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

Hello, everyone. I am Shinada, Masahiro Shinada from Panasonic Corporation. My voice might sound a bit nasal, but I hope you will bear with me. So once again, thank you very much indeed for coming to this individual business strategy briefing of Panasonic Corporation. I appreciate your attendance. I'd also like to thank you for your support and patronage before our company. Thank you very much indeed. Now this is today's agenda. In June, we had an IR day and for the first time as a new Panasonic, we had this IR Day. We talked about overall strategies as well as the strategies of the 3 divisional companies. And today, we will talk about some of the updates of the overall strategy as well as European growth strategy for HVAC company. At the same time, we would also announce the medium- to long-term strategy for Cold Chain Solutions Company, CCS, and China and Northeast Asia company, CNA. We will have the presidents of each divisional company to present. Now as we announced in Q2 business results, the China business was excluded from the scope of consolidation of CCS to eliminate the double counting. And today, we will be presenting based on this reclassification. Now as for this reclassification, this reflects the change of the positioning of the cold chain business in China. The cold chain business in China. For that, we have our partner in China, and we have transferred some of the businesses to the partner. And we have made the decision that it's appropriate for this local entity to take the leadership in the management. And in CCS, CCS will focus their resources to Japan and North America, which are the priority areas to enhance their competitiveness. Now let me talk about the overall progress. I'd like to follow this structure that you are seeing right now. First half, I would review the first half of fiscal 2023 and the second half is the progress status of the medium- to long-term strategy. Let me start with the review of the first half of fiscal 2023. So this slide shows the overview of the medium- to long-term strategy that we explained in June. On the left, we have the most important theme for 3-year medium term. The profit growth in 7 priority businesses, company-wide operational reforms and implementation of ESG and IR into the management strategies. So as a KGI for fiscal 2025, those are listed on the right-hand side, EBITDA of JPY 350 billion, ROIC of 10% or more. In addition, the 3-year cumulative operating cash flow, JPY 660 billion. In order to achieve those goals, we are making progress, and I'd like to explain to you the progress that we made in 6 months. This slide shows the trend of sales and EBITDA year-on-year comparison by quarter. As you can see, in Q3 fiscal 2022, the sales and profit declined year-on-year. But from the Q4 of FY '22, the sales started to increase and the profit decrease trend stopped. And from Q2 of FY '23, the profit started to increase. So let me go into the details of the Q2 of FY '23. Now concerning the Q2 of FY '23, this is the year-on-year EBITDA changes and factors. First of all, the growth of priority businesses such as HVAC systems and overseas electrical construction materials, led to the sales increase, pushing up the EBITDA by JPY 21 billion, which is shown as #1 and deteriorating external environment, such as higher raw material prices and logistic costs and ForEx pushed down the EBITDA by JPY 23.5 billion. Operational reforms, including the price revisions and cost structure reform pushed up the EBITDA by JPY 20.9 billion. That is shown as #2. In addition, there was a reduction of the restructuring expenses. And overall, EBITDA increased by JPY 23 billion year-on-year. Especially deteriorating external environment was offset 89% by operational reforms. This led to the higher profit. Next, on this slide, number 1 is the profit contribution by growing priority businesses. And also number two, the recovery through operational reforms. Let me now go into the specifics of those 2. Here is the year-on-year comparison of the trend of profit from increased sales by quarter. So chronological trend is shown from Q3 of FY 2022. The main factors -- the increase and decrease factors are shown. The shown in blue are the growth businesses. In addition to profit contribution of growing air to water in Europe, and overseas electrical construction materials business, display case in North America increased in sales and also the home appliance recovered. And with that profit grew with higher sales. And a negative impact from lower demand after stay-at-home period in Japan and the supply problem due to the Shanghai lockdown and that contributed significantly to profit, as you can see on this slide. Next, I'd like to talk about the recovery from the deteriorating external environment. So this shows the quarterly year-on-year comparison showing the progress of recovery. So each -- on the left-hand side, we are showing the Q3 of FY 2022. So each bar below the line is the effects of the deteriorating environment. So raw material cost increase and the higher logistic costs are included here. Now the upper portion, the blue part shows the recovery via operational reforms. In Q3 FY 2022, we could only counter the deteriorating environment by 35%, but by accumulating the operational reform, gradually, we made progress. And as I said, in Q2 of FY '23, we have offset or countered up to 90% almost. As for the external environment in the past year, there were lockdowns due to the COVID-19 and the change in situation of the Russia and Ukraine and higher raw material prices and higher logistic costs and unstable ForEx. Those external environmental changes were higher or more than what we expected. But vis-a-vis those have worsening factors through the continued operational reforms, we are making a steady progress. I think you can see that from this slide. As for the specific progress of the operational reform, I will go into the details in the second half of my presentation. So now the first half's of the year is summarized. And also, I have to talk about the initiatives for the second half. So in the first half, as I explained so far, the environment -- external environment has been changing very rapidly, and we have continued to take the measures and those ongoing measures are gaining results and seeing fruit. And as a result, in Q2 -- in Q2, we increased the sales and the profit. The major driver of the performance has been the higher sales, mainly of the growth businesses. And also, we have how we reacted to the changing environment with operational reforms. Now we -- already 2 months passed in the second half, and we are starting to see the new changes in the environment. In the middle of this slide, we are listing the risks and opportunities from the business perspective. In the second half, we would try to identify the risks and then try to make efforts so that we can reach the announced targets. Major initiatives are shown at the bottom. First of all, to execute the investment for the growing businesses. And through the operational reform across as a company, we would fully engage with the reform efforts and try to streamline the inventories to maximize the operating cash flow. So in order to achieve our targets, this chart shows the changes from the initial forecast. The top half shows the forecast that we announced at the beginning of the year and the second half or the bottom half is the changes -- factors behind the changes based on the forecast right now. As you can see in the middle, the Shanghai lockdown led to the negative impact of about JPY 4 billion. The ForEx led to the negative impact of JPY 7 billion. But with the operational result, including the price revision and the rationalization, we have countered this with JPY 11 billion. And through that, we are going to accelerate our efforts to reach our targets. Now let me talk about the medium- to long-term strategies. First, I'd like to give you the positioning of priority businesses more in detail. The slide on the left is the current portfolio that we announced on the IR Day in June and also the portfolio that we would like to achieve in 2030. So [indiscernible] and overseas electrical construction materials from now to 2030, they are positioned as growth leaders. Energy Solution and the CO2 refrigeration system with freezer are leader candidates, but in 2030, they will try to become the growth leaders. And the electrical construction materials in Japan and display cases and home appliances in Japan will continue to be as a stable profitability in 2030. The chart on the right-hand side shows the trend of the 7 priority businesses in each market growth cycle. So as you can see, the leader candidate, the energy solution and CO2 refrigeration system they're in the adoption period. The growth leader HVAC and also the -- of the overseas electrical construction materials, i.e. the growth period and the electrical construction materials in Japan, display case and home appliances or white goods in Japan are in the mature period. Depending on the growth stage, there are different stages of the growth as well as competitive environment and customer needs. So the leader candidates business. For that, we would try to make the investments so that we can lead in the market setup and also the growth leader sales in the growth period, we will try to invest in the priority areas to expand the sales. And for the stable productivity business, we would invest for the added value and also to improve the profitability through the operational reform. And based on those, we are thinking, we will try to clarify the priorities of the businesses even further so that we can accelerate the reselection and concentration. So as I explained, out of those 7 priority businesses, for the growth leaders and leader candidates, what are we going to do in the medium to long term. This slide shows the strategic road map of those businesses. That's written in red shows the initiatives to contribute to performance in 3 years. The blue are the initiatives to be started in 3 years and will contribute in the next medium term or onwards. So we try to differentiate those. The graph on the right shows how we are trying to grow those businesses towards 2030. This is an image, that I'm showing to you. Top 2 growth leader businesses. There are already market growth that we see. So we had to make sure we make good investment so that those businesses will continue to make contribution to our performance towards 2030. And I will talk about the details from now on. Now the second bottom ones are the legal candidates or the development businesses, we will look at opportunities in the environment and try to make the upfront investment as well as the market development. And when the market starts up, we are hoping that those businesses will make a major contribution. So that is how we are positioning those development businesses. And we'd like to grow those businesses in the next medium term. So in coming 3 years, we will steady to execute the development and demonstration and design and others to enable that. This chart shows our self-assessment of the first half progress for the 7 priority businesses. This looks at the KPI progress and the EBITDA progress from the perspective of where we stand after 6 months against the KPIs we set out on IR Day in June. First, KPI progress. For growth leaders and leader candidates, i.e., 4 growth businesses -- CAGR in the first half was 15% exceeding the CAGR 8% or higher for FY [ '21. ] Therefore, this is circle. As for the 3 stable revenue businesses, EBITDA rate for first half was plus/minus 0%. And FY '21, we were not able to see improvement against the EBITDA rate of plus 5 percentage points or higher, therefore, it is triangle. Next, regarding EBITDA progress. 