Panasonic Holdings Corp
TSE:6752
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Panasonic Holdings Corp
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I thank you very much for coming despite your busy schedule. I'd like to present the fiscal 2019 first quarter financial results. This is a summary of the first quarter financial results.
Continuing on from the last fiscal year, we saw increases on both sales and profits. Overall sales significantly increased due to growth, mainly from Automotive and Energy, offsetting sluggish sales in air conditioner and AVC.
Operating profit and net profit attributable to Panasonic shareholders increased due to stable growth in Process Automation and Industry and a one-off gain from the sale of land, despite the impact of ramp-up expenses for the automotive battery business and higher raw material prices.
This is the consolidated financial results for the first quarter. Sales increased by 8% to JPY 2,008.7 billion year-on-year. Operating profit increased by JPY 16.1 billion to JPY 100 billion, and net profit increased by JPY 8.6 billion to JPY 57.4 billion.
This is our sales analysis by businesses whose sales are disclosed. Sales in air conditioner were down in Asia and elsewhere, and sales in AVC also decreased. In Automotive, automotive infotainment systems business continued to grow favorably in line with the global increases in vehicle sales. In Energy, sales in automotive battery increased significantly.
In addition, sales in Process Automation increased, along with robust demand for mounting machines and welding equipment. In Industrial, sales increased with growing sales in automotive and industrial use products.
Next, year-on-year changes in operating profit. Profit generated by sales expansion was JPY 46.7 billion. Fixed costs increased by JPY 23 billion due mainly to expansion of the automotive battery business.
Also, due to losses related to reduced market value and price hikes for raw materials, profit decreased by JPY 19.3 billion. The effect of exchange rates resulted in a decrease of JPY 2.6 billion.
Other income and loss improved by JPY 14.3 billion, due mainly to gains from the sale of land. Overall, operating profit increased by JPY 16.1 billion to JPY 100 billion.
This is our analysis of year-on-year changes in operating profit by the businesses whose sales are disclosed. In Energy, profit decreased due to ramp-up expenses for the automotive battery factory. In air conditioner, profit decreased due mainly to decreased sales. Profits increased from businesses such as Process Automation and Industrial, whose sales continues to be strong.
Next, results by segment. I will explain the details from the next slide. First, the results of our appliances based on consolidated production and sales. Sales decreased by 1% year-on-year on a constant currency basis. In China, sales increased due to favorable sales growth through e-commerce. However, sales in air conditioner were sluggish, mainly in Asia. AVC also saw lower sales and overall sales remained at the same level as last year.
Operating profit decreased since even higher profits from sales expansion in China further shift to premium products for consumer electronics, and rationalization efforts could not offset the lower sales in air conditioners, raw material price hikes and the negative impact of ForEx.
With regard to raw materials, since prices are becoming stable, the impact of price hikes is expected to shrink from Q2 and onward. Despite the current severe circumstances, we will continue to make efforts to increase profits from the Q2 and onward through further sales expansion, mainly in China, where businesses continue to grow favorably as well as through the enhancement of the rationalization and fixed cost management.
Next is Eco Solutions. Sales increased by 6% year-on-year on a constant currency basis. In addition to the effect of the new consolidation of Matsumura-Gumi Corp., our sales increased, thanks to sales expansion for overseas electrical construction material business in key markets such as India and China as well as stable results for the ready-build housing business for Panasonic Homes. Operating profit decreased due to upfront expenses for Panasonic Homes as well as for expansion of the overseas electrical construction materials business.
Next, let's look at Connected Solutions. Sales increased by 11% year-on-year on a constant currency basis. In Process Automation, sales increased significantly due to favorable sales in mounting machines and welding equipment for automotive industry.
In Mobile Solutions, sales increased due to continued stable growth in PCs for North America, Europe and domestic markets. Furthermore, sales in PSSJ increased with sales growth from PCs and sales expansion for retail and logistics industries. Overall, operating profit increased due to sales growth in Process Automation, Mobile Solutions and PSSJ as well as improved product mix in media entertainment.
Finally, let's look at Automotive & Industrial Systems. Sales increased by 11% year-on-year on a constant currency basis. This was driven by automotive infotainment systems and automotive battery business. Overall, operating profit decreased due mainly to ramp-up expenses for the automotive battery factory in North America, but there were improvements in profitability through sales expansion and rationalization efforts in Industrial.
In Automotive, overall sales increased due to growth mainly from infotainment systems whose sales continue to grow for Japanese, U.S. and European car manufacturers, ADAS-related products and electrification-related equipment such as charging systems. Operating profit was increased by sales expansion, despite increased fixed costs, such as those in R&D.
In Energy, overall sales increased with significant growth in automotive batteries for both cylindrical and prismatic as well as expanded sales of power storage systems. However, operating profit decreased due to factors such as increasing ramp-up expenses.
