LIXIL Corporation (5938) Earnings Call Transcript & Summary

Ladies and gentlemen, it is time for us to start LIXIL's ESG briefing. Today's theme is a positive impact for today and tomorrow. In the following presentations, we will be talking about update on our environmental strategy, which was announced last week on the 30th of March. We will be talking about various initiatives relating to improvement of our corporate value as well as the creation of impact for the solution of societal and environmental problems. In the order of appearance, we will have the following presenters: Director representative Executive Officer, President and CEO, Kinya Seto; Director, Executive Officer, Executive Vice President, Chairperson of Impact Strategy Committee; Jin Montesano. Senior Vice President, Chairperson of the Environmental Strategy Committee, Uchu Mukai. In the Q&A session to follow in the latter half, we will have independent outside director, Chairperson of the Board of Directors, Masatoshi Matsuzaki, as well as Independent Outside Director and Chairperson of Nomination Committee, Mr. Yuji Nishiura. I will be serving as the facilitator for today's event. My name is Hirano from IR office. Let me explain about how we proceed. Today's agenda is placed on the fourth page of the presentation materials. The 3 presenters will be presenting one-by-one. After their presentations, question-and-answer session will follow. You will be able to input your questions any time during the ESG briefing. [Operator Instructions] We are expected to conclude at 5 o'clock Japan time. I hope to -- I hope that you would stay till the end. I would like to now call on Mr. Seto to present.

Good afternoon, everyone. My name is Seto from LIXIL. Thank you for attending our ESG briefing today. As you are all aware we faced a very difficult 1 year. Last year, there was a Russian invasion on Ukraine. There was increase in the commodity price and also supply chain disruption because of COVID and the things did not reach where it needed to. There were many things which occurred. But during that time, the longer-term impact includes the climate change. And I think that we share that sentiment of sense of urgency. The global impact is being considered at our company. We are not reactive, we put it at the center of our strategy, we believe that for our sustainable growth aligned with our purpose. We will be -- as we are committing to integrate the environmental strategy to our business strategy. The material that you see on the screen is included in our integrated report, so this shows the contents of the LIXIL Playbook. In the innovation, we will be integrating environmental strategy into our business strategy, we are emphasizing on that point. So what kind of environmental strategies do we have? I would like to show you some of the policies that we have. So we think that you can go to the next slide. So as one of the impacts through our businesses. So the revia, we would be able to reduce the plastic waste by having -- so this product revia that I have brought with me today. So this is called revia pavement used for pavement -- road pavements. The recycle of the conventional plastics. If it's polyethylene, if it's fully polypropylene, we needed to sort out the -- sort out the plastics by types. However, in the case of revia, we don't need the sorting out of those plastics from marine plastics to PPE and also polyvinyl chloride, we would be able to combine it with the waste wood, and we can use extrusion molding for the creation. Through this, we can recycle 185,000 tons of waste plastic and we would be able to reduce the CO2 emission by 600,000 tons. We need to work together with the government, the local government as well as the consumers. And I think that together, we would be able to increase the usage of revia more. And the second is the PremiAL series shown at the middle, which is a low-carbon aluminum extrusion product. When I joined LIXIL, the LIXIL's aluminum product was the -- use the bauxite ingot to ingot-based. And we did use [ internal ] bridge scrap, but up to maybe 20% or 30%. But the aluminum ingot based on scrap and aluminum based on bauxite ingot, there is a difference in terms of automation. But if it is a bauxite, we need about 10 kilograms of CO2 to create a kilogram of aluminum but 0.3 kilograms will be sufficient. So that's about 93% based on the profile. Even for aluminum, the sessions can achieve 75% reduction, significant reduction. And so last year, and we have come up with a product that warranty us a 70% scrap usage. By the end of this year, we will have a premium 100 product where we will promise 100% recycled aluminum usage. And by 2031, all of the aluminum materials will be produced from scrap. That is what we are going to aim for. Now our product in the past -- and the operational carbon and so we're talking about reduction of CO2 when the products are used. But here, from when we are embedding the material product. And from the construction phase, you were able to reduce CO2 emission as embedded carbon. So it's quite a new airport making type of product. Added to that, also, the government made an announcement recently in regards to the subsidy for the window subsidies, JPY 100 billion. And the window reform is also an important business for us to reduce CO2 around the world. And Zero Energy Health is attracting a lot of attention on new health. But in Japan, we have some 60 million existing houses. And majority of these houses only have a single paying window. And 56% of energy goes out from the house from doors and windows. So heat installation there is likely to generate significant amount of economic benefit and also the installation benefit. And this installation benefit from 2030, the CO2 reduction by 70% is the target, and I think we are likely to make the most significant contribution there. So through our product and through our normal business, we have countermeasures against the climate change, and we want to work towards the same going forward. And so the business environments around in us continues to change on a daily basis, and we will respond to these rapidly. But these changes are risk to us, but also opportunity for us how to leverage this opportunity. And so the key is for us to become a company that can generate impact for the society. Now after myself, the Chair of the Impact Strategy Committee, Ms. Jin Montesano, will present about our impact our strategy. In addition, Mr. Mukai Uchu, our Chief Environmental Impact Officer, Chief Standardization Officer and Chair of the Environmental Strategy Committee will explain our environmental strategy updated in March this year. And at the end of the briefing, there will be a Q&A session to answer questions from the participants. And we will be joined by our outside directors, Mr. Nishiura, Mr. Matsuzaki and we will talk about the sustainability and also about the governance. So thank you very much.

Thank you very much. Now I would like to call upon the chairperson of the Impact Strategy Committee, Ms. Montesano, to talk about the overview of impact strategy of LIXIL. Ms. Montesano, please.

