We would now like to begin the briefing for the consolidated financial results for the second quarter ended September 3039, for Hitachi Limited. So I would like to introduce the presenters for today: Mitsuaki Nishiyama, Senior Vice President and Executive Officer, CFO Tomomi Kato, General Manager, Financial Strategy Division Yasuo Hirano, Executive General Manager, Corporate Brand and Communications Division. Tsunishiyama will start with the presentation.
You very much for gathering here today despite Thank being such a late time evening. And some of you might have been attending for a long time today the meeting. So thank you very much for that. Now I'm about to use the slides for my presentation. First, please turn to Slide Page one-two.
The second quarter sales, the middle column, 4,221,300,000,000.0, a decline of 6% year over year. IT segment and industry segments had increase in revenues. Life segment had impact of business divestiture in semiconductors and automotive materials because of worsening of market situation, Hitachi Metals, Hitachi Chemicals had also declining revenues. Next, adjusted operating income, 207,200,000,000.0 compared to the previous year, a decline of 14%. IT and Life segment the five sectors businesses, in particular for IT and Life, there was increase in income, but the listed companies, Hitachi High Technology, Construction, Metals and Hitachi Chemicals, all had decline in operating income.
EBIT was 290,500,000,000.0 yen The railway Agility Train West shares were sold, which was a gain by Hitachi Metals. In Magnetic Materials business, there was impairment loss on fixed assets and goodwill impairment loss posted, which led to a decline. So net income attributable to Hitachi Limited's stockholders was 889,200,000,000.0 yen down by 2% year over year. Next slide, one-three. Revenue and profit of our five secondtors and listed subsidiaries are shown.
Let me start from the bottom of the table, which are the listed subsidiaries. Adjusted operating income, Hitachi Metal had a decline of 27,100,000,000 year over year, which was the impact of market situation. In total, for four companies, yen 52,800,000,000.0 decline year over year was seen. And EBIT also, in addition to the decline of adjusted operating income, Hitachi Metals, goodwill and fixed asset, six to one point eight billion yen impairment loss. So it was a decline of 116,700,000,000.0 yen year over year.
And net income was a decline of 57,400,000,000.0 yen year over year. The top part of the table, five secondtors. Adjusted operating income, the momentum of first quarter was continued. The IT sector and the Life sectors were firm, plus 5,400,000,000.0 yen year over year. The first quarter, or rather, EBIT, with improvement of operating income and Agility, TrainWest shares were sold and the risk sharing type of pension was introduced.
So it was an increase of 54,900,000,000.0 yen year over year. So net income for the five secondtors was an increase of 53,700,000,000.0 yen Now the five secondtors, adjusted operating income in the first quarter total was a record high. Next, Slide one-four, revenues and operating income. Factors affecting the changes shown on the left hand side are revenues. First, with business divestiture impact reorganization was 124,000,000,000 Hitachi Cox Electric was deconsolidated and Automotive Systems business, like Clarion, were divested.
In total, this had an impact of decline of 124,000,000,000 yen and foreign exchange impact was 80,000,000,000 decline and others, yen 66,500,000,000.0. So decline of revenues was a major impact. Right hand side, adjusted operating income The impact of reorganization was 6,000,000,000 yen negative impact of 6,000,000,000 yen Foreign exchange was 12,500,000,000.0 yen negative impact negative factor and others, 15,800,000,000.0, negative factor. And also, just like revenues, declining sales was a major factor. In addition, investments for growth of 13,000,000,000 yen This is as we have planned.
With this added 297,200,000,000.0 yen was a result. Next Slide one-five is our revenues by market. First, to the right hand side, year over year figures. Japan was 100% and outside Japan, 88%. Though not included here, foreign exchange and divestitures impact excluded Zen domestic goodwill 102 and overseas, 95.
So relatively speaking, Japan is doing better and overseas is declining. In particular China. And other areas, Asia and India excluding China, showed large declines. In North America, automotive parts and metals declined, but Hitachi High Technology, Hitachi Construction increased. So this is 95%.
