Before presenting the financial results, I would like to express our deepest condolences to the families of those who lost their lives in the Kumamoto earthquake that occurred two days ago on the 28th, and to extend our heartfelt sympathies to everyone affected. While no significant impact on our business operations has been confirmed at this time, the group will continue to closely monitor the situation, place the highest priority on ensuring the safety of our employees, and take all necessary measures. We will consider providing necessary support, taking into account the situation in the affected communities. We sincerely pray for the earliest possible recovery and reconstruction of the affected areas. Now, the consolidated results of Panasonic Holdings for the first quarter of fiscal 2027 ended June 30th, 2026. First, a summary.
Sales and profit increased to mark the highest first quarter profit, driven by higher than expected sales of AI infrastructure-related businesses and adjacent businesses, benefiting from the growing data center demand. Overall sales increased on higher sales of Panasonic Connect, Panasonic Electric Works, Panasonic HVAC & CC, Panasonic Energy, and Panasonic Industry. By business, AI infrastructure-related posted a significant sales increase as previously communicated, and so did adjacent businesses, including FA solutions and process automation. Adjusted operating profit, or AOP, increased in all segments, particularly in Panasonic Connect, Panasonic Electric Works, and Panasonic Industry. OP and net profit increased on an increase in AOP. Full year forecast has been revised upward both for sales and profit, reflecting growing AI-related demand and its spillover effects. By segment, sales and profits are revised upward for Panasonic Connect, Panasonic Electric Works, and Panasonic Industry, reflecting strong first quarter results.
Now, some details of the first quarter results.
For the consolidated results, sales totaled JPY 2,018.9 billion, up 6% year-on-year. AOP was JPY 186.4 billion, an increase of JPY 94.9 billion year-on-year. OP increased to JPY 182.5 billion, surpassing the previous record high set in 1985 to mark the highest first quarter level in 41 years. Profit before income taxes and net profit also increased.
Next, results by segment. The following few slides show the year-on-year variance analysis of sales and AOP. First, sales by segment. Panasonic Connect posted a sales increase on higher sales of process automation, capturing demand for ICT, including AI servers, avionics, and Blue Yonder. Panasonic Electric Works saw a sales increase owing to steady sales both in the Japanese and overseas markets. Panasonic HVAC & CC posted higher sales overall, owing to increased sales of room air conditioners, air-to-water in Europe, and cold chain. These factors offset the non-recurrence of the year earlier large-scale environmental engineering order.
In Panasonic Energy, sales of in-vehicle increased due mainly to higher sales at North American factories and price revisions. Sales of industrial consumer increased due to higher sales of energy storage systems for data centers on strong demand from the growing generative AI market. Panasonic Industry posted increased sales on higher sales of products for AI-related infrastructure businesses as well as FA equipment, including servo motors and servo sensors for semiconductor manufacturing equipment supported by data center demand. Smart Life posted an overall sales decrease despite higher sales in Japan, mainly of personal care products, due largely to lower overseas sales, including large-size appliances in China and AVC products in Europe. Next, AOP by segment. AOP increased in all segments, particularly Panasonic Connect, Panasonic Electric Works, and Panasonic Industry are driving the group's profit growth. In Panasonic Energy, AOP increased overall.
By business, AOP in in-vehicle slightly decreased, due mainly to increased fixed costs resulting from the ramp-up of the Kansas factory, while AOP in industrial consumer significantly increased due to higher sales of energy storage systems for data centers. Next, year-on-year OP analysis. From the left, increased sales in real terms, JPY +40 billion. Fixed costs, JPY +19 billion, reflecting a JPY 35 billion effect of restructuring undertaken in fiscal 2026, despite strategic investments and inflation. Raw materials and logistics prices, JPY -37 billion, due mainly to price hikes in copper, resin, and memory. The price revisions and rationalization on other initiatives, JPY +54 billion. Blue Yonder, JPY +9.9 billion or JPY 6.9 billion rather, due to higher sales of SAP products driven by Cognitive Solutions and improved gross margin, in addition to lower strategic investments. Exchange rates, JPY +12 billion.
