GlobalLogic Inc. (6501) Earnings Call Transcript & Summary

It is time to start. We are going to start with the presentation by Hitachi Limited on the acquisition of GlobalLogic, a leading U.S.-based digital engineering services company. Thank you very much for attending this meeting despite in such a short notice. The presentation materials that will be used today are posted on our IR site and the news release site. Now let me introduce the speakers from Hitachi Limited: Mr. Toshiaki Higashihara, President and CEO; Mr. Toshiaki Tokunaga, Senior Vice President and Executive Officer, CEO of Services & Platforms Business Unit; and Mr. Yoshihiko Kawamura, Senior Vice President and Executive Officer, CFO. Mr. Tokunaga will become Executive Vice President and Executive Officer from tomorrow, 1st of April. Today, Mr. Higashihara will give the opening remarks, and then Mr. Tokunaga and Mr. Kawamura will make a presentation, and then we will take time for questions and answers. We plan to hold a meeting for about 1 hour. Now we'd like to start with opening remarks by Mr. Higashihara.

Good afternoon, ladies and gentlemen. Thank you very much for taking time out of your busy schedules to join us at this web conference on Hitachi's acquisition of GlobalLogic, a leading U.S.-based digital engineering services company. At today's Board of Directors meeting, a company based in Silicon Valley, the U.S., there's a company called GlobalLogic, and we have decided to acquire that company. We would like to evolve Lumada and accelerate the global expansion of Lumada. That is the objective. In other words, we would like Lumada to be a world-class Lumada, and for that, we're having this acquisition. 2016 and onward, Hitachi's business has centered around Lumada, which we have promoted through co-creation with our customers. We connect that data to data and elevate corporate value. That's the nature of Lumada's activities. In terms of the technology trends, digitization is moving at a breakneck speed. Devices within automobiles, devices within plants, software is embedded in every piece of the device. That's the kind of era we're in. Cloud, edge devices, these are connected on a real-time basis by Lumada so that it can offer new value. And that's the kind of business that we would like to promote going forward. The company we are acquiring, GlobalLogic, health care, automobile industry, in these sectors, they have the expertise to develop engineering services and devices chip-to-cloud. They have strengthened developing software that connects that chip to the cloud, and by incorporating this business, Hitachi's Lumada business will expand further so that we will be able to offer new value to global customers. That's our belief. And as to the details of the deal, the acquisition, Tokunaga will explain in a moment. Thank you.

Thank you very much. Now on acquisition of GlobalLogic, Mr. Tokunaga and with also partial explanation by Mr. Kawamura, we have to shift the screen. Please wait for a moment. Tokunaga-san, the floor is yours.

