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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Now we would like to start the meeting to announce the third quarter results for fiscal year ending March 31, 2021, for LIXIL Corporation.
Once again, with strict observation, to prevent the spread of COVID-19, we're having this meeting online through the Internet live as well as telephone conference. If you get disconnected on the Internet live due to some trouble, may we ask you to try to reconnect yourself to the telephone conference system so that you can continue to attend, although it's only through the voice?
Now let me introduce the attendants today. To your left, Director, Representative Executive Officer and President and CEO, Mr. Kinya Seto.
Thank you for this.
Director, Representative Executive Officer and Vice President, CFO, Mr. Sachio Matsumoto.
Thank you very much for your support.
Senior Manager, IR Office, Ms. Kayo Hirano.
Thank you.
And as for myself from IR office, my name is Fukushima serving as moderator today.
Now as for the presentation materials for today's meeting, please refer to the Web screen for those on the Web distribution. If you're attending through the telephone conference, please go to our website and go to IR section.
As for today's proceedings, first, our CEO, Mr. Seto, will talk about the overview of the third quarter results, and after that, we'll have some time for Q&A. [Operator Instructions] We plan to end at 4:30. I hope that you will stay with us until the very end.
Now Mr. Seto will give you an overview of the third quarter results for the term ending March 31, 2021. Over to you.
Good afternoon, ladies and gentlemen. Can you hear me all right? Good afternoon. I now would like to give you the overview of the third quarter results for the fiscal year ending March 31, 2021.
First of all, what I'd like to share with you today is, personally, I am pleased that we have come up with very good results. The third quarter's core earnings were JPY 28.9 billion (sic) [ JPY 29.8 billion ] for the 3-month compared to the previous improvement of JPY 11.4 billion. And also in the same [ video ], on the 4.7%, it was the sort of the CE ratio. Now it's 8%. And EBITDA ratio was 10.1%, but it was improved to 13.3%.
Now SG&A, and then it was for [ UCP ], it up JPY 111.3 billion, which is now coming down to JPY 102.4 billion. So we were now able to really upward revision of the consolidated financial result forecast for the fiscal year.
Now while we were really forecasting JPY 40 billion in core earnings, now it is now revised upward to the JPY 57.5 billion. And also, what we have really, upward revision of the JPY 33 billion from JPY 12.5 billion. And then it is now really improved from 2.4% to 6.4% in ROE.
And personally, why am I saying that this is such a good result? Finally, what we have been doing is now shown in the numbers or the results. And if I can say furthermore, is this just coming from the one-off temporary blockbuster product? Or is there any specific tailwind? But fundamentally, we think we are now gaining strength and also becoming stronger. And so we are quite confident in the results, which is very pleasing.
And more specifically, when -- after I came back, I have worked very hard for the reorganization and work style reform and also to have the effective use of digital tools. And for these, all in all, productivity has obviously increased, and productivity improvement is the largest factor for reducing SG&A.
Now profitability and also the gross profit margin to sales has improved. In terms of the factors or elements, COVID-19 pandemic has made people stay longer at home. And because they are staying home longer, probably, they would like to revisit the way they are leading their lives at home and also in a day-to-day living. All this housing-related equipment or the materials, they really wanted to change. And so we had more of the sales made for mid- to high-end products. And also, we have been able to develop better products in many ways. And another point, digital tool and online showrooms and for selling mid- to high-end products, this has been very effective.
As a result of such SG&A improvement, it was really achieved in a very nice way. And so as for the, really, actions, we have been able to really put them in action, but all these fruits were yet to be harvested. And for the next 2 to 3 years, we think we will be able to enjoy the benefits of these. And as for the expected result in the next fiscal year, approximately JPY 23 billion reduction compared to the previous year can be made. And that's what I said at the previous briefing session earlier.
And one of them is what is for New Life, the voluntary retirement program. And as for the New Life, approximately, we were really anticipated -- anticipating 1,200 people to apply. However, because of the COVID-19 pandemic, probably this was not the perfect timing for people to apply. And so we had 965 people applied for this, which is the 80% of the anticipated applicants.
