Nippon Paint Holdings Co., Ltd. · TSE:4612
Nippon Paint — Merger or Acquisition (August 2020)
44 slides from Nippon Paint's merger presentation, Aug 21, 2020
Slide 1: Acquisition of Asian JV Stake and Indonesia Business
Acquisition of Asian JV Stake and Indonesia Business ～Establishing Dominance in Asia to Pursue Global Growth～ August 21, 2020 Masaaki Tanaka （Chairman, President & CEO） Nippon Paint Holdings Co., Ltd.
Slide 2: Today's Agenda
Today’s Agenda 1. 100% Ownership of Asian JV 2. Acquisition of Indonesia Business 3. Synergy Creation 4. Financial Impact 5. Future Strategies
Slide 3: Introduction (1)
Introduction (1) NPHD agreed with Wuthelam to increase its stake in Asia JVs to 100% and acquire its Indonesia business This agreement will bring our 60-year-long partnership to perfection and build a strong foundation for accelerated growth Profit attributable to shareholders to increase by c
Slide 4: Introduction (2)
Introduction (2) Transaction will simplify the ownership structure and resolve the potential conflict of interest between the major and minority shareholders Pre-Transaction Post-Transaction 126.9mn shares 193.9mn shares 275.6mn shares 193.9mn shares Minority Minority Wuthelam Shareholders Wuthelam
Slide 5: History of Strategic Partnership with Wuthelam (1)
History of Strategic Partnership with Wuthelam (1) Our partnership with Wuthelam dates back nearly 60 years/ Driver for global expansion after acquiring majority stake in 2014 1992 1962 Asia JVs established Entry into China Market 1962 1949 Partnership with Wuthlam started for Wuthelam expanding dis
Slide 6: History of Strategic Partnership with Wuthelam (2)
History of Strategic Partnership with Wuthelam (2) Business expanded after acquiring majority stake in 2014 Share price increased nearly 22x over the past 10 years 2020/3 (Stock Price: JPY(1)) Transformed governance to “Company (Revenue: JPY bn) Domestic Revenue Overseas Revenue with Committees” str
Slide 7: Addressing the Perceived Conflict of Interest
Addressing the Perceived Conflict of Interest Intrinsic conflict within Wuthelam both as seller and buyer Pre-Transaction Wuthelam’s current 39.6% ownership in NPHD is aligned with interest of minority shareholders. Wuthelam Wuthelam and NPHD have pursued MSV together and Minority Share- Seller ac
Slide 8: Ensuring Minority Shareholder Protection
Ensuring Minority Shareholder Protection Special Committee established under new governance system reviewed the transaction in detail Reviewing Structure(1) Internal Masaaki Manabu Tanaka Minami Hisashi Masayoshi Masataka Toshio Takashi Miharu Hara Nakamura Mitsuhashi Morohoshi Tsutsui Koezuka Exter
Slide 9: Transaction Overview
Transaction Overview Acquisition of the remaining shares in Asia JVs and 100% Indonesia business Total purchase price will be ¥1,285.1bn based on NPHD’s Aug. 20 closing price of ¥7,970 Asia JVs will be purchased for ¥1,049.6bn, with Wuthelam subscribing to 131.7mn NPHD new shares through third-p
Slide 10: Strategic Rationale
Strategic Rationale Establishing a dominant “Asia x Construction” model 1 100% ownership of Asia JVs Acquiring remaining interests in the Asia business, the profit from which accounts for over 60% of NPHD’s operating profit A simple governance structure easier to understand 2 Acquisition of Indo
Slide 11: 1. 100% Ownership of Asian JV
1. 100% Ownership of Asian JV 2. Acquisition of Indonesia Business 3. Synergy Creation 4. Financial Impact 5. Future Strategies
Slide 12: Our Position in the Fast-Growing Paint Market
Our Position in the Fast-Growing Paint Market Leading position in China/Asian region, the largest growth market Paint market is expected to grow larger globally Asia(including China)has the largest market, Operating in 15 geographical locations including commanding high growth rates China, Malaysia,
Slide 13: Benefits from Acquiring 100% of Asia JVs
Benefits from Acquiring 100% of Asia JVs Acquisition of remaining minority interests in Asia JVs allows to fully capture the profit that represents over 60% of NPHD’s operating profit Pro-forma basis (Unit: JPY bil) FY2018 FY2019 Simple sum of DGL DGL and Betek Impact of and Betek Actual Actual annu
Slide 14: Scheme Features
Scheme Features Capital reinforcement through third-party share allotment avoiding equity impairment, building stronger financial base Liquidity Liquidity Liquidity on hand Debt on hand Debt on hand Debt Acquisition- Other Other related liabilities liabilities Debt その他負債 Other assets Other assets Mi
Slide 15: 2. Acquisition of Indonesia Business
1. 100% Ownership of Asian JV 2. Acquisition of Indonesia Business 3. Synergy Creation 4. Financial Impact 5. Future Strategies
Slide 16: Indonesian Market (1) Positioning in Southeast Asia
