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We will now begin earnings announcement session by LIXIL Corporation for the first half results for the fiscal year ending March 31, 2022. This time, once again, in order to prevent the spread of COVID-19 infection, the presentation will be streamed live online and through a telephone conference. I would now like to introduce the presenters today. To your left, Kinya Seto, Director, Representative, Executive Officer, President and Chief Executive Officer; Mr. Sachio Matsumoto, Director, Representative Executive Officer, Executive Vice President and Chief Financial Officer; and Ms. Kayo Hirano, Senior Vice President, Leader, Investor Relations Office. I will be serving as MC today. I am Fukushima from Investor Relations Office. If you are watching live stream online, please find presentation material on the screen. And if you are participating through telephone conference, please refer to the material made available in Investor Relations section of the website. First, first half results for term ending March 31, 2022, will be presented by CEO, Mr. Seto. After the presentation, we will have a Q&A session. If you are watching live streaming online, please use chat function to send your question. We plan to end at 4:30. Now I would like to invite Mr. Seto to begin the presentation on first half results for the term ending March 2022.
Hello, everyone. I'm Seto from LIXIL. For the fiscal year ending March 31, 2022, I would like to present the results from the first half of the year. As usual, LIXIL has transitioned to IFRS. Therefore, operating profit under JGAAP is core earnings under IFRS for LIXIL's financial reporting. A summary of the results of first half of fiscal 2022 is given. There are many events. Especially in the last 2 weeks of September, many things happened. More than what we expected, we were impacted by lockdowns in Asia Pacific. Lockdown in Vietnam affected us in many ways, including our parts suppliers and factories that we operate ourselves. Similarly, there was electricity shortage in China. And including lockdown in Vietnam, that resulted in difficulty procuring components and cost increase because of shortage of containers that was unprecedented. Because of these, towards the end of September, there were delays in production and shipment, especially in September. In Japan, Europe and the U.S., although demand was strong, ultimately, products were not shipped. Some were delayed to November and beyond. That was unfortunate. However, demand is strong, and we were able to implement structural reform year-on-year. As a result, we were able to increase revenue and profit. And profit for the first half period reached a record high. As noted on this page, we have continued to implement the structural reform, which are yielding results. On the other hand, many things occurred. However, we were able to achieve higher gross margin and higher core earnings margin. If I come back to the first point, to be honest, it is not only our business, but businesses worldwide, especially in manufacturing sector, are facing a time of paradigm shift in a sense. So far, to a certain degree, prices have come down for raw materials and commodities, and it was a matter of how to deliver things to customers just in time at lowest possible cost. But I think this was triggered by COVID-19, and it was also affected by political tensions. Because of many reasons, commodity prices are rising and deflationary trend that we have seen before are turning to inflation or stagflation because of supply constraints, and we have to address this changed environment. And we are faced with the same condition as our competitors are. And we are able to pass on the cost to price. However, in Japan, price negotiation usually takes only once a year, and there is a time line before we are able to raise price. Until then, we have to manage costs. Another point I would like to discuss is that this time, in many areas, we were faced with unexpected things, including shortage of components and shortage of semiconductors. We were trying to procure at the lowest price any components from anywhere from the world in the past, but that changed, and we have to have redundancy in supply chains. And this is not only for this reason, but we had already taken measures to diversify supply chains and to diversify suppliers. And we will, of course, have to make efforts to produce products that will be accepted at even a higher price by customers. And because of our efforts to produce such products, it's easier for us to pass on the increased cost on our prices. And it may be only once a year in Japan that we are able to change price. But in Western countries, we have been revising price twice or 3 times a year. As for redundancy in supply chains, this is not only because of COVID-19, but in the past, when we experienced disasters or when we face the problems at our supplier side, we had diversified our supply chains to cope with those situations. In comparison to others, perhaps we were able to ensure stable supply by having such diversified supply chains. Due to increase of cost, due to rising price of components and raw materials, we think it's temporary. And there was a slight delay in procurement of components and delivery of