Nippon Paint Hldgs Co Ltd

It is now time to commence the Nippon Pate Holdings Company Limited FY2025 Q4 Financial Results Briefing and Medium Term Strategy Update Briefing. Thank you very much for joining us today despite your busy schedules. This briefing will be held online only. Now let me introduce today's attendee. Director, Representative, Executive Officer, and Co-President Yuichi Wakatsuki. Today's agenda will proceed with an explanation from Wakatsuki followed by a Q&A session. Please note that simultaneous interpretation in Japanese and English is provided for this briefing. President Wakatsuki, the floor is yours. Thank you. Hello, everyone. I am Moa Katsuki, co-president of NPHD. Thank you very much for taking the time to join us today despite your busy schedules. I will provide an overview of our FY 2025 Q4 and full year financial results, as well as an update on our medium term strategy. We typically announce our medium term strategy in April. last year there were changes such as the consolidation of AOC this year we covered a wide range of topics including AOC China Nipsey and M&A at our IR day in November our basic policy remains unchanged so I would like to briefly discuss the additional updates and after that I would like to take questions on each topic members of the media are also participating today first on page two please note that we have made some changes to our disclosure since q3 of last year while these changes have been generally well received by investors we will continue to listen to your constructive feedback and make further improvements as necessary We have also changed the way we display exchange rates, showing the rates for each quarter instead of cumulative totals. The yen generally weakened year-on-year in Q4, but strengthened slightly for the full year. The assumed yen exchange rate for 2026 is slightly stronger than the actual rate, about 150 to a dollar. but is expected to be roughly flat year-on-year. Next, pages 3 and 4 are included from Q3, but first, page 3 shows the long-term performance trend for Q4. This Q4 was also very strong, and I think you can see at a glance our extremely high growth track record and growth organically and inorganically. The long-term trends for the full fiscal year are included on page four. As I mentioned in the last term, organic profits turned negative temporarily due to COVID-19 in 2020 and rising raw material prices in 2021, but have recovered significantly since 2022, demonstrating the strong resilience of our organic profitability. next let me give you an overview of q4 on page five both revenue and operating profit were record high with increases in revenue by 14 in real terms adjusted operating profit by 54 and adjusted eps by a significant 75 operating profit contribution was organic plus 24 percent and inorganic plus 30 percent with margins improving by 4.7 percentage points. By region, AOC remained a high profit contributor, and with the interest rate cuts in the U.S., the market is showing signs of bottoming out. In China, the economic outlook remains tough, and we continue to achieve profit growth by focusing on margins. In regions other than Nipsey, China, both volume and price mix have improved overall. Page 6 shows FY 2025 results. Revenue increased 11%. Adjusted operating profit increased by 38%, and the adjusted OP margin improved by 3.3 percentage points year-on-year to 15.5%. Adjusted EPS also increased 43.3%, and EPS of 76.7 yen on the accounting basis significantly exceeded our April guidance, along with operating profit and net profit. Page 7, please. Regarding our FY2026 guidance, although the economic environment will remain relatively challenging, we expect both revenue and operating profit to reach new record highs. We expect growth in revenue by approximately 8%, adjusted operating profit and net profit by approximately 10%, and a modest uptick in adjusted OP margin. EPS on the accounting basis is expected to increase by 11.4% to 85.3 yen, with share buybacks contributing slightly above 1%. Regionally, AOC is expecting a return to low single-digit revenue growth, and TUC in China is also expecting profitable high single-digit growth, as I mentioned in the recent IR day. In addition, we expect continued strong revenue and profit growth in Nipsey outside of China. As we announced at the time of AOC acquisition in October 2024, we adopt a progressive dividend policy, so we will prioritize deleveraging in preparation for future additional M&A and expect to increase dividend by one yen, backed by our strong performance. Next, page 8 and 9. These two pages show the assumptions for the guidance for each segment. Simply put, revenue growth will continue to be driven by China and Nipsey, while profitable growth is expected in each region based on our competitive advantages. Page 10, please. As you can see from the heat map, against the tough market conditions overall, we are firmly aiming for profitable growth. Page 11 is a summary of operating results in major segments. I will leave the details to the Q&A session, but will briefly comment on each region. In the Japan segment, tough market conditions and volume were offset by a favorable price mix, resulting in a slight increase in revenue, and profits increased by approximately 18%, not including gain on the sale of fixed assets, thanks to improved RMCC and SG&A control, and margin also improved to 13.1%. Nipsey China achieved a 30% increase in profits in Q4, despite tough market conditions in all areas, except for the automotive industry. Through strong cost control, we achieved a margin improvement of nearly 5 percentage points, even though it was a period of declining demand. While market conditions are expected to remain tough in 2026, as I mentioned at the beginning, we aim to return to growth trajectory based on our competitive strength. Nipsey, excluding China, continued to see an overall trend of increased revenue and profits, with results that more than offset the negative impact of exchange rates. DGL Pacific achieved double-digit increases in both revenue and profits, despite a nearly flat market, thanks to continued volume growth, mixed benefits, small-scale acquisitions, and exchange rates, demonstrating continued stable growth. Meanwhile, in Europe, market conditions remained tough in France, southern Europe was strong, and ethics market in Yube was weak, resulting in mixed results, but revenue and profits increased thanks to the FX impact. In light of the worsening market conditions in Europe, Chromology Group recorded a goodwill impairment loss of 5.5 billion yen as a result of an impairment test. In the Americas, the number of automobiles produced across the region decreased. Long-term interest rates have not yet fallen and housing demand generally decreased, resulting in a decrease in revenue and profits for the Americas. AOC continues to maintain very high margins and is making significant contribution to profits. For reference, revenue was down 2% year-on-year and signs of bottoming out are becoming apparent. PPA has been completed, and on an unadjusted basis, amortization of intangible assets and inventory step-up expenses totaling 5.1 billion yen were recorded. However, depreciation of tangible fixed assets of 2.1 billion yen was recorded after adjustments. And excluding this, the adjusted OP margin remains at approximately 35%. Next, page 12, please. There are three major topics. First, we held IR Day in November of last year, as already announced. Secondly, we continue receiving very high ratings from the IR and sustainability evaluation organizations. Let me once again express our gratitude to all those involved who have provided us with various constructive feedback. The third point is on page 13, which we announced yesterday. The share buyback is progressing steadily. While it is certainly unfortunate that our stock price remains low, we view this as a positive opportunity to purchase our shares at a very favorable price. If all goes well, the buyback will mostly be completed by the end of February, which will boost EPS by about 1.2% year-on-year. This concludes the financial results presentation, and I would like to move on to an update on our medium-term strategy. First, page three, executive summary. There are no fundamental changes from the policy announced in April 2024 and updated last April. Going forward, I'd like to share only the main points.

