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.
Numerous corporate actions post Co-President setup Aggressively pursue growth in paint and adjacency arena M&A, while also driving autonomous growth of existing Group partner companies* . Established the basis for sustainable growth with small headquarters at the holding company and with reinforced governance.
Delivered strong revenue growth despite the pandemic The strength of our business model is predicated on high market share in each region with emphasis on autonomy and accountability. Expect to achieve Year 3 revenue target of 1,100 billion yen one year early.
Achieved effective operating profit growth despite challenging environment Despite the impact of higher raw material prices and supply chain disruptions, achieved effective operating profit growth excluding one-off items with contributions from Indonesia, selling price increases, and significant savings in Head Office expenses compared to the initial plan.
Operating profit target for FY2023 unchanged Well positioned to achieve Year 3 target of 140 billion yen operating profit and 45 yen EPS, driven by autonomous growth across the Group based on solid paint demand and market share gains, progress with selling price increases, and contributions from new acquisitions.
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
1. 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.
2. 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.
3. 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.
4. 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.
5. 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.
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
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
Developed and disclose global policy statement for resources and environment (e.g. waste and effective use of resources, water)
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
Developed global policy statement for safe people and operations (e.g. occupational safety and health)
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
Confirmed the difference of the situation by each country and region
Disclosed the educational programs on a global basis
Formulation of human rights policy
Implementation of human rights risk assessment
Global data aggregation for the human capital management disclosure
Growth with communities
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
Promote quantification of activities
Promote CSR activities and data aggregation under the NIPSEA's concept "Colouring Lives" globally
Innovation for a sustainable future
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
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
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.
Targets① Business segments: Paint(decorative/industrial) and adjacencies ② Geography: Not limited ③ Potential targets: Strong corporate/product, brand and excellent management team
① Fundamentals of paint and adjacencies markets e.g. population growth and urbanization create enormous growth opportunities ② No restrictions in terms of target locations as long as acquisition contributes to MSV. Distant location to be carefully examined ③ Continue to assemble assets leveraging strengths of our autonomous and decentralized business model
Our Strengths① Financial soundness ② Ability to finance in Japan, with stable currency and stable market ③ Full access to the Nippon Paint Group’s platform ④ Excellent management teams enabling autonomous and decentralized business model
① Stable cash generating ability and strong financial position ② Low interest rate borrowings, safety and liquidity of the stock market ③ Sharing expertise, products, and technologies within the Group ④ Minimize the PMI risk
Financial Discipline① Contribution to EPS ② ROIC*1>WACC*2 ③ Sufficient leverage capacity ④ Debt financing prioritized; equity-based capital raising remains an option
① Aim to achieve EPS accretion in Year 1 after acquisition ② Take capital efficiency into consideration ③ Secure financial soundness to prepare for future M&As ④ EPS accretion also a must in rare case of equity financing
*1: Return on invested capital (after one-off expenses) *2: Weighted average cost of capital
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