Panasonic Holdings (Tokyo:6752) Q1 2027 Earnings Call

0:01 Before presenting the financial results, I would like to express our deepest condolences to the families of this who lost their lives in the Kumamoto earthquake that occurred two days ago on the twenty eighth and to extend our heartfelt sympathies to everyone affected. While no significant impact on our business operations has been confirmed at this time, the group will continue to closely monitor the situation, place the highest priority on ensuring the safety of our employees and take all necessary measures. We'll consider providing necessary support, taking into account the situation in the affected communities. We sincerely pray for the earliest possible recovery and reconstruction of the affected areas.

0:52 Now the consolidated results of Panasonic Holdings for the first quarter of fiscal twenty twenty seven ended 06/30/2026. First, a summary. Sales and profit increased to mark the highest first quarter profit driven by higher than expected sales of AI and fractured related businesses and adjacent businesses, benefiting from the growing data center demand. Overall sales increased on higher sales of Connect, Electric Works, HVAC and CC, energy and industry. By business, AI and Fracture related posted a significant sales increase as previously communicated and so did adjacent businesses, including IFWAY Solutions and Process Automation.

1:41 Adjusted operating profit or AOP increased in all segments, particularly in Connect, Electric Works and Industry. OP and net profit increased on an increase in AOP. Full year forecast has been revised upward both for sales and profit, reflecting growing AI related demand and its spillover effects. By segment, sales and profits are revised upward for Connect, Electric Works and Industry, reflecting strong first quarter results. Now, some details of the first quarter results. For the consolidated results, sales totaled JPY 2,018,900,000,000, up six percent year on year.

2:36 AOP was 186,400,000,000 yen an increase of 94,900,000,000 yen year on year. OP increased to 182,500,000,000 surpassing the previous record high set in 1985 to mark the highest first quarter level in forty one years. Profit before income taxes and net profit also increased. Next, results by segment. The following few slides show the year on year variance analysis of sales and AOP. First, sales by segment. Connect posted a sales increase on higher sales of process automation, capturing demand for ICT, including AI servers, avionics, and Blue Yonder.

3:28 Electric Works saw sales increase, owing to steady sales both in the Japanese and overseas markets. HVAC and CC posted higher sales overall, owing to increased sales of room air conditioners, air to water in Europe and cold chain. These factors offset the nonrecurrence of the year earlier large scale environmental engineering order. In energy, sales of in vehicle increased due mainly to higher sales at North American factories and price revisions. Sales of industrial consumer increased due to higher sales of energy storage systems for data centers on strong demand from the growing generative AI market. Industry posted increased sales on higher sales of products for AI related infrastructure businesses as well as FA equipment, including servo motors and server sensors for semiconductor manufacturing equipment supported by data center demand. Smart Life posted an overall sales decrease despite higher sales in Japan, mainly of personal care products due largely to lower overseas sales, including large sized appliances in China and AVC products in Europe.

4:42 Next, AOP by segment. AOP increased in all segments, particularly Connect Electric Works and Industry are driving the group's profit growth. In Energy, AOP increased overall. By business, AOP in in vehicle slightly decreased due mainly to increased fixed costs resulting from the ramp up of the Kansas factory, while AOP in industrial consumers significantly increased due to higher sales of energy storage systems for data centers. Next, year on year OP analysis. From the left, increased sales in real terms, positive JPY 40,000,000,000. Fixed costs, positive JPY 19,000,000,000, reflecting a JPY 35,000,000,000 effect of restructuring undertaken in fiscal 'twenty six despite strategic investments in inflation.

5:32 Raw materials and logistics prices, negative JPY 37,000,000,000 due mainly to price hikes in copper, resin and memory. The price revisions and rationalization and other initiatives, positive JPY 54,000,000,000. Blue Yonder, positive JPY 9,900,000,000 or JPY 6,900,000,000 rather, due to higher sales of soft products driven by cognitive solutions and improved gross margin in addition to lower strategic investments. Exchange rates, positive JPY 12,000,000,000. As a result of the above, AOP increased by JPY 94,900,000,000. OP, including other income and loss, increased by JPY 95,600,000,000 to JPY 182,500,000,000. Cash flows and cash positives. On the left, operating cash flow for Q1 significantly increased to $372,000,000,000 yen year on year due mainly to the monetization of The U. S. IRA tax credit through Direct Pay. Net cash was negative JPY 505,800,000,000.

