Good evening, ladies and gentlemen. Thank you very much for taking time out of your busy schedule to attend this online conference. We will now start. Today's participant is Yuki Kusumi, CEO of Panasonic Corporation. Yuki Kusumi will present under the title of Future Direction for Panasonic Group.
I'm Yuki Kusumi, the new CEO of Panasonic. I assumed the office in April. Today, I would like to share our future direction based on the current midterm strategy, in particular contributions to solving global environmental issues and our constant improvement efforts to enhance competitiveness. Looking back during Mr. Tsuga's presidency, we started addressing the losses recorded in fiscal years 2012 and 2013 and executed various growth strategies such as thorough turnaround efforts, eliminating losses, selection and concentration of businesses, proactive investment in growth areas such as rechargeable batteries, and building a business structure with initiatives taken outside Japan, such as China.
Under the current midterm strategy, we have made steady progress in the initiatives toward overcoming low profitability structure. As a result, in terms of financial figures, adjusted operating profit margin reached 5% level for FY2021 despite COVID impacts. I would like to express my deep appreciation to Mr. Tsuga for his great efforts over the years. The challenge I must take up is to specialize in sharpening each of our businesses. In other words, each business must enhance its competitiveness in the respective industry they should address and make further contributions to customers and society. Our management philosophy expresses our mission of devoting ourselves to the progress and development of society and enhancing the quality of life throughout the world.
To fulfill this original mission of the Panasonic Group, we are determined to become a company that is outstanding in competition, to gain the capabilities to be selected by our customers, and to continue refining our competitiveness with speed. The specific initiatives going forward are currently under deliberation at each business, and the details are scheduled to be announced around May of next year, along with the medium to long-term vision under the new structure. Today, I will focus on the big picture and on the management direction. First, the direction Panasonic will take going forward, referencing the original mission in the company's early history. Back in 1932, reflecting the social circumstances of Japan at the time, the founder of Panasonic, Kōnosuke Matsushita , presented the idea of tap water philosophy as a guideline to overcome poverty and bringing wealth to society by producing an inexhaustible supply of goods.
This is based on the idea of matter and mind as one. That is, only after there is spiritual peace of mind and limitless supply of material goods will humanity achieve true happiness. He then presented his long-range plan of reaching an ideal society in 250 years. It's been almost 90 years since, and even with advances made in society, the essence of this tap water philosophy is still valid today, based on the idea of matter and mind as one. True today, society is affluent in terms of goods, mainly in advanced nations. We do not feel inconvenience in many aspects. However, when asked if people feel affluence in mind and peace of mind, I'm afraid that's not necessarily the case. There are many people having continuous concerns and worries and feeling a sense of loneliness.
In terms of environmental destruction accelerating each year and depletion of natural resources, there is serious concern whether the generation of our children, grandchildren, or a generation further can live a life in affluence. In this sense, while Panasonic has been engaged in business activities mainly to offer products in pursuing affluence, consequently, I'm afraid this path is slightly off track to reach an ideal society. We cannot go back. The question is how we can correct the direction toward where we should have been from where we stand today. The mission to fulfill today is to squarely address societal issues and make contributions in eliminating concerns of today and the future toward an ideal society with affluence both in mind and matter. To achieve this, we must clarify what needs to be done, adding on to wisdom, and pave a new way.
I believe repeating and building on such efforts represents the true future of Panasonic and what the founder intended when he established the company. Among the societal issues, what Panasonic should prioritize is to address global environmental issues. We cannot avoid this global issue if we want to sustain enriched society for our children, grandchildren, and the generations beyond. We already face the impact of climate change with increased greenhouse gases, including CO2, in many different parts of the world. The issue of depletion of natural resources, including various mineral resources, is becoming serious each year. The situation is critical. In 1991, 30 years ago, Panasonic was one of the first companies in the world to establish the Environmental Charter. We have been addressing these issues since. With this background, we are determined to make even greater contributions leading in addressing such issues as greenhouse gas emissions and resource shortages.
