Nippon Paint Holdings Co., Ltd. · TSE:4612
Nippon Paint — Investor Presentation (February 2020)
52 slides from Nippon Paint's investor presentation, Feb 21, 2020
Slide 1: Presentation Material for Institutional Investors (FY2020)
Presentation Material for Institutional Investors（FY2020) Presentation Summary February, 21, 2020 Good day everyone. Thank you for taking the time to attend today’s presentation despite your busy schedules and the novel coronavirus outbreak. I am Masaaki Tanaka, president and CEO of Nippon Paint Hol
Slide 2: Five subjects for today
I will cover five subjects today. First, I will provide a brief overview of Nippon Paint Holdings. Secondly, I will talk about our strengths. Thirdly, I will discuss the development of our partnership with Wuthelam. Fourth, I will discuss our future strategy and management direction. Lastly, I will
Slide 3: Foshan Libang paint at Beijing National Stadium
The paint of Foshan Libang, a Nippon Paint Holdings Group subsidiary in China, was used at the Beijing National Stadium. This was used during the 2008 Beijing Summer Olympics and is the largest track and field stadium in China. In 2022, China plans to use this stadium for the opening ceremony of the
Slide 4: Nippon Paint Holdings overview
Nippon Paint Holdings is the holding company of Japan’s largest paint manufacturer. About 140 years ago, our predecessor developed the first paint manufactured in Japan. Consolidated revenue was 692.0 billion yen in FY2019. We acquired DuluxGroup and Betek Boya midway through the year. If these two
Slide 5: Company history and founder
Our founder Jujiro Moteki started this business with his determination to use technology to solve social issues. In 1878, he developed a lead-free face powder that helped protect the health of actors and other entertainers. In 1881, with the cooperation from the Navy, he developed a marine paint. Th
Slide 6: Growth since the Global Financial Crisis
This page shows our growth since the Global Financial Crisis. In 2009, under the leadership of Kenji Sakai, Nippon Paint launched a medium-term plan named Survival Challenge. There were drastic cost-cutting measures that greatly improved the profitability of our operations in Japan. One significant
Slide 7: Operations in 29 geographical locations
We have operations in 29 geographical locations and our presence is growing on a global scale. For example, we have the leading market shares in China, Malaysia and Singapore as well as in Australia and Turkey, where we acquired companies in 2019. 7
Slide 8: Changes in businesses and regional portfolio
We have changed significantly since 2014 in terms of our businesses and regional portfolio. Decorative paints business is the largest share of sales and the primary source of growth. 8
Slide 9: Segment revenue over three years
This page shows our segment revenue in recent three years. Our automotive coatings business is backed by advanced technologies and strong brands and marketing skills are the key strengths of our decorative paints business. As you can see, there was a big increase in decorative paints revenue in FY20
Slide 10: Major products
This page shows our major products, which include items that are environment friendly. One is the can in the middle of the three LiBang products. This is a water-based paint with no additives and helps break down chemical compounds in the atmosphere. The label features an illustration of The Little
Slide 11: Well-known buildings using our paint
These are just a few of the well-known buildings that use our paint. At Tokyo National Stadium we supplied paint incorporating highly advanced technologies for the columns that support the stands. The white color of Raffles Hotel in Singapore originates with paint supplied by Goh Cheng Liang of Wuth
Slide 12: Our Strengths
Our Strengths NIPPON PAINT HOLDINGS GROUP 12
Slide 13: Four key strengths
The next section is an explanation of our strengths, which are basically investment highlights. There are four key strengths. First, from a global perspective, paint is a growing industry as demand will certainly increase along with population growth. We have much potential for increasing our market
Slide 14: Global population growth and paint demand
Next, I will discuss each strength in more detail. The world’s population is expected to increase from 7.8 billion to 8.5 billion over the next decade. This increase of 0.7 billion will create new demand – the size implies about six times more of Japan or half of China. These numbers clearly demonst
Slide 15: Global paint market share and revenue mix
The top 10 paint companies have a global market share of about 50%. That means the remainder of this market consists of a large number of small and midsize companies. As a result, there will be ample opportunities to capture market share and utilize M&A. We foresee more demand in categories that req
Slide 16: Regional paint market growth
These regional pie charts show that, as I have just explained, the paint industry is growing worldwide. This is precisely why we must operate on a global scale. 16
Slide 17: Leading position in Asia and decorative paints
Nippon Paint Holdings has a leading position in decorative paints, as well as China and other Asian regions. We operate in 15 geographical locations in Asia and this represents 52% of our consolidated revenue. In the DIY sector, due to the powerful LiBang brand, we have market shares of 36% in China
Slide 18: Strengths in China