And as for the effect, in terms of the expected effect, the head count reduction effect, JPY 10.3 billion. And then that will become JPY 8.2 billion effect. And so in terms of labor cost reduction, JPY 2.1 billion reduction, and there were JPY 900 million associated with the activities. And so approximately, as for the next years, what anticipated the result will be reduced by JPY 3 billion or so.
However, in other areas, for example, to really reduce the number of offices by almost half, we do have the good visibility. And LHT, 149 offices and 120 offices of the LWT, this can be halved. And the 22 offices in Tokyo can be consolidated into one. And already, we have started embarking upon this, and we have foreseen the reduction of 30%. And on a full year basis, we will be able to see the result.
And if we add them all together and also the reduction of such will be really able to bring us this JPY 23 billion reduction. And vis-à-vis 1,200 people, JPY 20.5 billion. And then as a result of the actual applicants, JPY 13.5 billion. And actually, in terms of the effect, 80% applicants. And so in terms of the effect, 66%.
And then we had a larger number of people in the higher age brackets. And so in terms of efficiency, that might not be the good expression, but with a smaller number of the applicants vis-à-vis the anticipated applicants, 80% have reapplied. And in terms of the actual cost to be incurred, it just represents 66%. So the remaining portion can be allocated for some other purposes.
And as for the productivity improvement measures, there is some time lag. And in terms of the cost, by utilizing IFRS, there have been some changes and also in the plant factories where there was a delay of 2 month or so in terms of scheduling. However, in terms of the overall progress, we think that we have made progress faster than anticipated, and it is really accelerating.
And JPY 29.8 billion, which is the 3-month profit, I think we should not be complacent, and we think we will be able to do better. As for the fourth quarter, the very last quarter of the year, in terms of profitability, in Japan, we have smaller businesses, and also, we will have more of the public sector-related works.
In terms of the mix of the businesses, the fourth quarter tends to be not that good quarter. But even then, we would be able to really see the reasonable result. And also, what we have been doing might be resulting in a better result in the next year. And so in terms of the plan, we have 4 phases to go through and centralizing on and focusing on core businesses and to really have the efficiency improved for the organization. And for that phase, I think we are almost completing this phase.
And secondly, we are to make this -- on the Japanese business, we're turning into cash generator from the cash eater. And this has already been delivering the results. And then in the next fiscal year, we are really going to really finish this, and the effect will be there. And we are to really grow the overseas businesses in terms of portfolio. However, because of the COVID-19 in this fiscal year, it's not that smooth in the progress. But I think we think we will be see -- going to see favorable environment.
And lastly, to really achieve the [ leapfrog ], digitalization and also the water cleaning technology and so new businesses based on our new technology, we have not been able to do everything for this, but we have already started doing this. And so in various ways, we are beginning to see actual delivery of the results in numbers starting from this fiscal year and IFRS and JGAAP. And this is the sort of comparison of the 2. This is a slide I always share with you, and we are focusing our core earnings, and this is the capacity for us to make money and, according to the JGAAP, the operating profit, which just shows the capacity to earn money.
The next page, please. And this is the key highlights of the results. And in the 9-month period, in terms of the core earnings, it is lower than JPY 7.2 billion on a yearly basis but up until the fourth quarter, JPY 53.2 billion, it is going to be JPY 57.5 billion. And so we are expecting the growth in the profit.
And the net profit level already, we are higher than JPY 8 billion and then resulted with the JPY 38.7 billion. And revenue, it is down by 10% on year-on-year, and the third quarter was the best quarter of this year, but it is lower by 4%. And as we are really seeing decline in revenues, and particularly, we are able to have the higher profitability particularly in Japan, which is very different.
And so after -- I am assuming this position, in case of [indiscernible], and the breakeven point was too high. And when you have the decline in the revenue, all of a sudden, you will be finding yourself in deficit. And so we have to change our [ assertive ] towards the composition and also to really make shift to the higher gross profit product, though in the third quarter, we have seen decline in revenue and in the 9-month period, we have seen decline in revenue, but the profit was increased.
Now what I have referred to earlier, why is it -- was this possible, this downward trend in revenue? Why are we really being able to revise the upward, give a full year forecast? Reorganization, work style reform and the use of the digital tools. And the productivity was improved, and also the gross profit margin improvement. And we are seeing sort of stronger demand for mid- to high-end products, and we were able to capture them.
