Hitachi Aktie

Ladies and gentlemen, thank you very much for taking time out of your busy schedules to join us today. At this moment, we will begin Hitachi Limited web conference on Q2 FY 2026 earnings. [Operator Instructions] First, Kato will provide an overview of the earnings to be followed by Anand's presentation, who will explain Hitachi Digital, the new company we announced today. Anand is CEO of Digital Engineering & AI Solutions Business Unit. Please wait while the slides have been switched. Kato-san, the floor is yours.

[Interpreted] I will explain our consolidated results for the second quarter of fiscal year 2026 and the outlook for the current fiscal year. First of all, I would like to talk about the performance highlights. Turning to our results for the second quarter of fiscal year 2026, Q2 revenues rose substantially, up 15% year-on-year, driven by business growth as well as factors, including foreign exchange effects.

As in Q1, all 4 sectors, energy, led by its power grids business, DSS, Connective Industries, CI and Mobility posted higher revenues and higher profits. Both revenues and adjusted EBITDA reached record highs for second quarter. Quarterly net income and core free cash flow would each have exceeded the previous sales level, excluding the impact of last year's business restructuring, including the air conditioning business.

Next, fiscal year 2026 outlook. Following the upward revision in Q1, we have again revised our key financial figures upward, including net income reflecting Q2 results that exceeded our original plan, order trends and progress in productivity improvement, we raised our revenue forecast by JPY 300 billion, mainly in DSS and CI and adjusted EBITDA by JPY 40 billion, mainly in Energy and CI.

We have also revised full free cash flow and ROIC upward. In the second half and beyond, we plan to continue making CapEx, including capital investment as well as corporate growth strategy investment to accelerate AI utilization and develop the HMAX solutions. We will also continue to monitor geopolitical risks as well as the impact of rising interest rate on customer demand.

As in Q1, we achieved double-digit revenue growth in Q2 with broadly similar trends. So I will go through the first half highlights by segment. Starting with DSS. Now, the IT business, both orders and revenues grew 10%. In Q2, we incurred a one-time loss, a cost of JPY 9 billion, but profit increased for the first half, thanks to revenue growth and ongoing productivity improvement through AI utilization and other measures.

Adjusted EBITDA margin also improved year-on-year. For the full year, we revised revenues upward JPY 70 billion to reflect the Q2 results and order trends in domestic IT business. Adjusted EBITDA, we have maintained our forecast year-on-year, having absorbed the loss costs. In Energy, power grid orders were strong again in Q2 following Q1, rising substantially in the first half. We continued solid growth in demand for power transmission equipment. Revenues rose 32%, including foreign exchange effects.

Higher revenues combined with productivity gains and other factors also drove a substantial improvement in profit margin. For the full year, the revenue forecast is unchanged, but we revised adjusted EBITDA upward by JPY 33 billion, owing to productivity gains from process management, loss containment and other measures. And profit margin is expected to improve by 15%. In Mobility, Railway system orders were strong again in Q2 following Q1, thanks to large signaling and control orders and foreign exchange effects rising 40% in the first half.

Revenues rose 18%, supported by a solid Lumada business such as railway signaling system as well as foreign exchange effects and the profit margin improved year-on-year. For the full year, we expect higher revenues and profit and will grow in line growth in the other business such as railway signaling system and higher adjusted EBITDA. In CI, orders rose again in Q2 following Q1, led by Measurement and Analysis Systems, Building Systems and others, up 26% year-on-year in the first half.

Within this, Measurement and Analysis System orders grew 66% with increases in semiconductor manufacturing equipment and metrology and inspection equipment against the backdrop of growing investment demand in semiconductor business.

Revenues rose 11% year-on-year and the profit also increased, driven mainly by the growth in measurement and analysis systems together with the expansion of the service business in Building Systems and the foreign exchange effects. For the full year, we raised revenues up by JPY 50 billion and adjusted EBITDA by JPY 5 billion, reflecting the metrology and inspection equipment expansion and change in timing of home appliances.

Here, I will explain the half year results and full year outlook, excluding special factors. Excluding special factors such as foreign exchange, business restructuring and onetime effects, Hitachi consolidated revenues grew 10% in the first half, and we expect this momentum to continue with growth at a similar level for the full year. The adjusted EBITDA margin also improved year-on-year in the first half and is expected to improve by 120 points for the full year. So we have revised upward from the previous forecast.

Underpinning this is continued growth in orders backlog. As shown in the bottom right, the order backlog in each sector is growing steadily. I will now outline the features of each segment for fiscal year 2026. In DSS, second half revenue growth is expected to exceed the first half for full year growth of 8% in fiscal year 2026. This is 2 points higher than the previous forecast, reflecting growth in the domestic IT demand. The main drivers are similar to first half, AI transformation and modernization likely to continue. The profit margin is also expected to improve year-on-year.

In Energy, we expect second half growth at roughly the same rate as the first half for the full year growth of 21%, mainly through higher production capacity from planned capital investment and headcount growth in power grids together with productivity improvement, we expect a higher full year profit and a substantial improvement in profit margin.

In Mobility, we expect to maintain a solid growth for the full year in the first half. As in the first half, the profit margin is also expected to improve, thanks to better business mix across railway signaling system and vehicles and cost reductions. In CI, second half revenue growth is expected to exceed the first half with growth for the full year as -- well, the main growth drivers include semiconductor manufacturing equipment and Measurement and Analysis System and service business in Building Systems. But Lumada business, service business is expected to improve. Here, I will explain the year-on-year comparison to the first half.

Revenues grew 7% year-on-year. Even excluding special factors such as foreign exchange effect, onetime events and impact of Middle East situation, we achieved a 10% year-on-year growth from business expansion. All 4 sectors posted higher revenues. Excluding special factors, adjusted EBITDA margin improved 110 basis points year-on-year to 12.8%.

Now year-on-year comparison for the full year. Revenues are expected to grow 13% year-on-year. Even excluding special factors, we expect to achieve 11% year-on-year growth. We plan higher revenues in all 4 sectors. The adjusted EBITDA margin is forecast at 13% or 13.6%, excluding special factors.

Next, the interim net income and cash flow first half results. Excluding the negative impact of approximately JPY 150 billion from last year's business restructuring, interim net income increased year-on-year. Core free cash flow also increased year-on-year, excluding the approximately JPY 60 billion impact of last year's business restructuring, including the effect of large advanced payments rose by JPY 200 billion year-on-year.

Now full year outlook. Despite the impact of last year's business restructuring, net income is expected to rise by approximately JPY 120 billion year-on-year, driven by higher operating income. Excluding the effect of last year's large advanced payments, core free cash flow is expected to increase by approximately JPY 90 billion, driven by higher adjusted EBITDA and improved net working capital despite increased CapEx and impact of business restructuring. In terms of cash conversion ratio, 100% will be maintained.

Topics. Hereafter, I will introduce the topics. We continue to make steady progress transforming our portfolio, including the transfer of Hitachi Construction Machinery shares, a partial sale of the share of Astemo, an auto parts manufacturer as well as setting up a joint venture for the ATM business where we are the minority shareholder.

Further, we are planning to sell the share of our electric appliances business by the end of next fiscal year. With respect to capital allocation for shareholder return, in view of the upward revisions we made to our core FCF and rising interest rates, the interim dividend payment will be increased above our initial forecast. It will be raised by 36% year-on-year. Share buyback for the first half totaled JPY 290 billion, which is half of what we have planned for this fiscal year.

Regarding our growth investments, as is shown in the chart on the right, as part of organic growth investments, we increased year-on-year. CapEx, including those for the power grid business as well as investments for corporate growth strategy, including those for promotion of AI use and development of HMAX solutions.

On top of that, we executed an inorganic investment of JPY 90 billion. Our company continues to proceed with the growth strategy. Under our capital allocation policy that we said at the beginning, we will make the necessary growth investments going forward as well.

Here on this slide, I will explain the progress of our growth strategy in DSS. First, on Japan's IT service business. In the first half, AX modernization in financial and social infrastructure fields drove the growth. Revenue increased by 7% year-on-year.

By sector, financial infrastructure centering around insurance grew 19%. Profit margin also went up when adjusted for one-off factors. On a full year basis as well, mainly in financial and social infrastructure fields, revenue is expected to rise 6% year-on-year and profit margin also is projected to increase after adjusting for one-off factors.

In the overseas IT business, total business of Hitachi Digital in the first half when combined with revenue from synergies with other sectors rose by 28% year-on-year. Revenue from synergies grew substantially year-on-year, primarily in Energy & Mobility.

Furthermore, because the market environment surrounding the digital engineering business was severe, an order-taking strategy with a focus on profitability was implemented, resulting in a revenue at the same level as the year before on a stand-alone basis. The highlights of Q2 performance in FY '26 are, as I described at the beginning, we steadily executed our inorganic strategy as well.

Next, on Page 17, allow me to discuss our financial conditions. Total assets at the end of Q2 in FY '26 came to approximately JPY 15 trillion, which was roughly the same level as the year before. Cash and deposits increased, but so did advances received at the same time. CCC, Cash Conversion Cycle declined slightly, mainly due to a reduction in account receivables and an increase in advances received, resulting in improved funding efficiency. This shows the status of revenue in Q2 by region, including the impact of foreign exchange.

Revenue grew in all regions, particularly in North America and Europe. In DSS, Japan's IT business, Europe storage business were robust. Energy expanded in almost all the regions, in particular in North America. I would like to explain the orders received in Q2 by segment. Orders for DSS with increases in Japan's AI transformation and modernization businesses were up 14% in Q2.

For Energy, the power grid business grew 47% overall due to the contributions from multiple large-scale HVDC projects in Europe and data center project in the U.S. on top of brisk demand for transmission facilities. Mobility was up by 69% in total with large orders for projects involving railway vehicle and signaling and control systems in Europe.

In CI, against the background of expanding investment demand in the semiconductor industry, measurement and analysis systems centering around semiconductor manufacturing equipment were up 77%, leading the growth in CI overall.