Sales in Industrial increased due to stable growth in automotive and industrial use devices. Operating profit also increased due to the positive impact of sales expansion, improved profitability and one-off profits.
Now this is the end of the presentation. In Q1, consumer electronics sales faced a severe situation, in addition to increased upfront expenses for the automotive batteries. From Q2 and onwards, sales in automotive battery business will continue to grow and expected to contribute to increased profit in the second half. We will further enhance rationalization efforts and fixed cost management. We will continue to strive toward achieving our FY '19 financial forecast through comprehensive company-wide efforts.
Thank you very much for your continued support and understanding.
Nishimura from Credit Suisse. I have 2 questions. First is on Slide 4, about the operating income analysis. Compared to the forecast, I think there is a big decline in terms of the materials and streamlining. Going forward, do you think this trend will continue? And how do you plan to make up for the difference? That's my first question. My second question, for the Energy and batteries. You talked about the ramp-up expenses having a negative effect. For clarification, compared to your assumption, was there any difference in the expenses incurred? You said that you expected recovery in the second quarter onward, especially in relation to the sales to Tesla. What is your current view?
Thank you. Slide 4, the operating profit analysis, material cost hike, rationalization and business structure change. As it says in the note, there is losses related to reduced market value of raw materials. More specifically, this is related to solar polysilicon in China. There were changes in China regarding the introduction, with the market price going down. And since the -- it is recorded on the market value, there was losses related to the reduced market value. So when it goes down, it goes down. When it goes up, it goes up. The impact was JPY 5.1 billion. And as for other price hikes in raw materials, for nonferrous metal, copper, aluminum, for those types of materials, they account for a large proportion. But as you know, as far as copper is concerned, more recently, the price has stabilized. It was close to JPY 8,000 at one point. It is now below JPY 6,000, and that impact should be smaller in the second quarter and the second half. So on a full year basis, JPY 56 billion is our forecast of the impact of the material cost hike on the annualized basis, and we believe that it will be smaller than that, not half, but much smaller. As for Energy and battery, ramp-up expenses, is it within our assumption? Well, this trend was within our assumption. The ramp-up has been very quick. And that is in response to the ramp-up in Tesla, the final product. And I think there is no much gap with what is being reported in media. So currently, it's really the matter of how much we can supply, that Panasonic can supply. So in that sense, the gradual ramp-up is more ideal, but it is being accelerated. And therefore, there is much burden, which is pushing down the profit, which makes it appear as if profit is larger -- where the profit decline is larger. For the first quarter, we did record a loss, but we believe that, that will be the bottom. So second quarter maybe still in the red, but maybe starting in the third quarter, moving to the profit, and 6,000, 7,000 is what Tesla is saying. We don't know how much exactly, but we believe we'll be close to that. So on a full year basis, we expect and we aim at generating profit. That's it.
[Foreign Language] Next question. [Foreign Language]
Ezawa from Citigroup Securities. First question is about air conditioner and the second is about batteries. About the air conditioners, Mitsubishi Electric also had poor performance. It was not too bad in China. It was very hot in Japan and also, they explained that the similar situation, like Panasonic. If you can give us some further breakdown, the profit and sales, where did you improve? And which area or the regions were worse than the expectation? And from Q2 and onward, where are the areas that you can start to improve or benefit? And as for the battery, I'd like to ask a question on CapEx. So about JPY 200 billion is invested for the Gigafactory. And you mentioned that, the 35 gigawatt-hour. But today, it was reported that this CapEx will be actually executed. And say that the 5,000 is manufactured per week. In order to respond to that, is that the CapEx that is being executed? But I do not believe so. So the volume, the -- in comparison to 35 gigawatt-hour, it's much lower. So still, the capacity of 35 gigawatt-hour, do you think that you need to achieve that by the end of this year? If that is the case, you don't really -- we'd like to know whether you intend to execute at this level of CapEx?
