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

Ladies and gentlemen, thank you very much for taking time out of your busy schedules to join us today. At this moment, we will be in Hitachi Limited web conference on Q2 FY 2026 earnings. This time on Zoom Japanese channel by choosing from the language options, English audio can also be selected. Depending on new device, the language option may appear in different sections. [Operator Instructions] First, Kate will provide an overview of the earnings to be followed by announced presentation, who will explain Hitachi Digital as a new company we announced today. Anand is CEO of Digital Engineering Solutions business unit. Please wait while the slides have been switched. Cato and the floor is yours.

Yes, I will explain our consolidated results for the second quarter of fiscal 2026 and the outlook for the current fiscal year. First of all, I would like to talk about the performance highlights. Turning to our results for the second quarter of fiscal year 2026 Q2, revenues rose substantially up the 15% year-on-year, driven by business growth as well as factors, including foreign exchange banks. As in Q1, local sectors energy, led by its power grids business in DSS, connected industries, AI and mobility posted higher revenues and higher profits. Both revenues and adjusted EBITDA reached a record high for second quarter. Goal net income and core free cash flow would each have exceeded the previous year's level, excluding the impact of lasers business restructuring, including the air conditioning business, next fiscal year 2022 outlook following the upward revision in Q1, we have again revised our key financial figures, some point, including net income the Q2 results that exceeded our regional plan order trends and progress in productivity improvement, we raised our revenue forecast by JPY 300 billion, mainly in DS and I adjusted EBITDA by JPY 40 billion mainly in Energy and CI. We have also revised free cash flow and ROIC upward. In the second half and beyond, we plan to continue on making CapEx, including capital investment as well as the corporate growth strategy investment to accelerate AI utilization and develop the HMAC solutions. We will also continue to monitor geological risks as well as the impact of rising interest rates or customer demand. As in Q1, we achieved double-digit revenue growth in Q2 with broadly similar trends. So I will go through the first half highlights by segment. Starting with the DSS. Now the IT business, both orders and revenues grew 10%. In Q2, we incurred onetime loss accounts of JPY 9 billion, but profit increase for the first half, thanks to revenue growth and ongoing productivity improvement through AI utilization and other measures. I just -- adjusted EBITDA margin also improved year-on-year. For the full year, revised revenues upward JPY 70 billion to reflect the Q2 results and all the trends in domestic IT business. Adjusted EBITDA, we have retained our focus year-on-year, having absorbed the loss costs. In energy, power grid orders were strong again in Q2 rising substantially in the first half, we continued solid growth in demand for power transmission equipment. Revenues rose at 32%, including foreign exchange effects. Higher revenues combined with productivity gains and other factors also drove substantial improvement in profit margin. For the full year, the revenue forecast is unchanged, about revised adjusted EBITDA up by JPY 33 billion, owing to productivity gains from process management, loss containment and other measures. Profit margin is expected to improve by 15% in Mobility. Rail-based system orders were strong again following Q1. Thanks to large signaling and control orders and foreign exchange fees rising 40% in the first half revenues rose 18%, supported by a solid business such as railway second system as well as foreign exchange banks and the profit margin improved year-on-year. For the full year, we expect higher revenues and profit and will grow in with growth in the other business such as railway signaling system and higher adjusted EBITDA. In CI, all these rules, again, Q2 for Q1, led by measurement and an building systems and others, up 26% in the first half. Within this, Moghimi Nessystem orders grew 66%, with increases in semiconductor manufacturing equipment and metrology and inspection equipment against the backdrop of growing investment demand in semiconductor business. revenues rose 11% year-on-year, and the profit also increased, driven mainly by the growth in measurement and monsisystems, together with the expansion of the service business and building system and the foreign exchange effects. For the full year, we raised revenues up by JPY 50 billion and adjusted EBITDA by JPY 5 billion, reflecting the metrology and insulation equipment expansion and change in timing of home appliances. Here, I will explain the half year results and full year outlook, excluding special factors. Excluding special tactics foreign exchange business restructuring and onetime. Financial consolidated revenues growing 10% in the first half, and we expect this momentum to continue with growth at a similar level for the full year. The adjusted EBITDA margin also improved year-on-year in the first half and is expected to improve by 20 points for the full year. So we have revised upward from the previous forecast. Underpinning this is continued growth in orders backlog. As shown in the bottom line, the order backlog in any sector is growing steadily. I will now outline the features of each segment for fiscal 2016 and in the second half of the revenue growth is expected to exceed the first half of a full year growth of 8% in fiscal year 2026. This is 2 points higher than the previous forecast, replacing growth in the domestic IT demand. The main drivers are single AI transmission and modernization likely to continue. The profit margin is also expected to improve year-on-year. In energy, we expect the second half growth at roughly the same rate as the first half for the full year, a growth of 21% mainly through higher production capacity from planned capital investment and head count growth in Power Grid. And together with productivity improvement, we expect a higher for profit substantial improvement in profit margin. In mobility, we expect to maintain a solid growth for the full year in the first half as in the first half. The profit margin is also expected to improve. Thanks to better business mix across railway signaling system and vehicles and cost reductions. In second half revenue growth is expected to exceed the -- we paid for the full year as -- well, the main growth drivers include semiconductor manufacturing equipment and measurement as system and service business and Building Systems. But the business service business is expected to improve. Here, I will explain the year-on-year comparison to the no revenues grew 7% year-on-year. Even excluding special bankers, such as foreign exchange banks want