And we have just started our commercial to have the happier time at home. And so as soon as you got home, you can really wash your hand everywhere and without touching the faucet, the automated faucet, and also the Navish with the water cleansing -- cleaning functions. And also, in the COVID-19 pandemic area, ventilation will be very important. And so the sliding screen, which does have the ventilation functions and also indoor in [ flash ] and renovation-oriented shutters, which is not really directly related to COVID-19, but because of natural disasters, it will be more resistant.
And also, people want to really work outside. And deck is selling better business of the interior materials, not repainting but -- and to really improve the efficiency of the heating or cooling and the resin-based siding materials, which is selling better.
And the customers are really looking for better products, which really satisfy these demands. This is not a one-off or temporary phenomenon. But to really improve the living of the Japanese people, not just in Japan but for all these people in the various parts of the world, this would be really satisfying, this kind of new demand.
Now this is the quarterly trend. And as you can see, particularly in terms of core earnings, in the third quarter, in all of the business segments, core earnings have surpassed the level of the previous year. And this trend is expected to continue because of SG&A reduction and also the higher gross margin. That is true of Japan. And as for the overseas or international businesses, not just the pent-up demand after COVID-19, but in Europe and the U.S., we expect the stronger demand to continue for some more time to come.
And the next page. And this is the monthly demand, looking at the production procurement and sales and monthly sales graph, and the largest growth in Europe. And as for Europe, they really had major impact from lockdowns initially. And October through December, Germany, Switzerland and Spain and [ France ] were really issued in various parts.
But we had really lessons learned. When there is a lockdown, you cannot sell in the physical store, but you will be able to sell more online. And also, if there is a lockdown in a certain area, you'll be able to be really replace the supply from a different plant. And so the lessons we have learned from the April lockdown, we are able to really achieve growth. And that is true of Europe as well as the U.S. And in case of China, as you may know, in Wuhan, the major impact was experienced. And after that, gradual recovery was achieved, and also the business has been improving but -- well, recovering. However, they are really having the real estate bubble kind of.
And so we should be careful in monitoring the trend. And vis-à-vis the customers, we have to think about how we will be able to distribute risks. And also, we are to really make a transition to the products, which would be only available from LIXIL. And also, business model transformation was started in the United States from 2 years ago, not dependent on the conventional stores or wholesalers but to really use the reformers and others. And that has resulted in robust demand.
In -- as for Asia, in terms of the numbers, it's not that quite 0% growth, but in January, we are seeing growth. And the most hit area was Asia because for the stoppage of the mobility and transportation. They are quite dependent on tourism, so they were the most hardest hit. And Thailand or Indonesia, they are quite dependent on tourism. They have really suffered this damage. And also India, there is the impact of the lockdown. It's very difficult to resume the production. But somehow, we are really -- we are managing to see the recovery. And there is going to be a pent-up demand. And so in 2 to 3 years' time, there is going to be a growth from them.
In Japan, overall demand on a year-on-year basis is not that strong. However, we have really changed the actual composition better and also reduced the SG&A, and we have really turned this business better. And both for production and procurement, both at home and abroad, we don't see any major issues. However, our strength, we do have plants in various parts of the world. And even if there is a local problem, we will be able to really take care of that.
And lockdown, if this is going to be more widespread and also the potential shortage of the transport containers, there are some risks with respect to this kind of logistics. And so we are really building up inventory in view of that. But because we are selling well, there is not enough inventory built up yet. And that is a little bit of the concern.
Now is this going to continue? Probably that is the question you may have. And particularly in Europe and the U.S., we believe that this trend is expected to continue. And in the U.S., it just happened that immediately before the COVID-19 in January last year, I attended a kitchen and bath show. And probably 5 years or 10 years down the road, we were expecting a very strong demand to continue.
And as for the new housings, new houses were not built. And the inventory is -- the production was not being able to really build up the inventory. And so we believe that there is going to be quite a strong demand for housing. But because for the lack of the production, we will not be able to really catch up with this demand. And if that is the case, rather than use it for external purposes, why don't we use it more for the internal purposes? And as we are going to see a more active vaccination done, then again, people would turn toward the outdoor again.
