It is now time to start the web conference on Hitachi's FY 2019 earnings and web conference on the progress of 2021 Mid-Term 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-19, 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. As 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 3:30 P.M. through 4:45 P.M., we're going to have an earnings meeting, followed by a 15-minute break.
Between 5:00 P.M. -6:00 P.M., 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 Vice President, Executive Officer, and Chief Financial Officer, Yoshihiko Kawamura. General Manager of Financial Strategy Division, Tomomi Kato. Executive General Manager, Investor Relations Division and Corporate Brand and Communication Division, Yasu o Hirano. There are three speakers who will be speaking today. With respect to the outline of the business performance, Kawamura will explain. We will switch the presentation material on the screen. Please bear with us for a moment. Mr. Kawamura, please.
Thank you very much for the introduction. My name is Kawamura. Today, we will be providing the explanation via video conference. The results have been announced today. Because of the impact of COVID-19, there has been some delay, but we are now happy to announce them today. With the COVID-19, I understand many people have been affected. We'd like to offer our feelings for them and offer our condolences for the people who have lost their lives through COVID-19. This is 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. I had the handover from the predecessor in April. I have been working for two months then. Five years ago, I entered Hitachi 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, 35 years, I have been working at Mitsubishi Corporation. Out of that, for four years, I was dispatched to the World Bank in Washington, D.C. Half of the remaining time was in Tokyo, and the other half was in the overseas countries. I worked in IT as well as financial services as well. I went to Cambridge as well as Boston in terms of training, and I worked at Washington, D.C., and New York, and Chicago while I was at Mitsubishi Corporation. I understand the materials have been uploaded. I would like to talk about the 2019 results, as well as the outlook of fiscal year 2020 and the impact of COVID-19.
There are some 40 pages. I would like to allocate as enough time for questions as much as possible. I would just like to highlight the major points in the PowerPoint presentation. Please refer to the materials and refer to page three. These are the highlights of fiscal year 2019 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 2018. The middle bar is the exclusive of the COVID-19 impact. The actual for fiscal year 2019 is on the right-hand side. As you can see, the revenues were at JPY 9.48 trillion in fiscal 2018. Fiscal 2019 was at JPY 8.767 trillion. Looking at the adjusted operating income for fiscal year 2018, JPY 754.9 billion.
Inclusive of the impact of COVID-19 on the right-hand side was JPY 661.8 billion. The ratio is shown above at 7.5%, which is the income ratio. We had a decline in revenues, as well as a decline in operating income as well. Right-hand side, the other numbers are provided. The net income is also shown, which is JPY 87.5 billion. Year-on-year, it was minus JPY 134.9 billion. Therefore, we had a decline in net income as well for fiscal year 2019. We had a decline in revenues as well as earnings. Please now refer to ROIC, return on invested capital, on the right-hand side. The ratio was above by 0.9 points at 9.4%. In the last year of the Mid-Term Management Plan next year, we hope that the 9.4% can be increased to 10%, which is the plan.
We are close to achieving the target for the plan, which is 10%. Those are the highlights of the fiscal year 2019 results. Please now refer to Page four. It's a breakdown. The five sectors, as well as the list of subsidiaries. Left-hand side, we have the items and five sectors to the right, and this is subsidiary. High-Tech and Chemicals was included in 2019. You can see Hitachi High-Tech, Hitachi Construction Machinery, Hitachi Metals, and Hitachi Chemicals are the listed subsidiaries. Total is shown on the right-hand side. In terms of revenues, the gray area is inclusive of the COVID-19 impact. For the five sectors, the revenues was JPY 5.729 trillion, and the revenues was JPY 3.138 trillion. The total was JPY 8.767 trillion. In terms of the adjusted operating income, five sectors was JPY 476.3 billion. This is JPY 185.4 billion. Total subsidiaries 61.8%.
