It's time. We would now like to start the consolidated financial results briefing of Hitachi, Ltd. for the first quarter ended June 2020. Thank you very much for taking time out of your busy schedule to attend this meeting. We are holding this meeting in web conference format to prevent the spread of COVID-19. The materials are posted on Hitachi, Ltd. IR website and news release website. Please refer to them. Now, let me introduce the speakers. Yoshihiko Kawamura, Senior Vice President and Executive Officer, CFO. Tomomi Kato, General Manager of Financial Strategy Division. Yasuo Hirano, Executive General Manager of Corporate Brand and Communications Division. In addition to the three, today, we also have Mr. Claudio Facchin , CEO of Hitachi ABB Power Grids. Mr. Kawamura will explain the overview of the financial results. Please give us a moment to change the screen. Mr. Kawamura, the floor is yours.
My name is Kawamura, the CFO of Hitachi, Ltd. Thank you very much for your attendance. We have 45 minutes for this event. In about 15 minutes, I would like to provide an overview and leave as much time as possible for questions and answers with you. At the outset, while COVID-19 is impacting us across the board, and I would like to express my deep respect to the medical care, healthcare providers. Because of their effort, with our business, we're able to conduct our business. I would like to express my sincere gratitude to them upfront. Now, let me start the presentation. Please look at the first page. On a qualitative basis, we have described the status of our quarter one business. Before I go into the numbers, I would like to describe some of these points.
At the end of May, when we discussed the impact of COVID-19, we have formulated some assumptions, and those assumptions that we formulated have remained unchanged. In the first half of this fiscal year, there will be quite a bit of impact from COVID-19. 70%-80% of the impact will manifest in the first half, and into the second half, the impact will start to fade. Those assumptions have not been changed. We will see sector by sector charts. Five sectors remain quite firm so far. On the other hand, subsidiaries are being heavily impacted by COVID-19. They're not necessarily doing well. Five sectors, as far as they're concerned, IT segment business is doing very well. IT accounts for 50% of income, and in terms of income, they are earning twice as much as other segments.
IT revenue and income is becoming the backstop and the leader in our overall business. Point number three. Our understanding is that we should channel our resources to IT business. We would like to promote and accelerate digital transformation through continuous strategic investment in the expansion of Lumada business. This remains unchanged, and we will show you some numbers. As of 1st of July, Hitachi ABB Power Grids is now part of the consolidation. We now have this joint venture company. The performance of this company in fiscal year 2020, because of various reasons, it will show numbers in the red, but those numbers will be absorbed. Industry and mobility have upward revisions to their forecast. With their upward revisions, they will be compensating for the loss to be incurred by Hitachi ABB Power Grids. Overall, the numbers remain unchanged.
Number five, cash management. There could be fluctuations going forward. On a continuous basis, we are enhancing cash flow management to secure enough liquidity, inclusive of banks' commitment lines. We have liquidity of over JPY 1 trillion secured for ourselves broadly. Those are the qualitative descriptions. Let's take a look at some of the charts. Please take a look at page four for quarter one fiscal year 2020 results. This is for quarter one only. On the left-hand side, revenues, and in the middle, adjusted operating income. As you can see on the far left, Q1 last fiscal year, and the middle bar is Q1 excluding COVID-19 impact, and on the far right, Q1 with the COVID-19 impact, and a similar arrangement for the middle part of the page.
Inclusive of COVID-19 impact, the first quarter performance is such that we had seen declines both in revenue and income. Q1 FY 2019 and Q1 FY 2020 without COVID-19 impact in the middle in terms of adjusted operating income, the two bars are almost at the same level. In Q1, there has been heavy impact from COVID-19. Operating income ratio 3.7%. As you can see, JPY 53 billion and net income attributable to Hitachi JPY 223.2 billion, EBITDA JPY 439.1 billion, cash flow generated from operating activities JPY 153.7 billion. These are as planned. Moving on to page five. You can see the five sectors as well as listed subsidiaries. At the very top, revenues. In five sectors, JPY 1.2693 billion. Listed subsidiaries, JPY 224.9 billion. One line below, adjusted operating income. For five sectors, it was JPY 62.9 billion.
