LIXIL Corporation (5938) Earnings Call Transcript & Summary

Ladies and gentlemen, it is now time for us to start LIXIL ESG Briefing: Enabling Sustainable Value Creation. First of all, I would like to introduce to you the presenters today in the order of presentation. In the center left is Director, Representative Executive Officer, President and Chief Executive Officer, Mr. Kinya Seto; on his left is Director, Executive Officer, Executive Vice President and Chair of Corporate Responsibility Committee, Mr. Jin Montesano; center right, Outside Director, Chairperson of the Board, Mr. Masatoshi Matsuzaki; on the right is Outside Director, Chairperson of the Nomination Committee, Mr. Yuji Nishiura. I will be serving as your emcee this afternoon. My name is Hirano from IR office. Thank you for being here today. I would like to explain to you the flow of today's briefing. First, President Seto will be talking about LIXIL's value creation process and the value created by our ESG activities. That will be followed by Ms. Montesano's presentation on outline of corporate responsibility strategy as well as initiatives under 3 strategic pillars of corporate responsibility strategy. Her presentation will be followed by Mr. Matsuzaki's presentation on LIXIL's corporate governance. Last but not least, Chairperson Nishiura of the Nomination Committee will be explaining about corporate governance led by Nomination Committee. We will be having question-and-answer session following the presentation. During the Q&A session, we will first take questions from the investors. That will be followed by taking the questions from the media. So there are 2 parts to the Q&A session so please bear that in mind and I hope to have your understanding. The briefing is expected to complete at 5:00 in the afternoon Japan time. I hope that you would be able to participate to the end of today's briefing. Now Mr. Seto will be giving the presentation on LIXIL's value creation process and the value created by our ESG activities.

Hello, ladies and gentlemen. The company, which will be able to create value added, would be able to grow, so LIXIL would like to create sustainable value creation for our stakeholders. We would like to have -- we would like to realize the profitable and sustainable growth, and we need to transform ourselves to enable that. By focusing on profit, we would be able to bring a return to the stakeholders and we would be able to respond to the changing environment. Also, with profit, we would be able to reinvest in the new areas. And thus leads to sustainable growth. But in order to sustainably grow, we need to work not only on the financial areas, but we need to commit to various stakeholders. We need to define the directionality of ESG in order to improve the value of the company continuously, and we need to capture the growth opportunity as well as to take the risk accordingly. Today, I will be talking about the LIXIL's value creation process and how ESG is reflected in the value creation process and how we would be able to provide the sustainable value for our stakeholders. As you can see in this graph, we consider the value creation process as a cycle. There are 4 steps to the value creation process and our purpose, making better homes a reality for everyone, everywhere is the originating point for our cycle. What the other companies traditionally call input, we call resources we rely on. This is a unique element for LIXIL for the achievement of the purpose. There are some people who believe that the value creation is brought by strategy. However, I believe that the driving force for the value creation for LIXIL are employees. So we need to have our employees being purpose-driven, able to respond to more agile manner and flexibly to the environment and implement the strategy. And in order to become the driving force of value creation, the employees must be aware of everything that I have said so that they would be able to create value for all of the stakeholders and create making better homes a reality for everyone, everywhere come true. So in the midterm plan and CR strategy, we have clear strategic goals that helps the building of the organization, which creates value for the stakeholders as well as to realize sustainable growth. In the CR strategy, one of the pillars is to create and organize a purpose-driven entrepreneurial company. And we have to think about how we would be able to develop differentiated products as well as to realize competitive cost, and that is reflected in the midterm plan overall. Ms. Montesano will be explaining about these points later on. But what I would like to emphasize here is that our CR strategy is aligned with the main business strategy, and that is reflected in the main business strategy and it is not something separated from those strategies. I would like to briefly talk about 3 strategic areas or material issues. In order to capture the expectation of the community and stakeholders, LIXIL regularly reviews material issues and updates it. Material issues are important both for LIXIL and community. And these are the issues that we need to work on for this sustainable growth and the improvement of the value in the long term for LIXIL. One of the priority material issues is to capitalize on the expertise of LIXIL and provide solution of the societal issues. So those have been reflected in the 3 pillars of the CR strategy of LIXIL. Out of that, the global sanitation and hygiene, the water conservation, diversity and inclusion. In addition to that, the external directors will be talking about robust governance foundation. So those are material issues for us. The global sanitation and hygiene issue, providing solution to that. Well, for example, if there is no toilet inside the house, there would be outside defecation and the cause -- and that will pollute the river and that will kill the small children. About 500 kids are dying from the polluted water each day. So we are trying to solve that problem and being able to solve that problem will lead to pride in our company. And not only would we be able to contribute to the society, we would be able to improve the performance of our company. In terms of the strategy related to environment, we would like to operate in an environmentally efficient manner. But we would like to provide the innovative technology products so that we can provide value to the consumers. And also, as for diversity and inclusion, we, by working on this, we would be able to contribute to the better lives of other people with disabilities, women. And through these initiatives, we would be able to respond to the demand of various stakeholders in this world. The objective of diversity is inclusion, and everyone, by being included, we would be able to improve the strength of the company. And also -- and by having a robust governance foundation, we would be able to make the LIXIL stronger. There are 3 presenters today and they will be explaining about how LIXIL will be able to create sustainable value.

