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Hitachi Ltd
Earnings Call Analysis
Q2-2024 Analysis
Hitachi Ltd
Under the leadership of CFO Yoshihiko Kawamura, Hitachi, Ltd. reported an impressive second-quarter finish, with revenues soaring to JPY 2,096.5 billion, marking a 13% year-over-year increase. The firm’s adjusted EBITA also saw a lift, with a JPY 17.3 billion boost. The half-year figures echoed this momentum, posting a 12% revenue rise to JPY 3,924.8 billion, while adjusted EBITA climbed by JPY 49.2 billion compared to the previous year. These positive results spurred an optimistic revision for the full-year forecast, with revenue targets now set at JPY 8 trillion (up by 2%) and adjusted EBITA projected at JPY 818 billion (an uptick of JPY 18 billion).
Hitachi's strategic focus on Digital Systems & Services, alongside Green Energy & Mobility, laid the groundwork for this fiscal triumph. Digital Systems & Services, in particular, witnessed revenue growth of 9% year-over-year, reaching JPY 646.5 billion in adjusted EBITA. The star performer, GlobalLogic, achieved a stunning 21% revenue increase, indicative of powerful growth and profitability with an adjusted EBITA margin of 20%. Contrastingly, Green Energy & Mobility flourished with a 30% boost in revenue, translating to JPY 717.7 billion and a JPY 36.5 billion bump in adjusted EBITA. This included Hitachi Energy, which enjoyed a robust 35% revenue increase and Hitachi Rail's 29% year-over-year growth in revenue, underscoring the sectors' fortitude and contribution to the conglomerate's financial health.
While some sectors bloomed, Hitachi's Connective Industries encountered hurdles, with a slight 2% increase in revenues but a significant dip in adjusted EBITA, falling by JPY 10.2 billion. This stemmed from a decline in Smart Life & Ecofriendly systems revenues by 7% due to market backlash from the pandemic-led housing demand spike. Hitachi High-Tech also experienced setbacks, particularly in semiconductor-related investments, leading to reduced revenues and profit. However, the medical segment within Measurement & Analysis Systems remained bullish, signaling strength in diversity within the company's portfolio.
Amid financial advancements, Hitachi reinforces its dedication to investor value. The completion of a JPY 100 billion share buyback and subsequent cancellation testifies to the firm's shareholder-oriented approach. Furthermore, dividends saw an increase, with an interim dividend pegged at JPY 80 per share, marking a notable ascent from the previous fiscal year. This incremental growth in shareholder returns signifies Hitachi's strong financial position and confidence in sustaining momentum.
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[Interpreted]
The time has come to start the Hitachi, Ltd. Web Conference on the Second Quarter of the Fiscal Year 2023 Earnings.
Thank you very much for joining us and 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.
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 30, 2023. And I would like to also talk about the upward revision for the full year.
Please now refer to Page 1. These are the contents that I wish to cover today. I would like to, first of all, cover the key messages on the results in the second quarter. Second, the Q2 fiscal year 2023 results will be covered. Then 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 3. This is the key points regarding the results of the second quarter. And then down is the results. And it is also included in the continuing consolidated business, which is the 3 sectors: Digital Systems & Services and Green Energy & Mobility as well as the Connective Industries.
For the second quarter, the numbers are presented here in terms of revenues, JPY 2,096.5 billion, and that is a 13% increase year-on-year. Adjusted EBITA was JPY 202.7 billion, an increase by JPY 17.3 billion. We had an increase in revenues as well as the profits.
For the first half, revenues was JPY 3,924.8 billion year-on-year, a 12% increase. Adjusted EBITA, JPY 359.6 billion year-on-year, increased by JPY 49.2 billion. This is increasing revenues as well as the profit.
Number two is the forecast for the full year for the continuing consolidated business, which is the 3 sectors. We has been revised upward to revenues, JPY 8 trillion. The comparison against the previous forecast was 2%. Adjusted EBITA, JPY 818 billion, increased by JPY 18 billion. They have been revised upward. Therefore, this is an increase in revenues as well as profit.
If we look at the consolidated total forecast in terms of net income is forecasted JPY 520 billion, increased by JPY 20 billion. Our core free cash flow, JPY 340 billion, increased by JPY 30 billion from the previous forecast.
