LIXIL GROUP INTEGRATED REPORT 2020 - QUICK Disclosure

 
LIXIL GROUP INTEGRATED REPORT 2020 - QUICK Disclosure
LIXIL GROUP
INTEGRATED REPORT
2020
LIXIL GROUP INTEGRATED REPORT 2020 - QUICK Disclosure
Making Better
Homes a Reality
                  Every person on the planet dreams of a better home.
                  LIXIL makes that possible with pioneering water
                  and housing products.

for Everyone      A better home is made up of surprisingly simple things – baths to escape
                  in after a long day, kitchens that unleash creativity, toilets that provide
                  cleanliness and comfort, doors and windows that connect you with the
                  world outside, showers and faucets to experience water in new ways, and
                  interiors and exteriors that bring spaces to life.

                  LIXIL makes better homes a reality for everyone, everywhere. We make
                  things that matter to all sorts of different people, to the many communities
                  we are part of, and to sustainably support the world around us. At LIXIL,
                  we are proud that our products touch the lives of more than a billion
                  people every day, but believe we have the potential to do so much more.

                  LIXIL CORE                                    LIXIL BEHAVIORS

                  Our corporate philosophy defines              The three LIXIL Behaviors provide a
                  what we set out to do in the world.           unified way of working for all our
                                                                employees, helping to establish

                  The Group’s                                   LIXIL as a purpose-led,
                                                                entrepreneurial company.

                  superior products
                  and services
                  contribute to
                  improving people’s
                  comfort and
                  lifestyles

                                                                                                      01
LIXIL GROUP INTEGRATED REPORT 2020 - QUICK Disclosure
Contents

                SECTION 1                                             SECTION 2                                     SECTION 3                                           SECTION 4                               SECTION 5

                LIXIL IN FYE2020                                      VALUE CREATION PROCESS                        CR STRATEGY AND IMPACT                              GOVERNANCE                              BUSINESS RESULTS

                An overview of LIXIL, our purpose,                    A deep dive into how LIXIL creates            A summary of how our corporate                      A look at our approach to corporate     A review of business results for the
                strategy, and the progress we have                    sustainable value for our stakeholders        responsibility strategy is making a                 governance and the steps we are         year ended March 2020 and other
                made over the fiscal year.                            and society.                                  difference where it is needed the most.             taking in this area.                    material information.

                04     LIXIL at a Glance                              32     Value Creation Process                 44      CR Chairperson’s Message                    56     Corporate Governance Dialogue    76    Consolidated 11-Year Summary

                06     Stages of LIXIL’s Evolution                    34     The Resources We Rely On               46      Corporate Responsibility Strategy           61     Group Governance Reform          78    Review and Analysis of Operating
                                                                                                                                                                                                                      Results and Financial Position
                08     Financial Highlights                           38     The Way We Create Value                48      LIXIL‘s Material Issues                     62     Selection Process of Director
                                                                                                                                                                               Candidates and Formulation of    82    Review of Operations by Segment
                10     Non-Financial Highlights                       40     The Value We Create                    50      Global Sanitation & Hygiene                        Draft Reports to the Board of
                                                                                                                                                                               Directors on the System for      84    Principal Group Companies
                12     CEO Interview                                                                                52      Water Conservation &
                                                                                                                                                                               Executive Officers
                                                                                                                            Environmental Sustainability                                                        86    Basic Policy for Investor Relations
                16     CFO Interview
                                                                                                                                                                        63     LIXIL Group Board of Directors
                                                                                                                    54      Diversity & Inclusion                                                               87    Shareholder Information
                18     LIXIL Group Executive Officers
                                                                                                                                                                        64     Corporate Governance at
                                                                                                                                                                                                                88    Corporate Data
                                                                                                                                                                               LIXIL Group
                20     Megatrends
                                                                                                                                                                        66     Nomination Committee Report
                22     Progress of Management Strategy
                                                                                                                                                                        67     Compensation Committee Report
                24     LIXIL’s Businesses
                                                                                                                                                                        68     Executive Compensation
                30     Principal Risks and Countermeasures
                                                                                                                                                                        70     Audit Committee Report

                                                                                                                                                                        71     Governance Committee Report

                                                                                                                                                                        72     Internal Control Systems and
                                                                                                                                                                               Compliance

                Editorial Policy                                                                                    Note:
                This integrated report aims to enhance communication with LIXIL’s stakeholders, especially          Due to our decision to divest Permasteelisa in May 2020,
                investors, by presenting its initiatives to achieve long-term, sustainable growth. In editing, we   we have classified the operations of Permasteelisa as
                focused on key content and aimed for an easy-to understand structure. Information not included      discontinued operations. Business results for FYE2019
                in this integrated report, such as detailed non-financial information, detailed financial           shown in LIXIL’ s Annual Report 2019 have been
                information, and the latest news is available on our corporate website.                             retroactively restated.

02                                                                                                                                                                                                                                                          03
LIXIL GROUP INTEGRATED REPORT 2020 - QUICK Disclosure
SECTION 1     LIXIL IN FYE2020

LIXIL at a Glance

      WE ARE A GLOBAL LEADER IN OUR INDUSTRY                           LIXIL IN THE HOME

                 1 billion people             Present in                 Construction
                                                                          methods            Tiles
                                                                                                      Solar energy
                                                                                                        systems       Windows
                                                                                                                                   Bathrooms
                                                                                                                                   and toilets
                                                                                                                                                   Garden
                                                                                                                                                   rooms
                 use our products every day   over 150 countries

                 Approx. 75,000 employees     Over 100 years
                 around the world             of history

                 ¥1,694.4 billion             ¥58.6 billion
                 consolidated revenue         core earnings

      WE MAKE PRODUCTS THAT IMPROVE DAILY LIFE

                 16 household                 ¥27.5 billion
      L
     XI

                 product brands               invested in R&D
 LI

                 6 global                     12,000 +
                 in-house                     patents and design
                                                                           Housing         Entrance    Housing       IoT systems   Kitchens      Smart water
                 design centers               applications worldwide       exteriors        doors      interiors                                  products

      WE STRIVE TO MAKE THE WORLD A BETTER PLACE                       MAJOR BRANDS

                 Improved access to           Products and
                 sanitation for               services helped reduce
                 18.6 million people          66 million tons of
                                              CO2 emissions
                 in 38 countries

04                                                                                                                                                             05
LIXIL GROUP INTEGRATED REPORT 2020 - QUICK Disclosure
SECTION 1             LIXIL IN FYE2020

Stages of LIXIL’s Evolution

We continually strengthen LIXIL in order to create superior products
and services that improve the comfort and lifestyles
of people around the world.
     FYE2012–2013                                                              FYE2014–2016                                                                   FYE2017–

