LIXIL Corporation (5938) Earnings Call Transcript & Summary

Now we would like to start the analyst meeting on our Financial Results for fiscal year ended March 31, 2022, for Lixil. We are distributing this meeting online through the Internet. First of all, let me introduce the attendance from our side today, Representative Director, President and CEO, Mr. Kinya Seto. Thank you very much. Representative Director, Senior Vice President and CFO, Sachio Matsumoto. Thank you very much. Managing Executive Officer, Head of IR, Kayo Hirano. Thank you. And I will be serving as a moderator today from IR office. My name is [ Kashima ]. The presentation material for this meeting is on our website in a session for shareholders and investors. Let me explain the proceedings for today's briefing. First of all, Mr. Seto, our CEO, will give you the explanation on the financial results for the term ended March 2022. And after that, we have some time for Q&A. If you have any questions, please go to the Q&A button shown at the bottom of the screen and please enter your affiliation name and the question. We can take your questions any time during the meeting. We plan to finish this meeting at 6 in the evening. So I'd like to hand over to Mr. Seto, to explain the overview of the financial results for fiscal '22. Over to you, Seto san.

Good afternoon, everyone. I now would like to talk about the financial results for the fiscal year ended March 31, 2022. And particularly, in the last 3 months or the very last 2 months, it was really challenging because of the COVID-19 as well as to, well the Ukraine situation and lockdown. And while, we were able to -- really, well, the increase for revenue and core earnings. Though we were not able to achieve the target. While, visibility challenges we have faced with. We were really well conducting the countermeasures. And once all these problems are resolved, I think there is a very well big growth potential in terms of earnings. And so probably, despite these challenges, I think these are really positive. And as for the financial targets, we have been able to really achieve the midterm targets, and also, we are planning to really increase dividend by JPY 5. And also, I'm going to talk about the outlook for this fiscal year, ending March 2023. And then we are aiming at this 100% -- sorry, JPY 10 billion, the saving of resolved share buybacks and the Japanese JPY 5 of the increase in dividend is being planned. And also, we are to -- really cancel the treasury shares, in view of the potential fund needed for M&A and others. And so if we are to acquire companies, well, we had the bond fund for the treasury shares. But lately, in view of our strategy, well, that much money is not really being needed, and also, the holding of these treasury shares, there could be some doubts, as to the capital injection. And so we are really going to have this and our JPY 10 billion of the share buybacks. And also, we will be canceling the treasury shares of 20.8 million shares. Now this is the major topic for today, and despite all these different circumstances, well, graphically, I am just representing what we have done. And what would be the sort of the growth potential going forward? And for JPY 80 billion, was the -- our fiscal year 2022 plan. As a result, JPY 50 billion, were coming from the increase of the raw material and distribution cost and also the response cost to supply chain disruptions. And so this was, [indiscernible] and quite huge cost incurred, and on our part, we do use a lot of aluminum products and also in international businesses, we do have a larger share of faucets and water faucets. And so this would be meaning that, we have quite a large number of impact coming from the copper and aluminum. And also, we do have the export business, and then this would mean that we have quite a large distribution cost because of this, with use of the containers and also particularly in the fourth quarter, we had this one large impact and to be very candid with you. And JPY 27 billion of cost from the first quarter to through third quarter. And if that pace was kept, and then we could have really achieved JPY 80 billion. However, almost half of the yearly cost was incurred in the fourth quarter. But while we have anticipated some risks in budgeting and so -- of JPY 10 billion, and also JPY 25 billion, was really large, offset by the price adjustments and structural reforms and SG&A expense reduction. And so, we have been able to manage in mitigating the impact. And so we have really come up with this JPY 65 billion result, which is -- we showed of JPY 15 billion. Well, supposing that if there were no such cost impact, and that is for the addition of JPY 40 billion and then at JPY 105 billion. Of course, where we have so many issues related to JPY 50 billion. And of course, visibility of cost increase, we have taken measures. And so if the cost comes down, we may have to well reduced. And all of them, the supply chain disruption related costs, and if there are no cost available, and so that should be transported by air, and also because of the lockdown, where there was no production conducted in the local side, and we have to really recreate and develop the dies and mold to -- well reproduce someone else, and sort of the cost of production in Maebashi, instead of Vietnam. Well, these were the costs really were included, and so JPY 40 billion added on to it and JPY 105 billion. And if this was really being achieved, and while we have been able to achieve about 7% core earnings ratio and inclusive of the growth in earnings for this year, and that would add up to JPY 125 billion and 7.5%, the number we have really envisioned, should have been able to be achieved. And -- but the raw material costs and fuel cost and supply chain disruption and related cost and all these. I don't know exactly whether we are right or not, and we are expecting JPY 92 billion of such cost increase, and JPY 48 billion could be accommodated. And so in total, from the JPY 125 billion and then deducting the cost and then JPY 81 billion is the sort of the forecast we have. And we do think that we could have really well, done JPY 125 billion. But while this JPY 44 billion is sort of the difference, would be the sort of the room for further growth in the next fiscal year and beyond. And so, all these were major cost factors, raw material cost increase and distribution cost increase in supply chain disruptions and these