Listed subsidiaries were heavily hit by COVID-19, negative JPY 4.6 billion loss. Please look at the next line, adjusted operating income ratio for five sectors alone, 5.0%. Listed subsidiaries, because of their losses, -1.4%. The quarter net income attributable to Hitachi stockholders, JPY 225 billion for five sectors. Listed subsidiaries, -JPY 1.7 billion, total JPY 223.2 billion. Five sectors and listed subsidiaries, there is quite a bit of a contrast between the two. Moving on to the next page. Revenues and adjusted operating income, what's been affecting, the factors are shown in waterfall chart. At the top is revenues. On the far left, Q1 last year, and on the far right, Q1 this fiscal year. You can see the factors impacting revenues and adjusted operating income. Take a look at the revenues.
There was divestiture of Hitachi Chemical pushing the performance down, and there's foreign exchange AMS, JRA, HITEC that accounted for JPY 47.5 billion plus.
This is before the COVID-19 impact, and you have to subtract the COVID-19 impact. On a net basis, JPY 1,594.2 billion. Below, adjusted operating income, you can see that the factors are almost the same as those for revenues. Excluding COVID-19 impact, JPY 124 billion. COVID-19 impact, JPY 65.7 billion. On a net basis, adjusted operating income was JPY 58.3 billion. Moving on to the next page. Factors affecting the five sectors, they are similar, so let me skip this page for now. Please take a look at page eight. This shows the status of cash flow and the financial position. What to pay attention to is total assets in the first chart. In the middle, there is a gray-shaded part. Q1 FY 2020, total assets exceeded JPY 10 trillion. It's been accumulating. Please look at the far right column, change from March 31st, 2020.
Cash and cash equivalents increased by JPY 1 trillion, and that was borrowing to acquire Hitachi ABB Power Grids. As of June 30th, these were the numbers recorded. When consolidating ABB in July 1, this was spent. There's interest-bearing debt, JPY 956.1 billion of increase was seen. This was the number shown on balance sheet as of June 30, and this was spent and paid. Cash and cash equivalent number is different as of July 1st. D/E ratio at the bottom of this chart, please take a look. It was 0.35 points. Because of borrowings, it was increased to 0.66 times. Our cruising rate should be 0.5, and so it's quite higher than that. We will see a higher level this year, but next year and onward, we would like to bring it down to 0.5. We shall conduct cash management to that end.
Summary of consolidated statement of cash flows below. These numbers are as planned. Cash flows from operating activities, JPY 153.7 billion, cash flows from investing activities, JPY 357.4 billion, free cash flows, JPY 511.2 billion, core free cash flow, JPY 80.7 billion as planned. Moving on to page nine. We are channeling our management resources to Lumada business and Lumada-related and Lumada Core. Please take a look at the forecast for FY 2020, JPY 1.1 trillion. I think we're on plan. The red part represents Lumada Core business. This is very close to the IT business. Gray represents Lumada-related business, railway, energy. These are applications of Lumada technology, scale by digital type of business. We would like to utilize digitization to drive business, and that is accumulating to JPY 440 billion.
There are some noteworthy events, qualitative descriptions. Mr. Gajen Kandiah , who used to be with Cognizant, is now the CEO of Hitachi Vantara. I understand that Lumada related business will be further driven with his effort. We have collaboration with Microsoft as well as Teijin. They're advancing. That's the status of quarter one. Next page. This is the fiscal year 2020 overall numbers. Page 11, please. Like first quarter, this is the same design. Revenues and adjusted operating income are shown. Left side is fiscal year 2019, and the right one is, the fiscal year 2020 forecast, excluding COVID impact. The profit is down JPY 372 billion. We have not revised this from the beginning of the year, and 4.7%. This is our current plan. On the right side, you can see JPY 335 billion net income attributable to Hitachi, Ltd., and EBITA, JPY 1,097 billion.