first we remain steadfast in our asset assembler strategy as the end of unlimited organic and inorganic growth second as you saw in the fy25 results our organic growth capability remains solid even under a challenging market environment however regarding revenue compared with 2024 uncertainty about the outlook ahead has increased We are taking a slightly more conservative view on growth in China. And in the short term, there will also be dilution of growth due to the addition of the U.S.-centered AOC business onto the portfolio, which is facing somewhat difficult conditions. As a result, we are lowering our previous targets of 8% to 9% revenue growth and 10% to 12% EPS growth and now aim for a mid-single digit in revenue and high single digit growth in EPS. I will touch on this again And third, we will continue to pursue inorganic growth through both bolt-on and asset-type approaches. Even after the acquisition of AOC, we continue to consider M&A on an ongoing basis. While we have passed on some opportunities due to price mismatches or concerns about the sustainability of the business, we believe there are currently many opportunities for us as a buyer. We have previously said there is no limit, but based on investor feedback, that this was too broad and that the statement itself does not resonate with new investors who are not familiar with Nippon Paint. We have decided to present our approach more specifically. In other words... domain that operate in solid growth markets, have competitive advantages, and whose growth can be enhanced under our group. We will aim for M&A that contributes to EPS from the first year and achieves ROIC exceeding WACC within approximately three years. On the other hand, as I mentioned repeatedly, M&A is not an end in itself, so we will pursue it with discipline, including with respect to pricing. Next, page four. This is a reprint from our earnings materials. But our revenue CAGR from 2018 to 2025 is 16% and the CAGR for adjusted EPS is 17.4%. Please note that this EPS growth reflects the impact of the share issuance associated with the move to 100% ownership of our Asia joint venture and the acquisition of the Indonesia business in 2021. Once again, I believe this demonstrates our growth capability over the long term through both organic and inorganic initiatives, and we take pride in consistently delivering on what we say we will achieve. Next, page five. Here, we are briefly looking back since we announced our policy in April 2024. At that time, and also in corporate governance code, this reflection has been emphasized. And I would like to make a comparison from back then. At the time, we had not anticipated the acquisition of AOC, and we stated our mid-term targets of 8% to 9% annual revenue growth and 10% to 12% EPS growth. Over the past two years, we have achieved nearly those levels with organic revenue growth of just under 7% or 6.7% and adjusted EPS growth of just over 10%. Considering how dramatically the political and economic environment has changed since April 2024, I believe this is a very solid performance. In addition, with the contribution from AOC, we ultimately achieved a revenue growth of 11%. This excludes the China adjustments, but with adjustments, it will be around 12%, and adjusted EPS growth of 22.2% was achieved. Furthermore, compared with 2023, our margins and cash generation capability have improved, and also our business portfolio, as you see on the right-hand side, has become more balanced. Next, page six. This is a summary of our business portfolio. There are four points. First, regarding the market environment, as I have consistently stated, paints and coatings, especially decorative paints, have very resilient demand and grow steadily in line with population growth, urbanization and rising economic standards. On the other hand, they are also linked to economic conditions, so given the current market environment, we believe it is necessary to adopt somewhat cautious assumptions. Second, against this backdrop, as mentioned earlier, our performance has achieved very strong organic growth, even excluding the impact of AOC. Based on the strong organic growth and cash flow, we continue to have a solid foundation to pursue further growth. And third, under these circumstances, our mid-term targets, assuming the current portfolio, are mid-single-digit growth in revenue and high single-digit growth in adjusted EPS. However, internally, we are, in fact, aiming for a double-digit growth. And finally, as we also showed at IR Day, both our China business and AOC remain attractive as growth businesses, and this has not changed. Page 7. Here, we show the results over the past two years compared with our forecast at the time in 2024 for each region, as well as the outlook we have just explained. For Japan, the profit margin was 9.6% in 2023 and has risen to 10.7% in 2025 after adjustment, so margins have improved largely in line with our guidance. For China, as mentioned repeatedly, the market environment has been challenging and we prioritize margins. As a result, performance reflects that approach with somewhat lower revenue but a significant improvement in margin. Profit Kegar was at 5.9%, which is somewhat below expectations. However, this was offset by Nipsey, except China. As for DGL... Performance is in line with guidance, but the recovery of the market environment in Europe, particularly in France, will be the key factor going forward. Page 8. As for China, myself and Co-President Rishu Kim already explained this at IR Day, so I will not repeat the details. However, based on the premise that the market will remain soft, we will pursue growth more aggressively and aim for a high single-digit growth for TUC in 2026. That said, as shown on the previous page, we believe mid-single-digit growth is a realistic figure over the medium term. And of course, we will continue to make further efforts locally to exceed that level. And as I have said before, China is a very dynamic market. And we believe that only our company has the capabilities to leverage brand strength, scale, digitalization, advancement of IT systems, and development of new models in Tier 3 to 6 cities. When the market eventually recovers, which we are not assuming at this point, we believe we will be the company best positioned to benefit most significantly. Next, page 9. on inorganic growth and M&A. Regarding the M&A market environment, given macroeconomic uncertainty and the overall decline in valuation multiples, we believe this is a good opportunity for buyers. In fact, my impression is that discussions have become more active. Against this backdrop, in terms of our track record, not only has AOC made a contribution, but the companies we have acquired to date have also steadily grown and improved returns, as shown on the following pages. Our strength in low-cost funding continues to be an advantage. Of course, as interest rates rise, our sensitivity to risk also increases, so there are some aspects that make us a bit more cautious. However, at current rates, At the current interest rate levels, we still believe there are many acquisition opportunities that can be pursued without compromising the company's financial stability. As mentioned at the beginning, our acquisition criteria and targets remain unchanged. Based on investor feedback, I would like to clarify that I am not denying the importance of ROIC. In fact, particularly as our valuation has declined, our focus on ROIC has increased significantly, and our acquisition standards have become stricter accordingly. However, if we focus solely on ROIC, it could hinder our growth aspirations, so we believe it is important to strike the right balance. Next is page 10. This is also an update of the EPS compounding track record we have shown previously, including the latest figure. Since I receive questions from time to time, to avoid any misunderstanding, let me repeat that in 2021, we increased the number of shares by 46% due to the move to 100% ownership of our Asia joint venture and acquisition of the Indonesia business. result on an EPS basis, the existing business may appear to have temporarily declined. However, in reality, this reflects the addition of the corresponding acquired businesses and overall EPS has in fact increased. Page 11, this is also an update of the ROIC for each asset that we presented at IR Day with addition of 2025. We show figures both including and excluding goodwill and intangible assets. And please take note of the following three points. First, ROIC for each asset has been steadily improving after the acquisitions. This can be seen as evidence that in addition to selecting high-quality targets, our model based on autonomy and accountability is working effectively. I would also add that synergies are actually materializing in both tangible and intangible ways. And second, with acquisitions, we pay consideration that includes goodwill and intangible assets, so we cannot completely exclude them. Even so, if you look on the right-hand side, I believe you can understand that our acquisitions target highly asset-light and highly profitable companies. we are often benchmarked against peers using simple company-wide ROIC comparisons. However, companies that actively pursue M&A, like ourselves, and those that do not, have very different asset compositions and their growth capabilities also differ. Some investors who look closely at the details try to make adjustments in various ways, but as I mentioned earlier, focusing solely on ROIC can obscure these differences. So again, I'd like to remind you of this point. And for page 14, this is also a repeat from IR Day. Based on strong capital generated through organic EPS growth, we aim to achieve compelling growth by reinvesting that capital into M&A that firmly contributes to MSV. What is important is for investors to recognize the reliability of our growth strategy from both the organic and inorganic perspectives. We will continue to steadily build our track record going forward. Page 15. With respect to financial discipline, we will continue to balance sound financial management with growth, targeting net debt to EBITDA ratio below four times and a DE ratio below one times. at the end of last year, net debt to EBITDA stood at 2.9 times even after executing a certain level of share buybacks, which exceeded our expectation. Based on this, we anticipate reducing it by approximately another 0.5 times this year. As we mentioned at IR Day and again today, we are already advancing preparations for our next M&A opportunity, and with our current financial position, we believe we have ample capacity to proceed with the next step. Again, page 16. Our continued commitment to MSV remains unchanged. I believe there are very few companies that state so clearly and consistently that MSV is their core mission. We, the management, as well as the board, take pride in the fact that this philosophy is deeply embedded in everything we do, and based on it, we intend to continue delivering solid results. This concludes my presentation on the earnings results and the update to our mid-term management policy. Thank you very much for your attention.

