Lixil Corp
TSE:5938
Earnings Call Analysis
Q1-2024 Analysis
Lixil Corp
The company has faced headwinds in the economic environment, impacting profitability for this quarter. Despite declining demand and intense competition leading to price optimization in the past, the company is starting to see some recovery in market share. While the U.S. and China markets experience difficulties, the company is forecasting a substantial portion of the year's earnings, around 80%, to be realized in the second half of the year.
The company has incurred one-time costs for structural reform and future investments totaling approximately JPY 3.5 billion. If these costs were excluded, the profit for the quarter would stand at around JPY 8 billion, indicating a strong underlying performance that is set to double in the second quarter compared to the first quarter, reflecting an expected level of recovery.
While the Japanese market shows signs of recovery earlier than anticipated, Europe and the United States face slower growth. However, the company has adopted strategies such as switching to more profitable products in Americas and looks forward to regulatory tailwinds in China. Moreover, measures are being taken to improve profitability in the building business segment after recent losses due to increased costs.
The company is cautiously optimistic about the economic recovery, especially towards the end of the fiscal year. Expectations are set for a considerable majority of the core earnings, about 80%, to be generated in the third and fourth quarters, suggesting a stronger conclusion to the year compared to its commencement.
Despite current challenges in the housing market and renovation sector, the company anticipates a return to normalcy. Market share is projected to recover from the third quarter, while delivery cycles for the window renovation business are likely to normalize by around October or November, paving the way for future growth without extraordinary measures.
To mitigate the impact of cost increases, the company has undertaken strategic cost management, including addressing high maritime transportation costs that have previously burdened the international business. Such actions are expected to contribute to a reduction in costs for international operations in the near future.
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As it is a scheduled time, we'd like to start the earnings call for the First Quarter of the Fiscal Year ending March 2024 for LIXIL Corporation. This is our earnings call is streamed live on the Internet. So I'd like to explain the presenters for today. First, Mr. Kinya Seto, Director, Representative Executive Officer, President and CEO.
Hello, everyone.
We have Mr. Sachio Matsumoto, Director, Representative Executive Officer, Executive Vice President and CFO. And Ms. Kayo Hirano, Senior Vice President, Leader of the Investor Relations Office, a leader of Corporate Accounting and Treasury and Tax of the Finance and Treasury Department. My name is Kawai from the IR unit and also West the MC of this session. The materials used for this presentation is uploaded on a web page in the IR section. And please allow me to explain the procedure for today to begin with. Mr. Seto, the CEO, will first give explain the first quarter results for fiscal year ending March 2024. And after that, we will have a Q&A session. [Operator Instructions] So Mr. Seto will first give the summary of results for the first quarter for the fiscal year ending March 2024. So over to you, Mr. Seto.
