Panasonic Holdings Corp
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Good afternoon. I will go over the Consolidated Financial Results of the Second Quarter of Fiscal '23. First, a summary of the consolidated financial results. Overall sales increased year-on-year due to the increased sales of Lifestyle, Automotive and Energy as well as the consolidation of Blue Yonder and currency translation.
Adjusted operating profit remained at the same level despite increased sales. This is mainly due to the increased fixed costs for growth in Lifestyle and Energy, such efforts as price revisions offset the impact of raw material price hikes. Operating profit and net profit decreased due to the impact of recognition of a gain in FY '22 of JPY 58.3 billion from the reevaluation of existing equity in Blue Yonder upon acquisition.
Free cash flow improved from FY '22 in which the acquisition of the Blue Yonder completed, but it was below the level of net profit due to strategically increased inventories despite -- to respond to semiconductor shortages and other factors. For the full year forecast for FY '23, groupwide sales is revised upward due to currency translation. Profit is revised downward.
By segment, profits of Connect, Automotive and Industry all revised downward. Based on the recently enacted U.S. Inflation Reduction Act, IRA, tax credit is assumed in FY '23 Q4 for the Energy segment. This positive impact is not yet factored into the forecast since the relevant bylaws are yet to be determined.
Now the details of the consolidated financial results for Q2. This slide shows the consolidated financial results. Overall sales increased to JPY 2,090 billion, up 20% year-on-year. Sales in real terms on constant currency increased by 9%. Adjusted operating profit was JPY 80.2 billion, the same as FY '22. Other income and loss decreased by JPY 10.6 billion due to the impact from the onetime gain of JPY 58.3 billion in FY '22 related to the acquisition of Blue Yonder. Excluding this impact, other income and loss steadily improved due mainly to reduced restructuring expenses. Operating profit and net profit decreased by JPY 10.7 billion and JPY 18.1 billion, respectively.
The results by segment, year-on-year variance analysis are shown in the next few slides. First, sales analysis by segment. In Lifestyle, sales increased due to steady sales of growth businesses such as HVAC system's European business, overseas electrical construction materials and showcases in North America. Consumer electronics in Japan recovered with the lifting of the Shanghai lockdown and other factors.
In Automotive, sales increased reflecting recovery in automobile production. In Connect, overall sales increased with increased sales of rugged mobile terminals for overseas markets along with the upturn in avionics, reflecting market recovery in the aviation industry as well as the consolidation of Blue Yonder. Sales decreased in Process Automation with an investment slowdown in the areas of PCs and smartphones as well as Gemba Solutions due to the slowdown in post-Olympic demand.
In industry, overall sales decreased due to decreased sales resulting from the ICT market slowdown and semiconductor shortages and the termination of the semiconductor business, despite increased sales of capacitors and modules for automotive use and relays for industrial and EV use.
In Energy, sales increased with price provisions and improved productivity and increased production after installing a new line in FY '22 for automotive batteries in North America, despite lower sales of lithium-ion batteries for consumer applications, such as PCs and games, due to the deteriorating market conditions.
Among Other, Eliminations and Adjustments, in Entertainment and Communications, sales decreased with procurement issues for some components. In Housing, sales increased with water-related products such as kitchens and toilets and building materials such as interior doors and floor materials.
Adjusted operating profit analysis by segment. In Lifestyle, profit increased with continuous efforts such as price revisions and rationalization in Japanese and overseas markets nearly offset the deteriorated business environment, including exchange rates, raw material and logistics costs. Moreover, profit increased with increased sales mainly in growth businesses.
In Automotive, profit increased with increased sales, price revisions to offset price hikes in parts and materials and cost-reduction efforts despite the price hikes such as those of semiconductors and increased fixed costs.
In Connect, profit decreased due to decreased sales in Process Automation and Gemba solutions, and amortization related to Blue Yonder acquisition and other factors despite increased sales to rugged mobile terminals for overseas and avionics.
