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

Regarding the materials to be used today, please go to the IR site or the news release site on our website of Hitachi, Limited. I would now like to introduce the speakers to you. Yoshihiko Kawamura, Senior Vice President and Executive Officer, CFO; Tomomi Kato, General Manager of the Financial Strategy Division; Masao Yoshikawa, Executive General Manager of the Investor Relations Division. Regarding the outline of the results, explanation will be given by our CFO, Mr. Kawamura. We will be switching over the screen. Mr. Kawamura, please.

[Interpreted] Thank you very much for the introduction. My name is Kawamura. Regarding the first half of the meeting, I would like to talk to you about the consolidated financial results. And please refer to Page 3 of the documents. These are the key messages of our results. Overall, IT segment led Hitachi's performance. On the other hand, in addition to the IT segment, Mobility segment was very strong. It is Elevator and Escalator Chinese business was very strong, as well as Smart Life Segment of Measurement & Analysis Systems business, which is the Hitachi High-Tech business, maintained high profitability in the second quarter. For the profits, we have exceeded our plan. For the first half comparison, the 5 sectors -- for the 5 sectors, in terms of revenues, first half a growth of 5% was achieved. In terms of revenues, increase of JPY 136.7 million. So you can see that a significant improvement has been made over our plan. That's the first point to be emphasized. Second point is regarding Hitachi ABB Power Grids, which has been acquired. And posted from July, this is making a steady progress in the second quarter, the orders received was USD 2.2 billion. The ABB Power Grids business on a full year basis, is around JPY 1.900 trillion. So $2.2 billion is JPY 230 billion in Japan. So for 1 quarter, we have achieved the planned level. Now in terms of the orders received, it is mainly environmental-related business we are making headway here. More specifically, I'll mention details later. Software Smart Grid and e-mobility are growing significantly, centering on the environmental business, we are receiving significant orders. Third point is Lumada Solutions. This is a strategic core business. We are making a significant investment in this area. Our core business is in IT peripheral business. This is growing a 9% year-on-year. For the related business is the applications of IT to various sectors. With the impact of COVID-19, there has been a revenue decrease, but we will continue to make investments to grow this business going forward. Please refer to Page 4. Let me talk about the specific numbers. Left-hand graph should be referred to, this is the numbers for the first half. And the dark gray on the left is the revenues. Light gray is the adjusted operating income. And dark gray is JPY 3.760 trillion. In terms of adjusted operating income was JPY 180.7 billion. So that is the result for the first half, inclusive of the second quarter. To the right. This is a breakdown of the JPY 180.7 billion. As you can see here, IT was JPY 108 billion. That's accounted for 60% of the overall profit done followed by mobility, Smart Life and industry. The minus JPY 1.9 billion is the listed subsidiaries, minus JPY 7 billion is energy. This is because ABB Power Grids acquisition, and there is a significant amortization. That is the reason why it is negative. Now the 2 segments to the right should be referred to IT segment and Building Systems business. Upper is the IT segment. Left-hand graph is the second quarter results and right-hand side is for the first half. What is noteworthy here is that to the left, comparing against last fiscal year, referring to the graph. The operating profit margin has gone up to 13.5%. This is the highest level we have achieved. It is about to double or more than double of our peers. If you look at the right-hand side, for the first half, the adjusted operating income ratio is 11.4%, prevailing at very high levels. Now below the building system business to the right, looking at the operating income ratio, last first half was 9.8%. It has improved to 11.7%. 11.7% in the first half of this year. Please refer to Page 5. I would like to give you further information regarding ABB Power Grids business. The orders received are shown here, it is classified into 3 areas. The left-hand side is becoming the growth engine. The second column is sharpening our winning portfolio. Third area is driving world class execution. Now as for the growth engine, the second from top in Norway, we have a fully digital eco-friendly substation order received. It is the optimized efficiency, reducing CO2 emissions in the substation. This is the environmental business. If you look at optimization and the e-mobility is the third from the top. And we have a large-scale EV charging station that is being completed. Right-hand side below is a synergy program. We have been conducting the discussions on synergy between ourselves and ABB, Hitachi ABB Power Grids, focusing on the environment. We are now striving to enhance environmental value contributing to low-carbon society by powering sustainable energy in future. HAPC is going to become a very strategic business for us. This will make significant contributions to the environmental business going forward. Please refer to Page 6. This is specific information regarding the Lumada Solutions, referring to the graph first. Left-hand side is for the first half comparing the fiscal year 2019 and this year. The right-hand side is the focus for the full year comparing against last year. And revenues, JPY 1.1 trillion, that is an increase of 6%. Looking at the details thereof, FY '20 outlook should be referred to red area is the core business of Lumada. IT and peripheral business is included here. And applications to other sectors is presented by gray, related business, JPY 440 billion compared to the previous year, may look slow or slowing down. But this is because of the impact of COVID-19. We expect significant increases going forward. Considering the growth, the important highlights are shown here on this page looking at the