The time has come to start the Hitachi Investor Day 2021. Thank you very much for attending this meeting despite your busy schedules. Today's meeting will comprise 2 parts. First of all, from 10.20 to 12:25 will be the a. M.
Session, the morning session and the afternoon session will be from 10 past 1 to 5 Please refer to the detailed time schedule that has been distributed to you beforehand. The materials used for this meeting will be available on the IR site of Hitachi Limited as well as our news release site. In the Japanese channel, you can select your language of choice and listen to the English translation. Please choose the translation button on the bottom side of the Zoom screen. Depending on the device, the location will differ.
But in the case of the PC, it is located below on the Zoom screen. Without further ado, we would like to start the Hitachi Investor Day and see the CEO remarks from Toshiyaki Higashihara, Executive Chairman and President and CEO. Higashihara san, please. Good morning, everyone. Thank you very much for attending the International Investor Day 2021.
On the 28th April, we had reporting meetings on the 2021 midterm management plan. And after that, I had opportunities to engage in dialogue with investors in the United States as well as Europe. I believe that the dialogue is important for areas in management as well as environment, human resource management and diversity. I appreciate the dialogue I am having with the institutional investors, and I shall continue to engage in dialogue going forward. I have also one point to report.
Yesterday, it was announced that at the TSE, as well as METI DX names 2021 in this category, we Hitachi was awarded number 1 position. Because of Lumada and digital transformation was highly evaluated. And in addition, we were able to promote structural reform based on the matter at the core. We shall continue these efforts going forward. And in the global market, social innovation, digital transformation is what Hitachi will continue to be focused upon.
Next, I would like to look back on our activities so far. In the 2021 midterm management period, the area of focus in the 5 areas have been focused on IT, Industry, Mobility, Energy and Life Smart Life. In these five areas, we have made efforts in addition to the realignment of subsidiaries. And in terms of 2021, revenue budget has been impacted by the COVID-nineteen, but 8% operating profit margin has been achieved for the 5 sectors. So in this 1 year, cost restructuring will be implemented in a surplus manner so that we will be able to enhance our earning power.
In addition, the Social Innovation business is an area where we are aspiring to become a global leader. Therefore, we have been dealing with many assets. JR Automation is a good case in point. ABB Parkland is also another example. We have also announced Global Logic acquisition recently.
With these acquisitions, we now have a strong framework to become global leaders. By utilizing these assets going forward, stronger Hitachi will be established going forward. With respect to Lumada, on the other hand, in 2016, we launched Lumada. It was customer focused in the beginning to resolve problems on the part of the customers, for example, the operation of the plant could be one client to minimize the operation time in the plant as well as enhancing quality assurance. These were the pain points of the customers.
By sharing these challenges with the customers, we work together in collaborative creation to generate solutions. In pursuing collaborative creation, we need significant resources. As a framework, we have established in the form of an experience by sharing challenges with the customers and to create solutions together with the customers. And when it is effective, we will establish that on Lumana. It is an end to end solution that we have been able to develop.
This is what we mean by customer base business model. But looking at the past several years, environmental issues and supply chain disruption because of disasters and resilience issues have come to the fore. COVID-nineteen is another good case in point. Safe and security and health care are social infrastructures that are before us in a significant manner. So increasingly, what we have to do is to resolve these social problems and challenges in order to do this.
We cannot do this by statute alone. There is a limit to what we can do. On the 5th November, we have announced the Lumada Alliance Program. We made Lumada into to engage many stakeholders to the platform so that an ecosystem can be established. So far, tens of companies are already participating.
Together with the stakeholders, social challenges will be submient. And together, this is a new value based business model. This is the shift we are making on the part of exactly today. Obviously, product generation will be necessary as well as the customer base business model must be accompanied. And with that, a value based business model will also have to be pursued.
This will be the approach of Hitachi going forward. This value based approach will mean that within Hitachi, we have to transcend the sectors and transcend DU for further integration. A strong leadership is called for to realize this process. On the 23rd June, Kojima san will be promoted to the CEO and President, and he will lead this effort going forward, environment, resilience and safety. This business will be pursued under his leadership.
And in addition, Lumada must also be further strengthened. Global Logic will be joining us going forward and transcending factors we must bring to bear synergies. I hope you can have high expectations on what is in store. Organizational transformation as well as operational transformation are necessary. In addition to that, IT, resource, Human Resources Development is necessary.
In order to further promote the social infrastructure business, social issues must is a problem that each individual must have a sense of ownership and they must engage surrounding stakeholders, take leadership in pursuing such challenges. This is the type of human resources we require. I had the opportunity to have a dialogue with Audrey Tang of Taiwan. And the source of his activity or her activity is to make everyone happy. What is necessary to make people happy is her source of activity, is the source of her power.
And what is common is the powering good of Hibachi. There is a common trend between the 2. Empowering good for the world. That is the type of human resources I hope to nurture going forward. In closing today is Hitachi IR Day.
You will have the opportunity to discuss with Hitachi leaders of the different sectors. This is a place of dialogue. I hope that you can have a frank exchange of views. And with that, I would like to conclude my CEO remarks. Thank you very much for your attendance
today. That concludes CEO remarks. We would like to prepare for the next session. So please wait for a moment. We would like to move on to the session overview of strategic direction.
We would like to provide you with the explanation of strategic direction of our business. The presenter is Mr. Keiji Kojima, who is the current Executive Vice President and Executive Officer, General Manager of Smart Life Business Management Division, who is to be appointed President and COO after the Annual General Shareholders Meeting to be held on June 23. We will be switching the screen. Please wait for a moment.
Mr. Kojima, the floor is yours. This is Kojima, Executive Vice President and Executive Officer. I will be serving as President and COO from June 23, 2021. Today, I will be giving you the strategic direction of Hitachi's business.
Please move on to the next slide. This is Hitachi's vision to create social, environmental and economic value through the social innovation business and ensure sustainable growth and profitability to return the benefits to stakeholders. We have OT times IT times products. By comprehensively providing these services, we would like to provide solution to the society. In OT, we would like to digitize tacit knowledge on-site and use AI to ensure an advantage.
In IT, we would like to lead the digitization of customer business process through co creation. In products, we would like to expand globally through the other partnerships so that we would be able to globally expand. OT times IT times products, The use cases as well as the solution derived from it that would be accumulated on Lumada. And we would like to create a software asset, which is quite competitive. That's our strategic direction.
Please move on to the next slide. In the 2021 midterm management plan, We considered expanding our Lumada business so that we can become the global business leader. We have strengthened our business portfolio. As for Lumada, in 2016, we have launched the business itself and we wanted to improve the co creation SI. And we have Vantara launch and for Global IT Platform and for creation of ecosystem, we started Alliance Program and we acquired GlobalLogic for global co creation.
We have gradually strengthened our business. On the other hand, for OT Products portfolio enhancement, general automation, Hitachi High-tech, Hitachi ABB Fire Grids, Hitachi ASTIMO, joint venture with Artemec. We acquired those companies and customer channels through M and A activities and the establishment of joint ventures. In 2021 midterm plan, we have promoted the structural reform. It is not our final goal.
This is a starting line towards our continued growth. We now have basic foundation in place. I would like to talk about Hitachi's vision for 2025. First of all, growing with digital technology. Under the difficult situation of pandemic like we are facing now, we want to have operating income over 1,000,000,000,000 yen and we aim to have half of the overall profit to be earned by Lumada Business.
2nd is deepening ESG Management. Become one of the world's leading companies in diversity and inclusion, environmental management and corporate governance. The third is returning our profits. We want to become a more attractive company for various stakeholders, including employees and shareholders. For society, Hitachi would like to be able to provide environment, resilience and security and safety.
By expanding R and D investment, we would like to accelerate the innovation and we would like to challenge ourselves to provide solution to the societal issues that we are currently facing. In the next midterm management plan, the biggest responsibility that I have is to capitalize on the M and A assets so that it would contribute to the improvement in the corporate volume. We need to further improve the quality of management. We will be focusing on the improvement of the value of our assets. We will simplify our management.
We will be making clear the benchmarking benchmarked companies. And in order to accelerate the transformation, we will digitize management. Global logic utilization will be quite, quite critical. And Mr. Fukunaga will be touching upon this, but I myself will be working hands on in this area.
And we need to grow in the area where we'll be able to capture growth. We are Japan centric. We will become global centric. Hitachi ABB Power Grid has a global management foundation. This is an important asset for us.
With that as a basis, we would like to create a common global platform for our corporation. Moving on to the next slide. The society changing rapidly. We cannot think of the future in extension of the current situation. We would not be able to improve the corporate value in the thinking business as usual.
From what we have to do is to conduct the R and D investment by backtesting from 2,050. In order to visualize that, I would like to show you a table of industry forecasts for 2,050 and to give you the example of the results of the R and D. Together with experts from outside, we have created our vision for the future and we are backcasting it from 2,050 and we are establishing various projects, academia as well as the local expertise. By capitalizing on everything, we would like to improve our corporate volume. Please move on to the next slide.
Our mission is to create innovation in social infrastructure by leveraging data and technology through the social innovation business to support people's happiness. I talked about the strategic direction. In spring of next year, we will be announcing the next midterm plan. Specifics and quantitative vision of Hitachi will be shown then. Thank you very much for your kind attention.
Thank you very much.
Thank you. The overview of the strategic direction has been concluded. We would now like to make preparations for the next session. Our next presentation will be from the IT sector. The presenter will be The presenter will be Toshiaki Tokonaga, Executive Vice President and Executive Officer, Head of our System and Services Business and Head of Social Innovation Business.
Please wait a minute while we are going to switch over the screen. Thank you very much for your time today. I am Sakonaga. I am having the IT sector since April of this year succeeding Shiotsuka. I would like to ask for your continued support going forward.
I would like to take a few minutes to explain to you the growth strategy for the IT sector. So I have outlined here what my key messages are. The first point is that the IT sector has steadily involved into a business capable of generating double digit adjusted operating profit margins. Against the backdrop of the expansion of the Lumada business, which drives our company's social innovation business and the results of the structural reforms, the IT sector has evolved into a business that can steadily generate double digit adjusted operating profit margins even against rapid changes in the business environment. Secondly, the acquisition of GlobalLogic, which was announced at the end of March to accelerate the global expansion of Lumada, is progressing as planned towards closing by the end of July.
The third point is that the IT sector will take leap forward to become a global player together with the Global Logic. I am confident that the IT sector will be able to leapfrog into a global player by combining the accumulated SI capabilities in mission critical areas with global logic, digital engineering capabilities. And finally, on the stage, I am convinced that we can achieve both growth and profitability in the Lumada business. In the high growth global DX digital transmission market, we will expand the Lumada business through the acquisition of GlobalLogic. And at the same time, we will continue to maintain high profitability in Japan to achieve both growth and profitability.
So this is the agenda for today. I will be, 1st of all, talking down to the IT sector, the sector that I am leading. Now IJ has the Financial Institutions and Social Infrastructure System Business Unit as well as Strategy System and Strategy Solutions in the front office. And also, we have the overarching services and platform business unit. The IT sector's 2020 revenues was approximately 2,000,000,000,000 yen We have more than 70,000 employees engaged in business in 47 countries and regions.
From this fiscal year, we have introduced the leadership organization. The Financial Institution Business Unit will be led by Ueda and the Social Infrastructure Systems Business Unit will be led by Abe and Service Platform Businesses by Abe. Now we have also announced the acquisition of Global Logics. And together with the Invesio Gamsara, they will be comprising the Ridachi Global Digital Holdings. Let's look back on the history.
From the founding to currently, the railway seat reservation system as well as online systems have been developed to support the lives of people as a social infrastructure and mission critical systems in terms of hardware as well as software. This type of SI technology, which is a mission critical system, is the base foundation of the IT sector. In addition, big data, AI and IoT and other digital initiatives are being pursued. In 2016, we have launched Lumada and have been dealing with social issues as well as issues in terms of corporate management, aspiring to become a global leader in the social innovation business. Now this slide shows the business activities of each business unit and major group companies in the IT sector.
Due to the time constraint, I will not explain in detail, so please refer to it later. Next, I would like to talk about the IT sector positioning under Hitachi Group. The revenues for the IT sector in 2020 accounted for 21% of the revenues of the Hitachi Group. In terms of adjusted operating income, the IT sector accounted for 80 rather 53%. Therefore, in terms of operating profit, IT sector has become a business that drives Hitachi today.
And if we look at the breakdown within the IT sector, front business is accounting for 64%, service and platform accounting for 36%. Regarding the revenues breakdown of the product business, let me give you further information. Although this is simple, accurate before eliminations for the financial business unit is accounting for about 20%. Social business unit is accounting for the upper 20 percent. Hitachi Systems, approximately 30% and Hitachi Solutions are high teens in terms of percentage.
Regarding the breakdown between Japan and overseas, for the actuals in 2020, domestic accounted for 75% and overseas accounted for 25%. Therefore, the challenge we set in this going forward is to expand the global business. Next, I'd like to talk about the management strategy for the IT sector. First, let's look at Hitachi's business goals. As explained in the recent presentation, the progress of the 2021 meter management plan, Hitachi will promote the social innovation business to secure sustainable growth and earnings.
Specifically, we will leverage Lumada to focus on the three domains of the environment: resilience and safety and security and engage in problem solving businesses that solve social issues and corporate management issues with the aim of improving people's quality of life and increasing the corporate value for customers. In order to realize the vision of the Hitachi business that I have just explained, the IT sector will proceed with its business based on the vision shown on this slide, specifically through co creation with customers around the world and alliances with partners, we will leverage Lumada to drive the social innovation business with the power of digital technologies, thereby realizing Hitachi's growth. In order to realize the business vision I have just explained, I will link the IT sector based on the 2 policies that I will now explain. The first is to strengthen our support to customers in digital transformation or DX. DX has become the most important management issue for corporate growth and sustainability.
A successful failure of Dx is a key management issue that determines the growth of the company. And the IT sector will be directly linked to the ability to stay close to our customers and strengthen our support for the management issues. In order to support our customers' Dx, I believe that innovation and reliability are 2 essential capabilities. In order to identify customers' management issues and propose and provide the solutions to those issues. It is essential to promote customer goal creation backed by innovative digital engineering capabilities.
In addition, mission critical SI capabilities such as the utilization and integration of existing IT assets will always be necessary for management transformation through JX. The integration of the IT sector and GlobalLogic will make us a player with both of these capabilities. And we believe there are significant growth opportunities in the IT sector as the DX market expands going forward. Secondly, we are expanding our global business. We strongly believe that the global expansion of the initiatives aforementioned is essential for the growth of the IT sector.
Global Logic has the frontline capability to develop co creation activities with customers globally and the software delivery capability to solve customer issues. These are drivers that will greatly contribute to the growth of the IT sector. Next, I would like to talk about the progress made in the IT sector in the context of the midterm management plan. In the fiscal year ending March 31, 2021, the IT sector operated in uncertain environment due to the spread of COVID-nineteen. However, even under these circumstances, the IT sector achieved the highest ever adjusted operating income of 269,400,000,000 yen The operating profit margin was 13.2%, significantly higher than the previous year.
This was due to the results of the structural reforms and efforts to reduce loss costs as well as the growth of the highly profitable Lumada business. I believe that the IT sector has evolved into a business entity that is able to consistently generate double digit operating profit margins even in a changing business environment as demonstrated by these results. On the other hand, as for fiscal year 2021, the spread of COVID-nineteen is likely to continue. Therefore, we have set our revenue forecast at 2,100,000,000,000 yen because of these highly uncertain conditions. However, with the intention of achieving growth that exceeds market growth, we will operate our business with a target of 2,200,000,000 yen.
In fiscal 2021, although there will be a modernization burden with the acquisition of Global Blockchain, which will be downward pressure on our operating income, we expect to continue to achieve double digit operating income margins in excess of 12%. As a result, the company expects to achieve an operating margin of more than 12% in the period of the 2021 meter management fund and EBITDA is expected to exceed 1,000,000,000,000 yen The Lumada business is also continuing to grow, settling in fiscal 2020, Lumada business sales for the entire Stuttgart exceeded 1,100,000,000,000 yen This is a result of the various business expansion measures shown on the right hand side. In fiscal 2021, with the addition of Global Logics, we are now within range of our midterm target of JPY 1,600,000,000,000 In terms of profit margins, on the other hand, the Lumada business has already secured a profit level of over 10%. And with the acquisition of GlobalLogic, we aim to achieve an even higher profit level going forward. As a result of these initiatives, we expect the Lumada sales to grow at the CAGR of over 24% during the 2021 midterm management planning period.
And we believe that we have now entered the phase of business growth exceeding the market growth. The scale of the mother solutions expansion is progressing recently as well. By focusing on the three areas of environment, resilience and safety and security in the Social Innovation business, we will further accelerate the development and the lateral deployment of Lumada solutions aiming to achieve both revenue growth and profitability improvement. The acquisition of GlobalLogic, which was announced at the end of March, will be explained to you once again at this juncture. GlobalLogic is a global provider of services that additionally transforms the customers' businesses with its advanced experience design and design digital engineering capabilities.
In other words, GlobalLogic is a company that supports customers' DX journeys. Robo Logic has served more than 400 customers and has 8 design studios and 30 delivery basis engineering centers around the world to support these customers. In fiscal year 2020, the company reported net sales of approximately US928 million dollars an EBITDA ratio of 23.9 percent, continuing to grow by more than 20% year over year and maintaining high profitability. As we have explained at the end of March, we are planning to make GlobalLogic a wholly owned subsidiary by the end of July 2021. I would now like to explain the progress in the acquisition process of the GlobalLogic.
We have formed a company wide team and are proceeding with the various tasks toward closing as scheduled and making full use of Hitachi Group's M and A track record and experience. The regulatory approval procedures, which are essential for closing, are progressing as scheduled. Global Logics' most important asset is its human capital, and employee retention is a key factor in the success of the PMI. In that regard, we are making good progress in this area. Global 1st employees' key resources have been identified and making steady progress.
GlobalLogic employees have not only welcomed this M and A, but have said that the culture fit with Hitate is very strong, which is very encouraging for us. And we are eagerly looking forward to welcome a global logic to our group. In addition, we are certainly moving forward with preparations for the closing organizational structure and governance design as well as for the rapid creation synergies after closing. Now I would like to talk about the growth strategy for the IT sector. This slide shows the trends in global IT Investment and Global DX Investment.
In terms of the global IT investment, North America and Europe account for about twothree of the global total and are expected to continue to expand steadily. In addition, despite the uncertain economic climate, DX investment is expected to expand rapidly in all industry with a CAGR of 15%. On the part of the IT sector, we are establishing a business foundation in the left hand bottom in terms of providing high reliability SI. But now going forward, we have been expanding our business in 2 directions. The first direction is to expand the SI activities globally.
The establishment of Hitachi Dantara and the acquisition of Pentaho one of the steps we have taken to realize this strategy. The other is the horizontal direction shown in the figure, expansion into co creation SI in Japan. As I explained, we have launched Lumada and are on a growth trajectory, driving the Lumada business across the company by continuously strengthening our digital human resources. Now for the next major step in the transformation of the IT sector to achieve the next phase of growth, we have acquired GlobalLogic. It is the right hand side.
In other words, we will accelerate the global expansion of Lumada by supporting our customers' DX activities in the areas shown here. In addition, we will actively utilize Hitachi's existing assets for the further growth of the global logic. As I had explained, the acceleration of Global Logics growth through the use of existing Itachi assets will be pursued from 3 angles. The first is cross selling, in which we will provide GlobalLogic's DX services to customers or corporate customers while providing such as mission critical SI services to global logic customers. This cross sell area is an area where we can reap early results, and we plan to aggressively expand our activities immediately after closing.
The second is the utilization of the software assets accumulated in the Lumada business to date. In the Lumada business, we have accumulated more than 1,000 use cases, and we have also developed the Lumada Solution Hub, a platform for horizontal deployment of these cases. By leveraging these existing assets, GlobalLogic will be able to develop a business model that utilizes software assets rather than the traditional time and material based business model. The third is the development of a new Zomada solution that creates Hitachi's strengths in OT, IT and Products. We aim to develop new solutions for Lumada by combining Hitachi's wide range of products with GlobalLogic's digital engineering capabilities to create high value added products and software created through co creation with our customers.
In North America and Europe, where Hitachi's business footprint is already large and the market size is large, Hitachi tends to strengthen its collaboration with a global logic through ties with Hitachi ABB, Power Grid, Hitachi Rail and JR Automation. Now based on these strategies, what disposition will the IT sector take in the future is explained here. We are unlike other IT centric or OT centric players. As the OT and IT knowledge base, a mission critical SI and the innovative experience design and digital engineering capabilities are required increasingly. In the digital transformation domain of social infrastructure where we can utilize Satie's wide range of products, we can gain a competitive edge by providing value in the areas of the environment, resilience and safety and security.
