Lixil Corp Aktie

We would like to start the earnings call for LIXIL Corporation for fiscal year ending March 2026. This briefing is streamed live online. The materials for this briefing is disclosed in the Investor Relations page. So please take a look at those materials.

I would like to introduce to you the presenters for today, Director, Representative Executive Officer, President and CEO, Kinya Seto. Next is Executive Vice President and CFO, Mariko Fujita; Vice President and Leader of Investor Relations Office, Aya Kawai. Well, I will be serving as MC from IR. My name is [ Setoguchi ].

Next, I would like to explain to you how we proceed with today's briefing. First, CFO, Ms. Fujita, will provide you with the overview of the financial results. And CEO, Seto, will be giving you the outlook for the performance as well as the progress of the management strategy. That will be followed by a question-and-answer session. We expect to finish at 3:45 p.m.

First, I would like to invite CFO, Ms. Fujita, to give you the overview of the results of fiscal year ending March 2026.

Hello, everyone. My name is Fujita, and I would like to give you the summary of results for fiscal year ending March 2026. These are the key highlights. This is the overview of the results for fiscal year ending March 2026. Core earnings was JPY 38.5 billion. EBITDA was JPY 121.6 billion. The core earnings exceeded the forecast. For the Japan market, all segments achieved year-on-year growth in core earnings. In the international business, core earnings have significantly improved. For Americas, the structural reform have seen the deriving of fruitful results. And in the month of March, core earnings had become profitable.

Next, I would like to talk about the differences from initial forecast for fiscal year ending March 2026. Core earnings exceeded the forecast. And in terms of the profit, it was in line with the initial plan.

As for other income and expenses, in addition to the initially planned structural reforms, there were -- additional expenses were recognized, including further restructuring costs in the U.S. and impairment losses on fixed assets. In terms of the finance income and costs, there were some recognition of foreign exchange losses and tax expenses. There were impact from the change in the corporate tax rate.

I would like to talk about the status of international businesses. As for Europe, we worked on the growth of the GROHE brand. IMEA. In IMEA, we will ensure stable supply. For Asia Pacific region, we will work on for market recovery and sales network expansion. In China, the market remains sluggish. Under that situation, we will work to expand the sales of differentiated products, including the GROHE brand.

I would like to now dig deeper into the progress on future initiatives in the Americas business. With regards to Americas business turnaround, so there are effects of the various measures that we have taken didn't materialize at first. But even though there was a recovery lag, we were able to see the results of what we have done. So we have worked on optimizing workforce allocation, restructuring the supply chain, optimizing the business portfolio. And we would now focus on the premium toilets and growth of GROHE and the expansion of shower toilets and leveraging on ASB's strength.

I would like to talk about performance highlights. Revenue was JPY 1,510.7 billion, up JPY 6 billion year-on-year. Core earnings was JPY 38.5 billion, up JPY 7.2 billion year-on-year. EBITDA was up JPY 7.1 billion year-on-year and profit was up JPY 6.1 billion year-on-year. The core earnings had improved and that had impacted positively to our profitability.

This is the consolidated business results. Please take a look at the margin. The core earnings, EBITDA compared to last year, we were able to see improvements. This, as I said at the start, at all segments compared to the previous year, the businesses are showing improvement and the details are listed here. And as for -- the same information under the previous reporting segments, so I would like to skip the explanation.

Consolidated financial position, the impact of the foreign exchange impacts and recognition of profit for FY ending 2026, equity increased. The equity ratio is 35.3% and the net interest-bearing debt has landed as flat compared to the previous year.

And the cash flow status. Operating cash flow has declined year-on-year. However, the free cash flow has maintained positive. Last year, it's JPY 91.9 billion. This year is JPY 59.1 billion, but it has remained positive. That is the explanation from the CFO, Fujita. I would like to conclude now.

Thank you very much, Fujita-san. Next, we would like to invite Mr. Seto, the CEO, to explain the full year forecast for fiscal year ending '27 and progress of management strategy. Seto-san, please go ahead.

Outlook for the fiscal year ending March 2027 is what I would like to talk about. Year ending March 2027, the revenue, JPY 1,600 billion, core earnings, JPY 45 billion and the profit attributable for owners of the parent, the profit, JPY 12 billion is the forecast. However, the impact of the situation in the Middle East, there are many variables. And so it is difficult to reasonably factor in at this time. That is why that part is not included. And that is why at the next timing of disclosure of the information, I would like to share with you with the planned numbers, including the impact. The annual dividend is JPY 90 per share is forecasted, which is the same amount up to now.

The business environment and outlook. Later on, I would like to touch upon the Middle East situation in more detail. But for the other statuses, for Americas, as Fujita explained previously, FY 2025, they have struggled. However, at the ending, the Transition Service Agreement has ended, and we had the major structural reforms. And as a result, the last 3 months recovered. And especially for the last 3 months, it finally turned into profit making.

Regarding the U.S. economy, we were forecasting that it will be better than what it is right now. However, unfortunately, from the challenge of affordability, the demand is strong and the wide demand is apparent, but the housing prices became too high, so people are not able to purchase it. So some sort of government policy measures will be necessary is what I think. However, that is why for Americas for the near future, we will probably not see a major recovery. However, we were able to turn into black ink. Therefore, the loss-making business up to now -- is now not going to become a burden anymore, which is a positive news.

And for Europe, this was the most disappointing part. Starting this fiscal year, we thought the economic situation is going to largely turn around. However, from the mid last year, I think everybody has a consensus that that was the bottom. And each country or major markets like Germany, France, Italy and the Netherlands, which are the major markets, the housing prices have started to go up and also the housing starts -- number of housing starts are also for the lease property, it is starting to increase. So it is showing a recovery. However, the recovery pace is going -- is about a year behind than what we have originally expected. But for the last 2 years, which was really bad, during that time, we're able to increase our market share and the GROHE's average profit also was able to increase. So this part, if it does grow, we will be able to enjoy a large positive impact.

IMEA, that's India and Middle East. There are various concerns. However, currently, we're not seeing any negative impact. The area that is called IMEA, basically, you can break it down into 4 areas, and the sales is kind of divided equally in those areas, which are Saudi Arabia and the Gulf area, including UAE and India and Africa.

Now first of all, what we can foresee most of the impact will be the Gulf area, mainly led by Dubai. Basically, the foreign residents have left the area. And regarding the future projects, there are major concerns of the progress. But currently, we are not seeing any decline.

On the other hand, for Saudi Arabia, moving forward, if they have further attacks from Iran, the situation may change, but they are performing strongly. Regarding Saudi Arabia, there is a negative factor. And because of the confusion, the financing for large-scale projects may be delayed. However, the crude oil price is going to go up, which means that it will give some room for the government. So related to the public type of projects that we are involved, there's no impact at this point.

And for India and Africa areas, the fuel prices are increasing. So there may be an impact from that, but it is not a major impact. So for now, out of the 4 areas regarding the 3 areas, we do not have a negative forecast. However, for the Gulf area, we have to keep a close monitoring. And also moving forward, if the attacks from Iran expanded, there will be a certain impact is what we are thinking.

In terms of economic situation and negative impact, Southeast Asia, Thailand, which was in the trajectory of recovery is still a concern. And for China, the bad situation is continuing. But it's not just APAC and China, but at each region for GROHE is performing strongly. Even China, the sales for GROHE is increasing. And that's a bright news, and we're able to launch many differentiated products.

And for Japan business this fiscal year, looking at the new housing starts up to now from April to February, I don't think that anyone decided it is more than 10% of a decline. There was a forecast that it will decline, but it actually declined more than what people expected. But given that situation, we're able to offset that weakness with the renovation demand. And we believe that the new housing starts weakness is going to continue for a while.

The background on that is that one thing, the insulation materials are -- there's a shortage on that. So new housing starts will be delayed. And due to the Article 4 of Special Exemptions, the licensing or permits that are submitted by the SMEs, the submission itself is delayed and granting the license and permit is going to delay. And that adjustment of those timings has not been completed. But Japan's new housing starts is going to continue to decline is our outlook. However, having said that, next year, we think that it is going to go up on. Reason being is that there is an accumulation of the permits and license that is going to actually be realized.

And for the insulation material, I'll touch upon it later, but this shortage is not going to last forever. But these recoveries, I believe is going to be next year. But in Japan, the new housing starts is not that strong. But this year, the decline was more than 10%. And -- but within that, we're able to offset that through renovation. So we do have a confidence towards renovation to a certain level.

This is the forecast of the performance. In addition to what was discussed earlier, in terms of the dividend, because EBITDA has grown steadily, we are maintaining it at JPY 90 per share.

Risk related to the Middle East situation. It is difficult to predict. There are a lot of variables regarding the Middle East situation. Because of this, it would be too misleading to talk about the future relating to the Middle East. So we decided not to factor that in, and we will continue to scrutinize the situation. The supply concern is the biggest factor for us. Currently, the crude oil-derived products, we have been able to secure the products that we need. And after July, we don't have too big of a concern.

As for aluminum, 80% is scrap aluminum. So we do not -- we are not in a situation where we have 0 material at hand. However, the prices of these commodities are going up. We will work to transfer the cost to our pricing also related to raw materials. Rather than buying from the same suppliers, we need to increase the variety of suppliers, and that's what we did in COVID, and that's what we will do now.

These prices are going up not because of the Iranian war, but for other fundamental factors. What makes the reading of the future difficult is as follows. So there are many cases where you predict that this price increase will continue in the long-term, but I don't feel that way. As for the crude oil-based products, even before the Iran war from the end of last year to the beginning of this year, there was a concern about excessive supply. And in Japan and South Korea, there were adjustments to production.

And in 2027, there are naphtha and plastic-related facilities, which were to come online in the U.S., China and Middle East, those facilities are coming online even with the excessive supply. And I think that there are many reasons behind that. In the case of the U.S., they need to use it because they would not be able to export the natural gas as is and they need to create naphtha. And in the case of China, acetylene and ethylene process, the naphtha is used a lot. So PE, PS, PP, if we consider the global supply and demand, it's in excessive supply and how that would be reflected in Japan is something that we need to consider.

So there are cases where China would not export it because of the dual use, but the oil-derived products, there are many types of it. And some of it may stop and become a bottleneck, but I don't think that the price of those commodities will be going up in a linear way.

As for aluminum, the price had come up because Mozal and Century, which are the big players of ore supply for Europe, decided to shut down for maintenance for a year. And in Bahrain and UAE, the aluminum plants in Abu Dhabi have been --- had stopped. And even though Japan had been buying 10% of the aluminum from this area, Century and Mozal will resume its operations next year. And in Middle East, the facilities would probably restart their operation sometime next year. And the aluminum may become $4,000 from $3,600. But next year, so some of the sources expect it will come down to around $2,800 to $3,000.

The current panic is not something that would linearly continue in my opinion. However, I think that the copper price will be going up. It goes without saying that the fuel prices will be going up. There are many assumptions, but if the oil prices had stayed around $80 per barrel, I don't foresee that the plastic prices will be going up indefinitely. So there may be some bottlenecks which may occur for the Japanese market. And also, there are some bottlenecks in the area of solvent supply. And these things may occur. So we need to diversify where we supply -- we get the supply from our suppliers and their suppliers. There may be some of the bottlenecks, which occur in the products that we don't buy or our customers for products that we don't sell to them, and it may cause a problem.

There are -- because the oil prices are going up, the prices -- the cost is going up and also because of the route suspension, there are distribution costs added, but we will be taking measures to counter that. Sorry, I'm going on for a long time in my talk, but I would like to talk about core earnings.

We did not factor in the Middle East situation. The cost increase and the price revision. The bar on the right will be higher if we factor that in. But rather than just simply increasing the prices, we will increase the productivity using AI and bringing the cost down. We will work to sell differentiated products, which have higher margin. The methodology that we succeeded in Europe, we would like to use that in other parts of the world as well.

In the midterm, we will work to pursue improvement in the CE margin to 10% and ROIC to 10% as well as a long-term target, and we will turn around where necessary and divest where necessary as well. We will continue to work on these initiatives. The inflation, which occurred in COVID as well as due to Ukraine war, what will happen in the middle -- what happened in the Middle East would probably impact us even more from that perspective. But we are increasing our revenue compared to the previous years. So we have been able to take necessary measures under these difficult situations.

And last year, we have said that we would like to get to JPY 65 billion, but we have revised it down to JPY 45 billion in terms of the core earnings. And there are a variety of negative factors. And also, we have identified positive factors that would fix it. The biggest negative factors included the lagging behind of the recovery in European housing market. Our profit center is the European market. And when it's not recovering, our business overall would not recover. Also, towards the end of the fiscal year, the commodity prices started going significantly up rapidly, and we have not been able to pass that on to our prices. So those are the 2 key factors which led us to revise the outlook down.

On the other hand, Europe is having the same kind of revenue, but we were able to improve the margin. So once the housing market gets better in Europe, we would be able to spread that positivity to other areas. And also the Middle East, even though there are concerns, there are good things coming out of the market like improvement in the market share of GROHE. Also the Japanese renovation business had done well with the -- even in the face of decrease by 10% in the new housing starts. European market, the commodity prices -- from next year, I think that there would be a virtuous cycle. So we should not be pessimistic about seeing the business coming down a bit.

So in terms of the risk, the biggest risk is Middle East. And most of what's on here would be multiplied by what's happening in the Middle East. The European market was bottoming out last year. And our main markets are getting better. But because of the issues in the Middle East, the inflation is increasing and the interest rate is going up.

In the U.S. and China, the real estate market and the housing market had deteriorated. However, those bottom out. So I think that we are in a wait-and-see mode for recovery. Also, what would impact us is what kind of policies Donald Trump will be implementing towards the midterm elections. If the Trump administration will work on the affordability of the housing issue, I think it would impact us for the better.

As for Japan, there are some specific concern for Japan. So last year, there was a significant and rapid decrease in the new housing starts more than we had expected. We are expecting it to get better next fiscal year. The reason it has come down is because of the Article 4 Exemption factor and the SMEs had difficulties in improving their businesses.

In the short-term, the heat insulation materials are short in supply. So because of that, the housing starts is sluggish. So this fiscal year, we are facing a challenge, but that will work towards recovery next fiscal year.

