Thank you for gathering today. Before presenting our financial results, I'd like to offer our sincerest apologies. As we announced on the 15th of this month, we deeply regret the concern and inconvenience caused to our customers, distributors, and all our parties involved by the recall of our drum-type washer-dryers. We will continue to prioritize the safety of our customers and take thorough measures to prevent recurrence. Now, I would like to share my thoughts on the second quarter's results and outlook for the future. Details will be provided later by our Group Chief Financial Officer, Waniko. In the second quarter, profits increased in all segments to a new record high profit, continuing on from the first quarter. In particular, in the AI infrastructure-related businesses, we increased our supply capacity through agile investments in response to stronger-than-expected demand, leading to improved results.
We expect this demand to continue, and we will make sure to seize these growth opportunities. We have steadily progressed in setting course for businesses with issues and implementing turnaround strategies, including transferring assets to the best owners, converting assets to light assets, and strengthening cost competitiveness with a focus on China. We are working towards achieving ROIC above WACC, not only for Panasonic Industry's industrial devices business, which is performing well with servo motors for semiconductor manufacturing equipment, but also for electromechanical control business, Panasonic Corporation's cooking and refrigerator business, and television business by the end of this fiscal year as planned. Profitability is steadily improving in the air conditioning and home appliances businesses, positioned as business to be constructed, despite such headwinds as rising material prices and the declining demand in China.
My view is that the accumulation of these efforts had led to increased profits across all segments and to record high profits. In light of this momentum and the progress in each business area, we are revising our annual forecast upwards again following the announcement at the first quarter briefing. Details will be provided by Chief Financial Officer, Waniko, but this upward revision means we expect to achieve our AOP for fiscal 2029, two years ahead of schedule. This upward revision is a mere interim milestone. We will not be complacent, and the entire group will aspire for higher goals and accelerate efforts toward growth. Regarding the solutions area, which drive further growth, we will present a specific growth strategy at the Investor Day event in December, so please stay tuned. This concludes my initial comments.
Let me start my presentation on the consolidated financial results for the second quarter of fiscal 2027, ended September 30th. First, the summary. As mentioned in the first quarter briefing, growth accelerated in AI infrastructure-related and adjacent businesses on stronger demand from data centers. In addition, restructuring effects from initiatives in FY 2026, sales growth, rationalization, and pricing initiatives contributed to improvements across all segments. Profit increased in all segments in Q2 to post the highest second quarter profit following the trend of Q1.
Overall sales increased on higher sales of Connect, Electric Works, HVAC & CC, Energy, and Industry. By business, as in Q1, strong growth was achieved not only in AI infrastructure-related, but also across a broad range of adjacent areas, including FA solutions and process automation. Adjusted operating profit increased in all segments, particularly for Energy and Industry. Operating profit and net profit increased due to an increase in AOP.
Full-year forecast for sales and profit is revised upward significantly. AOP is revised upward by JPY 130 billion to JPY 780 billion. We are aiming at achieving AOP of over JPY 750 billion, originally targeted for FY 2029, two years ahead of schedule. We expect ROE of 10% and annual dividend of JPY 70 per share, up JPY 30. Now, some details of the Q2 results. For the consolidated financial results, sales increased year-on-year by 8% to JPY 2,073.6 billion. AOP increased by JPY 122.8 billion at JPY 13.2 billion. Operating profit before taxes, and net profit all increased, marking the highest second quarter profits. These are results by segment. In the following slides, I will go over the year-on-year variance analysis for sales and AOP. First, sales by segment.
In Connect, sales increased mainly on higher sales of process automation that captured demand for ICT, including AI servers, Avionics, and Blue Yonder. In Electric Works, sales increased on steady sales both in Japan and overseas. In HVAC & CC, sales increased overall due to higher sales of room air conditioners, air-to-water in Europe, and cold chain. In Energy, sales for in-vehicle increased due mainly to higher sales at North American factories on improved utilization at Kansas. Industrial and Consumer saw increased sales on strong demand for energy storage system for data centers. Industry posted increased sales on AI infrastructure products, including conductive polymer capacitors and multi-layer circuit board materials, and products for adjacent areas with growth in FA equipment for semiconductor manufacturing, such as servo motors and sensors.
