LIXIL Corporation

The materials have been uploaded to our website in the Investors Relations page. I would like to introduce to you our speakers Director, Representative, Executive Officer, President and CEO, Kinya Seto Director, Executive Vice President and CFO, Mariko Fujita The Officer and Leader of the IR Office, Aya Kawai I will be serving as the facilitator. My name is Setoguchi from the IR office. I would like to explain how we will proceed today. First, we will have our CEO talk about the financial results. That would be followed by question and answer session. The expected time for ending is 3.45. Now, I will invite our CEO, Seto, to give you the financial results. Hello, everyone. This is Seto from Rixel. I will be explaining about the numbers today. And first, I will talk about what has been happening. In the last earnings call, I explained About the Middle East conflict impact. In terms of the response to the conflict, I think our company did well and works steadily towards the alignment with our plan. As for LWT, especially in Japan, we were able to see increase in the revenue and The cost increased first and we had conducted the price optimization. From around June, we had seen sudden increase in the cost. We increased the price from August and there was a gradual penetration of that increase but in LWT, we were able to see increase in both revenue and core earnings. In LWT International, we were able to see increase in both revenue and core earnings. The price optimization was conducted in July, and also the big factor was that we were able to conduct a structural reform in the U.S., which had been completed. In LHT, the profit had gone down significantly, and that's the biggest reason why the revenue increased but the core earnings declined. In LHD, the cost increased in April and the price optimization was to be conducted in October. And because of that, compared to the last fiscal year, the performance has deteriorated. However, with regards to the response to what has been happening, we have been able to do well. I talked about what we will be doing in July and we have been able to do what we had set out to do in July. The cost increase comes first and the first half deteriorates but the price optimization will start to take impact and we will see the impact of that from October. What we are concerned about still is the demand. In the first half, there was some sluggishness in the demand, considering the external environment.

For Japan, conducting of the price increase

We had been concerned that the demand will be more sluggish. However, as of October, the demand is not as sluggish. However, what we are slightly concerned about is that the progress for the program regarding the products which are subsidy eligible, such as windows, the progress is sluggish. We need to closely monitor how the demand will evolve. The international business is deteriorating more than we had expected. What we had seen in the first half is that the US and China had seen deterioration in the market environment but that had been complemented by EMEA and European regions. For the U.S. market, we had expected that the market will improve. However, it had further deteriorated. As it has been reported, the mortgage rate is now 7.3%. And with that rate, it is difficult for citizens to purchase housing. However, we had started our structural reform activities early. Compared to other manufacturers, We are seeing increase in the market share. We are doing pretty well but the situation in the market is still bad in the U.S. China's sluggish situation continues. and also Europe, where we had expected a strong recovery, had seen instability in the political situation. We see that in France, and the impact from France has rippled to Spain and Italy. Spain was very strong, but now the situation is becoming more unstable. As for the Middle East, The GDP is coming down in a lot of Middle Eastern countries and also there has been cancellation in the projects. And in this region we have the production facilities, we have inventory there and because of that we are receiving orders and we have been able to supply our products to our customers. The environment in the market is deteriorating but we are seeing increase in our market share so we need to closely monitor how we will do in this region due to the conflict in the middle east the petrochemical products had gone up also the metal prices had gone up as well and we had aligned ourselves with So in EMEA in the first half this had have been the biggest concern for us. So we need to closely monitor the situation continuously. Overall, we have been able to respond to the biggest issues that has come to us, but we are seeing sluggish demand in the international business and that causes us concern. But overall, I believe that there is an increase in the pent-up demand. So now I would like to go into the explanation of my presentation materials. So please go to the next page. I would like to go into the explanation of the materials for today. These are key highlights for today. I may be repeating myself but for the domestic Japan business. The cost has increased but in the first half we have been able to respond to the situation well. In the first half the There was a time when there was a cost increase but we have not been able to increase the prices so that had deteriorated our profitability and for LHD the price optimization is to be conducted in October so that had negatively impacted us and in terms of the new housing starts and the renovation demand Because of the possibility of the shortage in the materials, there was a focus in the industry for new construction. However, people did not focus so much on the renovation business. And because of that, in the first half, we did not see much growth in the renovation business. However, we are seeing a normalization in this area. As for the international business, U.S. and China had been sluggish, but that had been complemented by the Middle East. However, the European market is now seeing the instability because of the political situation, so that concerns us a bit. But we have seen increase in the profit year on year. The biggest factor that contributed to the improvement is because of the completion of the structural reform that we had conducted in the U.S. so there is no change in the dividend or the forecast for the full year and we expect the dividends to be 45 yen so there has been some technical issues and I'm sorry that there has been some slides issue but I would like to talk about the domestic business now sorry about the concerns that we have caused you As for the water-related product, we conducted the price increase in August and metal-related cost increase reflection to the prices was conducted in October. and we were able to see increase in both revenue and the profitability and the price revision will penetrate into the market so the situation will be better. And as for LHT, so we are now 31st of October and the price optimization is going smoothly and we believe that we can recover in the second half of what we have lost in the first half. The only concern that we have is related to the window related business because the progress of the program for the subsidy eligible products is sluggish so we have not been able to conduct the promotion for the windows because we needed to Secure the raw materials and products in the face of the conflict and also the program for the subsidy has started later than we had expected. On the other hand, in the LWT international business, we were able to have successful price optimization in July. We were able to see increasing both revenue and core earnings. and the US which has been dragging us down had seen improvement in the business and the amount of the red ink has significantly decreased. In the second half, the issues are the economic policies as well as the political instability and the market Overall, it's becoming more sluggish. In the Middle East, we were able to improve the market share even though the market itself is deteriorating. So we would like to make efforts to make improvements in the market if that is deteriorating. What worries us is that increase in the copper It's used in the defense industry as well as in the IT industry and that has negatively impacted us and also the fuel cost. Because of the Middle East conflict, the logistics issues have added to the cost. and you see the situation country by country and in the US the mortgage rate for the 30 year is 7.3% and President Trump has said that the mortgage rate would go down to 2% but now it's 7.3% so the situation is very severe. However, we were able to complete the structural reform in the US at early and Groi and the American standards have established their own sales principles and that is working well and there are months which are in the red ink but there are some months which are improving to the black ink so we are seeing improvement in the U.S. As for Europe The market situation is severe, but the German market is holding up, but there are issues occurring in France, which has a rippling effect to South Europe and Southern Europe. has been seeing the fiscal issues already and I am worried about the inflation as well as the hike in the interest rate. As for the Middle East, the situation is as I have explained. Middle Eastern countries have seen decline in the GDP. However, the population is increasing and the economy is growing. So even if the situation deteriorates for the countries which are facing the conflicts, the conflicts-free Middle Eastern countries will continue to grow, so overall I am not worried so much. As for APAC, excluding Thailand, the situation is getting better. Overall, the revenue increased while core earnings decreased, but what we have set out to see set out in July that in terms of the response to the Middle Eastern conflict has been done as it has been planned and I think that we would be able to come on par with the plan but in the past six months the cost increased faster than our price optimization