Hello, everyone. And the first quarter for the fiscal year ending March 2024. And please allow me to give the overview. As for the result of the first quarter, it wasn't a great result. But from our perspective, we essentially landed at numbers that were very close to what we had anticipated 3 months ago. The insulation for renovation in Japan, this materialized earlier than we expected, but what was worse than what we had anticipated was the weak performance of the European market, particularly in regards to our international operation. In regards to the situation concerning the European market, I will give some more commentary in the next section. But in regards to the European market, we feel that the state is probably the worst in 20 years. So we had European crisis in the past in the collapse of Lehman Brothers, we had the COVID situation. But even compared to those, the situation, the industry considers the year to have been the worst in the 20 years even compared to those. And our competitors, we have those companies that went under many of the dealers and distributors are facing very difficult environment. And our competitors are also in very difficult the environment right now based on what we have learned. But please allow me to give the summary. The first point is that the housing equipment and the building material demand of the world, including Japan, remained generally sluggish in the third quarter. In Japan, the new housing starts have started to drop. And the own-occupied houses, which is our core market is weak. And this is becoming a somewhat weaker. And this type of situation for us means increase in fixed costs, which is an issue from the profitability perspective. But in regards to variable costs, the raw materials, the price in particular has stabilized or even are coming down. And so that is becoming positive year-on-year. And so because of these 2 track confronting factors, the gross profit has picked up slightly. And so the decline in variable cost was positive. But overall, the economic condition has led to the difficulties in terms of our profitability for this quarter. But if you look at the Japanese market on a stand-alone basis, when the costs continued to increase in the past, we were ahead of others and increasing price optimization. And so despite the decline in demand, the landscape remained quite tough. But the situation that we were the only company with a higher price. This has essentially has ended in this quarter. And so for the next quarter, from July onwards, we are starting to see the market share recovering slightly. But the overall demand is low. And so we are not able to see that clearly numbers as yet. And as I explained at the outset, the Japanese demand for insulation for renovation. This started to pick up earlier than we had expected and is already starting to make contribution positively to profit. And in comparison to the slowdown in demand and in Europe, this factor in Japan was able to offset those negative impact in Europe. But when we look at the international market, I talked about Europe, but the U.S. is not all that good. Competitors are not all the good either. And also in China, as you are well aware, the situation is not that good. So both for China and U.S. We are starting to see some signs of recovery here and there. But overall, it is still weak. So we are taking this as an opportunity to enable us to generate good numbers once the demand recovers. And so we are intending to use this opportunity, if you like, to implement structural reform internationally. We've done the structural reform in Japan a number of years ago, but we intend to do the structural reperform for international market at a pace which was faster than what we did for Japan. And so based on this type of environment for our full year numbers, we are expecting recovery to come in the second half of the year. In fact, about 80% of the full year core earnings is expected to be generated in the second half of the year, as we explained 3 months ago. And so the JPY 3.7 billion of the core earnings in the first quarter. In the second quarter, we are expecting about JPY 4.5 billion of core earnings. But when we say JPY 4.5 billion, we are implementing one-time costs, such as for structural reform and also for future investment, and we're expecting to stand about JPY 3.5 billion for this purpose. And so if we exclude this factor, the profit would have been about JPY 8 billion. And so as for profitability, the second quarter is almost twice the level that we saw in the first quarter in terms of the expected level of recovery. And what I want to communicate to you today as a news is the trend in regards to the market in Europe. For us, Europe is an area with high profitability in addition to the revenue level. We had our expectations. And so in comparison to last year, this year was probably even worse, particularly for Germany, France and Holland, we had difficult type of negative factors. For us, Germany is particularly important. But for other markets in Europe, and if you consider the market for Europe overall, there weren't many positives that I can speak of. So why are we saying the market have been the worst in 20 years? Well, the situation is different from the past, and it is different from other regions. And it is also different from other type of products. And why is the case? Well, first of all, the amount of the housing loan outstanding vis-a-vis the GDP level, the level is very high in Europe say, for example, more than 100% in the case of Holland, 65% for France, 