Nippon Paint Hldgs Co Ltd

Thank you very much for your patience. From here, we would like to start Nippon Paint Hldgs Teleconference for the second quarter of the fiscal year ending December 2026. Prior to the meeting, we would like to have some requests to you. In order to prevent echoing, if you have any telecommunications equipment such as a cell phone nearby, please make sure to turn off the power or keep them far away from the telephone unit. Please be advised that simultaneous translation for Japanese and English is provided for today's conference. Mr. Wakatsuki Tanaka-san, please begin. Thank you very much. Good afternoon, everyone. I am Wakatsuki, Co-President of Nippon Paint Holdings. Thank you very much for joining us today despite your busy schedule. I will now outline the key points of our financial results for the second quarter of fiscal 2026. Please note that members of the media are also joining us today. I'll begin by addressing two points on slide number two. First, regarding the revision of a full-year earnings forecast for fiscal 2026. To properly reflect the current market conditions, we have adjusted our exchange rate assumptions, shifting towards a weaker yen compared to the initial forecast in February. Specifically, the assumed rate for the U.S. dollar has been revised from previously 150 yen to 155 yen for the second quarter and 150 to take 60.8 yen for the full year. Chinese yuan from previously 21.5 yen to 23.1 yen for the full year. Second, regarding the definition of adjusted profit, we have slightly changed the treatment of PPA-related expenses. and David Durack, who restated the figures from the prior years. We believe this change will allow us to improve the comparability with our global peers and better reflect our underlying business performance. Phase number three, please let us look at the long-term historical trend of second quarter performance. As we have mentioned before, Thank you very much. Thank you. The second quarter results represent the continuation of this track record, and especially for the second quarter, although there was no incremental contribution from the new M&A activity from the previous fiscal year, we have been able to sustain a strong organic growth in the adjusted operating profit. Next, Page 4. Let's review the financial results for the second quarter. Revenue was $133.4 billion, up 19.4% year-on-year. This growth was driven by increased sales volume and improved product mix as well as the favorable exchange rate. Adjusted operating profit stood at 94.9 billion yen, an increase of 30.4%, a significant increase year-on-year. Adjusted operating profit margin was 17.8%, an improvement of 1.5% this point from the previous year. Adjusted EPS was 29.4 yen, up 31.7% year-on-year. The key takeaway here is not, it's just not that we simply increase sales. Even amid the uncertain situation in the Middle East, we achieved a margin improvement by combining revenue growth with better raw material cost ratio and effective cost control. The impact of showing raw material costs linked with our situation in the Middle East varies by region and business. While we were able to absorb these costs in the second quarter through price pass-throughs and cost reduction initiatives, the impact may become more pronounced in the second half of the year. We are not taking an optimistic view about the situation, and we will manage the operations in each region, closely monitoring the pricing, procurement, inventory, and G&A expenses. Regarding the performance by segment, AOC, because the market shows signs of bottoming out, AOC achieved increases in both revenue and profit, driven by price hikes and jobs at the raw material cost increase, and increased sales volume. Japan, Nipsey, other than China, and JTO Pacific also posted revenue and profit growth supported by higher sales volume and product price increases and other factors. As for Nipsey, China, the surge in raw material costs exacerbated by the Middle East situation further compounded the effects of the weak real estate market and subdued consumer sentiment. Amid this challenging environment, Rather than aggressively pushing for volume expansion, we prioritize sales discipline, cost efficiency, and the maintenance of the brand strength, and this approach allows us to secure a profit margin of about 15%. We believe it is crucial to maintain a management approach that safeguards profitability without relying on the assumption of an early recovery in the Chinese market. Next, I will explain, on page five, the revisions to a four-year earnings forecast for FISCO 2026. First regarding revenue, we raised our forecast from the 1.92 trillion yen in February to 2 trillion yen, an improvement of 80 billion yen. This represents an expected year-on-year increase of 12.7%. We have also presented figures for adjusted metrics. We anticipate a full year adjusted operating