Annual Report 2007 [PDF：1.75MB]

Transcription

Shiseido commenced operations as Japan’s first Western-style pharmacy in Tokyo’s Ginza district in 1872. The name Shiseido derives from a Chinese expression meaning “praise the virtues of the
great Earth, which nurtures new life and brings forth new values.” In line with this expression, our
founding spirit of “serving our customers and contributing to society by integrating all things on Earth
to create new value,” lives on in our corporate mission of “identifying new, richer sources of value and
using then to create a beautiful lifestyle.” This policy has led to high-value-added products and services
in the cosmetics and other businesses promoting people’s beauty and well-being.
The fiscal year ending March 2008 is the final year of our Three-Year Plan to maximize growth potential and improve profitability, and we are devoting all of our capabilities to assisting customers in revealing their full beauty. By successfully implementing reforms, we aim to assist society, customers and all
people in experiencing “This moment. This life. Beautifully.”
Contents
Financial Highlights .........................................................
4
To Our Stakeholders ........................................................
5
An Interview with President Maeda ...............................
6
Shiseido at a Glance ......................................................... 10
Business Review
Domestic Cosmetics Business.................................... 12
Overseas Cosmetics Business .................................... 16
Feature: Revealing the Beauty of
Each and Every Customer........................................... 20
Research and Development, Intellectual Assets ........... 26
Corporate Governance,
Corporate Social Responsibility .................................. 28
Global Network ................................................................. 33
Financial Section
Six-Year Summary of Selected Financial Data .......... 34
Management’s Discussion and Analysis.................... 35
Consolidated Financial Statements ............................ 46
Notes to the Consolidated
Financial Statements ................................................. 51
Report of Independent Auditors ................................. 68
Corporate Information...................................................... 69
Forward-Looking Statements
In this annual report, statements other than historical facts are
forward-looking statements that reflect the Company’s 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 Highlights
Shiseido Company, Limited, and Subsidiaries
For the years ended March 31, 2005, 2006 and 2007
Millions of yen
(Except per share data)
2005
2006
2007
Percent change
Thousands of U.S. dollars
(Note 1)
2007/2006
2007
Operating Results:
Net sales ··········································
Operating income (Note 2) ················
Net income (loss) ······························
¥639,828
26,529
(8,856)
¥670,957
38,879
14,436
¥694,594
50,005
25,293
+3.5%
+28.6
+75.2
$5,881,904
423,448
214,184
Financial Position (At year-end):
Total assets ······································
Net assets ········································
¥701,095
369,957
¥671,842
387,613
¥739,833
403,797
+10.1%
+4.2
$6,264,993
3,419,400
Per Share Data (In yen and U.S. dollars):
Net income (loss) (Note 3) ·················
Net assets (Note 3) ···························
Cash dividends ·································
¥ (21.5)
866.5
24.0
¥ 34.4
906.1
30.0
¥ 60.9
940.8
32.0
+77.0%
+3.8
+6.7
$0.52
7.97
0.27
Financial Ratios:
Operating profitability (Note 2) ···········
Return on equity ·······························
Total return ratio (Note 4) ··················
4.1%
(2.4)
—
5.8%
3.9
105.1
7.2%
6.6
52.6
Notes: 1. All dollar amounts herein refer to U.S. currency. Yen amounts have been translated, solely for the convenience of the reader, at the rate of
¥118.09 to US$1 prevailing on March 31, 2007.
2. Operating income and operating profitability for the year ended March 31, 2005 have been retrospectively restated to reflect changes in
accounting policies for the year ended March 31, 2006.
3. Net income (loss) per share (basic) is calculated based on the weighted average number of shares outstanding during each respective year.
Net assets per share is calculated based on the number of shares outstanding at the end of each respective year.
4. Total return ratio = (Cash dividends + Share buybacks*) ÷ Consolidated net income
*Excluding odd-lot purchases
Net Sales /
Overseas Sales Ratio
Operating Income /
Operating Profitability
(Billions of yen)
600
(%)
621.3 624.2 639.8
671.0
(Billions of yen)
30
10
38.9
37.5
24.5
27.5
26.5
7.6
20
50
14.4
15
25
5.8
5
7.0
0
4.1
7.6
34.4
30.0 32.0
20.0
7.2
6.0
15
30
25.3
15
32.4
60.9
58.0
30
200
(Yen)
64.9
45
29.4
(%)
50.0
47.1
40
27.5
24.8 26.0
Net Income (Loss) per Share/
Cash Dividends per Share
(Billions of yen)
(%)
694.6
400
Net Income (Loss) /
Return on Equity
6.6
3.9
0
22.0 24.0
0
(2.4)
0
0
03
04
05
Net Sales
06
0
07
07
03
04
05
Net Income (Loss)
Return on Equity
(15)
06
Business Segment Information
Geographic Segment Information
Net Sales (Outer circle)
Operating Income (Inner circle)
(Year ended March 31, 2007)
Net Sales (Outer circle)
Operating Income (Inner circle)
(Year ended March 31, 2007)
3.3%
4.5%
07
(25)
(21.5)
03
04
05
06
Net Income (Loss) per Share
Cash Dividends per Share
07
12.0%
32.3% 21.1%
74.4% 64.4%
Domestic Cosmetics
Business
Overseas Cosmetics
Business
12.7%
23.5%
7.5%
Others
13.2%
4
(8.9)
(15)
0
03
04
05
06
Operating Income
SHISEIDO ANNUAL REPORT 2007
5.9%
57.4% 67.8%
Japan
Americas
Europe
Asia/Oceania
Note: Segment sales represent
sales to external customers
only and do not include
intersegment sales or transfers.
To Our Stakeholders
In the fiscal year ended March 2007, the second year of the Three-Year Plan to maximize growth
potential and increase profitability, Shiseido continued to implement domestic marketing reforms,
accelerate expansion of the China business, and carry out further fundamental structural reforms.
As a result, both consolidated net sales and operating income achieved record levels.
Consolidated net sales increased 3.5 percent to ¥694.6 billion, backed by a substantial increase in
overseas sales, particularly in China. Marginal gains from overseas sales expansion and cost reduction efforts increased operating income 28.6 percent year-on-year to ¥50.0 billion, raising operating
profitability to 7.2 percent. As a result, net income increased a solid 75.2 percent to ¥25.3 billion.
In the fiscal year ending March 2008, the final year of the Three-Year Plan, we will:
1) accomplish domestic marketing reforms to establish a stable earnings base;
2) continue investing in overseas markets with high growth potential, primarily China; and
3) continue promoting fundamental structural reforms that qualitatively transform the
cost structure.
These initiatives are expected to lead to increases in sales and profits and a reduction in the cost
of sales ratio, through which Shiseido aims to fulfill its commitment to achieve operating profitability
of 8 percent or higher as announced at the beginning of the Three-Year Plan. In addition, we will prepare to implement a clear scenario for the next three years. At the same time, to support these
reforms, we will actively foster human resources and strengthen corporate governance.
All employees and top management, including myself, will concentrate our maximum effort on
raising the value of the
corporate brand and the quality of its management in order to
reveal the full beauty of our customers. Through these actions, Shiseido will work to earn the support
of all stakeholders.
We look forward to your continued support as we embrace the challenges of the future.
June 26, 2007
SHINZO MAEDA
President & CEO (Representative Director)
5
An Inter view with President Maeda
In the year ending March 2008, Shiseido
will complete its current Three-Year Plan,
and begin preparing for the next three
years. Maintaining the pace of reform, we
will focus on accomplishing remaining
domestic marketing reform objectives,
further strengthening global development
and continuing with fundamental structural reforms.
Shiseido decisively implemented reforms under
the theme of “improving execution and speed.”
How do you rate the achievements and progress
of the Three-Year Plan at this point in time?
The Three-Year Plan is aimed at maximizing growth
potential and improving profitability in order to transform Shiseido into a corporation that can compete successfully with its global peers. To do this, we are implementing the three key themes of the Three-Year Plan:
“to become thoroughly committed to customer-oriented
marketing,” “to give Shiseido a solid profit structure”
and “to improve the execution and speed of all reforms.”
Resolving to break down and rebuild the company
structure if necessary, over the past two years we have
reviewed all aspects of our corporate activities, from
research and development to production, marketing,
sales and the activities of Beauty Consultants.
We implemented our reform scenario without delay
and this led to results exceeding initial forecasts in the
first and second years of the plan. A can-do spirit has
raised employee confidence and motivation. I would give
SHINZO MAEDA
President & CEO (Representative Director)
6
our progress over the past two years a passing grade.
We are aiming for even more challenging levels of
sales and profits in the year ending March 2008, the
percent, which is the minimum necessary for competing
third and final year of the plan. We intend to fulfill our
effectively with global peers. To do so, we intend to
commitment to achieve operating profitability of 8 per-
achieve the numerical objective of the current plan this
cent or higher and all other targets. Specifically, we will
year, and prepare the groundwork for the next three-
concentrate on three key points: “accomplishing remain-
year period, in which we will aim for 10 percent operat-
ing domestic marketing reform objectives,” “further
ing profitability.
strengthening global development,” and “continuing
with fundamental structural reforms.”
In domestic marketing reform, considerable attention
focused on large-scale changes such as the
The numerical objective of the Three-Year Plan is
launches of mega lines. What will Shiseido
operating profitability of 8 percent or higher for
emphasize in completing reforms during the year
the year ending March 2008. Will Shiseido achieve
ending March 2008?
this goal?
In Japan, two issues are critical for success: developing
In the past two years, we have allocated marketing
long-selling brands/lines that benefit our customers and
expenditures under the theme of “distinction and concen-
strengthening our model for coexistence and co-prosperi-
tration,” and have reduced fixed expenses by reorganizing
ty with sales channels for the twenty-first century.
domestic production facilities and scaling back or with-
Launches of mega lines were completed in the year
drawing from unprofitable businesses. These measures
ended March 2007. In the year ending March 2008, we will
have transformed our cost structure, and operating prof-
work to generate additional sales growth that exceeds
itability is improving faster than planned. I therefore con-
those launches by cultivating existing brands/lines. Of
sider operating profitability of 8 percent or higher for the
course, this is no simple task, but the pillars of “broad
year ending March 2008 an achievable goal.
and strong” brands/lines are now established. Rather
However, operating profitability of over 8 percent is
than relying on launches of new brands/lines, we intend to
not the final goal. We need to evolve into a company that
transform our corporate structure into one where long-
can consistently achieve operating profitability above 10
selling brands/lines are nurtured to benefit our cus-
Reforms Implemented in the Past Two Years
R&D
Production/
Logistics
Marketing
Sales
Beauty
Consultants
Solution-based R&D structure that integrates beauty methods and product research
Reorganization of domestic factories from 6 to 4
Outsourcing of logistics operations
Renovation of brand strategy (mega-line concept, etc.)
Appointment of Brand Managers by category
Integration of cosmetics and toiletries business divisions
Formation of channel-based sales force
Reform of business trade system
Removal of sales quotas from evaluations
Installation of customer satisfaction evaluation system
7
tomers. We will do so by establishing a structure that
percent year-on-year, a significant increase. The overseas
unifies efforts from research and development to produc-
sales ratio was 32 percent for the full year, exceeding 30 per-
tion, sales and service.
cent for the first time ever.
Strengthening our model for coexistence and co-
Sales in China, which is driving this growth, have
prosperity with sales channels for the twenty-first century
nearly doubled over the two-year period from April 2004 to
will entail introducing new, meticulous business trade
March 2006. Looking forward, China is positioned as our
terms that capitalize on the particular characteristics and
key market and we will strengthen our channel-based
strengths of each brand/line and store. Moreover, in
brand strategy, enter new channels and execute other
cooperation with voluntary chain stores, we will create
initiatives with the aim of generating additional sales
and provide support for a new circle of specialty stores
growth. At the same time, we will further refine cus-
focused on revealing their customers’ beauty. We will
tomer service at sales counters, one of Shiseido’s
also analyze and use customer purchase data to support the
strengths, by enhancing training for local Beauty
creation of sales corners, centering on structured retailers
Consultants. Moreover, we have established a consumer
(such as drugstores and general merchandisers), while
information center in China to improve service and
working to enhance the activities of Retail Supporters,
reflect customer feedback in marketing.
who are field staff that support retail stores in areas
In addition to our expansion in China, with firm
including merchandising, inventory management and
growth in Europe and North America and operations in
ordering.
markets with growth potential such as Russia, we aim to
achieve an overseas sales ratio of 40 percent or higher in the
next three years. Over the past two years we have executed
You have stated that Shiseido must transform itself
structural reforms such as downsizing and withdrawing
into a truly global corporation, which means the devel-
from underperforming businesses, and reorganizing
opment of the overseas cosmetics business is critical.
North American operations to generate synergy among
How is Shiseido going to do this?
businesses there. Income from overseas operations has
In the year ended March 2007, overseas sales rose 14
Three-Year Plan
Operating Profitability of
8% or Higher
800
4.1%
639.8
5.8%
720
694.6
671.0
50.0
400
38.9
26.5
25.3
14.4
(Billions of yen)
58
33
26.7%
Selling, general
and administrative expenses
66.1%
2005
50
(10)
2006
Net Sales (Left scale)
Net Income (Right scale)
2007
2008 (Estimate)
Operating Income (Right scale)
Operating Profitability (Right scale)
(Estimate)
0.8pt
Improvement
25.9%
75
0.1pt
Improvement
66.0%
Constant ratio of advertising and
promotional expenses to net sales
0
(8.9)
8
Cost of sales
25
0
2008
2007
5.0
600
200
Toward Operating Profitability of
8 Percent or Higher
10.0
8.1%
7.2%
(Billions of yen)
(%)
improved significantly as a result. Looking forward, we
Operating
profitability
7.2%
+0.9pt
8.1%
An Inter view with President Maeda
intend to accelerate these initiatives to increase sales and
improve profitability. In this way, we will further strengthen
our efforts to become a global corporation based on the
foundation for an “aggressive global strategy” that we
have been developing during these past two years.
How will Shiseido reform its cost structure to
achieve the goal of operating profitability of 8 percent or higher?
proportion of dividends in the total return. Cash divi-
We will work to improve the overall cost structure
dends per share for the year ended March 2007
while maintaining a constant ratio of marketing expenses
increased by ¥2 compared with the previous fiscal year to
to net sales. First of all, we will continuously reduce cost of
¥32 per annum. For the year ending March 2008, we
sales in ways such as improving productivity. Moreover, we
plan to increase cash dividends by ¥2 per share again to
will work to reduce administrative and other expenses
¥34. This will be the sixth consecutive annual increase in
by raising efficiency through standardization of work
dividends.
processes.
By increasing profitability and returning profits to
In addition, a goal for the three years ending March
shareholders, we intend to maintain shareholders’ equity at
2011 will be to re-engineer our production, logistics and
an appropriate level and improve capital efficiency. In
information system infrastructure. As part of this effort, in
the past two years, return on equity rose in tandem with
April 2007 we began outsourcing logistics and started
operating profitability, reaching 6.6 percent in the year
constructing a new core information system.
ended March 2007, a year-on-year increase of 2.7 per-
Shiseido projects operating profitability of 8.1 percent
for the year ending March 2008. We will steadily and
briskly execute various initiatives to achieve this goal
and complete the reforms of the Three-Year Plan.
centage points. We expect it to reach 8.3 percent for the
year ending March 2008.
At the same time, we will actively promote corporate
governance and fulfill our social responsibilities as a corporation. I am confident that raising the value of the
corporate brand and improving the quality
Please outline Shiseido’s shareholder return policy
and its approach to raising corporate value in the
future.
of management will result in higher corporate value.
We will continue to devote all of our energy to
achieving the goals of our Three-Year Plan and to
Shieido’s progress.
As a basic policy, Shiseido has set a “total return
ratio*” of 60 percent for the medium term. Looking forward, we will prioritize stable dividends while raising the
* Total return ratio = (Cash dividends + Share buybacks excluding odd-lot
purchases) ÷ Consolidated net income
9
Shiseido at a Glance
Major Brands/Lines
Cosmetics
Counseling
Domestic Cosmetics
Business
The domestic cosmetics business segment handles products/services for the Japanese market, primarily cosmetics.
The core cosmetics division manufactures and markets cosmetics, cosmetics equipment and toiletries. The professional
division manufactures and markets products/services for hair and
beauty salons. The healthcare division manufactures and
markets food products and over-the-counter drugs. The nonShiseido and mail-order division manufactures and markets
cosmetics that are not branded as Shiseido products.
Share of total
net sales
Share of total
operating income
64.4%
74.4%
clé de peau BEAUTÉ
Bénéfique
Elixir Superieur
Maquillage
Revital
Haku
SHISEIDO Global Lines
Overseas Cosmetics
Business
Composed of the cosmetics division and the
professional division, the overseas cosmetics business segment handles products for overseas markets. It manufactures and markets cosmetics and
other products/services in the Americas, Europe
and Asia/Oceania.
White Lucent
Share of total
net sales
Share of total
operating income
32.3%
21.1%
Benefiance
Others
The others business segment includes the frontier
science division, which manufactures and markets
medical-use drugs and cosmetics, and conducts a
variety of other activities including the sale of clothing
and accessories, restaurant operation, and real
estate management and sales.
Share of total
net sales
Share of total
operating income
3.3%
4.5%
Notes: Segment sales represent sales to external customers only and do not include intersegment sales or transfers.
10 SHISEIDO ANNUAL REPORT 2007
Bio-hyaluronic acid
Professional
Healthcare
Non-Shiseido and Mail-Order
Tsubaki
System Qurl
Collagen EX
IPSA
Integrate
Sengan Senka
Qi
Q10 Series
d’ici lá
Uno
SEA BREEZE
SHISEIDO Beauty Saloon
Ferzea
Soka-Mocka
Self-selection
Toiletries
Aqua Label
Cosmetics
Professional
Non-Shiseido
China
SUPREME AUPRES
Jean Paul GAULTIER
JOICO
ISSEY MIYAKE
AUPRES
NARS
URARA
CAPCELL PAK
(Liquid chromatography columns)
NAVISION
(Cosmetic dermatology treatment)
DECLÉOR
CARITA
THE GINZA
SHISEIDO ANNUAL REPORT 2007 11
Business Review
Domestic Cosmetics Business
In the domestic cosmetics business, Shiseido continued to
Domestic Cosmetics: Sales by Division
promote reforms to implement 100 percent customeroriented marketing. We reorganized the portfolio of
Shiseido’s regional lines to enhance concentration and raise
Non-Shiseido and
Mail-Order 4.9%
Others 2.7%
Healthcare 2.8%
Professional 3.7%
cost efficiency. We also reinforced sales activities by establishing a channel-specific sales force structure through the
integration of the cosmetics and toiletries business divi-
Cosmetics
85.9%
Toiletries 11.8%
sions. In the year ending March 2008, we will accomplish
Self-selection 22.6%
our remaining objectives and establish stable growth and a
Counseling 51.5%
solid profit structure.
■ Continued to implement brand strategy renovation aimed at
establishing “broad and strong” brands/lines.
■ Established structure for prioritizing brands/lines for
cultivation through the introduction of two new mega lines
and improved cost efficiency.
■ In the year ending March 2008, cultivate long-selling brands/lines
by integrating all activities from R&D and production to sales and
in-store services.
TAMIO INABA
Corporate Officer
Responsible for Business Strategy and Marketing of Domestic Cosmetics
Business
Brand Strategy Renovation
Framework of Major Brands/Lines
Priority Brands/Lines
In the year ended March 2007, we continued to
implement brand strategy renovation to increase distinction
Skincare
Elixir Superieur
Aqua Label
Makeup
Maquillage
Integrate
and concentrate marketing spending, with the aim of
establishing “broad and strong” brands/lines.
We launched two new mega lines – the Elixir
Superieur skincare line and the Integrate makeup line –
Brands/lines
that expand
customer
contact points
product categories in a wide range of channels. With
Men's
these additions to the four other mega lines launched in the
year ended March 2006, we established a six mega line
portfolio. All of these lines secured either the top or near
top market share position in their respective categories
Brands/lines
that deeply
entrench
customer
contact points
(Selected)
Revital Haku
Sengan Senka
Anessa SEA BREEZE
Ag+
Bodycare
Haircare
aimed at expanding customer contacts and leading their
Core Brands/Lines
Tsubaki
Super Mild
Ma Chérie
Uno
Adenogen
Department
clé de peau BEAUTÉ
stores,
Voluntary Bénéfique
chain stores
White Lucent
Benefiance
Structured
retailers, etc.
Kesho-wakusei
&Face
Majolica Majorca
within a month of being launched and contributed significantly to increased sales.
In brands/lines that deeply entrench customer con-
Measures for the Year Ending March 2008
tact points and strengthen customer relationships in limited
In the year ending March 2008, we will develop a
retail channels, we innovated the Clé de Peau BEAUTÉ
framework in which all functions, from R&D and produc-
high-end prestige brand and the exclusive voluntary
tion to sales and in-store services, are focused on culti-
chain store line Bénéfique.
vating existing brands/lines into long-sellers. We will
Our eight brands/lines prioritized for cultivation,
revitalize front-line sales activities through measures
including our six mega lines and Clé de Peau BEAUTÉ and
including shopfront-driven promotions and adding culti-
Bénéfique, accounted for 52 percent of cosmetics division
vation of existing brands/lines to sales evaluation criteria.
sales within the segment, up four percentage points from
We will also enhance our product development process in
the year ended March 2006. The brand strategy renovation
order to reflect customer opinions even more rapidly. In
is bearing fruit, with marketing cost efficiency improving
addition, we will reduce the number of stock-keeping
through brand/line concentration.
units to increase the amount of management resources
dedicated to each.
■ In innovating the activities of Beauty Consultants, steadily improved customer
evaluations through implementation of the new customer satisfaction
evaluation system throughout Japan.
■ In sales reforms, integrated the cosmetics and toiletries business divisions
in April 2006, and established a channel-specific sales force structure.
■ In the year ending March 31, 2008, enhance framework for coexistence
and co-prosperity with sales channels in the twenty-first century.
TOSHIMITSU KOBAYASHI
Director and Corporate Senior Executive Officer
Responsible for Domestic Cosmetics Business Sales
President and Representative Director, Shiseido Sales Co., Ltd.
Innovating the Activities of Beauty Consultants
In addition, we will further enhance support for Beauty
Shiseido is innovating the activities of its Beauty
Consultant activities by establishing a Beauty Training
Consultants to raise corporate value at the point of contact
Control Group at the head office to consolidate tasks
with customers. In the year ended March 2007, we dis-
related to such operations. Through these measures, we
continued work evaluations based on sales targets and
will bolster their skills as beauty professionals and fur-
rolled out the customer satisfaction evaluation system
ther strengthen shopfront services.
throughout Japan. In this system, customers who have
received over-the-counter service from Beauty Consul-
Customer Satisfaction Evaluation System
tants provide evaluations by reply postcard. In addition, we
enhanced communication through measures including
1
focused on activities that bring us into contact with the
maximum number of customers and ensure that we can
continue to reveal their beauty.
With solid initial progress in these activities aimed at
Send survey
results
4
3
Reflect in
performance reviews
5
Individual training
and instruction to
raise service level
Head Office
the performance evaluations of sales representatives. We
Customers
reflecting customer evaluations of Beauty Consultants in
Feedback
on individual
survey results
Branches
Distribute
surveys
Beauty Consultants
improved consciousness on the front line of sales and
6
2
Submit completed surveys
gaining further customer satisfaction and trust, we saw a
steady increase in the number of phone calls and letters from
customers appreciative of the Beauty Consultants’ services.
In the year ending March 2008, we will work to
evolve Beauty Consultant activities further. With the customer satisfaction evaluation system, we will shift to a
system focused on making the sales-front more dynamic
through measures including tailoring customer evaluation survey questions to specific regions and channels.
Feedback on postcard survey results helps motivate Beauty
Consultants to improve customer service.
Business Review
Sales Reforms
In April 2006, we integrated the cosmetics and toiletries
business divisions to enable marketing that matches customer purchasing behavior. Through this integration, we
Channel-Specific Sales Force Structure
Voluntary Chain
Stores
Branch offices
(9)
Branches
(59)
introduced a channel-specific sales force structure that reor-
Structured
Retailers
Department
Stores
Wholesalers
Sales
divisions
(11)
Department
store sales
divisions
(7)
Wholesale
sales divisions
(6)
ganizes front-line sales functions into the voluntary chain
store, structured retailing, department store and wholesale distribution channels. A symbol of these sales reforms, the
Tsubaki line became a major hit in the highly competitive
■
Enhanced
community-based
sales and approach
to specialty store
groups
■
Strengthed
negotiation
and sales corner
creation
capabilities
■
Strengthened
development of
selected stores
in each region
■
Enhanced
cooperation
with large
retail groups
haircare category following its launch in March 2006,
group, we will fully support activities involving employee
achieving sales 1.8 times the first-year sales plan.
training, store creation and merchandising.
