Shiseido fy2011 con

Shiseido Co., Ltd. (4911) Fiscal Year Ended March 2012

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The figures for these Financial Statements are prepared in accordance with the accounting principles based on Japanese law. Accordingly, they do not necessarily match the figures in the Annual Report issued by the Company, which present the same statements in a form that is more familiar to foreign readers through certain reclassifications or summarization of accounts.

Consolidated Settlement of Accounts for the Fiscal Year Ended March 31, 2012

[Japanese Standards]

Shiseido Company, Limited

Listing: Tokyo Stock Exchange, First Section (Code Number: 4911) Head Office: Tokyo, Japan URL: http://www. group shiseido.com/ Representative: Hisayuki Suekawa, President/CEO & Representative Director Contact: Akihiro Miyasaka, General Manager, Head of Investor Relations Department

Tel. +81-3-6218-5532 Annual Meeting of Shareholders: June 26, 2012 (plan) Filing of Financial Report: June 26, 2012 (plan) Start of cash dividend payments: June 27, 2012 (plan) Supplementary materials prepared: Yes (Supplementary information will be uploaded to the

Shiseido Website on Friday, April 27, 2012) Financial results information meeting held: Yes (for investors and analysts, etc.)

1. Performance in the Fiscal Year Ended March 31, 2012 (April 1, 2011–March 31, 2012) * Amounts under one million yen have been rounded down.

(1) Consolidated Operating Results (Millions of yen; percentage figures denote year-on-year change)

Net Sales Operating Income Ordinary Income Net Income

Fiscal Year Ended Mar. 2012 682,385 [+1.7%] 39,135 [–12.0%] 39,442 [–11.3%] 14,515 [+13.5%]

Fiscal Year Ended Mar. 2011 670,701 [+4.1%] 44,458 [–11.7%] 44,480 [–13.6%] 12,790 [–62.0%]

Note: Comprehensive income: Fiscal year ended Mar. 2012: ¥5,456 million (—%) Fiscal year ended Mar. 2011: –¥18,260 million (—%)

The Company has applied Accounting Standard for Accounting Changes and Error Corrections (ASBJ Statement No. 24, December 4, 2009) and Guidance on Accounting Standard for Accounting Changes and Error Corrections (ASBJ Guidance No. 24, December 4, 2009). This change has been applied retrospectively to Consolidated Financial Statements for the year ended March 31, 2011. For more details, please refer to “(7) Changes in Accounting Policies” on page 25 of this report.


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Net Income per Share

(Yen)

Fully Diluted Net Income per Share

(Yen)

Return on Equity

Ordinary Income/

Total Assets

Operating Income/

Net Sales

Fiscal Year Ended Mar. 2012 36.47 36.44 4.9% 5.4% 5.7%

Fiscal Year Ended Mar. 2011 32.15 32.10 3.9% 5.9% 6.6% Reference: Equity in earnings of affiliates: Fiscal year ended Mar. 2012: –¥122 million Fiscal year ended Mar. 2011: ¥33 million The Company has applied Accounting Standard for Accounting Changes and Error Corrections (ASBJ Statement No. 24, December 4, 2009) and Guidance on Accounting Standard for Accounting Changes and Error Corrections (ASBJ Guidance No. 24, December 4, 2009). This change has been applied retrospectively to Consolidated Financial Statements for the year ended March 31, 2011. For more details, please refer to “(7) Changes in Accounting Policies” on page 25 of this report.

(2) Consolidated Financial Position

(Millions of yen, except for per share figures)

Total Assets

Net Assets

Equity Ratio

(%)

Net Assets per Share

(Yen)

Fiscal Year Ended Mar. 2012 720,707 303,715 40.3% 729.89

Fiscal Year Ended Mar. 2011 739,120 320,127 41.6% 772.14

Reference: Equity at year-end (consolidated): Fiscal year ended Mar. 2012: ¥290,494 million Fiscal year ended Mar. 2011: ¥307,269 million Note: Above figures for Year-End Cash Dividends Per Share (Year-End), Cash Dividends per Share (Full Year), Total Dividends

Paid (Full Year), Payout Ratio (Consolidated), and Dividends Paid/Net Assets (Consolidated) pertaining to the year ended March 31, 2012 are based on estimated figures as of April 27, 2012.

(3) Consolidated Cash Flows

(Millions of yen)

Cash Flows fromOperating Activities

Cash Flows fromInvesting Activities

Cash Flows from Financing Activities

Cash and Cash Equivalents at

Year-End

Fiscal Year Ended Mar. 2012 52,599 (20,668) (35,482) 82,974

Fiscal Year Ended Mar. 2011 67,586 (30,303) (39,571) 88,592

2. Cash Dividends

Cash Dividends per Share (Yen)

(Cut-off Date) 1Q 2Q 3Q Year-End Full Year

Total Dividends Paid

(Full Year) (Millions of Yen)

Payout Ratio (Consolidated)

Dividends Paid/Net Assets

(Consolidated)

Fiscal Year Ended Mar. 2011

— 25.00 — 25.00 50.00 19,895 155.5% 6.1%


— 25.00 — 25.00 50.00 19,899 137.1% 6.7%

Fiscal Year Ending Mar. 2013 (plan)

— 25.00 — 25.00 50.00 90.5%


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3. Projections for the Fiscal Year Ending March 2013 (April 1, 2012–March 31, 2013)

(Millions of yen, except per share figures; percentage figures denote year-on-year change)

Net Sales Operating

Income Ordinary Income

Net Income Net Income per Share

(Yen) First Half Ending Sept. 2012

345,000 [+2.6%] 17,500 [–18.7%] 17,500 [–19.8%] 8,000 [–12.0%] 20.10

Fiscal Year Ending Mar. 2013

720,000 [+5.5%] 43,500 [+11.2%] 43,500 [+10.3%] 22,000 [+51.6%] 55.28

Notes (1) Significant changes in subsidiaries during period (changes in specific subsidiaries due to change in

scope of consolidation): None

(2) Changes in accounting policies; changes in accounting estimates; restatements 1) Changes in accounting policies due to amendment of accounting standards: Yes 2) Other changes in accounting policies: Yes 3) Changes in accounting estimates: None 4) Restatements: None

(3) Shares outstanding (common stock) at year-end

1. Number of shares outstanding (including treasury stock) Fiscal year ended Mar. 2012: 400,000,000 Fiscal year ended Mar. 2011: 400,000,000

2. Number of treasury shares outstanding Fiscal year ended Mar. 2012: 2,002,324

Fiscal year ended Mar. 2011: 2,052,792

3. Average number of shares over period Fiscal year ended Mar. 2012: 397,974,132

Fiscal year ended Mar. 2011: 397,864,059 Note: For information on number of shares used as basis for calculating net income per share, please refer to “(Per Share

Data)” on page 29.

Implementation status of review procedures At the time of disclosure of this report, review procedures for financial statements pursuant to the Financial Instruments and Exchange Act had not been completed. Appropriate use of business forecasts; other special items In this document, statements other than historical facts are forward-looking statements that reflect our plans and expectations. These forward-looking statements involve risks, uncertainties and other factors that may cause our actual results and achievements to differ from those anticipated in these statements. Please refer to page 5 “1. Operating Results, 1.1 Analysis of Operating Results, (4) Outlook for the Fiscal Year Ending March 31, 2013” for information on preconditions underlying the above outlook and other related information.


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Contents 1. Operating Results ········································································································································ 5

(1) Analysis of Operating Results·············································································································· 5

(2) Analysis of Financial Position ··········································································································· 10

(3) Basic Income Distribution Policy; Cash Dividends··········································································· 11

(4) Business and Other Risks··················································································································· 14

2. The Shiseido Group··································································································································· 12

3. Management Policies································································································································· 12

(1) Basic Corporate Policies ···················································································································· 12

(2) Medium- and Long-Term Management Strategies and Numerical Management Targets ················· 13

(3) Issues to Address································································································································ 13

4. Consolidated Financial Statements············································································································ 17

(1) Consolidated Balance Sheets ············································································································· 17

(2) Consolidated Statements of Income··································································································· 19

(3) Consolidated Statements of Changes in Shareholders’ Equity ·························································· 21

(4) Consolidated Statements of Cash Flows···························································································· 23

(5) Note on Assumptions for Going Concern·························································································· 25

(6) Basis of Presenting Consolidated Financial Statements ···································································· 25

(7) Changes in Accounting Policies········································································································· 25

(8) Supplementary Information ··············································································································· 26

(9) Notes Concerning Consolidated Financial Statements ······································································ 26

5. Other ·························································································································································· 30


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1. Operating Results (1) Analysis of Operating Results (Review of Performance in the Fiscal Year Ended March 2011) In the fiscal period under review (year ended March 31, 2012), consolidated net sales totaled ¥682.4 billion, up 1.7% from the previous year. Domestic sales edged down 0.8%, to ¥380.0 billion, due to several factors. In addition to a changing market structure—characterized by polarization towards high-priced and low-priced products since the so-called Lehman Shock—theses included the impact of the Great East Japan Earthquake and ongoing overall market contraction. By contrast, overseas sales increased 5.1%, to ¥302.4 billion, bolstered by sustained growth in Europe and the United States, together with continued high growth rates in Asia, especially in China. This was despite the impact of the strong yen. (For overseas subsidiaries, the “fiscal year” refers to the period from January 1 to December 31, 2011.) Although the Group worked hard to improve the cost of sales ratio and emphasize efficient expenditure allocations, operating income declined 12.0%, to ¥39.1 billion. This was due aggressive marketing investments targeting growth in Japan and overseas. Ordinary income fell 11.3%, to ¥39.4 billion. Despite the decrease in operating income, net income rose 13.5%, to ¥14.5 billion, owing mainly to a significant decline in the previous year caused by extraordinary losses.

