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

Ladies and gentlemen, thank you very much for your participation in Hitachi Investor Day today. Today, first, I, Kojima, will deliver an overall presentation, followed by 3 Executive Vice Presidents presentations on their respective areas of responsibility, namely Green, Connective and Digital. Then a CFO session, where management metrics or numbers will be discussed by CFO, Kawamura. Lastly, there will be a Q&A session for all the speakers participating. So I hope you will bear with us until the very end of the program. As Hitachi shifts its management mode from one focused on structural reform, which continued for a decade, to a sustainable growth mode, I believe that there are 4 important points if we are to achieve growth. First, our governance needs to evolve and progress. And second, to continuously strengthen our business portfolio. Third, to innovate technologies and business models continuously. Fourth, to make continuous and unstinting efforts to enhance Hitachi's corporate value. I am making remarks as CEO. These are CEO remarks. So I will address each of the points in this order and share my thoughts with you. First, on Evolving Governance. We are proud of having global top-tier talents on our board. In fact, strong members of our Board, together with the transparent and effective governance structure, has played a major role in pushing for Hitachi's structural reform. It is essential that we maintain and develop the capabilities of our Board as we shift to a growth mode going forward. Hitachi gained many excellent global talents through the acquisitions of ABB's Power Grid business and GlobalLogic. To get the best out of these talents, diversity, equity and inclusion are quite critical. Thus, we are focusing very much on DEI. Having growth-oriented mindset and transforming culture are also very important, and we are therefore introducing and implementing compensation structures to support this as well. Strengthening our business portfolio is crucial to accelerate growth. So it is what we will continue to work on. My basic thinking on business segmentation is to match the segments with the technology trends that are driving the market to grow so that abundant growth can be captured. I will provide further details on this later. We will also look to maximize synergies by integrating the global assets gained through M&A while engaging in bolt-on type of investments continuously to further bolster each of these acquired assets to make Hitachi even stronger. On top of that, we will regularly restructure low profit-making assets to increase the efficiencies of our investment for growth. This slide shows the thinking behind Hitachi's 3 business segments as to how they are segmented. The 3 major trends of Green, Digital and Connective are the areas where huge amounts of funds are flowing in on a global basis that would bring about substantial growth opportunities for Hitachi. Our basic concept is to group Hitachi's assets so that they match each of these trends with the highest affinity in terms of forming our business segments. Specifically, the business segments are, first, the green energy and mobility sector, a group where green energy and mobility assets are grouped. And second, this is all systems and services sector, which is for digital systems and services. And lastly, the connective industries sector for the connective industries. So these are our business segments that we have formed. Not only will these segments be able to generate synergies within themselves because they are aligned with matching the trends and their growth drivers, these 3 segments of Green, Digital and Connective are closely interconnected with each other. So we can expect cost sectorial synergies to be created as well. The assets we have acquired through M&A were gained for the purpose of strengthening the capabilities of each sector to be able to ride the waves of these strengths, ride the waves of these trends. Next, on innovative technologies and business models and how to build strength in our social innovation business that only Hitachi can offer, which is the theme I am pursuing. So let me talk from that perspective in terms of innovation of technologies and business models. The main business concept for Hitachi's Social Innovation business is to co-create with our customers. By combining Hitachi's broad range of IT, OT and products, we create solutions that are more attractive than our peers. For that, Lumada's framework for customer co-creation and the mechanisms to underpin that become quite important. To be ahead of others, we must understand customers' challenges faster and earlier. For this, we leverage our corporate R&D functions based on a backcasting approach and our investments into startups so that we can prepare for the next Lumada solutions to come. And allow me to explain this one by one. Under Lumada's customer co-creation framework, as I have explained several times, we start from challenges faced by our customers. We build solutions for them, leveraging our IT, OT and products from each of Hitachi's business sectors we cover, deploy, operate and maintain these solutions. This cycle is implemented using data and technologies and the solutions gained are reused and recycled. This is a schematic diagram about EDP's responsibility for each of the sectors will provide the details, including customer case examples and how this framework actually works later. For Hitachi to establish a competitive edge with Lumada's business framework, it is imperative that Hitachi's multiple business units involved with these IT, OT and products to collaborate smoothly with each other. In other words, they need to move as One Hitachi. To demonstrate the best of One Hitachi's customer co-creation capabilities, we have set up strategic functions that can be applied across different sectors, such as global marketing and sales, which manages co-creation accounts; Hitachi Digital, which develops common solutions for Lumada. We incorporate to support internal and customer efforts for decarbonization and corporate R&D to develop enabling technologies amongst others. Concrete customer co-creation initiatives begin from the regions. So the leader of the region as representative of One Hitachi needs to demonstrate a strong presence in that particular region and the common functions that support the business sectors are indispensable for the success of Hitachi's co-creation with our customers. That is why we are assigning very strong, diverse and well experienced business leaders for this. As I mentioned earlier, another way for Hitachi to differentiate is to understand and address customer challenges faster than others. One way to do this is to utilize our corporate R&D function based on a backcasting approach. How will society change next? What kind of co-creation with customers is possible there? And what business is a customer going to target? In which kind of market and which Lumada solution should Hitachi be offering for that? We backcast from these questions based on scenarios to develop technologies together with advanced business institutes with whom we have partnered. Another activity, which is important to capture customer challenges is Hitachi Ventures investments into start-ups. The purpose of this is to search for, invest in and to collaborate with start-up companies. And by so doing, improve our sensitivity towards advanced technology and new business models so that they can be used for generating the next Lumada solution. Experiencing hands on the entrepreneurial spirit, powerful motivation for growth and a sense of speed required from these benches is very effective in inspiring a growth mindset among the younger generation of excellent talents that we have. Since this endeavor began in 2019, a total of $300 billion has been invested in start-ups and 71 collaborations with different sectors born. The focus of foundry's setup in this past April is to invest in digital areas, including Web 3 and generative AI. Last but not least, on increasing our corporate value. Hitachi, in our MMP 2021, declared that we will increase our corporate value by creating economic, environmental and social value in our Social Innovation business. Under MMP 2024, following this, we are aiming to raise the ratio of Lumada business as part of our efforts to create economic value and by so doing, grow Hitachi's EPS and CFPS. In creating environmental value to help reduce CO2 emissions by 100 million tonnes per year, mainly from the green energy and mobility sector. To build social value, we will contribute to planetary boundary and well-being under our slogan of POWERING GOOD for business activities. So these are the aims we will strive to achieve. This slide is the same as the one I used to explain the progress of MMP '24 that was included in the earnings briefing the other day. To grow top line by capturing the tailwind of GX/DX to raise profitability by expanding the ratio of Lumada business, stabilizing the bottom line and strengthening cash generating capability. This chain of KPIs is to be translated into growing EPS and CFPS. And this is what I have in mind in a nutshell to increase economic value under MMP '24. Because the slide shows it concisely, I am using this slide once again. And this will be explained further again in CFO Kawamura's session later. As I described, we will develop governance further, continue with our efforts to strengthen our business portfolio, innovate our technologies and business models, which we believe will enable us to establish a competitive edge and achieve increased corporate value. By implementing this cycle, we will achieve sustainable growth of our Social Innovation business. So stay tuned for Hitachi's future, now that we have entered a sustainable growth mode, much more is to be had going forward. In today's Hitachi Investor Day, we structured the program so that the audience will be able to see how One Hitachi works to achieve sustainable growth. During the Q&A session toward the end, I and the 4 EVPs will take part to respond to your questions. I hope you feel Hitachi as One or One Hitachi more so than ever in the following presentations. That concludes my presentation. Next is EVP Tokunaga's presentation on Hitachi's digital strategy. Thank you very much for your attention.

Good afternoon and good day to all of you. My name is Tokunaga. Thank you very much for your time today. Today, I would like to explain Hitachi's digital strategy. To begin with, I will introduce the vision of the DSS sector, which is Hitachi's core digital business entity. The DSS sector will provide digital value by combining the strength of its 3 business groups, from business, IT services, and services and platforms. And we will collaborate with green energy and mobility and the connective industries sectors to provide unique solutions to the management and social issues faced by our customers, thereby contributing to the realization of a sustainable society. This summarizes what I would like to tell you today in 3 parts. The first is the continuous growth of GlobalLogic, the growth engine of digital business. Second, to expand synergies of One Hitachi, utilizing Hitachi Digital as a hub. The third is to increase the profitability of core business by shifting to the service business model and utilizing digital technologies. By executing these key digital strategies, we will drive the growth of Lumada business throughout Hitachi. Let me begin by explaining the Digital Strategy in the Midterm Management Plan 2024. Under the Midterm Management Plan 2024, DSS sector is working to improve the profitability of the Hitachi Group by growing the Lumada business and making our core businesses highly profitable. First of all, let me touch upon the growth of Lumada business. This slide shows the growth model of the Lumada business, which uses 2 models to grow. First, digital-centric in which the DSS sector directly solve customer's issues and One Hitachi model in which DSS together with GEM and CI sectors solve customers' issues. So these are the 2 wheels of a vehicle, so to speak. And this slide shows the size and the growth potential of the markets targeted by the Lumada business. We focus upon domains where Hitachi can maximize its IT, OT and product advantages. Here, you see 6 focus domains from energy through manufacturing on this slide. So these are where we apply the 2 models I mentioned earlier, which is the digital centric and One Hitachi model. Now I will explain the growth strategy with digital centric model and One Hitachi model, respectively, by showing specific customer use cases. First of all, digital-centric model. Under the digital-centric model, the digital capabilities of the DSS sector's business units and the group companies are combined. And starting from digital engineering, as we will provide end-to-end services from digital engineering to system integration and manage the services with the aim of solving issues faced by customers and society, we will provide value that contributes to the growth of our customers' business not only by reducing costs and improving efficiencies, but also by transforming their business models and improving the customer experience for their customers. The most important point of the digital-centric growth strategy is the sustainable growth of GlobalLogic, which is a setting point for providing value to the customers. As shown on this graph, GlobalLogic has maintained high growth and profitability. This is because we have been strengthening digital talents by leveraging GlobalLogic's proven methodology and expand our footprint through a combination of bolt-on acquisitions, similar to those we acquired last year with Fortech in Romania and Hexacta in Latin America. We will also expand our geographic and the business areas on the strengths of our skills and knowledge to improve the customer experience of our customers' businesses and the products. For example, in Japan, we established GlobalLogic Japan in April last year and are expanding the co-creation with our customers using Lumada Innovation Hub Tokyo, which is the venue for today's event. In the last fiscal year, as many as 15,000 customers visited LIHT or Lumada Innovation Hub Tokyo, and 75 co-creation cases were carried out. Another important measure in digital-centric growth strategy is the enhancement of cloud-managed services. As customers continue to shift their business systems to cloud, they face important challenges to enhance the efficiency of cloud system operation. We opened the Hitachi Application Reliability Centers, or HARC, in Hyderabad, India in June and also in Dallas in September last year to provide highly reliable and efficient cloud-based managed services. In its first year of operation, HARC has already been used by more than 20 major global companies and is scheduled to open another center in Tokyo this month. With the global expansion of cloud managed services, we will expand the Lumada business by providing one stop services from design to implementation and operation of customers' cloud systems. Now I will introduce the actual customer cases of digital-centric model. This is an example of enhancing the customer experience through the design of the self-ordering system. From a user's point of view for McDonald's, the world's largest food chain, this is a large-scale project to offer new ordering experience to 68 million users worldwide. GlobalLogic's strategic design department method thoroughly investigated customer behavior from news realization, order placement, pickup and the final consumption to realize a personalized and optimized ordering experience for each individual consumer. Next is the case showing how we helped realize the business model transformation of the world's leading multinational company producing and selling tools. GlobalLogic acted as the client's strategic DX partner and transformed the clients' revenue model from a product sales focus to a subscription model. In addition, GlobalLogic's chip to cloud capability enabled the development of software that connects the equipment to the cloud and contributed to the creation of new revenue streams for the customers' business such as a tool management service that utilizes the collected data. Next is the case of co-creation with Stellantis, a global automotive company. Stellantis and GlobalLogic jointly established a dedicated facility to develop a software platform for SDV or software-defined vehicle. And more than 100 digital engineers from GlobalLogic were dispatched through this facility. GlobalLogic's domain knowledge in the automotive field cultivated through its support of many automakers is combined with digital technology to support the realization of next-generation SDV with Stellantis. Finally, this is the case of co-creation with Raiffeisen Bank International, a major European financial institution, which is undergoing a large-scale modernization project. HARC has been selected for this project to facilitate the migration of their business applications to the cloud. They have already migrated more than 100 applications and plan to migrate more than 300 more over the next 2 years. HARC will contribute to our customers' modernization by shortening application delivery cycles and reducing operational costs through the automation of cloud operations. Now I will introduce the comments received from the customer, Raiffeisen Bank. So please take a look at the video. [Presentation]

