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

Hello. This is Shinada from Panasonic Corporation. And thank you very much for your participation out your very busy schedule. Thank you very much for coming over to this IR Day. And I would like to show my gratitude for always supporting us. Without ado, I would like to explain about the mid- to long-term strategy for Panasonic Corporation. These are the agenda that I would like to cover today. In the first part, we're going to be sharing you with the goals and the vision. And then the strategy. And the last part is going to be about the 30-year strategy. From here on, I would like to explain about the position that I understand. As you know, the Panasonic Corporation was [ launched ] -- this is the group of Appliance company and Life Solutions company in China and Northeast Asia, 3 companies, which are related to the lifestyle are succeeded in a comprehensive way. The appliance company was dispersed which was home application and air conditioner businesses and cold chain businesses, these are all consolidated and we are aiming to have a composite of great growth. And the Life Solutions company, we had a scheme of [ housing ] plan of JPY 2 trillion. However, from FY 2020 and we have been changing our strategy to intensify on the B2B businesses. We always have been trying to meet the best judgment at each time. However, there might not have been a consistency sometimes. And as a result, we were not able to create and profitable structure, and we have been continuously working on low growth and low profitability. Those reflections has led us to change us. We are no longer making some judgment have hardly. So with long-term perspectives, we are going to be trying to change ourselves. That is how we want to change our management. So how are you going to be changing specifically? That is what I'm going to be touching upon. On the left-hand side is up until today. Right-hand side is going forward. So when we just refer to what we have been doing in the management, we were short or term oriented and department-oriented and execution capability was rather weak. With the operation side, the whole portfolio and the department portfolio was observed in strategical gap and the execution rate for the investment was not enough. And because of that, the growth was not boosted. In the operational side, we have been looking at the optimization of the department. However, company-wide, the control is not enough. Therefore, we were only able to better and improve ourselves by reducing the cost, which made us lag behind the competitors. So with that understanding, from here on, we're going to be continuously looking at the long perspective to change our management shift, and we are going to be executing what was decided within the operational front, in order to create a business which is going to be #1 and #2 within the industry, we will be selected and concentrating our works and the investment will be launched speedily under my authority. With the strong cost capability, we are going to be having the function, which is corporate wide function right under myself. Without the top-level operational capability will be realized. The foundation, which is about the organization capability, we will be strengthening that too. So the vertical it is a divisional organization. This is about the responsible management and for the horizontal access, this is a company-wide strategic planning and execution function added. The governance and HR system is also going to be restructured thoroughly. This one is based on the long-term perspective in order to have a management that is going to be continuous change. In order to start with our new system, first of all, we clarified our purpose, which is our social meaning of what we are there for. And we have been defining our mission and vision, which is just as you can see. The purpose in order to realize, first of all, within the Lifestyle business area, we have been defining our goal. And in order to realize we have been defining what businesses are necessary. The left-hand side is the goal so human society and the globe. For each one of them, respectively, we want to be an organization that is needed for them. And the right-hand side describes what is needed for the businesses. The B2B clients and B2C clients we are going to be providing values. And with the Lifestyle business, we want to be an overwhelming corporation. And to that end, we're going to be working in unity. So this time, in order to accelerate to achieve our goal from the perspective of positioning and advantage, we have been setting 7 priority business area. So the chart is a bit busy to look. However, as the business to lead growth, this is, first of all, air conditioning system and the overseas electric materials and energy solutions, CO2 refrigerator. For the businesses creating stable profit, it is about Japanese electrical materials and display case and home appliances in Japan. For the growth area within the target area, the market growth is already a high business and for the stable profitable businesses, the positioning is high within the market, and we are already having a top share within that market. Each of the growth driver and the profitable driver, I'm not going to be detailing on this currently. But as you can see, the unique technological capability and strong sales channel and the supply capability and the know-how that we have been accumulating from the past and the long-term reliability of the product. All these are held. Therefore, these businesses have high competitive strength. And from number 1 to number 6, these are the so-called B2B businesses. And for these each of them are going to be having the B2B account management, and it is going to be promoted by combining various products in order to cater to the customers' needs, and we see that there's a high potentiality. And when we are going to be achieving this, we can provide a better proposal to the customer side. For each of the businesses, in FY '21, we have the KPI launch. On to the right-hand side, the growth business is, the 4 of them are indicated by the industry and the region, and they are going to be achieving more growth than the region or the industry. As a result, overall, we are going to be aiming for over 8% CAGR for sales. And for the stable profitability, the EBITDA rate is going to be aimed for more than 5 points. And the chart indicate how the 7 businesses are located. So the left-hand side top, this is air conditioning system. And in Europe, the growth is -- was at been 20% in annual growth for the past 8 years. Air to water, the heat pump used, the heating devices using water [ new quarter ] has been growing for 40%, and the [ DEI ] combined which is unique. This is the active purifying technology. And for the first time ever in Japan, we have been launching the air conditioning coordination system after the [ lots ] we have been given various inquiries. The second is about India, Turkey, Vietnam, focusing them as the focal countries for core regions. And we are expecting that we are going to be having a high growth here. And already, we are the #1 within these 3 companies -- 3 countries. The third is about energy solution, which is mostly about household fuel cell and HEMS controller power conditioner. Within the key products of this area, we are already ensuring the #1 position. Last year, October, for the carbon neutral ages, people expect highly for the pure hydrogen fuel cell, and this is already launched. For the fourth, this is about CO2 refrigeration system. The supermarket and the convenience store has the display, and I would like you to understand it's a display refrigerator system. And the natural refrigerant is using CO2. So environmental wise, people focus and has a keen eye on this product. Our company within the last 5 years, we have been delivering these systems. 12%, and it is 2.5 [ poles ] more than we have been delivering. From the past, therefore, we are near to oligopoly having 70% of the Japanese shares. For the fifth one, this is domestic electrical construction material, LED lighting, materials and wiring apparatus, residential distribution, conduit tube, we are both in #1 within Japan, the electrical workshop. The 60,000 sales which are accounting for 90% of the Japan sale are held by us. Six of all. This is about the display cases, the refrigerator cases and Hussmann Food Distribution is run in North America, and we already have 25% of the share within the whole world. We have a strong selling channel, and we have a strong machine in the field base, which is abbreviated as [ MIFD ] it is meaning that the number of the operation apparatus within the market is moving, which is going to be a big foundation for us. Seventh, this is about home appliances. And as you know, in many of our products, we -- both #1 share and the long-term reliability product capability is our big strength. Going forward, the circular economy ages are coming. Therefore, a good product should be used for a long time, which is the request of the ages. Therefore, the product with a long-term reliability is going to be contributing to a big competition or competitive edge. And the premium product, which is the category that has higher value-added area, we already have a very high share as well. Therefore, this is a source of our strength within the market as well. So talking about the 7 priority businesses in all of the markets, we are showing a very strong and unique strength. So I would like you to think that we have a strong potentiality. And towards the challenge, these are the portfolio strategy for aiming for the mid- to long term. Left-hand side is if FY '22 structure. And according to the lump-sum of the business, we have the leader and leader candidates and stable revenue and qualification or qualifying. We have categorized into 4. And based on this, we select and concentrate on our works. On the very low area, this is 0.7 for the relative market. And this indicates #1 share or #2 share within the market. And on to the right-hand side, when a business is included within zone that means that the business is already selected by the customers, and we are to expect a very high profit. And in 2030, we would like to be #1 or #2 businesses within all these 7 priority businesses and the sales should be heightened to 75% level. So through these changes to our business portfolio, we will be achieving the green impact that we aim to -- so the left-hand side, left bar graph shows the CO2 emission within the value chain. In FY '21, it was 0.95 million tonnes emitted. This is a total of the Panasonic Group, 90% -- this for the 7 businesses, we are going to be making the investments and making the growth. While doing so, we are going to be decreasing the energy usage and shift into natural refrigerant. Therefore, FY '31 we would like to decrease our CO2 emission in half. So CO2 emission is large and air conditioner and ventilation light and house apparatus therefore, by inverters and saving energies and expanding LED, we would like to decrease the usage of L -- energies. The other one is the green bar graph. This is a graph showing the level of contributions to decrease the CO2 emissions to the society. So it's not just our own value chain but with our activities, this is a chart that indicates the contribution that's going to be ripple affecting to the whole society. For 2030, we are to grow the A2W within the Western world and energy solutions divisions in the world and also making efficiency for the lighting control. With this, along with our businesses, we are going to be contributing to the environment and in FY 2031, we would like to be one of the top companies working for sustainability. From here on, I would like to describe about the third year strategy where we aim for. The chart that you are seeing is a top important topic for the next 3 years. I would like to go into details. First of all, I will show you the overall picture of how we intend to achieve profit growth over the next 3 years. We have set a JPY 350 billion EBITDA target for 2024. The breakdown of the JPY 147.5 billion increase to achieve this goal is shown from left to right by business segment and from right to left, by measures. For the businesses on the left, we have said profit growth in 7 priority businesses as follows: JPY 60 billion in growth businesses and JPY 50 billion in stable revenue businesses. And as shown in the step chart from left to right, we will increase profit through company-wide operational reforms in addition to increased sales. We will strive for an EBITDA increased by JPY 1,457 billion by doing this. The breakdown of the profits from sales increase will be