My name is Murao, President of GS Yuasa Corporation. Let me start by offering a word of appreciation to institutional investors and analysts. Without further ado, I would now like to report on the financial results for the second quarter of the fiscal year ending March 2022. First, I would like to start with net sales and profit. We registered JPY 195.1 billion in consolidated net sales, a year-on-year increase of JPY 22.8 billion. The primary reasons for this increase are as follows. There was an increase in sales of batteries for hybrid electric vehicles in the Automotive Lithium-Ion Battery segment, a sales recovery in batteries for plug-in hybrid electric vehicles, and lastly, we registered an increase in the sale of lead-acid batteries in the Overseas Automotive Battery segment.
We registered JPY 5.2 billion in operating income, a performance in line with last fiscal year. I shall be discussing the details on the next page. Profit attributable to owners of parent stood at JPY 2.2 billion as we recorded extraordinary income in the form of negative goodwill and impairment losses decreased year-on-year. This is a year-on-year increase of JPY 2.1 billion. Shown here are the factors for operating income change. Sales quantity increased across the board in the segments of automotive batteries, industrial batteries, and power supplies, and automotive lithium-ion batteries. Raw material and sales price had a negative impact on operating income caused by a surge in the price of lead, which is the main raw material used in our products.
In light of these factors, operating income for the second quarter of fiscal year 2021 stood at JPY 6.4 billion. Page six contains the segment results. I shall be discussing the details next. We have included here, for reference purposes, a year-on-year comparison for the second quarter in isolation. While GS Yuasa delivered a record profit in the first quarter, the tide started to turn somewhat in the second quarter due to a surge in the price of raw materials. I would now like to go over the segment results, starting with the Automotive Battery segment in Japan. We registered a year-on-year decrease in net sales and operating income. Sales volume of batteries for new automobiles slightly increased due to the impact of production decreases by automakers because of semiconductor shortages, etc., despite a recovery from a year-on-year severe decrease due to the impact of COVID-19.
Sales volume of replacement batteries was favorable continuously from the same period of the previous fiscal year end. Furthermore, we buy and sell electrical components such as car navigation systems, and sales for these decreased due to the impact of semiconductor shortages. Page 10 shows our market share for batteries for new automobiles and replacement batteries. Worthy of note here is the fact that our market share in batteries for new automobiles remains unchanged from fiscal year 2019 levels. Next, regarding replacement batteries, our market share grew 1 percentage point from fiscal year 2019 levels. In the replacement market, the share of batteries for start and stop vehicles continues a steady climb, and so does the share associated with European standard- compliant, abbreviated as EN batteries, a type of battery GS Yuasa has a competitive advantage in. Next are the results in the Overseas Automotive Battery segment.
In this segment, net sales increased while operating income decreased. The segment highlights are as follows: Sales volume in Vietnam decreased starting in the second quarter due to the impact of COVID-19. Sales volume of batteries for automobiles and motorcycles increased in Indonesia and Thailand. In Europe, sales volume of replacement batteries increased, while in China, competition of replacement batteries became intense. Sales increased due to the impact of a weaker yen and the impact of higher selling prices because of higher lead prices. Page 12 discusses sales and market share by region globally in the Overseas Automotive Battery segment, as well as the ratio of shipped batteries in ASEAN, where GS Yuasa has a significant presence. As you can see from the vertical bar graph, the sales share for the regions of Asia and Europe continues on an upward trend.
GS Yuasa will aim to maintain a high market share in ASEAN, while at the same time working toward further profitability improvements through the introduction of new products and optimal production systems. Allow me to direct your attention to the vertical bar graphs to the right to the area representing Vietnam, shown here in blue. We delivered very strong results in Vietnam in the first quarter. However, in the second quarter, the negative impact of COVID-19 led to a decrease in the shipment volume of batteries for automobiles and motorcycles. Next are the results in the Industrial Battery and Power Supply segment. In this segment, we registered an increase in net sales, accompanied by a decrease in operating income. The segment highlights are as follows: Supply of lithium-ion batteries for the large wind power generation project came to the highest volume in the second quarter.
