Nippon Paint Holdings Co Ltd

TSE:4612

Earnings Call Transcript 2023-Q2

[Operator]

Ladies and gentlemen, thank you very much for waiting. We would like to start with the Fiscal Year 2023 Second Quarter Financial Results Presentation Teleconference.At the outset of the conference, we have some housekeeping information and a request to each and every one of you. In order to prevent the so-called howling or the echoing effect, please turn off the mobile devices, including the cell phone or keep them far away from the fixed telephones. And if that hauling is detected, we may suspend the conference and may state our request to again to the specific participants of the conference. We have the Japanese to English and English to Japanese simultaneous translation services available.Mr. Wakatsuki, Mr. Tanaka, you may proceed.

[Yuichiro Wakatsuki, executive]

Thank you. Good afternoon, everyone. I am Yuichiro Wakatsuki, Co-President of Nippon Paint Holdings. Thank you very much for taking the time to participate in our conference call regarding financial results for the second quarter of FY 2023. It gives me pleasure to announce that we have participants from the mass media to join the fourth and the second quarter financial results presentation.I would like to begin by summarizing the financial results for the second quarter of FY 2023 on Page 3. On the Tanshin basis, revenue increased by 7.6% year-on-year to JPY 362.7 billion, and operating profit increased by 141.6% to JPY 48.8 billion, which is a significant growth in both revenue and operating profit. The breakdown of revenue growth is shown on the bottom of Page 3 of the presentation.Volumes and price/mix of the paint business, the adjacency business and new consolidations made positive contributions. There was a Y-o-Y adverse impact from FX mainly with weaker Turkish lira. Operating profit is improving steadily due to pricing flow-through with the impact of raw material inflation continuing to ease and the gross profit margin steadily improved.The very strong results of the second quarter were boosted by a total of JPY 6.9 billion due to the contribution from the one-off items to the profits such as subsidy in China and insurance proceeds from the flood in DuluxGroup in 2022. Operating profit margin on a non-GAAP basis that excludes FX and new consolidations, is 11.7%, yet the OP margin improved Y-o-Y and Q-o-Q, year-on-year and quarter-on-quarter.On a non-GAAP basis, revenue increased by 8.5% and operating profit improved by 42.4% in the existing business. In the Chinese decorative business, TUC revenue increased by 15% and TUB revenue decreased by 7%. China overall OP margin improved to 9.4%, up 1.7 points year-on-year but was down 3.5 points quarter-on-quarter. Sales volume for decorative grew, in particular, yet the profit margin lowered due to higher sales of economy products in terms of product price/mix.Page 4. Please note that we revised the FY 2023 guidance at this time. Sales revenue guidance was revised upward by 3.6% from the February guidance to JPY 1,450 billion, which is a 10.8% revenue increase year-on-year. Operating profit was revised upward by 12.9% from the February guidance to JPY 158 billion, which is a 41.2% profit increase year-on-year.I will share the major factors for revisions. Please note that the figures are on rough estimates. Roughly billion JPY 17 billion increase in revenue and JPY 9 billion increase in operating profit are driven by volume growth and margin improvement. Roughly JPY 28 billion increase in revenue and JPY 9 billion increase in operating profit are driven by the changes in FX rate from February. Revenue contribution from the new consolidation of NPT is JPY 5 billion and will contribute in the second half as the deal was closed in July. Please assume that there will be almost no contribution to the operating profits due to offset by the one-off expenses.Operating profit is a plus. So we continue to revise the current guidance as we assume different scenarios. The guidance may change in case there are changes in the consumption business trends in the second half, including the raw material price trends, FX and the extent of the impact from the hyperinflationary accounting application in Turkiye, which is factored in, but difficult to forecast. We will make updates, if necessary, for these matters in a timely manner.Guidance for EPS will exceed the February guidance by JPY 5.11 and is expected to exceed JPY 50, which is the target for the final year of the medium-term plan by JPY 5.11. Annual dividend guidance is unchanged from February guidance and is JPY 13 dividend increase of JPY 2 year-on-year.The raw material market conditions are explained on Page 4 as there is a decrease in demand as a result of the global economic slowdown. We believe the impact of raw material price inflation is easing correspondingly.Page 6. This is the heat map that we shared with you regularly. Similar to the first quarter, there was a small decrease in our