Indonesian Market(1) Positioning in Southeast Asia With population of 270mn, Indonesia is the largest economy in ASEAN with high growth potential Myanmar Thailand Vietnam Philippines US$72bn US$350bn US$235bn US$290bn (5.5%) (1.8%) (6.3%) (4.8%) US$6bn US$14bn US$15bn US$29bn NA US$10bn US$12bn US$2
Slide 17: Indonesian Market (2) Population and GDP Growth
Indonesian Market(2)Population and GDP Growth Per capita GDP exceeded $4,000 in 2018 with continuing growth momentum Indonesian population Expanding Consuming Class (3) (mlions) (mlions) 40 90 125 297 299 271 274 276 279 282 284 287 290 292 295 255 258 262 265 268 265 280 280 240 110 189 191 193 194
Slide 18: Indonesian Market (3) Construction Market/Government Policy
Indonesian Market(3) Construction Market/Government Policy Paint demand to show steady growth driven by infrastructure investment Construction demand (housing/non-housing) (US$bn) 161 144 129 105 116 86 95 69 77 50 53 58 60 38 40 40 41 41 45 32 2010A 2011A 2012A 2013A 2014A 2015A 2016A 2017A 2018A 2
Slide 19: Indonesia Business (1) History and Overview
Indonesia Business(1) History and Overview Maintained leading market share in Indonesia for c.40 years History Main business areas 1969 Automotive Protective Established first paint plant in Jakarta Coatings Coatings 1970s Established paint plants in Medan and Surabaya 1980s Decorative Industrial Co
Slide 20: Indonesia Business (2) Financial Information
Indonesia Business(2) Financial Information Excellent business with high profitability and growth （IDR bil） FY2016 FY2017 FY2018 FY2019 Decorative 3,021 3,244 3,747 3,710 Revenue Industrial 1,046 947 921 868 Consolidated 4,101 4,191 4,669 4,578 Decorative - 7.4% 15.5% （1.0%） Revenue Industrial - （9.
Slide 21: Indonesia Business (3) Market Share
Indonesia Business(3) Market Share “Nippon Paint” is already the #1 brand in Indonesia, recognized as the “Top-of-Mind” brand Indonesian Paints Market Share (2019) Decorative Industrial E F G H Others D 1% 2% 1% 1% 1% 2% C Others Indonesia 5% 27% Business B 27% 6% Indonesia A Business E 5% 24% 57% A
Slide 22: Indonesia Business (4) Production and Distribution Network
Indonesia Business(4) Production and Distribution Network Overwhelming competitive advantage with three production bases and c.40 distribution centers covering the entire country Distribution/sales centers(1) Business transformation through CCM(2) Aceh Pekanbaru Batam Manado Padang Pontianak Samarin
Slide 23: Indonesia Business (5) Solid Position in Decorative
Indonesia Business(5)Solid Position in Decorative Focusing on the expanding premium market while maintaining leading position in the economy market Decorative paint market/NP Market share (1) Economy Segment /NP Market share(1) Market（IDR bil) NP Market Shere Market（IDR bil) NP Market Shere 38% 10,0
Slide 24: Indonesia Business (6) Strong Customer Relations in Industrial
Indonesia Business(6) Strong Customer Relations in Industrial Leading market shares in the automotive OEM and motorcycle coatings markets, leveraging strong customer relationships and superior cost control Market shares in Automotive OEM market (2019) Market Shares in Motorcycle market (2019) Others
Slide 25: Indonesia Business (7) Established Management Team
Indonesia Business(7)Established Management Team NIPSEA-style management team with minimum post-merger integration risk Decorative Potential to replicate success in China with NIPSEA expertise Industrial Collaboration with NPHD to grow auto and other paint businesses ➡Competent management team with
Slide 26: Indonesia Business (8) Relative Valuation
Indonesia Business(8) Relative Valuation Acquisition of highly profitable business with growth potential at an attractive price EBITDA margin (2019) Sales growth rate(2017-2019) （EV/EBITDA 19A) （EV/EBITDA 19A) 60.0x 60.0x 50.0x 50.0x Berger Berger Paints Paints 40.0x Asian Paints 40.0x Asian Paints
Slide 27: COVID-19 Figures in Indonesia
COVID-19 Figures in Indonesia With expansion of COVID-19 infections continuing, Indonesian government has announced various economic stimulus programs Cumulative infections New infections (People) (People) 140,000 3,000 120,000 2,500 100,000 2,000 80,000 1,500 60,000 1,000 40,000 20,000 500 0 0 3/2/
Slide 28: Impact of COVID-19 in Indonesia
Impact of COVID-19 in Indonesia Real GDP growth expected to return positive from 1Q of 2021 Real GDP growth rate (annual) Real GDP growth rate (YoY) (%) (%) 10.0 6.0 8.6 8.3 8.0 7.3 5.0 4.0 6.0 5.0 5.0 3.0 4.0 5.2 5.0 5.3 5.5 5.5 5.5 3.0 4.9 5.0 5.1 4.7 4.7 5.1 5.1 4.8 2.0 2.0 0.8 1.0 0.0 0.0 -2.0 -
Slide 29: 3. Synergy Creation
1. 100% Ownership of Asian JV 2. Acquisition of Indonesia Business 3. Synergy Creation 4. Financial Impact 5. Future Strategies
