Toshiba Corp

TSE:6502

Earnings Call Transcript 2020-Q2

[Midori Hara, executive]

Toshiba Next Plan's progress report and the second quarter earnings briefing is going to start. First, we will have the presentation on Toshiba Next Plan. And from 5:00 to 5:50, we will have the FY '19 second quarter business results. For each presentation, we have Q&A.

First, Toshiba Next Plan progress report briefing is going to start now. Allow me to introduce our participants: CEO, Representative Executive Officer, Chairman and CEO, Mr. Nobuaki Kurumatani; and COO, Satoshi Tsunakawa; Representative Executive Officer, Corporate Executive Vice President, CFO, Mr. Masayoshi Hirata.

My name is Hara. I belong to the PR and IR division. Now our CEO, Mr. Kurumatani, is going to present the Toshiba Next Plan progress report.

[Nobuaki Kurumatani, executive]

I am Kurumatani. Despite your busy schedule, I am very impressed by this high level of attendance today. It's been 1.5 years since I came to Toshiba. And I really want everything changed in Toshiba, and I have made very demanding requests to Toshiba employees. And thanks to that, Toshiba has changed considerably. And how Toshiba has changed and how Toshiba is going to grow is the main topic of my presentation today.

Last year on November 8, the Toshiba Next Plan was announced, and it's been a year since then. The Toshiba Next Plan is really the whole company reform plan. And I would like to go into the details.

Next page, please. The keyword of today's presentation is Change and Growth.

Next slide. Toshiba has changed in many ways. There are 4 points in changes of Toshiba. First is establishment of stronger earnings structure; second is disciplined portfolio management; and third, launch of a cutting-edge governance structure; fourth, capital allocation, capital policy and shareholder returns. These are the 4 key changes that I would like to touch upon.

First, is about the establishing of stronger earnings structure. In the first half of this year, the operating income JPY 52.1 billion compared with the same period last year 7.5x increase. So it's a considerable increase in operating income. Excluding the memory business on an apple-to-apple basis for first half result, this is the highest results in the past decade.

And all business segments achieved surplus, and all segments achieved increase in income. And this is the first time in the last decade.

Toshiba's earnings structure is very much influenced by seasonality. And in the first half, operating income, 30% comes to first half, and the second half accounts for about 70%. Such being the case, towards the JPY 140 billion goal, I think we have had a very good start for first half.

The major reform of Toshiba has just started. The earnings structure is steadily changing, and the effects of that reform is reflected in the business result of the first half of this year.

Next slide is about the completion of restructuring, Toshiba Next Plan. In order to really reconstruct Toshiba we need to get rid of those liabilities.

In Toshiba Next Plan, we have many promises. What is most important is the restructuring. In the United -- we had LNG business in the U.S.

In September, it's been sold to oil major in France, Total. And that LNG business exit is successfully completed in September. And U.K. nuclear construction company NuGen liquidation procedure is completed. So these risk -- highly risky nuclear business overseas is totally that we get rid of them.

And with that, those liabilities that Toshiba had in the past has been removed.

Early retirement program. It is going as scheduled. And our promise of 25% elimination of subsidiaries, 15% elimination is completed in the first half.

Toshiba Next Plan commitment is steadily being achieved. So we are trying to become a company that can rapidly deal with risks.

Next page. In the first half last year, operating income was JPY 7 billion. But this first half of operating income is JPY 52 billion, a large increase of more than -- and we had -- restructuring contributed to JPY 15 billion improvement, and procurement contributed to JPY 12 billion, and sales reform contributed JPY 1.7 billion to this improved operating income. And Social Infrastructure and Building Solutions business contributed to JPY 19 billion improvement.

And there are many initiatives going on. 3,900 initiatives for procurement reform and 13,300 sales reform going on. In total -- 15,200 initiatives in total are ongoing, which means that all the employees of Toshiba is engaged in some kind of initiative. That means cross-functional team activities are going on.

This CFT, cross-functional team, of this scale is unprecedented in Toshiba. In that sense, we are seeing major results. And we really feel comfortable about the result of our efforts.

Next page. This is our road map towards operating income, JPY 140 billion. In FY '18, operating income was JPY 35.4 billion. Last year, we started the restructuring, and there were many factors. And when we exclude the onetime costs, we believe the effective operating income was JPY 80.5 billion.

And in the first half of this year, we achieved JPY 45.1 billion, which means that towards the second half of FY '19 all we need to achieve is JPY 14.4 billion. That's the target to go. So this is the initial year of Toshiba Next Plan.

So we are really focusing our efforts in solid earnings structure. As I said, 15,200 initiatives are going on. All employees engaged in those initiatives. So we are really steadily trying to improve the earnings structure of Toshiba.

Next slide. Toshiba Next Plan initial year, we had a very good start. JPY 140 billion operating income target is the target we are trying to achieve. And I think we had a good start towards that. And that's the starting point. And in FY '21, we are trying to achieve operating income of JPY 240 billion and ROS of 6%. And increased sales of JPY 66 billion is from discrete semiconductors, railway and air conditioning operations.

As process reform, modularization is going on. We have already introduced this modularization for 20 products, and major IT infrastructure overhaul is going on. Towards the introduction of new mainframe system in FY '21, our efforts has already started.

So on a mid- to long-term basis, we're trying to reform the structure of our company beyond FY '21. And through this reform, we will -- we want to make sure that we will be a profitable company beyond FY '21.

Now for the details of each business segments, our -- Mr. -- the Managing Director, Mr. Shimada -- and Executive Director is going to explain to you in tomorrow's IR day.

Slide 11. Since last year, we have introduced rigid screening criteria for new project orders. When I came to Toshiba, I noticed that this order screening is too optimistic. So we have changed it thoroughly, which means risk management have been strengthened. So we really select projects with high profitability.

As a result, the gross margin rate for order stock may have -- have improved by 1.2%. And because of this careful and rigid selection of projects, despite that, year-on-year order volume has increased by 20%.

Despite this rigid screening, the customers highly evaluated our high quality and delivery track record in our thermal power plant projects. Order was one.

Now I would like to talk about the next topic, which is disciplined portfolio management. This is the second area of a big change applied.

Of course, this has to do with readjusting our portfolio. And we have been changing our portfolio by large-scale divestures. And that is the way we have restructured business structure. First, in terms of home appliance or areas where we were experiencing difficulty being profitable, especially loss-making B2C business, case in point was last year's PC division sold as well as high-risk Westinghouse business.

Also the volatility high-division memory business is also divested. So all 7 business with total revenues of JPY 3 trillion over the last 4 years have been conducted, of course, for a variety of reasons, as aforementioned.

Now the remaining portfolio consists of B2B businesses that have performed steadily. These are the businesses which have steadily performed itself even after the [ remantoks ]. So even during the financial crisis 2008, they are very steady, and we will achieve a turnaround by boosting each and every business that we have to achieve a 6% and then beyond 8% and 10%. We would like the remaining businesses that we have at hand to become our major pillars, the major core engines of Toshiba. And that is the process indeed that will simplify the -- it would be symbolic of a full turnaround as a hardware company Toshiba.

Now in terms of profitability, it's improving across all businesses. I have mentioned earlier that each of our business sector have experienced increased volume of sales.

Of course, I, as CEO, periodically conduct direct interviews with each business unit leader. We expect no more loss-making business this year.

I feel comfortable that each department head -- leader is at his work or at her work quite hard, concentrating on what they need to do. The business leaders are changing the daily operations of their business indeed. Next, this has to do with the businesses in our current portfolio, which can be improved for their margins. But at the same time, we need to have clearer discipline for that. And with that realization, I would like to explain this slide. So the implementation of the ROS 5% rule is the key point. And clearer discipline, more rigid management is necessary.

Our previous stance was to manage portfolios by measuring their performances against the TNP, Toshiba Next Plan. But in addition to that, going forward new policies to also monitor businesses which do not achieve a 5% ROS in FY 2020. That would be the threshold and guideline by which we'll be scrutinizing our businesses.

ROS 5%, how can we achieve that? Of course, we have detailed KPIs to achieve that. They are set forth individually for each business. We decided to retreat from the logistic LSI advanced ASIC business as the system and device division did not appear capable of achieving 5% ROS in FY '20.

Of course, we will continue to support existing customers. And we will stay focused on in-car services, which will be a strong point. But under this new monitoring process, the Board will be consulted before reaching a final decision.

The next slide. Aside from system LSI, there are 3 other monitoring businesses, as you see. We have different measures in progress to improve our profitability.

Regarding Thermal, we expect to achieve profitability this year as losses from projects are decreasing and as the service business is growing as planned.

As for this term, we are expecting a profitable work number.

In industrial motors increasing, it's due to the shift to high-margin products as well as increase in the prices of lower-margin products.

Profits from mobile HDD stabilized after downsizing production capacity. Progress in customer certification of large-volume HDD for data centers has led to increased sales volume. So regarding 3 businesses, we are on track, are performing steadily.

Now I would like to turn to the launch of cutting-edge governance structure that we have in place now. And speaking of the governance structure, of course, when we held the ordinary shareholders meeting in June, a big change has been applied and the new Board composition is in place now.

Amongst -- of the 12 members, only CEO and COO, myself and Tsunakawa, remain in the Board, and all other members are outside directors. They amount to 80%, which is about the average percentage if you were to compare to U.S. standard. But here in Japan, only few companies have 80% outside director composition.

And especially, I'd like to note that among the outside directors, 5 directors have international backgrounds, and they have very strong international backgrounds. So we have the most cutting-edge Board structure in Japan.

Going to the next slide. Speaking of the new Board. Of course, we have diverse skill sets and backgrounds amongst these Board members, such as expertise in global businesses, management and operations, including M&A, investing and corporate transformation. So they are very talented and professionally diverse group of people. Their insights are useful to the company as we embark on a turnaround.

