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It is time for us to start the briefing of LIXIL Corporation on the Q3 results for the fiscal year ending March 31st, 2025. This briefing is streamed online. Thank you for being here today. First, we would like to introduce the presenters: Kinya Seto, Director, Representative Executive Officer, and President and CEO; Mariko Fujita, Executive Officer, Executive Vice President, and CFO; Aya Kawai, Leader of the Investor Relations Office. I will be serving as the MC from IR Office. My name is Kayo Setoguchi. The materials for this briefing are uploaded on the IR site of LIXIL Corporation. I would like to explain to you about the proceedings for today. First, President Seto will be providing the summary of the Q3 results that will be followed by the Q&A session.
In terms of the format of asking the question, starting from this briefing, rather than having you putting in the questions in the question box, we will have you ask the questions directly. We will be giving you the detailed explanation later on. We expect to conclude at 6:00 P.M. Now, Mr. Seto will be providing you the information about the Q3 results. I would like to start the explanation of the Q3 results for the fiscal year ending March 31st, 2025. I would like to start from the conclusion. Both domestic and overseas markets have seen an increase in both revenue and profit year on year. The domestic market has seen stagnating new housing starts, but we have been able to see the steady growth in the renovation demand. Compared to four years ago, the renovation ratio was 37%. Four years ago is now 47%.
We have sash products, door products, and other interior products, which were mostly for the new housing, and we only had 30% in the renovation business. However, with the various efforts that we have paid, we have been able to increase the renovation ratio, and that had led to a more stable growth for us. As for the overseas market, the situation was very difficult. In Europe, in the United States, in Asia, the situation was very bad, but in the Middle East and India, the situation was better. In Europe, we had seen the positive impact from the structural reform, and also we had seen an increase in our share in the revenue, and this improvement was good news for us. In the U.S., we struggled more than the market did.
There was stagnating demand, but in December, there was unauthorized security access from a third party on December 20th and 21st, and as a result of that, the server had been encrypted, and we had to recover from that on our own, and because of that, it impacted significantly on our shipment. We have now recovered, but in December, we had been negatively impacted by that, and because of that, in the U.S., there were negatives in both revenue and profit. In China, the market was bad, but it was supplemented by the Near East and India.
There was an increase in the tax expenses, but we had seen an improvement in the Q3, and the operating cash flow and EBITDA had continuously improved, and free cash flow had improved by JPY 46.1 billion year on year, and the free cash flow was close to JPY 100 billion. So in terms of the revenue, we have increased, but it was almost flat, excluding the forex. LWT for domestic and international markets had done well in the Q3, JPY 4.3 billion, and JPY 12.2 billion plus in the nine months to the Q3. As for LHT, there were sluggish new housing starts, and LHT is dependent on the new housing starts.
Because of that, from April to September, it struggled, but we have seen signs of improvement in October, and we had been able to suppress the down by JPY 100 million from October to December, and EBITDA was JPY 93.7 billion. It was pretty good, and JPY 4.3 billion in profit. There was an increase in the tax expenses, so because of that, compared to last year, it was down. The consolidated business results, the revenue and gross profit are improving. What was 32.3% in the gross profit had been 33.1%, and if we look just at the Q3, it was 33.9%, and as for EBITDA, it was JPY 87 billion last year, and it's now JPY 93.7 billion, and if we look at the three months, and in the Q3, it was JPY 41.4 billion, so LWT, compared to that, and LHT had been struggling.
So as a consequence, we did struggle somewhat, but October to December, we have been able to actually regain the lost ground. In terms of interest-bearing debt, because of FX, we saw this increase somewhat. As a consequence, equity ratio came to 33.2%. As for cash flow, particularly the free cash flow, we did improve by JPY 46.1 billion on year, so I think we have been able to make steady progress in this regard. So that was quite brief, but that is our explanation. So inclusive of any further details, we want to cover that in responding to your questions. So thank you. Thank you. So from here, we'd like to take your questions. And as I've already explained, starting this briefing session, we have changed from receiving questions in text to receiving questions directly using the microphone and the camera function of Zoom.
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それではまず。 The first question from Goldman Sachs. Mr. Okada, your question, please. If you see the confirmation screen, please click on "Participate as panelist." Please put your audio on, and if you would like to put your video on, please do so. Okada-san, please.