Sales volume of batteries and power supplies for backup recovered from the impact of COVID-19. Starting in May, the infrastructure business of Sanken Electric Co., Ltd. was added to the scope of consolidation following its acquisition by GS Yuasa. Next are the results in the Automotive Lithium-Ion Battery segment. In this segment, we registered a year-on-year increase in net sales and operating income. Regarding Lithium Energy Japan, sales of vehicle models installing our lithium-ion batteries for plug-in hybrid electric vehicles was strong. Additionally, regarding Blue Energy Co., Ltd., sales volume of lithium-ion batteries for hybrid electric vehicles increased, thanks to trade with Toyota Motor Corporation starting last fiscal year and an increase in the number of vehicle models installing our batteries. The main profit change factors are as follows. Profit at Blue Energy Co., Ltd. increased, thanks to an increase in sales volume.
Profit at Lithium Energy Japan increased, thanks to a recovery in sales volume and a decrease in depreciation expenses. Next are the results in the segment of specialized batteries and others. The core company in this segment is GS Yuasa Technology, which manufactures and sells specialized batteries. In this segment, we registered a year-over-year decrease in net sales, accompanied by an increase in operating income. The segment highlights are as follows. Sales of lithium-ion batteries for submarines slightly decreased due to the standard for progress of construction works. Regarding sales of lithium-ion batteries for aircraft, sales for airlines for replacement covered a decrease of sales for aircraft manufacturers. Next is the balance sheet. We offset an increase in working capital and construction in progress through an increase in long-term debt and a reduction in cash and deposits. Allow me to discuss the retirement of treasury shares.
GS Yuasa will be retiring approximately 2 million shares for the purpose of increasing mid- to long-term shareholder value. This represents 2.56% of shares outstanding, and the execution is scheduled for November 30, 2021. I would now like to discuss the cash flow statements. Operating cash flow totaled JPY 6.1 billion due to JPY 6.4 billion in profit before income taxes and depreciation. However, free cash flow came to -JPY 10.8 billion due to capital investment in Blue Energy's number 2 plant. As I mentioned earlier when discussing the balance sheet, we withdrew cash and cash equivalents and incurred long-term debt to allocate to the aforementioned capital investment and shareholder returns. Page 18 contains an overview of capital investment, depreciation, and R&D costs. I would now like to discuss a revision to the consolidated results forecast.
We raised the net sales guidance by JPY 10 billion- JPY 440 billion, mainly considering the impact of a weaker yen. We lowered operating income guidance by JPY 3 billion- JPY 21 billion, considering the impact of higher prices for raw materials, primarily lead. I would now like to discuss the revision to the consolidated results forecast on a per segment basis. Due to a surge in the price of raw materials, we have lowered operating income guidance for the Automotive Battery segment in Japan by JPY 1.5 billion and for the Overseas Automotive Battery segment by JPY 1 billion. We have also lowered operating income guidance for the Industrial Battery and Power Supply segment by JPY 1 billion while raising both net sales and operating income guidance for the Automotive Lithium-Ion Battery segment.
For both net sales and operating income, this is primarily thanks to strong sales of vehicle models using batteries manufactured by Lithium Energy Japan. I would now like to give you a brief outlook of automotive lead-acid batteries and lithium-ion batteries. Shown here is an overview of the use cases for automotive lead-acid batteries and automotive lithium-ion batteries. The portion of the table with the letters ICE corresponds to the internal combustion engine and to gasoline-powered vehicles. In terms of use cases for ICE, lead-acid batteries and 12-volt lithium-ion batteries, primarily in Europe, are used for starting engines. Actually, the voltage is also the same for lead-acid batteries at 12 volts. In terms of the redundancy use case, 12-volt lithium-ion batteries are used in ICE vehicles, hybrid electric vehicles, plug-in hybrid electric vehicles, and electric vehicles.
Additionally, in terms of the drive force use case, lithium-ion batteries are used in hybrid electric vehicles, plug-in hybrid electric vehicles, and electric vehicles. For the auxiliary equipment use case, that is for starting systems, and the 12-volt equipment, lead-acid batteries or 12-volt lithium-ion batteries are used. The position of the battery, engine, and motor for different types of vehicles is as shown in the diagram. Next is a forecast of the progress of electrification on a global scale. We view the shift toward electrification to be fastest in Europe and China. Japan is shown here on the bottom right corner. We believe hybrid electric vehicles will remain the mainstay in Japan through to the mid-2030s. We expect the trend toward electrification to arrive in Southeast Asia and in ASEAN in 2030 and beyond.