progress made in each of the specific projects. To the right is the IT segment. In this year's Gartner Magic Quadrant for industrial IoT platforms, Hitachi has been named the leader. We are in the upper right quadrant as a leader. There are 2 other companies in this category, but this is the highest evaluation globally. We have many use cases, and there is also flexibility on the part of the customer side. And that is how we have been evaluated very highly. To the left, IT, below, we are now poised to fully unleash the combination of Lumada and 5G. Middle is Touchless Solutions, which is based on the Lumada platform. Right-hand side is industry. Alfresa is a company that has revenues of JPY 2 trillion, the medical and medical device wholesaler company. They are working with us in co-creation. Value chain has been established for the first time in the medical area first time in Japan, using Lumada, so on an individual basis, new use cases are increasing. Please refer to Page 7 these are the major topics for the second quarter. 3 topics are identified here. At the very top, we talk about the San Francisco Bay Area, Rapid Transit district signal system, which is called BART. Rapid Transit system is what we have received the order for. It's a transit system to Oakland. And we have had orders of JPY 85 billion for about 10 years. This is a major project that we have won. The next 1 is regarding Railway Systems business, it is very difficult in Europe because of the COVID-19, but we will be increasingly focused on North America. This is the first major order received in North America, and our efforts have proven to be successful. And I think we will have #2 and #3 project as well, and we're very happy that this has been achieved. The second area is Power Grid. Regarding the acquisition of Power Grid business, it was about JPY 1 trillion. After that JPY 130 billion has been refinanced using other means because of high valuation of the environment business, utilized environment evaluation type finance and growth investment facility of JBIC. So we are receiving a high evaluation from financial institutions as well. Next, the management integration of Hitachi Automotive Systems and Honda Motor Company affiliated companies, we have decided on the name. It's called Hitachi Astemo and this Astemo stands for Advanced Sustainable Technologies for Mobility. The management integration is poised to be realized by January or February 2021. Please refer to Page 9. This is the page on the highlights of the result. Left-hand side is comparing the second quarter to last fiscal year, and the middle is comparing the first half. In the left for the second quarter, the graft is clear to see. We have declining revenues and declining operating income. To the right if you look at the first half, again, it's declining revenues and declining operating income. If you look at H1 and fiscal '20, you can see that JPY 180.7 billion is fiscal year '20 first half. And it's JPY 58.3 billion first quarter and JPY 22.4 billion in the second quarter. So that means that a significant improvement is being made. So if you look at the right-hand side, cash items are explained for the first half. The third from the top is EBIT, JPY 386.2 billion on a year-on-year basis, it's positive by JPY 95.6 billion. EBITDA. This is the largest portion of the cash flow. Year-on-year basis, improvement by JPY 112.7 billion at the JPY 612.6 billion. Cash flows from operating activities increased by JPY 8.8 billion year-on-year at the JPY 214.4 billion. In terms of cash flow, we are exceeding our plan in generating profits. Next, please turn to Page 10. So this is the 5 sector of the stand-alone basis and listed subsidiary, only construction machinery and metals, but 2 listed subsidiaries split into 2. So left side, 5 sectors. Revenues 103%. This is an increase from the previous year. So this is where we increased revenues. But adjusted operating income is JPY 182.7 billion, negative JPY 47.2 billion. So revenue increased, but operating income decreased. Now right side listed subsidiaries, same line, 56%, so that's revenue decline and operating income down by JPY 69.2 billion. So both revenue and operating income declined. So 5 sectors increased revenue listed subsidiaries decreased its revenues. One more point is the next line, adjusted operating income ratio, 5 sectors, 6%. And listed subsidiaries is hit hard by COVID-19, so negative 0.3%. Right side is the total 4.8%. So overall, down by 2.2 percentage points. Next is Page 11. Revenues and adjusted operating income from last year to this year in waterfall chart. First, the upper half, revenues. In first half fiscal year 2019, JPY 4.200 trillion. And you can see the flow to JPY 3.760 trillion. First, divestiture of Hitachi Chemical that's a negative, and Power Grid was added. And then foreign exchange was a negative factor. In others, metals and construction machinery and AMS negative is included. So overall, far right, JPY 3.760 trillion. Now likewise, on the bottom half, adjusted operating income. The far left, JPY 297.2 billion to JPY 180.7 billion. Same items. So you can see divestiture of Hitachi Chemicals and then Power Grids, positive impact and then foreign exchange. And in others, here, because of the decline in business scale due to COVID and the sales price decline and the depreciation of the fixed asset, we netted that and landed at JPY 180.7 billion. So that was the overview up to the second quarter. Next, please turn to Page 13. This is the full year forecast. And the graphs are the same format as the first half. Left side is the revenue, center part is adjusted operating income. Revenues last year and this year. Revenue will go down. And as you see, year-on-year, 9% down. In the middle, adjusted operating income as you see, the graph is evident. So operating income will decline. JPY 400 billion is what we're announcing this time as we forecast for fiscal year '20, JPY 400 billion. Right side, the cash flow is explained. Second from the top, EBIT, plus JPY 402.3 billion year-on-year, JPY 586 billion, and EBITDA, the biggest chunk in cash flow on a year-on-year level, plus JPY 433.9 billion, JPY 1. 