Successful Start to Our Global No. 1 Strategy A Message from the Management In fiscal <strong>1997</strong>, ended March 31, <strong>1997</strong>, the Japanese economy recovered steadily in line with improved private-sector capital investment and new housing starts. In contrast, personal consumption growth remained weak. Fiscal <strong>1997</strong> was an especially meaningful year for <strong>Shiseido</strong>. The term marked the launch of Global No. 1, a new five-year management plan through which we are aggressively pursuing corporate activities. We strove hard to reinforce our operations during the period under review. In our cosmetics business, we pursued marketing designed to maximize quality as perceived by customers. In the toiletries and other areas, we endeavored to keep abreast and ahead of consumer trends. At the same time, we solidified our management foundations in several ways. We strengthened research and development, cut costs through productivity gains, responded to the acceleration of information flows, and strategically expanded our overseas operations. As a result of these efforts, consolidated net sales advanced 4.9%, to ¥588.6 billion. Domestic sales were up 2.7%, to ¥524.0 billion, and accounted for 89.0% of this amount. Overseas sales jumped 28.0%, to ¥64.5 billion, constituting 11.0% of net sales. Income from operations jumped 15.9%, to ¥42.9 billion. Net income thus climbed 9.4%, to ¥19.2 billion. Net income per share was ¥47.5, up from ¥43.7. The return on equity was 5.1%, up from 5.0% in the preceding year. We again made heavy plant and equipment investments. We allocated much of the ¥18.6 billion spent to build new training and reinforce research facilities. To support growth and help finance affiliates, we issued SFr300 million in bonds with warrants during the year. Solid Progress with New Management Initiative We are solidifying our management base through Global No. 1. This initiative is our path to worldwide leadership in terms of the quality of our products and services, our management, and our people. This plan also targets ¥800 billion in consolidated net sales by fiscal 2001, 25% of which will come from overseas. Global No. 1 has already been very successful. SHISEIDO / <strong>Annual</strong> <strong>Report</strong> <strong>1997</strong> 2 ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ For example, we divided our domestic cosmetics business into the cosmetics and cosmenity businesses, which handle consultation-oriented and self-selected products, respectively. Then in April 1996 we completely separated the marketing operations of both businesses. These moves strengthened our market presence and sales. Through <strong>Shiseido</strong> International Corporation, we launched new brands that create new value both in Japan and abroad. These brands were instant hits among consumers. Sales of these brands are still relatively small, but we are confident that they will grow substantially in the years ahead. We again faced intense price competition in toiletries. Nevertheless, we were able to strengthen this area by focusing even more on the needs of consumers while slashing costs. In other businesses, notably professional beauty salon products, foodstuffs and pharmaceuticals, we launched many new products and expanded our sales channels. Sales generally expanded steadily overseas, including in the Middle East and Eastern Europe. We started <strong>Shiseido</strong> Asia Pacific Co., Ltd., during the year to help expand marketing in Asia. We acquired the North American Hair Salon Division of Helene Curtis Inc. in the United States, as well as Helene Curtis Japan Inc. In March <strong>1997</strong>, we bought a plant in New Jersey. Those were our international highlights. Please read the full details later in this report. On the R&D front, we strengthened basic research. To broaden the range of research areas, we acquired a new R&D facility in Yokohama. Production went from strength to strength. We boosted capacity at our Kamakura plant and started an expansion of the Maizuru plant. To improve logistics as well as minimize environmental impact, we established a new joint distribution system with Kanebo, Ltd. Progress toward Global No. 1 As we move ahead in our second year of Global No. 1, we have prioritized progress in several key areas. In cosmetics, we are focusing on the needs of an international marketplace through such efforts as the development of global brands.
Akira Gemma, President and Chief Executive Officer / Yoshiharu Fukuhara, Chairman of the Board SHISEIDO / <strong>Annual</strong> <strong>Report</strong> <strong>1997</strong> 3
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