In Industry, profit decreased due to decreased sales and raw material price hikes despite rationalization, price revisions and the effect of yen depreciation. In Energy, profit decreased due to price hikes in raw materials and logistics, along with increased development expenses and fixed costs needed for increased production despite the effect of yen depreciation.
The results of Lifestyle by divisional company, both sales and profit increased at all divisional companies. In Living Appliances & Solutions Company, sales increased due mainly to sales recovery from the impact of the COVID lockdowns. Profit increased with such efforts as price revisions and rationalization to counter the deteriorated business environment, including yen depreciation and raw material price hikes.
In Heating and Ventilation AC Company, sales increased due to continuing favorable sales of air to water heat pump systems in Europe and sales recovery from the impact of lockdowns in Asia. Profit increased due mainly to increased sales despite the deteriorated business environment such as effective exchange rates.
In Cold Chain Solutions company, operations in Dalian, China are excluded from the scope of consolidation from FY '23 Q2. Accordingly, its results in FY '22 are reclassified to conform to the FY '23 presentation. This is in line with the change of management responsibility for the Cold Chain business in China to be held solely by China and Northeast Asia company. Based on the reclassification, both sales and profit in FY '23 Q2 increased with steady sales mainly for showcases in Japan and the U.S.
In Electric Works company, both sales and profit increased with steady sales of overseas electrical construction materials, mainly in India and Asia, despite the impact of shortages in parts and materials.
Operating profit by factor. From the left, profit generated from sales expansion increased by JPY 26.8 billion. Fixed costs had a negative impact of JPY 25.1 billion due to the increased investment in Lifestyle and Energy for business growth. Price hikes in raw materials and logistics had a negative impact of JPY 50 billion (sic) [ JPY 52 billion ] with counter effective efforts such as price revisions and rationalization offset this negative factor.
The consolidation impact of Blue Yonder was negative JPY 6.6 billion due to a loss in its operations, resulting mainly from temporary expenses as well as the recording of amortization expenses and others. The overall effective exchange rate was positive totaling [ JPY 4 billion ]. By segment, it had a negative impact in Lifestyle but positive impact in Industry and Energy. Adjusted operating profit was the same year-on-year. Other income and loss had a negative impact of JPY 10.6 billion due to onetime gain in FY '22. Operating profit decreased by JPY 10.7 billion.
Free cash flow and cash positions. On the left, free cash flow was JPY 69.3 billion for the first half. Although it improved largely year-on-year with the completion of Blue Yonder acquisition, it was below the level of net profit due to the strategically increased inventories responding to semiconductor shortages and others. On a quarterly basis, inventories turned to a decline in certain businesses. We will continue further efforts to reduce inventories, mainly by revising the strategic inventory level. Net cash was negative JPY 604.1 billion, an improvement from the end of FY '22.
Next is the consolidated financial forecast for FY '23. This shows the consolidated financial forecast. The ForEx assumption is revised as shown at the bottom. Based on this and the currency fluctuation, sales is revised upward by JPY 300 billion to JPY 8.2 trillion from the initial forecast. However, constant currency-based sales is revised downward by JPY 200 billion. Adjusted OP is revised downward to JPY 340 billion, down JPY 40 billion. Operating profit is revised downward to JPY 320 billion, also down JPY 40 billion. Net profit is revised downward by JPY 25 billion to JPY 235 billion. ROE is expected at 7%. EBITDA at JPY 750 billion.
This shows the forecast by segment. As for profit, Lifestyle remains unchanged. Energy is revised upward, and Automotive, Connect and Industry are revised downward. The details of the revisions from the initial forecast is explained from the next slide. This shows the forecast for the Lifestyle segment by divisional company. The profit forecast of all divisional companies remained unchanged.
Next is revision factors by segment. In Lifestyle, sales is revised upward due to the currency translation. Adjusted OP remains unchanged. The impact of Shanghai lockdown and exchange rates is expected to be offset by such efforts as price revisions and rationalization.