Foreign exchange and divestitures are when excluded, Zen North America would be 101% year over year. Next, one-six is the financial position and the statements of cash flow. Total assets, 9,719,500,000,000.0. Compared to the end of previous term, it is an increase of 93,000,000,000 yen However, here, lease assets with a change of accounting rules of lease asset liabilities is on balance, which is the impact of $220,000,000,000 yen And other assets were compressed. And cash conversion cycle, CCC, is seventy one point six days.
Towards the end of fiscal year, we will aim at achieving a level below seventy days. Total international interest stockholders' equity ratio was 34.4% and DE ratio, 0.31x. Cash flows from operating activities was 205,600,000,000.0 yen a similar level as the previous year. And cash flows from investing activities, expenditure was 27,000,000,000 yen So there is a decline of 64,600,000,000.0 yen which is an increase of outflow from the previous year. In the previous year, there were sales of shares, but this time, there were no major divestitures.
And Hyundai Engineering in Taiwan, the Taiwanese elevator company, With the TOB, this is now an equity method company, and this outflow happened during this time. So compared to previous year, there was an increase of outflow and free cash flow is 1,300,000,000.0 After one-seven, these are the revenues by segments. First, for IT. Increase of system integration led to 102% increase in revenues year over year. Operating income, strategic investments were increased.
So with increasing revenues, it is increase of 10,800,000,000.0 yen year over year. Next, Energy, mainly at nuclear power BU, there are projects related to new regulations, which we had last year, but this decreased this year. So there's a decline in revenues and operating income. Next page, Slide one-eight, Industry. For Industry, revenues increased by about 2%.
The sales increase in Air Conditioning System business for Industry Field was seen. On the other hand, after adjusted operating income, as a result, there's a slight increase of about 200,000,000.0 yen For Mobility, the impact of foreign exchange was seen. For Building Systems and Railway Systems, in both, there was a big impact on foreign exchange. And for Railway Systems BU, there was a decrease in revenues in The U. K.
Market and also building systems in China. Sales price average sales price went down. So revenues declined by about 9%. Then on the other hand, adjusted operating income revenues declined, but buildings cost reduced, so we could maintain a similar level of operating income as the previous year.
Please move on to one-nine for Smart Life. So for the Automotive Systems business, because of the divestiture of the business, that was 97,000,000,000 yen of a negative impact. And that is why year on year, it was 88% of revenues. Now for the Automotive System and also for the Appliances and also for Health Care business unit, all these because of structural reforms and also for cost reduction, we were able to realize this. And therefore, there was an increase of 10,300,000,000.0 yen of adjusted operating income.
And main former is the four listed subsidiaries, starting with Hitachi HITEQ. So there has been an increase in the semiconductor processing equipment. However, there was a decline in the sales of Liquid Crystal Display Exposure System and also the FX impact. That is why we are seeing 4,800,000,000.0 yen of a decline. And the one-two, it is the Hitachi Construction Machinery.
The FX impact was quite large. So in North America, Japan and Europe, the sales looks quite at risk, but there was a large impact from FX. Therefore, year over year, that was 98% in terms of revenues. And also because of FX and increase in indirect expenses, there was a decline in profit by 8,300,000,000.0 yen Now for Hitachi Metals, for auto and semiconductor and FA related demand decreased. And APAC was quite large, ending at 88% in terms of revenue
And accordingly, because of the revenue decline, adjusted operating income deteriorated by 27,100,000,000 And also revaluation loss in inventories, it's a 27,100,000,000.0 yen of decline. EBIT, it has declined by 94,400,000,000.0 yen year on year. So EBIT, it was in deficient. It is in red. And because of the Magnetic Materials, there was posting of impairment loss in fixed assets and goodwill.
So for the impairment loss amount, this is Hitachi consolidated and Hitachi Metals, the amount is different. So for Hitachi on a consolidated basis, it's 61,400,000,000.0 yen For Hitachi Metals, yen 42,600,000,000.0. So there is a difference in terms of the impairment loss. The reason being back in 2014, once we consolidate prior to consolidating to IFRS, the Hitachi Mantle went by J GAAP, whereas Hitachi Limited consolidated went by U. S.
