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

Thank you very much for taking time out of your busy schedule to join us in our online briefing. We will now begin the briefing of Panasonic Holdings Corporation's on the financial results for FY '25 as well as group management reform. The attendees are as follows: from Panasonic Holdings Corporation, Representative Director, President, Executive Officer, Group CEO, Yuki Kusumi; Executive Officer, Group CFO, Akira Waniko; lastly but not the least, Executive Officer, Group CSO, Kazuyo Sumida. First, CFO, Waniko, will go over the financial results, followed by presentation by CEO, Kusumi, on group management reform. After the 2 presentations, we will accept questions only in Japanese. First from journalists and then from the institutional investors and analysts. The slides are uploaded on our company website as well. First, our CFO, Waniko.

I will present the consolidated financial results of Panasonic Holdings Corporation for fiscal 2025 ended March 31, 2025, and financial forecast for FY '26 ending March 31, 2026. First, the summary of the results. Both sales and profit exceeded the forecast as of February 4 and increased year-on-year on the basis of excluding automotive, which was deconsolidated in FY March '25. Overall sales, excluding automotive, increased with increased sales of Lifestyle, Connect and Industry. By business, sales of generative AI-related products in Industry and Energy increased in addition to sales of Process Automation, Avionics and Gemba Solutions in Connect. Adjusted operating profit and operating profit increased at all segments, except for Automotive. Net profit decreased due mainly to the absence of onetime gains with the liquidation of Panasonic liquid crystal display recorded in FY '24. For operating cash flow, the cumulative amount for 3 years since FY '23 was JPY 2.2 trillion, achieving the medium-term target of JPY 2 trillion. Annual dividend is determined at JPY 48 per share with a year-on-year increase of JPY 13 compared to the forecast as of August 30, up JPY 8. The payout ratio is at 30.6%. For FY '26 forecast, sales and profit are expected to increase, excluding automotive. However, the impact of U.S. tariffs has not been factored into the forecast. Overall sales are expected to increase, excluding automotive, due to increased sales in Energy. Adjusted OP is expected to increase with increased profits in Lifestyle, Industry and Energy. OP and net profit are expected to decrease due to factoring in restructuring expenses of JPY 130 billion. Now details of the results. Sales were JPY 8,458.2 billion, broadly at the same level as the previous year. Excluding automotive, sales increased by 5%. Adjusted OP increased to JPY 467.2 billion and OP increased to JPY 426.5 billion. Net profit decreased to JPY 366.2 billion. Results by segment. The next slide explains the analysis of year-on-year comparison. First, sales analysis by segment. Excluding Automotive, overall sales increased due to increased sales of Lifestyle, Connect and Industry despite decreased sales of in-vehicle and energy, mainly with price revisions reflecting lower raw material prices. The major increase decrease factors by segment are shown on this slide. Adjusted operating profit analysis by segment increased at all segments, except for Automotive, as shown in the graph above, adjusted operating profit increased largely in Connect Industry and Industrial Consumer of Energy. The major factors are as shown on the slide. The slide shows the results of Lifestyle segment by divisional company. First, operating profit analysis by factor. From the left, on the basis of excluding Automotive, increased sales in real terms was an increase factor of JPY 65 billion. The increase in fixed cost was a decrease factor of JPY 68 billion. This is due mainly to investments in energy for future growth and the impact of inflation. Raw materials and logistic prices had a net positive impact of JPY 50 billion. The effect of price revisions and rationalization was an increase factor of JPY 22.5 billion. The breakdown of Blue Yonder is shown in the bottom right. Excluding the effect of exchange rates, adjusted OP on a stand-alone basis increased by JPY 5.8 billion. On a consolidated basis, adjusted OP increased by JPY 3.7 billion. Excluding such factors as the impact of strategic investment, adjusted operating profit in real terms increased by JPY 11.3 billion. The effect of exchange rates was an increased factor of JPY 18 billion, mainly in Industry and Energy. Automotive was a decreased factor of JPY 14 billion due to the impact of deconsolidation. Other income and loss was a decreased factor of JPY 11.7 billion due mainly to expenses related to the share transfer. Operating profit increased by JPY 65.5 billion. Looking at cash flows and cash positions. Operating cash flow for FY '25 amounted to JPY 796.1 billion, and the cumulative amount for the 3-year period was JPY 2.2 trillion, achieving the medium-term target of JPY 2 trillion. Cash -- net cash was negative JPY 653.2 billion. Consolidated financial forecast. Overall sales is expected to decrease to JPY 7,800 billion and adjusted OP to increase to JPY 500 billion. On the basis of excluding Automotive, both sales and adjusted OP are expected to increase year-on-year. As a result of factoring in restructuring expenses, operating profit is expected to decrease to JPY 370 billion. Net profit is expected to decrease to JPY 310 billion. EPS expected at JPY 132.79, ROE, 6.5% and EBITDA JPY 800 billion. This shows the FY '26 outlook of the changes in demand by segment based on our assumptions before considering the impact of the U.S. tariffs. Positive changes in demand are written in blue and negative changes in demand are written in red. The major changes we anticipate