But looking at the demand survey of [ Bate ], they are now really trying to really improve inside the home. And then I think this kind of demand is going to be very strong in the developed countries. And so that will be true for the next fiscal year and beyond. And this is the financial results of this fourth quarter. Looking at the latest 3-month, in terms of revenue, down 4%, but gross profit, up by 2%, and core earnings up by 3.8%. And also, the 8% is this sort of core earnings ratio, which used to be 4.7%. And so we were able to change our composition of businesses. Whenever we have the decline in revenue, the profit also went down. But even with this kind of circumstances in the results, we were able to increase the core earnings. And so that was really good and positive for us. If you could just back up, SG&A in 9-month, the reduction of 25 -- JPY 27.5 billion and JPY 8.9 billion in the third quarter and JPY 9.5 billion and JPY 9.1 billion, respectively, in the different quarter. The first quarter was really bad because people cannot really move around. And so it was natural that this would go down. And in the second quarter -- in the third quarter, this level was maintained. And so even with the activities, we were able to really have this sustainability of this level. And we're ahead of others in digitizing various business operations. And so this SG&A level will be sustainable.
And this is the result by segment. And the core businesses of LWT and LHT, we have been focusing. And unfortunately, LWT, Olympics-related demand is over. And so in terms of demand, we are faced with a lot of difficulties. And because of this lower profitability of business, they are really suffering. However, we believe that we would be able to really improve on this. And LWT is really that the sort of the lead time is 3 years. And even if we are to really improve profitability, in the initial year, you would be able to enjoy the benefit only 1/3 of the total. And then I hope for the LWT, you will wait for another 2 years to see the results.
And H&S, the LIXIL business and LIXIL Reality (sic) [ LIXIL Realty ], in that sense, we have not been able to achieve such a significant improvement compared to others. And core businesses, LWT and LHT, have improved significantly. We are very confident of that.
Based on that, for this fiscal year, JPY 57.5 billion of the core earnings. So for the core earnings, from JPY 40 billion, there has been a significant upward revision, and not just that. Compared to last year results, up by JPY 5.2 billion. Operating profit is up as well. And for the net profit, JPY 12.5 billion to JPY 35.5 billion, so significant growth as well. So I think we're starting to be an okay company. Of course, we need to do better to improve further, but we're starting to become an okay company now.
Now for the market, in terms of the concerns, the materials, raw materials prices, aluminum, copper and iron, are going up as well as container prices going up, and there's a shortage of containers as well. For the aluminum, it's usually the aluminum which would have immediate impact on the P&L. But at least for this year, we've already hedged. We've already procured last year. So no impact for this fiscal year. Next year, from April, we're going to launch new products, one after the other. So even if there's a cost increase, we can hedge there.
For the copper, our faucet fitting business, for those products, there will be an impact. But again, we can incorporate that in the launch of the products. And in Thailand, we're changing to the [ lead ] plant, so we can accommodate [ Bizo ].
For the shortage of container, we've been able to deal with that so far with the shortage of the container and the cost increase. But if the things get worsened further, then given the current inventory with the increasing demand, we may not be able to catch up enough. That's a potential risk. So we would like to do everything to be able to hedge against that.
In that sense, this is the general forecast all in all. But LWT and LHT for this fiscal year, we are changing for the better, of course.
Now why we've been able to achieve so far the 3 points about reforming the organization and changing the work style and then leveraging the digital. This is something that we've started 2 years ago: Kawaranaito LIXIL. We have to change by changing to customer-centric thinking. So those who were involved in B2B were shifted to B2C. And the showroom, the online showroom has been leveraged now so that the customers don't have to come to a physical showroom but still be able to choose.
And to change the career, New Life program and Career Options, we've been doing that. Next year and onward, we will continue this Career Option. For all the employees to be able to think about their career with the new normal life, the career journey program is being developed.
And this is my alma mater. This is school that I graduated, with the [ talk ] MBA course, together with them, how to create innovation, we've come up with the course. And we're doing this at the company-wide level. And therefore, changing the working styles, of course, the shift into work from home, I think we're one of the most advanced company. Even now, it's only 5% of our employees who come to work at the headquarters.
