Panasonic Holdings Corp
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Panasonic Holdings Corp
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Thank you very much. Let me start the presentation of the fiscal 2021 Q3 financial results.
This is the summary of the financial results. Overall, Q3 sales in real terms turned to an increase from the same period last year. Profit increased year-on-year, similar to Q2. This is due to the steady progress in enhancing management structure and contributions from increased sales of businesses capturing changes in society.
For the company-wide full year forecast, both sales and profit are revised upward. Accordingly, adjusted operating profit for the full year is expected to increase from last year. For the forecast by segment, Appliances, Life Solutions, Automotive and Industrial Solutions are revised upward, and Connected Solutions is revised downward.
Next is the details of the financial results. This shows consolidated financial results for Q3. Overall, sales was JPY 1.814 trillion. Sales increased in real terms, excluding the effect of exchange rates and deconsolidation impact. Adjusted operating profit, operating profit and net profit increased largely with the enhancement of management structure and increased sales.
This shows sales analysis. Overall, sales decreased by JPY 97.1 billion or 5%. However, sales in real terms, excluding the deconsolidation impact and other factors, increased by JPY 32.7 billion or 2%. This is due to an increased sales in Automotive Solutions, Home Appliances and others, offsetting the negative impact of COVID-19 on sales.
Next is a sales trend compared to the previous year. The graph on the left shows the trend of company-wide sales. Sales hit the bottom in Q1 with expanded COVID-19 impact. However, sales continued on the recovery trend and exceeded the previous year's level in Q3. COVID-19 impact on sales has lessened. For Q1, COVID-19 negative impact on sales was JPY 350 billion. For Q3, the impact was JPY 50 billion. The graph on the right shows the sales trend by segment. Automotive, Industrial Solutions and Appliances recovered to the above previous year's level in Q3.
This shows operating profit analysis. Regarding management structure enhancements set in the midterm strategy, we made steady progress with profit contribution of JPY 18 billion with fixed cost reduction and JPY 6 billion with measures to businesses with loss-making structures. In addition, the effect from businesses with increased sales and others contributed to overall profit growth by JPY 44.3 billion. COVID-19 impact pushed down the profit by JPY 15 billion. Adjusted operating profit increased by JPY 47.5 billion. Overall operating profit increased by JPY 29.8 billion despite a decrease in other income and loss impacted by last year's onetime gains and other factors.
This shows operating profit analysis by business. Higher profit was driven by businesses that captured opportunities, reflecting change in the society from mid to long term such as air-conditioning, air quality, Automotive Batteries as well as ICT infrastructure. Adjusted operating profit increased by JPY 47.5 billion, out of which JPY 40.7 billion came from such businesses. For example, profit increased in businesses that captured increasing demand related to air-conditioning and air quality and public hygiene such as heating and cooling solutions and home appliances, expanding product lineup equipped with nanoe X; Panasonic Ecology Systems with expanding production of Ziaino special sterilizing and deodorizing equipment. In addition, automotive cylindrical batteries amid expanding EV demand saw higher profit with progress in rationalization and other factors. Furthermore, profit increased in systems and devices of Industrial Solutions as well as Process Automation, capturing expanding investment demand related to ICT.
This shows the results by segment. Adjusted operating profit was positive at all segments.
This shows major increase and decrease factors by segment. In Appliances, sales and profit increased due to favorable sales of products such as washing machines and refrigerators, along with cost control efforts.
Life Solutions, sales were flat year-on-year. Favorable sales of air quality-related businesses and overseas wiring devices offset the impact of market deterioration in Japan. Profit increased on higher sales, including air quality-related businesses and thorough fixed cost reduction.
In Connected Solutions, sales and profit decreased. Continued favorable sales of mounting machines and efforts to improve costs were unable to offset the decreases in Avionics and others. However, Connected Solutions turned profitable overall after recording losses in Q1 and Q2.
