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Latest Results and Forecast

Latest Results

<Consolidated Financial Results for the Nine Months Ended September 30, 2022 (January 1, 2022 to September 30, 2022)>

During the nine months ended September 30, 2022, consolidated revenue of the Nippon Paint Group increased by 33.1% from the corresponding period of the previous year (same hereafter) to ¥979,916 million. This is primarily due to the acquisition on January 20, 2022 of European paint manufacturer Cromology Holding SAS (Cromology) and the acquisition on May 31, 2022 of European paint manufacturer DB JUB delniška družba pooblaščenka d.d. (JUB) by NPHD, as subsidiaries, and the depreciation of the Japanese yen, combined with the strong performance underpinned by continuous selling price increases in the decorative paints business in China, which is a key business of the Nippon Paint Group. Consolidated operating profit increased by 24.7% to ¥82,428 million due to flow through of selling price increases, despite raw material price increases in every region and an additional provision for potential credit loss in China. Consolidated profit before tax increased by 22.8% to ¥80,224 million, and profit attributable to owners of parent increased by 11.1% to ¥55,185 million.

Summary of reportable segments

The Nippon Paint Group’s operations are classified into business segments for which separate financial information is available and are subject to periodical evaluation by the Board of Directors, which is the highest decision-making body, in order to make decisions regarding management resource allocation and performance assessments. The Group’s primary businesses are the paint and coating business which manufactures and sells automotive coatings, decorative paints, industrial coatings, fine chemicals, and other paints, and the paint related business which manufactures and sells paint-related products such as adhesives. An independent local company and companies overseen by this company are responsible for business activities in Japan, and independent local companies, led by Nipsea and DuluxGroup, are responsible for the Asia, Oceania, and other overseas regions. Other independent local companies are responsible for Americas. Each company constitutes an individual management unit which makes decisions about items to carry and comprehensive strategies for each region to foster business growth. As a result, the Group consists of four reportable segments divided by management unit or region with a manufacturing and sales structure as a base: Japan, Nipsea, DuluxGroup, and Americas. The Japan segment includes the overseas marine coatings business. The Board of Directors of NPHD approved a resolution at the Board of Directors on August 10, 2021 to dissolve and liquidate NPE and the shares of NPI, NPAE, and BNPA were transferred to INC on August 27, 2021. As a result, these businesses have been classified as discontinued operations and excluded from the segment information. The segment information for the three months ended March 31, 2021 are amounts for continuing operations only, excluding discontinued operations.

Reclassified reportable segments by management unit or region from 1Q 2022

Change in Reportable Segment Key points
  • ①Overseas business of marine coatings is in Japan segment (previously included in Asia segment)
  • ②Spun off divisions other than functions as a listed company and a pure holding company to establish NPCS*, and NPCS expenses are included in Japan segment (previously included in Adjustments)
  • ③Betek Boya and Nippon Paint Turkey are in Nipsea segment (previously included in Other)
  • ④Newly consolidated Cromology in in DuluxGroup segment. Plan to allocate JUB, whose acquisition is scheduled for completion end May 2022, also to DuluxGroup segment

*Nippon Paint Corporate Solutions

Japan

Revenue from sales of automotive coatings decreased because the number of automobiles manufactured declined as a result of the semiconductor chip shortage and other factors. Industrial coatings revenue increased, driven by solid new housing starts and other favorable market conditions. Decorative paints revenue increased due to improved market conditions.
As a result, consolidated revenue increased by 4.5% to ¥134,715 million. Consolidated operating profit decreased by 47.6% to ¥4,311 million because of raw material price increases and other factors. Beginning with the first quarter, all businesses other than businesses related to functions as a listed company and a pure holding company whose expenses were previously included in “Adjustments” were spun off and moved to the Japan segment. The aim of this change is to more appropriately reflect the operating results of each reportable segment.

