It is time. We will now begin the briefing on Hitachi, Ltd.'s financial results for the fiscal year ended March 31, 2022, and 2024 midterm management plan. Thank you very much for taking time out of your busy schedule to attend this session today. We will begin with an explanation of the financial results for the fiscal year ended March 31, 2022. Followed by an explanation of the 2024 midterm management plan and Q&A session until 6:00 P.M. We plan to close at six. The presentation material available on Hitachi, Ltd. IR site and the news release site, so please check them accordingly. Let me introduce the three speakers. Keiji Kojima, President and CEO of Hitachi, Ltd. Yoshihiko Kawamura, Executive Vice President and Executive Officer, CFO. Tomomi Kato, Vice President and Executive Officer, and Deputy CFO. First, Mr.
Kawamura will give an overview of the financial results. Please wait for a moment while I switch the screens. Mr. Kawamura, over to you.
Thank you. At this moment, I would like to provide an outline of the consolidated financial results for the year ended March 2022. There are points set to be covered in item number one. I would like to comment on the qualitative aspects of this fiscal year's financial results. FY 2021 results, FY 2022 forecast, and Appendix. In the Appendix, for each business unit, what the results were for FY 2021 and 2022, the details are attached. Let me proceed in the order of the content. Speaker, please go to page three. This is the qualitative explanation of FY 2021's performance.
Number three is about FY 2022, but please take a look at one and two. The business environment surrounding us was tough, as is noted here. Semiconductor issues, soaring material prices, pandemic continued. The business environment was tough, but we were able to have a record high net income for FY 2021. If you could take a look at the first bullet. Record high net income of JPY 583.4 billion was achieved. The prior year saw JPY 501.6 billion. It increased from that number to JPY 583.4 billion, which is a record high. In the 2021 midterm management plan, we reviewed our cost structure, increased profitability, and implemented business portfolio reforms.
We were able to create a stable management base. Despite the tough business environment, we were able to achieve this number. Now, going to the middle part. Hitachi Energy, the power business, and Hitachi High-Tech, for these businesses, orders remained firm. Lumada business is on plan with midterm management plan. GlobalLogic is also performing well. 7,500 engineers in Ukraine, GlobalLogic has. According to today's report, their operations are back to 95% of what it was, and so they're doing quite well. Please take a look at the bullets below. Hitachi Energy's orders. The order backlog is $14 billion, JPY 1.5 trillion. This is the equivalent of one year's revenue.
That's the backlog size for Hitachi Energy. Hitachi High-Tech, on top of semiconductor manufacturing equipment and medical solutions, analytical solutions are doing very well. Q4 orders were up 16% year-on-year. We will talk about Lumada later. It's also performing robustly, and GlobalLogic is performing well as well. Number three. What's going to be our view for FY 2022 given the circumstances? As I will note in detail later, we have had five sectors that we have disclosed. Starting from 2022, we will consolidate this into three sectors. The business units will not change, but the sectors will be reduced from five to three. Digital Systems & Services, Green Energy & Mobility, Connective Industries.
We will reorganize into these three sectors, plus Hitachi Astemo. For all the sectors and Astemo, we're expecting increased revenue and profit for FY 2022. Net profit of another record high of JPY 600 billion is what we are expecting. Let me move on to page four. For the latest quarter of Q4 FY 2021, what's been the business environment and risk factors? From semiconductor shortage on the horizontal axis, you will find risk factors. Vertically are the five sectors. The first bullet explains about semiconductor shortage. It's affecting Hitachi Astemo mainly. Semiconductors, one nano, two nano semiconductors, these are not what we are talking about. Semiconductors a generation ago, used in automotive use, logic, analog, discrete semiconductors, are constrained in terms of supply.
It's been difficult to procure these. Second, steel and other material prices are soaring, and you will find specific numbers as to how high they have become, and they're affecting Hitachi Astemo, Hitachi Energy and others. Russia has started aggression into Ukraine on February twenty-fourth. As far as our business operations are concerned, we are less affected. Starting from semiconductor shortage, take a look at the table. Hitachi Astemo highlighted, meaning that there's significant impact. Hitachi Astemo uses electrical steel sheet, so it's affected. In terms of mobility and Hitachi Astemo, it's had an impact. To the right, the impact from Ukraine and Russia. GlobalLogic BCP is working very well.
For now, productivity is back to over 90%. Relatively little impact on the business operations there. Take a look at page five, please. You can see the asset levels of these four business areas are laid out clockwise. Top left, GlobalLogic. Please take a look at the numbers. FY 2021 on a full year basis, AOI JPY 24.9 billion, 22.1%. Very high growth was achieved in terms of margin. Have a look at YOY columns. On a full year basis, 147%, JPY 7.9 billion increase. It's seen increase in both revenue and profit. Hitachi Energy, AOI JPY 62.4 billion, 5.8% YOY. You can see that, there's increase in both revenue and profit.
Hitachi Astemo, as I said, because of constrained supply of semiconductor, the business environment for Astemo has been tough. AOI JPY 58.7 billion on a full year basis, 3.7% YOY. You can see increase in revenue and profit. Railway Systems. Thales Railway Signaling business carve-out is being conducted, and this will start kicking in next year. For now, AOI was JPY 25.6 billion, 4.1% YOY increase in both revenue and profit. The large parts of portfolio are performing well. Please take a look at the next page, which is about the Lumada business. On the left-hand side, bar chart in order. FY 2022 results, JPY 1.1 trillion of revenue.
The number in brackets is Hitachi Construction Machinery's number. In the middle, FY 2021 results, JPY 1.6 trillion. This is according to the midterm management plan. FY 2022, this is to increase to JPY 1.92 trillion. As I will say later, Lumada's disclosure is divided into core and related business. That's the segmentation that we use. From FY 2022, we will change this to four segments under Lumada. The pie charts on the right, IT and mobility is very large, 53%, and 47%. That is the split between Japan and overseas, so it's almost half and half between Japan and overseas. Now let me report to you the numbers for FY 2021 results. Page eight. These are the highlights of results.
Revenue, on a year-on-year basis, it was up 18%. Take a look at the graph below. It's now increased to JPY 10.2 trillion. To its right, adjusted operating income, AOI, 1.5% increase year-on-year, increase in both revenue and profit. Take a look at the bar chart. As of FY 2021, JPY 738.2 billion. You will see a series of numbers on the right. Net income, JPY 583.4 billion. That's record high. Cash flow from operating activities, JPY 729.9 billion. Core free cash flow, JPY 290 billion. ROIC, 7.7%.
We have determined that we're going to pay JPY 65 per share, an increase of JPY 5 , as we announced today. Take a look at the next page. Five sectors still because we're still talking about FY 2021. You will find five sectors. Hitachi Astemo, these subsidiaries, and you will find the total numbers as well. Top two, revenue and AOI. Please take a look at these lines for the five sectors. Revenue on a YOY basis, 109%. AOI, +127.1%. Both increase in profit as well as revenue. The same goes for Hitachi Astemo as well as for the listed subsidiaries. At the very bottom, the net income in total is JPY 583.4 billion.
Next page 10, please.
Here, fiscal year 2021, revenues on the top and adjusted operating income, AOI, on the bottom half. Right side. From fiscal year 2020 to fiscal 2021, far left to far right, you can see the track. Revenues. Fiscal year 2020, JPY 8.729 trillion. This is the starting point. The positive factors are, we had the reorganization of the business. First, acquisition of power grid business. That was a positive. And Hitachi Astemo, three companies, Honda companies, were merged. That was a positive. And acquisition of GlobalLogic, plus. And foreign exchange was also positive. Far right, JPY 10.264 trillion. Adjusted operating income. Far left, fiscal year 2020, JPY 495.1 billion. The positive factors are the same as revenues.