Consolidated Performance

(Sales) (Millions of yen)

Year-on-Year Increase/Decrease

Fiscal Year Ended Mar.

2012

Share of Total

(%)


2011

Share of Total

(%) Amount % change

Domestic Cosmetics Business

353,789 51.8% 358,408 53.4% –4,619 –1.3%

Global Business 319,678 46.9% 302,632 45.1% +17,046 +5.6%

Others 8,917 1.3% 9,660 1.5% –742 –7.7%

Sales Total 682,385 100.0% 670,701 100.0% +11,684 +1.7%

Domestic Sales 379,963 55.7% 382,866 57.1% –2,902 –0.8%

Overseas Sales 302,422 44.3% 287,835 42.9% +14,586 +5.1%

(Income) Year-on-Year

Increase/Decrease


2012

Ratio to Net Sales

(%)


2011

Ratio to Net Sales

(%) Amount % change


29,459 8.3% 33,573 9.3% –4,114 –12.3%

Global Business 8,212 2.6% 9,025 3.0% –813 –9.0%

Others 1,381 9.9% 1,838 11.4% –457 –24.9%

Elimination 82 — 20 — +61 —

Operating Income Total 39,135 5.7% 44,458 6.6% –5,323 –12.0%

Ordinary Income 39,442 5.8% 44,480 6.6% –5,037 –11.3%

Net Income 14,515 2.1% 12,790 1.9% +1,724 +13.5%


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(Review by Reportable Segment)

(1) Domestic Cosmetics Business Sales In the Domestic Cosmetics segment, sales were down 1.3%, to ¥353.8 billion. In the cosmetics business category, sales declined year-on-year, but the decrease was slight. Sales in the healthcare business were maintained at previous-year levels. In the cosmetics business, we stepped up efforts centered on new products and worked exhaustively to raise product value and refine our customer-oriented proposals activities. From the perspective of raising product value, we reduced the number of new product launches to around half, while releasing only carefully selected products deemed to be highly supported by customers. We also focused on nurturing current mainstay products. With respect to customer-oriented proposals activities, we concentrated on customers’ lifestyle changes and latent needs, and proposed solutions to help customers lead comfortable lives, free of displeasure and dissatisfaction. This started with “Cool Life Proposal”, aimed at helping customers stay cool and comfortable during the electricity shortages in summer, and was followed by “Healing Proposal” in autumn, “Warm Winter Life Proposal” in winter, and “Refreshing Life Proposal” in spring. In these ways, we deployed our products and product lineups, complemented by information and hands-on communication, to propose solutions geared to season-specific life realities via all possible channels. As a result, a number of offerings performed well during the year. These included clé de Peau Beauté, a top-end prestige brand; the MAQUillAGE makeup mega line, promoted as a long-seller by honing the number of core products; the Integrate self makeup line, which benefited from continued popularity of its mascaras and eye liners; and the TSUBAKI hair-care brand, which underwent renewals of both content and communication strategy. We also developed a new business model that combines the Internet with brick-and-mortar stores to create new customer interface opportunities, with a view to launch in April 2012. In the healthcare business category, we maintained sales on a par with the previous year. Amid intensifying competition in the market for collagen-related foods, in addition the mainstay The Collagen line of skin rejuvenation food, we launched Bénéfique Collagen Royal Rich as part of the Bénéfique line, sold exclusively to cosmetics specialty stores. In these ways, we upgraded our lineup of collagen-related products. Operating Income The Domestic Cosmetics segmented posted a 12.3% decline in operating income, to ¥29.5 billion. This was due to a marginal decrease stemming from the fall in revenue, as well as aggressive marketing investments aimed at growth. (2) Global Business Sales Sales in the Global Business segment rose 5.6%, to ¥319.7 billion, thanks to various factors. These included continued strong growth in Europe and North America, sustained high growth rates in Asia, including China, and a healthy performance by the professional business. Sales in local-currency terms increased 12.2%. At the prestige end of the cosmetics business, the global brand SHISEIDO achieved sales growth in various world countries. Key performers here included the SHISEIDO Benefiance anti-aging line and the SHISEIDO Future Solution LX premium skincare line. In addition, the NARS makeup artist brand generated a significant sales increase, especially in North America. In addition, the designer fragrances sold by Beauté Prestige International posted healthy sales growth, highlighted by the launch of the Elie Saab fragrance in July 2011, and the travel retail business also performed well. Moreover, we made a solid start to our online sales business in the United States.


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During the year, we strengthened sales in existing North American stores of Bare Mineral, a mineral-based makeup brand of Bare Escentuals, Inc., acquired in 2010. We also launched Ready, a new solid-type makeup, which contributed to continued growth. In the top-priority Chinese market, we faced intensifying competition from European, North American, and other companies. In the department store channel, Aupres, a dedicated brand for the Chinese market, maintained a healthy performance, benefiting from a renewal of its complexion-lightening skincare line. Other highlights included continued solid performances by URARA, a dedicated brand for Chinese cosmetics specialty stores, and Pure & Mild. Overall, therefore, we achieved sales growth well in excess of overall Chinese market growth. In addition, we made a solid start to our online sales business in that nation. In the Asian masstige market, we posted higher sales of Za, a comprehensive skincare and makeup brand targeting middle-income earners. We also undertook a full-scale rollout of the TSUBAKI brand in China, and we introduced Senka, a highly functional skincare brand in the low-price segment, in Taiwan, Hong Kong, and elsewhere.

In newly emerging nations, we continued expanding sales in Russia. We also enjoyed business growth in new markets, launching sales in Panama, Armenia, Belarus, and other nations. As of December 31, 2011, the global brand SHISEIDO had a presence in 87 nations (including Japan). In the professional division, we enjoyed a major market hit in Japan with The Hair Care Adenovital, a next-generation hair-growth treatment incorporating “adenosine”, an active medicinal ingredient. Overseas, we reported a sales increase in China, where the market growth has been significant. Three other Group companies also recorded higher sales: Carita and Decléor, which sell products to esthetic and beauty salons, mainly in Europe; and Zotos International, which sells products to beauty salons, mainly in North America. Accordingly, the professional division enjoyed steady year-on-year sales growth. Operating Income Operating income in the Global Business segment declined 9.0%, to ¥8.2 billion. This was due primarily to aggressive investments in growth markets, centering on China. (3) Others Sales Sales from other business declined 7.7%, to ¥8.9 billion. In the frontier sciences division, sales of cosmetics and bio-hyaluronic acid, a medical-use pharmaceutical products, performed well. We also increased sales of Navision, a line of cosmetics for medical institutions derived from our beauty care skin research. In addition, we augmented the 2e line of hypoallergenic cosmetics for medical institutions with the launch of 2e Baby Plus, a line for infants and young children, attracting a favorable response. Due to our withdrawal from low-profit medical-use pharmaceuticals in the previous year, however, year-on-year sales of other businesses were down. Operating Income Operating income in this segment fell 24.9%, to ¥1.4 billion, due to a marginal loss stemming from the sales decline.


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(Outlook for the Fiscal Year Ending March 2013) Consolidated Net Sales

(Billions of yen)


Fiscal Year Ending Mar. 2013 (Estimate)


(Results) Amount % change

Domestic Cosmetics business Global Business Others

365.5 345.5

9.0

353.8 319.7

8.9

11.7 25.8

0.1

3.3% 8.1% 0.9%

Net Sales 720.0 682.4 37.6 5.5%

Domestic Sales 393.0 380.0 13.0 3.4%

Overseas Sales 327.0 302.4 24.6 8.1%

Overseas Sales Ratio 45.4% 44.3%

Consolidated Income

(Billions of yen) Year-on-Year

Increase/Decrease

Fiscal Year Ending

Mar. 2013 (Estimate)

Percent of Net Sales

Fiscal Year Ended

Mar. 2012(Results)

Percent of

Net Sales Amount % change

Operating Income 43.5 6.0% 39.1 5.7% 4.4 11.2%

Ordinary Income 43.5 6.0% 39.4 5.8% 4.1 10.3%

Net Income 22.0 3.1% 14.5 2.1% 7.5 51.6%

Consolidated Performance Indicators

Fiscal Year Ending Mar. 2013

(Estimate)


(Results)


Return on Equity 7.5% 4.9% 2.6%

Net Income per Share (Yen) 55.28 36.47 18.81

Payout Ratio consolidated 90.5% 137.1% –46.6%

Dividends per Share (Yen): Interim Year-End

25.00 25.00

25.00 25.00 (plan)

— —

In the year ending March 2013, the Group projects a year-on-year increase in net sales after considering several factors. These include a recovery in domestic sales, ongoing revenue growth in Europe and North America, and expanded sales in China and newly emerging nations. By contrast, earnings will be affected by our continued strengthening of marketing investments in Japan and overseas aimed at future growth. Owing to the marginal gain stemming from higher net sales, however, we look forward to year-on-year increases in operating income and ordinary income. For the year, we forecast consolidated net sales of ¥720 billion (up 5.5% year-on-year), operating income of ¥43.5 billion (up 11.2%), ordinary income of ¥43.5 billion (up 10.3%), and net income of ¥22 billion (up 51.6%).


