Thank you for waiting. Thank you very much for joining us today at Hitachi Investor Day. Despite this weather, it is not really great. I am Tokunaga, CEO of Hitachi. I would like to express my sincere gratitude for your continued understanding and support of Hitachi Group business activities. It has been more than two months since I took office as CEO in April and began managing the company under the new management structure. We announced our new management plan at the end of April, in spite of 2027. Afterwards, in May, I visited Europe, and CFO Kato visited North America to directly hear various opinions and feedback from directors. I have also held extensive discussions with the IR department and am taking into consideration the opinions and questions raised by investors.
I have reaffirmed the strong expectations for Hitachi's growth, and I have heard many opinions, including concerns about how to concretely achieve and execute growth, particularly regarding capital allocation. Today's Investor Day, we have considered themes and content based upon your feedback. After the presentations, there will be also a time for Q&A session, so we would like to be grateful if you could give us your feedback again. Of course, we recognize the need to continue improving and strengthen communication with the capital market, not only today but also in the future. This is an important responsibility as CEO. At the same time, we consider it crucial for management members to gain a more direct understanding and awareness of the capital market through discussions with you. Today, I'd like to first present the CEO remarks outlining Hitachi's basic management policies.
Following that, the leaders of our four core businesses—mobility, energy, connected industries, and digital—will explain their respective growth strategies. Additionally, Lorena, the CHRO, will explain the human resource strategy that supports these businesses, and Kato, the CFO, will explain the finance strategy. In the final Q&A session, all presenters will engage in discussing with you. Although this will be a lengthy session, we hope you will stay with us until the end. Now, let me begin my explanation. As CEO remarks, I will explain the following five points. Hitachi is currently undergoing a transformation aimed at further enhancing corporate value. At last year's Investor Day, my predecessor, Mr. Kojima, presented a roadmap for further enhancing corporate value through the transformation into a digital-centric company. With the recent announcement, Inspire 2027, we will accelerate this transformation into a digital-centric company.
As the need for innovation in sustainable social infrastructure expands, Hitachi will strive to become a global leader in social innovation businesses by creating unique value with digital at its core. As we accelerate our transformation into a digital-centric company, as CEO, I will prioritize three key areas: expanding the Lumada business, capital allocation, and deepening governance. I will work to achieve the financial goal set out in Inspire 2027. The rapid evolution of generative AI has enabled us to create new value from data, making a major turning point in the expansion of the Lumada business. By leveraging GenAI, we believe we will further evolve Lumada and achieve high profitability and sustainable growth.
To seize this significant growth opportunity at Inspire 2027, we have set new long-term targets for an 80% Lumada sales ratio and a 20% profit margin as our target levels, and we will continue to drive the expansion of the Lumada business. By leveraging advanced technology such as GenAI, we will innovate the Lumada business model and transform Hitachi's three strengths: its extensive domain knowledge, massive installation base, and advanced digital capabilities into drivers of exponential growth. First of all, we will leverage AI to integrate domain knowledge across IT, OT, and products, thereby enabling Hitachi's unique competitive advantages. This is a differentiating factor that only Hitachi can leverage, as it has cultivated domain knowledge in each of its four core businesses. We will also advance the digitization of Hitachi's strong global product installed base.
Furthermore, as already underway in the railway business, we will provide Hitachi digital services to customers using products or systems from other companies. This will enable us to sustainably expand Lumada's total addressable market over time. Additionally, leveraging Hitachi's digital capabilities, we will standardize service development across sectors and scale digital services across sectors. This will be a significant advantage for Hitachi, which aims to create synergies among its four core businesses. By simultaneously strengthening and integrating these three strengths, we will achieve exponential growth in the Lumada business. To swiftly and maximally capitalize on Lumada growth opportunities, we will continue to strengthen our portfolio using the achievement of Lumada NT20 as a judgment criterion. In addition to acquiring the missing piece to strengthen Lumada, we will advance portfolio restructuring with an eye toward future growth areas and technological innovations.
On the other hand, we will restructure businesses that have low affinity with Lumada NT20 and lack growth potential or competitive advantage. Capital allocation is extremely important in achieving value creation and maximizing returns while acquiring the pieces that support expansion of Lumada through growth opportunity and growth investment. The basic approach to capital allocation remains unchanged from the past. We will prioritize returns and allocate capital flexibly and in a balanced manner between growth investment and shareholder returns. First, growth investments will be actively implemented under strict investment criteria, focusing on bolt-on acquisitions that contribute to improving ROIC. Funding will be sourced by leveraging financial discipline. On the other hand, we will expand shareholder returns over the mid to long term.
Specifically, we will adopt the basic principle of returning more than half of core free cash flow and current period profits, while steadily growing dividends and flexibly executing share buybacks. Through these two pillars of growth investment and shareholder returns, we will enhance our corporate value. To advance the transformation into a digital-centric company, as I explained earlier, it is essential to deepen governance and transform management and corporate culture to achieve sustainable growth. Hitachi operates in a global market where various risks are becoming increasingly complex. We will continue to promote autonomous, decentralized global management, balancing threat mitigation with opportunity creation. At the same time, we will accelerate decision-making with high agility and expand synergies within the group. Additionally, to foster a mindset aimed at high growth, we will evolve our compensation system.
Furthermore, we will enhance transparency in management by strengthening dialogue with capital market participants and improving communication with all stakeholders. The transformation of Hitachi, as I said earlier, is supported by the integrated operation of our four core businesses and corporate functions. Following this, the leaders of the four core businesses, human resources, and finance will explain their respective strategies. First, Giuseppe, who leads the mobility business, will explain the growth strategy.
Thank you very much, Tokunaga-san. Good day, everyone. I'm pleased to present the mobility sector strategy. The world is changing fast, and so is mobility, which has always been a key driver for economies and development. Today, we would like to present the evolution of our sector across three key topics. The first one is the actual midterm management plan 2024 as a starting point for the next. We will talk about the mobility market, which is also the base of our vision for the next three years, the plan 2027, in which we will also have the opportunity to go in detail of our digital strategy. Let me start then with 2024 highlights. We achieved solid deliveries, and we can see examples of some key projects around the world, like in Greece, Italy, Singapore, and Australia.
We recorded a robust order intake, especially in Germany, which we consider as one of the biggest, most referenced rail markets worldwide. This is thanks to the acquisition of Thales Ground Transportation Systems. We also secured an important service contract for high-speed trains. We launched HMAX, which is our digital platform for asset management, developed with Hitachi Digital and GlobalLogic, empowered by edge computing and deep learning capabilities from NVIDIA. We completed the integration of Thales Ground Transportation Systems, a strategic acquisition for EUR 1.66 billion. Last week, it was the first year anniversary. After 12 months, we can today say that we have achieved seamless integration from day one and that the key business processes have been aligned very quickly. The result of this integration is a combined new entity, the new Hitachi Rail, now a business in over 50 countries serving more than 300 customers worldwide.
We can count on strong references such as 16,000 train cars moving people every day around the globe, as well as 26,000 kilometers of signaling in mainline and 4,000 kilometers of signaling for the most important metros in cities around the world. Our global footprint is now established, and we now operate as a domestic player in the most important markets in the rail industry. We have 24,000 colleagues worldwide, including a large pool of skilled engineers and technical experts working across over 100 offices, 60 service and maintenance locations, 10 factories, and 25 R&D centers. Our business is in transformation, and it has been progressing over the years. You can see that we have achieved JPY 1.194 trillion of revenues, representing a CAGR of 24%. Of course, this growth is coming from the acquisition we have made, but even in an organic way, we achieved a double-digit growth of 13%.
Margin performance continued to improve, reaching 8.9% last year, whilst our return on invested capital exceeded the double digit. The slight decline last year is the short-term dilutive effect of the GTS acquisition, as the full synergies which we are realizing in the current midterm, of course, have not yet been materialized in the first year. The key priorities for 2025 will be execution of our solid backlog, driving synergies with GTS, and further acceleration on digital. Let's also review order intake. We had a successful 2024 with book-to-bill at 1.4 times and margins at 22.2%. We have a backlog now of JPY 6.2 trillion. From the graph on the right-hand side, we can see that our margins have increased more than 1% over the last midterm to 20.4%. We will be converting this into revenues for the current midterm through solid execution. I would also like to mention about cash.
Cash conversion has been reduced from 65 to 37 days. This reflects healthy cash conversion and robust working capital management within our operations. Let's now explore the market. We see the mobility market as a growing sector. The number of rail passengers will be doubled by 2050. There is a clear need for solutions that can enhance efficiency. Rail is also a key contributor to sustainability and is undergoing transformation driven by seamless multimodal travel and digitalization. This is a market forecast by the industry association, the UNIFE. The expected accessible market is growing steadily towards the end of our midterm at a rate of 4% across all lines of business. Let's now discuss 2027. The three drivers are sustainability, innovation, and recurring revenues.
As mentioned earlier, we do believe that rail is the way to move people more efficiently with shorter travel time while solving congestion issues and reducing carbon footprint. We will drive innovation for the mobility of the future as we stand at the crossroads of transformational changes driven by digital innovation. Our business is gradually shifting its model towards more recurring and software-based solutions. Now, let's have a look at some numbers. This is our plan to achieve JPY 1.46 trillion in revenues in 2027. It is important to highlight that the mix of revenues is shifting further from vehicles, which is in the darker gray, to rail control, which is in the lighter gray. Our growth is two times the market CAGR at 4.1% seen earlier, and our Lumada ratio is growing from 29.6% to 40%.
Furthermore, 74% of our revenues in 2027 will come from recurring and software-based businesses. We believe that our strong install base, multiplied by the growth in digital accelerated through our HMAX digital platform, will demonstrate a strong IoT times IT leverage. Our profitability will grow from 8.8% to above 11% over the midterm. This is coming from the quality backlog we have seen, synergies from the acquisition of Thales GTS, and other efficiencies in our plan, and a big contribution driven by the digital. That's the red part in the chart. These are the six pillars which we are focusing. First, of the business growth, it's the acceleration in key geographies and growing markets, especially the Middle East, India, and Asia-Pacific, also leveraging GTS footprint. We are executing the backlog. Let me explain the detail.
The JPY 6.2 trillion backlog consists of 36% rail control, 21% vehicle, and the largest portion of 43% coming from services, which we can count on. We're working on cost containment, leveraging our focus on productivity and AI. An initiative on product lifecycle management has been launched across the organization. New M&As. We are looking at potential opportunities which could support innovation with the objective to grow further in digitalization and in the future of smart cities, realizing synergies with the rest of Hitachi. Of course, geopolitical changes do require strong attention and proper setup. We are, for instance, managing potential changes through our diversified footprint. In particular, in the United States, we have just completed a new factory in Maryland, which I will touch on later, and we have a large historical base of rail control in Pittsburgh.
It is important to know that most of our rolling stock contracts are already following under the Buy American Act, with 70% of production already by American. Last but for sure, very important, our people. With our very large pool of diversified competencies, we have the strength to lead the technological challenges of the future. Now, let me give you some examples of cases in action. We have achieved a major framework deal in Germany, and over the next four years, we will be delivering more than JPY 240 billion in digital interlocking, ETCS, which is the European Train Control System, and it's the base of intelligence to operate trains, but also integrated control and operating systems. We also secured a 15-year framework agreement for service and maintenance of 103 high-speed trains.
With our products and services, we're driving sustainability, not only for being green and reducing carbon footprint, but also as a competitive cost advantage. This is because our trains are delivering greater efficiency. For example, our green CBTC in operation with one of our customers has achieved an 8% reduction in energy consumption, directly impacting cost efficiency. As we said earlier in our presentation, we have a new factory in Maryland. This not only reflects our strong presence in the United States, but also it is a very important example of what One Hitachi, bringing together deep expertise from all Hitachi areas, can achieve. These include Hitachi digital capability for robotic inspections, automatic guided vehicles from the Connected Industries, and also the support that we're getting from Hitachi Energy on the power supply side. Those were some real-world examples related to sustainability and recurring business.
Now, we would like to shift your attention to our innovation plans, which we will cover over the next four slides. Before that, let me play this video. In this world of constant change, our ability to predict is just as important as our ability to adapt. HMAX enables your rail network to both predict and adapt through constant monitoring of trains, signaling, and infrastructure, using sensors located on rolling stock and across your network environment. Using HMAX, the train monitors its own performance, checking things like axle imbalance, excessive vibration, energy use and emissions, air conditioning, and compressor health. It constantly analyzes operational data to help operators make the best decisions on fleet performance. With automatic video inspection, HMAX makes fleet maintenance faster and more accurate than ever. There is more. An HMAX train also monitors infrastructure, reducing the need for separate service trains.