Thank you very much, Mr. Seto. Now I would like to invite Ms. Montesano, who is the Chairperson of Corporate Responsibility Committee to talk about outline of corporate responsibility, strategy and initiatives under 3 strategic pillars of corporate responsibility strategy.

I'm very excited to be presenting to you today our CR strategy. So as you had heard from our CEO, Kinya Seto, our corporate purpose as well as our corporate strategy is very much aligned and supported by our CR or corporate responsibility strategy. Our efforts are focused around 3 key pillars, which he discussed, and we aim to leverage our core expertise, our global scale and our business operations to help solve the issues that require urgent action: global sanitation and hygiene, water conservation and environmental sustainability and diversity and inclusion. These are the core pillars that form fundamentally the strategy we'd like to explain more about today. All of these pillars, of course, are underpinned by our foundational commitment to ethical business practices. So the first pillar of our CR strategy is our work on global sanitation and hygiene and actually we're very proud of the progress we're making in this area. So I'm very excited to be talking about it today. Not only because this work is truly unique to LIXIL, but also because it taps into our fundamental expertise and passion for bringing life-changing innovations to those who need it most. It is a critical global challenge, there's no question. An estimated 2 billion people in the world today, 1 in 4 on this planet, live without access to safe sanitary toilets. This is particularly the case in rural communities as well as in the regions of South Asia and Sub-Saharan Africa. 40% of the world population have no access to basic hand-washing facilities in their home. And among them, 673 million people regularly defecate in the open. The lack of basic hygiene and sanitation continues to have a devastating impact, and you heard these figures that Seto-san had mentioned. It has a devastating impact on health, education and economic improvement for families and communities. That's why we believe we can make a direct and positive impact on this global issue. To this end, we aim to improve the livelihood of 100 million people through safe sanitation and hygiene solutions by fiscal 2025. Without improving sanitation and hygiene for these underserved communities, LIXIL actually cannot achieve our corporate purpose to make better homes a reality for everyone, everywhere. We're tackling the sanitation challenge in a number of ways and it includes partnerships as well as global advocacy. The main driver, however, of our efforts is our SATO social business, and so that's what I'd like to focus in on today. Now the SATO business essentially develops and commercializes affordable, easy-to-install, safe sanitation and hygiene solutions for rural and peri-urban areas of the world that lack access to water systems. It relies on a strong ecosystem of partners to achieve its goals, and I'll talk about that in a second. LIXIL, of course, backs SATO with robust governance to manage risks, including through the SATO Advisory Board, which meets quarterly, and LIXIL's corporate functions across the world, legal, compliance, HR and finance as well as corporate audit. To accelerate and amplify its impact, SATO works with a diverse ecosystem of partners and collaborators. This includes global development agencies, NGOs, nonprofits, private companies as well as regional and local manufacturers, distributors, retailers and so forth. We've signed, for example, global partnerships with UNICEF, USAID, JICA and are a founding member of the Geneva-based Toilet Board Coalition. We've also received funding from the Bill & Melinda Gates Foundation and Grand Challenges Canada. At the market level, SATO supports shared value creation. What that means is we aim to support lasting behavior change by helping to create local sanitation and hygiene markets where communities play a vital role in bringing about sustainable change. SATO also plays an important role for LIXIL. By instilling that sense of pride among employees, we're very passionate about sanitation and hygiene and cultivating a brand affinity among our partners and consumers because of precisely this unique contribution we make to global sanitation and hygiene. We are also confident that SATO will help LIXIL develop new local sanitation and hygiene markets where our other brands are currently not present. SATO toilet brings the benefit of a flush toilet to areas that lack connection to a sewage system. Our SATO solutions require less than -- require less than 100 milliliters of water to flush and this actually helps communities to save water. SATO counterweight trapdoor closes after each flush and it minimizes unpleasant odors and insects that can carry disease, and this is actually important when you're moving people to change behavior from open defecation into an actual toilet. The product portfolio began with 1 single latrine pan and now covers a full portfolio of products, including connection systems, such as the V-TRAP and I Trap systems that connect the toilet to the pit. Pricing varies depending on the product and location, but all SATO products are at affordable price points for the markets they serve. Now in 2020, the team actually launched the SATO Tap, which is a novel handwashing solution developed in response to the global pandemic for homes and facilities without access to running water. Any type of plastic bottle serves as a water tank for the SATO Tap. It was designed specifically to do that. It also releases a steady, but low flow stream of water for handwashing, while also limiting touch to mitigate contaminations. You can use your elbow to turn the water flow on and off. This new innovation was recently named one of TIME's Best Inventions of 2020 in the social good category and was chosen as Innovation of the Year by the Ethical Corporation, among other global design awards. A core strength of the SATO team is, in fact, its ability to experiment quickly and effectively to develop consumer-centric solutions, which we believe is very consistent with LIXIL's overall values. SATO is an integrated brand as part of LIXIL's brand portfolio, playing the entry-level brand role, allowing consumers to get on to that first rung, that first step on the sanitation ladder. SATO team understands that helping underserved communities gain access to basic sanitation is a critical first step to creating that lasting behavior change. Once you have a toilet, you don't go back to open defecation. And we know this enables consumers to seek even better sanitation and hygiene solutions as they move up that sanitation hygiene pyramid. The SATO brand also contributes to LIXIL's long-term growth by helping establish LIXIL as a leader in this space of pyramid market whose consumers we know will eventually move on to higher-value products. I'd like to share a very short video clip of our leader of SATO, Erin McCusker, and she is going to explain how SATO is building its basic pyramid brand working to achieve LIXIL's goals. [Presentation]