to advance an impact more or less situation, we achieved a 10% year-on-year growth from business expansion. All sectors posted higher revenues. -- explaining special factors. Adjusted EBITDA margin implanted 110 basis points year-on-year to 12.8%. Now year-on-year comparison for the full year. Revenues are expected to grow 13% year-on-year. Even excluding special factors, we expect to achieve 11% year-on-year growth. We plan higher revenues in all 4 factors. The adjusted EBITDA margin is focused at 13% or 13.6%, excluding special factors. Next, the interim net income and cash flow first half results. Excluding the negative impact we presently a JPY 150 billion from last year's business restructuring, interim net income increased year-on-year. Core free cash flow also increased explaining the approximately JPY 60 billion impact of last year's business restructuring including the effect of large advance payments raised by JPY 200 billion year-on-year. Now full year outlook. And despite the impact of last year's business restructuring, net income is expected to rise by approximately JPY 120 billion year-on-year, driven by higher operating income. Excluding the effect of last year's large advance payments core free cash flow is expected to increase by approximately JPY 90 billion, driven by higher adjusted EBITDA and improved net working capital and despite increased CapEx and impact of business restructuring. In terms of cash in ratio 1% will be maintained. Hereafter, I will introduce the topics. We continue to make steady progress transforming our portfolio, including the transfer of Hitachi Construction Machinery shares, partial sale of the share of Asman auto parts manufacturer as well as setting up a joint venture for the ATM business where we are minority shareholders. Further, we are planning to sell the share of our electric appliances business by the end of next fiscal year. With respect to capital allocation for shareholder return, in view of the upward revisions we made to our core rising interest rates, the interim dividend payment will be increased above our initial forecast. It will be raised by 36% year-on-year. Share buyback for the first half totaled JPY 290 billion, which is half of what we have planned for this fiscal year. Regarding our growth investments, as is shown in the chart on the right, as part of organic growth investments, we increased year-on-year. CapEx, including those for the Power Grid business as well as investments for corporate growth strategy, including those for promotion of AIUs and development of HVAC solutions. On top of that, we executed an organic investment of JPY 90 billion. Our company continues to proceed with the growth strategy. Under our capital allocation policy that we said at the beginning, we will make the necessary growth investments going forward as well. Here on this slide, I will explain the progress of our growth strategy in DSS. First on Japan's IT service business. In the first half, AX modernization in financial social infrastructure fees drove the growth. Revenue increased by 7% year-on-year. By sector, financial infrastructure centering around insurance grew 19%. Profit margin also went up when adjusted for one-off factors. On a full year basis, as well, mainly in financial and social infrastructure fields, revenue is expected to rise 6% year-on-year, and profit margin also is projected to increase after adjusting for 1 of the factors. In the overseas IT business, total business of Hitachi Digital in the first half when combined with revenue from synergies with other sectors rose by 28% year-on-year. Revenue from synergies grew substantially year-on-year primarily in energy and mobility. Furthermore, because the market environment surrounding the digital engineering business was severe, an order-taking strategy with a focus on profitability was implemented, resulting in a revenue at the same level year before on a stand-alone basis. The highlights of Q2 performance in FY '26. -- are as I described at the beginning, we steadily executed our inorganic strategy as well. On Page 17, allow me to discuss our financial conditions. Total assets at the end of Q2 in FY '26 came to approximately JPY 15 trillion, which was roughly the same level as the year before. Cash and deposits increased, but also did advances received at the same time. Cash conversion cycle declined slightly, mainly due to a reduction in account receivables and an increase in advances received, resulting in improved funding efficiency. This shows the status of revenue in Q2 by region, including the impact of foreign exchange, revenue grew in all regions, particularly in North America and Europe. In DSS Japan's IT business, Europe storage business were robust. Energy expanded in almost all the regions, in particular in North America. I would like to explain the orders received in Q2 by segment. Orders for DSS with increases in Japan's AI transformation and modernization businesses were up 14% in Q2 for energy power grid business grew 47% overall due to the contributions from multiple large-scale HVDC projects in Europe and data center project in the U.S. on top of book demand for transmission facilities. Mobility was up by 69% in total with large orders for projects involving railway vehicle and signaling and control systems in Europe. In CI, Against the background of expanding investment demand in the semiconductor industry, measurement and analysis systems centering around semiconductor manufacturing equipment were up 77%, leading the growth in CI overall. Lastly, I will explain the Lumada business on Page 28. Lumada, the pillar of our growth business. In the first half, Lumada accounted for 44% of Hitachi's consolidated revenue. As is shown on the right, in FY '26, our plan is to raise its revenue by 25% and profit margin by 17%. Primary areas of growth for Lumada have been Japan's IT business in DSS, semiconductor manufacturing equipment in CS measurement and analysis systems and service business in Building Systems, amongst others. HMA, which is the solution for Lumada's digital service business exhibited a progress rate of 47% against the FY Full year forecast of JPY 510 billion. HMAX mainly in CI Railway and DSS, led the overall progress. This time, we made upward revisions to our full year forecast for both Lumada and HMX, respectively. I have just explained our Q2 earnings in FY '26. Looking back on the first half, we realized that we were able to make steady progress in growth, profitability and funding efficiency. On the other hand, in order to achieve the goals of Inspire 2027, management challenges still remain. In addition, the external business environment is uncertain. We therefore will continue to strengthen risk management as we take our growth strategy forward. Now I would like to turn it over to Anand Birje, who has been supervising our overseas IT business since August. He will be discussing our policy going forward and Hitachi Disco's new organization.