profit of 316 billion yen, an adjusted operating profit margin of 15.8%, an adjusted EPS of 95.7 yen. These figures represent a projected 13.6% increase in adjusted operating profit and 10% growth in adjusted EPS compared to the previous fiscal year. During my strong performance in the first and second quarters, alongside the continued effectiveness of price pass-throughs and cost control measures, we expect to achieve record high levels of revenue and profit for the full year. At the same time, As we stated when we announced the first quarter results, we are adopting somewhat cautious assumptions for the second half of the year. China's real estate market is still in the process of recovery and the consumer sentiment is still subdued. Furthermore, we continue to face rising raw material costs driven by the situation in the Middle East and the uncertainty in the United States still continues. Rather than counting on market recovery, We believe by continuing to pass on costs, improving product mix, reducing costs, and controlling SG&A, we can absorb these cost increases and maintain the profitability levels for the full year that are in line with our projections. Regarding the reported figures, we maintained our operating cost forecast at 283 billion yen unchanged. This reflects the fact that the upward revision resulting from foreign exchange rate fluctuations being offset by the one-off expenses such as M&A related costs and business transformation costs for the Dulux Group in Europe. We also project EPS at 81.5 yen, a figure that accounts for the impact of runoff expenses and effective tax breaks. The forecast for annual dividend remains unchanged at 17 yen per share. We intend to continue prioritizing EPS growth from the perspective of MSV while updating the outlook for the first quarter onwards as necessary. Page six and seven. Next, I would like to outline the substance underlying of earlier forecasts. Reflecting the first half results, which were strong, and despite anticipating some adjustments in the second half of the year, we revised, raised our adjusted opening profit forecast for Japan Dulux Group and Nipsey business other than China. On the other hand, regarding Nipsey China, where the real estate market and consumer sentiment remains sluggish, we maintained our forecast for the automotive segment, but revised our initial forecast for both TUC and TUV. As for the Americas, due to the persistent economic uncertainty, we maintain the outlook for AOC as the market shows signs of bottoming out, but we still take a cautious approach for the Americas.

Page 8. Market conditions are expected to be flattish year-on-year in the second half and beyond. Japan in the second quarter, due to supply concern because of the Middle East situation and brought forward demand, There was a temporarily strong movement, mainly for decorative, but for third quarter and beyond, we don't expect such special factor. China, automotive business is relatively strong, but TUC in the second quarter dropped markedly due to the situation, but we expect market in the third quarter will recover to the first quarter level. The Americas, there's uncertainty in automotive production and housing demand. For AOC, end-market demand cannot be said to have strong recovery yet. Meanwhile, the business is becoming solid through price flexibility, continued supply and sales volume improvement. Given such market conditions, this full-year forecast this time is not an exploration of good first Next, page 9. I'll explain the outline of results of major segments. The details will be left to take you under a session, so just a brief comment. First, Japan. Revenue, $61.6 billion, up 17.9%. Adjusted operating profit is $8.9 billion, up 65%. For decorative, sales increased and sales brought forward of hydrolability product for architectural and structural products contributed and for industrial automotive sales volume increased contributed. For profit side, increased revenue and improved material cost ratio SG under ratio significantly contributed. Revenue 129.1 billion, up 9.7%, adjusted OP profit, 18.7 billion, flattish year-on-year. On a yen basis, revenue increased, but TUC saw a 14% decrease in revenue in local currencies due to sluggish real estate market in China and weak consumer sentiment. TUB also decreased its revenue by 9% due to sluggish market in local currencies. That said, profit margin is maintained by keeping sales channel discipline, avoiding inventory build-up, and improved cost efficiency. Nipsey except China, revenue 124.9 billion yen, up 26.4%, adjusted operating profit 27.4 billion, up 53.1%, very strong results. Growth was achieved in wide areas including Malaysia, Singapore, Thailand, Turkey, Indonesia, and India. Increased revenue, improved raw material cost ratio, and effort for rationalization led to profit increase. Deluxe Group, First Pacific, revenue 73.7 