LIXIL Group Corporation

Transcription

1 Goldman Sachs Industrials Conference 2017 LIXIL Group Corporation Sachio Matsumoto Executive Officer and Executive Vice President Chief Financial Officer November 14, 2017 Copyright LIXIL Group Corporation. All rights reserved.

2 Who is LIXIL? LIVING LIFE 2

3 LIXIL Offers Comprehensive Products for Houses Unit Bathrooms Washstand Cabinet Units Sanitary Ware Roofing Materials Housing Sashes Kitchen Systems Entrance Doors Shower-heads, Plumbing Fixtures Exteriors (Carport, Fence, Gate) Interior Furnishing Materials Exterior Wall Materials, Tiles Exteriors (Wood deck) 3

4 Revenue Trend of the LIXIL Group JPYbn 2,000.0 Sales ratio (outside of Japan): 30% 1, , , , , Sales ratio (outside of Japan): 3% Acquisition of American Standard Asia Pacific (in 2009) Acquisition of Permasteelisa (in 2011) Plan to divest in 2017 based on sharetransfer agreement Acquisition of American Standard Brands North America (in 2013) Initial Acquisition of GROHE (in 2014) Full consolidation (in 2015) Japan Overseas 0.0 FYE2010 FYE2011 FYE2012 FYE2013 FYE2014 FYE2015 FYE2016 (IFRS) JGAAP IFRS FYE2017(1) (IFRS) (1) Announced in May

5 LIXIL Group Revenue and Core Earnings by Business Revenue growth and profitable growth are driven mainly by Water(LWT) and Housing(LHT) Technology JPYbn (+4%) Revenue 1,786.4bn YoY -5.5% (Like-for-Like: -0.1% (1) ) (-2%) JPYbn Core earnings (2) FYE bn YoY +26.0% FYE2017 Margin (%) 12% LIXIL Water Technology LWT LIXIL Housing Technology LHT (-10%) LIXIL Building Technology (+2%) LIXIL Kitchen Technology (+2%) Distribution and Retail Business 64.4 (+1%) Housing and Services Business LIXIL Water Technology 10% % 1% 4% LIXIL Housing LIXIL Building LIXIL Kitchen Technology Technology Technology 7.2 4% 7.3 Distribution and Retail Business 3.8 7% 4.4 Housing and Services Business 10% 8% 6% 4% 2% 0% -2% *Line graph shows core earnings margin for FYE2017 (1) Like-for-Like basis excluding impacts of divestment (2) Equivalent to Operating Profit of JGAAP (3) Announced in May,

6 LWT : LIXIL is the Global Market Leader in the Sanitary Industry (1) Category Sanitary Ware Faucet Unit Bathrooms Washstand Cabinet Units Kitchen Systems Market Share in Japan/ globally (1) 40% 10% globally 30% 35% 26% Market Position (1) No.2 in Japan No.1 in North America No.1 globally No.1 in Japan No.1 in Japan No.1 in Japan (1) LIXIL Group Estimates 6

7 LWT : LIXIL is the Global Market Leader in the Sanitary Industry (2) -Acquisition of Global Brands- Brand Business Areas Products / Share Global (Headquarters: Germany) Faucet / No.1 globally (High-end, Luxury) North America / Asia Sanitary Ware/ No.1 in North America (Luxury, Mass) Business Segment Faucet Sanitary Ware, Unit Bathroom Shower head Faucet 7

8 LWT : LIXIL is the Global Market Leader in the Sanitary Industry (3) Global sanitary sales (1) Sales in USDbn 6 FOCUS BATHROOM EQUIPMENT (ceramics, tubs, shower enclosures) FOCUS SANITARY FITTINGS (faucets & showerheads) FOCUS SANITARY TECHNOLOGY (installation- & flushing-systems, piping) 5 LIXIL WATER TECHNOLOGY 4 TOTO Sanitary Ware (2) 3 MASCO Plumbing Products (DELTA, HANSGROHE) GEBERIT & SANITEC 2 KOHLER Kitchen & Bath (3) ROCA 1 Fortune Brands (MOEN) 0 VILLEROY & BOCH Bath & Wellness DURAVIT DECA In front of the wall Behind the wall (1) As of 2015 (2) Share of sanitary ware portfolio estimated at 70% (3) Estimate, privately held company 8