In terms of the cost, I think that we may be able to increase the prices by transferring it for next fiscal year. And what I strongly felt this time is that I did share this at the COVID pandemic, inflation or the product delivery difficulty. What's important is to recycle the materials, especially in a country like Japan, which has not much of the natural resources. And PremiAL, the product, we're able to use 80% of the overall material -- scrap material. But we don't have to face the problem of procurement.

But on the other hand, revia, what was considered to be waste, we can use that as a material and make it into a product. I think this is still going to become important for a country like Japan. And also, there was subsidy that was provided for like Inplus and [ indiscernible ]. Of course, the crude oil prices are going up, and we have to reduce the energy cost in Japan. When we face that time, these products are going to become an important product. And this time, at the very start, in this industry, we were told that there's going to be a shortage was going to be the insulation material and ethylene polymer that is used for the bathtubs. And what can replace that is this fabric of bathtubs.

And for the bathtub material, we do have visibility on the procurement of the material. So we're not causing any trouble to the customers. But I think moving forward, being able to procure the materials within Japan is going to become important. I did speak for a bit long time, but I would like to open the floor to questions and answers. Thank you very much.

Seto-san, thank you very much. Now I would like to take questions. [Operator Instructions]

So we would like to receive the first question from Nomura Securities, Fukushima-san.

This is Fukushima from Nomura Securities. I have 2 questions. The first question is related to the Middle East and the risk related to that on the supply chain, the procurement of materials and for your company, can you truly manufacture the products and also the cost issues? You did explain. But once again, the supply concern up to June, the materials up to there, you have visibility. And from April onwards, you said that you don't have a major concern. But even though you say that from July onwards, what kind of risks do exist? Probably you can't really say much at this point. However, at this point, can you elaborate on the risks that you can foresee at this point?

And my second question is related to the Americas business. Looking at the single month of March, you said that it turned to profit making. And the bathtub business in March, you completed the -- what you need to do. But moving forward, you're going to the sanitary products, the toilet business mainly. But the business in Americas, your competitiveness and the outlook, is this profit-making situation going to continue or not? Can you share your thoughts?

Thank you. Well, first of all, regarding the raw materials, we do have visibility. Well, given the current situation, depending on the company, there may be worries or the volume may go down. So in the very short-term, we kind of diversified our source of supply. So we're okay on that point. If there are some worries against or concerns against the supply, maybe there are some things that we didn't foresee beforehand. The most recent situation for a specific product, there's a plastic screw and the supplier of that screws, there was a situation where they may not be able to supply. So if we just look at this case, the material itself, the plastic manufacturer has a formula -- a special formula for this plastic material. And for us, regarding that raw material, the original material, we do know that. But it's not that the formula can be completed right away. And at that time, can they replace that ingredient? Their case is that they're not able to do that right away. Well, in that case, we are -- we solved it by consulting the parent company of that supplying company.

So generically speaking, this particular product, there's a shortage to it. That situation is being resolved. The government is putting efforts into that, and we are looking at many vendors. So there are areas that there is a bottleneck buying it from China or South Korea or Taiwan, we have such cases, and we're able to do that. However, for example, within the solvents that we use for this paint, we need to use this specific solvent. Companies that have that, they do struggle. So the supplier, suppliers may face problems. And also, as I have explained, our customers may buy something from other places. And because of that, may not be able to build the houses right away.

So the challenge we're facing regarding insulation material, similar challenges may occur. However, everybody is making their own efforts. So the procurement is now starting to normalize. So the panic situation that started at the outset of the situation, I think it is starting to calm down. But we do have the experience during the COVID pandemic, at that time, what took the longest time and what we struggled for the procurement and did not have sufficient level of the product is the rubber resin material that's used for the bathtub to prevent vibration. But something that we are concerned at this point, we have reached a point that we don't have to be worried about it. That is due to the efforts made by the employees.

And also regarding the second question about the Americas business, which is the faucet products and toilet or sanitary products. As a market, there's Home Depot or Forte brand, all of them for this fiscal year has quite of a difficult outlook. So the market itself is not so good. And the month, March is a month that volumes go out. So it doesn't mean that because March was a profit making that the following months will be the same. So we need to continue our efforts. But as per the Transition Service Agreement, we don't have that additional cost anymore. So we'll be able to reduce the number of distribution centers moving forward. And in terms of headcount, we are able to optimize this month.

Therefore, in this sense, of course, if the market further worsens, we do not know what is going to happen. But once we turn into black ink, of course, still concerns will continue. And it's not that we don't have any concerns, but I think we're able to make a certain level of improvement to maintain profit making.

[Operator Instructions] Next is Fukuhara-san from Jefferies Securities.

My name is Fukuhara from Jefferies. There are 2 questions. The first question, how you create your plans? If you look at Page [ 40 ] on your slide, so there is [ indiscernible ] of the negative. And I think this is because of the copper -- and copper and aluminum price issues. But if you look at the other page compared to February, there is an increase. So JPY 24.8 billion, is it possible that it would be further increasing?

And also in addition to that, the revenue plan on Page 28. So it's in yen base. But if we look in the local currencies, I think that there is a significant increase. So from the cost perspective and the top line, how did you use the numbers to create the plan?

We expect the cost to go up, especially plastics and aluminum, we believe that -- and also copper, it would go up compared to the original plan. We are working on to revise the price and increase the price even more. If the product is limited, the price increase will be limited, but we believe that we would need to increase the prices generally across the board. And I am not able to give you the specific numbers in terms and also when it will happen, but we would like to work on that as quickly as possible.

Copper price issues had already been clear, and we were to increase the price on July 1. And as for sash products. So for aluminum, we were to increase the prices in April and May, but we need to do that once more. We would like to do that as quickly as possible so that we can cover the cost that has been increased.

With regards to the revenue, currently, excluding China, all of the markets had bottomed out. There are, of course, differences market-by-market. And in the Middle East, it's growing more than 10% year-on-year. In terms of Japan, if we look just at April, compared to other companies, we were able to secure the products quicker. And because of this, we are growing about 3% to 4% year-on-year. So the current situation is not bad. But we need to see how the problem in Iran would spread and whether it would impact inflation, would it be impacting the interest rate. that's our concern. And our biggest concern is whether the new housing starts in Japan will again significantly go down. So currently, revenue-wise, I think that we are faring well.

I would like to go to the second question. Please look at Page 14. I would like to check the numbers. The core earnings and the in between core earnings and operating profit, there is something in between. And I think it was around JPY 10.1 billion for fiscal year '25. And it's -- the plan is JPY 7.5 billion. And I was wondering how you came up with JPY 7.5 billion. If this involves structural reform? I want to know your progress for the structural reform at this point in time.

Currently, there is no specific residual items that we need to work on for structural reform. But in China, the speed of the deterioration has been quicker. And also, we have to think about the contingency like in the Middle East. So that's why we have this number. So this is not a cumulative number of what we have at hand. But in other words, it's like a buffer. Is my understanding correct? Yes, because something would happen. And so it's not a structural reform figure, but because we are in a situation where the situation changes very quickly and also we probably need to close some of the plants in Japan, considering the market situation.

[Operator Instructions] Next question from Goldman Sachs Securities, Okada-san.

This is Okada from Goldman Sachs Securities. Regarding the Japan business, I have a question. Just before you said that various raw materials price is increasing and whether that's going to last for the medium to long term, and you do not know about that. But the thinner price has gone up by 75% and also paint and other products, the prices are also increasing. So probably the price of the house itself will increase. And if that is the case, the new housing starts I believe that there will be some people that will give up on the idea of purchasing a house. You are increasing the price. And if the overall industry increases their prices, I think there's a risk that the consumers themselves will not be able to catch up to that. So can you share your thoughts on this situation?

I may deviate from your main purpose of the question. However, what the shortage we experienced is like tolerant, acetone and thinner, all which is a solvent-related products. They are used in large quantities at the semiconductor manufacturing stage. And for manufacturing, they use acetone to cleanse or wash the molds. And if there's a shortage, they will not be able to move forward. So they kind of bought an excessive volume all at once. That is why this price increase has started. But how long is this going to last? I'm not sure. They're not just making one thing, but by various things being manufactured, the necessity of these raw materials will differ.

And just looking at solvents, yes, at the very first, they were -- solvent-related products are the ones that at the start experienced a shortage. But having said that, it is for sure that we need to increase the prices. And as a result of that, as we experienced like that post-COVID, because the overall prices are going up for those -- the first-time homebuyers, meaning that an affordable price housing, that is going to be difficult to be built. As a result, what the speed of that is going to be for such a situation to occur, the number of new housing starts, the declining speed may be quicker than what we expect.

So when we do face those times, what are we going to do? Well, Japan, as you know, against the population we have, the new housing starts -- we have a large number -- so the demand towards the houses is high, and we're able to grasp that good. So even though there's a 10% decline in the new housing starts, we're able to maintain a certain level of business. They gave up on building a new house, but they will do more of an insulation material in the house, but they gave up on building a new house, but they will renovate their kitchen and others.

So it's how we're going to bring in that demand in doing such a thing. So they say that they have JPY 30 million that they want to spend a new house, but they can use in the concrete or steel instead of using it for those materials, this JPY 30 million budget, they'll use it for kitchen or windows or using at several existing house equipment. If they do that, our share within that JPY 30 million is going to increase. So as -- this housing material or construction material manufacturers, how are we going to create the market? Through that, we'll be able to respond to the given situation. But the new housing starts itself, as you have pointed out, we expect that to go down. And we need to make a -- we need to do in a way that we will be able to offset those negative factors. So we need to increase the margin of the business. But towards the small-scale businesses, we'll use AI or BI so that we'll be able to suppress the overhead costs.

So last fiscal year, we were able to kind of embody on that situation. But I do understand your concern. And this fiscal year regarding the insulation materials, the supply stopping it. And in the long-term, if it's going to decline. So in the short-term, such a situation may happen. But thinking under the assumption that there's going to be a difficulty of procurement for a long time and all the products are price going up to 50%, 70%, setting that as an assumption, I think that's too extreme and misleading.

We would like to go to the next question from SMBC Nikko Securities, Kawashima-san.

This is Kawashima from SMBC Nikko. So there may be some overlap with other questions. The international LWT, how did you assume that there will be a significant increase? So in U.S., I don't know whether the red ink will be gone or significantly improved. And if that happens, there will be an improvement to the profitability by billions. But it seems that the plan is not that high. So do you expect other negative factors? So I want to understand what the balance is between the increase in the revenue and the profitability?

The U.S. business of American Standard, breaking even in that business would be conducive to improvement in the profitability. We had thought that we would be able to do more, but because European market had not done so well, we were not able to get to the level that we want it to be. So that's the biggest factor for the situation for the profit. So there -- the contribution to the profitability was not so high, it had gone from negative to 0. And last year, we were able to improve the value added in Europe, but we don't believe that we can continue it like that for this year.

This is Kawai from IR. I would like to make a supplementary comment. As you have seen, Kawashima-san, in the waterfall chart of Page 40, a JPY 9.2 billion increase for LWT and this is coming from the breakeven in the U.S. And it was JPY 55 million negative in the previous fiscal year. And also, there are some positives from the European market. So the recovery in the Americas market is something that's positively impacting this business.

So in terms of the revenue, is it -- was it too big in your assumption? So we have a lot of business from Europe and the exchange rate positives impacts a lot. So I don't think that the revenue plan is not too big. So the unit is not increasing so much, but the revenue is increasing, and that would impact the full year.

Next question from Daiwa Securities, Teraoka-san.

This is Teraoka from Daiwa Securities. This time, the impact of the Middle East situation is not reflected is what you said. And once you can foresee what's going to happen that, that will be reflected. This -- when you reflect the Middle East situation, is the guidance going towards a revised downwards or because you're considering the price optimization or increase that it is not necessarily the case that it will become that way. Can you share your thoughts on this?

Yes. At this point, actually, I think that there is a possibility that it will go both ways. That is why we wanted to fine-tune the numbers further before we share them. For example, as I have shared with you before, for us, in April, the revenue and the sales is very strong in the Japan business. The reason being is because us compared to the other peers at an earlier stage, we're able to normalize the procurement situation. How long is that going to last? We do not know.

However, even at this point, we're receiving multiple times -- more of orders than usual. And within that increase, there are things that are included where the delivery date is far down the road or it's just a temporary order. And if the other companies normalize, that this will probably disappear. So we do not know what the true situation is yet.

At the beginning of April, it was not completely clear in terms of the procurement. So probably year-on-year, it's about 103% or 104%, but it may be higher in May or there's a possibility it will not be that way as well. So for us, it's difficult to gain visibility on the situation.

And cost-wise, we are purchasing from various suppliers. Therefore, it's difficult to change from our original guidance or outlook. But we have our own price optimization. And that for us at a quick speed, we are going to apply it to a large volume of products. So we need to consider what that impact is going to become.

Sorry, it's not a straight answer. However, which direction are we going to go towards? We are not having the visibility on that at this point. Okay. We are -- I'm hoping that it will go towards a good direction.

The next question from CLSA, Mochizuki-san.

My name is Mochizuki from CLSA. So I can ask one question. But I would like to ask about the price revision. You would like to conduct the price revision to as many products as possible as quickly as possible. But in order to absorb the cost in the past, it took about 1 year or 2 years to do that. So this time around, the uncertainty is very high. So how long do you think it would take to absorb the cost, whether you would be able to absorb the cost in just one go or whether you would need to go in phases? Could you talk about the speed of how you would be able to absorb?

So this is the first -- so I think that you were the first one who had put the video on for this call. Thank you very much. So we want to be on a different speed level. That's because we are reflecting upon what has happened in COVID. It took a lot of effort to increase the prices during COVID, and we were not able to be aligned with each other division-by-division, and we had to think about how the competitors would do.

So what has happened is that we went first and the others followed. So what we need to do is to raise the price to the level that we require as quickly as possible. But how much in terms of the time period we would be able to cover is a different question. So if it's October 1, it would be 6 months, if it be 9 months, if it's July 1.