6:30 Next is consolidated financial forecast for fiscal twenty twenty seven. This is the consolidated financial forecast. Overall sales is revised upward by JPY 200,000,000,000 and AOP is revised upwards by JPY 50,000,000,000, both reflecting growing AI related demand and its spillover effects, particularly in Industry and Connect. Operating profit is revised upward by JPY 40,000,000,000 and net profit up by JPY 30,000,000,000. This shows the fiscal twenty twenty seven outlook for demand by segment. Blue is the positive changes, red is negative changes. Key changes are highlighted. At this point, we expect a limited impact from lower demand in our various businesses affected by the situation in The Middle East.

7:18 AI related products demand, including BBU, capacitors and multilayer circuit board of materials are growing steadily as expected. Another positive development has been the growing demand for mounting machines in Connect and FA Solutions in industry. These businesses continue to grow, surpassing our initial expectations along with adjacent businesses such as semiconductor manufacturing equipment, which are benefiting from strong demand from AI data centers. This is a full year forecast by segment. As mentioned on the previous slide, overall forecast has been revised upward, particularly for Connect and Industry. Starting with the next slide, the assumption of the revised forecast and the key factors behind the changes will be explained.

8:07 This shows the AOP forecast analysis by factor in comparison to the initial forecast. Upper graph is the initial forecast, bottom is the revised forecast. The middle row is the revised amount. As shown in the far right of the middle, OP is revised up by JPY 40,000,000,000 from JPY $550,000,000,000 to JPY $590,000,000,000. This consists of higher AOP by JPY 50,000,000,000 and the duration in other income and loss by JPY 10,000,000,000. About AOP, positive impact of higher sales is JPY 30,000,000,000. About raw materials and logistic costs, negative impact of material price hike is expected to be JPY 66,000,000,000, while price revisions rationalization to have positive impact of JPY 59,600,000,000.

8:55 As for Blue Yonda, positive impact of JPY 4,400,000,000 and ForEx has positive impact of JPY 12,000,000,000. Those are expected. In the initial forecast, we factored in JPY 30,000,000,000 risk related to the situation in Middle East and memory price hikes. And we have reduced this to JPY 20,000,000,000. With JPY 50,000,000,000 increase in AOP and the impact of other income and loss, we revised our operating profit forecast upward by JPY 40,000,000,000. Now let's look at the individual businesses. First, AI related business of Industry. The lower left graph shows the results and the sales forecast for AI related businesses. Q1 of fiscal twenty twenty seven sales reached higher than expected JPY 74,900,000,000, 1.4 times year on year, driven by strong customer demand.

9:48 Reflecting the current favorable business environment, the full year sales forecast is revised upward by JPY 40,000,000,000 to JPY $310,000,000,000 from the initial forecast of JPY $270,000,000,000. In response to the strong demand, we are rapidly expanding our supply capacity. For multilayer circuit board materials, we are strengthening our supply chain, including multi sourcing of key raw materials like glass growth in addition to building new production plants. For conductive polymer capacitors, we are accelerating plans to expand the capacity at our manufacturing sites. Furthermore, supercapacitors are attracting increased attention due to the surging power consumption of AI servers.

10:37 In addition to the CPU solutions under development with energy, as previously discussed, we plan to start the mass production of devices for external customers at the Chitose plant during fiscal twenty twenty seven. With strong demand, AOP margin is steadily improving, and we will continue to pursue proactive business expansion going forward. Next, the outlook of Energy Storage System for data centers in Energy. The lower left graph shows the results and the sales forecast for Energy Storage System or ESS for data centers. Strong growth continues as expected. We are also rapidly expanding our supply capability. For cell production, we are converting our production lines in Japan from automotive applications and also plan to start the mass production of cells at the Kansas factory in fiscal twenty twenty nine. For module production, the second Mexico plant is scheduled to start mass production in Q2 of fiscal twenty

11:42 twenty seven followed by the third plant in fiscal twenty twenty eight. To support expansion of the module production in Mexico, we are steadily advancing the localization of the broader supply chain, including power supply manufacturers. Furthermore, we would accelerate the evolution of our products to further strengthen our industry position. For CPU solutions, which are becoming increasingly essential as the chips continue to evolve and become more sophisticated, we plan to start the mass production of our CPU solutions in fiscal twenty twenty seven in collaboration with the industry, leveraging our unique strength of having in house core technologies in both batteries and capacitors will further enhance our competitive edge. We also plan to complete the preparations for mass production of next generation BBU built for HVDC within fiscal twenty twenty seven. Lastly, the outlook for in vehicle.