HMAX, enabling you to predict issues, optimize your network, and transform your operations. I hope you found it interesting. Let me now take some time to show the detail of the digital platform architecture. HMAX collects information and data from a very wide range of sensors, from the train, from onboard and wayside signaling, from rail infrastructure, and even from some station for power supply. That is on the bottom of the slide. You will hear more on this, especially talking about energy from the presentation from Andreas. The data will then flow through successive layers, firstly integrated to be readable, and then stored in a common data lake, a sort of large memory where each application, through algorithm and AI, can have access and elaborate.
You can already see on the top of the chart the number of applications up and running and already delivering value to our customers. As we continue to innovate, even more will be introduced. What are HMAX's key advantages? For example, it makes journeys more reliable with the potential to reduce up to 20% in service delays. It can also increase cost efficiency, reducing up to 15% in maintenance cost and energy consumption. We are different. We have proprietary advanced sensor technology dedicated to rail, which we achieved also through acquisition. Only recently, we announced the acquisition of Omnicom, a UK-based company. Quality of the data is key. This is therefore enabling us to collect a wide range of data from the asset you have just seen.
We manage the data thanks to a strong architecture and software developed by Hitachi Digital and GlobalLogic, enhanced by AI evolution, not only generative, but also agentic AI and physical AI, which is the intelligence for autonomous vehicles. The platform, it's then powered by NVIDIA Edge Computing solution and deep learning capabilities. We have a very solid reference. Our solutions are already fitted on more than 2,000 trains in the field. Having introduced what is HMAX and its advantages, let's now talk about our go-to-market strategy, which needs to be different from our traditional business model. The value of HMAX in bringing improvement in cost efficiency, energy efficiency, and reliability across different assets is amplified by value-based business models. They could be profit-sharing with our customer or as a service and subscription, or an operational optimization on our maintenance efficiency and quality.
The potentially significant on the right-hand side, you will see estimates provided by McKinsey. In the next slide, I will show where we currently stand. HMAX, in fact, it's not just a concept. It's already in motion and winning contracts globally because within less than a year from its launch, we achieved already quite a lot. You can see that HMAX is generating long-term recurring digital revenues, which are vital for our vision. As of 31st of May, we achieved JPY 20 billion in orders, and we are working on a pipeline of JPY 200 billion, which is growing by the day. Let me summarize and conclude. We have delivered solid action over the last midterm and built a strong foundation for accelerated sustainable growth. The market is expanding, and we are leading the transformation, not just adapting to change, but shaping it.
Our momentum is driven by a unique combination of scale, digital capabilities, and purpose-led innovation. We are working to hit targets for this midterm plan and aiming for the JPY 2 trillion target. Hitachi is delivering today and shaping tomorrow to build the mobility of the future, to create real impact for our customers, for the planet, and for society. Thank you very much. The next presentation will be the energy strategy. Andreas, the floor is yours.
Thank you. Good afternoon, and thank you for spending the next couple of minutes with me to discuss the energy business of Hitachi. In the following minutes, we will cover four broad areas. First, the current position and a recap of the last midterm management plan, 2024, the market development and outlook, the profitable and sustainable growth strategy for Inspire 2027, and then, of course, a conclusion and update on future outlook.
The journey of the last M&P up to 2024 was an interesting one. We were able in the energy sector to nearly double our profits, and then the Hitachi Energy field nearly doing the same. It was a continuous significant revenue growth based on our de-risk strategy, leading to better margin and risk profile in the order backlog and operational excellence. Going forward, we have to execute that backlog, and we will discuss that in detail. We are aiming to become the number one service provider in the industry. We will discuss that as well. Of course, to leverage digitalization with Lumada and innovative technologies. We consider ourselves as a market leader in grid management and grid technologies. We have a solid market position, which we have earned over the last decades. In all our areas, we are number one or number two.
Transformers, we have the highest installed production capacity. It doesn't matter if it's distribution transformers or high-power transformers. High voltage, one out of four high-voltage switchgears in the world is invoiced, produced, and installed by us. We have innovative product lines like EconiQ with SF6-free technology. In grid integration, we have not only invented that technology in HVDC nearly 70 years ago, we have installed 150 gigawatts of connections worldwide. In grid automation, 50% of the 250 biggest utilities are customers of our software solutions for substation automation protection, grid management, or market base. In service, over the decades, we have installed the biggest installed base of more than $230 billion, and we strive to leverage on that. In nuclear, two-thirds of all boiling water reactors in Japan have been ours. We are working on them, and we are working on restarting them.
That's the base for our continuous growth and our success. Let's look at the market development, which is fueling our growth. I think the energy market is changing in a dramatic way. If you look for last year, in 2024, more than 585 gigawatts of generation capacity were added to the installed base worldwide. 85% of that number was renewable: solar, onshore, and offshore wind. Only 15% of the additions were nuclear, hydro, or conventional generation assets. This trend will continue because renewables are the cheapest and the fastest way to add generation capacity to our world. If that continues, you see on the bottom line that in most areas like Europe, India, and China, the share of renewables up to 2030, 2040, and so on will double and will create a big impact.
Because renewables are cheap and reliable from a technology point of view, but not reliable from a generation. They are volatile. They are not always producing. Of course, they add in complexity to the grid because in former times, generation and demand were always co-located. Now, we have sometimes hundreds or thousands of miles between generation and consumption. That increases complexity and asks for new solutions. Providing inertia, frequency stability, fault handling, complex connections across different states makes our network and our technologies more complex. The good news is we have in Hitachi Energy all the solutions we need, starting with HVDC for transporting energy over long distances, providing frequency services with statcoms, battery electric storages, and all these other services, adding on with software solutions to manage these grids, which are more volatile, more complex, and avoiding blackouts all over the world.
The market is growing. Growing is probably an understatement. In 2017, our market was around $100 billion. Last year, 2024, it was already $233 billion, so more than doubling. We estimate that the market in 2035 will reach $450 billion. If that is the peak of the market, we are not quite sure. It can be even later. We are looking forward to a decade of growth and to a growth in a market which we have not seen as an industry in decades, or probably not at all, because if we see from the curve, these market volumes were never experienced in our industry. That is the base for our profitable and sustainable growth strategy for Inspire 2027. How do we leverage on these very favorable conditions? Of course, our strategy is focusing on what we have on hand.
We have at the moment an order backlog, which is the biggest one in the industry, with $43 billion. We have, of course, manufacturing to work on this backlog. We have to expand that because our installed capacity is not big enough to deliver all that backlog at the moment. Of course, operational efficiency will contribute. Delivering on time, on budget, on quality for our customers will be the key for our success. Of course, we need more people. We are growing rapidly, and we have to hire in the next M&P 2027 more than 15,000 people net growth, so without replacements. From a business focus point of view, we will focus on service with more than 500,000 power grid assets installed and a market and an installed base of $230 billion, which only 1% is covered at the moment with service agreements from us.
That's a huge potential for additional growth. Of course, we have introduced in the last years new innovative business models, going away from EPC, focusing on EP and EP Plus, standardization framework agreements, which were radically new for our customers and our industries years ago, which are now more and more adopted by everybody. We have huge potentials in nuclear energy with our joint ventures to making SMRs possible. We have already received one FID. Of course, we will continue to leverage in our pioneering spirit, innovating, finding new solutions for our customers for the grids for tomorrow. Let's talk a little bit about our backlog because that's one of the core factors for our success.
The de-risking business models, or no EPC anymore, framework agreements, capacity reservations, and of course, enhanced TSMCs have resulted in an improved order backlog gross margin, which have increased steadily over the years. While we have in 2021 looked at an order backlog of around $40 billion, this has more than tripled. We have at the moment $43 billion orders on hand. On top of that, framework agreements and capacity reservations. The visibility of our backlog has increased as well. In 2021, we could probably foresee around three years in order backlog. Now, the combined number of backlog and capacity reservations is nearly six years. For six years, we know what we have to deliver. That brings us to our capacity expansion investments. To deliver that order backlog, we have already invested $3 billion in the last M&P.
We are looking forward to invest another $6 billion in the M&P Inspire 2027. You see from the landmark where we are investing. It is all across the world. It is the U.S., Canada, Mexico. It is India. It is Europe. It is Brazil. All in these locations, we are expanding our production footprint. Of course, we are looking for acquisitions as well. We are only adding capacity which is needed to deliver the backlog. We are not building any empty capacity or capacity which is on risk needs to be filled. That is the largest investment program in the industry based on hard financial data on bankable order backlog, looking forward to expanding and delivering to our customers. If we are looking back and looking forward, things have changed. From 2021 to 2024, actually, we could grow $7 billion, but mainly by filling our factories. Our factories were underutilized.
They were running on one shift or even less. In this period of time, we have filled our factories with backlogs with products and solutions, went from one shift to two, from two to three shifts. Yes, we hired people. This was needed. CapEx was already started. The next M&P Inspire 2027, we have to change the game. The factories are full. We have no empty capacity, so we have to expand. The CapEx expansion will be the trick to deliver our revenues going forward for this M&P and, of course, further ahead. We digitalize our operations. We have installed one global SRP as Fujana system, where we have all countries, all factories, all customer connections on our fingertips to control our operations. Operational excellence, delivering on time and quality for our customers is underway.
Of course, continuous talent acquisition because we need more people to deliver our plans. Adding new people sounds easy, but in the dimension we are talking, it's not easy anymore. Adding 15,000 new colleagues in the next three years is a huge task. We can report that we have digitalized our HR landscape in the last couple of years. We have proven already that we are able to hire more than 10,000 people newly every year, replacing people who have left us and adding 5,000 people net. We are quite confident that for the years coming forward, we are able to find, to hire, to train, and to keep these new colleagues, which will be the key for success to deliver our revenues. Digital is not only necessary for HR. Digital is as well required for our market.
IEA and Bloomberg are forecasting that the expenditure of our customers and software due to the changes in the grid will increase, going from 12% in 2016 to 20% in 2023 and more rising up. The changes in our industry, in our grids with renewables and all these challenges will require much more software and digitalization. That is actually a good partner for service because service and digitalization are going hand in hand. We have the biggest installed base in the industry, 500,000 assets installed over the decades, $230 billion in installed base value. Only 1% of this installed base is covered by service agreements by us. That was the reason that we started a project last year to create a new service BU, which is active since April 1st this year, to really leverage on that assets.
Of course, we are combining our service activity with HMEX, where you have heard from Giuseppe already a little bit. We will come to that. The objective of these new business units are three. Of course, becoming the number one service provider in the industry using our installed base, growing our service business organically four times and five times with adding on bold on acquisitions, and of course, improve our margin profile. The service strategy is a little bit longer time oriented than just that. In the next three years, Horizon X, we are focusing on giving them a good start, getting our X together, looking at service on our installed base. The next three years after that, Horizon Y is fully rolled out digital business models with AI, predictive maintenance, and of course, focused on the huge installed base of the whole industry.
The end game, Horizon Z, preparing for a service-first company for a downturn in the market, which we are not foreseeing in the next 5 to 10 years, to be very clear, but just to prepare now that we have a good base and a downward protection in case we need that. Establishing a new service business unit is easier said, but I just want to show you that it is just more complex than just saying that. The project was executed in a couple of months. It meant in the end that more than 6,300 colleagues have to shift from one organization to another. We have to define leadership structures, strategy, locations. Now we can report that more than 6,000 people are working in over 40 countries providing services to our customers, including call centers, which are operating 24/7.
Of course, the portfolio for the service business is quite comprehensive. Plan and build is actually the focus of our BUs, which are providing assets like circuit breakers and transformers. The whole value chain of service from install, maintain, spare parts, train, modernize, and replace is a world of service which will drive the growth in the next couple of years. That is definitely not only service agreements. There are a lot of add-on services which are normal in other industries, which we will introduce to our industry as well. Let me start a short video and explain to you what can change. Let's start the video, please. We have installed over the decades thousands of substations. Substations are consisting of circuit breakers, isolators, bus bars, and so on. Wouldn't it be good to know where all these parts are coming from and where they are installed?
Not only a circuit breaker alone, but all the inner parts of that, which are used if they are working, to track them back when they were produced, where they were produced, which material was used, which batches have maybe been affected by quality problems, which are reducing the lifecycle. Having that all digital on your fingertips, planning spare parts, modernization strategies, and combining the static data with operational data in the cloud, which we call HMEX, because this is what becomes now reality. We have already for circuit breakers a digital passport for the whole portfolio. We know what was produced where, who has touched it, where is it installed. We are doing the same for our transformers. Stop the video, please. That is actually leading to the first business cases.
I have brought you here one example about the Ameren, Illinois customer in the U.S., where more than 1,200 substations are getting connected to HMEX with some expectations from us and the customers. Connecting these substations, getting data, static and operational data, will result in a 15% improvement in asset availability, a 30% reduction in unplanned downtime, and of course, a 30% reduction in resources and inventories going forward. That is one of the examples. I brought you a second one, which is actually a very good one from One Hitachi. Of course, HMEX and rail was already explained by Giuseppe. The colleagues from rail asked us if we could connect the substations from the rail system of one customer in the same way we would do it for electrical customers, prevent downtime, improve operational maintenance, having less assets available.
