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May 13, 2022
Company: Nippon Paint Holdings Co., Ltd. Representative: Yuichiro Wakatsuki
Director, Representative Executive Officer & Co-President
Wee Siew Kim
Director, Representative Executive Officer & Co-President
(Code No.: 4612; TSE Prime) Contact: Ryosuke Tanaka
General Manager of Investor Relations and Sustainability
(TEL +81-50-3131-7419)

Notice Regarding Potential Credit Loss on Receivables Relating to Chinese Business

Nippon Paint Holdings Co., Ltd. (NPHD) is announcing that there is a possibility of recording an additional allowance for potential credit loss on receivables relating to its Chinese business in the consolidated financial results for the fiscal year ending December 31, 2022 (January 1, 2022 to December 31, 2022).

1. Overview of Potential Credit Loss on Receivables in China

The Nippon Paint Group has strengthened the Project segment of the decorative paints business in China through collaboration with major Chinese real estate developers since 2017. These collaborations have allowed us to drive its earnings growth rapidly.
The Chinese government started implementing tight credit controls and deleveraging measures in the latter half of 2020 with the aim of preventing overheating of the real estate market, which has impacted the liquidity and financial stability of Chinese real estate developers.
Under these circumstances, NPHD has managed credit risks through proactive monitoring of the developments of the real estate market. As a result, we recorded an allowance for potential credit loss on receivables of 3.6 billion yen for the fiscal year ended December 31, 2021.
Given the weak real estate market and cautious buyer sentiment due to the pandemic and taking into consideration the present situation of real estate developers and competitors, we are examining and reassessing the financial position focusing on trade receivables from ~15 major Chinese real estate developers. Considering that credit risk on receivables from those real estate developers may increase depending on financial position and other situation involving competitors, we believe there is a possibility that we will record an additional allowance for potential credit loss in the consolidated financial results for the fiscal year ending December 31, 2022. If credit risk increases considerably, the amount of allowance for potential credit loss, based on one estimate, may increase by around 10 billion-15 billion yen.

2. Financial Impact

There is no change to the earnings forecast for the fiscal year ending December 31, 2022 that was announced on February 14, 2022. The allowance for potential credit loss on receivables will be released as soon as the amount is determined based on IFRS standards taking into consideration reasonable and supportable information that is relevant and available for our customer types. This includes both qualitative and quantitative information based on historical experience and forward looking information such as general economic factors as applicable, with the consultation of our auditors. Meanwhile, we expect solid earnings performance due to progress with selling price increases globally and higher revenue from the weak yen. In addition, we are proceeding with the acquisition of European paint manufacturer DP JUB delniška družba pooblaščenka d.d., which is expected to contribute further to our top line revenue. On top of these factors, we are also assessing the ongoing raw material price increases. If we determine that any revision to the earnings forecast for the fiscal year ending December 31, 2022 is necessary, we will announce a revision promptly.