LIXIL Corporation (5938) Earnings Call Transcript & Summary

Ladies and gentlemen, it is time for us to start the financial results briefing for fiscal year ended March 2021 of LIXIL. We will be streaming this briefing live on the Internet as well as through conferencing -- a conferencing call system due to COVID-19 pandemic. If there are any communication troubles on the Internet live streaming and you're not able to connect to the web, please reconnect on the conferencing call system. It will be just audio, but you would be able to participate continuously. I would like to introduce to you today's presenters. From your left, Director, Representative Executive Officer, President and CEO, Kinya Seto; Director, Representative Executive Officer, Vice President and CFO, Sachio Matsumoto; Senior Vice President, Head of Investor Relations Office, Kayo Hirano. I will be serving as your facilitator from IR office. My name is Fukushima. In terms of the materials for this briefing, those of you participating through web streaming, please look at the screen. And also those of you who are participating through conferencing call system, please take a look at the materials uploaded on our website. I would like to talk about the flow of today's briefing. First, President Seto will be providing you explanation about the results for fiscal year ending March 2021. That will be followed by question-and-answer session. I would like to explain how you would be able to ask questions. [Operator Instructions] We are expected to finish at 4:30. I hope that you would be able to stay with us to the end of today's briefing. Now President Seto will be explaining to you about the financial results for fiscal year ending March 2021.

