Panasonic Holdings Corporation

I'd like to now present the fiscal 2024 financial results as well as fiscal 2025 financial forecast. This is a summary. Regarding the accounting treatment of the U.S. Inflation Reduction Act, or IRA, the amount was recorded on PL as before. In fiscal 2024, both sales and profit increased year-on-year, the same level as the revised forecast announced on April 24, 2024. Overall sales increased on higher sales of automotive and connect as well as currency translation despite the decreased sales in lifestyle, industry, and energy. Adjusted operating profit or AOP increased overall with higher profit in lifestyle, automotive, and connect as well as IRA tax credit despite the lower profit in industry. However, AOP excluding IRA tax credit decreased. Net profit increased due mainly to one-time gains with the liquidation of Panasonic liquid crystal display in Q1 of fiscal 24. Operating cash flow significantly increased year-on-year due mainly to reduced inventories. Annual dividend is determined at 35 yen, up 5 yen per share year-on-year. For the fiscal 25 four-year forecast, overall sales and AOP are expected to increase year-on-year. Net profit is expected to decrease due to the impact of one-time gains recorded in fiscal 24. Furthermore, a loss of 50 billion yen is factored into other income and loss resulting from the share transfer. of Panasonic Automotive System or PATH. After this transaction, PATH will become company under the equity method. By segment, lower sales and higher profit are expected in automotive and energy. Both sales and profit are expected to increase in Lifestyle Connect and industry. Now let me explain the impact of the US IRA tax credit on our financial results and forecast. The accounting treatment and items remain unchanged from Q1. The amount recorded for fiscal 24 results and fiscal 25 forecast are shown in the middle. Next is the details of consolidated financial results for fiscal 24. For the consolidated financial results, as mentioned, both sales and profit increased. On the right, a comparison with the forecast announced on February 2nd is shown. Each multi-step profit, EPS, ROE, and EBITDA were below this forecast. This is the results by segment along with the comparison with the forecast announced on February 2nd. As I said, OP was below February the 2nd forecast due to the recording of the expenses related to the past manufacturing process issues in energy segments in vehicle business. Operating profit was also below the February 2nd forecast. This is due to recording such factors as an impairment loss of goodwill related to a part of automotive segments businesses. In other elimination and adjustments, I will explain the analysis of year-on-year comparison for sales and operating profit now. Starting with the sales analysis by segment, overall sales increased due to higher sales in automotive and connect, as well as currency translation, despite the lower sales in lifestyle, industry, and energy. Detailed factors by segment are shown at the bottom. Adjusted operating profit analysis by segmentation. Overall AOP increased on higher profit in lifestyle, automotive and connect and IRA tax credit despite lower profit in industry. Detailed factors by segmentation at the bottom. In energy. as I said, being excluding IRA tax credit, decreased. This is due to the decreased production in Japan factory, higher fixed costs for future growth, and recording of expenses related to past manufacturing process issues, as explained earlier. This shows the results of the lifestyle by divisional company. Next is operating profit analysis by FACTA. From the left, lower profit from decreased sales in real terms was the negative factor of 13 billion yen. The increase in fixed costs was the negative factor of 73.4 billion yen. This is due mainly to investments in energy for business growth and the impact of inflation. The impact of the raw materials and logistic prices were also a negative factor of 29.6 billion yen. The effect of the price revisions and rationalization was a positive factor of 88.6 billion yen. Looking at the other divisional factors, the impact of IRA was a positive factor of 86.8 billion yen. Lower profit of Blue Yonder was a negative factor of 4.5 billion yen. The breakdown is shown at the bottom. Forex effect was a positive factor of 21 billion yen, mainly seen in industry and energy. As a result, AOP increased by 75.9 billion yen. Operating profit increased by 72.4 billion yen. This shows the cash flows and cash positions. On the left, operating cash flows amounted to 866.9 billion yen, with a significant increase year-on-year due mainly to reduced inventories. Going forward, we aim to steadily generate operating cash flows through improving profitability and reducing inventories. On the right, net cash was a negative of 445.7 billion yen, significantly improved from the end of fiscal 23. Next is shareholder return. The board of directors resolved today that the fiscal 24 annual dividend of 35 yen per share up 5 yen year-on-year. This is the same amount as the forecast announced on February 29, 2024. We will distribute stable and continuous dividends based on our medium-term strategy. Furthermore, we aim to enhance corporate value achieved by business growth and higher profit through investments mainly in our growth areas. At the bottom, we again show our approach to using IRA tax credit as explained before. Dividends are determined based on the amount of net profit, excluding the impact of the IRA tax credit. As a result, the payout ratio for fiscal 24 is about 25%. Next, the consolidated financial forecast for fiscal 25. This shows the consolidated financial forecast for fiscal 25. Overall sales is expected to increase 3% year-on-year to 8.6 trillion yen, excluding the forex effect. Adjusted OP is expected to increase to 450 billion yen, and operating profit is expected to increase to 380 billion yen. Net profit is expected to decrease to 310 billion yen due to the impact of one-time gains with the liquidation of Panasonic liquid crystal display in fiscal 24. EPS forecast is 126.31 yen. ROE is expected at 7% and EBITDA forecast 860 billion yen. This shows the fiscal 25 outlook of changes in demand by segment. Regarding our growth areas, For air to water in Europe, we expect the demand to be at the same level year on year for the full year. Considering European economic trends and policy situation, we anticipate it will take a few years to see a full-fledged recovery to growth trajectory. For demand related to supply chain management software, We assume it will further expand with companies having experienced disruptions during the pandemic. For automotive batteries, we expect EV market expansion to continue in North America where we mainly focus. However, the pace of expansion is expected to slow down.