Next, I will explain our growth strategy through One Hitachi approach. Under the One Hitachi model, we aim to solve issues faced by customers and the society by combining the OT and products of GEM and the CI sectors, with the digital capabilities of the DSS sector. Through GlobalLogic's digital engineering, we will add value to the products of the GEM and CI sectors and strengthen the market competitiveness of the products. The growth of the Lumada business under One Hitachi will be driven globally by Hitachi Digital, which was established in April last year. Hitachi Digital serves as a hub combining global footprints of Hitachi Energy and Hitachi Rail with DSS sector's global business assets to provide the value to the customers. More specifically, Hitachi Digital has established a Decision and Advisory Board with participation from leaders of all sectors and is promoting the formulation and execution of Lumada business strategies under the One Hitachi concept. To further accelerate this effort, GlobalLogic, Hitachi Vantara and the group companies in the DSS sector will be integrated under the leadership of Hitachi Digital to continue strengthening global service delivery. The key to expanding Lumada business in One Hitachi is the utilization of digital capabilities in OT field. GlobalLogic has a proven co-creation scheme called Lab Model. Lab is set up at the customer's site and the dedicated digital engineers are assigned to accurately understand the customers' management issues and quickly solve them. The Lab Model is a collaborative creation scheme that has been used with -- by more than 100 customers over the past 15 years. By expanding the scheme to GEM and the CI sectors, we will strengthen our digital strategy in the OT sector and provide One Hitachi value to our customers. Already, about 500 GlobalLogic engineers are working together with Hitachi Energy and Hitachi Rail and other companies, and we plan to expand this number to over 1,000 engineers by fiscal 2024 with further deployment of the Lab Model. To offer the value of One Hitachi globally, we are also strengthening our service delivery infrastructure through alliance with the external partners. As customers shift their business systems to cloud, there is a growing need for a hybrid cloud that combines the high reliability of on-premise systems with the flexibility of a public cloud. Hitachi has been providing the hybrid cloud solution called EverFlex from Hitachi since October 2021, and many customers have already used it. Hitachi will further strengthen this solution through alliances with partners such as Equinix and AWS and accelerate global expansion to enhance the delivery of the Lumada business as One Hitachi. Now I will show you some specific examples and the cases of -- on Hitachi. This slide shows a collaborative co-creation with a major U.S. energy company for which GlobalLogic helped develop a grand design for a company-wide DX. We supported the development and execution of a DX strategy that expands the entire energy value chain from operational optimization of power generation, transmission and the distribution to UX improvement of the services for users. Going forward, Hitachi Energy's domain knowledge and global footprint in the energy field will be combined with GlobalLogic's design and the digital engineering capabilities to scale the results of this project to other regions and the businesses. Next is the case of Hitachi's large-scale rolling stock manufacturing plant in Mainland U.S. for Washington Metro by One Hitachi. This plant aims to be a people and environment conscious state-of-the-art digital factory and is working to achieve a sustainable manufacturing environment by applying cutting edge digital technologies such as AI and IoT throughout the entire value chain. We will use the result of this One Hitachi initiative as a showcase to expand our business to customers in the global manufacturing industry. Lastly, here is a case of co-creation with Sekisui Chemical. Lumada has a track record in providing solutions that support material development and R&D, including material informatics to more than 50 companies and more than 100 projects. With Sekisui Chemical, we are working on laboratory automation to speed up materials development by automating the experimental environment, utilizing Hitachi High-Tech's expertise as a measurement device manufacturer and GlobalLogic's digital engineering capabilities. We aim to shorten R&D time by seamlessly linking the experimental and the measurement equipment used in materials development with the analysis environment to automate everything from data collection to analysis. Please watch the video message from Sekisui Chemical. [Presentation]

Next, I will explain how to improve profitability of our core businesses. In the core businesses that form the business foundation of the DSS sector, such as mission-critical system development and operation services and product business, we will continue to generate a stable revenue and profit by capturing customers' needs for system upgrades and modernization by leveraging our solid customer base and the technical capabilities to handle large-scale and highly complex projects. In the DSS sector, we have worked to improve profitability in our core business areas through our 2 mid-term management plans for 2018 and 2021. In the mid-term management plan 2024, we will further improve profitability in our core businesses by capturing shifting trends towards services and the advances in digital technology. Specifically, in addition to aggressively shifting to a service-oriented recurring revenue model, we will strengthen the application of digital technologies such as low code, no code, and AI in the system development process to further improve profitability, an area that we will put a particular focus on is the use of generative AI. Last month, we announced the establishment of the generative AI center, a new organization to promote the use of generative AI. Since the announcement, we have received many inquiries from a large number of customers. This center will play a central role in promoting labor savings and automation in all Hitachi operations. And it will also support the safe and secure use of AI in customer operations. Furthermore, we will promote rapid solutions to customers' business challenges by leveraging the strength of Hitachi's unique large-scale language models that have learned from OT domain knowledge Hitachi has cultivated. Here is today's summary. DSS sector as Hitachi's core digital entity will implement the digital strategy I explained today and drive the growth of Hitachi's Lumada business. This concludes my presentation. Thank you very much for your kind attention. Next, to explain the green strategy, I would like to hand my microphone to Mr. Dormer. Mr. Dormer, over to you.

Thank you, Tokunaga-san, and good day to everybody. Apologies that I cannot be with you all in person today, but the technology is a great enabler for global companies to stay connected. Firstly, let me introduce myself. My name is Alistair Dormer, and I'm Executive Vice President for the Green Energy and Mobility sector. I moved back to Europe from Japan in 2022, where much of the new policies around green are being developed. The transition to green is perhaps the biggest change to society since the industrial revolution. And over the next 20 minutes, I will discuss how Hitachi is facing this enormous opportunity. Please turn to Page 1. In my presentation, I will talk about the huge market potential for Hitachi from a rapid increase in green market opportunities. Why Hitachi's portfolio is so well positioned to contribute, the progress we are making in our key businesses. And finally, a short video showing a few case studies to demonstrate our success. Please turn to Page 2. The green transition remains a critical global challenge, driving the transition to clean energy and the decarbonization of mobility and industry. This is being fueled by the enormous investments committed by both public and private sectors around the globe, such as the Inflation Reduction Act in the U.S. or REPowerEU funds in Europe, to name but 2. We group these opportunities into 3 pillars: high-growth areas, critical infrastructures and emerging opportunities. Each is linked to our solutions in the darker green boxes. On the right-hand side of the slide, you can see the strong growing trend of our order intake in both Power Grids and Rail. New orders were received at record levels in Power Grids in FY '22 and early indications are that FY '23 will be strong. Please turn to Page 3. The world will not solve the climate change crisis without new technology. This is why Hitachi is committing our best minds to develop new technologies that will drive the transition for future opportunities. This investment is more than JPY 0.8 trillion in research and development during our current midterm management plan. And a large portion of this investment is focused around our green business. In other words, green energy, green mobility and the digital enablers. Please turn to Page 4. Now by example, in the next few years, we see a big opportunity in the electrification of mobility. Electric vehicles are not only a more green means of transport, but in the future, will rapidly become a catalyst for carrying and storing energy as the factory on wheels. This could contribute to the stabilization of the grid with increasing renewables, further supported by second-life battery energy storage and energy management systems to expand the EV ecosystem to energy and industry. This is a great example of where the worlds of mobility, energy and digital combine and where Hitachi has unique insight. Please turn to Page 5. I've worked for Hitachi for over 20 years. And in recent years, the rate of change has accelerated like never before. This is evident by the systematic transformation of Hitachi's portfolio. As mentioned in Kojima-san's presentation, we have made major investments in green, starting with the acquisition of the Ansaldo companies, and followed by the huge investment in the Power Grids business from ABB whilst divesting noncore businesses and businesses with a less promising market outlook. The acquisition of GlobalLogic further accelerates our green strategy, materializing our DX x GX approach through embedded digital technologies. I will talk about Rail's proposed Thales' GTS acquisition in later slides. So let's move on to the green transition. Please turn to Page 7. Energy, mobility and digital were traditionally 3 different parts, each having its own world. Our vision is to connect these dots and create a green ecosystem where different elements in the society, such as transportation, power, industry and local communities are linked with green energy, green mobility enabled by digital technology. We believe that Hitachi is perfectly placed to help deliver this transition to a cleaner, brighter future. And I will explain why in the coming slides. Please turn to Page 8. Turning first to energy. The transition to clean energy requires massive investments in renewables, which all need connecting to the grid. As you can see from this slide, the great enabler is digital. From designing new systems with digital twins, to sophisticated energy management systems, connected products, all supported by digitally optimized service. Of course, Lumada technology employed to predict maintenance and reduce costs, is the same core platform used to predict maintenance for railways and elevators with shared learning. This is GX supported by DX action. Please turn to Page 9 Recently, Hitachi brought forward the acquisition of the remaining 20% of the ABB Power Grids business in order to accelerate integration into Hitachi and to invest further for capacity expansion. We have invested heavily to modernize the business over the last few years, which is targeted to be substantially complete by the end of FY '23. The order backlog has doubled since acquisition and its quality has improved through a prudent approach to risk and through business model transformation. We now have a very good mix of portfolio covering both short-term product delivery and the longer-term service offerings and new styles of framework contracts to further improve margins. Please turn to Page 10. Looking at the broader spectrum of carbon neutrality, we see big potential market for the decarbonization of industry, which we call carbon neutral as a service business. In other words, providing the capability to help businesses and industries decarbonize using Hitachi's know-how gained from our own experience and our technology and digital capability. We also see a huge potential market for small modular reactors. To face this market globally, we are in partnership with GE through our joint venture, GE Hitachi Nuclear Energy, who is the top runner in this field. GE Hitachi recently signed a technical collaboration agreement with partners in the United States, Canada and Poland and more together invest in the development of a standard design small modular reactor. The target is to develop a cost-effective standard product capable of deployment in multiple jurisdictions to enable more reliable, affordable and clean energy on the grid. Hitachi Power Solutions joined the green energy and mobility sector from this fiscal year and already started to build on its strong energy asset service network and capabilities in Japan. We are deploying and managing energy assets and digital technologies as a service to our own factories with plans to expand this service to our customers. Next, let's have a look at the mobility transition. Please turn to Page 11. As most of you are aware, Hitachi has historically been strong in what we call the social infrastructure business and mobility has always been one of the core pieces. We have grown our global rail business, both organically and through the successful integration of Ansaldo a few years ago. Now we look forward to completing the previously announced acquisition of Thales' GTS later this fiscal year to further strengthen our business. As with energy, Lumada plays a key role in our differentiation from deploying digital trains to prove and test rolling stock architecture, the development of advanced systems integration for advanced driver assistance through predictive maintenance platforms. We have been pioneers in the development of green railway technology, and our greener trains include hybrid battery trains in passenger operation. Finally, we have recently applied our digital capability and knowledge of public transportation to develop 360Pass. This is a downloadable application of providing ticketless multimodal travel experience in the city of Genova in Italy, the first step in smart city architecture. You will see some of these examples, together with the voices of our customers in a short video, which we'll play later in my presentation. Please turn to Page 12. After 4 years as CEO of Rail, Andrew Barr has moved to become President of Hitachi Europe. The next chapter of growth has been entrusted to Giuseppe Marino, a proven leader with a long experience in Rail. Giuseppe will oversee the transition of our rail business through the combination of Thales' Ground Transformation Systems to strengthen our business in rail control. We have gained approval from most authorities for the acquisition, and we are working hard with the remaining 2, namely the U.K. and the EU, to conclude an agreement in the coming months. Please turn to Page 13. I won't go into the details of this slide on the green industry transition as you will hear from Aoki-san in his presentation, but I just wanted to show you the 3 strategies you're going to hear today. Green, Digital and Connective are all aligned and interconnected as One Hitachi. Please turn to Page 14. I talked about Lumada in the context of energy and mobility and the progress we are making from digital twins to connected products to data-led service outcomes. It is a fact that the majority of revenue in energy and rail is hardware-related but our digital revenue is increasing, as you can see in the chart. In 2022, GlobalLogic established a digital laboratory in Power Grids to expand our energy Lumada business. This is a huge opportunity for GlobalLogic to develop new solutions for Power Grids, but also to access the wide and varied customer base, the green energy and mobility client base. I've mentioned the expansion of rail digital services and 360Pass in the previous slide. Next, let me show you some examples of our green successes. Please turn to Page 16. Digital is a great enabler for the green transformation. GlobalLogic is building capability in the energy and mobility domains through its proven methodology of business transformation, acceleration, co-creation and innovation. Below, you can see both external and internal collaboration examples, where you have just seen Tokunaga-san's presentation respectively from our major U.S. energy customer and a project for our new high-tech rail factory in Maryland in the United States, which will be building new metro cars for Washington, D.C. from next year. Please turn to Page 17. Now I'm going to show you a short video to walk you through 3 examples of our green successes in energy and mobility space enabled by digital. Please play the video. [Presentation]

