Nippon Paint Hldgs Co Ltd

Thank you very much. Good afternoon, ladies and gentlemen. I am Wakatsuki, co-presenter of NPHD. I would like to express my appreciation for your attendance. Despite your busy schedule, I will talk about the overview on the FY22 second quarter financial results. On page 3, this shows the summary. On a touching basis, sales amounted 357 billion yen increased by 30% year-on-year to record substantial growth in revenue following the first quarter. However, unfortunately, operating profit shows reduced reduction by 14%. Positive factors for sales increase include new consolidation of chromology and forex change. That is a weaker yen in addition to selling price increase and product mix fell to and the gap over volume decrease, which contributes to the sales expansion, adjacent business contributed to sales increase. On the other hand, operating profit fell due to the impact on lockdown in China. Furthermore, we informed in May we booked a non-loss provision of 13 billion yen on accounts receivables attributable to Chinese developers mainly. Even though first change and new consolidation chronology gave positive impact, Opposite profit declined. On the other hand, for non-GAAP basis, with the existing business excluding the impact of new consolidation for exchange and one-off expenses, sales grew by 11%, profit went up by 2.7%, which was underlying strength of our business. Opposite profit margin improved year-on-year based on non-GAAP basis. Having said this, in addition to the COVID impact in China and the adoption of the hyperinflation accounting for target business, which will be explained later, OPM is around 9% almost flat, comparing with the first quarter, and did not improve as we expected. Having said that, even though we face such unexpected events, we are able to recognize how resilient our group is, since our business is growing, that we will work hard to enhance margin while actions such as selling price increase and controlling SE&A will be in place. On page four, This shows explanation over the revision to the guidance released in February of this year. When it comes to sales, when compared with the expectation back then, an uptick of about 13 billion yen was recognized. It was not finalized at the time of the February guidance, but the new consolidation of Ubers covering seven months, more or less 11 billion yen is recorded, with the hyperinflation accounting adapted for target businesses. It is a bulk figure, but 5 billion yen to be added on a four-year basis for sales. Also, yen depreciation contributed, which stands at more than 90 billion yen. This is the breakdown of 1.3 trillion yen and 20 billion yen. On the other hand, with respect to the forecast on operating profit, actuals for existing business are almost in line with our expectations. Therefore, sales figure will be up, but we expect the margin will be slightly decreased. Having said this, there is not much impact. Some 9 billion yen increased through forex exchange. 1 billion yen from new consolidation of YUB is accounted for. We record that 13 billion yen for allowance of doubtful accounts in the second quarter. There might be slight increase from that number by including all those factors. OP forecast is around 15 billion yen negative. As to the impact of Turkish hyperinflation accounting treatment, on a full year basis, it is about 5 billion yen impact. It is regrettable, but the opposite profit is forecasted as 105 billion yen, less than 10 billion yen from the beginning of this fiscal year, where we forecasted 115 billion yen. Now, comparing against the situation in May, let me tell you this. First of all, visibility on the provision for China business got clearer to some extent. The second point, first impact will change But only six months left where things are more clear now. Third point, raw material price increase trend has abated and we have better visibility for the second half. And the fourth one, we are able to confirm Yube closing May end. And adding to that, let me tell you this. At the time of the May, it was extremely uncertain that is the lockdown situation in China. So it is unpredictable, but we can make some assumptions. And lastly, we did not necessarily assume that in May, but the adoption of hyperinflation counting in Turkey is another factor to note. Please understand that we came up with today's guidance based on the aforementioned elements of factor into. While external factors such as forex inflation and also COVID-19 still serve ongoing uncertain factors, When we find any substantial changes to the assumption, regardless of the rules for mandatory disclosure for revision, we will inform you beforehand. On page 5, as for the second quarter, with prolonged Ukraine situation, falling consumer confidence, and impact of lockdown in China, we kept selling price increase, but margin improvement was not attained as we expected. At the same time, we are able to grow, including market share increase at each area, as long as the raw materials market settles down, as we expect. That will make margin improve, possibly. We do not make assumptions for raw materials price to go down, though. Presumably speaking, when that happens, further improvement could be recognized. Page six will be skipped. Page seven, this shows the summary of major segments. detailed information is found on page 14 and beyond. And let me add some comments. First of all, here in Japan, an operating profit of 2.2 billion, that is after the deduction of NPCS expenses. That was not in place last year. So the upper to upper comparison we see previous year, if we reserve or add back additional allocation of 1.2 billion, then it will make up some 3.4 billion yen. On the same basis, in comparison, 2.8 billion of the last year's figure, 1.6 billion OPM is 3.8%. And it's about 1.6 if we want to add back the first quarter. And OPM, again, 3.8%. And 3.4 billion is 7.4%. In any case, this shows an improvement trend. I think that is some promising trend we see on the China front. Yen depreciation is identified thus, but on non-GAAP basis, 2.8% growth is reached from overall perspective. However, a decorative business stock makes up 80% of the total. is 7.1% growth identified as the DIY, 15% increase, but projects, there is a negative figure of 5% down. For the industrial application and auto applications, they had some lockdown impact, even though the proportion from total perspective is low, but there is a double-digit decline in sales, respectively 12% and 24%. besides China, Nipsey China, including Indonesia and Turkey, I believe that they performed solidly from a number of perspectives due to the inflation in Turkey. It looks like a little bit enlarged growth. However, I don't want to say that could be or it should be. However, if there's no impact of the negative adoption of the inflation accounting, then it would, for non-Turkish on the non-GAAP basis, I think we will be able to secure the increase in profit. DTL business in Australia and New Zealand shows very stable growth on a continuous basis. That is including the time scheme, but there will be some concerns over the falling consumer sentiment in Europe. However, a forecast on operating profit around 5 billion yen after one of the expenses in the first year is the most. It should attend... In relation to the acquisition of Yub, we have completed that transaction. A collaboration with a new team has started, which is not just with DJL, Chromology, but also Betech in Turkey, and it is very pleasing. And for the Americas, there is a slight recovery of the auto, and with respect to decorative DE, there is a heightened uncertainty. In the U.S. market, however, we have overachieved the the target in second quarter. And 1.8 billion worth of the disposal proceeds is recognized.

