Notice of Convocation

Transcription

1 Notice of Convocation The 114th Ordinary General Meeting of Shareholders [Disclaimer: Please note that the following purports to be an accurate and complete translation of the original Japanese version prepared for the convenience of our shareholders with voting rights outside Japan for reference. In the case of any discrepancy between the translation and the Japanese original, the latter shall prevail. Please be advised that certain expressions for domestic voting procedures that are not applicable to the aforesaid shareholders are omitted or modified to avoid confusion. Please also be advised that this material will not facilitate your status as a registered shareholder, who is authorized to physically attend the ordinary general meeting of shareholders in person, unless presenting the original Notice of Convocation and the Voting Form in Japanese to the receptionist at the place of the meeting.]

2 Table of Contents Page Notice of Convocation of the 114th Ordinary General Meeting of Shareholders 3 [Attached Documents] Business Report 1. Matters Concerning Shiseido Group 7 2. Matters Concerning Shares Issued by the Company Matters Concerning Shares Held by the Company Matters Concerning Stock Acquisition Rights Matters Concerning Status of Corporate Governance and Directors, Audit & Supervisory Board Members and Corporate Officers of the Company Approach toward CSR of the Company 56 Consolidated Accounting Documents Consolidated Balance Sheets 59 Consolidated Statements of Income 60 Consolidated Statement of Changes in Net Assets 62 Notes to Consolidated Financial Statements 63 Accounting Documents Non-Consolidated Balance Sheets 75 Non-Consolidated Statements of Income 76 Non-Consolidated Statement of Changes in Net Assets 77 Notes to Non-Consolidated Financial Statements 79 Accounting Auditors Reports Copy of the Accounting Auditors Report (Consolidated) 85 Copy of the Accounting Auditors Report 87 Copy of the Audit & Supervisory Board s Report 89 [Reference Document Concerning the General Meeting of Shareholders] 1. Total Number of Voting Rights Held by Shareholders Items of Business and Matters for Reference 91 First Item of Business: Dividends of Retained Earnings 91 Second Item of Business: Election of Eight (8) Directors 92 Third Item of Business: Election of One (1) Audit & Supervisory Board Member 105 Fourth Item of Business: Payment of Bonuses to Directors 107 Fifth Item of Business: Determination of Provision of Long-Term Incentive Type Remuneration to Directors

3 Security Code: 4911 June 2, 2014 Notice of Convocation of the 114th Ordinary General Meeting of Shareholders Dear Shareholders: We express our deep appreciation to each of the shareholders for their extraordinary daily support. You are cordially invited to attend the 114th ordinary general meeting of shareholders of Shiseido Company, Limited (the Company ). The meeting will be held as described on page 4. If you are unable to attend the meeting, you may exercise your voting rights in writing or through website voting. Please examine the accompanying Reference Document Concerning the General Meeting of Shareholders and exercise your voting rights. Yours very truly, Shiseido Company, Limited Shinzo Maeda Representative Director, Chairman Registered Head Office: 5-5, Ginza 7-chome, Chuo-ku, Tokyo Principal Business Office: 6-2, Higashi-Shimbashi 1-chome, Minato-ku, Tokyo (VOTING PROCEDURE FOR REGISTERED SHAREHOLDERS IN JAPAN) 1 When you exercise your voting rights via the Internet etc., please access to Proxy Voting Website ( and refer to Notes to the Use of the Exercise of Voting Rights via the Internet (Omitted). 1 Please note that shareholders outside Japan shall not use these voting procedures

4 PARTICULARS 1. Date and Time of the Meeting: Wednesday, June 25, 2014 at 10:00 a.m. 2. Place of the Meeting: IMPERIAL Hotel, 2F, Kujyaku Room (Main venue of the event) 1-1, Uchisaiwai-cho 1-chome, Chiyoda-ku, Tokyo, Japan 3. Matters to Be Dealt with at the Meeting: Matters for Reporting: Report on the business report and the consolidated accounting documents, non-consolidated accounting documents, and the results on the audits of consolidated accounting documents by the accounting auditor and the audit & supervisory board for the fiscal year ended March 31, 2014 (April 1, 2013 to March 31, 2014). Matters for Resolution: First Item of Business: Second Item of Business: Third Item of Business: Fourth Item of Business: Fifth Item of Business: Dividends of Retained Earnings Election of Eight (8) Directors Election of One (1) Audit & Supervisory Board Member Payment of Bonuses to Directors Determination of Provision of Long-term Incentive Type Remuneration to Directors Contents and details of each item are described in the Reference Document Concerning the General Meeting of Shareholders described in and after page Matters Related to Exercise of Voting Rights: (1) The deadline for the exercise of voting rights via return mail voting form or via website The exercise of voting rights shall reach or be received by the Company by June 24, 2014 (a day before the ordinary general meeting of shareholders) at 5:15 p.m., the close of business. (2) Validity of the voting in the event of exercise of voting rights by the same and one shareholder via both return mail and via website In the event that the same and one shareholder exercises voting rights via both return mail and via website, the Company will consider the exercise of voting rights via website shall be valid. Moreover, the same and one shareholder exercises voting rights via website several times, the Company will consider the last exercise of voting rights by via website shall be valid

