Message from Co-President Wakatsuki

Highlighting our intrinsic investment appeal

At the heart of our management philosophy is the unwavering pursuit of MSV, our sole mission. To fulfill this, my primary responsibility is to drive maximization of our price-to-earnings ratio (PER) by enhancing conviction of our investors. This is not derived from any extraordinary measures but through initiatives aligned with so-called “stock-price conscious management.” After all, stock price is a function of earnings per share (EPS) multiplied by PER. By focusing on PER, we simply aim to ensure that capital markets accurately recognize and evaluate our growth potential.

What are the latent investment appeals we want investors to recognize?

First is our identity as an “EPS Compounding Machine.” Despite facing external headwinds in recent years such as the COVID-19 pandemic, supply chain disruptions, and rising raw material prices, our Group has delivered EPS growth for five consecutive years. At the same time, we have steadily built a solid track record in M&A. This performance reflects the strength of our Asset Assembler model, demonstrating success in both organic and inorganic growth initiatives. Our unwavering commitment to sustainable EPS compounding underscores the reliability of our business model and the credibility of our long-term, stable growth potential.

The second is our “ego-free management style.” Our Board of Directors is well versed in our sole mission of MSV and is not swayed by the personal interests of any individual member of the management team, including Wee Siew Kim and myself. We take pride in being one of the few public companies that pursue MSV with such singular focus and integrity. The Board in the meantime has concluded that the Co-President structure, with Wee Siew Kim and myself, remains the most appropriate framework at this stage of our journey. By avoiding dependence on any single individual, we have built a sustainable management foundation, one that will continue to function effectively and resiliently into the future. This represents a clear and enduring strength of our Company.

The third is our ability to unlock unlimited growth potential while ensuring soundness through controlled risk. Even amid a challenging environment, our operations across regions and business segments have continued to deliver steady growth and remain well-positioned for continued growth. We are also achieving sustainable EPS compounding through a disciplined and risk-aware M&A strategy rooted in rational decision-making. A defining example is the acquisition of AOC, announced in October 2024, which exemplifies the strength and reliability of our Asset Assembler strategy.

It is indeed essential to mitigate capital market concerns, e.g., related to China risk, while steadily building a strong M&A track record. By consistently delivering results, we aim to strengthen confidence in our management and provide investors with greater clarity around our long-term growth vision.

2024: a defining year for our Asset Assembler model

The year 2024 marked a turning point for our Group, as we formulated a new Medium-Term Strategy designed to pursue MSV over the long term, unconstrained by a traditional three-year horizon. This Strategy places a strong emphasis on sustainable EPS compounding through both organic growth and disciplined M&A, while also recognizing the importance of delivering solid business performance year by year. As the first year of implementation, 2024 represented meaningful progress toward our MSV journey.

From an organic growth standpoint, we achieved solid performance despite the challenging global economic environment. By leveraging our strong brand equity and technological capabilities, we were able to maintain, or in many cases, expand market share across regions and business segments. As a result, both revenue and operating profit reached record highs, and EPS increased for the fifth consecutive year, supported by top-line growth and improved profitability. These outcomes serve as clear validation of the effectiveness of our Group’s business model. For instance, while the operating environment in NIPSEA China remains tough with limited visibility of a near-term economic recovery, our business continues to deliver steady profit growth, reinforcing its status as an attractive and resilient asset within the Group. Even if global economic headwinds persist, the medium-term growth forecasts for each of our partner companies remain well within the bounds of their historical performance. This gives us strong confidence in our ability to meet the targets set forth in our Medium-Term Strategy.

From an inorganic growth perspective, the announcement of AOC acquisition stands out as our most significant achievement in 2024. Fully aligned with our disciplined acquisition criteria, AOC is expected to contribute meaningfully to EPS compounding from Year 1. This acquisition marks a major milestone for our Group, not only in terms of strategic expansion, but also in substantiating the inorganic growth component of our Asset Assembler strategy. It has enabled us to tangibly demonstrate to investors the value-creating potential of our model.