55% in Germany. In Japan, people tend to think that there is a high level of the mortgage balance. But in the case of Japan, it's only about 40% of the GDP. And when the housing price starts to come down, then the mortgage balance tends to look even heavier. But if we look at the ECB policy rate, this has increased quite rapidly and sharply risen to around 4% from around 0% in a very short time. And despite the fact that the housing prices have come down, energy and the food and other the commodity prices continue to increase. So what's happening in that regard? And the amount of the money one can spend the disposable income rather than by and in the future, it's better to spend now because of the inflation. But in regards to the housing price, there is a possibility of the price coming down in the future vis-a-vis today. And so they withholding the payment regarding housing. So given the limited disposable income, people are spending for those where the price is expected to increase, so [ image ] the issue when there were economic presses in Europe, everything went differentiation, not just housing, but more the others come down and it wasn't just for the housing area. And when we look overseas and say for the U.S., the price for housing continued to increase. And so there is still that motivation to invest towards houses. So in that regard and if we look at the situation vis-a-vis other countries, we've seen that type of DT relation in Europe. But added to that, in Germany, as I've been explaining before, because of the increase in energy cost, there has been great demand for heat pumps. And there is quite an evolved subsidy being provided for heat pumps and so for consumers and also the installers who are doing the piping work in the [ park up ], they are now doing the heat pump related work these days. And so that has also led to a decline in demand significantly. And for other countries as well like Sweden, when the housing loan is predominantly made on variable rate, then the interest rate increases will also link to increasing the interest quite significantly. In the case of Germany, more people tend to go for fixed, but this is likely to increase going forward as well. U.K. or Italy, these countries are also seeing a situation deferral rate as well. And maybe a matter for just 1 or 2 months for a very short time, but Middle East, which had performed extremely well so far. We are seeing some worsening, maybe destocking. And so that has also led to an environment for Europe becoming quite negative, which have impacted us negatively. Other than that, LWT business in Japan, we saw bathroom units recover first price-wise. The competitors' price increase was clearly slower in regards to kitchen and also for toilet, we saw the business environment remaining tough. But for toilets, the competitors have started to increase our price as well, which is leading to signs of recovery. Kitching is likely to recover post-October. So toilet is likely to be a little bit earlier than kitchen in that regard, but the full recovery is unlikely to occur until October for both toilet and kitchen. But the competitive environment is starting to normalize. So in terms of market share, we should expect a recovery from third quarter onwards. And if you compare the new versus renovation, the renovation is still somewhat higher, and the new has come down to an extent, but there is a certain level of bottom. If we look at the international operation for Water Technology LWT, as I said before, Europe, the situation is quite slow. But this applies to our competitors as well. In the case of Americas, true, the customer demand remains sluggish and Home Depots and so forth. I understand that they are facing quite a tough situation as well. But our policy was to switch product to a more profitable product, and that type of conversion is making progress quite steadily. And in that area, we have a sense of market share increasing vis-a-vis competitors. And we're not too worried there. And we are also seeing the inventory level come down steadily as well. Asia Pacific had continued to perform well. But in the case of Vietnam, entering into this fiscal year, they've entered into economic adjustment. In the Asia Pacific area, the Vietnam, India, Thailand and Indonesia, the 4 major markets in this region. And Vietnam was, in fact, the driver of the region. So slowdown here was somewhat painful. In China, the real estate market remains to be quite weak. But as been reported recently, the Chinese government is starting to think that they need to support the real estate market somewhat. And the newspaper is also carrying articles that mentions the information that the real estates are for living not for investment, but starting not to really talk about that. LHT, we have had the subsidy for the advanced window becoming quite impactful. And so not just windows, but overall, the renovation is performing quite well. And we increased price last year. And so in the first quarter, market share may not have been all that good inclusive of the new houses, but we are starting to see the market share recovery into the second quarter, but we are seeing decline in the new houses. But despite the market share recovering, the new houses are slow. So there's been somewhat sluggish more than we had expected. As for the building business, as we have explained many times, we decide on the price in a certain year, and that contract will continue for several years. And for those we have entered into contract in the past due to the increase in costs recently has