Good afternoon, ladies and gentlemen. Thank you very much for attending, despite your very busy schedule and despite very warm weather outside. I would now like to present Panasonic's consolidated financial results for the first quarter of fiscal 2020. This is the consolidated financial results for the first quarter of FY 2020. Overall sales were JPY 1,891.1 billion, down 6% year-on-year, due mainly to impacts of lower sales in China and revised presentation and certain transactions. Overall operating profit was JPY 56.4 billion, down by JPY 43.6 billion due to lower sales in China, mainly at Industrial Solutions, increased development expenses at Automotive Solutions, sluggish TV sales, and the impact of gains from the sale of land in the previous year, despite steady housing-related business in Japan.
Overall net profit was JPY 49.8 billion, down by JPY 7.6 billion, despite improvements in income taxes due to one-off effect resulting from the reorganization of subsidiaries. Now, variance analysis on sales and operating profit by segment. For Industrial Solutions and Connected Solutions, sales and profit decreased due to lower sales impacted mainly by weakening market conditions in China. For automotive, sales increased due to growth in automotive batteries, but profit decreased overall due to increased development expenses, mainly for the existing issues with Automotive Solutions in Europe. For appliances, sales and profit decreased due to sluggish TV sales, mainly in Europe, despite steady air conditioner sales and consumer electronics sales in Japan. On the other hand, for Life Solutions, both sales and profit increased with the steady housing-related business in Japan. As a result, profit generated from business decreased by JPY 19.2 billion.
Overall operating profit decreased by JPY 43.6 billion due to factors including impact of one-time gains in the previous year for other income and loss. This is the results by segment. I will explain the details from the next slide. First, a look at appliances based on consolidated production and sales. Sales decreased by 4% from the previous year in real terms, excluding the effective exchange rates. In heating and cooling solutions, sales increased due to steady sales of room air conditioners taking opportunity of higher demand from good weather in Asia, as well as expanded sales of large-scale air conditioners in Japan, China, and Europe. On the other hand, in smart life network, sales decreased due to sluggish sales of TVs such as OLEDs in Europe, where we are shifting to high-value-added products, and in Asia, where we could not manage to cope with price declines of entry models.
Overall operating profit decreased. We achieved increased profit for consumer electronics in Japan thanks to sales increase of air conditioners and washing machines and the recovering profitability of refrigerators. However, overseas profit decreased due to lower TV sales, mainly in Europe. For the TV business, we are carrying out structural reform, including a review of production sites in addition to improving production cost structure. We will implement drastic measures toward improving profitability. We aim to improve overall profitability through stable sales of consumer electronics in Japan, mainly white goods, and favorable sale of air conditioners, mainly in Asia. Next, life solutions. Sales increased by 5% year-on-year at constant exchange rates. In energy systems, sales increased due mainly to favorable sales of home use distribution panel boards and wiring devices. In housing systems, sales increased due to sales growth of new models for water-related products and building materials.
In Panasonic Homes, sales increased due mainly to sales increase of new construction orders and remodeling businesses. Operating profit increased due to higher sales as well as streamlining initiatives. We'll continue to generate profit mainly through these stable businesses.
Next is connected solutions. Sales decreased by 6% year-on-year in real terms, excluding the forex impact. In process automation, sales decreased significantly due to the postponed investments associated with weak Chinese market conditions and reduced investments by automotive component manufacturers in response to lower sales of new cars in China and Europe. In avionics, sales decreased due mainly to the reduced investments by certain airlines. On the other hand, in PSSJ, sales increased due to the stable sales of PCs resulting from the demands related to replacement associated with the end of support for Windows 7 and movements toward the work-style reform, in addition to Olympic-related project orders. Operating profit decreased due to the significant impact of the lower sales of process automation and avionics, despite the higher profit in PC business.
Going forward, lower sales in process automation will be offset by other businesses of Connected Solutions, as well as implementing effective cost management, including assessment of upfront investments based on market conditions. Next is automotive. Sales increased by 7% year-on-year in real terms, excluding forex impact. For Automotive Solutions, sales decreased despite the expansion of the growth expected products, such as IVI, which could not offset the impacts of the deteriorating automobile market conditions in China and decreased sales due to the product cycle trend. For automotive batteries, sales increased due to the effective investments to expand production for both prismatic and cylindrical. Operating profit for Automotive Solutions decreased due to the overall development expenses peaking in fiscal 2020, along with increased development expenses for the existing issues in Europe, although these are in line with the forecast as of the beginning of fiscal 2020.
