Panasonic Holdings Corp
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Panasonic Holdings Corp
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Thank you. Let me explain FY '22 financial results as well as FY '23 financial forecast.
First, the summary of the FY '22 consolidated financial results. Sales increased year-on-year with higher sales of industry and energy due to growth in information and communication, automotive-related application and the consolidation of Blue Yonder.
Adjusted operating profit increased with our efforts to revise prices and higher sales of industry and energy despite raw material price hikes that affected lifestyle, along with the temporary negative factors such as the impact of temporary accounting treatment related to reevaluation of the assets and liabilities upon Blue Yonder acquisition. Operating profit and net profit also increased and ROE improved year-on-year.
As for FY '23 forecast, both sales and profit are expected to rise year-on-year.
Sales are expected to significantly grow due mainly to recovery in demand.
Group-wide is also expected to increase. In particular, sales is expected to significantly grow in automotive with the recovery of automobile production and connect with the recovery of demand in aviation industry, despite expected profit decrease in energy due mainly to higher expenses for the future growth, such as development of 4680 cells.
We will continue to take countermeasures such as price revisions against the deteriorating business environment, including raw materials, price hikes.
Next is the details. FY '22 consolidated financial results are shown here. Overall sales was JPY 7,388.8 billion, up by 10% year-on-year. Adjusted operating profit was JPY 357.7 billion, up by JPY 50.5 billion year-on-year. Other income and loss improved by JPY 48.4 billion. Operating profit, and net profit also increased.
As for the differences from the forecast as of February 2, 22, adjusted operating profit and operating profit were below the forecast, but net profit exceeded the forecast. ROE improved to 8.9% year-on-year.
This shows the results by segment. I would explain the analysis of comparison with FY '22 on the next slides. As for the differences in adjusted operating profit from the forecast, industry and energy exceeded the forecast. Lifestyle was below the forecast due mainly to the impact of raw material price hikes. As a result, the group-wide adjusted operating profit was slightly below the forecast.
This shows the sales analysis by segment. Overall sales increased. In lifestyle, overall sales were at the same level as FY '21. Despite the impact of FY '21 stay-at-home demand in Japan for such products as room air conditioners, refrigerators and washing machine, sales steadily increased in growth businesses.
Air conditioning in Europe, electrical construction materials in overseas, consumer electronics, such as washing machines and refrigerator in China and commercial refrigeration and food equipment in North America.
Accordingly the sales of the lifestyle product increased, but sales of other segment product decreased.
In Automotive, sales were at the same level as '21 due to the lower car production in Q2 and -- despite the recovery seen in Q1.
In Connect, higher sales were driven by mounting machines, reflecting favorable market conditions of EVs and information and communication infrastructure. Higher sales of projectors, mainly in Europe and U.S. as well as the new consolidation of the Blue Yonder.
In industry, sales increased due to higher sales of industrial use motors, capacitors for ICT infrastructure and EV-use relays.
In energy, sales significantly increased in automotive batteries, reflecting robust EV demand. Operation of the new production line in North America and rebound effect from FY '21, COVID-19 impact. In addition, there was a sales growth in the power storage system for data centers.
Within other and eliminations in entertainment and communications, sales decreased due to the impact of component procurement issues, including semiconductors.
In housing sales increased with the launch of the new products for the new normal and accelerated digital market.
Next is operating profit analysis by segment. Overall, adjusted operating profit increased. In lifestyle profit decreased, largely affected by the raw material price hikes, Parts and material procurement issues, the impact from FY '21 stay-at-home demand in Japan and the recording of the temporary expenses despite higher sales and price revision overseas and promotion of rationalization in each business.
In automotive, profit increased due to the cost reduction efforts and the impact of temporary expenses related to onboard charging system in FY '21. Despite surge in parts and materials cost, including semiconductors and shipping costs, in Connect profit increased due to higher sales of mounting machines and projectors and improved profitability of Avionics. Despite the impact related to the revaluation of assets and liabilities upon Blue Yonder acquisition. In industry, profit increased due mainly to the higher sales price revisions and rationalization efforts, which offset the impact of semiconductor shortage and raw material price hikes.
In energy, profit increased due mainly to higher sales of automotive batteries and power storage systems as well as our efforts of rationalization and price revisions despite the impact from the raw materials price hike and higher fixed costs for increased production.