That is the true One Hitachi example because we would probably as energy never approach the rail customer to do these services. As I have listened to Giuseppe, there is a big potential for us to leverage on that together, rail and energy. Digital and service in HMEX is actually one of our key success factors going forward because connecting assets, digital passport, cloud-based maintenance platforms, analytics, AI, all these things will drive our Lumada revenue and quadruple it in the next M&P with value, going to a much higher value than we have had before. Of course, staying number one is not only requesting digital, but it is requesting as well innovations and inventing new things.
I brought you a few examples here, starting in the left upper corner with a new transformer optimized for nuclear assets like SMRs or the iconic series from circuit breakers, which are SF6-free, where we are installing the first 550 kV gas insulated switchgear in China, which is saving tremendous amounts of CO2. Probably another unconventional example, the Hitachi Vegetation Manager, which was developed together with Hitachi Energy, Amazon Web Services, and the digital arms of our house in Hitachi, dealing with vegetation under overhead lines. Overhead lines are endangered by vegetation which is growing below them. It's starting wildfires. It's creating outages. A lot of the fires in California were starting by vegetation under overhead lines. Cutting them down is a normal task for utility. Of course, it requires planning, good timing. Sometimes it's not very effective.
Here we are combining satellite images with AI and forecasting where the vegetation is becoming a threat to increase the effectiveness of the crews to cutting down the vegetation below that in a much better way. Another example, the Katniss-Morey-Châtelain HVDC connection, the first worldwide multi-terminal HVDC connection. You do not have a point-to-point connection. You have three stations saving tremendous amounts of equipment and converter stations and makes the whole solution much more sustainable and cheaper for our customers. One part of our strategy is, of course, M&A. We are looking forward to acquisitions in all our businesses in the areas of strengthening the core capacity and technology add-ons, accelerate digital services in digital grids or for the service BU, and at the edge as well, where power electronics, charging infrastructure, battery electric storage is possibly a way to look for possible plug-on.
If you're switching to nuclear, you have maybe followed the market. SMRs are definitely a new thing. 100 gigawatts of SMRs are planned in North America and Europe. That's around 250-300 SMRs. We can report that with our joint venture. We have already got the first FID in Canada for the implementation. That's a market where we definitely can make a difference. Hitachi Energy has a broad experience in BWR reactors, boiling water reactors here in Japan. Designing SMRs, downscaling them, and producing the internals is definitely what we are looking into and where we see great potentials going forward. As well, digitalization. We are not only restarting here in Japan the nuclear assets together with our customers. We are as well investing into digital capabilities.
You see on that picture a digital control room in our factories in Rinkai used for trainings for customers and for simulations and for perfecting and improving the asset performance. Let me wrap up as a conclusion where we are standing, where we want to go. Our key priorities in a nutshell is excellent our strategic growth areas, becoming the number one service provider enabled by digital, investing in capacity expansion, adding flexible capacity and the ability to scale, capture the opportunity with nuclear, including SMRs, and definitely leverage on digitalization and innovative technologies going forward. I think we have a very favorable market environment. We have profitable and sustainable growth based on our backlog, which will result in value creation for Hitachi.
If we just compare what we have done in the last M&P and what we plan for Innovate to Imagine 2027, compared to the old plans, we are growing from 11.1% to a bracket of 13%-15% based on a volume effect, based on a margin increase by Lumada. We're spending a little bit more on R&D to stay ahead of our competition. Of course, service and bolt-on acquisitions will contribute to that journey as well. Is there potential for more and better results? Yes, maybe. It depends how good we are in executing our capacity expansion, how good we are growing our service business. I would say yes, there is potential for more. We are at the beginning, at the start of our journey for this M&P.
Compared to the old M&P 2021 to 2024 and what we are adding now, we are adding overall more than $20 billion revenues until the end of 2027 and more than $5 billion profits additionally to the original plans. Yeah, in a nutshell, here are the figures for your information. I'd like to thank you for your attention. I'm sure we will not be able to answer all our questions in the afternoon. I think I can announce that we're planning an Investor Days only on Hitachi Energy in autumn in Europe. Of course, if you are around, you're highly welcomed. With that, I'd like to finish my presentation and hand over to the CI sector. Breeze, the floor is yours.
Good afternoon. Good morning, ladies and gentlemen. My name is Brice Koch, and I'm in charge of the Connected Industries sector from this April.
Thank you very much for your time today. I'm honored to present to you CI Inspire 2027 direction according to this table of contents. Before looking ahead, please let me recap where we come from looking at the highlights of the 2024 midterm management plan. Under the leadership of the former heads of Connected Industries, Aoki-san and Abe-san, TSS, or Total Seamless Solution, which is leveraging products, OT, and IT combination, has been expanding, and many fruitful results have been achieved as shown. First, on the connected products, which are the base for digital services as a source of data, have increased from 1.2 to 2.5 million units. These digitalized products have boosted maintenance productivity by a factor of three. Second, recurring or service business, which is highly profitable, provides steady cash flow and keeps us close to our customers.
Those could be grown by 10% operationally and via spot-on M&A. Third, green business, which is expanding to support customer JX journey, in which we could increase from JPY 725 billion to JPY 846 billion. At last, but not least, aiming to be more global, we could grow by 66% in Europe and 35% in North America. In summary, sales and especially profitability were improved thanks to TSS implementation, significant growth of Lumada revenues with a CAGR or compound average growth rate of 26%, overproportional growth of recurring business with a CAGR of 10%, the expansion of our global businesses, and as operational foundation, cost discipline and pricing management. On the other side, we believe that going forward, we should more accelerate our top-line growth, transform our portfolio to simplify and strengthen it, and expand further our global businesses.
In that respect, first, let me look now at our business environment. Looking at the structural change in the industry, we see that in discrete industry, automation optimization becomes more integrated between design and manufacturing. In other words, the whole process from conception to production becomes more seamless and automatized, supported by AI. In process industry, also with the advancement of AI, development time is shortened and manufacturing efficiency improves. In the case of both industries, discrete and process, as the availability of skilled workers in mission-critical domains is decreasing, AI ensures efficiency, skill, and safety, providing labor productivity improvement value. Looking more in detail at the industry automation market, we see here the growth on the vertical axis, the profitability on the horizontal axis by industry. The size of the circle indicates the respective industry, automation market size, and the color of the circle shows the type of industry.
In summary, we can see that hybrid industry like batteries, advanced materials, biopharma in particular, have both high growth and high profitability. We understand that this is because these industries have the biggest opportunity to improve their assets, efficiency, and labor productivity. In light of this situation, in Inspire 2027, we will capture business opportunities there where we can deliver most values to our customers. As such, I will explain about CI profitable growth strategy in Inspire 2027. In that respect, please let me start by showing you a video setting the scene. As we show in this video, our vision is to realize a harmonized society by driving innovation for frontline workers by one Hitachi, by providing integrated industry automation. Integrated industry automation is leveraging our strengths, combining our mission-critical products, their abundant install base, our domain knowledge, and our one Hitachi digital capabilities.
As such, CI Inspire 2027 is based on three differentiating key pillars as integrated industry automation solutions partner. The first one is about capturing the opportunities in high growth and high-value mission-critical market segments, such as hybrid industries. The second one is about living one Hitachi, differentiating by product, OT, and IT, seamless vertical integration powered by AI, and boosting recurring business with HMAX. The third is about achieving leadership with portfolio transformation to strengthen our integrated and synergetic core. As we have been providing so far total seamless solutions, TSS, through vertical integration from products to OT and IT in process and discrete industries, in Inspire 2027, we will leverage AI and evolve TSS into HMAX for industries. We will provide integrated solutions, improving efficiency and productivity, especially through the hybrid industry value chain. In that respect, we will also consider further strengthening our differentiation, especially around OT.
As I mentioned earlier, hybrid industries, such as batteries and biopharma, need most improvements and have high growth and high profitability. Taking advantage of TSS achievements, we can now move to the next level of value of our customer with HMAX for industry. In fact, HMAX for industry creates customer value by adding AI optimization to IT, OT, and products. This diagram shows the concept of HMAX for industry more in detail. As described at the bottom of the slide, we have an abundant installed base of mission-critical products. Collecting data from these digital assets and by utilizing Hitachi's domain knowledge and AI, we can deliver higher-value digital services to customers, such as equipment failure diagnostics, predictive maintenance, line optimization, and operation guidance and safety alerts. HMAX for industry leverages Lumada 3.0 model, and it will accelerate global scaling. What does it mean concretely?
Here, a first example of the value HMAX for industry delivers to various industries. This is a co-creation with NVIDIA relating to facility operation and maintenance, developing solutions to enhance safety guidance through AI to improve work efficiency and safety. With guides and alerts using NVIDIA AI blueprint for video search and summarization, VSS, for facility operation and maintenance, performance of work, efficiency of periodic inspection could be doubled, improving labor productivity. As a second example, this is another co-creation, this time with Daikin, related to industrial machinery. Leveraging AI with maintenance OT, we can enhance stable operation and transfers of skill. By combining OT data, such as maintenance record, operating instructions, equipment drawings, and OT skills of analysis processes, AI agent accelerates equipment failures diagnostics. Labor productivity is improved by shortening the response time of the diagnostic to within 10 seconds, as well as increasing accuracy to over 90%.
As a third example, from the biopharma industry, we integrated advanced AI bioculture simulation and sensing to shorten scale-up period. Collecting manufacturing data for mission-critical products, bioreactor, and OT domain knowledge, these real-time monitoring data are simulated and analyzed by AI and connected to automation. As a result, in simple terms, we could reduce the scale-up time from three to two years, basically gaining one year of full production time. As a last example related to advanced material, we can expand the scope of automation optimization seamlessly between design and manufacturing. Taking advantage of our mission-critical inspection measurements, OT domain knowledge, and AI, we realize data quantification and informatics, which accelerate development and improve manufacturing process. Asset efficiency can then be increased by shortening the material design time by up to 900 times, also then obviously improving the production process.
As you can see from these four examples, HMAX for industry creates customer value by adding AI optimization to IT, OT, and products. Finally, the last pillar of CI Inspire 2027, our portfolio transformation and simplification. In that respect, we will accelerate portfolio transformation by strengthening organically and inorganically an integrated and synergetic core with the aim to global leadership. To achieve this, we will execute transformative acquisition and divestment. More specifically, our organic and inorganic investment will be focused on the red area shown on the screen, on the right-hand side of the screen. As you can see, it will be related to OT or close to it, and in any case, it will be discipline driving differentiation, recurring business, and supporting our Inspire 2027 targets. Otherwise, having mentioned about Hitachi one Hitachi several times, I would like to also highlight CI contribution to it.
As such, we will accelerate global expansion through deploying CI's products and solutions also to my brother-sister sectors, global businesses. We will provide various mission-critical assets to rail and energy and create mission-critical services by HMAX for industry, leveraging also our DSS and scaling globally. Last but not least, our people, our human capital. In that respect, we will power our sustainable future by enhancing global management, leveraging our variety of talents globally. Believing that human capital is the foundation of our success, we are promoting a human capital global strategy for future profitable growth. In that respect, we want to further build growth-oriented culture and global mindset, and also create strong leadership pipeline, utilizing new leadership development programs, as well as promoting workforce transformation and talent mobility.
Also, we see digital skilled professionals as very key for expanding our digital services, and we will almost double the number of our talents. At last, coming to conclusion. In summary, we will drive profitable growth. As you can see from this adjusted EBITDA margin waterfall between 2024 and 2027, the improvements can be categorized in three buckets: revenue growth, profitability improvement, and strengthening management. Related to revenue growth, we will address global mission-critical markets, expand digital service with HMAX for industry, and grow leveraging one Hitachi. Related to profitability improvements, we will improve Lumada revenues ratio, boost digitalized recurring business, and more specifically in 2025, increase our service business in China. Finally, to strengthening management, we will simplify and strengthen our business portfolio and organization, improve efficiency utilizing AI, and strengthen our global footprint and governance. This leads me to my last slide.
Summarizing CI Inspire 2027, we will execute the following initiatives in order to achieve our vision and targeted goals: clear business focus on integrated industry automation and hybrid industries, leveraging the available growth and profit pool, transform and simplify our portfolio accordingly, expand our global reach, enhance recurring business with data utilization, leveraging our installed base and also HMAX for industry, and last but not least, acquire and develop our diverse and global talent. With that, I would like to thank you very much for your attention, and I'm happy to introduce my colleague and Head of Digital Systems and Services, Jun Abe, please. Thank you very much.
Hello. I am Abe from Digital Systems and Services sector, and I will explain the business strategy. Here's today's agenda. We will start with a review of the 2024 midterm management plan.
