Panasonic Holdings Corp
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[Call Starts Abruptly] I'd like to go over the Fiscal 2023 Third Quarter Financial Results. First the summary overall sales increased due to increased sales of Automotive and Connect as well as currency translation. Adjusted OP has slightly decreased despite increased sales of Automotive and Connect due to the large profit decrease in Energy. OP and net profit increased due to improvement in other income and loss. Operating cash flows increased over FY 2022 despite increased inventories due mainly to improved working capital and other factors. We have revised the full year forecast.
At the Q2 earnings briefing we touched upon the U.S. Inflation Reduction Act IRA. As detailed rules have not yet been announced as of today, the impact of the IRA in our value is not factored into the full year forecast. As with the Groupwide forecast, profit is revised downward, reflecting changes in the business environment. Overall sales remains unchanged, but sales decreased in real terms, excluding the effect of exchange rates. By segment, Automotive and Connect profit are revised upward while Lifestyle, Industry and Energy profits are revised downward.
Now the details of the consolidated results for Q3. Here you can see the consolidated results. Overall sales increased to JPY2,160.6 billion, up 14% year-on-year. Sales on constant currency increased by 5%. Adjusted OP was at JPY85.9 billion, a slight decrease year-on-year. Other income and loss improved due mainly to reduced restructuring expenses and gain from the sale of assets. OP net profit and EBITDA increased respectively.
This is the results by segment. I will explain the year-on-year variance analysis in the next few slides. First changes in sales by segment. In Lifestyle overall sales increased despite decreased sales of consumer electronics due to increased sales of growth businesses such as air to water in Europe and overseas electrical construction materials.
Automotive sales increased on the recovery and automobile production of our customers. Connect sales increased on growth in rugged mobile terminals for overseas markets and in Avionics, reflecting market recovery in the aviation industry as well as increased sales of Blue Yonder, this in spite of decreased sales in Process Automation affected by the slowdown of investments by the PC smartphone customers. Industry sales decreased due to the market slowdown in ICT terminals and FA mainly in China and global automotive applications excluding green vehicles, and termination of semiconductor business.
Energy sales increased EV battery production and sales and to price revisions, despite decreased sales of consumer use lithium ion batteries and power storage systems for data centers with downturn in market conditions. Among other eliminations and adjustments, sales of entertainment and communication and housing slightly decreased due to the market downturn.
Next adjusted OP by segment. Lifestyle decreased due to temporary expenses in China. Despite increased sales mainly in growth businesses and price revisions in Japan and overseas, which offset deteriorating external conditions such as exchange rates and higher raw material prices. Automotive profit increased due mainly to price revisions to offset higher products and material prices, increased sales and cost reduction efforts, despite price hikes of semiconductors and others.
Connect increased mainly on increased sales of rugged mobile terminals overseas and Avionics improved profitability of Blue Yonder on a standalone basis and the absence of temporary accounting treatment in FY '22 despite decreased sales in Process Automation. Industry profit decreased due to decreased sales with a sharp downturn in market despite such efforts as price revisions and rationalization to offset the impact of material price hikes. Energy decreased due mainly to raw material price hikes, decreased sales for industrial consumer and increased development expenses for future growth, despite increased sales of EV batteries.
Results of Lifestyle by divisional company. In Living Appliances and Solutions sales decreased on constant currency due to decreased sales of consumer electronics. Profit decreased due to decreased sales and the exchange rate impact. In Heating & Ventilation A/C sales and profit increased on favorable sales of air to water in Europe. In Cold Chain Solutions sales and profit increased with increased sales for Japan and U.S. and price revisions. In Electric Works, sales and profit increased with continuing steady sales of overseas electrical construction materials.
Next, various analysis of operating profit. From the left profit from sales expansion was positive JPY17.4 billion, fixed cost negative JPY17 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 JPY67 billion.
The counter effective efforts such as price revisions and rationalization was positive JPY61 billion. The consolidation of Blue Yonder and temporary factors in Lifestyle positive JPY4 billion. Blue Yonder profit increased by JPY9.2 billion. The bottom right shows the breakdown standalone profit amortization expenses related to acquisition and temporary accounting treatment.
