Diverse by Design - MSCIcorpdocs.msci.com/Annual/ar_2013_169279.pdf · Plumbing Fixtures Business...

Diverse by DesignAnnual Report 2013Year Ended March 31, 2013

AnnualR

epo

rt2013

Offering an Array of Products and Services for Living Environments, Lifestyles, and Surroundings

LIXIL is a comprehensive living and housing solutions company that contributes to improving

people’s comfort and lifestyles with its superior products and services under a brand name that

combines the fi rst two letters—as well as the concepts—of Living and Life.

Metal Building Material Business

Plumbing Fixtures Business

Other Building Materials and Equipment Business

Distribution and Retail Business

Housing, Real Estate and Other Businesses

Wooden interior

furnishing materials

Window frames, wooden furnishing materials, interior

decorative materials, etc.

Other building

materials

External tiles for houses and buildings, internal

decorative tiles, siding, stone materials,

roofi ng materials, precut products, etc.

Interior fabrics Curtains, etc.

Other Solar power generation systems

Sanitary ware, bidet-equipped shower toilets, water faucets, wash-

stands, bathtubs, unit bathrooms, kitchen systems, washstand fi xtures,

washstand cabinet units, etc.

Housing window sashes, building sashes, store facades, sashes for

low-to-medium rise buildings, entrance doors, various types of shut-

ters, curtain walls, gates, carports, banisters, high railings, tide barriers,

smoke insulated screens, etc.

Home centers Household products, DIY products,

building materials, etc.

Comprehensive

building material stores

Building materials, tools, hardware, etc.

Housing solution

businesses

Developing homebuilding franchise chains,

construction on order, housing defect warranty liability

insurance services, structural materials (structures),

ground inspections and improvements, etc.

Real estate Land, buildings, real estate management services,

support for development of real estate franchises, etc.

Services for

the elderly business

Assisted living nursing homes for the elderly

LIXIL in a Snapshot

Principal Products and Services






Net Sales (Composition)

45.1%

25.8%

4.0%

12.2%

12.9%

Net Sales(¥ billion)

09 10 11 12 130

500

1,000

1,500

Operating income ratio

Note: Segment income before adjustment

Operating Income (Loss) /

Operating Income Ratio(¥ billion) (%)

09 10 11 12 13–5

0

20

40

60

0

2

4

6

Net Sales

¥1.4 trillion

01

Major Domestic and Overseas Brands of the LIXIL Group Approximate Market Shares in Japan*

Exteriors

No. 1(55%)

Building sashes

No. 1~2(40%)

Entrance doors

No. 1(55%)

Housing window sashes

No. 1(50%)

Unit bathrooms

No. 1(26%)

Sanitary ware

No. 2(40%)

Kitchen systems

No. 1(28%)

Washstand cabinet units

No. 1(38%)

Tiles

No. 1(74%)

Exterior wall

materials

No. 3(11%)

Wooden interior furnishing materials

No. 3~5 (5%)

Curtains

No. 1(9%)

Housing site ground inspections and analysis

No. 1(55%)

Introduced home centers to Japan

Established 36 years ago (Ranks 9th in market by sales)

* Industry market shares in JapanSources: Yano Research Institute, 2012 surveys; LIXIL Group estimates

02

Financial HighlightsLIXIL Group Corporation and Consolidated Subsidiaries

Sales Growth and Profi tability ImprovementNet sales in the fi scal year ended March 31,

2013, amounted to ¥1,436.4 billion, with

growth supported by overseas subsidiaries

acquired in the previous fi scal year contrib-

uting to full-year revenues. Operating

income rose to ¥50.5 billion despite a

decline in selling prices, boosted by cost

reduction efforts and a decline in SG&A

expenses as well as by the absence of the

temporary cost burdens imposed by the

consolidation of subsidiaries and the fl oods

in Thailand in the previous fi scal year.

Effi ciency ImprovementNet income increased to ¥21.3 billion after

the booking of insurance income related to

the fl oods in Thailand and an early retire-

ment related loss. Total assets were almost

the same as at the end of the previous fi scal

year, with noncurrent assets increasing and

current assets contracting. As a result of the

recovery in profi tability, ROE and ROA rose

to 3.9% and 1.4%, respectively.

LeverageInterest-bearing debt amounted to ¥424.0

billion because of borrowings and bond

issues for the purpose of capital investment

and repayment of corporate bonds. Net

assets rose due to increases in net income

and foreign currency translation adjust-

ments, resulting in the equity ratio improving

2.6 percentage points, to 38.3%.

Cash Flow and DividendsNet cash provided by operating activities

declined ¥5.5 billion from the previous fi scal

year because of the changes in provisions

for loss on disaster and retirement benefi ts.

Net cash used in investing activities, how-

ever, was held to ¥12.4 billion because of

a decline in operating assets and proceeds

from sales of businesses. As a result, free

cash fl ow amounted to ¥16.0 billion.

Dividends were the same as the previous

year at ¥40.00 per share.

09 10 11 12 130

600

1,200

1,800

1,436.4

09 10 11 12 130

20

40

60

0

2

4

650.5

3.5%

Net Sales

(¥ billion)

Operating Income /


09 10 11 12 13–10

0

10

20

30

–2

0

2

4

6

21.33.9%

09 10 11 12 13–600

0

600

1,200

1,800

–1

0

1

2

31,465.7

1.4%

Net Income (Loss) / ROE

(¥ billion) (%)

Total Assets / ROA

(¥ billion) (%)

09 10 11 12 13 0

20

40

60

80

100

0

100

200

300

400

500 424.0

75.6%

09 10 11 12 130

20

40

60

38.3%

Interest-Bearing Debt /

Debt-to-Equity Ratio*1

(¥ billion) (%)

Equity Ratio

(%)

09 10 11 12 13–120

0

15

30

45

16.0

09 10 11 12 13–30

0

30

60

90 73.42

Free Cash Flow*2

(¥ billion)

EPS

(¥)

Operating income Operating income ratio

Total assets ROA Net income (loss) ROE

Interest-bearing debt Debt-to-equity ratio

*1 Debt-to-equity ratio: Interest-bearing debt / Total equity.

*2 Free cash flow: Operating cash flows + Investing cash flows.

03

Contents

04 COVER STORY: A Look at the LIXIL Group’s Diversity

16 To Our Stakeholders

23 SPECIAL FEATURE 1

How Diversity Leads to Growth

24 Expansion of Global Business

28 Development of the Renovation Market

32 LIXIL Group’s Operations in Brief

34 Market Environment

36 Review of Operations

36 Metal Building Material Business

37 Plumbing Fixtures Business

38 Other Building Materials and Equipment Business

39 Distribution and Retail Business

40 Housing, Real Estate and Other Businesses

41 Corporate Governance

42 Message from the Chairman of the Board

44 Board of Directors

46 Status of Corporate Governance

50 Investor Relations

51 SPECIAL FEATURE 2

Turning Innovation into Opportunity

56 CSR Initiatives

58 CSR Categories, Tasks, Targets, and Results

60 Consolidated 11-Year Summary

62 Management’s Discussion and Analysis

66 Business Risks

68 Principal Group Companies

70 Number of Sales and Manufacturing Bases

71 History

72 Shareholder Information

73 Corporate Data

The brand name LIXIL is derived from the combination

of “LI” in two words that represent our business:

“LIVING” and “LIFE.”

Cautionary Statement with Respect to Forward-Looking Statements

Statements made in this annual report with respect to plans, strategies, and

future performance that are not historical facts are forward-looking statements.

LIXIL Group Corporation cautions that a number of factors could cause actual

results to differ materially from those discussed in the forward-looking statements.

04

COVER STORY: A Look at the LIXIL Gro

COVER STORY A Look at the LIXIL Group’s Diversity

05

u p’s Diversity

The LIXIL Group’s energy and creativity are generated by employees from various

backgrounds coming together to share and blend in their different sense of values.

Diversity is the source of the dynamism that drives the creation of a wide range of

LIXIL products and services and encourages innovation and growth.

06

What Makes the LIXIL Gro

One-stop shopping for all

homebuilding materials,

both interior and exterior

Store Staff

Naotaka Nakamori

Driving ambition to

challenge world markets

and generate synergies

IT (Permasteelisa Group CIO)

Marcello Cordioli

Products with top

market shares in each

of our business fi elds

Public Relations

Yoko Satake


07

u p Unique?

What Makes the LIXIL Group Unique?

We are a living and housing solutions company. In other words, our operations

encompass a wide array of products and services required for living environments

and lifestyles. By endeavoring to provide markets with value creation unique to

the LIXIL Group, we aim to become the global leader in our fi eld.

Technologies to create

a richness that combines

beauty and functionality

Marketing

Hitomi Ishikawa

Corporate power and

energy capable of merging

fi ve separate companies

at once

Exterior Development

Naoto Yoshida

Ability to conceptualize

ideal homes for people’s

living styles

Development, LIXIL Housing Institute

Yuko Ohtake

08

What Makes the LIXIL Group Unique?

A company that offers comprehensive living and housing solutions for living environments and lifestyles unparalleled in the world.Under our uniform LIXIL brand, we have assembled products and services to meet all housing-related

needs, from interior to exterior. In addition to the diversity of our product lines, our brand power is well

recognized in the market.

LIXIL Provides Comprehensive Solutions


3

11

2

1 4

12

7

8

10

9

6

5

09

11 Exteriors

By enabling uniform exterior design, from

gates to the fence and approach from the

carport, LIXIL’s products enhance the quality

of a home.

4 Super Wall Construction Method

LIXIL creates rooms that are comfortable

throughout the four seasons by using the

superior airtight and insulation features

and earthquake-resistant structure of this

construction method and incorporating

advanced heating and cooling and con-

trolled ventilation systems.

12 Interior Fabrics

LIXIL can provide total interior coordination

solutions, including windows, interior con-

struction materials, and interior fabrics.

6 Kitchen Systems

LIXIL has a full lineup of beautiful kitchen

systems that make it easy to cook and clean up.

7 Interior Furnishing Materials

Besides a rich selection of designs and colors,

LIXIL has a diverse lineup of interior furnishing

materials that take into account safety, environ-

mental, and ease-of-installation issues.

9 Windows

LIXIL offers a selection of window sashes

combining quality design with superior func-

tions, such as ease of opening and closing,

excellent visible light transmission, ease of

installation, and safety.

8 Exterior Wall Materials

LIXIL’s quality exterior ceramic tiles and

superior performance of sidings determine

the design and durability of a house.

10 Entrance Doors

LIXIL develops doors with high insulation prop-

erties as well as in a wide diversity of styles,

from traditional Japanese to modern design.

5 Roofing Materials

In addition to the basic functions of protecting

houses from natural elements and being aes-

thetically pleasing, LIXIL can also provide and

install highly durable solar panel roofi ng.

2 Washstand Cabinet Units

LIXIL offers a wide variation of product lines

to suit individual lifestyles, such as easy-to-

use washstand cabinet units with ample

shelf space.

3 Unit Bathrooms

By improving materials and constantly inno-

vating functions, LIXIL supports the creation

of clean and fresh spaces for comfort

and relaxation.

1 Sanitary Ware

We aim to supply leading-edge functionality

and superior design in our sanitary ware, such

as the world’s most compact units and easy-

to-clean models for the renovation market.

10

What Unites the What Unites the LIXIL Group?

Even considering just consolidated subsidiaries, we have more than 100

companies in the LIXIL Group. The platform enabling this diversity is the shared

values of the Group. Having a common base to knit our diversity together is what

makes it possible for people to unite and manifest the power of the Group.


Confi dence and pride in

the quality of our products

and services

Showroom Staff

Kana Matsuda

Dedication to speed

in the midst of a changing

living and housing

solutions industry

Global Legal Division

Sidney Weeks

Total commitment to

the pursuit of perfection

Curtain Weaving Engineer

Koichi Matsumura

11

Enthusiasm about

contributing to more

enjoyable lifestyles for

our customers

Store Staff

Ayumi Mogi

LIXIL Grou p?

Commitment to

a corporate culture that

respects diversity and

has a human resource

program that goes

beyond borders

Global HR

Sherylleen Seah

Belief in generating

new value

through innovation

Building Division Sales

Koki Ishiguro

Desire to make people’s

lifestyles comfortable and

rich around the world

In charge of supply chain

Bobby Wang

12

What Unites the LIXIL Group?

Shared Philosophy and Values Form the Foundation of the LIXIL GroupNot only does the LIXIL Group have a wide range of product fi elds and leading brands at home

and abroad, it also has many employees from different backgrounds responsible for very different

operations. The platform that helps us to respect and strengthen that diversity and ties the Group

together is LIXIL TETRA.

LIXIL CORE (Corporate Philosophy)

The Group’s superior products and

services contribute to improving people’s

comfort and lifestyles.

LIXIL VALUES (Shared Values)

The values shared by all employees

V-1 Deliver on Commitments

V-2 Change & Challenge

V-3 Speed to Action

V-4 Passion to Improve

V-5 Open & Transparent

V-6 Integrity & Fairness

V-7 Total Quality Mindset

V-8 Optimizes Resources

V-9 Teamwork & Talent Development

LIXIL VISION (Management Targets)

LIXIL will strive to become the No. 1 building

materials and housing equipment company, and

will continue to build solid relationships with all

of our stakeholders, including our customers

and shareholders. Our target is to become a

global leader in the building materials and

housing equipment industry.

LIXIL WAY (Our Promise)

1. LIXIL—Our Goal

Creating a sustainable lifestyle which is in

harmony with the Earth:

Link to the Earth

2. Mission of LIXIL

Building “bonds” that lead to a good life:

Link to Good Living

3. Value offered by LIXIL

Reliable quality: Link to Quality

High technologies: Link to Technology

Environmental beauty: Link to Environment

Emotional impact: Link to Emotion

Group Management Philosophy LIXIL TETRA

Our Promise

LIXIL WAY

Corporate Philosophy

LIXIL CORE

Shared Values

LIXIL VALUES

Management

Targets

LIXIL VISION


13

The corporate culture of LIXIL is to become a company that utilizes

energy and innovation generated by diversity for the business.

We also aim to create an environment where everyone should not be

content with the present and will achieve better results by continuously

clearing self-imposed hurdles.

Respect Diversity

We will welcome differences among genders, ages, races, cultures,

nationalities, beliefs, and backgrounds. Energy and creativity

generated by open and passionate discussion can be used as

a source of competitiveness.

Provide Equal Opportunity

We will provide equal opportunities and occasions to anyone that tries to

demonstrate a positive and proactive attitude regardless of background.

Implement Meritocracy

We will fairly evaluate how much one puts LIXIL VALUES into practice and

how much one performs.

Link to Good Living

The LIXIL Group is committed to building and expanding worldwide “bonds” that lead to a good living and

good life. Aiming to improve people’s comfort and lifestyles, we endeavor to pursue innovation to develop

better products and services, thereby contributing to the sustainable development of society. By facilitating

stakeholder dialogue, we work to maintain integrity in conducting business activities.

LIXIL Diversity Declaration

CSR Policy

Priority Themes

Innovation

1. Work to increase effi ciency in the use of energy

and water resources

2. Work to build a senior-friendly, cooperation-based society,

focusing on healthy, safe, and secure living conditions

Sustainability

3. Contribute to conservation of the global environment and

development of local communities

4. Ensure an appropriate work environment and resource

allocation in supply chain operations

Integrity

5. Maximize customer satisfaction in cooperation

with business partners

6. Develop a corporate culture characterized by superb leadership

and diversity

7. Promote speedy and transparent disclosure and share social

contribution visions with our stakeholders

In order to achieve this corporate culture, we will execute the following activities.

1. Implement Human Resources Measures

(1) We will increase the ratio of talented diverse personnel among

the newly promoted managers.

(2) We will increase the ratio of talented diverse personnel among

the newly hired employees.

(3) We will establish teams and task forces with diversity in order to

create the opportunity to develop their talents.

2. Accelerate Human Resources Development

(4) The leadership development programs should include a higher

ratio of talented diverse personnel.

3. Improve the Environment

(5) To promote Work-Life-Flexibility* and performance by talented

diverse personnel, we will establish programs such as

child-care.

4. Promote Our Corporate Culture

(6) LIXIL Women’s Network will be established.

(7) The president and the management team will lead “Diversity

Talks” to discuss diversity issues.

* Work-Life-Flexibility: Policy of aiming to be flexible about work to be able to achieve continuous high performance during a person’s life stages.

Energy / Creativity

NationalityRace Age

Gender

EducationCareer

LifestyleDiversity

MeritocracyEqual Opportunity

14

Yoshizumi Kanamori 8

Executive Officer and

Senior Managing Director

Mr. Yoshizumi Kanamori has been serving

as Chief Financial Offi cer, Senior Managing

Executive Offi cer, and Director in the

Company since June 2011, with respon-

sibility for accounting and fi nancing. He is

also serving as Senior Managing Executive

Offi cer and Director in a subsidiary, LIXIL

Corporation. He joined the Company

in 1977.

Yoshiaki Fujimori 1

President and CEO

Mr. Yoshiaki Fujimori has been serving

as President and CEO of the Company as

well as President and CEO of a subsidiary,

LIXIL Corporation, since August 2011. Prior

to joining the Group, Mr. Fujimori worked for

25 years at General Electric Company (GE)

where he was Senior Vice President and

a member of the Corporate Executive

Council. He served as President and CEO

of various business divisions, including

Medical Systems Asia, GE Plastics, and GE

Capital Asia, and as Chairman of GE Japan.

Prior to joining GE, he worked for Nissho

Iwai Corporation (now Sojitz Corporation)

for 10 years. He has been Director in Tokyo

Electric Power Company, Incorporated,

since 2012.

Shinichi Tanzawa 9



Mr. Shinichi Tanzawa has been serving as

Senior Managing Executive Offi cer in the

Company since June 2011, taking respon-

sibility for management strategy, IT, and the

Six Sigma program in April 2013. He is also

serving as Senior Managing Executive

Offi cer and Director in a subsidiary, LIXIL

Corporation. Prior to joining the Group

in 2010, Mr. Tanzawa served as Senior

Executive Managing Director in FANUC

Corporation, which he originally joined

in 1983.

Yosuke Yagi 6

Executive Officer and Vice President

Mr. Yosuke Yagi has been serving as

Executive Vice President in the Company

since April 2012. He is also serving as

Executive Vice President and Director in a

subsidiary, LIXIL Corporation. Prior to join-

ing the Group, he worked for GE Yokogawa

Medical Systems Limited (now GE Healthcare

Japan) from 1999 to 2012, becoming

Director in GE Japan from 2003 and leading

all GE business in Japan and Asia as Senior

HR Manager from 2002 to 2012. Prior to

joining GE, he worked for Nippon Kokan for

19 years from 1980.

Haruo Shirai 7


Mr. Haruo Shirai has been serving as


since June 2012, with responsibility for

domestic sales. He is also serving as

Executive Vice President and President in

a subsidiary, LIXIL Corporation. He joined

the Company in April 1974.

What Are Our Challenges?

Aiming to be a global leader in the living and housing solutions industry,

we will continue to strive to utilize our previously developed strengths

while establishing a new business model.

What Are Our Challenges?

Further utilize a comprehensive system and implement the Six Sigma program

In charge of management

strategy, IT, and the Six

Sigma program

Establish a suitable and effi cient production system

In charge of production

Execute a growth strategy that instills innovation and enthusiasm

CEOPursue innovation

In charge of R&D and

production process

improvement

Conduct aggressive global expansion and generate synergies

In charge of global businessPursue M&A strategies

that solidify Group

businesses

In charge of M&A, investor

relations, and external affairs


Executive Offi cers

9 10 5 4 3 1

15

Toshimasa Iue 4


Mr. Toshimasa Iue has been serving as


since June 2011, taking responsibility for

global business in June 2012. He is also

serving as Executive Vice President,

President and CEO of Global Company and

Director in a subsidiary, LIXIL Corporation.

Prior to joining the Group, Mr. Iue held

senior positions in SANYO Electric Co., Ltd.

He joined SANYO Electric in 1989 and was

President from June 2005 until he became

Director in the company in April 2007.

Tadashi Arishiro 5


Mr. Tadashi Arishiro has been serving as



production in June 2013. He is also serving

as Executive Vice President in a subsidiary,

LIXIL Corporation. Mr. Arishiro joined INAX

Corporation (now LIXIL Corporation) in

April 1980.

Ryo Nihei 10



Mr. Ryo Nihei has been serving as Senior

Managing Executive Offi cer in the Company


R&D and production process improvement

in April 2013. He is also serving as Senior

Managing Executive Offi cer and Director in

a subsidiary, LIXIL Corporation. Mr. Nihei

used to serve as Senior Managing Director

in FANUC Corporation.

Harumi Matsumura 11



Ms. Harumi Matsumura has been serving

as Senior Managing Executive Offi cer in the

Company since July 2011, with responsibil-

ity for public relations, CSR, and environ-

mental strategy. She is also serving as

Senior Managing Executive Offi cer in

a subsidiary, LIXIL Corporation. Prior

to joining the Group, she was President

and Representative Director of Henri

Charpentier Co., Ltd. (now H.C.Création

Co., Ltd.), from 2004 to 2011. She also

served as a manager at major retailer

Seibu Department Stores, Ltd. (now Sogo

& Seibu Co., Ltd.), which she originally

joined in 1976.

Sachio Matsumoto 12



Mr. Sachio Matsumoto has been serving as

Chief Financial Offi cer and Senior Managing

Executive Offi cer in the Company since

June 2013, with responsibility for accounting

and fi nancing. He is also serving as Senior

Managing Executive Offi cer, Chief Financial

Offi cer, Director of Accounting, and Director

in a subsidiary, LIXIL Corporation. Prior to

joining the Group, he was Corporate Vice

President and Head of Finance and

Treasury in Fuji Xerox Co., Ltd.

Katsuhiro Mamenari 13

Executive Officer

Mr. Katsuhiro Mamenari has been serving

as Executive Offi cer in the Company since

June 2011, with responsibility for home

centers. He is also serving as President and

Representative Director in a subsidiary,

TOSTEM Viva Corporation (now LIXIL Viva

Corporation), since 2000 and Director in

another subsidiary, LIXIL Corporation, since

2011. Mr. Mamenari joined the Company in

April 1973.

Ryuichi Kawamoto 2

Representative Executive Officer

and Vice President

Mr. Ryuichi Kawamoto has been serving as

Representative Executive Offi cer and Vice

President in the Company since April 2013.

He is also serving as Senior Executive Vice

President, President of Products Company,

and Representative Director in a subsidiary,

LIXIL Corporation. Mr. Kawamoto joined

INAX Corporation (now LIXIL Corporation)

in April 1976.

Takashi Tsutsui 3


Mr. Takashi Tsutsui has been serving as

Executive Vice President and Director in

the Company since June 2011. He is also

Head of the Company’s Compensation

Committee and has been serving as

Executive Vice President and Director in

a subsidiary, LIXIL Corporation. Prior to

joining the Group in April 2009, Mr. Tsutsui

served as President and CEO of Jasdaq

Securities Exchange, Inc., from 2005. Prior

to joining Jasdaq Securities Exchange, he

worked for Nomura Securities Co., Ltd.

(now Nomura Holdings, Inc.), joining the

company in 1974 and becoming Director

in 2002 and Executive Offi cer in 2003.

Implement business strategies that utilize the Group’s comprehensive capabilities

In charge of product

development and production

Develop global human resources

In charge of human

resources, general affairs,

and legal affairs

Establish a sales organization that is effective and trustworthy

In charge of domestic sales

Balance growth investment with maintaining a strong fi nancial base

In charge of accounting

and financing

Strengthen logistics capabilities and B-to-C business

In charge of home centers

Leverage business resources of the Group

In charge of accounting

and financing

Nurture LIXIL corporate culture

In charge of public relations,

CSR, and environmental

strategy

2 8 6 13 7 11 12

16

To Our Stakeholders

Fiscal Year under Review Saw Establishment of Integrated

Base, Boosting Corporate Confi dence

With employee inspiration driving our achievement of sales

and profi t growth, the value of our “One LIXIL” integrated cor-

porate culture is starting to spread throughout the Group.

