It is now time to start. At the web conference on Hitachi's FY twenty nineteen earnings and web conference on the progress of 2021 midterm management plan. Ladies and gentlemen, thank you very much for attending despite your busy schedules. Although the government lifted the state of emergency, in order to prevent the spread of COVID nineteen, we're going to organize this meeting in a video conferencing format. We are taking thorough measures to prevent the spread of the infection within the venue, running this with a minimum number of staff and it's for speakers so that their voices can be heard more clearly.
They will not be wearing masks when speaking. My name is Samoita from Hitachi. Thank you for your attention and cooperation. This meeting is comprised of two parts. Between 03:30 through 04:45PM, we're going to have an earnings meeting followed by a fifteen minute break.
Between 5PM to 6PM, we're going to have a web conference on 2021 MTMP. With respect to the presentation materials, they are posted on Hitachi Limited's IR site and news release site. Please check them. At this moment, we would like to start the web conference on Hitachi's FY 2019 earnings. First, I would like to introduce the speakers.
Hitachi Limited Senior VP, Executive Officer and CFO, Yoshihiko Kawamura General Manager of Financial Strategy Division, Tomomi Kato Executive General Manager, Investor Relations Division and Corporate Brand and Communication Division, Yasuo Hirano. So there are three speakers who will be speaking today. With respect to the outline of the business performance, Kalamura will explain we'll switch the presentation material on the screen. Please bear with us for a moment.
Mr. Kamura, please. Thank you very much for the introduction. My name is Kamura. Today, we will be providing the explanation via video conference.
Now the results have been announced today. Because of the impact of the COVID nineteen, there has been some delay, but we are now happy to announce them today. Now with the COVID nineteen, I understand many people have been affected. I would like to offer our the feelings for them and offer condolences for the people who have lost their lives through COVID nineteen. It's the first time for me to participate in such a meeting.
So let me introduce myself. From April at Hitachi Limited, I have become the CFO. So I had the handover from the predecessor in April. I have been working for two months then. And five years ago, I entered the International Limited corporate planning as well as investment and loans as well as future investments as well as development of new businesses are the areas that I have been working in.
Prior to that, thirty five years, I have been working at Mitsubishi Corporation. After that, for four years, I was dispatched to the World Bank in Washington DC. Half of the remaining time was in Tokyo and the half of the other half was in the overseas countries. I've worked in IT as well as financial services business as well. And I went to Cambridge as well as Boston in terms of training, and I have worked at Washington DC and New York and Chicago while I was at Mitsubishi Corporation.
Now I understand the materials have been uploaded. I would like to talk about the 2019 results as well as the outlook of fiscal year twenty twenty and the impact of COVID-nineteen. There are some 40 pages and I would like to allocate enough time for questions as much as possible. Therefore, I would just like to highlight the major points in the PowerPoint presentation. First of all, please refer to materials and refer to Page three.
These are the highlights of fiscal year twenty nineteen results. On Page 13, you can see the revenues as well as adjusted operating income. The bar graph on the left hand side is the actual for fiscal year twenty eighteen. The middle bar is the exclusive of the COVID-nineteen impact and the actual for fiscal year twenty nineteen is on the right hand side. As you can see in the revenues, we were at JPY 9,480,000,000,000.00 in fiscal twenty eighteen and fiscal twenty nineteen was JPY 8,767,000,000.000.
Looking at the adjusted operating income for fiscal year 2018, 754,900,000,000.0. In principle, the impact of COVID-nineteen on the right hand side was JPY 661,800,000,000.0. The ratio is shown above at 7.5%, which is the income ratio. So we had a decline in revenues as well as a decline in operating income as well. Right hand side, other numbers are provided.
The net income is also shown, which is JPY 87,500,000,000.0. Year on year, it was minus JPY 134,900,000,000.0. Therefore, we had a decline in net income as well for fiscal year 2019. We had a decline in revenues as well as earnings. About please now refer to ROIC, return on investment capital.
On the right hand side, the ratio was above by 0.9 points at 9.4%. In the last year of the midterm management plan next year, we hope that 9.4% can be increased to 10%, which is the plan. So we are close to achieving the target for the plan, which is 10%. So those are the highlights of the fiscal year twenty nineteen results. Please now refer to Page four.
It's a breakdown of the five sectors as well as a list of subsidiaries. Left hand side, we have the items and five secondtors to the right and this is a subsidiary. High-tech and chemicals was important in 2019. You can see Hitachi High-tech, Hitachi Construction Machines, Hitachi Metals and Hitachi Chemicals are the listed subsidiaries. And total is shown on the right hand side.
In terms of revenues, the gray area is inclusive of the COVID-nineteen impact for the five secondtors. Revenues was JPY 5,729,000,000,000.000 and the revenues was JPY 3,138,000,000,000.000. The total was JPY 8,767,000,000,000.000. Now in terms of the adjusted operating income, five sectors was 476,300,000,000.0, listed subsidiaries of JPY 185,400,000,000.0. Total subsidiaries of 6.8%, the ratio are JPY 8.5, 5.9 and JPY 7.5, respectively.
