Nippon Paint Hldgs Co Ltd

Thank you very much for waiting. We will now begin Nippon Paint Holdings FY2026 Q1 financial results conference call. Before we begin, a little housekeeping announcement. To present the audio feedback, please turn off any mobile phones or other communication devices nearby or move them away from the phone. Please note that this phone conference will be conducted with simultaneous interpretation in English and Japanese. Now, Mr. Wakatsuki, Mr. Tanaka, please begin. Thank you very much. Hello, everyone. I am Wakatsuki, 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 FY2026 Q1 financial results. First, as always, historical performance is shown on page 3. This Q1 was also strong with revenue CAGR of 16% and operating profit CAGR of 17.6%, even in the long term. The profit contributions from organic and inorganic growth are 10% each, showing that both wheels of our asset assembler business are working well. Next, on page 4. On consolidated basis, revenue reached 490.3 billion yen. Adjusted operating profit was 76.4 billion yen. Adjusted OP margin was 15.6%. And adjusted EPS was 24.2 yen. all of which were record highs for Q1. Revenue growth was over 20%, and adjusted operating profit rose sharply at approximately 38%. Organic and inorganic profit contribution was 21.6% and 16.3% respectively. Adjusted OB margin was 15.6%, also up by 1.9 percentage points year-on-year. This market has been highly uncertain, particularly since March, due to the escalating tensions surrounding Iran. But amidst this rapidly changing environment, all partner companies responded extremely quickly and autonomously, prioritizing their responsibility to supply to customers. I believe we were able to demonstrate our presence as reliable partners, especially during such uncertain times. Raw material cost increases linked to tensions surrounding Iran are affecting regions and businesses differently and is expected to gradually become apparent from Q2 through the second half of the year. Margin is expected to fluctuate slightly from quarter to quarter as well. However, the overall full-year impact is expected to be largely offset by cost reduction measures and price pass-through implemented as countermeasures. The FX has also shifted to a weaker yen than forecasted in February. And even considering the uncertain demand environment, we believe that our full-year guidance is well achievable. We hope to provide an updated outlook in Q2. As with our past crisis responses, we believe that challenging market conditions present an opportunity to leverage our group's strengths, such as our group's procurement capabilities and the agile management decisions made by local management to further enhance our competitive advantage in each region. Next, page five. As you can see from the heat map, the market is generally flat or slightly weaker than FY2025. Within this environment, we aim to maintain and improve our market share while steadily pursuing profitable growth. Please note that the market outlook for Q2 and beyond is based on current conditions and may change depending on future developments in the Middle East. Next, page 6 provides a summary of operating results in major segments. While I will leave the details to the Q&A session, let me briefly comment on each region.

In Japan, in the decorative segment, sales increased for high-durability architectural and structural products, and in the industrial segment, price pass-through continued to progress. Furthermore, from March onward, there was a certain level of front-loaded demand aimed at securing supply. Overall, Improved RMCC ratio and continued SG&A cost control drove higher revenue and profit, with the adjusted operating profit margin rising to 12.3%. From the second quarter onward, we will continue to fulfill our responsibility to ensure stable supply to customers while securing appropriate profitability. Nifty China, revenue and profit continue to increase, and the adjusted OP margin improved significantly to 17.6%, up two points from the same period last year. TUC, despite a weak market and consumer sentiment, sales volumes increased in both paint and non-paint businesses, and non-paint business and texture paint offset the decline in conventional paint, resulting in a nearly flat revenue year-on-year on a local currency basis. For TUV, revenue declined 5% on a local currency basis due to ongoing impact of the property market. but the decline moderated compared to the prior year. In addition, automotive coatings grew significantly, particularly for Chinese manufacturers. We believe that it's important that, even in a challenging market, we are not pursuing volume at any cost but are expanding our strong areas and improving profitability. We will continue to assume no early recovery in the Chinese market. but we believe that profitable growth can be maintained through expansion of share, mix improvement, and non-paying businesses. Nipsey, except China, despite the challenging environment, strong growth in both volume and price mix across each region, together with ongoing streamlining efforts, led to a significant increase in both revenue and profit. Deluxe Group, DGL Pacific, with market conditions remaining largely flat, continued mixed benefits, and contribution from small-scale acquisition together with foreign exchange efforts led to a significant increase in both revenue and profit, demonstrating steady and consistent growth. Meanwhile, Europe also achieved substantial growth. However, while market conditions in France recovered to around the price-year level, profitability is still recovering and performance varied across regions with South and Central Europe remaining strong. In the Americas, revenue was higher despite the impact of market conditions for both decorative and automotive business. Profit increased year on year. And finally, for AOC, contribution expanded from one month in the prior year period to a full quarter contribution this year in both revenue and profit increase. Margins remain high, delivering strong profit and contribution to cash generation. As a reference, Revenue declined 2% year-on-year, but the shift to volume growth is an encouraging sign. Page 7. As for major topics, in March we celebrated the 145th anniversary of founding. I do not intend to boast, but I believe that there were few listed Japanese companies with such a long history that are demonstrating this level of growth today. We have taken this opportunity to establish a new showroom in Shinagawa, and we would like to see you and visit at your convenience. In addition, we have received the Excellence Award at the Nikkei Integrated Report Awards this year. Although it did not reach last year's grand prize, we will continue together with our ongoing IR activities to engage proactively with investors, and we appreciate your continued support. This concludes my presentation. Thank you.

