Nippon Paint Hldgs Co Ltd

Hello, everyone. I am Wakatsuki, co-president of NPHD. Thank you very much for taking time out of your busy schedule to join us today. I would now like to present an overview of the FY2023 third quarter financial results and the revisions to the four-year guidance. First is today's summary. On a Tanshin basis, revenue was 393 billion yen, up 9.8% year-on-year, and operating profit was 47.9 billion yen, up 20.5% year on year, continuing a significant increase in both revenue and profit. Positive factors for revenue were the volume and price mix of paints, adjacencies, business, and new consolidations, while exchange rate was slightly negative year on year, partly due to the depreciation of the Turkish lira. In terms of profits, Gross profit margin also improved by 2.7 percentage points year-on-year due to the continued easing of the impact of raw material prices and the price flow-through, in addition to the effect of higher revenue. OP margin also improved to 12.2%, up by 1.1 percentage points year-on-year, including one-off gains. The results continue to be very strong in the difficult macro environment, which can be attributed to the company's high market share and brand strength. On a non-GAAP basis, existing business increased revenue by 10.2% and operating profit by 34.1%. As for decorative business in China, TUC revenue grew by 10%, TUV revenue dropped by 17%, and overall profit margin in China was 13.2%, up 1.1 percentage points year on year. While there were some positive effects such as SG&A cost control, the company showed great strength even in severe demand environments. Next page four, please. Following August, we revised our full-year guidance upward. No change in revenue, which is still expected to increase by 10.8% year-on-year. And operating profit guidance is revised upward to 168 billion yen, up by 10 billion yen, an increase of 50.2% year-on-year. Revenue guidance remained unchanged. but the FX impact and the variance among regions resulted in a level of revenue that is almost in line with our expectations. As for operating profit, please consider that the improvement in business is at the level of 8 billion yen and FX impact is roughly at the level of 2 billion yen. With only a few months remaining in FY 2023, I do not expect any major changes in the final numbers this year, but the fourth quarter generally has lower demand while economic trends, FX, and hyperinflation accounting in Turkey are variable factors. At the same time, we will aim to achieve steady profit levels through firm cost control. We also revised our EPS upward, and our annual dividend guidance was increased by ¥1 to ¥14, an increase of ¥3 year-on-year. Skip page 5 and page 6 and turn to page 7. This is an overview of the major segments. I will go into detail as needed in the Q&A session, but will briefly comment on each region. Please look at page 15 detail as you listen to me. As for Japan, the price and volume of automotive and marine continue to improve. while decorative and industrial business are offsetting the volume drop by price increase. Operating profit margin was 9.1%, also a significant improvement compared to 3.8% in the same period last year. In China, we continue to see growth in TUC in all regions, especially in Tier 3 to 6 cities. The mix is deteriorating due to strong growth in economy products, but basically, TUC is more profitable than TUB and industrial coatings, and strong profit is generated coupled with operating leverage. The level of credit loss provision recognized for FY2023 is approximately 1.5% of overall China sales. As we answered in the Q&A session for the second quarter results briefing, this is included in both Tanxing and non-GAAP bases. Second quarter provision level was roughly 2% of overall China sales, so the provision is expected to decrease from there and further decline towards fourth quarter to around 1%, which is also an approximate figure, and a further decrease in FY 2024. In Asia, except China, both revenue and operating profit continue to grow steadily. In Turkey, the growth on local currency basis is due to the effect of price increases in response to inflation and profit margin improved significantly year on year to around 11% After applying hyperinflationary accounting due in part to an improvement in RMCC ratio, Indonesia continues to see revenue growth of 6.2 percentage points and profit margin of over 30%.

In DGL, the main segment, Pacific, achieved growth of about 7% due to the penetration of the effect of price hikes, although the volume remained flat due to poor market conditions. In Europe, both Chromology and Joop increased sales by compensating for volume declines through price increases, and in Joop, although ethics volume declined, total profit margins improved considerably. Starting this third quarter, Deluxe Group will be classified into two segments, Pacific and Europe, with Chromology, Joop, NTT, which we completed acquisition recently, and other European operations being disclosed as one segment in Europe. In the Americas, the UAW strike affected the big three's production volume, and our revenue dependence is not high. So overall, automotive business continues to recover. On the other hand, decorative business continued to be affected by the slowdown in the housing market, with volume declines outweighing price increases, resulting in a slight decrease in revenue. However, profit level is almost the same as the previous year. On page eight, here are the major topics. We have issued our 2023 integrated report at the end of September. As always, we have put so much effort into this year's report and we consider it as an important tool for our dialogue with the investors, so please take a moment to read it. On page nine, I would like to provide some additional information on the acquisition of a leading manufacturer of coatings in Trimix motors in Kazakhstan, which was announced yesterday morning. We have been in Kazakhstan for some time through Betak Boya in Turkey, but it is basically a distribution company and we have been exploring the possibility of local operations with the aim of achieving local production for local consumption. The acquisition opportunity has come, and after much deliberation led by the team at NIPSI, we have successfully concluded the acquisition agreement. The combination of a very talented team, excellent brand, and our group's know-how will make a positive contribution to EPS from the first year. and we are excited about this promising investment as urbanization including the premiumization of coding's progress. The closing is expected to be in the first half of next year after we will have obtained the antitrust approval. Moving on to page 10. This is also a supplementary information. As you can see here, Kazakhstan has around 20 million population, and the CC market is steadily growing, and we are very happy to welcome the number one brand company to the Nippon Paint Group. And with Nipsey and Betech, a winning team of our group in Asia, we will be able to further develop the company's advantages while eliminating unnecessary interference. Finally, I would like to make a supplementary comment on the earnings forecast. Please refer to page 25. Again, the fourth quarter figures, which are calculated by subtracting the third quarter cumulative results from the new full year forecast, are included for your reference only. As I mentioned earlier, the fourth quarter is a time of declining demand, and the economic environment is not favorable. But we expect growth of about 10% year on year, and an OP margin of about 10%, an improvement of 0.9 points from the previous year. The amount of operating profit takes into account approximately 1 billion yen expenses related to the flooding in DGL, which should be considered as an offset to the insurance income received in the first half. It also takes into account approximately 1 billion yen or approximately 1% of sales in China-related provisions, as well as an inflationary accounting impact in Turkey in the fourth quarter, etc. Nonetheless, as I said in the beginning, these are subject to possible change depending on the developments of the market, effects, and inflationary accounting. We would appreciate your understanding. Once again, the figures for the third quarter, as well as the upward revision of the guidance, are the fruit of ceaseless effort made by each region, and they demonstrate the robustness of the group. We continue to be healthily cautious, and while continuously exploring possibilities of M&A, we will strive to accumulate EPS. That concludes my presentation, and I would now like to take your questions. Thank you for your kind attention.