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It is time for us to start the briefing for first quarter results for the fiscal year ending March 31st, 2023 of LIXIL Corporation. This briefing is streamed live online. I would like to introduce to you the presenter for today, Director, Representative Executive Officer, President, and CEO, Kinya Seto; Director, Representative Executive Officer, Vice President and CFO, Sachio Matsumoto; Head of Investor Relations Office, Kayo Hirano. I will be serving as the facilitator from IR office. My name is [ Kushima ]. The materials to be used in today's briefing is uploaded on our website. I would like to explain how we proceed with today's briefing. First, Mr. Seto will be providing you information about the first quarter results. That will be followed by a Q&A session. Those of you with questions, please utilize the Q&A button, and please put your affiliation, your name, and your question. We will be taking questions throughout the briefing. We will be finishing at 6:00 p.m. Mr. Seto will now provide you the first quarter results for the fiscal year ending March 31st, 2023. President Seto, please.
Hello, everyone. Welcome to the briefing of first quarter results for fiscal year 2023. As you know, we use IFRS. The operating profit in the JGAAP basis is core earnings for us. These are the key highlights for today. On an year-on-year basis, revenue increased and core earnings declined, but there is a recovery trend for core earnings. 3 months ago, as I have explained, we had been in a very difficult situation, but we have explained that the first half was difficult, but we would be able to recover in the latter half. I would like to go one by one. We believe that this is -- in terms of the cost inflation, we had thought that it would continue until the end of the fiscal year, but for copper and aluminum, there has been a decline in prices. The inventory that we have has [ suffered ] the high material price. And because of that, even though there is a decline in the copper and aluminum prices, it would not be reflected right away. There are other costs that would be coming down. However, the impact of the current decline in the cost will be reflected around the third quarter to the fourth quarter. We believe that it would have a positive impact for our business going forward. At the half we will be suffering a lot of impact from cost inflation. So profit wise, we would be facing a difficult question. With regards to price optimization, it is going as planned. The biggest price increase will be coming after October. So full scale realization will be seen from October. We conducted in April and June a price revision, and this is contributing to betterment of our profitability. As for market environment, it is softening. As you know, the interest rate in the U.S. and Europe has risen and energy prices have gone up, and we have unresolved issue of the Russian-Ukraine conflict. On the other hand, with the effort of our employees, the order situation for us is generally favorable. We have not been able to provide our products fully to our customers due to supply chain disruption. According to the businesses, the situations differ. LWT Japan, first of all, compared to competitors, we have been able to receive a good news that we did not have out of stocks, and we have been able to ship the products as planned. However, because of the countermeasures against temporary parts procurement, there were increase in the costs. However, we are going as planned. As for LHT in Japan, we had been making hedging contracts already, but there were some unexpected significant increase in the impact from Japanese yen depreciation. And that was impacting the profitability as for LWT in the international market. With regards to copper, we had hedged it already. So we are going as planned. Order position was favorable. However, due to issues like COVID, in Europe and Americas, we are seeing the issues in the supply chain with labor shortage. Due to this, even though the order position is favorable, we have not been able to supply as much as there is demand. And so if we were able to supply more, we would have been able to do better. I talked about the sudden hiking of the cost 3 months ago, and that's impacting this first half of the year, but we are seeing improvement. There is a phase out price optimization that we have been working on to improve the core earnings. We believe that this would contribute to the improvement in the profitability for us. For Europe, as I have said earlier, there has been supply chain disruptions. The water faucets, half of that is being manufactured in German plants. And due to COVID, there was a labor shortage in the plant, and we had not been able to make the personnels work on weekends or overtime. There was a lack of response from the labor union, but we have been able to complete the negotiation with the labor union, and now the production is being made on a full scale. In addition, there was distribution capability issues. Because of that, we opened 2 new distribution centers. That is adding logistics capacity. In addition to that in Europe, on the East European side, there has been a decline due to the Russian-Ukraine conflict. However, there is an increase in the business in the Middle East. As for Americas, centering around retail, there are a large number of customers for conducting inventory adjustment. However, we have been differentiating ourselves through focus on the brand and, also, we are now using our direct distribution channel rather than using agents in some areas. Also, we have been shifting to the fittings category where the profitability is higher compared to the sanitaryware. In terms of Japan, we had been working more on the new housing, but now there is a situation of the energy crisis and also interest towards CO2 reduction. There is more demand for insulation windows in Japan and also related to water faucets. We are trying to rationalize the distribution operations between manufacturers and distributors. Also, we have been taking asset-light strategy for cost reduction in Japan and also working on digitization for