These efforts will be made in all of our business activities at factories and offices, as well as through our businesses, including energy business, supporting the reduction of CO2 emissions from automobiles, GEMBA process business, reducing losses of inventory and logistics through efficiency in the supply chain, and reducing environmental burden through such products and services as hydrogen fuel cell and air-to-water business, offering comfortable and environmentally friendly living. Other initiatives include the promotion of recycling and reuse, minimizing waste loss within the supply chain, and contributions in effective utilization of resources with longer product life by updating the product after sales to customers. This assumes offering better value surpassing our customers' expectations for the product itself, not just the environmental features. We will offer these products at affordable and appropriate prices so they would be selected and used by many customers.
In other words, we aim to be the top runner in both perspectives of our inherent contributions and the environment. This will enable us to make greater contributions to the environment in the true sense. This is not easy, but we believe that taking up the challenge today, we can achieve even greater competitiveness. Toward the same, in 2017, we laid out Environment Vision 2050. Our initiatives and responsibility include not only Scopes 1 and 2, but also Scope 3. According to the GHG Protocol, Scope 1 and Scope 2 are the classification of energy used for own production. Scope 3 is energy used throughout the life cycle of our products and services, starting from the raw materials, energy consumption by customers, to waste recycling.
At Panasonic, energy used in Scope 3 is equivalent to 40 times the total amount of energy used in Scopes 1 and 2. Our aim is to reduce energy used by our products and services in society, including energy used at our factories and offices, and to provide clean energy as well as utilization exceeding energy used by Panasonic. Through these, Panasonic aims to realize the structure of being self-sufficient with energy and make our society sustainable. This means that we are not only depending on clean energy from the supplier side, but also creating and utilizing clean energy which exceeds used energy in our business activities. This is a very challenging target, but we will proactively make efforts in all businesses of Panasonic Group toward reaching an ideal society.
Through these efforts, Panasonic will make huge contributions to solve issues in climate change, one of the biggest global issues, and aim to become a global leader in this field. As a milestone, we are committing to aim for zero CO2 emission or carbon neutrality of energy used in our own production activities by 2030 in all operating companies under the new structure. We believe this is the target that we, as a manufacturer, should fulfill immediately. More specifically, to achieve this target, we'll accelerate three initiatives for further energy saving at our own sites, equipping with and utilizing in-house renewable energy systems and procuring renewable energy. In particular, regarding renewable energy at our sites, we are proactively promoting equipping with and using solar and hydrogen energy, and proactively taking up the challenge to make our sites sourcing 100% renewable energy.
Already, we established five zero CO2 sites globally, including Panasonic Ecotechnology Center in Japan and Panasonic Energy Wuxi Company in China. In addition, we will implement these initiatives at Kusatsu Factory of Smart Energy System Business Division in Japan. Full operation will start in April 2022. At Kusatsu Factory, we will promote RE100 initiatives, combining hydrogen energy, solar power, and power storage systems to offset energy consumption in the production process with these generated renewable energy. Peak power consumption at Kusatsu reaches 680 kilowatts, and annual consumption is approximately 2.7 gigawatt-hour, which is equivalent to energy consumption at 900 typical households in Japan. We will continue these initiatives at Kusatsu and improve our capability in RE100 solutions business. Going forward, we will proactively expand similar projects to other sites and offer these solutions to customers so as to make further contributions to solving issues in climate change.
Another aim for Panasonic is to become one of the leading companies toward reaching an ideal society by taking up the challenge of constant improvement. To offer greater contributions to people's living and society, as I said before, it is indispensable to gain overwhelming competitiveness even in the severe competitive environment. The major key is to make constant improvements. There are two perspectives. One is to thoroughly eliminate waste and stagnancy and effectively use the valuable management resources entrusted to us from society to the full extent. We are determined to make constant improvements to eliminate any waste and make every second count. Another is to set up a high target toward reaching an ideal future based on our customers' essential value, and we should refine our capabilities toward such targets every day.
