fy2012 first half results and outlook · estimate ％％％％％％％％％％％％％％...

1

Copyright©2012 Shiseido Co., Ltd. All Rights Reserved.No reproduction without permission. 1Copyright©2012 Shiseido Co., Ltd. All Rights Reserved.No reproduction without permission. 1

2012-10-31

Hisayuki SuekawaPresident & CEO

SHISEIDO Co., Ltd.

In this document, statements other than historical facts are forward-looking statements that reflect our plans and expectations. These forward-looking statements involve risks, uncertainties, and other factors that may cause actual results and achievements to differ from those anticipated in these statements.

Financial Results Briefing for the First Half

1

FY2012 First HalfResults and Outlook

SHISEIDO Co., Ltd.

My name is Hisayuki Suekawa. I am the president of Shiseido.

2

Copyright©2012 Shiseido Co., Ltd. All Rights Reserved.No reproduction without permission. 2

Today’s Topics

１

２

First-Half Results

Outlook for FY2012

I would like to outline the first-half results and the outlook for the full year of the fiscal year ending March

2013.

Let me begin by describing trends in Japan and overseas.

3


Domestic Trends in the Over-the-Counter Cosmetics Market (Shiseido Estimate)

The market declined 4% to 5% in the first half of the previous fiscal year, and has not recovered to the level before the earthquake.

We expect that market growth in the second half and the full year will be roughly the same as the year-ago level.

100%+/-0%

-1 to -2%

-4 to -5%

-2 to -3%

1 to 2%

-1 to 0%-1 to -2%

2010 2011 (-3% to -4%) 2012 (around +/-0%)

Full year 1H 3Q 4Q 1Q 2Q 2H

-1 to -2% -4 to -5% 2nd half (-2% to -3%) 1st half (0 to 1%) +/-0%

The domestic over-the-counter cosmetics market grew 0% to 1% in the first half. The market declined 4%

to 5% in the first half of the previous fiscal year, and has yet to recover to its pre-earthquake level.

The market declined slightly in the second quarter, but we expect that the growth rate in the second half

and the full year will be roughly on a par with the year-ago level.

4


Europe had low single-digit growth.Growth is expected to remain weak due to the financial crisis.

Americas had low single-digit growth. The same level of growth is expected for the future.There is concern over downside risks, including a delayed improvement in the employment situation.

The rate of Chinese economic growth slowed but remains high. Uncertainty remains in the short term, but we hope that it will be quickly eliminated.

In other Asian regions, low single-digit growth is expected for both the first and second halves of the year.

Trends in Overseas Cosmetics Markets in FY2012 (Shiseido Estimate)

Europe and The

Americas

Asia

Next, let’s look at overseas cosmetics markets.

The rate of growth in European markets was in the low single digits in the first half and is expected to remain sluggish,

reflecting the financial crisis, continued high unemployment rates, and fiscal austerity.

Markets in the Americas achieved low single-digit growth in the first half. The growth rate is expected to remain flat, with

concern over downside risks due to a delayed improvement in the employment situation and other factors.

The economy in China seems to have slowed, but we believe that it retains a solid growth rate. In the short run,

uncertainty has remained since the anti-Japan protests in September. We look forward to the situation calming down

soon.

Other markets in Asia are expected to achieve low single-digit growth in the first and second half.

5


First Half Results (Ended September 2012)

(Billion yen)Results

YoY %Change

Local Currency

YoY AmountDifference from July Forecast

Net Sales 333.6 -0.8% +1.2% -2.5 -3.4

Domestic 186.6 -3.2% -3.2% -6.3 -3.4

Overseas 147.0 +2.6% +7.1% +3.7 +0.0

Operating Income

8.3 -61.2% -58.5% -13.2 -3.2

Ordinary Income

8.4 -61.7% － -13.5 -3.1

Net Income 5.0 -44.8% － -4.1 +0.0

Overseas Sales Ratio 44.1% (+1.5 pp)

Operating Margin 2.5% (-3.9 pp)

Exchange Rate 1 US$ = ¥79.8 (-3%) 1 € = ¥103.5 (-10%) 1 RMB = ¥12.6 (+1%)

Next, we move on to Shiseido’s results in the first half.

Domestic sales declined 3.2% year on year, to 186.6 billion yen. Sales for the second quarter grew year on year, but this

did not compensate for the decline in the first quarter.

Overseas sales rose 7.1% in local currency terms, to 147.0 billion yen, led by China and other markets in Asia.

Overall net sales slipped 0.8% year on year, to 333.6 billion yen, but rose 1.2% in local currency terms.

Operating income fell 61.2%, to 8.3 billion yen, reflecting a decrease in gross profit due to the decline in domestic sales, an

increase in investments in sales counters and advertisements overseas, especially in China, and marketing outlays for a

new business model in Japan.

With the decrease in operating income, net income dropped 44.8%, to 5.0 billion yen.

6


Today’s Topics

１

２

First-Half Results

Outlook for FY2012

We now turn to the outlook for the full year.

7


Outlook for FY2012

(Billion yen)Forecast

YoY % Change

Local Currency

Difference from July Forecast

1H 2H Full-year

Net Sales 700.0 +2.6% +4% -3.4 -6.6 -10.0

Domestic 382.0 +0.5% +1% -3.4 -0.6 -4.0

Overseas 318.0 +5.2% +7% +0.0 -6.0 -6.0

Operating Income

40.0 +2.2% － -3.2 -0.3 -3.5

Ordinary Income

40.0 +1.4% － -3.1 -0.4 -3.5

Net Income 22.0 +51.6% － +0.0 -0.0 +/-0.0

Overseas Sales Ratio 45.4% (+1.1 pp)

Operating Margin 5.7% (-0.0 pp) Exchange Rate

Dividend

1 US$ = ¥80 1 € = ¥100 1 RMB = ¥12.5

Interim: ¥25 Year-end: ¥25 (plan)

We have revised the domestic sales forecast down to 382.0 billion yen, which is 4.0 billion yen less than the figure announced in

July, reflecting the subpar performance in the first half.