We will now move on to the Q&A session. We have three points I'd like to ask you. First, to provide as much opportunity to many investors, we'd like to limit the number of questions to one per person. If you have additional questions, please wait until all the questioners have asked their questions second point due to the simultaneous interpretation setup please use the language that you are using so please ask question in Japanese if you're using Japanese channel and English question if you're listening to English third point The questions from the English channel will be taken after the questions on the Japanese channel. Please use the raise hand button at the bottom of the screen if you have questions on the Japanese channel. Please wait if you're on the English channel for a moment. We will appoint you one by one. So if you see the unmute message, please unmute yourself and ask your question. If you do not see the message, please unmute yourself. Please wait until we appoint the first questioner. First question is Goldman Sachs Security's Ikeda-san. Please unmute and ask your question. This is Ikeda from Goldman Sachs. Thank you very much. Hello, Ikeda-san. First, You are exceeding the business plan, and you're exceeding the consensus on the guidance for this fiscal year. Thank you very much, and congratulations for the very robust performance. First question, Q4, China business. The market environment is difficult, and TUC – Sales volume is upper single digit and 5% decline overall, but the profit margin is improving quite significantly. Sales price is unchanged, and so the margin improved. And this trend will continue this year. the raw material cost due to may rise due to the competition but China's business environment and this year's forecast please thank you thank you get a son for the question for q4 unfortunately TUC was minus five percent so we are not in a full recovery trajectory yet q4 as you know is a slow season so we will do the rear lining and recover and collect of the receivables we think we are running a healthy business and there is no excessive inventory in the market and we are recovering of the accounts receivable we felt the risk in the account receivable collection but now our healthy management is bearing fruit and as you rightly said Raw material benefit is being enjoyed. The premium products sold well, but the economy products were a bit difficult. The market overall is minus 5%, so we are in line with the market trend. In one word, although we're in a slow season, the demand was rather weak. and in q4 that was also the case as i mentioned earlier in fy 26 we are not assuming a radical improvement in the market but still aiming for high single-digit growth so we will pursue the premium strategy and as we mentioned earlier the tier three to six cities Our experience in these three to six cities can be exerted direct to front, D to F, as I mentioned on page 9. I mentioned this on IR Day. We are doing this before other competitors, and we are well established in terms of system. So we think this will come to fruition. Last week... I met my Asian team China team are very much motivated for sales increase they are saying we will alleviate your the burden on your shoulders our China management team have high credibility, high trust, and they're saying it boils down to profit. We have to raise profit. Like Weishu Kim said, high single digit will be secured in TUC as well. But at the same time, for margin, raw material is basically flat. Our assumption is flat. so there is some risk it can go up or down of course of the downside of the slow economy is sales but the benefit is raw material costs decline so we think these two factors will offset each other and we can secure margin so for profitable growth as we should him and China management team have committed so we will secure the profitable growth so we're to repeat myself the market we're not assuming a turnaround in the market but we want to achieve this target so that is the basis of our guidance thank you thank you one follow-up question As of Q2 and Q3, you mentioned the credit control. You will have more disciplined credit control. The inventory level, sell-in and sell-through, are well balanced now? Thank you. Thank you for the question. In Q4, this is the collection of receivables. So, do you see... Our collection is progressing steadily, so this is the sound management. And we are not pushing to the stock, so yes, as you rightly said, it is well balanced. Yes, I hope this answers your question. Thank you very much. Thank you so much.