Thank you our CEO, Kinya Seto, for that great introduction. So good afternoon, everyone, and thank you for joining us today to learn more about our company's exciting new direction. As a company whose purpose is to make better homes, a reality for everyone, everywhere. We understand that our role goes beyond just building better homes. We believe that as a purpose-driven business, we have a duty to make a positive impact on society as well as the environment. And in 2015, LIXIL developed the CR strategy, and we have been working hard to fulfill our corporate responsibility I'm very proud of what we've achieved so far. However, LIXIL has already gone beyond responsibility in its efforts to realize our purpose. And that is why after much consideration and research, we have decided to shift our CR responsibility to become LIXIL's impact strategy from April onward. This update reflects our commitment in 3 key areas. The first is our commitment to LIXIL's purpose, which is to make better homes a reality for everyone everywhere. The second is to address key social and environmental issues that are aligned with our core business. And finally, our commitment to being accountable for these efforts, we are responsible for making a positive impact on the world, but also for measuring that impact of our activities and explaining them clearly to our stakeholders. We have set clear goals and are tracking progress, including with new environmental KPIs. An impact strategy places a stronger emphasis on that accountability and transparency, which will further build trust with our stakeholders. So there is no change to the 3 strategic pillars set forth in that CR strategy, which many of you are familiar with. And we will continue to commit to and focus on these 3 core areas, where we can have the greatest impact by leveraging our capabilities and know-how. Rather than thinking from the lens of responsibility, our impact strategy allows us to proactively take a more holistic approach to making a positive environmental and social impact while we pursue improved financial outcomes for LIXIL at the same time. We recognize that these are the 3 areas very interconnected and must be addressed together to achieve that long-term sustainability we're aiming for. So although we're making this change today, I believe our employees have already been working to implement the impact strategy long before today's announcement. Our employees truly understand and accept LIXIL's purpose very well. They're incredibly passionate about the innovative products and services we make and provide and understand the importance of creating long-term sustainable impact in order to realize our purpose. Now it is our people that play this critical role in achieving LIXIL's vision and goals. It's precisely LIXIL's employees who will implement the impact strategy that I just talked about earlier. So as we dedicated today's ESG event to focus mainly on the environment, we would like to create a future opportunity to explain a bit more about our human capital related initiatives. Before moving on to a detailed explanation of our environmental strategy, though, as Chief People Officer, I would like to briefly highlight just some key developments from the past year in the area of diversity and inclusion, one of our 3 critical priority areas of focus. So here you can see is our road map to 2030, and we are on track, in fact, to deliver on our 2030 goals. With the why D&I matters and what we will do to achieve it, pretty well embedded across the company, we have focused on activities to shift from Phase 2 to Phase 3 of our strategy. We've taken a big step forward in deepening managers, leaders and employees understanding of and engagement with our D&I efforts. And that has principally been HR led. Phase 3 will be marked by our D&I efforts being business leader-led. So we're moving the accountability to each P&L and function. This is, of course, easier said than done and a token transition without meaningful leadership accountability for the right actions would be useless. So to ensure business leaders are enabled truly to succeed, we have 2 key initiatives launched in 2023. First, we prepare a guide for leaders that clarified with practical concrete examples of what leaders can and should do to activate D&I more effectively, really tailoring approaches to their own organization's needs, by market, by division, by team. We've also developed a dynamic dashboard that tracks in real time the current status of each team's D&I progress. And we will use this mechanism as a way for leaders to regularly check in on their progress against D&I goals and evaluate their current status. Let me show you how it works with just an example dashboard here it is. So this D&I dashboard, which is based on [indiscernible], uses LIXIL data to focus in and around our efforts about 5 KPIs. These 5 KPIs are the ones that we will continue to track on a regular basis. The organization's LIXIL voice inclusion score, employee and manager ratios by gender, gender ratios for promotion, hiring and departures. We believe that these 5 key metrics tracked on a regular basis by region, country and division will provide leaders with a much clearer view on progress against our goals. Progress will be presented and discussed by P&L and function at the D&I committee, which is chaired by CEO, Seto. LIXIL has set targets to achieve specific gender equity goals by 2030. However, the real goal is actually not gender equity. It's really about maximizing the full impact of our diverse and capable workforce around the world. Our employees are the force behind creating long-term corporate value. We believe that the true impact LIXIL can make on society is really only possible when every single employee can fully demonstrate their individual potential and ability. Through our employees, we will respond to the diversifying needs of society with our innovative products and services, all made possible by our own employees' knowledge and perspectives. The D&I initiatives currently underway within the company are really defining the critical pathways to achieve this goal. Now no presentation about LIXIL's impact on the world is complete without talking about our work in sanitation and hygiene. So please allow me to hand over to Erin McCusker, who leads our SATO business and the newly created P&L called LIXIL Public Partners. Thank you.