053 trillion. Now cash flow from operating activities, they're ins and outs. So it says JPY 500 billion, a slight decline on a year-on-year basis. And what I would like you to look at here is JPY 400 billion is the forecast for operating income and the net income is JPY 300 billion. So JPY 400 billion and JPY 300 billion. These are the 2 numbers we are announcing this time. Next Page 14, please. So 5 sectors and listed subsidiaries shown on this page. So 5 sectors, left side. Adjusted operating income, JPY 375 billion, down by JPY 161.7 billion. Adjusted operating income ratio of 5.8%. And right side listed subsidiaries JPY 25 billion in adjusted operating income, that's negative JPY 100.1 billion, and adjusted operating income ratio of 1.7%. Total adjusted operating income is JPY 400 billion and adjusted operating income ratio of 5.0%. This is our forecast. And next is Page 15. So like we did in the first half, this is the waterfall chart from fiscal year '19 to fiscal year '20 forecast. Revenue on the top and adjusted operating income in the bottom half. So revenues JPY 8.767 trillion, down to JPY 7.940 trillion. And you can see the items, Divestiture of Hitachi Chemicals, Power Grid, positive impact, foreign exchange and others. This is where metals and construction machinery negatives are included. So our forecast is JPY 7.940 trillion. And bottom half is adjusted operating income. Similar trend. Last year, JPY 661.8 billion will go down to JPY 400 billion. In others, 180 -- JPY 198 billion. So like we saw in the first half, the business scale is declining due to COVID-19, and the sales price is declining and the depreciation of fixed assets are included. And we net that with the cost reduction. So that's minus JPY 198 billion. So the forecast is JPY 400 billion. Page 16, please. And this is -- we're disclosing this for the first time. So the JPY 400 billion adjusted operating income to net income attributable to Hitachi Limited shareholders of JPY 300 billion. So adjusted operating income, JPY 400 billion. And to the right, Hitachi Chemical and diagnostic imaging-related business are positive factors. And then the onetime loss of investment accounted for using the equity method. This is the impairment loss of Hitachi capital stock. And Hitachi Metals impairment and business structural reform and EBITDA -- EBIT. That's JPY 586 billion. Income taxes and net income, JPY 300 billion. And the remainder are appendix. So I would like you to look at this and touch on this during Q&A, but just a few points. Page 18, please. IT. Center part, adjusted operating income. There are 2 graphs. Left side is the first half comparison with the previous year, and the right 1 is the comparison on a full year basis. In the circle, you can see the operating profit ratio, 11%. Next, Energy. Page 19. So again, in the center part, adjusted operating income. FY '20 minus JPY 76.4 billion. This is after ABB Power Grid, structural reform and PPA amortization, those are included. Please skip industry and move to Page 21, mobility. In the center, the adjusted operating income, the dark gray, this is the building elevator related. Right graph, elevator is strong, JPY 60 billion. And next page is Page 22, Smart Life. Again, in the center, adjusted operating income. On the right side, fiscal year '19 and fiscal year '20, the light gray, JPY 30.1 billion and JPY 22 billion, these are AMS, AMS the automotive industry is now in a difficult position. This year, the profit will go down to JPY 22 billion. And next page, is Hitachi Construction Machinery, which announced its results yesterday. Adjusted operating income in the middle, JPY 39 billion, margin, 51 -- 5.1%. Page 24, please. Hitachi Metals. This was hit hard by COVID-19. So adjusted operating income, minus JPY 14 billion and minus 1.9% margin. Page 25 and Page 26 are the numbers by segment. Page 26, please. The bottom part, total. This is the summary of what I talked about. Revenues. Fiscal year 2020 forecast is shaded in gray. Forecast JPY 7.940 trillion, adjusted operating income, JPY 400 billion and operating income ratio, 5%. This is the target that we will strive to achieve in the second half. Page 27, please. Just for your reference, revenues by market. On the clock-wise manner, North America, Europe, China, Japan, ASEAN and India and others. China is to note. So comparing the first half, revenue is up by 7%. China was where COVID occurred, but now their situation is recovering strongly, and it's evident from this graph. Upper left, North America is minus 16%, Europe, minus 8%, so they are still in a difficult situation. Lower right, Japan, minus 14%. ASEAN and India are also impacted severely, minus 21%. This is the situation of the overseas markets. Now at the bottom, you can see overseas revenue, JPY 1.926 trillion, close to JPY 2 trillion. Total is JPY 3.8 trillion. So overseas revenues now exceeds half, 51%. In the last announcement, it was less than 50%. So now overseas revenues account for more than half. Lastly, Page 28, balance sheet and cash flow just very briefly. Upper half is the balance sheet. Total assets as of the end of last year, it was JPY 9.93 trillion. As of the end of the second quarter, it exceeded JPY 10 trillion, JPY 10.6 trillion. The majority of this is ABB Power Grids acquisition. And then 2 lines down. Total liabilities, JPY 7 trillion. And on the right side, you can see plus JPY 1.379 trillion. This is ABB Power Grid acquisition because the acquisition was done by debt. So it is that much higher. And because of that, on the lower half, DE ratio, it was 0.35x and now up to 0.7x but this is within expectation. Our target is to go back to 0.5x in the next year or the year after that. 0.7x seems high temporarily, but ABB Power Grids was acquired using debt. So this was a planned action within expectation. And total Hitachi Limited shareholders' equity ratio because asset increased, this decreased to 27.5%. We think the appropriate level is 30%, so in a year or 2, we will return to 30%. And the cash conversion cycle, CCC, 79.9 days, up 5.7 days. This was due to the Power Grid inclusion. The cash cycle is a little different with the power grid. So that is the reason. That concludes my explanation. Thank you very much.

