It's time to start. We are going to start with the presentation by Hitachi Limited on the acquisition of GlobalLogic, a leading U. S.-based digital engineering services company. Thank you very much for attending this meeting despite being such a short notice. The presentation materials that will be used today are posted on our IR site and the news release site.
Now let me introduce the speakers from Hitachi Limited. Mr. Toshiaki Higashihara, President and CEO Mr. Toshiaki tokusunaga, Senior Vice President and Executive Officer, CEO of Services and Platforms Business Unit and Mr. Yoshihiko Kawamura, Senior Vice President and Executive Officer, CFO.
Mr. Tokunaga will become Executive Vice President and Executive Officer from tomorrow, 1st April. Today, Mr. Higashi Hara will give opening remarks and then Mr. Tokunabe and Mr.
Kawamura will make a presentation and then we will take time for questions and answers. We plan to hold the meeting for about 1 hour. Now I would like to start with opening remarks by Mr. Higashihara.
Good afternoon, ladies and gentlemen. Thank you very much for taking time out of your busy schedules to join us at this web conference on Hitachi's acquisition of GlobalLogic, a leading U. S.-based digital engineering services company. At today's Board of Directors meeting, a company based in Silicon Valley, the U. S, there's a company called GlobalLogic, and we have decided to acquire that company.
We would like to evolve for Lumada and accelerate global expansion of Lumada. That is the objective. In other words, we would like Lumada to be a world class Lumada. And for that, we're having this acquisition. 2016 and onward, Hitachi's business has centered around Lumada, which we have promoted through co creation with our customers.
We connect data to data and elevate corporate value. That's the nature of Lumada's activities. In terms of the technology trends, digitalization is moving at a breakneck speed. Devices within automobiles, devices within plants, software is embedded in every piece of the device. That's the kind of era we're in.
Cloud, edge devices, these are connected on a real time basis by Lumada so that it can offer new value. And that's the kind of business that we would like to promote going forward. The company we are acquiring, GlobalLogic, Healthcare, Automobile Industry, In these sectors, they have the expertise to develop engineering services. And the prices shift to cloud, They have strengthened developing software that connects ship to the cloud. And by incorporating this business, Hitachi's Lumada business will expand further so that we will be able to offer new value to global customers.
That's our belief. And as to the details of the deal, the acquisition, Toki Naga will explain in a moment. Thank you.
Thank you very much. Now on the acquisition of GlobalLogic, Mr. Tokunaga and we also have partial explanation by Mr. Kawamura. We have to shift the screen.
Please wait for a moment.
Yes. My name is Tokunaga. On the topic of Lumada's ad global expansion, I would like to discuss the background and the objective of this acquisition and the outline of the target company for this deal, GlobalLogic and lastly, the time schedule going forward briefly. Next slide, please. 1st on this slide, what is described is Hitachi's vision through Umada.
Hitachi's vision is to contribute to society through social innovation and by so doing to achieve sustainable growth and become a global leading company. That is what we aim at. That's our vision. More specifically, on top of offering Hitachi's unique combination or fusion of IT, OT and products, we collaboratively create with our customers, have alliance with our customers to leverage Lumada and offer value to society. Lumada enables us to create value for society such as the environment, resilience, safety and security.
And by expanding our social innovation business, it provides solutions to social issues and improve people's QOL, quality of life. On this slide, the direction of the business and Lumada's role in it is described. Lumada is data driven. Through full utilization of data, it serves as an engine to help society and customers realize digital transformation. With collaborative creation with our customers and through Hitachi's unique combination of IT, OT and products, Lumada functions as a business platform to grow our social innovation business.
Next, please. What specifically are we going to do as business utilizing Lumada? And that is summarized on this Slide 3. Hitachi will offer solutions to social issues and corporate management challenges by leveraging mission critical IoT that connects the data in the cyber and the physical spaces on a real time basis. And this is to be expanded globally so that it can spur the growth of the social innovation business.
To connect the cyber and the physical space on a real time basis, it's essential to have capabilities that cover embedded software as well as edge to cloud. The acquisition of GlobalLogic, we believe, will give us the ability to dramatically expand this data driven business worldwide from edge to cloud and chip to cloud. Next please.
Next.
At this moment, I would like to provide a brief summary of GlobalLogic's strength. GlobalLogic boasts sophisticated expense design skills and supports customers' DX shift to cloud or digital transformation on a ship to cloud basis. It is a leading company in the market for digital engineering services with a strong growth in both its profit profile in terms of EBITDA margin, 23%, and has had a powerful track record of CAGR or revenue, growing by 19.3% year on year. So it is a leading company in the market for digital engineering services. The company also has a track record in cocreating with customers, and they have 8 design studios to do so with customers from a broad range of industries and sectors.