Hello, everyone. I would like to provide you the explanation of the fiscal year ending March 2021 as well as the forecast for fiscal year ending March 2022. So this is what I always say. In the IFRS, core earnings is equivalent to operating profit, and I would like to provide you the explanation centering around core earnings. This is the key highlights. First, fiscal year ending March 2021, we were able to conclude in line with the forecast. Gross profit had gone up and also the SG&A had gone down. The CE margin is 4.2%, improving by 0.7 points. The net interest-bearing debt had been decreased by JPY 252.5 billion. Equity ratio is 31.7%. I will be explaining about this later, but the interest-bearing debt to the EBITDA is 3.5x in terms of the multiple. So this was our target. So it was a very good result. We will be increasing the year-end dividend by JPY 5, and we will be providing JPY 75 on a yearly basis. And next fiscal year, we are expected to provide dividend of JPY 80. And as for fiscal year March -- year ending March 2022, the revenue is JPY 1.4 trillion and with the core earnings of JPY 80 billion. Currently, in India, there are a lot of COVID issues with the variants. There is hike in the raw material prices. And also, there are many frequent natural disasters in the recent years. There are various concerns, but the biggest risk factor is lumber shortage. In terms of the lumber shortage, we would like to consider this as an opportunity rather than just risk. We are taking various initiatives proactively. Moving on to the next slide. In the last fiscal year, there was a lot of impact from COVID-19. So that's why we were explaining region by region. And China is 34% growth, and it looks very good. But this is because last fourth quarter was the worst for China. In terms of Americas, the growth may seem sluggish, but for the fourth quarter -- last fiscal year, in the fourth quarter, there was a last-minute demand in the Americas. And in February, there was the cold wave in Texas. And the production had stops and the gas supply was stopped, and we were not able to respond to the demand which was there. So that was the huge impact in the Americas. Overall, in Japan, the biggest concern is lumber shortage in Japan and also the possibility of lockdown around the world as well as raw material prices, especially aluminum and copper. Those are considered as our business risks. However, for each, we would like to proactively manage all of those matters. The highlight for the results. We were in line with the forecast. Net profit was JPY 33 billion. It increased by JPY 20.5 billion year-on-year, and we are able to provide return to our shareholders, I think. So that's why we are increasing the dividend by JPY 5. Consolidated results for the quarter as well as the full year. First is gross profit margin. It is increasing comparing from last year. In the fourth quarter, the profitability tends to decrease drastically. What was 32.3% last year became 34.8%. So it is better in terms of fourth quarter than the full year. There were various initiatives taken for improvement in the gross profit to decrease the production cost due to having a platform and also to have a better product mix with higher value added. In terms of SG&A, compared to last year in the fourth quarter, the career option had been decreased compared to last year and in 12 months, JPY 34.8 billion (sic) [ JPY 38.4 billion ] and have been reduced by SG&A. And in the fourth quarter, there was a decrease of JPY 107.2 billion. Because of COVID-19, there were things that we did not use in terms of cost, but we were able to also improve the productivity. So that's why we were able to increase the CE margin to 4.2% in the full year. LHT in the 12 months. In terms of the revenue was -- there was a decrease of JPY 67.9 billion. However, in terms of the CE, it had been improved. So that is a very good news. As for LWT, due to the COVID situation, revenue had decreased. However, the core earnings was in the positive. This is due to the productivity improvement initiatives that we have taken. In terms of the assets, we sold the subsidiary and we were able to reduce by the net interest-bearing debt by JPY 252.5 billion (sic) [ JPY 252.2 billion ]. And the net interest-bearing debt-to-EBITDA was improved by 2 points to 3.5x multiple. So in terms of the strengthening of the balance sheet, we were able to complete the initiatives that we were envisioning. Financing cash flow has improved drastically because we try to secure the funding by JPY 60 billion to respond to the COVID situation. We will consider what to do with this after we have more visibility to what's going to happen. So now I would like to talk about fiscal year ending March 2022. The 4 things that I have written on the bottom. This is what I have already explained. I would like to review the basics of why we are working on this, making the production of platform and digitization in the area of sales as well as the back office. We would like to improve the productivity. We would like to reduce the cost so that the breakeven point will be even further down. We would like to transform our culture to entrepreneurial culture. All of the value will be created by our employees. We want to be innovative. We want to be merit-based and also a diverse company, where the employees will be motivated to work for the company. That's our long-term goal. As a result of that, we want to create an organization which is not easily affected by external environment and a company which would be able to post sustainable growth. Last fiscal year, we faced a very difficult problem of COVID-19. The LHT changed drastically and it was not so affected by the external environment. In addition to COVID, I have said -- as I have said, there will be lumber shortage, increase in the raw material prices. There are various external factors. But even with those factors, we want to be able to post profit. In terms of ROIC, we want to target 10% or more. In order to do so, we want to improve the CE margin. If the CE margin is high, this means that we have differentiated product service as well as the business model. We want to improve the CE margin in all of those areas. And this fiscal year, it's 5.6%, but we want to get to 7.5% in the coming fiscal year. And then the next step will be getting to 10% in the CE margin. And at that point, I think that we would be able to aim 10% or more in ROIC. In terms of net debt to EBITDA, we want to keep that multiple of 3.5x or less. Please move on to the next page. So in terms of the numbers, where is uncertain is about the convertible bonds. We have JPY 60 billion, and it would be matured. And when we reach maturity, what to do with that will impact what we will do. And the strategic priorities as part of the overall situation, what are we going to do this year? And that's described on this slide. I would like to talk mainly about the 6 items shown towards the top of the page, for water business and housing business, they have their own issues but a company-wide issue. First, we want to promote productivity improvement through the usage of digital technology. DX is a buzzword now. And I'm -- from a digital business to begin with in one sense. So to focus on this area will change our cost structure, changing the nature of the company in a significant way. The next thing, how are we to respond to a risk of lumber shortage? This is going to be quite important in this respect. And this was mentioned as part of the housing business. But the next item here, we want to achieve greater product range of product in Japan for renovations. I want to think of these 2 items together, as I said. Now what I mean by this is that in Japan, the renovation business has not really grown very much in the past. And it's, as often said, the renovation market is about half or just slightly more than half towards the new build market. And so when the new build decreases, we expect renovation to increase, but that did not really happen in Europe and the North America. The renovation market is about 5x to that of the new build market. And what's the difference there? In the case of Europe or North America, they're responding to make better the secondhand house. But in the case of Japan, renovation is mainly only about the plumbing area, and that is probably the biggest issue as to why that is not expanding. But because of the lumber shortage, when the new build starts to slow down, then the secondhand houses renovation business to make them much higher performance. I think this will create an opportunity to broaden the product available for the secondhand house. Now there is about 900,000 new housing starts per year in Japan, but the stock is more than 60 million. And of the 60 million or more of the houses, majority are not thermally efficient. So people talk about the CO2 reduction or zero-emission housing and so forth. But around the world, of the energy consumption for reducing CO2, the largest is the construction material, 32% and 40% in the advanced nations in Europe or North America. And the open part of the houses relates to the energy conservation [ in the lows ]. But not that we are trying to come up with solution for reforming the external world house, without demolishing the houses, the renovation to make their houses better, both from the outside and inside. And this type of renovation, it will be -- once this is accepted as a solution that is different to that of the new houses, then this could be the trigger to really start or kick-start the renovation market. We feel that this year could potentially be there. And in order for us to achieve growth overseas, a lot of the innovation resources are still located in Japan. So from last year, we started to transfer these innovation resources from Japan to overseas, and we will step-up this effort. The 5th item is to drive the HR policy reform in Japan. As I said before, in the end, it's up to people. And to make the people work based on the meritocracy and with the diverse personnel and to have innovative entrepreneur mindset, that in order for us to achieve that, we need to change the HR policy significantly. Previously at LIXIL, it was based on a seniority system. We have tried to change that to a system based on meritocracy, but we will accelerate that initiative this year so that we can become a modern company. I think we want to work on reforming our HR policy to enable that this year. And the last point, and I made a presentation recently on the ESG. And several weeks ago, we now have visibility regarding a certain interesting product. And today, I wanted to talk about that as part of our effort to work towards reducing the environmental impact. So today, I want to particularly focus on driving productivity reform by utilizing digital technology and also about promoting a reduction of environmental impact in more detail. First, I want to talk about strengthening productivity through digital transformation. And I want to explain