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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
So the time has come, so I'd like to start the analyst meeting for LIXIL Group. Those attending the group meeting and those connected to the web, thank you very much for your attendance today.
Let me introduce the members from our side today. From the right-hand side, the Representative Executive Officer, Chairman and CEO, Mr. Yoichiro Ushioda; Mr. Hirokazu Yamanashi, Representative Executive Officer and COO; Mr. Sachio Matsumoto, Representative Executive Officer and Executive Vice President, CFO; Kayo Hirano, the Head of IR office; and serving as the MC for today, my name is Uto from IR office.
Let me explain the proceedings for today's meeting. First of all, Mr. Ushioda, Chairman and CEO, will make a few remarks. After that, Mr. Yamanashi, COO, will talk about the new management direction; and then Mr. Matsumoto, CFO, will share with you the overview of the third quarter results.
We have set some time at the end for Q&A. We'd want to finish at 4:50 at the latest. We are recording today's meeting, and it will be on our website later on, including the Q&A, so I ask for your understanding and support.
Now Mr. Ushioda will make a few remarks.
So my name is Ushioda. Thank you very much for attending despite your busy schedule.
As of November 1, as a new management team, we studied our responsibility, and my first job was to get together all the sales and branch managers from across Japan. And so far, the sales was not necessarily that active and proactive, but I encourage them to be more proactive in sales activities begins in the manufacturing. First is to increase the sales. If the sales will go up, then the cost rate will go down, leading to the increase in profit. It's quite simple, so the sales should put their utmost efforts to increase the sales. Of course, it's only natural, but I encourage them to do so. And thanks to their efforts, actually, we saw some change in the atmosphere among our sales force, leading to the financial results for the third quarter, I believe.
Now all in all, I'm responsible for the overall holding company, whilst Mr. Yamanashi, as the COO, takes care of the operating business companies. He's responsible for setting the direction for the business operating companies. So Mr. Yamanashi, not just within Japan but also around the world, is visiting the locations, the factories and the sales offices himself to deeper understanding and to motivate and encourage our staff and employees.
And also, I myself visited several offices. And together with Mr. Yamanashi, we have visited clients, so we visited them separately. I will spend the next whole week visiting the customers. So the distance between the customers and ourselves are actually getting closer. In the past, it was a bit distant.
Now somebody was saying that I should not talk about the stock price. But when we started November 1, the stock price, we are now exceeding that level, thanks to the first 4 -- the third quarter results.
Now Yamanashi will talk about what we will do in the future, and then our CFO will talk about the financial results. Thank you very much.
Next, Mr. Yamanashi will talk about the direction of new management strategy, and please turn to Page 13 of the presentation material.
Once again, this is Yamanashi. Thank you for your attendance today. As of today, before presenting the Q3 results, I would like to take some time to talk about what we have been doing after November 1, what are our goals, what activities have we been engaging in. So those are the topics that I would like to briefly cover today. And on top of that, from end of November, we have the global management leaders from within Japan and outside to discuss further as one team to come up with our new management plan. So we are now contemplating and discussing and trying to create a new plan. This is still work in progress, but I want to share with you the thoughts and the direction that we are trying to pursue. So -- and those are the topics that I would like to cover today in my presentation. So I would like to go through the presentation materials from Page 14. And the reason why we are starting with this slide is because the new management plan that we are trying to hammer out today and also the future plans will be the important plans for us to move to the next stage as a group. So in the previous stage, we have been accumulating various assets, not just the financial assets but intangible assets included. We want to maximize the value of those assets so that we can continue to grow and improve our profitability to maximize the enterprise value. And we believe, in the next stage, we have to achieve those goals.
So in order to do so, we want to revitalize our growth. And at the same time, as the business environment changes rapidly and dramatically, we want to accommodate to those businesses to be ahead of the line -- ahead of the curve to set up a new business model, which is very lean. So those are 2 things that we are trying to achieve.