The ratio are 8.5%, 5.9%, and 7.5 % respectively. Year-over-year comparison are shown here for the five sectors as JPY 8.3 billion increase. For the listed subsidiaries, there was a decline of JPY 100 billion or so. Therefore, between the five sectors and 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 of the IT contribution was very significant in this area. For the IT sector, the JPY 250 billion operating income was posted. On Page 24, more detailed information will be provided. You can see that the IT sector contributed significantly. The other important point I would like to highlight is below. That 8.5% was the five sectors operating income ratio to the right. 8.9% is shown here.
In the absence of COVID-19, we would have achieved 8.9% for the five sectors, which is very high. Now, in the Mid-Term Management Plan, we are aiming for 10%. We are making steady progress for the achievements of the Mid-Term Management Plan. Net income is below. For the five sectors, it's JPY 66 billion. For the listed subsidiaries, JPY 21 billion. Total was JPY 87.5 billion. Please refer to Page five. This is a waterfall chart showing the changes in the profit. To the left is fiscal 2018. There has been impact of the organization, foreign exchange impact, and others impact as well. Now, in the absence of COVID-19, shown in gray, there was a COVID impact, and to the right is the ultimate fiscal year 2019 result. Lower is similar, showing the adjusted operating income, the gray. This is the number without COVID-19.
With that impact, the actual is shown to the right. For fiscal 2019, it was from January to March, the fourth quarter, when the impact of COVID-19 has come to the fore, the impact has been rather limited. Page six. This is talking about the five sectors, showing the waterfall chart from revenue to operating income. Upper is the revenues and the lower is the adjusted operating income. For the revenues starting at JPY 5. 984.5 trillion. The gray area is excluding COVID-19 impact. JPY 5. 729.3 trillion, there's the impact of COVID-19, we ended up with JPY 5.628 trillion. Similar for adjusted operating income, starting with the and ending with JPY 476.3 billion. 2018 was JPY 468 billion. That means that the increase of JPY 8.3 billion has been achieved.
This is the highest in record ever, and that's 8.5%. The gray area, if we exclude COVID-19, 8.9% is achieved. It has become very high. Page seven should be referred to. This is revenues by market. Starting with North America, Europe, China, Japan, ASEAN, India, and other areas shown here. The ratio is half Japan, and North America, Europe, China, ASEAN, India, and other areas are all prevailing around the ratio of 10%. What is characteristic here is that revenues have gone down in all regions. The ratio of the 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 accounts 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. At the end of 2019, from 69, we have gone up to 74.2, an increase by five days. This is the impact of the COVID-19. Inventory was held higher. Accounts receivables, payments have been delayed. It deteriorated by five days. The middle is the liquidity 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. Together, you can see liquidity overall for 2019 in terms of cash as well as equivalents, JPY 800 billion has been achieved, and a commitment line of JPY 500 billion is available. JPY 1.3 trillion, in terms of cash liquidity, is on hand. Debt equity ratio is shown on the right-hand side.
If you have questions, I can refer to the debt. You can see that it has deteriorated to 0.35. We are going to control it at 0.25. Page nine should be now referred to, which is cash flow. From fiscal 2015- fiscal 2019 is shown here. Sorry that this is difficult to see, but there are bar graphs 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. The light gray is the Core Free Cash Flow. This is a unique indicator of our company that will be explained later. 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 going to free cash flow. In the middle, we have the Core Free Cash Flows indicated as well. M&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 was a decline of JPY 49.1 billion decline with Mitsubishi Heavy Industries' payment was made, which has had this impact. JPY 360 billion 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 left to right should be referred to from fiscal 2011- 2019. From JPY 40- 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&A and consolidation are included here. In the middle, we have the business portfolio transformation. Third is the settlement on the South Africa project with Mitsubishi Heavy Industries. In terms of business reinforcements for growth in Europe, Hitachi Vantara International was acquired. 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 bill is also included, scheduled for the first half of 2020. AMS and Keihin, Showa, Nissin Kogyo, the three parts manufacturers of Honda, have been integrated in terms of management. A significant business reinforcement has been made.
