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.