      Created LIXIL through                                                     Established the foundation for                                                 Simplifying the balance sheet,
      the merger of five companies                                              business expansion and                                                         improving the organizational structure,
                                                                                global growth                                                                  and strengthening profitability                                                               Toward
      LIXIL was born out of the merger of Tostem, INAX, Shin                    From 2011, LIXIL’s business rapidly globalized through a                       In becoming one of the most comprehensive companies in                                        Sustainable
      Nikkei, SUNWAVE, and Toyo Exterior in 2011. Through this
      integration, we generated synergies between our businesses
                                                                                series of acquisitions and investments, including integrating
                                                                                some of the most iconic names in our industry such as
                                                                                                                                                               the industry, LIXIL developed a top-heavy organization with
                                                                                                                                                               areas of overlapping authority and a broad business                                           Growth
      and established a powerful foundation for sustainable                     GROHE, American Standard, and Permasteelisa. This                              portfolio. To achieve further growth, we began to simplify our
      growth, opening the way to delivering a comprehensive                     provided us with the product and brand portfolio, as well as                   business structure, taking steps to transition from a holding                                 As the world’s population and the middle
      lineup of products that cover all aspects of living spaces.               global infrastructure, to establish our foothold in key                        company to an operating company structure in order to                                         income segment grow, the demand for
      The brand name LIXIL is derived from the combination of                   markets around the world.                                                      focus on our core businesses and strengthen governance*1.                                     housing and water technology products
      “LI” from two words that closely represent our business:                                                                                                 We also began to review our portfolio in order to strengthen                                  and services will continue to expand. We
      “LIVING” and “LIFE.”                                                                                                            FYE2016                  our balance sheet, focusing on businesses that have                                           will harness LIXIL’s strengths to become a
          In 2011, LIXIL adopted the corporate governance                                                                                                      synergistic relationships with our core businesses and high
                                                                                                                                      ¥598.6 billion                                                                                                         truly differentiated and unique housing
      structure, a “Company with a Nomination Committee, etc.,”                          FYE2013                                      (IFRS)                   potential profitability, in turn enabling us to prioritize our                                and water technology company with the
      as outlined in Japanese Corporation Law. Under this                                ¥205.1 billion                       32%
                                                                                                                                                               investments in high growth areas*2. With a global foothold                                    world’s most respected and powerful
                                                                                         (JGAAP)
      governance system, we clearly separate the conduct of                                                                                                    established, we established a virtual structure to centrally                                  brands. To achieve this aim, we are
      management from the surveillance of management with the                                                                                                  manage our international operations, strengthening cross-                                     focusing on actively managing our core
      objective of creating a system where executive officers can                                                                                              regional collaboration and innovation. We will now continue                                   businesses to enhance productivity and
      make management decisions quickly and decisively while                           14%                                                                     to build on our competitive advantage through differentiated                                  efficiency, driving synergies across our
      securing management transparency.                                                                                                                        products, services, and business models, setting LIXIL on                                     core business areas, as well as optimizing
                                                                                                                                                               the path to higher profitability and sustainable growth.                                      our business portfolio to accelerate
                                                                                                                                                               *1	LIXIL decided in March 2020 to merge LIXIL Group Corporation and LIXIL                    growth and strengthen financial
                                                                                                              International revenue
                                                                                                                  ratio reached
                                                                                                                                                                   Corporation. Please refer to page 61 for more information.                                conditions. We will become an
                                                                                                                                                               *2	LIXIL announced its decision to transfer its shares owned in Permasteelisa and
                                                                                                                     32 %                                          LIXIL VIVA in May and June 2020, respectively.                                            organization that can adapt and innovate
                                                                                                                                                                                                                                                             faster, providing differentiated products
                                                                                                                                                                                                                                                             and services that will enable us to achieve
                                                                                                                                                                                                                                                             sustainable growth.
     Net sales (JGAAP) / Revenue (IFRS) (Years ended March 31) (¥ billion)                                                                                                                                      Permasteelisa classified as
                                                                                                                                                                                                                 discontinued operations
                                                                                                                    1,890.5
     2,000                                                                                                                                                               1,786.4       1,829.3      1,832.6
                                                                                                          1,705.4                                                                                                 1,692.4      1,694.4
                                                                                               1,628.7
                                        1,436.4
     1,500                   1,291.4

     1,000

      500
                                                                                                                                                                                                                                                    Japan
                                                                                                                                                                                                                                                    International

                              2012       2013                                                      2014    2015      2016                                                  2017          2018         2019          2019         2020

                                                                       JGAAP                                                                           IFRS

06                                                                                                                                                                                                                                                                                                         07
LIXIL GROUP INTEGRATED REPORT 2020 - QUICK Disclosure
SECTION 1                    LIXIL IN FYE2020

Financial Highlights
LIXIL Group Corporation and Consolidated Subsidiaries (Years ended March 31)

Revenue                                                                                          Core earnings / Core earning ratio                                                      EBITDA / EBITDA to sales ratio                                                                Net interest-bearing debt / Net debt-to-equity ratio

   International                                                                                     Core earnings (left)                                                                      EBITDA (left)                                                                               Net interest-bearing debt (left)
   Japan                                                                                             Core earning ratio (right)                                                                EBITDA to sales ratio (right)                                                               Net debt-to-equity ratio (right)
(¥ billion)                                                                                      (¥ billion)                                                                       (%)   (¥ billion)                                                                             (%)   (¥ billion)                                                                        (%)
  2,000                                                                                               100                                                                          5.0         200                                                                               12      1,000                                                            146.7        150.0
                                                                      1,694.4                                                                                                                                                                             160.6
                                                                                                         80                                                                        4.0                                                                                                      800                                                                        120.0
  1,500                                                                                                                                                                                        150
                                                                                                                                                                                                                                                               9.5
                                                                                                                                                                                                                                                                                  9                                                                          736.7
                                                                               406.6
                                                                                                         60                                                            3.5         3.0                                                                                                      600                                                                          90.0
  1,000                                                                                                                                                                                        100                                                                                6
                                                                                                         40                                                                        2.0                                                                                                      400                                                                          60.0
                                                                               1,287.8
     500                                                                                                                                                                   58.6                  50                                                                               3
                                                                                                         20                                                                        1.0                                                                                                      200                                                                          30.0

        0                                                                                                 0                                                                         0             0                                                                               0            0                                                                          0.0

                         2016        2017        2018        2019       2020                                               2016     2017      2018     2019        2020                                            2016        2017   2018      2019      2020                                                 2016       2017        2018       2019     2020

Due to strong first-half performance, revenue increased by 0.1% year on year to                  Core earnings increased by 7.5% year on year to ¥58.6 billion due to                    EBITDA increased by 33.7% year on year to ¥160.6 billion due to a ¥33.6 billion               Net interest-bearing debt as of March 31, 2020 increased by ¥152.2 billion year
¥1,694.4 billion despite the decline in demand following the consumption tax hike                improvements to production efficiency and domestic price revisions despite costs        increase in depreciation resulting from the application of IFRS 16 “Leases.”                  on year to ¥736.7 billion due to an increase in lease liabilities resulting from the
in Japan and the impact of foreign currency translation.                                         related to an early retirement incentive program.                                                                                                                                     application of IFRS 16 “Leases.”

SG&A expenses / SG&A ratio                                                                       Earnings (loss) per share (EPS) / Dividends per share /                                 Net debt-to-EBITDA ratio                                                                      Equity attributable to owners of the parent /
                                                                                                 Dividend payout ratio                                                                                                                                                                 Ratio of equity attributable to owners of the parent
     SG&A expenses (left)                                                                            Earnings (loss) per share (EPS) (left)   Dividends per share (left)                                                                                                                   Equity attributable to owners of the parent (left)
     SG&A ratio (right)                                                                              Dividend payout ratio (right)                                                                                                                                                         Ratio of equity attributable to owners of the parent (right)
(¥ billion)                                                                               (%)    (Yen)                                                                             (%)   (Times)                                                                                       (¥ billion)                                                                        (%)
     600                                                                                 60.0         200                                                                         200      8                                                                                                800                                                                          40.0
     500                                                                506.9            50.0                                                                        162.2
                                                                                                      100                                                                         100      6                                                                                                600                                                                          30.0
     400                                                                                 40.0                                                        34.4       43.15                                                                                                                                                                                     502.2
                                                                                                                                                                                                                                                           4.6
     300                                                                                 30.0            0                                                             70           0      4                                                                                                400                                                                24.0      20.0
                                                                               29.9
     200                                                                                 20.0
                                                                                                     -100                                                                         -100     2                                                                                                200                                                                          10.0
     100                                                                                 10.0
        0                                                                                 0.0        -200                                                   -179.98               -200     0                                                                                                   0                                                                          0.0

                         2016        2017        2018        2019       2020                                               2016     2017      2018     2019        2020                                            2016        2017   2018      2019      2020                                                 2016       2017        2018       2019     2020

SG&A expenses increased by 1.6% year on year to ¥506.9 billion due to a one-                     Earnings per share increased year on year by ¥223.13 to ¥43.15 while the                While interest-bearing debt increased due to the application of IFRS 16 “Leases,”             The ratio of equity attributable to owners of the parent as of March 31, 2020 was
time expense associated with an early retirement incentive program; excluding this               dividend remained constant at ¥70 per share.                                            the application of this standard also resulted in increased EBITDA, slightly                  24.0%, declining 1.9 percentage points year on year due to the increase in net
expense, SG&A expenses only increased by 0.1 percentage points.                                                                                                                          improving net debt-to-EBITDA ratio to 4.6.                                                    interest-bearing debt resulting from the application of IFRS 16 “Leases.”

