LIXIL Corporation (5938) Earnings Call Transcript & Summary

It is time for us to start LIXIL ESG Briefing. The theme for ESG Briefing this year is navigating the impact journey, LIXIL's commitment to people and the planet. The company will be sharing with you design stay in global HR strategy, in the global EHR strategy and also, we will be sharing the progress in environmental strategy released last year. There would be presentation on the corporate value improvement as well as the generation of impact through solving societal issues. The presenters are as follows in the order of appearance. Director, Representative Executive Officer, President and CEO, Kinya Seto; Senior Vice President, Chief Environmental Impact Officer; Uchu Mukai; Director, Representative Executive Officer and Chief People Officer; Jin Montesano. In the Q&A session that will follow the presentation, we'll include independent outside director, Chairperson of BoD, Masatoshi Matsuzaki; Independent Outside Director, Chairperson of Nomination Committee, Yuji Nishiura. I will be serving as your facilitator. My name is Kawai from IR office. I would like to explain to you how the event will proceed. The agenda is on the screen. It is on the fourth page of the presentation material. The presenters will present one by one. After the presentation, we have Q&A session. You would be able to input the questions any time during the briefing. [Operator Instructions] We expect to conclude the briefing at 5 p.m. Japan Standard Time. Thank you for being here today. Mr. Seto, the floor is yours.

Hello, everyone. I am Seto from LIXIL. Thank you so much for attending our ESG briefing today. To realize LIXIL's purpose, we have been driving initiatives focused on priority issues outlined in the LIXIL Playbook, which represents our management direction as shown in the slide. The priority issues, the strategic initiatives, so and it says the focus -- focus, transform, grow and innovate. So these are the efforts for differentiation. We have products, business models and services. We need to differentiate everything. If not, it would be commoditized, and we would not be profitable. One of the policies to materialize this is to focus on our employees. People who are working at LIXIL, they are our human resources or assets. And through them, we would like to realize innovation. One of the important directionality is, as you can see here, is Impact Strategy. For example, environment, diversity. So we have various products and services, and we are always mindful of the directions that we have. And through strengthening our human resources, we would like to differentiate ourselves. More specifically, what kind of image do we have on mind? So we are building an organization where innovation is autonomously generated. So as a direction, we are trying to provide something that's good for the society. As Kawai-san has mentioned, people, planet. We want to be impactful to them. For example, there is PremiAL. So this utilizes scrap aluminum. We are able to reduce the carbon usage by 97%. Also, the foam shower, KINUAMI U. This was used for beauty purposes, but people who have disabilities in their hands, it would be more useful and also it's useful for the caregivers to the elderly. Another is LIXIL Toilet Cloud. The cleaning of public toilets are becoming more efficient through our service and products. So we are able to create these kind of products and services because of the diversity of our employees. We are always thinking about to giving a positive impact to the planet. In the case of Japan, diversity is about empowerment of women, and LIXIL is also focusing in that area and also people with disabilities. When we think broadly about people with disabilities, 15% of the overall population have some kind of disabilities. So providing good products for them is to recognize something that is from a different perspective of what we used to have. And by having diverse human resources, we would be able to accommodate for a more better life for the people around the world. Another new news or in regards to maximizing the impact, we're talking about innovation before, and this could really change the world, and this is such a technology. And this is the Generation 2 Reinvented Toilet. Now from around 2011, with the Melinda and Gates Foundation with their support, we have developed a toilet called SATO and we have been selling this toilet called SATO to solve sanitation issues around the world. But there was one issue associated with this. The toilet SATO itself is meaningful, creating toilet to address the sanitation problem. But if you go to suburban area or the country area, then it was possible to treat the waste in a hygienic way. But in urban areas, these are times when you cannot process [indiscernible] waste. Sometimes you have to create sewers and then you need to come up with purification tank and it is costly and it is difficult based on the current infrastructure. So for the densities to create sanitary toilet, you need to be able to treat waste in a way that is meeting the sanitation requirements. So we will get support and there is a development team led by the Georgia Tech Institute. And so there was a development program that was going on. We were asked to participate in this in 2011 as a commercial partner. And we will -- and there aren't too many people -- too many companies around the world who is interested in doing this and trying to do this on a commercial basis. As a top runner, we were kind of asked to join and so we have been working on this new type of toilet. At this point in time, it is still somewhat expensive, but it is something that can be lowered in terms of pricing that would enable the future. And it will change the [indiscernible] toilet even without the sewerage system, we can still enable toilets to be used in sanitary way. And I did actually kind of focus on one particular topic when we talked about the impact. But as to what we're going to cover today, like with last year, we'll talk about the environment strategy. And we are doing updates about the conservation of biodiversity, Mukai-san will talk about this. And after that, Ms. Jin Montesano will talk about employees, the human resource investment that is a foundation to whatever we do. So -- and Montesano-san will talk about global and the people strategy. And afterwards, Matsuzaki-san and Nishiura-san, the outside directors, will also participate and will talk about the role of the Board of Directors regarding the human capital as well as in regards to governance. And so without further ado, I would like to pass on to the others. Thank you for your participation today.

