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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
We would now like to begin the quarterly results presentation. Thank you very much for participating in today's event, those of you who are in this room and also those of you who are listening to the audio streaming via the web.
Now I would like to introduce today's speakers. To your right, we have Director, Representative Executive Officer, President and CEO, Mr. Kinya Seto; Representative Executive Officer, Vice President and CFO, Sachio Matsumoto; Outside Director, Chairperson of the Board and Member of the Nomination Committee, Masatoshi Matsuzaki; Outside Director, Chair of Nomination Committee and Member of Compensation Committee, Yuji Nishiura; and Senior Manager of IR, Kayo Hirano.
I will be your facilitator. My name is Uto from IR Office.
Let me walk you through today's proceeding. First, President Seto will explain the quarterly results for the fiscal year ended March 2020. We have the slides to the front of the room, but we also have the handout at your desk. Those of you listening to the live streaming, please refer to the financial results material on our web page. We will take your questions after the presentation. And we will conclude at 4:40 p.m.
Also, today's presentation is being recorded, and the audio will be publicly available on our web page, including the Q&A session. Thank you for your understanding. Now President, Seto, please.
Good afternoon. This is Seto speaking. We would now like to start the results announcement for the first quarter of fiscal year ending March 31, 2020. We have many members here today and we would like to allocate ample time for Q&A. So my presentation will be as brief as possible.
First, let me take a look at the Page 2. As usual, we have adopted IFRS and operating profit under JGAAP is almost equivalent to core earnings of IFRS. Page 3. And as written here, all business segments except LBT increased in revenue and profits. So it seems as though it's very good, but we should not feel too relieved with this performance. Concerning revenue and profit, particularly in Japan, as you may know, every quarter, our business is impacted by the new housing start and therefore January to March, housing start is good. April to June, quarterly results seem to be good. And new housing starts were indeed good from January to March, so revenue is increasing. Overseas, however, frankly speaking, North America and Asia, we were not able to grow the businesses as much as we expected in North America and Asia.
On the other hand, concerning core earnings, it has increased in -- of 152% year-on-year. It looks as though it's -- there is a significant increase, but JPY 18.7 billion was the core earnings 2 years ago. So we have not been able to fully recover compared with 2 years ago. And we have to be conservative because of another reason.
First quarter SG&A, we did not use SG&A so much. Because of the Tokyo Olympics, every year, we have a large renovation trades fair, but the venue was not available, so we did not have this trade fair at this time and Taki Pierre as a celebrity that we used for our commercials and we had to stop using him.
So because of these reasons, we -- there was a lower SG&A in the first quarter because of these reasons rather than deliberately reducing SG&A. Overseas, from a structural perspective, we've been able to constrain on necessary cost, which did have an impact on our performance.
In terms of net profit, there was an increase in core earnings, and we -- there has been gain on disposal of interest in former associates. Therefore, there's been a significant increase in net profit. If you just take a look at the net profit, it seems as though we've been able to achieve a large portion of our full year guidance, and some of you might have this impression, but Permasteelisa structural reform-related cost is expected to incur going forward. So including this cost and others, including net profit, we are almost in line with our plan.
Page 4, please. This page shows our business results. And what I just summarized is written on this chart. And the concern that I have is the gross profit is not so good compared with last year. Last year, in Japan, you may remember that we introduced a new price system. So gross profit this year must have been better, but we have not been able to fully recover. And structurally, in Japan, the regional homebuilders' share is declining, and nationwide power builders and large house builders' share is increasing. So there is more business from large companies overall. We have to be able to generate a bit more profit. And not only gross profit, but taking a look at our business structure, we were not able to use so much SG&A this year. But much more than that, from a structural perspective, we have to reduce cost much more. Otherwise, it is going to be difficult for us over the long term. These are the points we have to consider.