Year on year comparison shown here for the five secondtors is 8,300,000,000.0 increase. But for the listed subsidiaries, there was a decline of 100,000,000,000. Therefore, between the five sectors and the listed subsidiaries, there is a significant difference that is highlighted here. What I would like to emphasize here is that in terms of the adjusted operating income, out of the IT contribution was very significant in this area. For the IT sector, $250,000,000,000 operating income was posted On Page 24, more detailed information will be provided.
So you can see that the IT sector contributed significantly. The other important point I'd like to highlight is below that 8.5% was the five secondtors operating income ratio. To the right, 8.9% is shown here. In the absence of COVID-nineteen, we would have achieved 8.8% for the prime sectors, which is very high. Now in the midterm plan, we are aiming for 10%.
We are making steady progress for the achievements of the midterm management plan. Net income is below for the five sectors is 66,000,000,000, for the logistic securities JPY 21,100,000,000.0, and total was JPY 87,500,000,000.0. Please go to Page five. This is a waterfall chart showing the changes in the profit. To the left is fiscal year 2018.
There has been impact of reorganization, foreign exchange impact and others impact as well. Now in the absence of COVID-nineteen, shown in gray, and there was a COVID impact. And to the right is the ultimate fiscal year twenty nineteen result. Lower is similar, showing the adjusted operating income, degree. This is a number without COVID-nineteen.
With that impact, actual is shown to the right. For fiscal twenty nineteen, it was from January to March, the fourth quarter when the impact of COVID-nineteen has come to the fore. And so the impact has been rather limited. Page six. This is looking at the five sectors showing the waterfall chart from revenues to operating income.
Left hand side upper is revenues and the lower is adjusted operating income for the revenues starting at 5,984,500,000,000,000.0. The gray area is excluding COVID-nineteen impact of JPY 5,729,300,000,000.0. There's an impact of COVID-nineteen, and we ended up with JPY 5,628,000,000.000, similar for adjusted operating income, starting with and ending with JPY 476,300,000,000.0. 2018 was JPY $468,000,000,000. So that means that the increase of JPY 8,300,000,000.0 has been achieved.
This is the highest record ever. And that's 8.5%. And the gray area, if we exclude COVID-nineteen, eight point nine percent is achieved. So it has become very high. Page seven should be referred to.
This is revenues by market. Starting with the North America, Europe, China, Japan, India and other areas shown here. The ratio is half Japan and North America, Europe, China, Asia and India and other areas are all growing around a ratio of 10%. What is characteristic here is that revenues have gone down in all regions. The ratio of decline is shown in the circle.
For China, there was more than 10% decline. The impact was felt accordingly. As shown below, the overseas business account for 48%. Page eight is the financial position. The balance sheet and cash flow is shown here.
What is noteworthy is cash flow. On the left hand side, the cash conversion cycle is shown here, referred to as CCC. Now at the 2019 from '69, we have gone up to JPY 74.2, increased by five days. This is the impact of the COVID-nineteen inventory was held higher. Accounts receivables, payment have been delayed.
Therefore, it deteriorated by five days. The middle is good deal on hand. The gray area as seen in the footnote, is the cash and cash equivalents shown in gray. And the dotted area is the commitment line provided by mega banks. So together, you can see liquidity overall for 2019 in terms of cash as well as equivalents, 800,000,000,000 has been achieved and commitment line of 500,000,000,000 is available.
So JPY 1,300,000,000,000.0 in terms of cash liquidity is on hand. Debt equity ratio is shown on the right hand side. If you have questions, can refer to the debt. But you can see that it has deteriorated to JPY 0.35. But we are going to control it at JPY 0.25.
Page nine should be now referred to, which is cash flow from fiscal year twenty fifteen to fiscal year twenty nineteen is shown here. Sorry that this is difficult to see, but there are backgrounds as well as a curve showing this. The gray has three tones. The middle gray is on the left hand side, which is cash flows from operating activities. The red is the cash flows from investing activities, which is negative.
And the light gray is the core free cash flow. This is a unique indicator of our company that will be explained later. And the dark gray is free cash flow. The curve is showing the operating cash flow margin. Now in terms of core free cash flow, please look at the graph on the right hand bottom.
We have cash flow from operating activities and going to free cash flow. But in the middle, we have the core free cash flow indicated as well. M and A can be adjusted on a current basis. That is the reason why we have the core free cash flow for the purpose of management for 2019. The left hand side is the was a decline of billion decline with Mitsubishi Heavy Industries payment was saying, which has had this impact.
$3.00 6,000,000,000 in terms of cash flow investing activities. This is because of the consolidation investment made for JRA. Page 10. Let me talk about the return to shareholders. The loan to write should be referred to from fiscal year twenty eleven to 2019.
The from JPY 40 to JPY 95 increases we made. Every year, we have been increasing dividend payments, as you can see here. Page 11, these are major topics on a qualitative basis. There are three major areas to refer to. First is the business reinforcement for growth, specifically M and A and consolidation are included here.