In terms of the business portfolio transformation, we tended 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, JPY 1 trillion was achieved. After two years, we are at the level of JPY 1.2 trillion. 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, we are now categorizing this as a related business. There are two progress points made here. First, in the area of expansion of Lumada 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 Japan Exchange Group. In terms of reinforcement of management base, we are securing the human resources for this business in North America. We have established a holding company for industrial Lumada. IoT will be the major focus here. We have management integrated with Hitachi Vantara. In terms of Lumada business expansion, we are allocating more resources to drive growth. So far, I have talked about the fiscal year 2019 highlights. Here onward, let me refer to the fiscal year 2020 forecast.
There will be a full year impact of COVID-19 for 2020. In terms of the calculation, 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 continually 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, 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 and operating income, and the impact on the right-hand side. 2019 was JPY 8.7 trillion for revenues.
Excluding COVID-19, shown in the middle and the right-hand side is the forecast for fiscal 2020, which is JPY 7.08 trillion. The middle is the adjusted operating income. Left-hand side is 2019, JPY 661.8 billion. Impact of COVID-19 is shown on the middle and excluding that. With the impact of COVID-19, we will have a fiscal 2020 forecast of JPY 372 billion. The ratio is 5.3%. Now, in terms of the revenues as well as adjusted operating income shows that we are going to have declining revenues as well as earnings. In terms of net income, it will increase up to JPY 335 billion. That's a five-time increase for fiscal 2019, which was JPY 67.5 billion. This is a forecast that we have. Foreign exchange is assumed at JPY 105 to the U.S. dollar. Very conservative assumptions are being made. Page 15.
This is a breakdown of these numbers for the five sectors and listed subsidiaries. Similar to fiscal 2019, for the listed subsidiaries, they will be impacted significantly by COVID-19. For the five sectors, in the gray area, is the outlook of the signed revenues for five sectors will be JPY 5.560 billion. For listed subsidiaries, JPY 1.52 trillion. Total is JPY 7 trillion. As adjusted operating income is JPY 338 billion for the five sectors. For listed subsidiaries, JPY 34 billion, and a total of JPY 372 billion. Here, once again, the IT sectors are expected to make a significant contribution. If you look at the IT sectors on page 24, in terms of revenues, JPY 2 trillion. Adjusted operating income, JPY 200 billion. 10% contribution would be made by IT according to this forecast.
If you look at the adjusted operating income ratio. The ratio of 6.1% for five sectors and 2.2% for listed subsidiaries. You can see that there is a significant difference between the two. What is noteworthy is, if we include the COVID-19 impact, it was 8.7% in terms of operating income ratio. The net income will be JPY 331.5 billion for five sectors, JPY 3.5 billion for listed subsidiaries.
It will impact significantly. The total is JPY 335 billion for the total. Page 16. This is a similar setup for fiscal 2019. A waterfall chart is showing. The gray area, the COVID-19 excluding impact should be showing JPY 8.1 trillion is shown here. For fiscal 2020, with the full year impact, JPY 1 trillion negative impact will be felt. The fiscal 2020 forecast for revenues was JPY 7 trillion, 80 billion. For adjusted operating income, excluding COVID-19, is JPY 673 billion.
It will have a full year impact, of -JPY 301 billion. The forecast for 2020 is JPY 372 billion. Year-over-year impact of COVID-19 will be felt in 2020. Page 17, for the five sectors, similar information is provided from the left to right. The numbers can be referred to. If you look at the excluding COVID-19 and with COVID impact for the five sectors, in terms of revenues, excluding COVID-19, it will be JPY 6. 32 trillion, and COVID impact will be JPY 760 billion for the five sectors. The forecast will be JPY 5 trillion, 560 billion. Similar for adjusted operating income, excluding COVID-19, is JPY 552 billion, and the COVID impact will be JPY 214 billion, amounting to fiscal 2020 forecast of JPY 338 billion. Page 18. We are 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. Conduct 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&A. First is promotion of digital transformation and reinforce the front line functions by developing digital talents. With the impact of COVID-19, there are areas that are changing. For example, automation as well as remote working, et cetera. Solution and development are being expedited so that more orders can be received. Furthermore, smarter transformation activities will continue to steadily reduce costs.
