Shiseido Co Ltd Ord

I will now explain our 2026-5 financial result. First on page 3, I will explain the key points of our 2025 financial results and 2026 outlook throughout this past year. Our business has focused on improving both our revenue structure and capital discipline, establishing solid financial foundation capable of consistently generating profits. The numerous initiatives we have implemented are now yielding results. While we remain on an improvement trajectory, tangible changes in the quality of our business are evident. Crucially, these improvements extend beyond cost reductions and are beginning to enhance capital efficiency. We will continue our management efforts to achieve both sustainable growth and improved capital efficiency. For FY 2025, core operating profit reached 44.5 billion with a core operating margin of 4.6%. Despite a revenue decline environment, the results exceeded the initial plan of 36.5 billion yen due to the steady execution structure reforms and cost management. This marks the first time in our four years that we have met our initial plan. We recognize this as a step forward in terms of strengthening financial discipline and improving the stability of our performance. Free cash flow also improved significantly to 66.5 billion yen driven by the improvements in working capital and the review of capital expenditures. Sales momentum recovered in the second half and the full year results were largely in line with expectations. Our focus brand led overall growth with a plus 4% real growth rate in the second half. Market share expansion is progressing in Japan local, China, and Asia Pacific. While America's business faced challenges in the fourth quarter, the China and travel retail business These are showing steady recovery trends for FY2026. We target our core operating margin of 7%, capital efficiency metrics of ROIC 5%, ROE 7% and free cash flow of 50 billion yen. Amid ongoing business uncertainty, we will prioritize flexibility and speed, simultaneously driving sales and profit growth through innovation while improving financial metrics. This year we'll see clearer progress and capital efficiency improvement marking a crucial year as we advance to the next growth phase. Based on this improvement of cash generation and the progress of financial discipline, we plan to increase the annual dividend for FY2026 to 60 yen per share. Page 4 outlines the full-year outlook for 2026. We anticipate significant year-on-year improvement across all metrics. We include an estimated 10 billion in expense this year as we implement structural reforms including optimizing production logistics systems and office operations. We will now explain the key points for each item. Page 5 covers the core operating profit outlook. The business environment surrounding our company continues to be characterized by numerous volatile factors, including geopolitics, market trends, and exchange rates. Amid this, we will continue focused investments in key areas, firmly capture the improving momentum seen since the second half of this year, and achieve sales growth. Strategic price revision will continue in FY26. Regarding the effects of structural reforms, since actions were implemented in FY25, the realization of 25 billion yen in effects is assured. In addition to these factors, we factor in wage increases, reflecting global inflation and tariff costs, projecting core operating profit of 69 billion yen, representing 7% operating margin. We anticipate FY2026 will be a year of potentially shifting assumptions. We will heighten our sensitivity to the change, identify risk early and adjust our approach. approaches as circumstances require to achieve our targets. While the extent of the impact of deteriorating Japan-China relation remains uncertain, our plan incorporates this impact through the first quarter. Therefore, we plan for relative improvement in the second quarter and beyond compared to the first quarter. Next, on page six, I will talk about strengthening cash generation capability. Our 2030 midterm management strategy established a robust cash generation capability and a clear cash allocation priority, gross investment, debt repayment, and dividends. Progress aligned with this policy is already evident in our results. Fresh cash flow excluding acquisition-related expenditure significantly improved from FY 2024 to 25, reaching 66.5 billion. This improvement was primarily driven by the enhanced profitability, strict inventory management, and working capital optimization. We will continue to strengthen investment discipline in FY 2026 to maintain high cash generation capabilities. The