Yes. My name is Tokunaga. On the topic of Lumada's global expansion, I would like to discuss the background and the objective of this acquisition and the outline of the target company for this deal, GlobalLogic and, lastly, the time schedule going forward briefly. Next slide, please. First on this slide, what is described is Hitachi's vision through Lumada. Hitachi's vision is to contribute to society through social innovation and by so doing to achieve sustainable growth and become a global leading company. That is what we aim at. That's our vision. More specifically, on top of offering Hitachi's unique combination or fusion of IT, OT end products, we collaboratively create with our customers -- have alliance with our customers to leverage Lumada and offer value to society. Lumada enables us to create value for society, such as the environment, resilience, safety and security. And by expanding our social innovation business, it provides solutions to social issues and improve people's QoL, quality of life. On this slide, the direction of the business, Lumada's role in it is described. Lumada is data-driven. Through full utilization of data, it serves as an engine to help society and customers realize digital transformation. With collaborative creation with our customers, and through Hitachi's unique combination of IT, OT end products, Lumada functions as a business platform to grow our Social Innovation Business. Next, please. What specifically are we going to do as business utilizing Lumada? And that is summarized on this Slide 3. Hitachi will offer solutions to social issues and corporate management challenges by leveraging mission-critical IoT that connects the data in the cyber and the physical spaces on a real-time basis, and this is to be expanded globally so that it can spur the growth of the Social Innovation Business. To connect the cyber and the physical space on a real-time basis, it's essential to have capabilities that cover embedded software as well as edge to cloud. The acquisition of GlobalLogic, we believe, will give us the ability to dramatically expand this data-driven business worldwide from edge to cloud and chip-to-cloud. Next, please. Next. At this moment, I would like to provide a brief summary of GlobalLogic's strength. GlobalLogic boasts sophisticated experience design skills and supports customers' DX chip-to-cloud or digital transformation on a chip-to-cloud basis. It is a leading company in the market for digital engineering services with strong growth in both its profit profile in terms of EBITDA margin, 23%. And has had a powerful track record of CAGR or revenue growing by 19.3% year-on-year. So it is a leading company in the market for digital engineering services. The company also has a track record in co-creating with customers, and they have 8 design studios to do so with customers from a broad range of industries and sectors. And it also has 30 delivery centers to offer chip-to-cloud digital engineering services and to support agile development around the world. Further, the number of clients they have supported in terms of DX, or digital transformation, exceeds 400, many being in the telecommunications, health care, automobile industry and financial services, amongst others. This business, therefore, is indeed the growth engine for Hitachi. And the acquisition of GlobalLogic will allow us to accelerate the growth very rapidly. The next slide, please. On this page, I discuss the conventional IT sector business and the GlobalLogic business, the positive cycle that it can be -- it can create by combining the 2. As you know, in Hitachi's IT sector, which is described in the lower left quadrant of the diagram, acquisition of GL will give us an opportunity to expand our portfolio. So far in the IT sector, we have been driving our business mainly in core systems while leveraging mission-critical business applications as a weapon. As a result, this business now has a revenue to operating income ratio of over 10%. But with this deal to acquire GlobalLogic, we will be able to evolve and expand into collaborative creation type of business that is agile and is cloud-based, which is on the right top quadrant in the diagram. This will enable us to capture a high rate of growth inside our company. Through collaboration with GlobalLogic to the customers who expand into these new areas, our mission-critical solutions can be offered as well as we have been doing through the IT sector conventionally, which, in turn, will create a positive cycle for our business. Next page. Hitachi so far has been developing collaborative creation hubs in many places in the world. One example is the Lumada Innovation Hub Tokyo, which was recently announced. On top of that, the GlobalLogic's worldwide design studios, regional offices and engineering centers can be utilized to accelerate the global deployment of Lumada, which I have just explained earlier. And also Hitachi Vantara, GlobalLogic in total encompasses human resources of 30,000 people. They will be able to promote collaborative creation with customers of the world and support solution of challenges and digital transformation. Next page. So as I have explained, with the acquisition of GlobalLogic, Hitachi will make full utilization of their collaborative creation and chip-to-cloud skills to connect IT, OT and products by software or digital to develop into a social innovation company. Next page. Now let me give the profile of GlobalLogic. As you can see, revenue forecast for FY 2020 is about USD 921 million, which is nearly 20% year-on-year growth. And adjusted EBITDA ratio forecast for FY 2020 is 23.7%, which is a very high profit margin. Head office is located in San Jose, California, United States. So it is close to Hitachi Vantara. The name of representative is Shashank Samant, who is the President and CEO. Description business is indicated on this page. The company was established in September year 2000. Next page. Now from here, the outline of acquisition will be explained by Mr. Kawamura.

Thank you. I'm Kawamura, CFO. I will explain Pages 10 and 11. First, Page 10. The structure of the acquisition is not from Tokyo. But a digital holding company, Hitachi Global Digital Holdings, in the U.S. will be making the acquisition. Total acquisition will be made by cash. There may be discussions about enterprise value, but to point our calculation, enterprise value is USD 9.5 billion. The growth of the company itself, as explained by Mr. Tokunaga, a nearly 20% growth expected, and by joining the Hitachi Group, there may be further synergy enjoyed, which is a basis for this calculation. So we believe this is an appropriate evaluation. Next page, Page 11. The financing for the acquisition. This is nearly about JPY 1 trillion. We are going to use cash on hand of about JPY 200 billion, and JPY 800 billion will be based on bank borrowings and issuance of corporate bonds. And after 1 year, of course, there will be a burden on the balance sheet, but throughout the year, our balance sheet dynamic transition is taking place. We are changing our assets. So through changes on assets, there will be more cash inflow. And also, there will be some operational activities cash flow. So after 1 year, we believe the stress on our balance sheet will be relaxed. So according to our calculation, the ultimate debt will be about 300 billion yen -- in dollars and the remaining JPY 700 billion will be by changing assets and through cash. So there will be a onetime burden, but we will be able to return to the original situation after 1 year. And the impact on consolidated BS total assets of JPY 1,150 billion; goodwill, JPY 710 billion; intangible assets, JPY 390 billion; and amortization [ JPY 390 billion ] BPA. On annual basis, JPY 32 billion is our calculation. So within the information business under Mr. Tokunaga will be able to absorb this level. So 2-digit operating profit margin we've achieved. And as a financial discipline, after 1 year with changes in assets and accumulation of operating cash, as you can see, in a few years, debt equity ratio less than 0.5 and debt-EBITDA multiple less than 2. So we plan to achieve the level similar to the current level. This is all for me.

