Panasonic Holdings Corporation
Q4 2021 Earnings Call Transcript
Published:
- Hirokazu Umeda:
- Thank you very much. Let me now start the presentation on the business results, as well as forecast. First, this is a summary slide. In FY 2021, the results exceeded the revised forecast presented at the Q3 results announcement. Despite lower overall sales due to COVID-19 impact, along with the deconsolidation impact in business portfolio reform, adjusted operating profit increased with steady progress in enhancement of the management structure and contributions from increased sales of businesses, capturing opportunities of changes in society. In Q1, both sales and profit were down. Q2 turned to an increase in profit and second half achieved increases in both sales and profit. Operating profit and net profit decreased due mainly to impact of onetime gains in other income and loss in FY 2020.
- Operator:
- Thank you, Mr. Umeda. Now we take questions. Mr. Katsura from SMBC Nikko Securities.
- Ryosuke Katsura:
- Can you hear me? This is Katsura speaking.
- Hirokazu Umeda:
- Yes.
- Ryosuke Katsura:
- Thank you. Two questions please. First on slide 18. Cash allocation is explained for the fiscal 2021 in Q4, I think the appendix five of your presentation, JPY194.8 billion that is quite big positive and the sale of the assets. What were the major ones? Also on page 18 on the right-hand side, cash flow generation from the business and the asset sales, in terms of the size, what are the expected cash flow generation? If you can share with us some details. My second question is on slide 13. There is a profit -- operating profit analysis. The rationalization and raw material price hikes. The offsetting, the raw material price hikes with the rationalization; I think this is a net number. So what were the gross forecast or expectation? The background of the question is that in 2016 or 2017, the raw material price hikes, hundreds of billions were incurred. So could you tell us what is the current status?
- Hirokazu Umeda:
- Thank you for your questions. First, about the free cash flow. The investment cash flow is usually negative, but here this is the major positive figure. There are two major types; one is the portfolio replacement. And because of this the cash in was recorded. And also, for the gross holding of the shares for the policy purposes, we always review this. So that was also reviewed. So, as for the individual names, I cannot disclose this at this moment but that's the breakdown of the cash flow allocation. 2022 -- fiscal 2022, the operating cash flow and the basis of the free cash flow. The fiscal 2021 that is the double of the net income or more is usually the level of the free cash flow. So, exceeding that level that comes from the replacement and so forth. As for 2022 the free cash flow, now, the double of the net income or net profit were exceeding that level. That is the free cash flow level that we expect asset replacement and so forth. I cannot make any additional comments. But usually that is the situation that we have. So, that's my answer to your first question. In FY 2022 operating profit analysis, it is true that the rationalization in raw materials minus JPY1.2 million is shown here. As you know the raw material prices are at a very high level. Copper for example we use a lot of copper the copper price in futures $10,000 per ton that is the current level. And the impact from that is actually more than JPY50 billion that is already incorporated. And through the rationalization and also other management efforts, we can almost offset that and that is included here.
- Ryosuke Katsura:
- That’s all. Thank you very much for your answers.
- Hirokazu Umeda:
- Thank you very much.
- Operator:
- Let's go to our next question. From Citigroup Securities is Ezawa please.
- Kota Ezawa:
- This is Ezawa from Citigroup Securities.
- Hirokazu Umeda:
- We hear you very clear.
- Kota Ezawa:
- I have two questions. I am referring to page 14 for the slide. This is the by segment forecast. And it is about CNS and it is related to the financial result. In Q4 for financial result, the other income and losses, it was around 22 -- minus JPY22.4 billion. I would like to know the contents of this negative. And in Q4, about JPY22.4 billion is already there. There is minus JPY1.2 billion of negative as we further minus for the other income and losses. Why is it occurring? That's my first question. Second is about Automotive Business. In the new fiscal year for the other plan, you said that you're going to be creating JPY50 billion for profit. However, it is utilizing half of your profit. And so why is it that it is becoming the half of what you're going to be creating? And for the joint venture, for the prismatic battery, what is going to be the impact based on the consolidated profit? And how is it going to be impacting your financial result because it is also run on equity-based method?
