Hitachi Ltd Ord

It is now time to begin, so let us start Hitachi Limited's conference on Q3 FI 2024 earnings. Thank you very much for taking time out of your busy schedules to attend this conference. The presentation materials for today are posted on Hitachi Limited's IR site as well as on its news release site, so please check as appropriate. Allow me to introduce the members on stage at this moment. Senior Vice President and Executive Officer, CFO Tomomi Kato. Deputy General Manager, Finance Division, Hiroaki Ono. These are the two on stage. Our General Manager, Yoshikawa, will not be attending today for he's not feeling very well. Kato will now provide an overview of the earnings, but please wait for a moment while we switch the slides on the screen.

First of all, I would like to explain the structure of the presentation materials. The presentation materials comprises the key messages for the Q3 fiscal year 2024, results fiscal year 2024 focus and performance by business segments and appendices. I'd like to explain the key messages. First, the third quarter results for fiscal year 2024. The three sectors increased revenues and profit compared to the previous year. In general, green energy mobility, renewable energies and renewal demand of power grid facilities remain strong in DSS. Digital systems and services, the expansion of demand for DX and modernization in the domestic IT market continue to benefit from Tailwind. In the latest quarter, the connected industries sector also grew both in Japan and overseas. Let me explain the five KPIs. The top row shows the totals for the three sectors. First, revenues increased by 16% in one year, 27% increase in June, 10% increase in DSS, and 9% in CAE. Adjusted EBITDA also increased in GEM, DSS and CI, resulting in a 34% increase year on year. Furthermore, the adjusted EBITDA margin was 12%, an improvement of 1.6 points from the previous year. Hitachi's consolidated figures are shown below. Profit attributable to Hitachi Limited's stockholders was 138.5 billion yen. Although there were increases in three sectors, there was an air-on-air decrease due to the impact of the gain on the partial sale of Hitachi Stamos equity of approximately 12 billion yen including the previous fiscal year and foreign exchange losses in the current fiscal year. On the other hand, coal free cash flows increased by approximately 50 billion yen from the previous year to 205.6 billion yen. This is mainly due to the increase in advance payments received for large projects. Next, let's look at the fiscal year 2024 forecast. We have made upward revisions in GEM where demand for GX is strong and DSS where demand for DX is strong. As a result, we have made upward revisions to five KPIs, Revenues, Adjusted, EBITDA, Net Income, Core, Free Cash Flows and ROIC. The six KPIs for this fiscal year are shown here, while the following page summarizes the comparisons with the previous fiscal year. Here I will explain the main financial KPIs in fiscal year 2024. There are three points. First, GEM and DSS are expected to grow significantly and CIO is also expected to be strong. As a result, the financial targets of the fiscal year 2024 medium term plan are expected to be largely achieved. Secondly, in addition to revenues and adjusted EBITDA, net income and core free cash flows are also expected to grow compared to the previous year. In particular, with regard to cash flow, equal amount is focused for net income and core free cash flow, resulting in conversion rate of 100%. Finally, shareholder returns, including the share buyback, will be 389.2 billion yen, an increase of approximately 140 billion yen euro a year. I will explain the figures in the middle table. First, the revenues of the three sectors. This fiscal year of 9.7 trillion yen is an 11% increase in our year, even excluding the effects of foreign exchange. This is growth forecast greater than the 8% increase in fiscal year 2023. All three segments are expected to exceed the growth rate of the previous year. The adjusted EBITDA ratio is also expected to be 11.4% this year, an improvement of 1.4 point year on year, which is greater than the 0.5 point improvement in fiscal year 2023. All three segments are expected to exceed the improvement achieved in the previous fiscal