Lastly, I will explain the Lumada business on Page 28. Lumada, the pillar of our growth business. In the first half, Lumada accounted for 44% of Hitachi's consolidated revenue. As is shown on the right, in FY '26, our plan is to raise its revenue by 25% and profit margin by 17%. Primary areas of growth for Lumada have been Japan's IT business in DSS, semiconductor manufacturing equipment in CI's measurement and analysis systems and service business in Building Systems, amongst others.

HMAX, which is the solution for Lumada's digital service business exhibited a progress rate of 47% against the FY '26 full year forecast of JPY 510 billion. HMAX mainly in CI Railway and DSS led the overall progress. This time, we made upward revisions to our full year forecast for both Lumada and HMAX respectively. I have just explained our Q2 earnings in FY '26.

Looking back on the first half, we realized that we were able to make steady progress in growth, profitability and funding efficiency. On the other hand, in order to achieve the goals of Inspire 2027, management challenges still remain. In addition, the external business environment is uncertain. We, therefore, will continue to strengthen risk management as we take our growth strategy forward.

Now I would like to turn it over to Anand Birje, who has been supervising our overseas IT business since August. He will be discussing our policy going forward and Hitachi Digital's new organization.

Thank you, Kato-san, and good afternoon, everyone, and thanks for taking time to join us today. My name is Anand Birje. I'm the CEO of Hitachi's digital business globally, and I'm based in Santa Clara, California, and it's my pleasure to be here today and share both our market perspectives and also our vision, strategy and plans to execute to the strategy for Hitachi Digital globally.

First off, I just wanted to share how we see the market going forward. Everyone has been talking about the convergence of AI and the amount of opportunity and risks AI has created over the last 3 years. As we look forward to the market, if you go to the next slide, we really believe that there's a convergence of 3 big factors that is driving change across the market.

Cloud as a foundational transformation element to enable data and data foundations that are critical for enterprises to leverage the full value of AI. And then, of course, rethinking every business value chain across industry verticals that AI is making possible. And so all these 3 hype cycles, and I'm calling them hype cycles because we all know that every industry leverages these capabilities and these new technologies at different pace and at different maturities.

And so we're seeing these hype cycles converging over the next 5 years. And so at Hitachi, we actually see enormous opportunities in this conversion zone to basically both bring our capabilities, to bring our customer base and opportunities we have accessing the customer base and deep domain expertise to help customers leverage all these 3 elements of transformation.

If we go to the next slide, one of the things that I've talked about is how Hitachi as a both digital services company and as Hitachi -- One Hitachi conglomerate is uniquely positioned to take advantage of these transformations happening across the market and market driven by AI enablement and AI-led transformations.

First off, if you look at us, we are uniquely positioned in our domain expertise in the industries we currently operate in, which is energy, mobility and connected industries, but also industries we serve across the world in the mission-critical areas of telecom, automotive, banking, financial services and healthcare, life sciences.

In these industries, we have unique advantage of strengths in domain and understanding of domains to create FDE teams that work with our top clients to leverage capabilities that we've built with HMAX as our framework for data fabric and creating ontologies for these customers in these industries and most importantly, leveraging our ecosystems of partners and capabilities to deliver transformation services across every layer from the infra layer to the data layer to the agent applications layer and then, of course, the business process transformations layer.

If we go to the next slide, we believe we are uniquely positioned at Hitachi Digital, both in terms of what we've been building as capabilities globally with GlobalLogic as a digital engineering, product engineering services company and Hitachi Digital Services, which has strong cloud operations, IoT and platforms capabilities across the world.

Bringing these 2 capabilities together has allowed us to create transformation both within our own front business units. And you see we've grown 46% year-on-year, delivering these synergies and transformations across our FBUs, but also creating opportunities to serve the 7 verticals that we focus on that I've talked about, mission-critical industries that are critical to societies and the world across the world.

Second is really creating 4 growth service lines. We believe cloud and CloudOps, data and insights, enterprise platforms and agentic platforms. And last but not the least, IoT that is an enabler for physical AI, are capabilities that are uniquely positioned for us, and we're bringing the convergence of these capabilities along with the vertical focus areas to transform our top 200 customers, which have grown in single digits in the last few years, but we've seen the opportunity to really take part in vendor consolidation across these customers because they trust our brand, they trust our capabilities, and they see unique sort of end-to-end capabilities that we drive along with domain expertise in these customers.

Last but not the least, we've been investing steadily over the years in our IPs, which are both domain focused in the 7 industries that we focus on and also enabling ontologies for these industries to really enable and leverage AI for their business process transformation. One of the things that we are doing and going to the next slide, we are excited today to also announce a new name that brings our services businesses, namely GlobalLogic and Hitachi Digital Services together. And the new name is Hitachi Digital. And starting tomorrow, you'll see brand campaigns that define Hitachi Digital, if you go to the next slide, and our brand theme around Hitachi Digital, which we proudly are sharing here with you all today, which is engineer what the world depends on.

As you all know, we cater to mission-critical industries that societies depend on. And we've been delivering both the physical layer and digital layer transformations in these industries, and we'll continue to do that, enabling these industries to take full value and full potential of AI in the coming years.

If you go to the next slide, you're going to see a lot of the brand purpose and brand transformation across our services businesses globally. But really, the focus is on being a services company that helps complex industries leverage data, AI and physical technologies and IoT technologies, convergence, sustainably build business transformation in these industries as we cater to these customers across the world.

If you go to the next slide, one of the things that we really are trying to, hence, simplify for our employees, for our customers and for our partners is what is our growth strategy. And we actually break it down into 3 areas. One is our core, which is our strength in the chosen verticals and the industries we serve as well as the industries we operate in.

Second is the AI era and the service line transformation that we're doing with focus on service lines that are enabling AI adoption, namely data and insights. IoT and physical AI, enterprise platforms and agentic platforms; and lastly, cloud and CloudOps, including FinOps and TokenOps. The multipliers for us include our IP-led differentiation so that we non-linearize how we serve our customers and help them build ontologies that help them build the foundations for AI transformation.

And secondly, we'll continue to look at inorganic transformation and inorganic acquisitions. We've been successfully looking at inorganics and acquired capabilities across the world over the last few years. But I think we are now even more poised well because of the integrated organization, because of the leadership structure we've created and because of the customer access and market access we have to participate in consolidation and acquiring capabilities in verticals, in geographies and in horizontals that we've identified as our focus areas.

And last but not the least, the amplifiers, which is One Hitachi as a company that has access and understanding of deep domains and operating companies across energy, mobility and connected industries and also uniquely poised with our ecosystem partners, which include hyperscalers, data scalers, model scalers and SaaS and platform scalers. I want to talk a little bit about these partners.

So if you go to the next slide. We're not just uniquely positioned here as partners that we leverage to create unique solutions for our customers. With a lot of these partners, as Hitachi conglomerate, we are large consumers of their technology. We are customers, and we create One 360 relationships with each of these partners, and that's what makes us uniquely poised and also the domain expertise we bring to these partners, along with our FDEs to take their technologies and really enable them to create true value and ROI with AI into the customer base that they want to serve and we jointly serve together.

Lastly, if you go to the next slide, we just want to share some of the work we've been doing over the last few years and what differentiates us. We talked about industries we serve. Walgreens is one of America's largest pharmacies and continues to grow as a really consumer-focused, customer-focused, unique pharmacy across the country.

For the last many years, we've been a digital transformation partner and now a data and AI transformation partner that is leveraging technologies to transform Walgreens pharmacy platforms, their supply chain, their last mile filling platforms as well as how they engage with their customers and price for their customers across their stores, across the country as well as their digital stores that they serve for North America.

Hitachi High-Tech has been working with semiconductor companies in leveraging data and cloud to help them optimize their MES systems, their PLM systems as well as creating sort of the last mile advantage in quality and transformation to optimize semiconductor equipment manufacturing and really creating higher productivity across the industries that they serve.

Hitachi Rail is a large customer, and it represents all the mobility and automotive customers we work with. Again, for those customers, we are transforming how they manufacture, how they repair, how they do predictive maintenance, how they actually do last mile servicing of their customers and pricing of the customers.

And last but not the least, Hitachi Energy, which represents the energy sector that we serve across the world, where there's massive transformation happening, everything from transmission to distribution, to pricing, to load management using data cloud and AI, along with our ecosystems partners. So this is just representative of some of the customers we serve. and we continue to serve in the industries that we chose as the 7 focused industries.

So we really, again, want to reiterate we are uniquely positioned in the global marketplace as we bring GlobalLogic and HDS together into Hitachi Digital to serve 7 mission-critical verticals, 200 of our top clients and continue to serve other clients across the world, using 4 service lines that are really driving growth to enable AI adoption, true adoption with ROI in our customer base and leveraging our ecosystem partners to deliver their technology with value creation in these industries. I will take questions, and we'll pause at this point and hand it over back to you. Thank you.

[Operator Instructions] We will take questions for earnings as well as overseas IT business. [Operator Instructions] Harada-San, please unmute, please ask your questions in Japanese.

[Interpreted] Harada from Goldman Sachs Securities. So the number of questions is limited to 2. My first question has to do with DSS. As was presented, JPY 9 billion one-off factor had it not been there, the margin is increased more than Q1. So JPY 9 billion one-off factors, specifically, what were they? And could something similar happen in the future? That's what I would like to ask for.

And on Page 12, on a full year basis, the forecast the margin without one-off factors is 18% or so. So it seems that full year forecast seems a little weak given the momentum right now. So are you being conservative? And you are leveraging AI to increase efficiency of development. Is that the case? If you could also answer that? That's my first question.

[Interpreted] Yes. Allow me to answer. So one-off factors, as I explained, in one project, loss cost overrun happened, unfortunately. It's in the area of SI, that's Social Infrastructure business. Having said so, we know what the outlook is going to be.