The net effect of exchange rates was zero having almost no impact. By segment and negative impact in Lifestyle all a positive impact in Industry and Energy. Adjusted OP slightly decreased by JPY1.6 billion. Other income and loss improved by JPY13 billion. Operating profit increased by JPY11.4 billion.
Next, free cash flows and cash positions. Operating cash flow was JPY313.7 billion for nine months an increase year-on-year due mainly to improvement in working capital and other factors despite increased inventories. As for inventories, a large number of businesses turned to a decrease since the end of Q2. Further efforts to reduce inventories will continue mainly by revising strategic inventory level. On the right, net cash was a negative JPY657.2 billion, a slight decrease from the end of FY '22.
Next, the full year forecast. As explained at the outset, the impact of the U.S. IRA Inflation Reduction Act is not factored in the forecast. We have received many inquiries and have heard much interest from a number of stakeholders including the capital market since Q2 earnings briefing. So here I would like to elaborate on our assumption of its impact based on currently available information.
This is an overview of the IRA information relevant to our business. Among the rules related to EVs Section 45X on the left stipulates a tax credit for sales of EV batteries. Section 30D on the right stipulates a tax credit for purchases of EVs. We expect Panasonic's EV battery business to be eligible for Section 45X on the left. According to section 45X for battery cells, a tax credit of $35 per kilowatt hour can be received for 10 years from 2023 to 2032. Eligible battery cells are those produced and sold in the U.S. The details of those rules have yet to be announced. But since the Q2 briefing for Section 30D additional guidance on tentative measures prior to rulemaking was provided, but no additional information on section 45X has been made available.
This is an overview of our EV battery factories and ones eligible for IRA. The Nevada factory already in operation is eligible from this January. The new Kansas factory is expected to be eligible after the start of the production and sales. Factories in Japan are not eligible. On the right side, simple calculations for tax credit amount multiplying $35 based on production capacity at each factory is shown for your reference. The amount of impact on our financial results needs to be examined and quantified based on the IRS rules to be announced and other factors. Since detailed rules have yet to be announced, the scheme of monetization, PL recording and others have yet to be determined. Therefore we have not factored in the impact in our full year forecast.
At the bottom is a summary of the incentive program by the State of Kansas for investment promotion, announced last July. The new Kansas factory is eligible for this incentive program aside from the IRA tax credits.
Next is a revision of the full year forecast of fiscal '23. This slide shows the consolidated financial forecast. Overall sales remains unchanged. The sales in real terms excluding ForEx effect is decreased by JPY80 billion. As I said OP is revised downward to JPY300 billion, down JPY40 billion operating profit to JPY180 billion, down JPY40 billion.
Net profit downward revision by JPY25 billion yen to JPY210 billion EPS, JPY89.98 down, JPY10.71, ROE 6.6%, EBITDA JPY710 billion. This is a forecast by segment. Adjusted operating profit, Automotive and Connector revised upward, but Lifestyle Industry and Energy are revised downward.
Next I will explain the details of the revisions in particular for Industry in Energy segments with larger revision amounts. Starting with the industry, the major factor for revision is the lower sales due to the sharp deterioration of the market. The breakdown of the revised suggested OP amount of JPY20 billion is shown here. The market conditions deteriorate every areas. JPY11 billion for ICT terminals, including notebook PCs, JPY4 billion for automotive use, and JPY5 billion for FA in China.
For ICT terminals, the outlook for the Notebook PC production in fiscal '23 is expected to show the significant downturn. While we expect this challenging situation to continue throughout fiscal '24, Notebook PC will capture the demand for data centers where the early recovery is expected. For automotive use the growth of the global automotive production is expected to be slower than previously anticipated due mainly to COVID-19 in China. We assume that production recovery will be different among the car manufacturers.
For FA in China, investment demand in the semiconductor and others is weaker than expected continuing a year or in decrease. However, there is an optimistic view of the recovery after June 2023, reflecting expectations toward the new economic stimulus measures in China. We are carefully monitoring the market situation. Based on these we will prepare for the market recovery by enhancing our management structure with improved marginal profits such as rationalization and fixed cost reduction. In addition, we will improve the accuracy of [indiscernible] information and strengthen our pipeline.
