[Foreign language]
It is time for us to start the briefing on first half results for fiscal year ending March 31st, 2023 of LIXIL Corporation. This briefing is streamed live online. I would like to introduce to you the presenters. Director, Representative Executive Officer, President and CEO, Kinya Seto. Director, Representative Executive Officer, VP and CFO, Sachio Matsumoto. Head of IR, Leader for Corporate Accounting and Treasury and Tax, Kayo Hirano. I will be serving as the MC. My name is Fu kushima from IR office. The material for this briefing is in the IR section of our corporate website. I would like to explain the schedule for today. Mr. Seto will be explaining about the second quarter results for fiscal year ending March 31st, 2023. We will take questions from the attendees. Those of you with questions, please use the Q&A button, which is located at the lower right.
Please put your affiliations, your name, and your question. With regards to questions, we would like to limit it to two questions per person. Please write in your questions any time during this session. We expect to finish at 6:00 P.M. Without further ado, I would like to hand over to Mr. Seto to talk about the first half results for the fiscal year ending March 31st, 2023. Mr. Seto, please.
[Foreign language]
He llo, everyone. I would like to talk about the results for the second quarter for the fiscal year ending March 31st, 2023. Regrettably, this time around, the first half had the increase in revenue, but decline in profits year-on-year. That would be the same for the full year, and we had revised the forecast downward. Regrettably, there was a rapid depreciation of Japanese yen beyond our estimation.
Related to that, there was additional price increases for components. Also, there was cost increase due to supply chain disruptions. This had deteriorated the cost. However, under a very difficult environment, we have worked on the stable supply of our products. This had led to increase in the revenue. However, due to various factors, the profits declined. The profits declined because there were a lot of negative factors beyond our assumptions. In the Americas and China, there was economic deceleration. With that in mind, we have decided to revise the performance downward. The dividend forecast remains unchanged. In terms of the supply chain disruptions, we had worked on to fix the problem.
Europe had faced a lot of issues in the supply chain disruptions, but we had started a new distribution center, and from third quarter onwards, the situation will be improved. First half was more difficult than we had expected, but in the second half, we will enter the period of recovery. We would like to solve various issues within this fiscal year, and we would like to prepare ourselves so that we can generate more profit in the next fiscal year. The original plan for this fiscal year was that even with various cost increases, if we are able to pass on that cost, we thought that we would be able to get the core earnings of JPY 81 billion.
The reason that we were able to get to JPY 81 billion is because of the increasing cost due to inflation, as well as the positive impact from the price optimization and structural reform. First, I would like to start out with what had impacted us the most. The Forex had impacted us the most. I think that's where I need to start my explanation with. The Forex impact was JPY 12 billion yen, but there are other areas which were impacted by Forex, so I would like to start out with that. From the past in LIXIL, in the face of yen depreciation or yen appreciation, we were able to offset the situation at LIXIL.
Even with the difference in the seasonality, we faced a transaction risk and translation risk where we would be able to offset the two. What is transaction risk? Transaction risk is the imported product denominated in dollars. When the yen is depreciated, it would generate loss. When the yen is appreciated, we would be able to generate profit. On the other hand, translation risk is that we have 1/3 of our business from overseas. When yen is appreciated, it would generate losses. When it is a yen depreciation, it would generate profit. Because those risks are working in a reverse manner, we would be able to offset the impact. However, this time around, the transaction risk and translation risk could not be offset with each other. Why is that? There are several factors.
The first factor, euro did not appreciate as much as the dollar. That's one of the big factors. In the case of LIXIL, our overseas business consists of 1/3 of our total business, and out of the overseas business, half will be covered by euro, the European business. There are euro-linked currencies being used in some of the markets that we operate in. The dollar-linked market, namely the U.S., the U.S. business was struggling. The profitability, not the revenue. The dollar appreciation will be impacting the U.S. the most. From July to September, the interest rate had gone up and there was a demand adjustment, and various channels had conducted the demand adjustment. Because of that, in the U.S., we were not able to make much profit. The translation benefit in the U.S. did not realize.