led to us generating losses in last year and the year before. But these 2, we have been working on price optimization and the cost has stabilized. And from this fiscal year, we are starting to see recovery in terms of profitability quite and notably from this fiscal year. So if I try to sum up, the timing of economic recovery is difficult to assume. Europe is likely to be the last, but inclusive of recovery in Europe, we are start expecting normalization by the end of December. For other region from the third quarter in Europe, maybe the fourth quarter, would be the timing where we can start to see normalization. So based on this majority of the core earnings, we are forecasting for this fiscal year, about 80% is likely to be generated in the third to the fourth quarter. So based on this, we should expect to see a good year next year. The trend in the Europe business condition. This has been worse than we had anticipated, but the sales of the high-insulation product for renovation in Japan has been stronger, we're able to offset that to an extent. And we are starting to see a recovery market share based on the quantity due to normalization continued environment in Japan. But because of the decline in new housing stuff, we have not been able to enjoy benefit from mass production. This is an inevitable in one sense, but what we need to do is to work on capturing greater demand for high insulation and environmentally beneficial product. As for the cost of raw material, it has stabilized or started to see some decline, but some smaller vendors, the impact has been slower or the impact for them has been somewhat lower because of the national instruction or requests from the society, we need to make some rational decision in accepting some price increases in regards to those. And so that could result in some increase in cost. And an important point as the management for me going forward is that it's these tough times, that we should implement the structural reform to enable improvement in productivity. And in that regard, and we've done this in Japan several years ago, but for international markets, we intend to do this with greater speed. And I think that is quite important. And so this is one of the important management challenges this year. So if we were able to do this, then we should be able to make next year into a pretty good year. And so I have made the decision to work on this type of cost reform this fiscal year. Highlights of our performance for revenue. Year-on-year, JPY 1.1 billion decline, not a significant decline but international markets, if we exclude the exchange impact, minus 13%, it was quite a poor performance. And what was the reason here, and I've been saying this already, including Europe and the U.S., the market itself had slowed down. And based on the numbers announced by our competitors overseas, I don't think we will stand out in terms of the weakness. But for us, if we compare year-on-year, we saw a decline here. And regarding core earnings, LHT has made a steady recovery, but LWT, we saw weakness, particularly for international market and so these numbers. And for the profit for the quarter, we have the absence of last year's gain on the transport land and other assets, and we are the increase in the financial cost. So it wasn't a great result, but we will make up for next year.
For the consolidated business results, as I have mentioned before, regarding the gross profit, the volume has a decline. But cost-wise, there was a reduction, so that saved us. And numerically, it's about the same numbers. However, the content, the essence of it has changed or improved largely. And SG&A, in the international market, there is a great inflation. And within that situation, the SG&A was kept at this level. And repeating myself that this situation in order to have a more sound core earnings, we have to conduct a large-scale restructuring is what I'm thinking now. This time, I'll be repeating, but LWT was struggling, especially in Europe and in Americas, and that is leading to this quarter's result. Due to the foreign exchange impact, the total asset is increasing and the interest-bearing debt has increased and the equity ratio was at 33.8%. From here, including the inventory side as well, we are going to put full efforts into bringing this back to the ideal numbers. It's not when we think that the economic situation suddenly worsened. So in line with the economic recovery, bringing back to the ideal level is something that naturally will happen. As for the cash flow, unfortunately, because of the government's request, we had the declaration for building partnership. And for our vendors, the trade payables are being paid in a shorter time period is what we made a commitment to. And because of that, the profit before tax was lower. So year-on-year basis, the cash flow has shown a decline, but we will put our efforts to recover this point as well. And with this, I would like to take plenty of time for Q&A. Therefore, the remaining content of the materials, I would like you to read them at your leisure, and we would like to go to Q&A. Thank you.
From now, we would like to go into the Q&A session. [Operator Instructions] So I would like to move on to the first question. Goldman Sachs Securities, Mr. Okada, we have received 2 questions. The first question. Regarding the subsidy at the insulation renovation, there's a high possibility that is going to end this fiscal year. And within this fiscal year, we believe that there may be a reaction to that. So what do you think the impact of that will be?
