Now we would like to begin the telephone conference for fiscal year 2025, second quarter of financial results of Nippon Paint Holdings. In this telephone conference, a simultaneous interpretation between Japanese and English is provided. Wakatsuki-san, Tanaka-san, the floor is yours.
Thank you. Hello, everyone. I am Wakatsuki, Co-President of Nippon Paint Holdings. Thank you so much for your attendance today despite your busy schedules. I will now explain the highlights of our financial results for the second quarter of FY 2025. We're also joined by the media today. First, page 3. This is a summary of the second quarter of 2025. As you can see, on the constant currency basis, revenue was JPY 446.7 billion. After adjusting for the change in the trading business model in China, it grew by 5.7%. Operating profit was JPY 69.7 billion, growing by 36.2%. They are new record highs.
For new consolidation, India and AOC contributed three months' worth of results, and margins also improved by 3.8 points, partly due to AOC's contribution. While the foreign exchange impact on revenue was a significant negative of 9% year-on-year, as you can see on the bottom right, which is a JPY 38.8 billion impact in revenue and JPY 5.2 billion impact on the operating profit. The 14% contribution from India and AOC more than offset this. In operating profit, it had a JPY 18.1 billion impact, and revenue JPY 60.43 billion impact where contributions were made. These highlighted the positive aspects of our asset assembler model. Overall, as indicated in the summary on this page at the top, market conditions globally were not favorable. Especially considering the period was from April to June, the environment was highly volatile, centered on the negative sentiment caused by the Trump tariffs.
Our group strictly controlled prices, costs, and sales management expenses across all regions, refrained from aggressive sales expansion, which led to moderate revenue, improved margins compared to our initial forecast, and satisfactory numbers in terms of profit, which is our top priority. On a Non-GAAP basis, that is excluding the impact of foreign exchange and one-off factors, revenue growth was + 0.6%, operating profit was + 6.9%, margin improved by one point. China, decorative segment, saw an 11% decline in revenue, making the first decline since the current classification was introduced. This was primarily due to the extremely challenging market conditions, as well as the impact of our efforts to strengthen credit management levels, including accounts receivable and market inventory levels.
Including TOB, the market continues to be in a difficult situation, but together with the strong automotive sector, we were able to significantly improve the margin and grow in terms of margin. We believe this reflects our prudent vigilance with our outlook to the market situation. Looking back on the first half, we believe that we were able to fully leverage our strengths in local production for local consumption and stable products and achieved steady profit growth despite the extremely difficult environment. However, whether in decorative or industrial applications or in AOC's formulation business, we're not immune to the overall market conditions, and we expect the pressure on volumes to remain high. Looking ahead to the second half, we will continue to pursue profitable growth while carefully controlling costs. That said, we have now revised the performance guidance from the April announcement.
As suggested in the regional overview on the next page, while sales are expected to be slightly more challenging compared to the April forecast, margins are generally showing an upward trend, and we aim to achieve profits and maintain sound operations. Page 4 and 5, they provide updated forecasts by region. They were updated from an initiative's perspective. In summary, revenue forecasts have been revised downward slightly for Japan, China, Dulux Group, Europe, the Americas, and AOC. In China, while the decorative market remains challenging, the automotive market has been revised upward due to an increase in market share. On the other hand, operating margin is largely in line or slightly above the April forecast as commented on the far right. The main factors include a general decline in RMCC ratio and tight cost control.
Page 6, there are regional variations in raw material trends, but no major fluctuations are expected overall. Gross profit margin is up 1.4 points year-on-year. I will skip page 7. Page 8 gives the summary of operating results in major segments. I will elaborate further during the Q&A, but would like to briefly comment on each region. Japan segment saw weak volume in both decorative and industrial segments, while automotive and marine sales were positive, resulting in higher revenue and profit. We assume the difficult market conditions do persist for decorative and industrial segments, as noted on page 4, full-year revenue forecast was revised downward. Next, Nippon Paint China was as covered earlier, so I will skip. Nippon Paint SIPC China saw higher growth in both revenue and profit on a Non-GAAP basis, excluding M&A in comparison to the constant currency basis. This is mainly due to foreign exchange.