My name is Erin McCusker, and I'm the leader of SATO and LIXIL Public Partners. Access to water and sanitation are recognized by the UN as a human rate, fundamental to health, dignity and prosperity. The Sustainable Development Goal 6, or SDG 6 calls for access to water sanitation and hygiene for all by 2030. And lack of access to the safe water and to safe sanitation we know has a direct impact on our health, on livelihoods and on the environment. Still, billion people live without safely managed drinking water and 3.6% without safely managed sanitation. Although a lot has been done, there is still a lot to do. At the UN Water Conference in New York, LIXIL joined global government, civil society and hundreds of public and private stakeholders to come together for the first time in decades and underscore this urgent need for acceleration, if we're going to still achieve our global goal. We made new commitments and reformed anchor partnerships to deliver on those points. Proudly, LIXIL reaffirmed our impact goal to reach 100 million people with improved sanitation hygiene by 2025. LIXIL's SATO brand is the driving force to deliver on our global sanitation and hygiene commitments. Just 10 years ago, SATO shipped its first SATO pan. And in 10 years, we've grown from just a project to an award-winning social business that has impacted millions around the world. SATO's vision is clear, to empower people everywhere to live a better life every day through our innovative sanitation and hygiene products. We achieved this by designing affordable, accessible and sustainable products that are tailored to meet the specific needs and wants of our consumers and local markets. Partnerships are essential for our sanitation hygiene collar. For example, LIXIL's partnership with USA is the partnership for better living is expanding the availability of SATO's products, accelerating our reach and our impact into new markets. LIXIL and UNICEF make a splash partnership, expanded its scope to new focus countries and also supported new cause-related marketing campaigns. These campaigns engage our core brands and our consumers and our business partners to bring them directly in touch with LIXIL's impact in sanitation and hygiene. Japan implemented a cleanliness for all projects and a donation program of the LIXIL Owners Club. Our GROHE brand's Energy for Life campaign across the EMENA region raised EUR 1.2 million that will be applied to sanitation and hygiene products in Nigeria and in Indonesia in collaboration with UNICEF. It is not only through our SATO brand that we are developing innovative partnerships and advocating improvements in water sanitation hygiene. LIXIL Public Partners is established to work with governments, municipalities, private sector companies and local communities to develop scalable solutions to tackle untreated wastewater and the impact it has on the environment and the dignity of communities. We've built on our first project in Long County, Alabama, where we integrated our water efficient products with technology providers, local government and community stakeholders. We are now exploring to replicate and scale of this community engagement led model and create an integrated solution that can be applied to other communities across the Alabama's Black Belt and other communities that may be facing similar challenges. Through all of our initiatives, our focus on safe and clean water now forms an important part of LIXIL's updated environment strategy. By working to improve access to safe sanitation and hygiene, we are not only improving lives. We were contributing to safe water and the environment and ultimately, a healthier and more prosperous world for all. Thank you.

Next presenter is the Chairperson of the Environmental Strategy Committee, Mr. Mukai, to talk about the update of environmental strategy.

Hello, everyone. My name is Uchu Mukai. I oversee the Environmental Strategy Committee. At LIXIL, we believe that addressing environmental issues is extremely important in pursuing our responsibility and purpose as a company and as a sustainable business. Because of that, in 2019, we have established our environmental vision, Zero Carbon and Circular Living. To achieve this vision, we have set 3 focus areas that you see on this slide. This includes climate change mitigation and adaptation, water sustainability and circular economy. In addition to providing innovative products and services, we have also continuously strive to improve our overall environmental value and mitigation of risks by reducing ecological footprint throughout our business. In order to evolve this and accelerate this, we decided extending the collaboration beyond the environment-related divisions, including management and business units where necessary. Because of that, 2 years ago, we have launched LIXIL Environmental Strategy Committee, accelerating global and cross-functional efforts. One of the outcomes of that was that based on the recommendation of TCFD, we have identified and assessed risks and opportunities that climate issues have on LIXIL and announced ambitious interim targets for reducing CO2 emissions. This year, not only the climate change, but we will be tackling other environmental issues, and we have updated our environmental strategy, and we have put specifics to the strategy. I will be going into the specifics later on. But our environmental strategy goes beyond fulfilling our corporate responsibilities and work to maximize our impact for the environment and people's lives. There are 3 main points for the environmental strategy update. The scope has been clarified for the business areas and beyond. We need to minimize the environmental footprint as maker, and all of the makers have the responsibilities to do so. In addition, LIXIL has positioned solving societal and environmental issues as a critical element of our business strategy, and we have clarified that in the environmental strategy. Also to accelerate the achievement of environmental vision, we have set midterm targets in the 3 priority areas. Last but not least, is biodiversity. We have added biodiversity to our material issue. LIXIL has continuously engaged in protecting biodiversity in the field. But moving forward, it will serve as a common foundation for the 3 priority areas for the achievement of our environmental vision. We will further work on it by adding it to our material issue. We have prepared a video summarizing the concept of LIXIL's environmental strategy and the path to achieving our environmental vision. Please take a look at the video. [Presentation]

