It's now time to start the web conference on the progress of Hitachi's 2021 Mid-Term Management Plan. Let us start the meeting, let me introduce the speaker. Hitachi, Ltd's President and CEO, Toshiaki Higashihara. Over to you, Mr. Higashihara.
Thank you very much for attending the briefing on the progress and prospects of the 2021 Mid-Term Management Plan. First of all, I would like to express our condolences for the people who have fell victim to COVID-19. Also offer our prayers to the people who have infected the disease, and also to the people who are involved in the prevention as well as the treatment of the COVID-19 patients globally. We would like to express our respect. Now, we would like to explain to you the 2021 Mid-Term Management Plan progress and prospects. Mr. Higashihara, please. We would like to give you an update on the progress and prospects of the 2021 Mid-Term Management Plan, starting off with the understanding of the current environment. With the impact of COVID-19, we believe that there will be 15% decline on the GDP growth globally on the second quarter of 2020.
The revenues, as already explained, there is going to be a negative impact of JPY 1 trillion because of the COVID-19. Therefore, the management environment is extremely difficult and challenged. There are three messages that we have outlined here. With the assumptions of COVID-19, we believe that we can continue to grow through a social innovation business coexisting with COVID-19. What we have to emphasize is cash management, structural reform, as well as the securing and development of human resources.
These are the topics I would like to emphasize. In the mid to long term, environmental issues are coming to the fore. We are declaring fiscal year 2030 carbon neutral to become a leading company in generating environmental values. This year will be the start of this initiative. Now, let me once again talk about the major direction in the Mid-Term Management Plan. Lumada will be the base of digitalization. We will promote co-creation in mobility, life, industry, energy, and IT areas. By so doing, we will enhance social values, environmental values, and economic values. By so doing, improving the quality of life and adding values for our customers.
This is the major direction for us. Through social innovation business, Hitachi aspires to grow significantly and become global number one in the social innovation business globally. This is the major direction for the Mid-Term Management Plan. Now, let's evaluate the achievements in fiscal year 2019. In terms of strengthening the digital business, Hitachi Vantara and Hitachi Consulting have been integrated and transformed to the new Hitachi Vantara. By so doing, we have strengthened the digital solution platforms as was in January of 2020. 12,000 people are included in this organization. We have also made progress in the transformation of the business portfolio.
In North America, we have made an entry into robotic system integration business by acquiring JR Automation. There is going to be more electronics in automotive systems going forward. Therefore, we want to gain a larger market share, number one to number three. This is essential for us, and that is the reason why we acquired the Chassis Brakes International, and decided the business integration with the three Honda parts companies. In terms of reorganization of the business series, transferred Hitachi Chemical to Showa Denko, made Hitachi High-Tech a wholly owned subsidiary.
The diagnostic imaging related business is being transferred to Fujifilm. The long-pending issue of the South Africa project, the settlement with Mitsubishi Heavy Industries. Those are the major highlights of fiscal year 2019. Let's look at the results. In terms of adjusted operating income ratio as well as revenues and operating cash flow are shown here.
I'm sure that this has been explained. Five sectors and the consolidated numbers are presented here for 2019. For all five sectors, it's 8.5% in terms of adjusted operating income ratio. It was on a consolidated basis, and it would be 8.9% excluding COVID-19 impact. Consolidation business was 8.8%. IT divisions made significant contributions and JPY 2.1 trillion in terms of revenues, and 12% in terms of the adjusted operating income ratio has been achieved, making a significant contribution for the overall company. In terms of operating cash flow, if we include the South Africa project, over JPY 700 billion can be generated. That is all in terms of the results for fiscal year 2019. Let's proceed to talk about the acceleration of the social innovation business. Against the backdrop of COVID-19, the economic environment besetting us is becoming more challenging.
In the social innovation business, we will promote co-creation as well as harnessing digital technology to provide solutions to challenges with COVID-19. There are new changes occurring in society. Keywords include remote and contactless, and automation. Internet and smartphones and other technologies have brought about innovation. It was very driven by products. But going forward, the pains as well as the challenges of the customers must be resolved through co-creation, harnessing digital technology.