products, but that is not a fundamental problem. Fundamental problem is how agile can we be in addressing these constraints. And by having redundancy in supplies and by hedging risk in comparison to competitors, how stably can we continue to provide products, and that also should be reflected in the profit performance. And that is an area where we have to make efforts in. We have maintained our annual dividend forecast. I touched lightly on some things. And there were many things that occurred, especially towards the second half of September. And there were things that we were able to address effectively because we were able to anticipate these changes and there were some that were beyond our expectations. Those things that were anticipated and have been addressed to degree include lumber shortage. We were able to address this effectively or I think all of Japan was able to address lumber shortage. Smaller builders, local builders may have caused delays in housing construction, and there were also a rise in prices. But when we look at the volume of housing starts, there was not a visible -- there was not a pronounced decline. As for raw material prices, our lumber price partially affected our profitability, but it was limited. As for copper, this is largely for overseas, and we hedged and we also decreased cost, and we were also able to pass on the increased cost. And copper and aluminum prices increased to historical high levels. But overseas, we have shifted the zinc die casting away from copper. We have shifted from copper to zinc. And I think it's more environmentally friendly. And in terms of price, it can be more effectively hedged, and it's more inexpensive to begin with. And I think that is where we were able to address the rising prices better than others. As for our business in China, we were expecting some changes in China from several years ago and therefore direct impact is limited. We were selling directly to developers, but we now go through distributors, and we also increased the retail business and reform business -- renovation business. So we are not so severely impacted. But market for developers will be more constrained going forward. And therefore, growth in China, we have to be more conservative in -- regarding growth in China for next year. As it is reported in the media, there was a serious electricity shortage in China. And as we enter into winter season, there may be possible reduction of consumption of power, and factories may suffer even deeper shortages in electricity. Our facilities are coping with this by, for example, in-house power generation facilities and by diversifying suppliers. And about a core part of our business, perhaps we are coping by shifting to in-house production. We are prepared to address the situation. We have been preparing, but we deal with diverse products and components. And there can be further changes ahead. But so far, we have been able to manage effectively. But what was beyond expectation was the impact of lockdowns in Vietnam. Regarding sanitary ware, certain components fell into shortage situation. And in production and in supply, there was some delay. Production is around 90% to 95%, but things have almost normalized. Our competitor manufacturer was not able to manufacture much in September to October, and there were orders that transferred from our competitive manufacturer to us. And to be honest, we were not able to address all of those transferred orders. We had to -- [ those are ] best to supply to our existing customers. As for our factory in Ho Chi Minh city, it was not able to continue production, and production had to be shifted to Japan. We did not cause inconvenience to our customers, but this was a cost increase factor. And profit, as a result, was not as high as originally expected. As for raw material prices, especially aluminum, has risen to $3,000, and this was a historic high that we were not able to foresee. Until we are able to pass on the cost to the price next time, this will be pressuring us in terms of profitability, but we have shifted to other raw materials. And when we launch new hybrid product, we assumed some increase in aluminum, not 100%, but we are coping. However, things are difficult. And as for transportation container, the cost is 5x or 10x in comparison to pre-COVID level. This was also unanticipated. When there is a bottlenecking as part of the supply chain, the entire supply chain is affected. When there is a shortage in container, this can have grave consequences, as you know, in Europe. As a matter of fact, because of restriction in travels for immigrants, there are lack of labor for unloading, and containers remained in the ports. In our case, in an extreme case, in order to transport material from China to Africa, container arrived in Africa, but because of our labor shortage for unloading the container had to be shipped back to China before it was sent back again to Africa for final unloading. And this was beyond expectations, and especially businesses in Europe and the United States was such that although we had received ample orders, we were not able to ship sufficiently, but it is unlikely that this will continue for a long time. As for container shortage, I believe that it will normalize in half a year or 1 year's time. All of these