If time permits, you can ask follow-up questions later. Yes, thank you. Next, from SMBC Niko Securities, Shintani-san. Please ask your question when you are unmuted. Can you hear me? Shintani-san. Your audio is a bit low, so if you could speak into the microphone, that would be great. Can you hear me? Well, it's still very low, but... Thank you for this opportunity. I have a question regarding AOC for the 4Q 2% decrease in revenue. So compared to the third quarter, given the challenging market conditions, that's understandable. And for the next fiscal year, you're looking at an increase by a low single digit. And the interest rate cuts. and I think you are more targeting towards the second half. So how do you view the recovery curve for this business? And also during the IR day, you talked about how the market conditions are now close to the bottom and for the, in terms of segments, infrastructure may be recovering first. So just to, if you could give some color and share your views on how this business will fare. yes thank you very much as you rightly said aoc with regards to aoc the market conditions are bottoming out but whether we will have a v-shaped recovery i think this is where we need to be somewhat cautious including the housing segment the pent-up demand has accumulated to a certain degree however the u.s environment per se in terms of this housing segment for example the mortgage rate is not low, even with the policy rates coming down, the long-term interest rates are not at low levels for personal consumption, housing turnover will not proceed as expected. So given these understandings for us, as you said, we are looking at various segments, including infrastructure. We believe there are still rooms for growth. And Europe, we are not expecting significant recovery from Europe either. So, of course, we will always be pursuing further business growth. Given the worsening economic conditions, so there may be a margin deterioration that we must accept, so in many ways we should not be optimistic, we should follow a solid operation of the business. But the key points to bear in mind are for this fifth year, single digit in the medium term, mid single digit, that's the level of recovery that we are targeting, so a rather moderate recovery. starting from the second half of next year on to the year after that. I think that's where we are expecting and how we will leverage the strengths and competitive advantage of the companies is something that we need to consider. Understood. And for Europe, you think there's still room for recovery in the European region this year compared to last year? We can expect some recovery from that region as well? Yes. Well, honestly speaking, economic recovery in Europe versus economic recovery in the U.S., which is bigger, of course, there are varying views. But myself and the local management share the same view that the U.S. economic recovery may be faster. So it's not that we are betting on Europe. Europe will steadily try to improve and recover the business. And again, we'll share, but the main market will be the U.S. That's all for me. I understand. Thank you very much for the detailed answer.

Thank you. Next, B of A Securities, Enomoto-san. Please unmute yourself and ask your question. B of A Securities, Enomoto speaking. Thank you very much. Hello, Enomoto-san. Nipsey outside China excluding China q4 why is it so good if you could elaborate in the material it says Indonesia is improving significantly other than that doesn't seem like others are improving that much but Nipsey excluding China showing a radical improvement and so why is Indonesia so strong and in other areas I think there are big improvements which areas were strong thank you thank you for the question first of all Nipsey China is diverse so it's not a one answer fits all so first of all starting from Indonesia q3 and q4 q4 q1 is the demand season q4 we had a strong campaign and as you can see in the volume double digit growth it's not low double digit so it's a high growth and we're impacted by fx so at a glance On page 22, you see plus 9.4%. FX is minus 6%. So on a local currency basis, it was very strong. Margin remains high. So this is decorative and industrial, although the volume is small. Overall, it was strong. And Betik Boya. FX was negative impact but in actually the profit is positive as you see in q4 the adjusted operating profit margin twenty three point four percent twenty three point four percent so it is a high profit contribution q4 Volume struggled somewhat, but with the price increase, we are doing well. And others. Overall, it's not just one factor. There are multiple positive factors. In some regions, there were temporary adjustments. And they were those were small adjustments so that is an upward factor Singapore Malaysia Thailand we're all generally strong thank you I just follow-up question in the new year what is the new year forecast as Southeast Asia negative margin I think is your forecast and Turkey is a big deterioration in margin Other than Nipsey China, what's the background to your weak forecast? FY25 was strong. That's one thing. So we are a bit conservative. We cannot but help doing that. For Turkey, this indication is misleading due to inflation. they over perform compared to initial initial forecast so when we build up our guidance this is the assumption in reality our profit margin is seventeen point one percent in turkey so even a few percentage point lower it will still be fifteen percent so overall As I said earlier, China will grow, but Nipsey, it's always growth is the factor, the focus. We don't have any particular concerns anywhere. Thank you. Thank you very much.

Thank you.

