Hello everyone, I am Kusumi. Thank you very much for taking the time out of your busy schedule to join us today. Last week we had a financial results briefing, and we explained the forecast for fiscal 2024. Today I'd like to explain the medium-term to long-term Panasonic Group's vision and strategy. Two years ago I said that we would focus on enhancing competitiveness at all businesses. First, let me look back at the two years. I'd like to first explain why I said we needed to focus on enhancement of the competitiveness for two years. Panasonic Group's mission is to achieve what our founder, Konosuke Matsushita, pursued throughout his life: prosperity with matter and mind as one. To achieve that ideal society with affluence both in matter and mind.
In 1932, 90 years ago, the founder declared to achieve an ideal society which would take 250 years, that is, a 10-25 year period, to fulfill his mission. Since the foundation of the company, we have been making contributions to solving societal issues that people faced at the time and for the sake of people throughout our businesses. Now, whether we have been making good progress in achieving the mission, in some of the areas we are behind the competitions, and we are still not achieving our mission. We have decided to focus on the enhancement of the competitiveness for two years, not just to increase the profit temporarily, but to build a foundation for the mid- to long-term growth. The competitiveness requires long-term prospective strategy as well as operational capability, looking at the supply chain as a whole. Those two are indispensable to each other.
In the past two years, we have changed into the operating company system, and we have tried to attain the unrivaled competitiveness. Right now, the biggest challenge that we are faced with, which is inhibiting the realization of the vision, is the global environmental issue. The final year of the 200-year plan is coming in 160 years. We have to avoid a situation where our children and grandchildren cannot live happily or cannot live on the earth at all. Based on this sense of crisis, we have set up the Panasonic Green Impact, which is the long-term environmental vision, and we are working on it as a group common strategy.
In April last year, toward 2050, we set the own impact, that is, the emission reduction in the group value chain, and the contribution impact avoided emission by existing businesses, and future impact avoided emission through new technologies and businesses. Through those three, we said that we are going to reduce more than 300 million tons of CO2, which is about 1% of the global CO2 emission. In July last year, we said that as a milestone, we would achieve a net zero CO2 emission at all operating companies and 100 million tons CO2 avoided emission. For three years action plan until fiscal 2025, that is, the Green Impact Plan to 2024 was formulated, and we are working on this. For example, as progress, we achieved 28 net zero factories out of 37, which is the target for fiscal 2025.
All factories at Panasonic Automotive Systems achieved net zero. CO2 emission reduction in the business operation is a responsibility as a company, but it is also becoming a condition for the transaction, especially with B2B customers. Efficient CO2 emission reduction can be one of the factors of competitiveness. Now, as I said, it is a responsibility to reach net zero. As for the avoided emission of the CO2, this could be a new indicator to evaluate the companies whether they are contributing for the environment. WBCSD's definition of this is the difference between the emissions between the reference scenario without the production services and the situation with the scenario. This definition is not yet internationally standardized and cannot be called as an indicator to evaluate the companies.
We have been leading and driving the discussion, talking about the necessity of avoided emission at WBCSD, IEC, and GX League. Thanks to those efforts in the COP27 Japan Pavilion, they reached a consensus on the importance of achieving decarbonization along with economic development by implementing the concept of avoided emissions. In March, WBCSD and GX League announced guidance for avoided emissions. Also last month, at the G7 ministers' meeting on climate, energy, and environment in Sapporo, they agreed in the joint statement that there is a value in acknowledging avoided emission. When this indicator is used and recognized by the investors and financial sector, that would support the investment into the company which are contributing for the environment. This would lead to an opportunity for us to enter a growth phase.
We will continue to aggressively promote activities with companies with a shared vision, engaging with the government and industry. Next, about the enhancement of operational capability. At the front line of manufacturing, we are trying to generate cash and improve value creation, looking at the supply chain as a whole and shortening the lead time and reducing the excess inventory. We have selected more than one leading work site at each operating company, setting up the high targets and work on the constant Kaizen activities. For example, in Tsuruga Factory or Panasonic Automotive, they have managed to reduce the production lead time and safety stock by 50%. We have seen very good results from different sites. In fiscal 2025, we are trying to aim for the constant Kaizen to become the norm at all group sites.
