The time has come to start. Hitachi Limited web conference on the Q3 fiscal year 2020 earnings for institutional investors and Thank you very much for participating in this web conference despite your busy schedules. The materials for this meeting will be available on the Hitachi's IR site as well as the news release site for your information. Let me now introduce the speakers for today. Yoshihiko and Executive Officer, CFO Tomomi Kato, General Manager of the Financial Strategy Division Masao Yoshikawa, Executive General Manager of the Investor Relations Division.
The outline of the financial results will be seen by Mr. Kamana. We will switch over the screen for the presentation. Mr. Karma, please.
Thank you very much for attending this web conference despite your busy schedules. At the outset, I would like to say that in the Q3, impact of COVID-nineteen was very strong, but we are appreciative possible. Now I would like to report to you on the Q3 results for fiscal year 2020. Before going into the numbers, let me give you basic outline. The impact of COVID-nineteen was a significant issue in fiscal 2020.
This was a factor that we never experienced before. But having concluded the Q3, it seems that we have been able to generate profits according to plan. In fact, we have had some upside as well. In terms of cash flow, we were somewhat concerned. There was a concern regarding liquidity as well.
But we have been able to overcome these concerns, and we have been proceeding according to plan. Having entered this fiscal year, the environment value, the importance thereof has come to the fore as important management issue. This will be elaborated upon later. We are going to position the enhancement of environmental value as a major management challenge going forward. Thirdly, in terms of the PO profits, it has declined because of factors that I have talked about.
Bantou cash flow remained very strong in various aspects. In terms of the profit and loss statement. I think I can give you further details on these matters later. Please refer to Page 3. These are the key messages for the Q3.
There are 4 points to be made. First is that we have captured DX demand. As a result, IT segment has driven the profitability of the company. For the 3rd quarter, the record high adjusted operating income ratio of 13.5% was achieved. 2nd, with respect to the China business, this will be elaborated later.
We have seen more than faster expected recovery in China. Elevator business as well as Automotive business we're able to experience a market recovery, expanding our business in China. 3rd is relating to environmental values. Hitachi Ostomo has been established from January of this year and focus on EV related business. In terms in replacing the internal combustion engine, we are focused on electrification.
ABB, a power grid, has also been incorporated and this is proceeding very well as well. And 2,900,000,000 third quarter orders was achieved and order backlog was $12,000,000,000 So it has been proceeding very well. 1,000,000,000,000 of revenues is expected for the whole year. So US2.9 billion dollars for the 3rd quarter orders is well within the plan. Cash flows remained very strong.
With free cash flow basis, JPY 550,000,000,000 cash flow from operating activities have been secured. That's an increase of JPY 50,000,000,000 from the previous forecast. Therefore, cash flows remained very strong. Now let me go into specific numbers referring to the next page. In terms of revenues as well as adjusted operating income are shown here.
Left hand bar graph should be referred to. This is showing the revenues and the curve is showing the adjusted operating income for the Q1 to Q3 numbers are presented here. The light gray is for fiscal year 2019, and the dark gray is fiscal year 2020 revenues. In the Q2 and Q3, you can see that revenues increased in the Q3. But we have been able to manage the COVID-nineteen impact to achieve these ratios.
Now the red curve shows the adjusted operating income. It is lower than last year, but it has been proceeding at 3.7%, going up to 5.7% and 6.1%. Right hand side shows the IT segment and Smart Life segment. IT segment remained very strong, driving the performance of the company. The red curve shows the 3rd quarter ratio to the 13.5%, the highest record.
Smart Life segment has been recovering as well. I will give you more details regarding home appliances as well as automotive. Profitability has recovered to the level of 6.7%. Page 5, please. This page explains the Lumada business.
This has been the core business focus for us. Major topics is shown here in the first line. We have been able to establish our alliance program in partnership with the big teams such as Amazon, Cisco, Google, KDDI, Microsoft, Salesforce, etcetera. So we have been able to establish our alliance. This is our open alliance to be involved in R and D as well as developing new applications.
We will deploy and sell the Lumanda solutions together with these alliance partners. By so doing, we believe that Lumanda business can be further accelerated. Please refer to the bar graph below. The left hand side is comparing the Q1 to Q3 last year and this year, the right hand side is for the full year. The red is showing the Lumada core business IT use case are included here.