As for other income and loss, profit increased due mainly to the gain from revaluation of existing equity in Blue Yonder upon new consolidation in sales of asset.
This is a lifestyle by divisional company. Adjusted operating profit decreased at all divisional companies. I will explain each after.
In Living Appliances & Solutions profit decreased due to lower sales affected by FY '21 stay-at-home demand in Japan and price hikes in raw materials and logistics. Sales increased in China and Asia for washing machines and refrigerators.
In heating and ventilation AC company, sales increased due to the stable sales of air conditioning business in Europe despite higher sales of the air purifiers and room air conditioners in Japan due mainly to impact strong demand in FY '21.
On the other hand, profit decreased due to the price hikes in raw materials and logistics, flooding in Malaysia and the recording of temporary expenses.
In Cold Chain Solutions company has increased significantly in North America despite the headwinds of the raw material price hikes and procurement issues. This contributed to the reduction of the losses from FY '21, but overall profit decreased due to the temporary expenses.
In Electric Works company, profit decreased due to the raw material price hikes despite the higher sales with the stable electrical construction material business overseas, such as India. Despite the parts and material procurement issues, we will continue with the countermeasures against the raw material price hikes and logistics, such as price revisions and use of the alternative material and rationalization through collaboration between China and Japan.
This shows operating profit analysis. First, the profit generated from the sales expansion increased by JPY 130 billion. Fixed cost decreased factor of JPY 34 billion overall due to the higher production, despite JPY 21 billion improvement through the management structure enhancement, which was promoted during the previous mid-term strategy.
Price hikes in raw materials and logistics were together a decrease factor of JPY 160 billion. However, we revised prices to counter the situation. This effect JPY 44 billion is included within the rationalization effect of JPY 121.3 billion.
Temporary factors, including new consolidation of Blue Yonder and temporary expenses recorded in lifestyle were the decrease factor, totaling JPY 11.3 billion. The effect of exchange rate was increased factor of JPY 4.5 billion. The overall adjusted operating profit was up by JPY 50.5 billion. Other income and loss was increased factor of JPY 48.4 billion due to the one-off gains. Consequently, operating profit was up by JPY 98.9 billion.
This slide shows the situation of free cash flow and cash position in FY '22. The free cash flow was a negative of JPY 543.5 billion shown on the left. And this is due to the acquisition of Blue Yonder as well as deterioration of working capital due mainly to external factors, including poor congestion and increased inventories by strategically securing parts and materials. Net cash decreased from JPY 194.5 billion at the end of FY '21 to a negative of JPY 649 billion.
This slide shows the capital allocation during FY '20 to FY '22. In the previous mid-term strategy, our capital allocation policy was to allocate the necessary cash with flow generated from businesses to establish a strong financial base needed for growth investment in structural reform. In line with this policy, we managed the necessary cash for growth investment, including the acquisition of Blue Yonder as well as dividends and structural reform. Cash generation was achieved mainly through operating cash flow, transfer of businesses and sale of assets, and as a result, excess cash as a 3-year total amounted to approximately JPY 160 billion. And our net cash position has improved compared to the beginning of FY '20. We believe that we maintained financial discipline and at the same time, captured growth opportunities.
I will explain the consolidated financial forecast for FY '23 from the next slide. For the consolidated financial forecast for FY '23, both sales and profit are expected to increase. Sales is expected to increase by JPY 511.2 billion to JPY 7,900 billion, adjusted operating profit is expected to increase by JPY 22.3 billion to JPY 380 billion. Operating profit is expected to increase to JPY 360 billion, and net profit is also expected to increase to JPY 260 billion.
This slide explains our fiscal '23 outlook regarding the impact from changes in the business environment. That chart shows at a glance the impact on each segment by the changes in demand, shortages of semiconductors, parts and materials and price hikes and raw materials and logistics.
The light blue shaded areas shown, factors with positive impact compared to FY '22. The light red shaded areas, a negative impact. For the changes in demand, automotive and Connect expect to see demand recovery, industry and Entergy ((sic)) [ energy ] expect continuously a favorable sales. For shortage of semiconductors and parts and materials, the overall impact is expected to lessen due mainly to the procurement of alternative materials. But this is -- but this impact is expected to continue in Connect.