This is Tokunaga again speaking. And lastly, let me talk about the future time line. Today, March 31, 2021, signing of a definitive agreements. And on July 2021, we plan to close the acquisition by Hitachi Global Digital Holdings as a wholly owned subsidiary. This concludes our presentation.

Tokunaga-san and Kawamura-san, thank you very much.

At this moment, we would like to have questions and answers. [Operator Instructions] Now the order of taking questions: members of the press on the Japanese channel; and then next, institutional investors and analysts; and then those on the English channel. This will be the order as we take questions. Now we would like to invite questions from the members of the Japanese press.

Hello, can you hear me?

Yes.

I have 3 questions. This time, looking at the equity prices, it seems that the price is rather rich, overvalued. I wonder what kind of discussions you had internally? Were people cautious? On what basis did you make the decision to go ahead with the acquisition? And what are the risks that you are looking at? What are the possible risks? That's my second question. Question number three. In the press release, you have a profit target up until 2028, USD 1 billion. Given the current level of performance, you will have to ramp your profit up very quickly. So what is going to be the path toward that? Those are my questions.

Higashihara speaking. First, what kind of internal discussions did we have about this deal? And what are the potential risks? I would like to provide our view. Of course, this deal is on the order of JPY 1 trillion, and so we had to be careful and cautious. So we took time to look at the details of the deal. And how to evaluate the corporate value, of course, was a question. We involved experts, and we repeated many sessions to look at the corporate value, and it's now at $9.5 billion, which we agree on. So by acquiring this business, organically, revenue as well as profit should be increased. We need to watch that, if the company can deliver in that regard. And when the company collaborates with the IT sector, what's going to be the impact or the effect? We looked at all those possibilities. And once that is done, Hitachi's industrial sector business, the other businesses or business in the automotive sector, if GlobalLogic collaborates with Hitachi's automotive business, what could be the potential impact? We had quite a bit of discussions internally. And the conclusion was that we are able to grow our business more by acquiring this company. So corporate value, what kind of reforms are we going to pursue, those were the main points of our discussions. This is a company-wide reform that we're going to embark on with this deal. So as CEO, I'm going to exert leadership and control what's happening inside. Now with respect to risks, at this moment, this area is set to grow. But then what's going to happen? If you think about it, there are many potential risks. So we have to regularly monitor the market. If something untoward happens we have to look for an exit plan. And of course, we have studied various exit plans. So while looking at the risks, we have to monitor the market closely and make a judgment on a regular basis. That's our thinking. And with respect to profitability for FY '20, Tokunaga-san will answer.

Yes. Tokunaga speaking -- answer. Well, as you can see on the news release, we're going to aim at achieving $1 billion by year '28. The latest performance suggests that GlobalLogic has been growing its business by over 20% in recent times. On top of that, what Hitachi has developed, Lumada-related assets and Hitachi's R&D expertise and by utilizing Hitachi's technology, I believe that this number can be met sufficiently. Through internal discussions, we formulated this plan and we're including it in the press release today. That's all.

Could I have the next question, please?

I'm [ Salamuda ] from TV Tokyo. There was a question about risks earlier. Well, we're now facing a friction between the U.S. and China. And under such a situation, what are your views about this acquisition and relationship with your DX strategy?

Thank you for your question. First, as an assumption, the GlobalLogic company don't have any footprint in China. And the U.S.-China tension, their business is not a business that would be greatly influenced by the current tension between U.S. and China. And as Mr. Higashihara mentioned at the outset, Lumada's global expansion of the business -- to promote such a global expansion, GlobalLogic asset and their resources utilization is the best method for us. As a result of the discussion, we reached that conclusion, and we made the decision for this acquisition.

So there is no impact on risk caused by the China-U.S. tensions. Is that assumption in your acquisition?

Yes, that is right.

Next. We see another hand being raised. [Operator Instructions]

Can you hear me? I have 2 questions to ask. First, this company, GlobalLogic, you have explained about the company, but frankly, what kind of specific business does it conduct for its customers? What kind of solutions do they provide? And what are their strength? If you could also cite concrete examples to explain that. That's question number one. Now upon that, well, you said that this deal will accelerate Lumada's global expansion. Hitachi's IT sector business, including Lumada's business, the -- what are the challenges in that business? By acquiring GlobalLogic, how do you think you will be able to alleviate the challenges that you're facing within your IT sector business? If you could plainly explain that.