ratio of capital expenditures to sales decreased from 5.1% in FY24 to 4.5% in FY25 and 4.0% in FY26. IT investment has been completed and we will discipline our allocation of a resulting free cash flow to dividends and interest-bearing debt repayment and thoroughly prioritizing and scrutinizing necessity based on the return. We will continue to achieve stable free cash flow growth going forward. Next, regarding dividends. Over the past year, the execution of our action plan has yielded results exceeding our plans for both core operating profit and free cash flow. Alongside this performance improvement, our confidence in the financial outlook for the future has strengthened. This dividend increase is not based on the short-term performance fluctuations. It stems from our judgment that stable shareholder returns over the medium to long term are achievable through the improvement of our business foundation. Growth investment remain our top priority and we have no intention of implementing shareholder returns in a way that compromises its capacity. We position this dividend increase as one of the decision demonstrating our transition to management that balances growth and returns. Next, regarding capital efficiency improvement. While both ROIC and ROE were significantly negative this period due to goodwill impairment, in America's business. We anticipate substantial improvements in FY26 through profit recovery and enhanced asset efficiency. Beyond profit improvement, we have been working to enhance asset efficiency through rigorous investment discipline and re-evaluating the utilization of held assets. Going forward, we will also focus on improving global operations to ensure these initiatives are not temporary but become deeply ingrained throughout the organization, we are introducing RIC as a key performance indicator for evaluation starting with management. Next, page 9, we explain the actual results. For FY 2025, sales were 970 billion yen with a real growth rate of minus 2%. This was slightly below the sales outlook communicated in the third quarter primarily because due to changes in America's business core operating profit was 44.5 billion yen. Growth in our key brands improved the product mix while enhanced company-wide cost management and structural reforms significantly contributed to an increase of 8.2 billion yen. Non-recurring items included 73.3 billion in expenses, with the fourth quarter containing costs related to the voluntary retirement program at the global headquarters. Free cash flow increased 101.18 billion, driven by improved profitability, working capital optimization centered on enhanced inventory management, careful capital expenditure review, and a reaction to last year's acquisition-related expenditures.

Next on page 10, a core operating profit. First, COGS was 23.3%, an improvement of 0.6 points from the last year. Although the production cutback from Royal Elephant impacted costs, the large excessive inventory write-off allowance last year was reduced and brand and skill mix improved. The marketing investment ratio increased 0.7 percentage points to 29.3% as we continue to invest in key brands to strengthen our brand foundation and accelerate growth. Personnel expenses decreased by 11 billion yen year-on-year, 0.6 percentage point improvement in composition. Following Q3, there was an increase in bonus provisions in Q4 compared to last year. However, this was outweighed by the effect of restructuring in Japan, China and travel retail in the Americas, resulting in significant improvement in the personal expenses ratio. Other SG&A decreased by 8.5 billion yen, reflecting the positive impacts of structural reform in the Americas and company-wide cost management. As a result, we have redirected the reduction in fixed costs, primarily personnel and other expenses, to marketing investments aimed at accelerating future growth, improving margins, and creating a P&L structure that is more resistant to profits. Next, page 11 shows sales trend by region. In Q4, sales increased by 1%. And in Q3, there was a significant increase due to the impact of advanced treatment in China and travel retail and low hurdles in Europe. Smoothing these factors out, the sales increased by 2% in the second half with our focus brand driving growth at plus 4%. The Americas continue to struggle in Q4, and we will quickly address this issue. However, overall, we believe momentum is steadily improving in the second half. Next, on page 12, explanation of each region. First, Japan. While the number of Chinese tourists has declined since December, slowing the inbound market, local markets