are the 3 major ones. And the very last one, supply chain disruption. And this is sort of kind of the contingency is the response. If there are no further disruptions, then that could be taken in as the profits -- and if there are no such disruptions, I think to a certain degree, we will be able to take in as the earnings. Now while raw materials cost increase, well, there should be -- some time back. And so we have to really well take care of it with the cost increase. And as for the distribution cost and the container cost, it has been increased by 5x or 10x and then the fuel cost increase and then there should be some offsetting factor. But we believe that we will be able to see things settle down by the end of this year. And so the raw materials cost, we have to really pass it on in prices. And also, we have to optimize the pricing structure. So we do not need to really sell prices at a lower point. And then so, we need to really -- we need to consolidate our prices by optimizing them. And then even if we will increase prices, we need to really have all these high value-added products and also high-quality products, also differentiated products, and we may have to shift them. And also, we have to work hard to switch to alternative materials, particularly for copper. In Europe and in the U.S., and PCB [indiscernible] brass being used, in the Klaeng plant, it was established in Thailand in 2017. Since then we have been replacing brasses by zinc. And then it is about 20% replacement ratio. And eventually, we would like to improve up to 40% and 50%. And brass cost, because brass is the ally for the copper and alloy, and well [ $700, $800 ] of the copper and zinc cost. It's just about [ $300 ] or so. And so it's just about half of it. So that kind of reduction can be done. And also combined by the plastics, where we can reduce the price further. And 40% or the 50% has been replaced by the plastic, and then fitting product ratio is lower in Japan. And so in Europe and the U.S. and international markets, we will see more of the impact. And also the price revision and this should be -- there is always a time lag. We cannot just increase price after 1 month of the cost increase. And so we used to have the price revision twice a year, but we would like to do it more often in international markets. And I think this is something we will be able to do, from this fiscal year. And as for the increase of distribution costs, to the extent possible, we would like to control it, and in each of the regions where we are to really produce them and then sell them in Asia Pacific. And for North American Mexican plant and also in Europe, well European plant. And as for the well China sales, well the production in China and well for the -- and well the Southeast Asia, well, our production will become the buffer for the entire world. Having said that, at the end of the day, particularly the water faucet products, which does have a lot of sort of distribution cost, and that should see a more resilient supply chain established, so that it will be more resilient to the fuel cost or transportation cost increase. And also by increasing the inventory level, we will find it easier to really respond to any lockdown type of impact. And as for the supply chain disruptions, there are so many things, well, air freights, and also to really well -- rather than procuring from vendors, we would produce it by ourselves, and also to seek new partners for the production and also the same production done in the overseas plant, will be done in the Japanese plants. And that really was very costly. But outsourcing all these and without any gap, we were able to really continue to really ensure the stable supply to our customers. And so I think this is one of our advantages. And here, again, well, we have to secure the long-term raw material supply and also already this year, and the fuel from Russia would be well smaller in volume in Europe. And so the most runnable part of our group is well the plant in Germany. And as for the plant in Germany, for most of the products, the -- even with the power supply will be cut down to half, we will be able to carry on with the production. And also some of the show of products -- some of the products will not be able to cope with the 50% reduction in part supply and probably up to 30%. But we would like to really continue to work on this. And also to make the redundancy of supply chain, narrow down SKUs and expanding platform production. These are things that we have already done and enhancement of IT systems and even to a greater degree and [ benders ] and where should we will have the sort of common parts, and we would like to visualize them and to understand them. And also, there are changes in the society and always that we create new markets or new products in terms of the response to environmental problems. And what we are now thinking is throughout Japan, while, most of the windows and -- they were not really able to really satisfy the environmental standard set. And so we are to see replacement by triple layered glasses. And also, as I have said, and waste plastics will be used for the linear wood. And this is the product we are going to sell more. And particularly in Europe, the customers and while they are not really asking plumbers to do their job, but they are going to do it by themselves. And then for the DIY product lineup, it has been well released, and it is really fitting well. It is in not just a quick fix, but -- professional. And this will be supported by the plumbers. And digital promotion, LIXIL-X and GROHE-X and online showrooms, and we are expanding these and also various differentiated products. And when we can offer differentiated products and price sensitivity of customers can be mitigated. And so starting this year in May and after the Golden Week is over, we are to expand [indiscernible], this particular product from the very beginning from the shower and as the fire -- just like a fire extinguisher, you will have the foam coming out. And so without really well brushing yourself too much, where you will be able to really wash yourself and also the water consumption can be reduced, and this is very well received. And we are going to increase this type of products going forward. And by so doing, we will get out of sort of the price war and gain more profits. And with respect to the performance highlights for the FY 2022. Unfortunately, because of this challenging