In Automotive, sales is revised upward due to the currency translation. However, the sales in real terms is expected to decrease from the initial forecast due to the reduced automobile production. Adjusted OP is revised downward largely affected by lower sales in Q1 despite the price revisions to counterparts and materials price hikes and effect of exchange rates.
In Connect, sales is revised upward due to the currency translation. However, the sales in real terms is expected to decrease from the initial forecast due to the parts and materials procurement issues and post-Olympic demand slowdown in Japan. Adjusted OP is revised downward due to the lower sales as well as lower profit of Blue Yonder.
In Industry, sales is revised upward due to the currency translation. However, sales in real terms is expected to decrease from the initial forecast due to the deteriorated market conditions in ICT infrastructure and equipment. Adjusted OP is revised downward due to the decreased sales despite rationalization and the yen depreciation effect.
In Energy, sales is revised upward due to the price revisions and currency translation despite the slowdown of lithium-ion batteries for consumer application. Adjusted OP is also revised upward due to the weaker yen and price revisions countering further hikes in raw materials. Based on the U.S. IRA, tax credit is assumed in Q4. However, this impact is not yet factored into the forecast.
In Other and Eliminations and Adjustments, sales is revised downward due mainly to lower sales of TVs. Adjusted OP is also revised downward due mainly to the price hikes in materials and effective exchange rates. This shows our analysis of the revised forecast of operating profit in FY '23 by factor and explains the changes made from the initial forecast. The upper graph shows the analysis of year-on-year increase-decrease factors in the initial forecast. The lower one shows the analysis of increase-decrease factors in the revised forecast of October 31. Figures in the middle show the revised demand by each factor.
Overall picture is that we are expecting an increase in fixed costs for future growth as well as the expanding impact of the raw material price hikes. However, our price revisions and rationalization efforts are expected to counter these increases. On the other hand, the impact of the lower sales in real terms compared to the initial forecast and the impact of temporary setbacks of the Blue Yonder are not fully offset by above-mentioned efforts. Therefore, operating profit is revised downwards by JPY 40 billion.
Now let me explain our view on Q2, based on the quarterly results, as I did for Q1. Currently, there is already a sign of slowdown in demand for ICT-related businesses and others. There are also concerns of a slowdown in economy. However, as explained at Q1, the situation turned to recovery trend with improved results after hitting bottom at Q1, when impact of Shanghai lockdown was felt.
From Q3 onwards, we will continue to aim for the sales growth, mainly in Energy and Heating & Ventilation AC business. From the external business environment perspective, there are some encouraging factors such as an ease of shortages in semiconductors and parts and materials as well as enactment of IRA in the United States. Today, the Panasonic Group announced the decision to construct a new manufacturing facility of automotive cylindrical lithium-ion batteries in Kansas, the U.S.
This slide shows the summary. The outline of the facility is as follows: construction is expected to start in November '22 as production is planned to start during FY '25. Type of cell to be produced is 2170 cells. Initial production capacity is expected at about 30 gigawatt hour per year. The graph on the right explains our target of production capacity expansion, which was shared at IR Day in June this year. Today's announcement on the investment is in line with this target.
Next, this shows the progress of our initiatives for 3 businesses identified as a growth area in the group's medium to long-term strategy announced in April this year. In the Automotive Battery business, as explained in the previous slide, we will continue to strengthen supply capability in the United States.
In Supply Chain Software business, there are certain impact on results due to the temporary setbacks in the business environment such as postponement of customer investments who are concerned about the economic slowdown and the strong dollar. To counter these, under the new CEO who joined Blue Yonder in July, we are formulating the key strategies, including a stronger organizational structure and business transformation toward future or further growth.
In the Air Quality and Air Conditioning business, we will expand the investment to accelerate the business growth for air to water in Europe. Going forward, the Panasonic Group will make announcements on the progress of these 3 growth areas in a timely manner. This is my last slide. It shows a list of the IR-related announcement in FY '23 after the launch of our new structure in April.