We are also working on the Panasonic transformation PX, using digital technology for the work style and business, and to further improve the speed and quality of the management, using data utilization across the business divisions. We made progress into the shift to the cloud. There are still business processes and corporate culture, and also the legacy information systems, which are remaining as a negative legacy. The heads of businesses need to lead to eliminate those negative legacy. They are fully committed to further transform the business processes working with IT. Unfortunately, our two-year competitiveness enhancement efforts were not fully reflected on our financial results. As we announced the other day in fiscal 2023, adjusted OPE declined by JPY 43.6 billion.
Looking at the quarterly adjusted OpEx trend in Q1, it came down by JPY 53.8 billion due to the Shanghai lockdown. We suffered from the shortage of semiconductors and higher material costs and others. How much did we counter those negative impacts with our operational capability? We are gradually starting to see the effects, but we have managed to counter that fully in Q4. When you look at all the businesses, we are still halfway, or we are still not countering all the external factors. That means that we are still halfway in competitiveness enhancement efforts. In the coming years, we expected various changes in the environment, including the labor shortage, higher prices, geopolitical risks, and supply chain disruptions.
Still, we are maintaining our medium-term KGI, that is, cumulative operating cash flow of JPY 2 trillion, ROE of 10% or higher, and cumulative operating profit of JPY 1.5 trillion. We will continue to work on the enhancement of competitiveness without slowing down. Now, after the two years of competitiveness enhancement stage, it is time for us to elevate ourselves to the growth stage. We would further clarify our vision as a group so that we can move forward to achieve our mission. Today I'd like to talk about clarification of the priority investment areas and how we try to orchestrate the group's comprehensive strengths based on the customer's perspective. Let me first share with you the group strategy. This is our group vision. In order to achieve our ideal society in the long term, there are so many various challenges.
For example, global warming, depletion of natural resources, and extension of the healthy life expectancy. They are not just predictive for the long term, but they are with us, in front of us already. To squarely address such societal issues and to make the 250-year plan highly probable, we will focus on two aspects of contributions within that group. As I said at the outset, solving the global environmental issues is our top priority. In achieving the Panasonic Green Impact, we will make sure that we make the necessary investments. Another aspect is what we used to call well-being of people in the world. This has been changed to the lifelong health, safety, and comfort for everyone. We will try to achieve that. Now, I'd like to explain two group-wide common strategies.
First is the environment strategy that is including the global warming prevention and circularity of the natural resources. In order to expand the group-wide avoided emissions, we will use the knowledge and technologies in electrification, energy saving, energy transition, and resource conservation. For example, in the area of manufacturing, using the solar and hydrogen energy, there is an RE100 solution. We will try our energy saving technology and solutions in our own factories and apply them to the customer's plant and other sites. In the area of the supply chain, we will provide a solution to optimize the overall supply chain, optimizing the inventory and transportation and contribution in the environmental burden reduction. To improve the efficiency of our energy through our products and solutions by utilizing the hydrogen energy and also replacing the current electricity with renewable energy.
The biggest impact in terms of the avoided emission is the replacement of the devices that use the gas and the gasoline and fossil fuels in mobility, town, and home areas. As a Panasonic Holdings, we will look into the 10 years to come and try to prioritize the investments in automotive batteries that account for about 60% of the avoided emission. Let me talk about automotive battery, the priority investment area. Electrification of the mobility is considered to be one of the most effective areas to realize carbon neutral society. EV market is going to expand globally. We are focused on North America, and we are seeing the rapid growth of about 35% per year.
In addition, the U.S. government is promoting the building of the EV supply chain in the United States and has been making a strong request to manufacture batteries in automotive batteries in the United States. The cylindrical type cells with the higher density with the safety and cost advantages, this demand is growing because it is suitable for the cooling upon fast charging. We will focus on the cylindrical automotive battery and the North American market and to expand our businesses. Now, how can we compete in this automotive battery market, which is becoming extremely competitive and becoming a red ocean? Let me talk about our competitive advantages. In the area of technology, for the past 30 years, we have been leading the industry in the higher capacity and less rare earth or rare metal and also safety.