continue to experience moderate growth. Regarding the customer purchase, local key brands continue to grow and expanded market share for three years in a row. E-commerce also grew steadily. New products from key brands continue to drive growth in Q4. The Shiseido brand new Altimmune, which was relaunched in the first half of the year, continued to grow so strongly. The Shiseido powder launched in September and the Elixir Wrinkle Clean relaunched in September for the first time in two years. Both performed well. While inbound sales remained challenging, Elixir and IHADA brands performed well thanks to the success of strengthening the digital advertising targeted travelers. We will continue to seek growth opportunities and allocate investment in line with the market environment. Core operating profit increased by 13.1 billion yen. Growth profit margin improved through brand and skill selection and concentration. Structure reform such as reduced personnel expenses and more efficient marketing investments contributed to a four-point year-on-year improvement in margin to 13%. Next page 13, China travel retail. While price competition due to discounts remain intense during the Chinese double 11, the overall market grew led by prestige brands. Chinese consumer spending continued to grow at a low single digit rate. Our growth outpaced the market during 2011, primarily driven by e-commerce, and we also expanded our market share. Cluedo, Po, Botte and Nards maintained strong momentum throughout the year. Shiseido, which turned positive in Q3, accelerated growth in Q4. Mainland China posted positive growth in Q4 and 4-year. While the travel retail market remains challenging, signs of recovery are emerging in Hainan Island. Our customer purchases fell in the mid-teens, but the decline narrowed. Meanwhile, net sales remain positive for the two consecutive quarters. Healthy inventory levels are maintained as we will continue to manage them appropriately. While net sales declined year over year, they exceeded our initial plan and we expect a recovery trend in the second half. While the deterioration in Japan-China relations impacted some customer purchase in December, the impact on sales in this period was limited. While marketing expenses increased in Q4 in preparation for 2011, we managed to limit the decline in profits throughout the year through structural reforms to reduce fixed costs and cost management. Co-op P was 64.5 billion yen and the profit margin was 18.7%, maintaining high profitability. Next, on page 14, the Americas. Customer purchases were down by a high single-digit percentage. In addition to negative impact from Drunk Elephant, which underwent inventory cleanup in preparation for its rebranding in 2026, Dr. Dennis Gross' skincare also saw a decline due to an increased competition from low-priced products in the core products. Meanwhile, Kledo Pobote's base makeup continued to perform well. Co-op was a loss of 11.6 billion yen. The decline in profits due to lower sales, the impact of tariff and worsening costs resulting from sluggish draft elephant sales was largely mitigated by the dainties of structuring reforms and cost management. including personnel costs. Next is page 15, covers Asia-Pacific and Europe. First, Asia-Pacific region. While Taiwan, our largest business in size, continued to experience a decline in Q4, other Southeast Asian countries and regions recovered, resulting in overall growth. Customer purchase grew strongly thanks to the launch of major new products of Clos de Peau Beauté and NARS Elixir. Especially, Elixir has achieved rapid growth thanks to our successful and effective channel expansion strategy, which strengthens self-sales channel, including e-commerce. The scale is still small, but we expect sales to grow forward. Co-operating profit also increased. In Europe, the growth was driven by fragrance, particularly Zadig Voltaire, as well as NARS, a new brand, the multiple. The co-operating profit increased by 1.3 billion yen. Next, page 16 shows the progress of global cost reduction and structural reforms. We achieved cost reductions of 27 billion yen in 2025, exceeding the initial plan of 25 billion yen. Furthermore, the structural reform we undertook in 2025 was expected to steadily contribute to our performance in 2026. However, to achieve our financial targets for 2030, it is essential that we promote cost efficiency more deeply and broadly. We will accelerate optimization with an eye on the entire value chain and build a stronger business structure. 2026 will be the very critical year for implementation. Thank you for listening. That is all from me.

