Regarding the materials to be used today, please go to the IR site or the news release site on our website of Hitachi Limited. I would now like to introduce the speakers to you. Yoshiko Okamura, Senior Vice President and Executive Officer, CFO Tomomi Kato, General Manager of the Financial Strategy Division Masao Yoshikawa, Executive General Manager of the Investor Relations Division. Regarding the outline of the results, explanation will be given by our CFO, Mr. Kamada.
We will be switching over the screen. Mr. Kamala, please. Thank you very much for the introduction. My name is Kamala.
Regarding the first half of the meeting, I would like to talk to you about the consolidated financial results. Please refer to Page 3 of the documents. These are the key messages of our results. Overall, IT segment led Hitachi's performance. On the other hand, in addition to the IT segment, mobility segment was very strong.
It is elevator and escalator Chinese business was very strong as well as Smart and Life segment of measurement and analysis system business, which was Hitachi High-tech Business, maintained high profitability in the Q2. For the profits, we have exceeded our plan. For the first half comparison, the 5 sectors for the 5 sectors, in terms of revenues, first half, growth of 5% was achieved. In terms of revenues, an increase of JPY 136,700,000. So you can see that a significant improvement has been made over our plan.
That's the first one to be emphasized. The second point is regarding Hitachi EBITDA of our grades which has been acquired and posted from July. This is making steady progress. In the second quarter, the orders received was $2,200,000,000 The ABDA Par Grid business on a full year basis is around 1,000,000,000 yen or 900,000,000,000 yen So $2,200,000,000 is 2 30,000,000,000 yen in Japan. So for 1 quarter, we have achieved the planned level.
Now in terms of the orders received, it is mainly environmental related business. We are making headway here. More specifically, I will mention details later, software, smart grid and e mobility are growing significantly. Centering on the environmental business, we are receiving significant orders. 3rd point is Lumada Solutions.
This is a strategic core business. We are making significant investments in this area. Core business is IT, a peripheral business. This is growing 9% year on year. For the related business is the applications of IT to various sectors.
With the impact of COVID-nineteen, there has been revenue decrease, but we will continue to make investments to grow this business going forward. Please refer to Page 4. Let me talk about the specific numbers. Left hand graph should be referred to. This is the numbers for the first half.
And the dark gray on the left is the revenues. Light gray is the adjusted operating income. Dark gray is 3,760,000,000,000 yen. In terms of adjusted operating income, it was 180,700,000,000 yen So that is the result for the first half inclusive of the second quarter. To the right, this is a breakdown of the 180,700,000,000 yen.
As you can see here, ID was 18,000,000,000 yen That's accounted for 60% of overall profit, then followed by Mobility, Smart Life and Industry. And minus 1,900,000,000 yen is the listed subsidiaries. Minus 7,000,000,000 yen is energy. This is because ABB Power Grid acquisition and there is a significant amortization. That is the reason why it is negative.
Now the 2 segments to the right should be referred to IT segment and Building Systems Business. Upper is the IT segment. Left hand graph is the 2nd quarter results and right hand side is for the first half. What is noteworthy here is that to the left, comparing against Mass Festival Air, referring to the graph, the operating profit margin has gone up to 13.5%. This is the highest level we have achieved is far to double or more than double of our peers.
If you look at the right hand side for the first half, the adjusted operating income ratio is 11.4%, prevailing at very high levels, now below the building system business. To the right, looking at the operating income ratio, last first half was 9.8%. This has improved to 11.7% 11.7% in the first half of this year. Please refer to Page 5. I would like to give you further information regarding ABB Power Grids business.
The orders received are shrinking. It is classified into 3 areas. The left hand side is becoming the growth engine. The second column is sharpening our winning portfolio. 3rd area is driving world class execution.
Now as for the growth engine, the second from the top in Norway, we have a fully digital ecofriendly substation order received. It is the optimized efficiency of reducing CO2 emissions in the substation. This is the environmental business. If you look at the optimization and the e mobility is the 3rd from the top. And we have a large scale EV charging station that has been completed.