In the area of high capacity, we have tripled the volume energy density from the first generation. By 2030, we are aiming to achieve 1,000 watt-hour per liter. With this, we can extend the range and also improve the performance of the cars with our batteries. Responding to the expanding automotive battery demand, it is critical whether we can manufacture with less rare metals. For the first in the world, we have achieved less than 5% cobalt content with cobalt-free within reach. In the area of quality, since 2012 calendar year, we have delivered batteries to the equivalent of 2 million EVs with zero recall.
We have developed high operational capabilities at the Nevada factory in North America. Especially in North America, where turnover of operators is high, manufacturing, which can be done by less experienced operators, is a key to competitiveness.
By improving production processes and accumulating know-how, production exceeded more than 10% of the initial target. Kaizen mindset is now firmly established, and the factory is now poised for further increase in production capacity. On the cost structure front, we'll improve investment efficiency in view of the mid to long-term expansion. Know-how accumulated in Nevada factory is leveraged for Kansas factory from the stage of factory design and equipment cost and preparation items of production are reduced, and equipment productivity and assembly personnel productivity are improved. Upon construction of the factory, the state government of Kansas provided us with tremendous support, including tax incentive programs and personnel-related support. As for material supply chain, we are working for stable procurement and reducing lead time and promoting local procurement in North America. With progress of the competitive advantages, we are ready for expansion of automotive battery supply in North America.
In order to further strengthen our competitiveness in technology and production that I explained earlier, we will consolidate and enhance the group's R&D structure. We will establish a site for production and technology development in Suminoe, Osaka, in 2024 to accelerate productivity improvement and production expansion. In 2025, we will set up a new R&D site in Kadoma to accelerate the development of next-generation batteries and materials. We will input resources in these sites as a group for R&D of batteries. Now, I will explain the effect of green impact from automotive battery business. In addition to realizing net zero carbon dioxide emissions at our own sites by fiscal 2031 for scope three on the upstream site, we are moving toward adopting low carbon footprint materials of Redwood and NMG. Also, establishing a supply chain in North America will reduce the distance of materials transportation.
Furthermore, by expanding supply capability of EV batteries, electrification of mobility will be promoted, resulting in increasing avoided emissions five times in FI 31 versus FI 23 to 59 million tons. Next, I will explain the outline of strategies for these. We will be strengthening our partner relationship with the customers, and with the new customers, we entered into contract supply contract. Specifically, Lucid for high-end EVs and for Hino Motors for commercial vehicles. We entered into a supply contract. We are receiving other inquiries as well, and we will develop more customers. We'll now move to full-fledged growth phase backed by preparation of capacity expansion. Last year, we made a decision to make strategic investment as a group. We'll mass produce 2170 in the new Kansas factory, which is under construction to expand supply in North America.
As for 4680, we aim to establish stable production at the Wakayama factory at the earliest point and to roll out new large-scale production capacity in North America. With this, we aim to increase our production capacity by four times to 200 gigawatt-hour by FI 31. Realizing business expansion will require large investment, not only investment by Panasonic Energy, but we'll also consider various financing options and will flexibly make investment. Next, I will explain the outline of strategies for two businesses we'll make investment in after automotive batteries. First is air quality and air conditioning. In Europe, in addition to being a top runner in the environment, there has been a rapid shift to move away from gas due to their relationship with major natural gas supplying nations.
In this market, we'll expand our business with a focus on air-to-water to change energy source from gas to electricity and contribute to avoided emissions. In Europe, where cold temperature areas require heating, we'll enhance business foundation to increase our contribution by leveraging our advantages of excellent performance to maintain heating capacity at low temperature, as well as IoT remote monitoring. To this, we established management structure of local production for local consumption, seamless operation of development, production, and sales within Europe. Also, in order to respond to the increase in demand, Czech factory, which used to produce heavy equipment, will be converted to the air-to-water production site, and a new building will be added. We aim for a global 1 million unit capacity in the future. In response to Europe's F-gas regulation, we became the first Japanese manufacturer to launch models using natural refrigerants.