Therefore, I believe that the more human-centric human needs will accelerate innovations going forward. The social innovation business that we have been developing can resolve problems brought to the fore by COVID-19, according to our view. Now, let's look at the focus business fields for us. Beset with change, there are five sectors mentioned here. In the area of IT, we will focus on digital transformation and cloud. This will be making progress across the board.
We must provide ample support. In the area of energy, digitalization of grid as well as promotion of efficient power consumption will be promoted. In the area of industry, optimization of the distribution and manufacturer supply chain will be main because of its increasing connectivity. Automation and electrification of production is likely to make progress in the area of mobility. Digital railway operation and maintenance business will be promoted for smart life. Life science fields will be promoted. Expand our market share in the focused auto parts business. Let's look at the region perspective. By regions, the required values vary. Therefore, in promoting our global operations, common solutions taking into consideration the global situation would be developed, and furthermore customization by regions will be required as well. This will have to be enhanced further.
In various regions in the world, we will engage in co-creation with the customers to solve issues and scaling solutions with Lumada. There are more than 1,000 cases of Lumada, and the Lumada Solution Hub has been created. Solutions that can be commonly used will be improved, providing to different regions. By partnering with customers in co-creations, new values will be generated. By so doing, by 2021, 1.6 trillion Lumada business is what we are aspiring to achieve. Next, let me talk about the current status of the social innovation business by business fields, regions, and business cycles. Now in different divisions, there is diversity. This is the edge of Hitachi. With this edge, with good balance, by managing our business, efficient business can be enabled. In the business fields, energy sector is beset with challenges, but IT can drive profits.
In the region perspective, with the COVID-19 impact, there is a spread at different time frames. For example, North America is difficult, but China has recovered. Therefore, we will take a balanced approach in terms of pursuing our business in different divisions. In terms of the business cycles, more than one year in terms of orders received is accounting for 60%. This is also the advantage for us. What are the points to focus on in fiscal year 2020? Let me discuss the management policy for this fiscal year. First, regarding ABB Power Grids, Honda-related parts businesses, three of them are going to be integrated. We have to complete PMI, needless to say.
Portfolio, r eorganization, and investment into growth. These will be pursued continuously. In fiscal year 2020, areas of particular focus includes cash management. It will be strengthened further, and we will be engaging in more of the structural reform initiatives. What is important is to secure talents and foster them. Securing and developing human capital. Regarding cash management from the CFO, there was a presentation on this. JPY 1.3 trillion worth of liquidity is already secured. In crisis management, operating cash flow and investment cash flow need to be reviewed in a timely manner. By striking a cash balance, we have to run our business, and that is what we would like to strengthen. Moving on, execution of structural reform. Far, we have pursued a Smart Transformation. Through structural reform, we brought the cost down.
Reforming sales back office, indirect operations, reforming manufacturing, reducing the numbers, companies within the group. Going forward, we would also like to reform a work style to promote work from home. Work style reform and remote work, as is described in this box. We would like to redefine work styles and create enabling environment for that. We're going to review business operations based on the fact that we're going to work more from home. We will promote digitization of business processes. Global shared services, we're going to incorporate ABB, so global shared services will be promoted. Financial services and procurement. As such, global shared services will be promoted on a global basis so that we can bring the overall cost down. Next, securing and development of human capital. Currently, we have 300,000 employees.
For these 300,000 employees, we want work style reform. More than that, we want them to have the motivation to work. We want each and every employee to feel the ties with society and make contributions to society. Encouragement and empowerment is necessary. That is what we want our employees to feel. Promoting work styles for diverse human capital. We will have a new work style, where working from home is going to be the standard. We will transition to job-oriented human capital management. This was accelerated under COVID-19, but this is something that we would like to further promote and develop. We need to acquire and develop talent for social innovations globally, digital talents in particular. We're going to increase them from 30,000 in fiscal year 2019 to over 37,000 in fiscal year 2021.
Next, under 2021 MTMP, on top of economic values, we're going to enhance the social values as well as environmental values. That's one of the messages touted. For social values, for each sector, as you can see from this slide, we want our business to contribute to society. This is how we're going to do that. We want people to understand this and feel this as they run the business operations. In each sector, this is what we are working on and developing. Going forward in the future, environmental values will be very significant. Hitachi wants to become a leader in creating environmental values. Through social innovation business, we would like to offer solutions for environmental issues to enhance quality of life, and achieve a sustainable society for all. Hitachi Environmental Innovation 2050.