billion, up 29.2%, adjusted operating profit 10.7 billion yen, up 42.9%. Even under tough market environment, specialty coatings business share increase and small size acquisition and FX big factor contributed. Jurex Group Europe, revenue 50.1 billion yen at 19.9%, adjusted OP profit 5 billion at 9.6%. The France Awards, Scottish year-on-year, South and Central Europe showed some strong other growth. But Europe as a whole is still on the path for recovery. Next, Americas. Revenue 34.9 billion yen up 12.2%, adjusted operating profit 3.2 billion yen up 8.5%. For automotive, share increased through acquisition of new business. For decorative, price hike and FX contributed, but the market conditions remain tough. Lastly, ALC, revenue 59.1 billion, up 23%, adjusted OB profit, 21.5 billion yen, up 26%. Even without plus 2% coming from FX, the performance was very robust. While macroenvironment remains severe, profit contribution level remains high through pass-through of material cost increase on prices, sales volume increase, and sales volume growth in America and Europe exceeding that in Asia Pacific, leading to better regional breakdown. AOC, although some retrospective correction due to finalized PDA, profitability and cash creation capability on adjusted basis remains robust. Stage 10, main topics. First, let me explain about purchase back of European automotive coatings business from Utram Group, which we announced today. In August 2021, we announced transfer of European automotive business to Utram Group, and this time we will purchase it back at about 47 million euro, or about 8.5 billion yen. The closing is expected in October, within October 2026. With this deal, and with Indian business purchased back in 2024, there will be no Nippon Paint Group business directly held by Ultram Group. What is important about this deal is not the formality of buying it back, but that we have made a judgment that the purchase at this time is the best from MSV point of view. and Uthram Umbrella. Reorganization and other rehabilitation measures have progressed and the performance recovered to some extent compared to the time of FKT transfer. We judged it to be better to take integrated approach including capital relationship to accelerate automotive coating business globally. For this deal, we set up a special committee comprising of three independent directors to discuss Profit and Protection of Minority Shareholders and from MSB perspective. The acquisition price was decided based on equity value calculation by the third party and the EOD Chairman Goh has not participated in deliberation and resolution of this deal. In the first year after this deal, its impact for October-December 26 period expected to be modest from 2027. More recovery is expected. The size of financial impact is limited, but we believe it is a significant step from strategic point of view. Page 11, other topics. First, about integrated report 2026 issued in June. This year's report was planned, structured, and edited based on representative questions from investors to convey more clearly the present position vis-a-vis MSP journey and the points of argument from now on. Each section explains about thinking about these questions and specific initiatives. The report features many interesting content, including a dialogue among co-presenter Wee, BOD Chair Nakamura, and myself. Please read it in your leisure time. On July 23rd, we announced reorganization of Japan Group, where Nippon Paint Surf Chemicals is to be split and integrated into Nippon Paint Automotive Coatings and Nippon Paint Industrial Coatings, effective January 1st, 2027. And we have published information both internally and externally. will shift to a system to offer surface treatment product and coatings products which have been provided from each subsidiary in a more integrated manner. By doing so, we will further strengthen product development and technology service, improving competitiveness and customer satisfaction. Lastly, let me report that we are awarded the Distinguished Service Encouragement Award at the 42nd Corporate Public Relations Awards. The advertising activities We'd like to deepen trust relationship with stakeholders and foster understanding and pride among employees for our company. In the second result, we achieved record high revenue and adjusted operating profit owing to global partner companies' continuous effort in wide areas including material procurement, product supply, and customer service. That said, There remain some issues to note, such as raw materials, effects, and geopolitical risks. Our employees are operating with a sense of alert toward the second half. We are committed to pursue to achieve MSP as set out by watching closely those risks and accumulating adjusted profit, EDS, and cash. We would like to continue to hold dear constructive engagement with investors. Thank you very much for listening.