Right hand side below is a synergy program. We have been conducting the discussions on synergy between sales and ABB Hitachi ABB Park Group, focusing on the environment. We are now striving to enhance environmental value, contributing to low carbon society by powering sustainable energy in future. Hub C is going to become a very strategic business for us. This will make significant contributions to the environmental business going forward.
Please refer to Page 6. This is specific information regarding the Lumada solutions referring to the graph first. Left hand side is for the first half comparing the fiscal year 2019 and this year. The right hand side is the focus for the full year comparing against last year. And revenues, JPY 1,100,000,000,000 that is increase of 6%.
Looking at the details thereof, FY 2020 outlook should be referred to. Red area is the core business of Lumada. IT peripheral business is included here. And applications to other sectors is represented by a grade related business, JPY 440,000,000,000 compared to the previous year, may look slow or slowing down, but this is because of the impact of COVID-nineteen. We expect significant increases going forward.
In considering the growth, the important highlights are shown here on this page, looking at the previously doing each of the specific projects. To the right is the IT segment. In this year's Gartner Masjoku Quadrant of Industrial IoT Platforms, Hitachi has been named the leader. We are in the upper right quadrant as a leader. There are 2 other companies in this category, but this is the highest evaluation globally.
We have many use cases and there is also flexibility on the front of the customer's side. And that is how we have been evaluated very highly. To the left ID below, we are now poised to fully unleash the combination of Lumada and 5 gs. Middle is touchless solutions, which is based on the Lumada platform. Right hand side, industry.
Alferesta is a company that has revenues of $2,000,000,000,000 The medical and medical device wholesaler company. They are working with us in co creation. Value chain has been established for the first time in the medical area, first time in Japan using Lumada. So on an individual basis, new use cases are increasing. Please refer to Page 7.
These are the major topics for the Q2. Three topics are identified here. At the very top, we talk about the San Francisco Bay Area Rapid Transit District signal system, which is called the BANT rapid transit system is what we have received the order for. It's a transition to Oakland. And we have had orders of JPY 85,000,000,000 for about 10 years.
This is a major project that we have won. The next one is regarding railway systems business. It is very difficult in Europe because of COVID-nineteen, but we will be increasingly focused on North America. This is the 1st major order received in North America and our efforts have proven to be successful. And I think we will have a number 2 and number 3 project is on.
And we're very happy that this has been achieved. The second area is power grid. Regarding the acquisition of Power Grid Business, it was about 1,000,000,000,000 yen. After that, 130,000,000,000 yen has been refinanced using other beams because of high evaluation of the environment business, Upliz environment, evaluation type finance and growth investment facility of JBIK. So we are receiving high evaluation from financial institutions as well.
Next, the management integration of Hitachi, an Automotive System and Honda Motor Company affiliated companies. We have decided on the name. It's called Hitachi Assemo. And this Assemo stands for Advanced Sustainable Technologies for Mobility. The management integration is poised to be realized by January or February 2021.
Please refer to Page 9. This is the page on the highlights of the result. Left hand side is comparing the 2nd quarter to last fiscal year and the middle is comparing the first half. In the left for the second quarter, the graph is clear to see. We have declining revenues and declining operating income.
To the right, if you look at the first half, again, it's declining revenues and declining operating income. If you look at H1 in fiscal 2020, you can see that JPY 180,700,000,000 is fiscal 2020 first half. And it's JPY 58,300,000,000 first quarter and JPY 22,400,000,000 in the second quarter. So that means that a significant improvement is being made. So if you look at the right hand side, cash items are explained for the first half.
The third from the top is EBIT, JPY 386,200,000,000 on a year on year basis, it's positive by JPY 95,600,000,000 EBITDA. This is the largest portion of the cash flow year on year basis, improvement by JPY 112,700,000,000 at JPY 612,600,000,000 Our cash flows from operating activities increased by 8,800,000,000 yen year on year at 214,400,000,000 yen In terms of cash flow, we are exceeding our plan in generating profits.