We would like to cut down on CO2 emissions by 50% in fiscal year 2030 and 80% in fiscal year 2050. We want to accelerate this effort so that we can decarbonize society. We will be accelerating these efforts and achieve a resource-efficient society where water and other resources can be recycled effectively. Next, based on this, in fiscal year 2030, we would like to achieve carbon neutrality. This year is the year of announcement. This is the starting year for that. In order to cut down on CO2 emissions, materials procurement, production phase, and the phase where put out products and products are used by customers, there are different phases involved. Where we produce the products, product designing to be reviewed and energy conservation in manufacturing facilities, so utilizing renewable energy facilities and renewable energy.
By fiscal year 2030, we would like to achieve carbon neutrality in these areas. So far, I've discussed many points, but here's the fiscal year 2020 forecast and 2021 MTMP targets. Our CFO explained the forecast. Revenue JPY 7.08 trillion, adjusted operating income 5.3%, net income attributable to Hitachi stockholders JPY 335 billion, operating cash flow JPY 500 billion, return on investment capital 5.7%. In March 2009, in terms of net income, JPY -783 billion. It was a loss. For the past decade, we have continued to reform the business. Coronavirus crisis is set to have greater impact than the Lehman shock. Yet, under those circumstances, we had to secure JPY 335 billion of net income attributable to our stakeholders. What we've been doing in the last 13 years is going to bear fruit.
MTMP, the numbers remain unchanged from last year, but the second and the third waves may possibly happen for COVID-19. ABPs acquired Honda- related parts businesses, three of them are combined. We would like to clarify what the numbers of them are going to be, so that we can update this MTMP going forward. Hitachi Social Innovation is powering good. This is the key phrase, we would like to power good in society with Hitachi's social innovation. I look forward to your continued support and understanding. Thank you.
We would now proceed to the Q&A session. Those of you who wish to ask a question, please press the hand up mark on the screen. We will designate the person to ask the question. Please unmute and state your name and affiliation before asking your question. The video of the person asking the question will not be shown today. We'll take questions from the media on the Japanese channel, followed by institutional investors and analysts, going to English channel thereafter, in that order. We are expected to finish this meeting at 6:00 P.M. The floor is now open to the media representatives on the Japanese channel. Please unmute and ask your question.
Question. Thank you for this opportunity. I have three questions. First question is related to the results announced in the first half. To the President, I would like to ask the question for fiscal year 2019 results. What were the challenges in the fiscal year 2019 results? The forecast for fiscal year 2020 was explained, there could be impact of COVID-19 on the orders to be received going forward. What is your take on the impact of COVID-19?
Answer. Regarding the results for fiscal year 2019, the highlight will be explained from my perspective. Excluding the COVID-19 impact for the five sectors is 8.9% on a consolidated basis. 8% has been achieved, profitability is improving successfully from January to March. The COVID-19 impact was reflected in the numbers presented. For fiscal year 2019, I believe that the results have improved. In January of last year, there was a nuclear power project in the U.K. that was suspended, in December of last year, we reached settlement in the South Africa project. With that, the major shackles or the challenges in management are behind us. That is a major achievement in fiscal year 2019. Referring to the impact of COVID-19 on orders going forward.
In the business cycle, I mentioned that 40% are the one year and below, and 60% are one year and above in terms of the orders and the contracts. Long-term projects include the railway business. We have JPY 3 trillion in terms of the orders received. Once the factory is resumed, we can continue. Therefore, in these areas, I would like to minimize the impact of COVID-19. Our orders received are very important. Operating cash flow will depend on securing the orders. Orders and customer management will be very important in the management of fiscal year 2020.
Next question is regarding against the backdrop of COVID-19, is this going to have an impact on the reorganization of the listed subsidiaries?