And the same venue was used when I last made the results announcement and I received the same question at that time. And the most significant issue of our results announcement is our forecast do not end up being correct. The breakeven point of the housing business is very high. So the new housing starts may change and the foreign exchange rate may change, and that very much impacts the breakeven point, and profitability tends to change and fluctuate very often. So we are incomplete in this regard. It's difficult to be very accurate in our forecast.
If we take a look at our performance by segment, we've been able to improve LHT business. But last year, LHT was bad and this year LHT is good. Other than that, I will explain in more detail about this point later on. Within LHT business, we have mainly 3 businesses: sash, exterior and interior. These are the 3 main businesses of LHT. In exterior, this quarter and the previous quarter and 2 quarters before, in July to September of that -- last year, there were many natural disasters and there was a lot of reconstruction demand. And that pushed that exterior demand -- product demand. So it's because of these -- this forced measure rather than our actual capability. In terms of our capability, we were able to grow our interior business. Compared with the industry-wide share, we've been able to grow our interior business share because we are introducing products with new design, which happened to be popular amongst our customers.
Sash doors, on the other hand, particularly sash, profitability is in a difficult situation. I would like to explain in more detail the financial results by segment. First, Page 7, Water Technology business. Water Technology, Japan is in a very favorable environment. Favorable environment is continuing in Japan. And there is an increase in projects. Compared with last year, there's a slight increase in profitability, profit margin. There's an increase in projects. So compared with last year for bathrooms and kitchens, compared with those businesses, we are increasing projects of sanitary ware with high margin, but overall margin is not increasing as much as we expected. So the increase in projects, all in all, they tend to be of low margin. And we did not use so much marketing cost, as I mentioned before. And because of that, there is a significant improvement in Water Technology business. And overseas, Europe is almost flat. North America -- Americas and Asia, on the other hand, sluggish performance in terms of revenue. And market environment is not so bad in the Americas, but if you take a look at our competitors, American Standard is weak in businesses other than sanitary ware. And that is why they are losing against competitors and private brands compete with us, and brand equity is low in terms of American Standard. And that's why American Standard products tend to be sold more. So we have to invest more in brand equity. From a longer perspective, the overseas subsidiaries that we acquired, when they belong to the private equities in terms of technology, factories and product development, there was not enough investment into these areas. So the base engine of these overseas businesses still happen to be weak. So when the competition intensifies, this weakness that comes to service. So the high technical capability of Japan has to be transferred more and more to our overseas businesses. We need this pipeline and by so doing, we need both strong growth overseas. In Asia -- Southeast Asia, excluding China and India, there are delays in projects. And concerning China, overall, the economy is decelerating. But the real estate sector is not so bad in China. However, as you may know, there's a significant increase in price. Under such circumstances, the situation now in China is similar to the former public economy of Japan. So we are concerned of a sudden slowdown in China.
Housing technology. As mentioned, Exterior and Interior did very well. For Exterior, there was the demand from the reconstruction efforts, but I think that this has basically settled down in the first quarter. So from -- going forward, we have to face the normal situation. And for the Interior, we were successful in improving the design. But we do -- I also had to touch upon the cost issue. We should urgently reform the cost structure of this business. Otherwise, as -- if the demand deteriorates, I'm very concerned. So this is where we really have to focus on in order to reform the cost structure. And for the Building Technology, this was basically flat. But together with other businesses, there was an increase in the distribution cost. So increase in logistics cost and labor cost, these are the cost inflations. And the contributions against such cost inflation has been delayed. So that is another factor, we cannot increase the margin. And as for the distribution of Retail and Housing and Service business, for both of these businesses we are trying to lower the dependency on the new houses and expanding the renovations and so on, and I think that we are enjoying some success.
And this slide shows the balance sheet. Because of the application of IFRS 16, the lease accounting was changed, which means that the total assets and the total liabilities increased significantly. As a result, the balance sheet looks worse than before, but the impact is mainly from the IFRS 16.