The gray area is important focus for us going forward, which is the Lumada related business or the applications to be provided in the power grade automobiles as well as railway solutions. This is what we refer to as the Lumada related business shown in gray. And if you look at the fiscal year 2020 forecast core business, 6 60,000,000,000 related business JPY 440,000,000,000 will be the forecast. Total will be JPY 1,100,000,000,000 in terms of the fiscal year 2020 forecast. The gray, the related business looks slowing down, but because it is in the real sector, it has been impacted by COVID-nineteen.
But we believe that it will revert back to growth going forward. The applications are shown on the right hand side. In terms of mobility, IoT platform for the high value added buildings in industry Hitachi transport system or total support for safe driving management will be provided Energy, Hitachi EVP, Power Grid and Solutions will be promoted, utilizing the worldwide network application solutions have been developed in this area. Please refer to Page 6. More detailed topics are outlined here for the Q3.
In January of this year, Hitachi Automotive System and the 3 Honda companies, Keihin Showa, Nishin, Gyo have been integrated, and the name of the company is called Hitachi Asdemo. EV and environmentally friendly vehicles will be a major focus and technologies such as electrification, autonomous driving and connected cars will be promoted. The second is the Home Appliance Business Overseas With the Turkish company called Accelec and Hitachi's Home Appliance business have been integrated, a new joint venture will be established. Atelik will have 60%, and we will have 40%. Atelik is belonging to the Koch Group and pursuing home appliance business in China as well as Asia and Africa.
They have extensive sales network. On top of their network, we will be promoting our products. So by doing win win relationship can be established. Next, expanding the environmental related business, as I mentioned at the outset. This is the most important focus for us going forward.
The ABB power grid has been very successful in terms of environment related business, receiving many orders and high voltage HVTC business has been established. We have talked about Norway, but another business has been concluded in the 3rd quarter. Ever Short Rail is a railway lease company in the UK. To this company, we have developed intercity battery hybrid train business. Agreement has been achieved.
Therefore, we have been able to promote significant business in the environment related field. Next is social value. This is also a very important area of focus for us going forward. Against the backdrop of COVID-nineteen, non contact and remote is becoming more important here. We can have contactless registration for the elevators and various types of solutions for clean operation can be provided as well.
DocuDome will start its season now and human flow visualization can be enabled, aiming to prevent infections. Therefore, we can provide increasing number of solutions to enhance social value. Next, moving on to the results, Page 8. Left hand side is showing the Q3 results as well as the Q1 to Q3 results on this page. Revenues as well as operating income, adjusted basis is shown here.
The dark gray is showing the revenues and light gray is showing the adjusted operating income. Please refer to the left hand side when we compare the previous year and this year for Q3. In terms of revenues, we have been able to record an increase from 2,100,000,000,000 yen to 2,200,000,000,000 yen. Adjusted operating income declined. Looking at Q1 to Q3 results.
Q1 to Q3, light gray is showing the adjusted operating income, JPY 316,900,000,000. Last year, it was JPY 445,600,000,000. So it means that we have covered up to the 70% of the previous year already. Please look at the cash items on the right hand side. The third is from the top is EBIT, 503,500,000,000 yen On a year on year basis, increase of 448,500,000,000 yen Our cash flow has been very strong as a result of this.
EBITDA Q1 to Q3, 855 point 2 4,000,000,000 year on year basis, plus JPY 482,300,000,000 Cash flow from operating activities, JPY 426,400,000,000 increase in terms of year end invasives. Cash flow has been very strong in this quarter. Please refer to Page 9. This page shows the results by the breakdown of 5 sectors and listed subsidiaries. Looking at the 5 sectors on the left hand side, in terms of revenues, JPY 4,878,000,000,000,000 has been recorded.
Right hand side is a listed series, Hitachi Construction Machinery and Hitachi Metals JPY 1,100,000,000,000. Contrast is very clear here. Looking at a Y on Y basis, 5 sectors was 108% year on year. For the listed subsidiaries, remained at 60% year on year basis. A similar trend is shown for the adjusted operating income for the 5 sectors, 308,000,000,000, listed subsidiaries, 8,900,000,000.