The overseas sales forecast has been revised down to 318.0 billion yen, 6.0 billion yen less than the previous forecast, chiefly

because of expected weakness in the performance in China.

Overall net sales have been revised down to 700.0 billion yen, which is 10 billion yen less than the figure announced in July.

We forecast that despite an expected decrease in the margin due to the downward revision in the sales forecast, operating income

will rise from a year ago to 40.0 billion yen, because of reforms to the cost structure executing ahead of schedule and

comprehensive Company-wide cost cutting.

We expect that, despite the downward revision in the operating income forecast, net income will be 22.0 billion yen, in line with

initial plans, since tax and other expenses will be modest.

The annual dividend forecast remains 50 yen, based on the outlook.

8


First Half Review and Initiatives from Second Half

(1) Domestic Cosmetics

(2) Global

(3) Structural Reform

(4) Targets in Three Years

Next, let me provide a review of our performance in the first half and our initiatives in the second half.

First, let's look at the domestic cosmetics business.

Although we focused our efforts on growing our new domestic business model and boosting core lines in

each channel, domestic sales were below the forecast and year-ago level. The main reasons for the weak

sales were sluggish growth in our over-the-counter sales, mainly at cosmetics specialty stores, and our

efforts to reduce stock on the market.

9


Recovery of Over-the-Counter Sales – Monthly Year-on-Year Changes for Over-the-Counter Sales in First Half (Ended September 2012)

Over-the-counter sales are showing signs of recovery.

100%

Apr. May June July Aug. Sep.

1Q (down by about 2%) 2Q (down by about 1%)

Over-the-counter sales struggled in June and July, when the entire market faced adverse conditions due

to the unseasonable weather. However, sales at department stores have been strong since last year and

sales at drugstores, where the volume of sales is large, began to recover in the first half. As a result, over-

the-counter sales achieved a year-on-year increase in September.

To accelerate this momentum, the head office and the sales subsidiary will be united in strengthening

initiatives to solely focus on bolstering over-the-counter sales.

10


Domestic Cosmetics First Half Review

Strong performing segmentsSegments that are moving

toward recovery Key segments

ChannelDepartment Store

DrugstoreCosmetics Specialty Store

Product Skincare Foundation

Customers –Responding to needs of elder

customers

During the first half, unlike the previous trends, the contrast between strong performing segments,

segments that are moving toward recovery, and focus segments became clear.

By channel, as I mentioned earlier, in addition to the continued robust performance from the department

store channel, the drugstore channel began to recover. In contrast, the cosmetics specialty store channel

faces a challenging sales environment.

By product, although there are signs of a recovery in skincare categories, we continue to face challenges

with sales of skin foundation products, an area of the market Shiseido once dominated. Moreover, in terms

of services by customer, attention to elder customers was considered to be insufficient.

Now, I will explain the current status in each area and our initiatives to address the issues in the second

half of the current fiscal year.

11


Domestic Cosmetics Strong Performing Segment ··· Department Store

Courteously continuing basic activities such as skin diagnoses using beauty equipment, or activities that involve actually touching the skin, ties in with regular visits by loyal customers.

Ongoing promotion of a comprehensive approach to basic activities

I will first explain the thriving segment.

Over-the-counter sales at department stores have now achieved year-on-year growth for the third consecutive quarter. Sales in

September almost achieved double-digit year-on-year growth and low single-digit growth in the first half.

We believe that this strong performance is partially attributable to the two types of brand strength of clé de peau BEAUTÉ and

global brand SHISEIDO, the special brands for department stores. However, the main contribution in fact came from the sustained

efforts of beauty consultants, who encouraged regular visits by loyal customers by providing basic courteous services in skin

diagnosis by using beauty equipment with customers and with direct touch on customers’ skin, thereby contributing to the sales

increase.

By continually adopting these basic activities to the fullest extent, the department store channel is expected to continue to grow

steadily.

12


ELIXIR Day Care Revolution

Domestic CosmeticsSegment That Is Moving Toward Recovery in Drugstore Channel

Medium & low price range in skincare segment

Mid-single digit growth

for the entire

ELIXIR line

Let me move onto a segment that is moving into a recovery.

Drugstores had been experiencing adverse business conditions. But over-the-counter sales finally

achieved year-on-year growth in the first half of the current fiscal year.

Although the market for medium-priced products has shrunk, overall sales of the ELIXIR line grew at a

rate that was almost in the mid-single digits. This strong performance was attributable to hit sales of Day

Care Revolution, which was launched in the spring, as well as the steady sales of skin lotion, reflecting the

impact of initiatives to strengthen promotional activities, in line with sales promotion of Day Care

Revolution.

13


Domestic CosmeticsSegment That Is Moving Toward Recovery in Drugstore Channel

Low price range in skincare segment

AQUALABELSpecial Gel Cream

580,000 items

shipped in one month after launch

Continued high single digit growth

SENKA

Moreover, more than 580,000 units of AQUALABEL Special Gel Cream, which was launched in August,

were shipped in the month following the launch, the result of careful discussions with each retail company

about the development of specific sales space and promotion activities. Consequently, this item far

exceeded other companies in the highly competitive all-in-one cream market.

SENKA also maintained strong sales while continually achieving high single-digit growth. Both medium-

and low-priced skincare items , meanwhile, began to show signs of a recovery.