Profit (loss) for the year attributable to owners of the parent / ROE                            Total assets / ROA                                                                      Capital expenditures by business segment                                                      Depreciation by business segment

     Profit (loss) for the year attributable to owners of the parent (left)                          Total assets (left)                                                                       LWT       LHT        LBT        D&R    H&S                                                  LWT       LHT        LBT       D&R        H&S
     ROE (right)                                                                                     ROA (right)
(¥ billion)                                                                               (%)    (¥ billion)                                                                       (%)   (¥ billion)                                                                                   (¥ billion)
       60                                                                                10.0      2,400                                                                           4.0           40                                                                                          40
                                                                                                                                                                 2,091.5                                                                                       38.6                                                                                          39.0
       30                                                                                 5.0      1,200                                                                           2.0           30                                                                                          30
                                                                         2.4
        0                                                                      12.5         0            0                                                                 0.6     0.0           20                                                                                          20                                                              23.5
                                                                                                                                                                                                                                                               17.5
      -30                                                                                 -5.0                                                                                    -2.0           10                                                            11.8                          10
                                                                                                                                                                                                                                                                                                                                                              5.3
      -60                                                                                -10.0                                                                                    -4.0            0
                                                                                                                                                                                                                                                                 3.2                           0                                                              1.7
                                                                                                                                                                                                                                                                 0.7                                                                                          1.1
                         2016        2017        2018        2019       2020                                               2016     2017      2018     2019        2020                                            2016        2017   2018      2019      2020                                                 2016       2017        2018       2019     2020

Profit for the year attributable to owners of the parent increased by ¥64.7 billion              Despite a holiday occurring at the end of FYE2019, the application of IFRS 16           Expenditures derived mainly from investment in new product development,                       Depreciation was primarily attributable to developing Group-wide IT systems and
year on year to ¥12.5 billion due to the increase in core earnings and decrease in               “Leases” increased right-of-use assets recognized on the balance sheet, increasing      business rationalization, and maintenance costs for LIXIL Water Technology (LWT)              maintaining facilities. For LWT, depreciation increased due to initiatives to develop
loss associated with Permasteelisa.                                                              total assets by ¥32.0 billion year on year to ¥2,091.5 billion.                         and LIXIL Housing Technology (LHT). Improved production efficiency in LHT                     products for the domestic and international markets, while for LHT, depreciation
                                                                                                                                                                                         resulted in decreased capital expenditure.                                                    decreased sightly due to improved production efficiency.
                                                                                                                                                                                         Notes:	1. Excluding the FYE2020 impact of the application of IFRS 16 “Leases”                Note: Excluding the FYE2020 impact of the application of IFRS 16 “Leases”
                                                                                                                                                                                                 2.	LBT: LIXIL Building Technology, D&R: Distribution & Retail Business, H&S:
                                                                                                                                                                                                    Housing & Services Business

08                                                                                                                                                                                                                                                                                                                                                                        09
LIXIL GROUP INTEGRATED REPORT 2020 - QUICK Disclosure
SECTION 1                 LIXIL IN FYE2020

Non-Financial Highlights
(Years ended March 31)

Environment
Contribution to reduction in CO2 emissions from products and services                        CO2 emissions from Group activities (Scope 1 and 2)*1                                             Implementation of responsible procurement surveys*4                               Community development expenditures*5
(Measure: number of multiples compared to FYE2016 base year)
                                                                                               Scope 1 (left)      Scope 2 (left)      Carbon intensity per unit of output (right)               Japan      International
(Times)                                                                                      (Thousand t-CO2)                                                                            (%)   (%)                                                                               (¥ million)
      1.5                                                                                      1,200                                                                                                 100                                                                           2,000
                                                                                                                                                              1,063                                                                                            97                                                                         1,751.7
      1.4                                                                                                                                                                                             90
                                                                                                   800                                                                                                                                                         90                  1,500
                                                                                                                                                                      525
      1.3                                                            1.29                                                                                                                             80
                                                                                                   400                                                                                                                                                                             1,000
      1.2                                                                                                                                                             538                             70
                                                                                                     0                                                                                   0                                                                                             500
      1.1                                                                                                                                                                                             60

      1.0                                                                                                                                                           -14.3            -20              50                                                                                 0

                        2016         2018          2019         2020                                                 2016           2018          2019         2020                                                    2018            2019             2020                                             2018              2019             2020

We conduct environmental assessments on products at every stage of the                       By seeking to increase energy efficiency and utilize renewable energy to further                  We conduct surveys of our suppliers to promote responsible procurement and are    We are working to return LIXIL assets appropriately and efficiently to society and
development process to make our products and services more energy conscious,                 reduce CO2 emissions, we achieved a reduction in carbon intensity per unit of                     achieving our target of a 90% implementation rate (based on purchased amount).    pursuing various initiatives to help solve problems as a responsible member of the
and achieved a 1.29 times greater reduction in CO2 compared to FYE2016.                      output of 14.3%.                                                                                                                                                                    community.
*The reduction possible when customers use LIXIL’s environmentally friendly products
  and services (in comparison to the reduction due to previous versions of those products)

                                                                                                                                                                                               Governance
Water intake and discharge*2                                                                 Waste recycling ratio*1                                                                           Number and ratio of independent outside directors                                 Compliance training take-up rate*6
                                                                                                                                                                                                                                                                                 (Basic training completion and pledge rate)

   Water intake     Discharge                                                                   Japan and Europe         Asia (excluding Japan)       North America
(Million m3)                                                                                 (%)                                                                                                                                                                                 (%)
       20                                                                                          100                                                                                                                                                                                 100
                                                                                                                                                                 96
                                                           16.1                                                                                                                                                                                            Internal
       15
                                                                                                    80                                                           90                                                                                                                     80                                                  77.6
                                                               13.2                                                                                                                                                                                        directors
                                                                                                    60                                                                                                                                                     5                            60
       10
                                                                                                    40                                                                                                     Outside                                                                      40
        5                                                                                                                                                        27                                        directors
                                                                                                    20                                                                                                                                                                                  20

        0                                                                                            0
                                                                                                                                                                                                           9                                                                             0

                          2018              2019              2020                                                     2018                2019             2020                                                                                                                                         2018              2019             2020

By promoting water recycling, we reduced water intake to 16.1 million m3 and                 By working with stakeholders to minimize the use of newly introduced resources                    We place great emphasis on diversity in the Board of Directors both in terms of   We experienced some delays in implementing pledges globally due to COVID-19,
water discharge to 13.2 million m3.                                                          and promote reuse and recycling, we achieved waste recycling ratios of 96% in                     attributes, and expertise or experience.                                          resulting in a training take-up rate of 77.6% (partial data).
                                                                                             Japan and Europe, 90% in Asia (excluding Japan), and 27% in North America.

Social
                                                                                                                                                                                                                                                                                 *1	Scope of coverage: The entire Group (production and non-production bases in Japan,
Ratio of female participants in Stage 3 of the Talent Acceleration                           Number and ratio of employees with disabilities*3                                                 Attendance rate at Board of Directors’ meetings                                       and production bases outside Japan)
Program (TAP) for next-generation leaders (LIXIL Corporation, Japan)                         (LIXIL Corporation, Japan)                                                                                                                                                          *2	Scope of coverage: The entire Group (production and non-production bases in Japan,
                                                                                                                                                                                                                                                                                     and production bases outside Japan.) Excludes tenanted properties, etc. that we
     Result    Target                                                                          Number (persons) (left)        Ratio (right)                                                                                                                                          cannot access to assess the water intake.
(%)                                                                                          (People)                                                                                    (%)                                                                                     *3	Directly hired employees in Japan only
       40                                                                                          500                                                                               5                                                                                               FYE2018 and FYE2019 include LIXIL Senior Life Company
                                                                                                                                                            458.5                                                                                                                	FYE2020: number of persons on June 1, 2019. FYE2018, FYE2019: number of
                                                                   33.3                            400                                                                               4                                                                                               persons on March 31, 2017 and 2018, respectively.
       30
                                                                                                                                                                                                                                                                                 	Calculated based on the Employment Rate System for Persons with Disabilities issued
       20
                                                                   20.0
                                                                                                   300

                                                                                                   200                                                             2.33
                                                                                                                                                                                     3

                                                                                                                                                                                     2
                                                                                                                                                                                                                                 99.5%                                               by Japan’s Ministry of Health, Labour and Welfare.
                                                                                                                                                                                                                                                                                 *4	Scope of coverage: Suppliers to LIXIL Corporation and its subsidiaries
       10                                                                                                                                                                                                                                                                            Japan: Procurement by operating sites in Japan
                                                                                                   100                                                                               1
                                                                                                                                                                                                                                                                                 	International: Procurement by operating sites in international markets, excluding
        0                                                                                            0                                                                               0                                                                                               GROHE Group and American Standard Brands
                                                                                                                                                                                                                                                                                 *5 FYE2018 excludes Permasteelisa Group
                          2018              2019              2020                                                     2018                2019             2020                                                                                                                 *6 *Breakdown: Japan 98%, international 53.7%

To encourage female participation in the workforce, we set and achieved a targeted           We achieved a 2.33% ratio of employees with disabilities by adjusting working                     The Board of Directors met 16 times in FYE2020. The attendance rate for Board
20% ratio of female participants in the younger category of the Talent Acceleration          environments to suit the needs of each employee in a broad range of areas,                        of Directors’ meetings was 99.5%.
Program (TAP) for nurturing next-generation leaders.                                         including R&D, production, sales administration, and planning management.                                                                                                           LIXIL Group’s sustainability policies and initiatives are on pages 46-55.
                                                                                                                                                                                                                                                                                 For more information on ESG data, please visit our corporate website.

