Hitachi Ltd

TSE:6501

Earnings Call Transcript 2019-Q2

[Unknown Executive]

Thank you very much for waiting. We would now like to start the meeting for the media on the second quarter of the fiscal year 2018 results for Hitachi, Ltd.

I would like to first of all introduce the speakers to you. Mitsuaki Nishiyama, Senior Vice President and Executive Officer, CFO; Tomomi Kato, General Manager of the Financial Strategy division; Yasuo Hirano of the -- Executive General Manager of Corporate Brand and Communications divisions.

I would like to ask Mr. Nishiyama to start with the explanation.

[Mitsuaki Nishiyama, executive]

Thank you very much for waiting. I would now like to give you the explanation regarding the second quarter results for fiscal year 2018. Please refer to the PowerPoint presentation.

First of all, I would like to talk about the P&L. Please refer to 1-2 or Page 5. Revenue is in the middle is the -- for the -- to start, the revenues was JPY 4,491.8 billion, which is 3% increase or JPY 115.3 billion increase. Adjusted operating income, JPY 344.5 billion, increased by JPY 41.3 billion, 0.8% increase year-on-year. EBIT was JPY 352.3 billion.

At the very bottom, net income attributable to Hitachi, Ltd. stockholders, JPY 192.9 billion, increased by JPY 32.3 billion. That is a 20% increase year-over-year. This is for the 6 months accumulated basis.

And for the second quarter versus the first half, in terms of EBIT and net income, we have been able to -- as well as income from operations, we have been able to achieve the highest level ever. And the operating profit at 6.9% has improved by 0.8 point (sic) [ 0.8% ] to 7.7%.

In terms of revenues, the -- for the Information & Telecommunications, Social Infrastructure & Industrial Systems and Construction Machinery as well as High Functional Materials increased. And in terms of operating income improved by -- for Information & Telecommunication Systems, Social Infrastructure & Industrial Systems as well as Construction Machinery significantly.

Now please refer to 1-3. This is looking at the revenues and adjusted operating income year-over-year. Left-hand side is for revenues. First of all, the downward arrow is the impact of reorganization of Hitachi Kokusai Electric, impact of JPY 72 billion.

Foreign exchange impact. The dollar compared to previous year, it has become stronger by JPY 1. So the impact was JPY 2 billion. And apart from that, business scale expansion was JPY 189.3 billion. Organically, 4% increase was achieved.

On the right-hand side, adjusted operating income. Similar to revenues, there was impact of reorganization of Hitachi Kokusai Electric, a negative impact of JPY 10 billion, foreign exchange negative impact of JPY 1 billion. Apart from this, the profitability improvement was JPY 52.3 billion from the previous year. Organic growth has been achieved or 18% increase has been achieved on an organic basis.

1-4 shows the revenues by market. The second line is Outside Japan, accounting for 53%. It was 52% last year, so increase by 1 percentage point.

And right-hand side year-over-year, 5% increase was achieved for Outside Japan.

For the Outside Japan, it increased in all areas: China, 2%; ASEAN and India and others, 3%; North America, 5%; Europe, 10% increase was achieved. There was significant growth in Europe for the Railway systems as well as Information & Telecommunication Systems as well as Construction Machinery. In terms of Construction Machinery, we have seen growth in all areas.

1-5. This is a summary balance sheet. The total assets was JPY 10,060.1 billion, which is a decline by JPY 46.4 billion year-on-year. Construction Machinery as well as Hitachi Metals, the inventory increased. However, at Kokusai Electric reorganization, the assets thereof has come off. Therefore, overall, the balance sheet has become smaller overall.

The cash conversion cycle is third from the bottom, 66.7 days. We are keeping the level of less than 70 days.

Stockholders' equities ratio, 34.3%. D/E ratio, 0.26x. So financial structure remains very sound.

For the moment, in terms of financial structure, the framework has been improving. And in August, S&P rating single A- has now gone to A. It was increased by 1 notch for Japan R&I.

Outlook, it was A+. There was no change here. But the outlook was now positive from September.

