support the franchise stores as well as
by expanding our base of new customers—
centered on working women and seniors—
and increasing sales during the evening-tonighttime period. As concerns store openings,
we plan to open 1,200 stores, including storesconverted from other convenience store
chains through business alliances, thus raising
the number of LAWSON stores in Japan to-9 billion yen (approx.)

Investment for growth(Increase/decrease from thepreceding year)-7 billion yen (approx.)-2 billion yen (approx.)

Next-generation systems
New business•Daily sales

600,000 yen•D/E ratio (excluding financial
Below 1 services business)
Operatingprofitdecrease-6 billion yen(approx.)

60 billion yen

Operating profit

Mid-term Management Vision•Operating profit
Over 100 billion yen

3 billion yen (approx.)

CVS profit increase•ROE
Over 15%•No. of domestic stores

18,000

CVS = Convenience store

World retailers ROE
(%)

30.0
25.0

ROE (fiscal 2017*)

Fiscal 2017 (Consolidated)

14,792 as of end February 2019. We forecast
an increase of approximately 3 billion in
operating profit for the existing convenience
store business through enhancement ofour domestic convenience store operations
and improved profitability of our overseas
business. Expenditures are expected toincrease as well, meanwhile, as investments tofortify our foundations for sustainable growthcontinue. We anticipate a decrease in profit
totaling approximately 9 billion yen attributable
to installation of new POS cash registers

new businesses such preparations for entry
into the the financial services business. These
factors resulted in a decline in operating profit
from the year-before level to 65.8 billion yen.
Net income also turned downward from theprevious year to 26.8 billion yen due primarily
to the recording of such extraordinary losses
as an IT-related impairment loss.

Costco Wholesale Corporation (USA)

Target Corporation (USA)20.0
CVS Health Corporation (USA)15.0
Metro AG (Germany)
10.0
5.0
0
-60.0

Walmart Inc. (USA)

Tesco (UK)

LawsonFamilyMart UNY Holdings Co., Ltd.

Walgreens Boots Alliance, Inc. (UK)
Seven & i Holdings Co., Ltd.

J Sainsbury PLC (UK)AEON Co., Ltd.

10,00020,00030,00040,00050,00060,00070,000Aggregate market value (as of end February 2018)*For the period from the fiscal term ended August 2017 to the fiscal term ended February 2018

9

INTEGRATED REPORT 2018

80,000250,000(Million dollars)

Lawson in Data

Financial Highlights
Consolidated net sales by all storesConsolidated operating profit

ROE (return on equity)

Average daily store sales in Japan

Consolidated net sales by all stores (left axis)
Consolidated operating profit ratio (right axis)(Billion yen)
2,500
2,250
2,000

1,945.3

1,750

3.5

1,961.9 2,049.5
3.6

2,157.9

250
0

2013

2014

70.4

65.8

2.9
2.5

2016

20

2.0
2017 (Fiscal year)

0

65.8
2013

2014

2015

2016

0

2017 (Fiscal year)

11,577

Overseas

2009

2010

536

2011

300

9.7
200

%

2013

2014

2015

2016

100
0

2017 (Fiscal year)(Yen)
12,000

536
2013

2014

thousand yen

2015

2016

2017 (Fiscal year)

12,08912,973

13,273

14,399

Increase in consumption tax(from 5% to 8%)

10,00015,728Great
Recession

8,000

Great East
Japan Earthquake

6,000
4,000

stores

2008

12.0

9.7

4.0

15,7285,000

010,313

540

Changes in share prices (monthly)

15,00010,82713.0

8.0

billion yen

Domestic

10,059

540

13.5

40

(Stores)
20,000

9,827

533

500

16.0

Changes in the number of stores

10,000

542

16.1

60

3.0

2015

(Thousand yen)
600

400

trillion yen

500

68.1

(%)
20.0

73.7

72.5

12.0

2

750

(Billion yen)80

3.4

Approx.

1,000

(%)
4.0

3.5

3.5

1,500
1,250

2,283.6

2012

2013

2014

2015

2,000

2016

0

2017 (Fiscal year)

LAWSON

10

2008

2009

2010

2011

INTEGRATED REPORT 2018

2012

2013

2014

2015

2016

2017

2018

Non-financial Highlights
Net income per share

Electricity use (index) andCO2 emissions per store

Cash dividends applicable to the year

Rate of food recycling &number of participating stores
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)

Annual electricity use index (left axis)
CO2 emissions (right axis)

(Yen)
500

(t-CO 2)

400

380

(%)
100

363
326

313

300

80

268

0

2013

2014

2015

68.2

60

100.0

90.5

40

yen

100

90.3

80.0

100
80

(%)
50

60

40

20

15,000Base year
22.5

0

2010

2020 (Fiscal year)

2007

2017 (Fiscal year)

(Yen)
300
250

95.1
240
220
73.4

200
150
100
50
0

245

(%)
100

255

250

(Persons)
200

80

78.1
68.7

60

150

57.9

95.1

40

%

2013

2014

2015

2016

20

100

50

182
8.4
4.6

0

2017 (Fiscal year)

0

25

24.5

10
2001

67
23
2005

2010

2012

2017 (Fiscal year)

80

15

60

10

40

5

20

0

0

2017 (Fiscal year)

80.3

80.1

2016

2017 (Fiscal year)

70.4

8

16.1
0.0
2013

2014

2015

P38

P38

11

P41

3

%

(%)
100

20

LAWSON

2002

80.1

30

16.0

0.2
1992

Ratio of independent directors
among directors

35

%

20

Percentage of male employees
taking paternity leave

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

24.5

66

P40

Number of working mothers & their
proportion among female employees

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

90

6.0

0

0

P40
Payout ratio

billion yen(Billion yen)
9.0

3.0

5,000

8,309

0

0

2017

9.0

10,000

16,106102017 (Fiscal year)(Stores)
20,000

44.5

30

40

Approx.

%

20
20

2016

44.5

120

79.8

268

200

Base year

20%
reduction
targeted

Total customer donations received
since 1992 (including disaster relief funds)

INTEGRATED REPORT 2018P18

Lawson in Data

Eleven-Year
Financial Summary(Millions of yen)

2017

(Fiscal year)

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
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)
Per share data:
Net profit (yen/ U.S. dollars 1)
Cash dividends (yen/ U.S. dollars 1)
Payout ratio
Financial data:
Return on equity (ROE)
Return on assets (ROA)
Net sales by all stores(Domestic convenience store business ):Net sales by store format 3,4		Franchise stores

2016

2015

2014

¥

289,232¥

275,312¥261,681¥247,681

		
		
		
		
		
		
		
		
		
		

264,734
103,357
657,324
65,82026,828113,938(91,209)(61,238)
140,495
58,601

		
		
		
		
		
		
		
		
		
		

254,169
101,806
631,288
73,77236,40099,864(76,227)(25,638)
119,784
56,199

		
		
		
		
		
		
		
		
		
		

227,606
94,166
583,453
72,542
31,381
112,205(68,657)(50,201)
106,747
49,293

		
		
		
		
		
		
		
		
		
		

174,044
76,188497,91370,482
32,687
110,568(100,434)(3,289)141,251
41,826¥900,256¥

866,577¥

803,212¥764,614

		
		
		
		
		

281,44630.6%
30,12013,992
10,028

		
		
		
		
		

285,995
31.7%
67,692
13,111
9,403

		
		
		
		
		

272,997
32.9%
69,793
12,395
8,377

		
		
		
		
		

263,798
33.5%
76,755
12,276
7,606

¥

268

¥

363

¥

314

¥

327

		
		

255
95.1%

		
		

250
68.7%

		
		

245
78.1%

		
		

240
73.4%

		
		

9.7%
3.0%

		
		

13.5%
4.4%

		
		

12.0%
4.0%

		
		

13.0%
4.7%

¥

2,069,609¥

1,958,550¥

1,880,395¥

1,827,779

		Company-operated stores		

91,075

		

84,736

		

79,872

		

105,019

Net sales by product category 3,4
		Processed foods

		

1,138,966

		

1,073,044

		

1,033,449

		1,034,355

		Fast foods
		 Daily delivered foods
		Non-food products
Net sales by all stores
Ratio of operating profit to net sales by all stores

		
		
		
¥
		

509,415
314,481
197,821
2,160,684
2.9%

		
		
		
¥
		

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

		
		
		
¥
		

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

		
		
		
¥
		

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

Notes: 1. The U.S. dollar amounts represent the Japanese yen exchange rate with respect to the US dollar as of February 28, 2018 ($1 = ¥107.37).
2. These figures include depreciation and amortization of intangible assets.
3. These figures include sales reported by franchise stores and are unaudited.
4. Net sales for the fiscal years 2016 and 2017 represent sales by stores operated by Lawson, Inc. as well as those by Lawson Sanin, Inc.
5. Amounts under 1 million yen are rounded down.

LAWSON12

INTEGRATED REPORT 2018

(Millions of yen)

2013

2012

2011

(Thousands of U.S. dollars 1)

2010

2009

2008

2007

2017

¥

242,079¥

230,003¥

215,574¥

197,673¥

185,656¥

186,928¥

177,443$2,693,797

		
		
		
		
		
		
		
		
		
		

168,159
75,010485,248
68,12737,966
81,503(47,924)(39,650)
84,03247,889

		
		
		
		
		
		
		
		
		
		

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

		
		
		
		
		
		
		
		
		
		

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

		
		
		
		
		
		
		
		
		
		

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

		
		
		
		
		
		
		
		
		
		

233,694
47,842
467,192
50,276
12,562
40,696(42,596)(27,239)
71,39927,468

		
		
		
		
		
		
		
		
		
		

119,944
42,604349,476
49,18623,80751,717(15,647)(14,911)42,907
20,879

		
		
		
		
		
		
		
		
		
		

84,266
39,468301,177
46,61022,11955,771(36,525)(31,973)
64,413
21,469

		
		
		
		
		
		
		
		
		
		

2,465,633
962,625
6,122,055
613,030
249,874
1,061,181(849,492)(570,355)
1,308,512
545,785¥

620,993¥

579,810¥

531,454¥

476,037¥

448,132¥

436,096¥

397,108$

8,384,614

		
		
		
		
		

250,498
39.5%
68,76011,606
6,336

		
		
		
		
		

230,182
39.1%
72,766
11,130
6,404

		
		
		
		
		

214,663
39.7%
73,67010,457
6,475

		
		
		
		
		

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

		
		
		
		
		

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

		
		
		
		
		

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

		
		
		
		
		

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

		

2,621,272

		280,535

¥

380

¥

332

¥

249

¥

255

¥

127

¥

240

¥

215

$

2.50

		
		

220
57.9%

		
		

200
60.2%

		
		

180
72.2%

		
		

170
66.8%

		
		

160
126.3%

		
		

160
66.6%

		
		

110
51.2%

		

2.37

		
		

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%

¥

1,810,418¥

1,747,915¥

1,651,433¥

1,499,576¥

1,433,678¥

1,434,166¥

1,331,785$

22,221,391

		

126,873		

156,339

		

173,820

		

183,205		

232,459

		

124,614		

83,321

		

977,872		

1,060,455

		

1,063,120

		

1,022,378

		

897,415

		

902,306		

844,324

		

726,750

		

10,607,860

		
		
		
¥
		

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

		
		
		
¥
		

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

		
		
		
¥
		

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

		
		
		
¥
		

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

		
		
		
¥
		

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

		
		
		
¥
		

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

		
		
		
¥
		

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

		
		
		
$

4,744,481
2,928,946
1,842,423
20,123,721

LAWSON13

INTEGRATED REPORT 2018

Corporate Governance
Executives Management team underpinning sustainable growth

Keiko Hayashi

Kazunori Nishio

Satoshi Nakaniwa

Sadanobu Takemasu Katsuyuki Imada

Yutaka Kyoya

Emi Osono

Miki Iwamura

Outside Director

Outside Director

Member of the Board
Senior Vice President,
Chief Financial Officer

President and CEO,
Representative Director,
Chairman of the Board

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

Outside Director

Outside Director

Outside director

Years on Board: 2Company’s shares held: 300

Years on Board: 2Company’s shares held: 0Years on Board: 1
Company’s shares held: 0Years on Board: 4Company’s shares held: 1,700

Years on Board: 1
Company’s shares held: 1,700

Years on Board: 5Company’s shares held: 0Years on Board: 6Company’s shares held: 500

Years on Board: 0Company’s shares held: 0Founder of DoCLASSE, Keiko
Hayashi has experienceand expertise in corporate
management and an in-depth
knowledge of marketing.

Kazunori Nishio has
extensive knowledge of theliving essentials field withspecialization in the retailindustry acquired throughexperience in the employ of
Mitsubishi Corporation.

Satoshi Nakaniwa has
extensive knowledge offinance and accounting aswell as of business investment
and evaluation acquired in
the employ of Mitsubishi
Corporation.

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

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

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

Emi Osono is an academic
with in-depth knowledge ofglobal corporate management,
corporate strategies andorganizational behavior.

Miki Iwamura has extensive
knowledge acquired throughher work at GOOGLE
LIMITED LIABILITY CO. in
Japan, which encompasses
management utilizing digital
Big Data, marketing and brandenhancement.

Reinstatement

Reinstatement

Reinstatement

Reinstatement

Reinstatement

Reinstatement

Reinstatement

Newly
appointed

OutsideIndependent

LAWSON14

INTEGRATED REPORT 2018

OutsideIndependent

OutsideIndependent

Reinforced independence through an increased
ratio of outside officers
Increasing the ratio of outside officers with diverse backgrounds
who bring a high level of expertise to their office has produceda system capable of verifying the appropriateness of businessexecution and supervising the observance of laws from an
independent, objective viewpoint.

Outside(independent)
officers

6
12

Ratio of outside officers
Active appointment of female officers
Stressing diversity in its management, the Company is proactive in its appointment of female officers. We also pursue continuous efforts to promote career advancement of women otherthan officers to place more women in management positions.

Tetsuo Ozawa

Toshio Takahashi

Masakatsu Gonai

Eiko Tsujiyama

Outside Corporate Auditor

Standing Corporate
Auditor (Outside)Standing Corporate Auditor

Outside Corporate Auditor

Years as auditor: 15
Company’s shares held: 600

Years as auditor: 2Company’s shares held: 0Years as auditor: 1Company’s shares held: 6,600

Years as auditor: 7Company’s shares held: 800

Tetsuo Ozawa is an attorneywith specialization in the fields
of corporate law and risk
management and extensive
knowledge in the areasof corporate finance andaccounting.

Toshio Takahashi has years ofexperience as an employee
of a major bank and as astanding corporate auditor fora major IT company as well
as extensive knowledge in thefields of corporate finance andaccounting.

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

Eiko Tsujiyama is an academic
with in-depth knowledge ofcorporate finance and accounting
and experience working for theBusiness Accounting Councilof the Japanese Financial
Services Agency as well as for
the National Tax Council of theJapanese National Tax Agency.

OutsideOutsideIndependent

Independent

OutsideOutside(independent)
officers

6

15

4

12

12

Independent

LAWSON

Femaleofficers

INTEGRATED REPORT 2018

Ratio of female officers

Outside Directors’ Perspectives

Keiko Hayashi
Outside Director
President and CEO, DoCLASSE Corporation

Continuous pursuit of Lawson’s unique strengths.
I expect Lawson to achieve further growth byredefining its special corporate powers.
The convenience store plays an important rolein Japan, where the population is aging andcontracting at the same time. The support
provided for senior customers throughwarmhearted services by neighborhood
LAWSON stores within walking distance of theirhomes is a case in point. Another notable socialchange that is creating pressing needs is theincreasing number of women entering the workforce to alleviate Japan’s manpower shortage.
Lawson has responded with offerings such as

the recently introduced LAWSON Fresh Pick
service, which enables customers to order itemsin the morning by smartphone and pick themup at a LAWSON store on their way home thesame evening. LAWSON stores offer a broad
assortment of foods and daily necessities, andthe chain is gradually expanding its network of
stores selling OTC medicines as well. I believe
the addition to these of a variety of new addedvalue services is creating the potential for thestores to develop an unprecedented service hub

LAWSON

16

format unique to Lawson.
The convenience store industry is
undoubtedly entering a new era that will require
dramatic reforms. The LAWSON store must
develop highly appealing new characteristics
if it is to win precedence over its competitors.
I would like to see Lawson identify thecharacteristics that distinguish it from otherchains, whether services, newsworthiness or
products, and emphasize them more strongly.
When a market continues to contract due
to a declining population, the best response
is to redefine the market from the perspectiveof identifying a niche market in which yourbusiness can become the dominant player. This
will enable a company not only to prevail, butalso to make a significant impact. The favoritismshown by women toward LAWSON stores, forexample, is one of the Company’s distinguishingfeatures. Both NATURAL LAWSON and Seijo
Ishii are popular among women, who areespecially sensitive to trends. We can also
see potential in this. The health-conscious
product lineups LAWSON has developed arewarmly welcomed by both women and seniors.
Thus, reinforcing the product lines centeredon fashionable lifestyles and healthful foods
can create new markets. The process throughwhich this is achieved—the means employed
to define the product lines and assign them tocategories—is also important. Thus, I believe
the LAWSON chain still has immense potential
for growth.
The measures LAWSON is pursuing
to increase sales in the evening-to-nighttime
period are also promising. It has reformed its
merchandise ordering and delivery systems,
spending over half a year reconstructing theprocesses involved all the way down to thoseof its boxed meal makers and delivery centers.
I sense a tremendous amount of energy in the

INTEGRATED REPORT 2018

way the Company takes up new challenges
involving suppliers one after another. This energy
is invisible, of course, but it is this corporate
climate or culture in which Lawson is changing
itself on its own initiative that will solidify its
strength as it advances into the future.
I am also impressed by the Company’s
executive power. It is important to havea strategy to begin with, but the ability to
execute it, or carry it through, is of paramountimportance. Change does not occur overnight.
This may be a time to be patient. A year has
passed since President Takemasu took thehelm, and I believe Lawson is advancing in apositive direction. A keen sense of direction andthe capabilities to match—characteristics of a
trading company—combine nicely with powersof thought acquired on the retailing front. This
combination results in superior capabilities.
The primary role we outside directors
play involves increasing corporate value. We
monitor the corporate executives’ management
decisions closely to make sure they are sound.
We never hesitate to speak up in meetings,
even to say things that may be unpopular.
Improving corporate value, achieving growthand generating profit are the shared goals of
individual investors and Mitsubishi Corporation. I
see no contradiction in this.
I myself shop at LAWSON stores quite
often. I find that they have a homey feel, andthat NATURAL LAWSON is a store with stylish
appeal. Impressions such as these are among
the strengths that provide unseen value. I think
there are many hidden clues to improving daily
sales. Warm-hearted hospitality is Lawson’s
corporate DNA. I’m confident that Lawson
can realize its potential for further growth bycontinuously trying out new ideas and optimizing
the appealing characteristics of its LAWSON
convenience stores.

Outside Directors’ Perspectives

Yutaka Kyoya
Member of the Board
Executive Vice President,
Mitsubishi Corporation
Group CEO, Living Essentials GroupI’m convinced that further enhancement of thepartnership fostered with Mitsubishi Corporation over
the years will lead Lawson to sustainable growth.
There can be no doubt that theconvenience store is already establishedin Japan as a mainstay of infrastructure
essential to the lives of community
residents. Although market growth interms of number of stores is slowing as
the population declines, the process ofevolution achieved by leveraging the stores’
respective strengths will accelerate in the
future.

With social change becoming
increasingly rapid and dramatic, however,businesses of various types, fromfood supermarkets and drugstores to
e-commerce companies, are venturing into
the convenience store’s traditional areasof specialization, raising competition into
new dimensions. If we are to advance andtransform the convenience store’s functions
further, I believe we must incorporate the

LAWSON

constantly changing needs of consumers
as well as an ability to combine and provide
services and products that contributeto solution of social issues as futurechallenges for management.
Lawson has built warm relationships
with the people of the communities in which
it operates. Maintaining and enhancing
this warmth in the current atmosphereof manpower shortages and a resulting
need for enhanced labor efficiency at thestores may be incompatible propositions.
Lawson’s franchise owners and crews are
passionate and highly motivated, however,and Lawson has instituted a system ofhiring and fostering excellent human assets.
From this perspective, I feel certain that
Lawson’s future is extremely bright, andthat the Company has enormous potential
for further growth.
One of Lawson’s strengths is thespirit to take up challenges without fear of
failure ingrained in its corporate culture. Itis essential that we take advantage of suchstrengths as part of our ongoing review andrenewal process, reflecting on our failings
and rectifying them swiftly in implementing
strategies. This is precisely the role we
directors should play.
I also consider it my role, moreover,to make the most of the knowledge andexperience I’ve acquired during my longtenure at Mitsubishi Corporation. Because
Mitsubishi Corporation is involved in nearly
every industry at home and abroad in one
way or another, I seek to grasp changes insociety—including changes in areas fromwhich Lawson has been excluded in the
past—from a wider perspective, and tooffer ideas from various angles at Board of17

INTEGRATED REPORT 2018

Directors’ meetings.
Lawson has implemented a variety
of initiatives through its partnership with
Mitsubishi Corporation. Since Lawson
became a Mitsubishi subsidiary last year,
these measures have been gathering speed
and expanding in scope. In the past, thetwo companies have pursued streamliningof their distribution networks and global
supply chains jointly. In the future, as well,I expect this collaboration to expand withfull deployment of the networks and knowhow of Mitsubishi Corporation in various
area, such as in tackling the challenges oflabor-saving and automation of productionlines at subcontractors’ factories andcreating new services in various digitalfields.
As the operator of stores basedon a small commercial area nationwide
that offer a high degree of customer
convenience, Lawson is a dependable
partner for Mitsubishi Corporation. Now is
the time to construct a solid foundation forcontinuous growth in a severe competitiveenvironment. The partners must join forces
to chart a path to the future with a sense ofurgency and with a will to work effectively
together. I have no doubt that this path willlead to Lawson’s growth. Going forward inunity, we will seek happiness for the peopleof the community as the thing we value
above all else.

Corporate Governance	Characteristics of Corporate
GovernanceWe pursue continuous improvement in the value
we offer stakeholders that contributes to enhanced
corporate value. These concerns make it all the more
important for us to comply with laws, regulations
and social norms, while also striving to reinforce
our corporate governance by improving thesoundness and transparency of management throughcompassionate behavior based on both our Corporate
Philosophy and the Lawson Code of Ethics. It also
requires active disclosure in accordance with the “Basic
Principles Concerning Information Disclosure.”
Lawson selects people with different specialties
and experience as candidates for directorships toassure diversity on the Board of Directors and enableappropriate decision-making and supervision. In
addition to the independence standards determinedby the Tokyo Stock Exchange, Inc., Lawson has
established its own Judgment Criteria Regarding
Independence as a basis for selecting several
independent officers for purposes of ensuring
management transparency and fairness.
As concerns the number of directors, theArticles of Incorporation specify that there shall be no
more than eleven. Thus, we have constructed a systemthat enables full consideration and deliberation by the
Board of Directors at their meetings without lessening
their responsive. By introducing the Executive Officer
System, meanwhile, we have divided management
and supervision from business execution to enable
quick decision-making and business execution. Itshould be noted with respect to the auditors that weelect candidates for the position of corporate auditor
based on their possession of the extensive financial,accounting, risk management and/or legal expertiseand experience required to fulfill auditors’ duties.
Although Lawson became a consolidated
subsidiary of Mitsubishi Corporation on February 15,
2017, from the perspective of protection of minority
shareholders, we will continue our efforts to assure
appropriate governance as an independent listedcompany.

Corporate Governance Code	Special circumstances with thepotential to seriously impact
corporate governance[Five general principles]
1.	Rights and equality of shareholders

and transparency

2.	Appropriate collaboration with stakeholders
other than shareholders

4.	Board of Directors’ responsibilities
5.	Dialog with shareholders

3.	Ensuring appropriate information disclosure
The Corporate Governance Code (CG Code) is a set of guidelines applied to listed companies
as of June 2015. Lawson implements all five basic rules specified by the Code. Lawson’s efforts
are also published in various reports, including corporate governance reports, meeting notices toshareholders and securities reports. Please visit the following site to see the content of disclosure
items related to the individual rules in the CG Code.
For details of the Corporate Governance Code:

http://www.lawson.co.jp/company/corporate/system/
governance/pdf/governance_201806.pdf

Mitsubishi Corporation assumed ownershipof 50.1% of Lawson’s voting rights througha tender offer conducted during the period
from December 2016 to February 2017, andLawson became a consolidated subsidiaryof 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.

(In Japanese only)

Details of major corporate governance measures implemented since 2000
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Board of the Directors
membership (number)
Outside directors (number)

18

20
2

8

9

3

5

7
3

Of which independent
officers (number)

4
1

1

Female directors (number)

9*2002 – Compensation Advisory Committee established.

8
5

2

3
3

2

3
2014 – Nomination and Compensation
Advisory Committee established.

2005 – Directors’ retirement benefit system abolished.

Ensuring transparency of
directors’ compensation2005 – Share-based stock compensation options for directors introduced.
2012 – Auditors’ retirement benefit system abolished.

Ratio of shares heldby Mitsubishi Corporation(major movements)

2001 Mitsubishi Corporation becomes largest shareholder.

2001
April 2015

33.4%

2001
February 2017

50.1%

*The membership of the Board of Directors is as of the close of the General Meeting of Shareholders each year, except for 2014, when there were 9 members up to July 31 and 8 members after August 1.

LAWSON18

INTEGRATED REPORT 2018

Corporate Governance System
Equipped with an agile decision-making
process, Lawson has moved quickly
to construct a highly transparent andindependent corporate governance system.
Six independent officers who are considered
to have no conflict of interest with thegeneral shareholders comprise half thetotal of 12 directors and corporate auditors.
Four women have been appointed to thepositions of director or corporate auditor
with a view to promoting diversity with thecomposition of the executive officers taken
into consideration. They are contributing toreinforcing the corporate governance systemfrom various perspectives. Following thevoluntary establishment of the Nomination
and Compensation Advisory Committee torecommend candidates for the positionsof director and representative director
on the Board of Directors, meanwhile,
independent officers have been selected
to fill 5 of the 6 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)

Outside director(Independent)

InsideauditorOutside auditor(Independent)

General Meeting of Shareholders
Appointment/
removalNomination andCompensation
Advisory Committee

Appointment/
removalBoard ofDirectors

Consultation

Audit

Appointment/
removalBoard ofCorporate
Auditors

Audit

Certified public
accountant

RemovalRecommendation

Financial audit

Appointment/removal/
supervision

Business
execution organization

Discussion/report

Audit

President
Financial Reporting
Internal Control Committee

Internal Audit Office

Management meeting

Internal audit and guidance
for improvements

CR Executive Officer*
Compliance & Risk
Management Committee

Business/corporate divisions

Formulation and promotion of compliance andrisk management measures

Funding

Affiliated companies

LAWSON19

INTEGRATED REPORT 2018

*Compliance and Risk Executive Officer (See page 42.)

Lawyers
Opinions

Corporate Governance	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 a sufficient andappropriate level of remuneration to reward
individual directors for the duties they perform.
The base 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.

A

B

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.

Details of directors’ compensation
Directors’ compensation paid by Lawson
consists of (A) base compensation throughcash payments and (B) share pricelinked compensation through stock option
allocations.
Note that no performance-based variable
compensation is paid to part-time directors,
because they serve the representative
directors and Board of Directors in a
specialized supervisory and advisory capacity.

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 42).
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.

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

Details of officers’ compensation (fiscal 2017)
Total compensation, total amounts by type ofcompensation and number of eligible directors
per company director category

Directors’ compensation

A Base compensation

Consisting of: fixed compensation (about 60%)

	Status of internal control systemdevelopment(Millions of yen)variable compensation (about 40%)
Category

Fixed compensation: A fixed amount commensurate with the position determined based on internal rules
Variable compensation: Performance-based remuneration linked to the Company’s performance, including EPS (earnings per
share), in the fiscal period concerned. (To ensure linkage between directors’ compensation and 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)

Total by type ofcompensation
Total
compensation
Base
Stock
compensation options

Numberof eligible
officers

Directors

227

169

107

10

(of which outside directors)

(38)

(30)

(8)

(3)

Auditors

71

71

—

5

(of which outside auditors)

(47)

(47)

—

(3)

Total

348

241

107

15

(Note) There were 8 directors and 4 auditors as of end February 2018.

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)

LAWSON20

INTEGRATED REPORT 2018

	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
and Compensation Advisory Committee
serves as an advisory body, moreover, thatmakes recommendations to the Boardof Directors regarding nominations ofcandidates for the positions of director andrepresentative director. Since 5 of the 6members are currently independent officers,
this system also enables the Committee tomake recommendations with a high degreeof independence. It should be noted withrespect to candidates for auditor that they
are individuals with the financial, accounting,risk management and/or legal experienceand expertise required to fulfill the duties ofauditors whose candidacy is approved 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.”<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 the	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.

	Board of Directors and Board of Auditors meetings held and attendance rates
Board of Directors

Board of Auditors

13 times

17 times

Outside directors

92.3%

—

Outside auditors

97.4%

98.0%

Number of meetings held
Attendance rate

Lawson 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 (in cases inwhich the major shareholder in question isa 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 of the Lawson Group (in the caseof outside corporate auditors).
	Outside directors and outside auditors
whose tenure at the time of reappointment
exceeds 8 years and 12 years, respectively,in the aggregate.
Note that even a person who fits any of theabove criteria can be selected as a candidate
for independent outside officer if the Boardof Directors determines that said person isvirtually independent. In such case, the reason
is explained and disclosed at the time of thecandidate’s appointment as outside officer.

	 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)

LAWSON21

INTEGRATED REPORT 2018

Sustainable Growth and Business Model

Lawson continues to grow by basing its
business on a “customer-oriented” perspective
and accurately discerning the needs of society.
Lawson has responded proactively to changes in society since its founding, continually
identifying customer needs and developing new products and services.
To ensure its position as an essential part of its communities that provides support forresidents’ lives, Lawson is determined to continue pursuing and advancing the NextGeneration LAWSON Convenience Store model from the customer’s perspective.

24-hourInnovation

Growth as a conventional
convenience store

Evolution as a manufacturing retailer
based on a small commercial area

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

The “fourth component”
of infrastructure
Contributing to communities as a neighborhood store

1975-

2016-

Against the backdrop of changing community needs as the population ages and growing
numbers of nuclear families, coupled with accelerating industrial reorganization, today’s
convenience store industry finds itself at a significant turning point. With people’s dietary lives
changing as their lifestyles diversifying, convenience stores are forced to implement appropriate
measures in response. These circumstances notwithstanding, the convenience store market has
expanded in size to as many as 56,374 stores with annual sales of ¥11,745.1 billion (figures asof end December 2017).
Determined to remain an essential part of its communities that meets needs as they arise incustomers’ daily lives, Lawson will advance its business model as a manufacturing retailer basedon a small commercial area and increase its store productivity to an unprecedented high level.