Next, please turn to Page 10. So this is the 5 sector, the stand alone basis and listed subsidiary, only Construction Machinery and Metals, but 2 listed subsidiaries split into 2. So left side, 5 sectors. Revenues, 103%. This is an increase from previous year.
So this is where we increased revenues. But adjusted operating income is KRW 182.7 billion, negative JPY 47.2 billion. So revenue increased, but operating income decreased. Now right side, listed subsidiaries, same line, 56%. So that's revenue decline and operating income down by JPY 69,200,000,000.
So both revenue and operating income declined. So 5 sectors increased revenue, listed subsidiaries decreased its revenues. One more point is the next line. Adjusted operating income ratio, 5 sectors, 6%. And listed subsidiaries is hit hard by COVID-nineteen, so negative 0.3%.
Right side is the total 4.8%. So overall, down by 2.2 percentage points. Next is Page 11. Revenues and adjusted operating income from last year to this year in waterfall chart. First, the upper half, revenues.
In first half fiscal year 2019, RMB 4200,000,000,000,000 And you can see the flow to yen 3,760,000,000,000. First divestiture of Hitachi Chemical, that's a negative and power grid was added. And then foreign exchange was negative factor. In others, metals and construction machinery and AMS negative is included. So overall, far right, JPY 3,760,000,000,000.
Now likewise, on the bottom half, adjusted operating income, the far left, RMB297.2 billion to RMB180.7 billion, Same items. So you can see divestiture of Hitachi Chemicals and then Power Grids, positive impact and then foreign exchange. And in others, here, because of the decline in business scale due to COVID and the sales price decline and the depreciation of the fixed asset, we netted that and landed at JPY 180,700,000,000. So that was the overview up to the Q2. Next?
Please turn to Page 13. This is the full year forecast. And the graphs are the same format as the first half. Left side is the revenue, center part is adjusted operating income. Revenues last year and this year, Revenue will go down.
And as you see, year on year, 9% down. In the middle, adjusted operating income. As you see, the graph is evident. So operating income will decline. JPY 400,000,000,000 is what we're announcing this time as the forecast for fiscal year 2020, JPY 400,000,000,000.
Right side, the cash flow is explained. 2nd from the top, EBIT, plus yen 202.3 billion year on year, yen586 1,000,000,000 and EBITDA, the biggest chunk in cash flow on the year on year level, plus JPY 433,900,000,000, JPY 1,53,000,000,000. Now cash flow from operating activities, they're ins and outs. So it says JPY 500,000,000,000, slight decline on a year on year basis. And what I would like you to look at here is KRW 400,000,000,000 is the forecast for operating income and the net income is RMB 300,000,000,000.
So RMB 403,000,000,000 and RMB 300,000,000,000. These are the two numbers we are announcing this time. Next, Page 14, please. So 5 sectors and listed subsidiaries shown on this page. So 5 sectors, left side.
Adjusted operating income, yen 375,000,000,000, down by yen 161,700,000,000 adjusted operating income ratio, 5.8 percent and right side listed subsidiaries, JPY 25,000,000,000 in adjusted operating income, that's negative JPY JPY 100,100,000,000 and adjusted operating income ratio, 1.7%. Total adjusted operating income is JPY 400,000,000,000 and adjusted operating income ratio of 5.0%. This is our forecast. And next is Page 15. So like we did in the first half,
this is
the waterfall chart from fiscal year 2019 to fiscal year 2020 forecast. Revenue on the top and adjusted operating income in the bottom half. So revenues, yen 8,767,000,000,000 down to yen 7,940,000,000,000, and you can see the items: divestiture of Hitachi Chemical, Power Grid, Positive Impact, Foreign Exchange and Others. This is where metals and construction machinery, negatives are included. So our forecast is RMB 7,940,000,000,000 and the bottom half is adjusted operating income, similar trend.