For the price hikes in raw materials and logistics, we will try to mitigate this impact through efforts as price revisions. However, it is expected to persist in lifestyle and energy.
Regarding the situation of energy, the impact of sharp price hikes and raw materials in FY' 22 Q4 and onward is expected to remain in the first half of FY '23, but we expect to mitigate this in the second half of FY '23 through efforts such as price revisions and rationalization.
As such, the situation of shortage in semiconductors and parts and materials improving, but due to the Russia and Ukraine situation, our assumption is that the impact of raw material price hikes will expand.
As for the impact from lockdowns for COVID-19, it is difficult to estimate its size currently. But for the changes in the business environment, we will continue to closely monitor the situation.
This slide shows our analysis of the FY '23 operating profit forecast of profit generated from sales expansion is expected to increase by JPY 110 billion. Fixed cost is expected to become a decreased factor of JPY 40 billion, increasing due mainly to investment for future growth. The impact of price hikes in raw materials and logistics is expected to become a decreased factor of JPY 180 billion, considering the expanding impact involved in the situation in Russia and Ukraine.
We will continue to counter the situation with price revision. This expected effect of JPY 95 billion is included within the rationalization of JPY 135 billion effect. The temporary factors are expected to improve by JPY 12.3 billion from FY '22 negative factors. The effect of exchange rates are expected to be a negative factor of JPY 15 billion due to the expanding impact of the depreciation of yen against the renminbi. As a result, adjusted operating profit is expected to increase by JPY 22.3 billion. Other income loss is expected to decrease by JPY 19.8 billion due mainly to the impact of one-off gains in FY '22.
Profit is expected to increase by JPY 2.5 billion. This slide shows the forecast by segment. Details are to be in the next slide. This is our sales forecast analysis by segment. Overall sales is expected to significantly grow.
In lifestyle sales is expected to increase by focusing on growth businesses. such as air conditioning in Europe, electrical construction materials and consumer electronics overseas. In automotive sales is expected to increase for automobile production recovery.
In Connect, sales is expected to increase in the sales growth in Avionics as well as the effect of Blue Yonder being consolidated for the full year.
In industry, sales is expected to remain at the same level as FY '22 due to decreased sales of other segment products despite increased sales of Panasonic Industries product for information and communication and automotive use.
In energy, sales is expected to increase due mainly to increased sales of automotive batteries with continuously growing demand and increasing sales.
Next, our operating profit forecast analysis by segment. Overall, in -- adjusted operating profit is expected to increase. In lifestyle, it's expected to increase due to the increased sales of overseas business, partial recovery from parts and components procurement issues in the Electric Work company as well as the effect of price revision and rationalization efforts to counter material price hikes.
In automotive, profit is expected to increase due to increased sales, the effect of cost-reduction efforts and the effect of price revision effect, counter surging cost of parts and components, despite, price hikes in parts and components such as semiconductors increased shipping costs as well as increased fixed costs from increased production.
In Connect, profit is expected to increase due mainly to increased sales of Avionics. In industry, profit is expected to increase due to increased sales of Panasonic Industries products despite the impact of raw material price hikes.
In energy, profit is expected to decrease overall due to increased expenses for future growth such as development of 4680 cells. We will mitigate the impact of sharp price hikes in raw materials which continues from FY '22 Q4 through price revisions and rationalization efforts by the second half of FY '23, but the impact is expected to persist for the full year. We will try to offsetting this.
This is a forecast for Lifestyle segment by divisional company. Adjusted operating profit is expected to increase at all divisional companies.
Cold Chain Solution company is expected to record a loss. This is due to factoring in certain risks, anticipating the need to take drastic measures for its operations in China.
Finally, this shows an overview of IR Day, which is scheduled for June 1 and 2, 2022.
On April 1, 2022, Group CEO, Kusumi, announced the Group 5 medium to long-term strategy. At IR Day, the CEO of each operating company will explain its individual business strategy.
As for the new Panasonic Corporation or Lifestyle segment, details will be explained by the management of each divisional company. We will look forward to your participation in this 2-day event. Thank you very much for your kind attention.
We have [ Furukawa-san ] of Bloomberg.
This is Furukawa of Bloomberg. I hope you can hear me.