Briefings on the individual businesses by Lifestyle are planned to be held in November, as we proceed with the medium to long-term strategy, we will make announcements on the individual measures at both group-wide and operating company levels in a timely and appropriate manner. Thank you very much for your attention.
Watanabe from Kyodo News agency.
I have 2 questions. First, about Blue Yonder, the temporary deterioration of business. Could you elaborate on that? I don't think KPIs themselves are not deteriorating that much. So when you say temporary, does it mean only this fiscal year? Or could there be some lingering effect as well? And how can you say that it's temporary? What makes you say that it's just temporary deterioration.
My second question is on your new investment for the battery manufacturing facilities in the U.S. What is the scope? At the capacity of 30 gigawatt hour, I mean that -- you said that, that will be the initial capacity, and that would account for how much of the total?
Thank you for the question. First, as you can see in the slide, regarding the second quarter Blue Yonder on a stand-alone basis, some losses were recorded. Under the new CEO, we revisited the management system. So temporary restructuring efforts entailed expenses, which are included. And also, as for the amortization of intangible assets due to the currency translation because they are calculated on the U.S. basis, that is having an impact as well. There is a question of what the exchange rates are going to be, but that's 1 factor.
Another thing continuing from next -- last year, from the accounting point of view, there was about JPY 50 billion impact when we acquired 100% of its equity. And we explained that, that is going to have an impact this year and that continued to have an impact for the second quarter as well. On an annual basis, in our forecast for Blue Yonder, when you look at the indicators, they don't look that bad as you have correctly pointed out. In terms of year-on-year growth, that trajectory remains unchanged.
Compared to the initial forecast, we made a downward revision, and factors involved are as follows: macroeconomic uncertainties have resulted in the customers -- clients withholding investments. About 40% of the impact comes from that. And due to inflation, the personnel expenses are increasing. And also, as I mentioned earlier, we decided to revisit and rebuild the management style under the new CEO. But this is -- that accounts for about 40%, but that's only temporary. And then the currency impact, when the intangible assets are translated into Japanese, that has a major impact. And when Blue Yonder does business in Europe because U.S. dollar is appreciating against euro, that is having an impact as well.
The recession, what is going to happen going forward is a big question mark. But in terms of the increasing personnel increases and other factors, we can counter that through price revisions. And with regards to the currency translation, it's just a translation issue. So when it comes to basic fundamentals, as was indicated in some of the slides in terms of recurring business and sales increase, we don't see any change in that pattern.
And your second question regarding the investment amount for the new facilities, 30 gigawatts is the capacity. Investment amount, we do not disclose that. Of course, the manufacturing product will be 2170 cells. At [ E&A ], we do have the production, but that is not going to be moved as is. So we are going to improve the productivity.
And in July, when we signed up for the incentive programs in Kansas, we mentioned a $4 billion investment at that time, and we believe that, that will be a good benchmark. 30 gigawatt hour, currently, approximately, our production capacity is 50 gigawatt hour, and we're talking about additional 30 gigawatt hour. Would this answer your questions?
Just one follow-up question, if I may. When I said overall, of the total plan you have for Kansas plant, this initial capacity of 30 gigawatts would account for how much was the intent of my question?
So I see. As you can see in the slide, in June, Energy company made the IR presentation, and it is along what was described there, that 30 gigawatt hour is going to be the initial investment. As for going forward we do have some plans, but nothing has been decided.
Next from Nikkei, Naganawa san.
Naganawa from Nikkei, I hope you can hear me. I also have 2 questions. So today, you made a revision to the full year forecast. So I'd like to ask some questions or clarify some points there. First is about the foreign exchange rate. The yen has been weakening and expected exchange rate has been revised. And for the full year, the exchange rate would have a negative impact on the operating income by about JPY 10 billion level. So now there's a renminbi and yuan and dollars. How would those different currencies impact your earnings? That's my first point.