14


Initiatives in the second half

Domestic Cosmetics Segments That Struggled in Drugstore Channel

Take advantage of the renewal of lines and the launch of strong new products in the second half of the year to enable a recovery in the three categories that

struggled in the first half.

+Prepare highly original

products that creates a new category.

Categories that struggled in the first half

HairCare

BodyCare

Men’s

However, sales of products in hair care, body care, and men’s categories, such as TSUBAKI, SEA

BREEZE, and uno were subpar.

We will aim to boost sales in these categories in the second half of the current fiscal year through

renewals of lines and the launch of powerful new products.

In addition, to accelerate the expansion of sales of drugstores, we are planning to launch new and unique

products that will create a new category in the second half.

15


Domestic Cosmetics Focus Segment ··· Foundation

Install fixtures and trays that display extensive information to help customers choose products.

Enhance sales space -Improve regular sales space.

Enhance merchandise -Launch revolutionary new products.

Intensify customer service activities -Introduce new beauty techniques.

Use new innovations in technology to launch revolutionary new key MAQuillAGE and INTEGRATE products.

BENEFIQUE Millefeuille foundation tip

Avoid shoplifting Communicating line’s philosophy

A lack of merchandise can be identified and the shelves

can be replenished easily.

Prices are visible

Recommendations are visibleThe stock status is

immediately apparent

POP ads are simple

Cross-selling products of the same line

Information on products is visible

Let me now turn to talk about segments that we will focus on in the second half.

I will talk about the skin foundation category first. This category has confronted challenges over the last few years in all

channels. In response, we have been reviewing every activity for our products, sales space, and courtesy in over-the-

counter customer services, and we will evolve this initiative and apply it to all channels.

As for items, we will introduce new groundbreaking items to our mainstay MAQuillAGE and INTEGRATE by taking

advantage of new technical innovations.

To improve our sales space, we will provide new sales display cases and trays that offer extensive information to our

main stores to help customers choose items

In the counseling channels, such as cosmetics specialty stores, we will aim to expand market share by strengthening

initiatives to provide solutions to customers’ problems by introducing new techniques that help avoid a deterioration in

winter makeup.

16


Domestic CosmeticsFocus Segments ··· Responding to Needs of Elder Customers

Expanding domestic cosmetics market for elder customers Analyze insights and create a plan

Comprehensive proposals for elder customers Improve sales space. Intensify product introduction

activities. Intensify information distribution.

Secondhalf

Mediumterm

Introduce products based on new expertise and technology/software development.Large growth from 50s upward

0

10,000

20,000

30,000

40,000

2005 2006 2007 2008 2009 2010 2011

(100 million yen)

60s~

50s

40s

30s

20s10s

(Shiseido Survey)

I will now explain initiatives to respond to the needs of elder customers.

The cosmetics market for customers aged 50 years or above is the only market that has been growing in Japan, and it is likely to

continue to grow in the future. We therefore intend to make it a top priority to pursue initiatives in this market.

However, we have had several problems in this market. We have not focused sufficiently on strengthening the attractiveness of

each item, including REVITAL and ELIXIR PRIOR, and we are facing the closure of the cosmetics specialty stores with which

customers are familiar. In addition, we are not giving adequate attention to drugstores.

In response, by analyzing the hidden needs of key customers, we developed both short-term measures that can be implemented

immediately and medium-term measures.

Specifically, from the second half of the current fiscal year, we will present comprehensive proposals to elder customers, while

strengthening sales space, promotion activities, and the ability to provide information. In the medium-term, we will mobilize fresh

know-how and develop new technologies and software to launch products to meet their needs.

17


Launching new THEOTY series products in the BENEFIQUE line

Domestic CosmeticsFocus Segments ··· Responding to Needs of Cosmetics Specialty Stores

To beLaunched onFebruary 21,

2013

Effective use of BENEFIQUE Esthetique

Strengthen merchandise Intensify product introduction activities Strengthen Esthetique

Develop menu of proposals that enable customers to feel the great effects

Finally, I would like to talk about cosmetics specialty stores.

Cosmetics specialty stores have fundamental problems: customers are tending to move away from

cosmetics specialty stores, while the store network of privately run cosmetics specialty stores is

weakening as a result of the cancellation of contracts with Shiseido.

In the second half of the current fiscal year, we will strengthen cosmetics specialty stores, with a focus

on Super PS stores, by introducing new products of THEOTY, the point makeup series of BENEFIQUE,

as well as bolstering promotion activities for skin foundation items and skin lotion, while efficiently using

the BENEFIQUE esthetique treatment, which has been well received by customers.

18


Domestic CosmeticsFocus Segments ··· Responding to Needs of Cosmetics Specialty Stores Through Web Marketing 1

Beauty & Co.Meet new customers with a full array of beauty content and collaboration planning

among participating companies

Beauty & Co.About

600,000registered members

Meanwhile, in addressing the fundamental issues, we are aiming to make full use of a new business model

introduced in April.

Beauty & Co. now has approximately 600,000 registered members thanks to beauty-related content and

collaborative projects with participating companies.

In addition, watashi+ has created opportunities to meet these new customers.

1919


Domestic CosmeticsFocus Segments ··· Responding to Needs of Through Web Marketing 2

watashi+

Cosmetics Days Campaign

Strengthen initiatives not only

with specialty stores but also with collaborative initiatives with

major retail companies.

Use customer data effectively also for product

development, production,

research, and other segments.

Tie in with new marketing development and sales growth

Utilize data

Result

In stores that utilized watashi+ services, over-the-counter sales rose 10% year on year during the campaign.