Yes.
About Energy, I have 2 questions. At the end of February, 4680 facility was announced for Wakayama plant. And after that, production line starting or any update from the end of February?
Also on Page 17, 4680 development cost increase, as mentioned, what is the size of this increase? Can I ask the second question?
Yes, go ahead.
So another question I have is U.S. 4680 production facility, do you have a wish to set up the facility to do so in the United States? In the earlier briefing, Mr. Kusumi said that maybe it's after when you have a mass production in Wakayama. But are you thinking and are you looking for the site for such production facility in the United States?
Thank you for your questions. 4680 Wakayama plant production. The building, we are making sure that we have a good renovation. And at the same time, the equipments and facility are being prepared.
In terms of timeline, basically, we are on track. So during the FY '24, mass production including the prototype, validation is something that we are trying to realize. So we are making progress.
4680-related question. With the rising prices of the raw materials in energy in the first half, we cannot catch up. But with the higher sales, we can offset that. But there are pluses and minuses, but in relation to 4680, the lower profit is expected -- but the even higher decrease is factored in. That's my answer to your first question.
The second question, in the United States, are we going to manufacture 4680? And Kusumi-san has been communicating in different places, and we cannot -- I cannot say anything more than that. I want to make sure that we can start up the mass production, and that is the phase that we are in.
So when you said that you are -- you have already started setting up the production line. When you said the facility and equipments?
When I said the equipments and facilities, some of them are made by us, and some of them are made by others. So as we renovate the building, we are also making the preparation for the facility and the equipments. Thank you.
Next question [ Naganawa-san ] from Nikkei, please. Nikkei Newspaper.
Can you hear me?
Yes.
I have 2 questions. First, I would like to ask you about the foreign exchange rate for this fiscal year. So you have an annual, so JPY 115 for the dollar, and you have the numbers for the renminbi and the euro as well. When compared to current exchange rate, there seems to be some gaps. So I would like to once again ask you about the currency.
And if you are going to be working on the currency that you have now, is it going to be a positive for you? So I would like to ask you about the forecast. That's one thing.
And the second question is, it's about the supplementary materials and the investment for the R&D is about 5%. And for the investment -- for capital investment is about more higher. But I would like to know about how we're going to be making the investment. So I would like to ask you about the current status quo.
Thank you very much for your question. As you say, the ForEx that we assume JPY 115 per dollar and now it is JPY 130. So there's a big gap. And for renminbi, it's JPY 19. And right now, it's JPY 13.9 per renminbi.
So the sensitivity for the whole group is something in U.S. dollar, it is about plus 2 and euro plus 2 and renminbi. Yen is depreciated and lifestyle and entertainment-related businesses, TV businesses which is imported much from China will be working in the negatives.
So as if the foreign currency is calculated as currently, the negative side is going to be following as it is, but the positive side is going to be showing some gaps. So as you rightly mentioned that for the foreign exchange, there is a positivity for the impact. We are very much in a conservative manner. That's one point.
And second issue, the R&D and the capital expenditure investment, this is written that it is around JPY 300 billion for capital expenditure investment, especially for the lifestyle and energy investment is growing. From October, we have been transitioned for the new structure. And each business is focusing on their market. And various movement is on the rise and making speedy. Therefore, the investment in research and development investment is now factored in within their budget.
At the same time, each of the operation company are going to be responsible autonomously for their management. Therefore, the finance should be created, the generated cash should be utilized from their side in order to make their investment. We have to make a balance in order to work this through.
So the capital investment of JPY 300 billion or more whether or not it will be working as scheduled is according to the condition at the times. So we will be looking forward into the status condition in the future to make appropriate investment.
Next, from Kyodo News Services we have [ Watanabe-san ].
This is Watanabe of Kyodo News. Hope you can hear me.
Yes.
One question about batteries, current sales expansion of the batteries, could you talk about that? This requires a large-sized investments. So when you consider the ROI, OEM manufacturers and other car manufacturers, are you providing samples to them? Could you talk about the situation right now?
Well, it involves some customer information. So aside from what we have announced, it's difficult for me to say, but there have been some various inquiries.
What we can say is that from Tesla, there is a continuous strong demand for 2170 and 4680. There has been a strong request. And also Canoo the new EV manufacturer, we have already made announcement. So for them, we are thinking about the supply, and that will be 2170 though.