In the middle, we have the business portfolio transformation. And third is the settlement on the South Africa project with Mitsubishi Heavy Industries. In terms of business reinforcement of growth in Europe, Southeast Braves Internationals were acquired. And in Chicago, in The U. S, the JR Automation Technologies system integration business was acquired.
Hitachi High-tech Corporation became a wholly owned subsidiary for ABB. The will is also included scheduled for the 2020. And AMS and Keihin, Showa and Nishin Kodo, the three parts manufacturers of Honda are have been integrated in terms of management. So a significant business reinforcement has been made. In terms of business portfolio transformation, we tendered all the shares of Hitachi Chemical Company to Showa Denko.
For Fujifilm Corporation, we decided to transfer the diagnostic imaging related business. We are planning to realize this in this fiscal year. Similar efforts have been made in 2019. Page 12 is Lumada. This is the core of our company's business.
We are focused in growing this business in 2017. As you can see on the left hand side, 1,000,000,000,000 was achieved. And after two years, we are at the level of JPY 1,200,000,000,000.0. The gray is the Lumada SI business and the red is representing the Lumada core business. Core business is also increasing constantly and so is SI business.
However, the definition of Lumada has been divided into the SI business and core business. In Page 19, we have explained the changes in the definitions. The SI business is expanding. Therefore, are now categorizing this as a related business. There are two progress points made here.
First, in the area of expansion of the mother business, the solutions business have been expanded. The number of use case has reached more than 1,000 and we have a specific business in terms of Vietnam as well as the Japan exchange groups. In terms of reinforcement of managing base, we are securing the human resources for this business. In North America, we have established a holding company for industrial. The Lumada IoT will be the major focus here.
We also have management integrated with Vantara. And in terms of the mother business expansion, we are allocating more resources to drive growth. So far, I have talked about the fiscal year twenty nineteen highlights. Here onward, let me refer to the fiscal year twenty twenty forecast. There will be full year impact of the COVID-nineteen for 2020.
In terms of the calculation of the numbers in the first half, we believe that the impact is going to be more significant in the second half. On the other hand, automotive may be continue to be impacted, but we believe that the impact of the COVID will be lower in the second half. That is the assumption in these numbers. If there is going to be a second wave with more significant impact, that may not be the case. But in the absence of that, do we believe we can achieve these numbers?
Now this is similar to what I referred to for last year. On Page 14, we have shown here revenues as operating income and the impact on the right hand side. 2019 was 8,700,000,000,000.0 for revenues. The excluding COVID-nineteen is shown in the middle. And the right hand side, there is the forecast for fiscal year twenty twenty, which is JPY 7,800,000,000.0.
The middle is the adjusted operating income. Left hand side is 2019, JPY 661,800,000,000.0. Impact of COVID is shown on the middle and excluding that. But with the impact of COVID-nineteen, we will have fiscal year twenty twenty forecast of JPY $372,000,000,000, and the ratio is 5.3%. Now in terms of revenues as well as adjusted operating income shows that we are going to have declining revenues as well as earnings.
But in terms of net income, it will increase up to JPY335 billion. So that's a full time increase from fiscal twenty nineteen, which is JPY 67,500,000,000.0. So this is forecast that we have. Foreign exchange is assumed at JPY15 to the U. S.
Dollar, very conservative assumptions are being made. Page 15, this is a breakdown of these numbers for the five secondtors and listed series. Similar to fiscal twenty nineteen, for the listed subsidiaries, they will be impacted significantly by COVID-nineteen. But for the five secondtors in the gray area is the outlook Revenues for five secondtors will be JPY 5,600,000,000,000.0.
And for listed subsidiaries JPY 1,520,000,000,000.00. Our total is JPY 7,000,000,000,000. And adjusted operating income is JPY $338,000,000,000 for the five secondtors. For list subsidiaries JPY 34,000,000,000 and total of JPY $372,000,000,000. Here, once again, the IT sectors are expected to make a significant contribution.
If you look at the IT sectors shown on Page 24, in terms of revenues JPY 2,000,000,000,000 adjusted operating income JPY 200,000,000,000. A 10% contribution would be made by ID according to this forecast. Now if you look at the adjusted operating income ratio, The ratio is 6.1% for foreign sectors and 2.2% for listed subsidiaries. And you can see that there is a significant difference between the two. Here, what is noteworthy is if we include the COVID-nineteen impact, it was 8.7% in terms of operating income ratio.
Below, the net income will be JPY 331,500,000,000.0 for five secondtors and JPY 3,500,000,000.0 for listed subsidiaries. So it will be impacted significantly. The total is JPY $335,000,000,000 for the total. Page 16. Here, this is a similar setup for fiscal year twenty nineteen.
Waterfall charter is shown. The gray area, COVID-nineteen, excluding impact, should be shown. JPY 8,100,000,000,000.0 is shown here. For fiscal year twenty twenty, there will be a full year impact. So JPY 1,000,000,000,000 negative impact will be felt.