So topics on page eight, as the cumulative inflation rate in three years have exceeded 100% in Turkey, a hyperinflation accounting policy has been applied to the Turkish subsidiary as of this fiscal year. This accounting policy has been in place, and there were examples of application in countries such as Argentina, Iran, Sudan, and the like, but it is the first time the policy is applied in our group company. Asbetic is a successful example of acquisition by NPAHD. Allow me to elaborate on the situation. Please kindly go through the materials for the details, but if I may summarize, restatement of accounting items in the PL and BS is required by this policy in alignment with the changes in the general pricing power. As a result, the sales revenue will be pushed up as much as the changes in the general pricing power. On the other hand, the range of price adjustments for raw materials and inventories may be larger as they are retained for a longer period of time until the sales is recorded. As prices of raw materials and inventories retained held will be revised further upwards, such restatement may lead to profit decline along with non-current asset adjustment and other expenses. expense items a restatement monetary value and non-monetary value declining in a hyperinflationary environment is understandable but for example all the prices of the raw materials that have been proactively procured in advance anticipating the soaring prices are also required to be revised or restated. I do feel that there is some distance between the way we endeavor proactively manage business locally and the accounting policy. Having said that, we do feel it is necessary to contrive further as we manage our business through this lesson that such accounting policies may be applied under such circumstances. Please note that this hyperinflationary accounting policy will be applied from the second quarter cumulative in Turkey. First half sale revenue is estimated to increase by $3 billion Operating profit is expected by 3.3 billion. Operating profit is expected to decrease by 3.3 billion minus. On a full year basis, revenue is estimated to increase by 5 billion yen, and operating profit is expected to decrease by 5 billion yen. In terms of non-operating expenses, the loss of the net monetary position must be included in profit or loss for the period. This may lead to a further decline, decrease in profit before tax basis. We are in the middle of... of proceeding with the next career plan, so there is not much I can touch upon. As we have mentioned in the past, in order to enhance the growth potential of the Japanese segment, we review the business from various perspectives and aspire to become an efficient and lean organization with muscles. We introduced this initiative with the employees within certain age groups. The target number of applicants is not yet specified. at this point, and it is uncertain how this will impact our performance, but we hope to execute this initiative by the end of this year. We hope we can provide further details in early October or at the latest when we announce the financial results in November. Page 10, new consolidation of JUB and fully consolidating the Chinese consolidated subsidiaries have already been announced. We expect that in China, we expect that the integrated operation of the automotive OEM business and plastic business which were operated separately in the past, will be even more efficient by working together. Last year's Integrated Report was evaluated highly by the investors community. We are preparing a newer and even a better version of the Integrated Report this year, which will be issued in the end of August. We were very flattered by the high evaluation of our Integrated Report. Page 11, we have been selected as a constituent of various indices, as has been announced earlier. we will try to enhance the investor's basis through this kind of endeavor. Regarding meeting the requirements for maintaining a listing on the prime market, we have communicated earlier that the free flow ratio was approximately 32% only by implementing the secondary offering in the beginning of this fiscal year and did not exceed the threshold of 35%. Our free float ratio is higher than 35% based on the shareholder registry at the end of June 2020. According to our estimate, it is the TSC that makes the final decision at the end of the year, but we do not expect that the tradable shares will decrease, and we wanted to communicate this information to you. Please be informed about the revision of the DGL information in the presentation material in the first quarter. Please kindly accept our apology on this matter. So from here on, I would like to solicit questions from the floor. Thank you for your attention.