Now free cash flow at the very bottom is JPY 69.5 billion, which is an increase of JPY 25.5 billion. And cash flows from operating activities show the Hitachi Construction Machinery as well as inventory increase. However, investing activities cash flows, Sullair acquisition expenditure has fallen off, which occurred last year. Therefore, total was JPY 69.5 billion in terms of free cash flow.

Next page, 1-6 and 1-7 are the revenues and EBIT for each segment. First of all, starting off with Information & Telecommunication Systems. Year-over-year was 103%, increased by 3%. This is for the ALAXALA Network, stock transfer has had an impact. This was a negative impact, but system integration business increased. Therefore, overall, there was increase in revenues.

In terms of adjusted operating income, plus JPY 22 billion improvement was made. System integration, profitability improved and IT platform and products increased in terms of profitability.

Next, Social Infrastructure & Industrial Systems. Revenues increased by 6% from previous year. Especially there was increase in revenues from Railway systems in Europe as well as increase in Industrial Products business due to the acquisition of Sullair.

In terms of adjusted operating income, the elevator business in China, the sales price average has had negative impact. However, we have seen increasing revenues in Railway systems business, profitability improvement in industry and distribution field. With that, increase by JPY 24.1 billion.

1-3 (sic) [ 1-7 ], which is Electronic Systems & Equipment. It was at the level of 92% or a decrease by 8%. Hitachi High-Technologies, the clinical analysis as well as semiconductor equipment sales increased. Health care business, especially radiation therapy system sales, increased. However, there was a deconsolidation of Hitachi Kokusai Electric. There was a negative impact of minus JPY 72 billion. So overall, it remained at the 92% level. However, -- this is -- if we exclude Hitachi Kokusai Electric, there was 8% organic growth.

Next adjusted operating income, plus JPY 0.4 billion. There was a deconsolidation of Hitachi Kokusai Electric. However, there was increase in revenues in the Hitachi High-Technologies as well as increase in sales in health care business. Overall, increase by JPY 0.4 billion. But in the absence of Hitachi Kokusai Electric, there was an increase of JPY 10.1 billion.

Next, Construction Machinery. Sales increased mainly in Asia Pacific, North America and China. Sales overseas increased by 11%.

With that, operating income increased by JPY 15.7 billion improvement was made.

Next page is 1-8. High Functional Materials & Components increased by 8% year-over-year. The Thai Storage Battery M&A was made for Hitachi Chemical, and Hitachi Metals also acquired the Santoku, the earth -- rare earth metals manufacturer and increase of sales price linked to higher raw material prices at Hitachi Metals are leading to an 8% increase year-over-year.

But operating income was minus JPY 3.3 billion. This is because of the change in the product mix and increase in raw material prices at Hitachi Chemicals.

Next, Automotive System, minus 3% in terms of revenues. There was a weakness in sales in North America.

Operating income decreased because of the profitability deterioration in North America, minus JPY 14.4 billion year-over-year. In addition, for EBIT was -- for the first half was minus JPY 13.7 billion. This is because of Japanese plant and overseas plants, impairment occurred in these plants. The impact was JPY 20 billion. Therefore, operating income deteriorated as a result and EBIT deteriorated by JPY 36 billion year-over-year.

1-9. Smart Life & Ecofriendly Systems. In change of accounting to net basis revenue for a part of procured products in Japan caused a decline to 88%.

Operating income impact of foreign exchange as well as increase in raw material prices and steel products, minus JPY 2.1 billion was the result for operating income.

Now in terms of corporate items and eliminations, the amount was very large at JPY 57.6 billion. This is because of Hitachi Kokusai sales gains were included here.

Next page, 1-10 as the first topic. This is the summary of the progress of Lumada business. Total cumulative quarter 2 sales revenue, Lumada business, Lumada core business and Lumada-related SI businesses total was JPY 500 billion, which was 11% growth year-on-year.

Bottom of the chart describe for the first half the industrial sector and financial sectors the solutions, which uses the Lumada technologies are expanding as we speak, and there are several solutions described for the industry. Started selling new IoT solution, IoT Compass was started to sell and -- which is to adopt the optimizing for the whole manufacturing processes for the Toyota Motor Corporation using AI for the predictive maintenance services, which were launched as well and used in Showa Denko's ethylene plant.