Nipsea

Revenue from sales of automotive coatings increased due primarily to an increase in the number of automobiles manufactured in China and Thailand during the nine months ended September 30, 2022, despite the semiconductor chip shortage. Revenue from decorative paints was higher owing to the consistently firm paint demand for repainting interiors of existing homes in China, despite the impact of lockdowns and other restrictions, combined with aggressive selling price increases in major markets including China, Malaysia, Indonesia, and Tϋrkiye.
As a result, consolidated revenue increased by 27.7% to ¥538,939 million. Consolidated operating profit increased by 1.7% to ¥50,092 million.

DuluxGroup

Cromology’s earnings are included in the Nippon Paint Group’s consolidated financial statements beginning with January 2022 and of JUB beginning with June 2022. Revenue from sales of decorative paints increased due to progress with selling price increases in Oceania and Europe. Revenue in the paint related business exceeded the previous year due to progress with selling price increases of every brand in Oceania, and strong sales of External Thermal Insulation Composite Systems (ETICS) in Europe.
As a result, consolidated revenue increased by 81.2% to ¥231,586 million, and consolidated operating profit increased by 47.8% to ¥23,838 million.

Americas

Revenue from sales of automotive coatings increased, driven by higher production of automobiles in the United States, a core region, backed by very strong demand, despite the continuing semiconductor chip shortage and other factors. Decorative paints revenue increased, driven primarily by solid housing demand and favorable weather through the first six months of the current fiscal year.
As a result, consolidated revenue increased by 29.6% to ¥74,675 million. Consolidated operating profit increased by 83.9% to ¥7,246 million.

Revenue composition

Revenue composition by region
(Million yen)
Revenue composition by region
Japan: 147,190
Nipsea: 542,288
DuluxGroup: 231,921
Americas: 74,734
Revenue composition by business
(Million yen)
Revenue composition by business
Automotive coatings: 114,772
Decorative paints: 634,082
Industrial coatings: 67,967
Fine chemicals: 13,900
Other paints: 48,473
Paint related business: 100,720

Revenue (cumulative results)

Nippon Paint Group has grown steadily through the acquisitions of paint manufacturers in the United States in FY2017 and in Australia and Türkiye in FY2019 along with the successful growth of the decorative paints business in China and other Asian countries. In FY2021, we achieved revenue growth for the fifth consecutive year and a record revenue due to the acquisition of the Indonesia business, selling price increases in every region, and the weaker yen.

Graph of RevenueGraph of Revenue

(Million yen)


1Q 2Q (cumulative) 3Q (cumulative) Full year
FY2022*3 284,096 622,049 979,916 -
FY2021*2 222,678 481,787 736,257 998,276
FY2020*1 162,916 345,440 556,581 772,560
FY2019 147,359 312,424 495,119 692,009

*1: Following the business transfer to the Wuthelam Group announced on August 10, 2021, the European automotive coatings business and the two India businesses have been classified as discontinued operations. Figures for the 3Q FY2020 cumulative period and full year FY2020 have been adjusted retrospectively to the amounts for continuing operations.
*2: Following the business transfer to the Wuthelam Group announced on August 10, 2021, the European automotive coatings business and the two India businesses have been classified as discontinued operations. Figures for the 1Q FY2021, 3Q FY2021 cumulative period, and full-year FY2021 are the amounts for continuing operations excluding discontinued operations.
*3: Following the business transfer for the Wuthelam Group announced on August 10, 2021, the European automotive coatings business and the two India businesses have been classified as discontinued operations. Also, hyperinflation accounting has been applied for our Turkish subsidiaries beginning with 2Q FY2022. The figures for the 2Q and 3Q FY2022 cumulative period have been adjusted for the application of this accounting policy.


Operating profit (cumulative results)

Group operating profit reached a record high in FY2020 due to the benefits of acquisitions and growth of the Chinese business. Group operating profit remained at the same level in FY2021 due to higher revenue and the reduction of fixed costs, despite raw material price increases and a provision for a potential credit loss in China.
The operating profit margin in FY2021 decreased from the previous year due to an increase in the raw material cost contribution ratio.