In the fi scal year ended March 31, 2013, net sales amounted to

¥1,436.4 billion, increasing 11.2% from a year earlier. Operating

income jumped 181.8% year on year, to ¥50.5 billion, while net

income surged 11.4 times from ¥1.9 billion in the previous year,

to ¥21.3 billion. The V-shaped recovery in profi ts refl ected a

turnaround from the deterioration in performance experienced

in the previous fi scal year from the impacts of the Great East

Japan Earthquake and the fl ooding in Thailand. The strong

rebound can also be attributed to the results of major initiatives

to reinforce domestic sales capabilities and brand power,

strengthen cost-competitiveness, and expand global business.

One of the principal factors in sales growth was the full-year

sales contribution of our overseas subsidiary Permasteelisa

S.p.A., which joined the LIXIL Group in December 2011. Cuts

in operating costs and other cost reductions were the primary

reasons for the increase in profi tability.

For two years up to the fi scal year ended March 2013, our

management theme has been establishing a foundation for the

integration of the Group. In addition, we have had under way

our C-30 Project, which aims to reduce the costs of existing

domestic businesses by 30% in the three-year period through

March 31, 2014. Implementation of the project is progressing

favorably. Following up on the equivalent to ¥32.1 billion in

cost savings achieved in the previous fi scal year, the LIXIL

Group has expanded operating income by about ¥48.0 billion

through cost reductions in the fi scal year ended March 31,

2013, indicating the Group has established effi cient operations.

Moreover, our initiatives to spread the LIXIL brand name

throughout our markets and to establish an organization and

human resource development programs suitable for a global

company are proceeding just as we hoped.

From February to April 2013, we held LIXPO 2013 events

in eight major local cities to announce our new products.

LIXPO events were attended by approximately 70,000 visitors,

mainly builders, designers, and distributors. Under the banner

of “Nurturing Living Environments,” many LIXIL Group employees

involved with everything from R&D and manufacturing to sales

were present at these events to introduce the diverse new

product lines and promote the appeal of the LIXIL brand. As a

result of their total commitment, a sense of excitement envel-

oped customers at each LIXPO 2013 event. Besides giving our

employees high marks for the energy they exuded at each

event, their commitment boosted my confi dence in the solid

foundation we have established for integration under the “One

LIXIL” corporate culture in preparation for future growth.

The Groupwide sharing of the sense of value of “One

LIXIL” has extremely important signifi cance to our Group in

terms of our management vision of becoming a global leader

in the living and housing solutions industry. I believe that the

inspiration of each and every employee in the Group was the

principal driving force behind our drastic performance recov-

ery in the fi scal year under review.

Having employees who approach their work with the

shared attitude of delivering “One LIXIL” products and services

that improve the comfort and richness of lifestyles around the

world will promote the reform of our operations and provide

the momentum for growth.

By Capturing Synergies Unique to a Comprehensive Living and Housing Solutions Company, We Will Continue to Grow.The LIXIL Group is in the midst of major reforms. As the results of our reform efforts begin to emerge, I have

a strong sense that new value is being created. By linking that value creation dynamism to our vibrant growth

as we strive to become a global leader in the living and housing solutions industry, we are committed to

achieving our medium-term performance goals of ¥3 trillion in net sales and an operating income ratio of

8% on a consolidated basis.

Year ended March 2012 Year ended March 2013

Net sales ¥1,291.4 billion ¥1,436.4 billionOperating income ¥17.9 billion ¥50.5 billionOperating income ratio 1.4% 3.5%EBITDA* ¥59.9 billion ¥100.6 billionNet income ¥1.9 billion ¥21.3 billionROE 0.4% 3.9%EPS ¥6.49 ¥73.42

* EBITDA = Operating income + Depreciation + Goodwill amortization

Results of Stage 1 of Medium-Term Management Vision

17

Yoshiaki Fujimori

President and CEO

18

To Our Stakeholders

Changes in the LIXIL Group’s Business Environment

and Business Model Reform

Our most urgent task is to build a business model that enables

sustainable growth even if new housing starts decline.

The breadth of the business portfolio of the LIXIL Group is

unparalleled in the comprehensive living and housing solu-

tions market, with businesses spanning the full gamut of the

housing industry. Those businesses include the manufacture

and sale of exterior and interior building materials for homes

and buildings; and plumbing fi xtures, such as bathtubs, toilets,

and kitchen systems. And they extend to the operation of

home center chains; networks of homebuilders for new homes

and renovations; and services, such as housing site ground

inspection and housing defect warranty liability insurance.

Over and above this comprehensiveness, one of the special

features of the LIXIL Group is its stable of brands that are

highly popular in Japan and abroad as well as top-market-

share products in each of its businesses.

The breadth of our business portfolio is also the source

of our strength, enabling us to offer products and services for

the entire life cycle of housing. Our coverage encompasses

planning and groundbreaking, building frame construction,

interior fi xtures and equipment installation, construction com-

pletion, and after-sales maintenance services. Through the

changes occurring in Japan’s housing market, we feel a sense

of urgency about establishing a model that will allow the LIXIL

Group to continue to demonstrate and improve on this

strength well into the future.

Over the past 30 years, after hitting a peak of 1.73 million

units in 1987, new housing starts have been on the decline,

falling by about 55%, to 788 thousand units, in 2010.

Reforming our old organization and systems that were built to

meet the demand levels of the past and a business model that

was premised on new housing starts to create a new business

model suited to current market conditions is a pressing task for

the Group. Recognition of the importance of this issue led to

the merger of our fi ve operating companies* in 2011.

Our purpose in merging the fi ve companies was not

merely the obvious scrap-and-build benefi ts for our overlap-

ping networks of sales bases and showrooms. We also wanted

to take advantage of the economies of scale in purchasing

goods and materials, speed up our decision making, and be

able to offer in a very real sense comprehensive housing solu-

tions that went beyond the vertically divided product groups

and businesses of the former operating companies. Going

beyond simply integrating our operations and pursuing syner-

gies only available to comprehensive businesses is the process

we are currently executing. We call this process the C-30

Project, and we have built it into the Medium-Term

Management Vision announced in May 2011. In contrast with

our Medium-Term Management Vision, which was formulated

assuming an M&A growth strategy, our Medium-Term Business

Plan LIXIL G-15, which was announced in May 2013 and rep-

resents the second stage of the series of reforms the Group

introduced in April 2011, was formulated based on a growth

strategy that has profi tability at its core and does not assume

M&A-based growth. In this way, we are balancing the empha-

sis on M&A growth in the vision with an emphasis on growth

based on profi tability in the business plan.

Second Stage of Medium-Term Management Vision

to Get Under Way in Fiscal Year Ending March 2014

Based on the implementation of fi ve imperatives aimed

at establishing a growth structure, the second stage will seek

to increase the Group’s corporate value as much as possible.

The LIXIL Group has divided its fi ve-year management vision,

covering the period from the fi scal year ended March 2012 to

the fi scal year ending March 2016, into three stages. The ulti-

mate goal of the management vision is to become a global

leader that we can all be proud of. I became CEO of the LIXIL

Group in August 2011 at the start of the Medium-Term

Management Vision. Since then, I have applied all of my accu-

mulated experience and knowledge in managing the Group

toward realizing the goals of the management vision.

As mentioned previously, in the fi scal year ended March

2013, the LIXIL Group achieved growth in sales and profi ts.

However, this strong performance does not mean that every-

thing went according to the plan. I openly admit that the major

source of our sales growth was the inclusion of the Permasteelisa

Group in consolidation and that sales growth in our Japanese

operations was not that signifi cant. Moreover, measures must

be taken to deal with the sharp depreciation in the yen. It will

be necessary to implement not only short-term measures,

including the use of forward currency contracts and additional

cost cuts, but also medium-term measures, such as expanding

overseas operations and exports as natural hedging strategies.

Taking these issues into account, during the two-year

second stage of our management vision that continues up to

March 2015, the LIXIL Group will commit all its efforts to

establishing a growth structure and increasing corporate value.

We will grow our profi tability, brand power, and individual

leadership capabilities. We will develop and market outstand-

ing products with superior competitive advantages and build

a process that constantly generates high quality through our

Six Sigma program. We will also develop the talents of our

Achieving the Medium-Term Management Vision

Stage 1

(Fiscal years ended March 2012 and March 2013)

Establish a solid foundation for integration

Stage 2

(Fiscal years ending March 2014 and March 2015)

Establish a foundation for growth

Stage 3

(Fiscal years ending March 2016 and beyond)

Become a truly global leader

* TOSTEM, INAX, Shin Nikkei, Sun Wave, and Toyo Exterior were integrated and LIXIL

Corporation was born.

19

employees and their leadership. While working to further

strengthen each of these aspects of our operations, we have

established and will implement fi ve strategic imperatives to

achieve our Medium-Term Business Plan LIXIL G-15.

Imperative 1:

Establish a leading position in the Japanese market

by expanding renovation business

The full extent of renovation demand in Japan’s housing market

has not yet emerged. However, it is clear that there will be a

strong demand for energy-saving and energy-generation features,

earthquake resistance, senior citizen friendly functions, and

other improvements in line with the changes in Japan’s social

environment and structure. In addition, the Japanese govern-

ment’s drive to promote smart home features through its eco-

nomic growth plan and the public’s pursuit of wellness in their

lifestyles are providing a boost to that demand. The LIXIL Group

plans to accelerate its development of the renovation market

and achieve a growth rate twice that of the overall market.

Interest in and actual action to make homes more energy

effi cient or able to generate their own energy has risen sharply

since the Great East Japan Earthquake. Compared with Japanese

industry, which has signifi cantly reduced its energy consumption

over the past 20 years, the civilian sector, including residential

homes and commercial buildings, has continuously increased its

energy consumption. Therefore, there is a need for housing fi tted

with passive and smart functions to reduce energy consumption.

Furthermore, there are many homes in Japan that do not meet

current earthquake-resistance standards. The total number of

homes, including unoccupied homes, in Japan’s building stock

(existing construction) market is approximately 50 million

units. Of this amount, there are about 15 million homes that

were built before the revision of Japan’s Building Standards

Act in 1981 and do not meet current earthquake-resistance

standards. We expect that demand for improving the earth-

quake resistance of such existing homes will steadily emerge.

Along with the progressive aging of Japan’s population, there

is also a growing need for universal design housing, which caters

to the needs of elderly people. This design concept offers such

conveniences as barrier-free spaces and doors that do not

require strength to open or close. It is possible that more elderly

people will choose to renovate their homes rather than to move

to facilities, such as senior citizen homes or senior resident

apartment buildings. Furthermore, the government has made

improvement of Japan’s building stock a policy issue and

announced measures targeting the stimulation of the renovation

market. These measures should also promote the expansion of

the renovation market.

In response to these trends, the LIXIL Group will shift its

business resources to the renovation market. We will strengthen

the appeal of our products, services, and brand name among

general consumers. We have built fl agship showrooms in Tokyo

and Osaka to serve as East and West Japan bases for our drive to

build consumers’ interest in the LIXIL Group’s diverse products

and services.

We will also take steps to develop products for the renova-

tion market that are easy to assemble and install. In developing

products, we will especially concentrate on creating products

and services that contribute to reducing energy consumption

in homes while supporting more comfortable and richer life-

styles. Offerings of energy conservation and generation solu-

tions also link up with that unique added value that only the

LIXIL Group can provide. I believe that implementing these

measures in the renovation market will not only contribute to

the development of a sustainable society but also lead to major

business opportunities in Japan and abroad in the future.

The LIXIL Group has already established two networks of

homebuilders: the LIXIL Reform Net, with more than 9,000

members, and the LIXIL Reform Chain, with more than 370

members. These networks of homebuilders are capable of

handling renovation work under the LIXIL brand, helping raise

brand name recognition among homeowners.

In comparison with the new housing market, the renovation

market is underdeveloped and ineffi cient in certain areas. For

example, in the construction of many new homes, the major

home manufacturers or homebuilders construct the homes

according to various specifi c standards. They aim to reduce

costs and improve effi ciency by procuring materials made to the

proper specifi cations in bulk. On the other hand, because reno-

vation projects are done on a custom basis, small lot, multiple

product procurement is the standard procedure for both equip-

ment and materials. Despite this fact, the logistics fl ow for reno-

vation materials from the manufacturer to the construction site is

almost the same as the large volume orders and distribution

practices of the new housing market. Consequently, it is diffi cult

to call the renovation market’s practices effi cient. Nevertheless,

to our way of thinking, the fact that the renovation market is

underdeveloped and ineffi cient means that there is a great deal

of room for the Group to offer new value and uncover the

latent demand. In other words, if the LIXIL Group offers prod-

ucts well suited to the renovation market and establishes an effi -

cient distribution system, it can potentially achieve signifi cantly

higher growth than the overall market.

Base Scenario of the Expansion of the Renovation MarketMarket size (¥ trillion)

2011 2015 2020

7.6

9.2

11.3

2011–2015 2015–2020

6.4Average annual growth rate (%) Average annual growth rate (%)

5.8

3.6 2.1

0

3

6

9

12

4.4

0.9

1.1

0.80.4

5.6

1.0

1.2

0.80.5

7.5

1.2

1.2

0.90.6

2.5

7.2

0.2

0.5

3.6

0.1

Detachedhomes

Secondhand houses

Rentalhomes

Repair

Collectivehomes

(FY)

Source: LIXIL Group estimates

20

To Our Stakeholders

Imperative 2:

Accelerate growth rate based on global business expansion

The LIXIL Group and many other housing-related companies

have been domestic-demand-oriented companies that target

the Japanese market. However, with new housing starts fore-

cast to remain at low levels in Japan, it is no surprise that the

LIXIL Group, intent on achieving fast-paced growth, would

look overseas for new opportunities.

In moving forward with global business expansion,

we will take advantage of the superior competitiveness of

Permasteelisa, which joined the Group during the fi rst stage

of our management vision. In particular, we will absorb the

various strengths Permasteelisa has acquired in developing

into the world’s number one curtain wall business, generating

synergies for the LIXIL Group. These strengths include

Permasteelisa’s networks with architectural fi rms around the

world and know-how in managing value chains encompassing

materials procurement to work site installment. In Asia Pacifi c,

we acquired American Standard Asia Pacifi c for kitchen and

bath products, prior to Permasteelisa, and we are developing

more products to expand our businesses in the region. We

foresee that the expansion of the middle class in Asia will lead

to increased demand for high-quality housing, providing an

opportunity to leverage LIXIL’s technologies. To capture that

growth in demand, we are proceeding aggressively with prod-

uct development that meets local needs.

Furthermore, we are taking steps to expand our global

footprints though M&As. There are leading companies, such as

Permasteelisa, that have superior technological capabilities and

fi rm positions in their markets. The LIXIL Group plans to effi -

ciently enter high-growth potential markets by using M&A to

bring such leading global brands with popular products, high

market shares, and superior assets into the Group. Looking at

the overall global market, there are huge opportunities in such

regions as Asia, Europe, and North America. Moreover, even in

regional markets already entered, we will use M&A to expand

or complement our product lineup to achieve high growth.

Imperative 3:

Effectively apply distribution and retail business know-how

In our home center business, we are continuing to invest in our

large-sized outlet chain, Super Viva Home, seeking to improve

and expand its capabilities as a materials warehouse for profes-

sional builders. We are also reducing its merchandise procure-

ment costs by increasing the proportion of private brand

products. Moreover, by utilizing the Group’s special connection

with general consumers, we are pursuing synergies with other

businesses of the LIXIL Group.

One of the Group’s unique strategies in terms of pursuing

synergies through the development of distribution know-how

is Ken Depot, our “convenience store” for local builders.

Operating a membership-based outlet network for professional

builders, Ken Depot offers one-stop shopping for housing-

related materials that traditionally have been sold through

many different specialist wholesalers. As a Group, we are

proud that this chain is contributing to the establishment of

Outline of the C-30 Project and Post C-30 Project (Years ended / ending March 31)

C-30 Project Post C-30 Project

Division Major measuresCost reduction

target (¥)

2012 and 2013

progress (¥)

2014

estimate (¥)

Potential measures for

2015 and 2016Amount

Sales

& marketing

■ Integrate sales offi ces and showrooms■ Integrate separated sales and marketing divisions

as well as front- and back-offi ce operations

40.0 billion 21.1 billion 8.6 billionImprove effi ciency of

back-offi ce support

Development

& production

■ Integrate products and decrease the number of products■ Reorganize and consolidate production sites■ Automate factories, increase internally manufactured

products, and decrease outsourcing■ Expand production overseas■ Improve product quality

30.0 billion 25.4 billion 5.9 billion

Develop new

products to improve

product mix

Purchasing

& distribution

■ Improve economy of scale by the integration of

purchasing■ Increase purchasing from overseas■ Consolidate logistics centers and integrate IT systems

20.0 billion 24.5 billion 6.1 billionContinue to reduce

purchasing costs

Other■ Integrate headquarters functions■ Integrate administrative IT systems

20.0 billion 9.1 billion 3.9 billion

Total 110.0 billion 80.1 billion 24.5 billion

Six

Sig

ma a

ctivitie

s

IT a

dva

ncem

ent (¥

30

–40 b

illion in

vestm

ent)

Imp

rove

SG

&A

ratio

by 1

poin

t per a

nnum

Organic Expansion of the Global Business (Years ended / ending March 31)

(¥ billion) (%)

2013actual

2014forecast

2016forecast

5%

0

2

4

6

8

205.1

262.0

325.0

0

100

200

300

400

Permasteelisa Asia Operating income ratio

21

a distribution channel for renovation market products, and we

plan to expand its network. Commencing in the current fi scal

year, we will also be introducing a franchise system, targeting

more effi cient business expansion.

Imperative 4:

Develop and nurture peripheral business (services businesses)

We currently offer not only post-purchase maintenance ser-

vices but also a variety of businesses beyond housing and

building materials. These include such services as housing

franchise chains, housing defect warranty liability insurance,

ground inspections, assisted living nursing homes for the

elderly, and real estate. In the past, the core of our renovation

business was principally the sale of our housing equipment

products. In the future, we will fully leverage the LIXIL

Group’s capabilities to develop added value services for the

building stock market. By entering business domains yet unde-

veloped by our Group, we believe we can develop our ser-

vices businesses into a ¥100 billion operation.

Imperative 5:

Improve operational effi ciency

Producing the expected results, the C-30 Project is currently

targeting ¥24.5 billion in cost cuts in the fi scal year ending

March 2014, the fi nal year of the project. This amount will

bring cumulative cost reductions over the three years of the

project to ¥104.6 billion. Furthermore, going forward, we will

be implementing a post C-30 Project aimed at further decreas-

ing costs and achieving a selling, general and administrative

(SG&A) expenses to sales ratio of under 20%. We will continue

to reduce the cost of each of our business departments, includ-

ing sales and marketing, development and production, and

purchasing and distribution. And from the fi scal year ending

March 2015 onward, we will intensify our Six Sigma activities

and invest in IT systems with the goal of achieving an annual

one-percentage-point reduction in the SG&A cost ratio.

(Please see the table on page 20.)

Implementing Timely Transformation

Taking the lead in continuously pressing for fundamental

reforms that will generate explosive power

Since becoming the LIXIL Group’s CEO, I have initiated strate-

gic measures in rapid succession. Those measures include

reforming our organization and HR system, changing our

corporate name, boosting brand power by introducing LIXIL

composite logos, formulating a corporate social responsibility

(CSR) policy, announcing the LIXIL Diversity Declaration,

and introducing a large number of new products.

These reforms require strong leadership by the top man-

agement to cascade the change to 80,000 employees at home

and abroad. This is a top-down process with all top manage-

ment committed to achieving change.

Effective April 2013, we have restructured the organization

of LIXIL Corporation, the core operating company of the

Group. The essence of the reorganization was to create nine

business units (BUs) with each BU manager responsible for

the unit’s profi t and loss, and balance sheet, as well as market

share, product development, and manufacturing. These nine

BUs include Housing Sashes and Doors, Exteriors and Tiles,

Sanitary Ware and Washstand Cabinet Units, Bathroom Units,

Kitchen Units, Devices, and Energy Generation and are man-

aged by Mr. Kawamoto, President of Products Company. The

Products Company will collaborate with LIXIL Japan Company

and Global Company.

We are also strengthening our product and personnel

development programs in line with our CSR policy. With

expectations regarding the social responsibility of corporations

growing, it is clear that consideration of CSR is fundamental to

gaining recognition from society and becoming a company

that employees can be proud of. Through the series of reforms

that the LIXIL Group is undertaking, it is also incorporating its

CSR policy into the development of personnel and the cultiva-

tion of a corporate culture. We are entrenching within our

Group a culture that respects diversity, a culture of equal

opportunity, and a culture of meritocracy and advancement

rooted in the concept of stretch goals. Based on that corporate

culture, the Group will encourage the development and use of

a wide diversity of human resources.

Ryuichi Kawamoto (fi fth from right), President of Products Company, and BU leaders.

22

To Our Stakeholders

Simultaneously Targeting Top-Line Growth, High Profi tability,

and Profi t Return for Investors

Anything other than stretch goals will not force us to break out

of the mold and achieve personal and organizational growth.

For the medium term, the LIXIL Group is aiming to achieve net

sales of ¥3 trillion (of which ¥1 trillion is overseas sales) and an

operating income ratio of 8% (10% for existing domestic opera-

tions). In addition, under the banner of “growth with profi t,” we

have established profi t targets of ¥200 billion in earnings before

interest, taxes, and depreciation and amortization (EBITDA) and

a return on earnings (ROE) of 10% or greater.

Some observers have pointed out that these goals seem

overly ambitious and asked whether they are actually achiev-

able. However, I believe that if our goals are not stretch goals

change would not happen. This is something I learned from

General Electric Company (GE), where I worked for 25 years

and acquired a great deal of valuable management experience.

One of the things I learned in my career at GE was that setting

stretch goals forces individuals and organizations to think dif-

ferently and grow substantially. It may seem somewhat strong

language, but “lukewarm” goals only result in “lukewarm”

performances.

Although the goals we have set are stretch goals, my man-

agement team and I are truly committed to achieving them. In

conjunction with those efforts, we will ensure that dividends

continue to be paid to shareholders and are targeting a 30%

payout ratio. And while working to improve our balance sheet,

we will also consider systematic share buybacks as a way of

returning profi ts to shareholders. We intend to fulfi ll the three

requirements of achieving sustainable growth, improving

profi tability, and returning profi ts to shareholders concur-

rently, thereby fulfi lling the expectations of shareholders

and other investors.

Toward an Organization That Can Maximize the Potential of All

Amid a sea of change, we must think through how to

demonstrate our full capabilities.

Placed in an entirely different environment to the one they are

familiar with, people can reevaluate their strengths and prog-

ress to a new stage of development. The current reforms of the

LIXIL Group are taking this exact same approach of creating a

“different environment.” Amid a sea of change, how can we

demonstrate our full capabilities, how can we refi ne our

competitive advantages? These are issues that I want each

employee to ponder. Ultimately, I have high hopes that from

among the people who successfully think through these issues,

leaders will emerge to take responsibility for the future of the

LIXIL Group.

As our reforms progress, I feel confi dent that our momen-

tum is building. Nevertheless, the LIXIL culture has just begun to

spread through the Group. With a view to realizing the Medium-

Term Management Vision, we will press on to establish an orga-

nization that can maximize the potential of all of our people. In

meeting the many challenges of our stretch goals, I look for-

ward to the continued support of our many stakeholders.