And for finance industry, solutions are using the medical data and try to provide the risk simulation services for the hospitalization due to the lifestyle diseases. And this is the joint research with Dai-ichi Life Insurance and also business support for the Hitachi Health Insurance Society. The experience and the knowledge accumulated through that is utilized for the big data analysis.

And one of the expansion of the co-creation in Southeast Asia is to establish the Lumada Center in Thailand. And also in Thailand, manufacturer, Siam Cement group, we started co-creation with them for promoting energy-saving across factories and increasing the efficiency in dispatching processes.

Next slide is 1-11, the second topics. First, our company has established -- has work on the business structural reform and strengthened the management foundations. Part of the effort was that, in fact, we have distributed a release, press release today, the company decided to start a tender of the shares of Clarion, which is a listed company, and we decided to apply for the tender of the shares to the Faurecia Group. And this is to further accelerate the growth of the company as Clarion, and also Hitachi's point of view, we'd like allocate management resources to Social Innovation Business. And for that purpose, we decided to do this tender offer. And we will reorganize the large-sized industrial equipment business. We divestitured the industrial equipment businesses and we will try to strengthen the global competitiveness of the Industrial Products business unit.

For the global business expansion, investment was decided where, headquartered in Taipei, the elevator manufacturer and service provider company, Yungtay, that we decided to start the tender offer. Ultimately, we will consolidate Yungtay Engineering so that we can expand the elevator product lineup and by strengthening the cost competitiveness so that we will be able to enhance the installation and maintenance services business in China and other Asian countries.

Now on Page 16, on 2-1, is the outlook for FY 2018. The second quarter total, well, actually starting in the first quarter that was certain continuation of Automotive Systems and Hitachi Chemicals. Such products-related business were rather struggling, but information systems -- Information Telecommunication Systems, Social Infrastructure & Industrial Systems and Construction Machinery were the type of business relying on the solution or the social infrastructure type of business has been offsetting the loss from the product businesses. However, we will be revising the forecast overall and the total amount of the revenues is JPY 9,400,000,000,000 and adjusted operating income is JPY 750 billion, which is 8%, and the net income of JPY 735 billion.

And in the second half, ForEx assumption is the JPY 105 to the U.S. dollar and JPY 130 to the euro.

Now this is the breakdown by segment. Slide 2-2 shows the Information & Telecommunication Systems, system integration and solution business. These businesses are performing quite well. And as you can see, previous forecast comparison column shows that it is 6% up for adjusted operating income and EBIT.

And social -- excuse me, Construction Machinery, JPY 2 billion increase for adjusting operating income.

And next page, Automotive Systems. There are delay in improving operating efficiency in the first half. Reflecting upon that, the operating income was -- forecast was reduced by JPY 10 billion.

For the corporate items and eliminations, there is an adjustment of JPY 2 billion. Overall, there is no increase of loss, and there will be JPY 750 billion forecast has remained as is.

So that is all from myself for the presentation. Thank you.

[Unknown Executive]

And we'd like to entertain some questions. We will be bringing you a microphone, so please state your name and affiliation and please raise your question. Any questions, first?

[Unknown Analyst]

The first question is as follows regarding the results: for April to September, it was the highest ever. What is the impact of trade friction? How do you factor that in, in terms of the evaluation of your results announced today?

[Mitsuaki Nishiyama, executive]

Regarding the impact of trade friction, especially from China to United States as well as the input of U.S. companies from China have been impacted. But with the strength of the overall scale, the direct impact is very limited. But in terms of trade friction, this could have an impact on the macroeconomic situation, weakening the economy overall and there is uncertainty regarding the forecast going forward. How -- therefore, for the second half, for the Automotive Systems as well as Chemicals, apart from these 2 businesses, the businesses remain strong. However, the macroeconomic environment in the second half is subject to uncertainty and that is the reason why the outlook for the year have remained unchanged. There is a business risk as well as macroeconomic risk to consider. And in terms of corporate items and eliminations, we have left JPY 20 billion in risk buffer in this item, which remains unchanged.