Thank you, Kato-san, and good afternoon, everyone, and thanks for taking time to join us today. My name is Anand Berger. I'm the CEO of Hitachi's digital business globally. -- and I'm based in Santa Clara, California, and it's my pleasure to be here today and share both our market perspectives and also our vision strategy and plans to execute to the strategy for Hitachi Digital globally. First off, I just wanted to share how we see the market going forward. Everyone has been talking about the convergence of AI and the amount of opportunity and risks AI has created over the last 3 years. As we look forward to the market, if you go to the next slide, we really believe that there's a convergence of 3 big factors that is driving change across the market. Cloud, as a foundational transformation element to enable data and data foundations that are critical for enterprises to leverage the full value of AI. And then of course, rethinking every business value chain across industry verticals that AI is making possible. And so all these 3 hype cycles, and I'm calling them hype cycles because we all know that every industry leverages capabilities and these new technologies at different pace and at different maturities. And so we're seeing these hype cycles converging over the next 5 years. And so at Hitachi, we actually see enormous opportunities in this conversion zone to basically both bring our capabilities to bring our customer base and opportunities we have accessing the customer base and deep domain expertise to help customers leverage all these 3 elements of transformation. If we go to the next slide, One of the things that I've talked about is how Hitachi as a both digital services company and Hitachi One Hitachi conglomerate is uniquely positioned to take advantage of these transformations happening across the market and market-driven by AI enablement and AI-led transformations. First off, look at us, we are uniquely positioned in our domain expertise in the industries we currently operate in, which is energy, mobility and connected industries, but also industries we serve across the world the mission-critical areas of telecom, automotive, banking, financial services and health care life sciences. In these industries, we have a unique advantage of strength in domain and understanding of domains to create FD teams that work with our top clients. to leverage capabilities that we've built with HMAX as our framework for data fabric and creating ontologies for these customers in these industries and most importantly, leveraging our ecosystems of partners and capabilities to deliver transformation services across every layer from the infra layer to the data layer to the agent applications layer and then, of course, the business process transformations layer. If we go to the next slide, we believe we are uniquely positioned at Hitachi Digital both in terms of what we've been building as capabilities globally with global logic, as a digital engineering, product engineering services company and Hitachi Digital Services, which has strong cloud operations, IoT and platforms capabilities across the world. bringing these 2 capabilities together has allowed us to create transformation both within our own front business units. And if you see, we have grown 46% year-on-year delivering these synergies and transformations across our FBUs, but also creating opportunities to serve the 7 verticals that we focus on. that I've talked about, mission-critical industries that are critical to societies and the world across the world. Second is really creating 4 growth service lines. We believe cloud and cloud ops, data and insights, enterprise platforms and agent platforms. And last but not the least, IoT that is an enabler for physical our capabilities that are uniquely positioned for us, and we're bringing the convergence of these capabilities along with the vertical focus areas to transform our top 200 customers, which have grown in single digits the last few years, but we've seen the opportunity to really take part in vendor consolidation across these customers because they trust our brand, they trust our capabilities, and they see unique sort of end-to-end capabilities that we drive along with domain expertise in these customers. Last but not the least, we've been investing steadily over the years in our IPs, which are both domain focused in the 7 industries that we focus on and also enabling ontologies for these industries to really enable and leverage AI for their business process transformation. One of the things that we are doing and going to the next slide, we're excited today to also announce a new name that brings our services businesses, namely Global Logic and Hitachi Digital services together. And the new name is Hitachi Digital and starting tomorrow, you'll see brand campaigns that define Hitachi Digital if you go to the next slide, and our brand theme around Hitachi Digital, which we proudly are sharing here with you all today, which is engineer what the world depends on. As you all know, we cater to mission-critical industries, that societies depend on and we've been delivering both the physical layer and digital rail transformations in these industries, and we'll continue to do that, enabling these industries to take full value and