We would now like to start Nippon Paint Holdings' Conference Call on FY 2025 Q3 financial results. We have some housekeeping announcements before we start. To avoid interference, please turn off your communication devices or keep them away from your phone. This conference call has Japanese-English simultaneous interpretation. Wakatsuki-san, Tanaka-san, over to you.
Thank you very much. Good afternoon, ladies and gentlemen. I am Wakatsuki, Co-President of Nippon Paint Holdings. Thank you very much for taking the time to join us today despite your busy schedules. I would now like to explain the outline of our FY 2025 Q3 financial results. First, please turn to page two. Let me briefly explain the changes we've made to our disclosures starting this quarter. Regarding the background, as you know, I have held numerous meetings with investors and received various feedback directly and indirectly.
Many investors, especially overseas institutional investors, comparing us to peers, said that while many overseas issuers publish adjusted figures excluding various adjustment items for comparison, Nippon Paint's detailed disclosures are good but often difficult to grasp at a glance. Some feedback also noted that the sheer volume of figures made it difficult to convey even very strong earnings results at first glance. In response to these comments, and with the primary goal of ensuring a correct understanding of our capabilities and proper peer comparison with our overseas competitors, we have now decided to proactively disclose adjusted profits. This is outlined in the upper section of the summary on page two.
We also decided to change the terminology for growth rates and similar figures to align with industry standards like LSD, MSD, and HSD, low, mid, and high single digits, and separate them into price mix and volume components in our disclosure. We will continue to disclose information under this policy for the time being and will continue to listen to your constructive feedback to make further upgrades as necessary. Thank you for your continued support. Next, pages three and four are new additions. To help you understand our track record correctly through the long-term trends in our P&L, page three shows the historical trend of Q3 revenue, adjusted operating profit, and adjusted EPS since the adoption of IFRS in 2018 and the change to a board composition with MSV as its mission. Page four shows the trend in profit contributions from organic and inorganic growth.
We believe this clearly demonstrates our strong growth track record and growth both organically and inorganically at a glance. We also plan to continue disclosing this information going forward. Particularly on page four, while organic profit declined temporarily in 2021 due to COVID-19 and rising raw material costs, it recovered significantly in 2022, -34.7%- 83.9%. This clearly demonstrates the robust resilience of our earnings power. Next, page five, please. Q3 overview. Both revenue and operating profit continued to set new records, with revenue increasing by 19% non-GAAP basis. China trading accounting change is included, and adjusted operating profit and EPS both growing by over 40%. Regarding FX rates, the JPY has strengthened overall compared to last year.
For example, JPY 147.8 against the dollar this year, from JPY 151.6 in Q3 FY 2024, JPY 20.5 against Chinese yuan this year versus JPY 21.1 last year, and JPY 94.5 against the Australian dollar this year versus JPY 100.5 last year. Despite these factors, we achieved substantial growth in both revenue and profit. Operating profit saw solid contribution from organic growth, plus 8.7%, and inorganic growth, 33.8%, with margins improving by approximately 3 percentage points. Regionally, AOC continues to contribute strongly to earnings. The US market is showing signs of bottoming out with declining interest rates, which is a positive development. In China, we achieved profit growth by avoiding aggressive sales expansion and firmly securing margins despite the persisting challenging business environment. In NIPC, except China, both volume and price mix improved overall. Next, page six, please.
The outlook for FY 2025 remains unchanged, with revenue expected to reach a new record high. Regarding Q4, while demand is slowing in many regions, organic growth is still positive, but our currency FX outlook anticipates a stronger JPY year on year. If the current weak yen persists, there could be some upside potential, but for the full year, it falls slightly short of our guidance of JPY 1.8 billion. Operating profit, on the other hand, is expected to largely achieve the guidance on the pre-adjusted basis of JPY 244 billion. Page seven, no specific comments on the heat map. Overall market conditions were flat in Q3, except for slightly favorable conditions in China's automotive sector, where we gained market share. The AOC segment shows some signs of bottoming out, so we anticipate nearly flat market conditions for Q4.