And this is like a simultaneous equation, so this will be a more challenging task for us, but we have got the assets to date; and also, the multiple leaders and functions of the businesses; and also, the employees, with strong commitments to the employees. So by combining those pieces of the puzzle, we want to solve the simultaneous equation or to achieve our goals. And we are confident in achieving that with our new management plan. So I will not repeat myself regarding how we have grown in different stages. So LIXIL Group was established roughly 8 years ago. And during that time, as well as the establishment of the group, we have acquired strong brands like American Standard and GROHE. They have a strong brand, technology base and customer base. So those companies have joined the LIXIL Group. And we have rapidly expanded our business and also globalized our business. And in the third stage, in the most recent 2, 3 years, we have been working to eradicate duplications and excesses with more companies joining the group so that we can improve the profitability and also strengthen our balance sheet. And at the same time, our group was a combination of multiple companies who were strengthening competitive edge in Japan. And on top of that, we acquired American Standard and GROHE, who were competitive overseas. And to capitalize on that diversity, under the slogan One LIXIL, we established the unity within the groups that was necessary. So these were the focused initiatives that we took in that last 2, 3 years. And the development and the growth to date is something that we are going to capitalize on to move on to the next stage. And that is shown by diagram on Page 14. And please turn to next page, on Page 15. As I said at the outset, since November 1, how we've been trying to strive. And this is not completed yet, and this is an ongoing task, but I want to share with you 2 initiatives that we deem to be very critical, to give an intro to our new management plan. And the first thing is that we want to leverage on our assets and expertise and possibilities. So we wanted to revisit that with our own eyes and ears. And also by visiting the frontline, we wanted to have a full understanding of our capabilities, the frontline, the reality, the challenges and also the opportunities that LIXIL Group was facing or the things that we wanted to grasp accurately. So to do so, we visited a lot of fields and the frontlines to understand the reality and also to get a feedback from the frontlines, to communicate our thoughts behind the business management. And we also got feedback from our employees, questions, and we also responded.
And not just when we visited the fields, when we had the LIXIL comrades come together, we had open discussions. And also taking the available technology, we engaged in desktop communication on top of the face-to-face communication in a very frequent manner.
And as Mr. Ushioda mentioned earlier, we place a very strong importance for the domestic business and that we want to improve and revitalize our domestic business. And for that, the sales team is very important. So we had a very passionate discussion with the salespeople at the branches to talk about the progress and status quo of the domestic business so that we can understand the business of the Japanese market on a realtime basis and also the competitive landscape as well.
And at last, to understand ourselves or seeing ourselves internally was not sufficient. We have to understand how we are viewed from the external world, what we need to change and how we can improve. In order understand those elements, Mr. Ushioda and also the President of LIXIL operating company, Mr. Ootsubo, and myself and also other business leaders took the responsibility to talk to the most important external stakeholders or customers. So we visited a lot of the customers. And also, in today's world, no company can do everything on a stand-alone basis, so we need partners and also alliances through collaborations. And in reality, for LIXIL, we have partners with whom we are doing collaboration. Also, we wanted to get a feedback and opinions from them. And also, there are potential prospect who can be our partners in the future. So for those prospects, led by Mr. Ushioda, we went to visit them to have discussions going beyond the sector boundary. We talked with them to listen to their expectations and also to explore what can be done together.
And as a result of those initiatives, we were able to see the reality in the frontlines and also challenges and opportunities, which will be the base for our new management plan.
And also the new aspect of the new management team is a teamwork approach. We are a huge group with a lot of diversity in business. So needless to say, the environment for business is very challenging. So to -- for us to be successful in such background, one single leadership is insufficient. We need multiple leaders and their expertise. And with the combination of those, we can move forward, or then come up with a solution for the new stage through the simultaneous equation.
So the global leaders of the businesses come together, and then we spend a whole day to have a thorough discussion to explore what we can do beyond what we are doing today. And we have identified some growth opportunities and also opportunities for improving profitability. And we have come up with specific measures which were assigned to the different global leaders. Also, we are sharing their responsibility to come up with specific plans and also to make progress.