I would now like to discuss the GS Yuasa's response to an increase in 12-volt auxiliary batteries. We believe that 12-volt auxiliary batteries definitely installed in all types of cars, even EVs, will increase going forward. GS Yuasa will aim to capture demand for new automobiles and replacement, mainly in Japan, Europe, and China. Next, I would like to discuss our policy to address the decrease in 12-volt starter batteries. While we believe there are regional differences and differences in timing, starter batteries for new automobiles will gradually decrease due to the progress of electrification. GS Yuasa will be taking sure steps toward capturing demand for new automobiles and replacement in regions where internal combustion engines will remain, mainly in the ASEAN region. The graph on the right shows the predicted change in demand for 12-volt auxiliary batteries and 12-volt starter batteries.
I would now like to discuss GS Yuasa's strategy of automotive lithium-ion batteries and show you an illustration of the allocation of development resources toward EVs. Allow me to direct your attention to the pie charts on the right-hand side of the page. As I have said on multiple occasions before, through to fiscal year 2020 and during the fifth Midterm Management Plan, we at GS Yuasa are focused on batteries for hybrid electric vehicles, 12-volt batteries, and batteries for industrial uses. However, going forward, EVs will increase rapidly, particularly in Europe, because restrictions on internal combustion engine vehicles and hybrid electric vehicles will spread globally. GS Yuasa, too, will increase development resources for full-scale entry into the market for EVs during the sixth Midterm Management Plan and beyond. The large pie chart shows an illustration of the allocation of development resources in fiscal year 2023.
Going forward, we will be focusing development resources on batteries for EVs and ESS for industrial use. The share of resources allocated to each domain is as shown here, with the most resources going into batteries for EVs. I would now like to give you an outline of the progress status regarding research and development of next-generation batteries. Shown here is a roadmap of development of post-lithium-ion batteries as viewed by GS Yuasa. Current lithium-ion batteries use liquid electrodes and a liquid electrolyte. Currently, a carbon material is used as the negative plate, but we would like to make the shift to silicon-based materials and raise energy density. Through this, we will aim to make batteries lighter and more compact. Furthermore, we are considering the use of lithium metal negative plates in order to reach high energy densities.
Beyond that, we are considering the use of sulfur-positive plates, allowing us to develop high-performance batteries with resources that can be extracted at a low cost. These three can be found in the middle area of the chart on page 27 in the circles titled Silicon-Based Batteries Containing a Negative Plate, Lithium Metal Batteries Containing a Negative Plate, and lastly, Sulfur Batteries Containing a Positive Plate. Regarding these three development items, they can be applied to both liquid electrolyte lithium-ion batteries and all-solid-state batteries. I would now like to discuss the research and development system of all-solid-state batteries at GS Yuasa, illustrated by the diagram on the upper left-hand side of the page. GS Yuasa dispatches researchers to participate in LIBTEC, making a contribution to ensuring a competitive advantage for Japanese technology. We also carry out unique research and development efforts pertaining to all-solid-state lithium-ion batteries.
Next is a discussion of the development status of all-solid-state batteries, namely a discussion of the technical issues that need to be addressed in order to achieve practical use. In broad strokes, there are four technical issues. One, improving ionic conductivity of the solid electrolyte. Two, improve water resistance of the sulfide solid electrolyte. Three, reduce interfacial resistance between the solid electrolyte and the active material. Four, improve electric potential resistance of the solid electrolyte. These are the four technical issues we have identified. Our efforts have borne fruit in the form of research results. In GS Yuasa's unique research adapting computational chemistry, we developed a new sulfide solid electrolyte. This resulted in improved ion conductivity, twice that of our conventional products. The same in terms of the index of water resistance, as we were able to deliver a result forty times improved from our conventional products.
An improvement of 40 times the index of water resistance means 1/40th of the amount of hydrogen sulfide generated. In terms of the market for all-solid-state batteries, we are aiming for practical use, starting from specialized batteries in the late 2020s. Lastly, allow me to discuss a news release announced to the public today, November 15, 2021. The topic is the progress of NEDO's research and development project for advanced aircraft systems toward practical application. GS Yuasa's R&D efforts within the scope of this project are the development of the underlying fundamental technology used in battery cells, such as the electrode and the electrolyte solution, a control system for storage batteries, a lighter module pack structure, and lightweight storage batteries satisfying the requirements of next-generation aircraft. We would like to use the aforementioned lithium metal batteries with a negative plate and sulfur batteries with a positive plate.
Using the results of this underlying fundamental technology, we developed technology for the design and manufacture of lithium-sulfur batteries and carried out a proof of concepts trial with small-sized cells. Through this, we were able to demonstrate a lithium-sulfur battery with an energy density level of 400 watt-hours per kilogram. This battery is rated at 8 ampere-hours with a gravimetric energy density of 370 watt-hours per kilogram or greater. This concludes my presentation. Thank you for listening.