August 2013

Yoshiaki Fujimori

President and CEO

Medium-Term Management Vision and

Medium-Term Business Plan LIXIL G-15(Years ending March 31)

(¥ trillion)

2014 2015 20160

1

2

3

4

5

¥1.75 trillion

¥3 trillionSales Vision

M&A

New businesses

G-15 Vision

Ph.: ©Bjorn Moerman Photography

23

The LIXIL Group has positioned the expansion of its global businesses and the renovation market as

its drivers of growth. To maximize the potential power of these growth engines, it is essential to fl exibly

accommodate such factors as individual market trends and homeowner preferences. In the following

special feature, we outline our frontline actions to link our diversity to further growth.

SPECIAL FEATURE 1

How Diversity Leads to Growth

SPECIAL FEATURE 1 How Diversity Leads to Growth

Ph.: ©SellarPh.: ©Bjorn Moerman Photography

24

Expansion of Global Business

Leading Record in Major Landmark Construction around the WorldThe LIXIL Group is proceeding with global expansion at a rapid pace

through the implementation of aggressive mergers and acquisitions

(M&A) strategies. Within that process, one of the largest overseas

M&A deals to date has been the one that brought Permasteelisa

S.p.A. into the Group in December 2011. The addition of the global

leader in curtain wall systems to the LIXIL Group has not only

contributed to our top-line growth, but it also has strategic

signifi cance for the Group’s global business expansion.

1. Sydney Opera House, Australia (1973)

2. Tokyo Midtown, Japan (2007)

3. Shanghai World Financial Center, China (2008)

4. Telekom Malaysia, Malaysia (2001)

5. Dubai International Airport, UAE (2009)

6. One Hyde Park, United Kingdom (2010)

7. The Guggenheim Museum Bilbao, Spain (1997)

8. The Museum of Modern Art, United States (2005)

Permasteelisa’s Strengths

Permasteelisa’s capabilities are highly regarded globally. This

stellar reputation extends to its comprehensive expertise in

curtain wall* business, from the initial engineering and design

stages to fi nal completion, as well as its technology develop-

ment ability and deep store of know-how throughout the

whole process. Permasteelisa has also built a powerful net-

work among the world’s most celebrated architectural fi rms.

With bases in more than 30 countries in Europe, the Middle

East, North America, and the Asia Pacifi c region, this leading

company has contributed to a myriad of successful projects.

In recent years, the economies of advanced nations,

particularly in North America and Europe, have been buffeted

by fi nancial crises and other events. Nonetheless, Permasteelisa

has achieved growth in sales and profi ts since 2009, demon-

strating its high degree of mobility in capturing business

opportunities around the world.

* Curtain walls: Exterior wall materials for high-rise buildings with surface materials,

such as aluminum, other metals, stone, and various types of glass.


1

23

4

5

6

8 7

Examples of Permasteelisa’s Major Achievements

25

Strategic Signifi cance of the Permasteelisa Acquisition

■ Drawing on Project Management Know-How

Superlative project management skills developed from work-

ing on global landmark buildings around the world is one of

the assets that have supported Permasteelisa’s exemplary

performance record. We plan to share this know-how in

combining fl exibility and cost management capabilities

throughout the Group.

■ Utilizing Material Procurement and Logistics Networks

We will incorporate the material procurement and logistics

networks of Permasteelisa into Group assets. By consolidat-

ing them with the other products and services of the Group,

we will aim to establish an enhanced value chain that will

generate synergy benefi ts for the LIXIL Group.

■ Leveraging Architectural Firm Network

By taking advantage of the well-established business relation-

ships between Permasteelisa and the world’s major architec-

tural fi rms, we will also collaborate with Permasteelisa in

many sales aspects. In addition to curtain walls, we will work

together in establishing sales channels for plumbing fi xtures

and other various products and services of the LIXIL Group.

Future Business Development

■ Role and Responsibility Allocation

among Operating Companies

Besides the global operations of Permasteelisa, we have

other curtain wall companies in the LIXIL Group: Shanghai

Meite Curtain Wall System Co., Ltd., and LIXIL Corporation.

Shanghai Meite Curtain Wall System operates in the Chinese

market. Going forward, we will share all bid information for

projects around the world within the Group, allocating roles

and responsibilities to Group operating companies based on

the scale and nature of the project.

■ Pursuing Horizontal Expansion

By folding the global project management methods of

Permasteelisa into Group operations, we will pursue hori-

zontal expansion of superior personnel, IT, and other sys-

tems. Moreover, we will seek out synergies in manufacturing,

cost management, and sales.

26

LIXIL Group Global Business Expansion

In the Medium-Term Business Plan LIXIL G-15, we have clearly

outlined an Asian country and regional strategy based on the

growth potential of each market and the product fi elds in

which the LIXIL Group is competitive. The backdrop to this

strategy is our integration of product development and sales

and marketing functions with American Standard Asia Pacifi c

(ASAP). Since bringing ASAP into the fold through M&A in

2009, we have steadily integrated its operations. Under this

new strategy, in combination with the expansion of our busi-

ness in North America, which has one of the largest housing

equipment markets in the world, the LIXIL Group intends to

achieve steady growth in its global operations.

Expansion of Global Business

Global Business Expansion Based on Country and Regional StrategiesWe forecast that the global housing equipment market will grow to

¥60 trillion by 2017, from ¥40 trillion in 2011. Constantly targeting this

growth in the market, we plan to increase the sales contribution of

our overseas operations to 30% by the end of the fi scal year ending

March 2018. Heading toward that goal, we will drive forward with

the rapid global expansion of our businesses, focused particularly

on Asia.


Huge Global Market

Source: LIXIL Group estimates

Global market forecast to expand from ¥40 trillion in 2011 to ¥60 trillion in 2017

Middle East

¥1.0 trillion

Eastern Europe

¥1.2 trillion

Latin America

¥1.4 trillion

ASEAN

¥4.5 trillion

North America

¥9.5 trillionChina

¥8.4 trillion

Western Europe

¥13.7 trillion

Australia / New Zealand

¥0.6 trillion

Africa

¥0.4 trillionMarket will grow substantially

Market will grow

Market will be fl at

27

Country and Regional Growth Strategies for LIXIL Core Products

We will build our businesses in Asia by continuing to invest in

the development of products that match the preferences of local

end users. Furthermore, we will seek to enter promising new

Asian markets, such as India. At the same time, we will aim to

improve the profitability of our businesses in China. In the

United States and Europe, we will target increasing market share

in select fields while keeping an eye on M&A opportunities for

companies with superior assets and product lines. Our market

share building efforts will concentrate on core products that

have strong global market development potential, such as

plumbing-related housing equipment and window sashes. We

will aim to position ourselves as globally No. 1, particularly in

the window, sanitary ware, and curtain wall businesses.

1. Expanded product lineup: Vietnam and Thailand

2. Organic growth + complementary M&A: China,

Indonesia, and the Philippines

3. Improved earnings: South Korea, Taiwan,

and Hong Kong

4. Market entry: India, the Middle East, Brazil,

and other countries

5. M&A of leading companies: North America,

Europe, and Australia

Global Business Expansion: Country and Regional Strategies

Com

petitive

ness o

f LIX

IL:

mark

et

share

and

pro

fitab

ility

Market growth factors

Low

Low High

High 1

23

45

Thailand

South Korea

North America Middle East

Australia / New Zealand

Europe IndiaLaos

Malaysia Singapore Brazil Russia Turkey

Cambodia

Myanmar

ChinaTaiwan IndonesiaHong Kong Philippines

Vietnam

28

Renovation Market Growth

Up to now in Japan, the value of wooden framework homes

20 years old or more was generally evaluated as being almost

zero. This practice tells us that the quality of housing is not

being properly assessed in the market. Another aspect of

Japan’s residential housing market is that, as a result of the

progressive supply of new housing during Japan’s period of

high economic growth, the current total number of residential

housing units exceeds the actual number of households. In

view of this imbalance, the Ministry of Land, Infrastructure,

Transport and Tourism (MLIT) has taken steps in its growth

plan for 2020 to stimulate the resale and renovation markets,

setting a national target of developing the renovation market

into a ¥12 trillion market.

According to recent surveys of the nature of renovations

owners are making to their homes, there has been a change in

motivation and demand among homeowners caused by the

tight electricity supply conditions in the wake of the Great East

Japan Earthquake of March 2011. A growing number of con-

sumers are looking to improve the earthquake resistance of

their homes and to fi nd ways to reduce electricity consump-

tion by using energy conservation and renewable energy

creation technologies.

To supply products and services that suit these changes

in government policy and consumer needs, the LIXIL Group

plans to provide total support for homeowners seeking better

living environments.

08 09 10 11 1207 200

2

4

6

8

10

12

14

Domestic RenovationMarket Growth Targets by MLIT

(FY)

Domestic Renovation Market(¥ trillion)

Development of the Renovation Market

Diverse Products and Services Offer an Ideal Way of LifeAdjusting to the change in the population demographics caused by

lower birthrates and an aging population, Japan’s residential housing-

related industries have shifted their focus from new housing to

renovation. Since it requires dealing with the detailed needs of

individual homeowners, the renovation market is an area where we

can most strongly demonstrate our unique strengths to create

proposals by freely combining our diverse product lineup. The LIXIL

Group will concentrate its business resources on the development of

this market, aiming to achieve higher growth than the overall market.


Extension and remodeling Renovation and maintenance

Furniture and interior furnishings

Source: Yano Research Institute, Research Results of Housing Renovation Market,

1st Quarter, 2013

29

LIXIL’s Action Plans

■ Establishing Brand Identity

As of August 2012, we introduced composite logo marks that

combine the LIXIL logo with the popular brands of our

former product manufacturers. The goal of the composite

logos is to promote greater awareness of the LIXIL brand

among end users.

■ Opening Showrooms

In August 2012, we opened LIXIL Showroom Tokyo, one of

the largest showrooms in the Tokyo metropolitan area. In

addition to our product lineup, we are exhibiting fi ve model

homes with the theme of “Good Home, Good Living.”

■ Launching New Products

In the second half of the fi scal year ended March 2013, we

launched approximately 70 new products and conducted an

intensive promotion drive. From February to April 2013, we

also held LIXPO 2013 events to announce our new products

in eight locations nationwide that attracted approximately

70,000 visitors.

Perspectives

■ Sale of Eco-Friendly and Energy-Saving Products

We are taking several measures to improve our offerings for

the renovation market. We are strengthening our lineup of

products that boast super-airtight and insulation properties

and earthquake resistance as well as water-saving and

renewable energy creation products. At the same time, we

are reinforcing our lineup of renovation-oriented products

that are designed to be easy to install. By participating in

developing innovations in the environmental and energy

fi elds, we will keep an eye on changes in demand related

to new legal regulations and government incentives and

enhance our competitiveness.

■ Reinforcing Collaboration with Our Services Businesses

One of the special features of the LIXIL Group’s develop-

ment of the renovation business is the use of housing-related

services, such as the services of the Group’s homebuilding

franchise chain, as well as such services as housing defect

warranty liability insurance, housing site ground inspection

and improvement, renovation loans, and real estate broker-

age. By utilizing these services, we will strengthen our com-

prehensive services for the renovation market, from planning

and proposals to merchandise and product selection, instal-

lation, and after-sales maintenance.

30

Renovation Market Requires Cultivating Trust and Distribution Effi ciency

Local homebuilders are the most popular choice of vendors

to consult for renovation work as well as for design and actual

construction. With the goal of enhancing the level of service,

the LIXIL Group has created the LIXIL Reform Net, a network

of homebuilders that can handle renovation consulting, design,

and construction. To that same end, we also have amalgam-

ated the housing renovation franchise chains of two of our

pre-merger operating companies, TOSTEM and INAX, forming

the LIXIL Reform Chain.

By setting up these networks, we are aiming to differenti-

ate our Group from major house manufacturers, renovation

specialists, and other companies planning to enter the renova-

tion market. Based on customers’ confi dence in the LIXIL

brand and our technology, and know-how developed as a

comprehensive building materials manufacturer, the LIXIL

Group plans to strengthen its competitiveness in the renovation

market by building a working relationship with homebuilders

that can provide regionally oriented and high-quality services.

Development of the Renovation Market

Building Appropriate Operating Systems for the Renovation BusinessThe trustworthiness of homebuilders and the establishment of

distribution channels have been pointed out as some of the factors

that will affect the expansion of the high growth potential renovation

market. The LIXIL Group plans to contribute to achieving a highly

effi cient and trustworthy renovation market by building networks of

homebuilders and renovation shops and distribution channels suited

to the renovation market.


Renovation Services Vendor Selection(%)

Localhomebuilders

Vendor selected

Renovationspecialists

Carpentersand workers

Housemanufacturers

Housingequipment

manufacturers

0

10

20

30

40Vendor consulted

Source: Ministry of Land, Infrastructure, Transport and Tourism, Research on the Status of

Existing Housing Stock and the Renovation Market (2011)

LIXIL Reform Net

Scale Approximately 9,400 shops nationwide (largest in Japan)

Activities

Promote use of fi xed price renovation packages

Offer courses on improving renovation proposal ability

and quality of services

Offer courses on new renovation products

Hold business meetings and events

Operate a Master Certifi cation system that enables people to advertise

themselves as professionals in fi elds of plumbing, window, and exterior

products-related installation

Offer marketing support tools for each step of renovation process

LIXIL Reform Chain

Scale Approximately 380 outlets nationwide

Brand

Sumai Concierge LIFA Sumai Pro Homewell

Activities

Operate a Reform Concierge

Certifi cation approval system

Offer technology support tools for

latest popular housing features

(earthquake resistance, insulation,

energy conservation, crime preven-

tion, and universal design)

Offer Reform Concierge training

programs

Provide tools to analyze custom-

ers’ lifestyles Promote use of renovation pack-

ages with strong appeal, particularly

full-scale renovation packagesIntroduce proposal system linked

to analysis tools

31

Number of Ken Depot Outlets (Years ended March 31)

(Number)

One-Stop Services of Ken Depot

To be capable of dealing with a variety of renovation

construction with differing project needs and budgets, it is

imperative that a business be able to supply a diverse range

of building materials and services and create a value chain that

can handle multiple brands and small lots. However, up to

now, inefficiency has been an issue in the renovation industry

because the distribution system for renovation materials has

been almost exactly the same as that for new houses.

As one solution to this issue, the LIXIL Group has established

a membership-based wholesale franchise outlet chain for

professional builders called Ken Depot. Serving the role of

a “convenience store for renovation materials,” Ken Depot

outlets sell some 30,000 items, including building materials,

tools, and work gear and equipment, to small and medium-

sized building contractors and specialists, such as plumbers.

The chain is highly evaluated by professional users for business

hours that can accommodate same-day material procurement

and other conveniences. Over the approximately three-year

period since opening its first outlet to March 2013, Ken Depot

has gained more than 400,000 members.

Ken Depot Network (As of March 31, 2013)

2011 2012 20130

20

40

60

80

Hokkaido 3

Tohoku 6

Kanto, Koshinetsu 37

Chubu 5Kansai 3

Chugoku, Shikoku 3

Kyushu,

Okinawa

5

Manufacturing Business

32

LIXIL Group’s Operations in Brief

Metal Building Material Business Plumbing Fixtures Business

Market Conditions

Factors Affecting Market Conditions

Global Operations■ Take maximum advantage of assets Permasteelisa has in countries worldwide to develop new types of business

■ Expand sales channels through joint venture with China’s Haier Group (expand from kitchen business to other businesses)

■ Achieve double-digit growth in the ASEAN region through self-contained local operations

■ Heighten speed and precision of product business that is integrated with American Standard Asia Pacific and provide

comprehensive solutions for housing and lifestyle spaces

■ Establish presence in new areas where synergies realizable with overseas manufacturing bases and accelerate globalization

■ Following on from China, open interior design centers (IDCs) in ASEAN region and develop and market products accurately

reflecting needs of local customers

■ Lead time from housing starts until actual sales lengthening due to shortage of house-foundation construction workers

■ Demand for homes and buildings incorporating passive capabilities and smart capabilities growing due to government

policies and people’s heightening awareness of environmental issues

■ Demand shifting toward renovation (consumer attitudes changing, asset value of renovated housing rising)

■ Strengthen supply system for Japan and ASEAN

countries by establishing new aluminum products plant in

Vietnam in addition to existing TOSTEM THAI

■ Permasteelisa’s curtain wall business has No. 1 share of

global market

■ Pursue No. 1 position in China for kitchen business

through joint venture with Haier Group

■ Develop new products suited to local markets

■ Toilets business with more than 60% market share

in Vietnam

■ Prices for aluminum and other materials rising due to

weak yen

■ Government implementing housing demand stimulus

measures, such as lower mortgage tax

■ Consumption tax increase

■ Prices for plastic, steel plate, copper, and other materials

rising as yen weakens and oil prices increase

Competitors Japan: YKK AP, Sankyo Tateyama

Overseas: Shuco, Yuanda

Japan: TOTO, Panasonic, Takara Standard, Noritz, Cleanup

Overseas: Kohler, Roca

Direct Customers Housing window sashes: Dealers, sales agencies,

house manufacturers, housing developers

Exterior wall materials: Sales agencies

Building sashes and shutters: General construction

contractors

Dealers (plumbing supplies stores), building materials

trading companies

Sales Strategies ■ Increase sales of Samos II high-performance windows,

designed to reduce CO2 emissions in household sector

■ Capture market through fresh design of Samos II

■ Grow sales of Inplus inner windows for existing homes

■ Roll out more new products catering to market’s shift

toward renovation

■ Bring differentiated products to market

■ Develop customer-oriented products leveraging LIXIL’s

comprehensive space solutions capabilities

Demand for housing window sashes and doors reflects

new housing starts because these products deteriorate

comparatively little due to aging. Meanwhile, we hope to

capture renovation demand arising from the installation of

double sashes and other energy-saving measures in

accordance with Japan’s Basic Act for Housing.

Areas with plumbing fixtures, such as bathrooms,

washstands, toilets, and kitchen systems, are a high priority

for end users considering renovation. Solid renovation

demand promises to support favorable growth in the

plumbing fixtures market.

Manufacturing Business

33



Housing Real Estate and Other Businesses

n Take maximum advantage of assets Permasteelisa has in countries worldwide to develop new types of businessn Expand sales channels through joint venture with China’s Haier Group (expand from kitchen business to other businesses)n Achieve double-digit growth in the ASEAN region through self-contained local operationsn Heighten speed and precision of product business that is integrated with American Standard Asia Pacific and provide

comprehensive solutions for housing and lifestyle spacesn Establish presence in new areas where synergies realizable with overseas manufacturing bases and accelerate globalizationn Following on from China, open interior design centers (IDCs) in ASEAN region and develop and market products accurately

reflecting needs of local customers

n Lead time from housing starts until actual sales lengthening due to shortage of house-foundation construction workers n Demand for homes and buildings incorporating passive capabilities and smart capabilities growing due to government

policies and people’s heightening awareness of environmental issues n Demand shifting toward renovation (consumer attitudes changing, asset value of renovated housing rising)

n Restoration demand from the Great East Japan Earthquake emerging in earnest

n Rush demand before consumption tax increase and corresponding drop in demand after

In the fiscal year under review, new housing starts rose in Japan due to demand arising from the Great East Japan Earthquake, government policies to encourage home purchasing, and low interest rates for mortgages. Further, partly reflecting a correction of the yen appreciation trend and rising share prices that accompanied financial deregulation after a new administration came into power, demand in Japan’s housing and real estate markets has become somewhat firmer.

The home centers market has plateaued at approximately ¥4 trillion. However, companies are differentiating themselves by developing specialty stores for professionals in such industries as construction and agriculture.

n Expand and improve lineup of wooden interior doors produced in Dalian, China

n New housing starts increasing due to rush demand before consumption tax increase

n General consumption trendsn New statutory regulations for insulation and earthquake resistance

n Government taking measures to invigorate renovation market

n Wood prices rising as yen weakens

DCM Japan Holdings, Cainz, Komeri, Kohnan ShojiJapan: Daiken, Panasonic, Nichiha, TOTO

Overseas: Franke, Nobia

Housing franchise business: Homebuilding franchise members

Housing site ground inspection business and housing structural defects liability insurance business: Owners, housing developers, house manufacturers, small and medium-sized homebuilders

Real estate brokerage franchise business: General consumers

Home center business: General consumers, construction professionals

Ken Depot: Construction professionals, small and medium-sized homebuilders

Dealers, sales agencies

n Enter undeveloped areas to capture business opportunities

n Create synergy benefits as comprehensive solutions provider by introducing packages combining products customers purchase with services the business segment provides

n Further specialization in building materials n Home centers: Improve profitability by increasing

proportion of private brands, feature special sales areas for building materials

n Ken Depot: Introduce franchise system, target profile: “convenience store for professionals, logistics center carrying both LIXIL and other companies’ products, and intermediary for introducing professional builders”

n Expand solar business n Develop construction material products incorporating

electronic materialsn Expand and improve products and businesses related

to Home Energy Management Systems (HEMSs) and energy storage

Due to the Great East Japan Earthquake in March 2011 and a nationwide focus on power saving that accompanied subsequent power shortages, consumers’ interest in the earthquake resistance and insulation of houses has been growing. Demand for structures and exterior walls with earthquake resistance and passive capabilities is expected to rise.

34

Market Environment

Industry Trends in Japan

Trends in the Housing Market

Looking at new housing starts in Japan over the past 20 years,

they have been trending downward since peaking at 1.63 mil-

lion units in fi scal 1996. Moreover, given Japan’s declining

population, the number of new housing starts is unlikely to

grow going forward. Following the revision of the Building

Standards Act, new housing starts—which had been trending

between 1.1 million and 1.2 million units a year until fi scal

2006—dropped to the 1.0 million level. Subsequently, the

global fi nancial crisis that the September 2008 collapse of

Lehman Brothers triggered caused a further decrease in new

housing starts to about 0.8 million units. Since then, they have

remained around this level.

In the current fi scal year, ending March 31, 2014, new

housing starts are likely to trend upward year on year due to

continuing restoration demand in the Tohoku region arising

from the Great East Japan Earthquake and a surge in demand

expected prior to a consumption tax hike.

Current Status of Housing Stock

According to a 2008 survey by Japan’s Ministry of Internal

Affairs and Communications, total housing stock in Japan is

approximately 50 million units. Of these, almost 16 million

houses built before 1981 do not meet earthquake-resistance

standards and require rebuilding or renovation to enhance

earthquake resistance. Although the number of houses in

Japan requiring renovation is considerable, renovations have

been limited. A task for the housing, real estate, and construc-

tion industries as a whole is to unearth latent demand by

mitigating consumer anxiety about renovation and taking

advantage of subsidies and other governmental systems.

Trends in the Commercial Building Market

In Japan, total orders for building construction, including offi ce

buildings, stores, factories, and houses, placed with the 50 big-

gest construction companies declined in fi scal 2008 and have

remained fl at since fi scal 2009, with this trend expected to

continue. A shrinking market has made conditions challenging

for the LIXIL Group’s building business in Japan.

In response, the LIXIL Group set its sights on overseas

markets and acquired Permasteelisa S.p.A., headquartered in

Italy, in December 2011. In the fi scal year under review, this

company marketed aggressively to exploit strong demand in

the United States, the Middle East, and Asia.

