Panasonic Holdings Corporation

I will go over the consolidated financial results of Panasonic Holdings Corporation for the first quarter of fiscal 2023. First, a summary of the financial results. Overall sales increased year-on-year, despite the impact on production and sales of the Shanghai lockdown and shortages in semiconductors, parts, and materials, owing to increased sales in automotive batteries and others, as well as consolidation of Blue Yonder and the effective exchange rates. Adjusted operating profit decreased and as increased sales and price revisions and other efforts were unable to offset the impact from changes in the environment, including the lockdown, shortages in semiconductors, parts and materials, raw material prices. and higher fixed costs and other negative factors. Operating profit decreased, but other income and loss improved with reduced restructuring expenses. Thus, the year-on-year decrease in operating profit was less than that of adjusted operating profit. Free cash flow was secured at the same level as net profit, although it was below the FY22 level due to decreased adjusted operating profit and increased inventories. In terms of consolidated financial results, overall sales increased to 1,973.9 billion yen, up 10% year-on-year. AOP decreased to 65.7 billion, down 53.8 billion year-on-year. Other income and loss improved by 13.1 billion due mainly to reduced restructuring expenses. OP and net profit decreased by $40.7 billion and $27.6 billion respectively, but the year-on-year decrease amounts were less than that of AOP. This slide shows the results by segment. Year-on-year variance analysis is provided in the next few slides. First, sales by segment. Overall sales increased. Lifestyle sales were at the same level year-on-year as sales increased for priority businesses such as HVAC Systems' European business and overseas electrical construction materials, mainly in India, the Middle East and Africa markets, to offset the decreased sales of consumer electronics in Japan affected by supply issues due to the lockdown and others. Automotive sales decreased, affected by reduced automobile production. In Connect, sales increased in avionics, reflecting market recovery in the aviation industry and the consolidation impact of Blue Yonder, despite decreased sales in such businesses as Gemba Solutions due to post-Olympic demand slowdown and notebook PCs affected by the lockdown. In industry, sales decreased due to semiconductor shortages, the lockdown, and termination of the semiconductor and LCD businesses, despite increased sales of capacitors for ICG infrastructure and automotive uses and relays for industrial and EV uses. In energy, sales increased with sales growth of automotive batteries reflecting robust EV demand. Among other eliminations and adjustments, entertainment and communication sales decreased, affected by component procurement issues, including semiconductors. Housing sales increased, driven by building materials such as interior doors, floor materials, rain gutters, and exterior wall materials, as well as echo-cute water heaters. Next, OP. AOP decreased in all segments, and overall OP decreased as well. In lifestyle, profit decreased, affected by such factors as the lockdown, increased sales of priority businesses, mainly overseas, and price revisions in Japan and overseas countered the deteriorated business environment, such as exchange rates, price hikes in raw materials and logistics, but not enough. In automotive, profit due to decreased sales and increased fixed costs, including depreciation, despite cost reduction efforts and price revisions to mitigate the impact of price hikes in parts, materials, mainly semiconductors. In Connect, profit decreased despite increased sales in avionics due to decreased sales of notebook PCs and the Gemba Solutions business, raw material price hikes, as well as amortization of intangible assets related to the Blue Yonder acquisition and other factors. In industry, profits slightly decreased, impacted by semiconductor shortages, the lockdown, the raw material price hikes. These negatives could not be offset by the increased sales of capacitors for ICT infrastructure and the effect of the yen depreciation. In energy, profit decreased despite increased sales due to price hikes in raw materials and logistics and increased development expenses and fixed costs for increased production. Other income and loss largely improved due mainly to reduced restructuring expenses. Accordingly, decrease in OP was less than that in AOP. Next, results of lifestyle by divisional company. In living appliances and solutions, sales decreased on constant currency. Sales in Japan decreased, such as for microwave ovens affected by the lockdown and others, while overseas sales increased, mainly refrigerators and washing machines in Asia. Profit decreased with lower sales, despite price revisions and rationalization to counter the deteriorated environment. In heating, ventilation, AC, sales increased steadily, mainly in Europe, while profit decreased largely due to negative impact of exchange rates. In cold chain solutions, both sales and profit increased with steady sales, mainly for showcases in Japan and the U.S. In electric works, both sales and profit increased with steady sales of overseas electrical construction materials, mainly in India.