                                                                                                                                                                                                                                                                                         www.lixil.com/en/sustainability/data/

10                                                                                                                                                                                                                                                                                                                                                                 11
LIXIL GROUP INTEGRATED REPORT 2020 - QUICK Disclosure
SECTION 1            LIXIL IN FYE2020

CEO Interview

                                                     Q1

                                                     What do you feel were LIXIL’s main                           LIXIL is now ahead in
                                                     achievements over the past year?
                                                                                                                  embracing the “new normal”
                                                     Thanks to everyone’s contributions, we made                  that we are facing globally.
                                                     tremendous progress this past year to transform
                                                     ourselves into a more agile and entrepreneurial
                                                     company. Most visibly, we achieved a positive profit, but
                                                     far more important were the great efforts that went into
                                                     fundamentally improving our business, such as
                                                     changing our working style and our organizational            pace of change beyond what anyone had anticipated,
                                                     structure. I am pleased to see that, thanks to the           which is why our fast work in all these areas has been
                                                     strategic changes we have implemented, we are now            so important.
                                                     ahead of our peers in embracing the “new normal” that
                                                     we are facing globally. In addition, we reached an
                                                     agreement on the sale of Permasteelisa under LIXIL’s         Q3
                                                     building technology business, a strategic divestiture that
                                                     will enable us to focus on our core businesses and drive     So how has the COVID-19 pandemic changed
                                                     long-term profitability and growth.                          how LIXIL works?

                                                                                                                  There are two significant areas of change. When it
                                                     Q2                                                           comes to demand, we now see a greater focus on
                                                                                                                  hygiene and health-related products. In Japan and
                                                     You have pursued LIXIL’s Medium Term Plan                    many other countries, working people would leave
                                                     (MTP) since 2017. In the “new normal” of                     home early each morning and return late, basically just
                                                     a world affected by COVID-19, do you need to                 seeing the home as a place to sleep. We found that
                                                     recalibrate your strategy?                                   many people seldom used their kitchens. But with
                                                                                                                  working at home and fewer long commutes, many have
                                                     Not at all. In fact, the strategy that we set out in our     now begun to realize the value of their home. They now
                                                     MTP fundamentally prepared us for many of the                want healthier and more stylish homes with better-
Kinya Seto                                           changes that have come with this new reality. In the         designed products and building materials.
Director, Representative Executive Officer,          MTP, we emphasize differentiated products. With people            The second part is in how we do business and the
Executive Officer and President, and CEO             now spending more time at home, they have a better           digitalization of our commerce model. It is now clear
                                                     understanding of the benefits of advanced technology         that consumers appreciate the time-saving and
                                                     and meaningful designs. Second, the MTP emphasizes           immediacy of video meetings where we can share
                                                     the need to motivate our employees and to help them to       blueprints, design plans and mock-up designs all in a

LIXIL was able to reach a number of key milestones   adapt to a new and more agile way of working. We
                                                     developed ahead of time the extensive technical
                                                                                                                  virtual world. Smartphones today can be employed to
                                                                                                                  work up the highly detailed measurements that
in the Medium Term Plan this past year.              infrastructure, software and bandwidth needed to             previously required physical visits, making the
                                                     enable the tens of thousands of video meetings that now      purchasing process easier than ever.
We asked CEO Kinya Seto about the highlights and     take place weekly across the organization. And most
                                                     importantly, steps taken to focus on our core businesses
where the Company is now headed.                     and to simplify our business structure are enabling us to
                                                     focus our resources to drive growth. Overall, I believe
                                                     COVID-19 and the global recession have sped up the

12                                                                                                                                                                          13
LIXIL GROUP INTEGRATED REPORT 2020 - QUICK Disclosure
SECTION 1      LIXIL IN FYE2020

CEO Interview

                 Q4                                                          Q5                                                               In terms of our portfolio, we have also simplified our
                                                                                                                                         investments with the sale of our controlling interest in the
                 There have been some big changes at LIXIL                   For LIXIL Water Technology (LWT), you have                  LIXIL VIVA chain of home improvement stores and the            We are merging LIXIL Group
                 Housing Technology (LHT). What are you now                  talked about the importance of design and                   sale of Permasteelisa, which has been a goal for some
                 seeing as the key trends?                                   brand awareness. Is that another key part of                time. These are critical steps to enabling us to focus on
                                                                                                                                                                                                        Corporation and LIXIL Corporation,
                                                                             your strategy?                                              our core businesses, drive investment in growth areas,         a move that will enhance
                 We have been very successful in terms of bringing                                                                       and improve governance.
                 down unit costs within LHT by continuously improving        Yes, absolutely. Design is a very important element, not         On top of this, we are merging LIXIL Group Corporation    management efficiency and
                 the efficiency of our production lines as part of our       only in how a product looks but also how people             and LIXIL Corporation, a move that will enhance
                 platform strategy. This has helped us to bring down our     experience it. Central to this is our in-house design       management efficiency by eliminating duplication of
                                                                                                                                                                                                        improve Group governance.
                 fixed costs and allows us to renew our product lines at     organization under the global direction of Paul Flowers,    resources and improve Group governance. This action in
                 a lower level of investment. We will continue these         LIXIL’s Chief Design Officer. Because he oversees           many ways symbolizes our broader efforts to create a flat
                 efforts through this year while also looking to build our   products across all our product brands and                  organization that is ppurpose-led and entrepreneurial. I
                 brand equity. The key is to give customers a product        geographies, we can provide an unmatched level of           see this as our most important job ahead.
                 with better design and better technology.                   consistency. It may seem a small thing, but as a                                                                           Q8
                      However, we need to be aware of the broader            consumer, you want the color of your kitchen products
                 industry trends. The number of new housing units in         all to match, so that an off-white in one LIXIL line will   Q7                                                             Based on what you have achieved this past year,
                 Japan, LHT’s largest market segment, is expected to         match the off-white tone of other products.                                                                                what lies ahead for LIXIL?
                 decline over the next few years. In addition, new                Our brand strategy also provides an important point    You have talked about making LIXIL a purpose-
                 houses are expected to use products and materials           of differentiation within our industry. Rather than         led organization. Does this mean there is a                    We know that we will face difficult headwinds for much
                 with longer lifespans going forward. This means that        segment products by price, we have given each brand         diminished emphasis on bottom-line profitability?              of the fiscal year. We must leverage the programs that
                 our higher-quality and differentiated products can          its own identity. If you want a sleek urban type of                                                                        we put in place to continue holding down costs and to
                 continue to sell well.                                      bathroom, GROHE might be your choice. For a more            Just the opposite. In today’s world, you must                  embrace new ways of working and dealing with both
                      At the same time, we also expect long-term growth      traditional look with luxurious spaces, American            demonstrate that you stand for something. To achieve           consumers and professionals in the building industry.
                 in the renovation market. Similar to what we see in our     Standard would be suitable. If you want Japanese            higher profits, you must create a meaningful company           We will also keep an eye out for new market
                 water technology business, consumers are already            technology with a more minimal look and feel, then          culture. We know that this is very important for our           opportunities anywhere in the world, using our portfolio
                 starting to look around their residences and trying to      INAX would be the natural choice. By focusing on            employees and consumers, and I believe that                    of brands to quickly fill market needs as we see them
                 find ways to improve space usage now that more              lifestyle segments, we can avoid eroding brand equity       stockholders are now coming to understand this                 emerge.
                 people will be working from home. As just one indicator,    when we want to try new product types and exploit new       principle as well. If a corporation demonstrates its                And we must live up to our commitment of being a
                 we are seeing more website traffic for renovation-          opportunities in new markets.                               commitment to improving the world, consumers will              purpose-led organization. As part of this we have rolled
                 related products than ever before.                                                                                      take note and reward that company. We also believe             out the SATO Tap, a new hand-washing solution. With
                                                                                                                                         this is a central part of making employees more                the outbreak of COVID-19, we know that the simple
                                                                             Q6                                                          engaged. If a LIXIL employee can see that their daily          task of hand washing is one of the most important ways
                                                                                                                                         work is making a contribution, they will help the              to stop the spread of disease, but unfortunately, many
                                                                             You have also instituted a number of changes                Company prosper to the benefit of all our stakeholders.        people are not in a position to do so regularly. Our
                                                                             in your corporate structure. How does that help                  This can be clearly demonstrated by the success of        ability to develop, manufacture and bring this product
Design is not only how                                                       LIXIL going forward?                                        our SATO social business. Through SATO, we provide             to the market just when it is needed demonstrates for