by segment are as follows: for Lifestyle, we expect an increase in demand at each business, mainly for overseas markets. For Connect, we expect further growth in demand for supply chain management software. For Industry, we expect continuing expansion of the demand. For information and communication applications such as GenAI servers. For In-vehicle and Energy, we expect shift to the electrification at a certain level to continue. For Industrial and Consumer Energy, we expect further expansion of the demand for data centers. Let me explain the impact of U.S. tariffs. As mentioned at the beginning, the impact of the U.S. tariffs has not been factored into the forecast for FY '26. We need to assess the developments going forward. Our sales in the U.S. in FY '25 was about JPY 1,570 billion and sales composition by segment is shown on the left. As we have a certain level of the local production capability in North America, we estimate that the overall impact to AOP will likely be less than 1% of the group consolidated sales. In calculating the impact amount, our estimate is based on the assumptions listed on the right. As a general principle, we will address the cost increases through price revisions. In addition, we will work on the optimization of the global supply chain through short- to medium- to long-term measures, aiming for minimizing the impact amount. This shows the details of the year-on-year increase and decrease factors of the operating profit forecast for FY '26. From the left, higher sales in real terms is expected to become an increase factor of JPY 90 billion. The higher fixed cost is expected to become a decrease factor of JPY 20 billion, which includes JPY 35 billion as an effect of restructuring. The net impact of the raw materials and logistic price is expected to become a decrease factor of JPY 10 billion. The effect of the price revisions rationalization is expected to become the increase factor of JPY 45.1 billion. For Blue Yonder AOP, excluding the ForEx effect, is expected to decrease by JPY 13 billion. The FX effect is expected to become the decrease factor of JPY 30 billion, mainly seen in Industry and Energy. In addition, the impact of the deconsolidation is expected to become the decrease factor of JPY 29.3 billion. Other income and loss is expected to become the decrease factor of JPY 89.3 billion as restructuring expenses of JPY 130 billion are factored in. As a result, operating profit is expected to decrease by JPY 56.5 billion. This shows the breakdown of the restructuring expenses, estimate the cost of the JPY 130 billion for personnel optimization, integration and closure of the sites along with other initiatives. The table below shows the breakdown of restructuring expenses by segment by -- and the effect of the restructuring expected for '26. Group management reform will be commented by our Group CEO, Kusumi, later on. This shows the fiscal '26 forecast by segment. The major factors are explained on the next slide. This shows our analysis of the sales forecast by segment, excluding the ForEx effect. In Lifestyle, sales is expected to increase overall due mainly to the higher sales of the consumer electronics in Asia despite Japan and China expected to broadly stay at the same level year-on-year. Air-to-water in Europe and cold chain in North America turning to an increase as well as the higher sales of the electrical construction materials for overseas market. In Connect, the sales is expected to decrease due to the factoring in the deconsolidation impact of the project business despite the higher sales of the process automation with a stronger investment demand for AI servers and economic stimulus measures taken in China. In Energy, sales is expected to increase due mainly to higher sales of the products related to ICT terminals and infrastructure. In Energy, In-vehicle sales is likely to increase due to improved productivity at Nevada as well as the start of the operation at Kansas and Wakayama factories. Sales of the industrial consumer is expected to increase due mainly to the sales growth of energy storage systems for data centers. Within other elimination adjustments, sales are expected to increase in both entertainment, communication and housing. This is the analysis of our AOP by segment. In Lifestyle, AOP is expected to increase due mainly to the higher profit of electrical construction materials for overseas and showcases in North America. Air-to-water in Europe and turning to an increase, improved profitability of some products such as room air conditioners as well as the profit of the consumer electronics. In Connect, AOP profit is expected to decrease due to the deconsolidation of the projector business and additional strategic investment for Blue Yonder despite higher sales of process automation. In industry, AOP is expected to increase due mainly to the higher sales of the products related to ICT terminals and infrastructure. In Energy, AOP of the In-vehicle is expected to increase due to higher sales and higher IRA tax credit despite higher fixed costs related to the start of operations in Kansas and Wakayama. AOP of Industrial/Consumer is expected to increase due to the higher sales of the energy storage system for data centers despite higher fixed costs for new model development and production expansion. This slide shows the forecast of the Lifestyle segment by divisional country -- company. Next is the shareholder return. The BOD resolved today that JPY 48 dividend will be paid per year, up JPY 13 year-on-year. The annual dividend increased by JPY 8 from the forecast announced on August 30. The payout ratio relative to net profit, 30.6%. We distribute a stable and continuous dividend. Also, we aim to achieve the enhanced corporate value through the business growth and profit increase.