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Outlook by Reportable Segment Domestic Cosmetics Business In the year ending March 2013, we expect the domestic cosmetics market to follow a moderate recovery path, despite some uncertainty about the future. In our Domestic Cosmetics segment, we will emphasize customer-oriented proposal activities tailored to each season while making products that attract enduring customer loyalty. In these and other ways, we will work to raise product value and target sales growth via ongoing refinement of our marketing activities. After also considering sales from our new business model, which uses the Internet and was launched in April 2012, we project a year-on-year increase in segment sales. We also look forward to growth in segment operating income thanks to the marginal gain from higher segment sales. This is despite stepped up investments related to marketing investments in existing businesses. Global Business The pace of growth in the European cosmetics market is slowing due to the impact of the financial crisis. The North American cosmetics market is expected to maintain positive growth amid an economic recovery trend, despite some uncertainty. In Asia, meanwhile, we look forward to continued market growth, especially in China. In this context, the Shiseido Group will strive for renewed business growth through several initiatives. These include concentrated investments in six brands under our Global Mega-Brand Strategy, continued fostering of our designer fragrance and makeup artist brands, allocation of business resources into the growth-engine Chinese market as a top priority, and enhanced responses to newly emerging markets. Through these efforts, we forecast a year-on-year increase in segment sales on a local-currency basis. We also expect a year-on-year rise in segment operating income, despite the effects of the strong yen and higher marketing costs. Others Going forward, we will continue striving to reinforce our presence in the frontier science division, which is underpinned by cosmetics raw materials, medical-use pharmaceuticals, chromatography-related machinery, and cosmetics for medical institutions. For the segment, we forecast that sales and operating income will remain mostly unchanged. We base our predictions on exchange rates of ¥80 per U.S. dollar, ¥105 per euro, and ¥12.5 per Chinese yuan. (Reference) Parent Company and Group Subsidiaries: Review by Geographical Area and Overseas Sales Parent Company and Group Subsidiaries: [Sales by Geographic Area]

(Millions of yen) Year-on-Year

Increase/Decrease

Fiscal Year Ended March

2012

Share of Total (%)


2011

Share of Total (%)

Amount % change

Japan 381,328 55.9% 383,847 57.2% –2,518 –0.7%

Americas Europe Asia/Oceania

86,752 89,218

125,086

12.7% 13.1% 18.3%

85,461 84,322

117,070

12.7% 12.6% 17.5%

+1,290 +4,895 +8,015

+1.5% +5.8% +6.8%

Outside Japan 301,057 44.1% 286,854 42.8% +14,202 +5.0%

Net Sales 682,385 100.0% 670,701 100.0% +11,684 +1.7%


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Parent Company and Group Subsidiaries: [Operating Income by Geographic Area]

(Millions of yen)



2012

Share of Total (%)


2011

Share of Total (%)

Amount % change

Japan 12,535 3.0% 16,665 4.1% –4,129 –24.8%


4,784 5,154

14,510

5.0%5.5%

11.4%

1,563 6,388

16,910

1.6% 7.2%

14.3%

+3,220 –1,233 –2,399

+205.9% –19.3% –14.2%

Outside Japan 24,449 7.7% 24,862 8.2% –412 –1.7%

Elimination 2,149 — 2,930 — –780 —

Operating Income 39,135 5.7% 44,458 6.6% –5,323 –12.0%

[Overseas Sales (by Destination)] (Millions of yen)

Year-on-Year Increase/Decrease Fiscal Year

Ended March 2012

Share of Total (%)


2011

Share of Net Sales Amount % change

% change in local

currency terms


90,484 82,219

129,717

13.3%12.0%19.0%

87,59078,193

122,051

13.1% 11.6% 18.2%

+2,894+4,026+7,666

+3.3% +5.1% +6.3%

+13.2%+10.7%+11.7%

Overseas Sales 302,422 44.3% 287,835 42.9% +14,586 +5.1% +11.9%

(2) Analysis of Financial Position As of March 31, 2012, total assets amounted to ¥720.7 billion, down ¥18.4 billion from a year earlier. The decline stemmed mainly from the yen’s appreciation. Total liabilities decreased ¥2.0 billion, due largely to repayment of interest-bearing debt, and net assets were down ¥16.4 billion. Accordingly, the equity ratio at fiscal year-end was 40.3%, down 1.3 points from 41.6% a year earlier. Net cash provided by operating activities amounted to ¥52.6billion. Net cash used in investing activities totaled ¥20.7 billion. This was mainly due to purchases of property, plant, and equipment. Net cash used in financing activities was ¥35.5 billion, due primarily to repayment of interest-bearing debt and cash dividend payments. As a result, cash and cash equivalents at the end of the year amounted to ¥83.0 billion, down ¥5.6 billion from March 31, 2010. In the year ahead, we do not expect cash and cash equivalents to change significantly.


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Consolidated Cash Flows (Summary) (Billions of yen)

Cash and Cash Equivalents at Beginning of Term 88.6

Net Cash Provided by Operating Activities 52.6

Net Cash Used in Investing Activities (20.7)

[Investments in Fixed Assets] [(29.2)] *

Net Cash Used in Financing Activities (35.5)

Effect of Exchange Rate Changes on Cash andCash Equivalents

(2.1)

Net Change in Cash and Cash Equivalents (5.6)

Cash and Cash Equivalents at End of Term 83.0

As shown below, until the year ended March 2009 the equity ratio was above 50% based on book value.

Due to a significant increase in total assets associated with the Bare Escentuals acquisition in the year ended March 2010, however, the equity ratio has fallen to the 40% range. At March 31, 2012, the equity ratio based on market price was mostly unchanged from a year earlier (in the 70% range). The debt repayment term (3.5 years) is generally regarded as a safe level.

Cash Flow Indexes

Fiscal Year Ended

Mar. 2008

Fiscal Year Ended

Mar. 2009

Fiscal Year Ended

Mar. 2010

Fiscal Year Ended

Mar. 2011

Fiscal Year Ended

Mar. 2012

Equity Ratio (%) 56.6 55.6 44.9 41.6 40.3

Equity Ratio Based on Market Price (%) 157.6 95.0 104.1 77.5 78.9

Debt Repayment Term (Years) 0.8 1.5 3.1 2.9 3.5

Interest Coverage Ratio (Times) 39.1 23.6 45.4 32.8 27.3 Notes: 1. Equity ratio: (Net assets – Stock acquisition rights – Minority interests) ÷ Total assets Equity ratio based on market price: Market value of total stock ÷ Total assets Debt repayment term: Interest-bearing debt ÷ Operating cash flows Interest coverage ratio: Operating cash flows ÷ Payment of interest expenses 2. Each index is calculated based on consolidated financial figures. 3. Market value of total stock is calculated by multiplying the closing stock price at the end of the term by the number of shares

outstanding at the end of the term (after deduction of treasury stock). 4. Interest-bearing debt refers to all liabilities listed in Consolidated Balance Sheets that incur interest. For payment of interest

expenses, amounts shown in the Consolidated Statements of Cash Flows are used. 5. Previously, the Company’s subsidiaries in the Americas treated product samples and promotional materials used in retail store

sales activities as assets at the time of acquisition and expenses at the time of shipment to customers, i.e, retail stores. Effective the fiscal year in review, however, such items are now treated as expenses at the time of acquisition, in the interests of consistency in internal Group accounting treatment. The change in policy has been applied retrospectively to the Consolidated Financial Statements for the previous fiscal year. As a result of this change, in the previous fiscal year, the equity ratio declined 0.1 point and the equity ratio based on market price increased 0.1 point, compared with the previous accounting method.

(3) Basic Income Distribution Policy; Cash Dividends Our total shareholder return policy emphasizes maximizing returns to shareholders through direct means, in addition to generating medium- and long-term share price gains. To this end, our fundamental policy is deploy to growth-oriented strategic investments to drive increases in earnings and improvements in capital efficiency, which will lead to medium- and long-term increases in dividends and higher share prices. Going forward, our medium-term profit return objective is to achieve a consolidated dividend payout ratio of 40%. To this end, we will prioritize payment of stable dividends while implementing share buybacks in a flexible manner.