GAAP. Therefore, in terms of the whether it is good for amortization or nonamortization, because of that difference, there has been a historical difference in terms of the impairment loss. So as 61,400,000,000.0 yen is the consolidated amount. Moving on to Hitachi Chemical. For semiconductor and automobiles, the demand had decreased.
And because of that, the revenue has declined by 8%. And adjusted operating income came down by 7,900,000,000.0 yen Moving on to one-eleven. For Other segment, operating income went down by 5,900,000,000.0 yen because of the impact of deconsolidation of Hitachi Kokusai Electric. Also for corporate items and eliminations, it's been declined by 9,400,000,000.0 yen in terms of earnings. Adjusted operating income, because of the consolidated increase in investment, a strategic investment.
That is the reason for that. Moving on to one-two for the topics. So first topic is related to Lumanta business, the progress so far. So on a Q2 cumulative basis, the revenue of $558,000,000,000 yen increased by 12% year on year for the first half of the year. On a full year basis, as we have made a forecast previously, yen 1,170,000,000,000.00 is the expected amount, which is an increase by 4% year on year.
So we have Lumata and also social innovation business related topics are listed here. So various activities have been conducted. So with Hitachi Bantara Corporation and Hitachi Consulting Corporation has been there's a decision to integrate it as of January 2020. It says it will serve as the core entity for the core and the frontline business to drive the Lumada business. Also, Fraser's Property Limited, we have a collaborative creation to digitalize cities and buildings in the Asia Pacific region.
So agreement has been made to promote the business related to human centered smart city. Also, this could be perceived as one form of smart city is this topic, the fact that Hitachi Banta Corporation announced a strategic alliance with Disney Parks. So first, as far as Disney Parks is concerned, First, we will start with the maintenance of the facilities to enhance the operational efficiency of shows and attractions in The U. S. But several tens of millions of people visits this Disney park.
So it could be perceived as one form of smart city. So making use of Hitachi's portfolio, we would like to expand the smart city business. And moving on to Page 13. As this year onwards, we have adopted ROIC as one of the important management indices. So we would like to leverage this in our daily operation.
So we have formulated the ROIC tree by business and established the model, as you can see here. So we have 500 items or so of action items. So those have been presented to the business units, and various ROIC tree has been formulated in accordance with the nature of the business. And also, there is a target set for each of their tasks and work, Also to increase the employees' consciousness, we're improving ROIC in their daily work. We try to gain their understanding by introducing e learning in Japanese, English and Chinese.
Next, the outlook for the full year fiscal twenty nineteen. So two-one. So in terms of the number, in comparison to the previous forecast, which is on the very right hand column, down by 300,000,000,000 yen to 8,700,000,000,000.0 yen in terms of the forecast. And the adjusted operating income, down by 80,000,000,000 yen a downward revision from the previous forecast, yen $685,000,000,000. EBIT, $6.00 5,000,000,000.
And net income attributable to Hitachi Limited stakeholders, down by 75,000,000,000 yen to $360,000,000,000 yen This is the forecast for the full year. This is because for the first half of the year, so for the five secondtors, they were able to absorb the FX impact, and they were able to perform more than initial plan. But in terms of the there has been decline in the demand for automobiles and metals and chemicals. The FX was quite large for the construction machinery as well. And there has been decline in the revenue and the earnings for the subsidiaries.
And we believe this operating climate will continue into the second half of the year. Also, foreign exchange, the U. S. Dollar, yen 110 to 105 yen to the dollar. And euro, that has been changed from 125 yen to 115 yen in terms of euro.
So that impact of the assumption of the ForEx has been incorporated into these numbers. Please move on to two-two, the outlook for five secondtors and listed subsidiaries. So in comparison to the previous term, so five secondtors, 4,400,000,000.0 of an increase. Of course, there was an FX impact here, but they were able to absorb it and still able to increase the earnings. And also adjusted operating income of 472,500,000,000.0 yen This is a record high number.
So we would like to make sure that we can exceed this number. So two-three onwards, we have the revenues by business segment. I would like to skip these slides. That is all for myself. Thank you.
We'd like to move on to Q and A session.
REPRESENTATIVE:] You have explained that in the first half, the five secondtors results were more than the plan. So on Page 27 of the material, there are additional information from the second quarter compared to previous year. There was information included. So if possible, for the second quarter, only the five secondtors and the subsidiaries' results compared to the original plan, how did they perform? And is there any specific features?