As a result of the above, AOP increased by JPY 94.9 billion. OP, including other income and loss, increased by JPY 95.6 billion- JPY 182.5 billion. Cash flows and cash positives. On the left, operating cash flow for Q1 significantly increased to JPY 372 billion year-on-year, due mainly to the monetization of the U.S. IRA tax credit through direct pay. Net cash was JPY -505.8 billion.
Next is consolidated financial forecast for fiscal 2027. This is the consolidated financial forecast. Overall sales is revised upward by JPY 200 billion, and AOP is revised upwards by JPY 50 billion, both reflecting growing AI-related demand and its spillover effects, particularly in industry and connect. Operating profit is revised upward by JPY 40 billion and net profit up by JPY 30 billion. This shows the fiscal 2027 outlook for demand by segment. Blue is the positive changes, red is negative changes. Key changes are highlighted. At this point, we expect a limited impact from lower demand in our various businesses affected by the situation in the Middle East. AI-related products demand, including BBU, capacitors, and multilayer circuit board materials, are growing steadily as expected. Another positive development has been the growing demand for mounting machines in connect and FA solutions in industry.
These businesses continue to grow, surpassing our initial expectations, along with adjacent businesses such as semiconductor manufacturing equipment, which are benefiting from strong demand from AI data centers. This is a full-year forecast by segment. As mentioned on the previous slide, overall forecast has been revised upward, particularly for connect and industry.
Starting with the next slide, the assumption of the revised forecast and the key factors behind the changes will be explained. This shows the AOP forecast analysis by factor in comparison to the initial forecast. Upper graph is the initial forecast. Bottom is the revised forecast. The middle row is the revised amount. As shown in the far right of the middle, OP is revised up by JPY 40 billion from JPY 550 billion- JPY 590 billion. This consists of higher AOP by JPY 50 billion and a deterioration in other income and loss by JPY 10 billion.
About AOP, positive impact of higher sales is JPY 30 billion. About raw materials and logistic costs, negative impact of material price hike is expected to be JPY 66 billion, while price revisions/rationalization to have positive impact of JPY 59.6 billion. As for Blue Yonder, positive impact of JPY 4.4 billion and Forex has positive impact of JPY 12 billion. Those are expected. In the initial forecast, we factored in JPY 30 billion risk related to the situation in Middle East and memory price hikes, and we have reduced this to JPY 20 billion. With JPY 50 billion increase in AOP and the impact of other income and loss, we revised our operating profit forecast upward by JPY 40 billion. Now let's look at the individual businesses. First, AI-related business of Industry. The lower-left graph shows the results and the sales forecast for AI-related businesses.
Q1 of fiscal 2027, sales reached a higher than expected JPY 74.9 billion, 1.4x year-on-year, driven by strong customer demand. Reflecting the current favorable business environment, the full-year sales forecast is revised upward by JPY 40 billion- JPY 310 billion from the initial forecast of JPY 270 billion. In response to the strong demand, we are rapidly expanding our supply capacity. For multilayer circuit board materials, we are strengthening our supply chain, including multi-sourcing of key raw materials like glass cloth, in addition to building new production plants. For conductive polymer capacitors, we are accelerating plans to expand capacity at our manufacturing sites. Furthermore, supercapacitors are attracting increased attention due to the surging power consumption of AI servers.
In addition to the CBU solutions under development with Energy, as previously discussed, we plan to start the mass production of devices for external customers at the Chitose plant during fiscal 2027. With strong demand, AOP margin is steadily improving, and we will continue to pursue proactive business expansion going forward. Next, the outlook of energy storage system for data centers in Energy. The lower-left graph shows the results and the sales forecast for energy storage system, or ESS, for data centers. Strong growth continues as expected. We are also rapidly expanding our supply capability. For cell production, we are converting our production lines in Japan from automotive applications and also plan to start the mass production of cells at the Kansas factory in fiscal 2029.
For module production, the second Mexico plant is scheduled to start mass production in Q2 of fiscal 2027, followed by the third plant in fiscal 2028. To support expansion of the module production in Mexico, we are steadily advancing the localization of the broader supply chain, including power supply manufacturers. Furthermore, we would accelerate the evolution of our products to further strengthen our Industry position. For CBU solutions, which are becoming increasingly essential as the chips continue to evolve and become more sophisticated, we plan to start the mass production of our CBU solutions in fiscal 2027 in collaboration with the Industry, leveraging our unique strength of having in-house core technologies in both batteries and capacitors. We will further enhance our competitive edge. We also plan to complete the preparations for mass production of next generation BBU built for HVDC within fiscal 2027. Lastly, the outlook for in-vehicle.