And the fiscal year twenty twenty forecast for revenues were 7,800,000,000.0. For adjusted operating income, excluding COVID-nineteen, is $673,000,000,000. But it will have a full year impact, so of negative JPY $3.00 1,000,000,000. And forecast for 2020 is JPY $372,000,000,000. So year to year impact of COVID-nineteen will be topped in 2020.
Page 17 for the five secondtors, similar information is provided from the left to right. The numbers can be referred to. If you look at the excluding COVID-nineteen and with COVID impact for the five secondtors. In terms of revenues, excluding COVID-nineteen, it will be JPY 6,320,000,000,000.00 and COVID impact will be JPY $760,000,000,000 yen for the five secondtors and forecast will be 5.56 yen Similar for adjusted operating income, excluding COVID-nineteen is JPY $552,000,000,000 and COVID impact will be JPY $214,000,000,000 amounting to fiscal twenty twenty forecast of JPY $338,000,000,000. Page 18.
So we were in very difficult situation. Cash and bottom line must be improved. In parallel, we are implementing various measures. First point is the enhancement of cash flow management. Specifically, four measures are in place in parallel.
First of all, reduce inventories and working capital in response to revenue decline. Because of the ratio decline, we are implementing these measures. Contact screening of the capital expenditure and further promote the sales of assets for low profitability assets. We will continue to promote this effort and maintain commitment line agreements with multiple financial institutions. Below, accumulating orders, improving gross margin and reducing SG and A.
First is promotion of digital transformation and reinforce the frontline functions by developing digital talents. With the impact of COVID-nineteen, there are areas that are changing. For example, automation as well as remote working, etcetera, solution development are being expedited so that more orders can be received. Furthermore, smart transformation activities will continue to steadily reduce cost. He sent team is mother's new definition.
On the right hand side, you can see the red is Lumada core business. This is basically the same. The gray area is the Lumada related business. This is what used to be referred to SI business. The amount is becoming larger with related business.
Therefore, we have re categorized the definition. On the left hand side, the breakdown of the segments are shown here. IOT and Lumada components are included in many of these businesses. In terms of the targets for twenty nineteen, you can see according to there was JPY 1,200,000,000,000.0 in terms of revenues. But if we realign according to the new definition, go to JPY 1,000,000,000,000 plus.
But for forecast for fiscal year 2021 is achieving JPY 1,400,000,000,000.0, but the target is JPY 1,600,000,000,000.0. So for the JPY 200,000,000,000, which is the sort before, alliances as well as M and A measures will be contemplated to achieve this. Below, you can see the 2019, the other sector based breakdown for your reference.
So far, I discussed the goals for fiscal year twenty twenty, the budget for fiscal year twenty twenty. From Page 21 and onward, I'd like to discuss our views on the impact of COVID-nineteen. Page 21. When reflecting COVID-nineteen impact on our budget, what are the assumptions? This is a table thereof.
In the middle, there are supplementary data. On the horizontal axis, you will find regions, Japan, North America, Europe, China, ASEAN, India. And vertically, segments and we segments, IT, energy industry, mobility, smart life and so forth. And what's written in text describes the impact in each respective business. And you will find bar graph horizontally color coded.
Dark gray is the area where there's potential of more than 15% impact from COVID nineteen. Light gray is expected to have ten percent to fifteen percent impact from COVID nineteen. Please take a look at IT. Japan does not have a bar, meaning that Japan is going to be not affected. And you will find light gray for North America and Europe in IT.
So impact is going to be 10% to 15%. China not impacted. And likewise, ASEAN and India, 10% to 15% impact from COVID-nineteen in IT. Now in industry segment, throughout the world, there will be impacts and the impact will be severe in Japan and North America. In Europe and China, less impact.
ASEAN India, a larger impact. So that is how it's described. By product and by region, in a metrics, what's going to be the likely impact with assumptions we have taken a look. Please move on to Page 22. This is by business segment.
What's going to be the impact from COVID-nineteen on the left? FY 2019 impact and for FY 2020, there will be impact throughout the year. So these are the numbers. If you could look on a consolidated basis, adjusted operating income in 2019 was billion in total. Please look at the 2020 forecast.
Because of the full year impact from COVID-nineteen adjusted operating income's impact is going to be JPY $3.00 1,000,000,000. On the far right, COVID-nineteen impact ratio is given. You can see different shades of gray. Overall, a negative 12.6% impact. And that's great.
It may not be easy to see, but in the industry segment, impact is negative 16.1 and mobility of 17.1% negative impact. And listed subsidiaries at the bottom. The impact is estimated to be 14.6% negative. IT, industry, energy, mobility in the pages said to follow. Starting from page 23, Hidatch Construction Machinery, Hidatch High-tech and so forth, a list of subsidiaries are also given in the following pages.
If you could please go to Page 33. We wanted to enhance disclosure. That is what is most noteworthy in our disclosure. Well, disclosures we have been making, but we decided to disclose more numbers than before so that we can deepen our dialogue with investors. If you could please take a look at Page 33.
ROIC, ROIC, by segment, is disclosed. Are we exceeding the capital costs? We would like to communicate that better with the external parties. So ROIC is disclosed and adjusted operating income by segment as well and EBITDA by segment is also disclosed from this year onward. Our cash flow is largest in EBITDA.
