Panasonic Holdings Corporation (6752.T) Earnings Call Transcript & Summary

Good evening, ladies and gentlemen. Thank you very much for taking time out of your busy schedule to join us in this online press conference of Panasonic Corporation. Although the state of emergency declaration has been lifted, for the sake of preventing the spread of COVID-19 infection, we are holding this online press conference. Your understanding is appreciated. As of today, the Panasonic Group has, in substance, transitioned to a new system ahead of the formal establishment of the holding company and operating company next April. Today, we'll have a presentation on the management direction under the new system before taking questions from the members of the news media. Today's presenter is Yuki Kusumi, CEO of Panasonic Corporation Group. First, our group CEO, will make the presentation using the slides. The slides will be projected on the screen, but they are also available from the company website.

Good evening. I'm Yuki Kusumi of Panasonic. Thank you for taking time out of your busy schedule to join us today. As was just mentioned, as of today, October 1, 2021, the Panasonic Group has, in substance, transitioned to a new system ahead of the formal establishment of the holding company and operating companies in April 2022. The new system is generally called a holding company system. But to emphasize that each operating company plays the main role, I will call this system an operating company system. Today, as we begin the operating company system, I would like to explain the future management direction and what we aim to achieve with the new system, including my thoughts after the first 100 days after becoming the President. After becoming the CEO in April, I was unable to travel overseas due to the COVID-19 situation. Still, whenever the state of emergency in Japan was lifted, I have visited various operational front lines in Japan, including more than 10 factories mainly where I had never visited before. In addition to observing the production process, I've had dialogues with the employees at each site. I've also discussed with the heads of the operating companies how to enhance competitiveness. Through this, I have come to realize that Panasonic Group has great potential in all areas related to business from manufacturing and technology to products and services. Above all, I strongly feel that we are fortunate to have a splendid team of excellent human resources. At the same time, I realized that there is still plenty of room for improvement at each business. In particular, I have encountered cases that made me concerned about the basic way of thinking and management, which used to be fully understood by all employees during the expansion phase of Matsushita, but it seems to have faded away. Currently, we are not achieving a management style having everybody fully understand this basic way of thinking. However, this also means that if we can return to the basics of management and fully exert our potential, the competitiveness of each business will improve, make great contributions to society and business will turn to growth naturally. I'm quite confident about that. During the times of our Founder, Konosuke Matsushita, in addition to the management philosophy of the basic management objective, company creed and 7 principles, we have the Basic Business Philosophy defining our basic way of thinking and implementing the management philosophy, and we have been practicing accordingly. However, at a management policy meeting in 1982, the founder sent out a warning that the Basic Business Philosophy was being neglected, and it further faded even further after his passing away in 1989. Some say, "I know the meaning of basic management objective, company credence, 7 principles, and we will make contributions to the development of society as a public entity." However, upon transitioning to the new system, I strongly feel that each employee must return to the basics and fully understand the essence of the Basic Business Philosophy in order to implement it. Simply being familiar with the phrases is not enough. It is true that the content of this philosophy, compiled about 60 years ago, may not fit the times today or the languages might be difficult. To help all employees fully understand its content, we need an updated interpretation that complies with today's societal condition and social conventions. Therefore, we conducted a major revision for the first time in about 60 years. We call it the Panasonic Group's Basic Business Philosophy. I participated in the editing team which, for about 4 months, engaged in discussions with many knowledgeable employees, extracting what we must not forget even today based on the original idea. And we reedited the Basic Business Philosophy into a guideline that is relevant today. In particular, the information on how to implement is more strongly emphasized and described in detail compared to the original to prevent implementation ability from fading away. The Basic Business Philosophy serves as a guideline for implementing management of the Panasonic Group, and it is very detailed. Today, I'd like to give you the overview. First, we will strive to become unrivaled in accomplishing valued work so that customers select Panasonic's products and services. This will lead to Founder Konosuke Matsushita's aim toward matter and mind as one, reaching an ideal society with affluence in both matter and mind. To accomplish this, each employee should faithfully practice the customer-comes-first attitude more than anyone else as a merchant to gain customers' trust. Profit comes as a result of customers selecting us. It should be returned to society and employees as well as being invested in what we need to achieve in the future. This means investment towards solving societal and environmental issues in the areas that each operating company addresses. If this cannot be achieved immediately, make bold decisions to change the situation. To achieve such a management stop, we will thoroughly implement the idea of autonomous responsible management and employee entrepreneurship, which encourages all of our employees to make their best efforts to come up with better procedures in their own work. Furthermore, it encourages employees to fully take up the challenge and gain a sense of responsibility for greater achievements. For quicker and better decision-making as an organization, we will create a culture in which the employees can speak up and promote management through collective wisdom of all. And as a premise for implementation, we'll promote management that maximizes the potential of our human resources. This philosophy will be available to employees from today. I expect everyone, from executives to employees, to read it carefully and fully understand its content so that all of us can implement it. It is available on our website, so one can refer to the past comments and writings for further study. These contents will also be shared with public so as to demonstrate to society our commitment to implement our Basic Business Philosophy. Each