Number three, looking at the orders, we have had very firm order growth, mainly in the large-scale businesses in Digital Systems & Services. Q2 orders was JPY 669.3 billion, year-on-year increase of 15%. Backlog has increased up to JPY 1.5 trillion.
For Hitachi Energy, the orders have been very strong. The Q2 orders was JPY 653.8 billion, year-on-year increase of 14%. The backlog of -- has reached JPY 3.9 trillion. Later on, I would like to give you more details. Hitachi Energy has JPY 1.6 trillion in terms of revenues. So down to a little bit less than 3 years of the backlog has been accumulated already.
So the number 4 is the shareholder return, which has been strengthened. The JPY 100 billion share buyback have been completed in September and has been subject to cancellation. In terms of the interim dividend, it is planned to be JPY 80 per share. This is a JPY 10 increase from fiscal year 2022 in terms of dividend and JPY 5 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 5, which is the highlights of the results for the second quarter of the fiscal year. The headline should be referred to as Continuing Consolidating Business revenues and profit. In terms of Connective, there have been investment restraints by semiconductor-related customers. This is subject to a decrease in revenues as well as profit, but that is for the second quarter. But on a full year basis, it will 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 JPY 2,096.5 billion, year-on-year increase of 13%. And in brackets, this is the -- excluding the ForEx impact. In the absence of foreign exchange impact, would be increasing 10%.
Adjusted EBITA, JPY 202.7 billion, increased by 17.3%; and adjusted EBITDA margin, 9.7%. Net income was JPY 144.5 billion, a Y-o-Y increase by JPY 15.9 billion. 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 JPY 138 in terms of average. But for this period, JPY 145. So there is a positive impact of the foreign exchange.
Please now refer to Page 6. This is once again about the second quarter. Page 6 shows the information regarding Digital Systems & Services as well as the Green Energy & Mobility.
Page 7, I will provide similar information for Connective Industries. Regarding Digital Systems & Services on Page 6, increase in revenues as well as our profit was achieved. Adjusted EBITA was JPY 646.5 billion, increased by 9% year-on-year; and EBITA, JPY 82.5 billion, increased by JPY 14.4 billion. And Front Business, IT Services, Services & Platforms shows increase in revenues as well as profit.
And as mentioned here, in terms of GlobalLogic, continuing to show very strong growth, a 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 Green Energy & Mobility, as a sector, overall increase in revenues as well as profit in terms of the JPY 717.7 billion in terms of revenue, an increase of 30%; JPY 36.5 billion in terms of adjusted EBITA, an increase by JPY 6.2 billion.
Nuclear Energy & Power Solutions, in total is provided. Adjusted EBITA was minus JPY 2.3 billion, and a 17% increase in revenues. And adjusted EBITA, minus JPY 6.3 billion, 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, orders have been remaining very strong. And therefore, a positive impact is shown, adjusted EBITA, 34.0%, a 7.7% and revenues increased by 35%. Adjusted EBITA increased by JPY 14.4 billion, so increase in revenues as well as profits.
Railway Systems have also remained very strong, increase in revenues as well as profit. Adjusted EBITA was JPY 13.2 billion. And in terms of revenues, increased by 29% year-on-year; and adjusted EBITA, plus JPY 4 billion increase in revenue as well as profits. 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 revenues is JPY 768.5 billion, a 2% increase in revenues, but adjusted EBITA was minus JPY 10.2 billion. There is a specific reason for this. In terms of -- after building the Smart Life & Ecofriendly systems has declined by 7% in terms of revenues, so adjusted EBITA was JPY 4.8 billion negative.
And the reason is very clear, as you can see here. When we have the pandemic, remote work has been promoted, and that is when the home prices increased. And so there has been a backlash now, reactionary decline. We believe that this will recover going.
Next is Hitachi High-Tech. Measurement & Analysis Systems, the medical as well as semiconductor is very strong. Medical has been very strong. But in terms of semiconductors, there has been a delay in terms of investments made by customers. And therefore, this is showing an impact, decrease in revenues as well as our profit.
And -- but Industrial Digital is plus 6%, plus 1.7% (sic) [ JPY 1.7 billion ] in terms of adjusted EBITA. What environment has been subject to some product mix impact declined by 1.4. Industrial Products increased by 7%, plus 1.1. (sic) [ JPY 1.1 billion. ] Increase in revenues as well as profit. So that is how we have been showing good performance in the second quarter.