4 growth businesses increased EBITDA by JPY 11.4 billion, on par with the plan of the plus JPY 60 billion in the midterm. On the other hand, 3 stable revenue business increased EBITDA by JPY 3.4 billion in first half, which did not reach the target of plus JPY 50 billion in the midterm. In the first half, especially for the stable revenue, home appliances and domestic electrical construction materials, the impact of Shanghai lockdown was very large. And I suppose there was -- there has been no impact of Shanghai lockdown, the numbers without the impact of Shanghai lockdown is shown here. And if that is the case, then the figure is similar to the level of the plan. Now I would like to explain the progress of the growth leader to 2 areas. The first growth leader is HVAC system. In the HVAC company, excluding the home appliances route, equipment and solutions fall under this category. As shown in the graph on the left side, HVAC achieved double-digit growth in first half with sales of JPY 303.8 billion, which was 110% year-on-year, of which European sales increased by 68% year-on-year. As written on the right-hand side, this is due to the expanded sales network built in each country to meet active demand for European A2W. If you look at European A2W, sales increased at 2.3x, far exceeding the market growth. In order to further expand business, as we announced on October 3 of last month, we made a decision to invest approximately JPY 50 billion to boost production in Czech Republic and other places by 2025 and strengthen business foundation, such as R&D structure. And also marketing costs will be spent to further strengthen our business foundation. Also, as we announced last week, we signed an agreement to acquire [ chiller ] business from System AB or Sweden to strengthen our light commercial sector looking towards European CFC regulations and shift from combustion type devices. With this acquisition, we can offer high value-added solutions, not only in air conditioning, but also in water heating and room heating, thereby significantly accelerating the business growth. European strategy of HVAC Company will be explained by Mr. Michiura later on. So I do hope that you ask questions to him. Now moving on to the second growth leader business, which is overseas electrical construction materials, as shown on the left-hand side, sales in the first half was JPY 118 billion, which is 132% year-on-year, also achieving double-digit growth. The 3 key countries of India, Turkey and Vietnam achieved 138% growth. This is due to the capacity increased in line with the market growth, expansion of clients such as distributors and strengthening our product line up in the 3 key countries with robust growth. And we have established the new factory in [indiscernible] and we started production in April. We have #1 share in all 3 countries, especially in India and Vietnam, we achieved growth, which exceeded the economic growth in the first half. In the second half, we will continue to take measures to increase sales. We'll utilize the -- we will increase the utilization rate of 3 city factory, which started operation in April and we will also start construction of new buildings for the Vietnamese factory to expand production capacity for next years ahead of other companies. Next, I'd like to talk about company-wide operational reforms. This slide shows the overall picture of the 3-year operational reforms we have shown to you last time, we have overcome the effects of environmental deterioration such as raw materials price and exchange rate by implementing operations such as continuous cost structure reforms and price revisions which will total over JPY 130 billion. Today, I will explain the progress in -- with the points highlighted in gray, capacity -- company-wide reinforcement of direct materials cost competitiveness, SCM and ECM reforms and review of shipping price of home appliances in Japan, electrical construction materials and overseas HVAC systems. First is the progress of the company-wide reinforcement of direct materials cost competitiveness. Regarding this, we established procurement department in the strategic headquarters, which we post to meet in April and we are implementing drastic measures in 4 categories, shifting the phase from individual operational procurement to overall optimal procurement. I will explain the initiatives for the first half. The first one, materials, we switched to purchasing general purpose materials from several companies. The second one, semiconductors and electric components, we switched from purchasing primarily from Japanese companies to concentrating on major industry players. 3 electrical components for motors and others, we centralized manufacturers and promote common use and general purpose products by design department. Four, mechanical parts and assembly parts, we select strategic partners and concentrate supplies to 20%. With these initiatives we estimate JPY 5 billion reduction in FY '23. As we move towards FY '25, we will accumulate further effects by promoting these initiatives. I'll show you 2 examples of company-wide reinforcement of direct materials cost competitiveness. In the example shown on the left shows the filters of heat exchanges. Mapping of common parts were made from design stage and by gathering information and strengthening collaboration, centralized contracts between businesses were further deepened resulting in 60% cost reduction. Example on the right is centralized contracts for electrical components for motors, which have the highest repo effect in the company, common use among the departments and centralized contracts for global procurements were promoted, resulting in cost reduction of JPY 2 billion for this fiscal year. Both are examples of concrete efforts going beyond the framework of the organization and with the big framework of Panasonic and taking a company-wide initiative resulting in specific results. Next, I'll explain the initiatives to construct actual demand-oriented operation. Last time I explained a new sales scheme to accurately convey product value of domestic consumer electronics. The intention is to build a mechanism for offering high-value other the quality products worthy of the price, which is appreciated by the customers in a timely manner. This is only valid if you continue to generate products, which are chosen by the customers. Therefore, this is a scheme which is valid only when you can develop customer-oriented products and it is not a mere sales-side initiative or maintaining and controlling prices. This leads to optimization or extension of the product by cycle rather than launching products with minor changes, which has little difference from the previous year's model every year, customers are able to use products with true value for a longer period. For example, life cycle of the work [indiscernible] dish washers and dryers and microwave ovens are prolonged to 2 or 3 years. As a result, it is now possible to shift development resources that used to be spent on minor change to new categories. We announced the pretrial of IH rice cooker with automated measuring function on November 15. You can see the photo of this product. We announced the pre-trial and many people for the first 1,200 people, we have already received application from 7,000 people. This had big percussion and reaction from the consumers. And indeed, the new products, which are worthy of Panasonic. We are shifting our resources for the products which are appealing. As you can see on the right-hand side, we are implementing new initiatives with this division towards constructing an actual demand-oriented SCM process. We see an initiative to rebuild IT infrastructure and logistics for the whole supply chain and build SCM process, which is linked to real demand. We are working toward introduction in FY '24 and POC is underway. Now I have explained to you the progress so far in the first half. And what I have explained is just a steppingstone towards 2030, I'm sure that there will be further change in the environment, but at the end of the day, in 2030, we aim to become a company which will continue to evolve in the long run and become #1 or #2 in EBITDA in each of the business. And I see the kind of cooperation and support. Lastly, future IR schedule. With the new company structure, we are enhancing disclosure intentionally enhancing the level and quality of disclosure by strengthening engagement and communication with the capital market we will have the market-oriented perspective rooted in the management, would lead to further management reform. The schedule on the side shows the IR calendar schedule for FY '23 and '24 after IR Day in June, site visits, roundtable and [indiscernible] meetings. And we have had various opportunities to facilitate your understanding of our company's activities. We will continue to deepen and increase opportunities for engagement with you and seek your kind cooperation and support. With this I would like to conclude my presentation. I thank you very much for your kind attention. Thank you very much. Now I'd like to take questions. So please bear with us.