market share in the Chinese automotive coating business. This is because our sales to the Japanese OEM manufacturers are higher than the competitors. The market shares of the Chinese EV manufacturers increased relative to the Japanese OEM manufacturers. In the China decorative paint business, we believe our market share increase in the TUC market and remained flat in the TUB market.Page 7 contains our major segments. I will leave the details to the question-and-answer session, but I will briefly comment on each of the segments. Please refer to the detailed information on the Page 15 and on. Number one, as for Japan segment, the operating income margin exceeded 10% for the first time in many years. The Automotive and Marine applications continue to improve, while the Decorative and Industrial Application made up for the drop in volume and their prices. That's number one.Number two, that I have already told you about the China. So I would like to cut this from my presentation. Number three, in Asia outside of the China, both sales and profit continues to grow steady. In Indonesia, sales continued to increase and the profit ratio exceeded 30%. And in Turkiye that we are able to recover very high margins after the application of the super-inflationary accounting. Thanks to the significant increase in sales mainly due to the recovery from the effects of the earthquake in the first quarter and an improvement in the raw material cost ratio.In DGL; there, although the market conditions were not favorable in the main Pacific segment and volume growth was sluggish, the effect of the price hike that has penetrated into the market, resulting in a continued stable growth in Europe. Cromology sales were almost on a par with the previous year due to the price increases. JUB sales declined 8.7% in real term due to the volume decline in the ETICS. Well, compared with the second quarter, and this is a comparison with this quarter and from the June from a consolidated basis. And on the stand-alone basis, we are seeing that the increase and the good performance.Five, in Americas, the [ fall of ] sales for the automobile showed a significant recovery trend. The sales of the decorative products continued to be affected by the slowdown in the housing market due to the rising interest rate resulting in the decline in sales. However, since there was no impact from the bad weather as in the previous quarters, the profit level has recovered considerably compared to the first quarter.Page 8, and on here are the major topics. The first acquisition of the NPT in Italy was successfully completed in July with the approval of the authorities. We continue to receive the high praise for our Integrated Report and are currently in the final stage of the operating their 2023 version -- additions. We consider it one of the most important tools to dialogue with our investors, and we encourage you to read it again.Page 9 that we have already issued a release regarding the selection of the various stock, but I'd like to reiterate that we'll continue to focus on this issue. We believe that the regulation of our various sustainability initiatives will help us further expand our investors' baseFinally, on Page 24, I would like to make the supplementary comments on earnings forecast. Page 24, please. In response to requests from some analysts that we have included the second half figures, which are calculated by subtracting the first half result from the new full year forecast, for reference. This is strictly referenced purposes only.In the first half of this year, the operating profit ratio was 12.1% on a Tanshin summary base, but 11% on a real base, excluding one-time factors. The OP ratio for the second half of the year is 9.8% on a back calculation basis, but we expect a one-time negative impact of approximately JPY 1.5 billion related to the flooding of the DGL Group in this amount, so please consider that we are projecting the profits of the approximately 10% in the second half base of this guidance. So, approximately 10% in the second half is our destination. In other words, compared with the first half, the sales will increase by 10% as well, but the margin will decrease by 1 percentage point, but will be almost same as the second half of the previous year.This is a reflection of the fact that we have factored in the impact of the economic slowdown in China, in particular, and the deterioration of the margins due to the super inflation accounting effect in affecting Turkiye to some extent compared to the first half and that in general, that we will not relax our efforts to expand the market share even during the economic slowdown. But that, of course, that we are always looking for the margin expansion in addition to market share gains, so that we'll like to do -- add some company, we'll naturally strive to exceed these figures.This concludes my presentation, and I'll be happy to entertain your questions. Thank you very much for your attention, ladies and gentlemen.