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

120,000
100,000(10,000 people)

13,000

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

80,00012,00060,00040,00020,000
0

1975

2000

2010

2018

11,000(Year)

Source: “Population Estimates,” Statistics Bureau, Ministry of Internal Affairs and Communications“Franchise Chain Statistics Investigation,” Japan Franchise Chain Association (~1996)“Current Survey of Commerce,” Ministry of Economy, Trade and Industry (1997~)

Foundation Supporting Value Creation

Developing Human Capital

Page 38

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 have clarified the scope of employees’ responsibilities andthe role they should play according to individual duties. Their performanceand skills are evaluated in accordance with this clarified scope and role.

Innovation

Page 32

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

LAWSON22

INTEGRATED REPORT 2018

Franchise (FC) System

Page 36

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

Meeting daily life needs

Next-Generation LAWSONConvenience Store model

A manufacturing retailer based on a small commercial
area model

Meeting daily
life needs

Customeroriented
Achievinghigh store
productivity

Developing
Human Capital

A Manufacturing
Retailer Based on a
Small Commercial
Area

Innovation“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 thecommunity. We stock essential products for daily life, while also making every effort to meetparticular needs for such items as healthful, small-portioned products, especially for elderly
customers who are unable to travel long distances for shopping and customers with limited time.
Lawson is expanding its services at the stores as well, adding new offerings such as ATM andfinancial services and temporary reception of Internet orders for customer pick-up. By transitioning
from a “merely convenient” store to an “essential part of our communities,” LAWSON is helping
community residents live safe, healthy lives.

Franchise(FC) System

Internet shopping
Within walking
distance

Page 42

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 Governance

Page 18

Lawson 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 balanceestablished to promote diversity.

LAWSON

23

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

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.

Compliance Risk

Supermarket

Unique market
model

As a neighborhood store located within easy walking distance of customers’ homes and workplaces,
Lawson offers the most appropriate items from a unique product and service lineup closely related tocustomers’ daily lives in a timely manner to a wide range of customers— including elderly neighbors
and working women as well as young community residents.
To fulfill this aim, we need a mechanism for managing the overall supply-chain processes, fromproduct design, raw materials procurement and manufacturing to distribution and sales, so thatfinished products are delivered safely and reliably. Lawson is determined to continue improving added
value as a manufacturing retailer through measures such as increasing our commitment to optimizing
raw materials procurement and manufacturing.

Compliance and risk
Corporate governance
Environmental management system (EMS)

Competingconvenience store

INTEGRATED REPORT 2018

DigitalRestructuring 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

Environmental Management System

Page 40

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 pursuingachievement of a sustainable society and contributing to maintaining
happiness in our communities and on Earth as a whole.

Corporate Value Creation Cycle

Lawson contributes to happiness and harmony in its communities bycreating 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 willcontinue to contribute to its customers’ local communities as an essential company through continued application of its corporate value creation cycle.

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. 30% decrease
Source: “Current Survey of Commerce,” Ministry of Economy, Trade and Industry

Compared to 1991 Approx.

1.4 times

Source: “Annual Report on Health, Labour and Welfare,” Ministry of Health, Labour and Welfare, “White Paper on Gender
Equality,” Cabinet Office, “Special Survey of the Labour Force,” Ministry of Internal Affairs and Communications,“Labor Force Survey (detailed tabulation),” Ministry of Internal Affairs and Communications

Rise in medical expenses

Projected rate of increaseby 2025 compared with 1990

Approx. 2.9 times

Sources: “Annual Report on Health, Labour and Welfare 2011,” Ministry of Health, Labour and Welfare for data up to2009; “Future Outlook for Medical Expenses and Estimate of Financial Impact,” Health Insurance Bureau,
Ministry of Health, Labour and Welfare (October 25, 2010) for data after 2015

Rapidly aging society (Increase in the population of residents aged 75 or older)
Projected rate of increaseby 2025 compared with 1990 Approx. 3.6 times

InputsFinancial capital (funds)

Manufacturing capital (IT and infrastructure)
Necessary tangible assets for conducting businessactivities, 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)

Source: “Population Census,” Ministry of Internal Affairs and Communications for data up to 2010; “Population
Projection for Japan,” Ministry of Internal Affairs and Communications for 2015 data

General intangible assets including brands,
reputation, intellectual property and software

Declining labor force (Employed people aged 15 to 64)
Projected rate of decline
by 2025 compared with 1990 Approx. 20% decrease

Social capital (resources and social norms)

Source: “Population Census,” Ministry of Internal Affairs and Communications for data up to 2015 (excluding people ofunknown age); “Future Population Projections of Japan (projection as of January 2012)” (projection of medium
variant births (deaths)), National Institute of Population and Social Security Research for data after 2020

Rise in average global temperatures(Long-term global goals determined by theParis Agreement of December 2015)

Compared with thepre-industrial era

Meeting daily
life needs

Capital raised to fund business activities throughsales of shares and borrowing

Capital allocation based on returnon investment (ROI)

Empowerment of women (Increase in the number of double-income households)

Next-Generation
LAWSON Convenience
Store model

Corporate
strategy

Natural resources, social norms, and relationships oftrust established with stakeholders

2˚C or less2˚C or less

LAWSON24

INTEGRATED REPORT 2018

Customeroriented
Achievinghigh store
productivity

Developing
human capital

A Manufacturing
Retailer Based on a
Small Commercial
Area

Innovation

Franchise(FC) system

Compliance and risk
Corporate governance
Environmental management system (EMS)Outcomes
Contributions as a nearby neighborhood store
and a component of social infrastructure
LAWSON stores contribute to their local communities and society as neighborhood
stores where senior citizens and busy customers with time constraints can purchasefoods and daily necessities, and as emergency evacuation sites in times of disaster.

Responding to lifestyle diversification accompanying
the empowerment of women and other initiatives“Creating Happiness and Harmony
in Our Communities”
Lawson’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 toaddress a variety of challenges facing society and ourcustomers.

Working women and single-person households find it convenient to have a store thatoffers 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 topromoting healthOutputs
Investment determined according to capitaldiscipline to meet the expectations of theequity market
Leveraging the full supply chain to develop
products that meet local community needs
Nurturing human resources who are
self-motivated and innovative to satisfy local
community needs appropriately
Cultivating innovation based on prompt
perception of changes in local communities
Contributing to communities as social
infrastructure in careful consideration ofsociety and the environment

Lawson is developing menus and stores offering a focus on customer health. We areworking 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

Suppliers/
business
partners

Store crew

Local
communities(Part-time andtemporaryworkers)

FranchiseownersEmployees
Shareholders

Customers

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 tocreation of a social environment in which senior citizens do not have to live inisolation by employing staff over the age of 60.

Seeking to improve employee productivity and tocreate an environment in which anyone can work
Lawson is creating an environment that provides jobs for a diverse range of humancapital— including senior citizens, women, young people and foreign nationals—byrealizing store operations that anyone can conduct easily through such means as
digital technologies.

Considering the environment in every aspect ofoperations, 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 and employing
eco-friendly containers and packaging materials, manufacturing platforms anddistribution procedures.
LAWSON25

INTEGRATED REPORT 2018

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.

Reinforcing the Foundation for Sustainable Growth

Responding to Various Community Feedback
Besides taking steps to improve its current products, LAWSON is providing newly created value in response to a diverse range of functions required by
the community.

LAWSON makes it available
What is the ideal convenience store closely
related people’s lives? Lawson has been
searching continuously for the answer. The
convenience store must provide the products
and services people require, of course, but
we also consider its mission as a cornerstoneof community infrastructure to include suchfunctions as uncovering and responding tohidden needs.
LAWSON’s identity is no longer that ofa “store for quick purchasing of necessities.”
Rather, it is a store with a diverse, multifunctional
offering that includes the functions of asupermarket, café, event ticket vendor,
pharmacy, bank and much more. It is a store
that supports the people of its communities invirtually every aspect of their lives.
The newly updated staple merchandise
selection includes desserts, a strong LAWSON
food line containing some of our most popular
products. Renewed ingredients and preparation
methods have enhanced the product appealof our boxed meals and rice balls, and sweets
developed in collaboration with prestigious
makers have won strong support primarily
from female customers. Among Group
member companies, Seijo Ishii specialty
supermarkets and United Cinemas movie
theaters add pleasure to various aspects ofcommunity residents’ lives. We are forwarding
our preparations to enter the banking businessto make shopping at LAWSON even moreconvenient, moreover, while the introductionof LAWSON Fresh Pick, a system that permits
customers to pick up fresh foods ordered bysmartphone app at a nearby LAWSON store,
has recently begun at selected stores.
LAWSON continues to take up newchallenges without interruption in its efforts toremain an essential presence on the lives ofcommunity residents.

Boxed meals & rice balls

Tasty, nutritious foods

Collaborations

In 2017, we launched our Korega (“This is it!”) series of boxedlunches centered on such classic favorites as nori (“edible
seaweed”) and makunouchi boxed lunches. We also went togreat lengths to improve other products such as rice balls,
paying strict attention to raw materials and manufacturingmethods to instill the attitude, “’Lawson’ means ’rice balls,’”
in customers’ minds.

Note:	The featured products are examples only.

In its role as a support for health and wellness in ourcommunities, Lawson is responding to changes suchas the aging of society and people’s growing healthconsciousness by engaging actively in development
and sales of products with a focus on “good taste andnutrition.” Our bran bread series is representative of
these products.
Lawson’s original
blending reduces
the unique smell ofbran (grain husks)
to ensure that
customers enjoy thebread’s delicious
flavor every time.

Our product lineup enhancement also extended todesserts, a particular LAWSON strength. Collaborationsin this area began with GODIVA in 2017. This year
we are commemorating the first anniversary of thatcollaboration by introducing “Godiva + Japanese
sweets,” an innovative project that is possible only
because of LAWSON’s expertise in the area of sweets.

Seijo Ishii

Entertainment

Point card system

The first“grocerant,” a new
type of businesscombiningsupermarket
shopping withrestaurant dining,has opened at Trie
KEIO CHOFU. The
pleasant dining area
offers hamburgers, pasta and other meals prepared withfresh seasonal ingredients according to recommended
methods. Customers can pick up recipe cards and use
them to purchase the ingredients they need to make theirfavorite grocerant menu items at home.

Lawson Entertainment, Inc.
(new company name as ofJune 2018), the top-performing
ticket vendor in the industry
is also the parent companyof HMV stores, a popular CD,
DVD and book retailer. United
Cinemas, Japan’s third-ranked
cinema company in terms ofnumber of screens, has alsojoined Lawson Entertainment,
enabling it to meet customers’
total entertainment needs, frommusical events and spectator sports to movies, reading
and collaboration events with popular characters.

Ponta Cards are in integral part of the LAWSON store.
Card membership now totals 87.33 million (as of June2018), and roughly half of LAWSON sales are to point card
members. The system not only offers enhanced customer
satisfaction through beneficial membership programs, but it
also equips the Company to analyze purchasing information
as Big Data and apply the results in new merchandise
development or for projecting demand at individual stores.

LAWSON Fresh Pick

Financial services business

Overseas operations

Makunouchi boxed meal

Salmon belly (harami) rice balls

This new service enables customers to order specialty products by
8:00 a.m. using a smartphone app and pick them up at a nearby
LAWSON store after 6:00 p.m. on the same day (service limited
to stores in certain areas of Tokyo and Kanagawa Prefecture).
Arrangements can be made to pick up products LAWSON stores
do not usually handle — including fresh vegetables and fruits, a fullselection of meal preparation ingredients, sweets and desserts from
Seijo Ishii and other specialty stores as well as easily cooked meal kits
— from a local LAWSON store at a convenient predetermined time.

Lawson Bank, Ltd. has
acquired a license toengage in the banking
business and is currently
preparing (as of August2018) to open a storebased bank. We willtake full advantage of
our stores’ existing ATM
network, and pursue
proactive efforts toimprove convenience
further for LAWSON
customers.

After
6:00 p.m.
Until
8:00 a.m.
Ordering by smartphonein the morning

Buying at nearby LAWSON
store in the evening

LAWSON26

INTEGRATED REPORT 2018

The number of
LAWSON stores inShanghai surpassed
1,000 in 2018,
and our stores areopen for businessin 1,596 overseas
locations (as ofFebruary 2018),
primarily in Asiaand extending from
China to Thailand,
the Philippines andIndonesia, among
others.

Reinforcing the Foundation for Sustainable Growth

Expanding the Customer Base

A place for anyone in the community to shop any time of day or night“What they want, when they want it.”Our stores are open all the time, 24 hours a day, 365 days a year, meeting people’s
needs with everything from food to daily necessities. The convenience store has
become an essential part of the community infrastructure. Lawson is upgrading
its products and services further with the aim of expanding and deepening its
customer base. We provide everyone in our communities with “what they want,when they want it.”
1990

2020

100

Men

Women

90

80

80

70

70

60

60

60

50

50

50

40

40

30

30

30

20

20

20

10

10

Late-stage
senior population
Early-stage
senior population

Working age
population

40

Juvenile
population

10
60

40

20

0

100

Men

90

70

80

Women

90

80

120 100(10,000)

2050

100

Men

0

20

Population

40

60

80 100 120(10,000)

120 100(10,000)

80

60

40

20

0

0

The decline of the birthrate and aging of the
population are progressing rapidly in Japan today,with a significant reduction in the populationof young people clearly coming in the future.
Sustaining this society will require increasing
numbers of working women and energetic seniorcitizens. Under these circumstances, LAWSON
has been conducting various activities to extend
convenience to a broader range of customers toencourage daily shopping by women and seniorcitizens, for instance, rather than maintaining its
focus on males in their thirties, the convenience
store’s traditional customer base. Our aim is
to become the “first choice for neighborhood
shopping” as a store that can provide customers
with “what they want, when they want it.”20

Population

40

60

80 100 120(10,000)

120 100(10,000)

80

60

40

20

0

Women

0

20

Population

40

60

Source: National Institute of Population and Social Security Research homepage (http://www.ipss.go.jp/)

Women

Young
peopleSeniors

Preferences

Men

Daily shopping can be a difficult chore for theelderly. This is particularly true for those who
do not drive, which makes shopping at distantsupermarkets challenging and contributes to theneed for purchasing in smaller portions, such as
vegetables cut into one or two servings. Lawson
is responding by offering an expanded lineup
of our LAWSON Select private brand products,

Every day (morning, midday, evening)

We have assembled a substantial product offering
for the convenience of working women andhousewives who are kept busy with housekeeping
and childrearing duties. Prepared foods that canbe served as side dishes for dinner and frozen
foods as well as bread and milk for breakfast can
all be picked up on the way home from work at
a LAWSON store. Nor are our offerings limited tofoods. The daily necessities in the LAWSON Selectseries are also available at reasonable prices. In themorning or late at night, customers can walk to oneof our nearby stores whenever the need arises andfind what they are looking for quickly.

Bran
bread

Entertainment (enjoyment)

HealthConvenience in daily shopping

A product lineup responding
to demand for smaller portions
and more healthful food items

80 100 120(10,000)

which are packaged in portions suitable for one totwo people and include an extensive selection of
prepared foods and cut vegetables as well as more
substantial prepared foods such as grilled fish andstewed meals, and a wider range of merchandise
prepared with the health conscious in mind, such as
our bran bread series and GreenSmoothies as wellas our Motto! Yasai (“more vegetables”) series of
boxed meals. The number of HealthCare LAWSON
stores that offer health consultations in addition toa selection of OTC pharmaceuticals has increased,
meanwhile, to 182 locations throughout Japan (asof end June 2018).

Transition from a“convenient store” toan “essential store”

Suddenly! Urgent!

Mixed
Soft toilet paper, 12 rolls
lettuce salad of 2-ply toilet tissues

LAWSON

27

Boiled sardines
with plum

INTEGRATED REPORT 2018

Extra virgin
olive oil

NL, GreenSmoothie,
OneDayStore with an OTC
pharmaceutical sales section

Reinforcing the Foundation for Sustainable Growth

In-store Kitchens: Machikado Chubo In-store Kitchens and Over-the-counter Fast Foods“Tasty!” Expressing LAWSON’s value in one word
Activities in search of “tastiness” have been a LAWSON obsession for many
years. The taste of foods prepared by store crews and served personally toindividual customers are infused with the pride of all those involved in our productdevelopment. We will maintain our constant efforts to make improvements,
motivated by our commitment to preparing warm, good-tasting foods at ourstores, which have close ties to community residents.

Tastiness born of the in-store
kitchen’s history
LAWSON initiated warm, tasty over-the-counterfast foods (“over-the-counter FF” hereinafter),getting the jump on other members of theconvenience store industry, with the launchof Kara-age Kun (chicken nuggets) in 1986.
Preparing foods inside the counter area andplacing them in insulated thermal cases wasa startling innovation in the industry of thattime. The taste, arrived at after a series ofimprovements, has made the handy snacks
immensely popular to this day.
The over-the-counter FF product line has
become increasingly substantial over the years.
Besides our snack series, we now offer a number
higher-volume prepared foods such as Genkotsu(“clenched-fist”) Croquettes and Genkotsu
Menchi minced-beef patties. The Deka Yakitori(mega grilled chicken) we introduced in 2017
has proved a particular favorite on LAWSON’s
over-the-counter FF menu. Roasted over Bincho
charcoal and seasoned with domestic soy sauce
brewed naturally in wooden barrels, it has gained
immense popularity as both a dinner dish and asnack accompaniment for after dinner drinks.

Restaurant taste from the
Machikado Chubo in-store
kitchen
It is at the Machikado Chubo in-store kitchenthat over-the-counter FF is evolving at about
4,300 LAWSON stores across Japan (as ofFebruary 2018). Kitchens with strict hygiene
management are set up in the stores to provide
chef’s delicacies prepared by store crew.
Meticulous care goes into LAWSON’s
selection of raw materials and preparation
methods. The white rice cooked in most stores is
Yudai 21, a new variety developed by Utsunomiya
University. LAWSON concluded an agreementwith the university to obtain preferential access tothis rare, delicious rice, which remains sticky evenwhen cooled. Some stores feature good-tasting
Koshiibuki rice from Niigata Prefecture.

LAWSON28

INTEGRATED REPORT 2018

MACHI café coffee, madewith care for taste andnatureAnother popular menu item is our 20 mm
thick deep-fried pork loin cutlets. Our standard
products include a thick-sliced pork cutlet
sandwich on special Japanese utane-and-malt
sandwich bread and a thick-sliced pork cutlet
curry prepared with curry using 21 different
spices developed in technical collaboration withthe renowned Shinjuku Nakamuraya restaurant.
The menu of foods prepared in LAWSON’s
in-store kitchens has grown to include boxed
meals, Donburi rice bowl dishes and sandwiches
that are popular for their traditional taste. The
Machikado Chubo in-store kitchen serving warm
tasty foods in a special section of the store has
become a significant LAWSON strength.

Enhanced delicacies for homeenjoyment
The number of customers who purchase dishes
for dinner is increasing every year. LAWSON
is responding by strengthening its productassortment further in response to this demand.
New over-the-counter FF items, preparedwith meticulous care for ingredients and taste
and suitable for serving for dinner at home,include our Hokkaido Croquettes and Minced
Beef Cutlets with Hokkaido Onions launched inJune and our Nagasaki Prefecture Fried Horse
Mackerel, a Nagasaki specialty, scheduled forrelease sometime this autumn. The wonderfultastes and selection of over-the-counter FF
LAWSON has developed through years ofexperience, and research will continue to evolve
into the future.
We plan to increase the number of storeswith Machikado Chubo in-store kitchens to 6,000

MACHI café coffee is brewed
exclusively at LAWSON stores using coffee beansgrown on farms with Rainforest Alliance Certification,
which is awarded to farms that meet rigorous
standards for environmental preservation andimproved farm worker living standards. Sourcing ofbeans (Arabica variety)*1 from designated farms andproduction regions in four countries, where rigorous
control can be exercised in everything from individual
bean selection to shipping, assures a smooth,aromatic, fruity taste. We use only 100% fresh milk*2
in our caffè latte to obtain the rich, sweet taste
characteristic of milk.

throughout Japan. We will strive to constructsystems to make such popular products asboxed meals and sandwiches available forcustomers to purchase whenever they want.
Aside from Machikado Chubo in-store
kitchens and over-the-counter FF, LAWSON has
boxed meal and delicatessen corners offering a
growing number of side dishes for evening drinks
and 2/3-sized Donburi rice bowl dishes thatcombine nicely with other dishes for dinner aswell as salads with ample volume and ingredientsto serve as the main dish in a meal.
LAWSON launched a campaign in 2018
called “Gochiro,” short for “gochiso LAWSON”,
or “LAWSON delicacies.” The name refers todelicacies that cheer people up, including side
dishes, boxed meals, noodles and desserts,
whose availability at the stores makes it easy forcustomers to enjoy them, however busy they
may be. Any community resident can drop by
LAWSON to purchase good-tasting foods. Thisis the kind of store we aim to be.

LAWSON*1	Single origin series—
decaffeinated series are
not eligible.
*2	Our fresh milk ispasteurized.

32 years of
Kara-age Kun history
Not only is Kara-age Kun a popular over-the-counter
FF at LAWSON stores, but it is also beloved for its
taste, even when compared with similar snacks
sold at specialty stores and supermarkets. It first
appeared in 1986, just 11 years after the first
LAWSON store opened. The product has undergone
a number of improvements through its first 32
years, with particular care for the ingredients andfrying oil. Some 230 versions have been released,
including “local specialties” developed independently
by individual store managers throughout Japan, with
about 3 billion servings sold. And it continues toenjoy overwhelming popularity to this day.

29

INTEGRATED REPORT 2018

Reinforcing the Foundation for Sustainable Growth

Enhanced Evening and Nighttime Operation

Being prepared to give customers what they want:
Welcoming LAWSON’s “first year of priority evening and nighttime operation.”
LAWSON has designated fiscal 2018 as its “first year of priority evening andnighttime operation.” We will continue to welcome customers in the morningand throughout the day, of course, but will make a special effort to have a fullmerchandise assortment in the evening and nighttime as well. Our aim is to keep
everything customers want available with no overstocking or shortages.

dishes during evening and nighttime hours, and to
make significant improvements in its ordering anddistribution systems.

Focusing on sales potential after
4:00 p.m.

The items customers need or want must neverbe out of stock. LAWSON has consequently
conducted various activities to expand its
customer base and enhance its evening andnighttime product lineup.

The greatest number of customers patronize
convenience stores at around noontime. Many
come to purchase boxed meals, rice balls,
sandwiches and beverages for lunch as well as
daily necessities. At the same time, the numberof visitors to the stores in the evening and later isincreasing, including many who live alone, working
women, students and housewives who are busy
with childrearing. It is important for the stores togreet these customers with a full complement ofmerchandise to ensure that they have a sufficient
selection available to enjoy shopping at LAWSON.
Having designated fiscal 2018 as its “firstyear of priority evening and nighttime operation,”

Dramatic efforts to enhancestore performance

LAWSON is placing greater emphasis on themerchandise selection available after 4:00 p.m.
LAWSON’s share of the market for foods interms of the amount spent, including restaurants,
supermarkets and drugstores, is 2.9% during
the morning and daytime hours and 2.2% in
the evening and nighttime. If our percentageof the evening expenditures can be improved
to the same level as our morning and daytime
performance, we will see evening and nighttime
sales increase by 35%.
While seeking to maximize this hidden
potential and provide fuller support than ever forthe residents of its communities, LAWSON iscurrently implementing one initiative after anotherto enhance its offering of boxed meals and side

In 2015, LAWSON introduced a semiautomatic ordering system that analyzes Ponta
card members’ purchasing data to simplify
ordering based on demand forecasting fortargeted categories, such as boxed meals, atindividual stores. With the total number of Ponta
members surpassing 70 million, prediction
accuracy has substantially improved.
Since 2016, we have added a selectionof supermarket-alternative products forcustomer convenience and increased
our LAWSON stores’ product offering,
including the numbers of daily delivered
foods, frozen foods and others, by 15%.
Our improvement efforts progressed
further in 2017 with the enhancementof the stores’ over-the-counter FF
operations. We also introduced tablet
devices into the stores to “visualize” work
schedules, such as the timing of cooking.
We also increased our selection of overthe-counter FF items such as “DekaYakitori” (mega grilled chicken) and otherside dishes suitable for serving for dinner.

Marketing share of evening and nighttime operation
Share of spending on foodby time period and business type100%

Lawson 2.9%

2.2%

Share of spending on food by time period and business type
(LAWSON)

Supermarkets
50%

2.9%
Drugstores

2.2%

Restaurants0%

Morning
to midday

Evening
and nighttime

Morning
to midday

If LAWSON can improve its
share of consumers’ nighttime
expenditures to the same level
as in the morning and daytime,it has the potential toincrease evening andnighttime sales by 35%, orapproximately ¥175 billion.

Evening
and nighttime

LAWSON30

INTEGRATED REPORT 2018

Besides expanding the installation of new
POS cash registers with automated change
dispensers in 2018, we introduced dishwashers
into about 3,000 stores, mainly stores with
Machikado Chubo in-store kitchens. Installingthese new facilities has made store operation
more efficient, freeing up time for over-the-counter
FF and in-store kitchen operations. We also
reviewed the ordering and delivery schedules foreach store to achieve further enhanced ordering
accuracy through improved store operation
efficiency and shortened delivery lead times inorder to prepare the stores better than ever for
evening and nighttime operations. The Lawson
Group as whole, including the partner factories
that prepare its boxed meals and onigiri rice balls
as well as the distribution centers and all the otherbusiness partners supporting its supply chain,has renovated the mechanisms of its evening
and nighttime logistics to facilitate improved
responsiveness to customer needs after 4:00 p.m.
LAWSON’s goal is to have an abundanceof the things customers want on the shelves
when they stop by after work in the evening andnighttime. LAWSON Fresh Pick, a new service
enabling customers to order fresh foodstuffs in
the morning and pick them up the same evening,
is now offered by some stores. Many customers
who stop by to pick up their orders after work
linger in the store to shop for other things theyneed while they are there.
As a presence that supports the lives ofpeople in the community, LAWSON will continue
to improve its product lineup and enhance its
services in pursuit of further growth, encouraged
in its efforts by customers’ smiles.

Activities toward establishment of the next-generation convenience store
FY2015• Introduction of semi-automatic ordering systems• Promotion of the transition to new FC contracts

	Strengthening store capabilities:
Mechanisms for welcoming
customers after 4:00 p.m.
Change of ordering deadlines• Shortening lead times• Ordering outside peak times

FY2016FY2017FY2018• Increase in number of refrigeration and freezer showcases• Enhancement of daily delivered and frozen foods

Distribution framework• Enhancement of side dish FF menu (Deka Yakitori)• Introduction of tablet devices• Enhancement of ready-made foods (Onigiriya rice balls and boxed meals)• Establishment of Lawson Innovation Laboratory

Merchandise assortment• Change of ordering deadlines• Introduction of new POS cash registers

LAWSON31• Review of timetables• LAWSON Fresh Pick

INTEGRATED REPORT 2018

• Change of timetables•P roduct category configuration review
for each delivery•U se of semi-automatic ordering toincrease number/assortment of items
contained in 3rd daily delivery (lateafternoon)
Work schedule review• Use of tablet devices• Standardization of over-the-counter
FF preparation processes

Reinforcing the Foundation for Sustainable Growth

Digital Innovation

Innovation with digital technologies for greater efficiency and comfort
Lawson Smartphone Pay

Increasing numbers of seniors and foreign nationals will be involved in store
operations in the future. Lawson is improving the efficiency of its store operations
by maximizing the use of digital technologies. We aim to establish systems thatoffer customers smooth, stress-free shopping experiences and that free store
crews to concentrate on services only human beings can provide.

Simplified payments using
smartphones
Waiting in line at cash registers during peak
hours in the morning or at lunchtime places
significant stress on customers. LAWSON
Smartphone Pay is an innovation aimed ateliminating this waiting time while reducing
working time and improving store crew
productivity.
Merchandise information is scanned
using the customer’s own smartphone andpayment is made by credit card, Rakuten
Pay or Apple Pay. The system is already inoperation at all LAWSON stores in Shanghai,and demonstration testing and verification of
its usage conditions began at three storesin the Tokyo Metropolitan Area in April 2018.
We are considering introducing the system tostores throughout Japan, where it is expected
to produce positive effects based on customer
needs.
LAWSON Smartphone Pay is simple touse. Once an official LAWSON app has been
downloaded into a smartphone, bar codes onmerchandise purchased at the stores can bescanned with the smartphone camera, andpayments can be made from anywhere in the

STEP 1

Select andenter a store.

store. Except for over-the-counter FF items
or products such as alcoholic beverages andcigarettes that require age verification, there
is no need go to the cash register. Payments
are verified by scanning a QR code displayedon the smartphone with a special scanner andan electronic receipt is issued as the customer
leaves the store. The system requires installationof almost no new equipment in the stores.
Combining crew-operated cash registers
with Lawson Smartphone Pay during peak
shopping periods can significantly alleviate theproblem of waiting in line at cash registers.
This is expected to improve both shopping
convenience for customers and the productivityof store operations.
Reducing the burden of cash registerwork will free store crew to focus on things
that “only human beings can do.” The sourceof LAWSON’s warmhearted services is thethoughtful consideration shown customers byindividual crew members. Cutting-edge digitaltechnologies support this kind of service.

LAWSONSTEP 3Make thepayment.

32

INTEGRATED REPORT 2018

STEP 2

Scan the bar codes
on merchandise.

STEP 4

Scan the phonewith a reader whenleaving the store.

Official “Akikochan” character

New POS cash register
information sharing conducted with merchandise
manufacturers and distribution centers at the
LAWSON Marunouchi Park Building Store in Tokyo.
We will be using the Lawson Innovation
Laboratory established in October 2017 as wellas other resources and IT technologies to improvecustomer convenience and productivity in our store
operations.

Maximizing use of IT technologies
as we evolve into a nextgeneration convenience store

Multilingual support

All the stores were supplied with tablet devices in2017 to facilitate smooth work processes, evenwhen crew members had little experience, bydisplaying work schedules in terms of “when, what
and how,” with accompanying photos for sometasks. Recommendations are provided for thetiming of cooking over-the-counter FF items andfor the quantities to be prepared based on sales
data for individual stores. This reduces the numberof lost opportunities, improving both productivity
and sales.
The introduction of the new POS cash
registers is progressing, and they have alreadybeen installed at about 2,600 stores (as of July2018). We have introduced the very first cash
registers whose main body offers full touchpanel operation and which are also equippedwith automatic change dispensers. A navigation
function enables anyone to operate them easily,and discrepancies between the amounts of cash
taken in and cash in the register can be reduced,
shortening the time required to close out cash
registers. The system has also been equippedwith multilingual support in consideration of foreign
national crew members (with simplified Chinese as
well as Vietnamese and Nepalese supported).
We are also conducting activities related tothe use of RFID*, moreover, as part of efforts torealize the next-generation convenience store. A
demonstration test using completely automatedRegi-Robo self-checkout machines and RFID
tags was conducted in 2017, followed in Februaryof 2018 by an experiment in store inventory
LAWSON* RFID (Radio Frequency IDentification) is a system that
identifies individual products through wireless detection of
information stored in electronic tags. The price and otherinformation is inscribed in small tags on each productas 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 intheir inspection and stocktaking duties.