So supply is going to be probably from -- most likely from Japan, but other car manufacturers, OEM manufacturers, whether we are getting the inquiries, yes, we are considering many possibilities. But there are no facts that we can announce at this moment. Thank you. Does that answer your question?
Yes.
Nakayama-san from Nikkei business, please.
Nakayama from Nikkei Business. I also would like to ask you about the battery. So regarding 4680, you say there's an inquiry, so the customers who have interest. Where are they drawn or I think beneficial of 4680? What is appealing to these customers or clients?
This is a cylindrical battery, and it has a special characteristic. In a single battery, the output is very high and making it into a module, a client has to put in a lot of cost and we need a lot of know-hows in order to make it into a module. And with the battery capacity is going to be high, the combination module is going to be much more simple.
And the battery of 4680 itself has a very robust -- should be created a robust or else the safety will not be guaranteed. And so for us, those are the source of our competitiveness. And from the carmakers, automakers, the cylindrical battery making them into module, they need a rationalization. Therefore, there is a lot of benefit for 4680. That is what I think, thank you.
Any other questions? [Operator Instructions]
Mishima-san from IT Media.
This is Mishima speaking. I hope you can hear me. I have one question. In China, due to the COVID-19, there has been lockdowns, and the supply chain disruptions have been happening. How do you evaluate the impact from it? Any cost of the countermeasures that you have as a provision or anything that you can comment?
Well, for example, the lockdown in Shanghai is included in our forecast. And that was actually started at the end of March. So extent of the impact we have not been able to evaluate that. And we don't know to -- until when this will continue. So the business in China, there is an impact on our sales.
Also in Japan, the imported components and parts, May and June and onwards, we expect to see some impact from it.
So to what extent should we factor in? It's very difficult to decide, and I talked about the foreign exchange rate earlier and the fluctuation of the ForEx is not something that we can forecast. But there are positives and negatives. And based on those, we would take the appropriate measures. So lockdown in Shanghai, the impact from it is not a small one. That is what I feel right now.
Next question. Hiroka-san from Newspeak, please.
Hiroka from Newspeak. Can you hear me?
Yes.
So I have 1 question. So you have been transitioned to a holding company. And I think going forward, by operating company, are you going to be disclosing the balance sheet and other?
The reason why I ask is that, for instance, the Sony Group, is disclosing the cash flow of all the operating companies. So by businesses, the balance sheet, whether -- or the balance sheet is inflating or not, and then the operating cash flow, looking at the conditions, the stakeholders will be able to follow up and track down the cash movement. And so the shareholders will be looking into details and the entity or the operating company itself will be careful in managing their operation. So in that sense, do you have any schedule or plan to disclose such information to the public?
By operating company of our balance sheet and profit loss statement. Currently, there are no schedule to disclose. So our holding company when Mr. Kusumi mentioned that the operating profit is in a certain amount. And this operating profit is going to be difficult to cut it out at the end of financial result closing. So for myself, I would like to communicate with you based on EBITDA.
And for the profitability of the capital, each operating company is going to be utilized in ROIC. So the efficiency of the capital ROIC could be usable in comparing with other companies. And therefore, ROIC is going to be an indicator to be disclosed from the operating company.
So when the operating company is announcing the ROIC, the cost structure will be different by companies. So are you going to be also disclosing that in the future?
For each of the operating companies, resulting ROIC is going to be disclosed to do the communications. Thank you very much.
Thank you. We are running out of time. So we take just one more question from a journalist. [ Guajima-san ] from Sankei Newspaper.
This is [ Guajima ] of Sankei. Hope you can hear me. FY '23 forecast. I have a question on that. Connect Blue Yonder as for the sales, 4-year Blue Yonder effect will be contributing. So as, if you look at the Connect company as a whole, what would be the percentage of that? It might be difficult for you to give me the actual number, but could you talk about the size of it? And operating profit positive impact. We are not yet seeing that from Blue Yonder.
But to -- when do you think that there will be a major profit contribution from Blue Yonder? Anything that you can talk about as of now.