Cash flows from operating activities, JPY 500 billion. This has remained unchanged. Page 12, please. This is the full year forecast by five sectors and listed subsidiaries. This is similar to the first quarter trend. First line at revenues, five sectors, JPY 6,360 billion. Listed subsidiaries, JPY 1,520 billion. adjusted operating income, five sectors, JPY 338 billion, and listed subsidiaries, JPY 34 billion. Adjusted ratio, 5.3% and 2.2% respectively. There's a difference between five sectors and listed subsidiaries. On the bottom line, net income attributable to Hitachi, five sectors, JPY 331.5 billion, and listed subsidiaries, JPY 3.5 billion. Total JPY 335 billion. No change there. Page 13 is ABB. We are presenting this for the first time today, on July 1st. Power Grids has come on board. How we look at this, it was just July 1st, and we are closely looking at the inside right now.
The biggest difference is ABB has US GAAP. We are based on IFRS, so we are correcting the differences, and this is taking a bit of time. The best estimate is presented here. The way to look at this table is on the left side, Hitachi ABB Power Grids standalone figures is shown. On the right side, you see related costs. From the standalone figures, we have many cost items, one of which is the structural reform expenses. We acquired a company, so there is the PPA, the amortization of goodwill or the intangible asset purchase price allocation, PPA. This is netted from the power grid estimate. The right figure is what we are recognizing this time. Adjusted operating income, second from the top, JPY 54.5 billion, excluding the COVID impact, and JPY 43.7 billion forecast, and this is 6.3%.
Structural reform expenses, JPY 15.9 billion. PPA, the amortization of the intangible asset is estimate JPY 60.5 billion. If you knit off those two, negative JPY 30.7 billion in adjusted operating income. Next, cash flow. Is the second from the bottom, Adjusted EBITDA . The gray forecast is JPY 45.2 billion and structural reform expenses JPY 15.9 billion. PPA, this is not a cash item. It is on the accounting basis. There's no cash impact, zero. On the net basis, it is JPY 29.3 billion. My point here is on the left side, Hitachi ABB Power Grids, second from the top, adjusted operating income, the ratio is 6.3%. This number on page 12 are adjusted operating income, far right. This is the third number from the top. It says 4.7%. Against this 4.7%, it is not by any means behind this number.
We are adding a profitable portfolio. Next page, please. This is the same as the previous waterfall chart from fiscal year 2019 to fiscal year 2020. I would like to skip this part. That concludes my explanation. There are many reference materials which I would like to explain in the Q and A session. Thank you.
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There are several more slides to cover, and I would like to hand it over to Claudio Facchin in Switzerland for the rest of the presentation.
Could you talk slowly and clearly about the slide you have prepared? Thank you.
Thank you, good afternoon to all. Starting from the first slide, please. The transformation position us for profitable growth. Next slide, please. Hitachi ABB Power Grids is well-positioned as a leading player when it comes to market technology, install base, and portfolio. We are in attractive markets, JPY 100 billion, growing on an average 2%-3% every year, but also with many high-growth segments, such as digitalization of the grids and electrification of transportation, that as you can see, they're growing two to three times faster. Our transformation is well underway. Over the past few years, we have been investing in growth initiatives, sharpening our portfolio, also developing new business models, and driving continuous improvement in our operations with people and innovation as the core and two foundations to deliver this transformation.
These efforts and a strong global leadership team position us to grow faster than the market and strengthen our leading market position in line with our 2025 strategic plan. Next slide, please. COVID-19 has brought new challenges. Since the beginning, we have reprioritized to focus on, number one, protecting people, then preserving business continuity, but also moving on preparing for the new norm by taking the learnings from this crisis. The team has shown great resilience and further improved customer collaboration across all markets, despite all challenges. While we address the challenges on the short term, we also see medium to long-term opportunities, such as the significant stimulus packages, to accelerate decarbonization efforts through the green energy transition in most markets. One of those examples, as you can see in the slide, is offshore wind, which is promising from many of our related businesses and technologies.
