© 2024 Alpha Spread Limited. All Rights Reserved.
www.alphaspread.com is not operated by a broker, a dealer, or a registered investment adviser. Under no circumstances does any information posted on www.alphaspread.com represent a recommendation to buy or sell a security. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, investment advice or recommendations. The information on this site is in no way guaranteed for completeness, accuracy or in any other way. In no event shall Alpha Spread Limited be liable to any member, guest or third party for any damages of any kind arising out of the use of any content or other material published or available on www.alphaspread.com, or relating to the use of, or inability to use, www.alphaspread.com or any content, including, without limitation, any investment losses, lost profits, lost opportunity, special, incidental, indirect, consequential or punitive damages. Past performance is a poor indicator of future performance.
You don't have any saved screeners yet
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Ladies and gentlemen, we would like to start the briefing session for the second quarter results for fiscal year ending March 2021.
Due to the COVID-19 pandemic, we will be streaming live on the Internet as well as providing the session on the conference call. if you have connection troubles in the live streaming of the Internet, we ask you to reconnect through conference call. It will be just voice, but you would be able to participate in the briefing session.
I would like to introduce to you the people who are present today from the company. From your left, Director Representative, Executive Officer, President and CEO, Kinya Seto; Director, Representative, Executive Officer, Vice President and CFO, Sachio Matsumoto. Head of IR office, Kayo Hirano. I will be serving as your emcee. My name is Fukushima from the IR office. In terms of the material for this session, for those of you who are viewing the web streaming, please take a look at the screen. And those of you participating through a conference call, please download the materials from the Investor Relations information tab on our website.
I would like to inform you of today's time line. First, President Seto will explain about the financial results for the second quarter of fiscal year ending March 2021, which will be followed by Q&A session. [Operator Instructions] We expect to conclude at 4:45. Thank you for your cooperation.
And now President Seto will provide you the presentation on the performance of the second quarter performance.
Hello, everyone. I will be providing the explanation of the second quarter results for the fiscal year ending March 31, 2021. This is the usual chart that we use in IFRS. Core earnings is the operating profit under JGAAP. So please bear that in mind while you listen to my presentation.
I think that second quarter was pretty good. Compared to the first quarter, the second quarter had seen significant rebound in all business segments. On a cumulative basis, there were COVID-19 impacts. And also compared to July to September of last year, because there was a last-minute demand before the consumption tax hike, on a year-on-year basis, there was a reduction both in revenue and profit but we were able to strongly recover.
In terms of revenue, there was a decrease by 13% year-on-year. But comparing first quarter to the second quarter, in the first quarter, in the 3 months, first of the -- the first quarter, there is 5% increase domestically and 36% internationally. And in the core earnings, we were going at the JPY 18.6 billion. And the reason behind this was because that there was a strong recovery in Europe and the resilience in the business. And the net profit for the first half was JPY 10.9 billion.
For the forecast for the fiscal year ending March 2021, we will be revising the forecast upwards from JPY 25 billion to JPY 40 billion based on the first half results. There was a strong recovery in the second quarter. And for Japan, as I have explained to you, there was -- we expected that the bottoming out was October and November. However, we now believe that the bottoming out was in September. Considering these situations and the recovery in Europe and in the Americas, it would be best to revise the forecast upwards from JPY 25 billion to JPY 40 billion.
In terms of the subsidiaries, Permasteelisa share transfer closing was on September 30. And LIXIL VIVA, the share transfer has already been determined, and it is scheduled to be completed in early November. Permasteelisa and LIXIL VIVA were the biggest concerns for us, and those 2 items will be closed by the end of this year.
This is the monthly sales status by region, green and the blue lines. EMEA and Americas is indicated in the blue. And June and July, there was a significant recovery. In October, in the United States, because October was very good last year and there was a retail adjustment, there was a decline. But for November and December, we expect good sales. And as for Europe, October was a very good month. And Europe and the U.S., it was very good because of the pent up demand. And another trend was because of COVID-19, this is something that applies to the Japanese market. But when people spend more time at home, they want to improve their homes. Rather than going after the luxury products or going to travel, they decided to invest in the improvement of homes like bathrooms. And also, we were strong in e-commerce. So people are able to buy our products while they're at home. And what we had growing which was recognized highly by the consumers. And also the touchless water faucets and touchless toilets and the shower toilets, we had conducted thorough promotion for those products which we do well with.