Thank you very much. There will be a presentation by Chief Environmental Impact Officer, Mukai, to give presentation on environmental strategy update, but we will be showing the video of the progress of the Impact Strategy. Please enjoy the video. [Presentation]

I would like to start the presentation on environmental initiatives. We have environmental Vision 2050, and we are conducting various initiatives. On the right, you see 3 pillars: Climate change mitigation and adaptation; water sustainability; and circular economy. These are the 3 focus areas to achieve our vision. In the ESG briefing last year, we talked about embedding the environmental strategy into the business strategy. We are now seeing acceleration of our initiatives due to that. Last year, in CDP, we have been able to earn the Climate Change A List for the first time. We are now seeing progress for our initiatives. Today, we would like to talk about the topics of progress in the area of environment. First is biodiversity. As a manufacturer, LIXIL manufactures various products. This is going -- making use of lot of emitted gases as well as usage of water, and we are impacting the environment. On the other hand, in order to manufacture, we use various raw materials, metals, wood or rocks and soil that are used as raw material ceramics. We are depending on those naturally derived materials. Considering that, in pursuing business sustainability, we need to conserve biodiversity. We have been focusing on biodiversity in our activities. But last year, we decided to further pursue conservation of biodiversity, and we have added that to our materiality. Through this, our business activities and natural -- capital and biodiversity relationship are more clear, and we would be able to take more concrete initiatives. We joined the TNFD Forum last year. And we have registered as early adopters of TNFD. And starting from June this year, we will be disclosing the TNFD report in -- starting from June of this year. I would like to brief you on the progress related to TNFD. Response to biodiversity has been conducted in the past as well. So in the first year of complying to TNFD, what kind of things are still lacking and what have we already fulfilled have been checked. So our operation in the direct operation as well as upstream areas where we use a lot of raw materials and the relationship of that with the environment have been checked. First is upstream. We use various raw materials, and to procure those raw materials, we depend on the environment, and also we impact the environment. So we looked from these 2 perspectives. And what we have found through that is in terms of the dependency to the environment, wood has the biggest impact. And in terms of the impact to environment, the metal has the biggest impact on nature. We use various metals, but aluminum is what we use the most. So we started to -- we started initiatives there. We have looked into opportunities and risks and what countermeasures that we should be taking. We would be deep diving into this starting from this fiscal year on. Next is direct operations. So in 80 -- over 80 sites around the world, we are looking at water, atmosphere as well as resources. Just like we are doing in the upstream, we are looking at the opportunities and risk and considering what we should be doing. Putting 2030 on the top of mind, from the perspective of biodiversity, what kind of things could happen was considered as scenario. And within that scenario, we have picked up what would be most impactful for us. And what is most likely to happen and we list it up. The priority that we have identified in the list have been covered by biodiversity initiatives that we have already been conducting. We would be able to give you the details in the report to be disclosed in June. This time around, we have been looking at these issues from high level in the big picture. We will be further analyzing the situation, and we would be conducting more specific initiatives. Next is related to climate change. One announcement I would like to make is on the screen. We have achieved the first-ever SBT Net Zero certification in Japan's building products industry. So the fact that we have been certified by SBT is that the activities that we are conducting towards 2050 is considered appropriate and it's science based. SBT Net Zero -- so this is a long-term view towards 2050. And in addition to that, the 2030, the short-term target, is also placed importance on. So I would like to talk a little bit about what we are doing. So on here, this shows what we should be doing by 2030. This is the list of goals. Utilizing this, we are checking our progress. And if needed, we conduct additional activities. This is the overview. So this is scope 1 and 2. And in 2050, we are -- in 2030, we are hoping to get to a 50% reduction, and we are now at 30%. And we have been able to bring forward the target that we had. But we still have 20% to go. Rationalization of manufacturing process and also the energy efficiency will be worked on, and we will be transitioning to higher energy efficiency sources. And also, we will utilize renewable energy for electricity. Through this, we would like to achieve 2030 goals. Net Zero is for 2050, zero carbon. So we need innovation and technological breakthroughs. For example, utilization of hydrogen or CCU, capturing the other carbon, and we have already started the verification of this. And also, we are conducting researches. And towards 2050, we would be conducting seamless activities. Next is Scope 3. When we think about Net Zero, then we cannot escape our scope 3 emissions. Particularly, what we consider to be important in Scope 3 is, as you can see here, our upstream relationship with the suppliers. When we say suppliers, within our Scope 3, the suppliers or upstream at the CO2 generated that account for 40%. So reduction here is necessary. Of course, this is not something that we can do by ourselves alone, and we need to work together with suppliers. As the first step to doing so, we have started to communicate with our suppliers. Why are we working on reducing CO2 emission? That's where we started. How are we going to do it? How are we going to calculate? So we've engaged a lot of discussions. And what has become apparent in doing so is that there are suppliers already engaged in great activities in reducing Scope 1, 2 and 3. But there are also suppliers, who know, it is important to reduce the CO2 emission, but they don't know how to reduce the emission, but they don't know how to calculate. So well, those companies who are quite advanced, we've gone a step further, and how are we going to reduce CO2, their reduction going forward? And how are we going to reflect that into Scope 3? We will start to take that into consideration. But for those companies that are still a long way to go, and then the suppression of CO2 emission. I don't know how technology that we have accumulated in that regard. and also how to calculate CO2 emission. All these will be deployed to those suppliers so that we can work together to reduce CO2 emission reduction as well as work on reducing Scope 3. And I mean talking about what we are doing in Japan at this point in time in Japan, but we are also engaged in similar activities with suppliers overseas as well. So from here, I'd like to talk about efforts in regards to our product. And I have been saying that we're going to embed a robust environmental strategy and our business strategy. But where is that reflected? And I'd like to talk about this from the perspective of products. And some products have already been introduced through the video, but starting with the PremiAL, we are using recycled aluminum. Normally, the mining of bauxite or the refining of aluminum, there's a lot of energy used, but we are able to reduce such the energy utilization. And that will lead to a reduction of CO2. We've been saying this awhile. But from the perspective of biodiversity, there are also elements other than CO2, and we can say that this material is very friendly to the environment. And at this point in time, we have been approached by many companies, both in and outside Japan. [indiscernible] Group or the 7-Eleven, for example, and they have already decided to employ a PremiAL. And also industries from both inside and outside Japan, other than indeed construction material business have already approached us. Next is regarding GREEN WINDOW. And here, how can we optimize the reduction of CO2 for the entire life cycle of windows, and we try to deploy this in customers. So operational carbon and embodied carbon are the 2 types of carbon. And so depending on customers, what should we focus on? And what type of product should we emphasize so that they are able to adopt that? So we make proposals in that regard, and what is described at the bottom of the slide is revia. And this uses waste plastic and the waste wood. Normally, this waste plastic or waste wood have no other use often, just burned as fuel, and that would lead to increased emission of CO2. But whether it would be waste plastic or waste wood, we have decided to utilize those so that we are able to regenerate them as they are a valuable product. By doing so, we're not just reducing the CO2 emission, but then also suppress the increase in the marine plastic. And last example is GROHE Everstream. And this was also introduced in the opening video. This technology has been -- is going to be rolled out mainly in Europe starting the summer this year. This is a system to recycle water. In other words, we were able to conserve water resource, but it also leads to energy consumption reduction, which means that this is a technology that will lead to reducing CO2 emission. Lastly, I'd like to talk about the progress of our midterm targets. And this is also something that I've talked about last year. And in the middle is the actual record from 2022. And on far right is the new numbers. And as evident from this slide, you can see progress in all the categories, and there are also numbers that where quite a significant acceleration has been achieved. So we will continue to work towards embedding a robust environmental strategy. And that completes my explanation about the environment. Thank you for your attention.