Could you make me give me additional comments? Compared to the plan, well, in general, first, please look at Page six, first sector, the five secondtors and the listed companies. I don't I have a total of the first half only for the details. So compared to the plan, second quarter in total, compared to the plan, for five secondtors, revenues was better by about 1,000,000,000 yen and operating income was plus 6,000,000,000 yen compared to the plan. And among those, foreign exchange impact compared to the plan was minus 2,000,000,000 So organically, it is plus 8,000,000,000 yen compared to the plan.
And for the total listed subsidiaries, sales revenue compared to the plan was a decline of 41,000,000,000 yen And operating income compared to the plan was lower by 16,000,000,000 yen So compared to the plan, the foreign exchange impact was minus 200,000,000 yen And organically, it was a drop of 13,000,000,000 yen And compared to the previous year, in the waterfall chart, I mentioned that there was an impact of foreign exchange. On the same basis, if we divide over 12,500,000,000.0 yen of five secondtors, it's an impact of minus 5,000,000,000 yen and listed subsidiaries, minus 7,500,000,000.0 yen impact. In the first quarter, seeing from our five secondtors was about better by about 5,000,000,000 yen and the others was minus 5,000,000,000 yen So it was in line. And for the second quarter, FX included, it is better by 8,000,000,000 yen for second quarter. So for second quarter only, maybe it was better by 3,000,000,000 yen So five secondtors: IT was doing well.
Yes. IT because the economic environment, the market environment is also influencing. CapEx in Japan, looking at the situation, there is drop overseas by domestic CapEx, including investments to reduce manpower, is taking place, in particular software investment. According to the BOJ Tantan, compared to the previous report, the outlook is the same, is about 12% or 12.8% increase of software investment compared to the previous year. So we want to capture these going forward.
And relatively speaking, the environment in Japan will continue to be better. My second question is for the annual outlook. Also on Slides 19 or 20, I'd like to make some confirmations. This may be a little detailed. But on Page nineteen, five secondtors in total is minus 10,500,000,000.0 yen compared to the previous forecast.
And on Page 20, everything is almost in line. So are write offs included? Elimination are included? Yes. Secondtors figures are for the listed four subsidiaries, and the rest is subtracted.
So the elimination other eliminations come under the five secondtors. And impact, the corporate and elimination on Page 21, 9,500,000,000.0 is the operating income. For corporate elimination, as measures in common with other companies, reduction of material cost, reduction of indirect material reduction of indirect cost is included. And in each sector, these were realized and reflecting that this comes out from the whole corporate sector. So this negative part comes under the upper category.
So in substance, looking at situation by sector, operating income is being revised downwards for Mobility, 1,000,000,000. This is the impact of foreign exchange. Lastly, about IT. In the first half, there was increase in income, but it remains flat for the full year. And in the second half, you expect a decline in income.
So far, strategic investments for growth were planned, and we will implement those. And here, this is firm and the domestic environment. Well, we will capture the deals that we can get. But it's quite busy. But though it is busy, if we stress it too much, that will lead to lower profitability.
So we must do proper project management to avoid this from happening, and we want to capture the demand in this sector.
I have two questions. So first is related to the figures by segment for Energy. So in the first half, profit and loss was not really profitable. But you haven't changed the full year forecast. So what is the operating profit for the second half?
Are you expecting to see an increase in the second half if you were to have a flat number on a full year basis? So if you can share with us your input. So these are impacted by various projects. So in terms of energy, so in the first half, it was quite it was not performing well because of the decline in the sales of nuclear power, so it was worse than expected. And aside from nuclear power, so there were onetime loss and some provisioning related to the onetime loss.
So because of those, the first half of the year for Energy sector was not performing well, but that would no longer be the case for the second half. So there would be no impact from specific projects. So for the second half, it would normalize. So just to supplement, so the absolute number may be sorry, this is to supplement answer. So the Energy, for the first half and second half, the sales are skewed towards the second half.