This is Kusumi speaking. Thank you very much for taking time out of your busy schedule to join us today. I will explain the progress of the group management reform efforts announced on February 4. In February, we announced that the Panasonic Group would focus on the solutions area with Energy and SCM solutions as growth engines while making devices and smart life areas highly profitable as revenue basis. In the solutions area, we will continue to invest for growth and turn them into entities that can consistently achieve double-digit adjusted operating profit margins. In order to realize the group's vision, each business will thoroughly own the respective competitiveness, increase profitability and be able to reinvest in growth at a faster pace than their competitors. To that end, we will advance fixed cost restructuring reform and profit improvement as part of the group management reform. We will accelerate business portfolio management to improve profits by JPY 150 billion in FY '27 compared to FY '25 to bring about cumulative profit improvement of JPY 300 billion by FY '29. And we are resolved to definitely achieve ROE of 10% and adjusted OP margin of 10%. I will now explain the details of the JPY 150 billion improvement in FY '27. First, as explained by CFO Waniko earlier, the adjusted OP for FY '25 was JPY 467.2 billion. When the management reform was announced in February, the figure was JPY 450 billion. And since then, the effect of improved profits by JPY 17.2 billion has been achieved due to increased sales profits from Connect and other factors. Based on this result, although there has been a negative impact from the deconsolidation of automotive and others, we expect the structural reforms being implemented as part of this group management reform to have a positive effect of JPY 122 billion. The breakdown is reforms of the headquarters, that is the holdings company, PEX, and the Panasonic Corporation's directly controlled divisions, JPY 47 billion through consolidation and streamlining of indirect functions and operations and selection and concentration of technology projects. Reforms of the Consumer Electronics business, JPY 33 billion for consolidation and streamlining of sales in direct divisions and expanding global standards of cost structure, that is the China structure. Reforms of other business divisions, JPY 42 billion from withdrawal and termination of loss-making businesses, site consolidation and closures, efficiency improvement in IT group-wide and consolidation of indirect functions. Further profit improvement is expected through profit improvement in previous investment areas such as automotive batteries, sales growth streamlining and price revisions. And deducting the negative impact of investments in focus areas and exchange rates, we expect improved profitability of more than JPY 150 billion in FY '27 over FY '25, aiming for an adjusted OP of more than JPY 600 billion. Through this management reform, we will improve profitability and build a structure that is resilient to changes in the environment. Next, let me talk about personnel optimization. In order to transform into an organization with higher productivity per employees, we reviewed the operational efficiency thoroughly, mainly in the sales and indirect operations of the group companies. And we designed the necessary number of the organizations and head count. And we would also proceed with the business terminations and site consolidation and closures of the unprofitable businesses that cannot expect to improve profitability. Through these measures, we will build a lean structure to meet the drastic changes in the business environment and to reduce the head count by the size mentioned here. The time line here says that through fiscal '27, but mainly during the fiscal '26, we plan to implement the early retirement program for group companies in Japan. The responsibility of not achieving the medium-term business plan resides with me as the Group CEO. But in order for us to continue to contribute to the customers and society in 10 years or 20 years, I believe this is my responsibility to try to complete the management reform toward fiscal '29. But the fact that we have no choice but to go through this personnel optimization is extremely regrettable personally. And I would like to take this seriously, and I intend to return about 40% of all my remuneration for fiscal '26. Now in the redesigning of the organization and number of head counts and efficiency measures, this will not be just a temporary measures, but we will continue to make efforts and also try to strictly manage the optimum number of the head count as well as the fixed cost for each company of the group, depending on the changes in the environment. Let me explain the report time line concerning the group management reform. I will be explaining the progress of the management reform. We usually hold the strategic briefing on the individual business in June time frame, but we would plan to do so in December this year. In January, we would launch the new structure virtually, including the Smart Life, HVAC, commercial refrigeration, food equipment, electric works, and we would start the official structure in April. Last time, we showed the businesses with the issues as well as businesses to be reconstructed and business conditions to be scrutinized. We would like to report to you the progress. But as for the countermeasures that we plan to take for different businesses, when we finalize them, we will communicate them to you. And early fiscal '27, we would look back at this fiscal year and to announce the new mid-term strategy. Once again, in order to realize the sustainable growth for the fiscal '26, we will focus on the management reform, and we will make sure that we complete this group management reform to rebuild our business foundation to accelerate the improvement of the corporate value. Thank you very much for your kind attention.