Next, City Group Securities, Nishiyama-san. Please ask your question after unmuting. This is Nishiyama of City Group Securities. Thank you. Hello, Nishiyama-san. Thank you. For your plan for the new year, On page 10, I'm looking at the heat map and also pages 8 and 9. When I compare these pages, Nipsey, Dulux, these will be the central businesses that will perform better than the market conditions. Is it coming from share gains or pricing policy? If it's from share gains, I think the situation varies depending on But including promotional costs, I think you've had a stricter cost control, including promotional costs. So I understand you place emphasis on EPS over market share, but can you share your thoughts on this? Thank you. As I said at the beginning, with respect to the market conditions, we try not to be an optimistic we try to assume a more conservative view on the market with that by regions of course the situation varies for example i think the easiest is the deluxe pacific for a long time the market remains flat but We have achieved a growth of around 5% continuously. And if you look in the appendix in the midterm plan, the market share is close to 50%, and it remains flat. But in terms of value amount, I think our share is higher. Of course, having such high shares will not always contribute positively. So that is why I have shared a rather more conservative view. The same for other regions. In relation to the market data, we tend to have a more modest view of our market share. But if you look more closely, we are mostly exceeding the market in most regions. For example, in Indonesia by slightly. The market share is growing by 19% to 20%. So by region, as I already mentioned during the organic growth section, we may sometimes temporarily focus on expanding the margin, but in the medium term, revenue and share gains are what we emphasize at Nippon Paint Holdings. So that stance remains unchanged. And in that sense, including Japan, Even in markets that remain stagnant, we continue to pursue positive growth. And on top of that, the profits, as you mentioned, if volume is struggling, then we need to make pricing adjustments. If it's a value-added product that customers demand, then pricing should be accepted. So we will pursue such a possibility. And lastly... I would also want to mention about the cost structure that it is being reviewed constantly. In order to improve productivity for Japan as a whole, what's often being said is how to utilize and make use of AI. That's very much been talked about. When it comes to paint, And coatings, this is a rather traditional business, and that is all the more reason why we need to apply AI to improve productivity and to achieve growth while controlling the headcount. So in that sense, we are advanced in the industry when it comes to this kind of AI technology-related initiatives. The operating leverage will come in, and we believe that we will be able to achieve profitable growth. That's all for me. Thank you. Yes, thank you. I have a follow-up question. With respect to the market share, how you are using the promotion costs compared to the previous year for the new year, are you going to increase the promotional costs or are you going to control and reduce the costs in that sense? For this, again, Different regions have different situations. Indonesia, where we expect growth, we hope to increase, and also BITIC as well. We will invest in marketing as well. For China, surprisingly, even when we say promotion, it's not just advertisement. It also includes incentives from discounts, and they are not really succeeding. As I shared last year or two years ago, in some regions where this kind of an initiative isn't successful, we wouldn't want to waste funding on promotions that would not bear fruit. So situations vary from region to region. Dulux. We've always spent promotional costs and we will continue to do so, but we will always review whether that's optimal. Of course, right now they are producing good results, but always we are considering the latest market condition and to make adjustments accordingly. So as of now. whether increasing promotions or decreasing promotion, that is not finalized. We would like to proceed with agility and reflect our views of the market conditions to reflect the reality. That's how we operate. Yes, I understand. Thank you very much. Thank you.

Next, UBS Securities, Omura-san, please. Please unmute yourself and ask your question. UBS Securities, Ohmura speaking here. Hello. I have a question on your China business and forecast, a follow-up on China. Earlier, you talked about you met the China team, Asia team last week. You said China team this year will work very hard. They showed a commitment, you said. More specifically, what is the change in the strategy this year from last year? Or two years ago? This year, are you changing something in particular? Thank you, Omura-san. That was just an example earlier. They say they work their very best every year, so it's not that this year will be all that different, but... The Asia Group Management Meeting, which we hold every year, China team came to me, and they said we will do our very best. They came all the way to say that word to me. It was impressive. It left an impression on me. But looking back on last year, with a relationship to our competitors, We had TUC, 25% market share, and the second and third companies, we are three or four times different, bigger. then the second and third player so we have this scale and brand we have the advantage that remains unchanged but in small areas we were looking further compared to last year we're trying to deep dive and see that we are really advantageous and as we should him said picture print compared to the conventional emulsion print it is growing so local companies are now working very hard and it's not that we are not focusing on that but we do not have sufficient attraction not necessarily so what can we do we're thinking again And as we say, it's our policy, so I cannot elaborate too much, but we want to take steps, take the strategy and tactics to win in this competition. And so we discussed that. That is one example. One more point, as I alluded to earlier, Tier 3 to 6 cities. We are a latecomer in 3 to 6 cities. So overall, our bread and butter is tier 0 to 2. 80% is 0 to 2 cities, and 3 to 6 cities is only 20%. So we have more room to grow. We have the asset light strategy and other CCM installment. Those are also bearing fruit. But I think we can do more. so the distribution advantage and directed to front of the order from the sales office can be delivered to the site directly these cannot be imitated by the latecomers but they will catch up eventually so how can we maintain our advantage We're working, discussing every day and executing this every day in China. And as I said earlier, AI is most advanced in China, AI utilization. So efficiency and sales growth. In our group, China has scale, and I think it's the team that can crystallize this the most. So Weishu Kim is saying high single digit. He's committing to high single digit. So it's not just a pie in the sky. I think we can achieve this for real. Thank you. Additional question. Do you have a plan of increasing the sales headcount? Sales team? That changes from last year. Are you changing your sales structure or increasing the sales headcount or anything in your time machine as CapEx? Nipsey overall, comparing the last year and the year before that, Nipsey overall is down by 16 or 17 billion yen. So you're not in the capital intensive industry, so this may not be a big important factor, but capital expenditure and the expansion of sales personnel, any changes in that area from last year? To this year? Thank you. First of all, regarding CapEx, our business is asset-like business. In other words, we're not in a business where we cannot maintain the competitive edge without CapEx. So for unnecessary CapEx, we will stop, suspend, or postpone. we call this capex prudence we have a very tight disciplined control and this year we will do that again overall overall so the capex will be three percent within three percent of revenue in decorative we think we can achieve two percent within two percent of revenue it's well achievable so we are deliberately conducting this tight control now on the sales personnel i will not go into too much detail but our china business has a few divisions tuc tub and iu so cross-functionally we can utilize each other's asset and distribution channels we're trying to explore more opportunities so without changing increasing the sales personnel we want to be more productive so more business per person until now we try to consolidate the back office but now we think we can do that in the front office as well so on that basis we will focus on becoming more efficient, and we're taking measures to do that. So a simple headcount increase will not apply in China. Thank you.

