The time has come to start the Hitachi Limited briefing on the consolidated financial results for the third quarter ended December 31st, 2022. Thank you very much for attending this briefing despite your busy schedules. We have the information available in the Hitachi website for your reference. We will now introduce the speakers for today. Yoshihiko Kawamura, Executive Vice President and Executive Officer, CFO. Tomomi Kato, Vice President and Executive Officer, Deputy CFO. Masao Yoshikawa, Executive General Manager of the Investor Relations Division. CFO Kawamura will be providing the outline explanation of the results. We will be switching the screen. Kawamura-san, please start.
Thank you very much for attending this briefing despite your busy schedules. I would now like to present the consolidated financial results for the third quarter for our company. Please refer to page one This is the content. There are four areas to cover. Points, key points. Second is the accumulated results of the third quarter results and fiscal year 2022 forecast and appendix. Here we have presented the third quarter results for your reference. Please proceed to page three. These are the key messages for the third quarter, one to four. The first part is the numbers for the third quarter. Second is orders, and the third area is the portfolio reforms. The fourth part is the forecast. Regarding the third quarter, under one, revenues was JPY 8,108.7 billion, which is a 10% increase year -on -year.
Adjusted EBITDA was JPY 624.2 billion, and Net Income was JPY 292.2 million. On a YoY basis, there was a decline. It is mentioned below. That because of the shift to the risk-sharing corporate pension plan and Hitachi Energy's goodwill impairment. That is accounting for the significant portion of this negative number. Second, orders remained very firm. Digital and Green Energy & Mobility have remained very strong. For Digital Systems & Services, for the third quarter, orders was JPY 651.3 billion, year-on-year 22% increase. For Green Energy & Mobility, between Quebec and New York, AC transmission, electricity was gained.
We have been able to be awarded this contract. For railways, we have won major project for Ontario Line. It's about JPY 1 trillion overall. This has been received this order. As a result, Hitachi Energy for Q3 orders was JPY 554.4 billion, and we have a backlog of about JPY 2.5 trillion. In terms of completions, JPY 1 trillion, so it has increased by JPY 2.5 trillion. Railway Systems was JPY 666.5 billion. YoY, 135%, and backlog is JPY 3.9 trillion. Orders have remained very firm. Third is the portfolio reforms.
As we have been reporting from the past, we are making the steadfast progress in this area. Hitachi Energy, ABB has had 20% stake, but in December, we have taken back this 20%. Therefore, it is now a wholly owned subsidiary. For Proterial, Ltd. in the beginning of January, we have completed the selling of shares. Process have been obtained. LOGISTEED, Ltd. is also proceeding well as well. Fourth point is the forecast for fiscal year 2022. Revenues is JPY 10,550.0 billion. 1% increase from previous forecast. Adjusted EBITDA, JPY 877 billion, no change to the previous forecast.
For core free cash flow, you know, JPY 203 billion, increase by JPY 20 billion from the previous forecast. For Net Income, we will make upward revision. We have reported JPY 600 billion, but a record high of JPY 630 billion has been recorded. Now, page four. Let's now look at the macroeconomic outlook. This is from the Hitachi Research Institute and also from the World Bank. IMF has also provided forecast from 2023. From the second half, the outlook looks positive. But this is based on the World Bank forecast, therefore, it is more conservative. 1.7% for global.
As you can see on the right-hand side-PMI, Purchasing Managers' Index, should to be referred to, regarding the outlook going forward, is presented to for major countries, it is currently below 50. 50 is the medium, this global outlook is 1.7%, Japan is 1.0%, the U.S. is 0.5%, Europe is 0%. Therefore, out of this, Japan is relatively high. China is +4.3%. Overall, for fiscal year 2022, as well as for 2023, economic outlook cannot be too optimistic. Based on this understanding, we will be managing our company. Positive factors on left-hand side below, there are various measures, implemented, especially economic measures, as mentioned here.
For example, the resilience program in Japan, as well as in the United States, infrastructure investment and economic measures are presented, such as the CHIPS and Science Act and Inflation Reduction Act. China is also promoting infrastructure construction as well. There are negative factors on the right-hand side as well, as shown in the middle. For fiscal 2023, interest rates are likely to rise further. There is likely limit, but interest rate will go up. This will have a impact. Therefore, we have to watch very carefully about the negative factors going forward. Please refer to page five. Here, I would like to talk about the semiconductor and the material impact on our business.
As mentioned in the caption above, semiconductor shortage is affecting mainly Hitachi Astemo, especially in the automobile areas. This is not high-end, rather logic, analog, and discrete semiconductors. Supply and demand remains tight, and Astemo has been impacted. For material prices, this is having impact on Hitachi Energy as well, as well as Hitachi Astemo. Steel sheet, electrical steel sheets, remains very high. To the right, in terms of energy, electricity price is rising in Japan and elsewhere. This is having an impact on our factory operations for Ukraine and Russia. In the beginning, we were very concerned, but so far, the impact for our company has remained minor.
It isn't as if they will have a significant impact on our performance. Page six, please. Here, I would like to talk about the Q3 results. Left-hand side should be referred to, starting with the Digital Systems, Subex. GlobalLogic is now included, and Connective Industries and Astemo are shown here as well. As you can see in the bottom, the orders are shown here as well. For Digital Systems, JPY 578.1 billion, Adjusted EBITDA JPY 70.8 billion, ratio is 12.3%. Increase in revenues as well as EBITDA. Below is GlobalLogic. This is on a standalone basis, JPY 54.8 billion.
To the right, increase of revenues by 46%, and Adjusted EBITDA is JPY 3.7 billion, remaining very strong. Green Energy & Mobility should be referred to JPY 652.1 billion and JPY 46.1 billion. 7.1% increase in revenues as well as profit. Hitachi Energy, JPY 388.4 billion and JPY 32.8 billion increase in revenues as well as EBITDA. Connective Industries, JPY 742.5 billion in terms of revenues and JPY 78.2 billion Adjusted EBITDA. 10.5% increase in revenues as well as profit and below. Hitachi Astemo, JPY 493.1 billion, and it's 5.7% lower than other sectors.
