Panasonic Holdings Corporation

Good afternoon. I will go over the consolidated financial results of the second quarter of fiscal 23. First, a summary of the consolidated financial results. Overall sales increased year-on-year due to the increased sales of lifestyle, automotive, and energy, as well as the consolidation that blew yonder and by currency translation. Adjusted operating profit remained at the same level despite increased sales. This is mainly due to the increased fixed costs for growth in lifestyle and energy. Such efforts as price revisions offset the impact of raw material price hikes. Operating profit and net profit decreased due to the impact of recognition of a gain in FY22 of 58.3 billion yen from the revaluation of existing equity in Blue Yonder upon acquisition. Free cash flow improved from FY22 in which the acquisition of the Blue Yonder completed, but it was below the level of net profit due to strategically increased inventories despite to respond to semiconductor shortages and other factors. For the full year forecast for FY23, group-wide sales is revised upward due to currency translation. Profit is revised downward. By segment, profits of Connect Automotive and Industry are revised downward. Based on the recently enacted U.S. Inflation Reduction Act IRA, tax credit is assumed in FY23 Q4 for the energy segment. This positive impact is not yet factored into the forecast since the relevant bylaws have yet to be determined. Now the details of the consolidated financial results for Q2. This slide shows the consolidated financial results. Overall sales increased to $2,090 billion, up 20% year-on-year. Sales in real terms on constant currency increased by 9%. Adjusted operating profit was $80.2 billion, the same as FY22. Other income and loss decreased by 10.6B due to the impact from the one-time gain of 58.3B in FY22 related to the acquisition of Blue Yonder. Excluding this impact, other income and loss steadily improved due mainly to reduced restructuring expenses. Operating profit and non-profit decreased by 10.7B and 18.1B respectively. The results by segment year-on-year variance analysis are shown in the next few slides. First, sales analysis by segment. In lifestyle, sales increased due to steady sales of growth businesses such as HVAC Systems European Business, Overseas Electrical Construction Materials, and Showcase in North America. Consume electronics in Japan recovered with the lifting of the Shanghai lockdown and other factors. In automotive, sales increased, reflecting recovery in automobile production. In Kinect, overall sales increased with increased sales of rugged mobile terminals for overseas markets, along with the upturn in avionics, reflecting market recovery in the aviation industry, as well as the consolidation of Blue Yonder. Sales decreased in process automation with an investment slowdown in the areas of PCs and smartphones, as well as Kemba Solutions due to the slowdown in post-Olympic demand. In industry, overall sales decreased due to decreased sales resulting from the ICT market slowdown and semiconductor shortages and the termination of the semiconductor business, despite increased sales of capacitors and modules for automotive use and relays for industrial and EV use. In energy, sales increased with price revisions and improved productivity and increased production after installing a new line in FY22 for automotive batteries in North America, despite lower sales of lithium-ion batteries for consumer applications such as PCs and games due to deteriorating market conditions. among other eliminations and adjustments in entertainment and communications sales decrease with procurement issues for some components in housing sales increase with water related products such as kitchens and toilets and building materials such as interior doors and floor materials adjusted operating profit analysis by segment In lifestyle, profit increase and continuous efforts such as price revisions and rationalization in Japanese and overseas markets nearly offset the deteriorated business environment, including exchange rates, raw material and logistics costs. Moreover, profit increased with increased sales, mainly in growth businesses. In automotive, profit increased with increased sales, price revisions to offset price hikes in parts and materials, and cost reduction efforts despite the price hikes such as those of semiconductors and increased fixed costs. In connect, profit decreased due to decreased sales and process automation and GEMBA solutions and amortization related to Blue Yonder acquisition and other factors despite increased sales to rugged mobile terminals for overseas and avionics. In industry, profit decreased due to decreased sales and raw material price hikes despite rationalization, price revisions, and the effect of yen depreciation. In energy, profit decreased due to price hikes in raw materials and logistics along with increased development expenses and fixed costs needed for increased production despite the effect of yen depreciation. The results of lifestyle by divisional company, both sales and profit increased at all divisional companies. In living appliances and solutions companies, sales increased due mainly to sales recovery from the impact of the COVID lockdowns. Profit increased with such efforts as price revisions and rationalization to counter the deteriorated business environment, including yen depreciation and raw material price hikes. In heating and ventilation, AC Company, sales increased due to continuing favorable sales of air-to-water heat pump systems in Europe and sales recovery from the impact of lockdowns in Asia. Profit increased due mainly to increased sales despite the deteriorated business environment such as the effect of exchange rates. In cold chain solutions company, operations in Delhi and China are excluded from the scope of consolidation from FY23 Q2. Accordingly, its results in FY22 are reclassified to conform to the FY23 presentation. This is in line with the change of management responsibility for the cold chain business in China to be held. solely by China and Northeast Asia Company. Based on the reclassification, both sales and profit in FY23Q2 increased with steady sales mainly for showcases in Japan and the U.S. In Electric Works Company, both sales and profit increased with steady sales of overseas electrical consumption materials, mainly in India and Asia, despite the impact of shortages in parts and materials. Operating Profit by Factor, From the left, profit generated from sales expansion increased by $26.8 billion. Fixed costs had a negative impact of $25.1 billion due to the increased investment in life-solid energy for business growth. Price hikes in raw materials and logistics had a negative impact of $50 billion. The counter-effective efforts, such as price revisions and rationalization, offset this negative factor. The consolidation impact of Blue Yonder was negative $6.6 billion due to a loss in its operations, resulting mainly from temporary expenses, as well as the recording of amortization expenses and others. The overall effective exchange rate was positive, totaling $4 billion. By segment, it had a negative impact in lifestyle, but positive impact in industry and energy. Adjusted operating profit was the same year on year. Other income and loss had a negative impact of $10.6 billion due to one-time gain in FY22. Operating profit decreased by $10.7 billion. Free cash flow and cash positions. On the left, free cash flow was $69.3 billion for the first half. Although it improved largely year on year with the completion of Blue Yonder acquisition, it was below the level of net profit due to the strategically increased inventories responding to semiconductor shortages and others. On a quarterly basis, inventories turned to decline in certain businesses. We will continue further efforts. to reduce inventories, mainly by revising the strategic inventory level. Net cash was negative $604.1 billion, an improvement from the end of FY22.