issues, I believe, are temporary. As far as changes or phenomenons are concerned, the inflation or stagflation, these are new changes. And it's certainly leading to higher risk when we see higher pricing materials to be procured. But when we look at our business, the cost increase can be passed on to our prices. And by continuing to diversify suppliers, we are able to be more resilient against the risks. In terms of the revenue, it's like this. It would have increased more. But unfortunately, because in the September, we were unable to ship what we wanted to ship. And so from October onwards, we have been able to ship to a great level. And from November onward, we should see normalization. So we should be able to catch up. And some falls in Japan domestically. And from last year, we have actually divested a company, and so that has led to some decline in revenue as well. In terms of core earnings, first quarter was good and the first quarter last year was very bad, so a significant improvement in the first quarter. But the second quarter last year, we had the pent-up demand from COVID, which led to a pickup. And so in comparison year-on-year, the increase in the second quarter may not have been as much. But in terms of the quarter, the profit and the -- also the final product, we were able to -- for profitability, we will achieve 140% also of growth, achieving record. And if we look at the consolidated result for fiscal year 2022, and we had 35.1% for the gross profit margin, increase of 2.1%. And if we look at the situation in the recent 3 months, it was 34%. And so in that regard, we need to have to put up an exterior plant in Japan. We had a container issue. So we did see some impact from those situations. But despite that, we were able to achieve quite a stable profit. And when we saw a situation like this level, in particular, in regards to the housing business, we had a large amount of variable costs, but we were able to still endure which was a good thing. And EBITDA, 11.1%. This is a level where we are able to return profit to the shareholders. And if you look at the situation on per segment basis, particularly for the water, we saw growth internationally, which led to the segment growth. For LHT, the environmental issue or a smaller number of new housing starts, we did actually struggle a little bit in terms of the revenue, but we've improved the structure, and we were able to generate profit. For LBT, our renovation business and -- needing to respond to the environment should enable us to grow this business quite rapidly. And so this is going to be a segment where we are able to increase revenue going forward unlike the past. For LBT -- so we were doing this based on the percentage of completion method. And so the profit improvement activity we started last year, this may require 2 or 3 years. So there is some delay here. But if you look at the core earnings, you can see that the profitability is improving. And balance sheet. To begin with, so we have been able to make more money from our business, and we have been able to suppress investment because of our asset-light approach. So we are seeing improvement. So equity ratio is now 33.1%. And so the full year plan is 34%, and we are in line to achieve this number. In regards to cash flow, the free cash flow -- and we had New Life, the structural reform initiative that we've done last year, but we have been able to reduce investment due to asset-light measures. And so free cash flow has increased by JPY 47.2 billion year-on-year, which is a significant increase. And 6 months from now, basically the demand remains strong. In Japan, Europe and U.S., demand continues to remain strong. And in Southeast Asia, too, the COVID had settled down and starting to see a recovery trend. We may see things happen from time to time. But except for China, I think the situation is quite strong. For China, there is a rapid slowdown. And so in regard to China, if we try to achieve excessive growth, and that could have negative implication going forward. And so we have taken quite a cautious approach. And rather than going with the larger developers, whether it be dealers or retailers, these would be the entities to which we should do our sales activities, too. In China, larger developers, they actually sell directly with the toilets or the bathrooms or the sanitary product or there are cases where they don't do that together. So we need to target those smaller projects. In the case of Japan, in regards to new houses, there is some delay due to lumber shortage, but demand remains strong in Japan. And in Japan, as -- what is important is that the renovation was essentially plumbing related, but there is a greater need related to environmental renovation of windows or renovation of exterior wall. This is going to be our strength to be able to increase that type of business. But we have many business risks. If we only look at demand, then we should be able to achieve quite a strong growth in the second half of the year. However, when you think about the business risks that we can see right now, we shouldn't change our forecast sort of simply because normally, from our perspective, in regards to the plan -- the forecast, we may be able to make an upward adjustment. However, because of these business