The acquisition of power grid, Hitachi Astemo, three Honda companies, and acquisition of GlobalLogic, foreign exchange, and others. On the far right, you can see JPY 738.2 billion. Page eleven, please. This is fiscal year 2021. Adjusted operating income to far right, net income. Far left, adjusted operating income, JPY 738.2 billion. This is the right side of the previous page. We start from there. Net gain on reorganization and others, and then we do structural reform, so that cost is negative. Equity and earnings of affiliates are added, and EBIT in the center is JPY 850.9 billion. We come down. The tax expenses in 2021.
Usually, the effective income tax rate is 26%, but this time it is 20%. The reason here is, listed here, tax benefits from the acquisition of GlobalLogic in North America. The DTA, deferred tax asset, was recognized, and so our tax was that much lower. Far right, JPY 583.4 billion net income. Next, page 12, please. This shows our cash flow status. Cash flow. One feature here is in the center. Interest-bearing debt. Fiscal year 2021 end March, JPY 3.1 trillion. That is +JPY 729 billion. With the acquisition of GlobalLogic, we used debt and so, we have that much more here. Interest-bearing debt and D/E ratio. We've been repaying, so in...
D/E ratio was 0.7-0.8 instantly, but now it is down to 0.58 times. Cash flow items. Operating cash flow, JPY 729.9 billion. We had large scale M&A, and so our cash flow from investing was negative. Free cash flow, JPY 318 billion. Core free cash flow, JPY 290 billion. This was the report of fiscal year 2021. Next, let me go to fiscal year 2022 forecast. Page 14, please. Here you can see revenues and Adjusted EBITA. Adjusted EBITA is newly indicated here. I will talk about the reasons later. We always wonder what is the best way to express earnings.
We had the capital reorganization of the subsidiaries, so we thought that Adjusted EBITA is the best, and that is why we introduced this concept. The biggest is the equity affiliated losses and gains, and so we thought that we should include that, and therefore, we are using Adjusted EBITA. Revenues 7% down year-on-year, because the listed subsidiaries reorganization will start this year, so that is why it's negative. The gray, dark gray and light gray. Dark gray is the three sectors plus Astemo, and light gray is the divestiture of listed subsidiaries. Right side is the same. Dark gray is the three sectors in Astemo, and light gray is the delisted subsidiaries. Overall, on a consolidated basis, revenues and EBITA are both down.
Three sectors in Astemo, left side, revenue JPY 8.296 trillion to JPY 8.74 trillion, so it is up. Adjusted EBITA also up from JPY 724.5 billion to JPY 776 billion, so up by JPY 50 billion. Net income JPY 600 billion. Cash flow from operating activities JPY 650 billion. Core free cash flow JPY 210 billion. ROIC 7.2%. Assumed fixed rate JPY 120 to the dollar. It is up to JPY 130 today. We do the sensitivity analysis, which is shown here. If yen weakens by JPY 1 against the dollar, revenue plus JPY 19.5 billion and Adjusted EBITA plus JPY 1.5 billion. Page 15, please.
Three sectors plus Hitachi Astemo and listed subsidiaries are broken down here. The table please. Three sectors, Astemo and listed subsidiaries. Revenues 104%, 113%, and 39%. They all increased. Bottom, net income. This is subsidiaries will be taken out, and so it will be negative. Three sectors and Astemo are both up. Increase. Page 16, please. Upper half is revenues and Adjusted EBITA on the bottom. FY 2021 on far left to fiscal year 2022 forecast. Revenues, FY 2021, JPY 10.264 trillion. GlobalLogic acquisition, and then divestiture of Hitachi Construction Machinery and Hitachi Metals. Foreign exchange, 2022 forecast is JPY 9.5 trillion. Adjusted EBITA, fiscal 2021, JPY 855.3 billion, and then GlobalLogic, then divestiture, and then foreign exchange and others.
Fiscal 2022 forecast is JPY 820 billion. Page 17, please. Now this is net income trend. Adjusted EBITA all the way to the right. Fiscal 2021 and 2022. Fiscal year 2021, far left, Adjusted EBITA, JPY 855.3 billion. Then acquisition-related amortization, then net gain on business reorganization, structural reform expenses, interest, and then income taxes. This time in fiscal 2021, effective income tax rate is 20.1%. Far right, JPY 583.4 billion net income. Now fiscal 2022, we start from the JPY 820 billion, then acquisition-related amortization, JPY 74 billion, and then JPY 310 billion net gain on business reorganization. Then Global, so JPY 95 billion structural reform expenses. Then the effective tax rate will become normal, 24.7%.
So far, right, JPY 600 billion net income. That was a report for fiscal 2022. From page 19 onwards, we have the Appendix, and so let me be brief.
Page 19. The macroeconomic environment has become tougher in April. That's what is described in the table on a calendar year basis. IMF has changed its outlook on a global basis from 6.1% of GDP growth to 3.6% downward revision. U.S., Europe, China, their forecast are all down. The global environment is becoming more severe. Take a look at page 20. This shows the results of orders. This is the status of the fourth quarter of FY2021. Well, on a normal basis, on a full year basis, how much increase in orders do we see year-on-year? 10%. Second from the top, Hitachi Energy, as I said, orders are very, very brisk, 178%.
At the bottom, Hitachi High-Tech, 136%. These two are leading in terms of order intake. Once the supply of semiconductors is normalized, it will be turned into products and will contribute to the bottom line, profit and loss. Take a look at page 21. Now, this is FY 2021 business segment results. There are five sectors, starting from IT. AOI, JPY 261 billion, 14.2, YoY 105%. AOI, -13%. As is on the right-hand side, in the hardware business, there was impact from semiconductor shortage. GlobalLogic, the PPA amortization is posted, therefore a negative number. Individual businesses are as described.
Energy, JPY 18.1 billion, 1.3%. So on the right-hand side, YoY increase in revenue and profit. Hitachi Energy, JPY 65 billion, 5.1%. JPY 30.1 billion AOI, so increase in both revenue and income. Related cost at the acquisition is power grid amortization cost that was externalized. At this moment, JPY 70.1 billion of related cost is posted. Page 21, this is about industry mobility and smart life. At the very top, JPY 82.2 billion, 9.1% in revenue YoY. You can see increase in revenue and profit. Mobility, FY 2021 AOI, JPY 87.4 billion, 6.1% increase in profit. Smart Life AOI JPY 79.2 billion, 7.7%.
It's not increasing revenue and profit here for Smart Life. The reasons are described on the right. Diagnostic Imaging business was sold to Fujifilm, and so there was a decline there. Page 23, this shows list of subsidiaries. Hitachi Astemo, AOI for FY21, 58.7%, 3.7%. It's an increase. You will find other list of subsidiaries.
Let's take a look at revenue by market on the next page. Clockwise, North America, Europe, Asia, India, or rather China, Japan, ASEAN, India, and other areas. Other than Japan, 30% or so growth has been seen. It's only Japan where the situation is very tough. Overseas revenue JPY 6.077 trillion, ratio 59%. Next page, just the highlights for Q4 FY 2021. Take a look at the graphs. On the left-hand side, our revenue increased. AOI also saw an increase. On the far right, net income attributable to Hitachi shareholders, JPY 132.6 billion. Please take a look at page 26. This is only for Q4 for five sectors. Hitachi Astemo and listed subsidiaries were the five sectors.
Please take a look at the top is revenue and AOI. Both increased in revenue and AOI. Hitachi Astemo saw an increase in revenue, but because of semiconductor shortage, decrease in profit. Listed Subsidiaries both increased in revenue and AOI. Again, highlight for Q4 by the business area only for the fourth quarter of FY 2021. FY 2021 AOI from IT and onward, JPY 97.4 billion, 14.8%. Hitachi Energy, JPY 14.8 billion, 5.3%. Building Systems, JPY 9 billion, 5.2%. Railway, JPY 15.5 billion, 8.5%. Hitachi High-Tech, JPY 22.1 billion, 13.2%. Hitachi Astemo, JPY 24.1 billion, 5.4%.
