5938.T5938.TJPX
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Unknown Executive: It's time for us to start the third quarter financial results briefing for fiscal year ending March 31, 2026 for LIXIL Corporation. This briefing is streamed live online. The materials for this briefing is on our website for the shareholders and investors. I would like to introduce to you the presenters. Kinya Seto, Director, Representative Executive Officer, President and CEO; Mariko Fujita, Executive Officer, Executive Vice President, CFO; Aya Kawai, Senior Vice President, Leader of the Investor Relations office. I will be serving as the MC. My name is Setoguchi from IR office. I would like to explain to you the proceedings for today. First, Fujita, the CFO, will be providing you the overview of the financial results for the third quarter. That will be followed by a presentation by Mr. Seto to explain to you about the earnings structure of LIXIL. The presentation will be followed by Q&A. We are expecting to end the session at 3:45 p.m. I would like to invite Mr. Fujita, the CFO, to give you the financial results briefing.
Mariko Fujita: Hello, everyone. This is Fujita. I would like to give you the overview of the financial results for the third quarter. This is a summary of results for the third quarter. Core earnings is JPY 36.5 billion and EBITDA is JPY 98.4 billion. In Japan, LWTJ and Living have continued to do well with increase in revenue and earnings. The renovation products was robust even though the new housing demand was sluggish. As for LHT, it was on par with the previous year, both for the revenue and earnings. The subsidy eligible products contributed to the sales growth. In Europe, Middle East and India, has seen strong performance. The Americas and China's sluggish business had been covered by the strong performance from Europe, Middle East and India. So there was ForEx losses. And because of that financial cost had increased year-on-year. Just like Q2 the expense consolidated subsidiary decreased year-on-year due to changes in the corporate tax rate in Germany. Next, I would like to talk about the outlook for fiscal year ending 2027. This talks about business environment. Overall, the commodity prices are going up, ForEx as well as the government policies have changed from what we had first expected. The commodity prices had significantly increased. In January, there was a rapid increase. And it is hovering high. In Japan, new housing starts -- remain weak, but the subsidy for the window renovation would continue. As for Europe, we had expected in our road map that in fiscal year ending 2027, the housing market would recover, but the timing of the recovery is being delayed. As for IMEA, it's doing well, and China continues to be sluggish. Those are the outlook for fiscal year ending 2027. Next is performance highlights for the third quarter. Revenue decreased slightly, but core earnings increased year-on-year. Revenue was JPY 1,138.5 billion, core earnings and EBITDA as well as profit have improved. Next is consolidated business results. What I would like to highlight here is a gross profit. It was 1.3 points up year-on-year. Because of this, core earnings ratio had improved by 0.5%. And here is the overview of business results by segment. LWTJ performed well. And -- so the improvement in revenue in Europe and the Middle East has contributed, LHT improved and price optimization and renovation sales contributed enabling the segment to maintain the level from last year. Living, we saw a strong performance of the renovation area. And this is the business results by segment using the former segments, which I will skip. Next is consolidated financial position. And the assets in Europe, this has increase due to currency translation impact. Equity ratio is at 34.4%. Lastly is cash flow status as well as cash balance. And because of the accounts receivables and inventories increasing operating cash flow has decreased year-on-year. However, as for the free cash flow, we have been able to maintain the positive territory. So that completes my report. Thank you very much.
Unknown Executive: Thank you, Ms. Fujita. Next, I would like to invite CEO, Mr. Seto, to talk about LIXIL's earnings structure. Mr. Seto, please.