And it also has 30 delivery centers to offer chip to cloud, digital engineering services and to support agile development around the world. Further, the number of clients they have supported in terms of DX or digital transformation exceeds 400, many being in the telecommunications, health care, automobile, industry and financial services, amongst others. This business, therefore, is indeed the growth engine for Hitachi, and the acquisition of GlobalLogic will allow us to accelerate the growth very rapidly. The next slide, please. On this page, I discuss the conventional IT sector business and the global logic business, the positive cycle that it can be it can create by combining the 2.
As you know, in Hitachi's IT sector, which is described on the lower left quadrant of the diagram, acquisition of GL will give us an opportunity to expand our portfolio. So far in the IT sector, we have been driving our business mainly in core systems while leveraging mission critical business applications as a weapon. As a result, this business now has a revenue to operating income ratio of over 10%. But with this deal to acquire GlobalLogic, we will be able to evolve and expand into a collaborative creation type of business that is agile and is cloud based, which is on the right top quadrant in the diagram. This will enable us to capture high rate of growth inside our company.
Through collaboration with GlobalLogic to the customers who expand into these new areas, our mission critical solutions can be offered as well as we have been doing through the IT sector conventionally, which in turn will create a positive
Next page. Hitachi so far has been developing collaborative creation hubs in many places in the world. One example is the Lumada Innovation Hub Tokyo, which was recently announced. On top of that, the GlobalLogic's worldwide design studios, regional offices and engineering centers can be utilized to accelerate the global deployment of Lumada, which I have just explained earlier. And also Hitachi Bantara, Global Logic, in total, encompasses human resources of 30,000 people.
They will be able to promote collaborative creation with customers all over the world and support solution of challenges and digital transformation. Next page. So as I have explained, with the acquisition of GlobalLogic, Hitachi will make full utilization of their collaborative creation and chip to cloud skills to connect IT, OT and product by software or digital to develop into a social innovation company. Next page. Now let me give the profile of GlobalLogic.
As you can see, revenue forecast for FY 2020 is about US921 million dollars which is nearly 20% year on year growth. And adjusted EBITDA ratio forecast for FY 2020 is 23.7%, which is a very high profit margin. His office is located in San Jose, California, United States. So it is close to Hitachi Pantera. The name of representative is Shashank Samant, who is the President and CEO.
Description of business is indicated on this page. The company was established in September year 2000. Next page. Now from here, the off line acquisition will be explained by Mr. Kawamura.
Thank you. I am Kawamura, CFO. I will explain Pages 1011. First, Page 10. The structure of the acquisition is not from Tokyo, but a digital holding company, Hitachi Global Digital Holdings in the U.
S. Will be making the acquisition. Total acquisition will be made by cash. There may be discussions about enterprise value, but according to our calculation, enterprise value is USD 9,500,000,000. The growth of the company itself, as explained by Mr.
Tokunaga, nearly 20% growth expected. And by joining Hitachi Group, there may be further synergy enjoyed, which is a basis for this calculation. So we believe this is an appropriate evaluation. Next page, Page 11. The financing for the acquisition.
This is nearly about 1,000,000,000,000 yen We are going to use cash on hand of about JPY 200,000,000,000. JPY 800,000,000,000 will be based on bank borrowings and issuance of corporate bonds. And after 1 year, of course, there will be a burden on the balance sheet. But throughout the year, our balance sheet dynamic transition is taking place. We are changing our assets.
So through changes of assets, there will be more cash inflow. And also as there will be some operation now activities cash flow. So after 1 year, we believe the stress of our balance sheet will be relaxed. So according to our calculation, the ultimate debt will be about JPY 300,000,000,000 and the remaining JPY 700,000,000,000 will be by changing the assets and through cash. So there will be a onetime burden, but we will be able to return to the original situation after 1 year.
And the impact on consolidated BES total assets on RMB250 1,000,000,000 goodwill, RMB710 1,000,000,000 intangible assets, RMB 390 1,000,000,000 and amortization, BRL290,000,000,000 on annual basis, BRL32,000,000,000 is our calculation. So as we think the information business under Mr. Tokunaga will be able to absorb this level. So 2 digit operating profit margin will be achieved. And as a financial discipline, after 1 year, we have changes in assets and accumulation of operating cash.
As you can see, in a few years, debt equity ratio less than 0.5% and debt EBITDA multiple less than 2. So we're trying to achieve the level similar to the current level. This is all from me. This is Tokunaga again speaking. And lastly, let me talk about the future time line.