As for China, overall, it has made a comeback. On the other hand, in Asia, it is still struggling. There are specific issues with Asia: tourism and travel, projects, hotels. The Asia Pacific regions are dependent on those areas. And also, there was a very strict lockdown in the Asian countries, and also manufacturing sites were closed. And because of that, these markets are struggling.
If you look at Japan, in September it was negative 17%, and it seems that it has gone down year-on-year. However, last year, it was right before the consumption tax hike, so there was a last-minute demand then. So considering that, the drop was not as significant as we had expected. We had that October and November would be bad months, but in actuality, it is recovering. So the expectation that we had for 3 months, it is -- the situation is actually better, for example, in the housing starts. The reason why we thought that the Japan market would not be so good was because -- that because of COVID-19, people were not able to come to the showrooms and the quotes numbers had come down. However, the number of quotes have come down, but the number of concluded contracts have become higher. And also online showroom played a very big role in providing the recovery.
For October, on a year-on-year basis, it would be the latter half of the single-digit negative percentage of decline. Another point I would like to mention before I go on, there's one concern that I have. Yesterday, France announced that it will have a lockdown again. There is a significant increase in the number of new infections in Europe. Though France and Germany are suffering from COVID-19, we are still bullish. The reason why we're bullish is because the -- most of the governments are not imposing lockdown on the manufacturing facilities because they don't want to stop the economy from going. So that's why we believe that we can be positive about the situation now.
Consolidated business results. The revenue has come down by 0.6%, and the revenue has come down 13%. But the gross profit was down of 0.6%, and I think that it was pretty good. In the cost of the goods, there are labor costs and the depreciation costs, which are fixed costs. Because of that, it seems that variable profit, but a lot of it is fixed. And we -- the fact that the gross profit has come down from 33.6% to 33%, the reason -- and I think that there were a lot of initiatives taken to suppress the amount of the decline. We were concentrating on the products which we wanted to sell, and I think that took good effect.
SG&A has significantly come down. There was COVID-19, and because of that, business travel was not possible. There were no meetings held. We were not able visit customers and it has come down. But there are some permanent cost reductions that we were able to make. So in this period that we were able to -- we were able to learn a lot, which we would be able to use for the future. There were recovery in LHT and also organization reform. Had we not conducted those initiatives, I think that our profitability would have been a lot worse and we would not have been able to expect a bullish second half. I think we have been able to overcome, one by one, the challenges that have been faced by us.
Next page, please. Next is business results by segment. I will be talking about this later, but LHT did quite well. For LHT, I will be going into the details later. Revenue had come down significantly, but core earnings did not go as down as we had expected. We were able to keep the budget, and we were able to exceed the budget that we originally had.
As for LWT, Americas and European region, in the second quarter has significantly recovered, and that worked positively for this segment. Overall, the momentum of the second quarter makes us more optimistic about the third quarter.
On this page, you see the comparison between first quarter and second quarter on top. And the bottom, you see the comparison with the second quarter of the previous year. What we can clearly see is that if you look at the top 3, from first quarter to second quarter, there was a very good recovery. The second point is compared to the previous year, there are 2 interesting points. One is that for LWT international, compared to the second quarter of last year, the revenue and the core earnings have increased. And I think that this is very good. There was pent-up demand from COVID but overall, I think that we can evaluate highly that we did better than last year.
Another point is LHT Japan. If you look at the lower right, the revenue had gone down by about 13% or 12% compared to the last second quarter. On the other hand, the core earnings have come down only 13%. I think the institutional investors who have been invested with us for more than 3 years, I think that you will understand the significance of this. Three years ago, there was a decline in the revenue, which was less than this year, but the core earnings had gone down a lot more than the amount of decline in revenue. I think it was from Daiwa securities, there was a question that why LHT was so volatile in terms of the revenue and core earnings. And what I had responded was that LHT has a higher breakeven point with a higher fixed cost. And when there is a decline in the revenue, it goes down into the red ink very quickly. And we were able to solve that problem. We are now able to provide the solution to the issues in LHT. So now we were able to show what we are doing to [ Tara Kason ] from Daiwa Securities. It is not about share. We will go after the profitability. And our focus had enabled a decrease in the breakeven point. So because of that, even if the revenue comes down, we were able to have a good amount of core earnings. So it's stable even in the bad times.