5 (3) Requirement for exercise of voting rights through agent Shareholders may exercise voting rights through an agent who shall be a shareholder of the Company. In this case, the shareholder or the agent shall be required to submit a document certifying the power of representation to the Company at the general meeting of shareholders. 5. Other Matters Related to This Notice of Convocation: (1) In the Company s website, the following are voluntarily disclosed by the Company in the column entitled Home>IR>General Meeting of Shareholders / Corporate Governance>General Meeting of Shareholders>Notice of the Convocation: the 114th Ordinary General Meeting of Shareholders ( The 30 Largest Stock-Holdings of Publicly Listed Companies in the Amount on the Balance Sheet, Which the Company Holds for Purposes Other Than Realizing Direct Investment Gains relating to 3. Matters Concerning Shares Held by the Company of the business report. Criteria for Important Concurrent Position assumed by Company s directors, audit & supervisory board members and corporate officers and Criteria for Stating the Relationship between the Company and the Organizations in Which the Company s Directors and Audit & Supervisory Board Members Hold Important Concurrent Positions relating to 5. Matters Concerning Status of Corporate Governance and Directors, Audit & Supervisory Board Members and Corporate Officers of the Company of the business report. In addition, Non-financial Information Report Regarding ESG (FY2013) is also disclosed therein as reference information relating to the corporate governance and CSR of the Company. (2) In cases that the attached documents and Reference Document Concerning the General Meeting of Shareholders are amended, the Company will announce updated on the Company s website ( - End - Information for Notice of Convocation of the Ordinary General Meeting of Shareholders on the Company s Website The Company s Notice of Convocation of the Ordinary General Meeting of Shareholders is posted on the Company s website on Home/IR/General Meeting of Shareholders + Corporate Governance/General Meeting of Shareholders/Notice of the Convocation: the 114th Ordinary General Meeting of Shareholders ( ). (Japanese and English) Also the document is posted on the Tokyo Stock Exchange s website ( (Japanese and English) - 5 -

6 About Environment-Friendly General Meeting of Shareholders At this ordinary general meeting of shareholders, in addition to striving to reduce emissions of greenhouse gases such as CO 2 (carbon dioxide), we will carry out carbon offsets to counterbalance the amount of greenhouse gases emitted through the purchase of credits for reduction or absorption of greenhouse gas emissions achieved elsewhere

7 Business Report (Fiscal Year from April 1, 2013 to March 31, 2014) 1. Matters Concerning Shiseido Group 1.1 Business Overview (1) Progress and Results 1) Overview Progress and Results in the Fiscal Year Ended March 2014 In the fiscal year ended March 31, 2014, the Japanese economy enjoyed moderate recovery underpinned by government economic measures. The domestic cosmetics market also showed indications of a turnaround. Moreover, there were signs of temporary growth in demand ahead of the consumption tax hike in April Overseas, however, cosmetics markets are closely linked with economic conditions in their respective countries. In the Americas, the cosmetics market maintained firm growth thanks to ongoing expansion of the local economy. In Europe, where economic growth was weakened by the debt crisis and high unemployment rates, the cosmetics market saw only minimal growth. In Asia, where some nations are impacted by political conditions, the cosmetics market posted moderate overall growth. In this environment, the Shiseido Group continued implementing its three-year business plan (covering the three-year period from April 2011 to March 2014), designed to help get back on a growth trajectory. Impacted by the prolonged debt crisis in Europe, a worsening business environment in China sparked by the Senkaku Islands issue, and other factors, during fiscal 2012 we changed the course of the plan with an emphasis on building a high earnings structure capable of delivering steady profit growth even if revenue growth and market growth are on the same level. We positioned the year under review, the final period of the plan, as a year of paving the way to sustained growth backed by a rigorous distinction and concentration strategy aimed at removing obstacles to lay the groundwork for growth. During the year, we continued implementing cost structural reforms and business structural reforms and began efforts to optimize store-level inventories, while taking actions to enhance the soundness of unprofitable and low-profit businesses. At the same time, we allocated resources to strong, big, and highly profitable fields, both in Japan and overseas. To this end, we focused on reinforcing our strengths in three areas: Japan, China, and Bare Escentuals, Inc. (U.S.). For the fiscal year ended March 31, 2014, domestic sales increased 1.1 percent and overseas sales were up 26.4 percent from the previous fiscal year. The trend toward yen depreciation in the foreign exchange rate had a positive effect on overseas sales. As a result, consolidated net sales increased 12.4 percent compared with the previous fiscal year, which was the highest ever. Operating income was up 90.6 percent from the previous fiscal year, despite the negative impact of recovery of market inventory aimed at optimizing store-level inventories, thanks to factors including increased marginal gain stemming from higher sales and the effect of the exchange rate, in addition to continued companywide cost structural reforms and efficient management of expenses, and a decrease in personnel costs such as bonuses and pension costs in Japan. Despite the posting of an extraordinary loss associated with recovery of store-level inventories, as well as a tax payment based on an expectation that the possibility of an investigation into transfer pricing is high, the Group returned to profitability for the fiscal year ended March 31, 2014, as a result of a substantial increase in operating income, and the posting of gain on sales of some real estate such as building owned by a sales subsidiary, after the net loss posted in the previous fiscal year due to extraordinary losses including an impairment loss on goodwill related to Bare Escentuals, Inc. Looking at various indicators, consolidated operating profitability for the fiscal year ended March 31, 2014 was 6.5 percent, consolidated return on equity (ROE) was 8.4 percent, and the overseas sales ratio was 50.5 percent, marking the first time that overseas sales have surpassed domestic sales at the Shiseido Group