Smart Life posted lower sales overall, despite higher sales in Japan, mainly of small appliances, due to lower overseas sales, including large appliances in China and AVC products in Europe. AOP analysis by segment. AOP increased in all segments. In particular, Energy and Industry drove the group's profit growth. Energy's AOP increased overall due to a large increase in in-vehicle on higher sales at North American factories and U.S. tariff refunds, as well as increase in Industrial and Consumer.
In Industry, AOP continued to increase significantly due to the combination of leaner business structure from structural reforms and higher sales, capturing strong demand for AI infrastructure and adjacent areas. Operating profit variance analysis by factor is shown here. From the left, increased sales in real terms, JPY +60 billion, fixed costs, JPY +21 billion on a JPY 33 billion effect of restructuring in FY 2026, despite strategic investments and inflation.
Net impact of raw materials and logistics prices, JPY -64 billion, due mainly to price hikes in copper, resin, and memory. Effect of price revisions and initiatives, including rationalization, JPY +74 billion. With a positive exchange rate effect of JPY 11 billion and positive U.S. tariff impact of JPY 21.6 billion, AOP increased by JPY 122.8 billion. Other income and loss, JPY -20.2 billion, due mainly to recall-related expenses for drum-type washers and dryers. All in all, Q2 operating profit was up JPY 102.6 billion at JPY 180.7 billion. Next, cash flows and cash positions. On the left, operating cash flow for the first half was JPY 323.1 billion, up year-on-year. Free cash flow after investing cash flow was JPY +83.4 billion. On the right, net cash was a JPY -743.4 billion.
Next, consolidated financial forecast for fiscal 2027. Sales forecast is revised upward by JPY 600 billion, and AOP is revised upward by JPY 130 billion. These are due mainly to such factors as growing AI-related demand exceeding our expectations, revision of FX assumptions, and U.S. tariff refunds. Operating profit is revised upward by JPY 120 billion, and net profit up by JPY 90 billion. ROE is expected to increase by 2 percentage points to 10%. The full-year forecast by segment. Full-year forecasts are revised upward for Energy, Electric Works, Connect, and in particular, Industry. Next, I will explain the assumptions for revised forecast, as well as the key factors behind the increase and decrease. Analysis of the fiscal 2027 AOP forecast by factor comparing the forecast announced on July 30th. The upper graph is the previous forecast, the bottom is the revised forecast. The middle row is the revised amount.
As shown middle far right, OP is revised upward by JPY 120 billion to JPY 710 billion from JPY 590 billion. The revision consists of the higher AOP by JPY 130 billion, lower other income and loss by JPY 10 billion. In the AOP analysis by factor, higher sales will have a positive impact of JPY 40 billion. The fixed costs will have negative impact of JPY 5 billion. Raw materials and logistic costs will have a negative impact of JPY 57 billion, due mainly to material price hikes, while measures including the price revisions and rationalization will have a positive impact of JPY 71 billion. FX will have positive impact of JPY 36 billion, and U.S. tariff is expected to have a positive impact of JPY 25 billion. In previous forecast, we factored in the risk related to the Middle East situation, price hikes in memory.
In revised forecast, those risks have been fully released, resulting in a positive impact of JPY 20 billion, with JPY 130 billion higher AOP from these factors, together with the impact of other income and loss. Operating profit forecast is revised upward by JPY 120 billion. Now, the outlook for each business, starting with AI-related business of Industry. This lower left shows the results and the sales forecast for AI-related business.
Q2 sales reached JPY 88.6 billion, 1.6 times year- on- year, driven by the strong customer demand and exceeding our expectations. Full-year forecast is revised upward by JPY 50 billion to JPY 360 billion from the previous forecast of JPY 310 billion. In response to the strong demand, we are rapidly expanding our supply capacity. For multi-layer circuit board materials, we decided to construct new facilities for phase II at Suzhou plant in China and Ayutthaya plant in Thailand.
For conductive polymer capacitors, we are making progress in our plans to expand capacity at Uji plant in Japan, Batam plant in Indonesia, by adding new production lines and constructing new facilities. At Yokkaichi plant in Japan, we are planning to establish a new development hub for next-generation semiconductor materials. Through these initiatives, we will more quickly strengthen both our technology and manufacturing capabilities, ensuring we are well-positioned to meet the rapidly growing demand. Next is outlook for energy storage system for data centers in Energy. The graph on the left shows the results and the sales forecast for energy storage systems for data centers. Strong growth continues in line with the initial expectations. For cell production, we are progressively converting our production lines in Japan from automotive applications. In module manufacturing, mass production at our second plant in Mexico started in September.