I have two questions. You talked about the corporate tax. On a year-on-year basis, it was 41%, and this year, this is 78%, quite high. I would like to know the background, and also I would like to know the tax rate as of the end of this fiscal year and the assumptions. I would like to take that question.
On that point, last year, as of the end of March, in the U.S. corporation, there were some deferred tax assets which had been reversed. Because of that, we are not able to take the tax effect, and that situation has continued. Because of that, the tax expenses have increased. So this is an accounting treatment reason. The tax assets have not been accumulated, so this will continue. That's what we expect. That will be all for my response.
As of the end of the fiscal year, what will be your assumption for the tax rate?
We believe that it would be close to what we see now. So it depends on the U.S. business directionality. There may be some differences which may be occurring, but if the current situation continues, the level will be similar to what we currently see. So when the U.S. business had been in the red, we were not able to use the tax effect accounting. So what would be the key is whether the U.S. business will turn into the black. So if the U.S. market becomes profitable, the tax rate will come down. Right.
There are double impacts. So when we are profitable, the amount that becomes profitable, we don't need to pay tax for that, so that will be a positive. And if we are able to continuously be profitable, the tax effect accounting will come back, and the amount that was negative for the last Q4 will be positive for us.
My second question. The U.S. and the E.U. are seeing a positive impact from the structural reform. So how did it affect the margin improvement in the Q3? And the impact of the structural reform would have been more significant in the coming fiscal year.
So putting the numbers aside, in terms of the impact from the structural reform, in terms of Europe, we have seen a positive impact, but in the U.S., we are still in the process of working on the structural reform full scale. In the Q4, we would like to complete the structural reform, and once that's done, we would be able to see a positive impact in the next fiscal year. In Europe, this year U.S., more impact next year. In terms of the numbers, I would like to make supplementary comments.
This is Kawai. If you look at page four at the bottom, you see SG&A breakdown, and excluding the forex, it's a negative JPY 4.7 billion for the overseas market. So there are some outsourcing costs which have been reduced, but the majority of that is labor cost. And we are seeing some impact from the effort that we have been making for reduction since last year.
In companies around the world, the labor cost is going up, and in SG&A, there has been an increase. So SG&A will continue to increase when the labor cost is going up. So it's plus JPY 8 billion for us. So it is not that the SG&A is going up, but rather because of this change in the situation, this is increasing. So in overseas, it's negative JPY 4.7 billion. The inflation is higher in the international market. So we have been able to reduce the SG&A from the status quo.
Thank you very much, Okada-san. のご質問。
So the next question from SMBC Nikko Securities, Kawashima-san, please ask your question. So once the confirmation box pops up, please click "Participate as a panelist."
This is Kawashima from Nikko Securities. Thank you. Thank you. I have two questions. First question is regarding LHT for Japan, their profitability. For the Q3, the profit came down, but the window renovation did contribute, but others were quite tough. So going forward, the subsidies for window renovation will continue next fiscal year, but that is probably not going to continue into the future. But the profitability of buildings should increase exterior. It may be difficult given the current housing environment. So price increase and building return, what you can expect in the future, seems to be quite difficult. So if you look towards the future, what are some of the initiatives that you may be able to implement to make improvement? That's my first question.
First of all, in regards to subsidy, JPY 135 billion is going to be executed this year as well. A decision has been made on that. And so based on the Cabinet decision forecast, the first three years, it was a focused investment towards window and front by 2030. Further, the effort was those that will provide improved heat insulation. So it's kind of a comprehensive effort. So until 2030, some kind of subsidy would be provided for those products that will improve heat insulation. If the cabinet decision is, I suppose, observed as it is, we can expect some benefit. But when it comes to window, it's still not widely known as yet. Based on our research, only around 20% of people do not know that the window can be renovated. So in that regard, we feel that we can expand the window renovation more.
As for new houses, in the last three years, we saw a rapid decline in the self-owned housing starts. And this was more rapid than the decrease in the population. The biggest reason for this is that after COVID, the construction material cost increased, and as a result, the younger people, so it became difficult to build cheaper houses that the younger families tended to buy. And that, I suppose, temporary effect has kind of settled down. And when it comes to LHT, the decrease in the new housing start did actually impact directly. But from our perspective, we don't expect that to continue at the same rate. We expect that the rate of decline will be more gradual until 2030. And so we are generating the greater profit now for building in terms of demand and supply. The supply is less than the demand.