Today, March 31, 2021, signing of definitive agreements end on July 2021. We plan to close the position by Hitachi Global Digital Holdings as a wholly owned subsidiary. This concludes our presentation. Thank you very much.
At this moment, we would like to have questions and answers. Those of you with questions, please press the hand raise button, raise hand button on the Zoom screen. Of those who are raising hands, we will call upon your name. So once your name is pulled, please unmute, state your name and affiliation before asking your questions. And the video of the questionnaire is not going to be shown today.
Yes. The order of taking questions. Members of the press, on the Japanese channel and then next, institutional investors and analysts and then those on the English channel. This will be the order as we take questions. Now we would like to invite questions from the members of the Japanese press.
I see a hand being raised. Please unmute yourself and stage your question. Hello. Can you hear me? Yes.
Question. I have 3 questions. This time, looking at the equity prices, it seems that the price is rather rich, overvalued. I wonder what kind of discussions you had internally. Were people cautious?
On what basis did you make the decision to go ahead with the acquisition? And what are the risks that you are looking at? What are the possible risks? That's my second question. Question number 3.
In the press release, you have a profit target up until 2028, USD 1,000,000,000. Given the current level of performance, you will have to ramp all your profit up very quickly. So what is going to be the path toward that? Those are my questions. Thank you.
Higashi Hara speaking. First, what kind of internal discussions did we have about this deal? And what are the potential risks? I would like to provide our view. Of course, this deal is on the order of 1,000,000,000,000,000.
And so we had to be careful and cautious. So we took time to look at the details of the deal. And how to evaluate the corporate value, of course, was a question. We involved our experts, and we repeated many sessions to look at the corporate value, and it's now at 9,500,000,000, which we agree on. So by acquiring this business organically, revenue as well as profit should be increased.
We need to watch that if the company can deliver in that regard. And when the company collaborates with the IT sector, what's going to be the impact or the effect? We looked at all those possibilities. And once that is done, Hitachi's industrial sector business there are other businesses or business in the automotive sector. If Global Ocean collaborates with Hitachi's automotive business, what could be the potential impact?
We had quite a bit of discussions internally, and the conclusion was that we are able to grow our business more by acquiring this company. So corporate value, what kind of reforms are we going to pursue? Those were the main points of our discussions. This is a company wide reform that we're going to embark on with this deal. So as CEO, I'm going to exert our leadership and control what's happening inside.
With respect to risks, at this moment, this area is set to grow. But then what's going to happen? If you think about it, there are many potential risks. So we have to regularly monitor the market. If something untoward happens, we have to look for an exit plan.
And of course, we have studied various exit plans. So while looking at the risks, we have to monitor the market closely and make a judgment on a regular basis. That's our thinking. And with respect to profitability for FY 'twenty, Tokunaga san will answer. Yes, Tokunaga speaking answer.
Well, as you can see on the news release, we're going to aim at achieving $1,000,000,000 by year 'twenty eight. The latest performance suggests that GlobalLogic has been growing its business by over 20% in recent times. On top of that, what Hitachi has developed, Lumada related assets and Hitachi's R and D expertise. And by utilizing Hitachi's technology, I believe that this number can be met sufficiently through internal discussions. So we formulated this plan and is including it in the press release today.
That's all.
Sir. I am Sawamura from TV Tokyo. There was a question about risks earlier. We now are now facing a friction between the U. S.
And China. And under such a situation, what are your views about this acquisition and relationship with your Dx strategy? Thank you for your question. First, as an assumption, the GlobalLogic company don't have any footprint in China. And the U.
S.-China tension, their business is not a business that would be briefly influenced by the current tension between U. S. And China. And as Mr. Higashihara mentioned at the outset, Lumada's global expansion of a business to promote such a global expansion, global logic asset and their resources utilization is the best method for us.
As a result of discussion, we reached that conclusion and we made the decision for this acquisition. So question, so there's no impact or risk caused by the China U. S. Pension. Is that assumption in your acquisition?
Yes, that is right.
I see another hand being raised. Can you hear me? Question, I have two questions to ask. First, this company, GlobalLogic, you have explained about the company, but frankly, what kind of specific business does it conduct for its customers? What kind of solutions do they provide?
And what are their strengths? If you could also cite concrete examples to explain that. That's question number 1. Now upon that well, you said that this deal will accelerate Lumada's global expansion. Hitachi's IT sector business, including Lumada's business, the what are the challenges in that business?
By acquiring GlobalLogic, how do you think you will be able to alleviate the challenges that you're facing within your IT sector business? If you could plainly explain that. Your question number 1, what are the strengths of GlobalLogic? In which areas are they strong in? In the presentation, I think it was explained briefly, there are 2 main strengths: 1, collaborative creation activities with customers.