So in Q2, because of the loss cost, I think the project will wind down. And I don't think there will be any further effect from that going forward. And regarding the margin, in the first half, excluding this 17.2% on a full year basis, you suggested that perhaps our forecast is rather conservative, but this is because it depends on the mix of projects. Rather than being conservative, we're looking at the projects.

As we do so, the first half number is as presented as well as the full year forecast. So we're being neutral in that. But this is a testament to our capabilities. So we will continue to work toward improvement.

[Interpreted] Just a follow up. So regarding AI utilization, you will use AI to improve margin as well as productivity. In Japan, I think there's a quite robust demand for that. So perhaps projects that you have not been able to capture, you may be able to capture going forward, that's a possibility. So next fiscal year, 2 years from now, when will we start to see the impact? If you could please follow up on your answer.

[Interpreted] As I have already explained, as of end of last fiscal year, SI business has realized 10% productivity enhancement. And FY '27 goal is set at 30%. So this fiscal year, at the end of fiscal year, 20% productivity enhancement is what we're looking for. So I think we will start to see the impact of that on our margin gradually.

[Interpreted] My second question, and this is a question to Anand-San. GlobalLogic and Hitachi Digital Services were merged. And additionally, what is it that you will be able to do as a result of the merger? On Page 11, you talked about the track record so far. But additionally, what is being enabled as a result of the merger? And in terms of digital services, AI-enabled cyber attacks are happening. So customers are discouraged to connect to the network that's negative. And AI could also, however, be used positively to enhance security. So what is Hitachi's position on that? And what kind of commercial opportunities, business opportunities do you see?

All 3 great questions, by the way, there are 3 questions within your question. But first off, I think in terms of what does this merger bring together? Let's start with capabilities. If you look at GlobalLogic, the strength and capabilities of GlobalLogic over the years has been strong product platforms and application engineering, which is very critical, which is where the process and business process of every industry lies is at the application layer and the data layer.

So product engineering, platform engineering and data engineering were strengths and our strengths of GlobalLogic. Hitachi Digital Service, on the other hand, has always built capabilities around enterprise platforms and agentic platforms, such as ServiceNow and Salesforce and SAP and Oracle as well as IoT platforms around MES, PLM, SCM and CloudOps, FinOps and now TokenOps.

So as we combine these 2 organizations, we are now able to offer to our customers everything from engineering and build to transform and operate, which is really what customers are looking for as they consolidate their vendors and are able to work across the layers from the infrastructure layer to the data layer to the API layer to the applications layer with fewer vendors who have end-to-end capabilities. So the capability as we bring together the 2 organizations is a big advantage to customers.

Secondly, both organizations have customers who really like the capabilities, have long been loyal customers and have worked with both organizations for a period of time, but they have not worked with each other's organizations. So cross-pollination and really cross-selling into these customers' capabilities of each of these companies is a huge opportunity for us ahead and vendor consolidation is happening in the market.

And given our size and the trust customers have in the Hitachi brand is something that we are leveraging a lot in driving the vendor consolidation. Third is between the 2 organizations, we have strong deep domain expertise in different industry verticals. And as we focused on 7 industry verticals that I talked about earlier, we're able to bring the best of domain capabilities in addition to the horizontal capabilities of both organizations together.

And last but not the least, I think the fact that these organizations are now operating as one single company with a single CEO, which is myself, a single CTO, which is a single CMO and the entire executive leadership that is one operating model, it makes it easier for customers, partners, our ecosystem analysts and advisers and industry at large, including our own employees, to see us as a single large global technology services and digital services provider and work with us in a much more sort of seamless manner. So that's the third big advantage.

I think your question on AI and the risk is absolutely right. I think last 3 years, what we really, really believe has been a lot of hype around AI, right? A lot of POCs created, a lot of interesting opportunities explored. But as we look at the next 5 years, enterprises are looking for more realistic adoption, and it starts with understanding the risk of security, risk of governance, risk of overrun of costs. And most enterprises are not ready for it. And that's something that we bring as a large enterprise ourselves working across 3 mission-critical industry sectors, energy, mobility and connective industries, we are doing AI adoption in our own companies.

And doing that at scale in extremely regulated industries has allowed us to build IP frameworks that help us build harnesses, AI agent registries, security protocols, both at the OT layer and the IT layer because, again, we work both at the physical and digital AI layers. And then last but not the least, bringing governance around how our engineers build for each of the domains and solve for each of the domains using AI data and cloud foundations. So I think, again, just having that own expertise is what has helped us become valuable to our clients. So great questions.

[Interpreted] And with respect to cybersecurity, because this also concerns Japan, just to add, within DSS, there's cyber CS -- cyber COE, rather. And this is playing a role in defending against cyber attacks, and we're exploring the risks. And we're also helping customers defend themselves. So centering around the COE vis-a-vis customers, we're coming up with ways to defend them, help them defend themselves.

From customers who are responsible for critical infrastructure, we're seeing increasing number of inquiries for security. Well, Hitachi work with customer FDE and cybersecurity COE, both of them are going to work together to provide solutions to customers' problems.

Our strength is representing AI Anthropic, for example. So utilizing our frontier technology, we're able to provide technology, including that of Anthropic. And we have OT internally. So inclusive of OT Customer Zero as well as physical security, we're in a position to provide all of that.

Takizawa-San, please, over to you. Please unmute and ask your question.

[Interpreted] Regarding HMAX, in terms of the target has gone up Y-o-Y, 70%, there is a significant growth that is expected in HMAX. Is it the reclassification of existing service? Or is it a net increase or net acquisition? Can you give me a breakdown between the 2? Furthermore, in terms of the net increase, 22% EBITDA, is it high EBITDA in a similar way? What should be our understanding?

Hatakeyama-San, please respond.

Regarding HMAX, now this time, compared to the Lumada definition so far, we have a more detailed definition. HMAX definition is given in the appendix, digitalized asset, the data utilization and AI enabler strengthened and recurring digital service. These are 3 that have been identified.

And there might have been some that were satisfying this, but we have reclassified according to the definition and posting revenues for HMAX. In order to make this HMAX, the conditions must be met. And that has been reflected accordingly. So please consider that most of this will be new business.

[Interpreted] Regarding Energy, on the other hand, in this result as well as the 5-year plan, in both context, I would like to ask the following question. In terms of the midterm energy, the supply capabilities increasing by 2.5x. These are growth rates that are explainable. So price increase more than inflation seem not to be reflected. But what about the recent past profitability, 2.6 point improvement has been made in terms of profitability. So is the margin going to be pushed up because of the price of orders? Is it more than the inflation increase? Please talk about the recent past.

[Interpreted] Now in this case, for energy, in terms of revenues, we have not made upward revision. We have changed the profit level. At the time of July, we had a revision. But the revenue level was being forecast at the very last minute before the announcement. Therefore, taking into consideration the production capability, we believe that this is a level we can achieve. Then why has the margin increased is the question.

Productivity increase is the driver. Productivity increase means that different process must be smooth and improvement has been made. From 1 year ago, ERP utilization has gone up. And inclusive of AI utilization, this is contributing to productivity increase. Furthermore, for major projects that we are working in, there is loss cost potential that we have to be aware of. Contingency must always be factored in.

And so far, this is working well. Loss cost was not as high as expected originally. And that is the reason why the profitability has increased. Furthermore, it's not related to the upward revision. But in terms of a long-term trend, I would say that price is still continuing to improve for the backlog, we are looking at the gross margin, and there is no change in the trend. I believe that there is room for further improvement. The upward revision that we have made has been factored in, in the first quarter. Productivity increase is the driver for the profit margin increase.

Next, Hirakawa-San. Hirakawa-San, please unmute and ask your questions in Japanese please.

[Interpreted] Hirakawa speaking. I have 2 questions. Question number one is directed to Anand-San. Once again, why did you join Hitachi? Why did you decide to work for Hitachi? You worked for Emerson as part of your career, industrial company or Encora digital companies and so forth. But what kind of experience that you've had will contribute to Hitachi Digital's success? Is there affinity, if I may ask? That's my first question.

Again, a great question. You're right. If you look at my career, it actually spans across 2 very distinct industries where Hitachi is uniquely poised in the DSS or Hitachi Digital business. I started my career in industrial control systems with Emerson Electric, both at the physical IoT layer, the Emerson's distributor control systems business and then at the MES and MMI layer with the SCADA business, which was Intellution.

And then for the last 20 years, actually more than 20 years, I've been involved in large global systems integration, digital engineering, data engineering and application services businesses across HCL Technologies for almost 20 years, building 2 big businesses within HCL. And then more recently, Encora, which was a direct competitor to GlobalLogic headquartered in Santa Clara, doing digital engineering, data engineering services across industry verticals.

So as I sort of looked at my career forward, I really found Hitachi to be uniquely positioned that brings both of these capabilities. Very few, really, if any, companies across the world can really combine these capabilities that are going to be important in what I call the phygital enterprise transformation, the physical layer and the digital layer transformation. Very, very few companies can do digital, both layers of transformation and especially complex regulated enterprise industries.

And so again, sitting in Silicon Valley for the last 30 years and working across enterprises across the world in transforming and building digital services, I felt this critical phase of my career, I really needed an enterprise and a company of the size and scale, which has the ability to invest in AI, in data and digital transformation and physical transformation and partner with some of the best companies in the world. And that's what brought me to Hitachi.

And I think the experiences from my last 30 years between the 2 industries is what I bring in the convergence of phygital for Hitachi. And of course, additionally, just the industry networks and people who have worked with me across these industries and these companies are excited about Hitachi and our way forward, and that's what's represented in the new leadership we are building together. Thank you very much.

[Interpreted] Second is about engineering service. So on Y-o-Y, this year's target is 6%, 6% increase Y-o-Y. I think it's rather normal, not too high, but revenue is an increase of 3% Y-on-Y. So revenue increase in engineering service is rather low. And that is because strategic withdrawal from the business of focus. Is that how you're going to explain it or and within Hitachi Digital's revenue non-focus business -- correction, non-focus business, what is the percentage what is the percentage of that as a total? Will this withdrawal from non-focus business end this year? Or will it continue into the next year and onward? What is the time line? That's my second question.