From page 28 and onward, as I mentioned, when I talked about Adjusted EBITA, we have fine-tuned our disclosure. Page 28. We changed the business segment. Old is left side and the new segment is on the right side. Overall, it's not changed, but IT is changed from two to three. IT Services, Hitachi Solutions, Hitachi Systems is included. We will have three disclosures. Page 29, the profit item will be Adjusted EBITA. FY 2022, the main KPI will be Adjusted EBITA from adjusted operating income. Adjusted EBITA, as you see in small letters, is adjusted operating income minus acquisition-related amortization, plus equity and earnings or losses of affiliates. This equity and earnings of affiliates, as I said earlier, we use capital cost, and hold the subsidiaries' shares.
It is better to take in the return to accurately reflect the status of the company. Now, the conventional disclosure changing to Adjusted EBITA, how much impact we will have is shown also here. The before change, FY 2022, three rows, 8.1% Adjusted EBITA ratio. With the current definition, it will be 8.6%. It will move upward slightly, but basically no change. Now page 30. Here, Astemo disclosure will change, and the content is shown here. We had two categories, core and related businesses. Astemo business is now becoming a big block and is maturing. We want to accurately reflect the status. We will change from two to four categories. Four categories are shown here in the table. The far left, Digital Engineering, and the content is consulting on DX.
GlobalLogic business is included here. System Integration, this is the SI business with digital technology. Far right, you can see smart manufacturing solutions or the factory automation and OT. Managed services, cloud-based services, remote monitoring service for lifts, elevators, and connected products. IoT function on hardware. This is the high added-value functions for rolling stock and power grid equipment. We will change to this new category. On the bottom table, you can see on far left FY 2021 results with the previous category, the core and relay business. If we categorize into four, you can see in the center and on the far right, fiscal 2022 forecast. You can see the breakdown of JPY 1.87 trillion. Fiscal 2022, Japan and overseas will be just 50/50.
Page 31 and onward is three sectors, fiscal year 2022 full year forecast. Three sectors, three categories. Digital Systems & Services, Adjusted EBITA JPY 300 billion, 13.1% YoY. Both revenue and profit increase. Green Energy & Mobility, Adjusted EBITA JPY 152 billion, 7%. Revenue and profit increase. Hitachi Energy, JPY 96 billion, 8%. Railway, JPY 41.5 billion, JPY 6.3 billion, both revenue and profit increase. 32. This is the third one. Connective Industries. Adjusted EBITA JPY 305 billion, 11%, both revenue and profit increase. Hitachi High-Tech, JPY 82.2 billion, 13% plus 22.4 billion, rather. Hitachi Astemo, JPY 109 billion, 6.1%. Page 34. Once again, fiscal year 2021.
Now this is more detailed disclosure. I will not explain everything, but page 34, this is IT. In the center, we can see full year 2021. Now the front service and service platform, adjusted operating income at 12.4%, JPY 268.1 billion. 35, energy. 2021 full year, revenue all the way down. You can see the related costs, JPY 70.1 billion. Next, page 36, industry, detailed disclosure. Page 37 is mobility. In the center, building systems, 2021. Y-o-Y minus 1.4%. Percentage points, it's negative. This is because of the parts, cost increase. Next, page 38 is smart life. Same way, same format. It starts from, one trillion twenty-nine billion. Hitachi Astemo is page 39. Page 40, corporate items and elimination. Page 41.
Back to fiscal 2022 again. Back to three categories, Digital Systems & Services, Green Energy & Mobility. Digital Systems & Services on the left side, it's three categories. Front business, IT services, and services and platforms. Right side is Green Energy & Mobility. Here we have nuclear energy, power grids, and railway systems. If you go all the way down, Adjusted EBITA, Hitachi Energy. Now you can see the related cost, Adjusted EBITA, -JPY 25.6 billion. This is down from JPY 71 billion to JPY 25.6 billion this year. Next, page 42, please. This is Connective Industries. Same format in the same category. New category, page 43, Astemo and listed subsidiaries. I am sorry I went very quickly, but that concludes my explanation of the material. Thank you very much.
Kawamura-san, thank you. Now to continue. With respect to our 2024 midterm management plan, Kojima will explain. Kojima-san, over to you.
Yes. This is Kojima speaking. I would like to discuss 2024 midterm management plan. First, on the goals and policies of the plan. If we could please proceed to page two. Our main goal is to create a sustainable society in which each individual can play an active role of protecting the Earth, and that is what Hitachi's social innovation business is about, using data and technology for this. In the past medium-term business plans we have been promoting structural reforms to create a suitable forum for our social innovation business. We made an announcement about the sale of Hitachi Transport System's stake. I think this signifies a milestone.
In response to this, the theme of the next 2024 medium-term management plan is a change of mode toward growth. We're moving to a management focus on top and bottom line growth through green, digital, and innovation, and cash generation for growth and returns. Please go to page three. Needless to say, the most important factor in realizing our vision for our social innovation business is the people. Hitachi is committed to providing a value to its customers and society by mobilizing the strength of 370,000 Hitachi employees to help realize a sustainable society.
We'll enhance our internal human capital and utilize the capabilities and the power of human resources generated here as a driving force to provide healthy and comfortable lifestyles for society and our customers, supported by environmentally friendly, safe, and secure social infrastructure. On page four, I would like to talk about the promotion structure for our social innovation business under the plan. Green Energy & Mobility responsible for energy and rail business. Digital Systems & Services responsible for IT, and it also is responsible, as I mentioned, to supply IT to other business areas, so that's Digital Systems & Services. Connective Industries responsible for industrial and urban businesses. These three business sectors as well as Hitachi Astemo, which is responsible for automotive business.
With all these under the structure, we will work together with our customers to solve social issues. The next page shows the key financial numerical targets for each sector and for Astemo. By joining forces in each sector, Hitachi group as a whole will achieve a revenue of JPY 10 trillion, CAGR of 5.5%-7%, Adjusted EBITA margin of 12% and ROIC of 10%, in 2024. Now, I would like to explain further Hitachi's growth strategy. First, let me explain our basic thinking behind the business portfolio. Lumada is at the heart of our growth strategy.
During this mid-term management plan period, we will almost double the revenue of our Lumada business and increase its profit to close to one-third of Hitachi's total. Now, on the other hand, we will also improve the profitability of IT, OT, and product businesses, which are the foundation of our businesses outside of Lumada business, so that all of them can exceed 10% in terms of adjusted EBITA. Although I did mention at the beginning that major structural reforms have been completed, but we will continue with our policy to replace businesses that are judged to be unable to reach 10% Adjusted EBITA. Let me further talk about Lumada, which is at the core of our strategy.
Social innovation business is to increase customer value through a cycle that begins with understanding customer issues, followed by designing solutions, implementation and operation and maintenance. We run this cycle to enhance value for customers. By adeptly utilizing digital technology and others, we will run this cycle so that a profit can be generated throughout this cycle. That is the thinking behind Lumada business.
This cycle begins with the digital engineering business, which uses design thinking to guide how issues are solved and continues with the system integration business to build IoT systems that collect and analyze data and the connected products business, which reduces operating costs through introduction of products connected to the internet and a remote and automated operation, and is monetized by a managed services business which lowers maintenance costs through predictive maintenance. In the 2024 MTMP, we intend to disclose revenue and profit margins for each of these businesses so that the situation surrounding Lumada business is made easier to understand. Now, I would like to present two typical examples of Lumada project at this moment. The first is an example of innovation in the manufacturing process. I'm talking on page nine.