We'll preempt the strengthening of regulations and accumulate know-how on product design and maintenance to safely handle natural refrigerants and build competitive advantages in the future. We also acquired System Air AB's commercial air conditioning business. By combining Panasonic's sales platform and System Air AB's technology and parts and materials centered on chiller, we can expand our target market to light commercial areas and make contributions in Europe. Next is supply chain management software solutions, which software solution package which covers the entire supply chain technologies to supply total optimal solutions with high accuracy and a strong customer base of over 3,000 companies. Leveraging these advantages of Blue Yonder, we'll contribute to reducing environmental impact by optimizing inventory and transportation on the supply chain.
As new CEO Duncan Engelf explained in the strategy briefing of Panasonic Connect Blue Yonder on May 10th, we'll first enhance the business foundation of supply chain management software. We will make R&D investment for cloud-native SaaS and security enhancement, as well as to enhance touchpoint with customers, including sales and customer support. We will make further contributions by delivering autonomous solutions by linkage with various data obtained from frontline edge devices, which is an edge of Panasonic Connect. Next, I will explain the next pillar of our strategy, our initiative for making contributions to each customer's lifelong health, safety, and comfort. We have many touchpoints with our customers. For instance, channels such as showrooms and specialized shops of building materials, products such as consumer electronics, electrical construction materials, and building materials and related services, and repair and support. Through these, we make contributions.
We aim to become a lifestyle solution provider that can propose value tailored to each customer through diverse customer touchpoints in their lifestyle and use of digital technologies and AI. In order to accelerate this group-wide initiative, we established a future business division, which is led by Executive Officer Yoki Matsuoka, who used to work in Google and Apple. From this current fiscal year towards shifting to a growth phase, we will proceed with a management initiative by taking into consideration the revision and replacing our business portfolio. Needless to say, the revision or the replacement of the business portfolio is not just a means. Our aim is to provide all stakeholders, including shareholders, customers, business partners, and employees, with benefits, as well as increasing the value of the group.
Thus, to make stakeholders' benefits sustainable for years to come, we have set the two types of criteria for determining the group's business portfolio. The first criteria is the relevance with the group common strategy. From the environment perspective, we will look at our businesses, whether they can make contributions to the reduction of carbon dioxide in society or saving resources. From the perspective of lifestyle, we will look at businesses, whether we can propose value tailored to each customer through diverse touchpoints according to their lifestyle and the use of digital technology and AI. In addition, we will look at businesses in line with financial discipline. In other words, whether they can make profit contributions. We will determine our business portfolio by looking at their market position and competitiveness as a second criteria.
The market growth and sustainability for the next 10 years, the position of business in the market, as well as the profitability perspective, will be assessed thoroughly, quantitatively, and qualitatively. If businesses can contribute to make contributions to society and customers going forward, we will continue to enhance its competitiveness for the growth in the Panasonic Group. On the other hand, if it is better to accelerate the business growth by taking the position outside of the Panasonic Group, that will be beneficial for all stakeholders as a result. Therefore, we set detailed criteria to assess our businesses, and based upon these criteria, we will set the direction of the revision of the business portfolio in the current fiscal year, and we will execute the decisions made accordingly. This slide shows the change of sales composition after the review of our business portfolio.
The green part indicates businesses that contribute to solving environmental issues. The blue part indicates businesses that contribute to each customer's lifelong health, safety, and comfort. We continue to transform the way we address society and customer at each business. Through these initiatives, in fiscal 2031, we will have all our businesses make contributions to either green area or blue areas. I strongly believe that solving global environmental issues is one of the utmost necessary challenges for management in the world for the next 10 years. Therefore, we, the Panasonic Group, will continue to greatly expand our businesses that can make contributions to solving global environmental issues toward 2030. Lastly, I would like to explain our financial strategy to conduct the group strategy that I explained. Our capital allocation policy remains unchanged for the three-year period from FI 23 to FI 25.
In principle, necessary cash flow will be managed within the cash generated through our businesses. The generated cash will be allocated in an appropriate manner. As for cash flow generation, we aim to generate JPY 2 trillion of cumulative operating cash flow, as well as cash generation mainly through sales facets under the current midterm KGIs. As for cash flow allocation, we are planning to make investments of JPY 1.8 trillion, of which JPY 600 billion will be invested mainly in the automotive battery business. We have priority investment areas as strategic investment to achieve our group strategy. As for dividends, JPY 300 billion is expected, and we strive to stable continuous dividend payment, targeting payout ratio of approximately 30%. In terms of financial discipline, we set approximately 1.0 times in net debt/EBITDA ratio as a target financial indicator, and we thoroughly maintain financial disciplines.