*Investments in Fixed Assets (Billions of yen) Acquisition of Property, Plant, and Equipment

(17.7)

Increase in Intangibles (7.0)

Long-Term Prepaid Expenses (4.5)


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The Company plans to declare a year-end cash dividend of ¥25.00 per share, as originally planned. Coupled with the ¥25.00 interim dividend, this will bring total annual dividends to ¥50.00 per share. The consolidated dividend payout ratio will be 137.1% due partly to the decline in net income stemming from an increase in deferred income taxes. In the fiscal year ending March 2013, we plan to pay interim and year-end dividends of ¥25.00 per share each, for total annual dividends of ¥50.00.

(4) Business and Other Risks Business and other risks that could potentially affect the Shiseido Group are described in its most recent Securities Report (filed on June 24, 2011). Since there are no major changes, that section has been omitted from this report. (Shiseido Website) http://group.shiseido.co.jp/ir/library/syoken/pdf/2010/1103all.pdf

2. The Shiseido Group For details about major changes in subsidiaries during the period, please refer to “Scope of Consolidation” under “(6) Basis of Presenting Consolidated Financial Statements” on page 25.

3. Management Policies

(1) Basic Corporate Policies Shiseido has a corporate philosophy—“Our Mission, Values and Way”—that transcends nations, organizations, and brands. This philosophy sets a course for all of our activities and ensures that each and every employee shares the Shiseido raison d’être and spirit. “Our Mission” sets out a universal identity that forms the foundation of the Shiseido Group by identifying how and with what we can play a useful role in society. “Our Values” establishes the approach shared by all Group employees in order to realize “Our Mission.” “Our Way” sets out the conduct required of employees when working with different stakeholders in order to accomplish “Our Mission.” It sets out standards of behavior that include not only complying with the laws and regulations of each country or region and in-house regulations, but also performing duties to the highest of ethical standards.

[Our Mission] We cultivate relationships with people We appreciate genuine, meaningful values We create beauty, we create wellness

[Our Values] In Diversity, Strength In Challenge, Growth In Heritage, Excellence


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[Our Way] Toward Consumers Toward Business Partners Toward Shareholders Toward Employees Toward Society and the Earth

(2) Medium- and Long-Term Management Strategies and Numerical

Management Targets The Shiseido Group is implementing its three-year business plan (covering the period from April 2011 to March 2014), designed to help the Group enter a growth trajectory. Guided by the plan, the Group seeks to become a “global player representing Asia with its origins in Japan.” Under the plan, we are promoting four growth strategies: “Global Mega Brand Strategy,” “Asia Breakthrough Strategy,” “New Frontier Strategy,” and “Customer First Strategy.” The top priority of this initiative is to energize our Domestic Cosmetics business segment and accelerate the globalization of our operations. By promoting the aforementioned growth strategies, we are targeting annual average growth of 6% or more for net sales over the three-year period of the plan and achievement of a 10% operating margin during the three-year period. However, economic conditions have changed since the plan was formulated. For this reason, it will be difficult to achieve the operating margin target during the three-year period of the plan. At present, therefore, our projection is to reach 8%. (3) Issues to Address 1. Three-Year Plan The Shiseido Group is pursuing targets of net sales in excess of ¥1 trillion (over 50% overseas sales), an operating margin of 12% or higher, and consolidated ROE of 15% or higher by the year ending March 2018. By achieving these targets, the Group seeks to become a “global player representing Asia with its origins in Japan.” Under our three-year plan, which started in the year under review, we are pursuing the following three visions: “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.” These visions are designed the guide Group along its desired medium- and long-term future path based on our newly formulated corporate philosophy—“Our Mission, Values and Way.” To realize these visions and achieve our aspirations, we are pursuing four growth strategies: “Global Mega Brand Strategy,” “Asian Breakthrough Strategy,” “New Frontier Strategy,” and “Customer-First Strategy.” We have positioned the period ending March 2013 as a “year for growth realization,” during which we will continue pursuing the aforementioned growth strategies. Global Mega-Brand Strategy Shiseido aims to become a “Global Multiple Brands Company” possessing multiple brands that achieve sales of between ¥50 billion and ¥100 billion and are competitive with other major companies. Up until now, we have enhanced the unique brand values and increased the presence of globally developed brands that originate from Japan, Europe, and North America. Under the three-year plan, by looking at markets that transcend regional boundaries we have selected six brands that we will focus on developing as “global mega brands.” These consist of three prestige brands (global brand SHISEIDO, clé de Peau Beauté, and Bare Escentuals) and three masstige brands (Za, Senka, and TSUBAKI). Asian Breakthrough Strategy Shiseido aims to expand its overall share in Asian markets, which are expected to become the world’s largest in the near future, by designating Asia as its most important area. To this end, we will proactively engage in efforts to achieve growth and share expansion in China, which is the largest growth market, while


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also strengthening initiatives in East Asian countries and Southeast Asian nations. Additionally, in the domestic market we will seek to create value and enhance the activities of our salespeople and beauty consultants, placing top priority on growth recovery. New Frontier Strategy In order to swiftly address the rapidly changing consumer and distribution environments, we will introduce a new business model aimed at creating touchpoints with customers. In addition, we will step up Internet sales efforts in North America and China. We will also accelerate the rate of growth by strengthening expansion into rapidly growing areas, centering on emerging countries. Customer-First Strategy This strategy forms the cornerstone of the three-year plan, because it affects all corporate activities. The term “customer first” has two meanings. One means implementing activities that put customers above everything else in all initiatives, and the other means becoming No. 1 in terms of customer support worldwide through ongoing improvements in the quality of customer responses. We will build a framework conducive to sharing information—such as past successes in various business locations and opinions received from customers—laterally across segment and geographical lines. In the process, we will accelerate improvements in product creation and the quality of our store-level responses. (2) Initiatives for Year Ending March 2013 Domestic Cosmetics Business New business model In Japan, we will introduce a new business model designed to generate synergies between the Internet and brick-and-mortar retail stores. In April 2012, we launched Beauty & Co., a collaboration website for companies involved in beauty and health, as well as watashi+ (pronounced “watashi plus”), a next-generation beauty solution service linking stores with the Internet. Under Beauty & Co., we will seek to create new interfaces between participating companies and customers and promote collaboration between companies in different business fields, with the aim of creating added value and delivering new products and services to customers. With respect to watashi+, we will provide online counseling services, introduction and search services for brick-and-mortar stores, and “makeup simulation” (Internet-based service enabling customers to enjoy a more varied makeup experience), in order to provide each and every customer with optimal beauty-related solutions derived from abundant content devoted to beauty. It will also incorporate an online sales service. Refining product creation, sales, and response activities We will continue working to improve product value and refine our customer consulting activities, while promoting season-specific proposal activities and strengthening efforts to foster existing products, centering on mainstay products. We will also increase the pace of growth by concentrating investments on specific brands, including the global mega brand clé de Peau Beauté, the global brand SHISEIDO, Senka, and TSUBAKI. In addition, we will target reforms across all facets of our corporate activities aimed at generating added value for customers—from R&D and production to marketing, advertising, sales, and store-level responses. By creating new levels of value built on proven technological prowess, we will strengthen and improve information transmission and store-level responses, and convey such value to customers in an easy-to-understand manner.


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Global Business Prestige market Regarding the global brand SHISEIDO, we will strive to attract new customers to the mainstay SHISEIDO BOP (Bio-Performance) skincare line, especially Corrective Serum. At the same time, we will use the SHISEIDO Future Solution LX premium skincare line raise the prestige image of the global brand SHISEIDO. With respect to clé de Peau Beauté, we will target renewed overseas growth by further refining brand value, expanding our presence in North America, and increasing the number of stores handling our products in China. As for Bare Mineral, we will maximize synergies by deploying Shiseido’s technological and sales capabilities. In addition, we will strengthen our makeup lines centered on North America, reinforce communications, and expand categories to include skincare incorporating Shiseido technologies. We will also target growth in Europe, as well as Japan and Hong Kong where we have deployed Shiseido’s sales expertise to date, while actively entering new markets, such as Brazil. Masstige market With respect to Senka, we will utilize knowhow amassed in Japan and Taiwan to increase the number of countries slated for business development. Regarding TSUBAKI, we have started local production in China and are stepping up our rollout of this brand. As for Za, we are targeting further sales growth through advertising that showcases the brand’s concept and by renewing our store presence. Designer fragrances and makeup artist brand We will continue fostering the ISSEY MIYAKE line of designer fragrances made by Beauté Prestige International, while increasing the number of countries slated for rollout of the narciso rodriguez line, with the aim of broadening our profile in the fragrance market. In addition, we will target further sales growth for the NARS makeup artist brand, including by increasing the number of countries slated for rollout. China In China, where competition is becoming more and more intense, we will allocate business resources as a top priority, in an effort to achieve sales growth that surpasses the market expansion rate. In the department store channel, we will introduce a premium range under the Aupres brand in top-selling stores in order to raise the brand’s overall premium image. At the same time, we will foster the global brand SHISEIDO by strengthening the capabilities of our beauty consultants. In the cosmetics specialty store channel, we will continue reinforcing the URARA and Pure & Mild. brands while deepening relationships with retail customers in order to maintain steady growth. In other areas, as well, we will promote brands and products in the professional and healthcare fields, and we will work in other ways reinforce our market advantage by harnessing the comprehensive strengths of the Shiseido Group. Newly emerging nations Targeting next-generation growth engines to follow China, we will continue strengthening our response to emerging nations, centering on Russia, Brazil, and India. In Russia, we will leverage our business foundation—which we have used to aggressive tap new customer stores—to steadily foster the global brand SHISEIDO. At the same time, we will step up promotion of the TSUBAKI brand, introduced in the year under review. In Brazil, we will launch the Bare Mineral and NARS brands and start a full-scale multiple-brand rollout, with the aim of transforming Brazil into to a core market. In India, where we have a representative office, we will consider business plans under a project system.


