[Attached Documents] Business Report - Shiseido group …€¦ · · 2015-06-09-6- [Translation: AGM 2009] [Attached Documents] Business Report (Fiscal Year from April 1, 2008 to

-6- [Translation: AGM 2009]

[Attached Documents] Business Report

(Fiscal Year from April 1, 2008 to March 31, 2009)

1．Matters Concerning Shiseido Group 1.1 Business Overview

(1) Progress and Results 1) Overview

During the current fiscal year, the financial and economic crisis that originated in the United States spread throughout the global economy, which entered a worldwide recession from fall 2008. The Japanese economy was affected, resulting in a sharp downturn in corporate results and weaker consumer spending due to concerns about employment and uncertainty about the economic outlook. Aiming to “become a global player representing Asia with its origins in Japan,” the Shiseido Group began a new Three-Year Plan of further reforms in the current fiscal year to improve quality of activities across the board. During the current fiscal year, the first year of the Three-Year Plan, Shiseido concentrated on creating “a brand loved by customers throughout the world,” centered on strengthening the global brand SHISEIDO, developing operations in Asia using its business expertise, and cultivating key brands/lines in Japan. In addition, Shiseido made progress in profit structure reform and worked to establish “unsurpassed, world-class quality of business management” by raising organizational capabilities, cultivating human resources and strengthening corporate governance. Moreover, as a company that coexists with society, Shiseido energetically conducted corporate social responsibility (CSR) activities including social contribution and environmental protection. However, while Shiseido devoted all of its strengths to these business practices during the year ended March 31, 2009, the sudden cooling of consumer sentiment resulting from the global recession impacted operations, and reforms continued from the previous Three-Year Plan were not fully effective because of the unfavorable market environment. The current fiscal year was therefore challenging. Net sales decreased 4.6 percent year on year. Factors including cooling consumer sentiment caused domestic sales to decrease. In addition, the appreciation of the yen reduced overseas sales although they increased on a local-currency basis. Operating income decreased 21.4 percent year on year due to factors including significant marginal losses stemming from the revenue decline and rising pension-related costs, and the operating margin was 7.2 percent. In addition, extraordinary losses including business restructuring expense and impairment losses reported by overseas subsidiaries due to the recession caused net income to decrease 45.4 percent year on year.

Consolidated Results

109th Business Term

(Current term) (¥ million)

108th Business Term(¥ million)

Percentage Change (%)

Net Sales 690,256 723,484 4.6 Operating Income 49,914 63,465 21.4 Operating Margin (%) 7.2 8.8 [ 1.6] Ordinary Income 52,061 65,088 20.0 Net Income 19,373 35,459 45.4 Note: [ ] indicate net % change form the previous business term. Triangular marks ( )

indicate a decrease.


2) Operational Review by Business Segment

Consolidated Sales by Segment Segment Net Sales

(¥ million) Percentage of Total

(%) Percentage Change

(%) Domestic Cosmetics 412,337 59.7 6.1 Overseas Cosmetics 260,915 37.8 1.1

Others 17,002 2.5 18.1 Total 690,256 100.0 4.6

Note: Triangular marks ( ) indicate a decrease.

Main Activities by Business Segment Segment Main Activities

Domestic Cosmetics

Cosmetics Division (production and sale of cosmetics, cosmetic accessories, toiletries) Professional Division (production and sale of beauty salon products, etc.) Healthcare Division (production and sale of health & beauty foods and over-the-counter drugs, etc.)

Overseas Cosmetics

Cosmetics Division (production and sale of cosmetics, cosmetic accessories, toiletries) Professional Division (production and sale of beauty salon products, etc.)

Others Frontier Sciences Division (Production and sale of cosmetic ingredients, medical-use drugs, and beauty therapy cosmetics) Sale of clothing and accessories, operation of restaurant, etc.

Domestic Cosmetics Sales in the domestic cosmetics business segment decreased 6.1 percent year on year to ¥412,337 million. The market contracted as consumer sentiment cooled suddenly due to the recession. This led to dramatic changes in the market, including a heightened trend toward price rationalization among customers. In response, we sought to raise the quality of all activities, such as our promotional, sales, and merchandising activities, in order to win the support of customers, particularly in the low and middle price ranges. Due to the inadequate quality of these proposals, however, segment sales declined.

(Cosmetics Division) We focused on cultivating mega lines1, which are aimed at attaining leading market share in their respective product categories, including makeup and skincare by attracting new customers. We also emphasized the cultivation of relationship-building brands/lines2 that are based on building strong ties with customers. Among mega lines, we innovated3 the Maquillage makeup line, and added a new skincare range for seniors, Elixir Prior, to the Elixir skincare line. We also worked to strengthen and cultivate existing lines through means such as updated promotional campaigns and renewals. With respect to our relationship building brands/lines, despite growing emphasis on low-priced products, we focused on the high-priced market, which has consistently performed well. During the year, we launched Synergique, a top-end line within the prestige Clé de Peau Beauté brand. We also unveiled a brand-new line, called Revital Granas, targeting the new luxury segment4 of women in their 30s or older. To ensure 100-percent customer oriented marketing, having eliminated performance evaluations based on metrics such as sales to “innovate beauty consultant activities,” we worked on “sales reforms.” With the aims of increasing sales by obtaining as many new customers as possible and satisfying returning customers through continuous beauty activities, we changed the metrics for evaluating sales representatives from sales targets to metrics that emphasize the process, such as the


customer return ratio and the counter creation5 rate, in working to enhance the quality of sales activities. (Professional Division) In beauty salon services, we opened a Salon & Spa in Ginza, and worked to create new sales outlets. In addition, in hair and beauty salon product sales, we continued our shift to a new marketing style that emphasizes the quality of our proposals. (Healthcare Division) In the market for beauty supplements, Collagen, a food for enhanced skin regeneration, drove steady business expansion. In addition, we attracted attention with the launch of Chomei-so “long-life grass”, a supplement using an herb from Yonaguni Island (Peucedanum japonicum, Umbelliferae) that promotes longevity. Overseas Cosmetics Sales in the overseas cosmetics business segment increased 7.3 percent on a local currency basis, but decreased 1.1 percent year on year to ¥260,915 million upon translation into yen due to the impact of the yen’s appreciation. Despite economic contractions in many regions, we maintained a high level of sales growth in China, and also expanded sales in the markets of Europe and North America. (Cosmetics Division) In China, our key overseas market, the number of people using cosmetics continued to grow. During the year, we actively enhanced our channel-specific6 marketing strategy, with a focus on our dedicated brand for the Chinese market. We also innovated AUPRES, a dedicated brand for department stores that has supported growth in China since its launch, for the first time in 14 years, and we rejuvenated our promotional activities and renovated our sales counters. Regarding the cosmetic specialty store channel, we strove to expand the number of contracted stores. At the same time, we reinforced Urara, a brand designed specifically for that channel, leading to an increase in existing-store sales. Moreover, we worked to enhance customer satisfaction by establishing a customer center in China, and promoted cultivation of human resources through means including the operation of a training center in China.

Outside of China, in Asia, Europe, and North America we continued strengthening marketing activities for the global brand SHISEIDO centering on Shiseido’s strengths in anti-aging and skin-brightening products, and expanded customer support. We also promoted our “City Concept” strategy, whereby we consider the world’s major markets as city-based rather than country-based units and concentrate resources accordingly. We also promoted the established of business bases in emerging markets in ways such as beginning full-scale operations at our Russian sales subsidiary Shiseido (RUS), LLC, a sales subsidiary. Furthermore, in Europe and North America, where fragrances occupy a key position in the cosmetics market, Beauté Prestige International S.A. added a new line, Ma dame, to its Jean Paul GAULTIER line of designer fragrances, and worked to strengthen cultivation of the ISSEY MIYAKE and NARCISO RODRIGUEZ lines and Shiseido Group fragrance products. Moreover, we worked to gain new customers in our travel retail business centered on duty-free shops in airports by increasing the number of shops in hub airports that handle our products and expanding the number of products specifically for duty-free shops and in-flight sales. (Professional Division)

Zotos International, Inc., which rolls out salon products on a global basis, centering on North America, posted an increase in sales of its JOICO haircare brand, due largely to aggressive market development activities such as that brand’s launch in Hong Kong. However, the performance of Decléor, which handles esthetic beauty and spa treatment brands, was affected by deteriorating market conditions in Europe.