Slide 30: Synergy Creation (1)
Synergy Creation (1) Generating synergies through “Spider Web Management” (i.e. organic collaboration among our partner companies) NIPSEA Minimizing profit outflows, enabling optimization Dunn-Edwards 1 Betek Boya of resource allocation 2 Building global platform for industrial coatings business NIP
Slide 31: Synergy Creation (2)
Synergy Creation (2) Creating new business opportunities with new regions and expanded management teams NIPSEA(1) Global integration of industrial coatings business Reorganizing operations by business rather than by region, enabling more efficient decision making and strategy execution (NPAU(2))
Slide 32: 4. Financial Impact
1. 100% Ownership of Asian JV 2. Acquisition of Indonesia Business 3. Synergy Creation 4. Financial Impact 5. Future Strategies
Slide 33: Financial Impact (1) Income Statement
Financial Impact (1) Income Statement Profit attributable to parent will increase by c. 60% and EPS by 10% or more Pro-forma basis (Unit: JPY bil) FY2019 DGL and Betek DGL and Betek Impact of annualized ＋ Actual annualized and transaction(2) Impact of consolidated(1) transaction(2) Revenue 692.0 803
Slide 34: Financial Impact (2) Pro-forma Profit and New Share Issuance
Financial Impact (2) Pro-forma Profit and New Share Issuance Profit increase greater than share count increase, delivering EPS accretion Significant EPS accretion expected from year one through JV stake consolidation, coupled with future EPS upside from growth investment in the Indonesia business Ne
Slide 35: Financial Impact (3) Balance Sheet
Financial Impact (3) Balance Sheet Net D/E ratio to improve via capital reinforcement for stronger balance sheet Financial capacity secured for next M&A opportunity for MSV realization FY2019(DGL and Betek Boya annualized Post-Acquisition (illustrative)(3) and consolidated)(2) Liquidity on hand Liqu
Slide 36: 5. Future Strategies
1. 100% Ownership of Asian JV 2. Acquisition of Indonesia Business 3. Synergy Creation 4. Financial Impact 5. Future Strategies
Slide 37: Future Strategy (1) Invest in Japan for Improved Productivity
Future Strategy (1) Invest in Japan for Improved Productivity NPHD is currently undergoing thorough supply chain reform, incorporating BCP with new normal as a premise Building a digital supply chain Examining ways to visualize and enhance productivity by drawing on best practices of overseas part
Slide 38: Future Strategy (2) Development of Antiviral Products
Future Strategy (2) Development of Antiviral Products Upgrading R&D and product supply to resolve social issues Enhancement of open innovation activities Entered into an industry-academic cooperation agreement with The University of Tokyo in May 2020 • Opening a seminar “Creation of Innovative Coa
Slide 39: Future Strategies (3) Further Growth through M&A
Future Strategies (3) Further Growth through M&A Promoting M&A to maximize shareholder value Basic Principles of M&A Constant review of deals in pipeline Earning a return higher than capital cost and delivering EPS accretion Priority setting with financial discipline maintained Synergy creat
Slide 40: Summary
Summary c.60% profit increase and 10%+ EPS accretion, ensuring protection of “minority shareholders’ interest" • Achieving significant profit increase by incorporating earnings of fast-growing Asia JVs and Indonesia business • Capital reinforcement with EPS accretion, ensuring protection of minority
Slide 41: Appendix
«“@ NIPPON PAINT HOLDINGS CO.,LTD. Appendix : " | i :
Slide 42: Annualization of DuluxGroup and Betek Boya for FY2019
Annualization of DuluxGroup and Betek Boya for FY2019 Financials of DuluxGroup and Betek Boya have been annualized to examine the contribution of the JVs to the whole of the group businesses post acquisition The pro forma FY2019 numbers are calculated by first subtracting the FY2019 consolidated res
Slide 43: Acquisition Target
Acquisition Target The acquisition of remaining minority interests of Asian JV and 100% Indonesian business from major shareholder Wuthelam Target Company Acquisition ratio (Ownership ratio Target Company Location after acquisition) Asian JVs NIPSEA PTE. LTD. Singapore 100%(100%) NIPPON PAINT (CHINA
Slide 44: This document represents the Company's judgment based on the information available to the Company
This document represents the Company's judgment based on the information available to the Company at the time of preparation, and includes risk and uncertainty. Therefore, the Company's actual performance and other facts may differ from the statements made herein. The Company and the provider of thi
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