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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 like to begin. Thank you very much for coming to LIXIL Group's analyst session despite your busy schedule. Let me introduce to you the participants from the company. From the right-hand side, the Director, Chairman of the Board, Yoichiro Ushioda.
This is Ushioda. Thank you very much for coming.
As of November 1, Hirokazu Yamanashi will assume the post of Director, Representative Executive Officer and COO. Director, Representative Executive Officer, President and CEO, Kinya Seto.
Good afternoon.
Representative Executive Officer, the Vice President, Sachio Matsumoto. Head of IR, Kayo Hirano.
My name is Uto from IR office. I have the privilege of serving as emcee for this meeting. Let me explain to you the proceedings for today. First, Seto will give you an overview of the financial results. And then Ushioda will explain about the change -- changes of representative executive officers, which was announced today. We will have Q&A at the end. And this meeting is recorded.
Inclusive of the Q&A session, the sound recording will be uploaded to our website. And we would like you to fill out the questionnaire, if you will, please. We are planning to finish at 10 to 5. Seto will give you an overview of financial results.
Good afternoon. I think it's my last time to be presenting here, so I will try to do my best. This is as I explained always. So I think I can skip this page. In the second quarter results or first half results. For revenue, I think it was good, in particular in Japan. There was a reduction of new housing constructions over large and natural disasters, and renovation demand declined that of a situational market. But new housing construction was minus 4.9% year-on-year, and LWT was close 0.1%; and LHT, minus 2.5%. So compared to the market, I think we fared better than the market.
And as for overseas, Asia was growing. And then finally, our advanced investments led to growth. We are still continuing with the investments on showrooms, so we have to accelerate investment to accelerate the growth in Asia.
In the United States, there was an increase, but there were unexpected things. Ferguson, Home Depot, large customers, there were inventory adjustments, which was unexpected.
And in Europe, we did well. However, in Europe -- in Europe only, there was increase of about 3%, but Middle East was poor. Middle East centered on Saudi Arabia, there is a slowdown of the economy, and there were political changes, so there are no new start-up projects.
And in Africa, in May last year, there was a fire and a strike. We are recovering from that impact. But unfortunately, our largest customer that held about 90% of our products, our joint venture from a partner had financial troubles, so they were not able to purchase large amounts, so there's no growth. So with direct sales and sale through other wholesalers, we are trying to make up for that reduction. So that part is lagging behind.
And because of a [ fire ] for bathroom products and ceramic products, we are having difficulties. But we have seen growth in June, so we can say that we are starting to see recovery in Africa.
And there is a new addition of Permasteelisa business as we turned from discontinued operations to continued operations, so there was reclassification. And core earnings had unfortunate results. Unfortunately, many of those were onetime factors for April to June, so it is a onetime factor. I think that in terms of management, it was insufficient. With a pricing system introduction, we spent more cost, reducing the profitability from April to June. And from July to September, we are seeing recoveries.
But new housing construction starts declined, and the product mix deteriorated. With poor product mix, it means that in LWT business toilet, the profitability is higher, and bathroom and kitchen profitability is lower. If -- bathroom and kitchen is doing well, but toilets were doing poor, which affected the profitability. And for sash business, exterior was very good, and sash was not that good. So as a mix, exterior didn't sell very much.
In essence, in the second half, the situation will reverse. In the second half, because of typhoons, we had to repair from the typhoons and fence and the exterior demand will -- fence and cupboard demand will increase, so exterior demand will increase. And including toilets, the facilities industry, we are seeing a better illustration.
So towards the second half, it's now the end of October, but October is far exceeding the plan. If the situation continues, I think that we'll have a better situation in the second half, and also product mix will be better.
And in terms of product mix, once a point made that there was a low proportion of renovation, new housing starts declined, but renovation also did not increase. In particular, August, September, because of typhoons. Almost all of the works were for repair purpose. So those are repairs at the company and product sales, so sales was doing poor.
In October, we thought it would be difficult at the beginning, but now, in the second half, we are seeing rapid growth. So from repair, there are more shifts to actual products. So this is a good part.
And we conducted many reforms, and it's now easier to raise the price. From October, we'll gradually increase the price, so we can expect results. The highest effect will be experienced in spring next year, but we started to see outcomes.
And as for overseas, Europe and Americas, the largest portion is centered on roads and materials. And prices getting higher, but there was delay in passing through the price. And Asia showroom investment and advanced investments took place. And in Americas, there was inventory adjustment, so it didn't lead to revenue. And Americas, there are trade issues. So for products before the China case happens, we had to import earlier, leading to cost, which we had difficulties. And the last part is Permasteelisa, which is negative.