And another 2 factors that we need to think about is that next year, I believe that the aluminum prices will be coming down. Also, the plastic prices would probably stabilize. If we think about that, if we can raise the prices to where it needed to be in one go, I think we -- that would put us in a better situation than having to take a longer time to convince others. So if I talk too much, I would be giving too much tips to the competitors. So I will not say more, but we would like to get to the level where we would be able to absorb the increase in the cost in one go.

I'd like to take the next question from Morgan Stanley MUFG Securities, Yagi-san.

My name is Yagi from Morgan Stanley MUFG Securities. One question, and I may be overlapping with other questions. One thing, the situation in Middle East regarding the risk of it. Listening to your explanation, it seems like basically, it will depend on how it will last long or will be longer. And how much of a cost reduction can you make and how much of a price increase or price revision you can pass on is the key point for the procurement or the difficulty of procuring materials for July onwards, you do see have a visibility as well? So is it okay to have the understanding of that setup?

Yagi-san, I'm very happy that I can see your face and speak to you. As you said, what we have the most concern at this point is what we have to think of is that what can we do on our own? And what can we do on our own? There are 2 things.

The first is to have a wide diverse source of suppliers and at early timing to revise the prices as early as possible. But on the other hand, the things that we have no control over or there's a possibility we cannot control is consumers. They're trying to build a new house, but they don't have insulation material, but we don't handle insulation materials. So well, we do a little bit of it, but we're not the major player in the insulation material.

So is it 0 concern regarding that? That is not the case at the customer or where from our suppliers, they may experience a problem, and that may become the bottleneck. But thinking of the panic situation at the start, we have come into a stabilized situation. So towards your question, Yagi-san, it's like that. But having said that, there are many other things that we are worried about.

Sorry, just one thing. So in that sense, for the areas that you have no control is the insulation material? Is there anything else that you have a concern that you have no control over, for example, like raw materials? Where we have visibility is the installation material? But as Okada-san from Goldman Sachs is saying that when everything goes up in terms of price and the customers' interest shifts from houses to something else, how are we going to bring them back for the interest in renovation? Yes, of course, those type of concerns do exist. Understood. Thank you very much.

So thank you very much for all the questions. And because of the time, we apologize that we needed to limit the questions to 1 question. So if you could contact the IR office, we would like to respond to your further questions.

So related to Okada-san's question, there is something that I failed to respond to and also related to Yagi-san's question and also Mochizuki-san's question. There are difficulties to increasing the prices all in one go. But compared to the overseas competitors, the Japanese players are -- have not finished increasing the prices. The overseas competitors -- so they have been able to complete the price increases at an earlier stage of even after the COVID -- during COVID as well as Ukraine war. So as a Japanese player, we need to work on price increase.

Thank you, Seto-san. With this, we would like to close the earnings call for LIXIL Corporation for fiscal year ending March 2026. Thank you very much for your participation to this call.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]

It's time for us to start the third quarter financial results briefing for fiscal year ending March 31, 2026 for LIXIL 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. Kinya Seto, Director, Representative Executive Officer, President and CEO; Mariko Fujita, Executive Officer, Executive Vice President, CFO; Aya Kawai, Senior Vice President, Leader of the Investor 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 a presentation by Mr. Seto to explain to you about the earnings structure of LIXIL. 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 Mr. 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 JPY 36.5 billion and EBITDA is JPY 98.4 billion. In Japan, LWTJ and Living have continued to do well with increase in revenue and earnings. The renovation products 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. The Americas and China's sluggish business had been covered by the strong performance from Europe, Middle East and India. So there was ForEx losses. And because of that financial cost had increased year-on-year. Just like Q2 the expense 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, the 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 -- remain weak, but the subsidy for the window renovation would continue. As for Europe, we had expected in our road map that in fiscal year ending 2027, the housing market would recover, but the timing of the recovery is being delayed. As for IMEA, 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 JPY 1,138.5 billion, core earnings and EBITDA as well as profit have 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. And -- so the improvement in revenue in Europe and the Middle East has contributed, LHT improved and price optimization and renovation sales contributed enabling the segment to maintain the level from last year. Living, we saw a strong performance of the renovation area. And this is the business results by segment using the former segments, which I will skip.

Next is consolidated financial position. And the assets in Europe, this has increase due to currency translation impact. Equity ratio is at 34.4%.

Lastly is cash flow status as well as cash balance. And 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.

Thank you, Ms. Fujita. Next, I would like to invite CEO, Mr. Seto, to talk about LIXIL's earnings structure. Mr. Seto, please.

So we talk -- we have been talking about this to the investors as well as institutional investors, but I would like to give you more detailed information, so 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, it's 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 65x. PBR is 0.8x. On that matter, the -- there are assets which are -- with whose utilization is not high, but the -- 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 -- there are -- 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 the -- 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 reform 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 LIXIL 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. The -- so we are not able to make apple-to-apple comparison with our competitors, but our EBITDA level is quite high.

So in the Masco, Fortune Brands, Geberit, those are the highest earnings companies and their EBITDA is high. But from FY '23 to FY '25, the reason for growth, you need to have some footnote. So Geberit is using Swiss franc and has been appreciated from JPY 140 to JPY 200 and euro is also being appreciated. So there are positive factors for Masco as well. The Fortune Brands, they are working centering around U.S. dollars. So the growth rate compared to the other 2 is lower. However, their profitability rate is very high, 70% gross profit for Geberit and Fortune Brands and Masco, and in the faucet, they are -- that's their main product. So we have a bigger line of product. So our EBITDA level is quite good. So Roca and Villeroy & Boch in 2025, you see a significant increase in the numbers. This is because they have acquired Ideal Standards. So Fortune and Masco, they have been growing because of M&A. So considering that our organic numbers is not bad. So our -- we want the world to understand our core earnings power. So we want to normalize our core earnings and EBITDA.

And lastly, where we generate the EBITDA and from our perspective, we've been saying this, we have too much asset. And so we don't have to have too much capital expenditure. And investment was the software element like a brand or intellectual property or R&D-related investments. For those areas, they are essentially expensed. And because of that, they do lower the profit margin directly. But in the end, we are not investing in hardware, but we are investing in software that does linked to generating a large amount of cash in the end. So I'm sure some of you are fully versed in this type of information, so nothing new. But just in case, we wanted to provide this explanation. Thank you.

Thank you, Mr. Seto. We would like to now move on to the Q&A session. [Operator Instructions] First, I would like to ask Fukushima-san from Nomura Securities.

This is Fukushima. I have 2 questions. My first question, the price strategy in Japan is my first question. As you have said at the onset, the commodity prices are going up. On the other hand, if we look at the competitive environment, YKK had acquired the subsidiary of Panasonic and there is a big company who would be competing against you, under that environment, how would you be pricing your products? How would you be profitable in that environment?

So can I answer the first question?

Yes, please.

As you have said, what I am concerned the most about is the aluminum and copper prices, which have risen very rapidly. You may be aware of this, but it is not the increase in the demand. So there has been sluggish supply for aluminum [indiscernible] last year because the power -- electricity prices had gone up, they decided to conduct maintenance for a year. And Century, because of the operational issues, they had shut down and they decided to continue because of the electricity prices and also there is reluctancy from Rio Tinto.

And the supply of aluminum to Europe had dwindled and the price increase, the premium had gone up. The -- so because that's the situation. And when the prices had gone up at this level for April, because we had assumed last year's levels, we have to think about whether we would be increasing the price. We have to think strategically and we have to think about the competitive environment. One thing that works in our favor is that we are using scrap to 80%.

So there will be a time difference in getting the impact and the merger of YKK and Panasonic subsidiary. The -- it is not an increase in the competition because the lineup is separate and the number of competitors would remain the same. The competitors like YKK, so they were -- they had seen the less profitability when decided -- they decided not to raise the prices, but gotten the share. So for them -- so considering the business environment, I don't think that they would be taking that choice again.

Thank you very much. So from April, you will not be -- you may not be able to respond to the price increase, but considering the ratio of scrap, you would not be facing a situation where the profitability will be deteriorating rapidly, you would still have some time.

Well, there will be deterioration in the profitability, but it would not be in the extremes. And also, we would be able to buy time to take new initiatives.

Understood. My second question, I would like to ask about the U.S. business. So the U.S. Standard, it is posting the ordinary losses and the operational losses and you would be stopping the outsourcing, and you would be making the improvements. But as for the sanitary ware, I think last time you said that you would be increasing the prices to improve the profitability. So I would like to know the progress towards the next term, how do you see the situation of the profit for the U.S. business?

So having better product mix and better pricing that is being accepted in the market. So I think that the profitability will be improved but the environment is worse than what we had expected, and that's our concern. In terms of the deterioration in the market environment, One thing that concerns us is the ceramics and also the housing distribution is 30% less.

And so there is an affordability issue. President Trump had said that he would be making huge announcement in January, but he has not been able to do much so far. So I don't think that there will be easy improvement in the demand unless something happens towards the midterm elections. The market recovery is being delayed than what we had assumed. But we have been taking measures for rationalization. So I think that we would be good for the next term. But for -- but the bathtub business losses would continue, so we would still be in difficulties, but we will be able to improve next year. The competitors for the U.S., like China or the Asian players.

So if they are not able to sell because of tariffs, are you -- have you been able to improve the share?

Since November, we had seen increase in the share. So up to October, the inventories that the players had acquired before the tariffs had remained. But from November, we have been able to do take shares, but the demand is not increasing. So it's still sluggish. So thank you very much.

[Operator Instructions] So Miki-san from Citigroup Securities.

This is Miki from Citigroup Securities. I hope you can hear me. I'd like to ask 2 questions myself. The first question, you talked about the dispersing assets generating cash. But what type of the asset reserve are you thinking of right now? For example, structural reform in Japan. And from 2019, I think you've done something quite significant and you worked on the international after that. But -- so in the meantime, so you had inflation or interest rate increasing, which has caused the business environment to change quite significantly. So do we expect a very large structural reform in Japan domestically over the next year or so? That's my first question.

So as we have announced recently that we're going to stop. This is a subsidiary for exterior works, and so we will stop the operation of this entity and we announced that this will be embedded into the LIXIL. But your question, it's very sensitive. So anything we haven't announced, we can't talk about, of course, because from our perspective, whether it be Japan, domestically or for international, as I said before, we want to look at those businesses with a very low level of asset efficiency.

So we have this course of direction to try to -- we organized -- reorganized those or disposal of them. But even if the core earnings is negative, but we have already acquired, and we have already paid the cash. But on the other hand, the gas distribution is still being done right now. For those, we won't sell unless there are buyers for that. So it's difficult for me to give any further, I suppose, response in regards to your question. I hope you understand.

Well, then for the second question. You did not adjust your -- the earnings forecast. So whether it be core earnings or the net profit when you look at the progress, and I think you are performing well against the full year plan. So why didn't you not make adjustments? And segment-wise, if there are any changes to the initial -- the forecast? And so JPY 45.5 billion, but the JPY 29.6 billion, there is the slowness in terms of progress with zero buffer. So maybe if you could at least explain about the situation there?

So what we have not announced and we certainly cannot talk about, that's quite obvious. But for January to March quarter. Basically speaking, there are increasing, as opposed to uncertain elements. And the biggest one and the commodity price increasing to this level in January, this may have some impact on a short-term basis. We need to ascertain that. So that's one point. And subsidy in Japan, and decision has been made to have that being provided. But the next subsidy -- and for this year's, the subsidy starting in April, the details have not been finalized as yet. We have not been able to engage in activities on that at this point in time, not just the commodity pricing now, but whether it be Europe or U.S. or the world is seeing a lot of developments.

But for the demand for the new builds, I think there is people are waiting for the new policy to be announced. And so how would that reflect into the fourth quarter numbers. We don't have, I suppose, the conviction on that as yet. And also something that I mentioned before, we need to implement various initiatives, address various things. And so jump into the conclusion, we can't announce what we don't know. That is where we have kind of arrived at. And the numbers right now is good. We -- and probably the numbers until now have been better than we had thought, but fourth quarter, this is going to be a quarter we need to be very careful about, be cautious about and this is as a result of the commodity price, the global situation as we have explained thus far.

And also the new housing starts in Japan too. This year, so we expected about 2% decrease, but we saw a 13.7% decrease from April to November. And this is unlikely from the impact of amendment or Building Standards Act abolition article for special provision. So would there be a pent-up demand associated with going forward, would we see further deterioration of the succession from where we are? We don't the science of where we may end up with at this point in time. And also the general construction companies may be announcing this, but the projects are delayed all around the world.

As of March, project that we had expected completion, but the Japanese general construction companies are saying that they are likely to be pushed back into April onwards. And the reason for that is lack of the craftsman and in the case of Japan, the facility providers lack capability or capacity, not being able to address the demand and so this is happening in other countries in different ways.

So in the case of U.S., immigrant workers cannot go to the site of work, and that has led to the project not being completed, leading to delay in the case of Europe politically and, inability to make decisions. And there were -- there's been a lack of strong majority, have not been able to make decision about policies, which has led to delays in permit leading to the project delays. And so overall, there are projects being delayed. The demand does exist, but the projects are being delayed. This is also a worrying situation for us as well.

The next question is from Goldman Sachs, Okada-san.

This is Okada from Goldman Sachs. I have 2 questions for you. As for the European market as well as the Middle East market. It is doing well in the cumulative third quarter, Germany and France, which are the central players in Europe. Overall, the economy is weak, is what I have heard. The growing sales growth is in the positive. But I would like to know the background to it. And France and Germany are sluggish. But would they be giving a negative impact to the overall business? That's my first question.

As for the market in Europe, we have the same view. The reason why growing has been doing well is because of the high-end products like G4, G5 applied products, which are the color products. So the -- so it is replacing a Nickel-Chromium products. And even though the number of units does not change so much, the ASP is higher. And because of that, we have been able to grow in Europe.

So going forward, the situation is mixed. So when we look at the project pipeline, we have a very enhanced pipeline but in Europe, the administration is unstable and the approval is now lagging behind in European countries. In 2026, we had expected that starting from April, there would be a recovery of the economy, but the policies, which were supposed to be in place is not in place yet. So we believe now that the recovery will be towards the second half of the year.

You talked about the earnings structure. And you talked about tax management. And with regards to that, you talked about the potential of divesting assets. But is there a need to have negotiation with the competent authorities or with the accounting firms, and the reason why the tax management is not optimal, it's probably because of the acquisitions that you have made in the past. But could you talk a little bit more about that?

