LIXIL Corporation (5938) Earnings Call Transcript & Summary

It is time for us to start the financial results briefing for the fiscal year ended March 31, 2023. This briefing is streamed live on the internet. I would like to introduce to you the speakers for today. Kinya Seto, Director, Representative Executive Officer and President and CEO; Sachio Matsumoto, Director, Representative Executive Officer and Vice President and CFO; Kayo Hirano, Senior Vice President, Leader of the Investor Relations Office, Leader of the Finance and Treasury Corporate Accounting and Treasury and Tax. I will be serving as the facilitator. My name is [ Kawai ] from IR office. The material for today's briefing is uploaded on our website. I would like to talk about how we proceed the meeting today. First, Mr. Seto will be providing you the financial results information about the fiscal year ended March 31, 2023. That will be followed by question and answers. [Operator Instructions] Now I would be handing over to Mr. Seto to explain about the financial results of fiscal year ended March 31, 2023.

Hello, everyone. I will be explaining about the financial results for the fiscal year ended March 31, 2023 as well as the prospect for the fiscal year ending March of 2024. So in terms of fiscal year ending 2023 up -- the 3 quarters up to December and the last 3 months, the situations were quite different. For the first 9 months starting from the beginning of the fiscal year, we had been conducting the price optimization and due to ForEx, there was an increase in both profits and revenue. But because of the raw material costs and the yen depreciation there was an increase in the cost. And we conducted the price optimization, but there was a time lag and because of that there was a decrease in the profit. On the other hand for overseas markets, there was Ukraine crisis and also disruption in the supply chain due to COVID. Because of this, there was a significant decline in the profit. That was the situation for the first 9 months. In terms of the disruption of the supply chain, the problem is almost solved. On the other hand, the raw material costs that had been hiked, that impact has been mitigated. And in January, we had thought that things will turn out for the better. However, the demand, especially in Japan, had deteriorated very quickly. As for the last quarter, it says increase in both revenue and profit. But we had expected higher increase in the profit. However, due to increase in the -- even though the increase in the cost had been mitigated, the production had declined and the fixed cost had increased. The breakeven point for us tends to be higher and when the production amount comes down, the fixed costs will be going up. Even if the revenue goes up with the price optimization, et cetera, when the production amount decreases that would negatively impact us. The new housing starts. In January we had considered that there would be 900,000. However, in February, the forecast had come down to 800,000. There was a significant decline for the detached house new starts -- housing new starts and there would be a drop by about 11%. So the new housing starts for the detached housing had come down in Japan. As for the overseas market, when there is an interest rate hike occurs after 6 months, there is a decline in the housing starts. And if we -- so we had expected that the interest rate hike will be about 5% compared to January of 2022. From May to June, we believe that there would be recovery, but because of the interest rate hike, there would be a decline in the demand. And for the fourth quarter, there was an issue of decline in the demand. And that's why we had seen smaller amount of increase in the revenue and the profit. So that's the summary of what has happened in the last quarter. In terms of the fiscal year ending March 2024. So we are expecting JPY 1.53 trillion with the profit of JPY 40 billion. The dividend is expected to be JPY 90 per share on an annual basis. In terms of the demand for 6 months, I will be -- will be severe for us, especially in Japan. Another point is that we had been responding with price optimization for a cost increase. Price increase had been conducted frequently by LIXIL faster than the other players and the -- so there is a time lag in the increase in the prices of the competitors. And while we are increasing the prices and when the competitors are not, then the orders will be concentrated to competitors and for us that will pose a struggle. So after the price hike, there would be guarantee of the original prices for some time and for several months. There are cases where the amount of the increase is restricted to certain amount. So we believe that in the first half we will struggle with the decline in the demand as well as the issues with the price hike. Our business should be differentiated with high value-added and as for the commodity products, we need to work on restructuring. So in the first half, we will be investing for restructuring of the business and because of that, the profit will be bottom heavy. And we are expecting JPY 40 billion in profit, but 80% will be generated in the second half. That's what we are expecting. The demand is sluggish, but because we are facing that, we really