LIXIL Group Corporation
Annual Report 2022

Plain-text annual report

INTEGRATED REPORT 2022 01 OVERVIEW 02 STRATEGY 03 GOVERNANCE 04 DATA Make better homes a reality for everyone, everywhere LIXIL’S VALUE CREATION PROCESS How We Create Value in a Sustainable and Meaningful Way for Our Stakeholders and Society 02 EXTERNAL ENVIRONMENT Megatrends and Social Issues p.13 1 LIXIL’S PURPOSE Make better homes a reality for everyone, everywhere 1. LIXIL’S PURPO S E 4. THE VA L U E W E C R E A T E OUR VALUE CREATION PROCESS E U L A E V AT RE 3. THE WAY WE C 2 THE RESOURCES WE RELY ON p.15 2 . T H E R E S O Diverse and Purpose-led People Meaningfully Designed Products Global Sales Infrastructure Financial Foundation U R C E S WE RELY ON Unrivalled Portfolio of Brands “Monozukuri” Manufacturing Platform Sustainable Resource Management 4 THE VALUE WE CREATE p.17 OUTCOMES FOR LIXIL Sustainable growth comes through strong financial performance and our commitment to society OUTCOMES FOR STAKEHOLDERS Employees Thrive in a workplace based on the shared LIXIL Behaviors Consumers Enjoy innovative products that improve comfort while saving the planet’s resources Partners Have reliable access to differentiated, high-quality products and industry training initiatives Societies Benefit from improved sanitation, ecological innovations and our commitment to diversity and inclusion Shareholders See financial discipline and a commitment to ESG principles to drive future growth A modern work environment A strong governance foundation Governance p.47 LIXIL’S PEOPLE Universal “LIXIL Behaviors” p.16 3 THE WAY WE CREATE VALUE An efficient operating structure A clear corporate purpose Clear strategic goals LIXIL PLAYBOOK (MANAGEMENT DIRECTION) Corporate Responsibility Strategy p.25 EXECUTIVE OFFICERSLIXIL’S HISTORYCONTENTSLIXIL AT A GLANCECEO MESSAGE021104030506OVERVIEW 01LIXIL’S VALUE CREATION PROCESSLIXIL’S VALUE CREATION PROCESSINTEGRATED REPORT 2022OVERVIEWSTRATEGYGOVERNANCEDATA01020304  01 OVERVIEW 02 STRATEGY 03 GOVERNANCE 04 DATA Our corporate purpose, our vision, an overview of LIXIL, and a message from the CEO Our management strategies to create long-term value for stakeholders and society, our initiatives for sustainable growth, and their progress Our approach to corporate governance and the steps we are taking in this area A summary of the data that defines our company and performance 03 02 LIXIL’S VALUE CREATION PROCESS 03 CONTENTS 04 LIXIL’S HISTORY 05 LIXIL AT A GLANCE 06 CEO MESSAGE 11 EXECUTIVE OFFICERS 13 EXTERNAL ENVIRONMENT 15 VALUE CREATION PROCESS 15 THE RESOURCES WE RELY ON 16 THE WAY WE CREATE VALUE 17 THE VALUE WE CREATE 18 CFO MESSAGE 21 CR CHAIRPERSON / CPO MESSAGE 25 MANAGEMENT DIRECTION 26 THE LIXIL PLAYBOOK THROUGH INNOVATION TECHNOLOGY BUSINESS 26 IMPROVE PROFITABILITY OF JAPANESE BUSINESS 27 PROMOTE GROWTH OF INTERNATIONAL WATER 29 ESTABLISH FOUNDATION FOR LONG-TERM GROWTH 31 DIGITAL TRANSFORMATION (DX) 33 GLOBAL PEOPLE STRATEGY 35 LIXIL’S CORE BUSINESSES 35 LWT (JAPAN BUSINESS) 38 LHT 64 CONSOLIDATED 11-YEAR SUMMARY 65 FINANCIAL HIGHLIGHTS 67 NON-FINANCIAL HIGHLIGHTS 69 REVIEW AND ANALYSIS OF OPERATING RESULTS AND FINANCIAL POSITION 75 PRINCIPAL GROUP COMPANIES / 77 BASIC POLICY FOR INVESTOR RELATIONS 78 SHAREHOLDER INFORMATION 79 CORPORATE DATA GLOBAL MANUFACTURING AND SALES SITES EFFECTIVENESS EVALUATION 48 MESSAGE FROM THE CHAIRPERSON OF THE BOARD OF DIRECTORS 49 BOARD OF DIRECTORS’ 50 ELECTION OF DIRECTOR CANDIDATES 51 LIXIL BOARD OF DIRECTORS 52 CORPORATE GOVERNANCE AT LIXIL 54 MESSAGE FROM THE CHAIRPERSON OF THE NOMINATION COMMITTEE 55 MESSAGE FROM THE CHAIRPERSON 56 MESSAGE FROM THE CHAIRPERSON OF THE COMPENSATION COMMITTEE 57 EXECUTIVE COMPENSATION 59 MESSAGE FROM THE CHAIRPERSON OF THE GOVERNANCE COMMITTEE 60 INTERNAL CONTROL SYSTEMS AND OF THE AUDIT COMMITTEE COMPLIANCE 41 LIXIL’S CR STRATEGY STRATEGY OVERVIEW 41 CORPORATE RESPONSIBILITY (CR) 42 GLOBAL SANITATION & HYGIENE 43 WATER CONSERVATION & ENVIRONMENTAL SUSTAINABILITY 44 RESPONSE TO TCFD RECOMMENDATIONS 46 DIVERSITY & INCLUSION Editorial policy This integrated report aims to enhance communication with LIXIL’s stakeholders, especially investors, by presenting our initiatives to achieve long-term, sustainable growth. In editing, we focused on key content and aimed for an easy-to-understand structure. Information not included in this integrated report, such as detailed non-financial information, detailed financial information, and our latest news is available on our corporate website. Frameworks referenced International initiatives LIXIL has joined LIXIL’S VALUE CREATION PROCESSEXECUTIVE OFFICERSLIXIL’S HISTORYLIXIL AT A GLANCECEO MESSAGE021104030506OVERVIEW 01INTEGRATED REPORT 2022CONTENTSCONTENTSOVERVIEWSTRATEGYGOVERNANCEDATA01020304LIXIL’S HISTORY LIXIL is committed to achieving its corporate purpose and creating sustainable growth and value. Net sales (JGAAP) / Revenue (IFRS) (Years ended March 31) ■ Japan　■ International ● Operating income margin (JGAAP) / Core earnings margin (IFRS) 04 1,436.4 3.5%3.5% 1,291.4 1.4%1.4% 1,628.7 1,705.4 1,890.5 1,633.2 1,829.3 1,692.4 LIXIL divests its international building business and Japanese retail business (¥ billion) 2,000 1,514.4 1,378.3 1,428.6 1,500 4.2%4.2% 3.0%3.0% 3.7%3.7% 4.2%4.2% 3.2%3.2% 3.5%3.5% 5.5%5.5% 4.2%4.2% 4.5%4.5% 1,000 500 0 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Business Phase Creating LIXIL through mergers of Japanese companies Establishing the foundation for global business expansion and growth Improving the balance sheet, simplifying organizational structure, and increasing profitability JGAAP IFRS 2001 INAX Corporation and TOSTEM Corporation merge 2014 GROHE becomes an 2020 LIXIL divests its international building business and under a holding company equity-method affiliated company Japanese retail business 2009 American Standard’s Asia business becomes a subsidiary 2015 GROHE becomes a consolidated 2011 Tostem, INAX, Shin Nikkei, SUNWAVE and Toyo Exterior merge and establish LIXIL Corporation Permasteelisa becomes a subsidiary 2013 American Standard’s North American business becomes a subsidiary subsidiary LIXIL transitions from a holding company to an operating company 1967 First made-in-Japan shower toilet launches 1990 World’s first self-powered automatic faucet Automage launches 1998 Humidity-modulating tile ECOCARAT launches 2009 GROHE Blue water system launches 2010 High-performance hybrid window SAMOS launches 2013 Manufacturing and sales of SATO toilet pans begin 2014 SPAGE, a prefabricated bathroom for at-home spa experience, launches 2016 AQUA CERAMIC, a new toilet material that prevents a build-up of limescale and other stains, developed Corporate Responsibility (CR) Strategy announced 2017 IoT-enabled GROHE Sense Guard launches 2020 Environmental Vision 2050 announced SATO Tap, a handwashing station for emerging economies, launches 2021 GROHE’s Cradle to Cradle Certified® products unveiled High-performance resin window EW with increased recycled materials launches C o r p o r a t e D e v e l o p m e n t s H i s t o r y l o f V a u e C r e a t i o n INTEGRATED REPORT 2022LIXIL’S VALUE CREATION PROCESSEXECUTIVE OFFICERSCONTENTSLIXIL AT A GLANCECEO MESSAGE021104030506OVERVIEW 01LIXIL’S HISTORYLIXIL’S HISTORYOVERVIEWSTRATEGYGOVERNANCEDATA01020304 05 LIXIL AT A GLANCE LWT LIXIL WATER TECHNOLOGY LHT LIXIL HOUSING TECHNOLOGY LBT LIXIL BUILDING TECHNOLOGY H&S HOUSING & SERVICES BUSINESS Revenue Revenue Revenue Revenue 59.5% ¥862.2 billion Core earnings* ¥76.6 billion Employees 31,179 people R&D ¥16.2 billion 32.2% ¥466.7 billion Core earnings* ¥28.2 billion Employees 17,215 people R&D ¥6.0 billion 6.2% ¥89.3 billion Core earnings* Employees R&D ¥3.5 billion 1,378 people ¥0.7 billion 2.1% ¥30.3 billion Core earnings* –¥0.1 billion Employees 602 people Principal Products and Services Principal Products and Services Principal Products and Services Principal Products and Services Tile building materials Tiles for houses and buildings, interior decorative tiles, etc. Plumbing fixtures Sanitaryware, shower toilets, water faucets, washstands, bathtubs, prefabricated bathrooms, smart products, showerheads, washstand fixtures, washstand cabinet units, kitchen systems, etc. Direct Customers • Dealers • Sales agencies • Construction companies • Architectural firms • Developers • Wholesalers • Building material trading companies • Volume retailers • General consumers Other building materials Siding, roofing materials, etc. Other Solar power systems, etc. Metal building materials Housing window sashes, entrance doors, shutters, gates, carports, banisters, high railings, etc. Wooden interior furnishing materials Window frames, wooden furnishing materials, interior decorative materials, etc. Direct Customers Metal building materials Curtain walls, building window sashes, store facades, etc. Housing solution businesses Development of homebuilding franchise chains and construction on order, etc. Real estate businesses Land, building, and real estate management services, support for development of real estate franchises, etc. Financial services business Housing loans, etc. Direct Customers Direct Customers • Dealers • Sales agencies • Building materials wholesalers • Homebuilders • House manufacturers • Construction companies Competitors • Architectural firms • Developers • General consumers • Construction companies • Architectural firms • Dealers • Sales agencies • Developers • House manufacturers • Housing franchise business: Homebuilding franchise members • Real estate brokerage franchise business: General consumers Competitors • Kohler • Roca • Hansgrohe • Masco (Delta) • Fortune Brands (Moen) • Geberit • TOTO • Takara Standard • Cleanup • Panasonic • YKK AP • Sankyo Tateyama • SHIKOKU CHEMICALS • Takasho • Panasonic • DAIKEN • Eidai • NODA • NICHIHA • KMEW Product Brands Product Brands Product Brands * Equivalent to operating income in JGAAP INTEGRATED REPORT 2022LIXIL’S VALUE CREATION PROCESSEXECUTIVE OFFICERSLIXIL’S HISTORYCONTENTSCEO MESSAGE021104030506OVERVIEWLIXIL AT A GLANCE 01LIXIL AT A GLANCEOVERVIEWSTRATEGYGOVERNANCEDATA0102030406 CEO MESSAGE WE ARE ACCELERATING TRANSFORMATION TO REALIZE OUR CORPORATE PURPOSE AND SUSTAINABLE GROWTH Kinya Seto Director, Representative Executive Officer, President, and CEO I am pleased to report that amid a fast-changing global on our strategic goals despite the new challenges. But our market environment, LIXIL continues to create value for focus remains on taking measures today that will create stakeholders through the steady implementation of the sustainable growth tomorrow. strategy set out in our LIXIL Playbook. The fundamental changes we are making throughout the organization put the company in a uniquely strong position to prosper and Creating Value for the Long Term It is the aim of any company to create value for the broad achieve sustainable growth for the long term. range of stakeholders. But only people can create value Operating in more than 150 countries, LIXIL’s and that is why people are at the heart of our value creation corporate purpose is to make better homes a reality for process. By establishing an inclusive culture and building everyone, everywhere. Through products, services and pride among our employees, we can make them the business models that cater to the needs of each customer change agents for the future. This is vital to fostering the segment, we are working to achieve our purpose. exchange of ideas that will generate the innovations we To deliver on our purpose, LIXIL is transforming into a need to drive us forward. more agile, entrepreneurial and inclusive organization. This We are focused on empowering employees to create change is driven by our increasingly value for all stakeholders via six enablers: clear strategic diverse global team of employees, goals, a clear corporate purpose, an efficient operating empowered to guide the business structure, the universal LIXIL Behaviors, a modern work forward. We are united by the LIXIL environment, and a strong governance foundation. Behaviors—“do the right thing,” “work with respect,” and “experiment and learn.” The LIXIL Playbook for Sustainable Growth It is also vital to channel our efforts into identified areas The results are clear, with offering the best chances for long-term success. This requires solid progress this past fiscal year a roadmap that sets clear goals but a flexible approach as INTEGRATED REPORT 2022LIXIL’S VALUE CREATION PROCESSEXECUTIVE OFFICERSLIXIL’S HISTORYCONTENTSLIXIL AT A GLANCE021104030506OVERVIEW 01CEO MESSAGECEO MESSAGEOVERVIEWSTRATEGYGOVERNANCEDATA0102030407 global conditions change. The LIXIL Playbook sets out our post-COVID era focus on their homes, we are providing the experience. Digitalization is critical to better understanding management direction, focusing on four key initiatives: best products in the market through an integrated purchasing behavior, improving productivity, and production network and supply chain, as well as an developing new business models. 1. Focus and simplify our organization enhanced channel strategy. We will continue to seek Our aim is to transform LIXIL into a consumer-centric Our near completion of this important initiative has already further growth by investing in gaps in the product portfolio organization that continuously innovates and provides paid large dividends and helped in the broader goal of and in areas offering strong profit margins. differentiated products that add value to each of our becoming a more agile and entrepreneurial organization. brands. By strengthening our global design capabilities, we We continue to optimize our business portfolio and 4. Establish foundation for long-term growth through integrate design into the very DNA of the company. implement structural reforms to improve our balance sheet innovation We are also delivering on a comprehensive CR and reduce volatility in business performance. Innovation is embodied in every one of our products and Strategy, the foundation of our ESG activities, to provide services, driven by our capabilities in technology, design, value to stakeholders that goes beyond financial results 2. Improve profitability of Japanese business digitalization, and intellectual assets. It is also the product and contributes to the Sustainable Development Goals As our single biggest market, the success of the Japan of a clear methodology and structure, requiring the proper established by the United Nations. As part of these efforts, business is crucial to our future. With a declining birthrate educational and training programs throughout the company we have established a target of net-zero CO2 emissions and aging population leading to a decline in new home in order to create a common language for innovation. through our business processes, products, and services by construction, the market faces unique challenges. In These measures will further enable us to capture unmet 2050 and are working on a roadmap with specific interim response, we are making continued progress with needs, elevate our brand equity, and improve the customer targets to reach that goal. measures including growing renovation-related sales, an experience. ongoing shift to platform-based production, and an Achieving the goals of the LIXIL Playbook requires that expansion of differentiated and high-value-added products. we strengthen our competitiveness through our Global Our business in Japan is today more resilient and profitable. People Strategy with diversity and inclusion at its core. Coping With a Fast-changing Operational Environment The need for LIXIL to be an adaptable and resilient 3. Promote growth of international water technology meritocratic, agile, and entrepreneurial. By taking a we have seen in our operating environment over the past business people-centric approach, we can build greater employee two years, the most far-reaching since our company was Our unparalleled portfolio of global brands in water engagement across LIXIL. founded more than a decade ago. technology puts us in a unique position across the We are also accelerating our digital transformation The COVID-19 pandemic not only drastically changed Americas, Europe and Asia. As consumers in the (DX), focusing on both the employee and consumer our lifestyles, but also accelerated multiple changes in the We are transforming our HR policies to become more organization has been amply demonstrated by the changes INTEGRATED REPORT 2022LIXIL’S VALUE CREATION PROCESSEXECUTIVE OFFICERSLIXIL’S HISTORYCONTENTSLIXIL AT A GLANCE021104030506OVERVIEW 01CEO MESSAGECEO MESSAGEOVERVIEWSTRATEGYGOVERNANCEDATA0102030408 shortages, a sudden spike in input prices and further disruptions to global transportation networks. This has sparked inflationary pressures, with prices in some markets rising at the fastest pace seen in 40 years. Central banks have responded with increases in interest rates with as-yet unknown impacts on demand for housing and related products. We are experiencing a complete paradigm shift. Many long-held assumptions may no longer be true. Navigating a New Environment Responding to these changes requires both short-term measures, such as an ability to adjust pricing more dynamically, as well as the long-term programs we have in place to implement our Global People Strategy. Through these measures we can be truly consumer centric and more resilient to the external environment. In response to increased costs in raw materials, global business environment. Procurement of everything pandemic. Meanwhile, workers are increasingly demanding production, and logistics, we will continue to adopt from raw materials to advanced semiconductor a more flexible work style as the shift to work-from-home alternative materials and other measures to reduce costs, components became more difficult amid numerous accelerates. Amid intensified competition for top talent, as well as pass them on to our sales prices. While this is lockdowns, and prices began to rise in response. companies are expected to provide a work environment Procurement and logistical issues prompted a shift in some where employees can reach their full potential, develop manufacturing to Japan. While this secured parts supply, it their careers, and feel fulfilled at work. expected in global markets such as Europe and the United States, this has not usually been the case in Japan, where there has been sharp resistance to higher prices amid an also pushed up our costs. These disruptions gathered pace in 2022 as Europe overall background of a deflationary economy. However, Purchasing activities have been digitized as consumers saw armed conflict on a scale few would have predicted as with companies in multiple industries now instituting price have been spending more time at home under the possible in the modern era. This has led to further increases at both the wholesale and retail level, consumers INTEGRATED REPORT 2022LIXIL’S VALUE CREATION PROCESSEXECUTIVE OFFICERSLIXIL’S HISTORYCONTENTSLIXIL AT A GLANCE021104030506OVERVIEW 01CEO MESSAGECEO MESSAGEOVERVIEWSTRATEGYGOVERNANCEDATA0102030409 have come to expect higher prices to some degree. know and trust. This has allowed us to focus on a certain of resources, we can reduce our environmental footprint One issue in practical terms has been the inclusion of range of items that we have ensured to supply without and contribute to the reduction of greenhouse gases. pricing in product catalogs. This has been standard interruption. The need for higher-quality housing and the increased industry practice but has meant that it takes more time to A less acute but no less important issue is the global cost of the traditional scrap-and-build approach to reflect new pricing. To resolve this issue, we have been impact of climate change. We are already seeing an construction will also contribute to the increased demand digitizing our product catalogs and were able to raise sales increase in severe weather events, which can affect for renovation. In Japan, the ratio of new construction to prices more than twice a year over the previous fiscal year. production facilities. To mitigate the related risks and building renovations is 2:1, compared to 1:4 or 1:5 in This took place with the understanding and cooperation of strengthen our resiliency, we are reducing fixed costs and Europe and the United States. By expanding renovation- our business partners, and we will continue to act as building a flexible production system by expanding related offerings and demonstrating the benefits of quickly as possible to further price disruptions. platform-based products. renovation, LIXIL will be able to achieve sustainable growth For the longer term, we believe that we can help To combat climate change at its source requires in the Japanese market, even as new construction rates insulate ourselves from price fluctuations through the fundamental shifts in our working and living environment. decline. strategic move to less price sensitive mid- to high-price- LIXIL is committed to being a leader in this area. In Japan, Within the company, we are also doing our share by range products. over 90% of existing homes, representing approximately 62 downsizing and relocating our headquarters, restructuring To cope with supply-chain issues, we have million residences, do not meet current energy-efficiency our production system, and optimizing the allocation of strengthened our redundancy capabilities and have standards. LIXIL can improve the energy efficiency of these personnel. These measures help to make us less wasteful, maintained delivery schedules by shifting some parts homes with its high-insulation windows and doors, and more productive and more profitable. production to Japan from Vietnam and China. With renovation methods that improve insulation of the entire commodity prices rising sharply, we are also innovating in house, including walls, ceilings, and floors. This will save on the area of raw material usage, such as substituting heating and cooling and make a significant contribution to less-expensive zinc or plastic components for copper in the decarbonization of Japan. Results for the Fiscal Year Ended March 31, 2022 The seismic shocks to global commerce over the past year some products. In addition, LIXIL is promoting the use of recycled have produced two clear outcomes for LIXIL: First, an We have also been promoting the standardization of materials in aluminum and resin sashes and the impact on our profits as costs and logistical problems both parts to reduce risks. We have seen that consumers facing development and commercialization of sustainable ratcheted higher, and second, a confirmation that our the uncertainties surrounding COVID-19 have also changed materials made from waste plastic and wood. Through ongoing strategy is the correct approach to deliver their purchasing habits with a shift to products that they these business activities and by promoting the circular use long-term value creation. INTEGRATED REPORT 2022LIXIL’S VALUE CREATION PROCESSEXECUTIVE OFFICERSLIXIL’S HISTORYCONTENTSLIXIL AT A GLANCE021104030506OVERVIEW 01CEO MESSAGECEO MESSAGEOVERVIEWSTRATEGYGOVERNANCEDATA0102030410 driven by better-differentiated products, led by steady growth in the international water technology business, particularly in Europe and the Americas. These measures tie in with the broader management direction, and we are confident that they will help deliver continued growth for FYE2023. We are targeting core earnings of ¥81 billion and a higher core earnings margin of 5.3%. Demonstrating our commitment to continued improvements on profitability and balance sheet, we are planning an increased dividend of ¥90 for the fiscal year. The Future As CEO, I have relied on the support and contributions of our employees and all our other stakeholders in turning LIXIL from an amalgamation of brands into a sharply focused entity designed for the challenges of the future. The strategy we have crafted together and implemented over the past few years is already proving its value as we Despite the external issues, FYE2022 showed revenue required for future adjustments. As noted, we have deal with the severe shocks to the global economic system growth of just under 4% and a double-digit gain in core switched materials where possible to cushion some of the caused by nothing less than disease and war. I am earnings of 13.2%. At the same time, the results did not fallout from a surge in commodity prices. We have also confident that LIXIL will be in an equally strong position to reach our targets for the year. While core earnings came in made progress on creating a more agile and resilient face the longer-term challenges of climate change, at ¥64.9 billion, we had forecast ¥80 billion. In response, supply chain and reducing fixed costs. I expect that some potential economic uncertainty, and fundamental shifts to we have moved quickly and decisively on a number of costs will begin to moderate, such as the 5- to 10-fold the way we all live. fronts. To cope with higher materials prices, we have made increase in container shipment costs from the pre-COVID price adjustments and have shortened the time scale level. On the demand side, our revenue growth will be INTEGRATED REPORT 2022LIXIL’S VALUE CREATION PROCESSEXECUTIVE OFFICERSLIXIL’S HISTORYCONTENTSLIXIL AT A GLANCE021104030506OVERVIEW 01CEO MESSAGECEO MESSAGEOVERVIEWSTRATEGYGOVERNANCEDATA01020304EXECUTIVE OFFICERS (As of June 21, 2022)* * The number of Company shares and the number of phantom stocks held are as of June 1, 2022. 11 From the left Yugo Kanazawa Executive Officer, Executive Vice President, Marketing, Digital, and IT, and Chief Digital Officer Number of shares of the Company owned: 13,386 Number of phantom stocks held: 38,382 Sachio Matsumoto Director, Representative Executive Officer, Executive Vice President, Finance, Treasury, and M&A, and Chief Financial Officer Number of shares of the Company owned: 94,844 Number of phantom stocks held: 87,985 Shoko Kimijima Executive Officer, Executive Vice President, Legal, Compliance, and Corporate Audit, and Chief Legal and Compliance Officer Number of shares of the Company owned: 300 Number of phantom stocks held: 18,060 Kinya Seto Director, Representative Executive Officer, President, and Chief Executive Officer Number of shares of the Company owned: 503,908 Number of phantom stocks held: 344,286 Jin Song Montesano Director, Executive Officer, Executive Vice President, Human Resources and General Affairs, Public Affairs, Investor Relations, External Affairs, and Corporate Responsibility, and Chief People Officer Number of shares of the Company owned: 49,158 Number of phantom stocks held: 41,819 Satoshi Yoshida Executive Officer, Executive Vice President, LIXIL Housing Technology (LHT) Number of shares of the Company owned: 14,243 Number of phantom stocks held: 30,383 Hiroyuki Oonishi Executive Officer, Executive Vice President, LIXIL Water Technology (LWT) Japan Number of shares of the Company owned: 18,110 Number of phantom stocks held: 28,009 Bijoy Mohan Executive Officer, Executive Vice President, LIXIL International Number of shares of the Company owned: 0 Number of phantom stocks held: 220,004 INTEGRATED REPORT 2022LIXIL’S VALUE CREATION PROCESSLIXIL’S HISTORYCONTENTSLIXIL AT A GLANCECEO MESSAGE021104030506OVERVIEW 01EXECUTIVE OFFICERSEXECUTIVE OFFICERSOVERVIEWSTRATEGYGOVERNANCEDATA01020304INTEGRATED REPORT 2022 01 OVERVIEW 02 STRATEGY 03 GOVERNANCE 04 DATA 12 02 STRATEGY 13 15 18 21 25 26 35 41 EXTERNAL ENVIRONMENT VALUE CREATION PROCESS CFO MESSAGE CR CHAIRPERSON / CPO MESSAGE MANAGEMENT DIRECTION THE LIXIL PLAYBOOK LIXILʼS CORE BUSINESSES LIXILʼS CR STRATEGY EXTERNAL ENVIRONMENT MEGATRENDS AND SOCIAL ISSUES 13 Megatrends • Climate change • Water and resource shortages • Heightened geopolitical risk • Supply chain disruptions • Growing global middle class • Maturing Japanese market • Accelerating digitalization • The changing world of work Material Issues (priority list) Countermeasures • Global sanitation and hygiene • Climate change mitigation and adaptation • Water sustainability • Circular economy • Environmental impact of product lifecycle • Environmental management • Diversity and inclusion See p.41 • Achieve carbon neutrality through business operations, products and services • Enhance the environmental value of water • Promote circular use of resources • Build global sanitation markets through SATO business • Strengthen supply chains • Grow international water technology business • Develop differentiated products • Implement Global People Strategy • Promote digital transformation VALUE CREATION PROCESS131518CR CHAIRPERSON / CPO MESSAGETHE LIXIL PLAYBOOKMANAGEMENT DIRECTIONLIXIL’S CORE BUSINESSESCFO MESSAGELIXIL’S CR STRATEGY2126253541STRATEGY 02INTEGRATED REPORT 2022EXTERNAL ENVIRONMENTEXTERNAL ENVIRONMENTOVERVIEWSTRATEGYGOVERNANCEDATA0102030414 EXTERNAL ENVIRONMENT PRINCIPAL RISKS AND COUNTERMEASURES At LIXIL, in order to achieve our business objectives, we regularly identify and assess risks that may have an impact on business activities based on company-wide criteria and prioritize risks to be addressed. We classify risks into strategic risks and operational risks, formulate and implement countermeasures for addressing each risk, monitor their progress, and make ongoing improvements. In doing so we realize sustainable value creation for our stakeholders. Furthermore, to address high-priority risks, the Audit Committee monitors whether effective measures are being taken through participation in meetings of the Board of Directors, the Board of Executive Officers, and other committees. Risks Countermeasures Changes in the economic environment, fluctuations in exchange rates and interest rates We operate globally, and our revenue is affected by fluctuations in global demand, prices, and other factors. Factors that could have a negative impact on our business performance and financial position include increases in costs related to raw materials and logistics in particular, as well as significant fluctuations in the number of new housing starts and other factors in Japan, wars and civil unrest in other countries, and a significant rise in market interest rates. Furthermore, fluctuations in exchange rates could affect our business performance including revenue. Supply of raw materials Strategic risks Given that we procure raw materials, materials and parts as needed, soaring raw material prices due to inflation or other factors, fluctuations in commodity prices, and fluctuations in the supply of key resources (such as aluminum and copper), may cause the cost of sales to increase, which could have a negative impact on our business performance and financial position. In addition, defects or shortfalls in materials, parts and other supplies could have a negative impact on confidence in and the reputation of our products. Furthermore, with regard to logistics operations, factors including supply delays due to the COVID-19 pandemic, fluctuations in oil prices, and a surge in labor costs could also have a negative impact on our business performance and financial position. Outside Japan, we are building a stable supply system by quickly identifying geopolitical risks, securing alternative suppliers and taking other measures. In Japan, we are expanding sales of mid-range and high-end products and strengthening our home renovation strategy. We also mitigate the impact of exchange rate fluctuations through hedging instruments as necessary and are consolidating fund management operations to improve the efficiency and stability of funding. We are building a stable supply system from the perspective of business continuity planning (BCP) by adjusting selling prices to reflect soaring raw material prices, purchasing from multiple suppliers, conducting responsible procurement surveys of suppliers, securing safety stock, promoting the use of recycled materials, and improving logistics efficiency, as well as shifting to a circular economy model and stabilizing logistics costs. Environment (climate change, water, resources) In recent years, the impact of climate change has led to new laws and regulations, including those for strengthening energy-saving measures, as well as the introduction of carbon taxes. These changes could mean that past practices for production and sales activities may need updating to ensure ongoing regulatory compliance. Global acceleration of the trend toward decarbonization may necessitate an overhaul of production processes that use fossil fuels. Furthermore, the occurrence of serious environmental pollution related to water or natural resources resulting from our business activities, or damage to our manufacturing facilities caused by abnormal weather conditions, could have a negative impact on our business performance and financial position. We have formed the Environmental Strategy Committee, chaired by the Chief Technology Officer appointed by the Board of Executive Officers, to establish and implement environmental strategies, including the formulation of regulations and policies related to environmental governance, deliberation and decision-making on measures to address important environmental issues including climate change, and management and monitoring of company-wide targets. Acquisition and development of human resources and the promotion of diversity To develop our business on an ongoing basis, we must continue to secure and nurture human resources with specialized expertise and with excellent management skills, such as in business strategy and organizational management. However, particularly in Japan, where the low birthrate and aging population have led to a decline in the working population, there is fierce competition to retain vital human resources. If the acquisition and development of human resources do not proceed as planned, the efficiency of business operations may be impaired from a long-term perspective, which could have a negative impact on our business performance and financial position. In addition to stepping up initiatives including those to ensure the success of women in the workplace and to support employees with disabilities, we foster a corporate culture that welcomes diverse human resources. This enables employees from a variety of backgrounds to fully demonstrate their individuality and abilities. We are also enhancing our personnel and training systems to better nurture and retain employees. Disasters, accidents, and infectious diseases Operational risks Given that we conduct production and sales activities at multiple locations around the world, a natural disaster such as an earthquake or typhoon in a region where we do business, an unprecedented accident, or an infectious disease could cause extensive damage to business locations, affecting such things as production, distribution, and sales activities. In particular, the suspension of production activities at any of our plants due to a disaster or accident could have a negative impact on revenue. In addition, any outbreak or spread of an infectious disease that interferes with our business activities or those of our suppliers could have a negative impact on our business performance and financial position. For bases in Japan, we have established a system for dispersing risk and achieving early recovery of operations through steps that include purchasing comprehensive damage insurance covering financial losses, dispersing factories, and diversifying and strengthening cooperation with suppliers. We have also formulated a BCP and review it periodically. For bases outside Japan, in addition to preventive measures such as purchasing insurance, we have also established a system to enable a rapid response should a risk manifest. Information security Our production, sales and various other business activities are conducted using computer systems and communication networks. As a result, business activities could be disrupted due to communication network failure or an outage in data center functions. In addition, we handle a variety of personal information, including customer information, and the leakage of any such information due to an unforeseen incident could damage social trust in LIXIL, and incur large costs, which in turn could have a negative impact on the company’s business performance and financial position. We have established an Information Security Committee, set out internal regulations on information security, implement preventive measures against threats such as unauthorized access, carry out training for employees, and assess and review these initiatives on a regular basis. Through these measures, we continue to improve our information security management. Note: The above table provides a selected list of risks with moderate or higher possibility of occurrence and degree of impact. For the full version, please visit our corporate website. VALUE CREATION PROCESS131518CR CHAIRPERSON / CPO MESSAGETHE LIXIL PLAYBOOKMANAGEMENT DIRECTIONLIXIL’S CORE BUSINESSESCFO MESSAGELIXIL’S CR STRATEGY2126253541STRATEGY 02INTEGRATED REPORT 2022EXTERNAL ENVIRONMENTEXTERNAL ENVIRONMENTOVERVIEWSTRATEGYGOVERNANCEDATA0102030415 VALUE CREATION PROCESS THE RESOURCES WE RELY ON To ensure sustainable value creation, we have identified critical resources that serve as inputs to our value creation process. These inputs represent unique capabilities within LIXIL. Diverse and Purpose-led People Meaningfully Designed Products “Monozukuri” Manufacturing Platform Approx. 