This is the present forecast assumptions. As you can see, as new housing starts are same level as the previous year. In renovation, there's a shortage on manpower, which we thought would be relieved by the end of November, but we think the recovery will be faster. And rush in demand before the consumption tax hike, we cannot see what will be the impact. And product/pricing mix, same trend as the first half, which means that for LHT, exterior seems to be increasing at the moment. And facilities, toilet is increasing. As a mix, it is improving, but it's not yet a situation where we can see impact on numbers, but we are maintaining the first half trend.
And as for the future, there may be a lot of fluctuations. Based on the American trade policy, there could be changes. In particular, our competitors, Masco and others, has a high ratio of purchase from China. So the product mix that would be purchased from us could also change.
And in general, I don't have time to explain one by one. But as for the general trend, frankly speaking, from a domestic market, we are very conservative.
The time we made this chart and this week and next week demand forecast, I have an impression that we are quite conservative. Exterior, as I have mentioned, the product mix also and demand for products are roughly improving more than expected. So for the domestic market, we are conservative in our forecast. And for overseas, there are concerns about the economic situation, in particular, for the Americas, what will happen with higher interest rate. And in our case, this will affect our housing starts, so we have concerns about it.
And in Europe, as you know, the European banks are trying to adjust their assets, so the real estate market may soften in the European market. So we are concerned about it. And in our case, our concern in terms of profitability is that Permasteelisa, that shifted from a noncontinuous business to continuous business, and that will relate to the aluminum price and profitability might deteriorate. So we are conservative on domestic. And for overseas, we are a little bullish. So in general, I think that the adjustment is appropriate, so we didn't make particular changes.
And next is comparison with the forecast. So it's a similar situation for the comparison with the forecast.
Now for this, I am doing soul-searching, particularly with regards to the introduction of the pricing in April to September. The sales dropped more than we thought. Well, the natural disasters, it's something we cannot control. But as a result of all those factors, the performance retaliated, so I decided to return 20% of compensation, and other executives will also have a cut in their compensation. And dividend, we always have a long-term view regarding dividend, and we maintain the same policy this time.
So the medium-term plan, my policies and Ushioda-san's policy may be different, and I'm sure you will be asking questions about that. And LWT's overseas, business expansion and sash business improvement in overseas and increasing efficiency in Japan, those basic policies shall remain the same. Having said that, what we have been doing in bathroom-related business and what we plan to do going forward. The bathroom business as a whole right now, the bathroom business or bathroom industry, it's quite similar to the automotive industry back in 1980s. And here, you can see the different regions on the horizontal axis and the products on the vertical axis. And if you create a similar chart regarding automotive industry, no players covered all the products and all the regions. Toyota focused on Japan and U.S.A. And Mercedes covered various markets with only luxury cars. But Toyota has increased its presence.
And in our industry, Kohler focuses on the U.S., China and Asia. And Toto had no business in Europe. And Masco has a business in Europe and U.S.A., but it only handles [ faucets ]. And another player handles plumbing business, mainly in Europe and -- although the company has a little bit of other business, but it's not core business. But we have -- the core business deployed in many different markets, which I think is a strength. And our competitors, for example, Masco is engaged in a very lucrative business of [ faucet ] in Europe and U.S. But if Masco decides to venture into other markets, it may dilute the profitability. But we are mainly operating in Japan, where our margin is very compressed. And therefore, if we go out into the overseas market, that means an upside in profitability.
And profitability of toilet products is low in overseas and high in Japan, and if we exert more efforts, we can improve profitability in toilet. So if we exert more efforts into low-profitability business, it will lead to overall improvement. And in order to do that, I think we are in a somewhat advantageous position.
What we need to do against that backdrop is how to deploy our technologies in Japan to other markets, and synergy products will form the pillars. And as for the synergy products, they account for 30% of the total growth, and capitalizing on new technology, for example, sense -- or Sense Guard, which uses the new technology, is growing rapidly. So new synergy, new technology will sustain the growth of LWT.
Regarding sash business, Japan, we need to modernize the factories in Japan. But overseas, the Japanese design and innovation will be our differentiating factors. And the renovating products in China and India, the products are gaining popularity already. And what is important is to improve our productivity in the Japanese market, and we must be able to secure profit in Japan. And in order to do that, we have been expanding RPA, and we already have almost 500 RPAs, which is more than RPA vendors. And these programmers, or RPA people, will be working on automating some clerical or administrative works. That is all. Thank you very much.