[Operator]

[Operator Instructions] So, we would now like to entertain the question from the person in the Japanese channel, BOF Securities, Mr. Enomoto.

[Takashi Enomoto, analyst]

This is Enomoto from BofA Securities.

[Yuichiro Wakatsuki, executive]

Thank you for coming to this presentation.

[Takashi Enomoto, analyst]

So, in China regarding the paint business, decorative paint business, we quite don't understand the first quarter-second quarter, the raw material inflation subsided and it was quite low and there was this seasonal demand. And I understand that economy prices products sold higher, but looks like the value is quite low.And on the other hand, so the real estate market is rather deteriorated and the TUC sales revenue is 20% to 25%. That's quite a strong figure. So when I just take a look at this, so the price seems to be -- did you bring down the price to grow the sales volume? Is my understanding correct to reorganize. So, the profit margin deterioration, I don't quite understand. And the full year's TUC's sales revenue, why did you change the guidance to higher value?

[Yuichiro Wakatsuki, executive]

Thank you for the question. In the first quarter -- so this was quite achieved. And in January to February is a very quiet month and March is a strong demand season, and this we have shared in the past. So, against such backdrop -- so in the second half since last year, because of the lockdown, there was logistics disruptions challenges and the demand was able to be picked up by ourselves and it was a very efficient quarter, we admit.So, was there a general downward trend? Rather than that -- that's not the case. The first quarter was rather very good, was very strong. So, in the second quarter last year, China -- so if you exclude the provisions, it was a 7.6% to 9.4%. So correspondingly, it has become -- it has increased on the year-on-year. But having said that, second quarter, to be honest, May and June especially, until April it was quite strong, but May and June, there was this business sentiment going -- deteriorating.And as a result, we thought that this is when we have to go get the shares. So in some of the products, we did bring down the prices, decreased the selling -- in the economy zone, we went to get the shares by bringing down the prices. Against such backdrop, compared to last year, year-on-year, last year second quarter, the Tier 0 cities was -- because of the lockdown, the -- it was a regular growth, and we did grow in the Tier 3 to Tier 6 cities. And the economy products, economy zone and also some products, selling price decrease did impact the sales mix. That's one thing.And another thing, the value-wise, we do not disclose the value. But generally speaking, the TUB -- in the TUB, I did not say this earlier because of the correction. So, the receivables -- collection of the receivables did -- we had a challenge. We had a hard time collecting the receivables. And so we became rather aggressively than in the past. And we -- depending on some cases, we took some legal actions.

[Takashi Enomoto, analyst]

And will this continue?

[Yuichiro Wakatsuki, executive]

I don't think that's the case. But from our current provision level, when we take legal actions, the 100% we will provide a provision, and that was -- that would be the expenses before the profit margin. So this is also impacting the growth. So, generally speaking, we will continue to take the shares and also volume growth is conspicuous, yet the -- some of the margins, OP margins are sacrificed. But this is an opportunity that we don't want to miss out on, and that's why we're continuing the momentum. But compared to last year, still the OP margin is still good. That's what I...

[Takashi Enomoto, analyst]

Let me summarize the TUC of the estimate of the full year that -- well, the share increase is estimated?

[Yuichiro Wakatsuki, executive]

Yes, of course. That's our assumption.

[Takashi Enomoto, analyst]

And also China where a JPY 5.6 billion of the plus of the temporary increase, is it because of -- that the subsidies or the legal actions minus of the provisions. These are [Indiscernible]?

[Yuichiro Wakatsuki, executive]

No, no. So 5.6% is the course of action. So, this is not the temporary that the cost is not included the subsidies and also the selling of the real estate, these are mixed together with the JPY 5.6 billion.

[Takashi Enomoto, analyst]

So how much of the proposition can you respond?

[Yuichiro Wakatsuki, executive]

What do you mean?

[Takashi Enomoto, analyst]

For the provision -- the legal actions?

[Yuichiro Wakatsuki, executive]

No, no, we are not going to disclose.

[Takashi Enomoto, analyst]

We understand. Yes, it is a very good summary.

[Operator]

So the next question is from Mr. Yoshida from Mizuho Securities.

[Atsushi Yoshida, analyst]

So this is Yoshida from Mizuho.

[Yuichiro Wakatsuki, executive]

Yoshida san, thank you so much for joining.

[Atsushi Yoshida, analyst]

So my question is for the Japan segment. Please teach us the situation. Second quarter, the operating profit margin was higher than 10%, you said. So, from the first to second quarter, the profitability increased because of the sales price increase and also raw material price moderation and also the mix improvement in the automotive. So this is a mixture of multiple factors. And the profitability of the second quarter went up. What is the main driver?And also third quarter on, if you look at the third quarter on, for example, regarding the raw materials, I think -- I don't think the effect of the low raw material costs will be strong. But third quarter and beyond, the OPM, the [ WOPM ] may decline. Is that a concern that we should be braced for?