risk factors that's listed on this page, we need to be a little bit more cautious. One is a historically high level of material price increases, particularly for copper and aluminum. It has settled down somewhat, but we don't know what may happen going forward. And electricity shortage in China, if there is a planned power outage in China, that could potentially be implication of power supply. Container situation, we don't think the situation will become any worse than what it is now we're seeing right now, but there is also a ripple effect. So we need to be cautious. And the lockdown in Southeast Asia we've experienced that on this occasion. We don't know what may happen in this regard. So we have a number of these combining, and it becomes difficult to forecast. So the shortage of the parts supply could occur that is difficult to predict. But as I've been saying, we have been working on achieving the supply chain redundancy. So I think we are quite resilient. And in that regard, we should not cause much problems for our customers. And in comparison to the past, the level of the problems, of course, the customers were much smaller on this occasion. However, because of the shortage of supply in the hot water systems, in fact, it was a case that hot water system could not be supplied. And this hot water system unless the hot water system is available, it's difficult to sell toilets or bath units and things like that. So not only us, but the type of product sold by someone else, which is also bought by customers together with our customer. This is something that we can't control. So COVID and the raw material shortage in China and container issue, if we think about various instances going at the same time, then I think it will be irresponsible of us to take an optimistic view. So we decided not to change the forecast in that regard. And subsequent pages, I would like to touch upon them in order to respond to questions. Thank you.
We will now like to entertain questions. [Operator Instructions] Yes, we have received a question to the chat box from SMBC Nikko Securities, Kawashima-san's question. In the 3 months of the second quarter, profit margin decreased, and core earnings was affected. Overseas LWT recorded increase in revenue but decrease in profit. What was the reason? And in Japan, LHT in comparison to the first quarter, enjoyed increase in revenue but decrease in profit other than exterior wall replacement. Are there other factors?
Regarding the first question, for most part, in September, in Europe and the U.S. and in Japan, there were orders received, but we were not able to ship. So that is for a different reason. In case of Japan, other manufacturers were not able to supply as a housing manufacturer. In the last week, we were not able to ship because of others not being able to ship. And overall, regarding Europe and the United States, containers shortage was the problem. Although we received orders, we were not able to fulfill these orders. As for decrease in profit for LWT outside of Japan, last year, in the second quarter, especially in Europe and the U.S., there were rebound in demand -- rebounding sales after pent-up demand was accumulated. And there was a strong rebound in the year-on-year in Europe and the U.S. And in September, in the last 3 weeks, we were not able to ship as much as we originally thought we were able to and that impacted the profit. However, LWT -- with regards to LWT, we took measures early on to hedge the price of commodity, but container costs rose quite substantially, which was beyond our expectation, especially in the last 1 month, container cost increased by five to tenfold. This was a huge factor. As for LHT, for one thing, aluminum price is rising and the rise of aluminum price is definitely a factor. Aluminum price in April was about $2,100 per ton. But in September, the peak was over $3,000. Naturally, we will be passing on that to our customers, but we cannot do so quickly enough. And aluminum, this is used not only in windows as such, but in exteriors and doors. So commodity price increase affected us. And on top of the container cost increased and because we import materials, that is also having an impact.
Next is from Nomura Securities. Fukushima-san. Fukushima-san has the -- sent in 2 questions. And if you could respond separately. And the first question, over a year, aluminum, 160,000 tons, and copper is 20,000 tons of usage. Is this the right understanding of volume used?
It does change depend on the demand. So I can't give a direct response.
Is that something that we can respond to? Can you give us numbers?
I think we have numbers from last year. This is Hirano from the IR unit, and allow me to respond. Now at the end of last fiscal year, this is the actual for last year, not the forecast for this year. It was 138,000 tons. And for copper on a global basis, 22,300 tons. These were the actual volume used. And as a ratio, I think it has come down per revenue because in regards to copper, we are trying to convert to zinc. And for aluminum, we are starting to use more scrap of the aluminum. And so the portion that we are buying from overseas have started to come down somewhat. And we have started to sell resin-based sachets, and we expect ratio of this product to increase for the year.
