Shiseido Company,limited · TSE:4911
Shiseido Company,limited — Shiseido Co Ltd Ord — Q4 2023 Earnings Presentation
55 slides from Shiseido Company,limited's earnings presentation, Feb 9, 2024
Slide 1: 2023 Results (January-December) and 2024 Outlook
2023 Results UGanuary-December) and 2024 Outlook February 9, 2024 Shiseido Company, Limited Takayuki Yokota Chief Financial Officer SHISEIDO
Slide 2: Forward-looking statements
In this document, statements other than historical facts are forward-looking statements that reflect our plans and expectations. These forward-looking statements involve risks, uncertainties, and other factors that may cause actual results and achievements to differ from those anticipated in these s
Slide 3: 2023 Core OP ¥39.8 bn: Worst is Over, Ready to Recover in 2024
2023 Core OP ¥39.8 bn: Worst is Over, Ready to Recover in 2024 Local Consumer Purchases: Accelerated growth every quarter Market share: Improved every quarter with full-year market share gain Full-year profitability: Turned black with sharp profit increase in Q4 (+¥9.2 bn) Treated water impact stead
Slide 4: 2023 (January-December): Executive Summary
2023 (January-December): Executive Summary % of % of YoY YoY YoY YoY (Billion yen) 2022 Net Sales 2023 Net Sales Change Change % FX-Neutral% — LfL'2% Net Sales 1,067.4 100% 973.0 100% -94.3 -8.8% -12.2% +1.8% Core Operating Profit 51.3 -22.4% Non-recurring items Operating Profit . Profit Before Tax
Slide 5: Strong Growth by NARS, Drunk Elephant, and Fragrance; Weakness in China and Travel Retail
Strong Growth Delivered by NARS, Drunk Elephant, and Fragrance, while Weakening Sales in China and Travel Retail across the Brands Net sales by brand Like-for-like* (Billion yen) FX, etc, brands Drunk Fragrance ANESSA s] Elephant hen £21% | — 1,067.4 +77% — — 973.0 ELIXIR 1% 7 " Transferred, brands
Slide 6: Net Sales YoY: Sales Largely in Line with Previous Forecast
Net Sales YoY: Sales Remained Largely in Line with Our Previous Forecast Like-for-like’ 2023 Q! Q2 Q3 Q4 FY Q! Q2 Q3 Q4 Japan —32% —29% —27% -12% —25% +8% +9% +6% +17% China +10% +43% +4% +12% +18% -3% +20% -9% —21% —5% Asia Pacific +1% +5% +10% +26% +10% +16% +12% +15% +8% +13% Americas +67% +46% +
Slide 7: Japan: Accelerated Momentum Every Quarter, Gained Overall Market Share
Japan: Accelerated Momentum Every Quarter, Gained Overall Market Share e Q4 Market: > Local: * Low price ranges drove growth in the market; —*~_ middle price range remained on recovery track 0% * Base makeup categoryled growth wenn nee > Inbound: ee vs. 2019" * Moderate recovery continued due to ai
Slide 8: China: Market Environment Bottomed out after Q4 Challenges
China: Market Environment Bottomed out after Q4 Challenges @ Q4 Market: > Overall turned negative due to online drop, while offline accelerated > Pullback on Japanese products by the treated water release @ Shiseido Consumer Purchases’: Business Total : FY -low single digit% / Q4 —-high teen% * Offl
Slide 9: Travel Retail: Destocking on Track, Soon to Be Normalized
Travel Retail: Destocking on Track, Soon to Be Normalized @ Q4 Market: > Continued retailer inventory adjustments associated with tighter regulations in Hainan Island and South Korea > Consumer pullback of Japanese product by the treated water release @ Shiseido (Consumer Purchases)" Global : FY =mi
Slide 10: Americas, EMEA, Asia Pacific: Delivered Double Digit Growth in 2023
Americas, EMEA, Asia Pacific: Delivered Double Digit Growth in 2023 Q4 Market Continued growth across all categories with market expansion @ Shiseido External Sales* : FY +15% / Q4 +9% > Drunk Elephant: over +80% / over +60% > EC:+mid teen% / +low teen% Drunk Elephant Continued growth across all cat
Slide 11: COGS LfL Ratio: Improved ca. 1pt YoY with Productivity Improvement
COGS LfL Ratio: Improved ca. 1pt YoY with Productivity Improvement, etc. 2022 2023 EY YoY COGS analysis COGS Ratio" 30.6% 26.7% : oe COGS Lfl Ratio"? 23.9% 23.1% (+) Higher productivity “on 34.9% COGS Ratio eeeeeee COGSLEL Ratio’ 30.9% 29.8% 291% 27.8% 26.6% 26.0% 25.6% oe, 25.2% naryeet tees, 4.9%