Inclusive of euro, the other currencies, translation benefit was very limited. The same applies to Chinese renminbi and other Asian currencies as well. We did not have a translation benefit, and there was a lot of transaction risk. A dollar became JPY 150 all of a sudden, and that had negatively impacted us. Second point. Frankly speaking, this is the area where we need to fix in the future. It says the increase in the price of the component and energy prices. As for LWT Japan, the vendor had increased their prices, and we had not expected that to happen. At the beginning of the year, we had considered that there is no price increase because there was no announcement as such.
There were rapid price increase in the commodity, but also at the same time, there were some raw materials that our suppliers were buying, which they had to buy, and they needed to increase the price to sell to us, and that had negatively impacted us. There is impact from supply chain disruption. Around spring, the container availability had become very tight. The sea freight had become very high, and those containers went to the U.S. or Europe, and we were not able to unload at the port. As a result of many inventories coming all at once, the logistic cost had gone up, and we had to pay that in dollars, and that had negatively impacted us. Those are the big factors that impacted us negatively. How did we react?
As I have explained in the past, with regards to price increase, we decided to do that twice a year rather than once a year. As I explained, in the previous page, we conducted the price increase in April and October. We looked for what else we can do. We decided to increase the price where we can, both domestic and overseas. As for the products which did not have price list, we decided to renegotiate. Through these initiatives, we tried to respond to the situation, and the impact of that was JPY 9 billion.
As for indirect costs, GROHE X, where we conducted the promotions online and we reduced the number of trade shows that we went to in LIXIL as well, and we decided to decrease the amount of printing for the catalogs by making the catalogs digital. Also, we use online showrooms for presentation so that we can reduce our operating costs. We were able to make our indirect costs efficient, and that amounted to JPY 11 billion. Price optimization was JPY 9 billion. The overall forecast for core earnings is JPY 42 billion because of other negative factors. In terms of the sales mix, China has bigger profitability, but the economic situation in China was not so good.
In terms of the category, in order to maintain the supply, we had to buy the low profitable though products which had higher cost, and that negatively impacted us as well. On the other hand, the energy prices, the raw material and component costs. In terms of the components, as I have said earlier, the supplier had conducted price increase where we had not expected. We should have expected this to reflect it to our price increase. However, we have not been able to do that. Another point is when COVID happened, the cost that we had spent, various costs to respond to it.
For example, there is the anti-vibration rubber that is used in the bathroom, and we created the molds when we were not able to get it from the suppliers. When we did it in-house, that would add on to the cost. It is not just about this rubber, but in the other products, we had to respond to the supply chain disruption, and that added on to the cost. In terms of the energy prices, we believe that there would be an electricity price hike in the latter half of this year in Japan. In terms of forex fluctuations, we are looking at just the forex impact. The aluminum import had been largely impacted in the first half due to forex. We were hit harder than we had expected.
The impact from supply chain disruptions, the forex fluctuation, will be impacting us in the second half as well, especially in the area of sash and exterior aluminum. Also, it would be impacted by the copper price. With regards to supply chain disruptions in the U.S. and Europe, we were not able to send the containers to those countries. The container cost had gone up from 5x more to 20 x more. The freight cost was higher than the product cost, and we were not able to unload it at the port, and we were not able to deliver it to the destinations, and that added on to the cost. We are expecting the forex risk to be up to JPY 160 per dollar.
Also, the forex risk for that is JPY 2 billion. If the forex rate will go from JPY 150 to a dollar to JPY 160 to a dollar. Because of that, the core earnings overall will be JPY 42 billion. The energy price component and raw material prices, we will be impacted more in the second half. As for the forex fluctuation, there was a gradual change, and in the first half, and in the second half it will be flat at JPY 150 , so there would be more impact. In terms of the supply chain disruptions, we would be impacted more in first half than the second half. Components, raw materials. For the cost of that, we will respond it by price optimization.
Next fiscal year, we believe that through the measures that we take this fiscal year, we would be able to recover. We will optimize our price from October, so the recovery will start from October. We are doing well so far. In the first half, we struggled, but we believe that even though we are lagging behind, we would be able to show recovery in the second half. This is a summary of what I have explained. Group-wide, the yen depreciation, which rapidly happened, and also the increase in the cost of sales due to unexpected increase in component prices. We have worked on to reduce the cost where we can. However, we had to revise the core earnings forecast downward.
