Good afternoon. I will go over the consolidated financial results of the second quarter of fiscal 2023. First, a summary of the consolidated financial results. Overall sales increased year-on-year due to the increased sales of Lifestyle, Automotive, and Energy, as well as the consolidation of Blue Yonder and by currency translation. Adjusted operating profit remained at the same level despite increased sales. This is mainly due to the increased fixed costs for growth in lifestyle and energy, such efforts as price revisions offset the impact of raw material price hikes. Operating profit and net profit decreased due to the impact of recognition of a gain in FY 2022 of JPY 58.3 billion from the revaluation of existing equity in Blue Yonder upon acquisition.
Free cash flow improved from FY 2022, in which the acquisition of Blue Yonder completed, but it was below the level of net profit due to strategically increased inventories designed to respond to semiconductor shortages and other factors. For the full year forecast for FY 2023, group-wide sales is revised upward due to currency translation. Profit is revised downward. By segment, profits of Connect, Automotive, and Industry are revised downward. Based on the recently enacted U.S. Inflation Reduction Act, IRA, tax credit is assumed in FY 2023 Q4 for the Energy segment. This positive impact is not yet factored into the forecast since the relevant bylaws have yet to be determined. Now the details of the consolidated financial results for Q2. This slide shows the consolidated financial results. Overall sales increased to JPY 2,090 billion, up 20% year-on-year.
Sales in real terms on constant currency increased by 9%. Adjusted operating profit was JPY 80.2 billion, the same as FY 2022. Other income and loss decreased by JPY 10.6 billion due to the impact from the one-time gain of JPY 58.3 billion in FY 2022 related to the acquisition of Blue Yonder. Excluding this impact, other income and loss steadily improved due mainly to reduced restructuring expenses. Operating profit and net profit decreased by JPY 10.7 billion and JPY 18.1 billion respectively. The results by segment year-on-year variance analysis are shown in the next few slides. First, sales analysis by segment. In Lifestyle, sales increased due to steady sales of growth businesses such as HVAC systems, European business, overseas electrical construction materials, and showcase in North America. Consumer electronics in Japan recovered with the lifting of the Shanghai lockdown and other factors.
In Automotive, sales increased reflecting recovery in automobile production. In Connect, overall sales increased with increased sales of rugged mobile terminals for overseas markets, along with the upturn in Avionics, reflecting market recovery in the aviation industry, as well as the consolidation of Blue Yonder. Sales decreased in process automation with an investment slowdown in the areas of PCs and smartphones, as well as Gemba Solutions due to the slowdown in post-Olympic demand. In Industry, overall sales decreased due to decreased sales resulting from the ICT market slowdown and semiconductor shortages, and the termination of the semiconductor business despite increased sales of capacitors and modules for automotive use and relays for industrial and EV use.
In Energy, sales increased with price revisions and improved productivity and increased production after installing a new line in FY 2022 for automotive batteries in North America, despite lower sales of lithium-ion batteries for consumer applications such as PCs and games due to the deteriorating market conditions. Among Other/ Eliminations & adjustments, in Entertainment and Communications, sales decreased with procurement issues for some components. In Housing, sales increased with water-related products such as kitchens and toilets, and building materials such as interior doors and floor materials. Adjusted operating profit analysis by segment. In Lifestyle, profit increased, and continuous efforts such as price revisions and rationalization in Japanese and overseas markets nearly offset the deteriorated business environment, including exchange rates, raw material, and logistics costs. Moreover, profit increased with increased sales mainly in growth businesses.
In Automotive, profit increased with increased sales, price revisions to offset price hikes in parts and materials, and cost reduction efforts despite the price hikes such as those of semiconductors and increased fixed costs. In Connect, profit decreased due to decreased sales and process automation and Gemba Solutions, and amortization related to Blue Yonder acquisition and other factors, despite increased sales to rugged mobile terminals for overseas and Avionics. In Industry, profit decreased due to decreased sales and raw material price hikes despite rationalization, price revisions, and the effect of yen depreciation. In Energy, profit decreased due to price hikes in raw materials and logistics, along with increased development expenses and fixed costs needed for increased production despite the effect of yen depreciation. The results of Lifestyle by divisional company, both sales and profit increase at all divisional companies.