environment, in terms of the core earnings almost -- well JPY 65 billion was achieved, and we were able to increase both revenue and core earnings. And in Japan, in terms of the core earnings at the very last minute. Aluminum price has really increased so much. And at one point in time, is over $4,000. And so LHT business, in the fourth quarter, it was really faced with a difficult time. But without that, we could have really earned more. And that kind of rapid price increase, we were not able to pass that to our customers. However, in terms of the, well, core earnings and net profit, there is not much of the difference. And that is the reason why we have been able to make progress in the structural reform and that we were able to have this for the net profit by JPY 48.6 billion, and by JPY 15.6 billion and JPY 5 increase in the year-end dividend from the previous forecast. And as for the consolidated business results and the gross profit margin and FY 2021, we have a very slight increase. And we think that we really worked hard, because while during this period, while cost has increased so much and without doing anything, it could have been much, much more damaged. And the fourth quarter, was 32%, but the fourth quarter we had, this was -- a very much increase. And without it, we could have passed the cost increase more and we could have really grown our core earnings much more. So under such environment, including the core earnings we were able to improve, although we couldn't fully pass through to the price, we could still grow. That means that, when the time comes that we can pass through, then that would have incremental impact for the further growth. Now by segment, where we struggled in the last quarter was LHT. But LWT business, especially for global international, they did a good job. Now for the balance sheet, with the supply chain issue, we had to increase the inventory level. So that's why you see a change in the working capital, but the interest-bearing debt has been coming down steadily, and we achieved a 34% for the equity ratio for the full year. So I think we're on line with the plan. For the cash flow, as I mentioned now, we did increase the inventory, but steadily according to our strategy, we've been shifting ourselves to be able to generate the cash. Now in terms of the management strategy, this is what I always talk about. No change, but basically to strengthen the platform, to promote digital to improve the productivity and reduce the cost on the other hand, to change the organizational culture and to be more energetic and vital. And we were impacted by the external environmental factors, but still, we did okay, and that's really the fruit of the efforts that we've been making. ROIC 10%, the assumption is that the core earnings -- margin 10% is assumption. I think we've come to -- very close to that level. Looking at the cost, looking at the service numbers, only half of it. But as I mentioned earlier, if we assume that nothing happened last year, then we could have achieved close to 7% of the core earnings margin. And this year, this cost impact and the geopolitical issue -- without those issues, 7.5% for the midterm target, we could have exceeded that by far. So the supply chain disruption, although it's negative, it's going to be normalized. And for freight, sometime at the end of this year or maybe in the early next year, it's going to settle down. It's not going to continue this current pace of 5x or tenfold. And for the commodity, of course, the energy cost will drive, but to shrink the gap if we can reduce the time lag, so to speak. And within coming 2 to 3 years, 10% will be a realistic number for us. Because of all these measures that we took against these issues, I think that give us implications for the possibility. So working on these 4 priorities, initiatives and qualitatively, I think they are on a good -- making a good progress. I talked about the numbers already, so I will skip this page. Strategic priorities for fiscal year 2023. No significant changes from the previous year, leveraging digital and platform -- platform and digital to improve the productivity and attractive differentiated product development. This is to reduce our price sensitivity. This will be the foundation for that. And to be able to flexibly respond to the inflationary pressures, to ensure the stable product supply. This time, it was costly. But at the end of the day, we were not -- we were able to provide supply that shows our resilience. So by fixing -- by reducing the fixed costs and new normal and environmental issue, the products that can accommodate those. So we are developing those new products to deal with this new normal and environmental issues. This will be another driving factor for growth. For the forecast, based on what I said so far, these numbers are self-explanatory. So JPY 81 billion, honestly speaking, I am not satisfied with this, but considering the cost on the issues that's happening, I think we have to go with it. And for the dividend, we're planning to increase to JPY 90. The business assumptions; so this is really the most difficult time to come up with assumptions more than anything. So high level though, what happened from January to March will continue for some time. And in Japan, when the cost is so high, the new housing, especially for the low-cost new houses, when it's quite difficult, then there is a possibility, that it would be shifting to renovations more. When we talk about optimization of the price for the low-cost house, the ratio is lower. So more renovation is a good news for us. On the other hand, for international, again, many things will happen. Europe, there are some concerns. On the other hand, for the Middle East, with the fuel prices going up, many projects are coming back actually. North America, with the high interest rate, there was a concern for slowing down the demand. But for some time, we're getting a good reaction for the renovation. For China, there is some concern. For Asia Pacific, for the past 2 years, there were lockdowns here and there. So there is going to be demand coming back. Now for the structural investment, as I mentioned earlier, the investment design, intellectual assets and IT, we're going to make investment in those. But for the conventional facilities, we would like to narrow down investment in line with the strategy playbook. And that is all from my side. So I'd like to now entertain your questions. Thank you.