[Yuichiro Wakatsuki, executive]

Thank you for the question, sir. So, the second quarter, like you said, it's a multiple of factors that is contributing. So the automotive and marine and the volume is increasing and the price has also -- selling price was increased as well. And the decorative and the general industrial business is a minus, is a negative, and the selling price increase is contributing.And at the same time last year, we had this early voluntary retirement program and other process, we are trying to review all the processes. And Mr. Kim is heavily committed to the Japan segment, and he tries to change his people's mindset and also -- and try to refrain from outsourcing, try to do things in-house, logistics and distribution. Maybe we can work hand in glove with the Group to make this streamline the process.So we try to build up various things over the 2 years and the fruit is gradually emerging. And the -- when we say 10%, this is just a passing point. And so this year -- on a full year, 10% would be rather aggressive. So rather the second quarter, not that I mean to control it, I feel that the second quarter, we did quite well. So, originally, we thought that 10% we want to see in the fourth quarter, that was our original discussion. But then we were amazed that we achieved that much in the second quarter. But without compromising, we will continue.In the decorative, we are still increasing selling prices. So considering the raw material price situation, I think that margin is still improvable, and room for improvement. And internally, 15%, we have the golden number in the paint business. So I know it's not easy, but we should aspire for that level and try to be as close as possible. That's one thing. But still, we're not saying that the 15% is truly coming. So please understand that.But what I want to say here is -- so the -- I don't think that there will be a factor that will bring it down, but -- immensely, but what do we do in the -- do next quarters? Second -- it could be bumpy. So compared to last year, we want to improve in the general flow. So therefore -- so the outlook of this year, the OP margin may be above, it could be on the Page 25. So compared to the original forecast, it may not be as good. We just -- I just put inserted the arrows there arrows on this page. So please understand this from the impression.

[Atsushi Yoshida, analyst]

I would like to confirm, toward the second half, for example, in Japan, the spread, that is the cost and the raw materials, this is coming down?

[Yuichiro Wakatsuki, executive]

We don't have to consider in this way that the margin -- well, the gap is narrowing, no. No. Well, so long the trend means that raw material costs will not come down so dramatically or -- and also that we are partly raising the price and also that there is the reflection of the logistics as well. So, that the most demand are automobile, that the number, the volume last year since last year dropped significantly.And so that while this has the impact on the fixed cost and also that the fixed cost includes the paint and therefore, that -- how much of the improvement, the ratio that if we can supplement with the decorative and industrial, we may be in a more comfortable position. But for this, the second half that we'd be very optimistic in the second half. Probably not -- probably not yet.

[Operator]

The next question is from Mr. Okazaki at Nomura Securities.

[Shigeki Okazaki, analyst]

This is Okazaki from Nomura.

[Yuichiro Wakatsuki, executive]

Thank you for joining us Mr. Okazaki.

[Shigeki Okazaki, analyst]

So regarding China, so to make -- supplement the earlier questions regarding TUC. So in May and June, the demand was sluggish. Did you say so? And so, was it in the rural or urban area, where they're different, characteristic difference depending on the area. So in the TUB, so the government-related business is deployed and it's cash on delivery, so you don't have to worry about the risk of the receivables -- trade receivables. So can you explain the background?

[Yuichiro Wakatsuki, executive]

Thank you for your questions, Okazaki-san. So, maybe I should have said more. May and June was not good in the TUB. TUC, I don't think there was a conspicuous change for the month. But, generally speaking, the economic condition is not very good compared to April, May and June was becoming better. So rather TUB in May and June was challenging was our impression. So there wasn't any trend in the difference of the city.So last year's second quarter in major cities, there were lockdowns, and the impact was gone. But year-on-year, it grew and premium, we did not decrease the selling price. So the economy area, we -- as a matter of fact, we did some selling price decrease and tried to get the shares in the Tier 3 to Tier 6 cities and the volume is growing. Sales volume is growing. That's how things are.And another thing is the collection of the receivables. So, our strategy for now is that the -- in the good old days, the major developers, large-scale developers, we will encroach in them in the Top 30 or the Top 100 developers, they were getting -- growing the market share in the new housing and our share was growing correspondingly. But for the major companies, developers, we will be very selective in terms of customers.So cash on delivery, there are some customers that we are getting into trouble with, but we have to complete the projects. But the distributors in the project and those developers who are not large-scale companies, we try to expand our share. So it could be schools or if that's the kind of customers, there's not a problem. But still, they get delinquent, their payment is delayed. And the risk is not very high. And on top of that, some of the money is collectible. So, payment is collectible.So -- but still, it's China. So in order to accelerate the payment, legal action is taken by us. And as a result, if they are collectible, it's good. But -- so this is a one-off, if we say it's one-off, then that's a misleading statement. So that's why we do not disclose the value. So, within the normal course of business, these things are getting bigger than what we had assumed originally. So that is why we are mentioning this. And that's part of the reason why the margin is declining. So it's not that we are taking an excessive amount of risk, this I must state.

