Annual Report 2011 [PDF:6.13MB]
Transcription
Annual Report 2011 [PDF:6.13MB]
Profile Shiseido commenced operations as Japan’s first Westernstyle pharmacy in Tokyo’s Ginza district in 1872, a time when Chinese herbal remedies were the mainstream in Japan. 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, Shiseido remains committed to its founding spirit of serving customers and contributing to society by bringing together all things on Earth to create new value. Contents Our Mission, Values and Way·············································· 4 Shiseido’s Management Structure······································ 46 Shiseido’s Histor y of Creating Value·································· 6 Board of Directors, Corporate Auditors and Corporate Officers··················································· 47 Financial Highlights····························································· 8 Corporate Governance················································ 50 Risk Management························································ 55 Message from the President & CEO·································· 10 Feature: T he Growth Strategies of the New Three-Year Plan··································· 16 Brand/Line Over view·························································· 24 Review of Operations Domestic Cosmetics Business···································· 26 Global Business··························································· 29 Initiatives Based on Our Way·············································· 32 Main Subsidiaries and Affiliates································· 58 Financial Section·································································· 59 Six-Year Summar y of Selected Financial Data·········································· 60 Management’s Discussion and Analysis···················· 61 Consolidated Financial Statements···························· 76 Notes to the Consolidated Financial Statements··············································· 82 Independent Auditors’ Report···································· 103 Toward Consumers····················································· 33 Investor Information···························································· 104 Toward Business Partners·········································· 37 Corporate Information························································· 105 Toward Employees······················································ 38 Toward Society and the Earth···································· 40 Forward-Looking Statements Environmental Data···················································· 44 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. Social Data··································································· 45 Our Mission, Values and Way 1. We consistently strive to research, develop, manufacture and sell safe and excellent products and services that deliver true satisfaction from the standpoint of consumers. 2. We sincerely strive to enhance satisfaction and trust at all points of contact with consumers. 3. We continually strive to increase the value of all of the Shiseido Group’s brands. 1. We select business partners properly, and engage in fair, transparent and free competition and appropriate business transactions. 2. We do not provide or accept gifts or entertainment that may cause suspicion regarding our fairness. 3. We respect all of our business partners who share our aims, and work together with them toward sustained growth. 1. We strive to continuously enhance the Shiseido Group’s corporate value by making full use of its tangible, intangible, financial and other assets. 2. We comply with rules concerning corporate governance and internal controls, and follow proper accounting procedures. 3. We place importance on dialogues with shareholders and investors, and strive to earn their trust. 1. We respect the character and individuality of everyone in the work place, in all their diversity, and strive to develop and grow together. 2. We work conscientiously and maintain a clear distinction between professional and private matters. 3. We strive to create a safe, healthy work environment and enhance employees’ comfort and sense of fulfillment. 1. We abide by the laws of each country and region in which we operate, and maintain sound ethical behavior as well as respect human rights. 2. We promote environmental initiatives in line with our own stringent standards, and consider biodiversity as we aim for a sustainable society in which humanity and the Earth coexist beautifully. 3. We engage in a broad dialogue with society and strive to cooperate in solving social challenges. 4 SHISEIDO ANNUAL REPOR T 2011 Our Mission sets out a universal raison d’être that is core to Shiseido, and our corporate message – This moment. This life. Beautifully. – symbolizes our mission. We created it to communicate throughout society our aim of being even more customer-oriented in order to respond sincerely to the desire among people worldwide to be beautiful. Over its history, Shiseido has done much to help people live beautifully. As we move into the future, we will satisfy customers even more by providing appealing products and attentive services while fulfilling our responsibilities to society. We want to assist society, customers and all people in experiencing This moment. This life. Beautifully. SHISEIDO ANNUAL REPOR T 2011 5 Shiseido’s History of Creating Value Building New Business Models 139 Years of Evolution After opening Japan’s first Western-style pharmacy in Japan’s first network of voluntar y chain stores. 1872, Shiseido entered the cosmetics business by launch- Individualized beauty consultation at sales counters that ing the lotion Eudermine. Since then, we have constantly started with the introduction of Miss Shiseido. These are evolved through unique initiatives such as research and but a few examples of forward-looking new business models development akin to that of the pharmaceutical industr y that Shiseido has built to exceed customer expectations. and serving customers with a spirit of omotenashi (hospi- Our will and passion in taking on challenge after challenge tality) to give people health and beauty. generates growth for Shiseido. 1937 1923 Launched member organization Hanatsubaki Club with the goal of popularizing proper cosmetics techniques Initiated Shiseido chain stores, Japan’s first voluntary chain store system 1934 Introduced Miss Shiseido, the predecessor to modern beauty consultants 1957 Established Taiwan Shiseido Co., Ltd. and began full-scale overseas operations 1872 1918 1897 Launched Cold Cream, Japan’s first true beauty cream Entered the cosmetics business by launching Eudermine lotion 6 SHISEIDO ANNUAL REPOR T 2011 1932 1959 1976 Launched Deluxe, the highestgrade cosmetics of their day Launched MG5, the first true cosmetics for men in Japan Launched Inoui, a brand created for global development Nurturing Diversity on a Global Level Continuously Innovating to Create Sublime Beauty Shiseido has successively developed operations in We complement brand assets that we originate and countries and regions worldwide since establishing a refine, including clé de peau Beauté and the global brand subsidiar y in Taiwan in 1957. By flexibly responding to , by adding energetic brands such as NARS customer and market changes, we have made steady and Bare Escentuals. Our tradition of continuously innovat- progress in globalization. One of our greatest strengths is ing to create unique value is the source of the sublime the diversity engendered by our global progress. An orga- beauty we create. nization that recognizes individuality and embraces differences in values is the foundation for creating new value. 2006 Expanded R&D operations to five regions around the world with the establishment of Shiseido Southeast Asia Research Center 1981 2010 2006 Constructed a new factory in Vietnam as a base for the masstige market Opened the first Shiseido Life Quality Beauty Center Began sales of cosmetics in Beijing, China 2011 1996 2005 Launched top-end prestige brand clé de peau BEAUTÉ Launched MAQUILLAGE, the first mega line 1994 2000 Launched China-only brand AUPRES Acquired the U.S. makeup brand NARS 2010 Acquired U.S. company Bare Escentuals, Inc. SHISEIDO ANNUAL REPOR T 2011 7 Financial Highlights Shiseido Company, Limited, and Subsidiaries For the years ended March 31, 2009, 2010 and 2011 Percent change Thousands of U.S. dollars (Note 1) Millions of yen 2011/2010 2009 2010 2011 2011 Operating Results: Net sales Operating income Net income +4.1% −11.7 −62.0 ¥690,256 ¥644,201 ¥670,701 $8,066,158 49,914 50,351 44,458 534,672 19,373 33,671 12,791 153,830 Financial Position: Total assets Net assets −4.5% −12.1 ¥606,569 ¥775,446 ¥740,184 $8,901,792 351,951 365,208 321,191 3,862,790 Please refer to page 60 for an in-depth six-year summary of selected financial data. Operating Income / Operating Profitability Net Sales (Billions of yen / %) (Billions of yen) 694.6 Net Income 723.5 690.3 644.2 (Billions of yen) 63.5 670.7 35.5 50.0 50.4 49.9 8.8 7.2 44.5 6.6 7.8 7.2 33.7 25.3 19.4 12.8 07 08 09 11 10 (Years ended March) 07 08 09 10 11 (Years ended March) Operating income Operating profitability Return on Equity (Yen) 9.8 9.2 09 10 (Years ended March) 11 (Yen) 86.1 84.6 60.9 6.6 08 Cash Dividends per Share Net Income per Share (%) 07 32.0 50.0 50.0 50.0 09 10 11 34.0 48.0 5.4 32.1 3.9 07 08 09 11 10 (Years ended March) 07 Net Sales by Reportable Segment 09 10 (Years ended March) 11 07 Profitability by Reportable Segment (Billions of yen) 8 08 17.0 10.0 9.7 (Years ended March) Overseas Sales / Overseas Sales Ratio (Billions of yen / %) (%) SHISEIDO REPOR T 2011 20.8 22.7 ANNUAL 08 10.5 10.1 8.1 10.1 42.9 11.4 32.4 9.3 36.5 38.0 264.3 262.0 36.9 287.8 237.5 50.0 50.4 49.9 8.8 7.2 44.5 6.6 7.8 7.2 25.3 19.4 12.8 07 08 09 11 10 (Years ended March) 07 2011/2010 (Yen) Per Share Data: 9.8 Net income 9.2 (Note 2) Net assets (Note 2) Cash dividend 09 Yen −62.0% −11.5 ±0.0 2009 10 2010 86.1 ¥ 48.0 60.9 84.6 50.0 48.0 32.1 7.2% 5.4 11 07 104.1 08 09 08 U.S. dollars (Note 1) 2011 (Yen) 2011 50.0 ¥ 32.1 50.0 $0.39 50.0 774.8 9.32 50.0 0.60 34.0 32.0 6.6% 9.8 3.9 59.1 11 10 Cash Dividends per Share 7.8% 11 10 09 (Years ended March) 875.7 50.0 3.9 07 ¥ 84.6 839.9 5.4 Financial Ratios: Operating profitability Return on equity Payout ratio (Consolidated) 08 11 10 Net Income per Share (%) 07 09 (Years ended March) Operating income Operating profitability Percent change Return on Equity 6.6 08 155.5 07 08 09 11 10 (Years ended herein March)refer to U.S. currency. Yen amounts have been translated, (Years ended March) (Years ended March) on March 31, 2011. Notes: 1.All dollar amounts solely for the convenience of the reader, at the rate of ¥83.15 to US$1 prevailing 2.Net income per share (basic) is calculated based on the weighted average number of shares outstanding during each respective year. Net assets per share is calculated before dilution. Net Sales by Reportable Segment Profitability by Reportable Segment (Billions of yen) (Billions of yen / %) (%) 20.8 22.7 17.0 278.8 240.9 275.7 10.0 9.7 250.4 302.6 8.5 6.3 423.9 430.9 08 09 358.4 383.8 397.5 10 (Years ended March) Domestic Cosmetics Business Global Business Others 4.5 11 07 4.8 08 3.8 5.1 09 11 10 08 82.4 45.7 430.0 09 117.1 84.3 85.5 108.0 100.0 50.7 460.7 471.2 15.3 383.8 408.1 10 (Years ended March) Americas Asia/Oceania 11 262.0 287.8 237.5 122.0 112.1 118.6 79.3 92.8 88.5 73.8 54.0 59.4 54.9 48.5 07 08 09 115.2 78.2 87.6 11 10 (Years ended March) Americas Europe Overseas Sales Ratio Asia/Oceania Interest-bearing Debt / Interest-bearing Debt Ratio 8.3 6.8 5.5 4.7 07 Japan Europe 6.5 127.8 7.8 5.6 6.1 4.0 08 214.4 14.3 13.9 13.4 109.6 103.8 56.6 264.3 36.9 (Billions of yen / %) 15.5 83.3 88.4 51.7 38.0 224.8 3.0 (%) 102.4 36.5 91.5 Operating Profitability by Geographic Area (Billions of yen) Japan Europe 9.3 5.5 (Years ended March) Domestic Cosmetics Business Others Global Business Net Sales by Geographic Area 07 32.4 10.1 8.1 42.9 11.4 10.5 10.1 4.7 07 Overseas Sales / Overseas Sales Ratio 09 7.2 6.5 6.0 5.6 62.1 63.2 4.1 (Years ended March) Americas Asia/Oceania 11 38.1 37.0 24.0 15.0 13.7 10 197.5 1.6 07 08 09 10 (Years ended March) Interest-bearing debt Interest-bearing debt ratio 11 Notes: 1. Net sales by reportable segment and geographic area represent sales to external customers only and do not include intersegment/interarea sales or transfers. 2. Profitability by reportable segment and operating profitability by geographic area do not include eliminations/corporate. Equity 3.Effective the fiscal year ended March 2011, the Company has reclassified its operations into three segments for reporting purposes, in lineRatio/Debt-Equity with its application of AccountingRatio Standards Related to Disclosure of Segment Information. The new segments are: Domestic Cosmetics Business, Global Business, and Others. (%)The domestic professional business, previously included within the Domestic Cosmetics segment, is now included in the Global Business segment. 4. Interest-bearing debt ratio = Interest-bearing debt ÷ Invested capital* * Invested capital = Interest-bearing debt + Total net assets SHISEIDO ANNUAL REPOR T 2011 9 Message from the President & CEO Profile 1959: B orn in Tokyo (currently 52 years old) 1982: J oined Shiseido Co., Ltd. After six years of experience as a sales manager in Nara, Japan, began handling strategy formulation and other projects at the head office. 2005: D esigned and formulated the ThreeYear Plan in the Corporate Planning Department. Worked with President and CEO Maeda (now Chairman) in promoting reform. Subsequently became General Manager of the Business Planning Department. 2008: C orporate Officer and General Manager of Corporate Planning Department 2009: Corporate Officer (Director) 2010: C orporate Executive Officer (Director) 2011: P resident & CEO (Representative Director), effective April 1 Hisayuki Suekawa President & CEO (Representative Director) 10 SHISEIDO ANNUAL REPOR T 2011 Shiseido aims to become a global player representing Asia with its origins in Japan. Under the theme of getting into a growth trajector y, the new Three-Year Plan will guide Shiseido in achieving a turnaround in Japan and accelerating globalization to evolve into and remain an outstanding company in the future. The previous Three-Year Plan achieved strong growth overseas, but unfinished issues remain in the Japanese market. I am Hisayuki Suekawa. I became President & CEO of Shiseido in April 2011. I received the baton of reform from my predecessor, Shinzo Maeda, and will carry it forward as the head of the Company. I intend to lead the advance of Shiseido’s innovation. I would like to begin my explanation of Shiseido’s management policies and strategies by providing an overview of the various reforms we implemented in Japan and overseas during the previous Three-Year Plan, which had the theme of improving the quality of activities across the board. The year ended March 2011 was the final year of the previous Three-Year Plan. Overseas sales increased solidly, with strong growth in China and the rest of Asia complemented by the sales of Bare Escentuals, Inc., which we acquired in the year ended March 2010. In the domestic market, some sectors such as the self-selection category showed signs of recovery. However, the mid-priced market, a crucial market segment for Shiseido, was challenging and remains an area we must work on. Operating income decreased partly because of lower sales in Japan and nonrecurring costs associated with the acquisition of Bare Escentuals. Our progress overseas during the past three years was impressive. In addition to strengthening cultivation of the global brand , we worked aggressively to enhance competitiveness through initiatives such as accelerating growth in China by concentrating on channel-specific marketing. As a result, we achieved solid sales growth at a compound annual growth rate of 13 percent on a local currency basis. We generated substantial sales growth in all the regions we serve, with compound annual growth rates of 26 percent in the Americas, 11 percent in Asia/Oceania, and 5 percent in Europe. For the year ended March 2011, the overseas sales ratio increased to 42.9 percent, leading me to conclude that we have cultivated strong businesses with a solid foundation. In Japan, however, sales continued to decrease. We focused on key areas in each channel and concentrated resources. As a result, our ef for ts were successful at department stores and priority voluntary chain stores, but we experienced difficulties selling mid-priced products at drugstores and general merchandise stores. Two factors SHISEIDO ANNUAL REPOR T 2011 11 have weakened domestic sales: marketing reliant on new products and insuf ficient response to evolving customers and markets. During the previous Three-Year Plan, we implemented all reforms as planned. Some of them succeeded, but we also recognize that our reforms are only halfway complete. My mission is to drive Shiseido’s evolution by taking charge of and accelerating the reforms we have been implementing. We must quickly achieve a domestic business turnaround a nd accelerate globalization to get Shiseido into a growth t rajectory. In 2008, Shiseido declared its goal for the coming decade of becoming a global player representing Asia with its origins in Japan, and drew up a 10-year roadmap for achieving it. Our goal for the year ending March 2018 is to become a company with consolidated net sales in excess of ¥1 trillion and an overseas sales ratio of more than 50 percent that can consistently achieve operating profitability of 12 percent or higher and return on equity (ROE) of 15 percent or higher. The new Three-Year Plan is Phase II of this roadmap, and has the theme of getting Shiseido into a growth trajectory. Taking a fresh look at Shiseido at the start of the new Three-Year Plan, we have entered a new phase of globalization in which overseas sales account for about 40 percent of net sales, and similarly, approximately 40 percent of our employees are not Japanese. During this period of major management transformation, guidelines that help all employees of the Shiseido Group share the same raison d’être, values, and spirit in initiatives are essential. We therefore revised our existing Corporate Philosophy to create Shiseido Ten-Year Roadmap New Three-Year Plan Globalization Phase Ⅲ Make a leap forward Globalization Shiseido Paradigm shift through fundamental reforms Globalization PhaseⅠ Improve quality of activities across the board Phase Ⅱ Get into a growth trajectory 2005 2008 2011 Accelerated transformation into a global company (Integration of domestic and overseas business operations) Customer-oriented marketing reforms 12 Become a global player Establish a presence in Asia SHISEIDO ANNUAL REPOR T 2011 2014 2017 (Year ending March 2018) Message from the President & CEO a new and evolutionar y Corporate Philosophy for the Shiseido Group: Our Mission, Values and Way. In creating it, we drew on the opinions of Group employees worldwide, involving more than 5,000 people. I believe that we will achieve sustained growth with all employees sharing this Corporate Philosophy and putting it into practice every day, and I will take the lead in activities to inculcate it. My top two priorities in getting Shiseido into a growth trajectory will be revitalizing our business in Japan and accelerating globalization. We will take radical steps to quickly turn around and energize operations in the challenging domestic cosmetics market. We will also generate growth by keeping pace with our global competitors as we further expand our global business. This is the only way for us to evolve. With this rationale as a starting point, for the new Three-Year Plan, we will carry on the three Visions we introduced in 2005: “Rebirth as a 100% Customer-Oriented Company”; “Brighten Our Brand, a Valuable Management Resource”; and “Fill the Shiseido Organization with People with Their Own Appeal.” We have also formulated four growth strategies and will support the Visions and these strategies with measures that reinforce the management base. We will continue to take on greater challenges by executing our four growth strategies. Four growth strategies underpin the new Three-Year Plan. The first is the Global MegaBrand Strategy, in which we will consider markets beyond regional boundaries and focus deployment of resources from the perspectives of distinction and concentration. Our aim is to become a Global Multiple-Brand Company that has several brands with ¥50 billion to ¥100 billion in annual sales each. We plan to select three brands each from the prestige and masstige* categories, and will focus on developing them as global mega-brands. Next is the Asian Breakthrough Strategy. We aim to expand our overall share in the Asian market, which is expected to become the world’s largest by 2020, by designating Asia as our priority area. Our first step will be revamping marketing and sales strategies in the crucial Japanese market to achieve growth that exceeds that of the overall market. We will also emphasize initiatives in China, where we are strong, and in other Asian countries in order to reinforce our management base. Third is the New Frontier Strategy. Shiseido will increase points of contact with customers in new sales channels through full-scale Web-based marketing. In Japan, we are establishing a new business format that links the Internet and existing stores, and will begin full-scale development from April 2012. At the same time, we will work to develop emerging markets as future engines of growth. Fourth is the Customer-First Strategy. The aim of this strategy is to become No. 1 in terms of customer support worldwide through dramatic reforms that put customers first in all of our business processes. This will involve thoroughly refining product d evelopment and sales activities. (Please refer to The Growth Strategies of the New Three-Year Plan on pages 16 to 23 for more detail on Shiseido’s growth strategies.) *Masstige: A word coined from “mass” and “prestige.” Masstige products are positioned as more expensive than massproduced products, but more moderately priced than prestige products. SHISEIDO ANNUAL REPOR T 2011 13 We will reinforce our management base so that we match our global competitors. Shiseido will support its four growth strategies by reinforcing its management base with multifaceted initiatives that focus on global optimization. In production and procurement, efforts to optimize and strengthen our supply chain will include further enhancing the efficiency of production and distribution in Asia. In addition, we will work to standardize operations and accelerate decision-making by introducing our SAP core business processing system to establish the basis for global information processing. We are also fostering the globalization of human resources in ways such as helping local employees overseas shape their careers and cultivating global executives. Moreover, we plan to deepen our global commitment to the corporate social responsibility (CSR) activities we have been strengthening over the past several years in areas such as the environment and social contribution. Shiseido fulfills its corporate responsibilities by promoting management that contributes to people’s beauty and health. I would like to expand on my earlier comments about CSR activities to explain how Shiseido will approach management. The “Our Way” section of Our Mission, Values and Way, which I mentioned earlier, defines the way we should behave toward our stakeholders. In addition, Our Way includes the Ten Principles of the United Nations Global Compact, which we have participated in since 2004, as well as the principles and reasoning of the world’s first CSR standards, ISO26000. In other words, Our Way is Shiseido’s CSR charter. Through dialogue and cooperation with stakeholders, Shiseido aims to achieve a sustainable society by undertaking activities that address the issues and expectations of society. Specifically, we will realize our vision for 2020 by working companywide in the three areas in which we can make an important contribution to society: women and cosmetics (beauty); culture; and the environment. Shiseido also believes that assisting in the recover y from the Great East Japan Earthquake of March 2011 is an important responsibility. In April 2011, I visited stores in the stricken areas of Morioka, Sendai, and Fukushima. Many people affected by the earthquake made comments such as “I would at least like a mirror and an eyebrow pencil” and “I feel lost without lotion,” which highlighted just how essential cosmetics are in the daily lives of women. We would like to support the recover y through unique activities that deliver the enjoyment and pleasure of cosmetics, including the stable supply of cosmetics and beauty volunteer activities at the emergency shelters. (Please refer to Initiatives Based on Our Way on pages 32 to 45 for more detail on Shiseido’s CSR activities.) 14 SHISEIDO ANNUAL REPOR T 2011 Message from the President & CEO Management Targets of the New Three-Year Plan ■ Compound annual growth in net sales of 6% or higher (Local currency basis) ■ Operating profitability of 10% within three years (Assumed exchange rates: ¥80 per U.S. dollar, ¥110 per euro, and ¥12.5 per Chinese yuan) Shiseido must consistently take on challenges to evolve into and remain an outstanding company in the future. The targets of the new Three-Year Plan are compound annual growth in net sales of 6 percent or higher on a local currency basis and operating profitability of 10 percent within three years. The Great East Japan Earthquake has created uncertainties in materials acquisition, production and business confidence, and its impact on domestic sales will be substantial. At first, we considered revising our numerical targets, but chose not to, deciding instead to work companywide to achieve our goals and vision for the year ending March 2018. Our targets are high and achieving them will be a challenge. We will increase investments in areas such as marketing both in Japan and overseas to get Shiseido into a growth trajector y during the year ending March 2012 by steadily enhancing the foundation for accelerating growth from the year ending March 2013. We aim to maximize returns to shareholders through direct means and by generating medium- and long-term share price gains. To this end, our fundamental policy is to make strategic investments that drive earnings growth while raising capital efficiency, which will lead to medium- and long-term increases in dividends and share price. Our target for returns over the medium-term is a consolidated payout ratio of 40 percent. Based on this target, we will prioritize payment of stable dividends while implementing share buybacks in a flexible manner. For the year ending March 2012, we plan to keep annual dividends at ¥50 per share due to the expectation that earnings will increase under the new ThreeYear Plan and our continuing emphasis on s table dividends. My mission is to carry on Shiseido’s founding spirit of serving customers and contributing to society through beauty and to continue creating new and richer sources of value by discovering many new customers so that Shiseido evolves into and remains an outstanding company in the future. I pledge to devote my heart and soul to this mission. We are counting on the continued support of shareholders and investors as we evolve to meet your expectations. July 2011 Hisayuki Suekawa President & CEO (Representative Director) SHISEIDO ANNUAL REPOR T 2011 15 Feature: The Growth Strategies of the New Three-Year Plan Shiseido’s new Three-Year Plan ending March 2014 is Phase II of Shiseido’s drive to become a global player representing Asia with its origins in Japan. Under the theme of getting Shiseido into a growth trajectory, the new Three-Year Plan has four strategies for achieving a turnaround in the Japanese market and accelerating globalization. This interview with President Suekawa explores Shiseido’s four growth strategies and plans for the first year of the Three-Year Plan. Overview of the New Three-Year Plan Vision Rebirth as a 100% CustomerOriented Company Global Mega-Brand Strategy Asian Breakthrough Strategy New Frontier Strategy Japan China Asian Countries Recovery of growth potential Sustained growth in the markets, which serve as a growth engine Increasing opportunities to discover customers in the expanding middle-income group 16 SHISEIDO ANNUAL REPOR T 2011 Fill the Shiseido Organization with People with Their Own Appeal Americas Europe Refining the prestige image Upgrade Shiseido Group brand value Improvement of brand value in the prestige market Increase opportunities to discover customers Full-scale promotion of the masstige market Become a leading company representing Asia Expanding market share in Asia Enhancement of business foundations for growth Promote the priority activities in each country Expand opportunities to discover customers through new sales channels Full-scale entry to direct marketing Develop the growth engine for the next generation Enhancement of initiatives in emerging countries Return to our origin as a manufacturer CustomerFirst Strategy Reinforcement of management base Brighten Our Brand, a Valuable Management Resource Refining product development Realize completely customer-oriented business Refining of sales activities Optimization of production system Improvement of procurement system Establishment of IT infrastructure Globalization of human resources Deepening of CSR Activities Growth Strategy 1 Global Mega-Brand Strategy How will Shiseido build its brands in the future? Shiseido aims to keep pace with its global competitors as a Global Multiple-Brand Company that has several brands with ¥50 billion to ¥100 billion in annual sales each. Conventionally, Shiseido has developed brands originating in Japan, Europe and the Americas globally by enhancing their unique value and presence in each area. With the overseas sales ratio now over 40 percent, our brand strategy entails accelerating globalization. We will continue our ef for ts to maximize brand value by area while designating global mega-brands for priority development through concentrated investments of manpower, marketing outlays and other resources to address markets that extend beyond regional boundaries. We have selected three prestige brands and three masstige brands to become our six global mega-brands. We will enhance the value of Shiseido Group brands in the prestige categor y while increasing opportunities in the masstige category to expand the discovery of new customers in the rapidly growing middle-income group, primarily in Asia. What are your initiatives for each of the six global mega-brands? In the prestige categor y, our plan is to accelerate globalization by focusing on the development of three brands: the global brand , clé d e p e a u Beauté, and Bare Escentuals. We will cultivate the global brand SHIS , which is now available in 85 countries and regions including Japan, by strengthening the lines and enhancing the brand concept so that brand presence rivals that of its global competitors from Europe and the United States. We will also enhance the presence of the clé de peau Beauté brand, which was comprehensively renewed in spring 2011, as a brand that appeals to affluent consumers in Asia and the United States. We will maximize synergies with Bare Escentuals, which we acquired in March 2010, with a focus on further growth in the Americas and business Overseas Sales Ratio (%) 42.9% 6.5% 1992 1998 2003 (Years ended March) 2008 2011 SHISEIDO ANNUAL REPOR T 2011 17 Global Mega-Brands Bare Escentuals Za Global brand clé de Peau Beauté expansion into Europe centering on the United growth in the prestige and masstige categories in Kingdom, and into Asia from Japan. Asia while enhancing brand presence in the In the masstige categor y, the total skincare and European and U.S. prestige markets. In addition to makeup brand Za, which is sold in nine Asian the six global mega-brands, we have many distinctive countries with a focus on China, per for med brands that are rooted in specific regions. These strongly. We will position Za as a self-selection and include the designer fragrance brands of Beauté advice brand, taking into account the characteristics Prestige International S.A. that originated in Europe, of the countries and regions it ser ves. We will also DECLÉOR and CARITA in the professional category, expand regional coverage for Senka, a skincare and the NARS makeup brand that originated in the brand for the low-priced market in Japan and the United States. We also have AUPRES and URARA, masstige market in Asia that we have already which we originated in China, along with launched in Japan and Taiwan. We will emphasize MAQUILLAGE and Elixir from Japan. We will its quality as a product originating in Japan and further enhance the value of these brands/lines to carefully consider customer needs in the countries complement our global mega-brands, thus building a and regions we ser ve with the aim of increasing powerful brand portfolio with the aim of becoming a sales. We also plan to introduce a third brand to Global Multiple-Brand Company. expand beyond skincare and makeup. Under the new Three-Year Plan, we will aggressively promote the Global Mega-Brand Strategy to expand 18 Senka SHISEIDO ANNUAL REPOR T 2011 (For further information regarding our brands/ lines, please refer to Brand/Line Overview on pages 24 and 25.) Feature: The Growth Strategies of the New Three-Year Plan Growth Strategy 2 Asian Breakthrough Strategy implement this policy, we achieved solid results What initiatives will Shiseido execute in its home market of Japan? during a spring 2011 MAQUILLAGE promotion by developing information and renewing communication. Significantly reducing the number of new products Shiseido must act on its declaration to become a global player representing Asia with its origins in Japan by increasing market share in Asia, including Japan. In doing so, our top priority will be achieving a turnaround in Japan, which accounts for approximately 60 percent of net sales. Our sales in Japan have been lackluster because of 1) marketing reliant on new products; and 2) insufficient response to evolving customers and markets. We will address these issues by implementing fundamental reforms focused on two key areas: stepping up cultivation of existing products and introducing a new Web-based business model. Our first initiative in stepping up cultivation of existing products will be reducing the number of new products while enhancing value brand by brand. We will take a scalpel to inefficient marketing by intensely promoting a policy of not launching products unless they win customer acclaim. Moving proactively to will free up manpower and costs that we will reinvest in the value chain, including r esear ch and development, infor mation development, sales activities, and activities of beauty consultants at sales counters. This will increase the quality of all activities. We will also promote flexible front-line sales activities and foster innovation by shifting strategy formulation functions, authority for ordering promotional materials, and certain marketing outlays to a sales subsidiar y from our head of fice. Fur ther, we will create mechanisms for responding quickly by area to changing customer needs. Promoting these reforms will increase sales at stores, which will also support reduction of store inventor y. Because initiatives to develop existing products are especially crucial to turning around domestic operations, I will lead them myself. I am visiting workplaces and stores throughout Japan to deepen employee understanding Development in Asia ◆ Concentrate investment in nurturing existing businesses ◆ Develop new Web-based marketing China ◆ Prioritize allocation of resources to achieve stable growth in the future ◆ Sustain double-digit growth by further strengthening our business base Japan Other Asian Markets ◆ Enhance the prestige business ◆ Promote full-scale development of masstige brands SHISEIDO ANNUAL REPOR T 2011 19 and get them working on specific activities. Introducing a new Web-based business model, one involve further enhancing the prestige category and expanding the masstige business. We will thoroughly of the pillars of our New Frontier Strategy, will involve enhance the global brand and the China- promoting a new marketing approach that capitalizes only brand AUPRES in department stores to solidify on the characteristics of both stores and the Internet. their appeal in China. We now have contracts with I will cover this in detail later. more than 5,000 cosmetics specialty stores. The next We will strengthen investment to promote these stage will involve enhancing performance by further reforms during the year ending March 2012, primarily expanding sales per store. We will do so by stepping through marketing outlays. We expect this invest- up cultivation of URARA, Pure & Mild and d’ici là. ment to drive steady growth in the year ending In the drugstore channel, where we market DQ, we March 2013 and beyond. will achieve further growth through means including improved communication. We will complement What will be the focus of initiatives to generate stable growth in Asia? China is an engine of growth for Shiseido, but because of its strong growth potential, our global competitors are investing heavily in aggressive strategies in this market. Shiseido has been doing business in China for 30 years since entering the market in 1981. We will maintain our presence in China while putting priority on allocating even more resources to this market to sustain growth. Significantly strengthening investment will reinforce the powerful business base we have created to date as we move to maintain double-digit sales growth and achieve operating profitability of at least 10 percent under the new Three-Year Plan. Our initiatives to build a solid business base channel-specific initiatives by using the Shiseido Group’s comprehensive capabilities to open up markets. For example, we will launch Bare Escentuals, and enhance our presence in salons through the professional business. We will focus investment of personnel, marketing outlays and other resources on these activities with the aim of achieving sustained growth in the Chinese market. In Asian markets other than Japan and China, where the middle-income segment is expected to increase significantly in the future, Shiseido will enhance the prestige business and promote full-scale development of masstige brands. We will reinforce our presence in the priority markets of Taiwan, Korea and Thailand to increase sales. Our goal of increasing sales will include aiming for an even greater share of Taiwan’s prestige market and building our presence in key markets such as the Korean market, where we have an opportunity to grow sales, and the Thai market, which is our base in the ASEAN region. 20 In Japan, we will review responsiveness at sales counters In China, initiatives such as major promotions for and enhance communication of product value. In other Asian countries, we will aggressively expand AUPRES will help maintain strong growth. and build the presence of masstige brands such as Za and Senka. SHISEIDO ANNUAL REPOR T 2011 Feature: The Growth Strategies of the New Three-Year Plan Growth Strategy 3 New Frontier Strategy Please explain Shiseido’s new Web marketing initiative. the new cosmetics sales store business model, In order to succeed in the global market of the hensive website for beauty and health where not future, we need to respond quickly to changing only the Shiseido Group but also many companies customers and markets while identifying and involved in areas such as beauty, healthcare, medical developing growth markets. In the new Three-Year products and fashion will par ticipate. As of April Plan, we aim to expand points of contact with 2011, we forecast that the customer organizations of customers through full-scale marketing ef for ts in Shiseido and companies considering participation Japan and overseas that center on the rapidly would have a total of approximately 20 million growing activity on the Internet. registered members. star ting with an online shopping mall called the Beauty Platform. We will cultivate it as a compre- First of all, we will initiate e-commerce in the United Customers will visit the Shiseido website via the States and China. At the same time, in Japan, while Beauty Platform. In addition to attractive content, we leveraging the strengths of our large network of stores, will present optimum beauty solutions by using our we will establish a new Web-based cosmetics sales database encompassing customers, products and store business model. stores. Many customers say they want to try out the In 2012, we will begin full-scale development of scent, look or feel of cosmetics before making a New Cosmetics Sales Store Business Model Customer Discovery Diverse Content Platform Business Shopping Mall (the virtual online stores of various companies) Beauty Platform Deepen Relationships with Customers Online Counseling Store Navigation Direct Marketing Online Shop Beauty Content Shiseido Website Introduce Customers Existing Brick-andMortar Stores Sales of Existing Brick-andMortar Stores SHISEIDO ANNUAL REPOR T 2011 21 Growth Strategy 4 purchase. The Shiseido website will have a store navigation function to introduce these customers to stores that sell our products, and will also offer a convenient online shop where customers can 海外売上高比率 purchase approximately 3,000 products. (%) This unique business model that leverages the Internet to expand points of contact to discover customers and introduce them to brick-and-mortar stores will be indispensable to future growth. 