To ensure this, we will strengthen financial discipline to operating companies. More specifically, we will apply monitoring indicators for borrowing at operating companies and conduct a strict operation and implement necessary improvement measures. Based upon this capital allocation policy, we will conduct the group strategy. That concludes my explanation of the group strategy. I thank you very much for your kind attention.
Thank you very much for your attention. Now, I'd like to take questions from journalists. Please note that the questions are not accepted on the English channel. Again, please note that the questions are not accepted on the English line. Tsugey-san from Nikkei, please. Tsugey is my name. I work for Nikkei. Thank you very much. I have two questions. First, this time, the target of the battery business, you used to say three times or four times, but now this time you said four times.
What kind of investments do you plan to make in order to compete against other major competitors? That's my first question. Competitors, I think, for example, it's not really only in North America. There are companies which are not focused on North America. In our case, we are first focused on the North American market. Kansas, and then JPY 500 billion-JPY 600 billion after that is not yet clear. From, we have to consider what kind of earnings and what kind of options do we have. We are considering all of those. I hope that answers your question. Yes, related question. In any case, the areas or the targeted market is different from the competitors. Of course, you need to increase the volume so that you can avoid the same situation that happened to the semiconductor and others.
I'd like you to talk about your enthusiasm. Unlike the semiconductor situation, batteries, semiconductors, through the mutualization of the processes, you need a new plant. Accordingly, you need to increase the size. In the case of batteries, 2170 and 4680, I think that theoretically, they reached at the optimum level. The inside of the can and the chemical composition will change for the evolution. Unlike the semiconductors, we will not be building one plant to another or increasing the number of the factories. I see. I'd like to ask the second question. You talked about Suminoe and Kadoma production technology and the material development were explained. Actual investments, what is the size of the investments for those? If you can give us more details concerning that, it's not as big as building a new plant.
Of course, we need to increase the number of the headcounts, but as for the details, based on the total amount of the investments, I myself do not know the total amount, and we do not disclose the details of the investments. Sorry, as I said, I would like to know the aim of it. It's the same question as before. As for the aim, the production technology, so for example, creating one production line is not the end of the story. We have to improve the efficiency, and we have to automate the production line. Together with the equipment, manufacturing equipment, manufacturers, you have to make efforts. Having a sufficient number of the people and inviting partners, we need to accelerate, and we need to work together with other players. That's what we are going to do. I hope that answers your question.
Thank you very much. Now, I'd like to entertain the next question. Nikkei BB, Yano-san, please. Nikkei USG Uno is my name. Thank you very much for this opportunity today. I have one question, if I may. Portfolio review will be conducted. Page 21. The current situation, you have the graph and the gray portion in the pie. And what kind of businesses fall under this category? I was anticipating such a question, but if I answer them, there may be various negative impacts. Please excuse me from responding to that question. Often, speculation is, are you going to carve out the gray portion of the business? People tend to ask these questions, but on our part, in this gray portion, those which can move to green and blue, we'll be asking them to move to green and blue. We'll do that simultaneously.
Hope that answers your question. Thank you.
Next, Umeda Chisan from Toyo Keizai.
Thank you very much. I also have two questions. First, you talked about the possible negative impact. How to make a judgment in setting up the criteria is what you mentioned, I think. What would that be as of now? Anything that you can add?
Yes. What it says here, what is written on this page, is exactly what we like to do. Whether it is appropriate or not, and it is not just doing what is written here, but we have to make sure that we can continue to do this in the future, and whether we have the competitiveness which can go beyond our competitors. That is important to have that kind of capability. Here also says competitiveness under number two.
The market share and the cash generation and others, the operational capability and strategy, we have to be better than the competitors in order to get the quantitative better results vis-à-vis the competitors. That is what we mean by this. How do you make a judgment or how do you evaluate the competitiveness? For example, it is for the expansion of the batteries. Some people said that we are not making a quick decision about it. One of the examples is what we did with the batteries.