As we have explained in the video, in updating the strategy, we have eyed on maximizing our impact to the society. We have considered it in 3 phases: our operation, our value chain and expanding our impact. By our operation, we mean business processes that include our production sites, offices and sales activities involving our employees and residents in the surrounding areas. Next is our value chain. Our value chain refers to a series of processes that are generated through contact with external stakeholders, both upstream and downstream. The main stakeholders include business partners and end users. The third point, expanding our impact. We will expand our social impact beyond the boundaries of our corporate responsibility. We will work to contribute to the future of the global environment. By steadily working on the initiatives on these 3 phases, we will reduce the environment-related risk and at the same time, capture business opportunities and realize sustainable growth. This is a summary of what I have talked about so far. We have updated our strategy in the main items of 3 focus areas. By setting the midterm target in 3 phases, so we have 3 x 3, 9 items in total. And in all of these items, we have clarified the action that we would take for the achievement of the environmental vision, the KPIs and targets. But this is not exhaustive. So this chart includes qualitative and quantitative targets that highlight items in each focus area. I will explain detail for each of the focus areas, namely climate change mitigation adaptation, water sustainability and circular economy. First is climate change mitigation and adaptation. Climate change is an urgent issue that we must address, and one of LIXIL's focus areas is climate change mitigation and adaptation. We are committed to mitigating our environmental impact through provision of our environmentally friendly products and services, and at the same time, we conduct adaptation activities. Our CO2 reduction target is aligned with a 1.5-degree Celsius standard of SBTI science-based targets initiative, and we successfully renewed our certification last month. In terms of the specifics of what we do in the operation -- in our operation to minimize environmental footprint from our business activities, we are working stringently to save energy in our plants and offices, utilizing renewable energy converting to fuels that emit less CO2. In addition at LIXIL, we are starting to deliberate on various measures to achieve long-term goals towards 2050. In December of last year, there was a progress in our activities to convert to hydrogen fuels. We have conducted a test using hydrogen in mass production facility in our plant and confirmed hydrogen can be used just like natural gas that we are using currently without any issues. Next is our value chain. Product and procurement account for a large proportion of LIXIL's value chain emissions or Scope 3. For procurement, it is essential for us to work with our suppliers. We have been working with them to raise awareness and strengthen collaboration in support of our environmental activities and guidelines. And now we are reaching out to promote CO2 emission reduction of the products and services that we purchase. We will continue to engage with our suppliers to understand the current status of the entire value chain and promote effective emission reduction activities. Next is expansion of the impact. We are committed to reduction of CO2 emissions in the society overall that are not limited to direct reduction of CO2 emissions from LIXIL's businesses. We provide high insulation performance housing products, hot water and water saving products as well as energy generating functions and services that contribute to indirect reduction of CO2 emissions. Next, I would like to describe our initiatives for water sustainability. Apparently an estimated 800 million people around the world need to work for more than 30 minutes to access safe drinking water for use at home. Furthermore, total household use of water has increased sixfold since the 1960s, greatly enhancing the importance of water as a resource. Water is the source of all life. It is not a commodity, but a precious resource that should be protected. As a provider of products that help us use water in a daily lives such as faucets, toilets, bath and showers. We are committed to the sustainability of water, improving access to safer and cleaner water every day and by enhancing the environmental value of water. In regards to operations, LIXIL is promoting responsible use of water in its business processes on a global scale. Our midterm target is to improve water usage efficiency at our business sites by 20% by the fiscal year ending March 31, 2031. And in particular, we are working on a solution to improve water use efficiency in our water-scarce sites. Next, value chain. As for responsible use of water in our product, we aim to contribute to global reduction in water consumption by 2 billion cubic meters by the fiscal year ending March 31, 2025, based on our water saving product and services. such as hot water saving faucets and water-saving toilets. Everstream announced by GROHE brand last month adopt the concept of water recycling shower system. We are aiming to launch the product in spring 2024. As for expanding our impact, as Erin mentioned earlier, LIXIL is advocating water and sanitation as a business. The need for safe and hygienic water as well as improved access to water is not something that is just limited to developing countries. We are developing and delivering community-based solutions and at the same time, we are creating business opportunities to scale. Solving these issues will not only change the way people live in the future but will also create an impact on water safety. Specifically, we will work towards improving safe and -- safety and access through innovations such as sanitation management system that does not use conventional service system and innovation like SATO that is easy and inexpensive to install for homes in areas with access to the tap water, our filtration phosphates and water purification cartridges contribute to safer, better tasting water. In this way, we are committed to sustainability of water. Third is our initiatives to recycle resources. Resources such as fossil fuel, metals and minerals that support our businesses and daily lives essentially serving as the foundation of [indiscernible] society today. However, there are exhaustible resources with only finite volumes in existence on our planet. Accordingly, we must realize our society based on circular economy in order to enable sustainable growth for the society as a whole. Looking ahead, LIXIL is promoting company-wide initiatives for the sustainable use of limited resources and is driving efforts to reuse resources throughout the entire product life cycle, from procurement of raw materials to manufacturing to use and disposal. In our operations, we aim to make effective use of resources by reducing waste in our production processes and improving the recycling rates. Specifically, we have set a target of increasing this recycling rate to 90% globally by the fiscal year ending March 31, 2026. In our value chain, we are working on R&D initiatives and building systems that are predicated on circularity of materials as the first step. And to minimize use of virgin resources in our product leads towards promoting the utilization of recycled materials for aluminum, resin and wood. As Mr. Seto explained, for example, LIXIL has set a target to increase the ratio of aluminum used in its housing business to 100% by the fiscal year ending March 31, 2031 and launched the PremiAL series in December last year. To improve efficiency of material usage, we are working on extending life of products implementing recycling-friendly designs and building product to product take-back systems. Lastly, I will describe our initiatives for expanding our impact. As Mr. Seto explained earlier, LIXIL has developed revia that combines most types of waste plastics, which have traditionally been deemed difficult to recycle and waste wood generated from demolition of buildings. Going forward, we will endeavor to build an ecosystem that covers all phases from procurement, production cells and collection of used materials based on collaboration with like-minded local governments working on circularity of materials. In this way, we can not only recycle was it's generated by our business processes and recycling of our own product, but can also contribute to the realization of a circular economy in cooperation with stakeholders such as governments, municipalities, industry associations and business partners. Climate change, water and circularity are our 3 priority areas that we will continue to drive efforts in order to achieve our environmental vision. However, an issue that we should also focus on towards the same objective is the conservation of biodiversity. Companies, including LIXIL rely on [indiscernible] to secure water or minerals needed for its business activities. However, climate change, resource depletion, water and air pollution are affecting nature. For the sustainability of our business, we must continue efforts in a 3 focus areas, but at the same time, we must also work on conserving biodiversity as it is inexplicably linked to environmental issues. By adding this as a material issue, we will accelerate our efforts in all 3 focus areas. We have explained initiatives in each of our focus areas. But these 3 areas are interrelated and a comprehensive approach is necessary to maximize our impact. For example, using recycled aluminum as the building material contributes to resource recycling and also reduces CO2 emission that would have been generated during the smelting process, as Mr. Seto has explained earlier. Revia also contributes to reducing CO2 emission from our society as a whole and to circularity of materials by enabling utilization as raw material, what would have been disposed of through incineration in the past. In this way, we will certainly promote our environmental strategy through comprehensive initiatives and by pursuing our purpose and by creating impact will contribute to realization of a sustainable society. With this, I would like to conclude my explanation. Thank you.