Others Sales in the others business segment decreased 18.1 percent year on year to ¥17,002 million because of the transfer of the leasing business in the previous fiscal year. However, domestic and overseas sales of bio-acid, a raw material used in cosmetics, pharmaceuticals and foods, remained strong, and sales of skincare product NAVISION to medical institutions with dermatology departments expanded. Effective March 31, 2009, The Ginza Co., Ltd. withdrew from its boutique business, that sells clothing, fashion accessories and other products, specialize in selling only cosmetics. Because it has completed its role as a pioneer in the select shop segment due to changes with the times. (2) Capital Expenditures Capital expenditures for the current fiscal year were ¥18,380 million, primarily for repairing and replacing existing facilities in Japan and beginning construction of a plant in Vietnam, which we expect to become a production base that will support business expansion in Asia. (3) Financing Shiseido undertook no significant fund-raising activities in the current fiscal year.

(4) Transfer of Business and Shares On October 31, 2008, Shiseido conducted a corporate separation of Shiseido Group assets, including land and buildings, held by Shiseido Kaihatsu Co. Ltd. and certain associated business operations. Shiseido Kaihatsu was a subsidiary responsible for construction, real estate leasing and management, and other operations for the Shiseido Group. On November 1, 2008, Shiseido transferred 90 percent of its shares in Shiseido Kaihatsu to Nippon Kanzai Co., Ltd. and consigned facility management operations to Nippon Kanzai after the transfer, at which time Nippon Kanzai changed its name to NS Corporation Co., Ltd. Shiseido aimed to achieve strategic, efficient facility management and further concentrate management resources through this transfer. (5) Summary of Consolidated Income and Assets of the Shiseido Group

(Millions of yen except for Net Income per Share)

Term

106th Business Term

(4/1/2005 - 3/31/2006)

107th Business Term

(4/1/2006 - 3/31/2007)

108th Business Term

(4/1/2007 - 3/31/2008)

109th BusinessTerm

(current term) (4/1/2008 - 3/31/2009)

Net Sales 670,957 694,594 723,484 690,256Operating Income 38,879 50,005 63,465 49,914Operating Income to Net Sales (%) 5.8 7.2 8.8 7.2Ordinary Income 42,161 53,465 65,088 52,061Net Income 14,435 25,293 35,459 19,373Net Income per Share (Yen) 34.42 60.89 86.05 48.04Return on Equity (%) 3.9 6.6 9.2 5.4Total Assets 671,841 739,832 675,864 606,568Net Assets 373,899 403,796 399,738 351,951Equity Ratio (%) 55.7 52.5 56.6 55.6

Notes: 1. Effective from the 107th Business Term, the Company applied "Accounting Standard for Presentation

of Net Assets in the Balance Sheet" (Accounting Standards Board of Japan, Statement No. 5) and "Implementation Guidance on Accounting Standard for Presentation of Net Assets in the Balance Sheet" (Accounting Standards Board of Japan, Guidance No. 8).


2. Summary of Non-Consolidated Income and Assets (Millions of yen, except for Net Income per Share)

Term

106th Business Term

(4/1/2005 - 3/31/2006)

107th Business Term

(4/1/2006 - 3/31/2007)

108th Business Term

(4/1/2007 - 3/31/2008)

109th BusinessTerm

(current term) (4/1/2008 - 3/31/2009)

Net Sales 252,663 282,091 273,158 264,511Operating Income 7,070 15,637 16,263 8,583Ordinary Income 18,801 28,891 31,031 26,564Net Income 8,186 16,749 23,819 16,294Net Income per Share (Yen) 19.53 40.60 58.42 40.41Total Assets 536,833 559,407 491,009 481,137Net Assets 375,638 375,317 355,244 343,724

(6) Income Distribution

(Millions of yen, unless otherwise noted)

Term

106th Business Term

(4/1/2005 - 3/31/2006)

107th Business Term

(4/1/2006 - 3/31/2007)

108th Business Term

(4/1/2007 - 3/31/2008)

109th BusinessTerm

(current term) (4/1/2008 - 3/31/2009)

Annual cash dividends per share (Yen) 30 32 34 50 (P)Annual dividends 12,371 13,205 13,730 20,148 (P)Share buybacks 2,800 – 24,450 4,488 Consolidated payout ratio (%) 87.2 52.6 39.5 104.1 (P)Total return ratio (%) 105.1 52.6 108.8 127.2 (P)Notes:

1. Annual cash dividends per share and annual dividends are predicated on the approval of the First Item of Business, Dividends of Retained Earnings, at the ordinary general meeting of shareholders will be held on June 24, 2009. These figures were used to calculate the consolidated payout ratio and the total return ratio.

2. Share buybacks are the total value of treasury stock purchased by resolution of the Board of Directors based on Article 155-3 of the Corporation Law of Japan.

3. Total return ratio = (Annual dividends + Share buybacks) / Net income

(7) Issues to Address 1) Three-Year Plan

Shiseido will continue implementing its Three-Year Plan, which is aimed at raising the quality of all its activities. Under the plan, we are pursuing our vision of becoming a “global player representing Asia with its origins in Japan.” We believe that our mission is to “realize the beauty of customers and enrich their hearts to complement their outer beauty.” To ensure that customers around the world recognize our mission, we will hone our three strengths (core values): richness, human science, and spirit of Omotenashi (hospitality). In the process, we will create a brand loved by customers throughout the world and establish an unsurpassed, world-class quality of business management.

[Shiseido’s Strengths]

Richness Being thoroughly meticulous about the high quality of products and services.

Human science In R&D, not only making the skin beautiful, but also pursuing benefits that reach all the way to people’s minds.

Spirit of Omotenashi (hospitality)

Enriching people’s spirits through interactions between customers and products.


Under the Three-Year Plan, we set targets for the fiscal year ending March 31, 2011 of an

overseas sales ratio of 40 percent or higher, a consolidated operating margin of 10 percent or higher and consolidated return on equity that is 1 to 2 points higher than the operating margin. Given the current economic recession, however, we do not anticipate market recovery until the year ending March 2011. Nevertheless, we will not change the vision and strategies of the plan. Instead, we will strive to realize our management vision and implement the strategies of our Three-Year Plan, so that we can achieve our numerical targets at the earliest possible time in the next Three-Year Plan (covering the period from April 2011 to March 2014). 2) Strategies in the Fiscal Year Ending March 31, 2010

The fiscal period ending March 2010 is the second year of our Three-Year Plan. Envisaging that market conditions will remain difficult, we will step up our “distinction and concentration” effort in order to increase cost efficiency and raise operating profitability. Economic recession has highlighted the need to be responsive to changes in the economic environment—an effort we pursued throughout our previous Three-Year Plan. We intend to overcome this challenge and increase our competitiveness in the domestic market. At the same time, we will focus our business resources such as human resources on overseas markets, centering on China, for our future growth. Create a Brand Loved by Customers throughout the World Demonstrating our “Japanese Origins”

Going forward, we will step up our “distinction and concentration” effort and focus on fostering our two core pillars: relationship building brands/lines and mega lines.

Here, we will become increasingly meticulous in our efforts to match our fostered brands/lines and sales channels while honing our focus on core fields. Even in today’s difficult economic times, we believe that the “relationship building business, centering on high-priced items and skincare products” has growth potential. We will focus on this business and the “self-selection7 categories and toiletries, centering on haircare, skincare, and men’s products,” which addresses the growing trend toward low-priced items. In voluntary chain stores, we will advance a number of strategies, including one focusing on the Bénéfique relationship building line. In department stores and structured retailers, we will foster the Revital Granas line, and in drugstores we will undertake a renewal of the Aqua Label mega line.