Through these initiatives, we are expanding supply capacity as planned to support growing sales. To address the evolution of the sophistication of the semiconductor chips, Panasonic Energy is steadily advancing the development of CBU solution in collaboration with Panasonic Industry, with mass production scheduled to start in fiscal 2027. By fully leveraging our unique strength, having core technologies for both battery and capacitors, we aim to further strengthen and solidify our market position. As mentioned, growth in our AI infrastructure-related business continues to exceed assumption. Particularly in Industry, we are seeing the extended reference adoption in GPU-related applications, strong demand growth from Chinese customers, and growing demand for edge areas, including ADAS and robotics. These diverse business foundations of our operations, spanning customers, geographic regions, and applications, have proven effective, and we now expect to substantially surpass our original target.
Given this strong demand trend, we are revising the fiscal 2029 sales target for AI infrastructure-related business to JPY 1.6 trillion from JPY 1.38 trillion, outlined in the group growth strategy of May. By fully leveraging the strength of Energy and Industry, while also creating synergies between them, we will continue to drive even stronger growth. Next is our outlook in vehicle of Energy. On the left, the line graph shows the trend in sales volume in vehicle batteries in gigawatt-hour at our factories in North America. The bar graph shows the EV sales trend in units in the United States. U.S. sales volume in the United States has been steadily recovering from the temporary slowdown experienced in fiscal 2026. In addition, demand for our batteries from our strategic customer remains strong. As a result, our Q2 shipment reached 11.4 gigawatt-hour, up 16% year-on-year.
Given the continued strong demand for our strategic customer, we plan to supply 46 gigawatt-hour for full year, in line with our initial forecast, by maximizing production volume for both Kansas and Nevada factories. This summarizes the major progress made in our group portfolio management initiatives during fiscal 2027. Regarding the transfer of the power tools business of Electric Works, after reaching agreement at the end of fiscal 2026, we completed the transaction on September 1st. In fiscal 2027, we have already announced the transfer of automotive motor and automotive cooling fan motor business of Industry. In addition, in Q2, we announced the transfer of automotive Battery Disconnect Unit business and industrial power devices for household appliances businesses. We will continue to steadily conduct portfolio management across the group. Finally, our shareholder return.
The interim dividend for fiscal 2027 is determined at JPY 27 per share, up JPY 7 year-on-year. For annual dividend, following the upward revision of net income, we forecast JPY 70 per share, up JPY 30 year-on-year. Payout ratio is expected at 30.3%. We will distribute stable and continuous dividends. Also, we aim to achieve the enhanced corporate value through business growth and profit increase. I thank you for your attention.
From Nikkei, Misumi-san, please.
Thank you. From Nihon Keizai Shimbun, Nikkei, my name is Misumi. I hope you can hear me.
Yes, we can.
My first question. The results were expected to be good, but I was surprised to see such good results. Regarding this Q2 results and forecast for the full year, for Kusumi-san, was this what you anticipated or were you surprised as well? For FY 2029 AOP of JPY 750 billion, it is likely that it will be achieved this fiscal year, this target that was set only in May. Are you going to be setting a new target?
Thank you for your question. JPY 770 billion expected for this fiscal year. At the time of the previous upward revision, we felt that there is room for further upward revision. We did anticipate that. Frankly speaking, I was surprised to see such good results.
Last year, structural reform efforts were made. 12,000 people made a very difficult decision to leave the company, and we felt that we need to do a good job to make those people who left us feel that we are doing what we can. In addition, in the AI-related area, we are seeing the demand growing at a faster rate than we had anticipated. The thorough efforts made by our workforce, as well as for the support given by all the relevant parties, we feel grateful for that. We are achieving AOP target most likely two years ahead of schedule. What are we going to do about that is your question. As mentioned at the very outset, we are going to capture this momentum.