Thank you for your questions. Your question #1, what are the strengths of GlobalLogic? In which areas are they strong in? In the presentation, I think it was explained briefly, there are 2 main strengths: one, collaborative creation activities with customers. They have been focusing on that in their business. So Lumada focuses on co-creation with customers to offer solutions for challenges. So it's exactly the same as Lumada. And second, what is wonderful about GlobalLogic is based on their co-creation activities. The challenges and issues that are identified are solved by digital and software capabilities in the right area using the right technology. And that is referred to as a chip-to-cloud in my presentation. So in providing solutions to issues, there are issues that can be solved on the cloud. But then there are other issues where you need to go to the edge to create software to acquire appropriate set of data and, upon doing so, analyze the data and provide solutions from the cloud. So from the edge to the cloud, we need to have this comprehensive flow that we need to cover. So GlobalLogic has been doing that business together with their customers. As an example, the automotive industry or industrial machinery industry, health care devices industry, they go deep into the clients' business to offer such solutions and services. Their customer retention rate, the repeat rate is above 90%. And your second question regarding how are we to promote Lumada's global expansion in view of the challenges that we've had in Hitachi's IT sector, first, with respect to challenges in the IT sector that we run, so far, centering around the domestic market, we've had a track record in mission-critical systems. But we want to sort of spread our wings into the global markets. And together with global customers, we want to pursue co-creations, and that capability has been lacking, and that is something that we need to point out. By acquiring GlobalLogic this time, what Hitachi has been doing in Japan's market? So collaboratively creating with customers, and by leveraging GlobalLogic's strength with software and through digital technology, we will be able to solve the issues identified through co-creation. So with Lumada and GlobalLogic, we can evolve into a company that provides solutions. So that's the direction that we're aiming at.

On your first point, Lumada, of course, does what you described. I'm aware of that. What Lumada has not been able to do, well, that you said that you have not been able to cover overseas markets, so I do understand that. But in terms of specific solutions, what are the solutions that Lumada has not been able to offer? And are you saying that GlobalLogic is able to offer such solutions? Are there such cases?

As I said earlier, the strength of GlobalLogic is from chip-to-cloud, they have capabilities. On the other hand, our -- Lumada so far mainly has been doing on the cloud. So on Lumada's solution hub, we would offer solutions as the customers' issues can be solved. That's been our focus. But with GlobalLogic's technology on the device side or by utilizing their capability on the ground by connecting cyber and physical, we will be able to solve customers' issues, and that will strengthen Lumada, we believe.

Just one more point. I have a question of Mr. Higashihara. So IT-related business acquisition. You've been quite willing to embark on such potential M&A in the medium term business plan. But now you have decided on a deal, what's your ambition?

Well, there are 2 assets that led us to decide on this deal. In industrial area, distribution, in health care. In each of the sectors, GlobalLogic has a lot of expertise and experience in these sectors. So that's one point. And cloud, edge, chip and devices we talked about earlier, what's going to happen going forward is control on the ground, on the factory floor, will be controlled by management information offered by the cloud. So information on the factory floor will be utilized as management information, and management decisions will, on a real-time basis, change what happens on the shop floor or on the ground. So from the chip to the cloud, the capability to connect the whole process because of GlobalLogic's competitiveness, because of these 2 reasons, we thought that GlobalLogic is wonderful and thought that by acquiring it, we will be able to create synergies with Hitachi. Thank you.

I see a lot of hands raised, but this will be your last question from the media. I'd like now to move on to the questions from the investors. I'd like to invite the investors to ask a question.

Can you hear me? So my question is about finance. Earlier, Mr. Kawamura said JPY 300 billion or maybe JPY 200 billion is remaining. And as the remaining -- that is the debt and the remaining is operating cash flow, and the business portfolio reformed by spinning out businesses. I believe you expect debt to be reduced. So your operating cash flow in the last few years is about JPY 600 billion to JPY 800 billion. But there's also investments. In terms of free cash flow, about JPY 200 billion positive seems to be the trend. So the remaining JPY 500 billion will be by spinning off your assets, your businesses. Actually, these would be the interpretation, but what are your views on this?

This is Kawamura speaking. Yes, as we have mentioned, as I referred to before, in the last several years, we are very cautious in managing our balance sheet. So we promoted the dynamic change of our assets. So in addition to accumulating operating cash flow by changing our asset -- shifting our assets, we plan to cover a part of the funding. I cannot discuss the details because this is still a work in progress. But from a macro perspective, about JPY 2 trillion are the assets that will be put out and JPY 1 trillion is the new assets. So the balance sheet will shrink actually. Currently, total asset is about JPY 11 trillion, which will reduce about JPY 10 trillion. That is our transition of our balance sheet. And by selling assets, we will get some cash. So as you have mentioned, JPY 200 billion cash in hand liquidity and with funding. And that portion remaining is about JPY 300 billion in -- denominated in dollars.

