First Half Results for FY2011(Six months ended August 31, 2011)

LAWSON, INC.
October 14, 2011

Copyright (c) 2011 LAWSON, Inc. All rights reserved.

1

Financial Results
for the First Half of FY2011
Yoshiyuki Yahagi
Chief Financial Officer

Copyright (c) 2011 LAWSON, Inc. All rights reserved.

2

First Half of FY2011 Earnings Summary（Consolidated：Billions of yen）

Net sales of all stores
Operating profit
Operating profit ratio
Recurring profit
Net profit
EPS（Yen）
Dividend payout ratio
Dividend per share (Yen)
Total number of stores in

1H of FY2011
1H of FY2009 1H of FY2010
vs. Plan
ActualActualActual
YoY
840.7
837.8
109.3%
103.6%
916.1
30.1
30.1
108.0%
114.3%
32.5
3.6%
3.6%
0.0pp
0.4pp
3.6%
29.7
29.6
109.8%
118.1%
32.6
15.8
12.2
72.9%
169.1%
8.9
160.17123.4472.7%
169.1%
89.72
49.9%
68.9%
28.0pp
97.0%
80.0
85.0
2
87.0
9,629
9,860 10,221361
57

Note: Change vs. the plan indicates comparison with the iinitial plan.

 Consolidated operating profit exceeded the initial plan by 4.0 billion yen.
In addition to rice dishes, sales of over-the-counter fast foods and desserts remained strong andmore than offset the earthquake effect in the first quarter. The hot summer also had positive impacts.
Partly due to growing handling of fresh foods, the customer base (women and seniors) steadily
expanded and contributed to sales growth.
 Consolidated net profit exceeded the initial plan by 3.6 billion but recorded a year-on-year decrease.
Affected by asset liability obligation (8.3 billion yen) and loss on disaster (3.4 billion yen) as
extraordinary loss.
Copyright (c) 2011 LAWSON, Inc. All rights reserved.

3

Existing Stores (Non-Consolidated)
110.0%

1.5%
1.0%

105.0%
0.5%
100.0%

0.0%
-0.5%

95.0%
-1.0%
90.0%

-1.5%
1H

2H
FY20071H

2H
FY2008Gross profit margin change (RH）

1H

2H
FY20091H

2H
FY20101H
FY2011(Reference)
1H of FY2011
Existing stores yoy
Gross profit : 104.0%
Sales: 106.4%
No. of customers:
100.9%
Spend per customer:
105.5%

Change in existing stores gross profit（YoY, LH）

Change in existing stores sales（YoY, LH）

 Existing store sales for the first six months increased by 6.4% year on year, thanks to strong sales of readymade meal items in the second quarter, despite a 3.3% growth in the first half, affected by the earthquake.
 The number of customers increased year on year, due to boosting recognition as a small catchment area
retailer and expansion of customer base.
 Overall gross profit margin deteriorated due to the impact from a drop in cigarette sales (down 1.2 pp)
but gross profit margin of products excluding cigarettes improved by 0.5 pp.
Copyright (c) 2011 LAWSON, Inc. All rights reserved.

4

Store Opening (Non-Consolidated)(Opening,
Closure,Net store increase)

Net store increase （LH）
Store opening (LH)Store closure （LH）
Daily sales per new store （RH）

300

(Daily sales per store:
Thousands of yen)
600

200

500

100

400

0

300

-100

200

-200

100

-300

0
1H of FY2008

1H of FY2009

1H of FY2010

1H of FY2011

 Favorable operations of existing stores resulted in 47 less closures and 7 more openings thanplanned. A net increase of 147 stores exceeded the plan.
 Daily sales per new store increased by 50,000 yen from a year ago to 555,000 yen.
Copyright (c) 2011 LAWSON, Inc. All rights reserved.