To answer your questions, in addition to Mr. Shinada, we have Mr. [indiscernible], CFO of the Panasonic Corporation. Now we are ready to take questions. We are taking questions both from Shiodome Building as well as online. As for the online, we only take questions in Japanese. Thank you. we are only taking questions remote questions in Japanese. Now I would like to take a question from [indiscernible] from Shiodome Building, Harada-San from Goldman Sachs Securities.

Thank you. I'm Harada of Goldman Sachs. This is a great opportunity. Thank you very much indeed. I have 2 questions. First, toward the end of my presentation, you talked about the supply chain management process and you are rebuilding this. So as for the Lifestyle business, the operational reform and to improve the profitability by operational reform, I think has a lot of opportunities. So from FY '24, you'll be introducing this and what kind of impact or the positive impact do you expect? That's my first question. And the second is that this time, the air conditioning is 1 of the growing businesses that you mentioned. And on Page 21, EBITDA first, the #1 and number two, you want to have a collection of those businesses. And some of the businesses probably will be shrinking. So maybe some of the businesses which might not go so well and the priority becoming lower, if you have any of them, I'd like to know them. I would like to basically know your portfolio change.

As for the SCM, of course, we have to consider the counterparts. So of course, our scheme is that we will -- the counterparties also need to make investments in ICT. So the customer information system and our system is to get connected so that we can have the inventories and achieve the 95% that I mentioned earlier. So as of now, in the second half, we're experimenting is 1 major company to start experimenting with the scheme. So from April next year, we would like to start the production of this system. So what we are doing right now is that for example, the shortage of the products, the front-loading laundry, washing equipment is 1 of the things that we're experimenting on. So in addition to the front-loading washing machine, the refrigerator and air conditioner in Japan. We like to apply this to other products starting in FY '24 and onwards. So as of now, the major customers and different products we do not have a clear formula. So the next time it may be in IR meeting in June, we will be able to give you more clarity on this topic. So until then, we would like to ask you to give us some time, and that is the current status. So in June, we will be able to talk about the customers and the products and what is the percentage out of the overall sales and how what kind of cost reduction that we can expect. Maybe we can talk about those in IR Day next June. So that's my first point. The second point is the collection of the businesses of number 1 and number 2. When we became the Panasonic Corporation, some of the low profitability businesses where we have restrained from them. So that was since the beginning -- from the beginning. So when you look at the major categories, for example, [indiscernible] within the [indiscernible], this particular product is something that we are restoring from. If we find that, we might do so. But when you look at the business unit. As of now, we are not thinking of withdrawing from any of those businesses that we have right now. If you go to Page 12. So in terms of portfolio, there is assessment business at the bottom left. That's Mr. Shinada said. Right now, we do not have any unprofitable businesses, but if we also consider the region. So there are some difficult businesses or in some cases, some of the businesses need to be transferred to the partners in order to develop and prosper. So one of the candidates is the business. appliance business in China and Asia. And so those are 1 of the -- this is 1 of the businesses that we need to assess in the years. So in addition to Asia, in Europe as well, as for the white goods, we have to make sure that we assess. And as a result of the assessment, we have to decide what to do. So assessment doesn't mean that we are -- we plan to restore from them. And as Mr. Shinada said at the outset, the stable profitability, for example, display case in 3 areas. They are positioned as a stable profitability. But the business in China, they are also under the G&A, there are finalizing the direction of this business. So ultimately, when we can, we will be talking about that and how we change the portfolio and so forth, will be explained to you in detail.

I'd like to move on to the next person. Okazaki-San from Nomura Securities.

Okazaki from Nomura Securities. Slide 10. EBITDA '22 and comparison from last time, and the cost and the exchange rate is difficult. And the price is progressing, price revision is progressing more than expected. But with a difficult environment, with the increase in price, there's a risk that the demand might be dampened in the first half, pricing strategy has been progressing well. And the changes of the demand as a result. How do you look at the changes in the demand as a result of price revision?

Price increase, generally, you cannot generalize as Mr. Okazaki said, if we do not meet the value of the consumers, then they would not accept. So right value, we have to revert the value to the right level. Based upon that assumption, we revised the price. We take actions to revise price. So it's not the case that we are neglecting the consumers I do hope that you understand this point clearly. In order to do that, there are a number of approaches for price revision. Total number of approaches are taken, for one thing, new sales scheme. As you know, we have -- we got products that we have confidence in will be the subject in the scope. And as written here, the kind of products that there is no other product or our product capability is very strong. And even with the poor economic environment, the kind of products which give preference to the customers. These are the kind of products. And the total amount of sales of home appliances, then 30% of that is made up of these new products. And here, there's ample value -- so we and customers and sales channel, all are satisfied about the price, and we are proceeding smoothly. And when it comes to repair parts, where we were not able to maintain the price there is such a category of products. And in line with the current situation, we conduct a review. Then this price level will be reasonable for these products taking opportunity. Of this, we revised -- reviewed the price. So as I said, this asset -- we set the price, which is commensurate with the value. And based upon that, we have taken the action to revise price. And it isn't there no complaint from the customers, it doesn't mean so. But generally speaking, we are able to receive understanding of the customers and proceeding with the price revision.

We take another question from the Shiodome building and then move to the online. Nakane from Mizuho Securities.