In Living Appliances and Solutions Company, sales increased due mainly to sales recovery from the impact of the COVID lockdowns. Profit increased with such efforts as price revisions and rationalization to counter the deteriorated business environment, including yen depreciation and raw material price hikes. In Heating and Ventilation A/C Company, sales increased due to continuing favorable sales of air-to-water heat pump systems in Europe and sales recovery from the impact of lockdowns in Asia. Profit increased due mainly to increased sales despite the deteriorated business environment, such as the effective exchange rates. In Cold Chain Solutions Company, operations in Dalian, China, are excluded from the scope of consolidation from FY 2023 Q2. Accordingly, its results in FY 2022 are reclassified to conform to the FY 2023 presentation.
This is in line with the change of management responsibility for the cold chain business in China to be held solely by China & Northeast Asia Company. Based on the reclassification, both sales and profit in FY 2023 Q2 increased with steady sales mainly for showcases in Japan and the U.S. In Electric Works Company, both sales and profit increased with steady sales of overseas electrical construction materials, mainly in India and Asia, despite the impact of shortages in parts and materials. Operating profit by factor. From the left, profit generated from sales expansion increased by JPY 26.8 billion. Fixed costs had a negative impact of JPY 25.1 billion due to the increased investment in Lifestyle and Energy for business growth. Price hikes in raw materials and logistics had a negative impact of JPY 50 billion.
The counter- effective efforts, such as price revisions and rationalization, offset this negative factor. The consolidation impact of Blue Yonder was - JPY 6.6 billion due to a loss in its operations, resulting mainly from temporary expenses as well as the recording of amortization expenses and others. The overall effective exchange rate was positive, totaling JPY 4 billion. By segment, it had a negative impact in Lifestyle, but positive impact in Industry and Energy. Adjusted operating profit was the same year-on-year. Other income and loss had a negative impact of JPY 10.6 billion due to one-time gain in FY 2022. Operating profit decreased by JPY 10.7 billion. Free cash flow and cash positions. On the left, free cash flow was JPY 69.3 billion for the first half.
Although it improved largely year-on-year with the completion of Blue Yonder acquisition, it was below the level of net profit due to the strategically increased inventories responding to semiconductor shortages and others. On a quarterly basis, inventories turned to decline in certain businesses. We will continue further efforts to reduce inventories mainly by revising the strategic inventory level. Net cash was -JPY 604.1 billion, an improvement from the end of FY 2022. Next is the consolidated financial forecast for FY 2023. This shows the consolidated financial forecast. A Forex assumption is revised as shown at the bottom. Based on this and the currency fluctuation, sales is revised upward by JPY 300 billion to JPY 8.2 trillion from the initial forecast. However, constant currency-based sales is revised downward by JPY 200 billion.
Adjusted OP is revised downward to JPY 340 billion, down JPY 40 billion. Operating profit is revised downward to JPY 320 billion, also down JPY 40 billion. Net profit is revised downward by JPY 25 billion to JPY 235 billion. ROE is expected at 7%, EBITDA at JPY 750 billion. This shows the forecast by segment. As for profit, Lifestyle remains unchanged. Energy is revised upward, and Automotive, Connect, and Industry are revised downward. The details of the revisions from the initial forecast is explained from the next slide. This shows the forecast for the Lifestyle segment by divisional company. The profit forecast of all divisional companies remained unchanged. Next is revision factors by segment. In Lifestyle, sales is revised upward due to the currency translation. Adjusted OP remains unchanged.