[Interpreted] So I will answer the first part of question 2. And for the latter part, I would like to turn to Anand for an answer. In Engineering Service, Y-o-Y revenue growth of 3% is set. And that is because Hitachi Digital, which is former GlobalLogic and HDS combined, HDS itself was growing revenue quite successfully in manufacturing sector and synergies with other Hitachi companies.

Regarding GlobalLogic, as was explained today, strategically, narrowing down on verticals, that's what Anand has started to do. And because of that, our revenue target is set at this level. And on this fiscal year, we will pursue various structural reform. That is Anand's policy. And as to the future outlook, I would like to invite Anand to comment on that. And what's the time line as well?

Thank you, Kato-San. And as Kato-San rightly suggested, we really look at this year as a year of reset and accelerate. And we believe that if you look at the next 5 years, being very intentional about the verticals we want to focus on, the intentional to focus on horizontals where we see growth acceleration.

I talked about data and intelligence, I talked about cloud FinOps and ops. I talked about IoT and physical AI and of course, enterprise platforms for agentic modernization. This is where we are seeing growth acceleration across both our customers and competitors' customers who are attracted to consolidate and looking at us as an end-to-end physical and digital AI services company.

And last is intentionality in the geographies and the customers we focus on, which is really the 200 top customers that contribute today to about 80% of our revenues. And we see there a lot of growth opportunity because if you look at that base of customers, we've only grown single digits last year to this year. But as consolidation happens based on capabilities of vendors and our now combined end-to-end capabilities, we see higher double-digit growth opportunities in the coming years.

So really, this is a reset year for Accelerate with intentionality around 7 verticals, 4 horizontals 200 top customers and 11 ecosystem partners. I'm not going to project out numbers for the next year, but I'm very, very bullish on the market opportunity ahead. And I can also say that very few companies can play at both the physical and digital layer across the world at scale, especially in mission-critical industries. And that's really what is giving us the confidence of the year ahead.

Next, Inajima-San. Please unmute and ask your question in Japanese.

[Interpreted] I hope you can hear me. I have also 2 questions. First question is regarding the profit revision, it is mainly energy and data center orders received increased is significant. So I have a question about that. Regarding AI infrastructure, is there some credit concerns that is occurring regarding your data center projects, is there been cancellations or reducing in scale? Are there any concerns about the data center business going forward? That's my first question.

[Interpreted] First of all, regarding data center is in terms of Hitachi Energy, it's about a little bit more than 10% in terms of revenues. But backlog is increasing. Orders are increasing around 10% plus level. And therefore, it is growing, but the ratio is, as I have already mentioned. Now in particular, for the orders that we are receiving, there is no delay. Hatakeyama-San, would you like to address this?

[Interpreted] Regarding data center-related business for the projects that we are running today, there have been no delays. In terms of orders, the second quarter contribution was very significant, as we mentioned, in the -- but there is a time lag before it is reflected in revenue increase.

So the orders received this term to contribute in terms of revenue next fiscal year. So far, we are not seeing any delays or any payment issues.

[Interpreted] I have another question. For January, Mr. Kato, CFO, talked about the regulations for China, there have been some delays, but the impact has been limited. [indiscernible] and this interim, I believe that the supply to Japan is becoming more difficult. You said that the impact is limited. Is it still the case? And what are the elements or products that are most significantly impacted? What is the inventory level? And how much production can you maintain given the current inventory level?

[Interpreted] Now to your point, as I've already explained in the past, CI mobility, rare earth, magnets, motors are being procured. And there have been some variation in terms of delivery time. And in terms of procurement partner as well as strategic inventory and alternative sources are being considered.

Currently, the impact is limited. However, going forward, we don't know what is going to happen regarding strategic inventory. We are going to watch this very carefully. And regarding what to be impacted, this would be a breakdown of our operation. Therefore, we will refrain from giving you details on the elements.

We will switch over to the English channel to take questions from those on the English channel. [Operator Instructions] If not, then we will go back to the Japanese channel to take questions there. Yasui-San, please unmute and ask your questions in Japanese please.

[Interpreted] Yasui from UBS Securities. My first question has to do with Power Grids. Following Q1, in Q2, you made upward revision. So on a full year basis, I think your profit is increasing by JPY 20 billion. Will this trend continue into the next year -- or rather JPY 200 billion increase in revenue? I would hope that, that's the case into the next fiscal year, but the number is very large. So will the top line increase in its growth? Will growth accelerate? And is there any downside risk that you are concerned about? If you could please talk on that?

And second, about cybersecurity, I do understand that it's very difficult to quantify, but I'm led to believe that projects in this area will increase in 1 year. In terms of the budget, in the second half of this fiscal year, perhaps projects in this area may start to increase, then what's the level of increase from your perspective? In which verticals or sectors would that be financial services? So at this moment, if you can share any numbers on that, I'd appreciate.

[Interpreted] Thank you very much for the questions. Regarding the Power Grids, as you rightly pointed out, given the size of upward revision and given the profit, yes, it's growing at this profit level. And up until last year, we said that it will continue to grow until 2030. But in the last few months, we're saying that it will continue to grow into 2024. But since the volume itself will be larger, I think the growth will probably slow down. So this year and next year, what's going to happen?

Next fiscal year, what's going to be the accurate revenue forecast, we have not been able to identify yet. But given the overall trend, the growth rate itself will probably gradually start to decline. In terms of the amount, in the last 2 to 3 years, we have made a considerable CapEx and that impact will start to show gradually. That's where we are right now. So in terms of the amount, I don't think the growth will go down all that much, and that's our expectation. So that's how we look at the outlook.

Regarding cybersecurity, your second question, since before, regarding cybersecurity, we're getting requests and request for consultations from customers. And this is a job for us to help customers defend themselves. It's increasing. But at this moment, -- in terms of numbers, which area is increasing, what is the size? We're not yet ready to share numbers. Hatakeyama-San, you could add.

[Interpreted] Customers who are responsible for critical infrastructure -- we're doing business with increasing number of such customers. So power traffic, manufacturing and so forth, these mission-critical customers -- customers in mission-critical industries that support society, we're increasingly dealing with such customers. But at this moment, we don't have any numbers that we can share with you.

[Interpreted] A follow-up question. Regarding Power Grid, if there's any downside risk, what would that be? Regarding cybersecurity, 30 minutes ago, NEC announced earnings, and they said that they are not changing the budget in Q3.

So just 1 or 2 percentage points -- 1 or 2 points or could it be 10%? So which are you close to toward next year? If you could give us a feel as to what the size of growth is going to be?

[Interpreted] Yes. regarding Power Grid, so downside risk, geopolitically and AI as well as cyber, there are so many potential risks that balance. So there's a possibility of fluctuation or change. But what we think our strength is Hitachi's operation is that development side as well as production sites, they are distributed across different geographies.

So I think we have quite strong resilience in that regard. But we have very large projects. And so there are always risks of cost overruns and delayed time lines. So we have to conduct project management and risk management over such projects. Regarding the impact of cyber, would a growth of over 10% happen right away? It's hard to conceive so. But in the world, so many things happen that are unexpected. So we would like to continue to closely monitor. That's where we are right now. Thank you.

We have gone beyond the allocated time, but we will take one more question before we close. Hosuda-san, please. Please unmute and ask your question in Japanese.

[Interpreted] I have 2 questions regarding your energy business. Currently, production level has been increased. And as a result, Hitachi Energy revenues as well as backlog, I think it's increasing by 2.5x or 3x. I think that has been presented. What about the delivery? Is it flat? Or is it becoming shorter?

So please talk about the relevant timing. Furthermore, you said that there was a downside risk, which is geopolitical. For the long delivery time projects, inflation cost increase, can you reflect that on the price? Can you increase the price compared to the time that you receive the orders, can you increase the price thereafter?

[Interpreted] First of all, regarding delivery, we have been increasing the production level on a planned manner. And the productivity is increasing. We want to deliver as quickly as possible. But on the other hand, in terms of orders received, it's very significant. It's still growing. Backlog is increasing, and it is likely to continue going forward.

Therefore, delivery cannot be shortened dramatically, that would be difficult to do. But delivery time to be reduced is very important. But on the part of customers, they have individual requests for delivery and timely delivery is what we are focused on. And in fact, we are making intensified efforts and improvements are being made. Therefore, in this way, we are trying to enhance the customer satisfaction level.

Furthermore, in terms of variation risk, inflation will have a one-off impact. But when we have a long-term contract, that is an important risk that we consider. Therefore, we use indexing. And if prices increase, to be passing through to price in an objective manner has been incorporated into the contract. Otherwise, we cannot accept a long-term contract. This is how we are dealing with this matter. Therefore, I think we are doing a good job managing the process.

With this, we would like to bring the second quarter fiscal year 2026 earnings web conference to a close. Thank you very much for your participation today.

[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]

Thank you very much for taking your time to join us today for Hitachi's financial results briefing. We will now begin Hitachi Limited's Financial Results briefing for the first quarter of the fiscal year ending March 31, 2027.

Let me first introduce today's speakers. Tomomi Kato, the Senior Vice President and Executive Officer, CFO, Hitachi Limited; Masashi Hatakeyama, Vice Perten Executive Officer, Deputy CFO; Shinichiro Tamai, General Manager, Investor Relations division. Those are today's 3 speakers. So Mr. Kato, the floor is yours.

I'm Kato. Good afternoon. Before I begin today's presentation, I would like to express my deepest condolences to those who lost their lives in yesterday's Kumamoto earthquake of 2026 and extend my heartfelt sympathies to everyone affected by this disaster. At this time, we have confirmed no material impact on the Hitachi Group. However, we will continue to closely monitor the situation and take any necessary actions as appropriate. In addition, based on conditions and needs in the affected areas, we are considering what support Hitachi can bid to assist with the recovery efforts.