Nakane from Mizuho Securities. I have 2 questions. So as much as you can answer, FY '24 what Mr. Shinada is thinking about in terms of sales and EBITDA, the size of them? And also by region, what would be the percentage of each region. How much resource do you mean to allocate. That's my first question. And the second is the operation. Japan and abroad, the sales companies being combined. And I think in the previous session, you said that you think about this. So organizationally, what were the changes or the changes that you will be making and what would be the advantages, if you can talk about the B2B, B2C, Japan and overseas, if you can give us some additional information, so within the new framework, yes.

First question, FY '24. Frankly speaking, the sales target, the numerical target, probably it's too early to talk about that. So top line number, we have not yet finalized it. As I said in the past, our company, I think that management and infrastructure have been weak. So based on that reflection, we want to make sure that we rebuild this in the first medium term. So in a sense, about the prices, as I explained, and also the procurement actions, we want to make sure that we work on them. And as an extension of that, we would like to become the collection of the strong businesses. So naturally, after 10, we'd like to go for 15. So as of now, we do not have a specific numbers.

What about the percentage of the region? If you can give us an image of it.

2030 is far in the future. So this is not yet something that is being authorized internally. But the percentage of Japan will be coming down. Right now, it's about 50% in Japan, but maybe that will go down to 40% or 35%. And the biggest growth comes from Europe in terms of growth rate and also India is what we are thinking about. And of course, China is after that. So the percentage of the China currently 12% to 13% so that would increase or a bit close to 20% or so. And so Europe and India are going to grow faster. So that will be the image that I can give you. In terms of the growth rate, that is what I can talk about. So for the second part, so we have B2C and B2B businesses, 2 different types of the businesses. So as a management team, what we are discussing is that B2B2C is something that we'd like to understand. We'd like to become a company who understand that. And that is 1 of the characteristics of Panasonic. Until now, we did not say B2B2C. So for example you made -- there was a site visit of Superbox. So if you consider a building, and there is an office in the building, there are equipment and lighting and so forth. And right now, after having this pandemic experience, our workers in the office. We have to -- or all the companies have to consider the well-being of the employees. So business is B2B, but the users of the space with the end users are not the decision makers to choose the equipment. But the well-being of the users and sustainability is something that needs to be considered. So that is the major change that we are seeing happening in the society. So within the company, we have B2B and B2C. We have expertise in those areas. So understanding B2B2C, the end users. I think that is the area that we can make a lot of contributions. Also until now, we were separate companies and what we are trying to enhance is the B2B. And for each account, how do we take care of each account and how can we make improvement of that? That's something that we are trying to do. So for example, convenience store or supermarket, those customers, of course, we provide lighting and electrical wiring and conditioning and display cases. So we provide multiple products to the users. And right now, in the group, based on the company system, those were separate. But now we are in one company. So our customers and the difficulties and issues of each account, we want to make sure that we stay close with the customers so that we can do a very close sales activity. So the biggest change is the -- enhancing the B2B account sales and also B2B2C, that's something that we can discuss internally and provide values and also sustainability. In that sense, carbon neutrality, we can provide the more integrated and comprehensive solutions or the proposals to the customers. And that's 1 of our strengths. So that is -- those are the areas that we want to strengthen.

The first question, as Shinada said. As Panasonic Corporation -- it's not that we have a clear picture for 2030 in concrete terms. If you look at Page 14, we have priority businesses and 7 businesses were chosen, for example, of our growth business. CAGR of 8% by 2030. On the portfolio, looking at the market growth and our position, we conducted simulation. As this is a portfolio, portfolio will change over time. But for example, for the growth business, we have the CAGR. And for the stable business, it's not that the revenue will grow that much. Then priority businesses will have about JPY 2.1 trillion of sales. And if we achieve these KPIs additional JPY 1 trillion can be achieved based upon the simulation on the portfolio. And depending upon the changes of the environment, we'll be managing the company accordingly.

Moving on to [indiscernible] take questions online. [Operator Instructions] [indiscernible] from Denka Shinbun, please.

I have 2 questions, if I may. The first question -- with the new organization of the Lifestyle business, more than 1 year has passed and more than 6 months after the new company was established. The organizational change and change of the company's structure and the performance. Apart from the performance of the business, the motivation inside the company or as much fall in the company. Look for Mr. Shinada, what changed most. If you can then let me as to what changes did you see? That's my first question. Second point, the new sales scheme, last year, 8% was the coverage of the total product. And according to your material, the 30% of the -- for the home appliances. How do you look at the coverage of the products under the new scheme? Those products which are chosen strong products, then it may not be all the products. Then next fiscal year, how much it's going to grow? And ultimately, all the products will fall under the scope domestic home appliances, commercial practice, this has a big impact. So going forward, what is your thinking? And how far are you going to extend this and the coverage of the new sales scheme?

With regards to your first question, as we have the -- we established a new company, what has changed. As you know, if you look at the management team, then based upon the knowledge and the experience of the past, every person in the management team is challenging new businesses. I'm sure that you can see that. For instance, after this, Michiura-san will be talking. He was the President of LAS. He has the experience of lighting business, and he is a specialist in electric commercial construction materials and was looking at air conditioning as well. And what used to be with appliance joined AS and the new HVAC is established. But culture and the way of doing business was separate and different. So in that way, everybody is faced with new challenges and trying something new. Why is it? Looked from a fresh perspective and looked from a customers' perspective, how does our business look like? Once again, we'd like to reset and see how our business is from a customers' perspective. What the management team is focusing upon? Is that Panasonic is very large in scale and including overseas, we have close to 100,000 employees globally and about 36,000 people in Japan alone. And there are people who do not have to look at customers and the people who are just looking inside the company. However, fundamental basic of business activity should be to addressing and looking at the customers. So in 1 year since October, we established a lifestyle business. The divisional company presence, based upon the basic thinking is looking at the business and addressing the customers, and they are able to address the reasons that they are conducting activities in and how the organization is aligned, and the president of the divisional companies are focusing upon that. So the organizational structure change and how the change has occurred will be explained in April next year, we'll be able to update you. So we look outside. Outward, not inward. And we have been focusing upon that, and we are able to see some results already. That is my response to [ Gen-san's ] first question. The second question regarding sales scheme. How much coverage the new scheme is. 20% currently and perhaps 30% because, as I said, with the definition, our flagship products, we cannot say that all the products are flagship products. About 30% -- a bit more than 30% of the total products would be a yardstick in the medium term. However, when it comes to profit contribution, it should be far higher than 30%. In other words, with the limited number of lineup, we are able to jointly generate profit with a spirit of 3-way satisfaction. So not just increasing the weight in the sales, enhancing the quality of the products that offer, that is the key. I hope that this answers your question, [ Gen-san ].

We are running out of time. So we will take one more question online. And another question from this building. So from Nikkei, Hirashima.

My name is Hirashima from Nikkei. I hope you can hear me. About home appliances, I have a question. The development, manufacturing and sales, you have talked about the importance of this. So last year, in the briefing session, you mentioned the changes to the development structure. So the speed of the development. And I'm sure that you talked about that and what is the progress of speeding up the development speed, is it twice as fast? Or how do you see that? And also the integrated development manufacturing the sales, maybe it's not only for the home appliances. Have you seen any changes or the progress that you have made?