We would now like to start today's Q&A session. Mr. Sakae with Daiwa Securities will be posing the first question.
Thank you. My name is Sakae, and I'm with Daiwa Securities. I have two questions. First, I would like to know if there are any updates with the renewable energy domain within the Industrial Batteries and Power Supplies segment. I would like to know if you can share any visions for the future or a market outlook or any other updates over the past six months. My second question pertains to page 29 of the presentation materials, which deals with the development of all-solid-state batteries. Could you offer us some more detail regarding sulfide solid electrolyte technology?
I believe the current orthodoxy when it comes to solid electrolytes is to use hard electrolytes like LGPS. An issue that needs to be addressed in this area is avoiding the generation of cracks in the negative plate. Would it be possible for you to expand on the breakthroughs found in GS Yuasa's sulfide solid electrolyte technology?
Thank you for your question. Allow me to answer your first question pertaining to ESS using renewable energy in the Industrial Batteries and Power Supplies segment. GS Yuasa views the ESS domain as follows. First, there is large-scale energy storage involving a connection to the power grid through electricity companies. In terms of the medium scale, there are energy storage systems offering peak cut and peak shift solutions to offices and plants and the like.
Lastly, there is the domain of small-scale ESS for residential use. As I have mentioned before, we supply lithium-ion batteries to a large-scale wind power generation project in Hokkaido, allowing it to achieve a smooth and stable power output. This is a large-scale project, but on a medium scale as well in the form of the provision of ESS for offices and plants, for example, there have been a number of inquiries, and we are slowly building a track record in bringing these to market.
We are in the process of answering a number of inquiries and currently in the course of business negotiations, so I can't really go into the details. With that being said, going forward, we at GS Yuasa would like to build a track record in the medium scale and large scale domains. Now, allow me to direct your attention to page 29, to the topic of all-solid-state batteries. GS Yuasa is yet to announce the results of its research, so I am not yet at liberty to discuss any further details. There are two types of solid electrolyte: oxide solid electrolytes and sulfide solid electrolytes, with GS Yuasa carrying out research and development involving the latter category. Four technical issues need to be overcome before practical use can be achieved. Of these, we have seen results in terms of improving ionic conductivity and also water resistance.
In light of this, as I mentioned earlier, we will be aiming for practical use starting from specialized batteries in the late 2020s. Again, I apologize, but this is all I can say at this time.
Thank you. This concludes my question.
My name is Naruse, and I'm with Okasan Securities. I also have two broader questions for you. My first question has to do with company results against the backdrop of the results for the first half of the fiscal year, results forecast for the full fiscal year, as well as the outlook for next fiscal year. Page five shows the factors for operating income change. It would appear that for the first half, the price of raw materials had little impact on results versus the initial forecast. While sales quantity showed a significant discrepancy.
Even taking into account lower sales quantity in Vietnam, like you mentioned earlier, this is still a very large difference with an actual operating income result of JPY 6.4 billion. Could you give us actual examples of things that differed materially from GS Yuasa's expectations? Second, your discussion of the full fiscal year forecast contains a qualitative overview of the price of raw materials like lead. I believe the sales price for the following three to six months is determined by the price of raw materials during the preceding three to six months. I would like to know if the company expects this dynamic to work in the opposite direction next fiscal year. Lastly, I have another question regarding lithium-ion batteries, which are a completely different topic, so perhaps you could answer my first question, and then I'll ask the next one. Thank you for your questions.
I would like to yield the microphone to CFO Nakagawa, who will be answering your question about the company's results in the first half of the fiscal year and the forecast for the full fiscal year.
This is CFO Nakagawa speaking. Thank you for your questions. As you point out in your question, the primary change factor for operating income differing from the initial forecast was sales quantity. This change, in turn, chiefly stems from the Automotive Battery segment in Japan and overseas. First, in Japan, GS Yuasa carries out the sale of batteries for new automobiles to OEMs. The impact of COVID-19 was very pronounced last year, with significant production cuts. In light of this, we were expecting a recovery this fiscal year and a significant increase in sales to OEMs of batteries for new automobiles.