And I remember that I received questions related to this 3 years ago, so I'm so glad that I'm able to respond to that. Maybe it was spring 2 years ago. From that perspective, LWT has seen revenue have gone down, and the core earnings had come down half. But it's not about the manufacturing, but more about the sales team problem. I think that if we are able to solve the problem, we would be able to create a situation where when the revenue comes down, the core earnings would not go down so much.
Now forecast for the full year. As I have mentioned, the core earnings will be -- will rise upwards to JPY 40 billion. There are, of course, many costs involved. But as net profit, we believe it would be JPY 19 billion, which would be above the level of the previous year. So the operating profit is coming down, and because of that, what is included here in the decline is the structural reform cost, including the new life program.
I would like to talk about the assumptions for the housing starts, NRI in May had announced pessimistic figures. But in reality, it did not go down as we had first expected. Of course, there are fluctuations, but there are people who started working from home and they decided to build in the area outside of the metropolitan area. And also, the people -- there are people who are dependent on the Internet, and the outcome was not so bad. And also renovation, we believe that in the longer term, it would be even stronger in the Americas and Europe.
In COVID-19, these people stayed at home. And people started thinking if they are staying home rather than spending on travel or food, eating out, they want to spend more to improve the home. So for renovation, as I have said earlier, the number of visits to showrooms as well as the number of the quotes. From October to November, 3 months ago, we thought those months will be the bottom but the bottoming out was in September. And in October, we have seen recovery. So I think that we can be more bullish about the situation.
And we've been speaking with investors for many years, and one of the major themes that we wanted to work on is to become asset light. And this company had somewhat of a high breakeven point because we have invested a lot in facilities. So we wanted to make improvement on that. And I think we have been able to achieve concrete results. So CapEx or depreciation, these will come down.
But not only that, if you look at the details, the IT investment or IT depreciation, they have increased like others. So investment in facilities, for repairs or investment into manufacturing facilities, these have come down. Even for IT, and we have done L1 type of investment in the past. We still have to depreciate them, but it's still the same. We have now a transition into the cloud or [indiscernible] separating the 2 to achieve greater investment efficiencies. So in that respect, I think we are achieving greater efficiency investment. But R&D expenditure has not been reduced because innovation is important for us.
Now this is quite an important page for us, and we said last year that LIXIL needs to change. We need to change LIXIL. We've been thinking about this for quite a while. But when the healthy new starts started to come down, for LIXIL, we not only look at the builders or the contractors or the distribution, we wanted to look at the end-users more. And what we need to do going forward is to become more global. We need to transform it to be more digital.
And also, we wanted to be closer to the end users. And if we think about that, we cannot just continue to work in the same way that we have in the past with the same employees. We want to have women, the employees be more broad, people with disabilities, people with different nationalities. We want these people to be more active. We wanted also to have younger people that play more significant roles, not just depending on people with longer experience. And how people work, people can work from home, a more flexible way of working, not on a regular -- the way we're working now. So this is -- these are the things that we've done in order to transform ourselves and the activities with that as part of this is reflected in this sheet.
In terms of organizational, this employee vacation, we worked on the Permasteelisa or VIVA, we have divested these to simplify our portfolio. And we have also worked on the type of simplification, working on promoting a digitalization RPA.
With regards to RPA, for the company overall, we have provided education to 1,250 people and about 750, or was it 650, I've forgotten. But -- was it 600 -- 650 people ended up getting qualification as part of that education. And we are not an IT company, but as an operating company, to be able to use RPA and to implement RPA, I think this is the highest number of employees for any of the operating companies. And as infrastructure for remote, we have implemented [ VEA ] from the VPN in the parcel. Several 10s of thousand of people are able to use care at the same time, able to actually handle the important sales information to be able to have meeting on Zoom. But even with that, we won't have the infrastructure acquisition.
And unlike others, we have been able to continue our showroom activities, the online showroom and provide online customer service. We have expanded on these sales activities. And distribution or the builders or contractors that we use to do an online type of the sales activities. We have those tools now. And we have gradually shifted to being able to do this type of work on a remote basis. As for work style reform, we have introduced Superflex where we don't have about the core time of flex and the fine jobs is okay, and the people to take the paid holiday and the New Life, a new program, which I'm going to talk about in a little more detail later on. So this type of situation, we have worked on really working on improving productivity. And by doing that, we should be able to also benefit from the cost aspect, which is through a reduction of people. But if we just work on reducing the headcount, the company will become weaker. But when we just work on improving productivity, the excess people that we end up with, we end up doing other things, and that will lead to the company registering greater growth. So we need to work on both aspects at the same time.