Slide 12: FY2023 Core Operating Profit by Reportable Segment
FY2023 Core Operating Profit by Reportable Segment Japan: China: Asia Pacific: Americas : EMEA: Travel Retail : Other / Adjustments : Returned to profitability driven by higher gross profit from increased sales Profi improved significantly supported by higher gross profit driven by sales growth in 1
Slide 13: 2024 Sales Assumptions
2024 Sales Assumptions Local: @ Expect to see growth in both online and offline market while polarization will likely continue Total: +11% © Core brands to deliver strong growth, while sales decline in Japan local brands due to SKU rationalization Japan Local: +mid single digit%® | inbound: Inbound:
Slide 14: 2024 Forecast
2024 Forecast Complete all actions of structural reforms Accelerate brand investment for sustainable growth to achieve 2025 target —¥30 bn in non-recurring items, primarily costs of structural reforms 2023 2024 % of YoY YoY YoY YoY (Billion yen) Forecast’! NetSales Change Change % ~~ FX-Neutral% —_L
Slide 15: Medium-Term Strategy SHIFT 2025 and Beyond Update
Medium-Term Strategy SHIFT 2025 and Beyond Update - To Enhance Execution and Deliver Results February 9, 2024 Shiseido Company, Limited Kentaro Fujiwara President and COO SHISEIDO
Slide 16: Medium-Term Strategy SHIFT 2025 and Beyond
Medium-Term Strategy SHIFT 2025 and Beyond Refining Strategy and Timeline to Achieve Our Target 15% (Core OP Margin), Original Target Sales ¥60.0 bn (Excludes FX and business transfer impacts) Core OP 2023 2024 2025 EBITDA margin 9% 1% 15% 16
Slide 17: 2024 and 2025
2024 and 2025 17
Slide 18: Vision & Strategic Direction for 2024 and 2025
Vision & Strategic Direction for 2024 and 2025 Executing Business Transformation: Achieving Profitability and Resilience through Growth and Structural Reforms ®@ Global cost reduction (¥40.0 bn+) ® Complete Japan structural reform and accelerate growth ® Achieve high-quality sustainable growth in Ch
Slide 19: Global Cost Reduction Measures
Global Cost Reduction Measures: Completing Main Actions in 2024 1H to Ensure Full Impact in 2025 Cost Improvement Impact 2024 2025 Total Japan 8.0 17.0 25.0 = <Majorinitiatives> COGS 3.0 2.0 5.0 — SkUrationalization, focus on global/Asian brands, strategic price increases Marketing and Other Expense
Slide 20: Japan: Brand Portfolio Strategy
Japan: Brand Portfolio Strategy Attaining Market Leadership th Identifying Diverse Consumer Behaviors and Preferences > Selection and concentration of brands @ Global / Asian brands - High growth in 2023, with 4pts increase in sales composition ratio - Customer Loyalty Enhancement - Clé de Peau Beau
Slide 21: Japan: Consumer Touchpoint Strategy
Japan: Consumer Touchpoint Strategy Delivering Exceptional Consumer Experiences by Leveraging Key Strengths > Distribution Channel @ EC: Accelerate strategic actions for each platform, targeting 30% in 2025 - Retail.com: Create seamless customer experience by reinforcing OMO strategy - Owned.com: Re
Slide 22: China and Travel Retail (Asia): Market Dynamics
China and Travel Retail (Asia) : Market Dynamics ® Shifting from rapid growth to steady growth @ By price range - High prestige: High growth - Prestige and premium: Persisting competitive landscape ® Expanding growth opportunities in tier 3-5 cities with rising middle-class consumers ® Distribution
Slide 23: Winning in China: Strengthening Investments in Growth Opportunities
Winning in China: Strengthening Investments in Growth Opportunities Building a Sustainable Profit Delivery Business Model ina Moderately Growing Environment: Emphasizing Quality Growth @ Focus on high-prestige brands targeting affluent consumer base - SHISEIDO: Future Solution - accelerate growth -
Slide 24: Winning in China: Operational Reform for Productivity