This slide shows our analysis for the FY25 operating profit forecast by factor from left. Profit generated from sales expansion is expected to become an increased factor of 100 billion yen. Fixed costs are expected to become a decreased factor of 80 billion yen. This is due mainly to investment for future growth in energy as well as inflation. The impact of raw materials on logistics prices is expected to become an increased factor of 20 billion yen. Such effects as price revision, rationalization are expected to become an increased factor of 19.2 billion yen. Other individual factors, the impact of IRA is expected to become an increased factor of 2.6 billion yen. Increased profit of Blue Yonder is expected to become an increased factor of 8.2 billion yen. Breakdown is shown in the bottom right box. The effect of exchange rates is expected to become a decreased factor of 10 billion yen, mainly in industry and energy. As a result, adjusted operating profit is expected to increase by 60 billion yen. In other income loss, a loss of 50 billion yen is factored in, resulting from the shared transfer of Panasonic Automotive Systems. Operating profit is expected to increase by 19 billion yen. This slide shows the full year forecast by segment. Major factors are explained on the next slide. This slide shows our analysis on the FY25 sales forecast by segment in lifestyle. Sales is expected to increase due mainly to increased sales in electrical construction materials for overseas and room air conditioners in Asia, while air to water in Europe in increasing slightly air-on-air automotive. Sales is expected to decrease due to the effect of exchange rates. However, sales is expected to increase in real terms. Increased sales of automotive electronic systems to offset the decreased sales of automotive cockpit systems related to discontinuation of certain product models connect. Sales is expected to increase due to sales growth of avionics and blue yonder, as well as sales recovery of process automation industry. Sales is expected to increase. This is due mainly to demand growth of capacitors for green vehicles and capacitors, multi-layer circuit board materials for generative AI services, In energy, sales in in-vehicle is expected to decrease due to price revisions reflecting such factors as lower raw material prices. Despite a slight increase in sales volume, sales expected to increase in North American factory but expected to decrease in Japan factory. Shown in the upper right of the graph, decreased sales of 82 billion yen includes impact of price revisions at approximately 60 billion yen and effective exchange rates at approximately 20 billion yen. Sales in industrial consumer is expected to increase. This is due to expanding sales of energy storage systems for data centers driven by generative AI market and also anticipating recovery of batteries for power equipment and mainly in second half. Within other eliminations and adjustments, sales of both entertainment and communication and housings are expected to increase. This slide shows our analysis for the FI25 adjusted operating profit forecast by segment lifestyle. Profit is expected to increase due mainly to increased sales of electrical construction materials for overseas at room air conditioners as well as improvement in consumer electronics. Profit is expected to increase due to profitability improvement initiatives despite decreased sales of automotive cockpit systems. Profit is expected to increase due to increased sales of avionics, blue yonder, and process automations as well as improved profitability of Gemba solutions. Industry. Profit is expected to increase due to increased sales, price revisions, and rationalization despite price hikes in raw materials. Energy. Profit of in-vehicle is expected to increase due mainly to improved profitability of existing factories and rebound increase from expenses related to past manufacturing process issues recorded in FY24 despite increased upfront costs for ramp up of Kansas factory in North America. Details are on the next slide. Profit of industrial consumer is expected to increase due mainly to increased sales. This slide shows details of the year-on-year increase-decrease factors of adjusted operating profit for in-vehicle. Indicated in the graph at the bottom, adjusted operating profit of FY24 excluding the IRA tax credit was a loss of 18.7 billion yen, which is down from the profit of 10.7 billion yen in FY23. This is due largely to decreased sales in Japan factory and recording of expenses related to manufacturing process issues in the past. For FI25, the situation is expected to improve overall due mainly to improved profitability at existing factories. However, given anticipated upfront costs of 30 billion yen for ramping up the new factories in Wakayama and Kansas, the improvement in adjusted operating profit will be limited to 1.7 billion yen Adjusted operating profit is expected to continue to be a loss at 17 billion yen. We will continue working to improve profitability at an early stage, enhancing productivity and minimizing operational-related losses in North America, reducing fixed costs in Japan, and ensuring the smooth ramp-up of new factories. This slide shows the forecast for the lifestyle segment by divisional company. It shows updates of the progress in our initiatives for the three businesses we identified as growth areas. Changes from the previous announcement are underlined in blue. In the automotive battery business, we have made progress in establishing supply chain in the U.S. free trade agreement countries as well as expanding sales channel. In the supply