We want to make countermeasures throughout the year so that we can recover from next fiscal year. We want to solve all of our problems within fiscal year 2023. As for Japan, for new houses, I'm sure that you have concerns towards it. It is true that the component prices are going up. As a result of that, it may negatively impact the housing start. Some of the local players in the Japanese regions are feeling that there would be impact to housing start. However, for renovation. In the past, we were working in the water-related area for renovation, but we are now having high expectations for the housing renovation.
Because of the increase in the energy price and the more interest in the environmental issues, there is higher demand in heat insulation products. In addition to that, last Friday, the central government has announced the their economic policy package, and they are to focus on the heat insulation products. We had been telling the government that it is needed to respond to a heat insulation because the heat insulation capacity in Japan is much lower than the other countries. There are 800,000 new housing each year, but the existing houses number is 60 million. We need to fix the heat insulation improvement in the existing houses.
If the windows and doors are fixed, that would be conducive to a better situation for the environment by making the window a three-paneled window from the single panel, we would be able to reduce the CO2 by 15 million tons. This means that we will be the biggest industry to reduce the CO2. We need to improve the performance of the windows in Japan, and we will work to increase the number of renovation. Starting from January of next year, I think that this will go into a full-scale project. As for the international region, the EMENA region, it was expected that Europe's economy will decelerate. However, our products, as we track the growing demands, it is not impacted so much by the economic situation.
There is a lot of replacement demands. In addition to that, order book is very healthy. Now the supply chain is being stabilized, so in the second half, we believe that this region will be better. The Near East and Middle East are doing very well. As for Americas, the interest rate had gone up, and the demand for new housing had gone down. Our customers had conducted the inventory adjustment from July to September all of a sudden. The supply chain was being better, and now the products had been provided, but then the inventory adjustment occurred all of a sudden, and that negatively impacted us from the profit side. When will the situation be better?
There are a lot of views about the inventory adjustment, but we believe that we have expectations that the orders will be normalized at the beginning of the year and the inventory adjustment will be completed by the end of October. To be on the safe side, we are saying from next year. In terms of China, the real estate industry had deteriorated, and now there is more money put into the real estate industry, and the orders are now being retaken. In the longer- term, it will still struggle. We believe that the growth will be as low as the first half. Asia Pacific is doing well. It is because COVID is now dwindling, and the hotel projects are coming back. The demand is being better.
Based on such a background and, if we end up with this type of the corrections, how much will the performance-linked compensation deteriorate? I'm assuming this type of question. Myself and Matsumoto-san, we probably will not be paid any compensation that is linked to performance. Over the long -term, we feel that the business environment is becoming quite good because we are seeing acceleration of environmental issues and the energy crisis and higher energy costs. Window, door, wall, roof, the product in these areas which we had considered to be more mature, but we have great products in these area.
Not only that, as you can see on the slide, we have a product called revia, which utilizes plastics that are difficult to recycle. There is a greater focus in these areas, and our effort in these areas are likely to bear fruit going forward. There is a private-public collaboration. There is a national movement by Ministry of the Environment to create a better living condition. With the large economic measures, one pillar is the heat insulation of houses. We feel that that is going to create a significant business opportunity for us going forward.
We've been talking about the heat insulated windows, but not only that, our solar panel- based [Tate-loku series], or we have a Super Wall with high insulation factor, or COCO-ECO has the partial of the heat insulation property. We expect this heat insulation product to really grow going forward. When the material prices increase, and it becomes difficult to build new houses, then renovation becomes more prominent, particularly the renovation related to the physical structure of the housings are likely to increase, which is going to be opportunity for us. In terms of energy, the hot water portion. Not in the bathtub, but to use showers instead. I think this is going to attract a greater attention.
SHIN-ON or the Body Hug Shower option on this slide, the technologies enable people's body to really warm up as if you have just jumped into the bathtub. In comparison to KINUAMI that we have already launched in regards to the shower, I think the LIXIL's innovations are likely to receive more attention. More recently, what we have announced and what we have launched new is the revia, which is the first product in the world that enabled recycling of all types of different waste plastic. We feel that there is going to be a large potential with this going forward and also overseas.