And as for the cash flow, as mentioned, core earnings improved and the working capital improved. And also, we have disposed of some assets, as mentioned earlier. So in terms of cash flow, I think we have a positive change.
And lastly, I'd like to talk about the strategic priorities. We have to tackle and reaccelerate the business structure reform. In the mid- to long term, we need to convert our business so that it can be more profitable. And for the domestic business, we need to transform the business structure to suit the mature Japanese economy. And also, we need to lower the breakeven point, especially for the Housing Technology, sash business. We need to conduct structural reform to lower the breakeven point. Otherwise, we will not be resilient to external changes and we will miss our forecast target. So this is where we have to reaccelerate.
And as for strategic priorities, we will be focusing more on core businesses inside and outside Japan, and we need to further promote selection and concentration. As mentioned, we will transform our business to suit the mature economy. And as for synergy, of course, there is no doubt that there is room for growth overseas. But we also need to transfer the assets from what we have in Japan to overseas markets. And as we have said in the midterm plan, what is most important is not the visible assets, but the brand and technology. So this is where we need to invest in these intangible technologies and brands. And if we do not, I think that this will delay our overseas growth.
In order to secure sufficient time for Q&A., I have rushed through our presentation, and I would like to conclude my presentation here.
Now we would like to take questions from the floor. [Operator Instructions]
Sorry, Uto-san. I forgot to say something. There were a few words I had to say at the outset, I forgot. Unlike usual results announcement meetings, Mr. Matsuzaki and Mr. Nishiura, 2 outside directors have joined us today. And in the press conference after the shareholders meeting, I mentioned that, we -- investors have requested that they want to communicate more directly with the outside directors. So in order to respond to such requests from the investors, we have invited outside directors to be present as well. You may have a lot of governance-related questions, so please feel free to ask these questions to the outside directors who have joined us today. Now please raise your hands if you have a question.
The first one in the second row from the front.
So I can only ask one question at a time. Citigroup Securities, Hashimoto is my name. I do have more than 1 question. If possible, I would like to ask 2 questions. About Water Technology, you're very much behind, that's the impression I have, and what is the reason for this? Particularly in the U.S. and Asia, on a local currency basis, you have a negative revenue, what is the reason for this and what measures are you intending to take? And are you able to meet your full year guidance? Please comment on these points.
Concerning the United States, North America, there are 2 main reasons, we think. The first is -- to begin with, we have not been able to make sufficient investment. As a result, brand equity is low, as I mentioned before. And the second reason is, as a business, I've said this to a number of people. The bathroom business is weak. These are the 2 main reasons why growth is lagging behind in North America. And concerning the point that brand equity is low, if it's a case at the U.S. industry, basically, Water Technology manufacturers, there are Tier 1 manufacturers and Tier 2 manufacturers, there are these 2 types. And the Tier 1 manufacturers, like Kohler, make a lot of investment in marketing and R&D, but their products are expensive. And Tier 2 manufacturers do not invest in these areas at all, but they sell their products at Home Depots at a low price. So Tier 1 manufacturers spend a lot of cost. Products are expensive. Tier 2 manufacturers do not spend so much cost. Product is cheap. And American Standard was recently a Tier 1 manufacturer. But the brand is there, but marketing R&D will not be invested, and that is the background behind [ being ] invested in American Standard. If investment does not continue, brand equity does come down. So American Standard is now a Tier 1.5 manufacturer, so to speak. So in the United States, manufacturers and distributors, they are competing with each other. There is war between each other. Home Depot and Lowe's, these kinds of manufacturers. They started to sell more and more of their own brands and own products. So American Standard -- then these companies want to take share from American Standard. Their caller has a high brand equity, so it's easier to take share away from American Standard. So American Standard is not very much competing head-on