In addition, we were unable to raise the quality of promotional, sales, and marketing activities in the current fiscal year due to economic recession. To overcome these issues, we will reinforce our basic sales process, including our shelf-space procurement capabilities and our capabilities to create sales corners. We will also strive to upgrade our product information and sales-counter activities with an emphasis on market competitiveness. Representing Asia

We will expand our promotional activities across all of Asia, with an emphasis on “anti-aging” and “skin-brightening” products, a field in which the Shiseido Group specializes. We will also comprehensively target the masstige8 business in Asia by rolling out Majolica Majorca, a self-selection makeup brand, throughout Southeast Asia.

In China, which we regard as a growth engine for our business, we will maintain our current approach. In Chinese department stores, we will leverage our sales foundation, built up through skincare products, to strengthen our presence in the makeup field. This will include launching Maquillage, a Japanese mega line, in China. In addition to expanding our store network, we will compile a unified database that brings together customer information collected via the Urara website—which covers Urara, a dedicated brand for Chinese cosmetic specialty stores—and POS systems installed at retail stores. Through these actions, we will encourage store visits and strengthen customer services, thus increasing sales at existing stores. Becoming a Global Player

We will further reinforce the global brand SHISEIDO, which is sold in many countries worldwide, as a prestige brand that symbolizes the Shiseido Group. Specifically, we will launch a premium skincare line, called SHISEIDO Future Solution LX, following the introduction of our new


makeup line. We will also rejuvenate our department store sales counters and introduce symbolic signs9. In addition, we will strengthen beauty consultants, including through the introduction of behavioral indicators of the “Spirit of Omotenashi” activities of our overseas beauty consultants.

We will continue implementing our “City Concept” strategy, which focuses on marketing activities in selected city-based units. This is because success in cities has positive ripple effects in surrounding areas. In the current fiscal year, this strategy worked well in targeted cities. We will draw on this success to expand our presence in large, highly influential cities in Europe, North America, and Asia.

We will strive to increase the revenue of our sales subsidiary in Russia, which commenced full-scale operations during the year in review. Meanwhile, our sales subsidiary in Germany will take over our marketing activities in the Netherlands and Poland, which were previously consigned to local distributors. Going forward, our general policy is to promote direct sales via sales subsidiaries. In addition, we will enter newly emerging markets, including African nations. Establish an Unsurpassed, World-Class Quality of Business Management

Foster global human resources

The Shiseido Group will set up a global personnel system to ensure that it attracts the most suitable people for the most suitable roles—while removing barriers related to age, gender, and nationality.

Implement Structural Reforms

We will pursue ongoing production process improvement activities and other efforts to optimize our supply chain. At the same time, we will implement structural reforms, including by modifying our materials-ordering system to minimize costs. In these ways, we will seek to enhance profitability.

Actively Promote Environmental Protection and CSR Activities

In November 2008, Shiseido joined the Climate Change Initiative of the United Nations Global Compact. In March 2009, we became the first cosmetics firm to be endorsed as an “Eco First Company” by Japan’s Ministry of the Environment. In the year ending March 2010, we will launch the “Shiseido Earth Care Project,” an environmental initiative in which all Group employees will participate, based on the concept that “both humans and the earth are beautiful.” We will step up efforts to reduce carbon dioxide emissions and save resources, while working to minimize product returns and cut the volume of waste. In addition, we will “propose new lifestyles in which the environment and human beauty coexist”—a concept that Shiseido is uniquely empowered to promote.

For some time, we have used our distinctive position to pursue social contribution activities. For example, we provide makeup advice for people concerned about prominent birthmarks or white skin patches. We also hold beauty seminars in aged people’s homes and other facilities. In the year ending March 2010, we will integrate all these activities into our Life Quality Beauty Program10, and we will establish centers to promote such activities in Taiwan and Shanghai. In addition, we will establish a system in which employees can volunteer to participate in beauty seminars held in institutions for aged or disabled people. In these and other ways, we will expand the circle in which societies and corporations can work together to provide beauty and comfort.

To “become a global player representing Asia with its origins in Japan,” the Shiseido Group will continue raising the quality of all its activities. In this way, we will “create a brand loved by customers throughout the world” and establish an “unsurpassed, world-class quality of business management.”

We look forward to the continuing support of our shareholders.

Notes: 1. Mega line: Lines aimed at expanding points of contact with customers, in which Shiseido concentrates

advertising and sales promotion by skincare and makeup category in order to attain category leadership. The six mega lines are Maquillage, Uno, Aqua Label, TSUBAKI, Integrate and Elixir Superieur.


2. Relationship-building brands/lines: Brands/lines that deepen relationships with customers through counseling. The five brands/lines are clé de peau BEAUTÉ, Bénéfique, & Face, Revital Granas, and d Program.

3. Innovation: Product improvements and renewals that increase brand/line value dramatically. 4. New luxury segment: People in this segment, often the children of baby boomers, are acutely aware of

new trends and spend freely on products and services that match their values. 5. Capabilities to create sales corners: The ability to effectively convey product appeal, and swiftly create a

selling environment conducive to purchasing. 6. Channel: Sales, distribution and other routes, including cosmetic specialty stores, drugstores and

department stores. 7. Self-selection: Sales in which customers freely select products from displays in open spaces at stores, as

opposed to face-to-face sales with counseling and product explanation. 8. Masstige: Coined from “mass” and “prestige.” Masstige products are positioned as more expensive than

mass-produced products, but more moderately priced than prestige products. 9. Symbolic sign: A sign that symbolizes the value of the global brand SHISEIDO. It is a visual used at

stores and in advertising that expresses Shiseido’s three strengths (core values) of richness, human science, and the spirit of Omotenashi.

10. Life Quality Beauty Program: An initiative aimed at improving quality of life for people with deep concerns about their skin and appearance, using cosmetics and beauty techniques. Formerly called “Social Beauty Care Activities.”.


1. 2 Outline of the Shiseido Group (The following sets forth the conditions as of March 31, 2009)

(1) Principal Business of the Shiseido Group

Segment Main Business

Domestic Cosmetics

Cosmetics Division (production and sale of cosmetics, cosmetic accessories, toiletries) Professional Division (production and sale of beauty salon products, etc.) Healthcare Division (production and sale of health & beauty foods and over-the-counter drugs), etc.

Overseas Cosmetics Cosmetics Division (production and sale of cosmetics, cosmetic accessories, toiletries) Professional Division (production and sale of beauty salon products, etc.)

Others Frontier Sciences Division (Production and sale of cosmetic ingredients, medical-use-pharmaceuticals, and beauty therapy cosmetics) Sale of clothing and accessories, operation of restaurants, etc.

Note: As of November 1, 2008, the Company transferred 90% of stocks of Shiseido Real Estate Development Co., Ltd., which operated real estate management and sales, etc., to Nippon Kanzai Co., Ltd. Also, as of March 31, 2009, The Ginza Co., Ltd., which operates sale of clothing and accessories, etc., withdrew from boutique operation.

(2) Major Business Hubs

Head Office: 5-5, Ginza 7-chome, Chuo-ku, Tokyo

Shiodome Office: 6-2, Higashi-Shimbashi 1-chome, Minato-ku, Tokyo

Factories: Name Location

Kamakura Factory Kamakura-shi, Kanagawa Pref.

Kakegawa Factory Kakegawa-shi, Shizuoka Pref.

Osaka Factory Higashi-Yodogawa-ku, Osaka-shi, Osaka Pref.

Kuki Factory Kuki-shi, Saitama Pref.

Laboratories:

Name Location

Research Center (Shin-Yokohama) Tsuzuki-ku, Yokohama-shi, Kanagawa Pref. Research Center (Kanazawa-Hakkei) Kanazawa-ku, Yokohama-shi, Kanagawa Pref. Beauty Solution Development Center Shinagawa-ku, Tokyo


(3) Major Subsidiaries and Affiliated Companies of Shiseido Group

Company Name Location Paid-in Capital

Ownership percentage of

Voting Rights

Main Business

Shiseido Sales Co., Ltd. Minato-ku, Tokyo

(JPY million)100

(%)100.0 Sale of cosmetics, etc.