Overall, including Indonesia, market conditions were not necessarily favorable. Nevertheless, higher profit is achieved, including in Turkey. As for Turkey, through sales campaign and flow-through of price increases, it is back to the growth trend for both revenue and profit, even on a Non-GAAP basis. Even after applying IAS 29 hyperinflation accounting on a Non-GAAP basis, strong OP margin of 17.2% is achieved, but overall, it remains to be one of the few highly volatile markets within our group. Dulux Pacific market was almost flat, but thanks to mix improvement, revenue increased and OP margin improved, the profit grew by around 6% on a Non-GAAP basis. There may be some signs of improvement in market conditions, such as in Australia, including rate cut, and if improvements materialize, we believe that we will be the first to benefit.
As for Europe, France's revenues were lower, driven by market conditions, but with other areas growing, overall profitability is improving and revenue is almost flat. In the Americas, while automotive production volume declined, revenue was almost flat. We raised prices in the decorative business in Q1, but as the interest rate was not lowered in the U.S., demand in general declined and profit was lower for the Americas, unfortunately. Finally, as for AOC, it is contributing fully for three months for the first time, but PPA is excluded since it is not yet finalized. Concerning market conditions, unfortunately, rate was not cut in the U.S., contrary to expectations. Demand is also weakening in Europe. On the other hand, extremely high margin is maintained, contributing significantly to profitability. PPA finalization is likely to be in Q4, at which time 10 months of amortization since March when consolidation started.
Amortization will be booked for 10 months and one-off inventory step-up costs are expected. Please do bear that in mind. The amount assumed in October for PPA is included in the guidance, which remains unchanged. The amount at the moment is slightly above JPY 9 billion in total, of which one-time cost is a little over JPY 2 billion. Please note that this is subject to change after PPA finalization. Please move on to page 9. There are two main topics. The first is the publication of the integrated report at the end of June. We were able to publish one month earlier than last year. The report is even more focused on investor perspectives than before. We would like to continue to enhance dialogue with investors. We would appreciate your comments and feedback.
The second point is what we announced at the end of June, which is the full-scale operation of Tokyo Innovation Center. The other day, we held the completion ceremony. We are proud of the design of the center that centralizes functions as much as possible after they were dispersed following the company's split by line of business in Japan so that the center can serve as the hub for knowledge creation and technology. With that, I thank you for your attention and look forward to your questions.
Now we would like to move on to a Q&A session. If you have a question, please use your mobile device to press star one. If you would like to cancel your question, please press star two. The operator will call on you when we're ready to receive your question. If you have a question, please press star one.
Because of the time constraints, we would like to limit the number of questions to one per company. Thank you for your patience until we introduce the first person in the queue. Now we would like to take questions from the Japanese channel. The first question is from Goldman Sachs, Ikeda-san. Please go ahead.
This is Ikeda from Goldman Sachs. Thank you.
Ikeda-san, hello.
Good evening. Hello. I have a question regarding the situation in China. I would like the latest update. The competitors, from one aspect, the market is growing at a high single digit in terms of TOC, but you're declining by 11%. That's a huge gap. Especially, you worked on credit management levels. In what level, in what cities did you work on that initiative? In the second half, I imagine that you are assuming an improvement.
Do you see this situation as a one-off factor by channel or by selling sell-through? Can you please give us an update on the latest situation in China?
Thank you. Ikeda-san, thank you for your question. First of all, in terms of how we look at the market situation, some competitors are making announcements, and I understand the content of their announcements. The outlook by the local team is that the market is growing negatively. If you look at the heat map, it's in light blue. That is - 5% to - 10% negative growth. We are showing - 11% in the results. In terms of the competitive environment, it's not that we are inferior. As I said earlier, this includes one-off factors. As I have been saying, in the TOC sector, the market has been in a difficult situation, especially given the Chinese government policy.