[Interpreted] [Operator Instructions] First question, please.

[Interpreted] I hope you can hear me. I have 3 questions. First question. Regarding the 5 sectors. In the second quarter, for 3 months, what is the growth of the orders received? Especially in -- I'd like to know for all 5 sectors, but in mobility, elevator I think the increase was rather limited. So what is the outlook in terms of orders? That's my first question.

[Interpreted] Kato will respond.

[Interpreted] For the second quarter for 3 months, let me give you the overall picture. For the first half, foreign exchange as well as the reorganization impact has been excluded. So it's adjusted. Hitachi consolidated basis is 87% increase in orders received year-on-year. If you look at the second quarter, it's 94%. Furthermore, regarding the buildings, that's one, 10% first half and one, 9% in the second quarter. So the trend is continuing between second quarter and first half. The Chinese business is very strong. That is driving growth.

[Interpreted] I would like to know for all the 5 sectors for the second quarter.

[Interpreted] Let me indicate. For the second overall, IT is 91%, energy is 40%. It does not Power Grid. Industry is on 10%. Mobility is 107% life Smart Life is 95%. So that is the actual for the 3 months in the second quarter.

[Interpreted] Question two, regarding the revision JPY 28 billion, you said that there was upside in terms of revenue, JPY 136.7 million. But what was the upside for the first half? So is the JPY 20 billion the adjustments only for the first half? And regarding corporate eliminations. And I think that the negative has gone much but if you look at the progress in the first half, I don't know why it will increase very much. Please elaborate.

[Interpreted] Now regarding plan, I mentioned JPY 130 billion. But -- or rather JPY 130 billion. When we announced in July for the first half, in terms of revenues, JPY 100 billion was the difference. That's -- and that's all 5 sectors. IT mainly and Smart Life and Mobility, these are 3 sectors related. In terms of profit, a JPY 25 billion was the upside for the first half. And listed subsidiaries is within expectations. So the upside is all 5 sectors, they all had upside. IT, Mobility and industry have improved.