Page 8, this is a continuation of the second quarter. Hitachi Astemo, as I mentioned, revenue increased as well as profit 27.2% (sic) [ adjusted EBITA, JPY 27.2 billion. ] Revenues increasing by 9%, and adjusted EBITA plus JPY 10.6 billion -- is 10.6. Performance has been very good last year. So there was a reactionary decline, but we are reverting back to increase in revenue trend. So we have 0 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. Revenues is provided as well as adjusted EBITA is shown below. As you can see on the left-hand side, we started off with JPY 2,846.9 billion. The next area is very important, minus JPY 499.5 billion. This is the divestiture of the Hitachi Construction Machinery and Hitachi Metals.
Foreign exchange impact had an uplift. In terms of dollar, JPY 138 has gone to JPY 145. Therefore, this has had a positive impact to increase by JPY 70 billion. And JPY 220.1 billion in terms of others business expansion and reaching JPY 2,637.5 billion.
For adjusted EBITA, similar trends are shown here, starting with the JPY 238.1 billion on the left-hand side, Divestiture of Hitachi Construction Machinery, Hitachi Metals have positive impact of foreign exchange, there have been changes in business structure and resulting in JPY 229.9 billion.
Please look at Page 10. This shows second quarter financial position and cash flows. The part highlighted in gray, please look at it. Total assets came to JPY 13,475.2 billion. They have increased. On a full year basis, it's somewhat different. But change from March 31, it's been an increase of JPY 973.7 billion. 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, JPY 2,375 billion, please have a look at the number to the right, JPY 162.5 billion increase, which is impacted by ForEx. The ratio, 0.41x, so it's stably controlled.
And cash flows as well, on the back of a very strong performance, cash flows have improved operating cash flow, JPY 316.9 billion, an improvement of JPY 83.2 billion. And free cash flow is JPY 206.6 billion, improvement of JPY 45.3 billion. Core free cash flow, this is one of the most important KPIs for us, JPY 121.1 billion, up by JPY 96.5 billion. So cash flow is performing quite robustly.
Moving on to Page 11, I would like to report on Lumada business. And there are 3 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, a 4-year comparison, '22 versus FY '23.
So if you could look at FY '23 forecast, Lumada business revenues are to go up to JPY 2.31 trillion, so up 18% year-on-year. That's what we're expecting. And 15%, this is adjusted EBITDA margin. So this is going to be a 1 percentage point increase from 14% last year.
On the right-hand side, Lumada business ratio. There are 2 sets of bars. Revenues on the left-hand side. If you could look at the red portion of the bar, FY '21, FY '22, FY '23 forecast, it's growing very nicely. According to our forecast for FY '23, the proportion of Lumada business is going to be 29%, almost 30%.
On the far right, adjusted EBITA, like revenues, adjusted EBITA for Lumada is also growing quite strongly. FY '23 forecast for adjusted EBITA is JPY 818 billion, ratio of 41%.
Now if you can look at the horizontal bar below, this shows the 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, 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 of the major events in the second quarter are highlighted. If you could look at the section for digital, the 2 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 is doing very well.
Next is the forecast for FY '23 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 3 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 European monopoly requirement to be made, 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 FY '23 forecast. And the gray part, a total JPY 9.15 trillion. As you can see, compared to July forecast, it's been increased.
So at the last forecast, revenue was JPY 8.8 trillion. It's now increased to JPY 9.15 trillion, adjusted EBITA from JPY 835 billion to JPY 865 billion. Adjusted EBITA margin remains the same.
And net income, we reported that it's going to be JPY 500 billion the last time. It's increased to JPY 520 billion, so upper revision there. EPS, the same thing, from JPY 535 to JPY 559. Our core free cash flow, as I noted, this is one of the most important KPIs, it's been increased by JPY 30 billion from JPY 310 billion to JPY 340 billion. 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 is also going to see expected increase in revenue and income and lower rate assumed FX rate. The JPY 140 to the U.S. dollar and JPY 150 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 JPY 1 move in the ForEx rate with the U.S. dollar, when yen becomes cheaper by JPY 1, revenue increase of JPY 6 billion, adjusted EBITA of JPY 0.4 billion 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 of forecast by sector. On a full year basis, starting from the top by Digital Systems & Services, adjusted EBITA, JPY 310 billion. So revenues increase of 3%, adjusted EBITA increase of JPY 16.2 billion. 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 JPY 6.8 billion.
