LIXIL : Q1 Results for the Fiscal Year Ending March 31, 2023（IFRS）（From April 1, 2022 to June 30, 2022） >(Jul 29, 2022)

Q1 Results for the Fiscal Year	TSE Code: 5938
Ending March 31, 2023 (IFRS)
(From April 1, 2022, to June 30, 2022)

LIXIL Corporation

July 29, 2022

Copyright © LIXIL Corporation. All rights reserved.

LIXIL TRANSITIONED TO IFRS FROM FYE2016
CHANGE IN PROFIT LEVEL STRUCTURE IS AS SHOWN
JGAAPBELOW	IFRS (LIXIL Financial Reporting)
	Continuing operations
Net sales	Revenue
Cost of sales	Cost of sales
Gross profit	Gross profit
SG&A	SG&A
Operating profit	Core earnings (CE)
Non-operating income/expenses	Other income/expenses
Ordinary income	Operating profit
Extraordinary income/loss	Finance income/costs
	Share of profit (loss) of investments accounted for using equity method
Profit before income taxes	Profit before tax
	Profit from continuing operations
	Discontinued operations
	Profit for discontinued operations
Net profit attributable to	Profit attributable to
Non-controlling interests	Owners of the parent
Owners of the parent	Non-controlling interests

"Core earnings" in IFRS is equivalent to JGAAP's "Operating profit"

1

KEY HIGHLIGHTS

Summary of results for Q1 FYE2023

Revenue increased and core earnings declined YoY for the following reasons. Core earnings declined in the period but are now on a recovery trend

1) Cost inflation

• While market prices of major raw materials have recently retraced some of their sharp gains, we continued to see the impact on production / inventory booking based on past costs, hedging transactions, and JPY depreciation. The impact of the current decline will be realized in as early as Q3 to mid-Q4

2) Price optimization

• Steady progress has been made according to plan. Full-scale realization of benefits will be seen from October

3) Market environment (demand)

• Order situation is generally favorable despite weakening market environment

4) Status of each business in Q1

• LWT (Japan): Maintained prior-year level of revenue due to countermeasures against temporary parts procurement issues. However, this led to increased costs

• LHT (Japan): Costs continue to be high from aluminum hedging contracts and JPY depreciation, impacting profitability

• LWT (Int'l): A weaker yen boosted Q1 revenue growth. While the order position was broadly favorable, logistics challenges have been one limiting factor to growth in Q1

					2
KEY HIGHLIGHTS
Core earnings margin is gradually recovering due to the benefits from
phased measures				Measures
	Core Earnings		Group wide
JPY billion	Margin	Continue phased price optimization(1)
10			9.0%	Europe
			8.0%	• Response to supply chain disruptions
8			- Labor-management to resolve personnel
		7.0%	shortages, especially European plants
			- Opening of two new distribution centers adding
6			6.0%	further logistics capacity and agility(2)
	FYE2023 Plan	- Swiftly re-direct supply between regions
4		FYE2022 Results5.0%	Americas
		4.0%	• Response to softening of demand in Americas
			3.0%	- Strengthen our brands to differentiate our
2			products
		2.0%	- Build up of dedicated sales force to drive channel
			footprint expansion
0			1.0%	- Increase share in Fittings category
		Japan
Oct. Nov. Dec. Jan. Feb. Mar.Apr. May Jun.	0.0%	• Measures to promote greater home efficiency such
as improved insulation through building renovation
(2)			-1.0%	• Rationalization of distribution operations between
	H2 FYE2022	Q1 FYE2023		manufacturers and distributors
		• Cost reductions in Japan (e.g. Promotion of asset-
Bar graph: Core earnings amount, line graph: Core earnings margin
light investment strategy)

1. News Release on Dec 7, 2021 "Partial revision of manufacturer's suggested retail prices for residential building materials and equipment due to soaring raw material prices", News Release on Jun 23, 2022 "Partial revision of manufacturer's suggested retail prices for building materials and equipment"(Japanese only) 3
2. Please refer to p.26 Business and ESG related topics "Responding to supply chain disruptions and higher logistics costs"