As you can see there from the video, SATO has grown its reach significantly. And we're very proud to say that as of now, SATO has shipped over 4.3 million units across 38 countries. And as of last September, we hit an important milestone of 21 million people having benefited from access to improve sanitation. As Erin mentioned, in this fiscal year 2020, we hit the milestone of shipping 1 million units in a single year and we are really on track to deliver the same again at the close of this fiscal year. Our road map to achieving our impact goal of 100 million lives by 2025 is very much on track. It's an ambitious but realistic goal. We believe the path to achieving this goal, however, and ensuring the sustainability of SATO rests on 3 key areas. First, SATO will further leverage its partnerships and NGOs. These relationships we've got need to be built on further, not only NGOs, but governments and manufacturers to reinforce marketing synergies and manufacturing capacity. We'll also leverage our current manufacturing partners to serve a greater footprint in each of these regions, particularly in Africa as well as to export to new markets. Second, SATO will enhance its brand awareness to become truly a global standard for improved sanitation. We aim to deploy new channels actually, including digital marketing, to reach even more influencers and key stakeholders. We'll also offer an expanded range of products to our existing core markets. Last but not least, SATO will continue to work hard to increase its operational efficiency by optimizing its supply chain management and improving internal operating processes. I'd now like to turn your attention to our efforts on water conservation and environmental sustainability, which is the second pillar of our CR strategy. As you can see here, the world's consumption of energy, water and natural resources has been increasing dramatically year-on-year. Energy consumption in the home and offices account for 32% of total consumption, and this figure has more than doubled in the past 40 years. It's expected to double yet again by 2050. By 2050, 4 billion people on this planet will therefore be living without sufficient access to clean water. LIXIL absolutely must tackle these environmental issues. At the same time, natural resources that have been mined have more than tripled since 1970 and are expected to double by 2050. If LIXIL's purpose is truly to improve people's lives through better homes, it's imperative that we recognize and fulfill our own responsibility tackling these environmental issues. We know there's much to do for everyone, not just LIXIL. So the task for us is really to focus on what matters and where we can make a contribution, how is it aligned also to our strategy. So we began by analyzing the CO2 emissions of our entire value chain. As a maker of durable consumer goods with very long life cycles for our products, we actually understand that 90% or more of our environmental impact comes from our products in use. Therefore, although we recognize that the environmental impact of our operations is significant and we're working to lower our emissions and material use impacts, it's actually critical for us to work on enhancing and improving our approach to designing and delivering more environmentally sustainable products. We have established our environmental vision for 2050. And through business processes, products and services, our aim is to reduce CO2 emissions to net zero and to become a leading company that passes on these benefits of water and other limited resources to future generations. In order to achieve this, we will focus on climate change mitigation and adaptation, water sustainability and circular economy. LIXIL is promoting environmental activities in these 3 priority areas from 2 perspectives: one is to reduce risks by reducing our environmental impact of the entire value chain and the other is to capture opportunities by improving the environmental value of our products and services. Now we've set KPIs for each of these activities, and we're managing the progress toward achieving our goals. LIXIL had set up 5-year medium-term environmental plans through to the end of fiscal year 2021. And here, as you can see from our dashboard, there are areas where we still need to accelerate our efforts. But we have also made progress. In particular, we achieved our plan to cut CO2 by 14.3% as of the end of the last fiscal year compared to where we started in fiscal year ending 2016. I'd now like to talk about our products and services initiatives. In the area of climate change mitigation and adaptation, LIXIL is providing products and services that contribute to energy conservation in the home as well as spreading the importance of zero energy home and zero energy business -- buildings. Windows obviously play a key role in the insulation of the home. And by 2026, 100% of LIXIL's window sales will be from high-performance insulation windows. In the area of water sustainability, we're looking at not only water savings but also water purification and early detection of water leakage. These are all actions that actually improve water sustainability. In the area of circular economy, we're expanding the range of products that take into consideration the use of resources throughout the life cycle of those products and services. And in March, we launched our first cradle-to-cradle gold certified product in Europe. As for business operations, we're analyzing water risks at our factories globally, targeting sites with high medium- to long-term water supply risks. We're also improving water use efficiency and introducing water recycling facilities. In the area of circular economy, last year, LIXIL announced its plastic action statement. And the statement outlines our plan to reduce all plastic components in our product packaging with much more environmentally friendly alternatives. In the EMENA region, we plan to achieve this target within 2021. I'd now like to introduce you to Thomas Fuhr, the leader of LIXIL International's Global Fittings Operations business. He's based in Germany and will explain a little bit more about the measures we're taking in this area of environmental issues. [Presentation]