Thank you very much. We would like to now invite Chief People Officer, Montesano, to talk about Global People strategy update. Jin-san, please.

Kawai-san, thank you very much. Hello, everyone. Thank you so much for attending today's briefing. What is at the core of LIXIL is our employees. In order to achieve our vision as well as goals, our employees are indispensable and they are the drivers of achieving our goal. I give you an update of our global people strategy. So I want to begin with a story. When Kinya asked me to lead HR in 2019, he said he would like to change the title from CHRO to CPO. I was surprised because Chief People Officer is not a common title. I asked him why, and he said, our employees are not simply resources to be utilized by the company. Behind every human resource is a person who has unique preferences and dreams, constraints, and capability to achieve. We don't manage human resources, we manage people. And that notion has really been at the core of how we've built the global people strategy, starting with aligning people and purpose. My colleagues at LIXIL are steadfast in their dedication to our purpose as a company to make better homes a reality for everyone everywhere. And that's why since the inception in 2021 of our people strategy, it's really been the catalyst for transforming LIXIL, precisely because the people strategy is designed to enable our people to deliver on the strategies we've outlined in our LIXIL Playbook. If employees are truly our most important asset and the engine of our value creation, then investing behind growth and development of people is critical to LIXIL's success. It's really as simple as that. The pillars of our people strategy are 3: Enhance employee experience; embed inclusion into our DNA; and elevate talent across the enterprise. All strategic pillars are geared toward enriching our human capital. So please allow me to share the progress we've made across the board. In light of LIXIL's pandemic, seismic shifts have been taking place with regard to workplace dynamics. And it's imperative that every individual in the company feels represented and valued within this LIXIL community. Employee expectations have shifted and they're continuing to shift. This is urging all companies, including LIXIL, to adapt to new paradigms. In response to this changing landscape, we examine closely the needs of our own workforce, particularly in Japan, which is our largest market, both in sales and employee presence. We revamped our people policies to foster a much richer employee experience by prioritizing engagement, well-being and a sense of belonging. After careful consideration, we embraced a hybrid model as the optimal solution for our globally dispersed teams. By offering greater flexibility, we accommodate our employees' lifestyles and life stages and empower employees to maintain their contributions to the company, while juggling personal responsibilities like caregiving. Commercially though, this shift is not about compromising on productivity or performance. It's really about ensuring that our workforce remains engaged and motivated so they can actually perform at their best. Now employee feedback suggests we're on the right track. A survey which we conducted in Japan last year showed that 80% of our desk-based employees are coming to the office less than once per week. Roughly 9 out of 10 of our female employees in their 30s and 40s, as you know, these are the years where child care and senior care giving duties, are really the most prevalent for women, they said they'd like to continue working remotely. We also see a clear uptick in the inclusion score of that same population through LIXIL Voice, our employee survey, with the inclusion score for our female talent in their 30s increasing by 3 percentage points in Japan over the last 2 years. So by championing people-centric policies, we positioned LIXIL as progressive, forward-thinking workplace, setting us apart as a unique employer of choice. While remote work does offer these undeniable benefits, we do recognize very well that the importance of in-person interaction to build those precious relationships and networks really actually critical. To address this point, we've implemented targeted initiatives to facilitate more people-to-people networking and connection building opportunities, particularly for important cohorts like new hires and recent graduates who need to build those relationships. To foster true inclusion at LIXIL, our D&I journey entered a new phase in fiscal year 2024, transitioning the lead accountability from HR to the broader business and to business leaders. Central to this shift was the introduction of our own leaders guide to advancing diversity and inclusion, and it was complemented by a series of targeted workshops, led by managers for managers. So why do we focus on managers? It's very simple. Managers shape organizational culture. And only an inclusive manager can enhance inclusive culture within his or her team. All 125 sessions were led by managers who served as facilitators supported by HR teams. And over the last 8 months, we've now trained 6,000 managers across LIXIL, utilizing real-life case studies from LIXIL, and the response has been overwhelming. Recognizing the significant impact that managers have on team dynamics, we're also implementing a manager development program across the company with particular focus on Japan, and we call it GROW, great managers at LIXIL. This long-term self-paced program aims to broaden managers, turning them into coaches and people developers, really equipping them with the essential skills needed to foster inclusion and drive team success. Creating an inclusive culture is foundational, but what separates truly sustainable companies from others is a deep bench of talent, ready to take on critical leadership roles. And nothing is more critical than ensuring that our top talent is placed in roles where they can thrive, supported by the right structures for their success. Managers as custodians of their teams play that pivotal role in recognizing and nurturing talent within their ranks. At LIXIL, we employ a rigorous process known as POD, people and organization development, which involves collaboration with executive officers and leaders worldwide. This talent mapping initiative is paramount for organizational resilience. Kinya and I spent a considerable amount of time function by function, business by business to deep dive into these talent reviews, and engage in robust discussions with our leaders to align around