Panasonic Holdings Corporation

Good evening. I will present the results for the second quarter of fiscal 2025, ended September 30, 2024. For the second quarter, both sales and profit increased year-on-year. Overall sales increased due to increased sales in lifestyle, connect, and industry, as well as currency translation, despite decreased sales in automotive and energy. By business, positive factors were industry and energy, with favorable sales of generative AI-related products, while negative factors were energy's automotive battery business affected by the year-on-year decrease in demand continuing for batteries produced in Japan, and price revisions reflecting lower raw material costs. Adjusted operating profit increased overall, with increased profit in Kinect, industry and energy, despite decreased profit in lifestyle and automotive. Net profit increased, adding the improvements in other income and loss and other factors. Operating cash flows increased year on year due to monetization of the IRA tax credit through transferable method. As for the full year forecast, the group-wide forecast remains unchanged. However, the forecasts by segment are revised, reflecting changes in each business environment. I will explain the details later. Annual dividend is forecasted at 40 yen, a year-on-year increase of 5 yen, with a payout ratio of 30%, as announced on August 30th. Now the details of the consolidated final results for the second quarter. For the consolidated financial results, sales increased year-on-year by 2% to 2 trillion 129.6 billion yen. Sales excluding the effective exchange rates remained the same year-on-year. Adjusted OP increased to 122.2 billion, operating profit increased to 132.2 billion, and net profit increased to 118.3 billion yen. This slide shows the results by segment. In the following slides, I will explain the analysis of year-on-year comparison for sales and operating profit. First, the sales analysis by segment in lifestyle sales increased overall. This is due to steady sales of consumer electronics in Japan and electrical construction materials, despite decreased sales of consumer electronics in China affected by weak economy and air-to-water in Europe, in which the rate of year-on-year decrease has... become less severe compared to the first quarter. In automotive, sales decreased due to such factors as discontinuation of production for certain modes, models, and sluggish sales, mainly in China. In Connect, sales increased with increased sales of Gemba solution due to steady orders of process automation by capturing certain investment opportunities. even with economic slowdown in China and a blue yonder with growing SaaS business. In industry, sales increased with increased sales of products of generative AI servers, despite decreased sales of industrial-use relays and automotive-use relays and capacitors due to market slowdown, mainly in Europe. In energy, sales in in-vehicle decreased. This is due to continuing decrease in demand at the Japan factory. In addition, sales value decreased at the North American factory due to price revisions reflecting lower raw material prices despite increased sales volume. In industrial and consumer, sales increased due to significant growth of energy storage system for data centers driven by generative AI advancement. Within other eliminations and adjustments, sales of both entertainment and communication and housing remain the same year on year. Next, our adjusted operating profit analysis by segment. in lifestyle profit decreased due to lower sales of consumer electronics in China and air to water in Europe, despite steady sales of electrical construction materials. As for air to water in Europe, the year-on-year decrease amount has improved from the first quarter. In automotive, profit decrease due to lower sales and higher fixed costs, despite rationalization and price revisions to offset price hikes in parts and materials, along with improved product mix. In connect, profit increase due mainly to higher sales of process automation and gamma solutions, despite such factors in avionics as upfront investments and impact of delivery delays by slower manufacturing of aircraft. as well as deteriorated market conditions for media entertainment. In industry, profit increased due to higher sales of products for generative AI servers, rationalization, price revisions, and effective yen depreciation, despite decreased sales of industrial-use relays and automotive-use relays and capacitors. In energy, profit in in-vehicle decreased only slightly. This is due mainly to the impact of decreased sales at the Japan factory, increased ramp-up costs for the Kansas and Wakayama factories, as well as upfront costs for new customers. While efforts such as improving productivity at the North America factory contributed to reducing this decreased amount, profit industrial and consumer increased due to large contribution from increased sales of energy storage systems for data centers and improvements in material market prices. Within other elimination adjustments, profit increase due mainly to improvement of elimination and income intercompany profits with the reduced inventories and improved head office income expenses. Results of lifestyle by divisional company. Adjusted OP in living appliances and solutions decreased due to lower sales of consumer electronics in China. Adjusted OP in HVAC decreased, largely affected by lower sales of A2W in Europe. In cold chain solutions and electric works, both sales and adjusted OP increased on continuing steady sales. this is the year-on-year operating profit analysis by factor from left increased sales in real terms had positive impact of 6.9 billion increase in fixed cost push down profit by 18.7 billion yen due mainly to investments in energy for business growth and impact of inflation The net impact of raw materials and logistics prices was positive $12.7 billion. The effect of price revisions and rationalization was positive $18.8 billion. Among other individual factors, impact of IRA was positive, half a billion yen. Big down at blue yonder is shown in the bottom right box. Adjusted OP on a standalone basis increased by 1.2 billion on a constant currency basis. On a consolidated basis, adjusted OP increased by 0.9 billion, excluding the impact of strategic investment and synergy investment. Adjusted OP was up 4.7 billion. Effective exchange rate was positive 1.6 billion, mainly seen in industry and energy. As a result, adjusted OP increased by 22.7 billion and OP increased by 29.8 billion yen.