So the first half, the revenue is bound to be small. Also in comparison to the internal plan, there's not much change. Therefore, the absolute number seems fairly worse. But in the second half, we do not believe this is as a stretch target. So you've announced today the management integration in the Automotive business.
So for CBI, integration has been completed. So in the Automotive business, you are I think there's visibility for the new system going forward. So in the last year of the midterm plan, ROIC 50 and OPM of 10%, that is the target you have in mind. So I'm pretty sure you have some level of visibility. But after making this official formal announcement, this auto system under a new scheme, do you believe you're approaching closer to the achievement of this medium term management plan from the perspective of CFO?
Or you may feel that it could be because of some of different factors, you may seem that the target is actually further away. So in the previous session, this is the point that has been discussed. So Hitachi's IoT business is related to products and the operational technology, OT, and we have the product and the OT and the IT. So IT needs to have both the product and the OT. So as the Vice President has mentioned, so that is a way to link the cyber physical world.
So in this world, we would like to provide the products. And also, we have the OT in relation And we believe most of these are very important components of our business. So we would continue to strengthen on those end. So just by owning the products will not be suffice.
We need to have strong products into the market. So that has been already incorporated into the original midterm plan. And based on that, we have established the target for OP margin and also for the ROIC. So Shashi Break International, CBI, and also with the four companies, the integration. So combine these factors together, of course, we need to focus and also selective and be focused on our effort.
And at the same time, we will conduct the structural reforms. So as of this moment, it is very difficult to quantify the synergy because we will still need to do a number of processes such as TOB and various audit. But of course, needless to say, we need to have the synergy effects, especially cost synergy. That is important. And in order to realize that, we need to have the structural reforms.
So for 2021 medium term management plan, we would like to get closer to the target. So these initiatives will bring us closer to the achievement of this medium term management. So it has been mentioned the new entity will be launched in about a year time. So in the last year midterm plan, you mentioned about selection and focus and structural reforms. And would that give you enough time to achieve these in terms of the time line?
In terms of the time line, somewhere at some timing, so the post merger integration needs to be conducted. And of course, we need to conduct this in a speedily manner from day one. And of course, if there is an effort or a fruit that we can have, of course, we'd like to have that from day one as much as possible.
I have three questions. For IT, the demand trend in the first quarter, second quarter, are there any changes? In the second half, towards the second half or towards the next fiscal year, I think the situation has been very good. But I think you always mentioned that you are achieving ahead of the schedule. Will that continue?
Or do you think there will be REPRESENTATIVE:] a decline? Yes, you have mentioned. Are we implementing in advance or there is increasing receiving orders? It's difficult to distinguish. But in the first half, the orders that we have received for five secondtors, this were good.
And among them, IT was 108 compared to the first half of previous year in terms of orders received. So the firm situation continues. So my impression is that IT sector is very busy. So I don't think, in particular, for systems integration business, I don't think there is a major change felt. But one reason for concern is for hardwares.
New storage was announced two weeks ago. And high end storage, introduction to the market. And by doing so, we want to expense this to the high end. As For the third quarter, I understand the pipeline is getting full. So are we able to really start?
That is one focus area. My second question is the integration with Honda's business, which was announced today. It was explained earlier that it is noncash. And basically, this will be conducted by exchanging shares. There is no cash out from Hitachi.
Is that right? And without cash out, on operating income basis, I believe your adjusted operating income for the full year, there will be a consolidation of about 70,000,000,000 yen Is my understanding correct? And about goodwill, how much write off there is going to be? If 70,000,000,000 is a simple addition, how much of that will be offset? Do you have an image about it?
First, the acquisition is noncash acquisition. Mr. Kato will answer. Operating income. On the operating income, on a performance basis, about 80,000,000,000 yen is the amount of our three companies.
There may be differences in the figures, but that is the level that we expect. What I have been saying is a simple addition of past figures, but there are some which would be out of scope. So before closing, each company may sell to third parties, may sell their noncore business to third parties. So it's not a simple addition. At the moment, based on the results that we have from the three companies, that is the scale of a level that we expect.
And in general, as was mentioned by Doctor. Kok, for operating income in total, a simple addition would be about 110,000,000,000 yen but there may be some that will be out of scope from there. As for the details, we will quantify those in details later. Correction, 70,000,000,000 is the addition that we expect. And for goodwill, we are now studying the content.