Sugiyama-san from Yomiuri Shimbun, please.

Sugiyama from Yomiuri Shimbun. I hope you can hear me.

Yes, we can.

I have a question for Kusumi-san. So once again, the company shifted to the operating company system in FY '23 and has been implementing reforms. Why do you see the need for the structural reform at this point in time? And you are planning to reduce the head count by over 10,000. Why would that be necessary?

Thank you for your question. For FY '23 to '25, during this period in reflection, the targets were not achieved. And when we scrutinize, we find that compared to the competitors that are ahead in implementing reforms, as I mentioned back in February, the SG&A expenses of Panasonic is about 5% higher than our competitors. Inclusive of that factor, we feel that we need to drastically change our fixed cost structure in order to go back to the growth trajectory with improved profitability. And therefore, the cost reform is a must. Compared to the past, back in FY '25, especially in terms of operating margin, it may appear to be doing okay. But compared to our competitors, we find a big gap. We are still suffering from low profitability and with this, we cannot transition into high growth. Addressing the workforce, yes, I am really reluctant to do so. Over the past 3 years, the things have worsened to the situation where that became necessary. I feel sorry for that. But at the same time, the management foundation of this company has to be transformed today in order to sustain the growth in 10 years' time, 20 years' time. So after looking at all options, I have come to this conclusion. And including the management of all relevant companies, we had discussions on what is necessary, and we came to this conclusion. At each operating company, what will be the target profitability? And how can we get that was thoroughly discussed and we have identified that in this particular area, structural reform is needed. Whereas for others, everyone is making efforts still compared to our competitors, the labor productivity is not necessarily comparable. So we have identified those factors. And when we put all of them together, we found this figure to be the necessary figure to be achieved.

Withdrawal from the loss-making companies and consolidation and closure of sites were mentioned as countermeasures. I think so far, you have used the term businesses with issues. How are loss-making businesses different from that? And what do you mean specifically is my second question.

Thank you for your question. Businesses with issues that we have called them so far was the ROIC lower than WACC on a business basis. And loss-making businesses mean it's worse than that. And therefore, reform is absolutely necessary. These are the businesses that need to be addressed immediately. Now among them, on a business division basis, we find, one, areas to have opportunities for improvement, while others didn't. And some already have some solutions in sight. So for businesses where ROIC is below WACC, as mentioned earlier, we have set the deadline to come to a conclusion during FY '26. For business -- loss-making businesses, the performance is worse than that and inclusive of the need to withdraw to overcome the situation, we found that these businesses have less chance of success. So looking at particular product areas or business areas, we are to make decisions.