Last year, KRW661.8 billion will go down to KRW400 1,000,000,000 in others, 198,000,000,000. So like we saw in the first half, scale is declining due to COVID-nineteen and the sales price is declining and the depreciation of fixed asset are included. And we net that with the cost reduction. So that's minus JPY 198 billion. So the forecast is RMB400 billion.
Page 16, please. And this is we're disclosing this for the first time. So the KRW 400,000,000,000 adjusted operating income to net income attributable to Hitachi Limited shareholders of KRW 300,000,000,000. So adjusted operating income, KRW 400,000,000,000. And to the right, Hitachi Chemical and Diagnostic Imaging related business are positive factors.
And then the one time loss of investment accounted for using the equity method. This is the impairment loss of Hitachi Capital stock and Hitachi Metals impairment and business structural reform and EBITDA EBIT, that's JPY 586,000,000,000 income taxes and net income JPY 300,000,000,000 and the remainder are appendix.
So I
would like you to look at this and touch on this during Q and A, but just a few points. Page 18, please, IT. Central part, adjusted operating income. There are 2 graphs. Left side is the first half comparison with the previous year and the right one is the comparison on a full year basis.
In the circle, you can see the operating profit ratio, 11%. Next, energy, Page 19. So again, in the center part, adjusted operating income. The FY 2020 minus JPY 76,400,000,000. This is after ABB, power grid, structural reform and PPA amortization, those are included.
Please skip Industry and move to Page 21, Mobility. In the center, the adjusted operating income, the dark gray. This is the building, elevator related. Right graph. Elevator is strong, JPY 60,000,000,000.
Next page is JPY 22, Smart Life. Again, in the center, adjusted operating income. The right side, fiscal year 2019 fiscal year 2020, the light gray, JPY 30,100,000,000 and JPY 22,000,000,000. These are AMS. AMS, the automotive industry is now in a difficult position.
This year, the profit will go down to JPY 22,000,000,000. And next page is Higachi Construction Machinery, which announced its results yesterday. Adjusted operating income in the middle, JPY 39,000,000,000 margin, 5.1%. Page 24, please. Hitachi Metals.
This was hit hard by COVID-nineteen. So adjusted operating income, minus JPY 14,000,000,000 and minus 1.9 percent margin. Page 25 and Page 26 are the numbers by segment. Page 26, please. The bottom part, total.
This is the summary of what I talked about. Revenues fiscal year 2020 forecast is shaded in gray. Forecast, JPY 7,940,000,000,000 adjusted operating income, JPY 400,000,000,000 and operating income ratio, 5%. This is the target that we will strive to achieve in the second half. Page 27, please.
Just for your reference, revenues by market. On the clockwise manner, North America, Europe, China, Japan, ASEAN and India and others. China is to note. So comparing the first half, revenue is up by 7%. China was where COVID occurred, but now their situation is recovering strongly and it's evident from this graph.
Upper left, North America is minus 16% Europe, minus 8%. So they are still in a difficult situation. In lower right, Japan, minus 14% ASEAN and India are also impacted severely, minus 21%. This is the situation of the overseas markets. Now at the bottom, you can see overseas revenue, JPY1.926 billion, close to JPY2 1,000,000,000,000.
Total is JPY3.8 trillion, so overseas revenues now exceeds half, 51%. In the last announcement, it was less than 50%. So now overseas revenues account for more than half. Lastly, Page 28, balance sheet and cash flow, just very briefly. Upper half is the balance sheet.
Total assets as of the end of last year, it was JPY 9,930,000,000,000. As of the end of the second quarter, it exceeded JPY 10,000,000,000,000, JPY 10,600,000,000,000. Majority of this is ABB Power Grid acquisition. And then two lines down, total liabilities,
yen 7,000,000,000,000.