They have been focusing on that in their business. So Lumada focuses on co creation with customers to offer solutions for challenges. So it's exactly the same as Lumada. And second, what is wonderful about GlobalLogic is based on their co creation activities, the challenges and issues that are identified are solved by digital and software capabilities in the right area using the right technology. And that is referred to as chip to cloud in my presentation.
So in providing solutions to issues, there are issues that can be solved on the cloud. But then there are other issues where you need to go to the edge to create software to acquire appropriate set of data and upon doing so, analyze the data and provide solutions from the cloud. So from the edge to the cloud, we need to have this comprehensive flow that we need to cover. So GlobalLogic has been doing that business together with their customers. As an example, the automotive industry or industrial machinery industry, health care devices industry, they go deep into the clients' business to offer such solutions and services.
Their customer retention rate, the repeat rate, is above 90%. And your second question regarding how are we to promote Lumada's global expansion in view of the challenges that we've had in Hitachi's IT sector. First, what is led to challenges in the IT sector that we run. So far, centering around the domestic market, we've had a track record in mission critical systems. But we want to sort of spread our wings into the global markets.
And together with global customers, we want to pursue co creations. And that capability has been lacking. And that is something that we need to point out. By acquiring GlobalLogic this time, what Hitachi has been doing in Japan's market, so collaboratively creating with customers and by leveraging GlobalLogic's strength with software and through digital technology, we will be able to solve the issues identified through cocreation. So with Lumada and GlobalLogic, we can evolve into a company that provides the solutions.
So that's the direction that we're aiming at. Question on your first point. Lumada, of course, does what you described. I'm aware of that. What Lumada has not been able to do?
Well, that you said that you have not been able to cover overseas markets, I do understand that. But in terms of specific solutions, what are the solutions that Lumada has not been able to offer? And are you saying that GlobalLogic is able to offer such solutions? Are there such cases? As I said earlier, the strength of GlobalLogic is from chip to cloud.
They have capabilities. On the other hand, our Lumada so far mainly has been doing on the cloud. So on Lumada's solution hub, we would offer solutions so that customers' issues can be solved. That's been our focus. But with GlobalLogic's technology on the device side or by utilizing their capability on the ground by connecting cyber and physical, we will be able to solve customers' issues.
And that will strengthen Lumada, we believe. That's just one more point. I have a question of Mr. Higashihara. So question, IT related business acquisition.
You've been quite willing to embark on such potential M and A in the medium term business plan. But now we have decided on a deal, What's your ambition? Well, there are 2 assets that led us to decide on this deal: in industrial area, distribution, in health care. In each of the sectors, GlobalLogic has a lot of expertise and experience in these sectors. So that's one point.
And cloud, edge, chip and devices, we talked about earlier. What's going to happen going forward is control on the ground, on the factory floor will be controlled by management information offered by the cloud. So information on the factory floor will be utilized as management information, and management decisions will, on a real time basis, change what happens on the shop floor or on the ground. So from the chip to the cloud, the capability to connect the whole process And because of GlobalLogic's competitiveness, because of these two reasons, we thought that GlobalLogic is wonderful and thought that by acquiring it, we will be able to create synergies with Hitachi.
I see a lot of hands raised, but this will be your last question from the media. I'd like now to move on to the questions from the investors. I'd like to invite investors to ask a question. Could you please unmute yourself? Thank you.
Can you hear me? So my question is about finance. Earlier, Mr. Kawamura said JPY 300,000,000,000 or maybe JPY 200,000,000,000 is remaining. And so the remaining that is the debt and the remaining is operating cash flow and the business portfolio will be formed by spinning out businesses.
I believe you expect debt to be reduced. So your operating cash flow in the last few years is about JPY 600,000,000,000 to JPY 800,000,000,000, but there's also investments. So in terms of free cash flow, about JPY 200,000,000,000 positive seems to be the trend. So the remaining JPY 500,000,000,000 will be by spinning off your assets, your businesses. I think this would be interpretation, but what are your views on this?
This is Kawamura speaking. Yes. As I have mentioned, as I referred to before, in the last several years, we are very cautious in managing our balance sheet. So we are promoting dynamic change of our assets. So in addition to accumulating operating cash flow by changing our assets shifting our assets, we plan to cover a part of the funding.
I cannot discuss the details because this is still a work in progress. But from a macro perspective, about JPY 2,000,000,000,000 are assets that will be put out and 1,000,000,000,000 yen is the new asset. So balance sheet will shrink actually. Currently, total assets about 11,000,000,000,000 yen but we'll reduce about JPY 10,000,000,000. That is for a transition of our balance sheet.