And also, for our important domestic markets, there are a few important challenges and tasks. We have identified a few. As you know, in October this year, the consumption tax is expected to be raised. And if that is implemented, the government will be coming up with measures to stimulate demand. For the Housing business, there is a tax break for housing loans. And also for the next-generation houses, the government is coming up with a point program, and this will exactly be impacting our customers. And we hope to maximize the opportunities of those government policies. In renovation, which is a huge opportunity of the future housing market in Japan, what can we do for us to grow with such opportunity? So for those important challenges, we're not assigning the task to a single business unit. We have our cross -- organizational cross-functional teams. I myself am involved to come up with a strategic plan. And I have been talking about the business units, but our corporations need the functions and talents to support those businesses. And that will be one of the things that we will be addressing, and the management team will be involved to identify the essential challenges to conduct reform. So we continue to work as a team. So we need to know ourselves, understand the business environment, and that's how we are trying to hammer out our new management plan. Also what's important is to capture the changes that's happening inside and outside. And on this stage, I have listed up the external and the internal environment and challenges and opportunities for both the external and internal environment. I'm sure you're familiar with these points, so I will not cover everything. But in reality, the new housing starts in Japan is declining, which is a big challenge for us. But on the other hand, for housing, the consumers have higher needs and also interest, the countermeasures and security features against the natural disasters. And when people get older, there is different need for the housing. Health and wellness, it's a new demand that is being created in the market. So we want to be ahead of that curve to develop a new product to accommodate to those new rising needs. With that, even if the new housing starts come down, the domestic market will not become smaller for us because we can dive deeper to exploit new demand in the Japanese market. At the same time, we can take a different angle, so not just housing. For instance, we can take angle from the water-related demand. The water supply, water quality, for those, globally, the need is rising. Our GROHE, one of our group companies, have multiple new businesses to accommodate to those needs. And in Europe, we are already achieving good results. We are hoping to apply that into different markets. We are also exploiting any peripheral businesses related to water. Also, there are challenges internally and externally. But at the same time, there are opportunities as well. So we want to combine those.
And through our initiatives that I just explained, I want to leverage our competitive edge or to put together our new management plan.
Today, I will skip the details, but moving on to the next page, Page 18. Sorry, it's a busy slide, but I just want to mention the basic strategic direction. This will be the last slide for myself. So today, I just want to explain the 6 major directions. And according to those direction, we will come up with specific initiatives and also plans to implement those initiatives. Some have already been implemented. So in sum, I want to share with you these 6 major strategies.
For one, our future growth will be achieved by fully utilizing our existing assets. Of course, in the future, we may strike virtual alliances. Or for some element, technology or channel, we may strike alliances. Or potentially, we may do M&A. But even when we do that, the base of our strength is going to be the assets that we have built to date.
And secondly, companies will continue to grow. And based on that belief, we will try to create our new engines for growth and new revenue stream. And we have come up with a few businesses as candidates to promote this.
And thirdly, given the dynamic change that's happening in the business environment, we have to make sure that we are still surviving and competitive in a few years. In order to enjoy our strong profitability with strong competitiveness, we have to review our client business model from top to bottom to become more lean. And that's what we also want to execute.
And to do so, we have to reallocate all the managerial resources in a dynamic manner, and the new business model must be asset-light, and then we have to be smarter in utilizing our managerial resources. So we want to utilize new technologies, including digitalization, and that's going to be vital for us.
And fifthly, this is a little bit abstract, but as we move on to the next stage, this is actually very important. As a corporate group, in the next stage, we want to once again come back to a belief of frontline-centric culture, to be focused on the field. It's a matter of mindset, but we also need to look at the HR allocation, the way we work and of the cost structure. And so this relates to all those important matters.
And lastly, as Mr. Ushioda mentioned in his remarks, we have the holding company, the LIXIL Group, and also many businesses, operating companies, including LIXIL. So we will identify the responsibility of the functions for the holding company and the operating company more clearly. And the businesses will pursue further growth and maximizing opportunity for higher value. And the holding company will be monitoring those businesses to look at the enterprise value on a global -- group-wide basis. So they will be engaging in the portfolio management and also making decisions in terms of resource allocation. And there will be sound check-and-balance functions between the 2, and that is the clear management approach that we are going to pursue. And this would also be a new element of how we are going to build and manage our business.
So today, I am just sharing with you this generic direction. And the specific plans and initiatives and also the macro targets will be unveiled soon, so please give us some more time so that we can have a thorough discussion to come up with the specifics. Thank you very much.
Next, Mr. Matsumoto will explain the overview of the financial results.
So this is Matsumoto speaking. I'd like to get into the results for the third quarter. Those who are connected on the web, please refer to Page 3 of the documents.
As you can see, different business improvements led to an increase in revenue and a return to positive net profit. As Mr. Ushioda and Mr. Yamanashi mentioned, in the latest agreement, domestic business, especially Housing business, has recovered. And under the new management team, we're about to have a solid start.
Now the revenue, JPY 1,381,000,000,000 increased by 1% year-on-year. And the revenue increased for all Japan businesses. And the first half, there had been a burden on the sales frontline with the introduction of the new trading scheme. And because of the extremely hot weather were causing concern for the first half result. But they've settled down, and we're able to have a good start for the second half.