Shiseido FITIT Co., Ltd. Chuo-ku, Tokyo

(JPY million)10 100.0 Sale of cosmetics, etc.

Shiseido International Inc.

Chuo-ku, Tokyo

(JPY million)30 100.0 Sale of cosmetics, etc.

FT Shiseido Co., Ltd. Chuo-ku, Tokyo

(JPY million)100 100.0 Sale of toiletries

Shiseido Professional Co., Ltd.

Chuo-ku, Tokyo

(JPY million)250 100.0 Sale of beauty salon

products, etc. Shiseido Beauty Salon Co., Ltd.

Chuo-ku, Tokyo

(JPY million)100 100.0 Operation of beauty salons

Shiseido Pharmaceutical Co., Ltd

Chuo-ku, Tokyo

(JPY million)100 100.0 Sale of over-the-counter

drugs, etc.

Shiseido Americas Corporation

Delaware, U.S.A.

(USD thousand)403,070 100.0

Holding company, manufacture and sale of cosmetics, etc. in U.S.A.

Shiseido America, Inc. New York, U.S.A.

(USD thousand)28,000

- (100.0)

Manufacture of cosmetics, etc.

Zotos International, Inc. Connecticut, U.S.A

(USD thousand)25,000

- (100.0)

Sale of beauty salon products, etc.

Shiseido International Europe S.A.

Paris, France

(EUR thousand)247,473 100.0 Holding company in

Europe Shiseido International France S.A.S.

Paris, France

(EUR thousand)36,295

- (100.0)


Shiseido Deutschland GmbH

Dusseldorf, Germany

(EUR thousand)5,200

- (100.0) Sale of cosmetics, etc.

Shiseido Cosmetici (Italia) S.p.A. Milan, Italy (EUR thousand)

2,400-

(100.0) Sale of cosmetics, etc.

Shiseido Europe S.A.S. Paris, France

(EUR thousand)9,000

- (100.0) Sale of cosmetics, etc.

Beauté Prestige International S.A.

Paris, France


- (100.0)

Sale of designer perfumes, etc.

Laboratoires Decléor S.A.S.

Paris, France


- (100.0)

Manufacture and sale of esthetic and spa products

Shiseido China Co., Ltd. Shanghai, China

(RMB thousand)565,093 100.0 Holding company and sale

of cosmetics, etc. in ChinaShanghai Zotos Citic Cosmetics Co., Ltd.

Shanghai, China

(RMB thousand)418,271

20.0 (92.6)


Shiseido Liyuan Cosmetics Co., Ltd.

Beijing, China

(RMB thousand)94,300

32.0 (65.0)

Manufacture and sale of cosmetics, etc.

Shiseido Dah Chong Hong Cosmetics Ltd.

Hong Kong, China

(HKD thousand)123,000 50.0 Sale of cosmetics, etc.

Taiwan Shiseido Co., Ltd.

Taipei, Taiwan

(TWD thousand)1,154,588 51.0 Manufacture and sale of

cosmetics, etc.

The Ginza Co., Ltd. Chuo-ku, Tokyo

(JPY million)100 98.2 Sale of clothing and

accessories, etc. Shiseido Parlour Co., Ltd.

Chuo-ku, Tokyo

(JPY million)100 99.3 Operation of restaurants

Selan Anonymous Association

Chiyoda-ku, Tokyo

(JPY million)11,600

- [100.0] Management of real estate

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 12,106 [ 10,158] ∆172 [ ∆94] Overseas Cosmetics 15,958 [ 584] +277 [ +97] Others 746 [ 532] ∆88 [ +58] Total 28,810 [ 11,274] +17 [ +61]

Notes: 1. Triangular marks (∆) indicate negative figures. 2. The numbers of employees are shown full-time employees. Temporary employees are shown in [ ].

Temporary employees are part-time workers and non-regular staffs, and dispatched employees are excluded. 2. Matters Concerning Shares

(The following sets forth the conditions as of March 31, 2009)

(1) Total Number of Shares Authorized to be Issued: 1,200,000,000 shares

(2) Number of Shares Issued and Outstanding: 410,000,000 shares (including 8,489,386 treasury shares)

(3) Number of Shareholders: 37,426

(4) Principal Shareholders

Investment in the Company Shareholders Number of shares held Percentage of

shareholding Mizuho Bank, Ltd. (thousands of shares)

21,226 (%)

5.17（5.28） Japan Trustee Services Bank, Ltd (Trust Account) 19,309 4.70（4.80） State Street Bank and Trust Company 505223 18,258 4.45（4.54） The Master Trust Bank of Japan, Ltd. (Trust Account) 16,480 4.01（4.10） Japan Trustee Services Bank, Ltd (Trust Account 4G) 16,234 3.95（4.04） The Bank of New York Mellon as Depositary Bank for Depositary Receipt Holders

14,199

3.46（3.53）

Asahi Mutual Life Insurance Company 12,079 2.94（3.00） Mizuho Corporate Bank, Ltd. 11,382 2.77（2.83） NIPPONKOA Insurance Company, Limited 11,277 2.75（2.80） Nippon Life Insurance Company 9,747 2.37（2.42）

Notes: 1. Calculations of percentage of shareholding include total outstanding of shares. Calculations of shareholding indicated in ( ), exclude treasury shares from total outstanding of shares.

2. It is reported that Mizuho Bank, Ltd. has filed on June 6, 2008 reporting of major shareholdings comprising 14,726 thousand shares. As of June 20, 2008, it has filed the reports of amendment to major shareholdings comprising 10,226 thousand shares, as of September 5, 2008, comprising 17,127 thousand shares, and as of September 22, 2008, comprising 21,226 thousand shares.

Shares held by Mizuho Bank, Ltd. is 21,226 thousand shares, inclusive their holding 11,226 thousand shares and holding by its employee pension trust 10,000 thousand shares (6,000 thousand shares with voting rights and 4,000 thousand shares without voting rights) under a registered name, Mizuho Trust & Banking Co., Ltd. re trusted to Trust & Custody Services Bank, Ltd. Employees Pension Trust for Mizuho Bank.

3. All shares held by Japan Trustee Services Bank, Ltd (Trust Account), The Master Trust Bank of Japan, Ltd (Trust Account) and Japan Trustee Services Bank, Ltd (Trust Account 4G) are in connection with the respective bank’s trust business.

4. State Street Bank and Trust Company 505223 is nominee share account that represents shares in the Company owned primarily by institutional investors in Europe and the U.S. for custodial purpose.

5. The Bank of New York Mellon as Depositary Bank for Depositary Receipt Holders (formerly Hero & Co.) is the nominee holder for Bank of New York Mellon, a depositary bank for the American Depositary Receipts (the "ADRs") of the Company.


3. Matters Concerning Stock Acquisition Rights (as of March 31, 2009)

The Company issues stock acquisition rights for directors, corporate officers, employees and directors and employees of related companies. These are classified into two categories which are executive compensation-type stock options (2 types), and employees incentive-type and reward-type stock options.

(1) Executive compensation-type stock options 1) Stock compensation-type stock options as medium-term incentives

To make the directors and corporate officers of the Company share with its shareholders merits and risks pertaining to its stock prices and afford incentives to them to achieving much improved results and higher stock prices, the Company issued stock acquisition rights as stock options.

The stock acquisition rights, which are characterized as remuneration linked with the stock prices of the Company, are stock compensation-type stock options as medium-term incentives to directors and corporate officers of the Company and this is one of the performance-linked compensation in the previous system of executive remuneration by the fiscal year ending 2008. For this purpose, stock acquisition rights with the exercise price of Yen one (1) per share are provided to directors as stock option.

In the previous Three-Year Plan, one of the management targets was set at 8% of consolidated operating income sales at the end of March 2008. The exercisable stock acquisition rights were issued according to the rate of achievement to the target figure, which recorded 109.6% to the target. These stock acquisition rights were issued and became excisable in accordance with the achievement to the target.

