The time is done to start the Hitachi Limited Web Conference on the progress of the 2021 Midterm Management Plan. I would like to introduce the speakers on our side, Toyaki Higashihara, President and CEO. Yoshiko Kamara, Senior Vice President and Executive Officer and CFO Tomomi Kato, General Manager of the Financial Strategy Division. I would like to ask Mr. Nikashara will be presenting the purpose need on the 2021 Midtown Management Plan.
We will change the screen. Hello, everyone. My name Thank you very much for coming to this web conference, which is a presentation of previous date for the 2021 midterm management plan. I'd like to, 1st of all, start off with talking about the 4 main themes or messages for today. First is the 2021 Midterm Management Plan progress and the achievements.
2nd is how to achieve growth through digital technologies. 3rd, in contribution to the environment through business and lastly, our future capital allocation for growth as well as shareholder return. Now Hitachi has will continue to grow substantially and grow earnings by promoting our social innovation business. In order to improve the quality of life and people and increase the value of the customer companies, we will focus on the 3 domains of environment, resilience and safety and security. In these 3 business domains, Hitachi will use Lumada to solve social issues and corporate management issues by combining OTE and IT and products in a package to provide the solutions to our customers.
Today, I shall cover the progress page in our mid term management plan of 2021 and talk about our next stage of growth. Let's review what we have achieved so far. Under the 2021 midterm management plan, we have been focused on strengthening our digital capabilities to become a social innovation business leader globally. Known in the digital domain, that you will expand the global digital platform through the acquisition of GlobalLogic with Lumada at the core. To expand Hitachi's strength in OT, IT and products globally, we have acquired and strengthened OT assets in the areas of Industry, Healthcare, Energy and EV.
In our operation foundation, we are utilizing power of digital for higher efficiencies and standardization. In addition, by utilizing the Hitachi ABD Power Grids Global Operating Platforms across Hitachi, we will establish a stronger global foundation. Next, I would like to talk about the progress made. First of all, against the we believe that we have been able to control the impact of COVID-nineteen in terms of providing support to our customers, we have expanded working from home and cash management has also been strengthened by doing the we have been able to increase 300,000,000,000 yen in terms of operating cash flow. Digital strengthening has been pursued.
The MADA revenues have increased. We have acquired GlobalLogic and that is a business unit. The strategy will be further strengthened going forward. In terms of our operation control, the Hitachi ABD, a power grid integration and with the Hitachi ASOMO, overseas sales will be growing to 57%. Now this is the 3 year the results of 3 years.
And you can see that COVID-nineteen has impact has been incurred for 3 months in fiscal year 2019, 12 months in fiscal 2020 and 6 months in fiscal year 2021 according to our plan. But I think we have done a good job in terms of controlling the impact of COVID-nineteen. We will aim to achieve adjusted operating margin and ROIC of 10% plus in fiscal year 2022. Next, I'd like to talk about the impact of the Hitachi ABB power grid into operation. In July last year, we integrated Hitachi ABB Power Grid, which is the world's top products and technologies.
In terms of business, we are expanding our digital business globally through cross selling by leveraging Hitachi ADV Park Grid's customization, implementing Hitachi ADV's additional assets such as EAM and Odumada in collaboration with Vantara. In order to strengthen the environmental business, we will strengthen the global development of digital grids and HVTC, which will enable the efficient transmission and distribution of renewable energy. In terms of operations, we will promote the use of Hitachi ABB's global operations throughout Hitachi. We expect to invest 30,000,000,000 yen in building a common ERP system, which will reduce costs by 100,000,000,000 yen having an impact eventually of the 70,000,000,000 yen by utilizing the global shared services by investing 50,000,000,000 yen a cost reduction of 150,000,000,000 yen has been will be achieved with an impact of 100,000,000,000 yen In this way, the ABB's global shared service will be utilized so that company wide cost reduction can be achieved. And next, I would like to talk about the synergies with GlobalLogic.
The combination of Hitachi and GlobalLogic will accelerate the digital transformation of the public services and social infrastructure for Hitachi's customers. For global logistics customers, Hitachi will combine its strength in OT by IT by products to provide services products in commencing mission critical areas. In terms of capabilities, social infrastructure services as well as cloud services will be combined together and co creation will be promoted. In terms of software engineering, GlobalLogic's development from embedded software to cloud applications combined with Hitachi's mission critical system development capabilities will strengthen our capabilities to provide services globally.