[Unknown Analyst]

Regarding the Clarion, the sale of Clarion. After selling Clarion on the part of Hitachi Group overall, what is going to be in the Automotive Systems' business strategy? Now I understand there's going to be impairment posted for the plants in this business. It seems that the environment remains very difficult and challenging. Please comment.

[Mitsuaki Nishiyama, executive]

Now regarding Clarion, the sale of Clarion as well as AMS, the overall situation will be explained first. There is -- revenues declined as well as productivity is slow to recover. Therefore, the remain -- the situation remains very difficult today. However, from April, Brice Koch has taken the helm from April of this year and he has gone through a review of the operations in terms of fixed cost as well as variable cost, assets. Business portfolio have been subject to a review. This process has started. In terms of the operations, first of all, the procured parts as well as the direct materials as well as indirect expenses and variable expenses as well as fixed costs are all being evaluated. The fundamental improvement is being promoted. And for the assets, the asset efficiency is to increase as well as for the business areas and product areas, so there will be more focus and concentration. Fundamental reform is underway. As a result of this, Clarion sales has been decided. And in terms of operating profit decline as well as the impairment of the plant will be posted. However, this is not a short-term strategy, but it is a fundamental course to reform for the mid- to long term. But in the mid- to long term, the Clarion transfer has been made for that purpose.

[Unknown Analyst]

Related to the second question, I have a follow-up question. For about -- what about autonomous driving. Clarion and Hitachi Automated Systems have been working together in this field. When Clarion is divested, on the part of Hitachi as well as Automotive Systems, are you going to accelerate this business? Because Hitachi's automotive area, what is going to be the driving force?

[Mitsuaki Nishiyama, executive]

The important area is the electronic system, the parts system as well as autonomous driving and ADAS will be important areas that we'll focus on and related parts and components will be important focus for us. The Clarion has ADAS capabilities and they have been developing such a system. But in terms of Clarion revenues, it has only accounted for about 10%. For ADAS, obviously, we have been working together. And together with Clarion, Automotive Systems have been pursuing the system. But for autonomous driving, ADAS, to be pursued alone would be very difficult to achieve. For Automotive Systems as well as the areas of strength, which is a control area, we should be reallocating our resources to these areas of strength. And the area that we're working with Clarion as well as projects that are ongoing with clients will continue going forward. That is our strategy. And therefore, in terms of the Automotive Systems, we will focus on areas where we have strength such as ADAS as well as electronic systems and controlled units. These are the controlled areas that we are strong. Therefore, we will allocate more resources in this area. However, with Clarion, there may be areas that we should cooperate depending on the business as well as depending on the needs of the customers. Fortunately, there is no area that we are competing with Faurecia as well as Clarion and Automotive Systems of Hitachi. We do not have areas of competition fortunately. Therefore, based on need, we will continue to cooperate and collaborate. In 2006, Clarion became a subsidiary for Hitachi. But from year 2000, we have been cooperating with Clarion, working together. Therefore, even without the capital relationship, equity relationship, we shall be working together in areas where it is warranted. That is all.

[Unknown Analyst]

Regarding Clarion, objective of selling Clarion shares, I would like to explore more. You mentioned that medium to long term, the strategy and cost structure reform that -- what part of the Clarion other business, which would not fit to the overall strategy of Hitachi, could you clarify on that? On top of that, as was mentioned earlier, what is the development effort jointly pursued with Clarion? You mentioned that it will be project by project, but does that mean that you are going to jointly develop Clarion no longer the case? You would not develop something new with Clarion any longer?

[Mitsuaki Nishiyama, executive]

Clarion is not a part of the cost structuring. First, of course, for the short term, we recognize the need for the revision of the cost. We needed to review all kinds of costs and we implement all -- everything improvement strategy. But at the same time, we are thinking about the joint strategy and we are preparing to -- for the growth strategy. Transfer of Clarion and use that available proceeds to be able to allocate the resources for the area where we can focus more. So for AMS, this is the core of the strategy. From Clarion's point of view, being a part of Faurecia Group and part of the player under the Faurecia Group then targeting -- their target automotive devices, the automotive systems, that Clarion can grow. And Faurecia Group and the interior equipment of the cars, they are pursuing the technology for their smart systems. They are changing the course of the business. Because of this reason, Clarion getting together with Faurecia, both Clarion and Faurecia will enjoy higher value. Now what are the required technology for us on the side of ADAS? There are some parts, which we are working with Clarion, and there are some projects which we are working for a particular customers, and we will continue the collaborative relationship with Clarion. But in regard to the new products and new development, we will be solely focused on what we are strong at and we were separately making the efforts on our own.