a product looks but also how                                                                                                             basic solutions for the two billion people in the world        me what LIXIL can deliver – for consumers, employees
                                                                             Our goal is to create a flatter organization that enables   who lack access to basic sanitation. This is no small          and shareholders.
people experience it.                                                        front-line employees to do their work more efficiently      mission, but it is an important part of our business. For
                                                                             with less unnecessary oversight. In Japan, we delayered     example, in a recent promotion for shower toilets, we
                                                                             our sales structure and have reduced the number of          said that each sale would be matched with the donation
                                                                             branch offices, area branches and local outlets to drive    of a SATO toilet in the developing world. Our employees
                                                                             efficiency. This delayering has also applied to the most    believed this was a great opportunity to get involved
                                                                             senior levels of the company. Today there are 24            and our business partners, seeing the benefit, told us
                                                                             corporate officers, down from 114 when I joined.            that they wanted to promote more LIXIL products.

14                                                                                                                                                                                                                                                                 15
LIXIL GROUP INTEGRATED REPORT 2020 - QUICK Disclosure
SECTION 1            LIXIL IN FYE2020

CFO Interview

                                                                                                                      Q2                                                           talent. Furthermore, with the expansion of working from
                                                                                                                                                                                   home, we believe that there will be greater demand for
                                                                                                                      What progress have you made in                               our products and services as people seek to upgrade
                                                                                                                      strengthening the balance sheet?                             their workspaces and general environment at home.
                                                                                                                      What is your target in this area?

                                                                                                                      We consider improving the balance sheet to be one of         Q4
                                                                                                                      our top corporate priorities. Our agreements to sell
                                                                                                                      Permasteelisa and LIXIL VIVA, which are important            Considering the results last fiscal year,
                                                                                                                      milestones in our strategy to realign our business           what are the prospects for the medium
                                                                                                                      portfolio, will significantly help improve the strength of   and long term?
                                                                                                                      our balance sheet. As key financial indicators, we are
                                                                                                                      targeting a net debt/equity ratio of 1.0 and a net debt/     The divestitures of Permasteelisa and our holdings in
                                                                                                                      EBITDA ratio of 3.5. We view these as important              LIXIL VIVA are important steps in improving our overall
                                                                                                                      benchmarks and through the two divestitures, we              balance sheet. With these on track to close, we can
                                                                                                                      believe that we are very much on target to meet those        focus more fully on improving our core earnings ratio.
                                                                                                                      ratios by the fiscal year ending March 31, 2021.             Our aim is to achieve 7.5% in the medium term and
                                                                                                                           On this note, due to the application of new             10% or more in the longer term. To meet these targets,
                                                                                                                      accounting standards (IFRS 16) in the previous fiscal        we aim to increase our gross profit margin while
                                                                                                                      year, the debt ratios within LIXIL VIVA, primarily in        achieving lower selling, general and administrative
                                                                                                                      relation to store leases, were recalculated at a higher      expenses (SG&A).
                                                                                                                      level. The divestiture of the unit, therefore, will               To improve our gross profit margin, it is important to
                                                                                                                      significantly help to reduce our lease liabilities and       provide differentiated products and services. We are
                                                                                                                      bring us closer toward meeting our targets.                  also working to reduce costs by improving production
Sachio Matsumoto                                                                                                           In addition, the proceeds from the sale of the two      efficiency through the use of common platforms in
Director, Representative Executive Officer,
                                                                                                                      subsidiaries will help increase liquidity and reduce         product development, and to reduce SG&A expenses
Executive Officer and Vice President, Finance, Treasury,                                                              external borrowing needs.                                    through systematization and greater operational
and M&A, and CFO                                                                                                                                                                   efficiency.
                                                                                                                                                                                        In relation to working capital, we have been working
                                                                                                                      Q3                                                           for many years to improve our cash conversion cycle
                                                                                                                                                                                   (CCC) by reducing accounts receivable and inventories

LIXIL has steadily made progress                           Q1                                                         With the shift to teleworking, do you see                    while raising the accounts payable level.
                                                                                                                      cost-saving opportunities from rent and                           In addition, we have greatly expanded the use of
in simplifying its business portfolio                      How do you view overall results last year?                 related areas in 2021 and beyond?                            ROIC (return on invested capital) to drive performance
                                                                                                                                                                                   throughout the Company. For the past two years we
and strengthening its balance sheet.                       Overall, we were able to achieve our key target for core   The COVID-19 outbreak toward the end of the fiscal           have created ROIC targets as key performance
                                                           earnings, even with Permasteelisa – which we reached       year and the restrictions put in place by governments        indicators on a global basis, while all executive officers
CFO Sachio Matsumoto discussed                             an agreement to sell–categorized as discontinued           around the world changed how all of society works, and       are now given specific compensation-linked targets. All
                                                           operations. This was because all of our business           we believe we will be able to take advantage of reduced      new capital investments will be prioritized on a
the Company’s focus and                                    segments exceeded their initial targets, while in the      commuting time to improve the productivity of our            company-wide basis looking at investment efficiency
                                                           Japan market, we experienced strong demand across
opportunities going forward.                               the board ahead of the increase in consumption tax in
                                                                                                                      employees while even improving the quality of work. As
                                                                                                                      a result of this shift, a lot more work can be performed
                                                                                                                                                                                   and cash flow implications. Goals are established on a
                                                                                                                                                                                   monthly and quarterly basis to see where improvements
                                                           October 2019. We were also able to introduce important     outside of the office environment, and therefore this        are required. This approach of balancing returns
                                                           internal reforms ahead of schedule, such as the Career     provides us with the opportunity to review our office        against capital and SG&A costs will help to create long-
                                                           Option early retirement incentive program. Considering     space requirements and look for potential savings.           term profitability for the Group.
                                                           the impact of the COVID-19 pandemic from the fourth        Fortunately, we had anticipated this trend and had
                                                           quarter onward, I believe we can be proud of our           already put in place a more robust infrastructure and
                                                           achievements in the fiscal year ended March 31, 2020.      work-style reforms to help facilitate this greater use of
                                                                                                                      workspaces outside the office in order to secure leading

16                                                                                                                                                                                                                                               17
SECTION 1               LIXIL IN FYE2020

LIXIL Group Executive Officers
(As of June 30, 2020)

Executive officer photographs were taken at different locations around LIXIL’s                                                                                                                            Profiles and reasons for selection of executive officers of           To read more about the innovative design of LIXIL’s WING
                                                                                                                                                                                                          LIXIL Group are available on our corporate website.                   headquarters, read “Our Stories” here:
newly redesigned WING global headquarters, which was unveiled in November 2019.*
                                                                                                                                                                                                                www.lixil.com/en/about/governance/board/                              www.lixil.com/en/stories/stories_18/
*Due to the impact of COVID-19, Bijoy Mohan's image was taken in Singapore.

Kinya Seto                                                                    Sachio Matsumoto                                                          Bijoy Mohan                                                                                  Hiroyuki Oonishi
Director, Representative Executive Officer,                                   Director, Representative Executive Officer,                               Executive Officer and Senior Managing Director,                                              Executive Officer and Senior Managing Director,
Executive Officer and President, and                                          Executive Officer and Vice President, Finance, Treasury, and M&A, and     LIXIL International                                                                          LIXIL Water Technology (LWT) Japan
Chief Executive Officer (CEO)                                                 Chief Financial Officer (CFO)

Number of Company shares owned               243,308                          Number of Company shares owned          86,344                            Number of Company shares owned                0                                              Number of Company shares owned              13,910

Shares of Phantom Stocks                     139,480                          Shares of Phantom Stocks                44,600                            Shares of Phantom Stocks               146,815                                               Shares of Phantom Stocks                    10,706

Yugo Kanazawa                                                                 Jin Song Montesano                                                        Satoshi Yoshida                                                                              Shoko Kimijima
Executive Officer and Senior Managing Director,                               Director, Executive Officer and Senior Managing Director,                 Executive Officer and Senior Managing Director,                                              Executive Officer and Senior Managing Director,
Marketing, Digital, and IT, and                                               Human Resources and General Affairs, Public Affairs,                      LIXIL Housing Technology (LHT) Japan                                                         Legal and Compliance, and
Chief Digital Officer (CDO)                                                   Investor Relations, External Affairs, and Corporate Responsibility, and
                                                                                                                                                                                                                                                     Chief Legal & Compliance Officer (CLCO)
                                                                              Chief People Officer (CPO)

Number of Company shares owned                10,086                          Number of Company shares owned            7,758                           Number of Company shares owned         10,043                                                Number of Company shares owned                    0

Shares of Phantom Stocks                      14,070                          Shares of Phantom Stocks                 17,128                           Shares of Phantom Stocks               11,004                                                Shares of Phantom Stocks                     5,961

18                                                                                                                                                                                                                                                                                                                                   19
SECTION 1              LIXIL IN FYE2020

Megatrends

The world around us continues to evolve,
shaping and guiding LIXIL.