The line graph on the left shows the sales volume trend of in-vehicle batteries in gigawatt-hour in North America, and the bar graph shows the EV unit sales trend in the U.S. EV sales volume in the U.S. has been steadily recovering from the temporary slowdown experienced in FY 2026. Demand for our batteries from our strategic partner remains strong. On supply side, however, we face challenges in ramping up the Kansas factory. We were unable to achieve the initially planned supply volume for Q1 of FY 2027. Given the continued strong demand for our strategic partner, we plan to supply 46 GWh for full-year, in line with our initial forecast, by optimizing production mix between Kansas and Nevada from Q2 of FY 2027.
The first questioner is from Nihon Keizai Shimbun, Nikkei. Taketatsu-san, please. Taketatsu-san?
Can you hear me?
Could you please speak up?
Can you hear me better now?
Yes.
Thank you. Actually, I am using Taketatsu-san's link, but I am Misumi. Thank you. I have a question on data center demand. The benefit of demand for data center, not just the energy storage systems and capacitors, the so-called AI-related, but I understand that effect is spilling over to other periphery areas as well, like FA. Do you think this is a special demand, a temporary one, or do you think this could be sustained?
Thank you for your question. In the periphery areas, the demand growth that we are seeing now, is it temporary or sustained? That is your question. We believe this could be sustained. Let me talk about the structure of our business. At the beginning of the year, the BBU in energy and in capacitor industry and electronic materials, we have been talking about that in the initial part of a year, but now it is expanding into the peripheral areas, like mounting machines of Connect, as well as servo sensors of Industry. We are seeing demand in these servo motors as well. In other words, our beginning-of-the-year forecast has been rather conservative, looking only at a more assured demand growth. But now we do see the demand growing in the periphery areas as well, which was reflected in the results of the first quarter.
I have another question about Blue Yonder. AOP, upward revision, JPY 30 million, resulting from improvement in gross margin. What was effective, more specifically? And then there is the JPY 23 billion, or JPY 23 billion in loss in AOP. So what measures will you be implementing to improve on the profitability going forward?
Thank you for your question on Blue Yonder. I'd like to show you some specific figures to be more clear. If you can look at page 26 of our material, you can see the figures related to Blue Yonder. A gross margin improvement, where does it come from? If you can look at the upper left, this is the standalone in million U.S. dollars, Blue Yonder standalone basis. If you can compare the first quarters of last fiscal year and this, you can see JPY 36 million increase in sales, but a JPY 51 million increase in terms of AOP, which contributed to the profitability improvement. There are two factors. First, strategic investments. With a Cognitive Solutions deployment to make it the native SaaS, we have been making investments last year. Now it has been narrowed down, $25 million or so less this year
Which is accounted for in the profit last year. For the remaining $25 million, comes from profit. A JPY 36 million improvement in sales, and this had a major contribution for the adjusted operating profit improvement. Once the product is solidly developed, the marginal costs for the sales in the ensuing period would be limited. Therefore, we are seeing the pipeline being developed this year, and we are seeing the orders coming in as well, which is contributing to the margin improvement.
You asked another question. Again, going back to the same slide. JPY 23 billion loss this year. What about next year, was your another question. It is very difficult to talk about specifics, but JPY 23 billion is the total of the standalone and the intangible amortization following the acquisition. We expect the standalone operating income to improve, AOP to improve significantly next fiscal year.
Thank you very much.
Next question from Toyo Keizai, Yamashita-san. Please go ahead.
Thank you. This is Yamashita from Toyo Keizai. I also have some questions.
Yes, please. Go ahead.
First question. Once again, the Q1, the structural reform in the previous year, the results of it have been emerging. How would you evaluate that? Smart Life, I think in terms of profit, the effectiveness of the restructuring is reflected. More recently, I think that the core is the AI strategy. After the structural reform in the consumer electronics and others, did the positioning of the different businesses such as consumer products change? Could you give us your response to those results?