As you are aware, there has been a shortage in semiconductors, so this was probably also a contributing factor. The overall picture is of sluggish growth falling short of the forecast targets. It goes without saying that there has been a year-on-year increase, but not to the levels we had anticipated. Additionally, regarding replacement batteries, results have been in line with last year and with the forecast. Furthermore, in terms of the Overseas Automotive Battery segment, results were mostly in line with the forecast for certain developed countries, especially in terms of the market for replacement batteries. On the other hand, our results were negatively impacted by COVID-19 in ASEAN and Southeast Asia, with some countries going into lockdown. Although the degree of severity varies from country- to- country in the region, overall, we are currently bearing the brunt of this.
New automobile OEMs have cut back production in some Southeast Asian countries, while in other countries, lockdowns have translated into lackluster results below expectations in the market for replacement batteries. With that being said, regarding the outlook for the second half of the year and next fiscal year, new automobile OEMs, both in Japan and overseas, are facing a shortage of semiconductors and supply chain disruptions, but we expect a recovery once these issues improve. Furthermore, while the market for replacement batteries might show a certain degree of variance, the fact is that batteries need to be swapped out every number of years. As such, results might have fallen short of the forecast, but we are confident that sooner or later there will be a recovery. In that sense, we reckon that over the span of one year, the impact is actually not all that large. Thank you.
Please allow me to expand upon my question. Should the situation arise, I believe the company will announce revisions to the price of its products as it has done in the past. Given that the price of lead has increased considerably, my question is whether the company can execute any number of measures allowing it to absorb these costs at current prices, or is the situation more serious?
As you can see by looking at our results, when selling batteries for new automobiles to some OEMs, we incorporate into the price of our products fluctuations in the price of raw materials on a sliding scale. Additionally, in the overseas market, we have been able to address changes in the price of raw materials in a fairly reasonable manner. However, especially in the domestic market in Japan, pricing decisions like these need to take into account GS Yuasa's competitive position in the market and also versus other industry players.
This is an element that isn't really improving, so there might be a need to consider certain options in the future. With that being said, the future price of lead is not something that can be predicted, so we will be closely monitoring the situation and making any necessary decisions. This concludes my answer.
Thank you for your answer. Allow me to ask my second question pertaining to the Automotive Lithium-Ion Battery Segment. In broad strokes, I would like to ask about the company's strategy going forward. I recently read a magazine article on the topic of intense competition over access to batteries and an accompanying surge in inquiries from automakers over the next number of years.
I would like to ask about inquiries, especially for LEJ, since Blue Energy already has defined customers and sales of hybrid electric vehicles is strong. Due to the buying back of assets, part of it falls within the main corporate entity now, but I would like to hear your take on the topic of inquiries. Second, it appears that unfortunately, Mitsubishi Motors' new Outlander plug-in hybrid electric vehicle model does not use LEJ batteries. LEJ currently generates sales, so I don't think this is a problem in the short term because sales of the current model is strong. I would like to know what the plans are for LEJ one, two, or three years from now once the wind power project two runs its course. Third, the price of raw materials used in lithium-ion batteries has increased significantly and is on the rise.
Would it be accurate to say that for the short term, an agreement has been reached with automakers to reflect higher prices for this commodity, and that consequently, this isn't an issue to be too worried about? What is the company's strategy should raw materials continue this significant climb over the medium to long term? In fact, there's talk of Chinese automakers using iron phosphate since the price of iron is less likely to surge. To summarize, I would like to hear about current inquiries in the lithium-ion battery business, about future plans for LEJ one, two, or three years from now, and about the company's view and stance on rising raw material prices. I apologize for the lengthy question.
Thank you for your questions. First, pertaining to the current status of the Automotive Lithium-Ion Battery segment. Regarding Blue Energy, construction of the number two plant is underway with the start of operations planned for April 2022. First, we will be aiming for an annual production of 50 million cells, which means that once the number two plant goes online, this will allow us to just more than double our production capacity from a current baseline of 25 million cells. Against this backdrop, we are seeing an increase in inquiries. As you mentioned in your question, we currently already have enough to paint a picture through to 2030. Regarding Lithium Energy Japan, as I have mentioned before, we have seen a very strong recovery in terms of batteries for plug-in hybrid electric vehicles. As such, here too, we are in the process of being able to paint a picture of the future involving plug-in hybrid electric vehicles.