We are working for optimization in this area. We don't need to convince the tax authorities or the accounting firms. But when we had acquired the companies in the past, we did not think thoroughly and we were not able to get to the optimal tax management. So we would like to fix that. And we are not getting any warnings or anything from the tax authorities or the accounting firms at this moment. So how we distribute the product, how we allocate our technology. We need to scrutinize that, we believe that the burden is too high for Japan.

So we need to sort that out. But to your question, we do not need to change the formalities that we have in place. But rather it will be about where to place the earnings and where to allocate the technology too. So we need to review those things. And it would take about 1 to 2 years on that.

Yes. I would like to make a supplementary comment on that matter. As Mr. Seto mentioned, so where IP is as well as how the distribution system works. So upon the acquisition, we were not able to structure it in an optimal manner. So we would work on to optimize that within our compliance framework and the tax expenses, which go beyond the effective tax levels, we would like to get it to the effective tax levels.

So next question is from SMBC Nikko Securities, Kawashima-san.

This is Kawashima from Nikko Securities. I would like to ask 2 questions. The first question is in regards to the image for the medium-term performance, and so you shared with us the image for the 2027 and 2028, March and the outlook and the commodity and the market condition, I think you talked about that external environment remains to be tough, but positive impact internal factors, which is going well towards those -- if you could share some information in that regard?

Well, things that's not going as well as back then. Well, the recovery in Europe the economic condition, this has been slower than what we had expected, but something that has performed better than we had expected that is conversion to the renovation business in Japan. And as I was explaining before, but the Japanese housing starts from April to November and the 8 months, it came down by 13.7% year-on-year, but we were still able to increase the revenue and profit.

And the reason why we were able to do that was firstly, and this is something that we always talk about that the renovation business has higher profit margin, but SG&A also ends up being higher. And so that does have impact on profitability. So we were using AI or DX digital transformation, utilizing digital technology. And we have essentially worked on lowering the cost, which has enabled us to improve profit margin, and we've been able to do that in terms of demand cultivation, and we were able to secure an extension of the subsidies on this occasion.

So given the backdrop for us how can we have the understanding of our customers in regards to the window renovation. I think we have a better idea as to how we can do this. So despite the poor market condition, we have been able to grow the Japanese business despite the headwind. I think this is a positive. And another positive factor and that's actually balanced against what is good, but China is probably worse than what you had expected, but we were able to see improvement in the middle and near East, which was able to offset that negative in China, which is a pretty good thing.

The second question, and I want to ask about numbers. In terms of the profitability structure as you have explained, right now, the depreciation is greater than investment and once they balance, then due to decreasing the depreciation and amortization, we expect there to be a profit improvement. But because of the FX impact, we are not seeing the decrease in differentiation and amortization cost. But in terms of the tangible asset, how many years are depreciated over, so that will have impact.

But overall how long period can we see the balance between depreciation and investment and how -- do you have any numbers in mind of improvement? And so the depreciation of the acquisition of the tangible assets as reported in the financial statement. I think there is probably JPY 4 billion to JPY 7 billion -- sorry, JPY 6 billion to JPY 7 billion of the gap there.

Well, it's not easy to respond because of various things. But from our perspective, the -- in terms of tangible fixed asset, what is the biggest factor for reduction and would be factory facilities. And there, from our perspective, and does relate to the previous question. But again, I can't talk about what we haven't announced as yet, but in Japan or in Japan and -- sorry, overseas as well to generate profit with a relatively small asset. That is the course of direction that we're trying to pursue.

And so the facilities or the plants we have the possibility of being able to work on that aspect. It's not just the how many years that we have those plans are being depreciated over, but I think there are still a lot of room that we are able to work on to make improvements. But if I start to talk about numbers, I end up talking more specifics so I can't really do so. But we are looking at the greater number than what you have referred to in terms of reduction of depreciation expense.

So investment and the depreciation, it's not just the cycle there, but you're going to do something that is a little more significant. Is that right?

Yes. Well, investment itself. So investment was a tangible asset, we are not thinking of doing anything major in that area. So conversely speaking, and by organizing the assets to an extent, we will no longer require maintenance investment for that, that would lead to a reduction in the amount of investment required. And so in that regard, so we already have a structure of being able to generate cash. And so in terms of accounting profit, in order for it to become more visible, I think there are things that we can do.

We would like to move on to the next question from CLSA, Mochizuki-san.

I have 2 questions. The first question is related to the outlook for the next fiscal year. I think you have given some tips today, but the business environment is very bad. So if we look just at the net profit, I -- is it okay to understand that the net profit may be in the losses. So I don't know about whether core earnings will be going up or not. But if you are going to conduct structural reform, then there will be costs associated with it. So I thought that you may be in the net losses, so regardless of the numbers.

So well, we don't want that to happen. So in the past 2 years, we have worked on the areas where it would incur losses first in the past 2 years. So in terms of the structural reform, the area where we would work on, I would have less losses. And also, there are -- there is a possibility that it would generate the profit. So considering the net profit levels now, we cannot go lower than that. So we are not expecting the net profit to be in the negative, and we believe that we can increase the core earnings.

But of course, the difficult environment continues. But what I would like you to understand is that this fiscal year, we had in a very severe situation even worse than last fiscal year. But we have been able to post better performance. In terms of next year, we don't believe it would be as difficult as the previous years. Of course, we need to wait and see how the commodity prices would impact us. But this is something that we have already experienced in the past. We would like to continue to work on things in a steady manner.

My second question...

Sorry, Kawai-san from IR has supplementary comment.

So this year, there has -- a JPY 12 billion has been decreased from the tax system change, but this is one time. So it would not happen next year. So please understand that this JPY 12 billion is a onetime thing, which occurred this year.

JPY 12 billion less tax.

Right, that impacted net profit. But we would not have that kind of tax reduction next fiscal year. So please compare it to make the comparison without that JPY 12 billion. But we will not be decreasing the net profit. That's what we are aiming for.

So the tax cost, onetime positive impact would not be there next year, but you want us to expect that you would work hard to improve your performance?

That's correct.

My second question is related to ROE. So Seto-san, you have said that we should look at EBITDA in terms of your earnings power? And the cost is different region by region under EBITDA, but the -- a lot of shareholders are focusing on ROA. And I think regrettably, that your level of ROA is still low. It -- so for the coming several years, I believe that it would be difficult to improve the ROE, considering the capital cost. Do you think you would be able to improve it?

Of course, we believe that we can improve it. We would work on to reduce the depreciation and we will improve the tax management so that the net profit will be improved and thus better ROE. And also for the denominator, if we are able to sort out properly, we would be able to get better and ROE will be improved. But compared to capital cost, there may be some difficulties.

So there are cash flows in the past, and how we view it is the issue here. For example, we had acquired something at JPY 10 billion, but the -- and the cash outflow is JPY 20 billion to JPY 30 billion. But the past cash outflow should -- it's a past cash flow. But if it's generating JPY 20 billion to JPY 30 million cash, that would be -- that's a good thing for the shareholders. And if it's in the negative like Permasteelisa, we should be divesting it right away. But even if it's inefficient, you -- it may be generating cash. And if it's hard to sell, we -- it may be better to keep it.

So that's why I have been saying that please look at EBITDA. If we are to improve ROE, one way is to sell everything, which are inefficient, but that would not be at all positive for the shareholders. So of course, capital cost is very important to us, but capital costs should not be looked at just with snapshot. And so sometimes, we need to consider it as a sunk cost. So we should avoid the -- putting too much cost into the sunk cost. But Mochizuki-san, but I don't want to keep my company hovering low. And if it's optimal, we would be selling the assets where we can. So please monitor us.

So we are supporting you, and I will do my best to write good reports.

So next question is from Morgan Stanley MUFJ Securities, Yagi-san.

Thank you for the explanation. This is Yagi from Morgan Stanley MUFJ Securities. I have 2 questions. First question is regards to American Standard. So for the American Standard, if we only look at the third quarter, then the metal loss has deteriorated year-on-year. Now this is due to demand related reason only? Or is there other factors that has led to that result?

And demand and forecast remains to be quite tough. But for next fiscal year to -- I think you expect a turnaround to generating profit, but based on the forecast right now, the timing of this, is it likely to be later than what you had initially considered. So please explain your thinking in regards to American Standard.

As for the third quarter, what you said is right. Demand was quite significant. But another factor is that ourselves in the second quarter, we introduced a new system and the installation of the system did not go as well as hoped. And so there were delay in shipment to the customer. So that is what we have experienced in the second quarter. And so as a consequence, some of the orders were canceled in the third quarter. So we did have that kind of special reason.

But the third quarter overall was not strong, mainly because of demand factors. And for the third quarter and the fourth quarter, home repair, the rose of Ferguson, they has downgraded their forecast more than we had expected. And so the demand is poor, that is without a fact -- without a question of fact. And that may have impact on turnaround next year. And so the fact that demand is weak. So we are implementing additional measures with that in mind, and that is what we are doing to reduce cost additionally. And so we don't feel that there is a need for us to change our position that we're going to achieve a turnaround next year.

If possible, anything you can mention in terms of measures to reduce cost?

Well, sorry, I can't talk about the initiatives in that area.

Okay. My second question is in regards to your thinking about domestic business, so the new starts are quite poor right now, but the remodeling is quite good, but I can't really expect a significant increase in revenue. But in terms of the cost pass on, you have explained about this, but if this is delayed, then the impact of the cost increase, how can you offset that to achieve increase in profit going forward. So could you explain the factors to enable profit increase next fiscal year for Japan domestically?

First, in regards to commodity pricing and just to make sure, aluminum and copper accounts for most largest portion, aluminum domestic, copper is more for international business. For international business, relatively speaking, we have G4, the product lineup, which is more premier and G3 is upper mass. This is also the main area. So it's easier to pass on cost.

But for our medium product in Japan domestically on the other hand, so it's not that easy to pass on our cost. But our competitors, they didn't actually increase the price when a situation like this occurred, and they went after market share. But in the end, they did not really generate good business performance. So in that regard, from the number gains, and I think they will respond to that the next time. So that is likely to see greater progress in terms of the cost pass on. But for April, we have prepared until December to see the price increase. And so we probably have to do something additional to address that.

Now in that regard, what can we do additionally? Well, what was successful in the past is for now, we have not been able to fully use our subsidy a couple of years ago. But last year, in the second half of the year, we were able to utilize the subsidy at quite a high ratio. So how can we consume a subsidy. We now know how to do that. So we should be able to make a good start post April with a new subsidy being provided. And we have this strength of the digital and AI progress. And so we still are able to generate profit even if we go to a smaller project, I don't think we have advantage of others in that regard.

The next question from Jefferies, Fukuhara-san.

This is Fukuhara from Jefferies. I have 2 questions. The first question. The raw material prices that you have mentioned, the copper and aluminum. Towards the end of the slides, there was a chart of the evolution of the pricing. And you also have written the assumption for those prices. So in the recent days, there has been rapid increase in the copper and aluminum. Could you explain about how much impact that there would be in terms of sensitivity of the price fluctuation in those raw materials. And in terms of the rapid increase of those raw materials, I would like to think that it would not be impacting the fourth quarter figures, but what's the situation? So please talk about sensitivity.

Fukuhara-san, thank you so much. This is Kawai from IR office. And in terms of the sensitivity, we do not disclose that. So the -- and we do not disclose the amount of the procurement. So I would like to talk about that when you come for the IR meeting.

So in terms of the fourth quarter impact, so the increase in the pricing in the third quarter will be impacting in the fourth quarter, and the price increase in fourth quarter will be impacting the first quarter. So when we look at the whole year, the project delays would be impacting the sales and the commodity prices, then will have a full effect in terms of the impact.

So in terms of how much, well, we are calculating right now because this is ongoing in January. But what would be most beneficial for us is to increase the ratio of scrap. The scrap ratio at our company, the usage is a lot higher. So for aluminum, 80% is scrap. We had tried increasing the ratio, and we have experimented the 90% aluminum scrap ratio, and we have succeeded in that. So by using the scrap, we would be able to delay the impact of the price increase.

So that would be a competitive edge for us. So under the current environment, what we don't know is the consumers' behavior, whether they would place an order before the price increase? Or would there be impact, more impact from the delay in projects. So there has been a rapid increase in prices of raw materials. So we have not decided the next step yet. That's my frank response to your question.

Understood. My next question. So I think there are a lot of things that you still cannot say about the fourth quarter. But at the end of April, you have given us the outlook for next fiscal year in March. And for core earnings, you have eyed on JPY 65 billion, and you have not gotten to that level yet. So this JPY 65 billion in core earnings for the next fiscal year. To me, it seems that it's difficult to accomplish, but how close would you be able to get to the JPY 65 billion?

I would not be able to provide an answer at this moment in time. But the environment surrounding us is changing and the delay in recovery of the European market is hurting us and also in the short term, the commodity price hike. And also, we did not envision that the new construction starts would be declined so much. And also now we have clarity to how we would be using the subsidy and also how we can reduce the cost in the renovation business is something that's more clear to us. And also in the mid- to nearest East, we are a forerunner there, and we are doing better than we had first expected in that market. So we would like to reflect that into the next budget. I am not able to talk about the specific figures because it would be misleading.

So we have responded to all of the questions that we have been asked thus far. It seems that there are no further questions. So with this, I would like to conclude the Q&A part. So with that, we want to conclude the third quarter financial results for the fiscal year ended March 31, 2026, the analyst and investor explanation meeting. So thank you very much for your participation. The meeting is concluded.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]

It is time for us to start LIXIL Corporation's first half financial results for the fiscal year ending March 31, 2026. This briefing is streamed live online. The material for this briefing is on our website in the Investor Relations page.

First, I would like to introduce to you our presenters. Director, Representative Executive Officer and President and CEO, Kinya Seto. Next, Executive Officer, Executive Vice President and CFO, Mariko Fujita; Senior Vice President, Leader of the Investor Relations Office, Aya Kawai.

I will be serving as the moderator. My name is Setoguchi from IR office.

