Shiseido : 2020 Q2 and First Half Results(January - June)and Full-Year Outlook

2020 Q2 and First Half Results

(January - June)

and Full-Year Outlook

Michael Coombs

Chief Financial Officer

Shiseido Company, Limited

August 6, 2020

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 statements.

2020 Q2 Executive Summary

Severely Impacted by COVID-19

Net Sales -32.6%*1, Operating Profit -¥9.9 Bn, Net Profit -¥22.8 Bn

Net Sales: ¥190.9 Bn YoY change: -34.4%,FX-Neutral:-32.8%,Like-for-Like :-32.6%*1

• Bottomed out in April-May globally, but still largely affected
• China prestige recovered solidly to above pre-COVID-19 growth levels

	2
Growth in E-Commerce +40%*, despite a significant decline in offline sales

Operating Profit: -¥9.9 Bn, YoY change: -¥40.0 Bn

• Operating loss expanded, mainly in Japan (-¥22.0 Bn vs LY) and Americas (-¥11.0 Bn vs LY)
• Recovered 42%*3of gross profit decline through cost control

Extraordinary Income (Loss): -¥15.6 Bn, YoY change: -¥15.2 Bn

• COVID-19-related-¥14.8 Bn (employee-related expenses, rent and maintenance for shops and factories, etc.)

Tax Expenses: -¥4.8 Bn YoY change: -¥13.4 Bn

• Non-recoverabilityof deferred tax assets due to decline in taxable profit in Americas and EMEA

Net Profit Attributable to Owners of Parent: -¥22.8Bn YoY change: -¥41.7Bn

EBITDA: -¥10.2 Bn, YoY change: -¥53.6 Bn

*1. Like-for-like excluding the impacts of (1) the adoption of new revenue recognition standard, ASC 606 in the Americas, (2) advance sell-in related to the implementation of a new ERP system
in the Americas in 2019 and (3) the acquisition of Drunk Elephant, etc. *2. Based on Shiseido consumer purchases	3
*3. Excluding the impact of reclassification to extraordinary loss on COVID-19 , etc.

Summary of Q2 Results

		2019	2020	YoY	YoY	YoY
			% of			% of	Change	Like-for-Like
					Change	Change
					FX-	%
			Net			Net		%
						Neutral%
	(Billion yen)		Sales			Sales
	Net Sales	291.0	100%	190.9	100%	-100.1	-34.4%	-32.8%	-32.6%
	Cost of Sales	59.0	20.3%	51.1	26.7%	-7.9	-13.5%
	Gross Profit	232.0	79.7%	139.8	73.3%	-92.2	-39.7%
	SG&A	202.0	69.4%	149.8	78.5%	-52.2	-25.8%
	Operating	30.0	10.3%	-9.9	-5.2%	-40.0	‐
	Profit
	Non-operating	-1.6	-0.5%	-2.5	-1.3%	-0.9	‐
	Income (Expenses)
	Extraordinary	-0.5	-0.2%	-15.6	-8.2%	-15.2	‐
	Income (Loss)
	Tax Expenses	8.6	2.9%	-4.8	-2.5%	-13.4	‐
	Net Profit*1	18.9	6.5%	-22.8	-11.9%	-41.7	‐
	EBITDA*2	43.4	14.9%	-10.2	-4.5%	-53.6	‐

Exchange rates: USD 1 = JPY 107.5 (YoY change: -2.2%), EUR 1 = JPY 118.3 (-4.2%), CNY 1 = JPY 15.2 (-5.6%)

*1. Net Profit Attributable to Owners of Parent	4
*2. After adjustment: Net income (loss) before income taxes + Interest expense + Depreciation and amortization expense + Impairment loss on goodwill and other intangible assets

YTD Sales Trends: Most Regions Bottomed Out in Apr-May

Like-for-like (%)

Q1 -16%

Q2 -33%

YoY

0%

-5000%

Jan

Feb

Mar

Apr

May

Jun

5

Q2 Net Sales: China Turned Positive; Strong Impact from COVID-19 across Most Other Regions

YoY breakdown of change in Net Sales by reportable segment

Top: YoY change

Bottom: Like-for-like(Billion yen)

	Business	China	Travel		-32.6%
withdrawals,
Retail
+3.2
	*1	-10.7	Americas	Like-for-like
	etc.	+5.8%
		-30.4%	-19.6
	Japan
		Asia	-65.6%		Drunk
	-47.4		Pacific
			Professional,	Elephant,
	-42.2%
		-6.0
			Other	Tory Burch
			-34.8%
				EMEA
					Impact of
					-8.0
					foreign
					-34.7%
					currency
						exchange,
						etc.
291.0	284.9				192.0	190.9
2019						2020
Q2						Q2

*1. Includes the impacts of (1) business withdrawals (dermatologic agent brands FERZEA and Encron in Japan in 2019, etc.), (2) The adoption of new revenue recognition standard, ASC 606
in the Americas, and (3) advance sell-in related to the implementation of a new ERP system in the Americas in 2019	6
*2. YoY change in local currency for each business is calculated based on the actual exchange rates

Q2 Net Sales: Skincare Relatively Resilient; Makeup & Fragrance Largely Negative

Change in Net Sales by brand

Like-for-like

(Billion yen)

	SHISEIDO
	-26%	IPSA
Business	ANESSA	Laura
-2%
withdrawals,
	-23%	Mercier	Dolce&
etc.	Clé de
ELIXIR		-56%	Gabbana
	Peau
	-40%			-65%
	Beauté	bareMinerals
	-26%		-58%	NARS		Drunk
				-58%	Elephant,
					Tory Burch
					Other	Impact of
					brands
					foreign
						currency
						exchange,
						etc.
291.0	284.9				192.0	190.9
2019						2020
Q2						Q2

*1. YoY change (%) for each brand is calculated based on initial exchange rate assumptions. Excluding the adoption of the new revenue recognition standard, ASC 606 in the Americas.