full potential of AI in the coming years. If you go to the next slide, you're going to see a lot of the brand purpose and brand transformation across our services businesses globally. But really, the focus is on being a services company that helps complex industries leverage data, AI and physical technologies and IoT technologies, convergence, stable business transformation in these industries as we cater to these customers across the world. If you go to the next slide, One of the things that we really are trying to, hence, simplify for our employees, for our customers and for our partners is what is our growth strategy. And we actually break it down into 3 areas. One is our core, which is our strength in the chosen verticals and the industries we serve as well as the industries we operate in. Second is the AI era and the service line transformation that we're doing with focus on service lines that are enabling our option, namely data and insights, IoT and physical enterprise platforms and agentic platforms; and lastly, cloud and cloud ops, including FinOps and TokenOps. The multipliers for us including our IP-led differentiation so that we nonlinearize how we serve our customers and help them build ontologies that help them build the foundations for AI transformation. And secondly, we'll continue to look at inorganic transformation and inorganic acquisitions. We've been successfully looking at inorganics and acquired capabilities across the world over the last few years. But I think we are now even more poised well because of the integrated organization because of the leadership structure we've created. And because of their customer access and market access, we have to participate in consolidation and acquiring capabilities in verticals, in geographies and in horizontals that we've identified as our focus areas. And last but not the least, the amplifiers, which is 1 Hitachi as a company that has access and understanding of deep domains and operating companies across energy, mobility and connected industries. -- and also uniquely poised with our ecosystem partners, which include hyperscalers, data scalers, model scalers and SaaS and platform scalers. I want to talk a little bit about these partners, if you go to the next slide. We're not just uniquely positioned here as partners that we leverage to create unique solutions for our customers with a lot of these partners as Hitachi conglomerate, we are large consumers of their technology. We are customers and we create 1360 relationships with each of these partners. And that's what makes us uniquely poised. And also the domain expertise we bring to these partners, along with our to take their technologies and really enable them to create true value and ROI with AI into the customer base that they want to serve and we jointly serve together. Lastly, if you go to the next slide, we just want to share some of the work we've been doing over the last few years and what differentiates us. We talked about industries we serve. Walgreens is 1 of America's largest pharmacies and continues to grow as a really consumer-focused, customer-focused, unique pharmacy across the country. For the last many years, we've been a digital transformation partner and now a data and AI transformation partner that is leveraging technologies to transform Walgreens pharmacy platforms, their supply chain, their last mile filling platforms as well as how they engage with their customers and price for their customers across their stores, across the country as well as their digital stores that they serve for North America. Hitachi High-Tech has been working with semiconductor companies in leveraging data and cloud to help them optimize their MES systems, their PLM systems as well as creating sort of the last mile advantage quality and transformation to optimize semiconductor equipment manufacturing and really creating higher productivity across the industries that they serve. Hitachi Rail is a large customer, and it represents all the mobility and automotive customers we work with. Again, for those customers, we are transforming how they manufacture, how they repair, how they do predict to maintenance, how they actually do last mile servicing of their customers and pricing of the customers. And last but not the least, Hitachi Energy, which represents the energy sector that we serve across the world where there's massive transformation happening, everything from transmission to distribution to pricing, to load management using data, cloud and AI, along with our ecosystem partners. So yes, this is just representative of some of the customers we serve and we continue to serve in the industries that we chose as a semi-focused industry. So we really, again, want to reiterate. We are uniquely positioned in the global marketplace as we bring global Logic and HGS together into Hitachi Digital to serve mission-critical vertical 20 of our top clients and continue to serve other clients across the world using 4 service lines that are really driving growth to enable AI adoption, true adoption with ROI in our customer base and leveraging our ecosystem partners to deliver their technology with value creation in these industries. I will take questions, and we'll pause at this point and hand it over back to you. Thank you.