When you look at offshore wind, that requires renewable integration, requires high voltage DC technology to interconnect, but also requires digitalization and power quality technology, both on the transmission and on the distribution side. Of course, we are still in the midst of the pandemic, and there is still quite some uncertainties, as you can all see on global scale, on how fast the shape of the recovery will be. Next slide, please. Let me walk you through on why do we see the impact of COVID for our business being rather on the short term, and we preserve our optimism on the long-term market growth. On the left-hand side, you see the COVID impact on our business in line with the market. The market will be affected in 2020. We already seen it and experienced it in the first few months of the year.
Given the long business cycle nature, on average 18 months to convert our orders into revenues, part of the impact of COVID-19 slowdown will also reflect in our revenues in 2021, and that's what you see at the center part of the slide. This obviously will continue to put pressure on the earnings. We continue obviously to take all the necessary cost measures, and we do not change our ambition level to double-digit margins in the timeframe 2021, 2022, as you can see in the margin corridor on the right-hand side. Our fundamental market drivers remain intact, and we remain positive on the medium to long-term growth, obviously, once the crisis is being addressed. This will support revenue and earning growth paths.
As you can see reflected in the chart, we're still aiming in line with our 2025 plan to be on the upper end of the corridor towards the 12% margin. Next slide, please. Now, charting the course for the future, we have a unique opportunity to position ourselves, Hitachi ABB Power Grids, even stronger in this market. The synergies will come, first of all, from addressing the customer needs, leveraging the segments, the adjacencies, the opportunities, the breadth of our portfolio on the energy platform side, which we bring together with the digital technologies that is coming with Lumada, with the competence and the existing business that Hitachi brings. We have a unique opportunity, once this crisis is behind us, to accelerate many of those synergies, primarily on the market side, on the growth side, but also on the cost side.
In conclusion, Hitachi ABB Power Grids bring together two highly respected companies with a combined technology heritage of two and a half centuries, as I like to say it, and with a great enhanced talent pool across both the energy and the digital technologies to strengthen our position by 2025. Thank you.
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Mr. Facchin, thank you very much. At this moment, we would like to move on to Q and A. Those of you with questions, on the screen of the web conference system, there's a button for raising your hand. We will call upon your name. Once your name is called, please unmute yourself, state your name and affiliation before asking questions. If questions are answered, if you no longer want to ask a question, please release the question button. Your video will not be shown. Those of you with questions, please raise your hand. I see a question here. Please unmute yourself and state your question.
Question. Can you hear me?
Yes, I can.
Thank you very much. I have a question regarding Hitachi ABB Power Grids. First, this fiscal year's forecast is, as such, about JPY 43.7 billion without amortization of operating income. That's worth three quarters from July, JPY 15.9 billion, and amortization of intangible assets, JPY 60.5 billion. How transient are they? I think initially, amortization was to be JPY 30 billion, but it's been increased to JPY 60 billion. I wonder what the reasons behind that are. If you could please elucidate on those aspects.
Thank you for the question. Kawamura will answer with an overview, and as to amortization, Kato will respond.
These numbers are from July onward, nine months worth of numbers, as you understand. JPY 60.5 billion. Earlier, we were talking about JPY 30 billion or so, and we scrutinized the number since. Because there's much to be amortized in terms of the orders received. We try to amortize to the extent we can for this year, and thus, the number increased to JPY 60.5 billion.
In total, we are to amortize JPY 500 billion. In the first year, the number is going to be large, but it's going to decline year after year. Turning it over to Kato, allow me to supplement. I said JPY 30 billion initially, but over the long term, the average was to be JPY 30 billion in terms of amortization. Now that we have scrutinized the numbers, taking a closer look, in a short period of one to three years, we would like to see allocation for amortization. Initially, amortization is going to be large. After closing, it will reduce by JPY 10 billion every year. In fiscal year 2024 or 2025, I think we will achieve half of JPY 60.5 billion.