No stock acquisition rights are allotted to external directors and corporate auditors. [Stock acquisition rights issued during the previous fiscal years]

As of March 31, 2008 Issue date of stock

acquisition rights

Grantees of stock

acquisition rights

Amount paid for

stock acquisition

rights

Amount to be paid upon exercise of

stock acquisition

rights

Stock acquisition

rights exercise period

Holding condition and position of the stock acquisition

rights

Class and number of shares to be issued upon exercise of stock acquisition

rights Director of the Company

1 person 6 rights

Ordinary shares

6,000 shares

Corporate Auditor of the Company

1 person 7 rights

7,000 shares

Corporate officer who do not serve as director

1 person 11 rights

11,000 shares

Stock acquisition rights issued free of charge

July 28, 2005

Directors and corporate officers of the Company 25 persons

Gratis issue

1 yen per share

From July 1, 2008 to June 30, 2011

Others 10 persons 84 rights

84,000 shares

Director of the Company

1 person 2 rights

Ordinary shares

2,000 shares

August 23, 2006


2,204 yen per share

1 yen per share

From July 1, 2008 to June 30, 2011 Corporate officers

who do not serve as director

3 person 9 rights

9,000 shares

Stock acquisition rights issued in consideration of duty

August 23, 2007

Directors and corporate officers of

2,372 yen per share

1 yen per share


Director of the Company

1 person 6 rights

Ordinary shares

6,000 shares


the Company 5 persons

Corporate officers who do not serve as director

4 persons 4 rights

4,000 shares

Note: Holding of the stock acquisition rights as of March 31, 2009 by a corporate auditor of the Company was granted during his term of office as a corporate officer.

2) Stock options as long-term incentives

To link remuneration of the directors and corporate officers of the Company with an increase in its shareholder value on a long-term basis, while placing emphasis on their sharing interests with its shareholders, secure good human resources and thus to increase the enterprise value of the whole Shiseido Group, the Company issued stock acquisition rights as stock options.

The stock acquisition rights are stock options characterized as remuneration linked with its stock prices as long-term incentives to the directors and corporate officers of the Company.

These stock acquisition rights were stock options characterized as long-term incentive to directors and corporate officers of the Company and as remuneration which fluctuate with the share prices. There are two kinds: one is the performance-linked compensation as remuneration to incumbent directors since fiscal 2008 and whose amount payable for exercise is set at 1 yen. And another is the performance-linked stock option as remuneration to currently non-incumbent directors having offices by fiscal 2007 and whose amount payable for exercise is set based on the market fair value of the share of the Company at that time.

No stock acquisition rights are allotted to external directors and corporate auditors.

[Stock acquisition rights issued during the current fiscal year] As of March 31, 2009

Issue date of stock

acquisition rights

Grantees of stock

acquisition rights

Amount paid for

stock acquisition

rights


stock acquisition

rights

Stock acquisition



rights


rights Directors of the Company

6 persons 46 rights

Ordinary shares 46,000 shares

Stock acquisition rights issued in consideration of duty

August 21, 2008


2,381 yen per share

1 yen per share

From August 1, 2011 to July 30, 2018


13 persons 40 rights

40,000 shares

Note: The number of allotted stock acquisition rights and allotted person is shown on "Holding condition and position of the stock acquisition rights" as of March 31, 2009.

[Stock acquisition rights issued during in previous fiscal years]


acquisition rights

Grantees of stock

acquisition rights

Amount paid for

stock acquisition

rights


stock acquisition

rights

Stock acquisition



rights


rights Corporate Auditor of the Company

1 person 15 rights


July 16, 2002


Gratis issue

1,669 yen per share

From July 1, 2004 to June 26, 2012 Others


224,000 shares


July 31, 2003


Gratis issue

1,287 yen per share


Directors of the Company

2 persons 2 rights




acquisition rights

Grantees of stock

acquisition rights

Amount paid for

stock acquisition

rights


stock acquisition

rights

Stock acquisition



rights


rights Others


139,000 shares





1 person 18 rights

18,000 shares

July 26, 2004


Gratis issue

1,427 yen per share



517,000 shares


5 persons 63 rights



1 person 6 rights

6,000 shares

Corporate officer who do not serve as director

1 person 6 rights

6,000 shares

July 28, 2005


Gratis issue

1,481 yen per share



183,000 shares


5 persons 48 rights



1 person 4 rights

4,000 shares


4 person 16 rights

16,000 shares

August 23, 2006


Gratis issue

2,300 yen per share



73,000 shares


6 persons 81 rights



8 person 33 rights

33,000 shares

Stock Acquisition rights issued in consideration of duty Stock Acquisition rights issued in consideration of duty

August 23, 2007

Directors and corporate officers of the Company 21 person

Gratis issue

2,615 yen per share



45,000 shares

Note: Holding of the stock acquisition rights as of March 31, 2009 by a corporate auditor of the Company was granted during his term of office as a corporate officer.


(2) Stock Options as employees incentive-type and reward-type stock options

1) Employee-incentive-type stock options To afford incentives to and raise the morale of the employees of the Company and

the directors and employees of the Shiseido group companies to achieving much improved results and secure good human resources and thus to increase the enterprise value of the whole Shiseido Group, the Company issued stock acquisition rights as stock options.

The stock acquisition rights are stock options as incentives to the employees of the Shiseido Group to achieving much improved results while sharing interests with its shareholders.

[Stock acquisition rights issued in previous fiscal years]


acquisition rights

Grantees of stock

acquisition rights

Amount paid for stock

acquisition rights


stock acquisition

rights

Stock acquisition



rights

Class and number of shares to be

issued upon exercise of stock acquisition rights


3 persons 7 rights



November 7, 2005

Employees of the Company, directors and employees of related companies 1,159 persons

Gratis issue 1,896 yen per share

From July 1, 2007 to June 30, 2010 Others


614,000 shares

Note: Holding of the stock acquisition rights as of March 31, 2009 by corporate officers who do not serve as director of the Company were granted during his term of office as employee of the Company or employee or director of the related company.

2) Reward-type stock options To afford incentives to and raise the morale of the directors, corporate officers and

employees of the Company and the Shiseido group companies to achieving much improved results and secure good human resources and thus to increase the enterprise value of the whole Shiseido Group, the Company issued stock acquisition rights as stock options.

The stock acquisition rights are reward-type stock options for individual performances of individuals and teams of the Company and the Shiseido group companies that substantially contribute to its business performance on a consolidated basis, as a plan to inspire spirit of challenge and afford incentives to the employees.

[Stock acquisition rights issued in previous fiscal years]

20 stock acquisition rights, which had not been exercised, issued on March 8, 2006 were expired on March 31, 2009. Therefore, there is no stock acquisition right as of March 31, 2009.

The percentage of subject number of acquisition rights to outstanding share

excluding treasury share as of March 31, 2009 is about 0.6%.


4. Matters Concerning Officers of the Company

(1) Name, Position and Duty and Occupation for the Directors and Corporate Auditors of the Company

Duty and Major Occupation Position Name As of March 31, 2009 As of April 1, 2009

President & CEO (Representative Director)

Shinzo Maeda CEO & COO

Executive Vice President (Representative Director)

Kimie Iwata Responsible for Public Relations, Consumer Information, Corporate Culture, Corporate Culture Reforms, and Committees under Direct Control of the Board of Directors

Responsible for Public Relations, Consumer Information, Corporate Culture, Corporate Culture Reforms, Environmental Measures, Life Quality Beauty Program, and Committees under Direct Control of the Board of Directors

Corporate Senior Executive Officer (Director)

Yasuhiko Harada Chief Financial Officer Responsible for Finance, Investor Relations, Information System Planning, Logistics, Operational Reforms, and Internal Control

Chief Financial Officer Responsible for Finance, Investor Relations, Information System Planning, and Internal Control


Toshimitsu Kobayashi Responsible for Domestic Cosmetics Business Sales

Corporate Executive Officer (Director)

Carsten Fischer Responsible for Global Business (International Business, China Business and Professional Business), Chief Officer of International Business Division, and Professional Business Operations Division

Responsible for Global Business (International Business, China Business and Professional Business), and Chief Officer of International Business Division


Masaaki Komatsu Responsible for Research & Development, Production, and Technical Affairs

Responsible for Research & Development, Production, Technical Affairs, and Logistics

External Director Shoichiro Iwata - External Director Tatsuo Uemura - Corporate Auditor Kiyoharu Ikoma - Corporate Auditor Kazuko Ohya - External Corporate Auditor (Part time)

Akio Harada -

External Corporate Auditor (Part time)

Reiko Kuroda -


Nobuo Otsuka -

Notes: 1. Mr. Shoichiro Iwata and Mr. Tatsuo Uemura are external directors as provided in Item 15 of Article 2 of the Corporation law.

