Shiseido Co Ltd Ord

Today, I will first explain the key points of the results for 2024 and the outlook for 2025, and then CFO Firohuji will explain the details of the results, and I will then explain the main issues to be addressed in 2025. First, page 3. Key points of the financial results for 2024. Corporating profit for the full year was 36.4 billion yen compared to the revised forecast of 35 billion yen announced in November last year. The fact that we were able to achieve the profit target announced in November despite the difficult environment is a result of the efforts of the entire company working together. What is particularly noteworthy is the performance in Japan, where we are promoting... structural reforms with the aim of achieving over 20 billion yen in 2024. and ¥50 billion in 2025. The actual result for this period was ¥28.1 billion, significantly exceeding the target. In Japan and Europe, the virtuous cycle of growth and improved profitability through selection and concentration is steadily producing results. Going forward, we will expand the structural reform globally, working to improve the balance of profits in each region and establish a global earnings base. Regarding dividends, which we said in November last year that we would closely monitor and examine the situation after repeated discussion from the perspective of maximizing long-term total shareholder returns, we have decided to reduce the year-end dividend from the planned 30 yen per share to 10 yen per share. The details are explained in the slide later. Consolidated sales, excluding the impact of foreign exchange and business transfers in real terms, increased 4% year-on-year in the fourth quarter and decreased 1% year-on-year for the full year. In Japan and Europe, we continue to see strong growth centered on our core brands. In China and travel retail, consumer spending remained sluggish, but the revenue decline was in line with expectations. In America, sales declined due to the delayed recovery of Drunk Elephant. We secured a core operating profit of 36.4 billion yen, but due to structural reform expenses and the provisions for financial expenses, net income attributable to owners of the parent company was deficit of 10.8 billion yen. I will explain this in more detail. Regarding non-recurring items, we recorded 28.8 billion yen in expenses for structural reforms, which was largely in line with our plan. On the other hand, the provision for this item was not included in our forecast as of November. We transferred three brands, including bare minerals, in 2021, and as a result of careful examination of the seller's note, which deferred a portion of the transfer price, we recorded a provision for this item, taking into account the possibility of recovery. This is a one-off factor and does not involve any actual cash. We will continue to focus on recovering the full amount. For details, please refer to Appendix 15 of this document. Next, I will explain the four-year forecast for 2025 on page 4. Net sales are expected to be 995 billion yen, and the real growth rate, excluding impact of foreign exchange fluctuations, is expected to increase by 4%, which is unchanged from the assumptions in the action plan announced at the end of November. Corporate income is expected to be 36.5 billion yen, based on the belief that a previous year's level must be achieved, but we will aim for further increase. In addition, because of the figure for 2024 included one of positive factors, the increase in profit will actually exceed 10 billion yen. Additional information is provided on page 14 of the supplementary material, so please refer to it. Regarding the first half and second half balance of sales, in the first half we expected a low single-digit percentage decline in sales, mainly due to the high hurdle of the previous year in the troubled retail. But in the second half, we plan to achieve high single-digit percentage growth, driven by growth in Japan and Europe and the recovery in the Americas. Core operating income is roughly half the plan. The impact of the revenue decline in the first half will be offset mainly by the effect of reducing personal costs in Japan. Although we expect revenue increase in the second half, we also expect to see an increase in expenses such as a reaction to one-time positive factors of the previous year and increased marketing investment. Therefore, As in the previous year, we expect there to be no significant difference in profit levels between the first and second halves. Regarding the outlook of regional profits, we are forecasting significant profit growth in Japan and America. In Japan, we are aiming for 50 billion yen in profits thanks to the launch of new products. Price increases and an improvement of product mix, which will lead to an expansion in gross profit, as well as of the effect of personal reduction, though the early retirement support plan in America will make up for the profit decline. From the previous year, as much as possible, including by achieving a recovery in Drunk Elephant, driving growth in Brown Shea Sado and Dr. Dennis Gross Skincare and