The Lumada cycle here begins with an analysis of challenges in the manufacturing process with the customer. Next, we will build an IoT solution to collect data from robotics and IT devices. We call this IoT solution IoT Compass at Hitachi, so that we will be able to identify and eliminate production bottlenecks and improve utilization rates through predictive maintenance. That's what's made available through IoT Compass. We began these co-creation activities of ours in the automotive industry at first and have expanded to a variety of other industries. Now, the second example is about innovation in asset management. The customer's challenge is how to reduce management costs, such as costs for inspection and maintenance of facilities that they own over a broad area.
You have to send people to perform checks and inspections. The challenge is how to drive the cost down. The key to solving this problem is AI image diagnostics, which enables automated inspections of existing and newly installed equipment. This is a use case developed by Hitachi Energy in collaboration with electric utility customers. In collaboration with other BUs, we are expanding these applications to Hitachi's important customers in railroads and building businesses. Next, I would like to briefly describe the growth strategy for each sector. Page 11. First is the Digital Systems & Services sector, which is responsible for the overall IT business of Hitachi. This sector is at the core of Hitachi's digital strategy.
The largest growth engine will be GlobalLogic in digital engineering, which is planned to grow at 20% per year on its own, and with the goal of growing at 30% per year through synergies with other sectors and additional bolt-on mergers and acquisitions. In addition, cloud-based managed services is an important growth area for us, and we will invest proactively in this area. Next, moving on to page 12.
Which is about a Green Energy & Mobility sector, which is about energy and rail operations. As you know, the decarbonization unease our clients are growing, and so their investments in this as well. Therefore, this is a major tailwind for the sector. We will increase R&D investment, mainly in Hitachi Energy, to develop and offer new products and services that match the market's decarbonization needs and increase our market share. As explained in the previous case studies, Lumada business opportunities are working with other sectors, especially digital sectors. These opportunities are also increasing, and we aim to achieve steady growth in digital as well. On page 13, the last is connective industries sector, which includes urban business for buildings and homes, industry business for factories and logistics, and advanced technology business for hospitals and laboratories.
In terms of IoT utilization, this sector offers the greatest business opportunity with Lumada business, planning the strongest growth rate of the three sectors at 29%. The main point in this sector is North America. In North America, we have already acquired Sullair and JR Automation, which have recovered from the headwinds of the pandemic and are growing steadily. We will continue to invest in this region in order to achieve annual growth in excess of 20% in North America. Moving on to 14. Here I would like to provide a summary of Hitachi's plans to create value for decarbonization in each sector and in Astemo, creating green value. The core of the contribution here will be brought about by Hitachi Energy.
By providing clean power generated from non-fossil energy sources around the world, through its power grid, Hitachi Energy estimates that it can contribute to a reduction of more than 80 million tons of CO2 emissions by FY 2024. Energy conversion, electrification, energy conservation in these areas or themes. The three sectors and Hitachi Astemo together will invest R&D expenditures in these areas so that we can contribute to CO2 emission reductions of 100 million tons by FY 2024. Next, page 15, please, on innovation. We think we are currently at a major technological turning point toward 2050. To keep up with this change and ensure the growth of the next generation, we will strengthen our advanced investments. We assume that technologies such as carbon negative, overcoming cancer, and quantum computing will form a large market beyond 2030.
We will invest JPY 100 billion in-house R&D in collaboration with academia around the world, and JPY 50 billion in external startups to build the next pillars of our business. Next, I will talk about generating cash for growth and returns. The fundamental goal is to organically expand core free cash flow. To achieve this, we will expand operating cash flow by improving profitability and balance sheet efficiency while carefully selecting capital expenditures. About half of the core free cash flow earned will be used for shareholder returns, and the remainder will be used to invest in growth and asset replacement, along with asset sales. Today, we announced the dividend increase and share buyback, the acquisition of treasury shares. We will continue to pay stable dividends and repurchase shares at an appropriate timing. Another key theme is EPS growth.
Along with EPS based on net income, we will introduce CFPS, core free cash flow per share, as an additional indicator. We will focus on expanding core free cash flow, as I mentioned in the previous slide, and we'll manage the business so that cash growth will exceed the growth in earnings per share. Next, I will talk about deepening of sustainable management. Page 20. The most important theme of sustainability management is the decarbonization of Hitachi's internal operations. We will devote all our efforts to achieving carbon neutrality for Scope 1 and 2 in 2030 and Scope three in 2050, which we have already announced. Our goal for 2024 is to reduce CO2 emissions by 50% compared to 2010 level. We will achieve this goal.
While restraining capital investment by applying decarbonization schemes that are appropriate to the types of electricity consumption at each site. Next, page 21, please. To achieve global growth, we must improve the efficiency of the management platform using digital technologies. Digital platform. A shortcut to this is to deploy and utilize the advanced global operation platform of Hitachi Energy for products and GlobalLogic for IT within the Hitachi Group. To achieve this, we plan to invest around JPY 80 billion during the 2024 midterm management plan to achieve cost reduction of over JPY 120 billion. Next, page 22, please. Now, the global risk management is a major challenge in achieving sustainable management, which is the case with all companies these days. Currently, the key company-level risks that are assumed include economic environment, supply chain, geopolitics, environment, technology, pandemics, and large-scale natural disasters.
This may emerge at a high probability. We have strengthened our governance by creating a system to aggregate information on these global risks at the head office and proactively respond to them to minimize the impact and balance the risks and opportunities. Next, page 23, please. As I mentioned at the outset, the most important asset for growth is human resource. In particular, it is essential to acquire and develop digital talent, and we plan to increase the number of employees by close to 30,000, both in Japan and overseas, to achieve the growth targets of Lumada business. Another challenge is to improve the engagement of our domestic employees, and we will change to a freer work style that facilitates work-life balance like we have done in other countries.
Growth by digital and green requires cooperation across organizations and regions, and we will work to improve DE&I to support this. In conclusion, let me summarize what I want to share with you in this midterm management plan. Page 25, please. The key point of 2024 midterm management plan, which starts after the structural reforms of the past decade, is a change of mode to become a company that grows globally through digital, green, and innovation. To achieve this, we will focus on deepening of sustainable management, increasing profitability by Lumada, cash generation and shareholder return, and global risk management. This will be our priority focus. Thank you for your kind attention.
Kojima-san, thank you. At this moment, we would like to move on to questions and answers. Those of you with questions, please use the hand raise button on the screen of Zoom. Among those of you raising hand, we will choose a person. Once we call your name, please unmute, state your name and affiliation before asking questions. Once you no longer wish to ask your questions, please take them back by canceling the hand raise button. The camera of the questioner will not be turned on. First, we will take questions from the press on the Japanese channel, institutional investors, analysts, and then move on to the English channel participants.
First, we would like to take questions from members of the press on the Japanese channel. Those of you with questions, please click the hand raise button on the screen. Hiroi-san, please unmute and ask your questions.
Thank you. My name is Hiroi from Nikkei. There are two main questions. One is to clarify numbers. Page 17, taking a look at the graph, capital allocation in terms of growth investment, so subtracting shareholder return, JPY 1.6 trillion will remain. Is that correct? I would like to clarify. This growth investment, compared to the previous midterm management plan, is it an increase or decrease? Overall, you talked about investment in the environment. How much would that be? Investment in digital, how much?
For each of the areas of priority, what would be the specific amount of investment in each?
Well, thank you for the questions. Kojima will answer.