what I described on the right side of the page. First is the evolution of the online showroom. The LIXIL's online showroom right now is not just introducing product using Zoom. It's not just that. In fact, one sense, so whether it be designers or the builders or people from the distribution, they are able to actually come part of this to provide solution. And this is a business model that is not all that often seen around the world. And this business model is digitalized and making things more convenient by providing tools. We are trying to automate what can be automated. We will do that. And not only that, we mainly worked out of our showroom, but this is not just a showroom. So for example, for each of the product, we have the experts responding. And if that's the case, construction site, people at the construction site could talk or housemakers or the contractors. When there are customer visiting, they are able to use this. So we want to collaborate with various entities to further evolve this online showroom concept. And overseas, as part of the evolution of online business, there is a new type of business that the -- merges together, the analog and digital. In fact, we started this in spring this year in U.S. This is somewhat different from the online showroom, but by bringing together analog and digital, we want to further evolve the automation and grow. It's the third point shown here. And I will show the photos of this later on. And -- but for product that use the product and the fairs or the operation or the maintenance, how it's to be used, we have created a platform at GROHE to do all that. Now the plumbing product. The biggest trade show in the world is ISH, which is a show held once every 2 years in Frankfurt. And GROHE, in fact, rented out one entire building to do presentation. Cost a lot of money, but the trade show takes some over 1 week period. But this year, because of COVID, rather than spending the money to establish the studio and explain the product and introduce new product content, maintenance, installation and also inquiries, we created a platform to cover all that. And GROHE-X started in March this year, and this has been well received. And the type of traffic that we were never able to get in the previous trade shows were obtained as part of the GROHE-X or ISH or the [ Merano Design Show ]. It was normal for us to launch new product or introduce new products using those trade fairs, but we can do this throughout the year using this type of platform. So in Japan, too, we want to introduce a product online more so that we can achieve greater productivity. Also, last year, we did a new life program and we have been asking changes to employees, but there are people who cannot accommodate this change. So we provided an opportunity for those people to leave the company. But for those people who had remained in the company, we need for them to change. They need to change towards the direction that our company is heading towards: global, digital and marketing with a view to the end users. These are things that employees need to be able to accommodate. So we need to enhance employees because our employees are a source of our competition. So digital, the personnel, education and certification system will be launched as part of that. And as part of that, the low-code/no-code developer will be nurtured. Last year, when we have secured the new employees, we didn't take them to the front line immediately. We've asked them to create a solution by using the no-code/low-code platform. This worked quite well. So we are going to expand usage of this going forward. So previously, it was the IT system that was responsible for putting together the system. But in regards to the system engagement, this can now be created at the front line. So it will create the structure to enable that. The digital content factory is the next point. When I joined this company, we didn't even have a product information management system. So the system, say, we were putting together a catalog, the photos or the products and we had to copy a page from the previous -- the catalog. But we have been putting together information system, but we don't have data for all of the product that we have. So we're now putting together data for the product, and by nurturing the employees to enable that. So these are now they turn into data. This is done as part of the digital content factory. And the code system, of course, IT, the department will take the lead here, but we want to achieve standardization there so that we can work towards improving productivity. Next initiative was reduced in environmental load. There are a number of points described on the right so I will try to go through and give you an overview. But something that I am introducing for the very first time on this occasion is introduction of new material to the civil engineering market. I feel that we have been able to do quite a significant breakthrough here. As you are well aware, there is the waste plastic-based water materials. We use the recycled pellet like TU or TPU to come up with product. But now in Japan, the waste plastic, there's about 9 million tons produced per year but only 2 million out of this is recycled. It does depend from year-to-year, but about 5 million tons out of the rest is used as fuel. And not an ideal way of it being used, but it is the product from oil to begin with. So it's a fuel in one sense that the remaining 2 million tons, there is no usage. And quite embarrassing from our perspective, back in 2016 for us, we used to export that to China. And China have, as you're probably aware, have said they don't want waste to be exported to their country even if they receive money. So we have to process that in Japan. And so what's done with that right now is that it's used as landfill or it's burned. But that is not used as fuel, just a burning, which means that it's just creating contamination, which is a significant issue for us. But PE or PPE, it's difficult to recycle these type of material, but we have been working on the process that is -- that will enable us to recycle all plastic materials. PVC laminate film can be accommodated in addition to PE or PPE. So laminate film. So if you think about the bags or the potato chips, it contains a little bit of aluminum. And recycling of that was considered to be almost impossible on a global basis, but we will be able to do that. So 50% plastic, 40% wood, the 10% normal composition, and we are able to produce recycled water material using this type of approach or process. And the plastic in Japan overall can be recycled potentially or this could potentially lead to the recycling of the microplastic waste to the ocean. And we have a test furnace that is able to produce 1,000 tons per year. And if we are able to promote this material to the market, we intend to make investment into a mass production plan. And this will have a significant impact towards improving the environment. Say for example, the plastic that is not used right now can be now reused. And this will also lead to reduction of CO2 emission as well. Another point is the promotion of the use of faucets with water purification function. I talked about PET bottle the same. PET bottle is also a major issue. If we go at this rate by 2050, the number of PET bottles floating on the ocean will be more than the number of fish that live in the ocean, so we need to reduce that. One means to reduce this is to expand the usage of the faucets with the water purification function. This is called X-Water or it is called GROHE Blue in Europe. And we're trying to expand usages through a carbonated water, not only in Europe, but in China, even in Japan, U.S., and we're trying to sell this. And if we sell this, we were able to reduce the number of waste PET bottles and also promote the renovation that uses thermal insulation. The largest energy consumption in Japan is the buildings and the houses. So there, and of the 60 million houses right now, they don't use them more insulation. So providing thermal insulation to these houses will significantly reduce the amount of CO2 emission in Japan and also enable greater energy conservation. And the next item, the service that offer a rift of solar power and energy storage system. All the high thermal insulation material in the solar, if customers buy them together, the solar portion will be provided for free, but the electricity will be sold. But we want to add storage as a service there from this year. And Mr. Koizumi, the Minister for Environment, he was talking about selling the solar for all the houses. And if that is promoted, then our service will be able to contribute towards that initiative. And last is expanding recycling of aluminum and resin and the LHT department. We have already been able to achieve higher level of recycling in regards to aluminum and also for the resin in comparison to the level described by the industry association. Next is forecast. I've already explained this, JPY 80 billion for core earnings. And on this occasion, the JPY 78 billion for the operating profit. So we have a very limited amount of extraordinary loss, which is the difference between core earnings and operating profit. And we're not doing something like new life we did last year for that portion. And the new reforms, that's included as part of the normal indirect cost, that has an impact in the numbers as well. As for net profit, JPY 47 billion is with what we are forecasting . So we now have the structure where we are able to sustain a level of profit that enables return to the shareholders. So on that basis, we want to make next year's dividend per year JPY 80. And these assumptions, as you can see on the slide, of course, there will be some challenges, lumber shortage, increase in price of raw materials because of COVID. But for each of these, we will be implementing countermeasures. And I think that's our work, that's our task. So on this assumption, the assumption you can see on this page, we have put together the plan for this fiscal year. As for CapEx, platform-based production is what we have worked on. So we have been trying to reduce expenditure other than IT. But some things that we couldn't do last year so there is some increases this year in that respect for this fiscal year. For sashes, we want to -- for the resin or hybrid for all these sashes, we will be introducing a new line. So that has pushed up CapEx a little bit, but the investment cost is much lower in comparison to the half. But in comparison to March 2020, a significant decrease. But in regards to the R&D, we need to continue together with IT as well for some time. And as for the situation for each -- or the business segment or the explanation of new product and services, we have some materials in the deck. But because of the time constraint, and I think it's better that I spend more time to respond to your questions. So I want to complete my presentation at this point in time. Thank you for your attention.