Next, turning to page eight, here we outline the situation of our major segments. Although I will leave the details to Q&A, let me briefly comment on each region. First, for the Japan segment, basically, market conditions and volume remain challenging, but we are offsetting this with a favorable price mix, and we're achieving profit growth. Regarding NIPC China, TOC's revenue is up by 1% despite challenging market conditions, and we secured sufficient profits. In TOC specifically, it experienced a situation of volume down by LSD and price and mix up by LSD. Automotive sales grew by 7.9%, driven by increased production volumes and strong sales to Chinese manufacturers. The adjusted operating margin rose by 2.3 percentage points year on year, compensating for the revenue decline with margin expansion securing profit growth. NIPC except China had growth in revenue and profit.
Indonesia saw volume growth by mid-single digit, though currency had a negative impact. Turkey achieved double-digit growth in both volume and price. This adjustment attempts to incorporate the impact of applying IAS 29, the superinflationary accounting, hyperinflationary accounting. In DGO Pacific, revenue increased despite largely flat market conditions, driven by continued volume and mix improvements for the impact of yen appreciation. Meanwhile, in Europe, while the French market remained challenging, revenue grew thanks to contributions from Southern Europe and Europe's business expansion. The stronger euro also provided a positive currency effect. Thorough deliberation at the September board meeting in its strategic session. Inclusive of the change in the disclosure method, we intend to continue constructive dialogue with all market participants going forward, and we appreciate your continued support. Secondly, following the completion of the Tokyo Innovation Center in Shinagawa, we conducted a tour for investors.
This included presentations from the CTO of Japan and NIPC, along with a Q&A session. We were pleased to welcome participation from many investors and analysts. We would like to express our sincere gratitude once again to all who attended. Thirdly, turning to page 10, this is the third major topic. We plan to hold an IR day on November 26th. This time, the event will feature a presentation from AOC, so it has been scheduled for the morning in Japan. Both co-presidents will also be speaking, so we are looking forward to seeing you there. This concludes my brief presentation, and now I take questions from the audience. Thank you for your kind attention. We will now move to the Q&A session.
If you have questions, please press asterisk one. If you want to cancel your question, please press asterisk two. The operator will appoint the questioner. If you have questions, please press asterisk one. Since time is limited, we would like to limit the number of questions to one per company. I hope you could understand. Please wait for a moment till we appoint the first questioner. First, from the Japanese channel, first questioner is Goldman Sachs Securities, Ikeda-san. Please go ahead.
Ikeda from Goldman Sachs, thank you very much. Hello, Ikeda-san. Thank you. Overall, the environment remains challenging in Q3, but operating profit progress is strong. Overall, I think you are seeing good progress. By region, are there variabilities, differences? The focus in the market, the TOC in China dropped in Q2, but in Q3, it has turned around and now picking up in Q3. Premium products are strong. In the challenging China environment, what is working well? Is there a sign of improvement in the sentiment locally? If you could particularly focus on the recovery in China, please.
Thank you very much. Overall, in China, I will answer those two points. Overall, this is my honest feeling. The market is not good by any means. As for the macroeconomy, including the U.S., the interest rate decline is finally coming within sight, but we cannot expect a V-shaped recovery. Under such circumstances in each region, we are trying to secure margin and market share. In Australia, we are growing despite the tough environment in terms of volume and value. Of course, there are differences among markets. In Australia, with the declining interest rate, the market may turn around and start picking up, but we cannot be optimistic.
In Turkey, in Q3, we had a large campaign, and as I mentioned in the past, Nippon Paint, we have a strong capital as a Nippon Paint as a background, and so the sales promotion campaign is going well. Volume, of course, price in Q3 outperformed our expectation. So overall, FX JPY is a bit strong. So even including that, as you rightly said, we think we performed fairly well. Next, on China. How we look at 1% is one thing, but the market Q2 was - 5% to - 10%, and it was minus 11%. We could not be proud of that. As I mentioned back then, we tightened our credit control and also made our inventory management more stringent. In addition to the market environment, we tried to ensure our discipline. How about Q3? We continue our tight credit control.