And 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 JPY 22.4 billion. And Hitachi Energy, adjusted EBITA, JPY 137.1 billion; the margin is 8.2%; revenue up 18%; adjusted EBITA, plus JPY 36.1 billion. So very robust.
Railway Systems, very firm as well. Adjusted EBITA of JPY 56.1 billion; revenue up by 10% year-on-year. Adjusted EBITA is going to be increased by JPY 8.6 billion. 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, increase in revenue but decline in profit. On a full year basis, increase in both revenue as well as profit is expected. Adjusted EBITA, JPY 330 billion, 11% margin, revenue up 1% year-on-year. Adjusted EBITA, up JPY 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 -- new installments are going to be declining, but adjusted EBITA is up by JPY 1.1 billion. As is noted on the right, in a strategic manner rather than new installations, existing elevators are being serviced. We are focusing on that, and that is contributing.
Next, Hitachi High-Tech. There's more correction needed for semiconductors. So decline in both revenue as well as income. Hitachi Astemo is going to be de-consolidated in the second half. So that is why we have negative numbers here.
So given all of this, moving on to Page 15. So FY 2023 total, how will the numbers change? Like we saw with Q2 revenues at the top, adjusted EBITA at the bottom. From the left, last year's numbers. So revenue, JPY 10,881 billion was the number we saw last year.
Divestiture of Hitachi Construction Machinery and Hitachi Metals pushed down by JPY 1.322 trillion. Astemo is divested. There's another drop. And foreign exchange to contribute and others. So we expect JPY 9.15 trillion this year.
The same trend is seen for adjusted EBITA. On the left, we're going to start from JPY 884.6 billion. And likewise, with divestiture of Construction Machinery and Hitachi Metals, JPY 73.8 billion, divestiture of Astemo, foreign exchange, others to come to JPY 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 an increase in revenue, but a slight decline in profit.
And Consolidated Business revenues and profits, please have a look at the middle column, increase in revenue and profit. So revenues, JPY 3,924.8 billion; year-on-year, 12%; without ForEx, 10%; adjusted EBITA, JPY 359.6 billion, so year-on-year increase of JPY 49.2 billion. Adjusted EBITA margin, 9.2%, which is an increase of 0.3 percentage points. Net income, JPY 217.7 billion, increased by JPY 48.5 billion. Core free cash flow, JPY 121.1 billion, increased by JPY 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 a 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, FY 2022, Q2 and Q2 FY '23 year-on-year comparison. And for the full year as well, FY '23, revenue, JPY 9.15 trillion and adjusted operating income, JPY 920 billion (sic) [ JPY 720 billion ] and a negative JPY 130 billion in the middle. And there's a footnote, this is business reform, restructuring and so forth; EBITA, JPY 775 billion; net income, JPY 520 billion, which is an upward revision of JPY 20 billion.
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, the Consolidated Business Continuing. What I would like to draw your attention to is China. China is struggling, minus 2% is Y-o-Y growth. Now to the right, North America, 21% increase; Europe, 20% growth. So while China is struggling, it's offset by North America and Europe's growth.
And consolidated total, what I would like you to see is the ratio, bottom line 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. And 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, the 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 0. And as semiconductor business is still correcting, so down 9%. But orders increased in Railway and others. So overall, orders are very firm and robust.
So our second quarter performance overview and upward revisions made to a full year forecast. That concludes my presentation. Thank you for your attention.
We would now like to proceed to the Q&A. [Operator Instructions] Today, we will not show the video of the person asking the question. We will take questions from the Japanese channel first and then the English channel. Today, we will be receiving questions from the media, institutional investors and financial analysts together. We can now take questions.
Yasui-san, please.
Question. I have 2 questions. First question is power grid. It is a very successful business in terms of all this as well as 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 it hasn't 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, the revenue is declining, but our profit is increasing. But it seems that your competition is also set with challenge. So those are the 2 questions I wanted to post.
Thank you very much. I would like to address the basic outline and Kato-san will give you business specific numbers. Now regarding your first question for the power grid, Energy sector is in a super cycle. Now it's once in decades. Investment increase is 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 significantly. And as you have rightly mentioned, there is a need, there is a call for utilizing 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 of cycle. So it is likely to continue for 10, 15 years going forward. That is our [Audio Gap] 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 Thales being reflected with the delay.