We would like to move on to the Q&A session. [Operator Instructions] We would like to move on to the first question. From Macquarie Capital, Mr. Mochizuki's question. On Page 17, the assumption for the forecast for the fiscal year ending March 2022. As for the impact of lumber shortage, how would it impact the procurement cost for lumber as well as the sales volume of your products? How much have you factored in the impact of the lumber shortage in terms of the number in the core earnings. You have disclosed the assumption for aluminum and copper for the raw material cost. How fixed is the procurement cost for the fiscal year ending March 2022? I think that there are some already contracts which have been concluded so I would like to know.

To your first question, I don't think that anyone would be able to answer that question. The impact of lumber shock as well as the procurement cost of lumber, how that will be impacted. I don't think that anyone has a specific number. The housing manufacturers have a long-term contract. And as for the construction companies there, they may not have that long term of a contract. So it may be a huge impact. After July, I think that we would be able to see more clearly how that would be impacting our business. So when some external factor impacts us, I think that we have to think about the positives and negatives. So for lumber shortage, the negative impact is that the new housing starts may be decreased for some time. But the demand will not go away. So it would be carried later or carried down later, and the demand may shift to the existing housing. So rather than having a new house, people may want to have a high-functional housing, which -- from the secondhand house, and maybe it may work positive for us because we have the renovation solutions. So in terms of the lumber shortage impact, I think that we would be able to conduct the business, which we can convert the impact to the positive. To your second question, in terms of the procurement, aluminum is about 50% and the copper, I mean is secured in the amount of 3 months in beforehand. It says around 65% in terms of the impact in the slide. But if the profit goes down just because of these external factors, that would not be doing the job of the business management. So we will be having new products one by one. So we need to pass on the cost increase to the pricing. And in terms of the copper, there would be the requirement of surcharge. There may be some lag in the time, but we would need to pass on those cost increase.