6.4% How will Shiseido develop emerging countries into its 1993 1998 2003 next growth engine? 42.9% What is the background of Shiseido’s Customer-First Strategy and what initiatives will it entail? 6.5% One is putting customers first in all activities and processes. The other is becoming No. 1 in terms of 1992 2008 2011 (3月期) customer support worldwide. This strategy is at the heart of the new Three-Year Plan and is relevant to is working to accelerate expansion in new 34,747 markets. Under the previous Three-Year Plan, we 3,485 その他 29,036 all corporate activities to become a global player representing Asia with its origins in Japan. newly entered 24,453 13 countries. As of March 北米 2011, our 5,227 31, We will put customers first by returning to our 19,987 products were available in a total of6,451 85 countries and 南米 roots and thoroughly refining manufacturing as well regions, including Japan. as product development and sales activities. We will 9,868 欧州 In the new Three-Year Plan, Shiseido will expand execute a complete overhaul of all areas of the value アジア the regions in which its products are available while chain, from research, development and production +55% further strengthening initiatives in that 2006 of fer 2010 significant (日本のぞく) アジア 6,416 地域 emerging 3,307 日本 countries 2014 tunities 2018 oppor for to marketing, sales and beauty consulting, without (3月期) growth. In clinging to our past successes. We will work to Russia, which has seen strong growth particularly maximize customer satisfaction and prevail in global over the past several years, we will enhance in-store competition by developing infor mation that activities that focus on our strength in skincare. We communicates value commensurate with product aim to become one of the top five companies in price and having all beauty consultants worldwide Russia’s prestige market. ser ve customers in the full spirit of Shiseido’s unique omotenashi (hospitality). Number of Countries and Regions Where Shiseido Products Are Available 82 85 29 1991 22 Overseas Sales Rati (%) The term “customer-first” has two meanings. グローバル市場規模予測 Shiseido (億円) CustomerFirst Strategy 1995 2000 SHISEIDO ANNUAL REPOR T 2011 2005 2010 2011 (Dec.) (Mar.) 1998 (Y Feature: The Growth Strategies of the New Three-Year Plan Performance Forecast for the Year Ending March 2012 Strategy in the First Year of the New Three-Year Plan During the new Three-Year Plan, we are aiming for billion overseas. We will reinforce existing businesses compound annual growth in sales of 6 percent or higher in Japan by increasing marketing outlays in areas on a local currency basis and operating profitability of including adver tising as well as sample and 10 percent within three years by implementing the four promotional expenses for front-line sales. We will also strategies I have just outlined. For the year ending invest aggressively in marketing to build a solid March 2012, we forecast that net sales will increase 1.4 foundation for our new Web-based business model percent year on year to ¥680 billion, assuming that the that we will launch in 2012. Overseas, we are Great East Japan Earthquake will have the effect of emphasizing China, where we will increase marketing reducing domestic sales by approximately ¥10 billion, outlays to expand our presence and market share. We the markets of Europe and North America will continue also plan to strengthen sales by shifting personnel to recover, and sales will increase in Asian markets, including sales and beauty consultants from Japan to particularly China. Breaking down this forecast, we China. Worldwide, we will energetically invest in believe that domestic sales will be essentially unchanged cultivating the global mega-brands in both the prestige compared with the year ended March 2011, while and masstige categories. overseas sales will increase 10 percent on a local We forecast that net income will increase 64.2 percent year on year to ¥21 billion because other currency basis and 3.2 percent on a yen basis. However, we forecast that operating income will expenses and tax payments will decrease significantly. decrease to ¥40 billion from the year ended March 2011 We therefore forecast that increasing investment to because we will invest heavily in areas such as generate future growth in Japan and overseas will marketing in order to achieve growth in the year ending reduce operating income for the year ending March March 2013 and beyond. 2012. However, steadily accelerating growth through These investments will total approximately ¥20 billion – ¥7 billion in Japan and approximately ¥13 this investment will help us achieve the targets of the new Three-Year Plan. Performance Forecast for the Year Ending March 2012 (Billions of yen) Forecast Year-on-Year Change Year-on-Year Change (Local currency basis*) 680 +1.4% +4% Domestic sales 383 +0.0% − Overseas sales 297 +3.2% +10% Operating income 40 −10.0% − Net income 21 +64.2% − Net sales Overseas sales ratio Operating profitability 43.7% +0.8 points − 5.9% −0.7 points − * Assumed exchange rates: ¥80 per U.S. dollar, ¥110 per euro, and ¥12.5 per Chinese yuan SHISEIDO ANNUAL REPOR T 2011 23 Brand/Line Overview Shiseido aims to build a powerful brand portfolio by combining global mega-brands developed on a priority basis to extend beyond regional boundaries and brands for which it is enhancing presence in specific regions. Domestic Cosmetics Business Domestic Cosmetics Division Counseling Self-selection Global MegaPrestige J REVITAL GRANAS ● J ● C● A MAQUILLAGE ● J ● C● A Aqua Label ● Global brand SHISEIDO J ● C● A● E U● ● ELIXIR SUPERIEUR J ● C● A ● J ● A Bénéfique ● J ● C● A Uno ● Toiletries J ● A Integrate ● clé de peau BEAUTÉ J ● C● A● U ● E J ● C● A● Tsubaki ● Healthcare Division The Collagen ● J 24 In & On ● J SHISEIDO ANNUAL REPOR T 2011 A J ● SEA BREEZE ● Non-Shiseido IPSA ● J ● C● A d ’ ici là ● J● C● A Bare Escentuals bareMinerals J ● E U● ● Main Regions of Availability J China: ● C Asian countries: ● A Japan: ● E U Europe: ● North America: ● Global Business Overseas Cosmetics Division Non-Shiseido Brands Masstige ISSEY MIYAKE narciso rodriguez J ● C● A● E U● ● E J ● A● U● ● NARS J ● C● A● E U● ● China Za C● A ● C AUPRES ● C DQ ● C URARA ● Senka J ● A ● C Pure & Mild ● Overseas and Domestic Professional Divisions One Brand Targeted for Categor y E xpansion ( New Launch Planned) JOICO C● A● U ● DECLÉOR J ● C● A● E U● ● CARITA A J ● C ● Qi ● J ● A● E U● ● SHISEIDO ANNUAL REPOR T 2011 25 Review of Operations Domestic Cosmetics Business The Domestic Cosmetics Business manufactures cosmetics and toiletries for sale in Japan. In a difficult, contracting market, the Domestic Cosmetics Business continued to emphasize concentration and distinction in promoting measures to strengthen sales through rearrangement of targeted stores and brands according to specific channels. Business Overview ←国内 Share of Total Net Sales A leading company in Japan’s cosmetics market, Shiseido operates in the primarily high-priced, highvalue-added counseling product categor y, the spot counseling category centering on mid-priced items, the 53.4% self-selection market encompassing low-priced products, and the toiletries category. Shiseido’s high-value-added counseling products are sold at voluntary chain stores, department stores and general merchandise stores. Mid- Net Sales / Segment Income priced and self-selection products are mainly sold at Net Sales (Left scale) (Billions of yen) 500 dr ugstores. Among these channels, Shiseido is 400 397.5 32.7 Segment Income (Right scale) (Billions of yen) 50 383.8 38.9 358.4 33.6 40 300 30 200 20 100 10 0 2009 2010 (Years ended March) 2011 0 capitalizing on the advantages of the voluntar y chain stores and department stores that can provide the quality services and counseling that the Company aims for. Overview of Performance in the Year Ended March 2011 Against a backdrop of factors such as cooling 1.0 consumer sentiment, the domestic over-the-counter 0.8 cosmetics market has continued to contract since the Sales by Division (Year Ended March 2011) 0.6 Sales (Billions of yen) Percent change 181.6 Self-selection cosmetics 82.0 Toiletries 41.9 Domestic Cosmetics Division 305.5 Healthcare Division 15.6 Others 37.4 Total 358.4 Counseling cosmetics - 8.5% - 3.7% -10.0% -7.5% +2.6% -2.6% - 6.6% second half of the year ended March 2008. In the year 0.4 ended March 2011, the market shrank a further 1 to 2 percent. 0.2 Structurally, the markets for high- and low-pricedトイレタリー 11.7 0.0 products were relatively firm. However, weak sales in the mid-priced product market were a key factorセルフ化粧品 22.9 ◆ Trends in the Domestic Over-the-Counter Note: Effective the fiscal year ended March 2011, the Company has reclassified its operations into three segments for reporting purposes, in line with its application of Accounting Standards Related to Disclosure of Segment Information. The new segments are: Domestic Cosmetics Business, Global Business, and Others. The domestic professional business, previously included within the Domestic Cosmetics segment, is now included in the Global Business segment. Share of Total Net Sales 26 SHISEIDO ANNUAL REPOR T 2011 ヘルスケア 4.4 Cosmetics Market (Shiseido estimates) ←海外 Year ended March 2009 Year ended March 2010 Year ended March 2011 Year-on-year change in sales −2∼3% −3∼4% −1∼2% clé de peau Beauté Shiseido’s largest-selling top-end prestige brand in the Domestic Cosmetics Division. Moving to enhance it as a global brand, we generated strong results by renewing the brand’s skincare products in January 2011 and its makeup products in February 2011. causing overall sales in the Domestic Cosmetics For primarily high-priced, high-value-added counseling Business to decrease 6.6 percent compared with the products, we achieved steady results at department stores previous fiscal year to ¥358.4 billion. with the ongoing implementation of our Double Counter Segment income (operating income) decreased 13.8 strategy entailing separate counters for the global brand percent compared with the previous fiscal year to ¥33.6 and the top-end prestige brand clé de peau billion. Ef for ts to deploy selling, general, and Beauté. In the second half of the year, we undertook a administrative expenses such as marketing costs more comprehensive renewal of the clé de peau Beauté brand efficiently did not fully compensate for the significant lineup, including package design and image model. reduction in marginal income due to lower sales. Ongoing implementation of our PS Program2 generated strong results at voluntary chain stores by focusing on Overview of Performance in the Year Ended March 2011: Domestic Cosmetics Division During the year ended March 2011, we continued fostering mega lines and relationship-building brands/ lines 1 to achieve long-seller product status. We also continued executing measures to strengthen sales by nar r owing priority ar eas in each channel and concentrating resources in them. improvement at approximately 800 participating stores. In the spot counseling categor y, centering on midpriced items and “one-point counseling” (tips), we stepped up initiatives to foster the MAQUILLAGE line in its fifth year on the market. We also renewed the Elixir Superieur line. While these initiatives resulted in solid performance by clé de peau Beauté and other high-priced brands/ lines, the impact of contraction of the market for midpriced items and weak sales of flagship lines such as MAQUILLAGE A core total makeup line in the Domestic Cosmetics Division. In the spring 2011 promotion, Shiseido concentrated on renewing communication used in the July 2010 launch of MAQUILLAGE Rouge Enamel Glamour. This approach is an example of successful cultivation of existing products. SHISEIDO ANNUAL REPOR T 2011 27 Elixir and MAQUILLAGE caused overall sales of targeting the low-priced market was also a solid performer. counseling cosmetics to decrease 8.5 percent year on year. However, Tsubaki struggled because of intense competition in In the self-selection categor y, we launched new the shampoo market, which caused overall toiletr y sales to Anessa sunscreens that offer exceptional ultraviolet ray decrease 10 percent year on year. protection and do not require special cleansers for As a result of the above, overall sales in the Domestic removal. We also continued to cultivate the Integrate Cosmetics Division decreased 7.5 percent year on year to line of mineral foundations, which remained a hit. ¥305.5 billion. However, self-selection sales decreased 3.7 percent year According to Shiseido estimates for the year ended March on year because of lackluster performance of the Uno 2011, our over-the-counter sales for counseling and self- line, in which we launched Fog Bar in the previous fiscal selection cosmetics contracted 2 to 3 percent year on year. year, and the Aqua Label line. Consequently, our store inventory (inventory in the process of In the toiletries category, the SEA BREEZE line popular distribution) also decreased year on year. primarily among teenage users performed well, supported by a hot summer. The strategic skincare brand Senka Anessa Senka ANESSA has the top share in Sales of Senka were strong, with 2.5 million units shipped Japan’s sunscreen market. New in the first 11 weeks after its launch in September 2010. products per formed well We also began sales in Taiwan in October 2010, and plan because we made them more to launch the brand suc- pleasing to use and employed cessively in other Asian unique technology to enhance countries. sun protection. Overview of Performance in the Year Ended March 2011: Healthcare Division Shiseido stepped up ef for ts to cultivate brands, Kirei no Susume, a balanced beverage product, and IHADA, a augmenting The Collagen, the top-selling line of pharmaceutical for skin problems that cosmetics cannot supplements in the collagen market in terms of over-the resolve. As a result, sales in the Healthcare Division continued counter sales. We added High-Activated Beauty Powder, to expand, increasing 2.6 percent to ¥15.6 billion compared which can be taken by dissolving it in food and with the previous fiscal year. beverages. We also launched new products, including 1. Relationship-building brands/lines: Brands/lines that deepen relationships with customers through counseling. 2. PS Program: A strategy for nurturing voluntary chain stores with growth potential that want to strengthen cooperation with Shiseido. The program involves the formulation of shared goals and focused execution tailored to each store’s unique characteristics. 28 SHISEIDO ANNUAL REPOR T 2011 358.4 33.6 32.7 300 30 200 20 100 10 0 2009 2010 (Years ended March) 2011 Review of Operations 0 1.0 0.8 Sales by Division (Year Ended March 2011) 0.6 Sales (Billions of yen) Percent change Global Business ヘルスケア 4. 0.4 181.6 - 8.5% Self-selection cosmetics 82.0 - 3.7% Toiletries 41.9 -10.0% Domestic Cosmetics Division 305.5 -7.5% Healthcare Division 15.6 +2.6% The Global Business manufactures cosmetics for sale overseas and Others 37.4 -2.6% TotalJapan and overseas. 358.4 6.6% -In salons for sale in the year ended March 2011, the Counseling cosmetics 0.2 トイレタリー 11. 0.0 products for hair and beauty セルフ化粧品 22. Global Business enhanced its presence in Western prestige markets and concentrated on maintaining strong growth in China and expanding points of contact with customers in the Asian masstige market. ←海外 Business Overview Shiseido operates in a wide array of countries and Share of Total Net Sales regions. The global brand was available in 85 countries and regions including Japan as of March 31, 2011. 45.1% Shiseido operates in the prestige category in Europe and the Americas, centered on the global brand . In the United States, the makeup brand NARS also has strong customer suppor t, and Bare Net Sales / Segment Income Escentuals has the leading share of the mineral Net Sales (Left scale) (Billions of yen) foundation market with a unique business model that Segment Income (Right scale) (Billions of yen) 400 300 30 15.4 200 counter sales at retail outlets such as department stores 302.6 275.7 250.4 20 9.5 includes direct marketing via television and over-the- 9.0 100 and cosmetics specialty stores. In Europe, Shiseido’s potent brands include the designer fragrances of Beauté 10 Prestige International S.A. Shiseido has been in the Chinese market for 30 0 2009 2010 (Years ended March) 2011 0 years, ahead of other global cosmetics companies. Shiseido is implementing a channel-specific brand strategy that involves selling the global brand Sales by Division (Year Ended March 2011) Sales (Billions of yen) Overseas Cosmetics Division Overseas and Domestic Professional Divisions Total 261.7 Percent change and the China-only brand AUPRES at Percent change (Local currency basis) +25.0% +32.0% department stores and the URARA and Pure & Mild brands at cosmetics specialty stores. We are building a power ful store network; as of December 31, 2010 it プロフェッショナル 40.9 302.6 - 0.3% +5.1% +20.9% +27.6% Notes: 1.Exchange rates for major currencies for the year ended March 2011: ¥87.8 per u.s. dollar, ¥116.4 per euro, and ¥13.0 per Chinese yuan 2.Effective the fiscal year ended March 2011, the Company has reclassified its operations into three segments for reporting purposes, in line with its application of Accounting Standards Related to Disclosure of Segment Information. The new segments are: Domestic Cosmetics Business, Global Business, and Others. The domestic professional business, previously included within the Domestic Cosmetics segment, is now included in the Global Business segment. encompassed approximately 190 stores the global 13.5selling % brand , 920 stores selling AUPRES, and 5,200 cosmetics specialty stores. 化粧品 86.5% Overview of Performance in the Year Ended March 2011 The high-end markets of Europe and North America improved as a result of economic recover y. Strong SHISEIDO ANNUAL REPOR T 2011 29 growth continued in the markets of Asia including China, concentrate on promoting Za and MAJOLICA MAJORCA. A and emerging countries as strong economic expansion marketing campaign in collaboration with retailers in Thailand increased the number of middle-income earners. generated par ticularly strong results. Complementing the Under these conditions, overall sales in the Global Business increased 27.6 percent compared with the steady performance of these brands, sales of Aqua Label increased substantially. previous fiscal year on a local currency basis as sales Shiseido maintained an aggressive channel-specific brand increased in the Americas, Europe and Asia/Oceania. strategy in China, demonstrating an ongoing commitment to Excluding the sales of Bare Escentuals, sales increased 10.0 percent on a local currency basis. As a result of the appreciation of the yen, sales increased 20.9 percent on a Global Brand Shiseido complemented prior efforts to enhance lines in ways yen basis to ¥302.6 billion. Segment income (operating income) decreased 5.4 percent to ¥9.0 billion because of nonrecurring costs associated with the acquisition of Bare Escentuals. such as introducing newly designed counters to strengthen the brand’s presence in the prestige category. Excluding these costs, segment income would have increased 22.0 percent year on year to ¥11.6 billion. Overview of Performance in the Year Ended March 2011: Overseas Cosmetics Division Results were strong in both the prestige and masstige markets during the year ended March 2011. In the prestige market, the global brand achieved sales growth in various countries. Shiseido executed focused programs to cultivate the brand, including the introduction of newly designed counters and promotional activities to increase product awareness. The line and the Future Solution LX premium skincare BOP (Bio-Performance) high- performance skincare line were among the lines that performed strongly as a result. After Shiseido acquired Bare Escentuals, the two companies began collaborating in a project to achieve synergies that enhanced Groupwide ef ficiency by integrating production functions and distribution facilities and strengthened sales at stores and via the website. As a result, Bare Escentuals achieved sales and income targets for the year ended March 2011. In addition, sales of NARS increased by more than 30 percent, while growth recovered in the designer fragrance and travel retail businesses. In Asian masstige markets, Shiseido continued to 30 SHISEIDO ANNUAL REPOR T 2011 bareMinerals Bare Escentuals’ primar y brand. Featuring a mineral powder containing no preser vatives, fragrances, oils or talc, it has gained a towering share of the U.S. mineral foundation market. Review of Operations Za A core brand targeting middle-income AUPRES Shiseido created this China-only brand using its many years of research into climate and the skin of Chinese women. Sales have consistently increased since the brand’s launch in 1994, building a power- earners in Asia. Shiseido is energetically promoting the brand in Thailand, Taiwan and elsewhere in Asia to enhance its presence as a dedicated Asian skincare/ makeup brand. ful position in the prestige market. ISSEY MIYAKE This Beauté Prestige International NARS Shiseido acquired this makeup brand in 2000. Its powerful brand cachet in the United States continues to expand. designer fragrance has potent brand cachet and is available in more than 100 countries. Beauté Prestige International also sells the narciso rodriguez brand. this crucial market where exceptional growth is forecast. increased 32.0 percent year on year on a local currency We continued to introduce new counters at department basis and 25.0 percent year on year on a yen basis. stores while enhancing the AUPRES lineup. At cosmetics specialty stores, we nurtured the URARA brand sold only in this channel and the Pure & Mild brand, while introducing d’ici là, a high-end brand. As a result of these activities, we maintained double-digit sales growth in China that exceeded the growth rate of the overall market, as well as a high level of operating profitability above 10 percent. Shiseido further accelerated its ongoing efforts to expand business in new markets. The number of stores handling our products in Russia tripled year on year to 900. We also began doing business in the three Balkan countries of Albania, Kosovo and Macedonia and expanded our operations in other new markets. With the growth in existing businesses and the Overview of Performance in the Year Ended March 2011: Overseas and Domestic Professional Divisions In Japan, business conditions remained difficult amid economic recession and intense competition. Overseas, sales grew in Asia, where market expansion continues. Results were also robust in Europe and North America, supported by ongoing economic recover y. As a result, sales of the Overseas and Domestic Professional Divisions increased 5.1 percent year on year on a local currency basis. On a yen basis, sales decreased 0.3 percent year on year to ¥40.9 billion because of the appreciation of the yen. contribution of newly consolidated Bare Escentuals’ results, the Overseas Cosmetics Division substantially exceeded results for the previous fiscal year. Sales SHISEIDO ANNUAL REPOR T 2011 31 Initiatives Based on Our Way Our Way denotes appropriate conduct toward stakeholders under the Shiseido Group Corporate Philosophy “Our Mission, Values and Way.” Based on Our Way, we are working to achieve a sustainable society by enhancing dialogue and cooperative activities with stakeholders and creating health and beauty for people. Toward Consumers Toward Business Partners Toward Shareholders This section introduces Shiseido’s efforts to meet people’s needs for beauty and health through research and development activities and response to consumers. We work together with our business partners to create new value. This section explains our collaborative efforts with business partners along with issues such as our approach to procurement. Learn about Shiseido’s corporate governance policies, structure and efforts to maximize corporate and shareholder value in this section. ▶P33 ▶P37 Please refer to Corporate Governance on pages 50 to 54. Toward Employees Toward Society and the Earth For further information regarding our CSR activities, please refer to the Shiseido CSR section on the Shiseido website. http://www.shiseido.co.jp/e/csr/ It covers topics including Shiseido’s Respect for employee diversity. Comfortable, fulfilling workplaces. Find out about Shiseido’s unique initiatives for employees here. This section introduces how Shiseido leverages its strengths through initiatives in three areas to resolve various issues concerning society and the Earth. ▶P38 ▶P40 Environmental Data ▶P44 32 SHISEIDO ANNUAL REPOR T 2011 Social Data ▶P45 latest CSR activities, Stakeholder Dialogues, Third-Party Evaluation, and GRI Guidelines balance sheet. Toward Consumers 100% Customer-Oriented Manufacturing In manufacturing, Shiseido is strengthening quality assurance so that consumers can be confident its products are safe. Based on the Shiseido Group Corporate Philosophy, Our ISO22716* (Cosmetics GMP) standards introduced in 2007 Mission, Values and Way, we aim to ser ve our customers and have been adopted as regulations in many countries. We have society. Products and ser vices that satisfy consumers are established internal standards that are even more rigorous created by combining tangibles consisting of cosmetics than ISO22716 so that we can maintain safety and reliable products and associated intangibles such as various quality. We are fur ther strengthening manufacturing to information and beauty methods. Shiseido achieves this by ensure consumers can use our products with peace of mind. conducting cosmetics research from the three perspectives Shiseido is also enhancing its agility and speed to flexibly of functionality, sensitivity and sensations, and safety to and quickly respond to changing consumer needs. We manu- create value that exceeds consumer expectations. facture flexibly, rather than relying on mass-production lines, For functionality, Shiseido conducts research with a focus by cultivating multi-skilled employees so that a single techni- on creating healthy, beautiful skin. Research for sensitivity cian can oversee all production processes and focusing on and sensations involves investigating usability, scent, color the development of facilities technology that increases pro- and beauty methods to make products pleasing, delightful and ductivity through means such as improvements to manufac- exciting. Safety is the most important of the three perspec- turing facilities. tives. We ensure that the products we develop are safe for con- Going for ward, we will place the highest priority on con- sumers and can be used worry free. Today, consumer beauty sumers in our actions as we return to our origin as a manu- and health needs are becoming more sophisticated and facturer, with the aim of earning the greatest support of our diverse. We are responding by promoting further technologi- customers. In addition to products, we will innovate our cal innovation for cosmetics from a global perspective as well entire value chain, from information development, which is as from new perspectives such as beauty therapy cosmetics important for linking customers and sales counters, to mar- and healthcare. keting activities and descriptions used in advertising. * ISO22716: International standards for cosmetics manufacturing drafted by the International Organization for Standardization ◆ Three Approaches in Research and Development ● Mechanisms to Leverage Developing formulations Physical properties, scent, color ● ● Skin and hair research Human science research Physiological mechanism of skin Physiological psychology and cognitive science ● Developing medicinal agents Beautiful skin, Youthful skin and raw materials Searching, synthesis, and biotechnology Customer Feedback Shiseido works to achieve 100% customer-oriented manu● facturing by making efforts to incorporate valuable feedback techniques from customer consultation and requests and other sources Enjoyable feel, Developing formulation Emotional satisfaction, Joy Sensitivity and Sensations Functionality Emulsification and dispersion, etc. in the development of products and improvement of ser vices. Specifically, it helps us quickly detect consumer and societal ● Beauty care research Beauty information development, color research, sensory evaluation ● Customers Safety Considering effects on body and environment Developing store fixtures Skin condition diagnosis and counseling system ● Developing packaging and wrappings Convenience and eco-friendliness ● Stability, safety, and microbiological safety fore collect, analyze and use customer feedback information, sharing it throughout the Company and requesting relevant divisions to develop or improve products and beauty information, and refine ser vices. This supports our “100% customer- ● Verifying solutions and methods Quality assurance changes and reflect them in corporate activities. We there- Design goal check and customer’s perspective oriented” vision. In Japan, our Customer Information Center receives approximately 120,000 customer comments and inquiries SHISEIDO ANNUAL REPOR T 2011 33 annually via toll-free calls, e-mail, letters and other means, promoting globalization. Quickly grasping customer opinions and beauty consultants use terminals to submit another worldwide and putting those opinions to work in manage- 130,000 comments received at sales counters. These are ment are indispensable to our globalization program. We among the venues and methods through which we collect have established systems in China in addition to Japan, and customer feedback. We manage the information using our are collecting and analyzing consultations and requests, shar- computer system and have organized it for analysis by rele- ing them internally, and effectively reflecting them in corpo- vant parties as required. rate activities. However, other overseas subsidiaries have yet We take these opinions and evaluations seriously and use them as reference in making product improvements. to introduce such systems, making a globally shared system a priority. They provide us with background and allow us to under- To achieve this goal, Shiseido has developed global speci- stand how consumers feel about the cosmetics they use in fications for the system it has used in Japan since 1996 to col- their daily lives. Employees share the feedback we receive lect and use customer feedback. Named Mirror*, the system via an intranet so that we can use it to create more satisfy- was introduced in Japan in April 2011 and overseas in July ing value. 2011. This is strengthening our framework for sharing and Aiming to become a global player representing Asia with its origins in Japan, Shiseido is currently in the midst of using feedback from customers worldwide. The introduction of Mirror will uniformly raise the level of ◆ The Mirror System for Collecting and Using Global Customer Feedback Input, investigation and response functions Customers Customers Inquiry Inquiry Point of customer contact Point of customer contact Japanese version Reflect in risk management, marketing and other English version corporate activities Customers Inquiry Point of customer contact Chinese version Data analysis and aggregation Mirror Examples of Products That Reflect Customer Feedback clé de peau BEAUTÉ New Skincare HAKU Melanofocus W An easy-to-grip container design with an easy-to-push dispenser We developed a refill container that preserves the and a stable container height that also allows easy storage improved quality of the contents while allowing the user to easily the convenience of this lotion and emulsion. In addition, Shiseido see how much is remaining. Introducing the refill has made the product easy to under- reduced the amount of plastic used for containers by stand. For example, larger type 60 percent. size makes the package insert easy to read, the bottle color makes uct, we received and aggregated the item easy to identify, and the comments such as “I have trouble simple product names are easy to knowing when to buy more remember. We also introduced a because I can’t see inside” and cream refill to enable extended use “Throwing away the container of the original container. every time I use up the product is After launching the first prod- wasteful” and used them to evolve 34 SHISEIDO ANNUAL REPOR T 2011 the container. Initiatives Based on Our Way our response to customer consultation and other requests at all customer information centers around the world. At the same time, the efficient collection and use of feedback from customers worldwide will create value for the Shiseido Group. For further information on representative products created through initiatives to incorporate customer feedback, please refer to the Shiseido website. http://www.shiseido.co.jp/corp/customer/voice/ (Japanese only) * Mirror: The name embodies reviewing our activities through customer feedback, or in other words, the reflection of our image in a mirror. A corporate advertisement announcing that Shiseido is using evaluation of level of customer satisfaction to innovate beauty consultant activities, and a questionnaire consultation capabilities. We have also distributed the code of conduct called Shiseido BC Omotenashi Credo, which beau- Responding to Customers ty consultants worldwide use in their day-to-day activities to Beauty consultants fulfill the crucial role of listening to customer requests at the sales counter and introducing products and beauty information according to each person’s skin and cosmetics use. Aiming for high-quality counseling activities from our beauty professionals, in 1998 Shiseido was the first in the industr y to implement an internal cer tification system for beauty knowledge and technology approved by create the spirit of omotenashi (hospitality) at sales counters. In addition, we conduct an overseas customer sur vey ever y six months to confirm that sales counter responsiveness reforms have taken hold and are thoroughly implemented, and to fur ther enhance the level of responsiveness. The results are used in formulating action plans, training and onthe-job training. the Ministr y of Health, Labour and Welfare. From 2005, we moved to achieve 100% customer-oriented store activities by including level of customer satisfaction with ser vice in the evaluation of beauty consultant activities. We share customer feedback with beauty consultants ever y month, review their activities and determine tasks ahead as a means of enhancing their responsiveness and raising the level of customer satisfaction. We are also emphasizing customer satisfaction overseas, where we have been moving to improve responsiveness since 2009 in order to expand the number of loyal customers. Specifically, we have developed and deployed counter ser vice software for Internet use with the goal of improving skincare We have translated the Shiseido BC Omotenashi Credo, a digest of beauty consultant activities, into 22 languages for overseas circulation. ◆ Initiatives to Increase Customer Satisfaction Sales Counters Customers Head Office Beauty consultants ask customers to fill out questionnaires Customers fill out questionnaires and mail them to Shiseido Questionnaires received and aggregated Results sent to business offices by the end of the month Beauty consultants’ sales counter activities take issues into account Beauty Consultants Business Offices Based on the results, clarify issues using review and findings, then set goals Sales counter activities planned using the results SHISEIDO ANNUAL REPOR T 2011 35 Shiseido Technology Supports Beauty development of emulsification technology, which is essential for cosmetics; the development of the effective skin-brightening and Shiseido has a broad technology platform spanning research, product development, production and quality assur- anti-aging ingredients customers strongly desire; and the elucidation of the complex mechanisms of skin action and aging. ance. The knowledge we have accumulated over more than a century of research and development is a powerful advantage For further information regarding our technologies, please driving the superiority of our products. refer to the Shiseido Research and Development section Our research is integrated from basic research in interface science and dermatology to the application of the findings in on the Shiseido website. http://www.shiseido.co.jp/e/technology/ product research. We focus on activities that are indispensable to providing even better products to consumers, such as the Skin-Brightening Research Anti-Aging Research Shiseido has been at the forefront of skin-brightening Shiseido takes multiple approaches in exploring the factors that research since launching the lotion Hydrogen Peroxide cause skin to wrinkle and sag with age. Hyaluronic acid is known Cucumber in 1917. In fact, effective skin-brightening ingredi- to help the skin retain moisture. We discovered that vitamin A ent development is one of our greatest strengths. We have promotes the synthesis of hyaluronic acid and reduces wrinkles. developed approximately one-third of the active skin- We are also investigating the mechanism by which ultraviolet rays brightening ingredients used in Japanese cosmetics, including damage collagen and elastin fibers, and are making progress in arbutin and stabilized vitamin C derivative. This record of achieve- developing effective anti-aging pharmacological agents based on ment is particularly impressive given that the development of our findings. active ingredients in Japan typically takes about 10 years. Shiseido recently developed a new skin-brightening active including dermal immunity and dermatology, energetically exploring ingredient, m-Tranexamic acid, which acts on the chronic mild skin mechanisms such as moisture retention and barrier functions. inflammatory condition at the sites of spots to suppress Recently, joint research with Sagami Women’s University and melanocyte activation. We have also patented our latest Kitasato University was the first in the world to clarify the mecha- skin-brightening active nism that produces Natural Moisturizing Factor (NMF), an ingredi- ingredient potassium 4- ent that is an integral component related to the skin’s moisture methoxysalicylate (4MSK), retention function. In addition, Shiseido conducts basic research in other areas in Japan, Taiwan, Korea, the United States and Europe. Automated systems that rapidly screen ingredients enable us to quickly apply analytical data to skin-brightening technology development. Acknowledgement of Shiseido’s Technologies by Others Shiseido has received numerous awards from a wide array of scientific organizations and other associations including The Inter national Federation of Societies of Cosmetic Chemists (IFSCC), the world’s most authoritative congress for cosmetic science and technology. 