Earnings Transcript for 6501.T - Q2 Fiscal Year 2023

Unidentified Company Representative: Let’s start the Hitachi Limited Web Conference on the Second Quarter of the Fiscal Year 2023 Earnings. Thank you very much for joining us, despite your busy schedules today. The presentation materials are available on the Hitachi’s IR site and the News Release site for your convenience. I would now like to introduce the speakers for today. Yoshihiko Kawamura, Executive Vice President and Executive Officer, CFO; Tomomi Kato, Vice President and Executive Officer, Deputy CFO; Masao Yoshikawa, Executive General Manager, Investor Relations Division. Now, in the beginning, CFO Kawamura will provide the outline explanation of the results. We will be switching over the screen. Mr. Kawamura, please.

Yoshihiko Kawamura: Hello, everyone. This is Kawamura speaking. Thank you very much for participating in this earnings call today. I would now like to give you the outline of the consolidated financial results for the second quarter, ended September 30th, 2023. And I would like to also talk about the upward revision for the full year. Please now refer to page one. These are the contents that I wish to cover today. I would like to, first of all, cover the key messages of the results in the second quarter. Second, is the Q2 fiscal year 2023 results will be covered. Then in the fiscal year 2023 forecast will be presented. There is also appendix that is provided. The first and second quarter, in other words, the first half results are included in the appendix. Please refer to page three. This is the key points regarding the results of the second quarter. The one, is the results. And, it is also included the continuing consolidated business which is the three sectors, Digital Systems & Services, Green Energy & Mobility, as well as the Connective Industries. For the second quarter, the numbers are presented here in terms of revenues, 2,096.5 billion yen and that is 13% increase year-on-year. Adjusted EBITDA was 202.7 billion yen increased by 17.3 billion yen, and we had the increase in revenues as well as the profits. For the first half, revenues was 3,924.8 billion yen year-on-year, 12% increase. Adjusted EBITDA 359.6 billion yen year-on-year increased by 49.2 billion yen. This is increase in revenues as well as a profit. Number two, is the forecast for the full year, for the continuing consolidated business, which is the three sectors. We had been revised upward revenues 8 trillion yen. The comparison against the previous forecast was 2%. Adjusted EBITDA 818 billion yen, increased by 18 billion yen. They have been revised upward. Therefore, this is increase in revenues as well as profit. If we look at the consolidated total forecast, in terms of net income, is forecasted 520 billion yen, increased by 20 billion yen. Core free cash flow 340 billion yen, increased by 30 billion yen from the previous forecast. Number 3, looking at the orders, we have had a very firm order growth mainly in the large-scale businesses. In Digital Systems & Services, Q2 orders was 669.3 billion yen year-on-year, increase of 15%, backlog has increased up to 1.5 trillion yen. For Hitachi Energy the orders have been very strong. The Q2 orders was 653.8 billion yen year-on-year increase of 14%, the backlog of -- has reached 3.9 trillion yen. Later on, we would like to give you more details. Hitachi Energy has 1.6 trillion yen in terms of revenues, so about a little bit less than three years of the backlog has been accumulated already. So, the number four is the shareholder return, which has been strengthened the 100 billion yen share buyback have been completed in September, and has been subject to cancellation. In terms of the interim dividend, it is planned to be 80 yen per share. This is 10 yen increase from fiscal year 2022 interim dividend, and 5 yen increase from the fiscal year 2022 year-end dividend. We are increasing shareholder returns. That is the basic outline. I'd like to now proceed to page five, which is the highlight of the results for the second quarter of the fiscal year. The headline should be referred to Continuing Consolidated Business revenues and profits. In terms of Connective, there have been investment restraints by semiconductor-related customers. This is subject to decrease in revenues as well as profit. But, that is for the second quarter, but on a full-year basis, we'll revert back to increase in revenue as well as profit. But, it has increased overall, because of the Digital Systems & Services and Green Energy & Mobility. Please look at the continuing consolidated business revenues was 2,096.5 billion yen year-on-year increase of 13%. And, in brackets, this is the excluding the Forex impact in the absence of the foreign exchange impact would be increasing 10%. Adjusted EBITA 202.7 billion yen, increased by 17.3 billion yen and adjusted EBITA margin, 9.7%. Net income was 144.5 billion YoY, increased by 15.9 billion yen. Therefore, increase in revenues as well as profit has been achieved in this quarter. Please look at the table below on the right. The foreign exchange impact is explained for dollar as well as euro. For the Q2 of last year was 138 yen in terms of average, but for this period 145 yen, so there is a positive impact of the foreign exchange. Please now refer to page six. This is once again about the second quarter. Page six shows the information regarding Digital Systems & Services as well as Green Energy & Mobility. Page seven, will provide the similar information for Connective Industries. Regarding Digital Systems & Services on page six, increase in revenues as well as profit was achieved. Adjusted EBITA was 646.5 billion yen increased by 9% year-on-year, and EBITA at 82.5 billion, increased by 14.4. And, Front Business, IT Services, Service & Platform shows increase in revenues as well as profit. And as mentioned here, in terms of the GlobalLogic, continuing to show very strong growth, 21% increase in terms of revenues year-on-year basis. And adjusted EBITA margin is 20%. And therefore, high profitability has been maintained increase in both revenues as well as earnings. Regarding the Green Energy & Mobility, as a sector overall increase in revenues as well as profit in terms of 717.7 billion yen in terms of revenue increase of 30%. 36.5 billion yen in terms of adjusted EBITA and increased by 6.2. Our Nuclear Energy and Power Solutions, in total is provided adjusted EBITA was minus 2.3 billion yen and 17% increase in revenues. And adjusted EBITA minus 6.3, there is a decline here. As shown on the right hand side there has been projects, increasing cost for Nuclear Energy, but this is a one-off. And for Hitachi Energy, as I mentioned earlier, our orders have been remaining very strong. And, therefore, positive impact is shown. Adjusted EBITA [34.0%] (ph) to 7.7% and, revenues increased by 35%, adjusted EBITA increased by 14.4 billion yen. So, increase in revenues as well as profits. Railway Systems have also remained very strong, increase in revenues as well as a profit. Adjusted EBITA was 13.2 billion yen. And in terms of revenues, increased by 29% year-on-year and adjusted EBITA plus 4 billion yen increase in revenue as well as profit. The performance has been very strong. Now, in terms of Connective Industries, as I mentioned earlier, for the second quarter this is the result. But in terms of [Adj. EBITA] (ph) is 768.5 billion yen, 2% increase in revenues, but adjusted EBITA was minus 10.2. There is a specific reason for this. In terms of after building, the Smart Life & Ecofriendly Systems, it has declined by 7% in terms of revenue. So, adjusted EBITA was 4.8 billion yen negative. And the reason is very clear, as you can see here, when we had the pandemic, remote work has been promoted, and that is when the home appliances increased. And so there has been a backlash now rationally decline. We believe that this will recover going. Next is Hitachi High-Tech, Measurement & Analysis System, the medical as well as the semiconductor is very strong. Medical has been very strong. But, in terms of semiconductors, there has been a delay terms of investments made by customers. And therefore, this is showing an impact decrease in revenues as well as a profit. And, but Industrial Digital is plus 6% or plus 1.7% in terms of adjusted EBITA. Water & Environment has been subject to some product mix impact declined by 1.4. Industrial Products increased by 7% plus 1.1. Increase in revenues as well as profit. So that is how we have been showing good performance in the second quarter. I appreciate this is a continuation of the second quarter. Hitachi Astemo [indiscernible] revenue increase as well as a profit of 27.2%. Revenues increasing by 9% and adjusted EBITDA plus 10.6 billion -- is 10.6. Our performance has been very good last year, so there is a reactionary decline, but we are reverting back to increase in revenue product trend. So we have a zero for the Hitachi Construction Machinery and Hitachi Metals. Now, please refer to the next page from the second quarter of last year to the second quarter of this year. The waterfall chart is provided. Revenue is provided as well as adjusted EBITDA is shown below. As you can see on the left hand side, we started up with a 2,846.9 billion yen. The next area is very important minus 499.5 billion yen, this is the divestiture of Hitachi Construction Machinery and Hitachi Metals. Foreign exchange impact had an uplift, in terms of dollar 138 has gone to 145 therefore, this has had a positive impact to increase by 70 billion yen, and 220.1 billion yen in terms of others, business expansion and reaching 2,637.5 billion yen. For adjusted EBITA, similar trends are shown here, starting with 238.1 billion yen on the left hand side, divestiture of Hitachi Construction Machinery and Hitachi Metals. Positive impact of foreign exchange, and there have been changes in business structure and resulting in 229.9 billion yen. Please look at page 10. This shows second quarter financial position and cash flows. The part highlighted in grey, please look at it. Total assets came to 13,475.2 billion yen. They have increased. On a full year basis, it's somewhat different. But change from March 31, it's been an increase of 973.7 billion yen, majority of that is because of Forex impact. It's not a real change. It's because of Forex. And, something similar applies to total liabilities interest-bearing debt, 2.375 billion yen. Please have a look at the number to the right 162.5 billion yen increase, which is