Now we'd like to move on to the Q&A session. If you have any questions, please press the star key followed by 1 if you have any questions. If you want to cancel your question, press a star followed by 2. The next questioner will be appointed by the operator. Please. Press star followed by one if you have a question. In this time we would like to limit the number of questions to one question for one questioner. We appreciate your understanding. Now the first question. Please give us a moment before we take the first question. This is a question from the Japanese channel. We'd like to take a question from the Japanese channel. The first question is from Goldman Sachs. Hikeda-san, please begin your question. This is Hikeda from Goldman Sachs Securities. Congratulations on your very good results. Thank you, Mr. Hikeda. Thank you very much for your comment. Okay, thank you very much for giving me the opportunity. The full year adjusted OP. Compared to the February forecast, you have decided to keep it unchanged. By region, I think there may be different colors. In Japan, NIPC other than China, they have achieved upside, but NIPC China, I think, has been revised downwards. MFC, ALC remains unchanged, according to my understanding, to the extent possible, with the raw material prices going up. Can you give us some color regarding the pricing trends and also the volume as they have engaged compared to initial forecast? And also for China, the raw material costs, raw material I think is easy to procure, I think, and there might be room for you to reduce prices, but the prices and also the volume are coming down according in China. The consumption mindset, given the situation in the Middle East, What is the situation regarding the coating or painting business in these markets? If you can comment on that. Thank you very much Ikeda-san for the question. Regarding the first question, to avoid any misunderstanding, OP, Adjusted Operating Profit, as of February, We did not give the detailed number, the concrete number, because AOP, adjusted AOP was revised upwards effectively. On a reported basis, the operating profit remains unchanged, because in the adjustment items there are one-off expenses. So in the new forecast, the These things offset the favorable impact of the foreign exchange, so therefore 283 billion remains unchanged. Roughly, my gut feeling says that the February AOP was about 300 billion yen or so. I think that was the ballpark figure that we had anticipated. So in that regard, there was basically an upward trend. So this is the strength of our underlying performance. Now, The AOP margin as of the first half was at 15.8%. And then in the second half, because there are some assumptions, to what extent do we factor in such uncertainty was the question. As of this point, the numbers that we present is the must-achieve number. So roughly speaking, the second quarter In many regards, the price pass-throughs, we were able to achieve this quite swiftly. And because of the traits of a company, we have agility, so we were able to agilely pass on the prices. But the raw materials prices are coming up, and there is a timing difference of about six to three months. So the inventory benefits. are still manifesting themselves. So towards the second half of the year, the downward pressure on the margin will have to be, we have to anticipate that. So as it turns out on a four year basis, 15.8% I think is something that we are well positioned to achieve. As far as revenue is concerned, the demand recovery is not something that we anticipate. That's what I explained in the heat map. So we would like to fulfill our responsibility to supply and also improve the market share and thereby secure a margin by working on cost control. So that's the basic approach that we would like to take. Secondly, regarding the China market, to be honest with you, in the second quarter, on a local currency basis, TUC was quite difficult, quite tough. First and foremost, as Ikeda-san mentioned, The real estate market in China. We are seeing signs of warming up already in China. However, the bread and butter TUC business, this relates to consumer goods, slow-moving consumer goods. Those repainting the demand, this is quite affected by the consumer sentiment quite significantly. So overall, when we look at many different statistics, Rather than spending, people are now focused on savings. People are quite cautious right now, and they're not spending money as much as before. So eventually, I think people will start repainting their homes or whatever, but at this point of time, the situation remains very tough. If I may add one more comment, in light of this situation, including the relationship with the distributors, We are not going to push our sales towards them. We would like to make sure that we closely monitor the market inventory so that we'll make sure that we can sell well. And for that purpose, we are conducting many different promotions in the third quarter. Third quarter is a very important quarter, so some investments are anticipated in the third quarter, so the margin will come down slightly in the third quarter according to our current As I mentioned during the first quarter results presentation, that basically, past price, past loan will be done on many different fronts, and we have been able to do this to some extent. And although the sentiment is not really favorable, if we rate the prices recklessly, that could have a negative impact. So therefore, we would like to keep a margin discipline and the mid-teen level, 15% or so level of margin is something that we would like to achieve. This is something that we aim for for the full year. That is the current situation. That's all for now.