Automotive sales increased as a whole. Sales in Automotive Solutions also rebounded, though, demand after lower vehicle production in Q1, despite lower sales of automotive cylindrical batteries due to modification on the production line. Profit increased overall. Profit increased largely in automotive cylindrical batteries through rationalization and other factors. However, profit decreased in Automotive Solutions due to recording of temporary expenses related to the issues of onboard charging system, while there were increased sales and fixed cost reduction effect.
In Industrial Solutions, sales and profit increased due mainly to continued favorable sales of products for information and communication infrastructure as well as the effect of the structural reform of semiconductor business.
Next is the situation of free cash flow and cash position. Free cash flow was JPY 208 billion with significantly positive operating cash flow through working capital improvement and others in addition to net profit. For the 9 months of fiscal '21, free cash flow was JPY 311.9 billion.
The graph on the right describes our cash positions. Gross cash was approximately JPY 1.4 trillion. The amount increased significantly compared to the end of FY '20 by issuing JPY 200 billion straight bonds in December 2020, which was already used to redeem short-term bonds in January 2021. Net cash was minus JPY 222.2 billion. This was improved compared to the end of FY '20 and turned positive, excluding these liabilities.
I will now explain revisions to the full year -- or FY '21 full year forecast, starting from the next slide. Reflecting current management conditions, we have revised the FY '21 full year financial forecast from the initial forecast announced in July. Sales of JPY 100 billion; adjusted operating profit and operating profit up JPY 80 billion, respectively; and net profit up JPY 50 billion. Accordingly, adjusted operating profit is expected to increase year-on-year by JPY 13.3 billion.
This slide shows revised forecast by segment. Appliances, Life Solutions, Automotive and Industrial Solutions are revised upward. Connected Solutions is revised downward. Details are shown from the next slide.
As for factors by segment, in Appliances, sales and profit are revised upward, driven by stable sales and progress in cost control efforts. In Life Solutions, sales and profit are revised upward with lessened impact of COVID-19 and increased sales of air quality-related businesses and thorough fixed cost reductions. In Connected Solutions, sales and profit are revised downward, reflecting delayed recovery in Avionics and others due to a prolonged impact of COVID-19 despite thorough fixed cost reduction. In Automotive, sales are revised upward with the earlier-than-expected recovery in the automobile market for Automotive Solutions. Profit is also revised upward, expecting smaller loss than initial forecast, mainly with recovered sales despite Automotive Solutions recording temporary expenses related to onboard charging systems. Rationalization and introducing new cells in automotive cylindrical batteries are contributing to the upward position as well. In Industrial Solutions, sales and profit are revised upward with the improved market conditions for automotive products and growth in data center products. On a company-wide basis, sales are revised upward by JPY 100 billion and adjusted operating profit and operating profit are both revised upward by JPY 80 billion.
Factors for revision of operating profit. This slide shows the year-on-year variance analysis. The upper graph shows the initial forecast as of July; in the lower graph, the revised forecast; in the wing, the breakdown of the revised amount of JPY 80 billion by factor. Asia factors include profit contribution from fixed cost reductions such in the midterm strategy is expected to increase by JPY 30 billion through steady progress of management -- structural management. As for the effect from businesses with increased sales, JPY 23.7 billion improvement is expected, reflecting such factors as an increase of current sales in real trends. As for COVID-19 impact, we expect the full year impact to be JPY 15 billion less than the initial forecast.
Regarding the operating profit, year-on-year comparison and the amount of -- amount excluding COVID-19 impact are shown on the right. Here, progress in key initiatives. In terms of management structural enhancement set in the midterm strategy, we expect to achieve the midterm target of JPY 100 billion ahead of schedule in the first 2 years. We will continue with these efforts, aiming for further profit contributions.
Efforts to improve profitability of Automotive business has made steady progress through fixed cost reductions and profitability improvements. We will continue these measures with the aim of achieving 5% profit margin at the earlier stage.