Watashi+

Offering Samples for Various Lines

Watashi+About

600,000 registered members

At present, watashi+ has approximately 600,000 registered members. The number of customers has been

increasing steadily thanks mainly to the initiative of giving free samples, which we implemented in the

second quarter by linking it with retail stores.

We also had other successes. For instance, during Cosmetics Days campaign in September, over-the-

counter sales of stores that utilized watashi+ services rose well over 10% year on year. By continuing to

achieve these milestones, we will strive to increase our sales at cosmetics specialty stores.

Moreover, under our new business model, by strengthening collaboration not only with cosmetics specialty

stores, but also with major retail companies, and by using customer data that Shiseido becomes able to

directly acquire from customers not only for product development, but also for production, research, and

other purposes, we will strive to develop new marketing strategies and bolster sales.

20


A Focused Response to Challenges Leads to Good Results

Spurring a recovery in over-the-counter sales

100%

Apr. May June July Aug. Sep.

1Q (down by about 2%) 2Q (down by about 1%)

This was a summary of the current situation in the domestic market and our future initiatives. I would like

to restate that, in contrast to the previous trend, sales grew year on year in September and are expected

to remain robust in October.

I believe that measures we have taken in the past have finally begun to show results, albeit gradually. We

have clearly identified areas that need action in the growth segments and in the weaker segments in the

domestic market.

By focusing on these issues and accelerating the recovery trend, we will aim to improve results for the

second half of the current fiscal year and for fiscal 2013.

21


First Half Review and Initiatives from Second Half


(2) Global



Next, I will describe our global business.

22


Global First Half Review

Increase in sales in the Americas and Asia (+7.1%)

Growth of Bare Escentuals(+ mid-single digit)

Entered in Brazilian Market

New skincare Products

Thanks to the strong performance of global brand SHISEIDO and NARS

The AmericasRose4.9%

The fragrance business performed well despite a challenging macro environment.

EuropeRemained

flat

Driven by strong performance in China and double-digit growth in Thailand

AsiaGrew13.6%

Here are the results for the first half. As Mr. Nishimura will explain these results, I will skip this part.

23


Effects of Anti-Japanese demonstrations

At outset Present

No harm to employees or damage to facilities

The Beijing and Shanghai plants did not stop.

Department stores: More than a hundred stores closed.

Almost all have reopened for business* Some impact on Japanese products

More than 1,000 cosmetics specialty stores stopped selling Japanese products Reduced to about one quarter

There are concerns about customer attitudes toward purchasing Japanese products.

Global China Initiatives from Second Half ··· 1

Now, let me describe our global initiatives in individual areas for the second half. We begin with the influence of the anti-Japanese demonstrations in China.

Fortunately, the anti-Japanese demonstrations did not result in harm to our employees, damage to our offices, or the suspension of our plants.

However, damaged department stores closed, and some cosmetics specialty stores stopped selling Japanese products. As a result, sales have been adversely affected since the demonstrations started.

Almost all the department stores have now resumed normal operations. However, Japanese products continue to be affected.Initially, more than 1,000 cosmetics specialty stores suspended sales of Japanese products. Now the number of such stores has been reduced to around one quarter that figure.

It is still unclear in China how customers’ attitudes toward purchasing Japanese products will evolve in the future. We need to monitor the situation carefully. However, we will strive to minimize the negative influence by seeking cooperation from our local employees in China.

We earnestly hope that the situation will improve in the near future.

24


Global China Initiatives from Second Half ··· 2

Department storeCosmetics specialty

storeMasstige

These brands were born in China and remain beloved of Chinese customers.

「Za」PERFECT

SOLUTION LINE

Next, let me describe our performance in China. In China, the launches of certain items were delayed in the first half due in part to the delay in pharmaceutical approvals.

However, over-the-counter sales achieved percentage growth in the mid-teens, primarily reflecting the expansion of sales of AUPRES, which is sold at department stores, and URARA and PURE & MILD, which are sold through the cosmetics specialty store channel.

In the second half, we will continue to bolster the department store and specialty store channels and accelerate the growth of masstige brands, such as Za and TSUBAKI. However, the future remains uncertain in China, and we forecast percentage sales growth in the mid-single digits in the second half and around 10% growth for the full year.

On the other hand, we will strive to achieve high profitability through comprehensive cost management, including restraints on promotions and advertising.

Although the future remains uncertain in the current situation, the number of users of cosmetics will expand dramatically in China. Our growth strategies in this country will remain unchanged. China will remain a priority market for us, and we will continue todevelop our business in that country.

25


Global Masstige Business in Asia Initiatives from Second Half

Introduce to Japanese market in September, increase presence as a global mega brand

originating in Asia

Introduce to Thailand, Singapore, Malaysia in November and aim for rapid progress as a global

mega brand

Za SENKA

Next, I will describe the masstige business in Asia.

In Thailand, which is our priority market, we sold Za primarily through the drugstore channel, but also through the hyper-

and supermarket-channels and convenience stores to expand sales dramatically. As a result, sales more than doubled year

on year in the first half. In addition, we also launched the brand in Japan in September. Thus, Za has enhanced its

presence as a global mega brand originating from Asia.

We sell SENKA, which is solidly increasing sales in three countries in Asia, including Japan. We will launch the brand in

Thailand, Singapore, and Malaysia in November.

We will aim to boost sales of SENKA further as a global mega brand by preparing to introduce it to the Chinese market.

26


Global The Americas Initiatives from Second Half ··· 1

A visual of an advertisement for the autumn and winter of 2012

Collaboration with works of Andy Warhol

Jennifer Connelly appointed as spokesperson

Lacquer Rouge

Global brand NARS

Next, let’s take a look at the Americas.