Regi-Robo

The official LAWSON character, “LAWSON Crew
Akikochan,” is a chatbot that employs AI to engage
in dialog communication using the LINE app. New
LAWSON products and stores are introduced on
the site, and games and chats are available, withcoupons of recommended merchandise distributed
through interactive contents.
The chatbot’s friend total
on LINE has surpassed 23
million, and it conducts
conversations with several
hundred thousand people
each day. The usage rate of
the periodically distributed
coupons has also increased
significantly.

Ensuring diversification of humanresources selected to work at Lawson
Lawson Staff is a Lawson Group company thatprovides temporary staffing service as part of an
employment system that enables people to workwith peace of mind, while matching jobs with thetemp staffs’ diversified needs. Dedicated trainers
with abundant experience provide the training newly
hired staff require to work at
LAWSON stores, regardlessof age, gender or nationality,and new crew members are
assigned to appropriate storeswith schedules that take theirconvenience into consideration.

Graphic image of digital tags attached to merchandise33

INTEGRATED REPORT 2018

Reinforcing the Foundation for Sustainable Growth

Supply Chain

We aim to advance the manufacturing retailer business model inconsideration of society and the environment as well as of quality and cost.
Customers’ wide-ranging needs include good taste, safety andpeace of mind as well as healthfulness and price. LAWSON isconstantly planning and developing original merchandise based onthese customer needs, and sales of these products now accountfor one-third of total sales. Our original merchandise represents not
only differentiation from the competition but also improvement of theoverall gross profit margin. We are deeply involved in the entire supply
chain, thoroughly implementing “visualization” to reduce inefficiency
and waste out of consideration for the environment by reducing
CO2 emissions and sustaining biodiversity and, at the same time,
to improve quality while reducing costs. Our collaboration with the
Mitsubishi Corporation Group will be strengthened in the future topromote development of our manufacturing retailer based on a small
commercial area model.

Business aspects

Planning & development

Raw materials procurement

Painstaking product manufacturing

Use of high-quality ingredients forgood taste without waste

Point card-based purchasing data andfeedback gathered through social media
are analyzed and employed in our productdevelopment.

Pursuing involvementwith the entire supply
chain to build a true
manufacturing retailer
business model.

Social &environmental
consideration
Full supply chaintransparency andcomprehensive
consideration of society &the environment

LAWSON34

While maintaining our focus on good taste
and health as primary concerns, we also
take care to avoid waste in our food productdevelopment. Vegetables with imperfections
grown on Lawson Farms are cut up for use insalads, marinated vegetables, pet foods andother such products to reduce waste.

INTEGRATED REPORT 2018

The raw materials procurement professionals
at our functional subsidiary, SCI, Inc.,
purchase high-quality raw materials at
optimal cost through direct interaction withproducers. Benefits of scale acquired byselling merchandise at all the stores across
the Japan and the mechanisms in place
for use without waste contribute to higher
overall gross profit margins.

We use domestically produced and seasonal
foodstuffs to the greatest extent possible
in preparing such original food products as
our over-the-counter FF, boxed meals anddesserts. This contributes to revitalizationof communities in therespective production areas
and reduces transportationenergy requirements incomparison with importing
the ingredients.

	CO2 emissions from our supply chain
in FY2017
Total CO2 emissions

Approx.

Distribution

Customer

Manufacturing

StoresProactive engagement in the
fabrication process

Efficiency enhancement throughvisualization of distribution

Lawson is reinforcing its partnerships withthree major food manufacturers whosesubsidiary production facilities makeboxed meals and side dishes. In addition
to its collaborations with the Mitsubishi
Corporation Group, Lawson has increased
its direct participation in the manufacturingsector with the aim of forwarding theevolution of its supply chain even further.

Improving the efficiency of distribution centerand truck delivery operations is an importantfactor in Lawson’s efforts to deliver merchandise
to stores across Japan without waste. The
Company-owned distribution center that went
into operation in 2016 conducts basic reviewsof distribution procedures through “visualization”
made possible by our ownership and operationof the facility.

5,190.2 thousand tons

Method of calculating greenhouse gas emissions from the supply chain
Calculated based on “Explanations by Industry (Retail Industry) for the
Basic Guidelines on Accounting for Greenhouse Gas Emissions
throughout the Supply Chain,” Ver. 1.0.
Gasoline consumption byCompany vehicles (Scope 1*2)

0.10%[5.1]Electricity consumption by Headquarters,
regional offices, branch offices andCompany-operated stores (Scope 2)

Reducing the workload in the stores

0.51%[26.3]

Various measures are being
taken to improve work efficiency
at the stores, including
introducing tablet devices
and POS cash registers with
automatic change dispensers.
Systems stressing interaction
with customers will be arranged
by eliminating waste andimproving productivity.

Business trips (Scope 3)

0.01%[0.6]Waste materials generated by stores andindustrial waste generated at times ofstore closures and remodeling (Scope 3)

0.54%[28.0]
Disposal of containers, disposable
chopsticks and plastic shopping bags
(Scope 3)0.72%[37.3]
Electricity consumption associated withprocurement of electric power (Scope 3)

1.47%[76.5]
Energy consumption by delivery centers(Scope 3)

1.81%[94.0]
Electricity consumption
by franchisee stores(Scope 3)

CompostStocked raw
materials
20.65%(Private and[1,072.0]
national brandproducts, plastic
shopping bags, etc.) (Scope 3)74.19%[3,850.4] *1

Lawson has introduced a Production
Processing Control System to manage
the volume of ingredients used as well as
production quantities and serving sizes,
measured in grams, at the manufacturing
stage. This system contributes to preventing
over-production and reducing waste.

Efforts to conserve fuel in the delivery
process include promoting joint deliveries,
optimizing delivery frequency and mounting
eco-tires on trucks. We also encourage ecodriving through our operations management
system and provide training to stop drivers
from letting their vehicles idle.

LAWSON

Food recycling is conducted to reduce foodwaste generation by the stores. Leftover
foods are recycled as fertilizer, and waste oils
are used as additives for feeds and biodiesel
fuel. Daikon radishes for oden hot pot stew
are produced at Lawson Farm Tottori using
fertilizers created from leftover foods.

35

INTEGRATED REPORT 2018

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

CO2 emissions calculation rule
Scope of calculation:
Use of Company vehicles, LAWSON, NATURAL LAWSON and
LAWSON STORE100 (14,428 stores), purchased goods and services
for store sales
Target period:
April 1, 2017 to March 31, 2018 (administrative year)

Reinforcing the Foundation for Sustainable GrowthMultiple Store Management and Management Owner Program

Transitioning from Convenience
Store Operation to Business
Management

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

Know-how concerningbusiness establishment
and operation

Lawson encourages its FC owners to operate multiple stores, while promoting
store operation that respects the autonomy of the franchisees. Owners who
operate more than one store have the advantages of distributing risks, suchas the emergence of rival stores in their territory, to realize stable operation of
their stores as a group, and of maintaining close contact with Headquarters,
which is a first step toward becoming a business manager. Upwards of
40% of our FC owners are currently managing multiple stores. Under these
conditions, Lawson’s Management Owner (MO) program provides a uniqueframework for helping owners transition to multiple store ownership in astrong partnership with Headquarters. They are provided with such high-levelsupport services as priority introduction of new businesses and services anddistribution of information appropriate to multiple store development. At thesame time, the MOs contribute significantly to the progress of the Lawson
chain by serving as models for other franchisees through sharing of knowhow they acquire about establishing stores and sales areas, as well as about
products and personnel training, and by proposing improvements from thefield. About 200 MOs are active throughout Japan as of February 2018.

Business success stories
and business management expertise

Improvement proposals from the fieldMOSC

Know-howconcerning humanresources recruitment
and training

Lawson Headquarters

Know-how concerning
store operations andsales area establishment

MO

Headquarters

All stores under management
are franchise storesHigh QSC (quality, service, and cleanliness)
serving as a model for owners

3 store managers
Average numberof crew at 4 stores

Multiple storesSingle store

MC

Store manager

Approx. 60

1 store manager
Average numberof crew at 2 stores

Approx. 20

36SC(store consultant)
Making rounds and providing
guidance to individual stores

INTEGRATED REPORT 2018

MC

Infrastructure and programsfor multiple store operation

Business management

Approx. 30

LAWSONMO Program

In the role ofmanagement owner (MO)Multiple stores

Average numberof crew

Improvement of products, services and IT

SC(store consultant)
Making rounds and providing
guidance to individual stores“I feel truly empowered by the MO Program, which createsa cycle of profits together with Lawson Headquarters.”

President and Representative Director,
Tomoyoshi Ltd.

Hiroshi Maeda
Management of 34 stores in Tokyo

specialist instructors, the MO Program enables us toexperiment with new activities on our own initiative.
When these are successful, the results are often
communicated to other stores throughout Japan via
supervisors. The MOs share know-how with eachother in their own area, and exchange information
about personnel management with MOs in other areas
as well. The primary cause of the worker shortage ispeople quitting. I recommend that those who quit forreasons such as moving away find employment at a
LAWSON store again in their new location.
Enhancing the attractiveness of our storessuch that it reflects back on Headquarters enables
Headquarters to pursue more advanced efforts. Many
MOs are constantly conscious of this cycle of profits.
Ideally, I would like to see more FC owners in every
area become MOs. They will benefit from multiple
store ownership by hedging the risk of emerging
competition, and Headquarters will benefit, in turn, byaccumulating more know-how about multiple store
management, which will in turn increase its capacity
to instruct franchisees. The MOs and Headquarters
coexist and share their prosperity. I intend to maintainstable management and a community-based attitude
into the future for the further betterment of the
LAWSON chain as whole.

I became self-employed and opened my first store inTokyo’s Suginami Ward in 2002. I had expanded tofour stores when the MO Program was establishedin 2009, and I joined the first class of participants.
Owners with the same objectives came together,and the perspective I had developed as an owner ofmultiple stores was broadened through experiencessuch as attending seminars at other stores. Since
receiving my MO certification, I have been adding
stores every year, binging the total to 34 stores today.
All the stores are located in the vicinity of railway
stations near residential areas. Rather than going into
the city center, I chose to focus on outlying areas
where I can acquire personal understanding of thelocal characteristics.
I have employed several different methods oforganizing my business. I currently employ about
550 people, and the organization involves assigninga group leader to handle each business field undera store consultant in collaboration with the store
managers assigned to each store. Corporate
decision-making is conducted through voting by our
executives.
The MO Program offers a variety of advantages.
Although ordinary LAWSON stores also receive
support from supervisors (SV), all of whom are
Regional society
Abundant
product
lineupSocialcontribution
activities

Franchise
storesNew
services
development

Joint business operations

LawsonHeadquarters

Environmental
activities

LAWSON37

INTEGRATED REPORT 2018

Lawson Owner Welfare Association
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 rangeof benefits for member franchise owners and their families
as well as for store crew and staff, including a subsidy
system to encourage medical checkups and the use ofpreferred discounts for health promotion activities.
	Subsidy program for use of sports facilities
	Subsidy program for full medical examinations andhealth checkups
	Subsidy program for crew who leave children in thecare of a nursery or day care center when going towork	Hosting of parent/child health promotion events &seminars for women	Program of convenient travel and accommodation
services	Subsidy program for correspondence courses
	Congratulatory and condolence payment system
	Voluntary group insurance system for FC stores
	Discount/preferential systems for leisureactivities, entertainment, child-rearing, nursing careand other life- related facilities
Top: A Lawson Owner
Welfare Association
pamphletBottom: The Owner
Welfare Association
convenes healthpromotion seminars.

Foundation Supporting Value Creation

E S GDeveloping Human Capital
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

Promoting diversity
	Contributing to the success ofdiversified human capital, including
female employees and employees offoreign nationalities; encouraging male
employees to take paternity leave

are also asked to specify their goals for the
future in light of their personal histories andcurrent positions. Interviews are conducted tosupport their growth as individuals.

Lawson promotes diversity to ensure that allits employees with their widely varying rangeof values come together and perform to theirfull potential to strengthen its franchise chain
business further. Having constructed systems
for promoting diversity, the Company is pursuingsuch additional efforts as forming a special
subsidiary to promote employment of people withdisabilities, creating on-site childcare facilities
and opening a facility for labor-management
consultations with a focus on improving
operating efficiency and work environments.
Lawson continues its active efforts to hire
women and foreign nationals through its regular
recruitment program, while also broadening thescope of its international employment activities,
as exemplified by local hiring in South Korea.
Intent on being a company that retains
female employees over the long term, Lawson
is implementing initiatives to support their careerand life planning, including career developmenttraining for young employees, education
concerning child-rearing leave and leadershiptraining for selected employees. Lawson seeks
to attain a ratio of 30% women in management
positions by fiscal 2020.
Inspired by hopes that active participation
by men in childrearing will lead to efficient,highly productive work styles regardless ofgender, Lawson encourages male employees
to take paternity leaves. In fiscal 2017 the ratioof paternity leave-taking exceeded 80% for thesecond consecutive year.

	New ROOKIE AWARD added
to Lawson corporate awards
program
Lawson has conducted a corporate awards
program, the Awards for Promotion of Selfmotivated Innovation, since 2015 to give
special recognition to employees whose
voluntary efforts have led to improvements inoperations or business results. We have now
expanded this program, which contributes
to creating a culture that encourages selfmotivation and innovation, by establishinga new ROOKIE AWARD to commemorate
young employees’ initial steps toward tacklingproblems and expressing their opinions
voluntarily.

LAWSON38

INTEGRATED REPORT 2018

In 2018, Lawson has reinforced its efforts
to become a company where employees cancontinue to work by introducing a flexible
workplace system (flexible full-time employee
system) to help employees balance work withchildrearing, nursing caregiving or cancer
treatment.

System for promoting diversity
President
HR officer
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 newvalue based on ideas generated by female employees.

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

Lawson, Inc. was named
a Nadeshiko Brand as an“Enterprise Encouraging Women’s
Success in the Workplace” in2018 for the fifth consecutive year
beginning in 2014.
Ikumen promotion posters displayed in every officeActivities contributing to the health of employees and franchise owners
	Promoting health managementthat begins with employees’
concern for their own healthAs a company that views its stores as a“support for health and wellness in ourcommunities” at the corporate level, Lawson
not only supports customers’ efforts to leadhealthy lives, but it also promotes healthy
lifestyles among its employees. With thisin mind, we have completed agreements
between labor and management to enhance
work efficiency and eliminate excessive
working hours, while also establishinga cooperative health union to create amechanism for sustaining employees’ longterm health.
We also encourage employees toundergo medical checkups and ensure thatthose who fail to meet set health criteria retakethe examinations.
We instituted the Lawson Healthcare
Point program to promote employee health in2015. We followed this in 2016 by introducing
the Health Challenge! program of semi-annual
health promotion periods. Various events held
during the Health Challenge! periods include
the Low Carb Challenge aimed at improving
dietary life by curbing per-meal carbohydrate
intake and the Step Count Challenge, in whichgroups of 3 to 5 employees compete witheach other, with rankings announced weekly.
In 2017 the Lawson Grand Sports Day
for Health, a new event in which all Lawson
employees will participate annually, was heldin eight areas nationwhide, helping to vitalizeinternal communications and foster a sense ofunity through collaboration. The meet featured
adult physical fitness tests, including grip	Promoting industrial safety andhygienestrength measurement and repetitive sideways
jumping tests, among others. The intention is
to motivate employees to exercise more bycalling their attention to their current activity
level.

We 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.

Lawson Grand Sports Day for HealthAmong other activities in the areaof employee health, we conduct a HealthSeminar for newly hired employees to raiseawareness of the importance to proper job
performance of maintaining good health.
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 the health of FC owners
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.

Lawson pursues a business strategy
of diversity without discrimination andirrespective of physical or cultural
attributes and background, including
gender, nationality, disabilities or placeof birth. We have engaged since 2005 inrecruiting activities aimed at increased
hiring of women, setting a numericaltarget ratio of 50% for women hired
through the regular recruitment program.
The ratio of female employees in the
Company, formerly in the single digits,
has risen to as high as 16% today.
We are seeing increasing numbers of
women continue to work after taking
maternity leaves and achieving careeradvancement, which has led to many
innovations in the Company.
Employees of foreign nationality
are performing admirably, leading us
to realize requirements of management
we might not have noticed in a lessdiversified organization. We consequently
plan to continue promoting diversity,
which values differences, and increases
corporate value.

See page 37 for details.
General Manager
Human Resources Division

Kyoko Yamaguchi

Lawson, Inc. was recognized under “The Certified Health andProductivity Management Organization Recognition Program(White 500)” as a company that practices excellent healthmanagement for the second consecutive year in 2018.

Seminar on women and health

LAWSON39

INTEGRATED REPORT 2018

Foundation Supporting Value Creation

E S GSocial and Environmental Activities
Contributing to a circular society at the stores
Implementing the Ten Energysaving Rules to promote energy
conservation at every store

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

Lawson has formulated andimplemented the “Ten Energy-saving
Rules” to improve the operating
efficiency of the cooling and airconditioning systems installed in its
stores and reduce wasteful electricity
consumption throughout the store
operation.
Every store is responsible forkeeping the fi lters of its cooling andair-conditioning
systems compliant
with the standards
and for maintaining
the recommended
heating and coolingtemperature settingsin daily operation.

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

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

120

120

100
80

68.2

90.3

79.8

60
40
20
0

100
80
60

Base year

100.0

90.5

2010

2017

Target

40

80.0

20

2020 ( FY * )02*1: CO2 emissions derived using adjusted coefficients forreceiving-end terminals published by the Federation ofElectric Power Companies of Japan. The figures forfiscal 2017 and 2020 are estimated based onemissions factors reported by the individual electric
power companies (EPC0s) for fiscal 2018.
*2: Calculated for April 1 to March 31 to coincide with theadministrative fiscal year.

Introduction of CO2 freezer and refrigeration systems
Lawson began installing highly energyefficient Freon-free freezer and refrigeration
systems cooled by CO2 refrigerants that do
not emit chlorofluorocarbons (CFCs) in fiscal
2010. As of the end of February 2018, they
were installed in approximately 2,700 stores.
Reduction of the use of HFC* will be requiredby law beginning in fiscal 2019. Lawson willcontribute to combatting climate change by
successively replacing the refrigerants currently
used for cooling with non-CFC refrigerants.
These systems significantly reducegreenhouse 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 thestore as a whole by 12%.

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

Opening of a new store withwood construction
The LAWSONTatebayashi Kidocho
store (Tatebayashi City,© Atsushi ISHIDA
Gunma Prefecture)
The store exterior
opened in January
2018 as the first convenience store with its external structure
and interior constructed of cross-laminated timber (CLT)comprising domestically grown cedar wood.
A building material composed of layered wooden
panels made by gluing adjacent layers together with theirgrains perpendicular to each other, CLT offers high rigidity andexcellent thermal insulation performance.
Among efforts to achieve energy conservation throughefficient operation, moreover, the store has installed an UltraEco-Ice (heat storage tank) that makes ice by operating a CO2
freezer at night, when outdoor temperatures are low, and uses
the accumulated thermal energy to cool refrigerated display
cases during the daytime, when outdoor temperatures rise.
*	Cross Laminated Timber

Recycling to reduce food waste
Lawson is working to limit waste generationand encourage recycling in order to reducethe volume of food waste (11kg/day per
store) discarded by Lawson stores. These
efforts have included introducing a newordering system to improve the accuracy ofour product ordering and cut waste further.
Any surplus food that remains is delivered torecycling 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 44.5% in fiscal 2017, ascompared with our target of 42.5%.

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

LAWSON40

INTEGRATED REPORT 2018

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

17,500103

15,000174

12,5002,381
11,47012,348

41.1

44.3

44.5

38.5

40.5

42.5

2015

2016

10,000
7,500
5,000
2,500
0

906
7,403

2,582

100

105

2,845 80
13,156
60
40
20

22.5
2007

(Base year)2017 (FY)*02

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.

Lawson’s social and environmental initiatives
Social and environmental initiatives in our core business

Promotion of social and environmental education

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’s certification was renewed infiscal 2017 following a periodic review throughthird-party audit.

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 acontinuous flow of information through inhouse magazines and the Company’s socialand environmental reports.
Lawson encourages the representatives
responsible for promoting CSV* activities
in the various departments to deepen theirknowledge by acquiring both internal andexternal training and taking the eco test.

Lawson Group Environmental
PolicyOur 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, 2018)
Headquarters, 24 main offices / offices, 8
areas, 5 Group companies, 13,992 stores (asof February 28, 2018)

CSV (Creating Shared Value)
Subcommittee
With the Business Operations Support Division (CSR
and Community Alliance Promotion Department[?])serving as a secretariat, the CSV Subcommittee
convenes monthly meetings attended byrepresentatives of Headquarters, the various areas
and the Group companies responsible for CSV
promotion. Its principal activities include managing
progress and sharing information concerning socialand environmental 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 centeredon 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 byheadquarters and contributes them to NGOs.
In July 2017, we established the SingleParent Family Scholarship Program under the
auspices of our Support Dreams Fund to provide
scholarships to children from single-parent 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)(Single-Parent Family Scholarship Program)

Recipient: Civic ForceRecipient: 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.

Supports nurturing of next-generation leadersthough restoration assistance for Great East
Japan Earthquake recovery efforts as well as
educational and cultural exchanges between
Japan and the United States for students fromthe Tohoku region.

Provides scholarships for approximately 1,000
students from the three Tohoku districts
affected by the Great East Japan Earthquake,and conducts support programs in these
districts.

Supports the dreams of children from singleparent families by providing scholarships fora total of 400 junior high school (3rd-year)
and high school students with no repayment
requirement.

LAWSON41

INTEGRATED REPORT 2018

Foundation Supporting Value Creation

E S GCompliance and Risk
Internal control
 asic policy regarding theBinternal control system

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

The Lawson Group is a corporate entity
whose characteristics require it to observea diverse array of laws and regulations. Not
only do the Group’s operations range fromentertainment and home conveniences tofinancial services, e-commerce and consulting,
all with the convenience store business at thecore, but LAWSON stores in every prefecture
in Japan, as well as our many stores overseas,
offer wide variety of products and services.
In light of these characteristics, Lawson has
established the “Basic Policy for Maintaining
the Internal Control System” to support its
efforts to achieve healthy, sustainable growth.
We are promoting maintenance of our internal
control system based on this policy, while
responding to changes in our management
environment, conducting periodical reviews of
the policy itself, and endeavoring to maintainand enhance an effective, practical internal
control system.
The main revisions of the Basic Policy
implemented in fiscal 2018 are described
below:

Promotion of work style reform
In our conviction that continuous efforts toreform work styles will contribute to creationof appropriate work environments and exert
a positive impact on labor management, wehave added a new provision to the Basic
Policy: “Seek to improve labor productivity bypromoting work style reform.”

Lawson’s internal control system (as of June 1, 2018)
Board ofCorporate Auditors

Internal control audits/regular meetings

Reports on important issues

Auditors

Board of Directors
President and CEO
CR Executive Officer*1

Compliance & Risk Management Committee
Mutual understanding/information exchange

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 four key
factors: quality and hygiene management,
information security, disaster preparedness
and crime prevention. 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.

house rules is discovered, corrective measures
will be taken immediately and measures toprevent recurrence will be implemented.”

Clarification of measures to be taken when
any violation of laws and regulations is
discovered
Lawson has made it clear that it will implement
strict measures if a violation of the laws is
discovered by adding the following statement:“When a violation of laws, regulations or in-Compliance & Risk Management Committee Meeting• Food Safety and Hygiene
Management Subcommittee• BC Subcommittee• Regional Office Crime Prevention
and Disaster Defense Subcommittee• CSV*3 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 Audit DivisionInternal
controlauditsFranchise
storesAffiliated companies
Affiliated Company
Compliance Officers Meeting

Guidance/
supportClose 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 andproblems concerning legal compliance and preventing risks from arising*3 CSV (Creating Shared Value)

LAWSON42

INTEGRATED REPORT 2018

Lawson’s compliance and risk management system
Lawson has established a compliance and risk
management framework based on its Corporate
Conduct Charter and Code of Ethics. We seek
to conduct business as a good corporate citizen,
acting honestly and considerately according to highethical standards, implementing the PDCA (PlanDo- Check-Action) cycle, and organically linking our
behavioral standards with our education and 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, practiceFormulation of behavioral standards
We have established the Code of Ethics, Lawson
Group Privacy Policy and Lawson Group Purchasing
Policy to ensure proper
conduct of businessthroughout the Group.
We have compiled
these in the “Lawson
Group C&R Handbook”
Lawson Group C&R Handbook and distributed it to all

our employees to attain their understanding of thepolicies.

personnel who specialize in consulting concerning
sexual harassment and abuse of power and legal
personnel who provide consultations on legal
matters, Lawson has established consultation
contacts to receive internal notifications andprovide consultations concerning compliance andrisk management issues. Besides establishing theLawson 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 than everto increase awareness and understanding of these
services and frameworks by communicating about
them with employees and other concerned parties.

Appointment of CR promotion officers
We have appointed an executive officer responsible
for CR (compliance and risk) with responsibility
for promoting compliance and risk management.
Compliance and risk management officers (CROs)
assigned to each department at headquarters andthe regional offices are tasked with establishing andraising awareness of compliance measures and risk
countermeasures in their respective departments
and with contributing to creation of a culture thatemphasizes compliance with social norms.

 ull implementation of education andFtraining

Reinforced operational management
and monitoring

Lawson conducts compliance and risk management
training for all its employees each year for the
purpose of improving their ethical awarenessand risk response capabilities. It has developed a
training system to support structured, systematiclearning, moreover, that begins with training of newly
recruited employee and extends to training of newly
appointed management personnel and specialized
occupational training as well as biannual compliancetraining for management members provided byoutside instructors. Our ongoing implementation ofthese 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.

Lawson has established the Compliance andRisk Management Office and the Information
Security Management Office and staffed them withspecialized personnel under the direction of the
CR Executive Officer. As the entities responsible forpromoting and assuring compliance as well as for
conducting risk management, these offices serve as
cross departmental secretariats for the Complianceand Risk Management Committees Meeting andInformation Security Committees Meeting andmanage the progress of measures implemented inthese areas by individual departments throughout
the Group. Four separate subcommittees (the Food
Safety and Hygiene Management Subcommittee,
the BC Subcommittee, the Regional Office Crime
Prevention and Disaster Defense Subcommittee,
and the CSV Subcommittee) have been establishedunder the Compliance and Risk Management
Committees Meeting and tasked with managing the stablishing and raising awarenessEof the Consultation/Whistleblower
HotlineIn addition to Human Resources Department

LAWSON

progress of important measures while preventing the
emergence of risks.
The subcommittees collaborate with the Corporate
Auditors Office, moreover, receiving reports on
the results of compliance audits as needed while
also providing detailed guidance for implementing
measures and offering proposals for improvements.
Besides awareness surveys involving all theemployees, the monitoring activities extend tocirculation of questionnaires among business
partners concerning such matters as delivery ofmerchandise to stores and store construction as partof efforts to review the compliance systems from a
broad perspective.

43

INTEGRATED REPORT 2018

Group officer training

 nhanced cooperation among Group
E
companies
Officers responsible for compliance and risk
management have been appointed by the Group
companies as well, and Lawson also holds meetingsof affiliated companies’ compliance officers. Besides
formulating codes of ethics and providing training
to heighten employee awareness, it conducts thesame employee awareness surveys and business
partner questionnaires at the Group companies as
at Lawson. The Corporate Auditors Office conducts
audits of operational duties at the Group companies,
whose boards of auditors convene meetings toprovide guidance and assistance in establishing andimproving their compliance, risk management andinformation security frameworks.

Responses to emergencies
Lawson places particular emphasis on “foodsafety and hygiene management,” “information
security” and “disaster relief,” and it has prepareda structure for responding to emergencies andresolving 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 swiftlyand minimize damage. Once the problems havebeen resolved, the Company analyzes the factors
contributing to the occurrence and reviews andimproves the relevant measures to prevent any
recurrence.
We are reinforcing our emergency response
capabilities, moreover, through efforts such as
formulating the Business Continuity Plan (BCP)
and implementing disaster mitigation measures.
Our aim is to institute a business continuity (BC)framework that prevents interruption of importantbusiness activities, even when emergencies
involving serious damage occur.

Assuring continuity of business operations
 undamental policies andF
objectives for maintaining
business continuity (BC)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.

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.

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-to-understandmanner appropriate responses by the
responsible personnel to such hypotheticalemergency situations as the occurrence of anearthquake under the Tokyo Metropolitan Area,
the appearance of a new strain of influenza,
and such events as deep
offshore earthquakes,
nuclear power plant
accidents, volcanic
eruptions and heavy
flooding.
BCP Guidelines

Three main goals for maintaining 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 levelof FC 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’ssurvival.

 echanism for enhancing BC
Mcapabilities
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.

“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 resilienceagainst disasters (resilience certification).” This system certifies businesses that are actively
engaged on a regular basis in efforts related to BC 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 hasreceived confirmation from the National Resilience Promotion Office, Cabinet Secretariat tothe effect that it conforms to the “requirements of a certified organization” stipulated by theabove guidelines. Lawson was recognized by the Association for Resilience Japan as the first
convenience store to contribute to the building of national resilience against disasters.

LAWSON44

INTEGRATED REPORT 2018

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 conductsCompanywide training three times a year in which
participants acquire experience in implementing
a variety of measures, including responding bytelephone, email and disaster message dialing
and applying the safety check system. Thisprepares every individual to respond smoothly
should emergencies arise. Manuals elucidating therequisite 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 Systemdesigned to enable personnel to confirm thedisaster situation in real-time and implement
support measures for shops, factories anddelivery centers,
so that stores inthe disaster area
can be reopened
for business at an
Disaster relief
early date.
manualDisaster 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.

Cooperation with local
governments at times of disaster
In its capacity as a community lifeline, Lawson ismaking progress toward concluding agreementswith local governments concerning cooperation in
the provision of goods and assistance to stranded
commuters in times of disaster.
<Entities concluding agreements onprovision of goods in times of disasters>
Local governments: 47 prefectures,
19 cities and wards
Others: Tokyo Fire Department andJapan Ground Self-Defense Force
Mass transit systems: 10
Electric power companies: 2<Entities concluding agreements
on assistance to stranded commuters>
Local governments: 41 prefectures,
10 ordinance designated cities(As of June 1, 2018)
 onclusion of agreements on provision ofCgoods in times of disaster and agreements
on assistance to stranded commuters
Conclusion of agreements on provision of
goods in times of disaster*Map shows only prefectural-level agreements.