explained later, but 80% of the increase is expected to come from sales increase, which exceeds the industry level. Due to aggressive investments into the growth businesses. And the remaining 20% comes from the recovery from the impact of flooding in Malaysia and supply chain issues. Next, I will explain profit growth in 7 priority businesses and company-wide operational reports. First the 7 priority businesses. I will leave the specific strategies and measures to the heads of each company later. But I'd like to talk about the aim to achieve JPY 110 billion of profit growth with the 7 businesses, which accounts for 3/4 of the 3-year EBITDA increase. This shows the change in the profit structure of the 7 key businesses over the 3-year period. The horizontal access represents net sales to vertical access represents EBITDA ratio. And the size of the boxes represents EBITDA amount. The growth businesses on the left half are expected to increase profit mainly through sales growth, while the stable revenue businesses on the right half are expected to increase profit, mainly by strengthening operations and increasing value. I'd like to talk about the highlights of how the focused businesses are going to grow EBITDA. First is the HVAC system business, in the year ended March '22, profits were low during soaring raw material logistic cost as well as the impact of flooding in Malaysia, therefore, profits ended at low levels. However, over the medium term, we will make investments in production basis to enhance production resilience and expand the equipment and engineering businesses, mainly in Europe and Japan. In the overseas electric construction materials business, we will achieve double-digit annual growth along with market growth in the 3 priority countries of India, Turkey and Vietnam, where market growth rates are high and our market share is high. In the energy solutions business, in addition to improve the profitability of photovoltaic power generation systems that we're weighing on profitability, we will accelerate the development of high value-added systems that link power generation storage, mainly in Japan. We will also strive to enhance overall profitability by strengthening 3-battery systems. Next, regarding the stable revenue businesses. For the electric construction materials business in Japan, we will improve the profitability with greater sales and earnings at supply issues caused by supplier fires and other problems being resolved and the result of new revenue growth from solution-based engineering. As for display cases, in addition to increasing market share in Japan, we will aim to improve productivity and profitability also in the U.S. Regarding home appliances in Japan, we faced headwinds in March '22, such as sales decline in response to assets of demand from stay-at-home trends and soaring raw material was a fixed cost by promoting operational reform and development production of sales by enhancing the value we provide in the market, we will strive for profit recovery. In addition to further increasing profitability through premium products, the company will also take drastic measures to its sales and marketing efforts. So that was basically an explanation of the key points for earnings growth in each business segment. And I hope you can hear about the details from each divisional company head later on. In order to accelerate profit growth, we will both change our approach to capital allocation. In the new structure, starting this April, we will align with Panasonic Holdings, but we will be able to execute investments with considerable amount of discretionary authorities. In other words, because of the [ divisional company ] now in place, this will be a material change. We are now able to make flexible investments including M&A within the scope of operating cash flow and the priority business areas that we have defined. Even if the case funds are insufficient, for themes that match the growth investments of Panasonic Holdings, such as investments in HVAC systems, or in hydrogen energy technology platforms that I am in charge of, we are thinking about adding from the growth investment funds of Panasonic Holdings. Based on this approach, we plan to invest by ourselves as well as with Holding more than JPY 365 billion over the next 3 years. Specifically, we will invest JPY 120 billion in growth businesses in addition to discontinuous investments. This will be for the expansion of the air-to-water basis in Europe, the air quality business sites in North America and expanding our base in Southern India for the overseas electric construction materials business. And we will also be investing and resilient. In addition, we will invest in growth investments in energy solutions, such as the expansion of the hydrogen business. We also plan to invest JPY 110 billion for the businesses with stable revenue. In order to improve efficiency, we will be investing for automation, streamlining and new construction methods that are major bases in Japan. And these investments will include IT infrastructure, reinforcement and DX investment, which will be JPY 33 billion and JPY 200 billion related to a green impacts. Next is company-wide operational reforms. As you can see, we will strive to offset a total of over JPY 130 billion to counter the risk of environmental deterioration such as soaring raw material prices and exchange rate fluctuations over the midterm 3-year period through continuous cost structure reforms and price revisions. Regarding reforming the cost structure, we will aim to achieve JPY 25 billion in the company-wide direct materials cost consider the initiative and also work on the China cost model reform as well as cost reduction of indirect materials such as the reduction of promotional materials. Furthermore, we will be establishing a better SCM and reducing SKUs and we will be developing a design platform through SCM ECM reform. We will achieve a total of JPY 80 billion over the 3 years through these reforms. And also for -- as an impact from revising shipping prices of electrical construction materials in overseas HVAC, we are expecting improvement of JPY 50 billion. So that was basically an overview of initiatives we have in place. So let me talk about strengthening our cost competitive of direct materials costs. The biggest challenge for further strengthening cost competitive of direct material costs going forward is bringing company-wide efforts to the next phase to optimize efforts of each field unit, which is still limited to individual optimization by making them more company-wide. Until now, each development and design division had individually selected manufacturers and parts to be procured. And although improvements have been made in individual divisions, the overall cost competitiveness has not yet been achieved that's comparable to competitors. In the future, the procurement department will be involved in the parts selection process at the development stage and new systems will be introduced and IT controls will be put into effect. To this end, we established a procurement department in the strategic headquarters directly under me in April, and we will promote the 4 initiatives shown in the bottom row. I will explain the third part of these initiatives, the centralized contracting of electrical components, which is expected to have the greatest impact. So these -- both are examples from the home appliances business and washing machines, where we apply to other businesses. An example on the left, the motor used in the washing machine was deployed in Panasonic cycle electric bicycles under a centralized contract. And the example on the right, a solenoid valve used in the same washing machine was used in a bathroom ventilating dryer manufactured by Panasonic Ecosystem. So there's a lot of these examples available internally, and this is what we were able to identify in the initial stages. So going forward, we would like to accelerate these efforts going beyond divisional company boundaries. Next, I'd like to talk about our initiatives in the home appliance market in Japan. It's a matter of delivering the values of our products appropriately to our consumers. Therefore, we will take on responsibility for inventory risk and specified prices. And starting from 2020, we will be starting this effort. More than before, we will be needed to control our distribution inventory at a higher level, and we will be able to sell high value-added products at reasonable prices, thereby ensuring and maintaining reliability. The relationship between consumers, distributors and manufacturers is shown in the diagram on the right, and we are moving forward with the realization of the spirit of 3-way satisfaction for all 3 parties. As a leading company in the home appliances business in Japan, we believe that we have a mission to revitalize the industry by accurately communicating the value and attractiveness of our product thereby changing the current trend of price competition. With this, we would like to stabilize earnings and we intend to expand the range of products subject to this policy in the future. In addition, to enhance the [indiscernible] we will be revising the shipping prices as well. In light of the higher logistic prices, we would like to ensure that our prices are revised to appropriate levels. So I haven't claimed various amount of things. But in order to accelerate the speed and ability to implement the midterm strategy I have explained above, we will firmly implement ESG as well. To accelerate our environment-related strategies, we established a position of CGXO in April, directly under me, which stands for Chief Green Transformation Officer. Under the CGXO, we will promote the GX strategy, which is integrated with our business strategy. In addition, for DEI, diversity, equity and inclusion, we will continue our efforts to maximize the performance of the organization and its people also for governance under new Panasonic from April. From the outside, 3 professionals have joined as Directors on our Board. They have knowledge and experience that we do not have and the decision-making functions of the Board will be strengthened with their participation. And they will also be part of the Advisory Board that will be newly established and from an external point of view, we would like to have discussions about our management strategies. Next is about Investor Relations and strengthening the implementation into our management. So this will be the start today's Investor Relations Day and we will be happy with our disclosure so that we could start the communication with you and have a market perspective inside our core company. In terms of disclosure, as shown on the right, we will disclose key financial indicators for each company, and set KPIs for nonfinancial indicators in line with the strategies and characteristics of each business to ensure continuous communications. The supplementary materials that have been handed out include the key financial indicators. And from this time on, cash flow and invested capital of each of the divisional companies will also be subject to disclosure. The IR schedule for goal March '23 is also shown below. Finally, we have set the KGIs for March '25, as shown, in particular, in order to improve our ability to generate cash flow while investing in growth over the next 3 years, we have set EBITDA as our most important KGI. And as we have set a target of JPY 350 billion by March '25. In addition, in order to ensure disciplined investment efficiency as we execute a substantial investment over the next 3 years, the ROIC target is 10% or more exceeding cost of capital, and the cumulative operating cash flow target is JPY 660 billion. They are all high targets, but we don't think they are unachievable. We will continue to manage our operations so as to realize our goals. These medium-term KGIs are considered only as a milestone and a passing point toward 2030. We aim to become the #1 and #2 EBITDA businesses in the industry. That is all regarding the mid- to long-term strategy of Panasonic Corporation. Hereafter business strategies of HVAC systems, electric works and LAS as will be explained in detail by each divisional president in the next few minutes. Meanwhile, we plan to explain about cold chain solutions in China, Northeast Asia at an appropriate time around the end of the first half of the fiscal year. In our recent financial results, we have included onetime items or risks in our plan in order to take drastic measures in the cold chain solutions China business. We will explain the contents and details of the direction of these companies next time around. This concludes my presentation. Thank you very much for your kind attention.