Next, I would like to explain how we proceed. First, Fujita, the CFO, will give you the overview of the financial results. It would be followed by a Q&A session. During the Q&A, CEO, Seto, will join and entertain your questions. We expect to conclude at 3:45 p.m.

Ms. Fujita, the CFO, will give you the overview of the financial results. Fujita-san, please.

Hello, ladies and gentlemen. My name is Fujita. I would like to give you the financial results for the first half for the fiscal year ending March 31, 2026. This is the overview of the results. Revenue decreased while core earnings and EBITDA increased year-on-year. As for the Japanese market, in Q1 there was a surge in demand. So in Q2, we saw reactionary slowdown. However, the renovation sales of water-related products remained solid. LHT's core earnings remained flat due to additional costs associated with the ceramic siding business. Because of this, the core earnings were flat, but renovation sales were trending upward from September onwards, driven by promotional efforts.

As for the international market, the revenue decreased, but the profits substantially improved. Europe and Middle East and India has seen strong performance. As for Americas and China, housing markets remain sluggish. As for others, in Germany, there was a change in the corporate tax rate. Because of this, the tax expenses decreased. The full year earnings forecast remains unchanged. We are now scrutinizing various elements currently. There is no change in the full year dividend forecast. So resolved interim dividend remains JPY 45 per share.

Next is business environment outlook for fiscal year '26, the Japan business. So the new housing starts remain sluggish, but renovation sales is driving strong performance. Each business is facing different situation. But as for LWT in Japan, showroom visitor numbers saw upward trend in August and September. As for LHT, we have conducted the promotion for products eligible for the window renovation subsidy and the sales is expected to increase from quarter 3 onwards. In the Living segment, we are focusing on the higher-end products.

So next is the international market. There is a global trend of interest rate cuts. But in Europe, because of the instability in the government in Europe, there has been delays in policy decisions to promote housing construction.

So I would like to go one by one in terms of the region. First is the U.S. U.S. will be entering an interest rate cut phase. Mortgage rates are declining somewhat compared to peak levels. However, the tariffs and immigration policies is slowing down the housing market recovery. So we believe that the difficult circumstances to last through this fiscal year. However, we have worked on the price optimization as well as structural reforms, and we expect the result of that to materialize gradually. And we believe that the situation, the sluggish situation has bottomed out in the first half.

Next is Europe and IMEA regions. In Europe, we expect the full market recovery to happen next year onwards. Sales improved and the color products have improved and the sales improved by 5% year-on-year. So you see in the bottom graph, the composition ratio of color products to total faucet sales and the revenue grew 32% year-on-year.

As for Asia Pacific and China, I would like to talk about China for this region. China sanitary ware market remains challenging due to weak economic condition and intense competition. However, growing products are a strong point, and we are focusing in that. And we saw improvement of the sales of the growing product by 25%.

This is the performance highlights for the first half. Revenue was JPY 735.9 billion, core earnings, JPY 16.9 billion. So there was revenue decrease and core earnings increase. EBITDA and profit has improved as well.

Next is the consolidated business result for the first half of the year. The numbers have been explained on the previous page, but if you look at the gross profit ratio, it has picked up by 1.6 percentage point year-on-year. And this is a point that I wanted to highlight on this page.

Next page is the business results by segment. For LWT, both for Japan and international business, we saw profit increase. And this was due to high profitability, the Europe and Middle East showing recovery in sales making contribution. LHT, the sales did come down slightly, but price optimization and renovation increases has enabled profit to remain flat. Living, the sales for renovation has progressed strongly. As a consequence, we were able to see both revenue and profit increase. This page is essentially, the previous page described based on the previous reporting segments. So allow me to skip this page.

Next page is the situation concerning our balance sheet and consolidated financial position. For total assets, this increased slightly. And this is due to the assets held in Europe increasing due to foreign currency translation. The impact of -- the foreign currency impact is JPY 46.6 billion.

And the final page, and this is the cash flow and the cash balance. As for the free cash flow, we have been able to remain positive. As for the operating cash flow, this did come down year-on-year. However, this was due to the increase in inventory assets. So we consider this to be only temporary.

And that completes my explanation for today. Thank you.

Thank you very much, Ms. Fujita. We will move on to Q&A session now. But before taking your questions, Mr. Seto, the CEO, will give supplementary comments about the financial results.

Mr. Seto, the floor is yours.

Middle East, near East and India, excluding those regions, the situation was not so good. But even facing that situation, we were doing relatively well. In Japan, there was a last-minute demand in April and the new housing starts had deteriorated after that. April to September, there was a decline by 18% in the new housing starts. This was the record high decline. However, we were able to improve our profitability. We were able to grow both revenue and profit. That was good news for us in the area of renovation. The only weak area was a window renovation but from September, we are seeing a very speedy recovery. So in Japan, the situation overall is bad, but we were able to do well.

In the international market, the biggest concern is the U.S. In the first half, we are confident that we have bottomed out in that market. Towards the second half, we would be seeing the results of our structural reform materialize and the structural reform in the backup that we have conducted as a significant reform, we will see fruitful results in the second half. So we believe the situation has bottomed out in the U.S. market.

As for Europe, the color products have seen increase in the share. Compared to the first half, the one concern that we have is that -- so we had expected the interest rate will be cut and the policy decisions will be made for the construction area, but we are seeing delay in the policy decisions made by the government. In the European countries, there are a lot of instability in the government. There are right wing governments, left wing governments. And because of this fluctuation, there has been no decision -- policy decision being made. However, what we can say is that the demand is high. However, because of the increase in the cost of supply has been insufficient the customers in the mass segment to below, they cannot buy the houses. And this applies in the U.S. as well. So there needs to be some policy decisions made by the government in this area.

As for China, we believe that they would -- the market will face difficult situation for quite some time. However, even in that situation, it is growing 25% year-on-year. The high-end products have been faring well even under difficult circumstances. As for the IMEA region, we have been doing better and the market share is growing. The second half concerns, if we look in the longer term, will be the policy decision made by the government in Europe and U.S. So we want to see a better situation for that.

Thank you very much, Mr. Seto. So we'd like to receive questions from the participants. [Operator Instructions]

[Operator Instructions] I would like to go to the first question from Nomura Securities, Fukushima-san.

This is Fukushima from Nomura Securities. Can you hear me? I have 2 questions. So now the first question. For Japan to begin with, so as the CEO has explained, the -- from April to September, 18% decrease in new housing starts and the impact of this, would this be reflected with a delay to your sales? Should we consider this as a risk or not?

Also, in terms of the window renovation, the advanced window renovation, if we look at the government, the web page, only 43% of the budget has been consumed thus far, it's quite low. And so I am somewhat concerned as to whether budget will be provided for this purpose next year or not. So please comment on that as well. That's the first question.

In regards to the new housing starts, there have been delayed. Well, from our perspective, we don't expect that to appear with a delay because we are planning based on a low level to begin with. So in that regard, even in this type of situation, the fact that we have been able to generate this level of sales means that we have been able to strengthen our position inclusive of our renovation business. And so I don't think you need to be too concerned about this. And the market overall is showing demand decrease, but we feel that we have been able to increase our market share.

Now in terms of window renovation, true, in the first half of this year, it was quite challenging. So during the summer, we've conducted a campaign targeting the Tokyo Metropolitan area in general, particularly for the Tokyo, window renovation, in addition to the national program, there is a Tokyo -- the Metropolitan Government and the 23 Wards, they all provided separate subsidies. And so in the Tokyo, you can undertake window renovation at a very low cost. So we've conducted the campaign. And so we have had a very strong demand from September to November. And so we have recovered to a level greater than what we saw last year.

But what will happen to the national policy? That is not something we can really make comment on. But what we have heard is that the related, the ministries and agencies -- so we're thinking about the carbon neutrality policies and what they can count on is the housing area, particularly the impact of window is quite high. And so whether it be METI or the Ministry of the Environment or the Ministry of Land Infrastructure, Transport and Tourism, they all share that view. And so the government changing their support for window is not something that I'm expecting at this point in time. So we now have the new government. So we are not able to talk anything specific in this area, but our expectation is for the program to continue. So that is our hypothesis.

So I'd like to ask the second question. And so the sanitary ware business in the U.S. Previously, I think you've mentioned that for yourself in U.S., what you are selling, the sanitary ware is produced in Mexico. And so you are competing against China and the Asian companies, but it seems that the tariff is going to be applied to China and the Asian companies, but no tariff is applied to Mexico. So that would lead to enhancing your competitiveness leading to potential increase in the market share. I think that was what you have said previously. But are you really seeing that right now? So if you can explain the current situation in that regard. So that's my second question.

What has happened in practice is that we are expecting tariff to increase in April. And Asia and China, the sanitary ware, the manufacturers, they actually consume a lot of inventory. And so as of September, the rush or the last-minute demand has kind of disappeared. And we stopped importing from Asia as well from ourselves. And so the number supplied is being reduced, but we have changed the portfolio to increase pricing on average. And that was kind of an initiative that we have implemented and that the pricing impact will be shown in November, and we will see a lot of these materialize in January.

And again, another materialization in April next year. And so October, January and April next year. And so the restructuring of the business that we've done last year will show result because the transition service agreement will be disappeared at this point in time. So we will see the improvement in 3 stages going forward.

In other words, the market share has not increased right now, but you're expecting the share to increase going forward. And you're going to see that increases even with the price increase. And so essentially, the economics will also improve.

Well, we are not expecting market share to increase because in regards to those with a low profitability towards the low end, we are not going to continue with those. And U.S. overall, when the China or Asian product come in, the retail sales for lower-end product, when you look at the market overall, the market share of the low-end product kind of increase. And so if the Asians are not providing the low-end product and for us not coming up with too much product there, we want to change the market structure in U.S. overall to that, which is a little bit more higher end. And so we're not going to go for market share at the lower end.

So volume-wise, what we brought from Asia, we do have some portion of that we will be reducing those. So the market share for the market overall is not going to increase necessarily, but we want to increase the average price. That's what we want to target.

Understood. By the way, what is the level of price increase? Do you have any quantitative benefit of that?

Well, sorry. And so we have a number of our customers and distribution. We have a confidentiality agreement with them. So I'm unable to speak about those numbers. And there are different timings for that to be implemented. If I mention these numbers, then from the customers' perspective, they understand what we are doing. So please allow me not to refer to that.

So a different perspective. So that's already reflected in this -- the guidance. It is included in the forecast, but April to September, and if we look at the balances, the first versus second half of the year, larger weighting towards the second half of the year.

The next question from Goldman Sachs, Okada-san.

This is Okada from Goldman Sachs. I have 2 questions. My first question related to LWT business in Japan. In the first quarter, the renovation products sales had gone up by 11% year-on-year. In the second quarter, plus 7%. So there is an increase. So compared to competitors, I think that this ratio of increase is higher. So have you been able to gain market share? Or are the competitors doing something to counter that?

So it's like prisoner's dilemma. The demand overall is coming down, and it would be better not to go for a race to the bottom. And we decided to increase the price first. So this kind of message not to compete to get to the lowering of the prices. So lowering of the price will be digging the gray for all the players in the industry. So the industrial understanding of that is improving, but there are some companies who would still try to capture the customers by price. I would not be naming them. But there are several companies like that. They would decrease the price once their market share would even slightly go down but this is not a game that we are playing on our own. So it's very difficult to navigate through this industry, but LIXIL has differentiated products.

And LIXIL has digital services, inclusive of the retail industry. And we have been received well by the construction companies as well as the builders. And we believe that we can increase our market share through those initiatives.

My second question, I would like to know your prospect for the U.S. business. You said earlier that through structural reform that you have conducted in the past, you expect improvement in the profit. The interest rate in the mortgage is decreasing, but there has been declining in the employment, for example. And I was wondering if those things would negatively impact you? And how do you see the market situation from the next year on?

I wanted to talk about that myself. Last year, in the fall, around the same time of last year, there was builders conference at Harvard University. The builders had expected at that time that 2025 will be a good year for them. However, in reality, 2025 was not a good year. And 2 weeks ago, the same conference occurred and the builders had expected that next year will be even worse year. So the bad situation will continue into next year.

The supply shortage had remained in the market for a long time. The high-end customers are building, but mass to low-end customers have not been able to buy the houses, and there has not been new housing starts for the rental housing as well. So the U.S. is facing very critical situation. There are 1 million homeless people. In Japan, there are only 1,000 homeless people. So the significance of the homeless problem is very big in the U.S. And the loan -- the mortgage rate is not coming down so much. And also the timber, the aluminum, steel all of them are seeing increase in the price because of the tariffs. So the affordability of the housing is significantly coming down. So 5 to 6 years ago, the housing average price was about 3x more than the average income. Now it's 5x the average income to buy a house.

So frankly speaking, everyone wants to buy a house, but they cannot buy homes. So this -- so if you try to change the situation around for the better, the central government, the Trump administration should do something or the state government should do something that would enable the middle to low-income people to be able to buy housing. And this problem is happening in Europe as well. The interest rate cuts have been happening in Europe already. And in Europe, there is also inflation. And another issue about building a house is that there are many policies related to environmental friendliness, and it's very difficult to build a house.

In spring of this year, in Germany and France, in bigger markets, we had expected that there will be a policy implemented to promote the buying of the houses. However, in Europe, the ruling parties are very weak now because there are many small the small parties, which are going against the ruling parties, and it's very difficult to implement policies. So what we see in the U.S. and Europe is that there are a lot of demand, but supply is small. And even if there are supply, the price tends to be very high. So the actual supply in the market has been very difficult. So the situation in the U.S. is more severe in the U.S. than Europe, and there's not been a policy solution for this.

And this is related to Fukushima-san's question earlier. But rather than going after the market share, we should be improving our portfolio position. Toto, our competitor has been doing very well in this area. They had very good portfolio position. So compared to us or car, I think they are having a very stable business. So what LIXIL has to do in the U.S. market is to pursue improvement of the portfolio position rather than increasing the market share.

So I'd like to proceed to the next question from SMBC Nikko Securities, Kawashima-san.

This is Kawashima from Nikko Securities. I have 2 questions. First question is simple. So the ceramic findings, the additional cost was something that you have mentioned. Could you explain the details of that? So I think this was booked as some other expenses, but is there something that will have impact on the core earnings?