For sales channels, primarily structured retailers, we
will conduct customer relationship management. This will
In the year ending March 2008, we will enhance our
entail analyzing detailed customer purchasing data, and,
framework for coexistence and co-prosperity with sales
based on the findings, developing and recommending
channels in the twenty-first century. Our first task will be to
changes to sales corners and methods. Introduced at a
reform our long-established uniform business trade
number of major drugstores in the year ended March
terms. We will shift to a more detailed system that fully
2007, proposals based on this analysis will be steadily
leverages the characteristics of each store by matching cus-
expanded to include other chains starting from April 2007. In
tomer purchasing behavior and channel features. Based on
order to effectively implement the proposals adopted on a
this new system, we will conduct more defined marketing
headquarter-to-headquarter level at each store, we will further
that capitalizes on the characteristics of each brand/line
enhance the activities of Retail Supporters, a group of
and store.
approximately 1,000 staff who regularly visit the stores. In
In addition, we will further enhance channel-specific ini-
order to improve their operating environment and skill
tiatives for voluntary chain stores and structured retailers.
level, we will strengthen communication between Retail
For voluntary chain stores, we will form a new circle of
Supporters and sales representatives, and provide support
stores that are focused on revealing the beauty of cus-
through the sales divisions with measures including utilizing
tomers. Concentrating management resources on this
information terminals with built-in cameras.
Shiseido aims to assist voluntary chain stores in leveraging their distinctive characteristics by offering diverse customization proposals.
Retail Supporters visit each store to assist with sales corner creation,
inventory management, ordering and item replenishment.
Overseas Cosmetics Business
In the overseas cosmetics business, sales were strong in all
Overseas Cosmetics: Sales by Division
regions, particularly in China.
Professional
In China, our key market, we pursued a channel-specific
14.3%
brand strategy that generated a high level of growth in both
the voluntary chain store and department store channels.
Cosmetics (China)
19.8%
In markets other than China, we further increased the presence of the
brand and improved profitability
through structural reforms including reorganization of our
operations in North America.
Cosmetics
(Americas, Europe
and Asia/Oceania
excluding China)
65.9%
Cosmetics
85.7%
Business Review
■ Steadily advanced structural reforms centered on reorganization of
operations in North America.
■ Established a global R&D network with five bases around the world.
■ In the year ending March 2008, carry out further structural reforms to
improve profitability in preparation for an aggressive global strategy in
the next three years.
CARSTEN FISCHER
Corporate Executive Officer
Responsible for International Business
Chief Officer of International Business Division
Global Business Development
In the year ended March 2007, we concentrated marketing
In the year ending March 2008, we will focus on expanding
activities in anti-aging and skin-brightening products, areas
the number of loyal customers for the
of strength for Shiseido, and gained more customer support in
and Beauté Prestige International designer fragrances. In
key countries in Europe, the Americas and the Asia-Pacific
May 2007, we established the sales subsidiary Shiseido
region. In particular, stepping up our presence in the skin-
(RUS), LLC in the Russian Federation, where the cosmetics
care product category, we secured the top position in the
market has been rapidly expanding due to economic growth in
German market for cosmetics, excluding fragrances, and
recent years. Preparations are currently underway toward
greatly increased sales in the U.S. skincare market.
the start of full-scale operation in January 2008. In addition, we
In addition, in October 2006, we established a research
center in Southeast Asia and reorganized an R&D base in
brand
will aggressively develop growth areas including the travel
retail business, focusing on airport duty-free shops.
Europe, thereby creating a global R&D network spanning
Moreover, we will establish the basis for an aggressive
five regions around the world, including Japan, North
global strategy for the next three years through structural
America and China. We are enhancing our efforts to create
reforms that increase profitability. Measures will include
global value by utilizing overseas R&D bases to research
developing efficient marketing focused on major brands and
customer needs, develop new product seeds and cultivate
consolidating management functions.
locally rooted marketing.
Furthermore, to improve productivity and strengthen
marketing, we established and began implementing a structural
reform plan centered on reorganization of infrastructure,
management and sales for the North America region, where
Group-wide synergy was not fully leveraged. Such initiatives to
enhance management stability, in addition to regional sales
growth, led to a substantial improvement in the operating
profitability of overseas businesses.
In Europe and North America, Shiseido sells through department stores and perfumeries, with a focus on “high quality,
high image and high service.”
■ In the department store channel, sales of AUPRES were brisk.
■ In the voluntary chain store channel, in addition to an increase in the
number of stores, the new URARA brand contributed to sales growth at existing stores.
■ In the year ending March 2008, reinforce channel-based brand strategy to
sustain a high level of growth.
TATSUOMI TAKAMORI
Corporate Officer
Chief Officer of China Business Division
Accelerating Expansion of the China Business
In the China market, an engine of overseas growth,
sales have been increasing at the remarkable rate of more
than 30 percent annually on a local currency basis. This is a
Sales in China
(Billions of yen)
50
40
result of the channel-specific brand strategy of developing
products and promotions tailored to specific customer
needs in each channel, which are all undergoing signifi-
30
20
cant changes.
In the voluntary chain store channel, we increased
contracts for Shiseido Chain Stores. Under this system, we
10
0
2000
2001
2002
2003
2004
2005
2006
2007
enter contracts with independently owned cosmetics
stores that share the Shiseido management philosophy to
also introduced SUPREME AUPRES, a prestige line within
make them officially designated stores for handling
the AUPRES brand. Specialty counters for SUPREME
Shiseido products. As of fiscal year-end, we had estab-
AUPRES at two department stores in Beijing and Shanghai
lished a Shiseido Chain Store network in China compris-
produced solid results.
ing over 1,700 stores, as planned.
While increasing the number of these stores, we also took
measures to increase sales at existing stores. Introduced
in October 2006, the URARA brand of products sold exclusively in this channel was a big hit and grew into a mainstay
brand in its first year of sales. The success of URARA and
increased sales of existing products helped us achieve
excellent results, with sales growth at existing stores averaging over 30 percent.
In the department store channel, our exclusive China
brand AUPRES maintained its top position due to
enhanced promotions and advertising. In November 2006, we
The URARA brand contributed to sales growth at existing Shiseido
Chain Stores. Makeup items were added to the lineup in March 2007.
Business Review
In the year ending March 2008, we will concentrate on
the following priority tasks in order to sustain a high
level of growth in our China business.
Training for local Beauty
Consultants is being enhanced to increase their customer service skills.
First, to strengthen our channel-specific brand strategy,
we will work to increase the number of customer contact
points and expand sales at existing stores, with a focus on
AUPRES, SUPREME AUPRES and URARA. We will also
bolster efforts to enter new growth channels.
In order to further refine Shiseido strengths, we will
work to enhance customer service at sales counters and
customers relations in general. To spread our spirit of
omotenashi (hospitality) to local Beauty Consultants and
enable them to provide services that surpasses customer
expectations, we will strengthen training programs by
Business Development in China
Cities Where AUPRES Is Sold
Shiseido Chain Store Service Area
sending highly experienced Beauty Consultants from
Japan on an unprecedented scale. In addition, we have
established a consumer information center to enhance
consultation functions and reflect customer feedback in
marketing.
In addition, we will work to become a company that is
trusted and needed in China through a range of social
Manufacturing and
sales company
Research center
Manufacturer
Investment and
sales company
contributions and environmental initiatives including
holding beauty seminars for women’s organizations.
Sales company
Sales company
AUPRES is the top-selling in-store brand at many of the approximately
600 prestige department stores where it is sold.
SUPREME AUPRES, developed to compete against imported brands, is
sold at different specialty counters than AUPRES.
Feature: Revealing the Beauty of Each and Every Customer
Tsubaki :
A Stor y of Domestic Marketing Reform
In domestic marketing reforms, Shiseido promotes brand strategy renovations aimed at creating “broad and strong” brands/lines while working to implement sales reforms that leverage the comprehensive strengths of the Shiseido Group. As an actual example of these
efforts, this article presents the stor y of Tsubaki, which was launched in March 2006.
April 2005
Beginning of Brand Strategy Renovation
Brand strategy renovations began as part of the domestic marketing reforms
of the Three-Year Plan. Aiming to create “broad and strong” brands/lines,
Shiseido reorganized its portfolio into two categories: those that expand customer contact points and those that deeply entrench customer contact points.
August 2005
Introduction of the First Mega Lines
To expand customer contact points, Shiseido promoted its “mega line” concept aimed at acquiring the top position in each product category. The first
step was to launch Maquillage and renew Uno in August 2005.
March 2006
Tsubaki Launch
Tsubaki was launched to offer new value in the extremely competitive haircare
category. This mega line, jointly developed by the cosmetics and toiletries
business divisions, conveys the message, “Japanese women are beautiful.”
April 2006
Integration of the Cosmetics and Toiletries Businesses
Removing the organizational lines separating the former cosmetics and toiletries business divisions, Shiseido changed its marketing to a brand manager
system organized by product category and sales channel. The sales force was
regrouped by channel, as well.
April 2006
Tsubaki Acquires the Top Market Share in Its Categor y
Tsubaki was the focus of considerable pre-launch interest and anticipation. It
won the hearts of Japanese women on its launch, thus acquiring the top market share in its category*. Tsubaki, entrusted with achieving Shiseido’s
dreams, was off to a smooth start.
March 2007
Second Development Stage for Tsubaki Begins
Tsubaki surpassed first-year targets by 1.8 times with sell-in sales of ¥18 billion. But the true test of the line’s value is yet to come. Aiming to reveal the
beauty of its customers, Shiseido will develop Tsubaki into a long-selling line.
*Source: SRI Weekly survey of in-bath haircare product market share by INTAGE Inc.
(April 3, 2006 - July 2, 2006)
Brand Management
Created to acquire the number-one position in the haircare categor y, Tsubaki is a symbol of Shiseido’s
mega line concept. Power marketing was conducted for Tsubaki’s launch, with the aim of establishing
its position as an unmistakably Shiseido shampoo that celebrates Japanese women.
Mission: To Create the Number-One Line in the Haircare Categor y
On becoming President of Shiseido in 2005, Shinzo Maeda declared: “My goal is to refine our
brands, which are a valuable management resource.” President Maeda envisaged the mega line concept,
Chapter 1
which aims to cultivate “broad and strong” brands/lines by achieving top category position.
Although Shiseido holds the leading position in the Japanese cosmetics market, it faced severe com-
Lead-Up to
Development
petition in the haircare category. The Company had fallen into a negative cycle of excessive line segmentation and deconcentration of marketing power. To overcome these hurdles, President Maeda initiated a haircare project team and assembled top marketers from the cosmetics and toiletries divisions.
Their mission was to put an end to the negative cycle and become number one in the category.
Aiming to Create a Shampoo that Celebrates Women
To this end, Shiseido came up with the idea of aesthetic luxury — to fully utilize Shiseido’s superiority
in creating a cosmetics-like shampoo that succeeds in the haircare market. In addition, the
Chapter 2
Shampoo from
a Cosmetics
Company
Company refocused on the concept of Japanese beauty, which was much closer to home than
Hollywood or Asian beauty. The aim was to create a new product that symbolized Japanese beauty
through the use of camellia oil, which has been used as a skin beautifying ingredient since ancient
times in Japan; the elegant scent of camellia nectar; and packaging evocative of beautiful camellia petals.
This is the origin of the Tsubaki line and the message “Japanese women are beautiful,” which is imbued
with Shiseido’s ardent desire to celebrate them.
A Series of Promotions Produces Harmonious Marketing
The promotions that convey Shiseido’s celebration of women were created in the same manner as
makeup promotions. Shiseido used various actresses to depict the diversity of Japanese beauty in adver-
Chapter 3
tisements that received a high evaluation in preliminary surveys. Shiseido concentrated expenditures in this
Mega Line
Promotions
series of advertisements, one of its largest mass media promotions to date. The spark that ignited the PR
campaign was the appearance of the Tsubaki actresses at the opening of Tokyo’s trendy new
Omotesando Hills. This event was televised nationwide on large public screens and through TV broadcasts,
and served as the kick-off for countrywide sampling campaigns. The harmonization of sales promotions,
advertisements, events, sampling campaigns and sales corners helped Tsubaki to achieve rapid recognition.
Lines in Former Divisions
Cosmetics
Toiletries
■
Ma Chérie
■
■
Tiara
■
■
■
■
Fino
Suibun Hair Pack
Super Mild
Tessera
Neué
Japanese
Scent of
women’s hair
camellia nectar
Hair-beautifying ingredient
High-purity Tsubaki Oil EX
Revealing the Beauty of Each and Ever y Customer
Sales
Shiseido combined the overall capabilities of the cosmetics and toiletries sales forces to implement
detailed measures tailored to each store. As a result, Tsubaki also met the needs of sales channels.
Integration of the Cosmetics and Toiletries Business Divisions
Prior to the integration of the cosmetics and toiletries business divisions, President Maeda established
a sales task force comprising managers from both divisions and gave them the mission of making
Chapter 4
Company-wide
Efforts
Tsubaki a symbol of the success of this business integration. In December 2005, the two divisions held
their first-ever joint new product exhibition. Sales corners that display cosmetics and toiletries
together were proposed. Following that, based on a carefully devised strategy, a full-year plan was presented in discussions with retailers in all channels on a Group-wide basis. This plan focused on the
strength of the Tsubaki products and maintaining their allure at sales corners. Expectations
among sales channels were high and response was enthusiastic.
Enhancing Capabilities to Create Sales Corners
In order to create the sales corners proposed for each retailer group, sales representatives and
Chapter 5
Field Partners* began implementing consistent store-by-store sales activities that leveraged the
combined strengths of cosmetics direct sales and toiletries wholesale channels. Each store has different
Store-by-Store
Sales Activities
needs for in-store tools, product leaflets, original sets, samples and other materials. Shiseido
Beauty Consultants, who normally provide cosmetics counseling, distributed samples throughout Japan,
transcending divisional frameworks. In these ways, sales channels were inspired to conduct
aggressive activities of their own, such as introducing Tsubaki at cosmetics buyer conferences.
* Currently known as “Retail Supporters,” Field Partners are sales staff who create sales corners, manage
inventory and handle ordering.
Japanese Sales Corners Bathed in Tsubaki Red
It was the end of March 2006. On the day of the launch, Tsubaki products covered many sales corners,
Chapter 6
strongly dominating other brands. The Company’s intranet was filled with photographs sent from
Field Partners who created sales corners until late at night. There were even stores that offered
Dominant InStore Position
advance ordering and devoted shelf space for a countdown promotion one week before the launch.
Tsubaki’s value and sales plans had been positively evaluated. By working together with retailers
toward the same goals, Shiseido was able to secure the largest display space at haircare sales corners right
from the product launch.
Analysis
Tsubaki achieved the number-one position in its category immediately following its launch. As a result of
enthusiastic response from customers and sales channels, this major hit product achieved profitability with
1.8 times projected sales in its first year.
Unprecedented Success of Achieving Profitability in Its First Year
Tsubaki achieved the number-one market share in its category soon after being introduced. Sell-in sales
Chapter 7
Reaping
Results Ahead
of Schedule
for the first year were ¥18 billion, or 1.8 times the plan. Although the line had only five items to take
on the competition, sales for each item were high and earnings were higher than planned. Tsubaki
achieved profitability in its first year, despite expectations that recovering investment would take three
years. President Maeda believes that this unprecedented success in the haircare market was the overall result of four achievements: creation of new value through an original concept; strong communication activities; Company-wide sales activities; and sales corner creation capabilities.
Shiseido Expressed Its Resolve with Tsubaki and Sales Channels Understood
Retailers have called Tsubaki products earth-shaking harbingers of change in the shampoo market and
Chapter 8
superior goods that secure profitability through stable prices. The line has led retailers to renew their
expectations for Shiseido. Some have commented that they felt the Shiseido Group’s organizational
Expectations of
Sales Channels
strength. Others have noted that the period ahead will be the most important for refining Tsubaki into
a truly long-selling line. Some have expressed interest in jointly exploring a sales approach that
encompasses cosmetics, toiletries and even pharmaceuticals. Tsubaki represents an important first step
toward creating a new framework for coexistence and co-prosperity with sales channels.
Concentrating on Customer Opinion
Since the launch of Tsubaki, the Shiseido Consumer Information Center has been receiving calls from
Chapter 9
100 Percent
CustomerOriented
enthusiastic customers nearly every day. Many customers say that they now look forward to bathtime
every night, and that their hair feels and smells great after washing. There are even those who say that
they were moved to tears by the Tsubaki advertisements. Many customers thank Shiseido for continuing to support the beauty of Japanese women, and express their desire for these efforts to continue.
These messages of gratitude are proof that customers approve of Shiseido’s dream. For Shiseido, a
company that aims to implement 100 percent customer-oriented marketing, everything depends on customer evaluation.
Consumer Opinions Concerning Tsubaki
Sell-in Sales
(Billions of yen)
20
15
Neutral
3%
Plan
Actual
10
Like
58%
5
0
3/06 ~6/06
3/06 ~9/06 3/06 ~12/06
Like
very much
39%
3/06 ~3/07
Source: Shiseido customer survey, April 2007
Revealing the Beauty of Each and Ever y Customer
2nd Stage
In the year ending March 2008, Shiseido will work to establish long-selling brands/lines and to strengthen
sales activities at sales corners as part of the second stage of its brand strategy renovation. By cultivating
Tsubaki, Shiseido will continue to support all women.
A Line That Customers Continue to Love
The year ahead will be the true test of the value of Shiseido’s brand strategy. As President Maeda
announced, the main theme during this phase will be cultivating long-selling brands/lines. Tsubaki
Chapter 10
A Long-Selling
Line
must evolve endlessly so that its phenomenal success does not end with the current boom. The framework of its initiatives must also be incorporated in the corporate structure, or Shiseido will not be able
to become a 100 percent customer-oriented company. To achieve its goals, Shiseido will build an integrated development framework that extends from R&D and production to sales and in-store services
and rapidly reflects customer opinion in product enhancements. Shiseido intends to develop
Tsubaki into a continuously successful line of shampoos that customers call their favorites.
Developing Strategies for Success in the Second Stage
The true challenges for Tsubaki lie ahead in its second year, so Shiseido will redouble its efforts to further
leverage Group synergies. To strengthen connections with customers, advertising and sales corners will
Chapter 11
communicate personal messages and provide grooming information concerning haircare. New items will
be introduced, such as Hair Mask, launched in March 2007, and the Golden Repair series for treating dam-
The Next Stage
aged hair, scheduled for an autumn 2007 release. In sales initiatives, comprehensive sales corner proposals
will be formulated to urge in-store managers in charge of haircare and cosmetics, and even store managers,
to get involved. Retail Supporters will also strive to create dynamic sales corners. As the first step
toward making Tsubaki into a globally accepted line, sales began in Taiwan in May 2007.
Spreading the New Values of Tsubaki Women
Tsubaki is imbued with Shiseido’s desire to celebrate women. It expresses Shiseido’s belief that
Chapter 12
the ideal image of Japanese feminine beauty for the future will not be cherry or peach blossoms that
bloom in clusters, but the camellia, which blossoms elegantly as a single flower. The tremendous suc-
The Tsubaki
Dream
cess of the first year was the result of the creation of new values and concepts that customers identified
with. Shiseido will continue to refine Tsubaki into a truly glorious line that reveals the beauty of each
and every customer. Shiseido carries on its long exploration of beauty with the aim of assisting
Japanese women and all people in experiencing “This Moment. This Life. Beautifully.”
Research and Development, Intellectual Assets
ods and treatments. In doing so, we conduct research
Research and Development Policy
Shiseido’s R&D aims to develop superior products
and offer services that assist our customers in fulfilling
and development that brings together a wide range of
fields to offer customers greater satisfaction.
their dreams of beauty. One can argue that cosmetics
are indeed integrated human scientific products, com-
Research and Development Bases
prising an extremely wide range of technologies.
Shiseido’s R&D activities form a global network span-
Shiseido combines findings from diverse research disci-
ning five regions including Japan. Domestically, Research
plines to provide customers with new values that inte-
Center (Shin-Yokohama), Research Center (Kanazawa-
grate functionality, sensitivity and safety.
Hakkei) and the Beauty Solution Development Center play
To alleviate customers’ concerns and fulfill their
desires, in the year ended March 2007 Shiseido upgraded
central roles in basic research as well as in developing
product formulations and beauty methods.
its system for developing solutions that combine the tan-
Overseas, Shiseido conducts research surveys to
gible elements of products, such as functions and formu-
become thoroughly acquainted with local customers. At the
lations, with intangible elements such as beauty meth-
same time, we integrate each region’s unique technology
into global product development. In the year ended
March 2007, in addition to existing facilities in the
Researching and Developing Solutions
United States, Europe and China, we established an
Developing formulations
Physical properties, scent, color
R&D base in Southeast Asia (Thailand). Furthermore,
Skin and hair research
Human science research
Mechanisms of skin physiology
Physiological psychology,
cognitive science
Developing agents
and raw materials
Discovery, synthesis, biotechnology
Beautiful skin,
Youthful skin
Enjoyable feel,
Emotional satisfaction, Joy
Functionality
Sensitivity
Developing formulation
techniques
Emulsion, dispersion, etc.
Customers
Developing packaging
and wrappings
Beauty care research
Beauty information development,
color research, sensory evaluation, etc.
Developing
in-store terminal
Convenience,
environmental compatibility
Safety
Considering effects on body
and environment
Research centers in
Europe conduct R&D
that incorporates local
considerations.
Verifying solutions
and methods
Discrepancies with design targets,
customer perspective
For skin analysis, counseling
Quality assurance
Guarantee stability, safety, sterility
Putting Intellectual Assets to Work
Shiseido conducts operations that fully leverage the
voluntary chain stores, who share Shiseido’s marketing
diverse intellectual assets it has accumulated through multifaceted
approach; and the Shiseido Style corporate design meme that is
corporate activities since its foundation. In the process of value
passed on through advertising created in house.
creation, we firmly maintain a level of superiority that goes
Most of all, we consider our “brand” to be a core manage-
beyond world standards for our advanced R&D capabilities, as
ment resource that connects the customer and Shiseido, and
well as for patents, copyrights and beauty methods and theories
have carefully handed it down over time. The
pertaining to product use. Shiseido also utilizes various intellectual
porate brand is an aggregate of intellectual assets that have
assets to convey value to customers, some of which are the cus-
been cultivated over 135 years of history. Shiseido will continue to
tomer service skills and expertise of Beauty Consultants who
nurture its corporate brand, the people that oversee the cre-
embody Shiseido’s spirit of hospitality; customer information
ation of its intellectual assets, and customer trust for future
received via a domestic organization of loyal users called the
generations in order to achieve enduring growth in corporate
“Hanatsubaki Club”; a network of business partners, including
value in the years to come.
cor-
we reorganized and reopened our European base to
them, and whether shades were vivid.
reinforce development of products aimed at local mar-
With that in mind, we investigated new colors and suc-
kets. In these ways, Shiseido is enhancing its global
ceeded in developing Trans-red, a color compound of dye and
R&D network in conjunction with expansion of overseas
powder. This coloring material changes ultraviolet light
business.
and blue light into a luminous red that has never been
seen before. It permits the creation of highly transparent
Research and Development Initiatives
and beautiful, vivid tones, thus broadening the spectrum of
IFSCC Congress Award
lipstick colors.
As evidence of its advanced R&D capabilities, Shiseido
Trans-red is used in Maquillage Sheer Climax Rouge
has received numerous awards throughout its history
and Maquillage Color On Climax Rouge, hit products that have
from the International Federation of Societies of Cosmetic
acquired top market share since their launch.
Chemists (IFSCC), recognized as the highest authority in
Source: SRI Weekly survey of lipstick market share by INTAGE Inc.
cosmetic science. At the 24th IFSCC Congress held in
(January 1, 2007 - May 20, 2007)
October 2006 in Osaka, Japan, we won the Congress
Award for How Can We Improve the Appearance of
Conspicuous Facial Pores?, as well as an honorary mention
for the presentation Identification of a Regulatory Molecule in
Keratinocyte Denucleation and its Relevance to Barrier
Disruption.
New Technologies in the Year Ended March 2007
With Trans-red
Without Trans-red
R&D Data for the Year Ended March 2007
R&D Expenses
◆Jointly developed a sensor for measuring the feel of
human hair with Tohoku University (April 2006)
◆Launched a joint industry-university project concerning surface-to-surface interaction between skin and
materials with Keio Leading-edge Laboratory of
Science and Technology (April 2006)
◆Developed a novel nano-emulsification technology
for quick and easy production of oil-in-water (O/W)
ultrafine emulsion; used in Ma Chérie (August 2006)
◆Discovered that citron seed extract repairs basal
membrane damage and promotes the production of
hyaluronic acid in the epidermis (November 2006)
¥16.1 billion
Ratio of R&D Expenses to Net Sales
2.32%
Number of Patents
937
257
(As of March 31, 2007)
Number of Researchers
Japan
Overseas
Total patents in
all countries*
Japan
Overseas
Total
1,095
approx.
800
approx.
200
approx. 1,000
* Excluding duplicate patents filed in multiple countries.
◆Successfully developed technology for maintaining
transparency in the stratum corneum (November 2006)
◆Developed Trans-red, a new color compound using
dye and powder composite technology; used in
Maquillage (December 2006)
New Luminescent Coloring, Trans-red
When exploring what people expect in lipstick, we
found that how color appears on the lips is the most important
factor. People were interested in whether shades suited
Corporate Governance, Corporate Social Responsibility
Corporate Governance
also serves as the Chief Operating Officer, chairs this
Corporate Governance Policy
Committee. The term of office of directors and corporate
Shiseido is setting higher standards of corporate gover-
officers is one year.
nance based on the understanding that maximizing corporate
and shareholder value, fulfilling social responsibilities and
To obtain an outside point of view and further
achieving sustainable growth and development are key to
strengthen the Board of Directors’ supervisory function in
maintaining support as a valuable company from stakeholders
regard to business execution, Shiseido appointed two
(customers, business partners, shareholders, employees
independent external directors from the year ended
and society).