Graph of Operating profitGraph of Operating profit

(Million yen)


1Q 2Q (cumulative) 3Q (cumulative) Full year
FY2022*3 24,335 44,202 82,428 -
FY2021*2 24,699 48,961 66,737 87,615
FY2020*1 15,234 34,669 64,687 87,594
FY2019 20,129 41,945 66,479 78,060

*1: Following the business transfer to the Wuthelam Group announced on August 10, 2021, the European automotive coatings business and the two India businesses have been classified as discontinued operations. Figures for the 3Q FY2020 cumulative period and full year FY2020 have been adjusted retrospectively to the amounts for continuing operations. Figures for the full year FY2020 have been adjusted retrospectively to reflect a change in the accounting policy for configuration or customization costs in a cloud computing arrangement implemented beginning with the 4Q FY2021.
*2: Following the business transfer to the Wuthelam Group announced on August 10, 2021, the European automotive coatings business and the two India businesses have been classified as discontinued operations. The figures for FY2021 are amounts for continuing operations excluding discontinued operations. The figures for FY2021 have been adjusted to reflect a change in the accounting policy for configuration or customization costs in cloud computing agreements implemented beginning with 4Q FY2021.
*3: Following the business transfer to the Wuthelam Group announced on August 10, 2021, the European automotive coatings business and the two India businesses have been classified as discontinued operations. The figures for FY2022 are amounts for continuing operations excluding discontinued operations. Also, hyperinflation accounting has been applied for our Turkish subsidiaries beginning with 2Q FY2022. The figures for the 2Q and 3Q FY2022 cumulative period have been adjusted for the application of this accounting policy.

Profit attributable to owners of parent (cumulative results)

Profit attributable to owners of parent rises or falls roughly in proportion to changes in earnings, such as operating profit. Net profit increased significantly in FY2021 as a result of the full integration of the Asian JVs and the acquisition of the Indonesia business.

Profit attributable to owners of parentProfit attributable to owners of parent

(Million yen)


1Q 2Q (cumulative) 3Q (cumulative) Full year
FY2022*3 18,072 49,657 55,185 -
FY2021*2 16,342 33,274 50,308 67,569
FY2020*1 7,470 16,890 31,637 43,921
FY2019 10,648 20,939 32,697 36,717

*1: Figures for the 1Q and full year FY2020 have been adjusted to reflect a change in the accounting policy for configuration or customization costs in a cloud computing arrangement implemented beginning with the 4Q FY2021.
*2: The figures for FY2021 have been adjusted to reflect a change in the accounting policy for configuration or customization costs in cloud computing agreements implemented beginning with 4Q FY2021.
*3: Hyperinflation accounting has been applied for our Turkish subsidiaries beginning with the 2Q (cumulative) period. The figures for 2Q (cumulative) and 3Q (cumulative) FY2022 have been adjusted for the application of this accounting policy.

Earnings Forecast

<FY2022 Forecast> *August 10, 2022

We have decided to increase our revenue forecast for FY2022, taking into consideration continuous selling price increases in each business, mainly in our core decorative paints business, the weaker yen against major currencies compared to the exchange rate assumed at the beginning of the current year, new consolidation effects expected following the completion of acquisition of shares of European paint manufacturer DP JUB delniška družba pooblaščenka d.d. on May 31, 2022.

Regarding profit items, we expect to offset the impact of higher-than-expected raw material prices by selling price increases and reduced SG&A expenses, coupled with an earnings boost from the weaker yen. In the meantime, we disclosed a possibility of recording a provision for potential credit loss in China on May 13, 2022. In this regard, we have factored in recording an additional provision, on top of the 13.0 billion yen recorded in the 2Q 2022, assuming a case where our credit risk will increase due to further changes in the Chinese real estate market conditions, financial positions of real estate developers and other factors.