We will continue to promote global brand SHISEIDO, especially its skincare and sun care categories.

Meanwhile, the growing NARS will actively communicate its features to establish a prominent position as

a makeup brand.

2727


Global The Americas Initiatives from Second Half ··· 2

bareMinerals

Strengthen communication with customers at the stores by evolving the design and functions of directly-managed stores

Strengthen marketing by linking to the introduction of breakthrough products

We will bolster our marketing activities for bareMinerals by linking them to the introduction of groundbreaking products.

We introduced new products in the skincare and point makeup categories in the first half. In the second half, we

introduced in August the pressed foundation in the base makeup category, which is at the core of the brand.

When we introduced the pressed foundation items, we executed a powerful campaign in all sales channels in the United

States. As a result, both our sales and market share achieved growth.

In addition, we will evolve the design and functions of our directly managed stores, which we run mainly in North

America, and boost communications with customers at the counters in our efforts to secure year-on-year growth.

28


Global Europe Initiatives from Second Half

ISSEY MIYAKE“PLEATS PLEASE”

Jean Paul GAULTIER“KOKORICO”

ELIE SAAB“Le Perfum”

Won six 2012 FIFI AWARDS

Next, I will describe our initiatives in Europe.

As I mentioned earlier in this presentation, European economies remain sluggish given the financial

crisis.

We are affected by the weakness of major European economies, including the Italian economy.

However, the fragrance business, our core business in Europe, has been strong.

We launched PLEATS PLEASE, a new line of ISSEY MIYAKE. In addition, KOKORICO of Jean Paul

GAULTIER and Le Perfum of ELIE SAAB won a total of six FIFI Awards, considered to be the Oscars in

the fragrance business.

29



(2) Global



We now move on to look at structural reform.

30


Trends in Operating Margin, Cost of Sales Ratio, and SG&A Ratio

2006 2011 2006 2011 2006 2011 2006 2011 2006 2011

7.25.7

8.8

26.7

23.9 23.6 23.521.6

23.9

20.621.6

(%)

Operating margin

Cost of sales ratio

Marketing cost ratio

Other expenses ratio

Personnel cost ratio

This graph shows the cost structure of the overall Shiseido Group. As you see, while we have been

striving to reduce our cost of sales, ratios of personnel cost and expenses have been rising, and these

are fundamental issues.

To solve this problem, we have held marketing costs to a certain level, while undertaking structural

reform, which involves comprehensive reduction in expenses, to improve profitability. We are also

reforming our business structure by streamlining the structure through fundamental reviews of our

organization, infrastructure, and operations.

31


(1) Raw Materials Team

(2) Indirect Procurement Team

(3) Logistics Team

(7) China Business Team

(4) IT Team

(5) Ad Creation Team

(6) Domestic Cosmetics Team

Reform of Cost Structure, Cost Cutting ··· Seven Teams

We have seven teams for cost structure reforms: Raw Materials, Indirect Procurement, Logistics, IT,

Ad Creation, Domestic Cosmetics, and China Business teams. Each team is advancing with specific

reforms steadily and accumulating results in monetary terms.

32


Reform of Cost Structure, Cost Cutting 1



(3) Logistics Team

Sharing raw materials Changing ingredient specifications Simplifying production processesand other measures

Cutting unit costs through integrated purchasing and negotiations with clients

Reviewing the ownership, operation, and maintenance of buildingsand facilities, negotiating over unit prices

Cutting costs by reviewing operationsand other measures

Reforming supply chain management from buying up raw materials to the store-front

Substantially reducing cost of logisticsand other measures

Items to be discussed

The Raw Materials Team has been moving forward initiatives such as sharing raw materials, changing ingredient

specifications, and simplifying production processes through concerted efforts involving the manufacturing, research,

and marketing divisions.

The Indirect Procurement Team is reducing expenses uncompromisingly by reviewing operations, in addition to

cutting unit costs through integrated purchasing and negotiations with clients and fundamentally reviewing policies on

fixed assets, including buildings and facilities, and negotiations of unit prices.

The Logistics Team is undertaking reforms to the supply chain management, from purchases of raw materials to the

sales frontlines. The team is conducting a fundamental review of existing trade practices, looking to achieve

significant logistics savings.

33




(4) IT Team


Cutting costs associated with outsourcing Consolidating systemsand other measures

Optimizing commercial creation planning Reviewing and refining the production process Manufacturing packages in-houseand other measures

The IT Team is reviewing all necessary operations and system costs. The team is cutting costs

associated with outsourcing and is eliminating and consolidating systems.

The Ad Creation Team is pursuing a balance between value creation and costs by implementing measures

such as optimizing the planning of commercial creation, reviewing and refining the production process, and

manufacturing packages in-house.

34






Eliminating waste by developing new methods for marketing tools at store front

Integrating and reducing store equipmentand other measures

Expanding local procurement of raw materials and promotional materials

Integrating distribution stock and switching to local logistics companies

and other measures

The Domestic Cosmetics Team is responsible for cutting waste from promotional materials by

developing new methods for marketing tools at store front and consolidating and eliminating store

equipment.

The China Business Team is comprehensively reviewing expenses—with no item considered off limits. It

aims to increase local sourcing of raw materials and promotional materials, bring together stock on

distribution routes, and replace existing logistics companies with local firms.

35


Reform of Cost Structure, Cost Cutting ··· Indirect Procurement

Items FY 2012 FY 2013 FY 2014

Total Total of ¥6 bnTask 1 Negotiations

with suppliers

Market research Subcontract processing Consulting charge Cost of outsourcing research and other measures

Task 2 Facilities

Control new capital investment Idling and exclusion of non-

operational assets Effectively operate existing

assets and other measures

Task 3 Internal

control Review of

operations

Review the business itself, cut external costs by moving to in-house production

and other measures

Total of ¥1.5 bn

Total of ¥2 bn

Total of ¥2.5 bn

As an example, I would like to give you details of our initiatives in the indirect procurement field.