This situation has continued for quite some time, and so from our perspective, we are able to actually choose what the orders to select and PremiAL, which is a material with less CO2 emission, and the demand for that has increased, which has enabled us to differentiate more. On the other hand, where we have not been able to perform as well is exterior and interior. For exterior, to begin with, in terms of profitability for us, it's about half of the LHT for a certain period, and so when the new housing starts come down, when the demand for exterior increased, we have not been able to launch new products. And that has kind of led to us struggling in this area, but when it comes to interior, interior is a renovation product in essence too.
But for us, for new housing, so in comparison to competitors, we have a higher ratio for the new housing start. And so by coming up with the product, so the renovation, so the wooden renovation by players, we are actually selling to them. And so if we're able to increase our renovation ratio, we should be able to enjoy better benefit renovation ratio. This was 30% four years ago. Now, the renovation account for 40% of revenue, this has helped us to make improvement in terms of profitability.
And also, when we think from a longer-term perspective, so Asia and India would be market where we intend to increase and PremiAL or revial, we want to also increase the revenue from these new products. And by doing this, LHT should start to make improvements. Last year, for the very first time, we used the subsidy, which has helped us improve all of a sudden. But from this fiscal onwards, we will need and we should be able to make effort to make gradual improvements.
Thank you. And the second question, LWT International for Q3 profit, I think was JPY 5.2 billion. And this was slightly lesser than the Q3. And you explained about the U.S., and I think that may have impacted. But in the actual terms, is it increasing vis-à-vis the same quarter last year? Or even if you exclude the special reasons, is it still loss-making in the U.S.? Could you elucidate a little bit more regarding the situation in the U.S.? Well, the impact on this occasion, the impact from December, the direct impact was probably around $16 million. So it doesn't explain everything.
So the U.S. itself is not all that good for the October to December quarter for the U.S. And for us, putting aside the structural issue, but then there was election and the retail-related demand came down as a result. And I think that also was a factor. And in regards to the U.S., we probably need to take a more broader-based view as we've been saying from the past. International business has weakness, which is the U.S. The U.S. has scale, but we have not been able to generate as much profit. And we've been doing many things. But we identified two weaknesses. First is that for us, so the ceramic toilet business for retail, which is very competitive, and this has high ratio there. And the second is the bathtub business. Bathtub business is generating much losses right now as a business.
Now, bathtub business, our factory is in Ohio and Mexico, only two locations. As a consequence, and as you know, the bathtub is not a product where we are able to differentiate in terms of pricing, but it does require large transportation costs. So American Bath Group or Kohler, competitors, we feel that we are at a disadvantage, probably the most disadvantaged in this business vis-à-vis others. So we need to work on the structural reform in regards to these two businesses. And I'm unable to talk about how we're going to implement structural reform for two businesses at this point in time, but we want to complete that effort before the end of this fiscal year. And these two businesses are probably most sensitive to the economic condition. And we tend to drop more than the fall of U.S. overall.
Depending on the size, so we are at a kind of break-even level of our margin right now, which tends to cause us to drop into profitability. So we need to make improvement. And if so if we are able to get back to 2019 level, but at the moment, we end up with the structural loss. And this is a situation we want to rectify before the end of the fiscal year. Europe, while we are making steady improvements in the case of Europe, I think as a market, we do have a special market in Spain. So except for that, the situation is not that good, but we have been able to perform well. I think it will be 2026 when the European market will start to make improvement again. But for us, we are starting to see increases.
Despite a weak market, we have been able to achieve growth. That means that we can expect better things going forward. China, the environment is not good. And between second and Q3, we may be able to give you some information in terms of the differences. But in terms of margin, we need to have the U.S. improve. And that is going to be done this fiscal year.
Can we show the Q2 and Q3 ?
So it's quite a detailed information. So we'll try to communicate that at a later date.
Thank you.
川島様、ありがとうございました。 Thank you very much, Kawashima-san. The next question from CLSA Securities. Mochizuki-san, your question, please. Please click on "Participate as Panelist" on the confirmation screen. Please put your audio on. And if you would like to put your video on, please do that too. Mochizuki-san, please.
This is Mochizuki from CLSA. I thank you for taking my question. My first question is a very simple one. In the Q3 performance, the Core Earnings is in line with the plan, and in terms of the operating profit, it is a little less than the annual target, so I was wondering why you're not revising the expectations. Could you talk about why you're not revising your target, and I think if there is any concern, it would be more about the quarterly profit, and I was wondering where the risk lies in terms of the profit.