Now I would like to walk you through our consolidated financial results for the first quarter of fiscal 2026 as well as our outlook for the full year. Let me begin with the key highlights of today's earnings announcement. In the first quarter of fiscal year 2026. The revenue increased 20% year-on-year, reflecting business expansion as well as favorable foreign exchange effects.

Both revenue and adjusted EBITDA reached record highs for our first quarter led by the continued strong performance of Energy Power Grids business, all 4 sectors, DSS, Energy, Mobility and Connected Industries achieved double-digit revenue growth. The impact of the situation in the Middle East during the first quarter was smaller than we had initially anticipated. Quarterly profit was broadly in line with the previous year despite the impact of the progress at JPY 50 billion special dividend associated with last year's air conditioning business reorganization.

On a comparable basis, we regard this as an increase in profit Core free cash flow also exceeded the previous year's level despite the absence of large advance payments supported by improved collection of trade receivables. Now our outlook for fiscal year 2020. reflecting our stronger than planned first quarter performance, order trends and revised foreign exchange assumptions, we have raised our forecast for revenue, adjusted EBITDA, net income, core free cash flow and ROIC. To support organic growth, we plan to increase capital expenditures, including investments in production capacity and also expand the corporate strategic investments aimed at accelerating AI adoption.

Developments in the Middle East remain a potential source of significant volatility depending on how the situation evolves, we will continue to monitor them closely. The results include several factors, including foreign exchange effect when comparing with the previous year. Let me explain the year-on-year changes in revenue and adjusted EBITDA. Revenue increased by 10% year-on-year, given primarily by business expansion. After taking into account the negative impact of the Middle East situation, onetime effects from large projects and ported foreign exchange effects, Revenue increased 20% year-on-year.

Adjusted EBITDA followed a similar trend. The adjusted EBITDA margin improved by 110 basis points through business expansion and other factors. After reflecting higher corporate strategic investment, the impact of the middle situation, onetime factors and foreign exchange effect, adjusted EBITDA margin came to 11.9%. And the outlook for FY 2026 follows the same trend. Revenue is expected to increase by 9% Y-o-Y, primarily driven by business expansion. In addition, after taking into account the impact of the restructuring of Home Appliances business and ATM business and the foreign exchange effects, full year revenue is expected to increase by 11% year-on-year.

For this forecast, we have revised our foreign exchange assumptions for the second quarter onwards to JYP 160 per USD and JYP 185 per euro. Adjusted EBITDA is expected to follow the same trend as revenue, business expansion and other factors are expected to improve the margin by 10 basis point after reflecting corporate strategic adjustments and the impact of the Middle East situation, foreign exchange and other factors, we expect the adjusted EBITDA margin to 13%.

Next, our first quarter results and full year outlook by segment, as shown in here, including special factors, First quarter orders increased 7% Y-o-Y revenue rose 11% and profit also increased. In Japan, growth was driven in particular by our AI transformation business, which supports customers' AI adoption together with our modernization business, which upgrades the underlying systems. -- profit decrease tanks not only to higher revenue but also to stronger project management, expansion of the Lumada business and productivity improvements through AI.

For the full year, we have raised our forecast by JPY 30 billion for revenue and by JPY 8 billion for adjusted EBITDA. In Energy, Power Grids orders increased significantly Y-o-Y in the first quarter. Supported by continued strong memory transmission equipment and including foreign exchange effect, revenue increased 37%. Higher revenue together with productivity improvements also led to higher profit. For the full year, we have increased our revenue forecast by JPY 360 billion and adjusted EBITDA forecast by JPY 76 billion. Adjusted EBITDA margin is expected to improve by 130 basis points to 14.2%.

Mobility first quarter orders increased 25% Y-o-Y driven by large signaling and control logic together with foreign exchange effects. Revenue and profit also increased, supported by strong performance in Lumada businesses such as railway signaling systems together with favorable foreign exchange. For the full year, we have raised our revenue forecast by JPY 100 billion and adjusted EBITDA by JPY 9 billion. The adjusted EBITDA margin is expected to improve by 120 basis points Y-o-Y, reflecting growth in Lumada business, such as we're signaling in connected industries.

First quarter orders increased 25% Y-o-Y, led by the measurement and analysis equipment. Revenue increased 3% Y-o-Y, including foreign exchange driven by the expansion of service business in Building Systems and growth in semiconductor manufacturing equipment as well as semiconductor measurement and inspection equipment. For the full year, we have raised our revenue forecast by JPY 100 billion and adjusted EBITDA by JPY 14 billion. Consolidated is first quarter revenue increased 20% Y-o-Y. However, as I mentioned before, differences in the scale of special factors, including foreign exchange effects, mean that full year growth is expected to be 11%.

Next slide, I'll expand the results, excluding these special factors, I'll expand the first quarter results and the full year are bob segment, excluding special factors, excluding special factors such as foreign exchange and business reorganization, Hitachi's consolidated revenue growth first quarter. We expect this growth moment to continue, resulting in 9% growth for the full year. Adjusted EBITDA margin is also expected to improve by 100 basis points Y-o-Y.

In DSS, we expect to maintain the first quarter growth rate through the year resulting in full year growth of 6% in FY '26. As in the first quarter, AI transformation and modernization are expected to remain primarily growth drivers. We also expect the profit margin to improve. In energy, the revenue got rate may appear to moderate from the second quarter onwards. However, in absolute terms, revenue growth is expected to exceed Y-o-Y increase recorded in the first quarter supported mainly by planned capital investment in the Power Grids business, expanded our production capacity through workforce growth and productivity improvement, we expect revenue to increase 21% year-on-year for full year, excluding special factors with the creating improvements in the profit margin.

In Mobility, we expect to maintain the first quarter revenue growth rate throughout the year. We also expect the profit margin to improve through a better business mix in railway signaling and rolling stock business with cost reductions. In Connected Industries, we expect to sustain the first quarter revenue growth rate through the remainder of the year. resulting in full year growth of 6% year-on-year. The key growth drivers include demand for semiconductor manufacturing equipment and clinical analyzers, measurement and analysis systems equipment and as continued building service business grows.

And also expansion, including the mother business is expected to improve profit margin. So from here, I will explain the progress of the DSS strategy. First, I would like to talk about the domestic IT service business in first quarter revenues increased by 8% Y-o-Y, so as profit. centered around the AI transformation and modernization by industry, the financial in insurance and the social sector, including government agencies and local governments and transportation each grow by double digit or more driving us the overall Domestic IT Services business.

For this fiscal year, we are aiming to increase orders by 7% Y-o-Y to accelerate the growth of this AI transformation business, we newly developed and announced last week the Agentic AI integration platform. This platform, combining Hitachi's domain knowledge with our partners, Frontier AI enable us to achieve both high quality and rapid development speed. We'll apply it large project for system integration starting inceptor. Next is overseas IT services business, specifically global logic and Hitachi Digital Services.

These 2 have been operated as 1 entity from this fiscal year. The total of synergy in a stand-alone revenues increased by 28% year-over-year in Q1 and Synergy revenues expanded significantly compared to last year, primarily in energy and mobility. Despite a challenging market environment surrounding the digital engineering business, revenues exceeded the previous year's levels. Further growth in energy, we opened an experience center in India in Q1, where customers experience benefits of HMAX solution for building systems. We're also strengthening our physical AI capabilities with other companies through Alliance.

Moreover, [indiscernible] selling a project that offer end-to-end services from digital engineering as the operation, expanded in high-tech and manufacturing sectors contributing to the revenue increase in Q1. As announced today, we welcome Anand Birje who will lead overseas IT service business to accelerate business transformation. Next is the impact of the Middle East. In Q1, a large project in the Middle East was affected along with some raw material shortages and a cost increase.

However, the impact was rather limited than initially anticipated. We have factored in the risk of impact from Q2 onward in the current forecast, but there will be so much uncertainty and subject to change. We'll continue to monitor it closely. From here, I will explain the highlights of the Q1 FY 2026. The -- revenues and profit increased for all 4 sectors as of core free cash flow. We spent more on organic growth, primarily CapEx for facility investment with focus on energy. For organic growth, Mobility completed the acquisition of a clever devices, IT service company for public transportation in North America.

Moving forward, we will expand our business to the multimodal domain beyond the railway sector. As regards to shareholders' return, we bought back JPY 150 billion of our shares in Q1, reaching 27% of the plan for this fiscal year. Here, I will explain the quarterly profit and cash flow on a year-on-year basis. Quarterly profit remain at roughly the same as the previous year despite the impact of special dividends associated with the air conditioning business reorganization in the year before. As for report free cash flow, excluding the impact of [indiscernible] received, it increased by over JPY 200 billion year-over-year attributed to higher adjusted EBITDA and improvement in net working capital, driven by better turnaround of receivables.

Now I will explain the financial position. Total assets at the end of Q1 FY '21 stood at about JPY 15 trillion, staying nearly the same as the end of FY '25. Cash conversion cycle dropped from the year of the end of FY '25 mainly due to less receivables and more advanced payments to improve the capital efficiency even more. Next is revenue by region. We expanded overseas led by Europe, including ForEx impact, Energy grew average all regions, including Europe and North America, hitting 35% in total.

Mobility grew by 18% total RCS led by the real control business, particularly in Europe. CI grew by 21% total overseas, mainly in China, driven by an expansion in building system services as well as semiconductor manufacturing and inspection and measurement equipment system. This pages order results by segment. DSS increased by 7%, driven by growth in the domestic AR transformation business, modernization of business and global storage business. Energy saw a significant increase. Despite nuclear energy's rebound from scale project in the previous year.

The Power Grid business benefited from solid demand for gradient in several large-scale HVDC project in Europe. Order backlog exceeded JPY 10 trillion. Mobility increase overall due to large orders in the rail control project, order backlog increase compares to the end of FY '25, including ForEx impact. CI expanded as a whole, driven by increases in semiconductor manufacturing and inspection measurement equipment well as clinical chemistry and immunocity analyzers. There are the highlights of the FY '26 forecast.