So this is how we're going to evolve Lumada. Through co creation and collaborative accretion with customers, Lumada offers solutions to social issues and customers' management issues by applying its domain knowledge and digital technology. Hitachi can leverage its real time and mission critical capabilities to connect the service space and physical space to provide problem solving applications. By combining the OT assets acquired globally so far and strengthening our software engineering abilities of GlobalLogic that we are acquiring this time, we can deliver value in terms of the environment resilience, safety and security to our customers. Applications embedded with management and operational know how are turned into containers or packages and installed on the cloud.
Through Lumada's platform, applications most suitable for the issue at hand that may differ from one customer or region to another can be swiftly deployed. In the domains where the environment resilience, security and safety are relevant, digitally enabled a business growth that can be brought about. So let me give you the details on that. In the area of the environment, Hitachi's proposition of OTxITx products supports society that is increasingly electrified. For carbon neutrality, we will expand our business centering around digital grids, HVDC and packages that support green mobility and EVs.
In the realm of resilience, Hitachi will support with its digital offerings, sustainable public services and corporate activities. We are looking to further augment our business for public sector and financial services, industrial digital solutions with robotics at the core as well as logistics supply chains that connect manufacturing, warehouse, storage and delivery. On safety and security, Hitachi offers diagnostics, therapy and digital expertise to enable the most optimal care for the individual. Our bioin vitro diagnostics, particle beam cancer therapy, pharmaceutical care and home based care will help bring about what is most optimal for the individual. In all the three domains of the environment resilience, safety and security, we will secure growth in a global business by understanding the needs of each region.
In Europe, our focus will be on the environment, including electrification, energy, circular economy. In Asia, we will promote safety and security in smart cities and PBT. In North America, our efforts will be in the area of resilience for manufacturing and logistics. Here in Japan, initiatives for digital security will be pursued. In all three areas, growth will be pursued and captured.
Global frontline capabilities of Hitachi Power Grid and global logic that we have acquired or are acquiring thus far will be brought to bear. Domain knowledge in each of the business areas we cover incorporated in the applications and turned into containers or packages will enable us to scale up our business. Next, by offering environmental value to companies with our partners through these businesses and corporate activities of ours, we intend to contribute to realizing a decarbonized society and a circular economy. To contribute to the environment through our business, Hitachi's contribution will be to push forward electrification to help our society realize decarbonization. Our energy railway and Hitachi's SMO businesses will grow as we did realize the circular economy.
For example, we launched a life cycle management service business for EV batteries, the use of which are expected to increase dramatically to assist in expanding their recycling and reuse. As an internal initiative in view of the goal to achieve carbon neutrality by fiscal year 2030 in our facilities that we announced last fiscal year, we obtained a science based target, SVT certification. We will run our green factories as a business. And by expanding this initiative to our partners, we will aim at reducing CO2 emissions for the whole of our value chain. Hitachi focuses on ESG and its management.
We will continue to do so. We are to grow sustainably alongside the society we operate in and fulfill the responsibility as a corporation to create sources of growth. We will accelerate efforts on Hitachi Environmental Innovation 2,050, including our goal to attain carbon neutrality by FI 2030. We have become a principal partner for COP26 to be held in November this year. And as such, we will continue to be committed in making contributions for the environment.
In social areas, we are working to enhance utilization of global talents and employee engagement. Diversity and inclusion will be boosted with our target of increasing the ratio of female and non Japanese executives to 30%. Regarding measures for human rights, which have become a social issue, we will strengthen audits from partners and build a human rights risk management framework. Hitachi ABB Power Grid has a track record in implementing initiatives for labor safety. So we will leverage that on governance.
Importance is placed on the independence and diversity of the members of the Board. Currently, 10 out of 13 Directors are independent outside Directors, of which 6 are non Japanese from overseas. Further, contribution to the environment is now considered as part of the evaluation for the directors' compensation. So with these measures in place, we will actively strengthen governance. Next, I will explain about the capital allocation going forward.