As we have been saying, we have been working on the U.S. structural reform, and we don't know at this point in time what kind of impact it will be coming from the structural reform in the U.S., so that's uncertainty, and in the Q4 , it's not a good quarter for this industry. So usually, it is 20% worse than the Q3 . And last year, in the Q4, there was a significant drop in the new housing starts. So we don't have much visibility to the Q4. And we don't know what will come about in the U.S. market at this point in time. So there were some incidents.
But as of February 1st, we don't know what President Trump would say. So there are a lot of uncertain factors for the U.S. market. So the Q4 is very difficult to foresee. And last but not least, another wildcard for Japan is the change in the law for the construction building standards law. And if we look at the trends of the past several months, so new housing starts, it usually deteriorates first in detached housing, then apartment, and followed by the rental housing.
But now there is an improvement in the detached housing. And we are seeing a deterioration in the apartment complexes for sales. And there are different opinions for what's happening depending on the housing manufacturers. And the reason why the detached housing has been deteriorating is because of the sudden increase in the past three years of the construction materials. People who have the property in real estate, they have delayed building a house. And the power builders, they have been able to get the overall discount by building a lot of houses, but they are not able to do that. And they are not able to buy even the smaller real estate. And maybe people cannot wait anymore. And that's why the new housing starts for the detached housing have picked up.
In terms of the condominium for sales, in terms of the supply and demand, the people who are constructing are not able to construct. The demand is there, but supply is not catching up. How it will go about is very difficult to foresee. I talked about this in the previous subsidy question, but how the construction administration in Japan will go in the future is we don't know yet. The situation is very fluid. We are very conservative when we look at this. When we look just at the big picture, the new housing starts will continue to decline. Maybe how people will be using their money for housing may be different. Currently, people are using more for the construction materials. In renovation, how people will be using money will be different. It may be beneficial for our company.
We have to think about how we would be able to capture that kind of demand when that demand comes. The situation is very fluid industry by industry. There are many people who are pessimistic about the Japanese market. There is a possibility that it may be picking up. We may be able to reproduce what had happened in Germany in the 1990s. In terms of the international market, it's about when Europe will be picking up. We believe that in 2026, we believe that it will make a complete comeback.
There will be a pent-up demand. Also, there are a lot of cases where people may need to renovate. The U.S. market is weak. Europe may pick up. China doesn't have much exposure to the market. We may do better. But because we are exposed to the market in the US, we will be affected heavily by the market. So we need to change how we work structurally.
My second question. In GROHE, if we look at this quarter, the Core Earnings ratio is 11%. And the business environment is picking up. But your business, you said, is not doing so well. But I think under that circumstances, 11% in Core Earnings seems good. And is my understanding correct? In the coming six months, or if we look into the next fiscal year, the GROHE Core Earnings ratio, can it be kept at double digits, or would you aim for higher figures? So what will be your business strategy? How do you see your Core Earnings ratio for GROHE? We believe that margin can be grown for GROHE as the volume grows.
For GROHE, we have to think about whether we would be able to catch up with the change in the demand. For GROHE, the good news is that the Middle East and Near East are increasing, and we now have almost monopolized the market in Saudi Arabia. So there are a lot of opinions about how the Saudi Arabian market will go about, but the younger generation in population, in terms of the ratio, is high in Saudi Arabia. So we believe that there will be a positive impact from that in fiscal year 2026. When Europe recovers, we have high expectations for the growth of GROHE.
Thank you very much.
Mochizuki-sama. Thank you very much, Mochizuki-san. Next question from Morgan Stanley MUFG Securities, Yagi-san. Please start your question. Once the confirmation box pops up, please press "Participate as Panelist." Next, please unmute your microphone. Yes, please start.
Thank you for the explanation. This is Yagi from Morgan Stanley MUFG Securities. I have two questions. The first question does relate to Mochizuki-san's question regarding GROHE. So it's kind of a continuous question. In the Q3, for the Core Earnings, it was very good. But in the Q3, there was a benefit for a new product and also the restart of procurement by the customers. And I think those tended to have contributed. But that trend has continued in the Q3 or not.
That was what I wanted to confirm. And can we expect the strong data GROHE margin to be maintained from Q4 onwards? I think you said you can. But the market still remains somewhat weak based on the comment so far. So the impact of new product, or do we not need to be mindful of the slowdown? Even with those, can we expect the strong result going forward? So if you could explain the situation in regards to GROHE 2025 too.