impacted by Forex, D/E ratio 0.41. So it's stably controlled. And cash flows as well, on the back of very strong performance, cash flows have improved. Operating cash flow 316.9 billion yen, an improvement of 83.2 billion yen. And free cash flows, 206.6 billion yen improvement of 45.3 billion. Core free cash flow, this is one of the most important KPIs for us, 121.1 billion yen, up 96.5 billion yen. So cash flow is performing quite robustly. Moving on to page 11, I would like to report on Lumada business. There are three sets of diagrams on the left. This shows Lumada business’ revenues, how are they growing. The bars on the far left, comparison between Q2 this year and Q2 last year. And to the right full year comparison, FY22 versus FY23. So if you could look at FY23 forecast, Lumada business revenues are to go up to 2.31 trillion yen. So, up 18% year-on-year, that's what we're expecting. And 15%, this is adjusted EBITA margin. So this is going to be one percentage point increase from 14% last year. On the right hand side, Lumada business ratio, there are two sets of bars. Revenues on the left hand side, if you could look at the red portion of the bar, FY21, FY22, FY23 forecast, it's growing very nicely. According to our forecast for FY23, the proportion of Lumada business is going to be in 29%, almost 30%. On the far right adjusted EBITA, like revenues adjusted EBITA for Lumada is also growing quite strongly. FY23 forecast for adjusted EBITA is 818 billion yen ratio 41%. If you could look at the horizontal bar below, this shows Lumada business revenue composition by segments. Digital Systems & Services are growing, of course, but I would like to draw your attention to Green Energy & Mobility, which includes Hitachi Energy, a power grid and rail. It's up 23%. So IT times OT, which we're doing strategically. We're trying to increase our business through that and that is paying off quite successfully. And below, some are the major events in the second quarter are highlighted. If you could look at the section for Digital, the two last bullets. GlobalLogic is making major contributions because it's a global company. In the first bullet GlobalLogic received a large business from Continental Automotive being awarded "Supplier of the Year" by the company. And GlobalLogic Japan is co-creating with customers, collaboration with Taisei Corporation as well as Aflac, it's doing very well. Next, is the forecast, for FY23 on a full-year basis. Page 13, these are the highlights. The most important point that we would like to report on today is full-year forecast for all profit items is revised upward. So, compared to the last forecast, we're going to make upward revisions to all the items. The three sectors, we are expecting increase in both revenue and profit. And Astemo, we have talked about Astemo’s divestiture. And successfully, in October, Astemo has moved to become equity method affiliate and Thales GTS acquisition. We now have a good forecast for a European monopoly, full requirement to be met. And, there's been some delay, but it will be expected to be completed in the first half of 2024. So it's not included, in FY23 forecast. And the grid provide a total of 9.15 trillion yen. As you can see compared to a July forecast, it's been increased. So the last forecast, revenue was 8.8 trillion yen. It's now increased to 9.15 trillion yen. Adjusted EBITA from 835 billion yen to 865 billion yen. Adjusted EBITA margin remains the same. And net income, we reported that it's going to be 500 billion yen the last time, it’s increased to 520 billion yen, so upper revision there. EPS the same thing, from 535 yen to 559 yen. A core free cash flow, as I noted, this is one of the most important KPIs. It's been increased by 30 billion yen from 310 billion yen to 340 billion yen. ROIC as well is going to be raised from 7.5% to 8%. For all profit items, increases are to be made. So compared to the last time continuing consolidated business, it's also going to see expected increase in revenue and income. And lower right, assumed FX rate. The 140 yen to the U.S. dollar and 150 yen to the euro. These are the assumed FX rates used. If you could look at the sensitivity, we're looking at the impact of FX in the second half. So that's what is noted here. In terms of dollars, when there's one-yen move in the Forex rate with the U.S. dollar, one-yen -- yen becomes cheaper by one-yen. Revenue, increase of 6 billion yen, adjusted EBITA of 0.4 billion yen increase is going to be enjoyed. But, in terms of, yen euro rate, the sensitivity or impact is going to be half of that. Moving on to page 14. Highlights for forecast by sector. On a full-year basis, starting from the top by Digital Systems & Services adjusted EBITA 310 billion yen. So revenues increase of 3%. Adjusted EBITA increase of 16.2 billion yen, so compared to the last forecast, increase in both revenue and profit. Please have a look at GlobalLogic below. As I said, it's going through a high growth. So year-on-year, 22% increase in revenues and adjusted EBITA increase of 6.8 billion yen. Green Energy & Mobility, for this as well on a full-year basis, both increase in revenue and adjusted EBITA. Revenue increase of 13%, adjusted EBITA 22.4. And Hitachi Energy, adjusted EBITA 137.1%. The margin is 8.2%. Revenue up 18%, adjusted EBITA, plus 36.1, so very robust. Railway Systems vary from as well. Adjusted EBITA of 56.1 billion yen, revenue up by 10% year-on-year. Adjusted EBITA is going to be increased by 8.6 billion yen. So, increase in both revenue as well as profit. Connective Industries, as I said at the outset in the second quarter and in the first half, increasing revenue but decline in profit, on a full-year basis, increase in both revenue as well as profit is expected. Adjusted EBITA, 330 billion yen, 11% margin, revenue up 1% year-on-year. Adjusted EBITA, up 17.8 billion. Building Systems, China's real estate sector continues to go through correction because China is our main market, we were concerned. And because of that, new installations -- I mean installments are going to be declining, but adjusted EBITA is up by 1.1 billion yen. As is noted on the right, in a strategic manner, rather than a new installations, existing elevators, are being service. We're focusing on that, and that is contributing. And next, High-Tech, Hitachi High-Tech, there's some more correction needed for semiconductors. So decline in both revenue as well as income. Hitachi Astemo is going to deconsolidated in the second half. So that is why we have negative numbers here. So given all of this, moving on to page 15. So FY2023 total, how all the numbers change? Like we saw with the Q2, revenues at the top, adjusted EBITA at the bottom, from the left last year's numbers. So, revenue 10,881 billion yen was the number we saw last year. Divestiture of Hitachi Construction Machinery and Hitachi metals, it pushed down by 1.322 trillion yen. Astemo, is divested. There's another drop and foreign exchange to contribute and others. So we expect 9.15 trillion yen this year. The same trend is seen for adjusted EBITA. On the left, we're going to start from 884.6 billion yen. And likewise, with divestiture of Construction Machinery and Hitachi Metals, 73.8 billion. Divestiture of Astemo and foreign exchange, others, to come to 865 billion. Next, appendix, as I said, we are highlighting the total of Q1 and Q2 numbers. The first half numbers as is highlighted in the caption, Digital Systems & Services and Green Energy & Mobility revenues and profits increased. Connective Industries, saw increase in revenue, but slight decline in profit. And, consolidated business revenues and profits, please have a look at the middle column, increasing revenue and profit. So revenues 3,924.8 billion yen year-on-year 12% without Forex 10%. Adjusted EBITA 359.6 billion yen. So year-on-year increase of 49.2 billion yen. Adjusted EBITA margin, 9.2% which is an increase of 0.3 percentage points. Net income, 217.7 billion increased by 48.5 billion yen. Core free cash flow a 121.1 billion yen increase by 96.5 billion. So, as you can see from the results of the first half, including Q1 and Q2, we've seen increases in both revenue and profit. Next, Highlights of results, H1 only. Just briefly, so both increase in revenue and profit for DSS, Green Energy & Mobility as well, but Connective Industries, as I said, because of high-tech, we're seeing slight decrease in profit, although there's an increase in revenue. Moving on to page 19, this shows consolidated statement of profit and loss. On the left hand side, FY2022 Q2 and Q2 FY23 year-on-year comparison. And, for the full year as well, FY23, revenue, 9.15 trillion yen and adjusted operating 920 billion yen and a negative 130 billion yen in the middle. And there's a footnote, that shows business reform, restructuring and so forth. EBIT 775 billion yen. Net income, 520 billion yen, which is an upper revision of 20 billion yen. If you could please go to page 20, these are first half numbers as well. So revenue by market is shown. Now, if you could look at the middle part highlighted in black box. So consolidated business continuing, what I would like to draw your attention to is, China. China is struggling. Minus 2% is YoY growth. Now to the right, North America, 21% increase. Europe by 20% growth. So while China is struggling, it's offset by North America and Europe set growth. And consolidated total, what I would like you to see is, the ratio bottom right corner, 64%. And, continuing consolidated business accounts for 61%. And so, if we look at consolidated, total overseas, ratio is 64%. Next, page 21 is about orders. I have repeatedly said that orders are very strong. From the left, DSS is doing very good year-on-year up by 13% overall. Green Energy & Mobility, below this is extremely strong. If you could look at Hitachi Energy, second from the bottom, up 42%. And, Railway 148%. So orders are growing very rapidly. To the right, Connective Industries. When it comes to orders, elevators for buildings are affected by correction in China's real estate market, so orders are slightly down. And appliances, home appliances are plus minus zero. And our semiconductor business is still correcting, so down 9%, but orders increase in Railway, and others, so overall, orders are very firm and robust. So our second quarter performance overview and upper revisions made to a full-year forecast. That conclude my presentation. Thank you for your attention. [Foreign language] We would now like to proceed to the Q&A.