[Operator Instructions] We will take questions for earnings as well as overseas IT business. So this you with questions, please press the hand raise button on Zoom's screen. [Operator Instructions] We will take questions from those of you on the Japanese channel. Members of the press institutional investors and analysts will be taking questions from all of you. Anyone with questions, please press the raise hand button. Please ask your questions in Japanese. [indiscernible] from Goldman Sachs Securities. So the number of questions is limited to. My first question has to do with DSS. As was presented one-off factor had it not been there, the margin has increased more than Q1. So JPY 9 billion of factors, specifically what were they? And could something similar happen in the future, that's what I would like to ask for. And on Page 12, on a full year basis the forecast, the margin without one-off factors is 18% or so. So since the full year forecast seems a little weak given the momentum right now. So are you being conservative? And you are leveraging AI to increase efficiency of development. Is that the case? If you could also answer that. That's my first question.

Yes. So 1 of the factors, as I explained, -- in 1 project, loss cost overrun happened. Unfortunately, it's in the area of SI, that's social infrastructure business. Having said so, we know what the outlook is going to be. So in Q2, because of the lost cost, I think the project will wind down, and I don't think there will be any further effect from that going forward. And regarding the margin, in the first half, excluding this, 17.2% on a full year basis, you suggested that perhaps our forecast is rather conservative. But this is because it depends on the mix of projects. Rather than being conservative, we're looking at the projects. As we do so, the first half number is as presented as well as the full year forecast. So we're being neutral in that, but this assessment to our capabilities. So we will continue to work toward improvement.