Next, Mr. Ushioda will make a presentation.
Good afternoon. I'm Ushioda. For the first time after 13 years, I'm now attending an IR meeting. Why? There was a change of a CEO of a holding company. Let me briefly introduce that.
When there was a change in the management, the company, INAX Holdings, was going on with very conservative and passive perspective. But I wanted to expand more so aggressively, so American Standard Asia and Sunwave, Shin Nikkei, these companies were introduced into our organization. There was TOSTEM and INAX's president was responsible for the holding company. That was the structure for the first 5 years. But during beginning, the business became a big and we want to integrate the business, and we want to develop overseas. We had to increase overseas business, so I asked Mr. Fujimori, the management of the company for 5 years. He wanted to stretch the business, and his purpose was to expand internationally more than our capacity. Capital ratio declined, but Mr. Fujimori's framework is supporting the group profitability of the company. So this is finally effective. So the 5 years under Mr. Fujimori was a necessary 5 years.
And after that, Mr. Seto became responsible for 3 years. Because we rushed the expansion, we started to see damages caused by that, so Mr. Seto recovered the situation and tried to make the organization more lean. And he also tried to increase gradually the capital ratio and through synergistic effects to make products by introducing Japanese products and technologies overseas and also to directly approach consumers for innovations with this management policy. Until then, we're centered on quantitative expansion. But top line declined, but we had a more lean organization back.
During the 13 years, I was looking from the position of management and governance. And I thought that as a final period for my involvement with the management, I asked Mr. Seto that I wanted to come back to the management, and Mr. Seto agreed and I'm back here.
So what I'm going to do, I want to bring back more aggressive management. During the last 3 years, Mr. Seto didn't conduct major M&As or maybe there was no opportunity for M&As versus being patient, but there were no major M&As. And the major difference is that the pure holding company of LIXIL Group, there's LIXIL Group Corporation and LIXIL Corporation with the same management. So everything that happens globally and undertake those issues hands on.
What to do with the group portfolio, I didn't have so much energy to consider these issues. As the management of a pure holding company and the management of operating company should be separated, and that was different from Mr. Seto's view. So I'm coming back, so I want to return to the original situation, and I brought Mr. Yamanashi from McKinsey. And the operating company and the holding company, in their everyday situation at operating company, based on that, we want to think together about our future.
So my involvement as a management, this is a finishing phase of my life as a management of the firm. To be more specific, at the pure holding company, for instance, we have Chinese executives or Americans and Europeans or Indians to hire high-level non-Japanese in the pure holding company, and I want to think of different investment opportunities. And this industry, perhaps there may be areas that should not be included in the core business. We want to have such discussions. I want to spend the majority of my time for that purpose to think what is the former -- or portfolio of the company in the future.
And as for the domestic business, we are having difficulties. The market share is declining. That is another concern. To increase domestic profit, in case of building materials, the best way is to increase sales because costs will decline if sales increases to increase sales. And as an organization, with a decline in new housing starts, there is a decline. But with competitions with Toto and other companies, if we lose the competition, costs will get higher and profitability will not come up. So we have to get back the shares that we lost.
Of course, I will conduct rationalization of our factory, but also must rationalize sales and marketing. For sales and marketing, how can we reduce analog work? And that will lead to a large cost reduction, so I want to implement this as much as I can.
For more than 40 years I have experienced working in this industry, and I have an idea what happens based on what I do and where that will happen. So recovery of the market and by this I want to improve the domestic performance.
And also for overseas, with aggressive M&A or more than that, before that, I'm not satisfied with the current share price. How can we raise the corporate value? One of the measures to that is to have more stable domestic performance and further M&A overseas. And in doing so, VIVA Home was partially listed [ on the group ]. Even though we don't hold 100% of the business, in some cases, it is possible to do an IPO to raise the value of the whole group. I cannot accept the current share price to raise our market capitalization. To that purpose, I would like to use whatever I can at the pure holding company, so I want to spend much time as possible so that I can have more opportunities to talk with you.
Thank you very much.
Now we would like to open the floor for questions. We prepared a wireless microphone in order to make sure that you are heard, so please wait until the microphone is handed to you, and please mention your affiliation before asking a question. And please ask 1 question at a time. So if you have any questions, please raise your hand. So the person in the front row.
