Hitachi Ltd Ord

Thank you very much for waiting. Time has come, so we will now begin the financial results briefing of Hitachi Limited for the third quarter ended December 31st, 2023. Thank you very much for taking time out of your busy schedule to join us today. First of all, today's presentation materials are available on Hitachi Limited IR website and the news release site, so please check them as you need. Let me now introduce the three speakers. Yoshihiko Kawamura, Executive Vice President and Executive Officer, CFO of Hitachi Limited. Tomomi Kato, Vice President and Executive Officer, Deputy CFO. Masao Yoshikawa, Executive General Manager, Investor Relations Division. Kawamura will now give an outline of the financial results. Please wait for a moment while we switch screens.

Mr. Kawamura, please. Thank you very much for gathering for this meeting today. Now, we would like to start the explanation of the results of the third quarter for Hitachi Limited. Now, please look at page one. There are four points I'd like to emphasize today. First is the key points of the third quarter. Second, the results of the third quarter. three, the fiscal year 2023 forecast, and also number four is the appendix. These are the points I would like to cover. Now, please refer to page three. Here, I would like to give you the key messages for the results. There are three points that are covered here. In terms of the results, three sectors are included. Hitachi ASTEMO for automobile parts have been reorganized. They are no longer consolidated. Therefore, it is only for three sectors that we are showing performance for Hitachi Limited. That is the reason why we are referring to this as three sectors. The third quarter results will be presented. Revenues came in at 2 trillion, 128.9 billion yen, 11% increase. Iran adjusted EBITDA to 121.8 billion yen, YOY, 34.1 billion yen increase. So we have revenues and profits for the accumulated from Q1 to Q3. Revenues was 6 trillion, 53.7 billion, YOY increased by 12%. Adjusted EBITDA 581.5 billion yen YOY plus 83.4 billion yen increase in revenues as well as profit. Now, based on the three quarters, I'd like to talk about the forecast. Revenues, 8,285.6 billion yen. This is a 4% increase from the previous forecast. Adjusted EBITDA, 829.3 billion yen. an increase of 11.3 billion yen from the previous forecast. Therefore, we have revised upward in terms of revenues as well as profits. Now, in terms of consolidated total forecast, net income 530 million yen, that is 10 billion yen, increased from a previous forecast. Core free cash flow 440 billion, increased by 100 billion yen from the previous forecast. I would like to talk about major transactions for DSS, additional systems and services as well. We have had very strong orders, inclusive of that for Hitachi Energies for DSS. Epoch-making deals have been won, as mentioned here. The next generation nationwide load dispatching system has been won. This is not on a region basis, but rather nationwide, the load dispatching system has been won. Now, Hitachi Energy has also been very strong. And as mentioned here, from Tenet, we have won a business of 14 billion yen under the framework agreement for Hitachi Energy and Petrofac. and Hitachi Energy will supply its HPTC converter stations. This is a framework agreement for this deal or arrangement. With this, advance payment can be provided. This will also have a positive impact on our cash flow. Furthermore, for Trane Italia, we have won a deal of 140 billion yen deal for high-speed trains in Italy. Digital services and systems for the three quarters orders has exceeded 2 trillion. Iran Air up 9%, backlog of 1.5 trillion yen. Hitachi Energy orders for the three quarters came to 2 trillion 620.9 billion yen, up 51% year-on-year backlog of 4.3 trillion yen. So we have businesses worth 2 trillion and therefore we have a backlog of about two years. These are the major highlights of the third quarter. Now I would like to refer to specific details. Please refer to page five. These are the highlights of the results for the third quarter only. Please look at the text above. For the three sectors, we grew revenues 11% YOY basis and adjusted EBITDA by 18% organically. Please look at the table. Referring to the three sectors to the right, in terms of revenues, ¥2,128.9 billion up 11%. This is the growth of 11%. And 8% is the Iran air changes, excluding the impact of foreign exchange rate fluctuations at 8% adjusted EBITDA to 21.8 billion yen, YOY increased by 34.1 billion yen and Here, the YOY increase of 18% has been achieved. Adjusted EBITDA margin has also improved at 10.4% for the three sectors. Net income has increased significantly as well at 244.1 billion yen. Core free cash flows is also mentioned. This is an important KPI for our mid-term management plan. and it has increased significantly