 1          A World Affected by COVID-19                                          2          The Rise of the Middle Class                                         3         Japan’s Maturing Market                                             4          A New Type of Consumer
The COVID-19 pandemic shows how sudden events can have                           Despite the economic setbacks caused by COVID-19, the rise of a                 Japan has the fastest-greying population in the world but also                The new generation of consumers, whether established millennials
long-term consequences. Such seismic events also serve to                        new global middle class is expected to continue in the long term*2.             holds the world’s largest pool of private savings, a number that              in developed economies or the new middle class in emerging
greatly accelerate social and economic change that was already                   Already constituting more than half of the world’s population, the              continues to grow*5. Despite this wealth, Japan has a lower level             markets, have different spending habits. Research shows that the
underway. Health awareness has risen, work has shifted from the                  number of those considered financially secure is expected to rise               of investment in residential property than the US, the UK or                  sharing economy and a focus on experiences rather than the
office to the home, and digital commerce has soared, including a                 to more than five billion people by 2030*3. Established growth                  Germany*6, showing there is room for growth as people look for                purchasing of goods are driving their spending patterns. At the
50-70% surge in digital traffic in developed economies as the                    markets of China and India are now being joined by the fast-                    more comfortable spaces for teleworking and other stay-at-home                same time, young people in this new global middle class dedicate
virus spread*1. Agility, innovation and resilience will be key to                growing nations of Southeast Asia. In all, 88% of the growth in this            activities. Since the COVID-19 outbreak, more time is also being              a large share of their spending to housing and spend at higher
traversing the “new normal.”                                                     new middle class is expected to come from Asia*4.                               spent on home improvements*7.                                                 rates than older people.

                                                                                                                                                                                    With people spending more time at home either for work                         Differentiate water and housing products to demonstrate
                     New health and hygiene-related products employing the                           Upgraded hygiene and housing are among the first
 Opportunity                                                                      Opportunity                                                                     Opportunity       or play, there is a growing market for renovations of       Opportunity        they are more than just products but a part of one’s
                     best technology are in greater demand                                           priorities for people as they gain more disposable income
                                                                                                                                                                                    existing properties                                                            lifestyle

                     The economic cost of the outbreak and the longer-term                           The new middle class is still less affluent than their                         New housing starts, forecast to decline by one-third                           Mass production of limited items, which is better suited to
     Risk            risks to business growth remain uncertain throughout the         Risk           developed-economy counterparts. Competitive pricing             Risk           between 2020 and 2030, are being further impacted by           Risk            fast-growing markets, increases risk of being caught in
                     medium term                                                                     and value for money will be vital to win their business                        the uncertainty of the COVID-19 pandemic                                       the commodity trap

*1 SSR, April 2020                                                               *2 Brookings Institution, March 2020                                            *5 Wisdom Tree Japan, September 2018                                          *8 Harris Group, May 2016
                                                                                 *3 Brookings, September 2018                                                    *6 Mitsui Fudosan, May 2020                                                   *9 Visa Business and Economic Insights, December 2018
                                                                                 *4 Brookings, February 2017                                                     *7 Unruly Group, April 2020

 5          All Things Digital                                                    6          The Impact of Climate Change                                         7         The Changing World of Work                                          8         What Does a Company Stand For?
Impacted by COVID-19, the march to an internet-based world of                    The total cost of achieving carbon neutrality is estimated at US$50             The COVID-19 outbreak has given sudden impetus to the already                 More than ever before, a company’s commitment to social issues
commerce is now a sprint, with the transaction value of global                   trillion, while the economic impact is incalculable*11. But the                 changing way we work. A U.S. survey found that 48% of                         is vital to long-term success. Studies show that younger
mobile payments expected to grow nearly 25% annually over the                    United Nations warns that “the highest cost is the cost of doing                employees planned to work from home at least part time even                   consumers look specifically at these issues when deciding on
next five years. This has created a new shopping model that can                  nothing*12.” Despite the growing evidence of the impact on the                  after COVID-19*13. In Japan, it has even shone a light on the                 which firms they will select in making their purchases. Among
match up consumers and suppliers from across the globe.                          environment, a global consensus on coordinated action remains                   prevalent inefficiencies of its corporate culture. Companies will be          millennials in the US, more than 70% are willing to pay more for a
Consumers are now showing a willingness to purchase whole new                    elusive. A new sense of purpose is needed urgently before it                    pressed to cater to the new needs of employees.                               sustainable brand*14. Internally, the fair treatment of all employees
ranges of products through computer-assisted shopping that is far                becomes too late.                                                                                                                                             and the presence of comprehensive methods to reward and
beyond what could be imagined a few years ago. Augmented                                                                                                                                                                                       counsel are central to recruitment and retention.
reality and other powerful tools allow for entire kitchens to be
created and purchased online.

                                                                                                     More advanced products and ways of working that reduce                                                                                                       Leadership in this area as a socially aware company that
                     Gain consumer insight and leverage powerful digital tools                                                                                                      Transform work style to create a highly engaged, diverse
 Opportunity                                                                      Opportunity        the resources we use are an important contribution to        Opportunity                                                                   Opportunity       brings together the best in global practices is a clear
                     to create an entire home environment online                                                                                                                    and productive workforce
                                                                                                     solving the problem                                                                                                                                          differentiating feature in dealings with all stakeholders

                     An area that will require continuous investment and                             A failure to overcome the steady rise in temperatures                          Inability to adjust organization and engage employees in                      Growing social movements have shown vigilance and
     Risk            upgrading to make sure the Company remains at the                Risk           could create massive dislocations that would overwhelm          Risk           the “new normal” could impact long-term resilience and         Risk           action beyond just words are vital to demonstrate
                     cutting edge of technology                                                      our abilities to combat them                                                   efficiency                                                                    commitment

*10 Mordor Intelligence, June 2020                                               *11 Morgan Stanley, October 2019                                                *13 Gartner, June 2020                                                        *14 The Nielsen Company, October 2015
                                                                                 *12 United Nations, April 2020

20                                                                                                                                                                                                                                                                                                                            21
SECTION 1         LIXIL IN FYE2020

Progress of Management Strategy

LIXIL unveiled the Medium Term Plan in 2017. Under the guidance of our four core pillars,
we have embarked on a journey that will transform us into an agile, entrepreneurial company that
can achieve sustainable growth by contributing to society.

                 Establish a purpose-driven                                                Develop attractive and                                                                                                                        Drive growth through
     1           entrepreneurial company
                                                                             2             differentiated products
                                                                                                                                                   3             Achieve competitive costing                                 4           strategic marketing

LIXIL aims to develop a people-focused organizational culture that       In the increasingly commoditized housing products and                 To further strengthen our financial position, LIXIL will leverage         We will harness strategic marketing to increase LIXIL’s touch
can respond quickly to both the external and internal changes of a       materials market, LIXIL will drive profitable growth by investing     new technology and infrastructure to create a more efficient              points with consumers and influencers such as contractors,
world in transition. We believe an entrepreneurial mindset is vital      more in brand, design, technology and quality. We believe we          and flexible manufacturing supply chain platform. In addition,            designers and builders. In addition, through the promotion of
to achieving this, and today we are finding new ways to create a         can better respond to the individual tastes and preferences of        we will improve productivity of corporate functions while                 services such as “LIXIL PATTO Reform,” we will create new
more agile work environment and enabling greater and faster              the growing middle-income and high-income segments by                 redeploying knowledgeable personnel to consumer-facing roles              demand for home renovation in Japan by providing solutions to
exchange of ideas. We also believe that we must become a                 differentiating ourselves through products that are meaningful        with resource needs, contributing to greater cost efficiency.             challenges holding back market growth.
company that evokes passion and respect, inspiring and uniting           and matter to people. This will further strengthen our intellectual
not only our own people around goals that go beyond everyday             property base, and as we shift to a more asset-light business
life, but all of our stakeholders. And as our operating environment      model, we will be able to bring more products to markets in
shifts, we have to be ready to consistently redefine our business        shorter cycles.
domain to ensure future growth.