This is our operating profit analysis by factor. From the left, sales expansion increased profit by 1.5 billion yen, despite such negative factors as the Shanghai lockdown and semiconductor shortages. Fixed costs pushed down the profit by 19.6 billion yen. This is due to the increases required by business growth initiatives such as depreciation and R&D expenses. Price hikes in raw materials and logistics pushed down the profit by 56 billion yen, while price revisions and rationalization and others pushed up the profit by 27.3 billion yen. The consolidation impact of Blue Yonder was a decrease factor of 7 billion yen. Blue Yonder's adjusted operating profit was positive, but with the amortization expenses related to their position, as well as other factors, it was negative on the consolidated basis. The overall forex impact was minor, totaling zero. It was positive for industry and energy, but negative for lifestyle. As a result, adjusted operating profit was down by 53.8 billion yen. Other income and loss was an increased factor of 13.1 billion yen, and operating profit was down by 40.7 billion yen. Next is free cash flow and cash positions in Q1. The free cash flow was down year on year due to the lower adjusted operating profit and increase in inventories. However, we were able to secure 48.3 billion yen, the same level as the net profit, mainly through the improved working capital. With regard to cash generation from Q2 and onwards, we are continuing to make efforts to reduce the higher inventories that are affected by external factors and the control of the inventory level of strategically secured parts and materials. On the right, net cash is shown. It was minus 635.3 billion yen, an improvement from the end of FY22. Next is the impact from changes in the business environment. This shows the impact on each segment by four elements. Changes in demand, shortages in semiconductors and parts and materials, Shanghai lockdown and price hikes in raw materials and logistics. The light blue shows factors with a positive impact, and the pink areas show a negative impact compared to FY22. The top half shows the results of first quarter FY23, and bottom half explains the outlook for the situation in Q2 and onwards. In Q1, each segment was significantly impacted by shortages in semiconductors and parts and materials, the lockdown, and price hikes in raw materials and logistics. From Q2 and onwards, such factors are expected to lessen with the end of lockdown. However, the impact of the shortages in semiconductors and parts and materials, as well as price hikes in raw materials and logistics, are expected to remain. We will implement countermeasures such as alternative procurement and price revisions to mitigate the impact of those factors. Let me explain our view based on the trends of quarterly results. The graph on the left starts with the FY22 Q1. Since Q2, the impact of semiconductor shortages and raw material price hikes has been significant. which led to low profitability. Also, recently we have faced the impact of the lockdown, making business environment more difficult. However, as you can see on the top right, if we look at the Q1 of FY23, the monthly adjusted operating profit, the situation significantly improved in June when the lockdown was lifted. The prolonged week situation turned to a recovery trend after hitting the bottom in May. Today, each operating company is accelerating its initiatives to enhance competitiveness. We expect our performance in Q2 and onward to shift toward recovery through our efforts, such as thorough enhancement of operational capability, higher sales of energy and heating ventilation AC, and further efforts in price revisions to counter raw material price hikes. This is my final slide. After the launch of our new structure in April this year, we announced our group-wide medium to long-term strategies as well as those of each operating company. We are making steady progress with assessment and execution of each initiative based on the strategies. For the material matters in supply chain management and automotive battery businesses, we have disclosed and communicated information when the decisions were made. During the second half of FY23, we plan to have briefings on the individual businesses in lifestyle. As we proceed with the medium to long-term strategy, we will make announcements on individual measures at both group-wide and operating company levels in a timely and appropriate manner. Thank you for your attention.

From Nikkan Kogyo Shinbun, Ohara-san. Thank you, Ohara, from Nikkan Kogyo Shinbun. I hope you can hear me. Yes, we can. Thank you. I have two questions. First, regarding the results and the outlook. Compared to the forecast you announced in May, you have not made any changes despite the changes taking place in the business environment. Can you tell us the reason why you haven't changed the outlook of the guidance? In your presentation, you said that you expect the results to bottom out in May, but in relation to that, can you explain the reason why you haven't changed the outlook? My second question. The government is talking about restarting the operation of nuclear power stations and others so as to address the power shortage possibilities in Japan. So the basic policy of the government is control the soaring energy prices. So I wonder if you have any comments or requests on the part of the industry regarding this government policy. Thank you for your questions. Your first question about the guidance outlook. course at each of the operating companies the annual forecasts we have aggregated them which are shown in the latter part of the presentation so it is so although it is shown in the qualitative matter that's what we are sharing in terms of KGI Given the trend that I mentioned earlier, we did not feel the need to modify, revise the annual outlook. Although pertaining to the foreign exchange, maybe we could have changed, revised, but for the time being, we decided to keep the original forecast. As for the first quarter results on a year-on-year basis, it may appear to be weaker, but we are focusing on the 10 that I mentioned earlier, and 100 billion yen in a single quarter. That was for the first time since 2007, the Lehman crisis. And So that was the figure for last year. Other than that, we have seen the first quarter exceeding 100 billion yen. So that is the answer to your first question. Now, regarding the electricity and the energy price hikes, the request that we might have of the government as a company, I don't think we're in a position to make any statements one way or another. We are working with Kansai Lifted Power Company and others in terms of promoting the procurement of the renewable energy sources. So we'll just be focusing on what we can do as a company. That's all. Thank you.