The Indirect Procurement Team engages in three tasks. Task 1 is negotiations with suppliers. This is aimed at reducing the

costs primarily of marketing research, subcontract processing, consultations, and outsourcing of research mainly by narrowing

down suppliers.

For Task 2, the team is reducing depreciation costs and maintenance costs by limiting new investments in facilities,

scrutinizing existing assets, treating non-operating assets as idle assets or retiring them, and promoting the efficient operation

of existing assets.

Task 3 aims at reviewing the operations themselves and undertaking them internally, to reduce the outflow of money.

Roughly speaking, the Indirect Procurement Team has reduced costs by a total of approximately 6 billion yen.

Similarly, preparations for executing the tasks have been steadily advanced by other teams as well.

36


Targets for Cost Structure Reform and Cost Cutting

Examined cost(FY 2011)

Cost reduction target(FY 2013) (FY 2014)



(3) Logistics Team


(4) IT Team



About¥280 bn

Over¥7 bn

Over 20 bn

Invest in growth

Improve profitability

For the cost structure reform, the total savings that we are targeting from reductions in the cost of

sales and selling, general and administrative expenses has been set at 280 billion yen.

We previously aimed to achieving savings of 20 billion yen in the three years from fiscal 2014 until

fiscal 2016. We will accelerate our initiatives and achieve a reduction of more than 7.0 billion yen in

fiscal 2013.

And in fiscal 2014, we will achieve a reduction of more than 20 billion yen and allocate the amount we

saved to investments in growth and expenditures to improve profitability.

37


Reform of Business Structure

Streamlining the business structure, including the organization,infrastructure, and operations

Strengthening management of personnel costs

Limiting the hiring of new graduates and mid-career workers

Rewarding good work and always correcting problems

Curbing overtime payments by reviewing operations

Slimming down head office and strengthening the frontlines

Reorganizing production bases

Proactive use of Vietnam plant Building an optimum production

system in Japan and overseas

Specific initiatives will be announced one by one from January next year.

Integrating functions globally

Integrating back-office functions and developing and integrating logistics and infrastructure globally

Expanding structural reform in the United States into other areas

Next, I will describe the reforms to our business structure. We are developing a reform program to streamline our business structure, including the organization, infrastructure, and operations, from a range of perspectives.

First of all, as we announced in June this year, we are undertaking an alignment of back office and administrative functions andthe consolidation of distribution operations and infrastructure in the United States. We will undertake structural reforms in other areas, too.

To reduce personnel expenses, especially in Japan, we will take action quickly. Specifically, we will limit the hiring of new graduates and mid-career workers and will never fail to reward good work or correct problems. Meanwhile, we will review operations and will curb overtime payments. In addition, we are streamlining Head Office operations, improving efficiency in each field, and taking other steps to improve productivity. As a result, we will lower the ratio of personnel expenses.

We will reorganize our production bases. We will build an optimum production system in Japan and overseas and will reduce costs by actively using our Vietnam plant.

We will disclose specific details of the initiatives for these business structure reforms one by one from January next year.

38



(2) Global



Let me conclude my presentation by describing our targets under the Three-Year Plan.

39


Changes in the environment

European financial crisis Changes in the business environment in China

The company will unite in reforms to achieve consistent sales growth that matches market performance and to build a foundationfor higher profitability, instead of aiming for average high sales growth of 6% on the assumption of leading investment.

Targets in Three Years

We will achieve an operating margin of 8% by accelerating the speed of the current cost and structural reforms.

Under the current Three-Year Plan, executed during a period of severe competition, we have sought to secure operating income through growth generated by leading investments. Our target has been an average sales growth rate of 6%.

However, we are facing a challenging situation that makes achieving high returns difficult under increasingly severe management conditions created by weak global economic growth, the European financial crisis, and mounting anti-Japanese sentiment in China.

Consequently, in a shift from its existing stance, the entire Company will aim to achieve steady sales growth matching market performance through steady marketing investments and to lay a foundation for a highly profitable structure instead of aiming for high growth through leading investments. With this approach, we are determined to achieve operating income of 40 billion yen in the current fiscal year and an operating margin of 8% in fiscal 2013, the final year under the current Three-Year Plan, despite conditions adverse to sales growth.

40


Changes in the environment

European financial crisis Changes in the business environment in China

The company will unite in reforms to achieve consistent sales growth that matches market performance and to build a foundationfor higher profitability, instead of aiming for average high sales growth of 6% on the assumption of leading investment.

Targets in Three Years

We will achieve an operating margin of 8% by accelerating the speed of the current cost and structural reforms.

With the start of the second half of fiscal 2012, we believe that the following points are the key to achieving the plan for thesame period: to give priority to bolstering over-the-counter sales to restore domestic growth; to secure sales and profits by flexibly addressing risks in the overseas markets for the remaining two months; and to improve profitability through comprehensive cost cutting involving the entire Company.

The operating environment is likely to remain challenging in fiscal 2013. We will accelerate our current cost and structural reforms and bring forward initiatives to the extent possible to achieve an operating margin of 8%.

41

Copyright©2012 Shiseido Co., Ltd. All Rights Reserved.No reproduction without permission. 41Copyright©2012 Shiseido Co., Ltd. All Rights Reserved.No reproduction without permission. 41

Despite the challenging management environment, we will develop a clear growth strategy for fiscal 2013

and the following three years, achieving specific results at the earliest stage by allocating funds freed

through structural reforms to priority areas in our business portfolio. With these efforts, we seek to become

a global player representing Asia with its origins in Japan.