Last year was very difficult, this year Astemo is increasing revenues as well as EBITDA. Third quarters have been strong for all the sectors. Page seven. These are the orders results for the third quarter. YoY should be referred to from Digital Systems service. 22% increase in third quarter. Hitachi Energy increased by 15%. Railway System increased by 135%. Building System increased by 9%. You can see that orders are increasing. Hitachi High-Tech is minus 28%. Last year, there was a significant order, therefore, it's a reactionary decline. Page eight. Lumada business is presented here. Left-hand side graph should be referred to. Left-hand side is the three quarters of fiscal year 2021.
To the right, is the three quarters for the fiscal year 2022. To the right, is for the whole year, fiscal year 2021, and to the right of that is fiscal year 2022 forecast. As you can see, the right, if we compare the two fiscal years, 2021 was JPY 1.393 trillion, and this year, JPY 1.9 trillion, increase by 36%. In terms of Adjusted EBITDA is 13%. Numbers have not changed. At the very top, the light red, is GlobalLogic. Here, Digital Engineering is the business, and therefore, it is showing steadfast growth. Now please look at the right-hand side. The composition by segments are presented.
The right-hand side is the fiscal year 2022 in forecast. If you look at the breakdown of JPY 1.9 trillion, Digital Systems is JPY 810 billion. Connective Industries is JPY 800 billion, accounting for more than half. The Green Energy & Mobility was JPY 280 billion. That is the breakdown. There is also the breakdown between overseas and Japan, 50% each, are presented. Please look at the lower side. We are taking measures for the next growth, especially for GlobalLogic. In Romania, as well as Ukraine, DX companies have been acquired. Delivery, personnel, and customers have increased. Therefore, GlobalLogic's service capability has been enhanced as a result of these acquisitions.
Those are the highlights for the third quarter. Please now refer to page nine. Q1 to Q3, fiscal year 2022 results are presented. Referring to page 10, this is on a cumulative basis, Q1 to Q3. Left-hand side is revenues, and in the middle, Adjusted EBITDA. Increase in revenues as well as earnings. Left-hand side is revenues. The dark gray is the three sectors in Astemo. The light gray is for listed subsidiaries. Please refer to these numbers. Right-hand side, overseas revenues is JPY 5.235 trillion YOY, 17%. Domestic business JPY 1,261 billion, plus 51%.
The Net Income was JPY 292.2 billion, decreased by JPY 158.5 billion. This is because of the pension shift and Hitachi Energy impairment are reflected here. EBITDA, JPY 881.6 billion. The cash flow from operating activities, JPY 380 billion, increased by JPY 122.9 billion. This is because of a tax effect as well as operating profit, which are reflected in the slide. Our KPI is core free cash flow, JPY 74.9 billion, YOY, increased by JPY 123.4 billion. You can see that for all the items, our performance has been very strong. Page 11. These are the results of the three sectors.
Three sectors on left-hand side, the Astemo and the listed subsidiaries are shown. The three sectors, as mentioned here, increasing revenues as well as profits, JPY 5.408 trillion. For EBITDA as well as for Net Income, we have seen an increase. For Astemo, last year was very difficult. Therefore, looking at the snapshot, it looks like revenue increase and profit increase. As you can see at the very bottom, Net Income is -JPY 26.4 billion because of fixed asset impairment as well as a pension shift. That is the reason why it is negative. For the listed subsidiaries, on the other hand, the two companies are different.
For Hitachi Construction Machinery, reduction in revenues as well as earnings, so we have sold the sold shares. Hitachi Metals are both increase in revenues as well as earnings. On a consolidated basis, revenues was total is JPY 8 trillion 108.7 billion. The Net Income was JPY 292.2 billion. From next page onward, let's look at the business segment. Please refer to page 12. At the very top, is Digital Systems and Services. JPY 1 trillion 678 billion, JPY 188.3 billion EBITDA. Ratio is 11.2%. Front Business, YOY EBITDA is minus JPY 5 billion.
this is , because of the transportation as well as , power, uh, have led to reduction in investment on the part of the customers. So this has had an impact. Uh, for some projects, the cost have increased, uh, uh, therefore, we have a slight negative. Uh, but, uh, we will recover this going forward. Uh, next is, uh, Green Energy and Mobility. Uh, uh, you know, one point one trillion, seven twenty-three point seven percent to five point three percent, as well as, uh, ninety-one point nine billion in terms of EBITDA. Hitachi Energy, uh, one trillion eighteen point four billion. Adjusted EBITDA, uh, was, uh, sixty-nine point seven billion, uh, six point two percent. Uh, on a, a full year basis, it looks different, uh, but this is for the three quarters.
Railway Systems at the bottom, JPY 509.7 billion, JPY 28.4 billion, 5.6%. Page 13, Connective Industries are shown here. Revenues was JPY 2,130.3 billion, and Adjusted EBITDA was JPY 227.4 billion, 10.5%. What, where I must report is the second area, Smart Life and Ecosystem Systems. Eco-friendly Systems. This is for home appliances, -5% in terms of revenues and -JPY 8.5 billion for Adjusted EBITDA.
Because of- End of year, revenues were lower than expected. In Shanghai, a lockdown has prolonged the impact. Page 14 should now be referred to. I'd like to talk about the Astemo, as well as Construction Machinery, as well as the Metals. Last year was very difficult. Therefore, if you look at this number, YoY, 20% increase in revenues and Adjusted EBITDA is JPY 2.5 billion. It is increase in both the revenues and profit.
Next page 15, this shows the first quarter through the third quarter. The fiscal 21 on the left-hand side and the fiscal 22. At the top is revenue, and at the bottom is Adjusted EBITDA. I'd like to talk about Adjusted EBITDA. On the left-hand side, the JPY 575.2 billion for fiscal 2021. JPY 110.7 because of the GlobalLogic acquisition, and then divestiture of Hitachi Construction Machinery, minus JPY 28.5 billion, and then foreign exchange, positive JPY 64.5, and then others. On the right-hand side, fiscal 2022, three quarters, the total is JPY 624.2 billion. Next page 16, shows the financial position and cash flow. In the middle gray, the hatched area is on the, as of the end of December 2022. Please look at the total assets, which is at the top, JPY 1 trillion 281 billion.
Down the table, the cash conversion cycle, it came down to 56.7 days, nearly 20 days reduction. Well, they do have more cash and be prepared for the conversion and the trading. The total Hitachi, Ltd. stockholders' equity ratio, 34.1%. 2.8 percentage point and better. The ratio improved up to 0.59 times. At the bottom of this page, cash flows. The operating cash flow, JPY 380 billion, increased by JPY 122.9 billion. The investment and cash flow, JPY -145.2.