This slide shows the overall picture of DX in social infrastructure and Hitachi's strength in this area. In the digital society going forward, Hitachi will provide total support for the entire cyber physical system from products to applications that will realize digital transformation in social infrastructure and work to solve social and corporate management issues. Hitachi's strength in this area are twofold. The first is the ability to use Hitachi's wide range of products and to provide applications that solve social corporate management issues by analyzing the collected data and using GlobalLogic's digital engineering capabilities. This type of duplication will be increasingly be provided.
The second strength is to further improve the outcome. We have the knowledge and ability to control the physical space in real time base and the results of the data analysis mentioned earlier. In other words, we can perform mission critical SI. We have named this the cyber physical system mission critical IoT. With mission critical IoT at its core, we will accelerate DX of social infrastructure and Infrastructure and expand the Lumada business of the entire Hitachi grid.
The mission critical IoT that I have just described is billing is beginning to show results. In the manufacturing industry, the IoT Compass, a Lumada solution that digitally twins the production floor, reproduces the 4Ms of physical space, in other words, machine, material, method and human data in Cyberspace to optimize the entire factory. In the future, we will further evolve the IoT compass to achieve resilience that can be used to respond to unexpected situations such as sudden changes in the business environment and provide corporate customers with value that only Hitachi can provide. Next is summary. Before summarizing today's presentation, I would like to introduce the IT sector's effort to achieve Hitachi's Carbon Neutral 2,030, which we are focusing on, on a company wide basis.
In the IT sector, we are actively working to reduce CO2 emissions through the use of digital technology. First, let me give you internal company. In order to visualize electricity demand and to accelerate the use of renewable energy at the Omica WEX, It is consolidating and visualizing information from smart meters to forecast electricity demand. In addition, by linking the energy management system with the production plan, we are curbing peak power consumption and have already achieved reductions in contracted power consumption. On the other hand, there are examples relating to customers.
We were selected as the system vendor for the demonstration project under the Smart Grid Development Master Plan led by the Thai government. In response to fluctuations in electricity demand due to weather, which is an issue in the expansion of renewable energy, we will support grid stabilization by ensuring supply and demand balance. We recognize that the use of digital technology is essential for reducing environmental impact, and the IT sector will continue to actively work to provide environmental value. Finally, let me conclude. The IT sector aims to grow into a global digital company that leads the DX market by providing digital solutions to social issues and corporate management issues.
To achieve Hitachi's corporate goal of 10% adjusted operating margin in fiscal 2022, the IT sector will continue to maintain a double digit adjusted operating margin and contribute to corporate performance. In addition, by capturing the growth of the high growth DX market, we will lead the Hitachi Group in achieving Lumada Business revenue of JPY 3,000,000,000,000 and adjusted operating income of JPY 500,000,000,000 in fiscal year 2025. That is all. Thank you very much for your kind attention. Tokunaga san, thank you very much.
We would now like to take questions and answers. In addition to Mr. Tokunaga, we will have Yoshitou Nakano, CFO of our System and Service Business Division, to respond to the questions. Now please use the raise hand button on the Zoom screen. If you wish to ask a question, we will call your name and then you can unmute and ask your question.
We'll be calling your name as per the name on the system. If it is no longer necessary to ask your question, please release it on the screen. We will not share the video of the person asking the question. We will, first of all, take questions from the Japanese channel and then English channel to follow. First of all, we will take questions from the institutional investors as well as analysts.
Please unmute and ask your question in Japanese. Question. I have 3 questions regarding GlobalLogic mainly. First question is my personal image is that Hitachi Bantara or Hitachi America is going to change through the global logic with the Dentalho JRA and with other acquisitions, you will have a wide array of companies. So with that, what is going to be the ultimate state of the United States going forward?
Regarding GlobalLogic, it's very free and very agile in terms of its activities. Do you think that this is going to drive change of culture in Japan? Because in terms of development in Japan, it has an image of taking too much time. So do you think the ID culture in Hitachi will change as a result of GlobalLogic? SI and GlobalLogic integration has been mentioned.
They seem to be on both extreme ends taking so much time and very agile in development. They are at opposing ends. So how is this going to be overcome? How will you overcome this difference? Thank you for the question answer.
Now to your first question regarding GlobalLogic in the U. S. Business, how do we intend to grow the U. S. Business going forward is the question.
I think I mentioned this during my presentation. In terms of IT market size, North America is the largest. There is no doubt about that fact. Furthermore, as as per your question, In terms of Hitachi's assets, we have a good assortment already in JR Automation and Hitachi AVD, Power Grid and Hitachi Rail. In addition to the OT side, we have Hitachi Bantara as well.
The IT service players exist in our portfolio. So in the U. S. Market or North American market is very launched and it is a market with significant potential. Therefore, this will be the market of focus for us for specific numbers in the midterm management plan to be formulated going forward, we will give more clarity, but we intend to grow faster than the market.
And that is the basic strategy of our sector. To your second point regarding global logic and becoming part of Hitachi, Hitachi's culture as well as Japanese culture could undergo change as a result of this addition. As you've already mentioned, in Japan, the business of the IT sector and the type of businesses engaged by GlobalLogic are different in nature. The substance is different. The IT sector was focused on mission critical systems with high reliability taking time to develop.
And that is the reason why we have a long standing relationship with our customers through the system development. On the other hand, GlobalLogic has speed in development. It's their advantage. But whether we can combine the 2 is the challenge and I think it can be done according to my view. And I think it is going to have the beneficial impact on the IT sector in Japan as well.
Why do I feel it can be done? It's because of corporate culture. We have the very good fit in terms of corporate culture. The substance of the Wagyu differ. The process differs.
However, the GlobalLogic employees are all saying the same thing. Hitachi's aspiration, corporate philosophy of contributing to society, the reason for existence resonates with them and that is the reason why they are very keen to join the group. On the other hand, for Japanese market, we have been evolving mission critical projects. But from the point of view of modernization, global logic as engineering abilities can be unleashed the modernization that is required in Japan. Therefore, in Japan, we can utilize the power of GlobalLogic to grow the business going forward.
And regarding your third point, I think I've already covered this point already about Tata In Hitachi and IT sector. Whether this is going to be a successful integration is the question. This substance of the work that we have been doing look different, but the counterfeit is extremely high. And the undercurrent is that we have a common corporate culture. So by thoroughly implementing PMI, that we and the indices of GlobalLogic has been showing appreciation regarding this M and A.
Therefore, we are convinced that this PMI is going to be successful. Does this answer your question? Thank you very much.
Next question please.
Please unmute yourself and ask your question. Question. I have 3 questions. First is regarding Lumada. In 2017, a bit old, but you talked about risk reduction and sales increase and cost visualization and cost reduction.
You broke into various components and you gave us the products. As of the year ending March 2021, the sales breakdown, what is the sales structure? If you could quantify, I would very much like to know. So that's my first question. 2nd question.
You just mentioned explained global logics. Global logics innovativeness innovation innovativeness is the keyword today. So in what kind of project did you evaluate Global Logics Innovativeness? And you are planning to enhance the innovativeness. So what kind of image, what kind of project should we anticipate?
So that's my second question. 3rd question. As you mentioned at the outset, Mr. Shiotsuka's team, the operating income ratio double digit was achieved. Today, you explained various policies and strategies.
So under Tokonoda san's team, how do you plan to grow the IT even further? What is some uniqueness, distinctiveness or strength that you would like to leverage? Thank you. Those are my 3 questions. Thank you for the question.
So first question was about the Lumada business breakdown. Right after launch fiscal year 2017, the Lumada business structure and the way we look at it is changing slightly. So we cannot just have a simple apple to apple comparison. But roughly speaking, Lumada core business and Lumada related business, we categorize into 2 and track our growth. Lumada core business, our digital and IT solutions and Lumada related business, our OT and product, where Lumada the OT and product where Lumada business will go in together.
In the year ending March 2021 fiscal year 2020, Lumada core was a little over 4.70,000,000,000 yen and Lumada related business was a little less than JPY 640,000,000,000. So that was total over JPY 1,100,000,000,000. And your second question was about the innovativeness of Global Logics to give you a better image. We think there are 2 main strengths GlobalLogic has. 1 is the collaborative creation activity with customers.
This is strongly pursued. As of when we announced the M and A at the end of March, we mentioned this, over 90% of their customers said have been working with GlobalLogic all along. This means customers' DX partner, they are customers' DX partner. It's a strong proof. And not just their co creation capability, but the second strength is making GlobalLogic even stronger, which is the strong digital engineering capability.
For example, our product is digitalized and taken into the IT world, IT arena. So product is digitalized and customers are capturing growth. Many global logic customers have achieved this and this can be applied sufficiently to Hitachi. So Hitachi's broad based product lineup can be merged with Global Logics capability and connect this to Lumada's world. The data that Lumada needs will be captured this way and will be made into container as Lumada solution.
So this enhancement of Lumada business can be done with GlobalLogic. That is the future growth of GlobalLogic and their future contribution to Lumada. And third question, since I came in charge of IT sector, The focus my focus is your question. There are mainly 2 points. 1st, connect with Hitachi entire Hitachi and realize the overall growth.
Until now, we've done structural reform and reduced cost, lost cost to become the IT sector with the top class profitability under Mr. Shiotsuka and the predecessors. Hard work. I am succeeding this trend to shift more to growth. This is an important mission for us.
To realize that, Hitachi overall has to be connected well. And second point, this initiative will be expanded globally. This needs to be realized while I am in charge of IT sector. So 2 main missions. Thank you very much.
Thank you. Next, Harada san, please. Please unmute and ask your question. Question? I just have one major question.
So what you want to do is very clear in your message. But in order to improve the profitability, what kind of business model are you going to be introducing? This is IT, so there could be projects. It could be subscription, it could be a different approach or hardware or package or sales could be an approach as well. In what kind of model would you be introducing in terms of improving profitability?
And what are the numbers that you are intending to achieve on an annual basis? On this regard, utilizing VologLogic's technology, if the hardware is sold as a result of this business, is it going to be posted as a reminder sales? In what way? So the target revenues, I want to know how the specific numbers are posted? Thank you.
Regarding your first question, how can we improve profitability going forward is gist of your question. I think there are 2 approaches we can take. First, what is easy to understand is the following. The IDA sector has been involved in mission critical system integration. That has been the focus in specific projects.
High profitability will be maintained or improved further. I think that is very important to continue. Loss cost reduction. Once you realize phase gate, management will be required for this process. And we have been improving this process over long years.
This is where we stand today. And how far we have come in terms of the enhancements is being evaluated through benchmarking with IT vendors globally. We believe that we have sufficient competitiveness against the global IT vendors. So we shall continue to do this. And as a project, we will maintain high profitability.
That's the first point. Second point is regarding the context of the Global Logic. Global Logic was based on time and material type of business. EBITDA margin was around 20% on a month. That has been the business model so far.
And going forward, in order to enhance this further on the Hitachi, there are 2 things that must be done. First point is to enhance the technological power. As Kojima san has already mentioned, today R and D will be further strengthened. 2nd, as I mentioned during my presentation, software asset utilization type of business model must be expanded further because this is what the Domada has been envisioning from the very beginning. Domada Solution Hub is the platform that has been prepared for the service.
And on top of that, the use case as well as solution core accumulated assets will be mobilized for higher scale. By doing profitability can be enhanced. I think this will prove to be very effective going forward. In terms of specific percentage, we are not disclosing these numbers yet. So I shall refrain from asking responding to that part.
Now regarding your second question. With Global Logic and Product Business, with close the linkage between the 2, how is it going to be impacting Lumada business and how the revenue is going to be posted? Now as I mentioned at the outset, Lumada has 2 categories. The second, Lumada related business is where this will be posted. Therefore, when Hitachi product is increasingly utilizing Blue Logics solution, then this related business portion will continue to increase in terms of revenues that is my take.
And with GlobalLogic and Hitachi together, we hope that we can be successful in this approach. Question, Regarding the second plant, I have a follow-up question. What is going to be posted is product revenue is going to be posted in the related category or only the area that pertains to the GlobalLogic involvement will be posted. Regardless of GlobalLogic's involvement or not, Lumada related business is already being posted and registered. And as Lumada business, if products can contribute to providing values to customers, then it is already included in the related business of Lumada.
Regardless of the involvement of Global Logic, Lumada, it will be a part of Lumada because it contributed to enhancing the value for the customers, then it will be registered as a related business revenue. Very clear. Thank you. Next question. We will also take questions from the English channel.
We do not see any questions from the English channel, so we'll go back to the Japanese channel. Next question, please. Please unmute yourself. Question. I have two questions.
In the material, it says Omica Works, Power Consumption Reduction. So as the next development, including energy and others, how do you plan to improve the efficiency? And do you plan to deploy this to other companies and develop this as a business? And do you have any challenges? And the synergy with GlobalLogic in this area, will you plan to utilize GlobalLogic solution to enhance this even further?
2nd question, I just talked about the efficiency of the plans. Hitachi's existing IT business customers like in finance and in transportation, for customers in these sectors, do you plan to utilize global logic asset for future possible improvements? Do you have any concrete examples for us to understand this better? So first, our carbon neutrality and renewable energy utilization in Omega works. Needless to say, Eco Assist solution is already provided to our customers, and we will expand our offering to our customers going forward.
On the other hand, by adding global logics and not just global logics, by adding Hitachi's other sectors like Hitachi ABB Power Grid and other sectors, we can collaborate further to enhance this business even further. Of course, we will continue doing that. And this will lead to our 1 Hitachi strength. So this will not just be contained in one plant. We will use the track record to offer more value to our customers.
We will hone the solution and expand the business going forward. And your second question, finance and transportation sector. In the areas Hitachi is already having the existing business, how can we leverage Global Logics capability? So to answer that question, we are now discussing the synergy with each sector. This discussion just started.
It is a sensitive timing right before closing. So we cannot have a deep dive on the details of the business with Global Logics yet. But as IT sector, in finance BU and the social BU, social infrastructure system BU, we think we can collaborate with GlobalLogic and generate many new solutions. For example, in Financial Institutions sector, we can combine with IoT to have utilize system integration in settlement and IoT payment settlement platform can be created. And in transportation, ticketing, malls, solution can widen to those areas very quickly, so we can have a very broad based business opportunity.
The concrete cases will be pursued in the next medium term management plan after closing with Global Logics, and we would like to clarify and disclose them. Thank you. I hope this answered your question. The time has come to bring this session to a close. This will be the conclusion of the presentation of the IT sector.
We will resume with the industry sector presentation from 11:45. Thank you. Next, we will start Industry Sector Briefing Session. Executive Vice President and Executive Officer, General Manager of Industry Business Division, Mr. Masakazu Aoki will explain.
We will switch the screen, so please wait for a moment. Mr. Aoki, please. Hello, everyone. This is Aoki.
I would now like to explain the business strategy of Industry Sector. There are 3 key messages today listed here. 1st is digital transformation accelerating in the new normal era. Second is the expansion of total seamless solutions utilizing Lumada and third is the development for global growth. I will follow this content to explain, starting from overview of the industry sector.
This is the positioning of the industry sector. So it consists of Industry and Distribution Business Unit and Water and Environment Business Unit in Hitachi Limited as well as Hitachi Industrial Products, mainly in charge of product business and Hitachi Industrial Equipment Systems, a total of 4 entities. Next is the business overview. Fiscal year 2020 revenue was JPY 858,100,000,000 of which Industry and Distribution Business Unit was 36% and Water and Environment Business Unit was 20%. And the mass production business was 28% and built to order built business in Industrial Products business was 16%.
Now if you could look at the pie graph, the solution business grew with the acceleration of DS under new normal and acquisition of automation business. So compared with the same graph 2 years ago in the IR meeting, it now accounts for 56% of the total revenue. Next is the sector structure. I continue serving as the leader and operate the sector with 4 CEOs and Presidents here. Next is the business domain of the industry sector.
From the bottom of the slide, we have products used in customers' manufacturing sites and then OT that operate and control such facilities and IT that manages and controls them. The broad based business domain from workplace management is under one sector. This is our uniqueness. Next is the progress of 2021 Midterm Management Plan. So we've made steady progress through the strengthening of the integrated operations in the industry sector, although COVID-nineteen has somewhat impacted the plan.
Let me start from the bottom of the slide and work my way up. In response to the market change, we focused on selective investments and securing profits through fixed cost reduction and more stringent project management to respond to COVID-nineteen impact. To increase business resilience, we shifted resource to digital business and to accelerate DX and increased the number of solutions matched with the needs of the new normal to respond to market changes from the offense and defense. Invasive policies and progress as acceleration of expansion, we acquired GAR Automation in December 2019 and established Hisachi Industrial Holdings America in April 2020 to strengthen our business base in North America. In expanding and strengthening total seamless solution, which we explained in this meeting 2 years ago, we scaled digital solution utilizing Lumada and Lumada core business increased by 6% year on year.
In April this year, we acquired Kyoto Robotics, a developer of intelligence robotic system to expand business by further enhancing product times OT times IT. This shows the fiscal year 2019 results and onward. The fiscal year 2020 fiscal 2019 full year results was revenue of BRL909,400,000,000 and adjusted operating income of 7.5%, excluding COVID-nineteen impact, an increase in both revenue and income. 3rd, including the COVID-nineteen impact, we expected a significant decline in revenue and operating income. We started with a forecast of CNY761,800,000,000 and 3.2 percent respectively.
Despite difficult situation under COVID-nineteen, we shifted to digital business and expanded our global business. Therefore, fiscal year 2020 results shown in red arrows were up RMB96.3 billion in revenue and up 2.5 percentage points in adjusted operating income ratio against the forecast revised downward. We were able to control the significant part of COVID-nineteen impact. The revenue and increase are forecasted to grow as a result of capturing new DX needs despite the continued impact of COVID-nineteen. And beyond that, we will aim for revenue of over 1,000,000,000,000 yen and adjusted operating income ratio of over 10%.
Next, this shows the trends of the results of the main companies we acquired, starting with JR Automation in North America. As shown on the left graph, after we acquired JR Automation in Q4 of fiscal year 2019, we were impacted by COVID-nineteen in the U. S. In fiscal year 2020, but by eagerly exploring the new demands and pursuing PMI, orders and revenue grew considerably. And the growing And the growing business areas are, as shown on the right pie chart, we shifted from automobile centric portfolio to a bigger portion from e commerce and medical growing under the new normal and accelerating the shift in our business portfolio.
And furthermore, in fiscal year 2021, we will expand Robotics SI business featuring the Digital Fusion. Next is Solaire in the U. S. In the Q1 of 2020, we saw a large COVID-nineteen impact in the U. S.
And orders and revenue fell significantly. But a steady expansion of new customer base, flexible production system and increase in the cost competitiveness of products, such measures were taken to improve the resilient structure. So in the Q4 of fiscal year 2020, was 118% year on year and this recovery is still continuing. Both companies in the U. S.
That we acquired are implementing solid PMI and realizing growth and expansion despite the unprecedented difficult living and economic environment. Next is the expansion of total seamless solutions. Changes in the market conditions and aims of the industry sector. 1st, left side of the slide, changes in the market environment. This includes drastic changes due to COVID-nineteen, increase in geopolitical risks, increasing environmental awareness and shift to recycling society.
In response to that, on the center of the slide, the customers' management perspectives are changing as well. Environment, resilience and security and safety, these three values are important. With the acceleration of Dx such as the reduction of required labor, automation and contactless solutions that are becoming increasingly sophisticated and a new normal, the gaps between companies and organizations, the so called boundaries that I mentioned in the last IR meeting is becoming more evident. Solving this issue is becoming more important. Industry sector connects boundary through total seamless solution from workplace to management and solves issues to maximize customers' total profit and contribute to value creation.
Next is the comparison to competitors. In this diagram, the vertical axis is the scope of the provision of solutions. From the bottom to the top, partial layer, adjacent layer and full layers. Horizontal axis is the approach for resolution of customer issues from left to right, package proposals, customer requirements and collaborative creation with customers. And the size of the circle shows the ballpark revenue.
With the changes in the market environment, boundary issue from market management to workplace and in supply chain is becoming evident. Therefore, it is more important to solve the issues not only from individual optimization of partial layers, but also from overall optimization of the collaborative creations of customers and product, OT and IT. So Hitachi will leverage and deepen total seamless solution based on domain, FI knowledge to differentiate ourselves. Now let me once again explain the total seamless solutions applied to boundary issues. The boundary issues exist in vertical, horizontal and place.
