Panasonic Holdings Corporation

Let me start the presentation on the consolidated financial results for the first quarter of FY25, fiscal March 2025, ended June 30th, 2024. First, the summary overall sales increase on increased sales in connect and industry as well as currency translation, despite decreased sales in lifestyle, automotive, and energy. By business, industry and energy had positive factors with favorable sales of generative AI-related products. Lifestyle had negative factors with decreased sales of air-to-water heat pumps in Europe and consumer electronics in China. In-vehicle of energy also had negative factors with demand at the Japan factory continuing to decrease. Adjusted operating profit decreased overall due to decreased profit in lifestyle, connect, and energy despite increased profit in automotive and industry. Net profit decreased due mainly to recording of one-time gains in FY24 with the liquidation of Panasonic liquid crystal display. Operating cash flow slightly increased year-on-year, and we aim to generate further operating cash flows. Regarding the US IRA Inflation Reduction Act, we have decided to elect the transferable monetization method for most of the tax credit applicable to FY24. Consequently, the associated cost is recorded in this first quarter. The timing of monetization is scheduled for during or after Q2, which is approximately two years ahead of our initial assumption. This slide describes the impact of the IRRA tax credit on our financial results. For the first quarter, we assume to elect the refundable monetization method, which is the same accounting treatment and items as before. As mentioned earlier, we have decided to elect the transferable method for most of the tax credit applicable to FY24. The details of such impact to the first quarter financial results are shown in the middle of the slide. The impact amount to adjusted operating profit is 16.2 billion yen, which includes the associated cost of 5.5 billion yen. On consolidated basis, sales increased year-on-year by 5% to 2,121.7 billion yen. Sales on constant currency decreased by 2%. Adjusted operating profit decreased to 84.3 billion and operating profit decreased to 83.8 billion yen. Net profit decreased to 70.6 billion yen due mainly to the impact of recording in FY24 of one-time gains with liquidation of Panasonic liquid crystal display as explained earlier. This is the results by segment. In the following slides, you will see the year-on-year variance analysis of sales and operating profit. This is the sales analysis by segment in lifestyle sales decreased due to lower sales of air-to-water in Europe and consumer electronics in China, as well as lower sales for other segment products, despite higher sales of such products as electrical construction materials in India, showcases, and room air conditioners. In automotive, sales decreased due to discontinued production of certain models, sluggish sales in China, and the impact of reduced production by car manufacturers. In connect, sales increased in process automation, capturing the recovery trend of smartphone demand in China, as well as increased sales in Gamba solutions and avionics. In industry, sales increased with increased sales of products for generative AI servers and ICD terminals, despite decreased sales of industrial use relays in Europe and China. In energy, sales in in-vehicle decreased. This is due to the continuing decrease in demand at the Japan factory, as well as price revisions reflecting lower raw material prices in others. Production in North America decreased in the first quarter, adapting to temporary production adjustment, but recovery there is now seen with an increased number of models eligible for IRA tax credit, so favorable sales is expected for Q2 onward. Sales in industrial consumer increased with favorable sales of energy storage systems for data centers driven by degenerative AI market. Within other elimination and adjustments, sales decreased for both entertainment and communication and housing. This is the adjusted operating profit analysis by segment. In lifestyle, profit decreased due to decreased sales of air to water in Europe, consumer electronics in China, and negative impact of exchange rates, despite increased sales of electric construction materials in India, showcases, room air conditioners, and others. In automotive, profit increase due mainly to improved product mix and rationalization, despite increased fixed cost and decreased sales. In Connect, profit decrease due to decreased sales of media entertainment, upfront investments in avionics, and increased strategic investments in Blue Yonder, despite increased sales of process automation and Gemba solutions. In industry, profit increased due to increased sales of products for generative AI servers, fixed cost reduction, and effective yen depreciation. In energy, profit in in-vehicle decreased. This is due to the impact of decreased production in Japan, increased ramp-up costs for the Wakayama and Kansas factories, and recording of the cost of transfer monetization of IR tax credit. Despite improved profitability of the North America factory, due mainly to the rationalization of raw materials. Profit industrial consumer increase due to increased sales of energy storage system for data centers serving the generative AI market.