0

500

1,000

1,500

2,000

1211100908070605040302010099989796959493 (FY)

0-1 year

2-7 years

8-17 years

18-27 years

28-37 years

38-47 years

48-57 years

58 yearsor more

Number of buildingsnot meeting earthquake-resistance standards

0

2,000

4,000

6,000

12111009080706050403020

4

8

12

(FY)

Total New Housing Starts by Usage(1,000 units)

Number of Houses by Age and Type(1,000 units)

Orders Received by 50 Biggest Contractors(¥ trillion)

Owner-occupied Rental housing Built-for-sale

Note: Company-provided housing is included in rental housing.

Source: Ministry of Land, Infrastructure, Transport and Tourism, Survey on Dwelling

Houses and Construction Started (2013)

Detached houses Condominiums Collective houses

Note: Figures exclude unconfi rmed dwellings.

Source: Ministry of Internal Affairs and Communications, Housing and Land Survey (2008)

Note: Building construction only (includes offi ces, government buildings, accommoda-

tions, factories, residences, medical facilities, amusement facilities, etc.)

Source: Ministry of Land, Infrastructure, Transport and Tourism, The Current Survey of

Orders Received for Construction [Big 50 Contractors] (2013)

35

Trends in Raw Material Prices

Prices of raw materials affect the LIXIL Group’s mainstay busi-

nesses. Important raw materials for the Group include alumi-

num for sashes, copper for water faucets, plastic and steel for

unit bathrooms, and wood for interior furnishings. Of these,

the price of aluminum has a particularly large effect on the

Group’s performance.

From 2005, the price of aluminum rose steeply but

dropped due to the global fi nancial crisis that the September

2008 collapse of Lehman Brothers triggered. At present, alumi-

num prices are relatively stable. On the other hand, yen depre-

ciation is affecting the Group negatively because it procures

aluminum overseas. Therefore, in light of current exchange

rates trends, the Group has refl ected the effect of exchange

rates in its business forecast for the current fi scal year.

Size of the Housing Renovation Market

In Japan, the market for buying and selling existing houses is

extremely small compared with other countries’ markets. Sales

of existing houses as a percentage of total house sales—the

total of new house and existing house sales—is between 70%

and 80% among Western countries but only about 13.5% in

Japan. Another major feature of Japan’s market is that the

replacement cycle for houses is only about 30 years, compared

with between 80 and 100 years in Western countries.

The Act for Promotion of Long-Life Quality Housing, which

came into effect in June 2009, and the New Growth Strategy,

announced in June 2010, marked a shift in the Japanese gov-

ernment’s housing policy toward revitalizing the housing

market by emphasizing housing stock. These initiatives refl ect

the government’s belief that an important role of current hous-

ing policy is to stimulate the circulation of existing housing

stock so that people are able to choose houses suited to their

income, life stage, or lifestyle.

In light of the increasing calls for houses that achieve a

net zero energy balance and other environmental benchmarks

as well as the expected rise in demand for renovation to create

barrier-free housing as society ages, the LIXIL Group is

expanding and improving its lineup of products for renovation.

Further, the Group is developing an environment that makes

it easy for end users to request renovation services. These

efforts include opening showrooms to increase contact with

end users, establishing a network of construction companies

that undertake renovation, and enhancing their ability to

provide solutions.

Japan(2008)

U.S.(2007)

U.K.(2008)

France(2008)

0

25

50

75

100

0

200

400

600

800

0

25

50

75

100

Japan(2008)

U.K.(2008)

France(2008)

Germany(2008)

2013201220112010200920080

500

1,000

1,500

2,000

2,500

3,000

3,500

International Comparison of the Share of

Existing Houses Traded(Million units) (%)

International Comparison of the Ratio of Home Renovation

Expenditures to Total Housing Investment(%)

Trends in Aluminum Prices(U.S.$ / ton)

Number of new housing starts Number of existing houses bought / sold

(Number of existing houses bought / sold) / (Existing + New)

Source: Ministry of Land, Infrastructure, Transport and Tourism, White Paper on

Land (2011)

Note: Data charted up from April 1, 2008 to March 31, 2013

Source: London Metal Exchange statistics

Source: Ministry of Land, Infrastructure, Transport and Tourism, White Paper on

Land (2011)

Price peaks at

$3,380 / ton in July 2008


36

09 10 11 12 130

200

400

600

800 651.8

09 10 11 12 13

23.9

3.7%

0

2

4

6

0

10

20

30

Net Sales

(¥ billion)

Operating Income /



Operating Environment and Results in Fiscal Year under ReviewIn the fi scal year ended March 31, 2013, net sales rose 26.6% year on year due to

promotion of the next-generation standard window Samos II, which features superior

insulation, wider view, and thinner frames, and the inclusion in consolidation of

Permasteelisa S.p.A., which is engaged in businesses worldwide catering to the

market for curtain walls for high-rise buildings. Operating income was six times

higher year on year due to the C-30 Project, a cost reduction initiative; control over

the acceptance of orders for low-margin buildings; and restoration following fl ooding

in Thailand, which collectively counteracted worsening sales prices and product mix.

In the fi scal year ending March 31, 2014, we will continue concentrating efforts on

offering solutions based on Samos II to grow sales of one of LIXIL’s superstar products.

LIXIL’s Strengths, Tasks, and Sales Strategies■ Has large market shares for housing window sashes and exteriors■ Leverage Permasteelisa’s strengths to expand global building sashes business

LIXIL boasts signifi cant market shares for housing window sashes and exterior prod-

ucts, such as gates and fences, and its position as a market leader enables it to

unearth demand. Amid recent years’ increasing emphasis on reducing household

energy consumption, we have been earning high acclaim for developing products

that realize outstanding insulation. In the eco-friendly products area, we have been

strengthening our brand power and competitiveness. In the fi scal year under review,

we continued the drive to market Inplus, an inner window for renovation that realizes

excellent insulation and soundproofi ng. Moreover, in December 2012, we launched

and aggressively promoted Samos II. As for the building sashes business overseas, we are taking advantage of the

brand power and marketing, technological, and project management capabilities of

Permasteelisa, which joined the LIXIL Group in December 2011. (Please see pages 24

and 25.)

Growth-Driving ProductsThe next-generation standard window Samos II is a new product that simultaneously

realizes excellent insulation and a slim design based on LIXIL’s original technology.

Reflecting feedback from professional users, we developed this new product based

on Samos—launched in 2010—which we made more convenient and easier to install.

By promoting Samos II, the LIXIL Group intends to improve the insulation of housing

and revolutionize windows in Japan. (Please see Special Feature 2 on pages 51 to 55.)

Other growth-driving products include Fireproof Window FG-E, which has received

approval from the Minister of Land, Infrastructure, Transport and Tourism.

Next-generation standard window Samos II

Review of Operations


37

09 10 11 12 13

374.3374.3

0

100

200

300

400

500

09 10 11 12 13

4.5%17.0

0

4

8

12

16

20

0

1

2

3

4

5

Net Sales

(¥ billion)

Operating Income /



Operating Environment and Results in Fiscal Year under ReviewThis business segment saw net sales rise 1.0% year on year because joint venture

LIXIL-Haier Housing Products (Qingdao) Co., Ltd., established with China’s Haier

Group, began selling kitchen systems. Operating income grew 1.5 times compared

with the previous fi scal year as the C-30 Project cost reduction initiative and the

absence of the previous fi scal year’s one-time cost arising from the integration of fi ve

operating companies to form LIXIL Corporation more than compensated for deteriora-

tion in sales prices and product mix, which resulted from delays in launching new

products. In a high-profi le marketing initiative, we brought to market high-value-

added tankless toilets, unit bathrooms, kitchen systems, and washstand cabinet units

with designs, ease of cleaning, and water-saving features that are highly appealing to

customers. Further, aiming to heighten cost-competitiveness, we transferred and con-

solidated the kitchen systems manufacturing division and closed the Mito Plant in

Japan at the end of September 2012.

In the fi scal year ending March 2014, we are aiming to achieve higher revenues and

earnings by realizing the benefi ts of new products and growing overseas businesses.

LIXIL’s Strengths, Tasks, and Sales Strategies■ Toilet business establishing duopoly in Japan ■ Leading shares of domestic markets for kitchen systems, unit bathrooms, and washstand

cabinet units

Given the renovation market’s expected invigoration, the Group’s strengths are the

leading market shares it has established in Japan through its wide range of plumbing

products. End users are particularly eager to renovate kitchen systems, unit bath-

rooms, and washstand cabinet units. Aiming to exploit our strong market position, we

are developing and rolling out products that are clearly differentiated from those of

competitors. These include products that take less time to install and thereby help

increase the effi ciency of building work as well as products that save energy and

water and are easy to clean.

Growth-Driving ProductsSince launching Satis, a tankless, one-piece bidet-equipped shower toilet, in 2001, we

have marketed new models that have earned strong support from professional users

and end users due to their leading-edge functionality and sophisticated design. In

February 2013, we unveiled three new Satis models, which have highly appealing

functions—such as a new powerful flushing system with minimal water noise—and

are attractively designed and priced. These latest offerings promise to become growth

drivers in sanitary ware lineups.

Other growth-driving products include the Kireiyu unit bathroom incorporating

dirt-protection and the Sunvarie Richelle kitchen system featuring a drain that creates

a whirling water flow to wash away dirt.

Tankless, one-piece bidet-equipped shower

toilet Satis


38

188.0188.0

09 10 11 12 130

50

100

150

200

250

09 10 11 12 13

4.0%

7.6

–2

0

2

4

6

8

–2

0

2

4

6

8

Net Sales

(¥ billion)


Operating Income (Loss) Ratio(¥ billion) (%)

Operating income (loss)

Operating income (loss) ratio

Operating Environment and Results in Fiscal Year under ReviewNet sales declined 1.5% because the Group sold LIXIL Nittan Co., Ltd., to the Secom

Group in April 2012. Nevertheless, the business segment performed well as a result of

expanding and improving its lineup of wooden interior furnishing materials and the

recovery of housing-sidings operations from earthquake damage that affected them in

the previous fi scal year. Increased sales of wooden interior furnishing materials, cost

reductions under the C-30 Project, and the absence of the previous fi scal year’s one-

time integration cost resulted in operating income approximately four times higher

year on year.

In the fourth quarter of the fi scal year under review, we launched six types of

energy generation products, including the solar power generation system Solar Rack, which incorporates new solar panels and increases maximum output by 30%.

LIXIL’s Strengths, Tasks, and Sales Strategies■ Coordinating business units to offer comprehensive value centered on renovation■ Structures with high earthquake resistance and products with enhanced passive

capabilities

The Group is able to provide comprehensive renovation solutions in-house by draw-

ing on an extensive lineup of products—one of LIXIL’s advantages—and coordinating

among business units responsible for specifi c product categories. Also, we are devel-

oping one-piece products incorporating tiles and exterior wall materials in response

to greater interest in disaster prevention and energy saving since the Great East Japan

Earthquake. Other development initiatives include building materials that incorporate

electronic materials for solar power generation. Such development initiatives enable

us to offer products with heightened passive capabilities that competitors do not have.

The LIXIL Group will continue developing technologies and rolling out products to

establish an even stronger position in the energy generation market and contribute to

the realization of a net zero energy balance in Japan’s housing.

Growth-Driving ProductsThe business segment’s growth-driving products include solar power generation

systems Solar Rack and Solar Base and Ecocarat humidity-regulating tiles.

Solar power generation system Solar Rack


39

09 10 11 12 13

175.4

0

50

100

150

200

09 10 11 12 13

0.30.2%

–1

0

1

2

3

4

–1

0

1

2

3

4

Net Sales

(¥ billion)


Operating Income (Loss) Ratio(¥ billion) (%)

Operating income (loss)

Operating income (loss) ratio

Operating Environment and Results in Fiscal Year under ReviewIn the fi scal year under review, net sales in the home center business were approxi-

mately unchanged from those of the previous fi scal year. This was because LIXIL Viva

Corporation’s opening of four Super Viva Home large-scale home centers—such as

the eco-friendly store in Iwatsuki—offset a decline in net sales at existing home cen-

ters. The decrease in home centers’ sales refl ected the absence of the signifi cant net

sales growth seen in the previous fi scal year as a result of restoration and energy-

saving demand following the Great East Japan Earthquake. As a whole, the business

segment achieved a 5.3% increase in net sales, partly due to favorable sales growth

at LIXIL’s membership-based building materials wholesale store, Ken Depot.

Furthermore, by reducing costs and Ken Depot’s defi cit, the business segment moved

into the black on an operating income basis.

At the end of March 2013, the business segment comprised 80 home centers,

having closed 9 home centers during the fi scal year under review, and 62 building

materials wholesale stores.

LIXIL’s Strengths, Tasks, and Sales Strategies■ Accumulated expertise as pioneer in home center business■ Ken Depot business, which exploits LIXIL’s unique strengths as Group with construction-

related expertise

LIXIL’s distribution and retail business is based on the home center business, cater-

ing to general consumers, and the Ken Depot business, for professional users, such

as homebuilders and other construction-related workers. Of these two types of busi-

ness, we have been developing the home center business for more than 30 years.

Consequently, we have garnered abundant expertise in operational management

and business development in this area.

In our home center business, we are strategically opening large-scale stores,

Super Viva Home stores, and closing unprofi table stores among our old-format

small-scale stores, Viva Home stores. Further, we intend to improve profi tability

by increasing the proportion of private brand products from 25% at the end of

the fi scal year under review to 31% by the fi scal year ending March 2016.

As for Ken Depot business, we aim to break even in the current fi scal year and

put the business on track for earnings growth thereafter.

Growth-Driving Business FormatKen Depot, a membership-based building materials wholesale store, is the business

segment’s growth-driving business format. (Please see page 31.)

Ken Depot


40

09 10 11 12 13

59.3

0

20

40

60

80

09 10 11 12 13

4.98.4%

–2

0

2

4

6

–3

0

3

6

9

Net Sales

(¥ billion)

Operating Income (Loss) / Operating Income (Loss) Ratio(¥ billion) (%)

Operating income (loss) Operating income (loss) ratio

Operating Environment and Results in Fiscal Year under ReviewLIXIL Housing Institute, Ltd., which operates homebuilding franchise chains, recorded

higher revenues and earnings by assuming the head office operations of GL Home

Corporation’s homebuilding franchise chain at the beginning of the fiscal year under

review and realizing cost reductions. Although JIO Corporation grew revenues as a

result of increasing housing defect warranty liability insurance policies and launching

sales of defect warranty liability insurance for the purchase and sale of individual sec-

ondhand apartments, its earnings declined due to higher expenses. Despite increasing

new customers through a new housing site ground inspection method, JAPAN HOME

SHIELD CORPORATION, which provides housing site ground inspection and ground

improvement services, saw revenues and earnings edge down amid intensified com-

petition. LIXIL REALTY, Corp., posted higher revenues and earnings due to increased

property sales in the real estate intermediation business. As a consequence of the

above factors, this business segment’s net sales were down 3.4%, while earnings

rose 16.1%.

LIXIL’s Strengths, Tasks, and Sales Strategiesn JIO Corporation: A housing warranty insurance corporation designated by the Ministry

of Land, Infrastructure, Transport and Tourism (MLIT)n JAPAN HOME SHIELD: Largest market share in industry, claiming more than 55% of

housing site ground inspection and analysis marketn As high-margin business, coordinates with other business segments, thereby helping

enhance Group’s corporate value

Providing solutions for housing stock, our housing-related services transcend products

and services in the building materials and construction categories. By offering unique

services that help maintain buildings and enhance their functionality, LIXIL will realize

further differentiation. Given the broad array of services related to homes and living,

we expect to exploit significant business opportunities.

Growth-Driving ServicesThe LIXIL Group is marketing products that save energy in homes, an area that is

seeing growing demand. The Cesibo Smarthouse combines nature’s bounty and the latest

technology to realize more advanced performance in the use of natural energy. It

incorporates technologies that use such natural energy as wind and sunlight, solar

power generation systems, and a Home Energy Management System (HEMS).

Eyeful Home’s New Cesibo

41

CORPORATE GOVERNANCE

The LIXIL Group clearly separates its business execution and oversight functions. In 2011, to enable

rapid business decisions by executive offi cers and to ensure business transparency, the Group

converted to the company with committees governance structure. Aiming to provide value to

stakeholders and remain a highly reputable corporate group, we are constantly working to strengthen

our corporate governance.

Creating a HighlyTransparent andObjective System

42

Message from the Chairman of the Board

The separation of the roles of management (executive offi cers)

and governance (directors, members of the board) in a com-

pany promotes quick and decisive management by mitigating

hesitation in business decisions. At the same time, the separa-

tion of these roles is believed to function powerfully in redi-

recting a company’s business to deal with drastic changes in

trends or periods of crisis. Because of these positive functions,

it is essential that corporate governance be independent from

management and that a majority of board members be free to

devote themselves wholeheartedly to governance. During the

two years since the LIXIL Group Corporation transitioned to

the company with committees corporate governance model,

the ratio of directors who are also executive offi cers to direc-

tors who are not executive offi cers has been 3:8. This ratio has

changed slightly to 3:7 following our general meeting of share-

holders in June 2013.

This spring, I participated in a private meeting of the

World Economic Forum in Davos, Switzerland, on the topic

of nonexecutive chairmen. The meeting was attended by the

chairmen of more than 20 global companies from around the

world. In the United States and Europe, there still are not that

many cases where the chairman of the board is not also the

chief executive offi cer (CEO). However, it is recognized that

there are many advantages to having a chairman with an

objective point of view compared with the dangers of total

management power being invested in a single person. This

function resembles how countries are governed through the

separation of the legislative, executive, and judicial power.

Governance should be independent from business execution

for the same reason that judicial powers are independent from

executive powers. At the Davos meeting, we agreed on the

following points about reinforcing the governance function.

Diversity in board members improves the quality of management deci-sions in the same way that diversity in the composition of groups of executive offi cers and employees is eff ective in the workplace. Although diversity by its nature results in confl icts of opinion, when compared with the management risks of having a homogenous group of board members, a framework where people with diff erent backgrounds and careers are willing to spend time discussing the issues will lead to the prosperity of the company. At LIXIL Group Corporation, our board of directors includes

the former CEO of a company in a different business fi eld,

the former head of a government organization, and an

accounting and auditing expert. This year, we also appointed

a female director with extensive experience in various areas.

Ms. Main Kohda is an economics novelist and has served as a

member of public advisory committees. Among former Group

Governance That Contributes to Creating a Sustainable Company

43

employees now serving as board members of the Company,

we have a director extremely familiar with personnel opera-

tions, a director with a background in the sanitary ware busi-

ness, and myself, the former CEO of the LIXIL Group.

Some sense of tension should necessarily exist between the executive offi cers, including the CEO, and the outside directors, because constructive arguments improve management decisions. By gauging changes in demographics, technologies, and

international competitiveness, the board has to decide what

the central focus of the Group’s management strategies

should be. Moreover, with issues the board is currently

addressing, we have to continually consider whether our

approach is correct. Actually, we discuss possible problems

at length in our monthly board of directors’ meetings until

we are all satisfi ed.

With issues requiring a high level of expertise, professionals must be engaged as advisors to bring everyone up to the same level of understanding. In fact, sometimes there are items on the agenda of our

monthly board meetings for which we do not reach agree-

ment. In such cases, we gather the opinions of experts and

re-discuss the issue at the next monthly meeting to reach a

decision. For example, when we were discussing the intro-

duction of a new system to reinforce compliance, certain

board members expressed doubts about the legal procedures

involved. Over the next month, therefore, we worked with a

law offi ce, revising our company rules based on an examina-

tion of actual legal cases. In another situation, when we were

discussing capital investment to increase our production

capacity, there was a question as to whether the demand

forecasts prepared by the plant manufacturing the products

were accurate. Furthermore, a board member questioned,

based on personal experience, whether the amount of the

capital investment could be reduced by improving produc-

tivity. As a result, we reexamined the technology involved.

Although the LIXIL Group operates in the building

materials and housing equipment market, which has matured

in Japan, I believe that we still have infi nite opportunities to

increase our growth and profi tability. The LIXIL Group is the

only corporate conglomerate in the world with a diverse range

of living- and housing-related businesses gathered under the

same roof. That range of businesses includes manufacturing

operations covering various building materials; distribution

businesses, such as our home center and Ken Depot outlet

chains; inspection and insurance services; housing and real

estate franchise chains; and assisted living nursing homes for

the elderly. Moreover, we have building material, engineering,

and other operations not only in Asia but also in Europe, the

Americas, and other regions. Given this diversity, we are likely

to encounter many opportunities for M&A deals or business

alliances going forward. To sustain our growth and high profi t-

ability, how should we change our management strategies? In

implementing those changes, what degree of risk is accept-

able? Our governance issues are endless.

By maintaining a close dialogue with our CEO, the board is

committed to fulfi lling your expectations of its oversight role in

LIXIL Group Corporation’s management.

August 2013

Yoichiro Ushioda

Chairman of the Board

Composition of the Board of Directors (10 members)

Directors who are not

executive officers: 7 members

Internal directors: 6 members Japanese males: 9 members

Directors who are concurrently serving

as executive officers: 3 members

Outside directors: 4 members Japanese females:

1 member

Directors /

Executive DirectorsOutside Directors Diversity

44

Yoichiro Ushioda

Director, Chairman of the Board

Mr. Yoichiro Ushioda has been serving as

Chairman of the Board of the Company since

June 2012. He previously served as Executive

Vice President in the Company from 2001

and as Chairman, CEO, and Representative

Director from 2006. He also served as

Chairman and CEO of Tostem Corporation

(now LIXIL Corporation) and LIXIL Corporation

in the past. Mr. Ushioda originally joined the

Company in 1977 and became Director and

General Manager of the Sales Planning

Department in 1980.

Fumio Sudo

Director (Outside)

Mr. Fumio Sudo has been serving as Outside

Director in the Company since June 2010.

He has also been Head of the Company’s

Nomination Committee since June 2012 and

a member of the Company’s Compensation

Committee since June 2011. Mr. Sudo also

serves as an advisor of JFE Holdings, Inc.,

and as Director in Takeda Pharmaceutical

Company Limited and Taisei Corporation. He

was President and Representative Director of

JFE Holdings, Inc., from 2005 to 2010.

Keiichiro Ina

Director

Mr. Keiichiro Ina has been serving as Director in

the Company since June 2001. From 1998,

he served as Director in INAX Corporation

(now LIXIL Corporation), originally joining the

company in 1974.

Yoshiaki Fujimori

Director*

Mr. Yoshiaki Fujimori has been serving as

President and CEO of the Company as well

as President and CEO of a subsidiary, LIXIL

Corporation, since August 2011. Prior to join-

ing the Group, Mr. Fujimori worked for 25 years

at General Electric Company (GE) where he

was Senior Vice President and a member of

the Corporate Executive Council. He served as

President and CEO of various business divi-

sions, including Medical Systems Asia, GE

Plastics, and GE Capital Asia, and as Chairman

of GE Japan. Prior to joining GE, he worked for

Nissho Iwai Corporation (now Sojitz Corporation)

for 10 years. He has been Director in Tokyo

Electric Power Company, Incorporated,

since 2012.

Board of Directors(As of June 21, 2013)

Nomination Committee

Fumio Sudo (Head)

Yoichiro Ushioda

Hidehiko Sato

Compensation Committee

Takashi Tsutsui (Head)

Fumio Sudo

Main Kohda

Audit Committee

Yoshinobu Kikuchi (Head)

Tsutomu Kawaguchi

Hidehiko Sato

45

Takashi Tsutsui

Director*

Mr. Takashi Tsutsui has been serving as

Executive Vice President and Director in the

Company since June 2011. He is also Head of

the Company’s Compensation Committee and

has been serving as Executive Vice President

and Director in a subsidiary, LIXIL Corporation.

Prior to joining the Group in April 2009,

Mr. Tsutsui served as President and CEO of

Jasdaq Securities Exchange, Inc., from 2005.