our people strategy with ever-changing organizational needs being considered. Through this POD exercise, we gained valuable insights into the distribution of talent across all facets of our business and identified areas where talent gaps exist. And this process enables us to establish succession pipelines for these critical roles. We pay particular attention to identifying female high-potential talent as well with 36% of female successors identified during the FYE2023 review. We've also been able to grow year-on-year, our talent pool of ready-now and ready-in-3-year talents in these critical positions. I'm pleased to report one of the outcomes of having such a thorough talent review, women represented 28.6% of all promotions in fiscal year 2023, while they only represented 17.5% of promotions in FYE2022. The insights gained through POD help us inform our learning and development efforts. A culture of learning is integral to building a stronger base of talent, fostering organizational growth and cultivating innovation. The learning culture at LIXIL embraces continuous improvement, and it enables us to navigate and adapt to change with agility. We aim to cultivate a workforce that's eager to learn, eager to evolve and develop themselves by providing each and every one of our employees with the flexibility and tools necessary for learning and development. From innovation-related programs with the Tuck School of Business at Dartmouth to grow our manager-focused training plan, and a wide access to LinkedIn Learning for a growing proportion of our employees, we offer a range of options, including self-paced learning modules and collaborative cohort-based sessions, which cover everything from foundational skills to advanced career accelerated programs. Our employees, they actually recognize this. 75% globally tell us they have been provided with the opportunity for learning and development, which is a high result compared to external global benchmarks. And year-on-year, we see learning hours steadily grow at LIXIL, particularly outside of Japan. This targeted approach to learning not only enhances our resilience, but it also strengthens our competitive edge. We firmly believe that true innovation flourishes when every voice is heard and valued. This is why inclusion serves as the bedrock of our talent management practices and enhancements to the employee experience. We are creating an environment where people are empowered to drive forward their projects and ideas, thereby delivering new value to the company. A decade ago, roughly when I joined the company, such progress would have been inconceivable due to a lack of the necessary cultural and mindset shifts. However, through our intentional efforts to cultivate inclusion, we have paved the way for more innovative thinking and meaningful contributions to be heard and embraced. Let's look at some examples. So Hydrific here is the result of an intentional effort to generate innovation at LIXIL. Working with Tuck, we developed a program tailored exclusively for senior executives and high potential leaders to create a sort of common language around strategy and innovation at LIXIL, something we didn't have before. The program led to new ways of thinking. And Hydrific is one such incubation venture that is coming to fruition. Led by Julia Deister who joined the company 10 years ago, Hydrific's mission is actually to chart a new course for water sustainability by empowering people with the information and tools they need to make water conservation easy and enjoyable. Their first product, which is called Droplet, is a cutting-edge ultrasonic sensor that monitors your home's water usage from a single point. It was just launched on March 20, and reached its Kickstarter crowd funding goal in a remarkable 11 minutes. But the Tuck program did not stop just at senior level. The Three-Box solution, which is a key component of our program was also rolled out much deeper into the organization. And in fact, over 500 people from executive officers on down have now graduated from this program. Fujiwara-san here joined LIXIL as an engineer fresh out of university. A few years later, her interest was piqued when she heard about the Three-Box solution. And she submitted her project to build a customizable cat wall. In another company, her idea may not have gotten very far. But at LIXIL, not only did she have a path to pitching this idea, she was empowered to run with it, coming up with a whole new category of products for LIXIL housing business. Fujiwara-san reached her crowd funding goals within 24 hours. Today, she is running the business end to end. From new product development, we just launched a new cat hammock made out of recycled fibers were sourcing from a B Corporation to marketing and sales development. Now innovation is not just about new products and new ways of reaching consumers. It's also about transforming how we work, simplifying work processes, reducing inefficiencies, for example. Imagine the challenge of predicting when to replenish the inks for decorating tiles, a task that was once quite manual and very time consuming. Yosuke Yamada from our tile division envisioned a much smarter approach. By connecting tile production schedules with ink levels, he developed an app to streamline staff management without any formal coding experience. . The rollout of the digital team's low-code no-code initiative was part of a very conscious effort to democratize problem-solving using coding solutions, empowering employees with vital tools that they need to realize these ideas. Our citizen developers are solving time-consuming business challenges by developing apps that simplify everyday life. More than 2,600 apps have been developed as of February 2024, and really just kind of highlights how an agile and entrepreneurial culture is taking root at LIXIL. However, I think there's no better way to know whether the strategy is paying off than to hear from our employees. So let's have a brief look. [Presentation]

Our people are at the center of everything we do. Literally, we cannot achieve and be LIXIL without our people. They are the driving force behind innovation and growth, the force behind creating long-term corporate value. Our global people strategy aims to empower our people to deliver against our strategic objectives. As we embed inclusion into our DNA, elevate talent across the board, and enhance the employee experience, we are confident these initiatives will drive further business success for today and tomorrow at LIXIL. Thank you very much.

