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[Foreign Language] It is time for us to start the briefing on First Half Results for Fiscal Year Ending March 31, 2023 of LIXIL Corporation. This briefing is streamed live online. I would like to introduce to you the presenters. Director, Representative Executive Officer, President and CEO, Kinya Seto; Director, Representative Executive Officer, VP and CFO, Sachio Matsumoto; Head of IR, Leader for Corporate Accounting and Treasury and Tax, Kayo Hirano. I will be serving as the MC. My name is Fukushima from IR office. The material for this briefing is in the IR section of our corporate website. I would like to explain the schedule for today. Mr. Seto will be explaining about the second quarter results for fiscal year ending March 31, 2023. [Operator Instructions] We expect to finish at 6:00. Without further ado, I would like to hand over to Mr. Seto to talk about the first half results for the fiscal year ending March 31, 2023. Mr. Seto, please.
Hello, everyone. I would like to talk about the results for the second quarter for the fiscal year ending March 31, 2023. Regrettably, this time around, the first half had the increase in revenue, but decline in profits year-on-year. So that would be the same for the full year, and we had revised the forecast downward. Regrettably, there was a rapid depreciation of Japanese yen beyond our estimation. And related to that, there was additional price increases for components. Also, there was cost increase due to supply chain disruptions. This had deteriorated the cost. However, under a very difficult environment, we have worked on the stable supply of our products. This has led to increase in the revenue. However, due to various factors, the profits declined. The profits declined because there were a lot of negative factors beyond our assumptions. In the Americas and China, there was economic deceleration. And with that in mind, we have decided to revise the performance downward. The dividend forecast remains unchanged. In terms of the supply chain disruptions, we had worked on to fix the problem. Europe had faced a lot of issues in the supply chain disruptions, but we had started a new distribution center. And from third quarter onwards, the situation will be improved. First half was more difficult than we had expected, but in the second half, we will enter the period of recovery. We would like to solve various issues within this fiscal year, and we would like to prepare ourselves so that we can generate more profit in the next fiscal year. The original plan for this fiscal year was that even with various cost increases, if we are able to pass on that cost, we thought that we would be able to get the core earnings of JPY 81 billion. And so with the -- so the reason that we were able to get to JPY 81 billion is because of the increase in the cost due to inflation as well as the positive impact from the -- the positive -- the price optimization and structural reform. So first, I would like to start out with what had impacted us the most? The ForEx had impacted us the most. I think that's where I need to start my explanation with. And so the ForEx impact was JPY 12 billion, but there are other areas which were impacted by ForEx, so I would like to start out with that. From the past in LIXIL, in the face of yen depreciation or yen appreciation, we were able to offset the situation at LIXIL. Even with the difference in the seasonality, we faced the transaction risk and translational risk where we would be able to offset the 2. So what is transaction risk? Transaction risk is the imported product denominated in dollars. And when the yen is depreciated, it would generate loss. When it's -- when the yen is appreciated, we would be able to generate profit. On the other hand, translation risk is that we have 1/3 of our business from overseas. When yen is appreciated, it would generate losses. And when it's yen depreciation, it would generate profit. So because those risks are working in a reverse manner, we would be able to offset the impact. However, this time around, the transaction risk and translational risk could not be offset with each other. Why is that? There are several factors. The first factor, euro did not appreciate as much as the dollar. That's one of the big factors. In the case of LIXIL, so our overseas business consists 1/3 of our total business. And out of the overseas business, half will be covered by euro, the European business. And there are euro-linked currencies being used in some of the markets that we operate in. So the dollar-linked market, namely the U.S. The U.S. business was struggling. The profitability, not the revenue, the dollar appreciation will be impacting the U.S. the most. But from July to September, the interest rate had gone up, and there was a demand adjustment and various channels had conducted the demand adjustment. And because of that, in the U.S., we were not able to make much profit. The translation benefit in the U.S. did not realize and inclusive of euro, the other currencies' translation benefit was very limited. And the same applies to Chinese renminbi and other Asian currencies as well. So we did not have a translation benefit. And there was a lot of transaction risk. $1 became JPY 150 all of a sudden, and that had negatively impacted us. Second point. Frankly speaking, this is the area where we need to fix in the future. I mean, it says the increase in the price of the component and energy prices. And as for LWT Japan, the vendor had increased their prices and we had not expected that to happen. At the beginning of the year, we had considered that there is no price increase because there