Shiseido Co Ltd Ord

Mr. Fujiwara, please start. So, first of all, as we have already announced on April 24th, Mr. Yokota, the current CFO, will step down at the end of June due to personal reasons. From July 1st, Mr. Yokota will be succeeded by Ms. Hiro Fuji, currently Chief Investor Engagement Officer and Chief DENI Officer, who assumed the position of Deputy CFO in May. Since joining the company in 2005, Ms. Hiro Fuji has served as a company in various capacities, including corporate planning, president of overseas subsidiaries, general manager of strategy and finance department, general manager of investor relations department, and from this year, chief DA and I officer. She is very well versed in the company's global expansion and reform practices. Mr. Yokota has been CFO since January 2021, has made many accomplishments during the difficult times, including the COVID crisis. We shall strive for smooth handover and aim to achieve sustainable profit growth and build a resilient business structure in 2024. We will complete our business transformation under the new structure while attaining growth and structural reform. As for the focus project, a renewal project, of a general core system which Mr. Yokota has been leading. Its introduction is almost complete and we are now entering the value creation phase through the introduction of a new core system. I will lead this project directly as COO. I would like to start by inviting Ms. Hirofuji. to say a few words. My name is Hiro Fujii and I will assume the position of CFO in July. I'm strongly aware that Shiseido is now in a very important phase to establish a highly profitable structure through business restructuring in Japan and in other countries and regions. I would also like to support from the finance aspect Shiseido's strong desire to further strengthen the core areas through further selection and concentration to achieve sustainable growth as stated by our COO Fujiwara. In addition, we have had many direct dialogues with investors and analysts in the capacity of investor relations. We deeply appreciate your expectations for the future, and we are committed to connect them to the management of our company. The strategic framework of SHIFT 2025 remains unchanged. We will accelerate growth by aggressively investing in our brand, human resources, and innovation, and we will achieve an early recovery in business performance by streamlining costs so we will earn your trust. Thank you. Then I would like to explain about the progress of the reform. First of all, in the first quarter of this fiscal year, we made a good start as we achieved a real sales growth rate of plus 3% and core operating profit of plus 11.3 billion yen, despite an environment in which some effects of treated water release and inventory adjustments remain in China and travel retail. The highlights include the steady implementation of structural reforms, the recovery of market conditions, and the increase in market share in the local Japan market and Prestige China market due to strategic marketing investments to firmly maximize their recovery. There is no change to our full-year forecast. the thinking behind this forecast later. In the rapidly changing and complex market environment, we will maintain our strategic focus on agility through fixed cost reductions while maintaining investments for long-term growth and on capturing market share by nurturing brand values. and we will continue to maximize earnings in the second quarter and beyond, while maintaining our strategic focus as mentioned above. In the following sections, I will explain in more details what the status of our Japan tribal retail and China business, which are the core of our structural reform. In Japan, growth has accelerated each quarter since last year, and in the first quarter, we achieved growth well above market and increased our market share. In particular, our core brands, which have been a large shift in investment, have achieved growth in the upper 20% range, while our hero products have achieved high growth of over 30%, leading the overall growth. We will continue to accelerate effective sales generation through well-balanced investment allocation. We are also very encouraged by the accelerating growth momentum in the mid-priced segment in the first quarter. As people resume meeting others and enjoying themselves, such as cherry blossom viewing without masks, we see an increase in their aspiration to take care of their skin or put on nice makeup since they will meet other people. We believe that Elixir's high growth of plus 20% in the first half of the year is helping to boost the overall mid-price market. I would like to reiterate the measures to support the strong growth I mentioned earlier. In our Japan business, where we are building a new growth model, our focus is on our core brands in terms of brand strategy. Our core brands Shiseido and Clé de Peau Beauté are growing at a high rate of over 40% and 30% of local customer purchases, respectively. We are building a foundation for sustainable growth by steadily increasing the number of loyal customers. We are also focusing on creating new markets. In the new category of foundation serums, A company-wide challenge in Japan during the period, two products have already been launched in the first quarter, already contributing to 6% of the first quarter revenue growth in Japan, and further growth is expected as TV commercials have been launched since April. In the Elixir category, we launched Toto V Firming Cream in the second half of last year, which leads to the creation of the anti-cycling market. Since the launch, it has maintained the top market share with strong sales growth. In addition, Shiseido and Kledopo Bote raised their prices in April, but the volume decline after the price revision was not as significant as anticipated, and we have confirmed that demand is firm. Next, as a touchpoint strategy, we developed a free experience model in the drugstore channel. which will change the way the stores and shelves are built and improve them into easy-to-understand shopping areas with fewer and more carefully selected SKUs to achieve higher sales growth. The pilot project was launched last year. Based on the success of the pilot, this year we will proceed with a full-scale rollout at a little more than 3,000 stores centering on mainstay stores. In addition, the growth rate of e-commerce sales in the first quarter of this fiscal year was in the high 20% range. largely accelerated from lower 10% growth throughout FY2023. Going forward, we will continue to pursue three strategies to achieve 30% growth by 2025. The first is to strengthen customer EC, which integrates offline and online sales. This will be achieved through our OmisePlus service, which allows offline customers to freely make purchases online as well thereby improving LTV, such as through continued use of the brand. Second, we will aggressively expand into specialized EC sites, aiming to meet more new customers. And we will strengthen our own platform. In July this year, we will revamp the design and functionality of the Watashi Plus platform to further strengthen the relationship between consumers and the brand to achieve sustainable growth.