The impact of Shanghai lockdown and exchange rates is expected to be offset by such efforts as price revisions and rationalization. In Automotive, sales is revised upward due to the currency translation. However, the sales in real terms is expected to decrease from the initial forecast due to the reduced automobile production. Adjusted OP is revised downward, largely affected by lower sales in Q1, despite the price revisions to counterparts and materials price hikes and effective exchange rates. In Connect, sales is revised upward due to the currency translation. However, the sales in real terms expected to decrease from the initial forecast due to the parts and materials procurement issues and post-Olympic demand slowdown in Japan. Adjusted OP is revised downward due to the lower sales as well as lower profit of Blue Yonder. In Industry, sales is revised upward due to the currency translation.
However, sales in real terms expected to decrease from the initial forecast due to the deteriorated market conditions in ICT infrastructure and equipment. Adjusted OP is revised downward due to the decreased sales despite rationalization and the yen depreciation effect. In Energy, sales is revised upward due to the price revisions and currency translation, despite the slowdown of lithium-ion batteries for consumer application. Adjusted OP is also revised upward due to the weaker yen and price revisions countering further hikes in raw materials.
Based on the U.S. IRA tax credits is assumed in Q4. However, this impact is not yet factored into the forecast. In Other/E liminations and adjustments, sales have revised downward due mainly to lower sales of TVs, as OP is also revised downward due mainly to the price hikes in materials and effective exchange rates. This shows our analysis of the revised forecast of operating profit in FY 2023 by factor, and explains the changes made from the initial forecast. The upper graph shows the analysis of year-on-year increase, decrease factors in the initial forecast. The lower one shows the analysis of increase, decrease factors in the revised forecast of October 31st. Figures in the middle show the revised amount by each factor.
Overall picture is that we are expecting an increase in fixed costs for future growth, as well as the expanding impact of the raw material price hikes. However, our price revisions and rationalization efforts are expected to counter these increases. On the other hand, the impact of the lower sales in real terms compared to the initial forecast and the impact of temporary setbacks of the Blue Yonder are not fully offset by above-mentioned efforts. Therefore, operating profit is revised downwards by JPY 40 billion. Now let me explain our view on Q2 based on the quarter results, as I did for Q1. Currently, there is already a sign of slowdown in demand for ICT -related businesses and others. There are also concerns of a slowdown in economy.
However, as explained at Q1, the situation turned to recovery trend with improved results after hitting bottom at Q1 when impact of Shanghai lockdown was felt. From Q3 onwards, we will continue to aim for the sales growth, mainly in Energy and Heating & Ventilation A/C business. From the external business environment perspective, there are some encouraging factors, such as an ease of shortages in semiconductors and parts and materials, as well as enactment of IRA in the United States. Today, the Panasonic Group announced the decision to construct a new manufacturing facility of automotive cylindrical lithium-ion batteries in Kansas, U.S. This slide shows the summary. The outline of the facility is as follows. Construction is expected to start in November 2022. Mass production is planned to start during FY 2025. Type of cell to be produced is 2170 cells.
Initial production capacity is expected at about 30 GWh per year. The graph on the right explains our target of production capacity expansion, which was shared at IR day in June this year. Today's announcement on the investment is in line with this target. Next, this shows the progress of our initiatives for three businesses identified as growth area in the group's medium to long-term strategy announced in April this year. In the Automotive Battery business, as explained in the previous slide, we will continue to strengthen its supply capability in the United States. In Supply Chain Software business, there are certain impact on results due to the temporary setbacks in the business environment, such as postponement of customer investments. We're concerned about economic slowdown and the strong yen.
To counter this, under the new CEO who joined Blue Yonder in July, we are formulating the key strategies, including a stronger organizational structure and business transformation toward future or further growth. In the Air Quality & Air-c onditioning business, we will expand investment to accelerate the business growth for air-to-water in Europe. Going forward, the Panasonic Group will make announcements on the progress of these three growth areas in a timely manner. This is my last slide. It shows a list of the IR-related announcements in FY 2023 after the launch of our new structure in April. Briefings on the individual businesses by Lifestyle are planned to be held in November. As we proceed with the medium- to long-term strategy, we will make announcements on the individual measures at both group-wide and operating company levels in a timely and appropriate manner.