Appointment to the designated public
institution based on the Disaster
Countermeasures Basic Act

As of July 1, 2017, Lawson was appointed
a designated public institution by the Prime
Minister based on Article 2, Item 5 of the Disaster
Countermeasures Basic Act. During times ofnormal operation, the Company formulates disasterprevention work plans, conducts disaster drills andstockpiles goods and materials in preparation forplaying an important role in disaster prevention,
emergency response and restoration. In so doing,
it works closely with the relevant government andmunicipal offices.

A disaster prevention drill (held March 11, 2018)

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 the contents andare prepared to implement them, the Company
publishes potential mistakes and complaints that
may arise at the stores, accompanied by practicalresponses to them, in various manuals produced
for the stores in an effort to raise awareness.
Headquarters employees are tested periodicallyto ensure that they are all acting reliably basedon the “Lawson Office Security Rules,” in whichmatters to be observed are compiled.
We have established a system for specifying
methods of gathering and storing information

Protection of Personal Information in May 2017,
we communicated the revised provisions to allmembers of the Lawson Group and ensured that
Lawson and its Group companies revised theirown internal rules accordingly. The Lawson Group
Privacy Policy has also been revised.
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.

as well as information storage periods and fordesignating persons responsible for handlingcustomers’ valuable information in each instanceafter advance checking by specialist departments.
When consigning responsibility for storing
personal information to outside organizations,
we require that a detailed investigation of theorganization’s security framework be conductedin advance and that consignment of the
responsibility be made only to organizations thatsatisfy Lawson’s conditions.
An onsite or documented inspection isconducted annually, moreover, to ensure that theconditions are maintained.
Upon enforcement of the revised Act on the

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 cheerful and spirited manner. In addition to the following measures implemented by headquarters, we are cooperating with the police and
the Japan Franchise Association in efforts to prevent crimes against the convenience store industry as a whole.

Actions taken as crime prevention measures
1. Promotion of security camera installation

2. Creation of an environment for store
crew education

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. We have upgraded to adigital security camera system, moreover, which
provides sharper images and improved recording
capabilities.

A DVD on measures to prevent
robberies and other crimes

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 storesfor use in educating their crews. Various tools
and manuals, such as crime prevention selfcheck lists, have also been prepared.

A crime prevention self-check list

LAWSON45

3. Enhancing guidance provision during patrols
Crime prevention guidance is also provided during
store patrols to raise awareness at franchise stores.

4. Conducting crime prevention drills

Employees are trained under police direction inmethods of responding to robberies, including throwingof anti-crime color paintballs.

Training in responding to robbers

INTEGRATED REPORT 2018

Training in anti-crime color paintball
throwing

Corporate Data
Lawson Group Overview As of February 28, 2018/Consolidated
Company name
Headquarters

Main Lawson Group companies As of February 28, 2018/Consolidated

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 ¥2,283.6 billion (consolidated)
Number of stores
15,728 (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 10,028

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., and 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 managed by operating companies in the respective regions.

Category

Lawson, Inc.
Lawson Store100, Inc.
SCI, Inc
Lawson Sanin, Inc.
Lawson Okinawa, Inc.
Lawson Minami-Kyushu, Inc.
Lawson Kochi, Inc.

Entertainment
business

Lawson HMV Entertainment, Inc.*1 Consolidated subsidiary(Consolidated subsidiary ofUnited Cinemas Co., Ltd.

Financial services
business

Lawson ATM Networks, Inc.*2
Lawson Bank Preparatory
Company Inc.*3

Consolidated subsidiary
Consolidated subsidiary

Consulting business

BestPractice, Inc.

Consolidated subsidiary

Overseas business

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

Saha Lawson Co., Ltd.

Consolidated subsidiary(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

Share information As of February 28, 2018/Non-consolidated
Authorized shares409,300,000

Shares issued

100,300,000

Shareholders

36,536

Stock exchange
listings

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

Shareholder name50,15050.1

The Master Trust Bank of Japan, Ltd.
2
(Trust account)

3,338

3.3

SEIJO ISHII businessJapan Trustee Services Bank, Ltd.
(Trust account)

2,994

3.0

*1.	Lawson HMV Entertainment, Inc. was renamed Lawson Entertainment, Inc. on June 1, 2018.
*2.	Lawson ATM Networks, Inc. was integrated into Lawson Bank Preparatory Company Inc. on June 1, 2018.
*3. Lawson Bank Preparatory Company Inc. was renamed Lawson Bank, Inc. on July 2, 2018.

3

Distribution of shareholders by type

4 NTT DOCOMO, INC.

2,092

2.1

STATE STREET BANK WEST CLIENT —5
TREATY 505234

1,567

1.6

6 THE BANK OF NEW YORK 133972

1,250

1.3

7 JP MORGAN CHASE BANK 380655

1,204

1.2

1,001

1.0

18.1%

Other domestic entities

53.1%

Individuals, others 10.5%

8
9Securities companies

2.1%

Foreign entities

16.0%

Treasury shares

0.2%

Beijing Lawson, Inc.

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
Consolidated subsidiary
Consolidated subsidiary
Equity-method affiliate
Equity-method affiliate
Equity-method affiliate

Lawson HMV Entertainment, Inc.)

Chongqing Lawson, Inc.

Major shareholders (Top 10)

Tokyo Stock Exchange (1st Section)

Name of company

Domestic convenience
store business

National Mutual Insurance Federation ofAgricultural Cooperatives
Japan Trustee Services Bank, Ltd.
(Trust account 5)

Mitsubishi UFJ Morgan Stanley PB
10Securities Co., Ltd.

952
923

1.0
0.9

*The above percentages of total shares held were calculated after excluding
244,849 treasury stocks.

LAWSON46

Executive Officers As of March 1, 2018
Senior Executive
Vice President
Executive Vice President

Jun Miyazaki

Senior Vice President

Yasuhiko Hirokane

Shuichi Imagawa

Senior Vice President

Keita Kamoi

Executive Vice President

Yuichi Wada

Senior Vice President

Zhang Joshua

Motonobu Miyake

Senior Vice President

Toshihiko Chihiro

Senior Vice President

Akihito Watanabe

Senior Vice President

Hajime Kawamura

Senior Vice President

Tatsushi Sato

Senior Vice President

Yasuhiro Izeki

Senior Vice President

Kazuya Nobe

Senior Vice President

Naotaka Honda

Senior Vice President

Hitoshi Fujii

Senior Vice President

Masayuki Sawada

Senior Vice President

Senior Vice President

INTEGRATED REPORT 2018

Kazuhiro Wakui(Excluding directors’ additional posts)

Store Network Development As of February 28, 2018
Total number of stores (domestic
and overseas total)

15,728 stores

Number of domestic stores

14,132 stores

Main businesses and services As of February 28, 2018

Number of overseas stores

A neighborhood store "Creating Happinessand Harmony in Our Communities” throughits manufacturing retailer based on a small
commercial area model

1,596 stores

Beijing 73 stores

Dalian 122 stores

Chongqing 165 stores

A nearby store supporting “beautiful,healthy and comfortable“ lifestyles basedon the concept of “making the most of
every day”

Operating companies

Operating company

Lawson, Inc.
Lawson Okinawa, Inc.
Lawson Minamikyushu, Inc.
Lawson Kochi, Inc.
Lawson Sanin, Inc.

Lawson, Inc.

A store that contributes to savings andan easy, convenient daily life by selling a
range of products such as fresh foods,
prepared foods and daily necessities ata uniform price of 100 yen (108 yen,including tax)

A lifestyle supermarket for people whoare particular about food, providing foodfrom around the world at reasonable world
street corner prices
Operating company

Seijo Ishii Co., Ltd.

Operating company

Lawson Store 100, Inc.

Thailand 101 stores

Shanghai 865 stores
23 farms nationwide producing fresh fruitand vegetables for Lawson Group stores

Wuhan 198 stores
Philippines 33 stores

Operating companies

Individual LAWSON farms

Hawaii 2 stores

Provision of ticket sales services for a
full range of entertainment, includingmusical & sports events, theaters, leisurefacilities and cinemas, as well as planningand agency services for fan clubs, event
planning & production (sponsorshippromotions, investment promotions) andothersOperating company

Lawson HMV Entertainment, Inc.*1

Indonesia 37 stores
A company selling music and movie CDs& DVDs, books and related goods (throughstores & e-commerce) as well as planningand producing events and museum
exhibitions in stores*	The number of domestic stores represents the total number of LAWSON, NATURAL LAWSON and LAWSON STORE100
stores operated by Lawson, Inc.; LAWSON stores operated by Lawson Sanin, Inc., Lawson Okinawa, Inc., Lawson
Minami-Kyushu, Inc., and Lawson Kochi, Inc.; and 3 Seijo Ishii stores operated directly by SEIJO ISHII, CO., LTD.
	The number of overseas stores represents the total number of LAWSON brand stores managed by operating companies
in the respective regions.

Operation of cinema complexes (multiplex
movie theaters) offering not only film
entertainment but also such enrichingexperiences as 4DX® (experiential viewing)
and various contents other than movies

Operating company

Operating company

Lawson HMV Entertainment, Inc.*1

United Cinemas Co., Ltd.

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

A service based in LAWSON stores, thatdelivers products handled by the Lawson
Group and home-delivery items handled
by Sagawa Express Co., Ltd. and provides
other services related to shopping andhousing/living.

Operating company

Lawson ATM Networks, Inc.*2

Operating company

SG Lawson, Inc.

*1:	Corporate name changed to Lawson Entertainment, Inc., as of June 1, 2018.
*2:	Jointly operated ATM business operations integrated into Lawson Bank Preparatory Company, Inc. (currently Lawson Bank, Inc.), as ofJune 1, 2018.

LAWSON47

INTEGRATED REPORT 2018

2018 MD&A
Management’s Discussion and Analysis

1 Eleven-Year Financial Summary

12 Capital Expenditures (Including Investments/Advances and Lease Asset Acquisition Costs)

3 Industry Trends

12 Cash Flows

4 Management Policies for Fiscal 2018

12 Capital Policy: Dividend and Treasury Stock Retirement

4 Overview of Merchandise and Services

13 Overview of major consolidated subsidiaries and equity method affiliates

4 Overview of Store Operations

18 Future Outlook

5 Overview of Store Development

19 Consolidated Balance Sheet

6 Other Initiatives in Our Convenience Store Business21 Consolidated Statement of Income

7 Overview of Sales Figures

22 Consolidated Statement of Comprehensive Income

8 Other Businesses

23 Consolidated Statement of Changes in Equity

9 Items of the Consolidated Statement of Income

25 Consolidated Statement of Cash Flows

10 Items of the Consolidated Balance Sheet

26 Notes to Consolidated Financial StatementsEleven-Year Financial Summary(Millions of yen)

2017

2016

2015

¥

289,232¥
264,734
103,357
657,324
65,82026,828113,938（91,209）（61,238）
140,495
58,601

275,312¥254,169
101,806
631,288
73,77236,40099,864（76,227）（25,638）
119,784
56,199¥900,256
281,44630.6%
30,12013,992
10,028¥866,577
285,995
31.7%
67,692
13,111
9,403

¥

268
255
95.1%

¥

363
250
68.7%

(Fiscal year)

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

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)
Per share data:
Net profit (yen/ U.S. dollars 1)
Cash dividends (yen/ U.S. dollars 1)
Payout ratio
Financial data:
Return on equity (ROE)
Return on assets (ROA)
Net sales of all stores(Domestic convenience store business ):Net sales by store format 3 4Franchise storesCompany-operated stores
Net sales by product category 3 4
		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

2014

2013

2012

2011

2010

2009

261,681¥247,681¥
227,606
174,044
94,16676,188583,453497,91372,54270,482
31,381
32,687112,205
110,568（68,657）（100,434）（50,201）（3,289）106,747
141,251
49,293
41,826

242,079¥
168,159
75,010485,248
68,12737,966
81,503（47,924）（39,650）
84,03247,889230,003¥
192,942
64,500487,445
66,24633,18385,189（54,196）（31,980）
77,36143,886

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（42,596）（27,239）
71,39927,468¥803,212272,997
32.9%
69,793
12,395
8,377¥

764,614
263,798
33.5%
76,755
12,276
7,606¥

620,993
250,498
39.5%
68,76011,606
6,336¥

579,810230,182
39.1%
72,766
11,1306,404¥

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

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

¥

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

¥

314
245
78.1%

¥

327
240
73.4%

¥

380
220
57.9%

¥

332
200
60.2%

¥

249
180
72.2%

¥

255
170
66.8%

¥

127
160
126.3%

9.7%
3.0%

13.5%
4.4%

12.0%
4.0%

13.0%
4.7%

16.1%
6.3%

15.2%
6.0%

12.0%
4.9%

12.8%
5.5%

6.5%
2.8%

¥ 2,069,609
91,075¥ 1,958,550
84,736¥ 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

1,138,966
509,415
314,481
197,821¥ 2,160,684
2.9%

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%

Notes: 1. The U.S. dollar amounts represent Japanese yen exchange rate against the US dollar as of February 28, 2018 ($1 = ¥107.37).
2. These figures include depreciation and amortization of intangible assets.
3. These figures include sales reported by franchise stores and are unaudited.
4. Net sales for the fiscal years 2016 and 2017 represent sales by stores operated by Lawson, Inc. as well as those by Lawson Sanin, Inc.
5. Japanese yen figures less than a million yen were rounded down to the nearest million yen.

1

Lawson, Inc. MD&A 2018

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

2008

¥

¥

¥

2007

2017

186,928¥
119,944
42,604349,476
49,18623,80751,717（15,647）（14,911）42,907
20,879177,443
84,266
39,468301,177
46,61022,11955,771（36,525）（31,973）
64,413
21,469$ 2,693,797
2,465,633
962,625
6,122,055
613,030
249,874
1,061,181(849,492)(570,355)
1,308,512
545,785

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

397,108
188,574
46.6%
62,823
8,587
3,735$ 8,384,614
2,621,272

240
160
66.6%

¥

¥

215
110
51.2%

Net sales of all stores(Domestic convenience store business)

Operating profit(billions of yen)
2,500

2,000

68.1

1,937.2 1,932.7 1,960.2

2,043.2

Net profit(billions of yen)
80(billions of yen)
40

70.4

72.5

37.9

73.7

36.3

65.8

2,160.6

32.6

60

30

40

20

20

10

26.8

1,500

1,000

500

0

2013

2014

2015

2016

2017

0

(Fiscal year)

2013

2014

2015

2016

0

2017

2013

2014

2015

2016

(Fiscal year)

2017(Fiscal year)

280,535

Total assets
$

2.50
2.37

(billions of yen)
300

250.4

263.7

272.9

285.9

281.4

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

Dividends and payout ratio
ROE

(%)
20.0

ROA

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

(yen)
300

240

11.6%
5.6%

15.0

200

$ 22,221,391
977,872

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%

10,607,860
4,744,481
2,928,946
1,842,423$ 20,123,721

250

255
80

220
68.7

180

12.0

60

57.9

9.7

6.3

100

245
78.1

10.0

¥ 1,331,785
83,321

240

73.4

13.5

13.0

¥ 1,434,166
124,614

(%)
100

95.1

16.1

12.5%
5.7%

31.3

120

40

60

20

5.0

4.7

0

2013

2014

2015

2016

2017

(Fiscal year)

0.0

2013

2014

4.0

2015

4.4

3.0
2016

2017

(Fiscal year)

0

2013

2014

2015

2016

2017

0

(Fiscal year)

Lawson, Inc. MD&A 20182

Financial Section

Management’s Discussion and Analysis
Industry Trends
Japanese economy enjoyed a moderate recovery in fiscal 2017 (from March 1, 2017 to
February 28, 2018) thanks to the effects of the government’s economic policy package andthe improvement in the employment and income environments. In the retail industry, consumer
confidence showed signs of recovery.
Under these circumstances, as there were changes in dietary life due mainly to diversified
life styles, the country's convenience store industry expanded the range of products that
respond to customer needs in the calendar year 2017 (January to December). Industry-widesales amounted to 11,745.1 billion yen, up 2.6% from the previous year. However, net sales ofexisting stores decreased by 0.3% compared to the previous year due to fiercer competition
with other businesses and bad weathers such as typhoons in October. The total number ofstores as of the end of December 2017 stood at 56,374 up 1.3% year on year.
■ Retail industry market size and convenience store share 1
2017

2016

2015

2014

2013

(Billions of yen)

2012

2011

2010

2009

2008

2007

Total retail industry annual
142,514 139,877 140,666 141,219 138,897 137,585 135,157 136,479 132,961 136,019 135,417
sales
Convenience store sector
annual sales
Convenience store share

11,745
8.2%

11,445
8.1%

10,995
7.8%

10,423
7.3%

9,872
7.1%

9,477
6.9%

8,775
6.5%

8,114
5.9%

7,981
6.0%

7,943
5.8%

7,490
5.5%

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 compiledin March 2013.

■ The net sales of all stores among the top four chains in the convenience store industry 1(Billions of yen)

2017

2016

2015

2014

2013

2012

2011

2010

2009

2008

2007

Lawson

2,283

2,157

2,049

1,961

1,945

1,907

1,826

1,683

1,666

1,559

1,415

Seven-Eleven Japan

4,678

4,515

4,291

4,008

3,781

3,508

3,281

2,948

2,785

2,763

2,574

2,006

1,860

1,722

1,585

1,535

1,440

1,274

1,246

1,122

975

944

951

947

980

923

902

940

902

FamilyMart
Circle K Sunkus
Total of the top 4 chains
Total market share of the
top 4 chains

※2

3,016

3,009

9,977

9,682

9,321

8,773

8,399

7,947

7,622

6,994

6,627

6,508

6,013

84.9%

84.6%

84.8%

84.2%

85.1%

83.9%

86.9%

86.2%

83.0%

81.9%

80.3%

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 inconvenience store sector annual sales on a calendar-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.

3

Lawson, Inc. MD&A 2018

■ Number of convenience stores

Number of convenience
stores(Stores)

2017

2016

2015

2014

2013

2012

2011

2010

2009

2008

2007

56,37455,63654,50552,72550,23447,801

43,37342,347

41,72440,74540,405

Source: “Current Survey of Commerce,” Ministry of Economy, Trade and Industry■ Non-consolidated operating results(Fiscal year)
Net sales of all stores2017
2,110,454

As a percentage
of all stores(Millions of yen)

2016

2015

2014

2013

100.0% 2,027,504 100.0% 1,960,267 100.0% 1,932,798 100.0% 1,758,656 100.0%

Gross operating
revenues

372,89117.6%

356,18617.5%

333,85617.0%

316,340

16.4%

298,779

17.0%

Gross operating profit

335,792

15.9%

325,71616.0%

308,88915.7%

293,93815.2%

275,44215.7%

284,771

13.5%

268,29613.2%

251,64212.8%

232,97212.1%

213,999

12.2%

13,8080.6%

14,705

0.7%

8,227

0.4%

9,023

0.5%

Selling, general andadministrative expenses
Advertising andpromotional expenses

12,546

0.6%

Personnel expenses

44,722

2.1%

41,5272.0%

39,2482.0%

36,6911.9%

35,8522.0%

Facility expenses

160,243

7.6%

150,182

7.4%

142,073

7.2%

132,941

6.9%

123,444

7.0%

Other SG&A
expenses

67,2603.2%

62,7793.1%

55,616

2.8%

55,1122.9%

45,680

2.6%

Operating profit

51,021

2.4%

57,4192.8%

57,2472.9%

60,966

3.2%

61,443

3.5%

Recurring profit

50,5082.4%

56,4592.7%

54,9832.8%

61,6493.2%

62,171

3.5%

Net profit

19,4170.9%

19,0880.9%

21,802

1.1%

26,2001.4%

33,625

1.9%

Management Policies for Fiscal 2017

In addition to these merchandise-upgrading efforts, Lawson enhanced services. Sales ofgift cards* remained strong.

During fiscal 2017, we have advanced and accelerated the “1000-Day Action Plan”, whichis in its second year, built the Next-Generation LAWSON Convenience Store model andimplemented business activities. Today’s convenience store industry is in a period of dramaticchange. Not only are we witnessing such changes in the community as an aging population
and an increasing number of nuclear families, but we are also experiencing a drastic change
in our industry. Having reached an important milestone, we will advance the evolution of
our business model founded on the concept of a Manufacturing Retailer Based on Small
Commercial Areas and realize sophisticated, one-of-a-kind store productivity. At the same time,
we will continuously pursue “to become an essential part of our communities” that can satisfy
customers’ everyday needs.

As a sales promotion initiative, we held Lawson Tokuichi! campaign, where a 10%
discount was offered on “Lawson Select” chilled/frozen foods as well as some items offeredin the counter cases, as part of our efforts to increase the number of purchased items per
customer.
We held the sales promotions which were highly capable of attracting customers such as
the Instant Lottery themed on GENERATIONS from EXILE TRIBE, a lottery program in which
Lawson leveraged its strength in the entertainment field, and utilization of social media.
* Gift cards: Collective terms for prepaid cards that can be used for online payments

Overview of Merchandise and Services

Overview of Store Operations

We upgraded the assortment of merchandise mainly in the daily purchased categories suchas daily delivered foods and frozen foods under the private Lawson Select brand. We also
reinforced our product offerings in the delicatessen category including salads. Convenience
store staples such as rice balls and boxed meals saw steady sales as a result of the full renewalof the original rice ball brand “Onigiriya”. New initiatives were also successful. For example,
we reconsidered ingredients and preparation methods for regular boxed meals under the“Korega” series. We launched products under the “Motto! Yasai” series which propose healthconsciousness by allowing customers to easily consume vegetables. Sales of these products
were strong.
LAWSON stores sell desserts under the “Uchi Café SWEETS×GODIVA” series, craftedwith ingredients of uncompromising quality. Until now, seven products are co-developed with
GODIVA, realizing a total of five collaborations. The products have been popular especiallyamong female customers.
In the over-the-counter fastfood category, Deka Yakitori (Mega grilled chicken on a skewer)with enhanced savory aroma and deliciousness and Lchicki (fried chicken) with increased
volume have been popular. Lawson is introducing the new coffee brewing machines for MACHI
café fresh-brewed coffee which allow us to reduce brew time from about 40 to 25 seconds
and expand the range of offerings. We plan to subsequently replace the machines with the newmodels for approximate 14,000 stores, with the aim to provide more delicious coffee faster.

In store operations, we continued to enhance the Three Essential Practices of (1) serving
customers courteously; (2) providing a quality product offering that meets community
needs; and (3) keeping our stores and communities clean. We enhanced the assortment ofmerchandise in both existing stores and new stores. We also made aggressive improvement
such as store operations and systems for franchise support by headquarters.
In October 2017, we opened the Lawson Open Innovation Center which is a laboratory toverify practical applications of next-generation IT technologies at stores. Several stores in theTokyo metropolitan area will start testing of fully automated self-checkout registers with the aimof saving manpower during midnight hours. We will continue to utilize diverse technologies tobuild the Next-Generation LAWSON Convenience Store model.

Lawson, Inc. MD&A 20184

Overview of Store Development
In developing (opening) new stores, the Group continued to prioritize profitability.
The total number of LAWSON, NATURAL LAWSON, and LAWSON STORE100 stores
opened and closed in Japan during the fiscal year under review stood at 1,250 and 369 stores,
respectively, with the total number of stores in the country reaching 13,992 as of the end of
February 2018.*
Of the stores above, in partnerships with other convenience store chain operators, underbusiness integration or other contracts with them, we are converting THREE F and otherstores operated by Three F Co., Ltd. into the LAWSON THREE F brand and SAVE ON storesoperated by Save On Corp. into the LAWSON brand, respectively. We converted 195 stores
into LAWSON THREE F stores and 125 Save On stores into LAWSON stores as of the endof February 2018. We will continue to remodel SAVE ON stores on a step-by-step basis andcomplete the remolding during fiscal 2018.
Furthermore, through partnerships with prescription drug pharmacy and drug store chains,
we continued to expand healthcare-focused stores offering a wider merchandise selection thanin ordinary LAWSON stores, by adding such items as non-prescription drugs, cosmetics, anddaily necessities. The number of LAWSON stores offering non-prescription drugs, including
such healthcare-focused stores, reached 176 as of the end of February 2018 (of which 47
stores were Pharmacy Lawson stores equipped with drug-dispensing pharmacies).
The number of LAWSON stores with a nursing care consultation counter reached 16 as ofthe end of February 2018.
As for LAWSON STORE100, we will continue to meet customer needs for good value
by offering a product assortment containing an increased proportion of adequate-volume andsmall-lot products priced at 100 yen excluding tax.
* The numbers of openings and closings and the total number of stores in Japan include the number of stores operated by
Lawson, Inc., stores run by our subsidiary Lawson Sanin, Inc., and stores operated by Lawson Kochi, Inc., Lawson MinamiKyushu, Inc., and Lawson Okinawa, Inc. which are equity-method affiliates.

■ Number of convenience stores in JapanStores

2017

2016

2015

2014

2013

Total number of stores

13,992

13,111

12,395

12,276

11,606

Openings

1,250

1,143

1,007

1,010

869

Closings

369

427

888

422

393

Net increase

881

716

119

588

476

(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. MD&A 2018

Share

2016
StoresStores2015
Share

StoresShare

Lawson, Inc.
Company-operated stores
LAWSON

284

2.0%

82

248

1.9%

166

1.3%

NATURAL LAWSON

28

0.2%

0

30

0.2%

30

0.2%

Type B

1,616

11.5%

115

1,306

10.0%

1,191

9.6%

Type G

1,582

11.3%

-141

1,680

12.8%

1,821

14.7%

Type CFranchise stores

8,715

62.3%

356

8,115

61.9%

7,759

62.6%

NATURAL LAWSON

115

0.8%

7

111

0.8%

104

0.8%

LAWSON STORE100 1

805

5.8%

-11

798

6.1%

809

6.5%

13,14593.9%

408

12,28893.7%

11,88095.8%

Subtotal
Lawson Sanin, Inc. 2
Company-operated storesFranchise stores
Subtotal

5

0.0%

5

5

0.0%

―

―

285

2.0%

282

282

2.2%

―

―

290

2.1%

287

287

2.2%

―

―

Lawson Kochi, Inc. 3
Company-operated storesFranchise stores
Subtotal

3

0.0%

0

5

0.0%

5

0.0%

136

1.0%

3

130

1.0%

127

1.0%

139

1.0%

3

135

1.0%

132

1.1%

Lawson Minami-Kyushu, Inc.
Company-operated storesFranchise stores
Subtotal

2

0.0%

0

1

0.0%

1

0.0%

192

1.4%

-1

190

1.4%

191

1.5%

194

1.4%

-1

191

1.5%

192

1.5%

3

0.0%

Lawson Okinawa, Inc.

Franchise stores(Stores)

Net increasein the term

2017

(Fiscal year)

Company-operated stores■ Number of stores in the convenience store business in Japan(Stores)

Subtotal
Total number of convenience storesin Japan

1

3

0.0%

2

0.0%

221

18

207

1.6%

189

1.5%

224

19

210

1.6%

191

1.5%

429

13,111100.0%

12,395100.0%

13,992100.0%

Notes: 1. The number of stores of LAWSON STORE 100 includes that of LAWSON STORE 100 and Lawson Mart.
2. In November 2016, Lawson, Inc. transferred 234 stores to Lawson Sanin, Inc.
3. In April 2015, Lawson, Inc. transferred 128 stores to Lawson Kochi, Inc.

Financial Section

Other Initiatives in Our Convenience Store BusinessWe continue to build the Open Platform utilizing the service network for LAWSON's store-based
merchandise receipt and home delivery, and are striving to provide improved convenience tocustomers.
At the initiative of the Ministry of Economy, Trade and Industry, Lawson has formulated

the “Declaration of Plan to Introduce 100 Billion Electronic Tags for Products in Convenience
Stores” with each convenience store chain operator. We will utilize the electronic tags with theaim of making store operations more efficient and providing improve convenience to customers.

■ Types of Lawson contracts■ Types LAWSON STORE100 contracts(Previous contracts)

Contract typeC

Contract typeG

Contract termB

10 years from store opening day

Requirements for FC owners

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

Contract storesLand and buildings

Provided by headquarters

Prepared by a franchise store

Investment in store construction andinterior decoration expenses

Borne by headquarters

Borne by a franchise store

Signs and business fixtures
Payment by a franchise
store at time of contract 1

Provided by headquarters
Franchise fee¥1.5 million (Contract fee, training expenses, and store opening preparation commission, each ¥500,000) (excluding tax)

Investment¥1.5 million (Including payment for some merchandise purchased on behalf of the store)

Guarantee deposit provided by a franchise store
Headquarters income2

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
Minimum guarantee (annual) (thousands of yen)

21,00022,20022,200(New contracts)
Cn

Contract type
Contract term

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 andinterior decoration expenses

Borne by headquarters

Borne by a franchise store

Signs and business fixtures
Payment by a franchise
store at time of contract 1

Necessary
expenses

Provided by headquarters
Franchise ¥1.0 million (Training expenses, and store opening preparation commission, each ¥500,000)
fee(excluding tax)

Headquarters will bear the following percentage of clearance and disposal costs according to their
proportion in merchandise sales:
Partial guarantee for expenses• Greater than 2.0% up to 3.0%: 20%
associated with product disposal losses• Greater than 3.0% up to 4.0%: 30%• Greater than 4.0%: 55%

VL-J

VL-B

Provided by headquarters

A franchise store uses its own
land and building

New opening stores or stores already being operated by thecompany

Land and building owned by afranchise store

10 years from store opening day
Franchise fee ¥1.0 million (excluding tax)
Payment by afranchise store at time Breakdown	Contract fee ¥250,000/Training expenses ¥250,000/Store opening preparationcommission ¥500,000
of contract 6
Other expenses
Store construction
and interior decoration
expenses
Business fixtures

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

Borne by a franchise store

Provided by headquarters

Minimum guarantee 7¥20.4 million per year

¥22.2 million per year

Headquarters income 7[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%

Gross profit x 27%

Support to franchise stores (Operating
expenses of a franchise store partiallyborne by headquarters)

Headquarters will bear the following percentage of clearance anddisposal 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.

̶Bn

10 years from store opening day

Requirements for FC owners

Contract term

Investment

A franchise store

2

Land and buildings

Notes: 6.	The amount is paid by the franchise store to headquarters at the time of the franchising contract.
7. The minimum guarantee and headquarters income apply to stores operating on a 24-hour basis.