And the second question is to do with the core earnings in Japan. If we compare the first quarter to the second quarter, and from a seasonal perspective, you should generate greater profit in the second half of the year. But LWT and Living, that wasn't the case on this occasion, it seems. And the factors were the rebound to the last-minute demand or the expense timing of SG&A, but renovation increase rate was a lot slower in the second quarter versus the first quarter. So was the first quarter too good as a result? Was it more the competitive landscape that has having impact? Or is there other factors where we are seeing some slowdown in the second quarter? So if we look at the situation on a Q-on-Q basis, could you give some explanation of how that had occurred?

Well, the fact that if we had continued with the ceramic business more, LHT would have achieved a stronger growth in the second quarter. And it's not -- what will have impact on the core earnings rather than the other expenses. So if we were to discontinue with the business, of course, the orders will come down. And so the business will become more difficult. So it may be difficult to secure the fixed cost. And if it is inventory, long-tail inventory, of course, so if we expect to be able to sell that in the future, then it's the inventory. But if we are going to discontinue with the business, we may have to dispose of those inventory, write them off. So more difficult.

And of course, capacity utilization rate will come down as a consequence, too. But there is a responsibility to supply. We need to continue for a certain period. So it's quite a tough environment under which we need to conduct our business and also from the customers' perspective, so there could be a complaint if we don't address this immediately. So inclusive of those in the second quarter for quite a large portion, inclusive of what could occur in the future. Maybe we didn't have to actually take so much into consideration now, but we've actually expensed some quite excessively. So we did see quite a significant drop in terms of our core earnings. And so we want to discontinue the ceramics business by the end of this fiscal year. So we've actually took quite a full sided view in the second quarter as well.

And this is Kawai from IR Department. Please allow me to respond to your second question. And as Kawashima-san has explained, in comparison to the first quarter and the second quarter, LWT, Living in both segments, the new housing so there was a rebound decline in the second half -- second quarter vis-a-vis the first quarter because of the last-minute demand there.

In terms of renovation growth rate, if we make the Q-on-Q comparison, the second quarter was slightly slower than the first quarter. As a consequence, the business -- the core earnings did come down slightly. And in terms of Living, so we saw a strong performance for the kitchen in the first quarter, particularly the high durability product, but there was a slight slowness in the second quarter vis-a-vis the first quarter.

So the first point, so ceramic sidings, is there anything that you can share quantitatively? And the renovation growth slowing down somewhat. Are you saying the level in the second quarter that is a more normalized level or meaning that the first quarter was too good?

Roughly, about JPY 2 billion, so more than expected overall in terms of ceramics in the second quarter. And this was as a result of quite a bold the response that we have implemented. Comparing first and the second quarters, the last minute demand in April was, of course, quite notable. And of course, it is quite a sizable business that ends up reducing cost, SG&A ends up being lower as well. So if you say that the first quarter was too good, then I certainly cannot negate that.

[Operator Instructions] So I would like to ask Mochizuki-san from CLSA to ask their question.

This is Mochizuki from CLSA. I have 2 questions. The first question is more of a macro question. On 27th of October, the corporate tax expenses you said would be decreased. And because of the corporate tax rate change in Germany, there will be a decrease of tax expenses by JPY 12 billion. And there was no revision in the plan. So I don't think that you had reflected it. And I would like to know why you did not revise your plan? Core earnings is better than planned. So you were uncertain how much improvement to the core earnings there would be. And you didn't know much -- and you didn't know much about how the cost would be going forward. But I would like to know how the impact of the JPY 12 billion decrease in the tax cost would be.

And also, in the second half, you would be improving the business in the U.S., for example. So when do you think that U.S. will turn profitable? I understand that the red ink will be decreased, but when will the situation turn around to be in the profitable side?

In the next disclosure, we would be able to say something more clear, inclusive of the revision in the plan. It was very difficult for us to foresee. We have many entities around the world, and we have to review how the balance of the corporate taxes would be for the various entities that we hold.

Deferred tax liabilities had decreased. So because of that, the profitability had improved, but there are some deferred tax assets that we have to think about, which fluctuates year-by-year. So it's very difficult to foresee how the concrete situation would be. I am not able to say anything concrete, but we want to create a situation where we would be able to make more accurate prospects inclusive of the tax costs. We want to create a more predictable situation, and we want to optimize the payment of our corporate taxes. To that end, we want to have some time to consider what would be the optimal way to go about this.

Anything from you, Fujita-san?

In the German entity, DTA and DTL, there -- we have conducted a recalculation of the costs, et cetera. And in each entity, there has been some tax movements. So we need to review overall of the tax payment structure. So that's why we had not conducted the revision in the plan at this point in time. So in that sense, we are lagging behind. But DTA and DTL, these are not impacting the cash. We have been paying taxes each year. And this will be about the adjustment on the balance sheet. And if it looks like there has been a significant change because of that, it would not be convenient for the investors. So we want to be -- we want to have more predictability in the cost, and we have started the project on that.

And to your question about the profitability in the U.S. market. In October, we made price optimization. And in January, there will be some improvement due to the structural reform, and there will be a structural reform to occur in next April. And the timing of turning to profitability, we believe that it would be somewhere around quarter 4 of next year. That's our hope. So the structural reform results as well as the price optimization, if we are able to see the results, we would be seeing something in January or February. So January or February, and the number of days in January will be small, so probably sometime in February.

So the next question is Teraoka-san from Daiwa Securities.

This is Teraoka from Daiwa Securities. I have 2 questions. First is in regards to price increase in U.S. I wanted to understand your thinking there. In terms of the sanitary ware, it is produced in Mexico, so no tariff. But the grower product, I understand that you're importing some which is taxed with tariff. So in terms of price increase, so the tariff portion, inclusive of sanitary ware overall, you're going to pass that on. Is that the kind of thinking that you have adopted? Or is it that you're looking at the price increase of the competitors? And because of the price increase as to whether there will be negative impact on the quantity. So your thinking in this regard, please?

Of course, increase in cost will be reflected in price increase. But apart from that, the biggest factor for us to see price improve is changing the portfolio. In other words, low-income product to high price range product -- sorry, from low-priced product to high price, we are making that shift. Why can we do that? Because low prices product from China and Asia, if they don't come in, then the distribution channel will have to change the type of product that they sell. So specifically speaking, from our perspective, entry class product, we have a certain product called cadet. And we also have a champion product, which is a relatively higher price. And so cadet reduced and champion volume is increased. So that's kind of offer that we have come up with. And so the distribution has essentially accepted that.

And for us to do this, to begin with what we've done in Asia. So that's maximum of 9.7 million pieces per year. But based on the production capacity in Mexico right now, we can supply more than 8 million pieces. So rather than increasing the volume, but we are making improvement in portfolio, that would lead to enhancing the profitability on per piece basis. So that's a retail example. But for trade as well, so providing premium toilets. And so about 1 million is called -- the units is called the commercial grade, but we're also trying to change that pricing format as well. And for commercial grade, we are increasing prices as well. And so overall, in terms of pricing increase, so it's not the case that we're going to increase prices significantly as of October. So the portfolio changing will start from January and so for October and January.

And also what I mentioned before, as of April, there were Asian product that came in last minute, and they are now disappearing as inventory. So in April, new addition is something that we can expect to see.

And the second question, so color product selling well in Europe right now. So is it what the competitors are not offering? And if they're not offering those products right now, is there a risk of the competitors also coming up with similar product? And to what extent can you continue the share -- market share gains with the color product, your thoughts in this, please?

Well, no, but there are companies who do color product in the color product area, the competitors, and they're also succeeding. And there are products that we are succeeding with and there are products we are not really succeeding with in terms of color product as well. So we need to ascertain what are the and the product. But the right image is that the color product supply capacity. So we are more than 3x the level that we were at around this time last year. But still, we haven't sufficient the supply yet. We have also outsourced some. So we are actually addressing this gradually.

So what is the bottleneck right now is not the demand. It's the supply that is a bottleneck right now. So there is still room for increasing color product, but it does involve facilities as well. So at the next timing, maybe April next year, it's going to be difficult for us to increase the volume all at once until April last year. So in order to meet the supply, the delivery line, then we have narrowed down on the product supply. And so when the supply increases and the increase in the SKUs and whether we will see similar type of growth or not, this is something that we need to try to identify.

And as to whether this is only one time, it's difficult to really ascertain. But from the customers' expectations that was us, not the same type of product, but high-end product with greater design. If we consider that there is that type of expectation from the customers, then this certainly is going to be an area where that we need to increase going forward. And also another positive thing. And so we're quite strong in middle and near East and India. They like color in those regions, particularly certain colors that they tend to really like. And so there, we have been able to more or less dominate that part of the market.

We would like to move on to the next question from Morgan Stanley, MUFG.

My name is Yagi from Morgan Stanley, MUFG Securities. I would like to ask 2 questions. I would like to talk about core earnings about Europe. How you see the future core earnings in Europe. If we compare first quarter and second quarter, second quarter has seen a deterioration in the core earnings. I would like to know why that was? So after second quarter, considering the seasonality, I think that last year, there was an improvement. And I was wondering if the same thing happened with this year -- will happen with this year with the improvement of the color products.

So the color products had increase in supply from April. And because of this, there was a huge chunk of improvement. But there was a limitation in the capacity. And the color products had improved. But in the past 6 months, the supply had not increased so much, and we were selecting the higher-end products to sell to our customers. One of the things about cost that we are worried about is that there are increase in the cost. So we need to conduct price optimization flexibly. So that's one concern.

As Mr. Fujita has explained, inventory is being accumulated because there are various types of product because of the difference in the colors. And this adds to the cost. So we need to be very careful in managing it.

My second question is related to the U.S. market. In the first quarter, what you have said in the presentation is that the -- in the first quarter, there was bottoming out. And you are saying that you bottomed out because you are seeing some light at the end of the tunnel after conducting the structural reform. So I would like to know what you meant by the bottoming out in the first quarter.

In the first quarter, we had seen the bottom to be lower than that we had thought. And because of the system issues, we were not able to make shipment as much as we wanted. In the first quarter also, there has been some competition with the overseas competitors' products. We had made a decision to decrease the supply on our side. 9.7 million is our shipment capacity, but we discontinued the Asia and China markets. And so we had reduced the capacity to 8.2 million, and there was an impact from that. And we changed the portfolio there, and I think we can change for the better because of this.

I have said that we have bottomed out in the first quarter, and I would like to explain the reason why I say that. The structural reforms results will be seen starting from November as well as in January and the bath business structural reform in terms of the labor as well as the distribution structure, we have sorted those things out as well and the structural reform impact will be seen in -- from October, January and April. And we would see the portfolio impact as well as the price optimization impact in January, and there would be no product coming in from Asia. So we believe that we can further improve the profitability.

Teraoka-san asked this earlier. Well, he asked whether we will be breaking even in January or February. But our original plan was the April at the latest to break even. But if we look at the situation now, because we have bottomed out at the lower point, maybe we would be able to get there around January to February.

Next question is from Mizuho Securities, Nakagawa-san.

This is Nakagawa from Mizuho Securities. I have one question for Living and also the water-related business in Japan. And based on the material, so August and September, the showroom visitors have increased. That's what you have explained. So what is the type of product that you're seeing stronger demand? If you could just give some commentary on that, please?

Well, until July, the visitors were decreasing, but we started to see increases in visitors from August and September. And the visitors are increasing both for the new houses as well. And no particular product, but timing-wise, in April and September, and I mentioned this earlier, we actually done the energy conservation, the campaign for windows. And so we did actually see increases in the window related. But apart from that, not any specific products showing any strong growth.

We have been able to respond to all of the questions that has been brought so far. It seems that there are no other questions. So we would like to conclude the Q&A session here. We would like to now conclude the first half financial results briefing for the fiscal year ending March 31, 2026, of LIXIL Corporation.

Thank you very much for your attendance.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]

As scheduled, we'd like to start the earnings call to explain the financial results of the first quarter for the fiscal year ending March 2026 for LIXIL Corporation. This earnings call is streamed live on the Internet. And from this occasion, we have changed the time to disclose the earnings result to 1:00 p.m. The presentation materials for this earnings call is posted on our IR page of corporate website.

So please allow me to introduce the attendees from LIXIL Corporation. Director, Representative Executive Officer, President and CEO; Mr. Kinya Seto. Executive Officer, Executive Vice President and CFO; Ms. Mariko Fujita. And Senior Vice President, leader of IR Office, Ms. Aya Kawai. The MC for the earnings call is Setoguchi, myself, I'm from the IR office. And please allow me to explain the program for today's earnings call.

Ms. Fujita, our CFO, will first explain about the overview of our earnings result. Then we have time for our Q&A. Joining in the Q&A session, CEO, Mr. Seto, will also join to respond to your questions. And we are expecting to finish at 45 minutes past 3, Tokyo time.

So I would now like to call upon Ms. Fujita, our CFO, to explain the overview of our earnings result. Ms. Fujita, please take the podium.

So I will give the explanation about the overview of our earnings result. I'd like to start with the key highlights, a summary of the results for the first quarter for the fiscal year ended 2026.

For Japan domestically, [ LWT ], we have been able to make a steady progress for sales growth [indiscernible] water-related renovation product. And we also experienced unexpected surge demand before the amendment to the Building Standard Act, which was an evolution of Article 4, the Special Provision. LHT renovation, the revenue was short of our budget, but the sales for new housing did not fall as much as we had expected. So we achieved according to expectations.

Overseas, the revenue come down year-on-year, however, our core earnings made a significant improvement. And for Europe and Middle East, we saw a shift to a higher priced product and maintaining a strong performance. For the U.S., as for external factor, the tariff negotiation caused some market confusion, but we also had internal factor, which was the negative impact from ERP assistant transition, as a consequence, both revenue and profit remained somewhat low.

And other matter for LHT, we have decided to withdraw from the ceramic siding business. And as a consequence, we are booking some losses. And the completion of this withdrawal of business is planned for the end of March 2026. And we also booked expenses related to reorganization of bases in Europe. But the larger-scale structural reform that we have been talking about previously have more or less been completed as a consequence of this.