Now we'll open for questions. Nakane-san from Mizuho Securities.

Nakane from Mizuho Securities. And I have two questions. First, you have now become an operational cooperation and your authority is now larger. So you're going to be having a very speedy and fast decision-making. And that is okay, but then Shinada-san, you must be very fast in order to make your decision. Therefore, you need information and you used to be a product out company. And then that led to you for an unwanted result, but the staff of Shinada-san and the condition of the work, how are you going to be collecting all the information needed for you to make a very fast decision? I would like to ask of you your view. That was one. And number two question. So right now, we're going to be having the 3 people external directors and how about your side? So the usual general directors -- I would like to know what is the reason, what is happening within the -- your realm or boundary in order to accept these 3 new officers?

Thank you very much regarding the information that I should collect. Basically, I am going on with a one-on-one meeting with the Division President. And by exchanging a very candid opinion, that's going to be the basis of my management. And twice a month, we're going to be holding a strategic meeting by that. Right now, it says about division head and the strategic people who is very under me, the so-called CXO and other people are directly under myself reporting me, therefore, the vertical access and the horizontal access, we're trying to cover all the things that are necessary for information. And basically, for the Head of the Divisional Corporation, the market movement and the marketing department and division is going to be responsible for the collecting information. And along with that, I am going to be reported directly for the marketing for people. Therefore, by the marketers information and the Head of the Division information is coming in. And also, we're going to be having a strategic meeting. Therefore, all these information are going to be intertwined for me to make decision-making. So second question. About the external directors and officers. So our corporate culture is existing, and we are intended to move it in a different way as our members are diverse and talented Haruta-san are already working for a long time, including the company called BeeEdge, and this person knows very well, very well versed about our company organization. So as written here, management -- he has very high knowledge within the management in [ Mason ], the middle person. This person is coming from the Netherlands and is very proficient in various language, and he has been working in a long marketing area for a long time, he has in B2B, B2C and B2B company are working on those areas. But then if he can provide us an advice within those areas and others, we are highly expecting him. Nishikawa-san is owning the company herself, and she has a very high sensitivity and she has a very strong logic and we're promoting on the DEI diversity business and Nishikawa-san is currently working for the advisory board, too. Every 3 people has unique backgrounds. And along with that, while we are going to be discussing with them, first of all, we are trying to break away from the traditional culture -- corporate culture that we have, and we want to create something new with them. Of course, the marketing area for Mason, he has been coming over for an adviser from a year before. The product that has been advised from him are going to become a product commercial line. So I would like you to respect and expect highly.

So there's a question online. Mr. Yasui from UBS.

This is Yasui from UBS. Can you hear me well?

Yes.

I'm sorry, I'm participating from online. I have two questions. My first question is improving your operational capabilities that you refer to in the presentation on Page 17. For this, is it a typical type of -- it looks like a typical step chart when it comes to improving your operational capabilities. Now we have a holding structure, can you talk about your focal points to show your determination of accomplishing this? And my second question may overlap. But I think cost in operations on top of that, producing products with added value would be critical, but I don't think you explained that much about this. Maybe that was intentional, but how are you going to generate added value going forward?