7

Cost Reductions in Q2					(Billion yen)
				<% of net sales>
			2019
			2020	vs. LY		Gross profit
Net Sales	291.0	190.9	-100.1			recovery rate*2
COGs	59.0	51.1	-7.9			Q2: 42%*4
Gross profit	232.0	139.8	-92.2			Q1: 19%

LFL*4 Reduced -39.3<-19.4%>

SG&A

202.0 <69.4%>

					LFL	Reclassed
Marketing	83.7		162.7
	149.8 <78.5%>
investments
<28.8%> -21.2
			62.5	60.7
Brand	11.2
development/	-2.0		<31.8%>
R&D		9.1
		9.1
			62.5
Personnel	-11.9	50.6
expenses*1	<21.5%>	41.7
						<21.8%>
Other SG&A	44.6	-4.1	40.5	38.3
			<15.3%>	<20.1%>
Operating			2019			2020
	30.0 <10.3%>	-25.0	-9.9<-5.2%>
profit

• COGs
• • Inventory write-off/provision
  • Lower productivity due to decreased production volume
• Marketing investments
• • Canceled/postponed advertising and events
  • Reallocated investment to digital marketing in China, enhanced digital engagement
• Personnel expenses
• • Reduced performance-linked remuneration
• Other SG&A
• • Cut non-urgent costs
  • Amortization/depreciation of Drunk Elephant goodwill, etc.

*1. Including POS personnel expenses *2. Vs. LY SG&A / vs. LY Gross Profit
*3. From 2020, the Company has reclassified some of its costs, e.g. a part of media costs are reclassified from brand development investments to marketing investments.	8
The results for the previous year have been restated accordingly.	*4. Excluding the impact of reclassification to extraordinary loss on COVID-19 , etc.

Japan: Local: Bottomed Out in April to May Inbound: Significant Drop, Worse Than Q1

• Market: Double-digit decline due to COVID-19
• • Stores closed during state of emergency
  • Inbound traffic: close to zero
  • Resilient skincare
• Shiseido Consumer Purchases: - high 30%

Counter activities after shop reopening

• Local: - low 20%
• • Department stores closed; drugstores shortened hours
  • Bottomed out in April-May; still struggling
• E-Commerce:+19% growth
• Inbound: - over 70%

• Japan Business: Consumer Purchases YoY

(%)

Local Inbound

0
-40
-80
Jan	Feb	Mar	Apr May	Jun

9

China: Driving Overall Recovery Thanks to Prestige Brands

• Market:
• • Almost all counters operating
  • Prestige: largest contributor to overall recovery
  • E-Commerce:accelerated growth
  • Pricing under pressure
  • Hong Kong: still challenging
• Shiseido Consumer Purchases: total +9%

• China +19%

• Prestige brands: +over 50%, increased	■ Consumer Purchases by category
market share
(Total)			YoY%
Growth exceeding pre-COVID-19 level
					+high teens
SHISEIDO, Clé de Peau Beauté, IPSA, NARS Personal
• E-Commerce sales ratio: over 40%,	Care				-high single
Cosmetics
growing at +over 35%					digits
Prestige: +150%	Prestige				+mid 20%
fueled by successful 6.18 campaign and
Super Brand Day, etc.
2019	2020
			Q2		Q2	10

Travel Retail: Encouraging Momentum in China and South Korea Downtown DFS amid Tough Conditions

• Market:
• • International flights largely suspended
  • Growth in Chinese travelers to Hainan Island; Increased duty-free allowance from July
    to accelerate trends
• Shiseido Consumer Purchases:

Asia grew by +low teens% (Global: -low 20%)

SHISEIDO store in Hainan island

• Strong demand in China's Hainan and South Korea downtown DFS
• Japan: Inbound suffered the largest hit
• Sales in Americas and EMEA plunged

11

Americas and EMEA:

Structurally High Fixed Costs and Low Profitability

• Market and Shiseido overview
• • Offline largely affected by COVID-19
  • Resilient skincare; weak makeup and fragrance
  • Strong performance of Drunk Elephant in U.S.
• Issues
• Americas: high fixed cost structure from commercial base and brand holder functions
• EMEA: high level of marketing investment in fragrance business

	1H Americas profit structure*1				1H EMEA profit structure			2019
1. Commercial-				1. Commercial-
						2020
	based profit					based profit
	2. Brand	Total of				2. Brand	Total of	CoE*2
	Holder	CoE*2			Holder	Total
	1 + 2	Total		1 + 2	costs
	costs	costs		costs

Purchase

			Purchase	Price
			Price
			Allocation
			Allocation
			(PPA)
			(PPA)
Breakdown
	Margin
		2.