So thank you for your attention, and let me leave you with a few key thoughts. The market is strong. The green light is on. Hitachi is strong in GX and equally strong in DX. We have an appropriate business portfolio and continue to invest in the technology needed for the future. In particular, we are confident that our investments in Power Grids, Rail and GlobalLogic see future strong growth in both top and bottom lines. Thank you very much for your attention. I would now like to hand over the floor to Aoki-san for his Connective Strategy.

Good day. My name is Aoki. I would like to talk about the Hitachi's Connective Strategy. First of all, I would like to show you a video in which I discussed with experts on the topic of the Connective Strategy. So please allow me to show this video. [Presentation]

As you just saw in the video, we aim to create a new value through connective. We shall not be complacent in our traditional product businesses. We shall not fear change. This was my strong feeling when we launched the connective industries. Based upon this thought, we made the purpose of connective industries, which is collecting data, value, industry and society. Connective industries bring together Hitachi's unrivaled products, connects knowledge and data and generate sustainable value, solutions that seamlessly link boundaries between management and workplace, one company and another and the people in the industry will transform industries and society. So these are key topics I'd like to cover today. There are 3 points. First of all, basic policy for connective strategy. Second, evolution and expansion of total seamless solution, TSS, which has been a big policy since fiscal 2019, strengthening of recurring business. And thirdly, acceleration of global growth. I will explain based upon this table of contents. First of all, let's take a look at the aim of connective strategy. We set planetary boundary and well-being as our target areas to achieve sustainable society. As shown in the area title the trends in each field, challenges related to carbon neutrality and the circular economy are getting increasingly more complex. It is getting more difficult to solve those issues by one field of expertise alone. Therefore, it is important to transcend the boundaries between the fields. Our basic policy is to bring together our strong products connect them digitally so that we can provide total seamless solution to issues that exist between different fields. Next page, and this slide shows trends in our focus markets and the growth strategy. We operate globally based on strong industry-leading products and we will expand the business by capturing the growth markets in each of the field. In industry field, investment in industrial DX and the automation is accelerating. The semiconductor market is expected to keep growing in the mid- to long term despite the recent leveling of in the health care field, the market for cutting-edge diagnostic and the treatment equipment is growing solidly. In urban field, the market for elevators and escalators is firm, and the market for smart buildings is expected to expand over the medium to long term. Now this shows the review of the previous growth strategies. In the growing markets, we have acquired assets for growth through M&A. In the period of Mid-term Management Plan 2018, we conducted structural reforms such as withdrawing from a low profit business and acquired Sullair to strengthen North American product business. In the period of MMP 2021, we acquired the JR Automation and made Hitachi High-Tech, a wholly owned subsidiary to lay the foundation of the total seamless solution. Now under the Mid-term Management Plan 2024, we have accelerated the development of the total seamless solution through acquisition of Flexware Intelisys in North America by aggressively investing in high-growth focus areas. This shows the basic policy of the connective strategy. We provide the total seamless solution that connects products, OT, IT to maximize customer value. Based on Lumada's customer co-creation framework, total seamless solution that has been cultivated in the industrial field will evolve and expand into the urban and health care fields. Based on the total seamless solution, our recurring business will be strengthened and the -- so the strategy that has been developed in the digital field, will be also deployed through the greenfield. This shows the differentiation strategy by total seamless solution. In social environment that's rapidly becoming more complex, we connect the workplaces with management. It will be more important to solve issues through domain SI where knowledge is gained through co-creation with customers, and we will do this at all layers. Other players tend to focus on part of the layers, but Hitachi connects all the layers between management and the workplace, and we promote differentiation by developing and evolving the total seamless solution. Next, let me talk about the business strategy of Connective. These are the 3 key focus actions in the connective strategy. I will explain one by one. First is the evolution and expansion of total seamless solution, TSS. Boundaries exist vertically between management and workplace and horizontally across the supply chain and also in a place where different industries gather. We will solve issues on the boundaries through collaborative creation with our customers by leveraging our strengths in the product, OT and IT. Green transformation also requires to solve issues on the boundaries vertically and horizontally. It will be important to provide a place as well where different sectors get connected. This slide shows the direction of expansion of total seamless solution with Lumada framework for co-creation with customers. We will accelerate the expansion of the total seamless solution that we have been providing in the industry field to a wide range of fields as well as into the green area. Through these efforts, we plan to increase Lumada sales at a CAGR of 28% towards fiscal 2024. These are the examples of initiatives for evolving total seamless solution from a digital perspective and also from a green perspective. And I'd like to explain by showing the following slides. This is the first one, a case of development and expansion of AI demand forecasting solution. Demand forecasting by AI optimizes order placement and reduces out-of-stock products and it also reduces the loss. It has also reduced the workload in that environment facing labor shortages. So it has brought about many results. We have a wealth of knowledge, a dedicated team and proprietary technology for planning and optimization with which we have supported customers such as Seiyu, Workman, Asahi Shokuhin and Yaoko. We realized the optimization responding to customers' business challenges. We will further expand this to other industries making it possible to contribute to their green initiatives. Next is the case of the transformation of logistics and delivery operations through AI and digital technology. Combining Hitachi's unique planning optimization technology and the knowledge of logistics operations, we can offer delivery optimization and operational safety management, which lead to operational transformation. This shows the example of delivery sharing between [indiscernible] and [indiscernible]. Through such an initiative, we can provide a platform which connects companies to bring about the large success. We would like to continue providing such places, connecting companies to enhance logistics efficiency, thereby contributing to green. The third case is an initiative in the health care field through advanced customer co-creation based on industry-leading products in diagnostic, therapeutic and regenerative medicine, OT solutions that have not been connected in the past will be integrated to support customers' operation. We will further develop this into the total seamless solution that spans the entire value chain using IT. By so doing, we will continue to improve patient QoL and reduce the burden of medical costs at the same time. The fourth case is an example of green initiatives. First is the carbon neutrality of the retail supply chain. Hitachi's strength in the control technology and products and the engineering capabilities that link those technologies have made it possible to achieve carbon neutrality in source and factories. We are conducting an environmentally friendly store POC or 7-Eleven in Japan, we provide portable battery tubes made from reused EV batteries, EMS and engineering services in one package. This POC confirmed the possibility to reduce CO2 emission by approximately 70% compared to fiscal year 2013 level. EMS is also scheduled to be delivered to the factory of Warabeya Nichiyo Foods company, a food service company supplying to 7-Eleven. We are aiming to promote carbon neutrality to the entire retail supply chain through co-creation with customers. The fifth case is the development of a solution to carbon neutrality based upon EVs. Based on our extensive power electronics technologies, we are developing EV chargers with high-voltage, high-speed and multi-point switching functions for buildings, shopping malls, condominiums, offices, factories and logistic centers. We also leverage our extensive product knowledge and diverse customer base to introduce V2X system that enhance building resilience and EV battery LCM solutions that take advantage of our diagnostic and analysis technologies, and we will expand our business to the entire EV value chain. Lastly, the sixth case is an initiative to realize hydrogen and ammonia supply chain. We have knowledge and technology cultivated through a diverse process experience with a wealth of global experience in the large-scale compressors, and we are expanding and upgrading our compressors for hydrogen and ammonia production in CCS CCUS as well. We will create solution for the construction of hydrogen supply chains as well, which are expected to become widespread in the future so that we will take a leadership in realizing carbon neutrality and hydrogen-based society. Next is the growth strategy for the recurring business. We will expand our recurring business by horizontally deploying and utilizing our expertise across the business units within the connective industries. We are strengthening the business foundation of connective industries by continuously providing value to our customers. Evolving from a product service provider to a deeper solution provider, we aim to expand sales in the recurring business. . The following slides illustrate specific examples. This is an example in the urban field. We integrate and strengthen advanced applications by gathering operational data and knowledge based on Japan's top class products and IoT maintenance services. Through these efforts, we are developing smart building solutions that cover the entire building to promote recurring services. Next case is in the health care sector. Starting with an industry-leading product, we created [indiscernible] planet, a platform for sharing laboratory information for optimization with customers and the partners for the optimization of the lab operation, and we are creating a recurring business with advanced solutions such as equipment predictive diagnostics and remote monitoring and deploying it horizontally across customers and regions. Next, I will explain the development for global growth. This is the regional breakdown of the sales revenue in Europe, Asia and North America. We will increase the global sales ratio from 47% in fiscal 2021 to 52% in fiscal 2024 with our focus markets as a core, particularly in North America, we aim to grow at the CAGR of 15% by strengthening forecast businesses, including investment, and next slide shows our main initiatives. In the manufacturing industry sector in North America, we will accelerate the development of total SIM solution by strengthening the fusion of the product, robotics, SI and the digital technologies on the platform established through M&A. Last fiscal year, we acquired Telesis Technologies, a marking system company to augment product layer, and acquired the Flexware Innovation, which has strengths in MES SCADA to strengthen our OT and IT layers. In the semiconductor field, we have created a system to deepen customer collaboration by establishing co-creation basis close to customers globally. We will expand digital co-creation with customers through semiconductor manufacturing and measurement equipment that generate a large volume of data. In the health care field, we will focus on the molecular diagnosis business and the development of particle therapy systems, mainly in North America. We will continue to expand our value in this field by digitally connecting diagnosis and treatment. Not many customers give us permission to disclose information in a meeting like this. Nonetheless, we were able to introduce many cases, and this is going to be the last one today. This is a case of a collaborative development of EV battery mass production line in North America. Lion Electric is a major manufacturer of EV school buses in North America. JR Automation with its advanced robotics SI technology was the main contractor for this project. for Lion Electric and developing prototype and mass production lines for EV batteries in parallel. Through collaborative creation of the 2 companies, JR Automation has developed a safe highly efficient and high-performance production line in a short period of time, we have received a comment from the customers, so please take a look at this video. [Presentation]