the improved productivity. The recovery will be in full scale from October, and we are already seeing signs of recovery. The outlook going forward. The cost environment is improving, but the improvement will be reflected later this year. And I think that this will be a good news for next fiscal year. The bad news is that there are a lot of uncertainties in the economic environment As for copper and aluminum, in February and March, the price was at the peak, but the prices are now on the decline. But we already had hedging transactions and also the inventory booking was based on past costs. The impact of the raw material costs is lingering. From mid fourth quarter, we believe that we can see the reflection of the benefits of the decline in the prices. As for aluminum, the prices have fallen sharply. But we also have, for aluminum past hedging product and also the inventories which were built while the cost was high and the Japanese yen had become weaker suddenly, and also there was issue with Thailand [ baht ]. Because of that, for the first quarter, we had seen deterioration. But after the third quarter, we believe that the price decline of aluminum and the yen depreciation impact will be offsetting each other for more stabilization. So from fourth quarter on, it will be better. As for steel and resin, the prices are not still declining in Japan, but we expect the decline from the third quarter. If this is going to happen, as explained in copper and aluminum issue, the reflection of the decline in the prices will be seen in later part of this fiscal year to the next fiscal year. As for the logistic cost, it is now declining, but prior high costs will have an impact through the second quarter. However, from third quarter on, the cost decline will be expected to be reflected. Semiconductor, wire harness, and wooden materials, we had to respond in an extraordinary manner for the unexpected issues. But the occurrence of unexpected issues have decreased, and we believe that with that the cost will be reduced. As for forex impact, if we look at it overall, this will be a plus impact outside of Japan, but for aluminum metal it would be a negative impact and also for sash products from Thailand, there are some impacts there. But from the second half I think that there would be a positive impact. As for the potential business risks, there is risk of energy supply from Russia. Since 3 to 4 months ago, we have been creating BCP plans. Even if the gas supply is reduced by 45% from Russia in the worst-case scenario, through the conversion of the energy, the output will only be impacted by 4.5%. So we have been able to respond to these kind of energy risks. There has been labor shortages in the factories, ports, and carriers due to COVID-19, and there has been some strikes and absenteeism there, and those are the possible risks that may continue. And as for lockdowns in China, in Wuhan, as you have seen recently, this kind of lockdown can be expected going forward, but we have been able to respond well in the past. So we would like to bring greater redundancy to procurement and respond to the lockdowns should they happen. The biggest risk is decline in the global demand. However, we have been able to respond to all of the negative factors that had occurred already. GROHE is our #1 brand and those #1 brands are strong during the slowdown in the economy. And also, because we have global operation, when we -- so we would be able to sell to Middle East when Europe is doing bad due to the Russia issues, and also we have been able to capture the [ window ] renovation demand. So there are good aspects and bad aspects, but I think that we would be able to survive in this market. And the numbers is, as I've explained, on year-on-year basis, increase in revenue, drop in the core earnings. The increase in revenue is due to FX to the large part, but in the case of Europe and U.S., the supply chain related to logistics because of COVID. And if that didn't cause problems, we should have been able to achieve a better revenue. Particularly in regards to the Europe, the profitability is high. And so the fact that we have not been able to supply to the level that we should have been able to do, and that has an impact on our core earnings. But for core earnings, down from 3 months ago, for the increasing costs and whether we have to hedge. And we felt that for a certain duration into the future, we did expect some difficulties here, so we did actually predict that to begin with. And so the first half of the year was not good. But we are expecting to see things pick up in the second half of the year. Now on that basis and if you look at the consolidated business results, something that is clear is that -- and when we look at the first quarter last year, April to June quarter last year, before the cost inflation and the fact that we have not been able to achieve a very strong number there is largely due to the fact that there was the cost inflation of 4.7%. [indiscernible] core earnings come down, but they grow some. The margin has come down by 6.9%. And so majority of the reason can be attributed to the gross profit. Of course, SGA has picked up slightly. This was more to do with, of course, in responding to a special situation, unexpected situation. And so the situation improving in this area would be one large solution in this area. But if we look at this in a big picture base, for us against the cost increasing, the price optimization will trail by a certain period. But as we see the costs coming down, then we now know that we are going to catch up for sure, and I think that can be taken as a positive news. And we have changed the reporting segment and the housing technology, building technology, and the housing and services business that was under -- as I said, is going to be put together as one single segment. For the housing business, it's not a large business because we have [indiscernible] in operation there. The building technology, the product is very close to the sash business. And so I think it is quite rational for us to put these segments into one. And if I explain this based on the previous segments, it's like