I cannot give you any specific figures now, but maybe around May timeframe of next year, I think we will be sharing the results of our further considerations. Of course, we will be making even greater aspirations. As I always say, how far are we in terms of the restructuring efforts? I think we are only at the 20%, 30% level. What happens if we get to 50% or 40% level? Once we get that, then we will be considering the next target.
I see. Thank you. My second question. Panasonic Industry announced the investments worth JPY 92 billion. JPY 150 billion investment that you were talking about, or JPY 500 billion in combination with Energy. Is that part of that plan, is my first question. Also, I think in AI-related areas, you are seeing profits growing at faster than expected rate. What are you going to do? In addition to dividend, are you going to be making further investment? Are you going to be making further investment in AI infrastructure-related or solutions? Thank you.
We made a press release today worth JPY 92 billion. It is part of JPY 150 billion plan that we have been talking about. Demand is growing at a faster rate than we had anticipated, so to what extent we are going to make an additional investment over JPY 100 billion is what we are currently considering. As for the allocation of the upside, of course, cash flow upside is expected. One is the AI-related demand. We have to make sure we capture that demand growth, including CapEx. As mentioned earlier, we might be considering additional investment over JPY 100 billion.
In addition, when the net profit level improves, of course, that will be reflected in our dividend payment. For this fiscal year, we are expecting a dividend increase, and over medium to long term, we might consider the same.
Thank you very much.
One correction. Kusumi mentioned that the FY 2027 AOP forecast, JPY 770 billion was mentioned, but to be precise, it is JPY 780 billion. That's a correction that I would like to make.
Next question is from Nikkan Kogyo Shimbun newspaper. Ono-san, go ahead. Can you hear me, Ono-san?
Yes.
Can you hear me?
Yes. This is Ono speaking from Nikkan Kogyo Shimbun. Thank you. My first question. This time, the business results have been revised upward, so you had a very good performance. At the same time, based upon what you announced, I think there are different risks that you have analyzed. In this good performance, what is the biggest concern or risk that you need to respond right away? What kind of risks are you considering?
Well, of course, the market changes and what we plan to do. There are risks that will inhibit us to achieve that due to the external environment and competitive environment and changes in that environment. All of those are considered as risks, but also, there will be opportunities to go higher than the numbers that we mentioned. Based on that, sorry, I made a mistake earlier. JPY 780 billion is the new forecast that we came up with. That's how I would like you to understand.
Thank you. Second question. I think you said that you have already completed 20%-30% of the reform, and there are many more that you have to work on. In order to go upward to 30%, 40%, what are the biggest areas of reform that will lead to the better business performance?
Well, I would like to refrain from giving you the specific ideas, because in IR Day in December, I would like to talk about that, so please wait until then. Also, in the group, how should we make changes so that we can fully utilize the talent and the capital that were entrusted to us from the society? We are going through a lot of discussions, so when we are ready, we would be able to talk about that.
Thank you. Just one follow-up question. The content of the reform that you expect from the internal employees, are those clearly the challenges, or are those the challenges that you are finally starting to see?
That is a very difficult question to answer. Well, there are different perspectives, I think. Looking from outside, there might be something that we should be doing. There are various challenges, and in some cases, we are discussing that when we solve some of the other challenges, we can go to the challenges that you might be concerned about. In a way, the way of working that we have right now probably is preventing us from capturing all the opportunities. In that sense, we recognize that there is still further room for additional reforms. Thank you.
I see. Thank you.
Next person, Yamashita-san from Toyo Keizai, please.
Thank you. Yamashita from Toyo Keizai. I hope you can hear me.
Yes.
I have a question about the upward revisions. Through the raw materials and logistics expense increase, how are you going to recover this increased cost through price revisions? I know that is going to be rather difficult under the current circumstances, but what is the current initiative?
Thank you for your question. The raw materials price increase are taking place at a greater extent than we have initially anticipated for about JPY 57 billion. All segments are impacted, especially Industry, more specifically copper, aluminum, resin, as well as in the electronics materials, glass fiber. Also, in Connect segments, memory, because we do have the PC business, they are all affected by higher materials cost.
During the first six months, we see that trend already, and we do have the management in place to be able to absorb those increased costs through price revisions. At the beginning of the year, we were making a rather conservative forecast, and conservatively considering risk aspects. But after six months, we feel that we can absorb them. So, we believe that we can absorb cost increases through the price revisions in the second half as well. Thank you.