I have a follow-up question, especially for the power grid. So regarding the market, do you -- 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, but about JPY 7 billion 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?
Orders are increasing and you're asking about the capacity for 2023 and 2024. 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 losses can be absorbed appropriately. There will also be outsourcing. We can utilize external plants and factories as well. So we will take a two-pronged approach. So then the orders can be reflected in the profit and loss.
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, that we can manage the capacity overall. So there will be a ramp-up in terms of investment as well as utilizing external resources to meet the increase in 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 ramp up 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 will be a significant decline. That's all.
Now regarding the Hitachi Energy market, that will be addressed by Yoshikawa-san.
On the 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.
Next, Takizawa-san.
My first question. Page 6, GlobalLogic's 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. Its competitors are suffering from dropping revenue. But why is it so strong within the group, cases are being reused, if you could explain?
Thank you very much for the question. GlobalLogic acquired 3 companies, 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 are today in Silicon Valley are in high demand. There is labor tightness in India and is, but 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. So the purpose for the acquisitions is really a staff increase.
Do you know the numbers?
On a dollar basis, up by 16%. As Kawamura explained, excluding M&A on an organic basis, that's up 6%. So if we include M&A, the overall growth of 16% in the -- our first quarter was up by 19%. So it's slightly down compared to Q1, and that's because of suppress investments with 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.
Another question. As Yasui-san asked, so in the last forecast for Railway, well, there is 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?
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 has been a slippage by 1 year for Thales, not that there were major reasons behind this.
Next? [ Hiroe-san, ] please.
I have 2 questions. So you have a good performance of this period. But there are conflicts in the world, there is also interest rate risk as well. For your company, what is the most significant risk that you consider? And against this risk, what other measures you are contemplating? That's my first question.
Thank you for your question. For the individual business, so far, there is no significant concern. In terms of individual business rates, it does not exist. It is more 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. WACC 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 2 wars ongoing today. The oil price will go up, the interest rates would go up, it can slow down the economy overall. So the macroeconomic environment will have an impact on individual companies. That is our major concern.
We are, however, implementing various measures in terms of interest rate. Currently, debt is very low cost. Therefore, essentially on debt, we are preparing funding. And we will pay down debt and control the funds that we utilize. And 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 transactions. So we have implemented measures. But for 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.
Hitachi Vantara reorganization has been announced and generative AI comments were made was quite prevalent. For your company, what is the impact on performance by generative AI? How much is going to come to the floor going forward?
We don't have numbers for generative AI on a stand-alone 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 close to 1 year. And 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 generative AI for white collar work. The forecast prediction as well as reporting can be -- can utilize generative AI as well. So increasing revenues as well as decrease 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 bank balance 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 a dozen or so votes were 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 more advanced in terms of generative AI within the Hitachi Group. Thank you.
Next, Yoshi-san.
Yoshi from NHK. 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 your 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?
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, JPY 6 billion; and adjusted EBITDA, JPY 0.4 billion up positive impact can be hard. In order to minimize the ForEx impact, we're taking out hedging. Today, the rate is already JPY 150 to the dollar. So if there is a major yen depreciation going forward, there could be potential interventions.
So would it hit JPY 160, JPY 170 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 your view on overseas business or Chinese business, we have a large business in China exceeding JPY 1 trillion, elevators, automotive parts, IT, energy-related power grids.
We're putting together a guideline. Basically, Tokyo will not inject new capital into China. That's not what we're doing. There is 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 necessary is being done within China. That's the guideline. So JPY 1 trillion 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 will impact in our future business as Kawamura has said. So the upward revisions we made this time, what would be the impact of ForEx in terms of revenues?
We increased by JPY 350 billion. 2/3 of the upward revision is ForEx. The rest is organic growth. In terms of profit, increased by JPY 30 billion this time, 60% is attributed to ForEx and 40% is organic. So that's the breakdown of the upward revisions. Well, what we talked about is simply is described on Page 9. So if you could please refer to Page 9 later.
Next is [indiscernible] san, please.
I have 2 questions. First is on Page 13. On a consolidated basis, the guidance for the year has been subject to revision for the Consolidated Business for the 3 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 JPY 502 billion to JPY 533 billion, so increase by JPY 3 billion (sic) JPY 31 billion.