Energy, the major factors for revision are rapidly decreased demand in Industrial and Consumer and raw material price hikes for in-vehicle, the breakdown of the revised adjusted. The OP is JPY15 billion, is JPY8 billion for Industrial and Consumer and JPY7 billion for in vehicle or Industrial and Consumer and our market rapidly deteriorated, similar to industry. For example, demand for lithium ion batteries for ICT and power equipment has weakened.
The sharp slowdown in IT infrastructure investment reflecting the economic slowdown has resulted in a weakened demand for power storage systems or data centers. For these areas we are expecting the demand recovery in Q2 of episode 24 and onwards. For in-vehicle price hikes for certain materials such as lithium, hydroxide have been higher than expected in the second half, temporarily pushing down the profitability.
Price fluctuations of these materials can be reflected in the sales price, but there is always a time lag therefore input costs, look worse than we originally assumed. These are better sales price. We expect the impact to be mitigated in Q1 fiscal '24 and onwards with the market price becoming stable, being able to reflect in the sales price. Prices of the raw materials such as electrolyte, where we cannot automatically apply a market index to the sales price are continuing to reach the higher level than our assumptions. For these materials we expect the situation to be mitigated in fiscal '24 by revising contracts and multi-sourcing.
For Indigo areas strong demand continues and our growth strategy remains unchanged. We will regard theses negative factors as temporary and we will take measures necessary, countermeasures.
Now I will explain the revised factors by segment. In Lifestyle sales remains unchanged. Adjusted OP is revised downwards due to lower sales in leading appliances and solutions, as well as higher temporary expenses in China. In Automotive sales remains unchanged due to currency translation, despite expecting reduced automobile production of our customers from the previous forecast.
Adjusted OP is revised upward due to the efforts in price revisions and fixed cost reductions despite lower sales. In Connect sales is revised upward due to the improved procurement issues in mobile solutions and Avionics. As I said, OP is also revised upward due to the improvements in Avionics and Blue Yonder. The factors for industry and energy, as I explained earlier, in other eliminations and adjustment, adjusted operating profit is revised downward, due mainly to lower sales of the TBs [ph] in entertainment and communication and if the effective exchange rates. It shows the forecast for the Lifestyle segment by division or company.
This shows our analysis of the revised forecast of operating profit in fiscal '23 by factor and explains the changes made from the previous forecast of October 31st, last year. The upper graph shows the analysis of year-on-year increase and decrease factors from October forecast and the lower graph shows analysis of increased and decreased factors. In a DC February 2nd forecast figures in the middle shows the revised amounting each factor.
As an overall picture so we're updating operating profit in fiscal '23. We expect improvements in the profitability of Blue Yonder and the effective exchange rates. But the impact of lower sales in real terms for Industry, Energy and raw material price hikes and Energy is larger than this improvement. Therefore, operating profit is revised downward by $40 billion.
Finally, let me explain the initiatives in growth areas. In October '22 we announced the construction of new EV battery factory in Kansas U.S. Let me explain our current assumptions on how to fund this investment. As of today, the amount of the investment for the new factory is estimated to be JPY500 billion to JPY600 billion with a three-year period of fiscal '23 to '25. Please note that the various fluctuation could affect the disfigure, based on our capital allocation policy in principle.
The operating company will make investments with its own cash generated by business for the amount beyond their capacity penicillin coding corporation will supplement the funding to Kansas factory investment. The amount to be funded by the group is expected to be below JPY400 billion, which is the amount allocated for growth areas as announced in April last year at the group strategy briefing. Groupwide funding will be in line with our capital allocation policy. That is to fund investment with operating cash flow and other measures such as sales of assets.
Next is a progress of our initiatives in growth areas. In automotive battery business, Energy started limiting work for the new factory in Kansas in November last year, and he also signed a contract with lucid Group in December last year. And the supply chain software business Connect is continuing. Its transformation toward the feather growth. In Q3, '23 we saw some improvement in the financial results.