2. Mr. Akio Harada, Ms. Reiko Kuroda, and Mr. Nobuo Otsuka are external corporate auditors as provided in Item 16 of Article 2 of the Corporation law.

3. Mr. Carsten Fischer, director, and Ms. Reiko Kuroda, corporate auditor were newly elected at the 108th ordinary general meeting of shareholders of the Company held on June 25, 2008, and assumed their office as of the same date.

4. Mr. Masaaki Komatsu, corporate senior executive officer, was promoted on April 1, 2009. 5. Corporate auditor, Mr. Kiyoharu Ikoma has held the position of general manager of Corporate

Planning Department and Financial Department, etc. and has respectable knowledge in finance and accounting.


6. The corporate auditors who retired at the close of the 108th ordinary general meeting of shareholders of the Company held on June 25, 2008 are as follows:

Position at the time of retirement Name Date and reasons for retirement

Representative Director Executive Vice President Seiji Nishimori June 25, 2008 (completion of term of office) Director Corporate Executive Officer Kiyoshi Kawasaki June 25, 2008 (completion of term of office) External Corporate Auditor (Part time) Eiko Ohya June 25, 2008 (completion of term of office)

Although Mr. Kiyoshi Kawasaki retired as a director, he continues to serve as a corporate executive officer.

(2) Matters concerning assignment at the Company and representation of other companies, etc. of Directors and Auditors (The following sets forth the conditions as of March 31, 2009)

Position Name Representation of other companies, etc


Yasuhiko Harada President and Representative Director of Shiseido Business Solutions Co., Ltd.


Toshimitsu Kobayashi

President and Representative Director of Shiseido Sales Co., Ltd.

External Director Shoichiro Iwata President & CEO of ASKUL Corporation External Director Tatsuo Uemura Dean of Faculty of Law and the School of Law, Professor

of Waseda Law School and Waseda University External Corporate Auditor (Part time)

Akio Harada Attorney at Law External director of Seiko Holdings Corporation Outside director of Mitsubishi UFJ Financial Group, Inc. Outside Corporate Auditor of Sumitomo Corporation President of Tokyo Woman's Christian University


Reiko Kuroda Professor, Department of Life Sciences, Graduate School of Arts and Sciences, The University of Tokyo


Nobuo Otsuka President of Keiseikai Hospital

Note: External director, Mr. Shoichiro Iwata concurrently assumes the office of Representative director and President of ASKUL Corporation ("ASKUL"), with which the Company has the following transactions:

1) The Company purchases stationeries, etc. from ASKUL and such purchases of stationeries, etc. from ASKUL represented less than 0.1% of the total amount in terms of each of the cost of sales and the selling, general and administrative expenses for the current fiscal year. Moreover, purchases by the Shiseido Group of stationeries, etc. from ASKUL represented less than 0.1% of the total amount in terms of each of the consolidated cost of sales and the consolidated selling, general and administrative expenses for the same fiscal year.

2) A subsidiary of the Company sells toiletry products, etc. for office use to ASKUL and such sales represented less than 0.1% of the consolidated net sales of the Company for the current fiscal year.

3) ASKUL sells through catalogue sales toiletry products, etc. for office use which are not produced by the Shiseido Group and such sales represented approximately 0.5% of net sales of ASKUL for the year from April 1, 2008 to March 31, 2009.

4)ASKUL sells stationeries to the Company and such sales responded less than 0.1% of the net sales for the year, from April 1, 2008 to March 31, 2009, and vice versa approximately 0.1%.


(3) Corporate Officers who do not serve as Director

Duty and Major Occupation Position Name As of March 31, 2009 As of April 1, 2009

Corporate Executive Officer Kiyoshi Kawasaki

Responsible for Boutique Business, Advertising Creation, and Domestic Non-Shiseido Brand Business

Responsible for Advertising Creation, Beauty Solutions and Domestic Non-Shiseido Brand Business

Corporate Officer Kozo Hanada

Responsible for Structured Retail Stores and Domestic Cosmetics Business, General Manager of Structured Retail Stores, President and Representative Director of FT Shiseido Co., Ltd., Vice President and Director of Shiseido Sales Co., Ltd.

Chief Officer of Professional Business Operations Division

Corporate Officer Tamio Inaba Responsible for Business Strategy and Marketing of Domestic Cosmetics Business

ー

Corporate Officer Tsunehiko Iwai Responsible for Technical Planning and Technical Affairs General Manager of Quality Management Department

Corporate Officer Shoji Nishiyama Responsible for Cosmetics Products Research & Development and Software Development

Corporate Officer Hisayuki Suekawa General Manager of Corporate Planning Department Corporate Officer Shoji Takahashi Responsible for Americas, Chairman & CEO, Shiseido Americas Corporation

Corporate Officer Tatsuomi Takamori Chief Officer of China Business Division

Responsible for Business Strategy and Marketing of Domestic Cosmetics Business

Corporate Officer Mitsuo Takashige Responsible for Personnel, General Manager of Personnel Department Corporate Officer Kazuo Tokubo Responsible for Functional Food, Innovative Science Research & Development

and Patents Corporate Officer Takafumi Uchida Responsible for General Affairs, Legal Affairs and Executive Affairs

General Manager of General Affairs Department

Corporate Officer Ryuichi Yabuki

Responsible for Specialty Stores of Domestic Cosmetics Business, General Manager of Specialty Stores, Vice President and Director, Shiseido Sales Co., Ltd.

Responsible for Sales Operations Planning of Domestic Cosmetics Business, General Manager of Sales Department, Specialty Stores, Vice President and Director, Shiseido Sales Co., Ltd.

Corporate Officer Toshio Yoneyama Responsible for Healthcare Business and Frontier Science Business Chief Officer of Healthcare Business Division President and Representative Director of Shiseido Beauty Foods Co., Ltd.

Notes: 1. Corporate Officer who retired on March 31, 2009 is as follows:

Position at the time of Retirement Name Corporate Officer Tamio Inaba

2. Corporate Officers who was elected on April 1, 2009 is as follows:

Position Name Duty and Major Occupation Corporate Officer Masaru Miyagawa Chief Officer of China Business Division, Chief Area Managing

Officer of China, Chairman, Shiseido China Co., Ltd. (4) Remuneration, etc. to Directors and Corporate Auditors

1) Outline of the executive remuneration policy of the Company

The executive remuneration policy of the Company is established by the Remuneration Committee which includes members outside Shiseido and an external director who chairs the committee in order to obtain a neutral view point and high transparency.

This system consists of a basic fixed remuneration and a performance-linked remuneration that fluctuates according to attainment of performance targets and stock price. The portion of basic fixed remuneration is around 40% and that of performance-linked remuneration is around 60%.


The performance-linked remuneration consists of a bonus based on an annual consolidated performance; medium-term remuneration based on targets of the Three-Year Plan started in 2008; and long-term incentive stock options, primarily aimed at fostering a shared awareness of profits with shareholders.

External directors and corporate auditors receive fixed basic remuneration only, as performance-linked remuneration is inconsistent with their supervisory functions from a stance independent from business execution.

The Company sets appropriate remuneration levels by making comparisons with companies in the same industry or of the same scale.