First of all, your question about air conditioner. The good performance was achieved in China. Clearly, China was, at one point, sometimes growth, so profitability also is good. As for Japan, the numbers are better, but I think that we were not as good as the other competitors. So for example, mass merchandisers and also Panasonic stores, we have different business negotiations. And there are some lessons that we learned for the air conditioners, so we'd like to make sure that we make improvements from Q2 and onwards. As for Asia, Thailand and Vietnam, the weather or climate was not very favorable for us, so we continue to have a poor weather. So we shouldn't just use that as an excuse. We have to really improve our product, so that we can achieve higher performance. So in that sense, we had poor performance in Asia. Now the major factor pushing down our profit, I cannot really elaborate on the numbers, but the high material costs, especially copper, was the major factor. So more recently, the price is becoming lower, so we believe that impact will be smaller going forward. And in July and onward, we are having the very hot summer, so we are seeing the increase, significant increase. And at the end of June -- throughout the end of June, it was cool summer, I think. In the first quarter, I was thinking that the weather was not very favorable for us, because it was cool summer at the beginning. But the hot weather or the heat wave started from the first week or second week of July. So whether we can actually install their air conditioner to deal with this heat wave was one of the challenges. So this heat wave has contributed to our profit of the air conditioner business in July and onwards. As to the battery question, I really shouldn't comment on the report by the media, but 5,000 cars per week, that was -- was that the basis for the 35 gigawatt? No, that's not the case. It ought to be -- would be the 240,000 cars per year. So really, it's difficult to say, but the 400,000 to 500,000 will be the equivalent of the number of the cars. If that is the case, right now, 420,000 is the backlog that they have, and we are making them wait. So we have to continue to make our products or our batteries. So we need to ramp up steadily. And I'm not saying that what was reported today was correct, but full capacity, achieving the 35 gigawatt-hour, is not unlikely. So are we going to rush or not? The battery production line, we strongly believe this is the case. So maybe you might say that we should have made them beforehand. But we cannot do it. Then we have to make sure that we have just in time delivery of our products. So we are currently trying to manufacture as quickly as possible so that we can deliver batteries to Tesla. So in Q2, you can -- the Gigafactory can manufacture the number of the cars to meet with the demand or is it something that they would do in Q3? Are you talking about the supply of our batteries? Well, I think it would be very close to that. So the customer -- or demand is also changing. But it will be very close, so we are kind of competing against each other. So the supply is still very tight in this size, likely to continue.
[Foreign Language] Next person, please? [Foreign Language]
[Foreign Language] Okazaki from Nomura Securities. About the projection of the economy, people are talking about the conflict between China and U.S. And I'm wondering if you are foreseeing possible slowdown of the economy, especially Process Automation, which we're doing very well in the first quarter, whereas your competitors are saying they're a bit worried about the future. So what's your view, projection? My second question is on appliances for the Japanese market overall. Earlier, you said that your competitors did better. For the last several years, your market share has been growing. Are you saying that the competitors are catching up and you are now feeling a change taking place in the market?
Thank you for your questions. First, the U.S.-China conflict regarding the trade tariffs. In our case, AIS is a company where there might be some effect and slight effect on AP and CNS and barely no impact on ES. So those were the breakdown of the possible impacts. And the parts being sent from China to the U.S. and some items are on the list. So we have done some calculations, which indicate that the impact is not as sizable as warranting reporting to you here. So the U.S.-China conflict, for us, is not having -- the impact is almost negligible in terms of profit and loss. Of course, whether that is going to have an impact on the economy is another story. That might indirectly hit us. But as far as the tariffs are concerned, that is the situation. Now Process Automation, we did well, you said. In a way, the market that we sell into, our clients, customers, Process Automation is mainly for the automotive customers. Smartphone market is large, but the weight of that particular market in our business is more limited. We do not expect a slowdown in the second quarter. So Process Automation, I believe, we believe, will continue to be strong, especially for the automotive applications. Appliances, we are watching what our competitors are doing. How should I put it? We are not trying to blame others. Refrigerators, air conditioners are where we had difficulty, but we are committed to make the recovery in the second quarter. Same for refrigerators, we have new products being launched, new models being launched. And we are closely communicating with the customers and the distributors. So I expect recovery in the second quarter onward.
[Foreign Language] Thank you. Next question. [Foreign Language]
[Foreign Language] Ono from Morgan Stanley. I have 2 questions. First, so for this fiscal year, the guidance is not changed. And from the medium-term management plan, the exchange rate assumption is different, but the target continues to be the same. So any updates? The exchange rate is also moving. So to what level or to what extent would incorporate that? Are there any more additional uncertainties? Or is your level of confidence higher in achieving those targets? So positives and negatives, we are still at the end of the Q1, but you can share with us what you are thinking right now. The second question -- or we tend to focus on Tesla, but I think that it is a very high point of interest and that would affect your share prices. So the market in your Gigafactory, whether you can be profitable or not, I think that there is some skepticism for that. So we're turning around or being profitable, the conditions for that. So 5,000 is the number. So the volume, the -- maintained at higher 5,000. Is that more important? Or in terms of the product mix, if you have a higher sales count products, then the fixed cost, would it go up and that could be at risk? So what are the conditions and -- that would push up your conviction about generating profit? If you can give us any update on those points.