Another topic is ESS. I mentioned how we are seeing a significant increase in inquiries regarding stationary storage batteries, supply for which came to the highest volume. In fact, we have already started fulfilling orders for these with a capacity utilization rate of around 75%-80% at our four production lines at Lithium Energy Japan. Here, too, I cannot offer you any further details beyond that, but we now have a clearer picture of the future. Furthermore, regarding the price of raw materials, naturally, GS Yuasa is also carrying out its development efforts in the direction of reducing the use of commodities like cobalt and minor metals. Another important thing is the fact that lithium-ion batteries have a longer life, so we are not too hopeful about the replacement market potential for these.
In light of this, we are in talks with manufacturers regarding the use of a sliding scale method for prices and making those types of adjustments. This concludes my answer.
Thank you for your answer. Allow me to ask for clarification regarding that last topic. Going beyond any individual material like cobalt, I think the topic of discussion is whether raising production and sales volume allows for a reduction in battery costs, or whether even after raising volume and realizing technological improvements, this cost cannot be lowered. I would like to hear GS Yuasa's views regarding the cost of batteries.
Lithium-ion batteries have a cost structure that is extremely restricted by the cost of raw materials. As I mentioned earlier, we believe the trend to eliminate or avoid the use of materials like minor metals will continue. Since demand for lithium-ion batteries is expected to surge going forward, this could significantly raise the price of batteries. What's more, in the case of lithium-ion batteries, lithium deposits are rare and not evenly distributed, so this is an extremely difficult challenge to solve.
Thank you for your answer.
Thank you. My name is Aiva, and I am with Nomura Asset Management. I have three questions for you. The first pertains to the price of lead, which has surged to a range between JPY 280,000 and JPY 310,000 per ton. What impact did this have on profits in the first half of the fiscal year? We have net results for the first half, but what impact did the price of raw materials have on results?
Additionally, a higher price for raw materials is already listed on page 19 as the main reason the company is lowering operating income guidance for the full fiscal year by JPY 3 billion. I would like to know what degree of impact the company is actually forecasting.
First, I would like to yield the microphone to CFO Nakagawa for a more detailed answer. As you can see in the documents, in the first half of the fiscal year and on a year-on-year basis, the soaring raw material prices had a negative impact of approximately JPY 3.7 billion-JPY 3.8 billion, as shown on the graph. Go ahead, Mr. Nakagawa.
This is CFO Nakagawa speaking. Roughly speaking, GS Yuasa consumes in its operations, both in Japan and overseas, just under approximately 400,000 tons of lead annually. Production volume is slightly higher in the second half of the fiscal year, so lead consumption is slightly lower than 200,000 tons in the first half and slightly higher than that in the second half for an aforementioned total of just under 400,000 tons. As such, using multiplication, we can see that a change of JPY 10,000 per ton for domestic quotes or $100 for the LME, which also translates into a rough equivalent of JPY 10,000, has an annual impact of around JPY 4 billion. However, something to take into account is what is called the residual rate, which is the amount of raw materials that goes into inventory. This change doesn't necessarily directly correspond to a cost increase.
To account for this and to give you a rough estimate, a more accurate multiplier would be JPY 7,000 instead of JPY 10,000, bringing the annual impact amount to around JPY 3 billion. As shown in the diagram, changes in the sales price also play a role in this, so we believe this impact will shrink going forward. This concludes my brief answer to your question.
Thank you for the informative answer. In light of what you just said, with a price increase of JPY 20,000 per ton, that's JPY 8 billion for an impact amount corresponding to 70% of that, or JPY 5.6 billion. Of this, assuming, say, JPY 2.6 billion is reflected into the sales price of GS Yuasa's products, that leaves an impact amount of approximately JPY 3 billion. Is this assumption correct?
Indeed. However, as I mentioned earlier, one thing to take into account is the sliding scale method used in pricing our products. As you are aware, our contracts with new automobile OEMs use the price of lead over the previous three-six months as the base for the sales price over the following three-six months. In the first half of the fiscal year, the sales price of our products to new automobile OEMs were based on lead at the low prices seen last fiscal year. Conversely, the trend is now in the opposite direction. Even assuming the price of lead plateaus at current levels, sooner or later, sales prices will indeed catch up.
So we are not expecting a gap of the magnitude seen in the first half to emerge going forward between the price of raw materials and the sales prices. As such, we expect we will be able to reduce this gap going forward. This concludes my answer.
Thank you for your detailed answer. You mentioned how BEC is in the process of painting a picture of the future through plug-in hybrid electric vehicles. Could you expand on this?
