First Half Results for FY2013(Six months ended August 31, 2013)

Lawson, Inc.
October 9, 2013

Copyright (c) 2013 Lawson, Inc. All rights reserved.

1

Financial Results for 1H-FY2013

Katsuyuki Imada
Chief Financial Officer

Copyright (c) 2013 Lawson, Inc. All rights reserved.

2

Earnings Summary, First Half of FY2013(Consolidated：Billions of yen)

Net sales of all stores
Operating profit
Operating profit ratio
Recurring profit
Net profit
EPS (Yen)
Dividend per share (Yen)
Total no. of stores in Japan

FY2011-1H
Actual916.1
32.5
3.6%
32.6
8.9
89.728710,221

FY2012-1H
Actual
970.9
34.5
3.6%
34.2
17.8
178.82100
10,912

Actual
992.7
35.6
3.6%
35.5
19.0
190.6711011,384

FY2013-1HYoY
vs. Plan
102.2%
96.9%
103.1%
100.3%
0.0%P+0.1%P
103.7%
102.7%
106.6%
110.1%
106.6%
110.1%+10+472+84

Note: The number of stores is a total number of convenience stores in Japan operated by the Lawson group.

 Consolidated operating profit exceeded the plan by 0.１ billion yen, and rose 3.1% YoY
A mark-up of prices of over-the-counter fast foods, processed foods, and non-food products led toan improvement in gross profit margin. The operating profit of subsidiaries contributed higher thanexpected.
 Consolidated net profit exceeded the plan by 1.7 billion yen and increased by 6.6% YoY
In addition to significant increase in recurring profit, extraordinary losses including impairment losses
were lower than expected, reflecting our successful store-opening strategy that emphasized oninvestment efficiency.
Copyright (c) 2013 Lawson, Inc. All rights reserved.

3

Existing Stores (Non-Consolidated)
110.0%

1.5%
1st Half FY2013
Gross profit margin up 0.5ppt

105.0%

1.0%
0.5%

100.0%

0.0%
Existing store sales down 0.5%
(number of customers down 0.6%,spending per customer up 0.1%)

95.0%
90.0%

-0.5%
-1.0%
-1.5%

1H

2H

1H

FY20102H
FY2011Gross profit margin difference (YoY, Right）
Existing stores gross profit（YoY, Left)

1H

2H
FY2012

1H

2H(Plan)
FY2013Gross profit margin difference, excl. cigarette sales (YoY, Right）

Existing stores sales（YoY, Left）

 Existing store sales decreased 0.5% YoY due to a substantial drop in cigarette sales.
Excluding this factor, existing store sales increased 1.0% YoY.
 Gross profit margin improved 0.5 ppt, due to contributions by over-the-counter fast foods,
processed foods, and non-food products. Excluding cigarettes, gross profit margin rose 0.4 ppt.
 As a result, gross profit of existing stores increased 1.1% YoY.
Copyright (c) 2013 Lawson, Inc. All rights reserved.

4

Store Openings (Non-Consolidated)
Net store increase（Left）
Store opening (Left)Store Closure（Left）
Daily sales per new store (Right)(Net store increase)(Daily new store sales in 1,000 yen)800

600600480407

Additional stores ofCVS Bay Area Inc.

400

3602442002400120163-2000FY2010 1H

FY2011 1H

FY2012 1H

FY2013 1H

 Stores opened: 47 more than planned, as the successful expansion of customer baseraised store opening potential, mainly in residential areas.
 Stores closed: 17 less than planned.
 Average daily sales per new store reached 514,000 yen which exceeded the target levelof 500,000 yen.
Copyright (c) 2013 Lawson, Inc. All rights reserved.

5Key Components of SG&A Expenses
FY2012-1H FY2013-1HFY2013
ActualActual ChangeForecast
100.8 105.8
4.9 Increase 5-10%(Billions of yen)

Selling, general & administrative expenses
Nonconsolidated

Major Strategic Expenses
Personnel expenses
IT-related expenses(Hardware leasing, software amortization, maintenance, etc.)
Advertising and promotional expenses

Consolidated SG&A expenses

17.7
7.6

17.9
7.5

0.2 Increase 0-5%
▲ 0.1 Increase 5-10%

7.05.0

▲ 2.0

138.8

146.1

Increase 0-5%

7.2 Increase 5-10%

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

Compared to Plan

Compared to Fiscal 2011
Non-consolidated

 Advertising and promotional expenses: Acceptedco-sponsorship by SCI, a subsidiary serving
supply chain management of convenience store
businesses. (Excluding this, adjusted expenses
increased by 7%) Other: Increase in expenses such as facility
expenses associated with net increase in storesand refurbishment.