chain management software business, we announced two acquisitions. In the air quality and air conditioning business, Hydronic system business showed progress as shown in this slide. We will respond flexibly to the change in business environment and always continue to enhance our business competitiveness toward future growth. Finally, let me explain the outlook of our medium-term management indicators or KGI's. There are three KGI's. presented at the Group Strategy Briefing in April 2022. The progress is shown on the right side. For cumulative operating cash flows, if we subtract the two-year results from the goal of 2 trillion yen, the remainder is slightly above 600 billion yen. We are within range of achieving our target. We believe management emphasizing cash flows is taking root. For ROE, we reached our goal of 10% in FY24. However, the forecast for FY25 is 7.0%, which is below target. As for cumulative operating profit, the estimated 3-year total with the FY25 forecast announced today is approximately ¥1 trillion, also below target. Looking at each business, there were external factors such as unexpected market deteriorations. Nevertheless, being unable to reach the KGI's show that our effort to enhance competitiveness is still only at the halfway mark. From our review of the situation, we still need to build speed and capability in responding to changes in the business environment. A review of these summaries and future initiatives will be given by Group CEO Kusumi at the Group Strategy Briefing to be held on May 17, 2024. Thank you very much for your kind attention.

From Nikkei, we have Naganawa-san. Thank you. This is Naganawa of Nikkei. Thank you very much. I have two questions, please. First, about in the growth areas that you mentioned, EV batteries and heat pump, this has been struggling. The EV itself, the market is struggling. And the heat pump, the subsidy in Europe has been changed. And because of this, you are faced with difficulties. You expect some tax credit in relation to IRA, and it seems that maybe your view is too optimistic. So could you elaborate on that? And the second question, for the SMEs or small, medium-sized companies, how to focus more on the downstream I think is very important. So, for example, your suppliers and the companies probably – are saying that they cannot really increase their prices. So as Panasonic, vis-a-vis the partners and suppliers, how do you deal with supporting the management of those small, medium-sized companies? Thank you for your questions. You mentioned that our growth area, EV and air to water for each business area, I would like to respond. First of all, from the beginning about the speed of the growth, as you said that it's slowing down, but in the medium to long term, it is clear that those are the areas that will grow. For five years ago, people did not really accept the EV, and then we had the kind of a boom, And now it's going back to the realistic speed. That's what we see in EV. Air to water also faces a similar situation. So that's the overall picture. And if I may go deeper on EV. So the overall demand fluctuation of the EV, probably that is not the only element that we look into. In each region, the situation is different. So EV demand, I think that we have to really look at each region. So more specifically with the IRA tax credit and the critical mineral and the materials, there are some limitations or restrictions. So in our case, we have focused on the U.S. market. So in that market, We have Pena, only the Giga factory operating. So for fiscal 25, the demand is something that we have and we need to supply for that. So 45X and 30D, that is on the part of the customers, $7,500, that is the tax credit and the conditions for that from January this year and the next year. they would be applied and we have some additional information supplied through the supplementary information. And for all of them, we have already cleared all of those conditions. So in the United States, in that sense, I think that we are very strong. So in terms of the production capacity, about the United States, I think that we will be able to supply to meet the demand. So that's my answer to your first question. In Kansas, in the medium term, we'll be starting up. And at the end of fiscal 25, we will start the mass production. And in fiscal 26, we will increase the capacity. And from 27, 30 gigawatt level will be the operation. So we'd like to make sure that we agree with our customers and that Tesla, this is not specifically only for Tesla, so we'd like to improve our cost competitiveness for EV. As for air to water demand itself this year, maybe 40 percent went down by 40 percent in fiscal 24 and from that level the we do not expect a major growth of sales so slight increase is what we expect geopolitical risks in relation to gas and in the middle east the price is going up There are so many different factors. So the major increase of the sales or profit are not expected from the air to water. So slight increase is what we expect. So like in FY24, we do not expect a major decline. So that's the answer to your first question. The second is for the small, medium-sized companies. the kind of a return to them or negotiation with them. In FY24, 25, when you look at the factors behind the fluctuation, the rationalization, I think we are seeing some differences from the past. And of course, We have a social mission, and we understand the direction that Japan is moving toward. So we would like to make sure that we keep that in our mind, and we are having the internal discussion to accommodate that. I hope that answers your question. Thank you.