Operator: [Operator Instructions]

Unidentified Analyst: I have two questions. First question is a power grid. It is very successful business in terms of audits as well as, our performance is very good. But at the beginning of the fiscal year guidance showed that there will be a decline in revenues and it seems that it has been subsequently increasing. So has it been changed in the market? As well as renewable energies, is that a driver for you, in pushing up your business? So, what is the market and what is the current situation? Are you able to maintain this for the next year as well? Now in terms of growing, so revenue is declining, but, our profit is increasing. But, it seems that your competition is also beset with challenge. So, those are the two questions I wanted to post. Thank you very much.

Yoshihiko Kawamura: I would like to address the basic outline and, Kato San will give you a specific numbers. Now, regarding your first question, for the power grid, energy sector, is in a super cycle. Now it's a once in decades, investment increases occurring. So the impact of the super cycle is very significant. More specifically, because of the Ukraine issue it originated from that, energy supply in Europe was impacted. And from the Middle East, they have to buy electricity and significantly and as you have rightly mentioned, there is a need. There is a goal for utilizing the renewable energy. So, in the grid, there is significant demand and we are able to capitalize on that in terms of the market situation. It's once in a decade, so cycle -- so it is likely to continue for 10 year, 15 years going forward. That is our -- up until last year, the Thales was to be included from fiscal year 2023 until last year. But now it is going to be delayed to next fiscal year. So that has had the most significant impact. But if we compare the business on a year-to-year basis, we have been showing, there has been increase in revenues as well as profit. So it's just a matter of the Thales being reflected with a delay.