As for organic growth investments, we plan to increase CapEx by over JPY 170 billion Y-o-Y with focus on the power grids and energy. With regards to shareholders' return, there is an unexecuted buyback of about JPY 400 billion for Q2 onwards and will continue with share buyback. We are also revisiting ForEx rate set for Q2 onwards. Here I will explain the net income and cash flow on a Y-o-Y basis. Net income is expected to increase year-over-year due to higher operating income despite the in nonoperating gains and losses from business reorganization, it was on a portfolio reforms executed in FY '25.

Core free cash flow is expected to increase Y-o-Y, excluding the impact of large advance received -- despite increase of tax such as capital expenditure for production expansion and a rebound from special dividends tied to last year's business reorganization, higher adjusted EBITDA and a better net working capital will contribute. Finally, I will explain the Lumada business, a key pillar for our growth on Page 27. Here is the performance of Lumada and HMAX, which is a solution for Lumada digital service business. The mother accounted for 43% in Hitachi's consolidated revenue. For FY '26, we plan to reach approximately JPY 5 trillion, 22% increase Y-o-Y, which accounts for 44% of revenue on improving adjusted 17%.

The Q1 revenue growth was mainly driven by the modern such as Domestic IT services and a global storage and DSS building system services and I and semiconductor manufacturing equipment and medical analyzers in measurement and analysis systems. As for HMAX, Q1 revenue reached approximately JPY 110 billion. We achieved a 22% progress towards the full year forecast of JPY 505 billion for FY 2026. I Key drivers are HMAX in the railway, CI and DSS. This concludes the briefing on the Q1 performance in the full year forecast for FY '26.

We recognize that in Q1, that represents a good start for the second year of the Inspire 2027. In particular, we believe that the growth drivers excluding the one-off factors explained today are highly sustainable. On the other hand, the Middle East of peers and external business environment remain uncertain. We'll push forward the growth strategy as well continues to enhance risk management.

Thank you, Mr. Kato. We will now move on to the Q&A session. [Operator Instructions] We'll take questions in the order of the Japanese channel first. We'll take questions from a press and institutional investors analysts during the same QA session. [Operator Instructions]

Mr. [indiscernible], could you please unmute yourself and please ask questions in Japanese.

My name [indiscernible] from Fidelity. My first question. Q1 Energy business, the improvement of the margin compared to your assumption, was better. And compared to the full year, I think the number is higher. and what is the reason that -- and after Q2 and onwards, do you think with the same reason, it's going to be higher? Could you please explain that?

Yes. Thank you very much for your question. Yes, this time, Q1 performance of Energy business. At first, we had a plan. However, compared to that, the number was better. There are some factors behind that. In terms of yen, there is an impact from the foreign exchange. However, in dollars, it's increasing, mainly the order situation compared to our assumption, it was very strong. And Q1 order situation I explained, large-scale orders we have received as well. But other than that, what we call base orders, they are not large orders.

However, for example, transformers and those equipment, those are very successful, and that really contributed to the performance of Q1, and we are doing CapEx spending and including the increase of hiring, we are increasing the capacity and also productivity has been enhanced. And last year, it was as well. But in Q1 as well compared to our assumption, it was better. We have a lot of products we are making, and we have so many defined projects going on. So as much as possible, we would like to strike a very good balance, and we are spending our investments on IT, and that is really contributing.

And during the explanation, I was talking about the foreign exchange and also other than temporary factors and other special factors, we have added some explanation on Page 7 of the slide. As you can see here, as for the revenue, the percentage I talked about after Q2, it looks modest compared to Q1. However, looking at the value in Q1, there was an increase of more than 3x as much. In Q2 and Q4, you can see it in terms of the growth rate, the growth rate year-on-year might be the same as Q1. And the margin as well 10 basis points and over is our assumption.

So that means basically that this should remain However, having said that, what we cannot project right now is the enhancement of the efficiency of production in the field, this is really the contribution of the field and the efforts of them, but it's possible that it might change up or down -- my second question, it might be related to your explanation, and you are talking about HMAX EBITDA ratio was 22%, and you have 4 segments. HMAX exposure, for example, it should be different from the breakdown of Lumada business. So what is the specific segment or segment that has a contribution of HMAX or the improvement of the margin -- profit margin.

Yes, HMAX last fiscal year, we only had the fiscal year's number. So year-on-year Q1 growth cannot be disclosed. I'm sorry, we don't have the number here. However, we believe that there is a 2-digit growth, especially the contribution comes from building and high-tech business and mobility railway business. they have contributions and as for building as we have announced HMAX for Building for remote monitoring and as for high tech, especially the projective analysis for the equipment and also each of them really contributed.

And as for the margin, about 20% and over evenly. So compared to the other sectors, profit margin, the growth here really looks significant. This really is a traction.

[indiscernible]

My name is Hirakawa. First question is about the domestic IT has explained, AX and the modernizations, really driving the performance. I understood that. And on the other hand, during the Investors Day, you said 7% growth if you continue to do that, then that will reach to the JPY 3 trillion of revenue at some point. However, the JPY 5 trillion, which is the significant figure has been already represented and there is a significant demand for the AX?

So right now, your number is 7% of the revenue growth. And we actually foresee the double-digit growth. And if you have that visibility when that what's going to be revised? And will be the -- do you have enough capacities leveraged by EI, for example? That's my first question.

So for this year, domestic IT service is the domain that you asked. So the late single-digit order is visible now. But I'll ask -- this is not enough to hit the JPY 5 trillion. The 2 drivers. One is the leverage of AI. How much of the profitability improvement we could achieve is 1 key -- so the -- as of the end of '25, 10% of the productivity improvement was achieved. So we try to push this number up -- so for the next year, FY '27, this number should go up to 30% from 10%. So that's the internal target. This is ambitious target.

So how far we could achieve it is still not really visible, but this is a great contributor to the improvement of the productivity. Another 1 is inorganic growth investment for the domestic and IT service, we don't that much around it. However, saw some specific targeted domain, there is any opportunities out there. We would like to seize the moment. So these 2 factors, if these 2 driver work, then we could actually start to foresee the JYP 5 trillion was in the range of achievement.

So as for the productivity improvement effect, that would contribute to higher profitability. But productivity improvement itself, how does it work? So because now you have a better visibility, that's actually it explained Yes. So in the domestic market, we have a limited number of the IT resources. So we haven't been able to fully accommodate all the demand. So if we can improve the productivity, leveraged by AI, we could accommodate more customers needs in demand.

The second question is about the HMAX. During your presentation and the HMAX, you brought up the CI, specifically in the buildings and IT as a contribution drivers. But to me, the real way is the starting point of HMAX so that the Railway Business accounts for the significant part of the HMAX, I'm sure that it's difficult to express for FY '26 ended in March '27 or the following year, how does HMAX exposure would change how this HMAX is going to grow and how the energy is going to be playing its role in this context?

So JPY 110 billion is the actual result as of the end of the Q1 and half of this JPY 110 billion is CI. So specifically building and Hi-Tech followed by railway business and also the DSS and energy follow -- and as of now, in order to number the CI, since it has significant exporter compared to the mobility. So that's a result but the radio, I cannot really refer to it, but every sector, every BU expect it to grow. So all of them will be on contribution drivers in a midterm perspective. That's all.

Next, Mr. Yasui.

My name is Yasui from UBS. About Energy. That's my first question. At first, you were talking about efficiency improvement. So could you please elaborate on this and conclude at new factories, you have increase. And so the lead time for production is getting shorter. And this is a new factory, you have new machines. Is that the contribution for the efficiency? So in terms of the continuity going forward, if you can achieve high margin per revenue, is that true? Or the cost for materials is increasing. So how are you passing the cost into the end users and customers? And what's the significance of this continuity. That's my first question.

Yes, for FY '25, the trend is the same. So FY '25, the revenue increased -- it's not only about the increase of the capacity of production. We cannot explain it only with that. I don't have clear numbers. However, to some extent, Yes, production capacity increase was the contribution there is really true. There is a significant contribution. To what extent we can continue this trend, but before efficiency, looking at the backlog situation, always the margin per backlog is what we are checking.

And so far, the average backlog and we are looking at the gross margin, it's improving. It has been improving. So in that sense, by managing the backlog, we can increase the gross margin ratio and the production efficiency. FY '26, we saw a great event FY '24, the previous year, our ERP system introduction was completed. So we are getting used to using it. And FY '25, we are seeing good results from that. And about AI, we are using AI as well to enhance our business efficiency. So we do have that project as well. So how AI utilization can improve productivity is the next point.

And another factor is project management. We have had so many large projects and orders such as HVDC. The period is very long for those projects. And so we might have some risks associated. However, we are doing derisking out of EPC, EMP Engineering and procurement are our focus. As for civil, the construction we don't include the C part in the construction to receive orders. So in terms of project management, we always make an effort. So the cost excessive cost to make it efficient.

Well, compared to the past, that kind of case is already declining. So in terms of project management, we are really improving the situation that really contributes to the profitability. Additionally, about price situation, so many products are increasing costs. So your procurement cost increases and selling prices are increasing, so I'm not talking about the increased prices because of the cost, but because of the tight demand and supply situation, can't we just expect the profit increase because of the price increase.

Yes, as you point out, HVDC project might have 5 to 6 years in the projects. So how to reduce inflation risk is one. So project management includes what I have described I'm sorry, I didn't explain that clearly. But basically, we are using a lot of indices. So when costs increase, we can reflect them on the selling prices to customers. That is our system. These are indices. Well, there are not so many cost reductions, but cost increases could lead to, well, a pass-through. So this is not profitability and product. This is not real increase of the profit, but we can, of course, increase the margin, but we can stabilize the business. That is our recognition.