From Citigroup Securities. My name is Hashimoto. So I can ask you only 1 question. With regards to the changes of representative executive officers, I have a question for Mr. Ushioda. So Mr. Seto has been working very hard. And in your view, what can be highly evaluated? But against a backdrop of deteriorating corporate performance, I'm sure there were many one-off factors, but what, in your view, needs to be improved?
And thinking about the next year onwards, the new housing starts is to go down after the consumption tax hike. And your sash business is mainly for new houses. Then to restructure the -- profit, the structure in Japan will probably be very difficult. And the renovation tends to focus on the small-scale renovations, and there aren't many large renovations. Of course, that is partly attributable to the macroeconomy. But unless you start this business, large renovations will not take place in Japan. So inclusive of that, what do you think are the issues that the company needs to tackle this?
So what I evaluate most highly about Seto-san when I received 100 days report, he very accurately identified issues of the company back then, and he also proposed clear countermeasures in order to overcome those issues. Well, back then, because of losses made by Joyou, the company was in a chaotic situation. But thanks to Seto-san's leadership, people are able to sharpen up their minds, once again, for future. I'm very thankful. And what was your next question?
The issues that needs to be worked on going forward. And thinking about the future, how to rebuild the domestic business in your view, Mr. Ushioda? What is your policies? I would like to hear.
So the domestic business, going forward, we will be able to make a preemptive strike. Increasing market share in a contracting market, in some years, that will fully compensate. In some other years, it won't be just enough. And the cost reduction, there are many opportunities to reduce cost in sales, division and logistics. Of course, there will be a conflict. But sooner or later, we have to do it.
The next person, please.
I'm from Crédit Suisse. I have a question about the changes on representative executive officers' confirmation of what you have explained. This change, the point of the change is that there's a holding company and operating company, and the management between the 2 should be separated. And there was a difference in view about -- between Mr. Ushioda and Mr. Seto about it. Number two, Mr. Seto wanted to improve profitability, as you indicated in your medium-term plan. Now scale of improvement, profitability was a focus of Mr. Seto and Mr. Ushioda. I wanted to use more M&A to get more share and expand the business. So there was difference in policy. That is my understanding. Am I right?
For M&A, it doesn't mean that Mr. Seto didn't want to do M&A, but there was no opportunity. Maybe we share the same views about M&A. But once on profitability, I'm not increasing sales, sacrificing the profitability. But if sales increases, profitability does increase. And by recovering sales, I think costs can be reduced. Of course, the type of models could be reduced and have more rationale modes, for instance, but we have to increase share to make profit.
This may be a different way of saying it, but my way of thinking is that I want to make our business as simple as possible and concentrate on the core business. Against that, Mr. Ushioda's view is to expand the portfolio. That is a major difference between the 2 of us. About the change, I was hired by Mr. Ushioda, and he gave me an opportunity to do what I wanted to do. And he supported me quite a lot. But now, including Mr. Ushioda, the board said direction was clearly different from the direction that I was aiming for, so -- and Mr. Ushioda wanted to manage by himself. And frankly speaking, there are many things still to be done, but Mr. Ushioda is the person who hired me, and he's saying he want to do it by himself, so I think I should let him do.
But now going forward, the major gap between us, of course, at the beginning, we shared what was necessary. But currently what is the major difference, I think is that I tend to have a simple organization and concentrate on the core business and make more efficient, but Ushioda's view is to increase and expand the portfolio. And expanding our portfolio is also lease of a trend of separating the holding company, operating company. And I think that was the difference in orientation about the future of the company that was different between the 2 of us. And I think that is the reason of this change.
And on top of that, of course, the operating company basically should expand and reproduce. But at the moment, I think it's not possible to sell Permasteelisa. Capital ratio is low, and listing our subsidiaries could take place. But recently, concerning the corporate governance and improving efficiency, listing of the parent and the subsidiary is being reduced in many companies. And there are concerns of price competition, and I know it's not easy. So what do you think of that?
The Permasteelisa, I cannot disclose the details, but we are considering all possibilities.
So the person in the third row.
Fukushima from Nomura Securities. Mr. Ushioda talked about this equilibrium, the contraction back in the days of INAX and TOSTEM changing, shifting towards expansion once again. But then it's viewed from equity market. If I may use this expression, it seems a very chaotic and whenever something happens, sales go up or down. And you are too challenged, expanding the business, which I think is a positive thing. But what do you think about increasing the sales profit, taking expansion strategy, which will probably intensify the price competition and deteriorated profitability maybe broad? But after that, the share will be expanded, and therefore, by the end of the day, it will be good. Is that what you think?