Regarding insulation renovation currently compared to the prior year, the window renovation product is selling in the threefold of speed. So the demand is heating up. That is a fact on a shipment basis right now. From the shipment base that is announced from the Ministry of Land Infrastructure and Transport, it is 40%. So progress within the subsidy. So if that is so, the shipment of the Saudi-based product will probably end around November. However, regarding this point, the Kishida administration has their policy and even looking at the government statements, they will have to do such a thing for 3 years, not limited to window, but meaning insulation work or the insulation measures in terms of economics of the houses is something that needs to be done. So for subsidy, there is a possibility or higher possibility that it is going to continue in this area. And once one subsidy concludes, what will be the time period for the next subsidy to start? That, we don't know yet. However, what's clear is that it's not because the subsidy exists. But rather right now, the energy cost has hiked to this level. And also, this extreme heat is continuing recently. And the window needs to be replaced anyway. And towards that, we are seeing a different trend than the conventional trend. Therefore, moving forward, the interest towards the area is going to continue. And also as for the Japanese government, by 2030, they have a target and a commitment to reduce the CO2 emission. Therefore, what is going to be the means for them to achieve that is the positive impact of insulation. Therefore, this is probably going to continue for our long term in some sort of form. The second question from Mr. Okada, United States and Europe both, you're expecting a positive growth this fiscal year. But currently, it's a negative. During this fiscal year, it's the market going to recover? And what is the ground that you are expecting a recovery? For the United States, there are several factors. For us, depending on the product, there are a fluctuation, but the products that were newly launched, it is showing a positive growth. So we are seeing multiple positive signs. Overall, United States, the population is increasing. And as for the housing market, although the interest rate continues to increase, the housing market is also continuing to increase. So it's quite of a solid situation is how we look at it. And as for the European market, for this fiscal year, there are people who are making expectation. Not sure if it's going to turn positive. However, looking at the current situation, as I've mentioned before, regarding housing in Germany the newly built scheduled for this year is $200,000, but the demand is $400,000. So this $200,000 demand are forecast the interest rate increase or material cost increase. So that is why the actual forecast for the new building starts for houses is lower. And of course, there is a gap. And the German government wants to fill in the gap, and there are a lot of resources that are taken up for the heat pump replacement. So at some point, the heated-up demand of heat pumps, once that settles, we believe that the market is going to recover to the normal level for housing. The ground I have is that compared to Europe, looking at the current business situation is difficult in Europe. But looking at the past, we never experienced this depth of the decline. But because of that, we believe that, that is going to continue into a recovery.
Next question is from Nakagawa from Mizuho Securities. What are the measures you're thinking of in regards to the structural reform for the international business? Could you be somewhat specific to the extent possible? Well, unfortunately, the extent to which I can talk about is very limited because this is quite a sensitive matter. And so I can only ask you to trust what we have done in the past and trust us for being able to generate outcome in the short-term but it's not the case that we have extraordinary measures that we're going to be taking, but normal thing that you were doing the type of situation will be done in this instance.
Next from Nomura Securities from Fukushima-san. We have received 2 questions. The first is that you were saying that you will conduct the structural reform in the international markets in a speedy manner, but specifically speaking, what are you thinking? What measures are you thinking? I will be repeating myself, but regarding this question, I would like to refrain from answering. The next question, in the United States, American standards, goodwill impairment risk. What do you think about that? How are you thinking about that?
Well, at this point, regarding American standard, it is becoming better. So up to now, we do not have to have an impairment of the goodwill. So basically, we're not thinking of recording such an impairment. So [ Masimo Dusan ], I would like to add the comments. On the securities report, we have stated about this in detail. And regarding this point, in the last end of fiscal year, there was no risk for impairment. And regarding this, from the auditing firm, we have received the unqualified opinion. And for the first quarter situation, situation has not changed largely. The inventory level is being reduced, which means that for this risk, it is a positive factor is how we look at it.
Next question is from Kawashima from SMBC Nikko Securities. We have 2 questions. The first question is that in regards to the impact of the purchase market, you had expected JPY 27.1 billion for the full year, but was JPY 5.6 billion for the first quarter. I think the plan had expected the increase in price of the components to be more significant in the first half of the year. So the negative impact has been suppressed more than the plan?