The IoT cyber physical system world, I think from about 5 or 6 years ago, this has been broadly discussed about. But about the future, but 2020 is IoT cyber physical. And in [ competitor or other ] companies, what are the areas of businesses that you expect there will be more opportunities?

And sir, thank you for your question. I have referred to that earlier during my presentation. Hitachi to solve social issues and solve management issues. In the future, environment resilience and safety and security values, our values that we are providing and we are promoting the business in that direction from a different perspective. The customers of our societies, challenges are becoming very complicated. It will resolve such complicated issues. Instead of individual skills, IT/OT product should be integrated. In the case of IT from chip-to-cloud, this skill is very important to be held by one company to be able to start providing solutions to challenges. So GlobalLogic, the acquired company's capability should be used in full and in addition this should be a factor for competitive advantage of Hitachi to promote our business. That is all. Thank you.

Next. Institutional investors and analysts on the Japanese channel, we would like to take questions from you. [Operator Instructions] I see a hand being raised.

I have 2 questions. Now my question number one is GlobalLogic's business is in the digital engineering service area, so what is the size of the market, its growth rate? And within the market, who are the competitors of this company? And what does GlobalLogic have as strength, differentiating factors vis-a-vis its peers? So given the competitive landscape, what are their strength? That's my first question. My second question is as follows. This may overlap with an earlier question, but I wanted you to elaborate on this. Higashihara-san talked about internal discussions that Hitachi had. So what are the synergies with Hitachi's existing business? And automotive was cited as an example. In Hitachi automotive business, what are the impacts or effects you will be able to see as a result of acquisition? So those 2 of my questions that I would like to ask at this moment.

Thank you for your question, sir. To address your first question, this digital market that GlobalLogic is in, what is the size of the market, actually, it's very difficult to answer that question. In the news release, as reference information, we have included some numbers. In fiscal year 2022, 65% of the global GDP will be from products and services from digitally transformed companies. In other words, that is the size of the market. It's very difficult to quantify this and point a finger to a specific number. But USD 1.1 trillion by 2025, the market could grow to this level. That's our understanding. It's a huge market, actually. On top of that, well, what are the strengths of GlobalLogic as it operates in this market? There are various ways to assess their strength. There are various viewpoint, and also it's difficult to define who the competitors are. What we see is their strength in co-creation. They are quite powerful in that. And on a global basis, they have many design centers for co-creation activities. And through such co-creation activities, customer retention, customer repeat ratio is above 90%. So compared to their peers, their competitors in the industry, they are quite strong. But when it comes to specific customers, of course, there are contracts that they have with customers. So I would like to refrain from giving you further detail on this.

Who are the rivals? Who are the competitors of GlobalLogic?

Well, competition, I think it differs depending on the size. Large players include Cognizant. These companies operate in a similar area. And in terms of the company of similar size, [ assort works ] is another. So at any rate, Hitachi would like to acquire GlobalLogic so that GlobalLogic's business can be elevated even higher and compete better in the market. Thank you.

Higashihara speaking. You talked about automotive industry. With respect to the automotive industry, we can say something general, but automotive manufacturers have their own clients. And if information flows or leaks, it's going to be troublesome. So we have to have control over that. But as you know, GlobalLogic can handle over-the-air data. So updating data within the automobile gain from over-the-air. And embedded software that controls the comfort level of the driver, they have experience of developing that, which can be leveraged. But we have to be careful because this involves many customers. In terms of intellectual property, whether or not we can utilize these technologies, so we don't know. Are we going to use it for centers of product development? It may be difficult because of IP. Thank you.

Thank you. We'd like to have our next question, please.

Can you hear me? I have 2 questions. The first question is about GlobalLogic's performance. According to the press release adjusted EBITDA, 8% or 8.2% as of end of March 2020. So there is a gap between the adjusted profit rate and adjusted EBITDA level. I'm not familiar with this company, but is that a timing of going down or the operating profit margin is not that high, and the past cases of ABB or Astemo, through the process of integration, in the first year, there were integration costs. But this time, I have a question that, that will not be so large. So integration costs before contributing to profit, will that be necessary? This is my first question. And number two, my question is to Mr. Higashihara. As for return to shareholders, if possible, during the present medium-term plan level, you mentioned about considering share buyback. But with this large acquisition, Kawamura-san also talked about cash. And taking this into consideration, are you considering such buyback during this medium-term plan?