The focus will be on cash flow from operating activities and ROIC to achieve growth in profits. Investment in growth will continue in the areas necessary for businesses in the environment, resilience, security and safety. With respect to shareholder returns, stable dividend payment will be made in line with the growth of our business. Share buyback will be considered in view of the status of the growth of our business, asset sale and stock price. In terms of capital allocation moving forward, while continuing to make certain levels of investment for growth, we will look to increase cash flow from operating activities through the growth of our business, continue to divest assets and refrain from taking out large borrowings so that we can reinforce shareholder return.
Hitachi will continue to work to achieve sustainable growth by focusing on social innovation business, offering digitally enabled solutions to the issues of society and corporate management in the areas of environment, resilience, security and safety. Thank you for your attention.
Thank you very much. We would now like to proceed to the Q and A session. For those of you have questions, please utilize the raise hand button on the Zoom screen. We will delegate the person to be asking the question first. Please state your name and affiliation before asking your question.
We will refer to your name according to the name on the system. And if the question is no longer necessary, please make sure you release We will be, 1st of all, taking questions from the Japanese channel, the institutional investors and analysts and then the English channel to follow. First of all, the question can be raised by the media on the Japanese channel first. Hiroi san, please. Please unmute and ask your question.
I have 3 questions. First question is the portfolio realignment and overseas business can now be embarked upon fully. IT, OT are areas where Siemens are already have a significant presence. And how will Hitachi compete with your peers globally? And what are the challenges as well as your strength?
Second question is regarding GlobalLogic acquisition. In terms of revenues as well as earnings, it's not very significant. But how will you bring to that synergies with individual sectors in Hitachi? What kind of synergies? What is the schedule, time line as well as what is necessary?
Number 3, regarding Lumada profit margin, what is it? What has it been in the recent past and the profit margins going forward? Thank you. I would like to respond to your question. Regarding portfolio realignment, we are making progress.
So OT by ID by product, this is our strength. And we have been able to promote this significantly. With co creation with the customers, we are identifying pain points to realize solutions using Lumada. This has remained unchanged from the past. On the other hand, in terms of consultants and other companies are doing consultation or package and partners are outsourced to provide the rest.
But on the part of Hitachi, from the challenge as well as solutions as well as maintenance. So we have seamless service provided to our customers. This is our strength. In terms of industry, the supply chain integration will lead to better efficiency. And in addition to that, at the management level of the company to the front line, we are able to link the whole supply chain.
So it's from end to end, inclusive of management of the customers, where we can work with the customers to provide the solutions through co creation. This is an approach unique to Hitachi. In terms of global logic going forward, 1st and foremost, the company is growing very significantly, and I would hope that this trajectory of growth will continue in 2015. They are poised to achieve JPY 300,000,000,000 or so. We hope that this will continue.
Profit margin is around 25%. Obviously, we want to continue this. But with the Hitachi, I talked about continual package. And this is the strength of software can become assets. This is our strength.
And on the part of Hitachi, we can deploy that globally. We can provide such a mechanism. And furthermore, in terms of software development capabilities, in India, we have development team. We have GlobalLogic. And this development team will be more integrated.
So that efficiency in terms of development can be enhanced. Therefore, the organic growth of global logic is expected and development capabilities to enhance container or package will be brought to bear for global deployment in Sesou power grid. The embedded solution can be covered to the cloud solution. We can do this by unleashing the power of global logic in the area of railway systems, inclusive of maintenance. Software will be incorporated into the chip as well and development efficiency will be announced.
This is the type of growth we hope to achieve. In terms of Lumada, on the other hand, we are making investments for our development. And for the core, we have double digit growth already, almost. And going forward, We hope to achieve close to 20% in the double digits. So I'll answer to your 3 questions.
I hope that will suffice.
Thank you. Nemoto san, please unmute to answer your questions.
President Higashihara, I would like
to ask you about the overall reconsolidation of the group. You talked about the acquisition of Hitachi Ameto. You are acquiring overseas, for example, Global Logitech. You have been involved in restructuring the group. Hitachi Construction Machinery still is part of the group.