As I've mentioned in the past, the practice is to have everything paid by the end of the year by the distributors. We are stopping the sales if need be in some cases. We are vigilant and being cautious here. There are some impacts on Q3, but the market is basically flat. We're not winning big, but of course, we're not losing either. Premium is going very well. Price is generally declining, but the mix is improving. Margin is improving as well. This is where we are. From various perspectives, 1% in the current market environment, we are achieving market with the healthy business management. We're not pushing ourselves too much and achieving this result. We are securing profit. Of course, from my standpoint, I never get satisfied, but I think we took the right steps.
I think I answered your questions. Thank you very much.
Premium market is now being launched, or the urban demand due to the tariff factors had some purchase restraint is now coming back, or are your products particularly doing well? What are the factors?
To be honest with you, the market is in Tier 0, Tier 1, Tier 2 and Tier 3 and to Tier 6. The market is not good. It is not that the urban areas are recovering. It is more our promotion bearing results, including some price reduction, is being accepted well. Premium is selling well. Premium has higher margin, and therefore we are securing margin profit well. The recovery of the market itself is not obvious. We cannot see a clear recovery in the market yet. Of course, we look at our competitors' numbers, but in our competition, the base is different. We have larger scale. The view that we have of our market from our standpoint is that the market is difficult, and we are taking steps accordingly.
Thank you very much.
Thank you. I have high expectations.
Thank you.
The next question is from SMBC Nikko Securities. Shintani-san, please go ahead with your question.
Thank you very much for calling me on. My name is Shintani.
Hello, Shintani-san.
Hello. I have a question about AOC. In Q3 and Q4, what is the situation going to be, and what is the outlook for the next fiscal year? You mentioned the interest rate decline in the United States, but it remains high, and I assume that you have been in a difficult market condition. Can you give us some more color on that? I think there is going to be more demand for pent-up. How are you expecting such opportunity for the next fiscal year? And if that materializes, when we think about AOC's products, what is going to be the timeline for them to make tangible contribution? Thank you very much.
Once again, the American market condition is not necessarily strong. The volume is down by mid-single digit on year-on-year basis. It is negative. However, as you can see, we have been able to secure sufficient margin. In that sense, we can say that this is a resilient business, and also they are being able to differentiate themselves in the market. It continues to be that way. In terms of concerns, as you said, the interest rate decline. As the authority, we believe that some people say they are being more cautious than it was expected.
Unless we see a clearer trend of interest rate decline, I believe it does not become a strong tailwind. As the overall trend, we need to address inflation, and also there is the revitalization of the economy. When that materializes, we will be able to see more pent-up demand. I believe it is too early to talk about the next fiscal year. In February, of course, we're hoping to give guidance, but in terms of its long-term trend in the U.S., infrastructure-related spending is necessary. It continues to be important for our business, and the U.S. economy continues to be somewhat strong. In the longer run, as announced in last October, we believe that we'll be able to grow in high single digit.
If you ask if that will be realized in FY 2026, our answer is that we do not have that visibility at the moment. I would like to reserve any further comments as of today. In terms of infrastructure and housing-related demands, we have broad applications, and that is the strength of AOC. We believe there is room left for further development. In Europe, the market condition is also not good. They have much more exposure to the United States, but penetration of their business system in Europe, if that makes progress next fiscal year, as we have been saying, we believe that there is room for further growth there. That is all.
Thank you very much. As a follow-up, so of course, you don't have a crystal ball for the market condition next year, but you said that you're being able to keep the margin as well as the market share. So given the difficult market conditions, what is it about AOC that the market is appreciating so much? It sounded like they're gaining share. So what is the situation? And about the expected margin improvement in Europe, do you have any expectation or visibility into that?
On the second point, we don't necessarily say that they're gaining share, but they're keeping the share. The market is down, so we are down as well, and we're not losing the share. I believe that is the correct way to interpret the current situation.
Just like in China, by doing sales expansion, sacrificing profits, going after share, that is not the best solution in the current situation. AOC's strength is in its custom products. They are offering added value. It is important that they are capable of developing products that can gain understanding from the customers from the development phase. They have a large proportion of custom products as introduced. This is difficult to be lost, but we also cannot say that it will not be lost. We want to avoid making any confusion in the field, but in many different ways, I believe they are being able to offer added value in the non-general purpose or decorative areas. Regarding Europe, they have 70% exposure to the U.S., and they have slightly higher margin in the U.S. as well. This business system needs to be better penetrated.