We want to come up with the products leading the new era and pursue overwhelming cost competitiveness to accelerate the penetration of the product. We will make efforts to fill the gap. In the 1930s, our founder set a goal to deliver radios to more households by halving the conventional price, and it became possible to halve the production cost of the radio. This represents an essential tradition of Panasonic. Now is the time to spread this idea at all business operations. For example, set clear targets such as operational capability, product, and environmental performance by each business to pursue improvements. By doing this, we aim to increase business competitiveness and make each business number one in the industry. By pursuing these things, we will naturally achieve our goals in terms of cash. This is my way of thinking.
Based on this idea, for the next two years, we will determine areas to address and enhance competitiveness at all businesses. We want to focus on enhancing competitiveness except for the businesses clearly forecasted to be damaged in the future, such as expected radical market shrinkage. From my experience of leading various businesses from B2C to B2B, I have learned that the strategy and operational capability are indispensable to each other for enhancing competitiveness. Strategy consists of two factors: customer target, area to establish advantage among various factors of business, business model to gain cash, and partner selection for business growth. That is how to plan out the winning path of the business.
Operational capability means enabling a high level of efficiency and productivity as a result of eliminating waste and stagnancy, as well as increasing speed at all operational front lines, not only in the area of manufacturing but also in direct operations, including R&D and planning, as well as supply chain. No matter how excellent a strategy might be, it cannot prove effective without the capability to execute in actual businesses. To develop business, to contribute to customers and society, it is most important to gain excellent operational capability that enables the smooth flow of goods and information and agile response to changes, along with having strategical advantage. I define these two as indispensable to each other. In the past, we had emphasis on the strengthening of the strategic capabilities to gain new advantages, moving the business into new areas and transforming business models.
However, in terms of operational capability, I believe there is still a lot of room for improvement at all businesses, functions, and operations. I have just mentioned that we will take up the challenge of constant improvement to enhance competitiveness. This means we will continue to increase this operational capability to the full extent. Based on these views on management, today, I will use an example of three businesses under the new structure, and we'll explain how we enhance competitiveness while we expand areas of our contributions to solve environmental issues. First, I will explain GEMBA, or Operation Frontlines Process Business, in Panasonic Connect under the new structure, currently the CNS, or Connected Solutions.
As we explained at the recent announcement of making Blue Yonder a wholly owned subsidiary, we made the decision of this acquisition with an intention to become a global leading solution provider, bringing revolution to the GEMBA in the global supply chain. Panasonic will leverage CNS capability in digital and data and eliminate waste and stagnancy at each GEMBA of supply chain. We will provide solutions to enable continuous autonomous enhancement of the entire supply chain by combining initiatives for autonomous enhancement at GEMBA and Blue Yonder solution, enabling the continuous improvement cycle through end-to-end visibility and optimization of the entire supply chain. Through these solutions, Panasonic will reduce waste and stagnancy at each GEMBA of the supply chain and contribute to customers' management transformation. In addition, we aim to contribute to solve societal issues such as effective use of resources and work-style reform.
From the perspective of strategy on the previous slide, we aim to increase our advantage in this field by leveraging the partnership with Blue Yonder and enhancing our software and solution capability. As for operational capability, first, we will adopt these solutions for supply chain transformation at Panasonic's GEMBA prior to customers to enhance our own solutions capability and bring such capabilities to enhance the operational capability of the entire group. Second, let me explain energy business, which will be operated by the newly established Panasonic Energy. In automotive cylindrical battery business, which is core energy business, we have strategically collaborated with Tesla, the leading EV company, and expanded our business, taking advantage of our strengths. However, due to our insufficient operational capability for manufacturing to meet the rapid increase of the demand at Tesla, we had to focus mainly on the profitability improvement up until now.