to 147.4 billion yen, increased by 97.1 billion yen. In terms of foreign exchange, yen is becoming weaker, and therefore we are assuming 148 yen. The sensitivity will be explained further later. Now please look at page six. Page 6 and 7 are the results of the business segments. Page 6, digital systems and services as well as green energy mobility. Page 7 is for the connected industries. Please look at page 6 for digital systems and services. On the very top, Y-on-Y basis increased by 9%, adjusted EBITDA increased by 16.1 billion yen. Therefore, increase in revenues as well as profit for the sector. Looking at the dynamics on the right hand side, front business increased revenues and learnings IT services increased also revenues as well as profit. Service and platforms revenues was flat. However, The cost reduction has led to an increase in profit, as shown below. Global logic continues to grow strongly, increasing revenues as well as profits. Just to do a bit, 87 billion yen is the highest ever record for a digital system service. Next, moving to green energy mobility, please look at the top line. YOY basis increased by 21% for revenues and almost went to around 100 million yen for adjusted EBITDA. Hitachi Energy Trail has increased revenues, but power grid related costs has increased somewhat. And that is the reason why adjusted EBITDA is almost flat. Now, nuclear energy Hitachi Power Solutions is also mentioned here. YOY increased by 32% or plus 0.6 billion Hitachi Energy. Here, there has been a significant contribution to revenues increased by 25% in terms of revenues and adjusted EBITDA 9.2 billion. The market environment as well as the framework agreement has had a positive impact. Therefore, making significant contributions to the profitability-related cost is also shown here. Railway systems for the third quarter has an increase in revenues but a decline in profit. This will be explained in further details in later pages. If you look at it on a year-to-date basis, it is increased by revenues as well as earnings. Therefore, this situation is special to the third quarter. Next, looking at the connective industries, looking at the very top, in terms of the revenues flat, EBITDA has increased by 400 million yen. Down below, the building system is shown here, declined by 1% instead of revenues, increase in adjusted EBITDA by 1.9. This is linked to the Chinese real estate market correction is taking place. In our case, there have been significant impact. But even with less revenues, profit is increasing. This is because from hardware, we are now shifting away to focus on services. which is shown in this result. Smart life and eco-friendly systems, which is home appliances, minus 7%, minus 0.7 in terms of adjusted EBITDA. We believe that this will be the bottom this year. Next year, we are poised for recovery. The reason why I say this is that because of the pandemic over the three years, home appliance had a significant increase. So we are now in a reactionary decline. And this correction will be reaching a bottom this year. And next year we are poised for recovery. Next, measurement and analysis systems, Hitachi high-tech, YOY basis, minus 7%, just decreased by 6.5 billion, decreasing revenues as well as profit. The measurement and analysis system for medical is growing very well, but the semiconductor manufacturing equipment around last year, this time last year we thought that semiconductor cycle will recover but there's been delay of one year and therefore this year will be the bottom and therefore That is the reason why we have a decrease in revenues as well as profit, which is at the bottom. Industrial and digital, water and environment, and the industrial products, industrial areas are all posting increasing revenues as well as earnings. remaining very strong here we are looking at the sub series at the very top we have hitachi as demo but in october it has converted to equity method affiliate and therefore on a yy basis the second half will be less and therefore it does negatively touchy The construction machinery, we only have 25%, so it is not in the scope. Hitachi Metals is also being deconsolidated, and therefore there will be no impact in the fiscal year. Page 9. Based on what I've explained, looking at revenues on top and adjusted EBITDA on the bottom, this is the waterfall chart showing the movement. As for revenues at the top, at the left-hand side is the third quarter result for last fiscal year, right-hand side is for this year. The movement is shown in the middle. First of all, there have been the divestiture of the Hitachi metals, minus 279 billion. Divestiture of Hitachi estimals, minus 383.6 billion. And foreign exchange was impacted positively, 5 billion. And there have been sales efforts made and increase altogether by others 163.6 billion and we end up at 2 trillion 258 billion