The on the free cash flow, the JPY 234.8 billion, which is on the on a year-on-year basis increase of JPY 1 trillion. The core free cash flow, JPY 74.9 billion. Please go to the next page. This is the revenue by market. The starting from North America. In the circle, you see the percentage, which is the increase, 32% increase. Europe, 21% increase. China. This is the different from the other years, 5% increase. This means that the China is not expanding, so it is very difficult situation. The below that, Japan is also struggling. The ASEAN and India, 18% increase. In other areas, 6% increase.
As you see at the bottom, well, the overseas revenues of JPY 5 trillion 235.6 billion, 65% overseas ratio. 4% increase YoY. That is the increase of the overseas ratio. So far, I talked about the numbers up to the third quarter. Now I'd like to talk about the full year forecast for the fiscal 2022. Please go to page 19. This is the highlight of the forecast. Left-hand side, revenues, in the middle, you see Adjusted EBITDA. You see increase both in revenue and EBITDA. On the right-hand side, you see some notes. Lumada Business revenues, JPY 1.9 trillion. Net Income, JPY 630 billion.
Positive impact is because of the construction machinery, the sale of the shares of these group companies and the net-and-net. It comes up to JPY 630 billion. EBITDA, JPY 1,390 billion. The cash flow, the operating cash flow, JPY 710 billion. Core free cash flow, JPY 270 billion. The ROIC, 7.4%. The UC foreign exchange rate and also the sensitivity. The Adjusted EBITDA, the impact is on the positive JPY 0.2 billion, and also JPY 4 billion on the impact for the revenue, when yen changes and weakens against the dollar.
Next page shows the forecast by three sectors, Astemo and listed subsidiaries. As you see at the top, the three sectors increase the revenue and the profit, and Astemo likewise. Just like the third quarter, the bottom line, the profitability is a negative JPY 8 billion. That's how we have recovered. This is the current status. The listed subsidiaries, they both revenue and profitability decreased. On the right-hand side, the revenue total JPY 10,550 billion. Adjusted EBITDA, JPY 877 billion. These are the numbers we are going to announce, and the Net Income as well. Next page onward, you see forecast by business segment. At the top, Digital Systems and Services.
On the full year basis, JPY 2,290 billion, JPY 300 billion for Adjusted EBITDA. Increase in revenue and profit. Green Energy & Mobility, JPY 2.44 trillion, JPY 559 billion, 6.5%. Once again, increase in revenue and the EBITDA. Hitachi Energy, which is the third from the bottom, JPY 1,396 billion, 7.5%, JPY 105.2 billion. They are both increase in the revenue and the profit. The Railway Systems, JPY 726.9 billion, JPY 45.8 billion. Both are increase in the revenue and profit.
The Connective Industries on the next page, JPY 2.84 trillion, JPY 303 billion for revenue, and EBITDA, 10.7%. The second from the top, Smart Life and Ecofriendly Systems, as you see on a YoY and E basis, Adjusted EBITDA is down by JPY 4 billion. This is a quite difficult business right now. High technology, the which is the Hitachi High-Tech measurement and analysis systems, the business is quite solid, making contribution. Page 23, please. Astemo is shown here. Astemo Adjusted EBITDA, JPY 92 billion. Here in the first quarter for the, we still have the semiconductor supply issue, the we have to see, wait and see how the it will happen.
The 4.9%, JPY 92 billion, that is what we expect and therefore, Hitachi Astemo. Next page, which is the trajectory of the revenue and Adjusted EBITDA for the fiscal 2022 total. If you could take a look at the Adjusted EBITDA, it was JPY 855.3 billion in 2021. We have some positive impact of the acquisition of GlobalLogic, but they are negative because of the divestiture of the companies. Foreign exchange and others have several items. On the right-hand side for the forecast for 2022 is JPY 877 billion. The Adjusted EBITDA on this page 25. How is it reflected on the Net Income?
At the top is 2021, and at the bottom is 2022. I'd like to use the bottom part. The 877, which was shown on the previous page appears here once again on the left-hand side. We have acquisition-related amortization, JPY 83 billion negative, and JPY 297 billion positive for the net gain on business reorganization. The structural reform impairment and the JPY 100 billion, the income taxes and the others. The pension and the issue is also included, taxes deducted. It comes down to JPY 630 billion. As you see, for 2022, listed and divestiture of listed companies contributed to the performance of the company. Please go to page 26.
This is the consolidated statement of profit and losses, and the, you see cumulative quarter one, quarter three of fiscal 2022, and the, you see other details. Starting from the Adjusted operating income and going down the, we have the e-equity in earnings and the affiliates acquisition related amortization, and then we have Adjusted EBITDA, and then we get the EBIT. After that, we have interest taxes, non-controlling interest, and the Net Income, the, is JPY 630 billion, as you see on the right-hand side. We have appendix, and the, here in the appendix part, we only have the page, the 28, for example. These are the numbers only for the third quarter.
Page 29, once again, these are the numbers only for the third quarter. Page 31, all these pages cover the numbers in the third quarter alone. Sorry, I rushed through the materials, so much for my presentation. Thank you very much.
Thank you very much. We would now like to proceed to the Q&A period. If you wish to ask a question, please use the raise hand button on the screen, and we will call your name. When your name is called, please unmute, state your name and affiliation, ask your question. If you no longer need to ask the question, please release the raise hand button. We will not show the video of the person asking the question today. We will take questions from the press on the Japanese channel and then institutional investors and analysts and then go to the English channel. This is the procedure we would like to follow today. We would like to take questions from the press on the Japanese channel first. Please indicate if you wish to speak by the raise hand button. Hiroi-san, please unmute and ask your question.
Question. I have two questions. The first question is the evaluation of the results and for next fiscal year and onward, what is the outlook of performance? Especially for next fiscal year and onward, what are the prevailing risks that you envisage in geopolitical as well as foreign exchange and industry? Please elaborate further. Question number two is regarding Astemo. It's still negative in terms of Net Income. EBITDA is a positive profit, but why is it a negative in terms of Net Income? Why is this the case, and what are the measures you intend to implement?
Answer. Thank you for your question. For your first question, regarding the evaluation of the results of the third quarter, the management environment has been very difficult. There was a pandemic, there was a Ukraine issue, so the environment was very difficult. In the third quarter, we have been able to record the revenues according to our forecast, and we have been able to also make a upward revision as well. We are quite happy with this result internally.