In air quality and air conditioning business the growth in air to water business in Europe is continuing. Furthermore, in November last year Lifestyle announced acquisition of the commercial air conditioning business from system air at 100 million euro. Going forward, Panasonic Group will make announcements on the progress of these three growth areas in timely manner.
This is the last slide showing the list of the announcements related to IR information in addition, after the launch of the new structure last year. In fiscal 24 Group strategic briefing is planned on May 18 this year and each operating company is planning to host its own strategy briefing in early June this year.
[Operator Instructions] From Nihon Keizai Shimbun, Logan [ph] ask one please?
Thank you from Nikkei Newspaper. So all I have two questions, my first question, in your presentation you talked about the electronic materials especially industry? Looks like you are really seeing a slowdown, significant slowdown and I take it that the impacts in china is a bit factor and I think there are signs of slowdown in the U.S. as well. So could you elaborate on the slowdown in China, why is that, is that because you do the manufacturing in China, could you elaborate on that? That's my first question.
My second question, again in your presentation you stated the following regarding the battery production in the U.S., the incentive in Kansas as well as the IRA tax credit. For the incentive in Kansas I understand that that cannot be factored in for this fiscal year, does it mean that we can expect that impact next fiscal year?
And regarding IRA 4.3 billion, how much profit increase can we expect from that? In other words, could you elaborate on the impact on your results next fiscal year?
Thank you for your questions. First, the industry in terms of business, we have factories in China. We have lots of manufacturing jobs in China and we have many customers in China as well. So given that, in terms of the overall weight of China in our total business, China accounts for a large portion. And so the market conditions in China, when they have deteriorated rapidly, the decrease in sales had a major impact. The impact from the U.S. was limited in contrast. So that is the situation of industry business in China and the U.S. In any event, for next fiscal year, China in FY '24, after Q2 most probably, with the impact of the new economic stimulus packages to kick in, as is rumored we expect the impact. So we believe that what we are seeing now is a temporary slowdown. So we do expect recovery.
And regarding your second question on the battery, the State of Kansas incentives, as was shown in the slide, the investments are being made, and when the buildings are complete, and when the production starts, that's when the incentives would kick in. And therefore we were not expecting to factor that in, in this fiscal year's results from the very beginning.
As for IRA, since January, since this January, our operation is eligible for that tax credit. That detailed rules have yet to be announced. So the scheme for monetization is not clear. Once or we have to wait until that is clarified before we can calculate what cash benefit we can enjoy. The total amount has been calculated. I think we are around the ballpark when it comes to the total amount. But the details have yet to be assessed before we can project how much of that expected amount can be factored in. So the fraction, the exact fraction of what can be reflected in our results has yet to be identified. So although our operation is eligible, the accounting treatment cannot be made yet. That is all.
Thank you.
So the annual production capacity, I think you made a simple calculation. So your timing would be when all the details are out. And that is the reason why you can't really factor in the exact amount. Well, 38 gigawatts capacity is already operating in terms of our production and that is eligible, but the way to utilize this cash credit has yet to be clarified. So we don't know. Accounting wise, we can recognize that tax credit.
I see. Thank you.
Thank you very much. Let us move on to the next question. [Indiscernible] of Bloomberg.
This is [indiscernible] of Bloomberg speaking. Thank you. About the battery I have one question. In the document, the plant in Kansas up to fiscal '25, the investment is shown. What happens after that after fiscal 26? At the Kansas factory after fiscal '26, do you plan to keep expanding or in Oklahoma, there has been some information on the new plant there. So would you be looking for somewhere else? So could you talk about the size of the investment in fiscal '26 and onwards? Thank you.
Originally, in June, when we had the IR meeting from Energy 150 gigawatt hour to 200 gigawatt, that was -- the currently the capacity is 50. So three times higher capacity is what they're trying to work for. So this investment is a 30 gigawatt, so the total will be about 80 kilowatt hour. So what we pursue is actually the double of that level. Therefore up to fiscal '25 it does not mean that our investment will end in that year and we expect to continue this. As for the location, this time it is in the State of Kansas has been decided, but then afterwards, I suppose the location various possibilities are being looked into. So as of now, nothing has been decided. So we would like to make sure that 2170 [ph] our plant in Kansas, we can be started. So and at the same time, we would look into the further future after fiscal 2026 and onwards. Thank you very much.