Thank you very much for your attention.
From Kyodo News Agency, Watanabe-san, please.
Thank you. Watanabe from Kyodo News Agency. I hope you can hear me.
Yes, we can.
Thank you. I have two questions. First, about Blue Yonder, the temporary deterioration of business. Could you elaborate on that? I don't think KPIs themselves are not deteriorating that much. When you say temporary, does it mean only this fiscal year, or could there be some lingering effect as well? How can you say that it's temporary? What makes you say that it's just temporary deterioration? My second question is on your new investment for the battery manufacturing facilities in the U.S. What is the scope? At the capacity of 30 GWh, I mean, that you said that will be the initial capacity, and that would account for how much of the total?
Thank you for the question. First, as you can see in the slide, regarding the second quarter Blue Yonder on a standalone basis, some losses were recorded. Under the new CEO, we revisited the management system.
Temporary restructuring efforts entailed expenses which are included. Also, as for the amortization of intangible assets due to the currency translation, because they are calculated on the U.S. basis, that is having an impact as well. There is a question of what the exchange rates are going to be, but that's one factor. Another thing, continuing from next, last year, from the accounting point of view, there was about JPY 50 billion impact when we acquired 100% of its equity. We explained that that is going to have an impact this year, and that continued to have an impact for the second quarter as well. On an annual basis, in our forecast for Blue Yonder, when you look at the indicators, they don't look that bad, as you have correctly pointed out.
In terms of year-on-year growth, that trajectory remains unchanged. Compared to the initial forecast, we made the downward revision. Factors involved are as follows: macroeconomic uncertainties have resulted in the customers or clients withholding investments. About 40% of the impact comes from that. Due to inflation, the personnel expenses are increasing. As I mentioned earlier, we decided to revisit and rebuild the management style under the new CEO. That accounts for about 40%, but that's only temporary. Then the currency impact, when the intangible assets are translated into Japanese, that has a major impact. When Blue Yonder does business in Europe, because U.S. dollar is appreciating against euro, that is having an impact as well.
The recession, what is going to happen going forward is a big question mark. In terms of the increasing personnel increases and other factors, we can counter that through price revisions. With regards to the currency translation, it's just a translation issue. When it comes to basic fundamentals, as was indicated in some of the slides, in terms of recurring business and sales increase, we don't see any change in that pattern. Your second question regarding the investment amount for the new facilities. 30 GW is the capacity. Investment amount, we do not disclose that. Of course, the manufacturing product will be 2170 cells. At E&A, we do have the production, but that is not gonna be moved as is, so we are going to improve the productivity.
In July, when we signed up for the incentive programs in Kansas, we mentioned a $4 billion investment at that time, and we believe that that will be a good benchmark. 30 GWh. Currently, approximately our production capacity is 50 GWh, and we're talking about additional 30 GWh. Would this answer your questions?
Just one follow-up question, if I may. When I said overall, of the total plan you have for Kansas plant, this initial capacity of 30 GWh would account for how much was the intent of my question.
Oh, I see. As you can see in the slides, in June, Energy Company made the IR presentation, and it is along what was described there, that 30 GWh is going to be the initial investment.
As for going forward, we do have some plans, but nothing has been decided.
I see. Thank you.
Next from Nikkei, Naganawa-san.
Naganawa from Nikkei. I hope you can hear me.
Yes.
I also have two questions. Today, you made a revision to the full-year forecast. I'd like to ask some questions or clarify some points there. First is about the foreign exchange rate. The yen has been weakening and expected exchange rate has been revised. For the full year, the exchange rate would have a negative impact on the operating income by about a JPY 10 billion level. Now there is a renminbi and yuan and dollars. How would those different currencies impact your earnings? That's my first point. Also about each operating company, the Connect and the Industry and Automotive, probably they will be mostly impacted. I think that those are on the negative trend in terms of the revisions.