On a year on year basis, similar numbers are shown here. Looking at the adjusted operating income ratio, 5 sectors at 6.3 percent and leases, subsidiaries, 0.8%. So the numbers are reflected accordingly. Looking at the EBIT ratio, 10.8% and minus 2.2%. So between the 5 sectors and listed subsidiaries, there is a significant difference in terms of the performance.
For the listed subsidiaries, they are mainly focused on the Upstream business. Therefore, impact has been very strong. So this is inevitable, but this is the current state. Page 9 or rather Page 10. Page 10.
This page shows the factors affecting changes in revenues and adjusted operating income from the Q1, Q3 of last year to Q1, Q3 of this fiscal year. Looking at the revenues above, left hand side, started off with the JPY 6,384,000,000,000. There have been various factors during the year. First of all, divestiture of Hitachi Chemical was just negative. The power grid has increased by JPY707,000,000,000.
There was foreign exchange adjustments and others include Hitachi Metals as well as Construction, Mitsun and High-tech losses have been resolved here. As a result, we ended at JPY 5,979,000,000,000. Looking at the adjusted operating income below, a similar trend can be seen here. JPY 445.6 1,000,000,000 ended at JPY 316,900,000,000. Please look at Page 11.
Looking at the financial position and the cash flows. What is noteworthy here is the balance sheet above. The gray column shows the BS situation as of December 31, 2020. Total assets total should be referred to. We have been able to exceed the 10,000,000,000,000 once again it was 10,041,400,000,000.
Because of the ABB included, that has led the increase in total assets. We also have the interest bearing debt, it has increased to 2,600,000,000,000. The increased number is shown on the right hand side, the 1,115,300,000,000,000. This is because of the acquisition of ABB. We debt has been incurred.
DE ratio should be referred to below. We had a very strong DE ratio of 0.35 times. However, because of increase in debt in terms of financing, it has increased to 0.71 times, deteriorated. But in the near future, we should be able to control at 0.5 times. So this is only a one off impact.
Please look at the cash flow. Next, The cash flows from operating activities of RMB 426,400,000,000 and there were major acquisition ABB. Therefore, our cash flows from investing activities was very significant. Free cash flow, minus JPY 339,600,000,000. But our core free cash flows, that is net of M and A, was JPY 181,700,000 and increase of JPY 174,200,000,000 change from the March 31, 2020.
So this remains very strong.
Next, Page 13, please. So from here, I will explain the full year forecast. Page 13, left side is revenues and right side is adjusted operating income. Revenues, this is FY 'nineteen and FY 'twenty forecast. FY 'twenty forecast, JPY 8,300,000,000,000.
This is a revenue decline and adjusted operating income is also a decline. But on the far right, you can see yen 4.20 billion. Last time, we announced yen 400,000,000,000, so it is
up by yen
20,000,000,000, 5.1 percent adjusted operating income ratio and this is JPY 20,000,000,000 up from the previous forecast. On the far right, you can see from the tip second from the top, EBIT JPY 680,000,000,000 on a year on year basis, plus 496,300,000,000 and compared to the previous forecast, it's up by JPY 94,000,000,000 and net income JPY 370 1,000,000,000 This is the record high number this year. This is plus 70,000,000,000 yen compared to the previous forecast, plus JPY 282,000,000,000 on a year on year basis. EBITDA, JPY 1,174,000,000,000, this is plus $121,000,000,000 and cash flow from operating activity, yen 550,000,000,000 This is up yen 50,000,000,000 yen from the previous forecast. So you can see that our cash flow is very strong.
Next, Page 14, please. So like I did in Q3, 5 secondtors and listed subsidiaries are separated and the trend is similar to the Q3. 5 sectors, revenues, yen 6,780,000,000,000 yen listed subsidiaries, yen1520,000,000,000 on a year on year basis, 107% for 5 sectors, 62% for listed subsidiaries and on the right side, total JPY 8,300,000,000,000. On a year on year basis, this is 95%. Next, adjusted operating income.
Far right, total is yen 420,000,000,000 yen as I mentioned earlier And EBIT, yen680,000,000,000 and net income is yen 370,000,000,000 yen So this is our current forecast. Next, Page 15, please. So Hitachi ASTEMO was integrated in and came into operation in January this year. Hitachi ASTEMO numbers is announced for the first time today. Far left is the previous forecast.
This is Hitachi AMS. This is Hitachi stand alone basis. And in the center, this is the number, the adjusted number with 3 Honda companies. And on the far right, we have acquisition related amortization, and the far right is total. So revenues.