Yes. My second question. Overseas, Global logic and storage business blocks to our business have been very good. You said at the same time, DRAM and NAND they are getting very high in terms of the prices. So for storage business, did you enjoy increased profit selling prices increasing. So it looks like you have increased revenue and the global logic, especially in the U.S. Well, because of the death of SAS, you have a negative situation. So when you look at the market situation, it looks like the situation is deteriorating. Could you please elaborate on this part?

Yes, about storage business, block storage for high-end products, we have made announcement of an products, and they are well accepted by the market. They are selling very well. Because of that storage business has really growing the revenue and DRAM, as you have pointed out, the prices are increasing. As for this one, basically, we are passing through the cost to the selling prices. The volume is increasing overall. So that is why we have increasing revenue and profit. next fiscal year. Q1 was not very good, is part of the factors. But the direction is an improvement stably.

And Global logic, as a company separated. However, from April this year, Global Logic and HTS are integrated in operation, so there is a cross-sell effect and [indiscernible] itself, was logistics and also manufacturing accounts, they have done and they have additional industrial and automobile industries accounts as well. So they are increasing profit and revenue, both of them. And global logic, the market situation is very difficult. And also, they want to increase profitability. That is our focus.

So strategically, for lower profitable businesses, they make decisions about orders receiving or not. So they have a growth and smart last year's acquisition that is contributing as well. And when you look at this one, Unfortunately, the revenue in Q1 only, unfortunately, the revenue slightly declined and profit unfortunately declined slightly. But for the fiscal year, well, some of them are increasing. So we'd like to increase the increasing parts so that we can achieve increasing of sales, both of them. And since the integration is going on and they have a lot of collaboration, it's very difficult to split. So please look at the entire picture.

Then Harada. Please mute yourself and ask your question, please.

This is Harada speaking from Goldman Sachs. I have 2 questions. So first question is about energy. You've been stating a strong order intake for Q1. I believe you receive a large-scale projects. So in a normalized basis on where we are right now. And as for the midterm target for revenue are you outperforming or rather in line? Can you give us more sense? And also, what I would like to know is 800 voltage data center architecture, you being a partnering with an NVDF development.

And the other day, [indiscernible] made comments on the solid state on transformers for less. So if you have a new trend on your end, I'd like to know more in detail. So that's the first question.

Can I go on the second question as well. Yes, I'll answer to the first question. As for the power grid as an energy sector. first quarter and 37% in revenue. However, considering as the one-off effect in the ForEx, it will be 24% increase. And out of 24% -- so I said a 37% growth and a breakdown is here. So the power grid is a 35% increase in a breakdown on a dollar basis, Hitachi Energy is 22%. So JPY 1 billion. year-over-year increase. But as for the full year. So for the full year, we are expecting the similar growth. So in that sense, in a midterm perspective, for this year, particularly as late is what we anticipated.

But for the full year on a U.S. dollar basis, 20% of the increase is expected. So the gross ratio wise, we are outperforming, we cannot really make decision based on this year as single year. But if the next year continues to drive the same momentum, and we will be able to outperform from the mid- and long-term perspective. But it is too early for us to make any comment on that. We'll continue to keep an eye on that. as I said, not just increase in order intaking, but our production improvement will contribute to better results.

And as for the 800 voltage, [indiscernible] mind you have any follow-up comments on that.

As you pointed out, 800-volt architectures, the technical development has been supported by ourselves in the architecture itself. The 2028 is the year when the architecture, the subject victory is going to be applied and adopted. So as the early adoption and delivery, taking advantage of the existing technology. So that's the area where we can make an early contribution. So that's the area we're trying to expedite the pace of a partnership.

So the power, the conversion, the specialty -- from the grid to the WACC and -- this project plans to be rolled out in early 2027, once we can deliver and we can make it simpler and it reduced the space free deployment of the system. So the early pace that we can make a quick contribution to the data center. As for the SST, the controlled technology is for electronics and other technologies are integrated. Any of them are the oldest rentincapability that the Hitachi enagaalready has. So R&D together with an R&D, we'll continue to work on the future deployment and the conversion to the SST will take a long time.

So the data centers in tire solutions, the early ramp-up of the data center is not the area where we immediately contribute towards SST. So as I said, to control the system is the area where the [indiscernible] Energy can make a contribution in the early stage.

The second question is about -- on Page 10, DSS global Logic and on Synergy, Hitachi business has been growing strongly. But as for the margin, as Hitachi as a whole, what kind of impact can we expect, especially at the energy mobility. So in-house system development contributes to the higher margin. I assume so if you could achieve some numerical numbers on quantified numbers, that would be very helpful. And also on the same page, the under will be assuming the new position in this domain and was this new organization and change in the organization and what kind of expectation you have. On to the first question, [indiscernible], can you answer to that?

As for the indirect synergy in our definition, taking advantage of the global wage rail or mobility as well as the energy synergy, it should be answered by myself, please refer to Page 27. All these numbers are the energy and rail, these are fall under the mode business and out of the [indiscernible] revenue, global j digital domain for Energy and Mobility energy and mobility for the customers contributes to the revenue. So when you look at the margin or profitability, for example, FY 2026 rewards digital service SaaS and 20% in total and digitalized net asset is 14%.

And as for the HMAC business, the global logic is involved in HVAC business as well. So all this business once it starts to grow in direct set will grow accordingly.

And on to your second question. As announced within the DSS, DEAI BU. This is the place where Hitachi Digital as well as the global logic, HGS and also the Hitachi [indiscernible] so in nutshell, the Hitachis digital business driving center as a business user. So the head of this business unit used to be Mr. Abe, he is concurrently this position, but now Anand would assume disposition as the head of the BU. As stated during the Investors Day. Because of AI there is a huge tailwind for Hitachi and not just the HMAX business, but we're trying to deliver the productivity improvement for our customers while pursuing the internal operation improvement.

So DEAI BU needs to cover the vast area. So we decided to have exclusive personnel leading the team. So and the taking advantage of the AI in a global arena. He has an extensive track record around that. So leveraging his experience IBU should be led by a great leader. And because of this organizational change, AI's leveraged business expansion should be achieved. So I, myself, have a high expectation on this change in organization. That's all from my end.

There are so many people who are waiting their hands. However, we would like to switch to the English channel to receive questions. For those on the English channel, could you please use the button to raise your hand. There is no person to raise their hands. So we'd like to switch back to the Japanese channel. We still have some time. So those on the Japanese channel. If you have any questions, please raise your hand using the button.

Mr. Ryo again, could you please unmute yourself.

I have 1 question about Energy business. Continuously, your order situation is good, favorable and in the early stage, you might have a solid strategy to make it a revenue, maybe production increase and the others. Could you please elaborate on that part?

Yes. Thank you for your question. Yes. investment to increase capacity and CapEx spending, as I explained today, we have a plan to increase the CapEx spending, especially FY '24, '25, '26 and next year as well. Probably the same level of CapEx spending will be implemented. And right now, we are hiring out as well. And as planned, the progress has been good. And additionally, we are using AI for higher efficiency. That is our aim. And as for making systems we are spending on IT systems in this last year, the efficiency has improved.

So there is a contribution. And by utilizing AI the cycle of our operation can be shorter going forward, we are going to tackle this initiative as well. So when our aims are clearer, we would like to talk about that. Thank you.

Moving on to the next question. Nakane-san, unmute yourself and ask your question, please.

My name is [Nakanishi from Nike AVP]. I have 2 questions. First question is about the energy market outlook mid- and long-term perspective, I would like to know your outlook for both perspectives. So based on the order intake, as well as the external environment, including the customer's trend and also the semiconductor trend what kind of the items or factored in. So you asked about the mid- and long-term perspective. So as a short- and long-term perspective for the short-term perspective, the industry outlook, we have a higher visibility. So based on the order intake and the actual development of the orders, we have like a better visibility on the short-term perspective.

As for the mid- and long-term perspective for the large project, Multiple on a project, a precondition terms on a condition that need to be decided as a part of the farm agreement and also our production capacity needs to be served as a part of the capacity reservation. This is a part of the agreement with our customers. And based on that, we make a decision on the CapEx investment. But that actually only gives us a sense for the large-scale projects. So basically, [indiscernible] is constantly monitored, including the demand for the demand for the other resources, energy resources and also the industrial trend using multiple different methodologies.

And recently, we try to foresee like 10 years' time. So for example, in last year, as we stated, we are expecting our further growth until 2030. That's what we could say until last year. But for that large system, so or like a delivery plan go beyond the 2030. So until 2030, we are expecting a further growth until 2035. Thank you.

Just a follow-up question. Capacity is decided based on the customers' demand needs. So for example, if the customer does a customer make an advanced payment for the sake of the CapEx investment. For example, in the case of framework agreement. So let's say, if we will have a multiple on different contract terms and conditions, including the payment, all the defined and decided between us and customers even for the multiple one, we try to get as a framework. But the timing of the payment is actually -- the timing is usually comes at the time of the signing of the contract.

But at the time, we are -- usually, we received the advance payment .

Another question is about the physical AI. Taking advantage of the domain novel you try to deploy it in the infrastructure area after physical AI compared to the global benchmark. How do you measure your capability and the strength in terms of the physical AI? And what are the challenges that you need to address?

Sales for the global benchmarks, it's really hard to say in case our physical Ai -- our absolute strength is OT in a product that we have. We have business as a customer's energy or the CIs or rail businesses -- so using the multiple different physical AI, together with the DSS, we try to deploy yet. And this is the competitive advantage over the others. The model itself is not internally developed. However, the Frontier AI leveraged alliances formed with other counterparts that would allow us to use the state of our technologies. And we tried to maintain this kind of environment. And that itself is the foundation of result.

But what really matters to us is be because when it comes to the competition, how fast are we going to bring yourself, oversell is key. So focusing on the fees, then we can even greatly leverage our capabilities and the strength.

And I must stop. Thank you very much. There's still some people who are raising their hands. But I'm sorry, it's time to close. So with this,-- we'd like to close March 2026 earnings results presentation.

Thank you very much for your participation for such a long time. Thank you.