Meanwhile, the Company abolished its traditional officer's retirement benefit plan as of June 29, 2004 on which the 104th ordinary general meeting of shareholders was held. 2) Amount of remuneration, etc. to Directors and Corporate Auditors of the current fiscal

year (Millions of yen)

Basic fixed remuneration Bonuses Stock

Options Total Directors (10 persons) 283 36 71 390 External directors among directors

(2 persons) 26 - - 26 Corporate Auditors (6 persons) 96 - - 96 External corporate auditors among

corporate auditors (4 persons) 36 - - 36 Total 379 36 71 486

Notes: 1. Basic remuneration for directors has the ceiling amount of 30 million yen per month as per resolution of the 89th ordinary general meeting of shareholders held on June 29, 1989. Basic remuneration for corporate auditors has the ceiling amount of 10 million yen per month as per resolution of the 105th ordinary general meeting of shareholders held on June 29, 2005.

2. Amount to be paid in bonuses to directors is subject to the approval of the Fifth Item of Business (Payment of Bonuses to Directors) at this ordinary general meeting of shareholders.

3. Above allowance include remuneration to directors and corporate auditors during the current fiscal year. 1) Remuneration to 2 retired directors

Total amount paid remuneration to 2 retired directors who retired at the close of the 108th ordinary general meeting of shareholders held on June 25, 2008. Basic fixed remuneration from April 2008 to June 2008: 15 million yen, and Stock option: 3 million yen

2) Remuneration to a retired corporate auditor Total amount paid remuneration to a retired external corporate auditor who retired at the close of the 108th ordinary general meeting of shareholders held on June 25, 2008. Basic fixed remuneration from April 2008 to June 2008: 3 million yen

4. Besides set forth above the allowance, the Company paid remuneration to directors and corporate auditors during the current fiscal year.

1) Bonuses to directors for the fiscal year 2007 Total amount paid to 7 directors exclude external directors: 120 million yen This payment was based on resolution of the 108th ordinary general meeting of shareholders held on June 25, 2008

2) Retirement benefits accrued in previous years Total amount paid as remuneration to a retired director who retired at the close of the 108th ordinary general meeting of shareholders held on June 25, 2008: 9 million yen. The above payments were granted based on the resolution of the 104th ordinary general meeting of shareholders held on June 29, 2004, which abolished its traditional system of officer's retirement benefit plan.

5. Besides set forth above the allowance, 2 subsidiaries of the Company paid total amount of 25 million yen as basic fixed remuneration during the fiscal year to 2 directors concurrently assuming the offices of directors of subsidiaries of the Company, and they will pay 1 million yen as bonus for the fiscal year. And a subsidiary paid 8 million yen to a director as bonus for the fiscal year 2007.


(5) Other matters related to External Officers

1) Major Activities

Position Name Major activities

External Director Shoichiro Iwata

Mr. Iwata attended 14 out of 14 Board of Directors meeting. Based on his views to the management of the Company, which are free from the Company's established structure, he made remarks as necessary and fulfilled a supervisory function in regard to the management.

External Director Tatsuo Uemura

Mr. Uemura attended 12 out of 14 Board of Directors meeting. Based on his experiences and knowledge through his involvement in capital market and corporate governance, in addition to his legal knowledge as a university professor specializing in legal research, he made remarks as necessary and fulfilled a supervisory function in regard to the management.

External Corporate Auditor (Part time) Akio Harada

Mr. Harada attended 12out of 14 Board of Directors meeting and 14 out of 14 Board of Corporate Auditors meeting. Based on his legal experiences and knowledge, he made remarks as necessary and fulfilled a supervisory function in regard to the management.

External Corporate Auditor (Part time) Reiko Kuroda

Ms. Kuroda attended 11 out of 11 Board of Directors meeting and 11 out of 11 Board of Corporate Auditors meeting. Based on her experiences as university professor and a member of Council for Science and Technology Policy, Cabinet Office, Government of Japan and The Japanese National Commission for UNESCO, and Vice President of International Council for Science, and insight in wide range of field, she made remarks as necessary and fulfilled a supervisory function in regard to the management.

External Corporate Auditor (Part time) Nobuo Otsuka

Mr. Otsuka attended 14 out of 14 Board of Directors meeting and 14 out of 14 Board of Corporate Auditors meeting. Based on his knowledge and experiences as a director of medical corporations, he made remarks as necessary and fulfilled a supervisory function in regard to the management.

Note: As Ms. Reiko Kuroda was elected as an auditor at the 108th ordinary general meeting of the shareholders held on June 25, 2008 and she assumed office, the attendance frequency to the Board of Directors meeting and the Corporate Auditors meeting is described since that date.

2) Outline of execution of agreements for reduction of liabilities

The Company established provisions in the Articles of Incorporation enabling the

Company to enter into an agreement with external directors and external auditors limiting their liability through a resolution at the 106th ordinary general meeting of shareholders held on June 29, 2006 for the purpose of inducing external directors and external auditors to fully perform expected roles and enabling the Company to invite competent personnel.

Pursuant to these provisions the Company concluded such an agreement with 5 external directors and external auditors under which his/her liability for remuneration shall be limited to the minimum limited liability provided in the laws and ordinances.


5. Matters Concerning Accounting Auditor

(1) Name of Accounting Auditor KPMG AZSA & Co.

Notes 1: The Company does not conclude execution of agreements for reduction of liabilities with KPMG AZSA & Co.

2: Of the significant subsidiaries of the Company, 15 overseas subsidiaries are subject to audits of accounts (including similar documents) by a certified public accountant or incorporated accounting firm (including overseas auditors possessing similar qualifications) other than the accounting auditor of the Company.

(2) Remuneration, etc. to the Accounting Auditor

(Millions of yen)

Amount Amount of remuneration, etc. paid for services rendered as accounting auditors during the current fiscal year 152

Total cash and other remuneration to be paid by the Company and its subsidiaries to the accounting auditor 186

Note: The agreement between the Company and its accounting auditor does not separately stipulate audit remunerations based on the Corporation law or Financial Instruments and Exchange Law. Hence, the remuneration, etc. in above "Amount of remuneration paid for services rendered as accounting auditor during the current fiscal year" does not separate these two types of payment.

(3) Details of duties other than audit

The Company has commissioned the accounting auditor advisory service regarding

internal control over financial reporting. The amount of remuneration, etc. for the service is 2 million yen and which is included above "Total cash and other remuneration to be paid by the Company and its subsidiaries to the accounting auditor" in above (2).

(4) Policy relating to determination of dismissal or not reappointment of accounting auditor

In the event that the Company determines that the accounting auditor of the Company is prevented materially from conducting audit of the Company for the reasons, among other things, that the accounting auditor violates its duties, negates its duties or behaves misconducts inappropriate as accounting auditor, the Board of Corporate Auditors shall dismiss the accounting auditor pursuant to Article 340 of the Corporation law. Furthermore, in addition, in the event that it is deemed that the accounting auditor is unable to carry out duly its duties or change in the accounting auditor to another audit firm is reasonably required to enhance the appropriateness of accounting audit, the Company shall submit proposal to the general meeting of shareholders for the dismissal of the accounting auditor or not reappointing the accounting auditor upon obtaining consent of the Board of Corporate Auditors or receiving request from the Board of Corporate Auditors.


6. System under which execution of duties by Directors is ensured to comply with laws, ordinances, and the Articles of Incorporation of the Company; system under which business of the Company is ensured duly to be conducted

The status for arrangement of the Company, in "Basic Policy regarding Internal Control

Systems" as stated below. (1) System under which execution of duties by directors and employees is ensured to

comply with laws, ordinances, and the Articles of Incorporation of the Company; system under which business of the Company and its subsidiaries and affiliates as a group is ensured duly to be conducted.

The Board of Directors shall determine important matters which will affect the Company

and its subsidiaries and affiliates as a group. Representative director of the Company shall regularly report the status of execution of business to the Board of Directors. The Company shall appoint external directors to strengthen and maintain the Board of Directors' supervisory functions in regard to operational execution. The corporate auditors audit legality and appropriateness of the director's execution of business. Upon request of any corporate auditor, directors and employees shall report the status of execution of business to the corporate auditor.