Thank you very much for that very confident comment.
In the interest of time, we are going to ask you to ask only one question per person. Masuda-san from Yomiuri Shimbun, please.
Thank you. This is Masuda from Yomiuri Shimbun. Can you hear me?
Yes.
Thank you. I would like to ask a question to Mr. Kusumi. So FY 2027, you mentioned that this is going to be the conversion to the growth phase. As of now, this shift to the growth phase, to what extent do you think that you are actually realizing that?
Thank you for your question. As I mentioned in response to the first question, the revision of JPY 780 billion, whether that was the surprise or not, yes, it was a surprise. That means that the shift to the growth stage is now visible. Whether we can say it is actually happening, we have to consider various risks. We cannot say that we have already started the growth phase, but we are seeing the signs of the growth phase. That is how I feel. Thank you.
Thank you very much. We will only take one more question from the journalists. Sato-san from Nikkei Asia, please.
Thank you. Sato from Nikkei Asia. I have a question on storage battery. For AI data center, the energy storage systems are selling very well in terms of volume, which reminds us of what was happening with Tesla in the past. In other words, I would like to know whether you will be considering setting up what compares to Gigafactory, a new plant. The Japanese energy storage market is not growing that fast, so I am wondering if you are considering converting the current production line. That is my question. Thank you.
BBU for data center, it is growing very fast. Do we not need to build a new factory, I think is your question. The answer is, currently, we are not considering building new plants.
When we considered new plants for Tesla, that was when the cell demand was growing, lots of demand for battery cells. Because the CapEx for that is high, we had to make investment. Whereas in the case of BBU, that only accounts for less than 20% of the entire battery energy system. Compared to in-vehicle, the capacity is much smaller. So module and other solutions, those are the products with added value. For a cell portion, we are converting the current production line in Japan from in-vehicle to BBU. Over the medium to long term, demand is growing, but since we do have Kansas, we believe that the current capacity is more than enough.
I see. Thank you.
Thank you very much. That is all the questions from journalists. Now, we would like to start the Q&A session for analysts and investors. Again, we are taking questions only on the Japanese channel. The questions are not accepted on the English line. From Goldman Sachs, we have Harada-san. Go ahead.
Harada speaking from Goldman Sachs. I have two questions. First, the business results have been very strong, so I was also surprised. First of all, about Industry, FA-related for SPE, it is increasing. The demand trend, to what extent do you think that this can continue? Also, the Industry and Energy, both the BBU and CBU, I think that you mentioned that you would establish the strong position in the market. In the market, I think that the general growth rate of the AI is exceeded by this, so this is a very promising area. But since it is promising, it is possible that the other competitors will enter into this. In order to beat the competitors, what kind of strategies do you have? That is my first question.
Thank you for your question. As for the expansion of the demand, I think that the orders, rather, it will continue to happen. About the BBU and SP-Cap and electronic materials, for the data centers, what we have to be carefully watching is that structurally, it is going to expand, but the power could be the bottleneck, and this might delay the construction of the data center. Or due to the shortage of the labor, it is possible that the data center construction could be delayed. So, the demand that was originally expected, whether that will directly lead to the orders or not, maybe in coming two years, that would not be the case.
But after that, we have to be watching this very carefully. That is my personal view. As for the competitiveness, as I have been discussing, especially about the BBU, there are multiple hyperscalers, that is AI server architecture change or new AI architecture or AI servers to work from the early stage of design and to develop the cells if necessary, and that is what we are doing. In supply, in our case, it is the U.S. hyperscaler. So, the supply chain means that the supply from the United States. So, we have been doing that. By doing so, we would like to make sure that we maintain our competitiveness. I hope I am answering your question.
About FA, the order, the strength of the order, could you give us some follow-up comment on the sustainability?
For the manufacturing equipment for the semiconductors, I think you are referring to the servo motors. So, semiconductor manufacturing equipment, especially for North America, based on the strong demand, we are doing this business. So, the demand currently is very strong, and for the time being, this is likely to continue, especially with the evolution of the semiconductor process continuing, the demand is likely to continue. The strong demand is likely to continue.
Thank you. About the business portfolio, I would like you to explain briefly. The major ones, I think, are becoming Connect and Smart Life. I think profitability on adjusted basis is increasing. Looking at each business, not the whole business, but any revisions of the portfolio that you need to make? Any thoughts on that? Thank you.