12:38 The line graph on the left shows the sales volume trend of in vehicle batteries in gigawatt hour in North America and the bar graph shows the EV unit sales trend in The United States. EV sales volume in The U. S. Has been steadily recovering from the temporary slowdown experienced in fiscal twenty twenty six. Demand for our batteries from our strategic partner remains strong. Our supply side, however, we face challenges in ramping up the Kansas factory. We were unable to achieve the initially planned supply volume for Q1 of FY twenty twenty seven. Given the continued strong demand for our strategic partner, we plan to supply 46 gigawatt hour for full year, in line with our initial forecast by optimizing production mix between Kansas and Nevada from Q2 of fiscal twenty twenty seven.

13:33 The first questioner is from Nihon Keizai Shinbun, Nikkei. Takeda san, please. Can you hear me? Could you please speak up? Can you hear me better now? Yes. Thank you. Actually, I'm using Takatazu san's link but I am missing me.

14:28 Thank you. I have a question on data center demand. The benefit of demand for data center, not just the storage systems and capacitors, the so called AI related, but I understand that that effect is spilling over to other periphery areas as well like FA. Do you think this is a special demand, a temporary one? Or do you think this could be sustained? Thank you for your question. In the periphery areas, the demand growth that we are seeing now, is it temporary or sustained is your question? We believe this could be sustained.

15:28 Let me talk about the structure of our business. At the beginning of the year, the BBU in energy and in capacitor industry and electronic materials, we've been talking about that in the initial part of a year, but now it's expanding into the peripheral areas like mounting machines of connects as well as several sensors of industry. We are seeing demand in this servomotors as well. In other words, our beginning of the year forecast has been rather conservative, looking only at a more assured demand growth.

16:21 But now we do see the demand growing in the periphery areas as well, which was reflected in the results of the first quarter. I have another question about Blue Yonder. AOP, upward revision, 30,000,000, resulting from improvement in gross margin. What was effective more specifically?

17:07 And then there is the JPY 23,000,000,000 or JPY 23,000,000,000 loss in AOP. So what measures will you be implementing to improve on the profitability going forward? Thank you for your question on Blue Yonder. I'd like to show you some specific figures to be more clear. So if you can look at Page 26 of our material, you can see the figures related to Blue Yonder. So gross margin improvement, where does it come from? If you can look at the upper left, this is the stand alone, 1,000,000, blue under stand alone basis.

18:03 And if you can compare the first quarters of last fiscal year and this, you can see JPY 36,000,000 increase in sales, but JPY 51,000,000 increase in terms of AOP, which contributed to the profitability improvement. There are two factors. First, strategic investments. With a cognitive series deployment to make it the native sauce, we have been making investments last year. Now it's been narrowed down. And $25,000,000 or so less this year, which is accounted for in the profit last year. For the remaining $25,000,000 comes from profit.

18:52 So a BRL 36,000,000 improvement in sales and just had a major contribution for the adjusted operating profit improvement. Once the product is solidly developed, the marginal costs for the sales in the ensuing period would be limited. And therefore, we are seeing the pipeline being developed this year. And we are seeing the orders coming in as well, which is contributing to the margin improvement. And you asked another question. Again, going back to the same slide. R23 billion loss this year. What about next year was your another question?

19:45 It's very difficult to talk about specifics, but JPY 23,000,000,000 is the total of the stand alone and the intangible amortization following the acquisition, we expect the stand alone operating income to improve, AOP to improve significantly next fiscal year. Thank you very much. Next question from Toyo Kezai, Yamashita san. Please go ahead. Thank you.

20:34 This is Yamashita from Toyo Keizai. I also have some questions. Yes, please go ahead. First question, once again, the Q1, the structural reform in the previous year, the results of it have been emerging. So how would you evaluate that? Smart Life, I think in terms of profit, the effectiveness of the restructuring is reflected. But more recently, I think that the core is the AI strategy. But after the structural reform in the consumer electronics and others, did the positioning of the different businesses such as consumer products change?