And on the right side, you can see plus yen 1,379,000,000,000. This is ADB Power Grid acquisition because the acquisition was done by debt. So it is that much higher. And because of that, on the lower half, DE ratio, it was 0.35 times and now up to 0.7 times. But this is within expectation.
Our target is to go back to 0.5 times in the next year or the year after that. That's 0.7 times seems high temporarily, but ABB Power Grid was acquired using debt. So this was a planned action within expectation. And total Hitachi Limited shareholders' equity ratio because asset increased this decreased to 27.5%. We think the appropriate level is 30%.
So in a year or 2, we will return to 30%. And then cash conversion cycle, CCC, 79.9 days, up 5.7 days. This was due to the tower grid inclusion. The cash cycle is a little different with the power grid. So that is the reason.
That concludes my explanation. Thank you very much. So
now we're going to proceed to Q and A. Those of you who have questions, please indicate by pressing the hand up button. We will indicate who will be designated. Please state your name and affiliation before asking your question. And if it is unnecessary, then please release the hand up button.
The video of the personnel in the question will not be shown. We will, 1st of all, take questions from the Japanese channel and then take questions from the English channel thereafter. So we will now take questions from the Japanese channel. Please press the raise hand button if you have any questions. First question, please.
Thank you. I hope you can hear me. Thank you very much for this opportunity. I have 3 questions. First question, Regarding the 5 sectors in the Q2 for 3 months, what is the growth of orders received?
Especially in a license number for all 5 sectors, but in mobility, elevator. I think the increase was rather limited. So what is the outlook in terms of orders? That's my first question. Carter will respond.
For the Q2 for 3 months, let me give you the overall picture. For the first half, foreign exchange as well as reorganization impact has been excluded. So its adjusted Hitachi on consolidated basis is 87% increase in orders received year on year. If we look at the 2nd quarter, it's 94%. Furthermore, regarding the buildings, that's 110% of 1st half and 19% in the second quarter.
So the trend is continuing between 2nd quarter and first half. The Chinese business is very strong. That is driving growth. I would like to know for all the 5 sectors for the 2nd quarter, Let me indicate. For the 2nd overall, IT is 91%, ENGIE is 1 40% and does not include power grid.
Industry is 110%. Mobility is 107%. Life Smart Life is 95%. So that is the actual for the 3 months in the second quarter. Question 2, regarding the revision of JPY 28,000,000,000.
You said that there is upside in terms of revenue, JPY 136,700,000,000. But what was the upside for the first half? So is the JPY 28,000,000,000 the adjustments only for the first half? And regarding corporate eliminations, and I think the negative has gone larger. But if you look at the progress in the first half, I don't know why it will increase so much.
Please elaborate. Now regarding plan, I mentioned JPY 130,000,000,000 yen or rather JPY 130,000,000,000 when we announced in July for the first half in terms of revenues, JPY 100,000,000,000 was the difference. That's all 5 sectors, IT mainly and Smart Life and Mobility. These are 3 sectors related. In terms of profit, JPY 25,000,000,000 was the upside for the first half.
And list of subsidiaries is within execution. So the upside is all 5 sectors. They all had upside: IT, mobility and industry had have improved. 3rd question, IT, 2nd quarter for the 3 months. What is the evaluation, especially for the Frontera business?
Revenues seemed very strong, but you do not engage in PC business. So I think that might have had an impact for Public Sector. You had major orders last year, which could have registered sales revenues this year. So minus 1.3%. It's a very strong negative number.
And what about the 3rd quarter and Q4? What the outlook of the market? What is the image you have? What kind of numbers can you share with us? So this is Kamara speaking.
I would like to respond. Regarding the IT situation, the outlook will be explained. There are 2 perspectives. As mentioned in the materials, structural reform has been implemented. Cost is managed very rigorously.
So there is a backstop to generate a profit. In terms of orders received, new markets have been achieved without fail. With COVID-nineteen, people are working from home and also touchless, new applications that have come to the fore. We are developing new applications in these areas, which is making significant contribution. So cost as well as in terms of orders received, we have strong support for the revenues.