And also about the each operating company, the Connect and the Industry and Automotive, probably they will be mostly impacted. And I think that those are the on the negative trend in terms of the revisions. So Connect, you already touched upon it. So Automotive and Industry, could you elaborate? And for the Lifestyle business, in the first quarter, it was difficult, but now the price -- with the price revision, which have been effective, it's improving. And the price revision is expected for the full time frame. So how much was the positive impact from the price revisions?
Thank you. First, about the exchange rate. Euro dollar, JPY130 to the euro and dollar, as you know currently, it's [ JPY 146 or JPY 147 ]. So for the company-wide, weaker yen, for those 2 currencies will give us a positive impact. So we are being conservative in our understanding. As for the renminbi, JPY 20 per yuan. And more recently, it's JPY 20.2 or so. So it's close to about 1% level. So the foreign, the exchange sensitivity of the renminbi, in our Lifestyle mainly, it's a major impact. So minus JPY 10 billion level that would turn to positive and there is a possibility of that happening. So that's all I can say about foreign currencies.
As for the second question about the Connect, yes, I already talked about it. And as for the Automotive in Q1, it was the loss of tens of billions of yen due to the lockdown, we could not manufacture much. In Q2, slightly turned profitable and profit increased. So in Q3 and Q4, to what extent the production of the auto companies will trend? But we expect the recovery happening. So we did recover from the loss in Q1, but probably we won't be able to fully recover.
As for Industry, mainly the market conditions have worsened, and we have incorporated that in Q2. There was a lower sales revenue. So if you look at the market condition for Q3 and Q4, the server-related area, we expected double-digit growth for that. But as of now, maybe you've come down year-on-year. And also for ICT-related smartphone and others, the demand for that may be above JPY 10 billion level was our expectation at the beginning of the year, but maybe 10% lower than the year before. Those are the assumptions that we have for industry. The lower sales is the major reason and we expect -- we made a downward revision based on that. Thank you.
Next is from Bloomberg, [ Furukawa-san ] please.
[ Furukawa ] from Bloomberg. I hope you can hear me. Yes. I have a question on energy. Two questions on energy-related businesses. 4680, I think you announced that you're going to start the mass production in Wakayama in FY '24. But now you announced -- so are you thinking of producing 4680 in Kansas as well? And with the capacity increase, you're talking about 2 to 3x increase in FY '29, which would mean that you're going to need more plants. It's been reported that Oklahoma is the candidate site. So do I understand correctly that you're already thinking of new plants in addition to Kansas.
Thank you for your questions. First, 2170 is what we will be producing -- manufacturing in Kansas. This is based on strong customer requests, supply of batteries ASAP is a strong demand. So 2170 assures a speedy ramp-up of manufacturing, and that is why we're starting with 2170. As for 4680 in Wakayama factory, as you said, along that time line, we are steadily making progress towards mass production. Verification efforts are currently underway.
Today, the building of the Wakayama plant renovation is being conducted, and the verification of the line itself is done elsewhere. So as for the verification for the 4680 mass production, things are moving as planned. So although we cannot say for 100% certainty, but 4680 manufacturing Kansas, what is the possibility. Of course, that possibility is there. And how about other manufacturing sites? We are not announcing anything. You mentioned Oklahoma, but we're not seeing anything as far as Panasonic is concerned. And the announcement that we made today, the 30 gigawatt hour new facility, that is the only definite plan that we have in front of us. That answers your questions? Thank you.
We see many more questions, but unfortunately, our time for the journalist session is over. Sorry. We can take one more question from journalists. Hatanaka-san from Yomiuri Shimbun.
Hatanaka of Yomiuri Shimbun. I hope you can hear me. Yes. Yes, I have some questions on the earnings. About the higher fixed cost. You mentioned that this is for the growth investments. More specifically, what are the investments in the area of the energy or personnel cost, higher cost? Could you elaborate on the higher fixed cost.