The next question [indiscernible] please.
Thank you. [Indiscernible] from TV Tokyo. My question pertains to the investment plan in China.
Could you repeat your question? Your connection was choppy.
I apologize for that. China and C&I and different segments, I'm wondering if there have been any changes or deviations from your investment plants?
The investment plan in China I am not sure what you mean by that, the investment plan in China. But for us, the China business is important. We have many factories, and we will work on streamlining and we will make investments, necessary investments to increase the capacity. There have been lockdowns. So in that sense, our activities were suspended. But we are about to see the resumption. So we will make watch closely the recovery in economy as we decide on necessary investment to be made there. Does that answer your question?
Yes. Thank you.
Thank you very much. Let's move on to the next question. Tanaka San from Yomiuri Shimbun.
I hope you can hear me.
Yes.
Tanaka from Yomiuri Shimbun. Thank you. One question. The price revisions in Japan and abroad, I understand that you have made progress as of now, based on the percentage of those price revisions or the products that went through the price revisions. And what has been the evaluation of these price revisions designated pricing system, I'd like to hear from Umeda San.
Yes, thank you very much. The designated pricing system, it is about the Japanese market. The percentage or the weight of it as [indiscernible] San talked about at the Lifestyle IR meeting, it is not so high, it's above 10%. So how is it evaluated? When you look at each product, we would basically need the price, but whether the final price decision or the final decision is made by the market and by the customers. So depending on the products, there could be some gaps between the two. We found that out. So we want to take -- utilize that in our price policy, and to make sure that we develop products, which has sufficient values.
So in the medium term, this is something that that we have to take time to continue to work on. So it's difficult to give you a short-term evaluation. But there are some variability or differences based on products. But overall our -- the value of each product is becoming more visible. So what we are pursuing, the first step I think is, has been taken and we are making progress. That's all.
Another point of question that I want to ask is as follows. So for the new wage hike, Spring Offensive, the wage hike and also the investment into the personnel, what are your views on this? This is my last question.
Thank you. About the wage increase, our way of thinking is that to go beyond the prices and price increase and to increase the wage to that level is something that we have been continuing. So base increase is also a realized base wage increase. So because of the rapid increase of the inflation rate, the employees want to make sure that the employees will not feel any anxiety about their daily lives. So we want to go beyond the inflation rate and we want to increase the wage rate. So that's the basic view as a company.
And the Japanese economy to end the deflationary period and to move into the normal cycle and we have our social responsibility to enable that as a company. So based on the current inflation, to increase the wage for the short term, that is not the only thing that we should do. But we should also realize a sustainable wage increase so that our employees can feel secure in working and making a living. So and to do that I think we have sufficient competitive edge in the industry to realize that and that is our basic stance or a way of thinking. Thank you.
We are coming to an end, the time allocated for the Q&A session for journalists. So we'll take only one more question from journalists. So [indiscernible] from [indiscernible]. I hope you can hear me.
Yes I have once Concordia Shimon O'Hara I hope you can hear me. Yes. I have one question about Russia and China. The geopolitical risks associated with these countries are getting more intense. What are your actions to respond to that? Are you thinking of changing the supply chain structure for example?
Thank you for your question. Regarding Russia, our business is small in size. We don't have any manufacturing activities there. We export to Russia, to sell. In Russia, that was the only form of business that we were engaged in, which has been suspended altogether. For the customers in Russia, we provide servicing to our customers for our products. That's the only thing that we do in Russia.
About China, people talk about the geopolitical risks associated with China. And, of course, doesn't mean that we're going to withdraw from that country. Yes, China is a very important market for us. But we are now seeing a clear demarcation line between what we do and we do not do, so have multiple supply chain pass, for example. And U.S. and China, are respectively launching various restrictions or sanctions, and we are paying close attention to those and responding accordingly, in what we do. Thank you.