was no announcement as such. So there were rapid price increase in the commodity, but also at the same time, there were some raw materials that are -- the suppliers were buying, which they had to buy, and they needed to increase the price to sell to us, and that had negatively impacted us. There is impact from supply chain disruption around spring. The container availability had become very tight. The sea freight had become very high, and those containers went to the U.S. or Europe, and we were not able to unload at the port. And as a result of many inventories coming all at once, the logistic cost had gone up and we had to pay that in dollars, and that had negatively impacted us. So those are the big factors that impacted us negatively. How did we react? As I have explained in the past, with regards to price increase, we decided to do that twice a year rather than once a year. And as I explained in the previous page, we conducted the price increase in April and October. We looked for what else we can do. We decided to increase the price where we can, both domestic and overseas. As for the products, which does not have price list, we decided to renegotiate. Through these initiatives, we tried to respond to the situation and the impact of that was JPY 9 billion. As for indirect costs, GROHE X, there, we conducted the promotions online. And by -- we reduced the number of trade shows that we went to in LIXIL as well, and we decided to decrease the amount of printing for the catalogs by making the catalogs digital. Also, we used online showrooms for presentation, so that we can reduce our operating cost. We were able to make our indirect cost efficient, that amounted to JPY 11 billion, and price optimization was JPY 9 billion. But the overall forecast for core earnings is JPY 42 billion because of other negative factors. In terms of the sales mix, China has a bigger profitability, but the economic situation in China was not so good. And in terms of the category, in order to maintain the supply, we had to buy the low profitable though products, which had higher cost and that negatively impacted us as well. On the other hand, the energy prices, the raw material and component costs. So in terms of the components, as I have said earlier, the supplier had conducted price increase where we had not expected. We should have expected this to reflect it to our price increase. However, we have not been able to do that. Another point is when COVID happened, the cost that we had spent various costs to respond to it. For example, so there is the antivibration of rubber that is used in the bathroom. And we created the mold of -- mold when we were not able to get it from the suppliers. And when we did it in-house, that would add on to the cost. So it is not just about this rubber, but in the other products, we had to respond to the supply chain disruption and that added on to the cost. In terms of the energy prices, we believe that there would be an electricity price hike in the latter half of this year in Japan. In terms of ForEx fluctuations, we are looking just the ForEx impact. The aluminum import had been largely impacted in the first half due to ForEx. We were hit harder than we had expected. The impact from supply chain disruptions -- the ForEx fluctuation will be impacting us in the second half as well, especially in the area of sash and exterior aluminum. Also, it would be impacted by the copper price. With regards to supply chain disruptions, in the U.S. and Europe, we were not able to send the containers to those countries, and the container costs had gone up from 5x more to 20x more. So the freight cost was higher than the product cost, and we were not able to unload it at the port, and we were not able to deliver it to the destinations and that added on to the cost. We are expecting the ForEx risk to be up to JPY 160 per $1. And also, so the ForEx risk for that is JPY 2 billion, if the ForEx rate will go from JPY 150 to $1 to JPY 160 to $1. And because of that, the core earnings overall will be JPY 42 billion. The energy price component and raw material prices, we will be impacted more in the second half. And as for the ForEx fluctuation, there was a gradual change. And in the first half and in the second half, it will be flat at JPY 150, so there would be more impact. And in terms of the supply chain disruptions, we would be impacted more in the first half than the second half. So components, raw materials -- so for the cost of that, we will respond it by price optimization. So next fiscal year, we believe that through the measures that we take this fiscal year, we would be able to recover. We will optimize our price from October so the recovery will start from October. We are doing well so far. And in the first half, we struggled, but we believe that even though we are lagging behind, we would be able to show recovery in the second half. So this is a summary of what I have explained, group wide. The yen depreciation, which rapidly happened and also increase in the cost of sales due to an expected increase in component prices. We have worked on to reduce the cost where we can. However, we had to reduce the core earnings forecast downward. So we want to make countermeasures throughout the year so that we can recover from next fiscal year. We want to solve all of our problems within fiscal year '23. As for Japan, for new houses, I'm sure that you have concerns towards that. It is true that the component prices are going up. And as a result of that, it may negatively impact the housing starts and some of the local players in the Japanese -- some of the Japanese regions are feeling that there would be impact to housing