And the introduction of the super-flex system, if you are female, taking maternity leave and so forth. But even for male, regardless of the gender, we want to encourage and support the employee's life and also promote the diversity and inclusion. We've been changing our systems towards that end. And then as a result, we're seeing a significant decline in the overtime. I said 30% reduction already on a year-on-year basis. But next year, we want to deliver better.
Earlier on, I talked about it a little bit. But this time, with regards to this New Life voluntary retirement, with the original plan, JPY 3 billion was expected to be reduced -- or excuse me, there is the JPY 3 billion that we cannot achieve both combining the labor cost and activity-related expenses. But by reducing overtime and by changing the organization by consolidating the offices, that can be offset. So JPY 23 billion of reduction on a year-on-year basis for this SG&A. That's the commitment. So the SG&A will go down further, but that's not good enough. We have to work harder. We have to be able to cut whatever we can and so that we can be even more lean as a business. And the key here is this: Kawaranaito LIXIL. LIXIL, we must change.
Now talking about the balance sheet, it's not very good. Equity ratio, 29.4%, improvement from previous year by 5.9%. But with the COVID-19, we increased the cash. We borrowed -- made some borrowing tentatively. So we will reduce the liability by JPY 100 billion by the end of March. So the equity ratio shall be improved by the end of March by repaying JPY 100 billion.
And then this page, investing cash flow. Well, you're talking about increasing the cash, but you're also increasing the investing cash flow, that may be what you say. But for the investment, for this -- majority of this increase are related to the CapEx for relocating the headquarters, so it's just one-off. So if you exclude that factor, the investing cash flow is actually coming down.
So sorry for rushing through, but that was overview for the third quarter results. I think I explained the highlights. From here on, I would like to entertain your questions.
[Operator Instructions] So I'd like to introduce the very first question. From Goldman Sachs, Okada-san.
LWT, the U.S. business, in cumulative third quarters and revenue on a yearly basis, it is 0%. And looking at the robust demand for houses in the United States, it seems like you have the weaker level. So what is the background factors? And also, can you provide us with the future outlook?
As for the U.S. business, of course, we had a big decline initially. And also, we are really transforming the business in a significant way and was focusing on the distribution but more focus on the e-commerce and the renovation. And so the business itself is being more transformed, and we are about to see the results starting from the third quarter and beyond.
Two unfortunate points. Because of the COVID-19, there was not sufficient supply from Mexico, and the growth itself was not really reachieved as expected. And fortunately, the washlet or the toilet, which was ours, it's not that strong as that of Toto. And so that is a somewhat regrettable.
However, in terms of the fitting and Masco and Fortune brand, compared to those brands, I think we have been performing stronger than Kohler and Masco. And we think we have won. But unfortunately, vis-à-vis Toto, Toto has been very focusing on washlet. And so if we are just focusing on that competition, the result was somewhat regrettable, but we think we are gaining fundamental strength there.
Additionally, if I can supplement, if we could go to the bottom part of the Page 7, then by quarter, you will see the sales trend. And in the U.S. in the first quarter, the minus 15%, which was a very large decline and cumulatively in the second quarter and third quarter steadily. We are seeing recovery. I hope that you would take note of that.
And last year, the third quarter, the U.S. was really strong. And so on that basis, in comparison, this figure might have been smaller. And so that is just one of the factors for this smaller number in the United States.
Next from Mr. Kawashima of SMBC Nikko Securities.
With regards to the reduction of the SG&A, please give us a breakdown by cost item on a year-on-year basis. Or if you can give us a breakdown between the structural reduction and the one-off reduction. For instance, the reduction of the distribution cost coming from the decline in the sales volume.
The distribution cost is not included in the SG&A. So basically, the biggest factor is the labor cost, the personnel cost. For the personnel, labor cost, there was a Career Option last year, and there is New Life this year. So it's going to come down even further and the reduction of overtime.
And then it hasn't been fully harvested this year, but so-called sales locations, offices and the subsidiaries' offices in Tokyo, there is a significant consolidation. So the rent for the contract agreement that has already expired, that's a reduction of the rent.