D, depreciation A, amortization. These are the largest. So when M and A takes place, D and A becomes large. So we need to reflect that. So how much is the extent of cash flow reflected in EBITDA?
That's what we would like to disclose. And below, you will find EBITDA disclosure from FY 2015 through FY 2020 forecast. Please take a look at the number for FY 2020 forecast. The largest cash flow lump, 1,000,000,000,000 plus. Light gray is EBIT or rather dark gray is EBIT and D and A accounts for $4.00 7,000,000,000.
In total, we're going to have more than JPY 1,000,000,000,000. That is the extent of our earning power. And the rest is supplemental information, thirty four, five, six, seven, by segment. Page 38 gives the definition, redefinition of Lumada business and the current status of Lumada business. I'm sorry for rushing through.
I have exceeded the allotted time. I took twenty five, twenty six minutes for my presentation, but that concludes the fiscal year twenty nineteen business performance and the forecast for fiscal year twenty twenty. Thank you for your attention.
At this moment, we would like
to move on to questions and answers. Those of you with questions, on the video conferencing system, there is a button for raising hand. Please press that for questions. And those who have indicated that they have questions, we will call your names. So after unmuting, please state your name and affiliation before asking your questions.
When calling upon the questioners, we are going to cancel all the buttons pressed. And so if you have further questions, after the first question, please press the button once again. And the video of the questionnaire is not going to be shown on the screen. Japanese press will be asked for questions. And then next, institutional investors and analysts and those on the English channel.
That will be the order. So those on the Japanese channel, Japanese press, if you have questions, please press the button for raising your hand. Mr. Toshihiro Ihara, please unmute the audio button and ask your questions. Ihara Famnike, can you hear me?
Yes, we can. There are three main points I would like to ask. My first question is as follows. Coronavirus's impact. On Page 21, you have shown the information by segment, industry, mobility.
In these segments, in which areas is the impact likely largest likely to be largest?
If you could
give us further breakdown and elaborate. Thank you for your question. So on Page 21, in my presentation, I did not go into the text. So just to go over it once again. In industry, in terms of the region, I've already explained.
And first, Industry and Distribution BU. Aviation and automotive business is going to be affected. There's going to be a decline in demand and water and environment business as well, Centering around Japan, decline in demand is likely to happen. And in terms of products, centering around North America, our product business is also going to be negatively affected. So overall, there's going to be an impact.
So across the board, it seems that there's going to be an impact. That's our assumption. And Mobility, as you can see, Building Systems BU. In China, we are expecting a recovery, but new installations are going to be affected still. So the service model will have to be focused upon maintenance business, in other words.
And railway systems, BU, between January and March for European factories, they've had to be suspended, but they are now resuming. So in the second half, I think they will be normalized. That's how we're putting our numbers together. Thank you. Just a supplement what was said, Page 22.
COVID-nineteen impact by segment. Please take a look at this. On the far right, COVID-nineteen impact ratio for FY 2020 is given. This is the likely fluctuation in revenue. Overall, 17.1% for Mobility.
Building, negative 10%. Railway, down 25%. So looking at the numbers, the impact on railway business is going to be severest. Thank you. For the remainder of my questions, I have questions about Lumada.
So you are redefining Lumada business. SI is now changed. The difference is simply that you included most of everything into SI, but IOTAI, you have narrowed down the definition. Is that the difference, if you could elaborate? Thank you for your question.
Yes, you are right, basically. SI business tends to be narrow. And Lumada, of course, has a lot of implications. And so we included related business more broadly. Your understanding is correct.
So you are redefining what's related to Lumada and Lumada itself more clearly. Correct. Solutions business and applications business related extended business is included, correct. Last question. Lumada's overseas sales ratio, before you said about 10%, but what is the current number?
And FY 2020 goal is to expand Lumada business to North America to raise it to 30%, but because of being impacted by COVID-nineteen, has the forecast have been changed? Answer, Kato will respond. For fiscal year twenty nineteen, according to the previous definition, Lumada's overseas sales ratio is 10%. Under the new definition, as was discussed, core business versus SI, that was the old definition, but we changed it to related business. So according to that new definition, fiscal year twenty nineteen, the ratio is 40% core business, 30% related business, 50% overseas revenue ratio.
And we would like to exceed 50% in fiscal year twenty twenty. That's our goal. Thank you.
Thank you. Are there any other questions? Please push the button to ask a question. Regarding the domestic business, have a follow-up question. I have a follow-up question.
You have mentioned JPY 6,000,000,000,000 previously. What is the source of this? Is it in comparison to your peers? What is the rationale for this target? Please elaborate.
Please refer to Page 19. I think that is what you're referring to. Now with the review that has been made, the growth ratio is where we are focused on. For fiscal twenty nineteen and 2020, 12%. And furthermore, we are aiming for 20% to reach JPY 1,600,000,000,000.0.