8 Consolidated Results Net Sales Current FY: 762,047 million Year-on-year change: +12.4% Sales composition: Overseas 50.5% Domestic 49.5% Operating Income Current FY: 49,644 million Year-on-year change: +90.6% Operating Profitability Current FY: 6.5% Year-on-year change: +2.7 points Ordinary Income Current FY: 51,426 million Year-on-year change: +81.0% Net Income (Loss) Current FY: 26,149 million Year-on-year change: Consolidated ROE Current FY: 8.4% Year-on-year change: points Notes: 1. - denotes loss, decrease, etc. or negative value. 2. In an effort to achieve consistency in internal Group accounting treatment, Shiseido Group subsidiaries in the Americas changed, from the 112th Business Term, accounting treatment of samples and promotional items associated with marketing activities of stores, from the method in which they are recognized as assets when acquired and are expensed when shipped to customers, to the method in which they are expensed when acquired. As a result of this change, the Accounting Standard for Accounting Changes and Error Corrections (ASBJ Statement No. 24) was adopted and applied retroactively to the consolidated financial statements for the 111th Business Term

9 2) Activities by Business Segment Domestic Cosmetics Business Segment In the Domestic Cosmetics Business segment, sales were up 1.1 percent, to 349,718 million. In the domestic cosmetics division, we engaged in efforts focused on expanding over-the-counter sales, particularly on strengthening the prestige market. Despite efforts to recover inventories with a view to optimize store-level inventories, sales were higher than the previous fiscal year, partly reflecting a greater-than-expected surge in the last-minute demand prior to the hike in the consumption tax rate. The healthcare division also saw a year-on-year increase in sales. Operating income increased 43.5 percent to 39,460 million, resulting from an increase in marginal gain due to higher sales, in addition to more efficient management of expenses, and other factors. Domestic Cosmetics Division In the cosmetic business, we continued efforts from the previous year reflecting a policy of meticulously selecting only products that can earn a high level of customer support. We also continued nurturing existing mainstay products. As a result, two core lines in the mid-priced range performed well: the ELIXIR skincare and base-makeup line, which offers ultimate bliss in skincare, and the MAQuillAGE comprehensive makeup line. We also stepped up communications activities designed to strengthen our position in the prestige domain. These included airing television commercials for the global brand SHISEIDO and the top-end brand clé de peau BEAUTÉ. We reported sales growth as a result, especially in department stores. One challenge from the previous year is addressing the needs of seniors. To this end, we set up a dedicated site for seniors within the Shiseido watashi+ website, which is a next-generation beauty solutions and services website that brings together the web and existing retail stores. In addition, we set up a dedicated free-dial line for seniors and launched a dedicated tabloid, called Kirameki Ms. Tsushin. We also hosted Kirameki Master Salon seminars to help seniors rediscover their unique qualities and master beauty care techniques. During the fiscal year ended March 31, 2014, the Shiseido Group began efforts to optimize store-level inventories, with the aim of eliminating problems that obstruct the path to growth. To this end, we sought to build a framework that prevents inventories from accumulation. This will entail implementation in fiscal 2014 of business management reforms that focus on store-level sales. In addition, we worked to streamline store-level inventories, including by recovering finished products and products with high stock rates

10 Healthcare Division In the healthcare business, we focused on The Collagen, a mainstay health and beauty food line. Accordingly, we maintained a high share despite continued contraction of the retail sales market for collagen. Moreover, we sought to increase recognition of Chomeiso, a health and beauty food containing button parsnip grown on a contracted farm in Yonaguni Island that does not use agrochemicals and expand the number of stores handling this product. During the year, we also launched and began sales in convenience stores, complementing existing sales channels, of Tsuyatsuya Purun Jelly as part of the KIREI NO SUSUME line of beauty drinks designed to enhance beauty. In these ways, we strove to increase interaction with customers. Global Business Segment Sales in the Global Business segment rose 24.8 percent, to 402,213million and grew 1.4 percent on a local-currency basis, partly reflecting the impact of the trend toward yen depreciation in the foreign exchange rate. The overseas cosmetics division continued to post healthy sales growth in the Americas, and even in Europe, where the impact of economic stagnation was felt, certain countries such as Russia performed strongly. Designer fragrances also expanded. Meanwhile, although China is breaking out of a challenging business climate, this did not lead to major sales growth for reasons including the optimization of store-level inventories that was carried out. The professional division posted a year-on-year increase mainly owing to growth in sales in Asia. The Global Business segment posted an operating income of 7,659 million, as a result of factors including the efficient management of expenses and the impact of the exchange rate. Overseas Cosmetics Division At the prestige end of the cosmetics business, the global brand SHISEIDO and makeup artist brand NARS 1 again performed well, especially in the United States. Our designer fragrances business also enjoyed solid growth as we began handling the Ferragamo 3 and BURBERRY 4 brands, which complemented firm demand for narciso rodriguez 2 and other brands. In the meantime, Bare Escentuals, Inc., which sells Bare Minerals 5 and other brands, laid the groundwork for growth in fiscal 2015 and beyond, having positioned fiscal 2013 and 2014 as a period for rebuilding its business foundation. Conditions are gradually improving in the top-priority Chinese market, where we faced a difficult challenges, including purchasing restraint for our products sparked by the Senkaku Islands issue. However, there was a slight year-on-year sales decline due to adjustments in shipments aimed at optimizing store-level inventories. Thanks to foreign exchange factors, however, sales in yen terms increased year-on-year. In the Asian masstige 6 market, we reinforced Za 7 and other masstige brands. We also sought to strengthen our Asia-wide masstige marketing activities by translating existing successes notably amassed self-marketing know-how in Taiwan and sales promotional