Thank you very much, Mr. Yasui. The focus areas, like I mentioned earlier, is going to be about each of the businesses. The localized optimization being rolled out on a company-wide basis, that will be of the utmost focus. For the past 6 months, ever since LAS was established, the living appliances and solutions company, we were focused and after on what kind of opportunity resides after we shift to the divisional company system. We did quite a lot of research and we were able to feel that there were substantial benefits that we could reap over the medium term. Including the amount of impact, we believe that this was one focal point. So that's one thing. Another thing is SCM ECM reform, which actually is the greatest contributor when you look at this chart. We are still doing a bucket really when it comes to SCM. To be honest, efficiency is not good. And therefore, there's a lot of waste and things that are stagnant. So when I was talking about investments, I talked about IT investments as well. And the amount is going to be quite substantial. And for the IT investments while we make these investments, we are going to proceed and reaping the benefits, and that amount isn't expected to be quite significant. So that will be one of the big points of the midterm plan. [indiscernible] software will be utilized too. And in [ Kakigawa ], we have -- we make the front-loaded washing machines, and we have already designated it as a leading product for the front-loaded washing machines. As a result of our trials, we would like to ensure that we roll it out company-wide as soon as possible so that we can generate a significant impact. Secondly, was about added value. Note the product competitiveness. We do believe that it's critical and we do believe we excel on that. But we intentionally did not show it because it's not the product competitiveness that's going to determine who wins or lose, it's more about operational capabilities that determines who succeeds and when it comes to a circular economy and when you think about how society is going to be like in the future, of course, the product competitiveness is important, but it's about quality products being used over the long term. So you need to gain trust over the long term, and it's about providing services to our customers over the long term, which will become critical. So that is why we didn't accentuate product competitiveness, but rather talked about operational capabilities as well as supplying core products and connecting with our consumers by offering services. we believe that is key in our home appliances business. And also for B2B businesses, I did touch upon this slightly at the beginning. We are in the HVAC Systems business as well as the cold chain business, and we also are in the electric works business. We had 3 businesses B2B. Over the same platform by managing the accounts, for the B2B businesses, the platforms are already heading towards unification. And by connecting with the customers constantly, we believe we can create additional value. So it's not about winning just with products. It's more about connecting with the customers and ensuring that operationally, you are successful. I think both in the B2B and B2C businesses. This is the way we're going to generate value.

So the time is nearing. Therefore, I will accept two more people, but then only one question each, please. Ono-san from Morgan Stanley Securities.

This is Ono from Morgan Stanley Securities. For today. I would like to ask you about fixed expense and the allocation how you view this specifically onto your material, it's Slide 15. For the 7 priority businesses, you have been indicating the effect of the profit. And by businesses, I'd like you to share the fixed cost and Mr. Shinada, you're looking at the overall of the whole company. So you're thinking about the allocation, so I would like to know to which extent have you been looking into the details? Are you already solidified with your idea or not? And the personnel system and the discretion by having this operational corporation system, if it's going to be expanded, I would like you to share with us, well, how are you thinking about the personnel issue.

I would like to start from the personnel issue. The Panasonic Corporation has an HR system by divisional organization. So because of that, each of the industries that the fees are different and the interest of the companies are different, therefore. And of course, CGXO will be facing much more portion in the overseas or else other company businesses are facing more into Japan. Therefore, it's difficult to for us to be in line with everything. We just thought that was difficult. Therefore, we have defined that the local area could decide on the local personnel issues. Of course, the total organization or orientation will be within the whole corporate and for about the expenses, [ Nishikawa-san ] will be explaining. Regarding the fixed cost, please refer to the Slide 13. This is a step chart and within the midterm 3 years, we're going to be having a fixed cost increase. The objective is seen in the right-hand side, we would like to create a system where we're going to be expanding on the sales and profit. In order to do that, we're going to be working in advance and strategically to put the fixed cost. And then with that, the sales profit is going to grow. And the last part, the production increase is going to be covered, covering the expenses that is going to be increased as an amount where it is large, it is about HVAC businesses and overseas construction materials, those are the leader businesses and these 2 businesses are leading to expenses. And the budget for the headquarters, the branding strategy is going to be utilizing the fixed cost and marketing to overall Panasonic is going to be taking those activities. Those are the expenses that should be done in a common Panasonic company such as increasing the IT expenses. So the -- I think Ono-san wanted to ask you about -- ask us about the overall holdings fixed costs as well. So that is how I understand his question. But to that, in order to answer, we're still underway. Therefore, during this midterm, we would like to revise ourselves. So in parallel, we are going to be working and the development -- if there should be any development or advances, we are going to be reporting to you.

So the final question is from Citigroup Securities, Ezawa-san.

This is Ezawa from Citigroup. This is my only question. Regarding EBITDA, the 3-year step chart on a cumulative basis as well as a 1-year step chart for this fiscal year, I compare the 2 and the 3-year target for the improvement items like price provisions and cost improvement, which is 58 and 80, it's 30 in total -- 130 in total -- for more than half of that, JPY 82.4 billion, you're expecting to do this, this fiscal year. But raw material prices -- the [ detrition ] of the environment is going to be offset by these efforts. So when you do the math in the year 2 and year 3, it seems that improvement items are going to be small in contribution. Therefore, over the long term, it seems that the results are going to be front-loaded. So do you think that the impact is going to be greater down the road compared to your expectations? Have you not accounted for some item that's not shown here.

So I'll give an explanation first, and you can follow up. So looking at Page 17, I think that chart is the easiest to understand. So referring to that slide. On the very right, we show JPY 50 billion. The majority of it is going to materialize this fiscal year. Everything is not included, but the majority is going to be accounted for by this fiscal year. In year 2 and year 3, the company-wide JPY 25 billion -- 70% to 80% of the JPY 25 billion which is a company-wide reinforcement of direct material cost is going to start to happen and kick in from the latter half of the year ended March '24 to March '25. So that is what we are anticipating. So for '23 March, the greatest contributor is going to be indirect material cost reduction and a review of shipping prices of home appliances in Japan, electrical construction materials and overseas HVAC systems. So that will have the greatest contribution this fiscal year. That's what we're anticipating. For the year ending March '24 and '25 raw material price increases and FX impact and other items. To be honest, we are not able to get a complete graph. So we have not done the total addition. But roughly speaking, that's what we are expecting. Do you have anything to add?

As Mr. Shinada mentioned, Basically, that's the notion of which we have put together the numbers. So the JPY 80 billion is a stretch target for the structural reforms. And for year 1, March '23, after we made a medium-term strategy, the various challenges have emerged like Ukraine and Russia with higher crude oil and resin prices. So out of the JPY 80 billion, we would like to -- we are outloading the JPY 40 billion impact for this fiscal year. For prices since last year, mainly around B2B, we've been working on the revisions, but we will include B2C for this fiscal year. So JPY 40 billion out of the JPY 50 billion is expected to be achieved in year 1. So for the rest of the midterm, which is the 2 years, is it just going to be the balance between the 2. As Mr. Shinada said, we would like to fulfill our responsibility of being a leader in the industry and reap the benefits by doing so. So it's a matter of how bold we can implement these price region efforts. But this would be an add-on if we are able to achieve it.

So that concludes...

That's not I'm sorry, may I say one more thing. Yesterday, was IR Day as well, and there were some questions around ROIC. So I would like to say one thing. For all of the divisional companies, the most important KPI or KGI is EBITDA and majority of the businesses, we are in a challenger position. So we would like to make investments so as to raise EBITDA. But we will like to also look at ROIC to measure its efficiency and ensure that ROIC is higher than cost of capital. So ROIC is set as a target for investment discipline. Our cost of capital right now differs by business, but it's close to 4% to 6% for a weighted average cost of capital that is. And Basically, we would like -- and we set the target of ROIC, which is 10% or more because we would like to exceed cost of capital. However, on a pinpoint basis, when you look at it. It is currently at 10% plus. But by having a ROIC target, we will be applying it as a measure in gauging return. So that's what we apply to our digital companies as well.

So that concludes Panasonic Corporation's part. Thank you very much.