And sir, thank you for your question. As for our operating profit margin, let me answer. As you have mentioned, in the news release, it says that adjusted operating margin level is different from the adjusted EBITDA. But as a conclusion, that is a onetime event. GlobalLogic recently made an acquisition, and this amortization is a reason for this difference. So actually, the EBITDA and operating margin, a similar level can be achieved.

This is Kawamura speaking. As for integration costs, for example, this year, ABB power grid was spin off and brought in. So there are IT expenses and also business transition costs. But this company is a 100% acquisition. So basically, there is no large integration costs. There are some detailed IT tunings, but that is not a large amount that may affect our finance.

This is Higashihara speaking. I think I have talked with you about it before at the CEO meeting that, going forward to Hitachi, we will now be selling assets or adding other assets. So the net profit attributed to the owners of the parent is to be noted, also including dividend payout ratio. EPS growth rate is something that I want you to look at. After such an acquisition, financing-wise, as Mr. Kawamura mentioned, we have made the calculations about that amount. So including share buyback and return to shareholders, we will keep thinking about it. That is all. Thank you.

A question to Mr. Tokunaga for confirmation. When this is consolidated, there will be no more onetime amortization burden. So next year, for example, the current EBITDA margin and the profit margin will be of a similar level. You have made acquisition in the past, but what is the situation going forward?

And sir, yes, thank you for your question. Just as you have mentioned, after integration, EBITDA and operating profit margin will be at a similar level. Thank you very much.

Thank you. Let's continue. I see another hand being raised.

I have 2 questions. So question number one. So GlobalLogic, you are acquiring this time. What is the breakdown of the attributes of the personnel? You have 20,000 people with revenue of JPY 100 billion, lots of people, perhaps more so overseas. And you have -- the company has 400 clients, which is rather small. So what are the attributes, characteristics of the clients that they have, if I may ask that? That's question number one.

Well, thank you for the question. To answer your question, personnel, yes, GlobalLogic has 20,000 employees. And the detailed distribution or positions that they occupy, they're not disclosed. But India and East Europe, these are the 2 areas with largest concentrations of their personnel. So distributed [ offshore ] development, that's what they're engaged in. In other words, they have quite a bit of offshore development, as you rightly suggested. And who are these people, with what kind of skills, you've asked. Senior engineers, they account for quite a large proportion. More than 50% of the personnel are senior engineers or high-level engineers from what we understand. That's all.

What about the attributes of the customers, some kind of segmentation of customers, if they are in any way characteristic?

With respect to customers, we explained that it's somewhat -- in the presentation material in terms of the number of page -- Slide #4 on Page 5, at the very bottom, there's a box: communication, financial, media, industry, automotive. So they cover quite a broad range of industries. And where they have large customers are communications, automotive, health care. So in these sectors, GlobalLogic has larger clients. Well, on the other hand, the background as to why we're acquiring this company, and that's because of their competitiveness and chip-to-cloud skills that they have. So these strengths are not, of course, restricted in these sectors alone. I think they have enough technology to be utilized for IoT.

My second question. You talked about the points you considered. Synergies was the second reason as to why you decided on this acquisition. With this acquisition, your IT sector or Lumada business, how will its growth and profitability change as a result of this acquisition? I have been having difficulty envisioning how it will change. So what's the time line as well? So according to your explanation, chip-to-cloud, that was the technology that you wanted to have and supplement yourself. Was that the larger reason? Or did you want to capture resources from overseas? Well, you've been talking about Lumada's personnel being expanded to 10,000. So what specific capabilities are you trying to supplement with this acquisition? So for the future expansion of Lumada, what is it that Lumada is still lacking in?

Thank you for your question. With this acquisition, which areas do you think -- do we think we can strengthen? What could be the speed of synergies created? And as you rightly pointed out in your questions, in order to globally expand Lumada, we will be able to acquire capabilities for that right away with this acquisition. So compared to the conventional IT sector, how is it going to be different? Perhaps I need to add my comments on that. And as I said in my presentation, Japan's IT sector has strengthened mission-critical systems. And oftentimes, the projects are commissioned by customers for development. That's been the mainstream here in Japan. But as I said earlier, corporate management issues are becoming more complex, social issues as well. In order to solve them through co-creation activities with clients, so we have to identify issues, and that issue -- those issues will have to be tackled with software and technology. And the solution approach should be agile. You have to take an agile approach in solving these issues, and that is exactly the kind of capability that GlobalLogic has. With their capability, the coverage of IT sector in terms of geography and business areas, we will be able to expand with this acquisition. And it's not just the IT sector. GlobalLogic IT sector business has been transformed, and other sectors will be able to leverage that, and of course, that will naturally lead to the strengthening of Lumada. So on a global basis, we can co-create, and agile software development, these capabilities are critical skills taken by OT and IT for us. So connection between OT and IT, that will be realized with GlobalLogic. And in terms of synergies, 2 to 3 years from now, we would like to have tangible synergies. So that's our plan at this moment. Thank you.

