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Japan-Update

Lixil posts 27% profit jump in April-June

The housing fixture specialist's restructuring steps in Japan bear fruit

New President Kinya Seto's push to bolster Japanese operations has born fruit.

TOKYO -- Japan's Lixil Group said Monday that core earnings rose 27% on the year to 18.7 billion yen ($168 million) in the April-June period -- buoyed by the strong performance of its domestic operations.

The Tokyo-based housing equipment company's core margin climbed 0.9 percentage point to 4.3%. The improvement owes largely to earlier efforts aimed at strengthening the Japanese business. Under International Financial Reporting Standards, core earnings are equivalent to operating profit under Japanese accounting standards.

President Kinya Seto, who took the helm in June, has laid out an ambitious target of raising the margin to 10% over the medium to long term. To achieve this, he has set his sights on strengthening the domestic business, which had been dogged by low profitability.

In Japan, the sanitary wares and bathroom operations saw sales increases of 11% each. Mid- to high-end products fared well, and cost cutting paid off. So core earnings in the water technology segment jumped 43% to 6.6 billion yen. Chief Financial Officer Sachio Matsumoto said that Lixil's domestic performance in this area topped market growth. Newly launched renovation services also helped boost earnings. Meanwhile, sales overseas in the segment rose just 3% and core earnings were flat. "With market growth slowing in Europe and the U.S., we kept developing new products and investing in marketing efforts," Matsumoto said.

Rival Toto struggled notably in Japan in the quarter. Masahiro Mochizuki, an analyst at Credit Swiss Securities Japan, said Lixil may have taken some market share from Toto. Lixil stands to boost profitability even more if it follows through on such moves as a redeployment of personnel that is under consideration.

Although reform in Japan has contributed to earnings growth, the market cannot be expected to expand much over the long term, given Japan's shrinking population. So going forward the challenge lies outside Japan. The company previously booked massive losses following accounting improprieties at a Chinese subsidiary. Seto has set out to tackle such challenges, but so far his attention has mostly been focused on the domestic business.

Lixil's shares rose as much as 4% Monday to 2,977 yen.

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