Yes. Well, about the integration of the development, manufacturing and sales, depending on the business, the formation is different. And so for example, the HVAC system, which you will hear about next. So the need for air quality is increasing and our technology of air quality and air conditioning, how do we merge them. Technological integration is progressing clearly. And also the home appliances last year or this June, as Matsushita-san said, micro enterprise, this is kind of a project-based product development. And there are 9 different projects going on. And for that, in addition to the speed of the development, something unique is that what we would like to generate. In that sense, we are getting a lot of good response. So speed up or increasing the speed is important. But as I said, the life cycle of products, we want to make it longer and we want to maintain the prices for longer terms. And so by doing so, the development in relation to the health and others, want to make sure that we can develop the good products that cannot be developed by others. And we are starting to see the progress. So we cannot really simply compare, for example, having the lead time or the development. Rather, I think we are planning the products that cannot be pursued by others, and we are commercializing them. So that's where we are seeing the progress and the changes by myself. I hope that answers your question Hirashima-san.

Lastly, last question from the floor with SMBC Nikko, Katsura-san, please.

Thank you very much today for this opportunity. Slide 13. I have 2 questions regarding Slide 13. HVAC, maybe actually ask this to Mr. Michiura. But the acquisition this time, EUR 100 million. But Mr. Shinada, you are able to make a decision in terms of speed and overall growth, there may be a larger M&A budget. So this is a piece of the overall M&A. Is that a fair understanding? That's my first question. And the second question is regarding overseas electrical construction materials rather than M&A, organic growth is larger than the investment needed for that. You talked about the factory in India and the regions and the content, as we look at the next 10 years towards 2030, what is your idea?

The first about HVAC. If my explanation is not sufficient, you can ask Mr. Michiura, and he will explain in more detail. Without submitting to Holdings BOD, it was decided by the BOD of Panasonic Corporation, Board of Panasonic Corporation, Mr. Kusumi, CEO of Holding; and Homma, Head of [ China ]; and Umeda, CFO, 3 of us are outside independent directors. And the Panasonic Corporation have 3 independent outside directors. And you can see the list of BOD members, you can see that. And the Board makes a decision and move forward. On a company-wide basis, M&A, their successes and failures, we -- there is a company-wide M&A committee. So we take actions and vis-a-vis, our actions and procedures, what are missing and we are aligning with the holding and making decisions. But the decision itself is by me and ultimately, go or no go can be decided by me. Europe or the HVAC business, we have various initiatives for example, especially chiller business this time is rather than having a cent going all over the building by circulating water, we can have air conditioning, cooling and heating. So this is Europe, which is advanced in environment, European market, this is very important. And then in North America, this can be deployed to Nordic countries -- to North America. So Europe and North America in the medium to long run, the water circulation will be very important. And the technological development element for that. We have to take that element into the company. And this acquisition was an important step forward to that end. That is about air conditioning. And the second, overseas electric construction materials, M&A. As I explained, basically, as more and more buildings are built, and there is a need for the electric construction materials. So the business is enjoying double-digit growth year-after-year. So for one thing, vis-a-vis the changing market, how quickly we are able to develop products which meet the local market? And secondly, we should have the factories and capacity for supplying products. That's the second point. And thirdly, the markets such as India are vast markets. So how to enhance our distribution capabilities? These 3 are the winning points. We set the time line and we follow this. And M&A, we don't have any opportunity for electric construction material not necessarily the housing type and nonresidential type buildings there. BW India is strong in residential, but the company growth tries to grow more, then they should be enhancing their view perspective to nonresidential business as well. Then Africa market look from India is promising as well. What comes after India is Africa. So how we set the foundation in Africa is important in the medium term. Thank you.

So with that, we'd like to end the session of Panasonic Corporation.