11 activities in Thailand laterally across other Asian nations. We achieved sales growth in this market as a result. The Shiseido Group did not enter new countries or regions among emerging nations 8 in the fiscal year ended March 31, In the previous fiscal year, however, we opened a representative office in India to establish a foundation for full-scale entry into that market, where we have advanced our business via sales agencies since In the year under review, we established a wholly owned subsidiary. We also strengthened our business foundation in other ways. For example, we established a joint venture company to coordinate our business across seven nations in the Middle East, where we have sold our products in conjunction with sales agencies since As of December 31, 2013, the global brand SHISEIDO had a presence in 89 countries and regions (including Japan). Notes: 1. NARS: Comprehensive skincare and makeup brand launched by Mr. François Nars, a French makeup artist. 2. narciso rodriguez: Fragrances sold under license agreement with a fashion designer in the United States Mr. Narciso Rodriguez. 3. Ferragamo: Launched sales as an agent for the Ferragamo brand in specific regions, based on an agency contract with Italian shoe brand Salvatore Ferragamo. 4. BURBERRY: Launched sales as an agent for the BURBERRY brand in specific regions, based on an agency contract with U.K. fashion brand BURBERRY. 5. bareminerals: Mineral-based skincare and makeup brand of Bare Escentuals, Inc., the company acquired in Masstige: A word coined from mass and prestige. Masstige products are positioned as more expensive than mass-produced products, but more moderately priced than prestige products. 7. Za: Comprehensive skincare and makeup brand targeting middle-income earners in Asia. 8. Emerging countries: Countries and regions with a large young population, where mid-to-long-term economic growth is expected. These include Russia, Brazil, Turkey, India, the Middle East, Mongolia, Vietnam, Indonesia, and the Philippines

12 Professional Division In the professional division, we have focused on tapping Asian markets since In the year under review, this business was driven by growth in South Korea and China. Together with sales in the Americas and Europe, which were mostly unchanged, overall overseas sales in the professional business increased year on year. In Japan, where our priority focus was on the hair-care and hair-color domains, two products performed well: Adenovital Scalp Essence V, a new product in The Hair Care line; and Salon Solutions, a system-based product exclusively for salons. During the fiscal year ended March 31, 2014, we began negotiations to sell the DECLÉOR and CARITA esthetic skincare brands, sold mainly in Europe, to L Oréal S.A., a French cosmetics company. We subsequently reached an agreement and concluded the contract for sale in February Others Sales from Others increased 6.5 percent, to 10,114 million. Results were up year-on-year owing to strong performance in the frontier science business and sales growth in the restaurant business due to favorable performance in both restaurant and retail sales. Operating income in this segment increased 5.9 percent, to 2,081 million, owing to an increase in the marginal gain stemming from higher sales. The frontier science business posted a year-on-year increase in sales. Here, we enjoyed healthy sales of the 2e and Navision lines of cosmetics for medical institutions derived from our beauty care skin research. Another major contributor was high-speed liquid chromatography-related machinery employing powder surface treatment technology gained through our experience with cosmetics

13 Medical cosmetics NAVISION DR Line Meanwhile, our restaurant business posted a significant year-on-year increase in sales. Shiseido Parlour Co., Ltd., a subsidiary in the restaurant business, reported solid sales at restaurants and at retail outlets, including department stores, railway stations, and airports. The restaurant business was also bolstered by the renewal and reopening of top French restaurant L Osier in October ) Business-wide Initiatives Structural Reforms Cost Structural Reforms In the fiscal year ended March 31, 2014, we pressed ahead vigorously with the cost structural reforms begun in the fiscal year ended March 31, We monitored results each quarter, with the aim of definitely achieving the commitment amounts. As a result, all of the task teams that were put together by topic to address the target domains exceeded the plan. Business Structural Reforms Continuing from the fiscal year ended March 31, 2013, three programs, namely reorganization of production and R&D bases, strengthening of management of human resources and personnel costs, and integration of functions on a global scale, were carried out. Of these, with regard to reorganization of production and R&D bases, we completed the closure of the Research Center Kanazawahakkei and its integration into the Research Center Shin-Yokohama in September 2013 as planned. With regard to strengthening management of human resources and personnel costs, we are promoting greater employee development and recruiting human resources familiar with new business domains, and are engaging in various efforts with the goal of improving human productivity. In line with this, we revised the early retirement system for managers. As for integration of functions on a global scale, we pressed ahead with the integration of back office functions, as well as enhancing and integrating logistics infrastructure across all subsidiaries based in the United States that was begun in Initiatives to Achieve Sustained Growth R&D for the Creation of New Value Amid the accelerating diversification of customer opinions and business globalization, the Shiseido Group focuses on research and development guided by survey data about our customers in major cities around the world: their skin, their opinions, actions, tastes, and so on. At the same time, we have engaged in value development based on customer insight (depth psychology that customers themselves are not aware of), on matters such as psychological attitudes towards cosmetics, and buying motives. Currently, we are working to further expand this customer-oriented value development, by promoting research and development from the three perspectives of knowing, making, and telling, in pursuit