March 2007. Introducing external directors has stimulated
discussion on significant management matters at Board of
Directors meetings.
Management and Execution Structure
Composed of nine members including two external
To promote transparency and objectivity in manage-
directors, the Board of Directors is small and able to
ment, Shiseido established two committees to play an
make decisions quickly. The Board of Directors meets at
advisory role to the Board of Directors: the Remuneration
least once a month to discuss all significant matters.
Committee, charged with setting executive remuneration,
Attendance at the 17 Board of Directors meetings in
and the Nomination Advisory Committee, which evaluates
the year ended March 2007 was nearly 100 percent.
and nominates candidates for directors and corporate officers. Both committees are chaired by external directors to
Through the adoption of a corporate executive officer
maintain objectivity.
system, we are separating the decision-making and
supervisory functions of the Board of Directors from
In the year ended March 2006, the Remuneration
the business execution functions of corporate officers.
Committee formulated a new system that reduces the pro-
The Corporate Executive Officer Committee, which
portion of fixed remuneration and increases the perfor-
acts as the final decision-making body regarding corpo-
mance-linked portion. The committee makes decisions
rate officers’ material issues, serves to transfer authority
including those concerning performance-linked remunera-
to corporate officers, thereby clarifying their responsi-
tion payments based on the achievement of performance
bilities
targets and share price.
and
accelerating
operational
execution.
In addition to nominating candidates for executive
Shiseido’s President & Chief Executive Officer, who
■ Shiseido’s Management and Business Execution System
General Meeting of Shareholders
Resolution at the
General Meeting of
Shareholders based on laws
Appointment,
termination
Accounting
Auditors
Audit
Appointment,
termination
Appointment,
termination
Board of Directors,
Shiseido Company, Limited
Audit
Board of
Auditors
CSR Committees under jurisdiction
of the Board of Directors
Compliance Committee
Report
Remuneration
Committee
Supervision
Corporate Value
Creation Committee
Nomination
Advisory Committee
Corporate Executive
Officer Committee
Proposal of material
issues based on laws
Resolution,
approval
Proposal
Resolution, approval
Decision-Making Meeting of Corporate Officers
Policy Meeting of
Corporate Officers
positions, the Nomination Advisory Committee has built
which are nearly equal. The performance-linked portion
and is enforcing a fair and highly transparent framework
consists of a bonus based an annual consolidated performance;
designed to enhance the capabilities of top management
medium-term incentive stock options based on targets of
and ensure that all executives deliver a consistently high
the Three-Year Plan started in 2005; and long-term incen-
level of results. Measures include the establishment of
tive stock options, primarily aimed at fostering a shared
term limits for corporate officers and the formation of
awareness of profits with shareholders. These three types of
rules governing promotions, demotions and retirements.
remuneration have been designed to give directors and cor-
The term limit of corporate officers is four years in principle
porate officers a medium-to-long-term perspective, not just a
and six years maximum.
single-year focus, and to motivate management to become
more aware of Shiseido’s performance and stock price.
Audit Structure
External directors receive fixed basic remuneration
Shiseido’s Board of Auditors consists of two standing cor-
only, as performance-linked remuneration is inconsistent
porate auditors and three independent external corporate
with their supervisory functions from a stance independent
auditors. Corporate auditors monitor the legality and ade-
from business execution. Due to the nature of auditing,
quacy of directors’ performance by attending Board of
corporate auditors receive fixed basic remuneration only,
Directors meetings and other important meetings.
to eliminate linkage with performance.
Representative directors and corporate auditors meet
Shiseido sets appropriate remuneration levels by making
regularly to exchange opinions on actions that will resolve
comparisons with companies in the same industry or of the
corporate governance issues. Shiseido maintains a frame-
same scale. Basic remuneration is within the monthly
work to ensure that corporate auditors discharge their
remuneration limits decided by the General Meeting of
duties effectively. For example, at the corporate auditors’
Shareholders; performance-linked remuneration, including
request, it arranges liaison meetings with the accounting
bonuses and stock options, is also set by resolution at the
auditors and the Internal Auditing Department in addition to
General Meeting of Shareholders each year.
assigning full-time employees to assist in audits. Corporate
auditor attendance was nearly 100 percent for the 15 Board of
Auditors meetings and 17 Board of Directors meetings
held in the year ended March 2007.
Internal audits of the entire Group are conducted to
ensure that business is executed in an appropriate manner,
and audit results are reported to the Board of Directors
and Board of Auditors.
Remuneration to Directors,
Corporate Officers and Corporate Auditors
The unfunded retirement benefit plan for directors and
corporate auditors was abolished in the year ended March
2005 and the current remuneration policy for directors, corporate officers and corporate auditors was introduced in
April 2005. This system consists of a basic fixed portion and a
performance-linked portion that fluctuates according to
attainment of performance targets and stock price, both of
Remuneration to Directors and Corporate Auditors
(Year ended March 2007)
Directors (9 people)
External directors
(2 of the 9)
Corporate auditors
(5 people)
External auditors
(3 of the 5)
Total
Basic
Bonuses
Stock options
(Millions of yen)
Total
208
126
16
351
19
—
—
19
89
—
—
89
36
—
—
36
297
126
16
440
Notes: 1. Basic remuneration for directors was within the limit of ¥30 million per month as per resolution of
the 89th Ordinary General Meeting of Shareholders (June 29, 1989). Basic remuneration for corporate
auditors was within the limit of ¥10 million per month as per resolution of the 105th Ordinary General
Meeting of Shareholders (June 29, 2005).
2. The above-noted amount for directors’ bonuses was based on a resolution of the 107th
Ordinary General Meeting of Shareholders held on June 26, 2007.
3. In addition to the above amounts, directors and corporate auditors received the following
remuneration during the year ended March 2007.
➀ Directors’ bonuses for the year ended March 2006
A total of ¥121 million was paid to seven directors. This payment was based on a resolution of the
106th Ordinary General Meeting of Shareholders held on June 29, 2006.
➁ Deferred retirement benefits
¥316 million was paid to two retiring directors, and ¥17 million was paid to one retiring
corporate auditor. These payments were based on the abolishment of the retirement benefit
system and the award of retirement benefits as per resolution of the 104th Ordinary General
Meeting of Shareholders on June 29, 2004.
Remuneration to Accounting Auditors
(Year ended March 2007)
(Millions of yen)
Amount
Item
Remuneration paid for services rendered as accounting
auditors for the fiscal year under review
61
Total cash and other remuneration to be paid by the Company
and its subsidiaries to their accounting auditors
92
business practices.
Management System Unique to Shiseido
Guided by the idea that fulfilling corporate social
The Compliance Committee holds regular work-
responsibility (CSR) is crucial to sustainable development,
shops on corporate ethics, and assigns a Code Leader to
we have established two CSR committees under the juris-
each office to ensure observance of The Shiseido Code.
diction of the Board of Directors as part of our governance
We have also established multiple reporting and consul-
structure: the Compliance Committee and the Corporate
tation help lines including external lawyers to detect and
Value Creation Committee. Both committees are headed
correct at an early stage actions that contravene the law,
by the CEO and comprise members elected company-
The Shiseido Code or other regulations, and to identify dis-
wide. They make proposals for and report on plans and
tress in employees.
A cross-departmental team of specialists under the
results of activities to the Board of Directors.
The Compliance Committee works to ensure legiti-
Compliance Committee promotes necessary preventative
mate and fair business practices in the Group, and pro-
measures to deal with business risks. The team creates
motes activities including corporate ethics, risk manage-
contingency manuals for dealing with potential emergencies.
ment and environmental response.
In the event of an emergency, it responds by organizing a
The Corporate Value Creation Committee works to
increase the value of the
brand by promot-
ing corporate cultural activities as well as gender equality,
countermeasure headquarters, project, team, or other
grouping as dictated by the seriousness of the situation.
In accordance with the Corporate Law, Shiseido’s
Board of Directors has adopted and disclosed a basic
communication and social contribution activities.
policy for internal control systems that outlines the necessary systems to ensure that directors execute their
Compliance and Risk Management
We have enacted Group-wide Corporate Ideals, The
Shiseido Way (Corporate Behavior Declaration) and
duties in conformance with laws and regulations and to
ensure the propriety of business with other companies.
The Shiseido Code (Corporate Ethics and Behavior
Standards), which outline the standards of behavior
We will work to further raise corporate value and
that individual Group employees should apply in their
the quality of our corporate activities through ongoing
work, and are actively promoting legitimate and fair
improvements to our governance structure.
With our
customers
Through the creation of products possessing true value and exceptional quality,
we strive to help our customers realize their dreams of beauty, well-being and
happiness.
Joining forces with partners who share our goals, we act in a spirit of sincere
With our
business partners cooperation and mutual assistance.
Corporate
Ideals
With our
shareholders
We strive to win the support and trust of our shareholders through transparent
management practices and sound business results achieved by high quality
growth, enabling the retention of earnings for future investments and payment of
dividends.
With our
employees
The diversity and creativity of our employees make them our most valuable corporate asset. We strive to promote their professional development and we evaluate them fairly. We recognize the importance of our employees’ personal satisfaction and well-being, and seek to grow together with them.
With our
society
We respect and obey all laws in regions in which we do business. Safety and preservation of the natural environment are among our highest priorities. In cooperation
with local communities and in harmony with international society, we employ our
cultural resources in creating a beautiful lifestyle.
THE SHISEIDO WAY
(Corporate Behavior Declaration)
THE SHISEIDO CODE
(Corporate Ethics and Behavior Standards)
Company Regulations and Rules
Corporate Behavior and Daily Work Activities
Board of Directors, Auditors and Corporate Officers
(As of June 26, 2007)
Directors
Shinzo Maeda
Seiji Nishimori
Representative Director
President & CEO
Kimie Iwata
Yasuhiko Harada
Toshimitsu Kobayashi
Director
Representative Director
Corporate Senior Executive Officer
Vice President
Responsible for Domestic
Responsible for China Business, Professional Business,
Cosmetics Business Sales
Advertising Creation, Public Relations and Corporate Culture
President and Representative
Chief Area Managing Officer of China
Chief Officer of Professional Business Operations Division Director, Shiseido Sales Co., Ltd.
Masaaki Komatsu
Kiyoshi Kawasaki
Director
Responsible for overseeing Research &
Responsible for Personnel and Development, Production, Technical Affairs
Consumer Information
and Technical Planning
Director
Director
Responsible for Finance
Shoichiro Iwata
Tatsuo Uemura
External Director
External Director
Director
Corporate Officer
General Manager of Corporate
Planning Department
Corporate Auditors
Kiyoharu Ikoma
Kazuko Ohya
Akio Harada
Eiko Ohya
Nobuo Otsuka
Corporate Auditor
Corporate Auditor
External Corporate Auditor
New appointment
New appointment
Corporate Officers
Corporate Executive Officers
Carsten Fischer
Kohei Mori
Responsible for International Business
Chief Officer of International Business Division
Responsible for Information System Planning
and Logistics
Corporate Officers
Kozo Hanada
Kazutoshi Satake
Takemasa Yamanaka
General Manager of Sales Department,
Structured Retail Stores
President and Representative Director,
FT Shiseido Co., Ltd.
Vice President and Director, Shiseido Sales Co., Ltd.
Responsible for Domestic Non-Shiseido
Brand Business and Boutique Business
Responsible for Healthcare Business and
Frontier Science Business
General Manager of Healthcare Business Division
Shiseido Beauty Foods Co., Ltd.
Toshihide Ikeda
Responsible for Technical Planning
Tamio Inaba
Responsible for Business Strategy and
Marketing of Domestic Cosmetics Business
Kiyoshi Nakamura
Responsible for Technical Affairs
Tatsuomi Takamori
Chief Officer of China Business Division
Mitsuo Takashige
General Manager of Personnel Department
Kazuo Tokubo
Responsible for Basic Research, R&D Strategy,
Patent and Global R&D
Takafumi Uchida
Yutaka Yamanouchi
Shiseido Amenity Goods Co., Ltd.
Toshio Yoneyama
Responsible for Product Development and
Software Development
General Manager of General Affairs
Department
Corporate Social Responsibility (CSR)
Shiseido’s unique CSR defines three areas: cosmetics,
women and cultural capital. Initiatives in our core cosmetics
domain include development of leading edge cosmetics
business partnerships, the protection of personal information,
and work environment safety/sanitation.
For further information regarding Shiseido’s CSR
techniques and products/beauty methods for increasing
activities, please see the CSR Report 2007 on our website.
quality of life, and activities to meet the beauty needs of
http://www.shiseido.co.jp/e/csr/
each individual, whether young or old. For women, who
make up 90 percent of our customers, we work energetically
Creation of new markets
Proposal of new values
to help them lead beautiful, happy and healthy lives. We also
conduct social activities to widely distribute the cultural
Shiseido’s Unique
CSR
Social contribution activities
(Corporate philanthropy)
capital we have cultivated since Shiseido’s foundation 135
years ago.
In the area of fundamental CSR, the most basic respon-
Environmental protection, information disclosure,
personal information protection, human rights advocacy
Legal compliance
sibilities of a company, Shiseido is addressing subjects
that raise the quality of corporate activities. In addition to corporate ethics, these include product safety and reliability,
environmental response, respect for employee diversity,
Provision of high quality products and services
Emphasis on employees
Business partnerships
Profit and dividends
Payment of taxes, provision of employment opportunities
Corporate viability
Fundamental CSR
■ Principal CSR Activities in the Year Ended March 2007
Cosmetics
◆ Opened the Social Beauty Care Center to provide therapeutic makeup products and practical training to address troubling facial
features (bruises, external injuries)
◆ Held nationwide beauty seminars for the disabled and elderly (110,000 participants)
◆ Provided makeup and beauty information for young people on website
Women
◆ Contributed funds through the Shiseido Social Contribution Club (Hanatsubaki Fund) to selected support groups that work to
improve the daily lives of women
◆ Conducted beauty assistance activities for the All-China Women’s Federation
Cultural Capital
◆ Held the “shiseido art egg” exhibition, supporting up-and-coming artists at the Shiseido Gallery
Fundamental CSR ◆ Deployed Kangaroo Staff to stores nationwide to take over work in busy evening hours for Beauty Consultants with young children
◆ Expanded operations at the Hanatsubaki Factory, a special subsidiary primarily for the developmentally disabled
■ Principal Environmental Initiatives
up to the Present
Environmental ◆ ISO 14001 certification acquired for 15 domestic
and overseas cosmetics factories
management
system
Reduction of
CO2 emissions
Recycling of
resources
◆ Introduced cogeneration system at Kuki factory
◆ Reduced fixed energy consumption through
elimination and consolidation of domestic factories
◆ Emissions in the year ended March 2007
improved by 3 percentage points on a production
volume unit index from the previous year due to
boiler energy source conversion at Osaka and
Kakegawa factories
◆ Zero emissions (zero waste) achieved at the
head office, all domestic factories and research
centers
■ CO2 Emissions
t-CO2
Index
CO2 emissions（t-CO2）
Index
45,000
40,000
160
140
35,000
30,000
120
100
85
25,000
100
(Target) 80
20,000
60
15,000
10,000
40
5,000
20
0
91
01
02
03
04
05
06
07
11
0
Notes: 1. Six domestic factories: Kamakura, Kakegawa, Osaka, Kuki,
Itabashi and Maizuru (Itabashi and Maizuru factories closed in the
year ended March 2006.)
2. Index: 1991 emissions = 100
Global Network
Business
Area
Manufacturing/
Sales and Other
Region
Manufacturing Japan
The Company
Japan: 35 Overseas: 62 (Americas: 14, Europe: 26, Asia/Oceania: 22)
Kamakura Factory
Kakegawa Factory
Osaka Factory
Kuki Factory
Shiseido Honeycake Industries Co., Ltd.**
Domestic
Cosmetics
Sales and
Other
Consolidated Subsidiaries and Equity-method Affiliates
Shiseido Co., Ltd.
Japan
Shiseido Co., Ltd.
Japan
Kamakura Factory
Kakegawa Factory
Osaka Factory
Kuki Factory
Total
2 (5)
Shiseido Sales Co., Ltd.
FT Shiseido Co., Ltd.
Shiseido FITIT Co., Ltd.
Shiseido International Inc.
d'ici là Co., Ltd.
IPSA Co., Ltd.
AYURA Laboratories Inc.
Ettusais Co., Ltd.
Amenity Goods Co., Ltd.
Shiseido Professional Co., Ltd.
Shiseido Beauty Salon Co., Ltd.
Shiseido Pharmaceutical Co., Ltd.
Shiseido Beauty Foods Co., Ltd.
Shiseido Logistics Co., Ltd.
Shiseido Information Network Co., Ltd.
Hanatsubaki Factory Co., Ltd.
KINARI Inc.
Fullcast Co., Ltd.
Shiseido Beautech Co., Ltd.
Beauty Technology Co., Ltd.
ETWAS Co., Ltd.
Orbit, Inc.
AXE Co., Ltd.
Pierre Fabre Japon Co., Ltd.**
25
1 (4)
Americas
Shiseido America, Inc.
Davlyn Industries, Inc.
Zotos International, Inc.*
Europe
Shiseido International France S.A.S.
(Gien and Val de Loire: 2 factories)
Laboratoires Decléor S.A.*
Asia/Oceania
Shiseido Liyuan Cosmetics Co., Ltd.*
Shanghai Zotos Citic Cosmetics Co., Ltd.
Taiwan Shiseido Co., Ltd.*
(Chung-Li and Shin-Tsu: 2 factories)
Shiseido (N.Z.) Ltd.*
Shanghi Huani Transparent
Beauty Soap Co., Ltd.**
Beauté Prestige International Co., Ltd.
(Japan)
InterAct Co., Ltd.
Tai Shi Trading Co., Ltd.
4
Americas
Shiseido International Corporation
Shiseido Cosmetics (America) Ltd.
Shiseido of Hawaii, Inc.
Shiseido Travel Retail America Inc.
Shiseido (Canada) Inc.
Shiseido do Brasil Ltda.
Beauté Prestige International, Inc.
(Miami)
Nars Cosmetics, Inc.
Zirh International Corporation
Decléor U.S.A., Inc.
Piidea Canada, Ltd.
11
Europe
Shiseido International Europe S.A.
Shiseido Europe S.A.S.
Shiseido Deutschland GmbH
Shiseido Cosmetici (Italia) S.p.A.
Shiseido France S.A.
Shiseido España S.A.
Shiseido United Kingdom Co., Ltd.
Beauté Prestige International S.A.
Beauté Prestige International GmbH
(Germany)
Beauté Prestige International S.A.U.
(Spain)
Beauté Prestige International S.p.A.
(Italy)
Beauté Prestige International SPRL
(Belgium)
Beauté Prestige International GmbH
(Austria)
Beauté Prestige International B.V.
(Netherlands)
Noms de Code S.A.S.
Decléor UK Ltd.
Carita S.A
Carita International S.A.
Carita UK Ltd.
Les Salons du Palais Royal Shiseido S.A.
FIPAL S.A.
Joico Holding B.V.
Joico Laboratories Europe B.V.
Salle des Fêtes S.A.S.**
24
Asia/Oceania
Shiseido China Co., Ltd.
Shiseido China Research Centor Co., Ltd.
Shiseido Dah Chong Hong Cosmetics Ltd.
Shiseido Dah Chong Hong Cosmetics
(Guangzhou) Ltd.
Shiseido Dah Chong Hong Cosmetics
(Guandong) Ltd.
FLELIS International Inc.
Shiseido Korea Co., Ltd.
Shiseido Thailand Co., Ltd.
SAHA Asia-Pacific Co., Ltd.
Shiseido Singapore Co., (Pte.) Ltd.
Shiseido Malaysia Sdn. Bhd.
Shiseido (Australia) Pty., Ltd.
Shiseido Travel Retail Asia Pacific Pte. Ltd.
Beauté Prestige International
Pte. Ltd. (Singapore)
Tai Tsu Holding Limited**
Shiseido Professional (Thailand) Co., Ltd.
PT. Prana Dewata Ubud
3 (3)
Manufacturing
Japan
Overseas
Cosmetics
Sales and
Other
Shiseido Co., Ltd.
Manufacturing Japan
Others
Total
Sales and
Other
Japan
2 (3)
The Ginza Co., Ltd.
Shiseido Parlour Co., Ltd.
17
1 (1)
Shiseido Irica Technology Inc.*
Shiseido Co., Ltd.
5 (6)
Shiseido Kaihatsu Co., Ltd.
Shiseido Astech Co., Ltd.
Shiseido Lease Co., Ltd.
Selan Anonymous Association
7
13 (18)
Manufacturing
1(4)
Japan: 2 (2), Americas: 3 (3), Europe: 2 (3), Asia/Oceania: 5 (6)
Sales and
Other
—
Japan: 33, Americas: 11, Europe: 24, Asia/Oceania: 17
85
Total
1
Japan: 35, Americas: 14, Europe: 26, Asia/Oceania: 22
98
Japan
Research and
Development
Facilities
Americas
Europe
Asia/Oceania
Shiseido Asia Techno-Center
Research Center
(within Shiseido Co., Ltd.)
(Shin-Yokohama)
Shiseido Professional Co., Ltd.
Research Center
(Kanazawa-Hakkei)
Beauty Solution
Development Center
(3 facilities)
America Product Development
Center
(within Shiseido America, Inc.)
5
(2 facilities)
Zotos International, Inc.
Shiseido America Techno-Center
(within Zotos International, Inc.)
3
(3 facilities)
Laboratoires Decléor S.A.
Shiseido Europe Research Center
(within Shiseido International Europe S.A.)
Shiseido International France S.A.S.
(within Val de Loire Factory)
(3 facilities)
Shiseido China Research Center Co., Ltd.
Shiseido Southeast Asia Research Center
(2 facilities)
Note: Numbers in parentheses refer to the number of factories
** Manufacturing and Sales
** Affiliates
3
2
Six-Year Summar y of Selected Financial Data
For the years ended March 31, 2002 to 2007
Thousands of dollars
(Note 1)
Millions of yen
Operating Results:
Net sales ···························
Cost of sales (Note 2) ··········
Selling, general and administrative
expenses (Note 2) ················
Operating income (Note 2) ···
EBITDA (Note 3) ·················
Net income (loss) ················
Financial Position (At year-end):
Total assets ·······················
Short-term liabilities (Note 4) ·····
Long-term debt···················
Interest-bearing debt ···········
Net assets ·························
2002
2003
2004
2005
2006
¥589,962
157,140
¥621,250
170,702
¥624,248
166,299
¥639,828
168,636
¥670,957
176,884
409,608
23,214
412
(22,768)
403,459
47,089
66,827
24,496
420,471
37,478
82,341
27,541
444,663
26,529
29,043
(8,856)
455,194
38,879
58,963
14,436
¥664,041
25,685
72,485
98,170
357,948
¥663,403
55,117
44,291
99,408
364,728
¥626,730
47,678
18,480
66,158
385,336
¥701,095
25,213
69,114
94,327
369,957
¥671,842
12,786
69,492
82,278
387,613
2007
2007
¥694,594 $5,881,904
185,533
1,571,116
459,056
50,005
78,036
25,293
3,887,340
423,448
600,818
214,184
¥739,833 $6,264,993
66,144
560,115
61,694
522,432
127,838
1,082,547
403,797
3,419,400
Per Share Data (In yen and U.S. dollars):
Net income (loss) (Note 5) ····
Net assets (Note 5) ··············
Cash dividends ···················
Weighted average number of
shares outstanding during
the period (in thousands) ·····
¥ (54.6)
818.0
16.0
¥ 58.0
844.7
20.0
¥ 64.9
903.7
22.0
¥ (21.5)
866.5
24.0
¥ 34.4
906.1
30.0
¥ 60.9
940.8
32.0
416,708
419,580
414,723
414,219
412,855
412,573
Financial Ratios:
Operating profitability (%) (Note 2)
Return on assets (%) ···········
Operating ROA (%) (Notes 2 and 6) ···
Return on equity (%) ············
Equity ratio (%) ···················
Interest coverage ratio (times) (Note 7)
Debt-equity ratio (times) ·······
Payout ratio (Consolidated)(%) ·····
Total return ratio (%) (Note 8) ····
3.9
(3.4)
3.7
(6.4)
52.1
18.7
0.28
—
—
7.6
3.7
7.3
7.0
53.3
30.0
0.28
34.5
53.2
6.0
4.3
6.0
7.6
59.8
18.2
0.18
33.9
51.2
4.1
(1.3)
4.3
(2.4)
51.2
22.1
0.26
—
—
5.8
2.1
5.9
3.9
55.7
8.6
0.22
87.2
105.1
7.2
3.6
7.4
6.6
52.5
30.6
0.32
52.6
52.6
Number of employees at year-end ·····
Net sales per employee ········
25,021
¥23.6
25,202
¥24.7
24,839
¥25.1
24,184
¥26.5
25,781
¥26.0
27,460
¥25.3
$0.52
7.97
0.27
$0.21
Notes: 1. U.S. dollar amounts are converted from yen, for convenience only, at the rate of ¥118.09 = US$1 prevailing on March 31, 2007.
2. Cost of sales, selling, general and administrative expenses, operating income, operating profitability and operating ROA for years up to March
31, 2005 have been retrospectively restated to reflect changes in accounting policies for the year ended March 31, 2006.