With regard to business portfolio reform, yesterday, we announced the withdrawal from the production of photovoltaic products. Going forward, we will enhance Energy Solution business, combining products such as hands, power conditioners and storage batteries. In response to COVID-19, we are taking further fixed cost reductions addressing decreased sales according to each business situation through fixed cost management -- or thorough fixed cost management will be continued in a well-focused manner. For the Avionics business, we are executing structural reform and will continue with the necessary measures by closely monitoring such factors as resumption of aircraft production and flight operations.
I will explain details of initiatives to capture business opportunities. Triggered by COVID-19, changes in society are accelerating in various business areas. We are promoting initiatives to offer solutions through business activities, capturing opportunities arising from such changes from a medium- to long-term perspective.
With the increasing demand for air-conditioning, air quality and public hygiene, we are expanding product lineup equipped with nanoe X technology. Production volume, including nanoe X products, is expected to increase from 8 million units to 8.5 million units year-on-year. We will increase this volume to the range of 15 million units in 5 years.
For the Ziaino special sterilizing/deodorizing equipment, we are increasing production capacity toward a sales target of JPY 50 billion in FY '26, including beginning of the production in China. We are also focusing on such solutions as an integrated air-conditioning and indoor air quality system scheduled for the launch in the Chinese residential market.
Regarding the expanding demand for EVs related to global warming and others, we can exert our technological expertise in automotive cylindrical battery business. We are strengthening such initiatives as increasing production capacity at the North America factory and developing new technology as well as partnering with Norwegian companies to investigate the potential for our European business.
Responding to the expanding investment in ICT infrastructure, we are increasing production capacity, investing in technological development and promoting product differentiation in such businesses as mounting machines, conducted polymer electrolytic capacitors and power storage systems. While these businesses are really driving our profit growth, we will continue with these initiatives for sustainable profit growth.
Thank you for your attention.
I have 2 questions. This time, the COVID-19 impact is less, but you have reduced the impact of COVID-19 in relation to JPY 35 billion. And I'd like to once again ask you the same question about the COVID-19. It seems that the CNS is the only one which is still impacted, but for the next fiscal year, is the CNS the only segment that we should pay attention to in terms of the COVID-19 impact?
By segment COVID-19 impact, especially in Q1, it was a big impact. And at that time, the Automotive was most severely impacted. So AM segment or Automotive segment and Industrial Solutions segment, we saw a major impact.
In terms of the numbers, the major one, mostly in the first half, it has come to an end. In terms of the number, the biggest one is CNS, about JPY 70 billion or so. Next biggest or next big one is the Q1 of Automotive was a major one. So cumulative number was the second high. The third is Appliances and Life Solutions. Mainly in Q1, there were major impacts. So Q3 and Q4, the -- only the impact continues for CNS. So JPY 135 billion is the total of those.
And as for the next year, the COVID-19 impact, what is our forecast, especially CNS, Avionics and various -- what would happen to the various events? For example, Media Entertainment, is an important one. So CNS is the only segment we expect to see the remaining impact from COVID-19. Thank you.
My second question is about the battery business. As of now, LG Chemical and CATL in comparison to other manufacturers, the cylindrical battery expansion in Western countries, how competitive do you think you are in comparison to other competitors and expanding the business in Europe? The other day, you announced a partnership with the Norwegian company. How would that help your battery business?
In Europe and other areas, the CATL and LG Chemical, how do we compete against them? In Europe, in the batteries business, as Tesla announced, the cylindrical 4680, we believe, is the main product. That is what we think right now. So because of that, 4680 development is something that we have already started. And so from R&D to prototyping is something that we have in our sight. So in fiscal '22, the prototype line will be set up for 4680 so we can verify the technology and move to prepare for the mass production. We will accelerate that. So high capacity 4680 development itself is in comparison to LG and CATL is -- will determine whether we can be competitive or not. So toward that, we are working on the R&D and prepare for the prototyping.