- Hirokazu Umeda:
- Thank you very much for your questions. Of Q4 for CNS and for other income and loss, it is JPY 22 billion recorded. This is coming from the Avionics businesses. The demand for Avionics beyond border is a slow-end resumption. Regarding Avionics business itself, we have been working on various merger and acquisition to grow the business. And the goodwill impairment has happened temporarily. That is coming from CNS in Q4 and was incurred in the size of JPY 22 billion for others income and loss. That is the answer for the first question. And for second question, so you mentioned, why we have already set the directions. And regarding ITC global, which was already announced, the actual deal is going to be finished at the end of April. Therefore financial result is going to come in fiscal year 2023. So I would like you to understand in that level. So that was related to CNS. And the second issue about Automotive and for other income and loss, you said there is still JPY 22 billion. And we have been mentioning from the past that, the prismatic battery business is still under the investment phase because of that. The equity method portion is including this part. Currently, we are now making investment for capital production increase. Therefore, we're going to be having to wait in order to harvest the result. And this is included now in the others and increase in loss. I would like you to understand in that way.
- Kota Ezawa:
- That is all from my side.
- Hirokazu Umeda:
- Is that okay? Is that okay?
- Kota Ezawa:
- Thank you very much.
- Operator:
- From Nomura Securities, we have Mr. Okazaki.
- Yu Okazaki:
- This is Okazaki of Nomura Securities. Can you hear me?
- Hirokazu Umeda:
- Yes.
- Yu Okazaki:
- Thank you. First question is about your concept on cost. The SG&A trend, if you look at the quarterly trend in Q4, Q-on-Q and Y-on-Y cost is increasing. January to March, there were one off items. Is that the case? I'd like to clarify. And also, fiscal 2022, the SG&A and cost, what are your views? My second question is on -- you are enhancing the management structure. And I have a question on that. And because of the pandemic and also there are some measures that you have taken, even before the pandemic. And now, that you'll be handing your responsibility to the next management team? And for Mr. Tsuga what was the level of the achievement at the end of year term? And what are your expectations for the next CEO and the President?
- Hirokazu Umeda:
- As for the SG&A, there is a seasonality. And we usually look at it annually. In addition, in comparison to the previous year, last year there was some impact from COVID-19. But this year we have done well. So SG&A, or preparing for SG&A, that is an increase. And that is how you can understand this.
- Yu Okazaki:
- And there are any other one-time additional SG&A items?
- Kazuhiro Tsuga:
- Thank you for your question. Let me answer your question on the enhancement of the management structure. FY 2021, if you look at the full year, we made progress in terms of the enhancement of management structure that is reflected in numbers. And that is a fact, especially in the first half. Under the pandemic, we needed to think about what we could do and fixed cost reduction deferral, the fixed cost reduction was what we did. And then after that, sales started to increase and of course continuing the fixed cost reduction. And also, as the demand was expanding, we needed to deal with it. So, we need to work on both. And that's how we have proceeded. So, in that sense the enhancement of the management structure -- the numerical targets, we have of course achieved them and we have exceeded them as Mr. Umeda said. So, can we do more, or is this type of reduction reasonable? We have to really think about the management structure and that is one of the challenges that we have. So, FY '22 under new CEO, Mr. Kusumi that is something that, I hope he will work on. Thank you.
- Operator:
- Let us go to the next question. From JPMorgan Securities, Ayada please.
- Junya Ayada:
- This is Ayada from JPMorgan Securities. Thank you very much for taking my question. I have two questions. One is on Page 14 on the slide, regarding the adjusted operating profit of Automotive. And I would like to know the details compared to the previous year, the Automotive devices and battery which is going to be making the bigger contribution? It is okay qualitatively actively. So, if there should be anything that you can share, I would like to know? And on a related note, on the Page 19 of the slide, regarding the -- there's a comment about 4680. I would like to know more details within the timeline. Is there going to be a bigger decision made in this fiscal year? So, if you can add any information I would love to hear. And so, my second question is about what Mr. Umeda mentioned for free cash flow forecast. For net profit, Mr. Umeda mentioned double the net profit. And he mentioned about the cruise speed and the significant and the meaning of cruising speed it is going to be JPY 400 billion size of free cash flow or does he mean by the comparison with the previous year. So, I would like him to be elaborating on the issue please?