Hitachi AMS for 1 year was JPY 749,000,000,000 budget. And then the integration impact and the forecast this time, this is 974,000,000,000, close to 1,000,000,000,000 yen and adjusted operating income in Hitachi AIMS, it was 22,000,000,000 yen and on the far right, this minus 7,000,000,000 yen this is the acquisition related amortization of intangibles for the 1st year, JPY 7,000,000,000. So with that, total is JPY 25,000,000,000. Now EBIT in AMS was 9,000,000,000 yen And this time, with the adjustment items and the adjustment amortization, it's minus 17,000,000,000. And EBITDA AMS 8.1 percent EBITDA ratio.
This time, it will go down to 5.3%. This is because of the impairment on AMS, mainly in the impairment regarding factories and plants. And so it is down to 5.3%. But without the impairment, next year, we expect more than 8%, close to 10% next year. Next, Page 16, please.
So like I did in Q3, this is a similar trend, FY 'nineteen, full revenue, full year revenue and the FY 'twenty forecast on the far right, JPY 8,300,000,000,000 And the adjustment items are the same. The divestiture of Hitachi Chemical, that's a decline and Hitachi Power Grid is a plus and then ASTIMO integration impact plus and foreign exchange adjustment and others leading to the far right, JPY 8,300,000,000,000 Adjusted operating income, so similar trend, JPY 420,000,000,000. Page 17, please. So this fiscal year 'twenty, we had large asset divestiture and consolidation. So from the adjusted operating income to net income, you can see what came in and what went out.
So the large ones, the far left, adjusted operating income, RMB420,000,000,000. Next, so the business restructuring profit, and this is where Hitachi Chemical Divestiture and Diagnostic Imaging, MRI and other medical diagnostic imaging business was transferred to Fujifilm. So that's a profit. And part of Agility Train East in UK, the business is mostly over, so we sold part of our socks. So that's a plus KRW435 billion.
On the other hand, next is a one off the equity method loss and the impairment. And so if you go all the way, net income is JPY 370,000,000,000. And you can see the appendix. We can touch on this during Q and A. At the end, Page 28, please.
This shows the market status, revenues by market on a clockwise manner, North America, Europe, China, Japan, ASEAN, India and other areas. The recovery of the world economy and ABB consolidation is reflected. So upper left, North America. The fiscal year 2019, 1st quarter to Q3 and this year is compared, down 8%. North America had a big COVID-nineteen impact and the recovery is slow.
So our revenue is down accordingly. Next, Europe is +5%. ABV consolidation impact was big, so this led to an improvement. China is +8%. As I mentioned at the outset, China market economy is recovering.
So elevator and automotive related business are leading this improvement and increase. Japan is minus 11%. We are still in a difficult situation. Next, ASEAN, India is also difficult. On the other hand, in other areas, this is Middle East, Africa and others, this is where our footprint had traditionally been weak or small.
But with the ABB, we now have a +19%. You can see that we are growing very strongly. As a result, as you see at the bottom of the page, overseas revenue ratio is up to 53% now. So that concludes my explanation. Thank you very much.
We would now like to proceed to Q and A. Those of you with questions, please use the web system and press the raise hand button. First, we will take questions from the people on the Japanese line. Yoshizumi san, please. Please unmute and ask your question.
A question? I hope you can hear me. Yes, we can. Thank you for your explanation. I have 3 questions.
Your first two questions is relating to Automotive Business Integration. So I'd like to ask these two questions together. First question is regarding the impact on consolidated results. Page 15 shows the numbers. But so the revenues of JPY 185,000,000,000, it seems very strong taking into consideration the last year's results.
With the integration, have you received more orders? Or what are the assumptions in terms of increase in the revenues? PPA is around JPY 25,000,000,000. I think that was the explanation given, but now it's JPY 7,000,000,000. Is this correct?
And from next fiscal year onward, what is going to be the PPA? For the Q3, OP margin, it seems that there is going to be a significant improvement. You also talked about impairment in the Q4. Taking that into consideration, OP margin is around 10%, according to my calculation. For the automotive business before or after integration, what is the actual level of margin in terms of the strength of the business?