52,000 employees worldwide 6 major global in-house design studios 79 factories worldwide Global Sales Infrastructure Present in over 150 countries LIXIL’s global team of employees represents the human Innovative, thoughtful and consumer-centric design is in The time-honored Japanese tradition of “monozukuri” LIXIL’s global footprint of sales channels and capital that is the driving force behind our transformation the very DNA of LIXIL. A team of approximately 120 requires careful attention at every stage of the industry-leading brands enables us to capture into an innovative and inclusive organization. They in-house designers in six major studios around the world manufacturing process. At LIXIL, we have taken this model opportunities in over 150 countries around the world. represent the very core of the value creation process. represents an unrivalled global pool of knowledge. Through and used it to create products of the highest quality at Coupled with our global capabilities, we are able to Our Global People Strategy is built on a commitment to the exchange of ideas across markets and disciplines, they competitive costs. tailor our products to meet local demands. The insights we diversity and inclusion. By pursuing inclusion as the goal, can create products that make a tangible difference in To achieve this, we have shifted to platform-based gather are shared elsewhere, giving LIXIL the ability to we believe diversity will be the natural outcome. By creating peoples’ lives every day. products with standardized parts. This means we can meet leverage the best ideas from around the world. an inclusive environment and empowering people Their work has been internationally recognized for its changing consumer demands quickly while lowering While each market is different, all share the rapid shift everywhere, we can tap into their dedication and quality, innovation and consideration for the environment. up-front capital investments. to digitalization as a common thread. By utilizing digital commitment to the long-term success of the company. We are proud of these efforts that have garnered more than Our global production system and supply chain tools, our sales personnel offer a broader range of services, 500 design prizes globally. network allows us to respond to parts shortages, logistics while using their time more productively. disruptions and related issues in an agile and flexible manner to ensure deliveries without disruption. Sustainable Resource Management Unrivalled Portfolio of Brands Financial Foundation 17.7% reduction in CO2 emissions from FYE2019 Over 70% consumer recognition rate in key markets in each region Long-term goal of 10% core earnings margin LIXIL plays an important role in combating climate change The creation of LIXIL brought together many of the most Despite a highly challenging operating environment, LIXIL and preserving the environment. We have launched a wide powerful brands in our industry, an unparalleled asset that has strengthened the balance sheet and raised profitability. range of initiatives in procurement, production and we continue to leverage throughout our geographies and To reduce fixed costs, we are reorganizing our production operations to reduce carbon emissions, conserve water, product lines. Each brand has its own voice with system and instituting structural reforms to improve and use resources more efficiently. consumers and to better leverage this recognition, we operational efficiency. We are also working to achieve a circular economy, have created sub-brands that offer more specific identities On the revenue side, we have optimized the business including Cradle to Cradle Certified® products that replicate and capabilities. portfolio to reduce volatility in our revenue stream and focused nature’s ability to regenerate to offer the ultimate recycling. In addition, we are increasingly bringing these brand on high-value-added products and services in our core areas. Through our products and services, we are helping strengths to other markets, where we can help to exploit To ensure our long-term financial health, we are consumers reduce their own carbon emissions, realize market opportunities and fill gaps in product lineups. In this targeting a 10% core earnings margin and set targets for circular use of resources and use water more sustainably. way, we are creating brand equity for the long term. each department on attaining a higher return on invested capital (ROIC). EXTERNAL ENVIRONMENT131518CR CHAIRPERSON / CPO MESSAGETHE LIXIL PLAYBOOKMANAGEMENT DIRECTIONLIXIL’S CORE BUSINESSESCFO MESSAGELIXIL’S CR STRATEGY2126253541INTEGRATED REPORT 2022STRATEGY 02VALUE CREATION PROCESSVALUE CREATION PROCESSOVERVIEWSTRATEGYGOVERNANCEDATA0102030416 VALUE CREATION PROCESS THE WAY WE CREATE VALUE LIXIL’s value creation comes from our people, who are empowered to act and create value for stakeholders via six enablers. 1 Clear Strategic Goals 2 Universal “LIXIL Behaviors” 3 A Clear Corporate Purpose We have given management and our employees a With our employees operating in more than 150 markets LIXIL’s corporate purpose is to make better homes a reality mandate to achieve sustainable growth that continuously and in activities ranging from design and manufacturing to for everyone, everywhere. We believe this vision not only adds value for all of our stakeholder interests. To achieve sales and customer support, it is vital that we all share the makes business sense to create long-term value, it also this, the LIXIL Playbook outlines our management direction, same set of standards in working together, which we call answers the broader question of how LIXIL benefits society. outlining our strategy for transformation and long-term the “LIXIL Behaviors.” This is why our CR Strategy is embedded with our growth through innovation. By defining how we should interact with everyone in a broader strategic goals, an approach that helps in two Equally important is our CR Strategy. This is not an fair and ethical manner, without regard for seniority or vitally important ways. First, it helps to attract the best “add-on” of vague commitments, it is an integral part of our position in the company, we encourage an openness that employees, who are increasingly concerned about working central strategy. Bringing these together with clear fosters new ideas and engagement. Only a motivated for a company that is more than the bottom line. Second, it mid- and long-term targets, we are able to fulfill our workforce can be expected to outperform and reach new brings our customers and business partners into our work commitment of becoming a more agile, entrepreneurial, heights, both in terms of driving the business forward and for meeting the Sustainable Development Goals to ensure and resilient organization, with a stronger balance sheet in achieving their own personal success within LIXIL. we are a responsible corporate citizen. and higher profit margins. LIXIL BEHAVIORS 4 A Modern Work Environment 5 An Efficient Operating Structure 6 A Strong Governance Foundation The restrictions stemming from COVID-19 have brought a We are continuing to implement a simplified business An empowered organization must be backed by a strong sharper focus to the longer-term discussion about structure. With a simplified hierarchy and fewer corporate commitment to corporate governance. This starts at the workstyles and the role of offices. It has increased calls titles, we can reduce costs and eliminate unnecessary Board of Directors, with separate committees for from employees to have more flexibility to help them meet management supervision. This is a central part of our drive nominations and compensation for company officers, the needs of job and home. to create an empowered, people-focused corporate auditing, and governance. All are chaired by outside This transformation also represents an opportunity for culture. directors, who also make up a majority of the Board. the company to rethink what an office is meant to achieve. In Japan, the measures include streamlining of a very Internal control systems ensure the reliability of By adopting more flexible working practices and traditional sales structure and reducing corporate functions operations, as well as the accuracy of financial reporting. empowering employees to own their day, we can build a at headquarters. Globally, we have created a single In addition, we are strengthening the group-wide more inclusive environment and also increase productivity. support function and IT infrastructure, operating as one management system, with operational committees for To achieve this, we have bolstered our digital toolkit for LIXIL. Through this we are driving a digital transformation compliance and risk control globally. employees, helping make them more agile and to increase productivity and operational efficiencies, Every employee plays a role in compliance culture digital-savvy. important elements in creating a more flexible work model through the Code of Conduct and the “Speak Up!” for employees. platform to flag a concern in any part of the organization. EXTERNAL ENVIRONMENT131518CR CHAIRPERSON / CPO MESSAGETHE LIXIL PLAYBOOKMANAGEMENT DIRECTIONLIXIL’S CORE BUSINESSESCFO MESSAGELIXIL’S CR STRATEGY2126253541INTEGRATED REPORT 2022STRATEGY 02VALUE CREATION PROCESSVALUE CREATION PROCESSOVERVIEWSTRATEGYGOVERNANCEDATA0102030417 VALUE CREATION PROCESS THE VALUE WE CREATE The success of the value creation process is through the benefits seen to all stakeholders and in the long-term success of the company. Outcomes for LIXIL – The Results of Our Work Employees – The People Who Contribute to LIXIL’s Growth Consumers – The End Users Who Enjoy Our Products 73% employee engagement score ¥1,428.6 billion in revenue in FYE2022 Partners – The Architects, Distributors and Builders Who Help Create a Home 78.5% commercial partner satisfaction for products in Japan Through the past year, we have seen the continued transformation of LIXIL into an agile and entrepreneurial Our employees represent the very essence of the value We are serving a new generation of consumers who are Through their expertise and advice, LIXIL’s business creation process. Only through our people can we move not satisfied with a commoditized product that merely partners provide a vital link between the homeowner and company. The year has also demonstrated that amid ahead as a company. “does the job.” We know that we need to provide products our products. We support our partners through a variety of external risks, it is more important than ever to have a solid We have made important strides in bringing diversity that are well-designed, a pleasure to use and that help to services and digital tools that make their everyday work financial base and an operating model that will sustain us and inclusion to a traditionally male-dominated industry. meet today’s growing environmental challenges. simpler and more efficient. In addition, we look closely at for the long term. For FYE2023, 53.8% of new-graduate employees in Japan Through our 14 brands and newly developed sub-brands their needs in designing our products. But in building for the future, we know that the are women, while in the global workforce women now around the world, LIXIL meets these needs. We also know This sector is, however, facing severe skills shortages company must stand for more than profits; it must have a represent 32% of all employees. But we must do more. that these consumers have a new way of shopping. in many markets. LIXIL has launched initiatives in the clear social purpose. That is why our corporate purpose of Looking forward, we are targeting a Board and executive Therefore, we are enhancing the consumer journey through EMENA region and the United States to provide education making better homes a reality for everyone, everywhere is team that are 50% female, with women also to hold at digital tools and an omnichannel shopping experience. and training for the next generation of plumbers who can so important. least 30% of manager-level positions. The results of the value creation process are clear. We Attracting a high-caliber workforce means that we must SDGs continue to see employee engagement rise as we give our offer a company where employees take pride in what they people the freedom to manage their work day, focus on do and feel personally fulfilled. Success does not need to real business needs, and chart their own career paths. be represented by promotion, it is about fulfilling one’s own For customers and business partners, we are personal goals. transforming ourselves into a more consumer-centric At a practical level this means demonstrating that we organization, developing products that improve living while care about employees, that we make use of digital tools to speaking to lifestyle tastes and preferences. conduct regular ‘pulse’ surveys, and most importantly it For shareholders, we have shed unnecessary costs and means that we need to listen, not lecture. delivered differentiated products that increase sales and profitability. We have also strengthened our Environmental, SDGs Social, and Governance (ESG) initiatives, demonstrating our commitment to sustainable growth and shareholder returns. find rewarding and well-paying jobs in this vital sector. SDGs Societies – The Communities and Social Issues We Contribute to Globally and Locally Shareholders – Those Who Believe In and Support Us Improved access to sanitation for 35 million people in over 45 countries Listed on the Dow Jones Sustainability World Index and FTSE4Good Index LIXIL’s CR Strategy is an integral part of our overall Everything we do in value creation benefits our business strategy. Our employees want to see LIXIL be a shareholders. Higher profit margins, a more efficient force for good, our consumers want to do business with a workforce and a robust balance sheet boost our bottom company they can believe in, and shareholders want to line, while brand reputation and a commitment to ESG have ownership in a company that puts society at the principles can build long-term value. forefront. This commitment is demonstrated by our inclusion in The SATO portfolio of products provides basic sanitation respected ESG-related indexes including the Dow Jones for millions of people, while our environmental strategy Sustainability World Index and the FTSE4Good Index. focuses on innovations for low-carbon and water-efficient Our leadership in transparency and strong corporate technologies. These are business initiatives with a sound governance helps to reduce our business risks and protect basis in profitability as well as our broader corporate purpose. the interests of our owners. SDGs SDG EXTERNAL ENVIRONMENT131518CR CHAIRPERSON / CPO MESSAGETHE LIXIL PLAYBOOKMANAGEMENT DIRECTIONLIXIL’S CORE BUSINESSESCFO MESSAGELIXIL’S CR STRATEGY2126253541INTEGRATED REPORT 2022STRATEGY 02VALUE CREATION PROCESSVALUE CREATION PROCESSOVERVIEWSTRATEGYGOVERNANCEDATA01020304CFO MESSAGE WE ARE STRIVING TO DELIVER GREATER SHAREHOLDER RETURNS THROUGH FURTHER IMPROVEMENT OF CAPITAL EFFICIENCY Sachio Matsumoto Director, Representative Executive Officer, Executive Vice President, Finance, Treasury, and M&A, and Chief Financial Officer 18 FYE2022 in Review The FYE2022 business environment was extremely challenging in that we had to deal with increasing raw material prices and logistics costs as well as supply chain disruptions, amid the continuing impact of the COVID-19 pandemic. Revenue increased by ¥50.3 billion year on year to ¥1,428.6 billion, and core earnings increased by ¥7.6 billion to ¥64.9 billion. Although we fell short of the full-year forecast for core earnings, we were able to achieve the full-year forecast for profit for the year attributable to owners of the parent (equivalent to “net profit” under JGAAP). The main factors for lower-than-forecast core earnings were concentrated in the fourth quarter, and included the escalation of geopolitical issues, which led to higher raw material and construction material prices, logistics disruptions and earlier-than-anticipated cost increases, and additional costs to ensure the stable supply of products. We estimate the impact of these factors to be ¥50 billion, of which about ¥35 billion was offset by the effects of previously ongoing structural reforms, price optimization, and additional measures to reduce selling, general and administrative (SG&A) expenses. However, due to the delay between when the additional costs were incurred in the fourth quarter and when the effects of the corresponding measures are realized, core earnings fell short of the full-year forecast by ¥15 billion. Nevertheless, excluding the impact of such large and sudden price increases, or factoring in the delayed effects of the above measures, we believe that we could have confidently achieved the full-year forecast. Therefore, as a result of various structural reforms over the past several years, we believe that we have made progress in our transformation and now have a business structure capable of achieving our medium-term target of a 7% to 7.5% core earnings margin. Strengthening our business structure has enabled us to improve our gross profit margin despite increasing raw material and construction material prices and logistics costs, and we feel that we have steadily enhanced our management resilience to changes in the external environment. Meanwhile, we need to establish a stable financial foundation in order to achieve medium-to-long-term, sustainable growth. EXTERNAL ENVIRONMENTVALUE CREATION PROCESS131518CR CHAIRPERSON / CPO MESSAGETHE LIXIL PLAYBOOKMANAGEMENT DIRECTIONLIXIL’S CORE BUSINESSESLIXIL’S CR STRATEGY2126253541STRATEGY 02INTEGRATED REPORT 2022CFO MESSAGECFO MESSAGEOVERVIEWSTRATEGYGOVERNANCEDATA0102030419 To enhance both profitability and our financial position, we have been working to improve capital efficiency by adopting an asset-light approach and reduce interest-bearing debt, with the medium-term targets of improving the net debt-to-EBITDA ratio to 3.5 times or less and the ratio of equity attributable to owners of the parent (equivalent to “equity ratio” under JGAAP) to 35% or more. In FYE2022, we achieved our net debt-to-EBITDA ratio target, as we did last year, while also mostly achieving our medium-term target for the equity ratio, which puts us on track to improving the soundness of our financial position. Improving Capital Efficiency Through ROIC Management We seek to improve capital efficiency by strengthening our financial position and improving profitability. To that end, we have been increasing the incentive to achieve results by incorporating Return on Invested Capital (ROIC) into performance metrics, setting targets by organization expanding the use of ROIC, and managing and reporting progress on a monthly basis. We began rolling out these efforts globally in 2019. Improvement of gross profit margin: We are working to improve our gross profit margin through initiatives to overcome changes in the business environment from the perspectives of selling prices and reduction of production costs. For selling prices, we are shifting to high-value-added and differentiated products, establishing pricing that can accommodate changes in the external environment, and building the necessary frameworks. For production costs, ROIC* Tree Improvement of ROIC Improvement of core earnings after tax Improvement of core earnings margin Improvement of gross profit margin Reduction of SG&A expenses Actions Optimization of business portfolio Expansion of international business sales Price optimization Improvement of production efficiency at LHT Improvement of production efficiency Improvement of business efficiency Implementation of structural reforms Strengthening of project management Review of unprofitable businesses Tax management Improvement of invested capital efficiency Improvement of working capital turnover Improvement of CCC Optimization of capital investment; improvement of fixed asset turnover ratio ROI management Maintenance and optimization of fixed assets Improvement of payback ratio and payment processing site Retention control; inventory optimization Optimization of payment terms Management of investment hurdle rates and enhancement of post-investment monitoring Optimization of investment amounts Review of real estate holdings; sale of idle real estate * Calculation: Operating profit × (1 – Effective tax rate) / (Working capital + Fixed assets) Reduction of cash on hand and interest-bearing debt EXTERNAL ENVIRONMENTVALUE CREATION PROCESS131518CR CHAIRPERSON / CPO MESSAGETHE LIXIL PLAYBOOKMANAGEMENT DIRECTIONLIXIL’S CORE BUSINESSESLIXIL’S CR STRATEGY2126253541STRATEGY 02INTEGRATED REPORT 2022CFO MESSAGECFO MESSAGEOVERVIEWSTRATEGYGOVERNANCEDATA0102030420 we are adopting an asset-light approach to reduce fixed expenses. In FYE2022, LHT finished revamping all window series products and completed the transition to a platform-based production system. Reduction of SG&A expenses: In addition to regular efforts to enhance productivity through the use of digital technology, consolidate and optimize showrooms and sales offices, and optimize personnel allocation, we plan to relocate our headquarters to smaller space from August 2022 through March 2023. This move reflects greater emphasis on working from home and autonomous styles of working that are suited to each employee’s way of life. We will continue reducing fixed costs and improve capital efficiency by further promoting the use of digital tools to increase productivity and utilizing shared services for back-office operations. Tax management: We will promote fair and appropriate tax payment and tax management. Improvement of CCC: As a consequence of our response to supply chain disruptions, the cash conversion cycle (CCC) increased by 1.3 days year on year to 81.4 days, mainly due to a longer inventory turnover period as part of the strategic buildup of inventory to stabilize product supply. In light of recent events, we need to reduce SKUs and maintain higher inventory levels in the near term, but we will also continue improvement measures as progress is made in stabilizing the supply chain. ROI management: We have been introducing investment evaluation guidelines that target improved investment efficiency. We apply hurdle rates for investment decision-making, which are calculated for each project and depend on the investment goal, taking into account differences in country risk and the inflation rate of the relevant market. Maintenance and optimization of fixed assets: In line with our policy of adopting an asset-light approach to improve capital efficiency, as another step following the FYE2021 decision to cease activities at the Maebashi plant, in FYE2022 we decided to cease activities at the Yokohama plant and integrate its production lines into other plants. We have also resolved to relocate our headquarters to smaller space. Reduction of cash on hand and interest-bearing debt: In FYE2022, we repaid ¥70.8 billion of interest-bearing debt, including the redemption of ¥60.0 billion of convertible bonds. Net interest-bearing debt decreased ¥60.1 billion from the previous year to ¥424.3 billion. Policy on Capital Allocation and Shareholder Returns We are currently in the phase of laying the foundations for future growth through innovation, and as such we are not considering any large M&As or capital investments. Consequently, we do not have any plan for large borrowings or a capital increase for the time being. However, we do plan to continue increasing operating cash flow through growth investments in intangible assets such as IT, talent, design, and branding that will lead to LIXIL’s long-term sustainable growth. We will also generate the necessary funds for growth investments by optimizing our asset holdings. In FYE2023, we expect a one-off increase in capital expenditures, in areas such as IT investments to strengthen security against the recently growing threat of cyberattacks, and for the relocation of our headquarters. However, we will continue our policy of allocating more capital to investment goals and projects with high capital efficiency and potential for future growth, targeting a steady level of approximately ¥65 billion (excluding the effects of one-off increases). Our basic policy on shareholder returns is to maintain a consolidated dividend payout ratio of 30% or more, and to return profits to shareholders in a stable manner, taking into consideration financial condition and profit level. In FYE2022, given that measures to improve financial soundness are on track and we are confident of stable growth in operating cash flow as a result of our structural reforms, the decision was made to increase the year-end dividend by ¥5, resulting in an annual dividend of ¥85 per share. Our forecast for FYE2023 is another ¥5 increase in the annual dividend to ¥90 per share. The focus of our management direction is on improving capital efficiency by adopting an asset-light approach and on creating further synergies within our current business portfolio. In light of that direction, as well as progress made in strengthening our financial position, we have decided to buyback and cancel shares, in addition to cancelling treasury stock held by the Company. This decision is based on the belief that doing so will contribute to the enhancement of our corporate value from the perspectives of improving capital efficiency and strengthening shareholder returns. We will strive to deliver greater shareholder returns through the ongoing generation of returns in excess of our cost of capital. EXTERNAL ENVIRONMENTVALUE CREATION PROCESS131518CR CHAIRPERSON / CPO MESSAGETHE LIXIL PLAYBOOKMANAGEMENT DIRECTIONLIXIL’S CORE BUSINESSESLIXIL’S CR STRATEGY2126253541STRATEGY 02INTEGRATED REPORT 2022CFO MESSAGECFO MESSAGEOVERVIEWSTRATEGYGOVERNANCEDATA01020304CR CHAIRPERSON / CPO MESSAGE WE ARE ACCELERATING CR INITIATIVES BASED ON OUR CLEAR CORPORATE PURPOSE Jin Song Montesano Director, Executive Officer, Executive Vice President, Human Resources and General Affairs, Public Affairs, Investor Relations, External Affairs, and Corporate Responsibility, and Chief People Officer 21 At LIXIL, our corporate purpose – to make better homes a reality for everyone, everywhere – guides everything we do. It shapes the way we do business and drives our relationships with the wider world. By delivering safe sanitation and hygiene to all those in need worldwide, we create a positive social impact on how people everywhere can live better lives. We design our business to conserve natural resources, driven by the responsibility we feel to protect and improve our environment so that future generations can enjoy better homes. And by building this vision inclusively, we create opportunities, ensuring our business reflects society through a diverse and inclusive workforce. By living our purpose, we make a meaningful and positive impact for all of our stakeholders, and in turn, we are able to deliver sustainable growth and long-term performance. Human Capital Our focus on purpose starts with our people. At LIXIL, the idea of putting our people first is central to what we do every day. As a maker of pioneering water and housing products, LIXIL must be a consumer-centric organization that understands our users and offers innovative products and solutions in anticipation of their needs. Employees are at the Over the last two years, we have taken significant steps that empowers everyone, everywhere. This strategy includes heart of such value creation, so it is critical that we empower in revising our Global People Strategy with a clear mission to a core focus on embedding inclusion into our DNA, elevating every employee to exercise their full potential. transform LIXIL into an innovative and inclusive community talent worldwide, and enhancing Employee Experience. EXTERNAL ENVIRONMENTVALUE CREATION PROCESS131518THE LIXIL PLAYBOOKMANAGEMENT DIRECTIONLIXIL’S CORE BUSINESSESCFO MESSAGELIXIL’S CR STRATEGY2126253541STRATEGY 02INTEGRATED REPORT 2022CR CHAIRPERSON / CPO MESSAGECR CHAIRPERSON / CPO MESSAGEOVERVIEWSTRATEGYGOVERNANCEDATA0102030422 Diversity & Inclusion (D&I) Elevating Talent Enhancing the Employee Experience We have been on a journey to embed D&I within the To elevate talent across the organization and thereby ensure Nowhere has the Employee Experience evolved more than in organization not only because it’s the right thing to do but LIXIL’s sustainable growth, we have developed and Japan, where we implemented comprehensive changes to also for its strategic value to strengthen our long-term implemented a rigorous succession planning system, HR policy and practice. In April 2022, we revised our grading competitive advantage. By pursuing inclusion as our goal, designed to select successors for key global positions structure for managers and above to enable a more we believe diversity will be the natural outcome. Driving strategically from both business continuity and future meritocratic organization. For all employees in Japan, we inclusion will allow us to integrate more diverse knowledge business needs perspectives. This system is supplemented introduced more flexible working policies, including and perspectives, better catering to the needs of our diverse by our distinct learning and development programs tailored Superflex, further strengthening ways to support our customer base. to strengthen the leadership pipeline and meet the diverse employees to succeed in their careers at different stages of To embed this change, we are focused on gender needs of our workforce. their lives. equity as a proxy for broader diversity and have continued to To select senior leaders, we are offering an Innovation Listening to our employees is another critical element for make progress. Our talent management has been Training Program in collaboration with the Tuck School of LIXIL in enhancing the Employee Experience. We have strengthened with mentoring programs, D&I training, and the Business. The custom-built global program is designed to significantly strengthened our employee listening capability, identification of female talent through our People and help us transform into a more entrepreneurial organization including updating our employee survey, LIXIL Voice. The Organizational Development (POD) process. We also with innovation as the common language. We have also built survey now tracks three critical drivers of Employee launched five Employee Resource Groups (ERGs) targeted the NEXT