5Key Components of SG&A Expense Items
1H of FY2010 1H of FY2011
Non-consolidated（Billions of yen）
Selling, general and administrative expenses

Actual

＜Major Strategic Expenses＞
Personnel costs
IT-related costs

FY2011

ActualChange

88.3

93.1

4.7

Up 0-5%

17.0
7.0

17.5
7.6

0.4
0.6

Down 0-5%
Up 5-10%

4.7

5.6

0.8 Up about 15%

119.0

128.7

Forecast(Hardware leasing, software amortzation, maintenance, etc.）

Advertising and promotional expenses

Consolidated SG&A expenses

9.7

Up about 5%

Note: FY2011 forecasts in italics have been revised from the iinitial plan.

Compared to 1H of Fiscal 2010

Copyright (c) 2011 LAWSON, Inc. All rights reserved.

Basically in line with the plan (100 million yen morespent)

Consolidated

Consolidated

 Increased due to newly consolidating HMV Japan

Nonconsolidated

Non-consolidated

 Expenses for facilities associated with net increasein stores increased.
 Personnel costs: Provision for bonus increased
due to favorable results in the first half.
 IT-related costs: Increased due to advanceinvestments related to e-commerce and services.
 Advertising and promotional expenses:
Enhanced post-quake promotional activities.

Compared to Plan

800 million more than planned
 HMV Japan:
Merger with LAWSON ENTERMEDIA led to achange in fiscal year and expenses for one
additional month were included.
 LAWSON ATM Networks:
Installed more ATMs than planned.
6Earnings of Major Subsidiaries and Affiliates（Billions of yen）

＜Operating Profit of Major Subsidiaries＞

Ninety-nine Plus Inc.
LAWSON ENTERMEDIA, INC.*1
HMV JAPAN K.K.*1
LAWSON ATM Networks, Inc.
Cross Ocean Media, Inc.

1H of FY2011
FY-end Shareholding

ActualChange

Feb.
Feb.
Apr.
Feb.
Feb.

1.05
0.94
▲ 0.081.75▲ 0.080.01
0.32▲ 0.080.09
0.09

100.0%
100.0%
100.0%
63.7%
42.0%

FY2011
Forecast

2.60
1.30*1
3.20▲ 0.10*1 LAWSON ENTERMEDIA and HMV Japan merged on September 1, 2011 and became LAWSON HMV ENTERTAINMENT.
Forecasts are for the new company (change in fiscal year end to February).

＜Operating Profit of Equity-method Affiliates＞

LAWSON Okinawa, Inc.
SHANGHAI HUALIAN LAWSON CO., LTD.

Feb.
Dec.

2Q of FY2011

49.0%
*2
49.0%

0.40
▲ 0.160.11▲ 0.10*2 Purchase of additional shares in September 2011 raised its shareholding ratio to 85%.

Ninety-nine Plus, Inc.
LAWSON ENTERMEDIA, INC.

Quake-led delay in introduction of PRiSM and shortage of merchandise resulted to a slight yoy
increase in OP. Progress in store openings and conversion to franchise stores.
Post-disaster voluntary restraints on holding events ended earlier than expected.
Use of high-margin sales channels, such as Loppi and own website, also contributed.

HMV Japan K.K.

Recorded loss due to initial costs of new stores and other investments, but continued to makeprofits when excluding one-off expenses.

LAWSON ATM Networks, Inc.

The number of transactions rose due to growth in ATM installation in line with net growth in stores,
and a demand shift from financial institutions’ shorter ATM operating hours triggered to save electricity.

Copyright (c) 2011 LAWSON, Inc. All rights reserved.

7

First Half of FY2011 Balance Sheet and Cash Flow(Consolidated)(Billions of yen)Aug. 31,2011
Total current assets（Cash and deposits）（Marketable securities）（Accounts receivable）
Total noncurrent assets
Property, plant and equipment
Intangible assets
Investments and other assets(Long-terms loans receivable）(Guatantee deposits）
Total Assets

Chg. From
Feb. 28, 2011

177.0
94.3
9.9
34.4
356.1
172.7
36.9
146.4
31.6
82.9
533.2

32.0
19.5
6.9
5.1
25.0
13.8
0.8
10.3
▲ 0.1
1.2
57.1

Aug. 31,2011
Total current liabilities（Accounts payable-trade）（Deposits payable）
Total noncurrent liabilities(Long-term guarantee deposits）
Net Assets（Common stock）（Retained earnings）
Liabilities, and net assets