With the Automotive business now consolidating, I think that is going to be added in 4th quarter. What is going to be the impact on the balance sheet? Please clarify. You have talked about the balance sheet, but with the 3 company integration, the asset as well as the ratio and liabilities, what is going to be the impact for the Q4? Please elaborate further.
The other question will be asked later. Regarding Hitachi Ossemo, Kato san will provide the detailed explanation. I would like to respond to the questions 1 by 1. First of all, Page 15. As you have rightly mentioned, the impact of integration is for the 3 companies, revenues and earnings are included.
However, it's not been long since we had the integration. This is as of January in terms of the forecast. So but it's not just a reflection of the past performance. It was a forecast made at that time. Now regarding intangibles, this is not a final number, but the number that is incorporated are as follows: goodwill, that's JPY 60,000,000,000 intangible JPY 70,000,000,000.
I think that is going to be the likely numbers. Although it is not final yet, if we look at the details, this is in fact the intangible 7,000,000,000 yen for the 4th quarter. For next fiscal year, JPY 5,000,000,000 is expected. We are now trying to work on numbers. And when we have clarity, it will be updated.
Now going back to the PEL for the Q3, it is true that for the Q3, it is rather bullish, and it has been very strong. In terms of revenues compared to previous year, it was at the level of 11%. Up till September or to the first half, the impact of COVID and impact of the market showed that we were below the previous year level. But there has been a recovery on the part of the customers. For the Q4, according to the calculation that you've made, it will be high profit margin.
But we believe there could be various improvements to be made. That is the background of this forecast. But the prolonged impact of COVID as well as a shortage in terms of semiconductor parts could have an impact on the customers' business or production. So we have to watch this situation very carefully as we proceed forward. Now the impact on the balance sheet
will be explained.
In terms of actual results, the numbers have been presented in the PowerPoint presentation. We are now trying to evaluate the numbers. So the numbers are rough. In terms of assets, total assets, inclusive of Hitachi Assema, KRW 11,300,000,000,000 is the total asset forecast. The ratio 0.6 times is what we expect.
That is all. Question, I would like to ask my third question. For next fiscal year, what is going to drive the increase in earnings? In the Q3, it seems that 5 sectors impact of COVID has been which sector will be driving growth from the point of view of which sector will be driving growth from the point of view of CFO? What are the areas where you are increasing market share, such as automotive system where margins are improving?
And what are the areas where you can expect further margin improvement next fiscal year and beyond? Regarding the plan for next year, we will be starting discussions internally shortly. So we are now in the discussions of numbers that are still rough. For fiscal year 2020, we have made significant acquisitions. The contribution to be made is going to be very important, ABB as well as Honda parts company.
In both cases, there are no significant issues, and profitability according to plan can be expected. For Power Grid in North America, environmental investment is likely to be increasing. And if we can capture this for Sate Asamo. In China, we are seeing recovery. There could be recovery in the automotive business in North America as well.
These two acquisitions could contribute significantly if all goes well. So secondly, IT is also an important focus. The investment behavior of the customers are changing. In the past, there was focus on hardware, but the control of the hardware is becoming more important. So there is increasing investment in terms of software and applications.
I think we can capture this business. So IT will be important focus. And IT will be an important focus for us going forward on the part of government as well. So I think we can have high expectations for IT. That's the second point.
3rd point is regarding new areas such as medical. We have now high-tech within the portfolio. Hardware is outside. But in terms of testing as well as analysis and data processing work can be promising. Environmental related business is expected to increase as well.
So in these three factors, the contribution by the 2 companies that we have acquired, IT related business is likely to grow and thirdly, environment as well as mobility and society related business is likely to increase. So for fiscal year 2021, it is difficult to say definitely, but I think we are likely to see a recovery. Thank you.
Thank you. We'll move on to the next question. Mr. Ide, please unmute and ask your question.
Mr. Ide, could you please unmute and ask your question?
Mr. Ide, I'm sorry, we cannot hear you. Could you please try unmuting again? I'm very sorry, we cannot hear you. So we will for a moment, we will move
to the next question.
Mr. Izawa? Yes. This is Izawa from Citigroup Securities. I have one question.
In the medium term plan, you mentioned capital allocation plan. You have a little over 1 year left in your medium term plan. So how do you plan to achieve this capital allocation? The situation probably changed greatly. So the cash generation and cash usage, The cash generation side, you're probably right on, on the strike zone.