In this fiscal year, we will expand our production line in North America in response to surging demand. At the same time, we will thoroughly refine our operational capability and aim to increase production capacity while we achieve superior cost competitiveness in the industry. Furthermore, for technological development, our current main product, 2170 cell, has been leading the industry from performance and environment perspective. We will also lead the industry with the development of 4680 cell, which is expected to become the next generation standard. For non-automotive application, we will expand the power storage system business. Our system is already highly appreciated to support the stable and reliable operation of data centers, which becomes a mission-critical system as the data protection becomes increasingly important along with the development of digital society.
Going forward, as more renewable energy is used globally, we continue to take up the challenge in the area of the living area infrastructure, such as home use power storage system, which enables the stable supply of electricity. In Panasonic Energy, we will thoroughly improve battery performance, reliability, cost competitiveness, and provide solutions to environmental issues and contribute to the development of social infrastructure. Third is the lifestyle area in newly formed Panasonic Corporation. Here, our aim is to create new value toward society with affluence in mind and matter, leading the global trend. Indoor air quality and air conditioning is one of the growth pillars of new Panasonic.
Our strength in this area is that we not only obtain the unique sterilization technologies such as Zaeono and Nanoe, but also obtain a wide range of technologies such as moisture control, which is the key for preventing virus, highly efficient heat exchanging, and technologies that improve air quality with minimum environmental impact. With the spread of COVID-19, interest in air quality is increasing globally, and we have seen a surge of demand for products that integrate intelligent air quality technology and air conditioning technology. In the new Panasonic Corporation, our aim is to create new and unique Panasonic value by integrating advanced technologies, which were separately established in appliances and life solutions in the past, and make them into one product or a system. In this way, we provide healthy and comfortable air.
In March 2021, Panasonic launched the integrated air conditioning indoor air quality system, which enables comfortable control of humidity according to the temperature. We accelerate to expand this large-scale system for non-residential use and solution-type business. In consumer electronics, we have been acquiring the speed of product development and cost competitiveness in China since the establishment of China and North Asia Company in 2019. In overseas B2B, Panasonic has successfully expanded the wiring device business overseas, leveraging our strong manufacturing capability. Its success is seen in such markets as in Asia, India, and Turkey, mainly for residential use. Going forward, we will continue to expand non-residential business for building and retail outlets, leveraging distribution channels and trustworthy reputation built among customers in these countries.
I'd like to sum up by emphasizing what we must do to return to the basics of our management philosophy, devote ourselves in generating contributions toward achieving an ideal society and sustained development. To accomplish this, we cannot be satisfied by merely achieving target figures. We should always have the perspective from the customers and GEMBA and pursue improvements day by day toward our ideal. To become a team of employees who can attain such goals, we will focus on the enhancement of competitiveness at all businesses for the next two years. Since this is the first year, the entire group will make efforts to enhance operational capability to be able to accelerate the cycle of improvements as early as possible. I'd like to ask for your continuous understanding and support. Thank you.
We will now take questions from Morgan Stanley MUFG Securities. Mr. Ono, please. Thank you.
I hope you can hear me.
Yes, we can.
Thank you. Two questions. Ono from Morgan Stanley MUFG Securities. My first question regarding Blue Yonder. Mr. Kusumi, you just said that that will be one of the examples of the enhanced operational capability. As you started as a new CEO, over JPY 700 billion acquisition investment was decided on. What kind of return on investment are you expecting? You made this very big investment as you started as a new CEO. What are your thoughts on that? My second question. I understand that for the next two years, you will be concentrating on enhancing the competitive edge. I suppose that means fiscal years 2022 and 2023. How are you going to assess the results? What criteria or metrics would be used to measure the success?
I don't think you have the numerical targets yet, so are there any qualitative aspects on that? Those are my two questions.
