LIXIL Revenue Rises in All Businesses, Profits Fall in FYE2023
- Revenue and profit increase in Q4 due to price optimization measures and slowdown in rising material costs
- Revenue for the full year up due to price optimization measures but profits down due to softening global demand and supply chain disruptions
Tokyo – LIXIL Corporation (“LIXIL”, TSE Code: 5938), maker of pioneering water and housing products, today announced its fourth quarter and full-year results for the fiscal year ending March 31, 2023.
“Revenue and profitability increased in the fourth quarter, reflecting the impact of our price optimization measures, a slowdown in rising material costs, and resolved supply chain and inventory challenges in our international business. As a result of such ongoing measures, we now see a recovery trend in profitability. However, we faced an extremely difficult business environment over the financial year, which included the weakening of the yen, rising material costs, supply chain challenges, and the time lag between rising costs and price optimization measures, leading to a decline in full-year profits.
The external headwinds provide an opportunity to strengthen the foundation of our business, and we have responded in an agile manner. We are strengthening our product supply systems and eliminating constraints to address disruptions caused by supply chain and logistics challenges. We have also been promptly optimizing our prices ahead of our peers and expanding our lineup of environmentally friendly products as environmental awareness and demand for home renovation grow. Furthermore, to get ahead of the changes in our external operating environment, we have also evolved our LIXIL Playbook, which outlines our management direction. We are optimizing our business models in Japan and international markets, closely integrating environmental and business strategies, while investing in new businesses with growth potential as we look to create a new core business.
While we anticipate high material costs and softened consumer demand to continue in the coming year, we also anticipate strong sales in markets such as APAC and the Middle East. We remain focused on accelerating our efforts to achieve sustainable growth and make a positive impact in society and on the environment.”
- Kinya Seto, CEO, LIXIL
For the full-year period, revenue increased by 4.7% year-on-year to ¥1,496.0 billion. In Japan, revenue increased by 1% year-on-year, reflecting the impact of price optimization measures and increased demand for home renovation products that improve the comfort and quality of homes, including high-performance windows. In international markets, revenue increased by 12% year-on-year on a yen basis but decreased by 0.1% on a local currency basis, reflecting softened demand in the Americas, China and parts of Europe.
For the fourth quarter period, revenue increased by 5.1% year-on-year to ¥372.2 billion. In Japan, revenue increased by 1%, and in international markets, by 14%. After factoring out the impact of foreign exchange, revenue for international markets increased by 3.4% year-on-year.
For the full-year period, core earnings decreased by ¥39.1 billion year-on-year to ¥25.7 billion due to the impact of increased material and logistics costs, supply chain constraints, and a decline in sales amid elevated inflation. Core earnings margin, therefore, decreased by 2.8pt to 1.7%. Gross profit margin decreased by 2.8pt to 31.3%. SG&A expenses increased by ¥20.9 billion, reflecting increased sales activities and logistics costs, although SG&A ratio remained in line with last fiscal year.
For the fourth quarter period, core earnings increased by ¥1.6 billion year-on-year to ¥4.7 billion, representing a core earnings margin of 1.3%, a 0.4pt increase year-on-year. Gross profit margin decreased by 0.8pt year-on-year to 31.2% while SG&A expenses increased by ¥1.1 billion.
Net Profit for the Full Year Attributable to Owners of the Parent
For the full-year period, profit decreased by ¥32.6 billion year-on-year to ¥16.0 billion, reflecting the decrease in core earnings.
For the fourth-quarter period, profit decreased by ¥2.1 billion year-on-year to ¥5.0 billion.
Year-End Dividend Forecast
LIXIL maintains its year-end dividend of ¥45 per share, while its annual dividend is forecast to increase by ¥5 per share to ¥90 per share.
Full-year forecast for FYE2024
LIXIL expects to generate ¥1,530 billion in revenue and ¥40 billion in core earnings, representing a core earnings margin of 2.6%. The company intends to maintain its annual dividend of ¥90 per share.