From Mitsui Sumitomo Trust Asset Management, [ Takagawa-san ]. It seems that the company performance is on the recovery trend, as confirmed by the announcement this year. But the total shock caused the share price to decrease today. The aluminum price impact, I think it's becoming more of an issue. So how are you going to deal with this? How do you eliminate this digital transformation, cost reduction or price increase? What is your initiatives there?

I think the first part of your question, it's difficult for me to judge. So -- but in terms of pricing impact, as I've already explained, basically, if there is a -- the price increase externally, I don't want that to translate to reduction in profit proportionally. So we need to create a system how to create price increases should that occur and also to actually deal with it in a steadfast way. And by doing this, and not -- so how we compete, in this respect, we need to come up with products with a higher added value to respond to a situation like this. But one of the reasons why we are now able to respond to this situation more is because we are able to produce product based on platforms. So we are able to update product, we are able to pass on cost more easily. We were unable to do that in Japan previously. But overseas, we are still charging for copper. Another thing we are seeing increases here right now, but we are expanding zinc coating. Zinc vis-à-vis copper is better for the environment. So we are trying to change from copper to zinc. Of course, the zinc price is increasing, but the overall cost being is reduced through this transformation. And the chrom (VI) to the chrom (III), there is the change for people who are mindful of the environment. If we use the chrom (VI), if we treat with it well, it's okay. But if you go for chrom (III), if customers were able to choose that, we are able to charge our surcharge easily. So we will try to turn these -- the pricing impact positively.