So Seto-san's glorious history of achieving increased sales and increased profit for so many years, it's wonderful, but I think it's okay to have a few years when the company's sales and profit go down. The investment in China, for example, probably, we are already a latecomer. And India, I don't know. But in this world, Masco, Fortune Brands and LIXIL are the only players who can compete in games. So our profitability maybe -- may look inferior, but we would like to become comparable to them and have worthy game.
We must do that. Of course, the timing is important. But if we wait until the things become -- business becomes profitable, I don't think the market and society will wait until that time, so we have to be more proactive and implement the measures. Otherwise, regretting later on will be just too late. So this world of construction has reached that stage. In a shorter time frame, the sales and profit decreased in short time frame for the purpose of expanding business later on, that I think I can understand.
But for how long do you think you will be able to achieve that goal?
Well, I engage myself in governance for such a long time, and I do not grasp what is happening in the front line. But by the end of March, I would like to learn a lot about what is actually happening and respond to that question.
The next question, please?
Teraoka, Daiwa Securities. From tomorrow, there'll be the change to the new executive officers. From tomorrow, under the new CEO, Mr. Ushioda, and President Mr. Seto, what will be the division role between the 2 of you? And for the sash business, you have been expanding the sash business, but to reduce SKU and integrate the line and differentiate with design, will this strategy continue?
I have to be responsible for everything from tomorrow and -- but if there's anything I don't understand, I will ask that of Mr. Seto. But from tomorrow, the management will be myself and Mr. Yamanashi.
And your next question was about the manufacturing efficiency. To reduce the number of models, that is something we have been saying for 30 years. To reduce the variety of products, we know that it is important. And of course, I intend to do that. So rationalization of manufacturing is one of the important pillars, but also, we must rationalize the sales. And including sales, and of course, we'll do that with manufacturing and also to improve the efficiency of sales and marketing.
The next person? The person on the right-hand side.
SMBC Nikko, Kawashima is my name. So Ushioda-san is coming back to monopolize the Japanese market and capitalizing on the profit entered into your overseas markets. So probably the same history will be repeated, but how do you plan to generate the excessive profit in the Japanese market? And what are the strengths of this company in order to enable you to do that? Do you plan to overwhelm other players with the size of the company? Or is it sales capabilities? So last time, I think you said that is one of the tools, but the situation has changed significantly. So what do you think now?
So acquisition is one measure. We need to gain back share that has been taken away. So we have been doing this for 50 years. So things are not going well.
But as the market is shrinking by the end of the day, our financial strengths may make the difference, do you think?
Well, everyone knows that the market is shrinking, and supply chain -- oversupply areas should be reduced. That's what each player will be doing, but it's not going to be 0. Unless population becomes 0, we always have demand for our products, for clothing, food and the construction. But of course, whenever it is deemed necessary, we will reduce capacity.
The next question, please?
Okada from Goldman Sachs Securities. So you intended to make further M&As. And so far, also, you have done M&As and Joyou and the company in South Africa. To keep control seems to be difficult, and the standard for you to make judgments of M&A, if the business portfolio expense higher, intend to control.
In Joyou, we learned a very good lesson. If we didn't have made the mistake of Joyou, you might made bigger mistakes in the future. The figure of Joyou, we analyze from different directions. And we intend to make wiser acquisitions, not only 100% acquisition, but also there could be joint ventures. This is a Japanese company, so I don't think we can expand the Chinese market without hiring Chinese. So we want to look for the good human resources, good companies. We must seriously think about it.
The next question? So second row from the right-hand side and the third row from the front.
Omuro from Macquarie Capital. I have a question about M&A. Mr. Fujimori, the former President, when he became CEO, he conducted mergers and acquisitions very proactively. When he worked for GE, he gained knowledge and expertise of M&A. And Mr. Ushioda, you are becoming a CEO, and you will be more proactive about the M&A. But do you plan to employ different techniques from Mr. Fujimori? And earlier on, you said that the holdings company would like to hire excellent non-Japanese like Chinese and others. So what kind of approaches are you planning to take for M&A and joint venture establishment? In particular, what will be the differences between Fujimori days? In other words, how do you plan to present Ushioda-like approach? The Fujimori-san's M&As were very rugged and rough. Without looking at all factors, he did make the decision and something surprising was revealed afterwards. But Seto-san is much more prudent.