But what is your assessment of the progress made in reorganizing the group? And what kind of company has Hitachi become as a result of this reorganization? And what's your thinking going forward? Thank you for the question and answer. Let me give you the basic understanding about reorganization.
There were lots of subsidiaries when I first became CEO. What I thought was that Hitachi needed to be globally competitive. How can we achieve that? We have to make a list of subsidiaries globally competitive. Otherwise, they will not be able to survive.
It's a matter of time before they start declining, I thought. So the question was, how can we become globally competitive? Hitachi is shifting vigorously toward digitization. And similarly to that, if we are to grow in the same direction, we can manage all these subsidiaries on the same balance sheet. But for growth, if subsidiaries can grow in a different direction other than digitization, we should remove them from consolidation.
That was my basic thinking. There's a listed subsidiary, Hitachi Construction Machinery, that's still left within the group. It's an individual topic that we need to deal with. So based on the basic understanding that I have just outlined, I understand the top management is thinking about the future Hitachi Construction Machinery. So at this moment, I would like to refrain from making individual comments or specific comments about the subsidiary.
So we have to make a judgment based on the direction of the future investment that's necessary for our group. Thank you.
Takah san, please. Please unmute and ask your question. Thank you. Question? Regarding GlobalLogic, the acquisition thereof, so you will have more pieces to deploy.
From your point of view, are there pieces missing still? If that is the case, when which are the areas you would like to strengthen? That's my first question. Now second question is relating to your global aspiration. So if you stay domestic, it is likely to decline.
But on the part of Hitachi Group, it is less than 60% in terms of overseas business ratio. But ultimately, what is your ideal ratio for the overseas business? That's all. Now to your first question. What are the other investments necessary other than GlobalLogic?
Let me address that. As I mentioned in the capital allocation, 1 third is for growth investment. So this is it we're not going to not do growth investments. I mentioned the importance of the environment resilience, security and safety and medical service medical. In this area, personalized medicine, physician medicine will become increasingly important going forward.
In this area, I believe that further investment will be warranted. Beyond that, lifecycle services should be expanded and investments will be necessary in this field as well. We will deal with these matters 1 by 1, case by case. 21, that's 57% for 2021 in terms of overseas business ratio. And I think it is likely to increase 60%, 70% or even 80% going forward.
This is the relating to the population bonus and the demographics. And increasingly, Japanese companies will be shifting their business overseas. That's all. Thank you. Thank you.
We are receiving many questions. But at this moment, we would like to move on to the group of institutional investors and securities analysts who are on the Japanese channel. So institutional investors analysts on the Chinese channel, if you have There is just one question I wish to ask about shareholder return. Page 14, you talked about capital allocation. Looking at this, in the next MTMP, shareholder return will be strengthened quite substantially if we look at the dark green graph.
In 2021, MPMP, shareholder return seems small. But even so, when it was announced, it was double what it used to be before. So 2021 NTN P shareholder return at this moment remains unmet, and you're going to grow this further substantially. So what's going to be the scope and the size of shareholder return you think is misappropriate? If you could once again share your thought on this.
On the graph, it appears small. 2021 MMP, this year is included as part of this 2021 plan. So naturally, in terms of shareholder return, we look at it in terms of total shareholder return. So the graph may not show it correctly, but repayment of debts and shareholder return in terms of TSR. FY 2021 and onward, this will start in earnest.
That understanding is correct. The vision for the next 3 years is outlined here. Starting from FY 'twenty one, shareholder return, debt repayment, this will assert that damage. So this is to start from FY 'twenty
one.
So this year will be the last year for 2021 MMP. And I'm wishfully thinking that there will be 100 of 1,000,000,000 of shareholder return to be made. But according to the plan for dividend payment, the shareholder return is not going to be all that large after all. After a year, perhaps the goal may remain unmet. The number on the left is going to be small.
And yet, in the next MMP, if it's going to grown by double, effectively, it could be a quadruple increase, it appears. And so what's going to happen? Perhaps the graph may not be depicting the reality very correctly. As you said, starting from this year, what is described here, so business growth, asset divestiture and stock price, depending on these, we will decide on shareholder return, including share buyback. In one of the meetings with the investors we had, I said the same, and it will start in earnest this year, although the graph may not depict it very correctly.