Kinya Seto: So we talk -- we have been talking about this to the investors as well as institutional investors, but I would like to give you more detailed information, so to avoid misunderstanding. So moving on to the first slide. Compared to EBITDA, the core earnings as well as the net profit tend to be lower. So that's our structure. However, this is because of large depreciation. In the past, we had used a lot of cash for acquisition. And because of that, our core earnings tends to be smaller because of the depreciation. So the tax expenses increase, it's due to the unoptimal tax management, but we do have cash at hand, and our strength is not shown in those numbers. So going back to Page 1. So in our case, PER, PBR, ROA, EBITDA multiple had not been explained in a coordinated manner. PER, because the profit seems to be low, it tends to be very high at 65x. PBR is 0.8x. On that matter, the -- there are assets which are -- with whose utilization is not high, but the -- it's generating cash. And as for ROA and ROE, the after-tax profit compared to cash, it is evaluated low on an accounting basis, and that has become a huge issue. So in improving these figures, so we would, of course, work to improve the business for the improvement of EBITDA. But at the same time, we -- there are -- we are looking at the assets which are not generating cash, and we will be sorting that out so that we can have improved efficiency in the assets. So the -- so there will be less difference between EBITDA and core earnings. And we will also work on to better manage taxes. This is something that we will be working in the coming 1 to 2 years. It's not just about improvement of EBITDA, but we will make reform so that we can have better core earnings. So EBITDA for cash earning power. I think that we are doing fairly well. This slide shows the comparison with competitors. On the far left is LIXIL followed by TOTO, then Takara, Cleanup, YKK. Compared to those companies, you can tell that EBITDA, the earning power that we have is very high. In the case of TOTO, they have semiconductor products. The -- so we are not able to make apple-to-apple comparison with our competitors, but our EBITDA level is quite high. So in the Masco, Fortune Brands, Geberit, those are the highest earnings companies and their EBITDA is high. But from FY '23 to FY '25, the reason for growth, you need to have some footnote. So Geberit is using Swiss franc and has been appreciated from JPY 140 to JPY 200 and euro is also being appreciated. So there are positive factors for Masco as well. The Fortune Brands, they are working centering around U.S. dollars. So the growth rate compared to the other 2 is lower. However, their profitability rate is very high, 70% gross profit for Geberit and Fortune Brands and Masco, and in the faucet, they are -- that's their main product. So we have a bigger line of product. So our EBITDA level is quite good. So Roca and Villeroy & Boch in 2025, you see a significant increase in the numbers. This is because they have acquired Ideal Standards. So Fortune and Masco, they have been growing because of M&A. So considering that our organic numbers is not bad. So our -- we want the world to understand our core earnings power. So we want to normalize our core earnings and EBITDA. And lastly, where we generate the EBITDA and from our perspective, we've been saying this, we have too much asset. And so we don't have to have too much capital expenditure. And investment was the software element like a brand or intellectual property or R&D-related investments. For those areas, they are essentially expensed. And because of that, they do lower the profit margin directly. But in the end, we are not investing in hardware, but we are investing in software that does linked to generating a large amount of cash in the end. So I'm sure some of you are fully versed in this type of information, so nothing new. But just in case, we wanted to provide this explanation. Thank you.
Operator: Thank you, Mr. Seto. We would like to now move on to the Q&A session. [Operator Instructions] First, I would like to ask Fukushima-san from Nomura Securities.
Daisuke Fukushima: This is Fukushima. I have 2 questions. My first question, the price strategy in Japan is my first question. As you have said at the onset, the commodity prices are going up. On the other hand, if we look at the competitive environment, YKK had acquired the subsidiary of Panasonic and there is a big company who would be competing against you, under that environment, how would you be pricing your products? How would you be profitable in that environment?
Kinya Seto: So can I answer the first question?
Operator: Yes, please.
Kinya Seto: As you have said, what I am concerned the most about is the aluminum and copper prices, which have risen very rapidly. You may be aware of this, but it is not the increase in the demand. So there has been sluggish supply for aluminum [indiscernible] last year because the power -- electricity prices had gone up, they decided to conduct maintenance for a year. And Century, because of the operational issues, they had shut down and they decided to continue because of the electricity prices and also there is reluctancy from Rio Tinto. And the supply of aluminum to Europe had dwindled and the price increase, the premium had gone up. The -- so because that's the situation. And when the prices had gone up at this level for April, because we had assumed last year's levels, we have to think about whether we would be increasing the price. We have to think strategically and we have to think about the competitive environment. One thing that works in our favor is that we are using scrap to 80%. So there will be a time difference in getting the impact and the merger of YKK and Panasonic subsidiary. The -- it is not an increase in the competition because the lineup is separate and the number of competitors would remain the same. The competitors like YKK, so they were -- they had seen the less profitability when decided -- they decided not to raise the prices, but gotten the share. So for them -- so considering the business environment, I don't think that they would be taking that choice again.
Daisuke Fukushima: Thank you very much. So from April, you will not be -- you may not be able to respond to the price increase, but considering the ratio of scrap, you would not be facing a situation where the profitability will be deteriorating rapidly, you would still have some time.