need to work on the restructuring. We now have the subsidy for the window renovation. And I think that there will be demand for insulation and also there would be more demand for replacing the windows with the environmentally friendly windows. We need to continue the transfer of the passing on the cost to the price and that would have a positive impact for us. And even though the fixed cost increase will hurt us, but by overcoming this, I think that we can become a more resilient company. So this is the review of what has been happening. Since 2 years ago, there has been increase in the raw material prices, transport costs, et cetera. And also there was a time lag in bookings and also there was a disruption in the supply chain in the U.S. and in Europe. And as a result of that, the amount of the profit was JPY 25.7 billion. The raw material price costs, the component costs hike will continue, we believe, but the price optimization will be positively impacting us for the full year. So we -- and also there will be improvement in the supply chain. So because of that for fiscal year ending March 2024, we are expecting JPY 40 billion in profit. On the other hand, we have to think more in the longer term. What will be important for us, as I have said is that because we are working in the hardware industry we need to improve our profitability continuously. If we can be profitable, then we would be able to respond to the fluctuation in the demand. We need to increase the gross margin for sales and also we need to decrease the manufacturing cost. We have been explaining repeatedly about LIXIL playbook, but we need to streamline the organization and focus on the core business. Also for growth, we will be optimizing the Japanese business, but also we will be providing the products that would fit the environment. We would be able to grow our overseas business and then we can create new core businesses. Inflation, supply chain disruption, those are the challenges that we need to tackle. So this chart -- the next chart shows how we would respond. First of all, for the inflation and supply chain issues, how we will be responding to it. Of course, we have to do various things. The easiest is to increase the price. But not just that, where things change is where it's important are material that we use, we have the brass and also aluminum. Those are the 2 major raw materials that we use. Or there's a yellow copper or brass. Well, brass mean material is copper and that is the strategic material used for the products, but the price is quite volatile. So as a commodity, it has the highest volatility in terms of raw material price. So in the long term, we are thinking of changing that to plastic or zinc. So it's not just reducing the cost, but the costs will stabilize. And as for aluminum, it's rather a stable raw material in terms of pricing. But being considerate to environment we'll like to make the raw material as the scrap aluminum, not bauxite. And by doing that, we will be having customers continuously purchase our products. So in that sense, the materials that we use, we will be shifting it over to ones that are more stable. And as for the procurement side, as much as possible, where the product is manufactured and sold, we would like to make it to one place in the United States. Typically, they were many that were purchased from Asia, but we will make it in a way that they can purchase it over 80% from Mexico and/or in China. We would like to close the loop of the production and purchase within China itself. And maybe not up to the core materials, but knockdown --in a knockdown form and India or Saudi Arabia, we'll have the plants there and increase the value. Therefore for the supply chain challenges, by doing so we will be able to respond appropriately. And also for the second point for the Japanese business, the price finally we're able to change it or have the price optimization in timely manner and we are promoting the digitalization. And by conducting a platform production, within a very short cycle we're able to launch new products. And all of the products, we will convert them to an environmentally friendly products and we are in the process to do so. And by this we are increasing the value. And by promoting the digitalization, we will be able to reduce the cost. We have a no code or our RPA until now and we're able to monetize that now. And next, introducing AI, we would like to increase productivity more. And for the international business, by shifting over to more higher value-added products, in the shower products and the commodity business where we've been impacted by the foreign exchange, we will be coming out from that. And by focusing on that, as our basic strategy, we will be making investments to where we can make money is something, of course, we have to do. But this time, just not limited to this. However, this is a global business. This business is a regional business. Regarding the CapEx, we would like to have a clear differences in where we place the focus. As for the water-related business, we have acquired a world #1 share. But in terms of efficiency, that can become a weakness to us. So to make that a strength, we need to focus on more the product development that can be sold globally. And