So we are hoping to have significant growth rate and we also have high expectations for the systems and products in terms of related business. Addition, with this, we want to grow further. So we are not especially conscious about the prevailing growth in the industry. It is a reflection of our intention. For question regarding the forecast for fiscal twenty twenty, in terms of revenues and operating income, it is likely to decline because of COVID-nineteen.
About the net income, we'll be reaching 3 JPY $334,000,000,000 by and with the South Africa impact and what are the other factors that is going to contribute to the increase in net income? This is net income. Therefore, between the operating income and net income, there are plus and minus, and that is a result of the number mentioned. And there is also the South Africa impact as well. There were the increase and decreases.
So in terms of operating profit, it's $372,000,000,000 and the result we come up with a net income number. So I would like to give you more further details. Please refer to page I think you're referring to Page 15. Here at the right hand side, the year to year difference is shown here. In terms of operating income, it is declining.
But in terms of EBIT increased by JPY $430,000,000,000 is expected. The factors include that in fiscal year twenty nineteen, Energy South Africa, $370,000,000,000 settlement was included, but it will go away. Fiscal year twenty twenty, Hitachi Chemicals in sales, proceeds of $270,000,000,000. So non operating income is improving significantly. That is the reason why net income is going to increase in our forecast.
That means that for fiscal twenty eighteen, there was a UK, nuclear power issue occurred, there was some impairment. But regarding JPY $335,000,000,000 shown here, how should we interpret this? Is this going to how how do is you evaluate this number inclusive of the COVID-nineteen impact? As you have mentioned, as already explained, there are impairment from last year and it will be falling away reflected in this number. There is the impact of COVID-nineteen.
And as you can see on the page, operating profit, profit is JPY 5,300,000,000.0 and JPY $370,000,000,000 in operating income can be achieved. Therefore, even though it is very difficult times, we were able to post operating income And impairment should be considered and the backlog should be considered as well. And we end up with net income JPY $335,000,000,000, which is evaluated favorably. The bottom line is most important. Therefore, in that sense, in terms of operating income as well as net income, we have been able to post we are confident to provide these numbers even on the very difficult environment.
Thank you.
We will unmute you or rather could you unmute and ask your questions? Asembongi speaking. Can you hear me? Yes, we can. Question.
For the outlook this year, life sector in particular, automotive business, I have a question. Earlier regarding the automotive business, the impact from COVID-nineteen is going to linger into the second half Kawamura san said. Hitachi Motive has business with Nissan and Honda. Nissan in particular is suffering. The automotive industry per se across the board is suffering and having problems.
So I wonder what your awareness is on that. And other suppliers, some have not come up with a forecast for this fiscal year. So what is the assumptions underlining this forecast? So with Honda related businesses, three of them are being consolidated. The size of the business will be larger and will be subjected to greater downward pressure.
So what's your take on that?
So UNIDENTIFIED
your second question regarding AMS, Kato san will respond to that. To address your first question, AMS automotive parts business, what's our view on that? To respond to that, Car makers, Toyota had a full year forecast of $5,000,000 to $6,000,000 but they've had to revise it downward by several million. So our car manufacturers have come out with very tough forecast. So given that car manufacturers are faced with difficulties, AMS traditional parts business will have to navigate through these very difficult conditions.
They will be severely impacted. On the other hand, we're talking about parts business. It's not just traditional mechanical parts, but electronic parts, connected systems. They are also part of this. If we take a closer look on those aspects, there's much growth potential.
So our challenge for AMS is of course, we will continue with the traditional parts business, but with what speed and magnitude can we refocus our growth resources into such new and growing areas. And that is something that we need to concentrate ourselves on and that's what we're discussing. With Honda related businesses, three of them combined, assets will grow and what will happen. We have not closed it yet. So not that we have scrutinized every aspect of their businesses.
Honda has a similar policy, however, a motorization connected. That's the approach they are taking, reallocating their management resources. And so given that, we believe that we can create new businesses. And Carter speaking. Regarding automotive parts business, let me share with you our view.
How we look at our market is such that in fiscal year 2020% reduction in production will happen throughout the market. That's our forecast. And as far as our numbers, the impact from COVID-nineteen in terms of that, if you could please take a look at Page 22. In Life Sector, a negative 14.8% impact for Smart Life sector. For Automotive system, 23% negative impact is expected.
Year on year revenue. In the data collection sheet, we have included detailed numbers. Please take a look at them later. Year on year, 86% impact in revenue. We acquired a chassis company.
Excluding that, the impact is going to be 20% reduction. So the impact is going to be quite large. Thank you.
Yongar san, please. Please unmute and proceed with your question. Question. Can you hear me? Yes, we can.
First question is regarding COVID-nineteen. Regarding the numbers in terms of impact. For the fourth quarter, adjusted operating income basis is JPY46.9 billion. And for the whole year, this is about JPY310 billion that is estimated. What is the breakdown between the first half and second half or amongst the quarters?
You may not have exact numbers, but can you give us your image? For example, which quarter is going to be the most stable? Is it going to be first quarter? Please elaborate further. I'm sorry if I missed it before, but let me confirm.