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Strengthening Our Business Foundation to Achieve Sustained Growth Enhancing production and procurement systems With respect to production, we will optimize our supply chain on a global level while seeking to realize low-cost operations. We will also work exhaustively on a global level to lower costs of our procurement system. Establishing IT infrastructure In an effort to standardize business processes and raise the speed of decision-making, we will introduce SAP—a core IT system already in place in Japan, Europe, China, and elsewhere—into other regions. In this way, we will enable visualization of overall business indicators. Globalizing human resources In Japan, we will continue fostering global human resources who are responsive to different cultures and have a good understanding of global business. At the same time, we will nurture personnel on a region-specific basis. Targeting executives, we will also expedite efforts to foster and utilize human resources on a global basis. Deepening CSR activities We will pursue initiatives and study responses aimed at minimizing risks associated with our business activities and maximizing corporate value. Here, we will place emphasis on human rights and the environment, recognized as the most important international issues of our time. Seeking to approach our overall business activities from a CSR-based perspective, we will continue promoting CSR-driven management in order to identify risks inherent in our domestic and overseas operations. This initiative will cover the entire supply chain, including both the Shiseido Group and its business partners. With respect to the environment, we will continue to place environmental initiatives at the core of Shiseido’s management. We will continue strengthening environmental responses throughout the total life cycle and stepping up initiatives centering on reducing carbon dioxide emissions worldwide. Specifically, we will promote use of environmentally friendly materials in our products and raise such usage to a level enabling us to propose new values in terms of environmental responsiveness. In addition, we will introduce environmentally friendly equipment and pursue energy-saving activities in factories and offices, both in Japan and overseas, in order to reduce carbon dioxide emissions.


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4. Consolidated Financial Statements

(1) Consolidated Balance Sheets (Millions of yen)

Fiscal Year Ended March 2011


ASSETS Current Assets: Cash and Time Deposits 90,006 67,121 Notes and Accounts Receivable 103,002 112,874 Short-Term Investments in Securities 15,051 26,716 Inventories 65,850 71,902 Deferred Tax Assets 27,318 19,860 Other Current Assets 12,924 17,689 Less: Allowance for Doubtful Accounts (938) (935)

Total Current Assets 313,215 315,229

Fixed Assets: Property, Plant and Equipment: Buildings and Structures 160,045 158,246 Less: Accumulated Depreciation (98,605) (98,806)

Buildings and Structures (net of depreciation) 61,439 59,439

Machinery, Equipment and Vehicles 82,166 81,581 Less: Accumulated Depreciation (71,084) (69,791)

Machinery, Equipment and Vehicles (net of depreciation) 11,082 11,789

Fixtures and Fittings 54,677 56,916 Less: Accumulated Depreciation (36,825) (38,045)

Fixtures and Fittings (net of depreciation) 17,852 18,871

Land 33,490 33,091 Leased Assets 9,817 8,706

Less: Accumulated Depreciation (5,285) (5,033)

Leased Assets (net) 4,532 3,673

Construction in Progress 2,823 2,931

Total Property, Plant and Equipment 131,221 129,796

Intangible Assets: Goodwill 94,122 84,539 Lease Assets 348 613 Trademarks 42,628 40,583 Other Intangible Assets 48,955 47,907

Total Intangible Assets 186,054 173,644

Investments and Other Assets: Investments in Securities 27,515 27,396 Prepaid Pension Expenses 24,560 20,948 Long-Term Prepaid Expenses 9,743 9,658 Deferred Tax Assets 19,577 18,084 Other Investments 27,366 26,026 Less: Allowance for Doubtful Accounts (133) (77)

Total Investments and Other Assets 108,628 102,037

Total Fixed Assets 425,904 405,478

Total Assets 739,120 720,707


18

(Millions of yen) Fiscal Year Ended

March 2011 Fiscal Year Ended

March 2012

LIABILITIES Current Liabilities: Notes and Accounts Payable 43,771 48,305 Short-Term Debt 5,595 1,989 Current Portion of Long-Term Borrowings 8,509 5,915 Lease Obligations 2,256 1,830 Other Payable 37,980 44,273 Accrued Income Taxes 12,214 8,025 Reserve for Sales Returns 11,447 11,065 Accrued Bonuses for Employees 11,549 15,030 Accrued Bonuses for Directors 373 395 Provision for Liabilities and Charges 764 565 Reserve for Disaster 922 — Deferred Tax Liabilities 25 20 Other Current Liabilities 24,263 27,302

Total Current Liabilities 159,676 164,719

Long-Term Liabilities: Bonds 90,000 90,000 Long-Term Debt 88,337 82,836 Lease Obligations 2,818 2,581 Accrued Retirement Benefits 41,285 42,089 Allowance for Loss on Guaranties 350 350 Allowance for Environmental Measures 495 486 Deferred Tax Liabilities 29,165 27,622 Other Long-Term Liabilities 6,864 6,306

Total Long-Term Liabilities 259,316 252,273

Total Liabilities 418,993 416,992

NET ASSETS Shareholders’ Equity: Common Stock 64,506 64,506 Capital Surplus 70,258 70,263 Retained Earnings 231,336 225,598 Less: Treasury Stock (3,874) (3,778)

Total Shareholders’ Equity 362,226 356,590

Valuation and Translation Adjustments Unrealized Gains on Available-for-Sale Securities, Net of Taxes 83 605 Foreign Currency Translation Adjustments (55,040) (66,702)

Total Valuation and Translation Adjustments (54,956) (66,096)

Stock Acquisition Rights 590 668 Minority Interests in Consolidated Subsidiaries 12,267 12,553

Total Net Assets 320,127 303,715

Total Liabilities and Net Assets 739,120 720,707


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(2) Consolidated Statements of Income

(Millions of yen)



Net Sales 670,701 682,385

Cost of Sales 168,692 162,989

Gross Profit 502,008 519,395

Selling, General and Administrative Expenses 457,550 480,260

Operating Income 44,458 39,135

Other Income Interest Income 669 723 Dividend Income 730 800 Equity in Earnings of Affiliates 33 — Rental Income 932 874 Subsidy Income 461 530 Others 1,306 1,182

Total Other Income 4,133 4,110

Other Expenses Interest Expense 2,165 1,824 Equity in Losses of Affiliates — 122 Foreign Exchange Loss 589 604 Other 1,354 1,252

Total Other Expenses 4,110 3,802

Ordinary Income 44,480 39,442

Extraordinary Income Gain on Sales of Property, Plant and Equipment 1,003 1,332 Gain on Sales of Investments in Securities 177 26

Total Extraordinary Income 1,180 1,358

Extraordinary Losses Impairment Loss 457 96 Loss on Disposal of Property, Plant and Equipment 1,612 1,422 Loss on Sales of Investments in Securities 198 258 Loss on Revaluation of Investments in Securities 4,199 76 Loss on Adjustment for Changes of Accounting Standards for Asset Retirement Obligations

844 —

Purchasing-Related Expense 1,232 — Loss on adjustment for changes of estimate for samples and promotional items

6,751 —

Loss on Disaster 1,668 —

Total Extraordinary Losses 16,966 1,854

Income before Income Taxes 28,695 38,947

Income Taxes – Current 18,614 13,953 Income Tax –Deferred (5,286) 7,935

Total Income Taxes 13,328 21,888

Income before Minority Interests 15,367 17,058

Minority Interests in Earnings of Consolidated Subsidiaries 2,576 2,543

Net Income 12,790 14,515


20

(Consolidated Statements of Comprehensive Income)

(Millions of yen)



Income before Minority Interests 15,367 17,058 Other Comprehensive Income Valuation Difference on Available-for-Sale Securities (1,003) 561 Foreign Currency Translation Adjustment (32,564) (12,144) Share of Other Comprehensive Income of Associates Accounted for Using Equity Method

(59) (18)

Other Comprehensive Income (33,627) (11,601)

Comprehensive Income (18,260) 5,456

Comprehensive Income Attributable to Owners of the Parent (19,833) 3,375 Comprehensive Income Attributable to Minority Interests 1,572 2,081


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(3) Consolidated Statements of Changes in Shareholders’ Equity

(Millions of yen)