Understood. Thank you.
Thank you for this opportunity. I have 3 questions. It's a follow-up to the previous question. Regarding Page 14, I want to make some confirmation. On the right hand side, in terms of it's about 4,500,000,000,000 yen to 4,500,000,000 yen, but that is not the case.
But in 3 or 4 years, the accumulated number is reflected here. Is that a correct understanding? So it's not the actual amount that you're referring to. Is that the case? Right hand side does not have the number or the amount.
It is not fixed yet. In terms of overall balance, in terms of the debt, it's not going to be significant. So compared to JPY 4,000,000,000,000,000, it's likely to be smaller. It's not fixed yet. That's why it doesn't have the amount included.
What I what we want to say is that growth investment as well as capital expenditures as well as repayment of debt are 1 third each in terms of allocation. The intention is reflected here. 3 years accumulated, but it seems to be 4 years according to what you just said. But you have been asking us to focus on EPS growth. So every year and we successfully this year, but rather it's not going to be manifest in 3 year, but this is going to be on a yearly basis.
In terms of buying bank, you are going to strengthen shareholder return. Is that the right message? Yes, that's right. When I discussed this with you earlier, we have been able to divest many listed companies. Therefore, the outflow to minority shareholders have been reduced.
So you can see that in the net income increase. I mentioned this already to you. In principle, buyback EPS growth rate is how our business should be evaluated. I think that's best. And therefore, the asset amount in terms of net income as well as EPS growth should be the main focus to evaluate our business.
Second question. Page 6, you have provided here the 10% for 2022 in terms of target from the new fiscal year to working share of the margin, 2.2% improvement, it seems to be a very high bar to surmount. So what is your blueprint to achieve this? In my head, what I'm visualizing is that high sector and the same one should be our main focus. If you look at the cost structure of these sectors in terms of gross margin and SG and A shows that gross margin should be around 30%.
SG and A should be below 20%. So that's the basic framework for each sector for the 5 sectors in the steamboat. And if we add everything together, we have been able to visualize the structure already. So fiscal 2022, we should have doubled digit profit. So based on this conviction, I'm saying that fiscal year 2022, we should be able to achieve 10% in terms of adjusted operating income ratio and ROIC.
1st, regarding Lumada, I would like to ask the following question. From the past, you said that by providing solutions, you're providing added value in terms of solutions, it's not based on cost of goods. So what is your evaluation now? Do you think that you are able to provide value added LUMEGA solutions? But even with the development incurred, it seems that it is rather low still.
So how far have you come on your journey in terms of the ideal Lumada structure? For 2021, in this period, we made a significant investment in Lumada. So that is having a
and
the other applications in energy mobility or scaled by digital and core showed the segmentation. For core, significant investments have been made. And therefore, we should be achieving near to an extent in terms of operating profit margin, but we haven't yet reached that level. But investments have run its course now. So in the next 3 years, in the double digits, I think we will come closer to 20% for core as well.
For scale by digital, Global Logic will be joining us now. And as I mentioned earlier, the container is going to be important. The combination of domain knowledge and applications, Preventive maintenance could be applied in the United States and truck maintenance is one application. We hope that this can be utilized globally and we'll be able to reproduce this significantly elsewhere. So once we are able to establish this container or combination of the main knowledge and application, I think that we will have a better opportunity to globally expand this business.
So in the next 3 years, the amount of growth will see increase in revenues, also improvement in profit margins. That is what we will aim to achieve. Thank you. Next, Yasui san.
Yasui san, please unmute and start your questions. Thank you. There are 2 questions I wish to ask. The first question is about the financials. Rafi speaking, You do not necessarily have discipline, although it may appear so.
Financial targets as well. DE ratio of 0.5. You said that that's part of the financial discipline and yet you're having this 1,000,000,000,000 yen acquisition and ROIC 10% you say. But for acquisition of Global Logitech, the multiples are very high because you're spending 1,000,000,000,000 yen So 10% return means, in terms of free cash flow, you are expecting 100,000,000,000 yen and that may well be the case in the future, but there could be a deviation. So inclusive of business acquisition, in the future, we do know that there will be increased revenue.