And on this occasion, if I take today, for example, and the employee is working in the head office today, it's only about 5% of the total employees who work at this office. So we have really advanced at remote working. And in Tokyo, we have about 23 sites, and we're going to consolidate all the 23 sites into this 1 headquarters.
Also for the branches, so we had the branches that are the subbranch office and the sales office, but we will actually remove 1 layer. And we are also working on the remote working. And for 2021 and '22, we will spend these 3 years to achieve even greater consolidation. So this improvement in productivity has enabled us to work on this New Life program. And added to that, and the case of LHT, things that we have not been able to do too well, the platform strategy, we've done that for interior, then exterior. And we're now going to launch the platform strategy for Window Sashes. We will start to reap the benefit from that beginning next year for that.
As a result of implementing these initiatives inclusive of New Life, we have been able to do many things not just New Life, but the site consolidation and so forth. The amount of cost we will spend this fiscal year will be JPY 25 billion. And how much cost will we see being reduced on an annual basis? It's difficult to compare this year because we had the COVID-related aspect so it's difficult to make comparison. If we consider last year to be normal, so when we comparison to last year, then last year, we had the Career Option program. So the pre-Career Option cost, if we compare that to the current cost or the next year's cost, and we're expecting about JPY 23 billion of cost reduction over a year period. In other words, we're going to generate greater profit to the June next year, or the year after too. Not just that, we will continue with the initiatives that I have described before, and there are other areas of benefit that we can still reap. So many things that we are thinking of right now. And there are things that I can speak about. There are things that we can't speak about, but we feel that there is additional increment to the numbers here.
Now let me explain the situation on a business segment basis. Starting with LWT, like I've explained before, in the latter part, the Americas and Europe started to see improvement. In China, there's been ups and down. But overall, within China, for us, I think we are starting to see things improve, finally.
In, Asia, the situation remains tough. Our hotels or the tourism or projects, or government related, infrastructure, these essentially have come to a halt. And in the case of Asia and despite the COVID infections being low, they have implemented quite a stricter lockdown program like in India. Singapore and Vietnam, even when the infection situation wasn't too bad, it still implemented a lockdown. So the situation was quite tough, but we are now starting to see light at the end of the tunnel.
In the case of Japan, like I explained before, the bottom was September, and we can see improvement starting from October. So this fiscal year, we want to exert ourselves and hopefully be able to come up with good numbers. But as I explained before, we feel we have been able to increase our market share. And this also applies to LHT and LWT. But what we have really focused on is that during the period of COVID, when people needed to stay at home, customers essentially have to -- they can't choose from various products. So they want to buy products that they know, and they know there is a benefit. And that's what we have really promoted in terms of the plumbing, we have [indiscernible] so you can come home and wash your hand immediately or the touchless faucets. In the case of LHT, the product, the ventilation possible doors, the screen doors, or reform or renovation-related shutters or the screen doors. And there's a shutters to make your house more cooler. So we have really focused on these products thoroughly, and that has enabled us to increase our market share.
In terms of housing, as I explained before, I think we did quite well. In terms of core earnings, the forecast for full year was the 13% drop in revenue. But for the core earnings, we have expected 0.6%. And I think this is quite a great effort.
And we had some following, if you like, because renovation or the delivery bulks or the screen doors, these products have a higher profitability, and that had helped. But I think we have transformed the production system to be more platform based. And we have pursued profit rather than sales, and we worked on a cost reduction. I think all these initiatives have paid off in this fight.
Going to building technology. Here, in comparison to last year, as for the revenue, it has come down, but the margin has improved. And here, in a similar way, we have pursued profitability. Even if we see the revenue come down, we wanted to focus on projects where we can generate profit. Also, we wanted to focus on selling products with differentiation. I think the focus on these to enable this. As for as houses we have some decline because the new house starts has come down. For the LIXIL, the housing researches, as I've explained before, even in the current situation, they've been quite successful in gathering customers through the Internet.
For a consolidated financial position, we had the COVID, so we wanted to have more cash on hand, and that is probably one unique aspect. And given the current situation, for LIXIL VIVA, that transaction has not been reflected into the numbers here. But the transaction is expected to complete at the end of November. So for November -- so for December, we're expecting a 5 point improvement in equity ratio. And our equity ratio should come close to 30%, and we're now back being a normal company in that respect.