As mentioned by Kusumi-san, the granularity differs from one business to others to terminate or withdraw within each business operating companies, they are businesses that have seen the countermeasures implemented as well.

Next is Umegaki-san of Toyo Keizai.

First of all, about Energy. Fiscal '26 adjusted OP up by JPY 45.3 billion. IRA is about JPY 16 billion or so. So that is the JPY 29 billion increase in sales. And the In-vehicle and the consumer electronics, what is the breakdown, especially about the In-vehicle, the strategic partner is not doing very well. And the in Nevada, Kansas and Wakayama, have you reached an agreement to increase the production? And it's also related to the tariffs. So if you can comment on that. That's my first question.

Well, about the impact of the tariffs, they are not factored into the numbers that we announced today. So as of now, the major customers' impact, the demand from this customer is not decreasing. So this is not something that we can foresee. So based on that, we made this forecast. And Waniko-san can give you some details.

Yes. First of all, about the numbers, I think you asked the question. So breakdown. So JPY 29 billion IRA and the Industrial and the Consumer Electronics, the breakdown. In-vehicle is JPY 16 billion and JPY 13 billion for the others. And also, you asked about the uncertainty. And as Kusumi-san said, you're right that there are a lot of uncertainties, and we need to really discern this together with our customer. But as of now, if you look at our results, for example, for FY '25 fourth quarter, the plant in Nevada, we are getting strong inquiry. And we disclosed some of the results. So 10-gigawatt hour for quarter. So it's almost a full production or full operation. So about the future trend, of course, that's something that we need to finalize together with our customer.

I see. So in relation to tariffs, one point of clarification. Maybe qualitatively, the 1% you mentioned, so that's less than JPY 78 billion, and the rest is being assessed or considered?

Yes, that's correct.

Next question. On Page 15 and 16, other income, I think the total is JPY 130 billion. And the breakdown, Life cycle is minus JPY 62 billion and the remaining is JPY 50 billion. And the size of the negative number, this is similar to the amount of the personnel optimization. So in terms of the size, that will be the lifestyle and then the holdings and operational excellence and the industry. Is that the kind of order that you plan to conduct this personnel optimization?

Waniko-san will answer to your question.

Well, first of all, JPY 130 billion, the breakdown, is it in proportion to the personnel optimization? Yes, of course, it is -- the major part is related or proportional. Out of the JPY 130 billion, there are other reforms that we plan to have other than the personnel optimization. But there are segments with higher personnel optimization or smaller. So the major ones, yes, it is related, but it's not exactly based on the ratio to determine the targets for each segment.

I see. So for Lifestyle, about the divisional company and the weight, is it difficult for you to give us any further comment?

So as of now, we do not disclose that.

Next is [ Ken-san from Denka Shimbun ].

[ Ken-san from Denka Shimbun ]. I have 2 questions. First, so Kusumi-san, in February, on February 20 -- 4, you announced the management reform. Usually, those announcements were made in May. This time, it was back in February, you said that the purpose was to accelerate the reform efforts to engage as many people as possible for the wholesale reform. Now it's been 3 months since. Reaction from outside and the mindset change and understanding within the company. In terms of the effect of the earlier announcement, what do you see as the effect?

Thank you for your question, [ Ken-san ]. On February 4, we made the announcement, especially the leadership felt the significance of what we are trying to do. And many of the members of the workforce felt that they've been motivated to take up the challenge. At the same time, given the size of this management reform, many of the employees and their family members, I'm sure, felt anxious. And so I am committed to making a very detailed, careful explanation so as to gain understanding of all the people. With the announcement back in February, I think that had the effects of having the people's understanding of the need for this reform, and they have better ideas as to what needs to be done. If we had waited until May to make this announcement, we would not have been able to see such progress. JPY 130 billion would be the necessary cost, JPY 150 billion is the expected effect. And most of the effect should be felt in the fourth quarter. And if we delay the effect will be felt later. And therefore, this financial effect was in our mind when we made the announcement in February.

