Hitachi Ltd Ord

The scheduled time has come, so we will now begin the briefing on Hitachi Limited's financial results for the year ended March 31, 2024, and the progress of the Mid-Term Management Plan 2024. Thank you very much for taking time out of your busy schedule to attend today's briefing. CFO Kato will first explain the financial results for the year ended March 31, 2024, then President Kojima on the progress of the MMP 2024, followed by a Q&A session. The presentation materials are available on Hitachi Limited IR website and news release website, so please take a look. Let me now introduce the two speakers. Keiji Kojima, President and CEO of Hitachi Limited. Tomomi Kato, Senior Vice President and Executive Officer, CFO. Mr. Kato will first explain the overview of the financial results. Please wait for a moment while we switch screens.

Cut us on over to you. From this time onward, Kato will be presenting on consolidated business results. Thank you for attention. Let me explain the contents. Page one, please. So first, key messages of the consolidated results. And next, FY2023 results and forecasts, followed by performance by business segment. And lastly, appendix. These are the contents. So let me present the key messages. First, FY23 results. Due to robust orders by DXGX Tailwind, Lumada business expanded and cash generating capability also enhanced. As a result, three sectors achieved higher revenues and profits. especially with the penetration of cash flow management, we were able to have record hardcore FCF and ROIC, an indicator for capital, was also improved. And there are six KPIs I would like to explain. In the Three sectors revenue grew by 12% green energy and mobility. A digital service and systems have grown mainly and excluding forex impact. 8% growth was seen adjusted EBITDA year on year increased by 20%. And EBITDA margin on an adjusted basis went up by 10.1% improvement over last year. And. net income on a consolidated basis increased to 589.8 billion, and because of less cost from restructuring, it was better than the earlier published forecast. Core cash flow increased by more than 155 billion, and it had a record high of 571.4 billion yen. And conversion ratio was 97%. So most of income was turned into cash flows. And ROIC, because of SEMO and with reduced interest-bearing debts, it improved by one point to reach 8.7%. Next, FY24 forecasts. The 24 MTPs are to be met, so we're expecting increased revenue and profit for three sectors. Core cash flow is expected to be 1.5 trillion yen, exceed target by 0.3 trillion yen in the first quarter. Half, three sectors. Revenue is expected to grow by 5%. Excluding Forex, 8% growth is expected, which is on par with FY23. Adjusted EBITDA is expected to grow 20%, excluding forex impact. The growth expected is 23% in adjusted EBITDA. So just like FI23, 20% growth is expected. And adjusted EBITDA margin is expected to grow to 11.5%. And in the lower half, on a consolidated basis, net income to grow to 600 billion yen. Core free cash flow is said to be 480 billion yen. On a three-year cumulative basis, it is to exceed the NTP target, although there are changes in capex and NTP. ROI, because of increased EBITDA, is going to rise year-on-year to hit 9.5%. So it's going to be close to 10% that is expected under MMP. Lastly, shareholder returns. So core free cash flow is to be strengthened. And with additional sales of policy holdings, we are expecting to see increased shareholder returns. In terms of dividend, the total dividend is, is going to increase 15.3 billion, and we're going to pay 144.5 billion yen. So 24% growth in dividend to be 180 yen per annum. With respect to share buyback, it's going to be increased by 100 billion yen from FY23 to hit 200 billion yen in FY2024. Now, let me give you FY23 results highlight. First, revenue. On a consolidated basis, because of restructuring of SAML and listed companies, it went down, but for the three sectors, it grew by 12%, as I said earlier, excluding Forex Impact, the growth was 8%. With respect to Adjusted EBITDA, with business restructuring, there was a reduction in operating income, but growth in income surpassed because of the three sectors, and so it increased. Lastly, net income. Because of the restructuring of listed companies, that cost decreased. That's this number. Next. Let me explain the changes to revenue and adjusted EBITDA year-on-year. At the top, revenues. On the far left, that is the actual for FY2022. Let me explain from left to right. So divestiture of Hitachi Metals and HCM and Hitachi Astamo divestiture in 2023. Because of these divestitures, revenue went down, but Forex had a positive impact on revenue and there was organic growth as well, especially CX Hitachi Energy. DX Front Business, IT Services, these were the ones that grew. And the bottom half, Adjacente Bida, similar trend is seen here. So others increased by 130 billion. Changes in business scale, selling price change had positive impacts and they offset the negative factors such as soaring material prices, depreciation and so forth. So Adjacente Bida grew year on year. Next, financial position and cash flows. At the very top, in the first line, total assets, 12.221 trillion, so down 280 billion year-on-year. There was positive impact from Forex, but because of ASDEMO, assets went down. So overall reduction was seen. For total liabilities, because of ASDEMO, equity method, and other factors, there was reduction by close to 1 trillion. So as a result, DE ratio went down to 0.2 times. So financial health went up. But leverage-wise, this may be too low. Inclusive of acquisition of the GTS business, we believe that the ratio will rise to a desirable level. Now, cash flow management, this has penetrated and most of the numbers went up. Hitachi Energy, because of advances, increased as a result. Operating cash flow and investment cash flow improved by more than 100 billion year-on-year. Record highs were seen. Next, revenue by market. So three sectors, mainly from left to right. First on Japan, increase of 8%. The largest growth was seen in DX, digital system and service. Front business, IT services also grew to achieve 11%. Next, North America, in terms of the three sectors, up by 22%. Mainly, Hitachi Energy, because of healthy growth in Borders grew and so DSS or GEM, 44%. Next, Europe, 16% growth. Hitachi Energy grew and became a driver. So GEM, 22%. And for other sectors, 32% growth. GEM, so 40% growth, especially Hitachi Energy. had Middle East projects and rail projects in Latin America, and because of Forex impact, 32%. And the ratio of three sectors was 59%. Next, let me move on to highlights of forecasts for FY24. As I said up front, Almost all KPIs of MMP 2024 expected to be achieved and core FCS to be achieved with 1.5 trillion yen. Acquisition of Talus GTS is planned to be closed in the first quarter of FY24. So we are expecting that to be factored in in the revenue forecast. Because of ASTEMA's impact from 23, revenue is going to go down by 7%, but excluding Fork's impact, growth is expected to be 8%. This is on par with the growth result in FY23. Next, on adjusted EBITDA, because of ASTEMA's equity method, there was negative impact on operating income, but on a consolidated basis, increase is expected. Net income to rise year-on-year, So because of ASTEMO in FY23, non-operating sales, 120 billion, that's not going to factor in, and yet we're going to see an increase. So three sectors because of ASTEMO and excluding its impact from the equity method, that is excluded. Next slide. affects the assumptions 140 yen to the dollar is retained. It's different from the actual rate, but there could be sudden change. And in anticipation of that, we decided to retain 140 yen. With one yen change, adjustability will be affected positively by 1.2 billion yen. Next, factors affecting year-on-year changes in revenue and adjustability. for FY24 at the top revenue. On the far left, the actual for FY23 is plotted from left to right. During FY23, Because of SEMO, revenue is going to go down. With acquisition of Thales GTS, however, we are expecting increase in revenue and negative impact from Forex and others include organic growth. Mainly, GX-related business, Hitachi Energies, services and platforms for DSS, and connective industry, CIs, Hitachi Hitech, In terms of semiconductor manufacturing equipment, there's going to be customer demand to be recovered in that area. And bottom, just to be done, we're going to see similar trends as those in revenues. For Palace GTS, the acquisition cost is excluded. And others, 160 billion yen increase in others. So increase in business scale and selling price changes are going to be positive factors, and they will offset soaring procurement costs and increased investment. So adjustability on a consolidated basis is also to grow.