Thank you very much. That would conclude all of the presentation from LIXIL's side for today. From here, we will have a Q&A session. While we are preparing the venue for the Q&A session, I would like to explain about how we proceed. We will first take questions from the investors. That will be followed by questions from the media. Due to a constraint in time, when the questions seem to overlap, we may skip that question. Also, the question content should be limited to the contents that we explained today in the ESG briefing. I hope to have your understanding. [Operator Instructions] We are now ready to take questions. We would like to move on to the Q&A session. These 5 people will be answering your questions. But before we move on to the questions that has been input today. There are 2 questions. Since the revision of the corporate governance code in June of 2021, there are questions, which are frequently asked in the IR meetings, which is related to supervision by the Board of Directors on sustainability issues. And we would like to ask the 2 outside directors to respond to these frequently asked questions. First is the Chairperson Matsuzaki. With related to the sustainability challenges, which is a topic for today, since the revision of the corporate governance code in June of 2021, the listed company were asked to proactively engage in sustainability issues. Also, from the perspective of improvement of mid- to long-term corporate value enhancement. The strategy implementation must be done, which would be conducive to the growth of the sustainable growth of the company and the supervision must be made by the Board of Directors meeting. At LIXIL, we have been proactively working on sustainability-related challenges. But since the revision of the corporate governance code. What changes have you seen in the involvement and discussion by the Board of Directors related to sustainability-related matters? And what kind of changes were there if there were any changes at all?

Thank you for the question. At LIXIL, even before the revision of the corporate governance code, it has been working on the sustainability-related issues. The Board has been very much interested in these issues in conducting the Board of Directors meeting from the perspective of risk and also opportunities for growth. So these were the 2 perspectives that we had focused on in considering the sustainability issues. Risk includes a climate change related matters and human rights related matters. We need to align ourselves with the global trends because we would be put off points by the investors. If we are not seriously working on these areas. So the BOD had been focusing on those matters which related to opportunity for the business. Initiatives related to the society and the environment is opportunity for our growth. So from that perspective, we had been watching what the company has been doing since the provision of the corporate governance code. The sustainability-related policy was asked to be made by the Board of Directors, and the BOD will be supervising what the what the executive officers are implementing. The 3 pillars that we had served as a basis, and we had been looking at how the execution side is implementing it. And the Board is approving the initiatives being taken by the execution side. In terms of the specific involvement of the BOD after the revision, there are 2 examples that I would like to talk about today. First, it's related to impact strategy that was talked about today. So in the reporting from Jin-san. So when I -- when she talked about SDG, what I have said after the report is that. The significance of the corporations to be involved in this is that the corporations have the ability to provide solutions to these issues. And from the perspective of entrepreneurship, we would be able to create new businesses through it. The impact strategy that was discussed today have reflected what I have mentioned. And so there is a shift from CR strategy to impact strategy. So there was a proposal of that at the Board recently. And I had proactively agreed to that. And with related to environmental strategy, CEO, Mr. Seto, talked about this today as well. So updating of the strategy playbook was done, and the environmental strategy was integrated into the business strategy. In the reporting of the executive officers, there was the -- there was a reporting of various initiatives like revia. One outside director has asked this question. We know what has happened in the past. But isn't there any summary of what LIXIL has been doing comprehensively so that people outside of the company will be able to understand what LIXIL is doing. Mukai-san, today has explained about environmental strategy. And you saw at the 9 items, which LIXIL will be taking initiatives on and that clears up a lot of things. So that reflected what the -- what we have said in the Board of Directors meeting, and I think that has put the sustainability initiatives forward.

Thank you very much, Mr. Matsuzaki. Next question for Mr. Nishiura, Chair of the Nomination Committee. Since the revision of the corporate governance code, there is a greater focus on supervisory function of the Board of Directors. In this regard, knowledge and skills related to sustainability at the Board level is also becoming ever more important. So in order to ensure effectiveness of supervisory function at the Board, how is the Nomination Committee considering sustainability-related knowledge and skills when selecting board member candidates?

This is Nishiura speaking. So there are many management terminology as a borrowed world. And there is a difference of understanding in terms of what they mean. Now sustainability, sustainability is to sustain growth and so forth. And here, not only looking at the business, but we need to look at improving sustainability of society as a whole. And we need to be involved in that more proactively and more deeply. That is what we are saying. And so from the Board and the management team's perspective and enhancement of the sustainability is the direction of we should head towards and is also a state that we should try to build. On the other hand, in order for us to achieve these goals, then the Board members and each of the board members, their skills have been put together as a skill matrix. And there, the skills related to sustainability is something that everyone should have, maybe not a skill, but it's a perspective or knowledge or a posture. These are something that everyone needs to have. And it's not included as one of the items in the skill matrix though. Conventional skill matrix, it is something that everyone should work together at all achieving this ground goal. That is all.

So there has been input of questions from the participants. So from here, we would like to respond to the questions that has been brought up by the participants. From Mitsui Trust Asset Management, Mr. [ Takigawa's ] question. There has been quite some time since SATO products were offered, but what new markets are being developed through this. Are you exploring revenue opportunities by expanding to building local infrastructures. Please tell us when you will be able to actually realize revenue generation, or PL impact from this initiative? Jin-san, please?