Costs	12
*1. Excluding Drunk Elephant *2. Center of Excellence

Summary of 1H Results

		2019		2020		YoY	YoY	YoY
				% of				% of	Change	Like-for-Like
							Change	Change
							FX-	%
				Net				Net		%
								Neutral%
	(Billion yen)			Sales				Sales
	Net Sales	564.6		100%	417.8		100%	-146.8	-26.0%	-24.5%	-24.7%
	Cost of Sales	115.6		20.5%	100.9		24.1%	-14.7	-12.7%
	Gross Profit	449.0		79.5%	316.9		75.9%	-132.1	-29.4%
	SG&A	380.1		67.3%	320.4		76.7%	-59.7	-15.7%
	Operating	69.0		12.2%	-3.4		-0.8%	-72.4	‐
	Profit
	Non-operating	-1.0		-0.2%	-2.9		-0.7%	-1.9	‐
	Income (Expenses)
	Extraordinary	-1.3		-0.2%	-16.1		-3.9%	-14.8	‐
	Income (Loss)
	Tax Expenses	12.3		2.2%	-1.2		-0.3%	-13.5	‐
	Net Profit*1	52.5		9.3%	-21.4		-5.1%	-73.8	‐
	EBITDA*2	96.0		17.0%	13.8		3.3%	-82.2	-85.7%

Exchange rates: USD 1 = JPY 108.2 (YoY change: -1.7%), EUR 1 = JPY 119.2 (-4.1%), CNY 1 = JPY 15.4 (-5.0%)

*1. Net Profit Attributable to Owners of Parent	13
*2. After adjustment: Net income (loss) before income taxes + Interest expense + Depreciation and amortization expense + Impairment loss on goodwill and other intangible assets

COVID-19-related Market Assumptions for 2H

No additional emergency declaration/lockdowns expected

Japan

China

Asia Pacific

Americas

EMEA

Travel Retail

・Local: Stores open

・Inbound: No recovery for inbound travelers, especially from China

・Full recovery; E-Commerce sales to accelerate further from online events such as W11

・Most stores to resume operations albeit with shorter hours

・Most stores to resume operations albeit with shorter hours ・Factory to operate at approx. 80% of regular capacity

・E-Commerce to expand further

・Most stores to resume operations albeit with shorter hours ・Production and logistics to operate as normal

・Number of international flights still drastically reduced; drop in Chinese travelers not to recover

・Significant growth of tax-free sales on Hainan Island, etc. (increased duty- free allowance)

14

Strengthening Countermeasures for 2H

• Marketing attuned to changes in consumer needs

(new launches, beauty information)

• Respond to skin issues and changes in makeup needs caused by wearing masks
• Respond to heightened hygiene and price awareness
• Expand use of digital and E-Commerce
• • BC livestreaming and online counseling
  • Strengthen investment in events such as W11

(exclusive items, samples, tie-in sales)

• Bold shifts in marketing investments
• • Prioritize areas (China) and contact points with consumers (digital, E-Commerce)
• Flexible supply system adjustable to demand
• • Shorten procurement lead time and promptly adjust production plans (reductions and increases)
• Thorough cost control in line with fluctuations in sales

15

Japan Business

New Products and Promotions for 2H

Japan Business: New Products and Promotions for 2H

Launched on July 31	Launched on July 1	Launch on September 1
at selected stores only	Limited edition	"ModernMatte
"ULTIMUNE Power Infusing	"ULTIMUNE Defense Refresh Mist"	Powder Lipstick"
Concentrate GINZA	Refreshing face mist that cools, hydrates,
FLAGSHIP LIMITED	and defends skin from daily damage
EDITION"		17

Japan Business: New Products and Promotions for 2H

Launch on August 21

limited edition

Key Radiance Care

1st anniversary self-selection sets

Launch on September 21

"CRÈME SUPREME VOLUMISANTE"

(quasi-drug)

Integrated the state-of-the art skin science

4th product of the high function "aging design" series

18

Japan Business: New Products and Promotions for 2H

Launch on August 21	Launch on August 21	Launch on September 21
limited edition	ELIXIR SUPERIEUR
New "Luminous Glow Foundation"
ELIXIR SUPERIEUR	"Smoothing Gel Wash"
	"Design Time Serum"

19

Japan Business: New Products and Promotions for 2H

Launch on August 21	Launch on September 21
New lotion & emulsion	New
"Skincare Series for Sensitive Skin"	"Medicated Lotion Moist"

20

Sales Trends: FY Outlook

Like-for-like
Q1: -16%	Q2: -33%	Q3: -15%	Q4: +1%

YoY

0%

			Like-for-like	Q3	Q4	FY
			Japan	-24%	-8%	-24%
			China	+14%	+41%	+13%
			Asia Pacific	-2%	+5%	-13%
			Americas	-27%	-19%	-33%
			(incl. Drunk Elephant)	-15%	-12%	-22%
			EMEA	-13%	-6%	-15%
			Travel Retail	-28%	-19%	-20%
-7000%			Total	-15%	+1%	-16%
Q1	Q2	Q3		Q4

21

Latest 2020 Full-Year Outlook

		2020			YoY
				YoY	YoY	Like-for-Like
	2019			Change
		% of	Change	Change %	FX-	%*2
(Billion yen)			Net Sales			Neutral %
Net Sales	1,131.5	953.0	100%	-178.5	-15.8%	-15%	-16%
Operating	113.8	0.0	0.0%	-113.8	‐
Profit
Ordinary	108.7	-6.5	-0.7%	-115.2	‐
Profit
Net Profit*1	73.6	-22.0	-2.3%	-95.6	‐
EBITDA	169.3	58.0	6.1%	-111.3	-65.7%

Exchange rates for 2020: USD 1 = JPY 108.0 (-1.0%), EUR 1 = JPY 120.7 (-1.1%), CNY 1 = JPY 15.3 (-3.2%)

*1. Net Profit Attributable to Owners of Parent	22
*2. Like-for-like excluding the impacts of the acquisitions of Drunk Elephant, etc.