with the private brands. And the second point I want to make is, American Standard is weak in the bathroom business. And the bathroom business, in the case of American Standard, they only have factories in Ohio and Mexico and the competitors, like Kohler and American Bath Group, they have more than 20 factories throughout the U.S. And the bathroom business as a product, I think it's easy to imagine, they are very heavy products. You cannot transport them long distance, which means if you want to buy a bathroom product in Los Angeles, American Standard has a disadvantage, but Home Depot and [ Furnace ], they have a nationwide chain. So ultimately, American Standard is at a disadvantage in bathroom business compared with 2 competitors. But in the United States, unlike Japan, the bathtub is the larger product in the bathroom. So faucets and toilets and showers, other products cannot be sold if the main bathtub product cannot be sold well. Ultimately, American Standard just sells sanitary ware to commercial facilities. That's all they can do. Since this is the situation and if residential becomes strong, American Standard is not able to capitalize on the residential growth. The other companies, particularly Kohler, is able to take advantage of the growth in residential market. That's why competition is weak. And both of these 2 issues cannot be solved immediately. In order to raise brand equity, first of all, the technology that we have in Japan has to be transferred to the U.S., and we have to invest more in marketing. And distributor and the manufacturer, they're at war with each other. Manufacturers use the Internet to sell directly to take share away from distributors. So things like that are happening. So -- and our business in the United States is lagging behind in terms of digitalization. We have to do something about that. And the point I mentioned about American Standard being weak in bathroom business, we cannot solve this issue immediately. We need an OEM manufacturer or we may have to invest in small factories. We need to take these measures to solve this issue or we may have to find a partner. So we have to make a number of steady efforts. And these steady efforts, frankly speaking, we are lagging behind in these steady efforts. We have to admit this. And we have to solve these issues one by one.
And the plan that we currently have is not a stretched plan. If the -- unless the real estate market all of a sudden faces a recession in the U.S., we will not come over with this margin result. And business reform, the high-cost structure is improving. So revenue is not growing, but core earnings is getting better. So in that sense, we are improving competitiveness. In Asia, we are doing what we have to do, and we are investing as well. So unlike American Standard, unlike North America, we do not have fundamental concerns or significant concerns. But in various regions, there's a lot more we have to do. And the reason why our performance is lower than plan is, projects, besides China, they're lagging behind. And Vietnam and Thailand, lagging behind competitors. And this is not a situation that's continuing perpetually. It is just because of a delay in projects. But the most significant concern we have in Asia is the pillar of business at China, is it really going to continue to grow? That's the key point. Concerning Asia, U.S., Japan and Europe compared with these other regions, predictability is very low in Asia. Almost every month, we have to change our forecast. But we don't have fundamental issues in Asia. And against the guidance, full year guidance, we should be able to achieve our full year guidance, but the -- most significant concern we have is LWT Japan, well not only LWT, but our domestic business. After the consumption tax hike, how much worsening of the domestic business is there going to be after the consumption tax hike, that is the consuming at the moment. But full year guidance, we do not have so much concern about our full year guidance though at this point in time.
And person to the front?
And my name is Fukushima from Nomura. I have one question. In the final closing in May, this was under Yamanashi-san. And bids to long-term plan was announced. And this was -- on the top page, I think the strategy was to expand market share. So after sitting in the role of CEO once again, how do you look at this strategy of expanding market share? In your presentation, you talked about selection and concentration and lowering the breakeven point. So it does not seem to be a focus on expansion, but rather improving the profitability. That seems to be a priority from this presentation, but what are your views? And also, what is the mid- to long-term policy? Are you going to present a new mid- to long-term plan? Or is the one that was announced in May still alive?
