NIPPON PAINT HOLDINGS CO.,LTD. Q1 FY2026 earnings call

• Long-term Growth Performance
  • Delivered 16% revenue CAGR and 17.6% operating profit CAGR long-term
  • Organic and inorganic growth each contribute 10% to profit growth, with both drivers of the company's asset assembler model performing well
• Q1 Operational Results
  • All consolidated core financial metrics (revenue, adjusted operating profit, margin, EPS) hit Q1 record highs, with revenue growing over 20% and adjusted operating profit rising ~38% year-on-year
  • Profit contributions were 21.6% from organic growth and 16.3% from inorganic growth; adjusted operating margin rose 1.9 percentage points year-on-year to 15.6%
  • Amid heightened market uncertainty from escalating Iran tensions, all partner companies responded autonomously and quickly to prioritize customer supply, demonstrating the company's reliability as a partner
• Strategic and Milestone Updates
  • The company marked its 145th founding anniversary, opening a new showroom in Shinagawa
  • Received the Excellence Award at the Nikkei Integrated Report Awards, and will continue proactive investor engagement
• Core Strategic Priority
  • In a generally flat or slightly weaker market compared to FY2025, the company aims to maintain and grow market share while pursuing steady profitable growth

Consolidated revenue for the quarter was 490.3 billion yen, with adjusted operating profit of 76.4 billion yen, an all-time Q1 record. Below is performance by segment:

1. Japan: Revenue grew driven by front-loaded demand from March onward, strong sales of high-durability architectural products, and ongoing price pass-through in the industrial segment. Adjusted operating profit margin reached 12.3%, improved by better raw material cost ratios and controlled SG&A expenses.
2. Nifty China: Revenue and profit both increased, with adjusted operating profit margin improving 2 percentage points year-on-year to 17.6%.
3. TUC China: Revenue was nearly flat year-on-year in local currency; growth in non-paint business and texture paint offset declines in conventional paint, with sales volumes rising overall.
4. TUV China: Revenue declined 5% year-on-year in local currency due to ongoing property market headwinds, but the rate of decline moderated from the prior year; automotive coatings for Chinese manufacturers grew significantly.
5. Asia (ex-China): Both revenue and profit grew significantly, driven by strong volume and price mix growth across all regions and ongoing business streamlining.
6. DGL Pacific: Revenue and profit increased significantly, supported by product mix benefits, small-scale acquisition contributions, and favorable foreign exchange impacts, delivering steady consistent growth in a flat market.
7. Europe: Substantial top-line growth was achieved; France recovered to prior-year market levels but profitability is still recovering, while South and Central Europe performed strongly.
8. Americas: Revenue grew despite mixed market conditions for both decorative and automotive coatings, with profit increasing year-on-year.
9. AOC: Full quarter contribution this year (vs. 1 month contribution in the prior year period) drove higher revenue and profit; AOC maintained high margins and delivered strong profit and cash generation. Revenue declined 2% year-on-year, but the return to volume growth was marked as an encouraging sign.

• Full-year guidance issued in February remains achievable at the current juncture, even after accounting for weaker yen FX movements and uncertain demand conditions, with some potential for upside to the current outlook
• Raw material cost increases from Iran tensions are expected to gradually impact results from Q2 through the second half of the year, with moderate quarterly margin fluctuations expected
• Management expects the full-year impact of cost increases will be largely offset by existing cost reduction measures and implemented price pass-through
• An updated full-year outlook will be provided alongside Q2 results

• Escalating Iran tensions and continued Strait of Hormuz disruption could keep oil prices elevated at $100, leading to sustained raw material, logistics, and packaging cost increases across all operating regions
• Prolonged market weakness could lead to demand declines, particularly in China's property market and in inflationary broader macro environments
• Difficulty passing through full cost increases to customers in weak markets (such as China) could pressure margins
• Sustained supply chain disruption could create product availability challenges, even with proactive alternative procurement efforts
• TiO2 supply constraints driven by Middle East-related disruptions, most notably in China, could lead to price increases that require mitigation

Q: What is the regional impact of Iran-related raw material cost increases, can group-wide procurement leveraging China's capabilities offset risks, and what is the outlook for solvent shortages and price pass-through?

A: Japan and Asia face the largest direct impact due to high dependence on Middle Eastern supplies, followed by Australia and Europe, while the U.S. has seen minimal direct impact so far. Disruptions affect solvents, packaging, and TiO2, and management expects impacts to emerge gradually from Q2 onward, but full-year profitability will be protected via alternative procurement, streamlining, and price increases where necessary. This challenging environment is seen as an opportunity to demonstrate reliability and gain market share, with management prioritizing balancing supply responsibility and profitability.

Q: What was the magnitude of front-loaded rush/hoarding orders in Q1, and how do you expect this situation to evolve in Q2?

A: Front-loaded demand was a limited factor, totaling only around 100 million yen in a 490.3 billion yen revenue quarter, which is not material to overall results. The company prioritized supply to long-term core customers over excessive hoarding orders, and managed to meet most customer demand successfully. Under current conditions, visibility has improved compared to one month ago, and the company expects to continue meeting customer supply needs unless Iran tensions escalate further, though ongoing cost increases remain a key challenge for Q2.

Q: What is the demand outlook and profitability profile for AOC after the reported 2% year-on-year revenue decline with positive volume growth?

A: AOC saw clear signs of market bottoming in Q1, following trends that started in the second half of last year, but management remains cautious given persistent U.S. economic and inflation uncertainty. The 2% revenue decline reflects dynamic pricing that aligns selling prices with shifting raw material costs; the business prioritizes contribution margin over top-line revenue growth, and product mix and competitive fluctuations contributed to the quarterly decline. AOC has maintained high profitability and strong cash generation in line with pre-acquisition expectations, and management expects to gain market share in a fragile flat market moving forward.

Q: How does the current raw material shock from Iran tensions compare to the 2022 Ukraine War shock, particularly for price pass-through speed?

A: The two events are not directly comparable, but the current environment for price increases is more favorable in Japan: after years of deflation, there is broader market understanding of unavoidable price increases, so the time required for price pass-through is shorter than in 2022. Unlike 2022, current supply availability challenges in Asia are unique, and the company's strong procurement capability that allows it to maintain supply creates an opportunity to build credibility and market share vs. peers. In China, all players face the same cost pressures, but weak demand makes price pass-through more challenging, creating different market dynamics.

Q: What explains improving profitability in China's Q1 despite weak overall market conditions?

A: China's market has not recovered, and management continues to operate without assuming an early market rebound. The company maintains its position as a price leader focused on profitability, which has supported stable margins, and it is prioritizing expansion of high-value added products like texture paint to improve product mix. While industry consolidation has created some tailwinds, competition remains severe, and management notes Q1's strong margin cannot be taken for granted, as cost pressures will become more visible from Q2 onward.