We have Cradle to Cradle, the recognized product, which is the most advanced recycling product range as we continue to work on increasing such product. If you look at the highlights of the second quarter earnings for revenue, we have made efforts and somehow maintained our level. Because of the sharp rises in cost, frankly speaking, we were unable to fully respond to that. From our perspective, somewhat disappointing and the fact that our recovery was delayed, that was a fact. Despite the delay in recovery, we will optimize the price from October and that should stimulate our recovery. Jumping to page 16.
Now, on that basis, for the first half of the fiscal year, core earnings on year-on-year deteriorated by JPY 20.1 billion. The half is the JPY 12.6 billion of deterioration. One factor is the April to June last fiscal year was really strong, and that was when, before the inflation started. The inflation started after that, and the price optimization did not catch up. That had continued. In that regard, in the last fiscal year, the first half, particularly the April to June, that is the state that we need to return to as quickly as possible. From October in the second half of the year, probably the bottom was between July to September this year.
From October in the second half of the year, JPY 1.5 billion for LWT and JPY 12.4 billion LHT, we are expecting an improvement year-over-year in the second half of the year. Now the April to June this year, our plan was to have that as being the bottom. However, consequently, because of the weaker yen, we were unable to respond. For us, the bottom ended up being the July to September quarter. In comparison to the first half of the year and the second half of the year, and on a year-over-year comparison basis, we expect the minus JPY 31.1 billion in the first half. In the second half of the year, we expect a plus JPY 8.2 billion positive, so a rebound there. For next fiscal year, we should be able to take a little bit more an aggressive outlook. That was a little bit long-winded explanation, but I think I have left enough time for your questions. From here, I would like to take your questions and then respond to your questions, sir.
[Foreign language]
We would like to have question and answer time. Those of you with questions, please use the Q&A button at the lower right. Click on it. Please put your affiliations, your name, and your question, and send it in. The first question. From Sumitomo Mitsui Trust Asset Management, Mr. Takegawa. There are four questions related to the full year forecast. Deterioration of sales mix, could you elaborate more on this? Would there be any impact to the next fiscal year? The second point, the additional price optimization. It seems that it's not catching up, but how would you be responding going forward? How would the demand and consumer react to the multiple price increases? I would like to know more about the domestic new housing and renovations.
This market situation for sales in the U.S. as well as Europe, compared to three months ago, how has it changed? With the deceleration in the economy, how are the consumer mindset being changed? In terms of the increase in energy price, I believe that this would negatively impact next fiscal year, but would there be any response that you can take, in addition to passing on that to price? In terms of the sales mix, we don't believe that it would be impacting negatively from next fiscal year. In terms of the sales mix deterioration, China and Europe had underachieved the plan even though they have higher profitability. Aside from China, in Europe, the orders are coming in, but we were not able to ship. If we are able to ship, then the sales mix would be improved.
In terms of the U.S., overall, the ceramics ratio has gone up and fitting had come down, and that deteriorated the sales mix. As I said earlier, there was inventory adjustment on the channel side. If that's completed, we would be able to normalize that the way that we sell. For the U.S. market, e don't foresee that it will be deteriorated compared to this year, next year. In terms of Japan, in order to continue our supply, we had to buy the higher cost component, but that would not happen next fiscal year, so I don't think that it would negatively impact us next fiscal year. There are times when the sales mix is bad, when the sales mix is good, but regrettably, this time around it had hit us hard by worse sales mix.
To your second point, it is true that we have not been able to respond as quickly to the additional price increase. I don't want to say so much excuse, but we didn't expect that aluminum would become $4,000 and copper $10,000, and we did not expect this rapid of a yen depreciation. From January to February of next year, I think that we will be catching up our countermeasures. The reason why I say that is that aluminum was very high in price and also copper. March was the highest. We had bought it and hedged it, and we will complete the usage of all of that around January. We think that we can catch up around February and March.