Thank you. Now we are ending the Q&A session for journalists and move on to the Q&A session for analysts and investors. [Operator Instructions] [Indiscernible] Securities.
Thank you. Peter ______ from BofA Securities. Two questions, the Q3 our business results as a whole. So October, December, I'm sure that there have been a lot of external environmental changes. But when you look at the other players in the same industry, I think that your negative impact has been the biggest. And together with that, something that I have been repeating is that how to handle and respond to the changes in the environment. Probably there are some factors which are weak. So Q3 this means results, and evaluation and management, and also the evaluation of the results so far. And what kind of measures are you going to be taking based on their evaluation? That's my first question.
Second question is that about the explanation on the U.S. IRA, section 45X, and the Automotive battery plant that will come under 45X. The Nevada plant is already in operation. So the possibility of getting that tax credit is quite high. But as for the new plant in Kansas, so JPY31 billion in 10 years is expected. What is your expectation vis-à-vis this tax credit from IRA?
The monetization, I would like to hear from you about your thoughts on these points, including the monetization possibility? Thank you very much.
The characteristic of the Q3 results is that if you look at each segment and there are differences. First, in the first half Automotive and Connect were in red, now, but in Q3 they made major improvements. So JPY10 billion and JPY20 billion profit increase was recorded. But at the same time, Industry and Energy, especially in Q3 Energy, have suffered much lower profit. And Automotive battery, the energy, the positioning of the energy, the cells have been quite strong. Therefore the materials that they handled increased. And so, the lithium hydroxide is the example that I talked about. And we expected the stabilization of the prices of those materials, but they stayed at the high level or went even higher. And of course, we will reflect that to the sales price, but it usually takes several months, so there is a time lag.
And there are also other opposite examples. Of course, there is a time lag as I said, but there are materials which are not related to the market price fluctuation. So we want to make sure that impact on us is not so big. And that's what Energy is doing. Fiscal '24 and onwards, we expect the normalization of this. As for Industry, if you look at only Q3, the profit decrease was not so big, but in Q4 we expected even tougher situations. So, it is possible that it's going to go down further. And that's one of the reasons why we made the downward revision.
So depending on the regions, and there are some differences, and the positive side was smaller, but the negative side or what we saw, but it's not something that will continue. Those are the market fluctuations that are not likely to continue. So as I mentioned in my presentation, in PC, we expect a slower recovery, but the data center business recovery is very strong. So we expect that quick recovery there. I want to make sure that we can receive orders. So we are currently developing products and preparing products and evolving our products so that we can capture that expected recovery. So that is a countermeasure that we are taking.
IRA, the second question, the factory in Nevada I talked about already, and as for Kansas, during the fiscal '25 we plan to start the operation and 30 gigawatt hour is not something that we can achieve in fiscal '25, but the operation will start in fiscal '25. So it starts with 2170 and it is an evolved versus of the 2170 and we are actually making those so that we can have a smooth startup. And we believe that theoretically it will be eligible, so we want to make sure that we start up a well and so that we can get the tax credit. I hope that answers your question. Thank you very much.
Next from SMBC Nikko, Mr. Katsura please?
Thank you. Katsura from SMBC Nikko. First I'd like to thank you for much better materials that you have prepared, very clear, very helpful. I have two questions regarding the inventory level and December JPY1.4 trillion if I understand correctly, I think there are differences from segment to segment. So can you elaborate on the segment breakdown of the inventory level what your views are, and towards the end of March, what are you aiming at inventory level?
My second question, more medium term programs for growth. Looking at the current portfolio there are many uncertainties and you're operating in this environment with lots of uncertainties. So, Mr. Umeda, what is your view regarding this? For FY '25 JPY2 trillion cash, and you have the target in terms of sales as well. Now, compared to this target you have set for FY '25 I'm afraid the expected results for this fiscal year the initial year is lower. So what do you think is the likelihood of achieving your ultimate goals?