231.2
101.5
78.6
94.3
36.3
207.6
58.5
100.0
533.2

Chg. From
Feb. 28, 2011

38.6
20.1
16.2
19.3
▲ 0.8
▲ 0.7
0.4
57.1

Effects of adopting the new lease accounting: Property, plant andequipment 48.2 bln yen; Current/noncurrent liabilities 43.0 bln yen（Billions of yen）

Cash flows from operating activities
Cash flows from investing activities

Free cash flows
Cash flows from financing activities（Reference）Cash and deposits
Copyright (c) 2011 LAWSON, Inc. All rights reserved.

1H of FY2009 1H of FY2010 1H of FY2011
49.5
63.4
67.8
▲ 15.8▲ 12.6▲ 28.4
33.6
50.7
39.3
▲ 11.2▲ 16.1▲ 13.2
102.0

97.6

94.3
8

Fiscal 2011 Consolidated Results Forecasts(Billions of yen)

Net sales of all stores
Operating profit
Operating profit ratio
Recurring profit
Net profit
ROE
EPS（Yen）
Dividend payout ratio
Dividend per share (Yen)
Total number of stores in Japan

FY2011 (Forecast)
FY2009 FY2010
ActualActualPlan
YoY
1,666.1
1,682.8
1,808.0
107.4%
50.2
55.5
61.5
110.7%
3.0%
3.3%
3.4%
0.1pp
49.4
54.5
60.4
110.6%
12.5
25.3
23.5
92.6%
6.5%
12.8% 11.4%*▲1.4pp126.67254.61235.31
92.4%
126.3%
66.8%
76.5%
9.7pp
160
170
180
10
9,761

9,994

10,374

380

96.8%
95.9%
30.4%

101.4%
100.8%
30.6%

102.8%
104.0%
30.3%

1.4pp
3.2pp
▲0.4pp*Approximate
estimated ROEof 14.5% when excluding
loss on disaster andasset retirement
obligations（Non-Consolidated）
Gross profit at existing stores (YoY)

Net sales at existing stores (YoY)

Gross profit margin ratio Aim to increase operating profit by enhancing products and thoroughly implementing PRiSM.
 Use Ponta card purchase data analysis, provide merchandise assortment that matches each store
location and area, and expand customer base so as to increase the number of customers.
 Gross profit margin is expected to deteriorate (down 0.8 pp) due to the effects of cigarette sales
but improve by 0.4 pp excluding cigarettes, thanks to development of value-added products byleveraging raw material procurement advantages.
Copyright (c) 2011 LAWSON, Inc. All rights reserved.

9

Initiatives Adopted in the First Half of FY2011
Genichi Tamatsuka
Chief Operating Officer
CVS Operating Group CEO

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10

Priority Issues in the First Half of FY2011
1. Expansion of customer base
 Further development of Lawson’s own products
 Enhancement of fresh food-type convenience stores
2. Reduction in opportunity loss and status update on
PRiSM
3. Promotion of direct communication with franchiseownersCopyright (c) 2011 LAWSON, Inc. All rights reserved.

111. Expansion of Customer Base:
Further Development of Own Products
Developed hit products
through the spring andsummer collections.

Lawson Tei

Launched new
products toestablish
women-oriented
products.

Expanded the category
to become a brand thatsatisfies working
housewives and seniors
Lawson’s own products targeting women and seniors have been developedby leveraging card data and advantages in raw material procurement.
Copyright (c) 2011 LAWSON, Inc. All rights reserved.