As Kawamura-san said, the initial balance sheet is yet to be formulated. We have to change from U.S. GAAP to IFRS. It's been less than one month since closing, so we need to take a few more months to hammer the details out. JPY 60 billion is still our best estimate at this moment. It's still an estimate. I hope you will understand that. Earlier, what you asked about for structural reform, the number that was shown for this, well, this is a one-off number. That's our basic understanding. In order to promote integration, we have to spend cost on IT development and PMI cost. Those are the factors behind this.
Question. I have additional question. In terms of operating income. There will be operating loss as part of the consolidated results. What's your assessment of this? How different is it from your initial assessment when you decided on the acquisition of this company? Is there a gap in your awareness in terms of your assessment? As you explained earlier, based on the operating income, a contribution of operating income to the consolidated results over the medium to long term, what is the rough outlook over the medium to long term? If you could share that with us, please.
Answer. Thank you for the question. To address your first question, initial assessment, has it panned out in terms of operating income for Hitachi ABB Power Grids? Page 13. We did have this forecast. Adjusted operating income of JPY 40 billion, we were assuming, on the far right, related cost. This is something that accumulated as we took into various sub-points into consideration, PMI and so forth, JPY 60 billion. Because the various factors accumulated, the number is as stated. Earlier, we were seeing JPY 40 billion, but then at the time of the acquisition, yes, that was the number that we were looking at.
ABB Power Grids forecast going forward. In Claudio's slide on page 19, there was an outlook or forecast for the future. Operating margin is shown on the right-hand side. There's a range included in this graph. EBITDA target corridor is between 8%-12%. We have back-calculated to see what the profit could be. We would like Claudio to confirm this and elaborate on this.
Yes. Page 19. Could you specifically talk about the future projection with the number you are indicating here? You are just pointing out the range of the percentage of the operating EBITDA. Could you elaborate the range of the number, please?
Sure. What we show here is the range of earnings as a standalone. As I mentioned before, the aim for us is to be recovered from this crisis as fast as we can and go back to the levels that we had earlier. Reaching, achieving that 10% on the timeframe 2021 to 2022. Now, as I mentioned before, we have a transformation that we initiated a couple of year back, which we invested growth, operational improvements, portfolio, business models. All of that has been supporting navigating also through this crisis, mitigating the impacts from the crisis and the market volatility.
Therefore, once we see this crisis behind us, we remain confident that with market recovery, we will continue to drive our strategy in line with the commitment, in line with the plan, and aiming at the upper end of this range, which is as you see, towards the 12%. Whether it's going to be 2024 or 2025 will depend a lot on how we navigate this crisis, as I mentioned before.
Thank you very much, Claudio. [Non-English content]
What just he said, Claudio, as he said up front, this is a standalone number. Outside, we will be looking at the synergies created with Hitachi. Customers who have power grids, we have not had a strong access and approach to these customers. We will have those customers, and we can supply our products to these customers, creating synergies. In terms of cost, we can have collaboration. We can have common operations. ABB has very large shared service center, which we can utilize. In terms of cost, I think we can create new synergies between Hitachi and ABB Power Grids. For both business revenue and cost, synergies can be sought, and that will be reflected in here.
Thank you.
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Thank you. Next question, please.
Please unmute and ask your question.
Thank you. I have two questions. First, last year, compared to the first quarter last year, quarterly profit has increased significantly, so what is the reason behind that?
Answer. You can ask your second question, or should I just ask the second question first?
Okay, I'll go ahead. Question. As mentioned, another question on ABB. This fiscal year, operating income will be operating loss. When do you think you can turn profitable? What is your target or outlook on when you become profitable?