Now turning to the second question from Fukushima-san of Nomura Securities. In Japan, bath products, kitchen, toilet, for these products, I believe you've raised price. And by raising price, how much cost can you cover?
It is not possible to answer because situation is different for each product. In case of bathroom, the cost increase that we have seen is occurring later. And after we increased the price, cost increased, and we are thinking of increasing the price for the second time in the year. But I'm not able to immediately answer. Regarding kitchen and toilet, cost cover by price increase, we think we have been able to offset the cost increase more or less by increasing price, but that was not originally the purpose of why we increased the price for kitchen and for toilet. Overall, we wanted to make our supply clean, and we also wanted to shift to higher-grade product, and that is why we were raising price. And this was not originally for the purpose of covering the increase in cost when we raised price last spring.
Next also a question in the chat from Morgan Stanley MUFJ Securities, Katsuyama-san has asked the question. The price of aluminum continues to increase and the time lag to price being passed on. How much duration should we assume?
Well, from common sense, once a year is when we revise price. And in that kind of environment, what can we do? Well -- so low price product for those customers who actually buy a large quantity, we actually increased price for [ Lowe's ] customers midway through at times. So we can't overgeneralize, but maximum 1 year.
Turning to a question we have received via e-mail from Mitsui Sumitomo Trust Asset Management. Takegawa-san has sent a question. Japan, the United States, Europe, is there a change in demand and by country? What products will enjoy demand? And what is the order backlog currently?
Regarding Japan -- and as for demand, demand is strong across the board for all regions. But regarding Japan, new housing, as I mentioned earlier, because of lumber shortage, in comparison to the initial forecast, there is some decline. But basically, there is no major change, and demand basically is very strong in Japan. And as for demand for our products, the competitors' toilet supply is in acute shortage, and there is a very strong demand for toilet, especially for shower toilet. But we also are not able to manufacture enough to supply for the competitors' supply portion as well. But this situation, the increase in demand is partly coming from the competitor not being able to supply. And toilet and kitchen are typically used in renovations, we are seeing strong demand. As for order backlog, it is -- we are taking orders in the same way as before. So far as we look at the order backlog, at least, I don't think there will be any major change before the end of the year. Demand is also very strong in the United States. As for the United States, what is difficult to forecast is that although demand is very strong, supply of products are delayed not only for LIXIL but for other companies as well. Customers are placing their demand to traditional counterpart and additionally to other counterparts. And that makes appear that demand is stronger. And however, rather than looking at demand on a country-by-country basis, we would like to increase higher-end sanitary ware and shower for bathroom and faucet for bathroom, these are our focus areas. And demand is high, but we are not able to meet all of the demand for these products yet. Especially regarding shower, demand for shower is very strong in the United States and in Europe. And at full capacity in terms of manufacturing, we are not able to meet all of the demand. By focusing on types of products, we are making efforts to satisfy demand. Demand is also strong in Europe, but the situation is different from country to country. In Nordic countries, demand is somewhat weakening, in Nordic countries, in the last 2, 3 months, but East Europe demand is growing. Overall, Europe demand is very strong in Europe. And I don't see any signs that this will change. And it's also a question of what products should we sell. Flushing system, water system, we are seeing a very strong demand for these products, especially for water system, what is called GROHE Blue rather than using PET bottle, oxygen water out of the tap is provided, and that product is growing very rapidly, especially in Southern Europe. As for flushing system, in Eastern Europe and in Russia, we are seeing very strong demand and also in U.K. as well. Central Europe and Nordic countries are showing somewhat weaker demand. But overall, in Europe, demand is very strong, and we are seeing accumulation of order backlog. How are we going to address order backlog? Basically, we will be focusing on rapidly selling SKUs to allocate the manufacturing capacity to popularly selling SKUs. And because of a delay in supply from Asia of -- because of COVID, sanitary ware supply overall is slowing. And so the question is how can we catch up.