Yes. For aluminum, certainly, the price has been lower than we had expected. But at the same time, what we had expected to was something that I mentioned before is for the suppliers. And for those small suppliers, there is a delay in terms of asking for price increase to be implemented and for the smaller entities, we had a plan for price increase to be accepted. And the application for price increase has been slower than we had anticipated or they are increasing price, say, for example, for the aluminum that I mentioned before, may not have been all that large. So there's been a delay, we do expect some impact going forward as well. And this is particularly a kind of situation where we are likely to see for the Japanese operation of LWT. The second question. The window renovation business, I understand have contributed higher than expected in the first quarter. But the entire budget has not changed. In other words, the contribution for the full year remains unchanged. And so the tough environment in Europe was made up by the window renovation business in the first quarter. But for the full year, how do you intend to achieve recovery?
Not just the renovation for the window, but the renovation for the higher insulation overall is quite significant. And so not just window but renovation, but the heat installation renovation overall has been quite strong. And we have a low carbon product which is called PremiAL and that time has attracted a higher interest. And so environment-related product has been performing better than we had anticipated, which is likely to lead to overall recovery.
Next from Jefferies Securities, Fukuhara-san has 2 questions. First question is LWT International business, the first quarter was showing a loss. For the second quarter, is this trend going to continue? And for the full-year profit plan for the international market, should we be paying attention to downside risk? On the other hand, LHT had a mix, product mix improvement and generated JPY 8.4 billion and already achieved 1/4 of the full-year plan. The LHT profit improvement trend is not going to lead to upside for the full-year plan. I don't know if it's a fabric to answer the detail at this level. So I'd like to answer in a general perspective.
Overall, LWT issue is the economic situation. And this is something that has the difficulties for us to have full visibility. However, on the other hand, the structural reform that I have mentioned before, we will be working on this and moving this forward. And the result of the structural reform will start to show from the mid of the fourth quarter or I can say, it starts from the fourth quarter. And so in that sense, for us, and there is always the annual profit plan, we would like to achieve that. On the other hand, as for LHT, the profit improvement trend is very clear, and that is because the insulation business overall is recovering and also the beneficial product for the environment is selling.
And the second question from Fukuhara-san. Regarding the window renovation business, temporary, there were talks of the delivery delay, but the improvement of the delivery delay and what are the changes at the actual site?
Currently, it is still delayed. And for us, for the business, we were prepared to have a 3x of the production, but when we started this, it was 8x the demand. But the subsidy may stop very shortly. So there were some places that stopped selling it. So there was a lot of confusion. But the current situation is that around this November or so, all the subsidies will dry up or be used and probably around October, it will come back to the normal delivery cycle.
Next, we have 2 questions from Teraoka-san from the Daiwa Securities. But one question was related to structural reform. So we only take up one of the questions. Until last fiscal year, the maritime transportation cost was a significant burden. But how much of cost reduction for this fiscal year in this regard?
Well, we don't actually disclose those details. But for this fiscal year, the cost has come down for sure. and where there were large costs in a path that translated to inventory. And so that will be one of the factors for reducing cost for international business going forward, at least these factories.
Next question is Trust Asset Management, Takigawa-san has given us 2 questions. The European market being a sluggish, I do understand. However, it's not you're handling a large-scale products. But I think there will be a replacement demand of the faucet. And even that is not increasing. Is there other factors and the market situation? Do you mean that any other reason other than just our factors? Regarding the European market, all of the players are struggling. The competitors don't block -- there is a company as such that went bankrupt. And I myself 2 weeks ago, I visited Europe, and I met with the wholesalers, and they were saying that it is the worst situation in the last 20 years. Therefore, the reality is that the market situation is the factor. And it's not that we're handling large-scale products is what you have mentioned. However, especially in Germany, the heat pump subsidy. And the factories that are handling the faucet products, they were handling the heat pumps, and that is the one fact. On the other hand, the faucet product, it's not just a replacement demand. But overall, the bathroom renovation will happen. So there is still the demand for a large investment and also another demand is generated from projects such as hotels or non-residential demand. And in this area, the demand has stopped. And also lastly, for the fact itself, as you said, until now, it has not experienced a declined that much. In other words, grow is a business. Up till now, there was not many times that it's shown a large decline. So given that, we did feel that there's a special factor or reason, and we started to feel that several months ago. So in that sense, it's something that occurred for the first time in the last 20 years, and that is not an exaggeration.