9 LHT : LIXIL is the Market Leader in the Housing Material Industry Category Housing Sashes Exteriors Entrance Door Building Sashes Interior Fabric (Curtains etc) Wooden Furnishing Materials Market Share in Japan (1) 50% 55% 55% 40% 10% 15% Market Position (1) No.1 in Japan No.1 in Japan No.1 in Japan No.1 in Japan No.1 in Japan No.3 in Japan (1) LIXIL Group Estimates 9

10 Key Management Kinya Seto Director, Representative Executive Officer, President & Chief Executive Officer, LIXIL Group Corporation Sachio Matsumoto Executive Officer and Executive Vice President, Finance, Treasury, and M&A and Chief Financial Officer, LIXIL Group Corporation 1983: Began his career with Sumitomo Corporation, a major Japanese trading company <After that, he established more than 10 companies in Japan and outside of Japan, including MonotaRO Co., Ltd., a direct marketer of maintenance, repair and operating supplies> 2012: Served as Representative Director and President at Granger Asia Pacific, and also as Vice President at W.W. Granger, Inc. January 2016: Joined LIXIL Group Corporation and served as Representative Executive Officer and Chief Operating Officer June 2016: Assumed current role of Director, Representative Executive Officer, President & Chief Executive Officer of LIXIL Group Corporation 1982: Began his career with Fuji Xerox Co., Ltd. 1994: Served as Manager,, Xerox Global Headquarters, Stamford, CT 2000: Served as CFO, Fuji Xerox Asia Pacific, Singapore 2010: Served as Corporate Vice President and Head of Finance and Treasury at Fuji Xerox Co., Ltd 2013: Joined LIXIL Group Corporation and served as Executive Officer and Senior Managing Director 2015: Assumed current role of Executive Officer and Executive Vice President, CFO of LIXIL Group Corporation *He holds 35,000 shares of the Company. *He holds 99,000 shares of the Company. 10

11 Medium-Term Business Plan (FYE2019-FYE2021)

12 MTP Redefining LIXIL to Achieve Long-Term, Sustainable Growth With an industry leading-global footprint, we are now positioned to drive further efficiency, synergies, and innovation to achieve sustainable competitiveness I Ⅱ Ⅲ FYE2019-FYE2021 (Structural Reform for Growth) FYE2017-FYE2018 (Establish Growth Foundation) Simplify & Improve Balance Sheet Strengthen Profitability FYE2022- (Growth) Drive Revenue Growth 12

13 Phase II- Place top priority on Strengthening Profitability Currency: yen Core Earnings Ratio ROE (%) 8 7.5% (%) %~ % 3.7% 5.5% +7.9% +7.3% MAR 16 MAR 17 MAR 18 (Fcst) MAR 21 (MTP) MAR 16 MAR 17 MAR 18 (Fcst) MAR 21 (MTP) -4.6% Revenues (tn) tn Net debt/ebitda (x) 5.3x 5 4.3x 4 Ratio of equity attributable to owners of the parent *1 40 (%) 3.4x 35 31% 35% tn 1.74tn 3 2 <2.5x % 27% tn MAR 16 MAR 17 MAR 18 (Fcst) MAR 21 (MTP) 1 MAR 16 MAR 17 MAR 18 (Fcst) MAR 21 (MTP) 20 MAR 16 MAR 17 MAR 18 (Fcst) MAR 21 (MTP) *1 Equivalent to equity ratio in JGAAP *2 Based on the assumption that the tax hike will be introduced in October 2019, and no conversion of convertible notes issued in

14 Water, Housing & Building are Key Drivers of Future Growth JPY: billion LIXIL Water Technology (LWT) LIXIL Kitchen Technology (LKT) Water LIXIL Housing Technology (LHT) LIXIL Building Technology (LBT) Housing & Building Distribution & Retail (D&R) Housing & Services (H&S) Retail/Housing & Services HQ, Conso. adj., Others Total MTP BM *2 MTP *1 CAGR FYE2018(Forecasts) *3 FYE2021 % Revenue , Raise core earnings ratio to 7.5% in FYE 2021 CE % Revenue CE % Revenue CE Foreign currency risk * , Change pt % +2.0 *1 Currency assumption for FYE2019-FYE2021: 1USD=115JPY, 1EUR=120JPY (EUR/USD=1.04x) *2 BM: Benchmark *3 Some of the breakdown amount was corrected from the announcement on May 8, The forecast of total revenue and CE are not changed from the forecast announced on August 21. *4 Risks on FX (Change of FX rate from plan rate) are incorporated in a section named Foreign currency risk 14