We have a question in the chat from Goldman Sachs Securities, Okada-san. Now on this occasion, Europe, U.S., Japan domestically because of the supply restriction, I would assume there is a backlog accumulating. But after the bottleneck regarding supply is resolved, can we expect to see a reasonable amount of impact towards the next fiscal year?
Well, if possible, we'd like to be able to deal with the situation before the end of this fiscal year, but we are seeing an increase in those that has been pushed back quite clearly. In Japan, domestically, not as much bottleneck in terms of demand. But when it comes to U.S. and Europe, the backlog demand continues to build up, and that is a fact.
Those are -- we have a further question we received via e-mail. Omuro-san of BofA Securities has the following question. According to the material, by the end of October, most of the issues will be normalizing. Now we are in the last week of October. What are yet to be resolved? What have been resolved?
In Japan, almost all issues have been resolved. Seat type, shower, toilet, in part, there is still slow delay, but I believe this will completely normalize by the second week of November. And there are some small quantity products such as a public product that may have to wait until January for things to normalize. But overall, it is more or less normalized. As for Europe and also Africa, because of container issues, we will have to wait for our turn. And phase by phase before the end of November, according to the report that we have received and since the cargoes are already in the port, we think we should be able to start shipping. We don't see a fundamental problem. But in Europe, in the United States, cargoes are not unloaded from the containers, but I think this will gradually be resolved. However, the demand is exceeding production in some products, such as shower that I mentioned earlier, we have to increase our production capacity. This is not an external factor, but internal factor to achieve higher growth. And I do want to see us achieve higher growth. So we will have to spend time to address this and increase production capacity. But by next fiscal year, I think things will have normalized.
From BofA Securities, Omuro-san has sent in another question. You have said that the change in the business model may be required in China. But specifically, what the -- some of the things being considered? Do you intend to increase direct sales to consumers from developer?
Maybe how I explained I may not have been right. So rather than it's been necessary, we are already doing this. And what we need to reduce the most is selling directly to the large developers and that to dealers. And as I said before, and the projects, the right instances where it's only the house being sold without the fixture. So dealers or the retailers or LIXIL 24 service where we are providing 24-hour service to the renovation. In regards to GROHE project, in project, in many instances, the products are introduced after the units, e-commerce direct sales being increased as well. So such ratio is increasing quite notably. And those are sold directly to larger developers as a total proportion started to come down quite notably. And 4, 5 years ago was mostly to the developers. And so I can say that the business model has started to change quite significantly. But the larger the developers, they have in fact led the -- or drove the growth in China. So when they slow down, we need to be more cautious in regards to growth in China. So if you want to achieve growth in China as to whether we should accommodate this part or not, and we have made the judgment not to accommodate that type of business too much.
We still have some time. If there are further questions from the participants, we would like to continue to accept the questions. If you have questions, please use chat function or send question via e-mail. We have received question via e-mail. From -- the question is from Yagi-san of Mitsubishi UFJ Morgan Stanley Securities. As far as business risks in the second half are concerned and you've identified several risk factors for each risk factor, what will be the impact at core earnings level? In particular, material cost increase and container shortage pushing up the cost. What would that impact be? For example, right now, aluminum was as high as $3,000, and it's now back to $2,760. But if it goes as high as $5,000, there is no way of coping with this.
Now it's already very high in terms of price for aluminum, and we have to incorporate that high price as we make demand forecast. If you calculate backwards, you might be able to understand. But to put it differently, unless aluminum price rises to that very high level, I think we might have been able to make an upward revision to our forecast. The factors that we are currently able to forecast or foresee are all included in our current outlook.