So at the moment, I will refrain from disclosing the situation. So about 70,000,000,000 yen half of that
will be
amortized? I don't want to be misleading, so I will avoid making any guesses. If the figures are more clear, we would like to inform you later. My third question related to this subject. If there is noncash on a GAAP basis, if 70,000,000,000 or 80,000,000,000 yen is added to your income.
This may be a good story for you. And in judging investments, I think that may accompany the risk of being too lenient in making your decisions. In the current medium term plan, by using Lumada, your plan is of our current phase is to give more value added. But this integration is to strengthen the front line. Automotive parts business will be strengthened and to give more value added by using Lumada to enjoy more synergy.
I think the effect of the synergy could be delayed by several years. You talked about diversifying resources, but could you explain a little more about it? If it is only conventional parts, no matter, maybe or in the world of case and the audition, ADAS and electrification related software, These are very costly areas. So because of that, we are joining our resources. On the other hand, the products, to strengthen the products or scale up the products.
By doing so, we need a cash cow. That is one purpose. So with the noncash acquisition, we will be able to capture those so that the cash will be able to rotate. And if it's noncash, it doesn't mean that we will be we will take it easy. But we will look strictly to the impact of the balance sheet of our Life Sector, impact of consolidated finance.
And the total risk will also be considered. And also, we will maintain fiscal discipline. We will look into those. So it doesn't mean that we will be taking this as something for easy.
I also have three questions. So first question is related to the press. So about the elevator business for Yinta Engineering, he will be entering into bidding. So Higashi Hara san mentioned 2,000,000,000,000 yen is the number he's mentioned. But in the 2021 medium term management plan, you have 2,000,000,000,000 to 5,000,000,000,000 yen amount allocated for investment for growth.
So we should be executing investment above this particular amount? Or what is the possibility of taking more risks than that is above the fiscal discipline? So in terms of the financial fiscal discipline, we'd like to maintain it. That is our basic policy. In terms of DE ratio, 0.5x or below.
That is the level we're aiming for. And also in terms of interest bearing debt, the EBITDA ratio, 2x or below. So those are the two metrics we use for the fiscal discipline. So in terms of the so this is for TISUNUP. So in terms of the asset divestiture, we need to look into the timing for the asset sales.
And also, what is the timing we would spend the cash? And depending on the timing of the deals, of course, it may change. So it may be the number may actually spike. But in the previous year and the next year, the following year, it may come down. So it is not as if we would buy everything because it is available out there.
So we need to have more of a comprehensive view of our portfolio to make that decision. So we have to make sure that the overall Lumada business will be strengthened and whether it would strengthen the SI business as a whole. And of course, we look at the price tag as well. So we take more of an integrated view in making that final decision. So I apologize to hang on to some of the words.
But even if you were to go above the fiscal discipline, you are saying that in the following year, it will come down to this level? Yes. Similar question related to the previous one about the goodwill. So ABB, if you were to add that, yen 1,500,000,000,000.0 could be the total amount. So related to this, in comparison to shareholders' equity, how much risk are you willing to take?
As we speak, in comparison to the global competitors, the goodwill proportion to shareholders' equity is still low. So So of course, have ABB, and we would have the closing of the large products. So that proportion is bound to increase. So what percentage is viable? Or 1% will be the discipline we'd like to have?
That sort of number and that sort of metrics, we do not adopt right now. So we have projects related to system integration. And of course, there are some business risks arising from those products. So we need to have a total risk management. So we need to have more of a comprehensive view over looking the entire projects.
So in terms of yes or no, so we don't have a set target for the goodwill ratio. So even if goodwill were to be large, of course, some of the businesses are stable and some business may be large but highly volatile. So the size of the goodwill may not actually give you the entire view. So we need to have a comprehensive risk management. Seems as if many projects are going to run simultaneously or concurrently.
So in terms of the movement of balance sheet, are there any problematic areas? Or are there any ways to hedge the risks? Are there any concrete ways, for instance, the intangible, intangible assets and so forth? So as you mentioned, that is definitely a concern for myself as well. A DE ratio is one area that is of concern and also the proportion of interest bearing debt.