Just to follow up. So regarding AI utilization, you will use AI to improve margin as well as productivity. In Japan, I think there is quite robust demand for that. So perhaps projects that you have not been able to capture, you may be able to capture going forward, that's a possibility. So next fiscal year, 2 years from now, when will we start to see the impact? If you could please follow up on your answer.

As I have already explained, as of end of last fiscal year, SI business, has realized 10% productivity enhancement and FY '27 goal is set at 30%. So this fiscal year, at the end of fiscal year, 20% productivity enhancement is what we're looking for. So I think we will start to see the impact of that on our margin gradually.

My second question. And this is a question to Anand. Global Logic and Hitachi Digital service were merged. And additionally, what is it that you will be able to do as a result of the merger? On Page 11, you talked about the track record so far. But additionally, what is being enabled as a result of the measure. And -- in terms of digital services, AI-enabled cyber attacks are happening. So customers are discouraged to connect to the network that's negative. And I could also, however, be used positively to enhance security. So what is Hitachi's position on that? And what kind of commercial opportunities, business opportunities do you see?

All 3 great questions, by the way. There are 3 questions within your 1 question, but first off, I think, in terms of what does this merger bring together. Let's start with capabilities. If you look at global logic, the strength and capabilities of GlobalLogic over the years has been strong product platforms and application engineering, which is very critical, which is where the process and business process of every industry lies is at the application layer and the data layer. So product engineering, platform engineering and data engineering were strengths and our strengths of GlobalLogic. Hitachi Digital Services on the other hand has always built capabilities around enterprise platforms and agentiplatforms such as ServiceNow and Salesforce and the SAP and Oracle, as well as IoT platforms around MES, PLM CM and cloud ops, FinOps and now Token Ops. So as we combine these 2 organizations, we are now able to offer to our customers everything from engineering and build to transform and operate, which is really what customers are looking for as they consolidate their vendors and are able to work across the layers from the infrastructure layer to the data layer, to the API layer to the applications layer with fewer vendors who have went to end capability. So to the capability as we bring together the 2 organizations is a big advantage to customers. Secondly, both organizations customers who really like those capabilities have long been loyal customers and have worked with both organizations for a period of time, but they have not worked with each other's organization. So cross-pollination and really cross-selling into these customers, capabilities of each of these companies is a huge opportunity for us ahead. And when the consolidation is happening in the market, -- and given our size and the trust customers have in the Hitachi brand is something that we are leveraging a lot in driving the winter consolidation. Third is between the 2 organizations, we have strong deep domain expertise in different industry verticals. And as we focused on 7 industry verticals that I talked about earlier, we're able to bring the best of domain capabilities in addition to the horizontal capabilities of both organizations together. And last but not the least, I think the fact that these organizations are now operating as 1 single company with a single CEO, which is myself, a single CTO, which is a single CMO and the entire executive leadership that is 1 operating model. It makes it easier for customers, partners our ecosystem analysts and advisers, an industry at large, including our own employees, to see us as a single large global technology services and digital services provider and work with us in a much more sort of seamless manner. So that's the third big advantage. I think your question on AI and the risk is absolutely right. I think last 3 years, what we really, really believe has been a lot of hype around AI, right? A lot of POCs created a lot of interesting opportunities explored. But as we look at the next 5 years, enterprises are looking for more realistic adoption, and it starts with understanding the risk of security, risk of governance, risk of overrun of costs and most enterprises are not ready for it. And that's something that we bring as a large enterprise ourselves working across 3 mission-critical industry sectors, energy, mobility and connective industries, we are doing AI adoption in our own companies. And doing that at scale in extremely regulated industries has allowed us to build IP frameworks that help us build harnesses, AI agent registries security protocols, both at the OT layer and the IT layer because, again, we work both at the physical and digital AI layers. And then last but not the least, bringing governance around how our engineers build for each of the domains and solve for each of the domains using AI data and cloud foundations. So I think, again, just having that own expertise is what has helped us become valuable to our clients. So great questions.