Liquidity Management

				(Billion yen)
	Cash Liquidity, B/S	2019	2020	Measures / Comments
	Outlook
	Cash & time deposits	110.3	100.0	Liquidity enhancement:
	・Increase credit facilities and commitment lines
	(monthly sales)	(1.2 months)	(1.3 months)	+¥200 Bn
				・Maintain sound liquidity at 1.5 monthsof Net Sales
	Net interest-bearing	0.8 times	4.0 times	・Retain a minimum of single-A rating
	debt/EBITDA	・Mid-to-long term acceptable standard based on
				COVID-19 impacts：
	Net D/E ratio	0.3 times	0.5 times	Net interest-bearing debt/EBITDA 2.0 times
	Net D/E ratio 0.7 times
				・Interest-bearing debt outlook for 2020 ¥330.0 Bn*
	Interest-bearing debt			(Dec 2019 ¥248.1 Bn)
	33.3%	42.0%	- Refinance interest-bearing debt for the
	ratio	acquisition of Drunk Elephant into long-term
				* Including the impact of IFRS 16 "Leases"
	Cash Flow	2019	2020	Measures / Comments
	Outlook
	Free cash flow	-127.3	-60.0	・Reduce inventory: shorter order lead times
	・Carefully select investments
				・Cash generation through the sale of idle assets, etc.
	CAPEX	132.2	92.0	・Compress ¥53.0 Bn vs. plan, e.g.:
	- Partially cancel CAPEX for existing plants -¥34.0 Bn
				- Postpone investment in counters -¥10.0 Bn

23

WIN the Crisis through Transformation: Towards 2023

August 6, 2020
Masahiko Uotani	Representative Director, President and CEO
Shiseido Company, Limited

25

Sell idle assets

Review CAPEX

•

•

• Stabilize the financial base by securing credit facilities

•

• Maximize sales through marketing adapted to the "new normal" (enhance promotion of new launches)

Reduce SG&A

- Marketing / Personnel / Other SG&A

- Reduce executive compensation for Aug. - Dec. CEO: 30%, others: 10-15%

2020 Emergency Initiatives to Address Risks

	2020 Outlook
		YoY
(Billion Yen)		Change
Net Sales	953.0	-16%
Operating	0	-
Profit
Net Profit	-22.0	-
EBITDA	58.0	-66%
Dividend	¥40	-33%
(Plan)

26

Dividends for FY2020 to Be Reduced; Aiming for Recovery

Dividend per share and DOE		5.1
					4.1
								3.4
		2.7
2.0					60
					45		30	40
		27.5		25
20				20
	15					(Plan)
	10			20	30	20
	12.5
10
2016	2017		2018	2019	2020

DOE (%)

Year-End (Yen)

Interim

(Yen)

27

Critical Issues to Address

1. High SG&A (fixed costs) coupled with a high-gross-margin business model; low productivity
2. High dependency on demand from travelers (Japan, Travel Retail)
3. Low profitability in Americas and EMEA due to a high share of makeup and fragrance businesses
4. Business model not sufficiently digital, despite accelerating investment
5. Outdated supply and IT systems: strategic investment underway
6. Adaptability to consumer changes resulting from COVID-19

28

Challenges in Productivity

SG&A Ratio

Global Competitor A

Global Competitor B

Domestic Competitor C

Operating Profit per Employee

Global

Competitor A

Global

Competitor B

Domestic

Competitor C

* 2019 results

29

COVID-19 as Game Changer

Irreversible Changes in Consumer Values and Behavior

• Overall Market

• Cutting expenses; focus on "value for money"
• Longer time at home, drastic shift to online, acceleration of E-commerce
• Awareness of health and hygiene
• Interest in sustainability and corporate social responsibility

• Beauty Market
• Value placed on skincare and skin health
• Decrease in makeup usage
• Merging of online and offline and importance of digital
• Price consciousness

30

Our Market Assumptions

We project COVID-19 to subside in 2021.

Our reforms are based on the assumption of

overall recovery of the beauty market within 2023.