Yes, let me answer to your question. First of all, the restructuring that we have conducted since last year, we are seeing the good results of it, and we are seeing the reflection of that.
The total number, about JPY 35 billion per quarter up to Q3 mainly. For the full year, we expect JPY 100 billion or so, I think we are on track in achieving that. As for the cost of the restructuring, the major areas as of the last fiscal year, we already explained that. In conducting all of them, Industry and Smart Life, also the corporate, I think those are the areas that we spend the most. For each segment, if you can check on the results, I think you can see that the higher profits are realized. As for Smart Life, as you asked in your question, since last year, we have worked on the restructuring, the revenue, due to the lower demand in China, led to some decline. In terms of profit, I think we have seen the clear recovery.
Does that answer your question?
Thank you very much. I do have another question. Earlier you mentioned the Connect and the mounting machine business is doing very well. That is very interesting. There are ups and downs, but in Q2 and onwards, can we expect that the strong demand of AI-related to continue?
Yes. In Q2 and onwards, we believe that we can continue to expect that. Until last fiscal year, the cyclicalness of the demand in China, that led to the downtrend, or there was a risk of that for the mounting machines. That is what we said last year. Is it cyclical or is it supercycle? Without starting the downtrend, I think that we are seeing the strong demand, and we are getting the strong pipeline from the Taiwanese manufacturers. We expect this trend to continue in Q2 and onwards.
Thank you very much. That is all the questions.
Thank you. Next. Please ask your questions. Two questions altogether at the beginning. Ono-san from Nikkan Kogyo Shimbun, please.
Can you hear me?
Yes.
Thank you. Ono from Nikkan Kogyo Shimbun. I have two questions. First, to Waniko-san. Upward revision has been made, and the operating profit is expected to set a new record for the first time in 42 years, I understand. What is your personal take on that? Things that were difficult in decades, and so for the first time in 42 years, the new record is to be set. I know that AI-related business is a plus, but what others are the factors? My second question is on Panasonic Energy factory. You said that you are struggling with a ramp-up. Since the business environment is favorable, I think you need to really expedite the ramp-up to capture that momentum. What are the reasons for the difficulties you are facing? Is it materials or is it the infrastructure, the facilities related, or the shortage of labor?
Thank you for your questions. First, upward revision. First time in 42 years, that is the full year operating profit. What is my personal take? I believe this is just a starting line. Not that we have achieved something, but rather towards FY 2029, we are to aim for even higher standards. That's what we have been communicating as a group. We really need to work towards that. That's my frank reaction. What are the factors for this new record? Lots of factors. Last year, we implemented structural reform that have really inconvenienced and caused pain to many people. We have also worked on the businesses with issues, and we need to continue with these efforts. Including the capital market capitalization, which we really haven't seen much progress, I think everything that we worked on diligently has come together for a big effect.
Your second question was about our Kansas factory. It's really the operational factors, the proficiency factors, that is resulting in the current situation. We had assumed various situations based on our experiences, but there were some unexpected cases as well. Not just Kansas factory, but from Nevada. We will be providing a support for a quick recovery because there is a strong demand coming from customer. We consider this to be the top priority, the ramp-up. As for recovery in Q2 onwards, there are two things. One is to make sure we go back to the initial trajectory of the ramp-up of Kansas factory, and we need to catch up on the cumulative basis. Since we do have a factory in Nevada, it's including the model mix. Our plan is to have a combined result to achieve the initial forecast. Thank you.
Thank you very much.
Next question from Nikkei Business. Yuato-san, go ahead.
Yuato speaking from Nikkei Business.
Yes, please go ahead.
I have two questions, if I may. First, well, this time, you exceeded your plans and for the full year, for the first time in more than 40 years, you're updating the results. The share price has gone up, and maybe it's in the adjustment phase. AI-related name is a part of the reason, I think, to push up your share price. There could be some risks involved as AI manufacturer. How do you see the risks and opportunities? Another question is about the highest profit is expected for the full year. The fiscal discipline, investment discipline, could you comment on that as well?