From Goldman Sachs, Mr. Okada's question. GROHE X, you would be rolling it out in Japan also. But considering the business tradition of the Japanese market, I don't know how penetrated that would be. However, there is water -- there is more digitization through COVID. So I think that -- do you think that the market will be conducive to digitization going forward?

Well, there are 2 key points: one, is the people who are related to construction as well retail. The end users favor digitization. And rather than going to various places, they would like to have comfortable observation of the products at home. So end users are very comfortable using the digital tools. In terms of the installers, there -- it varies. The people -- there are people who don't like digitization, but the service is acceptable when it is easy to use, easy to see. And in terms of the construction company, companies, there are people who would like to communicate face to face. But they use CAD, so they are strong in using the systems. In terms of the retail, there are people who are not good with digitization. So we have to think about the different levels of the stakeholders. So it may take time, but the trend of digitization is unstoppable. So the first mover would be able to reduce the cost to the fullest extent. So it's more beneficial.

Mitsui Sumitomo Trust Asset Management, [ Takagawa-san ]. The plan for this year, improvement in profit overseas, and you're also expecting -- are you expecting improvement in margin overseas, LWT mainly? How do you intend to make that improvement? And what's the background?

Well, where we can grow if you like, is, say, for example, and how can we increase the business overseas. Now we wanted to choose that portfolio, not to try to grow all of businesses. But product with higher margin, what we want to grow more and to grow such product in those areas with some margin is high. So that's what we've been doing. And the product that's been chosen, of course, some will grow. And in terms of region, U.S. and Europe, they have higher -- the margin and the demand in U.S. is currently growing by chance. And also in the past, we had some difficult experience in U.S. We are changing that. What we experienced perhaps is that Home Depot or Lowe's, the retail area. We only focus on that area. But they are changing to potentially private brands. Then depending on the trend of the demand when the customers want a low-priced product, then we incurred impact significantly. So last 2 years, a few years, we wanted to appeal more to the end users. And so we have come out with digital solution to enable direct communication with end users and also renovation business. It's called the LIXIL Home Service, we have created a company under that name. And what it's doing is actually growing. So how we work on things or to come closer to the end users, also in terms of productivity, using more digital to improve productivity. Also in terms of product and region, we will focus on areas with a higher margin. That is what we are doing.

The next question from Nomura Securities, Mr. Fukushima's question. There is a risk that lumber shortage will lead to the decrease in the demand of housing. But you said that you wanted to find opportunity out of this risk. So specifically speaking, what are you going to do? A high functionality of the housing -- existing housing is what you have said, but -- and renovation, but how do you think the sales of the renovation solution will increase? And in terms of the impact to the fiscal year ending March '22, what would be the impact of the increase in the sales of renovation solutions? Also, what is the trend of the strategic products overseas, touchless water faucets as well as the bathroom in the United States?

So what I mean by finding opportunities in a risk. So the new housing starts demand may decrease, but it is not that the demand that people want housing would decrease. Two things will occur. One is that there are people who want to have new housing will go to the housing manufacturer and find that the price is higher. And also, there is a delay in the delivery of their housing. So what would they do? There are some customers who may wait. And there may be people who would want to buy existing housing and renovate it. So we would like to capture the demand who want to have existing housing and renovate afterwards. So we want to provide a solution to them. So just like scrap and build. These housing -- the current housings are scrapped and built after 20 years. But we can propose to them rather than scrapping everything, you would be able to have thermal insulation from the outside or change the interior. And rather than scrapping the whole thing, you would be able to have the same result with lesser cost. The government, government has the green print subsidy. And how much that would be impacting in terms of the specific numbers, I don't have the specific numbers, but the construction materials and the housing equipment, the ratio is quite low. But in the renovation, our percentage increases. The -- we are the only player who would be able to provide renovation solution with higher functionality. So we have high possibility here. In terms of the touchless faucet, as part of the strategic product in the overseas, touchless water faucet is expanding in terms of sales around the world and in Southeast Asia because of COVID, the -- there was stagnation, but it is still growing. In terms of the United States, we did have failure in the past. But now we have R&D in Japan and roll it out in the United States, and that's being successful. So I think that we would be able to grow drastically in that area. Resin shortage is impacting us in terms of the delay, but the bathrooms in bathtub in the United States is growing.