Unidentified Analyst: I have a follow-up question, especially for the power grid. So regarding the market, if there is significant increase in the market, can you accommodate in terms of capacity, because power semiconductors are in shortage. What can you talk about the capacity? Second, in terms of profit, Hitachi Energy, is increasing profit significantly about [7 million] (ph) PMI expense has increased. But beyond that, it seems that other expenses are also increasing. So do you think it's going to run its course in 2023? And in 2024, you will be on a trajectory of growth and profit growth, and so, all these are increasing I’m going to asking about the capacity for 2023 and 2024?

Tomomi Kato: We are trying to control ROIC, appropriately capacity building will be promoted several tens of billion investment will be made to enable this. So the increase in orders can be absorbed appropriately. And they will also be outsourcing. We can utilize the external plants, factories as well. So we will take a two pronged approach. So then the orders can be reflected in the total mass. The high voltage orders are significantly increasing. So we are trying to contain this within Hitachi Energy, but there are parts of the business that will be utilizing subcontractors as well. So, that way you can manage the capacity overall. So there would be ramp up in terms of investment as well as utilizing external resources to meet the increasing demand. Now in terms of capital expenditure, let me also give information as well. For 2023, compared to the previous year, 136%, is the capital investment that we are planning. The increase is mainly in Hitachi Energy. Therefore, we will wrap up our capacity in that area. Now related expenses are also increasing. This is mainly in IT for integration. The schedule has been somewhat delayed, for this year's expenses have increased accordingly, but for next year, there would be a significant decline. That's all. Now regarding the Hitachi Energy market, that will be addressed by Yoshihiko San.

Yoshihiko Kawamura: On 25th of October, Hitachi Energy production capacity investment is to be made, as well as, resources will be ramped up as well. Please read this release, it will give you information regarding, the market forecast going forward for your reference. Thank you. [Foreign language] Thank you. Next [Takizawa san] (ph). Please unmute and start your questions.

Unidentified Analyst: Thank you for the opportunity. My first question, Page six, GlobalLogic increase in revenue and profit, is this organic? Isn't there any impact from M&A? If M&A impact is not included, then that's a very strong increase in revenue and income, as competitors are suffering from dropping revenue, but why is it so strong within the group, cases are being reused. If you could explain?

Yoshihiko Kawamura: Thank you very much for the question. GlobalLogic acquired three companies off lay. What kind of companies, Romania, Latin America, Ireland, these are entities from such regions. And basically, these are acquired in order to increase staff. So digital engineers, today in Silicon Valley are in a high demand. There is labor tightness in India and East Europe, we're trying to source people and with the staff increase, it's going to translate into revenue increase, not that we're purchasing companies with large cash flow. And so the purpose for the acquisitions is really staff increase. If you know the numbers turning to on a dollar basis up by 16% as Kawamura explained, excluding M&A on an organic basis, that's up 6%. So if include M&A, the overall growth of 16% in the first quarter was up by 19%. So it's slightly down compared to Q1, and that's because of suppressing by some customers, retailers and tech companies, such customers are reducing investment, but revenue from existing customers is up. So in terms of revenue, it's at the top of the industry. That's our awareness.

Unidentified Analyst: Thank you very much. Another question as [indiscernible] asked. So in the last forecast for a Railway, well, there's some decline from there, and that's because of delayed Thales acquisition, but compared to the beginning of the year. So organic improvement in revenue and income, is it going to happen earlier or later than what you expected?

Yoshihiko Kawamura: Thank you very much for the question. So I don't have organic only numbers at the beginning of the year, but as far as Railway, it’s more or less on plan from the beginning of the year. It's not that all of a sudden we're getting a very large project. So, it's on plan basically from the beginning of the year. And there's been a slippish, by one year for Thales, not that there were major reasons behind this. Thank you very much. [Foreign language] Thank you very much. Next. [Hireo san] (ph) please. Please unmute and ask your question.

Unidentified Analyst: I hope you can hear me. I have two questions. So, you have a good performance for this period. But, there are conflicts in the world. There is also interest rate, the risk as well. For your company, what is the most significant risk that you consider? And against this risk, what are the measures you are contemplating? That's my first question.

Yoshihiko Kawamura: Thank you for your question. For the individual business, so far, there is no significant concern in terms of individual business risks does not exist. It is more of the macroeconomic risk that is likely to have an impact for this fiscal year as well as the next fiscal year, interest rate hike could have an impact, luck will increase. That means that investment will be impacted. Investment could slow down. Foreign exchange could be subject to volatility with the increase in interest rate. What is more significant is the impact of war. There are two rules ongoing today. The oil price will go up, the interest rate will go up, it can slow down the economy overall. So the macroeconomic environment, it will have an impact on individual companies. So that is our major concern. We are, however, implementing various measures. In terms of interest rate, currently debt is very low cost. Therefore, essentially gone debt we are recurring funding. And, we will pay down debt and control the funds that we utilize. We will also issue corporate bonds to enjoy the low interest rate environment. In terms of foreign exchange, we have hedged almost everything by future transaction. So we have implemented measures about for the geopolitical risk. On our part, it isn't something that we can control. So we will watch the situation very carefully and take appropriate measures, based on need. So, that concludes my explanation regarding the risks withstanding us.

Unidentified Analyst: Hitachi Vantara re-organization has been announced. And, generative AI comments were made. It was quite prevalent for your company. What is the impact on performance by generative AI, how much is going to come to the fore and going forward?

Yoshihiko Kawamura: We don't have numbers for generative AI on a standalone basis, it has emerged only around November of last year, OpenAI, ChatGPT, was announced, and that was the start of generative AI. So, it's less than one year. Therefore, specifically, what the kind of businesses is generated is not yet identified. However, we are trying to capture this as much as possible. For example, in terms of IT, the program coding was conducted by engineers in the past, but we can now replace some of it with the Generative AI for the white color work and the forecast prediction as well as reporting can be -- can utilize a Generative AI as well. So increase in revenues as well as decreasing in cost is what we're trying to achieve, using Generative AI. We have set up a team for this specific purpose when we speak next time, I hope that we can give you a clear report. However, this has only just begun. But, this trend should be captured. This will also be reflected in a [indiscernible] reorganization. So that, Generative AI will be incorporated appropriately. I'm sorry that I cannot share numbers with you at this point in time. I would also like to also give you information. In, May Generative AI center has been established and at the end of the second quarter, we had 300 inquiries. And, also there was, dozen also of orders received as well. So, activity is picking up now in this area. For GlobalLogic, as shown in the Lumada slide, externally, Generative AI, well, you can understand that the GlobalLogic is most advanced in terms of Generative AI within the Hitachi Group. Thank you.