3. EBITDA (Earnings before interest, tax, depreciation and amortization) = Income (loss) before income taxes + Interest expense + Depreciation
4. Short-term liabilities = Short-term debt + Current portion of long-term debt
5. Net income (loss) per share (primary) is based on the average number of shares outstanding during the fiscal year. Net assets per share is
calculated using the number of shares outstanding as of the balance sheet date.
6. Operating ROA = (Income from operations + Interest and dividend income) / Total assets (Yearly average)
7. Interest coverage ratio = Net cash provided by operating activities/Interest paid*
*As stated in the consolidated statements of cash flows
8. Total return ratio = (Cash dividends + Share buybacks*) ÷ Consolidated net income
*Excluding odd-lot purchases
Management’s Discussion and Analysis
Operating Results
Overview
for allocating operating expenses and segment presentation.
(Please refer to Notes to the Consolidated Financial State-
During the fiscal year ended March 31, 2007, in Shiseido's
ments, “2. Summary of Significant Accounting Policies,” on
operating environment, overall corporate earnings of the
page 51, for additional details regarding the changes in
Japanese economy were steady. However, household con-
accounting policies.)
sumption did not reflect strong corporate performance, which
impeded full-scale economic recovery. The trend toward maturi-
Net Sales
ty in the cosmetics industry was evident in indicators such as the
Net sales increased 3.5 percent on a yen basis to ¥694,594
lack of year-on-year growth in the value of cosmetics ship-
million. While domestic sales decreased slightly year-on-year,
ments.* Overseas, the U.S. economy continued to expand
overseas sales (export sales and sales by overseas sub-
despite the risk of a slowdown, and moderate economic recovery
sidiaries) increased substantially, centered on China.
continued in Europe. Asian economies sustained high growth
Net Sales/Overseas Sales Ratio
rates, driven by continued strong investment in China.
(%)
(Billions of yen)
800
* Source: Cosmetics Shipment Statistics, Fiscal 2006 (Calendar Year),
Ministry of Economy, Trade and Industry
60
600
45
400
30
200
15
Amid these conditions, Shiseido completed the second
year of its Three-Year Plan aimed at expanding growth and
raising profitability through continued implementation of the
three key strategies of “reforming domestic marketing activities,” “accelerating expansion of our China business” and
year under review, net sales increased 3.5 percent compared to
the previous fiscal year to ¥694,594 million, and operating
income increased 28.6 percent to ¥50,005 million. The operating profitability ratio was 7.2 percent. Despite other expenses
including impairment loss and restructuring expenses, net
0
0
“fundamental structural reforms.” As a result, for the fiscal
2003
Net Sales
2004
2005
2006
2007
621.3 624.2 639.8 671.0 694.6
24.8 26.0 27.5 29.4 32.4
Domestic Sales
467.1 461.8 464.1 473.7 469.8
Overseas Sales
154.2 162.4 175.7 197.3 224.8
income increased 75.2 percent to ¥25,293 million.
Changes in Accounting Policies
Cost of Sales and
Selling, General and Administrative Expenses
Shiseido formerly classified its operations into the three
Cost of sales increased 4.9 percent compared to the previous
segments of Cosmetics, Toiletries and Others. Beginning with the
fiscal year to ¥185,533 million, and the ratio of cost of sales to
period under review, we reclassified business segment presen-
net sales increased 0.3 percentage points to 26.7 percent.
tation to reflect the integration of cosmetics with peripheral
Changes to the presentation of rebates in Europe added 0.3 per-
businesses and other internal organizational changes, and to
centage points and changes to the method of calculating
clarify overseas cosmetics business results. The new seg-
reserve for sales returns added 0.2 percentage points to this
ments are Domestic Cosmetics, Overseas Cosmetics and
ratio. Excluding these factors, the ratio of cost of sales to net
Others.
sales would have improved by 0.2 percentage points com-
During the period under review, Shiseido applied Practical
pared to the previous fiscal year. Shiseido’s cost structure
Solution on Application of Control Criteria and Influence Criteria to
has improved for several reasons. Consolidation of domestic pro-
Investment Associations, and included Selan Anonymous
duction facilities completed in March 2006 has resulted in
Association in the scope of consolidation. This change had the
steady gains in factory capacity utilization rates and reduced
effect of increasing operating income by ¥1,376 million,
expenses for subcontractor fees. Moreover, higher overseas
decreasing net income by ¥337 million and increasing total
sales have enhanced productivity through increased production,
assets by ¥26,434 million compared with the previous calculation
and we have also implemented ongoing cost reduction pro-
method. We also revised several other accounting policies during
grams for new and existing products.
the period under review, such as the method for allocating
Selling, general and administrative (SG&A) expenses
operating expenses including a portion of administrative
increased 0.8 percent compared to the previous fiscal year to
expenses and long-term basic research spending, as well as
¥459,056 million. The ratio of SG&A expenses to net sales
the accounting standard for director and corporate auditor
decreased 1.7 percentage points to 66.1 percent.
bonuses, and the accounting standard for stock options.
The ratio of advertising and promotional expenses to net
Data for prior years have been retrospectively restated to
sales decreased 1.5 percentage points to 23.6 percent. The
reflect changes in accounting policies, such as the method
improvement was the result of more efficient marketing
spending due to the concentration on key brands/lines in
Other Income (Expenses)
Japan and reduction of expenses including a cutback in
Net other expenses totaled ¥2,239 million, compared to
advertising in the healthcare division. Shiseido intends to
net other expenses of ¥9,341 million for the previous fiscal year.
maintain a constant ratio of advertising and promotional
Net interest expenses, calculated as interest expense less
expenses to net sales in coming years.
interest and dividend income, decreased to ¥219 million from
The ratio of personnel expenses to net sales increased 0.6
¥572 million for the previous fiscal year. Net gain on sales of
percentage points compared to the previous fiscal year to
property, plant and equipment decreased ¥1,073 million,
21.6 percent, reflecting the impact of performance-linked
while gain on investments in business limited partnership
bonuses in Japan and additions to personnel in China due to
decreased ¥1,436 million compared to the previous fiscal
business expansion.
year due to the inclusion of investment associations in the
The ratio of other expenses to net sales decreased 0.8 percentage points to 20.9 percent. Primary factors included
lower expenses at domestic administrative divisions and
reduced rental payments due to the inclusion of investment
associations in the scope of consolidation.
scope of consolidation.
Equity in earnings of affiliates decreased 5.2 percent compared to the previous fiscal year to ¥58 million.
Shiseido recorded impairment loss on fixed assets totaling
¥4,598 million, improving from a loss of ¥12,404 million in the
previous fiscal year. Factors included impairment of logistics facil-
Cost of Sales Ratio/
SG&A Expenses Ratio
ities and idle assets in Japan, as well as impairment of goodwill
(%)
(%)
30
70
29
69
28
68
27
67
26
66
25
65
24
64
23
63
2003
2004
2005
2006
27.5 26.6 26.4 26.4 26.7
SG&A Expenses Ratio (Right scale)
64.9 67.4 69.5 67.8 66.1
seas brand.
Shiseido undertook fundamental structural reforms for
improved profitability, with ongoing efforts to thoroughly
scale back brands/lines and business areas that do not contribute sufficiently to earnings through downsizing, withdrawal
and other means. As a result, Shiseido incurred restructuring
expenses totaling ¥1,102 million, which included those for
logistics outsourcing and those related to withdrawal from
2007
Cost of Sales Ratio (Left scale)
resulting from the reduced profitability of an acquired over-
underperforming brands/lines.
Income before Income Taxes
Income before income taxes increased 61.7 percent com-
Operating Income
pared to the previous fiscal year to ¥47,766 million.
Operating income increased 28.6 percent compared to the
previous fiscal year to ¥50,005 million. Marginal gains
Income Taxes
through growth in net sales, efficient marketing spending and
Income taxes, net of deferrals, increased 56.6 percent com-
reduced administrative expenses compensated for the
pared to the previous fiscal year to ¥19,175 million as a result of
increase in personnel expenses. Operating profitability
the increase in income before income taxes. The effective tax
increased 1.4 percentage points to 7.2 percent.
rate was 40.1 percent, a decrease of 1.4 percentage points
from 41.5 percent in the previous fiscal year.
Operating Income/Operating Profitability
(%)
(Billions of yen)
60
8
45
6
Minority Interests in
Net Income of Consolidated Subsidiaries
Minority interests in net income of consolidated subsidiaries increased 15.5 percent compared to the previous fiscal
30
4
15
2
year to ¥3,298 million, due to improved performance of joint ventures in Asia, primarily in China and Taiwan.
0
0
Operating Income
Net Income
2007
Net income increased 75.2 percent compared to the previous
47.1 37.5 26.5 38.9 50.0
fiscal year to ¥25,293 million. Net income per share increased to
2003
7.6
2004
6.0
2005
4.1
2006
5.8
7.2
¥60.9 from ¥34.4 for the previous fiscal year.
Improved profitability supported an increase of 2.7 percentage
points in return on equity to 6.6 percent from 3.9 percent for the
previous fiscal year.
[Healthcare Division]
Net Income (Loss)/Return on Equity
(%)
(Billions of yen)
30
9
The healthcare division supplies supplements and medicaluse drugs. We launched the Detoxing & Retuning line of food for
20
6
enhanced metabolic activity, and sales of Collagen EX, a food for
enhanced skin regeneration, exceeded forecasts. However,
10
3
0
0
division sales decreased 35.5 percent compared to the previous
fiscal year because of the significant impact of a shrinking market
(10)
(3)
2007
Operating income of the domestic cosmetics segment
24.5 27.5 (8.9) 14.4 25.3
increased 7.6 percent compared to the previous fiscal year to
2003
Net Income (Loss)
Return on Equity
for the Q10 series of foods with health claims (FHC) for anti-aging.
7.0
2004
2005
7.6 (2.4)
2006
3.9
6.6
¥36,870 million. Greater efficiency in allocating marketing
expenses resulting from Shiseido's focus on key brands/lines
and reduction of administrative expenses compensated for
Review by Business Segment
lower margins caused by reduced sales and higher personnel
expenses.
Results by business segment follow below.
Domestic Cosmetics
Sales in the domestic cosmetics segment decreased 1.3
percent compared to the previous fiscal year to ¥447,557 million.
Despite an overall year-on-year market decline, sales of the
cosmetics division increased 0.5 percent compared to the
previous fiscal year. However, segment sales were strongly
impacted by the 35.5 percent year-on-year decrease in sales of
the healthcare division caused by contraction of the market
for coenzyme Q10.
[Cosmetics Division]
Sales in the cosmetics division increased 0.5 percent compared to the previous fiscal year.
In counseling-based cosmetics, Shiseido launched the Elixir
Overseas Cosmetics
Sales in the overseas cosmetics segment increased 7.0
percent compared to the previous fiscal year on a local currency basis and, supported by the depreciation of the yen, 14.3 percent on a yen basis, to ¥224,320 million. Sales increased in both
the cosmetics and professional divisions.
[Cosmetics Division]
Division sales increased 7.6 percent on a local currency
basis, with steady sales growth in each of the regions in
which Shiseido operates, led by the key market, China.
Sales of core
Performance, Benefiance and White Lucent skincare lines to
increase the number of loyal customers. Brands other than
Superieur skincare line as a mega line and executed innovations for the high-end prestige brand Clé de Peau BEAUTÉ and
the exclusive voluntary chain store line Bénéfique. However,
sales in this category decreased, particularly for skincare products,
because of unseasonable weather.
Sales increased in the self-selection category due to the
solid performance of the new makeup mega line Integrate
and the Majolica Majorca line of makeup for women in their
teens and early twenties.
In toiletries, Tsubaki made a substantial contribution to
growth in sales.
[Professional Division]
The professional division serves hair and beauty salons.
Sales in this division decreased 4.6 percent compared to the previous fiscal year. Sales of System Qurl, which uses special
equipment to retain curls in perming, were strong due to
growth the number of hair salons employing it. Moreover, in the
growing market of the esthetic spa field, Shiseido increased
transactions with large hotels and hot spring inns with salon
facilities. However, the impact of intense competition in the markets for core haircare and hair color products inhibited sales
growth.
brands increased steadily as
Shiseido concentrated on expanding sales of the Bio-
generated solid sales growth, including the highend prestige brand Clé de Peau BEAUTÉ, the international
fragrance brands of Beauté Prestige International S.A. such
as ISSEY MIYAKE, Jean Paul GAULTIER and Narciso
Rodriguez, and the U.S. makeup brand NARS.
Shiseido executed a channel-based brand strategy in
China, including Hong Kong. Strong growth continued in this
region, as sales increased 31.3 percent compared to the previous fiscal year on a local currency basis. Behind the
increase were strong sales of the exclusive Chinese brand
AUPRES and the
brand in the department store
channel, and the smooth launch of the new prestige
SUPREME AUPRES line in Beijing and Shanghai in November
2006. Moreover, in the voluntary chain store channel, the
number of stores that handle Shiseido products expanded,
and the URARA brand launched in October 2006 was a
major hit.
In addition, Shiseido worked to expand in growing fields by
aggressively developing its travel retail business, centered on airport duty-free shops.
[Professional Division]
The professional division serves beauty salons. Sales of
the renewed haircare line from JOICO of Zotos International, Inc.
increased, and sales of the CARITA and DECLÉOR brands for
Review by Geographic Segment
Results by geographic segment (by location) follow below.
esthetic beauty and spa treatments were firm. Division sales
increased 3.5 percent on a local currency basis as a result.
Japan
Sales in Japan decreased 0.9 percent compared to the previ-
Operating income of the overseas cosmetics segment
increased 268.4 percent to ¥10,445 million, as sales growth
compensated for strategic marketing outlays in certain
regions including China.
ous fiscal year to ¥471,205 million due to a decline in sales of the
core domestic cosmetics business.
Operating income in Japan increased 13.8 percent compared to the previous fiscal year to ¥27,335 million, due to
more effective allocation of marketing outlays and reduced
Others
administrative expenses.
Sales in other businesses increased 6.8 percent compared to
the previous fiscal year to ¥22,717 million.
Americas
[Frontier Science Division]
Sales in the Americas increased 6.4 percent compared to the
The frontier science division, which handles items such as
previous fiscal year on a local currency basis. Depreciation of the
medical-use drugs and cosmetic dermatology treatments,
yen versus the U.S. dollar contributed to a 12.4 percent year-on-
increased sales of bio-hyaluronic acid, a raw material used in cos-
year increase in sales on a yen-denominated basis to ¥51,730
metics, pharmaceuticals and foods.
million.
In the cosmetics division, Shiseido generated strong
Operating income from other businesses increased 128.8 percent compared to the previous fiscal year to ¥2,245 million
due to factors such as the inclusion of investment associations in the scope of consolidation.
growth for its major brands in the United States. Sales of
major brands were also solid in Canada and Brazil.
In the professional division, sales of Zotos International,
Inc. were strong.
Operating income in the Americas increased 202.0 percent
Net Sales by Business Segment
compared to the previous fiscal year to ¥2,809 million, with high-
(Billions of yen)
750
er marginal gains as a result of increased sales and lower
administrative expenses.
500
Europe
Sales in Europe decreased 3.2 percent compared to the
250
previous fiscal year on a local currency basis due to changes in
the method for recording rebates. However, the depreciation of
the yen versus the euro contributed to a 3.3 percent year-on-year
0
2003
2007
increase in sales on a yen-denominated basis to ¥88,364 million.
Domestic Cosmetics
448.5 444.3 445.3 453.4 447.6
Absent the effect of the accounting change, sales would have
Overseas Cosmetics
152.7 161.1 174.5 196.3 224.3
increased 4.5 percent year-on-year on a local currency basis
Others
Total
2004
2005
2006
20.1 18.8 20.0 21.3 22.7
621.3 624.2 639.8 671.0 694.6
and 11.5 percent on a yen-denominated basis.
In the cosmetics division, sales were solid in Italy,
Germany and France. Sales increased significantly in Spain
Operating Income by Business Segment
(Billions of yen)
2003
2004
and in the travel retail business, both growth markets.
2005
2006
2007
Domestic Cosmetics
49.1 38.9 25.5 34.3 36.9
Overseas Cosmetics
(2.2) (1.2)
Others
(0.6) (0.9) (0.1)
0.7
2.8 10.4
1.0
2.2
In the professional division, sales of the CARITA and
DECLÉOR brands were solid.
Operating income in Europe increased 17.4 percent compared to the previous fiscal year to ¥6,311 million supported
by higher earnings at Beauté Prestige International S.A.
Operating Profitability by Business Segment
(%)
2003
2004
2005
2006
2007
Domestic Cosmetics
10.6
8.7
5.7
7.5
8.1
Overseas Cosmetics
(1.5) (0.8)
0.4
1.4
4.6
Others
(1.6) (2.4) (0.2)
2.4
4.9
Note: Operating profitability is calculated against sales for the segment,
including intersegment sales.
Asia/Oceania
Sales in Asia/Oceania increased 21.4 percent on a local currency basis. Depreciation of the yen versus major currencies
contributed to a 30.7 percent year-on-year increase in sales
on a yen-denominated basis to ¥83,295 million.
In the cosmetics division, the high rate of growth in China continued. Sales were also solid in countries other than China,
Liquidity and Capital Resources
particularly in Taiwan and Thailand.
Operating income in Asia/Oceania increased 46.2 percent
Financing and Liquidity Management
compared to the previous fiscal year to ¥11,212 million, as
Shiseido seeks to generate stable operating cash flow and
higher marginal gains resulting from sales growth compen-
ensure a wide range of funding methods, with the aims of
sated for an increase in strategic marketing expenditures and
securing sufficient capital for operating activities and main-
higher personnel expenses in China.
taining sufficient liquidity and a sound financial position. We fund
working capital, capital expenditures, and investments and
Net Sales by Geographic Segment
(Billions of yen)
2003
loans needed for sustainable growth by supplementing cash on
2004
2005
2006
2007
469.2 465.3 467.0 475.7 471.2
Japan
Americas
45.4 43.5 43.1 46.0 51.7
Europe
65.8 72.4 79.8 85.6 88.4
Asia/Oceania
40.9 43.0 49.9 63.7 83.3
Outside Japan
152.1 158.9 172.8 195.3 223.4
2003
2004
2005
2006
2007
37.6 26.2 12.5 24.0 27.3
1.6 (0.4) (0.2) 0.9 2.8
Japan
Americas
Europe
1.6
issues.
As of March 31, 2007, Shiseido maintained a sufficient
level of liquidity. The use of diverse funding methods provided
a high level of financial flexibility. One of our targets for shortterm liquidity is to maintain cash on hand at a level of approximately 1.5 months of consolidated net sales to provide for
Operating Income by Geographic Segment
(Billions of yen)
hand and operating cash flow with bank borrowings and bond
3.0
5.0
5.4
6.3
6.5
7.7 11.2
Asia/Oceania
4.1
5.3
Outside Japan
7.3
7.9 11.3 14.0 20.3
extraordinary capital demands. Shiseido procured ¥20 billion in
March 2007 through an issue of 1.12 percent unsecured yen
bonds in preparation for the redemption of ¥50 billion in 0.40
percent
unsecured
yen
bonds
due
in
May
2007.
Consequently, as of March 31, 2007, cash and time deposits
together with short-term investments in securities totaled
¥150,997 million, but after reducing this figure by the amount of
the pending bond redemption, it represented an appropriate
Operating Profitability by Geographic Segment
level of 1.7 months of consolidated net sales.
(%)
2003
2005
2006
2007
Japan
Americas
7.7 5.4 2.6
2.9 (0.8) (0.3)
4.8
1.7
5.5
4.7
Europe
2.4
6.0
6.8
Asia/Oceania
2004
4.0
6.1
10.0 12.2 12.9 12.0 13.4
4.4
Outside Japan
4.6
6.2
6.7
8.6
Note: Operating profitability is calculated against sales for the segment,
including intersegment sales.
As of March 31, 2007, interest-bearing debt totaled
¥127,838 million. Shiseido has diversified funding methods.
These include an unused shelf registration in Japan for ¥50.0 billion of straight bonds. Shiseido Co., Ltd. and financial subsidiaries in the United States and Europe have established a syndicated loan program with unused commitments totaling
$280 million. A financial subsidiary in the United States has also
established an unused commercial paper program totaling
$100 million.
Overseas Sales
(by Destination)
(Billions of yen)
250
Credit Ratings
Shiseido recognizes that it needs to maintain a certain level of
200
credit rating to secure financial flexibility that suits its
150
capital/liquidity policies and to secure access to sufficient
capital resources through capital markets. Shiseido has
100
acquired ratings from Moody’s Investors Service Inc.
50
(Moody’s) and Standard and Poor’s (S&P) to facilitate fund
0
2003
2004
2005
2006
2007
Americas
46.7 45.8 44.3 47.6 54.0
Europe
61.7 68.1 74.9 80.4 79.3
Asia/Oceania
45.8 48.5 56.5 69.3 91.5
Total
154.2 162.4 175.7 197.3 224.8
procurement in global capital markets.
In June 2006, S&P raised its outlook for Shiseido’s longterm credit rating from “Stable” to “Positive.” This was
based on its projection that Shiseido will enhance its ability to
generate cash flow by increasing profitability as a result of
the strong performance of mainstay lines in the domestic
cosmetics business, which has made progress in divesting
unprofitable businesses and streamlining brands/lines, and
expected further growth in earnings of the overseas cosmetics
business driven by continued expansion in China.
The following table presents Shiseido's long- and short-
long-term debt pending redemption in May 2007.
As of March 31, 2007, interest-bearing debt including
term credit ratings as of March 31, 2007.
short- and long-term debt increased 55.4 percent from a year
Long-term
Moody’s
S&P
earlier to ¥127,838 million. Primary factors in the increase
A1 (Outlook: Stable)
A (Outlook: Positive)
were the inclusion of investment associations within the
A-1
scope of consolidation and the March 2007 issue of unse-
Short-term P-1
cured yen bonds. As of March 31, 2007, bonds on Shiseido’s
Assets, Liabilities and Net Assets
balance sheet consisted of 0.40 percent unsecured yen
As of March 31, 2007, total assets increased 10.1 percent
bonds due in May 2007 and 1.12 percent unsecured yen
bonds due in March 2010 issued by Shiseido Co., Ltd., and
from a year earlier to ¥739,833 million.
Current assets increased 24.2 percent from a year earlier to
¥373,208 million, primarily because Shiseido added a total of
¥60,541 million to cash and time deposits and short-term
investments in securities in preparation for the redemption of
medium-term notes issued by finance subsidiaries in the
United States and Europe.
Total net assets increased 4.2 percent from a year earlier to
¥403,797 million.
Net income and foreign currency translation adjustments
¥50 billion in unsecured yen bonds due in May 2007.
Investments and other assets decreased 9.9 percent from a
increased net assets by ¥25,293 million and ¥8,315 million,
year earlier to ¥145,247 million, mainly due to sale of invest-
respectively. The payment of cash dividends from retained
ments in securities and a decrease in valuation gains as a
earnings reduced net assets by ¥12,787 million, and unrealized
result of lower market prices.
gains on available-for-sale securities, net of taxes, decreased
Property, plant and equipment, net of accumulated depreci-
¥4,535 million from a year earlier. As a result, net assets per
ation, increased 7.1 percent from a year earlier to ¥171,636 mil-
share increased ¥34.7 from a year earlier to ¥940.8. The equity
lion. While acquisition of fixed assets was about the same
ratio decreased 3.2 percentage points to 52.5 percent from
level as depreciation expense, the inclusion of investment
55.7 percent a year earlier.
associations in the scope of consolidation added ¥20,117 million
Net Assets/
Interest-bearing Debt
to buildings and structures.
(Billions of yen)
400
Total Assets/Operating ROA
(Billions of yen)
800
(%)
8
600
6
400
4
200
2
300
200
100
0
2003
Net Assets
0
0
2003
Total Assets
Operating ROA
2004
2005
2006
2007
2004
2005
2006
2007
364.7 385.3 370.0 387.6 403.8
Interest-bearing Debt
99.4 66.2 94.3 82.3 127.8
663.4 626.7 701.1 671.8 739.8
7.3
6.0
4.3
5.9
7.4
Equity Ratio/
Debt-Equity Ratio
Total liabilities as of March 31, 2007 increased 18.2 percent
(%)
100
(Times)
1.00
75
0.75
50
0.50
25
0.25
from a year earlier to ¥336,036 million. Current liabilities
increased 36.2 percent from a year earlier to ¥227,841 million due
to factors including the increase in the current portion of longterm debt pending the redemption of ¥50 billion in 0.40 percent
unsecured yen bonds due in May 2007. Long-term liabilities
0
decreased 7.5 percent from a year earlier to ¥108,195 million.
0
2003
2004
2005
2006
2007
Long-term debt increased as a result of the inclusion of
Equity Ratio
53.3 59.8 51.2 55.7 52.5
investment associations within the scope of consolidation
Debt-Equity Ratio
0.28 0.18 0.26 0.22 0.32
(¥27,100 million) and a March 2007 issue of ¥20 billion in 1.12
percent unsecured bonds. However, ¥50 billion in unsecured yen
bonds shifted from long-term debt to the current portion of
Cash Flows
Cash Flows from Financing Activities
Cash and cash equivalents (net cash) as of March 31, 2007
Net cash provided by financing activities totaled ¥1,837
totaled ¥145,260 million, an increase of ¥56,245 million from a
million. In the previous fiscal year, financing activities used
year earlier.
net cash totaling ¥29,959 million.
