Panasonic Holdings Corporation

Before presenting the financial results, I would like to express our deepest condolences to the families of those who lost their lives in the Kumamoto earthquake that occurred two days ago on the 28th, and to extend our heartfelt sympathies to everyone affected. While no significant impact on our business operations has been confirmed at this time, the group will continue to closely monitor the situation, place the highest priority on ensuring the safety of our employees, and take all necessary measures. We'll consider providing necessary support, taking into account the situation in the affected communities. We sincerely pray for the earliest possible recovery and reconstruction of the affected areas. Now, the consolidated results of Panasonic Holdings for the first quarter of fiscal 2027 ended June 30, 2026. First, a summary. Sales and profit increase to mark the highest first quarter profit driven by higher than expected sales of AI-infractured related businesses and adjacent businesses benefiting from the growing data center demand. Overall sales increased on higher sales of Connect, Electric Works, HVAC, NCC, Energy, and Industry. By business, AI and Fracture Related posted a significant sales increase, as previously communicated, and so did adjacent businesses, including LifeWay Solutions and Process Automation. Adjusted Operating Profit, or AOP, increased in all segments, particularly in Connect, Electric Works, and Industry. OP and Net Profit increased on an increase in AOP. Full-year forecast has been revised upward, both for sales and profit, reflecting growing AI-related demand and its spillover effects. By segment, sales and profits are revised upward for Connect Electric Works and industry, reflecting strong first quarter results. Now some details of the first quarter results. For the consolidated results, sales totaled ¥2,018.9 billion, up 6% year-on-year. AOP was $186.4 billion, an increase of $94.9 billion year-on-year. OP increased to $182.5 billion, surpassing the previous record high set in 1985 to mark the highest first quarter level in 41 years. Profit before income taxes and net profit also increased. Next, results by segment. The following few slides show the year-on-year variance analysis of sales and AOP. First, sales by segment. Connect posted a sales increase on higher sales of process automation capturing demand for ICT including AI servers, avionics, and Blue Yonder. Electric Works saw a sales increase owing to steady sales both in the Japanese and overseas markets. HVAC and CC posted higher sales overall Owing to increased sales of room air conditioners, air-to-water in Europe, and cold chain, these factors offset the non-recurrence of the year-earlier large-scale environmental engineering order. In energy, sales of in-vehicle increase due mainly to higher sales at North American factories and price revisions. Sales of industrial consumer increase due to higher sales of energy storage systems with data centers on strong demand from the growing generative AI market. Industry posted increased sales on higher sales of products for AI-related infrastructure businesses, as well as FA equipment, including servo motors and servo sensors. for semiconductor manufacturing equipment supported by data center demand. Smart Life posted an overall sales decrease despite higher sales in Japan mainly of personal care products due largely to lower overseas sales including large-sized appliances in China and ABC products in Europe. Next, AOP by segment. AOP increased in all segments, particularly Connect Electric Works and Industry are driving the group's profit growth. In energy, AOP increased overall. By business, AOP in in-vehicle slightly decreased due mainly to increased fixed costs resulting from the ramp-up of the Kansas factory, while AOP in industrial consumers significantly increased due to higher sales of energy storage systems through data centers. Next, year-on-year OP analysis. From the left, increased sales in real terms, positive 40 billion. Fixed costs, positive 19 billion, reflecting a 35 billion yen effect of restructuring undertaken in fiscal 26, despite strategic investments and inflation. Royal Materials and Logistics prices, negative 37 billion, due mainly to price hikes in copper, resin, and memory. The price revisions and rationalization on other initiatives, positive 54 billion. Blue Yonder, positive 9.9 billion, or 6.9 billion rather, due to higher sales of sub-products driven by cognitive solutions and improved gross margin, in addition to lower strategic investments. Exchange rates, positive 12 billion. As a result of the above, AOP increased by 94.9 billion. OP, including other income and loss, increased by 95.6 billion to 182.5 billion. Cash flows and cash positives. On the left, operating cash flow for Q1 significantly increased to 372 billion year-on-year due mainly to the monetization of the U.S. IRA tax credit through direct pay. Then cash was negative 505.8.3 billion.