You also mentioned Blue Yonder. I would like to ask some additional questions. On the nonconsolidated basis, they are facing some difficulties. So this setback you mentioned that the possible listing in May. So would that impact the potential listing in the future? I am interested in that. So I would like you to talk about this as much as you can.
Thank you very much. First of all, about the higher fixed costs, originally, when we announced the fixed cost of JPY 40 billion increase was what we announced. And the breakdown of that, Lifestyle, for example, air to water and what we announced today Energy-related investment, so about JPY 50 billion for that and also strengthening the business structure, about JPY 10 billion. So the net increase is JPY 40 billion, so that was the original number.
And this time, JPY 30 billion additional fixed costs, so the total is JPY 70 billion. Now the breakdown of this JPY 30 billion is half of that or JPY 15 billion is for the future, it's the development cost for the future. The area of the business is Energy. We want to accelerate the business there. And also air to water in Europe is growing very fast. So the Lifestyle, we want to accelerate the development for that. This is the higher fixed cost, but for the future.
The remaining JPY 15 billion with the continuing inflation, the personnel cost, especially in Western countries is increasing. So in order to counter that, we need to work on some measures. And we are starting to see that happening. So that JPY 15 billion is factored in. As for Blue Yonder situation, as of now the growth track remains the same. And I already talked about some of the revisions. But preparation for the listing is something that we are making as planned. Thank you. I hope that answers your question.
So this concludes Q&A for members of the news media. We will now take questions from analysts and institutional investors, again only in Japanese. From JPMorgan, Ayada san.
Ayada from JPMorgan. I have 2 questions. First, about that Kansas investment, over $4 billion is what you mentioned. Just for clarification. Does this include the subsidies from the state government? And the source of funding, would that come from operational -- operating cash flow since FY '25 is just around a corner, if you are going to pay ourselves means all the free cash flow is going to be used for that. So given the current balance sheet and cash position for overall group capital allocation, what impact would this investment have?
Thank you for your question. It was not subsidy, but IRA rather. The IRA bylaws related to IRA have yet to be determined, so we don't know how those could be used. And that being the case, in terms of the investment amounts which will be affected by IRA, we have yet to really determine. And as I mentioned in response to one of the questions earlier, we are currently in the process. Things are still fluid, but since we will be investing in Kansas and since [ $4 billion ] is the amount that we mentioned at the time of applying for that subsidy or the incentive program, that would be the benchmark.
As for the impact on the capital allocation, the operating cash flow does look rather weak now. Regarding the 3-year investments, again, there will be some impact from IRA and how that would be part of the big picture is still a question mark. Of course, if there are any tax benefits in the U.S., this would be used for investments in the U.S. And the operating cash flow targets that we have over a medium term, we have to ensure that those are earned. And capital allocation policy as well as the financial discipline will be respected. Should there be any need for extra cash, we will be selling some of our assets.
My second question, if I may.
Yes.
About Blue Yonder, changing the management, at least I was not aware that its management had a big issue that warranted this management restructure. Now under the new CEO, what is going to change?
Under new CEO, well, from his perspective, the sales and marketing division, we did the quality change, the native sauce. And from a new perspective, it was pointed out that maybe there's some redundancy in the sales and marketing group. So that's one area where the restructuring will take place. And also, we felt that this is a good opportunity to address this matter. So this entails temporary expenses, and it is based on that, that we revised the forecast for Blue Yonder on a full year basis. I hope that answers your question.
Next is Okazaki-san from Nomura Securities.
This is Okazaki of Nomura Securities. First question is about profit forecast and revisions. The raw material cost impact, JPY 150 billion and now it's up to JPY 190 billion. So more rigorous or severe in comparison to the initial time, the copper and other materials -- aluminum, sorry, have changed or increased. So could you talk about that?
And also in Energy, the profit forecast, it's upward revision. But the foreign exchange, I think, has been quite positive for you. So maybe in real terms, it's weak. So higher fixed cost is part of that reason. So higher cost and the price revision, is it sufficient? So this downward -- sorry, the revision seems a bit weak based on the foreign currency trend.