AOC acquisition: bringing our inorganic growth story to life

Guided by our Asset Assembler model, further evolved under the Medium-Term Strategy, we pursue MSV with a long-term view through acquisitions across all regions, business domains, and scales. Our approach is not confined to the paint and coatings sector or adjacencies areas such as Paint++ (including sealants, adhesives, and fillers [SAF], and construction chemicals [CC]), provided they present low risk and good returns. In our Board of Directors’ discussions, we have also recognized the strategic risks of narrowing our M&A focus to the paint sector. As valuations in this space continue to rise, such limitations could lead to acquisition decisions driven by M&A turning to an objective, not a means to an end, resulting in overpaying for lower return targets.

Whilst we continue to deepen our experience in inorganic growth, the strengths of our platform have also become clearer. These strengths center on four key elements: 1) sharp risk awareness and assessment of good acquisition targets, 2) maintaining autonomy and accountability, 3) sustaining and enhancing the motivation of talents who joined our Group, and 4) proactively leveraging low funding costs. Guided by these four elements, our management approach focused on “preserving the strengths, brand, and culture of acquired companies” through “ego-free M&A” forms the foundation of our entire inorganic growth strategy.

The acquisition of AOC is well aligned with our inorganic growth strategy and our disciplined acquisition criteria. These criteria emphasize the selection of companies that 1) are expected to deliver a meaningful positive contribution to EPS from Year 1, with low business risk and strong profitability, 2) possess clear potential for independent, sustainable stand-alone growth, 3) are led by outstanding management teams committed to long-term value creation within our Group, and 4) generate sufficient cash flows that support continued financial discipline.

AOC holds a leading position in both the U.S. and European markets, supported by a highly efficient business model characterized by strong profitability and robust cash flow generation with low capital expenditure requirements. The company has delivered disciplined profit growth under successive private equity ownership, and now, as part of our Group, it is well positioned to pursue long-term value creation, free from the recurring pressure of short-term exit timelines.

Throughout the acquisition process, Wee Siew Kim, Goh Hup Jin, and I engaged in close dialogue with AOC’s management team, including CEO Joe Salley. Our central focus was a single, guiding question: How can we become a “good shareholder” for AOC? To convey our philosophy of MSV and the principles of our Asset Assembler model, we conducted multiple face-to-face in-depth discussions, building mutual understanding and trust. Through this process, both our leadership and AOC’s management came to recognize each other as exceptional long-term partners.

The acquisition was successfully completed with the mutual understanding that Joe Salley and his team would continue to lead AOC and drive its future growth.

For our Group, the AOC acquisition represents the addition of a new strategic pillar, our most significant since the acquisition of DuluxGroup in 2019, and stands as a clear demonstration of our Asset Assembler strategy in action.

Consistently building a portfolio of good assets like AOC

The AOC acquisition stands as a clear demonstration of our competitive edge in M&A. However, it is not our end goal. We remain firmly committed to pursuing future transactions that align with our MSV mission, focusing only on opportunities that offer strong returns with limited risk.

We recognize that some investors may raise a valid concern: “Isn’t M&A inherently high risk?” While it’s true that no acquisition is entirely without risk, we take pride in our disciplined approach, free from management ego, and in executing M&A through a rigorous, thoroughly evaluated process driven solely by the pursuit of MSV. This ensures that our M&A activities are guided by disciplined decision-making and a strong emphasis on risk management.

First, our Board of Directors, comprising a majority of Independent Directors, engages in rigorous, investorfocused discussions. This governance structure promotes balanced decision-making, effectively curbing excessive risktaking by the executive team while maintaining an optimal equilibrium between prudent risk adoption and long-term value creation. As a unified Corporate Group grounded in integrity and guided by MSV as the central principle of decision-making, we are able to avoid unnecessary risks while executing high-level decisions with both speed and sound judgment. This thorough evaluation process is the foundation of the strength and safety that define our M&A activities.

Another core strength of our M&A strategy is our solid financial base. We maintain strong cash generation capabilities, and each partner company in our portfolio is fundamentally positioned for autonomous growth and stable cash flow. Even after the AOC acquisition, our leverage is projected to return to a Net Debt to EBITDA ratio of 2.2–2.4 times by end of 2026, comparable to year-end 2023 levels. We remain confident that our financial soundness is strong, even in comparison to the track records of our competitors.