Thank you for your questions. First, regarding the inventory level, apparently, it's too high. All of the operating companies share that view. Since November, we see a number of operating companies decreasing their inventory levels respectively. The amount of inventory, conventionally, a little less than JPY900 billion was the appropriate level that was previously over JPY100 billion. Given the uncertainty in the supply chain today, we have to have a strategic inventory. We do see the need for that. And so JPY1 trillion to JPY1.1 trillion, we believe would be the appropriate level of inventory for our business. There are some impacts of foreign exchange as well. So that would result in different amount, but JPY200 billion to JPY300 billion reduction is what we'll be working on, which would have a direct impact on our operating cash flow. So, with that in mind, we will be working on reducing the inventory and this is the view shared by all operating companies and it is considered as a priority, one of the priority areas.
The second question regarding the portfolio our CEO Kusumi said that during the first two years, the operating company is to work on enhancing the competitiveness that has been the instruction and each company is working accordingly. And towards the end of March, the end of that two-year period would come. So how are we to manage the portfolio afterwards? Well, each operating company would basically look at the business portfolio, including the future citing not just the current KGI, but the future citing needs as well, that will be the very basics.
As for Panasonic Holdings, we have been suspending all activities regarding the portfolio revision for two years. But starting the new fiscal year, that period would expire. So Panasonic Holdings would be looking at ROIC and operating cash flow and other factors in assessing the portfolio age of each operating company. So there is a possibility of this top down portfolio revision from the holdings point of view as well. And three growth areas have been identified, as was shared in our presentation today as well, in Kusumi San's point of view, and we have to make sure that those high growth rates are achieved. So starting April, we are going to implement what we call the gear change. And on May 18, at the strategy meeting, I think Kusumi San will have some views that he's going to share about that.
I see. Thank you.
Thank you very much. Nakane San of Mizuho Securities.
Thank you. Hope you can hear me.
Yes.
Nakane speaking, Mizuho Securities. I have one question about Blue Yonder, recently it is not so bad and it is the upward revision that you made. So on page 20, and 35, there are some data. At the time of the first half season's results in comparison to that, October, December, what happened? And were as you expected, and what were something that you did not expect? And the business environment qualitatively how is it and what is your expectation for the next fiscal year? And also, there'll be some new plans? And what are the discussions going on about the Blue Yonder?
Yes. Q2 at the, our Q2 business results announcement, the Blue Yonder well page 35 is a good reference, especially they are focused on the SaaS and ARR. Especially this is a cloud based business. And the balance of the demand order is growing, but it's lower than our expectations, and nonconsolidated basis, Blue Yonder was in red. The reason for that, there were some temporary reasons, and that's how we explained it. And in Q3, those temporary reasons disappeared, and they have enhanced their management structure. And what we are showing you the recurring service percentage, and it's showing that for upward trend. So, this is what we look at as indices, and we are making steady progress. And at the same time, about the management structure, there some redundancies or inefficiencies.
So to enhance the management structure, they will continue to take measures. And as for the resource, moving up the resources, the front end salespeople for the native SaaS business, and that is something that they need to work on and make improvements. So if you look at three month, quarterly trend, we see some fluctuations and we expect that to continue to happen. But the basic competitiveness is shown on page 35 and this is what we look at. So this will lead to the future of the Blue Yonder. So that's the image or the feelings that we are getting about the Blue Yonder. I hope that answers your question. Thank you.
We see many hands raised. So we ask that you limit the number of your questions to just one. We'll take questions from three more people. First is Ezawa San from Citigroup Global Markets, Japan.
Thank you. One question I understand, IRA and the battery company investment in the new Kansas factory. That's my question. More specifically, in IRA, not just tax credit, but cash monetization. Visibility has been clarified. So of the amount that will be provided under IRA, how much will be cashed and could be used for the investment necessary for Kansas? Is that JPY1.3 billion? Of that amount how much could be used for that? Because on Slide 22, you are talking about the operating company funding, which obviously is much smaller compared to funding by the group. So excluding the incentive plan by Kansas, looks like maybe JPY200 billion or so JPY1.3 billion tax credit provided.