We know we still have much more progress to make. We're now working on the formulation of our interim targets that will serve as a road map to 2030. So we can be that much more confident about delivering our 2050 environmental vision. We will also use the TCFD framework to monitor and disclose our climate change progress. We will analyze risks and opportunities, formulate the right strategies and reflect them back into our business plans as well as into our disclosures. We understand how important it is to set targets that reinforce the perspective of capturing business opportunities and providing value to society through LIXIL's products and services. So we're on it. The third pillar of our CR strategy is our focus on diversity and inclusion. And actually we've been working very hard recently to update our vision and strategy, so I'm very pleased to be sharing these details with you for the first time today. D&I forms the foundation of our transformation at LIXIL. And for a long time, our D&I activities were very aspirational, but perhaps not as well aligned with our business reality. To become a company that can achieve sustainable growth and deliver on our purpose, we actually must become a truly consumer-centric company and D&I is fundamental to achieving this goal. As a maker of pioneering water and housing products, LIXIL serves a consumer base as diverse as society itself. And that means we must be able to recognize and understand our consumers and end users to anticipate and empathize with their context and needs. New ideas and technologies, however, can only really come to life in a working environment that encourages diverse perspectives to be shared and heard. In short, we must build a working environment that's truly inclusive. Individuals must be able to openly and freely share their opinions with each other without hesitation or an obligation to conform. So our D&I strategy will enable us to attract and retain the right talent. While developing and enhancing our existing talent, it's on a foundation of D&I that we believe we can develop the innovative and purpose-led culture we need at LIXIL, which will, in turn, create meaningful value for our consumers and society itself. Over the past few years, we've been working on this journey to connect and integrate D&I much more into the fundamental DNA of LIXIL and really connecting it to our global strategy. In 2018, we announced our D&I declaration, a commitment to create an inclusive environment where we can bring the strength of our diversity to life. We can also integrate D&I into our products and services. Since then, we've worked to establish a global framework to integrate D&I into our transformation. With the leadership of the D&I Committee, and I'll speak more about that later, we've now established our 2030 D&I vision and goals. So simply put, inclusion is the real goal for us at LIXIL. If we can achieve inclusion, we know that diversity will be the result. As an enterprise-wide target, we have chosen to focus on gender equity. Now this is by no means the only area we care about or are addressing, but we do believe gender serves as an important proxy for tracking, monitoring and measuring our progress toward a more inclusive organization. This approach makes business sense as well. I mean as women have a major say in purchasing decisions of our products. Women control 40% of wealth globally and either directly make or influence up to 80% of all purchases. So from this perspective, female talent working across reporting lines and businesses will bring views and ideas that are critical to the type of innovation we need at LIXIL. If we can create an inclusive environment for women, we believe we can create an inclusive environment for all, including other underrepresented communities, and this will strengthen LIXIL in numerous ways. So on this basis, our aim is to enhance gender equity across the organization by 2030. This will include having women in 30% of leadership roles by 2030 across the company. We're also aiming for a 50-50 gender parity in our Board of Directors and across our executive officer ranks also by 2030. In addition, we have set region-specific targets, such as reflecting the