[Charge] 4, 5Multiply by one of the following
charge rates according to gross profit¥3.0 million or less: 41%¥4.5 million or less: 36%¥6.0 million or less: 31%
Greater than ¥6.0 million: 21%

Headquarters income 2

The following percentage of gross profit:• ¥3.0 million or less: 45%• Greater than ¥3.0 million up to ¥4.5 million: 70%• Greater than ¥4.5 million: 60%

Burden of utility expenses

50% 3 of electricity expenses and store air conditioning energy expenses are borne by headquarters

Minimum guarantee (annual) 2¥18.6 million¥19.8 million

Notes: 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.
4. Gross profit on a monthly basis
5. Add 3% uniformly for shortened-hour stores

Lawson, Inc. MD&A 20186

Overview of Businesses in Figures
Net Sales
Net sales of all LAWSON stores (consolidated) for fiscal 2017 amounted to 2,283,600 million
yen (up 5.8% from the previous fiscal year). This year-on-year sales growth was achieved as
the number of LAWSON stores in Japan increased to 14,132 (including the stores of all Group
companies and those of the Seijo Ishii business), a gain of 889 compared to the previous fiscal
year, among other factors.
Sales of existing stores for fiscal 2017 (non-consolidated basis) decreased by 0.1% fromthe previous fiscal year and did not reach the plan mainly because the competitive environment
became fiercer across boundaries of business categories and the average number of customers
was sluggish due to impact by bad weathers such as typhoons in October.
The average spending per customer increased from the previous fiscal year thanks
to an increase in the number of purchased items per customer, as we have expanded the
product offerings that enhance support for customers’ everyday needs since fiscal 2016 and■ YoY changes in net sales of existing stores, average number of customers and average spending

per customer (total of domestic convenience stores)（%）
110

reinforced promotions on purchases in evenings and at night such as the increased number ofdelicatessen items.
Regarding consolidated results by product category, the main categories of which both net
sales of all stores and existing stores exceeded the previous year results are as follows.
Sales of prepared noodle dishes and delicatessen items in the fast food category
increased from the previous fiscal year, as a result of strong sales of renewed pasta dishes andenhanced assortment of salads.
In the daily delivered food category, sales of the supermarket alternative products we have
expanded since fiscal 2016 remained strong. As a result, sales of daily delivered foods, frozen
foods and ice cream increased.
In the dessert category, sales of the dessert category grew from the previous fiscal year, as
desserts such as a total of five collaborations with GODIVA were popular.
In the processed food category, sales of soft drinks grew, driven by the successful Receipt
Stamp Campaigns during the first half of fiscal 2017. Sales of cigarette products also grew fromthe previous fiscal year due mainly to increased sales of heat-not-burn tobacco products andrelated items.
■ Sales by product category (Consolidated, total net sales in Japan)

105(Fiscal year)

101.5 100.5

10098.9 98.8

95
90

2015

2014

2013

484.9 24.5%

464.8 24.5%

450.5 24.7%

412.2 23.5%

391.5

Daily delivered foods (share)

268.0 13.5%

251.4 13.3%

235.6 12.9%

227.4 12.9%

219.7

12.6%

Processed foods (share)

1,043.0 52.7%

995.3 52.6%

960.8 52.8%

941.5 53.6%

957.0

54.9%

(Cigarettes) (share)

498.6 25.2%

471.9 24.9%

460.0 25.3%

462.8 26.3%

474.1

27.2%

182.9

182.1

174.0

9.6%

175.9 10.0%

176.5

10.1%

1,821.1 100.0%

1,757.2 100.0%

Non-food products (share)

9.3%

1,979.0 100.0%

9.6%

1,893.7 100.0%

2012

2013

2014

2015

Average number of customers

2016

2017

Average spending per customer■ Growth rate of net sales of existing stores, average number of customers, and average spending

per customer (Non-consolidated) *(Fiscal year)
Net sales of existing stores (YoY)

2017

2016

2015

2014

2013

99.9%

99.8%

101.4%

99.0%

99.8%

Average number of customers

98.7%

99.0%

100.9%

98.0%

99.0%

Average spending per customer

101.3%

100.8%

100.4%

101.0%

100.8%* The total of LAWSON and NATURAL LAWSON.

Lawson, Inc. MD&A 201822.4%

1,744.7 100.0%

1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q
Net sales of existing stores

7

2016

Fast foods (share)

Net sales of all stores (share)

0

2017

(Billions of yen)

■ 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, etc.

Financial Section

Other Businesses
Gross profit margin by product category (Non-consolidated basis)*
The gross profit margin stood at 31.3%, up 0.1% from the previous fiscal year and down 0.2%
compared to the plan. This was mainly attributable to the fact that sales of cigarette productswith a lower gross profit margin exceeded the plan while sales of the over-the-counter fast
foods with a higher gross profit margin did not reach the plan.
* The total of LAWSON and NATURAL LAWSON.

■ Gross profit margin by product category (Non-consolidated) *
2017

2016

2015

2014

2013

Fast foods

38.3%

38.4%

38.4%

38.9%

38.9%

Daily delivered foods

33.9%

34.0%

34.0%

34.1%

34.1%

Processed foods

24.0%

24.1%

24.0%

24.1%

24.0%

Non-food products

50.1%

49.1%

49.7%

48.9%

47.7%

Gross profit margin

31.3%

31.4%

31.3%

31.3%

31.0%

(Fiscal year)■ Third party bill settlement services (Non-consolidated) *(Fiscal year)
Bill settlements (millions of yen)

2017

2016

2015

2014

2013

2,263,937

2,132,450

2,088,693

2,073,049

1,979,384

Number of transactions (millions)

208.6

202.0

198.3

198.9

196.1

Commission revenues (millions of yen)

11,154

10,788

10,671

10,77910,585In addition to the domestic convenience store business, the Group is also involved in other businesses,
including the entertainment-related business, Seijo Ishii business, overseas business, and financial
services business.
With regard to entertainment-related business, Lawson HMV Entertainment, which forms thecore of the business, continued to secure the top position in the ticketing industry. The number of
HMV stores which sell music CDs and DVDs totaled 54 as of the end of February 2018. This figure
includes the HMV record shop specialized in second-hand analog records and CDs. We will strive tobetter respond to customer needs by, for example, expanding an even wider selection of products andservices in the entertainment-related business. United Cinemas Co., Ltd. operates a total of 40 sites
and 351 screens at its cinemas nationwide (including screens operated on commission) as of the end of
February 2018.
Regarding the Seijo Ishii business, the company-operated stores of Seijo Ishii, an operator ofhigh-end supermarkets that are highly particular about taste and quality, totaled 140 as of the end of
February 2018. Sales remained strong. In September 2017, we opened the first grocerant in a fusion of asupermarket and a restaurant in Chofu City, Tokyo. As the place which offers the dishes using seasonal
unique products of Seijo Ishii, the grocerant has been used by a wide range of customers. We will further
strive to enhance the brand appeal and corporate value of SEIJO ISHII CO., LTD. At the same time, wewill leverage its strengths, including product development capabilities, knowhow as a manufacturingretailer, and sales techniques, in order to strengthen the domestic convenience store business.
With regard to the overseas business, LAWSON stores are operated by regional operators in
Thailand, Indonesia, the People’s Republic of China, the Philippines and Hawaii in the United States.
In the People’s Republic of China, the Group has opened stores in Chongqing, Dalian, Beijing,
Wuhan, Nanjin and other cities as the first Japanese convenience store opened in Shanghai. As of theend of February 2018, the total number of LAWSON stores in the People’s Republic of China was 1,423.
In 2018, we will open stores in Hefei, Anhui Province.
Lawson ATM Networks, Inc., which operates the financial services business, increased thenumber of ATMs installed at LAWSON stores and other locations. We promoted new partnerships withfinancial institutions, bringing the total number of our financial institution partners, including online banks,
to 90 nationwide (up three from the end of the previous fiscal year), and the number of ATMs installed
nationwide to 12,733 (up 821 from the end of the previous fiscal year) as of the end of February 2018.
Through Lawson Bank Preparatory Company, Inc. (“LBP”), the company established in November
2016, we had prepared for establishing a bank leveraging Lawson’s previous experience in financial
service. In March 2018, LBP decided to apply for the Preliminary Examination of License of Banking
Business to Financial Services Agency.
* Effective June 1, 2018, LBP succeeded to the joint ATM business of Lawson ATM
Networks, Inc. through an absorption-type company split. Following the completion ofPreliminary Examination, LBP will change its corporate name to Lawson Bank, Inc. andcontinue to apply to the Financial Services Agency for the License of Banking Business.

Lawson, Inc. MD&A 20188

Items of the Consolidated Statement of Income
Gross Operating Revenues
For the year ended February 28, 2018, gross operating revenues consisting of net sales,
franchise commissions from franchise stores, and “Other” stood at 657.3 billion yen, an
increase of 26.0 billion yen, and 14.6 billion yen short of the plan. Of these items, net sales
amounted to 264.7 billion yen, higher year on year,
This was mainly attributable to the fact that net sales increased as revenues of franchise
stores increased due to the increased number of convenience stores in Japan and the numberof Company-operated, non-consolidated stores increased, among other factors.
Selling, General, and Administrative Expenses
For the year under review, consolidated selling, general, and administrative expenses stood at
410.1 billion yen, an increase of 26.8 billion yen compared to the year-ago period, and approx.
4 billion yen short of the plan.
This increase was attributable to the fact that selling, general, and administrative expenses
increased on a non-consolidated basis and at Lawson Sanin, Inc. which started business inNovember 2016, among other factors.
Non-consolidated selling, general, and administrative expenses amounted to 284.7 billion
yen, an increase of 16.4 billion yen, compared to the year-ago period, and approx. 3.7 billion
yen short of the plan.
Non-consolidated advertising and promotional expenses decreased by 1.2 billion yen fromthe previous fiscal year to 12.5 billion yen, but increased by 200 million yen compared to theplan, due mainly to the reaction to an upsurge of costs in the previous fiscal year as part of ourinitiative to assist consumers’ living.
Non-consolidated personnel expenses amounted to 44.7 billion yen,This was attributable to a growth in the number of Company-operated stores andan increase in headquarter employees for reinforcing systems, among other factors. Nonconsolidated personnel expenses showed an increase of 3.1 billion yen compared to the yearago period, yet came in 100 million yen short of the plan.
Non-consolidated sales commission consists mostly of the costs associated with foodwaste and electricity expenses. These costs and expenses are paid partially by headquarters
based on franchise contracts. Non-consolidated sales commission was 19.7 billion yen, an
increase of 3.9 billion yen compared to the year-ago period but 100 million yen below the plan.
This was mainly attributable to the fact that the number of stores increased and the Company
supported franchise stores aggressively.

9

Lawson, Inc. MD&A 2018

■ Breakdown of Selling, General, and Administrative expenses(Fiscal Year)
Personnel expenses
Percentage composition
Advertising and promotional expenses(Millions of Yen)

2017

2016

2015

2014

2013

79,13573,893

68,99460,84758,990

19.3%

19.2%

19.4%

20.3%

20.3%

26,00130,59429,461

16,71817,734

6.3%

7.9%

8.3%

5.6%

6.1%

124,387

115,926

108,795

96,87789,485

30.3%

30.2%

30.6%

32.3%

30.8%

2,796

2,149

2,763

3,579

4,494

Percentage composition

0.7%

0.5%

0.8%

1.2%

1.5%

Depreciation and amortization

58,49955,51649,157

41,78847,889Percentage composition

14.3%

14.5%

13.8%

14.0%

16.5%

47,59544,65240,27032,95937,872

Percentage composition
Rent
Percentage composition
Equipment lease	Depreciation of property and store
equipment
Percentage composition

11.6%

11.6%

11.3%

11.0%

13.0%

Amortization of intangible assets

10,903

10,864

8,886

8,830

10,017				Percentage composition

Other
Percentage composition
Total
Percentage composition

2.7%

2.8%

2.5%

3.0%

3.5%

119,311105,182

95,791

79,506

71,892

29.1%

27.4%

27.0%

26.6%

24.8%

410,129

383,260

354,961

299,315

290,483

100%

100%

100.0%

100.0%

100.0%

Non-consolidated information technology (IT) costs stood at 7.2 billion yen, a decreaseof 2.1 billion yen compared to the year-ago period and 2.2 billion yen short of the plan, which
was attributable to the fact that the costs required for existing systems decreased further andpart of the costs would be recorded after next fiscal years due to partial schedule changes indevelopment of next-generation systems.
Non-consolidated facilities costs totaled 155.6 billion yen, an increase of 11.3 billion yen
compared to the year-ago period on the back of the rising number of stores, yet came in 400
million yen short of the plan.
The remainder of non-consolidated costs and expenses grew by 1.4 billion yen to 44.8
billion yen compared to the year-ago period. This was attributable to the fact that the amountof pro forma standard tax increased by 1.1 billion yen from the previous fiscal year, among
other factors. However, these non-consolidated costs and expenses decreased by 1 billion
yen compared to the plan, as we controlled costs including new businesses. The differenceFinancial Section

Items of the Consolidated Balance Sheet
between consolidated and non-consolidated selling, general, and administrative expenses
was 125.3 billion yen, a decrease of 10.3 billion yen compared to the year-ago period and 300
million yen below the plan.
Operating Profit
Operating profit for fiscal 2017 stood at 65.8 billion yen, down 10.7% compared to the yearago period and 2.6 billion yen short of the plan, which was attributable to the fact that net sales
and gross profit margin in the domestic convenience store business did not reach the plan,among other factors. In addition, we recorded extraordinary losses of 21.8 billion yen including
impairment losses of 17.5 billion yen for stores and systems. As a result, consolidated net
income was 26.8 billion yen and 6.6 billion yen short of the plan.
Recurring Profit
Recurring profit for the year under review stood at 65.1 billion yen, a decrease of 7.8 billion yen
compared to the year-ago period and 300 million yen short of the plan. Non-operating loss was
600 million yen, improved by approximately 100 million yen from the previous fiscal year andby 2.3 billion yen compared to the plan. This was mainly attributable to the fact that the smaller
number of closings than originally planned reduced loss on lease contract termination stemmingfrom store shutdowns to a low level and the foreign exchange profit gains were recorded.

●Consolidated Balance Sheet
Current Assets
Current assets as of February 28, 2018 stood at 231.8 billion yen, a decrease of 17.4 billion
yen compared to the end of the previous fiscal year. This was mainly attributable to the fact thatcash and deposits decreased by 37.9 billion yen.
Non-current assets
Non-current assets as of February 28, 2018 amounted to 668.3 billion yen, an increase of 51
billion yen, compared to the end of the previous fiscal year.
This was mainly attributable to the fact that property and store equipment grew by 25.4
billion yen, and investments and other assets such as lease deposits increased by 20.2 billion.
As a result, total assets as of February 28, 2018 stood at 900.2 billion yen, an increase of 33.6
billion yen, compared to the end of the previous fiscal year.
Current Liabilities
Current liabilities as of February 28, 2018 stood at 668.3 billion yen, an increase of 51 billion
yen, compared to the end of the previous fiscal year,
This was mainly attributable to the fact that accounts payable increased by 7.3 billion yen,money held as agent grew by 6.4 billion yen and lease obligations increased by 5 billion yen.

Income before Income Taxes and Minority Interests
Consolidated extraordinary losses amounted to 21.5 billion yen, an increase of 6.9 billion yen
from the previous fiscal year and 7.6 billion yen compared to the plan due to impairment of
stores and next-generation systems.
As a result, consolidated income before income taxes and minority interests for fiscal 2017
stood at 43.5 billion yen, a decrease of 14.8 billion yen from the previous fiscal year.

Long-term Liabilities

Net Income
As a result, net income attributable to owners of the parent for the year under review stood at
26.8 billion yen, a decrease of 9.5 billion yen compared to the year-ago period. Net income pershare amounted to 268.16 yen.

Net Assets
Net assets as of February 28, 2018 amounted to 281.4 billion yen, a decrease of 4.5 billion yen
compared to the end of the previous fiscal year. This was mainly attributable to the fact that
noncontrolling interests decreased by 5.2 billion yen.
As a result, the shareholders’ equity ratio as of February 28, 2018 stood at 30.6%.

Long-term liabilities as of February 28, 2018 amounted to 239.5 billion yen, an increase of 15.7
billion yen, compared to the end of the previous fiscal year, which was mainly attributable tothe fact that lease obligations grew by 13.6 billion yen. As a result, total liabilities as of February
28, 2018 stood at 618.8 billion yen, an increase of 38.2 billion yen, compared to the end of theprevious fiscal year.

Lawson, Inc. MD&A 201810

Items of the Consolidated Balance Sheet●Accounts Specific to the Company s Consolidated Balance Sheet
Shown below are accounts that are specific to the Company’s balance sheet.

Accounts Receivable-Due from Franchise Stores
Merchandise ordered by individual franchise stores are procured by the Company ina centralized manner, which in turn calculates the amount of payments to individual
suppliers on behalf of franchise stores before performing proxy payment service forthem. This is followed by the franchise headquarters collecting the payment amountfrom each franchise store as accounts receivable-due from franchise stores, which
essentially constitutes their obligation to the franchise headquarters. As of February
28, 2018, accounts receivable-due from franchise stores stood at 46.5 billion yen, an
increase of 6.6 billion yen compared to the end of the previous fiscal year.
Accounts Receivable-Other
Accounts receivable-other include accounts receivable from business partners,
such as certain accounts receivable from franchise stores (franchise store credit cardbased sales proceeds). Accounts payable are composed of accounts payable-trade,an account for directly operated stores, and accounts payable-due to franchise stores,
an account for franchise stores. However, accounts receivable-other include all credit
card-related accounts receivable relating to both directly operated and franchise stores.
This is because, being party to agreements with credit card companies, Lawson, Inc.
is the holder of all accounts receivable from them.
As of February 28, 2018, accounts receivable-other amounted to 84.7 billion yen,
an increase of 6.6 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 of February 28, 2018 stood at 47.4 billion
yen, an increase of 3 billion yen compared to the end of the previous fiscal year.

11

Lawson, Inc. MD&A 2018

Lease Deposits
When entering into a lease agreement with the landlord, the Company deposits withthe former a security deposit worth several months rent for the property. Leasedeposits as of February 28, 2018 totaled 100.6 billion yen, an increase of 5.1 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 the headquarters obligation
to franchise stores. All franchise stores daily sales proceeds are sent to theheadquarters, and exceed, on occasion, accounts receivable-due from franchise
stores. In such event, the Company records the amount in accounts payable-due tofranchise stores on the consolidated balance sheet, as part of outstanding liabilities.
Accounts payable-due to franchise stores as of February 28, 2018 totaled 2.5 billion
yen, a decrease of 6.6 million yen compared to the end of the previous fiscal year.
Money Held as Agent
Money held as agent is composed chiefly of money received for utility bill agent
payment service and money received as the price of tickets for concerts and so forth.
The agency payment service handling amount stood at 2,263.9 billion yen, an increaseof 6.1% compared to a year-ago period, supported by the rising.

Financial Section

Capital Expenditures (Including Investments/Advances and Lease Asset Acquisition Costs)

Cash Flows

Total consolidated capital expenditures for the year ended February 28, 2018 stood at 140.4
billion yen, an increase of 20.7 billion yen compared to a year-ago period.
Investments in new stores amounted to 55.8 billion yen, an increase of 8.3 billion yen
compared to a year-ago period as the number of store openings was higher year-on-year.
Investments in existing stores totaled 7.4 billion yen, an increase of 200 million yen compared toa year-ago period.
IT-related investments came to 18.6 billion yen, a decrease of 600 million yen compared toa year-ago period due mainly to a decrease in investments in next-generation systems.
Lease transactions stood at 48.8 billion yen, an increase of 6.2 billion yen compared
to a year-ago period due mainly to aggressive renovations for bolstering our customer living
assistance service.
New investments and advances amounted to 4.3 billion yen, an increase of 2.8 billion yen
compared to a year-ago period.
Shown below is the breakdown of the main capital expenditures.

Net cash provided by operating activities for the year ended February 28, 2018 stood at a cash
inflow of 113.9 billion yen, a cash increase of 14 billion yen compared to a year-ago period, due
mainly to changes in accounts receivable and accounts payable.
Net cash used in investing activities for the year ended February 28, 2018 amounted to acash outflow of 91.2 billion yen, a cash decrease of 14.9 billion yen compared to a year- agoperiod, which was due, among others, to increases in payments for transfer of business andpurchases of long-term prepaid expense.
Net cash used in financing activities for the year ended February 28, 2018 amounted toa cash outflow of 61.2 billion yen, a cash decrease of 35.6 billion yen compared to a year-ago
period, which was due, among other reasons, to a net increase/decrease of short-term bankloans.
As a result, cash and cash equivalents as of February 28, 2018, stood at 30.1 billion yen,a decrease of 37.5 billion yen compared to February 28, 2017.

■ Capital Expenditures(Millions of Yen)

2017

2016

2015

2014

2013

New store investments

55,86347,594

40,46049,01432,230Existing store investments

7,403

7,233

6,727

5,840

7,078

IT-related investments

18,615

19,261

15,882

8,218

5,362

Other investments

5,401

1,464

1,466

2,752

2,067

Sub-total investments

87,28375,55464,53565,823

46,736

Investments and advances

4,358

1,594

4,122

42,6105,189

Leases*48,854

42,63438,08932,81832,107

Total

140,495

119,784

106,747

141,251

84,032(Fiscal Year)* Leases are shown in an amount equivalent to the acquisition costs for the lease assets acquired during each accounting period.
The amount of repayments of lease obligations (consolidated) is 30,054 millions of yen in fiscal year 2016 and 32,096 millions of
yen in fiscal year 2017.

■ Breakdown of depreciation and amortization(Millions of Yen)

2017

2016

2015

2014

2013

Depreciation of property andstore equipment

47,69744,79240,39632,97737,872

Amortization of intangible assets

10,903

11,406

8,897

8,849

10,017

Total depreciation andamortization

58,601

56,19949,293

41,82647,889(Fiscal Year)

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 the levels ofcapital cost reflecting what investors expect from the Company in terms of investment returns.
For this reason, we use ROE (Return on Equity), one of the return on capital metrics, as theCompany’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 make investments offering the prospect ofsuperior investment returns towards achieving corporate growth that is sustainable in the mediumto 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 capital composition deemed appropriate by management,
the Company will distribute dividends of surplus, purchase its own shares as treasury stock andretire them while striving to achieve return on capital above the cost of capital, thereby aiming to
improve ROE in the medium-term.
The Company’s dividend policy does not have any specific dividend payout ratio target.

Lawson, Inc. MD&A 201812

Overview of major consolidated subsidiaries and equity method affiliates
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 willallow the organization to improve return on capital without needlessly holding surplus cash
internally. The Company plans to keep the per-share dividend of 255 yen unchanged for theyear ended February 28, 2019.
The Company purchased its own shares worth approx. 43.0 billion yen as treasury stock
to retire them during a period of four years from the year ended February 28, 2002 to the year
ended February 28, 2005. Moreover, it purchased its own shares worth 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 willcontinue 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

400

120
95.1

300
200
100
0

41.8
90

2005

49.6

51.2

100

110

2006

2007

66.8

66.6
160

160

170

72.2
180

200

220

60.2

57.9

240
73.4

245
78.1

250

255

90
60

68.7

30

2008

Annual dividends per share (left axis)

2009

2010

2011

Payout ratio (right axis)

2012

2013

2014

2015

2016

2017

0

(Fiscal Year)

Consolidated financial results for the year ended February 28, 2018 include the financial resultsof 24 group companies comprising 21 consolidated subsidiaries and three equity method
affiliates. The principal business activities of Lawson, Inc.’s subsidiaries and affiliates consistof the domestic convenience store business, Seijo Ishii business, entertainment business,overseas business and financial service business. The following paragraphs outline the businessactivities 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 functionsof 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 was changed from Lawson Mart, Inc. to Lawson Store100, Inc.
LAWSON STORE 100 meets the needs of a wide range of customers from children to seniorcitizens, with a focus on single person and homemaker customers, by offering three types of value,
the “diverse merchandise selection” of a supermarket, the “convenience” of a convenience store andthe easy-to-understand “standardized prices” of a 100-yen shop.
For the year ended February 28, 2018, Lawson Store100, Inc. had a total of 805 stores at theperiod-end date. Operating loss stood at 300 million yen, a decrease of 800 million yen compared toa year-ago period. This was mainly attributable to the fact that net sales of existing stores decreased
to 98.3% compared to the previous fiscal year due to a decrease in prices in the fruit and vegetable
market and the fiercer competitive environment.
■Lawson Store100, Inc.

(Millions of Yen)

(Fiscal Year)2018.22017.2

2016.2

2015.2Gross operating revenues

44,942

48,111

50,67578,232

Operating profit (loss)

（325）

545

375

1,763

Net income (loss)

（381）

441

286

985

*Consolidated starting from February 2013

SCI, Inc. (consolidated subsidiary)
SCI, Inc. (“SCI”) was established by Lawson, Inc. in July 2012 as a supply 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 theobjective of becoming the “Manufacturing Retailer Based on Small Commercial Areas.” The Company
aims to build a manufacturing retailer business model that coherently covers the entire supply chain

13

Lawson, Inc. MD&A 2018

Financial Section

from the upstream to the downstream, reducing inefficiencies such as 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 the sales 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 non-group customers.
For the year ended February 28, 2018, operating profit amounted to 2.3 billion yen, an increaseof 28.2% compared to a year-ago period.

Lawson Okinawa, Inc. (equity-method affiliate)
In January 2009, Lawson, Inc. entered into a business alliance agreement with SAN-A CO., LTD. (“SAN-A”),
the largest integrated retailer in Okinawa, concerning operations in the prefecture. 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 merchandise and store environment befitting local consumer tastes, in a prefecturethat has unique lifestyle and food preferences. To this end, we established Lawson Okinawa, Inc. in October
2009 as 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.

(Fiscal Year)2018.22017.2

2016.2

2015.2

2014.2Gross operating revenue

284,300

256,143

191,299

87,63874,460Operating profit

2,385

1,860

2,365

1,128

509

For the year ended February 28, 2018, Lawson Okinawa, Inc. had a total of 224 stores at theperiod-end date, and operating profit stood at 1.6 billion yen, an increase of 1.2% compared to a yearago period. We will continue to have Lawson Okinawa, Inc. strive to build a store environment meeting
local needs appropriately, thus growing Lawson chain stores in Okinawa in the coming years.

Ordinary profit

2,392

2,065

2,369

1,128

510

■Lawson Okinawa, Inc.

Net income

1,558

1,395

1,423

687

300

■ SCI, Inc.

(Millions of Yen)

* 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 boxedlunches that are prepared on site, under LAWSON FC packages. Sales of the two experimental storesremain strong due to high synergistic effects of the customer drawing powers of both companies.
Lawson, Inc. has strengths in attracting female■ Lawson Sanin, Inc.
(Millions of Yen)and senior customers, while Poplar Co., Ltd., has(Fiscal Year)2018.22017.2the advantage of gathering male customers.
Gross operating revenues
7,876
2,460
For the year ended February 28, 2018,
Operating profit (loss)（56）
582
operating income stood at 500 million yen and
Net income (loss)（75）
254
turned positive from the previous fiscal year.
* Income began to be reflected in the consolidated
accounts, starting from November 2016

(Millions of Yen)

(Fiscal Year)2018.22017.2

2016.2

2015.2

2014.2Gross operating revenues

7,090

6,509

5,605

4,674

4,199

Operating profit

1,658

1,637

1,407

1,183

1,051

Net income

1,069

1,081

954

738

792

Lawson Minamikyushu, Inc. (equity method affiliate)
Lawson Minamikyushu, Inc. (“Lawson Minamikyushu”) was established 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 participation in 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 form of a joint venture with it.
For the year ended February 28, 2018, Lawson Store100, Inc. had a total of 194 stores at the periodend date, and operating profit stood at 100 million yen, an increase of 72.3% compared to a year-ago period.
We will continue to have Lawson Minamikyushu strive to build a store environment meeting local
needs appropriately, thus growing Lawson chain stores in Kagoshima in the coming years.
■ Lawson Minamikyushu, Inc.

(Millions of Yen)

(Fiscal Year)2018.22017.2

2016.2Gross operating revenues

4,317

4,007

3,756

3,595

Operating profit (loss)

162

94

（183）

（422）

Net income (loss)

111

（93）

（591）

（472）

2015.2* Income began to be reflected in the consolidated accounts, starting from March 2014

Lawson, Inc. MD&A 201814

Lawson Kochi, Inc. (equity-method affiliate)

Lawson HMV Entertainment, Inc. (consolidated subsidiary)

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
stores operated by the company into LAWSON stores on a step-by-step basis. In April 2015, Lawson
Kochi, Inc. was established as a joint venture between SUNNY MART and Lawson, Inc. (with theformer 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, 2018, the number of LAWSON stores in the prefecture stoodat 139 at the period-end date, and the operating profit of Lawson Kochi, Inc. amounted to 400 million
yen, an increase of 7.5% compared to■Lawson Kochi, Inc.
(Millions of Yen)
the previous fiscal year.

Lawson HMV Entertainment, Inc. (“Lawson HMV Entertainment”) distributes tickets for concerts,
sporting events, theaters and cinemas mainly through the multimedia information terminal “Loppi” inLawson 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.

We will continue t o have Lawson
Kochi strive to build a store environment
meeting local needs appropriately, thus
growing Lawson chain stores in Kochi
in the coming years.

(Fiscal Year)2018.22017.2

2016.2Gross operating revenues

4,321

4,482

4,208

Operating profit

498

463

430

Net income

290

298

286

* Income began to be reflected in the consolidated accounts, startingfrom April 2015

SEIJO ISHII CO., LTD. (consolidated subsidiary)
SEIJO ISHII CO., LTD (“Seijo Ishii”) strives to enhance the brand appeal and corporate value. At the sametime, the company leverages its strengths, including product development capabilities, knowhow as amanufacturing retailer, and sales techniques, in order to strengthen the domestic convenience store business.
In September 2017, Seijo Ishii opened the first grocerant that is the fusion of a supermarket and a
restaurant in Chofu City, Tokyo.
For the year ended February 28, 2018, Operating profit stood at 7.6 billion yen, a slight decreaseof 0.3% compared to the previous fiscal year, though 14-month accounts in fiscal 2016 decreased to
12-month accounts as a result of the change in the accounting period.
■ SEIJO ISHII CO., LTD.