[Shigeki Okazaki, analyst]

I would like to confirm TUB demanding, but within the TUC of course it's [Indiscernible] economy zone of the local areas that you are suffering or the sluggish of the demand. Am I right interpreting this?

[Yuichiro Wakatsuki, executive]

How shall I say? Precisely saying in order to stimulate the demand, we would like to reduce the price, but we have to win out the competitors, and that is another strategy of lowering the price. So, we are not lowering the price anywhere, no. But some of the products are promoted aggressively, including the reduction of the price in order to win out the competition with the competitors. And for the Tiers 3 to 6, that is the very aggressive strategy. And so that we are increasing the volume or the market volume.

[Shigeki Okazaki, analyst]

And so -- well, we are not seeing that the demand is so sluggish and we cannot do anything to this?

[Yuichiro Wakatsuki, executive]

No. But the foundation of the demand is there, but I would like to expand this foundation. And I would like to take this opportunity to expand more aggressively. And while we are not selling at the [ direct ] number, we are making profit. We are not suffering or the deficit rather than well, sometimes we give priority to the shares and margin?

[Shigeki Okazaki, analyst]

Yes, this is not the commitment. I understand this. But OPM of the China 15% used to be the year number. But basically that -- I'm sure that you would like to get back to the 15%. What is the philosophy of the OPM?

[Yuichiro Wakatsuki, executive]

No, no. There are no philosophy change. Have not changed, but I have [ roughly ] that explained [Indiscernible], I don't remember. But if 15% is a must and then that we may lose the business opportunity. First, that we have to secure the share. We have to go for the share -- market share, and we chase all its competitors out of the market. And we take time to get the margin next and this is the order.Well, this's not me, a very friendly way of saying, however, but this is something that we have to emphasize as strategy. First, share increase, and we cannot afford to lose the money for the sharing or losing all the share and then share first. And ultimately, with our power that would like to figure that OPM. But then well, that in the past that we enjoyed 19%, as high as 19%. But 10% and the share -- we do not mean to stay with the 10% worth of share. But we would like to get the share we will get the share.Then that -- if that the OPM -- the general OPM is -- there is a margin of the increase of the general OPM that we will do. We will aggressively take the measures to increase the general OPM first.

[Operator]

So, the next person is from CLSA Securities, Mr. Zhang.

[Nicholas Zhang, analyst]

This is Zhang from CLSA.

[Yuichiro Wakatsuki, executive]

Hello, Mr. Zhang.

[Nicholas Zhang, analyst]

So this is a general discussion. How do you look at the raw materials? What would be the premises for the second half? And also the ongoing prices, I see that the selling price decrease is happening. And so it could be region to region. So the second half of the profit margin, how would it turn out? So please kindly give us the background, including the raw material, how you look at the price -- raw material price trend.

[Yuichiro Wakatsuki, executive]

Thank you, Mr. Zhang. So basically, the -- regarding the raw materials, I think the prices are stable. So I don't think that it will go down and down. But I think that the current level will be maintained. That is the assumption.So, in Japan, we are still conducting selling price increases in Japan, I mean, raw material, but in -- but it's not that the general trend is that upward. So, in some cases, in China, in terms of price mix, there may be a deterioration. And then the margin compression towards the second half may happen -- the margin may be compressed towards the second half.On the other hand, in terms of sales volume, we would like to increase. So generally, in the second half, maybe the margin may be a challenge. Maybe in China, in the first quarter, like I said earlier, because it was quite an achievement compared to such period, the margin may go down. But in other areas, I don't think this kind of assumption is applicable. Thank you.

[Nicholas Zhang, analyst]

My second question is the general question. For example, in China, TUC China. A part of the inventory is increasing. Is my information correct, increase of the inventory? And TUC, I'm going back to your discussions earlier on the local cities that you have to be aggressive and well, what -- how about the major cities? What are the conditions on the sales? Is a devaluation in the major cities and for the 6 tiers and the overall strategy that you are going to attack at the lower margin? What is the segmentation of the market for you?

[Yuichiro Wakatsuki, executive]

That inventory is the logistics inventory that you are talking about or the sales?

[Nicholas Zhang, analyst]

My guess is that logistics inventory or that a part of the investor has been increasing after the April and May. Am I right? I'm just confirming?