Connect, you already touched upon it. Automotive and Industry, could you elaborate? For the Lifestyle business, in the first quarter, it was difficult, but now with the price revision which have been effective, it's improving, and the price revision is expected for the full timeframe. How much was the positive impact from the price revisions? Thank you.
First, about the exchange rate. Euro, dollar, JPY 130 to the euro and dollar. As you know, currently it's JPY 146 or JPY 147. For the company-wide, a weaker yen for those two currencies will give us a positive impact. We are being conservative in my understanding, in our understanding.
As for the renminbi, JPY 20 per yuan, and more recently, it's JPY20.2 or so it's close to about 1% level. The foreign exchange, the sensitivity of the renminbi in our Lifestyle mainly, it's a major impact. So, - JPY 10 billion level, that would turn to positive and there is a possibility of that happening. That's all I can say about the foreign currencies. As for the second question about the Connect, yes, I already talked about it. As for the Automotive, in Q1, it was the loss of tens of billions of JPY. Due to the lockdown, we could not manufacture much. In Q2, slightly turned profitable and profit increased.
In Q3 and Q4, to what extent the production of the auto companies will trend, but we expect the recovery happening. We did recover from the loss in Q1, but probably we won't be able to fully recover. As for Industry, mainly the market conditions have worsened, and we have incorporated that. In Q2, there was a lower sales revenue. If you look at the market condition for Q3 and Q4, the server-related area, we expected double-digit growth for that. As of now, maybe it will come down year-on-year. Also for ICT-related, smartphone and others, the demand for that, maybe above JPY 10 billion level was our expectation at the beginning of the year, but maybe 10% lower than the year before.
Those are the assumptions that we have for Industry. The lower sales is the major reason and we expect we made a downward revision based on that. Thank you.
Thank you very much.
Next is from Bloomberg, Furukawa-san, please.
Thank you. Furukawa from Bloomberg. I hope you can hear me. Yes? Thank you. I have a question on energy, two questions on energy-related businesses. 4680. I think you announced that you're going to start the mass production in Wakayama in FY 2024, but now you announce. Are you thinking of producing 4680 in Kansas as well? And, with the capacity increase, you're talking about 2x-3 x increase, in FY 2029, which would mean that you're gonna need more plants. It's been reported that Oklahoma is the candidate site. Do I understand correctly that you're already thinking of new plants in addition to Kansas?
Thank you for your questions. First, 2170 is what we'll be producing, manufacturing in Kansas. This is based on strong customer requests. Supply of batteries ASAP is a strong demand. 2170 assures a speedy ramp-up of manufacturing, and that is why we're starting with 2170. As for 4680 in Wakayama factory, as you said, along that timeline, we are steadily making progress towards mass production. Verification efforts are currently underway. Today, the building of Wakayama plant renovation is being conducted, and the verification of the line itself is done elsewhere. As for the verification for the 4680 mass production, things are moving as planned. Although we cannot say for 100% certainty, but 4680 manufacturing in Kansas, what is the possibility? Of course, that possibility is there.
How about other manufacturing sites?
We are not announcing anything. You mentioned Oklahoma, but we're not saying anything as far as Panasonic is concerned. The announcement that we have made today, the 30 GWh new facility, that is the only definite plan that we have in front of us.
That answers your questions?
Thank you.
We see many more questions, but unfortunately our time for the journalist session is over. Oh, right. Sorry. We can take one more question from journalist. Hatanaka-san from The Yomiuri Shimbun.
Hatanaka of The Yomiuri Shimbun. Thank you very much. I hope you can hear me.
Yes.
Yes, I have some questions on the earnings. About the higher fixed cost, you mentioned that this is for the growth investments. More specifically, what are the investments in the area of the energy or personnel cost, the higher cost? Could you elaborate on the higher fixed cost? You also mentioned Blue Yonder. I would like to ask some additional question. On the non-consolidated basis, are they facing some difficulties? This setback you mentioned, the possible listing in May. Would that impact the potential listing in the future?