You appear to have fiscal discipline, and yet you don't. For example, after acquisition of GlobalLogic, are you focusing on the return? I don't think you are focusing on return prioritizing return. It's hard to see it that way actually. So I do understand the principles, but your reality is not catching up with the principles that you for yourselves.
So when it comes to investment, what is the target return for Hitachi? What is the indicator used to measure that? If you could please explain. That's my first question.
On that,
Kamara san manages Investment and Loan division. So I would like to turn to Kamara san. Kamara speaking, allow me to answer. Financial discipline that you pointed to, the thinking behind financial discipline could be something that is short term at the moment and financial discipline over a longer period of time, 1 to 2 years. We're running a business, so funding needs change all the time.
So whatever is lacking from operating cash flow, we will have to take out a debt for acquisition. So over the short term, various ratios could well deteriorate. DE ratio of 0.5. For the acquisition of ABB Power Grid, we have to take out a debt. So temporarily, it's up to 0.5 over the short term.
But 1 to 2 years from now, it's going to decline to 0.4, 0.3. And of course, operating cash flow as well as sale of assets will be used as source of repayment. So it's not that our financial discipline is lax. It appears so over the short term. Over the medium to long term, we are making sure to ensure financial discipline.
And the second point about return on investment. Given the cash flow today, how much return are we going to aim at? Not that we have a specific number at this moment, but in terms of dividend for FY 2,100,000,000,000 in the first half and second half. So we do have financial discipline for that. So funding is in line with that.
Not that we lack financial discipline and yet engaging in acquisitions and having shareholder return, that is not the case. I hope you'll understand. Perhaps a follow-up question. You're running a business. I'm sure you have lots of business opportunities, investment opportunities, and they may arise unexpectedly.
In that case, what is it that you're focusing on? It's hard to see. So is it RIC that you're focusing on in terms of financial discipline or D ratio return? What is it that Hitachi is focusing on in these acquisitions? Well, answer is a question about what to use as a measure.
We do not use just a single measure or indicator. We look at ROIC ROE. We look at flow income. We take an overall look at all of these to see whether the deal is feasible. So it's not that we use just a single indicator.
We take a comprehensive view of all the relevant indicators for a decision. And for the business plan, we take a very close look as we acquire. In the 1st few years, there may be losses, but 3 to 5 years following acquisition, return becomes positive. And if a cumulative loss in 5 years' time, it should be eliminated. That is the kind of narrative that we embrace as we decide on an acquisition or investment.
Well, thank you very much for the detailed answer. Apologies for asking about the details in my questions.
I just have one question. Today, you have discussed Lumada. The strength of Lumada is that you can connect the management and the frontline. Now in this current midterm management plan period, the demand revenues are increasing from Higasharasen's point of view by connecting management and frontline. What is the most compelling example of the power of the Ramada?
Can you introduce that to us? And
by the
same token, with Global Logic now being included, what kind of solution will mean that the acquisition would be a success? Well, I could give many examples. But in terms of the maintenance, this is a standard solution for the mother in the United States. Tenseke, the truck lease company, 240,000 trucks are handled by this company. And in the fleet of trucks, the current state can be reflected in data.
Big data can be analyzed and we can estimate which funds will fail, when. And this is being done by the mother. And we know we are going to build, so truck drivers can receive instructions on going to the workshop. And the parts can be delivered to that there so that minimum downtime will enable the replacement of the parts. The data analysis and AI can be very effective in this way.
So it's all a matter of placing it into containers combining domain knowledge and applications. But global logic, what will be enabled is your question as well. Cloud to chip, chip to cloud, this is being talked about very frequently. In the significant architecture, there is cloud. There is also edge in the factories and device.
There are 3 layers that we have to consider. But increasingly, it is now embedded in the device. With 5 gs and 6 gs, the number of terminal devices will increase and speed will be enhanced. And so the transmission between chips will be increasingly important. So in terms of management decision making, on the cloud decision making will be required, but it has to be linked to the front line as well.
From cloud to chip, chip to cloud, the information on the front line should be provided to the management and management decision should be conveyed to the front line on a real time basis for mission critical systems. This will be available in 2025 according to my view. So in anticipation of this, we have acquired the global logic. I hope I have answered your question. Question, for 2025, I don't know if it's going to be called the meter management ramp of 2025, but in terms of Lumada, check to cloud, how it is going to be embedded in Lumada?