We do not hear from the local team that the policy is affecting positively. I think we share the same image with the local players, too. I assume Ikeda-san has some other data, too. The other point is, we shouldn't misunderstand the big picture. Among our competitors, in this first quarter, until the first quarter, basically, they were making a negative growth. In the second quarter of 2024, it was also negative. That's where they started, whereas we have been enjoying positive growth. We have a difference of how we started the year. In the overall first half, that is the perspective we should have in judging the situation and also in judging the second half of the year. In terms of credit management, I would like to reserve the details, but this is mainly related to TOC distributors. Some of our customers are having larger, longer receivables.
For such customers, we decided to tighten credit control. In terms of inventory, when the inventory level is relatively high, we decided to, again, perform a tighter control. Whether this is correct or not, that is another question. In China, we are continuing to have a difficult outlook. We are working to ensure sound operation with vigilance. Based on local decisions, we have been implementing these measures, and this may affect the revenue in the short run. In terms of the overall market situation, housing distribution is not improving. From tier zero to tier two, and also in lower-tier cities, we are having negative performance. From tier zero to tier two, they account for 80%. That's the majority. That is why we are exposed to more negative impact. Overall, the other point is price competition. We have been observing price competitions here and there.
As our policy, as we've been saying since last year, for example, in Q3 of last fiscal year, the sentiment was negative, and aggressive promotion and discount was performed but was unaccepted by the market. From our viewpoint, rather than going after market share, we would like to focus on growth with profit. In terms of profit, we believe that we have been able to achieve a satisfactory margin level. Overall, in the second half of the year, as you pointed out, according to our current outlook, we have to achieve a significant improvement, even though we have slightly reduced the full-year outlook. In Q3 and Q4, we have a lower base from last year because growth rates in Q3 and Q4 were only moderate last year. We are aiming to raise the growth rate this year.
If I were to say something, the revenue growth rate is presented, but we are focused more on securing profits. That will be our focus in the second half. Rather than chasing the revenue, I hope you can understand how we are improving the margins. That was a long answer, but I think I covered your questions.
Thank you. In terms of credit management, it's not something that you have been mentioning, so it's becoming more apparent. Can you please tell us what has changed? Regarding the inventory level, has that been reduced to a certain extent? Is the sell-through expected to improve through the second half?
Yes. TOC distributor receivables management is a very safe initiative. It's not that we are exposed to such risk. Normally, at the end of the year, we collect all the receivables in the TOC business.
It's not that we have individual customers with higher risk, but toward the second half of the year, when we think about eventually collecting those receivables, we decided that in some regions with a longer site of collection, there are specific regions. In such regions, we decided to perform a tighter control. Credit worthiness, credit risk has not increased, but given the struggling external environment, we decided to take a step ahead for the sake of sound operation. That's how I would like you to understand. In terms of the inventory level, it's not that we are facing an abnormal inventory level all of a sudden, but distributors' inventory is not something that we want to see increased above a certain level. We decided to pay careful attention. In certain regions, as I said, this is something that we've been observing in only limited regions.
This must have affected the performance.
Thank you. I understand these are positive measures. Thank you.
Thank you very much.
Next, from SMBC Nikko Securities. Shintani-san, please.
Thank you very much. This is Shintani from SMBC Nikko Securities. Thank you very much for taking my question.
Good evening, Mr. Shintani.
I have a question on AOC. This time, sales forecasts were slightly lowered. Market condition, as you have been describing, is such that rates remain high, housing market is struggling, but it seems to be quite persistent. It was - 9%. Demand is weakening. The background of the weaker demand, any specific applications? Could you discuss where the demand is stronger and weaker in the market? With such volume decline, usually margin would also decline, but a high level of margin is maintained. I feel that you are confident, but how are you able to maintain such a large high margin?
