Hitachi Ltd Ord

It is time to start, so let us begin. At this moment, we would like to start Hitachi Limited's web conference in Q1 of FY2023 earnings briefing. First, we thank you very much for taking time out of your busy schedules to attend this briefing. The materials for the meeting are posted at Hitachi Limited's IR site and also the new news release site. So please have a look if necessary. Now let me introduce the three speakers from Hitachi Limited on the stage. Yoshihiko Kawamura, Executive Vice President and Executive Officer, CFO. Tomomi Kato, Vice President and Executive Officer, Deputy CFO. Masao Yoshikawa, Corporate Officer, Executive General Manager, Investor Relations Division. So we have three speakers. First, CFO Kamura will provide an overview of the financial results. Please bear with us while we switch the screen.

Kamarasan, please. Thank you very much. Hello, everyone. Thank you very much for attending this meeting despite your very busy schedules. Today, we'd like to give the consolidated financial results of the first quarter ended June 30th, 2023 for Hitachi Limited. This is the table of contents of the materials. There are four items. I would like to give the key messages. Q1, fiscal year 2023 results. The third topic is the forecast for fiscal year 2023 and appendix. I would like to cover each topic one by one. Please refer to page three. these are the key messages of the first quarter number one the q1 fiscal year 2023 continuing consolidated business revenues are presented and this is without just the three sectors business are included here this is what we refer to as a continuing consolidated business revenues which was 1 trillion 828.3 billion yen, Iran increase of 12%. Most important KPI is the adjusted EBITDA, which was 156.9 billion yen, Iran year increase of 31.9 million. We had increase in revenue as well as earnings. Now, Hitachi Energy performed very well. And this has been reflected in the profitability as well. On the back of strong demand, it grew significantly and it was a driver for profitability. The second point is the large-scale businesses, specifically digital, Hitachi Energy and railway systems are included. orders received were very strong in the quarter. As mentioned here, as you can see on the right-hand side, the backlog for digital systems was 1.5 trillion yen. For Hitachi Energy, the backlog was 3.6 trillion yen. For Hitachi Energy, the revenue is around 1 trillion yen, so we have a backlog of three years' worth of revenues. Railway systems backlog of 4.6 trillion. Revenue is about 1 trillion yen every year. So there is a backlog of about four to five years. Backlog has been very strong for the quarter. Number three, I guess it's backdrop. performance has been very strong and forecast for the full year in fiscal year 2023 will remain unchanged from the previous forecast. There are three bullet points mentioned here. Major topics include that Hitachi Astumo in June of this year has become an equity method affiliate and not subject to consolidation anymore. Therefore, in terms of this budget, it is based on the assumption that it will become an equity method affiliate for the Thales GTS. This is included in the forecast for the second half of the year. 100 billion is the share repurchase that we are conducting at the moment. Everything is proceeding very well. And by September, we should reach the level of 100 billion yen in terms of the buyback. So those are the key messages, the qualitative messages for the first quarter. Please look at page five. These are the highlights of the results of Q1 for fiscal year 2023. There are two messages here. The continuing consulting business is the middle column, mainly on Hitachi Energy. It has been performing very well. And there has been the absence of the impact of lockdown in China as well from the previous year. So we have an increase in revenues as well as earnings. Another positive factor is that material prices are now largely offset by price pass-through. Therefore, we have been able to absorb the impact of inflation to a significant extent, leading to increasing revenues as well as earnings. And based on that, revenues for continuing consult business was $1,828.3 billion. The YOY percentage was 12% increase and it says 9% in brackets to the left. This is mentioned in footnote 3 and yen is becoming weaker. And excluding the impact of foreign exchange rate fluctuation is 9%. Adjusted EBITDA was 156.9 billion, and the YOY increase of 31.9 billion. Adjusted EBITDA margin 8.6% to YOY, a one-point increase has been recorded. And the net income for the quarter was 73.1 billion, increased by 32.6 billion. Now, please look at the right-hand side, which is the coal-free cash flow. Coal-free cash flow was 29 billion, and the year-on-year increase was 23.6 billion. To the right is the consolidated business. Specifically, Hitachi Astemo, Hitachi Construction Machinery, and Hitachi Metals are included. Below, foreign exchange information is provided. This is the actual exchange rate for the first quarter when the budget was formulated. It was 130, and 130 yen was the assumption. But for the Q1, it was 137 yen, and for euro, 149 yen. The sensitivity will be shown later. The weaker yen is having a strong impact on the revenues. Please refer to page 6 and 7, which is the results of the business segment, the first quarter results are presented. First of all, referring