So Seto-san's due diligence should be fine. And rather than competing with other bidders and making a decision in a haste, I don't want to do that. But I would like to be prudent and conduct thorough due diligence, which I think is completely different from Fujimori-san's techniques.
I think there are 3 major points. One, any merger will always must keep an option of not making the acquisition. In all negotiations, we must always have that option. Those who are involved in the negotiation will continue with involvement with others. The major risk is that you still want to continue. And number two, the people who are trying to make the implementation and the team making judgment should be separated. So those who will make a decision will not consider the views or feelings of those who are actually working on implementation. There must be integration. We established a Chief Integration Officer. And from the stage of due diligence, if the officer will be participating in the process. And post-merger integration is another important factor. Using the post-merger integration, it is important to make use of the head office powers as much as possible.
From a global perspective, is there any regions that you think is not fully covered? Or is it possible to make M&As in certain area by region or by product segmentation? Is there anything like that?
The company's policy's not to answer to such acquisitions. In making acquisitions, if we say that we're interested in some place, the asset value may rise. So I'm very sorry, but I will refrain from answering the question as a policy of the company.
The next person, please. The person in the front row.
Fukuhara. So speaking about the short term, with regards to the performance in the second half and looking at the Page 20 of the slide, so the actual -- in the first half and the forecast written. So probably, the company is to focus on Japan and Europe or that is where I want to focus. So negative, but 2% or 3% in sales, and the profit will be about the same as the first half. So you said that you took a conservative view about the forecast, but the EBITDA sales increased more than the forecast. Do you think profit will also increase? So this is LWT. Page 20 shows the forecast for LWT.
When sales increases, the bathroom and kitchen, the margin tends to -- or the profit tends to decrease. So if the sales increased, profit margin is likely to go down. In the first half, the equipment didn't do well, but equipment is recovering. And therefore, even if sales may increase, the profit margin may not decrease. And the next is about Europe.
The sales have decreased slightly, and the profit margin in the second half, 15% to 16%, according to your plan? And in the last page, GROHE's actual is shown. So around 10% or 10.5% of the profit margin. And in the second half, it is to be raised to 15% or 16%, but do you have any actual measures to enable that?
There are 2 points. Europe includes Middle East and Africa. So overall sales and profitability, Europe is making some growth, as you may know. The -- it's becoming the balanced contraction. And particularly in Eastern Europe, we are seeing growth. But on the other hand, Western Europe is struggling to grow. On the other hand, EMEA and Middle East have been struggling all these years. And once things started to -- once things start to recover, something happens. And Europe is growing a little bit, and the Middle East is going down. Although overall, it looks very flattish. So overall, it will be flattish to slightly down. And Africa, it's been growing. Last year was so bad, but profit -- the biggest factor is the copper price increase, and it's been passed on to the users. So the first half and second half, overall, remains virtually the same, but we have included the growth potential in Africa. But in terms of the overall profit, it will be a negative. But being able to pass on increase in the raw material cost is a positive thing. So to what extent that we can do that? To what extent that we can pass on the increase in the material cost? That will be 1 key element.
So having listened to you, in the second half, the plan for the profit, am I right in understanding that there is a downside?
In Japan, upside. And overseas, downside. In total, the plan is rather conservative.
Understood. By the way, the copper price in the second half, do you have an assumption for that?
Page 37 shows the assumptions. The first half, aluminum -- both aluminum and copper prices were higher than the assumptions, and the second half. So the actual -- the price of the actual goods is coming down. But in the first half, we hedged some, unfortunately. So therefore, the decline in pricing may not be fully reflected. But because decline is anticipated in the second half, overall, it'll be lower than the assumption, and we should be able to pass on.
Do you have any specific numbers?
Unfortunately, we do not disclose.
The next question, please?
Anegawa, Morgan Stanley. The business environment is going through major changes, and profitability is declining in various businesses, and as was mentioned by the Chairman. And there, in Mr. Fujimori's management, there were many rough acquisitions then. So we have moved to IFRS, but the goodwill impairment risk is being heightened or not? Do you have any comments on that?
For the goodwill, as you know, every quarter, we do an impairment test and also annual test. In the first half, so far, the result of the goodwill test is reflected in the current numbers. So far, we don't think there are major risks. However, as you know, the economy itself is very cyclical, and we are making tests under such an environment.
The next question, please?