Thank you. Next. Kai-san, a free rider. When unmuted, please ask your question. Sorry, is it my turn? Can I ask a question? I think we are waiting for Tai-san to ask questions first. Okazaki-san, if you could wait a moment. Tai-san, can you hear me? Perhaps you are unmuted. My apologies. I forgot. I wrongly called out the name. Okazaki-san. My apologies. It's Okazaki-san of Nomura Securities. Please go ahead. So it wasn't Tai-san. It was Okazaki-san. My apologies. Sorry, Okazaki-san. Please go ahead. Yes, thank you. This was covered in the previous questions, but regarding the raw materials and fuel, of course it's difficult to predict, but between January, March, April, June periods, just to give rough estimates for Japan, China, Indonesia, Australia, for these markets, how are the prices trending? Looking from outside, it doesn't seem so much increases have been had, but to the extent possible, how are the raw materials and fuel prices trending in these markets? Yes, thank you. Well, roughly speaking, we expect the prices to remain flat. Honestly speaking, if there's any... upward pressure for raw materials in Japan. There certainly is, but we are implementing cost reductions, and through productivity improvements, we believe such an increase can well be absorbed for raw materials. And the same can be said for the other regions. if there is a significant rise in the raw material prices and of course this will impact our earnings plan but as of today we are not anticipating, we are not expecting such significant increases. There are variations from region to region but I will not go into that. So for the term that just ended, October, December, comparing January to April, we should not expect such a difference. Yes, that should be the assumption. And there's one more thing I want to confirm. On page 20 in Nipsey, China, towards top right, FX impact plus 4%. On page 20, I'm looking at page 20, top right, FX plus 4%. So the operating profit margin improvement, compared to the same period last year. In the fourth quarter that you just reported, you had a 4% improvement. Well, effects mainly affects the revenue. So in that sense, profits are also impacted to some extent. But basically, this is impact on the revenue. If you go to page two, We try to make it more comprehensible. So in the fourth quarter, RMB in 2024, it was 21.3. And a fourth quarter in 2025, it was 22.1 yen. So in terms of exchange conversion, this is only in yen, so it worked positively. I see. I misunderstood. Thank you very much for clarifying that. Thank you. That's all from me. Thank you.

Next, Toyo Keizai Shinpo-sha. Yamada-san, please. When you're unmuted, please ask your question. Toyo Keizai, Yamada speaking. Hello. Thank you very much. So, similar question. Your performance is solid, and... Your end result seems in line and under the difficult environment. I think you're in good shape. And IR, you're focusing. Continue focusing on IR. We feel that very much. But your share price doesn't change. The market is rising. So compared to the past, it seems like you're left behind in terms of share price. And there's nothing you can do. You are doing MSV, pursuing the maximization of shareholder value, highest priority there, and so I understand that you are frustrated at this moment, but I'm sorry for the long introduction. So you are doing so much, but in market, you cannot do anything about the market, but what will you change going forward, or what will you keep unchanged? For example, share buyback. you were rather backward looking but given the environment a while ago you decided to do this repurchase your shares and including a revision of your medium-term strategy what do you think you need to change well it's not clear on what you plan to change so if you could elaborate including capital policy and in sales and marketing business operation I think you're doing sufficiently but that is not satisfactory so if you have anything in mind please Thank you Yamada-san for a very straightforward point yes we're pursuing MSD but the share price is not rising I've said this a few times ago in the past and on board we're discussing this a few times first of all we need to build our track record and have this track record believable by you until now the way it appears uh it's presented to you from q3 last year we split the organic and organic and showing the long-term trend and it's difficult to compare with our overseas peers and so we are adjusting that as well to make it comparable so it's not large changes we're trying to listen to the voices from the market and be flexible in changing ourselves as you mentioned share buyback as you just said we want to use money for m a we think it's the right way of using money and share buyback it seems like it will be in diminishing equilibrium so it's not the main point main focus in October last year it's not so much it's not part of the shareholder return we use capital in M&A and Without premium, our share price is so low. And so we listened to the investor's voice from the market, and we thought that makes sense. And as we have cash, we were generating cash. We thought that this is a viable option. And so we proposed that to the board. And it's unfortunate that that market did not react, but... or share can be bought for 1,000 yen and the people may look back and say oh this was very right choice it was good so our underlying strategy for example the medium term strategy and EPS 100 200 300 yen we say we will bring it up to that level in the long term and by running the company in the sound manner At one point, market will think about us. Sooner or later, we think. And this is a reflection. I'm reflecting on myself. And I said this in the RR Day last year. ROIC. Until now, I was rather backward-looking on ROIC. But in the year 2020 and 2021... PR 50 times and then if you calculate backwards the it's two percent shareholder cost and if that cost is zero percent then ROIC WAC theoretical weighted average cost is there but we're focusing on EPS so especially from 2024 onwards we right size we revised ourselves so for m a we will continue studying it but with more discipline and this shows our flexibility and our strong commitment to msc so we tried to show that in today's presentation more so the basic strategy remains unchanged of course the yen interest rate if yen interest rate hits five percent we may change a little but with the current interest rate level we can still have ample value creation so without daily trade day-to-day trade The long-term investors see value in us and are investing in us. And so we should not just say long-term, long-term. We need to bear results in the short-term, too. So in Q4, we exceeded, far exceeded the market consensus and for the full year, too. And the 2026 guidance, we... have a consensus and guidance is something that we think is sufficiently achievable. So if this penetrates and if the credibility to our management rises, then I think it will start showing changes. Maybe this is not so different from what I've been saying, but we're revising the details, we're fine tuning. And from the investor's viewpoint, agility, I think we are evaluated more as a company that has the agility. So if you could give us a little more time, I'd appreciate it. I'm not the investor side. I'm a different standpoint. And so I'm not saying that is bad. You are doing what you need to do. And you are upholding MSV. And so it seems like you are struggling because of that. But the goodwill and the intangibles are increasing. It's weighing heavy on you. And at the current moment, it's not a problem. But that could be one concern. So for good or for bad, you are unwavering. You have a solid basic stance. So I just want to wish for the best for you. Thank you. so your case I interview I said I will not buy convenience stores and that was not taken well by the investors so I said I have no no intention I said clearly I have no intention I said back then that I have no intention but it sounded like I will buy if it makes sense so once again I want you to rest assured the M&A that we are aiming for is uh is not there so thank you very much so we're making little adjustments like that thank you very much convenience store of course yes i know that you have no intention of buying a convenience store but it's just wording and the context it's so difficult to communicate we'll do our best we'll do better on our side as well thank you thank you so much Yes, investor side, misunderstanding should not be led. If you know my character, you know how I say things, and some like me for that, but those who are not so familiar with Nippon Pain may take it differently. So I have to say things carefully. I'm adjusting myself, too. Thank you very much. Thank you.