[Unknown Analyst]

You mentioned that growth strategy for Hitachi that you have mentioned earlier. Perhaps it might be difficult to clarify, but what part of Clarion wasn't a core part of the growth strategy for Hitachi?

[Mitsuaki Nishiyama, executive]

About 10% of Clarion was coming from the ADAS or other devices, which we are working with Hitachi -- Clarion was working with Hitachi. However, for the car navigation system, the market has drastically changed very quickly. To give you more, the car navigation system is commoditized to a large extent, and therefore, there has to be some party to rediscover the value of Clarion would be beneficial for Clarion and therefore Faurecia Group will be beneficial. And the Faurecia Group will be able to continue making investment in Clarion business because of this reason. Thank you.

[Unknown Analyst]

First question is regarding Information & Telecommunication Systems. In the first half, it seems that the profitability has improved significantly. There are 2 questions. First question is regarding Lumada. It seems that our profitability is increasing according to enhanced scale. It seems that -- do you think that Lumada has already had an impact in that regard? Or is it still a front-loaded investment? Still, in terms of the review that you've made as well as the detailed management of the profitability of projects have you been able to increase to 10%? Now on the full year, the outlook is 10%. But for this business, it seems that the second half showed -- generated more profit. So please elaborate on these numbers first.

[Mitsuaki Nishiyama, executive]

Now in terms of Information & Telecommunication Systems, please look at Page 27. On Page 27, I would like to refer to this segment information. There are 3 improvements that can be made. Now as you have already mentioned, for Lumada, it has been expanding. That is one factor. And as you have rightly pointed out, scale is still limited. And to make overall contribution later, it is necessary to enhance the scale, and with that, profitability can be improved. Furthermore, the other reason is relating to the IT platform in the hardware area. In the first half, this was 8.9%. Therefore, we have been able to improve the profitability in IT platforms and products. The structural reform that we have been implementing from 2 years back is now having an impact. Furthermore, storage business, the hardware business, the profitability thereof have been improving as well. In terms of revenues, it's showing the overall trend. The hardware scale is smaller, but the profitability has improved significantly. And regarding your Front Business, SI business as well as Solution business, is such that a very detailed project management has been continuing and this has been thoroughly embedded. And now as a result, the profitability has improved. And those are the 3 factors driving the improvement. In the second half, if annual pattern is that revenues tend to be larger in the second half, I believe that the overall profitability will improve in the second half as well. So we have high expectations that this trend will be realized.

[Unknown Analyst]

Regarding automotive. I have another question regarding automotive. Regarding the divestiture of Clarion, does that mean that -- I think it was a focus area for Hitachi in the past. Has this focus changed? In other words, in terms of profitability, very clear-cut decisions are made to change the portfolio. But do you have an understanding that this is not an easy business? Is there a possibility that the Automotive Systems business will be less focused or more focused?

[Mitsuaki Nishiyama, executive]

Regarding Automotive Systems, we are struggling today. But in the area of mobility solutions, this is a very important business for us. There is no change in this position. Therefore, the reorganization regarding Clarion means that we will allocate more resources to areas of strength in Automotive Systems such as ADAS as well as control systems. That is the measure that we are promoting. Thank you.

[Unknown Analyst]

Hitachi Automotive Systems. Well, there are other scandals in terms of anti-seismic trembling system for the building and part of the products are produced by Hitachi that I heard. Is that correct? And by the end of this week, your company was asked to submit the internal investigation report to Ministry of Land Infrastructure and Transport. And are you aware of this particular topic?

[Mitsuaki Nishiyama, executive]

I do not have the detailed information about your question. Thank you.