Earlier, on the topic of hybrid electric vehicles, I wasn't referring to BEC, but rather to Lithium Energy Japan. Regarding Blue Energy, I mentioned how we currently already have enough to paint a picture through to the 2030s through hybrid electric vehicles. Lithium Energy Japan is currently seeing a tremendous recovery in the sales volume of batteries for plug-in hybrid electric vehicles. As such, as I have mentioned several times already, the Automotive Lithium-Ion Battery segment posted a very strong increase in sales and profits, exceeding the forecast.
I cannot give out any further details in light of contractual agreements and other further restrictions, but I can say that we now have a clearer outlook with plug-in hybrid electric vehicles. As such, Lithium Energy Japan boasts four production lines, and we do not expect volume and capacity utilization rates to drop over the next number of years.
I see. Earlier in this Q&A session, there was a reference to GS Yuasa losing market share in terms of batteries for new plug-in hybrid electric vehicle models. However, in light of what you just said, this means the company has something to offset this, hence why it can paint a picture of the future. Is this assessment correct?
That is not the case. Naturally, our contracts with OEM auto manufacturers preclude us from going into too much detail, so I can't comment on the specifics, but we believe we can expect to secure a reasonable amount of sales volume on that front as well.
I see. Thank you for your answer. Allow me to ask one final question. Widespread adoption of EVs is expected, so you mentioned how the company will be taking preparatory steps in this direction during the next Midterm Management Plan. I would like to know how to interpret this from the standpoint of capital investment. Rather than tackling this on its own, I believe GS Yuasa will be exchanging information with its customers. I would like to learn more about the amounts planned in capital investment, and also in terms of time as to when the company thinks would be a good time to step on the gas pedal, if you will, when it comes to these efforts.
In the past, rather than doing everything on our own in terms of building a manufacturing plant, developing products, and then selling the batteries we manufacture, our approach is to work with OEMs and make investments with a high degree of confidence. We do not foresee any changes to this approach in the future. In 2021, building a plant in Japan with a capacity for end-to-end production of 1 GW of energy requires an investment of approximately close to JPY 10 billion.
As such, we believe that gradually, more and more companies in Japan will move away from doing things exclusively on their own. Against this backdrop, GS Yuasa wants to be in close communication with OEMs and carry out investment on this basis. GS Yuasa has an EV platform, and as I mentioned in our future roadmap, we are currently carrying out a number of efforts regarding the development of high-energy density batteries. Once these efforts have advanced enough, we would then like to consider investment in this area. Unfortunately, I currently cannot give you any further information regarding specific amounts and timing.
Thank you for the detailed answer.
Thank you.
Thank you for the opportunity today. My name is Sugimoto, and I'm with Mitsubishi UFJ Morgan Stanley Securities. I also have three questions for you. First, allow me to build upon Mr. Aiba's question and inquiry about GS Yuasa's development of EV batteries going forward. On page 25, you discussed an illustration of the planned allocation of development resources for FY 2023, with what appears to be an allocation share of around 40% to batteries for EVs. Would one be correct in assuming these are independent original development efforts on GS Yuasa's part?
Or perhaps as it relates somewhat to what was discussed earlier, is the company here also in close communication with customers and focusing on the development of applications? This concludes my first question.
Thank you for your question. Here too, contractual obligations and other restrictions preclude us from being able to go into too much detail. As it pertains to batteries for EVs, our development efforts in this area too are to be done in communication and collaboration with our customers. Naturally, we carry out basic fundamental research on our own, as we always have, but the stage of actually manufacturing batteries requires a certain level of certainty. Without this level of certainty, we are unable to invest, so we would like to continue being in communication and collaborating with customers in the process of making advances in development. I hope you find this answer satisfactory.
Thank you for your answer. This means a greater allocation of development resources should the company receive a greater number of inquiries from a larger number of customers or possibly even an increase in total development resources.
That is correct. We are currently fielding various inquiries and carrying out business negotiations. Against this backdrop, we believe this is an accurate illustration of how things could play out for fiscal year 2023. We believe there is a possibility that this resource pool itself, the pie chart shown here, could grow. GS Yuasa currently has between around 380 and 400 development personnel, and depending on the volume of inquiries, we could consider raising this number further.
Thank you for your answer. My second question pertains to the company's revised financial results forecast of JPY 21 billion in operating income. This information most likely cannot be found in the presentation materials, but could you discuss in what ways the factors for operating income change differed from the assumptions in the initial forecast?
For reference, the initial forecast was for a positive year-on-year contribution to operating income of JPY 10.3 billion in terms of quantity and composition change, a negative impact of JPY 3.6 billion in terms of the sales price, and lastly, a negative impact of JPY 8.6 billion in terms of expenses, etc.