Now for overseas, international business, Asia, America, we've made a positive growth. But Europe, the difficulty in the business environment is continuing. And overall, the overseas is remaining flat on a year-on-year level.
The core earnings, JPY 37.1 billion. But looking at the third quarter only on a year-on-year basis, it was a decline of a 16%. I will give you more details on the following page. But if we are to exclude the Permasteelisa, then the revenue have actually gone up positively and as well as the profit.
And for the net profit, JPY 2.1 billion is the net profit. The first half was negative JPY 8.7 billion. But in the latest 3 months, we're able to post JPY 10.8 billion of profit. So for the first 9 months, we turned around to a positive profit, recovering from the loss in the first half. Page 4, let me explain some numbers in this table. Especially on the left-hand side of this page, you see Q3 results for the first -- for the 3 months. Revenue has gone up by 2.7%. Japan business is driving this growth. Later on, on a different page, I will give you more details about the Japan business. Now gross profit, with the material cost increase, mainly in overseas on a year-on-year basis, it's a decline of 4.1%. In order to recover this, we controlled SG&A expenses. And as you can see here, core earnings, all in all, JPY 23.4 billion; excluding Permasteelisa in the continuous operations, JPY 28.1 billion, which is an increase of about 0.5%. The gross profit decline, that was offset by controlling the SG&A so that core earnings is actually a positive on existing continuing operations space.
In the middle column of this page, 9 months cumulative. Unfortunately, the first half impact is still lagging on the first 9 months.
On the right-hand side of this page. On the 22nd of October, we disclosed the revised forecast. And this column shows our progress towards that, the revised 4-year forecast. Core earnings, the progress is 82.5%.
Now the fourth quarter, that is January, February and March, on a global basis, the sales has to be rather lower for this quarter, yes we have already achieved 82.5% so far. So for the remaining Q4, by controlling the cost and gross profit and controlling the SG&A, for the JPY 50 billion that we committed, we want to achieve that guidance for the JPY 45 billion that we had committed. Now Page 5, this is the breakdown by business segment, Q3 3 months and the cumulative 9 months. As you can see in the box, the Housing Technology, LHT that is, that is driving the overall performance, increased both in revenue and earnings.
Next, Page 6, this is focusing on the Japan business. On Water Technology, Housing Technology and Building Technology, just focusing on Japan business, if we add them together, 3 months for Q3 and 9 months. If I may repeat once again, due to the stabilization of the sale system in Japan, the revenue and the core earnings increased in Q3 for 3 Japan technology business units overall. Especially for the Water Technology, as you can see here, the core earnings is down by JPY 0.4 billion; and for the cumulative, minus JPY 7 billion. So you see that the rate of decrease in the core earnings improved.
For the Housing Technology, that was heavily impacted in the first half with the introduction of the new trading system and also with the natural disaster impact. But the second half, without those incidents, the sales force is now fully showing their capabilities. And exterior, interior new products are well received by the customers. So we're able to make a significant growth in the revenue. And as a result, as I showed -- as I mentioned in the beginning, with the mass production impact, the cost has come down. And just like water, we controlled SG&A expenses, leading to significant growth in the earnings.
For the Building Technology, there is steady and strong demand. On the other hand, the expenses for the new product development and the transportation costs are going up, so a slight decrease in the core earnings.
Now January, how we are doing currently? All in all, the good performance in Q3 is actually continuing in the Japan business. So going forward, as we continue to control the cost and SG&A, we expect that the Japan business will drive the overall group-wide business so that we can achieve that guidance in the forecast.
Now from now on, I'd like to give explanation by each business segment. I already covered the Japan business, so I'd like to mainly focus around the overseas business, Page 7, starting with the Water Technology. For Americas, the synergy products of the global platform are selling quite well, like our smart controlled products are selling well, and the products sold through e-commerce did quite well, resulting to the revenue increase. But because of the cost increase, the earnings are down.
Now for EMEA. The Central Europe market was rather soft. But Eastern Europe, with a significant growth in e-commerce, contributed to the revenue for Europe as a whole to increase by 3%. Middle East, the first half was quite stagnant. But starting from Q3, we are back to year-on-year positive growth trend.