The progress of structural reform is shown on page six. In order to transform ourselves into a new growth model, we have implemented human capital transformation, MIRAI career plan, and I would like to re-delete our thinking and approach to the business transformation. Behind this necessary reform, there is strong conviction that we have to build a structure that enables Shiseido, the mother market Japan business, to generate stable earnings and value in an organization that enables our employees to thrive and play an active role. To this end, Japan business needs a business transformation, not simple cost reduction, and set sustainable growth, building a profitable foundation and human capital transformation as pillars of our transformation. In addition, to narrowing... In addition to narrowing the focus to our core brands, we strengthen investment by focusing on hero products and create new markets to achieve sustainable growth. As explained so far, we have achieved solid results in Q1. In terms of building a profitable foundation, selective rounds and touch points contributed revenue growth. Optimized efficiency spending significantly improved the OP margin compared to last year, generating a good cycle. And human capital transformation. To achieve business transformation, we need to change the way we work and the skill we possess. We have identified the capabilities required, invested in human capital, such as reskilling for employees who will work with us, and implemented an early retirement support package for those who chose to pursue their future career outside the company. The application period of the early retirement support plan ended on May 8, and with 1,477 applicants, as explained, the effect of this plan is expected to be 10 billion yen in two years, of which 3 billion yen is expected to be realized after Q4 of 2024. To follow up the progress of COGS efficiency improvement, including establishment of profitable foundation, COGS was reduced by about 1 billion yen already due to improved mix by focusing on core brands, By improving the mix and promoting SKU optimization, we aim to further expand earnings through growth. In terms of marketing and other expenses, streamlining sales promotion materials will begin in the second half, while the benefits of reviewing IT systems are already realized since Q1, and other expense savings will likely be realized in Q4. These reforms will not be easy. Nevertheless, we are determined to carry out these reforms with strong conviction that they are necessary for Shiseido to continue to sparkle in the future. With the key message that there is nothing that cannot be changed, that I will continue to work so that the Japan business will transform itself as an organization to be able to create a new future of Shiseido, an organization not being afraid of change. Next is about travel retail business. Channel inventory adjustment is underway as planned. And those in Korea, Highland Island, were just adjusted to the appropriate levels at the end of last year and the end of first quarter, respectively. We expect monthly shipment sales to turn positive from May. Future growth will be achieved by optimizing inventories and returning to sales growth trajectory, especially among travelers. We plan to raise the sales ratio of travelers to 70% or 80% level by 2025. We will also promote more stable growth and profit generation by streamlining sales in Japan, Europe, and the United States. Next, let's look at the Chinese business. Even with the moderate market growth, reforms are underway that will enable stable growth and profit generation by identifying growth areas and making focused investments. We feel that the market in China is changing faster and faster. That is why I am pleased that we have been able to move quickly to optimize our organization. Amid such volatility and uncertainty, we have been able to protect our profitability by maintaining a lean organization and a disciplined approach to investment. Our focus area, high prestige, grew by high single-digit NARTS, grew low 20% growth rate. As a result, the group as a whole was able to increase its share of the prestige market in Q1. In international Women's Day promotions, we achieved strong sales with more than a double year-over-year growth as a company on TikTok, a growing e-commerce platform, and due in part to the development of new brands, and six times or more year-over-year growth achieved in prestige sales, and achieving better than the market growth for prestige category in Tmall, JD, and TikTok combined. In order to achieve even higher quality growth, We launched a campaign in April to communicate a brand value at Shiseido and Anessa, and Drunk Elephant already began full-scale communication in April. Meanwhile, operational reform has been underway since last year in line with our growth strategy. The organizational structure is transformed to the one speedily adjustable to cope with market changes and offline stores are being optimized to improve productivity. The cost reductions being promoted as part of the global transformations are based on the action plan to exceed annual targets and to ensure that even if the effects of individual action fall short of expectation, additional actions will be taken so that targets are surely met. In Q1, approximately 3 billion yen of savings was generated. In addition, we have already started initiatives to improve the employees' productivity worldwide. The benefits of this initiative will be realized mainly from the second half onwards. We will continue to accelerate company-wide initiatives. efforts to deliver over 15 billion yen in 2024 and over 40 billion yen in 2024 and 2025 to surely generate profits. That is all from me. Thank you. Next, Ms. Hirofuji will report on the first quarter earnings.