121. Expansion of Customer Base:
Further Development of Own Products
Example:Change in the number of lunch boxes purchased when 100 customers visit the store
Number oflunch boxes

Number oflunch boxes

Men

7

7

6

6

5

5

Chilled1 piece43

Room temp.
5 pieces250%increase

Chilled3 pieces

43

Room temp.
4 pieces

2

1

1

0

0

Before launchof Lawson Tei

Women

After launchof Lawson Tei

Room temp.
4 pieces

Before launchof Lawson Tei

Room temp.
3 pieces

After launchof Lawson Tei

Introduction of chilled lunch boxes increased the number of lunch boxes purchased by women.
Copyright (c) 2011 LAWSON, Inc. All rights reserved.

131. Expansion of Customer Base:
Enhancement of Fresh Food-type CVS
No. ofstoresNumber of Fresh Food-Type Convenience Stores

5,000
4,500

LAWSON STORE100

4,213

Fresh food-type LAWSON

4,000

1,127

3,500
3,000

2,262

2,500
2,000
1,500
1,000
500
0

1,223
996

1,076

3,086

1,186

227
End of FY2009

End of FY2010

End of 1H of FY2011

Note: The number of LAWSON STORE100 stores includes the former SHOP99 stores. The number of fresh
food-type LAWSON stores in the first half of fiscal 2011 includes those with three rows of shelves in
addition to the former hybrid type (with one line of gondola shelving.)
Copyright (c) 2011 LAWSON, Inc. All rights reserved.

141. Expansion of Customer Base:
Enhancement of Fresh Food-type CVS
Example:Survey sampling of a store in the north Chiba area (Comparison of data for August 2010 and 2011)
Hybrid Type vs. Regular Type
Daily Sales

140
Regular typeHybrid type+15.3%

Hybrid Type vs. Regular Type
Number of Customers

120

120
128
100

20

100
80
60
40

Aug. 2010

Aug. 201120

00Aug. 2010

Note: Sampling of 12 converted stores to the hybrid type, excluding special
cases, out of 180 stores in the north Chiba area

112

After conversion

40

105

106

Before conversion

60

+6.7%

100

106

After conversion

80

Before conversion

100

111

Regular typeHybrid type

Aug. 2011

Daily sales of August 2010at the regular-type LAWSON store= 100

Number of customers of August 2010at the Regular-type LAWSON store= 100

Thanks to conversion to the hybrid type, the number of customers
and spend per customer increased sharply and boosted overall daily sales.
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15

1. Expansion of Customer Base:
Increase in Senior and Female Customers
Example:Survey sampling of a store in the north Chiba area (Comparison of data for August 2010 and 2011)

200
180

Persons+17.5%+13.3%

250

160

120

80
60
40

After conversion

140

100

Female customers:
Increased 13%

Female Customers
300

After conversion

Effects of conversion to hybrid format
Number of customers of sampling storesincreased 7%, which was far beyond thegrowth rate for overall customers (1%increase).
Customers aged 50 and over:
Increased 18%

Customers Aged 50
and Over
Persons

200

150

100

50

20
Note: Sampling of 12 converted stores to the hybrid type, excluding special
cases, out of 180 stores in the north Chiba area

00Aug. 2010

Aug. 2011

Aug. 2010

Aug. 2011

Number of customers of August 2010 at the Regular-type LAWSON store = 100

Conversion to a hybrid format led to an increase in senior and female customers.
Copyright (c) 2011 LAWSON, Inc. All rights reserved.

16

2. Reduction in Opportunity Loss and Status Update on
PRiSM
Initiatives for Opportunity Loss Reduction
2010
Aims for PRiSM
March
introduction

Meals

Visualize
opportunity
loss

Rice dishes
Sandwiches

2012

March

November

Cooked noodles
BakerySalad
Chilled lunch boxes
Chilled desserts

Enhance accuracy in order placement by
visualizing opportunity loss

More accurateorder placement

Dry goods＝
Customer-oriented
order placement formerchandise assortment

2011

November

April

July

Cigarettes

Confectionery
Daily
Processed foods
necessities

October
Frozen foods
Ice cream

Reduce hours for order placement bysimplifying ordering procedure

Note: Meal order placement method adopted to suit number of customers and purchase rate; dry goods order placement
method adopted to maintain a certain level of inventories.

