Hitachi, Ltd. (6501) Earnings Call Transcript & Summary

It's now time to start the web conference on the progress of Hitachi's 2021 medium-term management plan. Let us start the meeting, and let me introduce the speaker: Hitachi, Ltd.'s President and CEO, Toshiaki Higashihara. Over to you, Mr. Higashihara.

Thank you very much for attending the briefing on the progress and prospects of the 2021 Mid-term Management Plan. First of all, I would like to express our condolences for the people who have -- fell victim to COVID-19, and also offer our prayers to the people who have infected with the disease and also to the people who are involved in the prevention as well as the treatment of the COVID-19 patients. Globally, we would like to express our respect. Now I -- we would like to explain to you the 2021 Mid-term Management Plan progress and prospects.

Mr. Higashihara, please.

We would like to give you an update on the progress and prospects of the 2021 Mid-term Management Plan, starting off with the understanding of the current environment. With the impact of COVID-19, the -- we believe that there will be 15% decline on the GDP growth globally on the second quarter of 2020. And the revenues, as already explained, there is going to be a negative impact of JPY 1 trillion because of the COVID-19. Therefore, the management environment is extremely difficult and challenged. There are 3 messages that we have outlined here. With the assumptions of the COVID-19, we believe that we can continue to grow through a Social Innovation Business coexisting with COVID-19, in what we have to emphasize is cash management, structural reform as well as securing and development of human resources. These are the topics I would like to emphasize. In the mid- to long term, environmental issues are coming to the fore. We are declaring fiscal year 2030, carbon neutral to become a leading company in generating environmental values. This year will be the start of this initiative. Now let me once again talk about the major direction in the Mid-term Management Plan. Lumada will be the base of digitalization. And we will promote co-creation in mobility, life, industry, energy and IT areas. And for -- by so doing globally enhance social values, environmental values and economic values, by so doing, improving the quality of life and adding values for our customers. This is the major direction for us. Through Social Innovation Business, Hitachi aspires to grow significantly and become global #1 in the Social Innovation Business globally. This is the major direction for the Mid-term Management Plan. Now let's evaluate the achievements in fiscal year 2019. In terms of strengthening the digital business, Hitachi Vantara or -- and Hitachi Consulting have been integrated, transformed to the new Hitachi Vantara, by so doing, we have strengthened the digital solution platforms since January of 2020. 12,000 people are included in this organization. We have also made progress in the transformation of the business portfolio. In North America, we have made entry into robotic system integration business by acquiring JR Automation. And there is going to be more electronics in automotive systems going forward. Therefore, we want to gain a larger market share, No. 1-3. This is essential for us. And that is the reason why we acquired the Chassis Brakes International and decided the business integration with the 3 Honda parts companies. In terms of reorganization of listed subsidiaries, transferred Hitachi Chemical to Showa Denko, made Hitachi High-Tech a wholly owned subsidiary. And the diagnostic imaging-related business is being transferred to Fujifilm. The long-pending issue of the South Africa project reached settlement with Mitsubishi Heavy Industries. Those are the major highlights of fiscal year 2019. Let's look at the results. In terms of adjusted operating income ratio as well as revenues and operating cash flow are shown here. I'm sure that this has been explained. 5 sectors and the consolidated numbers are presented here for 2019. All 5 sectors is 5 point -- 8.5% in terms of adjusted operating income ratio, and it was on a consolidated base. And it would be 8.9% excluding COVID-19 impact. Consolidated basis was 8.8%. IT divisions made significant contributions. And JPY 2.1 trillion in terms of revenues and 12% in terms of the adjusted operating income ratio has been achieved, making a significant contribution for the overall company. In terms of operating cash flow. The -- if we exclude the South Africa project, JPY 700 billion can now be generated -- over JPY 700 billion can be generated. That is all in terms of the results for fiscal year 2019. Let's proceed to talk about the acceleration of the Social Innovation Business. Against the backdrop of COVID-19, the economic environment besetting us is becoming more challenging. In the Social Innovation Business, we will promote co-creation as well as harnessing digital technologies to provide solutions to challenges with COVID-19. There are no changes occurring in the psyche. Keywords include remote and contactless and automation. Internet and smartphones and other technologies have brought about innovation. It was driven by products, but going forward, the pains as well as the challenges of the customers must be resolved through co-creation harnessing digital technology. Therefore, I believe that more human-centric -- human needs will accelerate innovations going forward. And therefore, the Social Innovation Business that we have been developing can resolve problems brought to the fore by COVID-19, according to our view. Now let's look at the focused business fields for us beset with change. There are 5 sectors mentioned here. In the area of IT, we will focus on digital transformation and cloud. This will be making progress across the board. We must provide ample support. In area of energy, digitalization of grid as well as promotion of efficient power consumption will be promoted. In the area of industry, optimization of the distribution and manufacturing supply chain will be main because of its increasing connectivity. Automation and electrification of production is likely to make progress. In the area of mobility, digital railway operation and maintenance business, that will be promoted. For smart life, life science fields will be promoted, and expand our market share in the focused auto parts business. Let's look at the region perspective. By regions, the required values vary. And therefore, in promoting our global operations, common solutions, taking into consideration the global situation, will be developed. And further more customization by regions will be required as well. This will have to be enhanced further. In various regions in the world, we will engage in co-creation with the customers to solve issues and scaling solutions with Lumada. There are more than 1,000 cases of