Thank you for your question.
As for AOC, 70% of the sales is in the U.S., and the remainder is Europe. Asia is a small portion. In both regions, demand is rather weak. As for how we feel on an anecdotal basis, it seems that in the U.S., as rates are expected to decline, there may be recovery, but at the moment, rates are maintained. When we look at the market, not just the housing market, but the construction market overall, in the construction area in the United States, companies are all struggling. This is simply because of volume. It's not that we are losing market share. The market itself is declining, and therefore, our sales are also performing in a similar manner. As you know, our customers are quite diverse, and we also have a large number of customers. We are not exposed to any one particular sector.
This is generally the condition of the market as a whole. As for margin, as you rightly pointed out, and in a nutshell, looking at overall cost, SG&A ratio is smaller. Mainly speaking, most of the cost is raw material cost. Between RMC and sales, the cost management is the key. Since October, I have discussed this several times, but very thoroughly, this company has a disciplined view on selling price and cost, and these two factors are controlled in a very granular fashion as a result. As you mentioned, usually, due to volume decline, because of a fixed cost, the margin would decline. Since management is very lean, fixed cost burden is not impacting the margin so much. I believe that is the strength of AOC.
If I were to add one other point, it should be that the strength of this company is, in terms of RMCC, when there are larger fluctuations, there should be certain opportunities. The current situation is that there is a gradual increase or gradual decrease in RMCC, and it makes it complex to negotiate with customers as a result. In the short term, some raw materials are increasing in cost, and that is posing other pressure. Looking at the revenue structure, RMCC level, in relative terms, is contained vis-à-vis volume. Of course, operating cost, productivity improvement, we are making enormous efforts on a daily basis. At the same time, I'm also serving on the board together with Gohapjin, and safety level, we have seen significant improvement. This is possible because of operational excellency. I think that that is a testament of operational excellency, which we find encouraging.
Volume is an issue, and we had a discussion internally. Is there pent-up demand in the U.S.? Is the pent-up demand significant? That is without doubt. As we discussed in October, the U.S. infrastructure requires investment in large amounts in many respects. In the medium term, our prospect for the U.S. is that, of course, certain conditions have to be met, such as lowering of the rates. We are almost certain that that will be the case. In the short term, it is somewhat tough. The good news is that AOC was not included in the consolidated account. This year, AOC is contributing more fully. In addition to cash, this is a huge positive for us. As I have noted repeatedly, when there is volume recovery in the future, we expect to capture greater market share. We look forward to increasing our market share in Europe as well.
There is much to look forward to in the future that remains unchanged.
Thank you very much. Regarding pent-up demand, I agree. It may be after next year. It is difficult to ascertain the timing, but there may be a large pent-up demand. Since your margin is very high, the top line increases, should we expect that there will be profit contribution?
Yes, I think that is correct. Operating leverage is also not in place even when revenue is increasing, which means that contribution margin is large. Of course, we will be aiming to expand further contribution margin. Once volume recovers, actual revenue and profit should also increase. In the medium term, over the next five to six years, we believe it is well within our sight to achieve a growth on the higher end of single digit.
Although the situation may be difficult over the short term, I was able to understand how you are able to maintain high margin.
Thank you.
Next question is from BofA Securities. Emma Motosani, please go ahead.
Thank you. Emma Motosani, hello. I have a question about how I should look at the second-half plan. On page 7, when I look at the heat map, no market will grow. They're basically declining. Market recovery is not assumed in the second-half plan. Is that the correct understanding? There is one thing I would like to know about AOC. - 9% revenue decline year-on-year is projected. That's on a full-year basis, - 5%. When I only think about the second half, apparently, the revenue is expected to grow. How did you develop the second-half plan?
Okay.