For the yen depreciation, the situation is a bit complicated. Aluminum has been hit the hardest. As for aluminum, what was $4,000 had come down to around $2,200. On the other hand, we had hedged it at around $3,200. We still have that remaining in our inventory. In the yen calculation, when it's JPY 150 to $1 , it had not come down, and it would remain that way for quite some time. Up until January of next year, the situation would continue. For this portion, around April, we will be optimizing our price, and then. I think that we can catch up then.
If aluminum goes up even further, or copper goes up even further, well, considering the current China situation, I don't think that will happen. Conversely, if the price comes down, it is an opportunity for us to generate profit. The time lag doesn't always work in a bad way for us. How would the consumers react to the price increase, which has happened on multiple occasions? In the overseas markets, our products there has a lot of replacement demand, so there's not much impact to the new housing. In the inflation era, when the real estate prices go up, the new housing price will be going up as well. In the past, people were able to buy at a low cost.
Going forward, people would not be able to buy as much at low cost, so there may be decrease in the demand. We believe that in 2030, there would be 60 million existing houses. We have made us ready for that assumption. Now we have subsidies for renovation. In our housing business, 90% was new houses. Going forward, our renovation business would be going up, and the profitability is higher in the renovation business. I think it is the tailwind for us. As for renovation in the water-related product. Even though we have competitors like TOTO, we have to think about how we would be able to compete in this market.
It is true that we have to increase the price. I don't think that there was any manufacturer who did not increase their price. I think this was a game changer in the market. I have to select the words that I use, but with regards to our products relating to the price, the consumers do not have fixed image over prices. Now for new housing, I think that they have certain image about the price, but the price of the kitchen, price of the windows, I don't think that there are many consumers who have a fixed idea of how much price they should be. I don't think that demand will stop just because of the pricing. The increase in the price would be just a matter of the timing in the renovation area.
Of course it would be impacting the new housing. Relating to the sales situation in Europe and U.S., it is true that the new housing business will be hit hard with the economic deceleration. However, in Europe, we don't see much of a decline in the demand because renovation business is our central business in Europe. As for the U.S., there are adjustments on the channel side. This is very specific to us at LIXIL. At LIXIL, when the products arrived, the channels' inventory adjustment occurred and that had negatively impacted us. Would the channels be selling the products at lower price because of the worsening situation? That has not happened in the past.
However, in the U.S. there is inflation going on. I think that for the coming several years, the situation will be bad for buying real estate and building new houses for coming several years. Compared to three months ago, things have not recovered, but I don't think that we need to significantly change our strategy. As for the energy price increase, I don't think that would be too big of an impact. As for the overseas plants, the 50% renewable energy and 50% green energy is what we have been working on. For the 50% renewable energy, the price may increase. But the ratio it contributes to the cost is not so big for overseas markets.
In Japan, regarding aluminum, there would be a big impact. As for the sanitary ware, there would be impact to the cost. If we look just this year, it would not be billions of yen cost impact. The energy saving measures have already been taken, and we would be conducting price optimization next April again, and from October to March. The energy cost from April onwards. Comparing that, I don't believe that it is a given that energy price will increase after April. I believe that it would be peaking out this winter. That's the consensus around the world.
[Foreign language]
Let's go to the next question. The next question is from Okada-san from Goldman Sachs. There are two questions. In regards to your European and U.S. business, how did you perform in comparison to your competitors? Please inform us of current order intake situation. The second question, I understand that you have been undertaking structural reform, but for the LHT and LWT business, how much margin would have improved if we did not experience the yen depreciation on this occasion as well as the increase in component prices? We have most of the numbers already, and we'll ask Hirano-san to respond later on.
Generally speaking, there were essentially no one who performed well because I think everyone experienced quite tough situation, but there were some difference in regards to the focus of our operation. Where one focus their operation and is there the main business was fitting or sanitary ware, I think that also had and created different results. Roughly based on my memory for Europe, I think we performed better in comparison to competition in general. In the case of U.S., because we had more sanitary ware, maybe we had performed a little bit more poorly in comparison to the competition in general. In regards to the structural reform. This calculation is quite difficult.
If nothing had happened, and if we use that assumption and, Hirano-san, was it 8% for March next year? If everything had settled by March next year, then for March next year, 8% would be the number we should have been able to achieve. That number could have been achieved this year if it wasn't for the various factors. Even then, it's not the case that everything have improved. We are wanting to target a number better than this if nothing happens further on from here.