36 SHISEIDO ANNUAL REPOR T 2011 Shiseido won top honors in the Basic Research (Oral), Applied Research (Oral) and Poster Presentation categories at the 26th IFSCC Congress held in September 2010 in Buenos Aires, Argentina. We have won top honors from the IFSCC 13 times, which is the most of all cosmetics manufacturers worldwide. Shiseido also received awards for the findings of five research projects from organizations including the Japanese Society of Aesthetic Dermatology. Initiatives Based on Our Way Toward Business Partners Approach to Procuring Raw Materials Additionally, the departments work to communicate and reaffirm cooperation with Shiseido’s approach. Approximately Shiseido’s purchasing policies involve integrating all of the Shiseido’s Group’s capabilities with those of business partners 140 business partner companies participated in the purchasing policy session held in May 2011. in a spirit of mutual trust to jointly create new value and contribute to customers and society. Shiseido aims to grow together with business par tners that share its aims, which include The Shiseido Group Supplier Code cooperatively building procurement and purchasing mecha- of Conduct nisms through joint development of new technology and strategic alliances based on purchasing that lowers costs through fair competition and shared value creation. Aiming to expand our sphere for creating beautiful lifestyles, Shiseido uses procurement activities in its efforts to Shiseido seeks to optimize procurement performance on a research, develop, produce and sell highly safe products and global level. We select suppliers regardless of whether they services that satisfy customers. Our suppliers span numerous are in Japan or overseas by comprehensively considering ele- areas, from raw materials and fragrances to packaging and ments such as quality, cost, deliver y schedule, technology sales promotion materials. We view them all as partners in the development capabilities, ser vice capabilities, management, creation of new value, and place the highest importance on and initiatives to contribute to society, such as CSR. mutual understanding, including in the promotion of CSR We also consider the environment through purchasing activities. activities that reduce, reuse and recycle resources. This Shiseido is concerned about the environment. Based on includes reducing the use of petroleum, adopting plant-based the Green Procurement Standards promulgated in 1999 to resources, using non-wood materials and biomass, reducing specify items required of suppliers, we issued the Shiseido energy use, and reducing CO2 emissions. Committed to CSR, Group Supplier Code of Conduct (formulated in 2006, updated we always take compliance and social ethics into account, and in 2010) to suppliers in Japan and overseas. It codifies our conduct procurement activities that embrace fair trade and standards for human rights, legal compliance, labor, the biodiversity. p rotection of intellectual proper ty and confidentiality, environmental conservation, fair commercial transactions and compliance monitoring. While working to inform our suppliers Strengthening Our Relationship with about the code, we conclude purchasing contracts and letters Business Partners of understanding confirming that they will comply with the Shiseido Group Supplier Code of Conduct. In order to respond to changing times and the emerging Furthermore, we maintain a qualitative awareness of com- needs of society, Shiseido’s approach to procurement involves pliance by conducting annual sur veys and face-to-face inter- obtaining the understanding of business partners in a mutual views covering items including envi- and sincere commitment to society in promoting product man- ronmental and CSR initiatives. In the ufacturing. event that we discover noncompliance We therefore aim to strengthen our relationships with with the Shiseido Group Supplier business partners. The procurement departments in Japan Code of Conduct, we will demand annually hold purchas- rigorous cor rective measures and ing policy sessions and provide guidance and suppor t for separate working groups their implementation. for particular areas includ- The Shiseido Group Supplier Code of Conduct ing ingredients, fragrances and materials. The purchasing policy session held in May 2011 SHISEIDO ANNUAL REPOR T 2011 37 Toward Employees Nurturing Human Resources policy and oversee companywide training. Ecole Shiseido offers professional training in a variety of fields, interdisciplin- Since its founding, Shiseido has been so committed to nur- ary training for new employees and management, and training turing its human resources that people have called the to develop the skills required in upper management positions. Company “Shoseido” in a play on words that uses a quaint In the year ended March 2011, it conducted approximately 80 Japanese term for “student.” This aspect of our corporate cul- training programs. The President & CEO of Shiseido serves as ture has been passed down through our history and endures the chancellor of the university, and corporate officers serve today, as reflected in the Declaration of Shiseido ‘Co-Excellence’ as the deans of the faculties that correspond to their own areas adopted in 2006. The declaration aims to cultivate people by of responsibility. Thus they take the lead in developing a pool linking the self-realization of workers and the growth of the of interested and talented employees. Company. We also established Aesthetics, Self-Reliance and Ecole Shiseido also operates the Shiseido Beauty Reform Power as indicators of the skills and sensibility that we Academy, which is a virtual beauty graduate school that is the seek to cultivate, comprising a specific definition of what is gateway to becoming a high-level beauty professional. It has meant by “people with their own appeal.” We are also working provided career development programs to approximately to create an environment where employees can develop 12,000 employees throughout Japan who are involved in the through a process of mutual growth that is reinforced by daily area of beauty. The academy offers two tracks: one for aspir- guidance and training, personnel assignments and evaluations ing managers working to become organizational leaders, and by their supervisors. one to help people master the technology of beauty and In accor dance with the Declaration of Shiseido become high-level beauty professionals. ‘Co-Excellence’, we opened a corporate university called Ecole Shiseido in 2006 and launched a variety of training initiatives to implement the Company’s human resource development ◆ Basic Approach to Human Resource Development Achieving Gender Equality Since 90 percent of its customers are women, Shiseido focuses on providing new products and services that reflect women’s • Appropriately assign responsibilities, set objectives and provide incentives according to required qualifications and personal characteristics • Manage and guide daily work activities • Provide appropriate guidance • Provide career direction through fair evaluations • Promote people appropriately based on ability Management by objective and on-the-job training for 80 percent of all our employees, must therefore play a central role in management and business activities. Accordingly, Shiseido has introduced a variety of support programs that balance work with childcare and nursing care since 1990. Shiseido has been strengthening these initiatives since the Improve results and capabilities Increase motivation values and current lifestyles. Our female employees, who account year ended March 2006 by planning and implementing the Gender Equality Action Plan (Phase I: year ended March 2006 Assign personnel based on ability, aptitude and interests of the employee See employees as unique individuals Fair evaluation and treatment based on achievement to year ended March 2007; Phase II: year ended March 2008 to year ended March 2010). The three main components of the plan Enhance skills and career awareness. Enhance the desire to grow Training and education • Assign personnel with an eye on future development potential • Provide opportunities for employees to take the initiative through the Job Challenge and Free Agent programs 38 are 1) cultivating an organizational culture that seeks to change employees’ awareness and actions by spreading • Foster career awareness and provide necessary knowledge and skills • Provide opportunities for independent learning SHISEIDO ANNUAL REPOR T 2011 the concept of gender equality within the Kangaroom Shiodome, an in-house nursery school at the Shiodome Office for Tokyo area employees, exemplifies the support Shiseido provides to help balance work with childrearing. Initiatives Based on Our Way Company; 2) training and promoting female leaders with a Shiseido undertakes various activities to leverage diversity. view toward accelerating participation of women in Company We promote the Work Improvement Proposal System and the management; and 3) achieving work-life balance. As a result, a Gender Equality Action Plan, which build on education and corporate culture has taken root that truly balances work with operational improvement at ever y level of the Company to childcare and nursing care. In the year ended March 2011, a engender respect for diverse work styles. We offer the Career total of 1,218 people took childcare leave, 1,415 took time off Support Forum that provides management training that encour- for childcare, 33 took nursing care leave and 21 took time off ages female employees to think about developing their careers for nursing care. with the aim of gaining independence and professional aware- The theme of Phase III of the Gender Equality Action Plan ness. We also conduct the Shiseido Global Leadership Program for the three years ending March 2013 is firmly establishing a for managers of overseas subsidiaries. In addition, the special corporate culture in which female leaders are continuously subsidiary Hanatsubaki Factory Co., Ltd. actively hires develop- developed. The specific action plan under this theme has two mentally challenged individuals. core initiatives: strengthening the appointment and promotion of female leaders and human resources development; and reviewing how employees work to raise productivity. Shiseido aims to further energize organizational capabilities by enabling employees with diverse values to take active roles, thereby reaching a stage in which both men and women can advance their careers while balancing work with childcare and nursing care. Nurturing Human Resources on a Global Basis Shiseido defines global human resources as people who are globally competent because they have specialized knowledge in global fields, the ability to understand different cultures, and communication skills, and who demonstrate management-level leadership. Shiseido formulated its Global Human Resources Policy in 2008 to nurture such personnel. The three objectives of the policy are 1) to nurture senior managers at overseas subsidiaries; Promoting Diversity 2) to make effective use of human resources on a global level; and 3) to improve the quality of personnel functions at overseas Diversity subsidiaries. Shiseido comprises more than 40,000 employees with With our global personnel strategy currently in its first diverse values, viewpoints and other attributes, including nation- phase, we are building a personnel platform that we share glob- ality, gender, age, employment status and developmental chal- ally. This platform will be the basis for leveraging human lenges. Our approach to diversity begins with respect for resources from 2010 through 2013. Specifically, while continu- human rights and aims to realize mutual benefit for the individ- ing to structure global personnel rules, we are building and ual and the Company by recognizing and respecting the values implementing systems for nurturing local employees at over- of each employee and incorporating their personalities within a seas subsidiaries and deploying and transferring personnel on a diverse internal organization. We achieve this by making every global level. ef for t to keep the workplace free from discrimination and harassment. The first Career Support Forum 2009 was held in March 2010, and 155 female employees and managers working at or near the head office participated. Shiseido aims to hold Career Support Forums for all business offices. In 2009, Shiseido established regional human resource development committees in four regions worldwide to nurture global human resources. SHISEIDO ANNUAL REPOR T 2011 39 Toward Society and the Earth Basic CSR Policy Shiseido aims to realize a sustainable society through dialogue and cooperation with stakeholders to develop activities that address society’s expectations while contributing to the creation of people’s beauty and health. Shiseido has designated the three priority areas of 1) women and cosmetics (beauty), Shiseido Life Quality Beauty Seminar which involves activities that promote total feminine care and well-being; 2) culture, which involves the creation of beauty based on profound sensitivity and intellect; and 3) the environment, which involves realizing a society where humanity and the Earth’s environment can coexist beautifully. Cultural Initiatives Aiming to contribute to a spiritually af fluent society through support for the arts, Shiseido exhibits representative examples of the corporate culture it has cultivated to employ- Activities Related to Women and ees and the general public. The Shiseido Corporate Museum Cosmetics (Beauty): Shiseido Life in Kakegawa, Shizuoka Prefecture is the center for our corpo- Quality Beauty Program Since its founding, Shiseido has helped people achieve the beauty they desire with beauty products and methods. In the Shiseido Life Quality Beauty Program, we aim to enrich people’s hearts with the following two activities. rate culture collections and exhibits. The museum collects and preserves materials such as product packages, posters, television commercials and other materials and selectively exhibits them free of charge. Hanatsubaki, a magazine we launched in 1937, is another medium with a long history of communicating our corporate culture to society. Founded in 1919, the Shiseido Gallery in Ginza, Tokyo is Shiseido Life Quality Makeup at the core of Shiseido’s support for the arts. Guided by a phi- Shiseido continues to promote Perfect Cover foundation for losophy of discovering and creating new beauty, it provides br uises, dark spots, vitiligo* and skin irregularities and the next generation of artists with a place to present their provide makeup advice for serious skin concerns. Shiseido works. The Shiseido Gallery also sponsors theater, dance and conducts these activities primarily through Shiseido Life other contemporary expression primarily focused on modern Quality Beauty Centers, as well as at cosmetics specialty art. Moreover, some of the pieces exhibited at the Shiseido stores and medical institutions in Japan, and overseas in China Galler y are exhibited to the public free of charge at the and Taiwan. Shiseido Art House in Kakegawa. * V itiligo is an acquired skin condition characterized by pigment loss causing white patches on the face, neck, hands, feet and other areas. Its cause is unknown. Shiseido Life Quality Beauty Seminars Shiseido Life Quality Beauty Seminars are a communityThe Shiseido Gallery based activity in which employees visit facilities for the elderly and the developmentally challenged to provide free beauty seminars. These seminars are gaining attention from medical and other institutions as a cosmetic therapy that makes people feel good about themselves, and Shiseido energetically conducts them in Japan and overseas. The President & CEO and other of ficers of Shiseido join employees in conducting these seminars as an opportunity to help people experience the power of cosmetics. 40 SHISEIDO ANNUAL REPOR T 2011 The Shiseido Corporate Museum Initiatives Based on Our Way Basic Policy for Environmental Activities Eco Standard and the Sales Promotion Tools Eco Standard to codify environmental initiatives for our products and sales pro- The name Shiseido derives from a Chinese expression meaning “praise the virtues of the great Earth, which nurtures motions. We also formulated the Office Eco Standard with specific rules for addressing environmental issues in offices. new life and brings forth new values.” In line with this expres- In April 2010, Shiseido established the Environmental sion, Shiseido has consistently shown consideration for the Planning Department to step up collaborative environmental environment since its foundation, with gratitude and esteem for activities with related departments to achieve the goals of the the blessings of the Earth. In April 2009, placing environmental Shiseido Earth Care Project. activities at the core of its management, Shiseido started the Shiseido Earth Care Project, an environmental initiative involving all employees throughout the world. The year ending March 2012 will be the third year of the project, the mission of which is to realize a sustainable society where humanity and the Earth’s environment can coexist beautifully. In addition to basic environmental activities, which are obvious social responsibilities, the project is aimed at engendering a new lifestyle that links beauty and eco activities through active promotion of Shiseido’s unique environmental policies. ◆ Overview of Shiseido’s Environmental Activities Our Mission, Values and Way Shiseido Eco Policy Mission Aiming for the realization of a sustainable society where humanity and the Earth’s environment can coexist beautifully Shiseido’s Promise to Society In November 2008, Shiseido expressed to the world its strong dedication to the environment by endorsing “Caring for Climate: The Business Leadership Platform,” a climate change initiative being spearheaded by the United Nations Global Compact. In March 2009, Shiseido became the first company in the cosmetics industr y in Japan to be certified as an “Eco-First Company” by Japan’s Ministry of the Environment. The EcoFirst Program was created by the Ministry of the Environment in April 2008 to encourage leading companies in each industry to further expand their environmental protection activities by having them make a commitment to the Minister for the Environment. In addition to reporting the progress of initiatives to the Ministr y of the Environment, we will officially announce the results through our website and other channels. Project Name Caring for Climate: The Business Leadership Platform (Summary) Activities by all employees throughout the world Goals Environmental activities unique to Shiseido + Basic environmental activities 1. T ake practical actions now to increase the efficiency of energy usage and to reduce our CO2 emissions, set voluntary targets for doing so, and report publicly on the achievement of those targets annually in our Preserve the bounty of the Earth, reduce CO2 emissions and save resources Achieve a new lifestyle linking beauty and eco activities in a way that is unique to Shiseido Communication on Progress. 2. Build significant capacity within organizations to understand fully the implications of climate change for business and develop a coherent business strategy for minimizing risks and identifying opportunities. Also, engage fully and positively with our own national governments, intergovernmental organizations and civil society organizations to develop policies and measures that will provide an Environmental Management Framework enabling framework for the business sector to contribute effectively to building a low-carbon economy. In 1992, Shiseido formulated the Shiseido Eco Policy as a 3. Work collaboratively with other enterprises nationally and sectorally, and along management policy regarding the environment. In 2010, we our value chains, by setting standards and taking joint initiatives aimed at re- accommodated the change in environmental issues from a ducing climate risks, assisting with adaptation to climate change and enhanc- product lifecycle perspective by establishing the Production ing climate-related opportunities. SHISEIDO ANNUAL REPOR T 2011 41 Reducing Environmental Burden reduction targets due to changes in the domestic market, but the use of emissions trading allowed us to reach them. We Overview of the Year Ended March 2011 Shiseido has been promoting initiatives with the objective of realizing a low-carbon society by reducing CO2 emissions at achieved our objectives overseas as a result of initiatives such as the phase 2 installation of solar power generation equipment at a U.S. factory. domestic factories by 15 percent (compared with the year ended March 1991; per unit of production) and by 10 percent at overseas factories (compared with the year ended March 2008; per unit of production) by the year ending March 2011. Our efforts at domestic factories did not quite achieve CO 2 Representative environmental activities carried out by Shiseido are introduced by number on a special website. http://www.shiseido.co.jp/e/eco/ Numbered Initiatives Case Study 1: No. 083 – Environmental Initiatives in the Renewal of clé de Peau BEAUTÉ Skincare Products Case Study 3: No. 051 – Phase 2 Installation of Solar Power Generation Equipment at a U.S. Factory Environmental initiatives for a January 2011 skincare product renewal included formulations using fragrances procured from fair trade* sources, the first-ever refill for La Crème, and product packages and inserts made of bagasse paper (a non-wood paper made from sugar cane fiber residue left over in the juice extraction process). The phase 2 installation of solar power generation equipment at Shiseido America, Inc.’s U.S. plant was completed and operation began in August 2010. Phase 1 consisted of a fixed-tilt solar power system installed in May 2007, while phase 2 is a solar tracking system that changes the angle of panels in step with the position of the sun during the day. The combined systems can generate 2.3 million kWh of electricity annually, enough to supply more than 70 percent of the electricity the factory uses in one year, and are expected to reduce CO2 emissions by approximately 1,200 tons annually. La Crème (Cream) La Crème (Cream) refill clé de Peau BEAUTÉ skincare line Case Study 2: No. 071 – Introduction of Electric Cars as Sales Vehicles In January 2011, Shiseido Sales Co., Ltd. introduced 10 Nissan Leaf electric cars at its sales bases in the Tokyo metropolitan area. Electric cars do not emit CO2 while in operation because they do not use gasoline, which significantly reduces CO2 emissions. These vehicles prominently display the Shiseido Earth Care Project logo on their left, right and rear. Shiseido is considering the introduction of such vehicles in the future, taking into account issues such as the availability of recharging stations. Case Study 4: No. 053 – Tree-Planting Activities in China In April 2008, Shiseido addressed concerns about desertification in Lanzhou, Gansu Province, China by launching a 10-year afforestation program. Approximately 23 hectares of Oriental arbor vitae and other species of trees have been planted from the start of the program through 2010. Shiseido held the fourth round of this afforestation program in April 2011. A total of approximately 60 volunteers participated, including employees from the Shiseido Group from China and Japan and from business partners in China. With the addition of cherry trees, we will plant 17,800 trees over 6.5 hectares during 2011. This decade of greening is a means of deepening the bonds of friendship between Japan and China and protecting the environment by reducing CO2 in the atmosphere. * F air trade involves the sustained purchase of the raw materials and products of developing nations at a fair price, with the aim of helping workers in those nations improve their standard of living and achieve self reliance. Fair trade also contributes to environmental conservation by preventing problems such as overexploitation of resources in order to achieve sustainable use. 42 SHISEIDO ANNUAL REPOR T 2011 Initiatives Based on Our Way Preserving Biodiversity Future Initiatives Shiseido’s future environmental initiatives will center on making products environmentally friendly throughout their entire lifecycle and reducing CO2 emissions worldwide. We will make products environmentally friendly throughout their entire lifecycle, from procurement and production to logistics, sales and disposal, based on the Production Eco Standard. Specifically, beginning in 2011 we will work with Toyota Tsusho Corporation to procure sugar cane-based polyethylene from Braskem S.A., a major Brazilian chemical manufacturer, and start using this plastic in cosmetics containers. Other proactive initiatives to promote environmentally friendly products will include increasing the number of refills available and expanding the introduction of product packages that use bagasse paper made from sugar cane fiber residue left over in Shiseido bases its environmental activities on preserving the Earth’s blessings (biodiversity), the source of the value we create. In all of our business processes, we recognize that the Earth’s blessings are both crucial and limited, and that we must manage them rigorously so that they can be passed on to future generations. In 2009, we planted the Shiseido Tsubaki Forest of approximately 3,000 camellia trees in the Tsubaki district of Shirahama-cho, Nishimuro-gun, Wakayama Prefecture and initiated forest conservation activities that will span 10 years. We are also conducting tree-planting programs in China and Thailand as part of our effort to preserve the Earth’s blessings both in Japan and overseas. the juice extraction process. During the third round of volunteer forestry activities in June 2011, Shiseido employees and members of their families planted camellia seedlings. Our efforts to preserve Tsubaki Forest will continue. Shiseido is reducing CO2 emissions worldwide as a fundamental CSR activity. We are working to meet the reduction targets shown below. ◆ CO2 Reduction Targets Target Year Base Scope Year ending Year ending Year March 2014 March 2021 Domestic Overseas CO2 Reduction Production 15% 20% facilities Year ended Non-production March 2010 5% 14% facilities Production — 20% 23% facilities Non-production Year ended 4% 11% facilities March 2010 Criteria Absolute amount Compared with BAU* Absolute amount * BAU: B usiness as usual. Volume of CO 2 emitted assuming that particular reduction measures are not implemented. Rigorous Control of Chemical Substances Shiseido reports to the Japanese government as mandated ◆ The Production Process for Sugar by the Pollutant Release and Transfer Register Law (PRTR Cane-Based Polyethylene Law), while rigorously managing under its own auspices the Sugar use and disposal of chemical substances including raw materials and reagents at facilities such as factories and research labo- Sugar cane Fermentation of liquid remaining after sugar refining (molasses) Bioethanol Sugar cane-based polyethylene Sugar cane fiber residue left over in the juice extraction process (bagasse) →Burned for energy for sugar and ethanol production →Raw material for paper (bagasse paper) 砂糖 ratories. In addition, Shiseido supports occupational health and safety by ensuring, through systemization and other means, that material safety data sheets are issued when providing customers with semifinished products containing chemical substances governed by regulations including the PRTR Law and the Industrial Safety and Health Act. SHISEIDO ANNUAL REPOR T 2011 43 Environmental Data Shiseido has reported the volume of energy used (input) Ministry of the Environment. and environmental load (output) determined through environ- Shiseido will enhance the presentation of its environmen- mental accounting for the year ended March 2011. tal data to the greatest extent and raise the environmental The data was calculated and disclosed using GRI’s G3 awareness of employees as it works to further promote envi- Sustainability Repor ting Guidelines and the 2007 ronmental activities. Environmental Repor ting Guidelines issued by Japan’s ◆ Environmental Performance Data Indicator Scope Production facilities Electric power (ten thousand kWh) Non-production facilities Production facilities City gas (ten thousand m3) Non-production facilities Production facilities LPG (t) Inputs Non-production facilities Production facilities Fuel (kl) Non-production facilities Steam (GJ) Non-production facilities Water (ten thousand m3) Production facilities Production facilities Domestic CO2 (t) Non-production facilities Outputs SOx (t) NOx (t) Wastewater (ten thousand m3) BOD (t) COD (t) Waste (t) Recycling ratio (%) Electric power (ten thousand kWh) City gas (ten thousand m3) Inputs LPG (t) Fuel (kl) Overseas Steam (t) Water (ten thousand m3) Production facilities Production facilities Production facilities Production facilities Non-production facilities Production facilities Production facilities Non-production facilities Production facilities Non-production facilities Production facilities Non-production facilities Production facilities Non-production facilities Production facilities Production facilities Production facilities CO2 (t) Non-production facilities Production facilities Non-production facilities Recycling ratio (%) Production facilities Note: Data for overseas non-production facilities includes major facilities only. Outputs Waste (t) Year ended March 2010 3,801 3,890 665 108 46 0 0 0 11,720 92 Year ended March 2011 3,776 3,767 583 115 41 0 0 10 11,974 85 28,873 26,966 18,729 18,453 0 6 76 13 27 5,160 1,552 100 3,460 762 339 24 3 0 37 0 4,680 37 0 5 74 20 32 4,474 1,328 100 3,763 788 346 25 53 0 24 60 4,627 40 26,293 3,309 3,358 729 87 28,177 Targets Target for year ended March 2011: 15% below actual emissions in the year ended March 1991 (per unit of production) Target for year ended March 2011: 10% below actual emissions in the year ended March 2008 (per unit of production) 3,570 3,313 764 89 ◆ Environmental Accounting 1. Environmental Protection Costs Category (1) Cost breakdown by operation (1) - 1 Pollution prevention (1) - 2 Global environmental protection Water contamination, atmospheric pollution, etc. Promotion of energy conservation, measures to protect the ozone layer, etc. Waste processing, recycling, wastewater re-use, (1) - 3 Recycling material usage reduction, etc. Costs associated with Recycling of Containers and (2) Upstream and downstream costs Packaging Recycling Law, green procurement, product recycling, etc. Personnel expenses (excluding R&D) for (3) Administrative costs environmental management R&D for environmentally friendly products, etc. (4) Research and development (including personnel expenses) costs Support of environmental groups, disclosure of environmental information, environmental (5) Social contribution costs advertising, etc. (6) Environmental remediation costs Environmental remediation costs, etc. (7) Other costs Total 44 SHISEIDO ANNUAL REPOR T 2011 2. Environmental Protection Outcomes (Unit: Millions of yen) Main initiatives Investment Expenses 584 334 0 83 578 8 6 243 0 403 1 426 0 149 0 76 0 0 586 1 0 1,389 (Unit: Millions of yen) Outcomes Revenue from the recycling of waste Earnings generated in main business activities and the recycling of used products, etc. From energy conservation Cost Waste-related savings From resource conservation Other Total Economic effect 31 107 9 55 0 202 Environmental accounting period: April 1, 2010 - March 31, 2011 Scope: Domestic and overseas factories, domestic research centers and head office departments Initiatives Based on Our Way Social Data The following tables present personnel data in addition to (http://www.shiseido.co.jp/e/csr) in order to deepen stake- data in the areas of women and cosmetics (beauty) and cul- holder understanding of Shiseido’s CSR initiatives. We will ture. Shiseido also presents more detailed information, GRI further enhance data relevant to our social activities and per- Guidelines balance sheet, and other information not included sonnel with the aim of providing easily understandable infor- in this publication on the CSR and Environment website mation to stakeholders. ◆ Data for Social Contribution Activities Area Item Indicator Life Quality Beauty Centers Shiseido Life Quality Beauty Program Life Quality Women and Beauty Seminars Cosmetics (Beauty) Shiseido Children’s Seminar 2 Shiseido Running Club Number of users 1,293 1,479 Number of seminars held Times 2,993 3,095 Number of participants Persons 49,707 47,919 Domestic and overseas Domestic and overseas Domestic and overseas Domestic and overseas Number of Beauty Volunteers1 participating Persons 2,247 3,515 Domestic Number of attendees (Note 2) Persons — 810 Domestic Number of running classes held Times 3 2 Domestic Number of grant recipients Number of exhibits Number of pledges (Note 3) Shiseido Hanatsubaki Fund3 Scope ( 3 4) Shiseido Art House Social Contribution by Employees Year ended Year ended March 2010 March 2011 ( 3 4) Shiseido Corporate Museum Shiseido Gallery Countries and Number of countries and regions (number of centers) (Note 1) regions (centers) Number of lectures held outside the Company Shiseido Female Researcher Science Grant Culture Unit Persons Times 6 2 Domestic Persons 10 10 Domestic Exhibits 1 2 Domestic Exhibits 7 7 Domestic Exhibits 4 4 Domestic Pledges 9,911 12,589 Domestic 1. Beauty Volunteers are retired beauty consultants who provide activity support. 2. Shiseido Children’s Seminars provide information to pre-adolescents on skin and hygiene and how to care for their changing skin correctly. 3. Shiseido Hanatsubaki Fund: Employees make donations from their wages and voluntarily participate in support activities. There are currently eight support groups. Note 1: Japan (Tokyo); China (Shanghai); Taiwan (Taipei, Kaohsiung). Established in Hong Kong in April 2011. Note 2: For fifth- and sixth-year elementary school children. Note 3: 1 pledge = ¥100; pledge totals for March. ◆ Personnel Data Unit Number of employees Persons Year ended March 2010 40,563 Year ended March 2011 Includes 45,780 Group employees in Japan and overseas (including fixed-term contract employees) Remarks Overseas data as of December 31 Average age Years 38.3 38.5 Group employees in Japan (excluding fixed-term contract employees) Average years of service Years 14.9 14.8 Group employees in Japan (excluding fixed-term contract employees) Hours worked (total hours worked annually per employee) Hours 1,809.9 1,812.8 Group employees in Japan (excluding managers and fixed-term contract employees) Ratio of female employees % 82.9 82.8 Group employees in Japan (including fixed-term contract employees) Ratio of female leaders % 19.9 22.2 Group employees in Japan Indicates leaders appointed to management positions Employees rehired after retirement Persons 93 136 Group employees in Japan Data for Japan program only % 1.83 1.83 Group employees in Japan Data for Japan program only Employees taking nursing care leave Persons 28 33 Group employees in Japan (including fixed-term contract employees) Data for Japan program only Employees taking time off for nursing care Persons 16 21 Group employees in Japan (including fixed-term contract employees) Data for Japan program only 1,218 Group employees in Japan (including fixed-term contract employees) Data for Japan program only, including data for shortterm childcare leave program 1,415 Group employees in Japan (including fixed-term contract employees) Data for Japan program only 1,417 Group employees in Japan Kangaroo Staff program available in Japan only Ratio of physically challenged employees Employees taking childcare leave Persons 1,123 Employees taking time off for childcare Persons 1,252 Kangaroo Staff4 members Persons 1,273 Scheduled working hours Year ended March 2010: 1,829.0 hours; Year ended March 2011: 1,844.5 hours 4. Kangaroo Staff members support retail activities during evening hours by filling in for beauty consultants who are taking time off to care for their children. SHISEIDO ANNUAL REPOR T 2011 45 Shiseido’s Management Structure From left (back) Nobuo Otsuka, Yasuko Takayama, Akio Harada, Toshio Yoneyama, Reiko Kuroda, Carsten Fischer, Taeko Nagai, Shoichiro Iwata, Tatsuomi Takamori, Tatsuo Uemura 46 (front) Shinzo Maeda, Hisayuki Suekawa, Kimie Iwata SHISEIDO ANNUAL REPOR T 2011 Board of Directors, Corporate Auditors and Corporate Officers (As of June 24, 2011) Directors Shinzo Maeda Hisayuki Suekawa Representative Director, Chairman of the Board Representative Director, President & CEO 1970 Joined Shiseido 1996 General Manager of New Cosmetic Marketing Department, Cosmetics Marketing Division 1997 General Manager of International Business Department (I) and International Strategic Marketing Department, International Operations Division 1997 Chief Officer of Asia-Pacific Headquarters, International Operations Division 2000 General Manager of International Marketing Department, Self-Selection Products, Cosmenity Value Creation Division 2001 General Manager of Training Department, Cosmetics Strategic Planning Division 2003 General Manager of Corporate Planning Department 2003 Director, Corporate Officer 2005 Representative Director [incumbent], President & CEO 2011 Chairman [incumbent] 1982 Joined Shiseido 2007 General Manager of the Business Planning Department 2008 Corporate Officer, General Manager of Corporate Planning Department 2009 Director 2010 Corporate Executive Officer 2011 Representative Director [incumbent], President & CEO [incumbent] Kimie Iwata Carsten Fischer Tatsuomi Takamori Representative Director, Executive Vice President Director, Corporate Senior Executive Officer Director, Corporate Executive Officer Responsible for Global Business (International Business, China Business and Professional Business), Responsible for Americas Chief Officer of International Business Division Chairman & CEO of Shiseido Americas Corporation Responsible for Domestic Cosmetics Business, Healthcare Business and Clé de Peau BEAUTÉ Marketing Unit Chief Officer of Domestic Cosmetics Business Division 1979 Joined Hans Schwarzkopf GmbH 1999 President and CEO, Wella Japan Co., Ltd. 2003 Executive Vice President, Wella AG Corporation 2004 P resident of Professional Care, and Corporate Officer, Procter & Gamble Company 2006 Corporate Advisor of Shiseido 2007 C orporate Executive Officer, Responsible for International Business [incumbent], Chief Officer of International Business Division [incumbent], Responsible for Professional Business [incumbent] 2008 D irector [incumbent], Responsible for China Business [incumbent] 2010 C orporate Senior Executive Officer [incumbent] 2011 C hairman & CEO of Shiseido Americas Corporation [incumbent], Responsible for Americas [incumbent] 1975 Joined Shiseido 2002 General Manager of International Marketing Department, Self-Selection Products 2003 General Manager of East Asia Operation Department, International Sales Division 2004 General Manager of China Strategic Planning Department, International Business Division 2006 Chief Officer of China Business Division 2007 Corporate Officer 2009 Director [incumbent] 2010 C orporate Executive Officer [incumbent], Responsible for Domestic Cosmetics Business, Healthcare Business and Clé de Peau BEAUTÉ Marketing Unit [incumbent], Chief Officer of Domestic Cosmetics Business Division [incumbent] Responsible for Corporate Culture, Advertising Creation, Beauty Creation, General Affairs, Legal Affairs, and Executive Affairs Responsible for Committees under Direct Control of the Board of Directors 1971 Entered Ministry of Labour 2001 Director-General, Equal Employment, Children and Families Bureau, Ministry of Health, Labour and Welfare 2003 Corporate Advisor of Shiseido 2004 General Manager of CSR Department 2004 Director, Corporate Officer 2007 Corporate Executive Officer 2008 Representative Director [incumbent], Executive Vice President [incumbent], Responsible for Corporate Culture [incumbent], Responsible for Committees under Direct Control of the Board of Directors [incumbent] 2010 Responsible for Advertising Creation [incumbent] 2011 Responsible for Beauty Creation, General Affairs, Legal Affairs, and Executive Affairs [incumbent] SHISEIDO ANNUAL REPOR T 2011 47 Directors Shoichiro Iwata1 Taeko Nagai1,2 Tatsuo Uemura1 External Director External Director External Director 1973 Joined Lion Fat and Oil Co., Ltd. (currently Lion Corporation) 1986 Joined Plus Corporation, Deputy General Manager of Product Development Division 1992 Head of ASKUL Business Project, Sales Division of Plus Corporation 1995 Manager of ASKUL Business Division, Plus Corporation 