The new Board has already contributed significantly to strategic discussions in the first 6 months. Please note that we have this new Board composition only for 6 months, but the benefit is already seen.

Going to the next slide. Dialogue with investors. Our stance towards communication with the market has also changed significantly.

In January of this year, we held the first outside directors and shareholders group meeting, the very first time. And then we also held the second outside directors and shareholders group meeting, inviting the new directors in October. That was our second.

And myself and also Tsunakawa, we have individual meetings that we had scheduled and went forward with throughout the month.

Next slide is about executive compensation. Of course, we understand that shareholders had much thought about this issue. The change is being introduced to a compensation system for executive officers. Specifically, 3-year relative TSR will be incorporated in executive officers' compensation scheme to align their incentives with long-term shareholder value.

In addition, we will expand compensation with restricted shares to outside directors and performance-linked stock incentives to nonexecutives.

When I say nonexecutives, they are not executives like myself; but they could be like the manager, supervisor of the staff, for example. So that will include business heads and staff managers.

Next, I'd like to turn to capital policy and shareholder returns. Now first about the repurchase of owned shares. JPY 700 billion that we promised to you last year is completed.

In terms of total amount and size relative to market cap and trading volume, this is the largest ever share repurchase in Japan in the last 10 years. The number of shares purchased was 198 million shares. And the total shares issued after cancellation of treasury shares will be 455 million shares, the same level before the third-party allotment. Because of the dilution of shares at the time of third-party allotment, we may have caused a lot of trouble to long-term shareholders. But we have been able to go back to the state before the third-party allotment.

Next slide. Major divestiture of our business was completed, as I said earlier. And we are actively divesting nonbusiness assets as well from -- since 2015, 600 -- JPY 260 billion of strategic shareholdings was divested, and also real estate JPY 90 billion was divested. The so-called strategic shareholding is low compared to our peers. And we will continue to sell those strategic shareholdings. This month we sold our stakes in IHI Corporation and Japan Material Co., Ltd.

In addition to that, staff subsidiaries was divested, and some are reorganized to make it more efficient. This month personal dispatch company was divested, and it's been announced the other day.

From 6 to 12 months, some of the potential strategic shareholdings divestiture and divestiture of subsidiaries will continue to be worked on.

Next slide. This shows the equity situation. Toshiba over a long period shareholders' equity ratio was below 20% for many years, but it has recovered to 29% at the end of first half of FY '19.

As you see on the chart, the goodwill and the deferred tax assets are bigger than shareholders' equity in FY '14 or FY '15. But if you move towards FY '18 and '19, although the total number of shares has gone down the goodwill and deferred tax assets has become a lot smaller. So the quality of capital has improved considerably.

And the equity shortfall. We have completely exited equity shortfall. So our balance sheet is in much healthier state.

Next slide. This is about the appropriate level of capital. Last year at the time of announcing our Toshiba Next Plan, it was just like the left part of the chart. It improved our financial structure by accumulating capital over time. That was the plan last year. But after discussion with the Board, and we've also invited advice from outside experts, it shouldn't be just accumulating capital but the appropriate level of -- appropriate amount of capital must be reviewed periodically, and we have decided to introduce that procedure.

The appropriate level of capital may be influenced by the macroeconomic situation, so it cannot be fixed. But the risk assets on balance sheet or contingent liabilities or business portfolio, business plans, all of those items will be considered. And periodically, we can review them and come up with some conclusion on the appropriate level of capital.

Next slide. So we calculate the risk based on balance sheet. And we can come up with certain figure, but also, we can -- we are benchmarking against domestic and overseas competitors with similar risk profiles, and we can get insight from that. And we believe that we need to verify the appropriate level of capital by benchmarking analysis. This is the conclusion of the Board.

And in this verification process, Goldman Sachs and also global consultancy firms input is being considered. By this, we've confirmed that current shareholders' equity is not excessive.

Next page. Increasing TSR is key target for Toshiba. Of course, capital allocation or by financial strategy, we can improve TSR. But we believe that growth is the most important factor to enhance TSR. As you see on this chart, when you compare companies whose growth rate is 3% and 5%, TSR is largely different, and pricing multiple is twice as much different. So growth has a major impact on TSR. And it's been confirmed by third-party analysis.

Now in order to achieve growth, how do we finance? So it is highly expensive. So we need to optimize. We might use leverage in order to finance. And so we will use debt to finance growth and optimize our cost of capital. But it does not mean that we use leverage or we use debt without any limitation. So net debt equity ratio should not exceed 30%. And net debt EBITDA ratio should not exceed 100%. This is the limit on the debt. So we make sure that we do not possess uncontrollable debt.

Next slide. In addition to the appropriate level of capital, the Board had plenty of discussion on shareholder returns policy. According to the Toshiba Next Plan, we -- it is our basic policy to secure average consolidated dividend payout ratio of over 30%. This remains unchanged. And when capital is accumulated, and if it exceeds appropriate level, then it is subjected to share repurchases.

Next slide. This is about the listed subsidiaries. METI has practical guideline for corporate governance systems. And based on METI's guideline, the listed subsidiaries is a very serious governance matter.

In the Board meeting, we have had in-depth discussion on this. Toshiba Plant Systems, NuFlare Technology, Nishishiba Electric, those 3 subsidiaries will be privatized so that we can enhance the enterprise value of these -- enterprise value of Toshiba.

Through this operation, our EPS will be 21% in FY '20. And in FY '21, EPS will be improved by 12%. For ROE, for FY '20 and FY '21, our ROE will be improved by 2%.

EPS. By share repurchase, EPS goes up by only 10% when we consider the current share price level. So the investment effect of this privatization is very effective, more effective than share repurchase. So we want to implement these measures in order to maximize the value of Toshiba to our customers. And the only remaining subsidiary of Toshiba, Toshiba TEC, we are discussing and considering measures to enhance the long-term enterprise value of both Toshiba and Toshiba TEC. As of now, we do not consider changing our stake in Toshiba TEC.

So far, we have really placed a lot of importance on the independence of the listed subsidiaries. And so this shows the purpose of the privatization of listed subsidiaries. It's shown here for Toshiba. And for those 3 subsidiaries, they are indispensable beings for each other. So we want to really consolidate the group companies' ability so that we can maximize the synergy effect.

At any rate, IRR can be secured, which far exceeds the cost of capital. We confirm this with outside experts.

Also, therefore mentioned are the areas where Toshiba has transformed greatly in the last 6 months. There are 4 points I addressed.

Next, I would like to talk about Toshiba Next Plan growth Phase 2. Now in terms of the objectives of Toshiba Next Plan, in essence it is to increase TSR, total shareholder return. I said this last year and it had remained to be our objective, so no change whatsoever. We will try to transform Toshiba in order to provide the maximum TSR.

Of course, growth is an important factor to enhance TSR, as I have touched upon in my earlier part of presentation. Of course, Toshiba is a technology company, and we have our own developed internal technology.

In other words, there is organic growth that we can capture coming from such cutting edge. But at the same time, we believe that good rational M&A will also help us grow.

We believe that the new Board with the right skill set makes us better equipped to pursue M&A opportunities.

Of course, we're not intending to embark large-scale M&A transactions that will create significant goodwill. That is not our plan at the moment.

Now the next slide. This is a slide about process towards growth over time, how Toshiba will grow. Now we're currently focusing upon improving profitability and accelerating our efforts to achieve FY '21 target, Phase 1 of our growth plan.

But going forward, we would like to become a hardware excellent company in the meantime. And in parallel, we would like to also transform ourselves into a CPS technology company, which we call Phase 2 of TNP.

We should talk about digital economy because expansion of digital economy is so clear. And we live in that world. And SNS or Surge or EC, such functionality basically are at the core of what we call data handling, which is the left side.

But going forward, any data emerging from hardware and IoT will exponentially grow. And some research say that such explosive increase will reach 175ZB in 2025.

Of course, we are in a large handle -- large size of data, great increase in data generation in the physical sector, which is directly relevant to our business domains. We see great opportunities accompanying the continuing rise of the digital economy.

We think that current domains, as I mentioned, will benefits us because a lot of the data generation takes place in the physical sector, our very domain. Again, this will be a great opportunity for us.

Next page, transformation towards CPS technology company. This is how we envision ourselves to transform to CPS technology company.

First of all, the development style becomes open close. We will be combining alliances with the companies and competing on our strength. Sometimes we will team up with competitors.

In terms of the model, it becomes physical plus cyber, and we would like to improve profitability by expanding recurring businesses. In terms of the invested capital, conventionally it was nuclear or memory.

Those are heavy capital types of businesses. But going forward, we would like to transform ourselves to a much lighter capital model.

In terms of driver of growth, conventionally it had been through major M&As. However, going forward, we would like to focus upon organic growth and programmatic M&A.

So in terms of programmatic M&A, please refer to the description at the very bottom of the slide.

Now transformation towards a CPS technology company. There are basically 2 big themes, business models, I shall say, that I can refer to. One is the transformation of the existing value chain by digitalization. And through the process, recurring profit revenue can be captured. We call it DE, digital evolution. The other is to create a new platform. And sometimes, we are competing with our competitors to enable co-creation. Again, sometimes we might team up with our competitors and its platform DX.

One example is what we announced the other day, ifLink Open Community. ifLink Open Community is an open community. It's open-close concept.

It allows users to operate apps and functions by defining a condition, and as a result, if and then, it's borderless or seamless, should I say, in terms of such barriers of who manufactures the device. Or in cases of apps and functionalities, it really can be described as an equal system in the cyber world.

We have received many inquiries already. And we would like to expand on the community so that users can benefit and also more players, more parties can enter into this community. Again, it's open community, which we strive to create for open innovation.