Kinya Seto: Well, there will be deterioration in the profitability, but it would not be in the extremes. And also, we would be able to buy time to take new initiatives.
Daisuke Fukushima: Understood. My second question, I would like to ask about the U.S. business. So the U.S. Standard, it is posting the ordinary losses and the operational losses and you would be stopping the outsourcing, and you would be making the improvements. But as for the sanitary ware, I think last time you said that you would be increasing the prices to improve the profitability. So I would like to know the progress towards the next term, how do you see the situation of the profit for the U.S. business?
Kinya Seto: So having better product mix and better pricing that is being accepted in the market. So I think that the profitability will be improved but the environment is worse than what we had expected, and that's our concern. In terms of the deterioration in the market environment, One thing that concerns us is the ceramics and also the housing distribution is 30% less. And so there is an affordability issue. President Trump had said that he would be making huge announcement in January, but he has not been able to do much so far. So I don't think that there will be easy improvement in the demand unless something happens towards the midterm elections. The market recovery is being delayed than what we had assumed. But we have been taking measures for rationalization. So I think that we would be good for the next term. But for -- but the bathtub business losses would continue, so we would still be in difficulties, but we will be able to improve next year. The competitors for the U.S., like China or the Asian players.
Daisuke Fukushima: So if they are not able to sell because of tariffs, are you -- have you been able to improve the share?
Kinya Seto: Since November, we had seen increase in the share. So up to October, the inventories that the players had acquired before the tariffs had remained. But from November, we have been able to do take shares, but the demand is not increasing. So it's still sluggish. So thank you very much.
Operator: [Operator Instructions] So Miki-san from Citigroup Securities.
Masashi Miki: This is Miki from Citigroup Securities. I hope you can hear me. I'd like to ask 2 questions myself. The first question, you talked about the dispersing assets generating cash. But what type of the asset reserve are you thinking of right now? For example, structural reform in Japan. And from 2019, I think you've done something quite significant and you worked on the international after that. But -- so in the meantime, so you had inflation or interest rate increasing, which has caused the business environment to change quite significantly. So do we expect a very large structural reform in Japan domestically over the next year or so? That's my first question.
Kinya Seto: So as we have announced recently that we're going to stop. This is a subsidiary for exterior works, and so we will stop the operation of this entity and we announced that this will be embedded into the LIXIL. But your question, it's very sensitive. So anything we haven't announced, we can't talk about, of course, because from our perspective, whether it be Japan, domestically or for international, as I said before, we want to look at those businesses with a very low level of asset efficiency. So we have this course of direction to try to -- we organized -- reorganized those or disposal of them. But even if the core earnings is negative, but we have already acquired, and we have already paid the cash. But on the other hand, the gas distribution is still being done right now. For those, we won't sell unless there are buyers for that. So it's difficult for me to give any further, I suppose, response in regards to your question. I hope you understand.
Masashi Miki: Well, then for the second question. You did not adjust your -- the earnings forecast. So whether it be core earnings or the net profit when you look at the progress, and I think you are performing well against the full year plan. So why didn't you not make adjustments? And segment-wise, if there are any changes to the initial -- the forecast? And so JPY 45.5 billion, but the JPY 29.6 billion, there is the slowness in terms of progress with zero buffer. So maybe if you could at least explain about the situation there?