employee's conduct is expected to live up to these standards, clearly stated in this Basic Business Philosophy, which can be read by anyone in society. Accordingly, all employees, including myself, will have a stronger foundation in dedicating ourselves to our work. Next, based on the premise that implementation of this business philosophy will draw out potential of employees and organizations at each business, I will explain what we aim to achieve under the operating company system. First, we should clarify the areas in which each operating company or a business division will strive to make contributions to society and environment, and make a hypothesis on the state of operating company over a 10-year horizon. We should conduct our management based on this hypothesis. It is essential for each operating company or business to contribute to the environment, and we should clarify which kind of contribution to make. Therefore, strategy and strategy formulation, we should properly consider the goals of the hypothesis for the 10-years horizon rather than numerical targets. And to achieve these goals, we should examine detailed strategies and execution plans over and over. If there's anything wrong in the hypothesis, we should swiftly adjust the strategies. This is the cycle of formulating strategies. More specifically, we will drastically reform our approach to promoting the business strategy. That is how operating companies formulate strategies and follow up the new medium- to long-term strategies starting from FY '23. Second, we must continuously enhance our competitiveness moving ahead with strategy and operational capability, which are indispensable to each other. We will clarify KPIs to enhance the competitiveness of each business. We will evaluate such KPIs instead of the result figures so that we can effectively deal with the ever-changing management issues. Furthermore, to support these transformations, management will stay close to the operational front lines and hold frequent and deeper discussions. We will improve the speed of business and the quality of decision-making, which will enable us to adjust our strategies swiftly when necessary. This is what we are aiming to achieve. I, along with other directors, will participate in the Board meetings of each operating company and proactively get involved in deeper discussions. Since April, I've been saying we will enhance competitiveness in all businesses for the next 2 years. My message may have been misinterpreted as not classifying core business or pillars of business and that we will not make investments for that purpose or that we are going to decide which business to divest. But those are not my intentions. Let me clarify. As explained earlier, the aim of operating companies is to clarify where to make contributions to society and to enhance competitiveness thoroughly envisioning a 10-year horizon. For this, it is not enough to simply define our strategies and operational capabilities. In fact, there are many things we should do based on the Basic Business Philosophy, such as thorough execution of autonomous management and cultural reform to maximize collective wisdom. In particular, it is essential for each operating company to make its own investments to achieve its aim of contributing to society and the environment. We are not working to enhance competitiveness just for the sake of temporary increasing profit over 2 years. Rather, I set 2 years as a reasonable period to have each operating company become fully used to this way of thinking. For each business to develop and thrive, we together need to establish a firm foundation. That is my intention. Competitiveness is being unrivaled as we accomplish valued work that is selected by customers. We must continue to polish our competitiveness and to make continuous contributions to customers and society. I believe this is the value of business that will eventually lead to growth in business. As long as we have such competitiveness, regardless of the size of business, it represents Panasonic. Therefore, again, as a holding company, we do not intend to classify businesses as focus areas or core businesses. Each business has its own necessary investment scale, which is not the same as the fundamental value of that business. Of course, if we foresee a certain industry shrinking in the future or a business having difficulty competing against its peers due to structural weakness, then we will swiftly take the necessary actions. However, such decisions should not be made based solely on reasons involving our own economic rationalization. Rather, individual cases should be judged carefully by considering a variety of factors and given priority to avoiding inconvenience to our customers and ensuring the happiness of our employees. With regard to the detailed aim and initiatives of each operating company, we will have an opportunity for each head of operating company to make a presentation. Therefore, at this time, I would like to elaborate on how Panasonic Holdings Corporation will make contributions to the group's development. As I explained, operating companies will take up challenges in contributions to society and enhancement of competitiveness by envisaging a 10-year horizon. The aim of the holding company is to envisage our future even beyond that period and to devote ourselves to enhancing the group-wide management foundation. This slide shows the 5 roles. The first point is what I explained earlier. The fourth point is also related to my previous explanation, and I will talk about the GX and DX later on. The third point is to maximize the potential of the human resources. Now the fourth point is also related to the previous explanation of how to improve the competitiveness at all businesses. As I said, each operating company plays a major role in developing its business. As a holding company, we will be taking actions toward our group's development where necessary. The fifth point includes the financial discipline and thorough implementation of safety and compliance. And let me talk about the second point. Now specifically, we will focus on the 6 key initiatives: Green Transformation, which we announced in May 2021, to help accelerate environmental management; Digital Transformation; Gemba innovation; design management; brand management; and various accelerated innovations. In the next few slides, I would like to elaborate on the progress of GX as well as initiatives in DX, which are being promoted as one of the CEO projects. First, I would like to explain the progress of Green Transformation, particularly the need to prevent a global warming, recognized as the most serious social challenge. At the CEO briefing in May 2021, we announced our commitment to achieve zero CO2 emission at all operating companies by 2030. We have already established detailed road maps to achieve this goal at all operating companies. Also several businesses have drawn up their plans to achieve the target well ahead of the schedule, the year 2030. For individual plans, we will make an opportunity for each operating company to explain its vision. This