Starting with vertical. By connecting boundary between management and workplace with digital, top management can understand workplace situation and make quicker decisions. Next, horizontal. By connecting boundaries such as manufacturing, supplier, distribution and market with digital, we can enhance the efficiency through overall optimization. And lastly, place, a place where different industries connect with digital.
When new places are born, people and information are connected and global market opportunities are created and new value creation opportunities are offered. So we will address these boundary issues with total seamless solutions. This shows the extension of total seamless solutions utilizing Lumada. In co creation with customers, the 3 mentioned at the bottom, the technologies like AI and mathematical optimization technology, domain knowledge and customer relations are the three strengths that support us. Today, let me talk about the ones in the yellow, the recent case examples, starting from the next slide.
So this will be a lot of information, but in order for you to understand the aim and the progress of the business in our sector, we will introduce the outline of 6 Lumada digital solution cases. 1st is Connect supply chain globally. Right side, green box. We respond to the value chain that changes variably and contribute to employees' work style reform through automation of planning of Daikin. For Daikin's chemical business, 5 manufacturing bases and 9 sales bases are connected globally to provide production and sales planning and execution support solutions that quickly responds to changes in demand.
On the left side of the slide, SCM by using SCM optimization simulation, we can present approximately 60 times more manufacturing and sales measure patterns than before in the short time, and the effects of introduction is shortening the time to determine by approximately 95%. With that, the bottlenecks through switching manufacturing can be eliminated and high profitable products by utilizing surplus capability can be increased. Supply chain aiming to maximize business KPI can be optimized. 2nd is the Connect sales workplaces and markets. On the right side, green box again, please.
Seiyu had cumbersome order placement operation. This was reduced drastically, which allows focusing on kitchen operations and customer services. In the future, they will aim to reduce stockouts and food loss. In Workman, we contributed to stockout control and inventory optimization of 100,000 items that have different sales turnover ratios. Now the left side of the slide, please.
These uses Hitachi's digital solution for retail, AI, demand forecasting based on automatic order placement service. And the effects of introduction Workman is the shortening of order placement operation from approximately 30 minutes to 2 minutes. In both cases, there are these are the cases where Hitachi contribute to productivity improvement of sales workplace by automating order placement operation based on demand forecast by AI. And third is Monotaro case to connect workplace and management and logistics field. Green box on the right again.
Response to labor shortage through automation using robotics and realized data originated and sophisticated operation of the distribution center. Now Monotaro's workplace, 300 compact and low floor automated guided robot Recuro has been delivered with 400 more planned to be delivered. And Hikachi is managing all control systems and WCS. Now WMS refreshment. Our distribution center was sophisticated through WMS renewal and use of robotics.
We aim to optimize. And 4th is Connect Workplace and Management and Logistics field, Green Box. Responds to decrease in number of truck drivers, accident preventive measures and real time operation management utilizing IoT technologies. This uses Hitachi Transport System's unique safe operation management solution using AI and Hitachi digital solution for logistics. On the bottom of the slide, you can see biological data driver and the vehicle behavior and other driving operation information is accumulated on the cloud and managed and analyzed to realize both safety and efficiency improvement.
5th case, provide a place for connecting different companies. Alfresa, through collaborative creation with pharmaceutical wholesaler Alfresa, we provide Japan's first platform for integrated management of cell, cell and tracing information throughout the value chain for regenerative medicine products. To respond to strict quality control and traceability and analyze and simulate the supply chain. In regenerative medicine, it is crucial for multiple companies and organizations to share individual sample identification information to ensure product quality. So we offer common service infrastructure for all stakeholders involved in regenerative medicine products and connect boundaries existing between different companies and organizations.
And 6th case is connect workplace management and supply chain in food field. So we contribute to the production Left side of the slide. By introducing Hitachi's proprietary system combining AI and mathematical optimization technology, time required to automatically produce optimal answer from among maximum 16 trillion production plan patterns per plant was shortened to oneten. Now center right shows the improvement of refrigeration equipment of Nichire Loji Group in charge of logistics, product, OT, IT, Emilia based cloud service infrastructure, integrated energy facility management service is offered. We also offer a solution to improve operation maintenance efficiency of refrigeration equipment.
Next is the global growth development. This is the progress in North American market. In July 27, 2017, we added Solair and strengthened the North American product business. And next, we entered into robotics SI business that is expected to show high growth and KEC in April 2019 and GR Automation in December and Kyoto Robotics in April 2021 to enhance and extend Robotics SI Business. We will collaborate with GlobalLogic going forward to reinforce the fusion of robotics SI and digital.
And from fiscal year 2022, we will develop this into end to end digital solution connecting management and workplace. Now we established Hikachi Industrial Holdings America to manage the North American business of Industry Sector Strategy with Solair and JR Automation under the umbrella in April 2020. The ones in blue will be explained from the next slide onward. 1st is fusion of robotics SI and digital. JR Automation offers automation of large scale robots processing equipment and conveyor collaboration between ERP and MES for the process of aircraft components of Rolls Royce in North America and offering the optimization solutions.
On the lower right, you can see the business formation. We have partnership with Siemens and ABB as well, and JR Automation is managing the entire project in a turnkey matter. Going forward, Hitachi and JR Automation synergy, including GlobalLogic, will accelerate the fusion of Robotics SI and digital and expand the business. Next is the strengthening the functions of Robotics SI acquisition of Kyoto Robotics. It has intelligent robotic system equipped with world class 3 d vision sensor and we will leverage this to strengthen our robotics FI business.
99.99 percent 3 d object recognition rate, masterless and industry leading depalletizing capability will become our strong weapon to strengthen our logistics and FA domain business. Now this is the use case of intelligent robotic systems. This is a case of NTT DOCOMO's logistics operation reform and optimization. Upgrading of logistics center operation through OT and IT is promoted towards full automation through Kyo Robotics' intelligent robotic system. We started connecting the operation reform for logistics optimization and from 2017, material handling, WCS, MS, OT and IT efficiency was realized.
And from 2021, we've been utilizing 3 division of Kyoto Robotics to automate the workplace through peace picking robots to aim for full automation of more sophisticated logistics center. Now this is the strengthening of global development of robotics SI business. 1st, strengthen robotic SI's nature digital fusion through the execution of of cross regional comprehensive activities. We use North American strategy of Hitachi Industrial Holdings America as a basis and strengthen integrated activity across borders using technology, know how of GRA, KEC, Kyoto Robotics and Hitachi and use that as a basis to expand globally to Europe, ASEAN and Japan. Now conclusion.
Initiatives of creating environmental value. We will create sustainable environmental value as well as economic value through collaborative creation with customers. In Digital Solutions business, we will reduce CO2 by optimizing production, supply chains and distribution. And in Utility Solutions business, we reduced CO2 by making advanced technology driven improvements to the efficiency of water resources cycling systems. And in Industrial Products Business, reduce CO2 by applying energy savings and or IoT schemes to products.
In the industrial sector, we create sustainable environmental value by offering total seamless solutions. Now this shows the intensive action for the growth of the industry sectors. There are 3 main intensive actions from the left: facilitating the evolution of total seamless solutions, accelerating growth globally and strengthening the management base. With this, we will aim for the business growth and business value enhancement in the industry sector. And lastly, conclusion.
By implementing the business strategy and intensive actions for future growth, we forecast revenues of JPY 880,000,000,000 adjusted operating income ratio of 8.2 percent overseas revenue ratio of 24% and ROIC of 8.7% for fiscal year 2021. And beyond that, we will aim to achieve revenues upward of 1,000,000,000,000 yen and adjusted operating income ratio exceeding 10% as the best solution partner for industrial customers. This concludes my explanation. Thank you very much for your attention. Thank you very much, Aoki san.
We would now like to start the Q and A session. The question will be answered by Mr. Aoki as well as Vice President and Executive Officer, CEO of Industry and Distribution Business Unit, Mr. Kazumoku Morita and CFO of Industry Business Division, Mr. Kazuyuki Iriya.
If you have questions, please press the raise hand button on the Flume screen. We will call your name, so please unmute yourself and mention your name and affiliation and ask your question. We will start from the Japanese channel. Media, institutional investors, analysts, anyone is okay. Any questions?
Mr. Harada, please unmute yourself. Hello.
Question.
I have two questions. 1st, you raised many case use cases. Co creation with customer is increasing. This was very easy to understand and clear. I liked it.
And with this, how much increase in revenue are you seeing or the added value or profit? How much increase are you realizing? It's still difficult image. So on Page 1718, for example, with these solutions, how much increase are you seeing? Could you quantify, if you can?
That's my first question. Second question is about the operating income ratio, profitability. In the Industrial and Machinery segment, in general, when the logistics turn stronger, you can achieve double digit profitability in many cases. Some of your products are at that level already. But overall, double digit profitability is not achieved yet.
And looking at your plan this fiscal year, it's 8%. So it is still falling short of the double digit. So if when you target 10%, for example, what are you lacking? What is your shortcoming? What do you need?
So you do collaborative creation and the outcome of the co creation will lead to higher profit and will bring you up to 10%. If you have, could give us an image, I would appreciate it. Thank you for the question. So the first question is the collaborative creation type solution. How much is the outcome reflected in numbers?
It is difficult to answer, especially for fiscal year 2020, As the COVID impact overall impact, the base dropped by 15%. So, JR Automation was acquired and so we have to make adjustments and corrections. But my image is from the 15% drug, we were able to come up by 10% through these solutions, so increase of 10%. So when we recover to fiscal year 2019 level, Last year, we wanted to aim for JPY 900,000,000,000 or above in fiscal year 2021. So if we assume that this impact will disappear, then we think we can recover to that level.
That's how much increase we're seeing in the solution sales. Now how are we contributing to the profit? I think that was part of your question. There are still very challenging solutions. So I'm not saying the profitability is bad, but the value there and I think this is related to your second question.
We have products in our business too. So the cost is incurred. And how the key is how much business we can increase, where we can be paid for higher value, added value. So that will be the key. So I there are more cases.
I just talked about some of them today and talked about boundaries. So offering the big break through will become Hitachi's value and value big value for our customers, not just simple cost reduction, bigger value than just simple cost reduction. So that is what we call by total seamless solution. So the product volume is necessary. We need that In fiscal year 2021, this year, the base business is we are a manufacturing company, so we are impacted by the market condition, good and bad market condition, and we cannot help it because we are a product manufacturer.
But once we recover to the normal volume level, then we think we are strong enough to be able to see 10% in sight. I hope I answered your question. Question? Thank you very much. Yes, you answered my question.
Thank you.
Next is Mr. Eizawa. Please unmute yourself and pose your question in Japanese. So I would like to know about the planning for the performance. This fiscal year's performance planning, the sales revenue will still be impacted by COVID-nineteen, so it would not be growing so much.
But in terms of the profitability, it will be growing to 8 point 2% significantly higher. So at what stage are you in currently to get to this level of numbers? So could you talk from a qualitative perspective? You talked about solution business. That even though your business was impacted by COVID, solution was not impacted so much.
So that's why the profitability is going up even though the sales revenue is staying not staying flat. So could you talk a little bit about that? And the second question is, if you look at your midterm plan, so there is an increase of 100,000,000,000 yen in revenue and the margin will go up to around 10%. So if the revenue goes up, the marginal profit of the 10% can be achieved. So do you think that there would be a linear growth?
Could you explain a little bit about your view on this, the business mix? We'll be changing to total seamless solution. And I believe that in that case, there would be higher profitability. So I would like to know how you view this? The answer.
Thank you for your question. The profitability for fiscal year 2021. Improvement of the profitability and how we accumulate with the sales revenue. I think that I should elaborate further on those points. For fiscal year 2021 in sales revenue, Compared to the increase in sales revenue, the profitability tends to go up higher.
So this target is not something that's easy to achieve. But by having a recovering the volume, The profitability will be going up, but that's about half the story. In terms of the contents, so the recovery of North America market, which was hit hard by COVID at first
and also
Japan market and the global market. Under COVID environment, we now know the optimal fixed costs. And during fiscal year 2020, we have conducted various initiatives. But for fiscal year 2021, we clearly know what the costs incurred are. In fiscal year 2020, we did see some losses.
So we are able to see more clearly about what those losses are. And so with that in mind, we believe that we can achieve 8.2% in profit, which is 72,000,000,000 yen in value. And we believe that this number is achievable. Going further, so your question is that, is 10% sufficient for the 1,000,000,000,000 yen that we are aiming at? In our business, we still have room for growth.
50% of the total is related to solution business. And now at hardware, it's less than half. So the marginal profit is not linearly going up just with the increase in the volume. We are focusing on SI. So if the utilization of the plant is 100%, maybe marginal profit will be going up, but our business is not like that anymore.
In the midterm plan, we would like to, of course, aim higher. But we are not a simple hardware business anymore, so the style of generating profit will be different going forward. That's all for my answer. Thank you.
Next, we will take questions from the English channel. We do not see any questions on the English channel, so we will shift back to Japanese channel. Please raise your hand if you have a question. Mr. Yasui, please unmute yourself and ask your question.
Question. I have 3 questions. 1st is the progress of digitalization due to COVID. This is a big theme. In the industrial sector, did it actually happen?
You may say the change was not as big as we anticipated or just an image, your take on how much digitalization progress you saw or the changes in the business model or paradigm shift? If you could talk about that, appreciate it. 2nd question. In the presentation material, page 12, JR Automation sorry, Page 11, JR Automation. Profit improvement, especially in medical, a big improvement.
Revenue has doubled and medical is growing. So maybe this is too big an improvement, a one off improvement due to COVID. So will there be a reactionary fall? Is this sustainable? And third question.
Aok san, when we acquired JR Automation, solair and GR Automation combined, revenue was JPY 130,000,000,000 and there are many customers. So you said you want to aggressively expand the business. This time, you acquired Global Logics too. So as mentioned by Tokunaga san, about the expansion plan in North America, both quantitative or qualitatively? Could you talk about the growth rate from the companies that we acquired?
Thank you. So let me answer your third question first. I think it was the IR Day in fiscal year 2019. We were said that those acquisition in North America were midsized acquisitions. So that was total 130,000,000,000 yen and we said we want to increase this to 200,000,000,000 yen For fiscal year 2020, it seems like we stepped back.
But looking at the recovery from the second half, this target of 200,000,000,000 seems to be achievable or reasonable target for 2024 mid term management plan or fiscal year 2025. In that time frame, we think we can achieve 200,000,000,000 The automation in the U. S. And capital expenditure trend are solid and steady, it's progressing steadily and U. S.-led digitalization and automation is now much stronger than what we saw and felt before the acquisition.
And I talked about 1 digital case, and I cannot talk about many cases because we cannot talk about customers' names, but many SI operators and digital are integrated. The movement towards the smart factory is strongly advancing more than in Japan And more complex digitalization was considered when we acquired GR Automation, but this time, we also acquired GlobalLogic. So various delivery structure is now in place. So one missing piece was filled, was acquired and this will be Hitachi's strong weapon going forward. So to repeat myself, the JPY 200,000,000,000 target we think is achievable.
And your second question was the question on the pie chart on Page 11. Medical is growing significantly. It says revenue, but I think this is orders. No? I think this is order number.
In terms of order, as you correctly mentioned, order nearly doubled year on year basis. And it does not show numbers here. So it's sorry, this is not clear cut, but automotive ratio declined, but this is not a drastic decline. It is not declining much. Automotive is not declining much.
Medical Care and this includes general industries grew significantly. And as you correctly mentioned, part of this is special demand. The COVID countermeasure, the warp speed strategy was implemented operation warp speed was implemented in the U. S. And JR Automation's strength is that we can respond in a agile fashion, and we recognized the strength once again.
So I'm sorry, this was revenue. It's not orders. It's revenue. I'm sorry, I was wrong. So you said maybe we will see a decline in fiscal year 2021.
This is partially incorporated into our budget. But looking at the order trends this year, the momentum has been maintained. The special one off demand part will decline, but the automotive, thanks to the EV shift backed by the environmental trend, including the emerging new players, we are seeing a big shift to EV. So the speed and the dynamism of the investment is seen. And when it comes to EV, the vehicle structure changes dramatically.
The structure changes. And so the automation line to meet that is a must for Tier 1 manufacturers. It's indispensable. And so this trend will not stop. And as I mentioned in today's cases, adding digital to that will be our growth factor, our driver and our differentiating factor.
And your first question was about COVID-nineteen, the paradigm shift of digitalization under COVID, Remote work and daikings example, is about changing the product this way or changing the product from line A to line B. It's simple if it's just about 1 factory, and it requires face to face discussion. But with this solution, we can have simulation in the headquarter and decide everything. So this will be one need that can be met in the remote situation. Morita san, anything to add?
Thank you. I am Morita from the Industry and Distribution Business Unit. So regarding your first point, is there really a digitalization need under COVID? As Aoki san just mentioned, for example, in the case of Daikin, COVID and the geopolitical reasons, supply chain is changing now. So given these changes, where should products be made?
How? The source of profit is now showing effect. And Monotaro and Higachi Transport System, the co creation example was shared. Even before COVID, people started coming less to the manufacturing sites. This had been a challenge.
And with COVID, this challenge has become more evident and has been shifting at a greater speed. So we can solve these challenges through digital. So this digitalization need is emerging and becoming more evident and accelerating under COVID.
So it's
surfacing and accelerating at the same time. Thank you.
Thank you very much. It's time for us to conclude this session. We would like to conclude the Industry Sector session. We will have lunchtime now. We will resume from 1:10, and the presentation will be made on Mobility Sector.
We will conclude with the Zoom session now, but you would be able to use the same URL for Zoom. For the afternoon session, please gather around 105. Ladies and gentlemen, we would like to start the afternoon session of Hitachi Investor Day 2021. The afternoon session will be from 1:10 to 5
Once again,
those of you utilizing the Japanese channel, you can also use the language selection button and you would be able to hear the original English. Please select the language that you would like to listen to from the lower portion of Zoom. According to your device, where the button is, is different, but in the case of PC, it's in the lower portion. We would like to now start the presentation on Mobility Sector. Presenting is Executive Vice President, Chief Environmental Officer and Mr.
Alastair Dormer. Please wait for a moment. We will be switching the screen.
Good afternoon, ladies and gentlemen. My name is Alastair Dormer, Executive Vice President for the Mobility Sector, and I am joined by Shinya Mitsudomi, CEO of Building Systems Business Unit here in Tokyo and by Andrew Barr, CEO of Rail Systems Business Unit joining via Zoom from London. With Andrew joining remotely, to hopefully avoid any technical mishaps, I will talk you through the Mobility Sector presentation and invite Andrew and Mitsodomishan to join answering your questions. So please turn to Page 1. I have 5 key messages to give you today.
Number 1, we are ambitious and confident to outperform the market, targeting 1,850,000,000,000 yen top line, double digit profitability and above 13% ROIC in 2025. Now whilst the pandemic has been a very difficult management challenge, we are enjoying strong recovery in buildings, in China gaining number 1 market position and we have secured some amazing major new contracts for rail in the U. S. Number 3, we are focused on profitability and growth. During 2020, we launched transformation programs to reduce costs, improve competitiveness and strengthen our global governance.
We are targeting further growth expansion in Asia for our Buildings business and expanding on our increasing presence in the U. S. Aligned to the Biden administration plans for public transportation investment. Point number 4, we continue to invest in new technology to both enhance public safety and to play a part as a climate change innovator. And finally, we have acquired 2 notable companies and continue to divest non core assets.
Perpetuem is an intelligent IoT sensor company, which is playing a key role in the connectivity of product designs. And Yungtai is a really great business and the number one elevator company in Taiwan with bases in China. You may remember that Hitachi brought an initial stake in Yungtai back in 2018. However, we have now increased our stake to 70% and have agreed to acquire the remaining shares by the end of the year, which is really great news. Please turn to Page 3.
Now this shows the mobility sector within Hitachi. Throughout the presentation, I will refer to the Rail business as RSBU and our Buildings business as BSBU. I apologize for the jargon. Let's turn to Page 4. You can see our relevance.
In 2020, Mobility contributed 13% of the overall Hitachi revenues at 1,200,000,000,000 yen which was a 5% year on year growth compared to 2019 despite a very strong COVID headwind. Turning to Page 5. Let us have a look at the business units and leadership. RSBU contributes 45% of mobility revenues with a balanced portfolio of rolling stock and signaling in turnkey topped up by a growing maintenance business. The business is fully global with a presence in 38 countries around the world and a full product and service lineup.
So let me introduce Andrew Barr, CEO. Andrew has been with Itachi for 17 years and has been CEO of RSPU since April 2019. Andrew was previously CEO of Anselda SDS following the Hitachi acquisition in 2015 and has overseen the full post merger integration of SDS into the group. This has established a truly global footprint for the Rail business to build on. Now let me introduce BSBU, which is split between new installation elevators and escalators and service and solution businesses.