and NEXT 2nd acceleration programs, designed to Experience: Engagement, Inclusion, and Well-being. to strengthen links amongst employees based on shared train high potential talent and prepare them for global The COVID-19 pandemic has accelerated a shift in characteristics, backgrounds, or life experiences and opportunities and leadership roles. We also encourage working styles, employee expectations, and the relationship implemented a fully flexible working arrangement. Such proactive learning and career development by providing between the company and our employees, which has initiatives to build an inclusive environment have also access to LinkedIn Learning to all managers. proved to be beneficial for our employees as well as for the contributed to driving inclusion in our workforce. company. We are committed to continuing our endeavor to enhance the Employee Experience. EXTERNAL ENVIRONMENTVALUE CREATION PROCESS131518THE LIXIL PLAYBOOKMANAGEMENT DIRECTIONLIXIL’S CORE BUSINESSESCFO MESSAGELIXIL’S CR STRATEGY2126253541STRATEGY 02INTEGRATED REPORT 2022CR CHAIRPERSON / CPO MESSAGECR CHAIRPERSON / CPO MESSAGEOVERVIEWSTRATEGYGOVERNANCEDATA0102030423 Committed To Making a Positive Impact Along with investment in human capital, contributing to the delighted to report that SATO shipments have exceeded 1 the impact SATO products have in bettering lives around the million units globally for the third consecutive year, and we world and remain committed to furthering this cause. resolution of social and environmental issues is a vital issue are on track to deliver on our ambitious goal of improving the for companies and a major responsibility to society. The lives of 100 million people through safe sanitation and Water Conservation & Environmental Sustainability world is at a critical point in the fight against climate change, hygiene by 2025. Our corporate purpose cannot be achieved without taking into and COP26 was considered the most significant climate As the global sanitation challenge is immense, in consideration the field of global environmental conservation. talks since the 2015 Paris Agreement. During the FYE2022, we focused on corporate partnerships to We believe that, as a business, we can be a force for good, conference, there were notable successes and some accelerate change at scale, which has led to the adoption of innovating and scaling solutions to climate change to create a setbacks — both having implications for businesses globally. SATO toilets at scale in Africa. Our shared-valued positive impact on this planet. Of the 20 material issues we For LIXIL, addressing social and environmental issues is partnership with UNICEF has been expanded to increase the identified as important not only for LIXIL but to society, we are fundamental to delivering on our purpose as a company and availability of affordable products in three of the world’s most treating five environmental themes as priority issues. our long-term viability as a business. We are proud of the populous countries: India, Indonesia, and Nigeria. We have In 2019, we established our Environmental Vision 2050 progress we are making, as it helps us manage the risks and also entered a new Partnership for Better Living with USAID, for a Zero Carbon and Circular Living and determined the opportunities in a fast-changing world while enabling us to which is designed to impact at least 2 million more people in three focus areas to achieve this vision: Climate Change make a positive impact on our planet. Under our CR the next five years. Mitigation and Adaptation, Water Sustainability, and Circular Strategy, we have continued our efforts to contribute to the Last year, we also looked at new ways of empowering Economy. We are committed to being a leading company in resolution of issues surrounding Global Sanitation & Hygiene women who suffer the most from the lack of sanitation and environmental impact, so we can live our purpose for future and Water Conservation & Environmental Sustainability hygiene. In India, we raised awareness about hand hygiene generations – by reaching net-zero carbon emissions and through our business activities, in addition to the D&I and SATO Tap and equipped 100 women with soap-making preserving water and other natural resources in our own initiatives mentioned above. skills through workshops, which were very well received and operations, but also with our business partners. will be replicated in the future. In the field of Climate Change Mitigation and Adaptation Global Sanitation & Hygiene SATO products are now in homes, schools, and public we are increasingly switching to renewable energy and Our social business SATO, which contributes to UN SDG institutions in more than 45 countries worldwide. They have reducing overall energy consumption in our plant, logistics 6.2 by enabling access to adequate and equitable sanitation transformed lives, improved health, created jobs, saved water, centers, and sales offices. The ratio of renewable energy and hygiene for all, continues to gather momentum. I am and ensured children can stay in school. We are energized at usage across the company has increased to 16% in EXTERNAL ENVIRONMENTVALUE CREATION PROCESS131518THE LIXIL PLAYBOOKMANAGEMENT DIRECTIONLIXIL’S CORE BUSINESSESCFO MESSAGELIXIL’S CR STRATEGY2126253541STRATEGY 02INTEGRATED REPORT 2022CR CHAIRPERSON / CPO MESSAGECR CHAIRPERSON / CPO MESSAGEOVERVIEWSTRATEGYGOVERNANCEDATA0102030424 FYE2022. Japan’s Green Growth Strategy for achieving CO2 Product Declaration (EPD), which increasingly are being second consecutive year, recognizing our ongoing efforts to neutrality by 2050 also requests new solutions to reduce requested in several markets in Europe (i.e. France and mitigate climate change across the supply chain. LIXIL was emissions in housing. In the past year, we launched our high- Nordics). We have introduced a water circulation system at also recognized in the CDP’s survey of water resources performance window “TW” with excellent heat insulation our Tlaxcala Plant in Mexico to recycle wastewater used for management, earning a place on the CDP’s 2021 Water properties and have fully remodeled all our sashes for new product cleaning and leakage testing, which contributes to Security A List, and has been selected for inclusion in the construction. By FYE2026, we aim to reach 100% sales ratio the reuse of 49,620 m3 of water per year in the Dow Jones Sustainability World Index (DJSI World) for the of high-performance windows for detached houses in Japan. manufacturing process. We are also utilizing recycled third consecutive year. As for Water Sustainability, we continue to promote the materials to manufacture products and establishing a efficient use of water across our business activities. We process to reuse and upcycle plastics in windows. At LIXIL, our people strategy and CR Strategy are core monitor and track our overall production consumption without We recognize that environmental issues can be both to delivering on our corporate purpose. We are confident compromising performance across all brands to reduce water risks and opportunities for us, and our environmental that we can live our purpose and create a positive impact for and energy consumption. We are also striving to preserve divisions, business units, and management are working our stakeholders through executing these strategies. water by providing products and services that reduce its together to promote our strategies and measures effectively. consumption. For example, our touchless faucets have In order to further strengthen our efforts to achieve our reduced up to 30% in water consumption. Across our global Environmental Vision 2050, in November 2021, we set up water brands, we are expanding our line-up of touchless the Environmental Strategy Committee as an expansion of faucets, water-saving toilets, and other products equipped the existing Environmental Committee. We are currently with water- and energy-saving and water-purification formulating a company-wide Environmental Strategy that technologies that enhance environmental value of water. We sets a clear direction on how we want to make an impact on aim to raise the sales ratio of energy and water-saving faucets the environment, the full details of which we plan to and water-saving toilets in Japan to 100% by FYE2031. announce this fiscal year. In the area of Circular Economy, we continue to further While we have much progress to make, our continued expand our Cradle to Cradle Certified® portfolio from Fittings strong commitment to make a positive environmental impact to other business units. We are also working on a “product has been recognized globally. We are proud to earn a place passport” in the form of a standardized Environmental on the CDP Supplier Engagement Leadership Board for the EXTERNAL ENVIRONMENTVALUE CREATION PROCESS131518THE LIXIL PLAYBOOKMANAGEMENT DIRECTIONLIXIL’S CORE BUSINESSESCFO MESSAGELIXIL’S CR STRATEGY2126253541STRATEGY 02INTEGRATED REPORT 2022CR CHAIRPERSON / CPO MESSAGECR CHAIRPERSON / CPO MESSAGEOVERVIEWSTRATEGYGOVERNANCEDATA01020304MANAGEMENT DIRECTION At LIXIL, we are advancing the four strategic initiatives set out in the LIXIL Playbook to deliver on our corporate purpose of making better homes a reality for everyone, everywhere and achieve sustainable growth and value creation. We are committed to having a positive impact on society through our business activities, which is why our CR Strategy is embedded within the LIXIL Playbook and forms an integral part of our value creation process. 25 The LIXIL Playbook LIXIL’s medium- and long-term management direction is clearly defined in the LIXIL Playbook, which covers four strategic initiatives, as well as a foundation based on empowering our people for sustainable growth. Corporate Responsibility (CR) Strategy The CR Strategy forms an essential part of our ambition to achieve sustainable growth and corporate value creation in that it is deeply linked to our core business strategy, our material issues, and our value creation process, through which LIXIL creates value for all of its stakeholders. The CR Strategy outlines three core pillars of activity where we will use our unique expertise and business operations to drive a positive impact on global issues that require urgent action. Our strategy stands upon a foundational commitment to ethical business practices. LIXIL’s Corporate Purpose Strategic Initiatives Our Foundation Make better homes a reality for everyone, everywhere Focus Transform Grow Focus and simplify our organization Improve profitability of Japanese business Promote growth of international water technology business Establish foundation for long-term growth through innovation Empower our people to deliver on strategy and create value The LIXIL Playbook p.28 LIXIL’s Purpose Make better homes a reality for everyone, everywhere Global Sanitation & Hygiene Sanitation for All Water Conservation & Environmental Sustainability Diversity & Inclusion Inclusive for All CR Strategy p.43 Zero Carbon and Circular Living Foundational Ethical Business Practices EXTERNAL ENVIRONMENTVALUE CREATION PROCESS131518CR CHAIRPERSON / CPO MESSAGETHE LIXIL PLAYBOOKLIXIL’S CORE BUSINESSESCFO MESSAGELIXIL’S CR STRATEGY2126253541STRATEGY 02INTEGRATED REPORT 2022MANAGEMENT DIRECTIONMANAGEMENT DIRECTIONOVERVIEWSTRATEGYGOVERNANCEDATA0102030426 THE LIXIL PLAYBOOK IMPROVE PROFITABILITY OF JAPANESE BUSINESS Success in the Japan market is critical to the company’s future. To tackle the challenges of a shrinking population and a decline in new home construction, we have implemented strategies to make our business more agile, resilient and profitable. Improving Capital Efficiency and Productivity A key element in bringing down unnecessary capital spending In Japan, however, the traditional practice has been This increased demand comes in both of our core different, with limited price rises linked to the issuance of new product areas of water-related products in LWT and housing is to make sure that our expenditures become more efficient. catalogs. It was therefore vital to break out of this system that products in LHT including better insulating windows, doors To achieve that, we have strengthened our platform production was tenable only within Japan’s deflationary environment. and Super Wall renovation methods. With 90% of Japanese model for both LHT and LWT and moved to greater use of Reflecting the importance of long-term relationships in homes failing to meet current energy standards, the standardized parts to lower costs and shorten the time we Japan business, we have gained the understanding of our needs—and the opportunities—are substantial. need to launch products. This new model provides for more business partners and have instituted price rises where competitive pricing points and improved profit margins. necessary multiple times within the last financial year. We are also making changes to our work practices to This has been facilitated by the move from expensive Shifting to High-value-added Products The fundamental changes in lifestyles mean greater interest eliminate unnecessary tasks and ensure that our employees printed versions of our catalogs to digital versions, in which among consumers for higher-price products with are adding value to the customer experience. As part of this the listed prices can be updated as necessary. This is an differentiated features that also support our planet. We are we are making greater use of digital tools that allow employees important way to allow us to keep up with a fast-changing expanding products and services that help people live more to focus on the customer and enhance the consumer journey. environment that has not been seen in Japan previously. sustainably by conserving water and energy for heating while We have also implemented new flexible working practices, including Superflex and working from home. This has not only lowered costs but also helped to raise Expanding Renovation-related Sales A hallmark of the LIXIL culture is to see opportunity where plays a critical part in producing products that will not only meet the needs of our customers but also match their spirit. also making greater use of recycled materials. Superior design employee satisfaction. As a result of this shift, we also others see risk. Traditionally, Japan has had a As one example, we have launched NODEA, a high-end announced plans to continue our workstyle transformation scrap-and-build model of creating new housing suitable for luxury brand in the LHT sector that targets Japan’s highly by moving to a smaller and more tailored headquarters office only a short time frame. The ratio of new construction versus affluent consumer segment, the second largest in the world. designed for communication and human connection. renovation spending has been more than 2:1, compared Using an asset-light model and based on the concepts of with 1:4 or lower in other established markets in Europe and openness, space and encounters, NODEA provides Promoting Price Optimization Supply chain disruptions and a sudden surge in commodity North America. But the market is now seeing a fundamental shift due to large-scale windows that seamlessly connect indoors and outdoors to provide a feeling of expansiveness and a prices have underscored the need to be able to raise prices a shrinking population and a desire by young people for a closeness to nature. in order to avoid serious impact to profit margins and our higher-quality and environmentally responsible lifestyle. This Superior products are also highly cost effective for bottom line. We have been able to carry out such measures trend has greatly accelerated during the COVID-19 pandemic consumers. LIXIL’s triple-glazed TW, a high-performance when needed in other key markets such as Europe and as people spent more time at home and saw the benefits of hybrid window, can reduce heat loss by 80% compared to North America. improved surroundings. single-pane glass. EXTERNAL ENVIRONMENTVALUE CREATION PROCESS131518CR CHAIRPERSON / CPO MESSAGEMANAGEMENT DIRECTIONLIXIL’S CORE BUSINESSESCFO MESSAGELIXIL’S CR STRATEGY2126253541STRATEGYTHE LIXIL PLAYBOOK 02INTEGRATED REPORT 2022THE LIXIL PLAYBOOKOVERVIEWSTRATEGYGOVERNANCEDATA01020304THE LIXIL PLAYBOOK PROMOTE GROWTH OF INTERNATIONAL WATER TECHNOLOGY BUSINESS An unparalleled portfolio of brands, agile manufacturing capability, and innovation continue to drive LIXIL’s global growth. With a clear strategy in place, we are well-positioned to grow sustainably in international markets. 27 Bijoy Mohan Executive Officer, Executive Vice President, LIXIL International Business Overview Risks Mitigants Strategy Markets • Americas • EMEA • Greater China • APAC Key Strengths • Highly regarded and clearly differentiated house of brands that can fill product gaps in each region • Comprehensive product portfolio covering luxurious to base of the pyramid (BoP) • Truly global supply chain and production footprint • Strong innovation pipeline • Award-winning in-house design team • Sales channels in over 150 countries Risks Mitigants • Timely price adjustment and mix optimization • Shift to mid- to high-end products • Switch to alternative materials Increase in materials, shipping and labor costs Supply chain disruptions • Complexity reduction, e.g., component • Expand profitable product categories and fill product gaps in each Supply chain disruptions standardization • Back up production plan • Increase in inventory levels Commoditization of products • Develop innovative, differentiated and high-value-added products and services region by leveraging the multi-brand portfolio • Lift the average sales price by providing innovative, high value, and differentiated products and services • Enhance channel strategy according to each region’s unique needs • Attract consumers early in their purchase journey and enhance consumer experience • Enhance consumer journey and customer • Strengthen market segmentation, delivering on specific needs and experience to cultivate brand affinity and loyalty wants of each segment • Develop easy-to-install and prefabricated well as business operations products • Strengthen global innovation platforms utilizing technologies • Nurture the next generation talent within LIXIL • Reduce the environmental footprint of products and services, as Achievements for FYE2022 Skilled labor shortages Opportunities • Global bathroom fixtures and fittings market is worth approx. • Sales: ¥448.4 billion, +19%YoY ¥6 trillion today and forecast to grow at a CAGR of +4% • Strong demand for solutions that improve health, hygiene, wellness, and well-being due to the COVID-19 pandemic • Robust demand for home improvement due to increased time spent at home • Shift to e-Commerce and omnichannel shopping • Core earnings: ¥43.4 billion, +39%YoY • Ratio of international revenue in LWT increased to 52% from 48% in FYE2021 Targets for FYE2023 • Strengthen nearshoring and redundancy in • Increased demand for sustainable products due to heightened supply chain environmental awareness • Long-term measures for securing raw materials • Sales target: ¥502 billion, +12%YoY • Core earnings target: ¥50 billion, +15%YoY • Target ratio of international revenue in LWT: 54% EXTERNAL ENVIRONMENTVALUE CREATION PROCESS131518CR CHAIRPERSON / CPO MESSAGEMANAGEMENT DIRECTIONLIXIL’S CORE BUSINESSESCFO MESSAGELIXIL’S CR STRATEGY2126253541STRATEGYTHE LIXIL PLAYBOOK 02INTEGRATED REPORT 2022THE LIXIL PLAYBOOKOVERVIEWSTRATEGYGOVERNANCEDATA01020304THE LIXIL PLAYBOOK PROMOTE GROWTH OF INTERNATIONAL WATER TECHNOLOGY BUSINESS 28 Sub-brands Enhance Market Segmentation A great brand is timeless but is not static. It continues to Digital Transformation Elevates the Brand Experience We know that consumers today value experiences over adapt to the times and the shifting needs of consumers. products. This means that we need to transform the selling Such is the case for GROHE, the epitome of style and process from merely presenting a product to showing how it quality with its roots in Germany. In looking at the various will fit into the desired lifestyle of the consumer. Innovative ways that GROHE can be harnessed, we have formulated new approaches in Europe and the Americas are paving the three sub-brands that can provide unique value niches to way, with an eye toward global rollout in the future. different segments of the water technology universe. To enhance the customer journey and brand experience, For many, GROHE SPA will be seen and appreciated at GROHE X is a multimedia content hub that offers product the world’s best hotels and resorts, where its sleek styling presentations, inspiration and know-how to help guide provides a sense of luxury. The name is of course well product professionals and their customers. Launched in known to architects and designers seeking to recreate this March 2021, GROHE X is the first digital platform of its kind GROHE QuickFix luxury in the homes of affluent consumers. GROHE SPA tailored to the interests of B2B target groups. With content in products are quite rightly the products of a showroom. 13 languages, it has attracted half a million visitors and won GROHE Professional, which offers our core and numerous awards. broadest range, aims to better meet the needs of In the Americas, LIXIL has pulled together elements from construction professionals. The products are specially iconic American Standard and GROHE to give us a footprint designed to make the installation process more efficient and in the growing trend toward omnichannel shopping. The new cost effective. The GROHE brand also serves as the basis digital tools present innovative ways for consumers to for training programs for those in the industry. explore, be inspired and shop. The features include No such training is required for GROHE QuickFix. In this shoppable looks, 3D and Augmented Reality (AR), and a product range, the homeowner takes center stage, using a customization visualizer that allow consumers to build the specially designed one-box solution that includes everything bathroom or kitchen of their dreams. As our consumers needed for installing high-quality fixtures. The product line engage with these new applications, LIXIL is there every step targets consumers in the expanding DIY market. of the way with a team of design specialists available through virtual conferencing, chat messaging, phone or email. EXTERNAL ENVIRONMENTVALUE CREATION PROCESS131518CR CHAIRPERSON / CPO MESSAGEMANAGEMENT DIRECTIONLIXIL’S CORE BUSINESSESCFO MESSAGELIXIL’S CR STRATEGY2126253541STRATEGYTHE LIXIL PLAYBOOK 02INTEGRATED REPORT 2022THE LIXIL PLAYBOOKOVERVIEWSTRATEGYGOVERNANCEDATA0102030429 THE LIXIL PLAYBOOK ESTABLISH FOUNDATION FOR LONG-TERM GROWTH THROUGH INNOVATION Innovation in products and services is a vital input to delivering long-term growth. Through our entrepreneurial spirit, we foster new avenues to discovery. Reinventing How We Innovate Innovation does not just happen. It is the result of having the structures that focus on innovation outside of our existing businesses. We are also engaging employees and best people who have the right skills and mindset and a stimulating innovation by conducting contests and corporate culture that gives them the necessary freedoms, recognizing those within the organization who develop including the freedom to fail. viable new ideas. Our growing body of intellectual capital is The benefits of innovation in turn encompass every part itself a source of growth for the future. of our business, which makes the innovation process so important to our future. It is a key part of the LIXIL Playbook and critical to our long-term growth. For our customers, we Innovating With a Purpose Through our innovations we are able to solve the real-life deliver innovation by leveraging our technology, digital and challenges facing customers around the world, improving design capabilities, and our global multi-brand portfolio. The people’s lives while delivering on our broader corporate goals global design and R&D teams and new business units start of sustainability. SATO toilets and the SATO Tap are Cradle to Cradle Certified® faucet and shower rail set with gathering and analyzing consumer insights to innovate designed to improve the sanitation and hygiene of the many products and services that provide meaningful value to millions who live in underserved communities in developing consumption both in winter and summer. And the materials consumers. economies. As a social business, SATO is also a clear themselves need to be utilized and re-utilized with greater We are building an entrepreneurial organization by demonstration that we see corporate responsibility as a core care, including circular use of resources, as demonstrated embedding “Experiment and Learn” as a core value within part of our daily work. by our newly launched Cradle to Cradle Certified® products. the LIXIL Behaviors. Employing the “Three Box Solution” Innovation is also an integral part of creating the The harnessing of advanced technology and the Internet approach to spur innovation outside of existing business products and services that will be needed to fight the of Things (IoT) also plays a central role in innovation. The areas, LIXIL has engaged with the Tuck School of Business water-related challenges posed by increasingly severe IoT-enabled Life Assist 2 creates a smart home ecosystem to design a specially tailored training program for LIXIL climate change. LIXIL’s energy-saving faucets and shower that enables shutters, windows, heating and air conditioning leaders around the world. heads, as well as advanced water systems are all designed to all work together to create comfortable homes with a In addition to innovating within our existing businesses to recognize that clean, fresh water is an increasingly scarce minimal environmental impact. The subscription-based LIXIL and making innovation a centerpiece in our broader digital resource. At the same time, advanced building materials Toilet Cloud (see p.37) provides a technology solution for strategy (see p.31), we are creating new business such as high-performance windows can cut energy making cleaning public toilets more efficient. EXTERNAL ENVIRONMENTVALUE CREATION PROCESS131518CR CHAIRPERSON / CPO MESSAGEMANAGEMENT DIRECTIONLIXIL’S CORE BUSINESSESCFO MESSAGELIXIL’S CR STRATEGY2126253541STRATEGYTHE LIXIL PLAYBOOK 02INTEGRATED REPORT 2022THE LIXIL PLAYBOOKOVERVIEWSTRATEGYGOVERNANCEDATA01020304THE LIXIL PLAYBOOK ESTABLISH FOUNDATION FOR LONG-TERM GROWTH THROUGH INNOVATION 30 Differentiating Through Consumer-centric Design Design represents the voice of the consumer in the And good design is also globally mobile. Innovations in The IP Division also works with all the company’s each region and brand are looked at for potential use business units to look at IP acquisitions that may be organization. It provides the objective barometer, keeping everywhere, making LIXIL unique in the ability to monetize necessary to create and launch new differentiated products our brands relevant and adding value for the consumer. what we create. and strategically build our IP assets. This work begins at the The design process at LIXIL helps to define the most The results speak for themselves. Across the globe, the initial technology development and product planning stages important aspects of each product. Not only how it looks LIXIL design team has chalked up more than 500 prestigious and involves comprehensive IP landscaping and analysis of but how well it meets the needs of the user. Every element design awards. helps to create products that are unique, functional and our marketing strategies. Through this work, we ensure our technology is secure from any copying or acquiring of related differentiated. That is why we pulled together the best design talent to Strategically Developing Intellectual Assets An important way to offer differentiated products is through intellectual properties by competitors. Moreover, by protecting the uniqueness and functionality of our designs, build the global team that drives this process. Today, that careful management of our intellectual properties. Therefore, we can maintain our competitive advantage. team is based in some of the most creative cities in the we ensure our IP strategy is fully aligned with our world including Tokyo, Singapore, Shanghai, New York, management, business, and R&D strategies in order to Düsseldorf, and London. further improve our competitive advantage and achieve Our passion is to understand not just how products are long-term growth through innovation. used but also to identify the behaviors and emotions of The IP Division is overseen by the company’s Chief consumers through “presearch.” This process gives us a Technology Officer (CTO), who cooperates closely with the deeper understanding of consumers’ relationship to our rest of the management team in formulating intellectual water and housing products. The team repeatedly verifies, property strategies for the company. The IP Division works tests, and refines each design. with the leaders of business divisions to develop the broad By incorporating brand-specific design values and range of IP strategies that match their business plans and to unique signature elements into our products, we create address the unique challenges of each division. By deploying relevant, consistent solutions that are clearly differentiated IP landscaping to inform management strategy decisions, and intuitively identifiable. This helps to build equity for each we ensure that our intellectual properties form a key element brand and generate more long-term value. in management’s broader strategy. SATIS S, winner of iF DESIGN AWARD 2021 EXTERNAL ENVIRONMENTVALUE CREATION PROCESS131518CR CHAIRPERSON / CPO MESSAGEMANAGEMENT DIRECTIONLIXIL’S CORE BUSINESSESCFO MESSAGELIXIL’S CR STRATEGY2126253541STRATEGYTHE LIXIL PLAYBOOK 02INTEGRATED REPORT 2022THE LIXIL PLAYBOOKOVERVIEWSTRATEGYGOVERNANCEDATA0102030431 THE LIXIL PLAYBOOK DIGITAL TRANSFORMATION (DX) COVID-19 has created a seismic shift in the global business environment. To respond in an agile and flexible way, LIXIL has accelerated its digital transformation. We are becoming a more consumer-centric organization, transforming existing businesses, developing new businesses, and improving productivity. Reinforcing IT Infrastructure Better management of data across our global brand portfolio is an important way to help accelerate international business growth. By implementing a globally standardized and centralized system of master data governance, including products and materials data, we can optimize our global production system and supply chain. As part of business continuity planning, we are migrating to the cloud to boost security and minimize security risks. This is one of many initiatives that will drive further evolution in the digital workplace, enabling a more flexible response to accelerating change and further improving the productivity of telecommuting staff. Transforming Existing Businesses The LIXIL Online Showroom, introduced in the spring of 2020, has become even more convenient and functional by leveraging AI. We are using digital technology to improve the customer experience and optimize the sales process in markets around the world. In the Americas, end users can view products on our websites in their home environment using an augmented reality experience. In the EMENA region, we launched GROHE X, a multimedia content and communication platform that strengthens our touch points with customers and provides a range of improved services. In Japan, we have launched LIXIL X, a video platform for business and end users. We also offer Reform Accel Advance, which supports sales discussions on renovation projects by providing cost estimates and 3D images of finished projects in real time. In addition, the e-Connection service allows customers to search for specific products, DX Mission Go beyond the norms of a traditional manufacturer through digital means that bring us closer to the consumer and empower our people Foundation IT Infrastructure IT Organization Cybersecurity Enterprise-level Infrastructure Enterprise-level Org. Information Security Committee Regional & Business-level Org. LIXIL-CSIRT Growth Drivers Transform Existing Businesses Develop New Businesses Improve Productivity Digital Services Consumer Marketing Consumer Insight IoT Products IoT Business Models Employee Engagement Communications Education Outcome Consumer-centric and Agile Organization Key Beneficiaries Consumers Business Partners Employees EXTERNAL ENVIRONMENTVALUE CREATION PROCESS131518CR CHAIRPERSON / CPO MESSAGEMANAGEMENT DIRECTIONLIXIL’S CORE BUSINESSESCFO MESSAGELIXIL’S CR STRATEGY2126253541STRATEGYTHE LIXIL PLAYBOOK 02INTEGRATED REPORT 2022THE LIXIL PLAYBOOKOVERVIEWSTRATEGYGOVERNANCEDATA01020304THE LIXIL PLAYBOOK DIGITAL TRANSFORMATION (DX) 32 work up their own cost estimates and place orders for water-related products. Developing New Businesses LIXIL is rolling out new service-based business models to help create more secure and comfortable homes. These include the smart water controller GROHE Sense Guard and the smart home system Life Assist 2, which both utilize IoT technology. Outside of the housing sector, we have launched LIXIL Toilet Cloud (see p.37), an innovative service that makes cleaning public toilets more efficient. We are also expanding our lineup in the fast-growing home delivery market. In 2018, we introduced Smart Delivery Post, an IoT delivery box. And in 2021, we began offering the smart drop-off box Mercari-Post, designed for delivering and shipping items listed on the Mercari marketplace app. Within the office environment, the Segel E-Control system automatically controls office windows according to changes in the internal and external environment to save energy. Improving Productivity To enable more data-driven and speedy decision-making, we have created the LIXIL Data Platform (LDP), a cloud-based data integration