As for cash flow. And given this situation, the operating cash flow has improved vis-à-vis last year, which is a good thing. The financial, the cash flow, there's an increase because of COVID. And so investment cash flow, we sold Ken Depot, which was in the first half of the year. But VIVA proceeds is expected to come in at the end of the fiscal year. So there are some of others which has contributed. I did actually rush through my presentation, but that is my explanation regarding the result for the first half of this year. Thank you.
We will move on to the Q & A session. [Operator Instructions] The first question, from Jeffries Securities, Fukahara-san. You have presented about the voluntary retirement program. In the Career Option program last year, 497 people had applied for it, and you had to spend JPY 5.5 billion. So to the 1,200 people for the application, that means that there is a possibility of the extraordinary cost of JPY 10 billion. So what -- for the voluntary retirement programs, the motivation -- for the motivation, for example, their bosses retiring early, how would you respond to those situations?
The Career Option program, which was also an early retirement program, the New Life program is quite different from that. In the Career Option, it was a benefit program. So permanently, we were to do that for 5 years, at least.
As for the New Life program, the company itself is changing. And as a company, the heads of the department should work closely with the their subordinates. And we will have the people who believe that they could not stay at LIXIL with the changing situation. We will give them an option to leave the company. So for the choice of people leaving that there -- the benefit goes 2 ways for the company as well as for the employees. For the company, the benefit is that -- so we will be providing the special benefits for the provision in the new program. And I would like to go a bit further to talk about this.
These initiatives should not occur when we have to change. If we do that, the company would not be able to change fully. And the people who apply to the program would not be getting enough benefits. So if you look at the early retirement program in the other companies, the benefit is quite small. But the amount that we are providing in this program is not so bad. So I think the amount will be bigger than the calculation that you have given us. So JPY 25 billion -- so out of the JPY 25 billion, considering that, you could think about our new program.
And in terms of the bosses leaving and how would we motivate the employees who will be left behind? Well, we believe that this New Life program is a positive program for everyone. We need to change as a company. We need to have women, younger generation, people with disabilities, people who are from overseas countries work more actively in the company. So currently, the people who have longer experience in this industry at the management level, so -- but if we only have those long experienced people at the top, we may not be able to change. So I think that the New Life program would be providing the opportunity to the younger people to go higher on the ladder. And also the people who would be leaving through this program, they would be able to find a new opportunity. So that's why we call this program New Life program. We want to engage people. We want to motivate people more through this program. I think it's a responsibility of the management to motivate people. Management must think in the long term so that the company will be sustainable. We need to do things faster than others. If we are reactive, that would not bear fruit. So if we act early, we would be able to motivate people more.
Of course, change in any way is, most of the time, it's painful. It requires effort. But if we change early, we would be able to switch it to a more positive atmosphere at earlier point. So the fact that we are able to have this program at this point in time would enable a brighter future.
Mr. Fukuhara from Jeffries Security has a second question. Presentation materials, Slide 15 and regarding water technology business. In international business, the core earnings ratio was 6.8% for the first half year and 4.7% is the plan for the full year. So the plan is for the margin to come down in the second half of the year, but for the revenue, for the second half of the year is to expect a small -- to increase versus the first half of the year. Despite the revenue increasing, why are you expecting the margin to come down in the second half of the year?
And also in Japan, it seems that you're expecting the margin to grow more than the pickup in revenue. So please explain the background.
This is Matsumoto speaking and allow me to explain the difference between the first and the second half of the year. And for the second half of the year -- well, in the first half of the year, the SG&A were -- particularly SG&A for the next fiscal year, in other words, to make preparation for the next fiscal year was something that needed to be done. And of course, the revenue will increase. And so we'll see increase in the logistics expense.
In terms of ratio, where would that sit? Well, and there are a number of measures that we have not been able to implement in the first half of the year. We want to ensure that it was implemented in the second half of the year, and that has led to somewhat of a lower level of margin.
As for Japan, and here, we are expecting the normal pickup in the revenue. But here, the overall SG&A assumption, we feel that we'll be to suppress the level in the second half following on from the first half of the year, and so we're expecting those levels.
Now in your question, and I think this is a question related to the restructuring cost, but the JPY 40 billion of the revenue and JPY 7 billion of cost, so there is JPY 33 billion in between, I think that is the gist of your question.
I think JPY 25 billion, and you're talking about investment of the level. But the career option calculation is that the 1,200 people rather than 500, so that's only JPY 10 billion. So the remaining would be 150 -- or JPY 15 billion, but the amount spent for a person is much higher.