So thank you very much. Yes, the copper and aluminum prices in comparison to sometime ago has stabilized. But at the same time, there is always a time lag, so some of them are being reserved. So that part, the spot rate, there are some differences or discrepancies from the spot rate, but it will stabilize gradually. And the prices of the lithium stays at the high level. So lithium, there are different types of the lithium and many of them or most of them are up and the steel or iron is at the very high level, and it remains at high level.
And the major impact also comes from other segment, that is housing. In housing, the raw material -- high raw material prices affect us. Cement, for example, for the [ outer wall ] is increasing in its price. So some of them are stabilizing, and there are some differences compared to the spot price but also steel, iron and lithium as well as the businesses such as the [ outer wall ] and the cement, those have a major impact. So including that, about JPY 40 billion is the impact that we revised based on the higher price hike of the raw material. So that's my first point.
The second is the impact of the ForEx in energy isn't bigger than this. Yes. As Okazaki-san said, you're correct. So for when you construct a business building and it will be 2170, so we need to start this up earlier. And so we need to spend the fixed cost to enable that. And lithium, the price is staying at the high level. Because of that, the consumer electronics area and others are going to be impacted slightly. And that is something that we want to absorb with the price revision and the rationalization, and that's something that we are working on right now, and that was something that we will start to see in numbers. So energy seems a bit weak because of those factors. Thank you very much.
Next is Katsura-san from SMBC Nikko Securities.
Katsura from SMBC Nikko. I also have 2 questions. First, the batteries, clarification, $4 billion or more and 30 gigawatt hour. Are they equal? In other words, is it 30 gigawatt initially? That's my first question. And another question on Energy, the capital expenditure. I'm looking at the supplement, second page or Page 3, the total on a full year basis doesn't change much. And I understand that the personnel cost and inflation are going up and there is a currency effect as well. So how are we to make of these pluses and minuses in the CapEx for next fiscal year as well? That's my first question.
And second is on Lifestyle business. China and Northeast Asia, I think the company did very well in Q2 as well. What's the background? And what about the future prospects, including the macroeconomic situation in China? What is your current view, Mr. Umeda, of the situation in China?
Thank you. The. Battery business, $4 billion, that's the figure that we used when we applied for the incentive program in Kansas. 30 gigawatt hour? Or is it the building, they were not in state to clarify that. So $4 billion is that equal to 30 gigawatt hour capacity, I'm afraid we can't answer that question. So that's my question -- my answer to your question.
And CapEx itself, of course, the buildings, the facilities are going to be built, and it will be in calendar year '23 to '24 when the full construction work would be reflected in CapEx. There might be some of the expenses that need to be recorded. So maybe the facilities themselves don't have a big price tag. But since we have decided on building this, the CapEx is going to increase going forward, and the very strong performance of China, Northeast Asia company, this includes Taiwan, and the household appliances business of that company is doing well as well.
China is different from the rest of the world in terms of the impact of COVID-19. The lockdowns are still taking place in some of our local facilities. So for industry, for ICT, businesses for those markets are getting a little weak. But when it comes to the e-commerce of the consumer electronics and household appliances, they are doing better than the previous year. So we are expecting a good growth. I hope that answers your question.
Next, from Morgan Stanley MUFG. Ono-san, please.
Ono speaking from Morgan Stanley. Two questions, first of all, about energy, the -- I understand that in Q4, the tax credit will be incurred. So in the market, there are different voice and the [ PENA ] plant, existing plant, including that, for example, per kilowatt hour, tens of dollars or the dollars in teens. And if I may -- this time, you summarized that in Q4, you'll be booking -- and what is that part? And could you give us some size of expected tax credit?