And Yagi-san has asked another question, and so let me continue. The impact of the reduction in profit vis-a-vis last year, increase in materials and the shortage of container. The impact, are we expecting the impact to be larger in the second half of the year in comparison to the first half of the year? Maybe if you could share with us your image.
There will be a larger impact in the second half of the year. But -- and as was asked before, the orders are being kind of pushed back. And so as a reality, we have high level of demand and the pricing revision. In the case of Europe or the U.S., we are able to revise prices more frequently than Japan. So we are able to catchup to an extent. And also, in the end, when the demand is large and the supply capacity is limited, then we will prioritize on those business with a higher margin. So if we take that into consideration, basically, the impact of cost, the cost impact will be larger in the second half of the year in comparison to the first half of the year, but we are able to capture a greater margin than that increase in cost. So the total margin in the second half of the year will be larger.
Next, I would like to introduce a question we received in chat. Teraok-san from Daiwa Securities has the following question. People may be eating out or traveling rather than staying at home. If there is a shift in demand, is that going to have an impact on currently strong demand for mid- to high-end products?
I don't think that will necessarily have a negative impact. We have lost things, for example, project business, hotels, and especially in Southeast Asia, project business accounts for a large percentage of our business. And so if consumers are shifting to traveling and eating out, further demand for faucet GROHE is the product of first choice. And in our business portfolio, it is a product that is able to command high profit margin. So that is not a bad story for us. As for Japan, in Japan, will people move away freely away from staying home to traveling freely? I don't -- I'm not able to imagine that there will be a rapid shift. And in Japan, we are -- we have expectations not for plumbing products, but heat insulation, exterior wall and windows and renovation using these products. And I have stronger expectations of growth in these products. Because of environmental awareness, even if people start to eat out, the need for these products will remain. And as a consciousness of ESG growth, demand for our products for door and window will only increase. And if exteriors for people who go outside of the house, to work outside of the house, there should be a demand. And I don't think that there will be a weakening of the demand of these products.
Next from Morgan Stanley MUFJ Securities, Katsuyama-san is asking a question. Now the price transfer of cost of raw materials, that was very difficult in the past based on the industry structure. Right now, is it the case that it is easier for that to be accepted? Has there been changes in the trading practice or environment? If there is any, please let us know.
Now in regards to the price of raw materials. So now passing on of the cost, this was something that we have been able to do for exterior. But in regards to sachets, including ourselves, LIXIL and the competitors, manufacturers had not really worked on that. So it wasn't the case that price did not go up, but we were not trying to increase the price. So we changed that approach completely. And given the current situation, it's quite unthinkable to try to win business by lowering price. And we're not assuming competitors to take a different approach. But even if the customers -- or sorry, the competitors did not take that type of approach, we now have a very good, differentiated window product. And so we're not thinking of a situation where we are unable to pass on the price or increase the price. We feel that we will be able to increase the price and still win business. And simply put, window, it's not a product with high price sensitivity. And users don't know how much windows cost in majority of the cases. So this is an industrial structure that we, as the industry, created ourselves. So this is something that can be changed if we make the effort.
Now we have received the following question via chat. The question comes from Kawashima-san of SMBC Nikko Securities. Aluminum price rise to pass on to product price. You've mentioned that you will have to extend the interval of price increase, but you have questioned traditional business practices and trading practices. And what do you think is the problem? Material suppliers are also struggling. And is it not possible in Japan to flexibly increase price or revise price?