First of all, starting from the heat map, as you just said, we are not thinking that overall market situation is favorable. Based on such assumption, we are thinking about how we can increase market share and how we can increase profitability. Even if the market situation is bad, if we can reduce the RMCC, and if we can control SG&A, and if we can maybe not wasteful, but maybe if we can control the ineffective promotional cost, we'll be able to generate profit. I don't want you to misunderstand that we will be continuing making significant investments, meaningful investments. We will be careful not to make investments that won't contribute to the overall growth. We are in a difficult situation, but including new consolidation, we are aiming to achieve positive growth together with sufficient profit growth.
Probably from the guidance, if you do the math, you might imagine that margin is expected to decline. Of course, there will be fluctuations. In the first half, it's four months, but AOC is contributing and PPA is excluded. In the second half, it's a 10-month worth of PPA and one-off cost that needs to be taken into account. First half margin post-PPA should decline slightly. Out of 9 billion, 2 billion is one-off, so 7 billion. That means 700 million per month. That's 2.1 billion in three months. AOC, 48 billion versus 2 billion or something. That means a three-point decline or something is expected. That is not equal to the impact on the overall performance. That's the slight decline in the first half, and we are expecting an improvement in the second half.
In terms of volume, if you look at page 4 and 5, revenue is expected to decline. Maybe you are worried about the full-year performance. It is difficult in terms of revenue, to be honest. We are not expecting significant decline. It's only within the tolerable buffer. Foreign exchange, we are facing stronger yen. It's not impacting the full-year guidance, but in terms of volume, we need to rely on the market to a certain extent. As you can see on page 4 and 5, profit in every region is expected to achieve the initial plan or slightly above that. We are confident that we can secure profit. Finally, about AOC, on year-on-year, - 5% is projected. This is just a referential value. This is a comparison against the previous year. - 5% is starting from zero of the previous year. Everything is positive.
If you look at the year-on-year trend, in the second half, volume is expected to bottom out. We are not assuming a declining trend. As a result, the remaining six months' performance, if that is flat, we will be able to achieve the projected figure. That's it. Thank you.
That was very clear. Thank you.
Thank you.
Next, Yoshida-san from Mizuho Securities, please.
Thank you. This is Yoshida from Mizuho Securities. Thank you for the presentation. Good evening, Yoshida-san. About Nippon Paint China, I have a question. In Q2, revenue increase is expected, and RMCC rate improvement and cost reduction are being effective. These were commented. Nippon Paint China cost control, specifically, what measures are you implementing or do you plan to implement?
This is not limited to Nippon Paint China. Overall, when things are difficult, we have to tighten our belt.
We have to make sure that we tighten our belt. For example, including CapEx. We are scrutinizing whether it is truly necessary. In controlling CapEx, we are very disciplined. In addition, for example, in China, another area that we can look at is promotion. In a way, it is similar to variable cost. Discount and promotion for both, as I mentioned earlier, in markets where these measures are not effective, we should not spend the money unnecessarily. In local markets, they want to invest more. There are differences of views, but based on our understanding of the market, and ultimately, the KPI is profitable growth for both sides, and we should not lose competitiveness. We should not take measures that will lead to weaker competitiveness on the ground.
We have to be more disciplined, and operational efficiency, there are various improvements for operational efficiency and reduction of fixed cost efforts will be continued. This is not only in China, we will be revisiting all of the regions. This is already embedded in our DNA. In such a market as China, I think we can do this even more. We have a history, and that is also the reason why we are confident about achieving profit. For example, in Nippon Paint China, headcount reduction is a situation not so dire as to require headcount reduction. Constantly, we are reviewing our headcount size, and we are also taking measures to ensure that we do not have excess headcount. Early retirement package that was taken in Japan, it is not that such a measure is required.