Regarding the listed subsidiaries, there is Hitachi Construction Machinery and Hitachi Metals remain. What we are telling the top management is that fiscal year 2021 and 2024, in this timeframe, we have to make sure these companies are able to compete globally. They are now evaluating this. It is not just a matter of COVID-19, mid- to long-term, long growth strategy will be emphasized. The reorganization strategy for the listed subsidiaries will not be impacted by COVID-19.
Question, my last question. With the impact of COVID-19, is there any initiatives you're going to be pursuing? On the part of Hitachi, Ltd, are there any contribution that you're making in overcoming the challenge of COVID-19?
Answer, regarding COVID-19, we are thinking of ways to make a contribution on the part of Hitachi, Ltd. As already mentioned today, 300,000 employees, how they can make a contribution to society is what we are trying to promote. With the advent of COVID-19, I asked the employees to consider what they can do. We did an idea competition, and within two weeks, 1,400 proposals were presented by employees about donations to be made or to how to change our products as well as how work style should be reformed.
These are proposals that we have received, we are trying to organize this now. JR Automation is now involved in the production of masks, and face shields have been produced to supply this. 14,000 will be provided in the month of June. These are some of the contributions that we're making in the advent of COVID-19. We are trying to prioritize these efforts.
Thank you. Those of you with questions, please press the button for raising your hand. We have a questioner. Please unmute and ask your questions. Can you hear me?
Yes, we can. Question. Earlier, you said that COVID-19 is having even more severe impact than that of the Lehman shock. You are poised to generate income of JPY 335 billion this year. What is the degree of structural reform you have achieved? How much of it is already complete, I would like to ask. This fiscal year as well, you will continue with the reorganization of your business portfolio and continue making investments into growth for the future, as you said. You talked about listed subsidiaries earlier. In the larger framework, if you will, what's going to be the impact of COVID-19 on your structural reform initiatives?
Answer. How much of structural reform is being complete, it depends on the view. It's hard to say categorically. How I see it is, as I said earlier, Lumada digital platform, that is to be promoted and deployed globally. We have had certain progress. In each region, we are promoting social innovation business. We will have to accelerate that even more going forward. I think as far as that is concerned, I think we've achieved 60% of what we need to achieve. Fiscal year 2021 and to fiscal year 2024, we need to further accelerate this. Regarding structural reform, rather than the impact from COVID-19, it's more a question of how to pursue global deployment.
I talked about securing talents, that it's very important for us. In recent times, in Asia, a company called Fusionex, an IT integration firm we have acquired in Asia. As such, with Lumada at the core, in 2021, we would like to achieve JPY 1.6 trillion. For that to happen, we must strengthen our global framework. We need to accelerate our efforts at structural reform for this. COVID-19 is happening. For the coming year, it's going to be difficult to pursue those activities. Nonetheless, from a global perspective, w e will continue to think about social innovation business. For that, we will accelerate our reform initiatives.
Thank you.
Next question, please. Please indicate if you wish to speak by pressing the relevant icon. Koide-san, please.
Question. I have three questions. First question is related to the previous question. You said that 60% of the work is complete in terms of Lumada. You're aspiring to become number one globally. The seed comes into your competition, where do you stand in terms of positioning?
Let's take this one by one. Answer. Regarding Lumada, the way we promote this business is not comparable to other companies. Let me elaborate. In terms of the system development, in the upstream, consulting companies are involved. When the specifications are decided, it goes to the IT vendors. A system will be established, and maintenance will be provided accordingly. This is the flow. In the case of Lumada, it's different. We have about 1,000 use cases accumulated so far. By applying Lumada, we can suggest what can be enabled on the part of the customers.
The basic design in the upstream can be made clear, and the feasibility or the effectiveness of adopting Lumada will be visualized. Therefore, consultants and IT vendors are involved as well, but this does not exist in other companies. The basic strategy, planning, installation, and maintenance, in these different phases, Lumada can be utilized, and end-to-end services can be provided on a global basis. This is the ultimate goal. If this is 100%, we are at 60% complete to date. That's what I meant.
Second question, regarding your investment posture. In June of last year, when you had the IR Day, you said that there's JPY 4 trillion-JPY 4.5 trillion, and for growth, it would be JPY 2 trillion-JPY 2.5 trillion in terms of investment. What was mentioned today, what is going to be the impact of COVID-19 for the JPY 2.5 trillion, as well as cash flow and other means? JPY 2.5 trillion was the investment for growth. That was last year. How has this plan changed? What is the current state?