Thank you. Another question is about SCM or Blue Yonder. The other day, I think it was explained, but I think the investment phase continues and the negative profit continues. As CEO, how do you want to grow this business? Could you talk about the time frame or the size specifics?
This area requires a board of investments. For example, it's a kind of a software solution. If you look around the successful examples, they go through the M&As and they're making investments. Software and combination of the software, and through them, you can widen the solutions. That is likely to continue. Inside the connect, they can utilize what they earn, and maybe they can do everything with that. Of course, the listing, the timing of the listing is not yet decided, but through that, including the financial strategy, we need to also make sure that there's a funding for that.
Thank you very much.
We'll move on to the next question. Sankei Shimbun, Kuwajima-san, please.
Kuwajima from Sankei Shimbun. Can you hear me?
Yes, we can hear you.
First, fundamental point.
After you assume the post and two years to enhance competitiveness, and that period has ended. This time, as you have explained in the briefingd, but the target and competitiveness enhancement, were you able to achieve the enhancement of competitiveness? Are there any shortfalls? Can you enlighten me? Now, how should I say it?
Historically, looking back with the philosophy, with high target and enhanced operation capabilities, we have not been able to do that. We have to do this all at once. It may not be possible. Hands-on, including how to proceed in our company. We have those missionaries in Kaizen. After Kaizen, we develop such people and increase the number of people who can focus upon Kaizen and have a representative site to lead the way. As I explained in my briefing, I talked about the Tsuruga factory in automotive. We can do this.
We understand that it can be done. My expectation is that at a higher speed, if it could be deployed horizontally, that should be all the better. We have not quite gone that far. Leading to the financial results is where we are lagging behind slightly. In the two years, if you ask me, no progress. That is not the case at all. At least one, in some places, several sites are showing remarkable results. We will be rolling out, and we have the foundation ready. Two years of enhancing competitiveness showed results. At the same time, we have come to this level. Is this the end of the enhancing competitiveness? No, not at all. Over the past two years, we have worked to enhance competitiveness, and we are going to refine this further. Competition will be evolving as well.
We have to accelerate our speed of enhancing competitiveness. Group as a whole, this is a common understanding within the group. This will be the foundation for further accelerating the competitiveness going forward. Along with that, when you made announcement two years ago, you said that you will not be conducting major reshuffle or rebalancing of the business portfolio. Two years have passed, and from this fiscal year, you will be enhancing competitiveness, and at the same time, you will be replacing the business portfolio, reviewing, replacing business portfolio. Kuwajima-san, you could not hear the question. Sorry, we could not hear. Let me repeat my question. As you explained, first, in the two years, you were able to achieve enhanced competitiveness. In the meantime, you were not changing the business portfolio in a major way and focused upon enhancing competitiveness.
From this fiscal year, you will be changing the business portfolio. You will have the two focus: competitiveness enhancement and also reviewing the business portfolio. That's a fair understanding. As I explained in my presentation, restructuring or reorganization may have different interpretations. Before I assumed the current post, the major reorganizations were carved out the businesses which were impaired. Reorganization or reform of the business going forward is a medium to long-term perspective for portfolio management. This is different from the past. I hope that answers your question. One point for clarification. You will not be carving out. You will be taking options other than simply carving out the businesses, depending upon the businesses. Diverse businesses are there. For each business, we look at the future of the business, and if there are challenges, then various different prescriptions are needed.
Uniformly, we do not say whether it is carved out or not. That is not the case at all. For example, the structure of the operating companies are such, and this one can be combined with others. Within the group, there may be a change of the portfolio, which may result in medium to long-term growth. I hope that answers your question. Thank you.
We are running out of time, so we would take one question from a journalist. One more question from a journalist. Furukawa-san from Bloomberg. Furukawa-san from Bloomberg, can you hear us?
Yes, this is Furukawa speaking. Thank you for this opportunity. About the automotive battery, I have one question. On page 16, new battery is mentioned by 2030, the new factory in North America. This is a new site. Where is it? Nevada, Kansas. This would be the third site in the United States.
If that is the case, if the location has been finalized, please let us know.
