China growth and cost cuts boost Shiseido

China growth and cost cuts boost Shiseido

By FT.com / October 28, 2005 05:30 PM

Shiseido said yesterday that it had more than doubled first-half net profits, as cost-cutting efforts bore fruit and sales growth accelerated, particularly in China, its most important overseas market.

Japan's biggest cosmetics company raised its full-year net profit forecast to Y16bn (Dollars 139m) from Y13.5bn, and kept its revenue forecast intact at Y660bn. The company reported a 60 per cent leap in operating profits in spite of an increase in sales of just 4.6 per cent.

Yasuhiko Harada, head of investor relations, said this was due to cost savings coming through after last year's voluntary redundancy programme, though the effects of this were obscured by a change in accountancy practices.

In the six months to September 30, net profit rose to Y10.3bn, reversing a Y4.8bn loss a year ago. Overseas sales grew 10.4 per cent compared with a 2.5 increase at home. The company said increased spending on advertising and a concentration on fewer "mega brands" was beginning to reverse years of falling domestic share.

Cosmetics sales were robust, fuelled by the launch of its new Macquillage high-end line. In the core cosmetics division, operating profit rose to Y24.8bn from Y20bn a year earlier. Overseas cosmetics sales grew 11.3 per cent, led by Chinese sales, while domestic cosmetics sales rose 1.5 per cent.

As part of its restructuring, Shiseido withdrew from selling its toiletry products in South Korea and reviewed its marketing partners in Taiwan. In Japan it is concentrating on three toiletry products, helping to move the business marginally into profit in spite of a fall in sales.

Shiseido said it would continue to make "strategic investments" in health and beauty care and in the mail-order sales markets. Where necessary it would seek alliances, Mr Harada said.

The company is understood not to have participated in the race to sponsor Kanebo, the embattled consumer products conglomerate that is being restructured by a Japanese state -run body. Kao is seen as the frontrunner to rescue Kanebo, a move that would create a formidable rival to Shiseido.

Mariko Sanchanta andDavid Pilling in Tokyo

(C) Copyright The Financial Times Limited 2005. 'FT' and 'Financial Times' are trademarks of The Financial Times.