Next is consolidated financial forecast for fiscal 27. This is the consolidated financial forecast. Overall sales is revised upward by 200 billion yen, and AOP is revised upward by 50 billion yen, both reflecting growing AI-related demand and its spillover effects, particularly in industry and connect. Operating profit is revised upward by 40 billion yen, and net profit up by 30 billion yen. This shows the fiscal 27 outlook for demand by segment. Blue is the positive changes, red is negative changes. Key changes are highlighted. At this point, we expect a limited impact from lower demand in our various businesses affected by the situation in the Middle East. AI-related products demand, including BBU, capacitors, and multi-layer circuit board materials, are growing steadily as expected. Another positive development has been the growing demand for mounting machines in connect and FA solutions in industry. These businesses continue to grow, surpassing our initial expectations, along with adjacent businesses such as semiconductor manufacturing equipment, which are benefiting from strong demand from AI data centers. This is the 4-year forecast by segment. As mentioned on the previous slide, overall forecast has been revised upward, particularly for connect and industry. Starting with the next slide, the assumption of the revised forecast and the key factors behind the changes will be explained. This shows the AOP forecast analysis by factor in comparison to the initial forecast. Upper graph is the initial forecast, bottom is the revised forecast, the middle row is the revised amount. As shown in the far right of the middle, OP is revised up by ¥40 billion from ¥550 billion to ¥590 billion. This consists of higher AOP by ¥50 billion and the duration in other income and loss by ¥10 billion. About AOP, positive impact of higher sales is ¥30 billion. About raw materials and logistic costs, negative impact of material price hike is expected to be 66 billion yen, while price region's rationalization to have positive impact of 59.6 billion yen. As for Blue Yonda, positive impact of 4.4 billion yen, and Forex has positive impact of 12 billion yen. Those are expected. In the initial forecast, we factored in 30 billion yen. Risk related to the situation in Middle East and memory price hikes. And we have reduced this to 20 billion yen. With 50 billion yen increase in AOP and the impact of other income and loss, we revised our operating profit forecast upward by 40 billion yen. Now let's look at the individual businesses. First, AI-related business of industry. The lower left graph shows the results and the sales forecast for AI-related businesses. Q1 of fiscal 27, sales reached higher than expected 74.9 billion yen, 1.4 times year-on-year, driven by strong customer demand. Reflecting the current favorable business environment, the 4-year sales forecast is revised upward by ¥40 billion to ¥310 billion from the initial forecast of ¥270 billion. In response to the strong demand, we are rapidly expanding our supply capacity. For multi-layer circuit board materials, we are strengthening our supply chain, including multi-sourcing of key raw materials like glass cloth in addition to building new production plants. For conductive polymer capacitors, we are accelerating plants to expand capacity at our manufacturing sites. Furthermore, supercapacitors are attracting increased attention due to the surging power consumption of AI servers. In addition to the CBU solutions under development with energy, as previously discussed, we plan to start mass production of devices for external customers at the Chitose plant during fiscal 27. With strong demand, AOP margin is steadily improving, and we will continue to pursue proactive business expansion going forward. Next, the outlook of energy storage system for data centers in energy. The lower left graph shows the results and the sales forecast for energy storage system or ESS for data centers. Strong growth continues as expected. We are also rapidly expanding our supply capability. For cell production, we are converting our production lines in Japan from automotive applications and also plan to start the mass production of cells at the Kansas factory in fiscal 29. For module production, the second Mexico plant is scheduled to start mass production in Q2 of fiscal 27, followed by the third plant in fiscal 28. To support the expansion of the modular production in Mexico, we are steadily advancing the localization of the broader supply chain, including power supply manufacturers. Furthermore, we would accelerate the evolution of our products to further strengthen our industry position. For CBU solutions, which are becoming increasingly essential as the chips continue to evolve and become more sophisticated, we plan to start mass production of CBU solutions in fiscal 27 in collaboration with industry, leveraging our unique strength of having in-house core technologies in both batteries and capacitors, will further enhance our competitive edge. We also plan to complete the preparations for mass production of next-generation BBU built for HVDC within fiscal 27. Lastly, the outlook for in-vehicle. The line graph on the left shows the sales volume trend of in-vehicle batteries in GWh in North America, and the bar graph shows the EV unit sales trend in the United States. EV sales volume in the U.S. has been steadily recovering from the temporary slowdown experienced in fiscal 26. Demand for batteries from our strategic partner remains strong. Our supply side, however, we face challenges in ramping up the Kansas factory. We were unable to achieve the initially planned supply volume for Q1 of Fi27. Given the continued strong demand for our strategy partner, we plan to supply 46 GWh for 4 years. in line with our initial forecast by optimizing production mix between Kansas and Nevada from Q2 of fiscal 27.

The first questioner is from Nihon Keizai Shinbun, Nikkei. Take Tatsu-san, please. Take Tatsu-san. Can you hear me? Could you please speak up? Can you hear me better now? Yes? Thank you. Actually, I'm using Taketazusan's link, but I am missing me. Thank you. I have a question on data center demand. The benefit of demand for data center, not just the storage systems and capacitors, the so-called AI-related, but I understand that that effect is spilling over to other periphery areas as well, like FA. Do you think this is a special demand, a temporary one, or do you think this could be sustained? Thank you for your question. In the periphery areas, The demand growth that we are seeing now, is it temporary or sustained is your question. We believe this could be sustained. Let me talk about the structure of our business. At the beginning of the year, the BBU in energy and in capacitor industry and electronic materials, we've been talking about that in the initial part of a year, but now it's expanding into the peripheral areas like mounting machines of Connect, as well as several sensors of industry. We are seeing demand in these servomotors as well. In other words, our beginning of the year forecast has been rather conservative, looking only at a more assured demand growth, but now we do see the demand growing in the periphery areas as well, which was reflected in the results of the first quarter. I have another question. About Blue Yonder. AOP. Upward revision, $30 million, resulting from improvement in gross margin. What was effective more specifically? And then there is the $23 billion loss in ALP. So what measures will you be implementing to improve on the profitability going forward? Thank you for your question on Blue Yonder. I'd like to show you some specific figures to be more clear. So if you can look at page 26 of our material, you can see the figures related to Blue Yonder. So gross margin improvement, where does it come from? If you can look at the upper left, this is the standalone, a million US dollars, blue yonder standalone basis. And if you can compare the first quarters of last fiscal year and this, you can see 36 million yen increase in sales, but a 51 million increase in terms of AOP, which contributed to the profitability improvement. There are two factors. First, Strategic investments with a cognitive series deployment to make it the native source. We have been making investments last year. Now it's been narrowed down and $25 million or so less this year. Which is counted for in the profit last year. For the remaining 25 million comes from profit. So 36 million improvement in sales and just had a major contribution. for the adjusted operating profit improvement. Once the product is solidly developed, the marginal costs for the sales in the insuring period would be limited. And therefore, we are seeing the pipeline being developed this year, and we are seeing the orders coming in as well, which is contributing to the margin improvement. And you asked another question. Again, going back to the same slide. 23 billion lost this year. What about next year was your another question. It's very difficult to talk about specifics, but 23 billion is the total of the standalone and the intangible amortization following the Acquisition. We expect the standalone operating income to improve, AOP to improve significantly next fiscal year.