15 Market Assumptions in the New MTP Developing, LIXIL grows more than market growth New MTP (2018/4-2021/3) Global Building Materials Market Japan Housing Demand Europe: CAGR +1.9% United States: CAGR +2.47% Asia: CAGR +6.0% New housing starts: 2.6 million (accumulated for 3 years) Renovation: CAGR +1.4% Non-residential: CAGR -2.6% Foreign Exchange USD1=JPY115, EUR1=JPY120 (EUR/USD=1.04x) Raw Materials Price Current commodity price (for both fuel and metals) New Consumption Tax (Tax hike) October

16 Key Drivers to Achieve the Target of the Medium-Term Strategic Business Plan Business Segment Key Drivers LIXIL Water Technology (LWT) LIXIL Kitchen Technology (LKT) LIXIL Housing Technology (LHT) LIXIL Building Technology (LBT) HQ and GA expenses - Improve margin by - Shift to Mid- High, Value Added product mix, - Leveraging synergies within the group (e.g. technology transfer, platform standardization, cross-selling, leveraging brands and design power) - Shit to upper-mid products and synergies with LWT/LHT - Improve operational efficiency in a tapering market - standardize platform, reduce SKUs - Improve profitability by selective order intake - Reducing headquarters indirect costs by 7% per annual 16

17 How We Will Achieve Our MTP Targets

18 Sustainable Growth Will Be Achieved By Leveraging and Further Developing Our Unique, Competitive Advantages 1 ESTABLISH A PURPOSE-DRIVEN ENTREPRENEURIAL COMPANY FOR SUSTAINABLE GROWTH 2 DEVELOP ATTRACTIVE AND DIFFERENTIATED PRODUCTS 3 ACHIEVE COMPETITIVE COSTING 4 STRATEGIC MARKETING TO DRIVE GROWTH 18

19 1 ESTABLISH A PURPOSE-DRIVEN ENTREPRENEURIAL COMPANY FOR SUSTAINABLE GROWTH Become a Company We Can Be Proud of, Evoking Respect and Passion Key Behaviors Will Be a Source of Competitiveness Consistently Redefine the Business Domain 19

20 2 DEVELOPING ATTRACTIVE AND DIFFERENTIATED PRODUCTS 1 Innovation Branding Design Quality 5 Accelerate development, production and sales 20

21 2 CASE STUDY: DIGITAL ENABLES GREATER PRODUCT DEVELOPMENT The Idea our Product and its Potential Lack of water security solutions in the market 54% of consumers in Germany experienced water damage; 67% would like to purchase a water security system and only 3% own one Lack of products combining detection and protection via shut-off Leverage GROHE brand credibility in water management solutions to enter Smart Home Expand GROHE offer to intelligent, value-adding services for B2B and B2C GROHE Sense Smart water sensor to detect leaked water GROHE Sense Guard Smart water controller that detects burst pipes and automatically shuts off the water supply GROHE Ondus App Smart App for complete water control Build GROHE Ondus app platform to become the Google of Water Leverage GROHE s installer base to scale Sense Guard Contribute to water saving Monetize collected data Exploit Ondus App and cloud as modern infrastructure to further develop other GROHE products 21

22 2 TRANSFORM TO AN ASSET-LIGHT MODEL Build a structure that supports the launch of differentiated products in a shorter cycle CURRENT ASSET-RICH MODEL Mass production of limited items is only appropriate for fast-growing markets Differentiate with production capacity and logistics/sales network Risk of prioritizing products we can make, rather than what end users want/need (manufacturer s convenience) ASSET-LIGHT MODEL Allocate more managerial resources to design, development, and planning Differentiate by leveraging design capability, strong IP, and brand power Launch attractive products and deliver faster to the market Achieve high profitability Started trialing this approach across various locations, e.g. US and Japan 22

23 3 ACHIEVE COMPETITIVE COSTING 1 Qualitative Supply Chain Improvement 2 Indirect Department Cost Reduction 3 Reduction of Development Cost 23