I am interested in that, so I would like for you to talk about this as much as you can. Thank you very much.
First of all, about the higher fixed costs. Well, originally, when we announced the fixed cost of JPY 40 billion increase was what we announced. The breakdown of that, Lifestyle, for example, air-to-water, and what we announced today, Energy-related investment, so about JPY 50 billion for that. Also strengthening the business structure, about JPY 10 billion. The net increase is JPY 40 billion. That was the original number. This time, JPY 30 billion additional fixed cost, the total is JPY 70 billion. Now, the breakdown of this JPY 30 billion is half of that, or JPY 15 billion, is for the future. It's the development cost for the future.
The area of the business is Energy. We want to accelerate the business there. Air-to-water in Europe is growing very fast, so the lifestyle, we want to accelerate the development for that. This is the higher fixed cost, but for the future. The remaining JPY 15 billion, with the continuing inflation, the personnel cost, especially in Western countries, is increasing. In order to counter that, we need to work on some measures, and we are starting to see that happening. That JPY 15 billion is factored in. As for Blue Yonder situation, as of now, the growth track remains the same. I already talked about some of the revisions, but preparation for the listing is something that we are making as planned. Thank you.
I hope that answers your question. Thank you very much.
This concludes Q&A for members of the news media. We will now take questions from analysts and institutional investors, again, only in Japanese. From J.P. Morgan, Ayada-san, please.
Thank you. Ayada from JP Morgan. I have two questions. First, about that Kansas investment, over $4 billion is what you mentioned. Just to, for clarification, does this include the subsidies from the state government? The source of funding, would that come from operating cash flow since FY 2025 is just around the corner? If you are going to pay by yourselves, means all the free cash flow is going to be used for that. Given the current balance sheet and cash position for overall group capital allocation, what impact would this investment have?
Thank you for your question.
It was not a subsidy, but the IRA rather. The IRA, the bylaws related to IRA have yet to be determined, so we don't know how those could be used. That being the case, in terms of the investment amount, which will be affected by IRA, we have yet to really determine. As I mentioned in response to one of the questions earlier, we are currently in the process. Things are still fluid, but since we will be investing in Kansas and since $4 billion is the amount that we mentioned at the time of applying for that subsidy, or the incentive program, that would be the benchmark. As for the impact on the capital allocation, the operating cash flow does look rather weak now. Regarding the three-year investment, again, there'll be some impacts from IRA.
How that would be part of the big picture is still a question mark. Of course, if there are any tax benefits in the U.S., those would be used for investments in the U.S. The operating cash flow targets that we have over a medium- term, we have to ensure that those are earned. Capital allocation policy as well as the financial discipline will be respected. Should there be any need for extra cash, we will be selling some of our assets.
Thank you. My second question, if I may?
Yes.
About Blue Yonder. Changing the management, at least I was not aware that its management had a big issue that warranted this management restructuring. Now, under the new CEO, what is going to change?
Under new CEO, from his perspective, the sales and marketing division needed the qualitative change. From a new perspective, it was pointed out that maybe there's some redundancy in the sales and marketing group. That's one area where the restructuring will take place. We felt that this is good opportunity to address this matter. This entails temporary expenses, and it is based on that that we revised the forecast for Blue Yonder on a full year basis. Hope that answers your question.
Yes. Thank you.
Next is Okazaki-san from Nomura Securities.
Thank you. This is Okazaki of Nomura Securities. First question is about profit forecast and the revisions. The raw material cost impact, JPY 150 billion, and now it's up to JPY 190 billion. More rigorous or severe comparison to the initial time, the copper and other materials, aluminum have changed or increased. Could you talk about that? Also in Energy, the profit forecast, it's upward revision. Foreign exchange, I think, has been quite positive for you. Maybe in real terms it's weak. Higher fixed cost is part of that reason. Higher cost and the price revision, is it sufficient?