Answer. Thank you very much. The first question, comparing the first quarter of last year and this year, why is it increasing this year? Kato will explain in more detail, but first I will start. The first quarter, if we compare the two first quarters, as you see in the table, it's not increasing, but compared to the budget of the first quarter, what happened is around JPY 30 billion increase in income. Industry and mobility, there was an upward revision in profit, and that had a big impact. This momentum is what we are trying to maintain in the second and third quarter.
Second question, when the ABB Power Grids business will turn profitable. On a cash flow basis, it is already generating profit. The problem is this PPA. It's really dependent on PPA. As I said earlier, we are scrutinizing the details now. Around JPY 50 billion PPA will be incurred next year. Operating income at 9%-10%, with the declining COVID-19 impact, a 9%-10% margin. We will be break even in 2021. That is our outlook. In the fiscal year 2022, the situation will become better. Of course, it depends on PPA, but we think we can turn profitable. That is our estimate. Thank you. Kato, any more details on the first quarter question?
First quarter, on an absolute basis, on Page 4, I explained, excluding the COVID-19 impact, the amount, JPY 124 billion. It is about the same as last year. Page six, the waterfall chart, as I explained about the previous year. The revenue and income, because of the divestiture of Hitachi Chemical, we had that much down. Euro/Yen appreciated against Euro, so foreign exchange factor. The profitability improvement, this JPY 11.1 billion, the cost reduction was around JPY 37.8 billion. Without COVID, it's about the same. Same level. One more point, Page 30, please. This is segment-by-segment numbers. Left side, first half, fiscal 2019. Of the five segments, IT, Energy, Industry, and Mobility. In four sectors, the amount may have gone down, but thanks to the structural reform, in four sectors, the ratio improved. That's all. Thank you.
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Thank you.
Do continue. There's another questioner. Please unmute yourself and start your questions.
Question. Thank you for taking me up. I have two points about ABB and its subsidiaries. First, on ABB. The cost of acquisition initially was estimated to be JPY 30 billion. Now it's increased to JPY 60 billion or so. Prior to the acquisition, prior to COVID-19 pandemic, ABB profitability had been down, it was pointed out. Within ABB, a structural reform is taking place, and thus increased cost was being incurred. I think that was the explanation. From Hitachi's point of view, you took a closer look at the business, and did you realize that structural reform was not advancing as fast as it should have been, or have there been any change in awareness?
Answer. If you could please state your second question as well.
Actually, I had additional questions with respect to ABB, to give all the questions up front. There are various target numbers associated with ABB. Perhaps it's that I didn't understand all of them. Ultimately, operating EBITA to be 8%-12% in FY 2024, FY 2025, and FY 2021, 10%, potentially. Earlier, I think the answer was it's going to break even in around FY 2021. I think Kato-san was talking about the enterprise value to being doubled in FY 2021 or so. What are the actual targets and goals? If you could please clarify and sort them out. What's going to be the pathway, if you will, toward achieving such goals?
What is currently 67% margin is to be doubled going forward in the next several years. On listed subsidiaries, listed subsidiaries are now becoming a drag on Hitachi's performance, inclusive of Hitachi Construction Machinery, Hitachi Metals. What do they mean for you? What are their positions vis-a-vis your performance? Even before COVID-19 pandemic, perhaps there were some problems. How are you to treat them? Sorry for being long.
Answer. Thank you for your questions. Regarding ABB, now that we have acquired, we're now scrutinizing the numbers, but we're not met with any particular surprise. I think more or less it's as planned and as expected. There's nothing more much to revise or change in terms of our awareness. Page 13, JPY 43.7 billion and operating income margin, 6.3%. If it increases to 8% to 9%, then the amount will be JPY 50 billion.