24 4 STRATEGIC MARKETING TO DRIVE GROWTH 1 Influencers 2 End users 3 Manufacturer s Mindset 24

25 PHASE III: DRIVE REVENUE GROWTH (FYE2022-)

26 Phase III Beyond MTP: Next Stage to Deliver Sustainable Revenue Growth Housing and water technology is an industry that demonstrates significant growth opportunities, in line with the growing global middle class population It is also an industry where it remains important to own the assets rather than being shared services If we are able to deliver differentiated products and services, we can expect revenue growth 26

27 Appendix Latest Earnings Results H1 FYE and Additional Information

28 LIXIL Group H1 Key Performance Highlights Results in line with H1 forecasts Revenue up 1.7% YoY to JPY809.9bn (1) Driven by organic growth despite impact from divestment and deconsolidation LWT overall shows strong performance following Q1. Revenue especially in Japan shows favorable growth both for new housing and renovation Core earnings decreased 4.5% YoY to JPY40.7bn (1) Due to increase in IT-related costs in Japan and increase in marketing and advertising expenses Marketing activities supported continued strong sales of LWT Japan and LKT Japan Profit for the quarter attributable to owners of the parent was JPY 12.8bn (-JPY11.3bn YoY) Due to absence of one-off positive impact from foreign-currency denominated debt conversion recognized in last year (-JPY11.0bn) and loss for the quarter from discontinued operations (after tax: -JPY11.0bn) (2) based on a decision making of transfer of shares of PermasteelisaS.p.A Decrease in interest expense due to debt repayment (+JPY3.0bn) Impact of IPO of LIXIL VIVA in April 2017 leading to decrease of attributable profits (-JPY1.7bn) (1) Continuing operations basis (2) Amount of loss after tax recognized by measurement of the assets and liabilities of Permasteelisa S.p.A. and its subsidiaries at fair value and profit/loss from operations after tax 28

29 H1 Consolidated Business Results Results in line with H1 forecasts (A) (B) (B)-(A) (C) (B)-(C) Continuing Operations Including Discontinued Operations JPYbn H1 FYE2017 After retroactive restatement H1 FYE2018 Results Forex Amount YoY (B)-(A) % H1 FYE2018 Forecasts (Announced on Aug 21) vs. forecasts Amount Revenue % Gross Profit % - - (%) 33.7% 34.2% P Core Earnings (1) % (%) 5.3% 5.0% P - 5% 0.1 Net Profit including Discontinued Operations (2) % EPS (Yen) % 42 3 Continuing Operations EBITDA (3) % - - (%) 8.8% 8.8% P Gross Profit Margin 33.7% 34.2%(+0.4pt ) Focus on further development and sales of mid to high-end products Improvement in production efficiencies and leveraging synergies EBITDA margin decreased 0.1pt, impacted by SG&A increase due to marketing expense and logistic fee. LWT Japan performed well with +JPY0.5bn increase in EBITDA YoY (1) Equivalent to "Operating profit" of JGAAP (2) Profit for the quarter attributable to owners of the parent (3) EBITDA: Core earnings+depreciation (Excluding discontinued operations) (4) Transferred to profit/loss for the quarter from discontinued operations (due to the decision of share-transfer of Permasteelisa S.p.A.) 29

30 LIXIL Group H1 Highlights Core earnings decreased due to increase in IT-related expenses and investment in marketing activities JPYbn Revenue YoY : On like-for-like basis: JPY +13.6bn (+1.7%) JPY +18.6bn(+2.3%) JPYbn 43 Core Earnings (CE) 42.6 JPY-1.9bn (-4.5%) YoY Hivic -8.5 JIO -6.0 Moritec % % H1 FYE2017 Results Perma Discontinued Operations H1 FYE2017 Results (After restatement) Business divestment Forex impacts Increase on like-for-like basis(*) H1 H1 FYE2018 FYE2018 Forecasts Results (Disclosed on Aug 21) 38 H1 FYE2017 Results Perma Discontinued Operations H1 FYE2017 Results (After restatement) H1 FYE2018 Results H1 FYE2018 Forecasts (Disclosed on Aug 21) Revenue increase(*) on like-for-like basis due to: Growth in LWT (Japan and Overseas) due to active marketing investment, introduction of new products Positive contributions from LHT and LKT Despite increase in gross profit due to gross margin improvement in LWT Japan and LKT Japan, core earnings decreased due to increase in IT-related expenses and marketing cost Japan JPY+1.3bn (+3%), Overseas JPY-1.4bn (-7%) 30