While we prioritize safe and sound risk-taking, we remain firmly committed to pursuing significant upside as an “EPS Compounding Machine”—particularly in opportunities where substantial EPS accretion is expected. In such cases, equity financing is a considered option. By maintaining a balanced approach to both equity and debt financing, we aim to steadily build a portfolio of high-quality assets on par with AOC. We believe this will further highlight our commitment to safeguarding the interests of minority shareholders.

Harnessing a lean headquarters to foster autonomous growth and Group synergies

Under our autonomous and decentralized management approach, we entrust the exceptional management teams of our partner companies with both autonomy and accountability, enabling them to drive their autonomous growth. Instead of imposing uniform Nippon Paint practices, we respect their distinct strengths and focus on providing the support platform they need to thrive. This includes access to key management resources such as funding, technology, brand equity, distribution networks, and procurement capabilities. By creating this environment, we empower our partner companies to unlock greater value within the Group.

Given the highly localized nature of the paint and adjacencies industries, where local production serves local demand, entrusting operations to local management teams who possess deep insight into their respective markets drives greater value creation. For this reason, we have adopted a flexible, decentralized management structure instead of a centralized approach, supporting our partner companies through a lean and agile headquarters. This framework allows them to retain their independence while fully leveraging our platform to drive autonomous growth.

As a natural extension of our respect for the autonomy of management teams, partner companies within our Group collaborate freely and proactively through our shared platform. For instance, AOC’s procurement team has already begun engaging with relevant departments across the Group to explore synergies. We also share a common vision with CEO Joe Salley to pursue mutual growth opportunities at the Group level. Moreover, AOC’s outstanding business systems have inspired other partner companies, fostering a culture of shared learning and the integration of best practices across the Group.

A key strength of our Group is that collaboration is not directed by our headquarters, but instead arises proactively and autonomously from our partner companies. The role of the headquarters is to support these initiatives when needed, not to lead them. This management philosophy, grounded in the balance of autonomy and accountability, enhances the motivation of partner companies, attracts top talents, and ultimately drives the sustainable growth of the entire Group.

Pursuing MSV to ensure long-term sustainability

Our approach to sustainability is both consistent and purposeful: we do not view it as an end, but as a means to contribute to MSV. MSV is grounded in fulfilling our obligations to key stakeholders, including customers, business partners, employees, financial institutions, and governments, with sustainability representing one of these core commitments. This perspective is actively discussed at the Board level and deeply embedded as a shared understanding across the entire Group.

As societal standards for corporate sustainability continue to rise, any misstep may adversely affect both earnings performance and market valuation. To stay ahead of these external shifts, we proactively gather insights and implement targeted responses across the Group. As part of these efforts, we strengthened our response to climate change in 2024 by establishing a framework for reducing greenhouse gas (GHG) emissions, sharing best practices for carbon measurement, reduction, and performance improvement among partner companies. In 2025, we plan to operationalize this framework, focusing on reducing Scope 1 and 2 emissions, while enhancing data collection and analysis for Scope 3. The NIPSEA Group has already set a target to reduce Scope 1 and 2 emissions by 15% from 2021 levels. Through our autonomous and decentralized management model, we are driving meaningful climate action across the Group.

Our sustainability efforts are strategically linked to EPS and PER growth, reinforcing our commitment to achieving MSV.

MSV: our journey continues

The acquisition of AOC marks a pivotal first step in demonstrating the potential of our Asset Assembler strategy. Our commitment to MSV remains steadfast. On the organic growth front, we are focused on unlocking the untapped potential within our existing portfolio. In M&A, we remain disciplined in balancing risk and valuation to ensure both contribute meaningfully to EPS growth. Through these efforts, we are committed to delivering solid results, reinforcing confidence in our management, and shaping proper expectations for future performance, with the ultimate goal of maximizing PER.

Throughout our journey, strengthening communication with investors remains essential to achieving MSV. To this end, we are committed to providing greater clarity around our growth vision. While our obligations to stakeholders have their own limits, the potential upside in shareholder value is boundless. As a company firmly committed to this mission, we look forward to earning your continued trust and support on the road ahead.

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