Inflation in Turkey is running at an accelerated pace, and the cumulative inflation rate in Turkey over three years based on the consumer price index has exceeded 100%. As a result, we have determined that our Turkish subsidiaries, which uses Turkish lira as its functional currency, is conducting sales activities in a hyperinflationary economy. Accordingly, we have made accounting adjustments on its financial statements in accordance with the requirements provided for in IAS 29 "Financial Reporting in Hyperinflationary Economies".

Based on the above factors, we have decided to slightly reduce our forecast for operating profit, profit before tax and profit attributable to owners of parent for the fiscal year ending December 31, 2022 from the previous forecast.

(Billion yen)


2020*1
Results
2021*1
Results
2022 FY2021 Results
vs.
Aug. Forecast
Feb. Forecast
vs.
Aug. Forecast
Feb. Forecast Aug. Forecast
(Revised)
Revenue 772.6 998.3 1,200.0 1,320.0
32.2%
10.0%
Operating profit 87.6 87.6 115.0 105.0
19.8%
-8.7%
OP margin 11.3% 8.8% 9.6% 8.0%
-0.8pt
-1.6pt
Profit before tax 89.4 86.5 113.0 100.0
15.7%
-11.5%
Profit*2 45.7 66.6 81.0 72.0
8.1%*3 -11.1%

*1: The figures for FY2020 and FY2021 have been adjusted retrospectively to reflect the following: (1)Following the business transfer to the Wuthelam Group announced on August 10, 2021, the European automotive coatings business and the two India businesses have been classified as discontinued operations and (2)The accounting policy for configuration or customization costs in cloud computing agreements was implemented beginning with 4Q FY2021.
*2: FY2020 and FY2021 results show profit attributable to owners of parent; FY2022 forecast shows profit attributable to owners of parent.
*3: Calculated using profit attributable to owners of parent from continued operations for FY2021 (results)


Assumptions for FY2022 Forecast (New Business Segment Basis)

(Billion yen)


FY2021 Results*1
(Tanshin basis)
FY2022 Outlook (In Local Currency)
Feb. 2022 Forecast Aug. 2022 Forecast
Revenue OP margin YoY
(Revenue)
YoY*2
(OP margin)
YoY
(Revenue)
YoY*2
(OP margin)
YoY
(OP margin)
vs As of Feb.
Japan Segment total 174.0 5.5% +10~15%
right arrow
c. +10%
right arrow
Inline
Automotive 35.3
+10~15%
c. +5%

Decorative 45.4
c. +10%
c. +10%

Industrial 38.1
+10~15%
+10~15%

Nipsea
China
Segment total 379.1 9.5% +10~15%
right arrow
+15~20%
down arrow
Below
Decorative(DIY) 312.4

+10~15%
+15~20%

Decorative(Project)
+10~15%
+0~5%

Automotive 38.4
+5~10%
+5~10%

Asia
Excepting
Nipsea
China
Segment total 192.5 17.1% +5~10%
right arrow
+15~20%
down arrow
Below
PT Nipsea
(Indonesia)
39.5 29.7% +5~10%
up arrow
+10~15%
down arrow
Below
Betek Boya
(Turkey)
49.2 15.2% +10~15%
down right arrow
c. +90%
down arrow
Below
DuluxGroup DuluxGroup
(Oceania)
176.2 10.8% c. +5%
arrow up right
+5~10%
right arrow
Inline
Cromology
(Europe)
(For reference)
91.9
(For reference)
8.9%
+0~5%
down arrow
+0~5%
down arrow
Below
JUB
(Europe)
(For reference)
11.3
(For reference)
8.9%
- - - - -
Americas Segment total 76.4 4.7% c. +10%
up arrow
c. +10%
up arrow
Slightly Below
Automotive 23.3
+15~20%
c. +10%

Decorative 51.8
c. +5%
+5~10%

*1: Pro forma figures
*2: up arrow≧+2%, arrow up right+1~2%, right arrow-1~+1%, down right arrow-1~ー2%, down arrow≦-2%



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