Lumada, and the Lumada solutions hub will -- has been created. Solutions that can be commonly used will be improved, providing to different regions. And by partnering with customers in co-creations, new values will be generated. By so doing, by 2021, JPY 1.6 trillion, the amount of business, is what we are aspiring to achieve. Next, let me talk about the current status of Social Innovation Business by business fields, regions and business cycles. Now in different regions, there is diversity. This is the edge of the Hitachi. With this edge, with good balance and by managing our business, efficient business can be enabled. In the business fields, energy sector is beset with challenges, but IT can drive profits. In the region perspective, with the COVID-19 impact, there is a sprint at the different time frames. For example, North America is difficult, but China has recovered. Therefore, we will take a balanced approach in terms of pursuing our business in different regions. In terms of the business cycles, more than 1 year in terms of orders received is accounting for 60%. This is also the advantage for us. What are the points to focus on in fiscal year 2020? Let me discuss the management policy for this fiscal year. First, regarding ABB power grid. Honda-related parts businesses, 3 of them are going to be integrated. And we have to complete PMI, needless to say, portfolio reorganization and investments into growth. These will be pursued continuously. In fiscal year 2020, areas of particular focus includes cash management. It will be strengthened further. And we will be engaging in more of the structural reform initiatives. What is important is to secure talent and foster them, securing and developing human capital. Regarding cash management. From the CFO, there was a presentation on this. JPY 1.3 trillion worth of liquidity is already secured. In crisis management, operating cash flow and investment cash flow need to be reviewed in a timely manner. So by striking a cash balance, we have to run our business, and that is what we would like to strengthen. Moving on, execution of structural reform. So far, we have pursued a smart transformation. So through structural reform, we've brought the costs down. So reforming sales, back office, indirect operations, reforming manufacturing, reducing the number of companies within the group. And going forward, we would also like to reform a work style to promote work from home. So works are reformed, and remote work. As is described in this box, we would like to redefine work styles and create enabling environment for that, and we're going to review business operations based on the fact that we're going to work more from home. We will promote digitization of business processes, global shared services. We're going to incorporate ABB. So global shared services will be promoted, financial services and procurement. Such global shared services will be promoted on a global basis so that we can bring the overall cost down. Next, securing and development of human capital. Currently, we have 300,000 employees. For these 300,000 employees, we want work style reform, but more than that, we want them to have the motivation to work. We want each and every employee to feel the ties with society and make contributions to society, so encouragement and empowerment is necessary. That is what we want our employees to feel. And promoting work styles for diverse human capital: We will have a new work style where working from home is going to be the standard. We will transition to job-oriented human capital management. This was accelerated under COVID-19, but this is something that we would like to further promote and develop. We need to acquire and develop talents for social innovations globally, digital talents in particular. We're going to increase them from 30,000 in fiscal year '19 to over 37,000 in fiscal year '21. Next, under 2021 MTMP, on top of the economic values, we're going to enhance social values as well as environmental values. That's one of the messages started. And for social values, for each sector, as you can see from this slide, we want our business to contribute to society, and this is how we're going to do that. We want people to understand this and feel this as they run the business operations in each sector. This is what we are working on and developing. And going forward, in the future, environmental values will be very significant. Hitachi wants to become a leader in creating environmental values. Through Social Innovation Business, we would like to offer solutions for environmental issues to enhance quality of life and achieve a sustainable society for all, Hitachi Environmental Innovation 2050. And we would like to cut down on CO2 emissions by 50% in fiscal year 2030 and 80% in fiscal year 2050. We want to accelerate this effort so that we can decarbonize society. We'll be accelerating these efforts and achieve a resource-efficient society, society where water and other resources can be recycled effectively. Next, based on this, in fiscal year 2030, we would like to achieve carbon neutrality. This year is the year of announcement. This is the starting year for that. In order to cut down on CO2 emissions, materials, procurement, production phase and the phase where you put out products and products are used by customers, there are different phases involved, where we produce the products, product designing to be reviewed. And energy conservation in manufacturing facilities, so utilizing renewable energy facilities and renewable energy. About fiscal year 2030, we would like to achieve carbon neutrality in these areas. So far, I've discussed many points, but here's fiscal year 2020 forecasts and 2021 MTMP target. Our CFO explained the forecast: revenue JPY 7.08 trillion, adjusted operating income 5.3%, net income attributable to Hitachi stockholders JPY 335 billion, operating cash flow JPY 500 billion, return on investment capital 5.7%. In March 2009, in terms of net income, negative JPY 783 billion. It was a loss. And for the past decade, we have continued to reform the business. And coronavirus crisis is set to have greater impact than the Lehman shock, and yet under those circumstances we had to secure JPY 335 billion of net income attributable to our stockholders. And so what we've been doing in the last 10 years is going to bear fruit. MTMP, the numbers remain unchanged from last year, but the second and the third waves may possibly happen for COVID-19. ABB's acquired Honda-related parts businesses, 3 of them are combined. We would like to clarify what the numbers of them are going to be so that we can update this MTMP going forward. Lastly, Hitachi Social Innovation is powering good. This is the key phrase. And we would like to power good in society with Hitachi Social Innovation. We look forward to your continued support and understanding. Thank you.

