II. Performance and Outlook


1. Fiscal 1999 Overview

(1) Fiscal 1999 Performance
Shiseido's consolidated net sales in fiscal 1999 were 2.7% lower than the previous year. Despite languishing personal consumption in Japan, retail stores' sales of our mainstay cosmetics remained at the previous level. However, shipments by sales subsidiaries to retail stores declined as we reduced market inventories. As a result, domestic sales were down 3.4%.
Overseas sales jumped 10% in local currency terms, but yen-denominated growth was restricted to 1.4% due to the appreciation of the yen.
Income from operations fell 7.2%, due largely to such factors as declining shipments by domestic sales subsidiaries and higher depreciation expenses resulting from future-oriented investments. Nevertheless, we were able to minimize the impact of the net sales decline on income by promoting companywide "cost-best activities" and reforming the profit structure of our sales subsidiary.
Consolidated net income declined 38.7%, due partly to restructuring expenses, which were reported as an extraordinary loss.

Consolidated Performance

(Millions of yen)

Fiscal
1999

Percent
of
Net Sales

Fiscal
1998

Percent
of
Net Sales

Increase/Decrease over
Fiscal 1998

Amount

% change

Cosmetics
Toiletries
Others

444,495
98,938
60,860

73.6%
16.4%
10.0%

457,332
99,310
64,267

73.3%
16.0%
10.3%

-12,837
-371
-3,406

-2.8%
-0.4%
-5.3%

Net Sales

604,294

100.0%

620,909

100.0%

-16,614

-2.7%


Domestic Sales

510,739

84.5%

528,690

85.1%

-17,951

-3.4%

Overseas Sales

93,554

15.5%

92,218

14.9%

1,336

+1.4%


Income from
Operations

35,361

5.9%

38,112

6.1%

-2,751

-7.2%

Ordinary
Income

33,910

5.6%

40,675

6.6%

-6,764

-16.6%

Net Income

10,332

1.7%

16,868

2.7%

-6,536

-38.7

Consolidated
Income/
Nonconsolidated
Income

0.79 times

-

1.05 times

-

-

Note: From the period under review, figures are based on revised regulations covering consolidated financial statements. Figures for the previous period have also been arranged to reflect the revision. As a result of the revision, income from operations and ordinary income for the previous period have increased 2,243 million yen and 2,269 million yen, respectively, compared with figures previously announced.

Nonconsolidated Performance

(Millions of yen)

Fiscal
1999

Percent
of
Net Sales

Fiscal
1998

Percent
of
Net Sales

Increase/Decrease over
Fiscal 1998

Amount

% change

Cosmetics
Toiletries
Others

250,987
90,396
21,754

69.1%
24.9%
6.0%

288,020
89,847
25,588

71.4%
22.3%
6.3%

-37,032
548
-3,833

-12.9%
+0.6%
-15.0%

Net Sales

363,138

100.0%

403,455

100.0%

-40,317

-10.0%


Income from
Operations

23,920

6.6%

30,138

7.5%

-6,218

-20.6%

Ordinary
Income

28,857

7.9%

35,811

8.9%

-6,953

-19.4%

Net Income

13,014

3.6%

16,073

4.0%

-3,059

-19.0%

(2) Consolidated Cash Flows
In line with our objective of reinforcing the Company's foundation for future growth, in fiscal 1999 we made capital investments aimed at strengthening our production system. Investments in fixed assets were made primarily in our cosmetics and salon businesses. In cosmetics, we added a new facility to the Kakegawa factory and built new factories in France and North America. In our salon business, we acquired the goodwill of a domestic salon products dealer.
During the term, the Company bought back and retired treasury stock, reflecting its commitment to shareholder returns.

Consolidated Cash Flows (Summary)

(Billions of yen)

Cash and Cash Equivalents at Beginning of Term 63.81
Net Cash Provided by Operating Activities
Net Cash Provided by Investing Activities
(Investments in Fixed Assets)
Net Cash Provided by Financing Activities
(Purchase and Retirement of Treasury Stock)
Conversion Differential for Cash and Cash Equivalents
Net Increase in Cash and Cash Equivalents
56.33*1
-34.11
(-43.39)*2
-12.63
(-9.15)
-0.13
9.46
Cash and Cash Equivalents at End of Term 73.27
Note: Time deposits exceeding three months and non-MMF securities are excluded from Cash and Cash Equivalents.
*1

*2
Income before Income Taxes: 29.01 billion yen
Depreciation Expense: 24.53 billion yen
Investments in Fixed Assets

(Billions of yen)

Capital Investment
Intangible Fixed Assets
Long-Term Prepaid Expenses and Others
28.00
5.52
9.87


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