Nippon Paint Hldgs Co Ltd

Thank you. Good afternoon, everyone. I am Yui Chiro-Wakatsuki, co-president of Nippon Paint Holdings. Thank you very much for taking the time to participate in our conference call regarding financial results for the second quarter of FY 2023. It gives me pleasure to announce that we have participants from the mass media to join the fourth and the second quarter financial results presentations. I would like to begin by summarizing the financial results for the second quarter of FY2023 on page three. On a Tanshin basis, revenue increased by 7.6% year on year to 362.7 billion yen and operating profit increased by 141.6% to 48.8 billion yen, which is a significant growth in both revenue and operating profit. The breakdown of revenue growth is shown on the bottom of page three of the presentation. Volumes and price mix of the paint business, the adjacency business and new consolidations made positive positive contributions. There was an YOY adverse impact from FX mainly with weaker Turkish lira. Operating profit is improving steadily due to pricing flow through with the impact of raw material inflation continuing to ease and the gross profit margin steadily improved. The very strong results of the second quarter were boosted by a total of 6.9 billion yen due to the contributions from the one-off items to the profits such as subsidy in China, and insurance proceeds from the Flood and Dulux Group in 2022. Operating profit margin on a non-GAAP basis that excludes FX and new consolidations is 11.7%, yet the OP margin improved YOY and QOQ year-on-year and quarter-on-quarter. On a non-GAAP basis, revenue increased by 8.5% and operating profit improved by 42.4% in the existing business, In the Chinese decorative business, TUC revenue increased by 15% and TUB revenue decreased by 7%. China overall OP margin improved to 9.4%, up 1.7 points year-on-year, but was down 3.5 points quarter-on-quarter. Sales volume for decorative grew in particular, yet the profit margin lowered due to higher sales of economy products in terms of product price mix. Phase 4, please note that we revised the FY2023 guidance at this time. Sales revenue guidance was revised upward by 3.6% from the February guidance to 1,450 billion yen, which is a 10.8% revenue increase year-on-year. Operating profit was revised upward by 12.9% from the February guidance to 158 billion yen, which is a 41.2% profit increase year-on-year. I will share the major factors for revision. Please note that the figures are on rough estimates. Roughly 17 billion yen increase in revenue and 9 billion yen increase in operating profit are driven by volume growth and margin improvement. Roughly 28 billion yen increase in revenue and 9 billion yen increase in operating profit are driven by the changes in FX rate from February. Revenue contribution from the new consolidation of NPT is 5 billion yen and will contribute in the second half as the deal was closed in July. Please assume that there will be almost no contribution to the operating profit due to offset by the one-off expenses. Operating profit is a plus, though. We continue to revise the current guidance as we assume different scenarios. The guidance may change in case there are changes in the consumption business trends in the second half, including the raw material price trends, effects and the extent of the impact from the hyperinflationary accounting application in Turkey. which is factored in but difficult to forecast. We will make updates if necessary for these matters in a timely manner. Guidance for EPS will exceed the February guidance by 5.11 yen and is expected to exceed 15 yen, which is the target for the final year of the medium-term plan, by 5.11 yen. Annual dividend guidance is unchanged from February guidance and is 13 yen, dividend increase of 2 yen year-on-year. The raw material market conditions are explained on page 4, as there is a decrease in demand as a result of the global economic slowdown. We believe the impact of raw material price inflation is easing correspondingly. Page 6. This is the heat map that we share with you regularly. Similar to the first quarter, there was a small decrease in our market share in the Chinese automotive coating business. This is because our sales to the Japanese OEM manufacturers are higher than the competitors. The market shares of the Chinese EV manufacturers increased relative to the Japanese OEM manufacturers. In the China decorative paint business, we believe our market share increased in the TUC market and remained flat in the TUB market.

This is a major segment. I will leave the details to the question and answer session, but I will briefly comment on each of the segments. Please refer to the detailed information on the page 15 and on. Number one, that's for Japan segment. The operating income margin exceeded 10% for the first time in many years. The automotive and marine applications continue to improve. The decorative and industry application made up for the drop in volume in their prices. That's number one. Number two, that I have already told you about the China. So I would like to cut this from my presentation. Number three, in Asia outside of the China, both sales and profit continues to grow steadily. In Indonesia, sales continued to increase and the profit ratio exceeded 30%. And in Turkey, we were able to recover very high margins after the application of the superinflationary accounting, thanks to the significant increase in sales, mainly due to the recovery from the effects of the earthquake in the first quarter and an improvement in the Roman trio cost ratio. In DGL, although the market conditions were not favorable in the main Pacific segment, and the volume growth was sluggish, the effect of the price hikes has penetrated into the market, resulting in a continuous stable growth in Europe. Cropology sales were almost on a par with the previous year due to the price increases. JUB sales declined 8.7% in real-time due to the volume decline in the UTIX. Well, compared with the second quarter, and this is a comparison with this, quarter and from June for a consolidated basis. And on the standalone basis, we are seeing that the increase and the good performance. Five, in America, the fall sales for the automobile showed a significant recovery trend. The sales of the decorative products continue to be affected by the slowdown in the housing market due to the rising interest rate resulting in the decline in sales. Since there was no impact from the bad weather as in the previous quarter, the profit level has recovered considerably compared to the first quarter. Page 8 and on, here are the major topics. The first, acquisition of the MPT in Italy was successfully completed in July with the approval of the authorities. We continue to receive high praise for our integrated report. and are currently in the final stage of the operating 2023 edition. We consider it one of the most important tools to dialogue with investors, and we encourage you to read it again. Page 9 that we have already issued a release regarding the selection of the various stocks, but I would like to reiterate that we will continue to focus on this issue. We believe that the recognition of our various sustainability initiatives will help us further expand our investors' base. Finally, on page 24, I would like to make a supplementary comment on the earning forecast. Page 24, please. In response to a request from some analysts, we have included the second half figures, which are calculated by subtracting the first half result from the new full-year forecast. for reference. This is strictly reference purposes only. In the first half of this year, the operating profit ratio was 12.1% on a time machine summary basis, but 11% on a real basis, excluding one-time factors. The OP ratio for the second half of the year is 9.8% on a back calculation basis, but with a one-time negative impact of approximately 1.5 billion yen related to the flooding of the DGL group in this amount. So please consider that we are projecting the profit of the approximately 10% in the second half base of this guidance. So approximately 10% in the second half is our guesstimation. In other words, compared with the first half, the sales will increase by 10% as well, but the margin will decrease by one percentage point, but will be almost the same as the second half of the previous year. This is a reflection of the fact that we have factored in the impact of the economic slowdown in China in particular, and the deterioration of the margins due to the superinflation accounting effect in Turkey to some extent compared to the first half, and that in general, that we will not relax our efforts to expand the market share even during the economic slowdown. But, of course, we are always looking for the margin expansion in addition to market share gains, so that we'll like to do that. Some companies will naturally try to exceed these figures. This concludes my presentation. We're happy to entertain your questions. Thank you very much for your attention, ladies and gentlemen.