And by selling assets, we will get some cash. So as you have mentioned, euros 200,000,000,000 cash in hand liquidity and with funding. And for that portion remaining is about JPY 300,000,000,000 in denominated in dollars. Next question. The IoT, Cyber Physical System World, I think from about 5 or 6 years ago, this has been broadly discussed about.
But about the future, the 2020 IoT Cyber Physical and competitively other companies, what are the areas of businesses that you expect there will be more opportunities? And sir, thank you for your question. I have referred to that a little during my presentation. Hitachi to solve social issues and solve management issues. In the future, environment resilience and safety and security values are the values that we are providing, and we are promoting the business to that direction from a different perspective.
The customers of our society's challenges are becoming very complicated. To resolve such complicated issues, instead of individual skills, IT, OT product should be integrated. And in case of IT, from chip to cloud, this skill is very important to be held by 1 company to be able to start providing solutions to challenges. So GlobalLogic, the acquired company, capability should be used in full and the addition this should be a factor for competitive advantage of Hitachi to promote our business. That is all.
Thank you. Thank you very much. Next,
institutional investors and analysts on the Japanese channel, we would like to take questions from you. Hello. Question I have 2 questions. Now my question, number 1, is GlobalLogic's business is in the digital engineering service area. So what is the size of the market, its growth rate?
And within the market, who are the competitors of this company? And what does GlobalLogic have as strength, differentiating factors visavis its peers? So given the competitive landscape, what are their strengths? That's my first question. And my second question is as follows.
This may overlap with an earlier question, but I wanted you to elaborate on this. Higashihara san talked about internal discussions that Hitachi had. So what are the synergies with Hitachi's existing business? And automotive was cited as an example. In Higashi Automotive Business, what are the impacts or effects you will be able to see as a result of acquisition?
So those are 2 of my questions that I would like to ask at this moment. Thank you for your question. To address your first question, this digital market that GlobalLogic is in, what is the size of the market? Actually, it's very difficult to answer that question. In the news release, as reference information, we have included some numbers.
In fiscal year 2022, 65% of the global GDP will be from products and services from digitally transformed companies. In other words, that is the size of the market. It's very difficult to quantify this and point a finger to a specific number, but USD 1,100,000,000,000 by 2025, the market could grow to this level. That's our understanding. It's a huge market actually.
On top of that, well, what are the strengths of Global Logic as it operates in this market? There are various ways to assess the strength. There are various viewpoints. And also, it's difficult to define who the competitors are. What we see is their strength in cocreation.
They are quite powerful in that. And on a global basis, they have many design centers for co creation activities. And through such co creation activities, customer retention, customer repeat ratio is above 90%. So compared to their peers, their competitors in the industry, they are quite strong. But when it comes to specific customers, of course, there are contracts that they have with customers.
So I would like to refrain from giving you further detail on this. Question, who are the rivals? Who are the competitors of GLOBALOGIC? Answer. Well, competition, I think it differs depending on the size.
Large players include Cognizant. These companies operate in a similar area. And in terms of the company of similar size, Sortworks is another. So at any rate, Hitachi would like to acquire GlobalLogic so that GlobalLogic's business can be elevated even higher and compete better in the market. Thank you.
Higashihara speaking. You talked about automotive industry. With respect to the automotive industry, we can't say something general, but automotive manufacturers have their own clients. And if information flows or leaks, it's going to be troublesome. So we have to have control over that.
But as you know, GlobalLogic can handle over the air data. So updating data within the automobile gain from over the air. And embedded software that controls the comfort level of the driver, they have experience of developing that, which can be leveraged. But we have to be careful because this involves many customers. In terms of intellectual property, whether or not we can utilize these technologies, we don't know.
Are we going to use it for Astellas product development? It may be difficult because of IP.
Thank you. We'd like to have the next question please. Please unmute yourself and raise the question. Question? Thank you.
Can you hear me? The first question is about Global Logics performance. According to the press release, adjusted EBITDA, 8% or 8.2% as of end of March 2020. So there is a gap between the adjusted profit rate and adjusted EBITDA level. I'm not familiar with this company, but is that a timing of going down or the operating profit margin is not that high.
And in past cases of ABB or ASTEMO, through the process of integration in the 1st year, there were integration costs. But this time, I have a question that, that will not be so large. So integration cost before contributing to profit, will that be necessary? This is my first question. And number 2, my question is to Mr.
Higashihara. As for returning to shareholders, if possible, during the present medium term plan level, you mentioned about considering share buyback. But with this large acquisition, Kaombo san also talked about cash. And taking this in consideration, are you considering such buyback during this medium term plan? As far as operating profit margin, let me answer.