I'd like to -- this is [indiscernible] from the heating and innovation company. And I would like to talk about midterm strategy of the company. I'll briefly introduce our business, but heating and ventilation AC companies developing equipment and engineered solutions utilizing air water-related technologies. B2B equipment such as HVAC, electric construction materials, building and housing materials sold through housing and construction channels account for about 70% of total sales. In particular, we have #1 share the global market for ventilation fans and gas air conditioning systems. Sales of B2C equipment account for about 20% of net sales. In addition to equipment sales, we also provide engineering solutions such as remote monitoring of commercial air conditioning equipment, tunnel air ventilation and purification systems and generation -- regeneration and supply of chemical solutions mainly to semiconductor plants. We are now facing various social issues as shown in the chart, and there is no time to spare to work on solutions. The heating ventilation and AC company has many solutions that can contribute to solving these social issues. They are engineering solutions such as low GWP refrigerants and ABS, absorption chiller systems, stand-alone power air conditioning, GHP/ESP hybrid systems, Active air purification and humidity control and construction and maintenance digital transformation. We will continue to expand the areas where heat ventilation AC company can contribute. These are our goals. Our mission as Life tech and ideas, which is to make people, society and the planet healthier. Our goal is to be a company that is able to provide the best services to our customers. Our vision is to be a global top class professional company that creates a healthy and comfortable life and society through air and water technology. Here's our commitment. It is vitalize the future with air. The vision is expressed as our intention to confront various social issues with the power of air. Here are our values. As shown on the chart, we will realize 3 values. In accordance with end users, property owners and builders, they will provide values such as sustainable plant with their promoting well-being with their and energizing lifestyles with their these 3 values are our commitment to society and [indiscernible]. On this page, we explain the specific measures for the HVAC company. In light of Panasonic Corporation's target of having CO2 emissions. FY 2030, under Scope 1 and 2, we will reduce CO2 emissions to virtually zero by 2027 for our overseas sites. And by 2030, for all sites, including those in Japan. In Scope 3, we will accelerate the spread of products equipped with inverters and DC motors and further improve the energy-saving performances of products to reduce CO2 emission by complying with laws and regulations, by changing models and so on. In terms of refrigerants, we will accelerate the shift to lower GWP refrigerants while anticipating environmental regulations in each country. In addition, to contribute to CO2 emissions reduction, we will promote coordination, integration and innovation of air conditioning and ventilation equipment and strengthen our efforts in air to water in Europe, et cetera, to help our customers reduce their CO2 emissions. In addition, as part of our distributed energy business, we will promote initiatives to effectively utilize thermal energy using ABS and proposed examples like the Mushroom Center in Ueno Village, [ Gomperfecture ] to a wide range of customers. We will invest more than JPY 90 billion in green impact investment in the cumulative period of the next 3 years to reduce CO2 emissions. Here are the markets we will be placing emphasis on in the future going forward. In particular, we will focus on the residential and light commercial sectors. As shown on the chart on the left, most of the places where we spend our lives are inside buildings. It can be said that it's important to increase the value of air in these buildings. As you can see on the right-hand side, the light commercial fields from residential to spaces that are up to 2,500 square meters is an area where the value of air quality is highly valued. For example, this will be clinics, hotels, nursing care facilities and so forth. In addition, we have effective device technologies and expertise in this area of air quality value, which is our specialty. We will invest resources more intensively in the residential and light commercial areas to provide the 3 values we are aiming for. Next are the key regions. This shows what air quality needs are on the horizontal axis. Now further to the right, the higher expectation of air quality value. The right side of the chart shows the 7 aspects of indoor air quality. We control air quality by controlling these 7 aspects. And we have excellent know-how and controlling the 7 aspects: Europe, Japan, North America and China are 4 key regions where expectations of indoor air quality value is the highest and also regions where we can leverage our strength in controlling the 7 aspects. So these 4 regions will be our utmost focus. Next is about the strategic roadmap in order to achieve this goal. In the long run, the basis of our sales is to create a virtuous cycle between the 3 parties, meaning the clients, partners and ourselves create 3 values. And by 2030, would like to be a professional class company to become the top within the industry. We are aiming for 15% or more of the EBITDA. The realization of our goal for this term, this is about innovation of environmental technology and the touch point of the customers and operational reform. By that, we are going to be investing JPY 100 billion for the business area lagging. In order to expand the solution businesses, including M&A, we are to think of all the possible measures for FY '31, expanding engineering solution. To do that, we will be achieving more than 15% of the EBITDA for the innovation. I'm going to explain now this in detail for the 3. First of all, about the environmental technology innovation. It used to be that conventional heating and the ventilation businesses have been providing and making proposals differently by its own. But currently, we're going to be promoting an outstanding system solution. On the chart, we would like to achieve the CO2 emission decrease, which is overwhelmingly having a better quality of air. This value is something that we were not able to propose by a single system. So this is a system or a solution to be able to propose by the comprehensive work of all the HVAC people. Around the center of the chart is about the unique technology we have. In the left-hand side, it says about the humidity control and the water purifier technology. Coming back to the center, usually, the impurity should be adjusted, utilizing the filters in such as air purifying. And it's usually a passive type, but nanoe X and Ziaino, the composition will be discharged from the equipment. And it's not going to only capture the bacteria that is floating around the space air, it is going to be capturing the bacterias that have been on the walls, et cetera, which is an active type of technology. So [indiscernible] purification is now possible. We are going to be working on the lower GWP too. Also, we're going to be coordinating with the local partners and gain certifications and standardization and making things tangible and visible. As shown on the road map, the environmental technology, we are to invest in JPY 30 billion or more. Next, I would like to introduce what feedback from the customers were about our works where we are trying to improve air quality and realize the decarbonization. [Presentation]

