Shiseido pulls back into profit, but predicts tough times

By Simon Pitman

- Last updated on GMT

Related tags Sales Generally accepted accounting principles Shiseido

Leading Japanese and global cosmetics player Shiseido has pulled
back into profit following improved sales and reduced labour costs,
but it is predicting that sales growth will slip in the coming year
as a result of competition.

The world's fourth biggest company has been struggling against mounting production costs and stagnant sales in its all-important domestic market in recent years, but a comprehensive restructuring programme is now starting to pay dividends, in turn helping the company to get back into profit.

The company reported that net sales for the financial year up to March 2006 came in at ¥670.9bn (€4.68bn), up 4.9 per cent from in the previous year, while ordinary income jumped 37.9 per cent to reach ¥43.1bn.

This meant that net income stood at ¥14.4bn, compared to a loss of ¥8.85bn for the financial year up to March 2005.

In a press interview CEO Yasuhiko clearly stated that the company's improving financial position should serve to deter potential hostile takeover bids. Harada reinforced this by pointing to the fact that the company's market capitalisation is now heading towards the ¥1,000bn mark, which he believes should act as a suitable deterrent.

Breaking Shiseido's 2005 sales figures down, it is growth from overseas markets that is really driving the company's performance right now. This is reflected in the fact that domestic sales grew by 2.1 per cent, whereas overseas sales grew by 12.3 per cent. Currently domestic sales account for 70.9 per cent of all sales.

Shiseido sad that the main driving force for its overseas demand came from China. Here sales accounted for 4.7 per of all sales at ¥31bn, a rise of 36 per cent on the previous year. This phenomenal growth is expected to be sustained for the fiscal year 2007, when the company is expecting sales derived from this market to reach ¥50bn.

Meanwhile sales in the European market still account for the company's largest overseas market, with sales of ¥85.5bn representing 12.7 per cent of total sales. Sales growth was also strong for the year, leaping 7.3 per cent compared with a year earlier.

In the Americas sales grew 6.8 per cent to reach ¥46bn, representing 6.9 per cent of the company's global sales.

During the 2005 financial year the company launched its new Maquillage makeup line and renewed its Uno men's line as part of a drive to focus on megabrands that dominate their categories in the domestic market.

Overseas the company reported that sales of its mainstay Shiseido brands were strong, whilth non-Shiseido brand such as its Beaute Prestige fragrance ranges were described as 'solid'.

However, despite the good news on the sales for 2005 and the reduction in costs, the company is anticipating that the coming financial year will be challenging, reflecting competitive global market conditions.

All of this means that the company is anticipating that sales will only grow by 2 per cent in the coming financial year to reach ¥685bn, whereas net income is forecast to jump 59 per cent to reach ¥23bn.

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