Thank you for your questions. Mr. Ono, yes, Blue Yonder, frankly speaking. As I was in charge of automotive business last year, I regarded this to be a very large investment, so I was a little intimidated by this amount. I was one in charge of automotive. I could not make that decision. You asked about the return on investment. We're not expecting a short-term return. Rather, the CNS, how we are to transform that company, that aspect is important, and also to utilize the Yonder capability to improve our own operating capability, so as to bring about new services, to bring in the transformation of the supply chain.
It's not purely from Blue Yonder, but as a research and development effort in the GAMBA process, sensing and AI technologies are being pursued to identify the waste and stagnation in the supply chain. We expect the independent standalone capability to do that. Through that, we want to come up with new solutions. We are to expand the business based on what have yet to materialize. In that sense, I can't say exactly by when, but in order to capture that opportunity, we felt that now is the time to acquire Blue Yonder. We felt that this was the right time to make the investment. That was the rationale. True, the investment is much in terms of S&OP, how much, but that alone cannot justify that amount. Please understand that this was the investment decision based on a more long-term view.
Now, what kind of measurements are we going to use? What discipline will be used to measure the success? Of course, the financial numerical targets in terms of cash generation, that would be important metrics. The question is, how can each business enhance its capability to generate cash? That would be measured not by looking at the numerical values, but looking at non-financial KPIs. Those should be used to measure and monitor the progress. I'm afraid I am not directly answering your questions, but that's the thought I have in mind right now. Thank you.
Thank you very much. Let's move on to the next question. From Nomura Securities, we have Okazaki-san. Thank you.
This is Okazaki from Nomura Securities. Thank you very much. First question.
Now, the issue of the global or the environmental issue is the top priority, and you did talk about this in the first half of your presentation. For Panasonic, environment-related businesses have been important from the past. This time, your message, how is it different from the past? Any changes from the conventional efforts that you made in the area of the global environment? The next second question is about energy. In the past, it was a challenging business, and now it has come back to one of the important businesses. What is the plan for the investment, and how do you work with the other partners and other companies in the area of the energy? Once again, about the environment, have there been major changes from the past in terms of the direction, improving or increasing the priority for this environment-related business?
The major contribution is in the energy or fuel cell business. At the same time, whether we have been really determined to work on those areas, unfortunately, what we inherited from Sanyo PV business, photovoltaic business, I think that our own production, we gave up on that. In a way, to sharpen our competitiveness in that area and to try to contribute to resolving the environmental issue, I think we lacked sufficiently strong determination. That was my evaluation. Now, for the prismatic automotive battery, three years ago, I myself was in charge of this, and together with Toyota, we established a joint venture. One thing is that together with Toyota, doing this business together, and by doing so, Toyota's production method, we needed that input. In the area of the manufacturing, without it, we were not fast enough.
That is why we decided on this direction. I was in charge of that for only one year, but that was the way of thinking. We needed some help, help or the power of Toyota injected to us. Based on that, the matter of environment, this is one of the top priorities. To be competitive in that area is something that I want to emphasize, and I want to do that internally. I also want to make a commitment externally so that everyone in the company will move toward the same direction. Also, about energy, especially the cylindrical battery, together with Tesla, we are conducting this business. Are we changing what we were thinking about this business or not?
Right now, I would like to refrain from giving you a specific direction because this has to do with competitiveness, and we have to have a good level of competitiveness in sight. Right now, we are not sufficient in that area. We need operational capability. We have to show you the good way forward or directions so that we can move forward in this business. Am I answering to your two questions? Thank you.
In the interest of time, we ask you to limit to one question per person. From Credit Suisse, Ms. Nishimura, please.
Thank you for this opportunity. One question. The business portfolio and product portfolio that you have today, what is your view on the current portfolio, especially since you are to sharpen and focus further? You want to enhance your competitiveness to be able to compete with the dedicated manufacturers in each product area.