21:23 Could you give us your response to those results? Yes, let me answer to your question. First of all, the restructuring that we have conducted since last year, and we are seeing the good results of it, and we are seeing the reflection of that. The total number, about 35,000,000,000 per quarter up to Q3 mainly. So for the full year, we expect JPY 100,000,000,000 or so, and I think we are on track in achieving that. As for the cost of the restructuring, the major areas as of the last fiscal year, we already explained that, but in conducted in all of them, industry and Smart Life and also the corporate, I think those are the areas that we spend the most. And for each segment, if you can check on the results, I think you can see that higher profits are realized.

22:23 And as for Smart Life, as you asked in your question, since last year, we have worked on the restructuring and the revenue due to the lower demand in China led to some decline. But in terms of profit, I think we have seen a clear recovery. Does that answer your question? Thank you very much. I do have another question. Earlier, you mentioned the Connect and the mounting machine business is doing very well. That's very interesting. So it is there are ups and downs, but in Q2 and onwards, can we expect that the strong demand of AI related to continue?

23:14 Yes. In Q2 and onwards, we believe that we can continue to expect that until last fiscal year, the demand cyclicalness of the demand in China that led to the downtrend or there was a risk of that for the mounting machines. That's what we said last year, but is it cyclical or is it super cycle? Without entering, without starting the downtrend, I think that we are seeing the strong demand and we are getting the strong pipeline from the Taiwanese manufacturers. So we expect this trend to continue in Q2 and onwards. Thank you very much. That's all the questions. Thank you. Next.

24:03 Please ask your questions. Two questions altogether at the beginning. Ono san from Nikanko Yoshimbon, please. Can you hear me? Yes. You. Uno from Nikon Kogyo Shinbun. I have two questions. First, to Oniko san. Upward revision has been made, And the operating profit is expected to set a new record for the first time in forty two years. I understand. What is your personal take on that? And things that were difficult in decades.

24:53 And for the first time in forty two years, the new record is to be set. I know that AI related business is a plus, but what others are the factors? Second question is on Kansas Energy Factory. You said that you are struggling with a ramp up. And since the business environment is favorable, I think you need to really expedite the ramp up to catch and capture that momentum. So what are the reasons for the difficulties you are facing? Is it materials? Or is it the infrastructure, the facilities related or the shortage of labor?

25:44 Thank you for your questions. First, upward revision. First time in forty two years, that is the full year operating profit. What is my personal take? I believe this is just a starting line. Not that we have achieved something, but rather towards fiscal twenty nineteen, we are to aim for even higher standards. That's what we have been communicating as a group. So we really need to work towards that. That's my frank reaction.

26:29 So what are the factors for this new record? Lots of factors. Last year, we implemented structural reform that have been really inconvenienced and caused pain to many people. And we have also worked on the businesses with issues, and we need to continue with these efforts. But including the capital market capitalization, which we really haven't seen much progress, I think everything that we worked on diligently has come together for a big effect. And your second question was about our Kansas factory.

27:16 It's really the operational factors, the proficiency factors that is resulting in the current situation. We had assumed various situations based on our experiences, but there were some unexpected cases as well. Not just Kansas factory, but from Nevada, we will be providing a support for a quick recovery because there is a strong demand coming from our customer. So we consider this to be the top priority, the ramp up. As for recovery in Q2 onwards, there are two things. One is to make sure we go back to the initial trajectory of the ramp up of Kansas factory, and we need to catch up on the cumulative basis. Since we do have a factory in Nevada, it's including the model mix. So our plan is to have a combined results to achieve the initial forecast.

28:28 Thank you. Thank you very much. Next question from Nikkei Business, Iwatosang. Go ahead. Iwato speaking from Nikkei Business. Yes, please go ahead. I have two questions, if I may. First, well, this time the you exceeded your plans and for the full year for more than the first time in more than forty years, you're updating the results. But the share price has gone up and maybe it's in the adjustment phase. So AI related name is a part of the reason, I think, to push up your share price. But there could be some risks involved as AI manufacturer.

29:20 So how do you see the risks and opportunities? Another question is about the highest profit is expected for the full year. The fiscal discipline, investment discipline, could you comment on that as well? Yes. Thank you. Let me answer. The highest profit for the full year is expected. And how do we evaluate the current share price? Yes. As you commented, as an AI related name, that's kind of a big category. And some time ago, we went up to the very high share price. And more recently, it's in the adjustment period and you're right.