JPY 2 trillion-JPY 2.5 trillion investment for growth is what we are contemplating, out of which JPY 1 trillion is the ABB power grid acquisition. The remaining amount will be JPY 1 trillion-JPY 1.5 trillion. What are we going to do about this? With the impact of the COVID-19, operating cash flow is likely to decline. We have to assume that to be the case.
In terms of the investment cash flow, as we have already discussed, capital expenditure weighting will be required, and we don't want to reduce R&D expenditures. JPY 4 trillion-JPY 4.5 trillion of the plan to JPY 2 trillion will be capital expenditure as well as R&D expenditures. Inclusive of the M&A, that will be JPY 1 trillion-JPY 1.5 trillion, excluding the ABB. It will depend on cash flow. Last year, we had the JPY 2.5 trillion cash flow. With the COVID-19 impact, the operating cash flow, how we can secure the cash flow will have to be taken into consideration as we consider investment in the future.
Question. Operating cash flow, if it falls short and that means that investment scale will become smaller, are you going to increase borrowings or sell more assets? How are you going to deal with that situation?
Regarding M&A, it depends on timing. Timing is everything. We have to always be sensitive to what is available and make a good acquisition. Debt-to-equity ratio is 0.5 and below, and with ABB, it will go up to 0.6. In terms of engineering debt and EBITDA to multiple of 2 is what we have set as a requirement. It could breach temporarily, but we should be able to recover that in 1 year. If that is the case, we will not rule out good acquisitions.
Question number three. Hitachi Metals, last month, there was fraudulent accounting. It is listed companies on the part of Hitachi, Ltd . What is your view in terms of management responsibility? What is your take on this?
Regarding Hitachi Metals, the quality issue is very unfortunate On the part of Hitachi Chemical, we had a similar experience and another quality issue occurred this time around, which is very unfortunate. We will have a third-party probe to investigate this matter. The board is leading this process at Hitachi Metals. We have to investigate why it has reoccurred. We have to go back to basics to have a comprehensive review. We must clarify this. In terms of my responsibility to the group company and for Hitachi, we have to make sure there is no reoccurrence.
Thank you.
From this point onward, institutional investors and analysts on the Japanese channel, please raise questions. Those of you with questions, please press the button for raising your hand. We have a questioner. Please unmute and ask your questions.
Thank you. I have two questions. They're related to a couple of the slides. Page 12, you talk about the business cycle. You have pie charts. Business for over one year or business for the long term. I wonder what the intention behind this pie graph is. Did you want to show diversity, how diverse your businesses are? Five years from now, what will be the breakdown? If you could share that with us. Do you have a specific outlook as to what the breakdown of this will be in five years' time? That's my first question. Which part of this pie graph is higher in ROIC or competitiveness, and which part of the business, what kind of business will you focus on, with what timeline?
Answer. I've shown business cycles here, and the reason for that is when I say short-term business is appliances and simple industrial systems, they can be received as orders and post revenue within one year, 40%. Orders have already been received, and we will be delivering within one year, or railway business, that's a more long-term business. It depends on the situation as to what the optimal percentage breakdown should be. Short-term versus medium to long-term, I think the balance should be somewhere around 50/50. If there's a drastic change in the economic situation, the breakdown may change.
Increasing the medium to long-term business and supporting cash inflow based on agreements, that may be better perhaps at times. Given the current situation, short-term business, home appliances and short-term business for industrial, that's about 40% of the total, which is an optimal balance for now. Increasing long-term business, getting cash inflow based on agreement, that may be a good idea going forward.
Thank you. Another question. At page 23, on lower right, you said that Mid-Term Management Plan targets will be updated in the future. With COVID-19, the world has changed, and if you're saying that you need to revise the targets, then please say so. M&A business acquisitions may also be a factor in the background. If that is the case, then how do you see the Mid-Term Management Plan? How is it to be positioned?