14 of kotozukuri, creating value that will touch our customers hearts. Furthermore, in the interest of balancing safety assurance and animal welfare, we eliminated animal testing in-house and externally for cosmetics and quasi-pharmaceuticals as of the end of March , thanks to the establishment of a new safety assurance system based on alternatives to animal testing. Furthermore, we dominated the top awards for both oral and poster presentations at the International Federation of Societies of Cosmetic Chemists (IFSCC) Conference 2013, a conference held by the IFSCC every second year, which recognizes the world s best research in areas including cosmetics and skin. We also have the highest total number of awards (18 top awards, 4 other awards) among cosmetics manufacturers in the world. Note: 9. Eliminated as of the end of March 2013: The Company decided at the Board of Directors meeting on February 28, 2013, not to conduct animal testing in-house or externally for cosmetics and quasi-pharmaceuticals which go into development from April 2013 onwards, apart from a limited number of exceptions. Limited number of exceptions refers to the cases where it becomes necessary to explain safety to the public. Specifically, when it becomes necessary to again prove the safety of ingredients in a product on the market, and when the only option for doing so is animal testing, or for those countries where animal testing is essential to assure the safety of cosmetics. Promoting Diversity in Employees Employees, who work for the Shiseido Group in various countries and regions worldwide, have diverse attributes, including nationality, gender, age, employment status and developmental challenges, as well as values and viewpoints, and we are promoting diversity on a global level. Since 90 percent of the Shiseido Group s customers are women, we focus on providing new products and services based on our understandings of women s values and current lifestyles. Our female employees, who account for approximately 80 percent of all the employees, must therefore play a central role in management and business activities. Accordingly, Shiseido has introduced a variety of support programs. As of the end of March 2014, the ratios of female employees 10 and female leaders 11 in the Shiseido Group worldwide were 84.6 percent and 49.2 percent respectively while in Japan 83.3 percent and 26.1 percent respectively. Notes: 10. Ratio of female employees: Ratio of females in group employees 11. Ratio of female leaders: Ratio of females in managers with subordinates Life Quality Business / LIFE QUALITY BEAUTY PROGRAM As an embodiment of the Shiseido Group corporate message, This moment. This life. Beautifully. and as a social business that targets ongoing and constructive business development, we have integrated and reorganized the beauty services geared toward the elderly (Cosmetic Therapy Program for the Elderly) and various beauty seminars into the life quality business. We continued to implement the SHISEIDO LIFE QUALITY BEAUTY PROGRAM an initiative that leverages the results of research on both the material and spiritual aspects of cosmetics and beauty accumulated through our business activities to help each and every customer realize their beauty aspirations and to enrich their hearts as well. The SHISEIDO LIFE QUALITY BEAUTY PROGRAM reopened in the Shiseido Ginza Building that opened in October In addition to the serious skin conditions it has targeted thus far, such as birth marks, dark spots, white spots (vitiligo), and uneven skin (scars), the center has also launched a makeup advice program to address the beauty-related concerns of cancer patients, including dull skin or loss of eyebrows or eyelashes resulting from the side-effects of cancer treatment

15 SHISEIDO LIFE QUALITY BEAUTY CENTER Individual consultation rooms offer privacy for users Environmental Activities Since its founding, Shiseido has pursued business development while maintaining gratitude for the bounty of the earth. We continue to implement the Shiseido Earth Care Project with the participation of all employees, in order to bring beauty to both people and the earth by engaging in environmental activities at every stage of our mission, from the creation of products to seeing our customers shine. Through the project, Shiseido promotes initiatives such as improving the environmental friendliness of its products, reducing the amount of CO 2 emitted at business offices, and working to preserve biodiversity. During the fiscal year ended March 31, 2014, we engaged in ongoing environmental initiatives such as the camellia-tree planting and conservation volunteer activities that we have conducted annually in Japan since 2009, and the tree-planting activities that we have continued in China since In addition, we carried out environmental activities through our office building. At the Shiseido Ginza Building, which opened in October 2013, such as we introduced energy-saving air conditioning equipment and lighting, and installed solar energy generation facilities in order to achieve lower CO 2 emissions. In addition, with the aim of contributing to the preservation of biodiversity in the Ginza area, we planted greenery on the rooftop using appropriate trees based on the results of an environmental research of the surroundings. Rooftop garden of the Shiseido Ginza Building (Shisei Garden)

16 (2) Capital Expenditures Investment (Millions of yen) Purpose of Investment Property, plant and equipment 19,353 Renovation and renewal of production facilities, upgrades at overseas stores, reconstruction of the Shiseido Ginza Building Intangible assets 4,065 Development of systems for the Company s website including watashi+, additional introduction of the SAP core business processing system in the domestic subsidiaries Long-term prepaid expenses 6,197 Installations of sales counters and fixtures Total 29,616 (3) Financing Shiseido did not procure significant funding during the fiscal year ended March 31, (4) Summary of Consolidated Income and Assets of the Shiseido Group (Millions of yen, unless otherwise noted) 114th Business 111th Business 112th Business 113th Business Term Term Term Term (Current term) (4/1/ (4/1/ (4/1/ (4/1/2013-3/31/2011) 3/31/2012) 3/31/2013) 3/31/2014) Net Sales 670, , , ,047 Operating Income 44,458 39,135 26,045 49,644 Operating Income to Net Sales (%) Ordinary Income 44,480 39,442 28,406 51,426 Net Income (Loss) 12,790 14,515-14,685 26,149 Net Income (Loss) per Share (Yen) Return on Equity (%) Comprehensive Income -18,260 5,456 19,985 90,722 Total Assets 739, , , ,346 Net Assets 320, , , ,707 Net Assets per Share (Yen) Equity Ratio (%) Price/Earnings Ratio (Times) Cash Flows from Operating Activities 67,586 52,599 42,040 84,320 Cash Flows from Investing Activities -30,303-20,668-25,534-16,799 Cash Flows from Financing Activities -39,571-35,482-24,745-47,462 Cash and Cash Equivalents at 88,592 82,974 80, ,163 End of Year Notes: 1. In an effort to achieve consistency in internal Group accounting treatment, Shiseido Group subsidiaries in the Americas changed, from the 112th Business Term, accounting treatment of samples and promotional items associated with marketing activities of stores, from the method in which they are recognized as assets when acquired and are expensed when shipped to customers, to the method in which they are expensed when acquired. As a result of this change, the Accounting Standard for Accounting