30:13 As about that, well, we are not in a position to determine our share price in the market. For us, we need to do what we need to do. So this highest profit is not our goal. We want to go higher in the next fiscal year and onwards. And we want to take actions for that and we want to communicate so that you can understand that. And as a result of it, I think that how our company is evaluated is something that is decided in the market and that's how the share price is determined. As for the second fiscal discipline, in the medium to long term, we would like to maintain the good discipline to expand it. So as including the AI related businesses, there will be some upside. And if there continue to be upside in revenue and cash, I think we should consider further increase.

31:17 But as for the AI related businesses, I think it's growing more than our expectations. So additionally, I think that without a delay, we need to increase the investment and increase our production capacity. So I think we have to look at both of those factors in a good balance so that we can control it well. Thank you very much. Thank you. We're getting close to the end of the journalists' question time. So we will only take one more question from journalists. From Yumuri Shimbun, Masuda san, one question, please. Masuda from Yomiuri.

32:08 One question. This fiscal year was positioned as the year to transition into the growth phase. Looking at first quarter, how successful do you think you are in terms of transitioning into the growth phase? Thank you for your question. Yes, we are to transition into the growth phase this fiscal year, and that was the message of the management at the beginning of the year. And we do see the effect. If I could repeat what has been said for FY 2019, generative AI products products in energy and industry are the core areas expected for growth.

33:11 So how can we actually see the financial results in these areas would be the key. And as far as the first quarter is concerned, as you have seen, we have seen the results as expected. I see. Thank you. Thank you very much. So that's all the time that we spend with journalists. So now I would like to take questions from institutional investors and analysts. If you have any questions, please click, but we are only taking questions in Japanese channel.

33:59 Once again, we are taking questions only through Japanese channel in Japanese language. First, from Goldman Sachs, we have Harada san. Go ahead. This is Harada speaking from Goldman Sachs. Thank you very much. I have two questions. First, AI related has been the driver. I think that was one of the characteristics. On Page 11, you are showing the Connect FA and FA solution in industry and AI related and the semiconductor related.

34:55 How much of those businesses out of the total? And the related question about the industry on Page 14, what I'm interested is in the edge area, the robotics is mentioned. So physical AI, for example, China, Korea, there are some movements that we see in some of the names. And is the physical area also related to your business? Could you comment on that? That's my first question. The second question is that the BBU and Megatron and capacitors are much talked about. So in your case, Megatron capacitors, technically, you are, I think, leaders, but at the same time, Taiwanese players, I think that they are expanding their capacity.

35:49 So competition, it's not just based on the technology, but you have to also consider the capacity and the sales channel and so forth. So vis a vis the global competitors, how do you plan to compete against them? If you can talk about the strategies. Thank you. Thank you. Let me answer to your questions about the AI related. This time, the INconnect, the mounting machines and also FA related business in industry, what is the percentage of those? Or specifically, I cannot clearly say the percentage number, but in the appendix or supplementary material, for example, in Connect, the mounting machine, the process automation is the subsegment.

36:47 So in terms of sales, it's about 85,000,000,000 booked in Q1. I'm not saying that all of them is AI, but the mounting machine and the welding machine, that is the area of the process automation and that's the size of the sales. FA related solutions in industry, in the subsegment, there is a sub FA solution in industry. So if you can check on those numbers, you'll be able to see. And the GRN robotics, about those, we are not seeing the large scale numbers. So in the future, there is a potential and there are various devices that we can contribute.

37:36 So that is the current situation. And also Megatron and capacitor capacity expansion, Taiwanese players have been very aggressive in doing that. Yes, we recognize that fully and especially Mega Drone for the circuit board materials. I think that we have a very high product capability, but production capacity expansion was some of the challenges that we had. But now we converted the phase completely. The capacity expansion for the circuit board, Ayutthaya and other areas, Sutro and others, we explained that in Page 14 of the presentation. So we'd like to show the expansion of the capacity so that we can we will not be late in responding to the demand in the market and try to increase our position.

38:39 Within the holdings, how you see those businesses? And of course, you are a conglomerate. So in some cases, it's possible that the decision making could be delayed. So is that something that Holdings is very much focused upon so we don't have to worry about that? Correct. We do not you do not need to worry about that. I see. Thank you very much. From BofA Securities, Hiroko san, please. You. Hiroko san from BofA Securities.