I think you've always had potential M&A on your mind, I don't think you're going to change MTMP just because you're having M&A. Well, we announced this back in May 10th, last year. When we made the announcement, ABB and Honda-related businesses, we didn't reflect detailed numbers in the plan, but we did have an idea as to the direction. High-Tech to be turned into subsidiaries, yes, we did have that consideration as well back then. In 2021, MTMP targets to be reviewed.
The greatest reason for that is because of COVID-19 impact. Given the current circumstances for fiscal year 2020, I think the impact will subside. Will it? Are we going to get back to normal in fiscal year 2021? We have to watch. Is it going to continue for two to three years to come, as was the case with some other infections in the past? We would like to review this at some point in the future. That's the greatest reason.
Thank you. Understood.
Next question, please. Please unmute and ask your question.
Question. Thank you for this opportunity. My first question is as follows, regarding the business plan that was mentioned. Could it be the case that in the mid to long term, the lifestyle of people will change? In your case, IT services as well as the railways and automotive systems may be impacted as a result of that. Now, for these three areas, I am particularly interested. In terms of your business, which areas will undergo change? That's my first question.
Answer. It is going to be more human-centric, and how it is going to change going forward is a discussion that we need to have. In terms of railways as well as automated systems and in relation to IT. In Italy, MaaS or digital ticketing has already begun. Against this backdrop, with COVID-19 in mind, contactless will be required increasingly. In terms of railway as well as cars, the space within will require disinfection. These are added values that is likely to be required, and I think it can be reflected in the price. The people are likely to be willing to pay more for security and safety. These three areas, remote as well as contactless, these will lead to quality of life improvement, leading to new values, which will be reflected in higher prices.
Thank you. My second question. You have provided guidance. Thank you very much for that. I have two questions regarding the guidance provided. I'm sure there is significant uncertainty, but you provided this guidance with speed, which is very impressive. Why did you emphasize the speed in providing the guidance? Having provided this guidance, what are the likely uncertainties? Automotive systems is 50% point. Are there other factors which will change these guidance numbers for 2020 guidance have been provided with speed? That's the point you are making.
In the past two months, I have been focused solely on this. We have identified the budget excluding COVID-19. We have come up with the forecast. With the outbreak of COVID-19, in different regions as well as different products, we have analyzed the impact thereof. This is the result of this analysis. In the second wave or third wave occurring, it could worsen further, and we have estimated these numbers as well. We have to make preparations, assuming the worst case. We believe that February to April have been focused on this effort.
Because of the uncertainty, it is important to provide data to analysts as well as the media corps, so that we can receive input from you. That is the reason why we have provided this guidance. The most significant business, most uncertain business is automotive system. Even without the impact of COVID case, direction is something that needs to be evaluated very precisely. New car numbers will decrease going forward, we have to have an overall outlook for automobiles going forward. With the parts and system, it is important for us to become number one in the market.
We can control the market, we can control the parts market. We are not able to do that, we will not be able to survive. That is the reason why we have integrated with the three Honda-related companies. It is a different global market, we have to harness synergies, so that in terms of electronics parts, we have to expedite the effort to become number one globally.
Additional question. Beyond automotive systems, what are the other variations that could occur?
If COVID-19 impact is going to be prolonged, industry might be impacted with less investment. In the beginning, the impact was in materials area. It was followed by industrial machinery. There was a curtailing of investment. If COVID-19 is going to continue, there will be declining investment. It is likely to be having an impact on the industrial area.
Thank you.
Thank you. Let us move on. We have another questioner. Another person wishing to raise questions, please unmute and ask your questions.
Can you hear me? Thank you. Question. I have two questions. Question number one is, crisis can be turned into an opportunity. For COVID-19, because it creates economic crisis, there are actions that you can take, taking that opportunity. If you have any ideas on that, please share them with us. This time you have disclosed the supplementary information, ROIC by segment. Taking a look at that, I realize that life segment's ROIC is lower than other segments, as I expected, and I think that it's the car business that's pushing ROIC for this sector down. From the viewpoint of ROIC, well, you've reorganized a list of subsidiaries and you'll have to continue that effort within the parent. Turning crisis into opportunity, any hints or ideas?