Thank you very much. Next, Naganawa-san from Nikkei. Yes, this is from Nikkei. I hope you can hear me. Yes. Thank you. First. connect or about the blue yonder I have a question so here the acquisition has ended and there is a major amortization it's about seven billion negative number so is this some this is something that is going to continue so how do you make a profit in connect business as a whole This could be a very heavy burden. So what do you think of that? And also, the listing of the company or creating a new company is being discussed. So maybe you can touch upon that. That's my first question. The second is about the price revision. With the higher materials cost, the operating income was negative, and maybe 50% of that is reflected on the prices. So from now on, home appliances, from August, we hear that you might be increasing the prices. So aside from the home appliances or home electronics, what are the areas that you need to increase the prices? Thank you for your questions. First, about the Connect Blue Yonder, ¥7 billion negative. As I showed you on one of my slides, this has to do with amortization of intangible assets. And in Q3 last year, we announced that one time with the acquisition the accounting procedure in the simple terms the blue yonder itself is profitable business but at the time of the acquisition this business had already incorporated the profit. So it's really a technical matter. So it's about 4 billion yen. It was positive, but on the consolidated basis, it's offset or it turns negative. So there is an amortization of that. So that is the background behind the 7 billion. again negative number so from now on this will improve so that's about the blue yonder and about the listing or the direction of the listing we have already announced made announcement on this so There has to do with the regulation before the listing, so I am unable to give any comments on the potential listing in the future. As for the price provisions, In on the 20th of July, in the lifestyle business, with the new scheme announcement was made, and also from August timeframe, we have already made a press release that we will be increasing the prices of the home appliances. We are very sorry to say, but we will be doing that. So this will become effective in Q2 and onwards. So the impact of the prices, about 45 billion yen or so, so that was in Q1 in relation to the raw materials and with the price revisions, about 23 billion. Through the price revision, we have recovered $23 billion. And if I may comment on this, the lifestyle business is the biggest in terms of weakness in price revision. So we made the progress of the price revision in industry and also energy. So that's the pattern. In Q2, Q3 and Q4, the spike with the high material cost year-on-year increased. We would continue to see this. We expect that. And the price revision will become more effective. So that coverage ratio is currently 50%. So in Q2, Q3, Q4, we expect that percentage to improve. especially the major one is the lifestyle business. That is where we will be able to recover the earnings with the price revisions. On point of clarification, in CONNECT, 7 billion as through the amortization of intangible assets in Q2 and onwards This includes the technical factor, but this would come down to 3 billion level. Is that the correct understanding? Well, about the blue yonder, talking about the future has to do with the regulation before the listing. There are some restrictions, but in Q1, the actual, as I mentioned, it was a pure technical factor and it's worsened about 4 billion and this would be alleviated or mitigated. At the same time, as for the sales, on page 17 you can see it's a steadily growing so this deficit number will improve and will turn to the positive or the profitable business thank you very much thank you thank you next is from Bloomberg much is a song thank you much is a key from Bloomberg

If you can hear me, yes. I have a question regarding the price hikes, price revisions in household appliances. You said that for second quarter, third quarter onward, things are going to get better. But when it comes to the upstream of the supply chain or the material prices, I think the secondary tertiary price revisions are taking place, which means increased cost. So I wonder if already announced price hikes in August and September would be sufficient, or do you see a possibility of further rounds of price hikes? Well, it's hard to predict about the future, but of course Q2, Q3, Q4, the raw material price hikes are being expected. Now, would it expand? Currently, the copper price, over $10,000 per ton, down to $8,000 or thereabout. aluminum and others, those material prices have come down compared to one point in time. Still, instead of counting on those lower prices, we are expecting the price hike impact of around 50 billion yen. on the full year basis in our forecast. Most is in the lifestyle business area. And it is with that in mind that we are planning to implement the price hikes, price revisions. Should we see further changes in the environment? Of course, first we will try to absorb that through our efforts, but we may need to take further actions. But that would all depend on how things will turn out. I see. Thank you.