optimizing costs. Regarding China and travel retail, as I explained at the end of November, we are anticipating real declines in revenue and profit. We are expecting a loss of 23 billion yen. Thank you very much. We do not have any major M&A plans for 2025. Next, on page 5, I explain our dividend policy. In terms of business performance and cash-generating ability, both the 2024 results and the 2025 forecasts are not at the level we aim as for a global beauty company over the long term, and we are in a situation where we should drive improvements through further action. In the two-year period of 2025 and 2026, we believe that the top priorities for cash allocation to improve corporate value should be 1. strategic investment in growth areas and 2. investment in structural reform. In order to respond to the uncertainty of the business environment, we believe that it is essential to secure financial flexibility and to prioritize the implementation of the key measures set out in the Action Plan in order to build a foundation for growth with the aim of maximizing long-term corporate value and total shareholder return. As a result of careful consideration of the current situation, we have decided to reduce the year-end dividend from 30 yen per share to 10 yen per share and will submit this proposal to the General Meeting of Shareholders in March. In addition, the annual dividend for 2024 will be 40 yen per share, the same as in the previous year and in line with our current dividend policy. The dividend level will be in line with the DOE target of 2.5% or more. We take very seriously the fact that this dividend cut will cause concern among our shareholders. We will take responsibility for doing what we need to do in this critical two-year period and for conducting business operations that live up to the trust of all our stakeholders. From now on, we will work to recover our business performances and improve capital efficiency by accelerating the competition Thank you very much. Next, page 7 shows the sales trends by region. Japan and Europe have grown steadily, and in particular, Japan has achieved 10% growth for two consecutive years, exceeding the high hurdle of the previous year as a recovery after the corona has run its course. In China, sales have been low due to the impact of COVID-19. Thank you very much. to an appropriate regional portfolio.

Next on page 8 is the net sales by brand. From this time, we have separately broken down the core three and next five brands, which we will focus on in the action plan for 2025 to 2026. Brands with a significant sales contribution from China and travel retail were affected by the overall market challenges. However, even within this, Cleto Pobote accelerated growth in both Japan and China, continuing to perform steadily. NARS recovered in the Americas in Q4 and turned to revenue growth for the year. Elixir maintained high growth, mainly in Japan, while Narciso Rodriguez and Issei Miyake maintained strong growth, particularly in EMEA's, due to success in active investment. On the other hand, Shiseido and Drunk Elephant experienced a decline in sales throughout the year. Next is page 9 on the Japan business. In Q4, the local market growth experienced a slight slowdown in pace of growth due to the high performance level over the previous year. As for inbound demand, the number of tours to Japan hit a record high in October and December, yet the cosmetic purchases only showed moderate growth. Despite this, our business in Japan maintains strong growth in the low teens for core brands, expanding market share. New product launches such as Elixir's loose serum and Shiseido's foundation serum showcased our strength in advanced technology, driving sales through a new value creation marketing that strategically targeted new markets. Kledo Pobote also continued to see a steady increase in loyal customers, even after the price increase in April. One of the brands we focused on in Japan, D-Program, further clarified its marketing strategy and achieved high growth with strong returns. We call it communication innovation, and the success of Shiseido men, who are changing the way we communicate about existing products, led to sales growth, became a model that was applied to other brands. Additionally, we advance our touchpoint strategy and continue the win-at-places-where-people-gather approach, with growth in key channels driving target achievement, even after significant personnel reductions at the end of September. E-commerce sales achieved growth in the high 20% range due to brand expansion and increased digital advertising investments. Regarding inbound demand, with the increase in the number of visitors to Japan, we are steadily expanding. Moving forward, we will implement measures that align with the purchasing trends of tourists. Next is page 10, China and travel retail. The China market continues to face sluggish consumption and with rising price sensitivity, event-based consumption such as Double Eleven accelerated. Despite these challenging market conditions, we have focused on balancing growth and profitability while enhancing brand