This business system is all about custom-made products, not general purpose. That needs to be further promoted and penetrated. New product development is one measure. They will be taking a multifaceted approach. The CEO is also saying that there is room for improvement in Europe, also because of the characteristics of the market. We have to wait for further developments, and everyone asks when it will happen, and we just need to ask you to wait. If we have any updates, we will share them with you.
Understood. That was very clear. Thank you.
Just one more thing regarding AOC. It is good that they have high margin, but as I said earlier, the sales and EBITDA, the unit price fluctuates pretty rapidly. We are not only looking at margin as an indicator, but of course, if it is higher, it is better. In next year, we will be able to do a better year-on-year comparison. Thank you, Shintani-san. That's it for me.
Thank you. I look forward to the IRA day as well.
Next is BofA Securities. Enomoto-san, please.
Thank you very much. This is Enomoto from BOJ Securities.
Hello, Enomoto-san.
The share repurchase is my question. If I understand correctly, you have always said you will not do share buyback, but this time you changed that. What led to this change? Change of your feeling or policy? How did you come up with this size, the amount?
The most important point is about the retirement, the cancellation of the repurchased stock, treasury stock. I never said I will never do it. I said M&A rather than buyback. This policy remains unchanged.
Value creation through M&A is our long-term strategy, the core of our long-term strategy, asset assembler strategy. This model remains unchanged. Because the share price is so low, one investor said, "If you're an ex-banker, why is this high-performing good company on sale without premium? Don't you want to buy it?" I thought, "Yes, I do." It is like a pure financial investment. It's a pure financial decision. Given our future EPS growth, if we can buy this current PER, I would like to go ahead and do it. That is the reason. The trigger is a low share price, and the earnings are solid. Unfortunately, it deteriorated temporarily. As the usage of cash, we thought this is a viable option. Now, the size of our share buyback. Our leverage is quite at a level.
Japanese financial institutions trust our safe, trusting financial management and lend to us at a low rate. It is not a big policy change as a financial decision. Along with the deleveraging efforts and for future M&A potential, we thought that this JPY 30 billion hits the right balance. There is no deep science behind this. Why not JPY 35 billion, not JPY 40 billion, but JPY 30 billion? We thought of this and the future opportunity and with the size that has a certain level of impact. That is why we came to this decision. Next, the cancellation, retirement on purchase. We do not plan to retire our treasury shares because I have said this a few times. I do not deny equity finance. If EPS rises sufficiently, if there is an M&A that raises EPS and ensures leverage stability, we may use our share for that purpose.
If we cancel our shares, the share issuance and the release of the share, there is no difference in the procedure, but the license is different, registration license. Until we decide that we do not do equity finance, we will keep on with hold on to it. This is the difference of around 100s of millions of JPY, the license tax.
Thank you. No change in your dividend policy and share swap is what you are trying to mean.
It is not just share exchange, share swap, new share issuance. There is a capital increase. From common sense, mostly cash, debt, and some equity is our model. Share exchange to do this equity versus equity, our PER. If it is 50x , I do it, but otherwise, it does not make much sense. Of course, it will be a mixture. It is not limited to share exchange. Rather, some other means is more appropriate, we think.
And dividend policy?
Yes, dividend. No change in dividend policy. Basically, we raise our dividend little by little every year. So payout ratio is our policy. We will hit the right balance between M&A, deleveraging, and the next M&A to create our value. This value creation is better than the short-term dividend. This is consistent with what I've always said. Nothing changes with the share buyback this time.
Thank you very much.
Thank you.
Next question is from Mizuho Securities. Yoshida-san, please go ahead.
This is Yoshida from Mizuho Securities. Thank you.
Hello, Yoshida-san.