17 Changes and Error Corrections (ASBJ Statement No. 24) was adopted and applied retroactively to the consolidated financial statements for the 111th Business Term. 2. Increase in comprehensive income in the 112th Business Term was due primarily to an increase in foreign currency translation adjustments associated with the fluctuations of exchange rate. 3. Price/Earnings Ratio for the 113th Business Term is not stated as a net loss was recorded for the period due mainly to an impairment loss on goodwill related to the subsidiary acquired. 4. Effective the 114th Business Term, the Company has applied Employee Benefits (International Accounting Standard No. 19, amended June 16, 2011), to certain consolidated subsidiaries. This has resulted in a change in recognition of changes in the Company s net defined benefit liabilities. The change in accounting policy has been applied retroactively and is reflected in the consolidated financial statements for the 113th Business Term. 5. Summary of Non-Consolidated Income and Assets (Millions of yen) 111th Business Term (4/1/2010-3/31/2011) 112th Business Term (4/1/2011-3/31/2012) 113th Business Term (4/1/2012-3/31/2013) 114th Business Term (Current term) (4/1/2013-3/31/2014) Net Sales 236, , , ,219 Operating Income (Loss) 15,243-2,320 3,280 6,051 Ordinary Income 26,264 11,046 27,080 23,663 Net Income 12,692 8,476 20,119 15,482 Total Assets 596, , , ,317 Net Assets 331, , , ,061 (5) Income Distribution 111th Business Term (4/1/2010-3/31/2011) (Millions of yen, unless otherwise noted) 114th Business 112th Business 113th Business Term Term Term (Current term) (4/1/2011 (4/1/ (4/1/ /31/2012) 3/31/2013) 3/31/2014) Annual cash dividends per share (Yen) (P) Annual dividends 19,895 19,899 19,900 7,968 (P) Consolidated payout ratio (%) (P) Notes: 1. Annual cash dividends per share and annual dividends for the 114th Business Term (current term) are predicated on the approval of the First Item of Business, Dividends of Retained Earnings, at the ordinary general meeting of shareholders to be held on June 25, The consolidated payout ratio for the 113th Business Term has not been calculated because a net loss was posted for the same business term. 3. The Company s target for returns over the medium-term is a consolidated payout ratio of 40 percent. Based on this target, we will prioritize payment of stable dividends while implementing share buybacks in a flexible manner. (6) Issues to Address 1) Medium- and Long-Term Issues Management Strategies Toward fulfilling Our Mission, which is the corporate philosophy of the Shiseido Group, we are working hard to benefit society by enhancing beauty to customers worldwide and thus achieve sustained increases in corporate value. Positioning the year 2020, when Tokyo hosts the Olympics and Paralympics, as a turning point, we will embrace a management approach emphasizing consolidated ROE and other capital efficiency indicators in addition to revenue growth and operating profitability. In these ways, we will

18 strive to become a formidable global marketing company with powerful brands and unparalleled strengths in marketing and innovation. The Shiseido Group s core business is the brand business, which entails creating attractive brands and conveying the value of those brands to customers. The Group s brands are its most important assets, so continuous creation of brand value is a crucial factor in its growth potential. In order to continuously create brand value, we must consistently deliver products and services that realize customers support. This means making maximum use of our core tangible and intangible assets: financial capital (shareholder capital, etc.), manufacturing capital (manufacturing facilities, etc.), intellectual capital (expertise, know-how, intellectual property, cultural assets, etc.), human capital (human resources, etc.), social capital (strong relationships of trust with stakeholders, networks, etc.) and natural capital (energy, raw materials, etc.). To achieve this goal, we will harness our Groupwide strengths to pursue integrated marketing based on the core belief that marketing is the essence of corporate management. In the fiscal year ending March 31, 2015, we will focus on preparing for the next stage of growth under a new management structure headed by President Masahiko Uotani, a marketing professional from outside the Group. Specifically, we will address three major priorities: strengthening marketing execution and brand attractiveness from the customer s perspective, reforming our organization and corporate culture, and reinforcing our operational foundation. At the same time, we will formulate a new medium-term business plan targeting continuous and powerful growth. We are already implementing relentless structural reforms ahead of the plan, which will start in the fiscal year ending March 31, Strengthening Marketing Execution and Brand Attractiveness from the Customer s Perspectives With respect to strengthening marketing execution, we will work to improve the organizational functions of all parts of the Group with direct customer interface, including the marketing departments (responsible for brand management), sales departments, and beauty consultants (handling store-level responses). To this end, we will reinforce our creative skills, rigorously embrace a spirit of Omotenashi (hospitality), and significantly strengthen our digital marketing and e-commerce systems. As for reinforcing brand attractiveness, we will establish a brand portfolio that clearly defines fostered brands and priority investment brands along global regional lines. Reforming Our Organization and Corporate Culture In order to become a truly global corporation, we will reassess our organizational structure and human resource allocations in response to our brand strategies and global regional strategies, in order to advance an organization that has flat, simple business execution rules and processes. To embrace a renewed global perspective according to business management directions, we will set up a Global Leadership Committee 12 that will involve management of group companies from around the world to engage in decision-making on business strategies. Through these initiatives, we will discard organizational hierarchy and reform ourselves as an organization that conducts business as a team that is transparent and focuses on the customer. From the perspective of gender equality in business participation, we will target a 30 percent female leadership ratio in Japan for the Shiseido Group during fiscal 2016, well ahead of the objective set by the national government (in 2020). Rather than simply achieving numerical targets, however, we wish to appoint talented people to leadership positions. For this reason, we will place importance on nurturing human resources irrespective of gender, with the aim of fostering a corporate culture that will consistently give rise to female leaders