Yes. Thank you. Let me answer. The highest profit for the full year is expected, and how do we evaluate the current share price? Yes, as you commented, as a AI-related name, that's kind of a big category, and some time ago, we went up to the very high share price, and more recently, it's in the adjustment period, and you're right. About that, well, we are not in a position to determine our share price in the market. For us, we need to do what we need to do. This highest profit is not our goal. We want to go higher in the next fiscal year and onwards. We want to take actions for that, and we want to communicate so that you can understand that.
As a result of it, I think that how our company is evaluated is something that is decided in the market, and that's how the share price is determined. As for the second fiscal discipline, in the medium to long term, we would like to maintain the good discipline to expand it, so including the AI-related businesses.
If there continue to be upside in revenue and cash, I think we should consider a further increase. As for the AI-related businesses, I think it's growing more than our expectations. Additionally, I think that without a delay, we need to increase the investment and increase our production capacity. I think we have to look at both of those factors in a good balance so that we can control it well.
Thank you very much.
Thank you. We're getting close to the end of the journalists' question time, so we will only take one more question from journalists. From Yomiuri Shimbun, Masuda-san. One question, please.
Masuda from Yomiuri. One question. This fiscal year was positioned as the year to transition into the growth phase. Looking at first quarter, how successful do you think you are in terms of transitioning into the growth phase?
Thank you for your question. Yes, we are to transition into the growth phase this fiscal year. That was the message of the management at the beginning of the year. We do see the effect. If I could repeat what has been said, for FY 2029, generative AI products in Panasonic Energy and Panasonic Industry are the core areas expected for growth. How can we actually see the financial results in those areas would be the key. As far as the first quarter is concerned, as you have seen, we have seen the results as expected.
I see. Thank you.
Thank you very much. That's all the time that we spend with the journalists. Now I would like to take questions from institutional investors and analysts. If you have any questions, please click, but we are only taking questions in Japanese channel. Once again, we are taking questions only through Japanese channel in Japanese language. First, from Goldman Sachs, we have Harada-san. Go ahead.
This is Harada speaking from Goldman Sachs. Thank you very much. I have two questions. First, AI-related has been the driver. I think that was one of the characteristics. On page 11, you are showing the Panasonic Connect FA and FA solution in Panasonic Industry and AI-related and the semiconductor-related. How much of those businesses out of the total? A related question about the Panasonic Industry on page 14. What I'm interested is in the edge area, the robotics is mentioned.
Physical AI, for example, China, Korea, there are some movements that we see in some of the names. Is the physical area also related to your business? Could you comment on that? That's my first question. The second question is that the BBU and MEGTRON and capacitors are much talked about. In your case, MEGTRON capacitors, technically, you are, I think, leaders, but at the same time, Taiwanese players, I think that they are expanding their capacity. Competition, it's not just based on the technology, but you have to also consider the capacity and the sales channel and so forth. Vis-a-vis the global competitors, how do you plan to compete against them? If you can talk about the strategies. Thank you.
Thank you. Let me answer to your questions about the AI-related.
This time, in Panasonic Connect, the mounting machines and also FA-related business in Panasonic Industry, what is the percentage of those? Specifically, I cannot clearly say the percentage number. In the appendix or supplementary material, for example, in Panasonic Connect, the mounting machine, the process automation is the subsegment. In terms of sales, it's about JPY 85 billion booked in Q1. I'm not saying that all of them is AI, but the mounting machine and the welding machine, that is the area of the process automation, and that's the size of the sales. FA-related solutions in Panasonic Industry, in the subsegment, there is a sub FA solution in Panasonic Industry. If you can check on those numbers, you'll be able to see. The GR and robotics, about those We are not seeing the large scale numbers.
In the future, there is a potential, and there are various devices that we can contribute. That is the current situation. MEGTRON and capacitor capacity expansion. Taiwanese players have been very aggressive in doing that. Yes, we recognize that fully and especially MEGTRON for the circuit board materials. I think that we have a very high product capability, but production capacity expansion was some of the challenges that we had. Now we converted the phase completely. The capacity expansion for the circuit board, the Ayutthaya and other areas, Sukhothai and others, we explained that in page 14 of the presentation. We would like to show the expansion of the capacity so that we will not be late in responding to the demand in the market and try to increase our position.
Within the Holdings, how you see those businesses and of course, you are a conglomerate, in some cases, it's possible that the decision-making could be delayed. Is that something that the Holdings is very much focused upon, so we don't have to worry about that?