In the 2024 MTMP, the Lumada business led the growth, resulting in an increase in revenue and adjusted EBITDA. Specifically, we achieved significant results such as expansion of orders, modernization and large-scale mission-critical projects, growth in service businesses centered on GlobalLogic, profitability improvement through pricing revisions. However, for the DSS sector to achieve sustainable growth, we believe it is necessary to do the following: further enhance the competitiveness of both domestic and global business, and strengthen our management foundation. This slide has been restructured from the perspectives of the SI business and the service business to help you better understand the growth of the DSS sector during the 2024 midterm management plan. As you can see, both the SI and service business achieved steady revenue growth and improved profitability under the 2024 midterm management plan. The service SI business exceeded JPY 1 trillion in sales.
Next, the vision of DSS sector in Inspire 2027, starting with the business environment. The DX market that the DSS sector focuses on is expected to continue high growth across global regions. In particular, the AI market is projected to grow at an annual rate of nearly 30%. On the right side, we have the market trends. Increased investment in upgrading mission-critical social infrastructure and also the progression of project scaling and special commissioning is going forward. We see this as a business environment where Hitachi and DSS sector can leverage our strengths even more. Furthermore, as demand for AI rapidly increases, customers are facing various challenges and are increasingly seeking partners who can help solve those challenges.
In response to such changes in the business environment, DSS sector will combine its strengths in mission-critical IT, OT integration, and also with cutting-edge AI to globally deploy businesses that revolutionize social infrastructure with AI towards the realization of harmonized society and pursue sustainable growth. I will move on to the growth strategy of DSS sector that is Inspire 2027. This slide outlines the growth strategy of the DSS sector. In Inspire 2027, the DSS sector will use AI as a growth driver to promote further growth in domestic business and acceleration of global business. Specifically, we have four strategic pillars in Japan: SI business and service recurring business, globally, GlobalLogic, and one Hitachi's Lumada business. With these as four core pillars, we aim to achieve the goals shown below in Inspire 2027.
In particular, we will contribute to expanding Lumada business across all sectors, driving improved profitability for the entire Hitachi group. From here, I will explain the growth strategies for each of the four pillars. The first strategic pillar is strengthening the execution capability of domestic SI business. The performance targets for Inspire 2027 are sales CAGR of 7-8% and adjusted EBITDA margin of 16-17%. We will, as you can see on the left, we will thoroughly utilize GenAI to boost productivity and leverage our abundant domain knowledge to deliver Hitachi's unique value quickly, enhancing customer operations and advancing social infrastructure. To address the shortage of domestic talent, we will utilize engineers from, sorry, plus 30%. So speaking specifically, the effect of GenAI in 2024 was plus 30%. That is JPY 5 billion. In 2027, we will expand that to JPY 200 billion.
As you can see on the right, to address the shortage of domestic talent, we will utilize engineers from GlobalLogic and Hitachi Digital Services in India, Vietnam, and Eastern Europe for domestic system development projects, further strengthening our SI execution capability. Specifically, in FI24, we will expand 650 man-months to 3,500 man-months. Through this, we will really strengthen our SI capability. In addition, we will introduce GlobalLogic's advanced digital technologies to establish an AI development environment, strongly promoting efficiency in software development and utilization of IP. From here, I will introduce three cases of value creation for customers using generative AI in Japan. The first is a financial sector use case using generative AI in a large-scale SI project. For example, with Kyoei Fire & Marine Insurance, we began a large-scale core system modernization project in April of this year, migrating from mainframes to public cloud.
Since the project is large and long-term, a major challenge is the vast amount of information required for project management and migration development work. Hitachi plans to utilize generative AI to resolve these challenges, reducing workload and improving accuracy during migration and development. We will also expand the application scope of generative AI to further enhance precision and quality in development processes. In the financial sector, co-creation initiatives using generative AI to improve operational efficiency are expanding, and we are collaborating with many customers beyond those shown on the slide. The second case is the application of generative AI to quality assurance operation at Omika Works, which develops equipment and systems that support social infrastructure. We have applied generative AI to quality assurance work.
How to pass on the know-how and tacit knowledge of skilled experts to the next generation is a major social issue, and it is a significant challenge at our sites as well. One important quality assurance task at Omika Works is handling customer system inquiries and troubleshooting. So far, we have responded by utilizing databases that store manuals and past trouble information. Seasoned workers can narrow down issues based on experience, but younger, less experienced employees often struggle to grasp the reality. We trained AI by feeding it over 100 questions and model answers related to actual on-site work, helping it learn multiple decision-making points and improve its judgment. It's like a craftsman training an apprentice, gradually transferring the senior veteran's knowledge to the AI. This enabled even non-veterans to quickly search for the right information and provide fast and accurate answers.
Hitachi has extensive domain knowledge, such as deep understanding of customer operations and insights into machinery and physical phenomena. As in this case, we combine this domain knowledge with cutting-edge AI technology, verify it internally, and implement it in customers' mission-critical systems. This is a unique strength of Hitachi, not just having AI capabilities, but also being a manufacturer that supports social infrastructure. The third example is the application of JAI to social infrastructure systems in the railway sector. With the aim of improving efficiency in railway operation management and maintenance, we will conduct joint verification with JR East from around September this year. The ATOS, which manages the operation of conventional lines in the Tokyo Metropolitan Area, is a large-scale system composed of many complexly integrated devices.
Therefore, when issues such as troubles or inquiries about function arise, dispatchers who analyze and identify the case causes require highly specialized know-how and knowledge. In cases where solutions cannot be provided by the manuals, consultations with experienced personnel are necessary, which can result in delays from identifying the cause of the malfunction to restoring operations. Amid the growing shortage of labor on-site, we will collaborate with customers on initiatives such as developing an LLM specialized in railway operation management that incorporates tacit knowledge such as operational know-how and developing AI agents that replicate the thinking of experienced professionals. Furthermore, we aim to enhance the overall reliability of railway operation systems by considering the application of GenAI to requirement definition, design, and development tasks in system development. Now, the second pillar of our growth strategy is the strengthening of our domestic service and recurring business.
Inspire 2027's performance targets are sales CAGR of 6-7% and adjusted EBITDA margin of 16-17%. As the X demand expands among mid to small businesses, customers are facing challenges such as shortage of AI-skilled personnel, risks of leakage of sensitive information, and increased costs. The DSS sector will continue to strengthen high-value-add solutions such as AI agents based upon AI infrastructure that enables customers to utilize data with high reliability and low cost, such as Hitachi IQ and Hulk for AI. Through this, we will further strengthen and expand our service recurring business, which provides a total range of services from business transformation through consulting to AI utilization environment and AI offerings. The third growth strategy is the sustainable growth of GlobalLogic. GlobalLogic continues to achieve high growth, exceeding the market average as the growth engine for Hitachi and the DSS sector's global business.
At Inspire 2027, we will further enhance our delivery capabilities through bolt-on M&As and other measures to drive the continued growth of our digital engineering business. Additionally, synergies with other sectors have expanded by 67% year-on-year in FY2024, and we will continue to contribute to the digitization of business assets and service across the other sectors. Furthermore, we will focus on software asset-based solution businesses that integrate GlobalLogic's advanced design and engineering capabilities with cutting-edge AI technology. GlobalLogic's AI capabilities, such as Velocity AI, as you can see here, have already earned a leading position and high praise in the market. We will leverage our technological capabilities and extensive AI talent pool of 16,000 people to expand our solution business globally. The fourth growth strategy is the expansion of the Lumada business under One Hitachi.
Inspire 2027's performance targets are Lumada sales ratio of 50% and adjusted EBITDA margin of 18%. A representative example of this is HMAX, as demonstrated in the previous presentations for each OT sector. As shown on the left, we will expand HMAX services, which integrates the installed base of OT sector equipment and machinery with AI and digital technologies from the DS sector into the growth market shown on the right-hand side, thereby scaling up HMAX-related business globally. To expedite the rollout of the HMAX business model, we have established a new One Hitachi Advisory Board, as you can see in the center on this slide. Through this board, a One Hitachi Advisory Board, we will accelerate business growth by swiftly sharing strategies and making decisions at the top level of each sector.
Here, we introduce an example of using AI to innovate operation of the transmission network of Southwest Power Pool SPP, a regional transmission organization, in the United States, which is under One Hitachi. SPP is responsible for the stable supply of electricity and development of adequate transmission infrastructure over the Midwestern United States. U.S. energy demand is increasing Year-on-Year due to factors such as expansion of data centers, increased production activities, and accelerated electrification, and this trend is creating a significant gap between supply and demand. The Hitachi business units shown here have collaborated to develop an industrial AI system that performs AI analysis and simulation verification, contributing to the resolution of the energy supply demand gap in the U.S. In this way, Hitachi is expanding its unique initiatives to advance social infrastructure with AI globally under the One Hitachi framework.
In advancing such initiatives, collaboration with partners is becoming increasingly important. Since the 2024 midterm plans period, as you see here, we have been advancing collaboration with partners, which has led to several achievements already. In particular, we have recently concluded a global system integrator partnership agreement with NVIDIA, the first such agreement as a Japanese company. Next is the strengthened management foundation. To support this growth strategy outlined above, we will also strengthen our management foundation. At Inspire 2027, we will rigorously pursue ROIC-based management, execute planned investments for business expansion, and strengthen our human resource strategy. The specific initiatives are outlined in this slide. In particular, regarding capital efficiency, we will continue to review low-growth, low-profit businesses, optimize pricing, and reduce working capital to improve the ROIC of the DSS sector by 1-3 points compared to 2024. Finally, let me share some summary.
Under Inspire 2027, the DSS sector will focus on profitable SI and services, aiming for high profitability with an adjusted EBITDA margin exceeding 16% through further productivity improvements and pricing optimization. Additionally, we will complete the growth strategy outlined today, achieve the financial metrics shown on the table, and realize sustainable growth. That concludes my presentation. Thank you very much for your attention. Next is Lorena's presentation talking about the strategy about human resources. Lorena, please.
Hi everyone. As a Chief HR Officer, I'm pleased to present our human capital strategy and our key initiatives for achieving goals for Hitachi Inspire 2027. We firmly believe that people are key to our success, and as HR, we are committing to partner with our business on delivering value and the creative future of Hitachi. As you heard from our CEO and my business colleagues, our Inspire 2027 goals are ambitious.
People are key to drive sustainable growth, and our Hitachi Group HR strategy is anchored on six initiatives to enable and empower our people to succeed. The first three initiatives will drive the right environment and setup to achieve growth. The next three will enable our talent and provide the HR platform for building the future of Hitachi. For creating the right setup, we fully recognize that passionate and driven individuals are required, and as such, we will pivot to incentivize people, driving high performance, and develop leaders to create and share value. Coming to the enablement aspect, we will equip our talents and scale AI expertise for boosting productivities and enhancing effectiveness. Equally important is our initiative on talent mobility to both accelerate synergies across the business and to provide employees with attractive careers and growth opportunities across Hitachi Group and support retention.
Finally, we are establishing global policy, framework, and platform to enable synergies and drive seamless execution and collaboration. Let me walk through the first two initiatives I covered earlier. Our first initiative is to enhance the corporate value with the two key elements: the restricted stock units and employees' stock purchase plan programs. We are significantly expanding these existing programs across the globe and coverage across employees. As you would agree, this program will foster ownership, commitment, and drive employee well-being. In addition, it will strengthen our ability to attract and retain top talent. Through our second initiative, we are focused not only on action and outcomes, but also on instilling the right mindset and behavioral changes that foster excellence. Let me elaborate further on the three elements.
The first element is to imbibe a growth mindset, and our executive leadership team will champion this change through ongoing dialogue and engagement. In addition, we will also enhance and broaden the training program across the Hitachi Group. The second element is our new leadership development program, which is designed to shape leaders with holistic perspectives and to encourage them to calculate risk, which is key to deliver our vision as One Hitachi Growth. As for the third element, to encourage the challenge-driven action of employees, we will expand measures to reward achievement of ambitious goals and offer the best-in-class compensation across the organization. I will now take you through the targets of the two initiatives which we believe will create the right impact.
With respect to RSUs, we are expanding globally to two to three levels below the CEO or business unit heads, thereby extending coverage multifold to 1,500 leaders. Our ESPP program will also be expanding significantly to offer 150,000 employees an opportunity to be part of the program. We plan to cover 50-plus countries across the Hitachi Group in the future. We have also set ambitious targets to drive high-performance culture. We will develop a strong and sizable leadership pipeline of 1,000 leaders to support not only our succession planning across the group, but also to shape our long-term future. Finally, as you notice, our engagement score is 80, which is over 10% from the current score.
We have designed a slew of measures, including the ones I covered in my previous slide, and I'm confident we'll not only enable us to beat our Inspire 2027 goals, but also to deliver more value to our customers, shareholders, and employees. I would like to thank you for your time, and we look forward to achieving greater success in partnership with you. The next session will be the CFO session. Tom, the floor is yours.