We would like to start Q&A session. Those of you have questions. Well, please click on the Q&A button at the bottom of the screen. And then please fill in your company name, your name and question, and then send it to us. The very first question, this is Fukushima-san of Nomura Securities. And from -- well, the orders were placed from April and then will the price increase would not be sufficient enough? Probably you are considering the second round of price increase on Page 3. And about the price strategy and also the structural reform impact of JPY 48 billion has been well referred to? Well, out of which, if you can break it down for those of the things which have been fixed and something we are going to do from now?

In January, March and past the cost increase of JPY 50 billion and JPY 23 billion worth of it, is for January and March. And then it is impossible for us to really increase price in April. And as for that price increase, I think we've taken care of five price increase in October. And so it will be the effect of the 6 months for the impact. And then JPY 92 billion impact and then JPY 48 billion, would be just the accumulating numbers vis-a-vis JPY 93 billion. And so conversely put, well, if it is going to be on a full year basis from October price increase, well, it will be smaller. And so from the -- if this situation is going to continue, then from October through March, we will enjoy better benefits. And JPY 48 billion strategy, I think well, almost all of them have been fixed. And October price increase, and this we can fix it. We will not be able to make it in time for October price increase. So if something more comes and are we going to add on to it as of now. I think we have really taken care of it to the extent possible.