My second question, about the currency assumption for the second half. You mentioned it's JPY 130, and it's quite different from the current level. So if there are any specific reasons behind this, JPY 130 to the dollar or euro. And when there is a difference of the JPY 1, what would be the sensitivity or OIBDA impact on the operating income or profit? And with the addition of the Blue Yonder, I think the sensitivity has changed. So if you can give us some clarification on that point.
Thank you very much. First, about -- in relation to IRA, the tax credit, this time, it has already passed at the low end, the [ PENA ] is 45X is the act and $35 per kilowatt hour, the [ OIBDA ] tax credit. So that is mainly the number. And as for the -- there are no bylaws currently applied, so the accounting procedure is something that we have not yet started the study. So we did not factor in this tax credit at this time into our forecast. But at the same time, with the high probability in Q4, this would be a positive factor for Energy, and that was the information that we needed to disclose this time.
So in the presentation, we mentioned that the IRA tax credit is not factored in. That's why we said that. As for the size, unless we see the bylaws or the details of the laws, we cannot say. But $35 per kilowatt hour, if you use that number to apply it to the [ PENA ] sales number, then this time, after the adjusted OP is downward revision of JPY 40 billion was made. So similar to that level is something that we can expect in the simple calculation in Q4. And probably, that is our way of thinking. So adjusted OP, we can offset the negative factor. So probably, it will be booked under adjusted OP, and that's our view right now.
But of course, the final decision will be made by the accounting firm. And so this is just what we expect from Panasonic. So we mentioned that so that there won't be any surprise to you. Now as for the foreign exchange assumption of JPY 130, is it better to have JPY 140, but Panasonic -- this weaker yen is positive in some areas but is negative on TV, for example. And [ JPY 7 ] fluctuation of the exchange rate against the dollar is something that we see now. So where is the good level, the volatility is just so high. So as of now, as for dollars and euro, we want to be conservative at the corporate-wide level. That is why we have this on the JPY 130 to the dollar and the euro. I hope that answer your questions. Thank you very much.
We see many hands being raised, but we're getting closer to the scheduled end time, so we will take questions from 2 more people. One question per person. Ezawa-san from Citigroup Global Markets Japan.
This is Ezawa from Citigroup. Just one question. Let me think which one. So you made the downward revision to the annual forecast, JPY 40 billion, operating profits downward revision. Maybe the results for second half or rather for first half, the actual was below your forecast? And what is the portion that will come from the second half? That's my question.
We don't make announcements on a half year basis. But in terms of progress, it's less than 40% in terms of the full year. And so it was lower. The actual results were lower than our internal assumption. And then for second half, what we can estimate in terms of the economic situation, we took that into effect to come up with this figure of JPY 40 billion for 3 segments put together. Their ups and downs from segment to segment. That is my answer. That answers your question?
The last question is from Nakane-san of Mizuho Securities.
This is Nakane speaking. I hope you can hear me.
Yes. Thank you very much.
One question. So the downward revision of the profit, JPY 22 billion for the Connect. So Blue Yonder [ NPA ] and avionics, just roughly speaking, could you talk about the breakdown of this JPY 22 billion? And in each business towards the next fiscal year, I think that the momentum is different. So aside from Blue Yonder, those 2 remaining ones, could you make some comments on them?
Well, Blue Yonder part. So more than JPY 10 billion downward revision, so most of them comes from or more than 50% is from Blue Yonder. But Process Automation, the business sentiment is difficult. And also the Gemba Solutions, we also see some difficulties. So those included, and this is a big number as a downward revision.
As for avionics, the orders -- there are a lot of orders, but legacy semiconductors are used partly. So delivery cannot be made. But the aircrafts, we are seeing a big recovery. So in the second half, the supply/demand probably will improve. That's what we expect, but we cannot manufacture based on our expectations. So -- but the higher profit is what we see for avionics. As for Blue Yonder, I already talked about it. So nothing to add. Thank you very much.
So with that, the Q2 business results briefing of Panasonic Group has come to an end. Thank you very much for your participation.
[Statements in English on this transcript were spoken by an interpreter present on the live call.]