starts. However, for renovation. So in the past, we were working in the water-related area for renovation, but we are now having high expectations for the housing renovation because of the increase in the energy price and the more interest in the environmental issues, there is higher demand in heat insulation products. In addition to that, last Friday, the central government has announced the economic -- their economic policy package, and they are to focus on the heat insulation products. We had been telling the government that it is needed to respond to heat insulation because the heat insulation capacity in Japan is much lower than the other countries. And there are 800,000 new housing each year, but the existing houses number is 60 million, so we need to fix the heat insulation improvement in the existing houses. And if the windows and doors are fixed, that would be conducive to a better situation for the environment by making the window of 3 panels window from the single panel, we would be able to reduce the CO2 by 15 million tons. This means that we will be the biggest industry to reduce the CO2. So we need to improve the performance of the windows in Japan, and we will work to increase the number of renovation. And starting from January of next year, I think that this will go into a full-scale project. As for the international region, the EMENA region, it was expected that Europe's economy will decelerate. However, our products, as we track the GROHE demands, it is not impacted so much by the economic situation, so there is a lot of replacement demand. So in addition to that, order book is very healthy. Now the supply chain is being stabilized, so in the second half, we believe that this region will be better. If the [ EMEA ] -- East and Middle East are doing very well. As for Americas, the interest rate had gone up and the demand for new housing had gone down. Our customers had conducted the inventory adjustment from July to September, all of a sudden. The supply chain was being better and now the product had been provided, but then the inventory adjustment occurred all of a sudden, and that negatively impacted us from the profit side. So when will the situation be better? There are a lot of views about the inventory adjustment, but we believe that we have expectations that the orders will be normalized at the beginning of the year, and the inventory adjustment will be completed by the end of October. But on the -- to be on the safe side, we are saying from next year. In terms of China, the real estate industry had deteriorated. And now there is more money put into the real estate industry and the orders are now being retaken. But in the longer term, it will still struggle. So we believe that the growth will be as low as the first half. Asia Pacific is doing well. It is because COVID is now dwindling, and the hotel projects are coming back. The demand is being better. So based on such a background and if we end up with this type of the corrections, how much will the performance-linked compensation deteriorate? I'm assuming this type of question. And so myself and [indiscernible] we probably will not be paid any compensation that is linked to performance. But over the long term, we feel that the business environment is becoming quite good because we are seeing acceleration of environmental issues in the energy crisis and higher energy costs. And window, door, wall, roof, the product in these areas, which we had considered to be more mature, but we have great products in this area. And not only that, as you can see on the slide, and we have the product called revia, which utilizes plastics that are difficult to recycle. And so there is a greater focus in these areas and effort in these areas are likely to bear fruit going forward. And when there is a private-public collaboration and there is the national movement by Ministry of the Environment to create a better living condition. But with the large the economic measures, one pillar is that the heat insulation of houses, and we feel that, that is going to create a significant business opportunity for us going forward. And we've been talking about the heat insulated windows, but not only that, solar panel based Tatetoku series, or we have a super wall with high insulation effective or Value Tatetoku has the partial of the heat insulation on the property. So we expect this heat insulation product to really grow going forward. And when the material prices increase and then it becomes difficult to build new houses, then renovation becomes more prominent, particularly the renovation related to the physical structure of the housing likely to increase, which is going to be an opportunity for us. In terms of energy, the hot water portion, so not in a bathtub, but to use showers instead. And I think this is going to attract greater the attention. So SHIN-ON or Body Hug Shower are shown on this slide, these technologies enable people's body to really warm up as if you have just jumped into the bathtub. And in comparison, to the [ KINUAMI ] that we have already launched in regards to the shower, I think the LIXIL's the innovations are likely to receive more attention. And more recently, what we have announced and what we have launched new is the revia, which is the first product in the world that enables recycling of all types of plum different waste plastic. And we feel that there is going to be a large potential for this going forward. And also overseas, and we have Cradle to Cradle the recognized product, which is the most advanced recycling product range as we continue to work on increasing such product. So if we go to the -- look at the highlights of the second quarter, the earnings