In Japan, the market is very mature and our business is dominated by service. However, in China and Asia, the market is still growing strongly. So our new installation business is dominant, but with significant opportunities for expansion in our service business. Mitsubomisand is a highly respected business leader, who became the CEO in April 2020. He has immediately applied his global business experience gained from a career in Hitachi's Global Rail Business to kick off the transformation program within BSPU, aiming for 1,000,000,000,000 yen top line and 12% adjusted operating profit by 2025.
Please turn to Page 6. Now let us look at the progress of our midterm plan. We plan to exceed our original revenue target of 1,270,000,000,000 yen As you can see from the chart, at the top left, our mix has changed with top line with RSBU caused by the COVID pandemic, offset by organic growth in BSBU, aided by a quick recovery in China and the consolidation of Yungtai. From a margin perspective, we expect to rebound in 2021 as the volume returns in RSBU in the second half of the year and we continue the successful transformation of BSBU. Now from an EBIT point of view, we successfully divested a second tranche of our stake in Agility Trains.
As a reminder, Agility Trains was set up as 2 special purpose companies, Agility Trains West and Agility Trains East, to finance the purchase of the IEP trains in the UK. Following the successful delivery of the trains, we sold down the 1st tranche in Agility Trains West in 2018 and in 2020 sold down a second tranche in Agility Trains East. And in BSBU, we have been tidying up our portfolio of non core assets, selling off some surplus land and buildings for redevelopment. Now let's have a look at Railways in a bit more detail. Please turn to Page 8.
Now according to the European industry body, Unife, the global railway market is expected to grow at 3% compound annual growth rate to 7,000,000,000,000 yen by 2025, which is solid. But the digitization of Rail is expected to grow at 7% compound annual growth rate to 1,900,000,000,000 yen by 2025, which is a great opportunity for Hitachi. The chart on the right side shows our relative market share, and it should be noted that this excludes CRRC, the world's largest railway supplier, but mostly a domestic player in China, and shows both Alstom and Bombardier Transport. However, Alstom has now completed the acquisition of Bombardier Transport, and this acquisition positions Alstom as the number 1 global rail supply company, but this has the added benefit of elevating Hitachi Rail to global number 3, which we believe gives us more opportunities in the market. On Page 9, you can see the relative position of the business as we target moving to double digit operating profit and €850,000,000,000 top line in 2025.
We expect significant post pandemic investment in public transport to boost economic activity and reduce CO2 emissions, particularly in Europe and the U. S. And recovery in emerging markets. We are the local leader in Italy, strong in Japan and the UK. And in 2020, we have massively delivered on our U.
S. Expansion strategy that we talked about at our IR Day in 2019. Firstly, we secured a fantastic €84,000,000,000 contract to modernize the signaling for the Bay Area Rapid Transit System, known as BART in San Francisco, which is a huge win for us on the West Coast, followed by a huge contract valued at up to JPY 240,000,000,000 to supply new metro cars for Washington, D. C. This new contract in Washington, D.
C. Will be supported by the construction of a new railcar assembly plant in the Washington area to serve our North American expansion and it will be similar in size to our Newton Acres site in the United Kingdom. On Page 10, we show our strategy. Now railway is a key technology for decarbonizing mobility, and we see the combination of green technology and Lumada to be the growth engine for the future. We expect strong growth in next generation signaling and smart infrastructure, where we can work in partnership with our recent acquisitions of GlobalLogic and Hitachi ABB Power Grids.
In addition, we are following adjacent and disruptive technologies such as Hyperloop and are partnered to supply safety through digital signaling technology to watch this new technology develop. Hyperloop is proposed future mode of transport for passengers and freight using pods traveling in vacuum tubes to enable speeds of up to 1,000 kilometers per hour. Further cost reduction is potential is good with AI driven predictive maintenance and analytics accelerated by the integration with Perpetuem. The Perpetuem sensors are self powered and fit and forget, so give enormous potential for data harvest and analytics. On Page 11, we showcase some of the exciting innovations and projects we are involved in to decarbonize rail travel.
In the U. K, we have a large fleet of intercity trains, the 800 Series or IEP. Unfortunately, these trains were recently in the UK media as a few small stress corrosion cracks were found during route inspection by Hitachi maintenance engineers. The fleet was temporarily withdrawn from service as a precaution. However, the fleet was safely restored to full operational service and a repair plan is in work with our stakeholders.
We sincerely apologize for the disruption to our customers' operation, but safety is our highest priority, And therefore, we did not hesitate to take immediate action. I can assure you that this issue is a very local and specific issue to this train design and is not present on other Hitachi trains. This has slightly impacted profitability for FY 2021, which has been included in the forecast presented today. Anyway, these trains are very innovative and novel in that they can use either electric or diesel power. We have partnered with a UK company, Hyperdrive, to develop a battery to replace a diesel engine to study the feasibility of this technology and the potential across the fleet.
In Italy, we are delivering hybrid trains using battery technology. And in Florence, we have successfully demonstrated a battery tram with the potential to remove ugly on street power cables and reduce the disruption to cities implementing eco friendly tram systems. And finally, here in Japan, we are launching a prototype hydrogen train in partnership with JR East and Toyota. So lots of exciting innovation. On the next page, we are demonstrating our support to the sustainability agenda.
Our business contributes to environmental values, social values and economic values, helping save the planet and delivering safe, comfortable travel to millions of people each year. The environmental value of rail travel is completely aligned with my role as Chief Environmental Officer of Hitachi, and we will be showcasing our latest eco friendly rail technology at COP26, the Global Leaders Climate Change Summit in Glasgow later this year. On Page 13, we have a risk analysis. The pace of global recovery from the pandemic is uncertain, but initial signs are encouraging. In Europe and North America, we are hearing positive news of post pandemic investments with figures of €2,000,000,000,000 in Europe and $2,000,000,000,000 in the U.
S. Being committed. Page 14 provides a summary of what I've just said. As we target over 50% post pandemic growth recovery and double digit profitability, with recovery in all lines of business, supplemented by new digital opportunities such as Mobility as a Service. Mobility as a Service covers a range of software applications from smartphone location based ticketing to further applications focused on the passenger experience, which we expect to grow in the coming years.
In addition, we are working with a number of key customers who are seeking to transform their adjacent bus operations to electric bus. We have developed technology in partnership with our Lumada team to manage the various constraints introduced by batteries, such as range and optimum life management. And we expect many bus operators will face challenges as they migrate to electric, and we have some core technology to help. Now let's move on to Buildings Business Unit. Please turn to Page 16.
Here we see the macro trends affecting the buildings and elevator escalator markets, such as continued population growth and urbanization. These remain positive. However, the big acceleration we predict to be in the digitization of buildings forecast to grow at a compound annual growth rate of approaching 15% with significant potential for both cost efficiency and the creation of new revenue streams. On Page 17, we are showing the relative market position of our business compared to the competition. Whilst we are smaller than the global top 4, we benefit from a concentration of our business in Japan, China and growing markets in Asia.
Our large installed base in Japan drives service efficiency and our significant volumes in China is driving standardization and both the service potential through our rapidly growing installed connected base and the platforms for targeting initial growth additional growth in Asia. We have set ambitious yet achievable targets of 1,000,000,000,000 yen of annual revenues in 2025 and global levels of profitability through a focus on standardization, scale and digitization. For the first time in many years, we have seen changes at the top of the elevator sector with Thyssenkrupp Elevators being acquired by Private Equity for over €17,000,000,000 and Otis being separately listed. Now both of these deals have shown how highly valued this sector is to investors. And our business plans take us to a similar size to Thyssen with a higher level of profitability.
Moving to our management vision on Page 18. We are focused on the potential of digital combined with a product refresh, driving standardization and simple designs and ultra efficient service offering by utilization of over 30 years of data from our installed base and AI. We continue to collect data on our large installed base of assets, and we see significant opportunities for additional digital services to add value to both building owners and tenants. The acquisition of GlobalLogic is an exciting opportunity as we look to co create new buildings related applications to build on our Bill Marai IoT platform to deliver additional value. We see expansion opportunities in our building solution business utilizing the Bill Murray IoT platform, which can remotely monitor and integrate data from a wide variety of data sources with buildings such as air conditioning, elevators and can monitor people flow to contribute to a building's efficiency and identify security issues.
To complement Bill Marai, we have developed Bill Pass, which is a suite of applications targeted at building users to connect services within the community, which we expect to grow with ongoing innovation. We believe that the potential for digital within buildings is really significant. On the next page, Page 19, our growth strategy is to accelerate business digitization, strengthen our service offering and further streamline our cost structure. We will challenge to become a market leader in our core markets for building solutions through leveraging standardization of designs and delivering the benefits of scale to further drive down costs in both supply and service. Our brand remains strong as we are committed to safety and quality and further developing our key customer relationships.
Throughout 2020, we launched our transformation program to further drive digital efficiencies through everything we do and deliver our full potential. I am confident that we can further exploit digital transformation and increased digital differentiation. We have become the majority shareholder for Yungtai and will be seeking to acquire the remaining shares by the end of 2021. We have exciting plans for growth for the business to deliver growth in Asia and open new markets in Tier 3 and 4 cities in China. So please turn to Page 20.
From a regional perspective, the Japan market has been impacted by COVID in 2020, especially with many new modernization projects delayed. We have worked hard to support and retain customers and look forward to recovery from FY 'twenty two with our new UA 'twenty one standard offering elevator, touchless technology and smart digital building co creation with our customers. In China, demand recovered quickly in 2020, and we delivered a record number of new installations. We expect continued growth and see benefits from expanding into new markets with Yungtai and expanding our service business on the back of our expanding installed base. In Asia, we are strengthening our local presence and seeking further market opportunities with our competitive standard designs made in China.
And finally, the efficiency and differentiation potential of digital is very much in our sights. Over the page to Page 21, please look at our growth factors and risk assessment. The growth factors have already been covered, but from a risk perspective, the office real estate market is unclear as post pandemic working styles are yet to emerge. However, we also see this as an opportunity as real estate could be increasingly modernized and our transformation program will deliver better cost efficiency, increased standardization and simplification of products and new digital services. And finally for BSBU on Page 22, we look at our impact on society and the environment.
The pandemic has driven a lot of innovation in touchless and digital innovation to further safety and increase resilience to disasters. We have committed to the Hitachi target of 100% reduction in CO2 emissions from our manufacturing facilities by 2,030 through energy saving and switching to renewable energy and are committed to reducing the impact of our products and services on the environment. In R and D, we continue to invest in research for energy savings, COVID safe environment and disaster protection. So in conclusion, on Page 24, we show the top level numbers. We plan to grow by a further 5% for 2021, with profitability recovering in RSVU to pre COVID levels.
ROIC moves up to 10.6% and will be greater than 13% by 2025. On Page 25, we look forward to a bright post pandemic future for Mobility. Business transition projects are underway and delivering early benefits, and we seek further expansion, building on our hugely exciting massive contract wins in the United States for Rail and the opportunities from the post merger integration with the excellent Yungtai and expansion to our buildings business in Asia. So finally, on Page 26, I want to leave you with our ambition. In 2025, we are setting aggressive yet achievable targets, shooting for 1,850,000,000,000 yen top line, double digit profitability and above 13% ROIC.
Thank you very much for your attention.
Thank you very much, Mr. Doma. We would now like to open the floor for questions. In addition to Mr. Doma, we also have Mr.
Shinya Emetou, Gomi, Vice President and Executive Officer and CEO of the Building System Business Unit as well as Mr. Andrew Ba, Vice President and Executive Officer, CEO of the Railway System Business Unit for answering questions. We will be calling you by the name on the system. If your question is no longer necessary, please make sure to release it on the screen. And your video will not be shown in this meeting.
We will take questions from the Japanese channel first, followed by the English channel. So the floor is open for the people on the Japanese line. We will take questions from institutional investors, analysts as well as media. The floor is now open. Yoshizumi san, please.
Please unmute and ask your question in Japanese language. Thank you very much for this opportunity today. I have three questions. I have a question regarding the building system. All three questions are for the building system.
First is for the period ended March 2021, what is your view in terms of profitability? How do you evaluate the profitability? And talk about the background leading to this. In the first half, in China, Masa Bank was acquired and therefore, revenues increased as well as earnings and profitability improved. But in the second half, profitability declined after the Chinese New Year, did the mix change?
What is the background? Please elaborate further for the period just ended. The second question is regarding China, again, your take on that. Now at some timing, it seems that for newbuilds, I think if I think there will be harvest time in terms of increasing business. And it seems that the 3rd quarter and 4th quarter, the profitability was declining.
Do you think that profitability is going to improve going forward? Please illustrate what is mid term, long term and short term in terms of profitability. Now you have talked about the ROIC of the building system. In the mobility system, ROIC overall is 10%. And I think it is going to be higher.
Is it 20% for building system? And please talk about ROIC for building system.
Mr. Nobu san, would you like to answer?
Thank you. To your first question regarding the 2021 March period that's just ended, especially for China, You have asked a question regarding profitability and the background thereof. In terms of improving profitability for China, it seems that the second half has declined. But overall, it has been very stable in terms of profitability. So there is no source for any concerns.
And regarding your second question, as you have rightly pointed out, for the Chinese operations, based on new buildings, we have been able to grow our business. Demand remains very strong. And because of the structural reforms for renovations as well as new buildings, we have been able to grow our business. Going forward, the service ratio remains low. We believe that it will continue to increase.
We have high expectations, but there is an impediment. The remote maintenance that is being introduced in Japan where people do not have to be sent to the site has not been introduced in China because of legal constraints. But we are moving toward deregulation of this. That means that the remote maintenance will be enabled, which will mean higher profitability from that type of business. In the time frame, it should be realized in several years down the road.
To your third question regarding ROIC, in terms of sector, we are discussing but not as a BU. Therefore, I'm very sorry to say that we cannot respond to this question. But basically, the average for is better than the mobility sector average in terms of ROIC for our business unit. Thank you.
Next is Osaka ask your question in Japanese. In the U. K, the Class 800 and Class 385 the issue with the rupture. Earlier, Doomer san mentioned that it is limited to certain trains and it's not happening in the other trains. And the reason why it is not going to be seen in other trains is because of the design or the material.
Could you elaborate on those points? That's my first question. The second question is related to Hyperloop. You talked about Hyperloop in the presentation. So how would you be taking initiative in the process of Hyperloop?
If you could elaborate on that, I would appreciate it.
Thank you very much for two excellent questions. As Andrew Barr has been right in the middle of the Class 800 issues in London, could I ask Andrew to comment on those two questions, please?
Thank you for your question. With regards to the issues on the Class 800 trains, they are quite specific to that design of train, which is only used in the UK. As was mentioned earlier, we believe this was stress corrosion cracking, which was exacerbated by the use of the lifting equipment of the trains in the depots. However, we are running the trains in service and we are confident that they can continue and are able to operate safely. We don't believe this issue applies to any other trains in the Itachi fleets in other parts of the world.
With regards to Hyperloop, it's quite an exciting opportunity for us to take part in that project. We joined it as input for the control systems using our signaling technology. And we've been able to actually input a lot of work into the design of that system. And so we're going to be continuing to support the project as it moves forward. This point in time, it's an exciting project, which we're keeping an eye on to see in which direction it takes next.
But it's a good chance to be in at the start of the project as this new technology develops. Thank you.
Next question, please. We will take questions from the English channel now. Those of you with questions, please indicate by the raise hand button. We still have some time left. So lastly, we will take another I'm sorry, there is an English channel person wishing to ask a question.
Yes. I just wanted to ask about market opportunities in the U. S. Regarding rail business. So as you pointed out, the Biden administration is proposing to invest in transportation, I believe about US100 $1,000,000,000 within the jobs plan.
So I guess the 2 projects you project wins you mentioned, the BART and the Washington D. C. Projects are, I guess, not included in this upcoming investment. So should we think that these investments going forward, public investments should provide further upside to your current earnings forecast? Thank you.
Okay. Thank you very much for your question. I it's not clear to us whether the investments in BART and in Washington, D. C. Were included in the Biden administration, big numbers.
But regardless of that, the market opportunities in the U. S. Look very, very positive. We have included growth in the U. S.
In our forecast because, as you can see, we are forecasting top line growth of 50% over the next few years for RSPU. And that growth will come in the U. S, but also will come in other emerging markets. So the good thing is we've been in the U. S.
For a number of years with our signaling business. We've now established a strong presence on the West Coast with BART and we will be establishing our railcar manufacturing facility in Washington, which is very important for Buy America. So I'm very optimistic about our future potential in that market.
Okay. Thank you.
Thank you very
much. Any questions from the English channel? We still have some time. So we would like to take the question from the Japanese channel. Hirakawa san, please unmute yourself Thank you for this opportunity.
I have two questions. The first question, Dormer san, in your presentation, you have mentioned about the CO2 reduction initiatives are going on. In the railway market, CAGR 3% is what you're aiming for? And the investment increase in the Western countries, does it would it be impactful so that it would go beyond the CAGR 3% level? That's my first question.
My second question in the rail system business, in improving the profitability, I think that you have named some items. Out of that, mass, what kind of sales are you envisioning? And what is the profitability that you're envisioning? And would you be conducting a low cost operation with the plant in the U. S?
How would you be able to conduct the low cost operation? Those are the 2 questions I would like to ask. Thank you.
Thank you very much for your good questions. Let me take the first one as I am Chief Environmental Officer and then pass the second one to Andrew. So from a CO2 perspective, we are seeing enormous interest and finally, enormous amounts of investment committed to environmental infrastructure, both in North America under the Biden administration, as was previously mentioned, and in Europe, but also plans now in place here in Japan and in China. We see Rail as a climate change innovator. We see further investments will be put into rail systems.
The 3% compound annual growth rate, I believe, is probably on the low side considering we've just come through a pandemic and the fact that many governments are looking to make significant investments in railways to take people away from road transportation, which is obviously much less environmentally friendly. Andrew, could you comment on Mobility as a Service?
Yes. Thank you for your question. Slide number 14 in the pack gives you a little bit more detail, and you can see the impact that Maersk has on our projections to FY 2025 and also the consequential profitability increase. This is a new business area for us. So we're looking at adjacencies in our business.
So where we already have good relationships with customers, particularly in places and cities, we're looking to expand that by using other parts of Itachi, particularly digital in our partnership with GlobalLogic to actually enhance people's journeys by adding digital impact to their overall journey through things like information and the management of the complete total rail system. So it's quite an exciting development for the overall business. And as you can see, it actually makes quite a difference to the way that the business will perform. With regards to the Washington plant, that's a very important new plant in our business. We want to make that successful and to continue to deliver for many years to come.
So we're looking to make sure that we target key opportunities for rolling stock in the U. S. That enable it to have a strong performance and in particular to be profitable. So we are already, in addition to the Washington order, looking for other orders that can follow on to enable us to keep that plant performing well into the future, in line with the investment that we've already heard that's being made by the Biden administration. Thank you.
Thank you very much.
The time has come. So we bring this session to a close on mobility sector. The next session will start at 2 o'clock on the topic of the energy sector. Thank you. Next, we will proceed to the presentation of the Energy Sector.
The presenters will be Toshikazu Nishino, Executive Vice President and Executive Officer Claudio Fakken, Senior Vice President and Executive Officer CEO of the Power Grains Business Unit. We will be switching over the screens. This is Nishino, speaking Executive Vice President. Thank you very much for your attendance today. I would like to talk about the current status of the energy sector as well as the growth strategy of the sector going forward.
Today, there are 3 messages I wish to share with you. The first is the growth in the Renewable Energies. Therefore, we have tailwind in the business environment. 2nd point is regarding the ABB Power Grid acquisition Even though we have been beset with COVID-nineteen, Even though we have been set with COVID-nineteen, 1 year later than the scheduled time, it is likely that our target will be met. And for the next medium term management plan, the double digit growth should be achieved even with respect to the amortization.
Even with amortization, I would like to give you an overall explanation first and then the power grid Business Unit will be explained by the leader of the Power Grid Business Unit. Quality of Fakin will provide the explanation on that part. First of all, let's look at Energy sectors positioning. As you can see here, power grid, energy and nuclear energy business unit within the energy sector. The power grid, the T and D business is included in this area and the Palladium Bakken is leading this business unit.
Energy is mainly renewable energies as well as related services. Nuclear Energy is the service that we have been providing from the past and restart dealing with Kishima are also included in this business. This is looking at the positioning of Energy sector, 13% in terms of revenues are shown here. And on the part of Hitachi ADV, power grid has now been added. Therefore, the sales is 68%, is shown here and global revenues are increasing significantly.