- Hirokazu Umeda:
- Thank you for the question. First of all, with the differences for JPY 47.8 billion increase for profit, 80% comes from the automotive solutions. And for Automotive Batteries is around a profit increase of 20%, so that is the range of the increase regarding the Automotive Batteries improvement of the profit, there could be some voices about the profit increase is small. But for the Cylindrical Automotive Batteries right now, we are under the development for 4680 and other development. And of course, we are going to be increasing our profit. However, this could be synchronizing with the strategic development and the profit increase seems to be looking small. Regarding Automotive businesses the profit at last for infotainment and/are seeing the profit at last. But therefore, we are expecting large profit growth. So regarding 4680 and the prototype line, we call this -- so we do not have any product yet. Therefore, this is in line based on R&D. We are going to be installing this prototype line to look into the capacity increase and we are going to be making the validation and testing. During this fiscal year, whether or not we're going to be making decisions or not. It's not something that we are expecting currently, we're still in the stage of the R&D level and we are still under verification. Please understand like that. Regarding the cash flow. Maybe double the net profit is too much. So the net profit is going to be going around JPY210 billion. So it is not actually going to be double but then it is going to be higher than the previous fiscal year. So I would like you to understand it that way. Is that okay?
- Junya Ayada:
- Excuse me, the confirmation. So the free cash flow of this fiscal year, you say it's going to be going and last year it was about JPY680 billion but you're not talking about that. So the free cash flow is going to be higher than what it used to be is that so?
- Hirokazu Umeda:
- For this fiscal year, so the double of net profit is the normal situation. So the remainder comes from the restructuring of the portfolio and temporary gain. And for next fiscal year, it is qualitative way of saying but the cruise speeding for the net profit more than double is going to be our free cash flow. So that is the speed that we are expecting. Thank you very much Junya.
- Junya Ayada:
- Thank you very much.
- Operator:
- Mr. Nakane of Mizuho Securities.
- Nakane-san:
- This is Nakane of Mizuho Securities. Can you hear me?
- Hirokazu Umeda:
- Yes.
- Nakane-san:
- Two questions. One for Mr. Umeda, and another for Mr. Tsuga. But the business results as well as forecast in Appliance I have a question. Last year due to the pandemic, the demand went down and then has strengthened. And that continues. For this fiscal year, what are the assumptions? And that's very difficult to come up with in Japan, in China and also Home Appliance, white goods, air conditioning and TVs. Those major products, the environment of the demand, do you think that this kind of special demand, or are you conservative in the second half? What are your strategies? Could you talk about those? The second question is to Mr. Tsuga. Thank you very much for your service for a long time. I think you talked about visualization quite a bit in the past. So as a top management organization, decision-making, cultural, what are the biggest difficulties that you faced? And how did you resolve them to make improvements? And are there any additional issues or challenges? The reason why I'm asking is that if you look at Panasonic from outside. I think it's more visible now but with the case of Blue Yonder, the decision-making process is not very clear to us, frankly speaking. So as a top management, what are your views? And how did you manage to make changes? So those are the two questions.
- Hirokazu Umeda:
- Thank you. So to your first question, FY 2022, Page 14, in terms of sales, if you look at the sales numbers, Appliances, the difference is JPY10 billion. But here it says down by JPY11.9 billion. So that means that there is a strong tailwind that was in FY 2022 – FY 2021. But in FY 2022, I'd like to make sure that we will reflect them to the product development such as nanoe and we'd like to maintain that. So that's the kind of level that we have about the sales. And the major one is Japan and China, in terms of the region. As for the assumptions. In the case of Appliances, the strong demand is a tailwind. But at the same time, the raw material prices are increasing. And that is a major impact on Appliances. So on Page 23, appendix, Appliance-related details are explained and the raw material price hike. We want to make sure that we can provide a high value-added product and sell those products to customers. And by doing so aside from the sales, we would like to control the cost as well as the material cost in terms of adjusted operating profit and that is the plan's assumptions for fiscal 2022.
