LIXIL Corporation

In global sales activities, economic and price fluctuations, surges in raw material prices (aluminum, copper, resin, semiconductors, etc.), and rising logistics and energy costs may adversely affect business results. Domestically, significant fluctuations in new housing starts, the yen-conversion impact of foreign currency-denominated assets and liabilities due to exchange rate movements, and increased interest burden on interest-bearing liabilities due to rising market interest rates are also concerns. As countermeasures, the Company implements timely price revisions, foreign exchange hedging through Regional Treasury Centers (four locations in China, Singapore, Germany, and the U.S.), and strengthening of its reform (renovation) strategy.

Changes in international circumstances and multilateral relations may cause raw material and energy price fluctuations, prolonged logistics lead times due to disruption of major shipping routes, and impacts such as transaction suspensions and business withdrawals accompanying strengthened economic security policies; the significance of this risk has increased from the previous year. In particular, the escalation and prolongation of tensions in the Middle East heightens uncertainty, and trends in U.S. tariff policy could also affect business results. As countermeasures, the Company promotes diversification of procurement sources and country risk management, optimization of the supply chain through the reorganization of the European distribution center and strengthening of production capacity in Mexico (North America), and regular reviews of its BCP (Business Continuity Plan).

If failures or cyberattacks occur in the computer systems and communication networks supporting production and sales activities, or if personal information is leaked, this could result in a loss of public trust and substantial costs, potentially leading to decreased revenue and increased selling, general and administrative expenses. Risks from ransomware attacks and aging systems could also materialize. As countermeasures, the Company has established a CSIRT for continuous monitoring, is building a zero-trust authentication infrastructure, and has constructed a multi-layered defense system including network segmentation between sites and immutable backups.

For raw materials such as metals, wood, resin, and ceramics, exchange rate and commodity price fluctuations due to international circumstances and economic conditions, as well as rising logistics costs due to shortages of logistics drivers and oil price fluctuations, may adversely affect cost of sales and the stability of product supply; the significance of this risk has increased from the previous year. In the event of stockouts, there are also concerns about impacts on product reliability and reputation. As countermeasures, the Company promotes passing costs through to sales prices, use of derivatives, multiple sourcing and country risk management, securing safety stock, and switching to alternative materials and use of recycled materials.

Natural disasters such as earthquakes and typhoons, large-scale accidents, and outbreaks of infectious disease may cause severe damage to production, logistics, and sales sites in Japan and overseas, seriously affecting product supply and adversely affecting revenue. A decline in workforce due to the spread of infectious disease and suspension of business by trading partners could also disrupt business activities. As countermeasures, the Company has formulated a BCP, established a crisis management headquarters structure, secured a damage information collection app and emergency communication lines, established a system to ensure the safety of overseas travelers, and developed a work-from-home environment.

If brand equity declines due to inconsistency between brand strategy and business strategy, divergence from market trends, or incidents such as product accidents, this could adversely affect business results. In particular, impairment of the value of the GROHE brand (held by LIXIL Europe S.à r.l.) could lead to slower revenue growth and lower profit margins, potentially resulting in impairment losses on recorded goodwill. As countermeasures, the Company formulates and implements a brand strategy consistent with its business strategy, monitors and analyzes global sales prices, and manages and maintains brand value by establishing rules for the use of GROHE brand design.

The Company faces intense competition in many markets, and price competition may reduce revenue and profit margins. While the Company strives to bring high-quality products to market, there is no guarantee that it can always secure a competitive advantage in terms of price. As countermeasures, the Company promotes differentiation through value-added products, development of products for affluent customers, environmentally friendly products, and products requiring less construction work, cost reduction through material commonization and platformization, and appeals to "value" through cross-business coordinated proposals.

If the securing and development of specialized technical personnel and management personnel does not proceed as planned due to a declining working population resulting from the falling birthrate and aging population, this could impair the efficiency of business operations and adversely affect business results. Competition for talent acquisition, both in Japan and overseas, is intensifying. As countermeasures, the Company actively promotes year-round recruitment of new graduates and experienced personnel, implements diverse educational programs, has established five global Employee Resource Groups (ERGs), and promotes fairness and transparency in global compensation through its Compensation and Benefits Committee.

Regarding deferred tax assets recognized based on estimates of future taxable income, if profitability improvement measures fail to be achieved or unfavorable tax reforms occur, part or all of the deferred tax assets may be reduced, adversely affecting business results and financial condition. In the current fiscal year, the Company reduced part of the carrying amount of deferred tax assets, including at some subsidiaries. As countermeasures, the Company has strengthened monitoring by its planning and management division, strengthened its performance management process through an organization directly under the CFO, and established a system for early awareness of tax reform information by its tax department.

Competition law, personal information protection law, international trade regulations, and sustainability-related regulations in Japan and overseas may be rapidly established or amended, potentially leading to adverse effects such as increased cost of sales, increased design and development costs, and suspension of transactions. The significance of this risk has increased from the previous year, with particular emergence of global tightening of regulations on the use of natural resources, non-financial information disclosure regulations, and personal information protection regulations. As countermeasures, the Company has implemented a global reorganization of its legal and compliance departments in January 2022, hired a European Trade Compliance Leader in December 2024, and is building a compliance system through strengthened collaboration between business divisions and corporate divisions.