Performance and Outlook

1. Performance

Fiscal 1998 - the year ended March 31, 1998 - was the second year of Shiseido's five-year management plan, "Becoming the Top Global Cosmetics Company in the 21st Century." In line with our twin objectives of "strategic growth" and "structural reform," we continued to make aggressive growth-oriented investments while pursuing structural changes within the Shiseido Group.

(1) Comments to the Statements of Income

Statements of Income

During the year, Shiseido worked to further raise the levels of trust and responsiveness of customers in an environment characterized by contraction of the consumption-oriented mindset and a market displaying signs of recession. Overseas sales grew significantly, thanks to a solid performance by Beauté Prestige International S.A.; a strong contribution by the North American Professional (Hair Salon) Division of Helene Curtis, Inc., which we acquired in December 1996; and the addition of Taiwan Shiseido Co., Ltd., which became a consolidated subsidiary from the period under review.

As a result, total consolidated net sales rose 5.5%. Although we endeavored to raise productivity and enhance efficiency of advertising and other promotional activities, we aggressively pursued our plan of making strategic forward-looking investments. However, our domestic subsidiaries struggled in the face of depressed personal consumption, and some new subsidiaries reported losses. As a result, net income declined 11.9%

In fiscal 1998, we undertook a major restructuring of our related businesses, in order to maximize the effectiveness of our assets. Specific actions included dissolution of SFC Co., Ltd., a finance subsidiary, and withdrawal from the fitness club business by closing Shiseido Wellness Co., Ltd. These activities led to an extraordinary loss of ¥17,460 million.

On a nonconsolidated basis, both net sales and net income exceeded previous-year levels.

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