for revenue, we have made efforts and somehow maintain level. But because of the sharp rises in costs, frankly speaking, we were unable to fully respond to that. So from our perspective, somewhat disappointing and the fact that our recovery was delayed, that was a fact. But despite the delay in recovery, we will optimize the price from October, and that should stimulate recovery. And jump into Page 16. Now on that basis, for the first half of the fiscal year, core earnings on year-on-year deteriorated, W JPY 20.1 billion, the H is JPY 12.6 billion of deterioration. And one factor is that the April to June last fiscal year was really strong and that was when before the inflation started. And so the inflation started after that, and the price optimization did not catch-up and that has continued. And so in that regard, in the last fiscal year, the first half, particularly the April to June, that is the state that we need to return to as quickly as possible. And from October in the second half of the year, and probably the bottom was between July to September this year. So from October, in the second half of the year, JPY 1.5 billion for LWT and JPY 12.4 billion LHT, we are expecting an improvement year-on-year in the second half of the year. Now the April to June this year, our plan was to have that as being the bottom. However, consequently, because of the weaker yen, we were unable to respond. And so for us, the bottom ended up being the July to September quarter. But in comparison to the first half of the year and the second half of the year, and on a year-on-year comparison basis, we expect the minus JPY 31.1 billion in the first half. In the second half of the year, we expect plus JPY 8.2 billion positive. So a rebound there. And for next fiscal year, we should be able to take a little bit more an aggressive outlook. So that was a little bit long-winded explanation, but I think I have left enough time for your questions from here. I would like to take your questions and respond to your questions.
We would like to have question-and-answer time. [Operator Instruction] The first question from Sumitomo Trust Asset Management, Mr. Takegawa.
So there are 4 points -- 4 questions related to the full year forecast: deterioration of sales mix. Could you elaborate more on this? Would there be any impact to the next fiscal year? The second point, the additional price optimization. It seems that it's not catching up. But how would you be responding going forward? So how would be the demand and consumer react to the multiple price increases?
I would like to know more about the domestic new housing and renovations. Because the market situation for sales in the U.S. as well as Europe, compared to 3 months ago, how has it changed with the deceleration in the economy? How are the consumer mindset being changed? So in terms of the increase in the energy price, I believe that this would negatively impact next fiscal year. But would there be any response that you can take in addition to passing on that to price?
So in terms of the sales mix, we don't believe that it would be impacting negatively from next fiscal year. So in terms of the sales mix deterioration, China and Europe had underachieved the plan even though they have higher profitability. Aside from China, in Europe, the orders are coming in, but we were not able to ship. So if we are able to ship, then the sales mix would be improved. In terms of the U.S. overall, the ceramics ratio has gone up and fitting had come down and deteriorated the sales mix. As I said earlier, there was an inventory adjustment on the channel side. If that's completed, we would be able to normalize that the way that we sell. So for the U.S. market, we don't see -- we don't foresee that it will be deteriorated compared to this year, next year. So in terms of Japan, in order to continue our supply, we had to buy -- at a higher cost component, but that would not happen next fiscal year, so I don't think that it would negatively impact us next fiscal year. There are times when the sales mix is bad, when the sales mix is good. But regrettably, this time around, it had hit us hard by worse sales mix. And to your second point, it is true that we have not been able to respond as quickly to the additional price increase. So I don't want to say so much excuse, but we didn't expect that aluminum would become $4,000, and copper $10,000, and we did not expect this rapid of yen depreciation. From January to February of next year, I think that we will be catching up our countermeasures. And the reason why I say that is that aluminum was very high in price and also copper. So March was the highest. And we had bought it and hedged it, and we will complete the usage of all of that around January. So we think that we can catch-up around February and March. So for the yen depreciation, the situation is a bit complicated. Aluminum had been hit the hardest. As for aluminum, what was $4,000 had come down to around $2,200. On the other hand, we had hedged debt at around $3,200, so we still have that remaining in our inventory. And in the yen calculation, when it's JPY 150 to $1, it had not come down and it would remain that way for quite some time. And up until January of next year, the situation would continue. For this portion, around April, we will be optimizing our price then, and so I think that we can catch-up then. If aluminum goes up even further or copper goes up even further, well, considering the current China situation, I don't think that will happen. Conversely, it is -- if the price comes down, it is an opportunity for us to generate profit. So even -- so the time lag doesn't always work in a bad way for us.