Yes, may I? We have not yet determined the location. I hope that answers your question. Okay, the new site, the location is not yet decided in North America. Yes, it could be Nevada, it could be Kansas, or somewhere else.
I see. Thank you very much.
This concludes the Q&A from journalists, the institutional investors, and analysts. Would you kindly wait for a few minutes? Now, we'd like to begin the Q&A from institutional investors and analysts if you have. We do not receive questions from the English channel. We do not receive questions from the English channel. JP Morgan Securities, Ayada-san, please.
Thank you. Ayada from JP Morgan. I have two questions, if I may. My first question, as has been explained, portfolio management, review, and replacement of the portfolio.
Who will be leading the way, and what will be the size scale of review and replacement? Under the current holdings system, each business has its own responsibility and accountability, and the operating company's balance sheet is under the responsibility of the top of the operating companies. According to your explanation, subsidiaries' portfolio review will be done by the holding to a certain extent, or five businesses which are disclosed, and the replacement of the portfolio of the five businesses are also considered in your perspective of the portfolio review.
Thank you for your question. The operating companies are themselves conglomerates. Most of them are. In that sense, portfolio management primarily is to be done by the president of the operating companies or subsidiaries. However, having said that, if you have the responsibility for the business, then it may be very difficult to do so.
As Panasonic Holdings, we will be looking at that and recommend what should be done. For example, myself and CFO Umeda are on the board of the operating companies, so we can play our role. On the operating company's level, are we going to do the replacement For what? including the reasons, we have to consider this very carefully. For instance, more large demand for money fund is there, then are we going to do something in a major way? That's a question. On the other hand, as was asked, the question related to Blue Yonder, in order to make a boat-on investment, a large amount of money is needed. Then within Connect, some replacement is to be done and generate cash. That is to be considered by Connect. As it is a group, for the group as a whole, Holdings has to look at this as well.
Within our philosophy of not leaving to them, but we have to do that. On a smaller scale, on the division level, and there are different materials for business. Looking into the future, the area where we should be shifting to the ones which will be growing more, and that is to be considered by the head of the business unit.
Thank you very much. My second question, related to the earlier question, Blue Yonder IPO, there has been discussion about the possible IPO. For example, energy and battery business. IPO, are you considering as an option the IPO of energy and battery business? Blue Yonder and boat-on investment is needed. Depending upon group strategic investment, energy will be larger. What is the thinking behind the investment?
You're right. This is indeed very big.
Various financial strategies are to be considered, as you explained in my presentation. I hope that answers your question. Thank you.
Thank you very much. Next is Nakane-san of Mizuho Securities.
Nakane of Mizuho Securities, thank you very much. About the personnel, I have a question. From your perspective, what are the necessary talents or personnel? In order to make sure that you can attain it and they work for a long time, are there any systems or the structure which are competitive already, or some area that you need to make some improvements upon? Of course, the operating companies are actually making the business. From the holding company perspective, what do you look for from the head of the businesses? Are there any benchmarks?
I did not really talk too much about the talent strategy and investment into the personnel.
Right now, what we are doing is that there are different talents who need to be competitive at the different layers. In order to do so, depending on the businesses, kind of a special skill or experiences are sometimes needed. In the past, as a group, as a whole, we had a kind of uniform compensation system or human resources system or structure. Now that each operating company, in order for them to be competitive, they have their own human resource systems and structure. That is the first point. Another is that at the top level, how do you evaluate the personnel is one topic. One of the big areas is that in the past, the long-term incentive was not really incorporated into the remuneration of the management team.
In order to achieve the single-year results, in order to achieve the operating profit, for example, target, we used to refrain from making investments. Now that the long-term incentive or to generate the medium-term results are being evaluated. As for the human resource system, it would take me about one hour to talk about that. Mr. Nakane, I hope that I have a separate opportunity to talk about that. Thank you.
Next, Okazaki-san from Nomura Securities, please. Okazaki-san from Nomura Securities.
Yes, I'm Okazaki from Nomura Securities. My first question. You'll be focusing upon batteries more than before. IRA of the United States. It has impact upon the group strategy. What would be the impact of the IRA on a group strategy?