Subsidence of		Recoveryy ofof thethe
COVID-19		Market
	Beauty Market

	2H	2020: China
Major	2H	2021: Japan
	(Inbound recovering)
countries / regions:	2022:
within 2021	Asia Pacific, Travel Retail
	2H	2022 - 23:
	Americas, EMEA

31

Achieve 15% OPM in 2023 through Fundamental Reforms

VISION 2020 WIN 2023

COGs	23%		21%	2%

Marketing investments 25%

Reforms under WIN 2023

Reduce COGs:

Improve productivity and mix through increased skincare share

Strengthen digital marketing:

Expand digital investment Improve marketing ROI

Brand

6%

development/R&D64% 3%

67%

Personnel 21% expenses

Other SG&A 16%
Operating	10%	15%	5%
profit
		2019	2023
			Target

Accelerate innovation:

Increase investment in innovation Focus on skincare and new fields

Reduce SG&A:

Raise productivity

Reduce fixed costs and convert to variable costs

32

Maximizing Cash Flow for Financial Soundness and Enhancing Shareholder Returns

Operating

Profit

113.8

0

169.3

EBITDA

58.0

Free Cash Flow	-127.0	-60.0
(Billion yen)	2020	2023
2019
				Outlook				Target

* Excluding one-time factors	33

VISION 2020 Key Strategies

1. Become a global beauty company in skincare, makeup and fragrance with "Prestige First" strategy
2. Achieve double-digit OPM through enhanced gross margin and reduced SG&A ratio from topline growth (CAGR +8%). Main driver: organic growth backed by increased investment in brand marketing, coupled with M&A
3. Increase presence in Americas and EMEA and aim for global expansion leveraging strong foundation in Asia
4. Enhance investment in R&D, supply network, digital and IT to build a foundation for long-term growth
5. Build a global management structure (people, organization, culture) under the matrix organization

34

WIN 2023 Key Strategies

1. Become a global No. 1 "Skin Beauty Company" with premium skin beauty as core business by 2030
2. Shift priorities from topline growth to profitability and cash flow and achieve 15% OPM through reform of COGs/SG&A
3. Speed up profitability improvement in Americas and EMEA while centering on Asia (Japan, China, Asia Pacific, Travel Retail)
4. Accelerate conversion to digital-oriented business model and reinforce its structure
5. Continue to invest in R&D, supply network, IT and people to establish a foundation for long-term growth, including external collaborations
6. Establish a Global Transformation Committee chaired by the CEO to accelerate reforms

35

Focus on Premium Skin Beauty

Further portfolio enhancement through inhouse development, open innovation,

and strategic M&A	2023
2019

Sales Ratio	60%	80%

WellnessScience

Japanese

Beauty

Ingestible

Clean/

Natural

Premium Skin Beauty

Personalized

Service

Suncare

Beauty Devices

Sustainability

Inclusive/Conscious

Dermatology

36

Japanese Beauty to the World

37

A Brand of Versatile Skin Beauty

Sustainability

Luxury

Suncare

#ALIVEwithBeauty

Innovation (Second

MEN's

Brand Experience

38

Global Expansion of New Brands

 2021-2022: Key countries in	 2021: China
Europe, Travel Retail, Japan, China,
South Korea, Mexico, Brazil

39

Creating New Value ~Skincare and Beauty Devices~

×

• Joint venture with Yaman Co., Ltd., the No. 1 Japanese brand in China's beauty device market

• Size of China's beauty device market

(Billion yen)

CAGR

over +50%

• Develop new brands and business models through innovation leveraging the expertise of both companies

60.0

• Launch in China and Japan in 2021						2020 40
2017		2018		2019
						Outlook

*Pre COVID-19

Accelerating Digital and E-Commerce

Digital Media

Ratio

E-commerce

Sales Ratio

Consumer purchase-based

2019	2023 Target

50%90~100%

2019	2023 Target
Group 13%	25%

China 34%

50%

Digital and	 Establish a DX team in HQ
Data Analysis
 Japan: appointment of Chief Digital Officer
Professionals	 Digital marketing professionals: 100 talents to be hired

Regions Committed to Transformation

• Japan: From quantity to quality for sustainable high profitability in the local market
  Shifting investment to digital, e.g. OMO*1
• China: Strengthen organization as "Second HQ"
  Brand development marketing based on consumer data E-commerce ratio by 2023: 50%
• Asia Pacific: Grow in target markets by "Selection and Concentration"
• Travel Retail: Enhance profitability through further collaboration with China Business
• Americas: Boldly shift to D2C; reduce SG&A; 5-10% OPM in 2023*2
• EMEA: Improve profitability in fragrance; 5-10% OPM in 2023*2

*1. Online Merges with Offline: Marketing that brings together online and offline channels

*2. Excluding Center of Excellence costs and PPA

42

WIN 2023 Global Transformation Committee

• Formulate overall strategy and oversee execution; agile decision-making
• Develop and support transformation plans for each region
• Promote and support sale of non-core businesses
• Promote and support new investments and business development
• HQ: Promote transformation in people, organization, and capabilities

GTC Chairman

Group CEO

CFO

Global Transformation Team

Leader CSO

HQ

Japan

China

Asia

Americas

EMEA

Travel

Pacific

Retail

43

Group Transformation Roadmap

Rebuild

Business

Portfolio

Improve

Profitability

DX

Fundamental Reforms	Back on Growth Track
2020	2021	2022	2023

Sale of / withdrawal from non-core businesses

Strategic M&A; developing business in related domains

Americas and EMEA: Profitability improvement

Japan:

Build a foundation focused on the local market

China: Strengthen organization and competitiveness as "Second HQ"

Business model reforms centered on digital and EC

Global standard ICT infrastructure (FOCUS)

44

Creating Social Value under the "New Normal" ~Hand Sanitizer~

• Retail launch in early Aug!