Thank you very much, Jin-san. That concludes the presentation from LIXIL. We will now move on to the Q&A session. While we are preparing the venue for Q&A, we would like to explain to you the flow of Q&A. First, we will receive questions from the investors. That would be followed by taking questions from the media. Due to constraints in time, in the case that the questions overlap, we may skip those questions which overlap. We will be responding to the question combined to what was presented today. [Operator Instructions] We are preparing the venue for Q&A. Please wait for a moment. We are now ready for the Q&A session. We would like to start. The questions that you have put will be responded to by the 5 people. And while you are asking questions, I would like to ask the 2 independent directors who are here. First, I would like to ask your person Matsuzaki. Today's main theme -- one of the main themes for today is HR strategy. Currently, the importance of the human capital management and its drawing attention and various companies are working on to strengthening that. And the stakeholders require the companies to systematically explain about how that strategy would be utilized for corporate value improvement. So what kind of discussions are you having at the Board of Directors meeting to provide supervising functions?

I would like to respond. So in terms of how we supervise, as part of the basic policy of the management, we have the impact strategy, which is the sustainability strategy. The Board of Directors meeting have already approved it. And with regards to the progress of it, twice a year, we check the -- check it twice a year during the Board of Directors meeting, and independent directors will provide feedback. And Montesano-san will provide twice a year the report on the HR. And we we'll be getting the report about the human resources strategy. And we ask various questions. And there are 3 things that we do that I would like to talk about. One is the employee experience. So when I heard about this and what impressed me was the D&I promotion initiatives and also creation of the environment, which is conducive for the employees to be able to balance work and private life. So LIXIL is doing that hand in hand, and that is impressive. So in the securities report, the ratio of the female managers as well as the acquisition rate of the male employees getting a childcare leave. Various companies are working to improve those numbers. Maybe the management is happy to see that ratio go up, but there is a possibility that there cannot be a balance between the private life and work life. And the employees may not be happy. But LIXIL is trying to accomplish that, and that's great. Second is promotion of D&I. The female directors of LIXIL are supervising this very strictly. From my perspective, it seems that LIXIL is implementing the plan according to the strategy about the female directors puts pressure to the company to accelerate that initiative. And I think that we are having a healthy supervision. And of third is that in February Board meeting, Montesano-san had reviewed the initiatives related to the human resources. And I asked the question at the end. So as a CPO, in the coming year, what would be the biggest priority for you as CPO? And she said, the retention of key persons, especially the Japanese employees who would be able to work globally. That's where Jin-san wants to focus on. And this means that LIXIL must be selected by exceptional talents. And I was impressed by her response. So I mentioned good aspects. And I would like to talk about the areas where it could be further improved. Sustainability assessment is good at LIXIL. It was introduced during the presentation today. For example, Dow Jones Sustainability Index. LIXIL has been included in the global index. And also for CDP, it is A listed. On the other hand, in the integrated report award where institutional investors are the judges or the Japan IR Council, where the judges are also investors, LIXIL had received a special award but not the exceptional company award. I think LIXIL has been able to get to a certain level for individual activities. However, it is not probably not so clear how that would add value to the long-term narrative of growth for LIXIL. So we think that there is some room for improvement. I think in the briefing today, the management was very, very mindful of that point. And I think that they were able to improve that aspect compared to the past. But I think that there is room for improvement. That's all for me. Thank you.

Next question is to Mr. Nishiura, Chairperson of the Nomination Committee. Nomination Committee has been focusing on building the foundation towards the transformation of the management team to next generation to enable LIXIL to transition to the sustainable growth phase from the governance rebuilding phase that you have been working on thus far. Functions of CEO, directors and executive officers as well associated processes are important aspects of Nomination Committee activities, but please tell us about committee's approach or thinking or challenges it faces concerning how to understand potential candidate for future management and next-generation talents and all for -- regarding how to monitor and develop plans. Thank you. .

And in order to develop and realize what has been explained, it will require a certain time. And we think a certain time, then the thinking of the management team must not derail. And so in that regard, it's a very important theme at the Nomination Committee. So when we consider about the management structure for the next fiscal year, we try to think from a longer-term perspective, and we make a conscious effort of doing so. For example, the same applies for outside directors, too. And also, we have a plan for the -- changing the outside directors, and we have plans that cover several years, and we try to discuss that. And also, how do we try to identify the candidates for the next generation. In this regard, internally, we try to pick up on various opinions quite broadly. To give you one example, in autumn every year and regarding all of the executive officers, we do individual meeting session. And at that point in time, and as a -- not just asking about the question of -- for the potential CEO for the future, but also ask about the thoughts about each of the executive officers. And by doing the staff of interviews, we come up with a candidate list. And as a Nomination Committee, we try to deepen understanding by meeting with each of the candidates. Of course, there is no special thinking or way of doing things, but it's important that we continue to work on these type of activities. And by doing so -- and we are able to realize and further develop the type of things that Mr. Seto has explained, and that will also enable LIXIL to achieve sustainable growth. And that completes my response.

So there are questions from the participants. And so we would like to introduce to you those questions. From SMBC Nikko Securities, there are 2 questions from Mr. Kawashima. The first question. I assume the second-generation Reinvented toilet is an on-site toilet that does not require a sewage treatment network. But what is the requirement -- the required heat source, treatment capacity and operating time? Is it self-sustaining enough to be used in a disaster relief shelter?