For the next fiscal year, as I already mentioned, the macroeconomic environment may not recover in the second half. Therefore, we believe that environment will remain difficult for the fiscal year. Foreign exchange, 130 JPY is likely to remain at this level. The indifference in the interest rate, as well as the prices between Japan and the United States will have an impact as well. there's still a weakened and strong dollar trend is remaining. If we look into the prices, the inflation rate in Japan is lower compared to the United States. The difference in the foreign exchange as well as the prices difference will lead to adjustment going forward. I don't think yen is going to deteriorate, depreciate further.
That is not the case according to our outlook. In terms of foreign exchange, for foreign exchange, remains JPY 130, so there is no significant impact. For interest rate, we are concerned. In terms of our borrowings, well, debt has been controlled, and therefore when interest rate increase by 1%, 2%, we can absorb that. When interest rate goes up, it will have an impact on the asset value. Therefore, this will have an impact on the real economy. That is a concern because it could have negative impact on the economy. We are watching the interest rate, the environment very carefully.
Against this backdrop, for next year, we hope that profit can be generated similar to this year. Astemo has issues regarding semiconductors. For next year and onward, it is likely that this situation will continue for about six months. There is demand for automobiles, there is also the electrification demand that is very strong. If this recovers, we believe that similar levels can be achieved for next fiscal year, according to our budget. Regarding Astemo Net Income level, there is the impairment as well as a shift in the pension system. If you need the details, Kato-san can provide information. This is a one-off impact, therefore, it is as if management measures will be required for Astemo.
This will fall off next year. Regarding the third quarter evaluation, let me give further information for the third quarter. Compared to what we had expected, the impact of foreign exchange was very significant. About JPY 100 billion upside was obtained, and that's right, JPY 85 billion was foreign exchange. Organic with the three sectors and for Astemo there were upsides recorded as well. In terms of profit level, JPY 12 billion upside was recorded, and JPY 9 billion was foreign exchange. JPY 3 billion is for the three sectors. There were upside for the three sectors.
Especially for the Green Energy & Mobility, Hitachi Energy as well as the Railway Systems had the strong orders apart from positive impact of foreign exchange. For fiscal year 2023, as Kawamura-san has already mentioned, foreign exchange inflation must be taken into consideration. Regarding the pandemic, there could be further increase. There is also geopolitical risk that are concerns that we have identified. For Astemo on the other hand, on page 20, the outlook for the year has been presented. As you can see here, the Adjusted EBITDA, you can see that the profit is provided. Although it is not written here, non-operating, about JPY 60 billion is expected.
This is impairment as well as the corporate pension plan shift. These are all one-off measures. It will not be prolonged. In terms of Net Income before tax is positive. For next fiscal year, we have high expectations. That is all.
Thank you.
Thank you very much.
Thank you very much. Next, Mr. Yamabata, please, unmute and ask your question, please.
Thank you very much. Can you hear me? I'd like to ask Mr. Kawamura. This may not be related to financial results, but domestically in Japan, the prices are rising in Japan and wages and salary. What is your view about the compensation and the salary schemes for the of the company? Can I have your comment?
Thank you very much for the question. A wage increase and also increase of compensation and annual income of the employees, this has become the national agenda in Japan, and Hitachi is also looking at this in a sincere manner. How much salary increase is possible will spring on the labor negotiation we'll be starting, and that will lead to the conclusion. We'd like to take as much response as possible to the question. What we are thinking is that wage increase, the compensation increase shall be sustainable. If it is done only one or two times, it is not sustainable.
Basically what we should do, well, as we learned from the economic theory, well, labor productivity has to be raised by increasing the wages. We have to improve the labor productivity, and that should be reflected on the higher salary. That should be the basic structure. That it's going to be the sustainable program on a mid to long-term basis. How much base up is possible? As you know, it is up to the labor negotiation to decide. We'd like to take as much and the actions as possible to this question. Thank you very much for your question.
Thank you very much.
Thank you very much. Yamazaki-san, please unmute and ask your question.
A question. I hope you can hear me. At this time, in terms of revenues as well as the Net Income bottom line, attributable to the parent company, have been revised. What are the factors that has led to this revision? Compared to October, what has changed? Please elaborate.
Answer. Details will be presented by Kato-san later. In terms of macroeconomic point of view, up to the third quarter, there have been impairment measures implemented and therefore compared to the beginning of the fiscal year, risk factors was not necessary for the fourth quarter. That was a management decision made. Secondly, the revenue remained stronger than expected, so therefore we have decided to make the upward revision at this time.
The macroeconomic factors as well as the revenue generating capabilities have increased. That is the reason why we have done the revision. Kato-san will provide more detailed information on this matter. First of all, in terms of revenues. Page 21, by segment, information is provided for the fiscal year. Out of this, Green Energy and Mobility, we have made upward revisions of JPY 130 billion. Hitachi Energy and Railway Systems mainly. The foreign exchange impact up to the 3rd quarter, as well as orders being very strong, revenues are increasing. Therefore, we have decided to make this adjustment. The semiconductor prices are increasing as well as personnel cost is also increasing.
Therefore, in terms of profit, it is being suppressed to a certain level. For the Adjusted EBITDA, it has remained flat from the last time. Regarding Net Income, we have made upward revision. Please refer to page 25. The Adjusted EBITDA to the waterfall chart is presented. Around the middle, there are the JPY 10 billion in terms of global risk. Last time, we had estimate this to be JPY 40 billion, impairment and unexpected events could occur toward the end of the fiscal year. After ending the third quarter, there is only the fourth quarter remaining, and we don't think that there are significant risks. Therefore, we have reduced our global business risk to JPY 10 billion.
That is the reason why, for the Net Income, it is JPY 630 billion. Thank you. Next, Mr. Nishikori, please. Please unmute and ask your question.
Thank you very much. This is Nishikori. Thank you very much. Can you hear me? Yes. Hitachi Energy. You mentioned that the supply-demand is very brisk. In the previous meeting, and once again, you mentioned that the business is brisk for Hitachi Energy. The environment, business environment surrounding the company and also the, about the product and services of the company, could you please explain more about the briskness of the business? Also, the energy security and also energy price is shooting up, and that's negative to your cost. The your energy-related businesses and the how does it affect the demand for your business in the energy sector? Yes, thank you very much. This is the answer.