to page 6, digital systems and services at the top for the first quarter. The revenues was 545.9 billion. Adjusted EBITDA was 52.4 billion yen, 9.6%. And YOY basis is shown on the right-hand side for revenues as well as adjusted EBITDA. Therefore, we had an increase in revenues as well as earnings. There are three subunits performance shown as well. As you can see, the servicing platforms below, was 225.9 billion in terms of revenues, adjusted EBITDA was 16.1 billion, increased by 6% in terms of revenues, and minus 3 for adjusted EBITDA. But as mentioned on the right-hand side, the storage business has had an impact which is causing a slight negative, but as written below, Global Logics, the DX core company, is continuing to show significant growth, the increase of around 26% in terms of revenues, increase in revenues as well as earnings remaining very strong. Green energy and mobility is shown below. and revenues was 627.9 billion, 43.1 billion in terms of EBITDA, plus 23% year-on-year increase in terms of revenue, EBITDA increased by 19%, increase in revenues as well as earnings. Static energy is shown here, as I mentioned earlier, performance is improving very significantly for this business. The revenues were 385.9 billion, 29.3% in terms of adjusted EBITDA, 7.6% for Iran Airbases, 28% increase and 11.9% increase, which is 1.8 point increase. In particular, the short delivery products is increasing in the first year, There were many that were not included in the PL. But, strategically, we are capturing the short delivery products, which is making significant contribution to Avenues railway systems, as was 185.7 billion, 13.7 billion in terms of adjusted EBITDA, 0.4% to 19% increase in revenues. Overall, the two sectors are showing revenues increase as well as earnings increase. Next is the collective industry. The revenues was 695.3 billion adjusted EBITDA to 67.8%, 9.8%. YOY revenues was plus 4% increase in revenues as well as earnings here as well. Now, looking below, building system is minus 3% on a Y&Y basis. This is mainly the elevator business in China accounting for a large portion, and there has been adjustment taking place in the Chinese real estate market showing a negative number here. And high-tech measurement and analysis system, Y&Y, minus 2% or minus 8.4 billion is shown here. This is because of the semiconductor manufacturing equipment recession is taking place. It is an adjustment phase. Therefore, revenues are decreasing. And last year, there have been significant orders received. So there is a reactionary decline. Digital water environment, industrial products. Please refer to the numbers on this page. Page 8. These are the results of the business segments consolidated basis. In Dutch ASTEMO, 494.1 billion adjusted EBITDA was 14 billion. The ratio is 2.9%, rather low. YOY revenue, 27% increase, 18.7% increase for adjusted EBITDA. Last year, we struggled and so there is a reactionary increase this year. Hitachi construction machinery and Hitachi metals will no longer be subject to consolidation, so they are zero. Page 9 is showing the factors affecting changes in revenues as well as assisted EBITDA, showing the trajectory. Now, looking at revenues first, at the left is the first quarter of last year, 2.569 trillion. And we will no longer have the Hitachi construction machine, so that would be negative. I mentioned 137 yen per US dollar and 149 yen per euro. having an impact. Others is $236.9 billion. This is organic M&A without divestitures. So the organic growth is $236.9 billion currently in the mid-term management plan. We have rearranged the portfolio. We are going to be focused on the organic growth going forward according to the mid-term management plan. and the organic growth going forward according to the mid-term management plan. And 2 trillion 322.4 billion on the right. This is without Hitachi Construction Machinery and Hitachi Metals. So it is a decline in revenues. Look at now adjusted EBITDA. Last year was 154.8 billion. That is a starting point. The best share of Hitachi Construction Machinery and Hitachi Metals. And there is a foreign exchange impact shown on the right hand side. Otherwise, there is organic growth. And we have ended at 170.9 billion, which is an increase in earnings for the quarter. Next page, please. Page 10. This is looking at the financial position as well as the cash flow. The middle column is as of June 30th, 2023 balance sheet and cash flow. At the very top, the total assets was 13,155,000,000. Changes from last year was 653.9 billion. You can see a significant increase has been recorded. Looking below, the total liabilities increased by 350.9 billion yen. This is the effect of the foreign exchange. It isn't as if there have been changes, significant changes in the balance sheet, but rather it has increased as a result of foreign exchange fluctuations. Looking below, cash conversion cycle, there has been an improvement of 2.8 days. Please look at the cash flow now. Cash flows from operating activities, $118.1 billion, increase of $12 billion from last year. Cash flow from investing activities should be noted as well. The improvement of $30.1 billion free cash flow, $78.2 billion, increased by $44.1 billion improvement. Core free cash flow was $29 billion, improvement of $23.6 billion. So, for all these cash flow items are proceeding well. So far, I have talked about the first quarter situation.