Thank you very much. Next, from Sankei Kuwajima-san. Kuwajima speaking. I hope you can hear me. Yes. Yes. About the price increase of the home appliances, you mentioned that you would revisit this based on the situation. So do you mean the price increase or in different ways? For example, on the 1st of August and onwards, there could be some different genres of the home electronics. So would that range be expanded? And also in May? you mentioned that you hit the bottom in May. So hitting the bottom, the higher material cost and parts cost have come down, you mentioned. But once again, the biggest factor and the reason why you think that now you have hit the bottom in May, could you explain that once again? Yes. maybe well I don't want to cause any misunderstanding so once again let me explain so what we are we have announced about the price increase up the home appliances this we believe is the best possible way as of now so we are not saying that we would make any changes to that having said that if the there are any major changes in the environment, it is possible that we will make changes. So that's what I meant. So we are not saying that we are thinking about making changes about the price increase. And whether to increase the prices or not, We have to consider whether products are competitive and we have a new scheme where that we have a responsibility for the inventories and the life cycle of the products is not for a year but rather we would like to provide more value to the customers. and we want to spend our resources to enable that. So we want to create such a virtuous cycle. So this new scheme will be applied to the products and we want to increase the number of the products that comes under the new scheme. So that's the meaning of this. That's my answer to your first question. The second question. page 9 we are showing the qualitative information and the raw material price hikes we are not saying that they will get better next year but the similar impact is going to be expected as we did in the past. So we had a lot of pink areas mainly due to the lockdown in Shanghai. So in China and also there were supply from China to Japan and also there was an impact in the car business. So in the Q2, the bottom half of this slide, this is our prospect. So now we have a small pink area and we have the wider blue and more stable situation is shown in white. So And on the following page, this shows the trend in Q2, Q3, Q4 came down. So especially if you compare it with the year before, we would not expect to see the trend that we saw in Q1 last year. So that's what I meant when I said that we hit the bottom in May. And for the four-year forecast of each operating company, they are likely to get better. So that's the background behind this scheme. Thank you. On point of clarification, you talked about this new scheme about the prices. So price revision and this new scheme, are those two wheels to go forward? The new scheme and the higher value for the customer, those two are the things that we want to realize. So when you talk about the price revision, new scheme and the current. products and when we have launched a new product we want to increase the prices not all of them but for some products that are being launched we will have the higher prices done before thank you thank you

We're coming close to the end of the allotted time. We have three individuals raising hands, so we'll take one question per person. Hatanaka-san from Yomiuri Shimbun, please. Thank you. Can you hear me? Yes, I can. I'm from Yomiuri Shimbun. Hatanaka, one question. The COVID-19 the new cases are increasing again and in terms of impact in page 9 for example avionics the aviation industry is recovering it says but there could be some impact continuing from COVID-19 going forward so Q2 onward what is your projection of the possible impact of COVID-19 the avionics business the first quarter results show compared to FY 20 that is before covet 19 for domestic and international flights we have already the industry has recovered to 70% of that level And for domestic flights, higher in the U.S. and North and South America. And for national Europe, U.S. and Middle East flights are back to about 60% of the pre-COVID level, but overall about 70%. So although avionics are seeing an increase in profit, and this is because of flight operation recovering, the operational services sales are increasing for other factors. COVID-19, of course, we don't know about way down the road, but looks like the situation is worse in Japan right now. This morning, the number of new cases increased. in Japan topped the list globally. I think I saw that news this morning. The largest number of new cases in Japan. And of course everyone is being very careful as far as our business is concerned. There will be some businesses that will be affected, while other businesses will benefit from the support from the customers. So it varies. So regarding the COVID-19 impact, we are not paying particular attention to what the possible impact would be on our businesses. Thank you.