Thank you. Great presentation.
Hello everyone. I am Kato, CFO. I will now talk about our financial strategy and risk management. As explained today, we are accelerating our transformation into a digital-centric company. We aim to evolve Lumada through generative AI to achieve high profitability and sustainable growth. Of course, we have confidence based on what we have built up over the years.
In recent years, geopolitical risks have increased, and global trade conflicts and regional disputes have become more apparent. Furthermore, with the rapid advancement of generative AI, we recognize that major changes are occurring in global politics, the economy, and society. In this time's management plan, even in the face of this uncertain business environment, we have referred to benchmark practices and decided to present our three-year targets not as absolute monetary values, but as ratios and ranges to better illustrate our vision. Today, I hope to help you understand this approach thoroughly. Now, I will explain the four key points: enhancing cash generation capabilities, balanced capital allocation, improving capital efficiency, and reinforcing risk management. First is enhancing our cash generation capability. Under the new management plan, Inspire 2027, we aim to expand revenue and improve margins by expanding our core Lumada business.
In addition, we will enhance cash efficiency by improving the conversion from profit to cash and continuously expand core free cash flow. As explained today by each sector leader, we are promoting growth strategies centered on the Lumada business to achieve the targets shown on the left. Hitachi's overall EPS has grown at an annual rate of 15% so far, and we aim to continue improving it. Furthermore, by improving CCC and other metrics, we aim to raise our cash flow conversion rate to over 90%. Core free cash flow has grown at an annual rate of 23% so far, and we will continue to grow it steadily. Second is balanced capital allocation. Our basic policy, as with the previous 2024 midterm management plan, is to prioritize returns and flexibly allocate cash in a balanced manner and to growth investments and shareholder returns.
First, investment in inorganic growth shown at the center. In our new management plan aiming for sustainable growth, we are considering increasing the total amount of inorganic growth investment compared to the 2024 MTMP. Naturally, these investments will be focused on areas aligned with Hitachi's overall growth strategy, aiming for high profitability and capital efficiency. Specifically, as explained today by the sector leaders, the investments will mainly target digital enhancement and service expansion, and most will likely be bought on M&A to strengthen existing businesses. In addition to strategic alignment, there are quantitative hurdle rates. Specifically, we use the margin and capital efficiency targets set out in the new management plan as benchmarks. On the financing side, we intend to utilize borrowing leverage in accordance with the financial discipline stated here. Next is shareholder returns.
Our basic policy is to expand the amount of returns over the medium to long term. Specifically, we aim to return more than half of our core free cash flow and net income to shareholders. As for dividends, we will continue to pursue stable dividend growth in line with business expansion as we have done in the past. On the other hand, we will carry out share buybacks flexibly, taking into account cash generation, financial condition, and asset sales. To summarize, the diagram on the right shows our cash allocation approach. First, core free cash flow will be allocated to growth investments and shareholder returns, as explained earlier. Next, asset sales will be used for growth investment opportunities that meet the criteria of strategic fit and hurdle rate. If such opportunities are not available, the funds will be used for shareholder returns, specifically for share buybacks.
Leverage will be used for growth investments. Loan repayments will be considered as the last priority, except in short-term cases such as when we receive large advance payments. Here, I would like to review the past trends in shareholder returns. As shown on the bottom left, based on our record of continuously expanding core free cash flow, we have maintained an increasing trend in annual dividends over the past 14 years. From fiscal 2010 as the baseline, we have achieved an annual growth rate of 16%. We also plan to increase dividends this fiscal year compared to the previous year. The upper right shows the trend of share buybacks. Taking into account our cash generation capacity, our financial condition, and asset sales, we plan to increase share buybacks by JPY 100 billion from last year, totaling about JPY 300 billion this fiscal year.
As a result, our total payout ratio has shown an upward trend, achieving 54% in the 2024 MTMP. We expect to maintain a payout ratio of over 50% this fiscal year as well. The third point is improving capital efficiency. By expanding the Lumada business, we will increase returns and optimize invested capital to improve ROIC. We believe that inorganic growth investments are necessary for sustainable growth. Even if ROIC temporarily declines after investment, we will work toward an early recovery by not only improving ROIC but also lowering WACC to widen the ROIC spread. Return growth on the numerator side will be driven mainly by enhancing the growth and profitability of the four core sectors centered around Lumada business. On the denominator side, we will optimize invested capital through asset-light strategies and capital structure optimization.
Asset sales will be considered based on criteria such as Lumada's growth potential, the rationale of ownership, as well as ROIC. In addition, we aim to widen the ROIC spread by reducing WACC, including the use of leverage. Number four, I will talk about reinforcing risk management. In response to the increasing uncertainty in the business environment mentioned earlier, we are promoting enterprise risk management, through collaboration among sectors, regions, and corporate functions in order to centrally identify and address major risks across the entire Hitachi Group. Please let me explain the risk of reciprocal tariffs with the United States, which is a highly important short-term issue. At this point, there have been no significant changes from what was explained in our earnings announcement at the end of April.
However, we are continuously reviewing the situation as it evolves, and we plan to provide an update during the Q1 earnings announcement at the end of July. As part of our risk management framework, in addition to existing structures, we have appointed RMOs, risk management officers, to each sector, region, and corporate function, and we operate under the One Hitachi structure. In this framework, I serve as the Chief Risk Management Officer and oversee risk management activities across all of Hitachi under the CEO. Our major risks are visualized and organized company-wide using a risk heat map. This image here shows examples of major risks, including trade disputes such as reciprocal tariffs with the U.S., talent acquisition and retention needed for business expansion and transformation, as well as technological advancements such as AI. We are working to minimize these risks by leveraging Hitachi's diverse business and regional domain knowledge.
In addition to minimizing the risk of damage, we are also committed to minimizing the risk of missing growth opportunities. Lastly, summary. First, we will improve revenue, operating profit margin, and cash flow conversion to continuously strengthen our cash flow generation capacity. The cash generated will be allocated flexibly and in a balanced manner to growth investments and shareholder returns. Next, we will expand returns and optimize invested capital, increasing capital efficiency over the medium to long term, even while making inorganic investments. By transforming Hitachi into a digital-centric company with the Lumada business at its core, we will enhance our corporate value even amid increasing uncertainty in the business environment. Moving forward, we will continue to engage in two-way dialogue with our investors and strive to further enhance corporate value. We appreciate your understanding and support. That concludes the CFO session. Thank you for your attention.
Now, I would like to take a 10-minute break. After the break, we are going to accommodate your questions at the Q&A session. Thank you for waiting. Now, I would like to start a Q&A session. Even though we call the session as Q&A, not only as answering to your questions, but also we would like to receive your candid opinions as well, so that we want to make this as a two-way dialogue. Now, let me explain the procedure for Q&A. If you have any questions, we can take the questions online and offline as well. Those who are on site, please raise your hand. For those who are participating through Zoom, please click the raise hand button on Zoom so that we can nominate who will be raising the questions. We are going to bring a microphone if you are on site.
Please limit your question to one occasion, and we are going to answer each question. Please state your name and the company you belong to before you raise your question. Hirakawa from the site. Thank you very much.
Thank you very much. I'm Hirakawa from BofA Securities. Number one is about GenAI and Lumada. In 2030, Lumada EBITDA is 20%, so it means a 5 percentage point increase from 2025. For AI itself, I was able to learn from you to raise the added values, and you are going to reduce cost. There are two aspects. The AI is helping the margin of Lumada if we can show some business cases, and if we're going to raise this margin by 5 percentage points to 2030, how GenAI is contributing to that business in the future. Thank you for your question.
In the middle of that question, you pointed out in the middle, GenAI impact. Is there a way to improve that solution value? We are reducing the cost as well. It is a contribution to improving the productivity. Increasing the added value is the area that Lumada 3.0 that was explained by the examples of the H-sector leader for the added value area. In terms of the cost reduction, as Abe-san explained, for system development activities, around 30% should be able to be improved in its efficiency. Also, value-wise, around JPY 100 billion of the cost impact are expected. With this area, if Abe-san has any added question, additional answer, yes, thank you for your question. There are two aspects in here. One of them is JPY 100 billion was mentioned earlier. When we use AI, without AI, what will be the reduction we can make for the cost?
We look at the 2030 in Japan, like 830 people are in shortage as IT expertise. Not cost reduction, but labor shortage should be able to be compensated by AI. How? By utilizing AI, we can accelerate speed and improve the quality so that we'll add customer to regard as a value so that we can pay for it so that we can improve profitability. The other element is that, like Velocity AI, which is a GlobalLogic asset to be utilized. Software asset should be embedded into Lumada so we can reuse that asset so that we can improve profitability, like through app or AI agents to be utilized so that we can improve profitability. There are two aspects as such. ですけど。 Follow-up question. The significance of 100 billion revenue is, profit will go up by 8 percentage points.
How can we interpret this $100 billion? This is the cost reduction effect. Under the negotiation with the customer, if the customer sees the value, we would like to also increase the value. Number two, I have a question on the CI segment. The CI segment, I think CI has substantial upside possibility. On the other hand, this CI segment upside, if we look at that, I think there are two very typical pushbacks. There are businesses which have nothing to do with Lumada. Looking at each of the businesses, they are small, and whether they can be competitive globally. You talked about using AI and HMAX and also moving into the hybrid area. If you keep the businesses as they are, the businesses are too small to compete globally.
Also, whether CI can become a business that really leads the entire Hitachi. It is not fully convincing to me yet. Looking at Hitachi's CI business portfolio towards 2027, 2030, how will the business portfolio in CI change? I would like to hear your ideas. That was my second question. Thank you, Hirakawa-san, for pointing out a very important point. Brice, we have decided that Brice will be leading the CI sector. Since he has taken this position, this was really a central topic in the discussion since then. To be specific, to increase the profitability of the CI sector further, we need to reorganize the portfolio that is bringing in new businesses and divesting businesses. We need to do both of this in a very active manner.
I will not mention any specific businesses here, but this is something reorganization is something that we need to do. Also, you talked about the subscaleness of the business, and Brice has been saying this for a long time. In the presentation, we talked about expanding the business globally. To expand the business globally, one of Hitachi's strengths is having both discrete and process capabilities. This hybrid area will be Hitachi's strength. That will be our core. However, of course, through bolt-on M&A, etc., we will continue. We need to continue to strengthen our capabilities. Brice, do you have comments?
Much. Thank you very much, Tokunaga-san. Yes, as Tokunaga-san said, one of the key differentiating factors will be changing the portfolio, adapting the portfolio. It needs to mean some divestment, but that means also doubling down on some of our strengths.
As you know, we have some very key product, mission-critical product. We have very strong OT, and we have very strong link now with IT and HMAX. Strengthening these strengths basically will be one of the focus and eliminating more where it's not synergetic. The second thing which will be very key is to focus on certain markets and certain industries because then we have an integrated solution which basically almost none of our competitors have. Because of the complexity of these industries and because of our domain knowledge, but also ability to manage complexity, which is rather unique in Hitachi and in CI, we can differentiate. The third thing which we will look at is how do we, as you also say, because we are sometimes a little bit subscale, how do we globalize? How do we double down on where we are strong again?
That is more on the globalization point. The last point I would like to highlight is this integration of CI because we have a lot of strengths, but they have been a little bit too scattered or too siloed and now acting as one CI. Certainly, we recognize that we know industries like batteries, like biopharma, like advanced material extremely well, not only from an IT, OT, and product point of view. This concentration will be critical. That also includes the way to go to market. Today, one business goes to one customer, but forget about the other businesses. How do we complement that? That will also increase our top line. Last but not least, our people.
I mean, we have today, as you might have seen, we have a more diverse team, and not only diverse because of passport or whatever, but diverse also because of background. We have colleagues from DSS who joined CI. We have colleagues from energy and the other way around. This knowledge will help us to differentiate. Thank you very much.
ありがとうございました。
Thank you very much. ください。 Thank you very much. Let me add something to your question. You said 5% Lumada will be improving. What will be contributing to that? That was one of the questions. For sure, Lumada 3.0 service will be expanding. That is contributing to that. The representative example is HMAX. HMAX, it is not only for rail, but we have HMAX for energy, HMAX for industry. We can say HMAX for everything.
The way of HMAX and platform architecture will be rolling out for the entire Hitachi so that we can strengthen this. That is the way we think. Next, Fukuhara-san. Jefferies Securities. I'm Fukuhara. Thank you for your presentation today. My first question is that CFO, I'm looking at CFO's slide on page seven of CFO slide. On the seventh page, on the lower right, you see WACC reduction is mentioned here. Taking this opportunity, ROIC number is shown here, but WACC itself. If you have any number about WACC, could you let me know? Lowering the WACC, the way you lower the WACC, you borrow money, or you may focus on services to lower the WACC. You know there is a volatility for the share price. Not the long-term perspective, but it tended to be impacted by short-term performance.