Next, I'd like to explain about the business environment for now and also outlook for 2026. As I have explained, the Article 4, the rush of demand, we may experience some reaction in the second quarter almost as a consequence. But we are seeing a steady progress of the sales for our water-related business. So we are not expecting to change our forecast for the full year. LHT renovation sales, we are promoting sales promotion measures. And with that, we are expecting to see an increase in sales going forward.

For international business, full demand recovery for the European business is expected to occur from next fiscal year onwards. And so we have not changed our forecast as a result. We are continuing to work, and we do expect our sales to continue to improve. For U.S. and China, we still see the unclarity in terms of the new housing business, in particular for U.S. because of the tariff policy, inflation continuing the long-term interest could remain high. And as a consequence, that could potentially hold the housing market to slow down even more. So we do feel that there is such a risk.

Like I said before, for structural reform, we now have visibility to a certain extent on nearing completion. So we're not expecting to book any significant causes. And last -- the end of last year, we have sold bathing business and the benefit from this is expected to be materialized after FYE2027, as we have previously communicated. So in due consideration all these factors, we -- there is no change to the full year forecast.

This page is the first quarter performance highlights. On a year-on-year basis, revenue decreased with our core earnings increased. As for revenue, JPY 364.7 billion, which is plus JPY 5.1 billion, core earnings, JPY 9 billion, up by JPY 8.4 billion. EBITDA, JPY 29.4 billion, increasing by JPY 7.6 billion. As a consequence, profit for the quarter ended up at minus JPY 900 million, but health improved by JPY 4.9 billion year-on-year.

As for the details, the other -- the expenses, which is structural reform cost, and we also booked a foreign exchange loss in terms of finance costs, and also had impact from the tax benefit accounting. So as a consequence, the profit for the quarter ended up being minus JPY 900 million.

In this page, shows the details of the numbers that I have just explained. What I would like for you to focus upon is the gross profit margin. In comparison to last year, this went from 31.7% to 34.2%. In terms of our core earnings ratio, it has improved from 0.2% to 2.5%. As for EBITDA, the percentage also increased from 5.9% to 8.0%, as shown on the slide.

So here -- thank you very much. So this slide is about Q1 business results by segment. LWT were able to find core earnings increase for both Japan and international, driven -- so this is a plus JPY 6.4 billion increase for core earnings versus last year. And this was driven by strong performance margin in Europe and the Middle East.

For LHT business, we saw a slight decline in revenue. However, due to price optimization, there was an increase in profit with -- even with a decline in revenue. And so the increasing core earnings was plus JPY 1.5 billion. Living achieved both revenue and core earnings increases, supported by strong sales across all product categories. And so therefore, all in all, we have been able to find for Living that JPY 0.8 billion, but for entire LIXIL, this was plus JPY 8.4 billion versus last year.

This is a slide that shows business results under previous reporting segments. This is for your reference.

Next, this is about consolidated financial position. Total asset increased marginally. And this is because there was this impact of foreign exchange rates on assets held in Europe. Equity ratio is 33.6%.

This is my final slide. This is about cash flow status and cash balance. Our working capital, there's been a slight increase. However, operating cash flow remained flat due to improved profit before tax. And so free cash flow was able to remain positive as we ended Q1.

So that is all for me in terms of the recap of our Q1 results. Thank you very much.

Thank you very much, Ms. Fujita. So we would now like to proceed to the Q&A session. But before we take questions from the participants, CEO, Seto, will give some supplemental remarks regards to our earnings results. So Mr. Seto, over to you.

Well, when we look at the housing facilities or construction material condition around the world, except for the Middle and Far East, the difficult situation continue. And despite that, revenue has not really changed all that much, but still we're able to grow our profit quite significantly, which I think was quite a strong performance. And the strong performance in that regard is a result of the effort made by everyone to realize the structural reform, and we have been able to sell differentiated products with high added value, which has led to increase in profit margin. And so it's -- as a result of these efforts, I'd like to express my sincere appreciation to our employees.

In terms of structural reform, we made plans 2.5 years ago, so the [ findings ] and logistics sites in Europe to be restructured. So these are some of the things that we have done. We have essentially completed our majority of the large initiatives that we had planned 2.5 years ago. And so we will no longer be booking a large cost related to structural reform.

So putting these two together, next fiscal year, if the business condition in Europe recovers, and the housing conditions recover as we are expecting, and if environment improves, we should be able to increase our profit quite significantly. We have been able to make that preparation in that regard.

But one area of concern is U.S. In terms of the U.S., the situation remains very unclear. And regarding the demand for housing, both for new houses and renovation, the difficulty remains. And this is one, as a result of the price of the housing increasing quite significantly. Right now, the houses today are priced 5x the income of the U.S. citizens. It used to be only 3x the annual income. And one reason for this is the continued inflation because of the tariff policy, aluminum or iron or copper. This -- the core raw material, the prices increase. And in the case of the United States is somewhat impacted by the policies and the tougher the immigration policy, which has led to decrease in the labor which has caused the labor expenses to increase. And the recent hurricanes and the bush fires have caused the insurance premiums increase for housing.

So housing no longer has -- is affordable in that regard. So people who can't build new houses have to rent. But those people renting, so the multifamily construction boom has essentially come to a halt because of the price is increasing so much for the housing. And so for -- and also the single-family houses have become smaller. So in that regard, there is a significant demand of [indiscernible] in essence. And -- so the large demand and small supply for housing right now.

But the real problem right now is that housings are not affordable, which has kind of suppressed the demand for housing. And as a consequence, the business condition for housing overall is expected to be quite poor. So that's where we're at right now. But at the same time, when we think about our competitors, Kohler or TOTO, main competitors, putting aside them -- putting them aside, but Home Depot, [ Rose ] or Walmart, for those type of companies, or even Costco, and the [ PV ] private brand, essentially manufacturers in the Asia or China. But because of the tariff, there is a possibility of the volume coming down. And so the supply will come down. So the competition should ease, so demand coming down -- supply-demand coming down. So given the possibility for both coming down, it's difficult for us to predict what may happen. So that's where we are at in one sense.

But for our situation on a stand-alone basis, last year, we have sold to ABG bathing business as project sold. And the benefit of that will be experienced from spring next year, so over the 1-year period, we will continue to operate our business while the assets are owned by them. So that's the kind of deal that we have struck. And so the cost benefit is not fully benefited this year.

So the true benefit from restructuring in the United States will only be felt from spring next year. So that unclear situation in U.S. will continue. So we need to take a cautious stand for this year. And as for this quarter, all of the businesses performed quite well, made a significant effort. But when we look at demand going forward, we do still see some unclarity and the unclarity in U.S. If we take that into consideration, it's a little bit too much to expect the continued increases in the second, third and fourth quarter. So we took somewhat of the cautious stance and decided not to change the full year forecast.

That as a background, as well as the preparation for the future, I think we've been able to address those parts quite well.

Thank you very much, Mr. Seto. I'd like to now open the floor to take the questions from participants.

[Operator Instructions] The first question will come from Okada-san from Goldman Sachs.

This is Okada, I have two questions I'd like to raise. My first question is about your U.S. revenue recovery. It seems like it is taking quite a long time. But for example, goodwill amortization. What is the progress thus far?

Allow me to answer your first question. So the impairment loss risk of the U.S. business. So last year, we actually did some impairment test with the auditors. And as a result, at this moment, we find no signs of having to book an impairment loss. That's where we are today.

Of course, in the future, there is a chance that what we see now may change, but at this moment, it's not that we're expecting any impairment loss at the moment. So we know that the economy is turning sour at the moment, but then the DPI, we divested DPI last year. And we've also divested the bathing business last year. And so naturally, that means the P&L is really going to change and that's really going to become more visible next fiscal year. That's the premise. And we do expect -- so you can look at the chances of impairment thinking of what is going to be the P&L next year.

My next question -- my second question. LWT in Japan. Margin is improving at the moment. But then I think it is outpacing your annual expectation. So price optimization, is -- and price optimization versus revenue increase, which contributed more?

So on price optimization, I think there was a slide where we did note our observation. And that's Slide 18. We do have a waterfall chart. And so this compares the actuals from last year. And so this mix, LWT, that's JPY 2.3 billion. In other words, the contribution of mix/pricing, that's plus JPY 2.3 billion for LWT. And of course, revenue from renovation, of course, that did contribute, but the price optimization from April has also contributed a lot.

If I may add. For sure, it's better to go for renovation. Renovation gives us higher margin. But where we're prioritizing at the moment, so we know that renovation, it has high profitability, but then it also requires a lot of work. And so we also have to keep a balance on how much SG&A reduction we'd be able to keep.

So this time, LWT, we did [indiscernible] plus JPY 2.3 billion increase in terms of the mix pricing. Last year, it was 54% renovation proportion, but now it's increased to 57%. On the other hand, SG&A, we have been able to keep good control. So AIBI -- by utilizing AIBI, I think we are able to manufacture efficiently.

So the next question is from Daiwa Securities, Teraoka-san.

This is Teraoka from Daiwa Securities. I have two questions.

Now on this occasion, the profit improvement, or recovery in [indiscernible] made a significant progress. And the revenue in Europe and the Middle East shift to higher price and there was also operational improvement. So you have explained various factors, but which was -- which factor contributed the most? So that's the first point that I wanted to confirm.

Well. Product mix has kind of shifted upwards. Specifically speaking, color, so from a chrome single color to multicolor version, have started to account for a larger portion of the sales, which has improved unit price, which has led to improvement in profit. And from ourselves to distributors, so based on the request we sold, and that has led the margin to improve. But as to whether we are able to maintain this profit margin or not would be somewhat dependent on how [indiscernible] sell going forward.

And the second question is in regards to U.S., two things I wanted to check. First is ERP uptaking impact. And that was a negative fact that you have mentioned. So specifically, could you explain what has happened there?

And for next year spring, you will start to see the benefit of the sale of the bathing business. in terms of core earnings, how much can we expect to see impact show?

First of all, in regards to the ERP. So we've essentially replaced the old SAP system to new the SAP system. We've completed this complete replacement in May. So we won't use the new system, and there was a bug in the system that was the delay in the shipment as a consequence. So when we have delays in shipment, particularly for e-commerce business, so sometimes the customer may go elsewhere. So that leads to the sales loss to an extent or delays in dispatching the product to the customers.

We were, I suppose, incurring some impact from those. And of course, those were things that we needed to have avoided. But right now, we have come back to normal operation.

And your second question, after the [indiscernible] project has been continued, how much the profit can we expect to see? I've not been able to scrutinize the numbers as yet. So it's difficult, but we are expecting to be able to stably register profit.

We'd like to take next question from Morgan Stanley, MUFG Securities. It's Yagi-san.

This is Yagi from Morgan Stanley, MUFG Securities. And so I also have two questions I'd like to raise at this point.

GROHE and American Standard, I actually do have questions for each. So for GROHE, the core earnings margin itself is doing well. I think it was because of a good product mix. But for example, excluding that product mix, do you think GROHE is really -- I feel like GROHE is still able to generate good core earnings, even without that product mix.

Now if we try to baseline this current good environment, what is it going to be the baseline? And towards that, how much do you think product mix will be able to put some add-ons? In other words, I want to know on what the normal capability of GROHE is at this moment?

That's quite a difficult question that you just raised because product mix, we haven't really been able to analyze to the extent that we'd be able to disclose. So it's quite difficult for me to answer right away to your question.

But as I mentioned earlier, we're trying to make sure we'd be able to provide high value-added type of product. In that sense -- so color, we really did not think that it would perform so well. And so this is what is creating add-ons. But in terms of profitability, it's really about whether or not we see more volume because [indiscernible] itself has not increased from last year. And so we expect -- if we look at all the projects, of course, there's like advanced cost when we try to run some project -- of one project. But that itself is doing well. So we do believe that towards the year-end, we should be able to see volumes of project, which in the end should be able to generate higher profit.

But if we try to look at this overall, DIY actually is going down. So there are -- there's a mix of what's working well, what's not. So that's what makes it difficult for me to answer. But some of the next positive turn, I think it's really going to be depending on volume.

In other words, depending on product mix, I don't believe we go back to where we were regardless of the product mix. Because some of the products that turn to -- converted to color series, once this goes out more into the market, probably we see a lot of the color products go out until the market gets more used. And of course, the next step would be, can we offer more volume there for color and which is going to be another challenge. And I know I'm not really able to -- I know I'm not really able to answer your question straight off. But because of this competition that we're finding at the moment, I'm not ready to disclose all the details.

So in other words, there's no like extra unique factor other than product mix?

That's right. So once we have more color, again, the color proportion is going to become higher. And in other words, that's why we have more color proportion in April rather than May or June. But in the end, we expect it's going to normalize.

So now I'd like to ask about American Standard. There's another question actually from a different perspective. In Q1, it made a loss due to a lot of system provision, et cetera, but from second quarter onwards, what do you expect looking at the current demand trend? Or do you think American Standard is going to suffer making losses?

So some of the activities, I did hear that you expect some of the more better turns from next year onwards. But then how are you supposed to take the current environment surrounding American Standard business?

So some of the major factors, I think I can point to two uncertain areas.

In short-term perspective, it's really about supply demand. We expect weak demand. But for supply, that's one area where it's not exactly easy to nail down to a specific answer. China and Asia, some of the competitors' product due to tariff may be priced higher or maybe the volume would go down. And that means in the short term, we'll be able to see better performance.

And during March, there were a lot of volumes that came into the market because people expected the tariff is going to become higher from April, and that is now being consumed at this moment. The next time when we expect this to turn to change is whether or not the retail side will start to pile up inventory towards October, looking at the year-end. But that negotiation is probably going to start in the next couple of months. And if there's going to be like a -- if there's going to be like a halt of supply coming from Asia, or if there's going to be a change in price, that's going to be a very favorable term for us.

The next thing we want to look at is the product mix. Basically, again, what's sold for builders versus trade, that's really for new houses. On the other hand, retail, that's really for the remodeling or renovation. And it goes back to what I mentioned earlier, but we're not really seeing housing being sold or volume of housing. It's not really flourishing. And that means there's less trade.

In other words, the product mix slice is going to deteriorate. And it's not that we're not finding any housing being built. Some of the houses for the more affordable people, yes, we're seeing that. But then we don't exactly have much high share in that space. So we do need to have the entire housing industry to recover. Otherwise, the product mix recovery would not -- we would not be able to enjoy in that short-term perspective.