Hello. I'd like to ask about the situation in Q3 and Q4. You haven't changed the JPY 244 billion outlook for the full year. That means there will be a decline by about JPY 13 billion. According to your presentation, you said that you're confident in achieving this full year target of JPY 240 billion. From Q3- Q4, what is the Q-on-Q negative factor? Is that China, as always, and I think there is PPA of AOC? From Q3 to Q4, how should we think about the change in the level?
Yes, Yoshida-san. As I've been saying, I hope that you don't look at our business, quote-unquote, our business. On a year-on-year basis, it is positive, as you can see on page six on the right side. As you pointed out, the adjusted, no, in terms of OP before adjustment, there is PPA cost, which is temporary, and also there is inventory step-up in AOC, which amounts to approximately JPY 9 billion. These are not fixed, so we are not sure yet, but we haven't changed these assumptions so far.
Other than that, in Q4, on the contrary, we will no longer have adjusted operating profit, but there is a sale of the land in Shinagawa, which is going to be a positive factor at around JPY 7 billion. Other than that, in last year, for the two months of Q4, we included India. Up to Q3, India was not included, but in Q4, we will have two months' worth of the India business, and we will have full contribution from AOC. Because of all these factors, JPY 46.5 billion is the previous year's operating profit, and we are expecting to go up by 20%. There is a strong increase year-on-year, and the margin is also slightly above, as suggested, even when taking into account all these fluctuating factors.
On the right side, I hope you can also pay attention to these assumptions that we are assuming strong JPY. In last year's Q4, it was moderately strong. The exchange rate today is almost in line with last year's, so we can expect a slight uplift. There are negative and positive factors, but in Q4, in general, we are confident that we can grow.
In your speech earlier, regarding AOC, I think you suggested that you're expecting steady growth, but are you excluding seasonality factors?
No. Q4 will have a steady growth. Are you saying that it will be flat year-on-year?
I did not say that exactly. I am just saying that there is a sign of steady growth. The situation is different from sales and volume.
In terms of volume, it seems that we are bottoming out, but in December, to be honest, it is not a strong demand month, and we have Thanksgiving in the U.S. in November, so there will be ups and downs to a certain extent. We are not being too optimistic, but we believe that we are seeing signs of bottoming out from the downward trend that we have been seeing, and that is a discussion happening in the AOC board. That is what I shared.
Understood.
Thank you. That is it for me. Thank you very much. Yoshida-san, again, please do not analyze the business on quote-unquote basis, please.
I understand. Thank you.
Just to be sure, I would like to say something to Enomoto-san. It's not that we want to issue shares, and we are not going to do that if the current situation continues, but I'm repeating myself, but in the future, when the share price becomes more decent, and if we believe that we'll be able to achieve sufficient EPS after issuing shares by doing debt financing in some M&A opportunity, we may choose to do that. If you ask us if we're not going to cancel the shares, I believe I had to answer that way so that we can save the necessary expense for that licensing. That's it.
Next, Citigroup Securities. Nishiyama-san, please.
Nishiyama from Citigroup Securities.
Thank you. Hello, Nishiyama-san.
Thank you very much. TUC China is my question. This time, volume is negative, low single digit. If I did not hear you wrong, you are making stringent on the credit loss. This negative, low single digit, what is the breakdown? Is this a proactive impact from more stringent credit loss provision in the market situation? What is the breakdown of the factors? In local cities, Skshu is now being aggressive, but it seems like top-line growth is a bit weak. If you could update me on that as well. Thank you.
Thank you very much. In Q2, credit enhancement. We do not have a breakdown in Q2, and this time, we will not do that either again. In Q2, I said TOC distributors, there was not much, but a large distributor, the receivable was becoming rather long, and until they pay, there will be some limitations applied on the wholesale side. In Q3, large distributors did not see an increase. It is rather decreasing, but the smaller distributors are showing an increase.
Overall, the distributors' receivables extension did not happen until last year, but towards the year-end, we collect our receivables. Our policy remains unchanged. Under that discipline, we still have some remaining in Q3. The reasons are Q2 and Q3 had a similar negative impact. Next, comparison with Skshu. As I've mentioned a few times, the base is different. The size is quite different between us and them. Skshu, their earnings is rising, but they're still lower than us. We do not disclose, but TUC, TUB, and industrial and automotive included, we have 15%. TUC is higher than that. You can sufficiently think that TUC is higher. There are smaller segments that we are not watching closely, and there are quite a few in Q3.