For this fiscal year, the sales of Blue Yonder is included in the supplementary information about less than JPY 60 billion. And onetime, through the acquisition, there is a change of control and the accounting treatment was necessary. So more than JPY 10 billion lower sales, and we need to add that, and we multiply that by 2. So there will be a growth, and there will be a growth being generated. So that will be the weight or percentage and you need to use that.
And what would be the contribution from the Blue Yonder in terms of profit? If you only look at the Blue Yonder, it is profitable business. but we have to look at the depreciation and amortization of the intangible assets through the acquisition. So based on the consolidated base, EBIT view, probably would be more appropriate. So EBITDA is something that we want to communicate.
And right before this meeting, we talked about the Blue Yonder plus offer, and we said that we announced that we will prepare for the stock exchange listing. And so the overall number of the Blue Yonder in calculation is something that I cannot mention legally. So in terms of the actual results, that's how would -- communicate. And through the IR activities, maybe we can give some additional information on that. Thank you I hope that answers your question. Thank you very much.
So the question from the journalist we are going to be finishing. And next, from the institutional investors and shareholders. Please post your question. We are only inviting questions in Japanese.
Harada-san from Goldman Sachs Securities.
This is Harada with Goldman Sachs Securities. I have two questions. So the first one is about automotive. So your forecast is that you're going to be increasing profit. On the other hand, currently, there's a news about Toyota recently out. So there could be some impact from the lockdown, too. So how do you factor in all these factors? So please share your ideas? That's one.
And the second question, it's a follow-up question of the other person, of regarding Blue Yonder. So maybe in the last fiscal year, that the sales, I would like to know how it has been growing. And about the profit, operating profit margin, how was it? I would like you to share these numbers.
Regarding automotive, the semiconductor shortages were in tight situation. We have already gone through that experience, so the full capacity production is not something that we are assuming. So to some level, we are factoring in, but how long is it going to be lasting? And how is this going to be continuing on? This is not something that we ourselves could decide. So we are observing the situation closely. But when things are much gathering tighter, then when at a communication point like financial result briefing, I would like to communicate our gut feeling, how we are.
And regarding your second point regarding Blue Yonder, the growth rate for the last fiscal year, it has been growing double digit. And for the recurring business type business in single form, software sales have been decreasing, and the sales of SaaS-type model has been increasing. That therefore, our profitability -- the base of the profitability is growing. That is our trend that we are seeing.
Thank you. Next is more Morgan Stanley MUFG. Ono-san, please?
This is Ono from Morgan Stanley MUFG. I hope you can hear me. I have one major question. So this time, in the analysis of the sales and operating profit, you mentioned the higher material cost and logistics, JPY 180 billion is expected. So roughly speaking, the raw material hike and the logistics, how do you distribute those two?
And the first half and second half, could you give us the image of each? Also, if you have any -- if you see any differences by segment, could you add also some comments on that?
Yes. First, the fiscal '22, JPY 160 billion is the impact that we see. Out of that, about JPY 10 billion is the logistic related. That is to say JPY 150 billion or so is in relation to the higher material cost. And, so higher the lifestyle business is the business which was most affected by the higher materials prices, maybe higher than 50%.
And also, industry and energy also were impacted. But those are probably less than 20% each. And the rest of the businesses are not so impacted from the JPY 150 billion due to the higher material costs.
As for FY '23, JPY 180 billion is the number. And out of that logistics is about JPY 30 billion. So FY '22 is actually triple that of the 22, especially Europe.
For Europe, it's becoming much higher, and there is a disruption of the logistics. So logistics-related increase is high, so JPY 180 billion.
Now in terms of the higher material cost, about JPY 150 billion again. So in comparison to '21, JPY 300 billion increase. So '23 lifestyle the countermeasures, for example, the products and the components are going on, so the percentage is about 40%, so it's lower.
And also others -- or other segments, slightly, we are seeing the impact from those rising prices. So that is the current status.
What about the changes of the first half and the second half, any differences?
As for the first half, second half, the numbers, we would like to refrain from mentioning that.
Thank you. Next question Nishimura-san from Credit Suisse Securities.
I have two questions. It's about the analysis for the sales. You have been talking about rationalization. In fiscal year '21, you have been sharing with -- so please share me the difference of the value itself. So my colleague also shared the question regarding the budget for the investment and the development. And this is the first year of your third-year strategy. So you could be investing in upfront. Is it so?