as for innovation, we are going to focus more on the environmental issues, so carbon footprint and CO2 reduction. And for water, the clean water, we would like to conserve that and have that contribute to the improvement of the environment and also recycling to realize circular economy. We will be focusing our investment in these areas. As for the CO2 reduction, where we are contributing the most in Japan is the remodeling of the windows. The window remodeling. What this means is that we see potential. As of 2015, if we make the windows, all the windows to a triple-paned windows, we will be able to reduce a large amount of CO2. At the end, we will be able to reduce the 6.6 million tonnes through window remodeling business. Not just by our company, but as a whole industry, we need to do so. And this is going to largely contribute to the environment and we need to continue to launch such products. And for the usage of recycled aluminum, we are increasing the percentage. We are now up to 70% and we'd like to make it 100% by 2031. The product that is using 100% recycled aluminum, the demand is quite high and we are receiving many inquiries. Globally, there's only a hydro company in Norway and us in the world that has products using 100% recycled aluminum. When we reduce CO2, it's not just about the operational carbon reduction. The embedded carbon and recycling carbon is also included. You need to look at the lifecycle carbon. So the PremiAL that can be manufactured with 100% aluminum is going to be the focus of attention. Aluminum has a large portion within even a building. So 30%, 40% is from the construction material. 30%, 40% of the CO2 is from construction materials, so we can contribute a lot. And in terms of water conservation, not just limited to the water use for our product production, but also to provide clean water and make an environment, so there is no black water or the black water will not be emitted into the environment so that people in the world can use -- all of them can use toilet, we have the SATO. And towards the discharge from the toilet, we have a project that will improve that. And also, it says Everstream Shower. What this means is ones warm water will be reused and KINUAMI is a water that comes out in foam from the beginning. So we were able to reduce the amount of water and also reduce the heat that is required to warm the water. And also the last part circular economy recycling, we have Revia that has a high recycling percentage of plastic and PremiAL, which I have touched upon before. By selling these products more in a long-term perspective, we will be able to acquire a higher margin is what we are thinking. And as for the performance highlights, as I have already explained to you, revenue is JPY 1.496 trillion. We saved a 5% increase year-on-year. The most is due to foreign exchange and price optimization. So in terms of product sales and volume, it has not increased that large. Actually in terms of number of units, it has declined. And thinking of the demand right now, this is something that cannot be helped that much is what I think. And for the core earnings -- excuse me, for the first 3 months, we did not -- for the 9 months, we didn't able to respond to the cost increase appropriately. And for the last month, the demand did not increase as much as we thought. And those were the factors that impact the core earnings. And as for the fourth quarter, in a normal stage, the building percentage goes up and the profit slightly goes down. However, this fiscal year, for the last 3 months, we are able to show that the cost has been reduced largely. So I was expecting a better result, but it is a slightly disappointing result. And as for by segment for LHT, in the first half, the yen depreciation has largely impacted the negative side. But that has recovered now and on a year-on-year basis, it's a plus positive number. And the profit source is the exterior business. And for the exterior business, our competitors finally are going to increase the price in April -- from April. And if this penetrates in the market, we will be able to bring back the market share. And with this, the profit margin will increase. And as for the water products or water business internationally, it's more water faucet. But in Japan, it's a kitchen and bathroom where the margin is lower to begin with. And then there are vendor situations and we are still struggling. We will go to the next page. At this time regarding the asset, unfortunately, this time we had the direction and policy that we will be downsizing it. However, due to the foreign exchange and also various things that happened due to COVID and we had to accumulate inventory. And also, as written here, with our declaration of building and partnership, we had to shorten the payment period and this was the instruction from the government. And as for the equity capital percentage, it has declined, so we would like to improve that from the next fiscal year. The explanation will be the same for cash flow. We are seeing the improved -- signs of improvement. We would like to further stabilize. So on the material, you see detailed explanation, but we would like to secure the time for question and answers. So I would like to conclude my presentation here.