In terms of adjusted operating income and between EBITDA, is about 81,000,000,000 difference. This is quite significant. What items are included in this difference? Please elaborate. Regarding COVID-nineteen impact for fiscal year twenty twenty by the different quarters, overall, in terms of revenues, as you can see in Page 22, there's about JPY 1,000,000,000,000 decline is estimated.
And in terms of the breakdown in the periods, in the first half, 70% to 80% and remaining will be in the second half. In terms of numbers, the first half impact will be the greatest. To your second question, regarding operating adjusted operating income and with EBITDA, there is a difference of about 80,000,000,000. What is the nature of this? Against the backdrop of COVID-nineteen, as already mentioned, as shown on Page 21, we have assumptions for the different businesses in making these calculations.
One year ahead remains in a flux. Therefore, impairment risk could occur. So 80,000,000 is assumed here. This is not by sector, but for corporate overall, in the corporate nations, we have included JPY 80,000,000,000. That is all.
Question regarding the adjusted operating income, similar to revenues, can we say that 70% to 80% is in the first half? What about the first quarter and second quarter? If you compare the two, how do you see that weak impact? In terms of revenues, only we have a breakdown. So we cannot add further.
Question on Page 24. In IT, when you explained this topic, COVID-nineteen in fact excluded on a year on year basis, if you make the comparison, I think it's a decline in revenues and earnings. As shown here in the presentation for the period ended, is there one off impact and there's going to be a backlash. So that's the reason why you are looking at a decline in revenues and earnings? Do you have a conservative outlook for the IT market?
This will include various factors. The IT market outlook overall impact is being considered in addition to that. There were investment plans, which is putting downward pressure, and that is the reason why we have come up with these numbers. Understood. Thank you.
Thank you. Next.
The next question please unmute and ask your questions. I have a question about business segments, the breakdown. Actually, there are two questions. The first question is ABB power grid business, Keikinsho and Nissin are acquired and combined.
In the
plan for the new fiscal year, is that reflected in the plan? I thought it wasn't. Am I correct? If it's reflected and included in the plan, what's going to be the degree of financial impact? Depending on the timing of the consolidation, the impact would differ.
What's going to be the amount of depreciation? Acquisition price, will it not be revised any further? So that's my first question. ABB Power Grid and Honda's three businesses consolidation thereof. Both have yet to be closed.
So post closure, there's much management information we will be receiving. So PPA goodwill issues that you mentioned, those issues were not yet informed at this moment. And because of that, we're not able to disclose the numbers because we cannot perform calculations. We must receive more information. I hope you all understand.
Regarding ABB, as
I said in my presentation, at a certain timing in the first half, it will start to kick in and we will be able to hammer the numbers out for PPA and I hope it will be reflected in the first quarter plan. And Honda's consolidation Honda business consolidation will be later. And by the end of the year, we would like to hammer out the number reflected in the plan. So I hope you understand that because of the situation that I talked about, we're not able to disclose numbers. Thank you.
I have another question. So question, Page 28, Life segment Smart Life segment. Adjusted operating income and EBIT plans are given and there are two footnotes. If you could please provide commentary for these two footnotes, Healthcare business unit and Diagnostic Imaging business, they are sold and the proceeds from the sales, how are they reflected in the adjusted operating income and EBIT? That's my question.
Answer, Kartel will respond. Well, this time, Diagnostic Imaging business, it's to be sold, divested. So operating income, revenue, we have not disclosed numbers, but the numbers are reflected in the plan. And with respect to the proceeds of sales, they have remained unchanged from the last time. For FY 2020, 111,000,000,000 is reflected in EBIT.
Thank you. Thank you.
Next question, please. Once again, please press the relevant icon. Yoshimi san, please. Question. Can you hear me?
Yes. I have two questions. Now COVID-nineteen impact has been referred to Page 22 as details of this From our new fiscal year, the adjusted operating income projected is about 20,000,000,000, so 21,000,000,000 is shown here. So there seems to be a delay in the impact and demand is also declining. There are different ways to interpret this.
For fiscal year 2020, this JPY 21,400,000,000.0 is based on certain assumptions. Based on that, in fiscal year 2021, when it is going to be impacted? Out of the JPY 21,400,000,000.0, how much do you think is going to recover in normalized fiscal year 2021? Which areas will return, which areas will not? For fiscal year twenty twenty one, it is difficult to estimate the impact.
For fiscal year 2020, we have precise estimation made taking into consideration macroeconomic factors as well, but we don't have that for fiscal year 2021. For fiscal year 2021, from the beginning of the fiscal year, we are assuming that it is going to normalize, but specific numbers have not been secured yet. And we have not made a bottom up calculation either. I have the following second question. For the five secondtors, IT is going to be the major pillar.
Now looking at this, minus 7.7% is the impact in terms of revenues. But what about fiscal year twenty twenty? How do you evaluate the market? And what are the recent orders received? Are you already seeing a downturn in the sector?
The orders received numbers will be presented by Katwa later, but let me also first of all talk about the IT market overall. On the part of the customers, it is likely that we'll start to control investment. So it is likely that there will be impact. However, on the other hand, with the impact of COVID-nineteen, remote working is increasing. There is request for different services as well.