Operator: Next. [indiscernible]. Please unmute, and state your questions, please?

Unidentified Analyst: [Yushi from NHK] (ph). So you made upward revisions to your full year forecast, and a large part of it is impact from Forex. And of late, yen is becoming cheaper. And once again, if you could explain, the impact of Forex on your business, And in the third quarter and fourth quarter, what's our forecast for forex, what's your view of Forex? My second question has to do with the overseas business. There's a decline in China, but that is being offset, by other regions you mentioned, the Chinese economy is becoming rather sluggish right now. So, how do you expect the impact, to be on your business?

Yoshihiko Kawamura: Well, thank you, for the questions. It is very difficult to forecast Forex, page 13 in the material that we presented. So if yen becomes cheaper as is noted, in terms of revenue, 6 billion and adjusted EBITA, 0.4 billion yen up positive impact can be higher. In order to minimize the Forex impact, we're taking out hedging. Today, the rate is already 150 yen to the dollar. So if there's a major yen depreciation going forward, there could be a potential interventions. So would it hit 160 yen, 170 yen to the dollar? It's difficult to assume that. And it also depends on yen denominated interest rates, how they will evolve into the new year. That's all I can say. We don't really know, which way it will go. Even if there are developments, we're trying to minimize Forex impact, so that it will not impact too much on our business. And what’s our view on overseas business or Chinese business, we have a large business in China exceeding 1 trillion yen elevators automotive parts, IT, energy related, power grids. We're putting together a guideline. Basically, Tokyo will not inject a new capital into China. That's not what we're doing. There's already capital in China which is to be invested in China. So fresh money is not being injected from Tokyo into China and trading. In the past, what we manufactured in Shanghai, was exported to Tokyo as parts and components. But that business is being minimized. So trading is being controlled. So in principle, investment and trading, unnecessary is being done within China. That's the guideline. So 1 trillion yen business in China to grow substantially all of a sudden that will not happen. We would like to keep the current level of business going forward. That is our, basic policy. About Forex. Well, impact in our future business, as [indiscernible] said, so of the upward revisions we made this time, what would be the impact of Forex in terms of revenues? We increased by 350 billion yen. Two thirds of the upward revision, is Forex. The rest is organic growth. In terms of profit increased by 30 billion yen this time. 60% is attributed to Forex and 40% is organic. So that's the breakdown of the upper revisions. Well, we talked about simply is described on page 9. So if you could please refer to page 9 later. Thank you.

Unidentified Analyst: Thank you.

Operator: Hi. Next is [indiscernible]. Please unmute and ask your question.

Unidentified Analyst: I have two questions. First, which is page 13. On a consolidated basis, the guidance for the year has been subject to revision for the consolidated business for the three segment, revision is also shown here as well. In terms of the continuing consolidated business the net income has also been explained as well. It has changed from 502 billion yen to 533 billion yen. So increased by 3 billion yen. For EBITA and so it seems that it's somewhat different to the EBITA change. So, it is a significant revision of 30 billion yen. Now for the consolidated business going forward, what is the basis of the calculation of the net income calculation? That's my first question.

Yoshihiko Kawamura: Well, actually, on page 19, the last forecast comparison is made. Adjusted EBITA basis is 30, and net income is 20 billion yen. But for others, there have been a day, business reorganization, this is improving in the area of Astemo for the business structural reform. Minus 20 billion is shown here for Astemo, there has been some deficient parts issues that has had an impact.

Unidentified Analyst: In the consolidated business going forward there, Astemo is no longer included. Isn't that the case? And so that's not included.

Yoshihiko Kawamura: Astemo the deficient part has improved. And that is the reason why you said that, that is not the reason why you have revised upwards significantly. So it is other items in the three segments, attributable to the three segments have been in subject to a revision. Is that a correct understanding? But for the major items in terms of page 19, there have been adjusted operating profit is 45 billion yen. Adjusted EBITA is 3 billion yen, but the main part is 45 billion yen improvement out of this for a Astemo in October, half month remains around 11 billion yen but the remaining 33 billion yen will be the improvement in the three sectors, mainly in the GEM sector, Green Energy & Mobility. Astemo significant. So from the three segments, adjusted EBITA, that is improvement of 18 billion yen which is mentioned on page 13. Let me confirm this offline. Now regarding page 19. According to the new plan, for the year, non-operating, there is the structural reform expenses, was 130 billion yen and 20 billion yen increase has been made in terms of this revision.

Unidentified Analyst: So the 30 billion yen for the first half. So, just like that 100 billion will be in the second half. So please elaborate on this further.

Yoshihiko Kawamura: Kato will respond to that.

Tomomi Kato: Regarding 130 billion yen out of this, the structural reform expenses, is mainly impairment as well as, severance upon restructuring, we are assuming that to be around 70 billion yen and others will be included in the 130 billion yen. Now, the variance from [Assign] (ph) is 20 billion yen is the others. As I mentioned earlier, Astemo measures have their increase that’s the major part of the 20 billion yen.

Unidentified Analyst: Understood. Thank you.

Operator: [Indiscernible] please unmute and ask your questions.

Unidentified Analyst: Thank you. [Indiscernible] JP Morgan. I have three questions. Question number one, Hitachi Energy's upper revision too, its full year forecast. The idea behind is that a profit is increased, in terms of adjusted EBITA, but margin remains the same. So revenue increase, is translated into increase in profit. That's how it appears. But increase in revenue compared to the original plan, what's been the breakdown of the upside. So, there was Forex impact or project development or deliveries being good. So on a full year basis, why is revenue increased so much. Despite the increase in revenue, the margin, remains the same, and profit is not going to increase as much. And so are you being conservative or are there any other factors.