Page 19 is Lumada's new definition. On the right-hand side, you can see the red is the Lumada core business. This is basically the same. The gray area is the Lumada related business. This is what used to be referred to as SI business. The amount is becoming larger with related business. Therefore, we have recategorized 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 2019, you can see according to, there was JPY 1.2 trillion in terms of revenues. If we realign according to the new definition, we go to JPY 1 trillion +. For forecast for fiscal year 2021 is achieving JPY 1.4 trillion. The target is JPY 1.6 trillion.
For the JPY 200 billion, which is the shortfall, alliances as well as M&A measures will be contemplated to achieve this. Below, you can see the 2019 Lumada sector-based breakdown for your reference. So far, I discussed the goals for fiscal year 2020. The budget for fiscal year 2020. From page 21 and onward, I would like to discuss our views on the impact of COVID-19. Page 21. When reflecting COVID-19 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. Vertically, segments, IT, energy, industry, mobility, smart life, and so forth. What's written in text describes the impact in each respective business. You will find bar graph horizontally, color-coded. Dark gray is the area where there's potential of more than 15% impact from COVID-19. Light gray is expected to have 10%-15% impact from COVID-19. Please take a look at IT. Japan does not have a bar, meaning that Japan is going to be not affected. You will find light gray for North America and Europe in IT, impact is going to be 10%-15%. China, not impacted. Likewise, ASEAN and India, 10%-15% impact from COVID-19 in IT. In industry segment, throughout the world, there will be impact.
The impact will be severe in Japan and North America. In Europe and China, less impact. ASEAN, India, a larger impact. That is how it's described by product and by region in a matrix, 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-19? On the left, FY 2019 impact. 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 JPY 46.9 billion in total. Please look at the 2020 forecast. Because of the full year impact from COVID-19, adjusted operating income's impact is going to be JPY 301 billion. On the far right, COVID-19 impact ratio is given. You can see different shades of gray.
Overall, a -12.6% impact. That gray, it may not be easy to see, but in the Industry segment, impact is -16.1%, Mobility, a -17.1% impact. This is subsidiaries at the bottom. The impact is estimated to be -14.6%. IT, Industry, Energy, and Mobility in the pages to follow. Starting from page 23, Hitachi Construction Machinery, Hitachi High-Tech, and so forth. Listed 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, R-O-I-C, by segment is disclosed. Are we exceeding the capital costs?
We would like to communicate that better with the external parties, ROIC is disclosed. Adjusted operating income by segment as well. EBITDA by segment is also disclosed from this year onward. Cash flow is largest in EBITDA. D, depreciation, A, amortization. These are the largest, when M&A takes place, D and A becomes large. We need to reflect that. How much is the extent of cash flow reflected in EBITDA? That's what we would like to disclose. 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, JPY 1 trillion +. Light gray is EBIT, or rather, dark gray is EBIT, and D and A accounts for JPY 407 billion. In total, we're going to have more than JPY 1 trillion.
That is the extent of our earning power. The rest is supplemental information, 34, 35, 36, 37, by segment. Page 38 gives the redefinition of Lumada business and the current status of Lumada business. I am sorry for rushing through. I have exceeded the allotted time. I took 25, 26 minutes for my presentation. That concludes the fiscal year 2019 business performance and the forecast for fiscal year 2020. Thank you for your attention.
At this moment, we would like to move on to question- and -answer. Those of you with questions, on the video conferencing system, there is a button for raising hand. Please press that for questions. Those who have indicated that they have questions, we will call your names. 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.
If you have further questions after the first question, please press the button once again. The video of the questioner is not going to be shown on the screen. Japanese press will be asked for questions, then next, institutional investors and analysts, and those on the English channel. That will be the order. 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 from Nikkei.
Can you hear me?
Yes, we can.
There are three main points I would like to ask. My first question is as follows. A coronavirus' impact. On page 21, you have shown the information by segment, industry, mobility. In these segments, in which areas is the impact likely to be largest? If you could give us further breakdown and elaborate.