This is the summary for today. To reiterate, Lumada customer co-creation framework leads to evolution and expansion of total seamless solution, strengthening of the recurring business and acceleration of the global growth. By focusing upon these points, connective industries aim to be sustainable value creator that cocreates with customers. Thank you very much for your attention. Now I would like to hand over to Mr. Kawamura for his CFO session. Kawamura-san, over to you.

My name is Kawamura. I'm responsible for finance, accounting, investment, loans and risk management at Hitachi. We have heard from our CEO and the 3 EVPs for the respective strategies in the 3 segments. Qualitative information was given. And based on that, I would like to talk about MMP 2024. And toward the last year, what are we going to do? That's what I would like to focus on. Please have a look at Page 1 of the material. So this is what I would like to cover in my presentation. As I said, MMP 2024. In FY 2024, what we're going to do, that's the focus of my presentation. In FY 2023 targets already in April, when we made the earnings announcement for FY 2022, we already covered what we're going to do in FY 2023. So my focus today will be on the discussion of what we're going to do in FY '24. So MMP '24 targets and because we focus on cash, so the source of cash revenue, how can we maximize the revenue? So that's number one. And number two, increasing enterprise value, corporate value. What steps are we going to take? And number three, following the MMP discussions, specifically, what concrete steps to go through to meet the targets for 2024. So please have a look at Page 2. These are the financial figures for MMP 2024. Following the divestiture of Hitachi Astemo, what the numbers are going to be for the 3 business segments. That's what's reflected here. Astemo is not included in the second half, Hitachi Astemo is going to be deconsolidated. So on this slide, only 3 business segments are covered from left to right. FY '21 to '24, this is based on compound annual growth rate. Revenue growth of 5% to 7% is expected. And adjusted EBITDA, this is the lump of cash flow that we would like to gain, and we're targeting 12% adjusted EBITDA and ROIC, return on invested capital. Debt and equity weighted average times cost of capital compared to return, and we would like to achieve 10%. And if we hit double digit, we can call ourselves teen. And EPS growth. So net income divided by the number of shares, EPS growth of 10% to 14% based on CAGR between FY '21 through '24 and core cash flow for MMP '24. This is one of the most important metrics. And in a 3-year cumulative, we would like to achieve JPY 1.2 trillion. Now shareholder return specifically, we would like to pay a dividend incrementally in a stable fashion. And share buyback done in an annual fashion. With these 2, we would like to make shareholder returns of JPY 0.8 trillion to JPY 0.9 trillion. So if you compare the ratio of JPY 0.9 trillion to JPY 1.2 trillion, that's 65% to 69%. And please have a look at the next slide. This shows the financial figures by sector. On the far right, in the final year of MMP 2024, what are the numbers going to be? So to look at the 3 sectors total, first of all, there's digital systems and services and then comes green energy and mobility, lastly, connective industries. In this order, revenues and adjusted EBITDA margin is given. Please have a look at the first row. For the 3 sectors in total, FY '21 revenue was JPY 6.699 trillion. So adjusted EBITDA margin was 9.9%. In FY 2022, revenue JPY 7.638 trillion, margin of 9.5%. And this fiscal year's target is already announced. Revenue plan of JPY 7.84 trillion, margin of 10.2%. But in the final year of MMP '24 in FY 2024 and the baseline is FY '21, we would like to achieve CAGR of 5% to 7%. If 5% is achieved, JPY 7.8 trillion of revenue. If 7%, JPY 8.2 trillion, an adjusted EBITDA margin of 12%. Now if you could have a 2023 forecast digital systems and services, 12.6% green energy and mobility; 6.7% connective industries, 11.0%. These are the targets. Now compared to FY 2024 target, of course, revenue is going to grow, but adjusted EBITDA margin is to be improved. So 10.2% to 12% with 3 segments in total. DSS 12.6% to 14%. Green energy and mobility, from 6.7% to 9%. Connective Industries from 11% to 12%. So in terms of adjusted EBITDA margin in all sectors improvement is going to be seen. That's our plan. If you could please have a look at Page 4. So adjusted EBITDA source of cash flow is discussed. On the far left, FY 2022. In the middle of FY '23, on the far right, FY '24, the final year of MMP '24 and what trajectory are we going to achieve the number planned for FY '24. That's explained here. So please have a look at FY 2022. This excludes Astemo. So it starts with 7 -- rather, yes, JPY 7.248 trillion. Adjusted EBITDA, 9.5%. And to the right, with the one-off factor, JPY 60 billion minus is planned. Semiconductor procurement and steel plates procurement continues to be very difficult. And PMI cost, Hitachi Energy integration is still including PMI cost. So with the 2 combined, JPY 60 billion of cost. Lumada expansion, which I will discuss later. With Lumada's expansion and through organic growth, plus JPY 60 billion. And price as well as costs are even more strongly controlled to drive fixed costs down and in line with the inflation, we're asking the customers to pay higher. So price increase reflecting inflation. And so with that JPY 107 billion. ForEx impact and risks, minus JPY 32 billion. So adjusted EBITDA of JPY 800 billion in FY '23. Adjusted EBITDA margin of 10.2%, excluding Hitachi Astemo, to the right further onetime factors according to the current plan, what I talked about semiconductor sourcing environment will slightly improve, we're expecting, and PMI costs will be substantially down. And so absence of onetime factors, plus JPY 40 billion, and inorganic growth of JPY 20 billion. We're not thinking of having very large M&As, but opportunistically, we may consider M&A projects. And so if there's any inorganic growth will take JPY 20 billion and -- will add JPY 20 billion; in Lumada organic growth, JPY 90 billion; and price and cost control of JPY 50 billion. So adjusted EBITDA of JPY 1 trillion in FY 2024 that is planned. Adjusted EBITDA margin of 12%. So from JPY 800 billion to JPY 1 trillion. And if you added the pink boxes, that's JPY 200 billion. If you could please go to Page 5. So once again, you see the similar numbers here vertically. Revenues and also adjusted EBITDA, adjusted EBITDA margin as well as net income are shown here. On the right-hand side, you see fiscal 2022 and the targets for the MMP 2024. 2022, the revenue is 7.2 -- rather JPY 7.6 trillion. Adjusted EBITDA of JPY 0.7 trillion, 9.5% margin, and JPY 0.6 trillion for net income. And in parenthesis, you see JPY 0.3 trillion. And as you see in the footnote, in 2022, well -- and operating companies, listed companies were sold. There was some divestiture of the business. There were some -- on the what comes in and out from the accounting. We netted out those factors. So when it comes to the asset attributable to the stockholders, it's JPY 0.3 trillion. On the right-hand side, the revenues, JPY 8 trillion. Adjusted EBITDA, JPY 1 trillion. And the margin is 12%, which I mentioned earlier. And net income, JPY 0.6 trillion. So later, I will talk about the conversion rate. But the significant -- no impact of the significant acquisition or the divestiture. So what you can do is to compare JPY 0.3 trillion for '22 and JPY 0.6 trillion for '24. We hope to reduce the loss cost by risk management. I'm also be responsible for risk management of the company. So we have been very careful thinking about the risk as we decide on the investment opportunities. And also, the EPS, and which is -- or the rather net income divided by adjusted EBITDA, which is the conversion rate. shall be 50% to 60% and EPS of JPY 600 or higher. These are the targets. Please take a look at Page 6. So this shows the balance sheet for the MMP 2024. We are discussing on this. And on the left-hand side at the top, you see the current financial position and the balance sheet. Astemo is included here. So JPY 12.5 trillion total assets. On the right-hand side, liabilities, JPY 7.1 trillion, which includes interest-bearing debt of JPY 2.2 trillion. Net assets, JPY 5.3 trillion. Looking at the balance sheet, D/E ratio by is about 0.5x level. Now it's come down to the 0.41, but we are controlling this around the 0.5x. Net debt divided by EBITDA is the multiple of 1 to 2x. And currently, it is 1.6. So it fits into this range. Balance sheet is quite strong right now. So as I mentioned, if there is an opportunity of acquisition, then we can flexibly use the leverage to handle such opportunities. That's what we are thinking. And on the right-hand side of the slide, you see core free cash flow target, JPY 1.2 trillion in the MMP 2024, and you see some of the actions and the business growth, both organic and inorganic. The business growth is aimed at cost reduction and then risk management. Or rather, the hurdle rate -- internal hurdle rate for the investment project is being raised by the selective decision on the acquisition, the projects, we are taking a look at opportunities. And also, the receivables and the payables, working capital is increasing because of the pandemic. So we are trying to manage this in the normal and the acceptable level by managing the receivables, inventories and payables, so we are trying to manage the cash conversion cycle and also capital investment on the selection and the cost reduction and the enhancement of the cash generation. So these are what we are doing. So we are trying to strengthen cash generation capability. Conversion rate here refers to cash. So core free cash flow divided by net income shall be between 70% to 80%. And the core cash flow per share shall be JPY 500 or higher. Currently, it's about JPY 400, JPY 450 CFPS, and we'd like to raise this up to JPY 500 or more. Please go to the next page, Page 7. Here, you see some of the actions related to increasing the enterprise value. And currently, this is not in sequence. But at the same time, we are taking these 6 actions in parallel. So the one is top line growth. Today, the Executive Vice Presidents talked about the increase in the growth Lumada business growth and also the organic expansion by GX and DX and also sustainability, SDGs, social governance, environment. So through these efforts, we have tailwind in these areas, so we need to capture the demand here. And also, DX and GX focus in North America and Europe, bolt-on type acquisition is to be pursued. So bolt-on means not to -- on the result to the large-size the acquisition and try to divide or they are trying to manage them. But instead of doing that, the bolt-on type acquisition means much smaller, but the forecast small-sized acquisition activities, and this is what we are trying to look for. And the next is profitability increase even if the top line increases, it doesn't make sense if profitability is not increased. So the Hitachi Energy, for example, and ABB Power Grid business and GlobalLogic. So these were the large assets that we acquired. So we are trying to achieve the higher profitability based upon these life-sized assets. And also, we have some low profit assets on the portfolio, so we need to review them. And also, the labor productivity enhancement, standardization streamlining are what we are doing. And the bottom line stability is quite important as well. We have done the acquisition of the company, divestiture of the company. So there is a variability when it comes to the -- what comes under the operating profit down to net income. But this kind of the large changes is expected to be stabilized more. So what we are trying to do is to stabilize the bottom line to introduce the stringent investment decision and also minimize loss cost so that we can fully control the conversion rate all the way down to the net income. And the strengthening of the cash generation capability, portfolio enhancement, cost optimization, business growth, working capital reduction and selective capital expenditures, all these are needed to establish the enterprise value. And shareholder returns I mentioned a little bit earlier, but the cash generated shall be adequately allocated to growth investments and the shareholder return. At least consider the 50% of the core free cash flow and 50% of the net income. These are what we consider for the total shareholder returns. So as I mentioned, dividend -- stable dividend payout and the flexible agile actions related to share buyback. These are the both areas that we are looking at. And also, the talents and development as well as the nonfinancial value. For example, the CO2 emission and also the human capital development, DEI - diversity, equity, inclusion. We always pay attention to these important aspects as well. So please go to the next page, Page 8, which is the last page. Lumada is a driver of the growth and the revenue growth driver. But what is our plan about this Lumada business? Please take a look at the top part. Currently, 15% to 20%, that's what we expect from the revenue growth in Lumada business. At the bottom, you see the global DX market growth. There are different views. But generally, it is said that the market is expected to grow at the annual rate of 17%. So our target is within this range. And as you see at the bottom, on the left-hand side, back in fiscal '21, at the top, 6.7% is shown here. So this shows the total revenue. We have '22 and the forecast for '23 and the 2024 MMP target. The revenue is JPY 80 trillion and JPY 2.65 trillion is the Lumada portion among the total revenue. And the Lumada ratio is shown at the top and the 30% of the total revenue by Lumada. And towards the right-hand side, specific year, so the numbers are not shown here. But the 50% or even beyond 50%, maybe up to 70% to 80%, Lumada portion is expected to go up. And the profitability of Lumada business is higher than the other businesses. So the entire profitability of the total Hitachi will be higher with this. So this concludes my presentation. Thank you very much for your kind attention.