And CPS also benefits in the areas of new services utilizing this technology. We have a collaboration with Mitsui Bussan. The photos show Greater Anglia railway train in the U.K. And some of these technologies used are CPS technology such as digital twin, IoT and AI.

We also started providing services for enhancing time tabling through an alliance with Mitsui & Co. We also have projects with Gestamp in Spain; Falcon in Mexico for better thermal efficiency. We also have Maestro, which is IoT service. Many companies already engaged with this.

Now our businesses for the full transformation for CPS company. We will take each and every one seriously, so that we can one-by-one build upon them.

Going to the next slide. New growth business, battery power electronics. The new factory is being worked on. Suzuki has 50% auto share in India, and we work closely with them. And for CSiB, new factory constructions is on the way. And in India, we aim to start mass production in 2020.

Now we have strategic agreements with part suppliers already in place.

Turning to power electronics. We have expanded production capacity at Kaga and Himeji Operations. We recently received an order for electronic equipment for 360 cars for Taiwan's high-speed rail.

The next area, precision medicine. In 6 months' time, we've made significant progress regarding Japonica array. They work on the nondata collection. Quite a bit of data is being collected already.

And for cancer screening, we have developed Micro RNA, which analyzes suspected cancers for 13 organs. We will further verify the system with Tokyo Medical University and National Cancer Center in Japan.

We have also started a collaborative research on using liposomes with Shinshu University, and we'll expand application to gene therapy for cancer.

Now next is QKD, Quantum Key Distribution. As you know, our world-leading QKD technology is in a good position to become the global de facto standard.

In the Western world, there isn't such good case in point which proceeds us. In other words, we -- our technology is the best, and we're well positioned for that reason. That's the reason why I said we are well positioned to become the global de facto standard.

And we are collaborating and testing QKD installation with domestic and overseas companies, areas where security is quite important vis-à-vis national securities or in private business sector. It will be -- in something like finance. We have many discussions in place with domestic as well as overseas companies. We would like to target the commercialization of this service in FY '20.

This is not going to be hardware-based. Rather it would be -- our plan is to build a subscription-based business model.

We foresee the market will surpass JPY 2 trillion by 2035. We would like to see a good milestone this year because once the light hits it's going to exponentially grow.

So I talked about different areas where we are focusing efforts upon. We have an unchanged target to achieve, ROS of 8% to 10% in FY '23. With a disciplined capital policy and growth strategy, we would accumulate activities supporting change in growth, one-by-one, towards becoming a company that can achieve ROE of 15%.

Let me briefly touch upon STGs. We have identified corporate activities which have significant impact on society through our STGs analysis. Where we located negative impact, we think that we can leverage our technologies so that minimum impact -- negative impact is, excuse me, minimized.

And tomorrow at IR day, we would like to explain details to you. Of course, we'll continue to pursue the objectives of the STGs throughout our corporate activities.

Now this is a summary of what I have presented to you. We have had a good start in the first half. FY '21, ROS 60% is the goal that we are going to achieve. And we have already a new governance structure to support our efforts. And we have completed the share repurchase as promised.

And we took the lead in current capital market teams such as parent-child listing and strategic shareholdings.

We completed our exit from risk businesses. Our financial status is much healthier as we have resolved the issue of shortfall in capital. We will further use leverage and maintain an appropriate level of capital and implement the ROS 5% exit rule of portfolio management and exercise financial discipline in managing capital.

We will pursue a growth strategy to enhance our TSR. We have set shareholder returns policy with share repurchase as a consideration. And we will further improve our compensation system so that it is better aligned with shareholders' value.

So achieving a solid foundation based on the above, we will move on to growth Phase 2. This is Toshiba's rugby team picture. Toshiba does not need a super hero. Everybody must be hero.

Every one of us will cooperate in enhancing small improvements. I told you, 15,000 employees and 15,000 initiatives. So step by step. And the sum of such individual efforts are creating major changes. This is who we are. Thank you very much for your continued support.

Our unchanging credo is committed to people, committed to the future. That is the end of my presentation. Thank you.

[Midori Hara, executive]

So that is all for the presentation of Toshiba Next Plan progress report. Now if you have any questions, please raise your hand. Our staff will bring you a microphone. Please identify yourself and ask a question, please. Yes, the gentleman in front.

[Hisashi Moriyama, analyst]

Thank you very much for a detailed explanation. My name is Moriyama from JPMorgan Securities. With regard to the privatization of subsidiaries, I think I really felt that it's really speed -- you are really rapid and speedy in coping with the change. And Slide 9 and 10 shows the changes in the revenue and changes in product mix of the restructuring and procurement reforms.

The restructuring and procurement reforms effect seems to be kind of slow in progress compared with the previous earnings report, but considering risk buffer and so forth, I think things are going steadily.

So in this next plan, how -- can you explain to me how you changed this -- how you have changed this analysis on the changes in the revenue and the changes in product mix?

And towards FY '21 -- or '20 for -- I think your profit forecast seems to be steady, but are you really confident of that? To what extent are you confident about achieving the profit target?

[Nobuaki Kurumatani, executive]

Thank you for your question. Page 9 chart, procurement reform is like JPY 100 billion in 5 years is the target. In the initial year, it was JPY 25 billion. And for the current progress, I think it is on track and on schedule. Sales reform and other reforms are as scheduled. It is very close to what we have drawn in our scenario, JPY 140 billion forecast to go is like JPY 14.4 billion to achieve JPY 140 billion. So we want to make sure we achieve the target. When we made the Next Plan, semiconductor business cycle, we never thought that it's going to be this bad.

Compared with the Next Plan annually, JPY 200 billion, semiconductor was -- had to be adjusted downwards compared with the Next Plan. And by the restructuring, close to JPY 10 billion savings and about JPY 30 billion adjusted downwards. So we need to have additional achievement of JPY 170 billion. So JPY 140 billion target is -- I know it's very demanding. So it is a big jump for us to an extreme -- very high level. So our ultimate goal is JPY 240 billion, but then first, we have to achieve the target for next fiscal year.

And there were many downsides in this current year that we never predicted. NAND business situation has bottomed out, and perhaps in third and fourth quarter, NAND business is going to improve. And semiconductor will not be in bad state forever. And gigabyte is very good in next fiscal year. Although it's not fixed yet, but I'm pretty confident we can achieve this figure. And then after that, we'll be able to achieve JPY 240 billion. So in the first half, we are already confident of achieving JPY 140 billion. And in the second half, we are already considering formulating our plan for the next fiscal year. So next year -- at about this time next year, maybe I will be able to report confidently about achieving JPY 240 billion for '21.

[Midori Hara, executive]

The next question. The front row, please.

[Unknown Analyst]

I am [ Tomioka ] of Toyo Keizai. I have 2 questions. The privatization of the 3 companies. My first question is about that. Looking at each and every one, I wouldn't necessarily say that they are positively growth-oriented companies. Please tell us why you have made this decision?

[Nobuaki Kurumatani, executive]

Well, I touched upon that subject a little bit, but there's functionalities in each and every one is necessary to Toshiba's business. If we sell them, then that would be a difficulty upon us in a way that we don't have a necessary part of our operation. So we've decided to put them under umbrella, so to speak. And when we decided to do so, as this page shows, we didn't want that to be a poor investment or unwise investment. So by making them fully the subsidiaries of our companies, we can again -- what we did is to really scrutinize, hard analysis had been given to the matters. And the EPS improvement is plus 21% in FY '20 and plus 12% in FY '21. This EPS improvement by our analysis is part of the core reasons why we thought that this investment would be rational. Also regarding ROE, as you see on this page, the improvement was clear from our analysis. I hope that was a good enough answer.

[Unknown Analyst]

Well, what about synergy? These listed 3 companies, would they also go through their own cost management and restructuring?

[Nobuaki Kurumatani, executive]

Well, of course, they are listed, being listed, the types of reforms that we go through with procurement or sales reform, those things, they have not engaged themselves to the level of depth as we have at Toshiba. So our knowledge, our know-how could benefit them in deepening their levels of reform vis-à-vis a synergy effect would be generated. Of course, they'll be part of a consolidated structure. So we will be in dialogue with such positioning in place. And we actually have carried on some dialogue already to that regard.

[Unknown Analyst]

And regarding the so-called the existing ones, volatility is high. And if you could kind of once tell us about your stock holdings?

[Nobuaki Kurumatani, executive]

Regarding stockholdings, we are still under debate amongst ourselves regarding semiconductor memory business. As I said before, currently, the market is not good. But a while ago, this was a business generating a lot of profit. So there's quite a bit of volatility. So looking at Q3 and Q4, we expect to be able to go to a black number vis-à-vis profitable. And thereafter, some level of profit can be expected. So in terms of the NAND, inventory adjustment is almost to the end, and some good data points are starting to surface. And DC, data center, demand is also more favorable these days. So I think going to next year we're starting to see these improvements as more prominent signs. And Bain Capital is leading us, providing us advice and we will continue to keep an eye on important development, and the Board will decide wisely.

[Unknown Analyst]

And one last question. This semiconductor still held within Toshiba you talked about cutting off the LSI and whatnot. Is this semiconductor portion held by Toshiba you're sorting out of them kind of settling that matter is all completed now?

[Nobuaki Kurumatani, executive]

Yes.

[Midori Hara, executive]

The fourth person from the front row.

[Kenji Yasui, analyst]

UBS Securities. Yasui is my name. I have 3 questions. First question is the same as the previous person. LSI logic approach, you said you will continue existing customers. But for the direction when that product expires, then you will exit completely, and you will continue automotive business. But Toshiba does not intend to maintain the business for long term, so will you continue the automotive LSI or you will exit totally? Second question is Page 15, ROS 5% achievement FY '20, that's the criteria. So as of now, do you think you can achieve 5%? So those businesses that are not subject to monitoring, are there -- do you think additional business that should be reviewed and monitored? Finally, after JPY 700 billion repurchase is over at the end of March, you have disclosed the distributable profit, the distributable capital. So can I confirm the level of the profit that can be distributed?