We will now move to the Q&A session. If you have any questions, please press asterisk one. And to cancel the question, please press asterisk two. The operator will nominate the questioner. If you have questions, please press asterisk one. As time is limited, we'd like to limit the question to one per company. I hope you could understand. Please wait until we introduce the first questioner. First, from the Japanese channel. First question is from Goldman Sachs Securities. Ikeda-san, please. Ikeda from Goldman Sachs Securities. Thank you, and congratulations for great results. Hello, Ikeda-san. Thank you very much. Q1, profit margin and top line and profit margin and all lines. You had an extraordinary profit and results. In March, due to the aggravating Iran results, the raw material cost increased, and there was some front-loading factor from Q2 onward. the raw material cost impact by region and by application. If you could give us some color, I'd appreciate it. In your company, China business is large, and your procurement capability is very high. So using the China site, will you do a group-wide procurement? AOC, the U.S. raw material cost is not rising much, so I think there are regional differences. So that is my question. And also the price increase, what is the sensitivity? And the solvent I hear is slightly short in Japan and Asia. So what impact is expected? So sorry for a lot of questions after the Iran. My main question is the raw material impact. Thank you very much, Ikeda-san, for the question. So I understand that your question becomes long because, as you rightly said, the situation differ from region to region. So it's not that one single answer can cover all situations. So I will do my best to answer your questions. First, the impact on raw material. Japan and Asia. have high dependence on Middle East, and therefore the impact is bigger in these regions. On the other hand, Australia or Europe are impacted the next. And for now, the U.S. does not have the direct impact so far, but overall... The solvent is one issue, but the packaging, package and container. TIO2, there is impact on TIO2. So we need to watch closely on things trend and operate our business in each region accordingly. So that is one aspect. Under such circumstances, For March, we had the accumulation from the past. So our priority was to fulfill the supply responsibility. So we leveraged our supply, strong supply capability, and tried to meet customers' front-loaded demand so that we do not miss any opportunity. In Asia in particular, the profitability was higher than we anticipated. In other words, from Q2 onwards, as I said earlier, Q2 and Q3 onward, second half, various impacts will emerge gradually. And we have to be prepared for that. So, of course, the alternative procurement and packaging, we need to utilize available packaging and do our best to win the customer's understanding and increase the prices. So things are different among regions, but we will try to look into the future and take proactive measures. So we do our best in all the regions we operate. So in Q1, Q1 was strong, but we are not content with that. Rather, we are prepared for difficult times from here onward. As I said earlier, There may be slight time lags, but we think we can achieve the profitability on a full-year basis sufficiently. Our procurement capability is not just on China, but including China, the group-wide interchange or exchange can be leveraged. And the transportation cost incurs surcharge, and in March it was difficult. It may happen more in April and onward. First, we will prioritize on fulfilling our supply capability, supply responsibility to our customers, and on that basis, We want to demonstrate ourselves as a trusted partner, reliable partner. And to repeat myself, this crisis comes with risks, but is the opportunity in each site. Customers are not fully satisfied. So we don't want to use the word opportunity too much, but this is the time when we can really show our presence. We think it is an opportunity, so that is the policy we have. In the end, we want to hit the right balance between the supply and the profitability. I hope this answers your question. Thank you. So if the Strait of Hormuz situation continues and the oil price stays at a high level of $100, you can raise prices, and on a four-year basis, you can offset these shortages, shortfalls. You are raising price by 70%, and also some manufacturers are raising prices in China. So on the price raise, if you could share with us any things. Yes. To repeat myself, the price raised is not welcomed by the customers, so we are doing the best we can to make the best effort in our company, but the raw material cost rises high, so we have no other choice but to raise prices in that case. In reality... In the first half results, we are the last one to announce our results. And I looked at our global peers' situation. They're all taking similar measures. So in the end, I do not think we will see a big problem. But just one point. Of course, if we enter an inflationary environment, the demand environment will not turn for the better, most likely. So demand decline is possible. It depends on how long the situation surrounding Iran will linger. And no one can foresee that around the world. So we may be impacted to a certain extent, but through streamlining and through price raise, we will try to address the situation. So the same message. I think the situation is similar around the world with slight differences from region to region depending on their economic status. Thank you. Thank you very much. I understand well.