We would like to take a 10-minute break, which will be followed by a Q&A session. So please wait until the Q&A session starts. So 10-minute break. Thank you. [Break]

Ladies and gentlemen, thank you very much for waiting. At this moment, we would like to have a Q&A session. We will be taking questions from sell-side analysts participating in person and analysts who are participating online, we will be taking questions from both. Those of you participating in person, please raise your hand. And as of you online, please press the raise hand button on Zoom screen. We will call your name. And please ask up to only 2 questions per time. Please state your name and affiliation before stating your questions. Two questions at a time. Any questions at this moment. [indiscernible], please go ahead. .

My name is [indiscernible] Securities. I have 2 questions. Question number one. Especially in the Connective Industries presentation, digital and green you talked about One Hitachi, that's what you emphasized, which left a strong impression. So I have a question of Aoki-san. I do understand that you're moving as One Hitachi. But in terms of GlobalLogic, in the middle of your presentation, well, GlobalLogic is serving as a consultant, which I understand. And what role is being played by GlobalLogic to contribute to the connective industries business. What is the potential of GlobalLogic going forward? If you could answer that first. .

Yes. So the response to the first question. Thank you very much [indiscernible] for a very good question. So today, well, synergy creation with the GlobalLogic, I did not touch upon that aspect very much in my presentation. So first of all, industries, from a connective industry point of view, the GlobalLogic has the strength in the customer relations and also business model creation. These are where GlobalLogic is very strong from our point of view. So today, I mainly focus upon total seamless solution, which is from IT and the manufacturing area to the actual field of the manufacturing. That was my focus point in my presentation. But looking at the total picture of the connective, we would like to take advantage of the strengths of GlobalLogic, to be more specific. Our service model and also customer experience how to create the customer experience or the actual consulting capabilities the company has the method to do so. And we are deepening this. When it is formulated into the specific actions, we would like to introduce that to you. And that is the reason why it was not part of my presentation. So the GlobalLogic Japan current status that can be also explained by Tokunaga. Mr. Tokunaga-san?

Yes. So the both in Japan domestic and the overseas. There are some cases emerging on a global basis. Earlier, I mentioned a little bit on this point, but the Hitachi High-Tech equipment, we can collect the data from the equipment to realize enhancement of the manufacturing industry. These cases are emerging right now. I introduced the Sekisui Chemical's case. But the GlobalLogic has a chip to cloud capability, which is strong. So the product coming from a collective and the connective industries, we can get data, analyze them and the permit into the value. So this cycle has started to work and started to operate. And domestically, in Japan, Nojima is another case I can introduce. Already the store renovation and transformation. So to enhance the customer experience that has already been achieved. I cannot give you details. But already, more than 30 cases, we already received orders for more than 30 projects. So including connective and others. So GlobalLogic Japan is also building up its own portfolio of businesses.

Another question to Mr. Dormer. I hope I can ask in Japanese. So this is a question regarding Power Grid. So Power Grid order intake in 2021 and 2022, it was very strong. Y-o-Y, up 70%. And according to your presentation, so far, you've been receiving a good number of orders in FY 2023 as well. Over the medium to long term, the Power Grid business revenue growth what will the level be going forward vis-a-vis CapEx as well? So that's my second question about the Power Grid. What will the revenue levels be going forward and CapEx as well?

Thank you very much for a very good question. Well, firstly, let me say that in FY '22, it was an exceptional year for order intake. Our forecast for FY '23 excluded a number of large projects with strong prospects. This is because we were unsure about the timing. But if we look back to 2021 and 2022, then our 2023 estimate is on the right trajectory and is strong. In terms of the medium- to long-term prospects, I still believe they're very, very strong. At the moment, we have a very strong tailwind in terms of the investments that is made to transition the power sector from fossil fuels over to renewables. We do have some challenges such as the global economic situation, inflation and the war in Ukraine which is impacting our global business. But overall, I would expect the revenue growth for the Power Grid business to be more than what it's been traditionally for the coming years. We already have a very, very strong backlog, which we need to deliver. Obviously, with the Power Grid business, the execution of that backlog quite often takes several years. So we've been building a much, much higher quality backlog with a very prudent approach to risk. We have reduced some of the risk elements such as EPC into our backlog. So both the quality of the backlog, the market conditions remain strong, should show into good revenue forecast for the future and improving profitability. .

Just to add to that, well, this fiscal year, revenue is going to be quite strong perhaps more so than assumed next year as well. So raising productivity and making capital expenditure, that is what is required to support that. So this year, based on that, we are making allocations for CapEx. .

And any other questions from the floor? Yes, Ezawa-san from the floor at the venue, please.

My name is Ezawa from Citigroup Securities. First question is about the generative AI, which was mentioned earlier. So I'd like you to give me more detailed explanation. And another question is to Kawamura-san about the numbers. . So first point, Generative AI, Hitachi's unique AI is the competitive strengths. That's what you mentioned. But Microsoft and the ChatGPT, well, the -- it is not that you're going to use their assets. But the Hitachi's own AI will be offered to the customer. Is that your business model? And are there any particular area of your strengths? I have an impression that you will focus upon certain strength area. OT domain knowledge is the basis of the capabilities. So could you please give me more detailed explanation. So Tokunaga-san, and if possible, Aoki-san as well, I'd like both of you to ask about the AI to be offered to the customers. What kind of -- what do you expect from those activities about the generative AI?

Ezawa-san, thank you very much for your question. First of all, I would like to respond to your question, is generative AI. So probably I gave you an impression that we are going to make unique AI. But our stance is with the open AI, like the ChatGPT and the Microsoft partners AI are to be utilized to promote the business or to introduce the higher efficiency operation within Hitachi. . So what I mentioned in my presentation is that there shall be some part which is unique to Hitachi. That is the source of the competitive advantage and the OT is to be learned. It should be the large-sized language model learning OT. That is what will contribute to the customer's value. So in my presentation, I particularly emphasized that aspect of the generative AI. By looking at the broader picture, our generative AI center establishment announcement in the last month, there were so many things that have been happening internally within the company, how to utilize generative AI internally at Hitachi is one aspect. And also for system development efficiency enhancement of the core business can also be promoted by using generative AI. So it's a testing model, but the 30% or so efficiency enhancement is on the confirmed to be realized. But this is based upon the smaller model. So we would like to do this in a much larger model to confirm and verify whether that effectiveness can be achieved. And for the customers and the benefit, more than 100 inquiries and the questions were asked since the announcement of that center establishment. So customers, we want to create an environment where they can develop their own generative AI, so they want our help. That's one kind of the aspect of the question. And another question is about asking us you provide consulting service to enable AI introduction by the customers. So one by one, we'd like to respond to those requests. And we would also like to build up our own experience. using generative AI for our own operations, which can be ultimately be led to the business. So these are what we are thinking right now.