[Nobuaki Kurumatani, executive]

Logic system LSI, other than the automotive business, we only continue the support of customers, and we will phase out generally. That's the right understanding. For automotive, this is highly profitable, and we have good customers. So we will continue this business. And 5% in FY '20, most business I think will exceed 5% threshold. In that sense, next year -- this time next year, if 5% achievement is slightly or it's difficult or impossible, in that case maybe we have to review it. But as of now, by next fiscal year, I think we are comfortably confident that most business segments will achieve 5%. And with regard to the profits to be distributed, the CFO is going to answer the question.

[Masayoshi Hirata, executive]

For midterm earning, the auditor company -- we don't need the confirmation of auditor. So it's not a rigidly accurate figure as of March. It's like JPY 700 billion. But because of share repurchase, even after April, and it was completed very recently, so that difference. And JPY 10 dividend that's going to be deducted. I think that's about it.

[Kenji Yasui, analyst]

Is that JPY 93 billion transfer of LNG business included?

[Masayoshi Hirata, executive]

For LNG business, Energy Systems solution will record the figure. So it is not related to the sole -- our independent distributable profit. Finally, first question on the automotive LSI. My understanding is that Visconti investment was very big. And I heard that there is a deficit. And Mr. Kurumatani said it's profitable. But I think there's a difference of recognition with regard to Visconti. We have customers, so I can't talk about it in detail. For -- I think it is a viable business. We will get into a stage in which it will be a viable business. So it's really promising. I'm looking forward to it.

[Midori Hara, executive]

Next person, second row, please.

[Unknown Attendee]

I am [ Hiroyo ] of Nikkei newspaper. I have 2 things. One is to Mr. Kurumatani. How would you score this financial results? And when do you expect your underground efforts to start to really contribute to your numbers in terms of business results or business performance?

[Nobuaki Kurumatani, executive]

Well, it's kind of hard to grade myself, so I'll refrain from doing that. I think you can give me a grade. And my best effort I hope is good enough to pass your expectations. And regarding what we are doing, we have about 100-model analysis. And if we all add them up, they become quite a bit of revenue source. Some of them are short to realize the revenue, short meaning short term to see the revenue, and others longer term. But towards FY '23, I shall say that we're hopeful to capture some good revenue. Speaking of CPS details, when we analyze some of the companies who are already in the market and how they are designed, what their business models are, we're still under study of such facts. So please allow us a bit longer to fully answer to your question. I think it's going to be data business generating the revenue. That will be much larger revenue than any revenue generated in this area from hardware. So that data-driven part is going to be the core pillar of our business.

[Unknown Attendee]

The next is for Tanaka-san. In the last 1, 2 years, a lot of reforms have taken place. And you have been here from much earlier at Toshiba. How do you see the changes in the last year to 2? And then what do you see going forward?

[Koichi Tanaka, executive]

Well, in terms of several years' worth of changes, it was rapid, big changes. And in terms of the positioning of Toshiba and how the morale of the employees are, last year we stopped losing our employees, and we have freshmen coming into our company. And I think mostly for the fact that we are on track with the Toshiba Next Plan progress that keeps the rationale and morale of employees quite high. And of course, our Chairman -- Chairman and CEO has been a good leader in a sense of engaging outside talented resources and combining that with internal human resources we've had. I think it's a good collaboration in place.

We have now cultivated good soil, so to speak, as a base to cultivate technology. And of course, with the new board structure in place since June. Of course, we have always talked about TSR being our most important objective, total shareholder return. We have been able to kind of roll it out to the concrete levels, how we manage our portfolio, how we see the capital adequacy and different disciplines that we have as we engage ourselves in business. Of course, there are areas which have not changed. Things which have remained unchanged are the eagerness of our employees to work hard. They've come through some turbulence, some difficult times, but they are here ready to work hard as hard as they can. So it's almost like we're on a thin piece of rope, and we have successfully come to the end of that rope, and then we're in the next phase of growth.

[Midori Hara, executive]

The gentleman in front, please.

[Mikio Hirakawa, analyst]

Merrill Lynch, Hirakawa. I have 2 questions. First question, maybe overlapping with the very first question about the privatization of listed subsidiaries for those 3 companies. You are saying that they're indispensable for Toshiba. NuFlare Technology, is it really indispensable for Toshiba? But for Toshiba TEC, I think my recognition is that Toshiba TEC is indispensable for Toshiba. So how did you -- why did you select those 3 subsidiaries? And the theme of the privatization is improving EPS and improving ROE. So Toshiba TEC did not meet those requirements. Is that the reason why Toshiba TEC was not subjected to privatization? So my question is why those 3 subsidiaries and not Toshiba TEC?

[Nobuaki Kurumatani, executive]

As I said earlier, for those 3 companies, they are indispensable for Toshiba. For NuFlare Technology -- for NuFlare, Toshiba is indispensable for them. NuFlare without Toshiba's engineers and technology they cannot create values. So after consideration, we selected those 3 companies. By this, EPS can be improved considerably, and it will. We will be able to provide return to the shareholders. So it's kind of buyback within our group. It's like a share repurchase within our group companies. That's kind of designing the organization. For Toshiba TEC data business, we are considering various business models like data. So strategically, we are considering how we can enhance the corporate value of Toshiba TEC and what is the best relationship between Toshiba TEC and Toshiba in order to maximize the value. We have not been really confident enough in coming to the conclusion. That is why we have not made any determination on this yet.

[Mikio Hirakawa, analyst]

Second question is FY '19 first half results, it's really amazing. But Mr. Kurumatani, first half operating income, you said it's usually 30% of the full year. But this time, it is so big that maybe you will be able to achieve JPY 170 billion or JPY 180 billion in FY '19. With your ability that you have shown in first half, maybe do you think you will be able to achieve JPY 170 billion in -- for the full year?

[Nobuaki Kurumatani, executive]

Yes, there is seasonality. The slide Page 9, as I explained, our buffer is about -- it's about JPY 11 billion. So without that, maybe JPY 150 billion can be achieved. DDSC semiconductor performance improves considerably, then maybe we can achieve that, but there are many uncertainties like the U.S.-China trade war. So as for now, JPY 140 billion is the target that we will achieve by all means. And we will concentrate on that.

[Midori Hara, executive]

The second person, the second row, excuse me.

[Unknown Attendee]

I am on [ Ono ], Yomiuri Newspaper. I would like to ask about those listed subsidiaries. They're 100% subsidiaries. And I would like to ask you what discussion phase you went through with the directors? You are going to Phase 2. You have explained that in your presentation. Why did you decide to use the cash for the privatization and the acquisition of subsidiaries of these 3 companies? Please tell me if there are any objections to that in the directors' meeting?

[Nobuaki Kurumatani, executive]

Well, in terms of subsidiaries positioning. When we talk about industrial sector governance, this is a big theme. Any listed company having subsidiaries all focus upon this topic. So in terms of our policy, this was a high priority item within the directors' discussion. Programmatic M&A, is there going to be a good, a prominent procedure? And that's kind of questionable. And whether we can grow organically to that point rapidly, that's also questionable. So we wanted to take this path looking at the EPS improvement, for example. There really isn't any other options comparable good ways to come up with this kind of EPS improvement. So that was the main part of our decision.

[Midori Hara, executive]

And the person in the fourth row.

[Unknown Attendee]

NHK, [ Inomata ] is my name. My question is more macro question. Considering the overseas situation, how will it impact your business? The U.S.-China trade war and the kind of slowdown in China is -- have a big impact in various businesses. What about Toshiba's case with regard to U.S.-China trade war?

[Nobuaki Kurumatani, executive]

From the viewpoint of China business, semiconductor volume, DDSC volume has seen a decline. DDSC year-on-year, they have an increase in income, but we have expected even bigger increase. So the volume was largely down, but the profit was down but sales was increased. So the volume portion was largely impacted by U.S.-China trade war. But other than that, Japan and South Korea and U.S.-China trade war impact is not as big as you think that we -- our business portfolio is really resistant to the slowdown. So even if the macro economy slows down considerably, our earnings structure has been improved that it will not be impacted that much by economic slowdown. So it doesn't have a fatal impact. CFO have maybe some supplementary answer.

[Masayoshi Hirata, executive]

I will explain later in the earnings report. As Mr. Kurumatani just mentioned, in terms of the result, thanks to the restructuring, in this year in the first half, we had restructuring as well. So I think our results have improved largely. When will China slowdown be over, our marginal profit is high level. So once there is a recovery in China, I think it will contribute to our profit.

[Midori Hara, executive]

Who else has a question? Second row.

[Kota Ezawa, analyst]

This is Ezawa of Citigroup Securities. I have one question. These subsidiaries -- 100% subsidiaries, if you could help me support understanding in terms of the use of cash. How rational is that use of cash? You talked about IRRs higher than new capital, this JPY 200 billion that you use. And in terms of minority shareholder, it is a stoppage of such outflow and that would, I suppose, come out to be, by my estimate, JPY 10 billion or so. I was wondering if that analysis is right. And you talked about also the EPS of plus 21% for FY '20. So 21%, fine, but of what volume? If you could first tell us the basis of their profit?

[Nobuaki Kurumatani, executive]

The CFO will answer that.