39:28 My first question is on company overall. For first quarter, the AOP, high level. Now, compared to your internal plan, which you did not disclose, how better or how worse was it? And on page 13, you do have the variance analysis for OP. Now it has been reduced due to a buffer. And my second question is on industry. You said that first quarter was very strong. Now when we triple the results for the first quarter, it will be JPY 1,300,000,000,000, whereas your forecast is lower than that. What risks are you incorporating your forecast?

40:36 I think these are the areas where you can expect growth in the ensuing quarters. So I would like to hear what the risks that you are taking into account are. Thank you for your questions. About the first quarter results, how did they compare to our internal plants? The results were better than our internal plants. Generative AI related products did grow as expected. But as was mentioned earlier, sensor and mounting machines, this periphery area products grew much further than we had expected.

41:25 And therefore, the actual results were much better than our internal plan. And other income, 10,000,000,000, I think, is your second question. We can't really pinpoint to any particular areas, but there are various projects that are continuing. So that's a buffer related to that. And industry sales forecast is not 4x the results of the first quarter, you said. It's not that we expect any slower momentum, but the effects of the foreign exchange is part of the forecast.

42:17 So business momentum itself. For the second quarter, we do not foresee any risks, any risks of the current momentum being lost. So we believe sales and profits will be the same or stronger in the second quarter onwards. I see. Thank you. Thank you very much. Next question. There are many people who have raised their hands. So we'd like to limit the number of the questions to one question per person. UBS Securities, Yasui san. Thank you.

43:03 Yasui from UBS. Wonderful performance. Congratulations. About BBU, I have a question. And three small questions, actually. The intent of the question is that in Q2 and onwards, is there up upside in sales? So Q2, the module will be manufactured in Mexico, you mentioned. So how much of the impact is expected? The second part, if NVIDIA, Rubin will be emerging. So with that, I think that the production is starting. So Q2, Q3 and onwards, per rack, the capacity is going to increase and battery cell changing from 80 watt to 120 watt, that's possible. So the unit price, do you think that it will go up per rack?

43:57 The third point is that the inferencing, the CPU demand is increasing. So CPU is the GPU and other rack, the demand potential, would that be increasing in Q2 and onwards? Thank you for your three questions. About BBU, the further increase in sales, is there a possibility for that? Well, from the module perspective, the rubbing and also CPU, I think from three points, you asked the questions. Before answering each, but the conclusion is that on Page 15, BBU, this fiscal year situation is shown. And concerning that, as we mentioned, hyperscalers, the information from them, we are collecting and also we are looking at the demand based on that information. And for full year, 1.7 times, so JPY $550,000,000,000 is the what we aim for. So that's the overall and we are not updating that number so far as of now. As you commented, each part in order to achieve the total number, I think that each part are incorporated as parts and components. And the module starting the production starting in Mexico is necessary to expand. And also the

45:27 operation of the rubbing, I think that the percentage will be not so high, but including capacity and our portion will increase. And also non GPU, TPU and ASIC and including CPU, various needs is expanding. So for us, I think we are always having such discussion. And when you look at the overall picture, I think that the JPY $550,000,000,000 is maintained at the same level or it's not changing so far. Sorry to be persistent, just one point as a follow-up. With the rubbing, the unit price, do you think it would go up? The unit price increasing, but from our perspective BBU, the solution evolution is what we are trying to do. So as the evolution continues, yes, the unit price would go up.

46:21 The capacity, you commented on that and the output, which is necessary would change. And also the CPU, was mentioned. And so it's not replacing BPU, but it's BPU plus CPU. So total solution will be expanding. So all of these will lead to the higher unit price. Thank you. That's all. Thank you very much. Thank you. Next from Mizuho Nakonesan, please. Thank you. This is Nakane. Can you hear me? Yes.

47:15 One question, I understand. So I'd like to focus on cash flow. So there was the IRA tax credit effects, And you did revise the forecast on the full year basis as well. So operating cash flow compared to last year, how is it going to look like? If you can talk about the figures, that will be the best, but my interest is this. As far as DP is concerned, the inventory turnover is increasing.

48:03 So what do you think would be the impact of that on the OP? And regarding your free cash flow, 20,000,000,000 investment is being expected as was mentioned earlier. Should we expect further increase in investments going forward? About cash flow. The first quarter cash flow, operating cash flow, $372,000,000,000 was partly related to the IRA tax credit, about JPY $220,000,000,000, and therefore, it was higher in the first quarter. But on a full year basis, we do expect cash flow to increase.