Now as we proceed to the second half, I believe that COVID-nineteen will still have an impact. So the similar situation is likely to continue. In terms of cost measures, we will continue. And if we are able to receive more orders, we don't it's very difficult to say how much, but I think there will be further recovery. That's all.
IT minus 5% and the second quarter is minus 9% in terms of orders. Compared to that, the second quarter seemed to be very strong in terms of revenues. Do you have any comments on that? Yes, it was strong. I don't have specific detailed information with me, but I believe that profit was stronger than expected.
That is the fact. Now let me also give further information. Last year, Q1, there was a major order received. That is also having an impact for this year. Thank you.
Please go ahead. Sorry for the error. Question, I have two questions.
As of today, it may
be difficult for you to comment, but by taking in the 3 Honda related affiliates, the balance sheet, in your explanation earlier, the ratio 0.7x and the current debt size. So by taking in the 3 companies towards the end of the year, I think it will come down. So what is your forecast? If you could share something today, free cash flow core free cash flow, full year forecast, is it possible here to comment on that? Yes.
So the Honda parts companies, 3 companies impact on the balance sheet, We are still scrutinizing. It's still before the integration, so we have not been able to confirm the accurate numbers. So I cannot comment on that today. I am sorry, but I hope you could understand. What about cash flow?
So based on the assumption that it will not be taken in, the full year free cash flow, if you could give us a forecast. Core cash flow, at the beginning of the year, core free cash flow RMB 100,000,000,000 was shown. For the first half, on a year on year basis, cash flow is a bigger focus than before. So it is improving compared to the previous year. But in the second half, we still have some unforeseeable situation.
So we want to exceed KRW 100,000,000,000, but right now, we our forecast is KRW 100,000,000,000.
Thank you.
Question? If you could share with us your dividend policy, you increased to JPY 50. So once again, your full year forecast or some hints, if you could so your thinking behind dividend this time, please? So JPY 50 is the interim dividend. And we decide this on this every 6 months.
Last year, the year end dividend was JPY 50. And so this is a similar level. And we decided on the first half dividend at that level. We are focusing on the economic rationality and decided on JPY 50 and continuity. Just this moment, the operating profit will be down year on year.
But in terms of the profit that can be used for dividend, it's still high. So we decided that we can go with JPY 50 dividend. Towards the second half, if our performance improves, then the cash flow from operating activities will recover. So that's why we decided on JPY 50 dividend. Now our dividend for the second half, we have not studied yet.
It will be decided based on our financial performance. So we cannot talk about the dividend for the second half, but we want to return to our shareholders in the long term. So looking at the profit that can be used for dividend and cash flow and decide on a comprehensive basis. Thank you very much. Thank you.
Next question, please. Please unmute and ask your question. Can you hear me? Very faint, but we can hear you. You.
I have 3 questions Regarding the balance sheet, the DR ratio of 0.5%. What time will be required to back to 0.5? Is it going to be within 1 year? So what is the time frame you would like to go back to that level, 0.5 times? Now in terms of SG and A, the first quarter, JPY 50,000,000, JPY 60,000,000,000 The ABD impact is how much SG and A should be apples to apples basis.
So please let me confirm the substance of this. 3rd is AMS 2nd quarter. It's lacking Toward the second half, there is a strong return. What is going to be the impact of the second half? Thank you.
Your answer your voice is was breaking up, but we were not able to clearly understood what you're saying. So let us confirm. You were breaking up, so I don't know if I can respond appropriately, but I shall try. Regarding the debt equity ratio, next year, this time, whether we will be below 0.5x or not will depend on the cash flow at that time. It will be significantly impacted.
And if we can finance, that means that we will be able to reduce that to 0.5 level. But for the time being, it is uncertain what is going to happen going forward. So whether we can do this in 1 year or not, the responsibility that we'll not be able to do that. For the time being, we would like to revert back to 0.5 within 1 or 2 years. That's the best response I can give.