[Masayoshi Hirata, executive]

Well, first of all, regarding the first part of your question. For the 3 subsidiaries, we will refrain from mentioning specific numbers. But FY '19 is, [ of course ] -- so I cannot talk about rationality in the perspectives of shareholders' stance. But we think that these 3 companies are deeply engaged with Toshiba, and realizable synergies is high, and that's the basis of our analysis. In addition, of course, with such effects forth-giving, there's other issue which I cannot just disclose yet, but there's other contributors. And thus, the EPS improvement will be as aforementioned. As for that percentage, how we calculated that perhaps you could review the calculation yourself. I would refrain from touching upon the details at this point.

[Midori Hara, executive]

This is going to be the last question. Anyone? Yes, the person raising hand for a long time.

[Unknown Attendee]

[ Naito ] from Asahi Newspaper. Talking about your approach on Toshiba Next Plan, when you announced it 1 year ago, Mr. Kurumatani said, Toshiba is a venture type company, and you were kind of negative to M&A. And because you had difficulty with balance sheet, you want to -- my impression was that you really stick to healthy balance sheet. But today, I think it's been modified. You want to do some M&A, and balance sheet should be solid. But you want -- you're really -- you accept leverage use. So if your approach to Next Plan has changed, what is the reason? What was the background in changing your approach?

[Nobuaki Kurumatani, executive]

Toshiba core D&A is venture type business model. This cannot be changed. Research labs, the quantum technologies developed and NAND flash memory was developed, and it was made into a business. That is who we are. That's the basis, and we do not intend to change it. And if it's gone, we are no longer Toshiba. Our strength will be gone. But when it comes to programmatic M&A, Toshiba's core strength will be supplemented and strengthened. I mean in case our strengths can be strengthened, we will be willing to do the programmatic M&A. And future when we do the digital business, we need to procure some technology from outside. It may not be a large-scale investment, but those small type acquisition is acceptable to us so that we can strengthen our overall business.

As for balance sheet, I mean our approach remains unchanged at all, the quality of capital, like goodwill or deferred tax asset. Excluding those fragile capital, the net core capital has become really strong and stable, but is it better if we have no loans at all? Rather than calling it healthy, you are just increasing the cost of capital. From the viewpoint of shareholders, it may not be the right way of using our capital. So we will maintain the healthy feature of our business, but we should reduce the cost of capital, and that's important for like improving ROE. So disciplined and healthy earnings structure where we reduce the cost of capital and improved the enterprise value, and that will contribute to the improvement of overall healthiness. So the concept has not changed at all.

[Unknown Attendee]

I see. And for the business under monitoring, this fiscal year, semiconductor business had a restructuring. Logic -- you're exiting from Logic LSI. By this -- so do you have additional closure of plants or restructuring or layoff of personnel?

[Nobuaki Kurumatani, executive]

In principle, all our engineers are very good. So they can be relocated to other businesses. So there is no major additional cost incurred.

[Unknown Attendee]

For thermal power energy systems, in the spring there was early retirement program, but you could not achieve the target. And there were people who were subjected to the program, but they are still in Toshiba, and they are being dispatched to various business units. And from an international point of view, it's really like a harassment in the workplace. How do you cope with that?

[Nobuaki Kurumatani, executive]

Employees when they apply voluntarily to early retirement program, it is viable. So we consult and talk with our employees and how workplace should be. So it is not something that we can enforce our employees to apply to the program. Legally, we can't do that. So I think we're doing it appropriately.

[Midori Hara, executive]

So this is the end of the briefing session for Toshiba Next Plan. Mr. Kurumatani, Mr. Tsunakawa and Mr. Hirata will leave the room. Thank you very much.

[Midori Hara, executive]

Now we are going to start the briefing of FY '19 second quarter earnings. Let me introduce participants from Toshiba, Mr. Hirata, CFO, Representative Executive Officer; Mr. Matsunaga Yasuhiro, from the accounting department. Then, based on the PowerPoint handout, Mr. Hirata is going to explain the earnings.

[Masayoshi Hirata, executive]

I'm sorry for the long briefing. Now I would like to explain to you the earnings results of FY '19 second quarter. The handout had been distributed I think, and I would like to explain based on that before talking about the figures. In the second quarter, as Mr. Kurumatani mentioned, LNG divestiture was completed, and last year's restructuring effects and the procurement reform effect is now really confirmed in the first half of FY '19. And as a result, in all business segments, year-on-year increase in income, and all business units achieved surplus. And operating income, JPY 52.1 billion. When we look back on past 10 years, excluding the Memory business, operating income has achieved the highest as first half figure.

Now please turn to Page 5. The figure shaded in blue is the first half FY '19 figure. And on the right column is the difference. The net sales of FY '19 is JPY 1,711,000,000,000, which is 4% decline. Infra-system, building, retail, printing, digital has seen increase in sales. But energy systems and device and storage, in those 2 areas they had decrease in sales. PC business was divested in the second half of FY '18, and it was deconsolidated. And so year-on-year basis, PC business had net sales of JPY 79.4 billion. And memory products transfer, the Kioxia memory products, was transferred -- transfer sales, but this transfer sales has been reduced by JPY 50 billion year-on-year. Furthermore, exchange rate impact because of strong yen, its impact is JPY 13 billion. Overall, when we exclude those factors, net sales is JPY 60 billion increase.

For operating income, as Mr. Kurumatani has said over and over again, JPY 52.1 billion surplus. Increased by JPY 41 billion. Income before tax is loss of JPY 112 billion, which has been deteriorated by JPY 182 billion year-on-year. And net income or less -- loss is JPY 145.1 billion loss. This is because in nonoperating losses the transfer of LNG business is completed, and for Kioxia, we had equity loss of JPY 89.2 billion. And this Kioxia business loss is because of the Memory business cycle, but it was in red, and that's the reason for this. For Kioxia, memory demand is now on recovery path, and Kioxia's business is likely to recover in the near future.

For free cash flow, the absolute value is minus JPY 142 billion, year-on-year, worsened by JPY 1.7 trillion. As you remember that we had a sale of Memory business. And in the previous term, we had the gains of JPY 1.45 trillion from sale of Memory business. And also, we had -- in this term, we had the LNG transfer, which cost us JPY 89.2 billion. Now Page 6. Shareholders' equity as of end of September is JPY 1.057 trillion. Shareholder equity ratio is 28.8%. Compared with 6 months ago, it has decreased by JPY 399 billion. And this is because of net loss of JPY 145 billion. And also, share repurchase of JPY 240 billion in the first half of this year.

The net interest-bearing debt. As of the end of September FY '19, JPY 322 billion cash position. Compared with 6 months ago, net cash and deposits has gone down by JPY 577 billion. The main reason for that is negative free cash flow and own-share repurchase. And from September, lease accounting standard has changed. So -- but things are going as scheduled. For exchange rate, as you know, yen has become stronger for Toshiba, about JPY 3 stronger.

Page 7, I will skip this because it's too detailed.

Page 8 is the analysis of operating income or loss. Now on the first left, is the first half of FY '18, which is JPY 7 billion. And far right column shows the FY '19 first half operating income, JPY 52.1 billion. Now the effect of procurement reform is JPY 12.4 billion. And also the restructuring in previous fiscal year is JPY 22.6 billion. So the effect of those reforms and restructuring is bearing fruit. Furthermore, the product mix improvement in device and storage business has resulted in JPY 9.5 billion. In Infrastructure Systems, Building Solutions, increase in sales is JPY 9.3 billion. So overall, JPY 45.1 billion improvement, which led to operating income of JPY 52.1 billion. So Toshiba Next Plan improvement effect is now confirmed firmly in the result of the second quarter this year.

Page 9 is the details and breakdown of nonoperating income or loss. Please refer to this later on when you have some extra time.

Page 10 is free cash flow. Blue shaded column is the FY '19 first half figure. Memory business is an impediment, so we excluded memory-related cash flow and some onetime factors. Some return of tax and also LNG cash out, those -- we excluded those onetime factors. And the bottom row shows the figures, especially the cash flow in operating activities is JPY 46.9 billion, so it's positive as scheduled. And cash flow in investing activities is minus JPY 61.2 billion. In order to carry out Toshiba Next Plan, this is a necessary expenditure.

Next, please turn to Page 11, look at the balance sheet, and this is a comparison from FY '19 in March to end September. First, on the asset side, the top line, cash and cash equivalents amounted to JPY 718.3 billion. That was less JPY 620 billion from end March. This is due to minus JPY 140 billion for free cash flow, also JPY 240 billion for share repurchase as well as repayment of some of the borrowings, including deferred loans.

And now please see property, plant and equivalent (sic) [ equipment ], the second from the bottom, which was JPY 566.7 billion, adding JPY 180 billion from end March. This is due to CapEx as well as increase of operating lease assets by JPY 150 billion by the changes applied to lease accounting standards. At the bottom, other assets amounted to JPY 780.1 billion, less JPY 100 billion from end March. This item includes the investments from memory business. But due to equity and losses for affiliates recorded during this term, the investment amount is less JPY 60 billion.

Turning to liabilities, interest-bearing debt is JPY 395.4 billion, less JPY 40 billion from end of March. This was an increase -- has to do with increase due to the lease accounting change. There was such a change, but that had been offset by repayments by borrowings such as deferred loans. On the balance sheet, a healthy financial standing is shown, although cash and cash equivalents declined due to share repurchase.

Now from Page 12 and thereafter, we explained segment-by-segment situation. Now please go on to business results by segment. Specifically, I would like to look at the overview of the first half of FY 2019 consolidated business results by segment. The numbers highlighted in blue represent the numbers for this term, whereas the difference versus the previous year indicated in the column immediately to the right. As you have heard earlier, across all business segments we achieved positive profit and year-on-year changes compared to the first half of FY '18.