The second point, that is a partnership with the 2 Norwegian companies. As we announced, we are making steady progress. Norway is very much ahead in the area of the environment. So where to place the plant and what kind of business are we going to have, those are not yet finalized, but the 2 Norwegian companies have a very strong request. And for us, I think that the European market is where we can take advantage of our strength of our battery. So energy-related company, together with those partners, we are hoping and we are currently investigating and doing the research on the productivity and profitability and other aspects.
So 4680 battery, this -- the partnership will lead to this development as well. Yes, 4680, we believe, is something that we need or they would require in European market. I hope that answers your question.
We'll move to the next questioner from Nomura Securities, Mr. Okazaki.
Okazaki from Nomura Securities. My first question is on Automotive results. Year-on-year improvement was recorded, but quarter-on-quarter profit decreased. So between Batteries and Automotive Solutions, what are the breakdown? And what is the primary cost and the modifications of the product -- production lines? What is the impact of that? That's my first question.
My second question is regarding the revised guidance. Regarding January to March, the fourth quarter, what are the risks that we need to keep in mind? Listening to your peers, for example, due to the shortage of semiconductors or the very tight logistics situation, those are the risks that are cited. So I wonder what risk factors you have in mind for the fourth quarter.
In the Automotive business, adjusted operating profit, JPY 2 billion profit. That was the result. The Automotive Solutions versus Automotive Batteries, the batteries were in the positive several hundred 100 million yen. And for Automotive Solutions, again, billions of yen profit versus billions of yen loss. That is between the Automotive Solutions and Automotive Batteries.
As was mentioned in the presentation, in relation to the onboard chargers in Europe, we recorded temporary expenses which impacted the ordinary profit, which is in the lower range of the tens of billions of yen. And as a result of that, the Automotive Solutions or the Automotive overall, Automotive Solutions recorded a loss. And therefore, quarter-on-quarter, it appears that there was a decline. So that's the answer to your first question.
Your second question, the fourth quarter risks. As we speak, as you just said, our customers, the semiconductor customers, especially the automotive industry is a big segment for our Automotive and Industrial Solutions segment. That's a big business for us. And so the automotive OED -- OEMs, whether they can obtain sufficient amount of semiconductor computer chips or not is something that we are paying attention to, but that's beyond our control. And therefore, in response to the request from the automotive OEMs, we are trying to respond to that with flexibility, that's where we are putting all our efforts.
And regarding the logistics distribution, there were some local issues with the shortage of containers, but we are making a [ PSI ]. So we are taking proactive measures with anticipating such risks.
I have a follow-up question. Regarding the Automotive Battery, the impact of the modification of the production line. That was not that significant, am I correct? And no impact on the production of semiconductor shortage on your Entertainment business?
The modification of the production line, of course, would push down the sales, and that's rather sizable. But in terms of profitability compared to the previous year, with the streamlining of the material procurement and improvement in the production loss, we are seeing major year-on-year increase in profit for 35-gigawatt capacity. That's the aim of our modification, which has been already planned. And with regards to the one addition of the production line, summer of next year or that time frame, 38 gigawatts is what we are aiming for.
So with securing the materials procurement, we are getting ready for that.
And with regards to the impact of semiconductor, the automotive customers and automotive OEMs, should they feel the shortage of semiconductor, that is going to impact us as well. But I understand that the impact felt is different from OEMs to OEMs, so we are paying attention to that and making our best to respond to the requests coming from our customers.
We have Mr. Ezawa of Citigroup Global Market Japan.
This is Ezawa speaking. I have 2 questions. First is our overall business results, one point of clarification. The 3-month operating margin, 7.2%, I believe. So going back to the past, it seems that this is the highest profit margin. Is that correct?
Also, the main question is that the 5% was the profit margin target, and you have already achieved that. So what are you going to do from now on? That's something that I'm interested in knowing. October, December profitability was very good. Is this just temporary? And do you think that you should keep the target at 5%? Or can you move on to the next step? That's what I would like to know.
And also about the cost reduction of JPY 100 billion, you have already achieved this ahead of schedule. So what are you going to do in the new fiscal year? That's my first question.