Next, Gensan from Denka Shimbun. Please ask one question. Again, from Denka Shimbun, thank you very much. I hope you can hear me. Yes. So one question. earlier the price or new scheme about the home appliances in Japan I think it has created a certain controversy so I think that are you focused on the bringing happiness to three parties the buyer selling community so how do the distributors are responding to this new scheme if you are getting any information instead of meta Well, once this starts to function well, I think it would be good for biocellular and communication, but it requires very detailed explanation, communication, and of course, with the distributors you ask the question so whoever it is I think that the price should be the same so if that is the case that the stores would be just like a showrooms and it would no longer be a price negotiation so the products with the lower prices will be advantageous. But there are different opinions about that. So this new scheme price at the reasonable level should be stabilized, and we want to support and help customers truly, and we want to spend our resources to enable that. And by creating such a virtuous cycle, I think we can create the situation where we can please the three parties, buyer, seller, and community. So that's what Shinada-san said. And of course, I understand that there are different views. So we will continue to provide for communication and detailed communication. Thank you very much.

So the last question from journalists from Kyoto News Agency. Watanabe-san, please. We ask you to limit your questions to just one question, please. Thank you. Watanabe from Kyoto News Agency. I hope you can hear me. Yes, we can. Okay, one question about Kinect. looking at like 17 blue yonder KPIs regarding revenue Q1 here seems to be going down meaning it appears that the profits is going to go down maybe there is no impact of the logistics cost increase but I wonder what the factors are and as for Q2 onward what kind of changes do you expect but shown on slide 17 the numbers there they are in million US dollars so you can compare on the Apple to Apple basis on the left upper left $272 million last year, up to $309 million this fiscal year. So the revenue itself grew. What's shown on the lower left-hand side, this is for SaaS, software as a service, recurring revenue. And on the upper right-hand side, you can see the recurring ratio. And you can see that it has flattened, for example, 68.8% in Q4 22 to 68.3% in Q1 23. This is because of an increase in license selling business. So it makes it appear that the recurring ratio went down. As a profit model, the content of the recurring ratio The annual contract for software being paid on a monthly basis. There's new contracts and the service maintenance fees. Those are the two elements that constitute this. So 108% into one from the previous year. software as a service, the new contract acquisition based on the recurring basis that has increased. So it's not that the growth rate has declined The value, the amount itself is increasing, and because the amount is increasing, it makes it appear that the growth rate has moderated somewhat. Now, Q2 onward, there is a concern of recession on a global scale, and the investment priorities on the part of the customers may be affected. That's one concern that we have, but for the time being, That is our current projection, what's shown on slide 17. I see. Thank you. Thank you. So that concludes the questions from journalists.

Thank you very much. Now we are taking questions from analysts and investors. If you have any questions, please use the raise hand button. But we are only taking questions in Japanese. Thank you for your understanding. From JP Morgan, Ayada-san. This is Ayada speaking from JP Morgan. Two questions, please. First, on page 9, you're showing the impact from the management environment, the changes of it. And you're not making any changes to the four-year guidance, but compared with three months ago, I think that macroeconomically the direction has changed. So what are the areas that could change for the four-year guidance? You don't have to talk about all segments, but for example, lifestyle, automotive and industry, the customers and the distribution inventory, are you seeing any changes or making any changes to the four-year guidance, but are there any areas that you really need to catch up? The second question, page 7, the profit increase and the decrease. You touched upon this, but the raw material cost and logistics are 56 billion in Q1, so 180 for 4 years. As you said, the market assumptions are also changing. So, the way of thinking, for example, if the current situation continues, this 180 billion negative impact, how would that change? That means that about the raw materials, you have already probably made a reservation, so it would be just an impact in Q4, or for the logistics, maybe this would be more obvious in the following year. Or maybe from Q4 you will start to see the effect. So maybe you can talk about those areas. Thank you. Page 9. The changes from the past. First of all, about the Shanghai lockdown, Q2 and onwards, it will change. About the raw materials, the hike, there are some materials which the prices went up. For example, lithium price has stayed at the high level. So we want to make sure that we need to, we will take countermeasures about the prices. But in operating companies, Now after ending the Q1, in Q2 and onwards, they are likely to manage well. So the demand changes. How would that change after Q1? Now through the media, TSMC announced that for PC and smartphone, the demand for those more recently. Of course, there is a shortage of the semiconductor, but from the second half of this year, it'll get better. So that's what the TSMC said, and that's what I saw through the media. And from the industry business of ours, we are getting the similar information, but that's just the information. all the semiconductors are quite tight in supply, but the leading edge ones and also the large scale ones, there could be some relocation from the leading edge to the larger scale, so we are hearing that too. In automotive, The production has been quite tough and this could continue, but there could be some signs of changes. So concerning demand, what we are concerned about is the global economic recession, whether that could happen or not. If that happens, when do we see that happening? So that's something that we analyze the information internally so that we can reflect or factor that in to our guidance. That's my answer to your first question. And the second question on page 7, 56 billion for the first quarter, so 180 billion for the full year. So, of course, we don't know until it's over, but the raw materials prices probably it will continue to be at the level and also the price revisions that we will be making. So higher materials cost and also the rationalization and price revisions, we have to look at both of them. In Q2 and Q3, we have to make sure that we take those countermeasures against the higher materials cost. I hope those answered your question. Thank you.