And with respect to cybersecurity, because this also considers Japan just to add, within the CS or a cyber COE rather. And this is playing role in defending against cyber attacks, and we're exploring the risks. And we're also helping customers defend themselves. So centering around the COE, vis-a-vis customers were coming up with ways to defend them. How them defend themselves. From customers who are responsible for critical infrastructure, we're seeing increasing number of inquiries for security.

Well, Hitachi work with customer, FDA and cybersecurity COE, - both of them are going to work together to provide solutions to customers' problems. Our strength is representing topic, for example, so utilizing a frontier technology, we're able to provide technology, including that event topic. And we have OT internally, so inclusive of OT customer 0 as well as physical security, we're in a position to provide all of that.

[Operator Instructions] Regarding HMA, in terms of the target has gone up Y-o-Y, 70%, there's a significant growth that is expected in each bank. Is it -- the recategorization of existing service? Or is it a net increase or net acquisition? Can you give me a breakdown between the 2 furthermore. In terms of the net increase, and 22% EBITDA, is it high EBITDA in a similar way? What should be our understanding? Man, please respond. Thank you very much for the question.

Regarding HMAX, now this time, compared to the made definition so far, we have more detailed definition, HVAC's definition is given in the appendix. This point asset, the data utilization and AI enabler strengthened as a recurring digital service. These are 3 that have been identified. And there might have been some that were satisfying this. But we have reclassified according to the definition and posting revenues for H MAX. In order to make this HMAX, the conditions must be met. And that has been reflected accordingly. So please consider that most of this will be more business. Thank you very much.

Regarding energy. On the other hand, in this result, as well as the 5-year plan. In both contexts, I would like to ask the following question. In terms of the midterm energy, the supply capabilities increasing by 2.5x, these are growth rates that are explainable. Price increase more than inflation seem not to be reflected. But what about the recent past, profitability, 2.6 point improvement has been made in terms of profitability. So is margin going to be pushed up because of the price of orders? Is it more in the inflation increase. Please talk about the recent past.

Now in this case, for energy, in terms of revenues, we have not made up with the revision. We have changed the profit level. At the time of July, we had a revision, but the revenue level was being focused at the very last minute before the announcement. Therefore, taking into consideration the production capability, we believe that this is the level we can achieve. Then why has the margin increased is the question. Productivity increase is the driver. Productivity increase means that different prices must be smooth. And improvement has been made from 1 year ago, ARP utilization has gone up and inclusive of AI utilization, this is contributing to a productivity increase. Furthermore, for major project, that we are working in, there is loss cost potential that we have to be aware of, contingency must always be factored in. And so far, this is working well and loss cost was not as high as expected originally. And that is the reason why the profitability has increased. Furthermore, it's not related to the upward revision. But in terms of our long-term trend, I would say that price is still continuing to improve for the backlog, we are looking at the gross margin, and there is no change in the trend. I believe that there is room for further improvement. The upward revision that we have made has been factored in the first quarter. Productivity increase is the driver for the profit margin increase. Next, here are Kawas earns a muted and ask your questions in Japanese, please. aka speaking.

I have 2 questions. Question number 1 is directed to Anand. Once again, -- why did you join Hitachi? Why did you decide to work for Hitachi? You worked for Amazon as part of your career industrial company or Banco digital companies and so forth. But what kind of experience that you've had will contribute to Hitachi digital's success. Is there affinity, if I may ask? That's my first question.