ethnic mix of the United States by 2025 into our U.S. business. And in Japan, we aim to maintain the 50-50 gender parity for our new graduates in Japan, which we actually achieved for the first time this year. So when setting these targets, we were very mindful of the past lessons learned in the area of D&I. I want to emphasize that these are not arbitrary targets. They're not necessarily top down. They are ambitious but realistic, and they were based on detailed bottom-up modeling and simulations. We obviously have a long way to go. But what matters most is the direction we're headed and the leadership commitment we have to achieve this plan. We have set out an action plan for this fiscal year onward, which will commence with a full HR review of all policies and practices to embed D&I even deeper into the way we work. From talent acquisition, promotion to development processes we will review and ensure that D&I is properly represented to help boost this strategy. To ensure that D&I efforts are at the core of our transformation, we've also established a framework to promote and govern D&I. And let me go back to the D&I Committee that I mentioned earlier. This is actually chaired by our CEO, Kinya Seto, and consists of top business leaders and executives of the company. This group understands and will be held accountable for the strategies that we need to deliver a stronger D&I culture. So at LIXIL, D&I is not an HR initiative as much as it's a business initiative and a business priority. There's no single solution to such a complex topic. So we are working hard to enable our businesses to define their own initiatives, business by business. And we know that, that will ensure that we make meaningful changes while our global strategy enables us to achieve enterprise level goals. One of the best ways to create a more inclusive culture is to create more flexible working styles that empower employees. In Japan, in particular, we made some significant strides in this area. Introducing Super Flex to cater to individual lifestyles better. This has been especially helpful to working parents juggling children studying from home, especially during the global pandemic. We've also liberalized our policies to go to full remote working. Thanks to the tremendous groundwork of our digital team, many tools are now available for employees to make remote working that much easier. And as a result, we're redefining the role of the office. We're also empowering employees to think about and design their own career paths, really be in the driver seat. Employees are encouraged to consider actively their professional interests and their pursuits, and managers and HR are there to guide and support career development. D&I isn't just about how we work, though. It's also a critical source of insights and creativity behind product concepts that are consumer-centric. So 1 example I want to share is about the LIXIL Housing Technology Business Incubation Center in Japan, which we established in April 2019, and it brings unique products to market that currently don't exist. DOAC is an automation system, for example, and it allows people to use wheelchairs and strollers to open and close home doors with a push of a button. We asked 1,000 wheelchair users for their opinions about home door usage, and DOAC was launched in the summer of 2020 and it can be added to the entrance in a single day without much refurbishment work needed. And it has potential use cases that go far beyond wheelchair users. We've also seen a growing number of other examples of consumer-centric innovation, such as our online showroom service in Japan and our walk-in tubs in the U.S. And in the case of Nyanpeki, a young talent champion development of a wall product designed for cats. The concept achieved its crowd-funding goal within 24 hours, bringing product to market in about 10 months since inception. So as you can see, D&I brings us closer to achieving our corporate purpose. And if we want to develop the innovations our consumers need and attract the talent to deliver on this purpose, D&I absolutely must be at the heart of our transformation and so we're taking the steps needed to turn that into a reality. Thank you very much.