However, on the other hand, for the household facilities or for the construction materials, it's not that bad of a situation. And this is a different topic. But the other day, so-called the construction material in the window with the European company. I had a discussion with the CEO of a European company. And what they were saying is that as his experience of a CEO, not limited to do that, from including experience of working when he was young. He was saying that the worst situation he has experienced. Therefore, the European construction materials or the housing facilities industries for the several last quarters was experiencing that situation.
And this is the second question from Takigawa-san. Within a situation that you cannot expect profit improvement regarding the dividend to that, maybe you don't have to maintain the dividend, but to convert into the payout ratio basis. It's not that we are trying something that's difficult.
So next question is from Mochizuki from CLSA Securities. Two questions and to CFO, Mr. Matsumoto. The result for the first quarter was in line with the company plan and the deterioration of performance in Europe can it be made up for by other regions as well as based on reduction of cost. As been asked, allow me to provide a response. As to whether the result was in line with our company plan, well, in the very first page, Mr. Seto explained that we had started the year expecting 80% of the earnings to be generated in the second half of the year, 20% in the first half of the year. So we were more or less in line with those numbers. And can we actually make up for the deterioration of performance in Europe by the performance of other regions or cost reduction? Well, first thing that we need to work on is achieve improvement in Europe. But on that basis, as we've been explaining, the LHT business in Japan has been performing quite well. So inclusive of that, and also for the company overall, we will certainly do our utmost to make efforts. And the second question. In regards to the first quarter, the American standard saw the business loss based on local currency. And we are seeing decline in the sales level. So we are concerned about the trend for profitability. Is there a risk for goodwill impairment? And when do you expect the ASP to start to generate profit? In regards to the goodwill impairment, we have made quite a detailed disclosure in our securities report. So please refer to that for the details. But at this point in time, we don't feel that there is a risk of impairment, so we have not recognized impairment. And as I've been saying, we are seeing the inventory will come down, and that has contributed positively to cash flow. And as Mr. Seto explained, in regards to the product, we are going to make them a more profitable product. And also for the channels, we are converting our business strategy to focus on those with a higher profitability. And so we just need to do preserve for a little bit more longer.
Next is from Morgan Stanley MUFG Securities, Watanabe-san. We have received 2 questions. The first question is that the demand weakness of the customers in the United States. Is that correct to understand that the background is the weak used home markets due to the hike of housing market? Is there any other points that we should consider? In the United States, same as Europe? The demand for our products the renovation demand is larger than the new house builds. But even the new house builds, the interest rate increasing is becoming a major factor. In fact, Home Depot rose, those type of retail sales numbers are currently declining as well. So in that sense, overall, the United States economic situation itself is in a way that towards the inflation, people salaries have not caught up. And also the demand towards the housing-related products is declining. However, on the other hand, when we think about the inquiries that we are receiving, as I have mentioned before, we are starting to see good signs. And we feel that the U.S. market is going to recover quicker than the European market. The second question. This is regarding the situation for product, Japan domestic. Backroom unit is a positive kitchen and toilets are negative. Is there any differences in the sales activities recently other than the timing difference of increasing the price? As for the toilets last year, our competitor TOTO, there were issues they face, such as the issues in China and et cetera, and they were not able to ship their products. So that is why our products sold. And so there is a difference in that sense. So it's that TOTO took back about what they lost last year. And on the other hand, regarding the kitchen, for sure, within the difference of the price optimization, the reaction of the competitor was in order to secure volume, they lowered the price, and that is why we probably were not able to gain the business. But on the other hand, for the bathroom units, our activities that were started early stage was showing a positive effect, and we were able to launch attractive products as well.