Wining in China: Operational Reform for Productivity > Business Transformation ® Less reliance on large-scale events, strategic marketing leveraging consumer data to enhance loyalty and satisfaction ® Reducing price promotions, expand our official route to market @ Optimize physical number of stores
Slide 25: Driving Sales Growth: Accelerating Expansion in Japan, Americas, EMEA and Asia Pacific
Driving Sales Growth: Accelerating Expansion in Japan, Americas, EMEA and Asia Pacific, Winning in China’s stabilizing market (China / TR Asia) Attaining an Optimal Geographical Footprint a wee CAGR -~ +8% 2023 * Excludes FX and business transfer impacts 25
Slide 26: Strengthening Investments in Core Brands
Slide 27: i hs
i hs
Slide 28: UNIR,
UNIR, 28
Slide 29: Gross Profit Enhancement: Develop Growth Drivers to Maximize Results
Gross Profit Enhancement: Develop Growth Drivers to Maximize Results Definition of gross profit Consumer purchase — Retailer margin = External sales Rebate Returns COGS = Gross profit Topline growth Strong innovation and effective communication to enhance brand value Price harmonization Periodic rev
Slide 30: Financial Targets
Financial Targets 2023 2024 2025 Results Forecast Target ; 5% 9% Return on capital Improvement 4% 1% Free Cash Flow . ¥70.0 bn ¥100.0 bn" Cash generation capability improvement 230 days 200 days O1x 0.2Xorless Sound financial position Net D/EBITDA 4 0.6x 0.5%Xorless *1 Excludes cash outflow from M&A
Slide 31: • • • • • • • • • • • • • •
• • • • • • • • • • • • • • • • • • • • • • • • • • • •
Slide 32: Improving Profitability and Productivity through FOCUS
Improving Profitability and Productivity through “FOCUS FOCUS Implementation este Comat FOCUS 1.0 deployments to be completed in all regions by cotabrtns en tenia FOCUS 1.0 the end of 2024 ae (Global ERP Standardize data, processes and systems globally ae, implementation: EMME emmecieme Over 60% of
Slide 33: Towards 2030
Towards 2030 33
Slide 34: Market changes in China and Travel Retail
Market changes in China and Travel Retail Regional mix challenges Maximize & accelerate growth in existing business Aim for +5% plus growth per year beyond 2026 Cost Optimization Expanding Business base; leveraging M&A for profitability growth 34
Slide 35: Personal Beauty Wellness Company
PERSONAL BEAUTY WELLNESS COMPANY Strengthening our Core in Skincare while Expanding into New Beauty Frontiers os "7 y 4 Gan Science le | Clean sea Natural Expansion of Value Creation Derma/ Skincare category for Different Lifestyles Microbiome Medical
Slide 36: Reinforcing Skin Beauty Category: Acquisition of Dr. Dennis Gross Skincare
Reinforcing Skin Beauty Category: Entering the Dermacosmetics Market through Acquisition of Dermatologist-led Prestige Skincare Brand; Dr. Dennis Gross Skincare ++ DrDennis Gross > Acquisition rationale SKINCARE ® Complement the white space in our business; derma & medical cosmetics ® Reinforce our
Slide 37: Loose Skin Skincare-Active Foundation
Loose Skin Skincare-Active Foundation Second Skin * Inhibits melanin production and prevents the formation of dark spots and freckles 37
Slide 38: Creating New Lifestyle Values: Venturing Into the Inner Beauty Market
Creating New Lifestyle Values - Venturing Into the Inner Beauty Market SHISEIDO BEAUTY WELLNESS fusion of beauty and wellness >» Leveraging Shiseido’s over 100 years of life science research and data science, create a new beauty wellness market based on our SHISEIDO BEAUTY WELLNESS unique expertise
Slide 39: Localization of Innovation
Localization of Innovation ® R&D ® Localized M&A drive - Regional innovation centers (RIC) ® Beauty innovation contest ® Brand holder satellites - Employee-initiated new business ideas - Further strengthening of product @ Consumer-driven new business development and marketing fitted to development c
Slide 40: Focus Investment Areas to Drive Medium to Long-term Growth
Focus Investment Areas to Drive Medium to Long-term Growth Brands Innovations People 40.