The Company enacted “Corporate Ideals,” “The Shiseido Way (Corporate Behavior Declaration)” and “The Shiseido Code (Corporate Ethics and Behavior Standards)” common to the Shiseido group, with which each individual in the group should comply in executing business so that legitimate and fair corporate activities are promoted. *

Compliance Committee, under jurisdiction of the Board of Directors, shall be responsible for improving the quality of the Company by enhancing legitimate and fair corporate activities of the group, and risk management. The committee shall propose and report the plans and activities to the Board of Directors.

The Company positions a “Code Leader” at each business office, who shall promote legitimate and fair corporate activities, and the Company shall conduct regular training programs for compliance to all employees. The “Code Leaders” shall report the status of such activities to the “Compliance Committee”.

The Company shall provide multiple reporting and consultation help lines, which include external lawyers, to detect and correct at an early stage actions that contravene the law, ordinances, the Articles of Incorporation and other regulations of the Company.

Internal auditing shall be conducted with respect to the overall group companies to assure appropriateness of business. The results of audit shall be reported to directors and corporate auditors.

(2) System under which directors shall be ensured to efficiently execute duties The Company adopted a corporate executive officer system to actualize smooth and highly

efficient corporate management, wherein functions of directors, who are responsible for decision-making and overseeing execution of business are separate from those of corporate officers, who are responsible for business execution.

A Representative Director responsible for execution of business coordinates execution of the overall group business aimed at achieving corporate targets. A corporate officer shall fix the specified target in the assigned field and set up a business system by which the target shall efficiently be achieved. Furthermore, with respect to the execution of important business, the Corporate Executive Officer Committee consisting of corporate officers shall deliberate the business execution from viewpoints of various aspects.

The Board of Directors and the Corporate Executive Officer Committee shall confirm the status of development vis-à-vis the target and conduct necessary improvement measure.


(3) System under which information regarding execution of business by directors shall be maintained and controlled

Important documents such as minutes of the Board of Directors meetings and minutes of

the Corporate Executive Officer Committee meetings shall be controlled pursuant to the internal regulations of the Company and presented to directors and corporate auditors immediately whenever requested for inspection.

In addition, information with respect to execution of business by directors and employees shall be controlled pursuant to “Information System Controlling Regulation”, “Confidential Information Controlling Regulation” and other regulations.

(4) Regulation regarding Control of Risk for Loss and other Regulation Systems The “Compliance Committee,” under the jurisdiction of the Board of Directors, shall

manage risks associated with corporate activities of the whole group. Risks associated with management strategy and business execution shall be recognized and evaluated to designated teams so that necessary measures shall be taken.

A contingency manual shall be prepared to deal with emergency situation. In the case of emergency, countermeasure headquarters, projects or teams shall be set up pursuant to the levels of the emergency and shall take countermeasures.

(5) Matters related to employees to assist duties of corporate auditors when corporate

auditors request to do so and matters related to the independence of such employees from directors

Employees shall be positioned to assist the Board of Auditors and corporate auditors as the

Board of Auditors Staff Group. The personnel of the Board of Auditors Staff Group shall be determined by taking corporate auditors’ opinion into consideration.

(6) System under which directors and employees report to corporate auditors and

other systems, under which any report is made to corporate auditors Directors and employees shall report the status of business execution to corporate auditors

through meetings of the Board of Directors and other important meetings, and the results of audit performed by the Internal Audit Department.

In addition, the status of business and conditions of assets shall be reported to corporate auditors upon their request.

(7) Other systems under which audit by corporate auditors is ensured efficiently to be

performed Opinion exchange meetings shall be held regularly between Representative Directors and

corporate auditors. The Company shall ensure a system under which corporate audits are implemented efficiently. Liaison meeting shall be held among corporate auditors, accounting auditors and the internal audit department upon request of corporate auditors. In addition, corporate auditors shall be ensured to attend meetings of various meetings.

* Fundamental thought toward exclusion of anti-social power and the status for

arrangement therefor In The Shiseido Code (Corporate Ethics and Behavior Standards), the Company has

declared that it will firmly stand on its ground against any person or group of people having anti-social power and it will never give such person or group any benefits. A coordination office was established in the CSR Group of the General Affairs Department for the purpose of intensively collecting information and at the same time the Manual on how to cope with such power is revised on the intranet. Consulting with the local police offices for cooperation, the Company became a member of the “Conference on how to cope with particular violence” so


that it strengthened to collect outside information and the cooperation with outside organizations.

(The Company's System for the Management and Execution of Business)

Remuneration Committee: As an advisory role to the Board of Directors, the

Remuneration Committee evaluates and set remuneration for executives, and report to the Board of Directors. (Chaired by external director)

Nomination Advisory Committee: As an advisory role to the Board of Directors, the

Nomination Advisory Committee evaluates and nominates candidates for executives, and report to the Board of Directors. (Chaired by external director)

<Restructuring the CSR Committees under jurisdiction of the Board of Directors> To address Group-wide issues such as environmental measures, we enhance our ability to correspond to the issues by establishing specialized units. Therefore, Corporate value creation committee and Environmental committee were dissolved, and restructured into two committees framework which are the CSR Committee and the Compliance Committee. CSR Committee: Based on the idea that fulfilling corporate social

responsibility is crucial to sustainable development, the CSR Committee is established under the jurisdiction of the Board of Directors, to monitor the Group from comprehensive view for raising corporate value. (Chaired by Vice President)


Compliance Committee: The Compliance Committee controls to ensure legitimate

and fair business practices in the Group, and promotes activities including corporate ethics, risk management and information security for raising corporate value. (Chaired by Vice President)

7. Basic Policy relating to Controlling the Company

The Company resolved, at the meeting of the Board of Directors held on April 27, 2006, to introduce and adopt "the basic policy relating to controlling the company (the “Basic Policy”)" and "countermeasures against large-scale acquisitions of its shares (known as an advance-warning rights plan; hereinafter, the “Plan”)". The Company resolved, at the 106th ordinary general meeting of shareholders held on June 25, 2006, to adopt the Plan in accordance with the 3rd item of business that Article 15 was established as the ground for introducing the Plan in the Articles of Incorporation, and the 7th item of business that determined the details of the Plan.

The effective period of the Plan ended on the conclusion of the 108th ordinary general

meeting of shareholders, which was held on June 25, 2008. However, at the meeting of the Board of Directors held on April 30, 2008, the Company passed a resolution to abolish the Plan upon the conclusion of the 108th ordinary general meeting of shareholders and thereafter not to continue the Plan. The reason was that the Company considered it would be preferable to implement the New Three-Year Plan in order to increase its competitiveness and maintain sustainable growth in the global markets and to assure and maximize corporate values and the common interests of the shareholders. Accordingly, the Article 15 was deleted in accordance with the 2nd item of business at the 108th ordinary general shareholders meeting.

8. Important Matters Occurred Subsequent to the Settlement of Accounts At the meeting of the Board of Directors held on April 30, 2009, the Company adopted a

resolution to change the number of shares constituting one unit of the Company to 100 shares from 1,000 shares, in order to improve share liquidity and expand types of shareholders as of October 1, 2009, and also to partially modify the Articles of Incorporation (establishment of Article 1 of the Supplementary Provisions) pursuant to Article 195 of the Corporation law.

Supplementary Provisions: Article 1. The number of shares constituting one unit of shares of the Company, which is

prescribed by Paragraph 1, Article 9 of these Articles of Incorporation, shall be changed to 100 shares from 1,000 shares as from October 1, 2009.

2. This Article shall be deleted when Paragraph 1, Article 9 of these Articles of

Incorporation as prescribed in the foregoing paragraph is changed. To allow management to carry out capital policies with agility and distribute profits to its

shareholders and in response to changing business conditions, the Board of Directors resolved to purchase of its own shares up to a ceiling of 4 million shares and 7,000 million Yen from May 1, 2009 to May 14, 2009.

Under the resolution, the Company purchased 4 million own shares and it cost 6,752 million Yen.

Amounts have been rounded down to the nearest million yen.