For EBITA and -- so it seems that it's somewhat different to the EBITA change. So it is a significant revision of JPY 30 billion. Now for the consolidated business going forward, what is the basis of the calculation of the net income calculation? That's my first question.
Well, actually, on Page 19, the last forecast comparison is made. Adjusted EBITA basis is JPY 30 billion and net income is JPY 20 billion. But for others, they have been the business reorganization. This is improving in the area of Astemo. For the business structural reform, minus JPY 20 billion is shown here. For Astemo, there has been some deficient (sic) [ division ] parts issues that has had an impact.
In the consolidated business going forward, Astemo is no longer included. Isn't that the case?
That's not included.
Astemo, the division part has improved. And that is the reason why you said that is not the reason why you have revised up significantly, so it is other items. In the 3 segments, attributable to the 3 segments have been subject to revision. Is that a correct understanding?
But for the major items in terms of Page 19, there have been adjusted offering. But it is JPY 45 billion, adjusted EBITA is JPY 30 billion, but the main part is JPY 45 billion improvement. Out of this for Astemo, in October, half month remains around JPY 11 billion. But the remaining JPY 33 billion will be the improvement in the 3 sectors, mainly in the GEM sector, Green Energy & Mobility, is the most significant.
So for the 3 segments, adjusted EBITA, that is improvement of [ JPY 18 billion, ] which is mentioned on [ Page 18 -- 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 JPY 130 billion, and JPY 20 billion increase has been made in terms of this revision. So it's about JPY 30 billion for the first half. So just like that, that JPY 100 billion will be in the second half. So please elaborate on this further.
Kato-san will respond to that.
Regarding JPY 130 billion. Out of this, the structural reform expenses is mainly impairment as well as severance upon restructuring. We are assuming that to be around JPY 70 billion and others will be included in the JPY 130 billion. Now the variance from assigned is JPY 20 billion is the others. As I mentioned earlier, a similar measures have been in place. That's the major part of the JPY 20 billion.
Next, Ayada-san.
Ayada from JPMorgan. I have 3 questions. Question number one, Hitachi Energy's upper revision to its full year forecast. The idea behind is that profit is increased in terms of adjusted EBITDA, 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?
Thank you for the question. I will answer your question. Actually, one of the characteristics this time is that 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 '21 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 will see soon, but we will have to wait until '24 and '25 before we can see the revenue are profit and loss.
So not 100% of the 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.
And secondly, DSS Q2 margin has improved quite markedly 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?
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, our 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.
Understood. My last question. Question number three regards Hitachi High-Tech's forecast this year. So Hitachi High-Tech, if I look at supplementary presentation, in terms of Nanotech, I think profit is down by JPY 10 billion. But for High-Tech overall, full year forecast remains the same. So a 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?
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 are doing extremely well, but traditional companies such as Intel are having difficulties. Thereon recovery, they are still having difficulties. So the picture is mixed. So rather than NVIDIA, our main customers include Intel and other traditional companies. They will be back. And we are incorporating their recovery into our plan, not that it's not going to be 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. Thank you.
[ Megasaki-san, ] please.
I have 2 questions as well. Regarding the Thales signal business, you said that it is not going to be purchased 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?
I'm sorry, I was not clear before. In terms of calendar year, from April to summer of 2024 is the timing, therefore, it will be in the first half of the fiscal year 2024.
Now regarding the delay, the bottleneck has seen the U.K. signal business antimonopoly issues, CMA authority, as the Competition Markets Authority is CMA. And for the signal business, it's being evaluated when if we acquired the Thales business, then the competition with our peers could be underlined 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 antimonopoly issues, minor business will be carved out. And so that this problem can be overcome. And the CMA of the U.K. has approved this process, and that was in November. And the Brussels EU Competition Authority will also give approval as well, which is forthcoming around November.
We started with the U.K., the part of the signal business was -- issues was made, and we have been able to clarify this by providing remedy. This process has taken time. Let me also provide some information. Amongst the conditions, it's not so much about the scale. But in the case of U.K. as well as in Europe, when we -- there will be -- when business transfer has to be made, transcending boundaries, then the final agreement has been made. Otherwise, we cannot close the deal.