In terms of capital allocation in the diagram-
Growth investment. As the question has said, JPY 1.6 trillion or so is planned. Compared to FY 2021 MTMP, next to that is three-year total. The last time, I think it was around JPY 1.8 trillion that was allocated for growth investment for growth. A decrease of JPY 0.2 trillion, but then we're going to substantially increase the shareholder return. That is the split. About the investment into the environment. Our environmental business, in my presentation, I mentioned this, but I think Hitachi Energy is going to be the main player for Green Energy & Mobility. R&D investment on page 12, that says investment for growth. JPY 210 billion or so of investment is planned there.
Another, what page was it? Page 14. For Hitachi Astemo, inclusive of motor inverter, they're investing much in EV components for electrification, and around JPY 300 billion is to be invested. Inclusive of that, JPY 500 billion or so will be the amount of R&D investment into the environmental business. Well, this is Kato speaking. Let me add to what was said. At page 17, capital allocation. Investment for growth. Well, how much is it? It's not clearly shown, but in total, in 2024 MTMP, cash generation JPY 2.3 trillion, and the allocation will be considered for that. It will be smaller than JPY 2.3 trillion. On the other hand, in the 2021 MTMP, a power grid, GlobalLogic. One trillion investment was done in two transactions.
3 trillion, that was the size of investment back in FY 2021 MTMP. In terms of the absolute number, there's going to be a decline.
Thank you. In other words, M&A will be reduced, but return will be increased? Yes. I think that understanding is accurate. My second question. With sector reorganization, green, digital, and industry, you divided into three. In the Green Energy & Mobility area, well, Kojima-san is heading as the top person. What is the intention behind that? What president heading this area? What are the challenges and the growth prospects for Green Energy & Mobility given that Kojima-san be head?
In the Green Energy & Mobility area, if you could please take a look at page 12.
On this page, profitability compared to the profitability of other two sectors is lower in Green Energy & Mobility. That is why Kojima-san is taking responsibility for this sector so that this can be further boosted. As I said, there are quite a bit of digital opportunities here. I myself is going to take the lead, and we're going to take initiatives. Until a clear direction is identified, Kojima will be responsible for running this.
Well, thank you. Another question on a follow-up basis. On page 30 of the results paper, in the segmentation for Lumada, I think our Green Energy & Mobility business in Lumada is smaller compared to the other businesses, and that is why you're going to head this up?
Well, CAGR, Lumada's CAGR in terms of the growth rate, Green Energy & Mobility will see the lowest growth rate because Green Energy & Mobility is 16%, the other two sectors, 20%. The reason behind that is this sector. This has large longer projects and so generational change is low. All kinds of solutions that are prepared take time before they're applied because of the nature of the projects being large and long tenured. If we wait for that, it will be too slow. On an installed basis, for the installed base, I think we can bring in digital technologies. There are opportunities there, and this can be ramped up more quickly. That's the area of focus as I lead this business.
That's the basic thinking behind this. Thank you.
Thank you for your answe rs. That would be all.
Hayakawa-san, please unmute yourself.
This is Hayakawa speaking.
Thank you for the explanation. I have two questions. First is on the financial closing about the foreign exchange factor impact. Today, it's JPY 130 to the dollar. Yen is weakening. Last fiscal year revenue and operating income, or this forecast, it is pushing up numbers, but the net resources and the parts, raw material costs is going up. So, could you share with us your view on the advantage and disadvantage of this?
Thank you for the question. First, FX. The assumption is in the financial, report, closing material, page 14 in dollars. Sensitivity, if one yen, Adjusted EBITA JPY 1.5 billion. So if this is JPY 10 , it's JPY 15 billion. And the positioning of this number, of course, there's positives and negatives. Positive factor is dollar-denominated profit increases.
Of course, that's an advantage, but dollar-denominated liability, we have that too, so that increases as well. So on net, this is the net impact. In the financial performance presentation, page four, you can see various risks. Here we saw the Q4 results, but on the other hand, second point, so the parts, raw material price increase, this is also continuing and the chip shortage is also increasing and continuing. So the positives and negative factors, we have these factors. Now taking all into account, we have the sensitivity analysis. That said, the material prices, the unit price, is another risk. So this is just focusing on the foreign exchange factor.
Thank you very much. Another question, if I may. Please. So question. President Kojima talked about the Hitachi Transport System, the divestiture.
Now it has been completed, came to one phase. You will continue collaborating with Hitachi Transport System, you said. In which area do you want to continue collaborating?
Thank you for the question. There were so many listed subsidiaries in the past, and after various events, we had the scenario of all of them growing and graduating from Hitachi, if you will. We've been working with many listed subsidiaries over the years, and this touches my heart. It, I have big emotions for this. Hitachi Construction Machinery and Hitachi Transport System, from Lumada perspective, we did so many things together. Going forward, we believe, we are confident we can work together. We are peers. We are colleagues, and that has not changed.
We all want to work together in many areas. When it comes to logistics and transport, distribution, factories, manufacturing and logistics, distribution, we had the division between them, but now in the total supply chain, there are integrations. They're being integrated, and EC is a typical example. From order placement to manufacturing to delivery, it's a total business. How can we, using Lumada, create customers benefit? The industrial related equipments, robots in factories and logistics distribution, warehouse, they have to be connected smoothly. We plan to do that together. That is our plan with Hitachi Transport. We will have good collaborative relationship to serve our customers. Did that answer your questions?
Yes. Thank you.
Let's move on to the next person with questions. Please unmute and start your questions.
Yes. Thank you. Am I being heard?
Yes, you are.
My first question is as follows, that's about financial targets that I would like to ask about. Key KPI, Adjusted EBITA. Mr. Kawamura, the CFO, talked about this. He said that Hitachi has had to think a lot as to what a key indicator to use to present the business results. Why did you choose Adjusted EBITA? By increasing or decreasing Adjusted EBITA, what will change? For example, operating cash flow, that's an easy indicator to show how much increase or decrease has been seen, or ROIC, as well. These other indicators are quite easy to follow and see what's happening.
Adoption of Adjusted EBITA indicates that you wanted to show the bottom line and how it's changing. What was the thinking behind this?
Equity earnings of affiliates, this is not the cash that we enjoy. Although accounting-wise, that is the case. Kojima-san said, as we consolidated or deconsolidated our list of subsidiaries, we're going to still hold some equity in Hitachi Transport or Hitachi Construction Machinery. It's equity earnings of affiliates, so it's not going to hit our profit and loss directly. There's capital costs to hold a share, and that needs to be recognized. That is our thinking. In the future, things could change.
For example, if a dividend payment is to be made, of course it will be considered as cash. In view of the capital allocation, what would be the indicator we should use? We decided on Adjusted EBITA. The earning power, cash generating power, that was what you wanted to show, or are you not concerned about that? Of course, it's relevant to that ultimately. Capital and management resources are very important, and in view of how much we're allocating, how much return are we getting out of that? Can we recognize that cash? In view of cash generating capability, we have adopted this indicator, Adjusted EBITA. Well, thank you. Another question. This is a question for Kojima-san. Increase in revenue in the next three years is going to be high.
In the real world, digitization takes time, so you have to be patient, you said before. Well, we have to be patient in terms of capabilities as well as for the customers. Customers have to be prepared. It takes time. You also have to consider about society. The fact that you're going to grow digital business substantially, does that mean that you are able to increase digital resources? With COVID-19, society has changed. Have society changed enough so that you are now able to put your foot on the gas rather than the brake?
Yes, as you mentioned, if I may answer, DX, digitization has become a major trend today. It's time to put our foot on gas, if you will. Time to accelerate.
As I said, when I talked about energy, in the real world, when you have to build something physical, it takes time. On the other hand, as I said, if there's an installed base, if there are installations, then digitization can be applied quite quickly. There are two things that we need. One is to look at existing assets, or in other words, installed base. We have a very large installed base, which is important for us. The other is having sufficient digital resources. If you have two, then for the first time we will be successful. Well, DX is already a major trend. There is a robust demand for it. With the two combined, we will be able to start the business right away.