And so how would the consumers react to the price increase, which has happened on multiple occasions?
In the overseas market, our products there has a lot of replacement demand, so there is not much impact to the new housing. But in the inflation era, when the real estate prices go up, the new housing price will be going up as well. So in the past, people were able to buy at a low cost because -- so they would -- going forward, people would not be able to buy as much at low cost. So there may be a decrease in the demand. And we believe that in 2030 is that there would be 60 million existing houses. And we have made us ready for that assumption. But now we have subsidies for renovation. In our housing business, 90% was new houses. But going forward, our renovation business would be going up and the profitability is higher in the renovation business. So I think it is a tailwind for us. As for renovation in the water-related product. So even though we have competitors like Toto, we have to think about how we would be able to compete in this market. So it is true that we have to increase the price. And I don't think that there was any manufacturer who did not increase their price, so I think this was a game changer in the market. So I have to select the words that I use, but with regards to our products relating to the price, the consumers do not have fixed image over prices. For new housing, I think that they have a certain image about the price. But the price of the kitchen, price of the windows, they -- I don't think that there are many consumers who have a fixed idea of how much price they should be. So I don't think that demand will stop just because of the pricing. The increase in the price would be just a matter of the timing in the renovation area. So of course, it would be impacting the new housing. And relating to the sales situation in Europe and U.S. So it is true that the new housing business will be hit hard with the economic deceleration. However, in Europe, we don't see much decline in the demand because renovation business is our central business in Europe. As for the U.S., there are adjustments on the channel side. And this is very specific to us. But at LIXIL, when the products arrived, the channel's inventory adjustment occurred and that had negatively impacted us.
So would the channels be selling the products at a lower price because of the worsening situation?
That has not happened in the past. However, in the U.S., there is inflation going on. And the -- if the asset prices go down and when they -- in order to -- so I think that for the coming several years, the situation will be bad for buying real estate and building new houses for coming several years. So compared to 3 months ago, things have not recovered, but I don't think that we need to significantly change our strategy. As for the energy price increase, I don't think that would be too big of an impact. So as for the overseas plants, the 50% renewable energy and 50% green energy is what we have been working on. And the -- for the 50% renewable energy, the price may increase. But the ratio it contributes to the cost is not so big for overseas market. But in Japan, regarding aluminum, there would be a big impact. And as for the sanitary ware, there would be an impact to the cost. If we look just this year, it would not be tens of -- it would not be billions of yen cost impact. The energy saving measures have already been taken. And we would be conducting price optimization next April again and from October to March, and the energy cost from April onwards. So comparing that, I don't believe that it is a given that the energy price will increase after April. I believe that it would be peaking out this winter. That's the consensus around the world.
So let's go to the next question. The next question is from Okada-san from Goldman Sachs Securities.
2 questions. In regards to your European and U.S. business, how did you perform in comparison to your competitors? Please inform us of our current order intake situation. The second question. I understand that you have been undertaking structural reform, but for the LHT and LWT business, how much margin would have improved, if we did not experience the yen depreciation on this occasion as well as the increasing component prices?
Well -- and so we have most of the numbers already, and so we'll ask Hirano-san to respond later on. But generally speaking, there were essentially no way -- no one who performed well because I think everyone experienced quite a tough situation. But there was some difference in regards to the focus of our operations. So [indiscernible] focused the operation and is that is the main business was fitting or sanitary ware. I think that also had and created different results. And roughly, based on my memory for Europe, I think we performed better in comparison to competition in general. But in the case of U.S., because we had more sanitary ware where maybe we had performed a little bit more poorly in comparison to the competition in general. Now in regards to this structural reform, now this calculation is quite difficult. But -- if nothing had happened and if we use that assumption and Hirano-san, was it 8% for March next year? So if everything had tickled by March next year, then for March next year, 8% would be the number we should have been able to achieve. But that number could have been achieved this year if we want or the various factors. But even then, it's not the case that everything has improved. And we are wanting to target a number better than this, if nothing happens further on from here.