Kinya Seto: So what we have not announced and we certainly cannot talk about, that's quite obvious. But for January to March quarter. Basically speaking, there are increasing, as opposed to uncertain elements. And the biggest one and the commodity price increasing to this level in January, this may have some impact on a short-term basis. We need to ascertain that. So that's one point. And subsidy in Japan, and decision has been made to have that being provided. But the next subsidy -- and for this year's, the subsidy starting in April, the details have not been finalized as yet. We have not been able to engage in activities on that at this point in time, not just the commodity pricing now, but whether it be Europe or U.S. or the world is seeing a lot of developments. But for the demand for the new builds, I think there is people are waiting for the new policy to be announced. And so how would that reflect into the fourth quarter numbers. We don't have, I suppose, the conviction on that as yet. And also something that I mentioned before, we need to implement various initiatives, address various things. And so jump into the conclusion, we can't announce what we don't know. That is where we have kind of arrived at. And the numbers right now is good. We -- and probably the numbers until now have been better than we had thought, but fourth quarter, this is going to be a quarter we need to be very careful about, be cautious about and this is as a result of the commodity price, the global situation as we have explained thus far. And also the new housing starts in Japan too. This year, so we expected about 2% decrease, but we saw a 13.7% decrease from April to November. And this is unlikely from the impact of amendment or Building Standards Act abolition article for special provision. So would there be a pent-up demand associated with going forward, would we see further deterioration of the succession from where we are? We don't the science of where we may end up with at this point in time. And also the general construction companies may be announcing this, but the projects are delayed all around the world. As of March, project that we had expected completion, but the Japanese general construction companies are saying that they are likely to be pushed back into April onwards. And the reason for that is lack of the craftsman and in the case of Japan, the facility providers lack capability or capacity, not being able to address the demand and so this is happening in other countries in different ways. So in the case of U.S., immigrant workers cannot go to the site of work, and that has led to the project not being completed, leading to delay in the case of Europe politically and, inability to make decisions. And there were -- there's been a lack of strong majority, have not been able to make decision about policies, which has led to delays in permit leading to the project delays. And so overall, there are projects being delayed. The demand does exist, but the projects are being delayed. This is also a worrying situation for us as well.
Operator: The next question is from Goldman Sachs, Okada-san.
Sachiko Okada: This is Okada from Goldman Sachs. I have 2 questions for you. As for the European market as well as the Middle East market. It is doing well in the cumulative third quarter, Germany and France, which are the central players in Europe. Overall, the economy is weak, is what I have heard. The growing sales growth is in the positive. But I would like to know the background to it. And France and Germany are sluggish. But would they be giving a negative impact to the overall business? That's my first question.
Kinya Seto: As for the market in Europe, we have the same view. The reason why growing has been doing well is because of the high-end products like G4, G5 applied products, which are the color products. So the -- so it is replacing a Nickel-Chromium products. And even though the number of units does not change so much, the ASP is higher. And because of that, we have been able to grow in Europe. So going forward, the situation is mixed. So when we look at the project pipeline, we have a very enhanced pipeline but in Europe, the administration is unstable and the approval is now lagging behind in European countries. In 2026, we had expected that starting from April, there would be a recovery of the economy, but the policies, which were supposed to be in place is not in place yet. So we believe now that the recovery will be towards the second half of the year.
Sachiko Okada: You talked about the earnings structure. And you talked about tax management. And with regards to that, you talked about the potential of divesting assets. But is there a need to have negotiation with the competent authorities or with the accounting firms, and the reason why the tax management is not optimal, it's probably because of the acquisitions that you have made in the past. But could you talk a little bit more about that?
Kinya Seto: We are working for optimization in this area. We don't need to convince the tax authorities or the accounting firms. But when we had acquired the companies in the past, we did not think thoroughly and we were not able to get to the optimal tax management. So we would like to fix that. And we are not getting any warnings or anything from the tax authorities or the accounting firms at this moment. So how we distribute the product, how we allocate our technology. We need to scrutinize that, we believe that the burden is too high for Japan. So we need to sort that out. But to your question, we do not need to change the formalities that we have in place. But rather it will be about where to place the earnings and where to allocate the technology too. So we need to review those things. And it would take about 1 to 2 years on that.
Mariko Fujita: Yes. I would like to make a supplementary comment on that matter. As Mr. Seto mentioned, so where IP is as well as how the distribution system works. So upon the acquisition, we were not able to structure it in an optimal manner. So we would work on to optimize that within our compliance framework and the tax expenses, which go beyond the effective tax levels, we would like to get it to the effective tax levels.
Operator: So next question is from SMBC Nikko Securities, Kawashima-san.
Hiroki Kawashima: This is Kawashima from Nikko Securities. I would like to ask 2 questions. The first question is in regards to the image for the medium-term performance, and so you shared with us the image for the 2027 and 2028, March and the outlook and the commodity and the market condition, I think you talked about that external environment remains to be tough, but positive impact internal factors, which is going well towards those -- if you could share some information in that regard?