We would now proceed to the Q&A session. [Operator Instructions] The video of the question-and-answer session will not be shown today. First of all, we'll take questions from the media on the Japanese channel, followed by institutional investors and analysts and then going to English channel thereafter, in that order. We are expected to finish this meeting at 18:00. Now first of all, the floor is now open to the media representatives on the Japanese channel. [Foreign Language] [Operator Instructions]

I have 3 questions. First question is related to the results announced in the first half. And now to the President, I would like to ask the question for fiscal year 2019 results. What were the challenges in the fiscal year 2019 results? The forecast for fiscal 2020 was explained, but there could be an impact of COVID-19 on the orders to be received going forward. What is your take on the impact of COVID-19?

As regarding the results for fiscal year 2019, the highlight will be explained from my perspectives. Excluding the COVID-19 impact for the 5 sectors is 8.9%. On a consolidate basis, 8% has been achieved. Therefore, profitability is improving successfully. From January to March, the COVID-19 impact was reflected in the numbers presented, but for fiscal year 2019, I believe that the results have improved. In January of last year, there was a nuclear power project in the U.K. that was suspended. And in December of last year, we reached settlement in the South Africa project. With that, the major shackles or the challenges in management are behind us, and therefore that is a major achievement in fiscal year 2019. Now referring to the impact of the COVID-19 on orders going forward. In the business cycle, I mentioned that 40% are the 1 year, below, and 60% are 1 year and above in terms of orders and contracts. And long-term project include the railway business. We have JPY 3 trillion in terms of the orders received. So once our factory is resumed, then we can continue. Therefore, in these areas we'd like to minimize the impact of COVID-19. Our orders received are very important. Operating cash flow must -- will depend on securing orders. So orders and cash flow management will be very important in the management of fiscal year 2020.

Next question is regarding the, against the backdrop of COVID-19, is this going to have an impact on the reorganization of the listed subsidiaries?