platform. With this platform, backed by a rich pool of data, we are creating an environment in which employees can use the latest tools to quickly process and analyze data. To make digital technology accessible for all employees, we have added an education program in digital fundamentals and introduced a no-code development tool to enable employees without specialized knowledge to become “citizen developers” and develop their own business tools. Since the introduction of the no-code tool in July 2021, 560 applications have been developed by employees and are in use. Meanwhile, in our digital division, we are promoting agile ways of working via the “Scrum” methodology, speeding up development and shrinking delivery times. Strengthening Information Security LIXIL will continue to offer a flexible work style that includes telecommuting for our employees even when the pandemic ends. This brings the need to strengthen our information security measures and protection of personal and confidential information throughout the company. This work is being carried out by the Information Security Committee, under the supervision of the Chief Digital Officer. To ensure that the security of information systems is strengthened throughout the company and that governance related to data protection meets all global standards, we have established the Information System Security Subcommittee, which has responsibility for boosting security of information systems in all regions, and the Data Privacy and Governance Subcommittee, which is responsible for strengthening governance related to data protection. LIXIL Digital Transformation Roadmap FYE2021 FYE2022 FYE2023 FYE2024 CX Transform Existing Businesses Customer Experience Develop New Businesses Development of digital platform Evolution of digital showrooms AI / IoT research and utilization Expansion of IoT service business such as smart homes Promote agile work styles (Adoption of Scrum methodology) EX IT Organization Shift to a meritocracy-based system Employee Experience Improve Productivity Citizen developer training (No-code development, etc.) Strengthen Digital / IT Infrastructure IT Infrastructure Cloud-based IT environment transformation ERP system advancement in Japan and international businesses Cybersecurity Strengthening security governance (Information Security Committee, etc.) Focus and simplify our organization Improve profitability of Japanese business Promote growth of international water technology business Establish foundation for long-term growth through innovation EXTERNAL ENVIRONMENTVALUE CREATION PROCESS131518CR CHAIRPERSON / CPO MESSAGEMANAGEMENT DIRECTIONLIXIL’S CORE BUSINESSESCFO MESSAGELIXIL’S CR STRATEGY2126253541STRATEGYTHE LIXIL PLAYBOOK 02INTEGRATED REPORT 2022THE LIXIL PLAYBOOKOVERVIEWSTRATEGYGOVERNANCEDATA0102030433 THE LIXIL PLAYBOOK GLOBAL PEOPLE STRATEGY The world of work and the relationship between companies and employees continues to rapidly evolve. If people are our most important asset, investing behind the growth and development of our people is critical to our success as a company. To achieve its mission of transforming LIXIL into an innovative and inclusive community that empowers everyone, everywhere, LIXIL’s GPO (Global People Organization) has set the following five key performance outcomes (KPOs) in the GPO strategy for FYE2022 to FYE2025. I. Embed inclusion into our DNA by implementing a holistic, strategic, and Global People Strategy House leader-led effort across LIXIL. Our belief is that inclusion is the goal and that diversity will be the result that follows. Everyone from senior executives to managers and employees must understand why D&I matters to LIXIL’s future competitiveness and recognize the close relationship between an active D&I culture and an innovation culture. II. Elevate talent across the enterprise so we can more effectively enable LIXIL’s transformation and the innovation culture we need to build for our future. From designing and delivering unbiased talent acquisition strategies to accelerating talent development, our efforts to build foundational infrastructure will enable us to leverage our global scale through the harmonization of human resource systems and processes. III. Enhance Employee Experience across LIXIL by putting people at the heart of our work. This process starts with effective employee listening. Direct access to timely data, analytics and reporting will empower people managers to leverage insights to support the Career Journey of their teams and to proactively discuss their development. IV. Strengthen HR corporate governance to build a stronger model and framework for people data and governance at LIXIL. Key to this is establishing global systems and processes that will enable consistent and transparent reporting and decision-making. OUR PURPOSE COMPANY CONTEXT Make better homes a reality for everyone, everywhere LIXIL Playbook GPO MISSION Transform LIXIL into an innovative and inclusive community that empowers everyone, everywhere. GLOBAL KPOs Embed inclusion into our DNA Elevate talent across the enterprise Enhance Employee Experience Strengthen HR corporate governance Transform HR to transform the business V. Transform HR to transform the business to redefine the evolving role of HR at LIXIL as the company’s needs evolve and prioritize specific HR competencies THREE BEHAVIORS • • that will deliver a world-class Employee Experience. EXTERNAL ENVIRONMENTVALUE CREATION PROCESS131518CR CHAIRPERSON / CPO MESSAGEMANAGEMENT DIRECTIONLIXIL’S CORE BUSINESSESCFO MESSAGELIXIL’S CR STRATEGY2126253541STRATEGYTHE LIXIL PLAYBOOK 02INTEGRATED REPORT 2022THE LIXIL PLAYBOOKOVERVIEWSTRATEGYGOVERNANCEDATA01020304THE LIXIL PLAYBOOK GLOBAL PEOPLE STRATEGY 34 HR Reform in Japan As our largest and most strategic market, Japan is leading the shift in LIXIL’s transformation toward a more agile, meritocratic, and entrepreneurial way of working that will enable us to realize our purpose. We aim to foster a growth mindset for innovation based on meritocracy and D&I, and to that end, we are transforming our HR Policy and Programs so that they empower our people to fully utilize their capacity and grow, regardless of individual background including age, gender, nationality, and disability. Historically, talent management practices have been differentiated between Japan and across the rest of the world. In Japan, our Talent Management practices were based on seniority. While this was aligned to the local market, we accelerated our transformation journey in Japan to build a more diverse and inclusive workforce at LIXIL. This is foundational work and is critical for LIXIL as a company that was built through the merging of individual companies with distinct philosophies, strategies and policies. From April 2020, we globalized our Corporate Functions across the enterprise to make the shift toward a harmonized foundation in talent management. From April 2022, we introduced comprehensive changes to HR policy and practice for Japan managers and above, and this will become the basis for future harmonization across all levels in Japan. We drive enterprise and meritocratic thinking by linking short-term incentives more closely to company and individual performance. We continue to evolve the way we work, with a focus on flexible working and streamlining office space to promote collaboration and face-to-face connections. We are also reassessing our performance management practices to shift focus away from bonus outcomes and toward a genuine feedback and development approach to managing performance. While this is challenging in a remote working environment, this will be a central focus in our manager effectiveness education program commencing this year. Transforming Japan To Drive LIXIL’s Transformation Job-based Grading System Allowances and Benefits for a diverse workforce Fully flexible working Performance-based Compensation Performance Management to drive meritocracy Changes for a more … Inclusive Agile and Meritocratic LIXIL Grading system using broad bands Expand allowances and benefits Drive remote working and Superflex Short-term incentives based on business & individual performance Performance management that differentiates our top talent Changes effective from April 2022 for all People managers at LIXIL To be introduced to all employees from April 2023* * Subject to Union agreement EXTERNAL ENVIRONMENTVALUE CREATION PROCESS131518CR CHAIRPERSON / CPO MESSAGEMANAGEMENT DIRECTIONLIXIL’S CORE BUSINESSESCFO MESSAGELIXIL’S CR STRATEGY2126253541STRATEGYTHE LIXIL PLAYBOOK 02INTEGRATED REPORT 2022THE LIXIL PLAYBOOKOVERVIEWSTRATEGYGOVERNANCEDATA01020304LIXIL’S CORE BUSINESSES LIXIL WATER TECHNOLOGY (LWT) Japan Business 35 LWT makes attractive and purposefully designed products for bathrooms and kitchens through powerful global brands such as INAX and GROHE, as well as product brands in Japan such as RICHELLE and SPAGE. Hiroyuki Oonishi Executive Officer, Executive Vice President, LIXIL Water Technology (LWT) Japan Strategic Goals Market Overview Key Strengths • Improve profitability and create new business model for renovation to strengthen cost competitiveness and achieve sustainable growth • Merge Japanese technology with global design to develop competitive products, and leverage global production and procurement to lower costs • Demand for new housing in Japan forecast to decrease over the medium to long term due to population decline • Combined global capabilities managed by core global team • Highly regarded and clearly differentiated house of brands • Increase in new renovation demand and growing share of the consumer journey and transactions conducted online as people spend more time at home due to the COVID-19 pandemic • Comprehensive product portfolio covering luxury to mass-market segments (International Water Technology Business: See p.27) EXTERNAL ENVIRONMENTVALUE CREATION PROCESS131518CR CHAIRPERSON / CPO MESSAGETHE LIXIL PLAYBOOKMANAGEMENT DIRECTIONCFO MESSAGELIXIL’S CR STRATEGY2126253541INTEGRATED REPORT 2022STRATEGYLIXIL’S CORE BUSINESSES 02LIXIL’S CORE BUSINESSESOVERVIEWSTRATEGYGOVERNANCEDATA01020304LIXIL’S CORE BUSINESSES LIXIL WATER TECHNOLOGY (LWT) Japan Business 36 Growth Opportunities and Management Strategy Growth Opportunities Management Strategy • Rising worldwide interest in health and hygiene spurred by the COVID-19 • Expand sales and accelerate development of health and hygiene-related products pandemic • Respond to lifestyle changes by expanding sales of renovation products and • Lifestyle changes to adapt to the “new normal” growing new businesses • Rise of ethical consumption and interest in sustainable products, reflecting • Leverage digital platforms to expand reach of sales channels growing environmental awareness Risks and Countermeasures Risks • Enter profitable market segments and gain market share by leveraging brand, product, and service strengths • Create more sustainable products and materials Countermeasures • Decrease in new housing construction in Japan • Create new demand by strengthening renovation and new business strategies • Supply chain risks including labor costs, logistics costs, high raw material • Achieve both resilience and efficiency in the supply chain through redundancy prices, and procurement of materials • Shortage of skilled labor • Commoditization of products and end-to-end optimization • Develop easy-to-install and prefabricated products, and expand installer network • Continue targeted investment in innovation, brands, and design • Provide clearly differentiated value EXTERNAL ENVIRONMENTVALUE CREATION PROCESS131518CR CHAIRPERSON / CPO MESSAGETHE LIXIL PLAYBOOKMANAGEMENT DIRECTIONCFO MESSAGELIXIL’S CR STRATEGY2126253541INTEGRATED REPORT 2022STRATEGYLIXIL’S CORE BUSINESSES 02LIXIL’S CORE BUSINESSESOVERVIEWSTRATEGYGOVERNANCEDATA01020304LIXIL’S CORE BUSINESSES LIXIL WATER TECHNOLOGY (LWT) Japan Business 37 Progress on Major Initiatives New Ideas for Increased Time Spent at Home Service Combining Our Technology and Expertise as a Toilet Manufacturer With the IoT New Business Development LIXIL has launched @Home Living, our solution to meet the needs of lifestyles changes in the new normal. Under this new concept, we have reimagined how rooms with plumbing fixtures might connect seamlessly throughout the home—for example, by installing a sink near a home office area, or a compact wash space near the front door for handwashing after returning home. As people spend more time at home, new bathing needs are emerging. In response, we recently introduced the Body Hug Shower, which is designed for user comfort, and the Eco Aqua Shower SPA, a shower head with three spray modes that offers a novel shower experience. LIXIL has developed a new cloud-based service, LIXIL Toilet Cloud, leveraging IoT technology to resolve the restroom maintenance issues of facility managers. With this service, AI developed by LIXIL monitors the usage status of restrooms to plan the optimal cleaning regime in real time based on facility characteristics, and issues instructions as appropriate. This reduces unnecessary and irregular cleaning, effectively optimizing daily cleaning. Joint field tests at various facilities, including our own offices and those of the West Japan Railway Company, have demonstrated the effectiveness of the service. By expanding this service to more facilities we will help to maintain comfortable and clean restrooms. Among our initiatives to create new businesses, we have developed and begun general sales of KINUAMI U, a shower head in which the hot water can be switched to foam mode to generate a warm, dense soapy foam that covers the body. In the development of this product, we used crowdfunding to capture market needs and make a series of product improvements. We also continue to promote rental and leasing of withCUBE, a portable bathroom that is more spacious than standard products and can be installed anywhere and outfitted flexibly depending on intended use. Based on the concept of “peace of mind and comfort for all,” it was developed as an easy access public toilet that anyone can comfortably use, irrespective of age, gender, or level of ability or disability. This is one example of our commitment to responding rapidly to market needs. Body Hug Shower LIXIL Toilet Cloud KINUAMI U EXTERNAL ENVIRONMENTVALUE CREATION PROCESS131518CR CHAIRPERSON / CPO MESSAGETHE LIXIL PLAYBOOKMANAGEMENT DIRECTIONCFO MESSAGELIXIL’S CR STRATEGY2126253541INTEGRATED REPORT 2022STRATEGYLIXIL’S CORE BUSINESSES 02LIXIL’S CORE BUSINESSESOVERVIEWSTRATEGYGOVERNANCEDATA01020304 LIXIL’S CORE BUSINESSES LIXIL HOUSING TECHNOLOGY (LHT) 38 Through LHT’s portfolio of brands including TOSTEM, EXSIOR, INTERIO, SUPER WALL, and NODEA, we offer windows, doors, exterior building materials, and housing interiors, and other products in our quest to make better homes a reality. Strategic Goals Market Overview Key Strengths Satoshi Yoshida Executive Officer, Executive Vice President, LIXIL Housing Technology (LHT) • Shift to a business model focused on profitability • Create demand to establish a foundation for growth • Demand for new housing in Japan forecast to decrease over the medium to long term due to population decline • Building material manufacturers shifting focus to the home renovation sector due to decline in new housing demand • The COVID-19 pandemic and, in recent years, a higher number of natural disasters are increasing interest in new ways of living as well as in safe and secure homes • Building materials markets, particularly in Asia, continue to expand as a result of medium-to-long-term economic, population, and income growth • Leading market share in residential sash and door, and exterior product market sectors in Japan • Leadership in decarbonization of homes and buildings, and in recycling of materials • Extensive nationwide sales and distribution network in Japan • Wide range of products and product categories, enabling complementary design for the entire home • Simple organizational structure that facilitates the rapid development, manufacture, and sale of products • Implementation of platform-based production in each business division • Strong cooperative structure with suppliers EXTERNAL ENVIRONMENTVALUE CREATION PROCESS131518CR CHAIRPERSON / CPO MESSAGETHE LIXIL PLAYBOOKMANAGEMENT DIRECTIONCFO MESSAGELIXIL’S CR STRATEGY2126253541INTEGRATED REPORT 2022STRATEGYLIXIL’S CORE BUSINESSES 02LIXIL’S CORE BUSINESSESOVERVIEWSTRATEGYGOVERNANCEDATA01020304LIXIL’S CORE BUSINESSES LIXIL HOUSING TECHNOLOGY (LHT) 39 Growth Opportunities and Management Strategy Growth Opportunities Management Strategy • Increasing need for environmentally friendly materials and high-performance housing, • Develop differentiated high-value-added products and business models reflecting growing awareness of ethical consumption • Growing demand for new products and services suitable for Japan’s aging population • Lifestyle changes due to the COVID-19 pandemic • Growing market for highly affluent consumers • Expand market share in net zero energy houses and buildings (ZEH/ZEB) • Provide products and services that meet end-user needs and resolve social issues • Respond to lifestyle changes by expanding range of products and materials as well as sales in home renovation market • Increasing need for differentiated products due to population growth and rising • Develop products to meet each market’s needs, utilizing technologies and resources income levels in Asian markets from Japan • Increasing demand for energy-efficient products due to strengthening of energy • Strengthen product supply and sales structure to meet market characteristics of saving standards each country/region Risks and Countermeasures Risks Countermeasures • Decrease in new housing construction in Japan • Create new demand by strengthening renovation and new business strategies • Further increases in cost of raw materials, construction materials, and parts • Bring environmentally friendly products and services to market faster • Intensifying difficulty of securing global logistics channels • Supply chain disruptions • Review and improve procurement policy • Price products in line with market conditions • Increase in operating costs in conjunction with environmental measures • Strengthen supply chain management • Raise energy efficiency at production and distribution bases EXTERNAL ENVIRONMENTVALUE CREATION PROCESS131518CR CHAIRPERSON / CPO MESSAGETHE LIXIL PLAYBOOKMANAGEMENT DIRECTIONCFO MESSAGELIXIL’S CR STRATEGY2126253541INTEGRATED REPORT 2022STRATEGYLIXIL’S CORE BUSINESSES 02LIXIL’S CORE BUSINESSESOVERVIEWSTRATEGYGOVERNANCEDATA01020304LIXIL’S CORE BUSINESSES LIXIL HOUSING TECHNOLOGY (LHT) 40 Progress on Major Initiatives Contributing to Decarbonization with High-performance Housing Japan has set a goal of reducing CO2 emissions from the household sector, which includes residential housing, by 66% of FYE2014 levels, a higher target than any other industry sector. Enhancing energy efficiency with improved thermal insulation will be key to achieving this target. To achieve carbon neutrality in housing, LIXIL has overhauled all of its window series to promote higher performance in housing, and began sales of its EW resin window and TW triple-glazed, high-performance hybrid window. For existing homes in Japan, 90% of which do not meet the current energy-saving standards, we are contributing to decarbonization with window renovation products such as our Replus high-insulation frame and have begun rolling out Marugoto Dannetsu Reform, which offers high-performance insulation for the entire home. Promoting Use of Recycled Materials Business Growth in Asia We are continuing our efforts for the recycling of environmentally friendly materials. For windows, we launched EW, a resin window developed jointly with Germany-based profine Group, which has advanced resin recycling technology. We also launched Kinari Modern, a new housing interior brand under the Lasissa D series. This series uses environmentally friendly materials sourced in Japan, including coniferous plywood that helps to preserve forests, and molded board made from recycled thinned wood. Furthermore, by mixing waste plastics, which had been considered difficult to recycle, with waste wood, we have begun developing new materials that are usable as paving materials for sidewalks, plazas, and other applications. These products are expected to broaden the possibilities of plastic recycling, and as such we are optimizing our organizational structure for establishment of new technologies and the shift to mass production. Leveraging technologies we have cultivated in Japan, we are expanding sales of LHT throughout Asia. As populations and income levels rise, so does the need for high-performance housing, making Asia a market with excellent growth potential. Under the auspices of LHT Japan, LHT’s international department works to capture this opportunity and provide windows, housing interiors, entrance doors, and other products to local customers. In January, we launched ATIS, a new series of aluminum windows for the Asian market. We will further strengthen coordination among development, production, and sales, and improve product development and operations to enhance our competitiveness and our presence in the Asian market, including the steadily growing Indian market. TW, high-performance hybrid window Kinari Modern, Lasissa D series ATIS, aluminum windows EXTERNAL ENVIRONMENTVALUE CREATION PROCESS131518CR CHAIRPERSON / CPO MESSAGETHE LIXIL PLAYBOOKMANAGEMENT DIRECTIONCFO MESSAGELIXIL’S CR STRATEGY2126253541INTEGRATED REPORT 2022STRATEGYLIXIL’S CORE BUSINESSES 02LIXIL’S CORE BUSINESSESOVERVIEWSTRATEGYGOVERNANCEDATA01020304 CORPORATE RESPONSIBILITY (CR) STRATEGY OVERVIEW We leverage our specialist expertise and business scale to pursue initiatives focused on three strategic pillars, selected from among the most urgent issues relating to the regions in which we operate. 41 Management Structure Through the CR Committee The CR Committee develops and reviews our CR Strategy and tracks progress with regard to each of the three strategic pillars. The committee, comprising executive officers and leaders from corporate functions and our business units, meets quarterly with a focus on developing swift responses to sustainability issues. The results of the committee’s discussions and deliberations are promptly reported to the Board of Executive Officers, enabling necessary decisions to be made. Moreover, proposals put forward by the committee are quickly implemented as concrete actions by the relevant departments. In FYE2022, the structure and functions of the CR Committee were reorganized to improve the application of the Board of Directors’ supervisory responsibilities with respect to sustainability issues. This also reinforced the committee’s role as a forum for cross-functional discussion of individual policies and measures. Positioning and Approach of CR Strategy Integral to achieving LIXIL’s Purpose, is the development of safe and comfortable products and services through the pursuit of responsible and sustainable innovation based on the CR Strategy. We believe that to ensure the fulfillment of our CR Strategy, it needs to be integrated into our major business strategies. Successfully doing so will not only benefit society as a whole, but will also make our employees proud and play an important part in enhancing LIXIL’s long-term sustainability, such as by attracting ESG investment and promoting innovation. Three Strategic Pillars and Material Issues Our CR Strategy is based on three strategic pillars of activity that encompass the most pressing social issues relevant to our business: Global Sanitation & Hygiene, Water Conservation & Environmental Sustainability, and Diversity & Inclusion. LIXIL has identified material issues that we, our stakeholders, and society, in general, consider to be of the highest importance for improving our company’s sustainable growth and corporate value for driving progress on sustainable development. The priority of each material issue was determined considering the degree of risk and its impact. Material issues that are labeled as “Priority” are deeply related to the three pillars of our CR Strategy. As we work toward our goals, we confirm progress and results with respect to each of these pillars annually based on action plans and KPIs aligned with our material issues. EXTERNAL ENVIRONMENTVALUE CREATION PROCESS131518CR CHAIRPERSON / CPO MESSAGETHE LIXIL PLAYBOOKMANAGEMENT DIRECTIONLIXIL’S CORE BUSINESSESCFO MESSAGE2126253541STRATEGY 02INTEGRATED REPORT 2022LIXIL’S CR STRATEGYLIXIL’S CR STRATEGYOVERVIEWSTRATEGYGOVERNANCEDATA01020304LIXIL’S CR STRATEGY GLOBAL SANITATION & HYGIENE We have set the goal of improving sanitation and hygiene for 100 million people around the world by 2025 through the development of the SATO brand that provides toilet and handwashing solutions for developing economies, and through other collaborative efforts. 42 For a Safe and Hygienic Toilet and Handwashing Environment Of the global population, an estimated 1.7 billion people (about one in five) live without access to safe sanitation toilets*1. Moreover, roughly 2.3 billion people (about one in three) lack basic handwashing facilities at home. Unsanitary conditions threaten people’s lives and hamper opportunities for growth and development across entire regions. A recent report from the World Health Organization (WHO) and United Nations International Children’s Emergency Fund (UNICEF) on Sustainable Development Goal 6 (clean water and sanitation)*2 called for a quadrupling of progress to achieve the ambitious targets for 2030. *1 Based on Progress on household drinking water, sanitation and hygiene, 2000-2020, WHO/UNICEF Joint Monitoring Programme for Water Supply, Sanitation and Hygiene (JMP) (total for “Open defecation,” “Unimproved” and “Limited”) *2 https://www.unwater.org/sdg6-update-the-world-is-off-track/ SATO Brand of Toilet Systems and Handwashing Stations for Developing Markets SATO was developed for emerging markets lacking access to reliable sanitation. Designed to be inexpensive and easy to install in homes, the brand has a current lineup of more than 40 toilet-related products tailored to local needs. In FYE2022, we commercialized SATO Tap, a handwashing station developed in 2020 as an affordable handwashing solution for use in the home or local community. Its use helps prevent the spread of infectious diseases such as COVID-19, and contribute to better sanitation for all users. For the third consecutive year, shipments of SATO have exceeded 1 million units, with approximately 6.5 million units shipped to 45 countries to date. Through SATO and other initiatives, LIXIL has contributed to improved sanitation for approximately 35 million people to date. We are making steady progress toward our goal of improving sanitation for 100 million people worldwide by 2025. Contributing to Local Job Creation in Each Region With SATO, we are also focusing on building regional production and sales systems, and nurturing local human capital. Our Make-Sell-Use business model fosters rural entrepreneurship, generating regional employment and facilitating ongoing local improvements. This collaboration with local residents and various other stakeholders, accelerates our efforts to resolve global sanitation and hygiene challenges, and strengthens the foundation for our long-term growth as a company. Working with Public and Private Partners To Build Sustainable Frameworks We are cooperating with public and private partners on several projects to generate greater awareness of sanitation and hygiene in each region. The School Toilet Enhancement Program (STEP) is one such program that aims to upgrade toilets and handwashing facilities for 50,000 students at 145 schools across Africa by March 2023 and thereby reduce sanitation-related infections, and spread awareness among families and local communities. In addition, in FYE2022 we expanded and strengthened partnerships and joint projects with UNICEF and the United States Agency for International Development (USAID). Moreover, in collaboration with the Japan International Cooperation Agency (JICA), NGOs, and local manufacturers and retailers, we are working to build sustainable frameworks that help improve quality of life and empower rural entrepreneurship in each region. Other Initiatives To Achieve Our Goal In addition to the SATO business, we are working on a variety of other initiatives to improve access to safe sanitation. In the U.S. state of Alabama, we are working with various stakeholders to demonstrate innovative sanitation solutions for households without access to safe drinking water and sanitation and are exploring opportunities to partner with other state governments to expand these solutions. Through initiatives such as the GROHE Installer Vocational Training & Education (GIVE) Program in Europe, the Middle East, and North Africa and Trade Up program in the U.S., we train installers and contribute not only to job creation but also to maintaining the health and safety of local communities. Furthermore, LIXIL is a co-founder of the Toilet Board Coalition (TBC), a global alliance of public and private sector partners that aims to develop sustainable solutions to the sanitation crisis, and as such has assisted in the running of the organization, mentored entrepreneurs seeking to tackle sanitation issues, and engaged in advocacy. EXTERNAL ENVIRONMENTVALUE CREATION PROCESS131518CR CHAIRPERSON / CPO MESSAGETHE LIXIL PLAYBOOKMANAGEMENT DIRECTIONLIXIL’S CORE BUSINESSESCFO MESSAGE2126253541STRATEGY 02INTEGRATED REPORT 2022LIXIL’S CR STRATEGYLIXIL’S CR STRATEGYOVERVIEWSTRATEGYGOVERNANCEDATA0102030443 LIXIL’S CR STRATEGY WATER CONSERVATION & ENVIRONMENTAL SUSTAINABILITY We are convinced that LIXIL can be a force for good, innovating and scaling solutions to have a positive impact for the planet. Promoting company-wide activities based on clearly defined goals, thereby ensure that future generations will continue to enjoy the benefits of water and other finite resources. Our Positive Impact on Environmental Issues as a Housing Equipment Manufacturer Building-related operations account for an estimated 27% of the world’s energy-related CO2 emissions, with residential building operations accounting for 17%*1. Since the 1960s, domestic water consumption has increased by over 600%*2. Furthermore, global resource consumption is expected to double by 2060*3. As a developer and provider of water-related and building material products, LIXIL is committed to reducing CO2 emissions and promoting sustainable use of water and other natural resources through our business activities, products, and services, across the value chain from procurement through production, distribution, end-use, and product disposal. While pursuing these efforts, to secure growth and sustainable value creation, but also to enhance the positive impact that we have on the environment. *1 Tracking Buildings 2021, IEA *2 World Resources Institute *3 Global Material Resources Outlook to 2060 Five Material Issues and LIXIL Environmental Vision 2050 In order to develop our multi-faceted approach to this area, we have identified the following five environment-related material issues. (1) Climate change mitigation and adaptation (2) Water sustainability (3) Circular economy (4) Environmental impact of product life cycle (5) Environmental management LIXIL Environmental Vision 2050 calls for “Zero Carbon and Circular Living” and defines (1), (2), and (3) above as focus areas for achieving the vision. As a foundation for promoting these focus areas, we are also working to reduce environmental impact throughout product lifecycles (4) and to strengthen our company-wide environmental management (5). By 2050, we aim to achieve net-zero carbon emissions and preserve water and natural resources for future generations through operations and our housing and lifestyle solutions. Three Focus Areas To Achieve Our Vision 1. Climate change mitigation and adaptation Energy consumed during product use accounts for a large portion of the CO2 emitted by LIXIL’s products and services in the process from raw material procurement to product disposal. Therefore, we will reduce CO2 emissions not only from our business activities but also from the entire supply chain, from the procurement of raw materials to the use and disposal of products. In addition, we will continue to develop and provide environmentally friendly products with high heat insulation and excellent water- and energy-saving properties, thereby achieving net-zero CO2 emissions. 2. Water sustainability As a leading company in water-related products, we are committed to pursuing water sustainability in Japan and elsewhere so that people can get the most out of the water they use. In addition to promoting the development of water-saving products and products with superior water purification functions, we are also working to improve streamlining the use of water in our production processes. 