Performance by Business Segment and Region for the Full-Year Period
Revenue from LIXIL Water Technology (LWT) in Japan increased by 1.1% year-on-year to ¥418.4 billion, reflecting the impact of price optimization measures, increased sales of medium- and high-grade products, and increased sales of renovation-related products. In total, the ratio of revenue generated from renovation-related products increased by 2.0pt to 49%. However, core earnings decreased by 24.8% year-on-year to ¥25 billion as the positive effect of price optimization measures and fixed cost reductions was outweighed by increased material and component costs. The core earnings margin for LWT’s Japan business, therefore, decreased by 2.1pt to 6.0%.
LWT’s international business recorded revenue of ¥496.9 billion, an increase of 10.8% year-on-year after factoring in the depreciation of the yen. Revenue from international markets slightly decreased on a local currency basis, however, due to softened demand in the Americas, China and parts of Europe. In the Americas, revenue decreased by 4% on a local currency basis as rising interest rates and customers adjusting inventory levels to account for the slowdown in the housing market impacted demand. While supply chain constraints were resolved in the EMEA region and favorable sales in the Middle East continued, revenue growth was limited to 1% on a local currency basis as Central Europe and other markets in the region also experienced softening demand. Revenue in China decreased by 15% as zero-Covid measures impacted the market's economic recovery. Revenue from APAC was up by 12% on a local currency basis due to strong sales accompanying the recovery of economic activity in the region, led by Vietnam, India and Thailand. Overall, sales growth in the region continued to exceed targets across all sales channels. The core earnings margin for LWT’s international business decreased by 48.7% to ¥22.3 billion, while its core earnings margin decreased by 5.2pt to 4.5%.
Revenue for LIXIL Housing Technology (LHT) increased by 2.4% year-on-year to ¥598.2 billion, reflecting the impact of price optimization measures and increased demand for renovation-related products such as high-performance windows. The ratio of revenue from renovation-related sales increased by 1.4% year-on-year to 34%. However, the positive impact of price optimization was unable to offset the impact of declining new housing starts, resulting in core earnings of ¥19.4 billion, down 38.9% year-on-year. LHT’s core earnings margin, therefore, decreased by 2.2pt year-on-year to 3.2%.
Updates to the LIXIL Playbook
The LIXIL Playbook, which outlines LIXIL’s management direction, was first introduced in 2021. Originally consisting of four strategic initiatives supported by a foundation based on empowering people, LIXIL has evolved its Playbook in response to changes in its external operating environment. Now consisting of five strategic initiatives, updates focus on measures to strengthen its core businesses, integrating its environmental strategy into its business strategy, and developing a new core business to drive growth.
Tackle Inflation and Supply Chain Challenges
In response to the ongoing impact of rising material and logistic costs, LIXIL will focus on improving its profitability through price optimization measures, using alternative materials to reduce cost and cost volatility, and by shifting to differentiated, high value-added products. To mitigate the risk of global supply chain disruptions, LIXIL will further strengthen its logistics and procurement processes and leverage the platform production model, while transitioning to regional procurement and production systems.
Optimize Japan and Drive New Growth
LIXIL will continue to focus on improving the profitability and agility of its Japan business by expanding its renovation-related business, which traditionally focused on LWT products, to further include LHT products, such as high-performance windows. This will enable it to capture increasing demand for home renovation. LIXIL will further differentiate itself by integrating environmentally friendly products across all product lines and businesses.
Grow International Water Business
Through differentiated, high value-added products, diversified sales channels, and its strategic brand portfolio, LIXIL will capture growth in international markets by differentiating itself from the increasingly commoditized market.
Integrate Environmental Strategy into Business Strategy
LIXIL’s environmental strategy consists of three focus areas: climate change mitigation and adaptation, water sustainability, and circular economy. By integrating its environmental strategy into its business strategy, and setting new mid-term targets across its operations, value chain and beyond, LIXIL is strengthening its efforts to make a positive impact on the environment and society, while achieving sustainable growth.
Develop New Core
To achieve sustainable growth into the future, LIXIL will further devote resources to establish a new core business that will provide a new pillar of profitability.
*Please see disclosures here.