Panasonic Holdings Corporation

I would like to go over the consolidated financial results for the third quarter of fiscal 2024. These are the highlights. Regarding the US Inflation Reduction Act or IRA, the accounting treatment is the same as in the first and second quarters. Proposed rules for section 45X was released last December, but there are no major changes to the contents. next the results for the third quarter those sales and profit increased even excluding the ira impact overall sales increased due to increased sales in automotive and currency translation despite lower sales in lifestyle and industry Adjusted operating profit increased overall on higher profit and lifestyle, automotive and energy, despite lower profit in connect and industry. Net profit increased mainly on above factors as well as improved finance, income and expenses. Operating cash flows for nine months significantly increased year on year due mainly to reduced inventories. For the full year forecast, the grid-wide forecast remains unchanged. The partnership with Apollo regarding the Panasonic Automotive Systems business announced in November is not factored in to our forecast. By segment, the forecasts are revised reflecting changes in each business environment. In automotive, both sales and profit are revised upward, while in lifestyle, both sales and profit are revised downward. In connect and energy, sales are revised upward. First, the impact of the US IRA tax credit on our financial results and forecast. The accounting treatment and items remain unchanged since the first quarter. The amount recorded for the third quarter and full year forecast are shown on this slide. The full year forecast remains unchanged. Now, the details of the consolidated financial results for the third quarter. For the consolidated financial results, the sales and profit increased. Overall sales increased to 2,180.9 billion yen or 1% year on year. Sales in real terms on constant currency decreased slightly by 2%. Adjusted OOP increased by 40.2 billion to 126.1 billion and operating profit increased by 43.1 billion to 127.5 billion yen. Profit before income taxes and net profit both increased due mainly to the above factors and an improvement in finance income and expenses on higher interest rates. Even excluding the IRA impact, profit increased as shown on the right. Results by segment are as shown here. Variance analysis for sales and OP are shown in later slides. First, sales analysis by segment. Lifestyle sales decreased overall due to lower sales in HVAC and weakening demand in Europe, lower sales in consumer electronics, mainly in Asia and China, and the partial deconsolidation of the China business, despite continued steady sales for cold chain in North America and electrical construction materials. Automotive sales increased on recovery and automobile production of our customers. Connect sales increased in Avionics, Gemba Solutions, and Blue Yonder, despite lower sales in process automation. Industry sales decreased mainly due to market downturn for factory automation in China and ICT infrastructure, despite higher sales for capacitors for green vehicles and capacitors and multi-layer circuit board materials for generative AI servers. In energy, in-vehicle sales decreased due to lower production and sales at Japan factory, despite favorable sales with stronger demand and improved productivity in North American factory. Industrial consumer sales were up driven by energy storage systems for data sensors with expanding generative AI market, despite weakness in batteries for consumer products and power equipment. In other eliminations and adjustments, lower sales for entertainment and communication and housing due to deteriorating market conditions. Next, adjusted OP analysis by segment. Lifestyle profit increased mainly on higher sales in cold chain and electrical construction materials and recording of temporary expenses in the previous fiscal year, despite lower sales in HVAC and consumer electronics. Automotive profit increased due mainly to higher sales price revisions to counter higher parts and materials prices and rationalization efforts. This despite increased fixed costs and persisting impact of higher parts and materials prices. Connect profit decrease due mainly to lower sales in process automation and higher strategic investment of Blue Yonder, despite higher sales in avionics and Gamma solutions. Industry profit decreased due mainly to lower sales affected by the market downturn in energy. In-vehicle profit increased due to higher sales in the North American factory, and improved balance between raw materials and selling price despite lower sales at Japan factory and higher tax costs or higher fixed costs. Industrial consumer profit increased due to higher sales of energy storage systems for data sensors with expanding generative AI despite lower sales of batteries for consumer products and power equipment. Lifestyle. Results by divisional company. Sales and profit decreased for living appliances and solutions and HVAC, while sales and profit increased for cold change solutions and electric works. Next, operating profit analysis by factor. From the left, decreased sales in real terms pushed down profit by $7.4 billion. The increase in fixed costs pushed down profit by $7.5 billion due mainly to investment in energy for business growth and impact of inflation. Impact of price hikes in raw materials and logistics turned to a positive of 2.4 billion. Positive effect of price revisions and rationalization totaled 43.2 billion. As other individual factors, impact of IRA was positive 22 billion and negative impact of decreased profit of Blue Yonder was 6.8 billion yen. The breakdown is shown on the bottom right. The effect of exchange rates was positive 4.3 billion, mainly in industry and energy. As a result, adjusted OP was up 40.2 billion and OP was up 43.1 billion yen.