On this point, using solar power, utilizing a solar power, we would be able to operate this. The second-generation reinvented toilet's biggest challenge is that it's a bit big. So by making it smaller, we would be able to solve various issues such as the power source. So during the day, it is fine by using the solar power. But during the nighttime, would the battery storage be enough? That's the challenge. So we need to make the size smaller. Another challenge is cost. It is several millions of yen currently. But if you have a purification device, it would also cost several millions of yen. So the cost is similar to that already, but we would like to reduce another digit from the cost. So also the storage battery issue must be solved. So we are able to utilize the power with the solar power that we have and also it can be used in the shelters for disaster victims. And I think one directionality is to utilize this in such disaster relief shelters. Thank you.

So we have a second question from Mr. Kawashima. You mentioned that environmental human resource strategies are making progress. How do you think this is contributing to your business strategy and performance? Of course, we should not evaluate them from a short-term perspective, and we have high expectations for long-term results, but it appears that the business side of the company has been struggling for some time now. Outside Director Matsuzaki is scheduled to retire at this time, so I would like to hear his candid comment at the end of this interview.

Well, let me respond, and the last thing that I've mentioned previously, I said there are still room for improvement. I would say exactly kind of responding to what Takashima-san has asked, whether it be the environment strategy that we have explained today. And we are engaging good initiatives. And the road map has been established well. So how can we link that to long-term value creation? So we have been able to paint the picture, but how are we going to, I suppose, express that is what we need to work on. And that is where we have high expectations for the management people. And that's all for me.

And allow me to also add, and this is also related to business. I'd like to add a comment, too. And so we've talked about various things like PremiAL. So it's a product approaches from aluminum scrap or the revia plus recycling product or Everstream shower. So we're talking about various products, but the time line differs from product to product. On the other hand, and when are we expected to see our performance specifically change and I explained this to investors on several occasions, but Europe and U.S., when the value material, the market recovers, and for that, we need to have the interest rate come down. And so that's a completely separate issue to these business strategies and that environment issue. And the PremiAL product is already realizing results for LHT business for us. The aluminum business is about JPY 300 billion in size. And if we got a PremiAL of R70, then when you look at it based on the raw materials basis, the 20% to 30% improvement in profitability can be expected. But something like revia and we are targeting JPY 100 billion by, say, 2030, or Everstream shower or KINUAMI, and they will sell us product gradually. And so how much for this and how much for that, it's difficult to paint pictures in a specific way at this point in time. But there are, of course, those products that may not succeed as well, frankly speaking. But what is important is to continue with this type of effort. And so that we are a company with a differentiated product. And that will lead to enhancing our profitability over the long term. I think that is one key point. But continuing with these initiatives, then people will start to think that it is better to purchase from LIXIL if they're going to purchase something for the benefits for the earth. I think that is also something that we are expecting as an outcome. And that kind of outcome probably would take at least 3 to 5 years to realize.

We would like to move on. From Nomura Securities, Mr. Fukushima. He has posed 2 questions. The first question. You talked about integrating environmental and business strategies. And you mentioned commercializing the second-generation reinvented toilet, but it sounds like there are still some challenges in terms of cost. Please tell us any challenge to -- if there is any challenge to launch, the timing of the launch, target sales volume, et cetera? .

Frankly speaking, we are able to commercialize in limited markets, for example, in resorts or the locations where the sewage cannot be treated and also in disaster-stricken areas. But the area where we could use this the most is the slums where the infrastructure is not put in place for treatment of water, and we need to reduce the cost in order to do that, and we have to think about how many years it would take. So we have engineering experiences. So we would like to capitalize on that in the coming several years. The volume target for sales, we cannot really say that now. The $5 toilet that we -- so this toilet can be used by 5 people with 1 toilet, and the processing amount will be about the same for the reinvented toilet. And we think that when we get to close to SATO, I think we would be able to sell a lot with large volume. Thank you.

Second question from Fukushima-san. I think it is wonderful that you are developing so many talented people along with diverse work styles, but I would like to know about personnel evaluation and other aspects of your company. I would like to know about your salary structure, fairness of personnel evaluation, et cetera. And if there is anything unique to your company, please let me know.

So thank you for the question. LIXIL has been promoting meritocracy and performance management now for quite some time since Kinya arrived. So obviously, our personnel evaluations and our performance management strategy overall is really fitting this performance management approach. So personnel evaluations are taking place. Once a year, we have an annual personnel evaluation process to look at the overall year's performance. But we also have a midyear check-in. It's not anything special. I think most companies are doing what we are doing. What we're doing differently perhaps is in changing that career conversation where it's not about checking the tasks and making sure that the tasks were done and therefore, the evaluation is complete, but really looking to build those soft skills using coaching and promoting the development of those specific individuals that managers are overseeing and looking after. And those career conversations we encourage to happen all throughout the year. That's something that we are working to promote. And of course, that's especially important because LIXIL is working remotely. We have this hybrid model. And having that ability to check in and continue to build that relationship and really understand what's happening at the team level and individual level becomes that much more important. I think we are able to continue with this performance management approach to our personnel evaluation simply because we have instituted this more inclusive approach where we're able to build that relationship that goes beyond just sharing information and really driving performance management. What will you get done this year? That's why our ability to say, it's not where you work or when you work, but it's you getting the work done, right? So that is the underlying foundation of performance management at LIXIL. And I would say that, that is just following what global best practices in terms of managing performance. In terms of salary structures and fairness, I think we're using the same bell curve notion as everyone else. You've got your top 10% and then you've got everyone else. And then maybe some people at the very end that need to get pulled up towards the middle and moving everyone step by step towards a higher ladder. That's really the focus. Salary structure-wise, I think we're probably, again, nothing special, pretty much like all other companies, although if we can become more differentiated, that is the focus going forward. So one of the key steps to performance management going forward is to create more acceleration and differentiation in the salary structure, especially for those global talents. And Japanese talent, in particular, I think, are not as well paid, especially the ones that are quite competitive. And as Matsuzaki-san was saying early, that's a big focus for me is talent retention, especially our global Japanese talent.