Thank you so much for the question. Yes, it has been quite some time. In fact, it has been 10 years. Since SATO; products were made and shipped all around the world. So we are celebrating a decade of SATO in the global markets. It's fair to say that a number of new markets have been developed through our efforts. And most recently, with the USD 10 million grant we received from the USAID as part of the better -- together, better living partnership we're able to enter new markets such as Senegal and Ghana in addition to expanding markets we're already in, like Ethiopia, Kenya, Tanzania and so forth. So I would say that the additional partnership with USAID gives us a chance to derisk our entry into these new markets like Ghana and Senegal as well as to expand and go faster into the reach of these existing markets, which in the past, we were struggling with because of the lack of funding and resources and ability to penetrate distribution and channels. So we really hope that over the next 5 years, the $10 million funding period will enable us to actually reach these new populations and new consumer segments in these new as well as existing markets. In terms of exploring new revenue opportunities, it's interesting that you asked this question about local infrastructure. We're not necessarily building local infrastructure but we have made a very mindful shift toward investing more in and penetrating institutions. So in the past, we focused a lot on the family and the household. Today, we're focused in addition to family and household, rural schools and county hospitals and small clinics where we can actually reach institutions that are hard to reach today and also lacking basic sanitation. As for the really big question you're asking me, when are we going to break even? Well, as you know, we had made a commitment publicly to break even for SATO by 2025. And we had, in fact, broken even in Bangladesh, a large and strategic market for us, but that was pre-COVID. And COVID has actually created a little bit of a problem for us in terms of reaching our key customers and penetrating distribution channels for these past years. So that is going to really challenge our ability to break even probably on target, but we are actually focused on it. And at the moment, we're working very hard to see what we can do. Just to provide you some perspective, we are now with 35 million customers in 45 countries around the world. And I dare say if we had not set such an ambitious target of 100 million by 2025, we would probably not be at 35 million today. So thank you for the question.

Yes. So from the perspective of impact 10 million, even if we sell 10 million, it would only be USD 50 million. So that would be JPY 6 billion to JPY 7 billion. So we sell several millions of toilets each year. So revenue-wise, so JPY 1.5 trillion, JPY 1.6 trillion is what we make. And the revenue from here is only several billions of yen and only to a breakeven point. But the societal impact that we give is significant to our business and the other -- the distributors that we work with. So there are customers who doesn't care about LIXIL or total, but because LIXIL conducts these kind of societal activities, they tend to prefer LIXIL, and the SATO operation would increase the fans of LIXIL who would buy a more LIXIL toilets. So our purpose is to provide a better living for everyone around the world. So this is motivating our employees. So the SATO's revenue impact may not be significant revenue-wise. However, every year, we are bettering the sanitation of 1 million to 2 million people each year, I think that we can be proud of it.

Mr. [ Takigawa ] has asked the second question. It goes without saying that the amount of water used in toilets is important. But in order to achieve KPIs, it is also important to improve water supply and sewage systems in emerging countries. Do you have any strategies to expand the sales channels of LIXIL's sanitary ware in cooperation with governments and other organizations or to utilize ODAs?

Very, very good question. So I agree with you that it is important to improve water supply and the sewage systems in these emerging countries. In fact, you pretty much nailed the recent report that shows that the top 10 fastest urbanizing countries in the world are also the least sewered countries in the world. And so municipalities and utilities are not able to keep up with the rapid urbanization and city development in these emerging countries. And so this is actually a very significant challenge. And as we heard from Mukai-san's presentation, as we work to set these ambitious water sustainability targets. We do need to look at how we improve water supply, but also conserve water. And there, the SATO program already, I think, conserves water because a couple of water is actually what is needed to flush a SATO toilet. But in addition, we did briefly touch on something Erin is also running concurrently called LIXIL Public Partners. It's a newly established P&L with the ambitious plan to think much more broadly about the ecosystem that is necessary to bring the entire value chain to improve emerging countries situation with regard to water supply, water conservation and sewage systems. LIXIL Public Partners is already doing quite a bit of work in markets like the United States, actually, where we have 0.5 million people without access to basic sanitation. This may come as a surprise to you. But in places like Alabama and some of the native American -- Indian reservations. We're doing a lot of work with local community and local governments. And we're actually working to innovate new solutions and products, which I cannot talk about today, but would really look forward to telling you more about in the coming months because we are working very closely with partners like the Gates Foundation and other entities to bring really interesting new innovations in this area to support those challenges that you mentioned around emerging countries. So LIXIL Public Partners is a very innovative, new P&L that's going to tackle exactly these points that you're raising in cooperation with governments, regulators and organizations like IAPMO.

As you may be aware, SATO was something that was started with Bill Gates Foundation. And Mr. Bill Gates talks about the issues in efforts and things like that. SATO is great product in terms of sanitation. But if we come to the urban areas, irrespective of how much SATO we have, we need to have the sewage system. And he felt a sense of urgency in that regard, he chose us as a partner and be making an effort to make something great here in the near future. and something we will come up with a solution that you'll be happy with, we should be able to come up with an opportunity to contribute to the society. Now -- and the market size is larger than that of toilet to begin with. And so you talked about the impact towards the profitability. So this is likely to have great impact towards the profitability going forward.

We have another question from Goldman Sachs. Mr. Okada. Many housing equipment companies manufacture and sell products with the environmental performance and water-saving features. Also, is there any case in which the development of products with added environmental performance, it leads to an increase in costs.

So in terms of water saving, and the environmental performance functions with related to environmental performance, there are 2, the water warming functions and CO2 reduction and another is the water faucets, which is mainly used is that it uses land, and it impacts the health because it impacts the drinking water. So as a countermeasure to that, we use zinc plastic in order to improve the water quality and also for water supply related tools, we try to maintain adequate temperature with related to water saving functions. We are strong in showers, and we are selling the biggest number of showers around the world. When the same amount of water comes, we would be able to make it seem like higher water pressure, and we will be creating newer products that would enable us to be more creative.