There is quite a variability in terms of headcount, and this is true for all countries in the world. Even if there is vacancy, rather than replacing immediately, regarding hiring from outside, this is being scrutinized, not simply because of instructions from myself or Lee Seok Kim, but it is being tightly controlled, and we are constantly reviewing the appropriate headcount size. In some regions, adjustments are made, and that is always ongoing in various parts of the world.
Thank you very much.
In that sense, Mr. Yoshida, one-off cost of several billions of yen, and then there will be recovery of JPY 10 billion, that type of measure, it's not that we are taking a measure of that nature. Please take it that we are implementing routine measures.
I see. Thank you.
The next question is from Citigroup Securities. Nishiyama-san, please go ahead.
This is Nishiyama from Citigroup Securities.
Nishiyama-san, hello. Thank you.
Hello. On page 4 and 5, I have been reading the assumptions for the projection. Roughly speaking, you are lowering the top line projection, and you are willing to do cost control to secure profits. I think that's the overall policy. Regarding AOC, given the weak market, you are focused on securing margins more than other partner companies. I think that is the strength of AOC. I would like to ask if there's anything you can learn from AOC. It's been a couple of months since it joined the group. Have you discovered any new strengths of the AOC, or are there any challenges?
Thank you for the question. I would say that we've seen no surprise. In this acquisition, we decided to step out of the comfort zone.
We were convinced after doing research on the strengths of the company, and then we made a decision on the acquisition. There is good news that this assumption has not collapsed. When you ask if we've discovered anything new, I and Mr. Kim made a decision for the acquisition. We don't have any new discoveries. In the group, we learned the granularity that they are working with, and we have had a lot to learn. As we've been saying, and as I said earlier, procurement of raw materials accounts for a large proportion, which means that there is room for improvement. That is not only AOC's procurement, but it's also about procurement in North America or procurement of the group. When we think about the ability for procurement or channel for procurement, if we can make one point improvement, it will make a significant impact in terms of amount.
We have been deepening our dialogue. The raw material market situation is favorable to us. A potential impact is not quantified, but that is what we have been seeing. In September, they will be visiting Japan for the first time after acquisition. Mr. Kim and the Japan team will join their discussion with the board. Their standalone earning power shouldn't be hindered. They are aggressive in looking for ways to improve. We will also be collaborating with each other. This may sound vague, but we are confident that we will surely have a positive impact.
Thank you.
Thank you.
Next, Omura-san from UBS Securities, please.
This is Omura from UBS Securities. Can you hear me?
Yes, we can hear you. Good evening.
Thank you for the presentation and good evening. I'm sorry. I also have a question on AOC.
Looking back at the presentation material at the time of the acquisition, the U.S. market is 70%, EMEA is 21%, Asia is 9%, and non-customized product type of business is 30%. Customized business is 70%. Right now, mainly in the U.S. market, customized and non-customized products. Between these two products, are there any developments that are different? If so, could you elaborate?
Thank you for the question. To be honest, there's not much difference on our part. Customized product ratio to be raised. Of course, that is our strategy because stickiness will improve. Customized products and some commodity type of products will also have to be sold in order to achieve volume, and that will remain unchanged. Between the U.S. and Europe, in terms of difference, customization is more advanced in the U.S. and in Europe.
Business system inversion included, there is room for improvement, and we consider that to be an upside. Will the market be ready to accept more customized products? The U.S. is much more ready. It is a market that pays for value. In Europe, there is slightly more cost consciousness. Regarding added value or value, the premium payment, there may be more resistance. At the time of the acquisition, between what we have explained at the time and now, there has not been much change. At the same time, we also would like to increase customization product. Since volume overall is not growing, it is difficult to increase customized product ratio.
I see. Thank you. Customized products are more sticky in terms of price in comparison to margin. Even when raw material price is declining, you are able to maintain price.
If raw material cost increases, then you will be able to raise price. Is that the nature of the business?