Asia Pacific. China is continuing to do well still; all in all, 10% growth, including China. China is actually growing much bigger. But in order to further accelerate the growth in the revenue, we are making some upfront investments, especially in the first half. So for the first 9 months, the earnings are still negative because of that upfront investment. And we've talked about Japan, so let me skip. And please take a look at the bar charts at the bottom right. What I want to show you here is that almost 60% of the sales growth are coming from our new products and new businesses.
Now on Page 8 is the Housing Technology. So this is mostly Japan. So as I already covered earlier, exterior, interior, our products selling grow, and the product mix improved, leading to the improvement in the profit margin with the mass production impact. Those will be the key words.
Bottom-right bar charts. What I'd like to tell here is especially for overseas, industrial products, that's for the automotive part, sales is growing here. Aluminum production capability or capacity is transferred for these new application areas, and we're certainly working on that. And that's what I wanted to tell you in this chart.
Next page, Page 9, Building Technology. I already talked about the Japan business for Building Technology. But for overseas, this is Permasteelisa. In North America, the labor costs or the material costs are going up quite significantly, having a negative impact on the earnings in the third quarter. So last year, in the -- from the second quarter, we started to consolidate the Permasteelisa or actually include them in the existing continuous business. But in November, at the end of November, the sales contract was officially canceled. And after that, for the past 2 years, including those deals that we received orders, including the buildings, we are now revisiting all of those projects.
As I mentioned earlier, the North America continues to face a very difficult environment. So Permasteelisa and LIXIL are jointly discussing the turnaround plan for the recovery. For those actions that we could take, of course, without waiting for the new year to start, we would start to take actions on them so that Permasteelisa, as our business, will be a business to have higher profit margins. So we are in the midst of formulating the turnaround plan for that. Page 10, please. And this is VIVA and the Housing business. Looking at the VIVA business, as you can see, the revenue and profit grew, and the profitability also improved. And for the Housing and Service, we enjoyed revenue and profit growth as well as the margin improvement as well we are taking our strategy to increase the proportion of the renovation business, which yield higher margin.
And on Page 11 and 12, we show you the balance sheet and the cash flow status.
First, looking at the balance sheet on Page 11. Excluding the impact of the Permasteelisa reclassified that to be continuing operation, we have the other factors. So let me focus on those factors. Compared to March last year to end of December last year, looking at the first 9 months, the major changes were predominantly stemming from the seasonality. The inventory was higher, and because for Q4, we wanted to build the inventory to generate sales in Q4. And also for the bonus and the -- our tax payables, there was some adjustment on the liability.
And on Page 12 is the cash flow status. The free cash flow went down by JPY 50 billion mainly because of the weak profit in the first half. So that's the biggest reason. And also secondly, the deterioration on the working capital, including the inventory build-up that I just mentioned, so the working capital is deteriorating. So those are the 2 major reasons behind that dropping of free cash flow.
So this will conclude my presentation on the Q3 results. Thank you for your attention.
Now we would like to invite questions and feedback from the floor. Please state your affiliation or your company name before asking the question. Our staff will bring the microphone. Please limit your question to just one at a time. There's the first on the right-hand side.
My name is Fukushima from Nomura Securities. So let me just ask one question. Recently, on the Nikkei Business article, there was a talk about in the -- or relocating the headquarter or listing on the SGX. And I know that you officially denied that reporting. I know that Mr. Ushioda is considering many options. And can we understand that what was reported in the Nikkei Business was just one of many options that you're considering, so it's not that important? Or is it a very important option that you are considering? Can you share with us your view on why is that article was reported in the Nikkei Business?
We listed, as of today, VIVA home, and we are not just revisiting our portfolio, but we are always contemplating how we can enhance our enterprise value because that's our responsibility. And that article talked about the methodology of MBO and also specified the potential listing on SGX. And if we have specific plans, then we will need to disclose that. But that is not the case. We are always open to all the options available. We have not exhausted all our options. And that issue that was mentioned is not one of the realistic possibility.
But if I may add, I can say that we made a press release that we have not been engaged in such discussion. But I think we have not been able to convey our intentions in full with the direction of our strategy that I explained. But we are focusing 120% of the existing business to try to improve our business, to raise our stock price and also to enhance our enterprise value. So that's what we are focused on every day. So in terms of the bigger strategic picture, there are a lot of options. And in order to deal with the current business, we are always considering a list of options of where we want to be, which country that we are not tapping yet, we want to be present, what kind of business opportunities we have. So we also want to focus on domestic business to improve our profit business. And as for Permasteelisa, which is reclassified as a continuing business, we have to think about turning around the business. So we are focusing on those issues. That will be my answer.