Prior to joining Jasdaq Securities Exchange, he

worked for Nomura Securities Co., Ltd. (now

Nomura Holdings, Inc.), joining the company in

1974 and becoming Director in 2002 and

Executive Offi cer in 2003.

Yoshizumi Kanamori

Director*

Mr. Yoshizumi Kanamori has been serving as

Chief Financial Offi cer, Senior Managing

Executive Offi cer, and Director in the Company

since June 2011, with responsibility for

accounting and fi nance. He is also serving as

Senior Managing Executive Offi cer and Director

in a subsidiary, LIXIL Corporation. He joined the

Company in 1977.

Hidehiko Sato

Director (Outside)

Mr. Hidehiko Sato has been serving as Outside


He is also a member of the Company’s Audit

Committee and Nomination Committee, serves

as Director in Dainippon Sumitomo Pharma

Co., Ltd., and is registered as a lawyer.

Previously, Mr. Sato was the Commissioner

General of the National Police Agency from

2002 to 2004, having held a variety of posi-

tions since joining the agency in 1968.

Yoshinobu Kikuchi

Director

Mr. Yoshinobu Kikuchi has been serving as

Director in the Company since June 2012

and is also Head of the Company’s Audit

Committee. Previously, he also served as

Executive Vice President in a subsidiary, LIXIL

Corporation. He joined the Company in 1969.

Tsutomu Kawaguchi

Director (Outside)

Mr. Tsutomu Kawaguchi has been serving as

Outside Director in the Company since June

2011. He is also a member of the Company’s

Audit Committee and serves as an auditor

of FreeBit Co., Ltd. Mr. Kawaguchi has been

a registered certifi ed public accountant

since March 1974 and used to serve as

Representative Partner for Grant Thornton

Taiyo ASG.

Main Kohda

Director (Outside)

Ms. Main Kohda has been serving as Outside


She is also a member of the Company’s

Compensation Committee. She has been a

member of the NHK Management Committee

since June 2010 and Outside Director in Japan

Tobacco Inc. since June 2012. She is also a

bestselling writer. Prior to joining the LIXIL

Group, she worked for U.S. banks and securi-

ties companies and she has also served as

a member of public advisory committees.

* Indicates a director who serves as an executive offi cer

46

Corporate Governance at the LIXIL Group

LIXIL Group Corporation has adopted the company with com-

mittees corporate governance model as provided for under

Japan’s Companies Act. Under this governance system, the

Company separates the conduct of management from the sur-

veillance of management with the objectives of creating a

system where the executive offi cers can make management

decisions quickly and effi ciently, while achieving and main-

taining management transparency.

As a pure holding company, the Company has formed the

following meetings, committees, and councils to strengthen

governance over Group companies: Management Meeting,

Internal Audit Committee, Compliance Committee, Risk

Management Committee, Investment Strategy Council,

Investment and Loan Council, CSR Promotion Committee,

Reorganization Deliberation Council, and New Business

Deliberation (Acquisition) Council. These committees discuss

corporate strategy, consider medium- to long-term policies,

deliberate investments, and work to accelerate decision

making while enhancing the effectiveness of governance.

Governance Structure (As of July 1, 2013)

General Meeting of Shareholders

LIXIL Group Corporation

Operating Companies

Co

mp

any w

ith C

orp

ora

te

Aud

ito

rs

Chairman of the Board

Board of Directors

(Decision making and supervision)

Appointment

and Dismissal

Board of Directors

(Internal and Outside)

Nomination Committee

Compensation Committee

Audit Committee

Compliance

audit

Validation

audit

Compliance

audit

Validation

audit

Representative Executive Offi cers and Executive Offi cers

(Decide on matters delegated by the Board of Directors,

and execute business)

Acco

unting A

udito

rs (Co

llabo

rate with Internal A

udit C

om

mittee and

Internal Aud

it Divisio

n)

Appointment

and

Dismissal

Appointment

and Dismissal

Management

Supervision

Determination

of Director

Candidates

Appointment

Appointment and

Dismissal

Report

Executive Offi cers Meetings and Various Committees

Management Meeting, Internal Audit Committee, Compliance Committee, Risk Management Committee,

Investment Strategy Council, Investment and Loan Council, CSR Promotion Committee,

Reorganization Deliberation Council, and New Business Deliberation (Acquisition) Council

Audit

Audit

General Meeting of Shareholders

Board of Directors

Management Meeting

Divisions

Corporate Auditors

For further details regarding the Company’s corporate governance system, internal control systems, and other related matters,

please access the following URL:

http://www.lixil-group.co.jp/e/about/governance/system.htm

Status of Corporate Governance

Report

Sup

erv

isio

nB

usin

ess E

xecutio

n

(Outside

directors form

the majority)

Co

mp

any w

ith C

om

mitte

es

47

Fumio Sudo

Head of the Nomination Committee and

Member of the Compensation Committee

Tsutomu Kawaguchi

Member of the Audit Committee

Hidehiko Sato

Member of the Nomination Committee

and Audit Committee

Main Kohda

Member of the Compensation Committee

As an outside director, rather than only providing business man-

agement oversight, I would like to offer more benefi cial advice.

Amid today’s political, economic, and social volatility and

unpredictability, ensuring equitability and transparency while

meeting the needs of shareholders, customers, and numerous

other stakeholders is both an undeniable obligation of corpo-

rate management and extremely challenging.

Despite these conditions, the senior management team of

LIXIL Group Corporation is making great strides forward by

pursuing reforms and challenges decisively, seeking new value

creation, and strengthening internal control.

Under the Companies Act, an outside director’s responsibil-

ity is the oversight of business management. However, I think

that in an entity with a committee based governance structure,

such as LIXIL Group Corporation, outside directors should take

their responsibilities even more seriously. Therefore, to meet

the expectations of shareholders and other stakeholders, I

intend to devote myself to providing more benefi cial advice

on business management through meetings of the board of

directors and committees.

To ensure the success of operational expansion and business

format revamping, internal control must function.

Soon after TOSTEM Corporation, INAX Corporation, Shin Nikkei

Company, Ltd., Sun Wave Corporation, and Toyo Exterior Co.,

Ltd., merged to form LIXIL Corporation in April 2011, the

Company began globalizing steadily, acquiring Permasteelisa

S.p.A. and forming a joint venture with the Haier Group. To

ensure that such rapid operational expansion and business

format reform succeeds, an effectively functioning internal

control system based on fi rm governance is critical.

Recently, the Company has overcome such diffi culties as

the Great East Japan Earthquake and large-scale fl ooding in

Thailand, but we cannot know what the future will bring.

When discussing agenda items in meetings of the board of

directors—while reaching conclusions contributing to growth

strategy—I would like to focus attention on whether we are

taking risk into consideration adequately and whether the

internal control system is functioning effectively. Further, I

would like to ensure the timely disclosure of appropriate

corporate information.

Without a doubt, frank opinions and lively debate help solve

management problems.

Guided by a corporate philosophy that calls on it to contribute

to improving people’s comfort and lifestyles, the Company aims

to be a global leader in the living and housing solutions indus-

try. To this end, the Company is integrating mainstay manufac-

turing operations and developing businesses overseas rapidly.

Further, to address challenging issues arising from these initia-

tives—such as implementing systems integration and establish-

ing a common corporate culture—the Company has been using

internal control to achieve favorable results steadily.

Partly because it is an entity with a committee based gov-

ernance structure, the Company has a high proportion of out-

side directors on its board of directors. Consequently, the frank

opinions members of the board state during lively discussions

refl ect a variety of standpoints. I am sure governance based on

this type of system contributes signifi cantly to the Company’s

proactive business management and the resolution of issues

accompanying it. Drawing on my experience in government

and organizational management, I will continue contributing to

the utmost of my ability as a member of the board of directors.

I will support the capabilities of on-site personnel who remain

proactive as they tackle ambitious challenges to overcome

diffi cult problems.

While continuing to write novels themed mainly on economic

matters, I have served on government councils and in other

capacities that have given me the opportunity to address a variety

of matters, including national debt, national economic and fi nan-

cial issues, and Japanese companies’ business conditions.

My experience, including a long career in international

fi nance, has taught me that initiatives in any fi eld rely on the

capabilities of on-site personnel who remain proactive as they

tackle ambitious challenges to overcome diffi cult problems.

The trust each LIXIL employee garners by tackling day-to-

day work sincerely provides a solid foundation for advancing

business. Particularly in the context of today’s highly volatile

and uncertain environment, this trust is a valuable asset and

the core of competitive strength.

As an outside director, I intend to assist the LIXIL team,

who see in change opportunity rather than risk and always

respond to challenges positively.

Messages from Outside Directors

48

Composition of Committees and Position of the Chairman

Number of Members Internal Directors Outside Directors Chairman (of the Committee)

Board of Directors 10 64 (all 4 are

independent directors)Internal Director

Nomination Committee 3 1 2 Outside Director

Compensation Committee 3 1 2 Internal Director

Audit Committee 3 1 2 Internal Director

Number of Meetings Held during the Fiscal Year Ended March 31, 2013

Board of Directors 16

Made decisions on matters specifi ed by law, basic management policies, and important management mat-

ters as well as monitored the conduct of duties by the directors and executive offi cers (Meets once a month

in principle)

Nomination Committee 2Made decisions on the content of proposals to be submitted to the General Meeting of Shareholders regarding

the election and dismissal of directors (Meets one or more times a year, as necessary)

Compensation Committee 6Discussed and made decisions regarding the content of compensation of individual directors and executive

offi cers (Meets one or more times a year, as necessary)

Internal Audit Committee 15

In addition to auditing the conduct of duties by the directors and executive offi cers, discussed and made deci-

sions on auditing policy, auditing plans, and the content of proposals to be submitted to the General Meeting of

Shareholders regarding the selection and dismissal of the independent accounting fi rm (Meets once a month or

more, as necessary, in principle)

Executive Offi cers Meeting 23

As the decision-making body responsible for the execution of business activities in accordance with the basic

policies approved by the board of directors, decided on important matters related to the execution of business

in the Company and the Group as a whole (Meets once a month in principle; hold extraordinary meetings

as necessary)

Investment Strategy Council 2Discussed Group strategy (investments, funding, M&A, overseas strategy, etc.) and set directions with the

objective of increasing the LIXIL Group corporate value

Investment and Loan Council 25

Deliberated proposals made by the holding company and the operating companies that (1) are investments that

are closely involved with Group strategy, (2) investments that are related to more than one Group operating

company, and (3) investments that exceed the approval authority of the president of the relevant operating com-

pany (e.g., opening of new LIXIL Viva stores)

CSR Promotion Committee 4Formulated the CSR Policy for the overall LIXIL Group and provided oversight and guidance for the implementa-

tion of priority themes and activities based on that policy

Reorganization Deliberation

Council 2

Makes early identifi cation of unprofi table businesses to strengthen competitiveness and deliberates restructuring

policies with an eye to business structural reforms when appropriate

New Business Deliberation

(Acquisition) Council 3

Deliberated proposals made by the holding company and the operating companies that are (1) investments that

involve the establishment of a new company or are investments in an existing company and (2) investments for

the acquisition, etc., of a business partner company of an operating company

Risk Management Committee 10In addition to forming a risk management committee in the holding company, also requires the formation of

such committees for risk management in Group companies and confi rms the status of risk management

Compliance Committee 4Provided guidance for structuring and operational management of compliance systems in Group companies

and monitoring of the status of requiring compliance with laws and regulations

Status of Auditing Activities

Internal Audit Division

The holding company and principal Group companies have formed internal auditing departments that periodically conduct

audits internally, including audits of subsidiaries. The Meeting of Persons Responsible for Internal Auditing in Group

Companies has been formed to share information on Group companies as well as the uniform auditing policies of the Group.

This meeting is held, in principle, once a year in Japan and once every two years overseas.

Accounting Auditors Deloitte Touche Tohmatsu LLC

Corporate Governance

49

3. Policy for Determining the Amount and Method of Calculation of Corporate Offi cers’ Compensation

and Decision-Making Method

Basic policy on compensation, etc.

The Company’s policy on the compensation plan for corporate

offi cers is to implement a fair compensation structure that will

motivate each corporate offi cer to execute his or her duties in

order to meet shareholders’ expectations and fulfi ll the

Company’s business policy.

The compensation system shall be performance-based com-

pensation to allow for appropriate refl ection of the Group’s

consolidated performance.

To ensure the concurrence of interests between shareholders

and corporate offi cers, a stock option plan shall be adopted

to allow for the refl ection of continual medium- to long-term

enhancement of corporate value.

Performance accountability shall be clearly established, and a

system shall be devised that will reward corporate offi cers

with appropriate compensation upon the achievement of a

goal in order to motivate corporate offi cers to achieve the

goals set.

The Compensation Committee shall assess the Company’s

compensation level by comparing it with objective external

indicators and manage it to ensure that the level is commen-

surate with the relevant duties and performance. At the same

time, the level shall be set to be suffi cient to retain for the

long-term competent human resources who are indispens-

able to the Company’s sustainable growth.

Compensation structure

Under the corporate offi cers’ compensation structure, there

shall be separate structures for directors, who are responsible

for governance, and executive offi cers, who are responsible

for the execution of business operations, in order to refl ect the

differences in their roles. In the case of a director who is con-

currently serving as an executive offi cer, the compensation

plan for executive offi cers shall be applied.

[Compensation structures for directors and executive offi cers]

A director’s compensation shall consist of basic compensa-

tion and stock options.

An executive offi cer’s compensation shall consist of basic

compensation, performance-based compensation, and

stock options.

[Description of compensation by type]

As fi xed compensation, basic compensation shall be main-

tained at an appropriate level through comparison with

objective external indicators. The basic compensation for

executive offi cers shall be structured such that a certain per-

centage thereof fl uctuates in accordance with the level of

achievement of business targets set for the relevant depart-

ment in order to reward executive offi cers for the achieve-

ment of goals.

Performance-based compensation shall be determined

in accordance with the position of the relevant executive

offi cer based on the operating income margin for the current

fi scal period and allocated as an annual bonus.

Stock options, provided as a medium- to long-term incentive

in the interest of shareholders, shall be determined on the

basis of corporate performance, the position of the relevant

corporate offi cer, and other criteria.

Corporate Offi cer Compensation

Compensation paid to the Company’s corporate offi cers in the year ended March 31, 2013, was as per the tables below.

1. Total Amount of Compensation by Corporate Offi cer Title, by Type of Compensation, and Number of Offi cers Receiving

Corporate Officer TitleTotal Compensation

(Millions of yen)

Total Compensation by Type

(Millions of yen)Number of Corporate

Officers Eligible for

CompensationBasic CompensationPerformance-Based

CompensationStock Option

Directors

(excluding Outside Directors)176 127 — 49 3

Executive Offi cers 972 679 108 185 14

Outside Directors 73 60 — 13 5

2. Total Compensation of Offi cers Receiving ¥100 Million or More

Name Corporate Offi cer TitleTotal Compensation

(Millions of yen)

Total Compensation by Type (Millions of yen)

Basic CompensationPerformance-Based

CompensationStock Option

Yoichiro Ushioda Director and Executive Officer 146 104 — 41

Yoshiaki Fujimori Executive Offi cer 295 194 60 41

50

Investor Relations

Basic Investor Relations Policy

LIXIL Group Corporation regards investor relations as facilitat-

ing communication with capital markets in Japan and overseas

and thereby helping enhance corporate value. Accordingly, the

Company’s investor relations activities convey messages from

senior management to markets while providing senior manage-

ment with feedback from markets in an unfl agging effort to

boost corporate value.

Criteria for Disclosure

LIXIL Group Corporation is committed to developing business

activities that not only comply with legal requirements but

meet the highest ethical standards. It is also committed to

transparent and timely disclosure to shareholders and other

investors. Regarding the disclosure of important information,

such as decisions, events, or information regarding accounts

settlement, that affects investment judgments, the Company

discloses the information based on the timely disclosure rules

enacted by the Tokyo Stock Exchange. It is also the Company’s

policy to disclose information that does not fall under the

timely disclosure rules, as positively and fairly as possible,

in order to better meet investors’ needs.

“Quiet Period”

In order to prevent the leakage of information regarding the

data for the announcement of the account settlement and to

ensure fairness, LIXIL Group Corporation has established an

approximately three-week “Quiet Period” prior to the

announcement of the quarterly accounts. During this period,

the Company refrains from making comments on the accounts

or responding to related questions. However, in the event that

LIXIL Group Corporation fi nds a major discrepancy in relation

to projections during the “Quiet Period,” the Company will dis-

close the relevant information in accordance with the timely

disclosure rules.

External Evaluations

Institutional Investors

Best IR Companies: Construction

No. 1 (Buy side)

No. 3 (Sell side)

http://www.institutionalinvestor.com/Research/4265/

Best-IR-Companies.html

Best CEOs: Construction

No. 1 (Buy side)

No. 3 (Sell side)


Best-CEOs.html

Best IR Professionals: Construction

No. 3 (Sell side)


Best-IR-Professionals.html

Daiwa Investor Relations Co., Ltd.

“Internet IR Award” in November 2012

Internet IR Commendation Award

Nikko Investor Relations Co., Ltd.

“Listed Company Website Quality Ranking”

in November 2012

Internet IR Award

http://www.lixil-group.co.jp/about/evaluation.htm

(Japanese only)

IR Team (from left):

Shizuka Fukushima

Asuka Hara

Daizo Motoyoshi (New York Representative)

Takashi Tsutsui (Executive Officer in charge

of M&A, Investor Relations and External Affairs)

Yukiyo Uto

Emiko Ukon

Keishi Saito (Head, Investor Relations Office)

Yoriko Nakashima

Investor relations site

http://www.lixil-group.co.jp/e/ir/

51

SPECIAL FEATURE 2 Turning Innovation into Opportunity

Shouldn’t innovation efforts aimed at constantly increasing corporate value also have to contribute to

the development of a sustainable society? Based on this type of perception of the issues facing the

LIXIL Group, we are seeking to establish unique LIXIL business domains that lead to the generation of

social value that will develop new markets or to the enhancement of our overall competitiveness. What

stage are we at in fusing business and social values? In this section, we look at recent developments in

combining business operations with creating social value.

SPECIAL FEATURE 2

Turning Innovation into Opportunity

52

Three-year project targeted rewriting the window

standard—Samos

Mr. Hosaka: The Samos II window sash that you and your team

developed is an important part of the Tsufu-Sofu Design

Support Service that I developed.

Mr. Ohno: Tsufu-Sofu—that’s LIXIL lingo isn’t it?

Mr. Hosaka: Yes, in naming the service, we used a slight twist

on the normal word tsufu, or ventilation, adding a made-up

word, sofu, that stands for wind generation. This is the term we

use for utilizing temperature differences in the air to generate

the natural movement of air even when there is no air current.

Whether ventilation or wind generation, without a window

neither could happen, so I am very familiar with Samos II, one

of our Group’s core product.

You have been involved with the Samos product line since

the launch of the original Samos in 2010 and are well known

throughout our Group as a window sash specialist. What was

the reason that you originally began work on its development?

Mr. Ohno: We started in 2007, when a product development

team was set up and given the theme of “Raising the Bar on

the Functionality of Japanese Housing.” In comparison with

houses in Europe and the United States, Japanese wooden

framework houses had large apertures, resulting in poor

energy effi ciency, which had become an issue in the industry.

Of course, the apertures we are talking about had windows in

them. So, our basic thinking was that, if we increased the insu-

lation effi ciency of the windows, we would be able to raise the

energy effi ciency of Japanese houses. Since the project

involved a certain amount of pride, our team started up with

the determination to change the industry “standard,” or in

other words, the regularly used products. However, the actual

commercialization of the Samos product took three long years.

Mr. Hosaka: Both the next-generation Samos II products and

their predecessor Samos immediately strike the eye for their

beauty in such aspects as the narrowness of the sash and the

nicely designed fi t of the locks. When I look at them with a

technical eye, I am also impressed with their high functionality

and workability.

Mr. Ohno: We aimed to improve its insulation and functions

and that just naturally turned into a smart design.

Mr. Hosaka: So the narrow frames were also a result of your

efforts to enhance insulation effi ciency, right?

Mr. Ohno: Compared with the glass surface of the double-lay-

ered glass, the aluminum in the frame has higher heat conduc-

tivity. So, our logic was that, if we reduced the surface area of

the aluminum frame as much as possible, it would raise the

insulation effi ciency. As a result, the surface area of the win-

dows themselves increased about 10% to 15% compared with

traditional products. The idea of not using screws in the

window frames was also an ingenious way of raising the

effi ciency of installation or workability of the product.

In addition to the functionality of a product, demand has

emerged for services for customized proposals for lifestyles

Mr. Hosaka: Looking at things from my perspective of housing

design support, I can see that in the development of Samos, you

have, of course, not only thought about the functions themselves

but also everything else, like “how will it be used?” and “how will

Interaction between Sustainability and BusinessA meeting between the person responsible for the development of Samos, one of the LIXIL

Group’s core products, and another responsible for the Tsufu-Sofu Design Support Service,

a new LIXIL service launched in April 2012. Through the dialogue between these two creative

people, we catch a glimpse of the thinking behind the development of LIXIL products and

services, processes unique to manufacturers, and the issues the LIXIL Group will be tackling

in the future.


Makoto OhnoHead, Sash Product Division

Global Sash & Door Business

Products Company, LIXIL Corporation

Mr. Ohno joined the former Toyo Sash Co., Ltd.,

in 1984. He has been involved with the develop-

ment of Samos next-generation window sashes

since 2008 and has been head of the Sash

Product Division since 2011.

Shuichi HosakaDesign Section Leader,

Structure Development Division

Product Department

Global Outer Wall & Structure Business

Products Company, LIXIL Corporation

Mr. Hosaka joined the former Toyo Sash Co.,

Ltd., in 1990. Currently, he is working on the

development of the SS Structure Value construc-

tion method that enhances earthquake resis-

tance and the design support services that

improve functionality in living environments.

53

We pursued maximum insulation, functionality,

and workability and found the result to be a product

that is also pleasing to the eye.

Makoto Ohno

Left: The general-purpose insulated housing window

Samos II with high-performance insulation and

environmental features. Because the Samos II window

does not radiate as much heat, it enables reduced

energy consumption.

Upper Right: Example of installation of Samos II

Bottom Right: As a result of the use of a completely

different structure than traditional frames in the pursuit

of better insulation efficiency, the design of the frame

also improved.

it make people’s living more comfortable?” Since I mainly work

with homebuilders, I can really relate to creating products by

taking into consideration installation and use by homeowners

instead of developing products just on functional merits.

Mr. Ohno: There are many points that have to be considered in

the product development process, including the functionality

of the product, the mass production system and cost, and ease

of installment in the workplace. But, in my mind, I am always

questioning how the product is going to be used and how will

it contribute to “Good Living” after it is completed.

Mr. Hosaka: Against the backdrop of this type of awareness of

the issues, I think there has been a clear movement within the

LIXIL Group toward providing services that propose the use of

products to achieve “Good Living.” The Tsufu-Sofu Design

Support Service is not just about insulation and airtight “enclo-

sure technologies”; it was developed based on the concept of

achieving both energy conservation and a comfortable lifestyle

by opening windows and letting breezes in.

Creating new services using state-of-the-art technologies

has led to a rediscovery of traditional Japanese wisdom.

Mr. Ohno: Homebuilders and homeowners are not very aware

that windows are the key to reducing the energy consumption

of houses. Not to mention that achieving energy conservation

using a natural force like breezes is something new even to

building materials and housing equipment manufacturers like us.

54

The Tsufu-Sofu Design Support Service creates for end

users energy-conserving living styles that utilize nature by

incorporating natural tsufu, or ventilation, and sofu, or

wind generation.