Capital procurement exceeded shareholder returns. In
Cash Flow Summary
(Billions of yen)
2005
2006
2007
terms of capital procurement, factors included a net increase in
short-term debt of ¥854 million, compared to a net repayment of ¥10,049 million for the previous fiscal year. In addition,
Cash flows from operating activities
52.4
21.8
69.4
net proceeds from long-term debt totaled ¥14,950 million,
Cash flows from investing activities
(24.9)
(12.6)
(18.5)
compared to a net repayment of ¥4,278 million for the previous
Cash flows from financing activities
17.4
(30.0)
1.8
Cash and cash equivalents at end of year
108.3
89.1
145.3
fiscal year. In terms of shareholder returns, factors included payment of cash dividends totaling ¥12,794 million, compared to
¥11,560 million for the previous fiscal year. In addition, proceeds
from sale of treasury stock provided cash totaling ¥298 million,
while in the previous fiscal year acquisition of treasury stock
Cash Flows from Operating Activities
used cash totaling ¥2,731 million.
For the fiscal year under review, net cash provided by operating activities increased ¥47,619 million from the previous
Research and Development
In the fiscal year under review, Shiseido’s R&D expenses
fiscal year to ¥69,431 million.
Primary factors included an increase of ¥18,228 million in
totaled ¥16,133 million, or 2.3 percent of net sales. R&D
income before income taxes to ¥47,766 million and the
expenses include basic research costs and other expenses
absence of payment for additional retirement benefits totaling
totaling ¥3,105 million that cannot be allocated to specific
¥43,770 million in the previous fiscal year.
businesses. Main R&D initiatives and results by business
segment were as follows.
Cash Flows from Operating Activities/Acquisition of Fixed Assets
(Property, Plant and Equipment + Intangible Assets + Long-term Prepaid Expenses)
(Billions of yen)
80
Domestic Cosmetics
With the goal of contributing to beautiful skin and beautiful
lifestyles, Shiseido conducts research in basic dermatology
60
and functional foods and develops cosmetic ingredients,
40
products, beauty methods and beauty theories.
20
the stratum corneum culminated in a new theory of stratum
In the cosmetics division, Shiseido’s research results on
corneum formation, which it applied to the new skin care line
0
2003
2004
2005
2006
2007
Cash Flows from Operating Activities 66.8 47.1 52.4 21.8 69.4
Acquisition of Fixed Assets
27.3 33.7 30.0 27.5 28.6
Elixir Superieur. Shiseido also developed an original microcoating production process that achieves extremely fine powder
dispersion for a smooth, uniform coating of ingredients on
each particle. Used to produce foundation for the Maquillage
makeup line, this process offers superior application properties
and a fine, smooth finish. In addition, Shiseido developed
Cash Flows from Investing Activities
Net cash used in investing activities increased ¥5,843 million
from the previous fiscal year to ¥18,483 million. Primary factors
Haku Melanofocus 2, which contains 4MSK, an original active
ingredient for skin-brightening used in quasi-drugs that was
the subject of over 10 years of research.
included a net increase in time deposits totaling ¥2,851 million.
In the healthcare division, ongoing research on internal and
Acquisition of fixed assets, calculated as the sum of acquisition
external beauty identified concern among women about bodily
of property, plant and equipment, intangible assets and long-
impurities and a strong demand for products that work internally
term prepaid expenses, totaled ¥28,558 million, which was
to remove them. Shiseido applied this knowledge to create
about the same level as depreciation. Capital expenditures
Detoxing & Retuning, a new concept in supplements.
included upgrade and renovation of existing domestic facilities, as well as expansion of overseas production capacity
R&D expenses for the fiscal year under review in the
domestic cosmetics business totaled ¥11,177 million.
centered on the growing Chinese market.
Outlook for the Year Ending March 31, 2008
Overseas Cosmetics
Aiming for “high quality, high image and high service” in
The market environment in which Shiseido operates will
overseas cosmetics brands, Shiseido develops products that
remain challenging, both domestically and overseas. None-
fully capitalize on high- quality, high-performance ingredients.
theless, we will continue implementing the Three-Year Plan
In the year under review, Shiseido developed a product for
aimed at enhancing growth potential and raising profitability in
treating stratification of the stratum corneum caused by epi-
order to establish a strong competitive edge.
dermal regeneration disorders, and employed it in the
The year ending March 31, 2008 is the final period of
advanced global skincare line Bio-Performance. In addition,
Shiseido's current three-year business plan. During the year, we
Shiseido employed a new powder technology for the global
will continue promoting domestic marketing reforms, further
makeup line The Makeup to create a highly transparent, easy-to-
strengthening global development, and continuing with fun-
apply liquid foundation with excellent UV scattering properties.
damental structural reforms. We expect these strategies to
In China, local consumer awareness and behavior studies pri-
help boost overall sales and operating income, while also
marily conducted by Shiseido China Research Co., Ltd. identified
lowering the cost of sales.
strong demand among women for moisturizing and skin-
For the fiscal year, Shiseido forecasts a 4 percent increase in
brightening cosmetics. Based on these findings, Shiseido
consolidated net sales to ¥720 billion, a 16 percent increase in
launched the exclusive Chinese brand URARA with the
operating income to ¥58 billion, and a 30 percent increase in
theme of “bright, clear skin that is rich in moisture.”
net income to ¥33 billion. On April 2, 2007, Shiseido transferred its
R&D expenses for the fiscal year under review in the overseas cosmetics business totaled ¥1,623 million.
logistics-related facilities and shares in Shiseido Logistics
Company, Ltd., a consolidated subsidiary, to Hitachi Transport
System, Ltd. and other entities. This is expected to generate an
Others
extraordinary gain of ¥2.3 billion.
Shiseido conducts R&D at Research Center (Kanazawa-
The above outlook is based on the assumption that domestic
Hakkei) in Yokohama for the frontier science division, which han-
real GDP will grow approximately 2 percent in the fiscal year.
dles medical-use drugs and materials, chromatography, and
Based on Ministry of Economy, Trade and Industry statistics for
cosmetic dermatology treatments. In this division, Shiseido
cosmetics shipments, we estimate that demand for cosmetics
develops high-performance liquid chromatography columns
products will increase slightly. Our forecasts are based on
employing technology used in makeup powder development, as
exchange rates of ¥115 per U.S. dollar, ¥150 per euro and
well as a variety of instruments for analysis and purification of
¥15 per Chinese yuan.
chemicals.
R&D expenses for the fiscal year under review in other
businesses totaled ¥228 million.
Income Distribution Policy
The shareholder return policy of Shiseido Co., Ltd. aims to maximize returns to shareholders through direct means, in addition to
R&D Expenses/Ratio of R&D Expenses to Net Sales
generating medium- and long-term share price gains. To this
(Billions of yen)
20
(%)
4
end, in allocating internal capital resources, we prioritize (a)
strategic investments linked to renewed growth, and (b) stable
15
3
dividends and flexible implementation of share buybacks.
10
2
sents the amount of profits returned to shareholders - the
5
1
We have established a “total return ratio,” which represum of dividends paid and share buybacks - as a proportion of
0
0
2003
R&D Expenses
2004
2005
2006
2007
17.3 17.6 16.8 16.5 16.1
Ratio of R&D Expenses to Net Sales 2.8
2.8
2.6
2.5
2.3
consolidated net income. We hope to achieve a 60 percent total
return ratio in the medium term while increasing the percentage
of dividends.
For the fiscal year ended March 31, 2007, Shiseido Co.,
Ltd. increased cash dividends per share by ¥2 to ¥32, consisting of an interim cash dividend of ¥16 per share and a
year-end cash dividend of ¥16 per share. The dividend payout
ratio, therefore, was 52.6 percent on a consolidated basis.
Since no treasury stock was acquired (excluding odd-lot purchases), the total return ratio was also 52.6 percent.
For the year ending March 31, 2008, Shiseido plans to
increase the interim and the year-end dividend by ¥1 to ¥17 each,
which will increase annual cash dividends to ¥34 per share.
Business and Other Risks
tioned as a pillar of its growth strategy, the competitive envi-
The various risks that could potentially affect the business per-
ronment is becoming increasingly challenging as well-capitalized
formance and financial position of Shiseido are summarized
U.S. and European corporations are aggressively conducting
below. We feel that these risks could have a major impact on
mergers and acquisitions and expanding market share by
investors’ decisions. Items that deal with future events are
executing marketing activities to raise consumer awareness of
based on our judgment as of June 26, 2007, the date of issue
their brands. Inability to respond to this competitive environment
for this annual report. Please note that the potential risks are not
as effectively as global competitors could potentially affect
limited to those listed below.
Shiseido's business performance and financial position.
1. Decrease in Value of the
Brand
Corporate
5. Overseas Business Activities
Shiseido’s business is conducted in 67 countries overseas,
corporate brand is shared by all Group
and overseas sales account for a growing percentage of con-
companies in Shiseido’s domestic and overseas business
solidated net sales each year, totaling 32.4 percent in the fiscal
activities. We will continue working to enhance the value of this
year under review. The trend of overseas business expansion is
brand, but a decline in the brand’s value from an unforeseen
expected to continue in the future. In the course of conducting
event could potentially affect Shiseido’s business perform-
overseas business, Shiseido’s business performance and
ance and financial position.
financial position could potentially be affected by various factors.
The
These include the occurrence of sudden and unpredictable
2. Customer Services
economic, political and social crises; terrorism, war and civil war;
Shiseido places high priority on its relationships with cus-
economic and civil upheaval resulting from the spread of con-
tomers. Chapter 1 of The Shiseido Code (Corporate Ethics
tagious diseases such as avian influenza; and severe or
and Behavior Standards) clearly states that we shall act in a man-
abnormal weather.
ner that earns the satisfaction and trust of customers, and
we will continue working to ensure that all employees are
6. Foreign Exchange Fluctuations
aware of these standards. However, an unforeseen event
Export, import and other transactions denominated in foreign
could cause loss of such satisfaction and trust, leading to a
currencies expose Shiseido to foreign exchange rate risk.
decline in the value of Shiseido Group brands. Shiseido’s
Although we hedge foreign exchange rate risk through
business performance and financial position could potentially be
means such as limiting export and import transactions by
affected as a result.
establishing production bases to serve local markets, we are
unable to completely eliminate risk. Moreover, the financial
3. Strategic Investment Activities
statements of consolidated subsidiaries and equity affiliates
When making decisions about investments in strategic
domiciled overseas are denominated in local currencies that are
markets such as China and strategic investments in mergers and
translated into yen upon inclusion in the consolidated financial
acquisitions, new businesses and new markets, Shiseido
statements. This has the potential to exert a negative impact on
endeavors to collect ample information and undertake due
operating performance if the yen appreciates versus foreign cur-
diligence prior to making rational judgments. Due to various
rencies when revenues exceed expenses. Foreign exchange
unforeseeable factors that may cause the operating environment
fluctuations that exceed assumptions could potentially affect
to deteriorate, however, we may not achieve the results origi-
Shiseido’s business performance and financial position.
nally anticipated. This could potentially affect Shiseido's business
performance and financial position.
7. Responding Appropriately to Market Needs
Shiseido’s ability to develop and cultivate products and
4. The Competitive Environment of the Cosmetics
Industry
brands/lines and to conduct marketing activities that respond
Shiseido operates in the cosmetics industry, in which com-
sales and earnings. To respond to market needs, we continuously
petition is intensifying on a global scale. The competitive
develop appealing new products and brands/lines; reinforce and
environment of the mature domestic market is becoming
cultivate new and existing products and brands/lines through
increasingly challenging because of factors including the creation
marketing activities; and withdraw existing products and
of influential domestic corporate groups through mergers and
brands/lines that no longer meet market needs. However, by
acquisitions, the expanding influence of global U.S. and
nature these activities entail uncertainties that may prevent
European corporations in the field of prestige cosmetics, and the
Shiseido from achieving its intended results, which could negatively
entry of new competitors from other industries. In addition, in
affect Shiseido’s business performance and financial position.
appropriately to market needs exerts a significant impact on its
overseas markets such as China, which Shiseido has posi-
8. Specific Business Partners
Significant changes are taking place in retail and wholesale
Fundamental Policy on Control of the
Company
distribution channels in Shiseido’s core domestic cosmetics
Shiseido’s fundamental policy on control of the Company
business. Failure to respond effectively to these changes
was resolved by the Board of Directors at its meeting on
could negatively affect Shiseido’s business performance and
April 27, 2006, the date the Board resolved to introduce
financial position.
Countermeasures to Large Acquisitions of Shiseido Co., Ltd.
Shares (Take-over Defense). The policy was approved as
9. Regulatory Risk
Resolutions 3 and 7 at the 106th Ordinary General Meeting of
Shiseido is subject to a host of domestic and overseas
Shareholders. (For details, please refer to the business report of
legal provisions in the course of conducting its business.
the 107th Ordinary General Meeting of Shareholders on the
These include the Pharmaceuticals Law, as well as quality-
investor relations section of the Shiseido website.)
related standards, environmental standards, accounting standards and tax regulations. We aspire to be completely ethical
based on legal compliance and corporate social responsibility.
●
(1) Secure the required information and time for shareholders to
adequately consider whether they should accept or reject a
tender offer, and for Shiseido's Board of Directors to make an
alternative proposal to shareholders.
However, future regulatory changes or the establishment of
unanticipated new regulations may limit Shiseido’s activities,
which could negatively affect Shiseido’s business performance and financial position.
(2) Enable the Board of Directors to conduct activities such as
negotiations on behalf of the shareholders in the event of an
unreasonable tender offer.
10. Material Litigation
As of June 26, 2007, the date of issue of this annual
●
The precautionary rights plan will be implemented through
Resolution 3 (Amendment of the Articles of Incorporation
that allows gratis allotment of stock acquisition rights as a
General Shareholder Meeting resolution or an entrustment to
the Board of Directors, in addition to a Board of Directors resolution) and Resolution 7 (Entrustment of gratis allotment of
stock acquisition rights for takeover defense to the Board
of Directors) of the 106th Ordinary General Meeting of Shareholders.
●
In the event of a large-volume tender offer, an independent
committee consisting of two highly independent external
directors and one external auditor will be formed to consult
with outside specialists and advise the Board of Directors in order
to preclude an arbitrary decision on the part of the Board.
●
The Board of Directors will follow the advice of the independent
committee and resolve whether or not to invoke the gratis
allotment of stock acquisition rights.
●
The term of entrustment to the Board of Directors will be until the
Ordinary General Meeting of Shareholders for the fiscal year
ending March 31, 2008, the final fiscal year of the current threeyear management plan. Shareholders will then decide whether or
not to continue the countermeasure based on the level of
achievement of the objectives of the current three-year plan
and the content of the subsequent plan.
report, Shiseido is not involved in material litigation. In the
future, unfavorable judgments resulting from material litigation could negatively affect Shiseido's business performance and
financial position.
11. Information Security Risk
Shiseido takes various measures aimed at protecting its
information assets, which include customers’ personal infor-
Objectives:
mation and industrial secrets. For example, in April 2005, the
Personal Information Protection Law was fully enacted. In
anticipation of this, Shiseido Co., Ltd. in March 2004 obtained
Privacy Mark certification, a Japanese Industrial Standard that
recognizes the appropriateness of a company’s systems for protecting personal information. However, due to unforeseeable
events, such as leakage of information due to unauthorized
access, Shiseido's business performance and financial position could potentially be affected.
12. Natural Disasters and Accidents
Shiseido has developed a business continuation plan covering
issues critical to the continued operation of production bases, distribution bases, information systems and the head office to
minimize loss due to interruption of production, distribution or
sales resulting from the occurrence of a natural disaster or
accident, such as a major earthquake. However, a natural disaster
or accident that exceeds the assumptions of this plan and disrupts production, distribution or sales could negatively affect
Significant Accounting Estimates
Shiseido prepares its consolidated financial statements in
accordance with accounting principles generally accepted in
Japan. In preparing these statements, we select and apply
accounting policies and necessarily make estimates that
affect the presentation of reported amounts for assets, liabilities,
income and expenses. We consider information including historical data in making rational estimates. However, unpredictable changes in the assumptions underlying these estimates may cause actual results to vary, which could affect
Shiseido considers the following significant accounting
policies to exert a large effect on key decisions regarding the
estimates used in the consolidated financial statements.
Property, Plant and Equipment
Shiseido reviews fixed assets, primarily property, plant and
equipment, for impairment whenever circumstances indicate
that their carrying value may not be recoverable. Businessuse assets are pooled by business division to estimate future
cash flow, and the net sale value of idle assets is estimated for
Deferred Tax Assets
Shiseido has established an allowance primarily for
deferred tax assets deemed unrecoverable using appropriate
deferred tax asset accounting. Historical data and future projections are used to evaluate the recoverability of deferred
tax assets to sufficiently determine taxable status.
Retirement Benefits and Obligations
Shiseido’s domestic retirement benefit plan consists primarily of a corporate pension plan and a termination
allowance plan. Employee benefits and obligations are calculated
based on assumptions including discount rate, turnover rate,
mortality rate and projected rate of return on pension plan
assets. These assumptions are revised annually. Discount
rate and expected return on plan assets are two critical
assumptions in determining benefits and obligations. The discount rate is determined with reference to the market rate
for long-term fixed-rate bonds that carry little or no risk.
Expected return on pension plan assets is determined based on
an expected weighted-average return for the various types of
assets held within the plan.
each separate property. Based on these estimates, assets
are devalued from book value to recoverable value.
Goodwill and Intangible Assets with Indefinite
Useful Lives
In general, goodwill and intangible assets determined to
have indefinite useful lives at overseas consolidated subsidiaries are not amortized, but instead are tested for impairment
at least once annually. Certain oversees subsidiaries employ
the opinions of experts and other data in estimating fair value and
determining impairment. The discounted cash flow method
primarily used to estimate fair value relies extensively on estimates and assumptions regarding future cash flow and discount rate.
Investments in Securities
Shiseido recognizes impairment for securities primarily
reported in available-for-sale securities for which fair value or
market price has fallen substantially below acquisition cost.
Securities deemed recoverable are excluded. Securities with a
fair value that is more than 50 percent below acquisition cost as
of the balance sheet date are deemed unrecoverable. The
recoverability of securities with a fair value from 30 to 50 percent
below acquisition cost is evaluated according to the performance
and financial condition of the issuing entity. Impairment is
recognized for securities for which fair value is not available if
current net asset value per share according to the financial
condition of the issuing entity is more than 50 percent below net
asset value per share at the time of acquisition. Securities
deemed recoverable are excluded.
Consolidated Financial Statements
CONSOLIDATED BALANCE SHEETS
March 31, 2006 and 2007
Thousands of
U.S. dollars (Note 1. (1))
Millions of yen
2006
2007
2007
Cash and time deposits (Notes 3 and 6) ·······························
Short-term investments in securities (Notes 3 and 4) ·············
¥ 53,511
36,945
¥ 82,453
68,544
Notes and accounts receivable:
Trade ··········································································
Unconsolidated subsidiaries and affiliates ·························
...........................................................................................
105,050
24
105,074
106,454
31
106,485
901,465
263
901,728
Less: allowance for doubtful accounts ·····························
...........................................................................................
(1,649)
103,425
(1,304)
105,181
(11,043)
890,685
Inventories (Note 5)··························································
Deferred tax assets (Note 8) ··············································
Other current assets ························································
72,344
25,778
8,602
73,891
32,344
10,795
625,718
273,893
91,413
Total current assets ···················································
300,605
373,208
3,160,369
87,774
62,173
526,488
1,316
30,637
9,494
17,708
14,317
1,428
32,630
10,241
11,837
26,938
12,093
276,315
86,722
100,237
228,114
161,246
145,247
1,229,969
Buildings and structures (Note 6) ········································
Machinery and equipment ·················································
...........................................................................................
167,705
180,206
347,911
186,342
174,853
361,195
1,577,966
1,480,676
3,058,642
Less: accumulated depreciation ·········································
...........................................................................................
(246,988)
100,923
(244,498)
116,697
(2,070,438)
988,204
Land ··············································································
Construction in progress ···················································
57,176
2,097
52,370
2,569
443,475
21,755
Total property, plant and equipment ·····························
160,196
171,636
1,453,434
Intangible Assets (Note 16):
Goodwill ·········································································
Other intangible assets ·····················································
23,742
26,053
23,103
26,639
195,639
225,582
Total intangible assets····················································
49,795
49,742
421,221
Total Assets ············································································
¥ 671,842
¥ 739,833
$ 6,264,993
ASSETS
Current Assets:
Investments and Other Assets (Note 16):
Investments in securities (Notes 4 and 6) ····························
Investments in and advances to
unconsolidated subsidiaries and affiliates ······················
Prepaid pension expenses (Note 7) ·····································
Long-term prepaid expenses ·············································
Deferred tax assets (Note 8) ··············································
Other investments (Note 6) ···············································
Total investments and other assets ······························
$
698,222
580,438
Property, Plant and Equipment, at Cost (Note 16):
The accompanying notes are an integral part of the financial statements.
Thousands of
Millions of yen
2006
LIABILITIES AND NET ASSETS
Current Liabilities:
Short-term debt (Note 6) ···················································
Current portion of long-term debt (Note 6) ···························
Notes and accounts payable:
Trade ··········································································
Unconsolidated subsidiaries and affiliates ·························
Other··········································································
...........................................................................................
Accrued income taxes ······················································
Reserve for sales returns ··················································
Accrued bonuses for employees ········································
Accrued bonuses for directors and corporate auditors ············
Provision for liabilities and charges······································
Deferred tax liabilities (Note 8) ···········································
Other current liabilities ······················································
Total current liabilities ················································
Long-Term Liabilities:
Long-term debt (Note 6)····················································
Accrued retirement benefits (Note 7) ··································
Accrued retirement benefits for directors and
corporate auditors ·····················································
Allowance for loss on guarantees ·······································
Deferred tax liabilities (Note 8) ···········································
Other long-term liabilities ··················································
Total long-term liabilities ·············································
Total Liabilities ························································
¥
3,323
9,463
2007
¥
4,456
61,688
2007
$
37,734
522,381
60,492
1,284
50,230
112,006
56,525
1,207
52,982
110,714
478,660
10,221
448,658
937,539
8,950
4,767
12,465
—
1,261
127
14,935
167,297
10,026
8,686
11,703
122
1,377
—
19,069
227,841
84,901
73,554
99,102
1,033
11,661
—
161,480
1,929,385
69,492
36,204
61,694
38,643
522,432
327,233
285
350
2,020
8,581
116,932
284,229
72
350
4,145
3,291
108,195
336,036
610
2,964
35,100
27,869
916,208
2,845,593
64,507
64,507
546,253
70,258
244,768
(17,159)
70,294
255,410
(16,896)
595,258
2,162,842
(143,078)
362,374
373,315
3,161,275
18,279
—
(6,754)
11,525
—
13,714
387,613
¥671,842
13,744
(233)
1,561
15,072
52
15,358
403,797
¥739,833
116,386
(1,973)
13,219
127,632
440
130,053
3,419,400
$6,264,993
CONTINGENT LIABILITIES (Note 9)
NET ASSETS (Note 10)
Shareholders’ Equity:
Common stock·····························································
Authorized: 784,561,000 shares as of March 31, 2006
and 1,200,000,000 shares as of March 31, 2007
Issued: 424,562,353 shares as of March 31, 2006 and 2007
Capital surplus ·····························································
Retained earnings ·························································
Less: treasury stock, at cost ···········································
Treasury stock: 12,105,939 shares as of March 31, 2006 and
11,730,235 shares as of March 31, 2007
Total shareholders’ equity ·················································
Valuation, Translation Adjustments and Others:
Unrealized gains on available-for-sale securities, net of taxes ···
Deferred losses on hedges ············································
Foreign currency translation adjustments··························
Total valuation, translation adjustments and others ················
Stock Acquisition Rights ·················································
Minority Interests in Consolidated Subsidiaries ················
Total Net Assets ······················································
Total Liabilities and Net Assets ··············································
CONSOLIDATED STATEMENTS OF OPERATIONS
Thousands of
Millions of yen
2005
2006
2007
2007
Net Sales (Note 17) ···················································
¥639,828
¥670,957
¥694,594
$5,881,904
Cost of Sales ························································
Gross profit ····················································
168,636
471,192
176,884
494,073
185,533
509,061
1,571,116
4,310,788
Selling, General and Administrative Expenses (Note 12) ·······
Operating Income (Note 17) ······························
444,663
26,529
455,194
38,879
459,056
50,005
3,887,340
423,448
Other Income (Expenses):
Interest and dividend income ································
Gain on investments in business limited partnerships ···
Interest expense ·················································
Equity in earnings of affiliates ·······························
Gain on sale of securities (Note 4)·····························
Write-down of investments in
securities and other investments ····················
Gain on sales of property, plant and equipment ········
Loss on disposal of property, plant and equipment ·······
Impairment loss (Note 16) ····································
Restructuring expenses ·······································
Additional retirement benefits (Note 7) ···················
Gain on changes in retirement benefit plans (Note 7) ···
Others, net ························································
............................................................................