year. The forecast for consolidated income for the current fiscal year is 610 billion yen, an increase of 20 billion yen year-on-year. But if we exclude the impact of the partial sale of Hitachiya Samurai's shares included in the previous fiscal year, the increase is expected to be more than 100 billion yen. The forecast for free cash flow is 610 billion yen, an year-on-year increase. Without excluding the impact of partial sale of Hitachi's thermos equity included in the previous year, it is expected to increase by 60 billion yen. The table below summarizes the performance of Hitachi Energy, which is growing significantly in GX. The figures are in US dollars on a standalone basis. Over the past four years, orders Growing 35% year-on-year, revenues by 21% and adjusted EBITDA margin rate has improved from 6% to 11%, aiming for long-term growth going forward. Regarding the third quarter for fiscal year 2024, The three sectors were able to increase both revenue and profit and also increase their profit margins year on year. On the other hand, net income for the period increased slightly year on year due to the impact of foreign exchange losses this year. Although Hitachi's consolidated net income for the period decreased year on year, excluding the gain on the sale of Hitachi's stimulus equity, approximately 120 billion yen last year, net income increased by 20 billion yen year on year. Next, the breakdown of year-on-year changes in the sales and adjusted EBITDA. Let's look at the top section of revenue starting with the fiscal year 2023 3Q results. On the far left, I will explain from left to right. Although estimates revenues increased due to the sale of equity in the previous year, revenues increased due to the acquisition of GTS business from Thales and there was revenue increase in fact due to depreciation of the yen organic revenue was achieved. Increases are mainly in GX related business for Hitachi Energy, DX related business for Aiki Services and the front business in DSS. Let's look at the lower part, adjusted EBITDA. The trend is similar. Others increased by approximately 62 billion yen. With respect to the breakdown of the increase in organic revenues, changes in business scale, selling price change exceeded the impact of soaring procurement costs and increase in investment, financial position and cash flow. First, the total assets at the end of the quarter at the top. approximately 13.6 trillion yen, an increase of about 1.4 trillion yen around here. In addition to the impact of increased revenues, assets increased due to the acquisition of GTS business of Dallas and the impact of the depreciation of the yen. Interest-bearing debt also increased by approximately 610 billion yen due to the increase in working capital resulting from the increases in revenues and the impact of acquisitions as a result of debt equity ratio increased to 0.3 times. Cash flow, core free cash flow increased 0 on-year in both the third quarter and the year-to-date total due to improvements in working capital resulting from advance payments received. Next I will explain the revenues by region. The three sectors highlighted will be explained from left to right. First, Japan. The three sectors increased by 9% year-on-year. DSS, front business and IT services business grew solidly, resulting in a 14% increase for DSS. Next, North America. The three sectors increased by 16%. Hitachi energy grew significantly due to strong increases in orders for HVDC, switchgear, and as a result, the segment grew by 20%. In DSS segment, global logic grew. But there was a decrease in the storage business due to intensifying competition. As a result, GTS segment growth was 7% in the third quarter. On the other hand, CIG segment grew by 16% due to the recovery in investment in semiconductor manufacturing equipment. Next, Europe. There was 35% increase in three sectors again. Significant growth was mainly driven by increases in the signaling business following the acquisition of GTS business Montalis in railways and by the increase in orders for HVDC switchgear. and GEM was up 45%. Furthermore, the healthcare business of measurement and analysis system for high-tech grew. CI grew increased by 29%. In addition, ASEAN, India and other regions, Hitachi Energy of GEM recorded growth.