Shareholders’ Equity Common Stock Balance at End of Previous Term 64,506 64,506 Balance at End of Term in Review 64,506 64,506 Capital Surplus Balance at End of Previous Term 70,258 70,258 Changes during Term in Review Disposal of Treasury Stock — 5 Total Changes during Term in Review — 5 Balance at End of Term in Review 70,258 70,263 Retained Earnings Balance at End of Previous Term 259,063 231,336 Cumulative Effect of Changes in Accounting Methods (1,064) — Balance at End of Previous Term after Retrospective Treatment 257,999 231,336 Changes during Term in Review Distribution of Retained Earnings (19,890) (19,898) Net Income 12,790 14,515 Disposal of Treasury Stock (149) 0 Retirement of Treasury Stock (18,879) — Change in Consolidation Scope — (35) Noncontrolling Interests, Capital Transactions, Others (534) (318) Total Changes during Term in Review (26,663) (5,737) Balance at End of Term in Review 231,336 225,598 Treasury Stock Balance at End of Previous Term (23,111) (3,874) Changes during Term in Review Purchase of Treasury Stock (13) (2) Disposal of Treasury Stock 371 98 Retirement of Treasury Stock 18,879 — Total Changes during Term in Review 19,236 96 Balance at End of Term in Review (3,874) (3,778) Total Shareholders’ Equity Balance at End of Previous Term 370,717 362,226 Cumulative Effect of Changes in Accounting Methods (1,064) — Balance at End of Previous Term after Retrospective Treatment 369,652 362,226 Changes during Term in Review Dividends from Surplus (19,890) (19,898) Net Income 12,790 14,515 Acquisition Treasury Stock (13) (2) Disposal of Treasury Stock 221 104 Change in Consolidation Scope — (35) Noncontrolling Interests, Capital Transactions, Others (534) (318) Total Changes during Term in Review (7,426) (5,635) Balance at End of Term in Review 362,226 356,590


22

(Millions of yen)



Valuation and Translation Adjustments Net Unrealized Gains or Losses on Securities Balance at End of Previous Term 1,054 83 Changes during Term in Review Changes during Term Not Related to Shareholders’ Equity (Net) (970) 521

Total Changes during Term in Review (970) 521

Balance at End of Term in Review 83 605

Translation Adjustments Balance at End of Previous Term (23,447) (55,040) Changes during Term in Review Changes during Term Not Related to Shareholders’ Equity (Net) (31,593) (11,661)

Total Changes during Term in Review (31,593) (11,661)

Balance at End of Term in Review (55,040) (66,702)

Total Valuation and Translation Adjustments Balance at End of Previous Term (22,393) (54,956) Changes during Term in Review Changes during Term Not Related to Shareholders’ Equity (Net) (32,563) (11,139)


Balance at End of Term in Review (54,956) (66,096)

Stock Acquisition Rights Balance at End of Previous Term 430 590 Changes during Term in Review Changes during Term Not Related to Shareholders’ Equity (Net) 160 77

Total Changes during Term in Review 160 77

Balance at End of Term in Review 590 668

Minority Interests Balance at End of Previous Term 16,453 12,267 Changes during Term in Review Changes during Term Not Related to Shareholders’ Equity (Net) (4,186) 286

Total Changes during Term in Review (4,186) 286

Balance at End of Term in Review 12,267 12,553

Total Net Assets Balance at End of Previous Term 365,207 320,127 Cumulative Effect of Changes in Accounting Methods (1,064) — Balance at End of Previous Term after Retrospective Treatment 364,143 320,127 Changes during Term in Review Dividends from Surplus (19,890) (19,898) Net Income 12,790 14,515 Acquisition of Treasury Stock (13) (2) Disposal of Treasury Stock 221 104 Change in Consolidation Scope — (35) Noncontrolling Interests, Capital Transactions, Others (534) (318) Changes during Term Not Related to Shareholders’ Equity (Net) (36,589) (10,775)


Balance at End of Term in Review 320,127 303,715


23

(4) Consolidated Statements of Cash Flows (Millions of yen)


(April 1, 2010– March 31, 2011)


(April 1, 2011– March 31, 2012)

Cash Flows from Operating Activities Income before Income Taxes 28,695 38,947 Depreciation 29,510 30,682 Amortization of Goodwill 5,204 5,519 Impairment Loss 457 96 (Gain) Loss on Disposal of Property, Plant and Equipment 609 90 (Gain) Loss on Sales of Investments in Securities 21 232 Loss on Valuation of Investments in Securities 4,199 76 Effect of Application of Accounting Standards for Asset Retirement Obligations

844 —

Purchasing-Related Expense 1,232 — Loss on adjustment for changes of estimate for samples and promotional items

6,751 —

Loss on Disaster 1,668 (922) Increase (Decrease) in Allowance for Doubtful Accounts (52) (10) Increase (Decrease) in Reserve for Sales Returns (5) (183) Increase (Decrease) in Accrued Bonuses for Employees 454 3,705 Increase (Decrease) in Accrued Bonuses for Directors 55 22 Increase (Decrease) in Provision for Liabilities and Charges (79) (140) Increase (Decrease) in Accrued Retirement Benefits 1,517 1,004 (Increase) Decrease in Allowance for Environmental Measures (3) (8) (Increase) Decrease in Prepaid Pension Expenses 4,179 3,611 Interest and Dividends Received (1,399) (1,523) Interest Expense 2,165 1,824 Equity in (Earnings) Losses of Affiliates (33) 122 (Increase) Decrease in Notes and Accounts Receivable 3,323 (12,716) (Increase) Decrease in Inventories 728 (8,102) Increase (Decrease) in Notes and Accounts Payable (6,135) 9,627 Others 1,206 2,581

Subtotal 85,119 74,537

Interest and Dividends Received 1,430 1,471 Interest Paid (2,060) (1,927)Income Tax Paid (16,903) (21,480)

Net Cash Provided by Operating Activities 67,586 52,599


24

(Millions of yen)


(April 1, 2010– March 31, 2011)


(April 1, 2011– March 31, 2012)

Cash Flows from Investing Activities Transfers to Time Deposits (28,065) (16,690) Proceeds from Maturity of Time Deposits 27,821 21,751 Acquisition of Short-Term Investments in Securities (1,191) (314) Proceeds from Sales of Short-term Investments in Securities 941 576 Acquisition of Investments in Securities (29) (220) Proceeds from Sales of Investments in Securities 1,352 603

Acquisition of Shares in Subsidiaries Resulting in Change in Consolidation Scope

(752) —

Acquisition of Shares in Subsidiaries (5,723) — Acquisition of Property, Plant and Equipment (17,701) (17,719) Proceeds from Sales of Property, Plant and Equipment 987 1,677 Acquisition of Intangible Assets (4,578) (7,016) Payments of Long-Term Prepaid Expenses (4,053) (4,499) Other 689 1,184

Net cash Used in Investing Activities (30,303) (20,668)

Cash Flows from Financing Activities Net Increase (Decrease) in Short-Term Debt (99,817) (3,431) Proceeds from Long-Term Debt 60,021 649 Repayment of Long-Term Debt (12,861) (8,365) Proceeds from Bond Issuance 40,000 — Repayment of Lease Obligations (2,838) (2,602) Acquisition of Treasury Stock (13) (2) Sales of Treasury Stock 221 104 Cash Dividends Paid (19,878) (19,890) Cash Dividends Paid to Minority Shareholders (4,405) (1,943)

Net Cash Used in Financial Activities (39,571) (35,482)

Effect of Exchange Rate Changes on Cash and Cash Equivalents· (6,935) (2,067)

Net Change in Cash and Cash Equivalents (9,224) (5,618)

Cash and Cash Equivalents at Beginning of Term 77,157 88,592 Change in Cash and Cash Equivalents Due to Change in Scope of Consolidation

20,659 —

Cash and Cash Equivalents at End of Term 88,592 82,974


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(5) Note on Assumptions for Going Concern Not applicable

(6) Basis of Presenting Consolidated Financial Statements Scope of Consolidation (1) Number of consolidated subsidiaries: 94

Principal subsidiaries are listed in the Group’s most recent Financial Report (submitted June 24, 2011). Since there are no major changes, the list is omitted from this report. Please refer to the following website for the list of principal subsidiaries.

http://group.shiseido.co.jp/ir/library/syoken/pdf/2010/1103all.pdf [Additions: 1 company] One company— Shiseido Professional Korea Co., Ltd. —was established during the period and thus has been included in the scope of consolidation in the year under review. [Exclusions: 2 companies] Two companies—Shiseido Business Solutions Co., Ltd., which was liquidated, and P.T. Prana Dewata Ubud, the shares of which were sold by the Company—were excluded from the scope of consolidation in the year under review.

(2) Nonconsolidated subsidiaries Major Company Name: Beauté Prestige International Ltd. (UK) (Reasons for excluding nonconsolidated subsidiaries from scope of consolidation) Since these companies are small in scale or do not engage in full-scale operations, their combined assets, net sales, net income (the Company’s interest share) and retained earnings (the Company’s interest share) have a minimal effect on the Company’s consolidated financial statements, and they are insignificant in general, they are not included in the scope of consolidation.