Now the next page shows Energy Systems & Solutions results breakdown. Net sales was JPY 288.7 billion, and operating income was JPY 10.6 billion. Net sales suffered a decline of JPY 14.4 billion compared to the first half of the previous year, mostly due to domestic decreases in the areas of thermal and hydro power systems, construction and services. Operating income, however, increased by JPY 14.5 billion for the segment year-on-year due to reasons such as JPY 4.8 billion from restructuring efforts, gross margin improvements from settlement of accounts of overseas businesses and closure of unprofitable domestic businesses. So such improvements have contributed to the segment on the plus side.

Now on the next page, the top is Infrastructure Systems & Solutions. The net sales is JPY 320.3 billion, and the operating income is JPY 10.8 billion. The net sales increased in the areas of public infrastructure, our social system businesses. And increased net sales led to increased profit, while also benefiting from structural reforms. The bottom is Building Solutions. The net sales is JPY 288.7 billion, and the operating income is JPY 15.7 billion. The net sales decreased in lightings business, but increase in elevator and AC businesses, both domestically and overseas, have contributed.

Operating income was positive, with an increase of JPY 5.9 billion as difference versus the first half of the previous year. This is due to profit increase from net sales increase as well as the restructuring efforts worth of JPY 1.4 billion. The next page explains Electronic Devices & Storage Solutions results breakdown. The net sales was JPY 402 billion, and the operating income was JPY 11.7 billion. The net sales suffered from the downturn in China market, ending with minus JPY 70.3 billion difference year-on-year. However, operating income landed somewhat equally with the first half of the previous year due to efforts made in the areas of procurement and structural reforms.

Next, Semiconductor net sales declined for discrete and system LSIs due to the downturn in China market. But profit improved due to restructuring and other efforts. Next, HDDs & Others, net sales declined by JPY 53.6 billion due to a decrease of sales of memory products made by Kioxia. The operating income also declined by JPY 1.8 billion.

This is compared to the first half of the previous year. But in last year, during the first half, there was JPY 4.9 billion worth of restructuring reform cost as part of this calculation.

The next page is Retail & Printing Solutions results. Net sales is JPY 252.7 billion, and the operating income is JPY 10.4 billion. Domestic retail sales gain was prominent. Now the bottom shows a result in the Digital Solutions. The net sales is JPY 140.8 billion and the operating income JPY 6.1 billion. Government offices and manufacturing sector demand increased in size and scale and thus contributed to the net sales growth of 20% year-on-year. The operating income benefited from the net sales increase as well as the structural reforms. The operating income improved by JPY 7.4 billion and turned to positive black number versus the first half of the previous year.

Page 18 shows amount of orders received and order backlog. We have added Infrastructure System & Solutions, Digital Solutions and Elevator businesses from this term. Those are areas where we need to manage our orders -- number of orders to receive. And if you could also note that for Energy System & Solutions, the comparison here is based on the actual, excluding order cancellations during the first half of 2018. Such cancellations have been decided way ahead of time. When they became official cancellation, we took that into consideration. But for the sake of comparison, we're comparing bear to bear. And amount of orders received, as Kurumatani explained earlier, increased by 19%, almost 20% from the first half of the previous year. The main contributor was a large thermal business we received in Energy System & Solutions segment, which is expected to generate healthy gross margin.

We are hopeful of a good revenue going forward. And the 2 right graphs, I will like to call your attention. They're almost par with the previous year, the first half, the previous year, the same time. Previously received orders in the Energy System & solutions business or in progress, and we are selectively receiving new orders. In other words, we have a good filter in place to take orders which are promising to us. That's why the overall Energy System & Solutions business orders is decreasing in volume. But in other business segments, order backlog increase by 5%.

And also, let me mention something that is not included here. In terms of orders received and order backlog and when we look at marginal profit, we are improving, especially in the second half of FY '19 and first half of FY '20. Those are the time frame when we can expect better quality orders to be captured. And 2 things to complement.

Now supplementary information. Page 20, share repurchase, as was pointed out earlier, JPY 700 billion share repurchase was completed. That means 455 million shares is the outstanding shares.

Page 21 is about Kioxia. I think we have to look at this in detail. Left upper hand side corner, this shows the quarterly equity earnings or losses of Kioxia. The shaded portion shows the equity losses of the second quarter. And then above that, that's the first quarter figure, PPA impact and blackout impact. If they are excluded, in second quarter equity loss is JPY 52.2 billion (sic) [ JPY 15.2 billion ] and first quarter, JPY 20 billion deficit. But all in all, the loss has been reduced by JPY 5 billion compared with the first quarter. When you look at the right-hand side, it shows a Bit growth and ASP decrease. In second quarter, Bit growth is around 20% improvement. This is the information I got from Kioxia.

When you look back on the past 2 quarters, Bit growth remain unchanged or kind of declining, but it is recovering steadily. And for ASP, in the second quarter, the decline has stopped at single digit. It is still decreasing, but the -- we are seeing a kind of bottom of ASP. So overall, I think we are seeing the signs of reversal, and we will continue to pay attention to this. So that is all for the results of the first half of FY '19.

Looking back, because of the procurement reform under Toshiba Next Plan and also restructuring in the previous fiscal year, the effects of those measures are being seen and confirmed in our results. And since last year, we are -- have introduced rigid screening of new projects. And by that, gross margin rate has improved. Energy & Infrastructure business gross margin rate has improved. And also -- so the LNG business that was likely to create a big loss to Toshiba was divested. So this outstanding issue was resolved. These are the main points in the first half.

Next, I would like to talk about the forecast for FY '19. Please look at Page 23. Net sales is JPY 3.440 trillion, which is JPY 40 billion upward adjustment because of Infrastructure System increasing sales. For operating income, JPY 140 billion. So it remains unchanged. We are kind of conservative.

In the bottom of this page, this is only for reference. This portion includes the results of the -- second quarter results of Kioxia. So income before tax is revised, and it's minus JPY 60 billion, and net loss is minus JPY 152 billion and free cash flow is JPY 370 billion negative. But this is JPY 50 -- excuse me, JPY 40 billion improvement.

So first half, the result was very favorable. So I think we can expect a return and fruits of those business, so JPY 40 billion improvement was incorporated into free cash flow. And please refer to different handout. Please refer to the PowerPoint, which is about the privatization of 3 listed subsidiaries.

So the point I would like to communicate is that by privatization of 3 subsidiaries, it has impact on shareholder equity and net interest-bearing debt. For shareholder equity, JPY 74 billion decline, which means it will be JPY 896 billion. This is because based on the accounting rule it will cost JPY 196 billion, almost JPY 200 billion, to acquire the shares of the 3 subsidiaries. And the book value of those and controlling shares of those companies, JPY 130 billion. The difference between the 2 must be recorded under shareholders' equity. That is the accounting rule. So by privatization of the subsidiaries, 196 billion -- JPY 74 billion shareholder equity will go down.

Net interest-bearing debt will increase by JPY 196 billion because we are spending cash. So the net interest-bearing debt in the end will be JPY 166 billion. So for shareholders' equity, it will be 25.2% after privatization. As Mr. Kurumatani said, compared with our competitors, it is within the range but towards the bottom of the range compared with the competitors, but it does not mean that it's bad. But compared with competitor companies with similar profile, for the time being the ratio will be a little low.

Please now go back to PowerPoint package. On Page 24, we show operating income comparison between FY '19 forecast and FY '18 actual Kurumatani earlier explained using a graph. Now we have a table, and we have first half and second half columns. The very left column shows FY '18 actual of JPY 35.4 billion. Then the next to that is a onetime factor of JPY 45.1 billion. And when we -- if you could please refer to what is written underneath at the bottom of the page. Each contributing factor indicated either there for the first half or the second half. And if you could please focus upon the second half because the first half is as aforementioned. Now from the starting point there, we calculate thereafter, as you see in this table. The -- may I call your attention first to the red-colored numbers of procurement reform, sales reform and restructuring. For these, we expect the second half to trace the first half, and we are confident to realize the forecasts.

Please now see the blue colored, which represents the difference. We -- and forecast improvement of JPY 33.5 billion from the first half of the previous year. This is probably realized to the forecast. That probability is quite high. The gross margin improvement by the reduction of unprofitable businesses contribute. And also, looking at our second half activities, we are going to basically bring the number of lost contracts to really in 0 level by narrowing down low-profit products in the Device & Storage Solutions business as well.

So those factors will contribute to gross margin improvement. Of course, this process takes a little bit of time because we have existing customers to whom we need to provide a service, but we are able to largely reduce the volume of such low-profit product and services.

So looking at the first half and also looking at forecast for the second half, we are confident that we will be able to realize these numbers. Of course, we will keep a close eye on the progress to be on track. By the way, if I may add, as you see in the column second to the very right, we start the second half with a risk buffer of negative JPY 11 billion. So the second half indeed starts with minus JPY 11 billion buffer.

And Page 25 shows forecast by segment. Let me explain this page as well. As with the first half across all segments, operating income forecast are positive, black number, ending with increased profit. The very right column indicates the differences versus the previous forecast announced before. Especially, for Energy Systems & Solutions, we forecast increased profit of JPY 4 billion due to settlement of previous nuclear businesses. For Infrastructure Systems & Solutions, we forecast increased net sales of JPY 30 billion and increased profit of JPY 5 billion mainly due to Public Infrastructure profit increase from higher net sales.

For Building Solutions, operating income decrease of JPY 2 billion due to Lighting business suffering from the downturn in the general lights market. For Electronic Devices & Storage Solutions, we forecast net income decrease of JPY 50 billion and operating income decrease of JPY 11 billion due to continuing negativity in China market.