[Foreign language]
We would like to go to the next question by Mr. Nakagawa of Mizuho Securities. The inventory adjustment in the U.S. is expected to complete by the end of October. In the case that the consumer final demand stays weak, I believe that there would be more time required for recovery. How do you view the forecast for the final demand? That is a very difficult question. If we look at the assumptions, from January everything will be normalized. The inventory adjustment ending in October is what our suppliers are saying, what the parties that we know are saying. I think that it depends.
November and December will be the biggest shopping season, and I think people will be making the decisions after waiting and seeing what will happen. Everyone's consensus at this point is that the U.S. market will be better from January. The end user demand is expected to be better. That's the general view of the market. If it is not an end user, but our channel, the worst was from January to September, and that's because they had to work on their inventory adjustment themselves.
[Foreign language]
Next question is from Fukushima-san at Nomura Securities. We have two questions. The price increase from October is that as you have assumed at the start of the fiscal year? Do you need not increase the price increase more? The second question. I thought that the business in U.S. was mostly for renovation rather than for new house. The top line ended up being negative even on a local currency basis. Why was this? I do assume that the amount of the secondhand houses in the market has decreased. Would the situation of poor sales for you also continue into the future? In regards to the pricing increase in October, we can only increase at the level that we had assumed at the start of the year. Because for Japan, we have the pricing list that is quite precise that we provide in advance, so we can't change that in hindsight. We can't actually change the level of increase.
What took us one year in the past, we are now able to do this in six months, which is quite a significant, I suppose, advancement. When it comes to April next year, we will reflect these increased prices. Between October and March, if something special occurs, can we reflect that in the price increase in April? No, that would not be the case. There was a question about when we can catch up. Now if many things are continue to occur, then the catch up would also be delayed continuously. Right now, the commodity prices are starting to come down.
Unless the yen ends up being JPY 170 or JPY 200 per $1, then of course we'll be behind at the catching up to the cost increase. You know, the probability of such a level would be quite low. JPY 160 per $1 that we are looking at right now, I think is highly probable in terms of likelihood. At the same time, there are not many factors or commodity prices increasing all of a sudden. Only thing could be the electricity prices increasing that could push up the increase for the aluminum. From the demand side, not all that likely. The second question. Our users have entered into inventory adjustment.
As a consequence, particularly for sanitary ware. They took a lot, because they said they're going to sell, but they ended up going into inventory adjustments. Inventories were essentially returned. That's the situation. It's not the case that end users' demand has changed all that significantly. In September, our channels, it's not only our channels, but I think all the channels are probably saw deterioration all of a sudden. The amount of the product in the distribution has slowed down. These are poor situational sales. Will it continue? Well, as I have explained in my response to previous question, I don't think no one has the right answer at this point in time. Inclusive of our competitors, I think everyone is kind of thinking the situation to pick up from around January.
[Foreign language]
From SMBC Nikko, Mr. Kawashima has question. In Japan, U.S. and Europe, you have high share in each region, so you cannot avoid deterioration in the performance as the other competitors, impacted negatively by external environment. Is there anything, any initiatives relating to top-line growth strategy or cost reduction or productivity improvement initiatives that's going well?
Well, it may be hard to see, but relating to sash. In the past year, our sales share has not changed so much, but 40, around 40%, but our profit share is around 80%. Us, YKK AP, Sankyo Tateyama, Fujisash are the players, the four major players of sash. If we look at the profit share, we have gone up to 80%. Even under the difficult environment, we have been able to show good performance. We have been working on platform production. We have been able to do the price strategy before any other players worked on it. That is paying off. Related to water-related products, including toilets, even though it is struggling under situations like COVID, we have been able to keep on supplying.
The costs have deteriorated, but we have been able to supply the products, and that led to increase in the revenue. More tactically, what's most important for us is to provide products which fits the needs of the environment. What's most important globally is environmental issues. Having been able to provide environmentally friendly products in a timely manner has done us well, and I think it would be important in the future. I promised four things when I came back here. Focus on core business, and we have sold some, divested some of the businesses due to that. What's important to us is the retail. We had reduced investment in the retail businesses, etc., and now we are able to sell to retailers nationwide. That was a positive that came out from that divestment.