And another point is goodwill. The goodwill proportion vis a vis shareholders' equity. These are definitely areas we need to keep a close eye on. So the overall portfolio needs to be looked at. So we have individual announcements for various projects for these acquisitions or divestitures.
And also asset sales will continue to be conducted. So those are all part of the consideration to assess the overall risk. So within this year, this fiscal term, we will review that. And of course, we will do an update of the midterm management plan. So the future picture we'd have in mind, we need to draw those.
And of course, on a consistent basis, we are doing simulation, but we are not at the level to share those with you. So we'd like to have much more clarity on the overall portfolio related to the fiscal discipline and also risk management. So once it is clear, we'd like to share those ideas with you. About the business sentiment. So China, the economy, the automobile sales and production seems to be quite weak in China.
So these two factors, China and automotive, could you give us your take, especially the outlook for the second half of the year? So in China, within our sector, the Building System is the largest business in China. So it is decelerating, as you mentioned. But given the current trend, in terms of the degree of the drop issue of the pricing by models, it is actually mitigated in terms of the dropping of the pricing. Also, in terms of the low priced models or what we call midrange models, we are seeing increase in the number of unit sales.
So the total number of unit sales has increased, but there has been change in the product mix. So there's more shift towards midrange models. And because of that, the ASP, the average selling price, has been on the decline. So we believe that trend will continue into the second half. However, on the other hand, the cost reduction is also underway.
It's actually progressing more so than initially expected In comparison to three years ago, in the five production sites in China, the material cost and also third party purchase parts, the procurement cost was not appropriately managed. Therefore, we have conducted cost reduction on a systematic basis. And that is why this year, we are progressing better than expected. So the toughness in the environment continues, but we have been able to offset those by cost reduction. So we believe this trend will continue.
Now moving on to automotive business. We believe the tough situation will continue. In the Automotive System, we have been progressing with many cost reduction. REAP project is the name we have given. So we've conducted extensive range of cost reduction.
In 2018, in Q1, the operating income was 2.2%. In Q2, 1.9% was OP margin. In Q3, 3.6%. Q4, 7.9%. There been a gradual increase in the OP margin.
And Q1 is 2.7% Q2, it's actually close to 5% or so. So that's for the three months. So for 1.9% from last year, now it's up to 5% or so. And this is because of the cost reduction, which is progressing as planned. So of course, we do we are concerned about the automotive market.
Especially in China, we are definitely seeing a slowdown. So we need to make due preparation, and we will do so in the elevator business as well. So cost reduction is the key. We need to accelerate the effort. So we are progressing better than planned, but we'd like to further accelerate the initiatives.
We believe this is the best countermeasures. I think, yes, there's a question related to market position. I think in the previous session, there was a question related to market position. And I don't think there was a clear answer to that. So just simple calculation, simple addition.
So for the major core products, if you were to combine those together, suspension. So for the four companies combined together for suspension, in terms of the position in the market, suspension will be one in terms of our ranking. Braking system, two ECU will be four or so And XEV, so inverters motors, so that is listed on a planned basis for 2025 for the Automotive System. One is the expectation. So overall, we like to have within the top three on a global basis.
So depending on the products, we would be one, two or three, but we would eventually like to be one of the top suppliers in the global market. That is the kind of position we'd like to aim towards. In terms of the sales breakdown about powertrain and chassis and ADAS, so what is the contribution to the overall sales? Or what is the target? Do you have those numbers?
Sorry, we don't have that number. Just to add on. So that's Keihin Showa, Nixin and also Chassis Brake International and Hitachi Automotive System combined together. So Brake System also has the Shaft C Brake as well, CPI inclusive as well. So it's a simple addition.
REPRESENTATIVE:] As a follow-up to the previous question, I'd like to ask two questions. Number one, the total for automotive parts disoriented rating, these automotive parts related companies. And what's the percentage out of your revenue for the top three items? And by 2025, how much percentage do you aim for? Do you have any specific image about that?
That's my first question. Currently, there's not so many items which are in the top. In the previous categories that I have mentioned, the data I have right now for the categories I mentioned before, suspension, currently, Market share estimated market share for suspension is 11.1%, ranking four. And the three companies added, then it would be 19.2%, ranking one. And BREAKSystems, currently 4.7, ranking eight.