[Yuichiro Wakatsuki, executive]

As for this, that's my -- that's not my recollection, absolutely not. I deny it categorically.

[Nicholas Zhang, analyst]

But of the inventory into the future?

[Yuichiro Wakatsuki, executive]

Well, the glut of the inventory that I have not heard of, so I don't have the means of confirming and I'm not concerned. I'm not concerned. Having said so, as I have mentioned earlier, well, the sales per se is that because of the sluggish economy, frankly speaking, that well the sales is not as brisk as we expected. And I guess it's backdrop. And so well, that sometimes we have to do the discount in order to increase or to stimulate the demand.

[Nicholas Zhang, analyst]

Stimulate?

[Yuichiro Wakatsuki, executive]

Or that prevent the customers going to the customers, whether this is the 6 tier, is the third tier is the same for that measure that the high premium products that we are defending that we are at the top share. But we are not hearing that from 3 tier to the 6 tiers, our share is, well, favorable. And so that -- well, we would like to stimulate the demand of the other areas.Well then, generally that whether that our premium market is sluggish or not, as I have mentioned, well compared with the last year or that in the lockdown areas that we are improving, well gradually. But originally, well switch overs that the demand to the premium or the superior.

[Nicholas Zhang, analyst]

Also, well the -- when the customers switch then we can increase the margin?

[Yuichiro Wakatsuki, executive]

Well, we can -- well, if the economic condition is sluggish. Well, we have to sometimes kick the count down the road and wait for that recovery. So in that sense, we have to maintain and increase the market share. And from the 3 to 6 tiers is for the new housing demand is -- it's sturdy still. So that the TUCs new construction houses. But still, it is a robust demand, and then we can go get the market.So that -- so far that we have not adapted so aggressively, and we are getting into the challenges that we would like to fight against the competitors. And this is the color difference. Well then, well whether there is the constitutions and demand of the 3 to 6 tiers and the other tiers, well, they start with the foundation. But based upon this -- other than this, there isn't too much of the difference.

[Nicholas Zhang, analyst]

I would like to confirm one more point. So in short or that advance into 3 to 6 tiers, it is going to continue for the next 3 to 5 years. Am I right?

[Yuichiro Wakatsuki, executive]

Yeah, for that premium and superior share increase is something that we are aspiring for.

[Nicholas Zhang, analyst]

So, we are not losing the reign somewhere and tighten the reign the rest.

[Yuichiro Wakatsuki, executive]

No. No, we are going to take that aggressive positive strategy to the overall market.

[Operator]

So the next question is from Toyo Keizai Shimpo. Mr. Yamada.

[Toshihiro Yamada, analyst]

So, can you hear us -- can you hear me?

[Yuichiro Wakatsuki, executive]

Yes, we hear you, Mr. Yamada. Thank you for joining us.

[Toshihiro Yamada, analyst]

Thank you, sir. It's a pleasure. So one question from myself. So this is a rather wide-ranging question. So for this year, so after the revision, the -- I could understand the strength and the weaknesses in the new guidance. So, what -- how do you look at the next fiscal year? I know that I'm jumping to the next year, but it could be region to region. And I want to see like the strength or weaknesses like is shown -- described on the Page 6.If you can tell me the -- whether you will be -- Page 5 or Page 6. So it doesn't have to be in details, a rough estimate or the profitability, profit margin and the profit margin may not change significantly. But would the profit margin go up by one phase or Chinese automotive. So I get the feeling that it's negative there. So, can you give us a general direction as of what you expect in the next fiscal year?

[Yuichiro Wakatsuki, executive]

Thank you for the question, sir. So, 2024 and beyond, so I will refrain from giving you the general figure, but 2024 and beyond in each of the group, the medium-term plan is now being planned internally. And if you look at the plan, so regardless of any region, so they want to aspire for the higher profitability, and that's the same.The Dulux Group in Australia, the market share is already more than 50%. But still, they feel that they can do more and grow more. And they want to aspire for higher growth and it's half joke. Half a joke, but they are always discussing when would our share reach 60%. So in Europe, the business confidence is not as strong in Europe, but Cromology is a platform. Cromology would like to go to on stage higher and they are seriously discussing this within the Dulux Group.And Wee Siew Kim and myself joined there as a Board member and listened to their discussions. On the other hand, in Asia, so NIPSEA, different companies in NIPSEA because they have high share, they do have some concerns. And Malaysia is more than 40% and Singapore has a sizable share as well. And so, when you think of the profit margin, to be honest with you, nobody believed that the current margin is optimum. So, we need a price revision consecutively. And the raw material price is that there may be highs and downs -- highs and lows, and it is also included in our KPI, the share up and the margin improvement to achieve both ways because Asia is a growing market.