Next is the consolidated financial forecast for FY23. This shows the consolidated financial forecast. Forex assumption is revised as shown at the bottom. Based on this and the currency fluctuation, sales is revised upward by ¥300 billion to ¥8.23 billion from the initial forecast. However, constant currency-based sales is revised downward by ¥200 billion. Adjusted OP is revised downward to 340 billion yen, down 40 billion yen. Obedient profit is revised downward to 320 billion yen, also down 40 billion yen. Net profit is revised downward by 25 billion yen to 235 billion yen. ROE is expected at 7%, EBTA at 750 billion yen. This shows the forecast by segment. As for profit, lifestyle remains unchanged. Energy is revised upward, and automotive, connect, and industry are revised downward. the details of the provisions from the initial forecast is explained from the next slide this shows the forecast for the lifestyle segment by divisional company the profit forecast of all divisional companies remained unchanged Next is revision factors by segment. In lifestyle, sales is revised upward due to the currency translation. As I said, OP remains unchanged. The impact of Shanghai lockdown and exchange rates is expected to be offset by such efforts as price revisions and rationalization. In automotive, sales is revised upward due to the currency translation. However, the sales in real terms is expected to decrease from the initial forecast due to the reduced automobile production. Adjusted OP is revised downward, largely affected by lower sales in Q1. despite the price revisions to counter parts and materials price hikes and effect of exchange rates. In Connect, sales is revised upward due to the currency translation. However, the sales in real terms expected to decrease from the initial forecast due to the parts and materials procurement issues and post-Olympic demand slowdown in Japan. Adjusted OP is revised downward due to the lower sales as well as lower profit of Blue Yonda. In industry, sales is revised upward due to the currency translation. However, sales in real terms expected to decrease from the initial forecast due to the deteriorated market conditions in ICT infrastructure and equipment. Asset therapy is revised downward due to the decreased sales despite rationalization and the yen depreciation effect. In energy, sales is revised upward due to the price revisions and currency translation, despite the slowdown of lithium-ion batteries for consumer application. Asset OP is also revised upward due to the weaker yen and price revisions countering further hikes in raw materials. Based on the US IRA, tax credit is assumed in Q4. However, this impact is not yet factored into the forecast. In other eliminations and adjustments, sales have revised downward due mainly to lower sales of TVs. As a set of P is also revised downward due mainly to the price hikes in materials and effective exchange rates. This shows our analysis of the revised forecast of operating profit in FY23 by factor and explains the changes made from the initial forecast. The upper graph shows the analysis of year-on-year increase-decrease factors in the initial forecast. The lower one shows the analysis of increase-decrease factors in the revised forecast of October 31. Figures in the middle show the revised amount by each factor. Overall picture is that we are expecting an increase in fixed costs for future growth as well as the expanding impact of the raw material price hikes. However, our price revisions and rationalization efforts are expected to counter these increases. On the other hand, the impact of the lower sales in real terms compared to the initial forecast and the impact of temporary setbacks of the Blue Yonder are not fully offset by above-mentioned efforts. Therefore, operating profit is revised downwards by $40 billion. Now let me explain our view on Q2 based on the quarterly results, as I did for Q1. Currently, there is already a sign of slowdown in demand for ICT-related businesses and others. There are also concerns of a slowdown in economy. However, as explained at Q1, the situation turned to a recovery trend with improved results after hitting bottom at Q1 when impact of Shanghai Lock-1 was felt. From Q3 onwards, we will continue to aim for the sales growth mainly in energy and heating and ventilation AC business. From the external business environment perspective, there are some encouraging factors such as an ease of shortages in semiconductors and parts and materials, as well as enactment of IRA in the United States. Today, the Panasonic Group announced the decision to construct a new manufacturing facility of automotive cylindrical lithium-ion batteries in Kansas, U.S. This slide shows the summary. The outline of the facility is as follows. Construction is expected to start in November 2022. Mass production is planned to start during FY25. Type of cell to be produced is 2170 cells. Initial production capacity is expected at about 30 GWh per year. The graph on the right explains our target of production capacity expansion, which was shared at IR Day in June this year. Today's announcement on the investment is in line with this target. Next, this shows the progress of our initiatives for three businesses identified as growth area in the group's medium to long-term strategy announced in April this year. In the automotive battery business, as explained in the