For Digital Solutions, we forecast the solid trends to continue with increased net sales of JPY 10 billion and increased operating profit of JPY 2 billion. That's all for me. But I just would like to recap what Kurumatani was saying. We will continue to propel procurement reform and sales reform. At the same time, keep a close eye upon U.S.-China trade friction and how it might affect the semiconductor market. We also will manage our cost rigidly, especially of the ones of larger scale. We will make sure that we will not encounter risk factors. And even if we do so, we would be able to mitigate the effects thereof by the aforementioned efforts.

Thank you very much for your attention that's all. Let us go to Q&A, and please state your name and affiliate.

[Fumihiko Kimura, executive]

The fourth individual on the right, please. We will have a Q&A available later. So for investors, please reserve your questions until later. This is specifically for the media. This is a media session.

The second individual from the front row.

[Kazuhiro Noguchi]

I'm Noguchi from Nikkei Newspaper. There are 2 things I'd like to ask, especially for operating profit and loss. When we look at the second half, when we look at the infrastructure and digital, it seems like for the first half it was a very big jump in both sales and income. But when we look at the second half, it seems like it's pretty much flat, both for sales as well as income. For energy system and device for the second half, you need to really grow. Otherwise, you would not be able to reach the budget. What will be the points for you to enjoy a boost in income?

[Unknown Executive]

Thank you very much for the question. First and foremost for infrastructure and digital, the second half may look a bit weak, and I think that's what you were trying to indicate. As for the current situation of where the companies are, the project that were planned for the second half were front-forwarded to the first half. This is due to customer situation. And therefore, some of the, I think, sales have been front-forwarded to the first half, and that's what we're forecasting at the moment. And it's not that our companies or the subsidiaries are thinking this is okay. They're looking for any opportunities to boost sales in the second half as well.

And for Energy and also semiconductors, for these areas, I did note this before, what's looking good for energy will be -- there were some losses -- loss-generating contracts that had been reserved, especially in the thermal area. That's now gone. And this is something that I already noted in my presentation for semiconductors as well. Last year, we did have quite a bit of unprofitable, I think, things that we were selling from the past. And these, I think, minuses are now starting to diminish. Of course, we are going to be exerting full efforts to try to sell things that have higher gross profit margin. However, looking at these numbers, it's not as tough as the numbers may be displaying.

[Kazuhiro Noguchi]

There's one more thing. On Page 23, this will be forecast for your business. In the first half, so it's about JPY 110 billion, which is going to be improving to about JPY 60 billion when it comes to some of the discontinued business. There's JPY 145 billion, which is now going to increase to about JPY 152 billion. Why is that the net profit is going to be worsening in the second half?

[Unknown Executive]

Will you say -- is that a comparison year-on-year?

[Kazuhiro Noguchi]

The first half I think it will be profit and loss before tax. It was about JPY 110 billion negative, but it will be improving to about JPY 60 billion. But when it comes to net profit and loss, it seems to be worsening compared to the first half.

[Unknown Executive]

Yes, when you look at the full year, when it comes to net profit and loss, yes, the worsening is relatively big. I think that's what you're referring to. When it's a year-on-year comparison, there was a U.S.-consolidated company. When you look at just U.S. for consolidated tax, our accounting division as well as PwC Aarata and we had a discussion in the U.S. group they have recurring, I think, tax that we were able to book. And therefore, in the previous term, we had less tax. However, it will now be normalized. And therefore, it may look like maybe the deferred tax portion is going to be increasing. And that may look like it's worsening, but this is last year's second half.

[Fumihiko Kimura, executive]

Any questions? The second row.

[Unknown Attendee]

I am [ Naito ] of Asahi Newspaper. I would like to ask you questions regarding those 3 subsidiaries, which are now 100% subsidiaries. They are listed company, as you referred to in your earlier presentation. It's JPY 200 billion, 3 companies. As I understand, is that going to be borrowed money, financed? Or is it going to be internal funding? And if it's both, please tell us the ratio.

[Unknown Executive]

We did not talk about those financing factor. In terms of the timing of when the cash needs to be injected, we still hold good cash. So to make them 100% subsidiaries of ours, it's likely that we will use cash held at hand. But toward the end of the fiscal year, some of these companies require operating funds for their operations. So they may conduct some borrowings, perhaps from banks. That's a possibility. But in terms of acquiring these 3 companies as 100% subsidiaries, we use our cash at hand.

[Unknown Attendee]

And regarding Next Plan, Toshiba TEC has been mentioned, and my understanding is that you haven't fully decided what to do with Toshiba TEC. But your general policy is to eliminate listed companies within the group. Is it going to be eventually part of the 100% subsidiary for you or not?

[Unknown Executive]

Well, the government direction is, as you described, and the final decision needs to be made at a point in time, and we do understand at Toshiba. But regarding Toshiba TEC, as Kurumatani earlier explained, it's not like we mindlessly without scrutinizing the matters take the company into 100% subsidiary or kind of dispatch them altogether. So this needs to be looked at with care, and nothing is decided yet.

[Fumihiko Kimura, executive]

It appears that we have exhausted the questions. Therefore, we would like to conclude the 2019 second half explanation about our financials.

Since at this time, we would like to start the Q&A session for analysts as well as institutional investors surrounding the second half settlements. I would like to introduce the attendants. We have Hirata, who is the CFO. And also [ Matsunaga ] from Accounting and Finance Division. And I am Kimura from IR and also PR. If you have questions, please raise your hand. The individual from the fourth row from the front, please?

[Kenji Yasui, analyst]

I'm from UBS Securities, I'm Yasui. I have 3 questions. The first question. This is surrounding the Storage division's operating income. I would like a breakdown. The hard disk in the second quarter is seeing a deficit. I would like to understand the status of this? And on the Device side, there is a surplus of about more than JPY 10 billion. So quarter-on-quarter, what was the reason for this improvement? And can you touch upon NuFlare as well as discrete and LSI, the direction, maybe the scale, if you can maybe discuss that? That's number one.

[Unknown Executive]

Thank you very much for the question. To the extent that we are able to disclose, we have disclosed. When you look at Page 16 -- I think maybe you were referring to Page 16?

[Kenji Yasui, analyst]

I'm just looking at the second quarter, and I'm looking at the business performance. And that's where my question is coming from.

[Unknown Executive]

So you're looking at the second quarter. When we look at the second quarter, I think you were referring to hard disk and others. Is that what your first question is about, hard disk and others?

And when you just look at the second quarter and extract the second quarter only, it is a negative JPY 600 million. And you want to understand the breakdown. I'm debating how I should respond. There's stores and device. The restructuring fee that is inclusive. And I do believe I touched upon this, which is about JPY 4 billion -- about roughly JPY 4 billion. Other than that, it's not exact. However, there is hard disk, which will be the remainder when you deduct this JPY 4 billion.

[Kenji Yasui, analyst]

You said that there is a restructuring fee of about JPY 4 billion, which is a one-off.

[Unknown Executive]

There's JPY 4.9 billion for the first half, which is restructuring fee, and so this JPY 4.9 billion is inclusive in this number. So that's JPY 4.9 billion, yes.

[Kenji Yasui, analyst]

What about for devices?

[Unknown Executive]

So when you minus, it should be about JPY 11 billion for the second quarter. I'm debating how I ought to answer this one-off events or maybe NFT levels as well. There's nothing that's prominent that's a one-off like restructuring that will not be inclusive in this number. When you look at NFT, I think when you compare with the first quarter, there's quite a bit of an increase in net sales. And when it comes to System LSI, for the first quarter, I think it was booking a deficit. But in the second quarter, we're seeing a surplus -- recovery just surplus. And we do hope that, that will suffice as an answer. Thank you.

[Kenji Yasui, analyst]

The second area. When we look at free cash flow, I think there was a guidance. But when you look at the -- you're making an investment to make this a wholly owned subsidiary. Is that going to be from investment cash flow?

[Unknown Executive]

It's not free cash flow. This will be for financing on the finance side. So it would not be reflected in free cash flow.

[Kenji Yasui, analyst]

Okay, that's understood. And looking at Page 24, when it comes to operating profit and loss analysis. That's Page 24. Yes, the page that you have, this is the elevator chart. When you look at the third from the right, which will be the fluctuation of fixed cost, increase and decrease in fixed costs. So there is a JPY 10.1 billion which is increased for the first half, and there is minus JPY 18.1 billion for the second half. Why is this fixed cost going to be increasing? Which are the segments and what are the reasons? I think you have been changing your plan from the beginning of the fiscal year. So can you once again give us a breakdown?

[Unknown Executive]

Okay, that's understood. When you look at the first half, which is JPY 10.1 billion improvement that you're seeing compared to the previous year, so there is a fixed cost as well as marginal profit for PC. So the PC fixed cost is now gone compared to the previous year. And for the second half, so there's an increase of about fixed cost of JPY 18.1 billion. I think that's what you're seeing here.

And when you look at the divisions. There are the 3 building companies, the Building Solutions. We made capital expenditure, and there will be some depreciation, and there would be some R&D cost. And on the digital TDSL company, we are seeing a boost in our R&D cost for software development. And from Toshiba TEC, there are future I think developing fixed costs which will be increasing. So I think that would be the breakdown by division. So there's nothing significant, so there's nothing extraordinary and nothing big. So I should not be disclosing something that will be a personal opinion or an observation. But for those that are operating the businesses, we maybe -- I think maybe the business operators and the people that are operating the businesses are looking at this more from a conservative view. They want to go for something that's more solid.

[Kenji Yasui, analyst]

So PC is not included in the restructuring effect?

[Nobuaki Kurumatani, executive]

No, it's not included. PC is not included in the restructuring effect. It is just marginal profit. It's going to be minus. And the fixed cost is also gone compared to the previous term.

[Fumihiko Kimura, executive]

Next question, please. The front row, please.

[Hisashi Moriyama, analyst]

I'm Moriyama of JPMorgan Securities. My question is regarding your performance in the first half of FY '19. And Page 3, you explained segment by segment. I wonder if you would evaluate this to be in line against your internal target set and if there's any weakness or strength that you'd like to highlight?