The quarterly performance guidance that you can disclose if possible. This is my first question. Thank you very much for your question. For the WACC reduction, in the middle of the question, you just mentioned utilizing leverage and so on. On top of that approach, more transparent management should be promoted. This is really important. That is why the dialogue with the capital market will be strengthened. This is our policy. An actual number about WACC, we have not disclosed so far. Kato-san, do you have any comments? Yeah, thank you for your question. At first, for the WACC, as you know, of course, internally, we have some management based upon some assumption. Then ROIC, ROIC spreads in one set to manage the company. From investor, this is the number decided by investors and depends on the position of the investors.
We refrain from disclosing this number. The range or the level-wise, it's a high single digit between 6-10% level. It depends on region and business. That's the range.
Understand. The second question is, business portfolio revision taking into consideration ROIC. Generally speaking, if you decide whether to keep a business or divest a business, when you make that judgment, I think business with low ROIC are candidates of selling that business. That is generally speaking. In that sense, looking at your slide, ROIC, relatively low ROIC, DSS and CI has relatively low ROIC. My imagination is that when you reorganize the businesses, DSS and CI, the businesses which will be divested will come from DSS or CI. Also, acquisition by acquiring businesses with ROIC going down. ROIC may go down through acquisitions.
When you reorganize the portfolio, with this business, are there any businesses you are determined to keep regardless of the situation? Thank you for your question. About the thinking about the growth potential of the business and businesses that Hitachi Group wants to grow, ROIC will be one important metric to consider. To increase the ROIC, we need to advance the management further. Having said that, which businesses will be the candidate for divestiture or which businesses we intend to keep? As of now, it is difficult to really make that judgment. The market environment and business environment changes. As it changes, we need to make this decision or judgment in a dynamic manner. I do not think any of the businesses will be safe at all times.
If we see any businesses we see as growth has stopped, we will be taking that into consideration as a possibility of divestiture. Looking at the current situation, some of CI and DSS have lower, relatively lower ROIC businesses and also low affinity with Lumada 8020. It is true that there are some businesses which fall under that category. We will follow the growth of such businesses and cautiously and flexibly think about divestiture and reorganization. Kato-san, do you have any addition? I will talk about acquisition M&A. The ROIC impact, how to manage the impact of decreasing ROIC at M&A. What we are doing previously when we did M&A, we looked at present value being positive and strategic fit, hurdle rate, adjusted EBITDA, and ROIC. These were the factors we considered.
In addition to that, from last, we now have an official policy. If a BU comes up with an M&A proposal, the BU or sector, what would be the impact on the ROIC and the spread? If the ROIC goes down, when will it recover? The BU needs to commit on that recovery timing. That is one. The next thing, we have done this since before. We do monitoring for about five years after acquisition. Previously, we only looked at revenue, profit, and cash. We now have new criteria, ROIC and ROIC spread recovery, whether they have been able to meet the commitment. We will also monitor that. By doing that, we will make sure that ROIC and ROIC spread will be recovered. Thank you.
続きまして。
Next question. Ton-san from the site.
I'm Damien Ton from Macquarie Capital Securities. Let me talk in English.
I have a question for Connected Industries. There is a slide here on page six. I know that your growth targets, one of the core areas is going to be a hybrid area, so battery, advanced materials, and biopharma. Of course, the big markets here, in fact, your slide shows the chemical, oil, and gas industries. You also have a slide earlier or somewhere that says that your biggest missing pieces are DCS, Distributed Control Systems, and MES. It strikes me that a big part of the install base actually that is in the world today, and a big part of the market, is actually in the oil, and gas, and chemical industry.
I'm just curious as to, because it's a relatively low-growth industry, fairly mature, but of course, that's a lot of opportunity for productivity improvement, energy efficiency, and there's a lot of restructuring of the global chemical and material space. Whether or not that will be a target area for M&A. I mean, I understand the rationale of high growth, bottom acquisitions, but how about in areas where lower growth, but where you have opportunity to add value? Yeah, it's a direct question. What do you have? Thank you very much for the question. Yes. To make the answer simple, yes, when it creates value, we will consider. When it is complementary to our core, when it is synergetic with it, when it creates value for supporting our goals, being profit or being growth, we will consider.
As you see on the chart, there are some businesses which are very high profit, maybe a little bit lower growth, but still growing. That will be considered. The key, though, is it needs to be synergetic with the rest of CI. The second is that we can really also create value, meaning create synergies by getting these businesses. We will go very disciplined. We will make sure that the businesses we buy are related to, we can leverage them with the Lumada model, and that we can also create more recurring business, especially around HMAX. That will be the way to increase the value of our business going forward. Thank you. Just one follow-up then. This probably relates a little bit to Kato-san's, I think, point. I understand when you do M&A, part of it is at the divisional level, the ROIC spread.
That, I think, is important. How do you evaluate that part, that synergy with the other groups? If you, for instance, were to buy an X company to strengthen your position in, say, DCS, but then there is a potential benefit for DSNS, right? DSNS, sorry. How do you evaluate that in a decision, the one Hitachi element of it? How do you say, I will buy this, but it creates synergy in the other divisions? That is why we should do this deal. Where does that discussion occur?
Okay, thank you for the question. About M&A, even if a sector finds an M&A opportunity, we discuss the synergy as Hitachi as a whole. Going back to more fundamental aspects, by acquiring that company X, will this lead to Hitachi's growth or not? Would it lead to Hitachi's increasing corporate value?
The leadership team continuously discusses that. Through that discussion, we gauge that opportunity. What does this opportunity mean to DSS? Using DSS capability, can we have further synergy? At every M&A discussion, we discuss this. The corporate value can now be evaluated as Hitachi as a whole. That is my addition. Thank you for your message.
ここで一度オンラインからご質問を受けたします
。 Would like to take some questions from online from Japanese channel. Harada-san, please unmute and raise your question. Yes, Harada from Goldman Sachs Securities. Thank you very much. Do you hear me okay? Yes, we can hear you. I have two questions. My first question is about digitization and Lumada approach. The progress of each business is the first question. Mobility was a starting first presentation for this investor day, meaning mobility is the most advancing digitization. I thought that was the case.
That's why you put mobility from first and followed by energy connected industry. That will be digitized as well. The progress of those businesses, the digitization impact on the profitability can be seen from when at earliest timing after Tokunaga-san becomes CEO. Where is which is proceeding with proceeding digitization? Does Tokunaga-san see any bottleneck of the businesses? I want to know it at the same time. About M&A, you said you are interested in M&A as well because you want to promote Lumada. I thought you want to buy a company with that you can accelerate Lumada approach. If you do not have some asset, but if you have any digitization outside of the company so that you can earn more profitability, is that the thinking that you have? Thank you for your question. Harada-san actually already said some explanation already.
At Inspire 2027, the core of Lumada is Lumada 3.0, which is digital assets based upon the data delivered from digital assets. We analyze through AI so that we can provide services. We actually run on the cycle so that we are increasing Hitachi digital assets. We want to run the cycle. The business which is fitting to this cycle at first is mobility HMAX in our case. That is why HMAX examples were put for the first presentation, followed by the other division leaders. By utilizing this architecture, Hitachi Lumada 3.0 will be expanding. That is the approach we are taking. HMAX for energy, HMAX for industry as such, utilizing the ACES capabilities, we are going to scale up. We are in the middle of the transition. The most advancing area is that sensor was attached with a rolling stock and offer services.
Mobility of HMAX is most advancing in our case. Your question was whether we have any bottlenecks or not. We do not have any bottlenecks. We just want to roll out. This is a phase about M&A. The question is what the potential M&A is. I think there are two areas or two domains. One is collecting data well in a secured manner. Security strengthening. We need to strengthen the security to collect data safely. On top of that, the service of digitalized, in order for us to create digitalized services, like capability of GlobalLogic, may have to be strengthened. Service itself will have maybe purchased. In order for us to provide secure services, we may decide to purchase service as it is.
Anyway, the Lumada 3.0, where we are going to expand digital assets, where we are collecting data so that we can offer services from it. Proton M&A to accelerate this approach will be considered. Which area? Thank you, Tokunaga-san. HMAX, it's always important for us. Talking about profitability of HMAX in the case of rail, you can see page number 13, we have a bridge. We do expect to start collecting not only revenues, but profit already in this midterm plan. Although the orders we are getting are multi-year orders, we are creating structural recurring revenues. I would like to explain a little bit the change because the HMAX type of revenues, it's really bringing a profitability change.
It's typical recurring, but it's also with more visibility on margins because we know what the results are and are less cyclical than the both system. That's why we are concentrating a lot in promoting the HMAX as a next step for this midterm plan. Thank you. In the energy sector, when you promote digitalization in energy, it's infrastructure. You might have security issues. You need to handle security. Is that what you meant, Tokunaga-san? When we talk about energy, there are not bottlenecks, but there are two items we need to overcome. Number one is in Andreas's presentation, he mentioned we have only 1% maintenance contracts within our install base. We need to increase this using digital. We need to be able to offer the maintenance services.
Number two, as you have just indicated, the customers using our energy equipment, such as utilities. These are infrastructure-related businesses. These players in the past, when they think about connecting their equipment to the network, they felt some kind of hesitation or risk. That is a fact. Through enhancing our security solution, this is something I believe we can overcome gradually. That is why we gave security as one example earlier. Andreas, do you have a comment? Yeah, thank you, Tokunaga-san. I think let me add two things here. First of all, yes, we are talking about infrastructure. From a security point of view, you have a point. Nobody wants to connect critical infrastructure to a strange IT system. This is actually not necessary. We do not need actual data.
They can be old or already a couple of months old because the lifecycle of a transformer is 30 years. We can use the data over a long period of time to say when maintenance is necessary, how much was the transformer loaded. We do not need to access the physical asset all the time. On the other hand, we have to find out or we have to state that the market is changing, yes. The infrastructure, typically utilities, they are hesitating more connecting and delivering online data. This is changing slowly. There is a big group of customers which are a completely different concept. If you take data center providers, their only interest is the data center has to be up and running. They have no problem connecting their assets to our system. Actually, they ask us, why have not you connected them already?
Because we would expect you to do that anyway. They have a completely different concept. Our ramp-up of Lumada and service on our installed base goes as well hand in hand with every project, every asset we want to sell now and in the future. We want to combine it with a service contract going forward. Since we have order backlog, which is tremendous, I think the kickstart for the service business is just coming out of the backlog as well. Thank you very much for the question. まあ、世界2点目はですね。 My second question is about the, from the capital allocation perspective, core free cash flow in profit, half of it, more than half will be used for shareholder returns, you said.
Previously, up until last year, you said the return would be one half in the previous MTMP, but you said more than half would be returned. I want to know why you decided to describe it. You said ROIC work spread. You are operating globally, so each business or each region has some target, which is based upon ROIC work spread so that you can manage that regional spread and everything. Thank you for your answer. I will answer too for my first point. Secondly, I would like Kato-san to answer your question. The first point is the basic stance, which is capital allocation. We did not change our basic policy, as I said in my presentation as well about capital allocation. You are quite paying too much details.
You know more than half is the area that you actually raised your question. There are two aspects in the background, simply speaking. The first element is, as Kato-san mentioned in the presentation, in the past, based upon the past performance, the past experience, 50% or more of the returns, we have established such a track record already. The second point is it's also my learning as well. As I said in the beginning, in May, I met with investors by myself. The capital allocation, they raised a lot of questions about capital allocations. As I said in the beginning, if we consider our track record in the past, one half or more than one half, it's something that we are able to return to shareholders. That's what we are told. We are convinced by that.
That's why with my strong intention, we declare or we mentioned that more than half will return to the shareholders. Kato-san, could you answer the second point, please? Yes, thank you for your question. The ROIC, in particular, work, as I said earlier already, by region, costs differ. That's why when we calculate work, we see regionality in that calculation. In the sector or by sector, by BU, we actually calculate ROIC work or spread. That's how we manage or control. When we evaluate regional performance, regional sales allocation, like production allocation, is decided optimally by global perspective, by sector. When we are looking region by ROIC, there is something that we cannot control, the region. By sector, by BU, which is a sector we say vertical. That's how we control verticality. Yeah? Thank you very much. I do understand very well.
Thank you very much. に戻します。 Going back to the venue, Yasui-san, please. I am Yasui from UBS Securities. My first question, the connectivity. You gave the over, so I got the impression from the answer from CI that you know which businesses you will be reorganizing. It seems like businesses which have low affinity with Lumada 3.0 may be the targets. It does not have to be yourself, but looking at the AI and digital, could you give us a hint on what kind of businesses have low affinity with Lumada and digital? Also, Abe-san's team has large-scale systems and railway and power grid. Large-scale systems can be digitalized. However, smaller systems might not be digitalized as easily as large systems. Can you give me some guidance there? Okay, thank you for the question.