And when you ask about fairness, and it does relate to that, to an extent as well, in the case of LIXIL, we were formally somewhere [indiscernible] these 3 companies had a typical Japanese types of a seniority type of scheme. And now seniority system is easier to ensure fairness, but we have implemented performance-based work, and we want people to work on a global basis, and we take people from outside the company as well. And if we start to do that, then in terms of fairness, there are more challenges in comparison to the previous seniority system. And so in order to secure fairness, what are we doing? And we have started to reflect the perspective of market. So what type of salary if one is employed in the market. So that is one type of fairness, but we need to be more, I suppose, equal in one sense. And I think that is quite an important perspective. Now personnel evaluation is very difficult, but a dialogue. And the seniority system is a scheme where the wage label is decided. So the conversation between superior and above, it was not all that important in securing the salary label, but we want to introduce dialogue there. The leaders understand their subordinates. And what are the elements of that, that needs to be improved? And having that type of conversation when we introduce meritocracy and then it leads to being a more equal, fairness, we're making all the efforts to ensure fairness, but it may not be completely unique. But in our case, where we have a history of many companies coming together to form one company, we have acquired company from GROHE that we want to be equal and securing fairness as well.

From Mitsui Sumitomo Trust Asset Management, we have 2 questions from Mr. Takegawa. The first question. Please let us know if there is anything you are doing to resolve issues from a human capital strategy for GROHE, which has many challenges in terms of performance.

So in terms of the challenges from the performance perspective, rather than just focusing on GROHE, the European market itself is struggling. That's what I would like to emphasize. Because this is a good opportunity there, I think we should be reviewing what we should be doing in Europe. Labor union is very strong. And because we are in this era, we are able to, frankly, speak with them. So restructuring and improvement of productivity, from those perspectives, we are conducting various initiatives. And also through dialogue, we are checking on what we need to do. And we have reviewed the management structure and also the manufacturing systems.

I mean we have very talented people in our European business, a lot of them from the legacy GROHE organization, which we acquired. The key is really helping that organization become much more bottom up, just like a lot of other parts of LIXIL. So the human capital strategy is focused on maximizing the talent we have there, creating more of an open and speak-up culture where people can raise their voice and raise their ideas. We have incredible talent base there. And I think recently with the reform that we've been doing there and the reorganizing due to the difficult performance, we're starting to create a much flatter, much simpler organization. And I'm confident that the direction we're going from a human capital strategy perspective is the right one when it comes to really unlocking the performance of the European business going forward.

What I'm appreciative of Jin-san is that in Europe, there was a mindset of Europe is Europe, United States is United States. And there were many independent thinkers out and they did not think so much about Japan. So the top person of manufacturing or the product development, we dispatched Japanese personnel, and now we are able to have exchange of the personnel, so under difficult environment, everyone is acceptable to the idea of exchange of talent. So I think that we are in a situation where it's conducive to synergy, and that would be coming back to Japan. So it's a virtuous cycle. The competitors have been creating synergy through the independent growth of each region. And LIXIL had not been able to do that before, but we are able to have various exchanges for synergy.

Third point, Kinya. I mean I think when we had COVID and Kinya introduced the special allowance for everyone to get ready, work remotely. The GROHE organization in [ EMEA ] was really surprised that LIXIL would do something like that. And it really started the -- it was the start of everyone in Europe thinking, oh, okay, so being part of the LIXIL family actually means something and we should think about that. And that really set us on the right course for establishing a human capital strategy that welcomes our M&A talent into the fold, helps them to understand a little bit more in a nuanced way who is LIXIL because GROHE for so long was part of private equity, and it's a different culture and a different world. And so I think we are starting to see really good progress in bringing our colleagues and a lot of them are expressing interest, not just solving Europe's problems in Europe, but tapping into expertise in Tokyo and in other parts of the world and wanting to learn how to create that cross-regional, cross-geographic collaboration to improve their own performance in the region. So I'm actually really encouraged by the culture shift that we're seeing there. .

Thank you. So second question from Tekagawa-san. I think it is wonderful that you are promoting various social contribution projects, including ESG project. On the other hand, how about showing KPIs for what you can gain from this, such as revenue growth and market development strategies at this point, the PB ratio is still below 1x. And I think it will help the company to recover.

Thank you for raising that point. And why we are sort of onetime for the PB ratio is profit level is still insufficient. And so given that backdrop, why are we developing product focusing on ESG, particularly are focusing on the environment? Well, with this differentiated product and differentiated product leads to higher margin, it does relate to previous question, but all products. And our revenue is about JPY 1.6 trillion. And it will take time for products to be differentiated. So in the end, the business and the profit ratio and ROI, we are targeting 10%. And because, when all these products are linked to sales, we should be able to achieve those levels. And that was a part of the strategy playbook.

Thank you very much. Questions from the media.. The first question from Nikkan Industry Newspaper. Mr. Masoka's question. You mentioned reducing the environmental impact related to metal materials in the biodiversity preservation. Are you thinking of joining aluminum stewardship initiative, ASI, an international initiative on sustainability and aluminum industry and obtaining ASI certification for your aluminum extrusion plants in Japan and overseas?

So we don't have that plan at this moment in time. We are not thinking about that currently. Related to certification, there are a lot of discussions going on, and we decided to go one by one where it has the biggest impact, but we are not thinking about ASI certification at this moment. .