Yoshihiko Kawamura: Thank you for the question. I will answer your question. Actually, one of the characteristics, this time is we have seen certain orders for high voltage products and others. And the way in which profit manifests is last year it was short delivery products. So, what we received as orders in 2021 will translate into profit and loss in 2022. But this time, longer delivery products are being ordered. And so part of what we received as orders this year, we'll see soon, but we will have to wait until 2024 and 2025 before we can see other revenue or profit and loss. So not a 100% of increase in revenue is going to be translated into 100% of profit increase. So that's because of the product mix. But into 2024 so orders of long derivative products, half of that will translate into profit and loss. So in terms of profit, I think, we will see an improvement. There will be more profit increase to be seen. So that's the first answer.

Unidentified Analyst: And secondly, DSS, Q2 margin has improved quite, quarter-on-quarter and year-on-year. And however, on a full year basis margin remains the same. So in the first half margin improvement was somewhat temporary. Isn't there going to be any upside in the second half?

Yoshihiko Kawamura: At this moment, Well, the numbers are as they are. Is there going to be a major upside in the second half, its own plan? So we do not expect a major upside in the second half. But as far as GlobalLogic is concerned, it has huge potential, more specifically, Railway and Hitachi Energy, GlobalLogic is pursuing collaborations strongly with these entities and GlobalLogic Japan's work is increasing. And so given that GlobalLogic could see further upside. There's that potential. But would there be a huge surprise? Would there be a huge upside? No. We're not expecting that to happen. So second quarter DSS margin, is more or less expected, according to your original forecast, yes, 12% to 13%. That's basically in line with our plan.

Unidentified Analyst: Understood. Thank you. My last question, question number three, with regards Hitachi High-Tech forecast this year. Hitachi High-Tech, if I look at supplementary, presentation in terms of Nanotech, I think, profit is down by 10 billion yen but for High-Tech overall for your forecast remains the same. So, decline in Nanotech, so what is going to offset that decline in Nanotech. So Nanotech is revised downward, but from, first half to second half, it seems that the plan is to increase profit somewhat. So given the status of the current semiconductor market, this may be challenging. So what is the visibility? What is your view on that, please? If you could share that with us.

Yoshihiko Kawamura: So, thank you for the question. Well, regarding Hitachi High-Tech, so, Nanotech is down. How are we absorbing that medical, analytics and testing? That business is performing well. So we have been able to absorb the decline with that business. And our view on semiconductors earlier I talked about the semiconductor industry. So semiconductor industry, there are ups and downs. It seems NVIDIA, for example, is working on AI, autonomous, driving. They're doing extremely well, but traditional companies such as Intel are having difficulties, or though they're on recovery, there are still having difficulties. So, the picture is mixed. So rather than NVIDIA, our main customers include Intel another traditional companies, they will be back. And we are incorporating, their recovery into our plan not that its not going to recovery. NVIDIA is doing extremely well, and our main customers including Intel, are going to come back. So in the second half and next year, we are expecting recovery and that is reflected.

Unidentified Analyst: Thank you. Thank you very much. Understood.

Operator: [indiscernible]. Please unmute and ask your question.

Unidentified Analyst: I have two questions as well. Regarding the Thales signal business, you said that, it is not going to be pursued in 2023. Are you talking about the fiscal year or the calendar year? What do you mean by year 2024? Please clarify. And I understand that the competition authorities have given approval. Why is it delayed, if that is the case?

Yoshihiko Kawamura: I'm sorry, I was not clear before, in terms of calendar year, from April to December of 2024 is the timing, it will be in the first half of the fiscal year 2024. Now regarding the delay, the bottleneck has been the UK signal business anti-monopoly issues, CMA authority, is a Competition Market's Authority is CMA. And for the signal business is being evaluated. When if we acquired the Thales business, then the competition with our peers, could be undermined according to their view. So CMA has been investigating this matter, and we have also provided remedies on several occasions. And, for part of the business it will be carved out. In order to clear the anti-monopoly issues, minor business will be carved out. So that this problem can be overcome. And CMA of the UK has approved this process and that was in November. And the Brussels, EU, competition authority will mostly give approval as well, which is forthcoming around November. If we started with the UK, the part of the signal business ad, we have been able to clarify this by providing a remedy. This process has taken time. Let me also provide some information. Amongst our conditions, it's not too so much about the scale but in the case of a UK, as well as, in Europe, when there will be, when business transfer has to be made, transcending boundaries, then final agreement has been made. Otherwise, we cannot close the deal. That means that the business transfer the receiving party, it will have their conditions as well. This will require time for this process and to be completed. And SBA will have to be concluded with the, company that is going to be purchasing this business and with this conclusion of the SBA, we will be given the go sign. That is the reason why we have this time schedule today.

Unidentified Analyst: Taking into consideration what you have explained, the Thales positive impact will be smaller in terms of appeal impact to when the deal is completed.

Yoshihiko Kawamura: Because of the remedy, we are going to have to cover the certain part of business of Thales it is rather small. But, yes, indeed, it will have an impact on the P&L, but for the major part of the business, the impact is minimal.

Unidentified Analyst: I have another question. This has been raised several times today. And regarding the upward revision, is the overall conservative is that the correct understanding inclusive of foreign exchange, there are offers existing? So what are your thoughts on this matter? Please elaborate.

Yoshihiko Kawamura: So if you ask me whether we are conservative, that’s a very difficult question to respond to. In terms of the budget formulation processing, our company is very prudent, very cautious. We don't want to have any surprise, And the volatility within the period will be taken into consideration so that the plan can be achieved. So if you ask me, if this is a conservative, I believe there's a reflecting the true picture, the actual. And toward the second half, the macroeconomic environment is unclear. So we do have the buffer overall. But, towards the end the second half, we believe that the numbers can be achieved as presented. Overall, in terms of operating profit, we don't have a risk budget. Only about the 5 billion yen. It is only for a slight volatility that has been included.

Unidentified Analyst: Thank you. That's clear.

Yoshihiko Kawamura: Let me also talk about the Thales, regarding the completion of the acquisition. In the first half of 2024 from January to June period is when it is expected.

Operator: [indiscernible]. Please unmute and ask your questions.

Unidentified Analyst: [indiscernible] [SMBC Nikko Securities] (ph). There are two main questions I would like to ask. Question number one, about upward revisions. So by factor, if you could explain, so 45 billion yen, in terms of adjusted EBITDA. Will Thales PPA, is going to be reduced 17 billion yen and Astemo 12 billion yen adjustment in Forex, perhaps 5 billion to 10 billion yen other than that what are the factors? So, the organic part, please.

Yoshihiko Kawamura: So way SMO and organic, so the numbers I have given, are they correct? Well, roughly they are correct, but I would like to turn to Katosan for some additional remarks.