Hello, this is Michiura. I would like to focus on our Europe strategy today for HVAC company. So as you can see, we are facing a variety of social issues. And in order to solve these social issues, we have various technologies to solve these, and we are evolving day by day. Blue letters in the table below represents some of the technologies we are developing. For example, we're working on low GWP refrigerants for sustainable society. We have chillers and A2W air to water and using those technologies, we would like to contribute to the changes. And we are also contributing to the issues of bacteria viruses, air pollutions and productivity improvement with our various technologies, as you can see below. As introduced in our previous IR Day, we are committed to visualize the future with air. So our brand slogan is based on the concept of changing the future from the air. The world includes our commitment to serving the world and growing our businesses, and it has been a year since the establishment of HVAC corporation and all of our employees are working hard to realize this idea. This was also explained recently at the IR Day. These are the values provided by our company. It's not only towards the end users, but also for real estate owners and builders, we are committed to providing these 3 values. And we would like to contribute to the safety and security of the planet as well and to make a vibrant society. And we would like to achieve these 3 pillars of our company. Now I would like to explain the business areas in which our company plans for to expand in the future. Currently, our company's strength lies in the residential area. The yellow area on the bottom left of the screen is our strength. While leveraging the strength, we will focus on the light commercial area shown in the blue in the center of the screen. So the light commercial area, as you can see on the screen, it's about up to 5,000 square meters in Europe as a property. This includes small stores and hotels with less than 100 rooms. The light commercial and residential areas are where people can benefit the most from the aforementioned 3 values. For example, the sterilization and the odorization effects of our proprietary air purification technologies such as Ziaino and nanoe can be felt most effectively in small- and medium-sized stores and offices. So this is an area where we can fully utilize our strengths. This is our goal. In expanding businesses into the light field commercial field, we will build a recycling-oriented businesses as shown on the screen and continue to provide the highest value to the customers. We will be in contact with our customers throughout the entire process from the installation of equipment and systems to their replacement. And through this, we will utilize cloud computing, IT to remote monitoring and update the system to ensure the best air quality at all times. In building this business, it is essential to strengthen the equipment solutions business. There are 3 major points to be strengthened, which is written on the right-hand side. There are 3 of them. First is about strengthening customer contact points. And so in order to expand into the light commercial area, we need to fill in the missing pieces that we do not possess. So in order to expand into the commercial area, we have to find that and strengthen customer contact points. Next is building a recycling-oriented businesses. And to that end that we have to increase the number of specialists for this purpose. We will also make full use of IT and cloud computing. We will promote local optimal management tool and with that, I would like to explain our strategy for Europe. And regarding the local optimum, it was in a word local production for local consumption. So now going on to the explanation of strategy for Europe. First, the positioning of the European market. The left side is IAQ, which stands for indoor air quality. And this is the relationship between the level of interest in IAQ and the global market. Each market has very different air and building environments. For example, temperature, humidity building insulation are completely different by markets. And mold, odors, VOCs, markets have different concerns, too. So of the 4 key markets shown in blue, the European market has high potential to Panasonic's air quality value proposition. Now this is exactly where Panasonic's value propositions can be applied. Please see the right side of the screen. Europe is a leader in addressing environmental issues. It is a fierce battleground where companies are developing cutting-edge initiatives. We would like to thoroughly develop ourselves in the European market and then take the experience to the global market. Europe is a very tough market for us, and that is a market that we must win. Now this is the current business development in Europe. So again, we are involved in everything from residential to commercial, particularly strong is that we are having strong strength in residential market, including air to water. In the future, we intend to fill in the missing pieces that we currently do not own, while strengthening our business in the light commercial field. This is about the performance of the European market in the first half of FY 2023. The sales in the European business grew significantly by 168% compared to the previous year, growing exponentially. And the graph on the left side of the screen shows last year's annual sales results of the JPY 680.8 billion, JPY 92.2 billion was in Europe and EBITDA as operating company was 5.3%. Of the JPY 79.2 billion in annual sales in Europe, JPY 36.2 billion was in the first half of the year. As shown in the pie chart, sales expanded to JPY 60.8 billion in the first half of FY '23 among the sales of air-to-water increased 2.3x driving the business significantly. Regarding air-to-water. The industry growth was assumed about 1.5x that of the previous year. But we were able to achieve growth that exceeded the industry's growth. EBITDA for the European business was also more than double digit. We will continue to aim for growth. Now this is the characteristics of the European market. In a nutshell, environmental regulations are very tight and tough. As you can see on the left side of the screen, the Kigali revision of 2019 will include restrictions on CFC or F-gases substitutes in the Montreal Protocol. In Europe, the European Climate Law came into effect in July 29, and further efforts are needed to reduce GHG emissions by 55% or more compared to 1990 levels by 2030 and to virtually 0 emissions by 2050. Further efforts will be needed to address F-gases and GWP. We have no time to spare to address environmental issues. Now I would like to summarize the key points for strengthening our business in Europe. We will strengthen our equipment/solutions businesses to expand into the light commercial area. Please see the left side of the screen. As you can see, we are focusing on the 3 points of reinforcement. In addition, we will continue to strengthen our air quality business, including ventilation through collaboration with our business partners. Now these 7 specific initiatives in Europe are circled in green in the center of the screen. The details will be explained later. By accomplishing the measures shown on the screen, but we will strengthen our business by completing the development, manufacturing and sales of products within the European region. First, discussing the promotion of local production for local consumption in Europe. I will explain about operational reforms and strengthening customer contact points. Please see the left side of the screen. We will establish R&D bases in Europe. Specifically, we will promote R&D activities that are optimal for the European markets, such as low GWP, air purification and sensing. We will strengthen air-to-water's Czech base. We will strengthen our production system aiming to achieve a global production capacity of 1 million units. Now this is about 14x the capacity in 2022. Please see the center of the screen. We will build a recycling-oriented business. We will double the number of specialists in FY 2026. To strengthen customer contact, we will also enhance our training centers and showrooms. We will establish 50 training showroom locations throughout Europe in FY 2026, which is 1.5x more than in FY '22. In the air-to-water service and maintenance business, we started this in Denmark in 2021. We will expand a number of service centers and showrooms to the entire Europe. And by improving efficiency, until 2024, we expect a cumulative cash flow of JPY 6.2 billion and furthermore, our product supply lead time will be reduced by 60%. I will explain the environmental effects of air-to-water and the expansion of the market. The air-to-water is using the heat water pump and to be utilized for heating and cooling the building. And compared to the combustion gas boilers, the CO2 emissions will be reduced by 65%. And I would like you to see the right side of the screen. The air-to-water market is expected to grow at an annual rate of more than 29% from 2021 onwards, reaching a scale of more than 6 million units by 2030. As mentioned earlier, we will expand our production capacity and promote replacement of combustion equipment, thereby contributing to the environment in expanding our business at the same time. Next, let me talk about our initiatives in the area of the natural refrigerant air to water. On the 3rd of October, we made announcement at Interclima. In May 2023, we plan to launch R290 product as a first Japanese manufacturer. In 2025, we will expand the lineup of R290 so that the customers can choose the natural refrigerant. We would also plan for the products that is suitable for Europe, so that can be supported by the customers. For example, the energy saving, noise reduction, design, which you see on this slide and also the product that copes with low outside temperature will be enhanced. On the right-hand side, we are showing you air-to-water business, the CAGR of 50% is the rate of the growth that we'd like to realize. And in 2020 -- 2030 rather, we would like to grow this into the continuous growing business. And let me now go into the details of this business on the following slide. As it was mentioned in the previous session, the enhancement of the water circulation or the chiller segment is what we are focused upon. Light commercial business and the chiller business, by working on those, we would like to fill in the missing pieces. Now as a hot water supply and heating systems, there are 2 major types, as you can see here. The bottom part shows that circulating the refrigerants such as CFC to cool and heat this building. So more specifically, this is almost like a residential air conditioner and the commercial air conditioner. The top part shows the heat of the refrigerant will be conveyed to the water and the water would circulate in the building to indirectly heat and cool buildings. So specifically, this is the air-to-water in Europe and the commercial chiller. And actually, this uses a very limited number of the CFC. And in Europe, they use the boiler to heat up the water to heat the space. So this is a very common method and are very close to the method that they have in Europe. So we can actually contribute to the environment and also expand into the light commercial segment. So we will be working on the enhancement of hot water supply and heating business. As you can see in blue, this also means to provide a new value by replacing the combustion-type system. So in order to realize that, we need the chiller technology. So for this, this is one of the missing pieces. So we'll be filling this piece. And we will try to get the technology for the commercial area and combine it with our strength in the housing market to offer value. So together with the water circulation method, we would enhance the solutions linked with air quality technologies such as ventilation to reduce CO2 emissions and to expand the business and by promoting the low GWP and energy saving. So once again, together with the water circulation method, we would enhance the solutions linked to the air quality technology, such as ventilation to reduce CO2 emissions and to expand our businesses. So now I'd like to explain about M&A that was announced recently, but it's the air conditioning business acquisition from Systemair. As I explained earlier, one of the missing pieces is the commercial chiller business. So in order to fill this piece, we are having this M&A. The Systemair is headquartered in Sweden, and it provides the commercial ventilation air-conditioning. And we have been working together since 2019. Enhancing the commercial chiller business from that perspective, this M&A, the scope is shown on the right-hand side. We are acquiring the air conditioning business from Systemair, and we'll be obtaining 100% shares of the air conditioning business system from Systemair. So this describes the value of air conditioning business of Systemair , starting from the left-hand side, as a commercial air-conditioning technology chiller as well as the indoor terminals fan coil units. As you see on the right-hand side, they have a site for the R&D manufacturing and sales. And the EUR 63 million is the business sales and the size of it. And we will be able to have this business. And speedy enhancement of the conditioning system, and also, we would like to merge our business foundation with their foundation to enhance this business. So that we can grow the water circulation business in the nonhousing area. We believe that we can grow this. Now expected synergy is shown here in strengthening the environmental technology to work on the product capacity for developing the commercial air- conditioning together with the inverter technology. So by adding our inverter technology to their commercial air conditioning technology, we will be able to realize more efficient products. And we would also work on the strengthening of the R290 efforts. As for the development of the hot water supply and heating system, we will combine the water circulation as well as air-to-water for housing to create new values. On the right-hand side, we are showing the strengthening of the customer touch point. As I said, we will develop the circular business, enhancing the utilization of the IT and cloud. The bottom right shows the operational reform, we need to enhance the procurement, which can be expected. And the Systemair has a strong procurement in Europe. So by using our global procurement system, we believe that we can generate synergy. Also, with Systemair in the area of the air quality such as ventilation, we would actively promote the collaboration. As of now, we can only talk about qualitative synergy. But in the future, we will work on the quantitative collaboration, and we will be able to talk about this quantitative side in the near future. So next, let me summarize the initiatives to boost the value going forward. So here, we are showing the room air conditioning. On the left-hand side, which is shown in blue framework, this is the area that we want to strengthen development by newly established R&D base. So this includes the water circulation system and internal terminals and use of the Ziaino and the nanoe, the water purification technology and also the coordination control of them. On the right-hand side, what is shown in the light red framework is the initiatives in collaboration with the partners. Air handling unit and ERV, those are the areas that we want to enhance. The overlapping area is where we will be focusing upon. So combining that would -- sorry, that air purification technology with the ventilation and air-conditioning and ERV and the coordinated control is the area that we want to enhance. So on this side, as you can see at the bottom left, we will be enhancing our resources so that we can develop the solutions combining the water circulation and others. And with the partners, we would work on the combination of the air quality technology, air handling and also the indoor terminals. Through the enhanced collaboration, we'll continue to provide 3 values in indoor environment. So this is my last slide. So HVAC midterm target is what I'd like to talk about now. As you can see on this slide, in the previous IR, I mentioned that JPY 1 trillion in sales, EBITDA of 10% are the targets for FY '26. And more recently at the Interclima, we talked about the European business and achieving the CAGR of 25% in -- by FY '26 and growing this business to JPY 200 billion. As you can see in the pie chart, in FY '26, the percentage of the water circulation business will be increasing in Europe and the European business as a whole, as a strategic investment. By '26, in addition to 100 million -- sorry, EUR 100 million for the Systemair business acquisition, we'll be investing JPY 50 billion to enhance air-to-water business. And in addition to enhancing the European business. And by achieving that, we'd like to achieve the JPY 1 trillion sales and EBITDA of 10% for FY '26 earlier than our plan. Try to look at the synergy effect of M&A and find out how quickly we can achieve those targets and include that into our business plan for the next fiscal year. And with that, I'd like to end my presentation. Thank you for your attention.