previous slide, we will continue to strengthen its supply capability in the United States. In supply chain software business, there are certain impact on results due to the temporary setbacks in the business environment, such as postponement of customer investments. We're concerned about the economic slowdown and the strong data. To counter this, under the new CEO who joined Blue Yonder in July, we are formulating the key strategies, including a stronger organizational structure and business transformation toward future or further growth. In the air quality and air conditioning business, we will expand investment to accelerate the business growth for air to water in Europe. Going forward, the Panasonic Group will make announcements on the progress of these three growth areas in a timely manner. This is my last slide. It shows a list of the IR-related announcements in FY23, after the launch of our new structure in April. Briefings on the individual businesses by lifestyle are planned to be held in November. As we proceed with the medium to long-term strategy, we will make announcements on the individual measures at both group-wide and operating company levels in a timely and appropriate manner. Thank you very much for your attention.

From Kyoto News Agency, Watanabe-san, please. Thank you, Watanabe from Kyoto News Agency. I hope you can hear me. Yes, we can. Thank you. I have two questions. First, about Blue Yonder, the temporary deterioration of business. Could you elaborate on that? I don't think KPIs themselves are not deteriorating that much. So when you say temporary, does it mean only this fiscal year? Or could there be some lingering effect as well? And how can you say that it's temporary? What makes you say that it's just temporarily temporary? deterioration. My second question is on your new investment for the battery manufacturing facilities in the U.S. What is the scope? At the capacity of 30 gigawatt hour, you said that that will be the initial capacity, and that would account for how much of the total? Thank you for the question. First, as you can see in the slide, regarding the second quarter blew yonder on a standalone basis. Some losses were recorded. Under the new CEO, we revisited the management system. So temporary restructuring efforts entailed expenses, which are included. And also... for the amortization of intangible assets. Due to the currency translation, because they are calculated on the U.S. basis, that is having an impact as well. There is a question of what the exchange rates are going to be, but that's one factor. Another thing, continuing from last year, from the accounting point of view, there was about 50 billion yen impact when we acquired 100% of its equity. And we explained that that is going to have an impact this year and that continue to have an impact for the second quarter as well. On the annual basis, in our forecast for Blue Yonder, When you look at the indicators, they don't look that bad, as you have correctly pointed out. In terms of year-on-year growth, that trajectory remains unchanged. Compared to the initial forecast, we made the downward revision. And factors involved are as follows. Macroeconomic uncertainties have resulted in the customers, clients withholding investments. About 40% of the impact comes from that. And due to inflation, the personnel expenses are increasing. And also, as I mentioned earlier, we decided to revisit and rebuild the management style under the new CEO. But this is that accounts for about 40 percent. But that's only temporary. And then the currency impacts when the economy. Intangible assets are translated into Japanese. That has a major impact. And when Blue Yonder does business in Europe, because U.S. dollar is appreciating against Euro, that is having an impact as well. The recession. What is going to happen going forward is a big question mark. But in terms of the increasing personnel increases and other factors, we can counter that through price revisions. And with regards to the currency translation, it's just a translation issue. So when it comes to basic fundamentals, as was indicated in some of the slides, in terms of recurring business, And sales increase, we don't see any change in that pattern. And your second question regarding the investment amount for the new facilities, 30 gigawatt is the capacity. Investment amount, we do not disclose that. Of course, the manufacturing product will be 2170 cells at ENA. We do have the production, but that is not going to be moved as is. So we are going to improve the productivity. And in July, when we signed up for the incentive programs in Kansas, we mentioned a $4 billion investment at that time, and we believe that that will be a good benchmark, 30 gigawatt hour investment. Currently, approximately, our production capacity is 50 gigawatt hour, and we're talking about additional 30 gigawatt hour. Would this answer your questions? Just one follow-up question, if I may. Okay. When I said overall, of the total plan you have for Kansas plan, this initial capacity of 30 gigawatt would account for how much was the intent of my question? Oh, I see. As you can see in the slide, in June, energy company made the IR presentation, and it is along what was described there that 30 gigawatt hour is going to be the initial investment. As for going forward, we do have some plans, but nothing has been decided. I see. Thank you.