Next, I will explain the order results by segment. First, DSS in Q3 on a cumulative basis grew year-on-year. Despite a reactionary fall from previous year's large projects in the front business, IT services and platforms increased by over 10%. points respectively during Q3. Next, regarding JEM, JEM had large projects in nuclear energy and Hitachi Energy. Nuclear energy project is a domestic one in Japan. The projects for Hitachi Energy are primarily ones for HVDC in Europe, where with systems saw an increased duty, the favorable impact from the acquisition of Thales GTS. Lastly, regarding CEI in Q3, excluding the building systems which are affected by continuing corrections in China's real estate market, other views, by and large, were able to capture orders exceeding the previous year's level. Now on to forecast for FY24, the substance is the same as I delivered at the beginning. The foreign exchange rate assumptions are set as described on the lower right-hand side table. with the rate being 145 yen to the dollar this time. U.S. dollar-yen sensitivity is such that a 1 yen change to the rate is forecast to impact our adjusted EBITDA by 200 million yen. This time as well, we have not included risk buffers in corporate items. Therefore, this forecast may be subject to change potentially due to, for example, non-operating profit and loss, equity earnings of affiliates, impairment losses, or forex gains and losses. Conversely, however, we made upward forecast revisions to two of our sectors this time, and our head office thinks that that could be further upside overall. Thus, we have added approximately 15 billion yen to adjusted EBITDA in corporate items. We assume the main source of potential upside will likely come from Jim. Next, I will go through the factors affecting year-on-year changes in revenue and adjusted EBITDA. First, on the upper part of the page, for revenue, we expect our SAMU revenue to drop, revenue increase from acquisition of TALIS GTS, and lastly, others to drive growth in our organic revenue. Revenue is projected to increase mainly due to GX-related businesses in Hitachi Energy, DX-related businesses from business and IT services. Next, to take a look at the lower chart for Just City Beta, the trends are more or less the same as those for the revenue. Others are expected to increase by 210 billion yen. To break down the projected growth in organic revenue, changes in business scale and selling prices are to outweigh rising procurement costs and increases in investments, bringing Just City Beta forecast to grow year-on-year on a consolidated basis as well. If I may now move to the performance by business segment. First on DSS, digital systems and services, DSS overall saw a 10% increase in revenue for Q3. In FY24, adjusted EBITDA margin rose to 13.9%, bringing about increases in both revenue and profit. Revenue grew mainly from DX and modernization projects in the front business. While in the IT services, it was cloud and security-related Lumada projects that expanded the business. In the services and platforms, on the other hand, global logic grew by 18% and domestic cloud business also increased. But the storage business declined due to intense market competition. So services and platform... Segment grew at 11% only for the four-year forecast of FY24 in the right. DSS total revenue and profit are revised upward from the last time. We are expecting to see a 10% revenue rise in year-on-year. Next on GEM, green energy and mobility. GEM. overall in q3 posted and 27 increase in revenue 3.4 percent point rise in margin achieving growth in both revenue and profit year on year with respect to revenue primarily heat energy and railway be recorded double digit growth attaining increases in both revenue and profit respectively it actually energy achieved an increase in the business for devices including transformers, as well as in the Lumada projects, including those for HPDC and other systems integration, integrated facilities, and assets management solutions. Next, for FI24 forecast, because of the revenue review done on Hitachi Energy, we revised the forecast upward. As a result, GEM total is projected to attain 24% increase in revenue, but as mentioned earlier, GEM in particular, since our head office is expecting to see further upsides in revenue and AE, the projected upside is included in the column for corporate items and elimination outside the segment. Moving on to the connective industries, the CEI. In Q3, CEI overall achieved a 9% increase in revenue, adjusted EBITDA margins to that 12.5%, increasing both revenue and profit, the margin improved by 1.9 points. Revenue grew in all the BUs. Note in particular that the measurement and analysis systems and industrial digital grew over 10%. In the measurement and analysis systems, the sale of chemistry, clinical chemistry and immunochemistry automated analyzers used in healthcare performed well in industrial digital domestic SI business advanced. For FI24, CI in total is forecast to grow by 3% in revenue. But this forecast for the segment remains unchanged from the last time. Next, regarding Lumada business, please have a look at the top left graph. Revenue in Q3 rose by 30% year-on-year. In FY24, the forecast includes a 23% increase in revenue and margin of roughly 16%, a one-point rise compared to the year before. This fiscal year's forecast for revenue is revised upward by 110 billion yen from the last time due mainly to increase in GEMS performance. By the way, starting from this fiscal year, the actual revenue for each sector is disclosed on a quarterly basis. As you can see, From the table on the lower left, DSS-DX related systems integration grew to drive the front business and IT services. Globalogic's digital engineering business also increased, so overall 22% growth was posted. In GEM, there were increases in Hitachi Energy's managed service business as well as rail systems managed services to push to total. to a 61% growth. In CI, industrial digital systems integration business for industry and connected products offered by both industrial digital and Hitachi Hitech progressed, bringing the total to a 26% rise. HMAX, a solution utilizing AI-embedded GPU services, or service to analyze the data from sensors installed on rail cars is generating a very robust increasing stream of inquiries already from Europe, Asia, and others. To augment this solution, we decided to acquire Omnicore, a UK company, in January. We expect increasing growth and profitability from these Lumada projects will continue to contribute to Hitachi's overexpansion of revenue and profit in the future as well. That concludes my presentation on the earnings. Thank you.