Non-consolidated

0.9 billion yen less than the plan.
 Advertising and promotional expenses werewithin the plan as result of ROI-focused
efficient sales promotion.

Consolidated

 Start-up cost of “Smart Kitchen” business inFY2013
 Business expansion of Lawson HMVEntertainment increased expenses.

Consolidated

3.6 billion yen less than the plan.
 In addition to a cut in expenses on a nonconsolidated basis, Ninety-nine and Smart
Kitchen restrained costs.

Copyright (c) 2013 Lawson, Inc. All rights reserved.

6

Earnings of Major Subsidiaries(Billions of yen)

FY2013-1H

Operating Profit of Major Subsidiaries
Lawson ATM Networks
Lawson HMV Entertainment
Ninety-nine Plus
Shanghai Hualian Lawson
Chongqing Lawson
Smart Kitchen

FY-end Ownership

Actual76.5%
100.0%
100.0%
94.0%
100.0%
51.0%

3.18
1.38
0.89
▲ 0.35▲ 0.38▲ 0.82

Feb.
Feb.
Feb.
Dec.
Dec.
Feb.

FY2013
YoY change Forecast

+0.80
+0.24
▲ 0.19+0.15▲ 0.11▲ 0.78

5.60
3.00
2.60
▲ 0.80▲ 0.80▲ 1.10Note: Figures in italic indicate the revised figures from the initial plan.

Lawson ATM Networks

Increased operating profit due to growth in ATM installation in line with net growth in storesand cost control measures.

Lawson HMVEntertainment

Increased profit due to improved management of large-scale performances, that led to strong
ticket sales.

Ninety-nine Plus

Sluggish market for perishables lowered operating profit YoY, but conversion to franchise
stores progressed steadily. Re-strengthening perishables and daily delivered foods willcontribute to improving profitability.

Shanghai Hualian Lawson

Shanghai subsidiary strengthened its existing stores and closed loss-making stores, which
kept losses below plan.

Copyright (c) 2013 Lawson, Inc. All rights reserved.

7

Cash Flows and Capital Expenditures (Consolidated)
 Consolidated Capital Expenditures

New stores
Existing stores
IT-related
Other
Subtotal for capital expenditure
Depreciation and amortization（Billions of yen）

FY2010
Actual
9.8
4.8
3.7
0.4
18.8
17.9

FY2011
Actual
18.6
3.9
2.7
1.3
26.7
20.8

FY2012
Actual
16.0
3.5
2.4
1.0
23.1
22.8

FY2013
Plan
33.5

12.0
7.5
5.0

58.0
49.4

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

（Billions of yen）

Consolidated Cash flows
Cash flows from operating activities
Cash flows from investing activities

Free cash flows
Cash flows from financing activities(Cash dividends paid)
Cash and cash deposits

FY2011-1H
Actual67.8▲ 28.439.3▲ 13.2▲ 8.4

FY2012-1H
Actual53.3▲ 28.924.3▲ 14.7▲ 9.294.3

90.5

FY2013-1HFY2013
ActualForecast
Approx. 85.0
61.7
▲ 29.8 Approx. ▲65.0
31.9
Approx. 20.0
▲ 19.4 Approx. ▲39.0▲ 9.9▲ 21.0
100.2

-Note: Figures in italic indicate the revised figures from the initial plan.
Copyright (c) 2013 Lawson, Inc. All rights reserved.