3. Circular economy LIXIL is actively contributing to the transition from a linear economy that consumes large amounts of water and natural resources to a circular economy. We promote circular manufacturing practices that consider the entire product lifecycle, from raw material procurement through to manufacturing, end-use, and product disposal. In our production processes, we aim to make effective use of resources by reducing waste and improving the recycling rate, and we also promote the use of recycled materials as raw materials for our products. We are also pursuing initiatives based on the LIXIL Plastics Action Statement to reduce the amount of plastic used, recycle plastic, and develop alternative materials. Three Focus Areas to Achieve Our Vision CLIMATE CHANGE MITIGATION AND ADAPTATION Achieve Net-Zero GHG Emissions through Our Business Operations, Products, and Services WATER SUSTAINABILITY Enhance the Environmental Value of Water Resources by Saving, Circulating, and Purifying Water CIRCULAR ECONOMY Help Transition to a Circular Economy and Preserve Natural Resources for Future Generations Achievements of the Medium-term Environmental Plan and New Targets Over the course of our five-year medium-term environmental plan, which ran until FYE2021, LIXIL engaged in energy-saving activities at our factories and offices, technological development for energy efficiency, and the introduction of renewable energy. As a result, we were able to reduce CO2 emissions from our business activities well beyond the initial targets. In addition, we actively promoted the recycling of waste materials at our production sites across the globe, and the recycling rate in Asia in particular improved significantly. In FYE2022, we analyzed risks and opportunities using the TCFD framework, as well as worked to develop new targets in the area of climate change mitigation and adaptation. By 2030, we aim to reduce CO2 emissions from our business sites (Scope 1 and 2) by 50% compared to FYE2019 and to reduce CO2 emissions from supply chains (Scope 3) by 30% compared to the same year. LIXIL’s Environmental Governance Structure p.52 We have established a new Environmental Strategy Committee (ESC), whose activities are overseen by the Board of Directors. The ESC works closely with management and business units to formulate company-wide environmental strategies and ensure that they are appropriately disseminated throughout our operations. EXTERNAL ENVIRONMENTVALUE CREATION PROCESS131518CR CHAIRPERSON / CPO MESSAGETHE LIXIL PLAYBOOKMANAGEMENT DIRECTIONLIXIL’S CORE BUSINESSESCFO MESSAGE2126253541STRATEGY 02INTEGRATED REPORT 2022LIXIL’S CR STRATEGYLIXIL’S CR STRATEGYOVERVIEWSTRATEGYGOVERNANCEDATA0102030444 LIXIL’S CR STRATEGY RESPONSE TO TCFD RECOMMENDATIONS With regard to the material issue of Climate Change Mitigation and Adaptation, LIXIL announced its endorsement of the recommendations of the Taskforce on Climate-related Financial Disclosures (TCFD) in March 2019. Based on the TCFD recommendations, we have identified and assessed the risks and opportunities that climate change issues pose to LIXIL, and will disclose this information in accordance with the disclosure framework (Governance, Strategy, Risk Management, and Metrics and Targets). We are reflecting the results of the assessment in our environmental strategy after reporting to and approval by the Board of Executive Officers and Board of Directors. TCFD Recommendations endorsement Climate-related risks and opportunities analysis Medium-to-long-term targets for 2030 and action plans LIXIL Environmental Vision 2050 goal 1. Governance Oversight by the Board of Directors 2. Strategy Strategic Response to Key Climate-related Risks and Opportunities LIXIL established the Environmental Strategy Committee (ESC), which is responsible for formulating and implementing environmental strategies. This includes creating rules and policies related to environmental governance, discussing and deciding on measures to address environmental issues such as climate change, and managing and monitoring group-wide environmental targets. The committee is chaired by the Chief Technology Officer appointed by the Board of Executive Officers. The topics discussed and decided upon by the ESC are reported to the Board of Executive Officers on a quarterly basis via the CR Committee. The Board of Executive Officers discusses and approves targets and action plans relating to material issues, including environmental issues, and the Board of Directors receives half-yearly reports on progress toward these targets, which form the basis for discussion and oversight. Looking ahead to 2030 as a milestone year toward achieving the LIXIL Environmental Vision 2050, we conducted scenario analyses based on the TCFD recommendations. We assume two scenarios: the 1.5°C scenario, which is in line with the goal of the Paris Agreement, and the 4°C scenario, under which environmental regulations are not tightened and physical risks increase. Based on these two scenarios, we are working to identify the transition risks posed by climate change due to changes in policy, regulation and the market, as well as physical risks such as extreme weather events, to understand their financial impact, and to reflect them in the group’s environmental strategies. 3. Risk Management Process for Identifying, Assessing, and Managing Climate-related Risks and Opportunities 4. Metrics and Targets Metrics for Assessing Climate-related Risks and Opportunities For climate-related risks and opportunities, LIXIL identifies significant climate-related risks and opportunities and assesses their impact by conducting scenario analyses based on the TCFD recommendations under the direction of the ESC. Significant risks and opportunities are reflected in our environmental strategies, environmental targets, and action plans. We are promoting and developing measures for the improvement of environmental performance and management of risk, and structuring processes to monitor and review progress. Moreover, by tying climate-related transition risks and opportunities to strategic risks, and physical risks to operational risks, we are aligning our approach with organization-wide integrated risk management. Our Environmental Vision includes a commitment to achieving Zero Carbon and Circular Living, and we aim for net-zero CO2 emissions from our business processes, products, and services by 2050. As metrics for assessing climate-related risks and opportunities toward 2030, which is a milestone year on the way to 2050, we manage Scope 1, 2, and 3 CO2 emissions and the sales composition ratio of environmentally friendly products that contribute to CO2 reduction in residential buildings. We plan to update our target for Scope 1, 2, and 3 CO2 emissions to be in line with the new 1.5°C standard under the Science Based Targets initiative. Note: “2030” and “2050” in this document refers to our fiscal year, starting in 2030 or 2050. For more details, please visit our website: https://www.lixil.com/en/sustainability/environment/tcfd.html EXTERNAL ENVIRONMENTVALUE CREATION PROCESS131518CR CHAIRPERSON / CPO MESSAGETHE LIXIL PLAYBOOKMANAGEMENT DIRECTIONLIXIL’S CORE BUSINESSESCFO MESSAGE2126253541STRATEGY 02INTEGRATED REPORT 2022LIXIL’S CR STRATEGYLIXIL’S CR STRATEGYOVERVIEWSTRATEGYGOVERNANCEDATA0102030445 RESULTS OF SCENARIO ANALYSIS LIXIL has identified and assessed climate-related risks and opportunities under two scenarios, 1.5°C and 4°C, with reference to the International Energy Agency (IEA) and the Intergovernmental Panel on Climate Change (IPCC), recognizing 2030 as a milestone toward our Environmental Vision. Risk/Opportunity Category Estimated Financial Impact 1.5ºC Scenario 4ºC Scenario Strategic Response Metrics and Targets ① Increased operating costs due to introduction of carbon taxes 10 billion yen*1 No additional tax burden Transition • Improve energy use efficiency • Expand the use of renewable energy • Strategic capital investment • Verify implementation of decarbonization technologies Risks ② Increased raw material and component procurement costs due to market changes Financial impact not calculated due to lack of parameters necessary for quantification • Procurement of low-carbon materials and components • Promote resource-conscious design • Supplier engagement Carbon emission reduction by FYE2031 (vs. FYE2019) • Scope 1 and 2 Reduce by 50% • Scope 3*4 Reduce by 30% Carbon emission reduction by FYE2051 • Scope 1, 2, and 3 Net zero by FYE2051 Physical ③ Loss of revenue opportunities due to damage to the company’s plants caused by typhoons, floods, etc. 1.5 billion yen*2 • Promote business continuity planning (BCP) • Develop backup production systems • Enroll in insurance programs that cover fixed assets owned — ④ Increased demand for energy-saving products and services for new ZEH construction and energy-efficiency remodeling 20 billion yen*3 Maintain current trends • Develop and promote eco-friendly products (high-performance windows, solar photovoltaic systems, high-efficiency housing, energy and water-saving faucets and showers, etc.) • Ratio of number of high-performance windows sold for detached houses (Japan) 100% by FYE2026 • Ratio of number of energy and water-saving faucets and water-saving toilets sold (Japan) 100% by FYE2031 Opportunities ⑤ Increased demand for products that use low-carbon, eco-conscious materials or resources ⑥ Increased demand for products related to disaster preparation, response, and recovery Financial impact not calculated due to lack of parameters necessary for quantification • Develop and promote low emission products using recycled materials (resin window frames, artificial wood deck etc) • Develop and promote disaster prevention and mitigation products (storm shutters, sun blinds, storage of electricity, Resilience Toilet, etc) — *1 Financial impact calculation is based on the assumption that a carbon tax (using IEA’s estimates of carbon prices considered necessary to achieve the 1.5ºC target) is imposed on Scope 1 and 2 carbon emissions. *2 Average loss is calculated based on the following steps: (1) identified any production sites with flood risks (based solely on production site location; risk mitigation measures set forth in our business continuity plans (BCP) are not incorporated), using the World Resources Institute’s (WRI) Aqueduct Floods tool and hazard maps provided by Japanese municipalities; and (2) multiplied two factors: the number of days of stalled operations for sites in each inundation height zone indicated in Japan’s Ministry of Land, Infrastructure, Transport and Tourism (MLIT) Manual for Economic Evaluation of Flood Control Investment; and the daily production volume of each site. *3 Profit calculated based on the share, price, and profit margin of key products. This calculation assumes an increased ZEH percentage of new and existing housing in 2030 to achieve the Japanese government’s 66% reduction target for the residential sector by 2030. *4 Excluding use-phase emissions from products that indirectly consume energy such as hot water supply during use. EXTERNAL ENVIRONMENTVALUE CREATION PROCESS131518CR CHAIRPERSON / CPO MESSAGETHE LIXIL PLAYBOOKMANAGEMENT DIRECTIONLIXIL’S CORE BUSINESSESCFO MESSAGE2126253541STRATEGY 02INTEGRATED REPORT 2022LIXIL’S CR STRATEGYLIXIL’S CR STRATEGYOVERVIEWSTRATEGYGOVERNANCEDATA0102030446 LIXIL’S CR STRATEGY DIVERSITY & INCLUSION Based on the belief that we must create a truly inclusive workplace to attract and empower a diverse workforce, we are accelerating our transformation in line with our Diversity & Inclusion (D&I) Strategy. An Organization That Creates New Value by Getting Closer to All People As society changes, so too do customer segments and needs, and LIXIL sees this as an opportunity for transformation. In the Japanese market, it is projected that by 2050 one in five people will be over the age of 60, with many of them living either alone or with their spouse only. In the global market, approximately 15% of the world’s population today live with some degree of disability, and this percentage is increasing every year. Given this situation, we firmly believe that in order to achieve sustainable development and grow as a business, we need to transform ourselves into an organization that is close to all consumers, including seniors and people with disabilities, and to become an organization that can create new value while capturing diverse needs. To fulfill our corporate purpose to make better homes a reality for everyone, everywhere, we are accelerating human resource acquisition and development that is predicated on diversity, as well as the creation of an inclusive work environment. We believe that the various insights and ideas of our employees will be the driving force behind the development of novel products and innovations that take into account minority needs. Embedding a Culture of Inclusion by 2030 LIXIL promotes diversity and inclusion (D&I) with the aim of fostering an inclusive culture that embraces employee diversity and creating an environment that engages and includes all employees. Under our D&I Strategy, we seek to embed this culture of inclusion across LIXIL, embracing diversity in gender, age, race, ethnicity, nationality, disability, or sexual orientation, and to achieve key gender equity goals by 2030. One focus in terms of D&I promotion is on creating a workplace where people with disabilities play an active role. In addition to achieving these goals, we are also providing products and services based on universal design concepts. These products and services leverage the insights of our diverse employees to help improve the quality of life for all people irrespective of age, gender, or disability. In FYE2022, we have conducted workshops and e-learning globally to promote understanding of D&I and we have incorporated D&I elements into our People & Organizational Development (POD) process to accelerate the identification and development of diverse talents within the company. We have also established five global Employee Resource Groups (ERGs) focused on Better Together, Multi-cultural, Ability, Working Parents & Caregivers, and LGBTQ+. An executive officer has been appointed to each group as an executive sponsor to support activities to embed a culture of inclusion into LIXIL’s DNA. D&I Promotion Structure LIXIL has been harnessing the vitality generated by its diversity to promote initiatives tailored to the challenges of each region. In recent years we have further ramped up efforts, and in FYE2021 we set up the D&I Committee consisting of the CEO and executive officers to analyze the current status of D&I and issues, and then updated our D&I strategy. Furthermore, in FYE2022 we formulated ten action plans to achieve our goals, and are implementing measures that incorporate the D&I perspective in human resource development and workplace environment creation in a phased manner. In this way we will achieve our goals of establishing a culture of inclusion through the creation of a workplace where diverse employees can play a more active role, and the expansion of employment opportunities. • LIXIL and Toyota Motor Corporation jointly developed the Mobile Toilet, which wheelchair users can use with greater ease when outside the home. • LIXIL launched its DOAC front door electric opening system in 2020. DOAC enables people to lock or unlock and open or close their front door without touching it using a remote control. This helps people with disabilities, wheelchair users, seniors, and others get in and out of the house more easily. EXTERNAL ENVIRONMENTVALUE CREATION PROCESS131518CR CHAIRPERSON / CPO MESSAGETHE LIXIL PLAYBOOKMANAGEMENT DIRECTIONLIXIL’S CORE BUSINESSESCFO MESSAGE2126253541STRATEGY 02INTEGRATED REPORT 2022LIXIL’S CR STRATEGYLIXIL’S CR STRATEGYOVERVIEWSTRATEGYGOVERNANCEDATA01020304INTEGRATED REPORT 2022 01 OVERVIEW 02 STRATEGY 03 GOVERNANCE 04 DATA 47 03 GOVERNANCE 48 49 50 51 52 54 55 56 57 59 60 MESSAGE FROM THE CHAIRPERSON OF THE BOARD OF DIRECTORS BOARD OF DIRECTORS’ EFFECTIVENESS EVALUATION ELECTION OF DIRECTOR CANDIDATES LIXIL BOARD OF DIRECTORS CORPORATE GOVERNANCE AT LIXIL MESSAGE FROM THE CHAIRPERSON OF THE NOMINATION COMMITTEE MESSAGE FROM THE CHAIRPERSON OF THE AUDIT COMMITTEE MESSAGE FROM THE CHAIRPERSON OF THE COMPENSATION COMMITTEE EXECUTIVE COMPENSATION MESSAGE FROM THE CHAIRPERSON OF THE GOVERNANCE COMMITTEE INTERNAL CONTROL SYSTEMS AND COMPLIANCE MESSAGE FROM THE CHAIRPERSON OF THE BOARD OF DIRECTORS MESSAGE FROM THE CHAIRPERSON OF THE BOARD OF DIRECTORS MESSAGE FROM THE CHAIRPERSON OF THE BOARD OF DIRECTORS 48 The restructure of our governance is progressing steadily. We will shift our focus to oversight for sustainable growth. As Chairperson of the Board of Directors, I run board three years. To objectively confirm our level of achievement meetings based on the Board’s role of actively overseeing in this endeavor, we employed a third-party organization in business execution. We work proactively to understand what FYE2022 to conduct an effectiveness assessment. The is happening in business execution, where the risks and results confirmed that the restructuring is progressing opportunities lie, and so on, and then back the management steadily, so we will conduct meetings of the Board of team if we think their approach makes sense. But we also Directors with an even sharper focus on contributing to guide them in making necessary revisions and changes. In sustainable growth, which is our primary purpose. other words, the Board operates on the belief that pointing Specifically, the executive team will review the Playbook out risks and possibilities that management may be unaware in light of the recent changes in the operating environment, of will lead to stronger corporate value. particularly structural changes, and after the results of that The LIXIL Playbook, which lays out medium-to-long- term strategy direction, was devised by the executive team last year. For the past year, we have been supervising review are shared I would like to set new items for monitoring by the Board of Directors. In addition, with respect to the role of the Board of Directors in sustainability execution of the Playbook, keeping in mind its four strategic issues, which is also an issue in last year’s revision to initiatives and the support measures for employees Japan’s Corporate Governance Code, LIXIL has confirmed implementing the strategy. We have evaluated whether the priority areas and the promotion framework that the decision-making by executive officers conforms to the executive team will work on. We will continue to supervise overall strategic direction, and through reports from the implementation of those efforts. Finally, I would like to executive officers we have checked their implementation of manage the Board in a way that facilitates strategic strategic and support measures in their areas of discussions for sustainable growth. responsibility. In addition to reports from executive officers, the Board’s agenda has been expanded to cover topics relating to promotion of strategic measures, such as the status of initiatives by the Synergy Creation Office and of design and branding work, and progress was confirmed by the executives in charge. We have been restructuring our governance for the last Masatoshi Matsuzaki Chairperson of the Board of Directors Board of Directorsʼ members, meetings convened, and attendance in FYE2022 Directors Independent directors Meetings convened Attendance Kinya Seto Sachio Matsumoto Jin Song Montesano Masatoshi Matsuzaki Tamio Uchibori Shiho Konno*1 Teruo Suzuki Yuji Nishiura Daisuke Hamaguchi Mariko Watahiki*1 Kaoru Onimaru*2 ○ ○ ○ ○ ○ ○ ○ ○ 15 15 15 15 15 11 15 15 15 11 4 15 15 15 15 15 11 15 15 15 11 4 *1. Appointed June 22, 2021　*2. Resigned June 22, 2021 INTEGRATED REPORT 2022OVERVIEWSTRATEGYGOVERNANCEDATAGOVERNANCE 03CORPORATE GOVERNANCE AT LIXILEXECUTIVE COMPENSATION ELECTION OF DIRECTOR CANDIDATES MESSAGE FROM THE CHAIRPERSON OF THE AUDIT COMMITTEEINTERNAL CONTROL SYSTEMS AND COMPLIANCE BOARD OF DIRECTORS’ EFFECTIVENESS EVALUATION MESSAGE FROM THE CHAIRPERSON OF THE NOMINATION COMMITTEEMESSAGE FROM THE CHAIRPERSON OF THE GOVERNANCE COMMITTEELIXIL BOARD OF DIRECTORSMESSAGE FROM THE CHAIRPERSON OF THE COMPENSATION COMMITTEE485257505560495459515601020304BOARD OF DIRECTORS’ EFFECTIVENESS EVALUATION BOARD OF DIRECTORS’ EFFECTIVENESS EVALUATION We evaluate the effectiveness of the Board of Directors at Evaluation Process and Results for FYE2022 Initiatives and Priority Issues for FYE2023 49 BOARD OF DIRECTORS’ EFFECTIVENESS EVALUATION least once a year for the following purposes: (1) To confirm the effectiveness of the Board of Directors (i.e., the current structure) (2) To identify medium-to-long-term issues for improving the effectiveness of the Board of Directors and committees Progress on Priority Issues from FYE2021 We have implemented improvement measures for the following two areas identified as priority issues. (2) To define stakeholder, and organize how to communicate as the Board of Directors Priority issues (1) To improve the management structure of the Board of Directors, and ensure sufficient time to discuss (number of meetings, contents and volume of meeting materials, method of dealing with advance questions, etc.) Implemented improvements Focus on material issues by reviewing annual plan of the matters to be submitted and reviewing implementation method for reporting and proposing resolutions to the Board of Directors Deliberations by the Board of Directors to clarify the scope of stakeholders the Board of Directors should oversee Create a structure in which the status of communications with stakeholders is regularly (quarterly) reported to the Board of Directors At the lead of the Governance Committee, an evaluation Based on the results of the effectiveness evaluation of directors and executive officers was conducted and the deliberations of the Board of Directors and by a specialized agency (third-party), consisting of a the Governance Committee, it was decided to set the questionnaire and personal interviews with all 10 directors following priority issues to achieve “the Board of Directors and all five executive officers (excluding those concurrently as it should be” in the next phase of “the restructuring of serving as directors). the governance system.” Main concerns during evaluation (1) Does the Board of Directors remain effective (e.g., function, operation, structure)? (2) Is there sufficient monitoring of execution? (3) Does each Committee remain effective (e.g., operation, structure, cooperation system)? Results summary (evaluation by outside specialist) LIXILʼs Board of Directors remains highly effective. As the perspective and commitment of outside directors aid a highly effective Board of Directors, it is important to have a succession plan for outside directors to maintain and improve that effectiveness. Priority issues (1) Reconfirm the role of the Board of Directors and strengthen strategy discussions to suit the new phase (2) Re-examine the ideal committee activities required of a company with a nomination committee, etc. (3) Implement an outside director succession plan to continuously support the newly restructured governance system (4) Updated a CEO succession plan to achieve continued corporate value improvement Owners will be assigned for each issue and, under the supervision of the Governance Committee, measures will be implemented to resolve the issues. Board of Directorsʼ members in FYE2023 (As of June 21, 2022) Directors concurrently serving as Executive Officers Internal Directors Male Female Foreign nationals 3 : 8 Directors with and without concurrent position as Executive Officers 3 : 8 Outside Directors Ratio 7 : 4 Male to Female Ratio 10 : 1 Nationality Directors not concurrently serving as Executive Officers Outside Directors Japanese MESSAGE FROM THE CHAIRPERSON OF THE BOARD OF DIRECTORSINTEGRATED REPORT 2022OVERVIEWSTRATEGYGOVERNANCEDATAGOVERNANCE 03CORPORATE GOVERNANCE AT LIXILEXECUTIVE COMPENSATION ELECTION OF DIRECTOR CANDIDATES MESSAGE FROM THE CHAIRPERSON OF THE AUDIT COMMITTEEINTERNAL CONTROL SYSTEMS AND COMPLIANCE MESSAGE FROM THE CHAIRPERSON OF THE NOMINATION COMMITTEEMESSAGE FROM THE CHAIRPERSON OF THE GOVERNANCE COMMITTEELIXIL BOARD OF DIRECTORSMESSAGE FROM THE CHAIRPERSON OF THE COMPENSATION COMMITTEE485257505560495459515601020304ELECTION OF DIRECTOR CANDIDATES ELECTION OF DIRECTOR CANDIDATES Month Internal director candidates (reappointment/ new appointment) Outside director candidates (reappointment) Outside director candidates (new appointment) Jul. 2021 Beginning of considerations by the Nomination Committee on the composition of the Board of Directors for the next term ELECTION OF DIRECTOR CANDIDATES Aug. Sep. Oct. Nov. Dec. Decision to introduce Outside Director assessment system Examination of method of implementing Outside Director assessments Implementation of assessment of the composition of the Board of Directors by an outside specialist agency (Main assessment criteria) ● Experience, knowledge, and expertise required of the Board of Directors ● Ensuring diversity and others Jan. 2022 Examination of the framework for the next term based on the results of discussions, etc. with the Chairperson of the Nomination Committee and the CEO Implementation of assessment of Outside Directors by an outside specialist agency Determination of policy for an Outside Director succession plan Deliberation on the Board of Directors composition/committee composition, etc. for the next term Formulation of Outside Director search plan Preparation of director candidate list Creation of a candidate list based on external search firm results and recommendations from directors (updated on an ongoing basis thereafter) Interview of candidates for new appointment by the Nomination Committee Implementation of the Companyʼs prescribed process for nomination of Director candidates (confirming independence, etc.) Determination of proposed Director candidates/ proposed committee composition, etc. for the next term Finalization of skills matrix used from the end of the Shareholdersʼ Meeting held in June 2022 Disclosure of skills matrix Election of directors Submission to the Shareholdersʼ Meeting of proposal for election of director candidates; election of directors for a one- year term based on votes on the proposal Feb. Mar. Apr. May Jun. Assessment System for Outside Directors We have introduced periodic individual assessments of Outside Directors for the purpose of assessing their contribution to the Company. The first assessment was conducted in FYE2022, as follows. (Summary of assessment method) Subjects of assessment: Seven outside directors Assessment method: Individual interviews with all directors, executive officers, and others, by a specialized agency (third-party) Main perspectives in the assessment: ・ Whether the individual took actions that contributed to the restructuring of the Companyʼs corporate governance ・ Whether the individual asked appropriate questions in line with the objectives of the agenda ・ Contributions the individual made to any committees of which he or she was a member The results of the assessment were reported to the respective outside director for the purpose of future improvement, and were used in consideration by the Nomination Committee on the succession plan for outside directors. 50 i ★ D a s u k e H a m a g u c h i ★ M a s a t o s h i M a t s u z a k i ● ★ M a r i k o W a t a h k i i Composition of the Board of Directors and Committees in FYE2023* Experience/Knowledge /Expertise needed for LIXIL i K n y a S e t o i J n S o n g M o n t e s a n o i S a c h o M a t s u m o t o i ★ T a m o U c h b o r i i ★ M a y u m i T a m u r a i ★ S h h o K o n n o ★ T e r u o S u z u k i ★ Y u j i i N s h u r a i Practical Experience in Corporate Management ● ● ● ● ● Experience in Global Business and Management ● ● ● ● ● ● ● ● Experience in Negotiation with Government agencies ● ● ● ● ● ● ● ● Accounting, finance, and M&A ● ● ● ● ● ● ● Legal and compliance ● ● ● ● ● ● ● ● ● Risk management ● ● ● ● ● ● ● ● ● ● ● Human resources development and labor ● ● ● Sales and marketing ● Manufacturing, technology, and R&D ● ● ● IT and digital ● ● ● ● ● ● ● ● ● ● ● Chairperson of the Board and Committee Membership Chairperson of the Board of Directors Nomination Committee Audit Committee Compensation Committee Governance Committee ◎ ● ◎ ● ● ● ● ● ◎ ● ● ● ◎ ● ● ● ● ● ● ● ◎ ● *Since June 21, 2022 ★Independent officer ◎Chairperson ●Committee member Skills Required of Directors LIXILʼs Nomination Committee believes that in order for the Board of Directors to effectively fulfill its roles and responsibilities relating to the supervision of the execution of duties, the Board of Directors must be composed of individuals with extensive experience, expertise, and other knowledge. Areas of experience and expertise considered particularly important by the Nomination Committee are shown in the first column. Emphasis is placed on ensuring an appropriate balance and sufficient diversity of the Board of Directors as a whole, as well as on the succession of the Board of Directors. MESSAGE FROM THE CHAIRPERSON OF THE BOARD OF DIRECTORSINTEGRATED REPORT 2022OVERVIEWSTRATEGYGOVERNANCEDATAGOVERNANCE 03CORPORATE GOVERNANCE AT LIXILEXECUTIVE COMPENSATION MESSAGE FROM THE CHAIRPERSON OF THE AUDIT COMMITTEEINTERNAL CONTROL SYSTEMS AND COMPLIANCE BOARD OF DIRECTORS’ EFFECTIVENESS EVALUATION MESSAGE FROM THE CHAIRPERSON OF THE NOMINATION COMMITTEEMESSAGE FROM THE CHAIRPERSON OF THE GOVERNANCE COMMITTEELIXIL BOARD OF DIRECTORSMESSAGE FROM THE CHAIRPERSON OF THE COMPENSATION COMMITTEE485257505560495459515601020304 LIXIL BOARD OF DIRECTORS (As of June 21, 2022)* * The number of Company shares and Phantom Stocks held are as of June 1, 2022. LIXIL BOARD OF DIRECTORS 51 Profiles and reasons for nomination of directors of LIXIL Corporation are available on our corporate website. www.lixil.com/en/about/board LIXIL BOARD OF DIRECTORS KINYA SETO Director, Representative Executive Officer, President, and Chief Executive Officer Number of Company shares owned: 503,908 Number of Phantom Stocks held: 344,286 SACHIO MATSUMOTO Director, Representative Executive Officer, Executive Vice President, Finance, Treasury, and M&A, and Chief Financial Officer Number of Company shares owned: 94,844 Number of Phantom Stocks held: 87,985 JIN SONG MONTESANO Director, Executive Officer, Executive Vice President, Human Resources and General Affairs, Public Affairs, Investor Relations, External Affairs, and Corporate Responsibility, and Chief People Officer Number of Company shares owned: 49,158 Number of Phantom Stocks held: 41,819 TAMIO UCHIBORI Outside Director, Member of Audit Committee, Member of Compensation Committee, and Member of Governance Committee Licensed tax accountant Number of Company shares owned: 0 Number of Phantom Stocks held: 1,700 SHIHO KONNO Outside Director, Member of Nomination Committee, Member of Audit Committee, and Member of Governance Committee Lawyer Number of Company shares owned: 0 Number of Phantom Stocks held: 1,700 TERUO SUZUKI Outside Director, Chairperson of Audit Committee and Member of Governance Committee Certified public accountant Number of Company shares owned: 0 Number of Phantom Stocks held: 1,700 MAYUMI TAMURA Outside Director, Member of Audit Committee and Member of Governance Committee Number of Company shares owned: 0 Number of Phantom Stocks held: 0 YUJI NISHIURA Outside Director, Chairperson of Nomination Committee, Member of Compensation Committee, and Member of Governance Committee Number of Company shares owned: 0 Number of Phantom Stocks held: 1,700 DAISUKE HAMAGUCHI Outside Director, Chairperson of Compensation Committee, Member of Nomination Committee, and Member of Governance Committee Number of Company shares owned: 0 Number of Phantom Stocks held: 1,700 MASATOSHI MATSUZAKI Outside Director, Chairperson of the Board, Chairperson of Governance Committee, and Member of Nomination Committee Number of Company shares owned: 0 Number of Phantom Stocks held: 1,700 MARIKO WATAHIKI Outside Director, Member of Nomination Committee, Member of Compensation Committee, and Member of Governance Committee Lawyer Number of Company shares owned: 0 Number of Phantom Stocks held: 1,700 MESSAGE FROM THE CHAIRPERSON OF THE BOARD OF DIRECTORSINTEGRATED REPORT 2022OVERVIEWSTRATEGYGOVERNANCEDATAGOVERNANCE 03CORPORATE GOVERNANCE AT LIXILEXECUTIVE COMPENSATION ELECTION OF DIRECTOR CANDIDATES MESSAGE FROM THE CHAIRPERSON OF THE AUDIT COMMITTEEINTERNAL CONTROL SYSTEMS AND COMPLIANCE BOARD OF DIRECTORS’ EFFECTIVENESS EVALUATION MESSAGE FROM THE CHAIRPERSON OF THE NOMINATION COMMITTEEMESSAGE FROM THE CHAIRPERSON OF THE GOVERNANCE COMMITTEEMESSAGE FROM THE CHAIRPERSON OF THE COMPENSATION COMMITTEE485257505560495459515601020304CORPORATE GOVERNANCE AT LIXIL CORPORATE GOVERNANCE AT LIXIL CORPORATE GOVERNANCE AT LIXIL LIXIL Corporation has adopted the corporate governance structure of a “Company with Nomination Committee, etc.” as outlined in Japan’s Companies Act. Under this structure, corporate governance is founded on management execution by executive officers and other management personnel, and management supervision by the Board of Directors. However, the Board of Directors’ role goes beyond simply supervising management execution. By establishing an environment that supports an appropriate risk appetite on the part of management, the Board facilitates the construction of a framework that ensures decision-making is well-reasoned, quick and decisive. In order to continuously enhance corporate governance, the Company has voluntarily established the Governance Committee and convenes various voluntary committees as appropriate, comprising members of the executive team. These committees discuss management strategies, CR Strategy, medium- and long- term policies, and investment-related matters, thereby accelerating decision-making while enhancing the effectiveness of governance. Sustainability Promotion and Risk Management Structure Board of Directors Approval and supervision of strategy as CR policy Report Board of Executive Officers Formulation and approval of strategy and policy Report (cid:12256)Human Rights Due Diligence Task Force, etc. (cid:12256)Progress reports to CR Committee CR Committee CR-related task forces Report, information sharing, adjustment SATO Advisory Board Environmental Strategy Committee Diversity & Inclusion Committee These bodies work with the relevant committees to make adjustments to CR- and ESG- related items, and manage and track commitments in the field of priority CR initiatives. The Board of Directors is responsible for reviewing the CR Strategy formulated by the executive team and approving it as a policy, and continuously verifies that CR policy is aligned with LIXIL’s management strategies (in terms of allocation of management resources to priority areas such as investments in human capital or intellectual property; business portfolio composition; and other aspects). 