That means that the business transfer, the receiving party will have the conditions as well. This will require time for this process 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.
Taking into consideration what you have explained, the Thales positive impact will be smaller in terms of the PL impact. When the deal is completed?
Because of the remedy, we are going to have to carve out a certain part of the 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.
I have another question. This has been raised several times today. And regarding the upward revision, is it the overall conservative? Is that a correct understanding? Inclusive of foreign exchange, there are buffers existing. So what are your thoughts on this matter? Please elaborate.
So if you ask me whether we are conservative, that's a very difficult question to respond to. In terms of the budget of formulation process in 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 conservative, I believe it is reflecting the true picture, the actual.
And toward the second half, the macroeconomic environment is unclear. So we do have a buffer overall. But toward 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 JPY 5 billion. It is only for a slight volatility that is being included.
Let me also talk about the Thales. Regarding the completion of the acquisition, it's in the first half of 2024 from the January to June period is when it is expected.
Next, Yoshizumi-san.
Yoshizumi from SMBC Nikko Securities. There are 2 main questions I would like to ask. Question number one, about upward revisions. So by factor, if you could explain. So JPY 45 billion in terms of adjusted EBITA. Well, Thales PPA is going to be reduced JPY 17 billion; and Astemo JPY 12 billion adjustment; and ForEx, perhaps JPY 5 billion to JPY 10 billion. Other than that, what are the factors? So the organic part, please? So Railway, Astemo and organic, so the numbers I have given, are they correct?
Well, roughly, they are correct, but I would like to turn to Kato-san for some additional remarks.
Well, I may be repeating what I said already, but -- so adjusted EBITA, we made an upward revision of JPY 45 billion, JPY 12 billion for Astemo, as you said. So 3 sectors, JPY 33 billion. And other main factors include GEM sector, JPY 26 billion; PPA amortization, JPY 15 billion. Other than that, pure organic growth. [ JPY 70 billion ] with all included. So that is the ForEx impact. Thank you.
My second question. So progress in terms of midterm business plan toward next year. If we look at 3 segments, adjusted EBITA at 20%. So given the upward 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 sight? And IT and others, market conditions are very good. So what is the progress made thus far? What's your view?
Thank you for the question. As you know, we're under '24 midterm business plan. Today, we're in the middle of the year. Next year will be the final third year. As of today, almost all the goals and targets are set in the midterm business plan can be cleared and obtained -- can be attained, we believe. Thus, a 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 '24 midterm 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 we are going to be able to attain all of them for -- as of today. Thank you.
Next, we would like to take questions from the English channel. [Operator Instructions] Any questions on the English channel? [Operator Instructions] There seems not, and therefore, we'll revert back to the Japanese channel. [ Barel-san, ] please?
I have 2 questions. My 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 platform, GlobalLogic have been remaining flat. So I want to know, what are you revising up with specifically? Page 21, if we look at the front business, 19%; IT service, 3%; increase in GlobalLogic increasing and remaining very strong in terms of orders. So it seems that -- 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 vis-a-vis the guidance?
Regarding the DSS upside information is not available to us now. But we are seeing an increase in all the different businesses, inclusive of GlobalLogic. There is no significant increase in one part of the business. The demand is very strong. Is there going to be a further upward revision for the second half? As I mentioned earlier, the orders, how -- at what speed it 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, they will be reflected in the guidance, but there is a possibility, I will say that.
Second question is regarding GEM. You mentioned that the Energy business is on a super cycle. Hitachi Energy is very strong as a result of that. But for the second quarter, orders increase is 14%. First quarter, well, JPY 1 trillion was the order received. So on a Q-on-Q basis, it seems weak. Is there a reduction in speed? What about the growth rate in the mid- to long term?
Compared to your competitors is -- your competitor is single digit. What is your view? Within GEM, the 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?
We are just discussing the second quarter. So Kato-san will provide the overall explanation regarding Hitachi Energy.
Thank you for your concern. And in the first quarter, a 100 billion orders have been received several times in Europe, in the Netherlands and Germany, the grid HDVC 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. Therefore, there is no concern regarding growth.
In terms of Railway Systems in the first quarter and the second quarter, there have been major businesses to the change of several hundreds of billions, mainly in Europe. And so the growth rate is around the same.
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?