1997 Representative Director, President of ASKUL Corporation [incumbent] 2000 CEO of ASKUL Corporation [incumbent] 2006 External Director of Shiseido [incumbent], Chairman of Remuneration Advisory Committee of Shiseido [incumbent] 1960 Joined Japan Broadcasting Corporation (NHK) 1990 Manager of NHK Urawa Station 1993 Chief Commentator of NHK 1995 Retired from NHK 1997 Board Member of Setagaya Arts Foundation 2005 Vice Chairman of NHK 2009 V ice President of Setagaya Arts Foundation [incumbent] 2010 E xternal Director of Mitsui Chemicals, Inc. [incumbent] 2011 External Director of Shiseido [incumbent] 1977 Lecturer, Faculty of Law, The University of Kitakyushu 1979 Associate Professor, Faculty of Law, The University of Kitakyushu 1981 Associate Professor, School of Law, Senshu University 1986 Professor, School of Law, Senshu University 1990 Professor, College of Law and Politics, Rikkyo University 1997 Professor, School of Law, Waseda University [incumbent] 2003 Director, Center of Excellence - Waseda Institute for Corporation Law and Society Professor, Waseda Law School [incumbent] 2004 External Director, Jasdaq Securities Exchange, Inc. 2006 External Director of Shiseido [incumbent], Chairman of Nomination Advisory Committee of Shiseido [incumbent], Dean of Faculty of Law and the School of Law, Professor of Waseda Law School and Waseda University 2008 Director, Global Center of Excellence - Waseda Institute for Corporation Law and Society [incumbent] Michiko Achilles2 Tsunehiko Iwai Yoshinori Nishimura2 Responsible for Public Relations, Consumer Information, Environmental Affairs, CSR and Corporate Culture Reforms Responsible for Technical Planning, Quality Management and Frontier Science Business Chief Financial Officer Responsible for Finance, Investor Relations, Information System Responsible for Planning and Internal Control Corporate Officers Kozo Hanada Chief Officer of Professional Business Operations Division President & CEO of Shiseido Professional Co., Ltd. Asa Kimura Responsible for Cosmetics Products Research & Development and Software Development Shoji Nishiyama Masaru Miyagawa Responsible for Functional Food Research & Development, Innovative Science Research & Development, Research Administration and Technology Alliances Chief Officer of China Business Division Chief Area Managing Officer of China Chairman of Shiseido China Co., Ltd. Director retired as of June 24, 2011: Director, Corporate Senior Executive Officer Yasuhiko Harada (Retired from position of Corporate Senior Executive Officer as of March 31, 2011) Corporate auditor retired as of June 24, 2011: Corporate Auditor Kazuko Ohya Corporate officers retired as of March 31, 2011: Corporate Officer Shoji Takahashi and Corporate Officer Takafumi Uchida 48 SHISEIDO ANNUAL REPOR T 2011 Shiseido’s Management Structure Corporate Auditors Yasuko Takayama2 Toshio Yoneyama Standing Corporate Auditor Standing Corporate Auditor 1980 Joined Shiseido 2006 General Manager of Consumer Information Center 2008 General Manager of Consumer Relations Department 2009 General Manager of Social Affairs and Consumer Relations Department 2010 General Manager of Corporate Social Responsibility Department 2011 Standing Corporate Auditor [incumbent] 1978 Joined Shiseido 2000 Chief Officer of Fine Chemical Division 2004 General Manager of Product Development Department, Cosmetics Business Division 2005 President of Institute of Beauty Sciences 2006 Corporate Officer 2008 Chief Officer of Healthcare Business Division 2010 Standing Corporate Auditor [incumbent] Akio Harada1 Reiko Kuroda1 Nobuo Otsuka1 External Corporate Auditor External Corporate Auditor External Corporate Auditor 2001 Prosecutor General 2005 External Corporate Auditor of Shiseido [incumbent] 2005 External Corporate Auditor of Sumitomo Corporation [incumbent] 2005 External Director of Seiko Holdings Corporation [incumbent] 2009 External Director of Japan Post Holdings Co., Ltd. [incumbent] 2010 External Director of Turnaround Initiative Corporation of Japan [incumbent] 1992 Professor, Department of Chemistry, College of Arts and Sciences, and Department of Biological Science, Graduate School of Science, The University of Tokyo 1996 Professor, Department of Life Sciences, Graduate School of Arts and Sciences, The University of Tokyo [incumbent] 2008 External Corporate Auditor of Shiseido [incumbent] 1988 President and Director of Keiseikai Hospital 2007 External Corporate Auditor of Shiseido [incumbent] 2010 Chairman of Keiseikai Hospital [incumbent] Shigeto Ohtsuki2 Tooru Sakai Mitsuo Takashige General Manager of Personnel Department Responsible for Production, Purchasing and Logistics General Manager of Corporate Planning Department Yu Okazawa Youichi Shimatani Ryuichi Yabuki General Manager of International Sales Department, International Business Division President of Shiseido Europe S.A.S. President of Shiseido International Europe S.A. President of Shiseido Deutschland GmbH President of Taishi Trading Co., LTD. Responsible for Marketing of Domestic Cosmetics Business and Domestic Non-Shiseido Brand Businesses Responsible for Sales of Domestic Cosmetics Business President & CEO of Shiseido Sales Co., Ltd. President & CEO of FT Shiseido Co., Ltd. 1. Independent Director / Corporate Auditor required by Rule 436-2 of the Tokyo Stock Exchange Securities Listing Regulations 2. New appointment SHISEIDO ANNUAL REPOR T 2011 49 Corporate Governance Directors meets at least once a month to discuss all significant Corporate Governance Policy Shiseido is setting higher standards of corporate governance based on the understanding that maximizing corporate and shareholder value, fulfilling social responsibilities and achieving sustainable growth and development are key to maintaining support as a valuable company from all stakeholders (consumers, business partners, shareholders, employees, society and the Earth). matters. In a change to separate supervision and execution, from April 2011 the Chairman of the Board of Directors no longer holds concurrent positions as a corporate executive officer. Formerly, the President & Chief Executive Officer was Chairman of the Board of Directors. Attendance at the 15 Board of Directors’ meetings in the year ended March 2011 was 100 percent. The adoption of a corporate executive officer system has separated the decision-making and supervisory functions of the Management and Execution Structure Board of Directors from the business execution functions of corporate officers. The Corporate Executive Officer Committee, Shiseido has selected a corporate auditor structure with which acts as the final decision-making body regarding material double check functions for business execution: super vision issues, furthers the transfer of authority to corporate officers and by the Board of Directors and audits of legality and adequacy accelerates operational decision-making. Shiseido’s President & by the Board of Auditors. Chief Executive Officer chairs this Committee. In addition, the Furthermore, Shiseido believes that as a global corporation Policy Meeting of Corporate Officers is held once per year to it must establish corporate governance that earns a high level discuss Shiseido’s medium-to-long-term strategy and determine of its direction. stakeholder trust while also strengthening senior management in order to prevail against competitors. Shiseido The term of office of directors is one year, and the term has therefore worked to reform corporate governance in four limit of corporate officers is four years per position in areas: clarifying the allocation of responsibility, enhancing principle and six years maximum. reinforcing To obtain an outside point of view and further strengthen supervisory and auditing functions, and strengthening decision- the Board of Directors’ super visor y function in regard to making functions. business execution, Shiseido appointed two external directors management transparency and soundness, Shiseido has strengthened these functions by establishing from the year ended March 2007, and added a third external committees and a corporate executive officer system as well as director in June 2011. Having external directors has integrating these outstanding features of a company of stimulated discussion at Board of Directors’ meetings and committees with the corporate auditor structure. strengthened its super visor y capabilities. Furthermore, The Board of Directors is composed of eight members, Shiseido has designated three external directors as including three external directors. The small number of independent directors and three external auditors as members facilitates rapid decision making. The Board of independent auditors pursuant to the Tokyo Stock Exchange’s Securities Listing Regulations. ◆ Overview of Corporate Governance Policy Management Transparency, Fairness and Speed Clarify allocation of responsibility 2001 Introduced corporate executive 2001 2006 2006 2006 50 officer system Introduced 1-year term for directors Set upper term limit per position Formulated rules governing promotions and demotions for corporate officers Lowered upper age limit per position for holding office Enhance management transparency and soundness 2001 Established Remuneration Committee 2005 Established Nomination Advisory Committee SHISEIDO ANNUAL REPOR T 2011 Reinforce supervisory and auditing functions 2005 Increased number of external corporate auditors from 2 to 3 2006 Appointed external directors Strengthen decision-making functions 2001 Established Corporate Executive Officer Committee and Policy Meeting of Corporate Officers 2002 Reduced number of directors Shiseido’s Management Structure In addition, Shiseido is actively promoting diversity among meetings and other important meetings. directors in such ways as appointing women, foreign nationals Representative directors and corporate auditors meet and people who have built careers outside of Shiseido. Wide regularly to exchange opinions and resolve corporate perspective and advanced insight will promote objectivity and governance issues. Shiseido maintains a framework to ensure strengthen the Board’s supervisory and decision-making that corporate auditors discharge their duties effectively. For functions. In the year ending March 2012, a new female external example, the Company arranges liaison meetings with the director joined the Board of Directors, and two people from accounting auditors and the Internal Auditing Department in outside the Company became executive officers. Of the 13 addition to assigning full-time staff to assist in audits. members of the Board of Directors and the Board of Corporate Corporate auditor attendance for the 14 Board of Auditors Auditors, eight people, or 62 percent, have built careers outside meetings held in the year ended March 2011 was 100 percent of Shiseido. Four of them, or 31 percent, are women, and one, (except for one corporate auditor whose attendance rate was or 8 percent, is a foreign national. 78.5 percent). Attendance at Board of Directors meetings was The 106th General Meeting of Shareholders held on June 100 percent (except for one corporate auditor whose Management Transparency, Fairness and Speed 25, 2006 adopted Introduction of Countermeasures to Large Clarify management Acquisitions of allocation Shiseido of Co., Ltd. SharesEnhance (Takeover Defense). responsibility transparency and soundness Subsequently, based on regulator y changes, a meeting of the 2001 Introduced corporate executive 2001 Established Remuneration officer system Committee Board of Directors held on April 30, 2008 resolved to 2001 Introduced 1-year term for directors 2005 Established Nomination Advisory limit per position 2006 Set upper discontinue theterm Takeover Defense, and the Committee 108th General 2006 Formulated rules governing Meetingpromotions of Shareholders and demotions approved its removal from the for corporate officers Articles of Incorporation. Shiseido will generate and increase 2006 Lowered upper age limit per position for holding office attendance rate was 80 percent). Reinforce supervisory andthe entire Strengthen Internal audits of Group decision-making are conducted to auditing functions functions ensure that business is executed in an appropriate manner, 2001 Established Corporate Executive Officer Committee and auditors from to 3 andcorporate audit results are2 reported to the Board of Directors 2005 Increased number of external and Policy Meeting of Corporate Officers 2002 Reduced number of directors 2006 Appointed external directors Board of Auditors. Shiseido employs three types of audits: internal audits, audits by the corporate auditors, and accounting audits. earnings for shareholders by steadily executing the Three-Year To increase the ef fectiveness and ef ficiency of audits, Plan, which will increase Shiseido’s competitiveness in global Shiseido has been enhancing mutual cooperation among markets and ability to generate sustained growth, and expand the par ties concerned through means such as regular corporate value. liaison meetings to repor t on audit plans and audit results and exchange opinions. Audit Structure Shiseido’s Board of Auditors consists of two standing Committees corporate auditors and three external corporate auditors. With a view to promoting transparency and objectivity Corporate auditors monitor the legality and adequacy of in management, Shiseido has established two committees directors’ performance by attending Board of Directors’ to advise the Board of Directors: the Remuneration ◆ The Company’s System for the Management and Execution of Business General Meeting of Shareholders Appointment, termination Accounting Auditors Resolution at the General Meeting of Shareholders based on laws Audit Appointment, termination Audit Board of Directors Advisory committees to the Board of Directors Appointment, termination Board of Auditors Advisoryy committees to the Board of Directors Remuneration Committee Report Nomination Advisory Committee CSR Committee Supervision Policy Meeting of Corporate Officers Corporate Executive Officer Committee Proposal of material legal and management issues Resolution, approval Proposal Resolution, approval Decision-Making Meeting of Corporate Officers SHISEIDO ANNUAL REPOR T 2011 51 Committee, which makes recommendations on executive ◆ Committees and Their Members remuneration and performance evaluation guidelines; and Remuneration Committee 〔Chair〕 Shoichiro Iwata, External Director 〔Members〕 Shinzo Maeda, Representative Director, Chairman Hisayuki Suekawa, Representative Director, President & CEO Kimie Iwata, Representative Director, Executive Vice President Taeko Nagai, External Director Tatsuo Uemura, External Director the Nomination Advisor y Committee, which makes recommendations on director and corporate officer candidates and promotions. Both committees are chaired by external directors to maintain objectivity. On April 1, 2011, Shiseido combined the CSR Committee and the Compliance Committee to establish the CSR Committee, which reports directly to the Board of Directors. This further enhances Shiseido’s ability to identify and appropriately respond to society’s demands from a unified perspective. The CSR Committee covers all areas in which the Shiseido Group is expected to fulfill its corporate social responsibility (CSR). It monitors the demands and expectations of society and determines the direction for the Group’s CSR activities. At the same time, it monitors risks associated with management strategy and business execution and takes necessary countermeasures. Chaired by Shiseido’s Executive Vice President, the CSR Committee is composed of members representing a broad cross-section of the Company. It also Nomination Advisory Committee 〔Chair〕 Tatsuo Uemura, External Director 〔Members〕 Shinzo Maeda, Representative Director, Chairman Hisayuki Suekawa, Representative Director, President & CEO Kimie Iwata, Representative Director, Executive Vice President Shoichiro Iwata, External Director Taeko Nagai, External Director CSR Committee 〔Chair〕 Kimie Iwata, Representative Director, Executive Vice President 〔Members〕 Carsten Fischer, Director, Corporate Senior Executive Officer Tatsuomi Takamori, Director, Corporate Executive Officer Michiko Achilles, Corporate Officer, Responsible for Public Relations, Consumer Information, Environmental Affairs, CSR and Corporate Culture Reforms Tsunehiko Iwai, Responsible for Technical Planning, Quality Management and Frontier Sciences Business Shigeto Ohtsuki, Corporate Officer, General Manager of Personnel Department Mitsuo Takashige, Corporate Officer, General Manager of Corporate Planning Department Hajime Akatsuka, Chairman of the Central Executive Committee, Shiseido Labor Union Yoko Hayashi, External Member, Attorney at Law, Athena Law Office Mariko Kawaguchi, External Member, Managing Director, CSR Group, Corporate Communication Department, Daiwa Securities Group Inc. 〔Observers〕 Taeko Nagai, External Director Yasuko Takayama, Standing Corporate Auditor Toshio Yoneyama, Standing Corporate Auditor includes experts from outside Shiseido, and makes proposals for and reports on plans and results of activities to the Board of Directors. � Overview of Shiseido’s CSR Activities Domain ◆ Overview of Shiseido CSR Domains Remuneration to Directors, Corporate Officers and Corporate Auditors Remuneration to directors and corporate officers consists of a basic fixed portion and a performance-linked portion that Proposing new social values Creating markets Social contribution activities (including philanthropy) Unique Shiseido CSR (Activities that increase corporate value) Compliance with laws and regulations Provision of products and services Collaboration with business partners Profits and dividends, payment of taxes, valuing employees, creation of employment opportunities and share price. The performance-linked portion of the remuneration of directors other than external directors increases with their degree of responsibility as corporate executive officers. On average, assuming full achievement of the targets of the Environment Information disclosure, protection of human rights, protection of personal information fluctuates depending on the achievement of management targets Three-Year Plan and each of its fiscal years, the basic fixed Fundamental CSR (Activities that minimize risk and protect corporate value) Continued corporate existence portion is designed to be about 40 percent of total remuneration and the performance-linked portion about 60 percent. Performance-linked remuneration consists of a short- term incentive bonus based on annual consolidated results, medium-term incentive remuneration based on the achievement of the targets of the Three-Year Plan, to be paid in cash at the Shiseido actively promotes both fundamental CSR required of a company and selective CSR unique to Shiseido that increases corporate value. culmination of the plan, and stock options as long-term incentive, primarily aimed at fostering a shared awareness of profits with shareholders. Performance-linked remuneration is designed to give directors and corporate officers a medium-tolong-term perspective, not just a single-year focus, and to 52 SHISEIDO ANNUAL REPOR T 2011 Shiseido’s Management Structure Management Transparency, Fairne Clarify allocation of responsibility motivate management to become more aware of Shiseido’s performance and share price. External directors receive only basic fixed remuneration because of the importance of a stance independent from business execution in their supervisory functions. Due to the nature of auditing, corporate auditors receive fixed basic remuneration only, to eliminate linkage with performance. Basic remuneration for directors and corporate auditors is within the monthly remuneration limits decided by the General Meeting of Shareholders; performance-linked 22001 ) ¥38 Introduced million wascorporate recordedexecutive for the year ended 2011 asRemuneration performance-linked 2001March Established remuneration (linked to the previous Three-Year Plan completed in the year ended officer system Committee March 2008) granted to one director of the Company, who at the time served as 2001 Introduced 1-year term for directors 2005 Established Nomination corporate executive officer not concurrently holding the office of director. Advisory Committee 2006 Set upper term limit per position 3) Two subsidiaries of the Company paid ¥9 million to two directors of said subsidiaries 2006 governing whoFormulated also servedrules concurrently as directors of the Company until March 31, 2010 as promotions and ended demotions bonuses for the year March 2010. for corporate officers 4) ¥23 million was recorded as a final retirement payment granted to one director who 2006 Lowered upper age limit per retired at the conclusion of the 110th Ordinary General Meeting of Shareholders held position for holding office on June 25, 2010. (Payment was made based on the resolution of the 104th Ordinary General Meeting of Shareholders held on June 29, 2004 to grant final retirement payments due to the abolition of the retirement bonus system for directors and corporate auditors). 6. None of the directors or the corporate auditors will receive remuneration other than the executive remuneration described above (including that described in notes 1 through 5). incentive remuneration and incentive stock options, is also set on a case-by-case basis Basic Shinzo Maeda Directors (10 people) Short-Term Medium-Term Long-Term Incentive Incentive Incentive Bonus Remuneration Stock Options (for Three Years) Total 287 120 283 104 795 External directors (2 of the 10) 26 — — — 26 Corporate auditors (6 people) 96 — — — 96 36 — — — 36 383 120 283 104 891 External auditors (3 of the 6) Total Short-Term Medium-Term Long-Term Incentive Incentive Remuneration Incentive Bonus (for Three Years) Stock Options Basic (Millions of yen) Notes: 1. Basic remuneration for directors has the ceiling amount of ¥30 million per month as per the resolution of the 89th Ordinary General Meeting of Shareholders held on June 29, 1989. Basic remuneration for corporate auditors has the ceiling amount of ¥10 million per month as per the resolution of the 105th Ordinary General Meeting of Shareholders held on June 29, 2005. 2. A total amount of ¥142 million was paid during the year ended March 2011 as bonuses to the eight directors (excluding the external directors) for the year ended March 2010 (based on the resolution of the 110th Ordinary General Meeting of Shareholders held on June 25, 2010). 3. The above payment includes the amounts of the following remuneration, etc., paid to directors and corporate auditors. 1) Remuneration to two retired directors The Company paid ¥13 million in basic remuneration for the months April through June 2010 to two directors who retired at the conclusion of the 110th Ordinary General Meeting of Shareholders held on June 25, 2010 and recorded ¥8 million for the year ended March 2011 as expenses associated with stock options granted to said directors. 2) Remuneration to one retired corporate auditor The Company paid ¥7 million in basic remuneration for the months April through June 2010 to one corporate auditor who retired at the conclusion of the 110th Ordinary General Meeting of Shareholders held on June 25, 2010. 4. The medium-term incentive remuneration shall be as per the resolution of the 108th Ordinary General Meeting of Shareholders (held on June 25, 2008). Medium-term incentive remuneration will not be paid to directors, excluding Mr. Carsten Fischer, because the ratio of achievement of the target (10%) for the ratio of operating income to net sales on a consolidated basis for the final year of the Three-Year Plan was less than the minimum ratio required for provision of the remuneration. This remuneration will also not be paid to external directors. As the payment of the medium-term incentive remuneration to Mr. Carsten Fischer is based on the ratios of achievement of targets for operating sales and operating income, each on a cumulative basis for the three years of the business division in his charge in the Three-Year Plan from April 2008 to March 2011; and as the performance for said three years has been determined and the targets have been achieved, the estimated amount of remuneration to Mr. Fischer has been included in the above table. The amount in the table indicates the amount corresponding to the three years. 5. The following remuneration will be paid in addition to the above payments. 1) ¥6 million was recorded for the year ended March 2011 as expenses associated with stock options granted to three directors of the Company, at the time they served as corporate executive officers not holding the offices of directors. corpora 2006 Appoint (Millions of yen) by resolution of the General Meeting of Shareholders. Auditors for the Year Ended March 2011 2005 Increase Directors and Directors Whose Total Remuneration Exceeded ¥100 Million for the Year Ended March 2011 long-term ◆ Remuneration to Directors and Corporate Reinforc audi ◆ Remuneration by Type to Representative remuneration, including the short-term incentive bonus, medium-term Enhance management transparency and soundness Representative Director 49 28 — 25 Total 103 Kimie Iwata 69 37 15 — General 16 Meeting Representative Director Appointment, Resolution at the General Meeting of Carsten Fischer termination on laws 443 82Audit 51 Shareholders 283 based26 Director of Shareho Appointm Accounting Auditors Notes: Board of Directors 1.Advisory As bonuses for the yeartoended March of 2010, ¥35 million was paid to Mr. Shinzo Maeda, committees the Board Directors Representative Director, ¥18 million was paid to Ms. Kimie Iwata, Representative Remuneration Committee Director, and ¥50 million was paid to Mr. Carsten Fischer, Director, in the year ended March 2011 (based on the resolution of the 110th Ordinary General Meeting of Super Report Shareholders held on June 25, 2010). Nomination Advisory 2. In addition to the above payments, a total amount of ¥1 million has been recorded as Committee expenses associated with stock options granted to Mr. Carsten Fischer, Director, at the time he served as corporate executive officer not concurrently holding the office of Corporate Executive director. ¥38 million was recorded for the year ended March 2011 as performance-linked remuneration (linked to the Three-Year Plan completed in thelegal year ended Resolution, Proposal of material and March 2008) Proposal granted to Mr. Carsten Fischer, at the time he served as corporate executive officerapproval not management issues holding the office of director. 3. The medium-term incentive remuneration shall be asDecision-Making per note 4 of RemunerationMeeting to of Corpor Directors and Corporate Auditors for the Year Ended March 2011, above. 4. None of the three directors above will be paid remuneration other than the executive remuneration described above (including that described in notes 1 through 3). ◆ Remuneration by Type to Directors Other Than External Directors During the Three-Year Plan Ended March 2011 Fixed portion of remuneration 799 308 46.4% 0 20 (Millions of yen) Performance-linked portion of remuneration 17.9% 40 60 283 16.5% 80 332 19.3% 100 (%) Basic remuneration Short-Term Incentive Bonus Medium-Term Incentive Remuneration Long-Term Incentive Stock Options Notes: 1. The graph reflects a decrease in the weight of the performance-linked portion because two representative directors did not receive short-term incentive bonuses for the year ended March 2009 as they did not achieve the predetermined threshold based solely on consolidated performance. In addition, the medium-term incentive remuneration was not paid to directors (excluding Mr. Carsten Fischer). 2. T he above figures include remuneration paid by subsidiaries to directors of said subsidiaries who also served concurrently as directors of the Company, and long-term incentive stock options are only for the three-year period ended March 2011. SHISEIDO ANNUAL REPOR T 2011 53 Compliance In April 2011, Shiseido newly established the Shiseido Group Corporate Philosophy “Our Mission, Values and Way.” Our Mission defines our corporate mission and business domains, and sets out our raison d’être. Our Values define the approach that must be shared by all employees of the Shiseido Group in order to realize Our Mission. Our Way promotes legitimate and fair business practices by defining standards for ensuring the highest level of ethical conduct. The CSR Committee, which reports directly to the Board of Directors, is responsible for improving the quality of the Company in ways including promoting legitimate and fair business practices throughout the Group as well as risk countermeasures. It submits proposals for and reports on action plans and their results to the Board of Directors. At each business office, a manager responsible for instilling and establishing Our Mission, Our Values and Our Way encourages activities that promote corporate ethics and works to preclude or quickly detect and resolve problems. The Company also provides multiple reporting and consultation help lines, which include external lawyers, to quickly detect and correct actions that contravene the law, ordinances, the Articles of Incorporation and other regulations of the Company. In institutional investors. In the year ended March 2011, Shiseido conducted more than 500 such meetings. The President & Chief Executive Officer leads meetings for individual investors twice a year to explain our strategies and results, and Shiseido makes webcasts of presentations and question-and-answer sessions available on its website. In addition, Shiseido also conducts a survey once every six months, primarily of individual shareholders, and uses the results in ways such as improving disclosure materials. Shiseido collects investor opinions and puts them to use in management. The Investor Relations Department obtains shareholder and investor opinions from dialogues and communicates them within the Company in various ways, which contributes to management reforms. Specifically, investor opinions concerning management are analyzed to identify management issues, which are reported in a timely fashion. Every quarter, Shiseido also posts the IR Report, which presents the collected opinions of securities analysts, on the Company intranet. In addition, Shiseido conducts internal communication to convey investor evaluations of the Company to employees. ◆ Overview of Investor Relations Activities addition, Shiseido conducts Groupwide internal audits to assure duties are being performed appropriately. The results of these Activities for individual investors ・Twice-yearly information meetings led by the President & CEO ・Webcasts of these meetings are posted on Shiseido’s website Activities for securities analysts and institutional investors ・Twice-yearly meetings led by the President & CEO to announce first-half and full-year results (teleconferences by members of the Investor Relations Department to announce first- and third-quarter results) ・Individual interviews at Shiseido ・Meetings with investors in Europe, the United States and Asia audits are reported to directors and corporate auditors. Dialogue with Shareholders and Investors Shiseido is committed to timely and appropriate disclosure. Activity We emphasize dialogue with shareholders and investors to maintain accountability and work to increase corporate value by incorporating their opinions in management. The President & Chief Executive Officer leads meetings for IR materials available on Shiseido’s website institutional investors twice a year to present first-half and fullyear results, while members of the Investor Relations Department holds teleconferences twice a year to discuss firstand third-quarter results. The President & Chief Executive Officer, Chief Financial Officer and members of the Investor Relations Department also visit investors in Japan and overseas and respond to requests for one-to-one meetings from 54 SHISEIDO ANNUAL REPOR T 2011 Other Details ・Notice of Convocation of the Ordinary General Meeting of Shareholders ・Annual securities filing and quarterly reports (Japanese only) ・Corporate Governance Report ・Timely disclosure materials ・Signed statements associated with timely disclosure ・Financial Results Briefing materials ・Consolidated Settlement of Accounts ・Annual Report ・To Our Shareholders and Investors (Printed brochure for shareholders) (Japanese only) ・IR Report, analyzing investor opinions concerning management and reporting on management issues, is posted on Company intranet ・Internal communication conveying investor evaluations of Shiseido to employees Shiseido’s Management Structure Risk Management over view of the flow of operations in each division and Fundamental Stance on Risk Management and Approach to Business Continuity Shiseido’s activities overall; clearly specifying operational procedures and authority; and ensuring versatility in man- Shiseido’s fundamental stance on risk management is that the Company’s primar y responsibility is ensuring the safety of employees and their families while also protecting Company assets, maintaining operating continuity and earning the trust of stakeholders. This fundamental stance is the basis of our belief that we enhance corporate value by quickly responding to risks as they materialize and minimize their impact as a matter of course, and engaging in aging various risks. Built on Business Continuity Plan I and Business Continuity Plan II, which we formulated and had been implementing since 2004 in order to establish a system for managing the business continuity planning cycle, this plan was instrumental in dealing with the Great East Japan Earthquake that occurred in March 2011. Identifying Potential Risks responsible behavior that prevents social loss and contributes Shiseido focuses on verifying potential risks because the to society. The CSR Committee, which reports directly to the Company recognizes that preventing risks from materializing Board of Directors, implements the risk management system is crucial to business continuity. We make sure to include by controlling the various risks and compliance issues related projections of the social environment and international affairs to Shiseido’s corporate activities and by promoting various as well as changes in domestic and international treaties and policies to preclude risk. Moreover, the risk management orga- regulations. To do this, we look at risk from three perspec- nization’s three-tier structure – Countermeasure Headquarters, tives: social requirements, risks Shiseido cannot or will not Countermeasure Project and Countermeasure Team – responds address, and risks Shiseido should address. Through this to risks that materialize according to risk severity. process, we determine the initiatives we should implement, In February 2011, we formulated Business Continuity Plan III with the objectives of presenting an easily understandable which we call CSR Actions. Specifically, in accordance with Our Way, Global Reporting ◆ CSR Action Process Relevant Head Office Division CSR Status Survey Relevant Domestic and Overseas Group Companies CSR Self Assessment 1. Itemize and prioritize corporate responsibility issues 2. Conduct internal audit Conduct internal audit in accordance with core ISO26000 issues Focus on issues 2. Conduct internal audit Conduct internal audit of issues required for corporate management Report Report 3. Summarize and define tasks Feedback Feedback 4. Feedback on overall conclusions 4. Feedback on overall conclusions Feedback on overall conclusions of Shiseido Group and conclusions of affiliated companies Feedback on overall conclusions of Shiseido Group and conclusions specific to individual companies 5. Confirm plans for and progress of countermeasures Report Report CSR Committee SHISEIDO ANNUAL REPOR T 2011 55 Initiative (GRI) guidelines and ISO26000, Shiseido classifies all determine potential risks. Shiseido will constantly ascer- survey results and other information obtained from institutions tain society’s perspective and operational exposure in involved in socially responsible investing and CSR auditing into working to respond to risks quickly and appropriately. categories such as corporate governance, human rights, labor practices, the environment, fair business practices, consumer issues, and participation in and development of the community. We break these down into more detailed categories and scru- Products That Are Healthy and Eco-Friendly tinize each one in terms of the Plan-Do-Check-Act cycle: Do we At the World Summit on Sustainable Development held in have a specific plan (Plan)? Do we have a system in place for Johannesburg in 2002, the United Nations adopted the goal of action (Do)? Are we evaluating and validating (Check and Act)? using and producing chemicals by 2020 in ways that lead to Based on this review, we determine the initiatives we will the minimization of significant adverse effects on human implement. Issues that we identify are evaluated and prioritized health and the environment. With this in mind, Shiseido’s fun- according to their relative impact on our business and degree damental stance is not to sell products that adversely impact of interest to society. human health or the environment, based on information it has We use this process for risk mapping, with the CSR collected regarding domestic and international regulatory Committee receiving reports on the results and the respon- trends and chemical substance safety, and the latest scientific sible division receiving feedback so that we can quickly for- knowledge. mulate and implement plans. Major issues that the CSR For example, all chemical substances associated with cos- Committee has studied through this process include initia- metics and containers shipped within the EU are subject to the tives to promote biodiversity, programs to increase safety awareness, support to empower women in developing countries, business continuity planning and operational system preser vation. Fur thermore, from April 2011, Shiseido’s subsidiaries and affiliates in Japan and overseas began conducting selfassessments using the CSR Action items, thus establishing a system that enables the Shiseido Group as a whole to ◆ Itemized Verification Sheet We have created an itemized checklist of risks and conduct audits from various perspectives. 