Yes. Apart from that, when we look at the core earnings and the operating profit, there is a renewal of the manufacturing facilities or plants, and there are some loss related to disposal. And those would also come into play as well.
And also at 6.8% and 7 -- 4.7%. And what Matsumoto-san has explained is a difference in consumption level. But as he explained, and when I talk about the overall numbers and the revenue has come down, but the core earnings that did not come down as much. That's what I emphasized.
But here, SG&A portion comes into play, and 0.6% is only the decrease in terms of the revenue. But SG&A, there was some positive because there were an amount that we didn't use because of COVID because of the travel or meetings or trade shows. For those, for international, in the second half of the year, you need to do quite a lot. And that is how we're looking at the situation.
But then if we look at the situation in Japan, we probably won't go that far. That is how we're looking at the situation for now. So if you take that perspective, in terms of a margin for international in the second quarter, we had -- we didn't use them as much to the level of the revenue, but there will be some catch-up in that. But for Japan, we won't see the catch-up and we are starting to see how people will change in Japan. So in that respect, the situation is somewhat different between Japan and international.
And I gave you a wrong number before. Now on Page 7, LHT, the domestic, the revenue came down by 12%, but the core earnings came down only by 13%. This was wrong. The revenues came down by 17%.
But against that, the core earnings came down by 18%. There was only 1% difference so the intent was the same, but the numbers were incorrect. So I just made a correction to that now.
From Macquarie Capital, [indiscernible] question? The management directionality, you have announced the voluntary retirement program. I think that you're working on improvement in efficiency. So as the element of the increase in the profitability, I was wondering how long this efficiency program would go on? And when should we expect the increase in the revenue, second half of next year? Or would that be organic growth?
Organic growth through the sales growth. For overseas, we believe that there, we expect we will see organic growth. As for the domestic market, housing starts is coming down, and we are covering through renovation demand. So the sales growth in Japan is quite difficult to foresee. But we will be improving the profitability through efficiency. And in overseas, we would like to grow the profit through organic growth, through the increase in the revenue.
At some point in time, for overseas, we believe that sales will be bigger in terms of the ratio to the overall revenue. But at this point, the sales ratio is not sufficient. So just with the organic growth in the sales of the overseas markets, it will not increase the profitability as much as we want, so we need to improve the efficiency further.
[indiscernible] from Macquarie Capital Securities.
For the second question, in your explanation, you talked about this. But for Europe and the Americas, when we see the increase in number of COVID infections, for the business [indiscernible] is there a positive or negative? If you could explain that in more detail.
If there is any headwind, then that would be when the production facilities are subject to lockdown. And in France, right now, there is a lockdown. Also, Germany and Spain, there is a discussion. And I think there is a partial lockdown in Spain already, too. In the case of France or in the case of Germany, the government did not instruct the production facilities to also be subject to a lockdown because of the significant impact to the economy.
In the case of U.S. -- Americas, the production facilities in Mexico, if they come under lockdown, that would have a -- impact has been quite a headwind. But I feel that the probability of that occurring is relatively low.
As for a tailwind, I think there are 2 aspects from a long-term perspective. One is that given current situation with COVID, when people ask what the people spend in terms of their disposable income, if it's a luxurious product or eating out, then I think a lot of people will spend the money to improve their houses or homes. And that's one long-term perspective.
And the other is that we are relatively strong in the e-commerce channel. So the customers who use e-commerce, I think for their perspective, they tend to choose us more. And we are able to make better predictions, so supply chain-wise, it's also easy to respond.
But in terms of production facilities, a headwind, but this is not only unique to us. It also applied to the competitors as well. So for the companies with manufacturing facilities to China, Thailand, Vietnam, excuse me, Europe, Mexico, Japan. And we have the production facilities around the world, so I think we are better able to respond to a situation should something occur. This is also an additional comment.
[indiscernible] from Merrill Lynch, [indiscernible] has a question, which was almost the same as the other question, so we will skip his question.
Next is from SMBC Nikko, Kawashima-san's question.
Cost structural reform. Do you think that the New Life would complete everything? Or would there be a second and a third stage structural reform program? This time around, you're getting the application for the early voluntary retirement, and I think that there is a possibility that you would be able to close down some of the other plants, but you would not be doing that. Why is it?