Kinya Seto: Well, things that's not going as well as back then. Well, the recovery in Europe the economic condition, this has been slower than what we had expected, but something that has performed better than we had expected that is conversion to the renovation business in Japan. And as I was explaining before, but the Japanese housing starts from April to November and the 8 months, it came down by 13.7% year-on-year, but we were still able to increase the revenue and profit. And the reason why we were able to do that was firstly, and this is something that we always talk about that the renovation business has higher profit margin, but SG&A also ends up being higher. And so that does have impact on profitability. So we were using AI or DX digital transformation, utilizing digital technology. And we have essentially worked on lowering the cost, which has enabled us to improve profit margin, and we've been able to do that in terms of demand cultivation, and we were able to secure an extension of the subsidies on this occasion. So given the backdrop for us how can we have the understanding of our customers in regards to the window renovation. I think we have a better idea as to how we can do this. So despite the poor market condition, we have been able to grow the Japanese business despite the headwind. I think this is a positive. And another positive factor and that's actually balanced against what is good, but China is probably worse than what you had expected, but we were able to see improvement in the middle and near East, which was able to offset that negative in China, which is a pretty good thing.
Hiroki Kawashima: The second question, and I want to ask about numbers. In terms of the profitability structure as you have explained, right now, the depreciation is greater than investment and once they balance, then due to decreasing the depreciation and amortization, we expect there to be a profit improvement. But because of the FX impact, we are not seeing the decrease in differentiation and amortization cost. But in terms of the tangible asset, how many years are depreciated over, so that will have impact. But overall how long period can we see the balance between depreciation and investment and how -- do you have any numbers in mind of improvement? And so the depreciation of the acquisition of the tangible assets as reported in the financial statement. I think there is probably JPY 4 billion to JPY 7 billion -- sorry, JPY 6 billion to JPY 7 billion of the gap there.
Kinya Seto: Well, it's not easy to respond because of various things. But from our perspective, the -- in terms of tangible fixed asset, what is the biggest factor for reduction and would be factory facilities. And there, from our perspective, and does relate to the previous question. But again, I can't talk about what we haven't announced as yet, but in Japan or in Japan and -- sorry, overseas as well to generate profit with a relatively small asset. That is the course of direction that we're trying to pursue. And so the facilities or the plants we have the possibility of being able to work on that aspect. It's not just the how many years that we have those plans are being depreciated over, but I think there are still a lot of room that we are able to work on to make improvements. But if I start to talk about numbers, I end up talking more specifics so I can't really do so. But we are looking at the greater number than what you have referred to in terms of reduction of depreciation expense.
Hiroki Kawashima: So investment and the depreciation, it's not just the cycle there, but you're going to do something that is a little more significant. Is that right?
Kinya Seto: Yes. Well, investment itself. So investment was a tangible asset, we are not thinking of doing anything major in that area. So conversely speaking, and by organizing the assets to an extent, we will no longer require maintenance investment for that, that would lead to a reduction in the amount of investment required. And so in that regard, so we already have a structure of being able to generate cash. And so in terms of accounting profit, in order for it to become more visible, I think there are things that we can do.
Operator: We would like to move on to the next question from CLSA, Mochizuki-san.
Masahiro Mochizuki: I have 2 questions. The first question is related to the outlook for the next fiscal year. I think you have given some tips today, but the business environment is very bad. So if we look just at the net profit, I -- is it okay to understand that the net profit may be in the losses. So I don't know about whether core earnings will be going up or not. But if you are going to conduct structural reform, then there will be costs associated with it. So I thought that you may be in the net losses, so regardless of the numbers.
Kinya Seto: So well, we don't want that to happen. So in the past 2 years, we have worked on the areas where it would incur losses first in the past 2 years. So in terms of the structural reform, the area where we would work on, I would have less losses. And also, there are -- there is a possibility that it would generate the profit. So considering the net profit levels now, we cannot go lower than that. So we are not expecting the net profit to be in the negative, and we believe that we can increase the core earnings. But of course, the difficult environment continues. But what I would like you to understand is that this fiscal year, we had in a very severe situation even worse than last fiscal year. But we have been able to post better performance. In terms of next year, we don't believe it would be as difficult as the previous years. Of course, we need to wait and see how the commodity prices would impact us. But this is something that we have already experienced in the past. We would like to continue to work on things in a steady manner.
Masahiro Mochizuki: My second question...
Operator: Sorry, Kawai-san from IR has supplementary comment.
Aya Kawai: So this year, there has -- a JPY 12 billion has been decreased from the tax system change, but this is one time. So it would not happen next year. So please understand that this JPY 12 billion is a onetime thing, which occurred this year.