But on the cash usage side, strategic investment, do you have plan of using the cash as planned in the next 1 year and the shareholder return and CapEx in shareholder return, I think you have to increase shareholder return going forward. So in the next 1 year or so, how do you plan to increase or do you have a plan of increasing the shareholder return? Thank you for your question. So first point on capital allocation. In the 2021 medium term plan, we have allocation of JPY 2,500,000,000,000.
ABB Power Grid and Hy Tech were consolidated. So of the JPY 2,500,000,000,000, we are now up to JPY 1,800,000,000,000. This much has been allocated already. So we based on 2,500,000,000,000 yen we still have a few JPY 100,000,000,000 and this plan remains unchanged. We are exploring various consolidation opportunities.
And therefore, if we have good opportunities, we will aggressively invest. And in the background, as you mentioned earlier, because we have strong operating cash flow, So we do not have to borrow money to do something. We have strong operating cash flow and asset divestiture has progressed much. So this remaining portion of the 2,500,000,000,000 yen can be invested without impairing our balance sheet And the information related business, we are now exploring opportunities. So if there are good economically reasonable deals, then we will go ahead.
Next, shareholder return. This is deeply related to the first half of the cash allocation. So if we invest, how much can be allocated to the shareholder return? This is part of the overall balance. And so we cannot say we will do this for sure, but dividend and buyback, share buyback, we will look at the overall capital allocation and take appropriate steps.
Shareholder return is within our site. It's with part of our plan. So we will look at the overall cash allocation balance and decide accordingly. Thank you. Thank you very much.
Question. Thank you very much for your support. I hope you can hear me. Yes. I have three questions.
First question is in the now it seems that energy beer and it seems that nuclear and energy year, you have revised downward. What is the background of this? And regarding energy, ABB Power Grid has been consolidated and environment related orders are being received. Please give me further details on this. In Europe as well as in Asia, I think that is the major focus in terms of regions.
What is the regional mix? And what is the competitive landscape, such as competition with Siemens? In terms of competitiveness, how do you compare against your peers? That's all for the first question. Regarding energy, please refer to Page 20.
Now in the middle, we have adjusted operating income for energy business. Left hand side, you can see the accumulated Q1 to Q3 and the right hand side is for the fiscal year 2020. The dark gray is the power grid consolidation. Nuclear is the light gray. It says 146,000,000,000 or 14.6,000,000,000.
There is a significant negative minus 71,800,000,000 yen. This is the adjusted item because of the HAPG in terms of PPA. And these are numbers according to the plan. Regarding the Nuclear Energy business, there are reactors that are operating. We have maintenance work for these reactors.
Therefore, we believe that this profit can be achieved. In terms of power grid, we do not see any problems going forward. So it is likely that we can achieve the target, but the PPA is very significant. And that is the reason why we are at minus 14. Kato san will give further details.
And regarding Page 20, Now you can see that operating income has declined. I think that was your question. It is regarding NBU. And there are some decline in profitability for some projects, which is one off. And power grid, I would like to respond to that question regarding power grid and environment related investment.
After acquisition, for the smart grid related, there is a transformer in Norway has been achieved and e mobility, bus and commercial vehicles. The charging system has started using EV. The storage solutions have been provided, and this is in Europe as well as in the U. S. Page 6.
I mentioned here that for the first time, high voltage DC system to connect Germany and Norway has been achieved. This is 1st in the world in terms of international interconnection. And for 3,600,000 households in Germany, the power supply can be provided in efficient manner. Therefore, we will be contributing to carbon neutral. And on 28th January, the PJ and Romada will be integrated.
So ABB Digital Enterprise, the asset management as well as management of the frontline or JPY 4,000,000,000,000 to asset management will be utilizing Lumada for optimization and management. IBM, GE, Schneider were competing with us. In terms of the market, Enterprise Asset Management and Field Service Management as well as Asset Performance Management are the different approaches we are taking. So several 1,000,000,000 of dollars is how we are evaluating this to be a global growth area. Are global number 1, so by utilizing digital with other digital technologies and our focus on environment is proving to be very successful.
Question number 2? From April, Mr. Kamura, CFO, is also in charge of investment as well as loans. Now in terms of cash allocation, you will be overseeing the overall area. M and A as well as shareholder return, the right balance is very important.