We do have some new product that we have high expectations on. Well, rather than a new product, but a long seller product, we are kind of revamping some of those products. And there is high expectation of the market in that regard. And so ISH is going to be held in Frankfurt in March. And we are intending to do a lot of promotion by spending some money. That is because we are going to be able to launch new products. So for over a long term, we have a lot of the bright signs or bright materials for GROHE. But the biggest challenge there, we want to perform a little bit better in the U.S.
We have not been able to do so as yet, and so if we're able to improve in the U.S., there's nothing bad about GROHE, and we don't need to worry about a slowdown in the Q4 based on the current demand situation. Well, Q4 itself is not a strong quarter for us, particularly in Japan, and even for GROHE, well, if we just look at GROHE alone, it's not bad. But for LIXIL overall, Q4 is not that strong for us, and inclusive of ISH, we are going to be spending some money in the Q4 as well, so given the momentum of GROHE, we shouldn't see it slow down, but the quarter is where we tend to struggle because we do spend and also based on the traditional trend. For the American Standard, I understand that you're working on various structural reforms right now.
The benefit of that is expected to come next fiscal year. Then from the Q3 next year, can we expect profit? If you could explain when we will return to profitability again. If you could explain to the extent possible as you're working on various things right now. Now I may have to explain the details of the structural reform. So I want to refrain from that. What we are doing right now is to achieve quite a significant benefit. The structural reform itself, it's going to be in 2026 when we'll see the significant benefit. Of course, the structural reform initiatives will be completed. When we do this, then there are after the fact, the matters, because there are expenses that is required. But there is a bit of time lag. But we should be able to achieve profit next fiscal year. Thank you.
Yagi-sama. Thank you, Yagi-san. The next question from Mitsui Sumitomo Trust Asset Management, Takegawa-san, please. When the confirmation box comes up, please press on the "Participate as Panelist" button. Takegawa-san, please press on "Participate as Panelist." Thank you. And please put your audio on. And if you would like, please put the video on too.
This is Takegawa. Thank you for taking my question. There are several questions. My first question, Mochizuki-san asked about this already, so there's an overlap. But your full year forecast, the core earnings at 35 billion, the operating profit 25 billion, and the difference is 10 billion yen. And up to Q3, it's 2.7 billion in the difference between the two. In the Q4, how would you be filling in this gap? 10 billion JPY is the difference between those two figures according to your forecast. But how would you be realizing that? The structural reform cost is usually included in this area. So how would you be able to get the difference to 10 billion JPY? So if you are using the cost as planned, that'll be fine.
But if there are other costs that you would be using and maybe the negative amount increase, I would like to get the image of how I should think about this. That's a very difficult question to answer. The structural reform, if it goes as planned, the number will look like our forecast. But in the case of structural reform, we need to work with various stakeholders. We have to think about the timing. There are costs that must be used. And many things are intertwined in a very complex manner. So if that's the case towards next fiscal year, this amount may be used as cost. Is my understanding correct?
So there is a possibility that we may be using more than the regular years in the Q4. And if we are able to use up the cost, then the amount that we will be spending from next fiscal year on will be smaller. We are working on multiple projects in the structural reform initiative.
So how much left over that there will be?
And there will be things that we need to consider in terms of the combination of the initiatives that we will be doing. There are negatives, the positives. So it's very hard to say. So in terms of the Core Earnings, we are not overly optimistic. When there are structural reforms, it would impact the Core Earnings. For example, inventory is one example. On the other hand, as I have mentioned earlier, in the Q4, there will be change in the Japanese system, and also, there is a Trump factor, so it's very difficult to forecast what is going to exactly happen, but this fiscal year, our focus is structural reform. That's something I can say concretely.
My second question, it may be another difficult to answer question. Mexico and Canada tariff issue, the impact of the tariffs. How do you view this? So tomorrow, there will be an announcement with regards to that. Is there something that you would be doing to counter it?
So according to the area, I hear that there is a possibility that there are some regions which would not be impacted by the tariff, so you may not be impacted. We don't know yet.
So if you could talk in what-if terms, what would be the impact from the tariffs?