Persistent product persistent merchant practice in Japan is the practice regarding price. When price increases, we have to indicate this as the representative price to customers. However, when the margin is changed or discount has changed, our margin will be shrinking. So the price -- formal price will have to be increased. And we go through wholesale channel. It's not only for our industry, but this is a typical problem for supply chain that requires wholesale. And therefore, we have to change the list price and cap locks, and intermediaries may not be able to cope with those changes oftentimes. Intermediaries, therefore, have to undergo digital transformation. Surcharge was not a concept that people were familiar with in this industry. And I think one possibility is to introduce surcharge. I think we will have to introduce many new things. And we shouldn't simply give up simply because things are not done before. I'm trying to change. And by buying in bulk, there was a negotiating power in the past for the customer. But even in those cases, we have to persuade customers to accept increasing price. In other words, we have to make our steady efforts, and this is something that I would like to do this fiscal year. And by implementing this, this fiscal year, we will be able to reduce risk in the future. But if we do not seize this opportunity, then we have to increase our price by larger margin anticipating the price rise in later years. And this is not beneficial for customers either. And to be able to cope with change in cost flexibly will be beneficial for the entire ecosystem, including our customers. So we would like to make efforts in that area.
So we have received a question by e-mail from Mitsui Sumitomo Trust Asset Management. Takegawa-san has asked the question. After the announcement of financial results, the share price fell quite significantly. This is likely to be as a result of disappointment with the announced result. Is there anything that investors have overlooked? Is there anything that you would like to communicate towards the next fiscal year?
Well, I think the expectation was a higher number, and we were unable to realize that, that probably was the reason. But as we explained many times, the last 2 weeks in September, we were unable to make sufficient shipment in Japan, also in Europe and U.S. What we have loaded on container could not be shipped. And of course, this issue will be resolved when we are able to ship with the time being passed. And it's like trying to push through much water into a small pipe with pipe breaking down. And if we change to the larger pipe, the water will flow. So over the long term, this is not a bad issue. We saw some decline because of this type of short-term issue, which may have led to disappointment. And all I can say here is I'm very sorry or apologetic, but a lot of things that happened was something that we were unable to control. But despite that being something that we can't control, we are able to respond in terms of increasing price or the container issue or lockdown issue, these will be resolved with time. So this is not something that you should be too worried about. Conversely speaking, strong demand that we are seeing right now and all our strength in the fundamental business, I think, these have become more evident and maybe this is something that has been overlooked. And our margin and the exterior issue that I touched on before, the commodity price increasing, there's been some pressure on the margin -- profit margin, but by passing that on, we should be able to make improvement at least vis-a-vis the first quarter. So the fundamental remains very strong. You should be able to take it as such.
I would like to make additional comments. This is Matsumoto speaking. Balance sheet is showing steady improvement. Our ability to generate cash is also improving very steadily. Additionally, with structural reform measures, we have become more resilient and robust, and I hope you will analyze these over the weekend.
If I may add another point. This is Seto speaking. I feel that to company LIXIL, full trust is not placed yet. The amount of cash that we are generating and the resilience of the revenue given the challenges that we face and the growth rate in overseas business and the fact that we have businesses that have a high profit margin, to be honest, I think that should be valued higher than the current evaluation. But because of past problems such as Joyou and Permas laser, where we incurred losses in a fashion that was not expected by investors. So I think the trust was eroded. Once we regain confidence and trust, I think stock price of LIXIL should be able to rise. I think there is a room for that. Trust, I think, is very important. In the previous organization when I was running a company called MonotaRO after going public. In the initial 3 years, MonotaRO was not able to meet the outlook. It was a start-up company, that may be an excuse, but after a while, we were able to analyze customers' behavior and make correct forecast. And when we are able to meet the forecast, beat the forecast, stock price started to rise very quickly. The stock price responds not only to strong performance, but I think it's also correlated to trust that investors and shareholders place in our company. And I think that trust is not still sufficient. And by missing only by a little margin, the forecast, I think stock price reacts.
We have a little more time. If you have a question, please use the chat or e-mail to send in your questions. It seems that there are no further questions. So with this, we would like to conclude this Q&A session. So with this, we would like to conclude the first half result for the fiscal year ending March 31, 2022, of our LIXIL Corporation. Thank you very much for your attendance, and we look for your continued support towards LIXIL Corporation. Thank you. [Statements in English on this transcript were spoken by an interpreter present on the live call.]