About the businesses, rather than which business will be reorganized, which businesses fit the Lumada 80/20 principle and growth can be expected? We talk about this all the time. The businesses to be reorganized, which businesses they are, we are continuing that discussion. We are now also continuously looking for growth opportunities outside Hitachi. The target businesses, what are the characteristics of such target businesses? It's difficult to define that. As Yasui-san just said, large-scale enterprise systems, the customer is feeling a big problem in managing such asset. On top of that, Hitachi has insight and knowledge in that area. By having these two factors, we can offer a very valid solution to the customer. That's why they are giving us orders. In addition to that, businesses that we do within Hitachi, Andreas' Energy, Giuseppe's Mobility, they have large-scale infrastructure business.
Internally, we can proceed with digitalization of such businesses. My message here is we cannot just say if it's large-scale, it's always easy to digitalize. We are saying that there is lots of room for efficiency by applying digital to the customer's large-scale system. Hitachi has the skills for that. When we talk about smaller-scale businesses, rather than saying small-scale, there are many products which are dispersed in multiple regions. That is the trend. Digital is actually utilized even in those businesses. For example, CI sectors, pumps and compressors are used by a wide variety of customers. The data can be gathered from such install base and helping to digitalize. We can't say affinity with digital is high just because the business is big or small. That's all. Thank you. Okay, thank you. 2点目は My second question about Schierenbeck-san's energy area.
I have a question. The power, electricity demand is increasing. The data center is really a driving force for this demand increase. The technology in use seems to be changing rapidly. Data center data time is changing as well, gradually. For the off-grid to power management, MSR is put under data center, not for grid. It will be off-grid. They actually generate by themselves, creating data center inside of the off-grid. In particular, power grid demand in the US, how you perceive it from outside, it will be difficult. I want to know the investment in power grid. It will be growing even though nothing is taken as measures in the market. If there are any downside risks, in particular, data center-related downside risks, if you have any ideas, could you share that with me?
The question, I think you touched a very interesting topic of data center. I would be very careful to consider it as a downside risk because actually it was so far an upside because data center was not really considered in the plannings a couple of years ago. Especially the AI data center has developed very rapidly with a very power-hungry concept behind that. Of course, the volatility of an AI data center is another challenge, which speaks probably a little bit for off-grid solutions. If you compare an AI data center with a normal data center, if AIs are starting to learn, the power consumption is jumping up very rapidly. If it stops learning, it is really going down, which has led to volatility. The scale of these data centers is much bigger than traditional data centers.
I wouldn't agree with you or with the assumption that it's complete new technology or different technology. Actually, it's the same kind of approach we have had. We need a power source for the data center, a reliable one. Actually, the topic of off-grid is more coming from the fact that utilities can't provide the grid access. That's the biggest problem because the planning horizon for a data center is much faster than grid planning processes. Grid planning is 6-10 years, sometimes 15 years. I think the hyperscalers are not thinking in these kinds of dimensions. They want to have it now and not in 4 years or 3 years or 10 years.
The logical thing is, if I can't connect the data center to the grid, I'm making it off-grid and I'm looking for my own power source, which is what is happening at the moment. For us, since we are agnostic from a grid point of view, it doesn't matter. Substations and transformers are exactly the same. They are providing an upside for us. For SMRs, it's an upside as well. SMRs are not developed in 5 years neither. I think we still have to work as an industry on how to connect these data centers to an energy source. Overall, I would say it's a rather interesting development. It changed customer behaviors because especially in the U.S., you have seen that some nuclear assets have been restarted to provide energy for big hyperscalers.
For instance, in Texas, the regulator is approached by hyperscalers and the industry to actually have the right to pay higher tariffs to soften the impact for society. I think we are still good prepared to leverage on all that development. We have good connections with the hyperscalers and we can provide. I think it is more an upside risk than a downside risk at the moment. Thank you. ありがとうございました。 その他会場。 Any other questions from the site? Okawa-san, please ask a question. Thank you for your presentation. I am Okawa from Daiwa Securities. I also have two questions. Number one, DSS page nine about generative AI. To make the system integration more efficient, you have been saying this from before. Can you elaborate on what you are doing? Are you doing anything new about that?
Generative AI, your strengths and competitiveness in generative AI, I think many companies are starting generative AI, and it might be difficult to compare. If there is anything really strong about Hitachi with generative AI, I would like to know whether Hitachi can proclaim to be a top leader in Japan in AI. Thank you for the question. Later on, Abe-san will add. Our large-scale system integration, we are now applying generative AI, and that is progressing for sure. Before, we were focusing on coding, but AI is now applied to overall system development. That is a very important point on what we are doing right now. Overall, increasing efficiency by 30%, that is what I mentioned. Looking at each phase, there are areas we have more than 30% efficiency gains, and we have a good level of knowledge on where and how to apply AI.
About competitiveness, it's not appropriate to separate between Japan and global. As Abe-san said, GlobalLogic is a leader to apply AI on the global level. We would like to import the outcomes of GlobalLogic to Japan to make things more efficient. I think in that sense, we are very competitive in the market. Abe-san, do you have anything to add? There's not much to add from me. As Tokunaga-san just said, in the software development, software development is a big target. It's not only coding, but also testing. Maybe I'm getting off track a little bit. Mission-critical development, we were doing with Waterfall and COBOL, but now we can use AI. Mission-critical engineers are getting more happier because modernizing legacy and moving to the cloud, they are working with AI engineers and utilizing AI.
In some areas, also new business models, new proposals are made to the customers. Also, GlobalLogic. GlobalLogic's overseas customers are global top players, such as Google, although I can't name all the names. The AI level is very high. Such engineers, we have a big volume of such advanced engineers. That is our strength. We can make use of them both domestically. Also, HMAX is representative. Our equipment are working on site. We gave a case on Omika, and workers are—we have fewer workers, and the senior employees will retire. How to solve the problems using AI? We will have more and more use of AI going forward. Thank you. When that is the case, on page 13, domestic service business and domestic SI business, the revenue growth rate is 6-7%.
Domestically, the revenue growth is lower than the others. Is it because the revenues are recognized under GlobalLogic? Even if you use AI, why is the revenue growth so low? When we look at digital and AI, I hope that you can look at the Lumada growth rate. Lumada growth rate is 22-24%. Even if we look domestically or overseas, it is 12-13%. Lumada growth rate is significantly higher than that. Service has many businesses. That is why overall the growth rate is low. Thank you. あの。 I just got a question about energy business and service business. For the service, you say, I do not know, nominator, denominator, it is less than 1% of service contract ratio. 1% seems to be low. You are saying the connected network, which is the—in the past, services were not provided by the power equipment providers.
That's why service contract rate. What will be the upside potential? Currently, it's less than 1%. If it's four times more, it will be 4%. It is regarded as a big chance. In the past, the service business model and upside, I want to have that question. Thank you for your question. As you pointed out, exactly so-called O and M domain, where the coverage is 1%, which is really low. On the other hand, there will be the big upside, as was mentioned in Andreas-san's presentation already. Why we are at 1%, how much potential we can have as opportunity, that will be explained by Andreas-san. はい、徳永さん、またご質問ありがとうございます。まず、サービスという言葉は面白いと思うんですけれども。 On service. All the business were focused on their products, and service was always a little bit cumbersome, not so interesting from revenue from the beginning.
It's always complicated to negotiate a service contract together with the equipment contract. It was a little bit neglected, which is, I think, typical in a lot of industries if you're not having a dedicated unit which lives and dies for service and for the customer every day. This we have corrected. Therefore, we have upgraded our service aspiration. If you have followed our first publications, we said we want to go to the service business three times, which was actually in line with our normal growth curve. We upgraded our aspiration now to four- to five-times because we say, look, if we are doing that, if we are focusing on service, there has to be more potential.
Our way to a $30 billion company in 2030, service will contribute with a revenue growth of four- to five-times with some acquisitions in that area and will contribute. Of course, focusing on the service as well as we start now offering service contracts together with the new equipment as a package to really get a start. On the other hand, before we started the business unit, we had a lot of interviews with customers. They asked them, hey, would we appreciate services? Do you want it on your own? Actually, most of our customers told us, well, we appreciate very much if you would do it because our population of engineers is aging as well. We have trouble to find good people. Actually, we want to focus on our core business. Actually, there is a big potential going forward.
Our aspiration and service is even conservative going forward. There could be even more potential. It's too early to give promise a hard number. Thank you. 4倍、5倍になった時。 When it increased four to five times in the energy business, what would be the proportion of service business among the entire energy business revenue? What would be the service portion of? I would guess around 25% in the ballpark range. A little bit more, a little bit less, depends. Yeah. ありがとうございました。 Thank you. Any other questions from the floor? 沖中さん, please. I am Okina from Capital. Thank you for your explanation. 質問。 Questions. One for Kato-san. You know, when I look at the Lumada penetration over the last midterm plan, it has gone from approximately 20% to 30%, and we've seen ROIC jump 2% to 3% as a result of that.
The Lumada penetration will be much higher over the next three years, but the ROIC increase is lower. Does that reflect kind of cushioning for M&A, conservatism, or, you know, I guess, is it more difficult to get higher ROIC despite rising Lumada penetration? Second question is for Andreas. I did want to ask about the nuclear business. It sounds like, you know, power grid is such a strong driver. Could you see, for example, selling the nuclear business as it's kind of parallel to, or perhaps not progressing as quickly as power grid and transformers? Thank you. はい、あの、ご質問ありがとうございます。 Okay, thank you for the question. The first question about ROIC, Kato-san can answer. Thank you for the question. There are two reasons. Number one is exactly how what you said. In this midterm management plan, we are expecting some M&A. So that is the reason.
FY24 ROIC, first time it exceeded 10%. Number-wise, it is very encouraging. However, this is because we did not have as much M&A as we expected. That is why ROIC was higher than expected. Maybe ROIC has not increased as much as you said, but we have these two reasons. Maybe I will come to your second question. Thank you very much for that. I think it is an interesting question. I tried to convince you that we have a booming market in SMRs in front of us with hundreds of gigawatts of installations. Why would I exit that? We have great capabilities and experience in SMRs. SMRs is, from my point of view, not a new technology, but an old technology. You are scaling something down, the BWRs, the boiling water reactors, which we have all over in the world.
I was once responsible for the biggest boiling water reactor in the world in Oskarshamn. We are just scaling it down, making it smaller, making it safer, making it easy to produce in one factory so you do not have to install it on site. We have the experienced people here in Japan working in Rinkai. This is capabilities you cannot buy. You can hard develop because it takes years to get a welder certified and to learn that. We need that capabilities anyway for the Japanese markets to take care of the BWR restarts in Japan. Using that and leveraging that into a new business field, which maybe takes some years to develop, I agree with you, is from my point of view the best thing we can do because that will be actually the next wave on growth.
If maybe the electrical grids in 10, 15, 20 years are scaling down, this, from my point of view, is a very promising bet to bet on that growth then because this technology has huge potential. Yeah, as Andreas pointed out, you know, we are, you know, focusing on currently on the new SMR project in the Ontario power plant. At the same time, you know, the talent itself should be the critical part for the nuclear business. I’d like to ask Lorena to add some comment on the talent perspective. Thank you so much, Tokunaga-san. Yeah, that’s where we have to focus all our efforts. In Hitachi, we have already quite a lot of capabilities, but we need to accelerate the recruitment.
We are looking at very different sources from the referral up to, you know, the job posting and so on because we are looking for a lot of electrical engineers. We must make sure that those people are ready to be on board. We also have to retain our senior managers as well because we need a lot of experience. Globally, there are no more such capabilities. Hitachi is really a competitive advantage on that. For this reason, we are investing a lot on our new human capital strategy to have a stronger recruiting engine. はい. There are many people who are raising their hand, but time is limited. Please raise your question, only one question per person. Any questions? Yes, from the floor, Hara-san, please. Thank you. I'm Hara from Indus Capital Partners. Thank you very much.
I have one question about Connected Industries. In order to increase diversion by the market itself, stock market, it is to use of the management of the portfolio management. How do you consider the portfolio management with a mid to long-term perspective? In this CI, conglomerate is the tendency you are going forward. You are going to do bolt-on M&A in the future, using biopharma, which are contributing to this. Gradually, we will be having more end markets. If you consider the Lumada myth, and also if you consider the risk management as well, more accurate control or accurate management of the business is required. Whether that is improving the evaluation by the capital market, I have some doubt. Personally, in the future, your target markets, do you consider M&A so that target market will be shrinking or through age macro industry?