Nakagawa from Mizuho Securities. I had a question about the sash business. You have a sash with the mixture of aluminum and plastic, but I think it's rational to have a policy like spend. But you were not emphasizing so much about resin sash, and what is the possibilities of doing that? And what do you think is the future of such products?
I will talk about the past and Ushioda-san will talk about the future. In the past, the resin sash is not profitable all over the world. And if you use resins, it is good in terms of heating solution but not as strong against the sunlight. And it's difficult to make large windows. So if you use resins, the windows tend to be smaller. And in our case, what we have tried is having hybrid sash to develop a sash with higher heating solution than resin and have hybrid to make larger windows, so we now have LW product which is welcomed by the market. If the customers want to have high-class products, we want to propose hybrid sash. And for resin sash, if the customer insists on resin, we could provide it on a limited basis. The share of resin sash is increasing the road. That is the strategy of YKK, and some of the housing manufacturers has that strategy. But resin doesn't mean that there's high-end solution, and that's a good house because Japanese prefer larger windows. And we have very strong typhoons and very hot summer. So insulation against the sunlight is also important. And so hybrid is important. And it is cheap resin in the world. But in Japan, it is high-class, because resin sash actually includes a lot of aluminum. So it is, in substance, hybrid. So there's no clear distinction of what is a proportion of mixture between the resin and aluminum, but we can say that YKK was successful in the promotion. And in our case, for resin sashes, develop very cheap resin sashes or on the other hand, have high-end hybrid sash was what I have pursued. But Mr. Ushioda may have different view.
Resin is very cheap in terms of its equipment, and with a small machine, it's possible to produce immediately. So it is easy to enter the sector. In a very small factory, you can produce it. So this lack of commodity, and it's not profitable, you can buy the pellet and just melt it and produce. So it's not profitable all over the world. Just like in other countries, it is possible to use it being aware that it's a very cheap material. With -- so when it's needed, of course, we will make it. We are producing this, but it's a matter of our capacity if we are going to do this.
Next person?
I have 2 questions. One is a minor question and the other one is a bigger question. So the minor or detailed question. As of end of September, goodwill and intangible assets, comparing that with March-end numbers, what are the reasons for increase? That is my first question. Permasteelisa has changed from uncontinued business to continuing business. So Permasteelisa was included in the assets to be sold, but now it's included in the balance sheet and goodwill. That is probably the biggest difference. So if that is the case, from IFRS, do you have an intention to go back to JGAAP from IFRS?
No. We have no such intention because we don't think it's such a major issue.
The next person, please?
[indiscernible] Nomura Asset Management. As the future financial policy, under Mr. Seto, you tried to tighten and you tried to make your company leaner and make it more efficient. But in the case of Permasteelisa, which is reclassified and the term profit has deteriorated, so there is a deterioration on the financial position with M&As and domestic business needing more capacity. Under this situation, return to shareholders and the financial capacity, what are your views in the future management of the company about it?
Well, actually, we have not -- I cannot yet discuss about the details. So going forward, I gradually tend to start talking about it. There were opposing views, but -- to make all businesses 100%, but that may not be needed. I want to be flexible in raising the market capitalization of the company.
The next question, please? So the person in the middle section.
Hashimoto from Mizuho Securities. So about the accuracy of forecast, back in Fujimori-san's days, there was always downside. And when Mr. Seto assumed the post in the initial year, there was an upside. But unfortunately, this year, you made a large downward revision. So accurately forecasting business is quite critical. And particularly, you use the term one-off event and one-off factors a lot, but you should include such one-off factors in your forecast. In Daiwa house, when targets or the plan is exceeded, that is positively evaluated. But excess profit was one index, and the company performance has grown partly because of accurate forecast, and what is your take on that?
When I was CEO, the forecast was almost never right, but it's been -- accuracy has been increasing, but the typhoon hit and something like that is beyond our control. The reason why our forecast turns out wrong is because the business -- some of the business or many businesses are very close to breakeven point. For example, if the business has 20% profit margin, if sales decrease 10%, the profit margin will never go down to 10% from 20%. But if the business is close to breakeven point, when the sales go down 10% or 20%, then the profit would go down even bigger -- even more. So sash and exterior, maybe not so much exterior business. The breakeven point is low for exterior. But for sash, it's not like that. And that is making forecasting very difficult. And high cyclicality, for example, aluminum and other raw material costs, are very difficult to predict. And unlike bathroom, LHT, the business is largely affected by new housing starts because a few people want to renovate the windows. So the several tens of houses difference in new housing starts could make a big difference. And the natural disasters, the natural disasters, when production stops for only several days, it can damage business quite severely. But on the other hand, when aluminum price declines and the profit can increase all of a sudden, that is also true. But profit margin in this area kept decreasing for a long time. And as I said last time, because SKUs increased and the CapEx payback period has been increasing and the fixed asset -- or fixed expenses, rather, have been increasing, and those are the problems. Accuracy of the forecast is, of course, important, but some parts of the sash business is easily affected by natural disaster. And so we heard about Fujimori-san's performance. But when Mr. Fujimori was the CEO, there were many natural disasters that hit the country. So that is one big factor.