[Interpreted] Third question. IT second quarter, for the 3 months, what is the evaluation? Especially for the fronter business, revenues seemed very strong. But you do not engage in PC business. So I think that might have had an impact. For public sector, you had major orders last year, which could have registered sales revenues this year. So minus 1.3% it's a very small negative number. And what about the quarter in fourth quarter? What is the outlook of the market? What is the image you have? What kind of numbers can you share with us?

[Interpreted] So this is Kawamura speaking. I'd like to respond regarding the IT situation, the outlook will be explained. There are 2 perspectives. As mentioned in the materials, structure reform has been implemented, the cost is managed very rigorously. So there is a backstop to generate profit. In terms of orders received, new markets have been achieved without deal. With the COVID-19, people are working from home. And also touchless, new applications that have come to the fore. We are developing new applications in these areas, which is making a significant contribution. So cost as well as in terms of orders received, we have strong support for the revenues. Now as we proceed to the second half, I believe that COVID-19 will still have an impact. So the similar situation is likely to continue. In terms of cost measures, we will continue. And if we are able to receive more orders, we don't -- it's very difficult to say how much but I think there will be further recovery. That's all.

[Interpreted] Question. IT minus 5% and second quarter is minus 9% in terms of orders. Compared to that, the second quarter seemed to be very strong in terms of revenues. Do you have any comment on that?

[Interpreted] Yes. It was strong. I don't have a specific detailed information with me. But I believe that profit was stronger than expected. That is the fact. Now let me also give further information. Last year, first quarter, there was a major order received. That's also having an impact for this year.

[Interpreted] Next question, please. Please unmute. Could you raise your hand again?

[Interpreted] I have 2 questions. As of today, it may be difficult for you to comment. But by taking in the 3 Honda-related affiliates, the balance sheet in your explanation earlier, the ratio of 0.7x in the current debt size. So by taking in the 3 companies towards the end of the year, I think it will come down. So what is your forecast? If you could share something today, free cash flow, core free cash flow, full year forecast. Is it possible here to comment on that?

[Interpreted] Yes. So the Honda parts companies, 3 companies, impact on the balance sheet. We are still scrutinizing still before the integration. So we have not been able to confirm the accurate numbers. So I cannot comment on that today. I am sorry, but I hope you could understand.

[Interpreted] What about cash flow? So based on the assumption that it will not be taken in. The full year free cash flow, if you could have -- give us a forecast.

[Interpreted] Core cash flow at the beginning of the year, core free cash flow, JPY 100 billion was shown. For the first half on a year-on-year basis, cash flow is a bigger focus than before. So it is improving compared to the previous year. But in the second half, we still have some unforeseeable situation. So we want to exceed JPY 100 billion. But right now, we -- our forecast is JPY 100 billion.

[Interpreted] If you could share with us your dividend policy, you increased to JPY 50. So once again, your full year forecast or some hints, if you could? So your thinking behind dividend this time, please?

[Interpreted] So JPY 50 is the interim dividend. And we decide this on this every 6 months. Last year, the year-end dividend was JPY 50, and so this is a similar level and we decided on the first half dividend at that level. We are focusing on the economic rationality and decided on JPY 50 and continuity. Just this moment, the operating profit will be down year-on-year. But in terms of the profit that can be used for dividend is still high. So we decided that we can go with JPY 50 dividend. Towards the second half, if our performance improves, then the cash flow from operating activities will recover. So that's why we decided on JPY 50 dividend. Now our dividend for the second half, we have not studied yet. It will be decided based on our financial performance, so we cannot talk about the dividend for the second half, but we want to return to our shareholders in the long term. So looking at the profit that can be used for dividend and cash flow and decide on a comprehensive basis.

[Interpreted] Next question, please. Please mute and ask your question.

[Interpreted] Can you hear me?

[Interpreted] But we can hear you.

[Interpreted] I have 3 questions. Regarding the balance sheet, the DE ratio of 0.5%. What time will be required to go back to 0.5%? Is it going to be within 1 year? So what is the time frame you would like to go back to that level, 0.5x? Now in terms of SG&A, first quarter of JPY 50 billion, JPY 60 billion but ABB impact is how much? Should be upward apple basis. So please let me confirm the substance of this. Third is AMS. Second quarter, it's lacking towards the second half, there is a strong return. What is going to be the impact of the second half?