JPY 50 billion of PPA next year expected, it will be offset against that. Of course, there are some assumptions behind this, but that's what we're looking at this moment. The second question regarding listed subsidiaries and their problems. As you rightly pointed out, we only have two subsidiaries, Construction Machinery and Metals. Both are having difficulty in their performance. What to do with our relationship with these listed subsidiaries? During the MTP, we would like to come up with an answer. We're having intensive discussions with these subsidiaries, and soon, in several months' time, we would like to come up with a direction as to what to do with these subsidiaries. With respect to Hitachi Metals, as you know, it has had quality problems, and we have now set up an investigation committee involving external people, and there could be potential compensation problems with customers.
We need to clarify accountability and responsibility internally, and upon doing so, we have to decide what to do. Specific discussions for that will start once investigation committee comes out with a conclusion. It will be toward the end of this fiscal year. Construction Machinery, we are discussing what the growth plan should be, and within that, we will decide what our future direction should be.
Kato speaking. To supplement, pages 13 and 19, just to explain the relationship. On page 19, what Claudio-san earlier talked about on the right-hand side, earnings development, operating EBITDA. These terms are used by ABB, operating EBITDA. Page 13, on the left, Adjusted EBITDA, and we said 6.5% estimate. Of course, there are some detailed differences between the two terms, but roughly speaking, conceptually, they're similar.
PPA is excluded, subtracted from adjusted operating income, and that is what Adjusted EBITDA is. This is equivalent to what he said in terms of operating EBITDA.
Kawamura speaking. Enterprise value to be doubled going forward. Let's turn to Claudio for further details.
Our higher management talked about the possibility of making the profit level almost double or the enterprise value almost double. Can you really talk about the projection or trajectory to reach the level or the double, the enterprise value or the profit? Thank you.
Sure. It's also somewhat reflected in the slide we just referred before. If you look at starting from where we are now, and obviously that starting point is lower than our plans, but I assume that everyone has the same situation. Nobody had in any plan to deal with this crisis and with this pandemic. If you now take that out, you look at all the actions that we've been putting in place, starting from the transformation, our plan would take us to doubling that overall value within the strategic timeframe that we have set ourselves, 2025. Now, as also was mentioned before, we have an opportunity here.
In addition to the growth initiatives that we have in our plan, also in addition to the cost initiatives that we have in our plan, there will be definitely support, either from acceleration initiatives or getting us earlier to some of those opportunities with Hitachi across the market, but also across the technology. We will definitely see also additional initiatives that would come on top, as it was mentioned before, to support this transition. The life cycle of this business, as we mentioned, is on average 18 months. Now we have everything in this business from software and services that are accretive to the business, that have short cycle, that turn orders into revenues very fast. Recovery. At the same time, we have long cycle projects. If you look at an HVDC project execution, that lifetime is anything between three and five years.
All of that supports the resilience of this business, but at the same time, the opportunity with Hitachi to tap in all those parts of the portfolio and create additional value going forward.
Thank you very much indeed, Claudio. Thank you. [Non-English content]
Thank you very much. It is past time, so we would like to take one last question.
Just one question, if you may. Question. I have one question to Kawamura-san. The absolute amount of the income IT sector was strong, both in terms of margin or absolute terms. Which area is strong? Which part of IT was the driver?
Thank you. Answer. IT sector has four main components in the portfolio. One is finance related, another is public sector, government sector, the business for the government sector. The third is storage, the hardware centering on storage. Fourth is data, Lumada related business. The strong one was the government public IT business. With the COVID-19 remote working, teleworking, and non-contact became the demand, the needs. With TV video conference, big demand is emerging. By developing new applications, we are generating new businesses, and this is growing strongly. Furthermore, education, healthcare, these areas where IT investment had not been sufficient to deal with COVID, we expect more investment. This is what we are expecting now. Regarding Lumada, as I mentioned at the beginning, it is now growing as planned. We will focus more investment in this area.
The government sector and the Lumada scale by digital, those two are the drivers. Thank you.
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Thank you very much. It's time to close the meeting. With that, we would like to close Hitachi, Ltd.'s web conference on Q1 FY 2020 earnings. Thank you very much for your attendance despite your busy schedules.