We have another question. The next question is from SMBC Nikko Securities, Kawashima-san asked the question. What challenges do you see in expanding PremiAL and revia?

PremiAL, there isn't much challenges in terms of selling the product, I think, because many of the general construction companies right now, when they are building buildings, they have to register quite significantly. So they are faced with this type of challenge. And the aluminum and concrete are the main materials that they use in doing so -- and it's aluminum that has the greater scope to reduce the auto emission. Concrete is very difficult and steel, I think electric furnace has already made a lot of progress. So there is a lot of dependency on aluminum in that regard. And so overall aluminum sashes to achieve more than 70% reduction in CO2 in aluminum. It does depend on how much aluminum utilized, but it could potentially lead to a reduction of CO2 by some 20%. General construction companies are required to reduce by 40%. It's quite significant. So in terms of sales, there are many challenges in our view. But towards the future, and when we are using recycled aluminum, how to secure a scrap aluminum is going to be a potential challenge for us in the future. In the case of aluminum, in industrially developed countries, we have a distribution system that has been well established. So how to sort and how to manufacture. We have developed a lot of know-how in this area. And this is also a competitive edge. But as we look towards the future, the aluminum scrap and more than those produced from bauxite, it is inexpensive, but there could be a time when they become more expensive in the future. However, except for technological, there aren't many major challenges. But technologically, we have been able to achieve 100% already. And so from our perspective, we should be able to achieve a lot of success with this business. As for revia, it's a new material. So there are many unknowns as yet. And we need to create an ecosystem, the society first. Plastic waste to begin with, it does cost to collect waste plastic. And so against that, how the local government respond, how will the government deal with this situation. So it's going to have a large impact on cost of waste plastic. So if the society is going to support revia now is going to be a key point. Technologically speaking, and because we use various types of the material. As for material property, there is going to be quite a large bandwidth. And so in terms of the material property, in the case of revia pay, but I don't think there's going to be much of initially, but if you want to create something different. So if we want to create a furniture like chair or to create desk or to create fence. And if we start to look at those areas, we need to control the composition of the raw materials to an extent and how to do that. And the extrusion process in doing so could be more of an issue as we go into the future, but whether it be for PremiAL or revia. It's not something that we can't do. a large goal, but we can do it, I think. But in terms of revia, what will the social environment be? And how we are able to work with the social environment is going to be the key I think.

Next is a question from Mr. Fukushima from Nomura Securities. What is the market size and the immediate sales target for revia, PremiAL and Everstream?

For revia, it's very difficult to answer. For the time being, in the midterm, we are targeting JPY 100 billion in revenue. In reality, there are many more times a plastic waste that's being generated. And I think that we can expand our businesses if we can use it in roads or in pavement. And this potential market is very big, but there is an issue of the creation of ecosystem. I would not be able to say how fast we would be able to do that. So we want to make this product, and we want the market to accept it. In terms of PremiAL, we will be converting the product -- all of our products to PremiAL that could be done without much issues. So the sales of aluminum products is JPY 300 billion to JPY 400 billion. And when we converted to PremiAL, that would make the market quite big. And the Asian countries are showing interest towards this product. So I think that we can market this product in a large scale in Asian countries. So how fast we would be able to convert our product to PremiAL will be very critical. The speed is important. So PremiAL can be sold at higher price. So how we view the profitability is what we have to think about. In terms of Everstream, I don't know yet. So how we look at the positivity of the environmental friendliness and of the recycling of the shower, how the customers view it will be very critical. This is the area where we would be able to differentiate and not only Everstream, but KINUAMI and other products, we are very proud about them. So Aqua Shower, Body Hug Shower. We believe that those will be the pillars of our products going forward. So we don't have a specific target for Everstream in terms of sales.

Again from Fukushima-san of Nomura Securities there is one more question. On Page 32 of the presentation material, the question is related to the recycling rate of waste and other materials generated by business establishments is already over 90% except in North America. Why is the solo in North America? What challenges do you face? Outside of North America, what is your future focus? Mukai-san?

In the case of North America, the ratio is low, and that is because the social infrastructure has not been well developed as yet, we have an establishment in Mexico. And we don't have infrastructure to be able to accommodate and use these ways. And so part of the waste have to be buried. But in the last several years, we have seen the recycling rate improve quite significantly. So in that regard, North America is likely to match the level of other regions approaching 100%. And also, what are the remaining challenges? Except for North America, the rate is more than 95% now. And so there, what remain the specific factories or specific offices where we have challenges. But there the ecosystem or the peripheral, the stakeholder, -- how can we actually collaborate is what we are looking at and working on.

Next is a question from Mr. Watanabe from Morgan Stanley MUFG. I would like to ask about general consumer awareness. Consumers can see tangible benefits from water saving products such as reduced water bills and electricity bills from highly insulated windows. However, do you think consumer awareness is growing in the area of promoting the use of recycled materials? Of course, it would be better at being able to use waste plastic. But I would like to know whether the consumers will follow your company's advanced efforts. I would like to know your view on that?

That is a very difficult question to answer. But in Europe, utilization of waste plastics is attracting a lot of attention from the consumers. So using the different types of -- bottles, the consumers are becoming more cooperative? So the improvement of maturity of the consumers would be -- will matter a lot and also the regulation by the government would also play a role in this. Consumers know that if we don't do anything, the world will be in a chaos. The marine plastic is one example. The -- so if we think about the consumption of the fish, the fish in the amount of the average Japanese consumer, we are eating 1 credit card worth of plastic each week. So there are still people who don't think this is their own problem. So this is about the issue of the awareness of the people. The government needs to collaborate. We need to collaborate with the media as well.