SG and A, and Kato will respond to that. I'm sorry you were breaking up so much that we were not clear regarding your question. Regarding SG and A, compared to last year, if you look at the first half comparison, in terms of ratio, 92%. So that means that a decline of 8%. Overall revenues, 10% decline.
So the fixed cost is what we are focused on. Now we are working from home, remote work is prevalent. Manpower cost is declining and revenue decline. We hope that this is not going to reflect directly to profit decline. We are managing this process.
Now regarding ANS, the third question was about ANS, I believe. Yoshua will respond to that. Now regarding Q2, in terms of revenues, it was very strong. Electrification, motor inverter was very strong. And chassis, the company was acquired in 2019.
There is impact of this acquisition. In terms of sales revenues, in China, there was a recovery. Therefore, these are the positive factors. What is important here is that for the market overall, because of the impact of COVID-nineteen, it is a difficult situation. But looking at the first half market overall, AMS is outperforming.
As about 4 to 6 Japan to overseas. In the overseas market, IHS automotive market data is disclosed. So global is around has declined by 20%. AMS is at the decline of only 1 single digit because of the portfolio improvement as well as chassis company acquisition has contributed. We have been more selective, and we have to watch this situation very carefully toward the second half.
But we believe that if it are to recover and if that is the case, our strategy should prove to be positive as well. That is our expectation.
Thank you very much. Next, we will take questions from the English channel. In this channel audience, if you have any questions, please press the raise hand button. We do not see any questions, so we will come back to the Japanese channel. From the Japanese channel,
Hello. Question.
So I could not have the proper voice just earlier. So ABB Power Grid is my question. Looking at the details, stand alone 6% margin, it says. So original plan was close to 10%.
But due to COVID-nineteen impact, I
think it's lower than that. So it is lower than the expectation. Do you think it's lower than your expectation? Or how do you see this? Kawamura would like to respond.
This ABB acquisition was in July. And the plan that we made back then and the current plan has not changed at all. So the numbers are as expected. On a standalone basis, operating profit ratio was 6.3% and this number has not changed. So we have not seen any big changes in the circumstances.
EBITDA, the biggest cash chunk is JPY 36,200,000,000. So no change there either. Thank you. I hope that answers the question. Building system, China business is strong, you said.
Generally speaking, China in the new building, the lower price is the trend. So the sales price, I think, is difficult, but your profitability is improving. ASP is declining, but you're successfully reducing the cost to secure profit. Is that the right understanding? Or are there any other movements or factors?
You are right. Sales price due to competition is declining and we are increasing volume zone products, so the average price is declining. On the other hand, the cost reduction is pursued very aggressively. So thanks to that, the profit is increasing and profit margin is increasing. I see.
My third question is industry. In the Industry and Distribution BU, the solution business is strong, you mentioned. Could you elaborate on this one? So SAP is this business for SAP or so in the migration to cloud, the industry side may have this new demand. So this demand is now revealing, emerging or this is a positive factor due to COVID-nineteen?
Yeshika would like to respond. You're right. SAP related business is trending strongly. In addition, JRA, the acquisition impact is 3 digits, sizable positive impact. So those 2 are the positive factor.
SAP Business will increase going forward, do you think? We think it will continue into the second half, but the second wave may come and there are still some unforeseeable circumstances in the second half. So we will focus on capturing orders and monetize our business deals.
My last question is,
so the customers in SAP that are in the Industry and Distribution BU are large customers. So S4HANA, the customers that have migrated to S4HANA, how what is the proportion? If you have a rough breakdown or numbers, please. We would like to refrain from giving that detail. I hope you could understand.
Thank you.
Thank you very much. Are there any questions from the English Channel? First, please indicate by pressing the raise hand button. The time has come to bring the web conference of Hitachi Limited for fiscal year 2020 Second Quarter Earnings meeting for institutional investors and financial analysts to a close. Thank you very much for your attendance today.