More accurate order placement and less time-consuming ordering procedure
result in reduction in opportunity loss.
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17

3. Promotion of Direct Communication with Franchise
Owners Lawson seminars (14 seminars in 4 locations per year)※ Due to the earthquake in March, the number of seminars held has dropped in fiscal 2011.

 Franchise owners’ meetings (20 meetings in 18
locations per year) Workshops at branches (76 branches, monthly)
Workshop at a branchFranchise owners’ meeting

Copyright (c) 2011 LAWSON, Inc. All rights reserved.

18

Aiming to Become an SPA*-Type(Real/Virtual) Retailer
Takeshi Niinami
President & CEO* Specialty store retailer of Private label Apparel
Copyright (c) 2011 LAWSON, Inc. All rights reserved.

19

Japan’s Retail and Convenience Store Industry
5%
Convenience store market
8.1 trillion yen in size

Restaurants
24 trillion yen

10%(+5%)Retail plus restaurant
industry market
Approx. 160 trillion yen
Retailers: 136 trillion yen(Core customers are men in 20’s to 40’s)

The convenience store
industry’s share of retail isrising to 10%.

SM/GMS: 12.7 trillion yen
Department stores: 6.8 trillion yen
Drug stores and others:
5.6 trillion yen

Growth drivers going forward
Source:“Survey of Commerce,” Ministry of Economy, Trade and Industry, 2010
“Estimates of Market Size of Food Service Industry,” Foodservice Industry
Research Institute, 2010
“Drug Store Survey Data,” Japan Association of Chain Drug Stores, 2010

Copyright (c) 2011 LAWSON, Inc. All rights reserved.

 Expansion of customer base (women and seniors) Increase in repeat rates (existing and potential

customers)

20

Initiatives Adopted in the First Half of FY2011
Initiatives

Results

Enhance fresh food-type
convenience stores

The number of fresh food-type convenience stores
will increase to 5,000 by the end of FY2011.

Promote Lawson’s
Customer RelationshipManagement (CRM)

Ponta card members numbered approx. 35 million.
Sales to card members exceeded 35% of total sales.
Products have been differentiated by adding morevalue in raw material procurement.

Develope-commerce businesses

Further penetration to Ponta members
Formed an alliance with Yahoo!
Opened an online shopping mall

Developoverseas businesses

Copyright (c) 2011 LAWSON, Inc. All rights reserved.

Reorganized operations of a subsidiary in Shanghai
Opened stores in new areas in Asia

21

SPA-Type Functions Strengthened by CRM and SCM
Initiatives for the card data backbones
2008 Introduction of the concept of PRiSM
2009 Launch of the PRiSM system
Understandcustomerneeds
Procurevalue-added
raw materials

Quantify
opportunity
loss
Place orders
systematically

Card data analysis

SCM
Developproducts

CRM
Realize customer-oriented
merchandise assortment

Reduceopportunityloss

SCM-related initiatives

CRM-related initiatives

2009 Reduction in dry-type returned goods andraw material procurement
2010 Supply of data to manufacturers

2010 Initiative to reduce sales
opportunity loss

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22

Increase Customers’ Wallet Share
Image of Wallet Share of Spend by Customers
Expand customer
base at stores
Ponta members
Approx. 35 million

Fresh
foods

Use at Lawson
storesOther
Book stores
CD shops

LAWSON
Group

Supermarkets

Pharmacy

Other
Other CVS

More usage of
Lawson’s services with
e-commerce businesses

Drug stores

Supermarkets

LAWSONGroup

Other CVS

Drug stores

Lawson is expanding its share of spend by customers by increasing merchandise
assortments and channels through its online shopping mall.
Copyright (c) 2011 LAWSON, Inc. All rights reserved.

23

Develop Overseas Businesses
Export accumulated know-how in “Japanese-type convenience stores thatuse SCM and CRM” to other countries

Shenyang

DalianBeijing
Tianjin
Tsingtau

ChengduShanghai

Chongqing
India

Wuhan
Guangzhou
Hong Kong
Vietnam Established company
supervising overseas
operations (except China
businesses) in Singapore

Indonesia

 Entered Dalian and other
cities in China

Thailand

Malaysia
Singapore Acquired a controllinginterest in operations inShanghai Entered Indonesia andIndia
Copyright (c) 2011 LAWSON, Inc. All rights reserved.