So let me answer your second question first. As for the mid-, long-term plan, we have been explaining to our employees and our customers based on the 2017 mid-term plan. And this is a bit difficult to phrase, but the May mid-term plan that was put together under Yamanashi-san's leadership, I don’t know the purpose of his word, but I will basically ignore it. But, of course, I don't want to stray to the opposite direction. And of course, under Yamanashi-san's plan, there are various positive aspects, which we will, of course, incorporate. But we are not going to mix the 2017 plan with the May mid-term plan because plans need to be consistent. And situation of Japan and the LIXIL's competitiveness from the 2017 situation has not changed. It is simply that we need to accelerate because the allowed time has grown shorter. So are we going to draft a new mid-term plan? The answer is no. Because we are not going to change any actions with the new number because the mid-term plan's function is to show the direction and to check against the target number if we're going in the right direction. And what is most important is not to the investors, but actually to the employees who are actually implementing these actions. So we don't want to create confusion amongst the employees by tweaking the numbers. So we -- I have no plans to create a new plan in the near future because having a name mid-term plan in -- 3 mid-term plans in a matter of 2 years should be avoided. And with regards to the market share expansion, you are correct. Of course, we're not going to ignore market share and we do need to take market share, but that should not be the purpose of our business. That should not be the end goal. And in reality, in the past 10 years, our sales price -- sorry, our profitability, our margin has fallen in almost all of the products, especially drastically for the sash product. And if this continues, even if the market share expands, we cannot be more profitable. And in the long-term, as the new housing starts fall, I think that Miura has announced that in 2030, this will be 600,000 units, which is like -- and if we're going to increase our market share to meet the current situation then we have to raise our market share to 50%. So increasing market share by 50% or 75%, that's impossible. So the direction of trying to take market share, that should not be the end goal. Of course, taking market share is positive, but that should not be our goal. But the goal should be to increase profit. But in order to raise our profit under this current situation where the prices go down every year, there are 2 things that we need to do. One is to develop the products that clearly differentiate us from our competitors. And second is to reform the cost structure, and this is something that is very urgent.
Next question, the person in the second row from the front on the right-hand side of the room.
SMBC Nikko Securities, Kawashima is my name. I have a question about Slide 16. The first quarter domestic variance analysis. And the mix is negative. On an annual basis, I think you expected to be positive. And a year ago, you introduced a new pricing system and you conducted -- you announced 2 price revisions and you talked about products. You are making effort, but mix pricing is still negative. So how should we analyze the situation? How do you analyze the situation, and how do you intend to respond?
Sales price. The most significant concern we have about the sales price is rather than ourselves, the structure of our customers is changing. Small customers or local home builders, as I mentioned before, we were able to enjoy high margin from these customers, but their share -- the share of these kinds of customers is declining in the Japanese market. So the so-called power builders, the large companies that has more and more business with large companies throughout Japan, and they tend to buy in bulk, cheaper products, and that is pushing down the sales price. That is, unfortunately, occurring in the Japanese market. And we used to have mainly high-margin customers. So we are quite damaged by this situation. And I'll just add to situation, what should we do in the future? Mainly, there are 2 directions that we can head towards. First is, by doing everything as much as possible, we should be able to absorb all the [ products ]. If the market is shrinking, we need to maximize value in the shrinking market, that's one direction. And the second direction is to outsource to distributors as much as possible and reduce our cost. And the direction that we're actually heading towards is number two. Outsourcing as much as possible to distributors. So we will sell products at a high price. We want to compete with the products. But rather than handling various kinds of products by spending a lot of cost, we have to reduce our cost structure. We have to do that because this is a trend that is going throughout the world. Strong distributors are taking away a lot of market share, and that is occurring throughout the world. So if we try to do -- and if we try to offer the kinds of services that are offered by distributors, it will cost us a lot. So it's not worth investing in that kind of cost. So services that we are not good at or strong at should be outsourced to distributors and to prevent ourselves being involved in such service. As a manufacturer, we have to dedicate ourselves to producing high-quality products, and we have to make effort to reduce distribution and the logistics cost. And so on the surface, if that happens, our sales price will go down. But even if the sales price goes down, we have to improve our cost structure and improve our competitiveness. And we have to make effort to increase sales price at the product range. And what's included in the mix pricing is sales price including service and not just pure product. So we have to change this structure, and this is an important effort we have to make.
