II. Interim Performance


(3) Consolidated Segment Information

(a) Cosmetics

(Millions of yen)

First Half
of Fiscal
2000

First Half
of Fiscal
1999

Increase/Decrease over
First Half of Fiscal 1999

Amount

% change

Cosmetics Sales from Outside Customers
  Domestic
  Overseas

229,561
187,026
42,535

227,423
183,988
43,435

2,138
3,038
-900

+0.9%
+1.7%
-2.1%

Sales and Transfer Account from
  Intersegment Transactions

2,948

2,741

-

Total Cosmetics Sales

232,509

230,165

Income from Operations in
  Cosmetics Division
Percent of Category Sales

28,542

12.3%

23,849

10.4%

4,692

1.9%

+19.7%


� Domestic Sales
Interim domestic sales of cosmetics were up 1.7%. During the term, we established our "Global Multibrand Strategy," which targets accelerated growth in the global market through the creation of diversified brand values. We also implemented drastic reforms of our Cosmetics Division Organization as part of our pursuit of "customer benefit."
There is still no sign of recovery in personal consumption in the cosmetics market, and some of our brands are struggling. However, specialized brands in the counseling market posted excellent growth, and skin-care and makeup lines in the self-selection market also performed well. In addition, each of our non-Shiseido brands continued to show solid results.

� Overseas Sales
We achieved a more than 10% increase in overseas cosmetics sales in local currency terms, but sales fell 2.1% on a yen-denominated basis. Shiseido-brand lines, centering on mainstay skin-care products, steadily expanded their market presence. We also actively cultivated new markets for our 5S line, which was developed in New York, launching the line in four new overseas cities. In addition, the fragrance business of BPI (Beaute Prestige International S.A.) continued to report a healthy performance.

� Major New Products
Counseling: Eau de Blanc Cake, Mayudama, Proudia (powder and liquid makeup), Taphy
Self-selection: Geraid (lips and nails esthetic kit)
Non-Shiseido brands: FSP (Free Soul Piccadilly), 5S (launched in Japan)

� Income from Operations
During the term, we reaped the benefits of enhanced cost efficiency as we implemented "cost-best activities" and reformed the profit structure of our domestic sales company. Our performance also benefited from the upturn in sales. As a result, income from cosmetics operations grew 19.7%.

(b) Toiletries

(Millions of yen)

First Half
of Fiscal
2000

First Half
of Fiscal
1999

Increase/Decrease over
First Half of Fiscal 1999

Amount

% change

Toiletries Sales from Outside Customers
  Domestic
  Overseas

46,911
46,793
118

48,778
48,778
-

-1,866
-1,985
-

-3.8%
-4.1%
-

Sales and Transfer Account from
  Intersegment Transactions

816

544

-

Total Toiletries Sales

47,728

49,323

Income from Operations in
  Toiletries Division
Percent of Category Sales

1,864

3.9%

19

0.04%

1,844

3.9%

+9,376.6%


� Net Sales
Our toiletries business faced severe price competition and sluggish growth in the market for hair-care products. We also suppressed shipments to reduce our wholesalers' inventories. As a result, interim sales of toiletries declined 3.8%.
We pursued our "megabrand" strategy, which emphasizes focused nurturing of selected highly competitive brands through expanded offerings. During the term, we aggressively promoted our new Neue hair-care brand to "megabrand" status. Also, our new Care Garden line of products for addressing odors associated with aging drew widespread attention, giving us a solid opportunity to cultivate a new market.
Due to the Company's entry into the toiletries market in Asia and Oceania, overseas sales have been included from the interim period under review.

� Major New Products
Neue, Lustair (styling mousse), Care Garden

� Income from Operations
Income from our toiletries operations jumped 95-fold from the previous interim period. Thanks to our aggressive efforts to promote efficient sales promotion expenditures, consistent with our "megabrand" strategy, and to reduce production and distribution costs, return on sales also increased even when compared with the entire fiscal 1999 period.

(c) Others

(Millions of yen)

First Half
of Fiscal
2000

First Half
of Fiscal
1999

Increase/Decrease over
First Half of Fiscal 1999

Amount

% change

Other Sales from Outside Customers
  Domestic
  Overseas

30,537
24,030
6,506

31,094
23,393
7,700

-557
636
-1,193

-1.8%
+2.7%
-15.5%

Sales and Transfer Account from
  Intersegment Transactions

17,142

17,842

-

Total Other Sales

47,679

48,936

Income from Operations in Others
Percent of Category Sales

-401
-0.8%

-717
-1.5%

316
0.7%

-


� Domestic Sales
Interim domestic sales of other businesses increased 2.7%. This gain benefited from double-digit growth in sales of health and beauty foods, as well as pharmaceuticals.
In our salon business, existing products languished due to difficult conditions faced by our major dealers. However, we actively launched global brands (Senscience, Protec, and Bain de Terre), expanding sales as a result.
Our health and beauty foods business benefited from the solid performance of Gymrind Neo, a soft diet food, with sales growing as a result. In our pharmaceuticals business, sales of both over-the-counter and medical treatment-use products increased.
At the beginning of the interim period, we established Shiseido Shoppers Club Co., Ltd., as an independent subsidiary to handle our business in lifestyle-related goods.

� Overseas Sales
Zotos International, Inc., our North American subsidiary, suffered from the effects of a depressed market for hair-perm agents, as well as reorganization and integration of distributors. Yen-based sales also shrank as a result of the yen's appreciation. Accordingly, overseas sales of other businesses fell 15.5%.

� Major New Products
Salon products: Senscience, Zotos Protec, Bain de Terre (each launched in Japan)
Health and beauty foods: Gymrind Neo
Pharmaceuticals: Felzea (bath solution)

� Income from Operations
In the first half of fiscal 2000, the Company reduced its loss from other operations by 316 million yen from the first half of fiscal 1999. The profitability of our salon business worsened, due to a decline in revenues of Zotos International, Inc. By contrast, we reduced losses from health and beauty foods and pharmaceuticals operations. Moreover, Shiseido Shoppers Club has made a profitable start, demonstrating the correctness of our strategy to improve profitability by splitting it off into a separate company.


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