Right now, you mentioned the revision of the portfolio, whether we have started to make such adjustment, and no, not yet. But what I always say is that the talent and the capital are entrusted to us from the society, and in developing those businesses, if we see the best owners, not us, if there are such best owners, we will not hesitate to consider such possibilities.
I see. Thank you very much.
Thank you for your question. Next, we have Fujiwara-san from Citigroup Global Markets Japan.
Thank you. Fujiwara from Citigroup Global Markets Japan. I hope you can hear me.
Yes.
Thank you. I have two questions. First, about BBU for AI infrastructure. From Q1 to Q2, sales didn't grow that much, it appears. Why is that? Why did it not increase sequentially? Conversely, from Q1 to Q2 in the Industry and Consumer, I think the profitability did improve quite a bit. Why is it that profits improved more than sales? Another question, in Energy infrastructure, the target for FY 2029, you made the upward revision, albeit just slightly. What is the factor for that?
Thank you for your questions. Q1 versus Q2, especially BBU in Energy, Industrial, and Consumer.
From Q1 to Q2, didn't grow much, but on a year-on-year basis, and on the annual basis, we are achieving the milestones that we are aiming at. On a quarterly basis, on the shipment level, because of the demand on the hyperscalers' side and others, for those factors, it's not linear. It's not that there is a major drop in momentum. As for profit, since things that are shipped differ from quarter to quarter, also, for this past quarter, there were some impacts in relation to the tariff, which causes imbalance. So, those are the factors behind quarter-on-quarter changes. But on the annual basis, we'll manage this.
Thank you. How about Energy target for FY 2029? I think there was a slight upward increase.
For FY 2029, we said JPY 1 trillion as a rounded figure, and there is an impact of foreign exchange.
As for Energy, the strong demand from customers are continuing. So, it's not that there are factors aside from what we had been anticipating. So overall, it's JPY 1.6 trillion in Industry. If I could add some comments, BBU customers are currently some specific hyperscalers. So, it's limited to demand from those specific hyperscalers. But when it comes to Industry, the direct customers would be EMS and the circuit board manufacturers that will be mounting the circuit boards. But for the AI server customers that are beyond that, there are many players in the U.S. and China, and so there is a broad range variance there. So, the demand for the Industry overall would have an impact. So, there is these structural differences.
I see. Thank you. My second question is on Blue Yonder. In Q1, results or sales grew larger than expected, and I got the impression that profit was improving as well. From Q1 to Q2, sales don't seem to be growing much for AI application solutions, cognitive solutions. It appears that it wasn't growing as much. So, what was the actual situation in Q2? Profit-wise, your loss is increasing a little bit. So, is this in line with your expectation or not, is part of my question. Thank you.
I'd like to show you the slide to explain more clearly. Slide 31, you can see the sales for Blue Yonder. In Q1, pretty good results, as you remember. For Q2, slowed down a bit. There was a time lag in how the expenses were incurred. Is the momentum dropping? If you can look at the previous page, there's four quadrants. I think it's clear.
Compared to Q1, Q2 was weaker in terms of sales and profit, but year-on-year, it is increasing, and we do see SaaS sales increasing. As for significant KPI, RPO, or SaaS ARR, it is 121, 115, so it is growing. There is 1 percentage, 1.106-1. 107 improvement quarter-on-quarter. As far as important key KPIs are concerned, we are seeing the upside momentum, although there are some ups and downs on a quarter-on-quarter basis.
Thank you for the questions. Many people want to ask questions, so from now on, I would like to limit the number of the questions to one question per person. From Mizuho Securities, we have Nakane-san.
Thank you. I am Nakane from Mizuho Securities. Hope you can hear me. Thank you. The first question, or as Kusumi-san said earlier, BBU, centering around the BBU, the customer side, there might be the power shortage and the labor shortage. Because of those, there could be some delays for this fiscal year and early next year, probably we are okay. But the second half of our next fiscal year, we think that that could be a little risk. It is difficult to say when, but based on your feelings, I would like to know. For example, the parts and components procurement on your part, what do you think would be the risk?