Tomomi Kato: Well, I may be repeating what I said already, but so adjusted, EBITDA we made an upper revision of 45 billion yen, 12 billion for Astemo, as you said. So three sectors 33 illion yen. And other main factors include GEM sector 26 billion yen PPA, amortization, 15 billion yen other than that, pure organic growth. 17 billion yen with all included. So that is the Forex impact.

Unidentified Analyst: Thank you. Thank you for the answer. My second question, so progress in terms of midterm business plan toward next year, if we look at three segments adjusted EBITA up 20%. So given the upper revisions, I think you will be raising that by 20%. So, power grid PMI going down, orders are very robust. So, do you have a number in site? And IT and others, market conditions are very good. So what is the progress made thus far? What's your view?

Tomomi Kato: Thank you for the question. As you know, we're under a 2024 mid-term business plan. Today we're in the middle of the year, next year will be the final 30 year. As of today or almost all the goals and targets are set in the mid-term business plan can be cleared and obtained -- can be attained, we believe. There are few KPIs that we have to adjust perhaps, but in terms of flow, I think we'll be able to hit all the objectives targets. So as of today, that is the forecast for the midterm business plan. So we're not thinking of making any downward revisions. The 2024 mid-term business plan, has had very challenging targets, there might have been questions as to whether we may be able to achieve them, but I think that we are going to be able to attain all of them for as of today.

Unidentified Analyst: Thank you.

Operator: Next, we would like to take questions from the English channel. For those of you with questions, may I please use the raise hand button? Any questions on the English channel? Please use the raise hand button if you wish to ask a question on the English channel. They seem not. Therefore, we'll revert back to the Japanese channel. [indiscernible]. Please unmute and ask your question.

Unidentified Analyst: Thank you very much for the opportunity to ask a question. I have two questions. First question is regarding the DSS business. The full year plan has been subject to upward revision. But if you look at the content, the Front Business and IT services and services and platform, GlobalLogic, have been remaining front. So I want to know, what are you revising upward specifically? Page 21, if we look at Front Business is 19%, IT service, 3% increase in GlobalLogic, increasing and remaining very strong in terms of orders. So, seems that the -- do you think that the demand environment is going to be maintained in the second half? Do you think there is going to be upside guidance?

Yoshihiko Kawamura: Answer. Regarding the DSS, upside, information is not available to us now. But we are seeing the increase in all the different businesses, inclusive of a GlobalLogic, there is no significant increase in one part of the business. Demand is very strong. Is it going to be, further upward revision for the second half? As I mentioned earlier, the orders, how at what speed is going to be reflected on the PL will differ from contract to contract. So just because demand is strong, we can't say immediately that they will be reflected in the guidance but there is a possibility. I will say that.

Unidentified Analyst: Second question is regarding GEM. You mentioned that the energy business is in the super cycle. Hitachi Energy is very strong as a result of that. But for the second quarter's orders increase 14% first quarter, 1 trillion was the order received. So on q-on-q basis, it seems weak. Is there, reduction in speed? For what about the growth rate in the mid to long term? And to your competitors, this, you know, competitors, single digit. What is your view. Within GEM and railway, first quarter and second quarter, orders are receiving increasing 148%. Is there another tailwind, such as a super cycle for the railway systems as well?

Yoshihiko Kawamura: We're just discussing the second quarter. So Katosan will provide the overall explanation regarding Hitachi Energy.

Tomomi Kato: Thank you for your concern. In the first quarter, 100 billion yen orders have been received several times, in Europe, in the Netherlands and Germany, the grid HVTC, was, achieved in Saudi Arabia. There was another business and elsewhere as well. So in the first quarter, there were special, circumstances in the second quarter, 14% is a steadfast increase. So therefore, there is no concern regarding growth. In terms of railway system in the first quarter and the second quarter, there have been major businesses to the tune of several hundreds of billions, so mainly in Europe. So the growth rate is around the same.

Unidentified Analyst: Hitachi Energy And Railway Systems. It seems that the mid to long term growth, is going to -- do you think it's going to be in the teens?

Tomomi Kato: For these two sectors, detailed calculations are being made. We are aiming for 2030s about 7 or 8 years down the road. We believe that there is going to be a successful growth revenues as well as margins are likely to increase as well in the long run. That is our outlook. Therefore, I agree with what you have just said. Thank you. Regarding all this, last year, looking back, there could be being 200% when we were was very strong. Third quarter is about less than 120. That's last year. For 2021, there was a time in terms of 160% year on year in terms of orders received. But it was about 1% to 3% in the first quarter, second quarter, as well as fourth quarter. So a trend last year was exceeding 200% last year. But it could be 110% or 105% reverting back to this level suddenly as well last year. So, and just because, it is at this level. We don't have to be concerned about the super cycle. Regarding the size of the market, the 25th of October, we came up with a release, a power grid market forecast is also included. And based on that we will be promoting our business plans accordingly. So please refer to this release.

Unidentified Analyst: Thank you.

Operator: [indiscernible]. Please unmute and ask your questions.

Unidentified Analyst: [indiscernible]. Two questions. First, Hitachi energy’s order's being strong. Order backlog, HVDC, large projects. What is the weight of large projects, including HVDC? You said that, revenue does not translate immediately into profit and loss or orders not translating into revenue right away, is it going to take three years, given the capacity that you have, what is going to be the pace? So what's the timeline?

Yoshihiko Kawamura: Thank you for the question. There are four segments we're working on. And orders for each segment. I don't have the specific numbers on hand. So offline, our IR department will get in touch with you with an answer. I'm not sure, how much details we can provide, but we'll do our best to supply with the details.

Unidentified Analyst: Thank you. Understood. My second question. This whole system services in the first half orders were very strong, but in the second half so year on year growth. So is there a concern for negative growth for orders? So the potential growth in orders for the second half, if you could please elaborate on that.

Yoshihiko Kawamura: Well, Kato will answer your question. Well this time a growth in the first half and if you subtract that from the full year forecast, it may appear that we're not expecting much of a growth in the second half. But the world is still a full of uncertainties, the same with the markets. So there are some risks that we will have to consider. And that is why we have come up with this forecast.

Unidentified Analyst: Thank you. Understood.

Operator: Thank you very much. [indiscernible]. Please unmute and ask your question.

Unidentified Analyst: Thank you very much. I have two questions regarding nuclear. Now regarding the performance in this period, there seems to have been increasing costs for some projects in nuclear energy. Can you elaborate further? That's my first question. And the second question is the following which is on page 21, which is orders received. Nuclear energy orders are also growing. What kind of businesses, is it Japan or overseas? Is it the one off or continuous, sustainable? Please talk about the orders received for nuclear energy.