[Unknown Analyst]

Three questions. First, the Taiwan -- Taiwanese elevator business with 51.7% of equity. 11.7% was owned and then you will do a tender offer bits and we will attend 100%. And there are pricing competition becoming very tough in the Chinese market. When will you succeed in acquiring this company by 100%? And what is your strategy for elevator business in China? And how you are going to improve the profitability of your elevator business -- Elevator & Escalator Business?

[Mitsuaki Nishiyama, executive]

In Taipei, this is where the headquarters. And also in Taiwan market, Yungtay is a top manufacturer in Taiwan. On top of that, in Chinese market, Yungtay is developing the business quite well. In China, Hitachi's position is only the fourth or the fifth position from the top, maybe the third or the fourth perhaps. That's our understanding. By combining with Yungtay regarding new installation and maintenance services, we can expand our footprint. By year 2021, we plan to attain closer to the top player in the market, so that's the objective of this acquisition. And there are the benefits of scale by combining the 2 companies. We'd like to attain larger scale benefits. By doing so, we'd like to reduce costs. With these objectives, we decided to conduct public tender offer to Yungtay Engineering, so expanding product lineup and combining with the cost competitive Yungtay operation, and further, we will gain the price competitiveness by combining the business and also our product lineup will be expanded. And the sales networks or the utilization of the business offices, and by doing so, we could expand the footprint. Thank you.

[Unknown Analyst]

May I check with you more detail points. When you conduct TOB, how costs are projected? So TWD 60 per share and outstanding shares, the all amount is intended to be acquired. So deducting your 1 stake ownership, then how much would that cost?

[Mitsuaki Nishiyama, executive]

Right. Attaining 100% of the TOB, JPY 78 billion will be the cash disbursement that I will -- we will have to make. That's our estimate at this point.

[Unknown Analyst]

Once again, for Elevator & Escalator business, the Hitachi Corporation, well, those in Southeast Asia and China, you are providing premium products. However, Yungtay is doing the middle to lower range of the products. Is that correct?

[Mitsuaki Nishiyama, executive]

Yungtay is for the condominiums or the high rising buildings, where we are not doing the business at all, and that's where Yungtay is doing. On top of that, for the condominium, they are selling the elevators for the condominiums in China. The market in China, well, compared with the Hitachi elevators, escalator versus Yungtay's business, I think we can segregate the market, and overall, we will be able to enjoy higher volume. And thereby, we can reduce the costs by enjoying the benefits of the scale. And gradually, we will expand our business altogether. That's our strategy. Thank you very much.

[Unknown Analyst]

The second question is regarding the comment on the overall business performance. This is the last year of the medium -- Mid-term Management Plan, and when you look at your figures, it seems that you are going to achieve that mid-term target. What is your take or evaluation of this situation and inclusive of President Higashihara, next target of 21%? And in 3 years, if you are to achieve the next round of the target? And are there any profitability improvement or integration or consolidation of the business units going further? What is your thoughts on this point currently?

[Mitsuaki Nishiyama, executive]

For FY '18, the current projection need to be attained, which means that, at the minimum, we will achieve the target set in the Medium-term Management Plan, and we will -- we shall achieve that. And for the next mid-term plan, for 2021, the specifics of the strategy and the plan need to be discussed with HBUs. And -- however, overall for each of every BU, there will be organic improvement in profitability that needs to be implemented. As a part of that and within the businesses' business unit, they will have to review the business portfolio and the product portfolio. That will be a must. Thank you.

[Unknown Analyst]

Once again, may I ask, when I look at each and every BUs, there are some achieving 10% or perhaps stagnating at the 5% or so. But on the other hand, Social Infrastructure & Industrial Systems' point of view, it is not just a simple profitability that is a big question at this point, but your request is to review the portfolio inside BU. However, Hitachi has aimed to achieve the social innovation, and what is required for Hitachi?