If there is affinity to any market, you do not mind having as many markets as possible in the future. Hara-san, thank you for your very important question. At first, let me comment, and then added by Breeze later. At first, what I wanted to say was with this presentation today, this is, it is not something that we are going to increase the number of items under CI. We are going to narrow down the items under CI in the future. The direction for narrowing down, which direction we are going to narrow down, it is an integrated industrial automation. It is the one we are going to take an approach. With that approach, if we do not see any affinity to this direction, if we can clarify that in the future, we may divest outside and core business is going to be increasing instead.
That's the direction we are going to go forward. Again, let me explain. The mini conglomerate seems to be the case. We're not going to make it complex. We are going to simplify this as one of our strategies. That's what we explained today. Thank you, Tokunaga-san. I think, as you say, you can look at CI today like pieces of a puzzle, which are pretty scattered. When we look at that, we suddenly recognize that some pieces are very close to each other, and it needs very little to make a very clear picture, which we call today integrated industry automation. That's what we will do.
The focus on that being some industries, but big enough to create the growth we want to have, the affinity to Lumada, the return we want to have, the synergetic side of it within these pieces to create that picture, but also with Hitachi. This combination, adding to also the service side of it, the recurring business, because the recurring business will give us the margin and basically glue all these pieces together. That is where we are heading. Hopefully in one or two years, you will see a very clear picture. ありがとうございました。 Thank you very much. 公開から。 Any other questions? Kishida-san, from the floor. Okay, can you now hear me? Thank you very much for the interesting explanation. Collaboration with NVIDIA has been announced.
Today, AI agent, generative AI, and beyond that, in the equity market, we are talking about physical AI, like humanoid robots. That is a big topic. Listening to Jensen's presentation in NVIDIA, humanoid robot is one of the possibilities: trucks and rail and autonomous vehicles, and AMR. Physical AI can be applied to many areas. HMAX, I thought, was one of the examples of application of physical AI. NVIDIA does not have OT. Maybe they can work with Hitachi, and NVIDIA can make use of OT data held by Hitachi. NVIDIA can really improve the OT, and NVIDIA's corporate value will increase. In this partnership, Hitachi should also gain, not only NVIDIA. Once again, please give us a story where Hitachi will also gain and increase corporate value. Thank you for the question.
In the collaboration of NVIDIA, where it started two years ago, it was March two years ago, myself and Jensen met directly, and we talked about Hitachi's capability. Hitachi has product OT and IT understanding. Up till now, we have a great track record in this area. Jensen suggested this collaboration between Hitachi and NVIDIA. That's where HMAX started. We also have Hitachi IQ, which is an IT product, and the new collaboration announced by DSS. This collaboration is really expanding very quickly. On the other hand, in the partnership between NVIDIA and Hitachi, the real value offered to the customers, in a sense, that is, for example, in rail, we have autonomous vehicles, unmanned vehicles, and also DSS is offering software and services. What I want to strengthen here is it's Hitachi who is solving the customer's pains and problems.
Of course, we are using NVIDIA solutions, but it's Hitachi who is offering direct value to the customers. Giuseppe? Thank you very much for the explanation, Tokunaga-san. Yes, the collaboration with NVIDIA, it's at various levels. We are working also on autonomous driving. I would like to underline that we have been doing driverless metros for 15 years. We are leaders worldwide, driverless metros. We have them from Honolulu to the biggest town around the world. We do believe we have a very strong expertise. The collaboration with NVIDIA to this extent of this physical AI, it's first of all to have the microprocessors similar to the automotive in order to have the right computing capacity. We are using them already for some application of agentic AI, but we will be using, hopefully, this kind of computing capacity to read data.
The robot as a train, which is our ambition, is specifically dedicated within urban environments. Already for metros and trains, they are already driverless because the environment is confined. When we are talking about urban, like streetcars that are going together with cars, bicycles, and pedestrians, we need a different system. The data are our system. The OT part is ours, but also the IT part is ours. We are doing the tokenization, which is the technical word to recognize the environment. We already have our system that at the first level is supporting a level two type of autonomous. Sorry, I am going a little bit in detail, but we keep the technology. We will keep the data, the technology. We get from them the machine and deep learning tools. の最後まとめさせていただきますと。 Finally, I would like to summarize.
In the GenAI world, the value comes from application and infrastructure layers. Hitachi is offering this value, the application layer, and the infrastructure layer is provided by players like NVIDIA. Both of you, both of us will grow. We will focus more and more on this application layer. That was all. It is already past the expected time. I think two people are raising hands. Yamazaki-san from the floor. Thank you very much. I'm Yamazaki from Nomura Securities. I have one question about HMAX expansion, sales expansion of the HMAX. I want to know it in particular. Your installed base was mentioned earlier. Over time, you should be able to handle the installed base internally. But installed base of the other company you want to sell out. You want to expand the time, you said.
To your own equipment, but at the same time, are you going to sell outside at the same timing of the internal sales, or are you going to sell in a different approach? Do you see any difficulty in selling outside? I mean, if you are too strong, maybe you have difficulty selling this, or you have the effect, you have easier selling it. Or if you purchase the asset of the customer as it is so that we can sell it too. I want to know how you're going to approach this outside the sale. Thank you for your question. Yes, for the installed base of the other companies, if we can expand it, this is really a differentiator for the HMAX, whether we can do it or not. Here as well, Mobility sector is leading and advancing.
Already the data coming from the other company's equipment are used for service offer. We want to enroll it to the other sectors. Based upon the mobility sector track record, we want to consider a go-to-market for the other sectors. In rail, what approach was taken to roll out outside of the equipment? Could you explain that actual track record? I'm technical today. Our data foundation, it's a very important OT experience we have. We acquired two companies. One is Perpetuum. That was done a few years ago. This year, as I said in my presentation, we acquired Omnicom. We do have our sensor technology. For instance, we do know how is the track geometry on our specific sensor that are specific for rail. We cannot buy sensors off the shelf because there is a specific regulation.
With this technology, the sensors are developed to be utilized on whatever train, even from the competition. They are simply bolt-on solutions that can be used. It is happening already in various applications. More and more, we're becoming credible. We have customers that are asking to utilize these sensors and then the platform for their usage. Do you have any specific activities for the go-to-market? The go-to-market, yeah, we created a different area. We call it the Center of Excellence. We receive a manager from the digital area. That's very important. With the right expertise, with our specific sales organization, and together with every regional manager, we're going meeting different customers. Really, more and more, and I received this afternoon another $4 million orders. The strategy is to go to each customer and offer.
That is for the existing installed base, while new orders are already coming, most of them already with the ready now HMAX application. We do install the sensor on the first application OEM, so then the platform will be utilized in the future. The truth is that digitalization in train, it's really bringing a big advantage because in train, it's complex, same as energy, of course, or CI. On complex assets, the effect of digitalization is huge. Generative AI for some statistics, agentic to improve like maintenance service, is really a big application, or physical AI, as we said before, for autonomous driving. Thank you. ありがとうございます。 Thank you. ありがとうございます。シティグループ証券、江澤と申します。大きく1点なんですけども、全体的にはフレキシビリティが感じられて、マネジメントの一体感も日が浅いにもかかわらず感じられて、非常に良かったんじゃないかなと思うんですが、その一方で、これ全体。 On the other hand, the overall plan. You have a very aggressive and optimistic plan. I was not sure whether you will be able to achieve this plan. What will you prioritize?
I would like to ask Tokunaga-san, Kato-san, and Koff-san on what would be your priority. To Tokunaga-san? You have multiple KPIs as CEO, but what is your top priority? Is it M&A, shareholder returns, or more than 50% return, ROIC, or top-line growth? U.S. tariff and economic downturn potential. How is that factored in? If such thing happens, how would you respond in order to keep your target? That is my question to Tokunaga-san. To Kato-san, applying the hurdle rate, that was very impressive. Can Hitachi truly rigorously apply such hurdle rate in reality? If there is a very important M&A, which you need to do, even if it does not meet the hurdle rate, would you go for that M&A? My question to Koff-san, CI has very aggressive KPIs. I think the hurdle is very high.
What are the assumptions? I did not understand the assumptions. If you are to prioritize, will Lumada ratio come first, or is it top-line growth or ROIC, or following through on the structural reform? Please tell me your priority in your strategy. Okay, Ezawa-san, thank you for the question. I would like to answer the first question, and then Kato-san, and then Brice. My question, there were basically two questions here. As CEO, what is my top priority as CEO? In Inspire 2027, we have five KPIs, which all of them are very pivotal. If I were to choose one, increasing ROIC, ROIC, would be my top choice. When I talk directly to European investors, I ask them which KPI is the most important to them. That is really what I learned from the investors.
When increasing corporate value, we need to focus on ROIC in management going forward. That is my thought. U.S. tariffs and economic downturn possibility? Maybe. You pointed out that our plan may be too optimistic. The U.S. tariff impact, we have factored in the risk, as we explained in the previous earnings announcement. About economic downturn, it is very difficult to quantify that as of now. We have not factored in the economic downturn risk. However, we are not being optimistic here. We are striving to increase our agility. We assume that risks may become more grave going forward. We are very risk-conscious. Under the thinking of enterprise risk management, the CXOs are sharing the situation on the daily level, and we exchange opinions so that we can respond immediately if anything happens. We are by no means being optimistic here.
Kato-san. Yes. About the optimistic approach or perspective, I want to say something. When I said in my presentation that we do not have good visibility for the future economic situation, that is a trend at the moment compared to the past. We have some tension about how to see the future perspective. In May, we provided only the direct impact alone. We said we do not know the indirect impact. Still, we do not know that indirect impact because direct impact, which commercial channel, and if the tax rate is blah, blah, we can know it. The impact on the customers is an indirect of indirect impact, which we do not know at the moment. We are paying attention carefully.
The question about hurdle rate, for me, as Chief Risk Management, and I am the chair of the investment committee meeting, I cannot really say my approach in front of the sector leader here. Of course, it is the management of the company. We do not decide anything only with the hurdle rate. I said we have strategic composition. We have some other elements. I cannot mention my approach in one word. As Tokunaga-san said earlier, the earning cash, as well as ROIC, is also important in the same manner. It is not easy in managing a company. That is what I wanted to say only here. Brice, please. ありがとう。 Thank you very much. I will follow a little bit what Tokunaga-san was saying.
If I have one focus point now, even though there are a few, I would focus on basically improving my portfolio and double down on where I am strong already. Because I have parts of my portfolio which are already very strong, being from a growth or being from a profit point of view. That is a part I want to develop. That is in order to develop my growth, my profit, my return, my synergetic, how should I say, opportunities with the service, Lumada, HMAX. In a nutshell, how do I strengthen my portfolio, double down on where I am already very good? We have a lot of these golden nuggets already in CI. Now it's a matter of to grow them. もう一方、会場。 Perhaps we can take one more person for that question. Kato-san?
Yes, in the beginning, about the governance, including having the more compensation scheme as well. Currently, for directors and executives, look at the compensation of the directors and executives. Those compensations are different by region. I think that diversification can be observed for the employees as well. This more transparent compensation policy can be achieved or not. Yes, thank you for your question. About compensation, it has some differences by region. Each region should secure or retain good potential talent, which is really important for us to maintain our competitiveness as a total. Today's Lorena's explanation, we have the executives and employees. We are going to provide the employee shareholding system. The total compensation as a package, we are going to review continuously. Lorena-san, probably you can add some of the information. Nagasan, and thank you so much for your question.
Actually, this is one of the key topics I look at when I started the role one year ago. Because we are a global company, and we are operating in so many different industries. For us to leverage the mobility and internal mobility of our people, we needed consistency across the compensation. Our new global compensation program is focusing on consistency, transparency, pay-for-performance. We are looking at two different angles. One is the structure, which means the mix, which is the same for all the employees as well as the executive, a mix of base salary, STI, LTI, the new stock compensation program, as well as we are linking the performance to the financial targets of the company. The other one is the base salary. The base salary is very much influenced by the local regulation, by the cost of living, by the retirement scheme.
This is something that we must respect. Again, we will look at the transparency. We will look at the fairness. We will look at pay-for-performance. We are trying in that way to attract talent, as well as retain the talent that we have now. はい、ありがとうございます。 Okay, thank you very much. We would like Mr. Tokunaga to give some closing remarks. Okay, once again, thank you very much for participating in Hitachi's Investor Day. The discussion took a long time, and it went over time. I apologize that we went over and impacted your schedule. At the same time, through today's discussion, we were able to deepen the dialogue with the capital market. We were able to really have this dialogue with the entire leadership team.
In order to increase our corporate value further, we would like to continue this type of dialogue. The feedback you have received, we have received, we will share within the leadership so that it will be reflected in the management of our company. This was given to me as a topic from my predecessor, Mr. Kojima. For two months after I became CEO, this is what I really feel. Going forward, I would like to continue this dialogue with all of you so that we can deepen Hitachi's management. I will fully commit to increasing Hitachi's corporate value. I ask for your continued support and guidance. Thank you very much to all of you.