8

FY2013 Company Forecast, Consolidated

Net sales of all stores
Operating profit
Operating profit ratio
Recurring profit
Net profit
EPS（Yen）
Dividend per share (Yen)ROE

FY2011
Actual
1,825.8
61.7
3.4%
61.7
24.8
249.17180
12.0%

FY2012
Actual
1,906.5
66.2
3.5%
65.9
33.1
332.20200
15.2%

FY2013 Forecast
PlanYoY
1,988.0
104.3%
70.0
105.7%
3.5%
0.0%P
68.4
103.8%
35.9
108.2%
359.36108.2%
220+2015.3%+0.1%P

Total no. of stores in Japan

10,457

11,130

11,630+500

104.0%
105.4%
30.1%+0.5%P

101.2%
100.0%
30.5%+0.5%P

101.3%
99.8%31.0%+0.5%P+0.1%P▲0.2%P+0.5%P0.0%P(Billions of yen)(Non-consolidated)

Gross profit of existing stores (YoY)
Net sales of existing stores (YoY)
Gross profit margin ratio
Gross profit margin difference excluding
cigarette sales (YoY)

Note: Figures in italic indicate the revised figures from the initial plan.
Note: The number of stores is a total number of convenience stores in Japan operated by the Lawson group.

 Plan: Enhance existing stores by introducing health-conscious food, freshly-brewed coffee and in-store kitchen
at more stores, and by strategic use of Ponta card data analysis.
 Strong use of promotional and other strategic spending to achieve sales target.
 Gross profit margin target: increase by 0.5 ppt, due to sales growth in high-margin products and improved SCM.
Copyright (c) 2013 Lawson, Inc. All rights reserved.

9

Lawson’s Differentiation Strategy

Genichi Tamatsuka
Chief Operating Officer
Member of the Board
Copyright (c) 2013 Lawson, Inc. All rights reserved.

10Strategic Measures to Win Against Competition
Aggressive store openings by competitorstStrategicmeasures

Differentiation
strategy

Ponta
Copyright (c) 2013 Lawson, Inc. All rights reserved.

ManagementOwner (MO) System11

Raise Gross Margin of Existing Stores by Differentiation
Lawson’s strategic measures• Improve competitive advantage of existing stores by maintaining investment• Continue development of high quality products and services• Improve gross profit margin through SCM-CRM model• Strengthen customer data analysis of individual stores by Ponta cards

Increase Gross Profit of Existing Stores
Key indicators for 1st Half, FY2013

Average daily sales per new store = over 500 thousand Yen
Gross profit of existing stores (YoY) = 101.1%

Copyright (c) 2013 Lawson, Inc. All rights reserved.

12Better Understanding of Customers with Ponta Card Data
Rate of trials
and rate ofrepeat
customers

57 million
card members

69 corporate
partners(90 brands)

More accurate,detailed databy customer
segment
than POS
Card members
contribute to50% of sales

21,900 stores
acceptPonta cards

Product
development

Visualization ofopportunity
loss
Plannedorder
placement

High-value
added
raw material
procurement

SCM

CRM

Strong link between
SCM and CRMManufacturinganddistribution

Optimalmerchandise
assortment

As of August, 2013

Lawson’s competitive advantage is its ability to manage
the purchasing data of over 10,000 stores by each store
Copyright (c) 2013 Lawson, Inc. All rights reserved.

13

Use of Stores’ Ponta Member Reports (Example of Store X)
120

1

Identify and quantify
customer needs
throughPonta data

110

Store B
Existing Stores (YOY)2

Select strategy and“tools” that best meetcustomer needs

100
90
80

Over-the-counterfast food

MACHI
café

Machikado
Chubo(In-storekitchen)

Perishablefood

7060

5Re-evaluate resultswith reports

50(%)

1204011030

YoY Sales Growth of Store X
and Average of Existing Stores with theSame Customer Base in the Same AreaStore X
Existing Stores (YOY)

Test hypothesis,
create a plan, andtake actions

10020

4

Verify results

390
1080
070

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Mar-13 Apr-13 May-13 Jun-13 Jul-13
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Nearby Store Opening Strategy (Example of Branch Y)
Individual store reportsof Ponta card members
Existing Store 1

Existing Store 2

Existing Store 1
Candidate fornew store opening

The reports are used todetermine critical points
and potential factors for
new store opening and help
prioritize candidate sites

Existing store 2Competitor
Store

Enables highly accurate new store opening strategy to be formulated
driven by the combination of Ponta data analysis and existing database
Copyright (c) 2013 Lawson, Inc. All rights reserved.