Next is from Morgan Stanley, MUFG. Ono-san, please. Thank you. Ono from Morgan Stanley. My two questions. At the beginning of the fiscal year, Shanghai lockdown impact was not included in your annual guidance, you said. But when I look at the waterfall chart on slide seven, it does show that through the price revisions, you covered that. So is it that because the measures you took were enough to make up for the impact of Shanghai lockdown, you're not changing the annual guidance? That's my first question. Secondly, in your monthly breakdown, you're showing that there was a huge recovery in June. So... if this could be verified do you feel that it's going to be a good month in july as well or do you still see possibilities of further fluctuations and therefore you're not really assured of the future of course so what about the risks of the whites turning to pink in slide nine Thank you for your questions. At the beginning of the year, the Shanghai lockdown impact was not included in the guidance. And after the fact, well, it's really hard to say, but Shanghai lockdown and semiconductor shortages, about over 20 billion yen negative impact on the profit is how we analyze the situation and through increased sales we tried to make up that and we were successful in doing that as you can see in this graph that is what we tried to show in that waterfall chart so April May June situations on a monthly basis July and August due to seasonality the air conditioners and refrigerators sales tend to increase so it's really hard to say but I was shown on slide 9 these are the assumptions that we have in not modifying, revising the guidance. We felt that there was no way we can make accurate revisions. Now, are there still some concerns? That is your question. And what are the strengths and weaknesses where some of the questions are earlier? In terms of automotive, on the annual basis, you know, the guidance initially, the impact of... reduced production in automobiles was rather sizable and therefore we do foresee a more dimmer situation but for lifestyle things are moving as we projected that is after June and through the price revision and other measures as we have announced we feel that we can secure this at least that's what we're going to try industry at their current situation you feel a bit bullish But there is a question of would there be any recession, and if so, when? That's what we are paying attention to. We haven't changed the foreign exchange rate assumptions either. So those are the basis of our projection. Energy, the reduced profit from the very beginning – we felt that in the first half we will not be able to recover and we were planning to recover in the second half not in the first half looking at the results in the first quarter things are moving as we predicted and currently Overall, automotive is slightly weaker than we projected, but other businesses are doing stronger than our projection. So overall, we felt that we can't really revise the guidance. So if that answers your questions, yes, thank you.

Next, Mr. Okazaki from Nomura Securities. Thank you very much. This is Okazaki about energy. The Q1, profitability, that is where I have a question. About energy, the raw material cost increase was tough. But in comparison to the previous quarter, the profitability was up. So the price division went well, or in terms of profitability, it has improved quarter on quarter. So could you tell me the reason for that? And in Q2, and onwards, as you mentioned, the raw material costs might stay at the high level. And do you think that you can recover or improve the profitability? And the second question is about energy. The other day, the automotive battery investment to the factory was announced. So in generating free cash flow, I think that you're making good progress in the investments. So as a holding, are there any changes in thinking about the investments? Yes. About the energy. company, the profit structure, mainly the automotive, batteries, and then industrial and consumer. So those are the two major areas. And the level of the size of the profits is that automotive is about 30% or more, and the rest is a little less than 70% industrial and consumer. energy solution and energy devices concerning those high profitability is maintained. The mobility energy, if you calculate, it'll be a little less than 5%. And of course, right now, 4680 development cost, and also the production expansion investment is necessary, so the fixed cost, higher fixed cost is impacting. From the previous Q1, you mentioned that there is an improvement. The price revisions in the first half, of course, we did not catch up fully, but compared to last year, it is improving. Since last year, we are recovering and seeing improvements. So that has contributed to improve the profitability. also the automotive factory, the investment in it. There is a major project and as of now July in Kansas or state of Kansas the contractor by invest incentive was established and we made announcement together with the state so in the past it was virtually vertically integrated we did everything but now In this area, there are different flows of money and we are seeing the changes in such flow. So, Energy announced that doing everything on our own, vertically integrated, those are very rough numbers that they announced. So, 4680 type, In Wakayama plant, we are doing the verification on the mass production. We are currently working hard on that. is something that we will be doing in Wakayama plant so that we can make sure that there is a product the profitability in making 4680 and based on that we would like to do the capital allocation which will become necessary based on the different scenarios so how much do we need is not fixed so there are various simulations that we need to do thank you thank you very much we're coming to an end so we'll take just questions for two people one question per person please from city group