Donated 200 thousand bottles to the medical frontline (Picture taken: June 10, 2020)

"爱心接力 RELAY OF LOVE" Project

• Touring seven cities in China with the "RELAY OF LOVE Bus" delivering vitality and smiles with the power of beauty
• Established "Women Support LOVE Fund" and "Youth Support LOVE Fund"

Protecting the Clean Environment

• SHISEIDO
  World-first lip palette with innovative sustainable plastic packaging

(Launch: November 2020)

 Refills:	 Reuse of product packaging
available for over 1,000 SKUs

47

Evolution of Work Styles, Diversity & Inclusion

• Transformation of HR system in Japan: from seniority-based to job-grade-based
• "Shiseido Smart Work Style"
• • Improve productivity through remote work Adjust the environment and systems
  • 2021: full-fledged rollout
• Women Empowerment
• • Female ratio
    Board of Directors: 46%
    Leaders in Japan: 38%*1
  • First Japanese company to be awarded by WCD*2
• 30% Club Japan

"TOPIX Presidents' Committee"

*1 January 2021 outlook

*2 Women Corporate Directors

WIN the Crisis through Transformation: Towards 2023

49

Supplemental Data 1

1H Sales by Reportable Segment

	2019	2020		YoY	YoY	Like-for-Like
					YoY	Change	Change
		% of		% of
			Change	FX-	%
			%
(Billion yen)		Net Sales		Net Sales		Neutral %
Japan	221.2	39.2%	150.5	36.0%	-70.7	-31.9%	-31.9%	-31.8%
China	107.7	19.1%	100.0	23.9%	-7.6	-7.1%	-2.9%	-2.9%
Asia Pacific	36.3	6.4%	26.2	6.3%	-10.1	-27.8%	-26.6%	-26.6%
Americas	63.4	11.2%	36.7	8.8%	-26.7	-42.1%	-40.9%	-45.2%
EMEA	48.2	8.5%	35.0	8.4%	-13.3	-27.5%	-24.4%	-24.4%
Travel Retail	63.8	11.3%	51.7	12.4%	-12.1	-19.0%	-17.5%	-17.5%
Professional	7.2	1.3%	5.6	1.3%	-1.6	-22.1%	-20.4%	-20.4%
Other	16.9	3.0%	12.1	2.9%	-4.8	-28.3%	-28.3%	-28.3%
Total	564.6	100%	417.8	100%	-146.8	-26.0%	-24.5%	-24.7%

*1. See Supplemental Data 11 for details about changes in reportable segments. The previous year's results are restated to reflect the new reportable segments.

51

Supplemental Data 2

1H Sales in Japan and China by Category

Japan	2019		2020		YoY Change	YoY Change
				% of Net			% of Net
						%
	(Billion yen)			Sales			Sales
	Prestige	57.3		25.9%	31.0		20.6%	-26.3	-45.9%
	Premium	123.2		55.7%	83.0		55.1%	-40.2	-32.6%
	Lifestyle	27.9		12.6%	24.9		16.5%	-3.0	-10.8%
	Others	12.8		5.8%	11.7		7.8%	-1.2	-9.1%
	Japan Sales	221.2		100%	150.5		100%	-70.7	-31.9%

YoY change excluding the impact of business withdrawal in 2019 was -31.8%.

China	2019		2020			YoY Change
						YoY Change
		% of Net			% of Net
						FX-Neutral %
	(Billion yen)			Sales			Sales
	Prestige	50.1		46.5%	49.4		49.4%	-0.7	+3.0%
	Cosmetics	39.4		36.6%	29.3		29.3%	-10.0	-21.7%
	Personal Care	17.0		15.8%	20.3		20.3%	+3.3	+24.3%
	Others	1.2		1.1%	1.0		1.0%	-0.2	-15.7%
	China Sales	107.7		100%	100.0		100%	-7.6	-2.9%

*1. Sub-segments within the Japan Business have been reclassed in line with the management structure change from 2020, and 2019 figures are restated accordingly.

"Lifestyle" and "Premium" are equivalent to what was previously referred to as "Personal Care" and "Cosmetics," respectively. Healthcare Business and ettusais, etc., previously
included in "Others" are now included in "Lifestyle," and Future Business previously included in "Others" is now included in "Prestige."	52
*2. See Supplemental Data 11 for details about changes in reportable segments. The previous year's results are restated to reflect the new reportable segments.

Supplemental Data 3

1H Operating Profit by Reportable Segment

		2019			2020
			OPM %			OPM %	YoY	YoY
		OPM	excl.		OPM	excl.	Change
			Change
			%
		%	amortization		%	amortization
		of goodwill		of goodwill
(Billion yen)
		etc.			etc.
Japan	41.8	17.9%	17.9%	5.2	3.2%	3.3%	-36.6	-87.5%
China	18.0	16.7%	16.8%	7.7	7.6%	8.1%	-10.3	-57.4%
Asia Pacific	3.2	8.4%	8.5%	-0.6	-2.3%	-1.5%	-3.8	‐
Americas	-3.2	-3.7%	-0.7%	-18.6	-39.6%	-33.6%	-15.4	‐
EMEA	-5.0	-9.3%	-7.8%	-9.9	-25.0%	-22.1%	-4.9	‐
Travel Retail	17.1	26.7%	26.7%	7.5	14.5%	15.2%	-9.6	-56.0%
Professional	0.2	3.0%	3.0%	0.0	0.3%	0.3%	-0.2	-93.1%
Other	-1.2	-1.3%	-1.3%	9.4	10.5%	10.7%	+10.6	‐
Subtotal	70.9	10.4%	11.0%	0.7	0.1%	1.1%	-70.2	-99.0%
Adjustment	-1.9	‐	‐	-4.2	‐	‐	-2.2	‐
Total	69.0	12.2%	12.9%	-3.4	-0.8%	0.4%	-72.4	‐
*1. OPM is calculated using net sales including intersegment sales.						53
*2. See Supplemental Data 11 for details about changes in reportable segments. The previous year's results are restated to reflect the new reportable segments.