15

Key to Expand Customer Base: Perishable Food
Fresh-food type LAWSON(as of August, 2013)

5,985 stores
60% of regular LAWSON stores

Well-established image ofLawson as“fresh-food conveniencestore”

Higher repeat rate than other merchandise40Improved gross margin
driven by enhanced
assortment of high grossmargin products that areoften bought together

3020
100Big twin choua la créme

Kara-age Kun

Pre-cutvegetables

Nakashima
Farming Method
Copyright (c) 2013 Lawson, Inc. All rights reserved.

Initiatives to offer
high-quality perishable
food16

Key to Expand Customer Base: Reinforce Fast Food

Kara-age Kun
fried chicken nuggets

MACHI café

“Genkotsumenchi”(fried minced meat ball)

1st Half of FY2013
Contributed a +0.5 ppt grossprofit margin improvement YoY“Frozen Sweets”(different flavors of sorbet)
Copyright (c) 2013 Lawson, Inc. All rights reserved.

Extra-thick cut
pork cutlet sandwiches
17Key to Expand Customer Base: MACHI café
Value-added products and hospitality help improvecustomer satisfaction and realize sustainable growth of stores
Averagegross margin

65%

Greater prominence
for MACHI café’s experts(Fantasistas)

High-quality raw materials
Wide variety of latte menu

MACHI café

End of 1st Half

Growth Plan

4,294 stores

Copyright (c) 2013 Lawson, Inc. All rights reserved.

Beyond merely coffee,providing “café” services

2nd Half

Expand to 8,000 stores
18

Strategy for Corporate Value Creation

Takeshi Niinami
Chief Executive Officer
Representative Director
Copyright (c) 2013 Lawson, Inc. All rights reserved.

19

Lawson’s Differentiation Strategy for a Competitive Market
Current competitiveenvironment

 Assumption
 Regional economies have yet to recover Cost inflation occurs and consumption tax will increase Lead to increase in the need for value-added products
 Challenge: How to earn the trust of our customers?
1. Innovation as corporate culture Individual store customer analysis by using Ponta data
2. ◉ R&D, centering on the management owner (MO) system Quick development and improvement of merchandise◉ Convert company-operated stores to franchise stores(toward mutual growth and prosperity)
3. Home delivery business run by franchise owners
 Further development of Smart Kitchen businessStoresHeadquarters

The Three
EssentialPractices- Merchandise- Services- Promotions/Campaign• Quality• Service• Cleanliness
Copyright (c) 2013 Lawson, Inc. All rights reserved.

Increase gross profit margin ofexisting stores to achieve
higher profits for franchiseowners and headquarters
20

Health Care Initiatives: Target Business Areas 3 Years Ahead
Health care costs(social and private costs)

Increasing demand to extend healthy life years
Medical Expenses
Personal health maintenance expenses

BirthMedicalexpenses
for the elderly

Life Expectancy

Tens of millions of people are suspected of sufferingfrom lifestyle related diseases
40 million potential high-blood pressure persons (1 in 3 adults)
22.1 million potential diabetes persons (1 in 4 adults)

Lawson Group will support communities to extend “healthy life expectancy”
Copyright (c) 2013 Lawson, Inc. All rights reserved.

21

Examples of Healthy Products Series
More emphasis on “Made in Japan”
Expand"Nakashima Farming Method"
Bran series

July, 2013
Lawson acquired a 70% stake of Eisai Seikaken,
a manufacturer of soil fertilizers.

“Safe, reliable, and tasty”
Provide mineral-rich vegetables and fruits“Pre-cut Vegetables,”“Lawson Farm Vegetables”

Use of healthy oil
Cholesterol-free oil is used
for fried foods

Boxed lunches supervised by TANITA

High-oleic canola oil

Palm olein oil

Corn oilContains moreolein acid thanregular canola oiland has weakersmellHigh oxidative
stability (saturation)
when used forfrying and results inhigh-quality