So the summer peers are lowering their prices. Is there any movement on the side of price discipline? In large cities, for example, investment in the AI, are there any different colors in different regions? In short, it's not that the market has a very rigorous price discipline. We are always in the red ocean. But our positioning, is not to be involved in price competition. And we continue to sell at reasonable prices. Especially during the past several years, that's the discipline that we have been using. Actually, in the second quarter, from zero to two, are the main markets. And due to three to six, it is not a big difference. So all in all, the situation is tough. So for us, high single digit minus for volume means to high single digit. As to price, it's not lowering prices. It is a mix of activities. So in some cases, the economic digital product sales taking enough margin with the current price level. But in our view, From region to region, there's not much difference. All the regions are in difficulties. Thank you for your explanation. Thank you. Next, Enomoto-san from B of A Securities. Here is Enomoto of B of A Securities. Enomoto-san, hello. Separately from the results, the acquisition offer for the decorated site, an ACT model, that there was a merger of the proposals. I understand that that deal is gone, am I right? And also about the background, ACTRA model. I think you made the proposal for acquisition many times. What is so attractive about European coatings business? So I think you have been involved in various M&A activities. What is the background for those activities? And also, M&A cost, I think, is included, and this particular deal is also included? Minamoto-san. As to M&A, I do not make any comment on M&A, whether it is done or not included. There's no comment to make here other than that we have already publicized. As to M&A cost, although we are very serious, associated with ACDO, the cost is included, reflected Sorry, thank you. Thank you. If I push myself to say the comment, the M&A will not be our goal. So it should be at right value, right asset, low risk asset. If there is any opportunity there to buy such an asset, we will pursue such opportunity. That's it. And of course, there is a counterparty. Sometimes the deal will go through, sometimes it won't. So that stuff remains unchanged. But sometimes the deal is publicized before the deal is done, so that is associated with the difficulties, but within expectation. Thank you. Thank you for that explanation.

Next, SMBC Nikko, Shintani-san, please begin your question. Hello, this is Shintani from Nikko Securities, SMBC. Thank you. Hello, Mr. Shintani. Now, regarding IAOC, the sales, I'm looking at page 25. 12% on the plus 12% on a FIC basis. So that's a 2% double digit increase. So can you talk about the demand situation? Three months ago, by and large, you said there are no many differences, but there was a slight recovery and also infrastructure was taking a lead. So can you talk about the second quarter performance and towards the second half, what's your projection? Maybe there might not be so many changes, but if you can give some color on that point. Okay, thank you. Regarding AOC, the overall picture is that I think if we exclude currency basis, double digit growth and revenues of 800 or so was already achieved. So that is the resilience of the AOC. So that made a strong contribution to this resilience of AOC. So that's another thing that I would like to comment here once again. And regarding the second quarter, The Middle East, not only the Middle East, but depending on the market, the one-time demand is also there. So it's good that they have been able to capture those demands, but this double-digit revenue growth, whether that is going to be sustained or not, it's too early for us to determine that at this point of time. So the four-year outlook remains to be very subdued or deceptive. Please be advised of that. Regarding the segment, the construction market overall remains weak. That remains unchanged. But infrastructure is so, so good. So that's the difference of the color. And that remains really unchanged from the first quarter. The AOC strength is that they have a broad range of customer base. and they've been able to offer a value-add service to these different customers. So in that regard, they have a very sustainable review stream and with a pent-up demand, depending on the pent-up demand, manifesting very gradually at least, As we have mentioned before, we are seeing signs of bottoming out, and that will continue to be the case going forward. For the second quarter, I think the local people said that it's too well, that my peers said so, so maybe too good is also the manifestation of their underlying performance, but I think the situation is like that, so please be advised. Thank you very much. So if that is the case then, In terms of level, the level is so, so okay. As for the second half of the year, what is the margin you're expecting? The cost increase is going to kick in for other reasons, but what about the AOC? Can we have the same outlook for AOC as well? And also for Europe, the business systems penetration is something that you've been working on, so can you talk about the progress of that effort? Well, First of all, in association with the Middle East situation, the impact from the Middle East is the least pronounced in the United States. The logistic expenses, including these, and also it's on the inflationary trend in terms of cost, so we cannot feel too optimistic. However, towards the second half of the year, We are not expecting significant impact from that element. Demand, I think, is a bigger impact towards the second half of the year. As for Europe, to some extent, the Middle East, in fact, may become stronger in Europe compared to the Americas, but I think the bulk is much higher with the Americas in terms of the business composition, so the business system as well. We are making steadfast progress. So, in that regard, On a net-net basis, in totality, margin remains to be robust, I believe. However, at the risk of repeating myself, AOC, in the case of AOC, the price changes is done dynamically, so it's not a simple margin. We are rather focused on the contribution margin and volume. So the contribution margin per unit This is something that we keep an eye on. And if you multiply that with the volume, what comes in as the total profit. So these are the things. It will not result in a big erroneous number, but if you just look at that, I think you may misunderstand the underlying performance and capability of AOC. Thank you.