Yoshihiko Kawamura: I would like to answer your first question. I cannot give you details of the project. There is a certain project, however, our company and another company, is following this project. Regarding cost allocation, there have been discussions, and this is subject to coordination now. We believe that certain negative impact will be coming to the full. That is the reason why we have taking conservative approach. It is about, the cost allocation between us and our partner company. Now in terms of orders received, we cannot give you details of the projects, but they are all domestic, projects. These are projects that we have been doing from the past, from the electric power companies.

Unidentified Analyst: So is it going to be one off or is it the sustainable?

Yoshihiko Kawamura: Regarding the orders of nuclear energy business, well it depends on the policies of the regulatory authorities, in other words, the national government, and the larger reactor construction is likely not to be the case. And therefore, it is maintenance as well as peripheral work. Is the type of business we want to promote. So we should not expect a significant increase or decrease technological innovation will be coming in the future. For example, nuclear fusion, as well as, third generation small module reactors, will be coming, further down the road. So it doesn't serve nuclear energy business orders, will increase significantly or decrease, it is on a constant basis. I think, this will be maintained at this level going forward. As I mentioned earlier, this negative number is a one off impact. And regarding orders, let me also elaborate further. For nuclear energy revenues is increasing on an annual basis for this fiscal year. Therefore, this growth rate in terms of orders will depend on the projects. So it doesn't exist, these numbers will continue. It will be enjoying the stable growth going forward. So 90% and 56% will not remain as is.

Operator: Time to close is fast approaching. I have two more hands. And once we're done with, those people, we will conclude this meeting. So first up [indiscernible] if you could please unmute and ask your questions.

Unidentified Analyst: So cost increase for Nuclear Energy, are you talking about your business with GE? There seems to be a project that you're doing with GE and is the issue with the cost with GE?

Yoshihiko Kawamura: It's not about GE. It's not a project with GE.

Unidentified Analyst: Alright. Understood. Thank you. And Hitachi High-Tech on Hitachi High-Tech. So decline of 9% in the first half. So Chinese semiconductor orders, are they down and is that behind, 9% decline in orders in the first half. So China is looking to produce a semiconductors, domestically. So because of that, has that been impacting your business?

Yoshihiko Kawamura: In terms of, orders, yes, for High-Tech, there's business for China. But we do not do anything to violate the regulation with respect to, regulation in Europe or US. So well, I would like to respond to [indiscernible] question earlier, by way of an answer. So Nanotech's orders and revenues, I think will be worse in Q4 year on year minus 9% by q-on-q starting from the fourth quarter, fourth quarter number is the smallest, the worst. And then it gradually comes up thereafter. So, we're in this trap of year in year comparison. So that's one thing to say. And another point is in the forecast. So core technology solution in terms of revenue it's growing 16% per annum and the business is, becoming, on the order of 100 billion yen with increased margin and a nuclear microscope, with high market share. So analytic, equipment, and instruments measurement instruments are growing. And so that is offsetting, this decline. Just for your reference.

Operator: So we'll take the last question for today. [indiscernible]. Please unmute and ask your question.

Unidentified Analyst: I have three questions. There are brief questions. First of all, regarding green, it has been mentioned today about the pseudo cycle that is emerging. But, this was being talked about from the past, in the first quarter to the second quarter. And what has changed? From the first quarter to second quarter. In the first quarter, short term delivery projects will be promoted according to your views. And whether this and you said that it can remain -- we don't know whether it can be sustained in the second quarter. In the second quarter, the performance is very strong. From the first quarter to the second quarter, what has changed? Please focus on the change between the first quarter and the second quarter. That's my first question.

Yoshihiko Kawamura: Let me respond. Answer. As I mentioned earlier, up until last year from short term delivery to long term delivery changes that we made from last year, the high voltage, direct current business has become very strong. The Europe wide area, well 1000 kilometers, can be enabled without any deterioration. And there is a strong demand for such a business, because of the Ukraine war, within Europe, the supply and demand has to be adjusted more efficiently within Europe. There is a possibility of obtaining electricity from overseas as well, which requires high voltage, direct current, transmission. This is the area that is growing significantly. So that's all.

Unidentified Analyst: So these are long term delivery products. So is it going to be impacted reflected this year? Yes, partially in fiscal 2023, but more in fiscal 2024, half will be reflected in 2024. 2023 is about 20% and 2024 is around 15% according to our plan. So from the past forecast, to this forecast, it is 20% that is having the impact. Is that a correct understanding?

Yoshihiko Kawamura: Yes.

Unidentified Analyst: Now second question, is regarding the large scale projects. And, the interest rate environment, could cause delays in project in the area of renewable energy. I think that is possible. So within your company, you have a track record for large scale projects. So I'm sure you have high sensibility for this area. So in terms of, possible risk, what are you focused on? And what kind of measures are you implementing to mitigate this risk. Please elaborate.

Yoshihiko Kawamura: Regarding high voltage the long distance transmission is established technology from time of ABB, it was well renowned. So technology wise, there is no risk but it does involve construction, civil works, could be subject to risk because it's going to be provided by external companies, because of the inflationary environment, the labor is limited. So how much we can accommodate the EPC cost? Is important risks that we have to bear in mind. Second, the interest rate is rising. And in fact, that is occurring already, especially in Europe. That means that the funding is conducted by the customers. And how funding is procured by customers, will be impacted by the interest rate. That is it can be imagined. So the APC construction as well as the funding costs for customers, as a result of interest rate hikes. And that is being factored in.

Unidentified Analyst: Last question is regarding Front Business and IT Services. In the first quarter, the orders were very strong and second quarter 19% year-on-year increase, has been achieved. So it is proceeding very successfully. Can you talk about large scale projects in what areas and the financial as well as the social media, was very important, in the first quarter. So please elaborate further.

Tomomi Kato: Based on information that is available to us. There is no change in terms of trend compared to first quarter. DS, demand remains very strong. As mentioned in the PowerPoint presentation, finance, public sector are both very strong. In terms of IT service, we have a [indiscernible], and in terms of security, as well as, cloud Lumada business is also growing. That is the reason why a double digit is maintained. So it's a continuation of the trend we have seen in the first quarter.

Unidentified Analyst: Thank you very much. This is very clear.

Operator: Thank you. With this, we would like to bring the Hitachi Limited web conference on the second quarter of the fiscal year 2023 earnings of until close. Thank you.