Income (loss) before income taxes ·····················
1,892
1,802
(2,371)
22
552
1,880
1,826
(2,452)
61
519
2,176
390
(2,395)
58
143
18,427
3,303
(20,281)
491
1,211
(226)
2,928
(1,516)
—
(2,664)
(30,987)
2,567
736
(27,265)
(736)
—
3,408
(1,601)
(12,404)
(2,703)
—
—
2,125
(9,341)
29,538
—
1,987
(1,253)
(4,598)
(1,102)
—
—
2,355
(2,239)
47,766
—
16,826
(10,611)
(38,936)
(9,332)
—
—
19,942
(18,960)
404,488
Income Taxes (Note 8)
Current ·····························································
Deferred ····························································
............................................................................
............................................................................
6,126
(374)
5,752
(6,488)
12,274
(27)
12,247
17,291
13,660
5,515
19,175
28,591
115,674
46,702
162,376
242,112
Minority Interests in Net Income of
Consolidated Subsidiaries ···························
(2,368)
(2,855)
(3,298)
(27,928)
Net income (loss) ·······································
¥ (8,856)
¥ 14,436
¥ 25,293
Yen
U.S. dollars (Note1. (1))
Per Share
Net income (loss) — basic ····································
— fully diluted* ·························
Cash dividends ···················································
¥(21.5)
—
24.0
¥34.4
34.4
30.0
¥60.9
60.7
32.0
Weighted Average Number of Shares (thousands) ····
414,219
412,855
412,572
* Diluted net income per share in 2005 is not disclosed due to the net loss.
$ 214,184
$0.52
0.51
0.27
CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS
Thousands
Number
of shares
of common
stock
Balance as of March 31, 2004 ··········
Net loss for the year ended March 31, 2005 ····
Cash dividends from retained earnings as
appropriation of earnings ·················
Directors’ and corporate auditors’
bonuses as appropriation of earnings ····
Other increase ·······························
Other decrease ·······························
Disposal (purchase) of treasury stock ···
Change in unrealized gains on availablefor-sale securities, net of taxes ········
Change in foreign currency
translation adjustments ················
Increase in minority interests ···········
Net income for the year ended March 31, 2006 ····
bonuses as appropriation of earnings ···
Other decrease ·······························
translation adjustments ··············
Net income for the year ended March 31, 2007···
Cash dividends from retained earnings ···
Other decrease ·······························
Change in scope of consolidation······
Change in fair market value of
derivatives ································
Issuance of stock acquisition rights ····
Millions of yen
Common
stock
Capital
surplus
Retained
earnings
Deferred
losses
on hedges
Foreign currency
translation
adjustments
Stock
acquisition
rights
Minority
interests in
consolidated
subsidiaries
424,562
—
¥64,507
—
¥70,258
—
¥260,493
(8,856)
¥(14,476)
—
¥ 7,208
—
—
—
¥(13,440)
—
—
—
¥10,786
—
—
—
—
(9,113)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(144)
21
(54)
(5)
—
—
—
42
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
795
—
—
—
—
—
—
424,562
—
—
—
64,507
—
—
—
70,258
—
—
—
242,342
14,436
—
—
(14,434)
—
—
—
8,003
—
—
—
—
—
1,768
—
(11,672)
—
—
—
—
—
—
167
10,953
—
—
—
—
(11,571)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(15)
(417)
(7)
—
—
(2,725)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
10,276
—
—
—
—
—
—
424,562
—
—
—
64,507
—
—
—
70,258
—
—
—
244,768
25,293
—
—
(17,159)
—
—
—
18,279
—
—
—
—
—
4,918
—
(6,754)
—
—
—
—
—
—
2,761
13,714
—
—
—
—
(6,186)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
36
—
(133)
(6,601)
(174)
—
(1,557)
—
—
—
263
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(4,535)
—
—
—
—
—
—
—
—
—
—
(233)
—
—
—
—
—
—
424,562
—
—
—
¥64,507
—
—
—
¥70,294
—
—
—
¥255,410
—
—
—
¥(16,896)
—
—
—
¥13,744
—
8,315
—
—
—
—
¥(233) ¥ 1,561
—
52
—
¥52
—
—
1,644
¥15,358
Thousands
Number
of shares
of common
stock
Net income for the year ended March 31, 2007···
Cash dividends from retained earnings ···
Other decrease ·······························
Change in scope of consolidation ·········
Change in fair market value of
derivatives ································
Issuance of stock acquisition rights ····
Unrealized gains
Treasury stock, (losses) on availablefor-sale securities,
at cost
net of taxes
Thousands of U.S. dollars (Note 1.(1))
Common
stock
Capital
surplus
Retained
earnings
Unrealized gains
Treasury stock, (losses) on availableat cost
for-sale securities,
net of taxes
424,562
—
$546,253
—
$594,953 $2,072,724 $(145,304) $154,789
—
214,184
—
—
—
—
—
(52,384)
—
—
—
—
—
—
—
—
—
—
—
—
—
—
305
—
(1,126)
(55,898)
(1,473)
—
(13,185)
—
—
—
—
—
—
—
—
—
424,562
—
—
—
$546,253
Deferred
losses
on hedges
Foreign currency
translation
adjustments
Stock
acquisition
rights
Minority
interests in
consolidated
subsidiaries
—
—
$(57,194)
—
—
—
$116,132
—
—
—
—
—
—
—
—
—
2,226
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
(38,403)
—
—
—
—
—
—
—
(1,973)
—
—
—
—
70,413
—
—
—
—
$(1,973) $ 13,219
—
440
—
$440
—
—
13,921
$130,053
—
—
—
—
—
—
—
—
—
—
—
—
$595,258 $2,162,842 $(143,078) $116,386
CONSOLIDATED STATEMENTS OF CASH FLOWS
Thousands of
U.S. dollars (Note 1.(1))
Millions of yen
2005
Cash Flows from Operating Activities:
Income (loss) before income taxes ·········································
Depreciation ·······································································
Amortization of goodwill ·······················································
Impairment loss ··································································
Increase (decrease) in liabilities for additional retirement benefits ····
Restructuring expenses························································
(Increase) decrease in prepaid pension expenses ·····················
Increase (decrease) in allowance for doubtful accounts··············
Increase (decrease) in reserve for sales returns ························
Increase in accrued bonuses for directors and corporate auditors ····
Decrease in provision for liabilities and charges ························
Increase (decrease) in accrued retirement benefits ···················
Decrease in accrued retirement benefits to directors and corporate auditors ···
Interest and dividend income ················································
Interest expense ·································································
Equity in earnings of affiliates ················································
Gain on sale of securities ······················································
Write-down of investments in securities and other investments ····
Gain on sale of property, plant and equipment, net ···················
Decrease in notes and accounts receivable ·····························
(Increase) decrease in inventories ··········································
Increase (decrease) in notes and accounts payable ···················
Payment for prior portion of defined contribution pension ··········
Other ················································································
Subtotal ·········································································
Interest and dividends received ·············································
Interest paid ·······································································
Income tax paid ··································································
Net cash provided by operating activities ·····························
Cash Flows from Investing Activities:
Transfers to time deposits ····················································
Proceeds from maturity of time deposits·································
Acquisition of short-term investments in securities ···················
Proceeds from sales of short-term investments in securities ······
Acquisition of investments in securities ··································
Proceeds from sale of investments in securities ·······················
Acquisition of property, plant and equipment ···························
Proceeds from sale of property, plant and equipment ················
Acquisition of intangible assets··············································
Payments of long-term prepaid expenses ································
Proceeds from sale of shares of consolidated subsidiary
due to change in scope of consolidation (Note 3) ·····················
Proceeds from sale of investments in affiliates
due to change in scope of consolidation·································
Acquisition of shares of consolidated subsidiaries ·····················
Other ················································································
Net cash used in investing activities ···································
Cash Flows from Financing Activities:
Net increase (decrease) in short-term debt ······························
Proceeds from long-term debt ···············································
Repayment of long-term debt ················································
Proceeds from sale (acquisition) of treasury stock·····················
Cash dividends paid ·····························································
Cash dividends paid to minority shareholders ···························
Other ·······················································································
Net cash provided by (used in) financing activities ··················
Effect of Exchange Rate Changes on Cash and Cash Equivalents ···
Net Change in Cash and Cash Equivalents··································
Cash and Cash Equivalents at Beginning of Year (Note 3) ··········
Increase (Decrease) in Cash and Cash Equivalents due to
the Consolidation (Deconsolidation) of Subsidiaries ··················
Cash and Cash Equivalents at End of Year (Note 3) ·····················
¥
2006
2007
(736)
26,523
779
—
44,015
1,767
(31,768)
134
(99)
—
(198)
(5,908)
(255)
(1,892)
2,371
(22)
(552)
226
(1,412)
7,441
(509)
11,073
—
10,430
61,408
2,133
(2,372)
(8,735)
52,434
¥ 29,538
26,415
731
12,404
(43,879)
2,238
1,118
(206)
587
—
(123)
1,166
(309)
(1,880)
2,452
(61)
(519)
—
(1,807)
2,223
(4,319)
663
(6,176)
7,751
28,007
1,873
(2,540)
(5,528)
21,812
¥ 47,766
27,876
741
4,598
—
1,102
(2,018)
(501)
3,734
122
(31)
2,506
(213)
(2,176)
2,395
(58)
(143)
—
(734)
1,542
216
(3,756)
(2,362)
2,901
83,507
2,151
(2,269)
(13,958)
69,431
$ 404,488
236,057
6,275
38,936
—
9,332
(17,089)
(4,242)
31,620
1,033
(262)
21,221
(1,804)
(18,427)
20,281
(491)
(1,211)
—
(6,215)
13,058
1,829
(31,806)
(20,002)
24,566
707,147
18,215
(19,214)
(118,198)
587,950
(2,610)
1,158
(1,674)
2,087
(59,589)
58,406
(19,638)
5,752
(4,335)
(6,061)
(1,468)
3,912
(383)
3,052
(4,767)
11,183
(20,096)
4,159
(2,504)
(4,871)
(4,519)
1,668
(1,354)
370
(1,725)
9,842
(20,558)
4,161
(2,878)
(5,122)
(38,267)
14,125
(11,466)
3,133
(14,607)
83,343
(174,088)
35,236
(24,371)
(43,374)
—
—
195
(11)
1,420
(24,900)
—
(1,690)
833
(12,640)
—
—
1,500
(18,483)
—
—
12,702
(156,516)
(1,068)
61,158
(31,774)
36
(9,103)
(1,828)
—
17,421
1,291
46,246
59,364
(10,049)
8,612
(12,890)
(2,731)
(11,560)
(1,208)
(133)
(29,959)
1,768
(19,019)
108,281
854
25,927
(10,977)
298
(12,794)
(1,672)
201
1,837
1,930
54,715
89,015
7,232
219,553
(92,955)
2,524
(108,341)
(14,159)
1,702
15,556
16,343
463,333
753,790
132
2007
1,118
2,671
(247)
1,530
12,956
¥108,281
¥89,015
¥145,260
$1,230,079
Notes to the Consolidated Financial Statements
1. BASIS OF PRESENTING CONSOLIDATED FINANCIAL STATEMENTS
Accounting Principles and Presentation
The financial statements of Shiseido Company, Limited (the “Company”) and its domestic consolidated subsidiaries have been prepared in accordance with the provisions set forth in the Japanese Securities and Exchange Law
and Corporate Law and in conformity with accounting principles generally accepted in Japan. The financial statements
of the Company’s overseas subsidiaries have been prepared in conformity with generally accepted accounting principles prevailing in the respective countries of domicile. The accompanying consolidated financial statements
have been prepared from the accounts maintained by the Company and its consolidated subsidiaries in conformity
with accounting principles generally accepted in Japan, which are different from International Financial Reporting
Standards in certain respects as to the application and disclosure requirements.
Certain items presented in the consolidated financial statements filed with the Director of the Kanto Finance
Bureau in Japan have been reclassified for the convenience of the reader.
Certain reclassifications have been made in the consolidated financial statements for the years ended March 31,
2005 and 2006 to conform to presentation for the year ended March 31, 2007.
Amounts in U.S. dollars are included solely for the convenience of the reader. The rate of ¥118.09 = US$1 prevailing on March 31, 2007 has been used in translating the consolidated financial statements expressed in Japanese
yen into U.S. dollars. Such translations should not be construed as representations that the Japanese yen
amounts could be readily converted, realized or settled in U.S. dollars at this rate.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(1) Scope of Consolidation
The Company has 100 subsidiaries (companies over which the Company exercises control over operations) as
of March 31, 2007 (101 and 97 as of March 31, 2005 and 2006, respectively). The accompanying consolidated
financial statements as of March 31, 2007 include the accounts of the Company and its 92 (97 and 93 as of March
31, 2005 and 2006, respectively) significant subsidiaries (the “Companies”).
The Company has 28 affiliates (companies that are not subsidiaries and over which the Company exercises significant influence) as of March 31, 2007 (5 and 5 as of March 31, 2005 and 2006, respectively). Investments in
5 affiliates (3 and 5 as of March 31, 2005 and 2006, respectively) are accounted for by the equity method as of
March 31, 2007.
Since the Company adopted the Practical Solution on Application of Control Criteria and Influence Criteria to
Investment Associations (Accounting Standards Board of Japan, PITF No. 20, September 8, 2006), Selan
Anonymous Association and 3 fund investment partnerships have been included in the scope of consolidation
from the year ended March 31, 2007.
Shiseido Dah Chong Hong Cosmetics (Guangdong) Ltd., which was established and commenced operations
in the year ended March 31, 2007, is included in the scope of consolidation during the period.
Mieux Products Co., Ltd. was excluded from the scope of consolidation in the year ended March 31, 2007, following the divestment of shares in this company.
Five other companies have also been excluded from the scope of consolidation. Of those, 2 companies, Beijing
Huazhiyou Cosmetics Sales Center and Shiseido Investment Co., Ltd., are in the process of being liquidated and
3 fund investment partnerships have been dissolved.
The major consolidated subsidiaries are listed below:
Equity ownership percentage,
including indirect ownership
Shiseido Sales Co., Ltd ·································································
Shiseido FITIT Co., Ltd. ································································
FT Shiseido Co., Ltd. ····································································
100.0%
100.0
100.0
Shiseido International Corporation ·················································
100.0
Common stock
(Millions of yen)
¥100
¥ 10
¥100
(Thousands of U.S. dollars)
$403,070
(Thousands of euro)
Shiseido International Europe S.A. ················································
Beauté Prestige International S.A. ·················································
100.0
100.0
Shiseido China Co., Ltd. ·······························································
Shiseido Liyuan Cosmetics Co., Ltd. ·············································
100.0
65.0
Taiwan Shiseido Co., Ltd. ·····························································
51.0
247,473
17,760
(Thousands of yuan)
CNY 353,007
CNY 94,300
(Thousands of NT dollars)
NTD 1,154,588
Since the fiscal year-end for certain consolidated subsidiaries is December 31, their financial statements
as of that date are used in the preparation of the Company’s consolidated financial statements. When significant transactions occur at those subsidiaries between their fiscal year end and the Company’s fiscal year
end, these transactions are included in consolidation as necessary.
Investments in 8 unconsolidated subsidiaries and 23 affiliates not accounted for under the equity method
are stated at cost as they are immaterial to the consolidated financial statements.
The Company has adopted the “full fair value method” so that the full portion of the assets and liabilities
of the subsidiaries are marked to fair value as of the date of acquisition of control.
All significant intercompany balances and transactions have been eliminated in consolidation. All material
unrealized profits included in assets resulting from transactions with the Companies are eliminated.
(2) Inventories
Inventories held by the Company are valued at cost, determined by the average method.
Inventories held by the consolidated subsidiaries are valued at cost, determined principally by the last purchase
price method.
(3) Property, Plant and Equipment
Buildings (excluding leasehold improvements) are depreciated using the straight-line method. Other tangible
fixed assets are, in principle, depreciated using the declining-balance method at the Company and its
domestic consolidated subsidiaries and the straight-line method at overseas consolidated subsidiaries.
Major fixed assets in Japan are depreciated over specific useful lives based on durability, level of deterioration,
and special characteristics (20-30% reduction from legal useful lives).
(4) Intangible Assets
Intangible assets are, in principle, amortized using the straight-line method over the following time periods.
Trademark rights: 10 years, in principle
Software: 5 years, in principle
(5) Goodwill
Amortization of goodwill and negative goodwill is evaluated on an individual basis and amortized within a reasonable
period not exceeding 20 years.
Goodwill that is on the balance sheet of certain overseas consolidated subsidiaries is not amortized, but
instead is tested for impairment at least annually or more frequently if certain indicators arise, and the relevant
amount is accounted for at that time, pursuant to U.S. generally accepted accounting principles and other principles.
(6) Valuation of Securities
The Company and its domestic consolidated subsidiaries categorize their existing securities as available-for-sale
securities. These securities with market prices are carried at fair values prevailing at the balance sheet date, with
net unrealized gains and losses, net of related taxes, reported separately in net assets. The cost of securities sold
is mainly calculated using the moving average method. If fair value is not available, securities are carried at cost,
which is determined mainly by the moving average method. Investments in business limited partnerships are
recorded at the amount of interest in such partnerships calculated based on ownership percentage.
Investment gain or loss is included in net income or loss in proportion to the ownership interests in the net asset
value of the partnership.
Securities with remaining maturities of one year or less and securities that are recognized as cash equivalents
are classified as short-term investments in securities and non-current securities are included in investments in
securities.
(7) Accounting for Leases
Finance leases of the Company and its domestic consolidated subsidiaries, other than those deemed to
transfer the ownership of the leased assets to lessees, are accounted for as operating lease transactions. Those
of overseas consolidated subsidiaries are principally capitalized.
(8) Net Income and Cash Dividends per Share
Net income per share of common stock is based on the weighted average number of shares of common stock
outstanding during each year. The computation of diluted net income per common stock reflects the maximum
possible dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock.
Cash dividends per share shown for each year in the consolidated statements of operations represent dividends declared as applicable to the respective year, rather than those paid in each year.
(9) Accounting for Consumption Tax
In Japan, consumption tax is imposed at a flat rate on all domestic consumption of goods, assets and services
(with certain exemptions). The consumption tax withheld upon sales is recorded as a liability. Consumption tax,
which is paid by the Company and its domestic consolidated subsidiaries on purchases of goods, assets and services, is offset against the balance withheld, and the net amount is subsequently paid to the national government.
Transactions subject to consumption taxes are recorded at amounts exclusive of consumption taxes.
(10) Allowance for Doubtful Accounts
The Company and its domestic consolidated subsidiaries provide the allowance for doubtful accounts based on
the percentage of actual bad debt losses against the balance of total receivables and the amount of uncollectible
receivables estimated on an individual basis. Overseas consolidated subsidiaries record the allowance
based primarily on the amount of uncollectible receivables estimated on an individual basis.
(11) Reserve for Sales Returns
The Companies provide reserve for sales returns for losses due to sales returns, at past return ratios calculated
based mainly on historical experience prior to the current year and an estimated amount for future losses.
Prior to the year ended March 31, 2007, the Companies provided the reserve for sales returns based on historical
results. As a result of accumulation of past data and improvements in analytical precision, effective in the year
ended March 31, 2007, the Company and its domestic consolidated subsidiaries adopted a new methodology to
more accurately estimate sales returns that considers the market distribution status and product resale status.
Accordingly, as a result of this change, operating income and income before income taxes decreased
¥3,636 million ($30,790 thousand), and net income decreased ¥2,145 million ($18,164 thousand).
(12) Accrued Bonuses for Employees
The Companies provide accrued bonuses for employees based on future projections for the current fiscal year.
This reserve includes bonuses for corporate officers who are non-Board members, and the calculations are the
same as those for the reserve for bonuses for directors and corporate auditors.
Previously, the Company included accrued bonuses for employees in other current liabilities. Due to the introduction of a performance-based bonus system, the accrued amount does not meet the defined requisite, and
therefore the Company recategorized this line item as accrued bonuses for employees from the year ended
March 31, 2007.
(13) Accrued Bonuses for Directors and Corporate Auditors
The Company and its domestic consolidated subsidiaries provide accrued bonuses for corporate officers
who are also directors on the Board based on the projected amount for the current fiscal year.
Effective from the year ended March 31, 2007, the Company and its domestic consolidated subsidiaries
applied Accounting Standard for Directors’ Bonuses (Accounting Standards Board of Japan, Statement No. 4,
November 29, 2005). As a result, in the year ended March 31, 2007, selling, general and administrative
expenses increased ¥122 million ($1,033 thousand). Operating income, income before income taxes, and net
income decreased by the same amount.
Previously, certain overseas consolidated subsidiaries included provision for liabilities and charges in other current liabilities. In order to clearly present its state, this item is presented separately on the balance sheet from
the year ended March 31, 2007.
(14) Provision for Liabilities and Charges
To provide for losses due to contingency expenses incurred in addressing legal risk, product guarantee risk, currency risk, tax risk, and other factors, certain overseas consolidated subsidiaries provide provision, the
amount of which is based on estimated losses that would be incurred considering the potential necessity of such
contingencies in the future.
Previously, certain overseas consolidated subsidiaries included provision for liabilities and charges in other current liabilities. In order to clearly present its state, this item is presented separately on the balance sheet from
the year ended March 31, 2007.
(15) Accrued Retirement Benefits
The Companies have an obligation to pay retirement benefits to its employees, and therefore the Company, its
domestic consolidated subsidiaries and certain overseas consolidated subsidiaries provide accrued retirement
benefits based on the estimated amount of projected benefits obligation and the fair value of plan assets.
Unrecognized prior service cost is amortized by the straight-line method over a 10-year period, which is shorter than the average remaining years of service of the eligible employees. Unrecognized net actuarial gain or loss
is primarily amortized immediately from the following year on a straight-line method over a 10-year period, which
is shorter than the average remaining years of service of the eligible employees.
The reserve includes an accrual for corporate officers’ retirement benefits, which is subject to the same
standards as those used for accrued retirement benefits for directors and corporate auditors.
(16) Accrued Retirement Benefits for Directors and Corporate Auditors
In the year ended March 31, 2004, the Board of Directors of the Company resolved to abolish the unfunded retirement benefit plans for directors, corporate auditors and corporate officers, effective on the date of the Ordinary
General Meeting of Shareholders for the year ended March 31, 2004. The Company provided the amount equivalent
to the unfunded lump-sum payments for their duties up to March 31, 2004 as accrued retirement benefits for directors and corporate auditors, as determined by the Board of Directors.
(17) Allowance for Loss on Guarantees
The Company provides an allowance for estimated potential losses on guarantees based on the financial status of the identified parties.
(18) Foreign Currency Translation
Receivables and payables denominated in foreign currencies are translated at the exchange rate prevailing on
the respective balance sheet dates, and resulting exchange gains or losses are included in net income or loss
for the period.
Investments in unconsolidated subsidiaries and affiliates denominated in foreign currencies are translated at
the historical exchange rates prevailing at the time of the transaction.
(19) Derivatives and Hedging Activities
The Companies use foreign currency exchange agreements, currency swap agreements and interest rate swap agreements to avoid or reduce market risk and to obtain stabilized profit. The Companies limit their use of such transactions
to the amounts of foreign currency denominated receivables and payables and the scope of actual requirement, and
do not use derivatives for speculative trading. The Company’s basic policies regarding derivatives are determined by
the Board of Directors, and contracts are entered into and controlled by the Financial Department. Transactions involving derivative contracts are exposed to market risk, but they are limited to highly rated banking institutions and the
Companies consider there are no material credit risks associated with them.
Derivatives are carried at fair value with gains or losses recognized in the consolidated statements of
operations. For derivatives used for hedging purposes, gains or losses on derivatives are deferred until
maturity of the hedged transactions. The Company’s policy is to evaluate on a semiannual basis the effectiveness
of derivatives based on the difference between either the accumulated amount of cash flows from the
hedging instrument and from the corresponding hedged item or variance between the market value of the hedging instrument and the hedged item.
(20) Foreign Currency Financial Statements
The financial statements of overseas consolidated subsidiaries and affiliates are translated into yen at the exchange
rate prevailing at the respective balance sheet dates of those subsidiaries for assets and liabilities, and at the historical exchange rate for shareholders’ equity. All income and expense accounts are translated at the average rate
of exchange during the fiscal year of those subsidiaries and affiliates.
The resulting translation adjustments are allocated proportionately in net assets as foreign currency translation
adjustments and minority interests in consolidated subsidiaries.
(21) Definition of “Cash and Cash Equivalents” in Statements of Cash Flows
Cash and cash equivalents as shown in the consolidated statements of cash flows are composed of cash in
hand, readily available time deposits, and short-term investments with maturities of 3 months or less when purchased that are exposed to insignificant risk of change in value.
(22) Accounting Standard for Impairment of Fixed Assets
On August 9, 2002, the Business Accounting Council in Japan issued Accounting Standard for Impairment of Fixed
Assets. The standard requires that fixed assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An impairment loss is recognized in the consolidated statement of operations by reducing the carrying amount of impaired assets or a group
of assets to the recoverable amount to be measured as the higher of net selling price and value in use.
The Company and its domestic consolidated subsidiaries applied the standard effective for the year beginning
April 1, 2005. As a result, cost of sales decreased by ¥124 million, gross profit increased by ¥124 million, selling, general and administrative expenses increased by ¥261 million, operating income decreased by ¥137 million and income before income taxes decreased by ¥6,223 million in the year ended March 31, 2006, as compared with the amount which would have been reported if the previous standards had been applied consistently.