From here, we would like to take questions. [Operator Instructions] The first question, question from Okada-san from Goldman Sachs. There are 2 questions. The first question, you have been implementing the business restructuring and with the increase in the cost of the raw materials as well as the cost of the distribution, you have not been able to see the effect of the restructuring. How is the impact to the current margin?

In fiscal year 2021 in the first quarter, the raw material cost had significantly increased and had -- that is before the distribution cost hike as well as the -- and the core earnings ratio has gone up to 6.7%. And that is the quarter where the revenue and profit is historically low. So if there was no disruption, then I think that our margin would have gone to 7%. But with the raw material cost hike and the distribution cost hike, we are seeing mitigation, but considering the capacity that we have, the demand is low. So the fixed cost ratio had gone up. And in the first 3 to 6 months, then the -- you would not be able to see much positive impact. So we need to further conduct restructuring and we will be conducting the initiatives, which we were not able to do under COVID.

In terms of international business -- so the second question, I would like to first state the second question. In terms of the margin of LWT international business for the fiscal year ending March 2023, it was 4.5%. On the other hand, GROHE was 11%. Why is this? Why was there such difference? In terms of the margin for GROHE for fiscal year ending March '24, what is your prospect?

The international business for LWT, the water faucet business for GROHE and American Standard business is included. So the sanitary ware and the water faucet are included in those business. The water faucet margin tends to be higher. That is why we would like to increase the water faucet in our portfolio. On the other hand, out of the American Standard for sanitary ware, the margin tends to be low, especially for the retail sector. That is because we are competing against private brands in the retailers. As I have talked about in the playbook for the lower-margin commodity products, we would consider exit and we will focus on the area where the customers are willing to pay the premium and we would like to improve our business through that. But in terms of why this difference occurs, it's the issue of the product mix. GROHE is water faucet mainly and the -- also there is sanitary ware where the margin is lower. So compared to Toto, LIXIL'S domestic business is set to be lower in profitability. And this has been impacted by the product mix. In Japan, sanitary ware and the toilet seats, the margin tends to be higher and the kitchen and bathroom margins tend to be lower. So our sales ratio from kitchen is higher, but for sanitary and water faucet, we have higher margin domestically. So the product mix improvement is something that would play an important role in our strategy. As for GROHE's margin for fiscal year ending March '24, there are 2 elements that would be critical. One is to change the material. So for example, changing from brass to zinc and we would be able to improve the margin there. And there is a product mix in water faucet as well, flushing clasp and shower clasp and the faucet -- so we are seeing higher portion from flushing and the flushing's margin tends to be lower. In terms of shower margin, it is relatively high. So how much we would be able to do with shower will impact us, but that's how we view the business.

Next from Fukushima-san of Nomura Securities. We have 2 questions. The first is the window renovation sales and profit. How much of it is incorporated in the 2024 March financial results?

For the window renovation, overall, as the sales, it's about JPY 20 billion to JPY 30 billion per year in the last past years. And this fiscal year, because of the subsidy, we believe that, that amount is going to be large. The subsidy total amount is JPY 100 billion that will be provided. And from 33% to 50% is the range of the subsidy. So we look at -- we say this is 40%. So then from the overall subsidy for window, it's about JPY 250 billion that will be allocated. And towards that what will be the product? Is it going to inner window or outer -- external windows? The percentage differs. Let's say it's the installation construction and the window 50-50. Our industry is JPY 125 billion. And within the market, we have about 40%, so that's JPY 50 billion for us. That is this fiscal year's window renovation sales size. And as for the profit or margin, we have -- it's quite high within the window products. So the actual numbers in 2 months' time, we will be able to have a grasp on it. That is because, as I have said before, depending on combination of the windows, the numbers will differ with the normal [indiscernible], the margin differs between the low end and the high end. So in times coming, we'll be able to share the more accurate information with you. And there are talks that maybe that JPY 100 billion subsidy budget will not fully be used. But looking at the orders that we are receiving, it's sevenfold, eightfold that we -- from what we usually get. And we can -- the production is not catching up fully yet. Therefore, by the fall season, there is quite a possibility that the subsidy will be exhausted by that timing.

Fukushima-san from Nomura Security, second question. March 2023 and March 2024, the DPS will be exceeding EPS. But in terms of the payout ratio, what do you think is the appropriate level? In the mid- to long-term perspective, what is the final profit target? And why did you not think of decreasing the dividend this time?

Well, for us, for the payout ratio, we say 30% is the minimum or the lowest. But we do not just look at the payout ratio, we look at the DOE as well. But as for the dividend, the key point is that -- for most of the individual shareholders, if this is a dividend price, they will continue to stably invest. So trying to bring the profit level to what it is and looking at the cash flow on hand instead of the final profit, but when we look at the overall EBITDA, we should look at it at the overall balance for the EBITDA. This fiscal year, it wasn't so good. But compared to our competitors, we do have a higher level of EBITDA. So maybe because we had 1 or 2 years that was not so good, we should not think of lowering, decreasing the dividend -- excuse me, the profit level. But for the medium term and long term, we look at it -- we look at the core earnings and we think of the core earnings ratio to be about 10% and we probably do need to subtract it from that.