This downward, sorry, the revision seems a bit weak based on the foreign currency trend. Thank you very much.
Yes, the copper and aluminum prices in comparison to some time ago has stabilized. At the same time, there is always a time lag. Some of them are being reserved. That part. The spot rate, there are some differences or discrepancies from the spot rate, but it will stabilize gradually. The prices of the lithium, it stays at the high level. Lithium, there are different types of the lithium and many of them or most of them are up, and the steel or iron is at the very high- level, and it remains at high- level.
The major impact also comes from other segment, that is Housing. In Housing, the raw material, high raw material prices, affect us. Cement, for example, for the outer wall, is increasing in its price. Some of them are stabilizing and there are some differences compared to the spot price. Also steel, iron and lithium, as well as, the businesses such as, the outer wall and the cement, those have a major impact. Including that, about JPY 40 billion is the impact that we revised based on the higher price hike of the raw materials. That's my first point. The second is the impact of the Forex in Energy. Isn't it bigger than this? Yeah. Yes. As Okazaki-san said, you are correct. For the...
When you construct a business building and it will be 2170, so we need to start this up earlier. We need to spend the fixed cost to enable that. Lithium's price staying at the high level. Because of that, the consumer electronics area and others are going to be impacted slightly. That is something that we want to absorb with the price revision and the rationalization. That's something that we are working on right now, and that was something that we will start to see in numbers. Energy seems a bit weak because of those factors. Thank you.
Thank you very much.
Next is Katsura-san from SMBC Nikko Securities.
Thank you. Katsura from SMBC Nikko. I also have two questions. First, about batteries. Clarification.
$4 billion or more and 30 GWh, are they equal? In other words, is it 30 GWh initially? That's my first question. Another question, Energy. The capital expenditure, I'm looking at the supplement. Second page or page three. The total on a full year basis doesn't change much. I understand that the personnel cost and inflation are going up and there is a currency effect as well. How are we to make of these pluses and minuses, the CapEx, for next fiscal year as well? That's my first question. Second is on Lifestyle business. China & Northeast Asia Company, I think that company did very well in Q2 as well. What's the background and what about the future prospects, including the macroeconomic situation in China?
What is your current view, Mr. Umeda, of the situation in China?
Thank you. Battery business, $4 billion. That's the figure that we used when we applied for the incentive program in Kansas. 30 GWh, or is it the building? Afraid we're not in state to clarify that. So $4 billion, is that equal to 30 GWh capacity? I'm afraid we can't answer that question. So that's my question. My answer to your question. CapEx itself, of course, the buildings, the facilities are going to be built, and it will be in calendar year 2023-2024 when the full construction work will be reflected in CapEx. There might be some of the expenses that need to be recorded. So maybe the facilities themselves don't have a big price tag.
Since we have decided on building this, the CapEx is going to increase going forward. The very strong performance of China & Northeast Asia Company. This includes Taiwan. The household appliances business of that company is doing well as well. China is different from the rest of the world in terms of the impact of COVID-19. The lockdowns are still taking place in some of our local facilities. For industry, for ICT, you know, businesses for those markets are getting a little weak. But when it comes to the e-commerce of the consumer electronics and household appliances, they are doing better than the previous year. We are expecting a quick growth. Hope that answers your question.
Yes. Thank you.
Next from Morgan Stanley MUFG, Ono-san, please.
Thank you. Ono speaking from Morgan Stanley. Two questions. First of all, about Energy. I understand that in Q4, the tax credit will be incurred. In the market, there are different voices, and the PENA plant, existing plant, including that, for example, per kilowatt-hour, tens of dollars or dollars in tens. If I may, this time, you summarized that in Q4, you'll be booking. What is that part? Could you give us some size of expected tax credit? My second question about the currency assumption for the second half. You mentioned it's JPY 130, and it's quite different from the current level.
