fy2012 first half results and outlook · estimate %% %% %% %% %% %% %%...
TRANSCRIPT
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
Copyright©2012 Shiseido Co., Ltd. All Rights Reserved.No reproduction without permission. 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
Copyright©2012 Shiseido Co., Ltd. All Rights Reserved.No reproduction without permission. 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
Copyright©2012 Shiseido Co., Ltd. All Rights Reserved.No reproduction without permission. 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
Copyright©2012 Shiseido Co., Ltd. All Rights Reserved.No reproduction without permission. 6
Today’s Topics
1
2
First-Half Results
Outlook for FY2012
We now turn to the outlook for the full year.
7
Copyright©2012 Shiseido Co., Ltd. All Rights Reserved.No reproduction without permission. 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
Copyright©2012 Shiseido Co., Ltd. All Rights Reserved.No reproduction without permission. 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
Copyright©2012 Shiseido Co., Ltd. All Rights Reserved.No reproduction without permission. 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
Copyright©2012 Shiseido Co., Ltd. All Rights Reserved.No reproduction without permission. 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
Copyright©2012 Shiseido Co., Ltd. All Rights Reserved.No reproduction without permission. 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
Copyright©2012 Shiseido Co., Ltd. All Rights Reserved.No reproduction without permission. 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
Copyright©2012 Shiseido Co., Ltd. All Rights Reserved.No reproduction without permission. 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
Copyright©2012 Shiseido Co., Ltd. All Rights Reserved.No reproduction without permission. 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
Copyright©2012 Shiseido Co., Ltd. All Rights Reserved.No reproduction without permission. 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
Copyright©2012 Shiseido Co., Ltd. All Rights Reserved.No reproduction without permission. 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
Copyright©2012 Shiseido Co., Ltd. All Rights Reserved.No reproduction without permission. 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
Copyright©2012 Shiseido Co., Ltd. All Rights Reserved.No reproduction without permission. 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
Copyright©2012 Shiseido Co., Ltd. All Rights Reserved.No reproduction without permission. 19
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
Copyright©2012 Shiseido Co., Ltd. All Rights Reserved.No reproduction without permission. 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
Copyright©2012 Shiseido Co., Ltd. All Rights Reserved.No reproduction without permission. 21
First Half Review and Initiatives from Second Half
(1) Domestic Cosmetics
(2) Global
(3) Structural Reform
(4) Targets in Three Years
Next, I will describe our global business.
22
Copyright©2012 Shiseido Co., Ltd. All Rights Reserved.No reproduction without permission. 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
Copyright©2012 Shiseido Co., Ltd. All Rights Reserved.No reproduction without permission. 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
Copyright©2012 Shiseido Co., Ltd. All Rights Reserved.No reproduction without permission. 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
Copyright©2012 Shiseido Co., Ltd. All Rights Reserved.No reproduction without permission. 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
Copyright©2012 Shiseido Co., Ltd. All Rights Reserved.No reproduction without permission. 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
Copyright©2012 Shiseido Co., Ltd. All Rights Reserved.No reproduction without permission. 27
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
Copyright©2012 Shiseido Co., Ltd. All Rights Reserved.No reproduction without permission. 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
Copyright©2012 Shiseido Co., Ltd. All Rights Reserved.No reproduction without permission. 29
(1) Domestic Cosmetics
(2) Global
(3) Structural Reform
(4) Targets in Three Years
We now move on to look at structural reform.
30
Copyright©2012 Shiseido Co., Ltd. All Rights Reserved.No reproduction without permission. 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
Copyright©2012 Shiseido Co., Ltd. All Rights Reserved.No reproduction without permission. 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
Copyright©2012 Shiseido Co., Ltd. All Rights Reserved.No reproduction without permission. 32
Reform of Cost Structure, Cost Cutting 1
(1) Raw Materials Team
(2) Indirect Procurement Team
(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
Copyright©2012 Shiseido Co., Ltd. All Rights Reserved.No reproduction without permission. 33
Reform of Cost Structure, Cost Cutting 2
Items to be discussed
(4) IT Team
(5) Ad Creation 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
Copyright©2012 Shiseido Co., Ltd. All Rights Reserved.No reproduction without permission. 34
Reform of Cost Structure, Cost Cutting 3
Items to be discussed
(6) Domestic Cosmetics Team
(7) China Business Team
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
Copyright©2012 Shiseido Co., Ltd. All Rights Reserved.No reproduction without permission. 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
Copyright©2012 Shiseido Co., Ltd. All Rights Reserved.No reproduction without permission. 36
Targets for Cost Structure Reform and Cost Cutting
Examined cost(FY 2011)
Cost reduction target(FY 2013) (FY 2014)
(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
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
Copyright©2012 Shiseido Co., Ltd. All Rights Reserved.No reproduction without permission. 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
Copyright©2012 Shiseido Co., Ltd. All Rights Reserved.No reproduction without permission. 38
(1) Domestic Cosmetics
(2) Global
(3) Structural Reform
(4) Targets in Three Years
Let me conclude my presentation by describing our targets under the Three-Year Plan.
39
Copyright©2012 Shiseido Co., Ltd. All Rights Reserved.No reproduction without permission. 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
Copyright©2012 Shiseido Co., Ltd. All Rights Reserved.No reproduction without permission. 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)