I see. Another question. At the time of February announcement, there were 4 businesses with issues, mechatronics and kitchen appliances and others. Maybe you can't give us the details, but can you at least show us the direction?

Well, we do not disclose the number by business, but Waniko-san, what can we disclose?

Okay, the trend, not the specific figures. For the industrial device, one of the 4 areas, in FY '25 or in FY '24, including the China business, we had a very difficult year. In FY '25, we saw a year-on-year increase, an improvement. In mechatronics in FY '25, as was mentioned in my earlier presentation, especially the In-vehicle for Europe and U.S., we had -- we saw a rather difficult year. As for kitchen, the trend was different between the first half and the second half in FY '25. With the China market suffering, we had a difficult period. But in the second half, we saw improvement. As for the TV business, in terms of the profitability in absolute terms, we saw a difficulty. But from FY '24 to '25, we saw significant improvement.

Let me add some comments. The TV business on a global scale, this is a rather difficult business structure-wise. And between FY '23 to '25, we felt that new approaches are needed. We started the collaboration with partner companies to shift to a light asset structure. We have seen improvement, but we do see a need for further improvement. We would like to further promote the win-win structure with our partners, the collaboration. And so we will continue to consider different options. As of today, nothing has been decided yet. One thing I would like you to keep in mind is that as we move into the Smart Life business in the consumer electronics, especially in Japan, Hong Kong and Taiwan, TV are very important products. So by supplying very Panasonic-like products, we would prioritize those and yet proceed with the reform efforts.

Next, Sato-san from Nikkei Asia.

This is Sato speaking of Nikkei Asia. A point that you have already mentioned about the structural reform in the presentation, the site integration and closure and loss-making products were mentioned. And the consumer electronics, I think it was separated from that. So basically, you also talked about the best owner. So for those businesses, which will be integrated or closed, only the loss-making businesses will be -- will go through that process. But other than that, there will be no major closure or withdrawal.

In the consumer electronics, you mentioned in the past, I think maybe you're referring to the first page. for Smart Life, this is mainly consumer electronics. And we will try to rebuild this business. So as for the direction, as we mentioned previously, this is the domain where we have to have a capability to win in China in order to have a global business. And even in Japanese market, the Japan brand under the Chinese companies are increasing their market share, becoming more capable. But since 5 years ago, we believe that the business in China needs to be decided in China, and we have been accumulating the capability to be able to compete in China. And we want to apply that globally, including Japan. So the mass production, the development and doing that with the Chinese resource or shifting to China and also the personnel optimization is something that we need to do. And through those initiatives for the Smart Life, we would need to focus on AOP. But as for kitchen, we will also work on such reform, but also to end or to break away from the businesses with issues. So withdraw or the shrink in this domain is not something that we plan to do.

Okay. Another question is about the batteries. And your strategic customer, the sales are struggling or is declining. And since the past, Kusumi-san, you said that the commitment from the customer is something that you make sure to obtain. But still, I think that the market trend is doing not very well. So as of now, to what extent in the future, the sales of the battery can be forecasted. So for example, if it's 1 year, you have a commitment, so you can talk about this with confidence. But then further in the future, that will be the new contract or to what extent or can you say that the probability of the forecast is good?

Well, that's a very, very difficult question to answer, difficult for me to answer because what we do for the In-vehicle batteries, Japan and the United States, we manufacture in both countries. And we will start to supply to Japanese customers. But because of the tariffs, the export of EV from Japan, what would happen to them? We don't know yet. So it's difficult to answer. But as for the major customer, as Waniko-san said, in Q4, the demand did not decrease at all. So this is my personal speculation. But in the United States, the Chinese batteries -- using Chinese batteries and manufacturing U.S. EV is probably becoming more and more difficult. So that means that our demand is not being pushed down or is not coming under pressure. So that's my speculation.

So if that is correct, then in coming year, the demand from the major customer will not go down.

That is what I expect.

So it is not reviewing the contract per se.

No. As of now, we are not thinking about that or we are not expecting that. Of course, when the surrounding environment changes, what the customer might say, we will depend on that. So we cannot say.

Next, Shi-san from Asahi Shimbun, please.

Shi from Asahi. I hope you can hear me.