Therefore, the investment market will become smaller, but there will also be new demand as well. So IT business overall is likely to breakeven according to our view. On the other hand, for hardware, especially North America, the server market, I think it is going to take time to recover in that market. The impact is likely. But in domestic market, that is not the case.
But I think the impact in the hardware in North America will be quite significant. This is Kato speaking. Let me also add my comment. For IT, in
the
recent times, the impact is limited. I think there's going to be a time lag impact just to follow going forward. Page 22. The first half and second half breakdown will be given. About 70 to 80% will be in the first half.
For IT, in the first half, the impact is smaller and there is more weight on the second half compared to the overall trend. Question, domestic IT market, you said it's flat. Is that your assumption? Yes. That is the basic assumption according to our calculations.
You. Thank you.
Any other questions from those on the Japanese channel, institutional investors and analysts? Those of you with questions, please press the button for asking questions. Raising hand. If not, let's move on to the English channel. Those of you on the English channel, please ask questions.
Your questions will be translated by interpreters consecutively and the answers will be given simultaneously. So those of you with questions, please press the button for raising your hands. It seems that there are no questions from the English channel. We still have some time left. So let's take questions once again from those on the Japanese channel.
So members of the press, investors, analysts, anyone who has questions, please press the button for raising your hand. Thank you. There's a question. Please unmute. The questioner, please unmute and start your questions.
The questioner, you will be unmuted. Start your questions, please. Yes, thank you. Thank you for your presentation. I have one question.
IT sector is doing very well. If you could please comment on why it's performing so well? Thank you for the question. In the IT sector, there are roughly four business components. One is social and public sector business.
That's systems related business for the government and so forth. The second is financial services. And the third is the solutions related service related business. And the fourth is hardware business. What is doing very well is social and public sector business.
Order intake and delivery is doing very well. Financial services are sluggish, but this first segment is doing very well, social and public sector business. And because of that, RTE segment overall is performing well. What about the storage business, including North America? I would like to ask Kato to give you numbers.
Storage business, we have a focus on high end storage business. Storage market overall is such that unfortunately, the size of the market is gradually declining and shrinking. Amidst that, we are launching products in the mid range and that is what we want to grow. In terms of profitability, Hitachi Vantara, starting from January, has started a new organization that's strengthening the front business and they are engaging in structural business. And in digital area, they are to drive the Lumada business.
So that is the plan. Thank you. Understood. Thank you.
We are pushing the time to bring this meeting to a close, so we'd like to take the last question before we close. Please unmute and ask your question. Question. On Page 18, capital expenditure priority will be reviewed as mentioned here. Specifically, what areas are you going to screen?
Which segments are you referring to specifically? Furthermore, in terms of CapEx for the total amount compared to the previous fiscal year and this year, will there be a revision from the original plan? Please elaborate. Now in terms of CapEx numbers, Kato will provide a detailed explanation. Now to your first half of the question, our views in terms of capital expenditures are twofold.
First of all, is reinforcement around the factory related environment as well as investments for growth. In terms of renewal for old facilities, we are scrutinizing the details. In the past, in the there was a renewal in the components of depreciation, but it should not perhaps be limited to that. Not allocating everything to renewals, but also focus on new areas as well. So this is how we are going to change the allocation of investment to have overall control.
In terms of numbers, capital expenditure will be reallocated away from renewal and it will be focused on new growth. So there could be a row decrease, but we are going to reprioritize our investment for our future. Furthermore, in terms of numbers, from this turn, we have two slides, the slide that we explained and also there is supplementary information for the results attached as well. On Page 15, there is the capital expenditures shown and the numbers for 2018 and 2019 are shown here. For fiscal year 2020, we are in the reprioritization of therefore, that is the reason why we have not yet disclosing numbers for fiscal year 2020.
Thank you. Question, what about R and D expenditure? Please elaborate further. It might be on the same page, but please elaborate inclusive of your views. Regarding R and D expenses, for a company like us, it is the driver for growth.
And therefore, significant control is not something that we are contemplating. On the other hand, R and D expenditure will be significant. Therefore, we will have the priority set and the order of the R and D expenditures will be subject to review as well. Overall, it isn't as if we are going to reallocate the resources significantly. There are contributions to be made in the midterm as well as long term.
Therefore, inclusive of the timeframe, we want to make sure there will be a return enjoyed. We'll have prioritization and rearrange the order as well. Overall, we are not thinking of strict control. In terms of the numbers, the supplementary information on Page 17, detailed information is provided. For 2019 and 2020 compared, 90% is shown.
It looks as if the absolute number has declined, but the Hitachi Chemicals was accounting for 10%, which is now dropping off. Therefore, is a decline. It shows the ratio against sales. So 3.4% in 2019 and for 2020, it increased to 3.7. Thank you.
The time has come to bring this meeting to a close. The fiscal year twenty nineteen earnings briefing will now be concluded. From 05:00 this evening, we will start the conference on the progress of the 2021 midterm management plan. Thank you for your attendance today.