this, and so you can see the profit on other segment basis. But there is a significant decrease for LHT and that is because of the hedge for [ aluminum ] metal. The cost associated with that had impact, and also weaker yen, and the weaker yen was not included in the plan to begin with. For LWT, where we saw a decrease in core earnings, the cost inflation was within our expectations. So this is the new reporting segment. And this is the consolidated financial position. We have been sorting out the balance sheet, and we have become asset light. However, it is growing and this is because of the increased inventory and the forex translation impact. As for cash flow, we have been improving year by year. As for cash flow and EBITDA, I think that we have become one of the best in the industry. However, this time around there has been high wire inventory levels and also there was a hike in the material cost and the profitability had gone down. The free cash flow had come down because of that, but overall, it's improving. So going back to the key highlights. How is the situation going compared to what I have talked about 3 months ago? We had announced the expectation of JPY 80 billion for fiscal year ending March '22, and that became JPY 64.9 billion in actuality. This was because of the high material cost. And so we were not able to expect the JPY 15 billion portion from increase in the raw material prices. And if we were able to -- if we did not have that, we would have gone to JPY 105 billion, and there is an inflation. And if you look at this waterfall chart, so this is the -- you see the price strategy of plus JPY 48 billion and overall our plan is JPY 81 billion. We don't believe that there is a necessity to change this plan. As for revenue growth, there may be some factors that would make us more pessimistic, but as for the cost inflation, we believe that there would be a declining trend from the third quarter. As for price strategy, we have been able to do that as planned. So I think that we can go as planned as for the cost reduction. Because there would be cost reduction, we may not be able to do as strong negotiation as we want. But in terms of the inflation, we would not have the JPY 92 billion impact that we had in the previous time. And how we would be able to make use of this is a challenge that we would be taking in the longer term. So I would like to have the Q&A session. So I would like to end my presentation here. Thank you very much.
[Operator Instructions] So the first question is from Nakagawa-san from Mizuho Securities.
How do you see the impact from the change in consumption behavior due to inflation we see in Europe and U.S.?
Well, in the case of U.S., and probably the same for Europe as well, but as we see inflation taking place right now, for the middle-end to low-end people where the wage is not catching up, so there is an element of people not being proactive in buying, but it's not the case for high-end people. So there is going to be greater divide. And for ourselves and therefore strategy, we want to enhance our brand value to try to sell towards the high end. And so we feel that we should be able to accommodate the situation. And realistically speaking, the overall demand, and so demand on an individual item level, we might see a decline. But for the demand for high end, we still are able to see a relative strength there at this point in time.
Next question is from Takegawa-san from Mitsui Sumitomo Trust Asset Management. There are multiple questions. We would like to go one by one. The first question is related to the briefing material, Page 20. The first quarter increase and decrease in the core earnings. And the question is related to the waterfall chart comparing the first quarter actuals and the full year plan. The domestic revenue is plus JPY 400 million in the first quarter. In the change in the segment reporting, there is an expectation that there will be a plus JPY 11.5 billion and what had been revised, and also, at the mix pricing, plus JPY 3.9 billion. So the full year our forecast is plus JPY 39.8 billion. Why is that? And as for international, in the first quarter it was JPY 9.9 billion in the negative. So why is there such a huge negative and how would you be able to achieve the plan with this negative?
As for the waterfall chart, I, Hirano, would like to explain about that. To your question about Page 20 in the material about the increase and decrease in the core earnings in the domestic market. So what was revised as the annual forecast? So annual forecast had not been revised after first quarter. So the way the waterfall chart looks like. So LBT and H&S is included in LHT. So those H&S was not included in the domestic chart, and because of that there was a discrepancy in the numbers. So this is a very detailed information. So on the website, we would like to upload the clear explanation. We have not revised the annual forecast, so the domestic businesses which had not -- which were not included in the past was added. So the addition was H&S. So there is no actual change. And the last question is different from what you have asked previously, which is the international region. The full year forecast for the core earnings was quite big, even though the first quarter figures were quite low. As I have explained earlier, from October on there would be price revision upwards. The copper prices had gone up from February to March, and we were not able to reflect that to our pricing in April, so that's why we are revising the price upwards in October and that the copper cost had gone up 50% at the highest. And from October we would be able to reflect those increase in the cost. And in terms of the copper cost being reduced, we believe that it would be reflected in the latter half. So the biggest impact is coming with a price revision in October, and the second is the decline in the cost that would be coming in the January to March period. For the overseas market, we don't have significant concerns. In Europe and Americas, I believe that there are risks for the unexpected and more significant market decline, but I don't think that would be impacting that much.