When you conduct M and A, what is going to be your important focus? Is it a great possibility as well as poor profitability? What is the criteria for making decisions in M and A? What will you emphasize in your decision making? Please elaborate.
From April, as announced, I'm going to be in charge of investment as well as loans as well. So screening will be in my will be within my responsibility as well. I will be heading the committee and recommendations for M and A will be presented to the management committee. In the past, profitability and future growth potential was the major focus. And it isn't as if I have details now, but I think the capital efficiency must be emphasized looking at the sectors accordingly and making sure that the investment is providing returns above the investment cost.
It is not just in terms of sales potential, but we have to also look at capital efficiency as well. In terms of environment, which is a major focus for us now, growth and profitability were the 2 axis that were important. But now going forward, environment will be the 3rd axis we will incorporate in making investment decisions. The specific metric will be decided going forward, but ultimately, the impact on the environment, environment coefficient will have to be utilized in assessing investment. So it's capital efficiency as well as environmental and value will be an important point to bear in mind.
3rd question is related to the previous one. Hitachi Asdemo, the automotive parts business, what is going to be the positioning of this business going forward? Electrification investment could become very heavy in terms of investment, but nevertheless, is it going to be the core business for you? Or is it going to be similar to leases of Siri? Is there a possibility that you will divest going forward?
What is your basic view on this? Regarding Hitachi Asamo, it involves Honda's capital as well. So fixed cost reduction will be required because it is integration for entities. In making this decision, how will the discussion be made between Hitachi and Honda? Are you going to be taking the lead?
How is governance arranged in this entity? Regarding Hitachi Asamo, the integration occurred in January. And therefore, the future plans will be a discussion that needs to be had going forward. Hitachi Ostomo belonged to Smart Life sector in the past, but size is very large. And it is a joint venture with Honda.
Therefore, we decided to separate this and to have the business report directly to the present. We will have better transparency. And Hitachi Asamo is now outside of Smart Life, so there will be more clarity. Regarding the future, we have to engage in discussions going forward. But direction is clear.
So we might maintain the structure or there could be IPO, there could be further alliances. The direction ultimately will be decided in 1 year or 2 years down the road, taking into consideration the business environment. Regarding the governance from January, I am external director from January for Hitachi Yassumo. I have been participating in the we can have a it seems that we can have a good arrangement, good relationship in terms of governance working with Honda. So I don't think there will be any divergence in terms of governance matters going forward.
So we will contain the current organization going forward. Thank you. Thank you.
Yoshikawa on AMS. So Hitachi's role on ASTIMO and the value thereof. On January 18, in the strategy meeting, we had 3 announcements, 3 points. So cloud total system will be offered through Lumada, that's number 1. 2nd, service business enhancement and third is the environmental measures.
Like PG, power grid, CO2 reduction is the aim. So EV, electric value driving management, vehicle management, life cycle management will be done in the way Hitachi only Hitachi can do going forward. And R and D investment, you must need investments, so let me add some information. On 18th January till 2025, we said we will invest JPY 100,000,000,000. Dentsil and Continental investment to sales ratio, it seems low, but ASTIMO is very focused.
A very intensive strategic investment will be conducted. So the vehicle side, ASTIMO cloud side, Hitachi. For example, we will divide roles and responsibilities. And for ASTIMO focus area, we will enhance our competitiveness. So next question, we will take questions from
the English channel. Please wait, those of you
who are raising hand on the Japanese channel.
Okay. We do not see any questions on the English channel, so we'll come back to the Japanese channels. Mr. Yasui, please. Please unmute
and ask your question, please.
Question, can you hear me? Yes.
I have three questions. First is Smart Life. There are 2 questions here. So after the automotive is out, it will be a smaller segment. So Hitachi High-tech, semiconductor production equipment, the positioning of that Hitachi after Hitachi Kokusai, you spun off the SDE portion.
So will you see this SDE as a core business? And next is the medical diagnostic equipment. The completion is delayed, you mentioned, in May. So if you could update on the current situation. So that is on the life side question, Smart Life.
And second question, So 2021 calendar year 2021, the U. S. And Europe market is has more visibility. Last year, it lacked visibility due to COVID-nineteen. So in 2021, railway market, elevator market and power grid, these 3 markets, international markets, how will they evolve?