For fixed costs, including development expenses, a list of reduction measures has been drawn up and are factored into the forecast. Looking toward an improved profitability, areas of focus will be clarified for region, customers, and products. Profit for automotive batteries was the same as last year's level due to lower sales of cylindrical types from our factory in Japan, despite higher sales of prismatic types as well as cylindrical types from the North American factory. Going forward, with a view to enhancing the competitiveness of prismatic types, investments will be made according to plan to expand production of factories in Dalian, China, and Himeji, Japan. In addition, we aim to improve the profitability of cylindrical types by improving productivity at the North American factory. Finally, the industrial solutions.
Sales decreased by 10% year-on-year in real terms, excluding forex impact, significantly influenced by the deteriorated market conditions in China, such as trade friction between the U.S. and China. Sales decreased for systems due to lower sales of portable rechargeable batteries by strategically shifting our applications to industry-related areas, leading to reduced ICT usage sales. Sales of the motors and other products were also sluggish due to weakening demand for capital investments in China. Sales decreased for devices due to lower sales of capacitors, resistors, and automotive components. Operating profit decreased with the significant impact of the lower sales, which were partially offset by efforts in fixed cost reduction and raw material rationalization. As the Chinese market continues to be uncertain, efforts will be made to expand sales in Europe and emerging markets, as well as to improve profitability mainly through fixed cost reduction. That's all about segments.
Next, I will explain the progress made in business portfolio reform, which was announced at the beginning of this fiscal year. First, improving competitiveness through co-creation with partners. Our automotive prismatic battery business, as explained before, we are investing in production capacity expansion in preparation for future business expansion. In our town development business, we are steadily working to establish a joint venture during the Q4 of this fiscal year, with a preparatory committee discussing the new company. In further measures to improve profitability, we are making steady progress, particularly in our semiconductor and solar businesses. Going forward, we will accelerate our business portfolio management, such as structural reform of the TV business, which is already in progress. For fiscal 2020, we have forecast a decreased profit for the full year by factoring in business risks in addition to costs related to business structural reform.
For Q1, profit decreased due mainly to lower sales in China, increased development expenses for automotive solutions, and sluggish TV sales. Toward achieving the full-year forecast, we will carefully monitor changes in the business environment, including China's market conditions, and carry out the necessary measures. Specifically, we will review investments and control costs based on the particular business situations and the competitive environment, as well as continue generating profits from our stable businesses. Furthermore, we will work to improve profitability, our top priority issue through steady progress in our business portfolio reform, our pillar for fiscal 2020. Thank you.
Okazaki from Nomura Securities. My first question is the progress of the first quarter against the full-year forecast. I think there are differences from segment to segment, so can you elaborate on the progress for each segment? The second question is with regards to the restructuring of the TV business. You said that you are going to focus on areas and categories. Anything that you can elaborate on that approach, please?
May I? Thank you for your questions. The first quarter progress against the full-year forecast. On May 9, we made the earnings report for the previous year. JPY 300 billion operating profits is the basis. In the last fiscal year, we saw the impact of the Chinese economy on the second half, and so it's not really going to be very helpful to compare year-on-year basis. Usually, the first quarter accounts for about 20%.
In that sense, on the adjusted operating profit against JPY 300 billion full year, we are on track to achieve that target overall. As you have correctly described, there are differences from segment to segment. The way I see it, broadly, IS, and CNS, and Automotive, AM. They are in line with the projection, whereas appliances, SmartDrift Network, digital products division, including smartphones, that division was way below our forecast. On one hand, life solutions, the housing-related business in Japan, did much better than we had expected. Between the two, overall, we saw the results, as I just said. Overall, we are on track. In terms of positives and negatives, it was just as I have explained. Your second question was regard to the business reform of TV business.