(23) Accounting Standard for Presentation of Net Assets in the Balance Sheet
Effective from the year ended March 31, 2007, the Company applied Accounting Standard for Presentation of
Net Assets in the Balance Sheet (Accounting Standards Board of Japan, Statement No. 5, December 9,
2005) and Implementation Guidance on Accounting Standard for Presentation of Net Assets in the Balance Sheet
(Accounting Standards Board of Japan, Guidance No. 8, December 9, 2005).
The amount corresponding to conventional total shareholders’ equity is ¥388,620 million ($3,290,880 thousand).
(24) Accounting Standards for Business Combinations
Effective from the year ended March 31, 2007, the Company and its domestic consolidated companies
applied Accounting Standard for Business Combinations (Business Accounting Council, October 31, 2003) and
Accounting Standard for Business Divestitures (Accounting Standards Board of Japan, Statement No. 7,
December 27, 2005) and Guidance on Accounting Standard for Business Combinations and Accounting
Standard for Business Divestitures (Accounting Standards Board of Japan, Guidance No. 10, final revision on
December 22, 2006).
(25) Accounting Standards for Stock Options
Effective from the year ended March 31, 2007, the Company applied Accounting Standard for Share-Based
Payment (Accounting Standards Board of Japan, Statement No. 8, December 27, 2005) and Implementation
Guidance on Accounting Standard for Share-Based Payment (Accounting Standards Board of Japan, Guidance No.
11, final revision on May 31, 2006). As a result, in the year ended March 31, 2007, selling, general and
administrative expenses increased ¥52 million ($440 thousand), operating income and income before income taxes
decreased by the same amount and net income decreased by ¥45 million ($381 thousand).
(26) Revision to Accounting Standard for Treasury Stock and Reduction of Legal Reserves
Effective from the year ended March 31, 2007, the Company applied the revised Accounting Standard for Treasury
Stock and Reduction of Legal Reserves (Accounting Standards Board of Japan, Statement No. 1, final revision on
August 11, 2006) and Implementation Guidance on Accounting Standard for Treasury Stock and Reduction of Legal
Reserves (Accounting Standards Board of Japan, Guidance No. 2, final revision on August 11, 2006). The
change had no impact on the consolidated statements of operations for the year ended March 31, 2007.
(27) Application of Control Criteria and Influence Criteria to Investment Associations
Effective from the year ended March 31, 2007, the Company applied Practical Solution on Application of
Control Criteria and Influence Criteria to Investment Associations (Accounting Standards Board of Japan, PITF No.
20, September 8, 2006). As a result, in the year ended March 31, 2007, operating income increased ¥1,376 million ($11,652 thousand), while income before income taxes decreased ¥507 million ($4,293 thousand), and net
income decreased ¥337 million ($2,854 thousand).
(28) Changes in Classification of Costs and Expenses
In the year ended March 31, 2006, the Company introduced a new consolidated operations management framework. This entailed setting up a Group-standard account item system, from the perspective of combining the
institutional accounting and management accounting frameworks. The Company also reassessed its
method for calculating business earnings, with the aim of gaining a more accurate grasp of its financial performance. To obtain a clearer insight into cost of sales vis-à-vis net sales, the Company reassessed the
nature of certain items, such as distribution costs and research and development expenses, which previously had been included within cost of sales. As from the year ended March 31, 2006, those items are now included within selling, general and administrative expenses. With a view to providing a more accurate report of the
Company’s operating income, amortization of goodwill and trademark rights, previously included within
other expenses, is now included within selling, general and administrative expenses, because acquisitions of
goodwill and trademark rights are expected to benefit the Company’s operating earnings.
As a result of this change, cost of sales, gross profit, selling, general and administrative expenses, operating income and other income (expenses) for the years up to March 31, 2005 have been retrospectively
restated to reflect the changes.
3. CASH FLOW INFORMATION
The reconciliation of cash and time deposits shown in the consolidated balance sheets and cash and cash equivalents shown in the consolidated statements of cash flows as of March 31, 2006 and 2007 is as follows.
Thousands of
Millions of yen
2006
Cash and time deposits ···························································
Short-term investments in securities ········································
Total ···········································································
Time deposits with maturities exceeding 3 months ···················
Equity securities and debt securities with maturities exceeding 3 months ····
Cash and cash equivalents ·······················································
2007
¥53,511
36,945
¥90,456
(1,094)
(347)
¥89,015
¥ 82,453
68,544
¥150,997
(4,121)
(1,616)
¥145,260
2007
$ 698,222
580,438
$1,278,660
(34,897)
(13,684)
$1,230,079
The information of assets and liabilities of Mieux Products Co., Ltd., which was sold during the year ended
March 31, 2007, and the relationship between the proceeds from sale of shares of this company and net cash proceeds
from sale of shares of this company is as follows.
Millions of yen
Current assets ·····························································································
Non–current assets ······················································································
Current liabilities ··························································································
Non–current liabilities ··························································································
Minority interests in consolidated subsidiaries ······················································
Loss on sale of shares of Mieux Products Co., Ltd. ···········································
Proceeds from sale of shares of Mieux Products Co., Ltd. ··································
Cash and cash equivalents of Mieux Products Co., Ltd. ······································
Net cash proceeds from sale of shares of Mieux Products Co., Ltd. ·····················
¥1,707
904
(790)
(236)
(555)
(20)
¥1,010
(878)
¥ 132
Thousands of
$14,455
7,655
(6,690)
(1,998)
(4,700)
(169)
$ 8,553
(7,435)
$ 1,118
4. SECURITIES
The acquisition cost, carrying amount, gross unrealized holding gains and gross unrealized holding losses for
securities with fair value by security type at March 31, 2006 and 2007, are as follows.
Available-for-sale securities:
Millions of yen
2006
Cost
Equity securities ··········································
Corporate bonds ··········································
Other ··························································
....................................................................
¥10,996
3,035
6,440
¥20,471
Carrying amount
Gross unrealized gains
¥41,230
2,977
6,731
¥50,938
¥30,238
4
513
¥30,755
Gross unrealized losses
¥
4
62
222
¥288
Millions of yen
2007
Cost
Corporate bonds ··········································
Other ··························································
····································································
¥11,077
8,532
1,100
¥20,709
Carrying amount
¥34,127
8,509
1,285
¥43,921
¥23,072
4
185
¥23,261
¥22
27
—
¥49
Thousands of U.S. dollars (Note 1.(1))
2007
Cost
Corporate bonds ··········································
Other ··························································
····································································
$ 93,801
72,250
9,315
$175,366
Carrying amount
$288,991
72,055
10,882
$371,928
$195,376
34
1,567
$196,977
$186
229
—
$415
The carrying amount of securities without fair value by security type as of March 31, 2006 and 2007 is summarized as follows.
Available-for-sale securities:
Carrying amount
Thousands of
Millions of yen
2006
Unlisted equity securities·························································
2007
¥17,188
¥17,822
2007
$150,918
Unlisted bonds ········································································
3
3,669
31,070
Other ·····················································································
......................................................................................................
56,590
¥73,781
65,305
¥86,796
553,010
$734,998
Proceeds from sales, gross realized gains and gross realized losses from the sale of available-for-sale securities
in the years ended March 31, 2005, 2006 and 2007 are as follows.
Carrying amount
Thousands of
Millions of yen
2005
Proceeds from sales ·······························
Gross realized gains ································
Gross realized losses ·······························
¥59,941
552
—
2006
¥13,715
519
—
2007
¥10,069
310
167
2007
$85,265
2,625
1,414
The carrying value of debt securities by contractual maturities for securities classified as available-for-sale as of
March 31, 2007 is as follows.
Millions of yen
Due in 1 year or less·····················································································
Due after 1 year through 5 years ····································································
Due after 5 years through 10 years ·································································
Due after 10 years ······························································································
¥11,417
2,372
309
3,000
¥17,098
Thousands of
$ 96,681
20,086
2,617
25,404
$144,788
5. INVENTORIES
Inventories held by the Companies as of March 31, 2006 and 2007 are as follows.
Thousands of
Millions of yen
2006
2007
2007
Merchandise and products·······················································
¥48,580
¥ 48,346
$409,400
Raw materials ·········································································
12,998
14,218
120,400
Work in process ······································································
3,979
3,991
33,796
Supplies ···········································································
6,787
7,336
62,122
¥72,344
¥73,891
$625,718
6. SHORT-TERM AND LONG-TERM DEBT
Short-term debt mainly consisting of bank borrowings as of March 31, 2006 and 2007 is ¥3,323 million and
¥4,456 million ($37,734 thousand), respectively. The weighted average interest rate on short-term debt outstanding at March 31, 2006 and 2007 are 4.21% and 5.31%, respectively.
Long-term debt as of March 31, 2006 and 2007 is as follows.
Thousands of
Millions of yen
2006
Long-term borrowings from banks and other financial institutions ········
0.40% unsecured yen bonds due in May 2007 ··························
1.12% unsecured yen bonds due in March 2010 ·······················
Medium-Term Notes due 2007–2008* ·····································
........................................................................................
Less: portion due within one year·············································
........................................................................................
2007
¥ 7,062
50,000
—
21,893
¥78,955
(9,463)
¥69,492
¥ 38,367
50,000
20,000
15,015
¥123,382
(61,688)
¥ 61,694
2007
$ 324,896
423,406
169,362
127,149
$1,044,813
(522,381)
$ 522,432
*** These notes have been issued by Shiseido International Corporation and Shiseido International Europe S.A. The interest rates as of March
31, 2007 ranged from 0.70% to 4.05%.
The aggregate annual maturities of long-term debt as of March 31, 2007 are as follows.
For the Years Ending March 31
Millions of yen
2008 ········································································································
2009 ········································································································
2010 ········································································································
2011 ········································································································
2012 ········································································································
2013 and thereafter ······························································································
¥ 61,688
36,569
21,451
684
2,649
341
¥123,382
Thousands of
$ 522,381
309,670
181,650
5,792
22,432
2,888
$1,044,813
Assets pledged as collateral as of March 31, 2007 are as follows.
Millions of yen
2007
Buildings and structures····························································································
Guarantee money paid ························································································
Investments in securities·····················································································
Cash and time deposits ·······················································································
······················································································································
¥20,117
15,200
1,512
1,432
¥38,261
Thousands of
2007
$170,353
128,716
12,804
12,126
$323,999
The above assets are pledged as collateral for derivative transactions (interest rate swaps) and following liabilities.
Collateralized liabilities as of March 31, 2007 are as follows.
Millions of yen
2007
Current portion of long-term debt ·············································································
Long-term debt ···································································································
¥ 1,000
27,100
¥28,100
Thousands of
2007
$ 8,468
229,486
$237,954
7. ACCRUED RETIREMENT BENEFITS
The Company and its domestic consolidated subsidiaries have contributory funded pension plans and unfunded termination allowance plans as part of their defined benefit plans. In September 2004, the Company shifted part of its
pension plan to a termination allowance plan. In October 2004, the Company discontinued part of its defined benefit plan and shifted to a defined contribution plan and a prepaid termination allowance plan. In some cases, extra
retirement benefits are paid when an employee retires. These are accounted for as retirement benefits expenses
when incurred.
Certain overseas consolidated subsidiaries also have defined benefit pension plans, termination allowance
plans and defined contribution plans.
The reconciliation of projected benefit obligations, plan assets, funded status of the pension benefit plans, prepaid
pension expense and accrued retirement benefits recognized in the accompanying balance sheets as of March 31,
2006 and 2007 is as follows.
Thousands of
Millions of yen
2006
2007
2007
¥(186,389)
183,218
(3,171)
1,182
¥(190,449)
190,405
(44)
1,083
$(1,612,745)
1,612,372
(373)
9,171
Unrecognized prior service cost ··············································
Additional minimum liability* ··················································
Net retirement benefit obligation
10,235
(12,322)
(1,491)
¥ (5,567)
¥
5,010
(9,157)
(1,482)
(4,590)
42,426
(77,542)
(12,550)
(38,868)
Prepaid pension expense ·······················································
Accrued retirement benefits ···················································
30,637
¥ (36,204)
32,630
¥ (37,220)
Projected benefit obligations···················································
Fair value of plan assets ·························································
Funded status of the pension benefit plans ·····························
Unamortized net obligation at transition* ·································
Unrecognized net actuarial loss ···············································
$
276,315
$ (315,183)
The net periodic pension benefit cost for the years ended March 31, 2005, 2006 and 2007 are as follows.
Thousands of
Millions of yen
2005
Service cost ················································
Interest cost················································
Expected return on plan assets ····················
Amortization of net obligation at transition* ············
Amortization of net actuarial loss ·······················
Amortization of prior service cost ·················
Net periodic pension benefit cost ·················
Gain on changes in retirement benefit plans ·····
Total ···························································
¥ 8,970
4,729
(5,673)
91
5,294
(2,266)
¥11,145
(2,567)
¥ 8,578
2006
2007
¥ 7,606
4,304
(5,983)
108
5,367
(2,124)
¥ 9,278
—
¥ 9,278
¥ 7,876
4,546
(7,328)
113
3,069
(2,125)
¥ 6,151
—
¥ 6,151
2007
$ 66,695
38,496
(62,055)
957
25,989
(17,995)
$ 52,087
—
$ 52,087
*** This figure pertains to a Taiwanese subsidiary, according to the Taiwanese retirement allowance accounting system.
The discount rate used to determine the actuarial present value of projected benefit obligations as of March 31,
2006 and 2007 under the plan that covers employees of the Company and certain domestic subsidiaries is
2.5%. The rate of expected return on plan assets as of March 31, 2006 and 2007 is 4.0%. Attribution of pension benefits to each year of service of the employees is based on the “benefits/years-of-service” approach, whereby the
same amount of the benefits is attributed to each year.
The Company implemented a special early retirement incentive plan, which aimed to support and expand
options to employees in advanced age groups to suit their individual life plans. Eligible applicants were fulltime employees working for the Company and its domestic subsidiaries who were between 50 and 59 years of age, and have
served more than 15 years. 1,364 employees retired as of March 31, 2005 and additional retirement benefits of
¥30,987 million were recognized for the year ended March 31, 2005.
In addition, certain overseas consolidated subsidiaries record accrued retirement benefits, according to the accounting standards of their respective countries. The total amount of these accrued retirement benefits at March 31, 2007
is ¥1,423 million ($12,050 thousand).
8. INCOME TAXES
Income tax applicable to the Company and its domestic consolidated subsidiaries consist of corporation, inhabitants’
and enterprise taxes. The statutory income tax rate is 41.0% for the years ended March 31, 2005, 2006 and 2007.
The difference between the statutory income tax rate and the effective income tax rate for the year ended March
31, 2005 is as follows.
2005
Statutory income tax rate ·······································································································
Adjustments:
Entertainment expenses and others that are not deductible permanently ···································
Dividend income and others that are not taxable permanently ··················································
Temporary difference relating to consolidation adjustments ·····················································
Other factors ···················································································································
Effective income tax rate ···············································································································
41.0%
(173.0)
76.5
(762.0)
35.9
(781.6)%
The difference between the statutory income tax rate and the effective income tax rate as of March 31, 2006 and
2007 is less than 5% of the statutory income tax rate, and accordingly, the components of the differences arising
between these two rates are omitted.
Deferred tax assets and liabilities (both current and non-current) as of March 31, 2006 and 2007 are as follows.
Thousands of
Millions of yen
2006
2007
2007
Deferred tax assets:
Tax losses carried forward·····················································
Depreciation ········································································
Write-down of investments in securities and other investments ······
Valuation loss on inventories ·················································
Unrealized intercompany profit of inventory and fixed assets·····
Accrued bonuses for employees ············································
Accrued retirement benefits ··················································
Accrued expenses································································
Accrued enterprise tax ··························································
Accrued retirement benefits to directors and corporate auditors ······
Other ··················································································
Total gross deferred tax assets ··············································
¥13,989
10,958
8,085
6,758
6,071
4,836
3,204
2,888
834
115
7,444
65,182
¥ 9,845
10,731
8,981
6,465
8,944
4,613
1,129
4,980
812
32
7,713
64,245
$ 83,369
90,871
76,052
54,746
75,739
39,063
9,561
42,171
6,876
271
65,315
544,034
Less: valuation allowance······················································
Total deferred tax assets ·······················································
(7,911)
¥57,271
(10,931)
¥ 53,314
(92,565)
$451,469
Deferred tax liabilities:
Unrealized gains on available-for-sale securities ·······················
Special tax-purpose reserve···················································
Depreciation ········································································
Goodwill and other intangible assets ······································
Other ··················································································
Total deferred tax liabilities ····················································
Net deferred tax assets ························································
¥12,687
1,144
773
495
833
¥15,932
¥41,339
¥ 9,526
1,101
518
1,636
497
¥ 13,278
¥ 40,036
$ 80,667
9,323
4,386
13,854
4,209
$112,439
$339,030
9. CONTINGENT LIABILITIES
As of March 31, 2006, the Company was contingently liable as a guarantor for loans of employees from banks, which
amounted to ¥38 million. As of March 31, 2007, the Company has no contingent liabilities.
10. NET ASSETS
The Corporate Law (“the Law”) became effective on May 1, 2006, replacing the Commercial Code (“the Code”). Under
Japanese laws and regulations, the entire amount paid for new shares is required to be designated as common stock.
However, a company may, by a resolution of the Board of Directors, designate an amount not exceeding one half of
the price of the new shares as additional paid-in capital, which is included in capital surplus.
Under the Law, in cases where dividend distribution of surplus is made, the smaller of an amount equal to 10%
of the dividend or the excess, if any, of 25% of common stock over the total of additional paid-in capital and legal
earnings reserve, must be set aside as additional paid-in capital or legal earnings reserve. Legal earnings reserve is
included in retained earnings in the accompanying consolidated balance sheets. Under the Code, companies
were required to set aside an amount equal to at least 10% of cash dividends and other cash appropriations as legal
earnings reserve until the total of legal earnings reserve and additional paid-in capital equaled 25% of common stock.
Under the Code, legal earnings reserve and additional paid-in capital could be used to eliminate or reduce a
deficit by a resolution of the shareholders’ meeting or could be capitalized by a resolution of the Board of
Directors. Under the Law, both of these appropriations generally require a resolution of the shareholders’ meeting.
Additional paid-in capital and legal earnings reserve may not be distributed as dividends. Under the Code, however, additional paid-in capital and legal earnings reserve could be transferred to retained earnings by the resolution of
the shareholders’ meeting as long as the total amount of legal earnings reserve and additional paid-in capital remained
equal to or exceeded 25% of the common stock balance. Under the Law, all additional paid-in capital and legal earnings reserve may be transferred to other capital surplus and retained earnings, respectively, which are potentially available for dividends. The maximum amount that the Company can distribute as dividends is calculated based on the
non-consolidated financial statements of the Company in accordance with the Law. Under the Law, companies can
pay dividends at any time during the fiscal year in addition to the year-end dividend upon resolution at the shareholders’ meeting. For companies that meet certain criteria such as: (1) having a Board of Directors, (2) having accounting auditors, (3) having a Board of Corporate Auditors, (4) the term of service of the directors is prescribed as one
year rather than two years as the normal term by its articles of incorporation, and (5) the opinion of accounting auditors is unqualified, the Board of Directors may declare dividends if the company has prescribed so in its articles of
incorporation. Semiannual interim dividends may also be paid once a year upon resolution by the Board of
Directors if the articles of incorporation of the company so stipulate. Under the Code, certain limitations were imposed
on the amount of capital surplus and retained earnings available for dividends. Cash dividends charged to
retained earnings during the fiscal year were year-end cash dividends for the preceding fiscal year and interim cash
dividends for the current fiscal year.
The appropriations are not accrued in the consolidated financial statements for the corresponding period, but are
recorded in the subsequent accounting period after shareholders’ approval has been obtained.
Retained earnings at March 31, 2007 include amounts representing year-end cash dividends of ¥6,605 million
($55,932 thousand), ¥16.0 ($0.14 ) per share, which were approved at the shareholders’ meeting held on June 26,
2007.
11. STOCK OPTION PLAN
Summarized information on the stock options outstanding as of March 31, 2007 is as follows.
➀ Stock option plan approved by the shareholders on June 27, 2002
Stock options granted on
July 16, 2002
Number of shares for options granted
Number of shares for options outstanding
Exercise price
Option term
578,000 shares
306,000 shares
¥1,669
July 1, 2004 - June 26, 2012
Total
578,000 shares
306,000 shares
➁ Stock option plan approved by the shareholders on June 27, 2003
July 31, 2003
Exercise price
Option term
878,000 shares
384,000 shares
¥1,287
July 1, 2005 - June 26, 2013
Total
878,000 shares
384,000 shares
➂ Stock option plan approved by the shareholders on June 29, 2004
Number of shares for
options outstanding
Exercise price
Option term
July 26, 2004
November 30, 2004
March 9, 2005
Total
1,004,000 shares
16,000 shares
78,000 shares
1,098,000 shares
892,000 shares
¥1,427
July 1, 2006 - June 28, 2014
1,000 shares
34,000 shares
¥1,419
¥1,445
December 1, 2004 - November 30, 2007 April 1, 2005 - March 31, 2008
927,000 shares
➃ Stock option plan approved by the shareholders on June 29, 2005
Exercise price
Option term
October 27, 2005
11,000 shares
options outstanding
6,000 shares
Exercise price
¥1,865
Option term
November 1, 2005 - October 31, 2008
July 28, 2005
July 28, 2005
408,000 shares
408,000 shares
¥1
July 1, 2008 - June 30, 2011
261,000 shares
261,000 shares
¥1,481
July 1, 2007 - June 28, 2015
November 7, 2005
March 8, 2006
Total
1,851,000 shares
63,000 shares
2,594,000 shares
1,851,000 shares
¥1,896
July 1, 2007 - June 30, 2010
41,000 shares
¥2,012
April 1, 2006 - March 31, 2009
2,567,000 shares
➄ Stock option plan approved by the shareholders on June 29, 2006
August 23, 2006
Exercise price
Option term
August 23, 2006
12,000 shares
options outstanding
12,000 shares
Exercise price
¥1
Option term
July 1, 2008 - June 30, 2011
9,000 shares
9,000 shares
¥1
July 1, 2008 - June 30, 2011
August 23, 2006
August 23, 2006
Total
67,000 shares
74,000 shares
162,000 shares
67,000 shares
74,000 shares
¥2,300
¥2,300
August 1, 2008 - July 30, 2016 August 1, 2008 - July 30, 2016
162,000 shares
12. RESEARCH AND DEVELOPMENT
Research and development expenses, which are included in selling, general and administrative expenses, totaled ¥16,762
million, ¥16,452 million and ¥16,133 million ($136,616 thousand) for the years ended March 31, 2005, 2006 and
2007, respectively. There are no research and development expenses included in total manufacturing expenses for the
years ended March 31, 2005, 2006 and 2007.
13. TRANSACTIONS WITH RELATED PARTIES
The Company contributed ¥1 million ($8 thousand) to the Shiseido Social Welfare Foundation (the Foundation) the
year ended March 31, 2007. The Foundation performs social support specializing in child welfare and holds
1,000 thousand shares (0.23%) of the Company. Shinzo Maeda, President and CEO (Representative Director) of the
Company, is the Chairman of the Foundation. The Company approved the amount of contribution at the Board of
Directors meeting.
14. ACCOUNTING FOR LEASES
The Companies have various lease agreements whereby the Companies act both as a lessee and a lessor.
Information on such lease contracts of the Companies as a lessee and a lessor for the years ended March 31, 2005,
2006 and 2007, is as follows.
Thousands of
Millions of yen
2005
2006
2007
2007
¥ 5,091
9,429
¥ 14,520
¥ 4,166
8,107
¥ 12,273
¥ 2,788
4,161
¥ 6,949
$ 23,609
35,236
$ 58,845
—
—
¥ 4,849
¥ 4,849
—
—
—
¥ 5,371
¥ 5,371
—
¥
15
¥ 103
¥ 3,688
¥ 3,681
¥
7
$
127
$
872
$ 31,230
$ 31,171
$
59
¥ 29,020
(14,500)
—
¥ 14,520
¥ 27,187
(14,914)
—
¥ 12,273
¥15,155
(8,206)
(15)
¥ 6,934
$128,334
(69,489)
(127)
$ 58,718
➀ As a lessee:
The scheduled maturities of future
lease rental payments on such lease
contracts are as follows:
Due within one year ····························
Due after one year ······························
Balance of allowance for impairment
loss on leased assets····························
Liquidation of lease impairment loss ···········
Lease rental expenses for the year ·············
Assumed depreciation ······························
Impairment loss ······································
Leased machinery and equipment:
Assumed purchase cost ······················
Assumed accumulated depreciation ········
Assumed impairment loss ·····················
Assumed net book value ·····················
Assumed purchase cost and the scheduled maturities of future lease rental payment include the capitalized interest thereon, as the proportion of future lease rental payments to total property, plant and equipment is low.
Depreciation is based on the straight-line method over the lease term of the leased assets, assuming no residual value.
Thousands of
Millions of yen
2005
2006
2007
2007
¥ 1,644
4,018
¥ 5,662
¥ 1,619
2,939
¥ 4,558
¥ 1,324
2,046
¥ 3,370
$ 11,212
17,326
$ 28,538
Lease rental income for the year ················
Depreciation ············································
Assumed interest income ·························
¥ 1,846
¥ 1,596
¥ 312
¥ 1,930
¥ 1,757
¥ 345
¥ 1,999
¥ 1,740
¥ 203
$ 16,928
$ 14,735
$ 1,719
Leased machinery and equipment:
Purchase cost ·····································
Accumulated depreciation ···················
Net book value ·····································
¥ 9,425
(4,040)
¥ 5,385
¥ 9,442
(5,164)
¥ 4,278
¥ 8,784
(5,584)
¥ 3,200
$ 74,384
(47,286))
$ 27,098
➁ As a lessor:
lease rental receipts on
such lease contracts are as follows:
Due after one year ·······························
Lease obligations under operating leases at March 31, 2005, 2006 and 2007, are as follows. Assumed interest payments/income is based on the interest method.