Thank you for your question. 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. First, Industry and Distribution BU. Aviation and automotive business is going to be affected. There's going to be a decline in demand. Water and environment business as well. Centering around Japan, decline in demand is likely to happen. In terms of products, centering around North America, our product business is also going to be negatively affected. Overall, there's going to be an impact. Across the board, it seems that there's going to be an impact. That's our assumption. Mobility, as you can see, Building Systems BU.
In China, we are expecting a recovery, but new installations are going to be affected still. The service model will have to be focused upon maintenance business, in other words. Railway Systems BU, between January and March, for European factories, they've had to be suspended, but they are now resuming. In the second half, I think they will be normalized. That's how we're putting our numbers together. Thank you. Just to supplement what was said, page 22. COVID-19 impact by segment. Please take a look at this. On the far right, COVID-19 impact ratio for FY 2020 is given. This is the likely fluctuation in revenue. Overall, 17.1% for mobility. Building, - 10%. Railway, down 25%. 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. You are redefining Lumada business. SI is now changed. The difference is simply that you included most of everything into SI, but IoT, AI, 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. We included related business more broadly. Your understanding is correct.
Question.
You are redefining what's related to Lumada and Lumada itself more clearly.
Answer.
Correct. Solutions business and applications business, related extended business is included, correct.
Question.
Last question. Lumada's overseas sales ratio, before you said about 10%, but what is the current number? FY 2020 goal is to expand Lumada business to North America to raise it to 30%, but because of being impacted by COVID-19, has the forecast been changed?
Answer.
Kato will respond.
For fiscal year 2019. 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. According to that new definition, fiscal year 2019, the ratio is 40% core business, 30% related business, 50% overseas revenue ratio. We would like to exceed 50% in fiscal year 2020. That's our goal.
Thank you.
Thank you. Are there any other questions? Please push the button to ask a question. Kojima-san, please.
Question.
Regarding the Lumada business, I have a follow-up question. You had mentioned JPY 6 trillion 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. With the review that has been made, the growth ratio is where we are focused on. For fiscal 2019 and 2020, 12%, and furthermore, we are aiming for 20% to reach JPY 1.6 trillion. We are hoping to have a significant growth rate, and we also have high expectations for these systems and products in terms of related business.
With this, we want to grow further. 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 2020, in terms of revenues and operating income, it is likely to decline because of COVID-19. The net income will be reaching JPY 340 billion, and with the South Africa impact. What are the other factors that is going to contribute to the increase in net income? Answer, this is net income. Between the operating income and net income, there are plus and minus, and that is a result of the number mentioned. There is also the South Africa impact as well. There are both increases and decreases. In terms of operating profit, is JPY 372 billion, and as a result, we come up with a net income number.
I would like to give you more further details. 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. In terms of EBIT, increase by JPY 430 billion is expected. The factors include that in fiscal 2019, energies South Africa, JPY 370 billion settlement was included. It will go away. Fiscal 2020, Hitachi Chemical in sales purchase of JPY 270 billion. Non-operating income is improving significantly. That is the reason why net income is going to increase in our forecast.
Question.
That means that for fiscal 2018, there was a U.K., the nuclear power issue occurred. There was some impairment. Regarding JPY 335 billion shown here, how should we interpret this? How do you evaluate this number inclusive of the COVID-19 impact?
Answer.
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-19. As you can see on this page, operating profit, the profit is JPY 530 billion, and JPY 370 billion in operating income can be achieved. Even though it is very difficult times, we were able to post operating income. Impairment should be considered, and backlash should be considered as well. We end up with net income JPY 335 billion, which is evaluated favorably. The bottom line is what's important. 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 under very difficult environment.
Thank you. Senbongi-san. We will unmute you. Could you unmute and ask your questions?
Senbongi speaking. Can you hear me?
Yes, we can.
For the outlook this year, life sector in particular, automotive business, I have a question. Earlier regarding the automotive business, the impact from COVID-19 is going to linger into the second half, Kawamura-san said. Hitachi Automotive has business with Nissan and Honda. Nissan, in particular, is suffering. The automotive industry, per se, across the board, is suffering and having problems. I wonder what your awareness is on that. Other suppliers, some have not come out with a forecast for this fiscal year. What is the assumptions underlining this forecast? 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. What's your take on that?