As you have mentioned in the news release, it says that adjusted operating margin level is different from the adjusted EBITDA. But as a conclusion, that is a onetime event. Local Logics recently made an acquisition, and this amortization is the reason for this difference. So actually, the EBITDA and operating margin, similar level can be achieved. This is Kawamura speaking.
As for integration cost, for example, this year, ABB Power Grid was spin off and brought in, so there are IT expenses and also business transition costs. But this company is a 100% acquisition. So basically, there is no large integration cost. There are some detailed IT tunings, but that is not a large amount that may affect our finance. This is Hitachi Hara speaking.
I think I have talked with you about it before at a SCIO meeting that going forward, Hitachi will now be selling assets or adding other assets. So the net profit attributed to the owners of a parent is to be noted, also including dividend payout ratio. EPS growth rate is something that I want you to look at. After such an acquisition, financing wise, as Mr. Kawamura mentioned, we have made the calculations about that amount.
So including share buyback and return to shareholders, we will keep thinking about it. That is all. Thank you. Question to Mr. Tokunaga for confirmation.
When this is consolidated, there will be no more onetime amortization burden. So next year, for example, the current EBITDA margin and the profit margin will be of a similar level. You have made acquisition in Capas, but what is the situation going forward? Yes. Thank you for your question.
Just as you have mentioned, after integration, EBITDA and operating profit margin will be at a similar level. Thank you very much.
Thank you. Let's continue. I see another hand being raised. I have two questions. So question number 1, so global Ojeda you are acquiring this time, What is the breakdown of the attributes of the personnel?
You have 20,000 people with revenue of JPY 100,000,000,000, lots of people, perhaps more so overseas. And you have the company has 400 clients, which is rather small. So what are the attributes, characteristics of the clients that they have, if I may ask that? That's question number 1. Well, thank you for the question.
To answer your question, personnel, yes, GlobalLogic has 20,000 employees. And the detailed distribution or positions that they occupy, they are not disclosed. But India and East Europe, these are the 2 areas with largest concentrations of their personnel. So distributed agile development, that's what they engage in. In other words, they have quite a bit of offshore development, as you rightly suggested.
And who are these people? With what kind of skills you've asked? Senior engineers, they account for quite a large proportion. More than 50% of the personnel are senior engineers or high level engineers from what we understand. That's all.
What about the attributes of the customers, some kind of segmentation of customers, if they are in any way characteristic? [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] With respect to customers, we explained this somewhat in the presentation material in terms of the numbers. Page Slide 4. On Page 5, at the very bottom, there's a box: communication, financial, media, industry, automotive. So they cover quite a broad range of industries.
And where they have large customers are communications, automotive, health care. So in these sectors, GlobalLogic has larger clients. On the other hand, the background as to why we're acquiring this company, and that's because of their competitiveness and chip to cloud skills that they have. So these strengths are not, of course, restricted in these sectors alone. I think they have enough technology to be utilized for IoT.
My second question. You talked about the points you considered. Synergies was the second reason as to why you decided on this acquisition. With this acquisition, your IT sector, Olumada Business, how will its growth and profitability change as a result of this acquisition? I have been having difficulty envisioning how it will change.
So what's the time line as well? So according to your explanation, ship to cloud, that was the technology that you wanted to have and supplement yourself. Was that the larger reason? Or did you want to capture resources from overseas? Well, you've been talking about Lumada's personnel being expanded to 10,000.
So what specific capabilities are you trying to supplement with this acquisition? So for the future expansion of Lumada, what is it that Lumada is still lacking in? Thank you for your question. With this acquisition, which areas do you think do we think we can strengthen? And what could be the speed of synergies created?
And as you rightly pointed out in your questions, in order to globally expand Lumada, we will be able to acquire capabilities for that right away with this acquisition. So compared to the conventional IT sector, how is it going to be different? Perhaps I need to add my comments on that. And as I said in my presentation, Japan's IT sector has strengthened mission critical systems. And oftentimes, the projects are commissioned by customers for development.
That's been the mainstream here in Japan. But as I said earlier, corporate management issues are becoming more complex, social issues as well. In order to solve them, through cocreation activities with clients. So we have to identify issues, and that issues those issues will have to be tackled with software and technology. And the solution approach should be agile.
You have to take an agile approach in solving these issues. And that is exactly the kind of capability that GlobalLogic has. With their capability, the coverage of IT sector in terms of geography and business areas, we will be able to expand with this acquisition. And it's not just the IT sector. At GlobalLogic, IT sector business has been transformed, and other sectors will be able to leverage that.