And for the lower activity expenses, there is less travel expenses, less entertainment expenses, not that significant, but the first, second and third quarter, if you make a Q-on-Q comparison, the second quarter, there were many regions that were up and running on a full-fledged way, but no significant increase even though we had full-scale activities. So that's structural, I would say.
In New Life, not just New Life but also the consolidation of the sales offices, of course, New Life will see the benefit next year. And other than that, the consolidation of the stores, locations, offices in Tokyo and the sales offices, reduction coming from that.
And then -- so those will be showing the benefits. And the overtime reduction will also be reflected for the entire full year next year. As well, it's going to be quite significant.
If I may add a little bit, distribution cost. Production distribution is not included. But sales distribution, the sales fee is actually included here. But coming from more than the sales volume reduction, the cost is down because of being creative with sales distribution to be able to pack more into one container or to be more efficient in transportation. So that's why we've been improving the efficiency.
Next, Fukushima-san from Nomura Securities.
Looking at the sales by product in Japan, faucets and also the washstands, we have shown strong sales performance because of the people wanting non-contact. Why is it at the rate of the drop for the sanitary is smaller? And if you could tell us the sort of sales trend of the renovation and nonresidential building materials, not just limited to sanitarywares.
This time, bathroom was the worst. And then -- and kitchen was the second worst in the initial phase. And in case of renovation, people needed to come to the showroom, and the lockdown has negatively affected. And then there was a smaller number of quotes. And as for the kitchens, we have seen recovery since then but not sufficient recovery for the bathroom. And as for the sanitarywares, relatively speaking, we had a smaller number of new products launched. But I think this did better, and the rate of drop was smaller.
In terms of businesses, the number of toilets. And if people stay longer at home, they really wanted to have another toilet in addition to what they have. Now during the lockdown, people are reluctant to invite somebody else from outside to come in.
Page 29, I think Fukushima's question is in reference to the numbers on Page 29, I believe. And here, sanitarywares, minus JPY 2.1 billion third quarter and minus JPY 8.5 billion in the second quarter. And also, the washstand has performed strongly. At the very bottom is sanitaryware, and the washstand cabinets includes faucets and inclusive of the automated faucets. This is showing a very significant growth. And then -- and within this sanitaryware, the decline was somewhat mitigated. Sorry, it's not sanitaryware but sanitaryware equipment.
From Jefferies Securities, Mr. Fukuhara.
In terms of the number of visitors to your domestic physical online after October, what's been the number of visitors on a year-on-year basis? Because of the shift to the online showroom, in terms of the numbers, you may now look at -- so in terms of the number of consulting, a number of estimates, how can you compare?
And in the new sales plan for 4Q, the plan is still showing a negative on a year-on-year basis. So looking at the showroom, can we expect an upside for the sales plan for 4Q for Japan?
We're promoting the shift to the online showroom, but still, there are more people coming to the physical showroom. Now for the physical showrooms, we're actually saying no to those who don't have reservations because of COVID-19. For one visit based on the infection situation, we only take half of the reservations compared to the normal time. So the number of visitors has gone down significantly on a year-on-year basis, that's for sure, because we're limiting the number of visitors as well.
But this time, JPY 40 billion of core earnings going up to JPY 57.5 billion. What we were wrong the most was the number of visitors to showrooms, especially for the renovation around the water-related, the number of visitors in a number of estimates in showrooms was reflected into the plan because that would be realized as 3 month or 6 months later. But the number of estimates, even if it's down by -- as a business, we actually saw the increase in the business.
So what happened was that the contracting ratio is going up. So just looking at the number of estimates doesn't forecast what's going to happen afterwards. So we now have to come up with different indicators compared to before.
Now as a matter of fact, there is a big potential demand. We're getting lots of inquiries. And the access traffic to our website is increasing. However, the statistics about the showroom, although we're not disclosing them, but compared to last year, the numbers are rather low.
In the domestic sales plan, we're anticipating a negative on a year-on-year basis based on the number of new housing start. And also, under the current COVID-19, it's very unlikely that people go outside. But if there's a pent-up demand with the vaccinations, then we could expect upside to the sales. But given the current situation, I would say it's still positive -- excuse me, negative on a year-on-year basis.
In terms of the water-related, on a year-on-year basis, 95%. LHT products, about 90% or a little short of 90% is where we are.