52 For further details regarding the Companyʼs corporate governance, internal control systems, and other related matters, please visit our corporate website. www.lixil.com/en/about/governance Governance Structure (As of June 21, 2022) LIXIL Corporation Shareholders’ Meeting Election/Dismissal Supervision Board of Directors Appointment/Removal Chairperson of the Board Appointment/Removal Report Audit Election/ Dismissal Alignment Decision on proposal for election/ dismissal of directors Nomination Committee Audit Committee Compensation Committee Directors Decision on compensation Alignment Election/Dismissal Voluntary committees Investment Review Committee M&A Committee Risk Management Committee Corporate Responsibility Committee SATO Advisory Board Environmental Strategy Committee Diversity & Inclusion Committee Compliance Committee Compensation and Benefits Committee Information Security Committee Group Credit Committee Stock Sale and Purchase Review Committee Discussion/Advice Governance Committee (Monitoring and supervision of corporate governance) Alignment Decision on compensation Execution Report Audit Board of Executive Officers Audit Representative Executive Officers and Executive Officers Report Report Alignment Internal audit divisions Alignment (Each division) Headquarters division Business divisions (such as the Technology division) Audit Audit Management Control/Supervision Audit Group companies (Japan/international) Dedicated Auditors (Company Auditors) (major subsidiaries in Japan) Report/ Alignment Audit i F n a n c a i l A u d i t o r s MESSAGE FROM THE CHAIRPERSON OF THE BOARD OF DIRECTORSINTEGRATED REPORT 2022OVERVIEWSTRATEGYGOVERNANCEDATAGOVERNANCE 03EXECUTIVE COMPENSATION ELECTION OF DIRECTOR CANDIDATES MESSAGE FROM THE CHAIRPERSON OF THE AUDIT COMMITTEEINTERNAL CONTROL SYSTEMS AND COMPLIANCE BOARD OF DIRECTORS’ EFFECTIVENESS EVALUATION MESSAGE FROM THE CHAIRPERSON OF THE NOMINATION COMMITTEEMESSAGE FROM THE CHAIRPERSON OF THE GOVERNANCE COMMITTEELIXIL BOARD OF DIRECTORSMESSAGE FROM THE CHAIRPERSON OF THE COMPENSATION COMMITTEE485257505560495459515601020304 CORPORATE GOVERNANCE AT LIXIL CORPORATE GOVERNANCE AT LIXIL Number of meetings held during FYE2022 ■ Board of Directors Made decisions on matters specified by law, basic management policies, and important management matters, while monitoring the conduct of duties of directors and executive officers. 15 ■ Corporate Responsibility Committee Selected and reviewed material issues for the overall LIXIL group of companies, formulated the targets as well as the initiatives of the CR Strategy, and provided oversight and guidance for the implementation of priority themes and activities. 4 CORPORATE GOVERNANCE AT LIXIL ■ Nomination Committee Made decisions on the content of proposals to be submitted to the Shareholdersʼ Meeting regarding the election and removal of directors. Reported its opinion to the Board of Directors when requested, such as on the election, appointment, removal, and dismissal of candidates for executive officer and Representative Executive Officer (CEO), and on the appointment and dismissal of the Chairperson of the Board, members, and chairpersons of each committee, etc. 12 ■ Audit Committee In addition to auditing the conduct of duties by directors and executive officers, discussed and made decisions on auditing policy, auditing plans, and the content of proposals to be submitted to the Shareholdersʼ Meeting regarding the election and removal of financial auditors. 15 ■ Compensation Committee Made decisions regarding the compensation of directors and executive officers and their individual compensation received from the Company as consideration for duties. 11 ■ Governance Committee Continually enhances the Companyʼs corporate governance, discusses or advises the Board of Directors on matters such as reviewing and amending the LIXIL Corporate Governance General Policy, and manages the implementation of the evaluation of the effectiveness of the Board of Directors. 8 ■ Board of Executive Officers As the decision-making body responsible for the execution of business activities in accordance with the basic policies approved by the Board of Directors, this Board decided on important matters relating to the execution of business in the Company and the LIXIL group of companies as a whole. All Executive Officers attended all the Board of Executive Officers meetings held. 14 ■ Investment Review Committee Deliberated and made decisions on material investments (excluding those relating to M&A), financing, and matters relating to the establishment, reorganization, and restructuring of subsidiaries (conducted by the Company and its subsidiaries) within the authority delegated by the Board of Executive Officers. 33 ■ M&A Committee Deliberated and made decisions on matters relating to M&A (including divestment of business) conducted by the Company and its subsidiaries, within the authority delegated by the Board of Executive Officers. 21 ■ Risk Management Committee*1 Endeavors to improve the ability to deal with future risks by predicting extraordinary risks of the Company and the LIXIL group of companies and establishing systems to address them in advance. 0 ■ SATO Advisory Board Reviewed and provided guidance on SATOʼs overall business strategy and key operational issues such as annual targets and strategic plans, internal and external partnerships, and risk management. 3 ■ Environmental Strategy Committee*2 Established and implemented environmental strategies, including the formulation of regulations and policies related to environmental governance, deliberation and decision-making on measures to address environment-related issues, and management and monitoring of group-wide environmental targets. 4 ■ Diversity and Inclusion Committee Supervised formulation and implementation of basic diversity and inclusion policies and roadmaps throughout the LIXIL group of companies. 2 ■ Compliance Committee Resolved the important compliance strategy and plans as well as reported on training and promotional activities of the LIXIL group of companies. 4 ■ Compensation and Benefits Committee Made decisions regarding compensation and benefits structures for executives as well as employees of the Company and the LIXIL group of companies and executivesʼ individual compensation, except for the matters to be exclusively resolved by the Compensation Committee, while monitoring HR policies in terms of compensation and benefits. 10 ■ Information Security Committee As the committee responsible for decision-making on fundamental matters related to group-wide information security and data privacy, decided on and approved relevant policies, resolved issues, approved implementation of countermeasures, and conducted measures to ensure awareness. 4 ■ Group Credit Committee Resolved and deliberated on credit management related to business transactions with third parties conducted by the Company and its subsidiaries in order to accelerate decision-making and enhance effectiveness of governance. 5 ■ Stock Sale and Purchase Review Committee Conducted reviews and examined insider trading regulations in order to prevent rule violations as well as to fulfill the Companyʼs social responsibilities as a business in the event that officers or employees give prior notification they will be engaging in the sale or purchase of the Companyʼs shares and others. 14 *1 There was no meeting in FYE2022 due to the establishment of a task force for risk management in each region and the flexible cooperation between headquarters and the task force. *2 From November 2021, the Environmental Committee described in Integrated Report 2021 was reorganized into the Environmental Strategy Committee to enhance environmental governance and build and implement environmental strategy. 53 Status of Cross Shareholdings The LIXIL group maintains cross shareholdings in cases where it is deemed necessary in terms of facilitating sales activities or as part of external alliances required for the Company’s business activities. Every year, we conduct a comprehensive evaluation of each cross-held stock in terms of the status of business dealings between the issuer and the Company, the total amount invested, and whether the cost of capital matches the benefits and risks of the holding. The Board of Directors subsequently verifies the content of these evaluations. Due to changes in the LIXIL group’s operating environment, we are working to reduce cross shareholdings in cases where reevaluation indicates that the rationale for the cross shareholding is no longer valid. As a result, as of March 31, 2022, the total number of (listed) cross-held stocks was 49. Cross shareholdings and balance sheet amounts* Category FYE2019 FYE2020 FYE2021 FYE2022 Number of cross-held stocks Balance sheet amounts (¥ million) Listed Unlisted Total Listed 57 108 165 58 105 163 53 102 155 49 98 147 45,051 36,185 50,317 38,733 Unlisted 1,969 1,343 1,330 1,313 Total 47,020 37,528 51,647 40,046 * Total cross shareholdings held by the Company or the former LIXIL Corporation. Cross shareholdings Balance sheet amounts (￥ million) Proportion of total equity (%) 51,647 47,020 8.3 37,528 9.3 40,046 7.0 FYE 2019 FYE 2020 FYE 2021 6.5 FYE 2022 MESSAGE FROM THE CHAIRPERSON OF THE BOARD OF DIRECTORSINTEGRATED REPORT 2022OVERVIEWSTRATEGYGOVERNANCEDATAGOVERNANCE 03EXECUTIVE COMPENSATION ELECTION OF DIRECTOR CANDIDATES MESSAGE FROM THE CHAIRPERSON OF THE AUDIT COMMITTEEINTERNAL CONTROL SYSTEMS AND COMPLIANCE BOARD OF DIRECTORS’ EFFECTIVENESS EVALUATION MESSAGE FROM THE CHAIRPERSON OF THE NOMINATION COMMITTEEMESSAGE FROM THE CHAIRPERSON OF THE GOVERNANCE COMMITTEELIXIL BOARD OF DIRECTORSMESSAGE FROM THE CHAIRPERSON OF THE COMPENSATION COMMITTEE485257505560495459515601020304MESSAGE FROM THE CHAIRPERSON OF THE NOMINATION COMMITTEE 54 MESSAGE FROM THE CHAIRPERSON OF THE NOMINATION COMMITTEE MESSAGE FROM THE CHAIRPERSON OF THE NOMINATION COMMITTEE Yuji Nishiura Chairperson of the Nomination Committee Issues and Initiatives in FYE2022 Our major goal for FYE2022 was to complete the One area of particular focus during FYE2022 has been consideration of how outside directors should be restructuring of LIXIL’s corporate governance, which appointed. Specifically, we reviewed our election criteria began in 2019. To this end, we continued to work on the and system, and formulated a policy for a succession following issues: plan. We also conducted our first ever evaluation of (1) Revising rules and regulations related to the outside directors on an individual basis. Nomination Committee (including compliance with All committee activities related to governance Japan’s revised Corporate Governance Code) (the three statutory committees and the Governance (2) Clarifying and improving transparency of the Committee) are steered by outside directors. We therefore appointment and election process for CEO, director, recognize that the election and smooth succession of and executive officer successor candidates outside directors is one of the most important issues in (3) Introducing an evaluation system for officers (including ensuring more stable and better-quality governance. outside directors) In FYE2022, one new outside director was elected (4) Reviewing the composition of the Board of Directors through the above efforts. (skills matrix, diversity, etc.) (5) Reviewing the composition of committees (the three statutory committees and the Governance Committee) Future Direction Based on its fundamental role in electing director and executive officer candidates for the next term, the Progress in FYE2022 The restructuring proceeded as planned. Our corporate Nomination Committee will also work on measures aimed at the evolution of corporate governance and the transition governance has become increasingly stable and is highly to the next generation. Specifically, we will focus on: regarded by various external organizations. (1) Improving the CEO succession plan (update the plan Nomination Committee members, meetings convened, and attendance in FYE2022 Nomination Committee members* in FYE2023 Member Meetings convened Attendance Member and the list of candidates) (2) Promoting the succession plan for outside directors (expand the list of candidates for new directors and promote actual search activities) Yuji Nishiura (Chairperson) Daisuke Hamaguchi Masatoshi Matsuzaki Mariko Watahiki*1 Kaoru Onimaru*2 12 12 12 10 2 12 12 12 10 2 Yuji Nishiura (Chairperson) (3) Identifying and promoting the understanding of the Shiho Konno Daisuke Hamaguchi Masatoshi Matsuzaki Mariko Watahiki next generation of management personnel (conduct group interviews, etc.) Through these efforts, we will ensure stable governance and contribute to the Company’s sustainable growth. *1 Appointed June 22, 2021 *2 Resigned June 22, 2021 * Since June 21, 2022 MESSAGE FROM THE CHAIRPERSON OF THE BOARD OF DIRECTORSINTEGRATED REPORT 2022OVERVIEWSTRATEGYGOVERNANCEDATAGOVERNANCE 03CORPORATE GOVERNANCE AT LIXILEXECUTIVE COMPENSATION ELECTION OF DIRECTOR CANDIDATES MESSAGE FROM THE CHAIRPERSON OF THE AUDIT COMMITTEEINTERNAL CONTROL SYSTEMS AND COMPLIANCE BOARD OF DIRECTORS’ EFFECTIVENESS EVALUATION MESSAGE FROM THE CHAIRPERSON OF THE GOVERNANCE COMMITTEELIXIL BOARD OF DIRECTORSMESSAGE FROM THE CHAIRPERSON OF THE COMPENSATION COMMITTEE485257505560495459515601020304MESSAGE FROM THE CHAIRPERSON OF THE AUDIT COMMITTEE 55 MESSAGE FROM THE CHAIRPERSON OF THE AUDIT COMMITTEE Teruo Suzuki Chairperson of the Audit Committee MESSAGE FROM THE CHAIRPERSON OF THE AUDIT COMMITTEE Initiatives in FYE2022 The Function of the Audit Committee were in effect. Under the annual auditing plan, there were four opportunities for exchanging opinions with the The Company’s Audit Committee aims to conduct efficient Representative Executive Officer and four hearings were held and effective audits in close collaboration with the internal with executive officers during the year. At the monthly Audit audit divisions of the Company and its subsidiaries. The Committee meetings, Corporate Audit and directly appointed Company is strengthening corporate governance with corporate auditors presented audit reports and the more effective auditing by assigning corporate auditors committee members gave directions as appropriate. Also, (“Kansayaku”) to key subsidiaries as part of a system to three meetings of group company corporate auditors were enhance internal control within the group of companies. The held to share information on each subsidiary and group- Audit Committee Office was established to provide support wide auditing policies. Site inspections of four subsidiaries to the Audit Committee. The Audit Committee is responsible and one factory in Japan were also partially conducted using for deciding on personnel changes and performance online meeting platforms. For bases outside Japan, the Audit evaluations for Audit Committee Office members and Committee received reports on the results of audits from corporate auditors to ensure independence from executive Corporate Audit, and held discussions with auditors and officers. The Activities of the Audit Committee accounting auditors at locations in Asia (including China), North America, and Europe via online meeting platforms. In addition, the committee confirmed the status of digital The Audit Committee convenes in the month before Board transformation and environmental initiatives. of Directors’ meetings, as well as whenever necessary. Eight information-exchange sessions were held with This fiscal year, the committee met 15 times. The Audit accounting auditors, and discussions took place regarding Committee conducted most activities using online meeting the accounting auditors’ management letter, reports on the platforms while COVID-19 quasi-emergency measures status of audits, and key audit matters (KAM). Audit Committee members, meetings convened, and attendance in FYE2022 Audit Committee members* in FYE2023 Member Meetings convened Attendance Member Teruo Suzuki (Chairperson) Tamio Uchibori Shiho Konno*1 Kaoru Onimaru *2 15 15 9 6 15 15 9 5 Teruo Suzuki (Chairperson) Tamio Uchibori Shiho Konno Mayumi Tamura *1 Appointed June 22, 2021 *2 Resigned June 22, 2021 * Since June 21, 2022 Initiatives in FYE2023 The composition of the FYE2023 Audit Committee was decided at the Board of Directors’ meeting that took place after the Annual Shareholders’ Meeting held on June 21, 2022. The committee, in continuation from FYE2022, will aim to establish and further develop group-wide audit frameworks within and outside Japan, as well as conduct effective, efficient, and transparent auditing activities. MESSAGE FROM THE CHAIRPERSON OF THE BOARD OF DIRECTORSINTEGRATED REPORT 2022OVERVIEWSTRATEGYGOVERNANCEDATAGOVERNANCE 03CORPORATE GOVERNANCE AT LIXILEXECUTIVE COMPENSATION ELECTION OF DIRECTOR CANDIDATES INTERNAL CONTROL SYSTEMS AND COMPLIANCE BOARD OF DIRECTORS’ EFFECTIVENESS EVALUATION MESSAGE FROM THE CHAIRPERSON OF THE NOMINATION COMMITTEEMESSAGE FROM THE CHAIRPERSON OF THE GOVERNANCE COMMITTEELIXIL BOARD OF DIRECTORSMESSAGE FROM THE CHAIRPERSON OF THE COMPENSATION COMMITTEE485257505560495459515601020304MESSAGE FROM THE CHAIRPERSON OF THE COMPENSATION COMMITTEE MESSAGE FROM THE CHAIRPERSON OF THE COMPENSATION COMMITTEE Daisuke Hamaguchi Chairperson of the Compensation Committee MESSAGE FROM THE CHAIRPERSON OF THE COMPENSATION COMMITTEE Issues and Initiatives in FYE2022 In FYE2022, the management team promoted initiatives for growth by consistently reviewing and strengthening the business of the Company and its organization to take on the array of operational challenges arising from the external global environment, while also pinpointing new business opportunities within the context of society’s new normal. 　 This situation has prompted renewed and acute awareness on the part of the Compensation Committee of the importance of securing highly capable officers who will contribute to society through global business. After repeated discussions with the CEO and specialized external agencies on the subject of a compensation system for executive officers that is competitive by global standards, the committee has determined the following policy going forward. ・ Align compensation standards closer to global compensation levels, rather than relative to Japanese industry standards ・ When determining individual compensation, regardless of title, place greater emphasis on criteria such as each individual’s role and responsibilities, business performance, experience, and the need to attract and retain personnel The committee also reviewed compensation for outside directors as necessary, taking into account the possibility of increased competition for leading talent given revisions to Japan’s Corporate Governance Code and other factors. Compensation Committee members, meetings convened, and attendance in FYE2022 Compensation Committee members* in FYE2023 Member Meetings convened Attendance Member Daisuke Hamaguchi (Chairperson) Tamio Uchibori Yuji Nishiura 11 11 11 11 11 11 Daisuke Hamaguchi (Chairperson) Tamio Uchibori Yuji Nishiura Mariko Watahiki * Since June 21, 2022 56 Progress in FYE2022 While maintaining the existing general framework for the compensation system, the following decisions were made regarding outside directors’ and executive officers’ compensation for the period between the Annual Shareholders’ Meetings of June 2021 and June 2022. (1) For outside director compensation, we have increased the amount of stock-linked compensation (performance-linked compensation remains zero) to that of the top group of Japanese companies with the aim of further deepening the alignment of interests with those of shareholders. (2) Executive officersʼ compensation levels were confirmed from compensation data provided by specialized external agencies on peers in various countries, based on industry and sales volume. Next, total compensation for individuals was determined by comparing Company data with these data, and taking into account factors such as each executive officer’s individual role and responsibilities, business performance, experience, and the need to attract and retain personnel. The difference in compensation amounts between Japanese and global levels will be eliminated in stages. As the Company further strengthens initiatives on ESG-related issues, our policy will be to increase the weighting of stock-linked compensation in the compensation mix to boost the incentive for enhancing corporate value over the medium to long term. Future Direction The committee will continue its activities while constantly determining whether the executive compensation system is functioning appropriately as a system that strongly motivates the management team to work together toward achieving management goals while responding to drastically changing economic and social conditions, and the accompanying changes in the Companyʼs management strategy. MESSAGE FROM THE CHAIRPERSON OF THE BOARD OF DIRECTORSINTEGRATED REPORT 2022OVERVIEWSTRATEGYGOVERNANCEDATAGOVERNANCE 03CORPORATE GOVERNANCE AT LIXILEXECUTIVE COMPENSATION ELECTION OF DIRECTOR CANDIDATES MESSAGE FROM THE CHAIRPERSON OF THE AUDIT COMMITTEEINTERNAL CONTROL SYSTEMS AND COMPLIANCE BOARD OF DIRECTORS’ EFFECTIVENESS EVALUATION MESSAGE FROM THE CHAIRPERSON OF THE NOMINATION COMMITTEEMESSAGE FROM THE CHAIRPERSON OF THE GOVERNANCE COMMITTEELIXIL BOARD OF DIRECTORS485257505560495459515601020304EXECUTIVE COMPENSATION EXECUTIVE COMPENSATION 57 experience, and the priority of attracting and retaining personnel, as well as ESG-related issues to be addressed. Annual Base Salary Annual Base Salary is determined based on the The committee sets a higher ratio of stock-linked Compensation Basic Policies, taking into consideration compensation to total compensation for officers who are responsibilities, performance, experience, and the priority expected to contribute significantly to increasing corporate of attracting and retaining personnel, etc., while referring to value from a medium-to-long-term perspective, especially compensation levels inside and outside Japan. through structural reform or initiatives related to ESG issues. The chart below shows the base amount for performance- linked compensation and the grant amount for stock-linked compensation, which differ from the actual disbursement ［President］ ［Vice President］ Annual Base Salary 25% Performance-linked compensation 25% Stock-linked compensation 50% Stock-linked compensation 30% Annual Base Salary 40% Performance-linked compensation 30% ［Executive Vice Presidents］ ［Outside Directors］ Annual Base Salary 54% Note: Median values have been used for executive vice presidents and outside directors Stock-linked compensation 19% Stock-linked compensation 21% Performance-linked compensation 27% Annual Base Salary 71% Chairperson allowance 8% Performance-linked Compensation To encourage the executive officers to work together to achieve single-year management goals-and to ensure that they are rewarded fairly and equitably in accordance with the results of their performance-performance-linked compensation is calculated based only on Company-wide performance. Performance-linked compensation ＝ Base amount of performance-linked compensation × Payout rate according to achievement rate of performance targets The base amount of performance-linked compensation is determined as a certain ratio of the Annual Base Salary for each executive officer in consideration of their responsibilities and related factors. shareholders, employees, and all stakeholders amounts. EXECUTIVE COMPENSATION Compensation Basic Policies for Directors and Executive Officers The compensation for directors and executive officers is determined in accordance with the following basic policies: ・ Foster improvement of short-, medium-, long-term, and sustainable business results and corporate value ・ Attract and retain the best talent necessary to foster business growth globally ・ Ensure a fair and reasonable decision-making process with regard to compensation that will provide accountability to ・ Consider and discuss based on the economic and social situation, our business condition and objective indexes and advice of external specialized agencies at meetings of the Compensation Committee ・ Individual compensation shall be managed in consideration of role and responsibility, business performance, experience and difficulty of securing personnel Compensation System The compensation structure for directors, who monitor and supervise the Company’s management, shall be separate from that for executive officers, who are responsible for the performance of the business. In principle, when a director concurrently serves as an executive officer, the compensation system for executive officers shall be applied. Achievement Level of Performance Targets for FYE2022 Payout Rates According to Achievement Level of Performance Targets Compensation Mix In line with the intent of the above basic policies, the ROIC 40％ 5.1％ 4.5％ Core earnings 30％ ¥80,000 million ¥64,875 million Compensation Committee determines the mix of Net profit 30％ ¥47,000 million ¥48,603 million 103.4％ Performance target Percentage of performance target total Target Result Achievement level of performance target ([Target ÷ Result] × 100) 88.2％ 81.1％ Achievement level of performance targets Payout rate Less than 50% 0％ 50% or more but less than 100% Same as achievement level 100% or more but less than 150% ([Achievement level of performance target – 100] × 2 + 100)% compensation for each officer, taking into consideration factors such as individual responsibilities, performance, Achievement level of performance targets for all items (Total number of each performance target achieved multiplied by the percentage of the total performance target) 90.6％ 150% or more 200％ MESSAGE FROM THE CHAIRPERSON OF THE BOARD OF DIRECTORSINTEGRATED REPORT 2022OVERVIEWSTRATEGYGOVERNANCEDATAGOVERNANCE 03CORPORATE GOVERNANCE AT LIXILELECTION OF DIRECTOR CANDIDATES MESSAGE FROM THE CHAIRPERSON OF THE AUDIT COMMITTEEINTERNAL CONTROL SYSTEMS AND COMPLIANCE BOARD OF DIRECTORS’ EFFECTIVENESS EVALUATION MESSAGE FROM THE CHAIRPERSON OF THE NOMINATION COMMITTEEMESSAGE FROM THE CHAIRPERSON OF THE GOVERNANCE COMMITTEELIXIL BOARD OF DIRECTORSMESSAGE FROM THE CHAIRPERSON OF THE COMPENSATION COMMITTEE485257505560495459515601020304 　 EXECUTIVE COMPENSATION EXECUTIVE COMPENSATION 58 EXECUTIVE COMPENSATION Because temporary factors such as structural reforms were expected to have a significant impact on operating profit and profit attributable to owners of the parent (net profit) in FYE2021 we decided to introduce a special measure to limit performance targets to only core earnings, which best reflects business conditions. However in FYE2022, given that higher investment efficiency continues to be an important management goal, in addition to core earnings, ROIC and net profit were once again included as performance targets, as in FYE2020. As shown on the previous page, the payout rate for FYE2022 was 90.6%. Total Amount of Compensation by Officer Title, by Compensation System, and Number of Officers Receiving (FYE2022) Officer title Outside directors Executive officers Total Total amount of compensation (¥ million) Total amount of compensation by type (¥ million) Annual Base Salary Performance-linked compensation Stock-linked compensation Various allowances Number of officers receiving 149 974 1,123 121 484 605 ー 314 314 28 5 33 ー 171 171 8 8 16 Notes: 1. The total amount of compensation shown above is the amount calculated under JGAAP and consists of both compensation paid by the Company and compensation paid by the Companyʼs subsidiaries. 2. The amount of compensation for outside directors includes chairperson allowances. 3. Performance-linked compensation and stock-linked compensation are the amounts that should be expensed in the current fiscal year. 4. Various allowances were provided, including subsistence supplement and income tax allowances. In view of their important role in monitoring and and, if necessary, the views of external specialized agencies, supervising the Companyʼs management, outside directors are not paid performance-linked compensation. and after comprehensively considering the event and the management responsibilities of the eligible executive officer(s). Clawback Clause and Other Considerations In the event that the Company has to correct its accounts Stock-linked Compensation after their announcement due to a serious accounting error The Company has been applying a stock-linked monetary or illegality, the Compensation Committee could decide to compensation plan (“Phantom Stock”) since FYE2020. amend a compensation amount or demand the return of The aim is threefold: to encourage directors and executive compensation already paid to an eligible executive officer. officers to monitor, supervise, and make management Either action would be taken depending on the reason for decisions to achieve sustained improvement in the the revision and after deliberating the effect of the revision Company’s corporate value over the medium to long term; on planned performance-linked compensation in the future to further promote shared value between officers and or any return of paid performance-linked compensation. shareholders of the Company; and, by standardizing global Furthermore, in the case of an unexpected event at the officers’ compensation, retain talented personnel from beginning of the applicable period for the evaluation of around the world. This compensation plan grants shares performance-linked compensation, the Compensation of Phantom Stock but substantially has the same effect as Committee would be able to adjust the method of calculating granting shares. performance-linked compensation. Any adjustment would Phantom Stock is granted on the date of the Annual be carried out based on an internal verification of the facts Shareholdersʼ Meeting for directors, and on the date of the beginning of the fiscal year for executive officers. The number of shares granted is determined by dividing the grant amount, which is calculated by multiplying the Annual Base Salary by a percentage set in accordance with each executiveʼs position and responsibilities, by the share price* at the time of grant. The holding period of Phantom Stock is one year for directors and three years for executive officers, and the amount is determined and settled by multiplying the share price at the end of the holding period by the number of shares granted. In other words, the amount of compensation increases or decreases in accordance with changes in the share price during the holding period. * The average closing price of the Companyʼs stock price over the 30 business days preceding each of the grant date and the final settlement date will be used. Information concerning amounts of compensation for those officers with total compensation of ¥100 million or more is available on our corporate website. www.lixil.com/en/about/governance/compensation.html MESSAGE FROM THE CHAIRPERSON OF THE BOARD OF DIRECTORSINTEGRATED REPORT 2022OVERVIEWSTRATEGYGOVERNANCEDATAGOVERNANCE 03CORPORATE GOVERNANCE AT LIXILELECTION OF DIRECTOR CANDIDATES MESSAGE FROM THE CHAIRPERSON OF THE AUDIT COMMITTEEINTERNAL CONTROL SYSTEMS AND COMPLIANCE BOARD OF DIRECTORS’ EFFECTIVENESS EVALUATION MESSAGE FROM THE CHAIRPERSON OF THE NOMINATION COMMITTEEMESSAGE FROM THE CHAIRPERSON OF THE GOVERNANCE COMMITTEELIXIL BOARD OF DIRECTORSMESSAGE FROM THE CHAIRPERSON OF THE COMPENSATION COMMITTEE485257505560495459515601020304 MESSAGE FROM THE CHAIRPERSON OF THE GOVERNANCE COMMITTEE MESSAGE FROM THE CHAIRPERSON OF THE GOVERNANCE COMMITTEE Masatoshi Matsuzaki Chairperson of the Governance Committee Issues and Initiatives in FYE2022 The Governance Committee’s objective is to complement the functions of and collaborate with the Board of Directors and the three statutory committees in continuously strengthening LIXIL’s corporate governance. In FYE2022, the Governance Committee primarily focused on (1) evaluating the effectiveness of the Board of Directors, (2) ensuring compliance with Japanʼs revised Corporate Governance Code, and (3) supervising the appropriate and timely disclosure of information. Progress in FYE2022 (1) In evaluating the effectiveness of the Board of Directors, in FYE2022 a third-party organization was employed to administer a questionnaire and conduct interviews to comprehensively and objectively measure progress in our three-year effort to restructure LIXIL’s corporate governance. The results confirmed that the restructuring is progressing steadily and that the Board and committees have maintained a high level of effectiveness. At the same time, we were able to discuss issues for further MESSAGE FROM THE CHAIRPERSON OF THE GOVERNANCE COMMITTEE Governance Committee members, meetings convened, and attendance in FYE2022 Governance Committee members* in FYE2023 Member Meetings convened Attendance Member Masatoshi Matsuzaki (Chairperson) Tamio Uchibori Shiho Konno*1 Teruo Suzuki Yuji Nishiura Daisuke Hamaguchi Mariko Watahiki*1 Kaoru Onimaru (Former chairperson)*2 *1 Appointed June 22, 2021 　*2 Resigned June 22, 2021 8 8 6 8 8 8 6 2 8 8 6 8 8 8 6 2 Masatoshi Matsuzaki (Chairperson) Tamio Uchibori Shiho Konno Teruo Suzuki Mayumi Tamura Yuji Nishiura Daisuke Hamaguchi Mariko Watahiki * Since June 21, 2022 59 improvement. Having determined the parties that will take ownership of these issues, work is underway to formulate policies to address them. (2) In ensuring compliance with Japan’s revised Corporate Governance Code, for revised sections that the Company needs to respond to, the Governance Committee confirmed the response policy formulated by the executive team. For revised sections that the Board of Directors needs to respond to, such as initiatives regarding sustainability issues, the committee deliberated on a response policy. LIXIL’s Corporate Governance