Next question, please.
My name is Teraoka from Daiwa. I have one question. In the conventional strategy, I believe that water overseas was positioned as the growth driver, but lately, there has been some stagnation. And it seems that the Americas structural reform will take some time. So if you look at the next 2, 3 years, what is the growth driver of your profit? What do you think it will be the main point?
Of course, it's going to be overseas. We have to reaccelerate some of the aspects, but especially Asia, of course, there's going to be fluctuations, China may be facing some issues, there may be some project delays, but for Asia, the reason why we could not grow so much in the past was because we were not able to invest in distributors, we were not able to invest insurance, but we have already caught up to that. So I think that we can expect growth in Asia. And for the Americas, I said that there are difficulties, but the problems are clear, and we have identified them. So I think it's possible to resolve these issues. And for the Middle East and East Europe, we are sustaining growth. So overall, we can continue to improve. And for Europe, for example, marketing cost is going up. This is actually because of the so-called behind-the-wall investment. Europe's strongest player is Geberit and Geberit has been investing in behind-the-wall products. And I think that we are the only true competitor to Geberit in that same sense, and so we are also investing there. So there are needs for investment, but we do have the capability compared to our peers to differentiate with our competitors like behind-the-wall products, water-saving products and the filters. We have a clear competitiveness for these products. So how do we combine these and integrate them into products? I think that's very important. And for the short-term profit driver, I think that's going to be cost reform. It doesn't -- it might not sound like a short-term effort, but if we conclude the cost reform in Japan and transfer assets and technology overseas, I think that's possible in the short-term.
Next question, the person in the second row from the front, in the middle of the room.
Jefferies Securities, Fukuhara is my name. I have a question about Permasteelisa. In April, you made an amendment, and I'm taking a look at that material. And at that time, in fiscal year 2019 and fiscal year 2020, losses are going to be incurred, particularly in the Americas. There are a number of projects still incurring losses. And what is the current situation? What is the progress since the announcement in April? And Permasteelisa, I want to confirm, first quarter, JPY 4.2 billion structural reform is not being incurred? Is that a correct understanding? And in the future, are you going to sell the company? What is the idea you currently have in mind? Do you intend to divest the company?
First, about the structural reform cost is not incurred this year. So it's going to be next year onwards. It will be next quarter onwards. And the things are proceeding as scheduled at the moment. There are difficulties, but things are in accordance with the schedule. And about your last question, I'm in this new position and I'm not able to answer this question now. And I am saying selection and concentration and you may be interested in what kind of assets we are going to concentrate on, but this is a trade secret. So we will not be able to answer this question. Please understand.
Next question, fourth from the front.
My name is Anegawa from Mitsubishi UFJ Morgan Stanley. My question is about China. In China, you have INAX, GROHE, American Standard. You have several brands in China. And it seems that things are progressing nicely. But what -- which segment is doing well? Is it overall or a certain segment that's doing better?
My impression is that, in China, I think the high-end housing is slowing down, and I think the mid-price level is gaining momentum in China. What are your impressions?