Yes, thank you. First, for the full year forecast, as of now, vis-à-vis the forecast that we announced, we are in line. I think we can achieve those forecasts or numbers. If you look at each company, there could be some changes. Appliance is recovering, but the other companies are also doing well. So we have to make sure that we compete against them. So we have to do what we need to do. ES, the first quarter, minus JPY 100 million is -- we are in red. But based upon the past experiences, usually, ES business is like that in the Q3, Q4, they would increase, so we are again in line. As for CNS, the full year forecast is down both in sales and profit, But in Q1, we actually were higher in sales and profit. So this is a happy miscalculation on our part, so we are continuing to do well. Avionics, this has to do with the pipeline. So in the second half, there would be a lower production of the major ones. So the lower sales, lower profit trend will continue. But Q1, we exceeded our expectation. So this trend will continue to some extent. So as a -- CNS as a whole, whether we can increase both in sales or profit, we are not sure, but we will be able to maintain this momentum in CNS. AIS, as for industry, parts and components are strong and, too, semiconductor PLD, unprofitable business, is improving. So we are starting to see the progress. Automotive, last year, there was a confusion in operation, but that has been resolved, so higher sales is what we are seeing. So gradually, we are seeing the increase in profit. So we hope that we can achieve the target. So the biggest growth upside is Tesla or prismatic automotive battery. So key here -- well, Tesla has a lot of backlog, and they are making customers to wait. So they are manufacturing at capacity, and we -- how can we catch up and how can we deliver our batteries? If we continue to do that, we would realize the improvement of the profit. There's no question about that. So material cost, cobalt content for the cylindrical, in comparison to the competitor, is lower on our part, but the lithium and others, we need to consider other materials. And there will be a time lag with the ramp-up, we would increase, but there's always a time lag. So we have to be careful to see that, so we can improve the profitability steadily in this business. So the major trends, as I answered earlier, we are likely to achieve those targets. That is our -- what we are thinking right now.
[Foreign Language] Thank you. Next person.
Katsura from SMBC Nikko Securities. I have similar questions that is compared to your plan and Tesla. Progress against the forecast. I understand that the market is expected to be favorable. But I think things are changing in the developing markets, the emerging markets, since the beginning of July, so there are positives and negatives. Exchange rates, I think the sensitivity changed quite a bit maybe 2 years ago, so can you talk about the sensitivity to foreign exchange rates? And my second question is on Tesla, again, related to what the media are reporting. I think several days ago, maybe last week, the retrospective price reduction pressure was being reported. I'm wondering if that's true? And if it is true, what is the impact?
So about the retroactive price reduction vis-à-vis Tesla. And of course, I can't comment on Tesla or other companies because we don't have the information. As far as we are concerned, we are not getting that pressure or request. And as for the sensitivity, the foreign exchange sensitivity, I'd like to give the floor to [ Yoshitomi ]. Mr. [ Yoshitomi ]?
Sensitivity hasn't changed much from what was being announced earlier, but the dollar and euro cross rates have changed. The dollar has strengthened, euro has weakened somewhat. So in Europe, the euro-based transactions are seeing negative impact, adverse impact. And as for the emerging market currencies, for example, Malay ringgit is appreciating against the euro compared to our original forecast. So rather than calculating just on the 3 currencies, we are seeing some loss. JPY 19 billion is the impact, is what we were announcing earlier. And we don't see much difference from that total amount, JPY 19 billion, on the full year basis.
[Foreign Language] We can take one last question. Any questions? [Foreign Language]
[Foreign Language] Nakane from Mizuho Securities. I have only one question about ES, Eco Solutions. As Mr. Umeda said, that is in line. Comparing the -- this Q1 and the last Q1, Matsumura-Gumi Corp. was consolidated and there were some changes. So I didn't understand when you said it's in line. Maybe you can talk about the subsegment. And also, do you expect that improvement to start in Q2 because you were in line in Q1?
Thank you for your questions. Concerning ES, Q1 was in red, minus JPY 100 million, and it's down by JPY 1 billion year-on-year. So Panasonic Homes, this is not disclosed, but Panasonic homes is in red and that red figure is increasing. This is, in a way, intentional. Last year, the advertising budget was reduced. And because of that, the awareness was not very high. So intentionally, we are running the TV commercials and we are also working on the showroom improvements. And strategically, we are making investments. Also, another strategic area is the -- Managing Director Ito is in charge of the ES, in charge of the non-Japanese markets, China, Asia and EMEA and the electric construction materials and outlets and so forth. He's traveling in different areas to expand our sales. So you might think that we are a little bit weak. We are analyzing how we are spending, but we are making proactive investments. And the -- one of the -- our Eco System was a negative factor. The air purifier was down. And because of that, the profitability changed. But we are -- we have already taken measures so that we can make a recovery. So the first half numbers and full year targets, maybe you are still not getting the good picture. We are not saying that it would be easy to achieve those targets, but I checked with Kitano-san, and he said that we will achieve those targets. But that's all I can comment at this moment. Thank you very much.
So our time is up. So we'd like to end today's briefing. Thank you very much for coming today.