Next, Mitsui Sumitomo Trust Asset Management, [ Takegawa-san ].
The growth of the retail and e-commerce in Western countries, what is -- are the specific products and also the latest prospect?
In e-commerce for the faucets is the best-selling product, GROHE, is showing strong performance. Now as for the retail and the physical stores are being locked down, and so it's quite difficult. But in the United States, the strong performance comes from the good retail. And whenever we have the good or strong retail in ceramic, also, the sanitarywares do so well.
Mitsui Sumitomo Trust Asset Management, [ Takegawa-san ].
For the public schools, to make the toilets dry, there are some supplementary budget allocated. What are you going to do that?
Traditionally, Toto has been very strong, and then they have the specification certified. And so we have to take on the challenge ourselves.
However, the automated flash which is quite occupied, and if we are to really make investment in order to really digest all this budget allocated, it will be very difficult.
However, from the school perspective, it's not just the renovation or remodeling of the toilets alone but to really make it the higher heat insulation performance to be incorporated into the windows and floors in various ways. There are so many things which have to be done. And so we think we will be able to see opportunities where we will be able to really sell the distinctive features in residents' toilet -- Resilience Toilet. And so it is 5 liters for the flash. But in case of emergency or disaster, 1 liter of the wash is sufficient enough to flash. And so in case of disasters, all the schools or the public facilities, this could be used at shelters, we would like to really sell these distinctive products and to really compete against Toto.
So from [ Takegawa-san ].
About these western markets, retail, e-commerce specific products, additional question from that. In the United States, isn't that the shower toilets?
Not necessarily as strong as Toto when it comes to shower toilets especially in the United States. Our shower toilets in the United States is now even growing by 20% because the product lineup is very much limited for us. And Toto is a good company, and they have this great product, washlet. And they've been selling that for a long time. And so we haven't been able to achieve that far. But our strength is for the faucet, we are very strong. So the touch faucet is what we are growing.
[ Takegawa-san ] from Mitsui Sumitomo Trust Asset Management.
The fourth quarter and the potential risks and the shortage of the transport containers, can you elaborate more as to what would be this impact?
In the United States, we see strong demand. In B2B, that's strong demand. And if we are just focusing on the Mexico and if there is a lockdown, we really have to transport products from Asia. But there are difficulties with respect to the transport containers. And in terms of the forecast, we are expecting the strong set of growth in the United States, but this might be affected by this broader container problem. But in Europe, we are focusing on the businesses within Europe, and also some of the products are brought from Thailand. But I think this is quite resilient in that sense.
And as for the potential shortage of transport containers, sash are being produced in Vietnam and Thailand. And I think we have been able to really adequately take measures against that.
From BofA Securities Japan, Mr. Omuro.
With this revised forecast, the gap between the core earnings and operating profit has shrunk. What is the factor for that smaller gap?
Now the gap between the core earnings and operating profit, just like New Life, the restructuring cost is one thing. But New Life, it's about 80% of the impact compared to what we had expected. So we couldn't use up the cost, and there has been some delay from this year to next year, so production, the change of the location. So those have been shifted from April to -- excuse me, March to April.
And then in terms of the gap between the core earnings and operating profit, there's impairment of the subsidiaries that will be included here. So there was some plus and minus around that.
One more question from Omura-san.
And what are the assumptions for the new housing starts in domestic? And what is the sort of background factor for revising your forecast upward? And also the dividend policy.
As for the new housing starts, various institutes are coming up with the forecast. And we were the very first, and there was 760,000 units. And that was based upon the numbers provided by numerous securities. But the actual trend was not in line with that forecast. And so we have looked out to the statistics provided. And then because of that, we have really made the upward provision. And so I think we are in line with the forecast.
And what was the second part of the question? As for the dividend, still, we think we have seen improvement in the balance sheet as well as EBITDA. And in that context, we are confident in making more money. And I think we are becoming more confident, but it's not that we are going to immediately change our dividend policy.
From Mitsubishi UFJ Morgan Stanley, Mr. Yagi.
You mentioned that the mid- to high-end products you're selling are with improved mix. So by LHT and LWT, what kind of products are contributing to the mix improvement by product? And also, please tell us if there are any potential products for the future.