So, the, i f there are any specific reasons behind this JPY 130 yen to the dollar or euro. When there's a difference of JPY 1 , what would be the sensitivity? What would be the impact on the operating income or profit? With the addition of the Blue Yonder, I think the sensitivity has changed. If you can give us some clarification on that point.
Thank you very much. First, in relation to IRA, the tax credit. This time, it has already passed the law and the PENA, Section 45X, is the act and the $35 per kWh. That will be the tax credit. That is mainly the number.
There are no bylaws clarified, so the accounting procedure is something that we have not yet started to study. We did not factor in this tax credit this time into our forecast. At the same time, with the high probability in Q4, this would be a positive factor for Energy. That was the information that we needed to disclose this time. In the presentation, we mentioned that the IRA tax credit is not a factor in, that's why we said that. As for the size, unless we see the bylaws or the details of the laws, we cannot say.
$35 per kWh, if you use that number to apply it to the PENA sales number, then, this time after, the adjusted OP is downward revision of JPY 40 billion was made. Similar to that level is something that we can expect in the simple calculation in Q4. Probably that is our way of thinking. Adjusted OP, we can offset the negative factor. Probably it would be booked under adjusted OP, and that's our view right now. Of course, the final decision will be made by the accounting firm. This is just what we expect from Panasonic. We mention that, so that there won't be any surprise to you.
Now as for the foreign exchange assumption of JPY 130 yen, is it better to have JPY 140 yen? At Panasonic, this weaker yen is a positive in some areas, but is negative on TP, for example. JPY 7 yen fluctuation of the exchange rate against the dollar is something that we see now. Where is the good level? The volatility is just so high. As of now, as for dollars and euro, we want to be conservative at the corporate-wide level. That is why we have this JPY 130 yen to the dollar and the euro. I hope that answer your question. Thank you very much.
We see many hands being raised, but we're getting closer to the scheduled end- time, so we will take questions from two more people, one question per person. Ezawa-san from Citigroup Global Markets Japan Inc.
Yes. Ezawa from Citigroup. Just one question. Let me think which one. You made the downward revision to the annual forecast. JPY 40 billion operating profits downward revision. Maybe the results for second half or rather, for first half, the actual was below your forecast. What is the portion that will come from the second half? That's my question. Thank you.
Oh, we don't make announcements on a half-year basis, but in terms of progress, it's less than 40% in terms of the full year plan. It was lower. The actual results were lower than our internal assumption. For second half, what we can estimate, in terms of the economic situation, we took that into effect, to come up with this figure of JPY 40 billion, for three segments put together.
There are ups and downs from segment to segment. That is my answer. That answers your question?
Yes. Thank you.
The last question is from Nakane-san of Mizuho Securities.
Thank you. This is Nakane speaking. Hope you can hear me.
Yes. Thank you very much. One question.
The downward revision of the profit, JPY 22 billion for the Connect, Blue Yonder, NPA and Avionics. Just roughly speaking, could you talk about the breakdown of this JPY 22 billion? And in each business for, toward the next fiscal year, I think that the momentum is different. Aside from Blue Yonder, those two remaining ones, could you make some comments on them?
Well, Blue Yonder part, more than JPY 10 billion downward revision. Most of them, it comes from our, more than 50% is from Blue Yonder. Process automation, the business sentiment is difficult. Also the Gemba Solutions. We also see some difficulties. Those are included. This is a big number as a downward revision. As for Avionics, the orders are, there are a lot of orders, but legacy semiconductors are used partly, so delivery cannot be made. The aircraft, we are seeing the big recovery. In the second half, the supply-demand probably will improve. That's what we expect. We could not manufacture based on our expectations. Higher profit is what we see for the Avionics.
As for Blue Yonder, I already talked about it, so, nothing to add. Thank you very much.
Thank you very much. With that, the Q2 business results briefing of Panasonic Group has come to an end. Thank you very much for your participation.