Thank you for viewing. And next is about strengthening the contact point with the continuous clients. This is, first of all, starting to strengthen the foundation physically. On the left-hand side of the chart, this is about intensifying and strengthening the engineering resources. The engineering people will be increased by 1.4x from 790 to 1,100 people in FY '26. The Electric Works Company and CCS Company, we will be coordinating. We have been -- so EW Company and CCS Company has been inherently strong with the B2B field and has a very strong engineering foundation and partner foundation, but we would like to further expand in that area. In Europe and China, we already have structured an outside partner. However, the alliance with a new partner and including the M&A, we will be discussing further foundation solidification. On to the right-hand side of the chart. This is about creating a space to cocreate with the partners regarding solution ideas. In FY '22, China Kusatsu, we have been opening a showroom. And in FY '23, we opened P-BOX in Shiodome and AIR HUB TOKYO too in Nihonbashi. AIR HUB TOKYO is a place where clients can actually come over to experience, and by experiencing we and the partners will be able to cocreate a solution. We have been already explained this in the May 25 press conference. The solution strengthening is our direction that we are going to be heading. And to that, we are going to be strengthening the ties with the customers. Regarding the engineering, we will also expand on the engineering. Therefore, the engineering training center is going to be globally developed through cocreation space. Along with the customers, we will be cocreating the 3 values. And next, this is about the digital foundation. But currently, smartphone and tablets at 24/7, 365 days, a relative pace we're trying, any products will be surged. And with the optimal timing for the clients, we want to create a digital marketing foundation in order to propose a solution at a good time. Usually, we have been pushing -- the proposal from our side was a push type proposal. But going forward, we would like to create enriched digital content so that the clients who access us will be having further discussions with us. So it's going to be a pull type sales. In the sales part, we would also like to be making much more contribution. And the maintenance, the engineering solutions part. Also, we would like to utilize digital platform and digital solution tool along with the EW Company and CCS Company and the CAD equipment and BIM. We are going to be creating a structural tool in order to express ourselves in the space design. And when there's a renewal project, we would also like to be proposing an optimal solution, creating a unique solution and to expand on the solution business is what we intend to do. And the third part of our changes is going to be operational reforms. In 2021, the foreign currency has been volatile and external condition has been changing. So the inventory has been increasing and the management loss has been expanding. As the graph shows, the foreign currency is no longer a risk, but it's a norm that we have to challenge. And so going forward, the operation that is going to be catering to this early and immediately is needed. And to that, we would like to operate in a very fast way. Within the management, the global staff and skills, people should be working to exert their utmost. I would like you to focus on the right-hand side of the chart, and we're going to be focusing mainly on 3 points. One is that the local management, especially for the focal area, we're going to be working on the development, and the constructions were going to be immediate. So this is going to be the local consumption, local creation. And in order to do so, the global skills and talents are needed. They have to be really showing their talent within the local area. Therefore, we would like to work in such a manner within Europe, air to water localization. And the ventilation businesses in North America is quite a bit a starting point. The second point is the manufacturing, the operation should be efficient. So we're going to be looking in the production automation and expanding shared design and also creating -- digitizing development for local fit and development efficiency. So here, we are going to be spending JPY 6 billion or more for efficiency. Third, we are going to be decreasing the direct material cost by company-wide initiatives. With these 3 initiatives, totally for FY '25, JPY 38 billion more cost or cash is going to be created and will be contributing to the profit for the global of the Panasonic. And this is target for the midterm. And the graph shows from '22 to '26, showing the EBITDA target. For '22, it says EBITDA margin, 5.3% margin to JPY 1 trillion. And margin over 10% is what we aim for. In order to achieve that, the value driver is going to be the focal area, the equipment and the engineering solution. And the HVAC system is going to be the source, especially the environmental soft banner in Europe. For FY '26 CAGR, 125% expansion for the business. In '26, sales JPY 190 billion. And with the strong engineering foundation is in Japan, in FY '26 CAGR, 108% expanding all the businesses. And FY '26 sales is going to be more than JPY 290 billion or more. As a value driver, western area and Japan, I would like to touch upon the regions. In Europe, the environmental energy issue, the interest is very high. And so air to water market is expanding rapidly. And so it's not only the HVAC, but the air to water market is growing. So we would like to incorporate that. The air to water position in the market, especially in the Scandinavian area and the Eastern European area, we have high market share, and we would like to expand on that. Especially for the European area, we have been working there in the past. And as the chart shows, we have various strength. Going forward, environmental technology and engineering foundation is the thing that we are going to be focusing on. Systemair, Schneider and Cold Chain Solutions Company, these are the partners that we would like to coordinate strongly. And on to the right-hand side, the chart indicates that starting with A2W decarbonization and better air quality products are going to be the focus. In Denmark, it is on the market. Air to water maintenance solution business is going to be expanded immediately to develop into other regions, other areas, including HVAC in order to grow the business and to provide better value add to the customers. Through that, 125% of the CAGR. And we'd like to make this business the pillar of the European businesses. So with that driver, we'll be extending onto Europe. So within Europe, the HVAC will be gaining a better position in the area where Europe is strong and is the frontrunner of the environment. And next is about Japan. Currently, we have various equipment for HVAC and we are having quite good position. So unique technology is with us, and we have a strong engineering foundation. Furthermore, the partner, EW Company and the CCS Company is very strong in B2C businesses. And for HVAC, people are much more keen on this, and we would like to coordinate the relationship and to intensify our sales and marketing. By this, we're going to be working on the better air quality and to achieve 52% of the commercialization. Light construction and the zero emission is what we would like to contribute and make the residents 100% good air quality by automatic air control. And with the closed air space to the open air space, we would like to expand on the engineering solution that control. And we are aiming for the CAGR for 110%. Last is about fiscal 2026 KGIs. So with the focal 4 area, the engineering solution and equipment, expanded EBITDA JPY 75 billion and margin 8.7%. For ROIC, 10% or more is what we aim to achieve. Within the regional area, regional area is going to be expanded and the inventory level cumulative operating cash flow JPY 120 billion or more will be created, and that is our goal. With that, I would like to end my explanation about this business. Thank you very much for your kind listening.

[Operator Instructions] Yu Okazaki from Nomura.

I'm Okazaki from Nomura Securities. Earlier, in Mr. Shinada's presentation, as a priority business, HVAC was raised and towards 2031, you were saying that you would like to aim for first or second market share. So I was able to get a good image of market growth and your growth. But outperforming and gaining market share, how are you going to do about that? What would be your strength as well as your competitive advantage that will enable you to do that?

Yes. I'd like to talk about the highlights first, and then talk about how we are expecting to outperform, which will air to water in Europe. That will be one of the pillars. And Mr. Shinada will talk about that later. Overall, globally, from an equipment sales point of view, aiming for #1 or #2 will be a challenge because the environment is challenging. The HVAC company since [indiscernible] in October, we officially started our organization from April. But ever since the setup, we have had extensive discussions internally. And as explained in the presentation, indoor air quality is our strength, and that will be a catalyst, and it might be unique by providing this kind of value. Especially in regions where it's appreciated, we would like to aim for the #1 or #2 position. So what we would like to do first is to focus on the European market and air to water. So it's heat water supply basically. But especially applications for heating is another area we can penetrate. So that will be our utmost priority and establish a good foothold and a good position in Europe first.

For air-to-water, the business in Europe, as you know, environmental issues, energy issues are in place in Europe. And because of that, when it comes to heating equipment, shift to heat pumps is occurring from fossil fuel at a tremendous speed. And in Japan, we have the EcoCute business and in principle, the mechanism is basically the same. It uses refrigerants. And with water, it is able to air condition as well as heating. So with this technological base, the air to water product in Europe has been well received in the market, specifically -- especially in the Nordic regions where it's cold. Because it's used for heating in the winter, when the external temperature is down, the traditional products have lower performance. But in our case, the heating performance can be maintained. That's the kind of products we have in place, and therefore, it's been well-received in the market. So in this way, in the market, we are competing with our product. And like Mr. Michiura mentioned, production-wise, we are doing it in Malaysia right now. And it is still sufficient. So from next year, we will start producing in Europe when it comes to outdoor units. And we will also have an R&D center eventually down the road so that we could reinforce our efforts in consolidated development, production and sales. And that is how we would like to provide value to customers.

Your next question, Nishimura-san from Credit Suisse Securities.

I have 2 questions.

Sorry. Can you limit your question to one?

Yes, then one question. Regarding the competition and the competitive advantage that you have been mentioning, obviously, where the differentiation, it could be technology or how you're working on the marketing area. I would like to know about this, especially about the Electric Works and you have the Blue team, and how is it going to be beneficial on the perspective of the supply chain.