Thank you very much. Next -- we'd like to receive the next question.

No, I forgot to put off my [ reason ] but please move to the next questioner.

Again, the next question. We would like to receive questions from the English channel. [Operator Instructions] Yes, Mr. Somerville, please.

This is Simon Somerville from Marathon Asset Management. I've got 2 related questions. I think looking at the slide show, the slide deck that GlobalLogic has no presence or no footprint in Japan. So question one is who is doing this in Japan at the moment? And if no one is doing it, what potential business do you see in Japan as you roll out GlobalLogic on top of Lumada? The second slightly related question is, is there any risk to existing clients at GlobalLogic by Hitachi buying GlobalLogic? i.e., is there any conflict of clients with Hitachi and clients of GlobalLogic?

Thank you for your question. As for your first question, the footprint in Japan of GlobalLogic, yes, as you have mentioned, they don't have any footprint in Japan. In other words, for GlobalLogic, that is a part which they can grow by working together with Hitachi. That was one of their motivations. So going forward, GlobalLogic and Hitachi together in the digital domain, it's possible to expand in this area of digital. So that is an important factor of the growth story of GlobalLogic. Now in Japan, who is doing that area in Japan? In Hitachi, just like GlobalLogic, have co-creation with our customers and develop application. We have a team doing that work in Hitachi. We have that people so -- centered on the core IT sector systems, business scale or some advanced areas expansion as possible. But as I mentioned in the previous questions, the chip side of -- chip-to-cloud, software capability of the chip side is something that the GlobalLogic has, which we still don't have at Hitachi. So we want to make use of that capability to expand the business in the Japanese market. Your second question about conflict. By Hitachi acquiring GlobalLogic, Hitachi's business and customers doing the same business as Hitachi is doing, we have already screened that possibility. And as was explained by Mr. Higashihara, in the automotive area, in some customers in automotive area, there could be some influence, but the amount is not very large. And the addition, more than 90% is a repeat ratio. So they're very deeply penetrated among their customers. So there's not such a big possibility of influencing the business. But as I have mentioned, if such an issue surfaces, if it happens, the scale will not be that large. That is all. Thank you.

Thank you for the questions. Now it's past the time to close the meeting, but there seems to be some questions raised on the Japanese channel. I see a hand.

And this may overlap with what was asked earlier. I have 3 questions. My first question is GlobalLogic is a leading company in digital engineering service. What is the numeric rationale? What is the number of clients in terms of share? What are the data that would justify you saying that it's a leading company? And with this acquisition, Lumada's overseas revenue ratio, how will that change? What's your forecast in FY '21, if you have any? And my last question, Lumada's sales target in FY '21 is JPY 1.6 trillion. Your current forecast stands at JPY 1.4 trillion, so JPY 0.2 trillion deficiency. And with GlobalLogic's acquisition, you will be able to add another JPY 100 billion, but what is your likelihood of attaining the target? Synergies will come in fiscal '22 and onward, but what's your take? So in the IT sector, I think your profitability is over 10%. And what's going to be the impact on that? Do you think that you will be able to grow the IT sector even more? Or will it dip? So what's your take?

Thank you for your questions. To address your first question. GlobalLogic, being a market leader, are there any indicators attesting to that? Market ranking does not exist. It would be convenient if we had one, but there's none. So there are 2 things that I'm aware of. The first one is the growth. In order to continue growing, you have to continue offering value to clients. You need skills and the capabilities to continue doing so. And the company has been realizing growth at a rate of 20% or more. And EBITDA margin is above 20% as well. So the value that they offer to our clients is being recognized by their clients. So the growth rate, EBITDA margin, looking at these numbers, you can see that they're performing at the top level of the market. So that's the understanding that we have formed looking at these numbers. And your second question, so how will this acquisition impact Lumada's overseas business. As you rightly pointed out, organically, GlobalLogic's business will be added on. So FY '21 sales in terms of that, and I think there's a partial description in the press release, and we think that it will exceed JPY 1 billion. And so that will be added to Lumada's overseas revenue. And your third question, how will Lumada's sale evolve, and how will this contribute to the profitability of our IT sector business. And I think this is related to your second question, naturally, centering around GlobalLogic. Organically as well, we will be able to drive Lumada's business, which will be added on. And we would like to make synergies with the IT sector tangible. And with all of that, I think we can achieve JPY 1.6 trillion. And operating income, of course, there's the cost of amortization. But once that amortization is dealt with, we believe that this business will boost our profitability quite substantially.