Thank you very much. Next, Mr. Matsuzaki, Chairperson of the Board, will explain corporate governance in LIXIL. Please go ahead.

From my side, I would like to explain about the corporate governance at LIXIL. Today, I will be focusing on these 2 points. Based on what we are thinking, how is the Board of Directors meeting at LIXIL operated from the Chairperson of the Board perspective. And I would like to talk about the actual operation of the Board of Directors meeting. How are we operating the BOD? Well, the Board of Directors were shut down once and then we have convened once again. So how we think about the Board of Directors is important and that was the base of how we operate the BOD. First of all, corporate governance, is based on the thought that it supports the sustainable growth, meaning by having the check function operate appropriately by the various experienced outside directors. When it is about to go off the track, we will alert them and we will also promote the change when change is necessary. And the risks that the executive side does not know, this will be pointed out and support the sustainable growth. And LIXIL has the Nomination Committee. Therefore, the Board of Directors' role is to supervise the business execution. So what is the supervision? We think is to actively conduct an oversight. So in other words, what means is that it's not to monitor or supervise or surveillance each move of the executive team. More specifically speaking, we will have an appropriate distance with the business execution side and see what is going on, what is working, what is not working, where is the risk and where are the opportunities are the things that we endeavor to understand and provide active and constructive opinions and will not hinder the process of the business execution. And so what's important here is, what are we going to supervise or have an oversight on? There are 3. First, is to determine the CEO and the executive management, who are we going to have to execute the business and think about the compensation system and also approve the business management basic policy, such as the midterm goals or the management purpose and also approve the management system. That is a system set up for the management to come out with the results such as internal control system. So thinking of these 3 points, we believe that this is the role of the Board of Directors that will actually oversight the actual situation, and that's how we have been operating the BOD. Now I would like to explain with specific examples of how we are operating the Board of Directors meeting. First is selecting the agenda. This is not only limited from the agenda from executive side. But there are items that are interested by the oversight side or there are things that we would like to confirm. For example, we would like to confirm about the growth strategy reviewing situation or we want to confirm on the initiative situations regarding SDGs as explained by Ms. Montesano today. And also, the way of thinking regarding capital allocation focusing on the capital cost. When we discuss about investments, we also confirm on the way of thinking regarding the capital allocation being aware of the capital cost. And this is how we set the agenda items. And the second is, once Mr. Seto has returned as a CEO, there have been major decisions that have been made. And as the Board of Directors, how get involved in that decision-making process is what I would like to share with you. And regarding the major decision-making, the business execution side has provided us with information and explained about the discussion point beforehand. And regarding that, the Outside Director from their own perspective, will ask various questions and have that explained to them. And by repeating this process and deliberating on this matter, at the end, what is important is to keep in mind to not make the wrong decision-making and we have resolved the decision. For example, the Permasteelisa business divestment, there were some comments should we sell it even though there is a loss. But when we think about the future performance of the company, we made the decision that the benefit of eliminating the uncertainties as more beneficial. And also the integration of management between LIXIL Corporation and LIXIL Group. Integration requires a change of articles of incorporation and the secretariat will be burdened with a lot of work. But we have decided that the group's governance system as the more simple, the better. So this will lead to the improvement of efficiency and also will be beneficial for risk management, and that's why we have approved this. And also the New Life program, which is a new HR initiative. Well, during COVID-19 pandemic, of course, there were objections that should we actually seek voluntary retirement. But the executive side thought that we would like to have a younger generation, they will be more active and a company that generates value through innovation on entrepreneurship spirit, and so we have decided to support the way of executive side. And the third is that we are creating -- developing the governance structure the LIXIL style. And regarding this, the Outside Directors are taking the lead and we are reporting that to the Board of Directors' meeting. This LIXIL type framework is a relevant matter for Nomination Committee. So after me, Chairman, Mr. Nishiura will explain about it, including the current situation. And another point here is something unique to us is that we have established a Governance Committee, which is a voluntary committee. That is because when we looked in the past, a particular person or a particular committee should not have the concentration of authority and we wanted to have a framework where the check and balance functions appropriately. Therefore, the effectiveness of the Board of -- effectiveness evaluation of the Board of Directors meeting is also conducted by the Governance Committee. Due to time limitation, I just covered these 3 points. Thank you very much for your kind attention.