So regarding the competitive advantage of the source of competition is mainly coming from the technology. So I will start from technology. And I think it is written on Page 10, Slide 10. So from the past, as shown on the chart, this is about moisture control and active purification of air compared to the competition. These are all unique technologies. At the presentation we have reported to you about the air purification, the passive type, meaning that the air should be circulated. And within the equipment, the air is going to be included in. And it will pass through a filter in order to the of any impurity. But in additional to that, our product is nanoe X or Ziaino. And that is -- it's a sodium hypochlorite utilizing, and it's going to be charging -- discharging a component in order to purify the area. So any impurity that is floating within the air could be purified. And such a technology is our strength and we are implementing and going forward with it. On the right-hand side, the low-GWP refrigerants, the so-called. Every company are trying to compete and create something new for this area. To this area, we -- in order to maintain our advantage, we are now underway of development. So when we are coming to a concrete point, we would like to report to you. And the second issue you've been talking about the benefit of the Electric Works and company CCS. So it used to be that all relevant respective companies were working independently. So we were not able to share our synergies. However, this time, as Mr. Shinada mentioned, we're going to be working on the basis of the account and would like to contribute to the lifetime of the customers. And so the 3 companies are going to be working together in order to do so. We started off with the discussions already. So the B2B type businesses in order -- so such a methodology will be giving us team.

We'd like to take a question from one more person. BofA Securities, Mr. Hirakawa.

This is Hirakawa from BofA Securities. I also have a question around system solutions. Right now, revenue of system solutions, how much is it right now? And towards '25 March and '31 March, how large is it going to be? And can you talk about the market size as well as the prospects of growth going forward? That's it for me.

Thank you for your question. For last fiscal year, it was JPY 680.8 billion, as reported, and engineering solutions accounted for close to 10% of that. Regionally, Japan was the majority and Europe is in initial phases. So we would like to increase the contribution to double digit by '25 or 2030. JPY 1 trillion by '25 was a number that I mentioned. Our '26 March, we would like to see the business grow into more than JPY 100 billion. From maintenance and implementation from those areas, remote surveillance and recurring businesses, like in the case of Europe, it's also in scope. And with that, we would like to grow that much to achieve these milestones. So it doesn't sound that big, although it's a growth business. When you're talking about 10% more or less. For the sales business, as I [ commented ], it has a high level of affinity. So on a standalone basis for facilities of sales in our current portfolio -- it's considered as part of the facilities equipment category. It's mutually high in affinity, installation, maintenance, and beyond that, the services business, when you carve that portion out, that's how it looks like. But of course, we -- eventually in the future, we believe the businesses will be increasingly integrated. That's our aim.

Hello. I'm in charge of Electric Works. My name is Otaki. And I am grateful. So I would like to extend my appreciation for your daily support. From here on, I would like to share with you the mid- to long-term business strategy. So starting with the overview of the company. Our company, we have 5 plants and 76 sales offices and associated companies, 36 companies. And we have 16 overseas companies affiliated and we are having the sales in 119 (sic) [ 109 ] countries. And we have 30,000 people, employee for us and the sales for FY '22 was JPY 1.166 trillion (sic) [ JPY 1.0166 trillion ]. It is accounting for 28% of the whole Panasonic. And after the adjusted operation profit, it is 32% and JPY 44.4 billion. Starting from FY '20 to FY 2022, to have a recap, we have been finishing the structural reform for specializing. Our focus is to electrical equipment. But we have been working on the withdraw for the solar panels. And we have been through with the large size reform. We have been transforming ourselves before the business models and creating the spatial solutions businesses. Under the COVID-19 situation, we have been achieving plus 16% growth. Under COVID, we did have some difficulties for procurement. And there was a high increase of raw material pricing. We were not able to fend off everything, but then after the adjusted OP and publishing revised figure, EBITDA has been achieved compared from the previous year. But these are where we are working. We start from planning and go through development and then maintenance. So within the company, we have the function of the value chain, and it is to -- so our work is within the field of electrical equipment that supports living infrastructure. It is about the lighting business division who are in charge of lighting for residentials and offices, stadium and the energy system business division who are in charge of wiring devices and interphones and various systems for electrical construction material. And Smart Energy Business Division were in charge of such as the gas meters and other devices. And the pie chart shows the ratio of the contribution of each of the businesses within Japan and overseas. Many of the products were both #1 or #2 within each of the market. On the right-hand side graph, it's about the main regions, which is India, Turkey, Vietnam and Japan. It shows about the scale of sales. And the adjusted operating profit is plotted in circle. In overseas in Japan, we have an unshakable share, and we are focusing and maintaining a good level. So we would like to extend this. And in order to do that, we have 4 initiatives, but our strength is depicted on the bottom part of the chart. So within the global proposition, we are to contribute to the carbon-neutral society and to contribute to the next-generation work style reform and also addressing preparations for natural disasters. For the projects going on, we have some photographs that is to be shared with you. The statements that we uphold is now summarized in video. It's a 2-minute-long video, and I would like you to enjoy it. [Presentation]

And we would like to become a leading company for that. And from here on, I would like to explain about the business conditions in and out of the country. So there was some stagnation by the COVID-19. But mid to long term, the economy growth was robust and infrastructure investment is what we expect. And for the competition, competitors are working on proactive M&A. We're trying to expand ourselves too. In Japan, until FY '25, we assume that the growth will be firm. However, we have to be concerned about the depopulations. And based on the strength of the Japanese entity, we would like to develop on the solutions and provide the services to Japan's general electricity company because they are also going digitalization too. For this midterm, we would like to work proactively for the overseas businesses. And in the future, in order to be prepared for the changes with the Japanese market, we would like to be prepared so that when time comes, we would like to launch accordingly. Earlier, Mr. Shinada gave an explanation about the 7 priority businesses and our areas will be in Japan as well as in overseas, the electrical construction materials business as well as the energy solutions business. From March '22 through March '25, on this chart, we show the changes in the profit pool. For overseas, for products as well as the regions, we are going to strive to expand that. And the mass production business, we would like to leverage its solidity and strive to have overseas sales ratio of 40% by March '31. And for Japan, we would like to shift to a business model that enables us to be connected with customers and continue creating values by utilizing our current solid business base. And for the profit pool, for the existing businesses for the electrical construction materials business in Japan, which is growing, this is about going to be JPY 20 billion in EBITDA, of which half will be electric components recovery due to the bottlenecks we saw on the supplier side. So this has been accounted for in our expectations. And furthermore, for energy solutions, JPY 11 billion is the absolute amount of EBITDA growth we're expecting for the solar battery losses as of March '22 is going to be resolved. And this will account for half of the JPY 11 billion. On top of that, fuel cells, controllers, power conditioners and meter devices, products that have strength will be leveraged in order to grow that is accompanied with earnings. And for the electrical construction materials for overseas in March '31, including China, we would like to bring up the overseas sales ratio to about 40% for China. We will be investing into our resources also in the China & Northeast Asia Company. [ Endona ] has been in charge of the execution. And we will have a single company basis. Turkey, Vietnam and so forth will be our -- Vietnam will be an important commercial bloc in engaging in local consumption and local production management strategies. For example, to give the example of India, since the acquisition in the south part of India in a place called Sri City, we have built a new factory. And starting from April, it started its operations. So for wiring equipment, annual production is about 500 million units right now. And furthermore, we would like to increase it by 80 million going forward and bring it up to 200 million units by March '26. And also on a countrywide basis in India, by using DX, we would like to reinforce our contact points with our partners that we've been working on for the past, but we will do it further in the future. We would like to support our distributors. And to the electric contractors, we would like to promote our sales and also reinforce our distribution channels even more. And for electrical construction materials business globally, we believe there's a high commonality in other regions as well. So first of all, the success model in India is we plan to roll it out to other regions so that the overseas sales ratio can reach 40%. Over the medium term, CAGR growth of India is expected at 12%. Next is for Japan and electrical construction materials. From a stand-alone basis, we were selling products, but going forward, we're going to have a solutions-based business model that covers proposal, design, system installations, maintenance and services. So we're going to extend out in the value chain. Profitability of single product sales was 5% to 10%, but maintenance and services can generate 10% to 15% profitability. So on a value chain wide basis, we would like to expand our activities so as to raise profitability. And during this medium term, towards the transformation of the business model, we'll be reorganizing ourselves, and we'll be investing into creating mechanisms so that by March '31, the solution-type sales can be approximately 50% of total sales. That is our plan. So in promoting projects during the medium term, we will be establishing a solution-based business model, like I mentioned earlier, but the conditions to that is to connect the value chain with digital technology and to create a foundation to provide value, especially centrally controlling customer information and preparing for reinforcing the services business, smooth delivery and making the installation operations more information. So we'll be investing into the platform during the course of the midterm plan. Furthermore, the engineering functions we have, we'll be transforming it into a solutions type business model. So energy spaces or mainly offices and residence will the angles that we'll be pursuing and making proposals. For example, the 16th floor on the Shiodome building, we have set up a worXlab so that we could put into practice these solutions, and we have been using it to make proposals to our prospect customers. And to do the POC we have been doing joint promotions with our partners. And for those functions we don't have, we have been engaging activities so that we can complement what we don't have with external start-ups or ventures. So this initiative has already started. So moving on to the energy solutions business. So we will be focusing mainly in the consumer side. And we will be leveraging our strength in the residential field to promote ZEH for residentials. And for the major housing developers, they have been adopting our products as well. In the nonresidential areas, ZEB as well as the pure hydrogen fuel cell that we made announcements on, RE100, will also be contributing to this effort. And EV infrastructure solutions, we also made announcements around this charging product. And for solar cells, fuel cells and storage cells, we will be adding them, the 3 battery system, as an additional menu so that we can contribute to preparedness towards natural disasters as well as effective utilization of renewables. So for March '25 KGIs, this is what we have, which is JPY 100 billion or 10% EBITDA, and it was JPY 65.5 billion in March '22. So CAGR will be about 15%. ROIC, the target is 10% or more and accumulated cash flow target is JPY 172 billion. Up until March '25 we show the sales expectations for each of the fiscal years on March '23 and '24 as well as the same trends for EBITDA. Starting from March '25, there is going to be a system change. I mentioned that in '22 market, it was JPY 1.0166 trillion. But when you apply this change, JPY 9.47 billion -- JPY 904.7 billion. So that is the impact of the revision. That is all for me. Thank you very much.