24

Targeting ROE of 20%
ROE

（％）

20

Real ROE when excluding
extraordinary loss

15

10

5

Approximate estimated ROE
when excluding the effects ofthe earthquake and asset
retirement obligations

Purchase and cancellation of treasury stock
worth 79.5 billion yen (FY2001-2010)

0
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

We are aiming for an ROE of 20%, the global standard,
while ensuring disciplined investments and dividend growth.
Copyright (c) 2011 LAWSON, Inc. All rights reserved.

25

Medium- to Long-Term Goals for 2020:
Achieve Earlier than Planned
Lawson aims to become
the world’s top small
format retailer as SPA

Further penetration to Ponta
card members
・Promote Lawson’s CRM

Sales growth

Japan: Expand customer base(women and seniors)
・Fresh foods, healthcare
・EC businesses

M&A

Profitability
improvement

ROE target 20%

Operating profit ratio
target 5%(for all chain store sales)・Overseas development
・Industry consolidation

SCM-based structural reform・logistics reform

Sustainable dividend growth

Capital discipline

Share buybacks andcancellations

Our target is to achieve operating profit of 100 billion yen.
Copyright (c) 2011 LAWSON, Inc. All rights reserved.

26

Sustainable Dividend Growth
Yen

180

170

180
160
140
120
100
80
60
40
20
0

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011(E)

Sustained dividend increase (Plan to increase per-share dividend by 10 yen to 180 yen)
Continue to reward shareholders (dividend growth, share buybacks and cancellation)
Improve capital efficiency while aiming for an ROE of 20%
Copyright (c) 2011 LAWSON, Inc. All rights reserved.

27

Reference

Copyright (c) 2011 LAWSON, Inc. All rights reserved.

28

Half Year Breakdown of FY2011 Forecast（Consolidated：Billions of yen）

Net sales of all stores
Operating profit
Operating profit ratio
Recurring profit
Net profit（Non-Consolidated)
Gross profit at existing stores (YoY)

Net sales at existing stores (YoY)

Gross profit margin ratio

Copyright (c) 2011 LAWSON, Inc. All rights reserved.

FY2011 (Forecast)
1H Plan
1H Actual
2H PlanFull-Year Plan
884.0
916.1
891.8
1,808.0
28.5
32.5
28.9
61.5
3.2%
3.6%
3.2%
3.4%
27.6
32.6
27.7
60.4
5.3
8.9
14.5
23.5
102.0%
103.5%
30.5%

104.0%
106.4%
30.2%

101.5%
101.5%
30.3%

102.8%
104.0%
30.3%

29

Capital Expenditure
1H FY2009
1H FY2010
1H FY2011 FY2011 (Full-Year)
ActualActualActualPlan（Consolidated：Billions of yen）
New Stores
9.6
7.1
9.8
19.0
Existing Stores
3.9
3.7
4.8
10.0
IT-related
4.6
4.3
3.7
8.5
Other
0.1
0.6
0.4
1.0
Subtotal for Capital Expenditure
18.3
15.8
18.8
38.5
Total depreciation and amortization
11.9
15.7
17.9
37.3

Copyright (c) 2011 LAWSON, Inc. All rights reserved.

30

Cautionary Statement
This presentation contains forward-looking statements and forecasts regarding the future plans, strategies and performances of
LAWSON and its subsidiaries and affiliates. These statements and forecasts are not historical fact. They are expectations based onassumptions and beliefs derived from information currently available to the Company and are subject to risks and uncertainties
including, but not limited to, economic trends, heightened competition in the domestic convenience store sector, personal
consumption, market demand, the tax system and other legislation. As such, actual results may differ materially from estimates.
Figures in this presentation have been rounded down.
Copyright (c) 2011 LAWSON, Inc. All rights reserved.

31