Thank you very much for detailed explanation. Thank you. Japan Keizai Shinbun newspaper, Takahashi-san, please. Hello, here is Takahashi of Nikkei. Can you hear me? Takahashi-san, hello. Yes, I can. Thank you. I have one question. Page 5, the revision of the forecast. If it is already explained, maybe I would like to have some clarification. So revenue and net operating profit, it's all revised up as to net profit. Because of the temporary cost, it is revised down. This is one of the expense. What is it? As you can find here, M&A-related costs or the DUACs for Europe, the business transformation cost, especially the latter, accounts for a big part. The total basis, 12 to 13 billion yen or so, that is for the business transformation cost. The DUACs group Europe, it's mainly France, The business transformation there, there are three things roughly. Headquarters cost containment and the closing of one factory and distribution stores are reviewed, are being reviewed. In France, for many years, the market recovery has been expected but it seems that the market is not recovering. With that assumption, we need to be more the profitable and for that, we are making some transformation and the cost is associated with the transformation. Thank you.

Just for information, for this one of expenses, At the AOP level, this is not included in the adjusted operating profit. So at the operating level, the profitability does not factor in such a one-off expenses. So please be advised of that, just for the sake of confirmation, I mentioned this. The next question is from UBS Securities, Omura-san. Please begin your question, Omura-san. This is Omura from UBS Securities. Thank you very much. Thank you. Hello, Mr. Omura. I have a question relating to the overall picture. This earnings result, so you achieved a good profit level, and I think the business environment is significantly changing. In 2022, when the Ukraine war started, erupted, I think your situation deteriorated quite significantly compared to that timeframe. I think that the NAFSA prices changed this time around quite significantly. So when the environment changes significantly, you've been able to achieve these good results. What are the factors that allow you to deliver these very favorable results? Maybe there are some unique elements to you, and maybe there might be some changes in the environment. Can you give us the big factors that allow you to deliver good results? What did you say? What industry did you say? The automotive industry, for example, if they change their pace of price increases, is there anything that was noteworthy? When you say industry, are you talking about B2B business? I'm talking about the industry that you are facing or interfacing. Interfacing industries, okay. You're talking about our customers. Yes, that's correct, yes. All right, thank you very much for the question. To be honest with you, this is going to be an apple to orange comparison. Back in 2022, the business portfolio, the corporate portfolio was different. It was immediately after the COVID-19 outbreak started to finish, and also the situation in Japan was better, but the raw material costs started to increase back then already, and our price hikes efforts were belated. So therefore, as far as the elements related to our company in each region, the volatility of raw material was not existent before, but that started to permeate into the entire organization. So nowadays, we are able to take preemptive actions with inflation becoming the norm in the current situation, if you are the price leader, especially, you have to work on price hikes in a steadfast fashion. And against these cost increases, we have to be sensitive. We're not really small and we're not really insensitive in the past, but after going through those ups and downs in the past, now as a corporate trait, as Nippon Paint. This sensitivity has become more broadly and deeply penetrated across the organization. Now when we look at the access from the various industry vectors or the industry segments, depending on the customer, the sensitivity is different from customer to customer. So we cannot generalize everything. Like if it's a decorative paint, we cannot say that they are, They are strong against the price hikes because if it's China, that will have a very negative impact, so we cannot be frequent in price hikes. But there are some other reasons where it's easier for us to raise the prices. So this relates to our brand strength, our market position, so we have to make a comprehensive judgment whenever we do the price hikes. And when it comes to the B2B customer... We have a stronger accountability and also we have to fulfill our responsibility to supply products because that relates to our relationship of trust. So based on the relationship of trust, it's all about whether we can gain the understanding of customer. In Japan, for example, back in 2022, inflation was not real at all. But compared to 2022, I think, The acceptability of cost increases has become more generous, I think, compared to before, but depending on the customer, to be honest with you, the acceptance is different, the sensitivity is different, so we can never say that price increases is easily done in this market. Did I answer your question? Yes. Specifically, As far as Japan is concerned, automotive industries. Can we say that the price increase is to be done based on a formula? Have you been able to implement the price increases earlier than expected? If you can comment on anything. Automotive, if I talk about automotive industry, you'll be able to pinpoint the customers. I won't comment on that. Okay, understood, thank you. On a related note, the inventory assets for this year, this term increased by 26 percentage point compared to the last fiscal year. Have you done anything to secure raw materials? A significant increase. Both of the revenue is also increasing. Inventory increase is not something that strange or awkward in that regard because revenue is also increasing. As I said, we have to Thank you very much. So in terms of working capital, this tends to go up. But we do not think that this is a level that is problematic for us yet. Thank you. Thank you.