Maybe many of you in this room are concerned how long we are going to continue with the TV business. Now, looking at the European, the OLEDs for the high-end products, the prices are really plummeting, and the entry models in Asia are also posing a very difficult business environment for us in terms of price. Maybe everyone is suffering in this industry, but we do not intend to continue the TV business while incurring losses. Given the current situation, we will be revisiting the production sites as well as regions. There are not anything that are final yet, but we will be taking similar actions so as to control cost and to cater to regions in a better way. TVs for the Japanese market are doing very well, strong, very popular amongst the Japanese consumers. The issue is Europe, the European TV business, which hurt the performance.
Therefore, we are going to take very straightforward actions to make sure we have better results.
Now, we'd like to move on to the next question. The gentleman in the middle, the first row.
Thank you, Isaba from Citigroup Securities. I have two questions. Now, this performance, after listening to your presentation, I'm a bit confused. This earnings profit, the earnings are down, or the sales are down, and the profit are also down in many segments. You said that it's still in line with your plan, and you're not revising your plan. The CapEx and R&D budget are not changed either. You said that they will be narrowed down, the investments, but you have not changed any plans. If I look at the supplementary information, it does not appear that you are taking any additional measures. As of now, the business performance is not so good. Any new measures that you're working on?
For example, the business portfolio restructuring, those measures are already announced. Any new measures that you can introduce to us?
Thank you for your question. If you look at the numbers, it mentions all the regions, but as for Japan, the sales profit are increasing or are higher. Fiscal 2019 in Q4, the sales number, the sales were revised significantly. Because of that, in Q1, there was an adjustment. Excluding that, the domestic market sales have increased. AP, appliances, and LS, life solutions, for those companies, we did well based on those numbers. For other markets, for example, China, it was tough. Tesla battery is starting up in North America, so sales are not down. In other regions, we had difficult numbers. As for the CapEx, the revision, and so forth, we are internally working on that.
For the full-year forecast, we have not yet reflected this. As for China, there are still uncertainties. We are prioritizing them so that we are working on revisiting and reviewing the CapEx as well as the cost reduction. One change I can mention is that the fixed cost reduction, this is not something that we can boast about. In Q1, fixed cost is down year-on-year. In fiscal 2016, and since Q4, we have reduced the fixed cost. We are making that changes. In fiscal 2020, what we will do is the business portfolio reform, as we mentioned. Already mentioned, yes. As for the progress, we will continue to communicate that to you. The ones that are not yet announced are also going on. We are afraid that those are not something that we can disclose as of now.
If you ask if there are any new additional measures, there are some, but we cannot disclose them. We will make sure that we make good progress. I hope you understand. Thank you. Another question is about TV. It is in red. You mentioned that you will continue this business and are looking for the opportunity, and you do not intend to be in red for a long time. For example, since you mentioned that it is in red and you are considering changing the production sites, as for the fundamental strategy for the TV, it is a bit difficult for us to understand. When the market worsens, you would withdraw from that market. Other than that, what is your strategy? What are the areas that you go into, and what are the areas that you would withdraw? I am interested in the fundamental strategy.
As for TV business, what we have done so far, for example, we rationalized the regions. U.S., China, in those major markets, we do not sell our TVs. Those were the markets which we suffered. For the low-end or commoditized TVs, we would use ODM. We procure those TVs so that we can reduce our fixed cost. As for Japan, our products are highly valuated, and the profit, it is profitable in Japan. This is not the market that we are likely to withdraw from. As for Europe, we cannot generalize Europe. There are different countries in Europe, and the distribution platform is also quite different. At this time, there was a decrease of the prices, and almost all the manufacturers are not competing well. That market is somewhere that we might be withdrawing.
As for Japan, especially the high-end TVs or high-value-added products, we will continue to make sure that we have a good business in Japan with TV. Europe, because of the lower prices or price erosion, it is possible that you might withdraw if the deficit continues that is not sustainable. We are not talking about the withdrawal from the European market, but we would like to watch what would happen and consider what we should do about the European TV business.