For LHT, by far, we have more products for the housing. But this time, products for the renovation sold well for mid- to high end. But actually, for renovations, there are high margin, like in flash, shutters and ventilating doors with [indiscernible] and the shades. So they only accounted for less than 10% so far, but those are starting to sell, and they are high margin.
And next areas where the margin was high to begin with also did quite well. Be it COVID-19, for the ones that are being sold outside from outer, it was easier to sell. So rather than mid- to high end, I think it's easier now to be able to sell the renovation products.
For LWT, the mix is changing clearly. For kitchen, Richelle, our highest-end product, ratio is increasing. For toilet -- or excuse me, for faucets, touchless and water cleansing function, those products are selling quite well. And I talked about this product where you can now wash hands anywhere. So non-contact or touchless demand is strong there as well.
Next, Mizuho Securities, Nakagawa-san.
In the Western countries, you have said that you're expecting to see stronger demand for houses for the time being. But as for the Japanese housing market from the next fiscal year and beyond, new houses and renovation, what kind of image do you have? And as for the renovations, can we expect that the composition ratio of the mid- to high-end product is going to increase to the total of the sales?
As for the new housing starts, when we revised them down, Nomura Securities forecast 760,000 and also 740,000 units. And then 760,000 is up to 800,000. And so as for this fiscal year, are we going to see a decline? To be very candid with you, we don't think that it will go down to that level. That's what we forecast, but not -- approximately 800,000 units.
And as for the renovation, potential demand is quite high, but it will not be really realized. Because of this COVID-19, no on-site inspection and also no visit to the physical stores. And how can we really take care of that? By combining more of the digital tools.
And in terms of the forecast numbers, the question raised by the person from Jefferies Securities, the leading indicators that we have been using need to be changed because we are really providing more of the digital set of solutions. And so we are not that aggressive, and we are trying to become the cash generator. But what is really lacking is not the change of the demand, but we have to do more and accelerate the reduction of the SG&A.
Now the trend towards more of the mid- to high-end products, clearly, the customers are really turning to those products because we have a higher contact ratio and because they are really looking for the better products, and also, they are trying to really buy products at one point in time. And I think that is a trend we can really use.
From Morgan Stanley MUFJ, Mr. Katsuyama.
The SG&A reduction of JPY 23 billion against fiscal '19, you said it's achievable. But this year, on a year-on-year basis compared to last year, the SG&A has reduced rather dramatically. So from this year to next year, should we expect that the SG&A number would not change that much?
It will change dramatically because New Life this year, it was 0. And Career Option, the Career Option from last year to this year is only 3 quarter of the impact because those who left with Career Option was back in June last year, so it's only 9 months. And for the stores and sales offices, it's going to change every time the agreement -- the rent agreement ends. So the cost reduction will be achieved gradually.
If I tell you more numbers, in the next disclosure timing, I won't have some time. But one thing I can say is last year's speed was much faster than we had expected, but there's still more that we can harvest and get the benefits out of it. So that I can say for sure, with confidence, with New Life, so JPY 8.2 billion for labor cost. Then the activity expense is going to be JPY 3 billion. So that's JPY 11 billion altogether, JPY 11.2 billion. And Career Option out of JPY 5 billion, that's -- 1/4 of that would be impacted. So that's JPY 12.5 billion altogether. And with the Career Option activity-related expenses, JPY 12.8 billion or so just as labor cost. I said 30% reduction of overtime to be further promoted to 70%.
So that's only coming from the trend I see. So exactly to what extent we can reduce the overtime, we don't know, but still several billion yen and then the reduction from consolidation of the offices. So from this -- from last year to this year, Career Option and the part of the consolidation of the sales services were the contributors. So I have already disclosed a lot of numbers now, but I'd like to put them together and then share with you in the next disclosure opportunity.
We do have some more time. And those attending, if you have any questions, please send them to us either by chat function or by e-mail. It seems like that there are no further questions, so we would like to really conclude the Q&A session.
And with this, we would like to conclude the briefing session for the financial results for the third quarter of this fiscal year. We would like to ask you to really flap your continued support and cooperation. Thank you very much.
[Statements in English on this transcript were spoken by an interpreter present on the live call.]