And the second is about the cash flow. So full year free cash flow forecast, what is your forecast? And for the next fiscal year, in terms of free cash flow, if you have any overall idea, that is to say the core businesses and noncore businesses, you are showing the classification. So in noncore businesses, do you think that you would need to consider the major cash for that? So just give us your thoughts on those points.
Operating profit after the year 2000 and onwards, this is the highest profit margin, and that is a fact. But 5% has not yet taken root, so we have to really wait and see.
So do we keep the target at 5%? No, that is not the case. In the midterm plan from fiscal '20 to '22, we need to enhance our management structure and also improve the -- work on the businesses with the low profit structure. So for '22, fiscal '22, we will continue to take those measures and allocate our resources in the new corporate organization. So 5% target, is it likely to continue? We are hoping that we can graduate from that target.
As for the cost reduction, we achieved JPY 100 billion ahead of schedule, eliminating the unprofitable business and so forth. But still low profit, inefficiencies continues and remain, so internal target is actually higher. So we would like to make sure that we can distinguish the core from noncore so that we can improve and further enhance the management structure in coming fiscal years.
As for your second question about the free cash flow, cumulative of JPY 319 billion, in Q4, in the cumulative number, other income and loss was not high, but the expectation is -- remains the same as JPY 70 billion, but the cumulative number is only like JPY 6 billion. So usually, this structural reform expenses incur in the Q4. So as I mentioned earlier, in the medium-term management plan, we'd like to make sure that we work on the measures for those businesses with low profit structures. So we are not going to go lower than JPY 319 billion, but we would like to add to that as much as possible. So that is the full year free cash flow forecast that we have.
So free cash flow overall framework for this fiscal year is quite high, but you will be entering into the phase where you would spend the money?
Well, we plan to be able to utilize this fund or money more flexibly or in a more agile manner. So I think we are entering into that phase.
A correction to the earlier translation, the amount of temporary expenses recorded in relation to the onboard chargers are in the range of lower -- in the lower range of tens of billions of yen.
The next questioner is Mr. Ono from Morgan Stanley.
Can you hear me?
Yes, we can.
I have one broad question. In the Q2, Q3, effect of cost reductions is felt translated into sizable profit. Mr. Umeda, looking at Q2, Q3 results, do you feel that you can be more bullish about next fiscal year? I know you're going to continue with the cost reduction efforts, but for Panasonic group overall, do you feel that the basic structure has been transformed for higher profitability? Do you think that foundation has been laid?
Automotive Battery, including Tesla business and Automotive Solutions, we have made investments in those areas. And compared to the announced timing of milestones, our sales or profit did not really match the announcement. We have embarked on portfolio -- business portfolio reform and enhancement of management structures, and we have been sharing with you the results each quarter. And I do feel that we are seeing the numerical effect of results of what we have been doing as measures. Up to FY 2022, we will continue with our efforts to enhance management structure and to address businesses with loss-making structures.
Regarding fixed costs starting fiscal 2020, we have been working on fixed cost reductions, eliminating the loss-making facilities and others under the midterm strategy with a new lifestyle under COVID-19. What would be the best way to use our cost? We have spent a lot of time considering that. And I'm sure we're not the only one doing that.
And as far as our workforce is concerned, we do see a progress in working from home, the remote operations. And therefore, we believe that we can continue to see the effect of cost reductions with a combined effect of all the efforts we are making and the changes in the working environment.
And in our slide, for example, on Slide 15, we are showing what our profits would have been without the impact of COVID-19, the effect of our efforts. JPY 43.5 billion for fiscal 2021 without the impact of COVID-19. So the operating profit margin would be over 5% had we achieved this. So we will continue with our efforts to make sure all these measures will be implemented as planned.
[Operator Instructions] Nakane-san from Mizuho Securities.
This is Nakane speaking. Can you hear me?
Yes.
Just one question. The COVID-19 impact was discussed and you explained remotely minus JPY 135 billion. And in the previous term, it was a gross impact. So I think there was an impact of JPY 45 billion in gross. So for the full year, the cost reduction effect, how much was it? And how much do you expect?