56 Specific Countermeasures SHISEIDO ANNUAL REPOR T 2011 European REACH Regulation that came into effect in June 2007 and its prescribed registration procedures. As a matter of course, we keep track of all substances that require registration. We also confirm that our products and containers contain no more than 0.1 percent of Substances of Very High Concern (SVHC), for which information must be provided because they are known to have probable serious effects on human health and the environment. ◆ Risk Map Level of impact: High Degree of interest to society: Low Level of impact: High Degree of interest to society: Medium Level of impact: High Degree of interest to society: High Level of impact: Medium Degree of interest to society: Low Level of impact: Medium Degree of interest to society: Medium Level of impact: Medium Degree of interest to society: High Level of impact: Low Degree of interest to society: Low Level of impact: Low Degree of interest to society: Medium Level of impact: Low Degree of interest to society: High We map risk items primarily according to degree of influence on business and degree of interest to society, and then prioritize the initiatives we will execute. Shiseido’s Management Structure determine damage and create an organization to maintain Initiatives to Abolish Animal Testing Shiseido does not use animal testing in the development of finished cosmetics products. For raw materials, our fun- continuous product supply. At the same time, we initiated support activities in the stricken area. damental stance is to avoid the use of animal testing except Shiseido donated ¥100 million to support relief efforts in cases in which it is legally required for product safety shortly after the earthquake, as well as over 200,000 items assurance or no alternative is available. Shiseido intends to including FRESSY Dry Shampoo, which does not require eliminate all animal testing in line with the leading initiative water. Subsequently, we responded to requests for cosmet- in this area, the EU Cosmetics Directive, which is aimed at ics from the stricken area by providing 30,000 sets of skin- phasing out all animal testing by 2013. Shiseido ended in- care products, makeup and other cosmetics to relief cen- house animal testing in March 2011 with a view to protect- ters. In addition, Shiseido employees in Japan as well as ing animals while strictly maintaining safety so that custom- Group companies overseas and their employees voluntarily ers can use our products without concern. Shiseido will donated money to the Hanatsubaki Fund, which supports work to achieve this goal quickly by promoting the develop- social contribution activities. ment of alternatives through cooperation with domestic and Production was affected by damage to certain production overseas industr y associations and organizations that vali- facilities at the Kuki Factory. Restoration was completed in date alternative methods, such as the Japan Cosmetic two weeks and the factory resumed operations. Shiseido is Industr y Association and the European Center for the dealing with the issue of power shortages through changes in Validation of Alternative Methods. We have also been factory operation days and hours and by shifting production exchanging opinions and holding discussions with experts, to other factories. In addition, while the impact of the earth- academics and humane societies, and intend to further pro- quake on our business partners has affected the procurement mote collaborative initiatives with these stakeholders. of certain ingredients and raw materials, some of our suppliers have restored operations, and we have made progress in pro- Response to the Great East Japan Earthquake curing substitutes. The Great East Japan Earthquake of March 2011 damaged Shiseido’s offices and factories as well as those of business partners and stores it does business with. In accordance with our Business Continuity Plan III, immediately after the earthquake, we established the Headquarters for Emergency Disaster Response at our head office to ◆ Headquarters for Emergency Disaster Response Organization Chart General Manager of Sales Division Headquarters for Emergency Disaster Response General Manager (President & CEO) Sustained Product Supply Committee (Activities to support restoration of operations) Corporate Officer Responsible for Production, Purchasing and Logistics (Executive Vice President and Chair of CSR Committee) Personnel team Sales Administration Department Secretariat (CSR Department) (Corporate Officer Responsible for CSR) Members Telecommunications team (Corporate Officer Responsible for the Sales Department) Deputy General Manager Facilities & procurement team CSR Committee members Corporate officers responsible for lead divisions, general managers of related divisions Financial team Communication team Regional support team General Manager of Area Headquarters for Disaster Response Sales divisions Sales divisions SHISEIDO ANNUAL REPOR T 2011 57 Main Subsidiaries and Af filiates (As of March 31, 2011) Company Name Location Paid-in Capital Shiseido Sales Co., Ltd. Minato-ku, Tokyo ¥100 million Shiseido FITIT Co., Ltd. Chuo-ku, Tokyo ¥10 million Shiseido International Inc. Chuo-ku, Tokyo ¥30 million The Ginza Co., Ltd. Chuo-ku, Tokyo ¥100 million Domestic Cosmetics Business FT Shiseido Co., Ltd. Chuo-ku, Tokyo ¥100 million 100.0 Shiseido Pharmaceutical Co., Ltd. Chuo-ku, Tokyo ¥100 million 100.0 Shiseido Americas Corporation Delaware, U.S.A. (Thousands of U.S. dollars) 100.0 Shiseido America, Inc. New York, U.S.A. (Thousands of U.S. dollars) Blush Holdings LLC Delaware, U.S.A. (U.S. dollars) Bare Escentuals, Inc. Delaware, U.S.A. (U.S. dollars) Zotos International, Inc. $403,070 Main Business1 Equity ownership percentage3 100.0 100.0 100.0 98.2 100.0 (100.0) $28,000 100.0 (100.0) $100 100.0 (100.0) $0.01 100.0 Connecticut, U.S.A. (Thousands of U.S. dollars) $25,000 (100.0) Paris, France (Thousands of euro) �256,133 100.0 Paris, France (Thousands of euro) Shiseido Deutschland GmbH Dusseldorf, Germany (Thousands of euro) Shiseido Cosmetici (Italia) S.p.A. Milan, Italy 100.0 (100.0) 100.0 (100.0) 100.0 (100.0) 100.0 (100.0) 100.0 (100.0) 100.0 (100.0) Shiseido International Europe S.A. Shiseido International France S.A.S. Shiseido Europe, S.A.S. Beauté Prestige International S.A. Laboratoires Decléor S.A.S. Shiseido China Co., Ltd. Shanghai Zotos Citic Cosmetics Co., Ltd. Paris, France Paris, France Paris, France Shanghai, China Shanghai, China Shiseido Liyuan Cosmetics Co., Ltd. Beijing, China Shiseido Hong Kong Cosmetics Ltd. Hong Kong, China Taiwan Shiseido Co., Ltd. Taipei, Taiwan �36,295 �5,200 (Thousands of euro) �2,400 (Thousands of euro) �9,000 Global Business (Thousands of euro) �17,760 (Thousands of euro) �19,374 (Thousands of yuan) 100.0 CNY565,093 92.6 (Thousands of yuan) (72.6) CNY418,271 65.0 (Thousands of yuan) (33.0) CNY94,300 (Thousands of HK dollars) 100.0 HKD123,000 (Thousands of NT dollars) NTD1,154,588 51.0 Shiseido Professional Co., Ltd. Chuo-ku, Tokyo ¥250 million 100.0 Shiseido Beauty Salon Co., Ltd. Chuo-ku, Tokyo ¥100 million 100.0 Shiseido Parlour Co., Ltd. Chuo-ku, Tokyo ¥100 million Chiyoda-ku, Tokyo ¥11,600 million Other: 68 subsidiaries — — — — (Equity-method affiliates): 3 companies — — — — Selan Anonymous Association2 Others 99.3 — [ 100.0 ] Notes:1.The segment name is noted in the Main Business column. 2.A company of less than 50 percent equity ownership that is treated as a subsidiary because Shiseido is essentially in control. 3.N umbers in parentheses include indirect equity ownership, and numbers in brackets represent ownership by parties with a close relationship or those in agreement with Shiseido. 58 SHISEIDO ANNUAL REPOR T 2011 Financial Section Six-Year Summary of Selected Financial Data 60 Management’s Discussion and Analysis 61 Consolidated Financial Statements 76 Consolidated Balance Sheets Consolidated Statements of Income Consolidated Statements of Comprehensive Income Consolidated Statements of Changes in Net Assets Consolidated Statements of Cash Flows Notes to the Consolidated Financial Statements 82 1. Basis of Presenting Consolidated Financial Statements 2. Summary of Significant Accounting Policies 3. Cash Flow Information 4. Financial Instruments 5. Securities 6. Inventories 7. Short-term and Long-term Debt 8. Accrued Retirement Benefits 9. Income Taxes 10. Contingent Liabilities 11. Net Assets 12. Stock Option Plan 13. Research and Development 14. Transactions with Related Parties 15. Accounting for Leases 16. Derivative Financial Instruments 17. Impairment Loss 18. Restructuring Expenses 19. Loss on Disaster 20. Segment Information 21. Business Combination 22. Subsequent Event Independent Auditors’ Report 103 SHISEIDO ANNUAL REPOR T 2011 59 Six-Year Summary of Selected Financial Data Shiseido Company, Limited, and Subsidiaries For the years ended March 31, 2006 to 2011 Millions of yen Thousands of dollars (Note 1) (Except per share data) (Except per share data) 2006 2007 2008 2009 2010 2011 2011 Operating Results: Net sales ¥670,957 ¥694,594 ¥723,485 ¥690,256 ¥644,201 ¥670,701 $8,066,158 Cost of sales 176,884 185,533 186,466 171,752 160,166 168,692 2,028,768 Selling, general and administrative expenses 455,194 459,056 473,554 468,590 433,684 457,551 5,502,718 Operating income 38,879 50,005 63,465 49,914 50,351 44,458 534,672 EBITDA (Note 2) 58,963 78,036 94,960 70,149 75,699 65,576 788,647 Net income 14,436 25,293 35,460 19,373 33,671 12,791 153,830 Financial Position (At year-end): Total assets ¥671,842 ¥739,833 ¥675,864 ¥606,569 ¥775,446 ¥740,184 $8,901,792 Short-term liabilities (Note 3) 12,786 Long-term debt Interest-bearing debt Net assets 66,144 38,653 27,601 112,693 69,492 61,694 24,566 34,452 101,754 181,156 2,178,665 82,278 127,838 63,219 62,053 214,447 197,518 2,375,442 387,613 403,797 399,739 351,951 365,208 321,191 3,862,790 Net income (Note 4) ¥ 34.4 ¥ 60.9 ¥ 86.1 ¥ 48.0 ¥ 84.6 ¥ 32.1 $0.39 Net assets (Note 4) 906.1 940.8 946.2 839.9 875.7 774.8 9.32 Cash dividend 30.0 32.0 34.0 50.0 50.0 50.0 0.60 Weighted average number of shares outstanding during the period (thousands) 412,855 412,572 407,696 403,240 397,886 397,864 Operating profitability (%) 5.8 7.2 8.8 7.2 7.8 6.6 Return on assets (%) 2.1 3.6 5.0 3.0 4.9 1.7 Operating ROA (%) (Note 5) 5.9 7.4 9.4 8.2 7.5 6.1 Return on equity (%) 3.9 6.6 9.2 5.4 9.8 3.9 Equity ratio (%) 55.7 52.5 56.6 55.6 44.9 41.7 16,362 196,777 Per Share Data (In yen and U.S. dollars): Financial Ratios: Interest coverage ratio (times) (Note 6) 8.6 30.6 39.1 23.6 45.4 32.8 Interest-bearing debt ratio (%) (Note 7) 17.5 24.0 13.7 15.0 37.0 38.1 Payout ratio (Consolidated) (%) 87.2 52.6 39.5 104.1 59.1 155.5 Number of employees at year-end (Note 8) 25,781 27,460 28,793 28,810 28,968 Net sales per employee ¥26.0 ¥25.3 ¥25.1 ¥24.0 ¥22.2 31,310 ¥21.4 Notes:1. U.S. dollar amounts are converted from yen, for convenience only, at the rate of ¥83.15 = US$1 prevailing on March 31, 2011. 2.EBITDA (Earnings before interest, tax, depreciation and amortization) = Income before income taxes + Interest expense + Depreciation and amortization 3. Short-term liabilities = Short-term debt + Current portion of long-term debt 4. Net income 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. 5. Operating ROA = (Operating income + Interest and dividend income) ÷ Total assets (Yearly average) 6. Interest coverage ratio = Net cash provided by operating activities ÷ Interest paid* *As stated in the statements of cash flows 7.Interest-bearing debt ratio = Interest-bearing debt ÷ Invested capital* * Invested capital = Interest-bearing debt + Total net assets 8. The number of employees at year-end does not contain temporary employees. 60 SHISEIDO ANNUAL REPOR T 2011 $257 Management’s Discussion and Analysis Operating Results Overview of Bare Escentuals and lower marginal income because of the decrease in domestic sales caused operating income to decrease During the fiscal year ended March 31, 2011, the cosmetics market continued to grow overseas, with ongoing recovery in Europe and North America and continued strong market expansion in China and newly industrialized economies. In Japan, the cosmetics market brightened briefly during summer 2010, but overall consumer sentiment was slow to improve and the market continued to contract. In addition, Japan suffered from the Great East Japan Earthquake in March 2011, which was an unprecedented natural disaster. Since the fiscal year ended March 31, 2009, the Shiseido Group has been aiming to become a global player representing Asia with its origins in Japan by carrying out a Three-Year Plan to improve the quality of activities across the board. In the fiscal year ended March 31, 2011, the final year of the Three-Year Plan, Shiseido concentrated on creating a brand loved by customers throughout the world with a focus on strengthening cultivation of the global brand , further expanding its business in China, and nurturing core brands/lines in the home market of Japan. In addition, we worked to improve profitability by promoting structural reform, nurturing global human resources and strengthening corporate governance in order to establish an “unsurpassed, worldclass quality of business management.” Moreover, as a corpora- 11.7 percent to ¥44,458 million ($534,672 thousand). Net income decreased 62.0 percent to ¥12,791 million ($153,830 thousand) because of the impact of a change in estimation of product samples and promotional items within the scope of assets, write-down of investments in securities, and loss on disaster related to the Great East Japan Earthquake. In the first year of the Three-Year Plan that concluded on March 31, 2011, Shiseido had to change its targets for operating profitability, return on equity (ROE; net income divided by average total net assets) and the overseas sales ratio because of the impact of the global financial crisis touched off by the collapse of Lehman Brothers in autumn 2008 and the subsequent changes in market structure and weakening consumer sentiment. Operating profitability for the fiscal year ended March 31, 2011, the final year of the Three-Year Plan, was 6.6 percent, and ROE was 3.9 percent. The overseas sales ratio was 42.9 percent as a result of strong growth in Shiseido’s China business and the acquisition of Bare Escentuals. Changes in Accounting Policies Application of Accounting Standard for Asset Retirement Obligations tion that is part of society, we actively promoted CSR activities, Effective from the year ended March 31, 2011, Shiseido has including social contributions and environmental protection. adopted “Accounting Standard for Asset Retirement Obligations” Shiseido devoted all of its capabilities to these corporate activ- (ASBJ Statement No. 18, March 31, 2008) and “Guidance on ities during the fiscal year ended March 31, 2011. As a result, Accounting Standard for Asset Retirement Obligations” (ASBJ overseas sales increased 21.2 percent compared with the previ- Guidance No. 21, March 31, 2008). This change reduced operating ous fiscal year to ¥287,835 million ($3,461,636 thousand), with income by ¥131 million ($1,575 thousand), and reduced income recovery of the potential for growth in the markets of Europe and before income taxes by ¥976 million ($11,738 thousand). North America and continued strong growth in Asian markets cosmetics company Bare Escentuals, Inc. in March 2010, which Application of Accounting Standard for Business Combinations added to net sales. In the Japanese market, however, consumer Effective from the year ended March 31, 2011, Shiseido has sentiment was slow to improve and a changing market structure adopted “Accounting Standard for Business Combinations” (ASBJ that is becoming polarized between high- and low-priced products Statement No. 21, December 26, 2008), “Accounting Standard led to continued contraction in the mid-priced cosmetics market, for Consolidated Financial Statements” (ASBJ Statement No. 22, in which Shiseido is strong. As a result of these and other factors, December 26, 2008), “Partial Amendments to Accounting sales in Japan decreased 5.8 percent to ¥382,866 million Standard for Research and Development Costs” (ASBJ Statement ($4,604,522 thousand). Consequently, net sales including domes- No. 23, December 26, 2008), “Accounting Standard for Business tic and overseas sales increased 4.1 percent to ¥670,701 million Divestitures” (ASBJ Statement No. 7, December 26, 2008), ($8,066,158 thousand). “Revised Accounting Standard for Equity Method of Accounting Although Shiseido worked to reduce expenses and operate for Investments” (ASBJ Statement No. 16, December 26, 2008) efficiently, nonrecurring expenses associated with the acquisition and “Revised Guidance on Accounting Standard for Business including China. Shiseido also completed the acquisition of U.S. SHISEIDO ANNUAL REPOR T 2011 61 Combinations and Accounting Standard for Business Divestitures” Bare Escentuals. Analysis of the major components of SG&A (ASBJ Guidance No. 10, December 26, 2008). expenses is included in the following sections. Marketing Costs Net Sales Marketing costs consist of advertising and promotional Net sales increased 4.1 percent compared with the previous expenses. The ratio of marketing costs to net sales decreased fiscal year to ¥670,701 million ($8,066,158 thousand), and 1.2 percentage points to 21.5 percent. Overseas, Shiseido increased 6.7 percent on a local currency basis. Overseas sales concentrated marketing costs on regenerating the global . In Japan, Shiseido raised cost efficiency by increased 21.2 percent, with recovery in Europe and North brand America and continued strong growth in Asian markets including assiduously distinguishing and concentrating brands/lines for China. Shiseido also completed the acquisition of U.S. cosmetics investment, which reduced the overall ratio of marketing company Bare Escentuals, Inc. in March 2010, which added costs to net sales. to overseas sales. Sales in Japan decreased 5.8 percent Personnel Expenses because of the slow improvement of consumer sentiment and The ratio of personnel expenses to net sales increased 0.7 the ongoing polarization of the cosmetics market between percentage points to 23.7 percent. In Japan, this ratio rose high- and low-priced products. because bonuses increased while net sales decreased. Net Sales/Overseas Sales Ratio Overseas, personnel expenses increased with the expansion Cost of the Salesratio Ratio/SG&A Expensesexpenses Ratio of operations. However, of personnel (Billions of yen) (%) 600 45 400 30 200 15 60 800 0 0 2007 2008 2009 2010 2011 Net Sales Overseas Sales Ratio 694.6 32.4 723.5 690.3 36.5 38.0 644.2 36.9 670.7 42.9 Domestic Sales Overseas Sales 469.8 224.8 459.2 428.3 264.3 262.0 406.7 237.5 382.9 287.8 Cost of Sales and Selling, General and Expenses 800Operating Income/Operating Profitability Cost of Sales 60 (%) 0.9 percent 0 to 24.0 percent. 2.5 0 existing businesses decreased 20 2009 2010 29 Selling, General and Administrative Expenses 694.6 723.5 690.3 644.2 670.7 0 Sales 0 2007 2008(SG&A) 2009 expenses 2010 2011 increased 32.4 general 36.5 and 38.0administrative 36.9 42.9 rseas Sales Ratio Selling, 50.0 63.5 49.9 50.4 to 44.5 Operatingcompared Income 5.5 percent the previous fiscal year ¥457,551 mestic Sales 469.8 459.2 428.3 with 406.7 382.9 7.2 8.8 7.2 7.8 6.6 Operating Profitability rseas Sales 224.8 264.3 262.0 237.5The287.8 million ($5,502,718 thousand). ratio of SG&A expenses to net sales increased 0.9 percentage points to 68.2 percent as a result of nonrecurring expenses associated with the acquisition of (Billions of yen) (%) 2010 20 24.9 67.3 2 6 22.7 23.0 21.3 0.3 2 2 2 69 28 68 70 67 66 Cash Flows from Operating Activities/Acquisition of Fixed As 65Prepaid Expenses) 25 (Property, Plant and Equipment + Intangible Assets + Long-term (Billions of yen) 24 64 80 23 2011 62 SHISEIDO ANNUAL REPOR T 2011 ng Income/Operating Profitability 2009 (%) ratio of cost of sales to net sales increased 0.3 percentage points 7.5 15 200to 25.2 percent. Excluding 5 40 Bare Escentuals, Inc., the ratio for 2008 2008 (%) 26 2007 23 Amortization Expenses Associated with2007 Cost of Sales Ratio (Left scale) 26.7 Mergers and Acquisitions 27 30 24 in response to lower net sales. ous fiscal year to ¥168,692 million ($2,028,768 thousand). The 60 27 The ratio of other expenses to net sales 26 increased 0.4 per25 centage points to 21.7 percent despite efforts to reduce costs 30 45 600 Cost of sales increased 10 80 5.3 percent compared with the previ400 28 Other Expenses Cost of Sales Ratio/SG&A Expenses Ratio (%) (Billions of yen) was lower than the rate of increase in net 29 sales. 25.8 24.9 66.1 65.4 67.9 SG&A Expense Ratio (Right scale) The ratio of amortization expenses associated with mergers Marketing Costs 23.6 22.9 and acquisitions to net sales increased 1.0 percentage points23.7 Personnel Expenses 21.6 21.4 22.4 to 1.3 percent. This was mainly due to amortization of goodwill Other Expenses 20.6 20.9 21.5 and customer-related intangible assets of Bare Escentuals. M&A-related Amortization Expenses 0.3 0.2 0.3 es/Overseas Sales Ratio Administrative (Billions of yen) decreased because the rate of increase (%) in personnel expenses 30 63 2008 2009 2010 2011 Cost of Sales Ratio (Left scale) 26.7 SG&A Expense Ratio (Right scale) 66.1 25.8 65.4 24.9 67.9 40 24.9 67.3 25.2 68.2 Marketing Costs Personnel Expenses Other Expenses M&A-related Amortization Expenses 22.9 21.4 20.9 0.2 23.7 20 22.4 21.5 0 0.3 22.7 23.0 21.3 0.3 2007 21.5 23.7 21.7 1.3 2008 2009 2010 201 Cash Flows from Operating 69.4 Activities Acquisition of Fixed Assets 28.6 75.3 42.8 69.4 67. 27.7 28.2 25.5 26. 2007 23.6 21.6 20.6 0.3 60 15 200 0 Discussion and Analysis Management’s Cost of Sales Ratio/SG&A Expenses Ratio 0 Net Sales/Overseas Sales Ratio 2010 2011 Net Sales Overseas Sales Ratio 694.6 32.4 644.2 36.9 670.7 42.9 Domestic Sales Overseas Sales (%) 723.5 690.3 30 36.5 38.0 29 469.8 224.8 459.2 428.3 28 264.3 262.0 27 406.7 237.5 382.9 287.8 2007 2008 2009 2010 2 25.8 65.4 24.9 67.9 24.9 67.3 2 6 Marketing Costs 23.6 22.9 1023.7 Consolidated Subsidiaries Personnel Expenses 21.6 21.4 22.4 7.5 60 Other Expenses 20.6 20.9 Minority interests in net income of consolidated subsidiaries21.5 M&A-related Amortization Expenses 0.3 0.2 0.3 5 40 compared with the previous fiscal year decreased 27.9 percent 22.7 23.0 21.3 0.3 2 2 2 2007 (Billions of yen) (%) 600 45 400 30 200 15 60 800 2008 2009 26 25 24 0 0 2007 694.6 Net Sales Overseas Sales Ratio Operating Income 32.4 2008 2009 723.5 690.3 36.5 38.0 2010 2011 644.2 36.9 670.7 42.9 Domestic Sales 469.8 459.2 428.3 406.7 382.9 Operating income decreased with the Overseas Sales 224.8 11.7 264.3percent 262.0 compared 237.5 287.8 previous fiscal year to ¥44,458 million ($534,672 thousand). Operating profitability decreased 1.2 percentage points to 6.6 23 of Sales Ratio (Left scale) 26.7 Operating Income/OperatingCost Profitability SG&A Expense Ratio (Right scale)of66.1 Minority Interests in Net Income (Billions of yen) 80 percent. to ¥2,576 million ($30,980 thousand). 20 Operating Income/Operating Profitability Net Income (Billions of yen) (%) 60 7.5 40 5 20 2.5 10 80 0 0 Operating Income Operating Profitability 2007 2008 2009 2010 2011 50.0 7.2 63.5 8.8 49.9 7.2 50.4 7.8 44.5 6.6 2.5 0 0 2007 2008 2009 2010 2011 50.0 63.5 49.9 50.4 44.5 Operating Income Net incomeProfitability decreased 62.0 with the 7.2 percent 8.8 compared 7.2 7.8 6.6previOperating ous fiscal year to ¥12,791 million ($153,830 thousand). Net Cash Flows from Operating Activities/Acquisition of Fixed As income per share decreased to ¥32.1 ($0.39) from Assets ¥84.6 for thePrepaid Expenses) (Property, Plant and Equipment + Intangible + Long-term (Billions of yen) 5.9 percentage previous fiscal year. Return on equity decreased 80 points to 3.9 percent from 9.8 percent for the previous fiscal year because of lower net income. 60 40 Net Income/Return on Equity 20 (Billions of yen) (%) 15 50 30 Net other expenses totaled ¥15,763 million ($189,573 thou- 20 sand), compared with net other expenses of ¥3,612 million ($38,822 thousand) for the previous fiscal year. Reflecting higher 10 interest expenses due to fund procurement, net interest expense, Net Income/Return on Equity 0 (Billions less of yen) interest expense, totaled ¥1,497 mil(%) calculated as interest 50 15 40 12 lion ($18,004 thousand), compared with net interest expense of Net Income Return on Equity 3 2009 2011 2010 25.3 35.5 19.4 33.7 12.8 Net Income 6.6 decreased 9.2 5.4 percent 9.8 compared 3.9 Return before on Equity Income income taxes 38.6 with the previous fiscal year to ¥28,695 million ($345,099 thousand). 12 2009 2010 20 75.3 9 42.8 69.4 67 27.7 6 28.2 25.5 26 3 2007 2008 25.3 6.6 35.5 9.2 2009 2010 (Billions of yen) 19.4 800 5.4 33.7 9.8 0 2011 12.8 3.9 400 200 Review by Reportable Segment 0 0 2008 600 9 30a change in estimation of product samples including the impact of 6 20 within the scope of assets were also and promotional items 2007 Cash Flows from Operating 69.4 Activities Acquisition of Fixed Assets 28.6 Total Assets/Operating ROA ¥738 million ($8,876 thousand) for the previous fiscal year. Losses 2007 2008 Income before Income Taxes 0 40 Other Income (Expenses) booked in Other Income 10 (Expenses). (%) 0 2008 2009 Results by reportable segment follow below. 2007 739.8 675.9 606.6 Total Assets Net Sales by Reportable Segment 7.4 9.4 8.2 Operating ROA (Billions of yen) Domestic Cosmetics Business 2010 20 775.4 7.5 74 750 Assets/Interest-bearing Debt decreased Sales in the DomesticNet Cosmetics Business segment of yen) 6.6 percent year on 500 year to ¥358,408 (Billions million ($4,310,379 thou- Income Taxes, Including Deferred Taxes 500 Income taxes, including deferred taxes, increased 40.4 percent compared with the previous fiscal year to ¥13,328 million ($160,289 thousand) as a result of the tax effect of the elimination Net Sales by Reportable Segment of unrealized intercompany profit on inventories. The effective tax (Billions of yen) 750 compared with 20.3 percent in the previrate was 46.4 percent, ous fiscal year. 500 250 sand) despite solid results in the healthcare business. Shiseido’s 400 meticulous efforts to250 respond to a changing market structure that 300 is becoming polarized between high- and low-priced products did 0 200 of challenges in the not successfully compensate for the effect 2007 2008 2009 2010 2011 100 market for mid-priced products. 430.9 423.9 397.6 383.8 358.4 Domestic Cosmetics Business 241.0 278.8 275.7 250.4 302.6 Global Business 0 [Domestic Cosmetics Division] 2007 2008 22.7 20.8 17.0 10.0 9.7 2009 Others Sales in the Domestic Cosmetics Division decreased 7.5 per403.8 399.7 Net Assets Total 694.6 723.5 690.3 644.2 670.7 352.0 127.8lower 63.2sales 62.1 Interest-bearing cent compared with the previous fiscal Debt year, with 2010 20 365.2 214.4 32 19 year on year of counseling products, self-selection products and Income by Reportable Segment Equity Ratio/Interest-bearing Debt Ratio (Billions of yen) 2007 2008 2009 2010 2011 0 2007 Domestic Cosmetics Business 430.9 2008 2009 423.9 397.6 2010 2011 383.8 358.4 (%) 43.3 32.7 38.9 33.6 Domestic Cosmetics Business 37.0 100 SHISEIDO ANNUAL REPOR9.0T 2011 11.0 17.8 15.4 9.5 Global Business 2.2 1.9 751.5 1.7 1.8 Others 63 toiletries. During the year, we continued our focus on fostering Segment income (operating income) for the Domestic mega lines and relationship-building brands/lines, with the aim Cosmetics Business segment decreased 13.8 percent com- of achieving long-seller product status. We also continued pared with the previous fiscal year to ¥33,573 million ($403,764 entrenching our policy of distinction and concentration and thousand) and segment profitability was 9.3 percent. Efforts to implemented measures to strengthen sales through meticulous deploy selling, general, and administrative expenses such as arrangement of targeted stores and brands according to spe- marketing expenses more efficiently did not fully compensate cific channels. for the significant reduction in marginal income due to lower In the high-priced cosmetics category, which centers on high- sales. value-added counseling products, we continued to execute our PS Program for specialty stores and our Double Counter strategy for department stores, achieving steady results at major outlets. In the second half of the year, we undertook a comprehensive renewal of the top-end prestige clé de peau Beauté brand lineup, including package design and image model. These efforts helped boost sales. In the spot counseling category, which centers on mid-priced items and “one-point counseling” (tips), we stepped up initiatives to foster existing products in the MAQUILLAGE makeup mega line in its fifth year on the market. For self-selection and toiletry products, which center on lowpriced items, we achieved long-seller status of various brands. These included Anessa sunscreens, which offer exceptional ultraviolet ray protection and are gentle to the skin, and the Integrate line of mineral foundations, which remained a hit. Global Business Sales in the Global Business segment increased 27.6 percent compared with the previous fiscal year on a local currency basis, and increased 20.9 percent to ¥302,633 million ($3,639,603 thousand) when translated into yen. Performance benefitted from recovery of the cosmetics business in Europe and North America, continued strong growth in Asia, including China, and a solid performance by the Professional Division. [Overseas Cosmetics Division] Division sales increased 32.0 percent on a local currency basis and increased 25.0 percent on a yen basis compared with the previous fiscal year. In the prestige market, sales of the global brand increased in various countries. Key performers included the Future Solution LX premium skincare line and the We also achieved some success with Senka, a strategic skincare brand targeting the growing market for low-priced products. However, the domestic cosmetics business in general faced difficult challenges. These included weak consumer sentiment, contraction of the market for mid-priced products, intensified competition, reduction of inventories by retailers, and the impact of the Great East Japan Earthquake. [Healthcare Division] Sales in the Healthcare Division continued to expand, increasing 2.6 percent compared with the previous fiscal year. During the year, we stepped up efforts to cultivate brands. For example, we augmented The Collagen, the top-selling line of supplements in the collagen market in terms of over-the-counter sales, with the addition of High-Activated Beauty Powder, which can be taken by dissolving it in food and beverages. We also launched new products, including Kirei no Susume, a balanced beverage product, and IHADA, a pharmaceutical for skin problems that cosmetics cannot resolve. BOP (Bio-Performance) high-performance skincare line. In the United States, sales of the NARS makeup brand grew substantially. In addition, growth recovered in designer fragrances sold by Beauté Prestige International S. A. and in the travel retail business. Moreover, sales of Bare Escentuals, a new addition to the Shiseido Group, increased as planned. Our first move to maximize the benefits of the acquisition was to enhance Groupwide efficiency by integrating production functions and distribution facilities. In the core Chinese market, Shiseido generated sales growth that was higher than that of the market through ongoing active channel-specific marketing. In the specialty store channel, highlights included continued solid performance by URARA, a brand sold only in cosmetics specialty stores, and Pure & Mild, a brand targeting middle-income earners in China. We also maintained strong growth by introducing d’ici là, a high-end brand, during the year. In the department store channel, AUPRES, a China-only brand, continued to perform well. 64 SHISEIDO ANNUAL REPOR T 2011 0 0 2007 2008 2009 2010 7.2 7.8 2011 Management’s Discussion and50.4 Analysis 50.0 63.5 49.9 44.5 Operating Income 7.2 Operating Profitability 8.8 6.6 Net Income/Return on Equity (Billions of yen) (%) 15 50 In the Asian masstige market, sales of Za, which targets [Frontier Sciences Division] middle-income earners, were firm. Sales of Aqua Label, a Division sales decreased compared with the previous fiscal self-selection skincare line, also increased significantly. In addi- year due to the discontinuation of sales of certain medical-use tion, examples of success in the Asian masstige market includ- pharmaceuticals that20were not very profitable. However, bio- ed a marketing campaign in collaboration with retailers for hyaluronic acid, a raw10material for cosmetics and pharmaceuti-3 MAJOLICA MAJORCA, a self-selection makeup line, in the core 0 0 in Japan and overseas. Sales of Navision, cals, performed solidly market of Thailand. a lineNet ofIncome cosmetics for medical increased. 25.3 institutions, 35.5 19.4 also33.7 12.8 In newly industrialized economies, we generated sales 6.6 income) 9.2 from 5.4 other 9.8 businesses 3.9 Return onincome Equity (operating Segment growth by significantly increasing the number of stores handling increased 7.9 percent compared with the previous fiscal year to our products in Russia. We also began doing business in the ¥1,838 million ($22,105 thousand) and segment profitability was three Balkan countries of Albania, Kosovo and Macedonia, and 11.4 percent. This was due to efficient management of selling, commenced sales in Mongolia, Georgia, Colombia and Moldova, general and administrative expenses. 40 12 30 9 6 2007 2008 2009 2010 2011 thus steadily expanding our operations in new markets. As a result of these efforts, the global brand was avail- able in 82 countries and regions (including Japan) as of Net Sales by Reportable Segment (Billions of yen) 750 December 31, 2010, and 85 countries and regions (including Japan) as of March 31, 2011. 500 [Overseas and Domestic Professional Divisions] Division sales increased 5.1 percent on a local currency basis 250 but decreased 0.3 percent on a yen basis compared with the 0 previous fiscal year. In Japan, we focused on achieving recovery in the hair product and esthetic categories, but business conditions remained difficult amid economic recession and intense competition. Overseas, sales grew in Asia, where market expansion continues. Zotos International, Inc., which provides our products to 2010 2011 Domestic Cosmetics Business 430.9 241.0 Global Business 22.7 Others 423.9 397.6 278.8 275.7 20.8 17.0 383.8 250.4 10.0 358.4 302.6 9.7 Total 723.5 690.3 644.2 670.7 2007 694.6 (Billions of yen) ed sales by implementing aggressive marketing activities. As a Domestic Cosmetics Business 37.0 11.0 Global Business 2.2 Others Divisions grew steadily. Despite higher sales due to recovery in European and Asian markets, segment income (operating income) for the Global Business segment decreased 5.4 percent to ¥9,026 million ($108,551 thousand) because of nonrecurring expenses associated with the acquisition of Bare Escentuals. Segment profitability was 3.0 percent. 2009 Income by Reportable Segment beauty salons globally with a focus on North America, expandresult, sales of the Overseas and Domestic Professional 2008 2007 2008 2009 2010 2011 43.3 17.8 1.9 32.7 15.4 1.5 38.9 9.5 1.7 33.6 9.0 1.8 2008 2009 2010 2011 10.1 3.8 10.5 9.3 3.0 11.4 Profitability by Reportable Segment (%) 2007 Domestic Cosmetics Business Global Business Others 8.5 4.5 4.7 10.1 6.3 4.8 8.1 5.5 5.1 Note: N et profitability by reportable segment is calculated against sales for the segment, including intersegment sales. Others Sales in other businesses decreased 3.7 percent compared with the previous fiscal year to ¥9,660 million ($116,176 thousand). SHISEIDO ANNUAL REPOR T 2011 65 Liquidity and Capital Resources Results by Geographic Area Financing and Liquidity Management Shiseido seeks to generate stable operating cash flow and Net Sales by Geographic Area (Billions of yen) 2007 2008 2009 2010 2011 ensure a wide range of funding methods, with the aims of Japan 471.2 460.7 430.0 408.1 383.8 securing sufficient capital for operating activities and maintain- Americas Europe Asia/Oceania Outside Japan 51.7 88.4 83.3 223.4 56.6 50.7 103.8 100.0 102.4 109.6 262.8 260.3 45.7 82.4 108.0 236.1 85.5 84.3 117.1 286.9 ing sufficient liquidity and a sound financial position. We fund working capital, capital expenditures, and investments and loans needed for sustainable growth by supplementing cash on hand and operating cash flow with bank borrowings and bond issues. Operating Income by Geographic Area (Billions of yen) 2007 2008 2009 2010 2011 One of our targets for short-term liquidity is to maintain cash Japan 27.3 31.8 18.4 24.0 16.7 on hand at a level of approximately 1.5 months of consolidated Americas Europe Asia/Oceania Outside Japan 2.8 6.3 11.2 20.3 4.0 9.0 15.9 28.9 3.3 8.3 16.8 28.4 3.2 5.6 15.1 23.9 1.6 6.4 16.9 24.9 net sales. As of March 31, 2011, cash and time deposits together with short-term investments in securities totaled ¥105,058 million ($1,263,476 thousand). It represented 1.9 months of consolidated net sales. Operating Profitability by Geographic Area (%) 2007 Japan Americas Europe Asia/Oceania Outside Japan 2008 As of March 31, 2011, interest-bearing debt totaled ¥197,518 2009 2010 2011 5.5 6.5 4.0 5.6 4.1 4.7 6.8 13.4 8.6 6.1 8.3 15.5 10.4 5.6 7.8 15.3 10.3 6.0 6.5 13.9 9.6 1.6 7.2 14.3 8.2 Note: Operating profitability is calculated against sales for the geographical area, including interarea sales. million ($2,375,442 thousand), mainly reflecting fund procurement in connection with the acquisition of Bare Escentuals. Shiseido has diversified funding methods. These include an unused shelf registration in Japan for ¥80.0 billion of straight bonds. Moreover, Shiseido Co., Ltd. and two subsidiaries in the United States and Europe have established a syndicated loan program with unused commitments totaling $240 million. A Overseas Sales (by Destination) financial subsidiary in the United States has also established an (Billions of yen) unused commercial paper program totaling $100 million. 300 As of March 31, 2011, Shiseido maintained a sufficient level of liquidity and a high level of financial flexibility as a result of 200 its diversified funding methods. 100 0 2010 2011 54.0 79.3 91.5 59.4 54.9 92.8 88.5 112.1 118.6 48.5 73.8 115.2 87.6 78.2 122.0 224.8 264.3 262.0 237.5 287.8 2007 Americas Europe Asia/Oceania Total 2008 2009 Credit Ratings Shiseido recognizes that it needs to maintain a certain level of credit rating to secure financial flexibility that is consistent with its capital/liquidity policies and to secure access to sufficient capital resources through capital markets. Shiseido has acquired ratings from Moody’s Investors Service Inc. (Moody’s) and Standard and Poor’s (S&P) to facilitate fund procurement in global capital markets. 66 SHISEIDO ANNUAL REPOR T 2011 Moody’s S&P Long-term A1 (Outlook: Stable) A (Outlook: Stable) Short-term P-1 A-1 (As of June 15, 2011) 2010 2011 694.6 32.4 723.5 690.3 36.5 38.0 644.2 36.9 670.7 42.9 469.8 224.8 459.2 428.3 264.3 262.0 406.7 237.5 382.9 287.8 2007 Sales rseas Sales Ratio mestic Sales rseas Sales 2008 2009 2007 2008 2009 2010 2011 25.8 24.9 24.9 25.2 Cost of Sales Ratio (Left scale) 26.7 Management’s Discussion and67.3 Analysis 66.1 65.4 67.9 68.2 SG&A Expense Ratio (Right scale) Marketing Costs Personnel Expenses Other Expenses M&A-related Amortization Expenses 23.6 21.6 20.6 0.3 22.9 21.4 20.9 0.2 23.7 22.4 21.5 0.3 22.7 23.0 21.3 0.3 21.5 23.7 21.7 1.3 ng Income/Operating Profitability (Billions of yen) (%) 10 80 Cash Flows 60 7.5 40 5 Cash Flows from Operating Activities/Acquisition of Fixed Assets (Property, Plant and Equipment + Intangible Assets + Long-term Prepaid Expenses) (Billions of yen) Cash and cash equivalents (net cash) as of March 31, 2011 80 2.5 20 totaled ¥88,592 million ($1,065,448 thousand), an increase of 0 50.0 fiscal 63.5year-end. 49.9 50.4 rating Income previous 7.2 8.8 7.2 7.8 rating Profitability 20 (Billions of yen) 2009 2010 42.8 Cash Flows from Investing Activities (28.2) (204.9) (30.3) Cash Flows from Financing Activities (32.3) Cash and Cash Equivalents at End of Year (Billions of yen) 91.9 (%) 69.4 67.6 120.4 (39.6) 77.2 88.6 15 50 12 40 Cash Flows from Operating Activities 9 30 20 6 totaled ¥67,587 milNet cash provided by operating activities 10lion ($812,832 thousand). Income before income taxes of 3 0¥28,695 million ($345,099 thousand), depreciation of ¥29,511 0 2007 2008 2009 2010 0 2011 Cash Flows from Operating Activities ome/Return on Equity 40 44.5 6.6 Cash Flows Summary Income urn on Equity 60 0 ¥11,435 million ($137 ,523 thousand) compared with the 2007 2008 2009 2010 2011 2011 2007 Cash Flows from Operating 69.4 Activities Acquisition of Fixed Assets 28.6 2008 2009 2010 2011 75.3 42.8 69.4 67.6 27.7 28.2 25.5 26.3 Total Assets/Operating ROA (Billions of yen) Assets, Liabilities and Net Assets 800 (%) [Assets] 7.5 10 600 As of March 31, 2011, total assets decreased 4.5 percent 400 5 200 2.5 compared with the previous fiscal year-end to ¥740,184 million ($8,901,792 thousand). 0 Current assets decreased 1.2 percent to ¥314,279 million 0 2007 2008 2009 2010 2011 million ($354,913 thousand) and amortization of goodwill of 25.3 35.5 19.4 33.7 12.8 ¥5,2046.6million9.2 ($62,586 contributed to cash provided 5.4 thousand) 9.8 3.9 by operations. Uses of cash included income taxes paid of ($3,779,663 thousand). Investments and other assets decreased 739.8 675.9 606.6 775.4 740.2 Total Assets 62.4Operating percentROA to ¥108,629 7.4 million9.4($1,306,422 8.2 7.5thousand) 6.1 as ¥16,903 million ($203,283 thousand) and an increase of ¥2,084 Net Assets/Interest-bearing Debt Bare Escentuals, primarily to intangible assets. million ($25,063 thousand) in working capital. [Liabilities] Cash Flows from Investing Activities Net cash used in investing activities totaled ¥30,304 million es by Reportable Segment thousand), due to factors including the acquisition of (Billions ($364,450 of yen) 750 Shiseido finished allocating the assets of the acquired company (Billions of yen) 500 Total liabilities as400 of March 31, 2011 increased 2.1 percent compared with the300 previous fiscal year-end to ¥418,993 million ($5,039,002 thousand). 200 [Net Assets] 100 property, plant and equipment of ¥26,333 million ($316,693 Total net assets as 0 of March 31, 2011 decreased 12.1 percent thousand) and acquisition of stock from minority interest of compared with the previous fiscal year-end to ¥321,191 million 403.8 399.7 352.0 365.2 321.2 Net Assets ($3,862,790 thousand). Interest-bearing Debt 127.8 63.2 62.1 214.4 197.5 As a result, as of March 31, 2011 net assets per share 500 Shiseido Hong Kong Cosmetics Ltd. of ¥5,724 million ($68,839 250thousand). 