This slide shows the situation of cash flows and cash positions. On the left, operating cash flow was 457.6 billion yen up year on year due to monetization of IRA tax credit through transferable method. Going forward, we will continue to generate further operating cash flows. On the right, Net cash was negative of 540.6 billion yen. Next is fiscal 2025 full-year financial forecast. This shows the full-year forecast for fiscal 2025. The group-wide forecast remains unchanged from the initial forecast of May 9th. This shows the forecast by segment. Reflecting the changes in the business environment, revisions are made as shown in the columns labeled revised amount from May 9. This shows factors for sales and adjusted OP revision by segment. Sales forecasts are revised at all segments reflecting currency translation and business environment changes. Cells are revised upward in lifestyle and connect, revised downward in automotive, industry, and energy. Adjustable P is revised downward in connect, revised upward in other and eliminations and adjustments. However, the remaining segments are unchanged. The revision in CONNECT is made by factoring in the impact of delivery delays by slower manufacturing of aircraft for avionics and costs related to M&A by Blue Yonder. The revision in other elimination and adjustment is made due mainly to improvement in head office income and expenses. This shows the four-year forecast of lifestyle by divisional company. Ajasero PE revised downward in living appliances and solutions company and China and Northeast Asia company, factoring in the impact of lower sales of consumer electronics in China. Next, let me explain the status of our generative AI-related businesses, which are now rapidly growing. On the left, in industry, the relevant products include conductive polymer capacitors and multi layer circuit board materials for generative AI servers. By capturing the market expansion opportunity, sales are rapidly growing, and annual sales are expected to reach a level of 35 billion yen, 1.8 times higher year-on-year. On the right, in energy, with the expansion of the GenAI market, demand for energy storage systems for data centers is rapidly increasing. Annual sales are expected to grow to a scale of above 100 billion yen, also 1.8 times higher year-on-year. For both industry and energy, the 4-year sales forecast significantly exceeds the initial forecast. Growth is expected to continue in J&A related market, so we will enhance our capabilities to ensure capturing such demands. Lastly, let me explain shareholder returns. Today, the Board of Directors resolved that the interim dividend of 20 yen per share for fiscal 25 up 2.5 yen per share year-on-year. For the annual dividend, we forecast 40 yen per share, up 5 yen year on year. The payout ratio relative to the net profit forecast will be 30%. We will distribute stable and continuous dividend and aim to achieve enhanced corporate value through business growth and profit increase realized by our investments. Thank you for your attention.

from Nihon Keizai Shinbun, Nikkei Newspaper. Naganawa-san, please. Thank you. This is Naganawa. I hope you can hear me. Yes. Two questions. First, the focal investment areas, heat pump, heating, what's the current status? What is the market situation? And the other area is AEV. So can you talk about the current situation and future prospect? My second question. Well, this is the end of your medium term plan. In terms of operating cash flow, I think you expect to achieve the target, but not for others, it looks like. So with that in mind, what is your current take and any improvements that can be expected going forward? Thank you for your question. First, EV and air to water. Regarding EV, we have been saying that North America, mostly focusing on North America in our business, globally EV demand is slowing down. But in North America, compared to the past, the growth has slowed down, but about 110% or thereabouts has been the growth in units, so moderate growth. And at our plant in North America, Depending on the situation of production in our customer sites, especially during the first quarter, we were largely affected. But towards the second quarter, about 0.5 gigawatt increase has been observed. But our capacity is not at 100%. But third quarter onward, we expect the supply of batteries to continue. So in Q3 onward, with the current plant, we expect we'll get closer to the full capacity. And as is shown in the IRA, 38 gigawatt or there about would be the target of our capacity increase. As for Japan, for 1865 produced in Japan, we do not expect further decline, but we can't expect further increase either. And we are replacing the production line to a different model for 2170. So that's the current situation regarding EV. especially for Kansas and 4680 Wakayama plants, the new plants, we are making investments into those new facilities that is for EV batteries. As for air to water, if you can look at page 29, towards the bottom you can see the air to water situation. And if you can look at the graph on the lower right-hand corner, in the first quarter of last year, we have seen a rapid decline. And for the first quarter of this fiscal year, we feel that that was the bottom. And towards the third quarter and the fourth quarter, in terms of year-on-year comparison, we expect flat growth for sure. as opposed to a decline, and that is because we are seeing improvement day by day. The rapid growth that we saw there is not expected, but at least we are seeing trend improving as reflected in the results for the second quarter. And given that situation, for each country, We are embarking on new initiatives where we had not implemented initiatives for the medium-term business plan. The investment phase. was where we were in and therefore cash flow I was our focal point of course and there are some issues that became clear one is the low profitability and ROE in other words the return on the best it made the absolute value is low and the rates the return was low And so to address these aspects, we will be making efforts, and that has been the message from our CEO as well. And so that by the end of FY27, there will be no businesses that do not meet the WAC requirements. That is all. Thank you.