Integrated Report 2023 Briefing Q&A Summary

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  • Integrated Report 2023 Briefing Q&A Summary

Question from Participant A

  • A1As you’ve highlighted, the PMI process is a fundamental component of our M&A approach in our role as an Asset Assembler. Our approach to PMI is marked by its low risk and cost efficiency. A key criterion we consider when evaluating potential M&A targets is their affordability in terms of acquisition valuation. Specifically, we look for companies that can positively impact our EPS from the first year of acquisition.

    I’ll explore our PMI strategy using the recent acquisition of Alina, a company based in Kazakhstan, as a case study. Prior to this acquisition, our partner firm in Turkey, Betek Boya, already had a presence and understanding of the Kazakhstani market, particularly in local distribution. Our approach with Alina extended beyond just finalizing the acquisition price. We engaged in ongoing dialogues with Alina’s management, focusing on the potential for growth. Our conversations fostered a sense of trust with the management team at Alina. This was primarily due to the partner-like relationship we cultivated with them even before finalizing the agreement. As a result, we successfully retained their outstanding management team. This approach helped avoid any misunderstandings and enabled the team to perform at their highest level.

    In contrast to the 2022 edition, the 2023 edition of our Report placed greater emphasis on Asset Assembler model, particularly highlighting our strengths in M&A. However, this focus led to some feedback indicating that aspects related to human resources and organizational structure were less clear. Notably, our approach to M&A, which is characterized by autonomous and decentralized management coupled with trust, was not as prominent. We will incorporate this feedback to improve the 2024 edition of the Report.

    I recently discussed with Co-President Wakatsuki about our future approach to discussing ROIC. We agree that it has increasingly captured the interest of investors. To engage further on this topic, we plan to utilize opportunities such as our upcoming New Medium-Term Plan (MTP) briefing in April and the release of the 2024 edition of the Report to deepen discussions with investors.

Questions from Participant B

  • A1In developing our Integrated Report, we consider the assessment standards of domestic and international external evaluation agencies as a guideline. Nevertheless, our primary aim is to ensure that the Integrated Report acts as a useful guide for investors to gain insights into our Group. Co-President Wakatsuki shares the view that the report’s focus should not solely be on meeting external evaluations. For the 2024 edition, our approach will balance the originality and formality typically associated with an integrated report.

  • A2Concerning our efforts in sustainability, we have actively engaged in Group-wide initiatives since 2020. Initially, we adopted a top-down approach in 2020 and 2021. However, starting from 2022, we shifted to a more autonomous and decentralized strategy. While these initiatives are ongoing, we are committed to maintaining continuing dialogues with our five sustainability teams.

Question from Participant C

  • A1We recognize that ROIC is an important metric and actively discuss it. We will continue to engage in two-way communication with capital market participants, aiming to provide explanations that meet investor expectations both at the New MTP briefing and in the 2024 edition of the Report.

Question from Participant D

  • A1I emphasized earlier that we do not want to be perceived primarily as a “China-focused” company. Nonetheless, it’s a fact that our China business contributes to nearly 35% of our total consolidated revenue. Given this significant contribution, we’re aware that investors might find it counterintuitive when we advise not to overly concentrate on our China business.

    While the China business is undoubtedly a vital component of our Group’s portfolio, our viewpoint on this segment slightly deviates from the perspective held by the capital markets. We’re committed to offering comprehensive information and insights about our China business to market participants. This approach, akin to how we handle ROIC discussions, is anticipated to enhance the understanding of our China business. We believe that this will positively influence our stock price, ultimately benefiting MSV.

Question from Participant E

  • A1I believe investors’ expectations for our Group, which has a significant presence in the Chinese market, have fluctuated, responding both positively and negatively to the growth of the Chinese market. I occasionally receive questions regarding areas in which investors should focus their attention in the future. However, our strategy does not favor specific regions or businesses; instead, we aim to drive EPS growth by developing individual assets.

    We understand that what is necessary to contribute to MSV and our stock price is to provide information that will deepen investors’ understanding, provide reassurance, and instill confidence in our Group, while also referencing evaluations by external rating agencies. We will maintain our proactive engagement with investors through communication, including the presentation of our performance track record.

Question from Participant A

  • A1As a holding company, Nippon Paint Holdings focuses on building up asset. At the operational level, we recognize and value people as the key to business expansion, a sentiment echoed in the 2023 Report. In this respect, our approach aligns with that of typical business enterprises. We are currently evaluating the best methods to clarify our strategy regarding human resources.

Question from Participant B

  • A1Thank you for your valuable suggestion. We recognize the importance of promptly conducting the Integrated Report briefing following its release. We plan to publish the 2024 edition of the Report earlier than in previous years and, accordingly, schedule the briefing sooner than the current timeline.

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