II. Performance and Outlook


(3) Consolidated Segment Information

(a) Cosmetics

(Millions of yen)

Fiscal
1999

Fiscal
1998

Increase/Decrease over
Fiscal 1998

Amount

% change

Cosmetics Sales from Outside Customers
Domestic
Overseas

444,495
364,819
79,675

457,332
379,603
77,729

-12,837
-14,783
1,946

-2.8%
-3.9%
+2.5%

Sales and Transfer Account from
Intersegment Transactions

5,564

6,787

-

Total Cosmetics Sales

450,059

464,119

Income from Operations in
Cosmetics Division
Percent of Category Sales


45,743
10.2%


51,367
11.1%


-5,623
-0.9%


-10.9%


� Domestic Sales
Domestic sales of cosmetics declined 3.9%. During the year, we continued to promote "New Shiseido Marketing" in order to strengthen "customer benefit," while also placing particular emphasis on skin care. As a result, retail stores' sales from our counseling activities remained at the previous-year level. However, subsidiarys' sales in this category declined, due to increased shipments in the previous year following a demand peak prior to the consumption tax hike, as well as our reduction of shipments in line with our intentional contraction of inventories, reflecting a new regulation requiring us to display all ingredients in our cosmetics products from fiscal 2001. In the self-selection market, overall sales declined as men's cosmetics were severely affected by the difficult economic environment.

� Overseas Sales
We achieved a more than 10% increase in overseas cosmetics sales in local currency terms, but the gain was limited to 2.5% on yen-denominated basis. Shiseido Relaxing Fragrance, launched in 1997, and Shiseido Liquid Compact, launched in 1998, scored major hits in the year under review, further expanding the Shiseido brand's market presence. In addition, the fragrance business of Beauté Prestige International S.A. continued to report an improved performance.

� Major new products
Counseling: Anessa Trans Wear Sunscreen, Shiseido Relaxing Fragrance (launched domestically), New Elixir, Pieds Nus (rouge suplinic), qiora
Self-selection: New ff, Medicated Flowline Live-X (hair growth tonic)
Overseas: Shiseido Liquid Compact

� Income from Operations
Although we promoted "cost-best activities" and reformed the profit structure of our domestic sales company, income from our cosmetics operations fell 10.9% due to future-oriented investments aimed at building a foundation for growth, as well as deteriorating profitability of the parent company stemming from a drop in domestic sales.

(b) Toiletries

(Millions of yen)

Fiscal
1999

Fiscal
1998

Increase/Decrease over
Fiscal 1998

Amount

% change

Toiletries Sales from Outside Customers

98,938

99,310

-371

-0.4%

Sales and Transfer Account from
Intersegment Transactions

721

763

-

Total Toiletries Sales

99,660

100,073

Income from Operations in
Toiletries Division
Percent of Category Sales


2,621
2.6%


302
0.3%


2,319
2.3%


+767.6%


� Net Sales
Our toiletries business faced severe price competition and sluggish market growth stunted by weak personal consumption. Nevertheless, sales were down only 0.4%, practically unchanged from the previous year. During the term, we also made progress in improving the content of sales.
Specifically, we pursued a "megabrand" strategy, which emphasizes adding new offerings to selected highly competitive brands to broaden their scope. As a result, we achieved significant increases in sales of all selected brands, especially Super Mild. Meanwhile, we also worked to change the structure of our business to emphasize profitability, evidenced by our withdrawal from the market for paper diapers, where we were weak competitively.

� Major New Products
Super Mild (body soap, facial skin milk, etc.), Aquair Pinto Skin (skin sheet and skin gel), Naturgo (body products), Tessera Jungle Jungle (shampoo and conditioner)

� Income from Operations
Income from our toiletries operations jumped 8.7-fold from the previous year. Profitability improved as we made aggressive efforts to promote efficient sales promotion expenditures, consistent with our "megabrand" strategy, and to reduce production and distribution costs. The allocation of parent company expenses also decreased.

(c) Others

(Millions of yen)

Fiscal
1999

Fiscal
1998

Increase/Decrease over
Fiscal 1998

Amount

% change

Other Sales from Outside Customers
Domestic
Overseas

60,860
46,980
13,879

64,267
49,777
14,489

-3,406
-2,796
-609

-5.3%
-5.6%
-4.2%

Sales and Transfer Account from
Intersegment Transactions

34,970

34,119

-

Total Other Sales

95,830

98,386

Income from Operations in Others
Percent of Category Sales

-643
-0.7%

-1,487
-1.5%

843
0.8%

-


� Domestic Sales
Domestic sales of other businesses declined 5.6%, as increased revenues from our salon and pharmaceuticals businesses were outweighed by the effects of falling sales of lifestyle-related goods, products sold by The Ginza boutiques, and health and beauty foods.
In our salon business, Genic Corporation (formerly Helene Curtis Japan Inc.), which became a subsidiary in fiscal 1998, reported increased sales. In July 1998, Shiseido Beauty Company Ltd. (formerly Qi Salon Cosmetics Co., Ltd.) acquired the goodwill of Takigawa Company, Ltd. a domestic salon products dealer. In these ways, we aggressively strengthened our salon and wholesaler channels.
Our pharmaceuticals business benefited from the addition of OEM products to our over-the-counter line of pharmaceuticals. In our lifestyle-related goods and fashion boutique businesses, we focused on lifestyle-related products that support our core cosmetics business, and we closed unprofitable stores in our The Ginza chain. As a result, sales were down. In our health and beauty foods business, we reviewed our sales channel strategies, which led to a sales decline. In April 1999, we established Shiseido Shoppers Club Co., Ltd., as a separate subsidiary to handle our business in lifestyle-related goods.

� Overseas Sales
Zotos International, Inc., our North American subsidiary, reported steadily increased sales of brands acquired from Helene Curtis, Inc., and The Lamaur Corporation. Due to the yen's appreciation, however, overseas sales in yen terms dipped slightly.

� Major New Products
Zotos Stickymove (hair styling foam and lotion), Medicated atskin, Pure White <G+C>

� Income from Operations
In fiscal 1999, the Company reduced its loss from other operations by 843 million yen. Despite increased losses stemming from lower sales of lifestyle-related goods, as well as products sold in The Ginza boutiques, Zotos achieved improved profitability as it made effective use of the salon operations it acquired from Helene Curtis, Inc., in fiscal 1997. Losses from our health and beauty foods business were also reduced.


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