Next is from [indiscernible], question from Mizuho Securities. I would like to ask about the growth strategy of the international business, especially in North America. In the past 3 to 4 years, the business environment was very difficult due to special elements like COVID. And it seems that North America's growth speed for profit seems to be slow. So I would like to know how you consider the growth strategy, especially in North America, you have acquired Basco last December? And I would like to know what your views are for organic growth and M&A growth?

The most important part is that we need to grow in profitability. Out of our revenue for North America, sanitary ware ratio tends to be high, in terms of sanitary ware, as I have mentioned a little bit earlier. So our customers, especially in the retail industry and we need to compete the private brands of those retailers. And depending on the private brands inventory level, our products tend to be destocked because the retailers would prioritize selling the private brand and they may place less orders to us. That's what had happened in the summer and the fall of last year. And because of that, this area tends to be lower margin. So we need to shift to higher-margin businesses. There are 2 major pillars. One is showering business. So not just a shower, but the products related to the shower room is what we would like to focus on. And that's why we have acquired Basco. Basco's main line of business is shower doors. For shower what people buy out of the shower product, it differs region by region. But in North America, shower door is the first thing that they purchase. And also so that concealed shower, et cetera. So Basco is an important acquisition. And KINUAMI, body hug shower is what we have as unique product. So we would be able to package that together. So in terms of the water faucet business, in the past we had not been so strong. And also the color strategy for water faucets we would speedily conduct the supply and we now have the Mexican plant for the production of the colored water faucet so that we can supply it speedily. So in terms of the speed of the growth in North America, what we need to work on is to change the contents.

Next is from SMBC Nikko Securities, Kawashima-san, is asking the question. The first question is, please explain about the goodwill impairment risk of American Standard?

This time, United States or globally, the interest rate was increased. So the impairment risk of the goodwill has increased. However, at the very end, since last October, our inventory level has largely declined. And also we are seeing the signs of improvement of margin. Therefore, we believe at this point, we don't have such risk.

Next the second question. How are you evaluating the impact of the price increase and the demand to your market share?

That's a difficult question. If we are the only ones who increase the price of the products, we will lose against the competitors and we will lose the market share. That is a fact. However, in the case of our business, ours is an equipment-concentrated business. So like kitchen and bathrooms, by increasing them, our competitors are not limited to Toto. We have several competitors. So by being the first to increase the price, that will impact the market share. And as a result of that, then the production gross profit will decline. That will, for sure, happen. But on the other hand, for the kitchen and bathroom in the long term, in line with the new housings, it will decline. So by us not increasing the price and by not putting efforts to increase the margin and just protecting the production growth profit, we will go into the deficit spiral. So if we think about that, even though temporarily it will impact our market share, at the end, right, even now the other competitors are following. Therefore, the period during this time lag, the impact to the market share and for the production gross margin, there is an impact. But in a long-term perspective, this is what we need to do. And for the domestic products, generally speaking, this is what we can say. When we think in the long term, it's more important to make a product that the market share will not decline even though the price increases. So those products will be environmentally-friendly products or products that will meet the customers' needs.

Next question is from Mochizuki-san from CLSA. I have a question for Mr. Matsumoto, who is the CFO. In the first quarter and third quarter, you did not revise the performance, but the amount of the revision for the performance was quite significant. And it seems that the business information is not reaching management in a timely manner. Frankly speaking, it seems that there is an issue in execution. So considering the business management, what is the challenge of execution, shipment, cost management and procurement from those perspective, could you talk about it? And how would you be responding to those challenges?