This is the current state. And as you can see from this page, the composition has changed significantly from the Energy business of the past. Therefore, new changes have been made. And this process has run its course. There is hardly any relating to fossil fuels anymore.
From the left hand side, power grids business is shown here. Domestically, the 50 Hertz 60 Hertz, the connectivity is being managed by Hitachi. We are making improvements to the energy environment in Japan. And the wind power duration, HVDC is also integration that we are pursuing. This is also a tailwind for us, a significant business growth is seen here.
Energy business in the middle, this is wind power generation as well as solar power generation. Services are increasing significantly here and there's high expectations for growth. Semiconductor, semiconductor is developed and used in the part of Hitachi. This is not only for energy, but for mobility, railway as well as automotive systems are utilizing the Aeropar Semiconductor. 3rd area is Nuclear Energy Businesses.
So low carbon is expected, and we are now working on the commissioning at Fukushima as well as providing support for research of nuclear hotlines. Next, I would like to talk about the growth strategy going forward. I mentioned that there is tailwind in the market. The 0 carbon is called for overseas as well as Japan as well. Green growth strategy was announced only last week.
And on the right hand side, I'm not going to go through each of these points, but there are areas that we are handling. We are making a significant commitment in terms of green growth. We have been front loading this trend to establish a business to accommodate these needs. From the morning today, Higa Sarasan as well as Koshimatama has mentioned that Hitachi is very much focused on providing value to society. Environment, resilience and sustainability, Security and safety are very important for us.
Inclusive of a stable supply of energy, these are all areas where our sector can make a significant contribution. Then why can we make our business stronger? I'm trying to talk about strategy, left and soundly that I should be referring to. This is in comparison with other players. The pie chart showed that Hitachi is the top runner, overwhelming press release in the world.
This presence in the market can be combined with digital in the second column for further modernization. This is what we are proposing. Grid is old infrastructure and the modernization thereof is a corporate which can be driven by additional technologies. On the right hand side, it is talks about service solutions that can be enabled by digital on the part of Hitachi are very similar to Hitachi overall status. Digitalization utilized for modernization, as you can see here.
And Higashihara, San and Kosumasa mentioned that Service Solutions will become increasingly our focus going forward. And we can realize this in our sector as well. And this is going to be the source of our competitiveness. Next page, please. Now when we talk about the Service and Solutions and growing the market, all the footprint will be of utmost importance.
This is showing the global footprint for our business. As you can see here, we have a good coverage share of the world. And in Europe and the Americas as well as India, now trying to recover from COVID-nineteen, energy related investment as well as green investment is increasing, which is tailwind for us. In this area, orders are increasing very significantly for our sector. It is driving the growth in performance.
Please note there are 5 boxes below. Percentage is shown here as well. When we talk about the infrastructure business, it is considered to be very similar to the growth in the GDP. And as I have already mentioned today, out of energy, the area of growth have been the focus of realignment of our portfolio. And these are areas where the growth can be expected to higher than GDP, as shown here.
Now I'd like to talk about cost, which is an issue in terms of operational excellence. Internal and digital and back office shared services as well as CRM for digital to support our customers are our customers are outlined here. All these three areas are the assets that existed in AB and B, we are now combining this with Dante to enable this further. Our operational excellence can be further enhanced. Hitachi's overall level can be enhanced as well.
The bar graph is shown in green. It is green for a reason. Carbon neutrality will be achieved by Hitachi in fiscal 2030. So we have to lead this effort in order to realize this plan. The energy usage within Hitachi has to become greener, inclusive of hydrogen, renewable energies as well as wind power will be utilized.
This will be the direction for us going forward. Now for the sector overall, I'm going to summarize. This is showing the 21 to 22 the 24 to 25 changes that we hope to achieve. You can see revenues are increasing very significantly in terms of the investment environment is tailwind for us. There are also synergies that can be brought to them inclusive of digitalization, and this is achievable according to our view.
There are 2 broken lines in the curve. When we make acquisitions, inclusive of digitalization, there will be one off cost that will be incurred. And the red below is including that and with regard that is showing on about this is also PPA included is reflected as well. For 2021, we'll be able to achieve the midterm management plan and target 1 year delayed. And upon 2022, 2023, we should be able to achieve double digit in terms of the operating income ratio.
This is the overall summary for this part. Hitachi EBITDA target is now included in our sector and we will continue to drive value together. As I have already mentioned, Renewable Energy's investment is a tailwind for us. By utilizing this, we will be able to achieve the midterm management plan 1 year delayed and 202023, we should be able to achieve the double digits. I think this is a commitment that we can make for you.
From here onward, this is by the way, this is our slogan. Kashi, ABB, Claudia Fakken will follow now and talk about the current state as well as strategy going forward. Claudio, please.
Thank you and good afternoon, everyone. Next slide, please. Let me start by giving you an overview on how we come together as Hitachi BB Power Grids and Hitachi to create a unique customer value proposition. We are bringing together leading platforms both on the energy side and on the digital side. And as Nishino was just mentioning, with the primary goal of enabling sustainable energy future.
We serve utilities, industries, transport and infrastructure, and we serve them with a broad portfolio of products, systems, services and software. And of course, joining forces with Itachi, we have a tremendous opportunity to leverage the Lumada ecosystem that brings in the OT, the IT and of course all the sectors within Hitachi that creates additional opportunities for us and access to market. Now on the next slide, allow me to give you a recap. Starting with who we are, well positioned, number 1 leading player globally, present in over 90 countries and with a well balanced portfolio in terms of regional presence, in terms of technology and also very important with an unparalleled and matched installed base. We are in attractive markets.
We see the market CAGR around 3% on an approximately $100,000,000,000 total market that we serve. And what is more important is that we have a number of what we call high growth segments such as Renewable Integration, Power Quality, Green Edge Solutions, Automation and Software And all these segments are growing 2 to 3 times the market. We are transforming ourselves. We continuously drive improvements, looking at growth, portfolio and business model competitiveness and world class execution. And of course, we leverage our 2 foundations, innovation and people.
And all of that will allow us then to deliver on our commitments, profitable and sustainable growth. But it's not going to be only about growth. As you can see in the right hand chart, we are pushing a shift on the portfolio. We know that the new needs, the future needs of the market will be toward more services, toward more digitalized products and systems. And therefore, pushing with our strategy towards that direction to strengthen our number one position and continue to grow faster than the market.
If you go now to the next slide, starting with the market perspective. On the next slide, first of all, it is clear to everyone and we see this more and more by all stakeholders representing and confirming that electricity will be the backbone of the entire energy system. And finally, what we show here is that we see the world aligning into number 1, the urgency to mitigate climate change and number 2, that to achieve carbon neutrality, electricity precisely will be at the center and will be the backbone of this entire energy system. When you look at the increasing number of countries and regions that have committed to climate neutrality by 2,050, when you look at then also the IA recent report that shows that the Global Grid investment need to almost triple and reach $800,000,000,000 by 2,030 in order to expand, modernize, digitalize electricity networks. And this represents over a third of the US2.2 trillion dollars expected to be invested in the global power sector.
Now what I want also to highlight is that also according to the IEA or Energy Outlook 2020, it is not enough to avoid new emissions. We have to focus to meet the 1.5 degree global warming containment goal also on the existing infrastructure. And that is an important part for us because as I mentioned, we basically have access to the single largest installed base in the grid and the networks. And therefore, we are also investing to make sure that we help our customers on decarbonizing the existing infrastructure. Finally, it is also clear that this is a global challenge and it will require global collaboration.
And once again, now being together with Hitachi, we have an opportunity to strengthen our base, to strengthen opportunities to collaborate with customers and partners. And when you look at the next slide, as presented, environment, resilience, security and safety, the 3 key areas for Hitachi are also at the heart of our approach to enable an acceleration of the energy transition based on social, environmental and economic goals. When it comes to environmental, for instance, integration of large scale renewables. When it comes to resilience, we're addressing the infrastructure. We push our efforts to minimize the impact and mitigate the consequence of unexpected failures.
And of course, looking at security and safety, we are right at the center as serving mission critical infrastructure operation on securing with flexible physical and cyber technology concepts to save and secure operation. Now let me give you a few examples on how jointly with Hitachi, if you go to the next slide, we can support this energy transition and our customers to meet their goals. On the next slide, you see that with electricity being at the center of the energy transition and bulk renewables expected to be the biggest contributor, HVDC, a technology that we pioneer, will hold the key to integrate large scale renewable, often remotely connected and of course, in the case of offshore wind also vast majority that requires technology to minimize the losses and connect reliably. We as the market leader in HVDC have an unparalleled track record with over 120,000 megawatts. That means roughly half of the world installed base.
And if you look at on this slide, we're representing a specific step that we took by continuously innovating that we delivered our HDVC Light substantially with lower losses and we managed to reduce by that the footprint during the life cycle of about 2 thirds, which means potentially saving millions of tons of CO2. And of course, as I mentioned, offshore, one of the key applications that sees HVDC as a technology to enable that transition, as well as of course interconnections. Now another example on the next slide is collaborating with customers and partners to reduce carbon footprint of the electricity system. We have launched just recently our econic e coefficient portfolio that delivers superior environmental performance compared to conventional solutions. And also recently, we have been collaborating to announce the use of a game changing eco efficient insulation gas that is expected to accelerate the adoption of industry standard solutions.
On the next slide, it's about digital. Digitalization across the power value chain holds the key to addressing new supply and demand complexity as well as optimizing performance and asset management. Joining forces with Hitachi Lumada Ecosystem, we are uniquely positioned to create additional value for customers by turning data into actionable insight. And in this sense, we already took the first steps by seamlessly integrating the portfolio of asset performance management of enterprise asset management and workforce management into the Lumada ecosystem. And last but not least, we also look forward to the planned addition of GlobalLogic to the Hitachi family, as we already see opportunities to generate additional synergies in the future.
On the next slide, resilience. It's an increasing area of focus that needs to be addressed by deploying best in class technology. And as an evidence of this, we just show some of the recent large scale power cuts that we have seen globally. And when it comes to our efforts, when it comes to developing technology that helps our customers and help mission critical infrastructure to manage, mitigate and limit the impact on those unpredictable events, whether it's natural disasters, weather patterns and of course, physical and cyber attacks. On the next slide, it's about also accessing the 3rd largest economy for us, Japan, which is also one of the largest market and with the recent commitments on carbon neutrality also generates a number of significant opportunities for us to be part of this acceleration and to be part of supporting Japan Energy transition.
The commitment to net 0 by 2,050 is there, but it's also important that there is a clear commitment to reduce 46% emissions by 2,030. And part of that plan will also be to massively invest in offshore wind and yet again, we have the technologies that will integrate whether it's offshore wind, but also grid edge solutions, also controls, automation and software that will help optimizing the overall electricity system. Now allow me to move to the next one and take a few minutes to give you the background of in the next slide, our business lifecycle, our operating model that provide a solid platform for our ambitious, profitable and sustainable growth. Starting with our mix of the business goes from components to large systems. And this results on average conversion cycle of approximately 18 months from orders to revenues.
But as you can see from the illustrative engineering services during the development phase, when we deliver to implement the CapEx investments of our customers and more and more engaging with our customers throughout the lifecycle by service, software and also some specific products and technologies that have, yes, a shorter cycle and they create base business with, of course, earning attrition, but they also allow us to stay engaged with our customer throughout the lifecycle of those assets. Larger system orders are by nature harder to predict, but are an essential part of our portfolio. They provide access to market. They provide pull through and synergies for the rest of the portfolio. So as a leading player, we leverage and balance the breadth of the portfolio, making sure that we apply the right business model to each and every part of that portfolio.
And as a leader in this market, we are also driving innovation on the business models. We've been pushing to deploy technologies such as offshore wind HVDC grid connections by partnering with leading players delivering the complementary scope while we focus on our core technology and our core competencies. From a cycle standpoint, we are rather on the late cycle. But yet again, if you look at how the market is developing, we're really getting into our own cycle, I would say. And that is because of all the recovery plans pushing toward green renewable electricity, pushing toward the energy transition.
Let me now show you in the next slide, how we drive the transformation and the continuous improvements. There is an approach that has been yielding tangible results. Starting from the orders received, despite the challenging times that we all faced during the pandemic, the team has done a fantastic job managing 6% growth on the service business. Also on the portfolio side, we managed to deliver approximately $700,000,000 worth of orders for integration of renewables with HVDC technology and as I mentioned with the new business models. And of course, we have to work harder during this period on delivering savings.
And we managed during the last 9 months, so the 9 months starting July 1, 2020, with Hitachi to deliver an incremental $50,000,000 worth of savings through supply chain and operational efficiencies. So as you see from the chart below, we look at all the pillars to ensure that we deliver on our commitments. The growth elements and initiatives, the portfolio and competitiveness elements, the operational excellence elements and of course, now we're also adding the synergies with Hitachi. We have established a solid program with various work streams that look at creating synergies both on the growth as well as on the cost and Nishino san mentioned few of those in his presentation. What I want to take away here is that there was a clear dent in our COVID period during last year.
We're still coming out of that phase. We're looking forward to the recovery plans to support the growth, to support our acceleration towards the double digit commitment that we have. And it is clear also that our market outlook today post pandemic is clearly stronger, better than what it was before the pandemic because of what we mentioned before. So to conclude, on the next slide, we're really encouraged by our market opportunities and we're well positioned to deliver jointly with Hitachi on our vision of powering good for a sustainable energy future. We're well positioned in a market that is attractive and has high growth opportunities And we're leading in that market also from a transformation standpoint.
We drive profitable and sustainable growth with a competitiveness focus on our portfolio and innovation as well of course as driving continuous improvement across execution. As mentioned, the COVID had an impact, but the market post COVID has a better outlook and this will enable us to deliver on our targets. Number 1, we want to grow faster than the market and that will support us getting to the upper end of our margin corridor 8% to 12% operational EBITDA by 2020 for 2025. So jointly with Hitachi, we will continue to look for front end as well as operational synergies. And we will continue to focus jointly on delivering social, environmental and economic value.
I think we have a very solid path. The PRIIS has very solid foundations, and we're all excited to the journey in front of us. Thank you.
Thank you very much, Nishino san and Sakun san. We would now like to move to Q and A. The questions will be answered by Nishino san and Fakinsan as well as Mr. Sekigar of the Energy Business Administration Division. Please state your name and affiliation and ask your question.
We would like to take questions from the Japanese channel first. Questions can be posed by Question. I have 3 questions. The first two questions is regarding power grid and the third is regarding the nuclear business, nuclear energy. Now regarding the power grid business on Page 19, explanation was given.
Out of this $11,000,000,000 $10,000,000,000 is going to grow by 3% going forward according to what you have here. Regarding this $10,000,000,000 Hitachi ABB per grid available market to you, I think it's not the whole thing. I think it's part of this. So specifically, what is the available market for HAPG? Furthermore, in terms of products and services, what are areas that you do not cover?
And also, what are the areas that you do cover? Please distinguish between the 2. I'm sorry that's a long winded question, but I understand that the market is growing by 3%. But for you, if we look at the available market for SAPG, is it going to be I think it's going to be more than 3%, correct. So if there is another number for your business independently, what will it be?
So second question is relating to Page 19 as well. On the right hand side, it shows the composition of the business areas. And on the left hand side, the pie graph is shown, and I think they are corresponding to each other. So judging from this and to 2025, in terms of hardware product, revenues are likely to decline. That is my read.
Is that correct? The market is growing. So you might think that the hardware revenue will increase as well, but I don't think that's the case. So please elaborate. So that's my second question.
3rd question is regarding the Nuclear Energy business. Currently, for the nuclear energy business unit, I understand that certain level of profit is generated. And as a business, it looks sustainable. But going forward, how sustainable is your business model in this area? Please elaborate.
To generate profit over a long period of time, industry realignment, it may occur, and the nuclear industry may require redefining. So please talk about this in the context of the overall nuclear energy environment in Japan. Thank you for your questions. Regarding 1 and 2, I would like to ask Fakins san to explain address. Regarding available market for Hitachi, that's the first question for Fakun san.
And the second question is for 2025 in the portfolio, hardware products, is it going to increase or decrease in terms of ratio as well as amount? So those are the two questions for Mr. Fakin. Please respond to these questions now. Mr.
Fakin?
Yes. Thank you. So starting with the available market and of course depends on how we define available market. But the $100,000,000,000 that we see here is the market that we have access to and that we go after. And you're right, the CAGR of 3% is the average.
There are parts of the market, whether it's geography or even products and systems that are growing less than 3%. What I think is important for us and this is part of our strategy is that out of this total available market that we look at, we're focusing our efforts on, as I mentioned before, the high growth segments. And those are the ones illustrated in the chart. So it's, of course, about, for instance, electrification of transportation that creates new demand on technology that we provide is, of course, on the automation, on the digitalization of the grid, renewable integration, HVDC, power quality with fax devices, data centers creates, of course, new demand that require higher power quality and therefore, again, specific technology that we deploy for that microgrids. They're all growing, as I mentioned, 2 to 3 times.
So it's about us focusing rather on that part of the portfolio, at the same time ensuring that we create an installed base that allow us to generate service lifecycle services and software opportunities for us to work with our customers throughout the lifecycle, as I mentioned before. Now on the chart, your interpretation is correct. The key part is that when we look at, yes, hardware, we're not saying that we will sell less hardware. What we're saying is that our strategy is to sell hardware that has more intelligence in it, that has sensing capabilities, that has digital capabilities that allow the customer to manage and optimize the life cycle of that asset with that digital capabilities that we add on those power transformers or switch gears. So the overall market grow and also our portfolio need to grow following that market.
Our ambition level is to grow faster than the market by delivering our portfolio and digitalizing that portfolio and increasing the share of the digitalized portfolio as well as software and services.
So let me also weigh in regarding the product and hardware. I think the content of the products that we are providing will change. It is going to become increasingly digitalized, as Claudia has mentioned. Therefore, we need to continue to provide products. And by doing, digital business can grow further going forward.
With the products weaponized with digitalization, it's going to become increasingly important. Regarding the third question regarding nuclear energy, there are diverse discussions taking place on the part of Hitachi Limited 0 Carbon, Carbon Neutral, they will require a certain level of nuclear energy. PWR is working and we are now making preparations for the restart. And on our part, we have to do a good job in terms of Zokushima and also provide support for Vistat as well. In terms of the work for us as well as business viability, we will do our utmost to secure that.
For Japan overall, the industry overall going forward was also asking the question. We believe that our business can be maintained and don't think it's appropriate for us to talk on behalf of the whole industry, but we will continue to do our utmost work in order to fulfill our responsibility. That's all. Thank you. Any other questions?
Mr. Yamasaki, please. Please unmute yourself and ask your question in Japanese.
Question. I have 3 questions. First is on Page 19. On the lower right, digital service will increase, he mentioned. Before Hitachi acquisition, the digital and service shift, a year before the acquisition and now that it is integrated into Lumada, this growth may be accelerating from synergy.
So what is the breakdown? Could you give me more image? And my second question is on Page 5. In the business breakdown, how are semiconductor? In energy, it's mentioned and in Railways.
As this part increases, how much expansion including external sales, how much increase in power semiconductor are you forecasting? And third question, business opportunity in Japanese market, you mentioned, HVDC possibility. What is the possibility probability of HVDC being adopted? Are there any other methods? And offshore wind is also being expected.
But in power generation, you're not involved so much? Or could you elaborate? Three questions. So I will answer all three questions. First, digital acceleration, the originally organic growth and the growth after they joined Hitachi, it's difficult to clearly explain.
But for example, in digital system, ABB Power Grid is partially cloud, had already been cloud. But cloud ready, we gained great momentum, cloud ready and great speed. And so how to use it is the key. Using Lumada is to use blocks of data to generate value and therefore, we had to be cloud. And therefore, this may not exactly answer your question.
It's not percentage wise. But originally, ABD Power Grids had, for example, in EM, it has the 2nd best technology in the world and this is used much in the tower generation segment. But in the public and industry and social infrastructure, it has to be on the cloud. And so we invested in the past year and shifted to cloud. And now many things are functional, thanks to that.
And Miru said on the power grid side and on Hitachi side as well. And we are promoting this right now. So I'm not directly answering your question, but after we joined hands, we are accelerating more. And on Lumada, we invested and recreated by recreated, I mean, at an unnecessary basis. So we're doing that.
So the number here is not one side doing one it's we're doing it together from both sides. 65 is the key. And second, power semiconductor. As you correctly mentioned, in all areas using energy, this is important. And so technology is shown on this.
We use silicon SiC It's a new material device, and this is already launched in the market, and it's used for rails. And in automobile, it's not in big volume, but it's already launched in the market and is already used. It's proven. Now the key is which time we will invest, when to invest. Increasing volume will be necessary going forward.