Thank you. The next person, please. The gentleman on the third row. From Mizuho Securities, my name is Nakane. Thank you for the opportunity. I have two questions. First, on AM, Automotive, sales about JPY 240 billion, and Automotive batteries about JPY 290 billion, and operating profit is minus JPY 10 billion. Can you give us the breakdown, if possible? That is my first question. For the Automotive batteries, the Prismatic would be mainstay. Could you give us a breakdown there, the sales trends, especially the plants in Japan for Model X? I think the demand is declining. Can you give us an update on where you are today? Regarding the pricing, I think you are negotiating with Tesla. Anything you can share with us, we appreciate that. My next question, it is not in the materials, but the China and U.S. issue.
What is the operation today? What is the resources? What is the target for this year?
[foreign language]
Thank you. AM sales, JPY 377.4 billion, operating profit or operating loss of JPY 10 billion, and JPY 8.5 billion, declined year-on-year. This loss, the absolute amount, the majority are related to Tesla business. The year-on-year difference of JPY 8.5 billion, most are in relation to the automotive battery. As absolute value, Tesla business-related loss is still sizable, but on a year-on-year basis, the automotive equipment is a big difference. That is the structure of profit of the AM business. In terms of the trend, the Tesla business, you asked about Tesla business. I can't believe the sales volume, but 20% or so, or over 20%. Tesla business accounting for over 20% within AM. Sales increase is becoming more sizable, and the profit or loss, why is there a loss, operating loss?
Looking at the production capacity today, it's now up to 28 GW as of the end of March, 24 GW. Originally, the full capacity for Tesla is 35 GW, meaning that we are seeing increase in capacity. There is a cost associated with that, and there are issues that we need to address, the cost of which we need to bear. That's what happened in the first quarter. With the capacity increasing for Model 3 in the U.S., we are seeing profit coming from expanded sales. That has been compensated for by Model S/X, as has been announced by Tesla. 18680, manufactured in Japan. This prismatic battery is seeing lower sales affecting the overall result, resulting in a flat growth year-on-year. That is the situation of the Tesla business today.
Now, going forward, of course, the market price and various battery delivery price to be negotiated with Tesla would be the factors. Up to 35 gigawatts. We still have the production loss, that's for sure. Model S/X, it declined this time around. Is it going to go down further, or is it going to bottom out? It would be the question. For the second half, loss associated with the Tesla business, we believe, would be improved, addressed. As for the prismatic battery, in next year, a joint venture will be established. In the meantime, we do have the responsibility to lay foundation, and investment needed for that will be executed. As for the Automotive Solutions, why year-on-year decline? As we've been saying, in Japan and the Japanese company's global business, there is no issue there. The issue is solely with Europe.
The development peak in Europe is this fiscal year, fiscal 2020. In terms of profitability, we see a big decline year-on-year for Automotive Solutions. For the second quarter, the development expenses associated with this would be sizable. Therefore, the loss in the Automotive Solutions are expected to continue in fiscal 2020, large development expenses. That is the nature of the Automotive Solutions. That is for AM and Tesla business. About the pricing, of course, we cannot comment on that. China and U.S. companies. In the U.S., Tesla and Haslam is in the U.S. company. That is a purely U.S. company, Haslam. The U.S. local human resources are increasing. Haslam is really almost 100% American. Various shared services and procurement, standardization, and the increased speed thanks to the local management is being felt. The top management meeting between Mr. Suga and the local management would be very important.
Anything local would be led by the local management to be supported by the management here in Japan. That is the significance of having the US company. As for China, we have many operating sites and resources in China. In terms of business, that's the axis along which we do the operation. Now, for the first time, Mr. Homa is looking at life science and other areas. At the same time, he is the General Manager or the Managing Director of the China operation as well. This is the first time that we are looking at the China business as one business. Mainland China, Hong Kong, Taiwan, and Korea as well. If we include those regions as well, in other words, China and Northeast Asia, Mr. Homa is responsible for China company, JPY 700 billion. Not just mainland China, but greater China.
How much business? JPY 2 trillion is the size of our business in the greater China area, which means that this is really a sizable business. Amongst the Japanese companies operating in China, we will be one of the largest. We have just embarked on our Chinese business with this new approach. Materials procurement, the indirect, the back office functions, as well as shared services, these are becoming a reality. China company and to look at the Chinese operation to be represented by one Managing Director, I think that will mean a great room for growth for us. Now, Shinazan of AP and Life Solutions, Nichi Urasan, are responsible for the global businesses. The global businesses and the local focal areas, Homa-san is responsible for China in that respect. If you look at Chinese fears, would that mean anything for global business?