Mr. Hosaka: You’re right that it is new in the sense of going

beyond what building materials and housing equipment manu-

facturers usually deal with. However, the concept has existed

since ancient times. Traditional Japanese houses had what was

called a ranma, or transom, near the ceiling to provide ventila-

tion. Moreover, by installing a fl oor-level vent like a window,

traditional houses had an ingenious method of letting in cool

breezes. In both cases, scientifi c calculations have shown us

that the designs of these mechanisms achieve the optimum

size, type, and positioning of such windows. In developing

the Tsufu-Sofu Design Support Service, we verifi ed the wisdom

that our ancestors acquired based on their experience with

houses that were environmentally friendly by using precision

simulation technology. The main point of the new service is that

it is based on both tradition and state-of-the-art technology.

Mr. Ohno: Where did you get the simulation technology

and the demonstration test data?

Mr. Hosaka: The person in charge of the simulations is the

leading expert on measuring the airfl ow in houses, well

known among researchers in this fi eld as Dr. Breeze. We col-

lected the demonstration test data from the COMMA House, a

joint research facility set up with the University of Tokyo’s

Institute of Industrial Science.

Continuous exploration of the meaning of “Good Living”

links to value creation unique to the LIXIL Group

Mr. Hosaka: Recently, I have come to conclude that we have

reached a turning point in society’s awareness of energy con-

sumption. We launched the Tsufu-Sofu Design Support Service in

April 2012. The emergence of homeowners and well-intentioned

homebuilders who recognize the value of using nature’s power

to reduce energy consumption as much as possible has contrib-

uted to steady growth in the service’s performance record. Have

you seen the same changes in the Samos II market?

To achieve “Good Living” for a homeowner,

your proposal must take into account the living

style of the people who will live in the house.

Shuichi Hosaka

Airtightness and insulation

Light

Ventilation

55

COMMA House is a joint experimental

house project of the University of Tokyo’s

Institute of Industrial Science, LIXIL

Corporation, and LIXIL Housing Institute’s

Eyeful Home. “COMMA” is derived from

COMfort MAnagement.

The LIXIL Group is implementing the concept of Passive First

as an important theme for its smart houses. Passive First means

to give priority to passive technology over active technology in

designing a smart house. The concept cleverly utilizes the

forces of nature to create environments for an enjoyable and

comfortable living style.

Following the Great East Japan Earthquake, the movement

toward a more energy-conserving lifestyle spread, supported

by the government announcing drives to promote longer-last-

ing, superior housing and zero-energy housing. The Passive

First concept aims to fi rst enhance the basic functions of a

house, creating a balanced combination of energy conserva-

tion and generation equipment and devices, giving top priority

to comfortable living styles with minimum use of energy.

For example, by using Samos II window sash, we boost the

insulation effi ciency of the building, designing the openings in

the structure to skillfully pull in light and breezes. We select

appropriate equipment and devices with high-performance

energy- and water-saving features and install energy generation

equipment taking into consideration conditions at the house

site. Then, we install systems to supply hot and cold water and

make energy use visible and controllable. Smart houses that

cleverly use the forces of nature while controlling energy con-

sumption contribute to an enjoyable and sustainable living style.

The LIXIL Group’s strength in this area lies with its ability

to assemble various products and services, such as Samos II window sash, the Tsufu-Sofu Design Support Service, and the

water-conserving Satis toilet and the ecoful shower, to achieve a

Passive First environment. In addition, by combining a diverse

Passive First! A Concept That Cleverly Uses the Forces of Nature Toward a More Enjoyable Smart House

Takuma Yoshimura

Manager

Sales Promotion Division

Sales & Marketing Planning

Department

LIXIL Japan Company

LIXIL Corporation

Mr. Ohno: The fact that Samos II has been designated one of the

Group’s superstar products is evidence enough of the changes

occurring. Currently, the LIXIL Group is shifting its sales strate-

gies to pushing Samos II as our recommended window sash in

all proposals. I get the sense that original intentions of the

product development team to “Raising the Bar on the

Functionality of Japanese Housing” and “Changing the

Standard” are becoming a reality.

Mr. Hosaka: And I and my team are playing a part in making

that a reality. Providing a service that recommends windows

that suit the individual living style of each homeowner means

thinking about house designs that maximize the functions of

Samos II right on the building site with homeowners.

Mr. Ohno: I think that further cultivating the theme of “Good

Living” that Samos II and the Tsufu-Sofu Design Support Service

aim to provide is an important theme for the LIXIL Group

going forward. I believe that working with homeowners and

homebuilders in considering just what “Good Living” is will

enable the LIXIL Group to discover new value content unique

to the LIXIL Group.

range of other products, we can offer a “Good Living” environ-

ment that is suited to the living style of each customer.

From February to April 2013, the LIXIL Group held LIXPO

2013 new product launch events in eight locations, from

Hokkaido to Kyushu, under the theme of “Nurturing Living

Environments.” We used the events to communicate our prod-

ucts and services and our approach to the market as a com-

prehensive living and housing solutions company to the

approximately 70,000 mainly business-related visitors.

The LIXIL Group is not interested in just selling building

materials and housing equipment. We want to establish a compet-

itive advantage in the market by explaining our Passive First con-

cept, thinking about living styles, and offering help with achieving

comfortable living that only the LIXIL Group can provide.

The Passive First concept

seeks to make houses

more comfortable by

enhancing their basic

functions while cleverly

utilizing the forces of

nature. The LIXIL Group is

committed to spreading

the practice of comfort-

able and eco-friendly

living styles based on its

construction and equip-

ment know-how accumu-

lated over the years.

Passive

Utilizing the forces of nature to enhance

the basic functions of buildings

Window sashes and doors with superior

airtight and insulation features

Active

Technology that saves

energy or generates energy

Solar cell power generation sys-

tems, energy-saving home

appliances, and high-effi ciency

water heaters

Control

Technology to visualize

energy use and enable

optimum energy

management

Home Energy Management

System (HEMS)

56

CSR Initiatives

CSR and the LIXIL Group’s Business Management

The LIXIL Group CSR Promotion Committee leads our efforts

to meet society’s demands and expectations and help develop

a sustainable society. In July 2012, we established the CSR

Policy, including Priority Themes and Planned Activities.

Further, the Management Meeting approved the Group’s sign-

ing of the United Nations Global Compact and announced that

the Group would exercise leadership through responsible cor-

porate behavior in July 2013.

LIXIL Group’s Approach to CSR

The LIXIL Group realizes its CSR through efforts to realize its

corporate philosophy, which aims to have “The Group’s supe-

rior products and services contribute to improving people’s

comfort and lifestyles.”

To become a global leader in the living and housing solu-

tions industry, we believe being customer oriented and strate-

gically incorporating social issues into the goals and raison

d’être of our business is important. The creation of progressive,

innovative products and services while implementing business

management that meets a range of demands from society—

including those related to the environment and human rights—

will contribute to the Group’s sustainable growth.

With this in mind, our basic approach is to earn society’s

trust by instilling the LIXIL VALUES in each employee and

engaging in dialogue with stakeholders consistently to ensure

we maintain our integrity as a company. The LIXIL Group’s

business comprises relationships with a diverse range of

stakeholders, including shareholders, other investors, busi-

ness partners, customers, local communities, and employees.

Through dialogue and cooperation with these stakeholders,

we will accurately identify the expectations and tasks and

continue to respond to society’s ever changing demands.

CSR Promotion Structure

In April 2012, we established the LIXIL Group CSR Promotion

Committee, chaired by the president and with executive offi -

cers serving as committee members. Under this committee, we

have created the CSR Promotion Secretariat Meeting, tasked

with managing goals and planning and preparing measures.

Furthermore, we have established four groups dedicated to

specifi c stakeholders. The meeting and groups advance initia-

tives through PDCA management cycles. In addition, to

respond to diverse social issues on a global scale, in February

2013 LIXIL Corporation created committees and groups in its

Global Company that coordinate the initiatives of the whole

Group.

CSR Promotion Structure

LIXIL Group CSR Promotion Committee

Chairman: LIXIL Group Corporation President

Committee: LIXIL Group Corporation Executive Offi cers

Corporate governance functions

are involved in conducting CSR

promotion activities.

Risk Management Committee

Internal Audit Committee

Compliance Committee

CSR Promotion Secretariat Meeting

Environmental

Group

Personnel

Group

Customer

Relations

Group

Procurement

Group

57

CSR Initiatives in Fiscal Year Ended March 2013

In the fi scal year ended March 2013, we established a system of groups, set out specifi c initiative categories and key performance

indicators, and launched initiatives.

Main Initiatives of the Environmental Group

Tackling environmental issues is a responsibility that

companies must meet and a critical task for humanity.

Building a Groupwide management system has made pre-

vious initiatives to reduce energy use and reduce environ-

mental burden in compliance with environmental laws

and regulations tasks of the entire Group.

■ Established and implemented environmental management

regulations applicable to entire Group

■ Contributed further to reduction of energy use and reduced

Group’s total energy consumption

■ Achieved target of maintaining water use at level of fi scal year

ended March 2012

■ Achieved target of reducing CO2 emissions to 48% of the fi scal

year ended March 1991 level

■ Held dialogues with local communities at three model bases

Main Initiatives of the Customer Relations Group

As a manufacturer of products that assure consumers’

safety and peace of mind, we are taking the lead in

product safety initiatives. Having established a structure

for promoting product safety, we are cultivating systems

and a culture focused on providing safe products and

communicating appropriate information to consumers so

that they understand product safety. Also, we are build-

ing a product safety culture for responses in the event of

accidents and other related issues.

■ Advanced product safety initiatives to enable customers to use

products safely and confi dently over long term

■ Conducted discussions focused on product safety with three

experts and checked direction and appropriateness of initiatives

with view to refl ecting conclusions in initiatives going forward

Main Initiatives of the Procurement Group

We have used quality, cost, delivery times, and the envi-

ronment as benchmarks for evaluating materials suppli-

ers. In the fi scal year ended March 2013, in accordance

with Groupwide efforts to advance CSR, we began addi-

tional initiatives to identify and resolve social issues that

possibly could exist in supply chains as a whole, such as

labor or human rights issues. As the fi rst stage of these

efforts, we are studying examples of advanced initiatives,

checking the CSR awareness of major suppliers, and

instilling the concept of “CSR procurement.”

■ Prepared and issued procurement policy incorporating our

approach to CSR

■ Conducted questionnaire survey of suppliers that account for more

than 80% of procurement in Japan on a purchase amount basis;

established common “CSR procurement” approach

Main Initiatives of the Personnel Group

Employees are pivotal stakeholders who enable the

Group’s activities. Aiming to create workplaces that

heighten employee motivation and cultivate a corporate

culture that utilizes energy and innovation, we have set

out advancing diversity as a key goal. Based on analysis

of the current composition of our workforce and person-

nel utilization, we will concentrate efforts on developing

leaders, with a particular emphasis on encouraging

female employees in Japan, to assume more important

positions in the Group.

■ Encouraged performance of diverse personnel

■ Advanced development of foundations for Work-Life-Flexibility

(WLF) to enable employees to perform to their full potential

Priority Themes of the LIXIL Group’s CSR Initiatives

As a result of discussions including our senior management team and consultations with outside experts, we have been advancing

initiatives based on the following three Priority Themes.

1. Innovation: Respond to environmental and social issues by innovating products and services

2. Sustainability: Improve overall value chain by actively engaging in stakeholder dialogue

3. Integrity: Raise awareness of employees responsible for advancing initiatives and strengthen organizational coordination

58

Category Task Key Performance Indicators

Reduce global

environmental burden

Build recycling society

http://www.lixil.co.jp/corporate/csr/

environment/

Improve environmental management system

Apply environmental management regula-tions to entire Group*1

Percentage of target divisions applied to

Enhance environmental performance (LIXIL Group’s medium-term environmental goal)

Contribute to the reduction of energy use in civilian sector in Japan*2

Energy reduction contribution (reduction of energy use for products versus 1990 level × sales volume; see website for details)

Reduce total energy consumption in procurement, manufacturing, sales, and waste disposal*1

Energy consumption

Reduce CO2 emissions at operating bases in Japan*2

CO2 emissions at operating bases in Japan

Reduce water use in manufacturing activities*1

Water use

Supply chain management

With suppliers*3


client/policy.htm

Build supply chain taking into consider-ation labor conditions and resource allocation

Establish common procurement policies and guidelines

Percentage of transaction amount

Conduct questionnaire survey and follow-up activities

Percentage of surveyed items complied with

Product safety

For customers*2


customer/thought.htm

Establish product safety promotional system

Establish and operate product safety promotional system

Application percentage of product safety related regulations

Establish system for development of safe products

Refl ect accident information in designs to prevent recurrence

Develop safety technology as preventative measure

Number of new major accidents involving products (accidents products caused or may have caused)

Build product safety culture

Conduct basic education on product safety

Product safety e-learning implementation percentage

Hold discussions with experts and con-tinue product safety initiatives and reform of systems

Hold discussions about product safety

Strengthen information disseminationStrengthen dissemination of information about product safety and accident prevention

Number of times information disseminated to customers

Cultivate corporate culture

(Empower personnel)*2

With employees


employee/policy.htm

Encourage performance of diverse personnel

Identify and actively utilize talented diverse personnel

Management team’s identifi cation of personnel through POD (people and organization discussion)

Develop talented diverse personnelIncrease female employees’ participation in leadership training programs

Raise awareness of personnel about emphasis on diversity

Improve results of LIXIL Sunrise Survey (employee awareness survey)

Develop platform to enable employees to perform to their full potential and advance Work-Life-Flexibility (WLF)

Upgrade personnel systems and regulations

Improve results of LIXIL Sunrise Survey

Improve evaluations from external bodies

With local communities*1


dialogue/

Promote communication with local communities

Hold dialogues Number of dialogues held

CSR Categories, Tasks, Targets, and Results

Scope of Activities

*1 Excluding companies that have been integrated for less than three years *2 LIXIL Corporation only

*3 Suppliers of LIXIL Corporation and its consolidated subsidiaries, excluding companies that have been integrated for less than two years

Note: Websites are in Japanese only.

59

FY2012 Targets FY2012 Results FY2013 Targets FY2015 Targets

100% 100%—(Implementation completed in FY2012)

—(Implementation completed in FY2012)

Establish energy reduction contribution calculation method

1.1 times versus FY2010 level (4,090,000 GJ)

Unify evaluation method for energy-saving products

Increase 2.0 times versus FY2010 level

Establish energy consumption calculation method

Set out energy reduction priority tasks

Reduced 9.0% versus FY2010 level (56,700,000 GJ)

Achieve 100% energy consumption target in procurement

Reduce 1% energy consumption in man-ufacturing and sales versus FY2012 level

Reduce 10% versus FY2010 level

Reduce 48% versus FY1990 level (419,000 tons)

Reduced 48% versus FY1990 level (417,000 tons)

Reduce 49% versus FY1990 level Reduce 50% versus FY1990 level

Maintain FY2011 usage volume (15,727,000 m3)

Reduced 3.2% versus FY2011 level (15,217,000 m3)

Reduce 1% versus FY2012 level Reduce 3% versus FY2012 level

Japan: 85% (Percentage of companies: 15%)




Overseas: 35% (Percentage of companies: 15%)




100% 100% 100% 100%

Prepare regulations for incorporation into quality management system

Preparation of regulations completed

Achieve 100% application in LIXIL Corporation

Establish promotional system for LIXIL Group

Achieve 100% application in LIXIL Group

0 accidents 3 accidents 0 accidents 0 accidents

Prepare two e-learning programsCompleted preparation of two e-learning programs

Realize 30% implementation and prepare one e-learning program

Realize 60%

Once a yearHeld discussion about product safety in January 2013

Once a year Once a year

Once a year

Through website and pamphlets dissemi-nate information about accident preven-tion for bidet-equipped shower toilets and checking safety

Twice a year Twice a year

Double number of female managers in Japan (benchmark: 22 female managers at end of March 2012)

Number of female managers as of March 31, 2013: 47 (including 2 non-Japanese personnel)

Percentage of female managers: 2.15%

Appoint talented diverse personnel through POD

Continue actively promoting female employees to managerial positions

Create environment in which talented diverse personnel can contribute

Heighten percentage of talented diverse personnel hired periodically

—

11% 12%

Increase talented diverse personnel’s participation in leadership training programs and Company-sponsored MBA program

—

Hold round-table discussions

Establish intranet site

Manage LIXIL Women’s Network

Prepared LIXIL Diversity Declaration

Established LIXIL Diversity site on intranet

Completed LIXIL Women’s Network and began initiatives

Conducted LIXIL Sunrise Survey, response percentage 91%

Hold “Diversity Talks” including president

Implement measures to encourage career advancement

—

Complete establishment of WLF Committee comprising employees and management and introduce systems

Encourage taking of paid leave: Introduced memorial paid leave system

Encourage reemployment after retire-ment: Introduced career reestablishment system

Child-rearing support: Extended child-rearing leave period to age three, intro-duced later work start times for target employees, and provided supplementary payment for extended child care at nurseries

Nursing care support: Provided supple-mentary payment equivalent to social insurance premium and applied accumu-lated annual vacations

Publicize and encourage use of newly introduced systems

Identify and resolve issues to promote WLF

—

Hold at total of 4 bases: 2 plants, 1 sales base, and 1 store

Held at 3 bases: Shimotsuma plant, Yokohama Kohoku showroom, and Super Viva Home Iwatsuki store

Hold at 40 plants, 8 sales bases, and 2 stores

—

60

Consolidated 11-Year SummaryLIXIL Group Corporation and Consolidated Subsidiaries

Years ended March 31 2003 2004 2005 2006 2007

Results of OperationsNet sales ¥942,773 ¥967,494 ¥ 986,214 ¥1,057,699 ¥1,124,078

Operating income 19,033 42,749 37,863 43,805 57,026

Operating income ratio 2.0% 4.4% 3.8% 4.1% 5.1%

Net income (loss) 19,237 32,617 30,624 22,124 35,199

Research and development expenses 13,532 14,457 13,928 16,181 15,438

Capital expenditures 32,604 32,907 56,459 41,747 37,521

Depreciation 30,736 31,693 30,876 33,000 31,773

Cash FlowsCash fl ows from operating activities 70,219 49,801 43,970 31,357 61,710

Cash fl ows from investing activities (19,229) (34,721) (71,473) (36,519) (37,682)

Cash fl ows from fi nancing activities (58,871) (22,650) 17,375 15,397 (6,602)

Cash and cash equivalents, end of year 60,919 59,014 49,065 62,748 80,602

Financial PositionTotal assets 942,093 967,930 1,013,774 1,086,015 1,149,660

Total equity*1 510,427 519,425 531,157 561,408 594,265

Interest-bearing debt 140,719 155,178 192,692 224,060 225,943

Per Share DataNet income (loss) per share ¥ 61.60 ¥ 108.76 ¥ 104.92 ¥ 75.80 ¥ 119.64

Total equity per share*1 1,676.78 1,768.84 1,828.20 1,913.12 1,998.58

Dividends per share 27 40 40 40 40

Key RatiosROE*1 3.6% 6.3% 5.8% 4.1% 6.1%

ROA 2.0 3.4 3.1 2.1 3.1

Total assets turnover (times) 1.0 1.0 1.0 1.0 1.0

Equity ratio*1 54.2 53.7 52.4 51.7 51.4

Dividend payout ratio 43.8 36.8 38.1 52.8 33.4

Debt-to-equity ratio*2 27.7 30.0 36.3 39.9 38.2

Number of employees 25,879 29,050 29,682 30,252 31,212

Stock IndicatorsStock price (Closing), end of year (yen) ¥ 1,259 ¥ 2,300 ¥ 1,968 ¥ 2,530 ¥ 2,555

Market capitalization (millions of yen) 419,315 766,025 655,451 842,627 799,854

Price earnings ratio (times) 20.4 21.1 18.8 33.4 21.4

Price book-value ratio (times) 0.75 1.30 1.08 1.32 1.28

Market DataTotal new housing starts (thousands of units) 1,147 1,174 1,192 1,249 1,285

Orders received by 50 biggest

contractors (Commercial building

construction) (trillions of yen) ¥8.5 ¥8.7 ¥9.4 ¥9.7 ¥10.1

*1 “Total equity,” “Total equity per share,” and “Equity ratio” until March 31, 2006, are the fi gures for previous “Shareholders’ equity,” “Shareholders’ equity per share,” and “Shareholders’

equity ratio.” Figures for “ROE” until March 31, 2006, are the fi gures calculated based on the previous consolidated fi nancial statement regulations.

*2 Debt-to-equity ratio is calculated by Interest-bearing debt / Total equity.

*3 U.S. dollar amounts have been converted at the rate on March 31, 2013.

Recent M&As

July 2009American Standard

Asia Pacifi c (Group)

April 2010Shin Nikkei Company, Ltd.

April 2010Sun Wave Corporation

January 2011Shanghai Meite Curtain Wall

System Co., Ltd.

Sales ¥24.0 billion Sales ¥110.0 billion Sales ¥85.0 billion Sales ¥12.0 billion

Acquisition

cost¥17.6 billion

Acquisition

cost¥0.7 million

Acquisition

cost¥13.7 billion

Acquisition

cost¥3.2 billion

Equity owned 100% Equity owned 100% Equity owned 100% Equity owned 75%

Goodwill (net)

¥2.1 billion

Intellectual property:

¥3.5 billion

Goodwill ¥5.4 billionGoodwill

(negative)¥6.1 billion Goodwill ¥0.5 billion

61

Millions of yen Millions of U.S. dollars*3

2008 2009 2010 2011 2012 2013 2013

¥1,103,839 ¥1,046,854 ¥982,607 ¥1,214,939 ¥1,291,396 ¥1,436,395 $15,27335,737 25,603 25,984 40,409 17,915 50,485 537

3.2% 2.4% 2.6% 3.3% 1.4% 3.5% 17,709 475 (5,332) 15,780 1,868 21,347 22715,656 15,978 14,756 13,688 15,350 14,025 14935,418 35,088 30,844 45,779 52,107 73,795 78532,570 35,158 32,916 36,289 39,370 44,736 476

60,177 63,927 68,074 48,680 33,979 28,432 302(47,480) (63,082) (27,334) (13,543) (142,067) (12,396) (132)(40,359) 21,914 (27,825) (41,687) 138,348 (31,753) (338)52,679 73,973 89,302 92,329 127,351 114,662 1,219

1,061,036 1,048,838 1,033,504 1,166,834 1,481,063 1,465,689 15,584556,118 533,073 516,322 536,408 538,776 566,312 6,021229,575 263,770 257,484 272,516 441,874 424,035 4,509

Yen U.S. dollars*3

¥ 61.20 ¥ 1.70 ¥ (19.12) ¥ 55.50 ¥ 6.49 ¥ 73.42 $ 0.781,983.79 1,903.69 1,842.78 1,850.34 1,817.34 1,930.02 20.52

40 40 40 40 40 40 0.43%

3.1% 0.1% (1.0)% 3.0% 0.4% 3.9%1.6 0.04 (0.5) 1.4 0.1 1.41.0 1.0 0.9 1.0 1.0 1.0

52.1 50.6 49.7 45.2 35.7 38.365.4 2,352.9 — 72.1 616.3 54.5

41.5 49.7 50.1 51.7 83.6 75.631,838 32,700 35,976 41,090 48,163 45,602

¥ 1,497 ¥ 1,106 ¥ 1,903 ¥ 2,160 ¥ 1,733 ¥ 1,858468,642 346,238 595,742 676,197 542,523 540,221

24.5 650.6 (99.5) 38.9 267.0 25.30.75 0.58 1.03 1.17 0.95 0.96

1,036 1,039 775 819 841 893

¥10.3 ¥8.4 ¥7.3 ¥7.1 ¥7.4 ¥7.6

August 2011Kawashima Selkon

Textiles Co., Ltd.