There are many key strengths in China. As you can see, the market itself is very attractive and we have very strong positions in this market. One important point regarding China is that Goh Hup Jin, who is our director at Nippon Paint Holdings, overcame the opposition of others to make the decision
Slide 19: DIY business model in China
This is the business model of DIY, which means retail category of the decorative paints business. We have used strategies created for each market segment in order to establish a network of sales channels covering every part of China. The focus of our operations is the top cities e.g. Beijing and Sha
Slide 20: Project segment business model
This is the business model of the Project segment. In China, the project segment of the decorative paints business is growing very rapidly. Recent years have seen significant growth in Project market. In addition to urban development spreading to the periphery of major cities thanks to China's aggre
Slide 21: NIPSEA China factory network
In China’s expansive and growing paint market, NIPSEA China’s 49 factories facilitate the timely supply of paint to customers anywhere in the country. Of the three facilities currently suspended due to novel coronavirus, two (Tianjin, Hubei Province) are in NIPSEA China. Not on this map, one of the
Slide 22: Supply chain management in China
We have a very sophisticated supply chain management in China that supports this large network of factories. For example, we have a so-called dashboard that allows viewing real-time information about production and deliveries of factories nationwide. We can instantly check the status of factories an
Slide 23: M&A activity in recent years
There has been significant M&A activity in recent years. I was personally deeply involved with the acquisitions of DuluxGroup and Betek Boya. Our directors have played a very active role in M&A deals by assessing risk factors and carefully determining the future impact on earnings per share. Our dec
Slide 24: Stable cash flows and M&A discipline
In addition to steady growth, the paint industry is also characterized by extremely stable cash flows. Furthermore, this industry is an ideal place for M&A activity as funds can be procured now at very low interest rates. Our priority is to seek M&A deals that will help maximize shareholder value. W
Slide 25: Spider web management
In my opinion, there are two ways to manage a global organization. One is the style where management lines radiate outward from the center. The other is spider web management. With radiation type management, all bases are linked to the head office, which makes all important decisions. For Nippon Pai
Slide 26: Global governance structure
We have taken many steps to establish a global governance structure. In 2018, as you know, we significantly increased the number of independent outside directors. With the approval of shareholders in March, we expect that six of our nine directors will be independent outside directors. The purpose i
Slide 27: Director candidates for March shareholders meeting
These are the candidates for election as director at the March shareholders meeting. I am the only candidate who is a full-time executive of Nippon Paint Holdings. 27
Slide 28: Mission of maximizing shareholder value
This slide provides more information about our mission of maximizing shareholder value. The diagram shows the stakeholder relationship for income statement items: customers for revenue, vendors for operating expenses, employees for personnel expenses, financial institutions for interest expenses, an
Slide 29: Development of Our Partnership with Wuthelam
Development of Our Partnership with Wuthelam | NIPPON PAINT HOLDINGS GROUP 29
Slide 30: Relationship with Wuthelam and NIPSEA
The next section of this presentation is an overview and progress of our relationship with Wuthelam and NIPSEA. The Wuthelam Group is an investment company based in Singapore that is led by Goh Hup Jin, who is a director of Nippon Paint Holdings. Wuthelam has been a partner of ours since 1962 for th
Slide 31: Profile of Goh Cheng Liang
The next two pages are profiles of the two key people at NIPSEA. These executives played a central role in NIPSEA’s success and our partnership with NIPSEA. Goh Cheng Liang started a paint manufacturing and sales company following the purchase of paint from the British army. He developed a close rel
Slide 32: Profile of Goh Hup Jin
Goh Hup Jin earned a chemical engineering degree at Tokyo University and speaks Japanese fluently. He was named chairman of NIPSEA in 1985. In this position, he transformed the company’s diversified business structure into an organization centered on the paints business. He built a stronger foundati
Slide 33: Fusion of Nippon Paint and Wuthelam
This diagram shows how the fusion of Nippon Paint, which has a history of 139 years of growth, and Wuthelam, which has grown steadily in Asia during the past 60 years, has created a platform for even faster growth since 2014. 33
Slide 34: Cooperation examples with NIPSEA
This page shows three examples of the cooperation between the Nippon Paint Holdings Group and NIPSEA. The first is the combination of advanced technologies in Japan and NIPSEA’s strengths in China in auto market. The second is the use of NIPSEA’s extensive sales channels for the sale of adhesives an
Slide 35: Status of NIPSEA ownership consideration