Next question, the lady there, please.
Okada from Goldman Sachs Securities. LHT Q3 number is what I'd like to ask. There is a benefit of the new products. But Q2, with the natural disaster, you suffered. So I think that the impact has sort of been transferred to Q3. And after Q4, LHT business, can you -- can we expect to continue the same level of growth rate for Q4?
Thank you for your question. Especially Q2, there were impact from the natural disasters and the recovery with restructure -- construction, people had actually worked on the construction. But that's settling down. And with that and ourselves, of course, is now fully leveraging their capabilities. That's what's happening in the third quarter. And as Mr. Ushioda mentioned at the outset, the sales force is very much motivated right now -- by that right now. So that strength in force shall be fully leveraged in Q4.
So if I may repeat once again, Q3 LHT domestic was very good, making the recovery. As you pointed out correctly, because of the manpower issue, there had been some shift in the demand, and that's true. But on top of that, our sales force itself is very much revitalized, and the instructions to the sales frontline is now being made very meticulously. As you know, in April last year, the new trading system was introduced, and how to manage that is now taken care, very probably leading to the actual results. We can see whether we won or lost a case, and that's how we are enjoying the benefits. And in the exterior and interior, the new products are very much well received, highly evaluated. So external factors as well as some internal factors, that is the sales team and also the products, the combination of that, we were able to enjoy the numbers. And as for going forward, I think we can have a bright Q4 in terms of expectation.
Next question, please? The first one of her left.
My name is Teraoka from Daiwa Securities. I want to ask about the recovery of the LHT business in Japan. I remember that in October, you raised the price. And also you were planning to raise the price in January. How is that impacting the numbers? And I think exterior business is really strong, thanks to the new product launches that you mentioned. But is there demand coming from the reconstruction from the natural disasters. And also, with the new trading system, I think there are customers with better conditions in terms or weaker conditions in terms. Have you lost some customers because of the new trading system?
Sorry. So I was trying to remember what questions you asked. But for exterior business, there are demand from the affected areas from growth front. We have not grasped how much impact we're getting from the natural disaster-related demand. But it's not just temporary, it's long lasting, from October, November to December. So in that sense, we believe this momentum is driven by the new product launches. And as for the price hike, we are enjoying the benefit. The sales and gross profit have risen due to price hike. And with the new trading systems, we have dealt with that previously. And when we tried to raise the price, it was difficult to have that be penetrated throughout our client base. But with the new trading system, the new prices were readily accepted in a sense. And I think last question was regarding the new trading system and if we had lost our customers. And on that point, we had a thorough discussion with the customers so that we can minimize the loss of the customers. And so the sales team have been making strong efforts for that. In Q1, Q2, the business was slow. But thanks to the efforts by our sales team, we were able to enjoy good recovery in Q3.
And on the last part, if I may add [Audio Gap] although we have to try to implement that in a more thorough manner. And I think that was the question -- that was your question. So with the new trading system, [Audio Gap] Well, initially, there will be some inconveniences for some of the customers. We follow that very thoroughly through those customers. And the new trading system allows us to make such a flexible response. So previously, we had to spend a lot of time on adjusting the prices. But with the new trading system, we were able to allocate more time for sales and consultation services, which is beneficial for both ourselves and the clients. So with the thorough implementation in the operation of the new trading system, we have been able to enjoy the impact of that. And this is an ongoing effort. And some issues may be caused from the new trading system, but that issue is now being minimized.
The person in the second row.
Mitsubishi UFJ Morgan Stanley, my name is Anegawa. One point for overseas Water Technology business, generally speaking, the top line is still weak. America and EMEA, 3%; and Asia Pacific, 10% but still not meeting the forecast. So if you can elaborate on that. Especially for Asia Pacific, for China, it's a positive growth in revenue. But with the deterioration of the market, do you see the impact from that or not? If you can elaborate further on China specifically, please.