We had some that we could not capture fully, and how to address them is a high priority for the China team. One more is we have this service. We were a pioneer, but this similar service is offered at a lower cost by our peers in Tier 3 , Tier 6 cities. The profitability there is unknown, but the service for lower segment, should we just not do it? We have to think more about that. As I mentioned over and over, the overall revenue sales volume is much bigger for us. Without that big picture, looking at the quarter-by-quarter ups and downs will be misleading. It is not that material. Rather, the smaller local players share. I think they're getting share from small local players. It is not that we are losing out.
Thank you.
Thank you very much.
One on credit control, if you could follow up. Q2, Q3, you said you did similar magnitude, and while growth is improving towards Q4, you will continue this or not?
Just to avoid misunderstanding, we're not doing credit control on a campaign basis. In our day-to-day business relations, if there are some longer receivable collection, we are continuing our traditional policy. We've always had this policy, but in the past, the payment period extension did not stand out, but in Q2, Q3, with the declining market situation, there are some where we cannot collect the receivables quick enough. We have this overarching policy of collecting the receivables by the year-end, and we cannot go against that. It's not that we are suddenly starting this from tomorrow. I hope you could understand.
On that basis, for Q4, the demand will decline, so we may focus on collection more. Ideally, by the end of Q4, we can pretty much clear this receivables. There may be some opportunity loss, but overall, the market factor is a bigger factor. What is the market circumstances? It's not good. It's not bad. As you see in the heat map, Q4 outlook, TUC is green, so we think it is flat.
Understood.
Thank you very much.
Next question is from Nomura Securities, Okazaki-san. Please go ahead.
This is Okazaki from Nomura Securities. Thank you, [Okazaki-san].
Hello, Okazaki-san.
I have not been able to attend from the beginning, so I apologize if this has already been covered, but in China TUC market, it is quite specific, but in the heat map three months ago, it was the second from the bottom, but now it is in the green. I think this is based on the previous year results, but to have an impression that you have better visibility now, and I would like to confirm Q3 TUC sales is down by single digit, but the premium zone mix is up, so overall, it is a plus. Is that the right way to understand?
Yes, that is correct. As I have been saying, overall, in Q2, the market is - 5% to -10%, but this time, it is almost flat. In FY 2024, Q2 or Q3, we need to look at their situation as well, but in Q2 FY 2024, it is almost flat. In Q2 FY 2025, it is down, and then it is flattish in Q3, both for FY 2024 and 2025. There are ups and downs, but it is hard to say that the sentiment is improving just by looking at this.
In that sense, compared to the previous year, the market environment in the June and the September quarter, it has not changed. Is that what you are suggesting? It is light blue, right, the market? That is year-on-year, right?
Yes, it is year-on-year.
It depends on the situation a year ago, right?
Yes. As I said, a year ago, it was flat. Q2 FY 2024 was flattish. Q3 was flattish as well. In FY 2025, Q2 was down - 5-10%, and Q3 was flattish.
Compared to Q2, it improved, but it is hard to say that there is significant improvement on a quarter-on-quarter basis. We can at least say that it was not as bad as Q2.
In terms of future outlook, are you expecting things to be flat?
Yes.
From flattish to slightly positive.
I am sorry. To be honest, the Chinese market, as I have been saying from the beginning, is not strong. We have been able to develop premium opportunities, and we have been able to secure margin. Given the current environment, we have been focusing on how we can balance out.
I apologize for the dumb question.
No, no, that is not a dumb question, but I hope you can attend from the beginning next time.
Yes, I will do so. Thank you.
Next, CLSA Securities. Cho Sun, please. Cho from CLSA Securities.
Thank you very much. Yes, thank you. On page 31, I have a question. In the Americas, AOC comparison. The Americas, demand and margin in Q3 was not so good. July-September quarter was not so good in North America, but in AOC, Q2, Q3, margin did not change much. The revenue was basically flat. My feeling is the Americas and AOC final demand is mostly for decorative, and I think they are linked. What is the background that led to this top-line movement and margin movement? If you could elaborate. Thank you very much.