Next question is from Yagi from Mitsubishi of J Morgan Stanley Securities. Is there a difference in terms of demand situation for product in each of the regions of Europe? Well, where it started to deteriorate first was Germany and France. And in fact, for France, we have started to see some recovery trend in the first quarter. And it's Germany and Holland and Sweden and Nordic countries, except for Finland, which is strong, but the countries that I mentioned is particularly bad. For Finland, the housing loan was somewhat controlled by the national government. And so last year, Eastern Europe performed relatively well last year is [ slow in deterioration ] right now. In Southern Europe, there was slow in deterioration, but deterioration is starting to worsen. And so Southern Europe had been quite well, but it's now starting to actually become somewhat slow [indiscernible]. Middle East, they are going through destocking right now against a very strong -- the performance recently, but for Egypt because of the foreign currency issue, the LC cannot be issued, which has also had some impact as well.
Next, Citigroup Securities. We have received 2 questions from Miki-san. The first question is regarding the international business. This fiscal year, you have planned at the beginning of the year the increase in profit, JPY 5.2 billion. But after the first quarter, it was minus JPY 7.4 billion. That means that you have to recover JPY 12.6 billion from second quarter onwards. It seems that the business environment for the international business is not so good, but can you show a recovery from here? In China, the April to June period of sales and the local currency year-on-year basis, minus 7%. Last year, there was a lockdown. So the hurdle that you had to go over was low, but is the individual company factors weak. I cannot mention the specific company name, but towards our competitors, it's an international market competitors in China. There's about 5 companies that have a certain amount of market share. But other than one company of that, our market share is more than theirs. So in that sense, there's no individual company-related factors that we have the weakness against the competitors in China. And last year, due to the supply chain problem, not able to give out the products other than that, there's no factors. And from here, we recover, and I will be repeating myself, but moving forward, we may be impacted by the economic and market situation. However, towards the second half, we are seeing good signs other than the European market. So the remaining is what are we going to do about the European market? And also another thing is that we need to do what we can do first. And as I have mentioned before, this year, we are going to have a bold structural reform and the effect of that structural reform is going to start to show up next year. Well, some of them may show this year. And the ones that we can bring about early, we will. However, in terms of recovery of the situation, the structural reform will have a positive effect, but it will be more next year. The second question from Miki-san regarding the goodwill. The overseas business environment is worsening. And in Europe, it is the worst situation in the last 20 years. The European subsidiary companies, there's no risk of their goodwill to be impaired. This about is stated in detail in the securities report that was issued 3 weeks ago. And regarding European market, we still have plenty of headroom. So it is okay.
Next is 2 additional questions from Takeda from Mitsui Sumitomo Trust Asset Management. Is that possible for you to consider disclosing KPI and midterm management plan so that we are able to understand the situation from the outside? Yes, we will consider. The next question, is it possible for you to disclose the KPI like ROIC for each of the segments for different countries and also to consider making disclosure in such a way that we can understand from the outside regarding the past and also the future changes in that regard and also in regards to the strategy and [indiscernible] CA? Well, given the fact that we compete in many of the countries to provide this type of information at this level is not otherwise a decision given the fact that the competitors are not disclosing these numbers. And so in this regard, to a certain extent, and we'd like to make disclosure at a level that matches the disclosure level of the other companies. That is what I'm thinking at this point in time.
So I have to know we were able to answer all the questions that we received. We still have some time remaining, so we would like to continue to receive questions from you. [Operator Instructions] It seems that there are no further questions. So with this, we would like to conclude the Q&A session. With this, we would like to conclude the Q1 results for the fiscal year ending March 31, 2024 of LIXIL Corporation. We see our continuing support and understanding of LIXIL Corporation. Thank you very much for your participation. [Statements in English on this transcript were spoken by an interpreter present on the live call.]