FYE2020 MILESTONES                                                       FYE2020 MILESTONES                                                    FYE2020 MILESTONES                                                        FYE2020 MILESTONES

	Announced merger of LIXIL Group Corporation and LIXIL                  	Brought design teams in-house under the Global Design               	Under the “Kawaranaito LIXIL” program to transform Japan                	Accelerated digital transformation under the impact of COVID-19
  Corporation, which will enable accelerated decision-making,              Organization and established a new design studio in Singapore,        operations in light of long-term market challenges, LIXIL shifted to      pandemic, harnessing available and proprietary technology that
  enhanced management efficiency, and improved governance.                 joining existing studios in London, New York, Düsseldorf, Tokyo       a more meritocratic employment system, including introducing a            enables consumers to experience showrooms through online
  LIXIL will transition from its current holding company structure to      and Tokoname                                                          performance review system and new career planning support to              consultations and 360-degree images, as well as generate 3D
  a simplified operating company that places greater focus on            	Reworked the entire design process across the organization,          help boost productivity, while accelerating the implementation of         renderings and price quotations in real time
  actively managing its core water and housing product businesses          clearly differentiating brands from each other and from               LIXIL’s digital transformation and HR policies in order to provide      	Targeted investments to support the development of e-commerce
	Simplified business portfolio and continued to focus on water and        competitors through design values and signature elements in           employees with greater work-life balance and flexibility                  platforms, including strengthening direct-to-consumer channels in
  housing products businesses by announcing the divestments of             order to build consistency and enhance brand value                  	Implemented the Career Option early retirement incentive program          the US with new products such as the American Standard Filtered
  Permasteelisa, LIXIL VIVA, Ken Depot, LIXIL Suzuki Shutter and         	Unveiled the latest design series of the INAX brand, which went       in Japan, a solution beneficial to employees, to bring fresh              Kitchen Faucet
  others. In addition to enabling greater synergies through                through LIXIL’s in-house design process, at Milano Salone last        perspectives and energy to management positions and address the         	Expanded IoT products and service portfolio to define the next-
  enhanced integration, these transactions will strengthen LIXIL’s         year, resulting in multiple design awards in a single year due to     aging management structure facing LIXIL and other major                   generation home and develop the home IoT ecosystem
  balance sheet and financial position                                     new consumer-centric design concepts                                  companies in Japan                                                      	Driving demand growth in the Japan renovation market by
	Established LIXIL International to centrally oversee global            	Established tie-ups between LHT and renowned Swiss and              	Implemented Robotic Process Automation (RPA) through in-house             developing and launching products as well as through new
  businesses and enhance synergies and growth opportunities,               Belgian companies to develop and introduce new high-end               developers as a tool to improve productivity of primarily back-office     marketing campaigns that address changing lifestyles and work
  while also centralizing reporting lines for core corporate functions     products, including frameless large windows and garden annexes,       functions by automating recurring operations                              styles in the “new normal”
  – Finance, Legal, HR and IT – enhancing alignment to achieve             to tap into the growing luxury housing market segment in Japan      	Fully implemented new trading system introduced in FYE2019,
  company-wide goals                                                                                                                             enabling faster decision-making on pricing in line with market
	Embraced purpose-driven initiatives across the organization,                                                                                   demand
  helping 18.6 million people to date gain access to basic sanitation                                                                          	Completed implementation of standardized core manufacturing
  and achieving our carbon intensity targets two years in advance                                                                                platforms for multiple products in interior and exterior factories in
                                                                                                                                                 Japan, improving cost control and enabling faster introduction of
                                                                                                                                                 new products to market

22                                                                                                                                                                                                                                                                                             23
SECTION 1         LIXIL IN FYE2020

LIXIL’s Businesses

LWT
LIXIL Water Technology                                                                                     Principal products and services                       SWOT analysis
                                                                                                                                                                   Strengths                                                                             Opportunities
                                                                                                           Plumbing fixtures
                                                                                                           Sanitaryware, shower toilets, water faucets,            	Combined capabilities managed by coordinated global team                            	Growth opportunities related to COVID-19, which is driving focus on improving
LWT makes attractive and purposefully designed products for bathrooms and                                  washstands, bathtubs, prefabricated bathrooms,          	Highly regarded brands and strong market positions across all major geographies       health, hygiene, wellness and wellbeing
                                                                                                           smart products, showerheads, washstand fixtures,                                                                                              	Higher demand from population growth and increasing income levels around the
kitchens through powerful global brands such as INAX, GROHE, and American                                                                                          	A product portfolio spanning all market segments, from the luxurious to the basic
                                                                                                           washstand cabinet units, kitchen systems, etc.            ends of the spectrum                                                                  world
Standard, as well as product brands such as RICHELLE and SPAGE.                                                                                                                                                                                          	Development of differentiated products for the global market by transferring and
                                                                                                           Tile building materials                                 	Globalized and independent design team creating clear and separate propositions
                                                                                                                                                                     for each brand and its target segments under the unified “LIXIL design thinking”      consolidating technology and design within LWT, based on development of
                                                                                                           Tiles for houses and buildings, interior decorative                                                                                             product platforms using Japanese technology
                                                                                                                                                                   	Sales network in more than 150 countries
                                                                                                           tiles, etc.                                                                                                                                   	Increased demand for products catering to increased environmental awareness
                                                                                                                                                                   	Global supply chain network
                                                                                                                                                                                                                                                         	Increased home renovation investment as consumers reflect the higher share of
                                                                                                                                                                                                                                                           time spent at home in their expenditure
                                                                                                           Direct customers