ABB Power Grids acquisition, this was a very big impact. We were able to get very large business and customer footprint. Acquisition of GlobalLogic, these two acquisitions had a huge meaning as we prepared ourselves to put our foot on gas, if you will, to accelerate this effort.
Question. MRR and others, these indicators will perhaps be more important in the next three years?
Answer. I said that Lumada will be segmented into four categories. The last one is managed services, not in three years time. The recurring business model will be adopted increasingly in the next few years, not even three years. We are going to divide into four categories. The last one, the fourth one is managed services.
In this area in particular, what kind of recurring business will we see increase? Well, as we get used to disclosing this, we would like to show that going forward. For the time being, I think, managed services is indeed, one area where recurring business model is going to be quite applicable.
Right. Thank you.
Ne xt question, please.
Hello. Thank you very much for the explanation. Question. As was mentioned in the previous question, so you said that the divestiture process has come to one milestone.
You will pursue large scale reform going forward. Once again, I'd like to ask you, large scale reform, how do you understand and plan to pursue this growth? One more question. I'm sorry, it's about your competitor, but Toshiba is now exploring their direction going forward. They may need to separate the nuclear business. Is there an option or worthy of consideration of you buying the business?
Answer. Thank you for the question. Kojima would like to answer.
First, about our reform. I mentioned, we will still continue being aggressive. List of subsidiaries, the individual growth model is now being drawn up, and we have come to one milestone. Next, in Hitachi, we have large-scale joint ventures. We have to think how these joint ventures can grow further. This has to be discussed so that the joint ventures can be a winner in the world. That is the next stage of reform. That is another high priority matter for us, because this will directly lead to our growth. In the 2024 medium-term plan, we will think of this important theme seriously. Your second question is just a hypothesis, and it's a bit difficult to answer. I barely have that idea. It's barely an option.
Thank you. I see another questioner. Please, unmute and start your questions. I'm calling his name. Are you there? Oh, hello. Please go ahead. Please start your questions.
I would like to ask about Lumada business portfolio. Through subsidiary deconsolidation, you have streamlined the business portfolio. Now, the growth of Lumada business is going to determine the fate of Hitachi going forward, I think. As Hitachi, you want to grow Lumada. What is the rationale behind that? Digital solutions, if it's an IT company, if it's a global IT company, every global IT company would be in this area. What are the strength that Hitachi can rely on to increase sell orders in this area? Who are your peers or competitors? Vis-à-vis your competitors, what are your strengths or advantages? What is the rationale that you think that you can grow Lumada's business?
Answer. Well, thank you for the questions. Kojima will answer the questions.
In my presentation on MTMP, if you could please turn to page eight of the material that I use. I talked about gaining profitability from Lumada's business. What I think Hitachi is unique, well, customers' CapEx OpEx is optimized and supported. That's the cycle that we have. We can enter from the engineering part or from the products perspective. These four quadrants, if you will. In all four quadrants, we're able to generate a profit, and that is what is unique about Hitachi. That is why we believe that we can achieve very high growth in this area. That's the biggest point. There are companies specialized in digital engineering, and there are those specializing or concentrated in connected products. There are different players. We cover all four.
Whichever is the entry point or whichever the area or quadrant we can create business. That is our strength. IT, OT products, we have all three. We've always said that's our strength. It's really saying the same thing in a different way. In all these four quadrants, four areas, we are able to generate business. This will be the source of our growth, and we believe we can rely on this as we look to drive growth. Do you know what the global market shares are? Do you have any clear numbers that you can share with us? That's another question. Answer. Well, customer account-based business, that's what this is. For each customer, of course, what the share of wallet is, we can look at.
For the four combined, what is the market? Who has how much market share? I don't think there's anyone who's analyzed that, as far as I know.
Well, question. Thank you. Well, thank you very much. Your strength is four quadrants, right? Thank you.
I see many hands, but we have spent quite some time, so we want to now move to the Japanese institutional investors and analysts. I hope you could understand. Next question from the Japanese channel, institutional investors and analysts. Next question, please.
Hello. Question. I have two questions. First, as you developed your MTMP, EBITDA is the new KPI and there are changes, and I understand these changes. When you developed the MTMP, were there any other companies that you benchmarked? And which were the focus points when you benchmarked and took developed your MTMP?
Answer. Kojima would like to answer.
This was also touched upon in the earlier question. Lumada has four quadrants, and we will operate this cycle. I don't think there are other companies that are doing this, but there are strong players, competitive players in each quadrant. In that sense, from digital point of view, Accenture and Cognizant, TCS, Tata. Including their performance, we benchmarked ourselves to them. Now, product-oriented, product OT players is one. Schneider, for example, and Emerson. They are including digital. They are active and demonstrating good performance, including digital, so we benchmark ourselves against them. Overall, the closest company, the IT is different, but Siemens is the closest player. Siemens, we learn a lot from them. Those are the companies we benchmark as we developed our MTMP. Question.
Thank you very much.
My second question is, enhancement of the business portfolio, so consistent continuous business portfolio, Adjusted EBITA 10% or above is your goal. Now, in the financial target, Hitachi Astemo, your target, three-year target is 9%. Is this 9% okay, satisfactory for you? Because there is a gap between this and the overall trend, so I want you to elaborate. Related to that point, President Kojima, you've been president for one year. I understand this division, so the product OT platform business in 2021 MTMP, EBITA was only a little over 7%. Why only 7%? What is lacking? Or maybe not the best positioning. Maybe there are different factors, different reasons, but for 7% to grow to 10%, what are the necessary components or factors? How do you analyze the current status?
Thank you very much for the question. Regarding the portfolio, in the 2024 MTMP, there are areas that fall short of 10%. You're right. Beyond 2024 MTMP, we want them to grow and achieve 10%. We are confident that that will be the case is the key point, key judgment factor. The business that we believe will exceed 10% and continue growing, we will keep, and the others, we will divest or reconsolidate. That is the guideline or policy. We will continuously review the portfolio. That is what we plan to do in 2024 MTMP. If there are businesses that fall short of the criteria threshold, we may take action.
We hope we will have good communication with the capital market so that we will not give them any surprise. The other point about the platform IT/OT products. Profit margin is not sufficient, and so the question was how we plan to grow this. In 2021 MTMP, what I reflect on most, the biggest lesson I learned was the risk management. Poor risk management. That is my honest view. Pandemic or this unforeseeable risks.
Do emerge in the world, and the Russian invasion in Ukraine is another event. We need to weather these challenges, otherwise we cannot achieve 10%. Because if we don't have that capability, 10% drops to 7%. This risk resiliency is the key to building business that can achieve double digit, 10%. I talked about risk management in my presentation too, but this is what we want to focus in 2024 MTMP.
Oh, one follow-up question. Continuous portfolio review you said. In the next three years I'm not giving you a moratorium, so you will make a judgment every year, am I correct that you will do that?
Answer. If we spend too much time, the situation may change dramatically. We will not wait for three years. No. By no means we will do that. Thank you very much.
Thank you. Let's continue. The next question. Please unmute and state your questions.
Well, thank you. This is the questioner speaking. I have two questions that I would like to ask. This is a follow-up to an earlier question that was partially answered, but I would like to ask the following. What I would like to ask is MTMP, the plans and the aspirations. Hitachi so far oftentimes ended up not meeting the plans or aspirations. I think there were often times that was the case for Hitachi. This time, with the new MTMP, how are you going to go about convincing those who are listening to this, and you're going to continue with business transformation. Well, Hitachi Metals, Hitachi Transport System, Hitachi Construction Machinery, you're still working on these listed subsidiaries.