value. As a result, sales turned positive in Q4. Offline sales faced a tough environment throughout the year, but Cleto Pobote achieved positive growth in Q4, and including e-commerce sales, we recorded high growth in the low 20% range. E-commerce also showed a steady recovery in Q4, with significant growth on major platforms during Double Eleven, especially rebounding from the treated water impact, marking solid growth into the high teens percentage. Both Shiseido and NARS turned into growth, with NARS particularly showing year-round growth, continuing to expand its sales scale in China. As a result, despite the continuous difficult environment, our strategy to quickly respond to consumer changes successfully led to market share gains over the year, which we consider a major achievement. Next is travel retail. The decline in consumption by Chinese tourists has continued, creating a tough business environment as expected. We will continue our efforts in strict inventory management and sound business health in the mid to long term. Despite these challenges, travel retail in Japan continues to perform well with a recovery in the number of store visitors. Next is page 11, Americas. The supply shortages up until the first half of the year led to consumer attrition. In the second half, we focused on strengthening marketing investments for key brands to drive recovery. However, Drunk Elephant's customer purchase recovery was slower than expected, resulting in a revenue decline below projections. We attribute this to factors such as intensified competition in the market surrounding Drunk Elephant and a lack of targeted promotions. In 2025, we will focus on strengthening Drunk Elephant's brand marketing and clarifying its target customer base in order to turn things around. On the other hand, production in the Americas has stabilized and NARS steadily recovered. Fragrances also performed well, benefiting from favorable market conditions. All other major brands returned to growth in Q4. Additionally, Dr. Dennis Gross' skincare acquired in February is progressing as initially planned. Next is page 12 on EMEA and Asia-Pacific. EMEA market continued to grow in all categories. In Q4, the shipment adjustments for the holiday season contributed positively with the strong performance of new product launches, allowing the company to reach the sales as planned. Selection and concentration in focused brands, markets and channels demonstrated results, capturing strong growth for the full year as well. Asia-Pacific continued to perform well with Anessa, Cleto Pobote, but the slowdown in Taiwan and South Korean markets impacted the sales, leading to a sales decline in Q4. Next is page 13, the core operating profit by region. In Japan, in addition to increased sales, significant profit growth was achieved contributed by gross margin ratio improvement from mixed improvement as a result of selection and concentration and price increase, as well as the impact from restructural reform. Inbound sales are still about half of the peak level in 2019, but profitability in the local business has improved, achieving core OP margin of approximately 10%. The business turned from a loss in 2022 to a profit in 2023, and by 2024, grown to realize double-digit margin. This growth has led to confidence for the overall company and a result that can be expanded horizontally to other regions. In China, despite a negative real growth rate of minus 5%, marketing investments were maintained and structural reforms such as the closure of unprofitable stores and workforce reductions led to increased profits. Despite the continued uncertain market environment, efforts are underway to build a revenue base that is less affected by external factors. In EMEA, while expenses were kept under control, marketing investments aimed at enhancing brand value were continued, leading to increased sales. Travel retail saw a significant decline in profits. Furthermore, the decrease in travel retail sales also had a substantial impact on the other segments, with drop in gross profit driven by internal sales decline. Regarding adjustments, change in elimination of unrealized gains contributed to decrease in profit. Last year, primarily in anticipation of the deterioration of the Chinese and travel retail markets, inventory reduction was implemented, which positively impacted elimination of unrealized gains. This year, the reversal of that effect has occurred, becoming a factor that pushed profits down. That concludes the performance report. one point of progress to report. We have received numerous requests regarding the difficulty in comparing the core operating profit by segment over the years due to the annual changes in internal transaction prices related to transfer pricing adjustments. To clearly compare the actual profit margins and their improvement progress across segments year over year, we are in the process of revising the definitions. Starting with the Q1 results to be announced in May, we plan to disclose the results under the new definitions. Please look out for further updates on this. That is it for myself. Thank you.