42

43

Yoshinori Nishimura

Director, Corporate Officer

2012-10-31

Financial Results for the First HalfFinancial Results for the First HalfEnded Ended September 30, 2012September 30, 2012

NOTE : Figures in this material are rounded to the nearest 0.1 billion.

44

Consolidated Results

US$1=¥79.8(-2.8％), €1 = ¥103.5(-10.0％),1RMB=¥12.6(+0.8%)Exchange Rate

Overseas

Domestic

-44.8% 2.7% 9.1 1.5% 5.0Net Income

(Billion yen)

12/9 Result 11/9 Result YoY %Change

LocalCurrency% of Net Sales % of Net Sales

Net Sales 333.6 100% 336.2 100% -0.8% +1.2%

186.6 55.9% 192.9 57.4% -3.2% -3.2%

147.0 44.1% 143.3 42.6% +2.6% +7.1% Operating

Income 8.3 2.5% 21.5 6.4% -61.2% -58.5%

Ordinary Income 8.4 2.5% 21.8 6.5% -61.7% Extraordinary Income / Loss

(net)-0.8 -0.2% -0.1 -0.0% －

Tax Expenses 1.7 0.6% 11.8 3.5% -85.5%

EBITDA 27.0 8.1% 40.6 12.1% -33.5%

45

Sales by Reportable Segment

-3.9%-3.9%53.7%180.552.0%173.4Domestic Cosmetics

+7.0%+2.7%45.1%151.646.7%155.7Global

Business

+10.8%+10.8%1.2%4.11.3%4.5Others

+1.2%-0.8%100%336.2100%333.6Total

(Billion yen)

12/9 Result 11/9 ResultYoY %Change

LocalCurrency% of Net

Sales% of Net

Sales

46

Domestic Cosmetics Sales: by Reportable Segment

% of Net Sales

180.5

16.9

7.6

156.0

24.6

41.7

89.7

11/9 Result

53.7%

5.0%

2.3%

46.4%

7.3%

12.4%

26.7%

-3.9%-7.152.0%173.4Domestic Cosmetics

+4.3%+0.75.3%17.6Others

+1.5%+0.12.3%7.8Healthcare

-5.1%-8.044.4%148.0Cosmetics

-16.6%-4.16.2%20.5Toiletries

-2.2%-0.912.2%40.8Self-selection

-3.3%-3.026.0%86.7Counseling

% of Net Sales

YoY % Change

YoY

Amount

12/9 Result

(Billion yen)

47

Global Business Sales : by Reportable Segment

+2.7%

-1.1%

+3.3%

YoY %

Change% of Net Sales

151.6

20.4

131.2

11/9 Result

45.1%

6.1%

39.0%

+7.0%+4.146.7%155.7Global Business

+2.3%-0.26.0%20.1Professional

+7.8%+4.440.7%135.6Cosmetics

% of Net Sales

Local

Currency

YoY

Amount

12/9 Result

(Billion yen)

48

Sales by Geographic Segment

+13.6%+11.7%+6.917.6%59.419.9%66.3Asia/Oceania

(Billion yen)

12/9 Result 11/9 ResultYoY

Amount

YoY %

Change

Local

Currency% of Net Sales

% of Net Sales

Japan 186.6 55.9% 192.9 57.4% -6.3 -3.2% -3.2%

Americas 43.9 13.2% 43.3 12.9% +0.5 +1.2% +4.9%

Europe 36.8 11.0% 40.6 12.1% -3.7 -9.2% -0.0%

Overseas 147.0 44.1% 143.3 42.6% +3.7 +2.6% +7.1%

Total 333.6 100% 336.2 100% -2.5 -0.8% +1.2%

49

Cost of Sales / SG&A

(Overseas)

(Domestic)

-3.1% +0.1 1.4% 4.7 +0.0% 1.4% 4.5 M&A-related

Amortization Cost

74.1

81.5

76.2

96.5

140.0

236.5

78.2

11/9 Result

22.0%

24.2%

22.7%

66.9%

73.0%

70.3%

23.3%

% of Net Sales

+2.9% -4.1 -4.7% 77.7% 144.1

+4.5% -10.7 -3.8% 74.1% 247.2 SG&A

+6.8% -6.6 -2.7% 69.6% 103.0

Others

Personnel

Advertising & Selling +7.2% -5.5 -1.8% 24.5% 81.7

+1.3% -0.9 -0.5% 22.5% 75.1

+5.4% -4.4 -1.5% 25.7% 85.8

-0.0% +0.0 -0.1% 23.4% 78.1 Cost of Sales

% pt.

Change

(+: decrease)% of Net

Sales

YoY % Change

YoY

Increase/ Decrease

(+: cost cut)

12/9 Result

(Billion yen)

50

Operating Income by Reportable Segment

－-0.1 0.1 -0.0 Operating IncomeElimination

2.5%

8.3

12.1%

0.9

-3.9%

-6.1

7.8%

13.6

12/9 Result

-61.2%

-3.9pp6.4% OP Margin

-13.2 21.5 Operating Income

Total

+1.7pp10.4% OP Margin

+25.2% +0.2 0.7 Operating IncomeOthers

-3.4pp-0.5% OP Margin

－-5.4 -0.7 Operating IncomeGlobal Business

-4.0pp11.8% OP Margin

-36.7% -7.9 21.4 Operating IncomeDomestic Cosmetics

YoY %

Change

YoY

Amount11/9 Result

(Billion yen)

51

Other Income (Expenses) and Extraordinary Income (Losses)