2007 2008 2009 2010 2011 Equity Ratio/Interest-bearing Debt Ratio decreased ¥100.9 compared with the previous fiscal year-end 0 Cash Flows from Financing Activities 2007 2008 2009 2010 2011 430.9 397.6 383.8 activities 358.4 totaled ¥39,572 million estic Cosmetics Business Net cash423.9 used in financing 241.0 278.8 275.7 250.4 302.6 bal Business ($475,911 thousand), due to factors including cash dividend 22.7 20.8 17.0 10.0 9.7 ers paid694.6 of ¥19,879 thousand) and repayment of al 723.5 million 690.3 ($239,074 644.2 670.7 long-term debt of ¥12,861 million ($154,672 thousand). by Reportable Segment ns of yen) 2007 estic Cosmetics Business 37.0 11.0 bal Business 2.2 ers ility by Reportable Segment 2008 2009 2010 2011 43.3 17.8 1.9 32.7 15.4 1.5 38.9 9.5 1.7 33.6 9.0 1.8 (%) (%) to ¥774.8 ($9.3). The equity ratio decreased 3.2 percentage 50 100 points to 41.7 percent from 44.9 percent a year earlier. 75 30 50 20 25 10 0 Equity Ratio (Left scale) Interest-bearing Debt Ratio (Right scale) 40 0 2007 2008 2009 2010 2011 52.5 56.6 55.6 44.9 41.7 24.0 13.7 15.0 37.0 38.1 SHISEIDO ANNUAL REPOR T 2011 67 (Billions of yen) 80 Overseas Sales (by Destination) 60 (Billions of yen) 300 40 20 200 0 2007 Cash Flows from Operating 69.4 Activities Acquisition of Fixed Assets 28.6 2008 2009 2010 2011 75.3 42.8 69.4 67.6 27.7 28.2 25.5 26.3 Research and Development 100 0 2007 2008 2009 (Billions of yen) (%) 54.0 59.4 54.9 Americas To develop superior products support 79.3 that92.8 88.5 Europe and offer services 112.1 R&D 118.6 Asia/Oceania global customers’ beauty and health, Shiseido91.5 conducts 10 Total 224.8 264.3 activities at locations worldwide, with two research centers262.0 in 600 7.5 Yokohama, Kanagawa Prefecture, Japan, the Beauty Solution 400 5 200 2.5 Total Assets/Operating ROA 800 research facilities in the Americas (the United States), Europe 0 0 2007 2008 2009 739.8 675.9 606.6 7.4 9.4 8.2 Total Assets Operating ROA Development Center in Shinagawa Ward, Tokyo, Japan, and 2010 2011 775.4 7.5 740.2 6.1 (France), and Asia (China and Thailand). Shiseido has received numerous Grand Prizes as a global manufacturer from the International Federation of the Societies of Cosmetic Chemists (IFSCC), the world’s most authoritative congress for cosmetic science and technology. At the 26th IFSCC Congress held in Net Assets/Interest-bearing Debt September 2010 in Buenos Aires, Argentina, Shiseido won top (Billions of yen) 500 honors in three categories, demonstrating the regard the inter- 400 national community holds for Shiseido technology. In the fiscal year ended March 31, 2011, R&D expenses for 300 the Shiseido Group totaled ¥14,467 million ($173,987 thou- 200 sand), and represented 2.2 percent of net sales. R&D objec- 100 tives, primary initiatives, results and expenses by reportable 0 2007 Net Assets Interest-bearing Debt 2008 2009 403.8 399.7 352.0 127.8 63.2 62.1 2010 2011 segment were as follows. R&D expenses include basic research 365.2 214.4 321.2 197.5 costs and other expenses totaling ¥4,786 million ($57,559 thousand) that cannot be allocated to specific businesses. Equity Ratio/Interest-bearing Debt Ratio (%) (%) 50 100 40 75 30 50 20 25 10 0 0 Equity Ratio (Left scale) Interest-bearing Debt Ratio (Right scale) Domestic Cosmetics Business With the goal of contributing to beautiful skin and beautiful lifestyles, Shiseido conducts research in basic dermatology and interface science. The broad range of Shiseido’s R&D activities includes developing cosmetics ingredients, developing and evaluating products, developing beauty methods, and research into sensitivity and the senses. 2007 2008 2009 2010 2011 52.5 56.6 55.6 44.9 41.7 During the fiscal year ended March 31, 2011, Shiseido discov- 38.1 ered that degeneration (carbonylation) of proteins in the dermal 24.0 13.7 15.0 37.0 layer of the skin due to factors such as hyperoxidized substances is a major factor in the yellowing of skin with age. Moreover, Shiseido examined approximately 200 candidates to identify an olive leaf extract as an ingredient that inhibits carbonylation of dermal proteins. As a result of this discovery, we have complemented existing approaches to beautiful skin involving melanin R&D Expenses/Ratio of R&D Expenses to Net Sales (%) 15 3 of the Elixir White line and the clé de peau BEAUTÉ brand. 10 2 In addition, as a result of many years of research into dark 5 1 4 20 0 0 68 and the flow of blood (complexion) with ways to handle dermal (Billions of yen) 2007 SHISEIDO ANNUAL REPOR T2008 2011 2009 16.1 14.6 15.2 R&D Expenses Ratio of R&D Expenses 2010 2011 14.5 14.5 yellowing. We applied this research finding to the development spots on the skin, we discovered that excessive cell proliferation 2010 201 48.5 73.8 115.2 87 78 122 237.5 287 50 15 40 12 30 9 20 6 10 0 Income urn on Equity 2007 2008 2009 2010 2011 25.3 6.6 35.5 9.2 19.4 5.4 33.7 9.8 12.8 3.9 10 800 7.5 600 Management’s Discussion and Analysis 400 5 3 200 2.5 0 0 0 2007 2008 2009 739.8 675.9 606.6 7.4 9.4 8.2 Total Assets Operating ROA 2010 2011 775.4 7.5 740.2 6.1 Net Assets/Interest-bearing Debt In foundation, we500 used base and ingredient development and production in an undesirable self-perpetuating cycle we call the 400 to successfully develop a unique base production technology “darkening spiral.” We applied this knowledge to effectively that has the soft, natural feel global customers prefer and also 300 excessive melanin production in various ways, developes by Reportableinhibit Segment (Billions ing of yen)HAKU Melanofocus W to break the darkening spiral and 750 help make skin clear and bright. In makeup, taking a hint from the phenomenon in which light 500 from orange light bulbs appears more beautiful than white light, 250we 0 (Billions of yen) at spot sites on the skin is a factor that stimulates melanin developed Red Translucent Powder that lets more red light Perfect moisturizes the skin, 200 and applied it to Refining Foundation. 100 R&D expenses for0 the fiscal year ended March 31, 2011 in the 2011 2007 2008 2009 2010 Global Business segment totaled ¥2,511 million ($30,198 thousand). 403.8 399.7 352.0 365.2 321.2 Net Assets Interest-bearing Debt 127.8 63.2 62.1 214.4 197.5 Others into the skin, and applied it to the MAQUILLAGE makeup line. Equity Ratio/Interest-bearing Debt Ratio The Frontier Sciences Division conducts R&D in areas including This development resolves an issue in foundation that has per- medical-use pharmaceuticals, cosmetics raw materials, chroma50 100 2007 2008 2009 2010 2011 sisted for many providing 430.9 423.9 years 397.6 by 383.8 358.4 both effective cover and estic Cosmetics Business 241.0 278.8 275.7 beautifully 250.4 302.6 bal Business translucency to achieve clear, natural skin. 22.7 20.8 17.0 10.0 9.7 ers In hair styling, we developed Straight Styling Ingredient, an l 694.6 723.5 690.3 644.2 670.7 innovative new material that resolves the traditional contra- (%) (%) tography, and beauty therapy cosmetics. 40 75 In beauty therapy cosmetics, Shiseido succeeded in develop30 50 applies existing microneedle technology ing an ingredient that 20 as a beauty therapy 25 cosmetics treatment designed to make 10 diction between highly effective straight styling and soft, by Reportable Segment ns of yen) silky 2007 texture,2008 and applied it to Ma2011 Chérie. 2009 2010 37.0 43.3 32.7 38.9 33.6 estic Cosmetics Business In the healthcare business, Shiseido discovered the cause of 11.0 17.8 15.4 9.5 9.0 bal Business recurring skin problems: Proteins that exacerbate inflammation 2.2 1.9 1.5 1.7 1.8 ers in the epithelium of the skin and inflammatory cytokines are skin beautiful. This treatment consists of numerous minute mutually ility by Reportable Segmentreinforcing. This creates a negative spiral that anti-wrinkle product. 2007in chronic 2008 2009 2010 2011 this knowledge, Shiseido results inflammation. Using 10.1 8.1 10.1 9.3 estic Cosmetics Business 8.5 developed IHADA, a medicinal skincare brand that promotes 4.5 6.3 5.5 3.8 3.0 bal Business healthy 4.7skin. 4.8 5.1 10.5 11.4 ers R&D expenses for the fiscal year ended March 31, 2011 in the Domestic Cosmetics Business segment totaled ¥6,906 0 0 2007 the2008 2009 2010 moisturizer 2011 needles made solely of effective skin 52.5 56.6 55.6 44.9 41.7 (Left scale) Equity Ratio hyaluronic acid. These needles are arrayed on a single sheet Interest-bearing 37.0We 38.1 that Debt is placed around eyes to13.7 treat 15.0 wrinkles. deployed scale) the 24.0 Ratio (Right this ingredient in Navision, a line for medical institutions, as an R&D expenses for the fiscal year ended March 31, 2011 in other businesses totaled ¥264 million ($3,175 thousand). R&D Expenses/Ratio of R&D Expenses to Net Sales (Billions of yen) (%) 15 3 Global Business 10 2 Aiming for high quality in overseas cosmetics brands, 5 1 million ($83,055 thousand). Shiseido develops products from its unique and sophisticated science and its leading-edge technologies. During the fiscal year ended March 31, 2011, Shiseido discovered that ultraviolet rays stimulate production of the enzyme 4 20 0 0 2007 16.1 R&D Expenses Ratio of R&D Expenses 2.3 to Net Sales 2008 2009 2010 2011 14.6 15.2 14.5 14.5 2.0 2.2 2.2 2.2 heparanase, leading to damage of the epidermal basement membrane and dermal layers of the skin resulting in wrinkle formation and other signs of light-induced aging. Based on this discovery, Shiseido examined approximately 22,300 candidates to identify the ingredient Soapnut Extract, which inhibits the activity of heparanase. We have employed the results of this research in the high-level skincare brand Benefiance. SHISEIDO ANNUAL REPOR T 2011 69 Outlook for the Fiscal Year Ending March 31, 2012 The Shiseido Group’s operating environment will remain very challenging due to various factors. These include damage to stores caused by the Great East Japan Earthquake, the subsequent radiation fallout from nuclear power plants, the impact of these events on the supply chain, and lackluster consumer sentiment. However, with the goal of becoming a global player representing Asia with its origins in Japan, the Group will act in concert to actively promote its Three-Year Plan covering the period from April 2011 to March 2014. The fiscal year ending March 31, 2012 is the first year of the Three-Year Plan for getting into a growth trajectory. During the year, we will continue promoting the three Visions stated in the previous three-year plan: “Rebirth as a 100% CustomerOriented Company,” “Brighten Our Brand, a Valuable Management Resource,” and “Fill the Shiseido Organization with People with Their Own Appeal.” We will employ four strategies: “Global Mega-Brand Strategy,” “Asian Breakthrough Strategy,” “New Frontier Strategy,” and “Customer-First Strategy.” With these strategies, we aim to achieve further growth through globalization. We forecast a year-on-year increase in consolidated net sales. Domestic Cosmetics Business In the fiscal year ending March 31, 2012, in the Domestic Cosmetics Business segment Shiseido will undertake a drastic reassessment of our marketing and business operation styles with the aim of modernizing our traditional cosmetics sales store business model. We will also focus on activities to bring our products to long-seller status, in order to foster brands and products with overwhelming appeal. In addition, we will undertake forward-looking investments aimed at establishing a Web-based marketing business in April 2012. We expect segment sales for the fiscal year ending March 31, 2012 to be essentially unchanged year on year because of these initiatives, although the earthquake and radiation leakage from nuclear power plants will affect many aspects of our operations, especially in the first half. We also forecast a year-onyear decrease in segment income (operating income) due to an increase in costs associated with the establishment of the Web marketing business. Global Business The negative impact of the earthquake on the domestic econ- In this segment, we will promote our Global Mega-Brand omy notwithstanding, we anticipate continued recovery in Strategy by concentrating investment in three brands in the European and North American markets, and sales growth in prestige category in Europe and North America, and three Asia, centered on China. We project a decrease in operating brands in the prestige and masstige categories in Asia. China income despite increased marginal income from higher net is an engine of growth for Shiseido, and will remain a priority in sales. This forecast takes into account additional marketing deploying management resources. investments in Japan and overseas and expanded investments Overseas, we expect continued economic recovery and sus- aimed at future growth. We also forecast an increase in net tained growth in Asia, driven by China. We therefore expect income as a result of lower other expenses. segment sales to increase year on year on a local currency For the year ending March 31, 2012, Shiseido forecasts that basis. We also expect year-on-year growth in segment sales on consolidated net sales will increase 1.4 percent year on year to a yen basis despite our forecast that the yen will appreciate ¥680.0 billion, operating income will decrease 10.0 percent to further compared with the fiscal year ended March 31, 2011. ¥40.0 billion, and net income will increase 64.2 percent to We also forecast year-on-year growth in segment income ¥21.0 billion. (operating income) despite the negative effect of the appreciation of the yen. 70 SHISEIDO ANNUAL REPOR T 2011 Management’s Discussion and Analysis Shareholder Return Policy Others Going forward, Shiseido will continue expanding its presence in the Frontier Sciences Division, which includes cosmetics raw materials, medical-use pharmaceuticals, chromatography and cosmetics for medical institutions. Shiseido forecasts that segment sales and segment income (operating income) will remain essentially unchanged. We base our forecasts on the following assumptions: expansion of Japan’s real GDP by around 1 to 1.5 percent in the fiscal year ending March 31, 2012 and exchange rates of ¥80 per U.S. dollar, ¥110 per euro, and ¥12.5 per Chinese yuan. The total shareholder return policy of Shiseido Co., Ltd. aims to maximize returns to shareholders through direct means and by generating medium- and long-term share price gains. To this end, our fundamental policy is to make strategic investments that drive earnings growth while raising capital efficiency, which will lead to medium- and long-term increases in dividends and share price. Shiseido’s goal for returns over the medium term is a consolidated payout ratio of 40 percent. Based on this target, we will prioritize payment of stable dividends while implementing share buybacks in a flexible manner. For the fiscal year ended March 31, 2011, Shiseido paid an annual cash dividend of ¥50 per share, consisting of an interim and year-end dividend of ¥25 per share each. The consolidated payout ratio was 155.5 percent. SHISEIDO ANNUAL REPOR T 2011 71 Business and Other Risks performance and financial position of Shiseido are summarized 4. The Competitive Environment of the Cosmetics Industry below. We feel that these risks could have a major impact on Shiseido operates in the cosmetics industry, in which com- investors’ decisions. Items that deal with future events are petition is intensifying on a global scale. Zero sum competition based on our judgment as of June 24, 2011. Please note that for share among Japanese cosmetics companies in the mature the potential risks are not limited to those listed below. domestic market is intensifying because of factors including the The various risks that could potentially affect the business expanding influence of global competitors in the prestige mar- 1. Decrease in Value of the Corporate Brand ket, and the entry of new competitors from other industries. In addition, in overseas markets such as China and other Asian corporate brand is shared by all Group com- economies, which Shiseido has positioned as central to its panies in Shiseido’s domestic and overseas business activities. growth strategy, the competitive environment is becoming We will continue working to enhance the value of this brand, increasingly challenging as global competitors are aggressively but a decline in the brand’s value from an unforeseen event conducting mergers and acquisitions and expanding market could negatively affect Shiseido’s business performance and share by executing marketing activities to raise consumer financial position. awareness of their brands. Consequently, inability to respond The to this competitive environment as effectively as global com- 2. Customer Services petitors could negatively affect Shiseido’s business performance Shiseido places high priority on its relationships with custom- and financial position. ers. The Shiseido Group Corporate Philosophy “Our Mission, Values and Way” clearly states that we shall act in a manner 5. Overseas Business Activities that earns the satisfaction and trust of customers, and we will As of March 31, 2011, Shiseido conducted business in 85 continue working to ensure that all employees are aware of countries and regions (including Japan), and overseas sales these standards. However, an unforeseen event could cause account for a growing percentage of consolidated net sales loss of such satisfaction and trust, leading to a decline in the each year, totaling 42.9 percent in the fiscal year under review. value of Shiseido Group brands. Shiseido’s business perfor- In the course of conducting overseas business, Shiseido’s busi- mance and financial position could negatively be affected as ness performance and financial position could be negatively a result. affected by various factors. These include the occurrence of sudden and unpredictable economic, political and social crises; 3. Strategic Investment Activities terrorism, war and civil war; economic and civil upheaval result- When making decisions about investments in strategic mar- ing from the spread of contagious diseases such as new strains kets, such as China and other Asian economies, mergers and of influenza; and severe or abnormal weather. acquisitions, and expansion in new businesses and new markets, Shiseido endeavors to collect sufficient information and 6. Market Risk undertake due diligence prior to making rational judgments. [Raw material prices] Due to various unforeseeable factors that may cause the oper- International market conditions affect the price of raw ating environment to deteriorate, however, we may not achieve materials used in Shiseido products. Factors affecting market the results originally anticipated. This could negatively affect conditions include geopolitical risk, the impact on supply and Shiseido’s business performance and financial position. demand from increasing demand in developing countries and speculative capital flows, weather abnormalities and changes in exchange rates. Shiseido constantly works to limit the impact of rising raw material prices by reducing cost of sales 72 SHISEIDO ANNUAL REPOR T 2011 Management’s Discussion and Analysis and other means. However, changes in market conditions and its sales and earnings. To respond to market needs, we con- prices that exceed projections could negatively affect tinuously develop appealing new products and brands/lines; Shiseido’s business performance and financial position. reinforce and cultivate new and existing products and brands/ lines through marketing activities; and withdraw existing prod- [Exchange rates] ucts and brands/lines that no longer meet market needs. Export, import and other transactions denominated in for- However, by nature these activities entail uncertainties that eign currencies expose Shiseido to foreign exchange rate may prevent Shiseido from achieving its intended results, risk. Although we hedge foreign exchange rate risk through which could negatively affect Shiseido’s business performance means such as limiting export and import transactions by and financial position. establishing production bases to serve local markets, we are unable to completely eliminate risk. Moreover, the financial 8. Specific Business Partners statements of consolidated subsidiaries and equity affiliates Significant changes are taking place in retail and wholesale domiciled overseas are denominated in local currencies that distribution channels in Shiseido’s core domestic cosmetics are translated into yen upon inclusion in the consolidated business. Failure to respond effectively to these changes financial statements. This has the potential to exert a nega- could negatively affect Shiseido’s business performance and tive impact on operating performance if the yen appreciates financial position. versus foreign currencies when revenues exceed expenses. Moreover, Shiseido’s investments in overseas subsidiaries 9. Regulatory Risk and equity affiliates are subject to foreign currency translation Shiseido is subject to a range of domestic and overseas adjustments that reduce shareholders’ equity if the yen legal provisions in the course of conducting its business. strengthens. Foreign exchange fluctuations that exceed These include pharmaceuticals laws, as well as quality-related assumptions could negatively affect Shiseido’s business per- standards, environmental standards, accounting standards, formance and financial position. and tax regulations. We aspire to be completely ethical based on legal compliance and corporate social responsibility. [Stock prices] However, future regulatory changes or the establishment of As of March 31, 2011, Shiseido held investments in secu- unanticipated new regulations may limit Shiseido’s activities, rities and is therefore exposed to the risk of changes in share which could negatively affect Shiseido’s business performance price, which can increase or decrease unrealized gains or and financial position. losses and expose Shiseido to the risk of impairment losses. In addition, a portion of the pension plan assets of Shiseido’s 10. Material Litigation retirement benefit plan is invested in shares with a market In the fiscal year ended March 31, 2011, Shiseido was not price. Lower share prices could therefore reduce pension involved in material litigation other than the litigation discussed plan assets and negatively affect operating performance by in Notes to the Consolidated Financial Statements, “10. increasing retirement benefit expenses. Unforeseen situa- Contingent Liabilities.” In the future, unfavorable judgments tions such as this could negatively affect Shiseido’s business resulting from material litigation could negatively affect performance and financial position. Shiseido’s business performance and financial position. 7. Responding Appropriately to Market Needs 11. Information Security Risk Shiseido’s ability to develop and cultivate products and Shiseido takes various measures aimed at protecting its infor- brands/lines and to conduct marketing activities that respond mation assets, which include customers’ personal information appropriately to market needs exerts a significant impact on and industrial secrets. For example, in April 2005, the Personal Information Protection Law was fully enacted in Japan. In antic- SHISEIDO ANNUAL REPOR T 2011 73 Significant Accounting Estimates ipation of this, Shiseido Co., Ltd. in March 2004 obtained Shiseido prepares its consolidated financial statements in Privacy Mark certification, a Japanese Industrial Standard that accordance with accounting principles generally accepted in recognizes the appropriateness of a company’s systems for Japan. In preparing these financial statements, we select and protecting personal information. However, unforeseeable apply accounting policies and necessarily make estimates that events, such as leakage of information due to unauthorized affect the presentation of reported amounts for assets, liabili- access, could negatively affect Shiseido’s business performance ties, revenue and expenses. We consider information including and financial position. historical data in making rational estimates. However, due to the unpredictable nature of these estimates, actual results 12. Natural Disasters and Accidents may vary. Shiseido has developed a business continuation plan covering Shiseido considers the following significant accounting policies issues critical to the continued operation of production bases, to exert a large effect on key decisions regarding the estimates distribution bases, information systems and the head office to used in the consolidated financial statements. minimize loss due to interruption of production, distribution or sales resulting from the occurrence of a natural disaster or acci- Property, Plant and Equipment dent, such as a major earthquake. However, a natural disaster Shiseido reviews fixed assets, primarily property, plant and or accident that exceeds the assumptions of this plan and dis- equipment, for impairment whenever circumstances indicate rupts production, distribution or sales could negatively affect that their carrying value may not be recoverable. Business-use Shiseido’s business performance and financial position. assets are pooled by business division to estimate future cash flow, and the net sales value of idle assets is estimated for each separate property. Based on these estimates, assets are devalued from book value to recoverable value. We consider information including estimates of future cash flow and recoverable value in making rational estimates. However, unpredictable factors could cause changes in underlying assumptions and estimates. This could change our estimates, decrease future cash flow and recoverable value, and require us to recognize impairment losses. Goodwill, Trademark Rights and Other Intangible Assets Shiseido reviews goodwill, trademark rights and other intangible assets for impairment. Shiseido employs the opinions of external experts and other data in estimating fair value and examining impairment for goodwill, trademark rights and other intangible assets. The discounted cash flow method primarily used to estimate fair value relies extensively on estimates and assumptions regarding future cash flow and discount rate. These estimates and assumptions may significantly affect measurement and recognition of the amount of impairment. We consider the estimates of fair value used for measuring impairment to be rational. However, unforeseen changes to underlying assumptions and estimates could occur. This could reduce fair value and require us to recognize impairment losses. 74 SHISEIDO ANNUAL REPOR T 2011 Management’s Discussion and Analysis Investments in Securities date for long-term fixed-rate bonds that carry little or no risk. Shiseido recognizes impairment for securities reported as Expected return on pension plan assets is determined based available-for-sale securities for which fair value or market price on an expected weighted-average return for the various types has fallen substantially below acquisition cost. Securities of assets held within the plan. We consider these assumptions deemed recoverable are excluded. Securities with a fair value to be appropriate. However, actual results may vary and chang- that is more than 50 percent below acquisition cost as of the es in the underlying assumptions could occur. This could affect balance sheet date are deemed unrecoverable. The recover- pension costs and obligations. ability 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 market price has fallen to more than 50 percent below the acquisition cost due to the financial condition of the issuing entity. Securities deemed recoverable are excluded. We consider the estimates of recoverability to be appropriate. However, in the future the market price of securities deemed recoverable may decrease and the performance and financial condition of the issuing entity may deteriorate. This could require us to recognize impairment losses. Deferred Tax Assets Shiseido has established a valuation allowance 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. We consider these to be appropriate. However, unpredictable factors could cause changes in underlying assumptions that could reduce or eliminate deferred tax assets. This could require us to provide additional allowances for deferred tax assets. Retirement Benefits and Obligations Shiseido’s domestic retirement benefit plans consist primarily of corporate pension plans and termination allowance plans. Employee benefits and obligations are calculated based on assumptions including discount rate, employee 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 based on to the market rate as of the balance sheet SHISEIDO ANNUAL REPOR T 2011 75 Consolidated Financial Statements CONSOLIDATED BALANCE SHEETS Shiseido Company, Limited, and Subsidiaries March 31, 2010 and 2011 Millions of yen 2010 Thousands of U.S. dollars (Note 1) 2011 2011 ASSETS Current Assets: Cash and time deposits (Notes 3, 4 and 7) Short-term investments in securities (Notes 3, 4 and 5) Notes and accounts receivable (Note 4): Trade Unconsolidated subsidiaries and affiliates Less: allowance for doubtful accounts Inventories (Note 6) Deferred tax assets (Note 9) Other current assets (Note 14) Total current assets ¥ 70,102 24,723 ¥ 90,007 15,051 111,795 1 111,796 (1,050) 110,746 67,342 28,390 16,939 318,242 $ 1,082,465 181,010 102,998 5 103,003 (939) 102,064 67,575 26,658 12,924 314,279 812,688 320,601 155,431 3,779,663 33,590 158,552 28,740 17,477 10,327 14,164 25,732 288,582 26,242 1,273 24,560 — 9,744 19,577 27,233 108,629 315,598 15,310 295,370 — 117,186 235,442 327,516 1,306,422 157,282 133,374 11,094 301,750 (208,561) 93,189 160,045 136,844 9,818 306,707 (211,801) 94,906 1,924,774 1,645,749 118,076 3,688,599 (2,547,216) 1,141,383 35,274 4,322 132,785 33,491 2,824 131,221 402,778 33,963 1,578,124 11,852 372 7,913 15,700 35,837 94,123 348 42,628 48,956 186,055 1,131,966 4,185 512,664 588,768 2,237,583 ¥ 775,446 ¥ 740,184 $ 8,901,792 1,238,701 60 1,238,761 (11,293) 1,227,468 Investments and Other Assets (Note 17): Investments in securities (Notes 4, 5 and 7) Investments in subsidiaries and affiliates (Note 4) Prepaid pension expenses (Note 8) Long-term loans receivable (Note 4) Long-term prepaid expenses Deferred tax assets (Note 9) Other investments (Note 7) Total investments and other assets Property, Plant and Equipment, at Cost (Note 17): Buildings and structures (Note 7) Machinery and equipment Lease assets Less: accumulated depreciation Land Construction in progress Total property, plant and equipment Intangible Assets (Note 17): Goodwill (Note 20) Lease assets Trademarks Other intangible assets Total intangible assets Total Assets The accompanying notes are an integral part of the consolidated financial statements. 76 SHISEIDO ANNUAL REPOR T 2011 Millions of yen 2010 LIABILITIES AND NET ASSETS Current Liabilities: 43,130 642 43,772 518,701 7,721 526,422 37,980 12,215 11,447 11,550 374 765 923 26 24,263 159,676 456,765 146,903 137,667 138,906 4,498 9,200 11,100 313 291,798 1,920,337 181,156 41,286 350 495 29,166 6,864 259,317 418,993 2,178,665 496,524 4,209 5,953 350,764 82,550 3,118,665 5,039,002 64,507 775,791 ¥105,966 6,727 43,445 876 44,321 Other payables Accrued income taxes Reserve for sales returns Accrued bonuses for employees Accrued bonuses for directors Provision for liabilities and charges Reserve for disaster Deferred tax liabilities (Note 9) Other current liabilities Total current liabilities 46,989 10,277 11,821 11,320 318 1,026 — 22 22,725 261,512 101,754 40,130 350 499 3,382 2,611 148,726 410,238 Total Liabilities 2011 Long-term debt (Notes 4 and 7) Accrued retirement benefits (Note 8) Allowance for losses on guarantees Allowance for environmental measures Deferred tax liabilities (Note 9) Other long-term liabilities Total long-term liabilities 2011 5,595 10,766 Short-term debt (Notes 4 and 7) Current portion of long-term debt (Notes 4 and 7) Notes and accounts payable (Note 4): Trade Unconsolidated subsidiaries and affiliates Long-Term Liabilities: Thousands of U.S. dollars (Note 1) ¥ $ 67,288 129,477 CONTINGENT LIABILITIES (Note 10) NET ASSETS (Note 11) Shareholders’ Equity: 64,507 Common stock Authorized: 1,200,000,000 shares as of March 31, 2010 and 2011 Issued: 410,000,000 shares as of March 31, 2010 and 400,000,000 shares as of March 31, 2011 70,258 Capital surplus 259,064 Retained earnings (23,112) Less: treasury stock, at cost Treasury stock: 12,241,810 shares as of March 31, 2010 and 2,052,792 share as of March 31, 2011 370,717 Total shareholders’ equity 70,258 232,400 (3,875) 844,955 2,794,949 (46,603) 363,290 4,369,092 84 (55,041) (54,957) 591 12,267 321,191 1,010 (661,948) (660,938) 7,108 147,528 3,862,790 Accumulated Other Comprehensive Income: Unrealized gains (losses) on available-for-sale securities, net of taxes (Note 5) Foreign currency translation adjustments Total accumulated other comprehensive income Stock Acquisition Rights (Note 12) Minority Interests in Consolidated Subsidiaries Total Net Assets 1,055 (23,448) (22,393) 430 16,454 365,208 Total Liabilities and Net Assets ¥775,446 ¥740,184 $8,901,792 SHISEIDO ANNUAL REPOR T 2011 77 CONSOLIDATED STATEMENTS OF INCOME Shiseido Company, Limited, and Subsidiaries For the years ended March 31, 2009, 2010 and 2011 Millions of yen 2009 2010 2011 2011 Net Sales (Note 20) ¥690,256 ¥644,201 ¥670,701 $8,066,158 Cost of Sales Gross profit 171,752 518,504 160,166 484,035 168,692 502,009 2,028,768 6,037,390 Selling, General and Administrative Expenses (Note 13) Operating income (Note 20) 468,590 49,914 433,684 50,351 457,551 44,458 5,502,718 534,672 2,821 (1,812) (275) 58 24 71 1,515 (1,569) (3) 62 163 — Other Income (Expenses): Interest and dividend income Interest expense Foreign exchange gain (loss) Equity in earnings of affiliates Gain (loss) on sales of investments in securities (Note 5) Gain (loss) on sales of shares in affiliates Write-down of investments in securities and other investments Gain (loss) on sales and disposal of property, plant and equipment Impairment loss (Notes 17 and 20) Restructuring expenses (Note 18) Loss on adjustment for changes of accounting standard for lease transactions Environmental expenses Loss on adjustment for changes of accounting standard for asset retirement obligations Purchasing-related expenses Loss on adjustment for changes of estimate for samples and promotional items (Note 2(2)) Loss on disaster (Note 19) Other, net 1,400 (2,166) (590) 33 (22) — 16,837 (26,049) (7,096) 397 (265) — (206) (356) (4,199) (50,499) (884) (6,073) (6,074) (463) (3,469) — (609) (458) — (7,324) (5,508) — (216) — — (507) — — — — — — (844) (1,233) Income before income taxes — — 1,138 (11,428) 38,486 — — 1,015 (3,612) 46,739 (6,752) (1,669) 1,346 (15,763) 28,695 (81,203) (20,072) 16,188 (189,573) 345,099 Income Taxes (Note 9) Current Deferred Income before minority interests 12,028 3,109 15,137 23,349 14,660 (5,167) 9,493 37,246 18,615 (5,287) 13,328 15,367 223,873 (63,584) 160,289 184,810 Minority Interests in Net Income of Consolidated Subsidiaries (3,976) (2,576) (30,980) Net income ¥ 19,373 Per Share (Note 2 (9)) Net income — basic — fully diluted Cash dividend Weighted Average Number of Shares (thousands) SHISEIDO ANNUAL REPOR T 2011 (3,575) ¥ 33,671 ¥ 12,791 Yen ¥48.0 48.0 50.0 ¥84.6 84.5 50.0 ¥32.1 32.1 50.0 403,240 397,886 397,864 The accompanying notes are an integral part of the consolidated financial statements. 78 Thousands of U.S. dollars (Note 1) — — (10,150) (14,829) $ 153,830 U.S. dollars (Note 1) $0.39 0.39 0.60 Consolidated Financial Statements CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME Shiseido Company, Limited, and Subsidiaries For the years ended March 31, 2010 and 2011 Millions of yen 2010 Income before Minority Interests Other Comprehensive Income Unrealized gains (losses) on available-for-sale securities, net of taxes (Note 5) Foreign currency translation adjustments Share of other comprehensive income of associates accounted for using equity method Total other comprehensive income ¥37,246 Thousands of U.S. dollars (Note 1) 2011 ¥ 15,367 2011 $ 184,810 772 3,724 (1,003) (32,565) (12,062) (391,642) 10 4,506 (60) (33,628) (721) (404,425) Comprehensive Income 41,752 (18,261) (219,615) (Breakdown) Comprehensive income attributable to shareholders’ equity Comprehensive income attributable to minority interests 37,533 (19,833) (238,521) 4,219 1,572 18,906 The accompanying notes are an integral part of the consolidated financial statements. SHISEIDO ANNUAL REPOR T 2011 79 CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS Shiseido Company, Limited, and Subsidiaries For the years ended March 31, 2009, 2010 and 2011 ThousandsMillions of yen Number Unrealized gains of shares Common Capital Retained Treasury stock, (losses) on available- of common stock surplus earnings at cost for-sale securities, stock net of taxes Minority interests in consolidated subsidiaries Balance as of March 31, 2008 410,000 ¥64,507 ¥70,258 ¥248,921 ¥(11,197) ¥ 5,274 ¥(57) ¥ 4,764 ¥154 ¥17,115 Net income for the year ended March 31, 2009 Cash dividend from retained earnings Acquisition of treasury stock Disposal of treasury stock Change in scope of consolidation — — — — — — — — — — — — — — — — — — (5,386) 19,373 (16,982) — (430) 49 — — — (6,546) 903 — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — (4,921) — — — — — — — — — — 57 — — — — — — 410,000 — — — — — — — — 64,507 — — — — — — — — 70,258 — — — — — — — — 245,545 33,671 (19,975) — (170) (7) — — — (16,840) — — (6,830) 558 — — — — 353 — — — — — — — — — — — — — — (31,363) — — (26,599) — — — — — — 102 — 256 — — — — — — — (2,644) 14,471 — — — — — — — — — — 702 — — — — — — — — — — — — — — — — — 410,000 ̶ — — — — 64,507 ̶ — — — — 70,258 ̶ — — — — 259,064 12,791 (19,891) — — — (23,112) ̶ — — — — 1,055 ̶ — — — — ̶ ̶ — 3,151 — — (23,448) ̶ — — 174 — 430 ̶ — — — 1,983 16,454 ̶ — — — — (10,000) — — — — — — — — — — — (535) — (150) (18,879) — — (13) 371 18,879 — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — — (971) — — — — — — — — — — — — — — Balance as of March 31, 2011 — — — 400,000 — — — ¥64,507 — — — ¥70,258 — — — — — — ¥232,400 ¥ (3,875) — — — 84 — — — — — 161 — ¥591 — — (4,187) ¥12,267 Deferred currency Stock losses on Foreign translation acquisition hedges, net adjustments rights of taxes Minority interests in consolidated subsidiaries Effect of changes in accounting policies applied to foreign subsidiaries Change in unrealized gains (losses) on available-for-sale securities, net of taxes Change in fair market value of derivatives, net of taxes Change in foreign currency translation adjustments Issuance of stock acquisition rights Increase in minority interests Balance as of March 31, 2009 Net income for the year ended March 31, 2010 Cash dividend from retained earnings Acquisition of treasury stock Disposal of treasury stock Change in scope of consolidation Change in unrealized gains (losses) on available-for-sale securities, net of taxes Change in fair market value of derivatives, net of taxes Change in foreign currency translation adjustments Issuance of stock acquisition rights Increase in minority interests Balance as of March 31, 2010 Net income for the year ended March 31, 2011 Cash dividend from retained earnings Equity transactions with noncontrolling interests and others Acquisition of treasury stock Disposal of treasury stock Retirement of treasury stock Change in scope of consolidation Change in fair market value of derivatives, net of taxes Change in foreign currency translation adjustments Issuance of stock acquisition rights Increase in minority interests Change in unrealized gains (losses) on available-for-sale securities, net of taxes ¥ (31,593) — — ¥(55,041) ThousandsThousands of U.S. dollars (Note 1) Number Unrealized gains of shares Common Capital Retained Treasury stock, (losses) on available- of common stock surplus earnings at cost for-sale securities, stock net of taxes Balance as of March 31, 2010 410,000 $775,791 $844,955 $3,115,622 $(277,956) Net income for the year ended March 31, 2011 — — — 153,830 — Cash dividend from retained earnings — — — (239,218) — Equity transactions with noncontrolling — — — (6,434) — interests and others Acquisition of treasury stock — — — — (156) Disposal of treasury stock — — — (1,804) 4,462 Retirement of treasury stock (10,000) — — (227,047) 227,047 Change in scope of consolidation — — — — — Change in unrealized gains (losses) on available-for-sale securities, net of taxes — — — — — Change in fair market value of derivatives, net of taxes — — — — — Change in foreign currency translation adjustments — — — — — Issuance of stock acquisition rights — — — — — Increase in minority interests — — — — — Balance as of March 31, 2011 400,000 $775,791 $844,955 $2,794,949 $ (46,603) The accompanying notes are an integral part of the consolidated financial statements. 