- Kazuhiro Tsuga:
- Thank you. Concerning your second question. Yes, I have been working as a President for a long time and I started with visualization. And to some extent, we have made progress. But as you pointed out, decision-making process what is the process and what is the logic? Maybe those are not very easy to understand from outsiders. The major decision-making, which requires major investments, or is this something that we are challenging something totally new. If the conventional business for the improvement of that or growth of the existing businesses for that maybe our decision-making is not so difficult to understand. But in the case of, for example, Gigafactory in Nevada, what is the speed of starting up our plant? That has to do with the operational capability. And unless we have a good forecast of that. We cannot really see that clearly. But in the past, what are the areas that we can do this and manufacturing the batteries supplying from them is something that we have done. But with the partner such as Tesla we cannot just move forward with only our way of doing. We needed to make a big jump, and by doing so of course we will face problems and difficulties but after going through this for several years, finally in North America now we are able to manufacture batteries that could give us confidence and experiences. And I think that is the fact. And as for the Gemba Process Innovation, generating businesses from Gemba Process with the trials and errors and we had various trials. For example, China, in hetero , we’re working with them. We tried many things. And in Gemba Process Innovation what can we provide in that area? And in the long-term, what would lead to the new business domain what should we be doing? And gradually we started to see that. And that is how we encountered Blue Yonder and 20% investment was made. And there were things that we understood and did not understand. So unless you make a big jump and move forward, it's difficult to gradually start to see that. So that's probably one of the reasons that you have difficulty understanding our decision-making process. But there are things that are feasible and not visible but that's a very important information. So, we'd like to make sure that we have a good communication. And at the same time, challenge ourselves for something that are important and necessary. So, with the new CEO we would like to continue to be a challenging company or company that would challenge new things. I hope that answers your question. Thank you.
- Operator:
- Now, our time is reaching to the end. So, we would like to end our question with this question and we'd like to limit the question with only one. Mr. Hirakawa-san from BOE Securities please.
- Unidentified Analyst:
- Hirakawa from BOE Securities. Thank you very much. And it is just about the structural reform in FY 2023 March, this is going to be the last year of the entrancing management structure and the midterm strategy. And there's going to be JPY60 billion for expenses that you forecast and regarding avionics there are several businesses that are struggling. And from the March of FY 2023, the adjusted operating profit and operating profit shall we come back to the same level as previous. And we would like to increase our thinking on the numbers. Therefore, I would like to know about the effect and the outline of the -- your measures please.
- Hirokazu Umeda:
- For other income and loss JPY60 billion. What is included in the JPY60 billion is the expense for structural reform and the profit and loss for the equity method is included. Therefore FY 2021, structural reform expense have been beyond our schedule slightly including the avionics. So, therefore, it is about JPY59 billion. And you mentioned about the FY 2022 JPY 60billion. Out of that JPY40 billion is the expense registered for the structural reform. In the midterm strategy for the low profitable businesses and we're going to be remediating the businesses making low profit. And we have allocations for the quality and the litigation expenses globally happening. Therefore, around JPY 20 billion to JPY30 billion, it is going to be going to be recognized as a loss. That is our assumption. So, businesses are always circulating. Therefore, we need to take measures early stage. And by doing so we would like to lead it to the improvement of the business with a sense of speed. And after FY 2023, our business is going to be specialized and is going to be sharpened. Therefore, the adjusted operating profit and the difference with the operating profit that you mentioned JPY20 billion to JPY30 billion is going to be happening normally. And for other expenses for the structural reform, we need to minimize as much as possible. And this is what we are going to be working for the three years. Thank you very much.
- Unidentified Analyst:
- Thank you very much.
- Operator:
- So now we have reached a time. Therefore, we would like to close our…