General Policy was then revised to reflect the results of these activities. (3) In supervising the appropriate and timely disclosure of information, we received policy and scheduling reports from respective departments tasked with the preparation of the notice of convocation of the Annual Shareholders’ Meeting, the integrated report, and the annual securities report, and offered advice from the perspective of enhancing appropriateness and timeliness. As a result, we were able to speed up publication of the integrated report and improve the consistency of descriptions in each of the documents disclosed. (Board of Directorsʼ effectiveness evaluation: See p.49) Future Direction Given the purpose of the Governance Committee, it will continue to be composed only of outside directors in FYE2023. Addressing the issues identified in the FYE2022 effectiveness evaluation will be important to further enhancing corporate governance and ensuring its ongoing effectiveness. In FYE2023, we will focus on following up on the status of these issues and, in the process, hold discussions about the role outside directors should play in facilitating sustainable growth of the Company, and how the Board of Directors and committees can best accomplish their respective missions. MESSAGE FROM THE CHAIRPERSON OF THE BOARD OF DIRECTORSINTEGRATED REPORT 2022OVERVIEWSTRATEGYGOVERNANCEDATAGOVERNANCE 03CORPORATE GOVERNANCE AT LIXILEXECUTIVE COMPENSATION ELECTION OF DIRECTOR CANDIDATES MESSAGE FROM THE CHAIRPERSON OF THE AUDIT COMMITTEEINTERNAL CONTROL SYSTEMS AND COMPLIANCE BOARD OF DIRECTORS’ EFFECTIVENESS EVALUATION MESSAGE FROM THE CHAIRPERSON OF THE NOMINATION COMMITTEELIXIL BOARD OF DIRECTORSMESSAGE FROM THE CHAIRPERSON OF THE COMPENSATION COMMITTEE485257505560495459515601020304 INTERNAL CONTROL SYSTEMS AND COMPLIANCE Risk Management Initiatives (Years ended March 31) 60 INTERNAL CONTROL SYSTEMS AND COMPLIANCE Risk Management Internal Control Systems LIXIL and its group companies build, operate, and evaluate internal control systems to ensure the appropriateness and efficiency of operations, as well as the reliability of financial reporting in order to enhance corporate value. In addition, we are strengthening our group-wide operational management system through risk awareness and, as a corporate group that emphasizes compliance management we are building various systems that comply with laws and regulations. Enterprise Risk Management (ERM) The LIXIL group strives to stably and continuously develop its business through the implementation and operation of ERM for the entire group. Risks related to crises that require immediate response when they occur are also controlled through crisis management as part of ERM. Risk Management (RM) To establish and nurture an entrepreneurial spirit, the LIXIL group promotes a system of managing risks whereby leaders identify risks that may influence the achievement of management targets and take on the role of risk owner responsible for responding to those risks. They analyze the risk and risk response from the perspective of its impact and the likelihood of manifestation, and then share, report on, and respond to the risk. Risks are largely categorized into strategic risks and operational risks. For strategic risks, efforts are made to collaborate with relevant departments to ensure the framework encompasses a INTERNAL CONTROL SYSTEMS AND COMPLIANCE RM CM (cid:12256)Reviewed the Plan-Do-Check-Act (PDCA) cycle for FYE2019 (cid:12256)Identified material risks for FYE2020 at the Board of Executive Officersʼ meeting (identifying material risks every year thereafter) (cid:12256)Established a Workplace group to share and discuss for risks on political, geopolitical and social trends 2018 2019 2020 2021 2022 (cid:12256)Developed and rolled out crisis management handbook (cid:12256)Worked to optimize Business Continuity Plan in Japan (cid:12256)Transitioned to an online crisis management task force at headquarters (cid:12256)Implemented COVID-19 countermeasures (cid:12256)Established task force in Europe to respond to recent geopolitical risks wide range of perspectives. This includes medium-to-long- framework covering all group companies. We develop crisis term perspectives such as management policies, business management policies that enable a swift initial response strategies, and Corporate Responsibility Strategy, as well and escalation when a crisis occurs. We have also put in as the perspectives of stakeholders. The risk management place frameworks for the establishment of crisis task forces system established for operational risks is autonomous, whenever necessary at various levels, such as at headquarters, whereby each organization and region holds meetings or departments, or local business premises. Moreover, we have sets agendas regularly, or as necessary, to discuss and established the Issue Assessment Team (IAT) and created respond to risks, which they then report to headquarters. a system for timely communication of crisis information to The LIXIL group takes both a top-down and bottom-up management, which supports efficient decision-making by the approach to respond to various risks. Also, risk managers crisis management task force at headquarters. in major regions ensure efficient coordination among those Understanding the importance of cybersecurity, where at headquarters, regional operations, and local business needs are becoming increasingly sophisticated, the LIXIL operations. Through such coordinated activities and the group has established and operates the LIXIL Computer visualization of risks, we aim to increase the risk awareness Security Incident Response Team (LIXIL-CSIRT) to minimize of LIXIL officers and employees, and establish and implement the impact of cyberattacks. To ensure a quick response, ERM where agile and appropriate decisions on risk appetite can be made as part of strategy implementation. A further we constantly monitor computers and networks to detect problems at an early stage and analyze the impact and result of these activities is the internal and external disclosure cause of the problems. We are also developing a Business of important group risks and countermeasures. Continuity Plan for possible cyberattacks. Crisis Management (CM) Information concerning “Business Risks” is available on our corporate website. The LIXIL group has established a crisis management www.lixil.com/en/investor/strategy/risks.html MESSAGE FROM THE CHAIRPERSON OF THE BOARD OF DIRECTORSINTEGRATED REPORT 2022OVERVIEWSTRATEGYGOVERNANCEDATAGOVERNANCE 03CORPORATE GOVERNANCE AT LIXILEXECUTIVE COMPENSATION ELECTION OF DIRECTOR CANDIDATES MESSAGE FROM THE CHAIRPERSON OF THE AUDIT COMMITTEEBOARD OF DIRECTORS’ EFFECTIVENESS EVALUATION MESSAGE FROM THE CHAIRPERSON OF THE NOMINATION COMMITTEEMESSAGE FROM THE CHAIRPERSON OF THE GOVERNANCE COMMITTEELIXIL BOARD OF DIRECTORSMESSAGE FROM THE CHAIRPERSON OF THE COMPENSATION COMMITTEE485257505560495459515601020304 61 (cid:12256)Held compliance questionnaire on globally unified platform (cid:12256)Held compliance review (cid:12256)Revised the LIXIL Human Rights Principles INTERNAL CONTROL SYSTEMS AND COMPLIANCE INTERNAL CONTROL SYSTEMS AND COMPLIANCE Compliance Compliance Initiatives (Years ended March 31) (cid:12256)Strengthened cooperation with audit divisions (cid:12256)Global rollout of short training videos LIXIL Code of Conduct The LIXIL Code of Conduct (the “Code of Conduct”) is a set of rules to be adhered to by all employees worldwide in order to undertake business activities appropriately and with shared values and ethics. The Code of Conduct is available in 19 languages and is regularly updated. Every year, the Company requires all group company officers and employees to participate in training on the Code of Conduct and pledge to comply with its terms. Furthermore, global policies and detailed rules aligned with the Code of Conduct have been put in place for specific fields posing a high risk to the LIXIL group. For further details regarding the Code of Conduct, please visit our corporate website. www.lixil.com/en/about/governance/pdf/LIXIL_CoC_en.pdf LIXIL Human Rights Principles The LIXIL group reviewed the LIXIL Human Rights Principles in June 2021, and made revisions to strengthen governance and efforts to respect human rights, and to improve the transparency of processes for addressing human rights issues and fulfilling accountability responsibilities. For further details regarding the Human Rights Principles, please visit our corporate website. www.lixil.com/en/sustainability/society/h_rights.html Compliance System In addition to the compliance committees of the LIXIL group and affiliates in Japan, compliance committees have been established in each region. These committees provide a platform for reviewing initiatives and discussing countermeasures. In January 2022, LIXIL transitioned to a new system aimed at enhancing risk management and further solidifying the LIXIL group’s compliance culture and system. The INTERNAL CONTROL SYSTEMS AND COMPLIANCE 2017 2018 2019 2020 2021 2022 (cid:12256)Initiated compliance review (cid:12256)Held group-wide compliance events for the (cid:12256)Introduced risk countermeasures in subsidiaries in Japan (cid:12256)Strengthened compliance education and implemented first time e-learning (cid:12256)Unified Concern-Raising System globally (cid:12256)Revised LIXIL Code of Conduct (cid:12256)Distributed (cid:12256)Reorganized the video on how to use Speak Up! correctly Compliance division globally new system promotes efficiency and standardization of compliance policies, procedures and programs at the global level. Corporate Culture LIXIL group management is working to raise compliance awareness and embed a culture of compliance through measures such as video messages about compliance from management. We also conduct educational events such as contests in Japan and globally so that employees can increase their compliance awareness in an engaging setting on their own accord. Education and Training Programs The LIXIL group provides compliance education and training on laws and regulations for new employees, new managers, and executives. Programs are also conducted for all officers and employees on global policies. The LIXIL group has developed effective education and training programs-suited to the risks of each area in which the group operates-utilizing e-learning and short videos. In addition, the LIXIL group publishes newsletters and distributes information in workplaces, and strives to continue cultivating employees’ knowledge and awareness of compliance. Review Process Compliance Reviews are conducted regularly by management to check the compliance systems of their own organizations. Compliance Surveys are also completed by all officers and employees to gain an understanding of the extent to which compliance culture has been embraced within the LIXIL group. The effectiveness of this approach is confirmed through the reporting of the results to the compliance committees, and the results are then reflected in initiatives. Concern-raising System “Speak Up!” An internal concern-raising system has been established with the aim of gathering information on compliance breaches, taking measures to prevent fraudulent and unlawful behavior, and responding quickly where action is required. Since the 2017 introduction of the 24- hour concern-raising system Speak Up!, the number of compliance concerns received has totaled more than 300 per year for Japan and international operations combined. In addition to regularly informing employees about the system, to facilitate understanding of how to use it, in 2021 we produced an animated video and distributed it worldwide. When a concern is reported, depending on the nature of the concern, the relevant department conducts an investigation, analyzes trends, and takes proactive measures such as organizational improvements and employee education to prevent wrongdoing and violations. MESSAGE FROM THE CHAIRPERSON OF THE BOARD OF DIRECTORSINTEGRATED REPORT 2022OVERVIEWSTRATEGYGOVERNANCEDATAGOVERNANCE 03CORPORATE GOVERNANCE AT LIXILEXECUTIVE COMPENSATION ELECTION OF DIRECTOR CANDIDATES MESSAGE FROM THE CHAIRPERSON OF THE AUDIT COMMITTEEBOARD OF DIRECTORS’ EFFECTIVENESS EVALUATION MESSAGE FROM THE CHAIRPERSON OF THE NOMINATION COMMITTEEMESSAGE FROM THE CHAIRPERSON OF THE GOVERNANCE COMMITTEELIXIL BOARD OF DIRECTORSMESSAGE FROM THE CHAIRPERSON OF THE COMPENSATION COMMITTEE485257505560495459515601020304INTERNAL CONTROL SYSTEMS AND COMPLIANCE 62 INTERNAL CONTROL SYSTEMS AND COMPLIANCE Internal Audit How LIXIL and Its Group Companies See Internal Audit Corporate Audit, a corporate function, is responsible for managing the internal audit organizations of all LIXIL group companies in Japan and international markets, and ensures all of those audits are conducted in a unified and comprehensive manner. (At the end of March 2022, the number of people involved in the internal audit organizations of all LIXIL group companies totaled 54.) Corporate Audit is responsible for carrying out traditional internal audit processes such as accounting audits, operational audits, and assessment of internal controls. Additionally, it continuously reviews internal audit systems and processes in order to help achieve sustainable group- wide growth, strengthen governance as well as internal control, and contribute to the development of human resources. Strengthening Internal Audit System To Achieve Sustainable Growth All audit organizations of LIXIL group companies, including our global teams, report to the leader of Corporate Audit, who, in turn, ensures detailed information is shared in a timely manner with each global team. Additionally, to ensure cooperation, the leader of Corporate Audit reports directly to the Director, Representative Executive Officer, President, and CEO of LIXIL Corporation to enable the Board of Directors to fulfill its function as a publicly listed company, and as the corporate function’s representative, to the Audit Committee of the Board of Directors. INTERNAL CONTROL SYSTEMS AND COMPLIANCE Internal Audit Initiatives(Years ended March 31) Corporate Audit (cid:12256)Aligned the assessment standards of internal audit (cid:12256)Transferred GCAS Inappropriate activities by domestic subsidiaries (cid:12256)Increased sophistication of internal audit through digital technologies (cid:12256)Began internal audits of corporate responsibility in the SATO business and other businesses 2017 2018 2019 2020 2021 2022 (cid:12256)Reorganized Corporate (cid:12256)Expanded Audit into a network-based organization the scope of internal audit for domestic subsidiaries (cid:12256)Enhanced internal audit functions (cid:12256)Strengthened unification of internal audit chain of command within the global headquarters This system unifies the internal audit chain of command internal auditing practices. This includes the utilization of globally and strengthens information sharing. not only the expertise of accounting experts traditionally Under this system, the mission of Corporate Audit used in internal auditing, but also digital technologies is to continuously provide value through internal auditing and data science. As such, the LIXIL group is advancing practices that enable top management to respond quickly a comprehensive IT reform project, part of which is the to internal and external environmental changes. Operations April 2020 establishment of an IT department within are carried out thoroughly in accordance with the clearly Corporate Audit, to enhance internal audit activities. This IT defined roles and responsibilities for each department and department is utilizing digital tools to improve efficiency and the whole group in Japan and international regions. In 2022, strengthen auditing work through (1) the timely visualization we began conducting operating audits and monitoring of of auditing work; (2) the aggregation and unification of audit the SATO business, which plays a central role in Global data; and (3) data analysis, while also aiming to expand the Sanitation ＆ Hygiene, one of the three strategic pillars of our Corporate Responsibility Strategy. We are also strengthening our sustainability initiatives in the internal audit system. area of group-wide IT-related auditing. Corporate Audit Accelerating Sophistication of Internal Audit through Digital Technologies In order to make forecasts and provide value-added insights in rapidly changing business environments, which now include remote work and online showrooms, we are actively working to integrate advanced technology into Japan International IT MESSAGE FROM THE CHAIRPERSON OF THE BOARD OF DIRECTORSINTEGRATED REPORT 2022OVERVIEWSTRATEGYGOVERNANCEDATAGOVERNANCE 03CORPORATE GOVERNANCE AT LIXILEXECUTIVE COMPENSATION ELECTION OF DIRECTOR CANDIDATES MESSAGE FROM THE CHAIRPERSON OF THE AUDIT COMMITTEEBOARD OF DIRECTORS’ EFFECTIVENESS EVALUATION MESSAGE FROM THE CHAIRPERSON OF THE NOMINATION COMMITTEEMESSAGE FROM THE CHAIRPERSON OF THE GOVERNANCE COMMITTEELIXIL BOARD OF DIRECTORSMESSAGE FROM THE CHAIRPERSON OF THE COMPENSATION COMMITTEE48525750556049545951560102030401 OVERVIEW 02 STRATEGY 03 GOVERNANCE 04 DATA 63 INTEGRATED REPORT 2022 04 DATA 64 65 67 69 75 77 78 79 CONSOLIDATED 11-YEAR SUMMARY FINANCIAL HIGHLIGHTS NON-FINANCIAL HIGHLIGHTS REVIEW AND ANALYSIS OF OPERATING RESULTS AND FINANCIAL POSITION PRINCIPAL GROUP COMPANIES / GLOBAL MANUFACTURING AND SALES SITES BASIC POLICY FOR INVESTOR RELATIONS SHAREHOLDER INFORMATION CORPORATE DATA CONSOLIDATED 11-YEAR SUMMARY CONSOLIDATED 11-YEAR SUMMARY CONSOLIDATED 11-YEAR SUMMARY LIXIL Corporation and Consolidated Subsidiaries 64 (¥ million) Years ended March 31 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 JGAAP IFRS Results of Operations Net sales (JGAAP) / Revenue (IFRS) Operating income (JGAAP) / Core earnings (IFRS) Operating income margin (JGAAP) / Core earnings margin (IFRS) (%) Operating profit (loss) (IFRS) Profit (loss) for the year attributable to owners of the parent* 1 Research and development expenses Capital expenditures Depreciation and amortization EBITDA*2 Cash Flows Cash flows from operating activities Cash flows from investing activities Cash flows from financing activities Cash and cash equivalents, end of year Financial Position Total assets Equity attributable to owners of the parent* 3 Total equity Net interest-bearing debt Per Share Data Earnings (loss) per share*1 (EPS)(¥) Equity attributable to owners of the parent per share (BPS) (¥) Dividends per share (¥) Key Ratios EBITDA to sales ratio*2 (%) ROE (%) ROA (%) Total assets turnover (times) Equity ratio (JGAAP) / Ratio of equity attributable to owners of the parent (IFRS) (%) Dividend payout ratio (%) Net debt-to-equity ratio*4 (%) Number of employees*5 Stock Indicators Stock price (closing), end of year (¥) Market capitalization Price earnings ratio (times) Price book-value ratio (times) ¥1,291,396 17,915 1.4 ¥1,436,395 50,485 3.5 1,868 15,350 52,107 39,370 59,887 33,979 (142,067) 138,348 127,351 21,347 14,025 73,795 44,736 100,627 28,432 (12,397) (31,753) 114,662 69,080 4.2 ¥1,628,658 ¥1,705,427 51,722 3.0 48,041 30,864 18,211 61,454 50,404 102,126 20,952 17,380 64,321 49,168 124,822 ¥1,890,450 70,069 3.7 39,011 (25,605) 25,523 72,083 62,205 132,274 ¥1,633,229 89,781 5.5 69,251 42,503 26,089 68,215 60,701 146,441 ¥1,829,344 76,046 4.2 59,107 54,581 27,875 69,953 64,661 140,707 ¥1,692,432 54,485 3.2 49,011 (52,193) 28,188 67,639 68,502 120,053 ¥1,514,449 52,290 3.5 32,010 12,518 27,508 68,635 105,557 134,832 ¥1,378,255 ¥1,428,578 64,875 4.5 69,471 48,603 22,864 48,634 80,722 145,597 57,288 4.2 35,842 33,048 23,975 68,498 84,786 137,895 83,533 (218,333) 153,144 139,039 98,563 (119,041) 46,618 147,708 121,085 19,122 (154,403) 129,646 132,531 (58,052) (79,899) 121,563 116,362 (52,606) (43,843) 138,751 69,351 (72,328) 1,579 141,421 157,701 (41,314) (153,285) 95,862 151,043 (54,151) (93,425) 111,061 118,296 (24,805) (108,094) 100,404 1,481,063 528,414 538,776 266,771 1,465,689 561,161 566,312 307,089 1,786,294 593,487 601,795 463,479 1,915,427 583,747 590,855 559,971 2,130,120 524,806 537,308 697,413 2,042,165 547,244 559,431 638,345 2,107,131 616,897 649,573 549,159 2,059,544 533,656 567,167 584,537 2,091,529 502,165 535,137 736,689 1,741,814 552,271 554,767 484,444 1,782,882 612,385 614,968 424,299 ¥6.49 1,817.34 40 ¥73.42 1,930.02 40 ¥72.06 2,041.34 55 ¥105.80 2,038.56 60 ¥(89.33) 1,828.84 60 ¥148.01 1,902.18 60 ¥189.13 2,128.77 65 ¥(179.98) 1,839.59 70 ¥43.15 1,730.99 70 ¥113.92 1,902.89 75 ¥167.21 2,106.30 85 4.6 0.4 0.1 1.0 35.7 616.3 50.5 48,163 7.0 3.9 1.4 1.0 38.3 54.5 54.7 45,602 7.7 3.6 1.3 0.9 33.2 76.3 78.1 51,419 6.0 5.3 1.7 0.9 30.5 56.7 95.9 ̶ 7.0 (4.6) (1.3) 0.9 24.6 ̶ 132.9 60,677 9.0 7.9 2.0 0.8 26.8 40.5 116.6 59,248 7.7 9.4 2.6 0.9 29.3 34.4 89.0 61,140 7.1 (9.1) (2.5) 0.8 25.9 ̶ 109.5 62,940 8.9 2.4 0.6 0.7 24.0 162.2 146.7 61,634 10.0 6.3 1.7 0.7 31.7 65.8 87.7 51,879 10.2 8.3 2.8 0.8 34.3 50.8 69.3 51,640 ¥1,733 542,523 267.0 0.95 ¥1,858 581,655 25.3 0.96 ¥2,846 890,952 39.5 1.39 ¥2,847 891,265 26.9 1.40 ¥2,295 718,459 ̶ 1.25 ¥2,825 884,378 19.1 1.49 ¥2,376 743,817 12.6 1.12 ¥1,478 463,086 ̶ 0.80 ¥1,345 421,414 31.2 0.78 ¥3,075 963,456 27.0 1.62 ¥2,290 717,501 13.7 1.09 *1 Figures are after amortization of goodwill (JGAAP). *2 EBITDA is calculated under JGAAP as operating income + depreciation and amortization + goodwill amortization, and under IFRS as core earnings + depreciation and amortization. *3 Equity attributable to owners of the parent is calculated under JGAAP as total net assets - stock acquisition rights - non-controlling interests. *4 The net debt-to-equity ratio is calculated as net interest-bearing debt ÷ total equity based on the fiscal year-end. *5 The number of employees from FYE2016 is on an IFRS basis, the definition of which differs from the number under JGAAP. Note: Under JGAAP, figures of less than ¥1 million are truncated, while under IFRS, figures of less than ¥1 million are rounded. OVERVIEWSTRATEGYGOVERNANCEDATADATA 0401020304PRINCIPAL GROUP COMPANIES /GLOBAL MANUFACTURING AND SALES SITESNON-FINANCIAL HIGHLIGHTS SHAREHOLDER INFORMATION FINANCIAL HIGHLIGHTS BASIC POLICY FOR INVESTOR RELATIONS REVIEW AND ANALYSIS OF OPERATING RESULTS AND FINANCIAL POSITIONCORPORATE DATA 6475677865776979INTEGRATED REPORT 2022FINANCIAL HIGHLIGHTS LIXIL Corporation and Consolidated Subsidiaries (Years ended March 31) FINANCIAL HIGHLIGHTS FINANCIAL HIGHLIGHTS Revenue Core earnings / Core earnings margin SG&A expenses / SG&A ratio 売上収益 ■ Japan　■ International 事業利益／事業利益率 ■ Core earnings (left) 　● Core earnings margin (right) 販管費／販管費率 ■ SG&A expenses (left) 　● SG&A ratio (right) (¥ billion) 2,000 1,500 1,000 500 0 1,428.6 960.6 468.0 (¥ billion) 80 60 40 20 0 64.9 4.5 (%) 8 6 4 2 0 (¥ billion) 600 400 200 0 65 (%) 40 30 20 10 0 29.5 422.0 2018 2019 2020 2021 2022 2018 2019 2020 2021 2022 2018 2019 2020 2021 2022 Revenue increased by 3.7% year on year to ¥1,428.6 billion. Despite the impact of procurement difficulties and logistic disruptions in parts of the Japan business, revenue increased on continued strong sales growth in the Americas and Europe. Core earnings increased by 13.2% year on year to ¥64.9 billion. Factors included increased gross profit due to price optimization and a higher percentage of sales from international business, and an improved SG&A ratio due to measures to raise productivity. SG&A expenses increased by 2.4% year on year to ¥422.0 billion, and the SG&A ratio improved by 0.3 percentage points. Despite factors such as an increase in expenses and logistics costs in tandem with sales growth, measures to reduce SG&A expenses and raise productivity were successful. Earnings (loss) per share (EPS) / Dividends per share / Dividend payout ratio 1 株当たり当期利益（損失）（EPS）／ 1 株当たり年間配当額／配当性向 ■ Earnings (loss) per share (EPS) (left) 　■ Dividends per share (left)　● Dividend payout ratio (right) Profit (loss) for the year attributable to owners of the parent / ROE 親会社の所有者に帰属する当期利益（損失）／ ROE ■ Profit (loss) for the year attributable to owners of the parent (left) 　● ROE (right) Total assets / ROA 資産合計／ ROA ■ Total assets (left) 　● ROA (right) (¥) 200 100 0 -100 -200 162.2 65.8 167.21 50.8 85 34.4 (%) 200 100 0 -100 -200 (¥ billion) 60 30 0 -30 -60 48.6 8.3 (%) 20 10 0 -10 -20 (¥ billion) 2,400 1,200 0 -1,200 -2,400 2.8 1,782.9 (%) 4 2 0 -2 -4 2018 2019 2020 2021 2022 2018 2019 2020 2021 2022 2018 2019 2020 2021 2022 Earnings per share increased year on year by ¥53.29 to ¥167.21, while annual dividends increased by ¥10 to ¥85 per share. Profit for the year attributable to owners of the parent increased by ¥15.6 billion year on year to ¥48.6 billion. Major contributors were progress in structural reforms and a reduction in factors contributing to fluctuations in performance, due to concentration on core businesses. Total assets increased by ¥41.1 billion year on year to ¥1,782.9 billion. Factors included an increase in inventories, based on the need to avoid supply chain disruptions, and a reduction in fixed assets through the promotion of an asset-light approach. OVERVIEWSTRATEGYGOVERNANCEDATADATA 0401020304CONSOLIDATED11-YEAR SUMMARY PRINCIPAL GROUP COMPANIES /GLOBAL MANUFACTURING AND SALES SITESNON-FINANCIAL HIGHLIGHTS SHAREHOLDER INFORMATION BASIC POLICY FOR INVESTOR RELATIONS REVIEW AND ANALYSIS OF OPERATING RESULTS AND FINANCIAL POSITIONCORPORATE DATA 6475677865776979INTEGRATED REPORT 2022FINANCIAL HIGHLIGHTS FINANCIAL HIGHLIGHTS 66 FINANCIAL HIGHLIGHTS LIXIL Corporation and Consolidated Subsidiaries (Years ended March 31) EBITDA / EBITDA to sales ratio EBITDA ／売上高 EBITDA 比率 ■ EBITDA (left) 　● EBITDA to sales ratio (right) Net interest-bearing debt / Net debt-to-equity ratio ネット有利子負債／ネットデット・エクイティ・レシオ ■ Net interest-bearing debt (left)　● Net debt-to-equity ratio (right) (¥ billion) 200 150 100 50 0 145.6 10.2 (%) 16 12 8 4 0 (¥ billion) 800 600 400 200 0 (%) 200 150 100 50 0 424.3 69.3 Net debt-to-EBITDA ratio ネット有利子負債 EBITDA 倍率 (Times) 6 4 2 0 2.9 2018 2019 2020 2021 2022 2018 2019 2020 2021 2022 2018 2019 2020 2021 2022 EBITDA to sales ratio increased by 0.2 percentage points year on year to 10.2%. Despite the harsh external environment, core earnings increased due to profitability improvement initiatives and other factors. Net interest-bearing debt decreased by ¥60.1 billion year on year to ¥424.3 billion due to efforts to reduce interest-bearing debt, including redeeming convertible bonds. Net debt-to-EBITDA ratio improved from 3.5 times to 2.9 times. Factors were improved business profitability, and progress in measures such as prioritizing investments by focusing on ROIC. Equity attributable to owners of the parent / Ratio of equity attributable to owners of the parent 親会社の所有者に帰属する持分／親会社所有者帰属持分比率 ■ Equity attributable to owners of the parent (left)　● Ratio of equity attributable to owners of the parent (right) (¥ billion) 800 600 400 200 0 612.4 34.3 (%) 60 40 20 0 Capital expenditures by business segment Depreciation by business segment セグメント別資本的支出 ● LWT 　● LHT 　● LBT 　● H&S (¥ billion) ● LWT 　● LHT 　● LBT 　● H&S (¥ billion) 40 30 20 10 0 31.7 16.2 1.5 0.2 40 30 20 10 0 33.7 27.0 0.3 0.5 2018 2019 2020 2021 2022 2018 2019 2020 2021 2022 2018 2019 2020 2021 2022 Ratio of equity attributable to owners of the parent increased by 2.6 percentage points to 34.3%. Factors were improved business profitability and a ¥70.8 billion reduction in interest-bearing debt following the redemption of convertible bonds. Major capital expenditures were investment in core businesses, namely for new product development, streamlining, and maintenance and upgrade costs. Reduced capital expenditures benefited from the promotion of an asset-light approach and measures to improve capital efficiency. Notes: 1. Excluding the impact of IFRS 16 Leases applied from FYE2020 2. LWT: LIXIL Water Technology, LHT: LIXIL Housing Technology, LBT: LIXIL Building Technology, H&S: Housing & Services Business Depreciation was mainly associated with developing LIXILʼs group- wide IT systems and maintaining and upgrading facilities. Depreciation at LWT increased due to the ongoing development of products for the Japanese and international markets, and increased at LHT due to accelerated depreciation of plant assets scheduled for streamlining. Note: Excluding the impact of IFRS 16 Leases applied from FYE2020 OVERVIEWSTRATEGYGOVERNANCEDATADATA 0401020304CONSOLIDATED11-YEAR SUMMARY PRINCIPAL GROUP COMPANIES /GLOBAL MANUFACTURING AND SALES SITESNON-FINANCIAL HIGHLIGHTS SHAREHOLDER INFORMATION BASIC POLICY FOR INVESTOR RELATIONS REVIEW AND ANALYSIS OF OPERATING RESULTS AND FINANCIAL POSITIONCORPORATE DATA 6475677865776979INTEGRATED REPORT 2022 NON-FINANCIAL HIGHLIGHTS (Years ended March 31) 67 LIXILʼs sustainability policies and initiatives are on p.41. For more information on ESG Data, please visit our corporate website. www.lixil.com/en/sustainability/data/performance.html NON-FINANCIAL HIGHLIGHTS Environment Social CO2 emissions from operational activities (Scope 1 and 2)*1 製品・サービスによる CO2 削減貢献量率 ■ Scope 1 (left) 　■ Scope 2 (left)　● Carbon intensity per unit of output (right) Ratio of electricity usage from renewable energy sources*1 事業所からの CO2 排出量（スコープ 1、2）*1 Ratio of female new graduate recruitment*3 新卒採用者の女性比率 *3 ■ Number of females (left) 　● Ratio of female recruitment (right) NON-FINANCIAL HIGHLIGHTS (Thousand t-CO2) 1,200 800 400 0 2019 (Base year) 2020 2021 (%) 0 -20 (%) 20 15 10 5 0 936 426 510 -16.8 2022 15.9 (People) 80 60 40 20 0 77 53.8 (%) 60 40 20 0 2019 (Base year) 2020 2021 2022 2020 2021 2022 By seeking to increase energy efficiency and utilize renewable energy to further reduce CO2 emissions, we achieved a 17.7% reduction in CO2 emissions and a 16.8% reduction in carbon intensity per unit of output. By switching to renewable energy for electricity used at our business sites, we achieved 15.9% at the end of FYE2022. We have achieved the target of 50% and will continue to achieve this target in FYE2023. Water intake and discharge*2 Waste recycling ratio*1 Ratio of female managers 取水量／排水量 *2 ■ Water intake　■ Water discharge (Million m3) 20 15 10 5 0 15.7 14.7 廃棄物等の再資源化率 *1 ● Japan and Europe　● Asia (excluding Japan) 　● North America ● LIXIL and its group companies*4　● LIXIL Corporation 　　　　　　　　　　　　　　　　　 (excluding group companies in Japan) (%) 100 80 60 40 20 0 97.1 96.6 45.8 (%) 20 15 10 5 0 16.2 6.5 2020 2021 2022 2020 2021 2022 2020 2021 2022 By promoting water recycling, we reduced water intake to 15.7 million m3 and water discharge to 14.7 million m3. By minimizing the use of newly introduced resources and by promoting reuse and recycling, we achieved waste recycling ratios of 97.1% in Japan and Europe. We have set a target of 30% female managers across the organization by 2030. OVERVIEWSTRATEGYGOVERNANCEDATADATA 0401020304CONSOLIDATED11-YEAR SUMMARY PRINCIPAL GROUP COMPANIES /GLOBAL MANUFACTURING AND SALES SITESSHAREHOLDER INFORMATION FINANCIAL HIGHLIGHTS BASIC POLICY FOR INVESTOR RELATIONS REVIEW AND ANALYSIS OF OPERATING RESULTS AND FINANCIAL POSITIONCORPORATE DATA 6475677865776979INTEGRATED REPORT 2022NON-FINANCIAL HIGHLIGHTS (Years ended March 31) NON-FINANCIAL HIGHLIGHTS Responsible procurement survey (conformity rate)*5 責任ある調達アンケート（評価項目適合率）*5 ● Japan 　● International NON-FINANCIAL HIGHLIGHTS (%) 100 80 60 40 20 0 Governance Number and ratio of outside directors 社内取締役と社外取締役 (in FYE2022) Internal directors 3 91 89 Outside directors 7 68 LIXILʼs sustainability policies and initiatives are on p.41. For more information on ESG Data, please visit our corporate website. www.lixil.com/en/sustainability/data/performance.html Reports of possible compliance issues 内部通報件数 (Number) 400 300 200 100 0 (Ratio per hundred employees) 303 0.51 1.0 0.8 0.6 0.4 0.2 0 2020 2021 2022 We conduct surveys of suppliers to promote responsible procurement. We achieved the target of 90% conformity rate in Japan. *International targets are yet to be determined as the scope of coverage is being re-examined. The Board of Directors consists of ten members including seven outside directors and three internal directors (including three women). The ratio of independent outside directors was 70%. 