I think that would mean that over three years it will amount to JPY500 billion, or are you not expecting that kind of monetization or cashing out? Page 22, what you see there is our thinking regarding the capital allocation, not including the IRA tax credits. So this is the tax credits in the U.S. and so we investments, I don't think we'll be prepared, but it is going to turn positive. It will be in other words a positive factor incremental to what is shown here. Now JPY1.3 billion is a calculated amount. The use of that there are many customers, there are many suppliers. So as the industry what will be the best way to utilize this to maximize the battery production in the U.S. is the question.
So what JPY1.3 billion, the whole amount come to Panasonic? Well, it will, initially come to Panasonic. But what -- how would it be used? That will depend on what the more detailed rules that have yet to be announced? Stipulate? So why is this not possible? By law, the accounting year that starts in accounting year '23, the use of the amount there has been specified, but our company, the accounting or the fiscal years, April to March, so for January, March, this period is not part of the new accounting year. So although it is eligible, we don't know how that could be used. So for FY '24, our FY '24. What use is allowed, and how much could be cashed. Those details have yet to be presented and that's why we don't know the details and therefore we cannot make the detailed projection.
I see, thank you.
Next?
Okazaki San from Nomura Securities.
Thank you. Okazaki speaking from Nomura. About the Lifestyle business I would like to hear additional explanation. C&A in Q1-Q2 were doing well and has deteriorated in Q3. What were the reasons and you mentioned the temporary expenses and what were they? And also in other segments, the deterioration in China is reflected in the business. So as you mentioned in industry in June and onwards, you expect some recovery, so toward the next fiscal year, the improvement of the macro economy in China, is that something that you expect?
Yes. First of all, about consumer electronics in Japan and China and Southeast Asia, the demand was lower than 100%. So that was one of the environmental factors. Because of that, that led to the lower sales and lower profit in China, October and December consumer electronics sales. So year-on-year, it was 77% of the year before, so major decline is something that we saw in China. So LAs living appliance in solutions and CNA there are some double counting there and that led to the struggle of this business. At a temporary expenses in China what were they is your question. And in China, the cold chain business. In November the CNA at the business IR, this was explained. The living and cold chain business, they're different businesses under CAN.
But their resources are we want to shift toward the living. So in China, the cold chain business and direction of that is being looked at. And when you do that the temporary expenses were incurred. So that is the negative of factor in China, and lower profit, year-on-year lower profit. So the consumer electronics, lower demand, and the coach chain related temporary expenses in order to reset to reset direction. That's the answer to your question. I hope that answers your question. Thank you very much.
Yes, we are already running over time, but we will take one last question. Ono San from Morgan Stanley MUFG Securities.
Thank you. Just one question on IRA for clarification, on Slide 11. Well, I might be repeating what earlier questioner raised, but in terms of the budget allocated $31 billion. So if you include Nevada, and Kansas, Panasonic is going to take more than half of that, but there are some Korean manufacturers. If they start the construction in '25, there'll be eligible and therefore, they might start the -- or decide on the capacity expansion. So how much of this amount is uncertain? Could you elaborate on that? Thank you.
The budget allocated the U.S. Congress and elsewhere, discussions are underway, but the bill has already been approved. In terms of conditions, terms and conditions, production and sales in the U.S., when that condition is met, it is provided. For our Nevada factory portion, we have been manufacturing, so for sure that factory is eligible and the assurance is rather high.
As for Kansas factory, which is achieved started to production in FY '24, 2170 is the initial model that we'll be producing. So here again, we are rather confident that we can start the production and ramp up the production. And so in that sense, Panasonic is going to receive quite a bit of this total amount.
As for the Korean companies, during 2025 what the news media are reporting is that the Korean companies are going to build your factories together with their OEM customers and should they start the production I think they would become eligible for that. So what the impact would be on this total amount is expected we understand that some European companies are thinking of entering this as well. So that's a lot, there's a lot of uncertainty, but in the initial phase we believe that we will take a lion’s share of this total amount.
I see. Thank you.
Thank you very much. That concludes our financial results briefing on the fiscal 2023 third quarter. Thank you very much for your attendance.