For Hitachi Metals, procedure is being delayed with rising geopolitical risks. I have a concern about this transaction. Will this deal go through successfully as was planned initially? If you could please comment if there's any comment that you can share. That's my first question. The second question is as follows: the new MTMP contains ambitious numerical targets. As you look to achieve the goals and targets, how would management be different this time and so that you can say that you will be sure to meet these goals compared to the past MTMPs?
You talked about risk management in the past, but on top of that, the basic level of commitment for achieving these targets, if there's any change to that, please comment. We'll answer. Thank you very much for your questions. To address your first point in your first question. Is this a question that's specific about Hitachi Metals? Is my understanding correct?
Well, if so, as you know, how to obtain clearance in terms of antitrust law and the accounting division is mainly working on that. From what I understand, China has become the greatest issue. But the possibility of getting the clearance, antitrust clearance is high. But then trying to disclose information that's convincing enough for people to be persuaded, it's hard to come up with such information.
I can't come up with a good answer for your question. I can't just tell you to believe what we're saying. When there are major problems that are occurring, we try to communicate with the relevant parties as soon as possible. When we are silent, it means that things are moving quite successfully. Well, that's the only kind of explanation that I can offer at this moment. I hope you will understand. If there's a clear problem that is occurring and that could potentially impact the outcome of the deal, then we would like to try to communicate that to the relevant parties and the market as soon as possible. About your second question with respect to our commitment.
Well, the main KPIs individually that we want to achieve, how are they evolving? What progress is being made? Of course, internally, we're being thorough in monitoring and following up on these numbers so that these can be met. We'll have a structure in place for that. With the capital market participants, we would like to have close communication as to the progress of this. As I mentioned, in terms of risk management, the situation in the world has become very difficult and also differs from one region to another. Given those circumstances, there's no other way but to have close communication with the relevant parties, including the market.
Well, to what Kojima-san said, let me add a few comments. On a more practical note, as I said at the outset, the market conditions have become very volatile and unstable. The circumstances are such that it's very difficult to have clear judgment, and we have to secure the bottom line, as per Kojima-san's instructions. There are two things. There are still low profitability businesses that remain. For example, a revenue profit ratio at around 5%, 6%. Such low profitability businesses must be addressed and worked upon in the next two to three years. That's one area of focus. In large scale businesses with large assets, there are those who are not performing as well as we expect.
We have a number of working groups to improve them to improve the bottom lines. As backstop, we are taking a number of initiatives to address these areas. Thank you.
Thank you. We'll move on to the next question.
Thank you. Question. I have three questions. First, double-digit growth, high growth rate from an outsider point of view, steel, GlobalLogic, energy. I think as it's promising from the external environment, but other than that, in the next three years, any other businesses where you can expect double-digit growth? That's my first question. Second question is about digital talents. You will increase your digital talents. This is IT service domain or including M&A number of talents. Fifty percent increase, 1.5 times. If you just increase the headcount, the cost will increase. How do you plan to increase them? Third question is twenty, fiscal year 2022 guidance. One hundred and twenty-three billion company corporate eliminations. Seven hundred billion is the operating adjusted operating income.
It seems like you're talking about more like JPY 820 billion. If you could say this JPY 523 billion, if this is a buffer, it makes us feel better. Could you elaborate?
Answer. Thank you very much for the question. The ones that we can expect double-digit growth are the ones that we are supported by the market. As you rightly mentioned, those businesses that you mentioned, plus in Connective Industries, the orders are strong and Hitachi High-Tech related will grow strongly, we think. JR Automation, these robotics or automation related. Since the pandemic, this is enjoying a tailwind, we think this will also grow strongly. Next, IT side. The hybrid cloud is a growth sector, growth domain, and we can expect double-digit growth. How this can be linked with our growth, including organic measures, is a big inorganic measures is our big theme going forward. Next to the talents. GlobalLogic area, business area, this engineering area has big growth potentiality and growth rate.
As you know, the number of people equals sales. That's the key nature of this business. To grow GlobalLogic at this plan means we need 20,000 more people. Now, GlobalLogic, the most interesting, intriguing part, capability is recruiting, I think. In all regions of the world, they have great, compelling recruiting network and acquiring digital talents. For example, with the Russian invasion, we need to hire people in different areas too, different domain regions. We are deploying to other regions to acquire.
The digital talent. They are a recruiting machine, if you will. We will thoroughly utilize this capability. When I explain my MTMP, GlobalLogic and Hitachi Energy, I mentioned, we will use their global, Logic, operation infrastructure. This digital talent recruiting network is what I'm talking about with GlobalLogic. Using this capability, we will hire people. That is the answer to your second question. Third question will be answered by Kawamura-san.
Yes, whether it's a buffer or not. Let me explain the breakdown. President Kojima talked in MTMP global risk management. We are taking good care of it. There are very difficult assumptions here, but on gross basis, gross means before taking various measures, how we look at the global risks.
A little less than JPY 200 billion risk is our estimate. One is Ukraine-Russia impact. Sales will decline. With inflation, various procurement will be impacted. Again, with inflation, the wage is going up around the world. With the geopolitical issue, we may have to impairment. Total a little less than JPY 200 billion risks. We will take measures to address this. I want to explain this on another occasion. We will take various measures. A little less than JPY 200 billion risks. About half, around JPY 70 billion-JPY 80 billion, are in global risk. This may be the buffer. This kind of risk is now being included in operating and non-operating basis.
Thank you very much. Question.
Answer. Additional point to the second question.
GlobalLogic, this DevOps and agile development, maybe there are no other good examples in Japan. GlobalLogic operation, Hitachi as an IT service player, you can be a unique player, I think. Of the 30,000, how many in Japan? If you could give us the number, I'd appreciate it. Answer. Roughly speaking, 20,000 overseas and 10,000 Japan. In Japan, Hitachi is doing digital engineering in this IT sector. We have subsidiaries that do digital engineering, and they did Hitachi work as a subcontractor. They have engineering expertise capability. Like you mentioned, GlobalLogic has agile DevOps. We want to sell this externally, sell externally. If we can make this transformation, we can transform from just an internal work to a big weapon, big ammunition for us. We think this is a big opportunity.
As you rightly mentioned, I agree with you. GlobalLogic Japan was established. This will be used as the core and aggregate the engineering in Japan and transform radically. This is a big opportunity that we are thinking of. Thank you.
Thank you. Moving on to the next person. Please unmute and state your questions. Thank you.
Question. I would also like to ask two questions. Question number one, page eight of Mr. Kojima's presentation material. Lumada's revenue outlook, there are four categories Managed services, digital engineering, system integration, connected products. EBITDA margin for FY 2024 is shown. What is the gap with the current number? In the next three years, how much change in profit margin are you expecting? Where there is a large growth that's expected, what's going to be the reason, if I can ask? Connected products revenue is expected to grow quite substantially. For the revenue to be increased in connected products, what resources do you need?
Is it going to be GlobalLogic or Hitachi, Ltd.? Do we have enough resources to drive growth in connected products?
Thank you for the questions. At this moment in FY 2024, 16% of Adjusted EBITA overall, I said. Now, as of FY 2021, not that we have precisely created, what our adjusted, EBITA is, but it's roughly 14% or so. We would like to increase Adjusted EBITA by 2 percentage points or so in the next, three years, and that's the action that we're going to pursue. Connected products, as you rightly pointed out
This area is going to see substantial growth. The resources necessary for that is that Hitachi has always had large product teams and OT teams as well surrounding product teams. The newly acquired businesses also have large resources, so I don't think we will have any problem with respect to resource allocation. Well, question. Well, thank you for the answer, and I'm sorry for revisiting the question that was brought up earlier about risk management, the thinking behind risk management. Just to summarize what you said earlier, you're going to have close communication. You're going to dispose of unprofitable business, and by so doing, drive profitability. In a nutshell, that's what you said.