[Interpreted] Your voice was breaking up, we were not be able to clearly understood what your sense, let us confirm. You were breaking up. So I don't know if I can respond appropriately, but I shall try. Regarding the debt equity ratio, next year, this time, whether we will be below 0.5x or not will depend on the cash flow. At that time, it will be significantly impacted. And if we can finance that means that we will be able to reduce that to 0.5x level. But for the time being, it is uncertain of what is going to happen going forward. So whether we can do this in 1 year or not, the responsibility that will not be able to do that. For the time being, we would like to revert back to 0.5x within 1 or 2 years. That's the best response I can give. SG&A. Kato will respond to that.

[Interpreted] I'm sorry, you were breaking up so much that we were not clear regarding your question. Regarding SG&A, compared to last year, if you look at the first half comparison, in terms of ratio, 92%. So that means that a decline of 8%. Overall revenues, 10% decline, so the fixed cost is what we are focused on. Now because we are working from home, remote work is prevalent. Now the cost is declining and revenue decline we hope that this is not going to reflect directly to profit decline. We are managing this process. Now regarding AMS, the third question was about AMS, I believe. Yoshihiko will respond to that.

[Interpreted] Now regarding second quarter, in terms of revenues, was very strong. Electrification motor inverter was very strong and chassis the company was acquired in 2019. There is impact of this acquisition. In terms of sales, revenues in China, there was a recovery. And therefore, these are the positive factors. What is important here is that for the market overall, because of the impact of COVID-19, it is a difficult situation. But looking at the first half market overall, AMS is outperforming. It's about 4% to 6% Japan to overseas. In the overseas market, IHS Automotive market data is disclosed and global is around -- has declined by 20%. AMS is at the decline of only single-digit because of the portfolio improvement as well as adjusted company acquisition has contributed. We have being more selective. And we have to watch this situation very carefully toward the second half. But we believe that if it are to recover, and if that is the case, our strategy should prove to be positive as well. That is our expectation.

[Interpreted] Next we will take questions from the English channel. [Operator Instructions] We do not see any questions, so we will come back to the Japanese channel. [Operator Instructions]

[Interpreted] So I could not have the proper voice just earlier. So ABB Power Grid is my question. Looking at the detail, stand-alone, 6% margin, it says. So original plan was close to 10%. But due to COVID-19 impact, I think it's lower than that. So it is lower than the expectation. Do you think it's lower than your expectation? Or how do you see this?

[Interpreted] Kawamura would like to respond.

This ABB acquisition was in July. And the plan that we made that then and the current plan has not changed at all. So the numbers are as expected. On a stand-alone basis, operating profit ratio is 6.3%, and this number has not changed. So we have not seen any big changes in the circumstances. EBITDA, the biggest cash chunk is JPY 36.2 billion. So no change there either.

[Interpreted] Building system, China business is strong, you said. Generally speaking, China in the new building, the lower price is the trend. So the sales price, I think, is difficult. But your profitability is improving. ASP is declining, but you're successfully reducing the cost to secure profit. Is that the right understanding? Or are there any other movements or factors?

You're right. Sales price due to competition is declining and we are increasing volume zone products, so the average price is declining. On the other hand, cost reduction is pursued very aggressively. So thanks to that, the profit is increasing, and profit margin is increasing.

[Interpreted] My third question is industry. In the industry and distribution BU, the solution business is strong. You mentioned. Could you elaborate on this one? So SAP, is this business for SAP? So in the migration to cloud, the industry side may have this new demand. So this demand is now revealing, emerging or this is a positive factor due to COVID-19.

[Interpreted] Yoshihiko would like to respond.

[Interpreted] You're right. SAP-related business is trending strongly. In addition, GRA, the acquisition impact is 3 digits sizable positive impact. So those 2 are the positive factors.

[Interpreted] SAP business will increase going forward do you think?

[Interpreted] We think it will continue into the second half but the second wave may come, and there are still some unforeseeable circumstances in the second half. So we will focus on capturing orders and monetize our business deals.

[Interpreted] My last question is, so the customers in SAP that are in the industry and distribution BU are large customers. So S/4HANA, the customers that have migrated to S/4HANA, how what is the proportion? If you have a rough breakdown or numbers, please?

[Interpreted] We would like to refrain from giving that detail. I hope you could understand. Thank you.

[Interpreted] [Operator Instructions] to bring the web conference of Hitachi Limited for Fiscal Year 2020 Second Quarter Earnings meeting for institutional investors and financial analysts to close. Thank you very much for your attendance today. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]