And another question from Fukushima-san. I'd like to introduce you the question. And in terms of the financial, also the position strengthening in terms of the midterm target, you have been able to achieve it. And so you have really well released your share buyback. And how are you going to really position this for the shareholder returns within -- and then why don't we do sort of a share buyback? And then inclusive of the dividend policy, can you tell us?

And then we cannot -- I cannot just will say this as a personal sort of opinion, but well in terms of the dividend and the more stable dividend is being pursued. And gradually, step by step, as we see the profit level, and then we are really going to pay more of the dividend. Now as for the share buyback, I think there are 2 objectives in share buyback for one thing. And on our part, the cash we have and then the -- in a scheduled manner, this portion, well, can be returned back to the shareholders. And so that could be the plan we can have. And -- the other one is, we're looking at the stock price of the company and if it is really undervalued and then to -- really to send out a message to the market. As for the latter, well here in [indiscernible] -- not to be our generally adopted method. And the amount of the share buyback. If you do not have the sufficient headroom, then this could be very misleading. And so the dividend, we believe that -- well, you have to be conservative in setting our dividend. But whilst we are setting it in a conservative manner. And then vis-a-vis investment plan, if we have some cash remaining, and that should be used for the return to our shareholders. And so it's very difficult to really have the scheduled share buyback, but we will be able to have the planned sort of dividend policy. But this is my personal opinion. And then, well, we have to really go to the Board of Directors meeting, and this is not the policy really established by the Board of Directors yet.

So we've answered to all the questions received so far. We still have some time. So those of you are joining the meeting. Please raise any questions. If you have any questions, please go to Q&A button. Please click the Q&A button and enter your affiliation name and the question and send it to us. So from Mitsui Sumitomo Trust Asset Management, Takegawa-san, a question from him. There are several questions. So I'd like to introduce one by one. So the first question for the term that just ended, the core earnings for International business against the plan, there was a slight underachievement, or it was a background for not achieving the original target for the international core earnings. It applies both to the international in Japan. But basically, the steep price increase for the fourth quarter was the biggest factor.

When we talk about -- compared to the budget or the plan, that was the biggest factor. At the high level, JPY 50 billion cost, out of that, JPY 27 billion was for the first 9 months. So usually, the last 3 months would have been JPY 9 billion or so. On the other hand, it actually costed JPY 23 billion, so JPY 14 billion is the difference. And there's a difference of JPY 15 billion as well between JPY 80 billion and JPY 65 billion. So I think that explains the majority of that. Both for Japan and international, it's the same, but underachievement in Japan, especially in the housing, that was really the big factor. And secondly, whether the builders can catch up with the price increase in Japan, basically, the homebuilders, well, they have no choice but to follow up to catch up with that. With this much of a price increase, without increasing the price to go for the share, that would be quite difficult. In a nutshell, -- most of the homebuilders, when there's a price increase, they will pass it through to the owners of the houses. What we see differently in terms of the movement is that so-called house manufacturers, they go for a high end -- they try to focus on the high end, higher cost parts, whereas the homebuilders for where they've already bought, they will continue. But to ask for unreasonable price, it's going to be difficult for them. So what kind of decisions they are going to make going forward, but I don't think there will be that many homebuilders to go for that. If there is any price adjustment, then over the long term, there won't be sustainable businesses. So under such request of not changing the price, if we are asked to correlate with that, we should be able to survive without doing that. Anyways, at the end of the day, it will come back. And lastly small and medium homebuilders in the non-urban areas, they have not owned -- purchased the land, and there is a larger variable portion -- cost to the house manufacturers. So it's possible for them not to do anything, then they would most likely change their shift to promote the renovations. I don't know where it will be the tipping point, but one thing I can say is that 800,000 new housing starts seems quite low compared to the past. But considering the Japanese population and the ratio of the new housing against the population in U.S. or Europe, it's actually too many. That means that there are so many houses that have been built without assuming the renovations, whether it's going to change as a tipping point, that will be critical for our business going forward. But in our business, differentiation, high-quality products, if you have to promote, then for a very low-cost house, we would like to exit from the business model of providing a lower price, low-cost products to such low cost houses. So if your intention is whether we're going to offer a lower price to go for the share? No, we've promoted the platform to be able to exit from that, and we'll be working on the structure reform, reducing the fixed cost and to streamline the plant as well. Now for the trend of the domestic business revenue, the renovation and what's drawing a lot of attention nowadays is that, the government's policy is to accommodate the environment. The investment for the windows, there is a momentum for making investment for the windows as a government policy. And while we've been working steadily, differentiated high-end products shall sell more, I think there is a very probable forecast. And the profit margin of the international businesses and also how the price increase will be conducted in Japan.