In relation to the second point, IT sector, 50% overseas ratio. What about Lumada? Is it over 50%? And do you have an idea as to what the numbers will be with the GlobalLogic acquisition?

This is Kawamura speaking. Let me answer your question. As was mentioned, Lumada has a sales target, revenue target of JPY 1.6 trillion this year. Without regard to time line, 70% is to come from domestic market, 30% from overseas. So out of JPY 1.6 trillion, JPY 1 trillion will come from Japan. The rest will come from overseas. That's the breakdown.

With the acquisition, will you be able to grow overseas assets ratio expansion?

Yes, we believe so. And I think the split or the breakdown will be reversed at some point in the future, overseas becoming greater than domestic.

[Foreign Language] Analysts and investors included, do you have any questions from our Japanese channel? Yes.

Okay, hear me? I have a question for Mr. Higashihara. The strength of GlobalLogic's advantages were introduced, but the amount of acquisition is quite large. And in making that decision, what was the major point that you're able to make a decision of making this acquisition at JPY 1 trillion? What was a major point in making your decision?

Thank you. This is Higashihara speaking. For example, if you imagine the future in 2025, what will be a cyber physical system? And what will be lacking in our case? And what are the companies that would best fit under such a situation? The amount is large, but for the digitalization, cyber physical cloud, edge and device will be connected on real-time basis. This will increase more and more. And the decision-making at the management will be connected directly to the front on real-time basis, and this is a major strength. So GlobalLogic -- well, among many companies, we made the decision that GlobalLogic is the most appropriate. And number two, for example, as our companies specialize on financial industry or companies specialize on the industrial sector, but also health care, automotive, industry, telecommunications, there are many sectors. They have experienced a know-how in a well-balanced manner among these different sectors. That was the second reason why we made that decision.

And the next question. So from your perspective, Mr. Higashihara, do you have impression that this was a good purchase? This was cheap? Or do you think it was expensive?

As a corporate value, this was evaluated by many people, and $9.5 billion enterprise value, I think, is appropriate. But in general terms, EBITDA ratio in the industry, 30 to 40 multiple EBITDA, I think, is the appropriate level in this industry. And going forward, what are we going to do? On a regular basis, the growth rate will be monitored, or within Hitachi, synergy within Hitachi should be identified. is it growing as expected? Or is it growing faster than we had planned? Then I'm sure that this acquisition of JPY 1 trillion will be successful.

My last question. You often talk about become a global leader. So what are you targeting through this acquisition? $1.1 trillion is the size of the digital market? So are you aiming to become #1 in this market? What do you mean by saying a global leader? And what is your image of your future as a leader?

My view of a global leader is that in terms of share to be the top share company, that is a global leader, or in a niche market, being #1 in terms of technology, this is a global leader. But what I mean is that to be able to win global competition in the market, to become the topnotcher winning the competition, then -- to be able to communicate about the future vision, that is a global leader. For example, in the next 5 years, the so-called mission-critical sectors, cyber physical system, mission-critical will become very important. So to send this message globally and to think that if you go to the cloud, edge chip can be connected and we controlled our real-time business and the service is available, to be looked at from that perspective, I think that is the role of a global leader. That is all. Thank you.

There seems to be several more people who are raising their hand, but we have passed the time to close the meeting. So this will be the last person. So the last person, please, start your questions.

Can you hear me?

Yes, we can. Go ahead.

I have just one single question to ask. And this is a question for Mr. Higashihara from a different viewpoint. Well, today, you made an announcement about your acquisition of GlobalLogic. And on the same day, Mr. Shiotsuka, who's been leading the edge business, is retiring. Perhaps it may be a coincidence, but these 2 events are taking place on the same day. And what's your feeling? What's the impression, if I may ask?

Tokunaga-san will be the new EVP from tomorrow. Shiotsuka will continue as an adviser to me. He will continue to work with me. So Tokunaga, Shiotsuka, that line will continue. So starting from April 1, it's not that he's going to depart from the business. Well, we had a BoD meeting today. And March 31 and April 1, because of the timing of BoD, these events coincided. But under the leadership of Tokunaga-san, GlobalLogic will be promoted, but not that we wanted to send any other message. He's been the lead in this business. And with him as the leader, we are working on PMI and synergies. But this is unrelated to the personnel reshuffling that took place on the 31st of March or April 1. Thank you.

So this concludes our presentation on the acquisition of GlobalLogic. Thank you very much for your attendance.