Masahiro Mochizuki: JPY 12 billion less tax.
Aya Kawai: Right, that impacted net profit. But we would not have that kind of tax reduction next fiscal year. So please compare it to make the comparison without that JPY 12 billion. But we will not be decreasing the net profit. That's what we are aiming for.
Masahiro Mochizuki: So the tax cost, onetime positive impact would not be there next year, but you want us to expect that you would work hard to improve your performance?
Aya Kawai: That's correct.
Masahiro Mochizuki: My second question is related to ROE. So Seto-san, you have said that we should look at EBITDA in terms of your earnings power? And the cost is different region by region under EBITDA, but the -- a lot of shareholders are focusing on ROA. And I think regrettably, that your level of ROA is still low. It -- so for the coming several years, I believe that it would be difficult to improve the ROE, considering the capital cost. Do you think you would be able to improve it?
Kinya Seto: Of course, we believe that we can improve it. We would work on to reduce the depreciation and we will improve the tax management so that the net profit will be improved and thus better ROE. And also for the denominator, if we are able to sort out properly, we would be able to get better and ROE will be improved. But compared to capital cost, there may be some difficulties. So there are cash flows in the past, and how we view it is the issue here. For example, we had acquired something at JPY 10 billion, but the -- and the cash outflow is JPY 20 billion to JPY 30 billion. But the past cash outflow should -- it's a past cash flow. But if it's generating JPY 20 billion to JPY 30 million cash, that would be -- that's a good thing for the shareholders. And if it's in the negative like Permasteelisa, we should be divesting it right away. But even if it's inefficient, you -- it may be generating cash. And if it's hard to sell, we -- it may be better to keep it. So that's why I have been saying that please look at EBITDA. If we are to improve ROE, one way is to sell everything, which are inefficient, but that would not be at all positive for the shareholders. So of course, capital cost is very important to us, but capital costs should not be looked at just with snapshot. And so sometimes, we need to consider it as a sunk cost. So we should avoid the -- putting too much cost into the sunk cost. But Mochizuki-san, but I don't want to keep my company hovering low. And if it's optimal, we would be selling the assets where we can. So please monitor us.
Masahiro Mochizuki: So we are supporting you, and I will do my best to write good reports.
Operator: So next question is from Morgan Stanley MUFJ Securities, Yagi-san.
Ryou Yagi: Thank you for the explanation. This is Yagi from Morgan Stanley MUFJ Securities. I have 2 questions. First question is regards to American Standard. So for the American Standard, if we only look at the third quarter, then the metal loss has deteriorated year-on-year. Now this is due to demand related reason only? Or is there other factors that has led to that result? And demand and forecast remains to be quite tough. But for next fiscal year to -- I think you expect a turnaround to generating profit, but based on the forecast right now, the timing of this, is it likely to be later than what you had initially considered. So please explain your thinking in regards to American Standard.
Kinya Seto: As for the third quarter, what you said is right. Demand was quite significant. But another factor is that ourselves in the second quarter, we introduced a new system and the installation of the system did not go as well as hoped. And so there were delay in shipment to the customer. So that is what we have experienced in the second quarter. And so as a consequence, some of the orders were canceled in the third quarter. So we did have that kind of special reason. But the third quarter overall was not strong, mainly because of demand factors. And for the third quarter and the fourth quarter, home repair, the rose of Ferguson, they has downgraded their forecast more than we had expected. And so the demand is poor, that is without a fact -- without a question of fact. And that may have impact on turnaround next year. And so the fact that demand is weak. So we are implementing additional measures with that in mind, and that is what we are doing to reduce cost additionally. And so we don't feel that there is a need for us to change our position that we're going to achieve a turnaround next year.
Ryou Yagi: If possible, anything you can mention in terms of measures to reduce cost?
Kinya Seto: Well, sorry, I can't talk about the initiatives in that area.
Ryou Yagi: Okay. My second question is in regards to your thinking about domestic business, so the new starts are quite poor right now, but the remodeling is quite good, but I can't really expect a significant increase in revenue. But in terms of the cost pass on, you have explained about this, but if this is delayed, then the impact of the cost increase, how can you offset that to achieve increase in profit going forward. So could you explain the factors to enable profit increase next fiscal year for Japan domestically?