Next, Okazaki-san from Nomura Securities. Here is Okazaki of Nomura Securities. Thank you, Okazaki-san. Hello. More than five years have passed since you became co-president. What are you struggling with? What kind of issues are you working on, Okazaki-san? I read your integrated report very interestingly. and how to raise the equity variation. Of course, we needed to make more efforts on our side, but what are the business issues or challenges that you are thinking about? Could you please talk about it? For example, M&A is not going very well, or China, or it depends on the business environment. Mid to long term picture, any progress or anything else? Maybe next time you can hear me complaining about things over drink. Kozaki-san. Yes, often. What keeps you awake at night? Frequently asked questions by investors. On the operational side, the reason that is supervising it very firmly. So actually, there's no concern for me personally. The cash is being created, and we have this strength as a group of such businesses. The capital allocation, especially for M&A, what is the target, what should be the valuation, that is one of the big jobs for me. And as a result, share price. So what keeps you awake at night? So I'm surprised. What way and we operate in a very firm but aggressive way. And how can it be visible for external audience? And that is another big challenge for me. And other than that, for each quarter, So what do we think very good might not be so satisfactory from an analyst point of view. I wonder why sometimes. The first quarter, second quarter, we have very good results. But some people might find it unsatisfactory when it comes to the full year result. 162 yen is now coming down to 157 yen on FX side so it's a big fluctuation towards the second half we do not expect demand to contract so we think we will be okay but we do not expect all the regions to go as we have expected But as a whole, Nippon Paint strings, especially what we have described on page 2. So my biggest issue is how this picture can be well understood by external people. Thank you. Please share your issues and concerns with me again. Thank you.

My next question is from Toyo Keisei. Yamada-san, the floor is yours. Hello, can you hear me? Yamada-san, hello. Been a long time since we last met. Okay, so we have heard several comments already, and also in the past meetings, but based on your current plan, It looks as though that the second half profitability will be declining compared to the first half. Is it because you are having a conservative assumption? Given the situation of the world today, maybe this cannot be helped, I think. But on your real feeling, what is the performance on a neutral basis? If you can comment on that. Or maybe you may have to readjust the numbers if that is the case, but then If that is the case, then what's your projection for the next fiscal year? Based on your cautious projection, we may have to anticipate a slowdown in the second and next fiscal year. So is there anything that you can comment on at this point of time? That would be appreciated. Well, there are not so many things that I can comment on at this point of time. because this is the only official statement that we can share with you at this point of time. But based on the track record of the past, basically, under promise and over deliver is the basic posture of the company. So whatever we announce as a number is a must-achieve number for us. So, of course, the business environment remains very tough. but how to overachieve the numbers we stated is the mandate that we have to work on. And we are able to overachieve this in the current guidance. As a Japanese company, not many companies are delivering this magnitude of numbers. So I think this is worthy of praise to some extent. Also for the second half of the year, the second half of last year, We have seen that was the timing when the raw material cost has come down significantly. So as a general trend, because this industry has a high raw material cost ratio, so of course with pass-throughs and cost control, we are trying to absorb these cost increases. But as a major trend, the 2026 second half versus the 2025 second half are looking at different directions. So How do we overcome this is the question that we have to address. It's not going to be an easy journey. It's not going to be an easy comparison. So please be advised of that. Understood. Thank you very much for that. And what's your outlook for the next year? We'll comment on that in February next year. Thank you.