Supplemental Data 4

1H SG&A Details

			2020
						YoY	YoY Change
			% of	Change in	YoY Change	Change	FX-Neutral
			% of		%	%
			Net Sales
			Net Sales
	(Billion yen)
	SG&A	320.4	76.7%	+9.4pt	-59.7	-15.7%	-14.2%
	Marketing	162.1	38.7%	+2.0pt	-45.3	-21.8%	-20.1%
	Investments *1
	Brand	18.6	4.5%	+0.7pt	-2.7	-12.8%	-11.6%
	Development/
	R&D Investments
	Personnel	58.5	14.0%	+2.6pt	-5.8	-9.1%	-7.6%
	Expenses
	Other SG&A	81.3	19.5%	+4.1pt	-5.8	-6.7%	-5.6%
	Expenses

*1. Marketing Investments includes POS personnel expenses.
*2. From 2020, the Company reclassified costs, e.g. a part of media costs are reclassified from brand development investments to marketing investments.	54
The results for the previous year have been restated accordingly.

Supplemental Data 5

1H Non-operating Income and Expenses, Extraordinary Income and Losses

Non-operating Income and Expenses

Extraordinary Income and Losses

	(Billion yen)	2019	2020
	Interest Income	0.6	0.4
	Interest Expense	-0.9	-1.2
Net Interest Income	-0.3	-0.8
	(Expense)
	Subsidy Income	1.1	2.5
Foreign Exchange	-2.2	-2.5
	Gain (Loss)
	Others	0.4	-2.1
	Total	-1.0	-2.9

(Billion yen)	2019	2020
COVID-19-related
Extraordinary	‐	-14.8
Income (Loss)
Gain (Loss) on
Sales of Investment	1.1	0.3
in Securities
Structural Reform	-1.2	‐
Expense
Loss on Business	‐	-0.9
Withdrawal
Gain (Loss) on
Disposal of Property,	-1.1	-0.7
Plant and Equipment,
etc.
Total	-1.3	-16.1

55

Supplemental Data 6: Consolidated Balance Sheets

		As of Jun. 30,	Change from
		2020	Dec. 31,
	(Billion yen)	2019
Total Current Assets	484.2	-48.4
	Cash, Time Deposits	100.0	-10.3
	Notes & Accounts	133.7	-39.2
	Receivable
	Inventories	194.8	+13.7
	Total Fixed Assets	687.7	+1.5
	Property, Plant	319.0	+4.3
	and Equipment
	Intangible Assets	249.3	+0.1
	Investments and	119.4	-2.8
	Other Assets
	Total Assets	1,171.9	-46.9

		As of Jun. 30,	Change from
		2020	Dec. 31,
	(Billion yen)	2019
	Total Liabilities	692.1	-8.8
	Notes & Accounts	133.4	-52.6
	Payable and Other
	Payables
	Interest-Bearing Debt	324.1	+75.9
	Accrued Bonuses	12.2	-12.9
	Long-term payable	52.1	+3.0
	Total Net Assets	479.8	-38.0
	Shareholders Equity	470.8	-33.3
	Accumulated Other	-10.3	-2.7
	Comprehensive
	Income
	Non-Controlling	18.0	-2.2
	Interests
	Total Liabilities and	1,171.9	-46.9
	Net Assets

Exchange rates:	* Main line items only
Jun. 30, 2020: USD 1 = JPY 107.7 (-0.7%); EUR 1 = JPY 120.8 (-0.8%); CNY 1 = JPY 15.2 (-2.3%)
Dec. 31, 2019: USD 1 = JPY 108.5 ; EUR 1 = JPY 121.8 ; CNY 1 = JPY 15.6

56

Supplemental Data 7

Capital Expenditures/Depreciation and Amortization

		2019	2020		2020
	(Billion yen)	1H	1H		Outlook
	Capital Expenditures*1	64.1	42.6		92.0
	Property, Plant and	50.6	25.0		66.0
	Equipment
	Intangible Assets, etc.	13.5	17.6		26.0
	Depreciation and	26.8	30.7		63.0
	Amortization
	Property, Plant and	15.2	18.6
	Equipment
	Intangible Assets, etc.	11.6	12.1
	R&D Expenses	15.7	13.3		29.0

*1. Investments in capital expenditures; property, plant and equipment; intangible assets (excl. goodwill, trademark rights, etc.); and long-term prepaid expenses