19 Note: 12. Global Leadership Committee: Committee that reviews Shiseido Group management strategies, comprised mainly of executives from overseas subsidiaries and including the Company s directors and corporate officers as members. Reinforcing Our Operational Foundation We will continue promoting cost structural reforms and business structural reforms pursued to date and further reinforce our operating foundation. Specifically, we will strengthen our financial position by enhancing the effectiveness of asset deployment and the efficiency of capital, in addition to improving cash flows, while making market-winning investments. In addition, we believe it is necessary to have a flexible business decision-making from the global perspective with an overseas sales ratio in excess of 50 percent. To this end, in 2015 we will shift our fiscal year-end from March 31 to December 31, so that all Group companies will have the same fiscal periods. Accordingly, fiscal 2015 will become a nine-month period ending December 31, 2015, and fiscal 2016 will be a one-year period from January to December This will enable us to accelerate management decisions related to swift allocation of investments and the like, and thus raise the transparency and quality of management by disclosing information in a timely and appropriate manner. Innovation for Sustainable Growth Building brand value requires generation of two types of elements: successive innovation and non-successive innovation. Successive innovation means developing solutions based on customer feedback, and providing a united response from the marketing, research and development, and sales teams. By contrast, non-successive innovation means producing innovations based on totally new perspectives, using open innovation unconstrained by conventional wisdom. In the past, the Shiseido Group has tended to rely on successive innovation. To achieve sustained growth, however, we will deploy our capabilities in generating non-successive innovation. Our aim is for all departments product development, research, production, sales and stores to unite in generating both successive and non-successive innovations. With a view to creating brand value for sustained growth, the Shiseido Group will move ahead with building a foundation that will generate two types of innovation: successive innovation and non-successive innovation

20 2) Main Challenges for the Fiscal Year Ending March 31, 2015 Addressing Recoil in Demand after Consumption Tax Hike In Japan, we expect a recoil in demand during the fiscal year ending March 31, 2015, following the rush in demand ahead of the consumption tax hike. We will take measures to address this market environment. Stepping Up Brand Strategy Promotion In order to establish an effective brand portfolio, from the fiscal year ending March 31, 2015 we will highlight the core value of SHISEIDO as a corporate brand and narrow our focus to brands/lines that strongly enhance its appeal while making aggressive investments aimed at achieving high levels of growth. In Japan, we will strongly enhance the appeal with six such brands/lines: global brand SHISEIDO, ELIXIR, MAQuillAGE, BENEFIQUE (cosmetics brand exclusively sold in cosmetics specialty stores), HAKU (special complexion-lightening brand derived from long-term research into skin blemish prevention), and a new line for seniors scheduled for launch in the fiscal year ending March 31, With respect to three of the brands SHISEIDO (global brand), ELIXIR, MAQuillAGE, and BENEFIQUE we are pursuing innovations under a Marketing Reform Project established in the fiscal year ended March 31, 2014, and we will undertake a renewal of those brands in the fiscal year ending March 31, In the global business, we will establish an overwhelming presence in various ways, including renewal of the global brand SHISEIDO and the exclusive Chinese brand AUPRES 13, as well as launching the first liquid foundation in bareminerals. Note: 13. AUPRES: China-only comprehensive skincare and makeup brand sold in department stores. Reinforcing Distribution Strategy and Promoting Over-the-Counter Development In line with our brand re-launch effort, we will promote new specialty store strategies and collaborations with large-scale retailers, with the aim of reinforcing our sales and distribution strategies. Pursuing Rigorous Cost Reassessment and Efficiency Enhancement In addition to cost structural reforms pursued to date, we will emphasize cost reassessment and efficiency enhancement by carefully scrutinizing each aspect of outlays, including raw materials and other costs, marketing costs, and personnel expenses. We will also initiate a project to address the aforementioned recoil in demand in order to further raise profitability. Building and Operating a Business Management Cycle In order to swiftly address changes in market and competitive environments, we will innovate and reinforce a business management cycle based on such factors as reviews of business management in each business, as well as future projections and consideration of action plans. Entrenching such a management cycle will enable us to flexibly shift resources between brands and businesses