Rich roasted flavor
and suited forkeeping fried foodtasty and safe

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22

Roadmap to Medium-term Continuous Growth and ROE 20%

Consolidated
operating profit
100 billion yen

ROE 20%
Dividend increase/share buy-back andcancellation

Short-term

Grossoperating profit

Non-consolidated
LawsonIncrease grossprofit margin by 4pp

Medium- /long-term
Consolidatedsubsidiaries
・Home Convenience
Business・Overseas BusinessSelling,general andadministrative
expenses

Existing stores'
gross profit

Net increasein stores
500 stores per yearIndustry
consolidation

Triggers for the roadmap to ROE 20% and 100 billion Yen in consolidated
operating profit
Investments complying with ROIC criteria for better capital efficiency
 Improve differentiated products, CRM (Customer Relationship Management) via Ponta card andAdvanced SCM reform for better gross profit margin
 Lead industry consolidation utilizing past M&A expertise
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23

ROE Growth Cycle through Optimal Cash Flow Allocation
ROE（％）

20.0
15.0

15.3％

10.0

(FY2013 target）

5.00.02002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 (FY)

Emphasis on ROI for optimal reinvestments based on economic rationality⇒ Increase operating cash flow ⇒ Create free cash flow after reinvestments⇒ Better shareholder return (dividend increase)（年度）⇒ Realize sustainable growth
Copyright (c) 2013 Lawson, Inc. All rights reserved.

24

Continuous Dividend GrowthChanges in annual dividends per share and dividend yield
Further increaseby 10JPY(yen)220200180160140120100806040200220yen 5.0%
200yenDPS（left）
Dividend Yield(right)

210yen2.9%

2.4%
Top 20 global retailers’
average dividend yield*FY2001 FY02

FY03

FY04

FY05

FY06

FY07

FY08

FY09

FY10

FY11

FY12

4.5%
4.0%
3.5%
3.0%
2.5%
2.0%
1.5%
1.0%
0.5%
0.0%

FY13(Forecast)* Top 20 retailers of total market value excl. apparel retailers

Continuous return execution independent of temporal ups and downs
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25

Reference

Copyright (c) 2013 Lawson, Inc. All rights reserved.

26

Half Year Breakdown of FY2013 Forecast(Consolidated: Billions of yen)

Net sales of all stores
Operating profit
Operating profit ratio
Recurring profit
Net profit

FY2013 Forecast
1H Initial Plan 1H Actual
2H Plan
1,025.0
992.7
995.2
35.5
35.6
34.3
3.5%
3.6%
3.5%
34.6
35.5
32.8
17.3
19.0
16.8

Full-Year Plan
1,988.0
70.0
3.5%
68.4
35.9

(Non-consolidated)

Gross profit of existing stores (YoY)

Net sales of existing stores (YoY)

Gross profit margin ratio

101.5%
100.0%
30.9%

101.1%
99.5%
30.9%

101.5%
100.0%
31.1%

101.3%
99.8%
31.0%

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

Copyright (c) 2013 Lawson, Inc. All rights reserved.

27

First Half of FY2013 Balance Sheet

Total current assets(Cash and deposits)(Marketable securities)(Accounts receivable -other)

Total noncurrent assets
Property, plant and equipment
Intangible assets
Investments and other assets(Long-terms loans receivable)(Lease deposits)

Total AssetsAs of Aug. 31,
2013

Change fromFeb. 28, 2013

216.5
100.2
57.1
409.6
219.7
32.0
157.8
33.3
85.9
626.1

36.2
15.5
11.1
10.0
10.5
▲ 2.0
1.5
▲ 1.2
▲ 0.1
46.3

Copyright (c) 2013 Lawson, Inc. All rights reserved.

As of Aug. 31,
2013

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

270.2
108.4
84.6
113.9
33.3
241.9
58.5
130.2
626.1

(Billions of yen)
Change fromFeb. 28, 2013

30.4
21.2
▲ 2.8
4.1
▲ 1.4
11.7
9.0
46.328

Cautionary Statement
This presentation contains forward-looking statements and forecasts regarding the future plans, strategies and performances ofLawson and its subsidiaries and affiliates. These statements and forecasts are not historical facts. They are expectations based onassumptions and beliefs derived from information currently available to the Company and are subject to risks and uncertainties
including, but not limited to, economic trends, heightened competition in the domestic convenience store sector, personalconsumption, 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) 2013 Lawson, Inc. All rights reserved.

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