48:59 Last year, it was JPY $620,000,000,000. And for this fiscal year, we expect the amount to be more than that. And regarding free cash flow, until last year, investments related to Kansas factory had an impact. But with the peak out in the investment and increase in operating cash flow, we expect the JPY 3 digit billion free cash flow to be secured. As for the investment increase in industry, the demand is very strong, and demand is growing at a faster rate than we had been anticipating.

49:50 And so for capacitors and electronic materials, we are implementing the CapEx earlier than the original plan. But this would mean that operating cash flow would also be expedited. And therefore, we expect the cash flow to be expedited as well. Thank you. Let's move on to the next question from Citigroup. We have Fujiwara san. Thank you. This is Fujiwara from Citigroup Securities.

50:36 On Page 13 of the presentation material, in the middle, there is a lot of changes and the raw material prices and the price revisions are the major ones. So I'd like to ask each one of them. First of all, the raw material prices, about JPY 70,000,000,000 increase in comparison to the plan. So in this in which segments and which materials and components were affected? And also the price revisions, I think that there was a upward revision. So in which segments were the major one? And also about the industry, the demand is very strong.

51:22 So with further price revision, is it possible to absorb the higher material costs? Yes. Let me answer to your questions. But the higher prices of the materials, roughly speaking, it's all increasing. I think we can say that it's not really a particular segment, but there it's very difficult to find a segment, which was not affected by the higher materials. But of course, there are different materials. So about the rising material prices, of course, related to the oil price, the resin and the memories and metal, the copper, silver and specific for the device or tantalum and the glass cloth.

52:20 So again, it's difficult to find the materials of which prices are not increasing. So all the parts are affected. As for the price revisions, there are two things. One is that material prices are increasing. But as we mentioned, the price increase, price revision, we are taking the good measures. So we are increasing the profit with the higher sales and the lower fixed cost. So I think that we have a very good pricing policy for the higher material cost and prices. And, the second point is that, what is needed, for example, AI related materials and the peripherals.

53:06 I think that demand is stronger than supply and there are a lot of demand. So we want to make sure that we take the price policy and to increase the unit price. So it's not just to reflect the higher material costs, but we want to increase the prices. And especially in the devices, in the segment profit, we want to improve the bottom line or margin. So we are seeing the results of that in Q1. Thank you very much. Thank you. We're getting close to the end time.

53:56 So we will only take question from one more person from SMBC Nikko Katsura san, please. Thank you. Katsura from SMBC Nikko. One question. In the first quarter, you made this upward revision. I mean, in the first quarter earnings briefing, which is kind of rare for Panasonic, understand that AI related and periphery businesses were strong was a factor. Now the impact of the situation in The Middle East, I think, was assumed to be about JPY 30,000,000,000.

54:44 And with regards to the refund of The U. S. Tariffs as reported by other companies, I'm wondering if you experienced the same benefit as well. The backdrop, I think the exchange rate assumption remains same at around JPY 140. And so there are pluses and minuses in terms of the effects on the revision. So can you elaborate on that? Thank you for your questions. For the first for the second quarter onwards, is there a possibility of further upward revision, I think is what you're trying to get to.

55:35 The refund of the tariffs being paid as well as exchange rates, these are major factors. The basis of the businesses are strong. And I think we can expect continued growth in the second quarter onwards as well. As for the exchange rates, as mentioned earlier, we had assumed the stronger yen and weaker yen is positive for the entire group. So that's a factor. And with regards to the refund of the tariffs, if you can look at Page 19 of our materials, you can see the combination of the tariffs impact.

56:30 The tariffs being paid as well as refunds, about KRW 7,000,000,000 refunds for the first quarter and KRW 7,000,000,000 for the full year as well. There are some uncertainties. So we do not expect zero effect in the second quarter. So there is a possibility of upside to a certain degree. And 34% in the first quarter maintained on a full year basis as well. In terms of the new tariffs, if three zero one Section three zero one is to be applied, then this could have an effect. But there are many uncertainties.

57:23 So we're just, for now, assuming that Section three zero one would be applied. So those are the basis of our forecast. I see. Thank you. Thank you very much. With that, I'd like to end the Q1 earnings call of fiscal 'twenty seven. Thank you very much for your participation today.