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? Carmakers, Toyota had a full year forecast of 5 million to 6 million, but they've had to revise it downward by several million. Carmakers have come out with very tough forecasts. Given that carmakers 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're also part of this. If we take a closer look on those aspects, there's much growth potential. 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 resources into such new and growing areas?
That is something that we need to concentrate ourselves on, and that's what we're discussing. With Honda-related businesses, the three of them combined, assets will grow and what will happen. We have not closed it yet. Not that we have scrutinized every aspect of their businesses. Honda has a similar policy, however, motorization connected, that's the approach they're taking, reallocating their management resources. Given that, we believe that we can create new businesses.
Kato 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, 20% reduction in production will happen throughout the market. That's our forecast. As far as our numbers, the impact from COVID-19 in terms of that, if you could please take a look at page 22.
In Life sector, a - 14.8% impact for Smart Life sector. For Automotive Systems, 23% negative impact is expected. Year-over-year revenue. In the data collection sheet, we have included detailed numbers. Please take a look at them later. Year-over-year, 86% impact in revenue. We acquired Chassis company. Excluding that, the impact is going to be 20% reduction. The impact is going to be quite large. Thank you.
We will now take questions from the analysts, Japanese channel. Please press the button if you wish to speak. Yoda-san, please. Please unmute and proceed with your question.
Can you hear me?
Yes, we can.
First question is regarding COVID-19, regarding the numbers in terms of impact. For the fourth quarter, adjusted operating income basis is JPY 46.9 billion. For the whole year, this is about JPY 310 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 severe? 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, it's about JPY 81 billion in difference. This is quite significant. What items are included in this difference? Please elaborate.
Answer.
Regarding COVID-19 impact for fiscal 2020, by the different quarters. Overall, in terms of revenues, as you can see on page 22, JPY 1 trillion decline is estimated. In terms of the breakdown in the periods, in the first half, 70%-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 adjusted operating income and with EBIT, there is a difference of about JPY 80 billion. What is the nature of this? Against the backdrop of COVID-19, as already mentioned, as shown on page 21, we have assumptions for the different businesses in making these calculations. One year ahead remains in flux. Therefore, impairment risk could occur. JPY 80 billion is assumed here. This is not my sector, but for corporate overall, in the corporate eliminations, we have included JPY 80 billion. That is all.
Question.
Regarding the adjusted operating income, similar to revenues, can we say that 70%-80% is the first half? What about first quarter and second quarter? If you compare the two, how do you evaluate the impact?
In terms of the revenues, only we have a breakdown. We cannot add further.
On page 24, in IT, when you explained this topic, COVID-19 impact 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 presentations, for the period ended, is there one-off event and there's going to be a backlash? That's the reason why you are looking at a decline in revenues and earnings, or 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 a downward pressure, and that is the reason why we have come up with these numbers.
Understood. Thank you.
Thank you.
Next. The next person, please unmute and ask your questions. Question.
I have a question about business segments, the breakdown. There are two questions. The first question is, ABB Power Grids business, Keihin and Showa 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 and acquisition price? Will it not be revised any further? That's my first question.
ABB Power Grids and Honda's three businesses, consolidation thereof. Both have yet to be closed. Post-closure, there's much management information we will be receiving.
PPA, goodwill issues that you mentioned, those issues we're not yet informed at this moment. 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. Honda's consolidation, Honda business consolidation will be later. By the end of the year, we would like to hammer out the number reflected in the plan. I hope you will understand that because of the situation that I talked about, we're not able to disclose numbers.
Thank you. I have another question.
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.
Kato will respond.
Well, this time, diagnostic imaging business is to be sold, divested. Operating income, revenue, we have not disclosed numbers. The numbers are reflected in the plan. With respect to the proceeds of sales, they have remained unchanged from the last time. For FY 2020, JPY 111 billion is reflected in EBIT.
Thank you.