So we do have good items, but the trade proportion, which is going to give us more contribution over the long run, that's something that we need to see contribution in next year. And it's not exactly something that we'd be able to do through our internal effort because it does have to do with the external effort. And it goes back to some of the questions that Teraoka-san asked earlier.

For example, projects, how much cost reduction we be find? Could be one factor behind whether or not we'll be able to see a better return. So in other words, in short term, what can we do, it's really about how much cost reduction we'll be able to achieve.

So next question is from CLSA Securities, Mochizuki-san.

This is -- from CLSA. Two questions. First question is just confirmation. No, you didn't change the forecast for the year. But when we look at the results from the first quarter, your sense against the plan, how did you progress against the plan?

And if you look at the progress in comparison to the last couple of years, I think, it has been quite good. But as against the plan, was it good, bad or what's your take on the progress?

Well, it was good. It was good progress, if I jump to the conclusion. So there were areas where better-than-expected result was achieved. And the article for the special provision. And so the housing starts increased at the end of March as the rush demand. But to what extent this will have impact for the full year? Well, in this regard, for Article 4 Special Provision as a consequence of approval being slow, I thought that April to June were not to be all that good, and we expect a gradual pickup from there. But there was a rush demand as a result of the Article 4, the Special Provision, and April, May for us were not bad at all. So this was somewhat unexpected positives with experience.

But in Europe, the color sold very strongly, as I've explained before. In other words, our product with higher added value sold. And the renovation ratio improved, SD&A didn't increase. So these were probably better-than-expected performances. So I think I would consider the first quarter result to be great.

And if we didn't have that, the unclarity going forward, we would have been able to say stronger remarks for the future, but the unclarity in U.S. is likely to have impact in other countries. So if China cannot export. So that could potentially impact our usage, leading to a decrease in the performance overall for Japan, too.

What will happen in terms of new housing starts going forward? It's difficult to read at this point in time. But what I can say for certain is that -- and -- so with renovation or remodeling, we are able to capture this more steadily overseas vis-a-vis new houses. And so that will be an area that we are going to focus more going forward. And so where it was good on this occasion, we'll try to make even further improvement so that we can add to numbers. That's what we are thinking of.

And the second question is in regards to the impact from the Trump tariff. Now in your explanation, and at the year-end, how much the retailers will purchase in terms of inventory? You said that there could potentially be an impact, but -- impact of the trend, the tariff. When would you start to see that showing your results? Is that the third quarter, or in around the fourth quarter? Well, probably the biggest would be October, November?

Now at that point in time, we are expecting this to show not as a quantity but as a product mix. So for us -- for us, so we are able to -- if we were in a situation to be able to demand a better product mix for us, that would be good.

As a pricing strategy, so we're expecting a 20% increase, but I suppose not clear. But what's the kind of pricing range? What assumptions should we take? Well it is kind of a complex equation here. But Asia and China to begin with, will they increase the price to match the increase in tariffs? Or will they -- like with the Japanese automotive manufacturing in the past, are they going to lower the price to try to not change the price all that much? We don't know.

But we should have more clarity towards August. Another factor, if Asia and China do not supply the volume then in the future, when Asia and China is able to supply the product in order to change the market environment, then from 2 piece main to 1 piece main by making that kind of effort for the product mix. So where we have been able to increase price in the past, if we are able to make them more permanent. That will be good. So if that's the case, we are able to achieve higher, the price increase.

But increasing price by making something that is more difficult. And to do that, I think will enable us to realize sustainable price increase, and that would lead to change in the market itself. And the China market, in fact, has many manufacturers right now. But market as a whole -- of course, the volume came down. But on the other hand, the pricing is changing in terms of the composition. And that's the kind of way we want to lead in the U.S. In China, it's a majority 1 piece toilet now.

We'd like to take the next question from SMBC Nikko, Kawashima-san.

This is Kawashima from Nikko Securities. So I actually have two questions I'd like to raise.

My first question is about new housing build in Japan. So in Q1, how much was the rush purchase? And do you think there's going to be a negative rebound? Of course, it really depends. But you mentioned about June housing start. And you didn't really see so much of a comeback. And so whenever you see these events, do you think the standard itself is really going to go down? I mean we know that new housing build is really on a decline at this moment, but how do you see these ups and downs over the short term?

In other words, is that really going to change how you see the business itself? For example, for the [indiscernible] housing, you're going to exit from there, but is there going to be a little more revisiting required as we try to analyze this business? So how do you look at this business currently? And what do you expect in the future?

So first of all, how much delay are we going to see? Just generally speaking, it's usually like a month after where LHT results will be visible. For example, window or bathroom, usually, that will be ordered first. And then after that, water-related areas will be ordered for new house, usually like 2 or 3 months after.

But the inflation that we -- the increase that we saw in March, it was quite large. And so the speed of these housing builds, maybe it was a bit slower. So what we saw in March, did it all end in April and May? I don't know if this is something that we still have to see. But if we look at April June quarter, if we look at the revenue, it's not that it really -- it really is inferior. So April was high and a gradual decline from May and June. It's not that all in all, during that quarter, we saw a large decline. So it's not that we're expecting there's going to be another downfall from here.

Realistically, if we look at where we are, housing and the new housing is not flourishing, but it is stabilizing. And in the end, renovation is actually -- for example, water-related areas is doing well, more than expected, which is giving us a result where we are today. And frankly speaking, window renovation was lower. The performance was lower than expected -- our expectation. We're trying to implement some initiatives to ratchet this up.

Renovation proportion is something that we do want to increase. We have been shifting too much on the new housing build, and we're trying to shift more to renovation. And so compared to last year, it's like 1.7 percentage points increase in the renovation portion. At this point, we're trying to continue our works so that we'd be able to make up for the gradual decline in new housing through the renovation works.

And also, if we look at one each product, it really goes back to what Okada-san from Goldman Sachs asked at the very beginning. But renovation gross profit usually will be better, margin. And so again, as we try to control SG&A, as we try to utilize AI, we should be able to improve the margin itself. So -- and indirect cost needs to be lowered.

So the structural reform that we're trying to go through is to make sure we'd be able to do -- practice that way. And I think we've been able to make a good success -- progress thus far. And if we are going to find, for example, the new housing really dropped more, so is there anything else that we'd be able to do? We do have plans.

So at this point it's not that we, at this moment, feel that we'd have to get started on a new structural reform taking costs. We do have confidence that we should be able to keep up with some of the changes that may happen in Japan strictly speaking.

This is Kawai from IR. Allow me to just follow up with some numbers. So in this material on Slide 18, we have a waterfall chart. And so if you look at the top part, we show domestic -- others, renovation -- or renovation below that, there's others. And so again, new housing has been affected by 1 percentage point. It's been improved from last year for both LWT and LHT.

Now on LHT side, there is -- it's still like minus 2% because we're seeing more impact from new house. But for example, there has been some impact coming from the abolition from that special proposition of Article 4. But other than -- so LWT that was minus 2, it was minus 3% for LHT. And so in Q1, we have been able to minimize the impact, and that's something that we've been able to see from the numbers.

And one more question that I had is about GROHE. I think there was another person that talked about this, but I'd like to ask about the sustainability. So utilization, so I think you've been able to speak about that from last year. And Q2 and onwards, I think -- I guess from here of the change of the growth of revenue and profit is probably not going to be drastic as much as we saw in Q1.

But is it correct to understand that it is going to keep on? In other words, there's going to be increasing both revenue and profit from hereof? But do you think there's going to be a fluctuation depending on how color goes? So can you share with us what you expect?

All right. Honestly speaking, there are a lot of things that we still can't really say specifically, but some of the project base that we currently find, or some of the orders that we're hearing at this moment, so it is something that we're capturing in a sluggish economy. So it's not that we're expecting there's going to be a real growth in Q2. But from Q3 onwards, some of the advanced works on the project side, we're starting to see good signs.

Now how much change would that bring is probably going to be the point. And it is true. The current supply demand is not giving us much reason to say there's going to be much growth in Q2 or Q3.

Next question, from Jefferies Securities, Fukuhara-san.

Fukuhara from Jefferies Securities. I have two questions. The first question in regards to GROHE. So you've been talking about the profit margin, but in terms of GROHE, the presence in the market, also market share, the changes there from the previous year's fourth quarter to the first quarter this fiscal year, were there any changes there? That's the first question.

Well, market share has been increasing gradually from last fiscal year, particularly for shower and also on this occasion because of color, we have been able to increase our market share.

Can we expect similar type of trend going forward as well?

Well, of course, that is what we are expecting. So where we have lost market share, well, those companies who lost market share will try to regain them back. But for now, it's quite good. But for GROHE, it's not just Europe, but other region as well. So for example, in the Middle East, we are making a significant growth there right now. And here, in comparison to our competitors, I think our growth is quite prominent, particularly for the Near and Middle East.

For China, too, and other products or other brands and not just us, but they're all struggling, but GROHE is still growing. And Southeast Asia and India, in those markets, G4 of GROHE and we'll be launching G5 going forward. And we are receiving strong inquiries. So if we look at the situation for GROHE overall, seeing quite a strong performance across the board, except for the U.S.

My second question, the full year forecast, we have not changed this. But if we look at the image for the first half of the year versus the second half of the year, the first quarter was good, but decreased in the second quarter. But the third quarter, if we look at the quarterly trend, we may expect to see increase. So would we see the same seasonality this year that we used to see in the past?

That's a difficult question to answer as well. Conventionally, and if you look at the pattern over the last number of years, of course, there's been some fluctuation in numbers. So first quarter number one, second quarter two, third quarter #4 and the fourth quarter, zero, so that's the kind of profit breakdown. So well, -- and so we may have to change our forecast, if that is the case.

But because it's somewhat unclear there, we've not changed the forecast. So unfortunately, I'm not able to respond to your question directly, that's the actual situation. However, in terms of the third quarter, we do have expectations for things improving.

So put differently, the profit in the second quarter, is there a risk of this coming down significantly? Or that we don't have to be worried about that?

Well, for now, there is nothing to indicate that there could be such a concern.

So we have been able to answer all the questions from those who wish to ask questions. It seems like there are no further participants who would like to raise a question. So we'd like to end the Q&A session or -- we actually did have a button pressed.

Fukushima-san from Nomura Securities.

This is Fukushima from Nomura Securities. Sorry, I know you were trying to end the session, but I'd like to raise my question.

So my first question is about the U.S. In Q1, it's $19 million loss, that's within your disclosure. So this $19 million, if we try to analyze this, so how much sanitary ware drop did you find? And I understand in toiletries there were some issues, but then within the sanitary ware, can you share with us how it performed?

Well, there's a lot of elements behind this. And so we hadn't been doing this per product analysis, so do spare us, but most part of the revenue really comes from American Standards ceramic products. If we try to analyze this by per product, I'm sure that's what we'll find. And of course, for bath faucets and showers, it wasn't that flourishing in terms of numbers this time around. But I guess from your question, I guess, I think it's fair to say most is ceramics.

My second question is about on the ceramic siding business that you have exited. And that's already baked in within the numbers here. But this ceramic siding, how much loss did you find during a year? Was it like $200 million to $300 million? Or is that the amount of the positives that we'd be able to find next year? So that's my second question.

Do we have the number? So Fukushima-san, so we do disclose operating profit. I don't have the number at this moment. So we'll make sure that we come back to you, but it's a slight negative. It's not large. It's just a slight negative.

So this ceramics -- I don't think we -- this is about AT exterior. I think that's the way we call it. So when we say AT exterior, it's about ceramics, resin and metal. And when it comes to metal and resin, it's making profit, but ceramics was making a loss. And so that's exactly why we're going to exit from this business, but we don't exactly disclose the breakdown of the figure, just for the ceramics.

And so -- so you just heard [indiscernible] saying that we'd be able to give you the operating profit. So basically, it was breakeven. But sometimes, there will be some several hundred million positive and several hundred million negative. But if you just focus on ceramics business, the size of the loss was a bit larger than that.

And so again, the ceramics siding we decided to exit from this business. But for ceramics, even from the past, it was a tough business. We were struggling from before. And it was really because -- well, we're like #3 in this part of the space. But we are the only player that only have a factory in Kashima. So if we wanted to send it to the western part of Japan, we always had to suffer a loss. And that was really why we wanted to focus just on the business in East part of Japan instead of West. And so that sort of halved the revenue in the past 6 years.

And so we really had to ask, was this a sustainable business for us to begin with? And to go into a little more detail. Within the exterior business, ceramic siding is really about new housing build, but then resin and metal is also used in renovation. And so as we find new housing to go down, that means the ceramics siding, there was always the risk that we may have to suffer even further loss.

When it comes to metal and resin, for example, when we're trying to work on heat insulator, coating, paint was the only alternative. But we know for renovation and trying to use resin on it, this renovation part should give us a lot of positive. And so that is why we just wanted to split where we were making a loss.

So we have responded to all of the questions that we have received thus far. In regards to some of the questions that we have received on this occasion, I've not been able to provide a straightforward response and I apologize for that. Now the numbers we are not disclosing. It's difficult to respond in terms of giving details about those numbers. Please understand for structural reform, as I've explained before, we planned it about 2.5 years ago and the structural reform that we had intended to undertake over the 2.5-year period, we have been able to complete them mostly.

Of course, if the environment changes in the future, there could be other things that we may have to do. But when it comes to Japan, in particular, from the past, on the assumption of demand coming down, we have been addressing this as required. So what was needed in terms of making changes or format, we have been able to create a platform upon which we are able to undertake our business without incurring large costs.

So I think we've come to a milestone in that regard as far as numbers are concerned. But where we still have unclarity is the United States. So how are we going to respond to the unclear situation in U.S.? So from our perspective, I must say that we don't have a full visibility there as yet. But we have been struggling, but we have undertaken this structural reform and the outcome we are starting to feel more confident about what we have been able achieve as a result.

Thank you I think we've been able to answer all the questions. And so with that, we'd like to end the Q&A session.

And with that, I would like to end LIXIL Corporation. Q1 financial results for the fiscal year ending March 31, 2026. Once again, thank you very much for your participation.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]