And well, there is additional question from Takegawa-san I'd like to introduce that question. Housing service and what are the countermeasures you are going to take to make the quick recovery in this fiscal year?

So far we had a larger share or the higher share of the low cost, and we are going to make 2 changes. And as for the big customers and renovation product. Rather than spending money for new housing, the exterior walls will be built with the cover method, and others and also for the -- shift to a higher-end housing and -- we are going asset light and Lixil Realty -- without having much of the asset, we are really going to transform it into a service-oriented business.

Next question is from Kawashima-san from SMBC Nikko Securities. Two questions from Mr. Kawashima-san. So let me introduce those questions. The first question the current prices for the aluminum and copper are exceeding the assumptions for the term ending March 2023, but whether there's going to be an impact of the higher prices for fiscal '24, where the hedge impact will be weaker or with the first revision in October, can you offset that impact? And the second question is that you are to sell your stake in EDION. But from the strategy of the renovation sales channel, how should I interpret this selling of EDION? And are you going to continue to sell your stake in other housing companies?

With regards to the current prices, there's going to be a price revision in October and that should offset the impact. But with October, price revision, there is only an impact for 6 months for this year. So in that sense, it's not going to be sufficient. That is a fact. So in that sense, for fiscal '24, if the current situation continues, it's very likely that there's going to be another price adjustment. But with October price revision, we're planning to have a significant price revision, so that could offset the impact for the copper price. It is settling down a little bit. So for the copper price, as I mentioned earlier, to replace with zinc and the plastics, we can expect the impact by so doing as well. Now as for our stake in EDION, when we bought their shares, we wanted to work with them to expand our renovation sales. But now we are already achieving those numbers to a certain extent. Then with this, we don't have to have a cross holding of shares. But we can still continue our business alliance. So it's not that it's going to change significantly, in terms of our relationship. But for retail to sell -- for the retail, is a very important strategy to -- from the understanding of the end users, not just with EDION, but with others for the retail customers to sell our products, that will be our way forward. On the other hand, in terms of selling our ownership of shares to reduce the so-called cross-holding of shares. So we have been doing that in a steady way. But needless to say, there is the history -- and what we have promised with the customers in the past, we cannot have a consistent answer or promise right now. But looking at a track record for the past few years or so, we have been steadily selling the so-called cross holding of shares -- those stakes that is hard for the investors and shareholders or us to have.

Next, from Goldman Sachs, Okada-san as has given 2 questions. Firstly, in the U.S. business, where you are really having this water price increase, to really take care of the cost increase in the past? Well, is the situation allowing the further price increase? And what would be the sort of the -- well the housing bill rate increase, and what would be the impact to the housing market? Now the second question is related to the China business. I think despite the very challenging real estate market, I think you have done quite a good job, and what are the factors?