We would like to start the Q&A session. Please hold on for a few minutes. We would like to prepare ourselves.

The Q&A session will be led by President Michiura and Mr. Ishihara and Mr. Murata, the CFO. We will now take questions from the audience. Questions will be accepted both at the venue and online.

[Interpreted] We will not be able to entertain the questions in English.

[Interpreted] We will not be able to entertain the questions from the English channel. BofA Securities. Mr. Hirakawa, please?

This is Hirakawa of BofA Securities. This is about air-to-water. And so this business is going to grow, but I would like to know the current share in Europe and the competitors and the strength compared to your competitors. That's one question. And second question. You're going to be increasing sales from hereafter. But how much are you having the production? And how is it going to be growing in the future? Because Daikin and heat pump, this -- they already have a plan in order to increase the unit to 1 million units. So compared to that, how are you going to be planning?

Thank you very much for your question. Regarding the shares within the market, I don't have a data with me. Therefore, I will refrain from commenting on this. And regarding the competitors, the heat pump, growth is what we intend to do. Therefore, our main competitors will be the Japanese-related companies. And our strength compared to our competitors where we can win over them is, of course, we are going to be competing on efficiencies and what is the refrigerant strategy. In the Japanese companies, one of the first companies, the GWP almost 0 was we have been adopting. And this is the heating with air and water. And within the European area where the climate temperature is low, compared to other competitors' products, we have a very strong strength where we are effectively working with our product. Other than that, we can have the remote control using IoTs over our product. So by expanding the business, we can differentiate ourselves and clearly distinguish ourselves. And regarding the production scale, 150,000 units is for FY '22. That was the actual result for our company. And in mid to long term, we would like to bring it over to 1 million unit. And you have questions on Czech. No, it was Europe. And so the production is going to be aiming for 1 million unit. And the destination mainly will be in Europe. So I would like you to understand our thoughts. Thank you very much on that.

We are taking next question is Ezawa from Citi Group.

Ezawa from Citi Group Securities. My first question -- which page was it? The growing sales you achieved a higher growth. Air-to-water Europe has grown 2.3x. So air-to-water, 2.3x. And on the other hand, there is another growth that you achieved. So I try to calculate this. So excluding ForEx, about 20% sales increase or higher. So is this due to the market expansion? Or is it a higher market share for you or higher unit price? Could you talk about that? And air-to-water is growing. So in Europe, the business as a whole, what is happening? That's something that I'd like to know. That's my first question. The second question. So this fiscal year EBITDA plan of JPY 40 billion, I think is unchanged. So the worsening economies and inflation and the economic forecast in Europe, probably you have a different forecast. So is there any difference of the breakdown of the JPY 40 billion? And for the next fiscal year, it's JPY 40 billion for this fiscal year, but the worsening economy, how do you see that happening and impact in the next fiscal year?

The first question. As you said correctly, air-to-water business is growing in Europe. So one is the residential air conditioners. Until now, as an area that did not require the air conditioning because of the global warming during the summer, cooling is necessary or air conditioning is necessary. So as a market, for us, it's a tailwind. So air-to-water -- led by air-to-water, we have other products and all of them are growing in Europe. That is the correct understanding of the market. As for the market share, as I said earlier, we cannot really share that information. The second question about EBITDA. So for this fiscal year, yes, JPY 40 billion level. Towards that, we would like to make sure that we move forward. At the end of the first half, there is no issue with the progress so we are doing well. So towards the second half, we would enhance our efforts. The inflation and the worsening economy, some negative news are coming in, but especially in Europe, the issue of the Ukraine is one of the issues. And despite that, we expect that steady growth. If you look at the global market, the -- in all the regions, we think that this continues to grow, especially in Asia as well in China. So for the full year, we believe that we can realize the steady growth. One thing that could become our risk is China because the real estate market is worsening according to the mass media. So in China, we need to look at this more conservatively. But as a whole, HVAC as a whole, in the European region, we can offset. And we would like to continue to make efforts so that we can achieve the overall target.

Additional follow-up question. So basically, as an HVAC company, Europe is expanding as a market, and that is the driver for your business. And you're not talking about the market, but that's the general trend. Yes, your understanding is correct. If you look at each area, the biggest engine is Europe.

We would like to entertain a Q&A from the floor and then shift over to online questionnaires. Morgan Stanley Securities, please.

This is Ono from Morgan Stanley. So I have one big question. So you said you're expanding into the light commercial area and you have been acquiring Systemair and you are having the missing piece now at hand that you have been mentioning. So at this point, have you filled the missing point already fully? Or else are you going to be needing to fill out some more? That's one thing. And in conjunction, I would like to know about the share and the quantity. If you have some target line, is it going to be increasing little by little? And if so, what should be the risks in order to meet the target, please?