[Toshihiro Yamada, analyst]

So, how do we beat the business confidence and achieve both?

[Yuichiro Wakatsuki, executive]

So Japan -- in Japan in the past several years, we were underperforming, to be honest with you. And as we regret that, as across Japan, automotive or industrial or the decorative, we have been doing this separately, but we are trying to look for some common ground that we can pursue. It could be margin improvement or sales revenue increase by share gain. And some people believe that Japan may not grow further, but we would like to deny that, that's not the case.There are still things that we can do, and that's what -- that is our belief. So, in total, sales revenue will continue to be to be strong. And the OP will be -- the margin or profit contribution is bigger. And still, we can do margin expansion and also selling price increase and control of something. So this is the major difference.And another thing is we have woven in our DNA, the M&A, and we have this assembler model. And we will continue to make use of our low funding costs. I think we can benefit from that. And compared to the interest rates overseas, it is much lower in Japan to finance in yen. And our current physical strength and our accountability will be combined. And we want the companies to grow progressively. And there are many companies who resonate with our ideas, who sympathize with our ideas. So our M&A model is something that we can benefit from, and we look forward to that.So I don't know if this answers your question, but we continue -- we would like to continue both the organic growth and the inorganic growth, and this pursuit will not change beyond 2024. So, there's no limit to our growth, we believe. And I hope that you will look forward to our growth as well.

[Toshihiro Yamada, analyst]

Risk is diversifying and increasing. That is the modern society. And against this backdrop that you have been trying to pursue with the growth? And what is the biggest risk out of this mode of growth? Is it China? Chinese economic conditions? And if you cannot raise probably 1 only in risk, but what is the biggest risk which may throw the shadows on your growth strategy and plan? What is your concern?

[Yuichiro Wakatsuki, executive]

While there is not only 1 risk. Well, we have to be cautiously optimistic in order for the M&A that we have the -- under the due diligence, but on the other hand, for example, China -- take example of a China. Well, many people are interest in China. And China is sluggish. It is easy to say, but there are Chinese business that is local, localized, locally procured, locally produced.

[Toshihiro Yamada, analyst]

And so what you may imagine that either the China stops and/or their accounting stops?

[Yuichiro Wakatsuki, executive]

No, I don't think so. Of course, that we are not independent, well independent from China. However, within the China, while the cash flow should be sufficiently generated on top of this and the dividend should be paid and the investment -- the capital investment should be done in China. And so, all our companies are basically are that -- they're not in need of external funding, so that each and every one of them is capable of growing on their own.And if that -- if there is the machinery goes wrong, what is this for like the management or that there may be that well, we gather that a very capable person, if they leave the company, that is the problem that they face. But our confidence is that we would like to motivate that the capable local management, motivate them, promote them and encourage them to do their best -- to be on their accountability and they are confidentAnd not 100% of them are not within our -- the scope of influence, no. But relatively speaking, our independency prone culture and also that are the holding companies that the parent company should support that subordinate, subsidiaries, whether that they are subsidiaries that can be put on the global platform in a very performance-oriented way. And this has been working and we do have the talent pool, talent base, but we are not comfortably sitting on this.And basically, and we would like to go for the lower risk to build up our base. And when you ask what is the risk, of course, that we have risk that there are some worries and concerns, but we would like to create the model, which is risk avert as much as possible. And so, one is that the lowest risk as possible and our nature is to reduce the risk to the minimum level and raise the profit. That is our -- the basic plan.

[Operator]

So the next question comes from Mr. Ikeda at Goldman Sachs.

[Atsushi Ikeda, analyst]

Ikeda from Goldman Sachs.

[Yuichiro Wakatsuki, executive]

Nice to see you, Mr. Ikeda.

[Atsushi Ikeda, analyst]

On Page 4, so the revision of the guidance, please, to the extent possible, the volume growth and the raw material price decline, there is the increase in the operating profit. So looks like Turkiye is exceeding and Asia is robust and China seems to be weak. And what is the strength and weaknesses by the region and the raw material cost, it seems to have peaked out in China and ASEAN is strong and Japan and Australia, they have started now about to benefit from the cost. Can you tell us the weakness and strengths?