We would like to go to the next question by Mr. Nakagawa of Mizuho Securities.
The inventory adjustment in the U.S. is expected to complete by the end of October. So in the case that the consumer's final demand stays weak, I believe that there would be more time required for recovery. So how do you view the forecast for the final demand?
That is a very difficult question. If we look at the assumptions, so the -- from January, everything will be normalized. But the inventory adjustment ending in October is what our suppliers are saying, what the parties that we know are saying. But I think that it depends. So November and December will be the biggest shopping season, and I think people will be making the decisions after waiting and seeing what will happen. But everyone's consensus at this point is that the U.S. market will be better from January. The end user demand is expected to be better. That's the general view of the market. If it is not an end user, but our channel, the worst was from January to September, and that's because they had to work on their inventory adjustment themselves.
Next question is from Fukushima-san, Nomura Securities.
We have 2 questions. The price increase from October is that as you have assumed at the start of the fiscal year, do you need not increase the price increase more? And the second question, I thought that the business in the U.S. was mostly for renovation rather than for new house, but the top line ended up being negative even on a local currency basis. Why was this? I do assume that the amount of the secondhand houses in the market has decreased with the situation of wholesales for you also continuing to the future.
In regards to the price increase in October, we can only increase at the level that we had assumed at the start of the year because for Japan, we have the pricing list that is quite precise that we provide in advance, so we can't change that in hindsight. So we can't actually change the level of increase. Then what took us 1-year in the past, we are now able to do this in 6 months, which is quite a significant, I suppose, advancement. And so when it comes to April next year, we will reflect these increased prices. But between October and March, if something special occurs can be reflected in the price increase in April? No, that would not be the case. And there was a question about when we can catch-up. Now if many things continue to occur, then the catch-up would also be delayed continuously. But right now, the commodity prices are starting to come down. And so unless the yen ends up being JPY 170 or JPY 200 per dollar, then of course, we'll be behind the catching up to cost increase. But the probability of such level would be quite low. And so JPY 160 per dollar that we are looking at right now, I think, is highly probable in terms of likelihood. But at the same time, there are no much factors or commodity prices increasing all the sudden. Only thing could be the electricity prices increasing, that could push up the increase for the aluminum. But from the demand side, not all that likely. And the second question, our users have entered into inventory adjustment. And as for -- as a consequence, particularly for sanitary ware, and that took a lot because the -- they said, they're going to sell, but they ended up going into inventory adjustments. So inventories were essentially returned. That's the situation. So it's not the case that end user's demand has changed over significantly. But in September, our channels, it's not only our channels but I think all the channels are probably so due to relation all the sudden and amount of the product in the distribution has slowed down. But these are 4 situational sales will continue. Well, as I have explained in my response to a previous question, I don't think no one has the right answer at this point in time, but inclusive of our competitors. I think everyone is kind of thinking the situation to pick up from around January.
From SMBC Nikko, Mr. Kawashima has a question.
In Japan, U.S. and Europe, you have high share in each region. So you cannot avoid deterioration in the performance as the other competitors by impacting negative -- by impacted negatively by external environment. But is there anything, any initiatives relating to top line growth strategy or cost reduction or productivity improvement initiatives that's going well?