For 2030, for these 2 sectors, detailed calculations are being made. We are aiming for 2030 is about 7 or 8 years down the road. We believe that there is going to be successful growth in 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.
Regarding all this, last year, looking back, there could be being 200% when we was very strong. Third quarter is around less than 120%. That's last year for '21. There was time in terms of 160% year-on-year in terms of orders received. But it was about 113% in the first quarter, second quarter as well as fourth quarter. So a trend last year was exceeding 200% last year?
Despite it could be 110% or 115% reverting back to this level suddenly as well last year. So 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 out with a release AI, 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. Thank you.
Next, Thong san, please.
This is Damian Thong from Macquarie Securities. Two questions. First, Hitachi Energy's orders 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 3 years? Given the capacity that you have, what is going to be the pace? What's the time line?
Thank you for the question. There are 4 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. Thank you.
Understood. My second question, Digital Systems & 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?
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 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 out with this forecast.
Next, [ Sagisaka-san. ]
I have 2 questions regarding Nuclear. 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 a one-off or continuous sustainable? Please talk about the orders received on Nuclear Energy.
I would like to ask -- I will 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 are -- we believe that a certain negative impact will be coming to the full. That is the reason why we have taken a conservative approach. It is about the cost allocation for -- 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.
So is it going to be one-off? Or is it sustainable?
And so regarding the orders for Nuclear Energy business. Well, it depends on the policies of the regulatory authorities with the national government. And the large 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 a third-generation small module reactors will be coming further down the road. So it isn't that the 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. Regarding orders, let me also elaborate further. For Nuclear Energy revenues, it's increasing on an annual basis for this fiscal year. Therefore, this growth rate in terms of orders will depend on the projects. So it isn't as if these numbers will continue. It will be enjoying a stable growth going forward. So 90% and 56% will not remain as is.
Time to close is fast approaching. I have 2 more in hands. And once we're done with those people, we will conclude this meeting. So first up, Nishikawa san, if you could please unmute and ask your questions.
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?
It's not about GE. It's not a project with GE.
All right. Understood. And Hitachi High-Tech, on Hitachi High-Tech, so a decline of 9% in the first half. So Chinese semiconductor orders, are they down? And is that behind a 9% decline in orders in the first half?
So China is looking to produce semiconductors domestically. So because of that, has that been impacting your business? In terms of orders, yes, for High-Tech, Hitachi High-Tech there's business for China, but we do not do anything to value the regulation with respect to regulation in Europe or U.S.
So -- well, I would like to respond to Ayada san's 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 drop of year-on-year comparisons. 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 JPY 100 billion with increased margin. And 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.
So we'll take the last question for today. Harada san.
I have 3 questions. They are brief questions. First of all, regarding Green. It is being mentioned today about the super cycle that is emerging. But this was being talked about from the past, in the first quarter to the second quarter. What has changed from the first quarter to the 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 was 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.
Let me respond. As I mentioned earlier, up until last year, from short-term delivery change or long-term delivery changes that we made from last year, the high-voltage direct current business has become very strong. The Europe-wide area, 1,000 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.
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 year 2024. Half will be reflected in 2024. 2023 is about 20% and '24 is around 50% according to our plan.
So from the past forecast to this forecast, this is the 20% that is having the impact. Is that a correct understanding?
Yes.
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.
Regarding the high voltage and the long distance transmission is established technology from the 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 some companies. Because of the inflationary environment and labor is limited, so how much we can accommodate the EPC cost is an important business 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 EPC construction as well as the funding issue -- funding cost for customers as a result of interest rate hikes, and that is being factored in.
Last question is regarding DX front business and IT services. In the first quarter, the orders were very strong. In the second quarter, a 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 financial as well as social be was very important in the first quarter. So please elaborate the other.
Kato-san will give you information.
Based on information that is available to us, there is no change in terms of trend compared to the first quarter. DX demand remains very strong. As mentioned in the PowerPoint presentation, finance, public sector are both very strong. In terms of IT service, we have HISOL company. And in terms of security as well as cloud, Lumada business is also growing. That is the reason why double-digit is maintained. So it's a continuation of the trend we have seen in the first quarter.
Thank you. With this, we would like to bring the Hitachi, Ltd. web conference on the second quarter of the fiscal year 2023 earnings to a close. Thank you.
[Statements in English on this transcript were spoken by an interpreter present on the live call.]