October 2011Hivic Co., Ltd.

December 2011Permasteelisa S.p.A.

Sales ¥41.0 billion Sales ¥24.4 billion Sales ¥116.0 billion

Acquisition

cost

¥2.2 billion and

share exchange

Acquisition

costShare exchange

Acquisition

cost¥60.8 billion

Equity owned 100% Equity owned 100% Equity owned 100%

Goodwill ¥1.7 billion Goodwill ¥1.4 billion Goodwill

€264 million

Intangible assets:

€269 million

62

Business Environment

In the fi scal year ended March 31, 2013,

the Japanese economy faced challenging

conditions in which a global economic

slowdown counteracted recovery signs

stemming from restoration demand fol-

lowing the Great East Japan Earthquake.

Nevertheless, expectations are high that

monetary and fi scal policies of the new

administration that assumed power in

December 2012 will drive economic

recovery in Japan. Housing investment

was fi rm, with a 6.2% year-on-year

increase in new housing starts, to 893

thousand units, refl ecting the rebuilding

of houses damaged by the Great East

Japan Earthquake, low interest rates, tax

breaks, and other government incentives

to encourage house purchases.

Business Performance

In response to this business environ-

ment, the LIXIL Group steadily imple-

mented a range of measures based on

the fundamental strategies of its Medium-

Term Management Vision. In particular,

the Group strengthened competitiveness

in the domestic market by boosting its

brand power through initiatives based on

the LIXIL Declaration, such as introduc-

ing composite logo marks and opening

LIXIL Showroom Tokyo—our fl agship

showroom and one of the largest show-

rooms in the Tokyo metropolitan area. In

overseas markets, the Group stepped up

business development efforts by, for

example, embarking on an integrated

regional strategy for Asia incorporating

American Standard Asia Pacifi c and

LIXIL. Furthermore, the Group structur-

ally reformed its business management

system through such initiatives as the

C-30 Project, which is tasked with

strengthening cost-competitiveness.

As a result of these initiatives in

response to the business environment,

in the fi scal year ended March 31, 2013,

the Group posted net sales of ¥1,436.4

billion, a ¥145.0 billion, or 11.2%, increase

year-on-year. This rise was attributable to

a solid trend in new housing starts, up

6.2% year-on-year, to 893 thousand units,

and higher revenues year on year from

several businesses. These businesses

included the Metal Building Material

Business, which saw a signifi cant ¥136.8

billion, or 26.6%, rise in sales, due to the

sales contribution of a subsidiary newly

included in consolidation in the previous

fi scal year; the Distribution and Retail

Business, which increased sales ¥8.8 bil-

lion, or 5.3%, thanks to the growth of

stores based on a new business format;

and the Plumbing Fixtures Business,

which achieved a ¥3.9 billion, or 1.0%,

rise in sales. Meanwhile, the Other

Building Materials and Equipment

Business recorded a ¥3.0 billion, or 1.5%,

year-on-year decline, partly due to the

removal from consolidation of LIXIL

Nittan Co., Ltd., and the Housing, Real

Estate and Other Businesses saw sales

decrease ¥2.1 billion, or 3.4%, year on

year, refl ecting fi ercer competition.

Gross profi t increased ¥27.0 billion,

or 7.2%, to ¥403.1 billion. The gross

margin deteriorated 1.1 percentage

points, to 28.1%, because cost reduction

efforts did not completely compensate

for lower pricing, product mix deteriora-

tion, and higher raw material prices.

Selling, general and administrative

(SG&A) expenses were down ¥5.6 bil-

lion, to ¥352.6 billion, thanks to the suc-

cess of cost reduction efforts and the

absence of the previous fi scal year’s one-

time cost arising from the integration of

companies that established LIXIL

Corporation. Consequently, operating

income rose ¥32.6 billion, or 2.8 times

year on year, to ¥50.5 billion, and the

operating margin increased from 1.4%

to 3.5%.

Net income was up ¥19.5 billion, or

11.4 times, to ¥21.3 billion. This refl ected

a ¥59.0 billion rise in income before

income taxes and minority interests—

resulting from the ¥32.6 billion increase

in operating income and a ¥26.4 billion

improvement in other income—and a

¥37.8 billion increase in income tax

expenses and a ¥1.7 billion decrease in

minority interests in loss. The improve-

ment in other income primarily resulted

from the recognition of insurance

income of ¥17.8 billion related to

damage caused by fl ooding in Thailand

and the absence of a signifi cant ¥13.5

billion impairment loss and a ¥21.2 bil-

lion loss on disaster that arose in the

previous fi scal year, which offset a ¥32.7

billion early retirement related loss in the

fi scal year under review. Further, the

increase in income tax expenses was

due to the absence of the previous fi scal

year’s income taxes–deferred accompa-

nying the integration of companies that

established LIXIL Corporation.

09 10 11 12 130

600

1,200

1,800

1,436.4

09 10 11 12 130

20

40

60

0

2

4

650.5

3.5%

Net Sales

(¥ billion)

Operating Income /


09 10 11 12 13–10

0

10

20

30

21.3

Net Income (Loss)

(¥ billion)


Management’s Discussion and AnalysisLIXIL Group Corporation and Consolidated Subsidiaries

63

Year-on-Year Comparison of Net Sales in Fiscal Year Ended March 31, 2013

A breakdown of the change in net sales by

business area is as follows. LIXIL

Corporation’s domestic business recorded

a ¥2.6 billion decline in sales, mainly due

to the adjustment and consolidation of

overlapping products arising from opera-

tional integration and responses to the

Great East Japan Earthquake and fl ooding

in Thailand in 2011, which delayed new

product launches until the second half of

the fi scal year under review. Meanwhile,

the Ken Depot business grew sales ¥8.7

billion as membership rose steadily. Global

businesses contributed to net sales signifi -

cantly, with sales up ¥152.4 billion year on

year. This increase was attributable to the

new consolidation of Permasteelisa S.p.A.

contributing sales of ¥137.4 billion and the

Asia business increasing sales ¥15.6 billion,

which countered a ¥0.6 billion decline in

sales in the Europe business and other

businesses. In addition, the home center

business grew sales ¥0.1 billion year on

year. In Japan, inclusions in and exclusions

from consolidation led to a ¥12.1 billion

decrease in sales because year-on-year

increases in sales of ¥6.9 billion, ¥10.1 bil-

lion, and ¥3.5 billion accompanying the

new consolidation of Kawashima Selkon

Textiles Co., Ltd., Hivic Co., Ltd., and

Permasteelisa, respectively, were unable to

compensate completely for a ¥33.4 billion

year-on-year decline in sales that resulted

from LIXIL Nittan Co., Ltd., becoming a

member of the Secom Group at the begin-

ning of the fi scal year under review.

Year-on-Year Comparison of Operating Income in Fiscal Year Ended March 31, 2013

A breakdown of the change in operating

income is as follows. Regarding special

factors, the absence of the previous fi scal

year’s recognition of cost arising from

the integration of fi ve companies in April

2011 and costs arising from damage and

restoration related to the Great East

Japan Earthquake and fl ooding in

Thailand affected operating income sig-

nifi cantly. These special factors more

than offset the negative effect on operat-

ing income of special factors in the fi scal

year under review related to inclusions

in and exclusions from consolidation.

As a result, special factors contributed

¥16.0 billion to operating income.

As for the operating income of exist-

ing businesses, lower sales had a negative

effect of ¥6.6 billion year on year. A fur-

ther negative effect of ¥15.8 billion year

on year resulted from lower pricing, prod-

uct mix deterioration, and the effect of

exchange rates, which included higher

fuel and raw material prices. In addition,

structural reform cost centered on human

resources measures had an ¥11.5 billion

negative effect on the operating income

of existing businesses. However, the C-30

Project affected the operating income of

existing businesses positively by reducing

cost of sales ¥21.0 billion and SG&A

expenses ¥27.0 billion. As a result, the

operating income of existing businesses

rose ¥14.1 billion year on year.

Also, global businesses and the Ken

Depot business, which the Group is

developing as part of its growth strategy,

increased operating income ¥0.9 billion

and ¥1.7 billion, respectively, year

on year.

OverseasKen DepotDomestic LIXIL2012 Home center Domestic new

consolidation / elimination

Others /

elimination

2013

¥1,291.4 billion – 2.6 +8.7

+152.4 +0.1 –12.1 –1.5 ¥1,436.4 billion

0

1,300

1,400

1,500

+¥145.0 billion

Sales increase /

decrease

Thai floods Domestic new

consolidation /

elimination

Special factors

of previous fiscal year

2012 Business

environment

C-30 Cost increase from

structural reform

Overseas Ken Depot

and others

2013

¥17.9 billion

+15.4 –6.6–0.6+1.2

+48.0

–15.8

–11.5

+0.9 ¥50.5 billion+1.7

+¥32.6 billion

Special factors +¥16.0 billion Existing businesses +¥14.1 billion Growth businesses +¥2.6 billion

0

20

40

60

Net Sales(¥ billion)

Operating Income(¥ billion)

64

Financial Position

Total assets at March 31, 2013, stood at

¥1,465.7 billion, down ¥15.4 billion from

the end of the previous fi scal year.

Current assets decreased ¥46.1 billion

from the previous fi scal year-end, to

¥785.6 billion, due to the use of cash

and deposits to repay loans, which offset

an increase in trade notes and accounts

receivable resulting from exchange rate

fl uctuation. Noncurrent assets were up

¥30.7 billion from the end of the previ-

ous fi scal year, to ¥680.1 billion, as a

result of higher property, plant and

equipment and intangible assets due to

capital expenditures and an increase in

investment securities refl ecting market

value fl uctuation.

Total equity at the end of the fi scal

year amounted to ¥566.3 billion, and

the equity ratio was 38.3%, compared

with 35.7% at the end of the previous

fi scal year.

Cash Flows

Net cash provided by operating activities

declined ¥5.5 billion year on year, to

¥28.4 billion, principally because an

increase in working capital and

decreases in provision for loss on disas-

ter, provision for retirement benefi ts, and

impairment losses offset a ¥59.0 billion

improvement in income before income

taxes and minority interests.

Net cash used in investing activities

decreased ¥129.7 billion year on year,

to ¥12.4 billion, because a ¥45.7 billion

decline in time deposits and proceeds

from sales of investments in subsidiar-

ies of ¥10.5 billion did not completely

compensate for purchase of property,

plant and equipment and intangible

assets of ¥63.7 billion associated with

increasing production capacity and

opening home centers.

Net cash used in fi nancing activities

amounted to ¥31.8 billion, a difference

of ¥170.1 billion compared with net

cash provided by fi nancing activities of

¥138.3 billion in the previous fi scal year.

This refl ected cash dividends paid of

¥11.6 billion as well as the repayment

of interest-bearing debt, such as a ¥54.1

billion decrease in short-term loans and

commercial papers, which exceeded

fund raising.

As a result, taking into account the

effect of exchange rate change on cash

and cash equivalents, cash and cash

equivalents at the end of the fi scal

year stood at ¥114.7 billion, down

¥12.7 billion from the end of the

previous fi scal year.

Management’s Discussion and Analysis

09 10 11 12 130

200

400

600566.3566.3

09 10 11 12 13–2

0

2

4

6

3.9%

1.4%

Total Equity(¥ billion)

ROE / ROA(%)

ROE ROA

09 10 11 12 13

1,465.7

0

600

1,200

1,800

Total Assets(¥ billion)

09 10 11 12 130

20

40

60

38.3%

Equity Ratio(%)

65

Trends in the principal indicators of fi nancial position are shown in the following table.

Years ended March 2009 2010 2011 2012 2013

Shareholders’ equity ratio (%)* 50.6 49.7 45.2 35.7 38.3Shareholders’ equity ratio on a

market value basis (%)** 29.4 51.4 52.7 34.0 36.9Interest-bearing debt divided

by cash fl ow (times)*** 4.1 3.8 5.6 13.0 14.9Interest coverage ratio (times)**** 17.7 17.1 11.4 8.6 5.9

* Shareholders’ equity ratio: Shareholders’ equity / Total assets

** Shareholders’ equity ratio on a market value basis: Market capitalization / Total assets

*** Interest-bearing debt divided by cash flow: Interest-bearing debt / Cash flow

**** Interest coverage ratio: Cash flow / Interest payments

Notes: 1. All indicators are based on figures from the consolidated accounts.

2. Market capitalization is calculated by multiplying the closing stock price at the end of the period times the total

number of shares outstanding at the end of the period (excluding treasury stock).

3. Cash flow is the cash flows from operating activities that is presented in the Consolidated Statements of Cash

Flows. Interest-bearing debt is the value of all liabilities presented in the Consolidated Balance Sheets on which

the Group pays interest. Interest payments are the figures presented in the item Interest payments in the notes to

Consolidated Statements of Cash Flows in the Company’s “Securities Report” (Yuka Shoken Hokokusho).

Liquidity

The LIXIL Group strives to generate

operating cash fl ows and consider a

wide range of fund-raising methods to

procure a stable and fl exible supply of

funds necessary for its business activities

while maintaining a sound fi nancial posi-

tion. Regarding cash at hand, the Group,

in principle, maintains funds adequate to

cover the settlement of its liabilities in an

emergency. To ensure fi nancial fl exibility,

the Group works to diversify sources of

funds, including bank borrowings and

funds from other fi nancial institutions,

arranging for a commercial paper issu-

ance line, establishing commitment lines,

and implementing initiatives for the

securitization of trade notes and factor-

ing of receivables.

As of March 31, 2013, cash and

deposits and marketable securities

totaled ¥124.2 billion. At fi scal year-end,

interest-bearing debt stood at ¥424.0 bil-

lion, with decreases from the previous

fi scal year-end in short-term and long-

term loans payable.

Outlook for Fiscal Year Ending March 31, 2014

For the fi scal year ending March 31,

2014, the outlook is uncertain. However,

a higher economic growth rate is likely

in Japan as the global economy picks up

and the benefi ts of various government

polices emerge. Furthermore, housing

investment in Japan will probably con-

tinue to grow due to rush demand

before a consumption tax increase.

Bearing this in mind, the LIXIL

Group will transition from a phase of

establishing a solid foundation for inte-

gration to a phase of establishing a

growth structure. Aiming to realize its

Medium-Term Management Vision, the

Group will move forward decisively to

strengthen the foundations of growth

and heighten profi tability even further.

As for the medium-to-long-term out-

look, conditions in Japan and overseas

are likely to change dramatically. In

Japan, the population is decreasing and

the aging of its society is set to gain

momentum. Meanwhile, emerging coun-

tries are expected to play a more promi-

nent role in an increasingly globalized

economy. In Japan’s housing industry,

new housing starts are likely to trend

downward slightly due to accumulated

housing stock and shrinking of the

house-purchasing population. However,

housing demand is expected to remain

robust in emerging economies, centered

on Asia.

In response to these conditions, the

LIXIL Group intends to move away from

a paradigm of dependence on new con-

struction in Japan in order to grow net

sales and improve profi tability even fur-

ther. Accordingly, the Group will work

vigorously toward the realization of the

LIXIL VISION management target of

becoming a global leader in the building

materials and housing equipment industry.

09 10 11 12 13

28.4

0

20

40

60

80

Cash Flows from Operating Activities(¥ billion)

66

This annual report contains the follow-

ing information about business condi-

tions, the fi nancial situation, and other

factors that may infl uence investor deci-

sions. Forward-looking statements are

based on the judgments of the LIXIL

Group’s management as of March 2013.

Statements concerning the future and

assumptions are subject to uncertainty

and risks, and actual results may vary

signifi cantly.

1. Economic Risk

Operating revenues of most companies

in the LIXIL Group are signifi cantly

affected by domestic demand in Japan.

In particular, major fl uctuations in the

number of new housing starts or the

level of construction orders received

could have a negative effect on busi-

ness performance and fi nancial posi-

tions of the LIXIL Group.

2. Competitive Risk

The LIXIL Group faces severe competi-

tion in most of the markets in which it

operates. For this reason, it is diffi cult

to always set prices at levels that are

advantageous to the LIXIL Group.

Although the Group takes pride in its

superior products and services that

contribute to improving people’s com-

fort and lifestyles, there is no guarantee

that it will enjoy a competitive advan-

tage in terms of pricing. The LIXIL

Group’s products and services are

exposed to intense price competition,

which could have a negative effect on

business performance and fi nancial

positions of the LIXIL Group.

3. New Product Development Risk

In its operations, the LIXIL Group is

committed to providing exceptional

products and services to satisfy its cus-

tomers around the globe. The Group

creates high-quality living spaces that

are healthy, comfortable, and safe by

continually developing attractive prod-

ucts based on an accurate understand-

ing of available technology and

consumer needs. However, the Group’s


positions could be adversely affected if

a failure to respond appropriately to

changes in market or industry needs

were to result in a decline in growth

and earning potential.

4. Procurement Risk

The LIXIL Group procures materials,

parts, services, and other supplies as

required for its production activities.

There is a possibility that the amounts

paid for these supplies will rise because

of increased industry demand or increas-

ing raw material prices. There is also a

possibility that the reliability or reputa-

tion of the LIXIL Group’s products will

be adversely affected by defects in mate-

rials, parts, services, or other supplies.

These factors could, in turn, adversely

affect the Group’s business performance

and fi nancial positions.

5. Overseas Market Risk

The LIXIL Group engages in production

and sales activities overseas, mainly in

certain Asian countries, including China

and Thailand. The following latent risks

exist because of the rapid pace of

development in these countries.

1) Major exchange rate fl uctuations

caused by currency policies

2) Changes in export or import

regulations

3) Dramatic increases in labor costs and

prices, etc.

4) Interruption of production activities

due to strikes, etc.

5) Unanticipated changes to legislation

or fi nancial regulation and interna-

tional tax risks, such as transfer pric-

ing legislation

6) Other economic, social, and political

risks

7) Risks of the effects of natural

disasters

These factors could have an adverse

impact on the business performance and

fi nancial positions of the LIXIL Group.

6. Foreign Exchange Risk

Exchange rate fl uctuations have the

potential to affect the yen equivalents

of assets and liabilities resulting from

the foreign currency denominated

transactions of the LIXIL Group. Where

transactions are denominated in for-

eign currencies, the prices of goods

and amounts of sales could also be

affected. These factors could have an

adverse impact on the business perfor-

mance and fi nancial positions of the

LIXIL Group.

7. Acquisition/Merger Risk

The LIXIL Group may plan to expand

its business operations through invest-

ments, including corporate acquisitions

and capital participation. To maximize

the benefi ts of these acquisitions, the

LIXIL Group seeks to integrate them

into their corporate cultures and man-

agement strategies. However, there is

no guarantee that the anticipated

returns and synergy benefi ts will be

realized. It is possible that the business

performance and fi nancial positions of

the LIXIL Group will be adversely

affected by these acquisitions and capi-

tal participation activities.

8. Business Restructuring Risk

In order to enhance management effi -

ciency and competitiveness, the LIXIL

Group may conduct business restructur-

ing, including withdrawal from unprofi t-

able businesses; realignment of

subsidiaries and affi liates, manufacturing

bases, and sales and logistics networks;

and rightsizing of the workforce. These

measures could have an adverse impact

on the business performance and fi nan-

cial positions of the LIXIL Group.

9. Regulatory Risk

The LIXIL Group is subject to various

offi cial regulations, including the need

to obtain approvals and permits from

the government or offi cial agencies for

its business and investment activities, as

well as patents and other intellectual

property rights, environmental regula-

tions, and other requirements. Such

offi cial regulations can be expected to

change over time, possibly creating

obstacles to business activities or

imposing additional costs relating to

compliance with new offi cial regula-

tions. These factors could have an



LIXIL Group.

10. Product Liability Risk

There is a risk that defects will occur in

products and services supplied by the

Business RisksLIXIL Group Corporation and Consolidated Subsidiaries

67

LIXIL Group, or that product recalls

may be required. Major compensation

claims or product recalls relating to

manufacturers’ liability issues could

result in substantial payments and have

a negative effect on the reliability and

reputation of the LIXIL Group’s prod-

ucts. Such situations could have an



LIXIL Group.

11. Risks of Lawsuits and Other

Legal Proceedings

The LIXIL Group conducts its business

activities in Japan and in countries

overseas. Accordingly, there is a risk

that it may face lawsuits and legal pro-

ceedings. When the LIXIL Group

becomes the object of such legal

action, there is a possibility that this

may result in major payments for dam-

ages. These circumstances could have

an adverse impact on the business per-

formance and fi nancial positions of the

LIXIL Group.

12. Disaster and Accident Risk

Natural disasters, such as earthquakes

and typhoons, could cause substantial

damage to the LIXIL Group’s produc-

tion, distribution, sales, and information

management facilities. Also, in the

occurrence of major workplace disasters

or equipment accidents, there is the

possibility that business activities will be

discontinued or restricted. The LIXIL

Group conducts regular disaster preven-

tion activities and facility inspections.

However, there is no guarantee that it

will be possible to prevent or alleviate

the effects of natural disasters. In partic-

ular, many of the domestic production

facilities for plumbing fi xtures of LIXIL

Corporation, a consolidated subsidiary,

are located in the Tokai region of Japan,

where a major earthquake could occur.

While earthquake countermeasures have

been implemented at these facilities, a

major earthquake in the Tokai region

could cause a suspension in production,

delays in product deliveries, and other

problems. These factors could have an



LIXIL Group.

13. Environmental Preservation Risk

The LIXIL Group, based on the Group

Environmental Basic Policy, engages in

a wide range of activities aimed at

global environmental preservation.

However, the Group cannot guarantee

that it will be able to completely pre-

vent or mitigate any risk of environ-

mental pollution. Should serious

environmental pollution occur as a

result of the Group’s business activities,

it could have an adverse impact on the

Group’s business performance and

fi nancial positions.

14. Risk of Default on Receivables

In order to prepare for losses due to

default on receivables by business part-

ners, the LIXIL Group examines the

recoverability of general receivables

based on historical default rates, and of

specifi c doubtful accounts on a case-

by-case basis, and records the amount

considered to be uncollectible as an

allowance for doubtful accounts.

Should the actual default level signifi -

cantly exceed these assumptions, the

allowance for doubtful accounts could

be insuffi cient. Moreover, as a result of

reviewing these assumptions due to the

worsening of overall economic condi-

tions and uncertainty in the credit

standing of business partners, the

Group could make additional provi-

sions to this allowance. These develop-

ments could have an adverse impact on

the Group’s business performance and

fi nancial positions.

15. Risk of Fixed Asset Value

Reduction

The LIXIL Group has applied fi xed

asset impairment accounting. The

Group will continue to calculate future

cash fl ows relating to its assets and to

recognize and estimate the impairment

of those assets. It is therefore possible

that its business performance and fi nan-

cial positions will be adversely affected

if fi xed asset impairment losses are

shown in the accounts.

16. Retirement Benefi t Risk

The employee retirement benefi t obli-

gations and costs of the LIXIL Group

are calculated primarily using actuarial

assumptions, such as discount ratios

and expected rates of return on plan

assets. These actuarial assumptions

must be reviewed annually. Any

changes in the ratios could cause fl uc-

tuation in business performance and

fi nancial positions. The Group has

taken steps to minimize this effect,

including the return to the government

of the substitutional portion of the pen-

sion funds that it previously adminis-

tered, and the adoption of defi ned

contribution pension plans and cash

balance pension plans. However, the

potential effect cannot be entirely elimi-

nated. Further declines in discount

ratios or deteriorating investment

returns could have a negative effect on

the business performance and fi nancial


17. Risk of Personal Information

Leaks

The LIXIL Group handles a variety of

personal information, including cus-

tomer information, in the course of its

business operations, and stringent infor-

mation management is essential.