And with Nissin Kogyo and Shasebreak International added, this would be 17%, the second rank. And ECU, at the moment, is 6.5%, six rank. This will be 12.6%, rank four. And XEV, inverter motor, if we are on our own, then it is 14%, ranking three. And with Keihin together, this would be 17.3% ranking the top.
Simple addition, and this also includes estimates. That is the overall image. About the major items like brake suspension, EC inverter, these added together, how much percentage would that be out of the revenue of integrated company? Excuse me. That is difficult to answer.
My second question. With M and A and fiscal discipline, you mentioned that you talked about DE ratio and interest bearing debt EBITDA ratio are very important indicators and also goodwill. As capital allocation, you have invested 2,000,000,000,000 to 2,500,000,000,000.0 yen strategic investment. And the regional indicator, if that is cleared, then if there are good candidates, you would not you would be there? Yes.
To maintain fiscal discipline of 2,000,000,000,000 yen to 2,500,000,000,000.0 yen yes, I think it is consistent with that. So then 5,000,000,000,006 trillion 10,000,000,000,000 yen are we going to acquire a certain amount and maintain the ratio? No, that's not possible. The current cash allocation, as we indicated on June 4, it is up to about 2021. And showing the financial framework and investment for growth.
And I think it is generally consistent with that. However, we may buy if there's any good potential, but it's not that we will sacrifice our fiscal discipline. We may exchange with something and sell something else instead. REPRESENTATIVE:]
There are many other briefings. And I cannot attend your automotive session, the integration announcement. So one question. So XEV motor inverter business, this is a question related to that. So Honda, I think before, there was a plan to exclusively supply to Honda.
But recently, in the Nidec recently, they have already constructed plans to make major investment. And likewise, likewise, Mitsubishi Electric, they're building their sites and Himachi and Maiden. Also, the Maiden, they're also building quite a large capacity. But this time around, it is not as if you are investing in a lot of capacity or plants. We do not receive that impression.
So in terms of XEV, motor inverter, if you can give us an update of this particular business. So the Honda is part of the picture. So if Honda is not able to do it, then of course, it doesn't make sense to produce it. So we think as if the other companies are making investment and increasing the capacity. We have the visibility of other companies, but we cannot see that for Hitachi.
So you are striving to become one in 2025, but we cannot see that clear picture. So I think the key point here is electrification. So what is the current state now? So you have added with Keihin, now it's up to 17% in terms of the market. But there are different types of motor inverters.
So what is the exact state right now? And what is your future initiative? So if you can give us an update, that would be helpful. I don't have all the information in my head right now. So JV, we have a JV business, motor business with motor.
So on a phased basis, we will launch the business. So it is not as if we would launch a large amount at once. That is not the case. So we have Japan, China. So on a phased basis, we would like to progress with the business.
So it is not as if that we would launch something large on a lump sum basis. So Japan, we would do it within fiscal year 2019 and China, within the year fiscal year 2020 and U. S. 2022 or beyond. That is the time frame we have in mind.
So normally, I think this is the time frame that is required. So in China, we need to acquire the land and of course and also construct the buildings and test and so forth. So we'd like to establish the company at the earliest phase possible. So start with Japan first and then move on to China and then eventually to U. S.
That is the plan we have in mind. So in terms of the EV motors, this is xEV drive application and also for power generation application motors. These are what we have in mind. So we would like to progress with this on a phased basis. So this involves not just Honda but also other OEMs as well.
The new company will supply to or will aim to supply to other OEMs as well. So in terms of NYDEX, so about 500,000,000,000 yen to 1,000,000,000,000 yen investment in five years. That's quite phenomenal. But sorry, this is question. So that NYDEX number is quite extraordinary.
But if you can have an update answer. Sorry, I don't have an update. So in the next briefing session, I'd like to compile the numbers and share those with you. If it's not in the CFO's head, then probably it's not that substantial. It is not 500,000,000,000 yen or large.
With that, we would like to conclude today's briefing session on the results for the first half of the year. Thank you very much.