If I say there's no impact, that may not be true. This is an opportunity for us.
Already in Nevada, considerable battery is produced. IRA will be an advantage for us. Utilizing that, in line with the intent of the IRA, we have to make investment. That is one of the factors for making our judgment.
Thank you. My second question. Those businesses which might succeed better if they go outside the group. This morning, Sony made an announcement about spin-off. Rather than carving out the businesses which are not doing well and spin-off option, what is that option as you think about business portfolio?
That is one way of thinking. For example, rather than staying within the group, there are better synergies if you go outside. Other than the three priority investment areas, there are areas where investment will result in better result. For example, to be a minority holder and go public. That might be an option to be considered.
I am not assuming any particular business. Unless you do that in a conglomerate, you cannot bet on everything. That is our thinking. I hope that answers your question.
Yes, thank you very much.
Thank you very much. We are getting to the end of the session. I would like to take two more questions from two more people, one question each. SMBC Nikko, Katsura-san.
Thank you very much, Katsura from SMBC Nikko. Somewhat repetitive, maybe, but in your presentation material, automotive battery is one of the priority areas. You had six pages on that. On the other two, the air quality, air conditioning, and SCM, you only had one page each. That means that as a holding company, you are shifting gears and focusing more on the automotive battery. That is my understanding. Is that correct?
Also the funding, I'm sure that you're thinking about the various options, but specifically as a possibility if you can talk about some of the options. On the final slide, 2030, the percentage of the composition of the sales, and they're shown in the different colors. The next fiscal 26 and onwards, next medium-term management plan, when you consider that, from the different perspective, or based on this coloring, it's difficult to understand. From the different perspective, in the long term, what is the direction of the whole group, if you can make such a comment?
It's a very difficult question to answer, and wondering how I should answer it. My first point is that the capital allocation policy, based on the current one, the strategic investment, it's mostly for. It will be mostly for Kansas.
Blue Yonder, for example, boat-on investment, if it becomes necessary, or in the air quality, air conditioning, we have to make sure that we also invest in that area. As a Panasonic PC, or Panasonic Corporation, they have their capability and lifestyle, which were lifestyle appliance, was not doing so well in generating cash. We have to make sure that we would spend such cash, and so that as a holding company, we want to shift toward or focus more on the automotive battery. You mentioned that the blue and green are difficult to understand. That's understandable. What kind of company do we want to make? It's not just focusing on one thing, the global environmental issue. In order to solve that, we want to make a contribution. There are some businesses which can do that.
Companies have had a long history in the lifestyle area. How do we face that lifestyle business has changed? I did not really talk about specific plans or activities in relation to that. For example, how to create a synergy. As a group, we are determined to do so, but something that we can show, for example, concrete plans that we can show to external parties, we have not yet reached that level. We would like to disclose such information at a separate occasion.
Now, last question, one question, please. Ezawa-san from Citigroup Global Markets, please.
Thank you. I'm Ezawa from Citigroup Global Markets. I'm sorry that I'm sticking to business portfolio. On the consolidated basis, what would be the size of the business or the number of businesses and the structure of sales in your mind? Panasonic Group would change.
How much change is the Panasonic Group going to change, as you explained? Can you please enlighten me? 5% or 10% of the total, or in the pie chart, one quarter will be squeezed and disappear in the gray area, which is about one quarter, so 25%. And those who are not performing well, or you consider the possibility of spin-off. What would be the scale of magnitude of change and financial criteria? If you have any financial criteria, market share or profitability, ROIC, what would be the financial criteria that you have in mind in reviewing your business portfolio?
Based upon capital cost, judgment will be made. In terms of magnitude, would you say 20%? It's not that I have any specific numbers. We are not doing business just to follow numbers.
You may say that this is naive, but is the business contributing for the 250 years? Is it better to do it inside the group or outside the group? Based upon that criteria, we make judgment. It is not that having numerical targets. It is not like us, Panasonic, to have specific numbers. Ezawa-san, I'm sorry that I'm not able to respond to meet your expectations in terms of my answer. I hope that that answers your questions.
Thank you.
Now, with this, we would like to conclude a group strategy briefing by Group CEO. I thank you very much for joining us today. Thank you very much indeed.