For your last question, I agree. I'm not sure what's the mid-price level. But I think overall, Chinese products' quality have improved as well. In the past, there was the Chinese products, which were in the lower tier and total was a high tier, and there wasn't any middle product. But the Chinese products overall have improved in quality, and there have been new entries, including our company. So the super-high-end, I think, segment is disappearing these days. So a certain quality level is expected by the customers. And if it is not -- if it is above a certain level, I think many customers are willing to buy the Chinese products. But for the Water Technology, if there is any quality issues, for example, if there is like an overflow, it's very difficult to deal with that. So people with a certain level of income, they understand that the Chinese products have improved but still prefer overseas products. So there is still a layer of people with such income, but I think that there are more and more players in the middle to higher level. So what you say is correct. But in terms of demand, the bathroom -- number of bathroom per house is increasing. This is same as in the U.S. And the number of bathroom is the differentiator in the real estate market. So the demand itself is going strong. And the real estate developers are very aggressive. But what is the cause of concern? There seems to be a concentration to several strong developers. And so our credit is now accumulating in several developers. And so we need to be careful about the credit risk as we had the bubble in Japan. Of course, if there is a very strong developer that's growing, we tend to feel a sense of concern, as we recall, the collapse of the bubble economy in Japan, and there are certain customers where our credit is piling up. So we need to make adjustments and -- there. And where are we doing well in China, that was your initial question. I think that we are doing well in areas where we were behind in the past. So American Standard and GROHE have been brands that are growing most quickly in China. And American Standards provide a spacious product that have been a dream of Chinese people. And GROHE provides a European chic product and that kind of a very positive image is being generated in China. So having very different brands is a success factor for us. And for INAX, the awareness level is still low. So this is, I think, room for growth for INAX.
Next question, please. The person in the fourth row from the front in the middle of the room.
Mizuho Securities, Nakagawa. I have one question. The breakeven point of sash has to be reduced. That is the challenge that you mentioned before. And bringing down the breakeven point, in order to do so, what mainly do you have to do? In 2017, March, you stopped operation of one for your plants, do you intend to stop the operation of plants? Is it mainly through restructuring or as competitors are doing? Large volumes on products will be handled by a certain factory. Are you going to optimize your production that way? What mainly are you intending to do?
Last year, this time of the year or before that, I made a similar statement and that is, "structural reform has to be realized through reducing back-office cost and overhead cost and not having [ taking out ] so much sales activity." But in terms of sash business, reducing number of production lines is the most important activity. And the factories and the number of lines that we have, the average utilization rate of the lines is about 45%, below 50%. So we should be able to consolidate 2 lines into one. But each production line is a dedicated line for a certain type of product. So it's difficult to consolidate multiple lines into one. So we have to change each line into a general-purpose line. We have to introduce common platforms. I think I mentioned something like this last year. And we have to accelerate this endeavor, and there are some things we have to start doing again. So this is the most important task. If we are able to do this -- if we're able to reduce number of production lines, we will be able to consolidate factories. And we can consolidate the factories not only that, but we can increase flexibility. So thus far, we had a dedicated line, but we did not receive so many orders for that product. But we can convert certain line into a line for another product that if we have more flexibility. So in terms of introducing common platforms, we have to do that when we introduce new products. So we can only do this once every 2 or 3 years. But if we are ultimately able to do this, we can reduce the investment cost, if we have more general-purpose lines. So if we're able to introduce a common platform, we should be able to reduce number of lines by 16. So this is the largest portion of fixed cost we should be able to reduce.
And any other questions? If you have -- you can go at a second round if you like. Then gentleman in the middle.
[ Nokata from BlackRock ] Japan. I'd like to ask about governance. In the Board of Directors meeting or the 3 committees, what happened the discussions with regards to governance? If possible, what is the main points that you are discussing? And what about the Executive Officers and the Board of Directors, what have been the discussion up to now after the establishment of the new management structure?
Thank you for your question. Let me first talk about the overall atmosphere of the Board meetings. I am the Chair of the Board. So let me answer that question. After the AGM in July, we had the special Board meeting to decide the Chair and so on. So -- and then so that was in June. But the first regular Board meeting was held in July. And there were 3 resolution items. First, this has been disclosed already, listing in overseas markets or transferring the headquarter to overseas or delisting in Japan, the current management, current Board of Directors will not consider any such measures. This has been decided as a resolution of the Board. If such a resolution is passed without us, outside directors, then it will simply be a rejection of our predecessors. But because this resolution was passed by new members, including myself, new outside directors, I think that there is a significance. So even with the newly joined members, we should be focusing on our core business rather than considering a transfer to overseas or delisting in Japan that there is no need to consider such measures. That has been decided by the Board, including myself. And this was the rational decision that was reached. And on the same day, another important resolution matter was that there will be an organization to support the Audit Committee. We will strengthen that organization. Seto-san and the Chair of the Audit Committee made a joint proposal, which we judged to be a rational proposal, and we have resolved that matter. So we are -- LIXIL is a -- has a Nomination Committee and Audit Committee. In many cases, in Japan, outside directors also serve as the auditor. There are many companies like that in Japan. But the spirit of these company with our committees does not require outside directors to conduct such audits, like inspecting documents, but utilizing the internal audit or the independent auditor, well that is the more important point, and that is where the importance should be placed. So we have decided to strengthen the internal audit function of LIXIL. And that was the proposal made, and the Board of Directors, including myself, have agreed to that. And the Audit Committee with mostly outside directors have decided to move in that direction.