80 Deferred currency Stock losses on Foreign translation acquisition hedges, net adjustments rights of taxes SHISEIDO ANNUAL REPOR T 2011 $ 12,688 — — — — — $(281,996) — — $5,171 — — $197,883 — — — — — — — — — — — — — — — — — — — — — — — — — — — (11,678) — — — — — — — — — — — — $ 1,010 — — — — (379,952) — — $(661,948) — 1,937 — $7,108 — — (50,355) $147,528 Consolidated Financial Statements CONSOLIDATED STATEMENTS OF CASH FLOWS Shiseido Company, Limited, and Subsidiaries For the years ended March 31, 2009, 2010 and 2011 Millions of yen 2009 Cash Flows from Operating Activities: Income before income taxes Depreciation Amortization of goodwill Impairment loss Restructuring expenses Loss on adjustment for changes of accounting standard for lease transactions Environmental expenses Loss on adjustment for changes of accounting standard for asset retirement obligations Purchasing-related expenses Loss on adjustment for changes of estimate for samples and promotional items Loss on disaster Increase (decrease) in allowance for doubtful accounts Increase (decrease) in reserve for sales returns Increase (decrease) in accrued bonuses for employees Increase (decrease) in accrued bonuses for directors Increase (decrease) in provision for liabilities and charges Increase (decrease) in accrued retirement benefits (Increase) decrease in prepaid pension expenses Interest and dividend income Interest expense Equity in earnings of affiliates (Gain) loss on sales of investments in securities (Gain) loss on sales of shares in affiliates Write-down of investments in securities and other investments (Gain) loss on sales and disposal of property, plant and equipment (Increase) decrease in notes and accounts receivable (Increase) decrease in inventories Increase (decrease) in notes and accounts payable Other Subtotal Interest and dividend received Interest paid Income taxes 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 sales of investments in securities Acquisition of property, plant and equipment Proceeds from sales of property, plant and equipment Acquisition of intangible assets Payments of long-term prepaid expenses Payments of long-term loans receivable Net proceeds from acquisition of shares in subsidiaries resulting in change in consolidation scope Net proceeds from acquisition of shares in subsidiaries Net proceeds from sales of shares in subsidiaries resulting in change in consolidation scope (Note 3) 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 Acquisition of treasury stock Disposal of treasury stock Cash dividend paid Cash dividend 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 Change in Consolidation Scope of Subsidiaries (Note 3) Cash and Cash Equivalents at End of Year (Note 3) 2010 Thousands of U.S. dollars (Note 1) 2011 2011 ¥ 38,486 28,289 1,562 6,073 6,074 ¥ 46,739 26,350 1,041 3,469 — ¥ 28,695 29,511 5,204 458 — 216 — — 507 — — — — — — — — 844 1,233 10,150 14,829 — — (230) 2,175 (2,466) 10 (19) 1,990 553 (2,821) 1,812 (58) (24) (71) 206 884 (5,053) (10,340) (4,698) (3,255) 59,295 2,823 (1,808) (17,542) 42,768 — — (73) 693 1,735 198 363 745 5,620 (1,515) 1,569 (62) (163) — 356 463 (8,472) 2,015 (9,085) 4,403 76,896 1,563 (1,529) (7,498) 69,432 6,752 1,669 (53) (5) 455 56 (79) 1,517 4,180 (1,400) 2,166 (33) 22 — 4,199 609 3,323 728 (6,135) 1,203 85,119 1,431 (2,060) (16,903) 67,587 81,203 20,072 (637) (60) 5,472 673 (950) 18,244 50,271 (16,837) 26,049 (397) 265 — 50,499 7,324 39,964 8,755 (73,782) 14,467 1,023,680 17,210 (24,775) (203,283) 812,832 (31,738) 27,668 (935) 1,639 (3,816) 3,927 (16,133) 757 (5,671) (6,419) — (33,151) 28,668 (1,365) 1,502 (157,574) 318 (15,545) 818 (4,685) (5,287) (20,841) (28,066) 27,821 (1,191) 942 (30) 1,352 (17,702) 987 (4,578) (4,053) 0 (337,535) 334,588 (14,324) 11,329 (361) 16,260 (212,892) 11,870 (55,057) (48,743) 0 — — — — (752) (5,724) (9,044) (68,839) 343 2,220 (28,158) — 2,257 (204,885) — 8,298 (364,450) 101,335 70,879 (23,855) (6,830) 388 (19,955) (1,905) 302 120,359 393 (14,701) 91,858 — 690 (30,304) 670 28,669 (36,623) (6,546) 473 (16,972) (2,065) 111 (32,283) (10,753) (28,426) 120,394 (99,817) 100,022 (15,700) (14) 221 (19,879) (4,405) — (39,572) (6,936) (9,225) 77,157 (1,200,445) 1,202,910 (188,815) (168) 2,658 (239,074) (52,977) — (475,911) (83,415) (110,944) 927,925 (110) ¥ 91,858 — ¥ 77,157 20,660 ¥ 88,592 $ 345,099 354,913 62,586 5,508 — 248,467 $ 1,065,448 The accompanying notes are an integral part of the consolidated financial statements. SHISEIDO ANNUAL REPOR T 2011 81 Notes to the Consolidated Financial Statements Shiseido Company, Limited, and Subsidiaries 1. BASIS OF PRESENTING CONSOLIDATED FINANCIAL STATEMENTS Accounting Principles and Presentation The financial statements of Shiseido Company, Limited (the ”Company”) and its consolidated subsidiaries have been prepared in accordance with the provisions set forth in the Financial Instruments and Exchange Law and Companies Act and in conformity with accounting principles generally accepted in Japan. Therefore, application and disclosure requirements are different from International Financial Reporting Standards in certain respects. 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, 2009 and 2010 to conform to the presentation for the year ended March 31, 2011. Amounts in U.S. dollars are included solely for the convenience of the reader. The rate of ¥83.15 = US$1 prevailing on March 31, 2011 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 97 subsidiaries (companies over which the Company exercises control over operations) as of March 31, 2011 (91 and 99 as of March 31, 2009 and 2010, respectively). The accompanying consolidated financial statements as of March 31, 2011 include the accounts of the Company and its 95 (86 and 97 as of March 31, 2009 and 2010, respectively) significant subsidiaries (the “Companies”). The Company has 14 affiliates (companies that are not subsidiaries but over which the Company exercises significant influence) as of March 31, 2011 (20 and 17 as of March 31, 2009 and 2010, respectively). Investments in 3 affiliates (3 as of March 31, 2009 and 2010) are accounted for by the equity method as of March 31, 2011. The Shiseido Group acquired the outstanding shares of Shiseido S.A. (Switzerland). Therefore, Shiseido S.A. (Switzerland) is included in the scope of consolidation in the current fiscal year. Three companies — MD Beauty Sales, Inc., ID Direct, Inc., and Carita UK Ltd. — are excluded from the scope of consolidation in the current fiscal year because they were liquidated during the period. The major consolidated subsidiaries are listed in “Main Subsidiaries and Affiliates” on page 58. 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. Investments in 2 unconsolidated subsidiaries and 11 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 all 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 intercompany transactions are eliminated. (2) Inventories Previously, inventories held by the Company for normal sales in the ordinary course of business were valued at cost, determined by the average method, while inventories held by domestic consolidated subsidiaries were valued at cost, determined primarily by the last purchase price method. Effective from the fiscal year ended March 31, 2009, however, the Company applied “Accounting Standard for Measurement of Inventories” (Accounting Standards Board of Japan (“ASBJ”), Statement No. 9, issued July 5, 2006) and unified accounting policies between the Company and its consolidated subsidiaries. The effect of this change on operating income, income before income taxes and net income for the year ended March 31, 2009, was immaterial. Accordingly, such inventories are generally valued at cost, determined by the average method. (Carrying amount in the balance sheet is calculated with consideration of write-downs due to decreased profitability). (Additional Information) Accounting Estimation for Samples and Promotional Items Several consolidated subsidiaries in Europe and certain other countries have recognized samples and promotional items associated with marketing activities at stores as assets if they are saleable. As part of its efforts to promote enhanced efficiency, the Shiseido Group introduced its core business processing system overseas and successively expanded it, which has enhanced management clarity and standardized operations globally. Consequently, the consolidated subsidiaries in Europe and certain other countries improved the accuracy of their estimates for the saleability of samples and promotional items. As a result of this change in estimate recorded in the current fiscal year, income before income taxes and net income decreased ¥6,751 million and ¥4,805 million, respectively, compared with the previous method applied in the fiscal year ended March 31, 2010. 82 SHISEIDO ANNUAL REPOR T 2011 (3) Property, Plant and Equipment (Excluding Lease Assets) 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, which represent an approximate 20-30% reduction from useful lives utilized for tax purposes. (4) Intangible Assets (Excluding Lease Assets) Intangible assets are mainly amortized using the straight-line method over the following estimated useful lives: Software: 5 years, mainly Customer relationship: 10 years, mainly (5) Lease Assets Finance lease assets that are not deemed to transfer ownership of the leased property to the lessee are depreciated using the straight-line method over the period of the lease, with zero residual value. Previously, the Company and its domestic consolidated subsidiaries treated finance leases that do not transfer ownership as operating leases. Effective from the year ended March 31, 2009, however, the Company and its domestic consolidated subsidiaries have applied “Accounting Standard for Lease Transactions” (ASBJ, Statement No. 13, March 30, 2007; revised from the standard originally issued by the Corporate Accounting Council on June 17, 1993) and “Guidance on Accounting Standard for Lease Transactions” (ASBJ, Guidance No. 16, March 30, 2007; revised from the standard originally issued by the Japanese Institute of Certified Public Accountants on January 18, 1994). Accordingly, from the year ended March 31, 2009, the Company and its domestic consolidated subsidiaries have treated such leases as capital leases. As a result of this change, operating income increased ¥285 million, income before income taxes increased ¥180 million, and net income decreased ¥106 million in the year ended March 31, 2009. The effects of this change in specific segments are described in Segment Information (Note 20). (6) Long-Term Prepaid Expenses Long-term prepaid expenses are primarily amortized using the straight-line method. (7) Goodwill Amortization of goodwill is determined on a case by case basis and is generally amortized using the straight-line method over a period not exceeding 20 years. (8) Securities The Company and its domestic consolidated subsidiaries categorize their existing securities as available-for-sale securities. Those securities with market prices are carried at fair value prevailing at the fiscal year end, with net unrealized gains and losses, net of taxes, reported separately in net assets. The cost of securities sold is mainly calculated using the movingaverage method. If fair value is not available, securities are carried at cost, which is determined mainly by the movingaverage method. Investments in limited partnerships are recorded as investments in securities 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. Those with maturities extending beyond one year are included in investments in securities as non-current assets. (9) Net Income and Cash Dividend 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 fully diluted net income per share of 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 dividend per share shown for each year in the consolidated statements of income represent the dividend declared as applicable to the respective year, rather than that paid in each year. (10) 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. (11) Allowance for Doubtful Accounts The Company and its domestic consolidated subsidiaries provide the allowance for doubtful accounts based on the historic 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. (12) Reserve for Sales Returns The Companies provide reserve for sales returns for future losses considering the past return ratios and market distribution status. SHISEIDO ANNUAL REPOR T 2011 83 (13) Accrued Bonuses for Employees The Companies provide accrued bonuses for employees based on the estimated amounts to be paid in respect of the fiscal year. This reserve includes bonuses for corporate officers who are non-Board members, for whom the calculations are the same as those for the Accrued Bonuses for Directors. (14) Accrued Bonuses for Directors The Companies provide accrued bonuses for members of the Board of Directors (except for external directors) based on the estimated amounts to be paid in respect of the fiscal year. (15) Provision for Liabilities and Charges To provide for losses due to legal risks, product guarantee risks, tax risks, and other factors, certain overseas consolidated subsidiaries make provision, the amount of which is based on estimated losses to be incurred considering the likelihood of such losses in the future. (16) Reserve for Loss on Disaster The Company and its certain domestic consolidated subsidiaries provide reserves mainly for expenses associated with products damaged by the Great East Japan Earthquake using estimates of future expenditures. (17) Accrued Retirement Benefits The Companies have obligations to pay retirement benefits to their 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 benefit obligation and the fair value of plan assets. Unrecognized prior service cost is primarily amortized on a straight-line basis 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 from the following year on a straight-line basis over a 10-year period, which is shorter than the average remaining years of service of the eligible employees. The Company and its domestic consolidated subsidiaries have applied “Partial Amendments to Accounting Standards for Retirement Benefits (Part 3)” (ASBJ Statement No. 19, July 31, 2008) from the fiscal year ended March 31, 2010. The adoption of this accounting standard had no effect on projected benefit obligations, operating income and income before income taxes in the fiscal year ended March 31, 2010. (18) Allowance for Losses on Guarantees The Company provides an allowance for estimated probable losses on guarantees based on the financial status of the parties for which guarantees have been provided. (19) Allowance for Environmental Measures The Company and its domestic consolidated subsidiaries provide a reserve for the estimated cost to treat polychlorinated biphenyl (PCB) waste as required by the Act on Special Measures Concerning Promotion of Proper Treatment of PCB Wastes. (20) Foreign Currency Translation Receivables and payables denominated in foreign currencies are translated into Japanese yen 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 fiscal year. Investments in unconsolidated subsidiaries and affiliates denominated in foreign currencies are translated at the historical exchange rates prevailing at the time of the transaction. (21) Derivatives and Hedging Activities The Companies use derivatives such as foreign exchange forward contracts, foreign currency options, interest rate swap contracts, and interest rate and currency swap contracts to reduce market risks and maintain stable profits. The Companies limit their use of foreign exchange forward contracts related derivative transactions to the amounts of foreign currency denominated receivables and payables, and do not use derivatives for speculative trading. The Companies execute and manage derivatives within the limits of established internal rules and regulations, and reduce credit risk by limiting counterparties to highly creditworthy financial institutions. Derivatives are carried at fair value with gains or losses recognized in the consolidated statements of income. For derivatives used for hedging purposes, gains or losses on derivatives are deferred until recognition of the hedged transactions. Also, if interest rate swap contracts are used as a hedge and meet certain hedging criteria, the interest rate swaps are not remeasured at market price, and the amount to be received under the interest rate swap contract is added to or deducted from the interest on the liabilities for which the swap contract was executed (special accounting). And if interest rate and currency swap contracts are used as a hedge and meet certain hedging criteria, the interest rate and currency swap contracts are not re-measured at market price, and the amount to be received under the interest rate and currency swap contracts is added to or deducted from the interest on the liabilities for which the swap contracts are executed, and the liabilities denominated in foreign currencies, for which the interest rate and currency swap contracts are executed, are translated at the contracted rate (integral accounting). The Companies’ policy is to evaluate the effectiveness of derivatives used for hedging purpose based on either the difference between 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. However, measurement of hedge effectiveness is not considered necessary for interest rate swap contracts that meet the requirements for special accounting and interest rate and currency swap contracts that meet the requirements for integral accounting. 84 SHISEIDO ANNUAL REPOR T 2011 Notes to the Consolidated Financial Statements (22) Foreign Currency Determined Financial Statements Financial statements of overseas consolidated subsidiaries and affiliates that are denominated in foreign currencies are translated into Japanese yen at the exchange rates prevailing at the respective balance sheet dates of those subsidiaries for assets and liabilities, and at the historical exchange rates for shareholders’ equity. All income and expense amounts are translated at the average rates of exchange during the fiscal year of those subsidiaries and affiliates. The resulting translation adjustments are included in net assets as foreign currency translation adjustments and minority interests. (23) Definition of “Cash and Cash Equivalents” in Consolidated 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 at the time of purchase that are exposed to insignificant risk of change in value. (24) Practical Solution on Unification of Accounting Policies Applied to Foreign Subsidiaries for Consolidated Financial Statements Effective from the year ended March 31, 2009, the Company has applied “Practical Solution on Unification of Accounting Policies Applied to Foreign Subsidiaries for Consolidated Financial Statements” (ASBJ, Practical Issues Task Force No. 18, issued May 17, 2006), and necessary modifications have been made for consolidation. As a result of this change, in the year ended March 31, 2009, operating income decreased ¥1,095 million, income before income taxes decreased ¥950 million, and net income increased ¥456 million. The effects of this change in specific segments are described in Segment Information (Note 20). (25) Application of Consolidated Taxation System The Company and certain domestic consolidated subsidiaries have received permission from the Commissioner of the National Tax Agency to apply a consolidated taxation system for the fiscal year ending March 31, 2012. In addition, as of the current fiscal year the Company implemented accounting treatment and disclosure based on the “Practical Solution on Tentative Treatment of Tax Effect Accounting Under Consolidated Taxation System (Part 1)” (ASBJ, Practical Issues Task Force No. 5, March 18, 2011) and “Practical Solution on Tentative Treatment of Tax Effect Accounting Under Consolidated Taxation System (Part 2)” (ASBJ, Practical Issues Task Force No. 7, June 30, 2010) under the assumption that they will apply a consolidated taxation system. (26) Application of Accounting Standard for Asset Retirement Obligations Effective from the current fiscal year, the Company applied “Accounting Standard for Asset Retirement Obligations” (ASBJ Statement No. 18, March 31, 2008) and “Guidance on Accounting Standard for Asset Retirement Obligations” (ASBJ Guidance No. 21, March 31, 2008). As a result of this change, operating income decreased ¥131 million, and income before income taxes decreased ¥976 million, in the current fiscal year. (27) Application of Accounting Standard for Business Combinations Effective from the current fiscal year, the Company applied “Accounting Standard for Business Combinations” (ASBJ Statement No. 21, December 26, 2008), “Accounting Standard for Consolidated Financial Statements” (ASBJ Statement No. 22, December 26, 2008), “Partial Amendments to Accounting Standard for Research and Development Costs” (ASBJ Statement No. 23, December 26, 2008), “Revised Accounting Standard for Business Divestitures” (ASBJ Statement No. 7 (Revised 2008), December 26, 2008), “Revised Accounting Standard for Equity Method of Accounting for Investments” (ASBJ Statement No. 16, December 26, 2008) and “Revised Guidance on Accounting Standard for Business Combinations and Accounting Standard for Business Divestitures” (ASBJ Guidance No. 10, December 26, 2008). (28) Disclosure of Consolidated Statements of Comprehensive Income Effective from the current fiscal year, the Company applied “Accounting Standard for Disclosure of Comprehensive Income” (ASBJ Statement No. 25, June 30, 2010). However, “Accumulated Other Comprehensive Income” and “Total accumulated other comprehensive income” for the fiscal year ended March 31, 2010 are equivalent to “Valuation, Translation Adjustments and Others” and “Total valuation, translation adjustments and others.” In addition, the Company has prepared the consolidated statements of comprehensive income for the fiscal year ended March 31, 2010 as well as that for the fiscal year ended March 31, 2011. 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, 2009, 2010 and 2011 is as follows: Cash and time deposits Short-term investments in securities Total Time deposits with maturities exceeding 3 months Debt securities with maturities exceeding 3 months Cash and cash equivalents Millions of yen 2009 ¥ 57,411 47,344 ¥104,755 (11,536) (1,361) ¥ 91,858 2010 ¥ 70,102 24,723 ¥ 94,825 (16,287) (1,381) ¥ 77,157 Thousands of U.S. dollars ( Note 1) 2011 2011 ¥ 90,007 15,051 ¥105,058 (14,834) (1,632) ¥ 88,592 $1,082,465 181,010 $1,263,475 (178,400) (19,627) $1,065,448 SHISEIDO ANNUAL REPOR T 2011 85 The assets and liabilities on the date of sale of Shiseido Real Estate Development Co., Ltd., which was sold during the year ended March 31, 2009, and the relationship between the proceeds from sale of shares and net cash proceeds from sale of shares is as follows: Millions of yen Current assets ¥ 3,638 Non-current assets 559 Current liabilities (3,396) Non-current liabilities (350) Remaining investment balance after sale of shares (49) Increase in retained earnings resulting from exclusion of consolidated subsidiaries 4 Profit on sale of shares of Shiseido Real Estate Development Co., Ltd. 71 Proceeds from sale of shares of Shiseido Real Estate Development Co., Ltd. ¥ 477 Cash and cash equivalents of Shiseido Real Estate Development Co., Ltd. (134) Net cash proceeds from sale of shares of Shiseido Real Estate Development Co., Ltd. ¥ 343 The Company acquired the shares of Bare Escentuals, Inc. through a U.S. subsidiary in March 2010. The investment in Bare Escentuals, ¥157,236 million, is included in acquisition of investments in securities in the consolidated statements of cash flows in the year ended March 31, 2010. Note 21 “Business Combinations” provides additional detail. The Company accounted for the components of the purchase price of Bare Escentuals, which was its consolidated subsidiary on March 8, 2010, on a provisional accounting treatment at March 31, 2010. The purchase price allocation was finalized in the current fiscal year. Cash and cash equivalents which increased in relation to this are recorded as “Increase (Decrease) in Cash and Cash Equivalents due to the Change in Consolidation Scope of Subsidiaries”. Note 21 “Business Combinations” provides additional detail. The important non-cash transactions are as follows: The amounts of assets and obligations related to finance lease transactions that were newly recorded in the year ended March 31, 2009 are ¥9,281 million and ¥9,497 million for lease assets and lease obligations, respectively. The amounts of assets and obligations related to finance lease transactions that were newly recorded in the year ended March 31, 2010 are ¥3,831 million and ¥3,831 million for lease assets and lease obligations, respectively. The amounts of assets and obligations related to finance lease transactions that were newly recorded in the current fiscal year are ¥1,415 million ($17,017 thousand) and ¥1,415 million ($17,017 thousand) for lease assets and lease obligations, respectively. 4. FINANCIAL INSTRUMENTS Effective from the year ended March 31, 2010, the Company applied “Accounting Standards for Financial Instruments” (ASBJ Statement No. 10, March 10, 2008) and “Implementation Guidance on Disclosures about Fair Value of Financial Instruments” (ASBJ Guidance No. 19, March 10, 2008). (1) Financial Instruments 1 Policy for financial instruments The Companies limit fund management to short-term deposits, investments in securities and other methods. As a matter of policy, the Companies procure funds using bank loans, commercial paper, bonds and other methods. The Companies use derivatives to avoid the risk of foreign exchange rate fluctuations associated with receivables and payables denominated in foreign currencies and the risk of interest rate fluctuations associated with loans. The Companies limit the use of derivatives to the volume of receivables and payables and actual requirements, and do not engage in speculative transactions. 2 Financial instruments content, risks and risk management system Notes and accounts receivable are exposed to customer credit risk. The Companies avoid this risk by managing settlement date and amount due for each counterparty. Investments in securities, primarily the equity securities of corporations with which the Companies do business, are exposed to the risk of fluctuations in market price. The Companies avoid this risk by periodically examining market prices and the financial condition of the issuing entities. Notes and accounts payable are due within one year. Interest-bearing debt includes short-term borrowings and commercial paper, which the Companies use to procure funds for operating transactions, as well as long-term borrowings, bonds and lease obligations, which the Companies use to fund investments and loans, capital expenditures and operating transactions. Floating-rate debt is exposed to the risk of interest rate fluctuations. The Companies hedge this risk for specific long-term borrowings by using derivatives (interest rate swap contracts and interest rate and currency swap contracts from the year ended March 31, 2011) to avoid the risk of interest rate fluctuations and fix interest payments. The Companies use foreign exchange forward contracts and foreign currency options to hedge the risk of foreign exchange fluctuations associated with receivables and payables denominated in foreign currencies and interest rate swap contracts to hedge the risk of interest rate fluctuations associated with floating-rate debt, and 86 SHISEIDO ANNUAL REPOR T 2011 Notes to the Consolidated Financial Statements interest rate and currency swap contracts to hedge the risk of foreign exchange fluctuations and fluctuations in interest rates associated with debt in foreign currencies. (21) Derivatives and Hedging Activities in Note 2. Summary of Significant Accounting Policies explains hedge accounting, hedging instruments and methods, hedging policy, hedged items, and assessment of hedging effectiveness. The Companies execute and manage derivatives within the limits of established internal rules and regulations, and reduce credit risk by limiting counterparties to highly creditworthy financial institutions. Payables and interest-bearing debt are exposed to liquidity risk that the Companies manage in ways such as preparing monthly capital deployment reports. 3 Supplemental information on the fair value of financial instruments The Companies calculate the fair value of financial instruments based on market prices, or by using reasonable estimates when market prices are not available. These estimates include variable factors, and are subject to fluctuation due to changes in the underlying assumptions. The contract amounts of the derivatives discussed in Note 16. Derivative Financial Instruments below are not an indicator of the market risk associated with derivatives transactions. (2) Fair Value of Financial Instruments Fair value and variance with carrying value presented on the balance sheets are as follows. Fair values that are not readily determinable are not included in the following table. (See *2 for additional information.) Millions of yen 2010 Carrying value (*) Fair value (*) 1 Cash and time deposits 2 Notes and accounts receivable (less allowance for doubtful accounts) 3S hort-term investments in securities and investments in securities Available-for-sale securities 4 Long-term loans receivable 5 Notes and accounts payable 6 Short-term bank borrowings 7 Bonds 8 Long-term borrowings from banks and other financial institutions 9 Lease obligations 0 Derivative instruments i. Hedge accounting not applicable ii. Hedge accounting applicable ¥ 70,102 ¥ 70,102 — 110,746 110,746 — 45,876 17,477 (91,310) (105,966) (50,000) (52,053) (6,428) 45,876 17,477 (91,310) (105,966) (49,830) (52,143) (6,538) — — — — ¥ 170 (90) (110) (259) — (259) (474) — (474) Millions of yen 2011 Carrying value (*) Fair value (*) 1 Cash and time deposits 2 Notes and accounts receivable (less allowance for doubtful accounts) 3S hort-term investments in securities and investments in securities Available-for-sale securities 4 Long-term loans receivable 5 Notes and accounts payable 6 Short-term bank borrowings 7 Bonds 8 Long-term borrowings from banks and other financial institutions 9 Lease obligations 0 Derivative instruments i. Hedge accounting not applicable ii. Hedge accounting applicable Variance Variance ¥ 90,007 ¥ 90,007 — 102,064 102,064 — 31,982 — (81,752) (5,595) (90,000) (96,847) (5,075) 31,982 — (81,752) (5,595) (90,112) (95,025) (5,159) — — — — ¥ (112) 1,822 (84) (39) — (39) (2,556) — (2,556) SHISEIDO ANNUAL REPOR T 2011 87 Thousands of U.S. dollars (Note 1) 2011 Carrying value (*) Fair value (*) 1 Cash and time deposits $ 1,082,465 2 Notes and accounts receivable (less allowance for doubtful accounts) 3 Short-term investments in securities and investments in securities Available-for-sale securities 4 Long-term loans receivable 5 Notes and accounts payable 6 Short-term bank borrowings 7 Bonds 8 Long-term borrowings from banks and other financial institutions 9 Lease obligations 0 Derivative instruments i. Hedge accounting not applicable ii. Hedge accounting applicable $ 1,082,465 Variance — — 1,227,468 1,227,468 384,630 — (983,187) (67,288) (1,082,381) 384,630 — (983,187) (67,288) (1,083,728) — — — — $ (1,347) (1,164,726) (61,034) (1,142,814) (62,044) 21,912 (1,010) (469) — (469) (30,740) — (30,740) *Liabilities are in parentheses. Derivative transactions are presented as net amounts receivable or payable, with net amounts payable in parentheses. *1: Method for calculating the fair value of financial instruments, short-term investments in securities and derivative transactions 1Cash and time deposits; 2 Notes and accounts receivable Carrying value is used for fair value for these short-term items because these amounts are approximately the same. 3Short-term investments in securities and investments in securities Short-term investments in securities are held as available-for-sale securities. Market prices on exchanges are used to determine the fair value of equity securities. Prices quoted by financial institutions are used to determine the fair value of bonds. Carrying value is used for fair value for instruments with short-term maturities included in available-for-sale securities because these amounts are approximately the same. 4Long-term loans receivable Floating-rate long-term loans receivable reflect market interest rates. Carrying value therefore approximates fair value of long-term loans receivable. 5Notes and accounts payable; 6 Short-term bank borrowings Carrying value approximates fair value for these short-term items. 7Bonds Fair value of bonds issued by the Company is calculated based on market prices. 8Long-term borrowings from banks and other financial institutions Floating-rate long-term borrowing reflects market interest rates. In addition, fair value approximates carrying value because the Company’s creditworthiness does not vary significantly after assuming long-term borrowings. Therefore, carrying value is used for fair value of floating-rate long-term borrowing. Fair value of fixed-rate long-term borrowing is the discounted value of total principal and interest using an assumed interest rate on equivalent new borrowings. 9Lease obligations The fair value of lease obligations is the discounted present value of total principal and interest using an assumed interest rate on equivalent new lease transactions. 0Derivative instruments Please refer to Note 16. Derivative Financial Instruments. *2: Fair values that are difficult to determine as of March 31, 2010 and 2011. Millions of yen Thousands of U.S. dollars (Note 1) 2010 2011 2011 Carrying value Carrying value Carrying value ¥158,552 10,771 1,666 ¥1,273 8,160 1,151 $15,310 98,136 13,842 Shares of subsidiaries and affiliates Unlisted equity securities Investment in limited partnership, etc. Market prices do not exist for these items, or the cost of estimating future cash flows is considered prohibitive. These items are not included in 3 Short-term investments in securities and investments in securities, because their fair values are not readily determinable. 88 SHISEIDO ANNUAL REPOR T 2011 Notes to the Consolidated Financial Statements *3: The carrying value of monetary assets as of March 31, 2010 and 2011 Millions of yen 2010 Due in 1 year or less Cash and time deposits Notes and accounts receivable Short-term investments in securities and investments in securities The one with expiration of available-for-sale securities Long-term loans receivable Due after 1 year through 5 years — — — — — — 17,499 — ¥198,347 ¥ 1,636 17,466 ¥19,102 — ¥11 ¥11 ¥4,500 — ¥4,500 Due after 5 years through 10 years Due after 10 years Millions of yen 2011 Due in 1 year or less Due after 1 year through 5 years ¥ 90,007 102,064 — — — — — — 6,148 ¥198,219 ¥1,296 ¥1,296 — — ¥4,500 ¥4,500 Thousands of U.S. dollars (Note 1) 2011 Due in 1 year or less Cash and time deposits Notes and accounts receivable Short-term investments in securities and investments in securities The one with expiration of available-for-sale securities Due after 10 years ¥ 70,102 110,746 Cash and time deposits Notes and accounts receivable Short-term investments in securities and investments in securities The one with expiration of available-for-sale securities Due after 5 years through 10 years Due after 1 year through 5 years Due after 5 years through 10 years Due after 10 years $1,082,465 1,227,468 — — — — — — 73,939 $2,383,872 $15,586 $15,586 — — $54,119 $54,119 5. SECURITIES The acquisition cost, carrying amount, and gross unrealized gains and losses for securities stated at fair value by security type at March 31, 2010 and 2011 are as follows: Available-for-sale securities: Millions of yen 2010 Equity securities Corporate bonds Other Cost ¥12,189 5,603 26,218 ¥44,010 Carrying amount Gross unrealized gains ¥14,922 4,732 26,222 ¥45,876 ¥4,255 4 72 ¥4,331 Millions of yen 2011 Equity securities Corporate bonds Other Cost ¥ 9,645 5,845 16,256 ¥31,746 Carrying amount Gross unrealized gains ¥11,025 4,682 16,275 ¥31,982 ¥2,245 8 116 ¥2,369 Gross unrealized losses ¥1,522 875 68 ¥2,465 Gross unrealized losses ¥ 865 1,171 97 ¥2,133 SHISEIDO ANNUAL REPOR T 2011 89 Thousands of U.S. dollars (Note 1) 2011 Cost Carrying amount Gross unrealized gains Gross unrealized losses Equity securities $115,995 $132,592 $27,000 $10,403 Corporate bonds 70,295 56,308 96 14,083 Other 195,502 195,730 1,395 1,166 $381,792 $384,630 $28,491 $25,652 Impairment for securities stated at fair value was recognized in the amounts of ¥164 million, ¥24 million and ¥1,587 million ($19,086 thousand) for the years ended March 31, 2009, 2010 and 2011, respectively. Also, impairment for securities stated at cost was recognized in the amounts of ¥23 million, ¥332 million and ¥2,608 million ($31,365 thousand) for the years ended March 31, 2009, 2010 and 2011, respectively. Proceeds from sales, and gross realized gains and losses from the sale of available-for-sale securities in the years ended March 31, 2009, 2010 and 2011 are as follows: Millions of yen Proceeds from sales Gross realized gains Gross realized losses Thousands of U.S. dollars ( Note 1) 2009 2010 2011 2011 ¥1,980 36 12 ¥1,820 199 36 ¥2,294 177 199 $27,589 2,129 2,393 6. Inventories Inventories held by the Companies as of March 31, 2010 and 2011 are as follows: Millions of yen 2010 Merchandise and products Work in process Raw materials and supplies ¥37,957 3,273 26,112 ¥67,342 Thousands of U.S. dollars ( Note 1) 2011 2011 ¥45,667 3,066 18,842 ¥67,575 $549,212 36,873 226,603 $812,688 7. SHORT-TERM AND LONG-TERM DEBT Short-term and long-term debt as of March 31, 2010 and 2011 are as follows: Millions of yen Short-term bank borrowings (weighted average interest rate 4.33%) Short-term debt Long-term borrowings from banks and other financial institutions (Borrowings due within one year, weighted average interest rate 0.52%) (Borrowings due after one year, weighted average interest rate 0.66%) 0.65% unsecured yen bonds due in December 2014 0.55% unsecured yen bonds due in June 2015 Lease obligations (Borrowings due within one year, weighted average interest rate 3.01%) (Borrowings due after one year, weighted average interest rate 3.04%) Less: portion due within one year Long-term debt 90 SHISEIDO ANNUAL REPOR T 2011 2010 ¥105,966 ¥105,966 Thousands of U.S. dollars ( Note 1) 2011 ¥ ¥ 5,595 5,595 4,273 47,780 50,000 — 8,509 88,338 50,000 40,000 2,454 3,974 ¥108,481 (6,727) ¥101,754 2,257 2,818 ¥191,922 (10,766) ¥181,156 2011 $ $ 67,288 67,288 102,333 1,062,393 601,323 481,058 27,144 33,891 $2,308,142 (129,477) $2,178,665 Notes to the Consolidated Financial Statements The aggregate annual maturities of long-term debt as of March 31, 2011 are as follows: For the years ending March 31 Millions of yen 2012 2013 2014 2015 2016 2017 and thereafter ¥ 10,766 7,343 30,790 55,354 45,156 42,513 ¥191,922 Thousands of U.S. dollars (Note 1) $ 129,477 88,310 370,295 665,712 543,067 511,281 $2,308,142 Assets pledged as collateral as of March 31, 2011 are as follows: Millions of yen 2011 Buildings and structures Other investments Investments in securities Cash and time deposits Machinery and equipment ¥16,606 15,200 1,512 1,218 2 ¥34,538 Thousands of U.S. dollars (Note 1) 2011 $199,712 182,802 18,184 14,648 24 $415,370 The above assets are pledged as collateral for derivative transactions (interest rate swaps) and the following collateralized liabilities as of March 31, 2011: Millions of yen Current portion of long-term debt Long-term debt 2011 ¥ 800 24,050 ¥24,850 Thousands of U.S. dollars (Note 1) 2011 $ 9,621 289,236 $298,857 8. ACCRUED RETIREMENT BENEFITS The Company and its domestic consolidated subsidiaries have contributory funded pension plans, unfunded termination allowance plans, defined contribution plans and retirement benefit prepayment plan. In some cases, additional voluntary retirement benefits are paid when an employee retires, which are accounted for as retirement benefit expenses when incurred. Also, certain overseas consolidated subsidiaries have defined benefit pension plans, unfunded termination allowance plans and defined contribution plans. The reconciliation of projected benefit obligations, plan assets, funded status of the pension benefit plans, prepaid pension expenses and accrued retirement benefits recognized in the accompanying balance sheets as of March 31, 2010 and 2011 is as follows: Millions of yen Projected benefit obligations Fair value of plan assets Funded status of the pension benefit plans Unrecognized net actuarial loss Unrecognized prior service cost Net retirement benefit obligation Prepaid pension expenses Accrued retirement benefits Thousands of U.S. dollars ( Note 1) 2010 2011 2011 ¥(203,578) 158,407 (45,171) 36,743 (2,962) ¥ (11,390) 28,740 ¥ (40,130) ¥(205,565) 159,368 (46,197) 30,816 (1,345) ¥ (16,726) 24,560 ¥ (41,286) $(2,472,219) 1,916,633 (555,586) 370,607 (16,175) $ (201,154) 295,370 $ (496,524) SHISEIDO ANNUAL REPOR T 2011 91 The net periodic pension benefit costs for the years ended March 31, 2009, 2010 and 2011 are as follows: Millions of yen Service cost Interest cost Expected return on plan assets Amortization of net actuarial loss Amortization of prior service cost Net periodic pension benefit cost 2009 ¥ 8,712 4,965 (7,011) 5,500 (2,125) ¥10,041 2010 ¥ 7,971 5,022 (5,853) 9,031 (2,125) ¥14,046 Thousands of U.S. dollars ( Note 1) 2011 ¥ 8,116 5,099 (6,362) 7,899 (1,783) ¥12,969 2011 $ 97,607 61,323 (76,513) 94,997 (21,443) $155,971 The discount rate used to determine the actuarial present value of projected benefit obligations as of March 31, 2010 and 2011 is mainly 2.5%. The expected rate of return on plan assets of those plans as of March 31, 2010 and 2011 is mainly 4.0%. Allocation 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 benefits is allocated to each year. Certain overseas consolidated subsidiaries have adopted the corridor approach for the amortization of actuarial gains and losses. 