KEY HIGHLIGHTS

Outlook: Cost environment is improving, but will be reflected later this year

Cost environment

Raw materials costs

• Copper: Prices are on the decline.(1) Due to inventory booking based on past costs, hedging transactions, the benefits will be reflected from mid-Q4

• Aluminum: Prices have also fallen sharply(2), but cost is expected to exceed initial estimates in Q1-Q2 due to past hedging and a weaker JPY. We expect lower global prices will be offset by JPY depreciation from Q3

• Steel and Resin: Expect to decline from Q3

Logistics costs

• Now declining but prior high costs will have an impact through Q2

• Cost decline expected to be reflected from Q3

Semiconductor, wire harness, wooden materials

• Redundancy in procurement limited supply chain disruptions, but higher response costs continue

• Occurrence of unexpected issues decreased. Expect gradual decrease in response costs going forward

Forex impact（JPY depreciation）

• Continued impact on aluminum procurement and cost of imports from factories outside of Japan

Potential business risks in Q2 onward

Risk of energy supply from Russia

• Winter production is a risk due to higher energy consumption

• Three factories in Germany produce approximately 50% of GROHE products

• Analysis shows that if gas supply is reduced by 45%, impact on output will only be 4.5% due to a shift to alternative energy sources

Labor issues

• Labor shortages, strikes, and absenteeism due to COVID-19 occur frequently in factories, ports, and carriers

• Shortage of product availability should continue to be closely monitored

Frequent lockdowns in China

• Plan to bring greater redundancy to procurement

Decline in global demand

(1)	LME Monthly average price (Yr. 2022):	From a peak of USD10,246/ton in March to USD9,036/ton in June (-12%)	4
(2)	LME Monthly average price (Yr. 2022):	From a peak of USD3,543/ton in March to USD2,585/ton in June (-27%)

PERFORMANCE HIGHLIGHTS

Revenue increased but profits decreased year-on-year

• Revenue: JPY360.3 billion, up 4% year-on-year
• • Q1 (3 months) YoY: +0.4% in Japan and +11% in international markets (+1.4% excluding forex impact)
  • Revenue increased due to effect of a weaker yen, renovation sales growth in Japan, progress in the recovery of economic activities in Asia-Pacific region despite impact of international supply chain disruptions and lockdowns in China
• Core earnings: JPY7.0 billion, down JPY16.1 billion year-on-year
• • Q1 (3 months) YoY: -JPY7.4 billion in Japan, -JPY9.9 billion in international markets and +JPY1.2 billion for consolidation adjustment/ others
  • Core earnings have gradually recovered from April, despite decrease in profit YoY due to the time required to see the results of various measures(1)
• Profit for the quarter(2): JPY5.7 billion, down JPY11.1 billion year-on-year
• • Decreased primarily due to decrease in core earnings

(1)	Please refer to p.3 for the various measures	5
(2)	Profit for the quarter = Profit for the quarter attributable to owners of the parent