Thank you very much for your suggestions. As you have mentioned, timely revision of the forecast and the performance could not be conducted and that's the area where we need to improve. On the other hand, in terms of reaching of the information from site to the management, that's not the case. On a monthly basis or on a weekly basis, we collect the information from people in the field. Also we conduct various reviews in a timely manner. However, with regards to forecasting of the performance, we need to work further on the accuracy of the forecasting. Cost increases, ForEx fluctuations, we need to reflect those in a timely manner in balance sheet and profit and loss statement. But it's very difficult to do, especially in the apparatus industry, but we have to consider how we would be able to improve the accuracy. So after procuring the raw material, that would be reaching the port and that would be used for manufacturing and that would be booked in the balance sheet. And then when it's sold, it is booked in the P&L sales. This period is quite long and we have to think about how we would be able to improve the accuracy of the forecasting of the performance going forward.

I would like to make supplementary comment. The difference with other companies, one thing that's regrettable is that compared to other companies, our margin tends to be lower. This is because the product mix of sanitary ware which has lower margin is higher. And also the bathroom and kitchen and sash, which has a lower margin, the mix tends to be higher for us domestically. So the revenue tends to be higher with the lower margin. Because we are in the apparatus industry, when the production amount slightly changes, the profit changes drastically. The breakeven point is high and because of that volatility is high. That's one difference with the other companies in terms of the structure. I said that our business is operating in 140 countries and we tend to be impacted by the global supply chain issues because we are operating globally. On the first point, we need to shift to higher-margin products in order to reduce the volatility. To the second point, by working more regionally, I think the volatility can be suppressed. And in terms of the net profit volatility, the core earnings volatility, there are areas we need to narrow down and there are various methodologies to do so, for example, divesting or merging the companies. It is very difficult to assume what the time line would be. And it's difficult to see below the core earnings line. As a company, we are trying to do our best. But because the margin is low and breakeven point is high, one element may impact hugely. So if the margin is 15%, when there is 5% difference, it would still have 10%. But if we have a 5% margin, then if there is a difference of 5%, it would be 0%. Also when there are unexpected issues like COVID or supply chain disruption, when the supply chain is long, we tend to be more impacted. And because we are aggregation of various companies through mergers, it's very difficult to identify the time line. And the third point, there are the management issues, of course.

Next from Mitsui Sumitomo Asset Management, [ Takeda-san ] has asked 2 questions. The first question, since Seto-san has returned, the external environment has rapidly changed. And I believe that you did not reach to publicly announce the new medium-term plan. But during this timing, why don't you come up with the new medium-term regarding the outlook strategy and cash flow allocation?

I was saying that once we calm down and settle down, that I will, but I would like to fully consider your feedback.

The second question, after the price optimization or price increase, what kind of changes have you seen in the consumers purchasing behaviors? With this, not an urgent renovation demand declining a trend, well, what is the trend internally and externally in Japan and overseas?

Well, in terms of demand, there is a declining trend in the regional areas in Japan in terms of the new housings because it's becoming difficult to sell cheaper homes. And there's a concentration on the major players and also the high specification and housing percentage and the overall picture has increased. And also housing complexes has increased. And also not just what's happening is not the new housings, but remodeling or renovation is increasing. And the insulation of the existing house, the demand for that is increasing. And what's happening in Japan, that is becoming -- and Japan was the positive, perhaps is that instead of new housing or newly built there is more renovation and the medium-size builders, their demand to them is decreasing has an impact to us. But for the international business, by increasing the price, we're not seeing significant signs of the demand declining. Within the overseas case, renovation or remodeling is at the center. Remodeling is that the water faucet breaks down or it's not working well. So unless the competitive price becomes lower, we will not lose the demand. And what has been happening for the last 2 years is that the commodity price has largely increased. Everybody is increasing the price. So there is no major problem there. So for us, in a competitive situation overseas, what was the most disappointing is that, as I have explained at the supply chain, there was disruptions there. Therefore, last year, the first half, when there was a strong demand, we were not able to fully fulfill that demand.

Next is from Miki-san, Citigroup Securities. On Page 20 of the material, it says that you are expecting increase in the revenue by 8% on a local currency basis in U.S. So if you exclude the M&A effect, what would be the growth rate in the local competitors? The top line prospect for 2023 is negative 10%. Is there any unique growth driver for LIXIL, so about 3% is the growth excluding the M&A effect?