So I think the background of your question is that the China business in different sectors, like Grandland Holdings [ Nikkie ], there is some slowdown. And in that case, at least as of Q3, China is still continuing a high level of growth rate. I don't think this has been disclosed, but 24% is the growth rate in China. So for now, we are still enjoying a very good business in China. And of course, in other sectors and industries, we hear that the China business is slowing down. Especially including the securing of accounting -- accounts receivables we are keeping a close eye on whether we need to be careful. And we established a showroom in Shanghai, also in other cities. And so far, it was just a stand-alone showroom or stand-alone sales, but the entire household, the solution is what we provide nowadays, not just a single product. So that kind of marketing measures are being accepted in China. Now for Americas, the new housing starts number is slightly slowing down with some concern for the interest rate hike. Yesterday, FRB talked about the submission of the rate hike, so we need to pay close attention to how it's going to roll out. Now for EMEA, it's flat, but specifically the negative in Africa is quite impactful; so EMEA as a whole, 3% positive growth. But for Europe, a 3%. And Middle East, first half was rather soft or negative. From the third quarter, it turned around to positive. And because of that, 0% for the 9 months cumulative. So did that answer your question? Or Yamanashi-san, any additional comment?
Well, as Matsumoto-san explained, including the numbers, the America market, we are starting to see the changes in the U.S. market. With the shift towards more digital, as Matsumoto-san said, and on top of the economic situation as a whole, so it's important that you change the business model ahead of that. And Europe was explained. And just simply -- aside from a simple percentage, the quality is also improving. So just to sell the same products with the same business model, not just that but full battle mode, whole housing, not just based on the single product but to change the business model like that. But several weeks ago, the Water Technology business, Asia R&D facility was opened in Shanghai. In other regions, Japan, America, Europe, what we have accumulated, rather than simply a tailor -- custom-made technologies, we can now provide the technology-driven out of Asia. So in that sense, the positioning of Asia will change quite significantly going forward, therefore, the potential in Asia is still quite big. We don't think the potential has been diminishing. But China, as a general perspective on economy as a whole, it is true that we have to keep a close eye on. So based on that, some value-add products that can overcome that, that we need to shift our business model for that going forward.
Next question, please. The person in the front row.
My name is Nakagawa from Mizuho Securities. It's kind of a follow-up question. On Page 17, where have challenges, the external environment, you mentioned the changes happening in the U.S. market, which is much faster than anticipated. Are you talking about digitalization? Or are you implying a broader issue here?
First and foremost, digitalization is a starting point of that changing -- changes. So it's not the channels becoming digital, but as channels become more digital, the real physical channels are losing business, like wholesalers and retailers. To defend their business, they are also going through transformations. And so directly, the change is digitalization, but there is a broader change that's happening in the industry. So I think it's a long list of changes. And we need to have a brand power that we can bring to the end users and the consumers. And then we also need to be cost competitive in the new environment. In our industry -- not just in our industry but in the consumer-related businesses, this is already happening, so we want to learn from the other sectors as well to continue to transform our business model in the U.S. And I believe this will be a good lesson learned that can be applied to the other regions. So that's how we are tackling this change in the U.S.
Next question, please. The person towards the back.
New trading system -- you mentioned comments on the new trading system. But once again, the pros and cons about this system, in the presentation, you talked about recovering the shares that you lost. On the other hand, for instance, if you increase the price, and in the new trading system, it can penetrate much faster, so that's positive about this new trading system. So if I may confirm, this new trading framework itself will continue going forward. Is it correct to understand that the new trading system will continue?
Yes, it will continue. And if I may repeat, we need to brush up the operation management vis–à –vis the market and the customers. So we need to expand it so that it's more suitable to the reality. In terms of the impact or benefit, as you pointed out correctly, with the market and ourselves, that we have a faster response. What we do can be quickly communicated to the market. Where the market moves, we can understand it much faster. And many works that used to take time now can be saved, and we can spend more time on actually building more business. So to continue with this new trading guide, we have confidence in that.
How about the negatives? So any issues, challenges on this scheme?
Rather than the issues -- or of course, it was a radical significant change in the system, so generally speaking, if you had to make a significant change, then after the introduction for some time, it is only true to expect some confusion. And actually, because of that, to revisit the system itself, rather than that, we have to brush up the management system. And that was -- we need to understand what's happening now and, based on the same policy and the system, to persistently try to bear fruit. So that's the direction I would like to work going forward. The first half of this fiscal year, Japan business numbers, as Matsumoto explained earlier, the frontline, if I may use the term confusion, it's not the system per se that's causing the confusion. But for the sales frontline to understand and digest that and to take advantage of that. Unfortunately, for the first half, that was not necessarily fully sufficient done. That's a lesson learned. So we need to make an improvement, and that is actually already leading to the numbers. That's what's happening.