31 LIXIL Group Earnings by Business Revenue increased by 1.7% YoY and core earnings decreased by JPY 1.9bn (-4.5%) YoY JPYbn JPYbn Margin (%) bn (YoY+1.7%) bn (YoY-4.5%) 12% (+7.4%) Revenue (1) (-1.8%) (-1.7%) (+6.5%) Core Earnings (1) H1 FYE2017 H1 FYE % 10% 8% % 6% 5% % 4% 4% (+0.4%) 10 4% % 5 (-25.9%) LWT LHT LBT LKT D&R H&S 0 0% LWT LHT LBT LKT D&R H&S *Line graph shows core earnings margin for H1 FYE 2018 (1) Revenue and core earnings from Permasteelisa S.p.A and its subsidiaries are not included because these are classified to discontinued operations based on the share-transfer agreement 31

32 Creating Shareholder Value Dividend forecasts for FYE2018 JPY Dividend payout ratio of over 30% will be maintained on a consolidated basis FYE2016 Results FYE2017 Results FYE2018 Forecasts H1 30 Yen 30 Yen 30 Yen H2 30 Yen 30 Yen 30 Yen (forecast) Full year 60 Yen 60 Yen 60 Yen (forecast) Dividend Payout Ratio - 41% 40% Share buyback Share buyback may take place depending on factors such as financial position and share price Basic policy regarding the company s decision control We do not have special anti-takeover provisions in our articles of association since we intend to increase our corporate value by taking various measures that would gain support from our shareholders. Our investor and shareholder policy is to have our shares held over the medium to long term by a large number of shareholders 32

33 External Recognition FTSE4Good Index Series Became a constituent of the FTSE4Good Index Series(June 2017) and FTSE Blossom Japan Index (July 2017), created by FTSE Russell MSCI Japan Empowering Women Index Selected as a constituent of the MSCI Japan Empowering Women Index (WIN), created by MSCI Inc. (July 2017) Disclaimer THE INCLUSION OF LIXIL GROUP CORPORATION IN ANY MSCI INDEX, AND THE USE OF MSCI LOGOS, TRADEMARKS, SERVICE MARKS OR INDEX NAMES HEREIN, DO NOT CONSTITUTE A SPONSORSHIP, ENDORSEMENT OR PROMOTION OF LIXIL GROUP CORPORATION BY MSCI OR ANY OF ITS AFFILIATES. THE MSCI INDEXES ARE THE EXCLUSIVE PROPERTY OF MSCI. MSCI AND THE MSCI INDEX NAMES AND LOGOS ARE TRADEMARKS OR SERVICE MARKS OF MSCI OR ITS AFFILIATES. DJSI Asia Pacific Index Became an index component of the Dow Jones Sustainability Indices(DJSI Asia Pacific Index),created by S&P Dow Jones Indices and RobecoSAM (September 2017) 2017 All-Japan Executive Team Rankings Ranked first for Best CEO, second for Best CFO, third for Best IR, and second for Best IR Website in the constructionsectorof2017 All- Japan Executive Team rankings from Institutional Investor Magazine (May 2017) 33