The next question, please? Anyone who like to ask further questions? Yes, the person at the front.
I'm Kawashima from Nikko Securities. As a formality, what are your views about the corporate governance? At this timing, there is a change in the management, change for CEO. And what's the process of deciding the successor? In reality, I know that the only way is to have the past CEOs coming back, but you are not a private company. You are listed company. And if you should continue for several years, you must have a successor. So what is the process that led to the change in the management?
The Nomination Committee discussed and proposed to the Board of Directors, so that is a procedure as we have in our rules. And I and Mr. Yamanashi are 2 of the 5 members of the Nomination Committee. You may wonder whether that is right or not. But even if we don't participate, if the other 3 members of the Nomination Committee also agreed. This is why we decided today. And I and Mr. Yamanashi will withdraw from the Nomination Committee. So therefore, Independent Directors and the structure of 1 to 4 forming the Nomination Committee. I was looking at my father. It is terrible if there's no one to check you. There must be someone with a function of and the capacity of firing me, and I think that is the most desirable method. And I know that through my experience, so you can feel safe about it.
So the person in the front.
Hashimoto from Citigroup Securities. So I would like to ask you the second question. And my question is for Mr. Yamanashi, who hasn't spoken yet. So you will become a COO of LIXIL, which is the largest company. And how do you share roles with Mr. Ushioda? Sometimes conflict is okay, but what Yamanashi-san wants to do and your expectations and the anticipated issues, if you could talk about those things.
Thank you for your question. I -- well, I kept silent for a long time, but I'm glad to speak up. So LIXIL Group, the holding company, I am -- I will be the COO of LIXIL Group, the holding company. As Ushioda-san said, I will play 2 roles, and this time, to evolve the management structure which has been discussed at the Nomination Committee. So Fujimori-san's days and Seto-san's days, their leadership, performance made the company bigger, diversified and globalized in a leaner manner in order to continue on this track. The holding companies and the group companies, the sharing roles, among them, should be clarified. And we have quite a few excellent operating companies outside Japan, so each one should strive towards improving business. And the holding company should oversee all the companies and control and govern the companies. Mr. Ushioda, as CEO and myself as a COO will work in tandem. And CFO and the management team of the holdings will also work together. And also, the holdings company is to draw the future picture apart from the operating companies that Mr. Ushioda talked about the big picture. And as we heard, we will discuss among the team in order to draw the new picture as soon we can. And some elements will be organic, and some will be inorganic. And as many people asked about how to restructure domestic business, how to gain back share without sacrificing profitability. So those things, we would like to include in the picture. And my expectations, if I may repeat. So this type of big company, which is globalized and lean, thanks to the hard efforts made by Fujimori-san and Seto-san. I would like to capitalize on that platform in order to take the company to a higher level, the next phase. And that is to enable each operating company and the holdings company to be autonomous and yet be able to work together to achieve something bigger. And I would like to play my role in that. So if it is necessary, we need to eliminate wastes -- further wastes. And Seto-san's great achievement is large prerequisite for the company to be autonomous is that there has to be sense of unity among the group companies. So based upon the tagline of one LIXIL, he has achieved that, which I think is a great achievement of Seto-san. So I would like to build up on that as a member of the new management team in order to increase corporate value. Thank you very much.
So the major policy decision will be made at the holding company. And Mr. Ushioda, Mr. Yamanashi will think together about it.
And you'll be responsible for the execution? And at these IR meetings, who will be the speaker going forward? Who will be making the presentation? Mr. Ushioda, Mr. Yamanashi, the 2 of you are going to speak or the Executive Officer, Mr. Yamanashi, will be making the presentation? So there may be short-term questions, long-term questions. So I think the 2 of you will be present in the meetings, right?
Yes. And Mr. Matsumoto-san as well.
So we'd like to receive the final question. Well, if there are no further questions, this concludes today's meeting. Thank you very much for your attendance.