Thousands of
Millions of yen
2005
2006
2007
2007
➀ As a lessee:
lease rental payments on
¥ 3,825
30,974
¥34,799
¥ 3,797
27,505
¥31,302
¥1,629
4,454
¥6,083
$13,795
37,717
$51,512
¥
177
221
¥
212
394
¥ 210
381
$ 1,778
3,227
¥
398
¥
606
¥ 591
$ 5,005
➁ As a lessor:
lease rental receipts on
15. DERIVATIVE FINANCIAL INSTRUMENTS
The contract amount (notional principal amount), estimated fair value and unrealized gain / loss of the outstanding
contracts as of March 31, 2006 and 2007 are as follows.
Millions of yen
2006
Contract amount
(notional principal amount)
Total
Currency swap contracts:
To receive Yen/to pay Euro ·······················
¥3,946
Settled over
one year
Estimated
fair value
¥1,176
¥(744)
Unrealized
gain (loss)
¥(744)
Millions of yen
2007
Contract amount
Total
To receive Yen/to pay Euro ······················
Interest swap contracts:
To Receive variable/to pay fixed ················
Settled over
one year
Estimated
fair value
Unrealized
gain (loss)
¥1,317
—
¥(334)
¥(334)
¥2,382
¥2,382
¥ (35)
¥ (35)
Thousands of U.S. dollars (Note 1. (1))
2007
Contract amount
Total
To receive Yen/to pay Euro ······················
Interest swap contracts:
To Receive variable/to pay fixed ················
Settled over
one year
Estimated
fair value
Unrealized
gain (loss)
$11,153
—
$(2,828)
$(2,828)
$20,171
$20,171
$ (296)
$ (296)
Derivatives that meet the criteria for hedges are excluded from the above table.
16. IMPAIRMENT LOSS
For impairment accounting purposes, the Companies pool their business-use assets separately from their idle assets.
Business-use assets are generally pooled according to the minimum independent cash-flow-generating unit,
based on business classification. Idle assets are pooled according to each separate property. As a result, businessuse assets due to be sold have been devalued from the book value to the recoverable value, with the differences
reported as other expenses. Idle assets whose market value has declined have been devalued from the book value
to the recoverable value, with the differences reported as other expenses. Recoverable values are calculated according to estimated net sale values, which are mainly based on real estate appraisal values.
Impairment loss on overseas assets mainly refers to decreasing profitability of long-lived assets of North
American subsidiaries.
Impairment loss for the years ended March 31, 2005, 2006 and 2007 is as follows.
Thousands of U.S.
dollars (Note 1. (1))
Millions of yen
2007
2007
214
2,597
¥1,389
699
$11,762
5,919
—
—
2,356
919
1,159
143
9,815
1,211
—
—
—
—
—
3,357
2,961
¥12,404
407
801
—
¥4,598
3,446
6,783
—
$38,936
2005
Domestic
Business-use assets:
Land ····················································
Building and structures, etc. ··················
Idle assets:
Land ····················································
Overseas
Goodwill ··············································
Trademark rights ··································
—
—
2006
¥
17. SEGMENT INFORMATION
(1) Business Segment Information*
The Companies operate principally in the following 3 business segments.
Business segment information is separately disclosed on the consolidated financial statements pursuant to regulations
in Japan.
Domestic Cosmetics: Cosmetics division
(Production and sale of cosmetics, cosmetic
accessories and toiletries)
Professional division (Production and sale of beauty salon products, etc.)
Healthcare division (Production and sale of health & beauty foods and
over-the-counter drugs)
Overseas Cosmetics: Cosmetics division (Production and sale of cosmetics, cosmetic
accessories and toiletries)
Professional division (Production and sale of beauty salon products, etc.)
Others:
Frontier Sciences division (Production and sale of medical-use drugs, etc.)
Others
(Sale of clothing and accessories; operation of
restaurants; real estate management/sale; etc.)
The business segment information of the Companies for the years ended March 31, 2005, 2006 and 2007, is as follows.
Millions of yen
2005
Net sales
Sales to outside customers ·········
Intersegment sales or transfer ·········
Total ··············································
Operating expenses** ····················
Operating income (loss) ··················
Total assets ···································
Depreciation ··································
Capital expenditure ·························
Domestic
Cosmetics
Overseas
Cosmetics
Others
¥445,306
5,456
¥450,762
425,248
¥ 25,514
¥285,358
¥ 15,103
¥ 17,996
¥174,507
359
¥174,866
174,186
¥
680
¥162,188
¥ 6,341
¥ 5,568
¥20,015
19,335
¥39,350
39,434
¥
(84)
¥56,623
¥ 5,919
¥ 5,034
Subtotal
¥639,828
25,150
¥664,978
638,868
¥ 26,110
¥504,169
¥ 27,363
¥ 28,598
Elimination/
corporate
—
(25,150)
¥ (25,150)
(25,569)
¥
419
¥196,926
¥
45
¥
33
Consolidation
¥639,828
—
¥639,828
613,299
¥ 26,529
¥701,095
¥ 27,408
¥ 28,631
Millions of yen
2006
Net sales
Sales to outside customers ···············
Total ··············································
Operating income ···························
Total assets ···································
Depreciation ··································
Impairment loss ·····························
Domestic
Cosmetics
Overseas
Cosmetics
Others
¥453,360
5,131
¥458,491
424,231
¥ 34,260
¥237,936
¥ 15,040
¥ 4,840
¥ 14,991
¥196,331
379
¥196,710
193,875
¥ 2,835
¥211,156
¥ 6,595
¥ 6,360
¥ 8,578
¥21,266
19,293
¥40,559
39,577
¥ 982
¥53,311
¥ 5,360
¥ 1,256
¥ 5,028
Subtotal
¥670,957
24,803
¥695,760
657,683
¥ 38,077
¥502,403
¥ 26,995
¥ 12,456
¥ 28,597
Elimination/
corporate
—
(24,803)
¥ (24,803)
(25,605)
¥
802
¥169,439
¥
(23)
¥
(52)
¥
29
Consolidation
¥670,957
—
¥670,957
632,078
¥ 38,879
¥671,842
¥ 26,972
¥ 12,404
¥ 28,626
Millions of yen
2007
Net sales
Total ··············································
Total assets ···································
Depreciation ··································
Impairment loss ·····························
Capital expenditure ···························
Domestic
Cosmetics
Overseas
Cosmetics
Others
¥447,557
6,232
¥453,789
416,919
¥ 36,870
¥243,310
¥ 14,362
¥ 2,115
¥ 12,150
¥224,320
1,347
¥225,667
215,222
¥ 10,445
¥229,568
¥ 7,617
¥ 1,255
¥ 8,739
¥22,717
23,113
¥45,830
43,585
¥ 2,245
¥77,966
¥ 6,519
¥ 1,228
¥ 5,463
Subtotal
¥694,594
30,692
¥725,286
675,726
¥ 49,560
¥550,844
¥ 28,498
¥ 4,598
¥ 26,352
Elimination/
corporate
—
(30,692)
¥ (30,692)
(31,137)
¥
445
¥188,989
¥
(23)
—
¥
14
Consolidation
¥694,594
—
¥694,594
644,589
¥ 50,005
¥739,833
¥ 28,475
¥ 4,598
¥ 26,366
Thousands of U.S. dollars (Note 1. (1))
2007
Net sales
Total ··············································
Total assets ···································
Depreciation ··································
Impairment loss ·····························
Domestic
Cosmetics
Overseas
Cosmetics
$3,789,966
52,773
$3,842,739
3,530,519
$ 312,220
$2,060,378
$ 121,619
$ 17,910
$ 102,888
$1,899,568
11,407
$1,910,975
1,822,526
$ 88,449
$1,944,009
$ 64,502
$ 10,627
$ 74,003
Others
$192,370
195,724
$388,094
369,083
$ 19,011
$660,225
$ 55,204
$ 10,399
$ 46,261
Subtotal
Elimination/
corporate
Consolidation
$5,881,904
259,904
$6,141,808
5,722,128
$ 419,680
$4,664,612
$ 241,325
$ 38,936
$ 223,152
—
(259,904)
$ (259,904)
(263,672)
$
3,768
$1,600,381
$
(195)
—
$
118
$5,881,904
—
$5,881,904
5,458,456
$ 423,448
$6,264,993
$ 241,130
$ 38,936
$ 223,270
*** Effective for the year ended March 31, 2007, the Company has reclassified business segment reporting from “cosmetics,” “toiletries”
and “others” to “domestic cosmetics,” “overseas cosmetics” and “others.”
• “Cosmetics” includes toiletries, beauty salon products, health & beauty foods, and over-the-counter drugs, which had previously been
included in “toiletries” and “others” segments.
• “Cosmetics” with its wider product domain is divided into domestically-operated “domestic cosmetics” and overseas-operated “overseas cosmetics.”
• “Others” include medical-use drugs, clothing, accessories, and other businesses that are not included in the scope of “domestic cosmetics”
and “overseas cosmetics.”
Through these changes, segments are reclassified to reflect the integration of cosmetics with its peripheral businesses and other
internal organizational changes, and to clarify overseas cosmetics business results.
Business segment information for years up to March 31, 2006 have been restated to retrospectively reflect changes in accounting policies for the year ended March 31, 2007.
*** Effective for the year ended March 31, 2007, the Company has reassessed the segment allocation of its operating expenses.
Certain administrative expenses and basic research and development expenses, etc., which had previously been included under the
Elimination line as unallocatable operating expenses, are allocated to each segment. The Company also redefined certain intersegment
transactions. By allocating all administrative expenses to each business, these changes aim to provide a more accurate presentation and
disclosure of business segment results, in line with the reclassification in business segment reporting.
Business segment information for years up to March 31, 2006 have been restated to retrospectively reflect changes in accounting policies for the year ended March 31, 2007.
(2) Geographic Segment Information*
The geographic segment information of the Companies for the years ended March 31, 2005, 2006 and 2007 is as
follows.
Millions of yen
2005
Japan
Net sales
Transfer between
geographical segments·············
Total ··············································
Operating income (loss) ··················
Total assets ···································
Americas
Europe
Asia/Oceania
¥467,027
¥43,097
¥79,776
¥49,928
17,965
¥484,992
472,515
¥ 12,477
¥316,626
7,621
¥50,718
50,879
¥ (161)
¥53,960
3,407
¥83,183
78,138
¥ 5,045
¥87,497
164
¥50,092
43,629
¥ 6,463
¥43,132
Elimination/
corporate
Consolidation
¥639,828
—
¥639,828
29,157
¥668,985
645,161
¥ 23,824
¥501,215
(29,157)
¥ (29,157)
(31,862)
¥ 2,705
¥199,880
—
¥639,828
613,299
¥ 26,529
¥701,095
Subtotal
Millions of yen
2006
Japan
Net sales
Transfer between
Total ··············································
Total assets ···································
Americas
Europe
Asia/Oceania
¥475,654
¥46,016
¥85,573
¥63,714
21,072
¥496,726
472,699
¥ 24,027
¥309,246
8,476
¥54,492
53,562
¥ 930
¥59,547
3,870
¥89,443
84,065
¥ 5,378
¥84,696
84
¥63,798
56,131
¥ 7,667
¥65,383
Elimination/
corporate
Consolidation
¥670,957
—
¥670,957
33,502
¥704,459
666,457
¥ 38,002
¥518,872
(33,502)
¥ (33,502)
(34,379)
¥
877
¥152,970
—
¥670,957
632,078
¥ 38,879
¥671,842
Subtotal
Millions of yen
2007
Japan
Net sales
Transfer between
Total ··············································
Total assets ···································
Americas
Europe
Asia/Oceania
Subtotal
¥471,205
¥51,730
¥88,364
¥83,295
¥694,594
22,116
¥493,321
465,986
¥ 27,335
¥337,145
8,139
¥59,869
57,060
¥ 2,809
¥59,428
4,335
¥92,699
86,388
¥ 6,311
¥95,801
112
¥83,407
72,195
¥11,212
¥74,131
34,702
¥729,296
681,629
¥ 47,667
¥566,505
Elimination/
corporate
Consolidation
—
¥694,594
(34,702)
—
¥ (34,702) ¥694,594
(37,040)
644,589
¥ 2,338 ¥ 50,005
¥173,328 ¥739,833
Thousands of U.S. dollars (Note1.(1))
2007
Net sales
Transfer between
Total ··············································
Total assets ···································
Asia/Oceania
Subtotal
Elimination/
corporate
Japan
Americas
Europe
$3,990,219
$438,056
$748,277
$705,352 $5,881,904
187,281
$4,177,500
3,946,024
$ 231,476
$2,854,984
68,922
$506,978
483,191
$ 23,787
$503,243
36,709
$784,986
731,544
$ 53,442
$811,254
(293,861)
949
293,861
$706,301 $6,175,765 $ (293,861)
(313,659)
611,356 5,772,115
$ 94,945 $ 403,650 $ 19,798
$627,750 $4,797,231 $1,467,762
Consolidation
— $5,881,904
—
$5,881,904
5,458,456
$ 423,448
$6,264,993
*** Classification of the geographic segments is determined by geographical location.
*** Effective for the year ended March 31, 2007, the Company has reassessed the segment allocation of its operating expenses.
Certain administrative expenses and basic research and development expenses, etc., which had previously been included under the
Elimination line as unallocatable operating expenses, are allocated to each segment. The Company also redefined certain intersegment
transactions. By allocating all administrative expenses to each geographic area, etc., these changes aim to provide a more accurate presentation and disclosure of geographic segment results, in line with the reclassification in geographic segment reporting.
Geographic segment information for years up to March 31, 2006 have been restated to retrospectively reflect changes in accounting
policies for the year ended March 31, 2007.
(3) Overseas Sales*
Overseas sales of the Companies (which represent the exports made by the Company and its domestic consolidated
subsidiaries and sales of its overseas consolidated subsidiaries) for the years ended March 31, 2005, 2006 and 2007,
are as follows.
Thousands of
U.S. dollars (Note 1.(1))
Millions of yen
2005
2006
2007
¥ 44,282
74,929
56,465
¥175,676
¥ 47,527
80,395
69,319
¥197,241
¥ 53,969
79,326
91,503
¥224,798
2007
Overseas sales:
Americas ··········································
Europe ················································
Asia/Oceania······································
......................................................
Percentage of such sales against
consolidated net sales ··························
27.5%
29.4%
$457,016
671,742
774,858
$1,903,616
32.4%
32.4%
*** Classification of overseas sales is determined by geographical location.
18. SUBSEQUENT EVENT
(Outsourcing of Logistics Operations and Transfer of Logistics Subsidiary and Fixed Assets)
(1) Notice and Reason for Transfer
Since April 2005, Shiseido has been implementing its three-year business plan aimed at maximizing growth
potential and raising profitability. The plan calls for fundamental structural reforms to boost profitability, including
reforms of its logistics system. Having duly considered such reforms, the Company decided to outsource this function to a dedicated logistics company in order to better address future changes in the logistics environment. The
Company decided to treat this matter with urgency, as it would permit further increase in the quality and efficiency of its logistics services in response to the needs of structured retailers.
On December 14, 2006, the Company’s Board of Directors resolved to outsource logistics operations currently
performed by subsidiary Shiseido Logistics Company, Ltd., to Hitachi Transport System, Ltd. Under an arrangement
proposed by Hitachi Transport System, this change will be accompanied by the transfer of Shiseido Logistics shares
(90% of total shares outstanding) to Hitachi Transport System and of logistics-related facilities to ProLogis K.K. and
Hitachi Capital Corporation (The transfers were executed on April 2, 2007). Details of these decisions are as follows.
(2)
Overview of Business Outsourcing Agreement
➀ Companies Involved
Shiseido Company, Ltd. (the Company), 8 consolidated subsidiaries and 1 equity-method affiliate.
➁ Partners in Arrangement
Name
Hitachi Transport System, Ltd.
Name
Shiseido Logistics Company, Ltd. (Note)
Representative
Takao Suzuki
Representative
Shigeki Kubo
Headquarters
7-2-18 Toyo, Koto-ku,
Tokyo, Japan
Headquarters
23-9 Higashi-Ohgishima, Kawasaki-ku,
Kawasaki-shi, Kanagawa, Japan
Main business
System logistics
(domestic and international)
Main business
Packing, transport, and storage
of cosmetics and other products
Relationship with Shiseido
Logistics contractor
for toiletry products
Same as above
Note: On April 2, 2007, Shiseido Logistics Co., Ltd. changed its name to Hitachi Collabonext Transport System Co., Ltd.
➂ Date of Agreement Conclusion
March 22, 2007
➃ Business Covered by Agreement
Domestic logistics
➄ Significant Effects of Agreement on Business Activities, Etc.
The effect of the agreement on the business results for the year ending March 31, 2008 is estimated to be
minimal.
➅ Agreement Period
April 2007 to March 2012 (5 years)
(3)
Share Transfer Agreement
➀ Company Involved
Shiseido Company, Ltd. (the Company)
➁ Recipient of Share Transfer
Name
Hitachi Transport System, Ltd.
Representative
Takao Suzuki
Headquarters
7-2-18 Toyo, Koto-ku, Tokyo, Japan
Main business
System logistics (domestic and international)
Logistics contractor for toiletry products
➂ Date of Agreement Conclusion
December 14, 2006
➃ Date of Share Transfer
April 2, 2007
➄ Subsidiary Involved
Name
Shiseido Logistics Company, Ltd. (Note)
Representative
Shigeki Kubo
Headquarters
23-9 Higashi-Ohgishima, Kawasaki-ku, Kawasaki-shi, Kanagawa, Japan
Main business
Packing, transport, and storage of cosmetics and other products
Same as above
Note: On April 2, 2007, Shiseido Logistics Co., Ltd. changed its name to Hitachi Collabonext Transport System Co., Ltd.
➅ Number of shares transferred, price of transfer, gain on transfer and share ownership following transfer
Shares to be transferred
1,260 (90% of total shares outstanding)
Transfer price
¥2,782 million ($23,558 thousand)
Gain on transfer
Shiseido expects to post a ¥2,309 million ($19,553 thousand) extraordinary gain on the
share transfer for the year ending March 31, 2008
Share ownership following transfer
10%
➆ Other
The Company sends 1 part-time director to the Board of Hitachi Collabonext Transport System Co., Ltd.
(4)
Fixed Assets Transfer Agreement
➀ Company Involved
Shiseido Company, Ltd. (the Company)
➁ Assets Covered by Agreement
Name and type of asset
Logistics centers (9 locations), land, buildings, and machinery and equipment
Book value
Prior use
Logistics centers
➂ Recipients of Transfer
Land and Buildings
Machinery and Equipment
Name
ProLogis Cosmos SPC
Name
Representative
Kazuhiro Tsutsumi, Lee Kok Sun
Representative
Hitachi Capital Corporation
Kazuo Takano
Headquarters
Shiodome City Center, 1-5-2,
Higashi-Shimbashi, Minato-ku,
Tokyo, Japan
Headquarters
2-15-12, Nishi-Shimbashi,
Minato-ku, Tokyo, Japan
Main business
Development, ownership, and operational management of logistics facilities
Main business
Finance and financial services
None
None
➃ Date of Agreement Conclusion
February 28, 2007
➄ Date of Transfer
April 2, 2007
➅ Transfer Price
➆ Gain/Loss on Transfer
The effect of gain or loss from the transfer on Shiseido’s consolidated results in the year ending
March 31, 2008 is estimated to be minimal.
Repor t of Independent Auditors
To the Shareholders and Board of Directors of
Shiseido Company, Limited:
We have audited the accompanying consolidated balance sheet of Shiseido Company, Limited and consolidated subsidiaries as of March 31, 2007, and the related consolidated statements of operations, changes in net assets and cash
flows for the year then ended, expressed in Japanese yen. These consolidated financial statements are the responsibility
of the Company’s management. Our responsibility is to independently express an opinion on these consolidated financial statements based on our audit. The consolidated financial statements of Shiseido Company, Limited and consolidated subsidiaries for the years ended March 31, 2006 and 2005 were audited by other auditors whose report, dated
June 29, 2006, expressed an unqualified opinion on those statements.
We conducted our audit in accordance with auditing standards generally accepted in Japan. Those standards
require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, the 2007 consolidated financial statements referred to above present fairly, in all material respects, the
consolidated financial position of Shiseido Company, Limited and subsidiaries as of March 31, 2007 and the consolidated
results of their operations and their cash flows for the year then ended, in conformity with accounting principles generally accepted in Japan.
Without qualifying our opinion, we draw attention to the following:
(1)
As discussed in Note 2 (27) to the consolidated financial statements, effective for the year ended March 31, 2007,
Shiseido Company, Limited applied Practical Solution on Application of Control Criteria and Influence Criteria to
Investment Associations.
(2)
As discussed in Note 17 (1) to the consolidated financial statements, Shiseido Company, Limited changed the classification of business segments in the year ended March 31, 2007.
The U.S. dollar amounts in the accompanying consolidated financial statements with respect to the year ended
March 31, 2007 are presented solely for the convenience of the reader. Our audit also included the translation of yen
amounts into U.S. dollars and, in our opinion, such translation has been made on the basis described in Note 1 to the
consolidated financial statements.
Tokyo, Japan
June 26, 2007
Corporate Information
Shareholders’ Meeting
The Ordinary General Meeting of Shareholders
is normally held in June in Tokyo.
Head Office
5-5, Ginza 7-chome, Chuo-ku
Tokyo 104-0061, Japan
Tel: +81-3-3572-5111
Stock Listings
Common Stock: Tokyo Stock Exchange (Code: 4911)
American Depositary Receipts: U.S. Over-the-Counter
Foundation
September 17, 1872
Accounting Auditors
KPMG AZSA & Co.
Incorporation
June 24, 1927
Share Registrar
The Chuo Mitsui Trust and Banking Company, Ltd.
33-1, Shiba 3-chome, Minato-ku, Tokyo 105-8574, Japan
Capital
¥64,506,725,140
American Depositary Receipts
CUSIP:
824841407
Ratio (ADR:ORD): 1:1
Exchange:
OTC (Over-the-Counter)
Symbol:
SSDOY
Depositary:
The Bank of New York
101 Barclay Street
New York, NY 10286, U.S.A.
Tel: +1 (212) 815-8161
U.S. toll free: (888) 269-2377
http://www.adrbny.com
Number of Employees
3,344 (27,460 for the Shiseido Group)
Fiscal Year-End
March 31
Common Shares Issued and Outstanding
424,562,353 (including 11,730,235 in treasury stock)
Number of Shareholders
34,750
Principal Shareholders
Composition of Shareholders
Number of
shares held
(thousands)
Shareholders
Hero & Co.
State Street Bank and Trust Company
The Master Trust Bank of Japan, Ltd. (Trust Account)
Mizuho Bank, Ltd.
NIPPONKOA Insurance Company, Ltd.
Asahi Mutual Life Insurance Company
Japan Trustee Services Bank, Ltd. (Trust Account)
Mizuho Corporate Bank, Ltd.
Mitsui Sumitomo Insurance Company, Ltd.
Nippon Life Insurance Company
24,883
22,798
21,506
17,226
13,112
12,079
11,614
11,382
10,211
9,747
Percentage
of
shareholding
5.86%
5.36
5.06
4.05
3.08
2.84
2.73
2.68
2.40
2.29
(by number of shares)
Other Japanese
Companies 5.22%
Securities
Companies
Treasury Stock
2.76%
Foreign
Investors
1.65%
Financial 30.94%
Institutions
41.91%
Individuals
17.52%
In addition to the above, Shiseido Company, Limited holds 11,730 thousand shares of treasury stock.
Monthly Share Price Range and Trading Volume
(¥)
3,000
Share Price
Trading Volume
Change in Composition of
Shareholders
(Nikkei Stock Average)
Nikkei Stock Average (Closing Price)
18,000
2,500
14,000
10,000
2,000
(Thousands of shares)
1,500
60,000
1,000
40,000
500
20,000
2006
2007
Foreign Investors
26.45
Individuals
18.96
Financial Institutions
44.97
Securities Companies
1.44
Other Japanese Companies 5.32
Treasury Stock
2.85
30.94
17.52
41.91
1.65
5.22
2.76
2006
2007
Foreign Investors
1.17
Individuals
96.67
Financial Institutions
0.42
Securities Companies
0.12
Other Japanese Companies 1.61
Treasury Stock
0.00
1.25
96.52
0.47
0.12
1.64
0.00
(By number of shares)
(By number of shareholders)
0
0
04/04
05/04
For Further Information, Please Contact
Investor Relations, Financial Department
6-2, Higashi-shimbashi 1-chome
Minato-ku, Tokyo 105-8310, Japan
F a x : +81-3-6218-5544
E-mail: [email protected]
06/04
07/01
Website
English Edition:
http://www.shiseido.co.jp/e/
Japanese Edition:
http://www.shiseido.co.jp/
Printed with soy ink approved by
the American Soybean Association
on 70% recycled paper.

Annual Report 2007 [PDF：1.75MB]

Transcription

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