Yamada Denki and other home centers, you see more LIXIL products than the other brands' products. The second commitment that I had made related to domestic business was to become a cash generator rather than cash eater. It was not so visible because the costs have gone up. But we are now able to have higher share in terms of profitability. In the housing business, I think that you're seeing a result of that. Relating to overseas portfolio, what we are working on aggressively now is to improve the quality of the profit. In the United States, we are struggling because of higher portion of sanitary ware and also the struggling Chinese economy. But I think that we believe that we have been improving the quality of our business. Lastly, innovation.
Our keyword is innovation. From the perspective of environmental innovation, we have products like revia and KINUAMI, SHIN-ON, Body Hug Shower. We have been able to create innovative products. Also, renovation products for windows. The renovation products for outer walls. What we are providing in the market is aligned with the environmentally friendly policies that the governments have around the world. How many questions do we have? We have four questions from three people, so we have five minutes left.
[Foreign language]
Next, question is from Mochizuki-san from CLSA Securities. There are two questions we have received. First, is that the core earnings of Americas was in fact loss-making in the first half of year. From when do you expect to turn profitable? And please explain the measures you need to implement to achieve profitability here. The second question is when can we expect ROIC 5% to be achieved? Next fiscal year? It seems that they would be difficult for you to achieve 5%, but what do you think?
In regards to your first question, we had special factors and we had to actually make extra effort to supply products. In other words, 20 x the freight we had to pay to actually ship the product. What we shipped, the home centers have said that they're going to adjust the inventory level, and so they canceled the orders. It was quite a special factor that we had to go through. Once we go through the special situation, we should be able to turn profit boom. In the case of U.S., our sanitary ware has a low profitability, and that is a fact. Now in fitting business, we need to increase that, the business that we are achieving large success in other regions.
What we need in this regard, there are some product that didn't really match the market like the water pressure. This is a learning from us and we are making changes. Rather than turning to profit, it's just that we have kind of dipped into the loss for just a very short time, so please forgive us. For ROIC, if other conditions prevail, then we should be able to achieve 5% next fiscal year as well.
[Foreign language]
Mitsubishi UFJ. Next is Mitsubishi UFJ Morgan Stanley Securities, Mr. Yagi's question. For LWT International, the core earnings was revised downward by JPY 22.5 billion. Could you give us the breakdown by country? Could you give me why this has happened? This is what we had not disclosed, so I would like to refrain from talking in details about that. The biggest reason is the stagnation in U.S. and China.
[Foreign language]
And t he last question. Our last question is from Fukushima, it's an additional question from Nomura Securities. The revenue in the EMENA region, we have been informed previously that the negative sum in Europe was offset by the positive sum in the Middle East. How is the situation right now? Do we need to think about the risk of sales coming down in Europe? Well, essentially the negative from the Russia-Ukraine were made up by the strong performance in the Middle East. That was the explanation in that regard. But in Europe, we are not seeing the supply chain issues no longer, so we are seeing improvement. I'm going to explain a little bit in this regard.
The biggest struggle for us in Europe on this occasion was the delay in the components being shipped from China mainly due to the freight. The biggest factor was that the distribution center that we had in Russia we were no longer able to use that because of the Russian invasion into Ukraine. The Russian distribution center covered Eastern Europe, so we had to use the German distribution center to ship to Eastern Europe. The German distribution center was the mother distribution center to send to the regional distribution centers. It did not have operation that enable the supply for the smaller operators in Eastern Europe, but they had to do both. We were delayed in terms of shipment.
That was what happened. To counter that, we have launched a new distribution center. We have been successfully able to start the distribution center. From October, the risk of the sales being reduced due to the distribution being delayed, we have no longer that issue. European sales is quite strong in terms of order taking, so we're not considering further risk here.
[Foreign language]
Thank you very much for the many questions that you have given us. That will be all for our Q&A session. This would conclude the briefing for fiscal year ending March 2023 first half financial results. Please continue to support LIXIL Corporation. Thank you.