Q1 FYE2023 CONSOLIDATED BUSINESS RESULTS

				Q1 FYE2022	Q1 FYE2023	YoY
				(3 months)	(3 months)	vs Results
			JPY billion	Results	Results	Increase/	%
			decrease
	Revenue		345.8	360.3	+14.5		+4.2%
	Gross profit	125.0	116.4	-8.6		-6.9%
(%)		36.2%	32.3%	-3.9pp		-
	SG&A		101.9	109.4	+7.5		+7.3%
	Core earnings (CE)(1)	23.1	7.0	-16.1		-69.8%
(%)		6.7%	1.9%	-4.7pp		-
	Profit for the quarter including	16.8	5.7	-11.1		-65.9%
	Discontinued Operations(2)
	EPS (JPY)			19.79
		57.91	-38.12		-65.8%
	EBITDA(3)		43.1	26.9	-16.2		-37.5%
(%)		12.5%	7.5%	-5.0pp		-
■
CE margin: Declined by 4.7pp (Gross profit margin declined by 3.9pp, SG&A ratio declined by 0.9pp)
■	Gross profit margin and core earnings margin: Declined as the effects of price optimization and fixed cost
		reductions have not yet covered the cost increases as of Q1
■ SG&A expenses: SG&A expenses increased by JPY7.5 bn YoY (Japan JPY1.4 bn increase, International JPY3.4 bn
		increase, forex effect JPY2.7 bn increase) due to increase of sales activities and logistics costs. SG&A ratio declined
		by 0.9pp mainly due to higher personnel expenses and logistics cost ratio in international market
		(1)	Equivalent to "Operating profit" of JGAAP				6
		(2)	Profit for the quarter attributable to owners of the parent
		(3)	EBITDA=Core earnings + Depreciation + Amortization

CHANGE OF REPORTING SEGMENTS

To become an organization enabling accelerated growth and profitability improvement

Integrate Building Technology Business (LBT) and Housing & Services Business (H&S) into Housing Technology Business (LHT) to achieve greater collaboration

	〜FYE2022			FYE2023〜
	Former reporting segments	Business domain	New reporting segments
	Water Technology Business
	(LWT)			・ Plumbing fixtures	Water Technology Business
				・ Tile building materials	(LWT)
	Housing Technology Business
	(LHT)
				・ Metal building materials
	Building Technology Business
	(LBT)			・ Wooden interior furnishing
				materials	Housing Technology Business
				・ Other building materials	(LHT)
	Housing & Services Business			・ Housing solution and
	(H&S)			other businesses

7

Reference: Q1 FYE2023 BUSINESS RESULTS BY SEGMENT

Business results for Q1 (three months) in the former reporting segments are as follows

				Q1 (3 months)
Former reporting segments	FYE2022	FYE2023	Increase/
decrease
		JPY billion
	LWT	Revenue	210.6	221.0	+10.4
	CE	23.7	13.2	-10.4
	LHT	Revenue	114.8	116.7	+2.0
	CE	10.4	3.5	-6.9
	LBT	Revenue	18.0	19.7	+1.7
	CE	-0.8	-0.8	-0.0
	H&S	Revenue	7.2	6.8	-0.3
	CE	0.1	0.4	+0.4
	Consolidation,	Revenue	-4.7	-3.9	+0.8
	adj. & other	CE	-10.2	-9.4	+0.9
	LIXIL	Revenue	345.8	360.3	+14.5
	CE	23.1	7.0	-16.1
	Forex impact
	Q1 3 months: Revenue +JPY11.5 billion, CE +JPY1.4 billion
					8

Q1 FYE2023 BUSINESS RESULTS BY SEGMENT

LWT International business and LHT business drove increase in revenue.

Due to the effect of measures against cost inflation, core earnings increased in all businesses compared to Q4 FYE2022, but core earnings decreased YoY

				Q1 (3 months)
					Increase/ decrease
		FYE2022(1)	FYE2023				due to the	excluding the
New reporting segmentsJPY billion						segment	segment
					change(2)	change
LWT	Revenue	210.6	221.0		10.4
CE	23.7	13.2		-10.4
LHT	Revenue	139.4	143.0		3.6		+1.7	+2.0
CE	9.9	3.1		-6.8		+0.1	-6.9
Consolidation,	Revenue	-4.2	-3.7		0.5		-0.3	+0.8
adj. & other	CE	-10.5	-9.4		1.2		+0.3	+0.9
LIXIL	Revenue	345.8	360.3		+14.5
CE	23.1	7.0		-16.1
Forex impact
Q1 3 months: Revenue +JPY11.5 billion, CE +JPY1.4 billion

(1)	Please refer to "Notice Regarding Change in Reporting Segments" disclosed on July 29, 2022 for full-year and quarterly results for	9
(2)	FYE2022 in the new reporting segments
Includes consolidation adjustments added by the change of reporting segments