(Millions of Yen)

(Fiscal Year)2018.22017.2

2015.122014.12Gross operating revenues

81,95785,824

68,993

17,881

Operating profit

7,611

7,795

5,795

1,547

Net income

4,339

4,616

2,625

1,086

*Consolidated starting from February 201315

Lawson, Inc. MD&A 2018

Established in 1992 as RIZA JAPAN, primarily a ticket distributor, the company changed its name to
Lawson Ticket in 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 business know-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 the surviving
company. In July 2009, the company changed its name to Lawson Entermedia, Inc. It was listed on the
Osaka Securities Exchange JASDAQ Market but was delisted in June 2010. The company then became awholly-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 HMV Entertainment with the aim of achieving increased synergy between theentertainment and e-commerce businesses of the Lawson Group, going forward. Lawson HMVEntertainment in the future will be able to leverage the Group’s solid e-commerce business platformto provide one-stop shopping convenience to customers 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 good synergy between the HMV brand’s competitive edge in the CDmusic 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 the bulk of its revenues. Its operating revenues mainly comprising commissions
are recorded as “operating revenues-other” in the consolidated statement of income of Lawson, Inc.
For the year ended February 28, 2018, operating profit decreased to 1.8 billion yen, a decrease of 0.7%
compared to the previous fiscal year in reaction to series of large-scale entertainment events in fiscal 2016.
On June 1, 2018, the corporate name was changed from Lawson HMV Entertainment, Inc. toLawson Entertainment, Inc.
* HMV Japan K.K. (a consolidated subsidiary of Lawson, Inc. until August 31, 2011) was a retailer 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 businessand achieve increased synergies with Lawson Entermedia, Inc.

Financial Section■ Lawson HMV Entertainment, Inc.

(Millions of Yen)

(Fiscal Year)2018.22017.2

2016.2

2015.2

2014.2Gross operating revenues

53,26150,42350,20546,01845,314

Operating profit

1,851

2,119

2,469

3,094

2,819

Net income

1,524

1,466

1,644

2,918

2,450

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 forwhich an ATM installation agreement is reached with individual partner banks. Revenues, consisting
mainly of an ATM operation service fee from such banks, are recorded as “operating revenues-other”
in Lawson, Inc.’s consolidated statement of income. Principal expenses are composed chiefly of
operation center contract service fees, ATM line costs and ATM equipment lease fees.
For the year ended February 28, 2018, operating profit stood at 5.5 billion yen, a decrease of
7.3% year on year, which was mainly attributable to the effect from a hike in ATM-related line cost.
During the year, Lawson ATM Networks continued to add to its list of ATM service partnerbanks, bringing the total to 90 banks based in Japan, including online banks, as of February 28,
2018, an increase of seven banks compared to a year ago. The number of ATMs in operation at
Lawson stores nationwide totaled 12,733, an increase of 821 year-on-year.
On June 1, 2018, Lawson Bank Preparatory Company, Inc. succeeded to the ATM businessof Lawson ATM Networks, Inc. which installs jointly operated ATMs in LAWSON stores through anabsorption-type company split.
■ Lawson ATM Networks, Inc.

(Millions of Yen)

(Fiscal Year)2018.22017.2

2016.2

2015.2

2014.2Gross operating revenues

27,341

25,722

24,68823,56724,188Operating profit

5,555

5,991

6,188

5,935

6,089

Net income

3,684

3,857

3,877

3,605

3,690

United Cinemas Co., Ltd. (consolidated subsidiary)
In August 2014, Lawson, Inc. acquired all shares in United Entertainment 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 HMVEntertainment, Inc. Adding the firm to the Lawson Group steps up its contents holder service as anintegrated entertainment distributor and boosts its existing business lines’ customer drawing power
through collaborating with movie contents holders and encouraging its Lawson, HMV, e-commerceand cinema operations to guide customers to each other’s service.
In April 2017, UC launched in Fukuoka City the Premium Dining Cinema, a new style movie
theater that allows customers to enjoy having food while watching a movie as the first of its kind inJapan. As of the year ended February 2018, UC operates a total of 40 sites and 351 screens at its
cinemas nationwide (including screens operated on commission).
For the year ended February 28, 2018, operating profit was 2.5 billion yen, up 0.2% from theprevious fiscal year, though there was in reaction to major hit movies in the previous fiscal year.
■United Cinemas Co., Ltd.

(Millions of Yen)

(Fiscal Year)2018.22017.2

2016.2

2014.12Gross operating revenues

22,243

22,637

24,9605,773

Operating profit

2,512

2,457

2,338

156

Net income (loss)

1,694

2,137

2,260

（112）

* Consolidated starting from September 2014

Shanghai Lawson, Inc. (consolidated subsidiary)
We were the first Japanese convenience store company to gain 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 HualianGroup Co., Ltd. (“Hualian Group”)*, a Shanghai city government-related company, 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 Japanese-style 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%, thecompany was included in Lawson, Inc.’s scope of consolidation as a subsidiary. Lawson, Inc. carriedout the above-mentioned incremental share acquisition program in order to accelerate its efforts topursue the Japanese-style convenience store business model that is superior in product development,
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

Lawson, Inc. MD&A 201816

Group”)*, whose retail division restructuring was underway. Our equity interest in Shanghai Hualian
Lawson was raised even further since, standing at 100% as of February 28, 2018. On February 28,
2017, Shanghai Hualian Lawson, Inc. changed its corporate name to Shanghai Lawson, Inc.
From now on, the company aims to upgrade the quality of Lawson stores in Shanghai, theeconomic center of China, and achieve increased store brand appeal while focusing on ROI, a criterion
used for new store openings in the country, as in Japan.
The total number of Lawson stores in operation stood at 865 as of February 28, 2018.

Dalian Lawson, Inc. (consolidated subsidiary)* Through a restructuring of China s retail industry driven by the national government, the Hualian Group was merged into the BailianGroup. In the course of this restructuring, all shares in the Hualian Group were transferred to the Bailian Group in December 2008.

■ Dalian Lawson, Inc.

■ Shanghai Lawson, Inc.

(Millions of Yen)

(Fiscal Year)2017.122016.12Gross operating revenues

19,905

13,561

8,531

1,360

1,290

Operating profit (loss)

（567）

（555）

（755）

（646）

（404）

（1,025）（1,347）（1,099）（925）（1,568）Net income (loss)

2015.122014.122013.12* 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 andsurrounding area, were added to the profit (loss) of Shanghai Hualian Lawson, Inc.

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 direct-controlled 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 average and that of coastal cities suchas Shanghai. It is against this backdrop that potential demand for convenience stores in China’s fastgrowing inland cities is increasing.
We established Chongqing Lawson, Inc. in April 2010 to gain a foothold in inland China as thefirst Japanese convenience store company to operate there at the invitation of the city of Chongqing.
The first local Lawson store was opened. The Lawson store network has continued to grow steadily
since, bringing the total store count to 165 as of February 28, 2018.
■ Chongqing Lawson, Inc.

(Millions of Yen)

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 stores stood at 122 asof February 28, 2018.
(Millions of Yen)

(Fiscal Year)2017.122016.122015.122014.12Gross operating revenues

2,371

2,043

1,502

995

516

4

（183）

（312）

（313）

（227）

（28）

（190）

（344）

（338）

（211）

Operating profit (loss)
Net income (loss)

2013.12

Beijing Lawson, Inc. (consolidated subsidiary)
In the People's Republic of China, Beijing is a big
city with a population of about 20 million (2009
JETRO survey). We established Beijing Lawson,
Inc. in May 2013. The company opened 14
stores in the fiscal year under review, bringing
the total number of stores to 73 as of the end of
February 2018.

■ Beijing Lawson, Inc.

(Millions of Yen)

(Fiscal Year)2017.12Gross operating revenues

3,106

2,168

Operating profit (loss)

（635）

（643）

Net income (loss)

（687）

（634）

* Beijing Lawson, Inc. has been included in the scope of
consolidation from 2016. The operating result above of
Beijing Lawson, Inc. includes the operating result of BEIJING
LUOSONG Co., Ltd.

Saha Lawson Co., Ltd. (consolidated subsidiary)
In Thailand, we established Saha Lawson Co., Ltd. in November 2012 as a joint venture principallywith 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 ofstores stood at 101 as of February 28, 2018.
■ Saha Lawson Co., Ltd.

(Millions of Yen)

(Fiscal Year)2017.122016.122015.122014.122013.12(Fiscal Year)2017.122016.122015.122014.12Gross operating revenues

3,225

3,586

4,400

3,474

1,843

Gross operating revenues

8,271

7,171

6,962

7,800

5,959

Operating profit (loss)

（306）

（452）

（778）

（904）

（840）

Operating profit (loss)

（653）

（305）

（251）

（655）

（338）

Net income (loss)

（413）

（623）

（973）

（1,047）（833）

Net income (loss)

（767）

（396）

（308）

（831）

（525）

* Consolidated starting from January 201317

Lawson, Inc. MD&A 20182016.122013.12Financial Section

Future Outlook
We believe the three years from fiscal 2016 through fiscal 2018 will greatly influence our future
grouth. We launched the “1,000-Day Action Plan” with the aim of continuing to become an
essential part of our communities. For the year ending February 2019, the plan’s final year,
we will strive to enhance the domestic convenience store business, our core operations, andparticularly grow evening and night-time sales in a move to put the finishing touches to the plan.
Moreover, following on from the previous year, we will strengthen the foundation for sustainablegrowth in the form of investing in next-generation systems in an effort to achieve improved store
productivity, among other steps.

Enhancement of the Domestic Convenience Store Business
For the year ending February 2019, we will seek to grow sales with a focus on evening andnight-time hours by continuing to broaden, as in the past, the scope of our customers such as
those among female worker and senior citizen customers. In addition to bolstering the productappeal of staple items such as boxed meals and rice balls, and over-the- counter fast foods
as delicatessen, we will revamp the mechanisms of our merchandise ordering and logistics,
stepping up the merchandise assortment with a focus on evening and night-time hours. We areprojected to expand stores with the “Machikado Chubo” in-store kitchen to 6,000 in February
2019, up from about 4,300 in February 2018. Through the above-mentioned steps, we aim
to achieve a year-on-year growth of 1.0% in existing store sales and a gross profit marginof 31.4% (up 0.1 percentage point year on year). We will continue to open stores in ways
prioritizing quality, and plan to increase the number of domestic convenience stores by 800 on
a net basis by opening 1,200 stores, including approx. 300 stores to be converted from otherconvenience store chains, and closing 400 stores.

Business Performance Outlook for Fiscal 2018
For fiscal 2018 ending February 2019, consolidated operating profit is projected to be 60.0
billion yen, a decrease of 5.8 billion yen year on year partly due to lower profit factors frominitiatives aimed at sustainable growth such as higher investments in next-generation systems,
among others, and elevated expenses associated with new businesses, including the financial
services business launched. This is despite the fact that higher profits will likely be posted by
the domestic convenience store business thanks to the above-mentioned initiatives as well as
consolidated subsidiary SEIJO ISHII CO., LTD. and that the overseas business is projected todeliver improved profits. Consolidated net profit is expected to be 28.0 billion yen, an increaseof 1.1 billion yen from the previous fiscal year following an extraordinary loss recorded for theyear.
With regard to cash flow, consolidated cash flow from operating activities is projected tobe 128 billion yen, which is greater than the 95 billion yen of projected consolidated cash flowfrom investment activities including investments in new store openings and in next-generation
systems.
Lastly, concerning returns to shareholders, we plan to maintain a dividend of 255 yen
for fiscal 2018, unchanged from the previous year, and will continue steady dividend payout
although the business environment remains challenging.

Continued Investments for Sustainable Growth
Faced with growing effects from labor shortages amid a declining birth rate and aging
population, we have been working to improve store productivity to date by building nextgeneration systems in an effort to enable employees to focus on services that can be performed
only by humans while delegating to machines services able to be done by them. For the year
ending February 2019, following on from the installation of tablets in the previous year, we willcontinue to deploy automatic change machine-fitted new POS cash registers for all stores.
Going forward, we aim to improve the convenience for the customer’s shopping experience andstore operation productivity by tapping into IT technologies. As a case in point, we launchedin April 2018 an experiment of Lawson Smartphone Pay, a self-payment service using asmartphone-dedicated application.

Lawson, Inc. MD&A 201818

Consolidated Balance Sheet
Lawson, Inc. and its Consolidated Subsidiaries
February 28, 2018

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

2018

2018

2017

Cash and cash equivalents¥30,121¥67,692$280,535

4

423

37

Due from franchised stores (Note 3)

46,59939,982434,004

Other

84,705

79,637788,908

(29)

(50)

(270)

Lease receivables (Note 4)

16,426

12,336

152,985

Inventories

18,914

18,131

176,157

Time deposits
Accounts receivable:

Allowance for doubtful accounts

Deferred tax assets (Note 16)

3,411

3,907

31,769Other

31,70927,221

295,324

231,860

249,279

2,159,449

9,582

9,701

89,243

369,567

347,086

3,441,995

Total current assets
PROPERTY AND STORE EQUIPMENT:Land (Notes 7 and 8)
Buildings (Note 7)
Furniture, fixtures, and equipment (Note 7)

74,401

74,988692,940

Lease assets (Note 7)

213,561

186,344

1,989,019

Other (Note 7)
Total
Accumulated depreciation
Net property and store equipment

791

743

7,367

667,902618,8626,220,564(317,966)(294,351)(2,961,404)

349,936

324,5113,259,160

INVESTMENTS AND OTHER ASSETS:
Investment securities (Note 5)

13,376

8,781

124,579

Investments in associated companies

15,172

14,151

141,306

Long-term loans receivable

47,42544,495

441,697

Goodwill (Note 7)

47,94746,042446,559

Software (Note 7)

41,602

37,568387,464

19

Lawson, Inc. MD&A 2018

Millions of Yen
ASSETS

CURRENT ASSETS:

Thousands of
U.S. Dollars(Note 1)

2018

2017

2018

Trademark right

10,075

10,691

93,834

Lease deposits

100,686

95,594

937,748

Deferred tax assets (Note 16)

24,40623,139227,307

Other (Note 7)

18,866

13,295

175,709

Allowance for doubtful accounts(1,095)(968)(10,198)

Total investments and other assets
TOTAL* See notes to consolidated financial statements.

318,460

292,7882,966,005¥900,256¥866,578$8,384,614

Financial Section

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

2018

2018

2017

Accounts payable:
Trade (Notes 9 and 21)¥118,175¥110,835$1,100,633

Due to franchised stores (Note 10)

2,594

1,611

24,159Other

60,44159,546562,923

Short-term bank loans (Note 11)

36,34031,180338,456

Current portion of long-term debt (Note 11)33,63928,588313,300

Income taxes payable

6,880

9,877

64,077

Money held as agent

109,629

103,157

1,021,039

Other (Note 13)

11,525

11,990107,340

379,223

356,784

3,531,927

Total current liabilities

LIABILITIES AND EQUITY

Net defined benefit liability (Note 12)

13,781

13,084

128,351

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

271

332

2,524

Long-term debt (Note 11)

169,087

156,687

1,574,807

Asset retirement obligations (Note 13)

29,063

26,958

270,681Deferred tax liabilities (Note 16)

2,617

958

24,374

Other

24,76825,779230,678

239,587

223,798

2,231,415

Common stock̶authorized, 409,300,000
shares in 2018 and 2017; issued,
100,300,000 shares in 2018 and 2017

58,50758,507544,910

Capital surplus

46,69049,084434,851

2018

2018

2017

(1,041)(1,211)(9,695)Net unrealized gain on available-for-salesecurities

2,084

274

19,410Land revaluation difference (Note 8)

(576)

(619)

(5,365)

Foreign currency translation adjustments

4,596

4,611

42,805

Defined retirement benefit plans

(727)

(928)

(6,771)

275,853

275,195

2,569,181

5,593

10,80152,091

Accumulated other comprehensive
income:Total
Noncontrolling interests
Total equity
TOTAL

LONG-TERM LIABILITIES:

Total long-term liabilities

Millions of Yen
Treasury stock̶at cost, 244,849 shares in 2018and 285,191 shares in 2017

CURRENT LIABILITIES:

Thousands of
U.S. Dollars(Note 1)

281,446

285,996

2,621,272¥900,256¥866,578$8,384,614* See notes to consolidated financial statements.

EQUITY (Note 14):Stock acquisition rights
Retained earnings

195

315

1,816

166,125

165,162

1,547,220

Lawson, Inc. MD&A 201820

Consolidated Statement of Income
Lawson, Inc. and its Consolidated Subsidiaries
Year Ended February 28, 2018

Thousands of
U.S. Dollars(Note 1)Millions of Yen
2018

Millions of Yen

2018

2017

OPERATING REVENUES:

Thousands of
U.S. Dollars(Note 1)

2018
INCOME BEFORE INCOME TAXES

2018

2017

43,59058,456405,979

Franchise commissions from
franchised stores¥289,233¥275,312$2,693,797

Net sales

264,735

254,169

2,465,633

Current

14,19018,929132,160

Other

103,357

101,807962,625

Deferred

2,539

2,453

23,647657,325

631,288

6,122,055

16,72921,382

155,807

26,861

37,074

250,172

Cost of sales (Note 21)

181,374

174,255

1,689,243

Selling, general, and administrative expenses

410,130

383,2613,819,782

Total costs and operating expenses

591,504

557,516

5,509,025

32

(674)

298

Operating income

65,82173,772613,030¥26,829¥36,400$249,874(1,187)(1,103)(11,055)

Total operating revenues
COSTS AND OPERATING EXPENSES:INCOME TAXES (Note 16):

Total income taxes
NET INCOME
NET INCOME ATTRIBUTABLE TONONCONTROLLING INTERESTSNET INCOME ATTRIBUTABLE TOOWNERS OF THE PARENTOTHER INCOME (EXPENSES):Interest expense̶netCompensation income

897

524

8,354

(1,304)(1,275)(12,145)

Equity in earnings of unconsolidated
subsidiaries and associated companies

694

602

6,464

Gain on sales of shares of subsidiaries
and associates

303

Loss on sales of non-current assets(368)

Loss on disposal of property andstore equipment
Impairment of long-lived assets (Note 7)

Loss on cancellation of leases

21

Lawson, Inc. MD&A 2018¥268.16¥363.96$2.50

Net income̶diluted

268.02363.71

2.50

255

250

2.37

(295)

(3,427)* See notes to consolidated financial statements.

(3,115)(3,554)(29,012)(17,534)(9,535)(163,304)

Loss on disaster
Other expenses̶net

Net income̶basic
Cash dividends applicable to the year

409
(772)
(616)

(317)

(5,738)(22,230)(15,316)(207,041)

U.S. Dollars
2018

2017

PER SHARE OF COMMON STOCK(Notes 2.t and 23):

2,822

Gain on valuation of derivatives
Other̶net

Yen
2018

Financial Section

Consolidated Statement of Comprehensive Income
Lawson, Inc. and its Consolidated Subsidiaries
Year Ended February 28, 2018

Thousands of
U.S. Dollars(Note 1)Millions of Yen
2018
NET INCOME

2018

2017

¥26,861¥37,074$250,172

1,810

(527)

16,858OTHER COMPREHENSIVE INCOME (LOSS):
Unrealized gain (loss) on available-for-salesecurities
Land revaluation difference(53)

Foreign currency translation adjustments

36

(929)

335

Remeasurements of defined benefit plans

201

(22)

1,872

Total other comprehensive income (loss)
COMPREHENSIVE INCOME

2,047(1,531)

19,065¥28,908¥35,543$269,237¥28,825¥34,879$268,464

83

664

773

TOTAL COMPREHENSIVE INCOME
ATTRIBUTABLE TO (Note 18):
Owners of the parent
Noncontrolling interests* See notes to consolidated financial statements.

Lawson, Inc. MD&A 201822

Consolidated Statement of Changes in Equity
Lawson, Inc. and its Consolidated Subsidiaries
Year Ended February 28, 2018
Thousands of Shares/Millions of Yen

Common Stock

SharesBALANCE, MARCH 1, 2016

100,300

Accumulated other comprehensive income

Treasury Stock

AmountCapitalSurplus

Stock
Acquisition
Rights¥58,507¥47,697¥307

Net income attributable to ownersof the parent

Retained
Earnings¥154,609

SharesAmount(302)¥(1,280)

Net Unrealized
Gain (Loss)on Available-forSale Securities

Land
Revaluation
Difference¥801¥(566)

Foreign
Currency
Remeasurements
Translationof defined
Adjustments
benefit plans¥5,531¥(906)

Noncontrolling
Interests

Total¥264,700¥8,297

Total
Equity¥272,997

36,40036,400

1,387

1,387

Year-end cash dividends, ¥122.5 per share(12,250)(12,250)(12,250)

Interim cash dividends, ¥125 per share(12,502)(12,502)(12,502)

Change of scope of consolidation(1,130)(1,130)(1,130)

52

52

52

(3)

(3)

Change in the parent s ownershipinterest due to transactions
with noncontrolling interests

1,387

Reversal of land revaluation difference
Purchase of treasury stock
Exercise of stock acquisition rights to shares(delivery of treasury stock)(0)

Others̶net
BALANCE, FEBRUARY 28, 2017(17)8

100,300

58,50749,084315

Net income attributable to ownersof the parent

(1)

(3)

17

72

0
165,162(303)(1,211)

36,400

55

55

(527)

(53)

(920)

(22)

(1,514)

2,504

990

274

(619)

4,611

(928)

275,195

10,801

285,996

26,82926,829(2,454)(2,454)Year-end cash dividends, ¥125 per share(12,502)(12,502)(12,502)

Interim cash dividends, ¥127.5 per share

Change in the parent s ownershipinterest due to transactions
with noncontrolling interests(2,454)

26,829(12,757)(12,757)(12,757)

Change of scope of consolidation

(565)

(565)

(565)

Reversal of land revaluation difference

(42)

(42)

(42)

(3)

(3)

Purchase of treasury stock(3)

Exercise of stock acquisition rights to shares(delivery of treasury stock)60

Others̶net
BALANCE, FEBRUARY 28, 201823

Lawson, Inc. MD&A 2018

173
(120)

100,300¥58,507¥46,690¥195¥166,125(303)¥(1,041)

233

233

1,810

43

(15)

201

1,919

(5,208)(3,289)¥2,084¥(576)¥4,596¥(727)¥275,853¥5,593¥281,446

Financial Section

Thousands of U.S. Dollars (Note 1)
Accumulated other comprehensive income

BALANCE, FEBRUARY 28, 2017

CommonStockCapitalSurplus

Stock
Acquisition
Rights$544,910$457,148$2,934

Net income attributable to ownersof the parent
Change in the parent s ownershipinterest due to transactions
with noncontrolling interests(22,856)

Retained
Earnings

TreasuryStock

Net Unrealized
Gain (Loss)on Available-forSale Securities$1,538,251$(11,279)$2,552249,8740Land
Revaluation
Difference$(5,765)

Foreign
Currency
Remeasurements
Translation of defined benefit
Adjustments
plans$42,945$(8,643)

Total

Noncontrolling
Interests

Total
Equity$2,563,053$100,596$2,663,649

249,874

249,874

0(22,856)(22,856)

Year-end cash dividends, $1.16 per share(116,438)(116,438)(116,438)

Interim cash dividends, $1.19 per share(118,813)(118,813)(118,813)

Change of scope of consolidation(5,263)(5,263)(5,263)

(391)

(391)

(391)

(28)

(28)

Reversal of land revaluation difference
Purchase of treasury stock(28)

Exercise of stock acquisition rights to shares(delivery of treasury stock)559

Others̶net
BALANCE, FEBRUARY 28, 2018

0

1,612

(1,118)$544,910$434,851$1,816$1,547,220$(9,695)

2,171

2,171

16,858

400

(140)

1,872

17,872(48,505)(30,633)$19,410$(5,365)$42,805$(6,771)$2,569,181$52,091$2,621,272* See notes to consolidated financial statements.

Lawson, Inc. MD&A 201824

Consolidated Statement of Cash Flows
Lawson, Inc. and its Consolidated Subsidiaries
Year Ended February 28, 2018

Thousands of
U.S. Dollars(Note 1)Millions of Yen
2018

2018

2017

OPERATING ACTIVITIES:
Income before income taxes andminority interests¥58,456$405,989

Income taxes paid

(18,287)(18,204)(170,318)

Depreciation and amortization

58,60256,199545,795

Impairment of long-lived assets

17,534

9,535

163,304

Loss on disposal of property andstore equipment

3,115

3,554

29,012

Increase in accounts receivable(10,675)(20,289)(99,423)

Increase in accounts payable

10,8295,051

100,857

IIncrease in money held as agent

6,469

1,244

60,250Adjustments for:

Changes in assets and liabilities:

721

666

6,715

2,040

3,653

19,000Total adjustments

70,34841,409655,192

Net cash provided by operating
activities

113,939

99,865

1,061,181

Other̶net

Purchases of property and store equipment(41,537)(42,064)(386,859)

Purchases of software and otherintangible assets(18,534)(18,892)(172,618)

Increase in long-term loans receivable(3,284)(3,917)(30,586)

Long-term prepaid expenses(9,230)(3,112)(85,964)

Acquisition of associated companies(3,920)(1,805)(36,509)

Payments for transfer of business(11,010)(4,436)(102,543)

Other̶net(3,695)(2,002)(34,414)(91,210)(76,228)(849,492)

25

Lawson, Inc. MD&A 2018

Net increase in short-term loans payable

2018

2017

5,160

29,19048,058

Repayments of long-term debt

(33,330)(30,913)(310,422)

Cash dividends paid

(25,259)(24,752)(235,251)

Payments from changes in ownershipinterests in subsidiaries that do not resultin changes in scope of consolidation(7,799)(709)(72,637)

(11)

1,546

(103)

(61,239)(25,638)(570,355)

FOREIGN CURRENCY TRANSLATIONADJUSTMENTS ON CASH AND
CASH EQUIVALENTS

174

(436)

1,620

NET DECREASE IN CASH AND CASH
EQUIVALENTS(38,336)(2,437)(357,046)

CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR

67,692

69,793

630,455

765

336

7,126

¥30,121¥67,692$280,535

Other̶net
Net cash used in financing activities

CASH AND CASH EQUIVALENTS IN
SUBSIDIARIES RESULTING FROMCHANGES IN SCOPE OF CONSOLIDATIONCASH AND CASH EQUIVALENTS,
END OF YEARINVESTING ACTIVITIES:Net cash used in investing activities

2018
FINANCING ACTIVITIES:¥43,591

Increase in allowance for retirement
benefits to employees and executive
officers and audit and supervisoryboard members

Thousands of
U.S. Dollars(Note 1)Millions of Yen* See notes to consolidated financial statements.

Financial Section

Notes to Consolidated Financial Statements
Lawson, Inc. and its Consolidated Subsidiaries
Year Ended February 28, 2018

1 BASIS OF PRESENTING CONSOLIDATED FINANCIAL STATEMENTS

2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESThe accompanying consolidated financial statements have been prepared ina. Consolidation̶ The consolidated financial statements include the accounts ofaccordance with the provisions set forth in the Japanese Financial Instruments

the Company and its 21 (20 in 2017) subsidiaries (collectively, the Companies ).

and Exchange Act and its related accounting regulations and in accordance with

Consolidation of the remaining subsidiaries would not have a material effect on theaccounting principles generally accepted in Japan ( Japanese GAAP ), which areaccompanying consolidated financial statements.

different in certain respects as to application and disclosure requirements fromInternational Financial Reporting Standards.

Under the control and influence concepts, those entities for which the Company,
directly or indirectly, is able to exercise control over operations are fully

In preparing these consolidated financial statements, certain reclassifications andconsolidated, and those entities over which the Companies have the ability torearrangements have been made to the consolidated financial statements issued

exercise significant influence are accounted for by the equity method.

domestically in order to present them in a form which is more familiar to readers
outside Japan. In addition, certain reclassifications have been made in the 2017

Investments in three (three in 2017) associated companies are accounted for byfinancial statements to conform to the classifications used in 2018.

the equity method. Investments in 23 (22 in 2017) unconsolidated subsidiaries andassociated companies are stated at cost. If the equity method of accounting had

The consolidated financial statements are stated in Japanese yen, the currency of the

been applied to the investments in these entities, the effect on the accompanying

country in which Lawson, Inc. (theconsolidated financial statements would not be material.

Company ) is incorporated and operates. The

translations of Japanese yen amounts into U.S. dollar amounts are included solely forthe convenience of readers outside Japan and have been made at the rate of ¥107.37

All significant intercompany balances and transactions have been eliminatedto $1, the approximate rate of exchange at February 28, 2018. Such translations

in consolidation. All material unrealized profit included in assets resulting fromshould not be construed as representations that the Japanese yen amounts could betransactions within the Companies has been eliminated.

converted into U.S. dollars at that or any other rate.
The excess of the cost of the Company s investments in consolidated subsidiaries
Mitsubishi Corporation ( Mitsubishi ) owns 50,150 thousand shares of common stock

and associated companies over the fair value of the net assets at the dates ofof the Company (including indirect holdings) as of February 28, 2018, which represents

acquisition is being amortized over a period not exceeding 20 years.

50.2% of the total voting rights of the Company. Accordingly, Mitsubishi is the parent
company.

b. Fiscal Year End of the Consolidated Subsidiaries̶ The fiscal year end of

Chongqing Lawson, Inc.; Shanghai Lawson, Inc.; Dalian Lawson, Inc.; Lawson(China) Holdings, Inc.; Saha Lawson Co.; Ltd., Shanghai Le Song Trading Co.;
Ltd., Shang Hai Gong Hui Trading Co.; Ltd., Zhejiang Lawson, Inc.; Beijing Lawson,
Inc.; and BEIJING LUOSONG Co., Ltd. is December 31. In order to prepare theconsolidated financial statements, the Company used these companies financial
Lawson, Inc. MD&A 201826

statements prepared as of such fiscal year end, and significant transactions whichd. Unification of Accounting Policies Applied to Foreign Associated Companies

occur between December 31 and the consolidated fiscal year end are adjusted as

Accounted for by Using the Equity Method̶ In March 2008, the ASBJ issued

required for consolidation.

ASBJ Statement No. 16, Accounting Standard for Equity Method of Accounting

The fiscal year end of Lawson Bank Preparatory Company, Inc. is March 31. In

for Investments. The standard requires adjustments to be made to conformorder to prepare the consolidated financial statements, the Company used thisassociate's accounting policies for similar transactions and events under similar

subsidiary s provisional settlement of accounts as of the Company s fiscal year

circumstances to those of the parent company when the associate's financial

end.

statements are used in applying the equity method, unless it is impracticable
to determine adjustments. In addition, financial statements prepared by foreign

The fiscal year end date for the other consolidated subsidiaries is the same as thatassociated companies in accordance with either International Financial Reportingof the Company.