Kinya Seto: First, in regards to commodity pricing and just to make sure, aluminum and copper accounts for most largest portion, aluminum domestic, copper is more for international business. For international business, relatively speaking, we have G4, the product lineup, which is more premier and G3 is upper mass. This is also the main area. So it's easier to pass on cost. But for our medium product in Japan domestically on the other hand, so it's not that easy to pass on our cost. But our competitors, they didn't actually increase the price when a situation like this occurred, and they went after market share. But in the end, they did not really generate good business performance. So in that regard, from the number gains, and I think they will respond to that the next time. So that is likely to see greater progress in terms of the cost pass on. But for April, we have prepared until December to see the price increase. And so we probably have to do something additional to address that. Now in that regard, what can we do additionally? Well, what was successful in the past is for now, we have not been able to fully use our subsidy a couple of years ago. But last year, in the second half of the year, we were able to utilize the subsidy at quite a high ratio. So how can we consume a subsidy. We now know how to do that. So we should be able to make a good start post April with a new subsidy being provided. And we have this strength of the digital and AI progress. And so we still are able to generate profit even if we go to a smaller project, I don't think we have advantage of others in that regard.
Operator: The next question from Jefferies, Fukuhara-san.
Sho Fukuhara: This is Fukuhara from Jefferies. I have 2 questions. The first question. The raw material prices that you have mentioned, the copper and aluminum. Towards the end of the slides, there was a chart of the evolution of the pricing. And you also have written the assumption for those prices. So in the recent days, there has been rapid increase in the copper and aluminum. Could you explain about how much impact that there would be in terms of sensitivity of the price fluctuation in those raw materials. And in terms of the rapid increase of those raw materials, I would like to think that it would not be impacting the fourth quarter figures, but what's the situation? So please talk about sensitivity.
Aya Kawai: Fukuhara-san, thank you so much. This is Kawai from IR office. And in terms of the sensitivity, we do not disclose that. So the -- and we do not disclose the amount of the procurement. So I would like to talk about that when you come for the IR meeting.
Kinya Seto: So in terms of the fourth quarter impact, so the increase in the pricing in the third quarter will be impacting in the fourth quarter, and the price increase in fourth quarter will be impacting the first quarter. So when we look at the whole year, the project delays would be impacting the sales and the commodity prices, then will have a full effect in terms of the impact. So in terms of how much, well, we are calculating right now because this is ongoing in January. But what would be most beneficial for us is to increase the ratio of scrap. The scrap ratio at our company, the usage is a lot higher. So for aluminum, 80% is scrap. We had tried increasing the ratio, and we have experimented the 90% aluminum scrap ratio, and we have succeeded in that. So by using the scrap, we would be able to delay the impact of the price increase. So that would be a competitive edge for us. So under the current environment, what we don't know is the consumers' behavior, whether they would place an order before the price increase? Or would there be impact, more impact from the delay in projects. So there has been a rapid increase in prices of raw materials. So we have not decided the next step yet. That's my frank response to your question.
Sho Fukuhara: Understood. My next question. So I think there are a lot of things that you still cannot say about the fourth quarter. But at the end of April, you have given us the outlook for next fiscal year in March. And for core earnings, you have eyed on JPY 65 billion, and you have not gotten to that level yet. So this JPY 65 billion in core earnings for the next fiscal year. To me, it seems that it's difficult to accomplish, but how close would you be able to get to the JPY 65 billion?
Kinya Seto: I would not be able to provide an answer at this moment in time. But the environment surrounding us is changing and the delay in recovery of the European market is hurting us and also in the short term, the commodity price hike. And also, we did not envision that the new construction starts would be declined so much. And also now we have clarity to how we would be using the subsidy and also how we can reduce the cost in the renovation business is something that's more clear to us. And also in the mid- to nearest East, we are a forerunner there, and we are doing better than we had first expected in that market. So we would like to reflect that into the next budget. I am not able to talk about the specific figures because it would be misleading.
Operator: So we have responded to all of the questions that we have been asked thus far. It seems that there are no further questions. So with this, I would like to conclude the Q&A part. So with that, we want to conclude the third quarter financial results for the fiscal year ended March 31, 2026, the analyst and investor explanation meeting. So thank you very much for your participation. The meeting is concluded. [Statements in English on this transcript were spoken by an interpreter present on the live call.]