Regarding the listed subsidiary answer. There is -- Hitachi Construction Machinery and Hitachi Metals remain. And what we are telling the top management is that, fiscal year 2021 and 2024, in this time frame, we have to make sure these companies are able to compete globally. They are now evaluating this. They -- it is not just a matter of COVID-19. Mid- to long-term growth strategy will be the -- will be emphasized in -- so the reorganization strategy for the listed subsidiaries will not be impacted by COVID-19.

My last question. With the impact of COVID-19, is there any initiatives you're going to be pursuing? On the part of the Hitachi, Ltd., are there any contribution that you are making in overcoming the challenge of COVID-19?

Regarding COVID-19, we are thinking of ways to make a contribution on the part of Hitachi, Ltd. As already mentioned today, 300,000 employees, how they can make a contribution to society is what we are trying to promote. And with the advent of COVID-19, I asked the employees to consider what they can do. We did an idea competition. And within 2 weeks, 1,400 proposals were presented by employees, down to donations to be made or to how to change products as well as how work style should be reformed. Based on proposals that we have received, we are trying to organize this now. JR Automation is now involved in the production of masks, and face shields have been produced to supply this. 14,000 will be provided in the month of June. These are some of the contributions that we are making in the advent of COVID-19. We are trying to prioritize these efforts.

There's a few with questions. [Operator Instructions] We have a questioner.

Can you hear me?

Yes, we can.

Earlier, you said that COVID-19 is having even more severe impact than that of the Lehman shock, and yet you are poised to generate income of JPY 335 billion this year. So what is the degree of structural reform you have achieved? How much of it is already complete? I would like to ask. And this fiscal year as well, you will continue with the reorganization of your business portfolio and continue making investments into growth for the future, as you said. And you talked about listed subsidiaries earlier, but in the larger framework, if you will, what's going to be the impact of COVID-19 on your structural reform initiatives?

How much of structural reform is being complete, it depends on the view. It's hard to say categorically, but how I see it is, as I said earlier, Lumada digital platform. That is to be promoted and deployed globally. We have had certain progress, but in each region we are promoting Social Innovation Business, and we will have to accelerate that even more going forward. And I think -- as far as that is concerned, I think we've achieved 60% of what we need to achieve. Fiscal year 2021 and to fiscal year '24, we need to further accelerate this. And regarding structural reform, rather than the impact from COVID-19, it's more a question of how to pursue global deployment. I talked about securing talents, that it's very important for us. In recent times, in Asia, a company called fusion (sic) [ Fusionex ], an IT integration firm we have acquired in Asia -- so as such, with Lumada at the core, in 2021, we would like to achieve JPY 1.6 trillion. And for that to happen, we must strengthen our global framework, and we need to accelerate our efforts at structural reform for this. Well, COVID-19 is happening, so for the coming year, it's going to be difficult to pursue those activities, but nonetheless from a global perspective, we will continue to think about Social Innovation Business. And for that, we will accelerate our reform initiatives.

Next question, please. [Operator Instructions]

I have 3 questions. First question is related to the previous question. You said that 60% of the work is complete in terms of Lumada, and you're aspiring to become #1 globally. And the speed -- compared to your competition, where do you stand in terms of positioning?

So let's take this one by one. Regarding Lumada, the way we will promote this business is not comparable to other companies. Let me elaborate. In terms of system development, in the upstream, consulting company are involved. And when the specifications are decided to go to the IT vendors, a system will be established and maintenance will be provided accordingly. This is the flow, but in the case of Lumada, it's different. We have about 1,000 use cases accumulated so far. By applying Lumada, we can suggest what can be enabled on the part of the customers. The upstream, the basic design in the upstream can be made clear and the feasibility or the effectiveness of adopting Lumada will be visualized. Therefore, consultants and IT vendors are involved as well, but this does not exist in other companies. The basic strategy, planning, installation and maintenance, in these different phases, Lumada can be utilized. And end-to-end services can be provided on a global basis. This is the ultimate goal. If this is 100%, we are 60% complete to date. That's what I meant.