Yes.

Regarding the workforce reduction, I have a question. Sales, 5,000, 5,000 you said, but how many that is for -- in Japan and overseas? How about the early retirement program?

We cannot disclose that. Because the profitability structure reform is needed. The profitability improvement is needed, and we are backcasting from that.

I see. The early retirement program accounts for a large proportion. Would that be a fair statement? The general breakdown?

Well, general breakdown is very hard to explain because by business operating company, the situation is different. And therefore, I cannot generalize.

I see. Another question. This workforce reduction, this is not related to the U.S. tariff policy, correct?

Currently, that impact is not taken into consideration in putting together this plan.

I see. Another question, again, on personnel reform. 10,000 people altogether, when this is realized, earlier, you talked about the fixed costs of Panasonic being much higher than your competitors. With the reduction of 10,000 head count, do you think you will be on par with your competitors in terms of fixed cost? Or do you think there's still a gap that would remain?

Well, we would like to eliminate this excess capacity. Well, excess, you used the term excess, but I would like to consider what the margin or the excess is. Let's say there is some excess in capacity compared to what is needed. When that remains, the productivity improvement will not be achieved. In terms of the workforce, the ideal situation is for the resource to be a bit short of what's necessary because that would translate into productivity improvement efforts. So I'm afraid the current situation is depriving us of the opportunities to make the best of the workforce, which is not good in terms of us being allowed by society to use the workforce.

I see. My personal view is I think ideal would be to have a bit of excess because I think that would generate great ideas. What do you think?

It depends on the type of work that we're talking about, I think.

I see. So in Panasonic, you think that majority of the work involved is not that kind.

Well, you're still busy, but maybe we should quit this so that we'll have time to think of better opportunities. I think that type of mindset is going to be needed for the evolution of the organization.

Next, [ Kojima-san of Sankei Shimbun ].

[ Kojima ] speaking. So once again, I also would like to ask about the personnel optimization. You mentioned that you calculated backwards from the improvement that you want to make in terms of profitability. So as a major purpose of this head count reduction. So for example, there is too many head count or elimination necessary, but rather, you have this ideal profitable organization. And in order to get there, you have to reduce this number of personnel. Is that what you are saying?

As I mentioned, depending on the division and those are considered or I should say that for each business unit. So Smart Life, for example, 10%, aiming for the 10% -- so where can they find the room for the improvements? They go deeper in there, and we try to come up with the cumulative number. So you mentioned 10%. That's just an example. So Smart Life on Page 1, AOP ratio of 10% or so. And in FY '29, we want to achieve that. So what needs to be done right now and where do we need to change? So that's being studied in Smart Life, and this is just an example.

Another question about Energy, if I may. earlier, you said that the tariff impact, positive, negative were mentioned. And until now, you made big investments in North America and build the plants. And to your peers, competitors, this tariff matter, do you think that is working on the positive side?

As of now, I really cannot say definitely at this moment because how the tariffs are applied, ultimately, that would change the situation. In North America, what are manufactured, the vehicles manufactured and we supply batteries for them. And based on that, it's not disadvantageous based on that. But the materials for batteries we are dependent on imports. So to -- for example, to move the supply chain to the United States, whether we can do that or not, some of the materials are not produced in the United States. So there could be some impact. But the fact that we are manufacturing in the United States is not disadvantageous.

If I may add, in my presentation on Page 13. So U.S. tariff, you asked a question on that. So as Kusumi-san said, there could be different directions. And we cannot say this is advantageous or disadvantageous for us. But as I mentioned, on the left-hand side, this is the U.S. sales by business, and it's almost JPY 1.6 trillion for FY '26 -- '25, sorry. So it's 1% of the consolidated sales. So about JPY 78 billion is the impact, as I mentioned. And if we do not have any manufacturing in the United States, if this JPY 1.6 trillion is only dependent on the imports, then the size of the impact would be very different. I'm sure that you can easily calculate that. So in each business, some production is down in the United States. We have a local production, local consumption. And the fact that we have that has been helpful for this. So that I just wanted to supplement that.

Next is [ Ono-san from Nikkan Kogyo Shimbun ], please.

Hope you can hear me.