And the increasing resolutions will be very important in terms of qualitative evaluation? Well, our expectations and the actual state at the time of customers is the frontline, it may not be in sync in terms of timeline. But in 2025, there's 1,260,000,000,000 yen Lumada now. I think it's going to be 2,000,000,000,000 yen plus by then. And profit should be around 20%.
I think that is a better indicator to focus on. Thank you. Thank you.
Moving to the next answer questions, we will take questions from those on the English channel. So we're going to get back to those of you on the Japanese side channel. So members of the press, institutional investors, securities analysts, anyone is welcome. If you have a question, please raise the hand raise button. Senboni san, Question.
There are 2 main questions I would like to ask. The first question is somewhat similar to the earlier questions, but the only remaining list of subsidiaries, Hitachi Construction Machinery. And Kawana san, in an earlier session, said that there's no plan for large acquisitions for the time being. So I believe that you have done most of the portfolio replacement. So Higashihara san, what is the rate of completion given your original plan?
So that's my first question. And the second question is as follows. ABB shared service to be utilized. Corporate functions are consolidated into ABB's shared service, which is most reasonable. And there are areas where that is possible.
There are others where it's not possible. Cost reduction will come about, but what are the other impacts or effects for Hitachi? With respect to list of subsidiaries, I outlined the basic thinking. On the same balance sheet, can we accommodate them? That's the criteria.
And if Hitachi Mitsubishi divestiture goes well, the only remaining one will be Hitachi Construction Machinery. So based on the basic thinking that I outlined, we will discuss with Construction Machinery as to what to do. The question is, can they be globally competitive? According to my thinking, I believe that 95% of asset replacement has been complete. What is important going forward is 5 sectors, plus STINO included.
And we've been focusing on this since 2 years ago. So the environment resilience, security and safety in these areas, How can we focus in these areas for growth? That's going to be our imperative prerogative. And ABB Share Service, Japan's Accounting division, for example, reimbursement of travel expenses or calculation of salaries, payroll calculation, to give you simple examples. Of course, these practices differ from one country to another.
So globally, by country, by region, if we can commonize these services, it's a good thing. ABB Power Grid, with respect to procurement functions, accounting treatments, utilization of HR, they have global standards for each of the regions. So rather than consolidating them here in Japan by region, by culture, there are differences. And ABB is able to consider those differences in providing shared services, so it's better to consolidate into their service. Whether or not there's a perfect match, we have to look at.
To the examples where we would like to consolidate into their shared services and see how it goes, if further consolidation is necessary, we will look at cost and effect to decide on what to do in the next stage. Did I answer your question? Yes.
Doctor san, please. Please unmute and ask your question. I have one question Regarding the direction for your company going forward, resilience, environment and safety and security are the areas where we want to bring to bear your value. And comprehensive power of your company is the source of competitiveness for you. But on the other hand, in the past, Japanese companies had comprehensiveness and focused on synergies.
So all the different businesses intended to be weak. Maybe that's not the case for your company, but that was the case for Japanese companies overall. Electronics and other whole operating coating companies are the direction pursued by other companies, I don't think that is the case for you. But in order to bring to there your comprehensive tie and also strengthen the individual business, how are you going to strike right balance between the 2? That's a very important question.
Thank you very much for raising that answer. We are focused on the environment resilience, safety and securities. We have 5 sectors: energy, mobility, industry, life, spotlight and IT. So that closely means our sectors. But in terms of environment, the area of mobility as well as energy And our signals, Automotive System business are transcending the sectors and that's what we have to do.
So a little bit, Donna has is going to a chapter environment, Sun Life will be led by Koji Ma san. And so we are going to strengthen our comprehensive power And however, we are not just going to be focused on comprehensive part because that will mean each product to differentiate and to be globally competitive can be undermined. So we did not do a good job in terms of shrinking individual products because we are too much focused on overall performance. So we will provide value. And also, management products to be separate.