Standards or generally accepted accounting principles in the United States
tentatively may be used in applying the equity method if the following items arec. Unification of Accounting Policies Applied to Foreign Subsidiaries for the

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

Consolidated Financial Statements̶ In May 2006, the Accounting Standards

unless they are not material: (a) amortization of goodwill; (b) scheduled amortization

Board of Japan (ASBJ) issued ASBJ Practical Issues Task Force (PITF) No.

of actuarial gain or loss of pensions that has been directly recorded in equity; (c)18, Practical Solution on Unification of Accounting Policies Applied to Foreign

expensing capitalized development costs of R&D; and (d) cancellation of the fair

Subsidiaries for Consolidated Financial Statements. PITF No. 18 prescribes thatvalue model of accounting for property, plant, and equipment and investment

the accounting policies and procedures applied to a parent company and its

properties and incorporation of the cost model of accounting.

subsidiaries for similar transactions and events under similar circumstances should
in principle be unified for the preparation of the consolidated financial statements.

e. Business Combinations̶ Business combinations are accounted for using the

However, financial statements prepared by foreign subsidiaries in accordancepurchase method. Acquisition-related costs, such as advisory fees or professionalwith either International Financial Reporting Standards or generally accepted

fees, are accounted for as expenses in the periods in which the costs are incurred.

accounting principles in the United States of America tentatively may be used forIf the initial accounting for a business combination is incomplete by the end of

the consolidation process, except for the following items that should be adjusted

the reporting period in which the business combination occurs, an acquirer shallin the consolidation process so that net income is accounted for in accordance

report in its financial statements provisional amounts for the items for whichwith Japanese GAAP, unless they are not material: (a) amortization of goodwill;

the accounting is incomplete. During the measurement period, which shall not(b) scheduled amortization of actuarial gain or loss related to pensions that has

exceed one year from the acquisition, the acquirer shall retrospectively adjust the

been directly recorded in equity; (c) expensing capitalized development costs ofprovisional amounts recognized at the acquisition date to reflect new information

R&D; and (d) cancellation of the fair value model of accounting for property, plantobtained about facts and circumstances that existed as of the acquisition date andand equipment and investment properties and incorporation of the cost model ofthat would have affected the measurement of the amounts recognized as of that

accounting.

date. Such adjustments shall be recognized as if the accounting for the businesscombination had been completed at the acquisition date. The acquirer recognizes

27

Lawson, Inc. MD&A 2018

Financial Section

any bargain purchase gain in profit or loss immediately on the acquisition dateextended or renewed upon expiration subject to renegotiation of contract terms

after reassessing and confirming that all of the assets acquired and all of the

between the Company and the franchisee.

liabilities assumed have been identified after a review of the procedures used in
the purchase price allocation. A parent's ownership interest in a subsidiary might

The franchise agreement usually provides that the franchised store shall make achange if the parent purchases or sells ownership interests in its subsidiary. The

cash payment to the Company in the amount of ¥3 million upon commencement.

carrying amount of noncontrolling interests is adjusted to reflect the change in theUpon receipt of such payment, ¥1.5 million is credited to income of the Company

parent's ownership interest in its subsidiary while the parent retains its controllingasinterest in its subsidiary. Any difference between the fair value of the consideration

services related to the opening of the LAWSON store. The remaining amountreceived or paid and the amount by which the noncontrolling interest is adjusted

received by the Company is credited to the Due to franchised stores accountis accounted for as capital surplus as long as the parent retains control over its

and then applied to working capital for purchases of merchandise and supplies for

subsidiary.

the franchised store.

Operating revenues ̶Franchise commissions from franchised stores forf. Franchise Agreements and Basis for Recognizing Franchise Commissions̶As part of the contractual obligations of the franchisor under the agreement, the

The Company operates principally in a single industry, referred to as theCompany generally provides franchisees with furniture, fixtures, and equipment

convenience store business, with its own stores and franchised stores. The

designed for the LAWSON stores. In some cases, franchisees may also be

Company allows each independent franchisee to operate relatively small-sized

provided with the land or buildings for the stores. However, the Company does

convenience stores using specific designs and LAWSON brand names, andnot require the franchisees to make lease payments related to the stores. Instead,provides related managerial or technical know-how under a franchise agreement.

a higher percentage applicable to the gross margin would be used as the basis

Under the agreement, all franchised stores are provided with a variety of services

for determining the franchise commissions. The portion of franchise commission

and advice on the operation of convenience stores from the Company as theattributable to property and store equipment leases is not separately accounted

franchisor. In return, such franchised stores are required to pay continuing

for by the Company.

franchise commissions to the Company based on certain percentages of therespective franchised store's gross margin. As the franchisor, the Company

g. Cash and Cash Equivalents̶ Cash and cash equivalents include cash on hand,accounts for franchise commissions on an accrual basis by reference to thedemand deposits, and short-term investments, which mature or become due

gross margin earned by each franchised store and the applicable commission

within three months of the date of acquisition and which are readily convertible into

percentage. According to the franchise agreement, a franchised store may pay

cash and are exposed to insignificant risk of changes in value.

additional guarantee deposits equal to twice the average monthly sales amountsof the respective store and pay a lower commission percentage.
The term of a franchise agreement is effective primarily for 10 years from thecommencement date of a new store's operation as a franchised store and may be
Lawson, Inc. MD&A 201828

h. Inventories ̶ Substantially all inventories are stated at the lower of cost,

k. Long Lived Assets̶ The Companies review their long-lived assets for impairment

determined by the retail method as generally applied in the retail industry or by thewhenever events or changes in circumstance indicate the carrying amount ofgross average method, or net selling value.

an asset or asset group, mainly by each store, may not be recoverable. An
impairment loss would be recognized if the carrying amount of an asset or asset

i. Marketable and Investment Securities̶ Marketable and investment securities

group exceeds the sum of the undiscounted future cash flows expected to result

are classified and accounted for, depending on management s intent, as follows:from the continued use and eventual disposition of the asset or asset group. The(1) held-to-maturity debt securities, which are expected to be held to maturity, with

impairment loss is measured as the amount by which the carrying amount of thethe positive intent and ability to hold to maturity are reported at amortized cost

asset exceeds its recoverable amount, which is the higher of the discounted cashand (2) available-for-sale securities, which are not classified as the aforementioned

flows from the continued use and eventual disposition of the assets or the net

securities, are stated at fair value based on market quotations. Unrealized gains

selling price at disposition.

and losses, net of applicable taxes, are reported in a separate component ofequity. The cost of securities sold is determined based on the moving-averagemethod.
Nonmarketable investment securities are stated at cost determined by the movingaverage method. For other-than-temporary declines in fair value, nonmarketablel. Software̶ Software used by the Companies is amortized using the straight line

method based on the estimated useful life (primarily five years).
m. Trademark Rights̶ Trademark rights are amortized using the straight line method

based on the estimated useful life (primarily 20 years).

investment securities are reduced to net realizable value by a charge to income.
n. Net Defined Benefit Liability̶ In calculating the retirement benefit obligation, in
j. Property and Store Equipment ̶ Property and store equipment are statedorder to attribute the estimated amount of retirement benefits in the period up toat cost, except for land (see Note 8). Depreciation is computed mainly by thethe end of the current fiscal year, the obligation is based on the benefit formula

straight-line method at rates based on the estimated useful lives of the assets. The

method.

range of useful lives is principally from 10 to 34 years for buildings and structuresand from 5 to 8 years for furniture, fixtures, and equipment.

Prior service cost is amortized starting from the fiscal year incurred mainly on astraight-line basis over a certain period (10 years) within the average remaining

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

service period of employees at the time of occurrence.
Actuarial differences are mainly amortized from the following fiscal year on astraight-line basis over a certain period (10 years) within the average remaining
service period of employees at the time of occurrence.
Certain consolidated subsidiaries apply the simplified method to estimate the29

Lawson, Inc. MD&A 2018

Financial Section

amount required for voluntary resignations at the end of the fiscal year as theq. Stock Options̶ Compensation expenses for employee stock options which

retirement benefit liability in order to calculate net defined benefit liabilities andwere granted on and after May 1, 2006 are recognized based on the fair value atretirement benefit expenses.

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 foro. Allowance for Retirement Benefits to Executive Officers and Audit andshare-based payment" Stock options granted to nonemployees are accounted

Supervisory Board Members̶ The provisions are calculated as liabilities atfor based on the fair value of either the stock option or the goods or services

100% of the amount that would be required if all executive officers and audit andreceived. In the consolidated balance sheet, the stock option is presented as asupervisory board members resigned as of each balance sheet date.

stock acquisition right and are included as a separate component of equity until
exercised.

p. Asset Retirement Obligations̶ An asset retirement obligation is recoded for alegal obligation imposed either by law or contract that results from the acquisition,r. Income Taxes̶ The Companies provide for income taxes applicable to all items

construction, development, and the normal operation of a tangible fixed asset andincluded in the consolidated statement of income regardless of when such taxes

is associated with the retirement of such tangible fixed asset.

are payable. Deferred income taxes are recorded to reflect the impact of temporary
differences between assets and liabilities recognized for financial reporting

The asset retirement obligation is recognized as the sum of the discounted cash

purposes and such amounts recognized for tax purposes. These deferred taxes

flows required for future asset retirement and is recorded in the period in which

are measured by applying current income tax rates to the temporary differences.

the obligation is incurred if a reasonable estimate can be made. If a reasonableestimate of the asset retirement obligation cannot be made in the period the

The Company has applied ASBJ Guidance No. 26, Guidance on Recoverability ofasset retirement obligation is incurred, the liability should be recognized when

Deferred Tax Assets effective March 1, 2017.

a reasonable estimate of asset retirement obligation can be made. Upon initialrecognition of a liability for an asset retirement obligation, asset retirement costs. Foreign Currency Financial Statements ̶ The balance sheet accounts ofis capitalized by increasing the carrying amount of the related fixed asset by the

associated companies denominated in foreign currencies are translated intoamount of the liability. The asset retirement cost is subsequently allocated toJapanese yen at the current exchange rate as of the balance sheet date, except

expense through depreciation over the remaining useful life of the asset. Over time,for equity, which is translated at the historical rate. Differences arising fromthe liability is accreted to its present value each period. Any subsequent revisions

such translation are shown as Foreign currency translation adjustments andto the timing or the amount of the original estimate of undiscounted cash flows are

Noncontrolling interests in separate components of equity. Revenue and expensereflected as an adjustment to the carrying amount of the liability and the capitalizedaccounts of affiliated companies denominated in foreign currencies are translated

amount of the related asset retirement cost.

into yen at the current exchange rate.

Lawson, Inc. MD&A 201830

t. Per Share Information̶ Basic net income per share is computed by dividing net

income available to common shareholders by the weighted-average number ofcommon shares outstanding for the period.

(3) Changes in accounting estimates
A change in an accounting estimate is accounted for in the period of
the change if the change affects that period only, and is accounted forprospectively if the change affects both the period of the change and future

The number of shares used in computing net income per share was 100,044

periods.

thousand shares for 2018 and 100,009 thousand shares for 2017.
(4) Corrections of prior-period errors
Diluted net income per share for the years ended February 28, 2018 and 2017

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

was computed by using the weighted-average number of common shares

statements are restated.

outstanding adjusted to include the potentially dilutive effect of stock options thatwere outstanding during the year.

v. Reclassification of Prior Year s Consolidated Financial Statements ̶ The

Company has made changes to the classification of amounts in the consolidated
Cash dividends per share presented in the accompanying consolidated statement

statement of cash flows for the year ended February 28, 2018. In order to conformof income are dividends applicable to the respective years including dividends toto the presentation for the year ended February 28, 2018, the Company has

be paid after the end of the year.

reclassified the related amounts in the consolidated statement of cash flows for theyear ended February 28, 2017, as stated below.

u. Accounting Changes and Error Corrections̶ In December 2009, the ASBJ

issued ASBJ Statement No. 24, Accounting Standard for Accounting Changes(Consolidated Statement of Cash Flows)

and Error Corrections , and ASBJ Guidance No. 24, Guidance on Accounting

In the Investing activities section, Payments into time deposits was presented

Standard for Accounting Changes and Error Corrections . Accounting treatments

separately in the previous fiscal year. Due to a decline in financial materiality,

under this standard and guidance are as follows:

Payments into time deposits is now included in

Other-net. To reflect thischange in method of presentation, the consolidated statement of cash flows(1) Changes in accounting policies

for the previous fiscal year has been reclassified. As a result, in theInvesting

When a new accounting policy is applied following the revision of anactivities section, the (842) million yen that had previously been presented as

accounting standard, the new policy is applied retrospectively unless the

Payments into time deposits in the consolidated statement of cash flows for therevised accounting standard includes specific transitional provisions, in which

previous fiscal year is now included in Other-net.

case the entity shall comply with the specific transitional provisions.
In the Investing activities section, Proceeds from withdrawal of time deposits(2) Changes in presentation31

was presented separately in the previous fiscal year. Due to a decline in financial

When the presentation of financial statements is changed, prior-period financial

materiality, Proceeds from withdrawal of time deposits is now included in Other-statements are reclassified in accordance with the new presentation.

net. To reflect this change in method of presentation, the consolidated statement

Lawson, Inc. MD&A 2018

Financial Sectionof cash flows for the previous fiscal year has been reclassified. As a result, in

3 ACCOUNTS RECEIVABLE̶DUE FROM FRANCHISED STORES

the Investing activities section, the 1,764 million yen that had previously been

Under the franchise agreements, the Company is responsible for providing

presented as Proceeds from withdrawal of time deposits in the consolidated

architectural and design services with respect to the franchised stores facilities, forstatement of cash flows for the previous fiscal year is now included in Other-net.

training of the franchisees personnel, and for the centralized processing of invoicesfrom suggested vendors of merchandise and subsequent payments of amounts

In the Investing activities section, Payments from transfer of business waspayable to such vendors.

included in Other-net in the previous fiscal year. Due to an increase in financial
materiality, Payments from transfer of business is now separately presented.

The EDP system of the Company generates a record of merchandise purchased by

To reflect this change in the method of presentation, the consolidated statement

each franchised store and accumulates the amounts payable to respective vendors.

of cash flows for the previous fiscal year has been reclassified. As a result, in the

Under the franchise agreements, the Company, as a representative for all franchised

Investing activities section, the (4,436) million yen that had previously been

stores, pays amounts payable to the vendors on the stores behalf. When thepresented inmerchandise is received by each franchised store, the Company records the cost of

Other-net in the consolidated statement of cash flows for theprevious fiscal year is now presented as Payments from transfer of business.

the merchandise in the Accounts receivable ̶ Due from franchised stores accountsince such costs shall be subsequently recovered from the respective franchised

In theFinancing activities section,

Payments from changes in ownershipstores.

interests in subsidiaries that do not result in changes in scope of consolidation
Accounts receivable ̶ Due from franchised stores account represents net

was included in Other-net in the previous fiscal year. Due to an increase inThefinancial materiality, Payments from changes in ownership interests in subsidiaries

amounts recoverable from the franchised stores.

that do not result in changes in scope of consolidation is now separately
presented. To reflect this change in the method of presentation, the consolidated
statement of cash flows for the previous fiscal year has been reclassified. As aresult, in the Financing activities section, the (709) million yen that had previously
been presented in Other-net in the consolidated statement of cash flows for theprevious fiscal year is now presented as Payments from changes in ownershipinterests in subsidiaries that do not result in changes in scope of consolidation .

Lawson, Inc. MD&A 2018

32

4

LEASE RECEIVABLES

5 MARKETABLE AND INVESTMENT SECURITIES

Lease receivables as of February 28, 2018 and 2017, are summarized as follows:
Thousands of
U.S. Dollars

Millions of Yen

2018

the following:¥16,646¥12,533$155,036

Interest income equivalents

(220)

(197)

(2,051)¥16,426¥12,336$152,985

2018
Non-current
̶Marketable and other equity securities

Total

2018

2017

¥13,183

Non-current̶Corporate bonds

Maturities of lease receivables for finance leases deemed to transfer leased property toThousands of
U.S. Dollars

Millions of Yen

2018

2017

Lease revenue receivable
Lease receivables

Marketable and investment securities as of February 28, 2018 and 2017, consisted of$122,781¥8,624

193

157

1,798

¥13,376¥8,781$124,579

the lessee at February 28, 2018 are as follows:Year Ending
February 28 or 29

The costs and aggregate fair values of marketable and investment securities as ofThousands of
U.S. Dollars

Millions of Yen

February 28, 2018 and 2017, were as follows:2019¥2,096$19,523

2020

1,962

18,277

2021

1,742

16,223February 28, 2018

2022

1,493

13,905

2023

1,372

12,779Securities classified as available-for-sale̶ Equity securities

2024 and thereafter

7,981

74,331¥16,646$155,038

Total

Millions of Yen
Cost¥8,866

Unrealized
Gains

Unrealized
Losses¥3,724

¥894

Fair
Value
¥11,696

Millions of Yen
February 28, 2017

Securities classified as available-for-sale̶ Equity securities

Cost¥6,407

Unrealized
Gains

Unrealized
Losses¥1,099

¥983

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

33

Lawson, Inc. MD&A 2018

February 28, 2018

Cost

Securities classified as available-for-sale̶ Equity securities$82,574

Unrealized
Gains

Unrealized
Losses$34,684$8,326

Fair
Value$108,932

Financial Section

The proceeds, realized gains, and realized losses on the available-for-sale securities
which were sold during the years ended February 28, 2018 and 2017, were as follows:

Available-for-sale:
Equity securities

Realized
Gains

Proceeds

Derivative transactions to which hedge accounting was not applied at February 28,
2018

Millions of Yen
February 28, 20186 DERIVATIVES TRADING

Realized
Losses¥665

Millions of Yen

Contract
AmountFebruary 28, 2018

Contract
AmountDue After
One Year

Fair
Value

Unrealized
Loss

Exchange contracts
Millions of Yen
February 28, 2017

Available-for-sale:
Equity securities

Realized
Gains

Proceeds

Realized
LossesTransactions
other than market
transactions

Short position
Chinese Yuan
Thai Baht

Total
¥560

¥12,410¥ (28)¥ (28)

186

(0)

(0)

¥12,596¥ (28)¥ (28)¥89
Thousands of U.S. Dollars

Thousands of U.S. Dollars
February 28, 2018

Available-for-sale:
Equity securities

Proceeds$6,194

Realized
Gains

Realized
LossesContract
AmountFebruary 28, 2018

Contract
AmountDue After
One Year

Fair
Value

Unrealized
Loss

Exchange contracts
Transactions
other than market
transactions

Short position
Chinese Yuan
Thai Baht

Total$115,578$ (258)$ (258)

1,738

(4)

(4)

$117,316$ (262)$ (262)

Lawson, Inc. MD&A 201834

7 LONG LIVED ASSETS

The above noted assets which incurred impairment losses for the years ended

The Companies mainly identify individual stores as the smallest cash generating

February 28, 2018 and 2017, consisted of the following:

units. The Companies recognize an impairment loss in cases where the value of longcarrying amounts of those assets are written down to the recoverable amounts and2018

an impairment loss is recorded in other expenses in the consolidated statement of

Buildings

income.

Furniture, fixtures, and equipment
Lease assets

2018

2017

¥5,968¥5,833$55,583

811

529

7,553

4,485

2,786

41,771

183

354

The Companies recognized an impairment loss in the following asset categories for theLandyears ended February 28, 2018 and 2017:

Software

6,035

Goodwill

12

Other

40

33

373

Total

¥17,534¥9,535$163,304

Thousands of
U.S. Dollars

Millions of Yen

2018

2018

2017

1,704
56,208112

Category

Related Assets

Location

StoresBuildings andFurniture, fixtures,and equipment

Tokyo¥1,306¥1,703$12,164

Osaka

1,390

1,442

12,946

The recoverable amount of these assets was measured based on net selling price

Others

8,721

6,390

81,224or value in use. The net selling price of land was calculated based on the appraised

70

652

value by a real estate appraiser or the expected contract price. The value in use wasSoftware

6,035

56,207

calculated by discounting estimated future cash flows. The discount rate used was

Goodwill

12

112

Other

Land

Total

35

Thousands of
U.S. Dollars

Millions of Yen

lived assets has declined, primarily as a result of continuous operating losses. The

Lawson, Inc. MD&A 2018¥17,534¥9,535$163,304

mainly 4.4% for the years ended February 28, 2018 and 2017.

Financial Section

8 LAND REVALUATION

9 ACCOUNTS PAYABLE̶TRADE

Under the “Law of Land Revaluation,” promulgated on March 31, 1998, and revised on

The balances of

Accounts payable ̶ trade represent the amounts payable toMarch 31, 1999 and 2001, the Company opted for a one-time revaluation of its own-

vendors for merchandise purchased by the Company-operated stores and franchised

use land to a value based on real estate appraisal information as of February 28, 2002.

stores. The Company centralizes all merchandise purchasing procedures both for theCompany-operated stores and franchised stores and makes collective payments to

The resulting land revaluation difference represents unrealized depreciation of land andvendors (see Note 3).

is stated, net of income taxes, as a component of equity. There was no effect on the
consolidated statement of income. Continuous readjustment is not permitted unless“Accounts payable̶trade” as of February 28, 2018 and 2017, were summarized

the land value subsequently declines significantly.

below:
Thousands of
U.S. Dollars

Millions of Yen

As at February 28, 2018, the carrying amount of the land after the above one-timerevaluation exceeded the market value by ¥177 million ($1,649 thousand).

2018
Accounts payable̶trade for franchised stores
Accounts payable̶trade for the Company-operated
stores
Total

2017

2018

¥101,115¥95,107$941,752

17,05915,728

158,881¥118,175¥110,835$1,100,633

10 ACCOUNTS PAYABLE̶DUE TO FRANCHISED STORESThe cost of merchandise supplied to franchised stores is recorded as Accounts
receivable̶Due from franchised stores as described in Note 3.
All franchised stores make remittances of cash proceeds from daily sales to theCompany. In certain instances, the remittance from a franchised store exceeds thebalance of “Accounts receivable̶Due from franchised stores.” In the accompanying
consolidated balance sheets, such excess balances are presented as “Accounts
payable̶Due to franchised stores.”

Lawson, Inc. MD&A 201836

11 SHORT-TERM BANK LOANS AND LONG TERM DEBT

The aggregate annual maturities of finance lease obligations at February 28, 2018,

Short-term bank loans at February 28, 2018 and 2017, consisted of notes to banks.
The annual interest rates applicable to the short-term bank loans were 0.06% and 0.14
% at February 28, 2018 and February 28, 2017, respectively.
Long-term debt at February 28, 2018 and 2017, consisted of the following:Thousands of
U.S. Dollars

Millions of Yen

2018

2017

Year Ending February 28 or 29

2018¥56,045¥57,278$521,980

Obligations under finance leases

146,681

127,997

1,366,127

Less current portion(33,639)(28,588)(313,300)¥169,087¥156,687$1,574,807

Thousands of
U.S. Dollars

Millions of Yen

2019¥33,063$307,935

2020

30,146

280,7672021

26,317245,106

2022

21,138

196,8712023 and thereafter
Total

Loans from banks, due serially to 2020
with a weighted-average interest rate of
0.09% (2018)

Long-term debt, less current portion

were as follows:

36,017335,447¥146,681$1,366,126

As of February 28, 2018, the carrying amounts of assets pledged as collateral for
short-term bank loans and the current portion of long-term debt of ¥575 million ($5,355
thousand) and long-term debt of ¥5,469 million ($50,936 thousand), were as follows:
Thousands of
U.S. Dollars

Millions of Yen

2018

The aggregate annual maturities of long-term debt, excluding finance leases, atFebruary 28, 2018, were as follows:Year Ending February 28 or 29

2019

37

Thousands of
U.S. Dollars

Millions of Yen
575

5,355

2020

55,470516,625

Total¥56,045$521,980

Lawson, Inc. MD&A 2018

Cash and cash equivalents

2018¥4,213$39,238

Shares of consolidated subsidiaries(Amount before elimination)

16,614

154,736

Total¥20,827$193,974

Financial Section

12 EMPLOYEES' RETIREMENT BENEFITSFor employees(2) Changes in plan assets for the year ended February 28, 2018, were as follows:

retirement benefits, the Company and certain consolidated

subsidiaries adopt a funded or unfunded defined benefit-type lump-sum retirement
allowance plan and a defined contribution-type pension plan.

Balance at beginning of year

The lump-sum retirement allowance plan (generally unfunded, with some plans

Balance at end of year

Actuarial gains

Millions of Yen

Thousands of
U.S. Dollars¥5,587$52,03500¥5,587$52,035

being funded in accordance with an employee pension trust) pays a lump sum as aretirement benefit based on salary and length of service of the employee.

(3) Reconciliation between the liability recorded in the consolidated balance sheet andthe balances of defined benefit obligations and plan assets were as follows:

The lump-sum retirement allowance plan employed by some consolidated subsidiaries
calculates liabilities related to retirement benefits and retirement benefit expenses byFunded defined benefit obligation

the simplified method.

Plan assets

Year Ended February 28, 2018
(1) Changes in defined benefit obligations for the year ended February 28, 2018, wereas follows:

Balance at beginning of year (as restated)
Current service cost

Millions of Yen

Thousands of
U.S. Dollars¥18,417$171,529

1,757

16,364

Interest cost

64

596

Actuarial losses

(85)

(792)

Benefits paid

(1,066)(9,928)OthersBalance at end of year437

¥19,091$177,806

Millions of Yen

Thousands of
U.S. Dollars¥17,434$162,373(5,587)(52,035)

11,847110,338

Unfunded defined benefit obligation

1,657

15,433Net liability arising from defined benefit
obligations¥13,504$125,771

Millions of Yen

Thousands of
U.S. Dollars

Liability for retirement benefits¥13,504$125,771

Net liability arising from defined benefit
obligations¥13,504$125,771

Lawson, Inc. MD&A 201838

(4) Components of net periodic benefit costs for the year ended February 28, 2018,
were as follows:a. Components of plan assets
Millions of Yen

Thousands of
U.S. Dollars

Service cost

¥1,757$16,364

Interest cost

64

596

Recognized actuarial losses

198

1,844

Amortization of prior service cost

10

93

Others

(25)

(233)

¥2,004$18,664

Net periodic benefit costs(7) Plan assets(5) Amounts recognized in other comprehensive income (before income tax effect) in

Plan assets consisted of the following:
Cash and cash equivalents

100%

Total

100%

b. Method of determining the expected rate of return on plan assets
The expected rate of return on plan assets is determined considering the longterm rates of return which are expected currently and in the future from thevarious components of the plan assets.
(8) Assumptions used for the year ended February 28, 2018, were set forth as follows:

respect to defined retirement benefit plans for the year ended February 28, 2018,

Discount rate

were as follows:

Expected rate of return on plan assets
Millions of Yen

Thousands of
U.S. Dollars

Prior service cost

¥10

$93

Actuarial losses

284

2,636

Total

¥293

$2,729tax effect) in respect to defined retirement benefit plans as of February 28, 2018,
were as follows:
Millions of Yen

39

Thousands of
U.S. Dollars

Unrecognized prior service cost

¥1

$9

Unrecognized actuarial losses

1,012

9,425

Total

¥1,013$9,434

Lawson, Inc. MD&A 2018

0%(9) Contributions to the defined contribution pension plan for the year ended February
28, 2018, were as follows:
Millions of Yen

Net periodic benefit cost(6) Amounts recognized in accumulated other comprehensive income (before income

0.5% (mainly)¥489

Thousands of
U.S. Dollars$4,554

Financial Section

Year Ended February 28, 2017
Millions of Yen(1) Changes in defined benefit obligations for the year ended February 28, 2017, wereas follows:
Millions of Yen

Balance at beginning of year (as restated)
Current service cost
Interest cost

¥17,552

Liability for retirement benefits¥12,830

Net liability arising from defined benefit obligation¥12,830(4) Components of net periodic benefit costs for the year ended February 28, 2017,
were as follows:

1,595
54

Millions of Yen

Actuarial losses

149

Service cost

¥1,595

Benefits paid

(932)

Interest cost

54

Recognized actuarial losses

140

OthersBalance at end of year(1)
¥18,417

Amortization of prior service cost
Others(2) 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

¥5,590(3)

Net periodic benefit costs

9(20)¥1,778(5) Amounts recognized in other comprehensive income (before income tax effect) in
respect to defined retirement benefit plans for the year ended February 28, 2017,
were as follows:¥5,587
Millions of Yen(3) Reconciliation between the liability recorded in the consolidated balance sheet andthe balances of defined benefit obligations and plan assets were as follows:

Prior service cost

¥10

Actuarial losses

(12)

Total

¥(2)

Millions of Yen

Funded defined benefit obligations
Plan assets¥16,920(5,587)
11,333

Unfunded defined benefit obligations
Net liability arising from defined benefit obligations

1,497¥12,830

Lawson, Inc. MD&A 201840

(6) Amounts recognized in accumulated other comprehensive income (before

13 ASSET RETIREMENT OBLIGATIONS

income tax effect) in respect to defined retirement benefit plans as of February 28,

The changes in asset retirement obligations for the years ended February 28, 20182017,were as follows:

and 2017, were as follows:
Millions of Yen

Unrecognized prior service cost

1,295

Total

¥1,306(7) Plan assets
a. Components of plan assets
Plan assets consisted of the following:
Cash and cash equivalents

100%

Total

100%

The expected rate of return on plan assets is determined considering the longterm rates of return which are expected currently and in the future from thevarious components of the plan assets.
(8) Assumptions used for the year ended February 28, 2017, were set forth as follows:
Expected rate of return on plan assets

0.5% (mainly)
0%(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

41

Lawson, Inc. MD&A 2018

Balance at beginning of year

¥483

2018

2017

¥27,023¥24,721$251,681

2,493

2,625

23,219Reconciliation associated withpassage of time

392

393

3,651

Reduction associated with settlementof asset retirement obligations

(799)

(716)

(7,442)

29,10927,023271,109

(46)

(65)

(428)

¥29,063¥26,958$270,681

Additional provisions associatedwith the acquisition of property,
plant, and equipment

Total
Less current portion
Asset retirement obligations,less current portionb. Method of determining the expected rate of return on plan assets

Discount rate

2018

¥11

Unrecognized actuarial losses

Thousands of
U.S. Dollars

Millions of Yen

Financial Section

14 EQUITY

Under the Companies Act, the total amount of additional paid-in capital and legal

Japanese companies are subject to the Companies Act of Japan (the “Companies

reserve may be reversed without limitation. The Companies Act also provides for

Act ” ). The significant provisions in the Companies Act that affect financial andcommon stock, legal reserve, additional paid-in capital, other capital surplus, andaccounting matters are summarized below:

retained earnings to be transferred among the accounts within equity under certain
conditions upon resolution of the shareholders.

a. Dividends

Under the Companies Act, companies can pay dividends at any time during thec. Treasury Stock and Treasury Stock Acquisition Rights

fiscal year in addition to the year-end dividend upon resolution at the shareholders

The Companies Act also provides for companies to purchase treasury stock andmeeting. For companies that meet certain criteria such as (1) having a Board of

dispose of such treasury stock by resolution of the Board of Directors. The amount