will be given by each operating company in the future. Now this area can be viewed as a minimum requirement for approval by society to continue our business. Our Basic Business Philosophy stipulates that as long as we conduct business activities with resources and trusted to us by the society, we will effectively utilize them as much as possible, and make contribution to society. With the idea that the company is a public entity of the society, as a basis of our management, we will further accelerate our initiatives to reduce CO2 emissions, not only emitted directly from Panasonic but also by customers and society. Panasonic products are used by more than 1 billion customers globally. The total CO2 emission calculated from those products is approximately 86 million tons a year. The scale of emissions, which is classified as Scope 3, proves how we have been deeply involved in our customers' daily lives through electrification since the foundation of the company. And at the same time, we recognize this as a responsibility. Thus, we are determined to continue our efforts to reduce CO2 emissions going forward. So Panasonic will develop proposals to reduce the CO2 emissions of others through the products and services we supply, which means that reducing CO2 emissions at B2B and B2G customers. This is regulated at the size of contribution in reducing CO2 emission according to IEC or International Electrotechnical Commission. By 2050, we aim to achieve a greater scale of contribution in reduction beyond the emissions of the Panasonic's value chain. And specifically, we are considering offering solutions in CO2 reduction that accumulated through our manufacturing operation to other manufacturing customers. The more we polish our competitiveness in these businesses and make contribution to customers and the Earth, the closer the world can get in achieving the carbon neutrality. We devote ourselves to accelerating our efforts to meet those challenges in the future. Next, let me talk about the DX. To attain excellent operational capability as a group, promotion of DX is essential. Thus, we will immediately conduct transformation to support each business, promoting DX and raise the level of group-wide IT management infrastructure. In our group, there are various systems introduced by each business based on the individual [ priorities plus the requirements ]. As a result, IT infrastructure has not contributed fully to the speedup of our management. Unfortunately, this is our current status. To break the status quo, we will transform the IT infrastructure and we will utilize IT systems to transform business procedures and work style. In other words, we would increase the speed and quality of the management through IT. To achieve this aim, we named this project as Panasonic Transformation, and we'll continue to promote it as one of the most important management strategies beyond IT transformation. CIO, Tamaoki, who has a vast experience as an IT specialist, will lead this project. I am also committed as a project owner. In PX, we will steadily promote the IT system transformation. Our intention is to evolve business processes according to changes in society and business environment with IT, not to regulate the business processes. Let me explain this point. Traditionally, one of the main purposes of IT was to regulate the business process. However, it is essential we continue to evolve its business process swiftly and tirelessly. In other words, with agility according to social and business environment changes. Therefore, we would transform business processes to become agile, including building systems and shifting to the cloud. In addition, we will establish data-driven infrastructure to utilize data for management by analyzing various data closely. Under the operating company system, we will thoroughly implement autonomous responsible management at all businesses. But for IT, the holding company will support the operating companies and have a firm grip with necessary governance. The holding company will support each operating company's competitiveness as well as taking advantage of group-wide economic scale. Through PX promotion, we aim to achieve speedier management as a group and to become the leading company in the industries. Lastly, I'd like to explain the management that maximizes the potential of human resources. When Panasonic makes contributions to the society, human resources plays a central role. In other words, individual employees. Panasonic has approximately 240,000 employees globally with diverse personalities and talents. The holding company will proactively support the challenges taken up by individuals. For example, to expand opportunities for challenges and actions taken up by employees, we continue to exchange human resources proactively among businesses even after the transition to the operating company system, making the most of the group's organization. The value of individuals are becoming more diversified and challenges also are becoming diversified. Anxieties and worries of individual employees are also different. We will remove those various obstacles and accelerate initiatives to maximize diverse value of employees so that the employees feel happiness and are proud of working at Panasonic. Recently, diversity and inclusion includes the notion of equity. Equity means providing equal opportunity for challenges and actions taken up by employees. Panasonic Group proactively promotes DEI in our workplace. However, Panasonic Group's HR system and operations are not yet sufficient -- not sufficient enough to support the DEI promotion. For example, evaluation of the employees who are raising children. Therefore, we will swiftly solve those shortcomings. Matsushita Electric Industrial, which is the former name of Panasonic, was the first company in Japan to introduce 5-day work week. We were considered to be advanced company in terms of the management that maximizes the potential for human resources. However, we are now learning these initiatives from other advanced companies. Going forward, we aim to become advanced company again in maximizing the potential of human resources. Thus, every single employee will be able to exert their personalities and capabilities to take up challenges in the business areas for Panasonic Group to address and make contribution to the society. To accomplish Panasonic's aim of achieving an ideal society with affluence in both matter and mind, there are many things that needs to be done. Therefore, we will spend a 2-year period focusing on enhancing our competitiveness by returning to the basics of implementing our management, which is -- used to be the source of our strength. At the same time, we want to lay a foundation toward the goal defined by each business and changes it will bring in improving people's lifestyle and developing society, and to make contributions to the global environment. To accomplish this, adhering to our company creed, we would dedicate ourselves in our daily work with integrity through working together with united spirit. Thank you very much for your attention.