Second question, regarding your investment posture. In June of last year, when we had -- when you had the IR day, you said that there is about JPY 4 trillion to JPY 4.5 trillion, and for growth there will be JPY 2 trillion to JPY 2.5 trillion, in terms of investments. It was mentioned today that -- what is going to be the impact of COVID-19 for the JPY 2.5 trillion as well as cash flow and so -- and other means? JPY 2.5 trillion was the investment for growth. That was last year. How has this plan changed? What is the current state?

So JPY 2 trillion to JPY 2.5 trillion investment for growth is what we are contemplating, out of which JPY 1 trillion is ABB Power Grid acquisition. So the remaining amount will be JPY 1 trillion to JPY 1.5 trillion. What are we going to do with -- about this? With the impact of the COVID-19, operating cash flow is likely to decline. We have to assume that to be the case. In terms of investment cash flow, as we have already discussed, capital expenditure weighting will be required. And we don't want to reduce R&D expenditures. JPY 4 trillion to JPY 4.5 trillion, out of that, JPY 2 trillion will be capital expenditure as well as R&D expenditures. And inclusive of M&A, that will be JPY 1 trillion to JPY 1.5 trillion, excluding ABB. So it will depend on cash flow. Last year, we had a JPY 2.5 trillion cash flow. And with the COVID-19 impact, the operating cash flow, how we can secure operating -- the cash flow will have to be taken into consideration as we consider investments in the future.

Operating cash flow, if it falls short and -- that means that investment scale will become smaller. Or you're going to increase borrowings or sell more assets. How are you going to deal with that situation?

Regarding M&A, I mean, it depends on timing. Timing is everything. We have to always have -- be sensitive to what is available and make a good acquisition. Debt-equity ratio is 0.5 and below, and with ABB it will go up to 0.6. And in terms of interest-bearing debt and EBITDA, to a multiple of 2 is what we have set as a requirement. It could breach temporarily, but we should be able to recover that in 1 year. And that is the case, we will not rule out good acquisitions.

Question number three, Hitachi Metals. Last month, there was a fraudulent accounting. It is listed companies on the part of Hitachi, Ltd. What is your view in terms of the management responsibility? What is your take on this?

Regarding Hitachi Metals, the quality issue is very unfortunate, yes. On the part of Hitachi Chemical, we had a similar experience, and another quality issue occurred this time around, which is very unfortunate. We will have a third-party probe to investigate this matter, and the Board is leading this process at the Hitachi Metals. We have to investigate why it has reoccurred. We have to go back to basics to have a comprehensive review. We must clarify this. In terms of my responsibility as -- to the group companies and for Hitachi, we have to make sure there is no reoccurrence.

From this point onward, institutional investors and analysts on the Japanese channel, please raise questions. [Operator Instructions] We have a questioner.

I have 2 questions. They are related to a couple of the slides. Page 12, you talk about the business cycle. You have pie charts. So business for within 1 year, over 1 year or business for the long term. I wonder what the intention behind this pie graph is. Did you want to show diversity, how diverse your businesses are? 5 years from now, what will be the breakdown? If you could share that with us. Do you have a specific outlook as to what the breakdown of this will be in 5 years’ time? That's my first question. And so which part of this pie graph is higher in ROIC or competitiveness? And which part of the business, what kind of business will you focus on with what time line?

I've shown business cycles here. And the reason for that is, when I say short-term businesses, it's appliances and simple industrial systems. They can be received as orders and post revenue within 1 year, 40%. And orders have already been received, and we will be delivering within 1 year. Or railway business, that's a more long-term business. Well, it depends on the situation as to what the optimal percentage breakdown should be short term versus medium to long term. I think the balance should be somewhere around 50-50, but if there's a drastic change in the economic situation, the breakdown may change. Increasing the medium- to long-term business and supporting cash inflow based on agreements, that may be better perhaps at times, but given the current situation, short-term business, home appliances and short-term business for industrial, that's about 40% of the total, which is an optimal balance for now. So increasing long-term business, getting cash inflow based on agreement, that may be a good idea going forward.

Another question. Page 23, on lower right, you said that Mid-term Management Plan targets will be updated in the future. With COVID-19, the world has changed. And if you're saying that you need to revise the targets, then please say so, but M&A, business acquisitions may also be a factor in the background. If that is the case, then how do you see the Mid-term Management Plan? How is it to be positioned?