Correct. You do not need to worry about that.
I see. Thank you very much.
From BofA Securities, Hirokawa-san, please.
Thank you. Hirokawa from BofA Securities. My first question is on company overall. For first quarter, the AOP, high level. Compared to your internal plan, which you did not disclose, how better or how worse was it? On page 13, you do have the variance analysis for OP. It has been reduced due to a buffer. My second question is on industry. You said that first quarter was very strong. When we triple the results for the first quarter, it will be JPY 1.3 trillion, whereas your forecast is lower than that. What risks are you incorporating in your forecast? I think these are the areas where you can expect growth in ensuing quarters. I would like to hear what the risks that you are taking into account are.
Thank you for your questions. About the first quarter results, how did they compare to our internal plans? The results were better than our internal plans. Generative AI-related products did grow as expected, but as was mentioned earlier, servo motor sensors and mounting machines, this periphery area products grew much further than we had expected, therefore the actual results were much better than our internal plan. Other income, JPY 10 billion, I think is your second question. We can't really pinpoint to any particular areas, there are various projects that are continuing, that's a buffer related to that. Industry sales forecast is not 4x the results of the first quarter, you said. It's not that we expect any slower momentum, the effect of the foreign exchange is part of the forecast.
Business momentum itself for the second quarter, we do not foresee any risks of the current momentum being lost. We believe sales and profits will be the same or stronger in the second quarter onwards.
I see. Thank you.
Thank you very much. Next question. There are many people who have raised their hands, we'd like to limit the number of the questions to one question per person. UBS Securities, Kenji-san.
Thank you. Kenji from UBS. Wonderful performance. Congratulations. About BBU, I have a question, three small questions actually. The intent of the question is that in Q2 and onwards, is there upside in sales? Q2, the module will be manufactured in Mexico, you mentioned. How much of the impact is expected? The second part If NVIDIA Rubin will be emerging. With that, I think that the production is starting. Q2, Q3, and onwards, per rack, the capacity is going to increase, battery cell changing from 80 W- 120 W. That's possible. The unit price, do you think that it would go up per rack?
The third point is that the inferencing, the CPU demand is increasing. CPU, the GPU, and other rack, the demand potential, would that be increasing in Q2 and onwards?
Thank you for your three questions. About PBU, the further increase in sales, is there a possibility for that? From the module perspective, the Rubin and also CPU, I think from three points you asked the questions. Before answering each, the conclusion is that on page 15, PBU, this fiscal year situation is shown. Concerning that, as we mentioned, the hyperscalers, the information from them, we are collecting, also we are looking at the demand based on that information. For full year, 1.7x or JPY 550 billion is what we aim for. That's the overall, we are not updating that number so far as of now.
As you commented, each part, in order to achieve that total number, I think that each part are incorporated as parts and components. The module, the production starting in Mexico is necessary to expand. The operation of the Rubin, I think that the percentage will be not so high, but including the capacity and our portion will increase. Non-GPU, TPU, ASIC, including CPU, various needs are expanding. For us, I think we are always having such discussion. When you look at the overall picture, I think that the JPY 550 billion is maintained at the same level, or it's not changing so far.
Sorry to be persistent. Just one point as a follow-up. With the Rubin, the unit price, do you think it would go up? The unit price increasing.
From our perspective, PBU, the solution evolution is what we are trying to do. As the evolution continues, yes, the unit price would go up. The capacity, you commented on that, the output, which is necessary, would change. The CPU was mentioned, it's not replacing PBU, but it's PBU plus CPU. Total solution will be expanding. All of these will lead to the higher unit price.
Thank you. That's all.
Thank you very much.
Thank you. Next, from Mizuho, Nakane-san, please. Thank you.
This is Nakane. Can you hear me?
Yes?
One question, I understand. I'd like to focus on cash flow. There was the IRA tax credit effects, you did revise the forecast on the full year basis as well. Operating cash flow compared to last year, how is it going to look like? If you can talk about the figures, that will be the best, my interest is this. As far as the OP is concerned, the inventory turnover is increasing. What do you think would be the impact of that on the OP? Regarding the free cash flow, JPY 20 billion investment is being expected, as was mentioned earlier. Should we expect further increase in investments going forward?