Thank you. From Yamaguchi-san from Nikkei Shimbun. There are 2 questions from Yamaguchi-san. And the question is to Seto-san. I understand that you have received inquiries about PremiAL R70, which is recycled aluminum material, mainly from European U.S. companies. To the extent possible, please tell us what industry sizes and that could receive many inquiries from. Also, what are your impressions on the current trends in environmental regulations in Europe and the U.S., which are behind the increase in demand, such as a growing demand for decarbonization.

Right now, in Europe and the U.S. So we're not talking about sending PremiAL to the market itself. But what we see is that European and the U.S. companies, when they're conducting business in Southeast Asia or India, then they want to use decarbonized aluminum. That's one point. And the second is the government-related project, there is a need to the workforce decarbonization. And so R70 or R100 are receiving inquiries. Fortunately for us, R70 and R100, we are able to produce this product in our plant in Thailand and Vietnam. And so whether it be [indiscernible] India, we feel that we will be able to accommodate the demand for those markets. And in your question, you talked about other. Well, not just in the construction material industry, but also in the automotive industry, we have received inquiries. The automotive industry, too, and they have always been working on this, but they need to reduce weight. So they're changing steel to aluminum. And from the recycling perspective, change in plastic. So we are seeing those -- and so for aluminum by reducing the weight, the gasoline, the usage could be reduced, but in both embedded carbon is also an issue. And so reducing embedded carbon is also thinking adopted by the automotive industry. And so we are seeing inquiries from automotive industry increase in that regard and our product is -- we don't have product, which is sold at the storefront. And there is inquiry to use recycled aluminum versus pure aluminum as the -- I suppose, the frontal display of the product at storefront. Scale, it's difficult to talk about the plans that we have and scrap ratio was 30% in the past, now 70% average. And by 2030, we want to raise this up to 100% from when we take that into consideration and to have everything 100%. That would be the market size, and we should be able to secure a premium on that. And that is what we are aiming for and most realistic avenue to generate profitability is this product.

The second question from Yamaguchi-san. In Japan, the government has increased its subsidies for thermal insulation remodeling windows. And I believe that in addition to windows, doors will be -- also be covered. How would you be preparing for increase in the demand?

So last year, when this happened, we had expected that there would be triple or quadruple the amount, but actually it was 8x, 10x more. And the delivery timing have been delayed. So we increased our production capacity, and we are able to respond to the orders. And we have been able to respond to the customers' orders without delay. So the increase in the capacity has been done sufficiently. And we are able to withstand the increase in the subsidies by the government, and there's no delay in the delivery. Thank you very much.

Because of the time constraint, this will be the last question. The question is from Sakai-san from Nikkei ESG. The question is for Jin. Would you please explain on global talent, what capabilities and potentiality do you expect them for long-term growth?

Well, specifically, I was referring to Japanese talent or employees in Japan who are able to and interested in working overseas globally with this global enterprise mindset. We actually have lots of talent in engineers or in specific product development areas within Japan that are in desperate need overseas. And in fact, we are seconding many people, whether it's to help fix a supply chain issue or to help with the acceleration of a product development issue somewhere in the LIXIL world. And many of these talented Japanese engineers and product development specialists or whomever are what I would regard as global talent. They understand deeply the know-how and technology, have a willingness to work abroad and actually contribute to the specific business agenda we're driving, and are also interested in accelerating their careers by taking on such assignments, learning and then returning to Japan to then further contribute in senior roles. So I would consider that to be global talent. But of course, global talent is any kind of talent, any talented individual leader, manager who can think from an enterprise perspective. When they're faced with a challenge, they're not just trying to solve that problem from their own access of resources in their local environment. They're thinking more broadly. They're also asking big questions when it comes to risk or issues facing them directly. They're thinking, well, if I were Kinya, if I were the CEO, what would I do about that? So this enterprise mindset is really important. And the ability to lean in on learning and stretching and taking some calculated risks with your career to gain an advantage around how to grow and accelerate yourself, I think that's what really constitutes global talent. And we actually have in total numbers, quite a decent pool, I would say, I'm very, very proud of the global talent we have, not just talent overseas. So they are not just the global talent. To me, we have a nice base of talent in Japan. And it's important because of LIXIL's unique legacy where we came together as mergers and acquisitions. So people working in LWT, LHT, in corporate functions, in Honsha, they really understand LIXIL and the history of LIXIL. And so having that group really globalizing and accelerating and challenging themselves to take on roles outside of LIXIL, return and contribute in more and more senior roles, that group, I really want to cherish and cultivate more as we go forward. And that's the group I care a lot about. Even though I care a lot about all of our talent, this is a very important group for the future longevity and value creation for LIXIL, that's what I firmly believe. I don't know, Kinya, did you want to contribute to that?

No. But I just want -- just one point. And it may be just a closing comment that may not be necessary, but as was asked, and we have not been able to respond to the expectations in terms of the business performance, and I need to be certainly mindful of that. But the impact strategy or ESG, the contribution towards corporate value, people may not fully believe in this. But -- so we are making an effort to make sure that, that type of thing is incorrect. And as I said before, for all of our product and for the environment, for the earth, we're trying to change our products to have a positive impact on the environment for the earth. But this will take several years, but when we are able to achieve that, that will be a great differentiator for us to generate profit. And for us, it will enable us to grow. And the world is looking at ESG and impact. But this may not have large impact towards the corporate value, it could be negative to the corporate value. So we have people like that around as well, but we want to certainly challenge that type of thinking and what we want to do is that. And if you can understand it for that, that would be very appreciated. Thank you very much.

Thank you very much. We thank you for asking a lot of questions. This completes today's briefing. We will be sending questionnaire regarding ESG briefing for today. I hope to have your cooperation. We would like to conclude LIXIL's ESG briefing. Thank you very much for your attendance. [Statements in English on this transcript were spoken by an interpreter present on the live call.]