so it is declining revenues for adjusted EBITDA we start with 231.1 billion the items are the same uh the vestibules metals uh a steamer and foreign exchange and other efforts made and we end up at 231.2 billion as i have mentioned earlier in terms of revenues are declining, but for just EBITDA, you can see that it remains flat. Revenues are declining, but profit is being secured in these results. Page 10, please. here at the end of the quarter and the balance situation is explained here a cash flow situation is explained here the gray area is as of uh December 31st 2023 end of the the third quarter now we are at the 12 trillion and 73.2 trillion 12 trillion 73.2 billion And looking at the difference with last year, in terms of assets, minus 428.2 billion because of Hitachi's stimulus below. Looking at 51.5 days, and in terms of cash conversion cycle, it is improving by 6.6 days. This is because of the cash flow improvement for Hitachi Energy. You can see that the cash conversion cycle is improving significantly. The ratio is also improving to 0.32 times. In fact, on a full-day basis, it would be even better than this. In terms of cash flow, on the other hand, there is operating activities, investing activities, and free cash flow is around 70.8 billion, increased by 136 billion yen. uh core free cash flow which is most important to uh kpi one of the most important uh is increasing about 193.6 billion to 268.5 billion yen page 11 please now let me update you on lumada situation so there are three tables first upper left

far left and second one this is the third quarter of fy 22 and 23. at the top you can see the revenue third quarter fiscal 22 was 476 billion if up to 568 so that's one yoy 19 up and you can see the legend the revenue from the four quadrants and the two on the right bar graph. This is the full year of FY22 and FY23 forecast. FY22, this was $1,960,000,000,000 up to $2,330,000,000,000. So that's another 19% increase YOY and then adjusted EBITDA. It's 1% up from 14 to 15%. Next, the bar graph on the right. This is Lumada business ratio of overall. Left is revenues and the proportion of Lumada. And the right side is adjusted EBITDA revenues. FY21, 22, and 23 forecast this year. $8,285.6 billion, and of which $2,330,000,000 is Lumada. So that is 28% of total adjusted EBITDA. Likewise, Lumada proportion on adjusted EBITDA base is now up to 41%. Close to half is Lumada. Now you can see the horizontal bar graph. This is what I mentioned at the outset. FY 2023 revenue, the left side, $2,330,000,000 breakdown here. Digital systems and services, $1,040,000,000. YOY, 21%. Green energy and mobility, $390,000,000. YOY, 23% plus. Connective industries, $900,000,000. YOY, plus 15%. And you can see the topics at the bottom of the page. One is... is the load dispatching system. This is the largest. This is completely Lumada. And Hitachi Energy for an overseas package will be brought in. So it will be the international specification. This is big. And Global Logic on a smaller scale will acquire digital engineering companies in Australia and the US. And Suntory Beverage and Food Limited, and we have a collaboration. So this is a traceability system for raw material receipt to manufacturing, logistics and warehousing. And lastly, generative AI. We are now trying to utilize generative AI internally and externally. We're seeing new movements. So that was up to the third quarter. Now, from page 13, we will have the full year forecast. Page 13, please. So in all profit items, we have revised upward in all items, three sectors, YOY 8% up and adjusted EBITDA plus 104.4 billion, 14% up. The revenues, three sector is 8 trillion, 285.6 billion. This is plus 8%. So this is the 8% that I mentioned earlier and left side, This is the excluding foreign exchange factor adjusted EBITDA 829.3 billion, YOY 104.4 billion, and this is 14% up. Adjusted EBITDA 10%. And net income attributable to Hitachi Limited stockholders, 546.8 billion. So all profit items increased. We're revising all items up. And EPS, 588 yen. And on the left side, core free cash flow, up from 340 to 440 billion, up by 100 billion yen. And ROIC is up from 8 to 8.2%. Now, the small table on the right side is the FX sensitivity. No change from the past. 140 yen to a dollar. So if one yen depreciates by one yen, how much impact on revenues and adjusted EBITDA is shown. So with one yen depreciation, 3 billion plus on revenue and 200 million yen plus on adjusted EBITDA. Page 14. So the earlier had two pages, now a summary on one page. Digital systems and services. So if you could look at the entire sector, revenues, $2,550,000,000,000, and just EBITDA, $321,000,000,000, 12.6%. This is the highest profit. And YOY, 7%, $27.2 billion. And this is up 3%, 11% up from the previous forecast. Dynamics. revenues and profits are up. In global logic, both revenue and profit are up. Next, green energy and mobility. The top sector part, revenues 2 trillion 970 billion, just the EBITDA, 190 billion yen, and YOY, plus 20%, 26.4 billion, and plus 7%, plus 4 billion against previous forecast dynamics. So first of all, against a previous forecast revised up by 190 billion in revenue and 4 billion in adjusted EBITDA. Hitachi Energy, revenues and profits are up. And Railway, as I said earlier, on a full year basis, revenue and profit are now up. Third quarter alone is not, but full year revenue and profits are up. Connective Industries, top row revenues. 