So what we do now is, on ABB side, this power semiconductor resource originally existed in Switzerland in Sumuv, and we already had one before. So both sides are combined to enhance. The combining both sales, it becomes a very high position. So your answer is, in the automobile sector, we are already having that in sight. Semiconductor, I had experience with semiconductor in the past.
It requires is it good to go into an area Now, Now contribution to the Japanese business. In Claudio san's slide, there was one slide showing message to Japan and this is a clear message. So for the Japanese market, including electric power company, we are receiving questions and answering those questions. And in the industrial sector, yes, there are many already. And the offshore wind and HVDC, as mentioned in the slide, 50 to 60 hertz transformation, conversion, we have few plans in place.
So and it's still a planning phase, but in offshore wind from Hokkaido to Mainland Japan, there's a new initiative, new plans already being discussed. And we are receiving inquiries in most of them. And as mentioned earlier, this direct current, the transformer and control technology is required. And as Claudio san said, we have the biggest amount of experience and we have the most advanced technology. And so for our future plan, Higachi, we are confident Higachi can contribute.
Thank you very much. Next, we would like to take questions from the English
should benefit from offshore wind, etcetera. But just focusing on software and automation, you are estimating market growth of up to 5% on Page 19. Do you think this is on the low side considering smart grid flexibility investments should increase going forward? Also, what is your competitive advantage positioning compared to players like Siemens, specifically in software and automation? Can you become the strongest player by leveraging Lumada and Global Logic?
And my second question is, on the other hand, microgrids is showing highest growth of 15%. What are your capabilities in this business? I understand your strength is in the high voltage space and low mid voltage capabilities were left within ABB. Is my understanding correct? Please advise how you can enjoy this growth market of microgrid.
Thank you.
Thank you very much for the questions. So briefly, let me organize the questions first before Claudia answers. First question is regarding Stachi Group's competitiveness. HVDC is an area that's strong, but what about software and automation? How do you compare against Siemens?
Further explanation is requested. 2nd point is regarding microgrid. About 2 years ago, when we had the IR Day, we received the same question. In fact, we are doing micro grid. But growth rate is very high, but the market size is not that much.
But more recently, in various industry, in the past, there used to be university campus or cities or large parks where microgrids were introduced. But we now have a point to deal with these needs as well. So we are now keenly aware of this. We are very interested in terms of software as well as components that we have made acquisitions to enable this process. So first point is regarding advantage over Siemens in terms of software automation.
And second point is microgrid. Please answer these questions. Claudio?
Yes. So on starting with the HVDC part, once again, we were the ones pioneering this technology about 60 years ago. We have over half of the global installed base. And of course, we keep on investing in technology. I wanted to share with you, for instance, the fact that with the new design that we have now on HVDC, we are enabling also substantial carbon footprint reduction.
On the software and the automation, first of all, if you look at our grid automation business where majority of the software is, we're also there leading. We're leading in terms of portfolio. We're leading in terms of technology and presence in the market. The software part, certainly now with Hitachi and with the scale and amount of investments that Hitachi has been doing in within Lumada with Hitachi Bantara, creating an IoT platform that enables us to access new applications, new customers, new needs that can be delivered by combining the 2. So being number 1 on the build automation space, mainly around the OT and then having one of the leading ecosystems and platforms with Lumada, it definitely puts us in a unique position to create more growth and to create more value for our customers.
So that I would say certainly stronger position going forward for us in that space. And you might be right, the 5% growth on the software might look conservative. It will, of course, depend on, for instance, how fast many of these recovery plans will translate into investments to precisely digitalize the grid in order to manage the increased complexity. So we're very confident that that will be one of the key pillars for us jointly with Itachi Lumada Ecosystem creating growth and creating value for our customers. Microgrids, you're right.
Microgrids, of course, has a lot of low voltage, medium voltage content. But the key differentiator for us is the control, is the software and the digitalization that goes into microgrid. We've been in this space for the last over the last 10 years. So we're also being ahead of the curve in investing in this area. And for us, the key focus was making sure that we deliver an electricity system that again supports the environmental aspects by integrating renewables into a microgrid rather than burning diesel.
And that supports resilient aspects by basically adding the wealth of experience and capabilities that we have on control systems, software and digitalization of the grids and bringing it to the microgrids, so that we can deliver reliable and of course affordable energy to remote places and to areas that are viable for this type of applications.
Thank you. It's time. So we will now end the Energy sector Thank you very much for waiting. We will now start the life sector session Smart Life Sector session. Executive Vice President and Executive Officer, General Manager of Smart Life Business Management Division, Doctor.
Teiji Kojima will explain. We will switch the screen, so please wait for a moment.
Doctor. Kojima, please. Yes.
I am Kojima, Executive Vice President and Executive Officer. Let me explain the current situation of Smart Life Sector. Next please. So this is the key messages for today. Promoting a Smart Life business, which improves people's QOL by applying digital technologies.
FY 2021 forecast is revenues at 10,100,000,000,000 yen adjusted operating income ratio at 9.7% and EBIT ratio at 10.9%. So we expect to have double digit profit. Portfolio that we announced in the previous meeting is being accomplished. And going forward, we will make investments for new growth. Next please.
So we will first talk about the progress of the 2021 Midterm Management Plan, starting with the 2021 midterm management plan. In fiscal year 2019 2020, Smart Life Sector Automotive System business was operated as part of Smart Life Sector. And as already mentioned, as automotive business became bigger as Hitachi Asimo, the joint venture with Honda was established and it became much bigger. So it became independent of Smart Life Sector and its performance will be disclosed independently. I will talk about the figures up to fiscal year 2020, which includes Automotive Systems business in some cases and in other cases mentions numbers without Automotive System.
I'm sorry, it may be slightly complex. Now this graph includes Hitachi As Timo, fiscal year 2020 business portfolio of Smart Life sector. It accounts for around 24% of total Hitachi Limited revenue, JPY 2,240,300,000,000. These are the key businesses of Smart Life Business. Semiconductor manufacturing and inspection equipment and health care and left side, semiconductor manufacturing and inspection equipment, JPY 218,600,000,000 and center is health care, JPY 144,300,000,000 which are the measurement and analysis technology and the far right is Smart Life and Ecofriendly system, JPY456,300,000,000 In the Smart Life sector, we steadily pursue business structural reform and operational improvement that we mentioned in 2021 Midterm Plan.
As a result, in fiscal year 2021, adjusted operating income ratio is 9.7% and EBIT will be over 10%. On the left side of the slide, you can see the performance during the midterm plan 2021. And on the right side, you can see the comparison of the initial midterm target and fiscal year 2021 forecast. ROIC is 11.1%, excluding Hitachiastimo, which is far from 15% target. But we will reinvest the capital gain from the sales of medical diagnostic imaging business and divestiture of 60% stake in Overseas Home Appliance business to our growth and work to improve our ROIC.
This slide shows the progress of 2021 midterm management plan by business. In the Smart Life and Eco Friendly System business, the transfer of compressor business and the establishment of JV, an Overseas Home Appliance business were progressed steadily. And so we plan to achieve the mid term target and ROIC will be 16.2%, exceeding 15%. In the measurement and analysis system business, Hitachi High-tech was made a wholly owned subsidiary and the transfer of diagnostic imaging related business to Fujifilm were completed and so double digit margin will be achieved. On the other hand, automotive system business, the COVID-nineteen impact was large and so achieving the operating income ratio target is difficult.
On the other hand, integration of 3 Honda affiliated companies completed as planned. Revenue is being achieved and the PMI is progressing and we are seeing a recovery. Mr. Koh, CEO, will explain in the later session on this. Now this is the changes in the revenues and adjusted operating income from fiscal year 2019 to 2021.
From fiscal 2020 to 2021, excluding Hitachiya's Tmall from Smart Life Sector and the transfer of the diagnostic imaging and overseas home appliance business and the withdrawing from low profit business of trading commercial division in Hitachi High-tech, the revenue will be around 1,000,000,000,000 yen With the cost improvement from cost synergies through Hitachi Hi Tec EMI, the position of the namesake products. We basically pursue the niche top strategy, narrowing down the business domain and secure 1st or second position in all businesses. The operating income ratio target for each business in domestic home appliance over 10% biochemistry and immunology analyzer over 15% and semiconductor measurement and evaluation over 20%. We will improve the operating income ratio by reducing the product costs and enhancing the earnings capacity of these solutions. Next, this is the revenues and fuel to strengthen by region in fiscal year 2019 2020.
Overseas revenue is RMB 1,214,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000, Component ratio is 54%. This includes Hitachiya's Timo. Now each region's status is the automotive segment COVID-nineteen impact is becoming dominant. And as you know, China that recovered from COVID early on grew and is leading the growth. Now other than automobile, in Europe, in vitro diagnostics insulation is slowing in the hospitals due to COVID.
And this is being resolved now, but the performance was impacted. But we are seeing a recovery. In Japan, home appliances, the demand related to the longer time spent at home, the home appliance demand is rising. And the mass merchant trading houses and e commerce are both growing online sales, and this is expected to continue. And the key regions to focus on is the U.
S. We expect the semiconductor area to grow, especially with the supply shortage. So we are increasing the investment in this area. Now the market environment outlook. The time when COVID-nineteen will end will continue being the most influential factor.
Now macro trends, for example, acceleration of the environmental management, growing awareness of health and hygiene and acceleration of digitalization will take root as new normal post COVID. We think they will mostly be tailwind for our Smart Life sector business. Risks include various geopolitical risks like U. S. And China and supply shortage of semiconductor and raw materials and surge in the fleet prices like containers.
So fundamental reinforcement of the supply chain continues to be an important challenge for us. Next is our growth strategy. Smart Life Sector will focus on EV, Semiconductor, Healthcare and Home, these four growth fields. In EDP, we will have divisions of roles. Eskimo will handle components and Life Sector will handle systems, including autonomous driving.
We will contribute to the environment and safety and security through collaboration. Semiconductor Inspection Solution of Hitachi Hi Tec will become the wholly owned subsidiary. This will enhance its high precision with Hitachi's digital and AI to contribute to higher yield. And same in health care, Hitachi Hi Tec's in vitro diagnostic system will be enhanced with Hitachi's digital and AI to extend the healthy life expectancy and improve QOL. In home field, digitalization of household tasks and life will be promoted through connected home appliance and robots to help enrich lives.
Now realizing the growth strategy that I just mentioned will directly link to the acceleration of Lumada Business. As shown on the left graph, Life Smart Life Sector plans to expand Lumada Business significantly from $78,000,000,000 in fiscal year 2020 to $229,000,000,000 in fiscal year 2021 and the breakdown is on the right side. The 4 growing areas that I mentioned in the previous slide, this will be the enhancement of digitalization and utilization of AI in the 4 growing areas with Lumada. For example, integrated solution for semiconductor manufacturing quality has been offered by Hitachi Hi Tech. But by integrating it to Lumada framework, it can work with various Lumada solutions.
It is counted as Lumada Business from fiscal year 2021. The integration of Higachi Hi Tec's measurement and analysis technology to Lumada was the purpose of consolidating company into a wholly owned subsidiary and this semiconductor inspection is a big outcome of the PMI. Now another key to accelerating Lumada business growth is digital engineering capability of GlobalLogic, which has been mentioned a few times today. GlobalLogic develops innovative applications, software services in Automobile, Healthcare and Consumer segment. And therefore, it has high affinity with Lumada Business Development in Smart Life Sector.
So post closing, we will establish the concrete project structures on these themes shown here to accelerate each other's business growth. In 2021 Midterm Plan, we have reformed the business facing issues, including business transfer in fiscal year 2019 2020. And the cash gained here will be used to enhance the earnings power of Lumada related business and reinvest in the growth market of health care. Health care market is expected to see a major transformation and accelerate growth with the emergence of new technology centering on biotechnology. In particular, we will strategically invest JPY 300,000,000,000 in the next 3 years in the four areas that are expected to grow dramatically and where Hitachi has business and technical potential and cultivate them to become the core of our growth in the next medium term plan.
This shows the 4 focus areas in the health care area. 1st, lower left. This is the molecular diagnosis that measures cancer's gene in the blood for early diagnosis, treatment selection and the prognosis management. So this is what we call molecular diagnosis. 2nd is the lower center development into regenerative medicine of high efficiency medical cell culture, including immune cell therapy for cancer.
We expect this area to grow strongly. And lower right, this is the particle therapy system with minimal invasion and high response rate that enables cancer patients to continue working under treatment. So we are trying to elevate this even further. And medical integration analytics that integrate and analyze the data and offer optimal medicine is also being considered. We will accelerate the R and D that will be the source of our competitive advantage in this growing market through collaboration with academia, including MD Anderson and Open Innovation through strategic alliance, including investment in start ups and realized precision medicine for high QOL.
Next is the environmental strategy in Smart Life Sector. There are 2 pillars. One is helping reduce environmental impact by providing Lumada environmental solutions. On the upper left, it shows a solution that gathers operational data to realize high efficient operation through remote monitoring solution called Exida. As in the industry sector, this was explained in the case of Nichirei.
We are deploying this in collaboration with the industry sector. On the upper right, you can see a solution which is under development, which is an attempt to create a circular economy of EV battery. Another pillar is on the lower half of the page. It is our effort throughout Hitachi to achieve 0 CO2 emission in 2,030. Just one example, our new plant in Hikache High-tech achieved carbon neutrality, which was completed in March this year and is working on CO2 reduction for the entire value chain.
Now the organization's diversity is crucial to realize new growth. As part of diversity and inclusion promoted throughout Hitachi, Smart Life Sector is actively assigning women and external human resource as members of the management team. We are also taking in broad based external talents from Japan and abroad through Hackathon and Ideathome. In new business creation, we started introducing OKR, which is generating track record. It is popular among the project members and is a great approach to maintain focus and excitement and to realize high engagement.
So we are thinking of extending the application further. Next, please. So this is my last slide. In Life Sector, we will promote the Smart Life which improves people's QLL by applying digital technologies. In order to achieve adjusted operating income ratio target of over 10% in 2021 MTMP in fiscal year 2021, if possible, and sufficiently achieved by fiscal year 2022.
We will also step up our cost reform efforts of each business and strategically invest JPY 300,000,000,000 in 4 healthcare areas with high market growth rate to cultivate next generation core business. Thank you very much. Thank you, Doctor. Kojima. We will now take So please unmute yourself, mention your name and your affiliation and ask your question.
We will start from the Japanese channel. We will take questions from the media, institutional investors and analysts. Questions, please?
Mr. Yasui, please unmute yourself.
This is Yasui from UBS. Question. I have few questions. First is Smart Life Business. So as President, what is the positioning of Smart Life Business in Seti?
Other businesses are large and competing with global players. Smart Life is a niche market. That's my image. So could you explain the positioning as you see it? And so the top of the business and top of Hitachi, I think what you learn and what you do will be different.
So as yourself, now that you are becoming a COO, what will be different on what you do and how you tackle the business? My second question is on Page 10. The domestic home appliance and the bio immune measurement and analysis, biochemistry and immunology and semiconductor measurement and evaluation, it seems stable. The external environment may change, but what would you not like to see in the next 2 or 3 years? What are your concerns?
Because I don't think there are too many. So if you have anything you are watching out for, please. Thank you. Thank you. First, the positioning of Smart Life sector.
First is the measurement and analysis equipment. This is the entry of data. This creates data for entire Hitachi. So it is foundational. And we deploy what we have to the other parts of the company, so it is crucial.
And therefore, measurement and analysis is something we cherish very much. And GLS, this is the entry point contact point for home. It's the QOL of people. So it is a very important contact point. So we want to value this part as well.
So these 2, seeing small scale, I'd agree. So going forward, Hitachi's entire portfolio and the structure, how should I say, I think we can come up with a better structure going forward. So we want to continue discussing for better format, better structure and share them with you at a later date. And your second question, what my concerns are in this area? This business area for us The concerns in general are usually our tailwind for our business.
For example, in home field, the refrigerator and washing machine, these large products was difficult to sell online, but thanks to pandemics, due to COVID-nineteen, it is now sold online. So the commercial flow in the business channel is changing in many areas. So I would not say this is a headwind for us. We think this is a tailwind for us given our strategy. So in measurement and analysis business, measurement and analysis are bottlenecks in many areas in the industry.
So we think this continues to grow. Fortunately, the market and the market changes will be tailwind for us in this area. Thank you very much.
Yes.
Thank you, Yasui san. We would like to move on. Hiroi san, could you unmute yourself and ask your question in Japanese? Question. Can you hear me?
Yes, we can hear you. I have two questions. The first question is related to life sector. The ratio of Lumada in life sector, it tends it seems relatively low compared to other sectors. And if I look at the growth rate, if we exclude BRL 133,000,000,000, then the growth tends to be lower.
So the home appliances as well as the medical devices, how that would be related to Lumada is something that I would like to know. The second point is not related to Life sector. In the morning session, you said that the consolidated sales revenue that you would aim to is 1,000,000,000,000 yen In the previous midterm plans, you talked about the operating profit margins and more about the efficiency in terms of the target of the company. But you this time around, you decided to put the actual concrete figure. And I was wondering what changed your mind to have this target instead of the margin target in the before?
Thank you for your question. In terms of the how we grow Lumada In the other form as well home appliances as well as the measurement, The basic foundation is network connected devices. And we will be creating the software for the periphery. And we will utilize IT and OT for that. And there's not much difference with the overall Hitachi mindset in it.
In terms of connected home appliances, we believe that there is a solid growth. At first, it took a lot of time for it to grow. But if you look at the graph, you will see that this area is now steadily growing. Under the current pandemic, there is a demand for home appliances due to same home demand. In terms of the measurement, Hitachi High-tech Company is a subsidiary which is listed.
And it was very difficult for us to completely align their business plan. And that's why we were lagging behind in having an alignment with Lumada project. So that's why we wanted to have it to become 100% subsidiary. And we have and because of that, it seems quite big in terms of the inorganic growth for integration. So in PMI, how we can align with the Lumada project is something that we have discussed with Hitachi High-tech.
And I think that going forward, there would be a more rapid growth. To your second question, we have had target of OP margin in the past, but you pointed out we now have the target with the numbers of the sales revenue. The biggest point is improvement of corporate volume. And that's what we need to work on. And we would be able to see that in the whole number for the sales revenue.
So there were issues with the efficiency in the business portfolio in the past. So now we are able to have more efficiency and now we are seeing the double digit margin on the horizon. So now we will be eyeing on the corporate volume or the volume. We would like to improve the absolute volume. That's what I need to work on.
That's why we decided to give you that target. Thank you very much.
Hi, Hiroe san.
Thank you very much, Hiroe san. Any other questions? So next, we will move to the English channel. If you have any questions, please use the raise hand button. Any questions?
We do not see any hands. So and we have time left. We will come back to the Japanese channel again. So from the Japanese channel again, we will take questions. Thank you for waiting.
Mr. Yoshizumi, please.
Please unmute yourself and ask your question in Japanese.
Thank you for today. I have two questions. First is about the semiconductor measurement. The industry environment is changing. And you mentioned there's geopolitical risk and your main customers' policy change may have happened in the past year.
So Hitachi Hi Tec business, what kind of impact will this have on Hitachi Hi Tec and your forecast for the next 2 or 3 years, the business environment forecast and whether the geopolitical risk will emerge, will manifest itself or not? 2nd question, in home. From B2C perspective, this is the only part left. That, I think, is your positioning of this business in your company. The concept has been explained all along, But we live in Japan and the connected home appliance has not penetrated enough yet.
So is this a business opportunity for you to improve the profitability going forward? It has severe competition. So in order to increase your profitability, what kind of strategy do you have in mind? Thank you. Your first question about the semiconductor measurement.
Risks and market changes, as you are aware, one important customer of ours is Intel. And they have good in house development and fabrication. They are now shifting gears to doing in house spending costs in house. So this is a positive factor for us. And geopolitically speaking, there are various risks.
Now semiconductor is in short supply around the world. And so in each region of the world, semiconductor has to be manufactured. And we think this trend is intensifying. So geopolitical risk, I think, is diversifying now. In the U.
S, significant investment is starting. And looking at the order trends, we're seeing strong orders. So in for the next 3 to 4 years, we think that will be the trend. Semiconductor will have investment in each region. So I think that will be the main trend.
And so it's not so much the risk of the geopolitical risk emerging. We think this will be an opportunity for us. And home, connected home appliance, potential growth, I think it will grow for sure. Remote needs is increasing, So I think this part will grow. And at the same time, the profitability here, operating income ratio is not that bad.