We will now take questions. The first question is from [ Soma-san ] from Nikkei BP.

[ Soma ] from Nikkei ESG. I hope you can hear me.

Yes.

I have 3 basic questions. First, for the first time in 60 years, you have revisited the Basic Business Philosophy. I'm sure one of the motivations for that was to adapt to the changing times. I think you also have to consider how well to have it well understood by all of the employees. So can you explain what way do you intend to disseminate this new philosophy amongst all of your employees? And secondly, what are the parts within the original philosophy that did not fit today's world and how you revised them? My third question, the GX, Green Transformation. To practically eliminate CO2, I wonder how that translates or how that is related to the competitiveness, which was one of the main themes of today's presentation.

Thank you for your questions. Thank you for your questions. First, about this new Basic Business Philosophy. As I stated earlier, this is now publicly available. So I encourage all of you to take a look at that and thoroughly read through this new philosophy. How are we to disseminate this amongst all of our employees? Well, many things will be needed. And repeatedly, we have to emphasize that everything is based on that. We have to have discussions about that. And of course, to make sure that this takes root, we will take up that theme in our training sessions and study sessions. But in addition, in the ordinary everyday work, we'll have to relate what we do to what is described in that philosophy. The top management of each operating companies as well as heads of each business division should take a lead in such discussions. And I, myself, whenever I meet different sites, we always hold a -- roundtable meetings with the heads of the divisions and sections as well as younger employees. And I always solicit questions. And in response, I try to relate my response to what is described in that new philosophy, the revised philosophy. So I think this is the process that needs to be reiterated. But over the next 2 years, I'd like to make sure that this is well understood. So what are the revisions? Well, in terms of rewriting the wordings from the last 60 years, all our philosophy, the principles and company creed, they all are described in a -- rather antiquated wordings. So we needed to update them to the modern language. Now with the plain Japanese, I think everyone can follow that. And we have also changed the chapter orders so that people can follow and will understand what's in them. Now 60 years ago, when the company was growing, the total elimination of waste. And if I could use the Toyota phrase, to eliminate the waste, stagnation and rework, I'm afraid those were just phrases, rhetorics and were not translated into actual work that we do, especially in some of our businesses. So in light of that situation, although it was not clear in the past, we wanted to make them all evident. The third question about the relationship between our competitiveness and the total elimination of CO2. Do I take it that you are asking this question in relation to Scope 3, Mr. Soma?