Because macro environment It's very uncertain, and to give guidance further down the road might not be so appropriate. That said, on a mid-term basis, as to what we have told about mid-term targets, we would like to stay committed both to the top line and the bottom line. We'd like to achieve those targets. Thank you. So this fiscal year, the market conditions are very tough, and to achieve those numbers, because the possibility is that the market environment gets worse. And of course, I'm sorry, that's okay. Forget it. Anyway. We will do our best. Thank you. Thank you. Question other from English channel. Please use push key at asterisk one for your question. If you want to cancel your question, please push asterisk two. No questions from the other English channel, so we go back to Japanese channel. JP Morgan Securities, Nakata-san, please. Here's Nakata of JP Morgan. Hello, Nakata-san. One of expense for the European transformational business, I would like to ask questions. 12 to 13 million yen is expected. and it will not be included in the adjustment, but the next year on, that it will have some impact for cost improvement side. How much did the contribution to profit next year? And why did you make the decision at this time? Because we have been waiting for the market to recover, but as Inoue Butosan asked, Is it because of the pipeline issues that that's why you have to start to transform European business? Up to 13 billion yen, it is just combined with other one of expensive. So at this moment, it's a very rough estimate. So I cannot talk about the breakdown of that number. I will not make any comment on that. The first half alone, 6.6 billion was booked and the rest will be booked in the second half. As to timing, it has nothing to do with M&A. A lot of restructuring measures were caused. about the people. So we need to be prudent. As I have said repeatedly, just to wait for the market to recover will not be good enough. So the Durex Sites Board, myself and some of our sittings, a decision was made at that board meeting. It has nothing to do with M&A. Thank you. 7.3 billion yen is booked. And the impact for the improvement, the expense will be decreased or the fixed cost decrease that can be seen next year and onwards? Yes, of course. On a total basis, we are still reviewing it, but at least in the weeks

Next question from Umebayashi-san from Daiwa Securities. Hello, thank you very much. This is Umebayashi from Daiwa Securities. Hello to you. Hello. Thank you very much. MIPSI, other than China, and so forth, and Malaysia, Singapore, and Thailand included. This time around, the performance was quite favorable, it seems, and the top line is showing a very strong growth. Of course, depending on the region, there might be different reasons for this. So compared against China, of course, the market conditions generally are better in these markets, but as a result of this, the Thank you. Thank you very much for that. Dear participants, it's five o'clock already. Since there are some other questions, I would like to continue with this meeting if there are any unanswered questions. I would like to first address Mr. Umebayashi's question. As he rightly pointed out, the market other than China performed very well. Indonesia, for example, as we mentioned during the last earnings call, in the first quarter, they performed very well. But compared against the peers, the performance was not so good because the timing of the price hike was different In May, we implemented price increases. Therefore, that's the reason why the April was good. So the acceptability of our price increases, to be honest with you, compared to other regions, these markets are better accepting price increases, I believe. So there are because of two reasons. One is that the market itself, the acceptance of premium products, I think, For example, in Indonesia, it's getting better. So that's one thing. And on the other hand, when it comes to Turkey, volume is not increasing at all. In that environment, the market is going through inflation, so we are making up for the volume decrease or not increases with the cost increases or the price increases. So it's not really reasonable to compare versus China. So I think the characteristics of each market are different, quite different compared to China. Within ourselves, the non-China NIPC markets, I want you to understand, we are to understand these markets very well. So what is the best way to disclose these markets is something that we are giving thoughts to. Thank you. Thank you, understood. Thank you very much for your comment. Thank you.

Time to stop Q&A session. Watatsuki-san, please. Thank you very much, everyone. Again. We had a very strong second quarter, and as I was asked in the question, with agility, we are successfully dealing with the current situation. Our products and coatings and their prices and the pass-through on prices I would not say easy to do that, but we did make a successful execution. And market continues to be uncertain. And we would like to achieve or grow more than the goals and targets. Thank you very much. And with that, We are going to complete FI2026 Second Quarter Financial Results presentation by Anypon Paint Holdings. Thank you very much for joining us today despite the tighter schedule.