Next we have a question from Takegawa-san. Europe, particularly Germany, is likely to see a tougher energy supply towards winter, particularly due to lack of LNG. Can you convert to alternative energy?
This does relate to the previous point. We have 3 scenarios prepared, and alternative energy conversion in accordance will stay at the level of the supply being reduced from Russia. But in a situation of reduction of 50%, we are able to change to an alternative energy, but it is going to see increase in cost, and we'll try to pass that on to the market. But in a worst case scenario, we will see a delay in the price optimization by several percentage. But in fourth quarter for the decreased portion, there is some savings there, so we should be able to deal with the situation somehow.
Next is a question from Takegawa-san. Both domestic and abroad, when there is a price hike, the consumers would not be able to catch up. And there may be some impact from the market recession as well as impact from the interest rate hike. I believe that there may be some impact and how we respond as individual company would be critical here.
As for the products, the price of our products is not something that the consumers know so well. So the price sensitivity is not so high. So it depends on what the competitors do. If we look at the fitting, in the United States, our competitors have been increasing the prices. But as for fixtures in Home Depot, they have not increased the prices. The low-end private brand product where we compete against them, the consumers may not want to respond to those price increase, and we may have to fight a negative fight. So we want to shift to the areas where we are more profitable. As for the economic recession and the interest rate hike impact, there may be less new construction starts. However, at this point, especially in Europe, order book has been favorable. We have the orders up to the end of the year, so the brand equity, to grow it has, is playing a significant role here. In the United States, we have changed the way we sell -- we have changed the target and also we have focused on improvement of the brand equity. I think we would be able to bear some fruits there. But compared to Europe, Americas market is more challenging. In Asia, we are seeing good situation. Last year, we had faced a very difficult situation, but we are significantly recovering. As for China, it is very difficult to foresee, but I don't think that it would be a rosy situation anytime soon. And as the economy slows down, the energy cost improvement -- energy cost increase will have a better impact on LHT products. So how we respond to each individual situation in the market will be very important for us in each market.
Next is from Fukushima from Nomura Securities.
It's more or less the same question from the previous question. And so I would like to skip that. It's a little bit different. So let me respond to this. And please allow me to read out the question. In Japan, domestically, you are increasing the selling price in stages, but in comparison to competitors, where your product may be somewhat higher would that not lead to a loss of your market share? And how about your products' price competitiveness when we compare against the product of competitors?
Well, price competitiveness, basically, comes from 2 factors. First, the product is differentiated. If it is differentiated, we should be able to sell at higher price compared to the others. We made a lot of effort there, so we're confident to an extent. But are we able to produce the same product at lower cost, and we have introduced platform production. And in that regard, we are confident. And so in regard to the first question, it's difficult to say. Depending on the product, there are different situations. And where we have a lot of competitors is kitchen and bathrooms. And for kitchen and bathroom, all companies are not taking similar type of activities. And for those who are not increasing price, may go after market share increase. Also, in the past, I'm not going to mention the name of the company, but a certain company in the past, a company did approach the situation quite aggressively in the past. But if we look at this over a long term, if one continues a strategy like that, and there are people who have experienced reduced profitability and for ourselves, it's not a great result. And others in this industry have struggled as well. And so not to look on price increase in that environment is difficult to foresee. So it's the difference in level to take a very strong stance. We may lose market share in the short term, but over the long term, I think this will become the source of producing a very good product. And for us to continue with this policy, we feel that it's important to do so to improve profitability for the company.
Next question is from Omuro-san from BofA Securities.
There are 3 questions. We would like to go one by one. First is how does President Seto see the outlook in terms of the housing market in North America? Second is that there is an interest in the energy and that there is an increase in insulation and renovation. So would the insulation sash revenue grow going forward? And the third is the sales of the headquarters building.
So in terms of the first question, the housing market is being strong, and that's why the interest rate is going up. And I think that the interest rate will continue to go up until the housing market comes down. And the second point, the interest towards energy and the insulation sash. In Japan, the triple-pane windows, the sales is improving. And if we look at the sash overall, all of the products are now in the category of heat insulation sash. So we have been able to have a product mix, which meets the needs of the market. And as for the headquarters building sales and the usage to buy back of the shares, that's not for me to make decisions. And in terms of the selling of the headquarters building, that has already been decided.