LIXIL, in fiscal year 2023, destocking occurred and the supply chain disruption occurred and we have not been able to supply and destocking occurred. So for the first 6 months, the revenue was lower than what we had originally expected. So there would be a growth there. But through the acquisition of Basco, we are now have the -- we now have the entrance to the shower product sales. And also we have Mexican plant which would be having colored water faucets. So I think that we can compete against various competitors through these initiatives.

Next from [ Gru-san ] of Alma Capital. We have received 2 questions. The first is the core earnings, the consolidated adjustment outlook the last several years from JPY 40 billion and has changed to JPY 46 billion. Can you explain the content of this?

Thank you very much for your question. Regarding this point, within each business, more than we have looked at the risks, there was the subcontractors' most risk that exists and that is why we incorporated that in the consolidated adjustments. And also as Seto spoke before, without the structural reform or restructuring and this is related to the next question. So on the expense side, what we'll incur, we wanted to respond here to it. I mean the subcontractors lobby related matters that was mentioned right now, what that means is that in Japan, overall, currently led by the Japanese government, they're for to improve the business transaction situation for small-sized companies. But on the other hand, whether we are able to pass everything on or not able to do that, but first, we are told to please take the smaller company such as the personnel expenses, the raw material prices, where you see the increase be more proactive, taking care of the smaller companies. So what we need to do, we need to -- we are thinking of a probable responding to that.

The second question is the core earnings and the operating profit outlook difference is JPY 12 billion. What is the breakdown of that difference?

Well, after that, I think from somebody else, we are receiving the same question and that was compared to last year and this year, the core earnings and the operating profit difference is widening. The gap is widening. Why is that? So I would like to answer 2 questions at the same time. The first thing is that the assets that are located overseas, we have divested those and we had a temporary onetime profit that was generated. And also related to the previous answer within the structural reforms restructuring, it's not just expenses, but it is the other revenue expenses, the expenses that are recognized as that, that is in between the core earnings and the operating profit. And after this, there were similar questions. So I have answered this at this time. Thank you.

Next is a question from Yagi-san from Mitsubishi UFJ Morgan Stanley Securities. There are 2 questions. The first question, what is the concept for a profit for American Standard for fiscal year ending March '24?

We have not disclosed this, so it's difficult to respond to your question. But for ASP, for fiscal year ending March 2024, I have talked about earlier the distribution issue and the warehousing costs had increased and we were not able to have enough revenue because of destocking. So we believe that the demand will be coming up back in that area and also showering and faucet business centering around Basco, we will be focusing on that and increase the profitability through it.

The second question. For the purchasing for LWT and LHT, a negative in fiscal year ending March '24, what will be impacting it?

So last year, we conducted the price increase and that price optimization will be positively impacting for the full year. So that's the biggest factor. And also the price increase related to the subcontractors for components, we are seeing -- we are expecting that it will be higher than the other years.

There is a question from [ Suda-san ] from SILQ Capital. But as Matsumoto answered before, that was regarding difference between the core earnings and operating profit.

Sorry, there's one thing I was not able to fully answer the difference from the operating profit to the net profit, what is the cost of that difference? That is a tax related. The tax rate, the finished fiscal year, if you look at it, you'll know it was low. And also this last report of the results that we have disclosed on Page 17, there is a note written there. So I would like you to refer to that. The tax expenses at the last fiscal year, it was low. The reason being is that in the past, we recognized a loss and there was a tax effect of that. And that was actually not recognized in the past. So towards the loss, there was a return on the -- from the tax effect and we're able to recognize that. So March 2023, we were able to recognize as the return from the taxation. And that is why as a onetime matter, the tax rate was lower. But for this new fiscal year, the tax rate is going to go back to normal, which is 30.3%.

We have been able to respond to all of the questions that has been submitted to us at this point. We still have some more time left. If there is any questions, we would like to take them. [Operator Instructions] It seems that there are no more questions, so we would like to conclude the Q&A session here. With this, we would like to close the financial results briefing for fiscal year ending March 2023 of LIXIL Corporation. We ask for your continued support for LIXIL. Thank you very much. [Statements in English on this transcript were spoken by an interpreter present on the live call.]