Well, then I would also like to make a little the comment in response to the question by Ezawa-san. Generative AI, it is something to be developed from now on for the future. So this is what Tokunaga-san mentioned. So the generative AI center was established. And also internally, how to let the AI learn our OT activities? Well, it's going to be a tool that guide us in our operation as well. So in my presentation, I cited the various use cases. And the optimization when optimization was mentioned, it usually comes along with the needs for the AI, what kind of engine is to be used for the analysis. Yes, that's going to be an important part of the domain knowledge. So the volume number of the data cases and also the experience that we have accumulated by using AI engine, and there are many cases where actual results were created out of those activities based upon our data and AI. So to summarize, so mainly in Lumada, how to use AI at Hitachi. So the AI for controlling purpose, for example, the right example is robots. So that's one way to use and also analytical AI. For example, the predictive about -- prediction about the [indiscernible] of the equipment. So the data analytics or what comes beyond data analytics, that's what we do.

And also the recognition, for example, image recognition and to identify the places where the operation may be dangerous or the risky. So that's another area. So Mr. Aoki, the area refers to those particular usages, but we are now beyond that. Well, beyond the cognitive, now we have generative AI, so we are aware generative AI is most effective is to replace the peoples and humans intellectual activities. That is the most promising area for us. So in terms of business, system integration, application, digital engineering under Mr. Tokunaga. So these are intellectual and the activities can be replaced or augmented by AI, Microsoft and the other -- the open AI, Google. So the major players, and they use LLM - large-language model. So we can put our own content to their large language model, so that we can come up with the large language model, which is unique, that's what we are trying to do. So it is not that we are going to start from scratch to create the totally different large language model, Partnership is quite important in this field. .

I have another question that I prepared, so allow me to ask another question. If we take a step back according to Kawamura-san's presentation, over the long term, Lumada's business will account for 50% of Hitachi's business in one of the slides, it's hard to envision that, is the definition of Lumada going to change. Should I direct my question to Kawamura-san or Tokunaga-san, I don't know. But while retaining Lumada's competitiveness and profitability, will you really be able to achieve a 50% ratio of Lumada? Or are you looking to perhaps change the definition of Lumada? Is that assumed?

I turn to Kawamura-san for an answer first.

Yes. First of all, right now, at this moment, Well, the -- are we talking about the future potential change of the definition of Lumada now? No, that is not the case. So to grow the Lumada business right now, that will lead to the growth of Hitachi as a whole, so we put trust to that idea, and we are working with that in mind. So that's the what we are doing right now. Then the proportion of Lumada in the total business, is that the accounts for 50% of the total business, it's quite difficult to imagine that kind of situation but to us, data, technology, we are going to use them so that we can strengthen Hitachi business and also social innovation is what we can offer as the value to the customers. If that is the case, that requires Lumada business, which requires based upon the data and the analytical capability. And there will have the greater portion. So the business shall grow. And based upon the further usage of our data, so in that sense, ultimately, the majority of the business is expected to enter into so-called Lumada type of business. That's our image. Any additional comments? Then I would like to talk about the Lumada business from a CI point of view. So in our sector, 70% to 80% of our business are product-based business. But the Lumada definition, for the most recent definition of Lumada includes connected products, so as Tokunaga, EVP Tokunaga mentioned. So to be connected, and we create generated data to get the value out of that. The kind of the potential is relevant to all the business lines. So in that sense, by using digital to generate value there, I believe that there is a significant potential. In my presentation, there are several high-tech and [ 8 ] products were introduced. Well, the Hitachi High-Tech, has the measurement equipment and that the results in the creation and collection of a huge data. So we manufacture what is requested by the customers and ask customers to operate them and they get familiarized with the product and then so that they can operate those equipment. And beyond that, we can have a business model Additionally, to the use data from that product for the further businesses. And so there are many opportunities like that to generate value from data is applicable to many areas of our product business. I believe that is what I can say about the Lumada. .

Just to add to that, and I'm saying this repeatedly. But Lumada is about co-creating with customers. We're going to make full use of OT, IT and products to create value. That's the starting point. So in that regard, as Mr. Aoki said, most of the products are going to be connected going forward. One way or the other products will be connected and utilizing digitization and AI values what we created. If that's going to be the case, then Lumada business, and of course, opposite that is a stand-alone product business or a stand-alone data business. But such portfolio will be put outside of our group divested. And we want digital that's connected, green that's connected. That's the direction that we're pursuing. So what Mr. Kawamura said, Hitachi will continue to focus on Lumada. Lumada will be at the very core of Hitachi. We're comfortable with that. And through business transformation, we would like to shape it in the best possible manner. And if necessary, definition may be changed. .

Now we'd like to take another question. Are there any other questions? Mr. Harada, please go ahead.

This is Harada from Goldman Sachs Securities. And I have 2 questions. First question, in the new MMP 2024, you gave us the specific numbers. From the -- each of the 3 sectors compared to what you have announced, Green, the revenue is up. However, as for others, margin is down by about 1% and lower than what you announced earlier. So please explain about these changes. So what is happening to each sector? .

Well, then Mr. Kawamura, please go ahead.

Harada-san, thank you for your question. So if you could please take a look at Page 3 of my presentation material on this, the 3 business segments on the far right, revenue of JPY 7.8 trillion to JPY 8.2 trillion, as I said in my presentation, a CAGR of 5% to 7%. If that is the assumption, revenue will be JPY 7.8 trillion to JPY 8.2 trillion. And adjusted EBITDA margin remains unchanged at 12%. I think you're talking about the numbers below. So Digital Systems & Services, 14%. Before it was 15%. Green energy and mobility now stays 9%, but it used to be 10% before. And at the bottom, Connective Industries now 12%. According to the original material, I think it was 13%. So why 1 percentage point down and the overall numbers unchanged. When we put together the plan originally, we were not able to have a good grasp of risk sectors in each of the segments. So we have this overall look, and now the remaining period until the end of the current MMP, 1.5 years, we now see risks associated with semiconductor and so forth. And so we have a clear view of the risks and they are being reflected in the numbers. So for each sector, 1 percentage point down, but overall, it remains unchanged. And about revenue and margin from each sector, perhaps we should have a comment from EVP Tokunaga-san.

Okay. So to achieve the target of DSS, there are 2 important points that have to be -- we have to consider. First is, as I mentioned in my presentation, GlobalLogic's growth shall be sustained and continued. Well, the acquisition of the talents is another important point and also bolt-on type M&A shall also be pursued so that the top line as well as the bottom line, and it shall grow both of them, and that will be the growth engine of the company. And in fiscal '22, we struggled a little bit and caused a little concern, I assume. But the core business and the profitability enhancement is another important pillar for us. Most recently, core business part. The JPY 10 billion or more, orders are coming to us to the extent that has never seen in the past and that led to the very strong order placement and order backlog and also the important the projects are coming up and the project management shall be conducted properly. So that's the percentage for both the revenues and the EBITDA or the profit will be raised. So that's what we are trying to achieve.

Next, Ali. Regarding green energy and mobility, how to grow the top line and bottom line, if you could please comment on that, Ali.

Sure. Well, the top line of the Green Energy & Mobility sector has been really supported by a super strong market tailwinds accelerating the green transition and electrification. So we've got some huge orders, especially in terms of HVDC in the Power Grids area over the last couple of years. And equally in the rail sector, we've seen the post COVID recovery, particularly in Europe. So we've seen a strengthening in orders. So in terms of top line growth, our figures have improved in terms of 2024 up to JPY 2.9 trillion from our previous forecast. And in terms of margin improvement, clearly, I mentioned earlier how we've been working on improving the quality of backlog, improving productivity within the business. So we have a lot of initiatives that have gone through to improving the business, but also the significant investment that we've made in modernizing the -- particularly the IT systems of our Power Grids business. Those investments will mostly come to an end by the end of FY '23. So we will see an improvement in FY '24.

Lastly, Aoki-san, please.

Yes, in the connective Industries, last year, target was JPY 3.2 trillion. That was our target, JPY 3.2 trillion. And it is not that we gave up achieving this target, JPY 3.2 trillion. Internally, we are still trying to achieve this target. As the CFO Kawamura mentioned, there are some global risk factors, particularly the recovery in China is not on the what we expected, and it has been slow in achieving that our expectation. And the inorganic growth in Europe and the U.S. were also included in the target. So towards 2024, looking at the plan was '24. We -- it is necessary to look at these numbers from the conservative way. So we lowered the target from JPY 3.2 trillion to JPY 3.1 trillion. It is not that we gave up the target of JPY 3.2 trillion. And CAGR, we would like to achieve the 5% or higher than this. Supply chain is still being disrupted. So in order to enhance the adjusted EBITDA in the year 2023, that's another area of our focus. And that is the idea behind the review of these numbers.

Understood very well. My second question is as follows. I have a question regarding digital. In Tokunaga-san's presentation, what was unique or characteristic was the new phrase that you used, digital-centric. In parallel with GlobalLogic, cloud managed services being offered, which seems to be new. So cloud managed service you are opening a center in Tokyo. And so if you could elaborate on that, provide us with details. In conventional systems integration, you were based on month, but with replacement with cloud service. Do you think that's going to be the direction? And will that enhance profitability? Will it lead to medium-term profitability, if you could elaborate on that? .

Thank you very much for your question. Yes, actually, that's exactly a very important point. Well, the growth of GlobalLogic is often emphasized as the too much. But the -- if we look at the customer situation, on-premise systems and at the same time, cloud, distant shift to cloud is also being promoted. But the way the shift is conducted to the cloud, is not done by the entire organization of the customers. Well, the IT section as well and also the other sections. So within the company, also tried to use the public cloud for the shift of -- to promote the migration to cloud. So including operation. Well, the customers are spending so much the efforts. And they're making troubles in the shifting to the cloud, they may also face the concern of the security. So all the business issues related to migration to cloud are now emerging and starting to attract attention of the management. It has become the pain point for them, and that makes them come to us Hitachi to support them. So that is the reason why we opened HARC. And then the more than 20 companies, major leading companies started to use the HARC capability in the first year of operation. So that's how the value is recognized from a customer's point of view. From our point of view, as Mr. Harada pointed out, managed service, this is in the form of managed service. The business model is recurring. And by using this, therefore, mid- to long-term perspective, profitability will be higher. And also, they are being used on the long term and it leads us to understand more about the pain points of customers that lead to another cycle of business opportunities. So we can enter into the virtuous cycle. And so significant contribution to the business is expected from this. So this business, along with the growth of digital and the logic, this is GlobalLogic. These 2 are quite important in growing the business.

There's a few with questions. So please raise your hand. Bolor, please. You're participating in person. Please go ahead. .

My name is Bolor from Jefferies Securities. I have 2 questions. The first question is about utilization of generative AI. As you look to utilize generative AI internally, what quantitative contribution will it make to the performance. For example, systems development manpower can be reduced, DSS profitability being raised to 20% or over. So do you think that it's premature to try to reflect the upside to MMP? And as I mentioned earlier, the margin was reduced, margin forecast was reduced by 1 percentage point. But would margin go up, but with the use of generative AI, am I reading too much into it?