+0.3-0.5-0.2Foreign Exchange Gain/Loss

0.3

1.4

-0.5

-0.9

0.4

11/9

Result

Interest Expense

-0.30.0Total

-0.60.7Others

+0.1-0.5Net Interest Income and Expense

+0.1-0.9

-0.00.4Interest / Dividend Income

YoY

Amount

12/9

Result(Billion yen)

-0.6-0.0-0.6Loss on Revaluation of Investments in Securities

+0.4-0.7-0.3Loss on Sales and

Disposal of Property, Plant and Equipment

-0.60.60.1Others

-0.1

11/9

Result

-0.8-0.8Total

YoY

Amount

12/9

Result(Billion yen)

Other Income (Expenses) Extraordinary Income (Losses)

52

Net Income and Comprehensive Income

-4.1 9.1 5.0 Net Income

-4.013.29.2Comprehensive Income

+0.1 0.9 0.8 Minority Interests in

Earning of Consolidated Subsidiaries

+10.111.8

（54.1%）

1.7

（22.7%）

Tax Expenses

(Tax rate)

-14.2 21.8 7.5 Income before Income Taxes

YoY Amount11/9 Result12/9 Result(Billion yen)

53

Consolidated Balance Sheets

US1$= ¥79.3 1€= ¥98.7 1RMB=¥12.5 (2012/6)

US1$= ¥77.7 1€=¥100.7 1RMB=¥12.3 (2011/12)NOTE : Major account title onlyEquity Ratio: 41.1%, Interest-bearing Debt Ratio: 38.2%

+4.8

－

－

－

+3.8

+0.1

-0.0

-0.1

+1.0

Foreign Currency Exchange

+4.8

+0.0

+2.8

+0.5

+3.3

+0.5

+0.2

+0.5

+1.4

Foreign Currency Exchange

-18.2

+0.9

+3.0

-4.9

-0.8

+2.0

-10.3

-4.3

-17.3

Change from

2012/3

-18.2

-1.5

-2.1

-0.3

-3.9

+6.7

-6.8

-16.8

-14.2

Change from

2012/3

(Billion yen)

12/9

(Billion yen)

12/9Excluding Foreign

Currency Exchange

Excluding Foreign

Currency Exchange

Total Current Assets 301.0 -15.6 Total Liabilities 399.7 -18.3

Cash Deposits and Securities

77.0 -17.3Notes & Accounts

Payable44.0 -4.2

Notes & Accounts Receivable

106.0 -7.0 Other Payables 34.0 -10.3

Inventories 78.6 +6.3 Interest-bearing Debt 187.2 +1.9

Total Fixed Assets 401.6 -7.3 Total Net Assets 302.9 -4.7

Property Plant and Equipment 129.5 -0.8 Shareholders’ Equity 351.7 －

Intangible Assets 171.5 -4.9Other Comprehensive

Income-63.1 －

Investments and Other Assets 100.5 -1.6 Minority Interests 13.5 －

Total Assets 702.6 -23.0Total Liabilities and Net

Assets702.6 -23.0

54

Consolidated Cash Flows

(Billion yen)

△6.0△15.4

09/3 10/3 11/3 12/3Consolidated Cash Flows

Free Cash Flows

100

50

0

-100

-50

-15012/9(2Q)

-6.0Free Cash Flows

-10.0Cash Flows from Financing Activities

-15.4Consolidated Cash Flows

0.7Effect of Exchange Rate Changes on Cash and Cash Equivalents

-12.6Cash Flows from Investing Activities

6.6Cash Flows from Operating Activities

55

56

57

47.7

14.1

14.5

18.1

32.7

11.8

19.3

31.1

13/3

Estimate

21.0

7.0

6.6

8.5

15.1

4.8

10.4

15.2

11/9

(Billion yen)

12/9

Result

YoY

Amount

Change

YoY %

Change

12/3

Result

YoY

Amount

Change

YoY %

Change

Investment in Plant and Equipment etc. * 13.3 -2.0 -13％ 34.3 -3.2 -9％

Property Plant and Equipment 8.3 -2.1 -20％ 21.6 -2.3 -11％

Intangible Assets etc. 5.0 +0.2 +3％ 12.7 -0.9 -7％

Depreciations 15.9 +0.8 +5％ 30.7 +2.0 +7％

Property Plant and Equipment 8.6 +0.1 +1％ 17.4 +0.7 +4％

Intangible Assets etc. 7.3 +0.7 +10％ 13.2 +1.3 +10％

R&D Expenses 6.9 -0.1 -2％ 14.7 -0.6 -4％

Advertising Expenses 24.9 +3.8 +18％ 49.3 -1.6 -3％*Capital Investment, Investment in Property Plant and Equipment, Intangible Asset excluding Goodwill and Trademarks and Long-term Prepaid Expenses etc.

Supplemental Data

58

Factors for Increase/Decrease of Operating Income in the Full-year Outlook for FY2012(Reflecting the Results of 2Q)

2012/3Operating Income

2013/3Operating Income

39.140.0

Increase in profit due to

increase in sales・reduction in cost

＋14.4

Increase in overseas SG&A

-１0.5

(Including increase in advertising & sellingcosts: Max. -1.0and increase in personnel costs (social insurancepremiums, etc.):-4.5)

(Including increase in advertising & selling costs: Max. -2.0 and increase in personnel costs: -5.5)

Increase in domestic costs, SG&A

-3.0

(Billion yen)

fy2012 first half results and outlook · estimate ％％ ％％ ％％ ％％ ％％ ％％ ％％...

Documents

fy2012 first half results and outlook · estimate ％％％％％％％％％％％％％％...