Next, I would like to discuss FI 2023 annual forecast. Please have a look at page 12, as is in the bullets at the top, as I said. The forecast for the year has not been changed from April. So it remains unchanged from the previous forecast. And as I said up front, Hitachi-Astema will be deconsolidated, and Thales SGTS is included in the forecast for the second half of the year. Please have a look at the table below. Revenues, 8.8 trillion. And these have not been changed to the right. Continuing consolidated business, $7.82 trillion for the year, up 2%, excluding Forex Impact, plus 3%. Adjusted EBITDA, $800 billion. 10%, and for adjusted EBITDA margin net income, 502 billion. EPS, 537. ROIC, 7.5% core free cash flow, 310 billion. The numbers have been the same. And forex sensitivity is shown in lower right. And the assumed FX rate, 130 yen to the dollar, 140 yen to the euro. And sensitivity is shown to the right. As you can see, when yen depreciates by 1 yen, what will be the impact on revenues and adjusted EBITDA? With 1 yen change, 10 billion in revenue, adjusted EBITDA plus 1 billion. So these are the increases as a result of the impact from 1 yen cheap depreciation. Page 13 shows highlights of forecast for FY23. So not all the BUs are shown. The large ones are applauded. So DSS, Green Energy Mobility and Connective Industries, at the very top, Digital Systems and Services, The annual forecast, 2.45 trillion adjusted EBITDA, 308 billion, 12.6% in terms of margin. So YOY, increase in both revenue and income forecast remains unchanged, so 0% from the previous forecast. And global logic, as I said in the beginning, it's going through a high growth. Revenue of 252 billion and adjusted EBITDA, 52%. 20.6% YOY, 22% growth. Green energy and mobility, 2.58 trillion yen of revenue, 173 billion yen of adjusted EBITDA, and margin of 6.7% YOY, both increase in revenue and income, no change from the last forecast. And Hitachi Energy on a standalone basis, 1.502 trillion yen of revenue, 122 billion yen of adjusted EBITDA, 8.1%. Railway, 925.1 billion yen of revenue, 57.9 billion yen of adjusted EBITDA, 6.3%. And Connective Industries, a revenue of 3 trillion. Well, the top two, around 2.5 trillion yen of revenue, as opposed to connective industries having revenue of 3 trillion in our forecast, and forecast adjusted EBITDA, 330 billion, and expecting increase in both revenue and income. As I said, for the first quarter results, building systems are affected by China's correction in real estate. YOY is down. Hitachi HITEX measurement and analysis system is affecting the forecast, down 1%. Hitachi ASEMO, 980 billion yen of revenue, 35 billion, 3.6%. So down 49%, down 38.4. This will be deconsolidated in the second half and thus a major reduction. So on a YOY basis, this is the extent of reduction. Moving on to page 14. Just like we saw in the first quarter results, factors affecting changes in revenues and adjusted EBITDA. FMFI 2022-23, the trajectory is shown. Looking at the revenues, top left, $10,881,000,000,000 HCM and Hitachi metals are deconsolidated. Hitachi Astema is also going to be deconsolidated, so there's negative impact. And Thales railway signal is going to be acquired, a positive factor. And For an exchange, a negative number, 130 yen is the assumption, and thus this number. If it's going to be 139, 140, it's not as large a negative number as this is. This includes a buffer and organic growth, 206.7 billion. And so far right, 8.8 trillion yen forecast for FI23. So HCM, Hitachi Metals and ASTEMO are going to be deconsolidated. Therefore, they're going to contribute negatively for revenue adjusted EBITDA. Last year, 884.6 billion. This year, 835 billion. So the factors are likewise. HCM and heat-touch metals and estamol are deconsolidated, therefore negative impacts. Talus has a positive impact. And for an exchange, $7.5 billion. And organic growth impact of $78 billion. And thus, the number forecast is $835 