Could you give us your image? And third point, the environmental value that you mentioned in your release. So the electric vehicle focused on EV and software and power grid and railway. So environmental friendly hardware is now in place, I think. So if you could once again, including the next medium term management plan, please share with us your trend.
Do you think you can capture life sector, Hitachi High-tech Semiconductor Business. Yes, in the Hitachi Kokusai Electric, yes, we did take that action. But semiconductor, on the other hand, is the medical diagnostic medical analysis equipment. It's a very high correlation there. So our decision now is in Hitachi Hitachi Hitachi, the affinity it has high affinity with the business.
So we will hold this semiconductor business for now. We have no plan of spinning off in the short term. Next, the anti monopoly law was taken up by the media, possible delay. But by the end of this fiscal year, by the end of March, we think we can complete this transaction railway, as you see in this material, railway, as you see in this material, the main plant is in Europe. And as you saw in the numbers, Europe was heavily hit by COVID-nineteen.
And there's a big backlog. So once the factory comes into operation, it will be converted to cash. But because the capacity utilization is down, railway business is difficult this year. But once COVID-nineteen situation improves, then the factory utilization will improve. So this profit drop is just one off and this will recover, we think, and the railway department thinks so.
And furthermore, this was mainly centering on Europe. But now railway business, we're capturing business in the U. S. As well. As we mentioned last time, San Francisco Bay Area, Bartle and other deals in other regions in America, we are taking getting capturing deals.
So we think we can get more railway business in the U. S. Railway business can contribute greatly to the profit going forward as part of the global operation. Next, elevator. China market is very big.
It's growing very strongly. So the China economy recovers and the building construction resumes. We can get more business there. We think we are confident in this sector. In North America and Europe, there is no elevator business.
So it will be only the China and Japan. In Japan, given this circumstance, new elevator order is still small. So we are now focusing on maintenance service, and we're doing this remotely. In China, there are still new installations, but in Japan, it's mainly the service maintenance service. And lastly, grid.
We have global coverage, including China and North America and Latin America, we have global coverage. So this business, the environment will be a big theme going forward. With Grid, we can minimize the leakage. And furthermore, the optimal integration with green will start. So as you mentioned, it's not just U.
S. And Europe. We think this business will grow globally. So this global business, international business towards 2021 will progress greatly, we think. And lastly, environment.
Power Grid and ASEMO, we have individual deals underway. Hitachi wide cooperation, as mentioned today, Mr. Dormer will lead and strategize and decide on the investment and capture return. So in the future, at the right timing, we will announce again. So if you could give us a little more time, we'd appreciate it.
Thank you. So President Biden question, President Biden so the business opportunity from this new administration, the railway network improvement is a big need. And so high speed light rail in Texas and West Coast, you're getting business. And so you are encouraging and promoting the traditional business. In PG, our HVDC technology is used.
So the transmission lines modernization and the quality improvement, energy efficiency and utilization digital, So for that, it will be a tailwind for us. And lastly, the EV electric vehicle. So the infrastructure, including surrounding infrastructure, there's a power grid angle and the transformer angle. So vertical and horizontal horizontally, Hitachi can get on this new current, we think, take opportunity. Thank you.
And Kato san said, power grid, let me give you some orders and numbers in PG. So I mentioned the JPY 12,000,000,000, this is 5% growth year on year. Right now, we are trending very firmly, strongly. Thank you.
Thank you very much. We have already exceeded the allocated time. So this will be the next last question. Okan san, please. Question.
I have one question regarding ABD performance. In the Q2, profit margin is 6%, and third quarter, it has increased to 8%, net of cost. What is the background as well as sustainability? For related expenses, so there was a decline from JPY 36,000,000,000 to JPY 18,000,000,000. Is this JPY 18,000,000,000 unlikely to continue going forward?
That is all for me. Regarding power grid, PPA amortization, from the beginning of the year, we have been evaluating. And although it is not final yet, analysis has made progress, so we have reviewed this. For the full year, we estimated JPY 60,500,000,000 in terms of amortization, but it is likely to be JPY 55,900,000,000. So it is lower by JPY 6,000,000,000.
And the impact of the review has been reflected and profitability has improved in the 3rd quarter. But business remains very strong and making progress. Therefore, regarding the profit margin, we believe it is sustainable going forward. Thank you. Thank you very much.
With this, we would like to conclude