I think you've always had potential M&A on your mind, so I don't think you're going to change MTMP just because you're having M&A. Well, we announced this back in May 10 last year. When we made the announcement, ABB and Honda-related businesses, that we didn't reflect detailed numbers in the plan, but we did have an idea as to the direction. And the High-Tech to be turned into subsidiaries, yes, we did have that consideration as well back then. In 2021, MTMP targets to be reviewed, the greatest reason for that is because of COVID-19 impact. Given the current circumstances, for fiscal year 2020, I think the impact will subside. Will it? And are we going to get back to normal in fiscal year 2021? We have to watch. Or is it going to continue for 2 to 3 years to come, as was the case with some other infections in the past. So we would like to review this at some point in the future. That's the greatest reason.

Next question, please. [Operator Instructions]

My first question is as follows. Regarding the business plan that was mentioned, could it be the case that in the mid to long term the lifestyle of people will change? In your case, IT services as well as the railways and automotive systems may be impacted as a result of that. Now for these 3 areas, I am particularly interested. In terms of your business, which areas will undergo change? That's my first question.

So it is going to be more human centric. And how it is going to change going forward will -- is a discussion that we need to have in terms of the railways as well as automotive systems and in relation to IT. In Italy, mass or digital ticketing has already begun. And against this backdrop, with COVID-19 in mind, contactless will be required increasingly. In terms of railway as well as cars, the space within will require disinfection. These are added values that is likely to be required. And I think it can be reflected in the price because people are likely to be willing to pay more for security and safety. So these 3 areas are remote as well as contactless, these will lead to quality-of-life improvement, leading to new values which will be reflected in higher prices.

My second question. You have provided guidance. Thank you very much for that. I have 2 questions regarding the guidance provided. I'm sure there is significant uncertainty, but you provided this guidance with speed, which is very impressive. Why did you emphasize the speed in providing the guidance?

But having provided this guidance, what are the likely uncertainties? Automotive systems are a good case in point. Are there other factors which will change these guidance numbers, for 2020 guidance have been provided with speed? That's the point you are making. In the past 2 months, I have been focused solely on this. With -- we have identified the budget for -- excluding COVID-19, we have come with a focus, but with the outbreak of COVID-19 in different regions as well as different products, we have analyzed the impact thereof. And this is a result of this analysis, but in the second wave or a third wave occurring, it could worsen further. And we have estimated these numbers as well, but we have to make preparations assuming the worst case. We believe that February to April have been focused on this effort. Because of the uncertainty, it is important to provide data to analysts as well as the media core so that we can receive input from you. That is the reason why we have provided this guidance. The most significant business, most uncertain business is automotive system. Even without the impact of COVID case, direction is something that needs to be evaluated very precisely because new car numbers will decrease going forward. We have to have an overall outlook for automobiles going forwards. And with the parts and system, it is important for us to become #1 in the market so that we can control the market. We can control the parts market. And we are not able to do that, than we will not be able to survive. That is the reason why we have integrated with the 3 Honda-related companies. Because it is a different golden market, we have to harness synergies so that -- in terms of electronics parts, we have to expedite the effort to become #1 globally.

Additional question. Beyond automotive systems, what are the other variations that could occur?

If COVID-19 impact is going to be prolonged, industry might be impacted with less investment. In the beginning, the impact was in materials area, then it was followed by industrial machinery. There was curtailing of investment. And after -- if COVID-19 is going to continue, there will be declining investment, so it is likely to be having an impact on the industrial area.

Let us move on. We have another questioner, another person wishing to raise questions.

I have 2 questions. Question number one is crisis can be turned into an opportunity. So for COVID-19, because it creates economic crisis, there are actions that you can take, taking that opportunity. If you have any ideas on that, please share them with us. And this time, you have disclosed supplementary information ROIC by segment. Taking a look at that, I realized that life segment's ROIC is lower than other segments, as I expected. And I think it's the car business that's pushing ROIC for this sector down. So from the viewpoint of ROIC, well, you've reorganized listed subsidiaries and you will have to continue that effort within the parent. So turning crisis into opportunity, any hints or ideas?