It is a very easy-to-understand question, but it's a very difficult-to-answer question. The simple answer is that we don't know. But I would like to break it down. What we are selling in North America are toilets, bathtubs, and showering products and faucets. The biggest revenue is coming from toilets, which are primarily manufactured in Mexico. And our competitors are also manufacturing the toilets in Mexico. Our competitors include Kohler and Toto. And they have plants in America. But they are primarily manufacturing it in Mexico. It will be difficult for any of the players to move their plants elsewhere outside of Mexico, even considering a 25% tariff. How long this situation will continue will be a determining factor. Mexico is the cheapest place to manufacture it.
So it depends on how long the situation will endure, whether it will be a decade or just two or three years. So the three companies I mentioned have the biggest share. And all of the three players are manufacturing it in-house. If we are buying it from other players, we would be able to change it more easily. And we would be able to bring it back to Mexico easily. But when we are manufacturing it in-house, the degree of freedom is not so big. The options that all of the players have are similar, but we don't know. We don't know about the competition. And also, the situation depends on what the competitors will do. In terms of the bathtub, we are manufacturing it in the US, so there is not much impact.
In terms of the faucet and showering products, 30%-40% is made in Mexico. And the other is coming from Asia. Our competitors are mostly buying it from Asia. Frankly speaking, at this point in time, there would not be that big of an impact that would force us to shift the manufacturing site.
But you're monitoring the situation, right?
That's correct. In the shorter term, for faucet and showering products, the competitors are outsourcing it. So I think that there would be a lot of different movements depending on the company. But toilets are mostly made in-house. So in the short term, they would not be able to move it around so easily. So it depends on what the Trump policy will be in the longer term.
My last question, I would like to ask about the dividend.
So you have had it remained. And that's very grateful from the perspective of the shareholders. I understand that there's not much impact on the cash flow basis. But if we look at it from a different perspective, even if you provide return to the shareholders, the share price is not going up. That's what we see in the recent years. So the amount that you would be cashing out to the outside, maybe there are ways to use it for improvement in the balance sheet or to improve your credit rating. The cash flow allocation could be reviewed at this point in time.
What is your take on that?
When we look back in our history, TOSTEM, GROHE, American Standard, INAX, what we have been doing is that we have been conducting capital expenditure more than other players. So because of that, we are less flexible. So we needed to conduct selection and concentration. So Masco and Fortune Brands, they are buying from outside rather than manufacturing themselves. So when the economy goes bad, we are weaker. So the other players would be able to stop buying from outside when the demand comes down because they are procuring from outside.
But for us, we are not able to make that kind of adjustment because we are manufacturing in-house. So in terms of the capital expenditure, we are reducing in the areas where the future outlook is not so good. If we continue the status quo, we will be repeating the same mistakes again. So we need to be smarter. So we have to think about how we allocate our resources. So I am not able to say where we will be concentrating our investment. But what we will be conducting as investment is areas where that would add value.
We have been continuously working on that. But we are conducting investment where it adds value and decreasing where there is not much value added. And what I want the stakeholders to understand is that the new products based on the new technologies, we have the biggest number of launches in the industry. So our capability for innovation is growing. And I think that we have been able to do well in investment in the innovations. For example, revia, PremiAL or plastic regeneration technology, Revia or Kinuami. Those products are very innovative. Green Tap, the water filtering products. These are LIXIL unique products. So we had been lagging behind Toto, but we have been able to catch up more. And the reason behind that is because we have been able to launch many new products which were innovative.
You may think that we are divesting more than we are investing, but we are significantly investing in innovation. We are getting more design awards than the others and twice more than the second place player. For the first time in Japan and the industry, we have gotten the Red Dot Best of the Best. In that sense, we are investing very well in intangible assets. In terms of the CapEx, where we allocate our resources, I would not be able to elaborate on this, but we are working on it too.
We would not be investing where it is not growing. We are not thinking about going into a new industry. In that sense, what I want to say is that what you are doing well, you're doing a good job. From the perspective of LIXIL's DNA, you have been generating innovations in the housing products. I have high expectations for you with that regards. You have limited monetary resources. What you have been doing is that you have been having a payout ratio of 5% or so. I think that you should be focusing on the balancing control.
You may be reviewing how you use your monetary resources to make your structure better. From the surface, I think that the payout ratio is quite high, as you have said. When we are able to improve the U.S. market and when the EBITDA starts to improve, then we should not be trying to increase the dividend. Up until that time point, I think that we have the responsibility to give return to the shareholders. So I think that the return to the shareholder competition will change going forward. So please think about that. And I hope to hear from you in the future. So thank you for your opinion.
