Nippon Paint Hldgs Co Ltd

Hello, everyone. I am Wakatsuki, co-president of Nippon Paint Holdings. Thank you for taking time out of your busy schedules to join us today. I would like to present an overview of the financial results for the first quarter of fiscal year 2025. Before going into my presentation, first and foremost, I would like to state that today we're not revising the guidance we announced in April. In principle, we believe that the regional figures announced in February and April are well achievable. However, we assumed exchange rates of 148 yen to the US dollar and 20.5 yen to the renminbi as announced in April. While the yen depreciated slightly against these assumptions in the first quarter, it has been extremely volatile since April, so there is a possibility of a deviation from the April guidance if the exchange rate fluctuates significantly. For your reference, the sensitivity to a one-yen fluctuation over a full year and a 10-month period for AOC is shown on the right side of page 2. Next, page three is a summary of the first quarter of 2025. As you can see, revenue and operating profit increased 5.6% and 24.7% respectively to 405.7 billion yen and 51.4 billion yen. Revenue is the highest ever for Q1, and operating profit is a record high for any quarter. New consolidation includes three months of India and one month of AOC. and margin is also up due to AOC's contribution. There are two things I'd like to draw your attention to here. First, as I mentioned in February, we've changed the Asian model for the trading business in China. So under comparable conditions against 2024, revenue would increase by 7.6% instead of 5.6% on a touching basis, And on a non-GAAP basis, revenue would increase by 1.6% instead of minus 0.3% under comparable conditions. Secondly, AOC. AOC's OP margin is 35.6% in Q1. But this figure is before PPA, which means before amortization of intangibles and the one-time inventory step-up. PPA is projected to be completed in the second half of the year, in which case, The amortization expenses will be recorded retroactively in that quarter, and we expect a normalized margin level from the following quarter. Acquisition-related expenses amounted to approximately 1.1 billion yen as of Q1, which is an adjustment item in holdings. On a non-GAAP basis, excluding foreign exchange and new consolidations, revenue increased 1.6% and operating profit grew 7% when compared under the same conditions in China trading. Nipsey China's decorative business posted a 5% increase for TUC and 10% decrease for TUB. Nipsey China as a whole posted a 3.8% increase in revenue and 13% increase in operating profit. Regarding the impact of the tariffs, Since our group basically has local production for local consumption, we import and export very limited products to the U.S., and most of our raw materials are procured within the region. Therefore, the short-term direct impact is expected to be minor. However, of course, we need to keep a close eye on the trends of raw material manufacturers and the production trends of industrial customers, including automobiles. In the medium to long term, as I always say, demand for decorative paints in particular is linked to GDP. So while paint consumption can be affected by economic sentiment, we believe at this moment it is generally within manageable limits. As I mentioned at the beginning, we are not an exporting business, so we have few problems with foreign fluctuations on the local currency basis, which could be affected by U.S. tariffs. but there may be fluctuations due to conversion to yen-based financial results. Page 4. Although there are variations in raw material trends by region, we do not expect major fluctuations in general. In China, market prices have remained somewhat high, but our RMCC ratio is actually improving.

Page 5. This is a heat map. I'd like to skip page 5, and page 6 is a summary of operating results in major segments. We will discuss details during the Q&A session, but let me discuss each segment briefly. First, on Japan segment. Automotive products and revenue increased double due to a rebound in automotive production from last year, and revenue increased 4% due to the Expansion of sales of new decorative products and price adjustment in industrial business. Profit also increased due to higher revenue and product mix improvement, as well as various cost reduction measures. On NXIV, China macroeconomy continued to be challenging, but TUC volume increased across all regions, so it was favorable. Automotive products sales increased as well due to the increase of auto production volume, and we were able to expand our sales to Chinese OEMs. Overall pricing, product mix, and RMCC ratio improved. Even excluding the impact of trading revenue, there was some margin improvement, and as I had stated before, we achieved a profitable growth. Next, Nipsey except China. has some variations apart from Turkey, but it was favorable, including Indonesia. As for Turkey, because of the reaction from the campaign of the Q4 of last year and due to inflation interest rates had been raised, as I had said before, this worsened the market situation. So on a non-GAAP basis, there was a negative growth, but due to the reduction of our MCC ratio, so even after the application of IAS 29, double-digit operation margin was achieved, so we, in a way, secured good profit rather than having anxieties or concerns. Now, at EGL Pacific, Amid the flat market condition, perhaps somewhat weakish, saw sales increase due to price adjustments and mixed improvement, and SG&A was reduced, resulting in the improvement of operating margin. So profit increased 14% on a non-GAAP basis. On the other hand, Europe continues to see the French market being a softer market, negative growth of almost 5%. and profits dropped, but the Q1 is a slow quarter, just like the Q4, so we have hopes for the second quarter and onwards. In America, despite the challenging market condition, we were able to increase the share slightly, and it was almost flat. As for the decoratives, the weather was poor in March, but revenue increased due to the price adjustment and expansion of stores in Northern California. Finally, AOC, which had contributed only one month, and since the PPA had not been finalized, it is not reflected. As I stated earlier, looking at the market condition, expected interest rate did not materialize in the U.S., and the demand was slightly down, but extremely high margin was maintained. and outlook of sufficient profit contribution is unchanged. Also, we see potential of synergies mainly in the area of procurement for both AOC and Nippon Painter Group, and progress has been good to reap low-hanging fruits. Page 7. There are two major topics. The first topic has already been announced, but we received a grand prix in the Nikkei Integrated Report Award higher-ranking award than the Grand Prix G award we had received last year. If you read the integrated report, you will see that the management, ourselves and outside directors, are working with each other to convey our story. So please have a look at this by all means. MSV is a very simple and powerful mission. so as we publish the integrated report every year the novelty may wear off at some point but we'd like to make an improvement and strengthen our engagement with all of you shareholders therefore your feedback will be highly appreciated another key topic is the appointment of a new outsider director as the merger agm andrew clark has been an outside director of DGL from the times when he was enlisted, and even after the acquisition, he has been responsible for the governance of DGL together with myself, Rishu Kim, and Gohapjin. He strongly relates the mission of MSV, and he kindly agreed to be a director of the holding company as well. Six out of nine directors continue to be outsider directors, and four out of nine are non-Japanese. With this diverse composition, we will make efforts to protect minority shareholders and realize MSV That's all for my presentation. I look forward to your questions. Thank you for your kind attention.