The reason why the business of Hitachi Energy is so brisk is because macroscopic the environment is one factor. In Europe, there is a Ukraine situation. The transition to green is slowing down mainly in Germany. Basically, the pursuit towards the green energy is very strong. What's going to happen, for example, in Germany, the windmill, the wind power, they are operated in the northern part of Germany mainly, and there is no industrial area in the northern part of Germany. We they have Schwarzwalds in the middle and Munich or the area surrounding Munich is the industrial area.
The wind power and we have a technology to bring the power generated in the northern part of the country down to the southern part of Germany. Also looking at the Middle Eastern countries, the petroleum or the natural gas, if the price changes. They want to change them into the power. From Saudi Arabia to Egypt, the cross the Suez Canal, the across the national border. These are also related to the situations in the oil-producing countries and the conservations for the green energy.
The GE, Siemens are the competitors, and we are trying to get business in this competitive environment. That's the macroscopic e-energy environment. The technology-wise, so Lumada is the something that we can use.
The station, the transformation station, we can put the Lumada in order to optimize the distribution of the power. That's what we are doing in this business. The in the field of software, new technology is making progress, the related to Lumada, these are what we're doing. Macroscopic environment and also the when it comes to technology, Lumada is contributing a lot to this business. As for the energy, the national security point of view, the private company alone is not able to make the big trend. We have to work together with the governments, and we are having the discussions with the regulators or the government offices. The natural gas is expensive, but we have to, the burn the fossil fuel to generate the energy.
However, on the for long-term perspective, we have to incorporate and embrace a more the green energy. The high voltage and the transmission is where we are good at, and also the the energy that can be based upon our own natural resource and can also be utilized. As looking at the government policy, the resumption of the nuclear power plant is what the government is start talking about. We also have the capability there. If the the nuclear power plant is to be resumed, that is another area we can contribute.
Not just the fossil fuels, but the transmission lines, the renewable energy, and in some cases, probably the nuclear power generation may be part of the efforts. With all these activities, we'd like to make contribution. That is all. Thank you very much. We will take questions from the institutional investors as well as analysts on the Japanese line. Those of you with question, please indicate by using the Raise Hand button. Yoshizumi-san, please. Please unmute and ask your question. No question. Thank you very much for this opportunity today. I have three questions. First question is regarding Astemo. In the third quarter, if we look at that, the revenue is a QOQ plant. What are the...
Still you made improvement. Why was this the case? You said that non-operating basis, JPY 60 billion per, for the year was mentioned. For the up to third quarters or for the full year, for the non-operating area, what is the relevant risk as well as the impairment? Alleviating the cost because of impairment, please elaborate further. Answer. In terms of Astemo, revenue is not growing, but profit has increased. This is because of the parts business in the automobile in the first quarter, second quarter, and third quarter, movement are seen. In the third quarter and fourth quarter, the price adjustment are often made. For the third quarter, although it is not related to revenues, there have been price adjustments made.
Against this backdrop, profit has been impacted. Now, toward the fourth quarter, we are still negotiating this area. If this is generated, it will be incremental. We believe that the risk, remaining risk, can be absorbed. The price adjustment is having an impact on the profit even in the absence of the increased revenue. For the second point, I'd like to ask Kato-san to address in detail regarding non-operating expenses. The JPY 60 billion was mentioned for the year. Although it is not detailed numbers, I would like to give you the scale information in terms of impairment as well as the pension shift. It's one-third each in terms of impact. Therefore, as I mentioned earlier, these are one-off factors. Question.
For the third quarter, Astemo profitability is such that it looks inflated. Is that the case? As a result of negotiation, has the price been set, and therefore we can assume this to be appropriate level? What about continuity? Answer. Every year, this is occurring toward the end of fiscal year, therefore, we can expect the same for this fiscal year as well. It's not just product volume and revenues and profit. This is a commercial practice that is continuing. Therefore, the numbers are likely, therefore it has been factored in. Thank you. Question number two. It was mentioned in the first questions. Next year, macroeconomic conditions may not recover in the second half. Why is this the case?
What is your take on this? Furthermore, if it is not going to return in terms of the environment, what are the business domains that is concerning for you? Answer. This is regarding the economy. Therefore, there could be differing views. We are looking at the environment with a conservative perspective, there are three or four factors to consider. First of all, a pandemic seems to have run its course as you can see in China, but the variants are emerging, so we don't know when the next round of pandemic will occur. Secondly, the interest rate is also to be considered.
In our company, 1% increase in interest rate does not mean a negative impact on funding, but there is the impact on the assets having an impact on the environment. In terms of foreign exchange, compared to the real economy, adjustments have not made yet. Therefore, the interest rate is concerning going forward. The third factor is geopolitical, as well as U.S. and China, as well as Taiwan, and in terms of Ukraine, it isn't as if the exit is clear. Therefore, compared to before the pandemic and before Ukraine, the comfortable environment that we had prior to these are unlikely. Therefore, we believe that the macroeconomic environment will continue to be very difficult.
That is the basis of our management operations. The question, core free cash flow has increased JPY 20 billion. For your three years capital allocation plan, based on that, the core free cash flow, is there an upside or has it remained the same in that context? Related topic is about half is to be returned to the shareholders and JPY 200 billion of the buyback was made. What is the schedule in terms of buyback as well as shareholder return enhancement for the second year and third year? From the point of view of the core free cash flow, is there an upside? Please elaborate further. Answer.
In the current environment, core free cash flow, it remains the same as when we announced our midterm management plan. We are not going to change as a result of upside. As I have already been emphasizing, fiscal 23 is it cannot be overly optimistic. We must achieve the results of for the midterm management plan in a set price manner. We are not going to change at this time. In terms of shareholder return, the half to be returned is a policy that remains unchanged. Cash flow situation will have an impact because how cash flow is generated is subject to volatility.
The dividend as well as share buyback policy in terms of shareholder return policy will remain unchanged. Thank you.
Next, Mr. Ezawa. Ezawa-san, please. Please unmute.
Thank you very much. I have two questions. It may sound a little abstract, but in the previous second quarter and this time, third quarter, the business is quite solid. Performance is solid. You cover very extensive business areas, and in many areas, the business is improving. At the same time, there is no major difficulties or it is noteworthy that you do not have any segment which is the stumbling block, so to speak. The business is going quite smoothly, and I know that you're making a lot of efforts to run it smoothly.