Domestic home appliances products may be a problem if I name numbers too much, but it is in the mid teens percentage. And in terms of ROIC, 16% to 17%. So I think it is a stably growing business And this connected home appliance will increase and will increase its proportion. So I don't think we are seeing any negative trend. Thank you very much.
Question. So I did not know that domestic Home Appliance has such high profitability. Which areas are a drag? Are there any areas that are drag? The conventional channels like the agency, agent distributor structure, We need to simplify the trade flow, commercial flow, 1 step further because as EC increases, it will become a low operation, low capacity utilization asset.
And so simplification will be the key. But please, Hitachi cannot do this alone. We have to work with the mass merchants to improve the efficiency of domestic home appliance sales channel and this discussion is underway. Thank you very much.
Thank you very much. Next question will be from Senboni san. Please unmute yourself and ask your question in Japanese. There are two questions from me. Kojima san, when your presidency was announced, you talked about you wanted to enhance R and D.
Hitachi's R and D, if we look at the investment, there has been 30% reduction compared to the pre Lehman bankruptcy era. And there has been some reform made in terms of the transfer of the talent. What are the issues you think there are in the area of R and D? Where would you specifically like to reform and change? JPY 300,000,000,000 will be invested in health care sector.
And you also listed some investment field. And where do you think you would be able to win? If you could give a specific example of where you would be able to become world's number 1, I would like to know more specifics. That's all for my questions. Thank you for your question.
In terms of enhancement of R and D, the issues that we feel that there are is I mentioned about this in the morning time, but we are now weaker in the mid to long term R and D. I think that we are conducting R and D in terms of points and for example, quantum computing and also regenerative medicine. So these are isolated and we want to have it in more of a comprehensive connection of R and D for the future. We would like to work together with academia like universities or research institutions, startups, we need to have open innovation. We need to create ecosystem of research and development in order to create something that would be conducive to generating new businesses for the future.
That's the biggest challenge that we face according to my opinion. That's the area where we would like to focus on. I want to create an R and D, which would be able to create a future pillar. Also, we want to conduct co creation near our customers. We want to send our researchers there.
And I think that the global logic has very similar business model. And R and D would be able to work hand in hand with each other. We want to focus on the basic research and generate something new and also conduct research together with companies like GlobalLogic and Research closer to our customers. To your question about health care, What I believe is possible to do is in 4 fields. So the particle beam treatment, the efficacy is very high, but the equipment is quite large.
We want to make it more compact. If we are able to make an accelerator which is smaller, then I think that we can become a game changer. This is where we would like to challenge ourselves to do. And if we can accomplish that, we can make a big announcement. Also diagnostics.
In vitro diagnostics, we are very strong in that in the biochemistry analysis. And also, I mean, if we are able to make a diagnosis with just one drop of blood, that would be very beneficial. We want to create something that is useful in the clinical setting. And in order to create that, we need to work closer with the clinicians as well as patients. So those are the things that we would like to work on to grow the business.
So those are the 2 specifics. That's all. Thank you very much for your answer.
It is time. So we will now close the Smart Life sector session. We will start Automotive Systems sector session at 3:50.
Thank you for waiting. We would like to start the session for Automotive Systems Business. Presenting is Mr. Bruce Koh from Hitachi Asimo Kekei, President and CEO. We will be switching the screen.
Please wait for a moment.
Explain Itachi ASTEMO more in detail. I would like to go to the first slide showing Itachi's demo as a global leader technology committed to deliver on a triple bottom line. Starting with social contribution, improving safety, comfort and quality of life with autonomous driving systems and advanced chassis. The second bottom line is about environmental contribution, contributing to a greener world through efficient electrification technology and products that improve emissions, a reduction. And thirdly, the economical contribution achieving in fiscal year 2025, yen 2,000,000,000,000 of sales and approximately 15% of EBITDA.
To position the Hitachi ASTEMO in the overall Hitachi Group on the Slide number 3, you see that and you have heard from Kojima san that we have been part of the Smart Life sector and we are now a smart sector like business, which has been separated in order to simplify decisions, speed up, in order to also accelerate our growth and going forward, our profitable growth of the business. On the Slide number 4, again, the positioning of Itachi Astemo in the overall group. We represented in last year, in fiscal year 2020, roughly 10% to 15% of the overall group. And today, our business represented by 3 major divisions: 1, Powertrain and Safety, which is roughly 50% of our sales the 2nd division, chassis, which is representing roughly 40% of our sales and then Motorcycle Business Division was 8%. Please consider that the Motorcycle Business Division was 8% is only present in 2020 for 1 quarter in our sales.
What I would like to highlight here is also the geographical footprint or presence of Hitachi Asthemo worldwide. You see that we are a little bit above 30% of our sales in Japan. And then we are very strongly represented in North America, China, but also growing extremely strongly in Asia and Europe. So a rather spread footprint leveraging the proximity to our customers worldwide, but I will come back on that. On the next slide, Slide number 5, it is an overview of the 3 major divisions, being Powertrain, where you see the growth engine behind electrification, ADAS, which will grow at more than 30%, up to 40% in the case of AD ADAS, so overgrow the market.
We see the chassis division where we are one of the rare Tier 1 companies having the 3 key products around chassis, chassis, which mean brakes, which means steering and which means suspension. With that, we have an advantage to be able to work on the three dimension of the chassis and to increase safety significantly. And last but not least, our Motorcycle Business division in a very strong leadership position globally and leveraging the growth which we see in Asia, which is interestingly at least for me, which is interestingly taking advantage of COVID, because people want to go more on motorcycles than buses and cars. On the Slide number 6, it is an overview about our key figures. And here, I would like to highlight 2 things.
The first thing is 2020, as we know, has been probably the worst year in our whole industry since the industry exists, but it actually has demo managed to deliver reasonable results. And that is thanks to 3 things. First of all, extremely strong and dedicated people. Secondly, a portfolio which has been very much focused and which is leveraging a strong market position And thirdly, a lot of improvement on the operation, but I will come back on that later. The second thing I would like to highlight is for 2021, you see the growth, which is partially inorganically because of the consolidation of the 4 companies, 3 Honda part subsidiaries and high arms or Hitachi Automotive for the full year, for 2021, but also organically leveraging the growth of market and also our market share gain, which I will highlight later.
One of the key focus for this year will be also business continuity plan and improvement because we have seen a lot of disruption in the market from a supply chain, from disaster natural disasters. And they are probably will continue. So strengthening the company in that direction will be even further needed. On the Slide number 7, we see the merger of the 4 companies. What I would like to highlight here, why is the company growing?
Again, organically, we know. But there have been all in all, the last 3 to 4 years, there have been 10 merger and acquisition or divestments. You remember the sales of Clarion, we sold IPS business, steering business for trucks. We sold also now Cain, sold the former Cain, their air conditioning business. So a number of divestments.
But on the other side, strengthening, refocusing fundamentally the portfolio with the acquisition of CBI in brakes to gain a number 2 position globally, the acquisition of Syneos to reinforce our software business, but also the merger of the 4 company, Kinshora, Nissan and Hitachi Automotive, strengthening again the portfolio. So very important in terms of the basis of the company and again leadership position for our new portfolio. The growth will come from the regional growth we are leveraging our strong presence now in China, the growth in Asia and also over proportionally growing in Europe as we did in the last few years. We will continue with that path. We grew more than 20% in Europe the last 3 years where the market was shrinking, so gaining market share all over.
On the Slide number 9, how do we see the markets? I think I don't need to tell anyone how the case technology become fundamental and are growing in terms of business, in terms of opportunities. I think that we also an acceleration of electrification happening because of triggered by COVID, triggered by environmental policies, which governments are increasingly enforcing. So a growth which we see between 30%, 32% being in electrification and in AD ADAS, whereof we will grow between 30% 40% in the case of AD ADAS, so outgrow the market again. The second aspect which we see is very strong investments in R and D from our customers because of all these new technologies.
We talk about very expensive technology, very broad, very unconventional if we look at automotive historically. So a lot of bets to be taken where we see a completely different ecosystem being built up as we speak. In that respect, we believe and we are focusing on some very key product for us, typically electrification. And when I mean electrification for Itachiya's demo, it is basically 2 very key products, which is motors and inverters. We will thanks to our increased market coverage, we will have better access to more customers.
We will be also very close to them based on our footprint. And you might remember from my presentation in January 2018 that we have approximately 140 factories worldwide, which allow us to be geographically very close to our customers. And that will be leveraged and an advantage going forward because our customers also focusing strongly on CO2 reduction, therefore requiring their supply chain to be close to them. They don't want product to travel all over the world. They want to have the customer or the suppliers next to them.
That will be more an advantage for us. The second point is, which will support our growth and our leadership position in this electrification is our cost competitiveness. We have developed the last few years modular products where we can get scale on one end, but still customize the product to the customer needs and to our OEM needs. That will create scale, as I said. It will improve our investment efficiency.
And thanks to the very strong support of the Hitachi Group, we can also develop new materials, which will make our products even more efficient, more compact and more cost efficient at the end. Last but not least, we see that software will be also a key differentiator by integrating, by making the use of electrification again more efficient, more energy saving and where software will also allow functionalities, which will be a differentiation for the end customers and indirectly therefore for our own customers. So a lot of growth potential here, which we can leverage going forward. On the Slide number 12, I'm coming back to our triple bottom line. Again, social contribution, environmental contribution, economical contribution and value.
We see social values because we will improve safety, thanks to the stereo cameras we have, ADADA system and the advanced chassis. I mentioned the 3-dimensional freedom, which we can enjoy, thanks for having the 3 key products, again, brakes, suspension and steering. That will improve also comfort and that will also, therefore, as a consequence, quality of life. On the environmental value, our products get more and more efficient. And we don't talk only about electrification and very compact and efficient inverters, high power, low consumption, very high efficiency in motors, very compact, lighter weight, which again make the car consuming less energy.
We talk also about the reduction of emission in general, and that is due to more efficient brakes. That is due also to more efficient software, which can optimize the consumption. Now that is also true for ICE products. And when I mean ICE products, I mean hybrids. And hybrids will stay for long.
I mean, they will continue to grow altogether, not pure ICE, but hybrids. We see this keeping growing until 2025, potentially later. So the efficiency of the engine will become very important. And again, here software is critical. Economical value, I mentioned 2025.
You know our plan and forecast for 2021 with JPY 1,600,000,000,000 of sales, 10% or more than 10% EBITDA actually, which will then increase going forward. On the next slide, number 13, more focus on environmental contribution. I think I don't need also here to tell you in 18th January, we just heard in Japan, Tsuga san announcing the goal for Japan. That was very, very strong focus on environmental values. So I mentioned at that time that we will be as Hitachi SMO having factories with carbon neutrality in production and we will reduce our footprint from our products by 50%, both of that by 2,030.
We will do it especially on the factory side. We will do it by improving production efficiency. We will do it by retrofit it and renewing equipment by also using renewable energy for ourselves. We have done that with many factories now with solar cells, for example, on the roof and we do more. And finally, by using and buying renewable energy to make sure that we are green all over.
On the product side, I don't need to highlight more the electrification side of it. The efficiency of the products and the lightweight of the products, which will help to reduce energy consumption in general. On the Slide number 14, we talk about the advantage of software and why it is so critical to have such a solution like Lumada now lately to have GlobalLogic joining the family very shortly. Because with that, we can develop a more safe vehicle, more intelligent vehicle. We can also develop solutions, and I will mention that later on, where the vehicle look at where are the other cars, learn on the way, on time, just in time, where are traffic, where are dangers.
So the car become much more intelligent, not only on itself, but leveraging the grid and leveraging the other cars, the other vehicle around it. That is also true for now efficiency in general, but also to develop new solutions, new offering together with GlobalLogic who has a very strong domain expertise and also very strong capability to propose new solutions together with our customers. On the technology side on the Slide number 15, I think it is important to realize that Italia's demo is spending today roughly 6% of sales in R and D, but has a huge advantage of having access to software, to artificial intelligence, to material knowledge, which Hitachi Group is doing. I think you have heard today that Hitachi will spend 1,500,000,000,000 yen in R and D in the coming 3 years, and some of it will be beneficial for Itachi as demo. So these synergies are very important, how to improve our products going forward, which is not true for some of our competitors who have to do everything on their own.
On the CapEx side, very important is how to make our balance sheet leaner, how to use our cash more intelligently, more efficient. And here we talk about investing very strongly on our focus products, again, electrification, ADA does, some very selective hybrid products And then how to improve our footprint. Again, having roughly 140 factories worldwide is very important. Maybe we can consolidate that a little bit, maybe by roughly 10% to be more efficient. And further, it's very important on the supply chain management, not only for the production line, to make them also modularized, meaning we can reuse them, meaning focusing on the right value adding.
We have been doing the last 2 years a lot and 3 years actually we started, a lot of improvement on focusing on where we can add value, where do we differentiate with our technology. If that's a common product, if that's a common value adding, we don't need to do it ourselves. We can find partner who can do it and spend money for that. On the Slide 16, an overview about the program we went through to transform the a and this program was based on 4 pillars. One pillar was about cost competitiveness.
How do we improve procurement? How do we optimize the operation in the plan? How do we get our SG and A leaner and more efficient? How do we sell better and sell value better to our customers over time? And of course, quality, how can we further improve our quality?
The second pillar was about strengthening the portfolio. I mentioned that roughly 10 M and A, investment, divestment over the last 3 years. So that has resharpened the portfolio significantly. On the critical enablers, there are a lot of improvement which we could do and we still need to do going forward is, for instance, much better visibility, digitalization of our processes and figures and values and production. So we get an early warning.
We get leading indicators about what is going on in our factories, which help us also to improve quality and increase efficiency. Quality, I mentioned it already. Capability in software, I mentioned it several times. Operating model, global operating model, very important to optimize our product on a global basis, to benchmark each factory against each other, to learn from the best and to deploy that horizontally and on the other side to be very close to our customers globally and locally. And last but not least, on the critical enabler, the people.
I think we have been in a very lucky situation and I mentioned that in January already. We have merged 4 companies together. We have the chance to take the best talent out of the 4 companies and to create the best management team one could wish for. So extremely strong talent people. And last but not least, the 4th pillar, mitigating the risk.
At the time we made that strategy 3 years ago, we said we have have just today to stay, and we That world is just today to stay and we better be more flexible, more nimble, more agile to get there. On the next slide, I mentioned that in January, the EUR 60,000,000,000 of synergies, which we are targeting and we will achieve by merging the 4 companies. Here, I can disclose a little bit more on the where they come from. And I think the top 3 are coming from synergy buckets, if I may put it that way, are coming from supply chain, meaning procurement. We talk about G and A.
We talk about simplification of process. We talk about avoiding a lot of manual work and redundant work because we had 4 companies doing more or less the same. So we can use people to do different work, more value added work. And then on the footprint, I mentioned that we are working on optimizing our footprint a little bit better. The good news today is, if we look at 2021, we have identified €8,000,000,000 of yen of saving, which is very fast basically, because the company just was born a few months ago.
And I'm happy to report that this 8,000,000,000 yen have been identified and we are on a good way to deliver on that. So where do we see us basically succeeding going forward? I think the product and the solution are achieving the scale we need, thanks to differentiated technologies and also modernization. The footprint we have, global and local, is very important to be close to our customers, but to optimize our cost structure on the global base. We are prioritizing our investment on the Strength and profitability by leveraging the synergies and the operational improvements and obviously paying a lot of attention to our balance sheet and cash because that is something which will give us the blood to keep investing going forward.
On the growth side, the growth drivers, I think the macro trend on decarbonization, I think the reregulation on CO2 emission, autonomous driving is something we leverage with our technologies. And of course, some risk factors like a prolonged economic slowdown. I mean, we don't know if we will have again, of course, a fixed wave on COVID some places or if we have a COVID-twenty one or 2022. We have some geopolitical risk, which we need to watch carefully. And obviously, always competition, which we need to keep in our eye very sharp.
So coming to my two last slides, on the Slide number 21. I think, as I said, we delivered a 2020 year, which was okay, almost solid considering the challenge in the market. I think we have set the base for 2021 by having created the new operating model on the 1st April this year, having the 4 companies acting, working as one company with one operating model. And we see for 2025 the growth, which will help also contribution, the cost improvement and the balance sheet optimization, as you see on the ROIC. So last slide and last conclusion.
The market leadership in 2025 will be contributing also to a greener world, leveraging our scale and our software capabilities. Slide 22, please. The safety will be very important, which we can provide, thanks to autonomous driving and 3-dimensional move of advanced chassis, again integrated with software. And last but not least, the economical value where if we compare our value some a few years ago, 2019, to the value today, we have multiplied the value or we will multiply the value by 2025 between 5 and 6 times. So the value of the company has increased significantly.
With that, I would like to end my presentation and welcome your questions please. Thank you very much.
Thank you very much. We would now like to take questions. For those of you with questions, please use the raise hand button on the Zoom screen. We will call your name and then please unmute and ask your question after stating your name and affiliation. We will first take questions from the Japanese channel for the media, institutional investors and analysts.
A question from Yasui san. Please unmute and ask your question, Japanese. Thank you. I have 3 questions. First question regarding the similar company establishment.
So it is a measure of the large companies. So the PMI must have been challenging. I understand that you have past experience on PMI. How did you what kind of efforts did you make to make PMI successful? 2nd question is the ratio of gasoline cars.
How much is the percentage of gasoline cars in your evaluation? I understand it is becoming smaller, but what would be more optimistic ratio of gasoline gas? Now there are uncertain management events that could take place. So I think it's important for organization to be agile. In that regard, Doctor.
Koh, in terms of I understand that you are emphasizing the stability of balance sheet. But what is the most important for you in managing this company?
Thank you very much for the good questions. On the first question on the PMI, as you know, we signed the agreement with the 3 companies and high arms to merge in October 2019. From 2019 October to the day we merged on day 1, which was 1st January, we had a team of 145 people across the 4 companies working on 14 different work streams to prepare the merger. It was around finance, it was around tax, around sales, around technology. All of that people have been moved out of the business for compliance reasons.
So there were so called clean teams because they could not share any more information from the other companies internally. But they have worked for more than a year on preparing that merger. That was the first step. And obviously, these 145 people were from all the 4 companies. That has been put also under the leadership of 4 very high senior manager from each of the 4 companies.
Very senior people, which were actually part of the Board of the company or executive team of the companies have been leading this effort to really pay the attention required and get also the support needed. Since the merger, we have reduced a little bit these teams because we handed over synergies, a lot of work to the functions or to the business divisions, so that they have now to deliver on that plan. Still, we have a so called integration office or PMI office with roughly 20 people full time, who are basically coordinating, advising, cross fertilizing, etcetera. To give you an example of one of the very good value of bringing the companies together, we have identified roughly 400 best 70 of them. One company doing something very good on the quality, which we can reply or disseminate in the other 3 companies.
So this kind of work is now progressing, also creating a lot of communication with the people globally. So a lot of dedicated people, a lot of work streams and a lot of KPIs to be measured and to be followed. I'm heading a steering committee every month with a key executive of the company where we remove roadblocks for merging where we accelerate the whole merger. On the second thing on the ratio of ICE business, other business, I mean, we don't really disclose these numbers. But what you can imagine is we are probably comparable to the market.
Today, a lot of people talk about electrification, but that's probably around 10% of the overall market. And the rest is hybrid or pure conversion engine, where hybrid is growing a lot. So you could imagine us gaining market in electrification. So this portion will become bigger and then basically slowing down on the combustion engine. The beauty is having such a strong growth in electrification, we can absorb a lot of people to support us there.
So it's a very good position where we have a balance between the 2. We leverage the growth and we can use the people there. On the balance sheet or on my priority, I mean, if you ask me what is my highest priority in general, I would say health and safety and people. But now if we talk about balance sheet, generating cash is basically the blood of the company. I'm growing in an environment where the statement was always operating profit or EBIT is an opinion, cash is a fact.
And that is what I'm looking as a way forward.
Thank you very much for your response. We would like to move on. I have two questions. The first question, in terms of electrification, motor inverter, you have the target towards 2025 of 5,000,000 units. And there's e axle, which is a key technology, which you have pointed out in the presentation.
And 2025 is considered to be a key point and e axle, which is being developed. When do you think it would be rolled out in the market? And how much you will be manufacturing? That's my first question. My second question, currently, in the automotive market, there would be horizontal
role
playing. And I think that the key point is connected. I think that within Hitachi Group, there is connected technology. And in having the horizontal role out of playing each role, what kind of things would you be taking as initiative at Hitachi last time?
Sure. So for the good question. On the electrification of electrical motor and inverter, yes, you are absolutely right. We plan to have roughly EUR 5,000,000 of each by 2025. We don't want to do I don't want to do e axle myself.