And I, Matsumoto, would like to explain about the contract. The contract has already been signed. And the lump-sum payment has been made, and the final sales of the building will be conducted after moving from the headquarters building is completed. So that would be probably in the fourth quarter.
Next is from Kawashima-san of SMBC Nikko Securities.
In regards to the price optimization strategy, will you reduce the amount of price increase as we see the raw material cost decreasing? Or are you going to revise the price by looking at competitive situation given the cost coming down?
Well, whether it be the price increase or price decrease, the price revision needs to be done 6 months out, so for October. We can't change the approach at this point in time. And I'm repeating myself, given the situation of the raw material price decreasing, and therefore, [indiscernible] implication next fiscal year was. And so if we were to do so, it's going to have a negative implication for us. We're not going to do that. The others are not going to do that as well because it's like a suicide in one sense. And, well, that's up to everyone to decide for themselves, but it's not a rational decision to do so, so I don't think others will do that.
But given the cost coming down, are we going to look at competitive landscape to determine the price optimization?
No, because after increasing the cost -- increasing the price, one will lose out. And so the cost increase in March, we've increased price, but for April 2. Remember, we had to actually withstand a low level of margin. So conversely speaking, when the cost is coming down, and if we actually lower the price ourselves, then the reverse situation will not eventuate, so it's not there. So in practice, for us, to provide how the product with value that customers are happy with, if we're able to do that, we don't have to lower our price because our cost has come down in that type of competitive situation and to create it like a commodity product is wrong I think as a management approach. So for individual customers. And the difference between the lowest customer to highest customer. So we're trying to remove that. We're trying to sell at the fair price and that's the basis upon which we have been working on price optimization. And so our decision is to sell product at the appropriate price. And now coming down, it's not coming -- it's only coming back to the original cost level. But in that regard, that is unthinkable too, revise the price downwards.
With regards to the price optimization, Omuro-san has additional questions from BofA Securities, but the content overlap, so we will skip answering his question. Next is question from Fukuhara-san from Jefferies Securities. There are 3 questions. We will go one by one. The first question. In the lockdown in China, the revenue in the first quarter and the impact to the core earnings, how much impact was seen in which item? Second question. I hear that there are some inventory adjustments in the major home centers in the United States. Do you have any inventory risk on your side? The third question is that at the beginning of the year you had factored in the inflation risk of JPY 92 billion compared to 3 months ago. I think that you were able to have high expectations profit wise from the third quarter. So how would you be able to go against the JPY 92 billion?
The first question. So in China there was 11% decline in the first quarter. 11% number-wise is quite big, but the China business is JPY 14 billion business. So there's not too significant of a impact. China is not a driver of our revenue. So the decline was within our expectations. To your second question, there are inventory adjustments in the major home centers. Whether it would be a temporary adjustment or would that be having a more lingering impact, we don't know yet. But a lot of the home centers are buying their private brands from China. So the supply chain tends to be longer. So for the private brand products, they need to conduct significant inventory adjustment. On other hand, we are manufacturing in Mexico. So we had seen the supply chain risk, so we had increased our inventory level. But we don't believe that there would be a significant increase in the risk for the inventory adjustment being conducted at the major home centers. We have been narrowing down the SKUs under COVID situation, so the impact will be limited. To your last question, as I have explained 3 months ago, we had considered that there would be a JPY 92 in the inflation risk, and we wanted to recover JPY 48 billion, and we have been able to go almost as planned, so we don't think that there is something that we need to significantly revise. What we would be able to expect from the third quarter is we would be increasing the price in October, and I think that we would be able to improve in that area. It would be better if we are able to recover all of the inflation risk, and we would like to work towards that.
The next question is from Alma Capital, Mr. Tom Grew. We've received the question and so please allow us to introduce his question. So you've mentioned you are slightly concerned about revenues and demand in certain areas throughout this year. Have you seen anything in the first quarter to confirm this view, or is it a prediction?
There were no indications or signs. And simply put, against this demand, we were unable to supply our product. And it's not the case that the growth itself was that large, but the revenue itself had not really changed from last year, so there are no signs in that regard. But given the interest rate increasing and energy crisis, the Russia situation, when we take all those into consideration and the demand declining for the market overall, I think to think that is rational for market overall. But when we consider this from ourselves, and we are implementing [indiscernible] these issues, we should be able to respond them quite well overall.
We have another question from [ Innova-san ].
The inflation impact of was JPY 142 billion from inflation last year and this year. What is the percentage of the products that you're selling which would not be coming down even after the situation changes?