(7) Changes in Accounting Policies (Change in accounting treatment for product samples and promotional materials) Previously, the Company’s subsidiaries in the Americas treated product samples and promotional materials used in retail store sales activities as assets at the time of acquisition and expenses at the time of shipment to customers. i.e., retail stores. Effective the first quarter of the fiscal year in review, however, such items are now treated as expenses at the time of acquisition, in the interests of consistency in internal Group accounting treatment. Compared with the accounting policy prior to retrospective application, inventories and retained earnings (stated in the Consolidated Balance Sheets) in the previous fiscal year declined ¥1,724 million and ¥1,064 million, respectively, while deferred tax assets (stated under Current Assets) increased ¥660 million. Reflecting the cumulative impact on net assets at the beginning of the previous fiscal year, retained earnings for that year declined ¥1,064 million as a result of the change in accounting policy. The change in policy is not reflected in the Consolidated Statements of Income or Consolidated Statements of Comprehensive Income for the previous fiscal year, because the balances of product samples and promotional materials included within inventories have remained mostly unchanged and the differences in term-end balances are not deemed significant. The effect of the change on per-share data is stated in the relevant location.


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(Change in method of calculating fully diluted net income per share) Effective the fiscal year under review, the Company has applied “Accounting Standards for Earnings Per Share” (ASBJ Statement No. 2, June 30, 2010) and “Guidance on Accounting Standard for Earnings Per Share” (ASBJ Guidance No. 4, June 30, 2010). In calculating diluted earnings per share, for stock options in which the right to exercise options is vested after a specified service period, the fair value of service expected to be provided to the Group in the future is added to the proceeds assumed to be received when options are exercised.

Adoption of the aforementioned accounting standards would have had a minimal effect on fully diluted net income per share in the previous fiscal year, so it has not been applied retrospectively. (8) Supplementary Information (Application of accounting standard for accounting changes and error corrections) After the beginning of the fiscal year under review, the Company made accounting changes and/or corrections of past errors. For this reason, it has applied Accounting Standard for Accounting Changes and Error Corrections (ASBJ Statement No. 24, December 4, 2009) and Guidance on Accounting Standard for Accounting Changes and Error Corrections (ASBJ Guidance No. 24, December 4, 2009). (Revision of statutory tax rate) Following the promulgation on December 2, 2012 of “Act for Partial Revision of the Income Tax Act, etc. for the Purpose of Creating Taxation System Responding to Changing in Economic and Social Structure” (Act No. 114 of 2011) and “Act on Special Measures for Securing Financial Resources Necessary to Implement Measures for Reconstruction Following the Great East Japan Earthquake” (Act No. 117 of 2011), the corporate tax rate will be changed and the Special Reconstruction Corporation Tax will be imposed for the fiscal year beginning on or after April 1, 2012. In line with these changes, the effective statutory tax rate used to measure deferred tax assets and liabilities related to temporary differences expected to be eliminated during the fiscal years beginning on or after April 1, 2012 will be changed from 41% to 38%. Also, the effective statutory tax rate used to measure deferred tax assets and liabilities related to temporary differences expected to be eliminated during the fiscal years beginning on or after April 1, 2015 will be changed from 41% to 36%. As a result, net deferred tax assets (after deducting deferred tax liabilities) at the end of the fiscal year under review declined ¥2,743 million, while deferred income taxes and unrealized gains on available-for- sale securities, net of taxes, increased ¥2,782 million and ¥39 million, respectively.

Apart from the items described above, there are no significant changes to items outlined in the

Company’s most recent Financial Report (filed on June 24, 2011). Accordingly, such items have been omitted from this document. (9) Notes Concerning Consolidated Financial Statements [Segment Information] 1. Overview of 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.


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The Domestic Cosmetics Business segment includes the domestic cosmetics business (production and sale of cosmetics, cosmetic accessories, and toiletries), the healthcare business (production and sale of health & beauty foods and over-the-counter drugs), and the production and sale of non-Shiseido-brand products and mail-order products. The Global Business segment covers the overseas cosmetics business (production and sale of cosmetics, cosmetic accessories, and toiletries) and the domestic and overseas professional business (production and sale of beauty salon products).

2. Method of Computing Sales, Income/Loss, Assets, Liabilities, and Other Items

by Reportable Segment The accounting treatment method for the Group’s reported business segments is generally the same as described in the Company’s most recent Financial Report (filed on June 24, 2011) and “(6) Basis of Presenting Consolidated Financial Statements.” 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.

3. Business Segment Information Fiscal Year Ended March 2011 (April 1, 2010–March 31, 2011)

(Millions of yen)


Global Business

Others Subtotal Adjustment Total

Net Sales

Sales to Outside Customers 358,408 302,632 9,660 670,701 — 670,701

Intersegment Sales or Transfers 1,828 2,479 6,428 10,736 (10,736) —

Total 360,236 305,112 16,088 681,438 (10,736) 670,701

Segment Income 33,573 9,025 1,838 44,437 20 44,458

Segment Assets 212,505 423,363 47,438 683,307 55,812 739,120

Other Items

Depreciation and Amortization 15,351 12,918 1,204 29,474 36 29,510

Amortization of Goodwill 141 5,062 — 5,204 — 5,204

Increase in Tangible and Intangible

Fixed Assets 11,175 15,686 349 27,210 — 27,210Notes: 1. “Other” includes businesses not included in the reporting segments. These include the frontier sciences business (production and sale of cosmetic raw materials, medical-use drugs, medical cosmetics, etc.) and the restaurant business. 2. Below is a description of adjustments. (1) The “Segment Income” adjustment refers to inter-segment transaction eliminations amounting to ¥20 million. (2) The “Segment Assets” adjustment includes inter-segment eliminations amounting to –¥2,616 million and

companywide assets (not allocated to specific segments) totaling ¥58,429 million. Companywide assets consist 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.

(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.”

3. Segment income is adjusted for Operating Income described in Consolidated Quarterly Statements of Income.


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Fiscal Year Ended March 2012 (April 1, 2011–March 31, 2012)

(Millions of yen)


Global Business

Others Subtotal Adjustment Total

Net Sales

Sales to Outside Customers 353,789 319,678 8,917 682,385 — 682,385

Intersegment Sales or Transfers 2,049 2,290 5,085 9,425 (9,425) —

Total 355,838 321,969 14,003 691,810 (9,425) 682,385

Segment Income 29,459 8,212 1,381 39,052 82 39,135

Segment Assets 244,656 373,001 44,725 662,384 58,323 720,707

Other Items

Depreciation and Amortization 15,183 14,382 1,079 30,645 36 30,682

Amortization of Goodwill 141 5,377 — 5,519 — 5,519

Increase in Tangible and Intangible

Fixed Assets 17,457 16,486 357 34,301 — 34,301Notes: 1. “Other” includes businesses not included in the reporting segments. These include the frontier sciences business

(production and sale of cosmetic raw materials, medical-use drugs, medical cosmetics, etc.) and the restaurant business. 2. Below is a description of adjustments. (1) The “Segment Income” adjustment refers to inter-segment transaction eliminations amounting to ¥82 million. (2) The “Segment Assets” adjustment includes inter-segment eliminations amounting to –¥2,564 million and

companywide assets (not allocated to specific segments) totaling ¥60,888 million. Companywide assets consist 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.

(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.”

3. Segment income is adjusted for Operating Income described in Consolidated Quarterly Statements of Income. 4. Previously, the Company’s subsidiaries in the Americas treated product samples and promotional materials used in retail

store sales activities as assets at the time of acquisition and expenses at the time of shipment to customers, i.e, retail stores. Effective the fiscal year in review, however, such items are now treated as expenses at the time of acquisition, in the interests of consistency in internal Group accounting treatment. The change in policy has been applied retrospectively to the Consolidated Financial Statements for the previous fiscal year. Compared with the previous accounting method, assets of the Global Business segment in the previous fiscal year declined ¥1,064 million.


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(Per-Share Data) (Yen)



Net assets per share 772.14 Net assets per share 729.89 Net income per share 32.15 Net income per share 36.47 Net income per share (fully diluted) 32.10 Net income per share (fully diluted) 36.44 Note: Basis for calculation: 1. The basis for calculating net assets per share is shown below.


(April 1, 2010– March 31, 2011)


(April 1, 2011– March 31, 2012)

Total net assets (¥ millions) 320,127 303,715 Amount deducted from total net assets (¥ millions) 12,857 13,221 [New share subscription rights (¥ millions)] (590) (668) [Minority interests (¥ millions)] (12,267) (12,553) Net assets at term-end related to common stock (¥ millions) 307,269 290,494 Common stock at term-end used to calculate net assets per share (1,000 shares) 397,947 397,997

2. The basis for calculating net income per share and fully diluted net income per share is shown below.


(April 1, 2010– March 31, 2011)


(April 1, 2011– March 31, 2012)

Net income per share Net income (¥ millions) 12,790 14,515 Amount not belonging to common stockholders (¥ millions) — —

Net income (loss) related to common stock (¥ millions) 12,790 14,515 Average shares outstanding (1,000 shares) 397,864 397,974

Net income per share (fully diluted) Net income adjustment (¥ millions) — — Increase in common stock (1,000 shares) 539 306

(Stock options made available through new share subscription rights) (1,000 shares) (539) (306)

Latent shares not included in fully diluted net income per share calculation due to lack of dilution effect.