And you have been also mentioning that you were looking at the foreign exchange currency rate in a very conservative way. So how do we observe your understanding? How should we, we understand your logic, please.
Thank you very much for your point out. regarding the rationalization plus/minus for FY '22 to FY '23, it is decreasing. And to think of that, we are now switching over to an alternative materials or procuring other parts and materials. That has been done in FY '22. So we have been reaping some results. And in FY '23, we assume that everything is now having a price hike. Therefore, it is difficult to even change with the alternative materials. The alternative materials and parts are also at its high pricing. The imminent cases that the copper has been changed to aluminum for the air conditioner, but aluminum is at the peak of its price right now.
Therefore, the alternative materials, shifting into those area are decreasing its effect. But to replace that, we have to do everything that we should do. But then compared to FY '22, FY '23 will be something that we would be factoring in the pricing. That is going to be passed on to the customer side. So that is the structure of the pricing.
And the second issue about the budget of the development investment. So we're back-casting from 10 years and we are going to be working on whatever we must do within the mid- to long range. Therefore, necessary budget should be ensured and are ensured.
So what we need to do is something that we will implement and execute. But with speed, there's various environmental changes surrounding us. Therefore, whether the budget and the speediness, how the correlation would be is something that we must observe very carefully. And each of the company should be working for the investment and R&D investment in development that they need to do. So thank you very much. Thank you.
Next, Nakane-san from Mizuho Securities you.
This is Nakane of Mizuho Securities. Two questions. First, each company, the foreign exchange sensitivity vis-à-vis the dollar, could you talk about that? I understand pluses and minuses. Could you give us the size of the sensitivity? That's my first point.
The second point is inventory. The longer lead time, restriction of supply chain and also the accumulation of the parts and so forth. I can see the background. But as a fact, the inventory is up to [ JPY 2123 trillion ]. So by each segment, what is the trend? And if you look at the budget for this fiscal year at the midterm, what would be happening?
And also at the end of this fiscal year, what will be the operating cash flow? If you can give us any hints on those points.
By segment, sensitivity. Well, if you only look at the U.S. dollars, lifestyle is positive, but almost nothing. Auto, well, a lower single-digit [indiscernible] and Connect, virtually no.
Industry, what I'm saying is the impact from the strong dollar -- yen, sorry. So in lifestyle, when yen becomes weaker, it is negative.
Automotive sensitivity is positive -- excuse me it's plus/minus, I shouldn't talk about each of them, but automotive, weaker yen means negative impact.
Connect small but slightly negative. The big ones is industry more than JPY 1 billion positive impact based on JPY 1.
Energy, it's not up to JPY 1 billion, but single digit, middle of the single digit or higher positive impact.
Others, segmenting others, media and entertainment, Entertainment, yes. So TVs, the DIGA for the recording, those we have a lot of imports, so that's negative.
Housing, it's basically domestic business, so it's not impacted. So those are the current status. That is about the FX by segment for U.S. dollars. Those are not exact numbers, but that's the kind of a size.
As for the inventory, up by JPY 300 billion. Out of that, about JPY 80 billion or less is -- has to do with the foreign exchange translation. So net increase is about JPY 220 billion or plus. But still, it's JPY 220 billion-plus increase.
What is not increasing is housing. Housing is -- can be controlled in Japan, so it's not increasing. So Asia, China, we manufacture and B2B, Auto, Connect and others in many of those businesses out of the JPY 220 billion, the inventories are up.
So a little higher than JPY 220 billion increase. I cannot give you the details, but strategic investments is about a little less than 50%. We are consciously securing inventories.
Also, concerning this more than 50%, the PSI fluctuation and the logistics issues, others are increasing because of those factors. So those are strategic inventories. We have to actually have more inventories than before. But as for the external factors, shortening the lead time and the components and so forth, we are working on them, so we would like to reduce those. So the sales are increasing for FY '23. So in terms of the inventory days, we will try to reduce it, but the inventory value, it would be a little less than flat. We want to maintain it at that level. So inventory days will be reduced. So that's what we are expecting.
As for the operating cash flow, EBITDA level, deducting tax from that is the level. The operating cash flow with the higher inventories was offset by it. So if you -- we can control it, the JPY 790 billion EBITDA. I think you saw that and also the tax equivalent deducting from that number is what we expect as an operating cash flow.