Thank you for the questions. COVID-19, as I said, under this, we're going to accelerate our Social Innovation Business. That's the expression that I used. Together with customers and various partners, the challenges imposed by COVID-19 shall be addressed. For example, there are challenges associated with teleworking, working from home. How can we address those challenges? Through co-creation and digitalization, we can offer solutions, and it could create a huge opportunity for us. For example, what we have on mind is, when you engage and work from home, we have to take a close look at our employees' work styles. And it's sometimes hard to ascertain that. 3 Cs are said to be evil, but in order to have good communication, you need to be close to the person that you're talking to. So in a remote, virtual setting, how can we have close communication? How can we ensure that? That is something that could be an idea for business in the work style reform. And people are treated equally in the virtual setting. When you address someone, you get answers from all the participants. And nodding to the person that's talking remotely, that's also necessary, but in a teleconferencing setting that's sometimes difficult. So how can we instill a sense of reality? We have VR, virtual reality. And so this can be turned into a business opportunity. You talked about ROIC. I have similar thoughts within smart life segment. Perhaps car business needs to be treated separately because investment patterns in this business are different. We are discussing how to handle this in life, smart life sector, car versus non-car business. We have to have a different style of management over these businesses. Car business requires upfront investment. Return comes later. That's the style. So within smart life, we have to manage that car business separately from others.

Understood. My second question is about work style reform and teleworking. So in order to enhance the productivity for the employees and to achieve carbon neutrality to generate environmental values -- you have to prioritize financial values as well as nonfinancial values. It's difficult to strike a balance, but what are the challenges? And what are the issues that you think you need to address with respect to this? That's my second question.

As you pointed out, well, the reform that we've achieved in the last decade has been done top-down. So I think financial indicators have improved quite substantially as a result, but on the other hand, from the employees' point of view, they may feel that they've been forced to pursue reform. So we want employees to think that they're making contribution to society, that they're leading societies. So top-down approach and bottom-up approach. They need to be balanced going forward. So as we implement work style reform, as I said before, work style reform needs to happen with more motivation of -- on the part of employees. That's going to be important. So motivation to work, rewarding work for employees. This is mainly nonfinancial.

We will -- would now like to take questions from the English channel participants. The question will be translated to -- into Japanese in consecutive translation. So please indicate if you wish to ask a question. They seem not, so once again we would like to take questions from the Japanese channel from the media as well as analysts and institutional investors. Please indicate that you wish to ask a question at this time.

Regarding the Lumada business. For this fiscal year, it is going to be a major engine for profitability. And at this timing, you have provided a new definition for the Lumada business. Why now have you redefined the Lumada business? So JPY 100 billion. There is a decline. The SI business, traditionally there were businesses which was not strictly seeking Lumada that was included, but looking at this in more detail, it seems that the core business of Lumada is increasing under the new definition. Lumada or SI business or closely related business to Lumada is included within the core business. Is that the case? Maybe can you elaborate further?

In promoting the Lumada business, as I have already mentioned, today, there is the core business which has accumulated 1,000 use cases. And within Lumada hub, the common solutions have been accumulated as well. 240,000 truck leased. Penske is a company in the United States, and the parts of the vehicles are subject to monitoring. And when it is up for replacement, the driver will receive information that the service should be received at the plant, and the parts that can be provided beforehand. And video sight can be utilized. And we can improve the security by identifying abnormal behavior. These are common solutions that we can deploy globally. The reason why we have changed the definition this time is because of the following reason. So far, there were 2 factors. Even using Lumada, the scale of digital -- or using IT to increase the business was one approach. And scale by digital is also another approach. Using Lumada, the railway business or construction machinery also may -- driving can be enabled in the operation area and in the product area. There is the intention of expanding Lumada. So Lumada going digital is what we wanted to increase. It is not just within the confines of IT or SI. In order to clarify our approach, we have decided to change the definition.

Is that the reason why it looks smaller? But in the Mid-term Plan, JPY 1.6 trillion will be your goal, inclusive of M&A.

Yes, that is the case.

Time is up. So with this, we would like to conclude the web conference on the progress of 2021 MTMP. Thank you very much for your participation despite your busy schedules. Thank you. [Statements in English on this transcript were spoken by an interpreter present on the live call.]