[Yuichiro Wakatsuki, executive]

So, I think Page 25 and 26 tells you the strength and the weaknesses to your far right, is it above or in line. In China, the TUC is exceeding guidance and TUB is lower and the automotive is rather challenging. And in total -- so this may not be so much different from the original FY 2023 guidance. Japan the sales revenue is maintained. We were expecting automobile production to recover, but the operating profit margin seems to be going up more than expected.So that's why it's above. And the NIPSEA China, other -- except China is improving. Malaysia, Singapore, Thai, the OP margin is benefiting from the raw material cost decline and the sales revenue is also improving. And PT NIPSEA and Indonesia, originally in the beginning of the year or the -- since the second half of last year, we had concerns.But compared to that, it's more than -- better than we had expected. But at Turkiye, in the second quarter was very strong. But on a full year basis, we don't see any factors that would exceed the guidance. But the hyperinflationary accounting is applied. So the forecast is very difficult. So hopefully, our forecast will not be too off the line to be too much deviated.So -- and also Page 26, Dulux Group is almost in line. In the Americas, the first quarter, like I said earlier, the decorative was weak, but the automotive is improving more than expected. And so, altogether, this would be square and will be offsetting.

[Atsushi Ikeda, analyst]

Is there any change of the estimate of the overall performance?

[Yuichiro Wakatsuki, executive]

Well, the JPY 9 billion and also -- the JPY 9 billion and JPY 18 billion and one-off 6.9% China and Oceania, the one-off. Oceania in the second half, the minus. Well, is there a linking impact? And also that there is a significant impact in the first half. But do you think the second half, this will be erased, I would like to confirm because the estimate is quite conservative.

[Atsushi Ikeda, analyst]

Conservative, do you think, sir?

[Yuichiro Wakatsuki, executive]

Well, I think that this is higher than your estimate. That's my impression. But my impression of the 2Q is that conservative, as I have mentioned in China, that the one-off China will remain to the left. So JPY 5.6 billion may increase significantly that we can afford to do so. But plus or minus, of course, that comes with a story.NPT, as I have mentioned here is that, well it was the second half only. So this is the half year only -- so the plus consideration, however, that well, M&A costs may eat this away and therefore, that the 0 performance -- that the contribution, I'm sorry, 0 contribution. So in this end, Dulux, so that the flooding plus and minus, and so that this is plus or minus and 0 of the second half and second half -- and the second half is that we factored this in JPN 1.5 billion is woven into so that the one-off, a certain amount be affecting us, but including this, well the second half, that's the plan and then 10% instead of 9.7%.So, as an OPM, this is a little lower than guidance. But this may be as a result, is conservative, of course, that we'll love to increase this one. But first, as I have mentioned, that are priority the shares, assuming that we are going to maintain the share.

[Atsushi Ikeda, analyst]

Yes, that the plus of the China is -- how about the risk of the Cromology or that do you consider that the buffer -- for the chronology?

[Yuichiro Wakatsuki, executive]

No. No. No, that's not my interpretation of the past year of the China.

[Atsushi Ikeda, analyst]

JPY 5.6 billion the plus be, it is included in JPY 18 billion. Is it included that the JPY 9 billion but [indiscernible]

[Yuichiro Wakatsuki, executive]

Yes, it's including the ForEx. So it is included, included. And also that yen is depreciating, so that this is a double effect.

[Atsushi Ikeda, analyst]

I understand this.

[Yuichiro Wakatsuki, executive]

But the upper JPY 9 billion or the growth, it is included into that the growth concept.

[Atsushi Ikeda, analyst]

Yes, I'm sorry that my question was very detailed.

[Operator]

So I would like to get the questions from the English channel. [Operator Instructions] There doesn't seem to be any questions from the English channel. So we would like to conclude the Q&A session.

[Yuichiro Wakatsuki, executive]

Thank you for coming despite your busy schedule. So, I understand that people look at their questions differently, but I believe this is a very strong financial result, and we were able to show the strength of our franchise, and I keenly feel that. And I hope we would like to continue this trend. And hopefully, we will be able to share with you the best figures. So please kindly continue to support us. Thank you again for joining us despite your busy schedule.

[Operator]

Thank you for attending the financial results announcement presentation of the second quarter of the FY 2023. Thank you for coming to this earnings call telephone call. Please kindly hand up the telephone.[Statements in English on this transcript were spoken by an interpreter present on the live call.]