And of course, that will naturally lead to the strengthening of Lumada. So on a global basis, we can co create and agile software development. These capabilities are critical are critical skills taken by OT and IT, 4th. So connection between OT and IT, that will be realized with GlobalLogic. And in terms of synergies, 2 to 3 years from now, we would like to have tangible synergies.
So that's our plan at this moment. Thank you. Thank you for the answers.
Thank you very much. Next, we'll Now I forgot to put off my raise hand, but please move to the next questioner. Then the next question. We would like to receive questions from the English channel. If you have any questions, please Please unmute yourself.
Good evening, gentlemen, and thank you very much for your time. This is Simon Songovol from Marathon Asset Management. I've got 2 related questions. I think looking at the slideshow, the slide deck that GlobalLogic has no presence or no footprint in Japan. So question 1 is, who is doing this in Japan at the moment?
And if no one's doing it, what potential business do you see in Japan as you roll out GlobalLogic on top of Lumada? The second slightly related question is, is there any risk to existing clients at GlobalLogic by Hitachi buying GlobalLogic, I. E, is there any conflict of clients with Hitachi and clients of GlobalLogic? Thank you very much.
Thank you for your question. As for your first question, the footprint in Japan of GlobalLogic, yes, as you have mentioned, they don't have any footprint in Japan. In other words, for global logic, that is a part which they can grow by working together with Hitachi. That was one of their motivations. So going forward, GlobalLogic and Hitachi together in the digital domain, it's possible to expand in this area of digital.
So that is an important factor of the growth story of GlobalLogic. Now in Japan, who is doing that area in Japan? In Hitachi, just like GlobalLogic, have co creation with customers and develop application. We have a team doing that work in Hitachi. We have that people, so centered on the core IT sector systems, business scale or some advanced areas expansion is possible.
But as I mentioned in the previous questions, the chip side of chip to cloud, software capability of a chip side is something that the GlobalLogic has, which we still don't have at Hitachi. So we want to make use of that capability to expand the business in the Japanese market. Your second question about conflicts. By Hitachi acquiring GlobalLogic, Hitachi's business and customers doing the same business as Hitachi is doing. We have already screened that possibility.
And as was explained by Mr. Higashihara, in the automotive area, in some customers in automotive area, there could be some influence, but the amount is not very large. And the addition, more than 90% is a repeat ratio. So they are very deeply penetrated among their customers. So there's not such a big possibility of influencing the business.
But as I have mentioned, if such an issue surfaces, if it happens, the scale will not be that large. That's all. Thank you.
Thank you very much.
Now it's past the time to close the meeting, but there seems to be some questions raised on the Japanese channel. Well, thank you. Question. And this may overlap with what was asked earlier. I have 3 questions.
My first question is, GlobalLogic is a leading company in digital engineering service. What is the numeric rationale? What is the number of clients in terms of share? What are the data that would justify you saying that it's a leading company? And with this acquisition, Lumada's overseas revenue ratio, how will that change?
What's your forecast in FY 'twenty one, if you have any? And my last question, Lumada's sales target in FY 'twenty one is 1,600,000,000,000. Your current forecast stands at 1,400,000,000, so 0.2,000,000,000,000. And with GlobalLogics acquisition, you will be able to add another 100,000,000,000, but what is your likelihood of attaining the target synergies will come in fiscal 'twenty two and onward? But what's your take?
So in the IT sector, I think your profitability is over 10%. And what's going to be the impact on that? Do you think that you will be able to grow the IT sector even more? Or will it dip? So what's your take?
To address your first question, GlobalLogic being a market leader, are there any indicators addressing to that? Well, our market ranking does not exist. It would be convenient if we had one, but there's none. So there are 2 things that I'm aware of. The first one is the growth.
In order to continue growing, you have to continue offering value to clients. You need skills and the capabilities to continue doing so. And the company has been realizing growth at a rate of 20% or more. And EBITDA margin is above 20% as well. So the value that they offer to clients are is being recognized by their clients.
So the growth rate, EBITDA margin, looking at these numbers, you can see that they're performing at the top level of the market. So that's the understanding that we have formed looking at these numbers. And your second question. So how will this acquisition impact Lumada's overseas business? As you rightly pointed out, organically, Global Logics business will be added on, so FY 'twenty one sales in terms of that.
And I think there's a partial description in the press release. And we think that it will exceed JPY 1,000,000,000. And so that will be added to Lumada's overseas revenue. And your third question, how will Lumada's sale evolve? And how will this contribute to the profitability of our IT sector business?