We have this session planned until 5.30, so if you have any questions, please go ahead. Next is Kubota-san from Nikkei Shimbun Inc. Can you hear me? Regarding interest rates, as was briefly mentioned in the presentation earlier, I would like to further seek clarification. So as we move towards a world with positive interest rates, how will this affect the portfolio, fundraising, M&A strategies? Does it change the size and industry of our target companies? Will there be any impact? That's what I would like to understand. Thank you for the question. In the mid-term policy, if you refer to page 14, bottom left, currently we are looking at 1.2% before tax for the interest rates. It will be within 1.0 post-tax. So we are not particularly concerned, but if you look closely, the ratio of variable interest rates And we are looking at average maturity of less than five years, and we are increasing the ratio of variable interest rates. So the policy rate affects more on the short-term side, and, of course, the markets are due to Prime Minister Takaichi's policies. There may be some concerns voiced by the market, and this could lead to increased long-term interest rate. through the asset assembler strategy, we are mostly raising funds through debt, and this will not be affected much. So in terms of the portfolio, as you mentioned, we first look to debt, mostly from the bank borrowings, and currently we don't have any corporate bonds, but of course we will consider that as an option. So within the debt space, we will raise funds for equity. It's not that we are denying the possibility of issuance, but we try not to issue stocks in such a low valuation environment. So that policy remains unchanged. And as for the future, what if the interest rate reaches 5% or even 3%? Of course, our risk sensitivity will be higher accordingly. Just because it's at 1%, it doesn't mean we can acquire and purchase everything and anything. our perception of risk needs to be further advanced, otherwise we would not be able to achieve the ultimate MSP. So our basic strategy remains unchanged and also it would not affect the scale or the size that we are targeting, but we are cautious when it comes to rising interest rates. I would like to reiterate We continue to pursue M&As. With organic business growth, we are generating cash, so I think it's meaningful that we spend that cash and allocate it towards M&As. Thank you. Thank you very much.

Thank you. Next, CLSA Securities. If you're muted, please ask your question. Thank you. Thank you. Hello. One question. This year, in the new year, in AOC, U.S. interest rate cut and AI investment, can demand be stimulated? And in China, from around January, the real estate property tightening has been relaxed. And so there was a policy that was announced. So we think China will turn upward as well. But looking at the new year, what is your impression? China, real estate, and AOC, which do you think has more room for growth? So if you could ask that one question. Thank you. Thank you. To be honest with you, China real estate policy change or the economic stimulus measures we don't know how much impact it will have on the paint demand this has been discussed much but as far as the current assumption goes it is still difficult and if if it has some positive impact it will be an upside that is our view now like AOC The interest rate cut, the FRB, the Fed chair will change. We don't know what will happen. And the long-term interest rate trend, no one knows what will happen. AI investment, not much, but in the construction market, the housing and infrastructure, with the lower interest rate, we can expect an upside. So, unfortunately, depending on others' factors, But we want to achieve this with our own efforts, without the tailwind of the external factors. So when the market recovers, we will enjoy the upside. We will be the beneficiary of that. So that is our line of thinking. So I can't say which one or the other. Thank you. Thank you. One follow-up question. AOC margin. In Q1, Q2, Q3 last year, it was 35% or so. And in the next year, new year, is it slightly lower than 35% or roughly 35? Your volume is up, but margin doesn't seem to be rising much. So if you could elaborate, please. AOC. as I've been saying the contribution margin the price up and down is done with the raw material cost increase so the volume of the not that different but the fixed cost is low so the operating leverage being high is not in line with the reality and so the added value and the raw material cost level will determine the margin so we think it will be flat or slight decline and achieve profitable growth on that basis thank you thank you very much