21 1.2 Outline of the Shiseido Group (As of March 31, 2014) (1) Principal Businesses of the Shiseido Group Segment Domestic Cosmetics Business Global Business Others Main Business Domestic cosmetics division (production and sale of cosmetics, cosmetic accessories, and toiletries, etc.) Healthcare division (production and sale of health & beauty foods and over-the-counter drugs), etc. Overseas cosmetics division (production and sale of cosmetics, cosmetic accessories, and toiletries) Overseas and domestic professional division (production and sale of beauty salon products), etc. Frontier science business (production and sale of cosmetics raw materials, medical-use drugs, medical cosmetics, precision and analytical equipment, etc.) Restaurant business, etc. (2) Major Business Hubs Registered Head Office: 5-5, Ginza 7-chome, Chuo-ku, Tokyo Principal Business Office (Shiodome Office): 6-2, Higashi-Shimbashi 1-chome, Minato-ku, Tokyo Factories Name Kamakura Factory Kakegawa Factory Osaka Factory Kuki Factory Laboratories Name Research Center (Shin-Yokohama) Beauty Creation Research Center Location Kamakura-shi, Kanagawa Pref. Kakegawa-shi, Shizuoka Pref. Higashi-Yodogawa-ku, Osaka-shi, Osaka Pref. Kuki-shi, Saitama Pref. Location Tsuzuki-ku, Yokohama-shi, Kanagawa Pref. Shinagawa-ku, Tokyo

22 (3) Major Subsidiaries and Affiliated Companies of the Shiseido Group Ownership Percentage Company Name Location Paid-in Capital of Voting Principal Business Rights Shiseido Sales Co., Ltd. Minato-ku, (million JPY) % Tokyo Sale of cosmetics, etc. Shiseido FITIT Co., Ltd. Chuo-ku, (million JPY) Tokyo Sale of cosmetics, etc. Shiseido International Inc. Chuo-ku, (million JPY) Tokyo Sale of cosmetics, etc. The Ginza Co., Ltd. Chuo-ku, (million JPY) Tokyo Sale of cosmetics, etc. Shiseido Pharmaceutical Co., Chuo-ku, (million JPY) Sale of over-the-counter Ltd. Tokyo 100 drugs, etc. FT Shiseido Co., Ltd. Chuo-ku, (million JPY) Tokyo Sale of toiletries Shiseido Professional Co., Ltd. Chuo-ku, (million JPY) Sale of beauty salon Tokyo 250 products, etc. Shiseido Beauty Salon Co., Ltd. Chuo-ku, (million JPY) Tokyo Operation of beauty salons Shiseido Americas Corporation (thousand Delaware, Holding company and sale USD) U.S.A. of cosmetics, etc. in U.S.A. 403,070 Shiseido America, Inc. Bare Escentuals, Inc. Bare Escentuals Beauty, Inc. Zotos International, Inc. Shiseido International Europe S.A. Shiseido International France S.A.S. Shiseido Deutschland GmbH Shiseido Cosmetici (Italia) S.p.A. Shiseido Europe, S.A.S. Beauté Prestige International S.A. New York, U.S.A. Delaware, U.S.A. Delaware, U.S.A. Connecticut, U.S.A. Paris, France Paris, France Dusseldorf, Germany Milan, Italy Paris, France Paris, France (thousand USD) 28,000 (USD) 0.01 (USD) 1.00 (thousand USD) 25,000 (thousand EUR ) 256,133 (thousand EUR) 36,295 (thousand EUR) 5,200 (thousand EUR) 2,400 (thousand EUR) 9,000 (thousand EUR) 17,760 (100.0) (100.0) (100.0) (100.0) Production of cosmetics, etc. Holding company of Bare Escentuals Group Sales of cosmetics, etc. Holding company of Zotos Group and production and sale of beauty salon products, etc Holding company in Europe (100.0) (100.0) (100.0) (100.0) (100.0) Production of cosmetics, etc. Sale of cosmetics, etc. Sale of cosmetics, etc. Sale of cosmetics, etc. Holding company of Beauté Prestige International Group and sale of designer fragrances, etc

23 Company Name Location Paid-in Capital Laboratoires Decléor S.A.S. Shiseido China Co., Ltd. Shanghai Zotos Citic Cosmetics Co., Ltd. Shiseido Liyuan Cosmetics Co., Ltd. Shiseido Hong Kong Cosmetics Ltd. Taiwan Shiseido Co., Ltd. Paris, France Shanghai, China Shanghai, China Beijing, China Hong Kong, China Taipei, Taiwan (thousand EUR) 19,374 (thousand RMB ) 565,093 (thousand RMB) 418,271 (thousand RMB) 94,300 (thousand HKD) 123,000 (thousand TWD) 1,154,588 (million JPY) 100 (million JPY) Ownership Percentage of Voting Rights (100.0) (92.6) 32.0 (65.0) Principal Business Holding company of Decléor Group and production and sale of esthetic and spa products, etc. Holding company and sale of cosmetics, etc. in China Production of cosmetics, etc. Production and sale of cosmetics, etc Sale of cosmetics, etc Holding company and production and sale of cosmetics, etc. in Taiwan Chuo-ku, Shiseido Parlour Co., Ltd Operation of restaurants, etc. Tokyo Chiyoda-ku, Management of real estate, Selan Anonymous Association Tokyo 11,600 [100.0] etc. Note: Figures in parentheses ( ) in the Ownership Percentage of Voting Rights column include the share of indirect ownership. Those in brackets [ ] indicate share of related or approved parties. (4) Matters Concerning Employees of the Group Business Category Number of Employees Comparison with the Previous Fiscal Year Domestic Cosmetics Business 12,163 [7,772] -78 [-199] Overseas Business 20,404 [5,287] -238 [-284] Others 487 [349] +14 [+2] Total 33,054 [13,408] -302 [-481] Note: The numbers of employees shown are full-time employees. Annual average numbers of temporary employees are shown in [ ]. Temporary employees are part-time workers, and dispatched employees are excluded. (5) Main Supplies of Loans to the Group Lender Outstanding Balance Mizuho Bank, Ltd. 34,363 4,680 4,500 million JPY thousand USD million KRW