Thank you very much. And we are very sorry but now regarding the interest of time, we're now limiting 2 questions from 2 persons. But one question each. Ezawa-san from Citigroup, please.
I was listening to other people's questions. So it might overlag. So if you do have anything to add, please, so for the 3x that the operating profit is now and at JPY 1.5 trillion, it was also shown too. So as the plan for the first year within the 3-year strategy, value seems to be very small. So the cash flow schedule and the profit schedule within the 3 years, can you attain for like it could be JPY 600 billion for operating profit within the second year should be attained. So how are you going to be making the way, please?
Thank you for the question. On April 1, likewise question has been given from your side and our Group CEO, Mr. Kusumi, also answered the question. It is not a very easy way. This is a challenging issue that we must face. For FY '23, we have been announcing that, we -- so we have been making an announcement and to that we are slightly behind. However, we are taking various initiatives, accelerating initiatives. And when we accelerate, speediness will follow. Therefore, operating profit is going to be the largest profit is what we aim for. And we just started our 3-year strategy plan. Therefore, we are going to be aiming for to achieve our target. Therefore, I would like you to keep up with us.
Katsura-san from SMBC Nikko Securities.
This is Katsura. One question. On Page 12 for this fiscal year forecast or plan and how to understand those numbers. There are various uncertainties right now. Depending on the assumptions, there will be changes. But in your case, this time, higher sales and higher profit are expected. Of course, that some companies are not providing guidance or expecting lower numbers. So what is the message behind those forecasts?
In terms of profit and loss, there are numbers. But aside from it, operating cash, as you already talked about this, investment numbers, CapEx is mentioned. If you only look at this, free cash is like JPY 200 billion, JPY 300 billion level. And, is that the size? Or is it totally different? The Blue Yonder Stock Exchange listing was mentioned. So are you going to be more aggressive in making investment. Is that the message? So could you tell us the message behind this forecast?
At this time, the numbers that we announced in each operating company, we have revised them maybe 3 times. And each operating company made a commitment, and this is the total of those numbers. So each segment KGI that they provided the 1st and 2nd of June, we have business IR Days, and each CEO will explain. So in that sense, what about the company-wide view?
So we revised three times because situation or invasion into Ukraine since the beginning of this -- the -- there was an acceleration of the higher materials prices. So we factored that in. And as I mentioned earlier, the lockdowns in Shanghai, the impact of it, it's really difficult to draw the line so it's not fully factored in.
In terms of sensitivity, company-wide, when the yen becomes weaker by $1, about JPY 800 million, positive impact and about JPY 900 million in terms of euro and about a little less than JPY 4 billion negative impact in relation to the renminbi. So those are the sensitivities. And as for renminbi, the expected rate is close to what we expected, and we have a very conservative view on the FX level.
So you have to look at all of those factors when you consider the risks in Shanghai, and what could happen from now on. And we're making some comments based on the changes, and we will take quick measures as necessary.
Also, as for the free cash flow. Naturally, the positive CapEx is included. At the same time, the autonomous management is what we are trying to promote. So inventory, as I mentioned, is what we see. But in making investments, we want to -- we need to manage this on our own. So as we do this on a daily basis, the free cash flow itself, we would accelerate this so we will step on the acceleration. So we -- in terms of the financial discipline, we would follow up on the paying back the debt.
So we would look at the balance of all of those factors.
So that means, there are strategic investments. But in terms of profit and loss, you have a buffer so that you can generate higher sales and higher profit.
Yes. what is uncertain is that what would happen next? That is what we think about Shanghai, it happened. So the size of the impact is gradually becoming clearer. So we don't know when it would be ending.
At the same time, as for the foreign exchange rate, there is certain buffer that I talked about. So within it, how much can we absorb by -- with the buffer. I want to make sure that we watch the progress. And Mr. Kusumi, and myself and operating company, our BoD, we attend those meetings to follow up. it's very difficult to foresee the future in FY '23. That is what we are feeling right now. Thank you.
Thank you. So with this, we would like to close the briefing for fiscal year '23 financial forecast and FY '22 financial results. Thank you very much for your participation.
[Statements in English on this transcript were spoken by an interpreter present on the live call.]