Are there any changes to the approaches taken by management team? The Mr. Kawamura, if there are anything that you can talk about? For example, the business is expanding in a stable manner. Is it just happened that way that they turned out to be stable? The management team made a different commitment? Do you have higher sense about the urgency, new, the attitude or the something new happening in the management team to stabilize the performance? Could you please explain?
Answer. Thank you very much for your question. The question related to underlying concept of the management. Under the current president, basically the approach to the business has not been changed. What we are trying to do is that we have four businesses for power grid, and the railways and GlobalLogic and high tech, Hitachi High-Tech. These four businesses, these are the engines. When they are stable, then that stabilizes the entire Hitachi business. These are the four major assets.
We, the management team, executive team, are paying close attention so that we can closely monitor the performance of these four engines. If something goes wrong, then we would like to provide the correction. That's the attitude. As for the low profitability business, unprofitable business, there are in terms of OP, well, the 5% contribution, that is the threshold, and we are looking into that. Even if it is a cash-generating business, if the ratio is below 5%, then we are trying to combine that business with others or divestiture possibly, so that we can minimize the unprofitable businesses. It is low-key step-by-step activities, but this kind of activity is also supporting the profitability and the management.
Particularly now, the, Mr. Kojima is the president. What is noteworthy is we're focusing a lot of attention on the cash flow. Of course, then, the P&L is important, but ultimately, cash is the king. How to generate king, and the cash and how to secure that and how to share that with the investors, that is quite important agenda for us, and that is the notion shared by all the management executives and all the management team. The focus, the management of the four important portfolio, and also the management's action is to focus more on the cash flow. It is our commitment. These are the features of our management approach. If I may ask another question.
As you mentioned, energy and railway business, the macroscopic environment, looking at the environment in North America and Europe, the growth rate is not so significant. It is a difficult business in these markets. The center of your activities is in North America and Europe. Currently, next year, the macro environment may slow down in Europe and the U.S., but do you think these businesses are sustainable and will be viable? Yes, power grid and railway business is this is not commodity business. We have to go to the market and sell and buy with the customers. The another type of a business that is affected by the market condition, it is infrastructure.
Both also in North America and Europe, the regulator will secure the funding to make this a project long standing on the long-term basis. Regardless of the changes of the market and the sentiment, these are quite resistant to the changes in the market. Particularly in the U.S., as I mentioned earlier, well, the current Biden administration, well, they made clear that they invest heavily in the establishment of the infrastructure. Power grid as well as the railway businesses will benefit from that. Our intention is to get the business there. In case of Europe, well, there's a Ukraine situation.
It's quite difficult to foresee what's going to happen. Still, as the power grid business and we were able to capture it, and railway business is running quite smoothly. It is an infrastructure business. It is not the it is quite resistant to the security of the market. We believe that we can continue this business in fiscal 2023. Thank you very much.
Thank you very much. Yasu-san, please. Please unmute and ask your question.
Thank you. Question. I have three questions. I think for equipment, I think you can make more profit. Well, generally speaking, I think you should have more profit. The Digital Systems and Services, JPY 20 billion increase in profit is forecast. GlobalLogic is about JPY 20 billion. If you exclude that means that you're not making money, profit, but environment has been very good. What is the background to this? What is the outlook for the next fiscal year? That's my first question. Second, for power grid. JPY 2.2 trillion at the beginning of the year, now has now increased to...
From JPY 1.2 trillion-JPY 1.4 trillion. In terms of the profit, there's been hardly any change. It could be the impact of foreign exchange, please elaborate on the difference or the change. Third is the Railway Systems. Revenues are going up, it has increased. In terms of profit, operating profit, JPY 368 is now JPY 336. It is a reduction. Adjusted with that, it's almost flat. Why is this the case? The business environment should be good. Compared to the top line payable, it seems that there is no upside in terms of profit. Please elaborate further on this point.
Answer. For the individual numbers, Kato-san will make a follow-up. Regarding IT first, I would like to address your question. As I mentioned at the onset, for some customers, there have been cost increases.
A suppression of investment. Generally speaking, IT investment, DX investments are increasing. There is customer circumstances to consider. That is the reason why growth is limited to where we are today. Regarding Power Grid, revenues are increasing and what about profits? That was your question. The revenues is JPY 80 billion, JPY 90 billion. It has increased on a net basis, but the profit has not been generated because of semiconductor issues, as well as employee bonus. Because we have all this, there are incentives that are to be paid. There have been a cost increase reducing the profit. Regarding Railway System, the profit, the recognition timing is different depending on projects. This is having an impact.
Kato-san will provide further detailed information. Thank you for your question. Please refer to page 21. I think that is what you're referring to. It is true, yeah, that compared to previous year for Hitachi Energy, revenue is increasing by 30%. Profit has increased by JPY 40 billion, approximately. Your question is regarding this. There is an impact of foreign exchange. Revenues look inflated or very significantly increasing. From the beginning of fiscal year, we have mentioned that price increase is being reflected. Because the material costs has increased, and only 30% of contract can reflect that on price. Now it has increased, so 70% can be reflected in price increase.
We are trying to negotiate further. There are customers that are more willing to accept this. Generally speaking, the raw material cost is not fully reflected in the price, in our price. What I'd like to emphasize, that the revenues are increasing and profit capabilities on a standalone basis is increasing by 1.4%. For Railway System, foreign exchange impact has meant revenues have increased. Depending on projects, there are ups and downs. It's mixed. Therefore, at 1.7%, the profit ability improvement has been achieved compared to previous year. Compared to the last forecast for Hitachi Energy and for associated costs as well, it has increased in profit.
For Railway Systems, it has increased as well. Sector overall profitability improvement is underway. Hitachi Energy and affiliated cost has been accounted for. Hitachi Energy Railway Systems, they have not changed. Yoshikawa-san will also provide more information regarding energy. Semiconductor has had an impact, high profit, the automation product mix improvement is forthcoming going forward. SCADA system monitoring as well as process control, Enterprise Asset Management software. These profit is high compared to hardware-driven business, as we increase the ratio of these businesses for the backlog, installed bases, we will be able to digitalize a significant portion of this, which means that the profitability can be improved significantly going forward.
