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Medium-Term Plan Progress



Released March 16, 2022

Nippon Paint Group Medium-Term Plan Progress

Outline of Medium-Term Plan (FY2021-2023) Progress

Year 1 of Medium-Term Plan provided the foundation for our "Asset Assembler" model
which combines strong organic and M&A growth.
We will continue to fuel our insatiable appetite for medium- and long-term growth.

Asset Assembler

Nippon Paint is a unique Japan-based "Asset Assembler" with MSV as its sole mission

We have adopted a business model in which we, with a smaller headquarters at the holding company (NPHD), assemble assets focused on attractive markets in the paint and adjacency arena through M&A, while driving autonomous growth of the existing Group partner companies*, resulting in strong growth with limited risk. We call it the Asset Assembler model.

*Name of consolidated subsidiary companies of Nippon Paint Holdings

feature11. Focused on paint and adjacencies with significant market opportunities
  • Paint and adjacencies have significant growth opportunities, driven by population growth, per-capita GDP growth, and urbanization. We have considerable expertise and knowledge in these areas.
  • SAF*1(USD60.0 bn*2) and CC*3(USD71.5 bn*4) also have attractive market size.
feature22. Attractive risk-return profile of paint and adjacency arena
  • Strong brand and high market share raise entry barriers, leading to solidification of leading market position.
  • Paint and adjacencies markets are characterized by local production for local consumption, allowing for our autonomous and decentralized model to minimize PMI risk.
feature33. Japan domicile enhanced competitive strengths
  • Ability to finance at low interest rates in Japan, which has a stable currency and stable market, based on long-term relationships with banks.
  • Attractive Japanese capital markets, which have stable legal system and high liquidity in TSE.
feature44. An assembly of talented management and strong brands
  • Management of partner companies have deep understanding of market features in every region and are well versed into MSV, and can fully utilize their capabilities based on our autonomous and decentralized business model.
feature55. Advanced governance
  • Independent Directors comprise majority of the Board of Directors (8 out of 11 board members).
  • Ensuring protection of minority shareholders interests with MSV as a shared mission with our major shareholder.

*1 SAF: Sealants, Adhesives, Fillers
*2 Source: Fortune Business Insights
*3 CC: Construction Chemicals
*4 Source: ReportLinker

On top of strong organic growth, we assemble assets with strong brand and excellent management through M&A, effectuating accelerated growth with limited risk.

Sustainable Growth Model as Asset Assembler

The key element of this model is that excellent management teams pursue autonomous growth in the Nippon Paint Group and exploit the technological strengths, distribution networks, purchasing capabilities, and financing capabilities of the Nippon Paint Group platform, rather than relying on initiatives of the headquarters. This will allow us to accumulate expertise in various areas and generate synergies as well as to attract new partners to the Nippon Paint Group.
By focusing on the paint and adjacencies markets, which are growth markets with the ability to generate sustainable earnings and cash, the Asset Assembler model allows us to accelerate growth with limited PMI (Post Merger Integration) risk involving M&A.

Asset Assembler Schematic Diagram

Strategy By Region And Business

FY2021-2022 Revenue/Growth Rate


FY2021 Results
(Tanshin)
(Billion yen)
FY2021 Growth Rate
(In local currency)
FY2022 Forecast
(In local currency)
Medium-Term Plan
CAGR Targets*
(In local currency)
Japan (excl. HD expenses)164.6+1.6%+10-15%c. +5%
NIPSEA China379.1+27.3%+10-15%c. +10%
Asia (Excepting NIPSEA China)151.1+74.9%c. +10%+5-10%
New consolidation (Indonesia)39.5+25.3%c. +15%c. +15%
Oceania176.2+5.9%c. +5%c. +5%
Americas76.4+4.9%c. +10%+5-10%
Other (Betek Boya)49.2+65.3%+10-15%+10-15%
Total998.3-12,000
(Tanshin)
11,000

* Targets based on the New Medium-Term Plan (FY2021-2023) released on March 5, 2021