9. 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 approximately 41.0% for the years ended March 31, 2009, 2010 and 2011. Since the difference between the statutory tax rate and the effective tax rate for the fiscal year ended March 31, 2009 is less than 5%, a reconciliation of these two rates is not presented. Reconciliations between the statutory tax rate and the effective tax rate for the fiscal years ended March 31, 2010 and 2011 are as follows: 92 2010 2011 Statutory tax rate Increase (decrease) due to: Permanently nondeductible expenses Dividend income not taxable Unrealized intercompany profit Effects of realignment of subsidiaries Tax credits Differences of tax rates for overseas consolidated subsidiaries Valuation allowance Others Effective tax rate 41.0% 41.0% 1.2 (1.5) (11.6) 4.5 (4.4) (7.1) (1.3) (0.5) 20.3% 1.7 4.4 6.5 (0.6) (3.8) (4.5) (0.5) 2.2 46.4% SHISEIDO ANNUAL REPOR T 2011 Notes to the Consolidated Financial Statements Deferred tax assets and liabilities (both current and non-current) as of March 31, 2010 and 2011 are as follows: Millions of yen Deferred tax assets: Inventories Depreciation Unrealized intercompany profit in inventory and property, plant and equipment Accrued expenses Accrued retirement benefits Accrued bonuses for employees Write-down of investments in securities and other investments Tax losses carried forward Reserve for sales returns Accrued enterprise tax Other Total gross deferred tax assets Less: valuation allowance Total deferred tax assets Deferred tax liabilities: Goodwill and other intangible assets Special tax-purpose reserve Unrealized gains (losses) on available-for-sale securities Removal cost of asset retirement obligation Undistributed earnings of overseas consolidated subsidiaries Other Total deferred tax liabilities Net deferred tax assets 2010 Thousands of U.S. dollars ( Note 1) 2011 2011 ¥ 8,406 7,998 7,613 4,819 4,637 4,592 2,918 2,802 1,670 831 2,751 49,037 (4,739) ¥44,298 ¥ 8,542 7,015 6,818 4,777 6,294 4,240 5,076 3,146 1,562 570 3,915 51,955 (4,131) ¥47,824 $102,730 84,366 81,996 57,450 75,695 50,992 61,046 37,835 18,785 6,855 47,084 624,834 (49,681) $575,153 ¥ 2,507 996 709 — 359 577 ¥ 5,148 ¥39,150 ¥28,158 967 258 124 621 653 ¥30,781 ¥17,043 $338,641 11,630 3,103 1,491 7,468 7,854 $370,187 $204,966 10. CONTINGENT LIABILITIES As of March 31, 2010, the Company was contingently liable as a guarantor for SDL Co., Ltd.’s own guarantees of the lease liabilities of third-party customers, amounting to ¥11 million. 11. Net Assets 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 Japanese Companies Act (“the Act”), in cases where dividend distribution of surplus is made, the lesser of an amount equal to 10% of the dividend or the excess, if any, of 25% of common stock over the total of additional paidin 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 Act, both legal earnings reserve and additional paid-in capital used to eliminate or reduce a deficit generally require a resolution of the shareholders’ meeting. Additional paid-in capital and legal earnings reserve may not be distributed as dividends. Under the Act, all additional paid-in capital and legal earnings reserve may be transferred to other capital surplus and retained earnings under certain conditions. 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 Act. Under the Act, companies can pay a dividend 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, and (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, the Board of Directors may declare a dividend if the company has prescribed so in its articles of incorporation. A semiannual interim dividend may also be paid once a year upon resolution by the Board of Directors if the articles of incorporation of the company so stipulate. Cash dividends charged to retained earnings during the fiscal year were the year-end cash dividend for the preceding fiscal year and the interim cash dividend for the current fiscal year. SHISEIDO ANNUAL REPOR T 2011 93 Appropriations are not accrued in the consolidated financial statements for the corresponding period, but are recorded in the subsequent accounting period after shareholders’ meeting approval has been obtained. Retained earnings at March 31, 2011 include amounts representing year-end cash dividend of ¥9,949 million ($119,651 thousand), ¥25.0 ($0.30) per share, which was approved at the shareholders’ meeting held on June 24, 2011. 12. STOCK OPTION PLAN Summarized information on the stock options granted as of March 31, 2011 is as follows: 1 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 Exercisable period 578,000 shares 196,000 shares ¥1,669 July 1, 2004 - June 26, 2012 Total 578,000 shares 196,000 shares 2 Stock option plan approved by the shareholders on June 27, 2003 Stock options granted on July 31, 2003 Number of shares for options granted Number of shares for options outstanding Exercise price Exercisable period 878,000 shares 105,000 shares ¥1,287 July 1, 2005 - June 26, 2013 Total 878,000 shares 105,000 shares 3 Stock option plan approved by the shareholders on June 29, 2004 Stock options granted on July 26, 2004 Total 1,004,000 shares 461,000 shares 1,004,000 shares 461,000 shares July 1, 2006 - June 28, 2014 Number of shares for options granted Number of shares for options outstanding Exercise price Exercisable period ¥1,427 4 Stock option plan approved by the shareholders on June 29, 2005 Stock options granted on July 28, 2005 Stock options granted on July 28, 2005 Number of shares for options granted Number of shares for options outstanding Exercise price Exercisable period 408,000 shares 5,000 shares ¥1 July 1, 2008 - June 30, 2011 261,000 shares 246,000 shares ¥1,481 July 1, 2007 - June 28, 2015 Total 669,000 shares 251,000 shares 5 Stock option plan approved by the shareholders on June 29, 2006 and resolved by the Board of Directors on July 31, 2006. Number of shares for options granted Number of shares for options outstanding Exercise price Exercisable period Stock options granted on August 23, 2006 Stock options granted on August 23, 2006 67,000 shares 67,000 shares ¥2,300 August 1, 2008 - July 30, 2016 74,000 shares 74,000 shares ¥2,300 August 1, 2008 - July 30, 2016 Total 141,000 shares 141,000 shares 6 Stock option plan approved by the shareholders on June 26, 2007 and resolved by the Board of Directors on July 31, 2007. Number of shares for options granted Number of shares for options outstanding Exercise price Exercisable period 94 SHISEIDO ANNUAL REPOR T 2011 Stock options granted on August 23, 2007 15,000 shares 1,000 shares ¥1 July 1, 2008 - June 30, 2011 Stock options granted on August 23, 2007 Stock options granted on August 23, 2007 81,000 shares 78,000 shares 81,000 shares ¥2,615 August 1, 2009 - July 30, 2017 78,000 shares ¥2,615 August 1, 2009 - July 30, 2017 Total 174,000 shares 160,000 shares Notes to the Consolidated Financial Statements 7 Stock option plan approved by the shareholders on June 25, 2008 and resolved by the Board of Directors on July 31, 2008. Stock options granted on August 21, 2008 Stock options granted on August 21, 2008 Number of shares for options granted Number of shares for options outstanding Exercise price Exercisable period 46,000 shares 46,000 shares 40,000 shares 40,000 shares ¥1 August 1, 2011 - July 30, 2018 Total 86,000 shares 86,000 shares ¥1 August 1, 2011 - July 30, 2018 8 Stock option plan approved by the shareholders on June 24, 2009 and resolved by the Board of Directors on July 31, 2009. Number of shares for options granted Number of shares for options outstanding Exercise price Exercisable period Stock options granted on August 28, 2009 Stock options granted on August 28, 2009 81,400 shares 81,400 shares ¥1 August 1, 2012 - July 31, 2019 53,500 shares 53,500 shares ¥1 August 1, 2012 - July 31, 2019 Total 134,900 shares 134,900 shares 9 Stock option plan approved by the shareholders on June 25, 2010 and resolved by the Board of Directors on July 29, 2010. Number of shares for options granted Number of shares for options outstanding Exercise price Exercisable period Stock options granted on August 30, 2010 Stock options granted on August 30, 2010 59,100 shares 59,100 shares ¥1 August 1, 2013 - July 31, 2020 46,800 shares 46,800 shares ¥1 August 1, 2013 - July 31, 2020 Total 105,900 shares 105,900 shares 13. RESEARCH AND DEVELOPMENT Research and development expenses are expensed as incurred. Research and development expenses, which are included in selling, general and administrative expenses, totaled ¥15,243 million, ¥14,460 million and ¥14,467 million ($173,987 thousand) for the years ended March 31, 2009, 2010 and 2011, respectively. There are no research and development expenses included in total manufacturing expenses for the years ended March, 31, 2009, 2010 and 2011. 14. TRANSACTIONS WITH RELATED PARTIES Effective from the year ended March 31, 2009, the Company has applied “Accounting Standard for Disclosure of Related Party Transactions” (ASBJ, Statement No. 11, October 17, 2006) and “Guidance on Accounting Standard for Related Party Disclosures” (ASBJ, Guidance No. 13, October 17, 2006). As a result, transactions between the Company and the executives of important subsidiaries are disclosed in addition to those related party transactions disclosed previously. The Company paid advisory services fees of ¥14 million to Remy Gomez, the President and CEO of Beauté Prestige International, a consolidated subsidiary, for the year ended March 31, 2009 and the ending balance was ¥7 million as prepaid expenses in other current assets as of March 31, 2009. The advisory services fee conforms to customary practices. The Company received ¥11 million from Yasuhiko Harada, Director, Corporate Senior Executive Officer of the Company, in connection with the exercise of new stock acquisition rights (stock options), for the current fiscal year. 15. ACCOUNTING FOR LEASES The Companies have various lease agreements whereby the Companies act both as a lessee and a lessor. Finance leases of the Company and its domestic consolidated subsidiaries other than those deemed to transfer the ownership of the leased assets to the lessee, which previously were not recorded on the balance sheets, are recorded on the balance sheets from the year ended March 31, 2009. SHISEIDO ANNUAL REPOR T 2011 95 Lease obligation under operating leases at March 31, 2009, 2010 and 2011 are as follows: Millions of yen 1 As lessee: The scheduled maturities of future lease rental payments on such lease contracts are as follows: Due within one year Due after one year 2 As lessor: The scheduled maturities of future lease rental receipts on such lease contracts are as follows: Due within one year Due after one year Thousands of U.S. dollars ( Note 1) 2009 2010 ¥2,655 5,944 ¥8,599 ¥2,411 6,176 ¥8,587 ¥ 3,910 19,532 ¥23,442 $ 47,023 234,901 $281,924 — — — ¥ 214 6,093 ¥6,307 ¥ 214 5,886 ¥6,100 $ 2,574 70,788 $73,362 2011 2011 16. DERIVATIVE FINANCIAL INSTRUMENTS The contract amount, estimated fair value and unrealized gain (loss) of the derivative instruments as of March 31, 2010 is as follows: 1 Derivatives that do not meet the criteria for hedge accounting Millions of yen 2010 Contract amount Total Foreign exchange contracts: Put US$ GBP AU$ Foreign exchange contracts: CallUS$ EUR GBP Interest rate swap contracts: To receive variable/to pay fixed Settled over one year Estimated fair value Unrealized gain (loss) ¥4,453 1,976 88 1,174 165 223 — — — — — — ¥4,601 1,981 91 1,207 160 215 ¥(148) (5) (3) 33 (5) (8) 1,841 — ¥1,841 — (124) — (124) ¥(260) 2 Derivatives that meet the criteria for hedge accounting Millions of yen 2010 Contract amount Total Interest rate swap contracts: To receive variable/to pay fixed 96 SHISEIDO ANNUAL REPOR T 2011 ¥25,650 Settled over one year ¥24,850 Estimated fair value ¥(474) Notes to the Consolidated Financial Statements The contract amount, estimated fair value and unrealized gain (loss) of the derivative contracts as of March 31, 2011 is as follows: 1 Derivatives that do not meet the criteria for hedge accounting Millions of yen 2011 Contract amount Total Foreign exchange contracts: Put US$ GBP AU$ Foreign exchange contracts: CallUS$ EUR Interest rate swap contracts: To receive variable/to pay fixed Settled over one year Estimated fair value Unrealized gain (loss) ¥4,498 1,300 62 1,198 425 — — — — — ¥4,522 1,288 66 1,219 423 ¥(24) 12 (4) 21 (2) 1,629 — — — (41) — (41) ¥(39) Thousands of U.S. dollars (Note 1) 2011 Contract amount Total Foreign exchange contracts: Put US$ GBP AU$ Foreign exchange contracts: CallUS$ EUR Interest rate swap contracts: To receive variable/to pay fixed Settled over one year Estimated fair value Unrealized gain (loss) $54,095 15,634 746 14,408 5,111 — — — — — $54,384 15,490 794 14,660 5,087 $(289) 144 (48) 252 (24) 19,591 — — — (493) — (493) $(469) 2 Derivatives that meet the criteria for hedge accounting Millions of yen 2011 Contract amount Total Interest rate and currency swap contracts: To receive variable U.S.$/to pay fixedyen Interest rate swap contracts: To receive variable/to pay fixed Settled over one year ¥25,000 ¥25,000 ¥(2,149) 24,850 24,050 (407) Thousands of U.S. dollars (Note 1) 2011 Contract amount Total Interest rate and currency swap contracts: To receive variable U.S.$/to pay fixed yen Interest rate swap contracts: To receive variable/to pay fixed Estimated fair value Settled over one year Estimated fair value $300,661 $300,661 $(25,845) 298,857 289,236 (4,895) 17. 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. Business-use assets mainly have been devalued from the book value to the recoverable value, with the differences reported as other expenses. Idle assets whose market value have declined, mainly due to be sold, 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 their expected sale value. Impairment loss on overseas assets is mainly recognized at other, net due to decreasing profitability of subsidiaries in Indonesia. SHISEIDO ANNUAL REPOR T 2011 97 Impairment losses for the years ended March 31, 2009, 2010 and 2011 are as follows: Millions of yen Domestic Business-use assets: Land Buildings and structures, etc. Machinery and equipment Idle assets: Land Buildings and structures, etc. Machinery and equipment Overseas Long-term prepaid expenses Buildings and structures, etc. Machinery and equipment Goodwill Trademark rights Thousands of U.S. dollars ( Note 1) 2009 2010 ¥ 168 605 — ¥ 592 2,725 — — ¥ 79 1 — $ 950 12 291 58 — 82 59 — 11 8 10 133 96 120 — 23 — 1,653 3,275 ¥6,073 — 11 — — — ¥3,469 82 264 3 — — ¥458 986 3,175 36 — — $5,508 2011 2011 18. Restructuring expenses Restructuring expenses are business costs incurred in streamlining the Companies’ operations, including downsizing and withdrawing from brands and businesses that contribute little to profitability. Restructuring expenses for the year ended March 31, 2009 mainly consisted of liquidation expenses of ¥2,689 million of Shiseido Beautech Co., Ltd. and withdrawing expenses of ¥2,465 million of THE GINZA boutique business. 19. LOSS ON DISASTER Loss on disaster represents the costs and expenses that were incurred as a result of the Great East Japan Earthquake. The amounts recorded mainly consist of the provision for reserve for loss on disaster of ¥923 million and the fixed costs incurred during the period of emergency shutdown that occurred subsequent to the disaster of ¥215 million. 20. SEGMENT INFORMATION (1) General information about reportable segments With respect to its reportable segments, the Company is able to obtain delineated financial data from among its structural units. Accordingly, its segments are subject to regular examination in order to assist decision-making on allocation of managerial resources and evaluation of business performance by the Board of Directors. The Company’s main business is the production and sale of cosmetics. Under a business structure classified according to domestic and global regions, various business departments in the head office formulate comprehensive strategies and promote business activities. Consequently, the Company has classified its operations into two segments along geographical lines: Domestic Cosmetics Business and Global Business. The Domestic Cosmetics Business segment includes the domestic cosmetics business (production and sale of cosmetics, cosmetics accessories, and toiletries), the healthcare business (production and sale of health & beauty foods and overthe-counter drugs), and the production and sale of non-Shiseido-brand products and mail-order products, etc. The Global Business segment covers the overseas cosmetics business (production and sale of cosmetics, cosmetics accessories, and toiletries) and the domestic and overseas professional business (production and sale of beauty salon products), etc. (2) Basis of measurement for reported segment profit or loss, segment assets and other material items The accounting treatment method for the Group’s reported business segments is generally the same as described in “2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES”. Also, segment income is based on operating income. The prices of inter-segment transactions and transfers are determined by price negotiations based on the Company’s submission of preferred prices after taking market conditions into account. 98 SHISEIDO ANNUAL REPOR T 2011 Notes to the Consolidated Financial Statements (3) Information about reported segment profit or loss, segment assets and other material items Segment information as of and for the fiscal years ended March 31, 2009, 2010 ad 2011 is as follows: Millions of yen 2009 Domestic Cosmetics Business Net sales Sales to outside customers Intersegment sales or transfers Total Segment Income *1,*2,*3 Segment Assets *4 Other Items Depreciation and Amortization Amortization of Goodwill Increase in Tangible and Intangible Fixed Assets Global Business Others*5 ¥17,003 11,601 ¥28,604 ¥ 1,469 ¥50,522 ¥690,256 19,417 ¥709,673 ¥ 49,637 ¥529,191 — ¥(19,417) ¥(19,417) ¥ 277 ¥ 77,378 ¥690,256 — ¥690,256 ¥ 49,914 ¥606,569 ¥ 17,087 ¥ 142 ¥ 15,846 ¥ 9,540 ¥ 1,420 ¥ 13,068 ¥ 1,625 — ¥ 476 ¥ 28,252 ¥ 1,562 ¥ 29,390 ¥ ¥ 28,289 ¥ 1,562 ¥ 29,462 ¥ 37 — 72 Millions of yen 2010 Domestic Cosmetics Business Net sales Sales to outside customers Intersegment sales or transfers Total Segment Income *1,*2,*3 Segment Assets *4 Other Items Depreciation and Amortization Amortization of Goodwill Increase in Tangible and Intangible Fixed Assets Global Business Others*5 Subtotal Adjustment*6 Total ¥383,780 1,507 ¥385,287 ¥ 38,948 ¥232,607 ¥250,388 2,716 ¥253,104 ¥ 9,536 ¥429,729 ¥10,033 6,225 ¥16,258 ¥ 1,704 ¥48,660 ¥644,201 10,448 ¥654,649 ¥ 50,188 ¥710,996 — ¥(10,448) ¥(10,448) ¥ 163 ¥ 64,450 ¥644,201 — ¥644,201 ¥ 50,351 ¥775,446 ¥ 16,493 ¥ 142 ¥ 17,935 ¥ 8,466 ¥ 899 ¥ 10,422 ¥ 1,339 — ¥ 247 ¥ 26,298 ¥ 1,041 ¥ 28,604 ¥ ¥ 26,350 ¥ 1,041 ¥ 28,658 ¥ 52 — 54 Millions of yen 2011 Domestic Cosmetics Business Net sales Sales to outside customers Intersegment sales or transfers Total Segment Income *1,*2,*3 Segment Assets *4 Other Items Depreciation and Amortization Amortization of Goodwill Increase in Tangible and Intangible Fixed Assets Global Business Others*5 Subtotal Adjustment*6 Total ¥358,408 1,829 ¥360,237 ¥ 33,573 ¥212,505 ¥302,633 2,480 ¥305,113 ¥ 9,026 ¥424,427 ¥ 9,660 6,428 ¥16,088 ¥ 1,838 ¥47,439 ¥670,701 10,737 ¥681,438 ¥ 44,437 ¥684,371 — ¥(10,737) ¥(10,737) ¥ 21 ¥ 55,813 ¥670,701 — ¥670,701 ¥ 44,458 ¥740,184 ¥ 15,351 ¥ 142 ¥ 11,175 ¥ 12,918 ¥ 5,062 ¥ 15,686 ¥ 1,205 — ¥ 350 ¥ 29,474 ¥ 5,204 ¥ 27,211 ¥ ¥ 29,511 ¥ 5,204 ¥ 27,211 37 — — Thousands of U.S. dollars (Note 1) Total ¥275,718 2,873 ¥278,591 ¥ 15,421 ¥229,274 Adjustment*6 ¥397,535 4,943 ¥402,478 ¥ 32,747 ¥249,395 Subtotal 2011 Domestic Cosmetics Business Net sales $4,310,379 Sales to outside customers 21,996 Intersegment sales or transfers $4,332,375 Total $ 403,764 Segment Income *1,*2,*3 $2,555,682 Segment Assets *4 Other Items $ 184,618 Depreciation and Amortization $ 1,708 Amortization of Goodwill Increase in Tangible and Intangible Fixed Assets $ 134,396 Global Business Others*5 Subtotal $3,639,603 29,826 $3,669,429 $ 108,551 $5,104,354 $116,176 77,306 $193,482 $ 22,105 $570,523 $8,066,158 129,128 $8,195,286 $ 534,420 $8,230,559 $ 155,358 $ 60,878 $ 188,647 $ 14,492 $ 354,468 — $ 62,586 $ 4,209 $ 327,252 Adjustment*6 — $(129,128) $(129,128) $ 252 $ 671,233 $ Total $8,066,158 — $8,066,158 $ 534,672 $8,901,792 445 $ 354,913 — $ 62,586 — $ 327,252 Notes:1.Effective from the year ended March 31, 2009, the Company has applied “Practical Solution on Unification of Accounting Policies Applied to Foreign Subsidiaries for Consolidated Financial Statements.” As a result of this change, total segment income decreased ¥1,095 million for the year ended March 31, 2009. 2.Effective from the year ended March 31, 2009, the Company and its domestic subsidiaries have applied “Accounting Standard for Lease Transactions” and “Guidance on Accounting Standard for Lease Transactions.” As a result of this change, segment income in the Domestic Cosmetics business segment increased ¥196 million, segment income in the Global business segment increased ¥76 million, and segment income in the Others business segment increased ¥13 million for the year ended March 31, 2009. 3.Segment income is adjusted for Operating Income described in Consolidated Statements of Income. 4.Previously, deferred tax assets were included as corporate assets. Effective from the year ended March 31, 2009, however, such assets are classified by business segment, in order to better clarify assets that should be controlled by the relevant business segment. Business segment information for the year ended March 31, 2008 has been restated to reflect this change in allocation of deferred tax assets adopted from the year ended March 31, 2009. SHISEIDO ANNUAL REPOR T 2011 99 5.“Others” include businesses not included in the other units of segment reporting. These include the frontier sciences business (production and sale of cosmetics raw materials, medical-use drugs, medical cosmetics, etc.) and the restaurant business. 6.Below is a description of adjustments. (1) The “Segment Income” adjustment refers to inter-segment transaction eliminations. (2) The “Companywide assets (not allocated to specific segments)” included in the “Segment Assets” adjustment line as of March 31, 2009, 2010 and 2011 were ¥79,411 million, ¥66,887 million, and ¥58,430 million ($702,706 thousand), consisting mainly of assets not belonging to specific segments (cash and time deposits, short-term investments in securities, investments in securities, etc.) and assets related to administrative operations. Moreover, the “Intersegment eliminations” included in the “Segment Assets” adjustment line as of March 31, 2009, 2010 and 2011 were ¥2,035 million, ¥2,437 million, and ¥2,617 million ($31,473 thousand). (3) The “Depreciation and Amortization” adjustment refers to depreciation expenses related to companywide assets and intersegment eliminations. Long-term prepaid expenses are included in “Depreciation and Amortization” and “Increase in Tangible and Intangible Fixed Assets.” (4) The “Increase in Tangible and Intangible Fixed Assets” adjustment refers to the increase of the companywide assets (not allocated to specific segment) for the fiscal years ended March 31, 2009 and 2010. (Additional Information) Effective from the fiscal year ended March 31, 2011, the Company applied the “Accounting Standard for Disclosures about Segments of an Enterprise and Related Information” (ASBJ Statement No. 17 on March 27, 2009) and the “Guidance on Accounting Standard for Disclosures about Segments of an Enterprise and Related Information” (ASBJ Guidance No. 20, issued on March 21, 2008). In addition, the Company restates segment information as of and for the fiscal years ended March 31, 2009 and 2010 in conformity with the requirements of the Standard and the Guidance. (Related Information) Fiscal year 2010 (April 1, 2010 to March 31, 2011) a. Information on products and services Because sales to outside customers in the cosmetics business exceed 90% of net sales of the consolidated statements of income, the Company omits this description. b. Geographical information 1 Net sales Millions of yen 2011 America Asia / Oceania Japan Europe U.S.A. China ¥382,866 ¥87,590 ¥77,430 $4,604,522 ¥122,052 ¥81,016 2011 America $1,053,398 ¥670,701 Thousands of U.S. dollars (Note 1) Asia / Oceania Europe U.S.A. China Japan ¥78,193 Total $931,209 $940,385 $1,467,853 $974,336 Total $8,066,158 * Classification of net sales is determined by country or geographical location. 2 Tangible fixed assets Millions of yen 2011 America Japan Europe U.S.A. ¥93,345 ¥13,220 ¥13,150 Asia / Oceania ¥7,583 ¥17,073 2011 America Japan Europe U.S.A. $1,122,610 $158,990 ¥131,221 Thousands of U.S. dollars (Note 1) Total $158,148 Asia / Oceania $91,196 $205,328 Total $1,578,124 (4) Loss on impairment of fixed assets Fiscal year 2010 (April 1, 2010 to March 31, 2011) Millions of yen Loss on impairment of fixed assets 2011 Domestic Cosmetics Business ¥102 Global Business Others Total ¥354 ¥2 ¥458 Thousands of U.S. dollars (Note 1) Loss on impairment of fixed assets 100 SHISEIDO ANNUAL REPOR T 2011 2011 Domestic Cosmetics Business Global Business Others Total $1,227 $4,257 $24 $5,508 Notes to the Consolidated Financial Statements (5) Goodwill Fiscal year 2010 (April 1, 2010 to March 31, 2011) Millions of yen Balance at the end of the current fiscal year 2011 Domestic Cosmetics Business Global Business Others Total ¥1,561 ¥92,562 — ¥94,123 Thousands of U.S. dollars (Note 1) Balance at the end of the current fiscal year 2011 Domestic Cosmetics Business Global Business Others Total $18,773 $1,113,193 — $1,131,966 21. BUSINESS COMBINATION For the fiscal year ended March 31, 2010 (Application of the purchase method) On March 8, 2010, the Company completed a tender offer through acquisition subsidiary Blush Acquisition Corporation (BAC) to acquire all outstanding shares of common stock of Bare Escentuals, Inc. (Bare Escentuals) with cash, and made Bare Escentuals a subsidiary of the Company. Following the acquisition, BAC implemented a short-form merger under Delaware law with Bare Escentuals, which is the surviving company. (1) Name and main business of acquired company; reason, date, and legal method used for acquisition; name of company after acquisition and share of voting rights acquired 1 Name and main business of acquired company Name of acquired company: Bare Escentuals, Inc. Main business of acquired company: Sales of cosmetics and other products 2Reason for business combination Attain new brand value; achieve a significantly complementary position in distribution, sales and R&D capabilities; and strengthen the business foundation in North America. 3Date of combination Purchase of shares with cash: March 8, 2010 Absorption merger: March 12, 2010 4 Legal method used for combination and name of company after combination Legal method used for combination: purchase of shares with cash and absorption merger (absorption merger of BAC with and into Bare Escentuals, which is the surviving company) Name of company after combination: Unchanged 5 Share of voting rights acquired 100.0% (2) Purchase price and details The purchase price for the acquired company included approximately US$1.74 billion, comprising cash paid to acquire tendered shares and the cost of purchasing the stock options of Bare Escentuals employees. The purchase price included contingent consideration that is being measured at fair value in accordance with U.S. accounting standards. (3) Accounting for contractually obligated contingent consideration 1 Contingent Consideration The company will make additional payments to the former management of the acquired company using a contractually specified formula if EBITDA exceeds specified benchmarks over the three years beginning the year ending March 31, 2012. 2 Accounting policy The company plans to recognize the variable portion of the contingent consideration above using U.S. accounting standards. (4) Goodwill incurred, assets acquired and liabilities assumed on the date of business combination As of March 31, 2010, the purchase price allocation was not complete because the specification and measurement of the fair value of identifiable assets and liabilities included in the assets acquired and liabilities assumed through the acquisition of and business combination with Bare Escentuals was not complete. A provisional accounting treatment was applied and the investment of approximately U.S.$1.74 billion in this subsidiary was included in investments in subsidiaries and affiliates on the consolidated balance sheets as of March 31, 2010. The income and expenses of Bare Escentuals are not included in the consolidated statements of income in the fiscal year ended March 31, 2010. SHISEIDO ANNUAL REPOR T 2011 101 Notes to the Consolidated Financial Statements For the fiscal year ended March 31, 2011 (Application of the purchase method) The Company accounted for the components of the purchase price of Bare Escentuals on a provisional accounting treatment at March 31, 2010. The purchase price allocation was finalized in the current fiscal year. (1) Purchase price of the acquired company Cash paid to acquire tendered shares US$1,633,296 thousand Cash paid to purchase the stock options of Bare Escentuals employees US$66,970 thousand Contingent consideration US$30,411 thousand Total acquisition price US$1,730,677 thousand (2) Accounting for contractually obligated contingent consideration 1 Contingent consideration Contingent consideration consists of contractually stipulated payments after a specified period from the fiscal year ending March 31, 2012. 2 Accounting policy The Shiseido Group recognized the contingent consideration discussed above in accordance with accounting standards generally accepted in the United States (3) Goodwill recognized, reason for recognition, and amortization method and period 1 Goodwill recognized ¥91,503 million 2 Reason for recognition The goodwill resulted from reasonable estimates of future excess earnings, including expected synergies, of the acquired company as a result of anticipated business development 3 Amortization method and period 20 years using the straight-line method (4) Period for which the acquired company’s financial results are included in the consolidated financial statements From March 8, 2010 to December 31, 2010 (5) Summary of assets and liabilities assumed at date of business combination Current assets Non-current assets Total assets ¥34,690 million ¥179,800 million ¥214,490 million Current liabilities Long-term liabilities Total liabilities ¥5,701 million ¥52,305 million ¥58,006 million Significant intangible assets other than goodwill acquired in the business combination included in the acquisition price were as follows. Customer relationship (amortized over 10 years) ¥40,300 million Trademarks (mostly not subject to amortization) ¥39,985 million Note: The yen amounts in the table above are calculated using the rate of ¥90.42 to US$1, the rate in effect as of the date of business combination. Accordingly, the amount of goodwill recorded as a result of this business combination and included in the consolidated balance sheets is different from the amount of the goodwill reported in Note (3) 1 above. (6) Estimated impact on the consolidated statements of income for the fiscal year ended March 31, 2011 if the business combination had been completed as of the beginning of the fiscal year ended March 31, 2011 Net sales ¥8,099 million Operating loss ¥190 million (Estimate methodology and main assumptions) 1 Estimated impact on sales and income is the difference between the sale and income of the acquired company and the Company’s consolidated income statements assuming the business combination had been completed as of the beginning of the fiscal year ended March 31, 2011. This impact includes customer relationship and the amortization of goodwill from April 1, 2010 until the date of business combination. Advisory fees that Bare Escentuals paid to its financial advisors and the cost of purchasing the stock options of Bare Escentuals employees paid by Bare Escentuals during the period from April 1, 2010 to the date of business combination are not included. 2 The above yen amounts are calculated using the rate of ¥90.71 to US$1, the average exchange rate for the period from January 1, 2010 to March 31, 2010. 3 These notes have not been audited. 22. SUBSEQUENT EVENT None applicable 102 SHISEIDO ANNUAL REPOR T 2011 Independent Auditors’ Report To the Board of Directors and Shareholders of Shiseido Company, Limited: We have audited the accompanying consolidated balance sheets of Shiseido Company, Limited and consolidated subsidiaries as of March 31, 2011 and 2010, and the related consolidated statements of income, changes in net assets and cash flows for each of the years in the three-year period ended March 31, 2011, and the related consolidated statements of comprehensive income for each of the years in the two-year period ended March 31, 2011 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 audits. We conducted our audits 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 audits provide a reasonable basis for our opinion. In our opinion, the 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, 2011 and 2010, and the consolidated results of their operations and their cash flows for each of the years in the three-year period ended March 31, 2011, in conformity with accounting principles generally accepted in Japan. The U.S. dollar amounts in the accompanying consolidated financial statements with respect to the year ended March 31, 2011 are presented solely for convenience of the reader. Our audit also included the translation of yen amounts into U.S. dollar amounts and, in our opinion, such translation has been made on the basis described in Note 1 to the consolidated financial statements. Tokyo, Japan June 24, 2011 SHISEIDO ANNUAL REPOR T 2011 103 Investor Information (As of March 31, 2011) Number of Shareholders 68,266 Common Shares Issued and Outstanding 400,000,000 (including 2,052,792 in treasury stock) Principal Shareholders Composition of Shareholders Shareholders Number of shares held (thousands) Percentage of shareholding 27,899 23,526 16,964 7.01 5.91 4.26 12,072 11,744 11,277 9,055 8,000 7,798 6,815 3.03 2.95 2.83 2.27 2.01 1.95 1.71 The Master Trust Bank of Japan, Ltd. (Trust Account) Mizuho Bank, Ltd. Japan Trustee Services Bank, Ltd (Trust Account) The Bank of New York Mellon as Depositary Bank for Depositary Receipt Holders* Asahi Mutual Life Insurance Company NIPPONKOA Insurance Company, Ltd. Shiseido Employees’ Stockholding Mitsui Sumitomo Insurance Company, Limited Nippon Life Insurance Company SSBT OD05 OMNIBUS ACCOUNT - TREATY CLIENTS Other Japanese Companies 5.18% Treasury Stock 0.51% Securities Companies Foreign Investors 2.44% Financial 25.81% Institutions Individuals 43.14% 22.90% Calculations of percentage of shareholding are based on the total number of issued and outstanding shares and treasury stock. * T he Bank of New York Mellon as Depositary Bank for Depositary Receipt Holders is an owner of record for The Bank of New York Mellon, a depositary for American depositary receipts. Monthly Share Price Range and Trading Volume (¥) Share Price 3,500 Trading Volume Composition of Shareholders (%) (Nikkei Stock Average) Nikkei Stock Average (Closing Price) 18,000 3,000 14,000 2,500 10,000 6,000 2,000 (Thousands of shares) 1,500 120,000 1,000 80,000 500 40,000 0 04/08 03/09 03/10 03/11 (By number of shares) 2010 Foreign Investors 25.75 Individuals 19.34 Financial Institutions 44.37 Securities Companies 2.47 Other Japanese Companies 5.05 Treasury Stock 2.98 2011 25.81 22.90 43.14 2.44 5.18 0.51 (By number of shareholders)2010 2011 0.76 97.80 0.27 0.11 1.03 0.00 Foreign Investors 1.12 Individuals 97.12 Financial Institutions 0.36 Securities Companies 0.09 Other Japanese Companies 1.28 Treasury Stock 0.00 0 Stock Price Indicators Price/Earnings Ratio (PER) Price/Book Value Ratio (PBR) Dividend Yield (Times) 4.0 ( Times) 60 (%) 4.0 3.5 44.8 40 39.3 3.0 2.5 30.6 3.0 2.8 2.3 29.9 2.0 2.5 1.9 1.7 24.0 20 03/07 03/08 03/09 03/10 03/11 Note: Price/Earnings Ratio = Closing stock price at fiscal year-end/Net income per share 104 SHISEIDO ANNUAL REPOR T 2011 0.0 2.0 1.0 1.0 0 03/07 03/08 3.5 03/09 03/10 03/11 Note: Price/Book Value Ratio = Closing stock price at fiscal year-end/Net assets per share 0.0 1.3 1.3 03/07 03/08 03/09 03/10 03/11 Note: Dividend Yield = Cash dividends per share/ Closing stock price at fiscal year-end Corporate Information (As of March 31, 2011) Head Office Shiseido Company, Limited 5-5, Ginza 7-chome, Chuo-ku Tokyo 104-0061, Japan Tel: +81-3-3572-5111 Foundation September 17, 1872 Incorporation June 24, 1927 Capital ¥64,506,725,140 Number of Employees 31,310[12,977] Note: T he number of employees shown denotes full-time employees. Annual average number of temporary employees is shown in brackets. Temporary employees are part-time workers and non-regular staff. Dispatched employees are excluded. Stock Listings Common Stock: Tokyo Stock Exchange (Code: 4911) American Depositary Receipts: U.S. Over-the-Counter American Depositary Receipts CUSIP: 824841407 Ratio (ADR:ORD):1:1 Exchange: OTC (Over-the-Counter) Symbol: SSDOY Depositary: The Bank of New York Mellon 101 Barclay Street, 22W New York, NY 10286, U.S.A. Accounting Auditors KPMG AZSA & Co. Share Registrar The Chuo Mitsui Trust and Banking Company, Ltd. 33-1, Shiba 3-chome, Minato-ku, Tokyo 105-8574, Japan Fiscal Year-End March 31 Shareholders’ Meeting The Ordinary General Meeting of Shareholders is normally held in June in Tokyo. For further information, please contact Investor Relations Department Shiseido Company, Limited 6-2, Higashi-shimbashi 1-chome, Minato-ku, Tokyo 105-8310, Japan Tel: +81-3-6218-5530 Fax:+81-3-6218-5544 E-mail: irmail@to.shiseido.co.jp Website Global Website http://www.shiseido.com/ Investor Relations Website http://www.shiseido.co.jp/e/ir/ This mark certifies use of the Certificate of Green Electricity through Solar Power provided by Tuvalu-Forest Corporation. This report was printed using green electricity generated from solar power, which produces no CO 2 emissions, thus helping counter global warming. SHISEIDO ANNUAL REPOR T 2011 105
Similar documents
Annual Report 2013 [PDF:7.1MB]
Shiseido commenced operations as Japan’s first Western-style pharmacy in Tokyo’s Ginza district 141 years ago in 1872. The name Shiseido derives from a Chinese expression meaning “praise the virtu...
More information