[Unknown Executive]

Thank you. Well, first -- a conclusion first. In terms of the first half, I would refrain from giving you kind of a headline characteristic of description. But from our original plan, we are ahead. In other words, improvement is seen in Infrastructure as well as digital businesses. I think purely speaking there are -- net sales is increasing. And also from the second half of the previous fiscal year, some of the orders were shifted to the first half of this fiscal year.

[Hisashi Moriyama, analyst]

I see. So that was a big contributor. I understand. Now the other question is regarding the slide on Page 24. When I look at this slide, once again you talked about fixed cost. And in terms of what increased and what decreased, the first half was JPY 9.3 billion plus. And then second half was minus JPY 11.8 billion. And then all together was JPY 22 billion minus, on the negative side. If you could, please supplement?

[Unknown Executive]

Well, net sales, in reality, there is a resale of Memory, which we used to do and now it's not continued. So we have to exclude those factors to make apple-to-apple comparison, so to speak. But when we look at second half only, excluding one-off factors, we are less by about JPY 80 billion in terms of net sales. The reduction of marginal profit is somewhat limited. And we need to capture that in conjunction with the net sales change. Part of the reason is Energy business, which we didn't really have real sales. And in the semiconductor, what we had was really negative sales, and they have been minimized. I wouldn't say entirely down to the 0 level, but they are very minimized. So I think those are some of the factors behind this. Thank you.

[Fumihiko Kimura, executive]

Any other questions? Okay, the individual in the very front row, please.

[Mikio Hirakawa, analyst]

I'm Hirakawa from Merrill Lynch Securities. Same on Page 24. Yes, Page 24. There's one question. This is surrounding risk buffer. I think in the first half -- so before, it was JPY 14 billion. It's now JPY 11 billion, and JPY 3 billion maybe has been paid out somewhere. So where is that?

[Unknown Executive]

Simply put, the semiconductor area.

[Mikio Hirakawa, analyst]

Okay. And so there's JPY 11 billion risk buffer that you currently have. So what would be the area that's prone to be used in the second half? Would that be for the semiconductor area?

[Unknown Executive]

As a company, this is risk buffer as a company. So we hope that we don't need to use this to the extent possible. This is just a possibility. I think risk factor lies in maybe China where semiconductors could, with some trigger, turn negative as a business. There is a possibility. But we are making sure that, that will not happen. And tomorrow, I think Fukuchi will be explaining and briefing you we have operations in place to avoid such situations.

[Fumihiko Kimura, executive]

Any other questions, please. The third row, please.

[Kota Ezawa, analyst]

I am Ezawa of Citigroup Securities. I'm sorry I'm kind of going back to the earlier question. Your EPS improvement of 21% FY '20 by the 3 companies being 100% subsidiaries. I wonder if the 21% in part comes from onetime benefit.

[Unknown Executive]

Well, it's not really a onetime benefit reaching 21%. Of course, the performance of the 3 companies might change going forward, and that might alter our visibility. But currently, [ with ] a minority shareholder, and then we can just count on it as is. By the acquisition, there is no kind of one-off effect that will change that landscape. So speaking of -- kind of a common sense, each company's performance, there might be some synergy effect or reform on a structural -- structural reform. Those are the reasons for the EPS improvement.

[Kota Ezawa, analyst]

Is that the right framework to understand?

[Unknown Executive]

Yes. There are 2 things as they continue their operation as is, what has been missing, which is equivalent of the minority shareholders' portion, and that is now included. And then as Kurumatani explained earlier, we are scrutinizing as to what is really doable, but we are very eager to roll out synergy efforts with them.

[Fumihiko Kimura, executive]

The individual towards the window, the fourth from the front, please.

[Damian Thong, analyst]

From Macquarie, I am Damian. On Page 18, I think this is around in order received. I think there's 19% order received increase, and Energy System is seeing a growth in orders received. When you look at the second half, how should we be observing this, especially for there is 2% decrease in order backlog? And when you look at your second half sales, it seems like order backlog could decrease further. So for this fiscal year, next fiscal year, what would be the trend that you're seeing for orders received? That's something that I would like clarified.

[Unknown Executive]

So this is just a trend that I can discuss. For the second half as well, we are seeing very good orders coming in. We do not -- we would not see much of a decline in order backlog. It's 19% for the first half, and we are seeing an increase here for orders received. I think we will be able to continue to grow our orders received at the same pace. We are having order receiving activities in place, so we will need to wait for the results to come in. However, that's our outlook of now.

[Damian Thong, analyst]

When you look at the breakdown of the orders received, what are the types of orders that you are receiving? Can you explain a little further, please?

[Unknown Executive]

Excuse me? The content of the orders received and also profitability?

[Damian Thong, analyst]

I think there were loss generating contracts in the past. We do believe that will continue to be erased. So can you tell us now for the new orders received how the profitability is looking and what type of orders are being received?

[Unknown Executive]

I think you're referring to maybe order backlog. We want to increase the orders received. And also, we want to also increase our order backlog as well. But as you have rightly pointed out, there were loss-generating contracts from the past which is still inclusive into order backlog. And we're only taking on good-quality orders, and order backlog which are loss generating will decrease. And in order backlog, the gross profit of loss-generating contract is now booked at 0. And therefore, loss-generating contracts will shrink. And that means that gross margin level will increase.

[Fumihiko Kimura, executive]

Any other question? The first row, right behind.

[Kazutaka Yoshizumi, analyst]

I am Yoshizumi of SMBC Nikko Securities. I have 2 things. One question is regarding Energy. You had a nonprofitable engagement last year. Now you've canceled that. That's settled. But in addition to Energy -- or either in Energy or elsewhere, if you have anything that is large scale where you were able to kind of reform your profit structure?

[Unknown Executive]

In terms of what I can think of right now, nuclear activities overseas is a previous -- past case, and the settlement was done. And in the second quarter, it's within Energy and within nuclear business that is listed there. So when you look at Op margin, it's improved as a result. Other than that, I can't think of anything else, I think that's about it.

[Kazutaka Yoshizumi, analyst]

And my second question is with regard to what you described in the earlier session, the way about thinking of the capital. And looking at from outside in terms of example, your assessment as to where the threshold is, what's a healthy level -- if you have like kind of a criteria that you can share with us?

[Unknown Executive]

Well, Kurumatani explained about that subject in detail in his presentation. In our balance sheet, we look at risk assets. When I say risk assets, they are possible to be converted as risk assets. In other words, they're not currently so but potentially so. And we look at them, we kind of add them one by one. And we think that there should be a shareholder capital equivalent to that mass of the risks that we could potentially face. And we always have to compete in the market. We have our competitors. So their profile could be quite similar to ours. And we have to use the same weapon. So we look at other companies', competitors, equity ratio, for example, and then try to be reasonably in the same number set. And another issue is how we look at the market going forward. Basically, the shareholders' equity is something that we hold in case something happens in the future which might require that capital to be injected. So as Kurumatani explained, we -- our process is to make sure that we scrutinize each business and evaluate them correctly and share that information amongst the Board of Directors and make decisions as to how much should be reserved in this contingency.

[Fumihiko Kimura, executive]

Okay, the individual on the side, please.

[Kenji Yasui, analyst]

Please excuse me, I am Yasui from UBS once again. There's one additional question. As for restructuring for semiconductor area and withdrawing from the LSI business. When you look at next fiscal year, exactly how much sales from a scale point as well as maybe profitability level are you expecting? Can you give us a hint?

[Unknown Executive]

For the second half, we know that sales will probably decline. But I think corporate bond is going to be maintained.

[Kenji Yasui, analyst]

So what type of people or maybe factory or maybe procurement structure is going to be in place?

[Unknown Executive]

What I can say at this point in time it will be -- that the logic side is not going to be our business any longer. We're going to withdraw from that because we don't have much profitability. So I think sales would be in the order of billions of yen. And I think it will basically be corporate bonds, and we need to see how we increase this corporate bond. I think if time provides tomorrow I'm pretty sure that Fukuchi will explain a little more in detail. So if you can maybe listen to his briefings tomorrow, please.

[Fumihiko Kimura, executive]

Any other questions? The second row, please.

[Shintaro Shimada;Mitsui Sumitomo Asset;Analyst, analyst]

I am Shimada of Mitsui Sumitomo Asset. Regarding your orders on Page 18, if you could give us a breakdown between Q1 and Q2, that would be very nice if you would. And you are scrutinizing your orders. You're screening to get good quality. But looking at this amount of order received, you're increased by 19%. That's actually quite surprising. When you really screen your orders, usually that much growth is not captured. So those 2 questions, please.

[Unknown Executive]

In terms of screening our orders, you are saying that plus 19% is quite a bit of surprise. I hope you're not really criticizing us for that. But first half of FY '19, especially in the Energy, we have captured good businesses, corporate project. Assessment department has done a very good job in looking at different data sets, some of which were put together by our thermal business experts. We talked about 5% threshold that we would like to keep. And we've actually been able to surpass that threshold quite a bit with this order that we captured in the first half. This does not occur every 6 months, I have to say.

[Shintaro Shimada;Mitsui Sumitomo Asset;Analyst, analyst]

So that is impactful then whether that was part of the first half or the second half. Was there anything that you can mention in that regard, for that was Q1 or Q2?

[Unknown Executive]

I don't have the correct document in front of me. So a follow-up later. Thank you.

[One correction to be made about the previous question. What was interpreted as corporate bond was incorrect. This best be replaced with onboard or automobile.]

[Fumihiko Kimura, executive]

Since it is time, we would like to conclude the Q&A session. Thank you all very much for bearing with us for a very long time. Thank you.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]