It was mentioned earlier in this Q&A session that there were large changes in terms of quantity and composition change and in sales price. Would it be possible for you to elaborate upon this topic?
Thank you for your question. I would now like to yield the microphone to CFO Nakagawa, who will be answering your question.
This is CFO Nakagawa speaking. Thank you for your question, Mr. Sugimoto. I will be answering your question while making reference to pages 19 and 20. We lowered operating income guidance by JPY 3 billion. Page 20 contains a breakdown of this JPY 3 billion change on a per segment basis. In broad strokes, we lowered guidance for the Automotive Battery segment in Japan and overseas and for the Industrial Battery and Power Supply segment. We therefore lowered the results forecast for these segments, which use lead as the primary raw material in their products.
We have also revised our forecast for the price of lead somewhat for the period corresponding to the second half of the fiscal year. Recently, lead has been trading at significantly elevated levels, 336,000 JPY per ton in the Japanese market and $2,386 on the LME. We were expecting quotes of 280,000 JPY per ton in Japan and $2,000 on the LME.
The company has since then revised its financial results forecasts, and these are premised on a new forecast of JPY 310,000 per ton in Japan and $2,200 on the LME. As such, these forecast assumptions are still somewhat lower than the current price of lead. Lead is currently trading at elevated levels, but we expect things to calm down somewhat in the second half of the fiscal year and into the end of the fiscal year in March. The revised results forecast is therefore premised on these assumptions. This concludes my answer.
Thank you. Could you please clarify one thing? In the initial forecast, the company had identified expenses, etc., as a significantly negative factor for operating income change. However, I believe that in the first half of the fiscal year as well, expenses were successfully kept under control.
Would one be correct in assuming the company expects this trend to continue for the full fiscal year?
That is correct. Last year, we registered a reduction in travel and transportation expenses, customer entertainment expenses, and advertising expenses on account of the outbreak of COVID-19. In light of this, we were anticipating these expenses to return to a normal baseline. However, society has indeed entered a new normal with seismic changes to work styles, primarily centered around remote work, meaning expenses have not returned to the pre-COVID baseline. We have taken this into account in the process of revising the forecast for the second half of the fiscal year. This concludes my answer.
Thank you. My last question pertains to the Industrial Battery and Power Supply segment. As Mr. Nakagawa discussed earlier, the company lowered full fiscal year operating income guidance by JPY 1 billion. However, GS Yuasa has announced price increases for its products in the Industrial Battery and Power Supply segment in Japan, which also appears to be doing well sales-wise. As such, I am having some difficulty understanding the rationale for the decision to lower guidance by JPY 1 billion. Perhaps there are other factors at play, so would it be possible for you to clarify?
Once again, this is CFO Nakagawa speaking. As President Murao mentioned in his presentation at the start of today's results briefing, there are two major factors behind the sales increase during the current fiscal year in the Industrial Battery and Power Supply segment. As shown on page 13, the first factor is the supply of lithium-ion batteries for large wind power generation having come to its highest volume.
As has been discussed on previous occasions, this project is a power plant by Eurus Energy, located in the town of Toyotomi in Hokkaido. We supply batteries to the site at below cost, in exchange delivering profits through a 20-year maintenance and service contract. As such, since the supply has come to its highest volume, this means an increase in sales, but also further weighs down on profits. Furthermore, this May, the infrastructure business from Sanken Electric was added to the scope of consolidation. In the first half of the fiscal year alone, this had an impact of just under JPY 5 billion. Unfortunately, this business has not yet been able to make much of a profit contribution. This was especially true for the first half of the fiscal year, as the transfer of this business was completed, but this didn't translate into profits.
However, we expect some profit contribution in the second half of the fiscal year, and then later further raise the business's profit contribution by unlocking synergies over the next two-three years. With that being said, in recent months, and perhaps counterintuitively, while sales have increased, profits haven't really followed. Lastly, a surge in the price of lead was also naturally a negative factor. This concludes my answer.
Allow me to build upon this answer. As CFO Nakagawa mentioned just now, regarding the Eurus Energy project, our business model is to generate profits over a 20-year maintenance period. This maintenance contract is already in place, and through this, we will be absorbing the initial cost over time.
Thank you for the informative answer. This concludes today's Q&A session and financial results briefing. Thank you for taking the time off your busy schedules to participate in today's briefing.