This shows the result of the lifestyle by divisional company. In living appliances and solutions company, both sales and profit decreased, largely affected by lower sales of consumer electronics in China due to market downturn. In heating and ventilation, AC company profit decreased, largely affected by lower sales of air to water in Europe. This shows our year-on-year operating profit analysis by sector. From the left, decreased profit on lower sales in real terms was a decrease factor of 7.5 billion yen. Higher fixed cost was a decrease factor of 16.9 billion yen. This is due mainly to the investments in energy for the business growth as well as the impact of inflation. Net impact of raw materials and logistic prices was an increased factor of 12.4 billion yen. Defect of the price revisions, rationalization, was also an increased factor of 6 billion yen. Other individual factors, impact of IRA, including the cost of transfer monetization, was negative factor of 6.5 billion yen. The breakdown of Blue Yonder is shown at the bottom right. Adjusted OP on the standalone basis decreased by 2.3 billion yen excluding Forex impact due to increased strategic and synergy investment. On the consolidated basis, Adjusted OP decreased by 2.8 billion yen excluding the impact of strategic and synergy investment increased by 0.6 billion yen. Forex impact was an increase factor of 6.8 billion yen mainly seen in industry and energy as a result adjusted op decreased by 8.5 billion yen operating profit decreased by 6.6 billion yen this shows the cash flows and cash positions on the left of the three areas the shown in blue are the changes the supply excuse me Excuse me. So looking at the cash flows and cash positions on the left, operating cash flows amounted to 228 billion yen, a slight increase year on year. Going forward, we will continue to generate further operating cash flows. On the right, net cash was negative of 451.6 billion yen. So this shows an update of the progress made in initiatives for our three investment areas. Changes from the previous announcement are shown in blue, underlined in blue. There have not been many changes in automotive battery and supply chain management software businesses. In air quality and air conditioning business, As I said earlier, our air-to-water business in Europe is facing persistent market slowdown. The graph at the bottom right shows the air-to-water sales trend since the Q1 of last year in terms of sales amount and the year-on-year change. As shown here, sales decreased significantly in Q3 last year. We have not been able to return to the recovery trend. However, in the long-term perspective, this market is expected to expand. Therefore, in preparation for future market recovery, we will continue our efforts to enhance our competitiveness through collaborations with such companies as Innova and Tado. Finally, I'd like to explain the strategic capital partnership and establishment of a new company regarding Panasonic Connect's projector business and related operations announced today. This transaction is to further grow the projector business The new company will be established based upon the media entertainment business division of Panasonic Connect, in which Oryx Corporation will hold 80% of your shares and Panasonic Connect 20%. Through this partnership, we aim for further growth by leveraging Panasonic Connect's technological expertise and customer base, as well as Oryx investment capability, along with the knowledge and experience cultivated through investments in numerous companies, including manufacturing and large corporations. In addition, this partnership enables continuous R&D investments in hardware technologies, as well as execution of inorganic growth strategies such as formulating global strategic alliances. The transfer price is 118.5 billion yen, which will be allocated to Panasonic Connect's investment area. Sales recorded in FY24 for the business subject to transaction was about 77 billion yen. That concludes my presentation. Thank you for your attention.

The first questioner is Nakano-san from Nihon Keisai Shinbun, Nikkei newspaper. Thank you. Naganawa from Nikkei. I hope you can hear me. Yes, we can. Thank you. My first question. This is related to the news release today or the news item today. The Bank of Japan decided to increase the interest rate, which would most probably impact your policies. regarding the assumed interest rates as well as the investment environment. So wonder if you can comment on any possible changes to your policies going forward, financing policy. My second question is in relation to the projector business. I understand the new company will be established, 80% owned by Oryx, 20% by Panasonic Connect. In the case of automotive transfer, the partnership form was with some of the shares being held by Panasonic. Are you going to continue with this approach going forward with possible transfer of business going forward? Thank you for your questions. First, the Bank of Japan today announced 0.25% rate increase. Regarding this, it's just a matter of timing. In any areas affected by interest rates, I think this is only natural. We are basically financing through yen, and so the yen of financial costs should go up, but in the meantime, Our profitability approach will be enhanced so that we can deal solidly with the interest rates context. As for the real-term interest, it's much lower than the visual rates, and so Interest rates difference between Japan and the U.S. will be carefully looked at. Japan and U.S. account for a large portion of our business, and therefore we'll be looking at the interest rate environment in the two countries for financing and capital allocation. That's the answer to your first question. The second question, the projector business, 20% will be owned by Panasonic. The intent is as I mentioned earlier in my presentation. Panasonic brand will continue to be used for some time. And to assure our customers, we want to be absolutely involved in the business. So there is a similar approach with automotive. We do have a very good relationship with our customer base as well as in terms of expertise. And in the meantime, Oryx has its own strength. So both of our strengths will be leveraged so that the projector business itself can grow going forward. So that is the intent of this arrangement. That is all. Thank you.