So
if we
have products that are not competitive and it will be redundant, therefore, we have to make efforts to be competitive internally for a business operating company? If we have pure holding company and if we have the businesses independent under the holding company, that is something that we have considered. But the comprehensive power is very important for environment. It is going to transcend the different sectors to pursue business. Therefore, the business operating company or integrated approach will be more preferable.
If we have a pure holding company, that's the kind of structure, it's not what we are hoping. I hope I continue to address your question. Thank you. Next, Koye san.
Please let me answer your questions.
Thank you.
What you said to business transformation, You outlined your basic thinking. And today, you have announced divestiture of Hitachi Mato. So let me ask you what the reason was behind that. Why did you decide on divestiture? Hitachi Meto, in terms of its business, is in a very bad shape.
Last fiscal year, in fiscal year 2020, they generated losses. Globally, Hitachi Meto has a very good business. But for it to become globally competitive, a large investment will have to be made so that it can be globally competitive. But if we try to do that on the same balance sheet, Hitachi's investment may not become effective without a good match with what we're trying to do versus what Hitachi Meto needs to do. And it's going to be unfortunate for the shareholders.
So we thought that we should divest Hitachi Mato. Bain Group is interested, inclusive of investment. They are willing to restructure Hitachi metal to make it more competitive, they have said. And that is why we decided to sell Hitachi Metoh to Bain Group. Did I answer your question?
Yes. Thank you. So regarding Hitachi Metoh, my second question to Kamasa. In July last year, when Q1 results were announced, so one of the questions was what to do with Hitachi Mettle. And you said that you're awaiting the results of the investigation committee with respect to Hitachi's metal.
According to the material that you are releasing today, since July year, you've been discussing what to do with Hitachi Mato, and I believe that you have been sounding potential buyers, but the results of the Research Committee or Investigation Committee came out in January this year. And so upon closer look, I understand that there was fraud or misconduct, and you're selling this today. In terms of the surprise, is there not any problem with this deal? Karma speaking. Let me answer your question.
This is a M and A transaction. What happens on the ground is even without releasing specifics, investment banks and private equity funds do approach us quite frequently. And so that's what you're talking about. Into New Year, based on the 3rd party investigation committee results, we have decided on divestiture. So Investment Bank's private equity funds do come to us all the time, but that is different from what the 3rd party investigation committee has done.
Having said so, in early November, there was contact made from a potential buyer. We hear. So 3 months prior to the results of the investigation committee, an approach was made. And it seems that if that's true, it's inconsistent with what you said. Well, the meaning of the word, sounding out, when was it started?
Well, of course, when a proposal is made with an approach, we will say this and that, yes or no. And sounding out, does that mean a specific tender or a specific term sheet? We have not asked for that. So what I said is not very inconsistent with what actually happened from what I understand. Well, it's not meaningful to engage in a discussion about the language.
But I thought that it would be problematic to accommodate approaches by these investment bankers while investigation is ongoing. And so what do you think would be a problem? And so of course, if those are done in parallel, that could impact the sales price. So having a negotiation with a potential buyer, while the quality problems continue, that could reduce the sales price, causing problems for the shareholders. So of course, that's separated.
We don't want the stock price to be contacts made by potential buyers and what happens within Hitachi Metto in terms of decision making and what happens within Hitachi in terms of decision making, they're all separated completely. Well, thank you. That is understood. And I have a question of Higashihara san. This is misconduct that happened in a group company since 1980s.
With the involvement of the management, misconduct has continued at Hitachi Mato as it was revealed. Well, Koma san talked about the impact on stock price and so forth. And in order to respond to this misconduct or problem, Hitachi Mato, is your understanding that Hitachi did nothing wrong in terms of handling this? Well, to answer that, as Karma san just explained, as far as this deal goes, I don't think there was any problem. Compliance wise, it's a problem, a large problem.
And as is noted in the ESG section of our report, compliance risk and crisis risk and business risk, these have to be prioritized for us. So compliance risk is high on the agenda. And within Hitachi Group, this is something that we have to address very squarely. And so that is the lesson learned from Hitachi Metals' case. Well, thank you very much for the answer.
Sorry for deviating from MPMP.
Thank you very much. We still have other people raising their hands. But since time has come, we would like to now bring this meeting to a close. Thank you very much for attending the site to visit schedule.