As far as communication is concerned, we are looking at the global businesses based on five different segments. Next question. The gentleman in the second row. Thank you, Ono from Morgan Stanley. Simple two questions. Earlier, Mr. Umeda talked about the strengths and weaknesses among the different segments. The higher sales or lower sales, if you look at the graph, part of it, for example, compared to the plan that you announced at the beginning of the fiscal year, there are some opposite trends. For example, lighting, there is an expected little plus, but it is minus. Process automation, especially, is negative. Also, media and entertainment, those are the three ones that I noticed that they are showing the different opposite direction. Business size is big, so you are likely to be influenced by the market conditions. Maybe you are feeling the impact of the China market.
We are starting to see that probably. How do you evaluate that? That's my first question. Yes
. Media and entertainment and lighting, yes, if you look at the first quarter, it's lower. As for lighting, the shift to LED is happening. The installation equipment, not only in Japan, but in Asia, we are seeing the weakness in the replacement. There are signs of recovery, but in Q1, the lighting was down. As for other LS, Life Solutions, this is mainly Japan business, but mostly it's up or increasing. The major difference you mentioned is the process automation. Last year, up to Q4, process automation, the mounting equipment, there was a question why we are not seeing the impact from China. We said that we have virtually no ICT. It's automotive and also the automotive electronic manufacturers.
China's impact is shifting from ICT to automobile. Now that the sales of cars in China is faced with a headwind, especially European car manufacturers going to China, and especially the automotive electronic manufacturers are reducing the CapEx. Process automation, we are seeing the shift from the ICT to automotive, but we are now seeing the impact on the automotive. In Q1, the lower sales and lower profit were recorded. That was the major change. The impact of China in IS, the motors, capacitors, we are seeing the impacts in those businesses. We, of course, expect some impact from Chinese market conditions. We said that the lower sales and lower profit are in our forecast. In that sense, the impact of our Chinese market or the risks are already discounted or incorporated in our forecast.
Of course, we will start to see the actual numbers. As a whole, I think we are on track where we are in line with our forecast. Thank you. My second question. On page nine, the business portfolio, the rationalization, and you mentioned reform, rather. You mentioned in May that the feedback from the market and the direction that you are heading toward is not very clear. I think that was the major feedback that you received. How do you show your changes to outside? What are the things that you keep in your mind? Of course, you won't be able to talk about the specific examples, but what kind of or the types of the actions you can talk about so that you can show you're making progress? What kind of changes do you expect?
Maybe you can give us some ideas. If you look at the total picture, of course, we would look at our ROIC. We are trying to increase the competitiveness of Prismatic Battery or town development business. Those businesses are the businesses that we would be making investments. Also, we have some capital investors. That is why we made a decision about the town development. As for the Prismatic batteries, for example, for the EV and hybrid cars, those are the batteries that we can use. For example, Chinese government policy, according to the mass media, has shifted not only the EV, but they can also go for hybrids. That means that Toyota can lead so that as a car manufacturer, they have their own time frame and they make their own decisions.
From our perspective as a battery manufacturer, automotive batteries, EV batteries, and hybrid batteries are quite different in terms of the capacity, and the investments are also very different. I think this would be led by the car manufacturer. This is how we need to make an investment in an appropriate way. We are very much focused on the ROIC. The remaining three, improving the profitability, there are specific examples. Also, there are some going on or in process or something that we cannot yet announce. ROIC improvement and also improving the profitability is something that we are trying to realize. Thank you. We are running out of time, but just one request. The reason I asked the question is that in May, you talked about the three segments: core growth, revitalization, and core creations.
The market is focused upon, well, JPY 4.2 trillion is shown for the first one, but the others were blank. From the market perspective, what would be the image in three years, five years? Are we going to see the increased sales or increase the profit? Quarterly, if possible, if you can show us that, the progress that you are making in relation to those three business classifications, that would be helpful. Thank you very much.