Next question, please. Once again, please press the relevant icon. Yoshinori-san, please. Question.
Can you hear me?
Yes.
I have two questions. COVID-19 impact has been referred to, page 22, as details of this. From our new fiscal year, the adjusted operating income forecast is about JPY 20 billion, so JPY 21 billion is shown here. 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 21.4 billion, it's based on certain assumptions. Based on that, in fiscal year 2021, when it is going to be impacted, out of the JPY 21.4 billion, how much do you think is going to recover in a normalized fiscal year 2021? Which areas will return, which areas will not?
Answer.
For fiscal year 2021, it is difficult to estimate the impact. For fiscal 2020, we have a precise estimation made, taking into consideration macroeconomic factors as well, but we don't have that for fiscal year 2021. For fiscal 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.
Question.
I have the following second question. For the five sectors, IT is going to be the major pillar. Now, looking at this, -7.7% is the impact in terms of revenues. What about fiscal 2020? What are the recent orders received? Are you already seeing a downturn in the sector?
Answer.
The orders received, the numbers will be presented by Kato later, but let me first of all talk about the IT market overall.
On the part of the customers, it is likely they will start to control investment, so it is likely that there will be impact. However, on the other hand, with the impact of COVID-19, remote working is increasing. There is a quest for different services as well. Therefore, the investment market would come smaller, but there will also be new demand as well. IT business overall is likely to break even according to our view. On the other hand, for hardware, especially North America, the servers market, I think it is going to take time to recover in that market, so the impact is likely. 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 timeline impact just to follow going forward. Page 22, the first half and second half breakdown will be given. About 70%-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?
Answer.
Yes, that is the basic assumption according to our calculations. Thank 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. Those of you with questions, please press the button for raising your hand. It seems that there are no questions from the English channel. We still have some time left, let's take questions, once again, from those on the Japanese channel. 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.
Question.
I have one question. IT Sector is doing very well. If you could please comment on why it's performing so well.
Answer.
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. Because of that, IT Segment overall is performing well.
Question.
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, that is what we want to grow. In terms of profitability, Hitachi Vantara, starting from January, has started a new organization. They're strengthening the front business, they are engaging in structural business. In digital area, they are to drive the Lumada business. That is the plan.
Thank you. Understood. Thank you.
We are approaching the time to bring this meeting to a close, we would like to take the last question before we close. Nakamoto Gen-san. 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 the 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.
In terms of CapEx numbers, Kato will provide a detailed explanation.
To your first half of the question, our views in terms of the capital expenditures are twofold. First of all is reinforcement around the factory-related environment, as well as investment for growth. In terms of renewal for old facilities, we are scrutinizing the details. In the past, there was a renewal in the confines of depreciation, but it should not perhaps be limited to that. Not allocating everything to renewals, but also focus on new areas as well. This is how we are going to change the allocation of the investment to have overall control. In terms of numbers, capital expenditure.
Will be reallocated away from renewal. It will be focused on new growth. There could be a real decrease. We are going to reprioritize our investment for our future. Furthermore, in terms of numbers, from this term, we have two slides. The slide that we explained. Also, there is supplementary information for the results attached as well. On page 15, there is a capital expenditure shown. The numbers for 2018 and 2019 are shown here. For fiscal year 2020. That is the reason why we have not yet disclosing numbers for fiscal year 2020.
Thank you.
Question.
What about the R&D expenditure? Please elaborate further. It might be on the same page. Please elaborate, inclusive of your views.
Answer.
Regarding R&D expenses, for a company like us, it is the driver for growth, therefore significant control is not something that we are contemplating. On the other hand, R&D expenditure will be significant. Therefore, we will have a priority set, the order of R&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 the long term. Therefore, inclusive of the timeframe, we want to make sure there will be a return enjoyed. We will have prioritization, 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 Specialty Chemicals was accounting for 10%, which is now dropping off. Therefore, there is a decline. In terms of 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 2019 earnings briefing will now be concluded. From 5:00 this evening, we will start the conference on the progress of the 2021 midterm management plan. Thank you for your attendance today.