3 trillion yen and adjusted EBITDA 330 billion, plus 1%, 17.8 billion yen. Against previous forecast, it is flat. Building systems, plus 3%, plus 4.5 billion. So both revenue and profit are up. And measurement and analysis system, Hitachi Hitech, because of the reasons I mentioned earlier, revenue is flat. but it's slightly down. ASTEMO is now equity method. It will convert to an equity method affiliate. Next, page 15, please. Full-year revenue and adjusted EBITDA comparing last year and this year. So, $10,881,000,000 in FY22, Both Hitachi Construction Machinery, Hitachi Metal will be divested and Hitachi Astemo Foreign Exchange will be positive and others positive. And so it's 9,450,000,000,000 yen. I just said EBITDA. FY22 is 884.6 billion yen and same increase and decrease items. Right side, 880 billion yen. Revenues is down, but adjusted EBITDA is flat. Slight decrease, but flat. The listed companies will be excluded, and that impact is absorbed and achieving this level. So that was the full year results. From 2017 onward, this is a cumulative first, second, and third quarter. The big trend remains unchanged. Three sector grew revenue YOY 12% and increased adjusted EBITDA YOY 83.4 billion, 17%. Revenues 6 trillion, 53.7 billion, plus 12%. So that is the 12% you see on the first row. And 9% is excluding FX. Adjusted EBITDA, 581.5 billion. And plus $83.4 billion is reflected here. So that is YOY plus 17%. Adjusted EBITDA margin, 9.6%. And net income, $461.9 billion. Core free cash flow, $268.5 billion. This is cumulative third quarter, three-quarter cumulative. Next, page 18. This is quarter one through three. Big change, no change in trend. Digital systems and services, YOY. So both revenue and profit are up. Globalogic, both revenue and profit are up. Green energy and mobility, both revenue and profit are up. Hinachi energy, a big jump. And rail systems is also up in sales and profit. Connective industries. Revenue is up by 2%, but adjusted EBITDA because of the Hitachi Hitech, the semiconductor related, minus 2.9 billion in buildings. No increase in revenue, but the business composition changes. So profit is up and Hitachi Hitech number is shown here and as demo. So total here. Page 19. Consolidated statement, profit and loss. You can see small numbers, but FY23, the gray part, the numbers I already mentioned are listed. Revenues, $9,450,000,000 and adjusted operating income, $740,000,000. And you can see the ups and downs. Adjusted EBITDA, $880,000,000 and EBIT, $790,000,000. And third, from the bottom, 24.4% effective income tax rate. This is bigger than last year's 14.2%. But last year, because of the deferred tax asset and the deemed dividend, those were the factors. And 24.4% is a normal rate. Bottom net income, $530 billion. Page 20, please. This is up to third quarter cumulative by region, by market. You can see in black box, three sector total revenues and the composition ratio. Japan is 39. of the 2 trillion 354 billion in China, down by 1% to 13%. Digital systems and services, 27% down. So in China, uh you can see that's a big factor and on the right side back to the black box asean india nine percent that's up by six percent and north america fifteen percent this is plus nineteen percent on a yoy basis global logic contributed significantly in europe seventeen percent yoy accounting for a big portion, and other areas. On the far right, you can see third quarter cumulative overseas revenue, 61%. So over 60% is overseas. Page 21, by segment, order results. Digital systems and services, and then green energy and mobility, and right side, connective industries. Digital systems and services, front business and YOY, They're all strong. Order is growing from last year. Green energy and mobility. Fiscal 23, third quarter YOY. Third quarter YOY. Nuclear energy 32% down and railway system 53% down. I will answer in the Q&A session. in FY22 had large contracts. And so it's a reactionary fall from that. Connective industries on the right side. There's some triangles or a building minus 7% and smart life and eco-friendly systems and 6% in high tech. This reflects the current circumstances. But the three industry BUs are up. I went rather quickly. But that was the outline of the material we delivered today. Thank you very much.