So what should be our focus and what is necessary to function as a company with a nominating committee? Such discussion was made in the rational and objective manner. And for the executive status, as Seto-san said today, we do not just report on the positive aspects, but in order to be accountable, we also disclose what is a concern for the business in a proactive manner. I think that we can provide good advice in this aspect as well. And for the committee, please elaborate? So I myself as involved in the nominating committee. And often, I am asked to what will be the directors that will be decided in the next AGM. But this year, we would organize our thoughts on the basic structure. For example, the number of directors or the selection standard or the selection process and so on. There are still some ambiguities there. So we need to clarify these standards by the end of this fiscal -- by the end of this year. And this is in addition to the company fact. But in addition, as a nominating committee, we will -- we have the role of selecting the executive officers, including the CEO, which requires us to get to know the executive officers well. So we are going to start the interview process for each executive officer.
And today, we do not have the succession plan for the CEO. We do not plan to put in a very strict framework, but we do need to clarify that. And we also need to consider the pipeline for the successors. This is the current status for the nominating committee. And for the compensation committee, there is a lot to do. At the moment, we are trying to make a list of all the issues that need to be tackled, and we would like to start from where we can. Nominating committee and the Competition Committee, I think, have a clear picture on the challenges. And with regards to the Governance Committee, that has been our commitment. First, we will start by reforming or reestablishing each of the committee that is the pillar of the governance and the Head of Governance Committee, [ Seki-san ] has been provided that information, and he is now putting together all the governance challenges and the issues from a global perspective. It has only been 1 month, but I think what needs to be done is becoming clear. But the concern is speed because committee in principle is held once a month, and so we need to reach a consensus in the once-a-month meeting, and we also need to implement changes. So I do feel a bit rushed and short of time, but we are steadfastly making progress.
Please raise your hands, if you have a question. The person in the third row from the front in the right side of the room.
Morgan Stanley, MUFG Securities, Katsuyama is my name. I have a question about overall corporate management, including the mid-term plan. Mid-term plan, it seems as though you're trying to resume what you tried to do before. And the price system -- when new price system was introduced, there was downtime in Q1 and Q2 last year, and the recovery started after this downtime, so to speak. So this time, again, whatever kind of reform you're going to implement, there is some downtime. Do we have to expect some downtime? There's been some temporary slowdown? Or since you have changed your corporate management method, are things going to change from before? And compared with the CEO before, have you recognized any differences this time? If there are differences, what would they be?
Previously, downtime in the price system. There was mistake in corporate management. We had to be more prepared. And if we are better prepared, we would have been able to prevent this downtime, so to speak. In terms of plan, there were things that we factored in that did not actually occur. But setting excuses aside, I do admit that we were not fully prepared. If we were fully prepared, we would have been able to prevent downtime or a temporary slowdown. In the future, we would like to be careful so that we will be smooth in whatever we do. And if there is likely to be a downtime, that has to be factored into the plan. Rather than the downtime, there will be temporary cost that would have to be incurred.
So the next question will be the last. Please raise your hand if you have a question.
There seems to be no further questions. So we would like to conclude today's IR presentation. Thank you very much for coming once again.