Next, performance by business segment. First, digital systems and service, DSS. For the entire FY23, revenue grew by 9%. Adjusted EBITDA margin was 12.8%. So revenue and profit increased year over year. Revenue was front business and IT service growth and services and platforms. Global logic grew more than double digit and on dollar basis, it grew by 15%. Next slide. FY24, DSS overall, 4% increase, but excluding FX, it is plus 5%. So it will be the same growth rate as FY23. The three subsegments are expected to grow, especially global logics, excluding FX, will grow by 15%. And profit margin on a standalone basis will maintain 20%. Next, green energy and mobility, GEM. GEM overall fiscal 23 revenue grew by 24%, excluding FX, 16% growth. so both revenue and profit grew year on year revenue hitachi energy and railway bu grew by double digit so both grew sales revenue and profit next fy24 gem overall 12 growth but excluding fx 16 growth so It will be the same level of growth as FY23. Hitachi Energy and Railway BU will grow by double digits. Railway BU, TALIS, GTS, signal-related business is included. Others, Hitachi Energy and Railway BU... Excluding MA related expenses, expect more than 10% margin. Hitachi energy related cost is the new IT system after carve out will stabilize this year. Next is Connective Industries, CI. CI overall FY23 revenue grew by 3%. Adjusted EBITDA margin, 10.5%. So both revenue and profit grew year on year. Revenue, smart life and eco-friendly systems and Hitachi high-tech grew. And the water and environment where air conditioning and industrial products grew. FY24, CI overall, Revenue will grow by 3% and plus 5% excluding FX. And so the growth rate will rise vis-a-vis FY23. Building BU has adjustment in the China real estate market and water environment will also see a decline. But other BU's will grow, especially Hitachi Hitech. The customer investment in semiconductor manufacturing equipment will recover, so revenue will grow by 5%. In all BU, more than 11% profit margin is expected. Next, Lumada business. First, left side graph shows FY23 revenue. 19% growth year on year and profit margin 15%. So this is one percentage point improvement. Digital engineering and four quadrants all had more than double digit growth. In FY24, 14% growth and profit margin 16%. So another one percentage point improvement. Next bar graph on the right, FY24, Ratio of overall revenue will be up to 29%. Adjusted EBITDA will go up to 41%. Lumada business growth and profitability improvement will contribute to the growth of revenue and profit of Hitachi overall going forward of the appendix, the order by segment. Page 21, please.