Directors, (2) having independent auditors, (3) having an Audit & Supervisory Board,of treasury stock purchased cannot exceed the amount available for distribution toand (4) the term of service of the directors being prescribed as one year rather than

the shareholders, which is determined by a specific formula. Under the Companies

the normal two-year term by its articles of incorporation, the Board of Directors may

Act, stock acquisition rights are presented as a separate component of equity.

declare dividends (except for dividends in kind) at any time during the fiscal year if

The Companies Act also provides for companies to purchase both treasury stock

the company has prescribed so in its articles of incorporation.

acquisition rights and treasury stock. Such treasury stock acquisition rights arepresented as a separate component of equity or deducted directly from stock

The Companies Act permits companies to distribute dividends-in-kind (noncash

acquisition rights.

assets) to shareholders 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 the articles of incorporation of the company so stipulate. The
Companies Act provides certain limitations on the amounts available for dividends
or the purchase of treasury stock. The limitation is defined as the amount available
for distribution to the shareholders, but the amount of net assets after dividends
must be maintained at no less than ¥3 million.
b. Increases/Decreases and Transfer of Common Stock, Reserve, and Surplus

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) depending on the equity accountcharged upon the payment of such dividends until the total aggregate amountof legal reserve and additional paid-in capital equals 25% of the common stock.
Lawson, Inc. MD&A 201842

15 STOCK OPTIONSThe Company has stock option plans as an incentive for directors, executive officers, and selected employees.
The stock options outstanding as of February 28, 2018, were as follows:
Persons Granted

Number of
Options Granted

Date of Grant

Exercise Price

5th Stock Option

9 directors

22,400 shares2005.10.12¥1($0.01)

From October 13, 2005 to May 31, 2025

6th (a) Stock Option

9 directors

21,300 shares2006.10.26¥1($0.01)

From October 27, 2006 to May 26, 2026

7th (a) Stock Option

7 directors

18,000 shares2007.9.5¥1($0.01)

From September 6, 2007 to August 20, 2027

8th (a) Stock Option

7 directors

26,400 shares2009.1.16¥1($0.01)

From January 17, 2009 to December 15, 2028

9th Stock Option

7 directors

21,500 shares2010.2.17¥1($0.01)

From February 18, 2010 to February 1, 2030

10th Stock Option

7 directors

18,900 shares2011.2.25¥1($0.01)

From February 26, 2011 to February 10, 2031

11th Stock Option

7 directors

27,000 shares2012.2.17¥1($0.01)

From February 18, 2012 to February 1, 2032

12th Stock Option

7 directors

26,900 shares2013.4.12¥1($0.01)

From April 12, 2013 to March 26, 2033

13th Stock Option

7 directors

25,400 shares2014.4.10¥1($0.01)

From April 10, 2014 to March 23, 2034

14th Stock Option

8 directors

12,400 shares2015.4.10¥1($0.01)

From April 10, 2015 to March 24, 2035

15th Stock Option

1 director

1,100 shares2015.6.10¥1($0.01)

From June 10, 2015 to May 25, 2035

16th Stock Option

8 director

15,100 shares2016.5.2¥1($0.01)

From May 2, 2016 to April 12, 2036

17th Stock Option

8 director

20,100 shares2017.5.1¥1($0.01)

From May 1, 2017 to April 11, 2037

18th Stock Option

12 executive
officer

5,100 shares2017.7.21¥1($0.01)

From July 21, 2017 to July 4, 2037

Stock Option

43

Lawson, Inc. MD&A 2018

Exercise Period

Financial Section

Stock option activity is as follows:
5th Stock
Option6th (a) Stock
Option7th (a) Stock
Option8th (a) Stock
Option9th Stock
Option10th Stock
Option11th Stock
Option12th Stock
Option13th Stock
Option14th Stock
Option

8,500

7,300

12,400Year Ended February 28, 2017
Non-vested
February 29, 2016̶Outstanding
GrantedCanceled
VestedFebruary 28, 2017̶Outstanding
VestedFebruary 29, 2016̶Outstanding
VestedExercised
Canceled
February 28, 2017̶Outstanding
Year Ended February 28, 2018
Non-vested
February 28, 2017̶Outstanding
GrantedCanceled
VestedFebruary 28, 2018̶Outstanding
VestedFebruary 28, 2017̶Outstanding
VestedExercised
Canceled
February 28, 2018̶Outstanding
Exercise price

3,800

9,900

6,600

9,200

6,300

5,900

7,100

2,500

3,400

4,200

3,600

500

500

400

1,700

5,800

500

500

500

1,000

500

500

1,600

3,700

4,100

5,800

2,100

2,300

6,600

7,000

6,300

11,400

1,600

3,700

4,100

5,800

2,100

2,300

6,600

7,000

6,300

11,400

500

1,000

1,000

1,300

6,500

5,300

7,200

1,100

1,300

1,300

1,100

2,700

3,100

¥1

¥1

¥1

4,500

1,000

1,000

5,300

500

1,000

4,200

¥1

¥1

¥1

¥1

¥1

¥1

($0.01)($0.01)($0.01)¥1($0.01)($0.01)($0.01)($0.01)($0.01)($0.01)($0.01)

Average stock price at exercise
Fair value price at grant date

¥7,560¥7,560($70.41)($70.41)¥3,178¥2,852¥3,477¥2,652¥2,689¥3,339¥5,516¥5,146¥6,251($29.60)($26.56)($32.38)($24.70)($25.04)($31.10)($51.37)($47.93)($55.54)

Lawson, Inc. MD&A 201844

Stock option activity is as follows:
15th Stock
OptionYear Ended February 28, 2017
Non-vested
February 28, 2017̶Outstanding
GrantedCanceled
VestedFebruary 28, 2018̶Outstanding
VestedFebruary 28, 2017̶Outstanding
VestedExercised
Canceled
February 28, 2018̶Outstanding
Year Ended February 28, 2018
Non-vested
February 28, 2017̶Outstanding
GrantedCanceled
VestedFebruary 28, 2018̶Outstanding
VestedFebruary 28, 2017̶Outstanding
VestedExercised
Canceled
February 28, 2018̶Outstanding
Exercise price
Average stock price at exercise
Fair value price at grant date

16th Stock
Option17th Stock
Option18th Stock
Option15,10015,100

1,100
15,100
500
500
1,100

14,10020,100

5,100

20,100

5,100

1,100

14,10020,100

5,100

1,100

8,800

11,400

400

5,500

8,700

4,700

¥1

¥1

($0.01)($0.01)¥6,310¥6,254($56.06)($55.56)

The assumptions used to measure the fair value of the 17th and 18th stock options
were as follows:45

Lawson, Inc. MD&A 2018

17th Stock Option

18th Stock Option

Estimate method

Black-Scholes option
pricing model

Black-Scholes option
pricing model

Volatility of stock price24.25%

24.27%

Estimated remaining outstanding period

10 years

10 years

Estimated dividend¥247.5 per share¥250.0 per share

Risk-free interest rate

0.01%

0.07%

Financial Section

16 INCOME TAXESA reconciliation between the normal effective statutory tax rates and the actual effective

The Company and its domestic subsidiaries are subject to a number of different taxes

tax rates reflected in the accompanying consolidated statements of income for thebased on income, which in the aggregate, resulted in a normal statutory tax rate ofyears ended February 28, 2018 and 2017, is as follows:

approximately 30.9% and 33.1% for the years ended February 28, 2018 and 2017.

2018

2017

Normal effective statutory tax rate

30.9 %

33.1 %The tax effects of significant temporary differences and tax loss carryforwards, which

Change in valuation allowance

2.8

(0.3)

resulted in deferred tax assets and liabilities at February 28, 2018 and 2017, are as

Expenses not deductiblefor income tax purposes

0.5

0.4

Per-capita inhabitant tax

0.8

0.6

Difference in tax rates of foreign
consolidated subsidiaries

1.3

0.5

Reduction of ending deferred tax balance
due to change in statutory tax rate

0.6

3.1

follows:
Thousands of
U.S. Dollars

Millions of Yen

2018

2018

2017

Deferred tax assets:
Accrued enterprise taxes

¥787

¥875

$7,330Accrued employees' bonuses

1,187

1,054

11,055

Amortization of goodwill

2.9

1.2

Other̶net

(1.4)

(2.5)

Actual effective tax rate

38.4 %

36.6 %

Excess of depreciation

10,771

11,048100,317

374

410

3,483

Employees' retirement benefits

5,967

5,633

55,574

Allowance for doubtful accounts

348

310

3,241

Excess of amortization of software

Impairment losses

6,017

5,248

56,040Tax loss carryforwards

9,172

10,90185,424

Other
Less valuation allowance
Total

6,407

5,954

59,673(12,784)(12,114)(119,065)

28,24629,319263,072

Deferred tax liabilities:
Trademark rights
Net deferred tax assets
Net deferred tax assets

3,046

3,231

28,370¥25,200¥26,088$234,702¥25,200¥26,088$234,702

Lawson, Inc. MD&A 201846

At February 28, 2018, certain domestic subsidiaries has tax loss carryforwards

18 OTHER COMPREHENSIVE INCOME

aggregating approximately ¥31,749 million ($3,408,890 thousand) which are available

The components of other comprehensive income for the years ended February 28,

to be offset against taxable income of such subsidiaries in future years. These tax loss

2018 and 2017, were as follows:

carryforwards, if not utilized, will expire as follows:Year Ending
February 28 or 29

Millions of Yen

Thousands of
U.S. Dollars

2018¥2,951$316,850

2019

5,758

618,236

2020

3,562

382,452

2021

8,558

918,872

2022

5,230

561,545

2023

2,987

320,7142024

575

61,7382025

506

54,329

2026

1,622

174,154

Total¥31,749$3,408,890

Thousands of
U.S. Dollars

Millions of Yen

2018

2018

2017

Unrealized gain (loss) on available-for-salesecurities
Gains (losses) arising during the year

¥2,568¥ (1,059)$23,917

Reclassification adjustments toprofit or loss

31

244

289

Amount before income tax effect

2,599

(815)

24,206

Income tax effect
Total

(789)
¥1,810¥288(7,348)(527)$16,858

Land revaluation difference
Adjustments arising during the year

(53)

Total

¥(53)

Foreign currency translation adjustments
Adjustments arising during the year

17 SUPPLEMENTAL CASH FLOW INFORMATION(1) Finance lease assets and finance lease obligations regarded as non-cash

Reclassification adjustments toprofit or losstransactions incurred for the year ended February 28, 2018, amounted to ¥47,054

Total

million ($438,242 thousand).

Remeasurements of defined benefit plans(2) Asset retirement obligations regarded as non-cash transactions incurred for the year
ended February 28, 2018, amounted to ¥2,492 million ($23,209 thousand).

$345

(23)
¥ (929)$345

Losses arising during the year¥86

¥ (151)$801

Reclassification adjustments toprofit or loss

207

149

1,928

Amount before income tax effect

293

(2)

2,729

Income tax effect

(92)

(20)

(857)

Total other comprehensive income

Lawson, Inc. MD&A 2018¥(906)

¥36

Total

47

¥36

¥201

¥(22)

$1,872¥2,047¥(1,531)$19,065

Financial Section

19 BUSINESS COMBINATIONS(3) Details and amount of major acquisition-related expenses
Advisory compensation and fees, etc.

Business combination due to acquisition

78 million yen(1) Outline of business combination① Name of the acquired company and business description(4) Amount, cause, and amortization method and period of goodwill generated① Amount of goodwill generated

Name of company: Three F Co., Ltd. (hereinafter, Three F )Business description: Convenience store business

5,688 million yen② Main reason for business combination② Cause of generation of goodwill

Under the terms of the business integration contract signed by the Company

Excess earnings power anticipated through business development

and Three F on April 13, 2016, the two companies established a new joint③ Method and period of amortization

venture LTF Co., Ltd., which began converting 89 Three F stores operated in

Straight-line method over 9 years

Chiba and Saitama Prefectures into LAWSON Three F double-brand stores in
September 2016. As the collaboration proved to be effective, the two companies
decided to also transform Three F stores in Tokyo and Kanagawa Prefecture,(5) Amounts and major breakdown of assets acquired and liabilities assumed on thedate of business combinationand part of Chiba Prefecture, into LAWSON Three F double-brand stores.

(Millions of yen)

The business combination is a pre-arranged company split designed to transfer

Non-current assets

5,308

a portion of the rights and obligations relate to Three F s convenience store

Total assets

5,308

operations.
③ Date of business combination(6) Estimated amount and its calculation method regarding the impact on theJune 1, 2017consolidated statement of income for the current fiscal year assuming that the④ Legal form of business combination

business combination was completed at the beginning of the current fiscal year

Absorption-type company split whereby Three F is the split company and

The estimated amount of the impact is not presented as it cannot be reasonably

Lawson is the succeeding company

calculated.

⑤ Main grounds for determining the Company to be the acquiring company

The Company acquired Three F s business for cash consideration.
(2) Acquisition cost for acquiring the business and breakdown by type of consideration(Millions of yen)Type of consideration
Acquisition cost

Cash and deposits

10,996
10,996

Lawson, Inc. MD&A 201848

20 SEGMENT INFORMATIONSTORE100 stores. SCI, Inc. is a subsidiary that serves the function of rationally

In March 2008, the ASBJ revised ASBJ Statement No. 17, Accounting Standard

managing the process from procurement to sale, and aims to improve the efficiency

for Disclosures about Segments of an Enterprise and Related Information , andof and optimize the process.

issued ASBJ Guidance No. 20, Guidance on Accounting Standard for Disclosuresabout Segments of an Enterprise and Related Information. Under the standard andRegarding the Seijo Ishii Business, SEIJO ISHII CO., LTD. operates the SEIJO ISHII

guidance, an entity is required to report financial and descriptive information about its

supermarket.

reportable segments. Reportable segments are operating segments or aggregations ofoperating segments that meet specified criteria. Operating segments are components

Regarding the Entertainment-Related Business, Lawson HMV Entertainment, Inc.

of an entity about which separate financial information is available and for which suchmanages the sale of concert tickets at LAWSON stores and others, and music andinformation is evaluated regularly by the chief operating decision-maker in deciding how

video at HMV stores and others. In addition, United Cinemas Co., Ltd. operates

to allocate resources and in assessing performance. Generally, segment information ismultiplex movie theaters.

required to be reported on the same basis as is used internally for evaluating operating
segment performance and deciding how to allocate resources to operating segments.

(b) Methods of measurement for the amounts of sales, profit , assets, and other items
for each reportable segment(a) Description of reportable segments
The Company s financial information is provided separately by reporting segment

The accounting policies of each reportable segment are basically consistent withand is subject to regular review by the Board of Directors with regard to allocation of

those disclosed in Note 2, Summary of Significant Accounting Policies.

managerial resources and performance evaluation. The Company primarily operates
the Domestic Convenience Store Business, Seijo Ishii Business, and Entertainment-

Segment profit is determined in the same manner as operating income.

Related Business, while incorporating other related businesses.

Intersegment sales or transfers are calculated based on market prices.

Therefore, the Company has made the Domestic Convenience Store Business,
Seijo Ishii Business, and Entertainment-Related Business its reportable segments
based on consideration of financial characteristics and the nature of the services
provided.
Regarding the Domestic Convenience Store Business, Lawson, Inc. operates afranchise 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 the
Sanin area. Lawson Store100, Inc. undertakes the direct management of LAWSON
49

Lawson, Inc. MD&A 2018

Financial Section(c) Information about sales, profit (loss), assets, and other items is as follows:
Millions of Yen

2018
Reportable Segments
Domestic Convenience
Store Business

Seijo Ishii
Business

Entertainment-Related
Business

Other

Total

¥437,216¥81,957¥73,967¥64,185¥657,325

1,414

1,258

8,140

¥ (8,140)¥ (8,140)

Reconciliations

Consolidated

Sales:
Sales to external customers
Intersegment sales or transfers

5,468¥657,325

Total¥442,684¥81,957¥75,381¥65,443¥665,465

Segment profit¥53,648¥6,854¥3,854¥1,465¥65,821

Segment assets

834,644

60,45863,84670,522

1,029,470

Depreciation

46,162

1,799

2,300

4,503

54,76454,764

Amortization of goodwill

1,839

1,437

502

60

3,838

3,838

Investments in associated companies

5,146

5,146

5,146

Increase in property, plant, and equipment and intangible assets

49,15660,07160,071¥657,325¥65,821¥(129,214)

900,256

Other:

1,061

1,242

8,612

Millions of Yen

2017
Reportable Segments
Domestic Convenience
Store Business

Seijo Ishii
Business

Entertainment-Related
Business

Other

Total

¥419,691¥85,825¥71,545¥54,227¥631,288

1,391

920

7,229

¥(7,229)

Reconciliations

Consolidated

Sales:
Sales to external customers
Intersegment sales or transfers

4,918¥631,288

Total¥424,609¥85,825¥72,936¥55,147¥638,517¥(7,229)¥631,288

Segment profit¥59,866¥6,912¥3,988¥2,999¥72,534¥7¥73,772

Segment assets

800,384

58,70562,271

56,925

978,285(111,707)

866,578

44,797

2,006

2,279

3,386

52,468

912

1,677

501

99

Other:
Depreciation
Amortization of goodwill
Investments in associated companies

4,922

Increase in property, plant, and equipment and intangible assets

55,489

1,055

1,483

2,928

52,468

3,189

3,189

4,922

4,922

60,95560,955

Lawson, Inc. MD&A 201850

Thousands of U.S. Dollars

2018
Reportable Segments
Domestic Convenience
Store Business

Seijo Ishii
Business

Entertainment-Related
Business

Other

Total

$4,072,050$763,314$688,898$597,793$6,122,055

13,17011,71675,813$(75,813)$4,122,977$763,314$702,068$609,509$6,197,867$(75,813)

Segment profit$499,655$63,835$35,895$13,645$613,030

Segment assets

7,773,531

563,081594,635

656,813

9,588,060

Reconciliations

Consolidated

Sales:
Sales to external customers
Intersegment sales or transfers
Total

50,927$6,122,055$6,122,055$655,030$(1,203,446)

8,384,614

Other:

Depreciation

429,934

16,755

21,421

41,939510,049

510,049

Amortization of goodwill

17,12813,384

4,675

559

35,74635,74647,92847,928

9,882

11,56780,209559,477

559,477

Investments in associated companies

47,928

Increase in property, plant, and equipment and intangible assets

457,819

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. and Lawson Bank Preparatory Company, Inc., the Overseas Business operated by Shanghai Lawson, Inc., and others.
2. Reconciliation of segment profits and segment assets is the balance of elimination of intra-segment transactions.
3. Segment profit is adjusted against consolidated operating income.

51

Lawson, Inc. MD&A 2018

Financial Section(d) Information regarding loss on impairment of long-lived assets of reportable segment
Millions of Yen

2018
Reportable Segments
Domestic
Convenience
Store Business

Loss on impairment of long-lived assets¥16,854

Seijo Ishii
Business¥88

EntertainmentRelated
Business

Other

Total

¥150

¥442

¥17,534

Reconciliations

Consolidated¥17,534

Millions of Yen

2017
Reportable Segments

Loss on impairment of long-lived assets

Domestic
Convenience
Store Business

Seijo Ishii
Business

EntertainmentRelated
Business

Other

Total

¥9,035

¥62

¥208

¥230

¥9,535Reconciliations

Consolidated¥9,535

Thousands of U.S. Dollars

2018
Reportable Segments

Loss on impairment of long-lived assets

Domestic
Convenience
Store Business

Seijo Ishii
Business

EntertainmentRelated
Business

Other

Total

$156,971$820$1,397$4,116$163,304

Reconciliations

Consolidated$163,304

Lawson, Inc. MD&A 201852

(e) Information regarding the carrying amount of goodwill by reportable segments
Millions of Yen

2018
Reportable Segments

Goodwill at February 28, 2018

Domestic
Convenience
Store Business

Seijo Ishii
Business

EntertainmentRelated
Business

Other

Total

¥15,160¥23,833¥8,188¥766¥47,947

Reconciliations

Consolidated¥47,947

Millions of Yen

2017
Reportable Segments

Goodwill at February 28, 2017

Domestic
Convenience
Store Business

Seijo Ishii
Business

EntertainmentRelated
Business

Other

Total

¥11,269¥25,270¥8,690¥813¥46,042

Reconciliations

Consolidated¥46,042

Thousands of U.S. Dollars

2018
Reportable Segments

Goodwill at February 28, 2018

Domestic
Convenience
Store Business

Seijo Ishii
Business

EntertainmentRelated
Business

Other

Total

$141,194$221,971$76,260$7,134$446,559

The amount under Other is attributable to the overseas business.

53

Lawson, Inc. MD&A 2018

Reconciliations

Consolidated$446,559

Financial Section

21 RELATED PARTY TRANSACTIONS

22 FINANCIAL INSTRUMENTS AND RELATED DISCLOSURES

Balances and transactions of the Company with a subsidiary of Mitsubishi Corporation
as of and for the years ended February 28, 2018 and 2017, were as follows:(1) Policy for Financial Instruments
The Company primarily uses short-term deposits, etc., to manage its funds andraises funds as necessary through borrowings from financial institutions and leasing,(1) Transactions between the Company and a related party

according to the financing plan.
Thousands of
U.S. Dollars

Millions of Yen

2018

2017

2018

Mitsubishi Shokuhin Co., Ltd.:(2) Nature, Extent of Risk, and Risk Management System for Financial Instruments
Trade receivables, such as due from franchised stores, lease receivables, andaccounts receivable−other are exposed to credit risk from business counterparties.

Accounts payable̶trade¥57,253¥54,257$533,231

Purchases

707,802654,9026,592,177

Long-term loans receivable (mainly construction assistance fund receivables
and loans to franchised stores) and lease deposits are exposed to credit risks ofPurchase prices and other conditions are determined on an arm s-length basis.

borrowers and landlords. With regard to this risk, the Company manages credit
on a daily basis at the relevant division and aims to identify and minimize collection
concerns in the early stages arising from the deterioration in the financial condition(2) Transactions between subsidiaries and a related party
Thousands of
U.S. Dollars

Millions of Yen

2018

2017

2018

Mitsubishi Shokuhin Co., Ltd.:of those borrowers and landlords.
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

Accounts receivable̶Other¥14,466¥12,850$134,730

Sales of processed food, etc.

price fluctuation. With regard to this risk, the Company monitors the financial

143,626

120,219

1,337,673

conditions of business counterparties on a regular basis.

Sales prices and other conditions are determined on an arm s-length basis.

For trade payables, most of the accounts payable-trade, accounts payable-tradefor franchised stores, accounts payable-other, and money held as agent as a resultof bill settlement services have payment due dates within one month, while mostdeposits received held as a result of ticket sales transactions have payment due
dates within six months.
Long-term loans from banks payable are mainly for the purpose of funding M&A,
and are due within four years.

Lawson, Inc. MD&A 2018

54

The primary purpose of lease obligations related to finance lease transactions is

Millions of Yen

securing the funds required for capital investments, and the maximum redemption
February 28, 2017

period is 15 years after the consolidated balance sheet date.

Carrying
AmountFair Value

Due from franchised stores¥39,982¥39,982

With regard to the liquidity risk associated with fundraising (risk that payments

Lease receivables

12,336

11,588cannot be executed on the payment due dates), the Company prepares andAccounts receivable

78,31678,316Long-term loans receivable

44,46144,445Investment securities

6,523

6,523

updates financial plans on a timely basis and manages liquidity risk by measures
including maintaining adequate liquidity on hand.

Lease deposits(3) Fair Values of Financial Instruments
Fair values of financial instruments are based on quoted prices in active markets. If
a quoted price is not available, other rational valuation techniques are used instead.
Since multiple factors are considered in the estimation of fair value, the results ofthe estimation might differ if other valuation techniques were used.

Unrealized
Gain/Loss¥(747)(16)

95,181

94,608

(572)

Total

¥276,800¥275,462¥(1,336)

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¥(4,419)

February 28, 2018

Carrying
AmountDue from franchised stores$434,004$434,004

Lease receivables

152,985

144,826

Accounts receivable

769,349

769,349

Long-term loans receivable441,147

441,008

Investment securities

108,932

108,932

Millions of Yen
February 28, 201855

Carrying
AmountFair Value

Due from franchised stores¥46,599¥46,599

Lease receivables

16,426

15,550Accounts receivable

82,60582,605Long-term loans receivable

47,36647,351

Unrealized
Gain/Loss¥ (876)(15)

Thousands of U.S. Dollars
Fair Value

Unrealized
Gain/Loss$(8,159)

Investment securities

11,696

11,696

Lease deposits

100,210

99,659

(551)

Total

¥304,903¥303,460(1,443)

933,315928,183(5,132)

Accounts payable¥178,616¥178,616

Total$2,839,732$2,826,302$(13,430)

Money held as agent

109,629

109,629

Accounts payable$1,663,556$1,663,556

Money held as agent

1,021,039

1,021,039

Long-term debt(including current portion of long-term debt)

1,888,107

1,841,091$(47,016)

Total$4,572,702$4,525,686$(47,016)

Long-term debt(including current portion of long-term debt)

202,726

197,678¥(5,048)

Total¥490,971¥485,923¥(5,048)

Lawson, Inc. MD&A 2018

Lease deposits(139)

Financial Section

Due from franchised stores and accounts receivables

to the debt at the Companies assumed corporate discount rate.

The carrying values of Due from franchised stores and accounts receivable (including
allowance for doubtful accounts) approximate fair value because of their shortmaturities.

(4) Financial Instruments Whose Fair Value Cannot Be Reliably Determined
Carrying Amount

Lease receivables
2018

which reflect collectability, using the yield rate of government bonds for the remaining
period.
Long-term loans receivable
The fair values of long-term loans receivable (including allowance for doubtful
accounts) are determined by discounting the cash flows related to the obligations at
the Companies assumed corporate discount rate.
Investment securities

Thousands of
U.S. Dollars

Millions of Yen

The fair values of lease receivables are determined by discounting future cash flows,
Investments in equity instrumentsthat do not have a quoted market
price in an active market

2018

2017

¥330

¥945

$3,073

Investments in unconsolidated
subsidiaries and affiliated companies

15,172

14,151

141,307

Others

1,350

1,313

12,573(5) Maturity Analysis for Financial Assets and Securities with Contractual Maturities

The fair values of investment securities are measured at the quoted market price on

Millions of Yen

the stock exchange for the equity instruments, and at the quoted price obtained from2018

the financial institution for certain debt instruments.

Due in1 Year or
Less

Lease deposits
The fair values of lease deposits (including allowance for doubtful accounts) are

Due from franchised stores

determined by discounting future cash flows, which reflect the collectability, using theLease receivables

2,031

yield rate of government bonds for the remaining period.

Accounts receivable

82,633Long-term loans receivable

Accounts payable and money held as agent

Lease deposits

The carrying values of accounts payable and money held as agent approximate fair

Total

Due after
1 Year through5 Years

Due after
5 Years
through
10 Years

Due after
10 Years¥46,599¥6,437¥7,957133

15,963

15,963¥15,366

5,912

21,96125,45247,361¥137,309¥44,361¥49,372¥62,727

value because of their short maturities.
Long-term debt (including current portion of long-term debt)
The fair values of long-term debt are determined by discounting the cash flows related
Lawson, Inc. MD&A 201856

23 NET INCOME PER SHARE

Millions of Yen

A reconciliation of the differences between basic and diluted net income per share2017
Due in1 Yearor LessDue from franchised stores

1,688

Accounts receivable

78,363

Lease deposits
Total

Due after
5 Years
through
10 Years( EPS ) for the years ended February 28, 2018 and 2017, is as follows:
Due after
10 Years¥39,982

Lease receivables
Long-term loans receivable

Due after
1 Yearthrough
5 Years

Year Ended February 28, 2018

¥4,768¥5,878450

14,901

14,408¥14,736

5,481

20,70824,80944,596

Basic EPS̶Net income available
to common shareholders¥125,964¥40,377¥45,095¥59,332

Effect of dilutive securities̶Stock options
Diluted EPS̶Net income for computation

Millionsof YenThousandsof Shares

Net
IncomeWeightedAverage
Shares¥26,828

100,044¥26,828

100,097

Yen

U.S. Dollars

EPS¥268.16$2.50¥268.02$2.50

53

Thousands of U.S. Dollars

2018
Due in1 Yearor LessDue from franchised stores

Due after
5 Years
through
10 Years

Due after
10 Years$434,004

Lease receivables

18,916

Accounts receivable

769,349$59,952

Year Ended February 28, 2017

Basic EPS̶Net income available
to common shareholders$74,108

Long-term loans receivable

1,239

148,673

148,673$143,112

Effect of dilutive securities̶Stock options

Lease deposits

55,062

204,536

237,049

441,101

Diluted EPS̶Net income for computation$1,278,570$413,161$459,830$584,213

Total

57

Due after
1 Yearthrough
5 Years

Lawson, Inc. MD&A 2018

Millionsof YenThousandsof Shares

Yen

Net
IncomeWeightedAverage
Shares

EPS¥36,400

100,009¥363.9771¥36,400

100,080¥363.71

Financial Section

24 SUBSEQUENT EVENTS
a. Appropriation of Retained Earnings
The following appropriation of retained earnings was approved at the generalshareholders meeting held on May 22, 2018:
Thousands of
U.S. Dollars

Millions of Yen

Cash dividends, ¥127.5 ($1.19) per share¥12,757$118,813

b. Borrowing of Capital
The final resolution of the following syndicated loan agreement was approved at
the board meeting of Lawson Bank Preparatory Company, Inc., held on March 26,
2018:
Lawson Bank Preparatory Company, Inc. applied for preliminary examination ofits banking license. In order to raise working capital for the banking business,
Lawson Bank Preparatory Company, Inc., entered into the following syndicated loan
agreement.
(1) Date of agreement

March 30, 2018

(2) Arranger

MUFG Bank, Ltd (formerly The Bank of Tokyo-Mitsubishi UFJ, Ltd.)(3) Co-arranger

Mizuho Bank, Ltd., Sumitomo Mitsui Banking Corporation(4) Borrower

Lawson Bank Preparatory Company, Inc.

(5) Implementation term

From September 28, 2018 to October 31, 2018

(6) Repayment

Bullet repayment at maturity(7) Amount

50,000 million yen

80,000 million yen(8) Term

3 years

5 years(9) Interest rate

Floating interest

Floating interest(10) Guarantee

Cosigned by Lawson, Inc.

Cosigned by Lawson, inc.

(11) Financial covenant

Both Lawson, Inc. and Lawson Bank Preparatory
Company, Inc. are bound by the following financial covenantsi) Covenant for allocation of periodic lossii) Covenant for amount of net assetsiii) Covenant for provision of collateral

Lawson, Inc. MD&A 201858

Independent Auditor’s Report59

Lawson, Inc. MD&A 2018

Lawson, Inc. MD&A 201860

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

http://lawson.jp/en/
Published September 2018©1975-2018 Lawson, Inc. All rights reserved.
Printed in Japan