Thank you very much. Next, we would like to have Mr. Nishiura, Chairperson of the Nomination Committee, to explain about the corporate governance within the Nomination Committee. Please go ahead.

I am Nishiura, Chairperson of the Nomination Committee. Right before me within the explanation provided by Chairperson, Mr. Matsuzaki, it was explained to you that corporate governance is supporting the sustainable growth of the company. And I want to convey that to you as an important message. This, in other words, means that for sustainable improvement of the corporate value, corporate governance foundation needs to be established in a solid manner. For example, when building a structure, the foundation has to be solid and that will enable you to build a building on top of that. So as a Nomination Committee, the stability of this and also we have worked on the sustainable improvement of the corporate value and that is the selection of the director candidates, selection of executive candidates and selection of CEO candidates. Today, I would like to talk about the third point, which is the appointment and succession planning regarding the CEO. This is actually the key for success for the sustainable growth. Well, our company in the past had the situation where the selection of the CEO or the change of the management, when such a thing happens, there will be items that will damage the value of the company. So what have we been working on? There are 2 key points. We have revised and redeveloped the regulations. This is not just for the selection, but it does include the dismissal and reappointment. And regarding the deliberation result of the Nomination Committee, that will be reported to the Board of Directors. And if I may add, the reappointment, whether that is allowed or not, this is something that we look at every day. It's not just the performance, but the stock price trends, progress of strategy launched and opinions of other directors and executive officers will be the base of the deliberation. On the other hand, in order to supplement these regulations in broad last December, we have formulated the CEO succession plan. This is the first version, version 1. Moving forward, regarding the change of CEO moving forward, we have clarified on the necessary preparations and prerequisites. And also, we have created the first version regarding the pipeline of the CEO succession candidates. And we have been thoroughly focusing on transparency for the work that we have been doing. So I would like to talk about the key points of the CEO succession plan. There are 5 points. Of course, we need to clarify the selection process where we need to select. But we also need to prepare for that process, and this is extremely important. As I have mentioned, this relates to the renewal of candidate pipeline and provision of training opportunities for the candidates. And also, we need to -- we also thoroughly discussed the ideal profile of CEO for LIXIL and the CEO successor. The principle is that the candidate needs to be selected from the internal candidate pipeline. And not just the CEOs, but for all the executives, including the managing -- executive -- Managing Director or the General Manager, we are thinking from the perspective of cultivation and successor planning for all of the executives. And also in terms of the CEO selection process, we divide it into emergency and normal situation selection. I would like to talk about the 2 points here, which are the preconditions and examples of requirements. Now the ideal profile of a CEO is a person who has a motivation and energy to create change by themselves instead of doing it safely and do only what is told to do for them -- from them. And these are some of the examples of the requirements. We look into the communication skills, such as with LIXIL where various companies were integrated and became the global company. The ability to articulate thoughts is very important, extremely important. And also another point is point three and four, which is the sense of ethics and honesty and sincerity. For the selection process, these points will also become an extremely important requirement. This is my last slide. In effect, when we need to replace the CEO, if there is a change in the CEO, basically we will divide the selection process into emergency and normal situation scenarios. In an emergency situation, that's when an unexpected changes required such as CEO becoming -- having health issues or there was an accident. For our company, the characteristic is that we have 2 representative executive officer, one is Mr. Matsumoto, but first, on the emergency situation, the representative executive officer will be appointed as the provisional CEO and then the permanent CEO will be selected. And the next is regarding the selection at normal times. The selection process begins with the proposal from the incumbent CEO or the proposal by the Nomination Committee. And in that case, we will prioritize as a basic principle from selecting the person from the internal candidates. So this is the selection process for both the emergency situation and normal situation. After my explanation, if you have questions, I would like to supplement my explanation receiving your questions. Thank you very much for your kind attention.

