LIXIL Corporation

It's time for us to start the third quarter financial results briefing for fiscal year ending March 31st, 2026 for Lixell Corporation. This briefing is streamed live online. The materials for this briefing is on our website for the shareholders and investors. I would like to introduce to you the presenters. Kingi Asato, Director, Representative Executive Officer, President and CEO. Mariko Fujita, Executive Officer, Executive Vice President, CFO. Aya Kawai, Senior Vice President, Leader of the Investors Relations Office. I will be serving as the MC. My name is Setoguchi from IR office. I would like to explain to you the proceedings for today. First, Fujita, the CFO, will be providing you the overview of the financial results for the third quarter. That will be followed by presentation by Mr. Seto to explain to you about the earning structure of Lexel. The presentation will be followed by Q&A. We are expecting to end the session at 3.45 p.m. I would like to invite Ms. Fujita, the CFO, to give you the financial results briefing. Hello everyone, this is Fujita. I would like to give you the overview of the financial results for the third quarter. This is a summary of results for the third quarter. Core earnings is 36.5 billion yen, and EBITDA is 98.4 billion yen. In Japan, LWTJ and Living have continued to do well with increase in revenue and earnings. The renovation product was robust, even though the new housing demand was sluggish. As for LHT, It was on par with the previous year, both for the revenue and earnings. The subsidy-eligible products contributed to the sales growth. In Europe, Middle East, and India has seen strong performance. China's sluggish business had been covered by the strong performance from Europe, Middle East and India. So there was a Forex losses and because of that financial cost had increased year-on-year. Just like Q2, the consolidated subsidiary decreased year-on-year due to changes in the corporate tax rate in Germany. Next, I would like to talk about the outlook for fiscal year ending 2027. This talks about business environment. Overall, commodity prices are going up. Forex as well as the government policies have changed from what we had first expected. The commodity prices had significantly increased. In January, there was a rapid increase and it is hovering high. In Japan, new housing starts every main week. but the subsidy for the window renovation would continue. As for Europe, we had expected in our roadmap that in fiscal year ending 2027, the housing market would recover, but the timing of the recovery is being delayed. As for Aimea, it's doing well, and China continues to be sluggish. Those are the outlook for fiscal year ending 2027. Next is performance highlights for the third quarter. Revenue decreased slightly, but core earnings increased year on year. Revenue was 1,138,500,000 yen. Core earnings and EBITDA as well as profit had improved. Next is consolidated business results. What I would like to highlight here is a gross profit. It was 1.3 points up year-on-year. Because of this, core earnings ratio had improved by 0.5%.

And here is the overview of business results by segment. LWTJ performed well. So the improvement in revenue in Europe and the Middle East has contributed, LHD improved, and price optimisation and renovation sales have contributed, enabling the segment to maintain the level from last year leaving. We saw a strong performance of the renovation area. And this is the business rules by the segment using the former segments. which I will skip. Next is consolidated financial position and the assets are in Europe. This has increased due to currency translation impact. Equity ratio is at 34.4%. Lastly is cash flow status as well as cash balance. Because of the accounts receivables and inventories increasing, operating cash flow has decreased year-on-year. However, as for the free cash flow, we have been able to maintain the positive territory. So that completes my report. Thank you very much.

Fujita-san. Thank you, Ms. Fujita. Next, I would like to invite CEO, Mr. Sato, to talk about Vexel's earning structure. Mr. Sato, please. So we have been talking about this to the investors as well as institutional investors, but I would like to give you the more detailed information to avoid misunderstanding. So moving on to the first slide. Compared to EBITDA, the core earnings as well as the net profit tend to be lower. So that's our structure. However, this is because of large depreciation. In the past, we had used a lot of cash for acquisition and because of that, our core earnings tends to be smaller because of the depreciation. So the tax expenses increase due to the unoptimal tax management, but we do have cash at hand, and our strength is not shown in those numbers. So going back to page 1, so in our case, PER, PBR, ROA, EBITDA multiple, had not been explained in a coordinated manner. PER, because the profit seems to be low, it tends to be very high at 65 times. PBR is 0.8 times. On that matter, there are assets whose utilization is not high, but it's generating cash. And as for ROA and ROE, the after-tax profit compared to cash, it is evaluated low on an accounting basis, and that has become a huge issue. So in improving these figures, so we would, of course, work to improve the business for the improvement of EBITDA, but at the same time, we are looking at the assets which are not generating cash, and we will be sorting that out so that we can have improved efficiency in the assets. So there will be less difference between EBITDA and core earnings. And we will also work on to better manage taxes. This is something that we will be working in the coming 1 to 2 years. It's not just about improvement of EBITDA, but we will make reforms so that we can have better core earnings. So EBITDA for cash earning power, I think that we are doing fairly well. This slide shows the comparison with competitors. On the far left is Lexol, followed by Toto, then Takara, Cleanup, YKK. Compared to those companies, you can tell that EBITDA, the earning power that we have, is very high. In the case of TOTO, they have semiconductor products. So we are not able to make apple-to-apple comparison with our competitors, but our EBITDA level is quite high. Thank you. The Moscow fortune brand, those are the highest earnings companies and their EBITDA is high. But from FY23 to FY25, the reason for growth, you need to have some footnote. So Giveret is using Swiss franc and has been appreciated from 140 yen to 200 yen. And euro is also being appreciated. So there are positive factors for Moscow as well. The Fortune brand, they are working centering around U.S. dollars, so the growth rate compared to the other two is lower. However, their profitability rate is very high, 70% gross profit for Gaborit. And Fortune brands and Moscow, and in the faucet, that's their main product. So So we have a bigger line of products, so our EBITDA level is quite good. So ROCA and Billeroy and BOC, in 2025, you see significant increase in the numbers. This is because they have acquired ideal standards. So Fortune and Moscow, they have been growing because of M&A. So considering that our organic numbers is not bad. So we want the world to understand our core earnings power. So we want to normalize our core earnings and EBITDA.