Thank you very much on that. So we are shifting over and expanding into the light commercial businesses. That is why we have been acquiring Systemair's factory. And the heat source is now satisfied for the target customers. I think we really feel about that at hand and the chiller and not only the air conditioner. The air-to-water, this is about the midsize scale. And regarding this merger and acquisition this time, now we are able to respond to it with speed. Those areas are what we are benefiting from this merger and acquisition. And regarding the share that you have questioned, I would like you to calculate. So the air-to-water that we intend to grow for the midterm plan for about 1.8x the growth and accompany that, the profit -- and profit will be growing. And thanks to the conditions right now, we are now ensuring a certain level of profit. And going forward, we are now heading for the red ocean of the market is heading for the red ocean. And we will have some level of some price competition, and the competition as well factored in. The material explains it too but we are going to be locally producing and using and consuming it locally. So that is the basis philosophy of the midterm plan and creating the cash flow could be highly expected. Therefore, more than what we have had, the sales will be higher, and we can have -- and more growth is what we are ensuring. And so by unit, the product competition prices will be fiercer but that is the condition that we are in.

Now we are taking a question from remote participants, [ Kawajima-san ] of Sankei Shimbun.

[ Kawajima ] from Sankei Shimbun. Yes, during the presentation, F-Gases regulation, Kigali revision was mentioned. So together with that, this time, the R290, the natural refrigerant, new air-to-water product was announced. So for the future, the volume of the product, R290, the natural refrigerant, do you think that the number of the products would increase and it will become the mainstream and we'd be able to make it before the time of the regulation? That's one question that I have. The second is that the Kigali revision that would impact Japan. So in Japan, the product with the natural refrigerant, what is the need of it? And what is the prospect of it?

Thank you. About the natural refrigerant, yes, Kigali revision and F-Gas regulations, according to those revisions, we will be developing our businesses. So to do so, the various refrigerants, right now, we are working on the R&D of them. But this time, in a sense, in the short term, when we consider the development of it, it's -- we needed to make a decision quickly in the short term. So multiple refrigerant development is going on. So R290 is close to the commercialization, and that was the decision that we made. So from air to water, we decided to use this. So in air to water, the Kigali revision, we have been proactive, and we will be launching the products in advance of the regulation, so the regular refrigerant circulating, the regular refrigerant for the air conditioning. And we would also try to lower the GWP. And the new refrigerant for that is something that we are working on. So Kigali revision, by the time of the deadline of the Kigali revision, we will be also launching the low GWP products. That's what I wanted to communicate to you. And also, recycling, of course, the recycling of the refrigerant is something that we have to do. But as for R290, I think that the recycling is one of the major challenges. So including the partners, we will face this issue and work on the business expansion. As for Japan, Kigali revision basically is international. Well, together with the international regulation, reducing the volume of the refrigerant is something that we need to work on. So according to the changes of the regulation, we will be -- we have no choice but to promote our businesses based on such changes of the regulations. Thank you.

And we would like to entertain questions from the remote personnel, JPMorgan, Ayada-san.

This is Ayada from JPMorgan Securities. I have 2 questions. First one, this is about the EBITDA margin for the HVAC. It was 5% before, and you're raising it up to 10% or more. And when -- from the OP margin, the next term will be 3%. And for other competitors, they have double-digit growth, and even the smaller companies have a 5%. And so regarding that, the margin, I would like to know where your margin comes from. And if possible, I would like you to explain it by locations, the regions. And then within the next 3 years, how is it going to be moving is my interest. My second question would be for air to water. The sales system or -- is it going to be using the agents? Or are you going to be selling it direct? That is what I want to confirm. And when you talk about Europe, I think the share of the market in Europe by country will be very different. Therefore, I would like to know where you are stronger there? And are you focusing to grow in that area where you are strong in? Or else are you expanding in the European market? And at that time, I would like to know the system for sales.

Thank you very much for your question. Regarding the EBITDA, compared to our competitor currently, I thought -- we do not believe that we are very high. And we have various reasons and backgrounds for this. The air conditioning business, especially the room conditioners, were the mainstay of us. And going forward, the commercial air cooling system is to be expanded. So it is like this as it is currently, and it was so 2, 3 years. And we have been putting in the investment beforehand in a large amount. Even if we go into the market with room conditioners with the partnerships company and the competitors, I think we're just half of what we have as a strategy. Therefore, well, Mr. Ishihara is intending to strengthen the commercial. So at last, including Asia market, the commercial air conditioning is now growing to a certain level of scale going forward. The commercial cooling unit, coolers, based on the profit, we would like to reinvest again and to create a good cycling -- the virtual cycling system. And later on, I think Mr. Murata will be sharing his opinion. And about the margin profitability for the reasons is what you have been questioning. At this point, with the product category, this is commercial cooling development, we have been using costs. And looking at geology of our competitors, the largest competitors, the Chinese area, the -- we are still using the room air conditioners as a mainstay. Therefore, profit-wise, we are tough. And so right now, our European business is the engine of profit right now for us. And as mentioned, the commercial air conditioner and the combination with the air quality, China and the focal areas that we have been seeing, that's Europe and North America included, we would like to increase our profitability and the margin. And until 2025 or FY '26, sales will be driven by mainly Europe. And it's about the sales I would like to explain. By countries, it could be sold directly or else, we would be using agency. This comes from the historical reasons. And according to the countries, the culture will be different. Therefore, we are responding respectively for each of the market. And the question was where we are very strong in, first of all. And as the President already mentioned, our sales, our strong point is that even within the low temperature area, our room conditioners are not going to be reducing the temperature. Therefore, that's a strength. Therefore, we do understand that we have a very high share and we are strong within the Nordic area or the Scandinavian area. And the mid-Europe, the air to water was not coming in soon. However, as of the first half result, we have been growing 2.3x within the market, where it was considered that the market growth was about 1.5x. And the large part is the Germany, too. The Japanese market is having -- Japanese companies are struggling within the area. And within the distribution, the Germany already has the boiling-related company, which is very strong within the market. And the Ukraine, Germany has been having many energy coming in from the Ukraine -- by Ukraine. Therefore, we would like to increase our shares by leveraging the conditions currently. Thank you very much.

For the Scandinavian countries, the remote control and by connecting to the cloud, we -- both we are providing businesses and services already. And we are now seeding and now reaping the result of the seed that we have planted. Therefore, that's a big market for us.

Thank you. We are running out of time, so we take one more online question. And then another question from the Tokyo Shiodome Building. [ Hatanaka-san ] of the Yomiuri Shimbun.

[ Hatanaka ] from Yomiuri Shimbun. I hope you can hear me.

Yes.

I have 2 questions. About the M&A, the way we're thinking, I think that the Systemair and light commercial probably is going to be the key. So which layer is that? What is the strategy? That's my first question. And the second question is a basic question probably, if I may. So air to water, this JPY 50 billion investment, so after April, you mentioned that the -- some growing areas. Is it part of the JPY 400 billion that you mentioned? Or as HVAC, is this the decision that you made? Is this unique to the HVAC company, the JPY 50 billion? Does it come from your cash flow? Could you give us the -- where it comes from? Sorry, it's a basic question, I'm sure.