First, then please turn to page 15. This is the content we explained when we announced the action plan at the end of November. Over the next two years, we will work to strengthen the foundations of our core brands while also establishing a highly profitable structure to support future growth. Once again, we see 2025 as the year of competition. Our theme for this year is to do everything we need to do. We're already in the second month of 2025 and we will move forward with our measures with a sense of urgency. Next, please turn to page 16. Over the next two years, we will continue to implement structure reforms, but we will also accelerate the growth of our core brands through focused investment based on growth potential, profitability, and competitive advantage. In 2025, we will increase marketing investment by 10 billion yen year-on-year, and we will invest all of this in the Core 3 and Next 5, and we will aim to steadily expand the market share by building the value of our core brands, which will Thank you very much. will be the pillars of future growth. First, let's look at the growth of strategy for brand Shiseido. In 2024, Shiseido experienced a slowdown in China and travel retail, which together accounted for around half of its sales and achieved strong growth in Japan, which sells in the high 20% range, and in Europe, which sells in a high 10% range. And Vital Perfection has secured a position in the market as an expanding mainstay line of anti-aging products. In the top four markets in Europe, Vital Perfection has achieved in the first skincare product ranking by line. The strategic allocation of the investments through selection and the concentration is paying off. Thanks to the part of a global ambassador, Anne Hathaway, Vital Perfection is also performing well in America's In addition, the Essence Skin Glow Foundation, which was a big hit last year, established a new market for foundation serums. In Japan, it not only achieved the number one share of the department store foundation sales, but also gained many new younger users. In 2025, we will introduce a new Altimmune, which will be launched in March as a major growth driver on a global scale. This product will be launched almost simultaneously around the world. and we are working to maximize sales with a sense of unity as a company-wide initiative. In terms of regions, we expect to see continued steady growth in Japan, as well as accelerated growth in the Americas, Europe, and Asia-Pacific. In addition, we will be strengthening the Future Solution LX line, our top-of-the-line series in China, and we plan to launch new sun care products equipped with the latest technology in the Americas. In this way, by implementing unified global measures and developing products that match regional characteristics, we were able to achieve more substantial growth for the brand as a whole. Next, please turn to page 18. As CFO Hirofuji explained earlier, the growth of Clos de Porte is being driven by Japan, where growth in the high teens has been achieved. As we have also reported, the brand has also achieved positive growth in the challenging Chinese market thanks to a strong brand value as a high-end brand. Base Makeup, which has an overwhelming strength in acquiring new customers, is performing well, contributing to the expansion of the brand's loyal customer base. In addition, Luceram, which was relaunched in September last year, has received high praise from including being ranked first at the best cosmetics product in major beauty magazines in Japan, and the number of skincare users has also increased. This year, we plan to launch the product in China as well, and we will strengthen strategic marketing for core skincare line, key radiance, care, etc. We will strengthen our position as a luxury brand by further enhancing our provision of luxury experience values such as base makeup, which is our strength, and our holiday collections and treatment services, which are promoting at events and a special exhibition in countries around the world. Next, please turn to page 19. NAS has strong equity and has been able to achieve steady growth even in a challenging market environment in China. But in 2024, there were some shortages due to temporary production cuts, and it was not possible to achieve major... publicity and dramatic growth. In 2025, we will ensure growth by positioning base makeup, the foundation of the brand, as a hero product, which also is increasing in the brand's topicality by boldly investing in a new innovation campaign to meet the growing global demand for blush. And we will turn further speed and amplify this through digital media with the aim of increasing our share of the makeup category. Next, page 20, we have received feedback that the company has a strong R&D capability and technological strength, including basic research, and has a good lineup of brands, but unfortunately this is not translating into profitability. We will firmly provide our customers with our technological strength. and added value in the form of products. And we will also achieve a speedy innovation pipeline that will lead to sales and profits. This slide shows the sum of the new products that will be the key to our success in 2025. This is a group of products that will give you the sense of the technological advancement and we are proud of. Please look forward to course three and next five, the new products that will lead our growth. Next, please turn to page 21. At the Action Plan briefing at the end of November, we introduced evolution of the global operations structure and building a global one team that leads sustainable brand development. The Global Brand Strategy Department, which was newly established in January this year, and the Chief Marketing and Innovation Officer, Mr. Okabe, as well as the Brand Committee, which brings together the top brand managers of the core three and next five brands, as shown in the photo. We'll introduce monitoring and brand strength using common brand indicators, quickly identify growth opportunities and risks across brands, and build a system that can take quick action in response to market changes, while also promoting the resolution of common issues across the brands and strengthening functions and allocating investment. This system will serve as a platform for the entire industry Thank you very much. Thank you very much. Growth and profitability improvements have been achieved despite the slowdown in major markets such as Taiwan and South Korea. Dr. Dan's growth skincare, which we have acquired at the end of 2023, has achieved strong results. The expectations and PMI is progressing smoothly. On the other hand, the recovery of profitability and growth in the Americas remains an issue, and we will make this our top priority in 2025. We will also... Next, please look at page 23.