Regarding the Railway Systems, in the long term, 6% plus, close to more than 6.5% margin, is compared to our European peers, we are becoming closer. In fact, we are exceeding them in this fiscal year. It is our long-term business. Based on the installed base, we have to establish that fully. The signaling business can be improved, further increased by improving the mix. We will be able to generate more profit. That is how we would like to generate more profits going forward. Question. Regarding these three businesses, what about the margin profit? I think margin profit, what is your view on that for the next fiscal year? This is Kawamura speaking. Answer.
Regarding the margin profit, we are always considering this. For the three businesses, we don't have the numbers with us to give you details. The IR department will be able to give further information at a later date. Thank you. Answer. It's not just limited to three businesses, but for Hitachi overall, in terms of gross margin, it's not margin profit, but in terms of gross margin, for the three quarters, compared to previous year, there is hardly any change.
We want to increase this further, but in the recent past, you know, there have been cost increases, having an impact. That is the reason why we have not been able to re-increase the gross margin. We want to reflect this in our prices further, and product mix will be improved. Centering on Lumada business, we want to increase the ratio of Lumada. By so doing, we believe that the gross margins can be improved. Thank you. Mr. Ayada. Ayada-san, please unmute and ask a question, please. Question, this is Ayada. I have three questions. Number one, Green Energy and the profitability there. I would like to know more about this point.
Earlier, the Railway Systems profitability shall be raised. The Thales and the signaling business in the U.K. it seems to take more time than you expected. That's what I heard. The timing of the acquisition, the feasibility, whether it can be realized, could you please give us your comment? When it comes to green energy, well, in the strategic team on the green energy, Mr. Kojima is no longer a member. Could you please explain the significance of that? Yes. Thank you very much. Answer. As for Thales, the Railway Systems, well, we, in corporate side, we were involved. We are paying close eye on what is happening there.
In the original contract, sometime in March, carve-out will be realized, and it was supposed to be consolidated. As you mentioned, in the U.K., because of the competition law in the U.K. and also EU differentiate the competition law, it is taking more time to satisfy these the requirements. Particularly in France, phase one is already completed, and the refiling in the second phase, and we are sure that we can go ahead to that stage, and it's going to be cleared in the near future. As for U.K., it is quite interesting, but specifically there is no Thales business, but the U.K. regulator is talking about the anti-competitive situation. The locally, we are taking actions towards the regulator.
Right now, in fiscal 2023, sometime in summer summertime in 2023 or by the end of calendar year 2023, we hope that we will be cover everything so that we can carve this out and bring this to our side. HR, IT, accounting, well, not violating the gun jumping. Well, we hope to integrate this business once it is carved out. Immediately after the carving out, we will be ready to incorporate this business to us. Any other comments on about Thales? Yes, I will make some additional comment.
In the EU Commission, the European Commission, submission to the Commission, well, we already submitted the application, but in November last year, we decided to withdraw that submission because once the examination process is over, then we can start negotiating and talk with the Commission once again on the process-wise. We judged that it is more positive for this entire project. That was the judgment we made so now we are having the prior discussion right now. Once that is done, then we will submit once again the application to start the official procedure. As for the green and the HR matter, the Mr.
Kojima used to be the person who led this initiative so far. There are things that we are not able to disclose, but now we have a clear target as to what to do, and we have the clear story about our investment. Mr. Kojima has the other businesses to attend, and a lot of them. Kojima-san, the position shall be transferred to Domon-san and Roja-san, and will be the executive and the Vice President, and he will be overseeing this business. Now we have a clearer idea about the direction of this project. That is the reason for this change of the membership. Thank you very much. Second question.
DSS and the top line, in the third quarter alone, the 22% increase in the order. How is it divided into Japan and the overseas, and how does it look like? Also the sustainability of the business. The third quarter number, is this the number because you had the large AD project or GlobalLogic and Lumada made the contribution? In this addressable market, continuously, do you think that you can outperform in this market? These are my next question. Answer. Thank you very much. As for the sustainability supply-demand, Mr. Kato will respond. Yes. I don't have the breakdown between Japan and others, but we have three sub-segments in our disclosure.
Talking about them, well, the three of them means Front Business, IT Services, and Services & Platforms. These are three. The 22% positive for the total. Front, 24% positive. IT Services, 12% positive. Services & Platforms are 21% positive. Respectively, they contributed the growth, double-digit growth. In case of Front Business, well, the financial BU is doing quite well. There are large deals with the banks and also front loading of the projects. Next, IT Services. Hitachi Solutions is a company involved in this. In Japan and also North American orders that they are receiving in these countries are increasing. In the industrial area, the security assist and the cloud shift, these are the businesses that we are getting.
The services and platforms, domestic cloud and the DX projects are increasing, and hardware storage server business are increasing, and storage overseas are also the increasing in orders. The businesses are quite smooth, and this is partly because of the exchange rate situation. Excluding that, well, the growth is higher than 20%. Thank you for the response. You also asked about the energy and the railways. The third quarter, do we have? Yes, we happen to have large deals. Is this sustainable, and will this continue in the fourth quarter onward? We are monitoring large projects and the transactions even before we submit tender. Once we get that project, then the risk will change. The how to control the portfolio, that is an important consideration.
Specifically, it is difficult to disclose right now. To submit the tender to the system for power grid and Railway Systems, there are a lot. So, we have many opportunities, and we are chasing them. In the Railway Systems, and about 10 cases and power grid, 10 cases, we are chasing and tracking the 10 different tender opportunities. Sometimes we can win, sometimes we lose. We are tracking, and we have the mechanism to track all these large deals. Sometimes we are successful, sometimes not. In the fourth quarter and next year, we believe that we will be able to get the large deals one after another.
As I mentioned, the another aspect of the question is how to control the cost and the risk. That's the management decision to balance the risk and opportunities. Thank you very much. Lastly, I have one more question. Connective Industries, key four key businesses, and also Hitachi High-Tech. The demand is declining in the third quarter, fourth quarter. It is because of the supply demand, and it may hit the P&L next year probably. If Hitachi High-Tech will be struggling in the next year, how about the other businesses? For example, in the business in the pipeline, are there any areas that you can expect growth in next year?