No, not necessarily. Carbon neutrality, I think, is more relevant.

Thank you. I think there are 2 things. First, what we emit from our operations to eliminate CO2 emissions from our operations, that is already a requirement from our B2B customers. And this will entail investment. But through our technology, we want to improve on the efficiency of doing that so that it will be less costly. That is one source of our competitiveness. And since we are addressing the common issue of addressing the global environment, this could be a business opportunity, and we should have the competitive edge as well.

Do we have that already?

Well, not perfectly yet, but we need to enhance the competitiveness along those lines as well. And as we do so, in Scope 3 and also in terms of the absolute amount of emissions, we can offset the overall emission. So these are the things that we have in mind. Does that answer your questions, Mr. Soma?

Yes.

Next question is [ Suzuki-san ] from Yomiuri Shimbun.

Yes. This is [ Suzuki ] speaking. I hope you can hear me. I have 2 questions. First is about the core businesses of the group. Last year in November, you talked about -- you announced that the shift to the operating company air conditioning and air quality and consumer electronics and so forth. Those were the pillar businesses. And you mentioned that there will be -- you will not have the core business or pillar businesses. So it might be the change from a year ago. So one of your challenges is that you did not have a core business. So what company is the Panasonic? That was a question that some people had. So what are the reasons why you are not going to have any core businesses or pillar businesses? Is this something that you're going to continue with?

So let me -- let us take one question at a time. Well, The former President, Mr. Tsuga, what he has done, for example, in the semiconductor, solar and LCD, he showed the direction. At the same time, the core business and the focused business. That kind of expression in a way, I think that maybe analysts are listening to this presentation, so it's difficult for me to say. But I think it was for -- it was used so that it will be easy to understand for analysts. But at the same time what kind of negative impact did we have? So for example, noncore businesses, the motivation of the employees were reduced. Or customers saying that, "Your business is not one of the pillar business, so you're not making the important investments. So can we -- should we keep buying from you?" That was the question that we received from some of the customers. So using the term "pillar business," by using those labels, we did not intend to do so, but those were the reactions that we had. So to make it easy to understand, of course, those words would be helpful. But now we are shifting to the operating company system. So each operating company, how can they grow and how can they shift to the growth? So each operating company has to enhance their competitiveness and to generate growth. And some operating companies probably will come up with those are the pillar businesses or nonpillar businesses. But as a holding company, we are not going to do that. Another thing, what I have to say here is that to enhance the competitiveness, in order to realize that, we need to make major investments. And the -- it could be beyond the investment capability of the operating company. So that is where the holding company should help. So CNS, Blue Yonder investment is one of the examples. So each business or each operating company, which is the better business, which is more important because that is not what we are trying to do. And those are the investments to improve or enhance our competitiveness. So when you think about that, why are we making investments? This is because -- this is in order to improve our competitiveness so that we can contribute to the society. So in that sense, all the investments will be made based on the idea of the ESG, especially E. So that is the way of thinking. So the -- regardless of the volume or the amount of the investment. So that's the way of thinking. Maybe you think it's difficult to understand, but the operating company will be announcing their own policies and so forth. That would make it easier for you to understand, I'm sure. I hope that answers your first question.

May I ask another? Second question?

Yes.

Related point. One of the challenges, there were a lack of synergy because those -- each business were separate from each other. And you mentioned that you're now moving to the new system. And after 100 days after becoming the CEO and you looked at the different front line, are there any impressions? Or are there any specific examples that you can talk about?

Well, thank you for your question. Well, synergy whether -- if you ask me whether we are -- I am feeling the synergies everywhere, that is not the case. We see synergies in some areas and not in other areas. But we are at the beginning of this shift to the operating company. If I talk about where I can see the synergies, maybe the head of the operating company will not feel very comfortable. So I'm not going to give you the specific names. But I think I could feel some of the areas that the operating companies are making efforts in. But as I said, we have to have a 10-year horizon to change the businesses and to transform the society. So in that sense, the synergy among the operating companies that we see now, that's something that we need to reconsider. So the operating companies' perspective and the divisions, we have to consider that, so we can find out what is missing and so that we can create the synergy within the group or maybe even outside the group. So that is the way of thinking of the holding company. I hope that answers your question. Thank you very much.

The next questioner is from Nikkei, [ Iwato-san ], please.

This is [ Iwato ]. Can you hear me?

Yes.