I think cutting gear and the optimization of a gearbox is something we don't know well. And we are working with partners so that we will do it with them. There is a second reason why I don't want to do the gearbox myself is because I think and we see in the market a lot of different opinions. Some want to buy the e axle. So there is no clear way.
Sometime one year it's more in one direction, the other year it's more the other direction. There is the jury is not out. So I want also to keep my flexibility to really provide the key components where we'll gain the scale, because if we compare with some of our competitors without naming them, they put in that number where they publish a lot of other inverter and motors. We talk about the car traction, propulsion, inverter and motors, which is very specific. And I want to be the best here, and I don't want to dilute my product quality by doing something where I'm not the best like a gear.
And therefore, I have a very strong partner, which will help me to get there. On the horizontal rollout or on the new business opportunities which exist today in the market, I see we have 2 focus points. 1 is on Itachi Asdemo, we focus on the car. We focus on what is in the car and we focus on connecting the car to the outside world with a gateway. And then over the air, we connect together with Hitachi Group, which is then providing the artificial intelligence, the link to the grid, the connection to car to car.
You have one very good example of this extremely seamless cooperation, and I would even call it a one stop shop for the customer. Honda san bought for their new car launch now a system where Itachi Astemo is delivering the gateways, the party in the car and where the Smart Life division for Hitachi Group is developing the contact to the other vehicles and everything which goes over the network. And that is one solution which we provide to the customer. And that is what we will do more and more, leveraging the strengths of Bose.
Yes. Thank you very much. We have many hands up for the Japanese channel, but at this juncture, we'll turn to the English channel. From the English channel, there is a person that is indicated by guest. There is no name.
I'm sorry. Please state your name and affiliation before asking your question.
Hello. This is Damian Tong with Macquarie Securities. Can you hear me?
Hi, George.
All right.
Thank you. I've got three questions. First one is, when you look at your targets for 2025 fiscal year, you have the unit targets for motor and for inverter. Are you able to give revenue goals for electrification of EV related products in that timeframe? And also relative to that, do you see or do you assume declines in your ICE, internal combustion engine vehicle sales?
The second question relates to your cost structure. Earlier you mentioned that there's a possibility for 10% reduction in perhaps your factories. Do you assume this in your current cost synergy or synergy assumptions? Or is that something that's additive to these numbers? Thirdly, and this is the last one.
Clearly, Honda is a big customer of Dacia Estebo, a very key one, and you mentioned them several times. To what extent is your forecast here reliant or dependent on Honda? And does it give additional visibility into your forecast? Or does that or do your forecast assume, for instance, greater sales to other OEMs? That's it.
Thank you.
Thank you very much. It's a good question. On the revenue growth, what we see in electrification, I mean, I mentioned the CAES business will, in general, will grow by 30% to 40%. We expect a certain commoditization effect on this case. And therefore, our growth will be on the lower end of that bracket in terms of sales.
So still significant in terms of sales of dollars. ICE, I don't think that when I see ICE, I include hybrids. And I think that hybrids will keep growing, as I said before. So net, the ICE contribution will keep growing for that period of time. I don't know when we reach the peak on hybrid and pure ICE.
Will that be 25? Will that be 2,030? I'm not sure yet. But that would be in that range of time. So until 2025, I do believe that both products will grow, in particular on the electrification, as I said.
Okay. On the factories, yes, the plan you might remember on the slide where I show the synergies, we have also a cost allocated to it, and that is basically including what we foresee and what I mentioned before. Finally, on the customer side, I think we have customers which are a little bit bigger than others in terms of sales. If I take 2020, we have 2 customers which represent 20% around 20% of our sales. And then we have a number of customers and you can guess who they are.
And then we have a number of customers like Chinese customer, like GM, like Ford, like other Japanese customer, which represents each between 5% 10%. So it's not that we have one gorilla and then a lot of small things. We are rather spread, even though there are some stronger customers in terms of sales, but we are rather well spread from a customer portfolio point of view. And all of them are extremely important because we learn also a lot from our customers. Thank you.
Thank you.
Thank you very much. So there is another one from the English Channel.
Hello. Thank you for taking my question. I have two questions. Firstly, I believe you said revenue growth of 30% to 32% in electrification and 30% to 40% in ADAS. Sorry if I misheard.
But if correct, during what kind of time period are you thinking of from fiscal 2021 to 2025? And if possible, please share an image of revenue size or portion of total revenue as of now, both in EV and AD ADAS? My second question is regarding the overall automotive industry. How is it going to change in the long term? Should we be aware of threats from disruptive players like Tesla and new Chinese EV makers, potential newcomers like Apple or Sony or Nidec like standard motor manufacturers.
I understand your current business is dependent on traditional OEMs and some retail businesses there. But what is your strategy for sustainable growth for the long term? Thank you.
Thank you very much. Good question. Yes, the volume of electrification in terms of pieces will grow 30%, 32% in electrification or electrification 30% and 32% in AD ADAS related products. In terms of sales, we will grow around that number both domain, knowing that in terms of pieces, we will outgrow the market. In terms of revenue share, we don't disclose it very much.
But what I can tell you is that electrification products today represent already a double digit number of our revenues. So it is meaningful. And with the growth pattern we are going on, it will become more meaningful over time. Concerning the auto industry and the future and the potential disruption, I think de facto Tesla is not anymore to take that customer. Tesla is not anymore potential destruction or changing, it is happening.
I mean, Tesla has happened. A few years ago, there were a lot of doubt. I think now, I think we need to accept that this kind of disruption is happening. The same for some potentially Chinese competitors, the same for new model. How do we see other players?
You mentioned one or the other. Based on all these new technologies, based on these new ecosystem, that is a market which will require and some of you said it before in a question actually, we need to be extremely agile. We need to be extremely nimble. And if you look at some of our customers, how strong they embark on electrification, take Volkswagen, take General Motors, they are committing to go completely electric very fast actually, which means a huge change. So I think also what we have seen in the last 18 months, we have seen a world which is accelerating like we never saw it before.
Look at COVID impacts 1 year ago, the old market disappeared within a month, which has never been happening before. Look at the shortages on the supply chain with semiconductor or logistic availability or whatever, you name it, the world is completely different. So the only way we can survive and we have demonstrated now for the last 12 months is to be much more agile, much faster and much more having the decision closer to the customers and not a big organization centrally. So we need to speed up massively and we are working on that.
Thank you.
Hi, Aria Todamasta.
Thank you very much. We will now go back to the Japanese channel. But the time allocated has been expired. We have many hands up, but we can only take one more question. Hello.
Question. I have two questions. First question is regarding Page 10. The motor and inverter outlook, 5,000,000 each is the outlook that you have given. Currently, how much is secured?
Because it's quite it says that it could be going beyond that. What do you think do you have anything incremental to these units for later customers other than do you think that you can have more customers other than your major customer Honda? Please clarify this. The second question is regarding semiconductor. In the Energy Business segment, they said that semiconductors are supplying to, especially as demo.
By the fact that semiconductor is provided, Hitachi, is that an advantage for your business going forward?
Very good question again. Yes, the very simple answer to your question on the customers on inverters and motors. As you see on one of the backup page, on the Page 28, you see the nationality or 29 better, you see the nationality of our customers. And you see that we go extremely global. So we talk about Japanese customers historically, but we gain a lot in North America.
We also gain now in Europe having been extremely successful on the number of platform and now also in China. So we are broadening our scope to really achieve a very broad customer base, as I was mentioning before. That is also very important for Hitachi Astamo as an independent supplier or Tier 1. We want to be close to many customers because that is also the way we can leverage our scale, modularization but then scale of the components, very important for the future of the profitability and the investments. On the second question on semiconductors, I think semiconductors in an extremely volatile market.
And I think we have seen semiconductor market sometime being extremely attractive and then a few years later being extremely destructive. It is something we are not good enough. And again, I would like to focus on where we are good and to partner with strong partners where they are better than us. That is for me important also from a cash generation to really differentiate where we come. So we are very strong partner we are working on.
They are helping us. You have seen we have been somehow like everyone, everyone is a little bit affected by it. But so far, we could help our customer to a vast extent, even though there are some impact on them, but strong support from our partners because we are close to these semiconductor partners going forward.
Thank you very much for your response. Thank you. Sorry that we were not able to have all of the questions answered. That concludes the session for Automotive Systems. The next session is the last session and it will start from 4:40.
It will be a Q and A session by the CFO. Thank you very much for your participation.
Lastly, we will have the CFO Q and A session. The CFO is Mr. Yoshihiko Kamara. By way of concluding, he will be taking questions for the finance policy overall. When your name is called, please ask your question after stating your name and affiliation.
We'll take questions from the Japanese analysts, from the media analysts as well as institutional investors. Please I have just one question. In the morning session, Kojima san mentioned about R and D investment of 1,500,000,000,000 yen in 3 years for 3 years. And he said that it was very it's going to be what so 360,000,000,000 yen per year. So 1,500,000,000,000 yen divided by 3 is 800,000,000,000 yen.
So does that mean that this is going to increase? Or as of the 9,000,000,000,000 yen, if it's going to increase by 150,000,000,000 yen, I think it's very significant. So how is the funding going to be secured for this amount for this RMB1.5 billion. Please elaborate further. Anson?
Regarding R and D investment, I understand that Mr. Kojima has given an explanation. We are going to increase by 3% in the coming 3 years. So funding was the question posed. We have the 3 ways that is being considered.
It depends on the operating cash flow. But in the coming 3 years or coming 4 years, we believe that it is going to be incremental. So we will use the operating cash flow for 1. 2nd, legacy assets still exist. Therefore, divestiture could generate more cash.
Thirdly, overall, debt to equity ratio will be very important, but the last decision is whether we want to leverage or not. With these three measures, we will fund R and D expenditures going forward. Thank you. I just have confirmation. Is it 20% increase?
So that's 360,000,000,000 for this year. That's not 20%. Please elaborate. For 3 years, 1,000,000,000,000 yen or 1,000,000,000,000,000 plus investment has been made. And what we are talking about here is the so called R and D in the corporate, so line investment will be different.
So overall, 20% should suffice. We don't know what is going to happen in 3 years' time. So we cannot give you specific numbers. They can be 20% or even 30%. But they keep funding from the 3 sources that I mentioned earlier.
Thank you. Thank you. Next,
Mr. Yoshizumi, please. Please unmute yourself and ask your question in Japanese. Question?
Thank you for today. I have two questions. So this time, for fiscal year 2025 ending March 26, we heard some information on for some segments. But on April 28, the adjusted operating income ratio 10%, this will be achieved 1 year later. Is this maintained, this target?
So that is my first question. Medium to long term forecast is adjusted operating income ratio of 10%, close to 10%. So what you've been mentioning in the past and what you have now, I want you to put in perspective. And second question, this is also year ending 26 March 26, Lumada OP margin, 500,000,000,000 yen So that's 17% improvement in profitability according to your plan, I think. So the cost, how much cost do you plan to spend?
The way you plan to improve the profitability and the way you plan to do investment, if you could explain something at this point? Thank you. Answer. First, about the operating income ratio. Our view of the ratio is in the 2021 medium term plan, when we developed this current medium term plan, we had two numbers.
1 is the operating income ratio of 10% and the other is ROIC 10%. We call this double 10 internally. In the cruise control, cruise speed, we our plan was to achieve this both in fiscal year 2021. But due to the pandemic, this achievement will be 1 year later. So what will happen in fiscal year 2022?
According to the current plan, we think we can achieve both numbers. So this operating income ratio of 10% target achieving this next year is still true. We still uphold this in Lumada. This Lumada target is a challenging target. It may seem as challenging from external view, but this is the size that we have to reach to support our growth going forward.
That's the underlying premise. So what to do with the investment? In addition to the business line investment, the corporate has the funding for the investment. And as mentioned this morning, Lumada related business will roll out. And with the ramp up, we can invest in our business line.
And so right now, the investment is corporate led, but we can change the proportion and have more business line investment going forward and overall finance fund the entire amount. The target for fiscal year 2025, we don't have the number yet. So in the next medium term plan, we will show you more numbers. So I hope we can share more with you. Thank you very much.
Question? In next spring, you will be announcing your next medium term plan that is until fiscal year 2024. It's a 3 year medium term plan? Well, there are various views discussions of the framework of the medium term plan. It will not be changed significantly.
So it will be a 3 year fiscal year 2022, 2024. Now fiscal year 2025, this is a very clear cut number. So we have to think of both. And the medium term plan that we will develop will be the 3 year plan plus our view on fiscal year 2025. It will be a hybrid type of plan.
We are discussing the details now. So we talked about fiscal year 2025 a lot today. Because it's a clear cut number, we want to discuss more on fiscal year 2025 and we touched on some numbers there. But it will be basically a 3 year framework. So 3 year medium term plan plus fiscal year 2025.
This is what we would like to share with you soon. Thank you. Thank you very much. Thank you. Masa san, please unmute and ask your question in Japanese.
Question. And thank you very much for this opportunity. I have one question. For 2025, operating profit, 1,000,000,000,000 yen was mentioned. And what about the profit margin?
For Lumada, 17% for other segments, it is prevailing around double digit. That is the target. Then every row, 12% or 13%, this is a profit margin level that was never achieved before, seems possible. So what is the outlook on the part of the management? Answer.
This morning, as Jose mentioned, that for €205,000,000,000,000 operating income will be in the target. But this number is based on evaluations that we have made. There is from asset and cashier and young. But with the global logic, it will be JPY 11,000,000,000 to JPY 12,000,000,000, and asset turnover is around 0.9x. So if it's JPY 11x0.9 means in terms of revenues, it will be around JPY 10,000,000,000,000 in terms of intangible assets turnover.
And other to that, the operating income, 10% means JPY 1,000,000,000,000. So in terms of the size of our assets, this 1,000,000,000,000 yen is achievable with a normal level of effort. But what is going to be the content of the assets? There is a fine tuning that is required. Low profit assets are also included.
So further fine tuning will be required. Research and development expenditures will also be required. M and A could also be included. And based on that, JPY 1,000,000,000,000 operating income is achievable for the time being. It isn't as if it's a Farfetch number that just that we just put out there.
That is not the case. It has a basis for this number. Thank you. Thank you. So next question.
We will now take questions from the English channel. If you have any questions, please use the raise hand button. We do not see any questions, so we will come back to the Japanese channel. So once again from the Japanese channel, Mr. Damian Tom, please unmute yourself and ask your question in Japanese.
Question? Thank you very much. I have one question. In listening to today's briefing, U. S, in railways, in power, you plan to expand the businesses and you have the strategy to expand the businesses.
The Setia America's function, will the function change going forward? I mean, the resource and financing? So the matrix organization and the regional organization, will this change going forward? There is a possibility. Right now, the business units are now having their own original North American strategy.
But given the medium term plan and the future of the company, we are now discussing what to do with the headquarter function, the North America and Europe. Some are better having headquarter there in R and D and global sourcing functions. Regions have the distinctiveness and the HR is readily procurable. So now the business units have the North American strategy on their own, but some headquarter function may have we may have the horizontal integration. So this kind of tuning or realignment may happen, but we have not thought that in concrete terms yet, but that is a possibility.
Now if that's the case, then North American business, we will be procuring the material from North America. So not just human resource, but funding. Rather than sending money from Japan, we may have local funding more, and the local companies' alliance may be reinforced as a natural course of course. So beyond the business format, we may make same changes accordingly. Thank you for the explanation.
Question, You mentioned that railway projects in the U. S, are there many projects that you had mentioned earlier, public private funding, the way you do funding, financing, is there a possibility for public private funding? Maybe Japanese companies have demerits, disadvantage there. So Thank you. In financing, funding, North American market is more sophisticated by far the advanced.
There are more funding variations in Japan. Of course, the capital market is much thicker than Tokyo, Japan or London, and there are a variety of financial institutions. And furthermore, there are private equity functions too. So the blending of capital, I think there is a little bit of opportunity in North America. And in Railway Business, as mentioned earlier, President Biden's new initiative, the investment in Railway will start.
So in addition to the private funding, the rich, thick funding in North America will be combined appropriately so that we can generate competitive funds. So we will take steps accordingly. Thank you very much. Thank you. Thank you.
I have I have 2 questions. The first question is regarding operating income of 1,000,000,000,000. In 2025, 1,000,000,000,000. What is going to be the breakdown by segment, by business line? There were some business lines that talked about this, but others did not.
Is this a question that can be answered for IT segment? As a segment in 2025, operating income outlook was not given. They talked about Lumada, but what about the IT segment? What is the plan forecast? The reason why I asked this is because Lumada is 500,000,000,000 yen that was mentioned.
And half of the profit of the company will be generated by Lumada. Is this not just the IT segment, but is it overarching to other sectors as well. And half of that is Lumada. Is that the case? So but it is not IT segment specifically.
That's what I want to confirm. So that is the reason why I want to know the number for IT segment. Second question is regarding Lumada's plan, 3,000,000,000,000 yen and that's 16.7% at the level of 100 of 100,000,000,000 yen. And it was reflected in the previous question. Higashiro san said that Lumada is 20% during the previous meeting.
So the target of 20% and 5 years down the road, 16% to 17%, what is the disconnect between the two numbers? Please elaborate. Answer regarding your first question about the Lunada of out of the 1,000,000,000,000, what is going to be the contribution of IT and Lumada. This is a macro number of JPY 1,000,000,000,000. We have not yet segmented to the different sectors yet.
But Honolanta, as you have rightly mentioned, for the core business and related business together will be at this size. Therefore, it's not just the IT sector that is going to generate this profit. To your second question, Lumada, EUR 3,500,000,000,000,000,000,000,000, a 17% to 18%, what is the difference between that and 20%? Now CO target is 20%. And we are now doing a bottom up exercise, trying to look at the size of each business.
And according to that estimate, it would be around 17% to 18%. So 20% is a very top target and bottom up evaluation is 17% to 18%. We are going to have to fill the gap in the next midterm management plan. We are not withdrawing the 30% target. It will be a strategic target going forward.
Thank you. Thank you. Our time is running out, so we will take one more question. Mr. Yafui, please, please unmute yourself and ask your question in Japanese.
Question. I have two questions. First is multiples. Maybe this is not a question to you, Kamura san, but relatively speaking, the multiple is relatively low. So after you became a CFO, Mr.
Kawamura, the share price is rising. So in order to raise Hitachi's multiple, what kind of effort or results do you think we need? What do you have in mind now? My second question is, if multiple rises, then capital increase may become an option. So you said you will not make huge investments like you did in the past, but there is the business environment.
So if there are opportunities, you are aiming for the business model. And so what are the necessary conditions? Higher multiple and DE ratio, 0.5x, maintain 0.5x DE ratio. What are the necessary conditions for capital increase? Maybe in 5 to 10 years' time, if there are possibilities, what are the factors?
Thank you. So first of all, about the multiple, share price is rising a little recently. That said, there is this view internally, our EBIT for fiscal year 2021 is around 800,000,000,000 yen. That's our plan. And multiple is 10x, then the market cap can be 8,000,000,000,000 yen But the recent latest share price I just saw, market cap is 6,000,000,000,000 yen so the gap is still there.
So as a blue chip company multiple is 15x for blue chip company in Japan. So we want to at least achieve 10x. That is the target and thinking of measures to achieve that. Market cap is 5,000,000,000,000 yen to 6,000,000,000,000 yen So EBIT times 10, 8,000,000,000,000 yen is the level that we want to achieve. So that's what we are thinking I'm thinking from my position.
So what should we do? Two points. One is the equity story. We need to articulate the growth story and appeal this to the market. So large portfolios of GlobalLogic, we are acquiring this time and Mr.
Koc said, ASTIMO and Rail and HAPG and Hy Tech, these 1,000,000,000,000 or so assets are in this portfolio. So we want to bring this to cruise speed as soon as possible. So that's the first priority. And second, the asset profitability improvement. So low profit asset or legacy assets, as we call it, the assets that have already completed its role are still there.
So we need to digest them as soon as possible and streamline our balance sheet. So this will be the standard measure for to improve the multiple, so we will consider them. And capital increase. We cannot think further down the road, but in the next 1 or 2 years, we are not thinking of that because the operating cash flow can fund many things. So if we do capital increase, equity cost is high now.
Debt is cost 0, but equity is 7% to 8%. So under the current environment, equity finance, the economic rationality is not high. And another reason is, if we do a capital increase, it means our business management will be that much more difficult. We have to pay dividend and we need to meet the requirements for shareholder return. And so the business management company management will become difficult.
So once profit becomes 1 step higher, we may think of capital increase. But in the next 1 or 2 years, we will not think of that option. And we will use mainly the operating cash flow, funding from operating cash flow and run the company. Thank you. Thank you for the clear explanation.
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