Do you intend to go that far? If the answer is yes, what timeframe do you have in mind, and what measures do you have in mind?
Thank you very much for your question. Last year and the year before, I was in charge of automotive solutions. The automotive solutions business is categorized as the revitalization business because of low profitability. Under the impact of COVID-19, we revisited business, and various activities were revisited, and we were able to turn to profitability. What does that mean? The activities that we are engaged in, they are waste, they are stagnation, and they are rework, and also in the manufacturing process. The smooth flow of information and goods were not necessarily the case, and we were able to identify those issues. We still see room for improvement, even after making various efforts.
Under the days of Matsushita Electric Industrial Company, we had the culture of pursuing all those rooms for improvement. For the last several years, because the business environment became more challenging, contrary to the desire of Mr. Tsuga, what was happening at each business was the numerical targets became the driver, became the objective. For example, the manufacturing capability or PSI management. If you improve on those aspects, the profitability would improve as a result. I'm afraid that approach had been neglected. That's the observation that I made as I was in charge of the automotive solutions. I think this is true in other businesses as well. For the next two years, we are going to concentrate in enhancing the competitiveness.
We believe that the approaches that I just described would be the first step in becoming on par with the dedicated manufacturers in different business fields. We do not think we should conclude at this point in time that this is an area that we are going to withdraw as long as there is still room for improvement. That is why we are going to concentrate on enhancing the competitiveness for the next two years. On the other hand, while we know that the market is destined to shrink or that we are inferior to others, for those businesses, of course, we need to take immediate actions. I see. Thank you.
Thank you. We take next question from Citigroup Global Markets Japan. We have Mr. Ezawa.
This is Ezawa speaking. One question I have about China, production in China. There was a reference to that in one of your slides.
In the medium to long term, the production in China, I think you have the longest history among the Japanese companies to produce in China. In the medium to long term, how do you think it needs to change? The geopolitical risk is becoming higher, and it might be difficult to bring those products. Any views on the production in China?
We have China and North Asian company, and we created that framework. Because China is a growing market, we needed to face that. China, in comparison to local companies, if we have a high speed and cost competitiveness, and if we can grow in China, that has been the major target. It has been 40 years since we went to the Chinese market, and we have 60,000 employees, and it is a JPY 2 trillion business in China.
Of course, the situation, geopolitical risk, for example, whether we can continue to export from China, there are some concerns, and we are referring to that. We have to understand the risks appropriately. At the same time, the strength that we gained in China, how can we take advantage of those strengths in the group is also important, and I already talked about that. I hope that answers your question.
Thank you very much. We are sorry, but we would like to end this session. We have come to the end of it. I'd like to take one more question.
Mr. Hirakawa from BFA Securities Japan. Thank you.
I understand that you're focusing on operations, so I have this question. You are making considered efforts to improve profitability, but there are businesses where low profitability state had continued for some time.
I think there is a possibility that people have gotten used to that state. How do you intend to change the mindset of those people as CEO? That is my question.
Thank you for your question, Hirakawa-san. It is not something that could be changed under the leadership of CEO alone. The local leaders, leaders at the Genba, and the people that have the experience of the joy of successful efforts in making the improvements. I think that we need those leaders to disseminate that mindset, to change the mindset of the entire group. How do you do that? For example, in the case of automotive company, we learned lessons from Toyota. We learned from their insights, and there are a number of people within the automotive company that have learned from Toyota. These people are leading the efforts to address the issues that they see.
Through what is called the big room or the Obeya system, they are showing that if you really try hard, you can make a difference. We can also use digital technology to make the results more visible, and under Higuchi-san, these efforts are being made. With showing more success cases, we are hoping that the mindset would be changed. I hope that answers your question.
Yes. Thank you.
Thank you. We have come to the end of the conference, and we will now close the session. Thank you very much for your participation. Thank you. We ask for your continued support and understanding. Thank you.