So the cost increase by little less than 50% were coming from the countermeasures costs that we have taken due to supply disruption. For example, when the marine freight had been stopped, we had to use the air freight. And because there was a lockdown in Vietnam factories, we had to manufacture in the domestic factories and we had to manufacture on our own. In some of the products we needed to look for products, and there were cases where we needed to procure at higher price. In order to respond to that, we are making our supply chain redundant. We don't know whether we would be able to pass on the cost of the supply chain redundancy as we move forward. So I was thinking about your question, and as for the commodity, when the market price comes -- market comes down, it will be coming down. And as for the fuel, it will be coming down when the market price comes down. The items that we are buying on spot, there are areas where the price would not be coming down. And so this question is very difficult to answer, but the things that -- the areas are where we need the renegotiation after the market goes down, we will continue to negotiate where necessary.
Next question is from Mitsui Sumitomo Trust Asset, [ Takegawa-san ] who asked the question. And please allow me to introduce that question. Why at the start of the fiscal year did you not change the reporting segments, but instead decided to change your reporting segment 3 months into the year?
This is Matsumoto. Please allow me to respond. Now from our perspective, we did actually did the change from the start of the fiscal year and have started to reflect that at the first quarter results. And at the time of the earnings announcement, maybe that is the gist of your question, but for us, we have changed that segment at the time of the start of the new fiscal year. So we are making disclosure based on the new segment for the fiscal year. So we reported the number for last fiscal year in accordance with the new segment as well.
The next question is from Alma Capital, Mr. Tom Grew. Can you please give an update on the expansion of NODEA orders and how these are progressing?
We are not disclosing the numbers, but NODEA is a high end product which is being sold to the order-made housing. The order intake is increasing but the timing of the sales -- this fiscal year we don't have so much and from next fiscal year on there would be an increase. One of the biggest concerns is that the lead time for these kind of order-made housing is becoming longer. We have labor shortages in the higher-end housing construction. However, this business has higher profitability, and we have high expectations for this business it's growing. We have responded to all of the questions that we have received thus far. We have a few more minutes remaining. So if you have further questions, we should be able to accommodate them as well. Maybe the way I explained was not appropriate, so I'm going to say this in order to prevent a misunderstanding. Now, JPY 140 billion increase because, of course, we've implemented price increases, and about JPY 25 billion we've done various types of price revisions and JPY 48 billion this year, so increased by JPY 140 billion, and the response is worth JPY 73 billion. So that is what it may look like, but of JPY 140 billion, will that all translate to the profit line? No. And do we need to decrease? Over long term, maybe, because there was a rapid increase, so we had to implement quite a rapid response. And against that there were many things. And what we can say in that regard is that one thing for us within this industry, in particular for Japan, what we are selling here, we have not been able to secure enough profit for the product that we were selling. So how to increase -- and we did actually see the increases and decreases, but in terms of price increase what we implemented for price increase was quite justifiable, so there was no need for us to reduce it significantly because overall cost had come down. And also, the special response that we had implemented more than half or about half were the costs associated with special response. And it wasn't as easy to obtain understanding without the raw materials or fuel. So in that regard, once that disappear, to what extent would that be reflected into our profit line? Well, we need to give this a go, because this was the first time we've implemented something like this. But overall, for us to secure a proper level of profit and we have been increasing price ahead of the industry, and I think the track record should start to contribute more significantly in the future, starting next fiscal year.
We now have a new question. From Mitsubishi UFJ Morgan Stanley Securities. Question from Yagi-san.
If the impact of the demand declining in the western countries would materialize, when do you think that would happen?
That is a very difficult question to answer. In Europe, the order book is quite full, and we have the booking up to the end of the year. I don't believe that these order booking will disappear all of a sudden. However, for the U.S. the demand may be softening earlier than that. It is not about the difference between the 2 regions. It is more about the difference in the brand equity of growing brand. The sanitaryware, which has a lower margin and it has the biggest contribution. So the demand decline tends to appear faster. In the latter half of the year, this may materialize. But looking at the dialogue with the customers that we're having now, I think that we can overcome this. That's my hope. And that's why we are confident about recovering our profitability. Thank you very much. I think that is all the questions. So with that, we'd like to conclude the Q&A session. And with this, we'd like to conclude the first quarter results for the fiscal year ending March 31st, 2023, for LIXIL Corporation. Thank you very much for your attendance, and we look forward to your continued support. Thank you. [Statements in English on this transcript were spoken by an interpreter present on the live call.]