Next, SMBC Nikko Securities, Kawashima-san. Please explain about the benefit of reducing fixed cost for fiscal year ending March 2022. Page 39, you've indicated JPY 1.2 billion reduction for domestic sales management expense. Over 2 years, the reduced fixed cost by JPY 23 billion, or the amount of cost that you reduced in March '21. The rebound increase for March 2022 against that is not going to be very large based on your explanation thus far. But what is the actual situation in this regard?

Thank you very much for your question. For the group overall, a reduction of JPY 23 billion, and down for 2022 March. We have announced the plan, but the actual reduction will be JPY 15.5 billion. But against the JPY 23 billion and JPY 15.5 billion, what's the difference? The difference is JPY 7.5 billion. What's the difference here? And that is because the top line is growing mainly for water. And so logistics cost has increased because of the increased sales. And there also, there is an additional price increase related to logistics. And some prototyping thing -- the prototyping that we didn't do last year, we are actually doing some of that, and that has led to the difference of JPY 7.5 billion. Also there is a very small difference between core earnings and operating profit. But last year, there was a lot of costs associated with structural reforms, for example, new life program. So we had that accounting for that difference. But restructuring, business restructuring that we do this year, and large cost portion associated with that is something that can be included as part of SG&A. And so as a consequence, the -- that accounts for a large portion of JPY 7.5 billion. So depending on where it is booked, how it looks to end up being changed. Also, there is a cost increase due to natural increase. Logistics related, not only logistics, but overseas, the real estate that we are using, the costs associated with that has some increased R&D or marketing or commercial. And also responding to lumber, the shortage, a promotion of the performance improvement. So all these are all contributing to this.

From Mitsui Sumitomo Trust Asset Management, [ Mr. Takagawa's ] question. The stock price has -- in terms of the stock prices, I think that all of the factors have already been disclosed in the JPY 78 billion operating profit plan. And what is the -- what is your plan for the further growth in the profitability going forward like reviewing the midterm plan?

So in terms of the profitability, there are various initiatives made. And, for example, productivity improvement, and that will generate the further improvement in the profitability for the future. Currently, it's 5.6%. And I have said in the MTP, 7.5% target. I think that this target, I believe, can be achieved maybe sometime in the next fiscal year. So getting to 10% in the CE margin in the coming several years, I think that would also be possible. Not only the extension of what we are doing, there are various renovation solutions that we are newly providing and also the civil engineering business and also the pavement materials, which are using in the 100 million square meters in Japan, that would be one business opportunity.

Okada-san from Goldman Sachs Securities. Significant improvement in their financial position, but your position towards the investment in the future, will that change?

No need to make investment with high risk. And so the investment that we will do will be investment to improve productivity, for example. And those may not become a fixed asset per se, but digital education could be one. Or as I said, with the digital transformation, we intend to be proactive in making that type of investment. And large acquisition like in the past. I won't say the possibility is zero, but at this point in time, I'm not thinking about that all that much.

And this is Matsumoto, and please allow me to add. As Seto-san explained before, we really focus and consider ROIC to be important. So when it comes to investment, it must be an efficient investment to create our cash flow in the future. So new product or differentiated product investment royalties or digital investment to improve productivity. So these will be where we are more leaning towards. And when we put together budget every year, we think about how much investment are we going to make for new product. That type of ratio is something that we are mindful of and determine the amount of investment to be made. So in that respect, vis-à-vis the past, in a new fiscal year and the subsequent new fiscal year, we will focus more on investment that will generate cash flow in the future.

We still have some time. So if you have any questions, please feel free to post questions. [Operator Instructions] It seems that all of the questions have been asked, so we would like to conclude the Q&A session here. We would like to conclude the financial results briefing for fiscal year ending March 2021 for LIXIL. Thank you very much, and we hope to have your further support for LIXIL going forward. [Statements in English on this transcript were spoken by an interpreter present on the live call.]