We have received many questions about the possibility of converting NIPSEA into a wholly owned subsidiary. Let me explain the current status of this matter. NIPSEA is already an extremely important member of the Nippon Paint Holdings Group. As I mentioned earlier, we plan to increase the speed of me
Slide 36: Former Singapore Ministry building
This building was formerly the Singapore Ministry of Communications and Information and is now an office building occupied by tenants. The building’s attractive illumination in the evening makes it a popular place to visit for tourists. Nippon Paint Singapore supplied the paint for this project. 36
Slide 37: Strategies and goals for FY2020
This section covers our strategies and goals. This is the final year of our N20 medium-term management plan. Achievement of the revenue goal of this plan is already within sight. At this point, the establishment of a medium-term management plan that will begin in FY2021 is one of our highest priorit
Slide 38: Value creation model addressing social issues
This is a diagram of our value creation model based on measures to address social issues. This model combines our strengths and our spider web management in order to help solve social issues, thereby achieving our mission of maximizing shareholder value. Major issues associated with the paint indust
Slide 39: ESG Committee and activities
Two steps to establish this value creation model were (a) January 1 establishment of the ESG Promotion Department and (b) February establishment of the ESG Committee, which I chair. These two units oversee activities across all of our business operations. The ESG Committee will examine issues and ac
Slide 40: More SDGs and ESG activities
This page has three more examples of our SDGs and ESG activities. Third is the receipt by Nippon Paint Marine of a Minister of an Environmental Minister’s Award for the development of the first marine paint technology in the world that contributes to fighting global warming. Fourth is the developmen
Slide 41: Investments in Japan factories
The second initiative is investments in our factories in Japan to boost productivity. After I was named chairman in 2019, I visited many business sites in Japan as well as the factories and other locations of our overseas partner companies. These visits showed me that our manufacturing equipment in
Slide 42: Continued M&A activity
The third initiative is the continuation of M&A activity in Japan and other countries in order to maximize shareholder value. We cannot create M&A plans because these deals involve other companies. However, there are several potential deals in our M&A pipeline and we are constantly reviewing the tar
Slide 43: R&D and open innovation
The SDGs and ESG are the nucleus of how we manage business operations. Also, our R&D programs incorporate open innovation. We will continue to seek a broad range of opportunities to increase interaction and collaboration with external research institutes, universities and other partners. Our founder
Slide 44: Tokyo head office establishment
Growth on a worldwide scale demands an organization and people with the mindset of constantly taking a global perspective. From this standpoint, Tokyo is the ideal location for our head office with respect to access to other countries, a large pool of global talent, the ability to collect informatio
Slide 45: Audit committee framework
As I discussed in the governance section, we are transitioning to an audit committee framework by using the Company with Three Committees. Making this change enhances the auditing functions of our previous corporate auditor system to include audits of not only issues of legality but also appropriate
Slide 46: Bangkok temple protected with Nippon Paint Thailand
Paint supplied by Nippon Paint Thailand was used to protect this Bangkok temple, which has a very distinctive design. 46
Slide 47: Selected financial data for past decade
This next four pages contain selected financial data for the past decade. Figures were based on Japanese accounting standards until 2017 and IFRS from 2018. Revenue and operating profit increased significantly in FY2015 due to the consolidation of operations in Asia. 47
Slide 48: Earnings per share
This is our earnings per share during the past decade. 48
Slide 49: Net debt and leverage
We had no debt between FY2009 and FY2018 and then we took on net debt in FY2019 because of large acquisitions. Our net debt-equity ratio was 0.66 at the end of FY2019 and we plan to keep our leverage at a suitable level. 49
Slide 50: PER, PBR and return on equity
Our PER and PBR have increased along with the increase in our stock price. The return on equity has been basically unchanged during the past five years. This return of 6.6% for 2019 is sufficiently above our cost of equity. Our effective return on equity is higher after eliminating asset impairment
Slide 51: Capital policy and dividends
Lastly this page provides a brief discussion of our capital policy. Our basic stance is to place priority on investments for growth, including M&A, with the goal of increasing earnings per share in order to increase the total shareholder return. Financial soundness is the premise for our financial d
Slide 52: Coronavirus update and FY2020 forecast
First, our current situation of the novel coronavirus outbreak. There has been no change in the number of our factories that have suspended operations. More employees are returning to work every day. As of yesterday, our factories had returned to 60% of capacity. Demand at our customers differs at e
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