Thank you very much for your question. So first of all, the utilization of generative AI, as I mentioned, this is something that we have to promote. But in my presentation, if you read my presentation, Well, during the period of MMP 2024, well, this is a period where we build our own experience using generative AI internally. So as I mentioned, as you pointed out, system development application to system development application to other businesses we are trying to enhance the efficiency of our business. So the 30% on the efficiency enhancement or system development that's already within the visibility. But this is a simple usage. So the 2024 MMP, we are going to make more cases using generative AI so that we can understand effective way to utilize a generative AI, we'd like to create a successful story using generative AI. And then in the next MMP, MMP 2027 period, we would like to harvest the efforts of the over generative AI. So the MMP '24 period is for us to build up our external expertise using generative AI. Of course, it is not that we are not going to get any commercial benefit out of the generative AI. But specifically, how much upside is expected? Well, right at this moment, we are not able to give any quantifiable on the results. But, yes, I would like to convey our sense of our commitment and willingness.

Understood. And second question is about the quantum computing capability of Hitachi. During your R&D announcement, the quantum annealing was announced and the gate and the approach is something for the future. And the other day, shuttling the quantum with the methodology was introduced in the LEDs. Is this the new technology? And the GPU -- the generative AI is attracting attention. And what Hitachi has is the several quantum computing capabilities. And for the development of AI and the GlobalLogic. And is this something that is the instrumental in that regard? Well, the investors may not be keen on this, but are there any questions? Any points here?

The shuttling method we made an announcement on that recently. What we target is based on silicon, unlike the superconducting system, very large number of quantum dots can be created. That's the method. I'm here in Japan, together with a number of research institutes, we are doing research on that. And so why are we working on quantum computing with what purpose or target? Basically where quantum computing has the highest affinity with this analysis of natural phenomena. Well, natural phenomena include a physical phenomena or events most of them that occur in nature actually are driven by the quantum world. And in order to assimilate what's happening in nature, quantum computing is the best method. I can't give you all the details, but that's how we see it. On the other hand, generative AI conducts humans intellectual activity. But quantum computing is for natural phenomena, for example, looking for new materials, something physical. So something that cannot be done by conventional computing can be done in terms of simulation by quantum computing, running new kinds of simulations. So that's what is possible. So next, we may want to co-create with the materials manufacturers. And so when that happens, the technology that we can offer for that partnership could be quantum computing based. Now we're trying to do direct business out of quantum computing. We have no intention of doing that. We are trying to utilize quantum computing to come up with solutions for business. We don't have a system or technology to handle a large number of quantum dots, and that's why we're looking into this in collaboration with a number of advanced research institutes. If some excellent technology comes out from some organization, we're going to make use of it. So we are looking at this from an application point of view. Generative AI and quantum computing, the 2 are not connected in my mind yet. Generative AI, well, NVIDIA is a typical example. They offer a different architecture, a different architecture and processor will be required for generative AI, although not discussed extensively. One of the biggest problems associated with generative AI is the fact that it takes up so much energy because huge data centers are required. So instead of one human labor, if you use generative AI as a synthetic worker, it is going to consume huge amounts of energy. So energy consumption issue must be resolved. So a processor that's very power conservative or power saving. I think NVIDIA is looking into that and such an architecture could be developed. And so processor and semiconductor industry can be activated with such new technology

Are there any other questions? From online, [ Mr. Shiroi Hiroi-san ] Please go ahead.

Thank you very much. This is Hiroi from Nikkei Newspaper. I have 1 question. In Kawamura-san's presentation on Page 5, adjusted EBITDA JPY 1 trillion, which is the 2024 target, mid-term management plan target. And it was JPY 960 billion when you made the announcement in April, so this number is higher. So what is the message behind this number? . And this is a challenging figure. So how to achieve this based upon Lumada strategy? How would you like to achieve this? And in the next mid-term management plan, how high is it going to be? And when Lumada accounts for 50% of the total business, how far you can go? So JPY 1 trillion, the meaning significance of this number and also your idea going beyond this. Please go ahead.

Hiroi-san, thank you for your question. Now that there is a super focus on coming out with this target. That was not the case. If you could once again look at Page 3 of my material, we have just performed ordinary calculations that we always do. So DSS on the far right, a CAGR of 7%. If you modify that, you will get JPY 2.6 trillion. And if you multiply that with 14%, and then you will get JPY 364 billion, and the same goes with GEM. So if you multiply 9% to JPY 2.9 trillion, JPY 264 billion. And if you do the same 12% multiplied by JPY 3.1 trillion, and then you get JPY 372 billion. And if the 3 are summed, totaled JPY 997 billion, which is almost JPY 1 trillion, although it's a little short of JPY 1 trillion. So that's what we're doing. Not that there is going to be a big gap that we have to fill. If you calculate in a normal way, you will get JPY 1 trillion. Once we achieve JPY 1 trillion, what are we going to do beyond that? Well, rather than talking about that, we are focusing on how to achieve the targets under MMP '24. Company, its most important mission is to grow as a going concern. We can't afford to stop at JPY 1 trillion. We want to continue growing to JPY 1.1 trillion and beyond by replacing assets, turning over assets, we will be aiming higher. That will be the target for the next MMP to come. And with all the measures that we talked about, I'm sure we will be able to see higher target in view. And so that's going to be the future direction for our next MMP. Thank you.

Next question, please. We'd like to take next question. Ishina-san at the venue, please go ahead.

So. This may be similar to the previous questions. But the generative AI parameters -- often the parameters is the focus of discussion. In case of the NVIDIA, they have 3 parameters and using [indiscernible] to make something large. In case of Hitachi and Lumada customers, how -- in terms of the number of parameters for the generative AI, what kind of customers and what are the customers' preference? And when it comes to profitability, if you -- if it is a large size and the generative AI is going to be large, but the profitability may be lower. So how to manage this the generative AI business, including Lumada and what can you do in order to raise the profitability of generative AI? .

So first of all, I'd like to respond. I will first answer. And if there's anything to add, I will turn to Tokunaga-san. My understanding is that LLM, large language model. They use tens of billions order of parameters to come up with an answer. That's my understanding of the LLM. And as I said before, are we going to do that from scratch? No, no intention of that on our part. We have texts. We have data. That's characteristic to Hitachi. And we would like to merge them into the LLM with billions of parameters so that we can customize the model. And there are providers of base models and so a variety of players will be out there and unique content will be added by each company to come up with a unique LLM to be provided to the customers. So that's my understanding. So from our perspective, the question is how unique a model can we create by merging our own tax and data into a general LLM,Of course, it will take a lot of computing power, but compared to doing something from scratch, the cost is not all that prohibitive. So in terms of cost effectiveness, I think we'll be able to do this. .

If I may make some additional comments. I'd like to make a comment about the customers situation. As I mentioned, generative AI center was established, and we made announcement since then, customers came to us to ask questions. And looking at the questions they raised, as Mr. Kojima mentioned. As for Hitachi, it is a unique Hitachi, the LLM based upon OT experience. For some customers, for example, customers' customers, they make the inquiries to our customers, and they want to make the high-quality response to their questions. So based upon the customers and the operation and the know-how, they would like to create new LLM, but they want our consulting service to help them. So that is one example of a question. So customers are consulting the environment and support the creation of the environment. So by sorting, we will be able to lay foundation for the further expansion of Lumada, so the Lumada. So that's what we are doing right now.

And another question, if I may ask you. We are looking at the financial numbers by sector, well, you disclosed these numbers. In green energy and mobility, the profitability seems a little lower than other sectors. EBITDA margin. And there are the order backlog. And so in the case of MMP '24, this is the current status. But it's going to be much higher for the MMP '26 because the mid-term management plan 2024. Well, this is all you have a large order backlog. So probably, it is something that you can consider for the next period about the Mid-term Management Plan '26 and how much of the profitability is the idea.

I have to ask Ali to answer that. So Ali, over to you, please.

Thank you very much for your question. I mean, the profitability of the GEM sector is slightly lower than the IT or the digital areas. But when we compare to the industry averages, we're in a very favorable position compared to our competitors. So we're aiming for a corridor of between 8% and 12% adjusted EBITDA, and I expect us to be towards the high end of that corridor. Thank you. .

As Ali mentioned, well, the 12% is the high end for the industry. So we would like to get closer to that. But as for me, well, through the active utilization of digitals and other capabilities, we would like to break -- make a breakthrough and go beyond that 12%.

We'd like to take another question. Are there any other questions? There are many hands raised in the venue and also online. But because of the time limitation, I have to ask you one question per person, please. And Okawan-san in the venue, please.

This is Okawa from Daiwa Securities. I'd like to ask you about the scaling of Lumada. So when Hitachi is the concept and synergy across segments and also in this innovation, how do you have a close relationship with customer, solutions are also increasing? And horizontally, well, the Lumada sales will also be promoted and accelerated because of that. So are there any particular things that you're doing? Any challenges? Are there any ongoing programs that you would like to explain? Could you please talk about them?

Yes, Okawa-san, thank you very much for your question. As you pointed out, Lumada solution and scaling of the Lumada business is indispensable to the growth of the business, particularly, for example, today, as I mentioned, materials informatics, something like a solution like that. Actually, more than 50 companies, 50 customers, well, they have the -- for those businesses with us. And we are trying to deploy that further. So this is the solution that is being scaled up. And together with the GEM sector, enterprise asset management is what we are doing, the software business, which is also being scaled up currently. So Lumada's -- and this is -- scaling is one of the important patterns of Lumada, which is being significantly promoted. If we were to make one step further, then managed service on cloud, and that capability has to be strengthened. And that's the one challenge for the business and the target. And we are focusing upon HARC capability and to further strengthen that, cloud integration capability, including inorganic shall be strengthened. So much broader on the actions are within our visibility to strengthen the business. Thank you very much. And to make some additional comment. Now Lumada business the profitability is improving by 1 percentage point every year. And where does it come? Well, because of the scaling and the initial investment, the recruitment or the payback is getting faster. And we would like to make this faster, even faster. So as the EVP Tokunaga mentioned, in order to do so, well, the bottleneck regarding the scaling of the business is that if we are to use the one solution to another company, that customer, well, may have a very old IT modernization may be needed for them. This happens quite frequently and that takes up some time. So cloud integration shall be enhanced so that we can create -- achieve modernization quickly and that works. So that's what the Tokunaga-san's team is doing right now. Next, any further questions? Tanaka-san, who's participating in person. Please go ahead.

My name is Tanaka from Mizuho Securities. I have 1 question of Mr. Kawamura. Conglomerate Premium, I like your thinking on that. So through a business reform for each sector competitiveness has been raised and improved conglomerate negative is being eliminated. But in order for conglomerate benefit or premium to be enjoyed, what do you think is necessary? So with one in -- the synergies to be raised to raise profitability of each sector, it may take time. So as an interim KPI, what should we be focusing on so that conglomerate premium can be appreciated. .