Now I will explain the business results. First of all, on page 11 is the summary of P&L. Sales grew 3.2% year-on-year in real terms, with the negative growth in China and troubled retail steadily narrowing, and steady growth in New York and the U.S. and Asia Pacific, with momentum accelerating particularly in Japan. Core operating income declined 1.2 billion yen to 11.3 billion yen, partly because the previous year had a high profit structure with 12.5 billion yen in the first quarter out of annual 39.8 billion yen. Though the profit decreased compared to the previous year, we had a good start exceeding the target. The impact of lower sales in travel retail was more than offset by the increase in income in Japan and other regions. Operating income was a loss of 8.7 billion yen, a decrease of 19.3 billion yen from the previous year. As Mr. Hirota explained, we record a provision of about 18 billion yen in the first quarter for structural reform expenses for the early retirement support plan. As for the briefing on February 10th, We expected to record the provision for the second quarter. However, we recorded it in the first quarter with the number of applicants that was highlighted, and that calculation could be performed for the amount of provision. Profit attributable to owners of the parent company decreased by 12.0 billion yen from the previous year to loss of 3.3 billion yen. This is due to the fact that 20.1 billion of the 30 billion yen in non-recurring items was recorded in this quarter. We expect both operating income and quarterly profit attributable to the pairing company to return to profitability from the second quarter onwards. In terms of cash generating ability, EBITDA margin was 9.8% compared to the annual plan of 11.5%. Next, on page 12, sales results by brand. In the first quarter, Shiseido had negative growth in China and troubled retail due to the lingering impact of treated water release and inventory adjustments in distribution. However, despite these circumstances, the high presence of the credit pool boutique has high Thank you very much. which led to the overall growth. Elixir also achieved positive growth, with double-digit growth in Japan contributing to the positive growth despite negative growth in China. Anissa also grew in Japan and China, but was affected by inventory adjustment in travel retail, resulting in flat sales year-on-year. Next, on page 13, sales strengths. In the first quarter, overall, we turned to positive growth. While sales in China and travel retail were below the prime previous year's level, as expected, it was compensated for by growth mostly in Japan, the Americas, and Europe. The biggest highlight was Japan's high growth of plus 20%. The business transformation measures, such as brand selection and focus, strategic investment allocation, are steadily yielding results, and strong growth is being achieved centered on core brands. We have announced price increases in Japan this year, the effects of which are expected to be felt from the second quarter onward. In the first quarter of this year, we achieved a high growth rate of plus 20% due to the effect of pure volume growth, including the rush demand before the price increase. The trend up to April may suggest that the volume decline after the price hike will not be as large as expected. In China and Japan, The troubled retail, although growth is still negative due to the impact of treated water release and inventory adjustments, the negative growth rate is steadily decreasing. In addition, EMEA continues to perform well. Europe in particular has achieved double-digit growth for five consecutive quarters since the first quarter of last year. Page 14 and 15 are about Japan and Japan. China business, but since Mr. Fujiwara has already explained some of the key strategic points, I will simply focus on data and business in these two regions. First, let's look at Japan. As shown in the dotted line graph, the scale of the local market as a whole was returned to almost pre-COVID level. The good news is that year-on-year growth momentum in the mid-price segment is accelerating. On the other hand, it is also true that the mid-price segment is the one with the most significant negative growth compared to 2019, even in the first quarter of the year. We will accelerate the initiatives that are currently yielding positive results to achieve a further turnaround from this point. Next, in China, we saw negative growth as expected, but the strong performance of Clé de Porte and Nars Brands that we see as offering the best return on investment in the current environment contributed to share expansion in the prestige segment. The branch you say, though, also had the largest and longest-lasting effect of treated water release. We will continue to implement measures to achieve a turnaround from the second quarter