34 LIXIL Group Introduction Headquarters: Tokyo, Japan Established: Sep. 19, 1949 Headcount: 59,248 as of March 2017 Stock Exchange: -Tokyo Stock Exchange -Nagoya Stock Exchange Securities Code: 5938 Trading Unit: 100 shares Key Management: Kinya Seto President and CEO Sachio Matsumoto Executive Vice President and CFO Overview Financial Snap Shot (FYE 2017) LIXIL Group provides a comprehensive product line of living and housing related products and services Our business is organized through 4 technology business and 2 domestic business: LIXIL Water Technology: Global market leader in sanitary ware industry with well known brands such as GROHE, American Standard and INAX LIXIL Housing Technology: Leader in Japan s housing and building materials industry, producing a range of products including window sashes, doors, interior fabrics, exteriors, and structure materials LIXIL Building Technology: Operating commercial architectural project business LIXIL Kitchen Technology: Leader in design and manufacturing of kitchen systems in Japan via SUNWAVE brand Distribution & Retail Business: Leading operator of Home Centre stores across Japan offering home decoration and improvement and daily necessity goods Housing & Services Business: Offering integrated occupant-oriented services (performance assessment, maintenance, management and real estate brokerage) LIXIL owns a strong global network in Asia Pacific, Europe, North America and South Africa through its acquisition of several overseas brands such as American Standard (Asia Pacific and North America), Permasteelisa and GROHE In FYE2017 overseas sales accounted for roughly 23% of our group s total sales Other Asia 5% China 3% North America 8% Sales by Region (3) Sales by Segment (1)(3) Europe 6% Others 1% Japan 77% Key Financials (2) Years ended March 31 D&R 10% LKT 7% LBT 7% LHT 33% LWT 40% JPYbn FYE2015A FYE2016A FYE2017A (3) Market Value As of Nov 6, 2017 Sales 1, , ,633.2 Share Price (JPY) 3,120 Growth 2.1% 10.8% -13.6% Shares Out. (mn) 288 Core Earnings Market Cap (mn) 899,471 Core Earnings Margin 3.0% 3.7% 5.5% Net Debt 595,014 EBITDA Enterprise Value 1,494,485 EBITDA Margin 6.0% 7.0% 40.2% Net Income Net Margin 1.8% n.m. 2.6% H&S 4% (1) Including the effect of intercompany sales (2) IFRS basis ; CE (Core earnings) is equivalent to "Operating profit" of JGAAP (3) After reclassification of Permasteelisa to discontinued business 34

35 Board of Directors and Executive Officers (After the approval of annual shareholders meeting held on June 22, 2017) Board of Directors (10 members) Yoichiro Ushioda Kinya Seto Yoshizumi Kanamori Yoshinobu Kikuchi Keiichiro Ina Tsutomu Kawaguchi Main Kohda Barbara Judge Hirokazu Yamanashi Hiroto Yoshimura Executive Officers (11 members) Kinya Seto Ryuichi Kawamoto Sachio Matsumoto Haruo Shirai Kazuhiko Ootsubo Laurence William Bates Hwa Jin Song Montesano Harumi Matsumura Ryo Nihei Yugo Kanazawa Yoichiro Ushioda (1) Directors who are concurrently serving as executive officers: 2 members Outside directors: 5 members Nomination Committee Hirokazu Yamanashi Yoichiro Ushioda Hiroto Yoshimura Compensation Committee Barbara Judge Main Kohda Hirokazu Yamanashi Yoshinobu Kikuchi Keiichiro Ina Audit Committee Tsutomu Kawaguchi Yoshizumi Kanamori Hiroto Yoshimura (Chairperson) (Chairperson) (Chairperson) Non-Japanese females: 1 member Directors / executive directors Internal directors / outside directors Japanese females: 1 member Diversity Directors who are not executive officers: 8 members (1) Special mission Internal directors: 5 members Japanese males: 8 members 35

36 Corporate Responsibility Strategy Corporate Responsibility Mission LIXIL to be the most trusted company by enhancing living spaces through innovative responsibility engagements and initiatives around the world Global Hygiene & Sanitation Promote and enable access to safe hygienic sanitation practices, especially for women and girls, while preventing the harmful transmission of diseases for children Water Conservation & Environmental Sustainability Diversity & Inclusion Conserve water, energy, and other natural resources utilized in and by LIXIL products and services, including in procurement, production, distribution, end-use and disposal Embrace the diversity of people in society and within LIXIL i) Enhancing the quality of life and wellbeing for the elderly and the physically disabled through LIXIL products and services ii) Harnessing the knowledge and perspectives of our diverse workforce as an engine for growth and innovation Measurement Objectives Enable improved access to sanitation and hygiene for 100 million people by the year 2020 By 2030, achieve a net zero balance between LIXIL s environmental footprint, and the positive environmental contributions created through its business processes, products and services 36

37 Cautionary Statements with Respect to Forward-Looking Statements Statements made in these materials with respect to plans, strategies and future performance that are not historical facts are forward-looking statements. LIXIL Group Corporation cautions that a number of factors could cause actual results to differ materially from those discussed in the forward-looking statements.