Next question, please? The first one on -- in the frontline.
My name is [indiscernible] from Nomura Asset Management. Regarding the new direction of the business, I think you're still in the progress of making this. So on Page 14, in the third stage, I think you are in this stage that we are trying to have a lean structure and operate as One LIXIL. So this stage includes next fiscal year. And then on the next stage, you talk about revitalizing growth with full transformation. And so looking at this diagram, up until next fiscal year, you are now revisiting the current business portfolio to decide on the allocation of resources. Are you going to complete that task leading up to next fiscal year? And beyond that, you will try to strive on the businesses that will continue to operate to maximize the profit beyond fiscal 2020? Is that the right understanding?
The -- when we say 2019, we actually mean fiscal year ending in March 2019. Also, we will finish the third stage this fiscal year. And from the next fiscal year, meaning FY 2020 on this slide, we will start to go onto the new stage. So in our new management plan, as I said at the beginning, there will be things where we try to revitalize the growth. And also businesses, we will allocate our managerial resources and also our businesses where we will try to transform the business model. If we were to transform the business model, it can now be completed within the next 2, 3 years. So under the current plan, there will be things which we want to make achievement by next fiscal year. And there will be some that will come into fruition in the next 2, 3 years. And there will be others which will be realized in the next 4, 5 years. Of course, further, in the following 2, 3 years, we will see the seed of success. But we are now putting together our plan to identify those different businesses. So we are going to classify those businesses so that from next fiscal year, we can implement the plan. But some of the initiatives will take 2, 3, 4 years to be completed.
Any other questions? You can ask the second question, yes, the person towards the back.
Mark Brown from Haitong. Very basic point, this fiscal year, many things happened especially in the first half, natural disasters; and as you talked about, generally speaking, your business especially for the Japan business, the first, the second and the third and the fourth quarters, throughout them. When is the best quarter?
Usually in a normal year, the third quarter is usually the busiest and the best quarter. Of course, partly due to temperature figures, January to March tend to be cold, so delaying in the progress of the construction. So the third quarter tends to be the best quarter both for the revenue and the earnings.
Next question, please. Also the person in the middle row.
My name is [indiscernible] from [ Daiwa Toshin ]. I have just one question. On Page 14, I think one of your theme under the current midterm business plan is strengthening the balance sheet. From the investor's point of view, the external environment is at adversity. So from our perspective, we cannot say that your balance sheet has been fortified. And in the next midterm business plan, I think you want to rebalance the business and also explore new opportunities, which means that there could be pressure on your balance sheet. And so in the next midterm business plan, how are you going to deal with your balance sheet? What is your thoughts about the balance sheet management?
So in strengthening our balance sheet, unfortunately, given the disapproval from the CFIUS, we were not able to divest the Permasteelisa. But if we had been able to sell the business, we would have improved the balance sheet substantially. Another thing, we are not going to stop working on strengthening our balance sheet. That's going to be the fundamental base. And in the last 3, 4 years, we have done a lot of things such as changing the mindset regarding inventory and account receivables. So that's taken root within the organization. So as we have been doing to date, we will continue to work on improving the cash conversion rate. And we're also looking at ROIC internally and to make an efficient spending on CapEx. And so within that framework, we will think about improving the cash position as well as balance sheet so that we can maximize on the usage of the existing asset.
And I may not have explained it sufficiently, but looking back the last 3 years, like you mentioned, we have been trying to strengthen our balance sheet, but this task has not been completed, so we still have some homework to do in the future. And I think there are 3 important things. One is that I think we still have some excesses, so we will work to be more lean. It's difficult to express in words, but on Page 14, I talked about the smart usage of the managerial resources. So that's one point. And as the CFO mentioned, secondly, the investment criteria and also the way we hold on to the inventory and the working capital, we will implement a more stringent criteria. And lastly, most pressing growth, we will try to have an asset-light business model not only for the new businesses but for the existing businesses as well. And as we have been explaining a lot of times, for the Japanese businesses, we will be narrowing down on the SKUs to have a common platform for products to standardize our production. And in this means that the required CapEx for a new business will be smaller. We are also trying to strive to grow organically. So in that sense, we will simultaneously pursue these 3 initiatives that I mentioned, also that we will continue to work on strengthening our balance sheet and to become more lean.
Any other questions? No further questions? Then I would like to conclude today's meeting. Thank you very much for your attendance.