We will work to make -- we would work to improve the efficiency, but this is a very sensitive matter. And we would not be disclosing anything other than we have already announced, but we will continue to work to improve our competitiveness and also to create a situation where we would be profitable, so we will work from various perspectives to do so.
The New Life program is a big program which we don't foresee doing something like this in the near future.
From Morgan Stanley MUFG Securities, Katsuyama-san. In terms of business restructuring, and for the March 2020, you're expecting JPY 23 billion of profit increase. And can you give us a breakdown, to the extent possible, personnel, IT depreciation cost, is that the 2 major items?
Yes, the personnel expense is certainly a large portion. That is a fact. But there are some related facilities as well. So for example, consolidation of sites, this also has some benefit. For next fiscal year -- or sorry, for the details, I'm unable to speak in very much detail.
But in terms of reduction in IT depreciation, there isn't going to be much of that next year.
Next question is from Goldman Sachs, Okada-san's question. In Europe and Americas, it is recovering from the second quarter. The strong momentum, do you think it would continue to the next term? Maybe the demand is coming early.
There is a pent-up demand, and that is capturing of the demand in advance. When we made the estimate, 3 months, we believe that it was an advanced demand, and we thought that the third quarter will be weaker.
However, if you look at Europe, in October, there was no lessening in the demand. At this moment, there is no change in the trend. So as for Europe, where we are strong is that we are strong in e-commerce, and we have a strong growing brand.
And as for Americas, in October, it's on par with the previous year. But our retail customers, there has been some adjustments. But in November and December, the orders seem to be very strong in the U.S. and for Europe the U.S. The reason why the strong momentum has continued is because the way people use money is changing. People are using more for bathrooms. And for the U.S., investment towards real estate. For example, in remodeling, that was very strong even before COVID. So people will not discontinue conducting their remodeling just because COVID occurred. And everyone is staying home. And they are spending more by house.
Daisuke Fukushima-san from Nomura Security. The plan for March 2021, the revenue remains the same. The core earnings has improved from JPY 25 billion to JPY 40 billion. Product mix changed, and cost suppression are probably the reasons for this. But more specifically, could you explain? And could you give the quantitative explanation, that would be great.
JPY 25 billion, when we assume that, we thought that the numbers for the second quarter would be much lower. Respond to the pent-up demand was one thing, but we had expected Japan it would deteriorate.
However, when we come to September and October, the numbers for Japan, we had expected Japan -- sorry, for October and November, we had expected numbers for Japan to deteriorate, but that had improved. So there was a change in that respect.
But in practice, from our perspective, as was asked before, in the case of Japan, people are not spending money, but able to maintain business. That is the assumption.
And for the third and fourth quarters, demand is picking up. And in terms of the revenue or the sales remaining -- staying at the same level, well, frankly, speaking, maybe the revenue level could be a little bit more higher. But given the overall balance, we didn't change that.
To be more frank, and for the third quarter and fourth quarter, it's very difficult to make prediction of better numbers for the third and fourth quarters right now. Three months ago we weren't able to actually predict the numbers accurately. So that's difficult. But despite that, we feel that we can do this number. And as a consequence, we decided to increase the number by JPY 15 billion.
We still have some time left. And so if the participants would like to ask questions, please feel free to enter the questions. [Operator Instructions]
Question in the chat box from Mizuho Securities, Nakagawa-san's question.
On Page 13 of the material, in fiscal year ending March 2022, you expect the Sash platform product to be sold in the market. How would that contribute to your performance? Housing starts, considering the numbers, the sash sales probably would not change. Do you think that though even in that situation, it would improve the profitability?
Sash platform contribution is to reduce the depreciation costs going forward. The depreciation costs will be less. And another important point is that in the -- one of the characteristics of the industry is that when there is a model change, the price will go up.
On the other hand, there is the price reduction, a gradual price reduction each year. So through having a platform with less investment, we would be able to -- we would be able to have newer products more quickly, and we would be able to improve the margin. I don't have the quantitative analysis on this matter. But in terms of the depreciation, there will be a huge change through this initiative. And as for the margin, we would be able to maintain it more easily. So that's the biggest contribution.
This question is from Mitsubishi UFJ Morgan Stanley Securities, [indiscernible] For March 2022, core earnings, JPY 23 billion improvement. This is mainly due to reduction in personnel costs. But is there a large benefit from production improvement for LHT or the benefit of the production reform for LHT that was explained at the business explanation, and with that, I'd like to occur more after March 2023.