Now, Pujiwara will deliver the result of 2025 and plan for 2026. For Shiseido, 2025 was not merely a year of structural reform. It was the year we completed the most critical foundation for future growth. We implemented painful reforms and worked to transform our organizational structure and corporate culture into a company that delivers results as one team, and the results are reflected in the numbers. Today, I will share two points, how the management reforms we've advanced over the past two years have built a management foundation equipped with profitability and structure, and how we achieved strong growth in 2026 based on this foundation. First, regarding the transformation of our business structure, our excessive reliance on the Chinese market has been steadily and irreversibly corrected as intended. Despite challenging conditions, our China-troubled retail business has steadily strengthened its profitability through cost structure reforms, maintaining high margins. We are now positioned to translate future market recovery into sustained profit growth. Furthermore, in Japan, Europe, America, Asia and at the global headquarters, we have significantly improved profitability through the correction of high fixed cost structure and through cost efficiency. As a result, we are now transitioning to a more globally balanced structure in terms of both sales and profits. In 2025, despite reduced profits in China and troubled retail, We achieved robust profit growth for the entire group driven by increased profits in other regions, particularly Japan. We view this as a clear evidence that our regional diversification has begun functioning not merely as a risk mitigation but as a device for stable profit growth. Next, the brand portfolio. Under a policy concentrating management resources on key brands, Dassault's contribution of core and next brands expanded from over 60% in 2021 to over 70% in 2025. Crucially, many of these brands significantly outperformed the group average in profitability. entering a growth phase where sales scale expansion and profitability improvement will be achieved simultaneously. Next, regarding productivity, the optimizations implemented in Japan, China, and the Americas and global headquarters, we have significantly reduced headcount while maintaining sales scale at approximately 1 trillion yen. As a result, sales per employee have greatly improved. This is not a temporary cost reduction but a transformation into a lean and mean organization that supports growth over the medium and too long term. We have been reborn as a lighter, stronger, and faster organization. Asset light is progressing as well. Domestic real estate holdings were reduced approximately 10% compared to 2021 through sales and consolidation both domestically and internationally. Furthermore, beyond Japan, we have implemented measures overseas including the consolidation and the closure of innovation centers in China and Asia, as well as reduction and relocation of office space in Americas and Europe. These initiatives are critically important for transforming a mindset toward capital efficiency and embedding this culture throughout the organization. We believe we will continue to deliver sustainable impact. 2026 is not a year of reform but a year to reliably deliver growth. The robust brand portfolio enabling this growth has been built through our past reforms and investments. We are ready. This year, we plan to launch 20% more new products into the market than last year, with an expected increase in sales volume of 20%. This represents not merely a numerical increase, but a domestic expansion in the total value we deliver. First, our core brands serve as the global engine. We will continuously refresh our globally recognized hero products to earn strong loyalty, making customers think this brand is the only choice. We will also maximize brand communication power, starting with our global ambassadors to gain recognition and support from the next generation of customers, and then the next brand to accelerate growth. We will intensify investment in these brands to seize overwhelming winning opportunities in specific categories. Armed with each brand's unrivaled confident science, we will deliver value that exceeds customer expectations and reshape the market landscape. For Drunk Elephant, we will ensure a complete turnaround through rebranding initiatives. I will now explain the strategic direction for each brand. For Shiseido, in 2025 in Japan, we will achieve robust double-digit growth exceeding the market, with approximately 20% growth in the second half. China and travel retail also turned positive in the second half, while Europe and the Americas remained flat compared to the previous year in the second half. By 2026, Shiseido will re-accelerate its growth as the brand that most embodies the common engine for winning globally. We will continuously strengthen our hero products and lines. We will continue to introduce innovative products across three lines, Altimmune, Vital Perfection, and Future Solution to elevate them into globally recognized brands purchased by name. Next, we will maximize brand communication power starting with our global ambassadors. The appointment of our new ambassador, Lisa, announced yesterday will dramatically expand our touchpoints and engagement with next generation customers positioning us as a global leader in the slow aging category. On the appointment of a new ambassador, furthermore, we will rigorously pursue a strategy to precisely capture regional growth and opportunities in Japan and Asia. We will further expand market share by leveraging our strength in makeup category, including the popular foundation serum. In Europe and America, we will continue growth by capitalizing the high recognition and trust in sun care products. In China and travel retail, we will leverage the effects of structural reforms to reliably capture the recovery phase starting in the second half. Last year, driven in part by the renewal of our skin care line, Key Radiance Care has achieved double-digit growth in the second half in China, travel, retail, Asia-Pacific and Europe. In Japan, despite headwinds from the inbound tourism, we maintained steady growth locally and strengthened our loyal customer base, demonstrating remarkable resilience amid intense market shifts. Clé de Beauportier will continue evolving this year into a brand consistently chosen in the luxury markets by launching New products featuring cutting-edge technology. Depending on deepening the brand's world view centered around the global ambassador is the key. Nicole Kidman's brand expression captures the hearts of luxury customers while elevating the brand's iconic status.