The power supply being delayed and the shipment being delayed, could you comment on those risks? In your case, I think that the BBU is the last, and before that, there are capacitors, and CCL probably is first. There are some common customers, I think. From the parts to components and to rush, there is a flow of value chain, and also where the inventories are accumulating and so forth. I am sure that you have all those information. Based on that, how do you see this, Kusumi-san? Of course, you cannot talk about this in a qualitative manner.
Well, how can I say this? Even in the qualitative manner, it is very difficult to explain definitively.
For example, Industry and Energy, ultimately, there could be some common customers, but the data centers themselves, data center and inside that data center, there will be AI servers installed. From that perspective, power and so forth, whether we see the completion of the data center construction and the current demand that we see, whether that would become our orders, we have to be very careful to see that. That is something that I am seeing. On the other hand, the capacitor orders are coming in steadily, but if BBU are not received or delivered, there are some examples of have seen some issues due to the memories and memory shortage. I think that ultimately, the hyperscalers, based upon their procurement policy, there could be some issues or the bottlenecks, and we would like to get as much information as possible.
And for example, in our case, BBU, we procure material, manufacture, and then deliver them to the customer. So, overall supply chain, we want to minimize the lead time so that our operation can be very flexible. So, that is something that we are aware of, or that is where we are focused upon. Thank you.
Thank you for your questions. Next, from SMBC Nikko Securities, Katsura-san, please.
Thank you. Katsura from SMBC Nikko Securities. One question. I am looking at the supplementary material, page eight. Maybe this is related to earlier questions. Can you really respond, capture strong demands? And Energy Industry CapEx, I think, has been increased in terms of depreciation. Compared to the previous plan, they have been revised downward. So, what am I to make of it? Investments may be affected by foreign exchange, but delay in depreciation, is it that although you want to make investments, things are not proceeding as planned?
Thank you for your question. For depreciation, it is not a delay in business. What we anticipated at the very beginning of the year, they have started earlier. In other words, there has been a difference in balance, different from what we were anticipating at the beginning of the year.
So, it is not a business delay. As for investment, as I mentioned in relation to Industry, we are making investments ahead of schedule. It is a rather sizable investment that we announced. As for those that will affect this fiscal year, the amount is not that large. We are talking about FY 2028, FY 2029 portions being forwarded from FY 2030. So, it is not that we are expecting big investment increase for this fiscal year alone. We are expediting the investments, in other words.
I see. So, you are making flexible investment in response to demand. Got it. Thank you.
Thank you for your question. We are getting close to the end of this session, so we will take one more question. From BofA Securities, we have Hirakawa-san.
Thank you. This is Hirakawa of BofA. HVAC & CC is my question. In September, which is not the high season, 4.3% AOP, it seems that you are making improvements. Is this structural improvement? If that is the case, how is it improving, if you can give us some specifics? Also, for the second half of this year, how we should look at the market of the HVAC & CC?
Yes, let me respond. About the HVAC, especially in the first half, numbers have been very solid. Concerning that, the basic improvement is what we have seen. As you mentioned, whether it is structural or not. Naturally, the market, of course, was good.
It is a mixture of the structural and the market. In the Japanese market, due to the Top Runner Regulation, the RAC was very good, strong. The HVAC itself, I think that the price policy, rationalization, reduction of the fixed cost, we are seeing the effects of those. I think that we are seeing the improvements of these basic parts. The first half of HVAC air-to-water, especially in Europe, higher than the Industry growth, we are taking the position in Europe and recovering the top line. The bottom line is recovering. It is not really a market factor, but rather the results of our efforts that we have been making until now. As for the second half and onwards, concerning CC, in the first half, HVAC-related increase of the profit was bigger.
In the second half, the CC profit is going to be growing. Looking at the order trend and the back order level, we are seeing the increase in North America, so that will lead to the higher profit. Because of that, in the second half, we think that we can see the solid numbers. What we need to discuss is that in relation to the Top Runner Regulation, what would happen in the next fiscal year and onwards, because we think that there will be something happening. About the HVAC & CC, we want to make sure that we continue to have good numbers in the next fiscal year. We have to have a deep discussion to realize that. From the second half to next fiscal year.
Thank you very much.
Thank you for your question. We have now come to the end of the briefing. With this, we conclude the second quarter briefing. Thank you very much for your participation.