If I oversimplify, I will not be doing justice to the team there. In comparison to Europe, we have a customization formula, and it is difficult to be replaced easily by competitors. Having said so, if raw materials increase, if we try to aggressively push our price, then customers may turn away. We have to seek understanding of the customers. At the same time, we have a customization product ratio, which is higher, which definitely is our advantage. I have to be careful about how I phrase this. If I simplify, I think I can describe in the way that I've discussed.
Thank you.
Next question is from Yamada-san from Toyo Keizai, please.
Good evening. This is Yamada speaking. Can you hear me all right?
Yes, Yamada-san. Thank you.
Thank you for this opportunity. I only have one question. I've already heard the details. Against your full-year outlook, how confident are you in achieving the profit plan? It already has 60% achievement rate. As you just said, there is the factor of PPA and some seasonal factor as well. With those in mind, I think it is in line or slightly above. Is that the correct understanding? How much can we expect in the upside from the plan?
Thank you, Yamada-san. At this point, we are projecting a slight possibility of revenue shortfall in the second half, but we must achieve the projected profit. Internally, we continue to work on cost control, and we continue to stay focused even throughout this difficult market environment. As I mentioned in the beginning of the call, in comparison against the previous year, foreign exchange has been a big factor.
Guidance is based on Japanese yen. In the second quarter in our profit, JPY 38.8 billion impact is on revenue, and in operating profit, JPY -5.2 billion impact is created. In the second quarter, based on the same currency level, we had weaker yen last year, JPY 158 for U.S. dollar. It has declined to JPY 143. For renminbi, it declined from JPY 21.8 to JPY 19.9. We have been exposed to a significant impact. We do local production for local consumption. It is not a volume fluctuation due to imports and exports, but it is because of currency translation. In the second quarter, we've had this impact from foreign exchange. Toward the second half, we will work hard so that we can create an upside. Foreign exchange and market factors are out of our control. We have to be careful in explaining what we can achieve.
I personally don't want to overpromise, and I don't want to be too optimistic. I think it's been the case. In the first quarter or in the previous year regarding China, I continued to explain very cautiously regarding the market situation. Unfortunately, we were right in terms of our assumption. Toward the second half, we have a potential tough situation, and that must be our assumption for business operations. To your second point, of course, we will work hard so that we can create an upside, but there are factors that we cannot control. Of course, we will control where we can. It is not really tangible, but that's all I can share with you.
Thank you. That was very clear. Thank you very much.
Thank you.
Next, Zhang-san from CLSA Securities, please.
This is Zhang from CLSA Securities. Thank you for taking my question.
Good evening.
About Japan segment and Nippon except China. Japan segment in Q2 is performing firmly. As for Nippon except China, Turkey hyperinflation excluding that, I believe basically performance is strong. Q2 trend and towards the second half, Japan segment and except China, what is your outlook?
Thank you for your question. Japan segment, to be honest, market conditions are not so favorable. At this level, am I satisfied? Personally, I would like to do better. This Japan market is not something that will change overnight. However, we are able to achieve double-digit margin. We are making reasonably good efforts, but especially for decorative and industrial, and the environment is not so strong. We are not optimistic because we are performing firmly. We would like to increase our revenue and achieve growth and control cost. That is not because we have an optimistic outlook.
As for Nippon Paint Holdings except China, if you refer to page 19, on Non-GAAP basis, 38.8% for Baytech and hyperinflation. This is after applying hyperinflation accounting. There is inflation of close to 30% even now, and volume was also positive. This number is accounting for a large percentage to overall. It's JPY 33.9 billion out of JPY 100 billion accounted for by Turkey, and Indonesia is 2.7%. In Asia, the growth is somewhat sluggish. April to June, if you consider the timing in Southeast Asia, including in Indonesia, I believe there is an impact from Trump tariffs. Not directly in our business, but including consumer sentiment in local markets, including in Indonesia, to be honest, market conditions were not so strong. Our competitors are reporting somewhat favorable numbers, but looking at market conditions overall, I suspect that it has been difficult for other players.