This slide shows cash flows and cash positions for 9 months in FY24. On the left, operating cash flow was 598.3 billion yen, with a significant increase year on year due mainly to reduced inventories. Going forward, we aim to further generate operating cash flow by improving profitability and reducing inventories and others. On the right, net cash was negative of 502.8 billion yen, improved from the end of FY23. Next is the consolidated financial forecast for FY24. This shows the consolidated financial forecast. The group-wide forecast remains unchanged from October 30, 2023. However, the forecasts by segment are revised, reflecting changes in business environment. Details are explained from the next slides. This shows the four-year forecast revision by segment. Let me explain the major factors for the revision. In lifestyle, both sales and profit are revised downward, due mainly to deteriorating market conditions for HVAC business, mainly in air-to-water heat pumps in Europe, and the downtown in market conditions for consumer electronics in overseas markets, despite steady sales of the cold chain and electrical construction materials. In automotive, both sales and profit are revised upward, due mainly to gradual recovery trend in automobile production and higher sales. In connect, sales are revised upward due mainly to capturing demand for aircraft as well as for PCs both in Japan and overseas. Profit remains unchanged by factoring in the risks of the delayed market recovery in China. In industry, the forecast remains unchanged. In energy, sales is revised upward. For in-vehicle sales, The sales is revised upward due to higher sales at North America factory. However, the profit is revised downward. The sales price increase and compensation claims to our customers such as for utilization were lower than expected concerning the Japan factory's reduced sale production for high-end EVs in North America. Additionally, there were increased expenses related to the manufacturing process issues in the past. For industrial and consumer, both sales and profit were revised upward due to increasing sales of energy storage systems for data centers. This shows the forecast for lifestyle segment by divisional company. I will explain the major factors for the revision. For living appliances and solutions company, both sales and profit are revised downward due to the following major factors. For overseas sales decreasing in China and for Japan, deteriorating market conditions and delayed share improvement of the products, including washing machines. For HVAC, both the sales and profit are revised downward. due to significantly deteriorating demand for air to water in Europe, as well as lower than expected sales of room air conditioners and indoor air quality or IAQ businesses. For cold chain solutions company, electric works company, both sales and profit are revised upward due to steady sales trends. Next is the situation of HVAC system or business in Europe. I will explain the changes from Q2. The upper chart shows our European sales trend on the right-hand side. Growth slowed down each quarter and turned to a erroneous decrease in Q3. The major factor is the changes in air-to-water business environment shown in the middle. As of October 2023, we assumed an improved market condition by second half, considering the restart of the subsidies and gas price trends. However, neither factor pushed up the demand, and the total annual demand is expected to decrease significantly year-on-year. Accordingly, our sales forecast is revised downward. Although the current market conditions are challenging, given the ongoing transition to carbon neutrality in the society, this is a business area where we can expect long-term growth. We will continue our efforts in strengthening our business toward the future. As shown at the bottom, on February 1, 2024, we announced a capital and business alliance agreement with Innova, an Italian manufacturer. This company has a strength in cutting edge product development and offering of customer value using IoT solutions. With this agreement, we aim to create unique value with IoT based coordination and control devices for HVAC equipment, as well as with improved energy saving and comfort. Also, we aim to expand the customer value through sales expansion of products equipped with natural refrigerants and sales collaboration with our partners. Finally, some updates of the progress in our initiatives for three growth areas. In the automotive battery business, Energy signed an agreement to purchase silicon anode material with US-based Cira Nanotechnologies Inc. aiming to strengthen supply chains in the US FTA or free trade agreement countries. In the supply chain management software business, Blue Yonda completed acquisition of UK-based Doro, a leading technology company, focused on returns management toward enhancing its end-to-end solutions. In the air quality and air conditioning business, as mentioned earlier, a capital and business alliance was signed with Italy-based Innova toward creating unique value. Currently, some businesses are affected by the changes in the business environment. However, we are continuing to take necessary actions toward medium to long-term growth. We will respond flexibly to the changes in the business environment and always continue to enhance our business competitiveness toward future growth. And with that, I'd like to end my presentation. Thank you for your attention.

From Nikkei, Ando-san, please. Ando, from Nikkei, thank you for the presentation. First, my question is on Panasonic industry. In addition to the UL certifications, the ISO certifications have been suspended temporarily as was announced today. I am sure you're looking into the details of the impact, but what is the likely impact on your full year forecast? Is there a possibility of making the downward revision as a result of this incident? First, the UL irregularities have caused significant inconvenience to our customers and all the stakeholders. I'd like to take this opportunity to apologize for the inconvenience and the concerns raised. Let me answer your question. As of today, impact on our financial results? What's your question? What we can estimate now, the amount is already incorporated in the industry forecast that we disclose today. And to most of our customers, we are directly explaining the situation. And we have been accused significantly the safety performance and others of our products are explained fully to our customers. And regarding the actions going forward with the consent of our customers, we will proceed with the shipment and the recording of the sales. So as of now, what would be the impact on this fiscal year's results? We currently do not expect material impact. Certain related costs have already been incorporated in our forecast. Was that helpful? Yes, thank you. My second question. Electric Works, especially the electric construction materials, are presenting a very strong positive. So regarding this strong business of this electric construction materials, what are the factors? Can you elaborate on that? Thank you. Electric Works Company in Japan. lighting, fixtures, especially not for individual customers, but for commercial facilities. That part of the business is proceeding very strongly. And overseas market where the company is focusing on in Turkey and in Vietnam, in those countries, the electric construction materials are enjoying strong business. Since last fiscal year, various actions have been implemented and price revisions, price hikes have been proceeding with the understanding and the consent of our customers. and that has translated into a strong business. Was that helpful? Yes, thank you.