[Mitsuaki Nishiyama, executive]

What is necessary and what is noncore, it's very hard to comment in a very short sentence. So I would rather not to make any comments regarding that at this point. But as I mentioned earlier, in each business unit, profitability will have to be improved. But for that particular business, in that particular industry because of the 0 trend or structure of the industry, it may be difficult to generate profit in the first place. But if that particular business is regarded as core or perhaps that will lead to Lumada or IoT and if that device is necessary for our further strategy, then even if the margin is less than 10%, but perhaps on top of that we can add Lumada so we can provide the overall solution, and as a result of that, overall profit could be achieving 10% or higher, then that's our criteria to adopt. But in the first place, compared with the global top peers, our profitability is very low. So in each BU, each and every one would have to try to attain the global top level of profitability and that's the general policy of operation. However, we would have to maintain the holistic view on the business so that the company overall would enjoy higher profits. Thank you very much.

[Unknown Analyst]

Very last question if I may. You mentioned the trade friction between China as well as the United States. There's going to be interim elections, a midterm elections, in the United States. How is that going to impact your business?

[Mitsuaki Nishiyama, executive]

I don't know. At the presidential elections, what occurred, what has been the impact thereof as well as Brexit, the impact of Brexit and what is occurring subsequently could not be foreseen by anyone. Nobody was able to make the right projection, so I cannot do that either. But I am concerned about the possible negative impact on the overall economy. But we must make our preparations for any emerging risk.

[Unknown Executive]

Time is running out, but we will take one more question before we close.

[Unknown Analyst]

I have 2 questions regarding Lumada that has been mentioned and in the Mid-term Management Plan, I think that is going to be the core. Once again, please talk about the possibilities of Lumada. How is it going to change your company? And what is your expectations for Lumada?

[Mitsuaki Nishiyama, executive]

The Lumada concept is that this is not just a platform. It is not just limited to a platform, but rather it will aim to provide solutions to customers. Therefore, this co-creation with the customers will be necessary and the methodology can be provided. Providing solutions for the customer is the concept for Lumada. And at the core, we have the Lumada. And we mentioned in the beginning that it is IoT platform, but concept is now widening. We believe that a wider concept is warranted. For example, in the SDGs, many of those goals are related to our business. Therefore, to surmount the challenges of the customers will be an area that Lumada can make contributions. Providing solutions to customers and providing solutions to society will be the role to be played by Lumada. In that sense, SDGs-related market is very large. On the other hand, IoT-related market is also very large and has a potential for significant growth. IT can be brought to them by Hitachi. We have more than 50 years of history -- or more than 100 years' history in terms of products. Operation technology is available to us and bringing to bear IT as well as products. The products, [ OT ] and IT, together, will be supported by the Lumada platform. Providing co-creation -- collaborative creation with customers will lead to further expansion of Lumada as well as expanding our business in a growing market. This is what we are envisioning.

[Unknown Analyst]

Regarding China business. The summit meeting was held today and what about the currency swap? It has been expanded, and it seems that China is looking for Japanese companies' investment. And I think the market would like to see increase in China's business. But in terms of the U.S. and China trade war is also looming. How is -- what is the possibility of the landscape with China going forward?

[Mitsuaki Nishiyama, executive]

For China, on a continuous basis, it will remain a very important market for us. There are many ways to approach China. We can provide products as a supplier to this large market. Furthermore, for the Chinese customers, we can provide parts and components. Hitachi Metals, the cable business is a good case in point. The onboard cable has been supplied to Chinese customers. So this is a supply side of our business. And the high-story buildings and the high-speed elevators is also very promising in the Chinese market. IT, IoT, service-related business is likely to grow. It is still growing and continues to grow. There are also many companies having strength in this area with our -- rather than -- we can -- what serve as the partner, we can work with Chinese partners for collaborative creations. There are many approaches that we can make. Therefore, indeed, we consider in China to be a very important market. We will be working with good partners so that we may expand our business into the future.

[Unknown Analyst]

Any progress in regard to the U.K. nuclear power plant program?

[Mitsuaki Nishiyama, executive]

We are continuing -- continuously negotiating or discussing with the U.K. government. Economic rationale is the decision where -- line of decision which we will maintain, which means that conditions is such that the criteria will have to allow us to make the company horizon to be our equity method company so that such financing scheme and also the range of the funding to the extent possible that we ask for the equity investment and also getting reasonable return, so these will be the economic decision. Thank you.

[Unknown Executive]

Time is up, so we will close this result announcement. Thank you very much.