Global Markets Japan is awesome, please. Yes, thank you. Just one question on energy. In vehicle and industrial and consumer, I think sales are rather strong. the appreciation of the yen how much is the effective that or is it limited so is it really price going up and sales volume going up that resulted in increased sales and compared to the full year forecast I think that q1 progress was very good is that simply the case that we can expect the annual sales to be larger than your projection or is it that there were some special factors in q1 and therefore we should expect smaller sales in q2 onward thank you energy exports are quite sizable So both in sales and profit, we see an upside as a result of the impact of exchange rates change. I'm not going to go into the details for Q1, but to a certain extent, at energy company, about 40 billion yen increase in sales were achieved, of which Approximately two-thirds benefited from the exchange rate changes. But sales did increase. And sales increase was particularly large for in-vehicle, the Pena operation. in the US. This saw the biggest increase in sales. Going forward, sales in the US, Pena sales, We have the 14th line in operation, and the operating rate is increasing, and so that should make a difference. So we believe that the expected sales increase could be achieved. That is our current prediction. That answers your question? Yes, thank you.

last question is you stand up and then from me to hold securities thank you this is not going to speak in one question but the inventories into one it's up to one point three trillion of course it has to consider the foreign exchange impact but my question is that the fixed of the final finished products and the work in progress and so forth whether the inventory level is higher or lower than the regular level. And when you look at different segments, which segments have higher inventories and what is the size of the higher inventory? The third is that maybe March or September. You mentioned that you would revisit the inventory level, so it's not yet final. But when we think about the cash flow, what would be the level of the inventories that we should consider? If you can give us any hints. So semiconductors and the other materials, if the prices come down, And is there any risk that the loss will incur from the inventory? Maybe it's not likely, but if you can comment on that. About the inventories, from the beginning of the fiscal year, it's increasing. If I calculate this, in terms of the actual numbers, $50 billion to $60 billion, that is the foreign exchange translation related, and also the inventory is up in volume. Mainly, strategically secured inventories, including semiconductors. so for the manufacturing production the materials that we need to secure that was up in q1 so year-on-year comparison when you do the comparison it's about 300 billion and or higher but actually it's about 286 billion yen level increase so more than half of them then is a strategically secured inventories so when we have Manufactured products are bought by the customers right away. So what about the remaining half? There are accompanying materials and also PSI due to the different factors will change. And there are materials related to that. And the inventory that we focus upon, first of all, is to differentiate whether it is strategic inventory or not, and whether this would lead to the disposal, potential disposal. So operating company is currently verifying that, but they are unable to manufacture So the risk of having the disposal of the inventory is not something that we are seeing right now. and whether we are keeping the inventory of the finished goods or work in progress there are differences depending on operating companies but mainly the finished goods is small when we have a finished goods they sell very quickly so as much as possible you want to have an inventory as materials but at the same time from japan for example cylindrical battery 18650 for those products at the ports of US they were stopped. So some work in progress inventory increased in energy because of that. But basically we want to have the inventory of the raw materials and so the finished goods inventory is very few. Toward Q2 We would try to reduce the inventory level, but there was a confusion in Q1, and Q2 is right after Q1. So we want to make sure that we capture the opportunities. So there is a direction to reduce the inventories, but toward the end of the fiscal year, we would make sure to reduce the inventories. So that's how we look at this. Thank you very much. Thank you very much. I understand. Thank you very much.

With this, we conclude the earnings webinar for Q1 of FY23. Thank you very much for participation.