Thank you very much, Takegawa-san. We are nearing the end of the schedule. So next question will be the last question. Fukushima-san from Nomura Securities. Once the confirmation box comes up, please click participate as a panelist. Next, please switch on your audio. Please go ahead.
This is Fukushima from Nomura Securities. So I'd like to ask two questions. First question, so you are working on rationalization or structural reform in U.S. You're now in the final stages of that. And I understand that you can't talk about the details at this point in time. But in the case of U.S., the market there, the interest rate may remain high.
And there are Trump-related issues as well. And we all had the profitability level issues. So do we not think about the risk of having to take impairment for goodwill and indeed a structural reform for the Q4? You may not be able to speak about this, but to the extent possible, the goodwill. You have been saying that there is no risk of having to take impairment or goodwill in the past. But changes in the interest rate, you have the Trump-related tariff. And so if there is anything thought upon this,
so one question at a time. So please ask your second question after I give you a response. So allow me to respond to this. The impairment in U.S. that you have asked about for now, and we have been speaking with the relevant institutions. And at the moment, there are no signs of impairment. That's the conclusion that we have reached, and currently, we are above the book value of the goodwill on books, so at this point in time, we don't expect there to be a need for us to take impairment, and that is the conclusion we have received.
The discount rate has been coming down, and so in that regard, when thinking about impairment, we are not too worried, but as was asked at the start, so we had to reverse the deferred tax asset, but it's not a DTA. So for a company, the U.S. business has not been generating cash, but on that part, we have been assessed at least in the recent times, and of course, the goodwill, you need to look at the cash flow over a longer period, but by DTA, you need to look at it in the short term.
Over a long term, it may be good, but in the short term, it may be difficult. That is a view probably that has been adopted, but in that regard, the structural reform that we are working on. This is something that we need to do irrespective of it being a tough thing. From accounting works, so you're not in a state of having to take impairment. But depending on the situation, you may yourself. I don't know whether it's going to be the write-down, but there could potentially be losses associated with a rationalization effort. But if you were to do that, whether it be impairment or a write-down or a long-term risk, these will be reduced.
Is that the kind of understanding?
Well, I am not able to talk about the details of the structural reform. You've kind of touched upon that, so I can't explain that. Over a long term, the result of the structural reform that we are working on, the company will be in a better position so that we gain the DTA linking to the tax cost being reduced and long-term impairment loss. The impairment loss risk will be reduced going forward. That is the fundamental understanding that you are right on.
The second question is again to do with rationalization. The situation in China is quite tough right now. Here, will you do some kind of rationalization effort there? Do you not need to do that? You talked about Europe and U.S. thus far. In regards to China, is there a measure to regain profitability there?
China, rather than structural reform per se, but reducing headcount to reduce costs, so shutting down non-factories, we've been doing that steadily. We did this last year. And we'll be doing many things going forward. But the scale is small to begin with. So it's not the case that we'll fall into a disastrous situation. And the revenue level to begin with is what, 3% or 4% is the overall level. But at the same time, the China market is an interesting market. And so sometimes products are used in such a way that no one really thought about, or sometimes the kind of product that you didn't expect to be able to sell end up selling. So R&D-based or marketing-based is where we can actually consider China as an innovative product. We may trial that in China first.
Whether it be Japan or Europe or US, our customers tend to be very conservative. When you actually launch a new product, they don't use it immediately. In the case of China, they tend to jump on the new product. It's an interesting market in that regard for shower toilet to sell it like the home appliance. This is a China unique way of selling and to provide maintenance for 20 years. When you think break, why don't you buy a new product? That's the kind of the market. We need to certainly look at this R&D or marketing. From those perspectives, we consider China to be a very important market. On the other hand, we're not in a situation of making a lot of profit based on the ordinary profit. We weren't in that kind of position, which was somewhat fortunate for us.
I understood. Thank you very much.
福島様、ありがとうございます。 Thank you very much, Fukushima-san. So there were some questions that we were not able to take because of the constraint in time. For the questions which could not be answered, please let the IR office know so that we would be able to respond to you on a later date. We would like to conclude the financial results briefing for the Q3 results for the fiscal year ending March 31st, 2025. We ask for your continued support for LIXIL Corporation. Thank you for your participation today.