Initiatives to strengthen personal infor-

mation management include the estab-

lishment of an organizational unit

dedicated to personal information man-

agement, the formulation of related

rules and regulations, and the ongoing

provision of appropriate training.

However, the LIXIL Group could suffer

damage to its public reputation and

incur substantial fi nancial costs if

unforeseen circumstances result in the

leakage of personal information. Such a

situation could adversely affect the



68

Consolidated Subsidiaries

Name LocationPaid-in capital

(¥ million)

Equity owned

by the holding

company (%)

Operations

LIXIL Corporation Koto-ku, Tokyo 34,600 100Manufacture and sales of metal building materials, plumbing

fi xtures, other building materials, and housing structures

LIXIL VIVA CORPORATION Ageo, Saitama 20,000 100Sales of daily necessities, and DIY and home

improvement products

Kawashima Selkon Textiles Co., Ltd.Sakyo-ku, Kyoto,

Kyoto9,381 100 Manufacture and sales of interior fabrics

LIXIL Housing Institute, Ltd. Koto-ku, Tokyo 1,250 100Strategic planning for homebuilding franchise chain busi-

nesses and operation of homebuilding franchise chains

HIVIC CO., LTD. Oyama, Tochigi 551 100 Manufacture and sales of precut lumber

JIO Corporation Chiyoda-ku, Tokyo 1,000 100 Insurance for warranty against housing defects

LIXIL REALTY, Corp. Chuo-ku, Tokyo 160 100 Real estate business and agency of company housing

CLASSIS Corporation Chuo-ku, Tokyo 100 100 Residential real estate brokerage, sales, and purchase

LIXIL Group Finance Corporation Koto-ku, Tokyo 3,475 100 Financing services for Group companies

SUN WAVE CORPORATION Fukaya, Saitama 14,551 100 Manufacture of plumbing fi xtures

INAX ENGINEERING Corporation*1 Tokoname, Aichi 20 100 Installation of plumbing fi xtures and other building materials

LIXIL Total Hanbai Corporation Koto-ku, Tokyo 74 100Sales of metal building materials, plumbing fi xtures, other building

materials and equipment, and housing structures

Asahi Tostem Exterior Building Materials Co., Ltd. Koto-ku, Tokyo 2,000 80 Manufacture and sales of other building materials

INAX MAINTENANCE Corporation*1 Tokoname, Aichi 20 100 After-sales service of plumbing fi xtures

G TERIOR Corporation Setagaya-ku, Tokyo 315 100 Sales of exterior products

LIXIL SUZUKI SHUTTER CORPORATION Toshima-ku, Tokyo 1,989 100 Manufacture and sales of shutters and related parts

JAPAN HOME SHIELD CORPORATION Sumida-ku, Tokyo 205 100 Ground investigation and analysis for houses and improve-

ment work for foundation of houses

LIXIL Toyo Sash Shoji Co., Ltd. Katsushika-ku, Tokyo 100 100Sales of metal building materials, plumbing fi xtures, and

other building materials and equipment

Dinaone Corporation Tokoname, Aichi 90 100 Sales of other building materials

TM.S Corporation Chiyoda-ku, Tokyo 60 99 Sales of plumbing fi xtures and other building materials

Kuwata Co., Ltd.Suma-ku, Kobe,

Hyogo30 100

Sales of metal building materials, plumbing fi xtures, and


SUNWAVE KITCHEN TECHNO CORPORATION Shinjuku-ku, Tokyo 99 100 Sales of plumbing fi xtures

Shin Nikkei Building Materials Sales Corporation*2 Katsushika-ku, Tokyo 30 100 Sales of metal building materials

INA SEIKI Corporation*3 Hikone, Shiga 48 100 Manufacture of plumbing fi xtures

Oita Tostem Co., Ltd. Oita, Oita 50 100Sales of metal building materials, plumbing fi xtures, and


sunwave Requa corporation*1 Koto-ku, Tokyo 90 100 Installation of plumbing fi xtures

Nishi Kyushu Tostem Co., Ltd. Saga, Saga 30 100Sales of metal building materials, plumbing fi xtures, and


LIXIL Online Corporation Koto-ku, Tokyo 90 100 Sales of metal building materials and plumbing fi xtures

Tostem Management Systems Co., Ltd. Koto-ku, Tokyo 450 100 System and management support for sales agencies

LIXIL Total Service Corporation*1 Koto-ku, Tokyo 30 100Management of installation and after-sales services

providing companies

LIXIL ENERGY CO., Ltd. Koto-ku, Tokyo 100 100 Sales of solar energy providing systems

LIXIL RENEWAL Corporation Koto-ku, Tokyo 50 80After-sales services of residential homes,

commercial buildings, etc.

LIXIL INFORMATION SYSTEMS CORPORATION Koto-ku, Tokyo 100 100Development, operation, and management of information

systems

INAX SUNWAVE Marketing Corporation Tokoname, Aichi 10 100 —

GHS Corporation Koto-ku, Tokyo 100 100 Operation of homebuilding franchise chains

10 affi liate companies of HIVIC CO., LTD.*4 — — 100 Manufacture and sales of precut lumber

Limited private company SUPER VIVA ASSET

and 3 other companies

Chuo-ku, Tokyo

and other— 100

Acquisition and management of benefi ciary right for real-

estate trusts

Permasteelisa S.p.A. Veneto, Italy€6,900

thousand100 Manufacture and sales of curtain walls

37 affi liate companies of Permasteelisa S.p.A. — — — Manufacture and sales of curtain walls

TOSTEM THAI Co., Ltd. Pathumthani, Thailand Bt2,767

million100 Manufacture of metal building materials

TOSTEM THAI MARKETING Co., Ltd. Pathumthani, Thailand Bt103

million100 Sales of metal building materials

AMTRONIC Pte. Ltd. SingaporeU.S.$19,115

thousand100

Holding company of Chinese business of Shanghai Meite

Curtain Wall System Co., Ltd.

Shanghai Meite Curtain Wall System Co., Ltd. Shanghai, ChinaCN¥154,795

thousand 75 Manufacture and sales of curtain walls

Principal Group Companies(As of March 31, 2013)

69


(¥ million)

Equity owned

by the holding

company (%)

Operations

TOSTEM HOUSING PRODUCTS

(DALIAN) CO., LTD.Dalian, Liaoning, China

U.S.$43,500

thousand 100 Manufacture of wooden interior furnishing materials

A-S CHINA PLUMBING PRODUCTS Ltd. Cayman IslandsU.S.$1,510

thousand100

Holding company of Chinese business of American Standard

Asia Pacifi c

5 affi liate companies of A-S CHINA PLUMBING

PRODUCTS Ltd.— — — Manufacture and sales of plumbing fi xtures

CERAMIC SANITARYWARE Pte. Ltd. SingaporeS$111,473

thousand100

Sales of plumbing fi xtures and the holding company of

American Standard Asia Pacifi c, excluding Chinese business

8 affi liate companies of CERAMIC

SANITARYWARE Pte. Ltd.— — — Manufacture and sales of plumbing fi xtures

LIXIL INAX VIETNAM Corporation Hanoi, VietnamU.S.$38,100

thousand100 Manufacture and sales of plumbing fi xtures

LIXIL INAX DANANG Manufacturing Co., Ltd. Quang Nam, VietnamU.S.$18,000

thousand100 Manufacture of plumbing fi xtures

LIXIL INAX SAIGON Manufacturing Co., Ltd. Vung Tau, VietnamU.S.$12,000

thousand100 Manufacture and sales of other building materials

LIXIL-Haier Housing Products (Qingdao) Co., Ltd.Qingdao, Shandong,

China

CN¥194,082

thousand 51 Manufacture of plumbing fi xtures

LIXIL BUILDING MATERIALS MANUFACTURING

(SUZHOU) CORPORATION

Suzhou, Jiangsu,

China4,000 100

Manufacture of plumbing fi xtures and

other building materials

LIXIL Sanitary Fitting Manufacturing

(Suzhou) Corporation

Suzhou, Jiangsu,

China1,730 100 Manufacture of plumbing fi xtures

LIXIL (China) Investment Co., Ltd. Shanghai, ChinaU.S.$34,500

thousand100 Sales of plumbing fi xtures and other building materials

LG TOSTEM BM Co., Ltd.*5 Seoul, KoreaWon15,355

million 50 Sales of metal building materials

LIXIL TAIWAN Corporation Hsinchu, TaiwanNT$282,677

thousand 51 Manufacture and sales of other building materials

Shenyang LIXIL Precast Concrete Co., Ltd.Shenyang, Liaoning,

China

CN¥39,240

thousand 75 Manufacture of other building materials

Shenyang INAX Building Materials Co., Ltd.Shenyang, Liaoning,

China1,300 100 Manufacture of other building materials

LIXIL GLOBAL MANUFACTURING

VIETNAM Co., Ltd.Dong Nai, Vietnam

U.S.$40,700

thousand100 Manufacture of metal building materials

Equity Method Affi liates


(¥ million)

Equity owned

by the holding

company (%)

Operations

Fukui Computer Inc.*6 Fukui, Fukui 1,631 27 Development and sales of designing systems

Permasteelisa Projects (Thailand) Ltd.Chonburi,

Thailand

Bt4 million

48 Planning and management of building materials

Unifront B.V.Gelderland,

Netherlands

€143 thousand26 Development of curtain wall systems

*1 As of April 1, 2013, sunwave Requa corporation, INAX ENGINEERING Corporation, INAX MAINTENANCE Corporation, LIXIL Total Service Corporation, and 3 affi liate companies merged

and their names were changed to LIXIL Total Service Corporation.

*2 As of April 1, 2013, the name of Shin Nikkei Building Materials Sales Corporation was changed to LIXIL Building Remodeling Sales Co., Ltd.

*3 As of April 1, 2013, INA SEIKI Corporation was acquired by and merged with LIXIL Corporation.

*4 As of April 1, 2013, 10 affi liate companies of HIVIC CO., LTD. were acquired by and merged with HIVIC CO., LTD.

*5 The holding of shares in LG TOSTEM BM Co., Ltd., are less than 50%, but it is treated as a subsidiary because it is effectively controlled by the Group.

*6 The company submits securities reports.

70

Number of Sales and Manufacturing Bases

Hokkaido TohokuKanto,

KoshinetsuChubu Kansai

Chugoku,

Shikoku

Kyushu,

OkinawaTotal

Sales Network (As of March 31, 2013)

LIXIL Corporation 5 7 30 9 15 10 10 86

Factories (As of April 1, 2013)


Showrooms (As of April 1, 2013)


Home Centers (As of March 31, 2013)

Home Centers (Super Viva Home, New Viva Home, Viva Home) 6 10 54 7 3 0 0 80

Ken Depot 3 6 37 5 3 3 5 62

Homebuilding Franchise Members (As of April 1, 2013)

Eyeful Home 1 32 29 48 13 26 9 158

FiACE HOME 0 3 3 8 4 3 1 22

GL Home 0 4 8 3 2 0 0 17

Total 1 39 40 59 19 29 10 197

Renovation Franchise / Voluntary Chains Members (As of March 31, 2013)

2012 2013

LIXIL Reform Chain 414 377

LIXIL Reform Net 8,896 9,356

Total 9,310 9,733

Overseas Factories (As of June 2013)

China Thailand Vietnam Korea Indonesia MongoliaMiddle

East

North

AmericaEurope Total

Shanghai Meite Curtain Wall System Co., Ltd. 2 2

LIXIL-Haier Housing Products (Qingdao) Co., Ltd. 2 2

LIXIL Sanitary Fitting Manufacturing (Suzhou)

Corporation

1 1

LIXIL BUILDING MATERIALS MANUFACTURING

(SUZHOU) CORPORATION

1 1

LIXIL INAX VIETNAM Corporation 7 7

LIXIL Building Materials Manufacturing

(Shenyang) Corporation

1 1

LIXIL INAX SAIGON Manufacturing Co., Ltd. 1 1

LIXIL INAX DANANG Manufacturing Co., Ltd. 1 1

TOSTEM THAI Co., Ltd. 2 2

LG TOSTEM BM Co., Ltd. 1 1

TOSTEM HOUSING PRODUCTS (DALIAN) CO., LTD. 1 1

Permasteelisa Group 2 1 1 1 2 7 14

American Standard Asia Pacifi c 4 2 1 1 1 9

Total 14 5 10 2 1 1 1 2 7 43

71

History

1924 Ina Seito Co., Ltd.*, is established as a pro-

ducer of tiles, ceramic pipe, and terra cotta.

1945 Production of sanitary ware commenced.

1958 Production of Polybath commenced.

1967 Production of fi rst integrated-type Japanese

shower toilet.

1968 Production of unit bathrooms commenced.

1985 Company name is changed to Inax

Corporation.*

1996 VINAX (now LIXIL INAX VIETNAM Corporation)

manufacturing joint venture for sanitary ware in

Vietnam is established.

Suzhou Inax Sanitary Fitting Co., Ltd. (now

LIXIL Sanitary Fitting Manufacturing (Suzhou)

Corporation), is established in China.

1998 Suzhou Inax Building Materials Co., Ltd. (now

LIXIL Building Materials Manufacturing

(Suzhou) Corporation), a tile manufacturing

company in China, is established.

TOSTEM INAX

1923 The company is founded.

1949 Nihon Tategu Kogyo Co., Ltd. (now LIXIL Group Corporation) is established.

1966 Housing aluminum sash business commenced.

1971 Toyo Sash Co., Ltd., is established after absorbing Toyo Door and four other companies.

1974 Toyo Exterior Co., Ltd.*, is established. Housing exterior business commenced.

1977 Viva Home Corporation (later Tostem Viva Corporation) is established. Home center business

commenced.

1984 Eyeful Home Technology Inc. (now LIXIL Housing Institute, Ltd.) is established.

Homebuilding franchise chain operation commenced.

1985 Dai-ichi Mokko Co., Ltd. (later Bright Home and now LIXIL Housing Institute, Ltd.),

Mitsui Light Metal Processing Co., Ltd., Nittetsu Curtainwall Corporation, and Nittetsu Sash

Sales Corporation join the Group.

1987 Tostem Thai Co., Ltd., is established. Overseas production of sashes commenced.

1990 American Home Shield Japan Co., Ltd. (now Japan Home Shield Co., Ltd.), is established.

1992 Toyo Sash Co., Ltd., is renamed to Tostem Corporation.

Tostem Foundation for Construction Materials Industry (now LIXIL JS Foundation) is established.

1999 JIO Corporation is established.

2000 Suzuki Shutter Manufacturing Co., Ltd. (now LIXIL Suzuki Shutter Corporation), becomes a wholly

owned subsidiary.

Toyo Exterior Co., Ltd.*, becomes a wholly owned subsidiary.

Eyeful Home Technology Inc. (now LIXIL Housing Institute, Ltd.) becomes a wholly

owned subsidiary.

2001 Tostem Corporation is renamed to Tostem Inax Holding Corporation and becomes a pure holding company. At the same time, a new company called

Tostem Corporation* is established through a corporate separation.

The Company swaps stocks with Inax Corporation.*

2002 Jyu-Tsu Corporation (now LIXIL Realty, Corp.) joins the Group.

Inax Corporation* establishes the investment fund Inax (China) investment Co., Ltd. (now LIXIL (China) Investment Co., Ltd.), in China.

Production of wooden interior furnishings commenced at subsidiary Tostem Housing Products (Dalian) Co., Ltd., in Dalian, China.

Century 21 Housing Research Institute Ltd. (now LIXIL Housing Institute, Ltd., after becoming Tostem Housing Institute) is inaugurated.

Production of sanitary earthenware commenced in China.

2003 Nihon Kentetsu Engineering joins the Group and establishes Tostem Kentetsu Corporation (merged into Tostem Corporation* in 2006).

2004 Tostem Inax Holding Corporation is renamed to JS Group Corporation.

2005 Asahi Tostem Exterior Building Materials Co., Ltd., is established as a result of integration of Tostem Corporation* and Asahi Glass Co., Ltd.

Nittan Company Limited joins the Group (transferred shares to Secom Co., Ltd., in 2012).

2006 JS Group Senior Life Corporation (now a business of LIXIL Corporation) founded and enters fee-based senior citizens assisted-living home business.

2007 Inax Corporation* establishes the overseas tile company Inax Vietnam Co., Ltd. (now LIXIL INAX SAIGON Manufacturing Co., Ltd.).

2008 Inax Corporation* establishes Inax Vietnam Plumbing Fixtures Co., Ltd. (now LIXIL INAX DANANG Manufacturing Co., Ltd.), in Vietnam, which manufac-

tures and sells water faucet fi xtures.

Jaxson S.P.I. Inc. becomes a subsidiary of Inax Corporation*.

2009 JS Supply Corporation (now LIXIL Logistics Corporation) is established, integrating procurement and distribution functions of the Group.

Tostem Corporation* establishes LG-TOSTEM BM Co., Ltd., jointly with LG Chem, Ltd., a LG group company in South Korea.

American Standard Asia Pacifi c becomes a subsidiary of Inax Corporation*.

LIXIL Energy Co., Ltd., is established, and solar power generation systems business commenced.

2010 New Group brand “LIXIL” is introduced.

Sun Wave Corporation* becomes a subsidiary.

Shin Nikkei Company, Ltd.* becomes a subsidiary.

Business alliance is formed with the Haier Group, of China.

2011 Shanghai Meite Curtain Wall System Co., Ltd., in China becomes a subsidiary of Tostem Corporation*.

Tostem, Inax, Shin Nikkei, Sun Wave (not including the production division), and Toyo Exterior are integrated and LIXIL Corporation is born.

LIXIL establishes Eco Life Solutions Co., Ltd., jointly with Sharp Corporation.

Kawashima Selkon Textiles Co., Ltd., becomes a subsidiary.

Hivic Co., Ltd., becomes a subsidiary.

Permasteelisa S.p.A. becomes a subsidiary of LIXIL Corporation.

2012 LIXIL establishes Kurashi-TEL Co., Ltd., jointly with SECOM CO., LTD.

JS Group Corporation renamed as LIXIL Group Corporation.

* Currently LIXIL Corporation

72

Shareholder Information(As of March 31, 2013)

Number of Shares and Shareholders

Number of shares authorized 1,300,000,000

Number of shares outstanding 290,754,028

(excluding treasury stock of 22,300,227 shares)

Number of shareholders 48,305

Major Shareholders

Name of shareholders

Number of shares held

(thousand shares) Percentage held

Japan Trustee Services Bank, Ltd. (Trust Account) 12,119* 4.17%

The Master Trust Bank of Japan, Ltd. (Trust Account) 11,501* 3.96%

The Nomura Trust & Banking Co., Ltd. (Trust Account) 9,196* 3.16%

LIXIL Employee Stock Ownership Plan 7,188 2.47%

SSBT OD05 OMNIBUS ACCOUNT-TREATY CLIENTS 6,770 2.33%

The Dai-ichi Life Insurance Company, Limited 6,561 2.26%

The Bank of Tokyo-Mitsubishi UFJ, Ltd. 5,798 1.99%

Sumitomo Mitsui Banking Corporation 5,543 1.91%

State Street Bank and Trust Company 505225 5,385 1.85%

Nippon Life Insurance Company 5,099 1.75%

Notes:

1. In addition to the above, LIXIL Group Corporation holds 22,300 thousand shares of treasury stock. Shareholding

calculations exclude treasury stock.

2. * indicates a trust service arrangement.

3. 9,196 thousand shares entrusted to The Nomura Trust & Banking Co., Ltd., are the trust property of Mr. Yoichiro

Ushioda, who has voting rights for these shares.

Distribution of Ownership among Shareholders

(Thousand shares)

Financial institutions 94,721

Domestic companies 22,261

Foreigners 109,377

Individuals and others 64,393

Treasury stock 22,300

Total 313,054

Monthly Stock Price Range (Tokyo Stock Exchange)

Stock price Stock trading volume

(¥) (Thousand shares)

For the years

ended March 31As of March 31, 2010 As of March 31, 2011 As of March 31, 2012 As of March 31, 2013

High (yen) 1,935 2,180 2,260 2,164

Low (yen) 1,095 1,430 1,397 1,374

Note: High and low share prices are from the First Section of the Tokyo Stock Exchange.

0

500

1,000

1,500

2,000

2,500

3,000

0

20,000

40,000

60,000

80,000

100,000

120,000

2009 2010 2011 2012 (FY)

Financial

institutions

30.3%

Treasury

stock

7.1%

313,054

thousand shares

Domestic

companies

7.1%Foreigners

34.9%

Individuals

and others

20.6%

Corporate Data(As of March 31, 2013)

Company Profi le

Corporate Name LIXIL Group Corporation

(JS Group Corporation renamed as

LIXIL Group Corporation on July 1, 2012.)

Established September 19, 1949

Registered Offi ce 2-1-1 Ojima, Koto-ku, Tokyo 136-8535, Japan

Head Offi ce 36F, Kasumigaseki Building, 3-2-5 Kasumigaseki,

Chiyoda-ku, Tokyo 100-6036, Japan

Paid-in Capital ¥68.1 billion

Fiscal Year Closing March 31

Employees 68 (Consolidated Employees: 45,602)

Overview of Major

Businesses

The Company controls and manages domestic and

overseas companies that operate housing related

businesses and urban environment related businesses

through acquisition or holding of stocks.

Securities Traded

(Common Stock)

Tokyo Stock Exchange

Nagoya Stock Exchange

Transfer Agent and

Special Management

of Accounts

Mitsubishi UFJ Trust and Banking Corporation

1-4-5 Marunouchi, Chiyoda-ku,

Tokyo 100-8212, Japan

Annual Meeting of

Shareholders

Normally held in June in Tokyo, Japan

LIXIL Group Online Information

In addition to a Group profi le, CSR activities, and

the latest news, the LIXIL Group’s corporate website

also contains such features as a Special Topics

section covering recent business initiatives within

the Group and an Executive Column in which

the Group’s president explains important Group

business themes.

http://www.lixil-group.co.jp/e/

Investor Relations (IR) Site

LIXIL Group Corporation’s IR website offers enriched

content for shareholders and other investors, including

information regarding fi nancial results, audio streaming

of shareholder information meetings, and market data.

A PDF version of the most recent annual report and an

online version containing a video interview with the

president are also available on the site.

http://www.lixil-group.co.jp/e/ir/

73

This annual report is printed with vegetable oil ink

on FSC-certified paper made of wood materials

harvested from well-managed forests.

Printed in Japan

TSE Securities Code: 5938

36F, Kasumigaseki Building, 3-2-5 Kasumigaseki,

Chiyoda-ku, Tokyo 100-6036, Japan

http://www.lixil-group.co.jp/e/

LIXIL Group participated in the HOUSE VISION 2013 TOKYO EXHIBITION, displaying a model home as a joint

project with Japanese architect Toyo Ito. With this collaboration, we proposed a new vision of home and lifestyles

under the theme “Beyond the Residence.” Designed to represent the oxymoronic sub-concept of “imagining a house

for the nostalgic future,” the model home has integrated Japanese traditional lifestyle-related wisdom and modern

technologies to create a comfortable residential space fi lled with natural elements. Specifi cally, one key feature is the

ground-level fl oor—frequently found in traditional Japanese rural houses of the past—that occupies around half of

the entire home, making a large ambient space inside and outside the house simultaneously that allows residents

to feel closer to nature by enjoying ample sunlight and fresh outdoor air, even in urban areas. This design is also

eco-friendly. Through collaboration with creative designers, architects, and researchers, we will continue making

efforts to explore approaches to sustainable homes and lifestyles. ©HOUSE VISION photo by Nacása & Partners Inc.

Annual R

epo

rt 2013

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