Stock options made available through new share subscription rights (300 new share subscription rights): 300 thousand shares of common stock

Stock options made available through new share subscription rights (1,197 new share subscription rights): 1,197 thousand shares of common stock

Notes: 1. Previously, the Company’s subsidiaries in the Americas treated product samples and promotional materials used in retail store sales activities as assets at the time of acquisition and expenses at the time of shipment to customers, i.e, retail stores. Effective the fiscal year in review, however, such items are now treated as expenses at the time of acquisition, in the interests of consistency in internal Group accounting treatment. The change in policy has been applied retrospectively to the Consolidated Financial Statements for the previous fiscal year. Compared with the previous accounting method, net assets per share in the previous fiscal year declined ¥2.67.

2. Effective the fiscal year in review, the Company has applied “Accounting Standards for Earnings Per Share” (ASBJ Statement No. 2, June 30, 2010) and “Guidance on Accounting Standard for Earnings Per Share” (ASBJ Guidance No. 4, June 30, 2010).

Application of the aforementioned accounting standards would have had a minimal effect on fully diluted net income per share in the previous fiscal year, so it has not been applied retrospectively.

(Important Subsequent Event) Not applicable


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5. Other Top Management Changes 1. Changes to representatives None 2. Changes to other directors (1) Directors

(a) Changes to representative directors

Title Until March 31, 2012 From April 1, 2012

Carsten Fischer Director, Corporate Senior Executive OfficerRepresentative Director, Corporate Senior Executive Officer

Kimie Iwata Representative Director, Executive Vice President

Director

(b) New candidate (scheduled for appointment at 112th Annual General Meeting in June 2012)

Title Name

Director Yoshinori Nishimura

(c) Retiring (effective at the close of the 112th Annual General Meeting in June 2012)

Title Name

Director Kimie Iwata

(2) Corporate Auditors

(a) New candidates (scheduled for appointment at 112th Annual General Meeting in June 2012)

Title Name

Corporate Auditor (Part-time) Eiko Tsujiyama

(b) Retiring (effective at the close of the 112th Annual General Meeting in June 2012)

Title Name

Corporate Auditor (Part-time) Reiko Kuroda


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(3) Corporate Officers

(a) Promotions (effective April 1, 2012)

Title Name Main Responsibilities or Positions

Corporate Executive Officer

Masaru Miyagawa

Responsible for Marketing of Domestic Cosmetics Business, Healthcare Business, and Domestic Non-Shiseido Brand Businesses

Chairman, Shiseido China Co., Ltd.

Chairman, Shiseido Liyuan Cosmetics Co., Ltd.

Chairman, Shanghai Zotos Citic Cosmetics Co., Ltd.


Yu Okazawa

Responsible for Asian Breakthrough Strategy

Chief Officer of China Business Division

General Manager of Asia Pacific Sales Department

(b) New candidates (effective April 1, 2012)


Corporate Officer Kiyoshi Ishimoto Responsible for Production, Purchasing, and Logistics

Corporate Officer Chikako Sekine Responsible for Beauty Creation

General Manager of Beauty Consultation Planning Department

Corporate Officer Shigekazu Sugiyama Responsible for Corporate Culture and Advertising Creation

(c) Retired (effective March 31, 2012)


Executive Vice President

Kimie Iwata

Responsible for Corporate Culture, Advertising Creation, Beauty Solutions, General Affairs (Legal Affairs and Executive Affairs), and Committees under Direct Control of the Board of Directors

Corporate Officer Shoji Nishiyama

Responsible for Functional Food Research & Development, Innovative Science Research & Development, Research Administration, and Technology Alliances


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(Reference) Top Management Structure at Close of 112th Annual General Meeting in June 2012 (plan) (1) Directors


Representative Director, Chairman

Shinzo Maeda Chairman of the Board of Directors

Representative Director, President & CEO

Hisayuki Suekawa CEO

Director, Shiseido Beauty Academy

Representative Director, Corporate Senior Executive Officer

Carsten Fischer

Responsible for Global Business (International Business, China Business, and Professional Business) and the Americas

Chief Officer of International Business Division

Chairman and CEO, Shiseido Americas Corporation

Chairman and CEO, Shiseido America Inc.

Chairman, Zotos International, Inc.

Director, Corporate Executive Officer

Tatsuomi Takamori Responsible for Domestic Cosmetics Business, Business Strategies, and Clé de Peau Beauté Marketing Unit

Chief Officer of Domestic Cosmetics Business Division

Director, Corporate Officer

Yoshinori Nishimura

Chief Financial Officer Responsible for Finance, Investor Relations, Information Systems

Responsible for Planning and Internal Control

External Director

(Independent) Shoichiro Iwata President & CEO, ASKUL Corporation

External Director

(Independent) Taeko Nagai

Vice President, Setagaya Arts Foundation

External Director, Mitsui Chemicals, Inc.

Chairman of International Theatre Institute

External Director

(Independent) Tatsuo Uemura

Professor, School of Law, Waseda University

Professor, Waseda Law School

Management Committee Member and Audit Committee Member, Japan Broadcasting Corporation (NHK)

Notes: 1. Representative directors are scheduled to be decided at the Board of Directors meeting held following the 112th Annual General Meeting in June 2012.

2. Independent: Shoichiro Iwata, Taeko Nagai, and Tatsuo Uemura are designated as independent directors under Article 436-2 of Securities Regulations of the Tokyo Stock Exchange, and are expected to be reappointed as independent directors following their election at the Annual Meeting of Shareholders.


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(2) Corporate Auditors


Corporate Auditor (Full-time)

Yasuko Takayama —

Corporate Auditor (Full-time)

Toshio Yoneyama Auditor, Shiseido Beauty Academy

Auditor, Shiseido Social Welfare Foundation

External Corporate Auditor (Independent; part-time)

Akio Harada

External Director, Seiko Holdings Corporation

External Corporate Auditor, Sumitomo Corporation

External Director, Japan Post Holdings Corporation

External Director, Enterprise Turnaround Initiative Corporation of Japan

President, Tokyo Women’s Christian University

President, International Civil and Commercial Law Centre Foundation


Nobuo Otsuka Chairman, Keiseikai Hospital Group


Eiko Tsujiyama

Professor, School of Commerce and the Graduate School of Commerce, Waseda University

Dean of the Graduate School of Commerce, Waseda University

External Corporate Auditor, Mitsubishi Corporation

External Corporate Director, ORIX Corporation

External Corporate Auditor, Lawson, Inc.

External Corporate Auditor, NTT DoCoMo, Inc.

Note: Independent: Akio Harada and Nobuo Otsuka are designated as independent directors under Article 436-2 of Securities Regulations of the Tokyo Stock Exchange. Eiko Tsujiyama is expected to be designated as an independent director following her election at the Annual Meeting of Shareholders.


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(3) Corporate Officers Not Serving Concurrently as Directors



Masaru Miyagawa

Responsible for Marketing of Domestic Cosmetics Business Division, Healthcare Business, and Domestic Non-Shiseido Brand Businesses

Chairman, Shiseido China Co., Ltd.

Chairman, Shiseido Liyuan Cosmetics Co., Ltd.

Chairman, Shanghai Zotos Citic Cosmetics Co., Ltd.


Yu Okazawa

Responsible for Asian Breakthrough Strategy

Chief Officer of China Business Division

General Manager of Asia Pacific Sales Department

Corporate Officer Michiko Achilles Responsible for Public Relations, Consumer Information, Environmental Affairs, Corporate Culture Reforms, CSR, and Committees under Direct Control of the Board of Directors

Corporate Officer Kozo Hanada Chief Officer of Professional Business Operations Division

President & CEO, Shiseido Professional Co., Ltd.

Corporate Officer Kiyoshi Ishimoto Responsible for Production, Purchasing, and Logistics

Corporate Officer Tsunehiko Iwai Responsible for Technical Planning, Quality Management and Frontier Science Business

Corporate Officer Asa Kimura Responsible for Cosmetics Products R&D and Software Development

Corporate Officer Shigeto Ohtsuki General Manager of Personnel Department

Corporate Officer Tooru Sakai General Manager of Corporate Planning Department

Corporate Officer Chikako Sekine Responsible for Beauty Creation

General Manager of Beauty Consultation Planning Department

Corporate Officer Youichi Shimatani Responsible for Functional Food Research & Development, Innovative Science Research & Development, Research Administration, and Technology Alliances

Corporate Officer Shigekazu Sugiyama Responsible for Corporate Culture and Advertising Creation

Corporate Officer Mitsuo Takashige Responsible for Corporate Planning and General Affairs (Legal Affairs and Executive Affairs)

Corporate Officer Ryuichi Yabuki

Responsible for Sales of Domestic Cosmetics Business

President & CEO, Shiseido Sales Co., Ltd.

President and CEO, FT Shiseido Co., Ltd.