So we have responded to the questions asked by investors so far. Now, we'd like to also respond to questions from the media representatives from now. And the first question is from Masuda-san from Sangyo Shimbun newspaper. What is your strategy for procurement of roll out aluminum scrap for 100% aluminum recycling?

This is a secret. Well, in terms of the procurement strategy, we've already established it. And so for the time being and by 2031, we are going to make the 100% aluminum scrap based. And we already have a visibility towards this -- at this point in time.

Another question from the media from Nikkei Newspaper, Mr. Yamaguchi's question. So for the windows stash for the newly built house, you said that you would be make it highly heat insulated by fiscal year '25. What is the current percentage? And how do you plan to increase it to 100%? What is the impact of reducing CO2 emissions associated with this? Mukai-san?

So I will answer. So it has come to 90%. And in terms of the CO2 emission reduction. It may not be big. It has already been reaching that high level. But going forward, where we would be focusing on is the renovation of the housing. 800,000 new houses are being built each year. And there are 62 million existing homes and 80% will only has the single pane windows. So how much we would be able to convert those single pane windows in the existing housing will be the key to our business. We have subsidy from the central government. And today, we have been receiving a 7x more orders of the renovation of the windows today. I'm being very surprised by this. But if we can convert 10 million housings from single pane window to triple pane windows, roughly speaking, we would be able to reduce the CO2 emission by 4 million tons. That is significant. In that sense, there are still more things that we should be doing and conversion to triple pane windows. What we can do in that area is to reduce the CO2 emission by 100,000 to 200,000 tons, but we need to do more.

We have already received and responded to all of the questions from the media representatives. But in the meantime, we have also received additional questions from investors. And so we'll now respond to questions from the investors. From Mitsui Trust Asset Management, [ Takigawa-san ] has asked this question. How far downstream and midstream in the value chain, are you monitoring within the -- and what issues have you identified? And what improvement measures have you implemented? And what results have you achieved as a result?

This is quite a difficult question. I will start and Mukai-san, please add if required. Now to begin with, the biggest product for us is a aluminum product. And in regards to aluminum product, and we have been able to address the situation sufficiently. And in terms of scrap, in regards to what we sell, we are now able to collect back and what we do not use in the factories, those scraps can be collected back. And so aluminum, something where the scrap has been used for quite many years, we have already been able to establish an equal system properly. But the biggest issue is plastic and resins, particularly PVCs. And the scrap -- the unit price is quite low. And so for that to be recycled and used is quite rare. In fact, recycling is quite difficult. And there is also an issue of odor, the small in regards to plastics. So as to whether we should use PVC or not in the future is something that we need to think about as a society going forward. Now in terms of PVC, in terms of resin products that we use, we have SMC product. It's something that is almost impossible to recycle and also the North American matter that Mukai-san talked about before, but the sanitary, the recycling is quite difficult as well. And so how are we going to change this product is a challenge that we are trying to address. And we are now starting to come up with a certain course of direction.

Well, to add then, like Seto-san has explained in terms of resin, it's not a recycled very much or it's not in the loop at this point in time to be quite frank. But to enable circularity, we are not doing development that presumes this circularity just in time. So we end up the product used by our customers that can be disposed polyethylene and others can be separated now. And if we were able to do that, it may be possible for us to put these products into the loop. And so have only recently started to work on development with that in mind and the fiber reinforce type of product, say, for example, bathtubs. These are even more challenging. And here, majority is not recycled or reused. But here, we may be able to change the raw materials used or for those bathtubs out there already, how can we reuse is something that we are thinking of maybe from a long-term perspective, and we are working on development effort there. Over the long-term, there are about 3 things that we need to think about. One, when it comes to sanitary ware, are we going to continue to produce in mass volume? And this is something that I think the society as a whole need to think about. The sanitary ware ceramic, they would last 100 years. And so how to recycle them is something that we need to work on as a challenge. Second is like SMC and something that was considered impossible to recycle in the past. How can we change those materials. This is also something that we are trying to address as well. And lastly, the PVC that we are using without giving much consideration. I think this is something that we may have to rethink in my view. In the case of Europe, so if you have -- if you're using PVC, you can obtain Cradle to Cradle certification in Europe. So there are many things that we are learning from GROHE. GROHE a lot of Cradle to Cradle and so they are implementing designs and R&D with recycling in mind to begin with. I think that's what we need to do.

So we have had a lot of questions. But because of the constraint in time, we would like to make the next question as the last question. This is also from [ Mr. Takigawa ]. Please tell us about your analysis of the realization of community-based water and its superior effectiveness compared to competitors in your industry are doing?

Community-based water. So cleaning the water is something that's necessary depending on the government and the community, there are high-quality water and low-quality water depending on the regions. So we are providing filtering technology for the hygiene of the water. And I think that we have a competitive edge there. Compared to others, we are able to provide good water. And our filter may enable high-quality water that's equivalent to the bottled waters. So in each region, provision of the water that's drinkable and also through that reduction of the usage of bottled water is something that we can contribute to. And I talked about sustainable -- the shower or the recycled water shower earlier on. These are the areas where we are unique in this industry. Anything else from you, Mukai-san?

No.

Thank you very much for the many questions. But unfortunately, we have come to the end of the scheduled program. And so with this, I would like to end the Q&A session. If you have any additional questions, please do not hesitate to contact the IR unit, the Corporate Communications Department. We will make sure to respond to your questions. And so with this, we would like to conclude a program for today. We have sent a questionnaire to -- about the briefing session today to those people who have participated in the briefing session today, please help us by filling out this questionnaire. So with this, I would like to conclude the LIXIL ESG briefing session. Thank you very much for your participation today. [Statements in English on this transcript were spoken by an interpreter present on the live call.]