And in follow-up to the other people, what will be the forecast for the next fiscal year? If possible, if you can give us the segment in terms of the size of the impact? So how long do you think it would continue?
And Appliance and Life Solutions, the sales increase is something that we see and it's good results, but Industrial Solutions and CNS are not so good. So the higher sales impact and also the cost reduction, how big have been the effect of all of those factors?
Well, in relation to COVID-19, the activities were suspended, but now we are looking at the net changes. So in Q3 and Q4, COVID-19 impact is only for CNS. For Q2 and Q3 -- well, Q1 and Q2, about JPY 70 billion fixed cost reduction was realized. And in Q3, the sales increased about less than JPY 50 billion fixed cost reduction. So to certain extent, the fixed cost reduction under those circumstances have probably taken root. That's what we are feeling. And also we'd like to make sure that we analyze that, and that's what we do internally.
For the impact of the COVID-19 by segment, it's a net impact. Overall, JPY 135 billion is the COVID-19 negative impact on profit. Out of that, 50% is actually on CNS, including major parties. Avionics and Media Entertainment is the next highest. The others were Automotive segment in Q1. So that's the second highest impact. And AP and LS, Q1 and Q2 were the major period that we had about JPY 100 billion or more.
So what would happen in 2022? We believe that the CNS is the only segment which will continue to have an impact, looking at the airline industry and avionics industry trend these days. That's all.
After listening to your response, the fixed cost reduction is continuing and this is likely to continue to the first half of next fiscal year, is that correct, especially AP and LS?
Yes. As for AP, it is high. The household sanitation, for example, nanoe X, high-end products, the demand for the high-end products is very strong.
So after COVID-19, after pandemic, do we lose that? We believe that the new lifestyle, I think that the values of people are changing. So in that sense, products I would like to -- with our products, we'd like to respond to the needs of the people who are looking for higher sanitation and more comfort.
As for the fixed cost reduction, whether that is likely to continue in the next fiscal year, in enhancing our management structure, the fixed cost reduction is something that we have been working on. And based on the current situation, next year and onwards we expect to see the further reduction of the fixed cost. That's what we are expecting as a whole.
For example, the exhibitions, the business travels, assuming that those activities should resume, your fixed cost is not going to go up. Am I correct?
Yes. This is not only for Panasonic, but when we talk to our customers or investors previously, we had to meet face to face. Those were the only opportunities. But now they're saying remote meetings would suffice, so they are changing. And in fact, the CES in the U.S. was held on an online basis. And I understand that more visitors were there than the real convention. And therefore, without the actual mobility, people traveling or moving, I think a certain level of efficient work is possible. I think people have come to realize that. And so to a certain degree, I think the face-to-face meetings will resume, but do we expect to go back to what it was in the past? We don't think so.
We have already run overtime, but we will take one more question. [Operator Instructions] From JPMorgan, Mr. Ayada, please?
Ayada from JPMorgan. Just one question. The profit level on a real term basis, on the adjusted operating profit basis, about JPY 10 billion. I understand that there was a temporary -- recording of temporary expenses to the tunes of lower range of tens of billions of yen. So for IS, maybe JPY 45 billion profit for the second half. So can we double these figures for the full year profit, the adjusted operating profit? Or because you have reduced various expenses, could the depreciation of R&D for Automotive go up next year? So can you talk about the sense of next fiscal year based on what's expected of the second half of this fiscal year?
For Automotive, especially from the first quarter, since automotive OEMs were not operating, almost 0, and that rebound effect is being felt. And therefore, we see higher figures for the third quarter as a result of that rebound.
As for Industrial Solutions, again, parts and components for the automobile OEMs. Again, we see a rebound effect, and ICT recovery, a very quick recovery. These are the factors. So we don't know if double the figure would be the full year results.
Thank you very much. That concludes today's meeting. Thank you very much for joining us today.