This is not all that significant. But the benefit of data productivity reform has already been generated this year, next then will be for next year. But those numbers are not included in the number here. This is the platform benefit or line downsizing. And for March 2023 is the major timing for these efforts.
Next is from Merrill Lynch, Omuro-san's question. In the first quarter, you have explained about the contingency cost from Permasteelisa that would have already been gone?
Yes -- sorry, it's still remaining. I would like to explain. As for the contingency cost itself, it's still there. The contingency liability is still remaining, but in the past 3 months, it has not been newly generated.
As we have put in the report, there are some trial costs, litigation costs, which had been present before the share transfer, it's remaining, so the ruling from the court has not come out yet. So because of that, the contingency liabilities have not come down, but has not gone up either.
Out of the contingent liability, performance amount was the biggest, and we don't have that responsibility anymore. And the remaining is the litigation cost, the indemnity cost, et cetera.
Omuro-san from Merrill Lynch Japan, another question. The structural reform, can this increase potentially?
Yes, because we have decided on a number to be subject to the program, but there are people with a higher cost, those people with the highest salary that's likely to leave the company. So those people with the excess, the payment, if these people end up leaving the company, a lot then this structural cost -- restructuring cost may increase. So there are possibilities of it increasing. But if that was to increase, then the benefit from next year onward would be even greater. So it is necessarily a bad thing.
SMBC Nikko, Kawashima-san's question. On Slide 32, March fiscal year ending March 2021, in the elements for increase is a mix price that would be the price from the product mix, that would be contributing to the increase. But do you think that would be possible? LHT, we can expect the better product mix? But what about LWT?
In terms of the improvement in product mix, for LHT, it is not about -- just about platform, but response to disaster. Shutters, we are behind, I mean, the production because they're very popular. And also the screen doors, those are the products which would be contributing a lot to the improvement in the product mix.
As for LWT, overall, the showroom and the -- in the showroom and the order have gone down in kitchen and the bathroom. And -- but toilet and the water faucets, it had gone down -- gone up in demand. And as a result, LWT has been able to see product mix.
Next question is from Goldman Sachs Securities, Okada-san. In November 2017, you announced a medium-term management plan. But unlike then, Permasteelisa or LIXIL VIVA has now been divested, and so I feel that the medium-term management plan needs to be updated. But do you have a plan of announcing a new medium-term management strategy?
We are not planning for that right now. But what we need to do has been announced. And we have been working in line with the medium-term management plan.
In the case of the medium-term management plan for this fiscal year, 7.5% was the promise that we have given. But unfortunately, because there was a period that I wasn't with the company and there were COVID impacts as well, so if you could give me a little bit more time, and I will continue to try to achieve those numbers.
The direction itself will not be changed in a qualitative way. But what we are trying to do, as I've explained before, is first to divest from noncore business, and the corporate organization will be simplified and will create a low-cost competitive company. And the Japanese business will become a cash generator from being a cash eater. And thirdly, the international business we will implement a portfolio strategy that will achieve profitable growth. And lastly, a nonlinear business growth, digital or water filters, we will increase those businesses. So that strategy itself remains the same qualitatively, but the portion right at the top, quite a lot. And I think for divestiture, we've been able to do quite a lot. Simplification of the organization, creating competitive organization, for those aspects are in line with the direction we shared on this occasion. I think we've been able to show that. And Japanese business changing from cash eater to cash generator, I think we've implemented all the measures needed, and the results will be generated over the next 2 years or so. And the portfolio for international business are changing that. In other words, our portfolio will be changed to one which can generate greater profitability. We've only started on this effort, so if you could give me a little bit more time for that.
And last for part, the digital and water filtration, if you could give us a little bit more time for that as well.
Teraoka-san of Daiwa Securities. Teraoka-san's question, in the housing technology business, I think it's positive that the profitability didn't go as much down with the reduction in revenue. But do you think that going forward, the growth in the profitability will be higher?
When there is an increase in the revenue, breakeven point being lower is that the marginal profit will be bigger. So I think that there would be an expectation of growth.
We still have a little time, so we continue to welcome questions from the participants. [Operator Instructions] It seems that there are no further questions, so we'd like to conclude the Q&A session.
So with this, we'd like to conclude the LIXIL Group, the second quarter results announcement meeting. I look forward to continued support from all of you. Thank you very much for your participation.
[Statements in English on this transcript were spoken by interpreters present on the live call.]