This may have the microscopic, the microscopic environment may have an impact on this segment. If you have the promising areas, please share information with us. Yes. As for Hitachi High-Tech, we were able to get a lot of the deals, and so that is the reason why it looks quite slow. However, business is doing quite well. There are two pillars, the semiconductor producing equipment and also the medical diagnosis and the analysis system, and they are contributing a lot. The market condition is favorable. Compared to last year, it looks lackluster this year. However, constantly this segment can make a continuous contribution. Also the household appliances, the Smart Life, Ecofriendly may have a difficulty.
If Shanghai situation recovers, then our refrigerators and washing machines, I believe that we will get more demand. Demand will come back. As you see, industrial digital business. This is about the manufacturing, DX and the robotization of the manufacturing facilities, factories. This is where we can expect the growth. Also industrial products, which is mainly hardware business on page 13. It is contributing to the profitability of the company. This is not the 1 trillion business like High-Tech. However, all of these businesses are positive. Connective Industries, of course, it is subjected by the market conditions, but they are still resistant to some extent.
We hope that we can continue performing well in the next year. Thank you very much. This is Yoshikawa. In High-Tech, this is not only semiconductors, and there are complementary businesses. The immunity type and the business, even if the business is volatile. For example, even if the semiconductor is down, in vitro business, they can compensate for that. 60% is, even if 60% is a semiconductor. Well, the others, this is in the appendix. The medical technologies in Europe, well, High-Tech and the semi, and the non-semiconductor business of Hitachi High-Tech, that is contributing. Industrial machinery seeds are growing in the U.S., for example.
In the Connective Industries, these businesses are complementary with each other. Building Systems in China, for example. Supply chain is a very strong and that was proven. At the same time, it is a country where many accidents happen, so manufacturer's warranty is important. Building Systems or the maintenance and also the contract to, based upon the warranty is increasing. The volume is increasing, and the wallet is increasing. Term is getting higher. In that sense, Building Systems has become the resilient business. That was the supplementary comment I wanted to add. Thank you very much. Thank you very much. Tom-san, please. Please unmute and ask your question.
I have just one question. For Lumada, JPY 1.9 trillion is the outlook for this year, that there is no change. For the first three quarters, in the fourth quarter, +10% is the revision made. It seems that Digital Engineering and seems, you're looking at lower revenues. Is it the conservative outlook? Is there an upside that can be expected?
Answer, Kato-san will respond.
Regarding JPY 1.9 trillion, it is not an easy target in the first place, and Lumada business is receiving many orders. There is opportunity for upside indeed. That's all.
Thank you. I have a follow-up. Upside is in service. Is that the case for the second quarter and third quarter? JPY 150 billion for the second quarter, third quarter, and JPY 130 billion for the third quarter. I think this is very conservative. In other words, looking at the run rate, it could be increasing. Is this a positive factor?
Answer. Regarding managed service, this is where there is most significant potential, so we have high expectations on this.
Thank you.
Well, we are running out of time, we'd like to switch over to the English channel. If you wish to have a question, please raise your hand. Please use the function to raise your hand. For those of you who are on the English channel. The participants on the English channel, do you have any questions? Please raise your hand and ask a question. Well, we see no hands right now. We still have some time, we would like to go back to the Japanese channel. We see many hands on the Japanese channel, we have to welcome one last person to ask a question. I appreciate your understanding. Ishino-san, Mr. Ishino, please unmute and start your question. Thank you very much. Question. I have two questions.
On the Astemo, Ltd., on the previous meeting, I asked a question. You mentioned that you will be able to achieve the annual plan. Well, the profitability of the motorcycles business, we can pin good expectations. What I understand is that that is the key to achieving your annual plan. Could you please clarify on this point? Answer. This is Kawamura. Thank you very much for your question. Yes, in the third quarter, basically the structure of the business has not changed. The motorcycle accounts for 50% of the business performance. Right, speedily, we are switching towards digitalization.
The motors, inverters are also ramping up. One year ago, the motorcycle, we depended very heavily on the motorcycles. The motorcycles account for 50% of the performance. The vehicles are struggling because of the shortage of the semiconductors, and that also helped the ramping up of the EV. Now 50% of the profitability is generated by motorcycles, as you mentioned. Thank you very much. If I may, I'd like to ask the second question. In the Connective Industries segment, Building Systems and Hitachi High-Tech, I'd like to ask about these two.
In the fourth quarter, just the deduction, but the Building Systems and the profitability appears to be quite limited or small in the fourth quarter. Is this a temporary situation? In the next fiscal year, will you be able to maintain the same level of profitability, considering the Chinese environment right now? That's the question about the Building Systems. The industrials, the charging and the semiconductor, and the business is affected by significantly by the market. The considering the contribution next year, it seems that there is a risk of the significantly lower profitability in the industrial business. Could you please elaborate on this point? Answer. Thank you very much.
As for the elevator. The new businesses in Japan, China is struggling, but we have a significant base of the business. The remote maintenance and re-repair and maintenance is the major part of the business. Rather than depending on the new other projects, but we are doing more on the maintenance side. We do not foresee any significant downside here. At the same time, it is not possible to see the skyrocketing of the profitability, but the stable profit contribution can be expected from next year onward. As for the industries and also semiconductor, this is not about the low end of the automobiles, but the high-end semiconductors are related.
As you know, the recovery is seen in the investment on the semiconductors, high-end semiconductors. The high-tech and the high-end, the semiconductors, I don't think the impact is not as big as the automotive. Still, we'd like to pay close attention to this. In the Connective Industries, we do not foresee any significant impact because of the semiconductor situation. Thank you very much. In the Building Systems fourth quarter, on a Q-on-Q basis, from third quarter to fourth quarter last year, the profitability declined, and the market is still difficult to foresee. Excluding the exchange rate, it may be a breakeven or the same level. There is a sense of uncertainty.
That is the basis of the fourth quarter assumption. As for Astemo, the four-wheel and the motorcycles, they are not separate. We have the powertrain, eAxle, the technologies based upon the passengers, and that can be utilized for the next generation of motorcycles. Our intention is to combine them together. We are not separating the vehicles and the motorcycles separately. We would like to combine them for the future. Thank you very much. It was informative. Thank you very much. Ishino-san, thank you very much. The time has come to bring this meeting to a close. We still have many people with their hands up, but we would like to now close the meeting.
If you have any questions, please refer the questions to the department in charge. With this, we'd like to bring the Hitachi, Ltd. briefing on the consolidated financial results of the third quarter ended December 31st, 2022. Thank you for your attendance today.