Well, thank you very much for the question. conglomerate premium, there are difficult discussions on that. What we're trying to look at is we have 3 business sectors. When the sector independently operates, what will be the corporate value of each? And when the 3 segments are merged, what will be the overall corporate value? If the overall corporate value is greater with the 3 combined, then there is a premium. In order to increase synergies, we have to increase collaboration between segments, and we have to have common investments and common strategies. And so we need to increase such cross-sector collaboration, and this is something that I'm working on as well. At the corporate level, we will look at investment for every sector on a global basis. So in a certain sector, there's investment made in North America. We know what's going on. We get that information real time. So when the next sector goes to the same area, these are the lessons we can tell them. So from the overall management perspective, with the 3 sectors working with each other, we can get better information, better instructions can be given. So cross-sectoral collaboration business wise, and we have this global view at the corporate level. With that combined, we believe that we can generate a premium. And what should be the KPI, and this is mathematical calculation. When 3 segments operate independently, what is the corporate value, what is the growth rate? And if the 3 are merged, what will the numbers be by comparing the 2 sets of numbers we have to set a KPI based on the difference. That's our basic thinking. Thank you.

Next question, please. Yoshizumi-san, please go ahead.

My name is Yoshizumi from SMBC Nikko. So 1 question. On the conversion rate related to net income I'd like to ask you about the idea here. As you explained, in the past you focused upon the restructuring, structural reform, but now you're focusing upon the growth. But the impairment will be in the second quarter and also in the fourth quarter, well, the last year, you also had the impairment. I understood the growth -- potential growth scenario based upon Lumada. But the non-Lumada area, I don't have a good understanding about the non-Lumada area. If you no longer have an impairment or the conversion rate, the issue then probably you can make improvement, but I'm not quite sure about that. So could you please explain on this point? .

Well, I think after Kawamura-san, well, each sector will respond to that question.

Thank you for the question. So conversion rate, for example, from operating income to net income, how will the numbers change from one to the other. For FY 2022, what's in between the operating income and net income is Hitachi Construction Machinery, Hitachi Metal, they were restructured. That impact was reflected in restructuring of Hitachi Astemo also was a factor and changes in the prices and then comes to net income. As I said, I think major restructuring is over. So JPY 1 trillion level M&A or divestment on a large scale, such as Hitachi Metal is over, so no major restructuring any further. I think that's one of the reasons we can point to raise conversion rate. And impairment, we have already dealt with large impairments, for example. Well, [indiscernible] is going to be divested. There is a large impairment associated with it for brakes. That's already taken care of. So all the remaining impairments are smaller at each sector level. And taxes rationally with various approaches, we are minimizing taxes. So impact from taxes is also minimized. So on an individual basis, what will be the impact from impairment, we can convey that to you. We can tell that to you, but large divestitures, large impairments, large tax impacts. These 3 major factors impacting conversion rate are already controlled well.

Just to add to that, so far, at the business unit level or at a subsidiary level, well, if there's a problem, we would try to divest that restructure and divest that. That's the kind of portfolio transformation that we try to pursue. And as Yoshizumi-san said, there are a lot of other things that need cleaning up, but it's a smaller level initiative. So below the business unit or below an affiliate or subsidiary level, there are things that require cleaning up. And of course, we need to continue with the cleaning up. Otherwise, there will be a drag on Lumada's business. So in the next phase or the next step for each sector, at a level lower than the business unit review of the capital cost will have to be done. What is the risk of impairment. All of that needs to be managed better. So I would like to turn to the EVP of each sector to say further.

Mr. Kojima -- Mr. Kawamura already mentioned most of the answer. But from a DSS point of view, what could be the major risk is the PBA and rising PPA and also the goodwill because of the acquisition of GlobalLogic, it is building up to a high level, the profitability of GlobalLogic without sacrificing or impairing the profitability and the growth of GlobalLogic, that's quite important consideration for DSS. So far, well, the high growth and high profitability has been maintained for GlobalLogic. And in order to maintain this status, we would like to make adequate investment and also the coordination with the Japan site shall be strengthened and so that we can support the business expansion. And the future disruptive technologies, if they emerge existing assets, well, they may become the quickly obsolete, and that's something that we have to be prepared for. So we need to take the proactive action, so we need to keep an eye on the market situation and take the quick response to that. So that is all for my part. Next, Ali, please?

Yes. Thank you very much for the question.

So anything that requires cleaning up within the GEM sector, if you could answer that question.

Sure. Well, I mean, in the GEM sector, we're very much focused on both top line and bottom line growth. So for Lumada, we're working very, very closely with GlobalLogic to improve our Lumada ratio, which includes digitally enabled solutions and our service business, which is being applied to the delivery of our backlog. To top line growth, we have experienced CAGR of 13% over this midterm plan, which is very strong growth in the top line. But looking at our non-Lumada business, we've worked hard to derisk that business. So we've derisked sort of EPC for our HVDC business. We've applied very strong project governance. So we've been selectively bidding and taking a very selective approach to the contracts that we win, which is there to optimize and improve our profitability. And also to look at mitigation for issues such as price escalation mechanisms in our contracts to cover off risks such as inflation and to ensure stronger profitability in the future.

Well, then lastly, I would like to respond. So according to the question, well, starting from the Midterm Management Plan 2019, we have been talking about this topic. So compared to those days, particularly in the CI sector business line, no major losses or the potential for the impairment. We have almost no the potential for impairment. And another aspect of your question is, of course, we need to manage the business so that we will not see the recurrence or the emergence of the impairment. But how about the non-Lumada business and the other people also asked about the non-Lumada. And the connective industries, for my position to lead the connective industry, well, the digital and the Lumada concept shall be promoted strongly. And -- but not only those areas, if I may so, because the -- all the other companies are looking at the digitalization, digital area. So well, we have 60%, 70% of that is the product business. And also, the earlier, there was a discussion on the conglomerate premium and how to -- well, that is what I'm thinking about in my business area. So I repeated the expression total seamless solution. Domain knowledge is the absolute strength that we can take advantage of. So each BU and the group companies, well, it shall not be kept only at 1 business unit or 1 group company. We need to use it as the strengths for the entire business, so that is essential on the viewpoint. And another key point is recurring business. And I mentioned about the recurring business already in my presentation, but the recurring business will give us -- is the asset that gives us a strong continuous revenue. It was well, they used to call -- be called the aftersales service. But on the maintenance of the service, which tends to be an independent separate business in the other players, but connecting all the points of the value chain, what's going to happen to that business. So we are doing that in order to raise the profitability of that business. And also green access is another viewpoint. And the world will continue to focus upon this area. In green, it is not that the one independent single company can take up everything related to green and generate profitable business. And we would like to focus upon the green in our non-Lumada area. Well, non-Lumada doesn't mean the no good business. It is not as simple as that. So we -- this is the access that we are looking at in order to enhance all the different types of business. Is this okay to respond this way? .

No problem.

And just to add to what Ali earlier said, the sector that Ali overseas has lots of factories and plants. So consolidation of plants and factories is always important. So we regularly engage in that depending on the locality, where there is a factory, the significance of having the factory in that location could decline. So consolidating factories and plants, I think is necessary. So we need to continue to clean up in that regard as well.

Any other questions? So we are going to take another question. Ayada-san in the venue, please.

Ayada from JPMorgan. Idea about the earnings or the profitability. Well, you already mentioned on this point. But from ROIC point of view, including this fiscal year, well, the 7% to 8% ROIC it has remained flat at that level. So the 10% next year maybe a little challenging to achieve that, considering your past performance. So Lumada co-creation business model. In this model, on the certain level of the investment, including investment in the human capital is needed. So the efficiency, it may be difficult to raise the efficiency in this Field, if I may say so, and the scaling of the business. If that is promoted, well, the Lumada business and it is improving by 1 percentage point every year. And in the next mid-term management plan period, is it going to accelerate. And Aoki-san already talked about the product business, and that's exactly where I wanted to raise a question. At CI sector, the higher profitability business if we were to go to higher profitability business, the product market share is another aspect. Is it okay to keep the market share of current product business at this -- at the current level? You talked about the expanding the domain or the -- but how about the increasing the share in the coming 3 years or so? Do you also have that idea?

Well, then maybe please Kawamura-san, please respond to that?

About ROIC. What you said is correct. 7.6% was the ROIC in FY 2022. In FY '23, 7.9%, close to 8%. We're looking at the next the year, will it hit 10%. We need to raise it by 2 percentage points. The hurdle is pretty high, but we haven't given up on that. And the reason we're not giving up on that is if we look at the invested capital in ROIC because profitability is building, equity is going up. And so what to do with that is one of the biggest themes we're discussing. So we have to be flexible. We may need a leverage at some point in the future, but we don't have a specific plan for that. So with accumulated equity, we may want to use that to repay borrowings so that we can control the capital that's invested. So we're discussing that issue from various perspectives. And as I may repeat, Well, with the simple calculation, clearly, ROIC is around 9%, but we would like to lift it up to 10%. We're trying to control capital better. And on the profitability side, as I said, in view of the potential risks, we have reduced the number by 1 percentage point or so. If risks are going to be alleviated, it will go up again. So we have not reduced the overall target of 10%. That's where we are right now. So why the Ayada-san, well, there was mentioned about scaling because it takes so many personnel. How is capital efficiency going to be raised? I think that's what you're trying to call out. Actually, that is true inclusive of Lumada business, we have to increase efficiencies even more. And for that, profitability needs to be raised, and one is scaling -- scale up. And another approach is to utilize generative AI. So raising the efficiency of systems developers. If we can do that, we will be able to provide a fundamental solution to this issue. As Mr. Tokunaga said, since a while ago, we have been working on low code, no code. So we want to finish POC in the current MMP. And under the MMP '27, we would like to try that in a more full phased manner, including scaling. So by doing, we would like to improve our capital efficiency drastically. That's our thinking right now.

Then Ayada-san, thank you very much for your question. Well, we have been discussing with you, and thank you very much for asking a very good question. Well, market share Yes, I like market share very much myself. So I'm willing to go to the battle to capture the market share. But the simple market share, and it is not that we will go for higher market share alone. It is not so simple because the profit -- the growth should come along with the profit improvement as well. So even in the product business, including aftermarket and recurring business. The total marginal income, how much total marginal income we can generate in the recurring business and how about the percentage and the ratio of recurring business. Depending upon that, well, the type of market that you -- the product market, you would like to the capture by spending a lot or the other niche type product market. they are different, even in our own businesses, they are different. And the large voluminous market where you need to invest significantly or another area which has a unique feature but the kind of product that gives you the unique niche value, we need to have a different approach. That is my idea about those product business. It's time, with that, we would like to conclude the question-and-answer session at this moment. Lastly, we would like to have remarks by Mr. Kojima.

Ladies and gentlemen, thank you very much for your attendance and participation today. We spent many hours. You must be tired about the Q&A session that we just had, was very fruitful because we were able to discuss so many different things. And we would like to make sure to feedback your input to our company for MMP '24, and we have now come to a point where we have to think about the next MMP '27. So I would like to use your input as a reference. So I look forward to continued close communication with you going forward. I've repeatedly said that we're going to enter the growth mode. Unless we deliver results, it will not sound convincing. You will not believe what we're saying. So each and every quarter, we need to deliver results to live up to your expectations. And so I look forward to your continued advice and counsel. So I look forward to your continued understanding and cooperation. Thank you once again. [Statements in English on this transcript were spoken by an interpreter present on the live call.]