Well, it may be hard to see, but relating to sash. In the past year, our sales share has not changed so much, but around 40%, but our profit share is around 80%. So as YKK, Sankyo, Ryuichi are the players, 4 major players of sash. So if we look at the profit share, we have gone up to 80%. So even under the difficult environment, we have been able to show good performance. So we have been working on platform production. We have been able to do the price strategy before any other players worked on it. So that is paying off. Related to water-related products, including toilets. Even though it is struggling under situations like COVID, we have been able to work on to keep on supplying. And the cost had deteriorated, but we have been able to supply the products and that led to increase in the revenue. More tactically, what's most important for us is to provide products, which fits the needs of the environment. What's most important globally is environmental issues. So having been able to provide environmentally friendly products in a timely manner has done us well, and I think it would be important in the future. I promised 4 things when I came back here, focus on core business and we have sold some -- divested some of the businesses due to that. What's important to us is the retail -- we had reduced the investment in the retail businesses, et cetera. And now we are able to sell to retailers nationwide. That was a positive that came out from that divestment. Yamada, Denki and other home centers, you see more LIXIL products than the other brands' products. The second commitment that I had made related to domestic business was to become a cash generator rather than cash eater. It was not so visible because the costs have gone up, but we are now able to have higher share in terms of profitability. And in the housing business, I think that you're seeing a result of that. Relating to overseas portfolio, what we are working on aggressively now is to improve the quality of the profit. In the United States, we are struggling because of the -- because of higher portion of sanitary ware and also the struggling Chinese economy. But I think that we are -- we believe that we have been improving the quality of our business. Lastly, innovation. Our keyword is innovation. From the perspective of environmental innovation, we have products like revia and SHIN-ON, Body Hug. So we have been able to create innovative products, also renovation products for windows, the renovation products for outer walls. What we are providing in the market is aligned with the environmental-friendly policies that the governments have around the world.
How many questions do we have? So we have 4 questions from 3 people. So we have 5 minutes left. So next question is from Mochizuki from CLSA Securities.
Two questions we have received. First is that the core earnings of ASV was, in fact, a loss-making in the first half of the year. From when do you expect to turn profitable? And please explain the measures you need to implement to achieve profitability here? The second question is when can we expect ROIC 5% to be achieved? Next fiscal year, I seem that they would be difficult for you to achieve 5%, but what do you think?
In regards to your first question, we had special factors, and we have to actually make extra effort to supply products. In other words, 20x the freight we have to pay to actually ship the product and what that we shipped, the home centers said that they're going to adjust the inventory level and so they canceled the order. So this is quite a special factor that we had to go through. And once we go through the special situation, we should be able to turn profit boom. But in the case of U.S., sanitary ware has a low profitability and that is a fact. Now in fitting business, we need to increase that and the business that we are achieving in large success in other regions and what we need in this regard. There are some products that didn't really match the market like the water pressure. So this is a learning from us, and we are making changes. And so rather than turning to profit, it's just that we have kind of dipped into the loss for just a very short time. So please forgive us. For ROIC, if other conditions prevail, then we should be able to achieve 5% next fiscal year as well.
Next is Mitsubishi UFJ Morgan Stanley Securities, Mr. Yagi's question.
For LWT International, the core earnings was revised downward by JPY 22.5 billion. Could you give us the breakdown by country, and could you give me why this has happened?
This is what we have not disclosed, so I would like to refrain from talking in details about that. But the biggest reason is the stagnation in U.S. and China.
And the last question, last question is from Fukushima, an additional question from Nomura Securities.
The revenue in the EMENA region, we have been informed previously that the negative sum in the Europe was offset by the positive sum in the Middle East. How is the situation right now? Do we need to think about the risk of sales coming down in Europe?
Well, and essentially, the negative from the Russia, Ukraine were made up by the strong performance in the Middle East. That was the explanation in that regard. But in Europe, we are not seeing the supply chain issues no longer, so we are seeing improvement. And I'm going to explain a little bit in this regard. The biggest struggle, I mean, for us in Europe on this occasion was the delay in components being shipped from China mainly due to the freight. But the biggest factor was that the distribution center that we had in Russia, we were no longer able to use that because of the Russian invasion into Ukraine. And the Russian distribution center covered the Eastern Europe, so we had to use the German distribution center to ship to East Europe. But the German distribution center was the other distribution center to send to the regional distribution center. And so it did not have operation to enable the supply for the smaller operators in East Europe, but they had to do both. And so we were delayed in terms of shipments. That was what happened. But to counter that, we have launched a new distribution center. And we have been successfully able to start the distribution center. And from October, the risk of the sales being reduced due to the distribution being delayed, we have no longer that issue. And the European sales is quite strong in terms of all undertaking. So we're not considering further risk here.
Thank you very much for the many questions that you have given us. That will be over our Q&A session. This would conclude the briefing for fiscal year ending March 2023 first half financial results. Please support -- please continue to support LIXIL Corporation. Thank you. [Statements in English on this transcript were spoken by an interpreter present on the live call.]