Answer. Thank you for the questions. COVID-19, as I said, under this, we're going to accelerate our social innovation business. That's the expression that I used. Together with customers and various partners, the challenges imposed by COVID-19 shall be addressed. For example, there are challenges associated with teleworking, working from home. How can we address those challenges? Through co-creation and digitization, we can offer solutions, and it could create a huge opportunity for us. For example, what we have in mind is, when you engage in work from home, we have to take a close look at our employees' work styles, and it's sometimes hard to ascertain that.
Three Cs are said to be evil, in order to have good communication, you need to be close to the person that you're talking to. In a remote virtual setting, how can we have close communication? How can we ensure that? That could be an idea for business in the work style reform. People are treated equally in the virtual setting. When you address someone, you get answers from all the participants. Nodding to the person that's talking remotely, that's also necessary, but in a teleconferencing setting, that's sometimes difficult. How can we instill a sense of reality?
We have VR, virtual reality, this can be turned into a business opportunity. You talked about ROIC. I have similar thoughts. Within Smart Life segment, perhaps car business needs to be treated separately because investment patterns in this business are different. We are discussing how to handle this. In Smart Life sector, car versus non-car business, we have to have a different style of management over these businesses. Car business requires upfront investment, return comes later. That's the style. Within Smart Life, we have to manage car business separately from others.
Understood. Thank you. My second question is about work style reform and teleworking. In order to enhance the productivity for the employees and to achieve carbon neutrality to generate environmental values, you have to prioritize financial values as well as non-financial values. It's difficult to strike a balance. What are the challenges and what are the issues that you think you need to address with respect to this? That's my second question.
Answer. As you pointed out, well, the reform that we've achieved in the last decade has been done top-down. I think financial indicators have improved quite substantially as a result. On the other hand, from the employee's point of view, they may feel that they've been forced to pursue reform. We want the employees to think that they're making contribution to society, that they're leading society. Top-down approach and bottom-up approach, they need to be balanced going forward. As we implement work style reform, as I said before, work style reform needs to happen with more motivation on the part of employees. That's going to be important. Motivation to work, rewarding work for employees. This is mainly non-financial.
Thank you
Thank you very much. We will now like to take questions from the English channel participants. The question will be translated into Japanese in a consecutive translation. Please indicate if you wish to ask a question. They seem not. Once again, we would like to take questions from the Japanese channel, from the media, as well as the analysts and institutional investors. Please indicate that you wish to ask a question at this time. Ando-san, please unmute and ask your question.
Question. Regarding the Lumada business for this fiscal year, it is going to be a major engine for profitability. At this time, you have provided a new definition for the Lumada business. Why now have you redefined the Lumada business? The JPY 100 billion, there is a decline. The SI business, traditionally, there were businesses which was not strictly seeking Lumada that was included. Looking at this in more detail, it seems that the core business of Lumada is increasing under the new definition. Lumada SI business or closely related business to Lumada is included in the core business. Is that the case? Can you elaborate further?
Answer. In promoting the Lumada business, as I have already mentioned today, there is the core business, which has accumulated 1,000 use cases. Within Lumada Hub, the common solutions have been accumulated as well. 240,000 truck lease Penske is a company in the U.S., the parts of the vehicles are subject to monitoring. When it is up for replacement, the driver will receive information that the service should be received at the plant, the parts can be provided beforehand. Video site can be utilized, we can improve the security by identifying the abnormal behavior.
These are common solutions that we can deploy globally. The reason why we have changed the definition this time is because of the following reason. So far, there were two factors. Even using Lumada, the scale of digital or using IT to increase the business was one approach. A scale by digital is also another approach. Using Lumada, the railway business or construction machinery also made the driving can be enabled in the operation area and in the product area. There is the intention of expanding Lumada. Lumada by digital is what we wanted to increase. It is not just within the confines of the IT or SI. In order to clarify our approach, we have decided to chang e the definition.
Question, is that the reason why it looks smaller?
In the midterm fund, JPY 1.6 trillion will be your goal, inclusive of the M&A.
Yes, that is the case. Thank you.
Thank you.
Time is up. With this, we would like to conclude the web conference on the progress of 2021 MTMP. Thank you very much for your participation despite your busy schedules. Thank you.