From a different perspective, from the external perspective, if you can explain as to how risk management is being improved so that it becomes convincing enough. For example, day-to-day operation, the quality of execution is improving compared to three years ago, or digital technology can be used for risk management so that it can be visualized. If you could explain in different ways to supplement what you said earlier, please. Okay, this is Kawamura speaking. Allow me to answer that. For the past three years, during the FY 21 MP period, we purchased large companies, large deals, and the risk of investment is rising.
Rather than risks of fraud, operations and others, I think investment risk is rising, and so we are strengthening risk management for investment. There are two things. One is, as we decide on the investment from various perspectives, we scrutinize the investment deal, not just in terms of financial return, but PMI, how much of that can be achieved post-acquisition. What are the synergies that can potentially be generated? We are looking at all these details as we determine on a deal. Once we can judge that our capital allocation cost can be recouped, we will go ahead and invest. Even after investment, we conduct very close monitoring of the business acquired.
Of course, we have the plan initially.
What's the gap with the initial plan? If there's a gap, what measures are we going to take and are synergies being generated?
We are monitoring. With these large deals, you may think that we're taking on a lot of risk, but we are actually applying very stringent risk control. The balance sheet is not becoming too large, and basically, we believe that we have adequate risk control. Transactions on a day-to-day basis, large transactions that exceed a certain threshold, is not just decided by the line manager. Well, on top of the investor investment, we're also taking a look at large transactions in the business.
How they're being hedged, whether it's paid, what is the status of the customer. For these day-to-day transactions, we also make decisions as they are escalated to us. We are applying very strict risk management to both the investment as well as transactions.
This is Kojima speaking. Let me add to what was said. We have executive management meeting. We take up a number of issues there. We have a risk management dedicated meeting as part of the executive meeting. Actually, Kawamura-san is responsible for the risk management part of the meeting. There, all sorts of potential risks are identified, and measures are taken to eliminate them. As management, that's what we're doing.
We have to collect large volume of data, and that is why we're using digital technologies to do so. We're looking to increase efficiencies by applying digital approaches.
Well, thank you.
We see more hands, but be mindful of time. We want to go to the English channel, and then if we have more time left, we will come back to the Japanese channel. Any questions from the English channel? Please use the raise hand button. We do not see any questions on the English channel, so we will come back to the Japanese channel again. Next question, please.
I have three questions. Two on Lumada first. First is Lumada's strength. You see, you showed us the four quadrants as the strength of Lumada. President Kojima, page 11, page 13 in your slide, Digital Systems & Services and managed services will increase. Connective Industries will increase. I think there are many aspects. Why this Digital Systems & Services managed service is growing, and why it's preferred by your customers? That is my first question. Connective Industries. Why Connective Industries will grow, I would like to understand better. Thank you very much.
Thank you for the question. Kojima will answer. As you rightly mentioned, depending on sector, which area is easy to grow or appropriate, it depends on the character of the sector.
In digital service and services, Digital Systems & Services, big opportunity is in cloud, hybrid cloud. GlobalLogic is on board and we now have a big solid foundation. Hitachi Vantara does storage service and cloud type services. GlobalLogic's digital can be connected and meet customers' needs and receive inquiries. After engineering the needs to link to cloud service is one request, one inquiry we receive from the customers. This is a new market opportunity, synergy sales. We want to grow this part. As I mentioned earlier, we will consider M&A to increase our resources. That is the plan behind this part. Energy and mobility and connected industries. Our product OT, it's product OT. Connected product, we have big opportunity.
Connected to internet and remote operation is increasing, so this will naturally grow. We can expect this part to grow, like I mentioned here. Automation and the pandemic was a trigger. Remote operation is a big needs that is growing, so we expect these products to grow. Question. Thank you very much. Connective Industries, connected products will grow, you said. Growth in North America, I think will be case, but other growth areas could you elaborate? Answer. Same story here. Connected products this is used in factories or in warehouses, so it's related to automation. Due to pandemic and the work style changes, the remote operation and automation is a big flow, big trend. These products will grow.
That is the industry related area, especially for the factories and logistics distribution. That is why we think this part will grow.
My second question on Lumada is on page nine and 10. You said horizontal deployment. You're to leverage on your conglomerate advantage, this horizontal deployment is the key. In Lumada, in order to deploy horizontally, what are the ingenuity or creativity that you are trying to use or your strength that others don't have? Thank you very much.
Thank you very much. Horizontal deployment. Scaling. First, from automobile OEM, we start. But same needs in all areas. Hitachi has so many accounts, so we can deploy scale to those areas. That is the best way to scale Lumada business, we think.
When we do that, two key points. One is to have a solid CRM, global CRM. We do this with various customers and find out which customers have similar needs and can be applied. We must understand the customers to be able to do that. Global CRM is established and use this global CRM to accelerate our scaling. That's one key. The other key is the global marketing and sales team. The sales team is crucial, so IoT Compass and those commonly used measures need to be developed. This is the second key. We need the control tower, if you will, in the U.S. Hitachi Digital will serve that purpose. Mr. Taniguchi, who I trust very deeply, will take the lead. He is the lead CEO of this company.
Using this company, we will scale, horizontally deploy this business. Silicon Valley, Hitachi Digital will be in Silicon Valley, and Taniguchi-san is assigned there. We will use that as a base to deploy and scale this business. Thank you very much. Third question, page 17, cash generation and capital allocation. You said you will continue your reorganization. Asset sales, when you sell your asset in this diagram, it says it's not core free cash flow. This part will not come to shareholder return, it will go to the growth investment? Or, you will think of the capital allocation for those cases? The way we think about the shareholder return, core free cash flow. Half of core free cash flow will be allocated to shareholder return.
Now, asset sales, asset divestiture, the cash from asset sales will not come to shareholders or will not be used for share buyback. Well, share buyback can be considered as one form of investment, and we think the timing is right. We may use it. We may do it. We will have the flexibility to do that. The basic guideline and this basic policy is what's shown on this slide.
Thank you very much.
Thank you. We are fast approaching the closing time. We would like to go to the last step is for questions. I'm calling the name. Please unmute and state your questions.
Can you hear me? Can you hear me?
Yes, we can.
There's just one question that I would like to ask. As Kawamura explained, Russia's invasion into Ukraine is not causing a large impact on your business. The impact is limited. Going forward, what's your outlook? Evacuation of your local employees to outside of Ukraine, even with prolonged war impact on performance and operations, is it continue to be limited? What's your outlook if you can share that with us?
Well, thank you for the question. Kojima will answer.
This conflict is likely to be prolonged. That's our take. From that perspective, the offices and business spaces that we have in Ukraine may need to be relocated to outside of Ukraine. When that happens, will that have a large impact on business? There are two aspects. One is one-off expenses of relocation and travel. Another expenditure is for setting up new offices and bases. If we relocate the offices and bases, we'll have to start recruiting new people in the new area and HR costs will have to be spent for that, which will have an impact. In total, will these have a major impact? We do not think so at this moment.
Growth rate and gross margin, will there be a major hit to these numbers? In terms of operating margin, I think 22%-23%, it could be pushed down by 1%-2%, but that's the order of the impact that we're looking at at this moment. Well, thank you for the answer. Thank you. It's now time to close. With that, we would like to conclude the earnings announcement session. FY 2021 Adjusted EBITA 12% for Lumada. 12% just add. June thirteenth, Hitachi Investor Day 2022, we are going to organize that online and the details of the event will be informed and communicated to you later.
Once again, thank you very much for your participation despite your busy schedules. There were lots that we presented, but I hope you will continue to look forward to our business and its growth. Thank you.