So we are now open for your questions. We are able to entertain your questions from Shiodome on site and online. Unfortunately, we cannot receive questions from the English speakers. So we start, Ayada-san from JPMorgan Stanley Securities.

Ayada from JPMorgan Stanley Securities. I would like to ask give you 2 points from the foreign countries. India, Vietnam and Turkey was what was introduced. And you mentioned about ASEAN the other day. You've been mentioning that you have a high share in ASEAN countries, too. So for instance, other than Vietnam, what is the condition or the share within the ASEAN area and the rival manufacturers, the competitors, the [ Dogoran ] of France, the global manufacturers were there. And for instance, I would like to know the fact whether you're seeing much more competitors in the local area. So please tell me about the local condition. That's one thing. And second question, and overseas, when you're expanding your businesses, so you're saying that you're going to be expanding the sales, taking advantage of, for instance, the wiring appliances. And I think you've been working like that in Japan, but are you going to be applying the same kind of similar business model in overseas and then to obtain 40% market share?

Thank you very much, Ayada-san, for your question. So first of all, the first question, in Thailand and Indonesia, within the ASEAN area, the wiring appliances share is unchanged. And partially, there are areas where we see some growth, the rival competitors. So the local manufacturers, we need to compete with them. So starting from Asia, and let us talk about Vietnam were the top share. However, the local manufacturers within the rural area, they are trying to grow in the rural area to those growth or trying to launch an economy product in order to increase our shares, too. So that should be done in a meticulous way. In Asia, I just mentioned about Vietnam. The reason why I just mentioned Vietnam was that we are working on development sales and manufacturing to work in unity. So to do that, Vietnam was the first place to test it out. And if that seems to be successful, we're going to be developing out to others. And for the wiring appliances, you were just asking that we're going to be utilizing that as a whole in order to develop, and that is so. So we are going to be trying to increase the product line and to deliver the product in a timely manner. So supply chain must be strong and it should be managed at low cost. So such capability is needed. And for wiring appliances, various area, regions have a number and series of the number of products. So scrutinizing of that, the lighting and other products has great affinity, the great level of affinity to the customers, so we would like to expand on that. And successful area for this is India. And means, in other [ words ], it is hammering out a very high performance and profitability. Thank you very much.

And I'd like to ask in addition. So when we were just limited to the wiring priorities within the competitive advantages, the scale merit or scale benefit of you, how is it big, I mean, for -- are you just focusing on the reliability or the costs?

I will just deepen my discussion on India. So India was acquired 2007. And at that time, the margin was around 10%; currently, achieved 20%. And the reason why this was achieved was by acquisition at the local manufacturers. We were able to secure a big capability of BOM. So the reason why we were able to do so to gain that company. So the automation and the designing capability has been multiplied by acquiring this company. Otherwise, then the acquisition, we were not able to grow that big. And so for this company, the acquisition allowed us to grow exponentially. And the information will be understood in real time and, by doing so, manufacturing will not have to work on wasteful products, and we can just launch on a product that is needed, meaning that the operation capability has been intensified. And as mentioned, this, I think, shows some commonality. Therefore, we would like to roll it out in other regions. So it's a business that maybe does not stand out, but we would like to increase our profitability.

So next is the question from online, which is Harada-san from Goldman Sachs.

This is Harada from Goldman Sachs. I have one question. On Page 11, you talk about the electrical construction materials business in Japan and the solutions-based business. I'd like to learn about the details of this business. And from '25 March to '31 March, the proportion of the business is expected to increase. Is it because of IOT installations proceeding? Is that the right way to look at this? And also for solutions, ASPs are likely to rise. And for electrical construction materials in Japan, is the additional cost going to be well accepted by customers?

Thank you. Due to the trends around decarbonization, customers are talking about full solutions. Instead of just buying products on a stand-alone basis, we are getting those types of requests. So for the construction industry in Japan, market size-wise, it is about JPY 80 trillion to JPY 90 trillion, out of which for the electrical construction industry, it's about JPY 20 trillion in size or a little bit over JPY 20 trillion. So it's JPY 8 trillion for electric construction, which is an area that we're engaging, which is construction material sales as well as engineering sales. So it's JPY 3 trillion construction materials and JPY 5 trillion is engineering portion. So that's where the profitability lies, which is the engineering side of things as well as making proposals. When that matches the demand of the customer, you are able to generate better profitability out of your engineering solutions, which we were not able to do well in the past. So specifically, energy solutions or office solutions or residential solutions, there's various types of solutions available. So by combining our products together, we are -- we would like to make proposals that solve customer issues. Together with our partners, by project, we are currently in the process of building this business model, which we would like to expand. So the 50% domestic sales target, when you assume the future market size, and we will also need to strengthen the capabilities of our engineers. We believe, as a hypothesis, we'll be able to reach 50%. But when you think about the engineering resources, we currently have 1,700 of them. We would like to increase it by 10% so that the 3 solutions that I mentioned earlier can be harvested from. And if we're able to do that, we'll be able to probably reach 50%. That's our hypothesis, and that's why we made this announcement today. I hope that answers your question, Mr. Harada.