In that sense, Q3, Q4, we should be working even harder to achieve better results. However, the results were reasonably good given the difficult condition. Internally, we are thinking that we should work harder in the second half to achieve better results.
Thank you.
Thank you. Next question is from [Koding Media]. Kondo-san, please go ahead.
I am Kondo from Koding Media.
Hello, Kondo-san. I can hear you well.
Thank you. I have a question regarding the Japan business. In Q2 or Q2 cumulative, I think there is an impact from the marine product. Is that correct?
Kondo-san, can you please repeat your question?
Regarding the Japan business, I think the marine business is the driver. Is that the right understanding?
Actually, it does not account for a large proportion.
If you look at page 16, automotive is doing okay given the tough situation, and industrial and decorative are slightly negative. It is a great contribution that we're seeing from the marine product, but that is not the sole driver. Automotive repair, refinishing should be included, but marine does not account for 80% or 90%. Marine is the largest chunk, but it does include other businesses.
Can I ask the future market outlook for the marine business?
For vessels, we believe that the market will continue to be strong. The market has a certain volume and the competitiveness of our product. This is a packer. That's the product. In the Japan segment, this marine business will include global marine business. Asia, China, Singapore are included. Such demand is also included. Product competitiveness is our strength, and this is what we will continue to enhance.
Thank you.
Next, Omura-san from UBS Securities, please.
This is Omura from UBS Securities. Allow me to ask a question for the second time. This is a general question, but Wakatsuki-san, I think your major mission is to improve PER, and you are playing a role to enhance PER. That is my understanding. Currently, the sales momentum is very weak, and the margin is maintained. A low growth rate of profit, PER is not expected to rise. You are also including industrialized countries, U.S. as a market. The valuation is such that high growth in China is no longer expected. What is your outlook on PER at the moment? If you could comment on that, please.
Thank you for your question. In a nutshell, we have to achieve growth in profit. As I discussed on a number of occasions, the use of capital is for M&A.
Operating margin, OP margin is 36.2% up, even despite the FX. This is because of asset assembler strength. Cash will be generated, so we will also use leverage. We would like to do the next M&A sooner and constantly, continuously. Similar to AOC would be an exaggeration, but in a very stable way, we want to acquire a cash generator with a good management team and would like to continue to acquire such company. That is what is required as an asset assembler. We don't necessarily consider ourselves to be low growth. Profit is growing. Margin is also substantially growing. That is because we are using capital to achieve this. That is a difference between a company that will be paying out in dividends and ourselves. There is an essential difference. M&A may be perceived as risk. How can we safely achieve performance?
It will be understood that M&A by Nippon Paint can be seen with a sense of reassurance. + 14% for new consolidation and + 36% for profit, even after FX. In reality, it is increasing at a faster rate. Based on that concept and my major focus, enhancement of PER is what we are trying to achieve. Thank you very much. Thank you once again for clarifying that. I'm not setting aside whether I am persuasive, but at the board, we are discussing this thoroughly. Aft er a thorough discussion, it is agreed that we should pursue the direction of enhanced PER. This is not coming just only from me.
Thank you.
It is time to end the Q&A session. Wakatsuki-san, can we have a closing comment?
We are sorry for going over the scheduled time, but thank you for your questions.
As was mentioned in the final question, with the asset assembler model, we are aiming for continuous growth and. We
will continue to make investments for that purpose. It is not just for the sake of PR, but we will continue to explore future opportunities of M&A for continued growth. I hope you can continue to expect on our delivery and our future performance. We have been in a difficult situation, but we were also able to demonstrate our strength in the second quarter. Thank you for joining us today.
With this, we would like to end the telephone conference for Fiscal Year 2025 Second Quarter Financial Results of Nippon Paint Holdings. Thank you very much for your attendance despite your busy schedules. Please kindly exit. Thank you.