2020 2021 2022 We collect information on any compliance violations, ensure early action on any wrongdoings and violations, and implement preventive measures. No compliance violations that have a significant impact on the management of the company, including serious violations of laws and regulations occurred. Community development expenditures*6 Attendance rate at Board of Directorsʼ meetings 取締役会出席率（ 2021 年 3 月期） (in FYE2022) 廃棄物等の再資源化率 *1 (¥ million) 2,000 1,500 1,000 500 0 1,250 100.0% 2020 2021 2022 We are working to return LIXIL assets appropriately and efficiently to society and pursuing various initiatives to help solve problems as a responsible member of the community. The Board of Directors met 15 times in FYE2022. The attendance rate for the meetings was 100%. *1 Scope of coverage: LIXIL Corporation and its group companies (production and non-production bases in Japan, and production bases outside Japan) *2 Scope of coverage: LIXIL Corporation and its group companies (production and non-production bases in Japan, and production bases outside Japan.) Excludes tenanted properties, etc. that we cannot access to assess the water intake. *3 Scope of coverage: LIXIL Corporation (excluding group companies in Japan) Ratio of females with college or graduate degrees hired. *4 Directly hired employees only. Excludes consolidated subsidiaries with less than 100 direct employees in Japan. *5 Scope of coverage: Suppliers to LIXIL Corporation and its subsidiaries, excluding American Standard Brands Japan: Procurement by operating sites in Japan International: Procurement by operating sites in international markets *6 Scope of coverage: LIXIL Corporation and some overseas subsidiaries OVERVIEWSTRATEGYGOVERNANCEDATADATA 0401020304CONSOLIDATED11-YEAR SUMMARY PRINCIPAL GROUP COMPANIES /GLOBAL MANUFACTURING AND SALES SITESSHAREHOLDER INFORMATION FINANCIAL HIGHLIGHTS BASIC POLICY FOR INVESTOR RELATIONS REVIEW AND ANALYSIS OF OPERATING RESULTS AND FINANCIAL POSITIONCORPORATE DATA 6475677865776979INTEGRATED REPORT 202269 REVIEW AND ANALYSIS OF OPERATING RESULTS AND FINANCIAL POSITION REVIEW AND ANALYSIS OF OPERATING RESULTS AND FINANCIAL POSITION REVIEW AND ANALYSIS OF OPERATING RESULTS AND FINANCIAL POSITION In the fiscal year ended March 31, 2022 (FYE2022), Japan’s Operating Results economy, which had been subdued for some time due to the prolonged impact of the COVID-19 pandemic, seemed Overall Business Results in FYE2022 already under way, selling price adjustments, and additional measures to reduce SG&A expenses. Excluding the impact of such large and sudden cost increases, or by factoring to pick up in stages. However, the outlook remains uncertain In FYE2022, the business environment was extremely in the delayed effects of measures we have taken, we given repeated surges in case numbers as new variants of challenging, with the continued impact of COVID-19 and believe that we would have comfortably achieved the full- the virus continue to emerge. The housing sector showed the need to address supply chain disruptions in addition to year forecast. Therefore, we believe the various structural indications of recovery, driven by factors that included increases in construction material and energy prices, and reforms we have implemented over the past several rising demand for housing during the pandemic and various logistics costs. Despite these conditions, we were able to years have been successful in driving progress in our government measures to encourage home ownership. increase both revenue and earnings. Although those results transformation, enabling us to reach a position from which Investment was firm and the number of new housing starts fell short of our initial targets, we were able to achieve the we can achieve our medium-term target of a 7.5% core rose for the first time in three years, reaching 866,000 units full-year forecast for profit for the year attributable to owners earnings margin. Strengthening our business structure (up 6.6% year on year). However, there are concerns about of the parent. has enabled us to improve our gross profit margin despite the impact of construction delays and the subsequent delays The main factors for lower-than-forecast core earnings increasing construction material and energy prices and in the delivery of properties due to difficulties in procuring included the escalation of geopolitical issues, which led to logistics costs, and we feel that we have steadily enhanced construction materials and parts from outside Japan. higher construction material and energy prices, logistics our management resilience to changes in the external In the global economy, economic activity seems to be disruptions and more frequent cost increases, and additional environment. In FYE2022, LIXIL Housing Technology (LHT) recovering and is shifting toward normalization as restrictions costs to ensure the stable supply of products. However, completed the transition to a platform-based production, on movement are eased following from the widespread a significant portion of this deterioration in earnings was which we expect will lead to stronger business operations. uptake of vaccinations, mainly in developed countries. covered by the effects of structural reforms that were Nevertheless, it is clear that there is still need for caution in Japan and indeed worldwide, due to factors including repeated surges in case numbers as new virus variants continue to emerge worldwide, uncertainty in procurement and supply of parts (semiconductors being a prime example), supply chain disruptions, increase of resource and energy prices, and significant increases in logistics costs (mainly marine transportation). In addition, geopolitical risk related to Russia’s military invasion of Ukraine in February and the imposition of economic sanctions against Russia by various countries have also added to the uncertain outlook. Overview of Financial Results for the Fiscal Year Ended March 2022 (¥ billion) Year FYE2021 FYE2022 Increase/Decrease Rate of change Revenue Gross profit (%) Selling, general and administrative expenses Core earnings (%) 1,378.3 469.2 34.0% 411.9 57.3 4.2% 1,428.6 486.9 34.1% 422.0 64.9 4.5% +50.3 +17.6 +0.0pp +10.1 +7.6 +0.4pp +3.7% +3.8% ̶ +2.4% +13.2% ̶ OVERVIEWSTRATEGYGOVERNANCEDATADATA 0401020304CONSOLIDATED11-YEAR SUMMARY PRINCIPAL GROUP COMPANIES /GLOBAL MANUFACTURING AND SALES SITESNON-FINANCIAL HIGHLIGHTS SHAREHOLDER INFORMATION FINANCIAL HIGHLIGHTS BASIC POLICY FOR INVESTOR RELATIONS CORPORATE DATA 6475677865776979INTEGRATED REPORT 2022REVIEW AND ANALYSIS OF OPERATING RESULTS AND FINANCIAL POSITION 70 REVIEW AND ANALYSIS OF OPERATING RESULTS AND FINANCIAL POSITION Operating Results in FYE2022 REVIEW AND ANALYSIS OF OPERATING RESULTS AND FINANCIAL POSITION The financial results for LIXIL Corporation (“LIXIL”) and its consolidated subsidiaries (together, “the LIXIL group”) for FYE2022 were as follows. While the business in Japan faced supply delays due to difficulties in procuring parts and the effects of overstretched logistics chains, results in the international business were supported by continued strong demand, especially in Europe, the Middle East and Africa, and North America, and by a recovery in economic activity in Asia Pacific, resulting in revenue of ¥1,428.6 billion (up 3.7% year on year). In terms of earnings, although there was a significant increase in costs due to external factors such as increasing construction material and energy prices in Japan and international markets, especially in the second half of the year, as well as rising logistics costs due to supply chain disruptions, we were supported by the results of our focused structural reforms, selling price adjustments, measures to improve profitability, and other initiatives. Consequently, core earnings totaled ¥64.9 billion (up 13.2% year on year), operating profit was ¥69.5 billion (up 93.8% year on year), partly due to the absence of one-time expenses related to the voluntary retirement program implemented in the previous fiscal year, and profit before tax for continuing operations was ¥67.3 billion (up 99.0% year on year). As such, each of these figures represents an increase compared to the previous fiscal year, when the impact of COVID-19 was most pronounced. As a result, profit for the year attributable to owners of the parent after deducting noncontrolling interests amounted to ¥48.6 billion (up 47.1% year on year), despite the absence of profit for the year from discontinued operations recorded in the previous fiscal year following the sale of subsidiaries. LIXIL Water Technology For LIXIL Water Technology, both Japanese and international demand showed signs of recovery from the previous year, which saw a decline in demand associated with the impact of COVID-19. This recovery was led by strong demand in international Overview of Financial Results by Segment (¥ billion) FYE2021 FYE2022 Increase/Decrease Rate of change LIXIL Water Technology Core earnings Revenue (%) Revenue LIXIL Housing Technology Core earnings (%) Revenue LIXIL Building Technology Core earnings (%) Revenue Housing & Services Business Core earnings (%) Revenue Adjustment Core earnings (%) 783.8 62.1 7.9％ 474.3 31.4 6.6% 93.4 2.6 2.8% 46.6 2.1 4.6% -19.8 -41.0 ー 862.2 76.6 8.9％ 466.7 28.2 6.0％ 89.3 3.5 3.9％ 30.3 -0.1 -0.5% -19.8 -43.3 ̶ Total Revenue 1,378.3 1,428.6 Core earnings (%) 57.3 4.2% 64.9 4.5% +78.4 +14.5 +1.0pp -7.6 -3.2 -0.6pp -4.1 +0.9 +1.1pp -16.3 -2.3 -5.0pp -0.1 -2.3 ̶ +50.3 +7.6 +0.4pp +10.0% +23.3% ̶ -1.6% -10.3% ̶ -4.3% +33.9% ̶ -35.0% ̶ ̶ +0.3% +5.5% ̶ +3.7% +13.2% ̶ OVERVIEWSTRATEGYGOVERNANCEDATADATA 0401020304CONSOLIDATED11-YEAR SUMMARY PRINCIPAL GROUP COMPANIES /GLOBAL MANUFACTURING AND SALES SITESNON-FINANCIAL HIGHLIGHTS SHAREHOLDER INFORMATION FINANCIAL HIGHLIGHTS BASIC POLICY FOR INVESTOR RELATIONS CORPORATE DATA 6475677865776979INTEGRATED REPORT 2022REVIEW AND ANALYSIS OF OPERATING RESULTS AND FINANCIAL POSITION REVIEW AND ANALYSIS OF OPERATING RESULTS AND FINANCIAL POSITION 71 REVIEW AND ANALYSIS OF OPERATING RESULTS AND FINANCIAL POSITION operations, particularly in Europe, the Middle East and Africa, and North America, and as a result revenue increased to ¥862.2 billion (up 10.0% year on year). Core earnings increased to ¥76.6 billion (up 23.3% year on year) due to an increase in gross profit in line with the increase in revenue. Furthermore, we achieved a higher profit margin as a result of selling price adjustments in response to increasing construction material prices, and the fact that renovation and mid- to high-end products accounted for a greater portion of the sales mix in Japan. LIXIL Housing Technology For LIXIL Housing Technology, although demand for renovation products was firm given growing recognition of the “new normal” in the post- COVID-19 era and changing consumer sentiment due to increased time spent at home, revenue decreased to ¥466.7 billion (down 1.6% year on year) due to the impact of the sale of a subsidiary in the previous fiscal year, among other factors. While profitability improved due to ongoing selling price adjustments, control of SG&A expenses, and structural reforms including those to improve production efficiency, core earnings decreased to ¥28.2 billion (down 10.3% year on year) due to cost increases, including higher than expected prices of aluminum ingots, a main raw material, and higher logistics costs. LIXIL Building Technology Housing & Services Business For LIXIL Building Technology, revenue decreased to ¥89.3 billion (down 4.3% year on year) due to delays in the supply of building materials as a result of changes in work processes, mainly for large properties. However, core earnings increased to ¥3.5 billion (up 33.9% year on year) due to efforts to improve profitability with ongoing structural reforms and the progress of measures to enhance productivity. For the Housing & Services Business, revenue was ¥30.3 billion (down 35.0% year on year) due to the significant impact of the sale of a subsidiary in the previous fiscal year. Despite efforts to control SG&A expenses, core earnings showed a loss of ¥0.1 billion (versus core earnings of ¥2.1 billion in the previous fiscal year) due to the impact of the aforementioned sale of a subsidiary as well as increasing construction material prices. Consolidated Financial Position (¥ billion) +41.1 Assets 1,741.8 Current assets 637.8 Assets 1,782.9 Current assets 714.6 Non-current assets 1,104.0 Non-current assets 1,068.3 March 2021 March 2022 Liabilities and Equity 1,741.8 Current liabilities 586.9 +41.1 Liabilities and Equity 1,782.9 Current liabilities 603.0 Non-current liabilities 600.1 Non-current liabilities 564.9 Equity 554.8 March 2021 Equity 615.0 March 2022 Cash and Cash Equivalents 111.1 100.4 Net Interest- bearing debt -424.3 -524.7 -484.4 -595.5 Interest-bearing debt March 2021 March 2022 OVERVIEWSTRATEGYGOVERNANCEDATADATA 0401020304CONSOLIDATED11-YEAR SUMMARY PRINCIPAL GROUP COMPANIES /GLOBAL MANUFACTURING AND SALES SITESNON-FINANCIAL HIGHLIGHTS SHAREHOLDER INFORMATION FINANCIAL HIGHLIGHTS BASIC POLICY FOR INVESTOR RELATIONS CORPORATE DATA 6475677865776979INTEGRATED REPORT 2022 REVIEW AND ANALYSIS OF OPERATING RESULTS AND FINANCIAL POSITION REVIEW AND ANALYSIS OF OPERATING RESULTS AND FINANCIAL POSITION Financial Position (As of March 31, 2022) REVIEW AND ANALYSIS OF OPERATING RESULTS AND FINANCIAL POSITION The LIXIL group aims to build a stable financial base in order to achieve medium-to-long-term sustainable growth. Thus, we are working to strengthen our balance sheet through various measures. In FYE2022, we made significant progress in these measures and we believe that we are on track to restore our financial soundness. Assets, Liabilities and Equity as of March 31, 2022 Total assets as of March 31, 2022 amounted to ¥1,782.9 billion (up ¥41.1 billion from the previous fiscal year end). Current assets were ¥714.6 billion (up ¥76.8 billion from the previous fiscal year end), mainly due to an increase in inventories as we secured safety stock to mitigate procurement and supply risks caused by supply chain disruptions and price increases, as well as the effect of reclassifying non-current assets related to the current headquarters building as assets held for sale in connection with the planned headquarters relocation in FYE2023. Non-current assets were ¥1,068.3 billion (down ¥35.8 billion from the previous fiscal year end), with main factors being the impact of the abovementioned reclassification, the reduction in capital expenditure and the sale of idle assets, and a decrease in other financial assets due to the sale of cross-held shares. Total equity was ¥615.0 billion. As a result of efforts to improve capital efficiency based on the adoption of an asset-light approach and to reduce interest-bearing debt, the net debt-to-EBITDA ratio was 2.9 times, a further improvement over the previous fiscal year, and the ratio of equity attributable to owners of the parent was 34.3% (an improvement of 2.6 percentage points year on year). Cash Flow Status and Cash Balance (¥ billion) FYE2021 95.9 34.0 84.8 Working capital Depreciation Free cash flow*2 96.9 CAPEX -68.5 11.7 111.1 151.0 -54.2 -93.4 Cash and cash equivalents at the beginning of the year Net cash flows from operating activities Net cash flows from investing activities Net cash flows from financing activities Other*3 Cash and cash equivalents at the end of the year *1 Includes discontinued operations 72 Cash Flows (FYE2022) Cash and cash equivalents as of March 31, 2022 totaled ¥100.4 billion (down ¥10.7 billion from the previous fiscal year end), after accounting for exchange rate differences and other factors. Net Cash Flows From Operating Activities Net cash provided by operating activities was ¥118.3 billion (down ￥32.7 billion year on year). Main factors included changes in working capital (including changes related to inventories, trade and other receivables, and trade and other payables), as well as the absence of gain on sale of subsidiaries in FYE2022 Cash and cash equivalents at the beginning of the year 111.1 Net cash flows from operating activities Working capital Depreciation -13.9 80.7 Net cash flows from investing activities Net cash flows from financing activities Other*3 Cash and cash equivalents at the end of the year Free cash flow*2 93.5 CAPEX -48.6 3.9 100.4 118.3 -24.8 -108.1 *2 Free cash flow = Net cash flows from operating activities + Net cash flows from investing activities *3 Other = Effects of exchange rate changes on the balance of cash and cash equivalents held in foreign currencies + Net increase (decrease) in cash and cash equivalents included in assets classified held for sale Note:Profit before tax:59.3*1 Note:Profit before tax:64.7*1 OVERVIEWSTRATEGYGOVERNANCEDATADATA 0401020304CONSOLIDATED11-YEAR SUMMARY PRINCIPAL GROUP COMPANIES /GLOBAL MANUFACTURING AND SALES SITESNON-FINANCIAL HIGHLIGHTS SHAREHOLDER INFORMATION FINANCIAL HIGHLIGHTS BASIC POLICY FOR INVESTOR RELATIONS CORPORATE DATA 6475677865776979INTEGRATED REPORT 2022 REVIEW AND ANALYSIS OF OPERATING RESULTS AND FINANCIAL POSITION 73 REVIEW AND ANALYSIS OF OPERATING RESULTS AND FINANCIAL POSITION the previous fiscal year, despite an increase in profit before tax from continuing operations. REVIEW AND ANALYSIS OF OPERATING RESULTS AND FINANCIAL POSITION Net Cash Flows From Investing Activities Net cash used in investing activities was ¥24.8 billion (down ¥29.3 billion year on year). Factors included a reduction in capital expenditure and improved investment efficiency through the transition to a platform-based production, as well as proceeds from the sale of cross shareholdings. Net Cash Flows From Financial Activities Net cash used in financial activities was ¥108.1 billion (up ¥14.7 billion year on year). Factors included the payment of dividends and lease liabilities, as well as the redemption of bonds at maturity, and the flexible adoption of and repayment of interest-bearing debt. Outlook for FYE2023 FYE2023 Forecast (cid:12256)Revenue: ¥1,520.0 billion (up 6% year on year) (cid:12256) Core earnings: ¥81.0 billion (up 25% year on year; core earnings margin 5.3%) (cid:12256)Operating profit: ¥78.0 billion (up 12% year on year) (cid:12256)Profit before tax: ¥76.0 billion (up 13% year on year) (cid:12256) Profit for the year attributable to owners of the parent: ¥51.0 billion (up 5% year on year) (cid:12256) Cash dividends: Planned increase to ¥90 per share for the full year, with interim and year-end dividends of ¥45 per share each. The above forecasts for FYE2023 are based on the information available to LIXIL as of the date of publication, and include risks and uncertainties. Actual results may differ materially from the forecasts above due to various factors. While the economic environment is expected to continue to pick up with the rollout of vaccination programs and other measures to prevent the spread of COVID-19, for both Japan and international markets, the outlook is expected to remain uncertain due to concerns about continued pressure on business performance, including increasing construction material and energy prices and rising distribution costs due to container shortages, in addition to global uncertainty related to geopolitical risks such as the conflict in Russia and Ukraine. In this business environment, the LIXIL group has enhanced its agility as an organization and its ability to respond to change, and made steady progress on each of the four strategic initiatives set forth in its fundamental management direction. Although the business environment is likely to remain uncertain, we are confident that we can achieve sustainable growth over the medium to long term. By advancing our efforts toward the goals of our Corporate Responsibility Strategy, we will further enhance the value we provide to stakeholders and, in turn, realize our purpose of making better homes a reality for everyone, everywhere. OVERVIEWSTRATEGYGOVERNANCEDATADATA 0401020304CONSOLIDATED11-YEAR SUMMARY PRINCIPAL GROUP COMPANIES /GLOBAL MANUFACTURING AND SALES SITESNON-FINANCIAL HIGHLIGHTS SHAREHOLDER INFORMATION FINANCIAL HIGHLIGHTS BASIC POLICY FOR INVESTOR RELATIONS CORPORATE DATA 6475677865776979INTEGRATED REPORT 202274 REVIEW AND ANALYSIS OF OPERATING RESULTS AND FINANCIAL POSITION REVIEW AND ANALYSIS OF OPERATING RESULTS AND FINANCIAL POSITION Core earnings margin ROE* Initial plan 5.6 (forecast) 5.3 4.2 4.5 3.5 (%) 6 5 4 3 2 1 0 Initial plan 8.3 (forecast) 8.3 8.1 6.3 2.4 (%) 10 5 0 -5 -10 REVIEW AND ANALYSIS OF OPERATING RESULTS AND FINANCIAL POSITION ROIC (%) 8 6 4 2 0 Initial plan 5.1 (forecast) 4.5 5.0 2.0 2.3 FYE2020 FYE2021 FYE2022 FYE2023 FYE2020 FYE2021 FYE2022 FYE2023 FYE2020 FYE2021 FYE2022 FYE2023 Revenue (¥ trillion) 1.6 1.51 (forecast) Initial plan 1.44 1.52 1.43 1.38 1.5 1.4 1.3 1.2 Net debt-to-EBITDA ratio (Times) 6 5.5 5 4 3 2 3.5 2.9 (forecast) 2.4 Initial plan 2.7 Ratio of equity attributable to owners of the parent 31.7 (forecast) 35.7 34.3 Initial plan 34 (%) 35 30 25 20 15 24 FYE2020 FYE2021 FYE2022 FYE2023 FYE2020 FYE2021 FYE2022 FYE2023 FYE2020 FYE2021 FYE2022 FYE2023 * Figure before the effect of share buybacks announced on April 28, 2022 　 OVERVIEWSTRATEGYGOVERNANCEDATADATA 0401020304CONSOLIDATED11-YEAR SUMMARY PRINCIPAL GROUP COMPANIES /GLOBAL MANUFACTURING AND SALES SITESNON-FINANCIAL HIGHLIGHTS SHAREHOLDER INFORMATION FINANCIAL HIGHLIGHTS BASIC POLICY FOR INVESTOR RELATIONS CORPORATE DATA 6475677865776979INTEGRATED REPORT 2022PRINCIPLE GROUP COMPANIES (As of March 31, 2022) PRINCIPAL GROUP COMPANIES / GLOBAL MANUFACTURING AND SALES SITES Consolidated Subsidiaries Name Location Paid-in capital (¥ million) Equity owned by the holding company (%) Business segment Name Location Paid-in capital (¥ million) Equity owned by the holding company (%) Business segment 75 LIXIL Total Service Corporation Koto-ku, Tokyo 100 100 LWT, LHT LIXIL Toyo Sash Shoji Co., Ltd. Koto-ku, Tokyo PRINCIPAL GROUP COMPANIES / GLOBAL MANUFACTURING AND SALES SITES Dinaone Corporation Tokoname, Aichi TM.S Corporation Koto-ku, Tokyo 90 60 LIXIL Europe S.à r.l. Luxembourg € thousand 57,143 Grohe AG Düsseldorf, Germany € thousand 60,885 100 100 100 100 Other 47 affiliate companies of LIXIL Europe S.à r.l. ̶ ̶ ̶ ASD Holding Corp. New Jersey, USA US$ thousand 412,955 100 10 affiliate companies of ASD Holding Corp. ̶ ̶ A-S CHINA PLUMBING Cayman, Islands US$ thousand 24,907 A-S (China) Co., Ltd. Shanghai, China US$ thousand 30,000 LIXIL Vietnam Corporation Hanoi, Vietnam VND million 743,386 LIXIL (China) Investment Co., Ltd. Shanghai, China CNY thousand 450,605 LIXIL Building Materials Manufacturing (Suzhou) Suzhou, Jiangsu, China CNY thousand 395,464 LIXIL Sanitary Fitting Manufacturing (Suzhou) Suzhou, Jiangsu, China 1,730 Taiwan Inax Corporation Taipei, Taiwan NT$ thousand 282,677 LIXIL India Sanitaryware Private Limited LIXIL AFRICA HOLDINGS (Pty) Ltd. Andhra Pradesh, India Krugersdorp, South Africa INR thousand 69,823 ZAR million 2,616 LIXIL Total Hanbai Corporation Koto-ku, Tokyo G TERIOR Corporation Koto-ku, Tokyo Asahi Tostem Exterior Building Materials Co., Ltd. Koto-ku, Tokyo 75 316 100 ̶ 100 100 100 100 100 100 92 100 100 100 100 80 LWT LWT LWT LWT LWT LWT LWT LWT LWT LWT LWT LWT LWT LWT LWT LWT LHT LHT LHT Sonitech Corporation Koto-ku, Tokyo Kuwata Co., Ltd. Oita Tostem Co., Ltd. Suma-ku, Kobe, Hyogo Oita, Oita Nishi Kyushu Tostem Co., Ltd. Saga, Saga LIXIL TEPCO Smart Partners Inc. Koto-ku, Tokyo LIXIL INTERNATIONAL Pte. Ltd. Singapore TOSTEM THAI Co., Ltd. LIXIL Manufacturing (Dalian) Corporation LIXIL GLOBAL MANUFACTURING VIETNAM Co., Ltd. PT. LIXIL ALUMINIUM INDONESIA Pathumthani, Thailand Dalian, Liaoning, China Dong Nai, Vietnam Cileungsi, Indonesia 100 66 30 50 30 450 30,565 Baht million 2,767 US$ thousand 43,500 100 100 100 100 100 60 100 100 100 4,310 100 IDR million 173,617 LIXIL WINDOW SYSTEMS PRIVATE LIMITED Haryana, India INR thousand 858,318 LIXIL Renewal Corporation Koto-ku, Tokyo LIXIL Living Solution Corporation Koto-ku, Tokyo LIXIL Housing Research Institute, Ltd. Koto-ku, Tokyo LIXIL REALTY, Corp. Taito-ku, Tokyo GHS Corporation LIXIL Home Finance Corporation Koto-ku, Tokyo Chiyoda-ku, Tokyo LIXIL Group Finance Corporation*1 Koto-ku, Tokyo 44 other companies*2 100 100 100 160 100 500 100 LHT LHT LHT LHT LHT LHT LHT LHT LHT LHT LHT LHT LBT H&S H&S H&S H&S H&S 75 100 100 100 100 100 100 100 100 (Financing services for Group companies) OVERVIEWSTRATEGYGOVERNANCEDATADATA 0401020304CONSOLIDATED11-YEAR SUMMARY NON-FINANCIAL HIGHLIGHTS SHAREHOLDER INFORMATION FINANCIAL HIGHLIGHTS BASIC POLICY FOR INVESTOR RELATIONS REVIEW AND ANALYSIS OF OPERATING RESULTS AND FINANCIAL POSITIONCORPORATE DATA 6475677865776979INTEGRATED REPORT 2022PRINCIPLE GROUP COMPANIES (As of March 31, 2022) PRINCIPAL GROUP COMPANIES / GLOBAL MANUFACTURING AND SALES SITES Equity-Method Affiliates Name Location Sanyo Homes Corporation*3 48 other companies Nishi-ku, Osaka, Osaka Paid-in capital (¥ million) Equity owned by the holding company (%) Business segment 5,945 27*4 ̶ *1 The Company decided to merge with LIXIL Group Finance Corporation on May 12, 2022, and concluded a merger agreement on the same date. *2 LIXIL Africa (Pty) Ltd. is an insolvent company with liabilities of ZAR 1,559 million in excess of assets as of March 31, 2022. *3 The company submits securities reports. *4 “Equity owned by the holding company” shows the ratio of the number of shares owned by the Company to the total number of issued shares (excluding treasury stock) of Sanyo Homes Corporation as of March 31, 2022. 76 PRINCIPAL GROUP COMPANIES / GLOBAL MANUFACTURING AND SALES SITES GLOBAL MANUFACTURING AND SALES SITES (As of March 31, 2022) Number of factories Number of showrooms 工場数 79 sites ショールーム数 111 sites Japan 39 International 40 Japan 84 International 27 Japan Americas Europe LWT LHT 20 19* 9 ̶ 4 ̶ China/ Asia Pacific 21 6 * Seven of the LHT factories also manufacture commodities for LBT. Japan 84 Europe 8 China/ Asia Pacific 19 Home reform shops and reform network members in Japan 11,800 stores Homebuilding franchise members in Japan (H&S) 201 stores OVERVIEWSTRATEGYGOVERNANCEDATADATA 0401020304CONSOLIDATED11-YEAR SUMMARY NON-FINANCIAL HIGHLIGHTS SHAREHOLDER INFORMATION FINANCIAL HIGHLIGHTS BASIC POLICY FOR INVESTOR RELATIONS REVIEW AND ANALYSIS OF OPERATING RESULTS AND FINANCIAL POSITIONCORPORATE DATA 6475677865776979INTEGRATED REPORT 2022 77 BASIC POLICY FOR INVESTOR RELATIONS BASIC POLICY FOR INVESTOR RELATIONS The Company’s investor relations (IR) activities facilitate communication with the Japanese and international capital markets, thereby helping to enhance corporate value. These IR activities convey messages from senior management to markets while providing senior management with feedback from markets in an unflagging effort to boost corporate value. Based on the timely disclosure rules of the Tokyo Stock Exchange, the Company discloses important information, including decisions, events, or information regarding accounts settlement, that might affect investment judgments. It is also the Company’s policy to disclose information that does not fall under the timely disclosure rules as proactively and fairly as possible, in order to better meet investors’ needs. BASIC POLICY FOR INVESTOR RELATIONS Investor Relations www.lixil.com/en/investor External Recognition (From April 2021 to June 2022)　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　　 　　 Gomez IR Site Ranking 2021 Awarded silver prize in the overall IR site ranking and first place in the “Metal Products” industry category (December 2021) MSCI Japan Empowering Women Index Selected for five consecutive years as a constituent of the MSCI Japan Empowering Women Index (WIN) (June 2021) Nikkei SDGs Management Survey Received 4.5 stars in the Nikkei SDGs Management Survey and 4 stars in the Nikkei Smart Work Management Survey (November 2021) Activities for FYE2022 (cid:9562) Communicated management messages to the markets (for institutional investors and analysts) Earnings briefing sessions: 4 (quarterly) One-on-one meetings: 285 Briefing sessions regarding management strategy and business strategy: 3 Small meetings: 3 Investor conferences participated in: 3 Social gathering with shareholders: 1 (cid:9562) Feedback from markets to the Company Reported on IR activities at Board of Directors: Regularly, as well as 4 times/year after earnings briefing sessions Exchanged opinions with business divisions on business condition and market outlook: Regularly Shared information with management via e-mail: Regularly FTSE4Good Index Series FTSE Blossom Japan Index FTSE Blossom Japan Sector Relative Index Selected as a constituent of the FTSE4Good Index Series and the FTSE Blossom Japan Index for the fifth consecutive year, and selected as a constituent of the newly established FTSE Blossom Japan Sector Relative Index (June 2021, March 2022) CDP Water Security Received the highest A rank (December 2021) Dow Jones Sustainability World Index Selected as a constituent of DJSI World for the third consecutive year, and concurrently selected as a constituent of DJSI Asia/Pacific (November 2021) IR Special Award “Most Liked!” IR Award Received IR Special Award and the “Most Liked!” IR Award in the 2021 IR Awards held by the Japan Investor Relations Association (November 2021) CDP Supplier Engagement Leaderboard Received the highest rating for the second consecutive year (February 2022) DX Brand 2022 Selected as a Digital Transformation Stock 2022 jointly by the Ministry of Economy, Trade and Industry, the Tokyo Stock Exchange, and the Information- technology Promotion Agency, Japan (June 2022) DISCLAIMER The inclusion of LIXIL Corporation in any MSCI index, and the use of MSCI logos, trademarks, service marks, or index names herein, does not constitute a sponsorship, endorsement or promotion of LIXIL Corporation by MSCI or any of its affiliates. The MSCI indexes are the exclusive property of MSCI. MSCI and the MSCI index names and logos are trademarks or service marks of MSCI or its affiliates. OVERVIEWSTRATEGYGOVERNANCEDATADATA 0401020304CONSOLIDATED11-YEAR SUMMARY PRINCIPAL GROUP COMPANIES /GLOBAL MANUFACTURING AND SALES SITESNON-FINANCIAL HIGHLIGHTS SHAREHOLDER INFORMATION FINANCIAL HIGHLIGHTS REVIEW AND ANALYSIS OF OPERATING RESULTS AND FINANCIAL POSITIONCORPORATE DATA 6475677865776979INTEGRATED REPORT 202278 SHAREHOLDER INFORMATION (As of March 31, 2022) SHAREHOLDER INFORMATION Number of shares and shareholders Major shareholders (Thousand shares) Number of shares authorized Number of shares outstanding (Excluding treasury stock of 22,580,170 shares) Number of shareholders 1,300,000,000 290,738,989 45,481 Distribution of ownership among shareholders (Thousand shares) E A Total 313,319 thousand shares A Financial institutions 87,837 B Japanese companies 22,172 C International investors 132,993 D Individuals and others 47,735 B E Treasury stock Total 22,580 313,319 D C Name of shareholder Number of shares held Ratio of shareholdings The Master Trust Bank of Japan, Ltd. (Trust Account) 48,591* 16.71% JP MORGAN CHASE BANK 385632 (Standing Proxy: Settlement & Clearing Services Division, Mizuho Bank, Ltd.) 27,431 9.44% Custody Bank of Japan, Ltd. (Trust Account) 12,530* 4.31% SSBTC CLIENT OMNIBUS ACCOUNT (Standing Proxy: The Hongkong and Shanghai Banking Corporation Limited Tokyo Branch) 9,526 3.28% LIXIL Employee Stock Ownership 6,361 2.19% NORTHERN TRUST CO. (AVFC) SUB A/C AMERICAN CLIENTS (Standing Proxy: The Hongkong and Shanghai Banking Corporation Limited Tokyo Branch) 5,532 1.90% STATE STREET BANK CLIENT OMNIBUS OM04 (Standing Proxy: The Hongkong and Shanghai Banking Corporation Limited Tokyo Branch) 5,489 1.89% STATE STREET BANK WEST CLIENT – TREATY 505234 (Standing Proxy: Settlement & Clearing Services Division, Mizuho Bank, Ltd.)  4,244 1.46% Daiichi Life Insurance Company, Limited (Standing Proxy: Custody Bank of Japan, Ltd.) 3,937 1.35% STATE STREET BANK AND TRUST COMPANY 505001 (Standing Proxy: Settlement & Clearing Services Division, Mizuho Bank, Ltd.) 3,904 1.34% Notes: In addition to the above, LIXIL Corporation holds 22,580 thousand shares of treasury stock.　　 Shareholding calculations exclude treasury stock. * indicates a trust service arrangement. SHAREHOLDER INFORMATION Share price movement* 100％ LIXIL stock price 　　　 Nikkei 225 Stock trading volume (Thousand shares) 50,000 80％ 60％ 40％ 20% 0% -20% -40% 40,000 30,000 20,000 10,000 0 June 2019 October 2019 April 2020 October 2020 April 2021 October 2021 April 2022 June 2019 October 2019 April 2020 October 2020 April 2021 October 2021 April 2022 * Relative stock price trend based on the closing stock price as of June 30, 2019. OVERVIEWSTRATEGYGOVERNANCEDATADATA 0401020304CONSOLIDATED11-YEAR SUMMARY PRINCIPAL GROUP COMPANIES /GLOBAL MANUFACTURING AND SALES SITESNON-FINANCIAL HIGHLIGHTS FINANCIAL HIGHLIGHTS BASIC POLICY FOR INVESTOR RELATIONS REVIEW AND ANALYSIS OF OPERATING RESULTS AND FINANCIAL POSITIONCORPORATE DATA 6475677865776979INTEGRATED REPORT 2022CORPORATE DATA CORPORATE DATA 79 CORPORATE DATA (As of March 31, 2022) Company Name LIXIL Corporation Established September 19, 1949 Registered Office 2-1-1 Ojima, Koto-ku, Tokyo 136-8535, Japan Paid-In Capital ¥68,418 million Fiscal Year End March 31 Employees Consolidated employees: 51,640 Accounting Auditors Deloitte Touche Tohmatsu LLC LIXIL Online Information Corporate Website Financial Information Non-Financial Information In addition to the Company profile, CR activities, and the latest news, our corporate website also contains sections covering recent business initiatives within the Company and insights from the Companyʼs CEO. Our IR website offers comprehensive content for shareholders and other investors, including information regarding financial results, streaming video of results briefings, and performance data. Our sustainability website introduces LIXILʼs CR Strategy and initiatives around the world in order to contribute to achieving the SDGs, under our corporate purpose: “make better homes a reality for everyone, everywhere.” www.lixil.com www.lixil.com/en/investor www.lixil.com/en/sustainability Overview of Information Disclosure Please visit our website for more information on these subjects. Financial Information Non-Financial Information ●Annual Securities Report ●Corporate Responsibility Report (incl. Data Section) Overview of Major Businesses The Company manufactures and sells building materials and housing equipment for housing and buildings, and operates housing-related businesses as well as related services. Common Stock Listings Tokyo Stock Exchange Prime Market Nagoya Stock Exchange Premier Market Transfer Agent and Special Management of Accounts Mitsubishi UFJ Trust and Banking Corporation Annual Shareholdersʼ Meeting Normally held in June Reports Web site ●Integrated Report ●Information for shareholders 　and other investors A report that integrates key financial and non-financial information ●Corporate Governance 　Report ●Sustainability information ●Corporate Governance Information Cautionary Statement with Respect to Forward- Looking Statements Statements made in this integrated report with respect to plans, strategies, and future performances that are not historical facts are forward-looking statements. LIXIL Corporation cautions that a number of factors could cause actual results to differ materially from those discussed in the forward- looking statements. OVERVIEWSTRATEGYGOVERNANCEDATADATA 0401020304CONSOLIDATED11-YEAR SUMMARY PRINCIPAL GROUP COMPANIES /GLOBAL MANUFACTURING AND SALES SITESNON-FINANCIAL HIGHLIGHTS SHAREHOLDER INFORMATION FINANCIAL HIGHLIGHTS BASIC POLICY FOR INVESTOR RELATIONS REVIEW AND ANALYSIS OF OPERATING RESULTS AND FINANCIAL POSITION6475677865776979INTEGRATED REPORT 2022 www.lixil.com TSE Securities Code: 5938 2022.06.27 

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