And I think this is related to your second question. Naturally, centering around GlobalLogic, organically as well, we will be able to drive Lumada's business, which will be added on. And we would like to make synergies with the IT sector tangible. And with all of that, I think we can achieve JPY 1,600,000,000,000. And operating income, of course, there's the cost of amortization.
But once that amortization is dealt with, we believe that this business will boost our profitability quite substantially. Thank you. Question, in relation to the second point. IT sector, 50% overseas ratio. What about Lumada?
Is it over 50 percent? And do you have an idea as to what the numbers will be with the GlobalLogic acquisition? This is Kamara speaking. Let me answer your question. As was mentioned, Lumada has a sales target revenue target of 1 point 6,000,000,000,000 this year.
Without regard to time line, 70% is to come from domestic market, 30% from overseas. So out of 1.6 $1,000,000,000,000,000,000 will come from Japan. The rest will come from overseas. That's the breakdown. And question, with the acquisition, you will be able to grow overseas success ratio expansion?
Yes, we believe so. And I think the split or the breakdown will be reversed at some point in the future, overseas becoming greater than domestic.
Analysis and investors included, do you have any questions from our Japanese channel? I have a question for Mr. Shirashihara. The strength of global logic advantages were introduced, but the amount of acquisition is quite large. And in making that decision, what was the major point that you're able to make a decision of making this acquisition at JPY 1,000,000,000,000?
What was the major point in making your decision? This is Shigashi Hada speaking. For example, if you imagine the future in 2025, what will be the cyber physical system? And what will be lacking in our case? And what are the companies that would best fit under such situation?
The amount is large, but with the development of digitalization, cyber physical cloud, edge and device will be connected on real time basis. This will increase more and more. And the decision making at the management will be connected directly to the front on real time basis, and this is a major strength. So global logic well, among many companies, we make the decisions that global logic is the most appropriate. And number 2, for example, there are companies specialized on financial industry or companies specialize on the industrial sector, but also health care, automotive industry, telecommunications, there are many sectors.
They have experience and know how in a well balanced manner among these different sectors. That was the second reason why we made that decision. Thank you. The next question. So from your perspective, Mr.
Higashihara, do you have impression that this was a good purchase, this was cheap? Or do you think it was expensive? As a corporate value, this was evaluated by many people and the $9,500,000,000 enterprise value, I think, is appropriate. But in general terms, EBITDA ratio in the industry, 30 to 40 multiple EBITDA, I think, is appropriate level in this industry. And going forward, what are we going to do?
On a regular basis, the growth rate will be monitored or within Hitachi synergy within Hitachi should be identified. Is it growing as expected or is it growing faster than we had planned? Then I'm sure that this acquisition of 1,000,000,000,000 yen will be successful. My last question. You often talk about becoming a global leader.
So what are you targeting through this acquisition?
$1,100,000,000,000 is the size of
the digital market. So are you aiming to become number 1 in this market? What do you mean by saying a global leader? What is your image of your future as a leader? My view of a global leader is that in terms of share to be the top share company, that is a global leader or in a niche market be number 1 in terms of technology.
This is as a global leader. But what I mean is that to be able to win global competition in the market to become a top after winning the competition then to be able to communicate about the future vision. That is a global leader. For example, in the next 5 years, the so called mission critical sectors, cyber physical system, mission critical, will become very important. So to send this message globally and to think that if you go to Hitachi Cloud Edge, Chip can be connected and be controlled on real time basis and the service is available to be looked at from that perspective.
I think that is the role of a global leader. That is all.
There seems to be several more people who are raising their hand, but we have passed the time to close the meeting. So this will be the last person. So the last person, please unmute yourself, start your questions. Can you hear me? Yes, we can.
Go ahead. I have just one single question to ask. Question and this is a question for Mr. Higashihara from a different viewpoint. Well, today, you made an announcement about your acquisition of GlobalLogic.
And on the same day, Mr. Shiozuka, who's been leading the Edge business, is retiring. Perhaps there may be a coincidence, but these 2 events are taking place on the same day. And what's your feeling? What's your impression, if I may ask?
Tokunaga san will be the new EVP from tomorrow. Shiozuka will continue as an adviser to me. He will continue to work with me. So tokunaga Shiozuka, that line will continue. So starting from April 1, it's not that he's going to depart from the business.
Well, we had a BOD meeting today. On March 31 April 1. Because of the timing of BOD, these events coincided. But under the leadership of Tokunaga san, global logic will be promoted, but not that we wanted to send any other message. He's in the lead in this business.
And with him as the leader, we're working on PMI synergies. But this is unrelated to the personnel reshuffling that took place on 31st March or April 1. Thank
you. So this concludes our presentation on the acquisition of GlobalLogic. Thank you very much for your attendance.