About cash flow. The first quarter cash flow, operating cash flow, JPY 372 billion, was partly related to the IRA tax credit, about JPY 220 billion. Therefore, it was higher in the first quarter. On the full year basis, we do expect cash flow to increase. Last year, it was JPY 620 billion. For this fiscal year, we expect the amount to be more than that. Regarding free cash flow, until last year, investment related to Kansas factory had an impact. With the peak out in the investment and increase in operating cash flow, we expect the three-digit billion yen free cash flow to be secured. As for the investment increase in industry
The demand is very strong, and demand is growing at a faster rate than we had been anticipating. For capacitors and electronic materials, we are implementing the CapEx earlier than the original plan. This would mean that operating cash flow would also be expedited. Therefore, we expect the cash flow to be expedited as well.
Thank you.
Let's move on to the next question from Citigroup. We have Fujiwara-san.
Thank you. This is Fujiwara from Citigroup Securities. On page 13 of the presentation material, in the middle, there are a lot of changes. The raw material prices and the price revisions are the major ones. I would like to ask each one of them. First of all, the raw material prices, about JPY 70 billion increase in comparison to the plan. In which segments and which materials and components were affected? Also, the price revisions. I think that there was an upward revision. In which segments were the major one? Also, about the industry. The demand is very strong. With further price revision, is it possible to absorb the higher material cost?
Yes. Let me answer your questions. About the higher prices of the materials, roughly speaking, it is all increasing.
I think we can say that it is not really a particular segment, but it is very difficult to find a segment which was not affected by the higher materials. Of course, there are different materials. About the rising material prices, of course, related to the oil price, the resin, memories, metal, the copper, silver, and specific for the device, tantalum and the glass cloth. Again, it is difficult to find the materials of which prices are not increasing. All the parts are affected. As for the price revisions, there are two things. One is that the material prices are increasing. As we mentioned, the price increase, price revision, we are taking the good measures. We are increasing the profit with the higher sales and the lower fixed cost.
I think that we have a very good pricing policy for the higher material cost and prices. The second point is that what is needed, for example, AI-related materials and the peripherals, I think that the demand is stronger, the supply, and there are a lot of demand. We want to make sure that we take the price policy and to increase the unit price. It's not just to reflect the higher material cost, but we want to increase the prices and especially in the devices, in the segment profit, we want to improve the bottom line or margin. We are seeing the results of that in Q1.
Thank you very much.
Thank you. We're getting close to the end time, we will only take a question from one more person. From SMBC Nikko, Katsura-san, please.
Thank you. Katsura from SMBC Nikko. One question. In the first quarter, you made this upward revision. In the first quarter earnings briefing, which is kind of rare for Panasonic. I understand that AI-related and periphery businesses were strong, was a factor. The impact of the situation in the Middle East, I think, seemed to be about JPY 30 billion. With regards to the refund of the U.S. tariffs as reported by other companies, I'm wondering if you experienced the same benefit as well. The backdrop, I think the exchange rate assumption remains the same at around JPY 140 to the dollar. There are pluses and minuses in terms of the effects on the revision. Can you elaborate on that?
Thank you for your questions. For the second quarter onwards, is there a possibility of further upward revision, I think is what you're trying to get to. The refund of the tariffs being paid as well as exchange rates, these are major factors. Basis of the businesses are strong, and I think we can expect continued growth in the second quarter onwards as well. As for the exchange rates, as mentioned earlier, we had assumed the stronger yen and weaker yen is positive for the entire group, that's a factor. With regards to the refund of the tariffs, if you can look at page 19 of our materials, you can see the combination of the tariffs impact. The tariffs being paid as well as refunds. About JPY 7 billion refunds for the first quarter and JPY 7 billion for the full year as well.
There are some uncertainties, we do not expect zero effect in the second quarter. There is a possibility of upside to a certain degree. JPY 34 in the first quarter, maintained on the full year basis as well. In terms of the new tariffs, if Section 301 is to be applied, then this could have an effect. There are many uncertainties, we're just for now assuming that Section 301 would be applied. Those are the basis of our forecast.
I see. Thank you.
Thank you very much. With that, I'd like to end the Q1 earnings call of fiscal 2027. Thank you very much for your participation today.