The U.S. businesses we have had the largest number of the price increases. And the competitors have also done the same. So passing the cost increase to price would not really will give an impact to the demand. Now for us, amongst the -- our international businesses, water faucet business, the weakest and the ceramics is the strongest. And we would like to reinforce the water faucet business, particularly shower. In that respect well, all these -- the competitors are mainly using brass. And so, if we are to really -- well we make use of the zinc, we will be able to enjoy the cost advantage. And as for ceramics, I think the price increase would be done at the same pace with others. Now as for the impact to the housing market from the higher housing rate, and there could be some impact, but it is not that it will be -- immediately while giving impact to the housing market. And when they really will change and buy another house, and then they will go for the renovation. And then without buying new houses or the other houses, where they -- I think well, that would be the opportunity for the renovation. It's not 1% will decline in the housing market demand, that would not directly, while giving the 100% of the impact. And I think in terms of demand, I think we have been quite strong in this demand trend. Of course, we don't know exactly if the rate increases is going to well continue on forever. Well, then that might be another story. Of course, with the China business, there are still risky factors and from the project to retail, that transition, and also from the project to e-commerce and then by making the sort of -- the unit of the transaction is smaller. That's what we are working on. And as a result, it's not going to be a sort of splendid growth, but we are really going to make it a resilient business. And our CFO just pointed out that the GROHE business has been very strong in China and growing. Relatively speaking, PCB end user, it would be really well perceived as do you own a good brand and also the design, Now as for the American Standard, which was strong for the project, they are having difficulties.

Next question from Morgan Stanley, MUFG Securities, Katsuyama-san's question. As for the political risks in Europe, is there going to be expected -- do you see an impact on the consumption sentiment and the demand for the renovation, especially for the Eastern Europe?

With regards to Ukraine and Russia, we have almost given up for this year. For Russia, we've been giving up for some time already. For Ukraine and Eastern Europe, it's going to be quite challenging. On the other hand, for the Central Europe, like Germany and Austria, the overall sentiment may be getting worse. But on the other hand to repair yourself, demand for -- repairing yourself is actually increasing. So Quick Fix is a brand of product that we have provided, to accommodate that need, which will be quite big. Europe for now, Eastern Europe is getting worse, and that is offset by EMENA, with the Gulf region, with higher fuel prices, where the projects are coming back and Germany, Austria, Switzerland, Central Europe is actually also getting better, relatively speaking.

And I have introduced all the questions we have received so far. We still have some more time, and we would like to invite questions from those attendees. Those of you who have questions, please click the Q&A button at the bottom of the screen, and please fill in the company name and your name and the question and send it to us. Certainly, as Katayama-san pointed out, and not just limited to Europe, but in terms of -- the consumer sentiment is likely to worsen. But what we should focus on, as we see the rise in energy cost, would it be positive or negative?

Generally speaking, the rise in energy cost would be well resulting economic recession and also the rise in high -- well, the interest would be negative for the housing. However, as the window manufacturer, energy cost going up would present the big business opportunity for us to expand our business, because well, -- and we are 62 million windows now. And then -- well, it's not -- most of it have not really satisfied with the environmental standards set in 2016. And then most of them are single glasses. And then if you will replace it with the 3 glasses, and then that would result in a CO2 emission reduction of 40 million tonnes. And so the housing sector of ours and -- and that would account for 40% of the total energy consumption. And there, while the window consumes a lot other -- and then unless you do the energy saving by windows, we will not be able to reduce the CO2 emission. And so I think this is the sort of tailwind for us. Now overseas, water technology businesses is the main businesses. And you really have to consume or use water efficiently. And because while you are really heating water in a colder regions. And so particularly with shower products, and because there is a need to replace the water faucets, and so it will be [ up the ] energy cost. And so what is really being demanded by the society and what is required by our customers. We have to make a judgment. And then to narrowing down the number of SKUs and try to really offer those required products and also the shift from the copper to zinc. And as we accelerate such a transition, we will be able to cope with the higher inflation -- and so it is always true that the crisis will present opportunities. And I think this crisis has really pushed down our earnings, but they are presenting the business opportunities from mid-to-longer-term view.