Thank you very much. That concludes the presentation from the LIXIL side. We would like to move on to Q&A session to answer your questions. While we are making preparations in the venue for Q&A session, I would like to explain to you about the time frame of Q&A session. The first part of the question-and-answer session will be devoted to the questions from the investors. And the second part will be to respond to the questions from the media. We will introduce to you the questions from the investors, and that will be followed by the questions from the media. We are planning to have 20-minute question-and-answer session. I apologize for the limited amount of time, but we will have 10 minutes each for each part. [Operator Instructions] So now we are ready to take questions. So we will go into the Q&A session. We have Mr. Matsuzaki, Mr. Nishiura, Mr. Seto and Ms. Montesano to respond to your questions. We will first introduce to you the questions from the investors. We have received multiple questions beforehand in the e-mail, so we would like to start out with that. The first question, LIXIL aims to empower women. But the ratio of female managers has not risen in the last few years. Why is that? Mr. Seto, please?

LIXIL was created in 2011, and at that time, the ratio of women was very low. There was not many women who were recruited into the company and it was a very domestic company and there were a lot of women who had left the job when they got married or had children. Around 2014, we set up a target to 30% of recruitment of women, but it was not realistic and the candidate -- and the candidates had run out and we did not have a pool of women who we would be able to promote to the managing positions. And when I came onboard, I thought we need to change things from the root. First is to increase the recruitment of women and we need to retain them. We need to create an environment where it's conducive for women to work more easily. For example, we have introduced a Super Flex system, increased the remote work, introduced meritocracy system, so that women from outside will feel that they want to join LIXIL. So I changed those things. It was back in 2011 when the recruitment of the women in the other regular and implement started and those women are quite young in their 30s. And even though we try to change the seniority system, 60% of the management is in the higher age. So we need to change the system to meritocracy system rather than seniority system. So I have been working very much on the change in the systems. So now I have been able to transform the system and now we have the pipeline of women. And coming 1 year or 2, the candidates of women will be quite small still. But going forward, we would like to proactively train young women so that they would be able to get to the management level in several years' time. So we have a target of 2030 and we would like to increase the number of females in the management role. LIXIL's demographics is different from the demographics of the actual society. So we need to change that. We did not have enough time to prepare last time, so we now have the foundation to do so.

Thank you very much. There is another question from e-mail. [Foreign Language] I would like to share that with you. First, how does the partnership with UNICEF work because it wasn't mentioned in the presentation. Specifically speaking, what kind of partnership is this? Ms. Montesano, please?

So the partnership was actually signed in 2018 and it is actually UNICEF's first global shared-value partnership. Many people may know that UNICEF has been working for decades in the field what they call the CLTS program to convert consumer behavior from open defecation to the use of toilets. And in fact, that work is done village by village all around the rural communities to transform behavior change towards safe sanitation. What UNICEF have had found was that once you can actually convert people to trying a proper toilet, there weren't many suppliers of safe sanitation. So it became really a wonderful partnership where LIXIL makes the first rung of sea sanitation with the SATO toilet. And so we began the work together. So we bring supply and Unicef creates the demand for proper toilet. We began in Africa as a first phase in Ethiopia, Tanzania and Uganda, and since that collaboration, we've actually expanded to other markets as well as working together on supply chain issues that we find in getting product into market. Some of these are what we call last-mile communities so it's very hard to penetrate. We also go jointly to discussing with government on how we can actually accelerate some of these national sanitation initiatives in the key countries in which we're operating. So that's how the units of partnership works. We're just past the third year midpoint. And the goal really is to create these markets on the ground for lasting behavior change.

Thank you very much. So we are receiving some questions who are viewing this live. From the Nomura Securities, Fukushima-san.