billion. And if you could go to page 15, details about Lumada, there are four charts. On the far left, Lumada business revenues are growing, and that is shown. On the far left, first quarter of last year, and next, first quarter of this fiscal year, and FY 2022 annual result and the forecast for this year. Looking at the circles at the top, And there are legends describing this adjusted EBITDA margin of 14% to 15%. As you saw earlier, most of the other businesses at around 10%. So Lumada is shown to have higher profitability. As our strategy, we would like to increase the component of Lumada business because it will push up our profitability. And that is what we're working on. As you can see, from Q1-22 to Q1-23, 30% increase was recorded. And on an annual basis, 14% to 15%. So Lumada is growing very strongly, very briskly. And to the right, we are trying to increase the ratio of Lumada business. On the left revenues, on the right adjusted EBITDA. So FY21, 22, 23, the three-year numbers are given. So revenue ratio is increasing from 21 to 26 to 29 percent EBITDA the same and the red portion is Lumada business so you can see that the portion of Lumada business is still steadily increasing and horizontal bar chart below It shows Lumada business revenues composition by segments, digital systems, services, green energy, mobility, connective industries. Connective industries is increasing as a proportion. It's now up to 910 billion, a very large portion. So it's almost close to DSS in terms of Lumada business. And at the bottom, shown are topics in terms of business expansion. Irish digital engineering company, Sidero, is to be acquired. And alliances are going to be crucial. So with AWS, Microsoft and others, we are pursuing alliances. And number three, this is about Honolulu, Hawaii. a fully automated urban rail system, and this was covered in a major way in Japanese media as well. And behind this is Lumada. This is a huge project, over 200 billion. And in Honolulu, there's no major railway. There are eight or nine stations, for 17 to 18 kilometers. For about 15 minutes or so, the train will be operated fully automatically. And we just had a ceremony. It was covered extensively in the local media as well. And in terms of strengthening digital infrastructure, we have set up generative AI center. We have started various activities around this. And we also have a third corporate fund investing in generative AI as well. So that was about the annual forecast. Now let me briefly explain the appendix. If you could please have a look at page 17. On the far left, Q1 comparison, last year versus this year. And on the right hand, annual comparison. So FI23 shaded in gray. Revenue of 8.8 trillion, adjusted operating income 675. The numbers have not changed. So on the far right, a plus minus zero, because we have not changed the forecast from the last time. Please have a look at page 18. This shows the Q1 revenue by market. If you could look at the bottom, the compositional ratio, 35% comes from Japan, and overseas in total 65%. So Japan versus overseas has come to this level. What is characteristic this time is China right next to Japan. Please have a look at this column. Minus 28% in digital green energy and mobility, plus minus serial connective industries, down 5%. And total minus 12%. China's economy is in correction, having difficult times, and that is reflected in our revenues. Now, moving on to page 19, orders by a business segment focusing on Q1. Orders are very brusque. From the left, DSS Digital, 11% year-on-year growth in orders. And green energy and mobility, Hitachi energy, 69% increase. Railway systems, 149% Y-on-Y. To the right, connective industries building, down 14%. Hitachi high-tech, down 12% year-on-year. And that's because of the factors I explained earlier. Those are the Q1 results and the annual forecast for this year. That concludes my presentation. Thank you for your attention. Thank you very much.