FY2022-2023 Actions

ChinaNIPSEA China Decorative (DIY) Business
  • Enrich product lines and coating systems and extend channel coverage
  • Continuous brand building and upgrading
NIPSEA China Decorative (Project) Business
  • Expand new channels and diversify customer base
  • Optimize operational and organizational structure
OceaniaDuluxGroup (Oceania)
  • Continue strong track record of growth in Oceania
    Maintain a focus on core fundamentals, including consumer engagement,premium brands, and innovation
  • Drive meaningful growth in European decorative paints and specialty coatings markets by leveraging recent acquisitions including Cromology
TurkeyBetek Boya (Turkey)
  • Increase revenue and market share mainly through multi-brand strategy
  • Meet needs of diverse customer base mainly through brand differentiation
  • Build next generation of dealers, determine sales targets for each city, and implement effective market penetration strategy
  • Improve profitability in ETICS (External Thermal Insulation Composite System) through effective price management
IndonesiaPT Nipsea (Indonesia)
  • Continue to invest in advertising to drive brand top-of-mind and preference
  • Drive wider distribution of CCM*1 machines, increase product penetration in all product segments, and widen geographical coverage
  • Establish new e-commerce channels and increase sales contribution from non-paint segments
JapanJapan Business
  • Drive revenue recovery in all businesses (expect markets to start recovering from the pandemic)
  • Increase productivity by clarifying expenses and earnings and plan to reallocate HD expenses in May 2022)
  • Continue to make necessary investments while reviewing SG&A and other expenses
  • Increase selling prices in response to high raw material prices (plan to raise selling prices in industrial business in April 2022 and decorative business in May 2022)
Automotive CoatingsAutomotive Coatings Business
  • Develop process-saving and low-temperature baking paint and launch anti-viral and anti-bacterial automobile interior coatings
  • Shifted from sale of paints for films to sale of painted films, expanding marketing outreach to outside Japan
  • Achieve growth in China by broadening product lines to boost sales and expanding business with emerging EV manufacturers
  • Become more competitive and expand business operations in electrodepositions segment globally
Paint Related BusinessPaint Related Business
  • NIPSEA: Aim for rapid growth of paint related business and explore M&A opportunities that can accelerate growth
  • DuluxGroup: Maintain and accelerate Selleys*2 business growth in Oceania and Asia and explore entry into adjacencies market in Europe
  • Betek Boya: Differentiate from competition in ETICS*3 segment and introduce innovative services

*1: Computerized Colour Matching
*2: Brand for adjacencies products such as adhesives and sealants
*3: External Thermal Insulation Composite System


Sustainability Strategy

Progress & Further Plan of Materiality

Materiality (Relevant SDGs)
Progress
Further plan
Climate change
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Progress
  • Endorsed the TCFD final report recommendations and commenced disclosure in accordance with the framework
  • Calculated the potential financial impact of a carbon tax
  • Agreed global target for GHG emissions reduction*1 via each partner company developing targets that meet or exceed local government targets
  • Calculated Scope 3 GHG emissions*2
Further plan
  • Identify each partner company's top climate change risks and opportunities (high level scan) and potential actions
  • Identify each partner company's carbon reduction action plans and develop consolidated group view (H1 2022)
  • Agree objectives for common priority focus areas (e.g. energy efficiency, renewable electricity sourcing, vehicle fleet replacement) and implement
Resources and environment
sdgs_icon_03sdgs_icon_06sdgs_icon_11sdgs_icon_12sdgs_icon_14
Progress
  • Developed and disclose global policy statement for resources and environment (e.g. waste and effective use of resources, water)
Further plan
  • Identify each partner company's top resources and environment impacts, improvement priorities, and performance measures
  • Agree common priority focus areas (e.g. waste reduction) and objectives for 2022/2023 and implement
Safe people and operations
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Progress
  • Developed global policy statement for safe people and operations (e.g. occupational safety and health)
Further plan
  • Identify each partner company's top safety risks, improvement priorities, and performance measures
  • Agree common priority focus areas (e.g. fire and fatality prevention) and objectives for 2022/2023 and implement
Diversity & Inclusion
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Progress
  • Confirmed the difference of the situation by each country and region
  • Disclosed the educational programs on a global basis
Further plan
  • Formulation of human rights policy
  • Implementation of human rights risk assessment
  • Global data aggregation for the human capital management disclosure
Growth with communities
sdgs_icon_01sdgs_icon_04sdgs_icon_05sdgs_icon_08sdgs_icon_09
Progress
  • Established "NIPPON PAINT Group Global Outreach Program" as common framework followed NIPSEA CSR
  • NIPSEA established the concept "Colouring Lives" to have a bigger impact for the whole CSR activities as a group
Further plan
  • Promote quantification of activities
  • Promote CSR activities and data aggregation under the NIPSEA's concept "Colouring Lives" globally
Innovation for a sustainable future
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Progress
  • Aggregated the sustainable products globally in 2021
  • Developed the Anti-Viral Paint Products across the group
  • Promoted open innovation with several 3rd parties
  • Initiatives regarding Chemicals of concern/LCA*3 in some companies
Further plan
  • Define the sustainable product
  • Develop and implement Green Design Review*4
  • Formulate strategy and roadmap
  • Strengthen the control of Chemicals of concern
  • Develop and leverage LCA*3 capability

*1: Scope1 & 2; intensity basis
*2: Disclosed Scope 3 GHG emissions from our operations in Japan in the Integrated Report
*3: Life Cycle Assessment: A method of quantifying the environmental impacts across the entire life cycle of a product
*4: Our unique framework that integrates the sustainability perspective in product development



M&A Strategy

Continue to pursue aggressive M&A strategy by leveraging our autonomous and decentralized business model

Our Asset Assembler model is not based on global standardization and common cost reduction programs, but rather pursues autonomous growth by assembling excellent companies with potential for a sustainable EPS contribution. We encourage collaborations with existing Group partner companies around the world and allow the use of financial resources provided by NPHD. We believe this is the right model to create medium- and long-term value in the paint and adjacencies businesses, which are characterized by local production for local consumption.

*1: Return on invested capital (after one-off expenses)
*2: Weighted average cost of capital



Related Materials of Nippon Paint Group Medium-Term Plan Progress



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