thank you we are still accepting questions from the Japanese line but we will switch to the English channel if anyone who is on the English channel who has a question please use the raise hand button at the bottom of the screen it seems there are no more questions on the english channel so we will go back to the japanese channel and receive questions from the japanese channel listeners if you have a question please use the raise hand button at the bottom of the screen Daiwa Securities, Umepayashi-san, please ask your question when unmuted. This is Umepayashi of Daiwa Securities. Can you hear me? Yes, Umepayashi-san, I can hear you. Hello. Thank you. Hello and thank you. picking me thank you with respect to your strategy in China I would like to ask a question the other day during the IR day you talked about targeting regional cities and when doing so rather than executing capex on your own you would look to form partnerships with the local companies and to make use of their assets for expanding in those regional cities so this strategy has been implemented since before but over the past one to two years you said that Perhaps you have been able to identify who are the good partners and who are not. And you also mentioned that you now have insight of the future where you are working together with those good partners. So going forward, can we expect better results in terms of your performance, your results through the partnership with the local companies in those regional cities in China compared to last year? Well, I don't think I talked much about unfavorable partners. But for us, as I mentioned before, CAPEX prudence is important to us. So when it comes to CAPEX, we need to control when necessary. And as a result, the strategy, per se, resulted in elimination of one competitor and and of course so we can make use of their assets their capacity and for them as well by making a nippon paint products their utilization rate improves and this results in a win-win relationship so each individual partnership scheme is a small but particularly for from March to June a period Now, excuse me, Tier 3 to 6 cities, through this scheme, we are able to cover those cities where we alone cannot. So this contributes positively. And if we can achieve growth in those cities, then this partnership will be successful. But if it remains stagnant, if the utilization rates at our partner companies do not improve by much, then It would not have a significant result. The partnership itself may be working, but the sales strategies as a premise to that or the texture paint strengthening that we've been talking about or the direct to front. In other words, the distributors themselves are making the deliveries or rather making deliveries from the factories is something we are promoting and as a result we can increase the user base and of course this will reflect positively on the satellite cities. So in simple terms, so far so good. Things are moving positively but I think we can expect this to flourish more once we reach a certain level of volume from these cities and partners. Thank you. I have a follow-up question. So this kind of partnership strategy, do you see the need to implement this kind of strategy in regions outside China, or do you see benefits of doing so in other regions? Thank you for the question. Needless to say, this model has been studied by respective partner companies, and if there is a need, if it makes sense in other regions, of course we will implement it. If there are smaller competitors willing to join Nippon Paint, then that should be considered. Luckily or unluckily for us in China, because the market condition is quite worsened, I think that proved to be an incentive for these companies to join hands. Perhaps in other regions, when things are faring better, they don't see the need. So we are not saying that we will not implement or we will implement with absolute certainty. We will review each situation individually. Sorry, NIPC has a keen eye in determining these situations and assessing the individual circumstances. Thank you. I understand. Thank you very much.

Next, city group security, Nijiyama-san. When you're unmuted, please ask your question. Sorry, my second time. Nijiyama from city. Thank you. So medium-term growth is now a bit more conservative. You revised down. The current market is a bit sluggish, but your medium-term forecast was revised. If you could give us some more color to that, why did you do that? By region. if you made a bigger changes by region I'd like to know those areas if my numbers are not wrong China is revised down so your medium-term view on China maybe it's difficult to have a optimistic view on China or if you could elaborate please thank you as I alluded to earlier And as you rightly mentioned, China is expected to grow by around 10%, so mid-single digit. It's revised down to mid-single digit. This year is high single digit. So it seems like it will just continue declining. I don't want this to be misunderstood, but in the medium term, The soft market now is used as the basis, as the assumption. And if it recovers, it will be an upside for us. So we want to take a conservative look for now. China is a big portion of our business. So 8% to 9% overall growth. It will impact the overall growth of 8% to 9%. And in 2024, AOC was not part of our business in profit. it is making significant contribution but as just chosen said earlier from the current economic situation it's difficult to say it will grow at high single digit it's difficult to have that kind of assumption so mid single digit so including that because of the dilution It will be down from 789 to mid-single digit. But 10% to 12% EPS is now high single digit. But we want 10% bottom line growth. So that is our aim. But the background is very simple. So if you could understand like that. Thank you. Understood. Thank you.

Thank you.

Next, Okazaki-san of Nomura Securities. Please ask your question when unmuted. This is Okazaki of Nomura Securities. Hello. Regarding AOC, it has been mentioned several times. July, September, I think on a local currency basis, revenue decreased by 9%, but October, December, it was down by 2%. So the decrease has been smaller. And one-third of the sales comes from infrastructure. This covers pipelines, renewable energy, earth, alternative energies and bridges, so the decrease has been smaller. During the IR day, there were some comments saying that it was difficult to understand what is happening on the ground, so what is happening and where we could expect growth in the coming year. Right. Cannot divulge in too much details, but continuing from before, we will continue to say that we are bottoming out, but there are competitors, and this information in itself is sensitive for us. So we hear numerous comments, but in principle, we say that overall, it is true that infrastructure may go ahead of others, but overall, we are seeing signs of bottoming out. But at the same time, we are not expecting a V-shaped recovery. With that assumption, we presented a rather conservative guidance. That's all I can say. I understand. Thank you.

Thank you.

It is time, so we will close the Q&A session. Lastly, President Warkatsuki, please. Thank you very much for staying with us for a long time. So this time we did the financial results briefing and the full year briefing and the meeting to long term. strategy I think you were able to understand our strength and our track record we want you to take a look at the track record so we're trying to improve our disclosure in many ways as I mentioned earlier MSV is the basic strategy and so this is unwavering But strategy-wise, we're constantly improving and adjusting our strategy by listening to the voices of the market so that we can get the conviction by the investors. We will continue making our very best effort. So I ask you for your constructive feedback, as always. Thank you very much.

Thank you very much.

With that, we will close this briefing. Thank you very much for your attendance.