Page 31, this is cumulative.
Yes.
I saw other. In Q3, 2022, 2023, the Americas, automotive, and decorative. We have both. We do not disclose individually, but for decorative, basically, it is family repaint. That is the main battlefield. California, Nevada, Arizona is the main place. It is a premium brand.
As I said earlier, long-term interest rate is rising, meaning mortgage rate is rising. Moving, this is negative to the moving, changing houses. On the other hand, AOC is decorative in the broad sense, and there is repainting, but also infrastructure spending as well. It is not impacted as much in terms of margin. In Q3, mid-single digit volume down on the year-on-year basis. U.S. challenging environment is coming out. We have the brand strength. Because it is done on individual office basis, the fixed cost is high in the Americas. AOC is not the store branch operation. It is more B2B. The fixed cost is controlled tightly. That is why the margin can be maintained even when volume goes down.
Thank you. One quick follow-up is, now the oil price, crude oil price is declining. Is that a positive factor for AOC?
In general for raw material, raw material is declining. So it's, of course, a positive factor for us. What we need to be careful of is how our competitors will move. We do not all move in one direction. In the U.S., Sherwin-Williams, they announced a big price rise. If it's dominant like them, they have the good foundation to be able to raise their prices. We will raise price, but the scale of the price raise will be up to discussion. In terms of cost, cost will come down. How we balance them out is the basics of our business management. We want to take dynamic measures. It's not that me, I will take measures. The local side will work hard to generate profit.
Understood. Thank you very much.
Next question is from UBS Securities. Omura-san, please.
This is Omura from UBS. Can you hear me?
Yes, Omura-san. Thank you. I apologize for running over time. It is totally fine. Thank you for your presentation. Given the time constraints, I'd like to quickly ask about China. You mentioned credit control continuing from Q2. Going forward, what should we expect for such customers? If credit improves, when will it happen? Based on your past experience, what needs to happen for you to be able to recover sales to such customers? In the next one or two years, how should we expect?
Yes. Generally speaking, when the funds start to flow, there will be no delay in collecting receivables. One of the causes is the poor market condition, resulting in low turnover in distributors and delay in payments. If the market condition improves, these things will automatically improve as well.
In the past, this was never actually brought up, suggesting that it was never a big issue. This also means that because of the current difficult market condition, we are having a slower turnover. The best scenario is for the market condition to improve and funds start to flow, and we can collect receivables. It is not that this is happening only with certain distributors. In Q2, we had this issue with some larger distributors, but as I've been saying, for distributors, basically, we've been doing credit control by using cash payment to settle everything by the end of the year, resulting in an improvement of the cash flow in Q4. That is why I have been making these comments, and this is one of the causes for the slower revenue.
I understand. Just to clarify, is it correct to assume that this kind of issue never happened? Because I was actually assuming that it did happen in the past.
In TOC, it was not zero, but it was not really noticeable. Of course, we need to do this strategically going forward. It depends on the distributor. Maybe I cause misunderstanding if I say this officially, but it really depends on the counterpart. At the end of the day, it is important for us that we can safely collect receivables, and that decision would change depending on the economic strength. We do not have any uniform operation, but with discipline, we are being flexible in adapting to the situation. In the past, we did face similar challenges, but as I said previously, for TUB, we do have longer-term receivables that have a different nature. Understood. Thank you.
Thank you.
Since time has come, we will end the Q&A session. Wakatsuki-san, please.
Thank you very much. Until late in the evening. This time, we changed the way we disclose. We want to convey an understandable story to the investors. If you could look at page 3, CAGR from 2018 is 16.4%. EPS CAGR is 17.6%. This great growth is shown by our company. We do not think any other company can really do this. We will work hard to continue this momentum, and that is why we decided to disclose this way. Thank you very much again, and I ask you for your support.
Thank you. With that, we will close Nippon Paint Holdings' conference call on FY 2025 Q3 Financial Results. Thank you very much for your attendance today.