And we have another question from Citigroup Securities, Miki-san's question. What's your update on selling your headquarters building? And how have you factored that into this year's forecast? Do you think you can sell it by the end of this year? And what's your plan for the use of cash that you gained by selling your building?

Actually, the sales has been completed or actually, no, we've made an agreement on the sales. So we still have to finalize the contract per se. But by the end of this year, we should be able to complete the transaction for the cash, the capital, specifically how we're going to use it. We don't have a specific plan, but if you can give us a trust, as I explained earlier, of course, the intangibles that we have to use and design, we will be investing. For the ones who are not going to use, we have a business policy to return to the shareholders.

And another question from Okada-san of Goldman Sachs. And policy to reduce the corporate expenses and JPY 45 billion of the corporate expense is being forecasted for the fiscal year. And it is up from the previous year. What are the major factors? And also, if you could enlighten us as to the well, the reduction policy of these headquarters cost?

Partly, it is related to the sale of the headquarters building. And we, for some time, we need to incur cost for this current headquarters building and a new building. And also, there are the relocation-related expenses, and the major one is related to IT. And we are really migrating to cloud-based, and then we are making investment. And also digitalization, education or training to our employees and [ decent ] developers. And all the employees will have the IT literacy and to really improve their jobs and their work, and that's something we have been doing, and this expense is being well factored in. Matsumoto-san, would you like to add something?

As for the headquarters, while there were expenses within that grouping, HR, and also accounting and also the legal, that kind of conventional headquarters-related expenses, and also some of the strategic part of it are included together. And as for the conventional headquarters, where expenses has been declined or is declining from the previous year. And we have taken a lot of measures in the past and shared services and offshoring, and it has been implemented to reduce such expenses. And so that's been in progress and headquarters for expenses and IT that I have just referred to, IT-related expenses and to well shift to the shared services. And whatever is increasing this year, will be declining from the next fiscal year end onwards.

Next question from Mitsubishi UFG Morgan Stanley Securities, Yagi-san's question. What is your view on the demand for the domestic renovation for LHT and LWT? Is there a possibility that the demand will slow down going forward?

For LHT, we are going -- it's going to increase for sure. The renovation demand for LHT, as I mentioned earlier, compared to international, it's still low, energy issue, energy crisis and environmental issue. So renovation for windows will increase for sure, from that perspective and because of the increasing natural disasters, the shutters and the shades for the summertime and the doors themselves, with the COVID-19 and everything, to be able to ventilate through the doors, demand is going up for the exteriors year-after-year. And of course, with the COVID-19, you want to enjoy doors, so it's increasing as well year-after-year. For Interior, the market as a whole, it's not necessarily growing as a market as a whole, but ourselves -- for all the products, because of our strength, we design all the products, it's growing. So for LHT, the demand for the renovation is increasing.

For LWT for the water related, given the current situation, how is this being built at the low cost when it's getting tougher to build with low cost, it may shift to renovation?

Realistically speaking, the demand for renovation for the water is actually coming from that. The demand for the water is not necessarily fully increasing, both for ourselves and competitors, it's because of the supply chain disruption. To produce many products in a mass production way, semiconductor connector, various products are lacking here and there. So that's the biggest factor.

Well then, I think we have covered all the questions, and so we would like to conclude the Q&A session. With this, we would like to conclude the briefing session for the financial results for FY ending in March 2022. And I thank you very much for your attendance, and I will seek your continued support and cooperation. With this, we would like to conclude the briefing session. Thank you. [Statements in English on this transcript were spoken by an interpreter present on the live call.]