57

Supplemental Data 8

Q2 Sales by Reportable Segment

	2019	2020		YoY	YoY	Like-for-Like
					YoY	Change	Change
		% of		% of
			Change	FX-	%
			%
(Billion yen)		Net Sales		Net Sales		Neutral %
Japan	112.5	38.6%	64.8	34.0%	-47.6	-42.4%	-42.4%	-42.2%
China	55.2	18.9%	55.5	29.1%	+0.3	+0.6%	+5.8%	+5.8%
Asia Pacific	17.3	5.9%	11.1	5.8%	-6.2	-36.1%	-34.8%	-34.8%
Americas	35.7	12.3%	13.4	7.0%	-22.3	-62.4%	-61.2%	-65.6%
EMEA	23.2	8.0%	14.5	7.6%	-8.7	-37.4%	-34.7%	-34.7%
Travel Retail	35.1	12.1%	23.9	12.5%	-11.2	-31.9%	-30.4%	-30.4%
Professional	3.7	1.3%	2.7	1.4%	-0.9	-25.4%	-23.5%	-23.5%
Other	8.3	2.9%	4.9	2.6%	-3.5	-41.4%	-41.4%	-41.4%
Total	291.0	100%	190.9	100%	-100.1	-34.4%	-32.8%	-32.6%

*1. See Supplemental Data 11 for details about changes in reportable segments. The previous year's results are restated to reflect the new reportable segments.

58

Supplemental Data 9

Q2 Operating Profit by Reportable Segment

		2019			2020
			OPM %			OPM %	YoY	YoY
		OPM	excl.		OPM	excl.	Change
			Change
			%
		%	amortization		%	amortization
		of goodwill		of goodwill
(Billion yen)
		etc.			etc.
Japan	19.2	15.9%	16.0%	-2.8	-3.9%	-3.8%	-22.0	‐
China	5.0	9.1%	9.2%	2.4	4.3%	4.7%	-2.6	-52.4%
Asia Pacific	0.8	4.4%	4.5%	-1.7	-14.6%	-13.7%	-2.5	‐
Americas	1.3	2.6%	5.2%	-9.8	-57.8%	-51.8%	-11.0	‐
EMEA	-3.2	-12.1%	-10.5%	-3.4	-20.7%	-17.3%	-0.2	‐
Travel Retail	9.6	27.3%	27.3%	2.5	10.6%	11.3%	-7.0	-73.5%
Professional	0.2	4.5%	4.5%	-0.0	-1.5%	-1.5%	-0.2	‐
Other	-2.6	-5.8%	-5.8%	5.2	11.5%	11.8%	+7.7	‐
Subtotal	30.3	8.6%	9.1%	-7.6	-3.1%	-2.2%	-37.9	‐
Adjustment	-0.3	‐	‐	-2.3	‐	‐	-2.0	‐
Total	30.0	10.3%	11.0%	-9.9	-5.2%	-4.0%	-40.0	‐
*1. OPM is calculated using net sales including intersegment sales.						59
*2. See Supplemental Data 11 for details about changes in reportable segments. The previous year's results are restated to reflect the new reportable segments.

Supplemental Data 10

FY2020 Sales Forecast by Reportable Segment

		2019			YoY Change %			2019
		After	2020			YoY				Before
		Segment				Like-for-Like*2		Segment
					Change
	(Billion yen)	Changes				Fx-Neutral				Changes
	Total	1,131.5	953.0	-15.8%		-15%		-16%		1,131.5
	Japan	430.9	325.5	-24.5%		-24%		-24%		451.6
	China	216.2	238.0	+10.1%		+13%		+13%		216.2
	Asia Pacific	69.8	59.5	-14.8%		-13%		-13%		69.8
	Americas	123.0	94.0	-23.6%		-22%		-33%		124.3
	EMEA	118.4	99.0	-16.4%		-15%		-15%		118.4
	Travel Retail	122.8	96.0	-21.8%		-20%		-20%		102.2
	Professional	14.7	12.5	-14.9%		-14%		-14%		14.7
	Other	35.7	28.5	-20.2%		-20%		-20%		34.3

Average exchange rates for 2020: USD 1＝JPY 108.0 (-1.0％), EUR 1＝JPY 120.7 (-1.1％),CHY 1＝JPY 15.3 (-3.2％)
*1. See Supplemental Data 11 for details about changes in reportable segments	60
*2. Excluding the impact of the acquisition of Drunk Elephant

Supplemental Data 11: Change in Reportable Segments

2019	2020
Segments	Segments

Japan

		DFS business in Japan
The Ginza Co., Ltd.		Travel Retail
		THE GINZA
		Brand Holder Functions
ELIXIR, ANESSA		Other
Brand Holder		Other
Functions

Americas
Bare Escentuals K. K.	Other
(operates in Japan)
Technology	Other
Acceleration Hub, etc.
The Group has revised its reportable segment classifications from the fiscal year 2020. (1) The business results of the airport duty-free business in Japan of The Ginza Co., Ltd., which were
previously included in the Japan Business, are now included in the Travel Retail Business, and the business results related to the brand holder functions of THE GINZA, the same subsidiary's
brand, are now included in the Other segment. (2) The business results of Bare Escentuals K.K., which operates in Japan, and the business results and other costs associated with the
Technology Acceleration Hub, previously included in the Americas Business, are now included in the Other segment. (3) Following the transfer of brand holder functions (global marketing
strategy development, product development, communication and creative development, brand management functions, etc.) of the ELIXIR and ANESSA brands from Shiseido Japan Co., Ltd.	61
to Shiseido Co., Ltd., the business results related to the brand holder functions of both brands, previously included in the Japan Business, are now included in the Other segment.