Slide 41: Sustainability
Sustainability Improving Member of ESG 2023 Achievement: Received Dow Jones — . evaluation an MSCIESG Rating of AA Sustainability Indices Powered by the S&P Global CSA Environment Society (DE&l) External Evaluation Improveme YN ww ALIST 2023 CLIMATE FORESTS Selected as CDP's “A-List” company, the hi
Slide 42: Beauty Innovations for a Better World
BEAUTY INNOVATIONS FOR A BETTER WORLD Medium-term Goals ~2030 = Short-term Goals ~2025 To be a Company Committed to Innovate and Disrupt for New Beauty Value Creation Continuous new category creation Expanding category boundaries Business Transformation for market and value creation To achieve susta
Slide 43: Be a Global Winner
S HLSEIDO, Be a Global Winner |
Slide 44: Supplemental Data: KPI Trends
Supplemental Data 1 KPI Trends mmm Net Sales Core Operating Profit ——Core Operating Profit Margin (Billion yen) 2021 2022 2023 44
Slide 45: Supplemental Data: 2023 Q4 Net Sales by Brand
Supplemental Data 2 2023 Q4 Net Sales by Brand Like-for-like* (Billion yen) — FX, etc. Transferred] brands Transferred Drunk brands Elephant ELIXIR ANESSA Fragrance NARS —— ——__ SHISEIDO . mz Clé de sa ane 304.6 Peau 44% 250.6 Beauté 12% 2022 2022 2023 2023 Excl. business Excl. business transfer imp
Slide 46: Supplemental Data: Q4 Net Sales and Core OP by Segment
Supplemental Data 3 2023 Q4 Net Sales and Core Operating Profit by Reportable Segment Top: Net Sales Bottom: Core OP 2022 % of Net Sales / 2023 % of Net Sales / YoY YoY YoY YoY, (Billion yen) Core OPM %"" Core OPM %_" Change Change %___FX-Neutral % LAL % 2 +15.7% +15.7% +16.7% Japan . 86.3 19.1% -21
Slide 47: Supplemental Data: 2023 Net Sales and Core OP by Segment
Supplemental Data 4 2023 Net Sales and Core Operating Profit by Reportable Segment Top: Net Sales Bottom: Core OP 2022 % of Net Sales / 2023 % of Net Sales / YoY YoY YoY YoY, (Billion yen) Core OPM %"" Core OPM %_" Change Change %___FX-Neutral % LAL % 2 +9.4% +9.4% +10.0% Japan China Asia Pacific Am
Slide 48: Supplemental Data: 2023 Net Sales by Category
Supplemental Data 5 2023 Net Sales by Category (Billion yen) YoY Change % / Ja an 2022 Net sates 2023 Net sales change YoY 4 wee? Pp EX-Neutral % Prestige 69.3 29.2% 82.1 31.6% +12.8 +18.5% Premium 141.3 59.5% 151.5, 58.3% +10.2 +7.2% Others 26.9 11.3% 26.3 10.1% -0.6 -24% Total 237.6 100% ARS) P23}
Slide 49: Supplemental Data: Cost Structure in 2023
Supplemental Data 6 Cost Structure in 2023 (% of Net Sales based on Core Operating Profit ) SG&A" 66.8% 71.2% Marketi 26.7% investments 24.9% ° Brand development/ R&D Personnel expenses Other SG&A 2022 2023 +1.8 pts —1.0 pts +2.0 pts +1.6 pts @ Marketing investments >» Strengthened investments for b
Slide 50: Supplemental Data: 2023 SG&A
Supplemental Data 7 2023 SG&A YoY % of % of YoY YoY Change 2022 Net Sales 2023 Net Sales Change Change % FX- (Billion yen) Neutral % Marketing investments | 367.0 34.4% 354.1 36.4% -12.9 -3.5% -6.5% pnd development! 53.7 5.0% 39.0 4.0% 14.7 -273% 28.5% Personnel expenses 127.1 11.9% 133.5 13.7% +6.5
Slide 51: Supplemental Data: Cash Flow Management
Supplemental Data 8 Cash Flow Management Free Cash Flow: +53.5 (Billion yen) Operating CF: +89.0 Investing CF: -35.5 . P 9 9 Inventories (Billion yen) 130.9 149.6 DsI , 148 197 (Days)" a " " (200)? (235)? Working Income . Loss on capital less taxes Net D/E ratio 0.05 0.06 Depreciation, transfer of i
Slide 52: Supplemental Data: 2023 Non-recurring Items
Supplemental Data 9 2023 Non-recurring Items 2022 2023 (Billion yen) Core Operating Profit Q3 YTD Q4 FY Q3 YTD Q4 FY Gain / Loss on Transfer of Business Gain f Loss on Sales of Fixed Assets . Structural Reform Expenses | Impairment Losses ” Saaucirell RetrmeReaied| | Profit (Subsidy income) Loss (Sa
Slide 53: Supplemental Data: Capital Expenditures; Depreciation and Amortization
Supplemental Data 10 Capital Expenditures; Depreciation and Amortization 2024 (Billion yen) 2022 2023 Forecast Property, Plant and Equipment 31.3 26.9 35.0 Intangible Assets, etc. 28.6 28.5 33.0 Capital Expenditures* 59.8 55.4 68.0 Property, Plant and Equipment 36.3 34.7 Intangible Assets, etc. 14.7
Slide 54: Supplemental Data: 2024 Net Sales Forecast by Segment
Supplemental Data 11 2024 Net Sales Forecast by Reportable Segment YoY YoY 2024 ° ° Like-for- 2023 7 Change Change wb of *2 (Billion yen) Forecast % EX-Neutral % like % Japan 259.9 287.0 +10.4% +10% +11% China 252.5 +1.8% +4% +5% 5% Asia Pacific 73.0 +8 +10% +13% Americas 108.0 —2.1% +2% +10% EMEA 1
Slide 55: Shiseido
SHI/SEIDO