                                                                                                            Dealers                       Wholesalers              Weaknesses                                                                            Threats
                                                                                                            Sales agencies                 uilding material
                                                                                                                                          B                        	Strongest footprint is in mature economies                                          	Decreasing new housing starts in Japan
                                                                                                            Construction companies        trading companies
                                                                                                                                                                   	Underinvesting in marketing and brand management in international markets           	Increase in labor cost and material prices
                                                                                                            Architectural firms           Volume retailers                                                                                               	Shortage of skilled labor
                                                                                                            Developers                    General consumers                                                                                              	Rapid commoditization due to new business models
                                                                                                                                                                                                                                                         	Downward pricing pressure
                                                                                                                                                                                                                                                         	Rise of highly cost-competitive manufacturers from developing countries
                                                                                                           Competitors                                                                                                                                   	Economic deterioration and sluggishness due to the impact of COVID-19,
                                                                                                                                                                                                                                                           particularly the impact on end users in the hospitality and commercial real estate
                                                                                                            Kohler                        Geberit                                                                                                          sectors
                                                                                                            Roca                          TOTO
                                                                                                            Hansgrohe                     Takara Standard
                                                                                                            Masco (Delta)                 Cleanup
                                                                                                            Fortune Brands (Moen)         Panasonic              luxurious to the basic ends of the spectrum, while catering to                            Key Initiatives in FYE2021
                                                                                                                                                                 different lifestyle preferences and local tastes. Leveraging this
                                                                                                           Major brands                                          unique strength, we are now developing LWT’s business in                                  	Create clear and differentiated value for end users, professionals,
                                                                                                                                                                 emerging markets in particular, where the middle class is                                    designers and developers as main target groups that will drive
                                                                                                                                                                 expected to grow further.                                                                    industry growth
                                                                                                                                                                      With the formation of LIXIL International in 2019, a business                        	 Drive sales growth through focus on target groups by strengthening
                                                                                                                                                                 management structure that covers all operations outside of Japan,                            powerful channels, business partner legacies and brands
                                                                                                                                                                 LWT is now capable of bringing the global resources of LIXIL,                             	Optimize global manufacturing footprint and enable technology
                                               American Standard Saybrook Filtered Kitchen Faucet                                                                including design, R&D and manufacturing capabilities, together                               platforms approach to maximize productivity, strengthen cost
                                                                                                                                                                 across all regions. Through LIXIL International, we are also honing                          competitiveness, and enhance flexibility. These initiatives allow
                                                                                                                                                                 our competitive edge by enhancing cross-regional and cross-                                  us to flexibly react to demand fluctuations caused by COVID-19
                                                                                                                                                                 brand synergies, which combined with improved production                                     and ensure continued strong product availability
                                                                                                                                                                 efficiency, will enable LWT to respond more flexibly to global                            	Respond faster to increase in demand for renovation and the
Market Conditions                                                                    long term, and COVID-19 is accelerating this trend. However, the            demand. This global operations framework enables all factories                               end-user journey moving increasingly online
                                                                                     renovation market, while small, shows potential for growth driven           and R&D hubs to be leveraged to supply all brands and regions,                            	Invest in innovation for future growth and continue to build a
The global plumbing fixtures and fittings market is worth ¥5 trillion                by increased focus on hygiene and healthy homes. With COVID-                creating an efficient and flexible network that optimizes our global                         platform-based, global product pipeline across all brands. This
today and is forecast to grow in the future. In international markets,               19, the entire world is now also more focused on hygiene, which is          footprint, creates scale competitiveness, and builds future-ready                            includes accelerating the development process for synergized
despite COVID-19-related restrictions causing significant losses in                  expected to further drive demand for products such as touchless             processes for quality, demand planning, product development and                              products leveraging technologies from Japan for global launch
the global market, European and North American markets have                          faucets, shower toilets, and water filtration.                              customer service. This will enable us to deliver true value to                            	Respond to the major macro-trends accelerated by COVID-19
been resilient against the backdrop of monetary easing. The world’s                                                                                              business partners and consumers by responding to specific                                    by focusing on home renovation and accelerating development
growing population, which is expected to reach 8.5 billion people                    Key Strengths                                                               regional needs while leveraging our global operations footprint and                          for hygiene-related products, as well as strengthening retail in
in 2030, is also driving new growth. In particular, the growing                                                                                                  managing innovation and manufacturing platforms.                                             international markets
middle class and increasing need for energy and water                                Among LIXIL Water Technology’s (LWT) core strengths is a portfolio                                                                                                    	Transform business structure in the Japan market to suit its
conservation technology globally are among key trends expected to                    of powerful, industry-leading brands which include GROHE,                                                                                                                mature economy, strengthening cost competitiveness
increase demand for water technology products in the future. In                      American Standard and INAX. Combined, these brands cover all                                                                                                          	Employ a scalable and repeatable, high ROIC model of filling
Japan, the demand for new housing has been decreasing over the                       bathroom product categories and all market segments, from the                                                                                                            category white spots

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SECTION 1         LIXIL IN FYE2020

LIXIL’s Businesses

LHT
LIXIL Housing Technology                                                                             Principal products and services                    SWOT analysis
                                                                                                                                                         Strengths                                                                                Opportunities
                                                                                                     Metal building materials
                                                                                                     Housing window sashes, entrance doors, shutters,     	Top market share in residential window sashes and exterior products in Japan          	Increasing need for highly functional products due to increasing awareness of
LHT’s brands TOSTEM, INTERIO, EXSIOR, SUPER WALL, and Kawashima Selkon                               gates, carports, banisters, high railings, etc.      	Extensive nationwide sales and distribution network in Japan                            environmental and health factors among consumers in Japan
Textiles produce a range of housing-related products, from window sashes to                          Wooden interior furnishing materials                 	Wide range of production facilities and technologies in Japan and Asia, from          	Growing demand for new products and services suitable for Japan’s aging society
                                                                                                     Window frames, wooden furnishing materials,            aluminum smelting and casting to manufacturing end products                           	Increasing interest in renovations due to COVID-19
entrance doors, exterior building materials, interior furnishing materials, and fabrics,
                                                                                                     interior decorative materials, etc.                  	Wide range of products and product categories enabling coordination for the           	Expanding market for highly affluent consumers
helping to make better homes a reality.                                                                                                                     entire home                                                                           	Increasing need for differentiated products due to population growth and rising
                                                                                                     Other building materials                                                                                                                       income levels in Asian markets
                                                                                                     Siding, stone materials, roofing materials, etc.
                                                                                                     Interior fabrics
                                                                                                     Curtains, etc.
                                                                                                     Other                                               Weaknesses                                                                               Threats
                                                                                                     Solar power systems, etc.
                                                                                                                                                          	Difficulty in developing differentiated products                                      	Decrease in new housing starts in Japan
                                                                                                                                                          	Commoditization of products                                                           	Increase in labor cost and material prices
                                                                                                     Direct customers                                     	Profit and loss structure vulnerable to change in external factors such as material   	Decrease in housing-related spending due to stagnant income levels in Japan
                                                                                                                                                            price/demand fluctuations                                                             	Stagnant consumer sentiment due to the impact of COVID-19
                                                                                                      Dealers                    House manufacturers
                                                                                                      Sales agencies             	Construction
                                                                                                     	Building materials          companies
                                                                                                       wholesalers               Architectural firms
                                                                                                      Homebuilders               Developers

                                                                                                     Competitors

                                                                                                      YKK AP                     Sankyo Tateyama        products can also be coordinated to provide a seamless design                                	Improve production efficiency
                                                                                                                                                        experience in the entire home.                                                              	In FYE2020, while continuing to reduce stock keeping units
                                                                                                     Major brands                                            Leveraging the strengths derived from a simple organization                               (SKUs), we adopted a platform approach for exteriors and
                                                                                                                                                        structure that facilitates the rapid development, manufacture, and                             wooden interior furnishing materials, which contributed to
                                                                                                                                                        sale of products, we are now strengthening LHT’s competitiveness                               shortening product development periods, improving capital
                                                                                                                                                        by innovating new designs and technologies, as well as enhancing                               efficiency, and strengthening profitability. In FYE2021, we are
                                                                                                                                                        efficiencies in product development and manufacturing processes                                steadily reforming the window sash business and expect to see
                                                                                                                                                        by means of synergies within the Group. By relying not only on the                             the effects from the following fiscal year.
                                                                              Interio Lassisa                                                           resources within LHT but by also establishing business alliances                             	Enhance promotional activities
                                                                                                                                                        with other companies that possess different technologies and                                	 We will strive to expand sales of products designed to create
                                                                                                                                                        know-how, we will launch differentiated, high-value-added                                      healthy, comfortable, secure and safe homes through awareness-
                                                                                                                                                        products in quick response to market needs.                                                    raising activities. These include, for example, how to prevent heat
                                                                                                                                                                                                                                                       stroke indoors, prevent heat shock during winter, and prepare for
Market Conditions                                                                  In international markets, the building materials market –            Key Initiatives for FYE2021                                                                    natural disasters such as typhoons. We will also strengthen the
                                                                               despite having been particularly heavily affected by COVID-19 in                                                                                                        appeal of our power brands, such as TOSTEM, among
In Japan, the number of new housing starts has been decreasing                 Asia – is expected to continue expanding in the medium to long            	Expand sales of products for the “new normal”                                               consumers and influencers to help drive sales of high-value-
over the long term as a result of the country’s aging and shrinking            term against a backdrop of economic growth and increases in              	In response to the changing needs of consumers due to the                                    added products.
population. COVID-19 is expected to accelerate this rate of decline.           population and income levels.                                               impact of COVID-19, as well as to stimulate and capture demand                            	Expand existing business fields
Under these circumstances, it has become more important to                                                                                                 for renovation, we will strengthen sales of products that are                            	Aiming to expand our presence in the growing market for highly
stimulate and capture demand for renovation, and building material             Key Strengths                                                               touchless and reduce close interaction, enable improved                                     affluent consumers, we are collaborating with international
manufacturers are expected to increasingly focus on this field. In                                                                                         ventilation, support working from home, and help users “switch                              manufacturers to launch products of exceptional quality,
the renovation segment, since the quality, performance, and design             LIXIL Housing Technology (LHT) possesses a wide variety of                  on and off” between work and their personal lives. This includes,                           performance, and design. We will further pursue activities
of the products themselves are of great significance for the owner,            products with high market share and a robust nationwide sales               for example, our IoT postal delivery box, which reduces face-to-                            through the Business Incubation Center, which was launched in
understanding the end user’s preferences as well as differentiation            network. LHT’s products are designed to contribute not only to              face interaction with delivery personnel.                                                   April 2019, to quickly place highly innovative products on the
– through new products, services, and business models that meet                improving the comfort of the home but also address key social                                                                                                           market.
diverse needs – will be key.                                                   issues such as climate change. Due to their wide variety, LHT

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