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

[Interpreted] Hello, everyone. I am Tokunaga. Thank you very much for taking time out of your busy schedule to participate in Hitachi Investor Day 2026. Also, I would like to take this opportunity to express my sincere gratitude for your continued understanding and support of the Hitachi Group's business activities.

Since last year's Investor Day, 1 year has already closed quickly. During this time, we have had the opportunity to discuss with many investors, not only in Japan, but also in North America, Europe and elsewhere. Just last month, we were able to hold individual dialogues with the investors in North America. The feedback we received from the investors was as follows: While we generally appreciate Hitachi's growth strategy, is the rapidly evolving AI a threat to Hitachi or an opportunity? And would HMAX continue to be Hitachi's growth engine going forward?

Today, based upon this interest and concerns from our investors, I will explain Hitachi's growth strategy towards achieving Inspire 2027 and ensuring sustainable growth beyond that. First, as the CEO remarks, I will explain Hitachi's current situation and future management direction. Next, after the CEOs of the 4 sectors explain the growth strategy of their respective businesses, our CFO will discuss financial strategy and risk management. Finally, we have scheduled a Q&A session with everyone. It will be a long event lasting around 3 hours in total, but thank you for your participation, again.

Let's get straight to the presentation. In the CEO remarks, I will talk about these 4 points. Looking back at FY 2025, once again, it was an extremely highly uncertain year, marked by increasing geopolitical risks and rapid evolving of AI. Even under such a business environment, Hitachi captured the expanding needs for social infrastructure, innovation, achieving record highs in profit, core free cash flow and ROIC, enabling us to realize robust growth.

In this uncertain business environment, the 3 CEO priorities presented at last year's Investor Day functioned effectively as a compass for our management. Regarding the expansion of the Lumada business, we accelerated our transformation towards achieving that targeted level of Lumada 80-20. The sale ratio of Lumada expanded by 11% from the previous year and credibility steadily improved. In particular, the global launch of our recurring digital service, HMAX drove this transformation.

Regarding capital allocation, we strictly assessed return and strategic fit, executing disciplined growth investment in focus areas such as energy and AI. Furthermore, in accordance with our policy, we implemented the largest shareholder returns in our history. As a result, EPS grew by 32% approximately year-on-year. Regarding the deepen governance, we responded swiftly to the materialization of geopolitical risks by strengthening our risk management. We also further strengthened our complement to the capital market through initiatives such as introducing stock compensation of employee leaders and enhancing dialogues with the capital markets.

Furthermore, we are continuously working to strengthen the supervision of execution by the Board of Directors. Through these initiatives, the 4 sector certainly captured growth opportunities in FY 2025, leading to significant growth in our backlog. The backlog at the end of FY 2025 grew 24% year-on-year, reaching a total of JPY 21 trillion. This continuously expanding backlog serves as a solid revenue foundation for sustainable growth.

As I explained, FY 2025, the first year of INSPIRE 2027 has been a smooth start. However, we are not happy with the status quo because for Hitachi, a new and massive growth opportunity is unfolding right before us. That is AI. Will the rapidly evolving AI destroy existing business models? Or will it disrupt the IT service businesses? We often hear such concerns. However, my answer is clear. AI is not a threat to Hitachi. Rather, it is the greatest opportunity to discontinuously accelerate Hitachi's growth. I will explain the reasons.

In Hitachi's focus areas, energy, mobility and industry initiatives to improve productivity and create innovation through the implementation of the physical AI are currently expanding rapidly among our customers. On the other hand, the implementation of fiscal AI means that AI steps out of the cyber space to directly impact the real world. Due to an AI era, facilities and equipment could potentially stop. Product quality defects might occur frequently. In other words, fiscal AI inherently carries significant risks and safe implementation can be set to have a high level of difficulty. However, the very characteristics of fiscal AI brings a massive growth opportunity for Hitachi. This is because the safe implementation of fiscal AI requires the advanced integration of all technologies and expertise across IT, OT and products.

This is precisely the area where Hitachi can fully leverage its strength, having supported mission-critical social infrastructure for many years. Furthermore, our ever-expanding backlog, which has reached JPY 21 trillion, continues to provide Hitachi with implementation fields for physical AI, solidifying our sustainable growth. Additionally, in the digital area shown on the top right of the slide, we are facing challenges brought about by AI. The replacement of simple tasks such as coding and module testing by AI is progressing rapidly.

However, more than that, the demand for monetization to make customers' existing IT system assets AI ready is now rapidly expanding. And here, the 15,000 operational IT systems that TS has developed to date serve as a massive market to which we have prioritized accesses, cementing our future growth. So how do we grab these growth opportunities brought about by AI? I will elaborate on this point a bit more. First, the Energy, Mobility and Industry business areas. Hitachi will continuously update social infrastructure and grow through the implementation of physical AI in mission-critical areas where we can fully leverage our strengths by highly integrating all technologies and expertise in IT, OT and products.

There are 2 growth approaches. First, Hitachi possesses a massive product installed base that continues to expand, supported by robust demand for infrastructure renewal. We will use this installed base, which only Hitachi can access as an implementation field for physical AI, advancing on-site operations and maintenance to provide value to our customers. As of the end of FY 2025, HMAX, which recorded JPY 300 billion in sales and at an EBITDA margin of over 20% proves Hitachi competitive advantage in physical AI implementation, and we can expect high growth to continue.

Secondly, for our customers operating infrastructure businesses such as power, railway and industry, continuous advancement of operation is absolutely required to maintain and improve their competitiveness. On the other hand, many customers are facing the major challenges of how to incorporate accelerating AI technologies into their businesses.

To address this big challenge, Hitachi will respond with our physical AI FTE for deployed engineer team comprised of IT, OT and product engineers. Hitachi's physical AI FTE team will embed themselves in customers' operational sites and advance implementation of physical AI. Also, the important point here is that expertise and data models cultivated on site by FTEs will be consolidated into HMAX and rolled out horizontally to other industries and customers. Through this, we aim for scalable growth that is not labor-intensive.

Next is the digital business domain. Hitachi will promote AI transformation of customers' operations through the modernization of large-scale IT systems assets to drive growth. Here as well, there are 2 approaches to grow. First, Hitachi has worked on many IT system developments together with our customers. The number of such systems currently in operation alone reaches 15,000. And now the modernization demand to make these IT systems assets ready is rapidly expanding. This is because incorporating the latest AI technologies into the IT system that support customers' operation to enhance business processes and service has become an urgent priority.

In the DS sector, our 35,000 system engineers in Japan are using AI to improve their own productivity and meet our customers' modernization needs. As of the end of year 2025, the adjusted EBITDA margin for domestic IT services in the DS sector exceeds already 18% and monetization business is driving this profit growth. The growth opportunities brought by AI do not stop here. Secondly, customers are currently seeking a partner with expertise in both the latest AI technologies and mission-critical AI system development to support their AX or AI transformation over the long term.

Hitachi will meet customer demand through our FTEs who possess advanced AI technologies and Hitachi's unique page working in collaboration with AI ecosystem partners such as Anthropic, Google Cloud, Microsoft and Open AI. Hitachi's FTEs will work as one with the customers' IT department together to advance highly reliable and high-quality AX. Therefore, we will feed these results back into Hitachi's priority assets such as Veracity AI, HARC for AI and HMAX and utilize them for other customers' AI as well.

Toward improving our corporate value, we will also further evolve our management. The 3 pillars of the CEO priorities remain unchanged for FY 2026. Amid a drastically changing business environment, we will further strengthen our execution capabilities, balancing out insatiable challenge for growth with disciplined management. Regarding the Lumada business, we will further accelerate the expansion of HMAX.

Meanwhile, there is no end to our portfolio reform, and we will continue to pursue constant improvement. For capital allocation, we will accelerate disciplined growth investments while strictly adhering to our policy. Regarding the deepening of governance, we will further advance our risk management and deepen our One Hitachi management approach toward creating Hitachi's unique value.

Finally, I will explain Hitachi's aspiration beyond Inspire 2027. Hitachi is currently focusing on 4 businesses: Energy, Mobility, Industry and Digital, and we are striving to transform into a digital-centric company. The JPY 21 trillion backlog built up during this process is not merely a balance of orders. This will be transformed into a massive digitalized asset for Hitachi to implement AI, collect the data and create new value moving forward. We will then evolve the digital services provided by Hitachi such as HMAX on these digitalized assets into an OS operating system that is essential for the stable operation of social infrastructure.

We incorporated as a foundational OS for customers to operate social infrastructure, it drives further data accumulation, which is, in turn, improves AI accuracy and further enhances the value proposition as an OS. As a result, this also leads to the construction of strong barriers to entry. Through the provision of this social infrastructure OS, I will transform Hitachi into a company that generates recurring revenues with high profit margins and stably over the long term. Starting with robust products and IT systems, we will generate recurring revenue through services that fully leverage domain knowledge and AI, becoming a completely new digital infrastructure company.

This is the vision of Hitachi that I foresee beyond Inspire 2027 and pathway toward further corporate value enhancement. I sincerely ask for your continued understanding and support. Now after this, Andreas will explain our growth strategy for the energy business.

Good afternoon, ladies and gentlemen. Thank you for coming. In the next couple of minutes, I will guide you through the presentation of the energy sector. We will cover a review of the last fiscal year and an update on the progress on Aspire 2027. We will talk about the market environment, our strategic priorities for the next couple of years and our future ambition and conclusion. Last year, we have delivered record high orders, revenues and profits, which has led to the decision that we have upgraded our plan for Inspire '27 going forward. And of course, we have established a service business unit inside of Hitachi Energy, and we will come to that.

Our priorities for further growth and transformation are continued solid execution of our order backlog generated record high revenues going forward and delivering more profits. We're coming to the business to the market. If you're looking at our strategy going forward, it's based on 3 pillars: strengthen the core, accelerate strategic growth and leverage AI for our businesses. Strengthen the core covers operational excellence, so how we are producing our goods and services for our customers, continue investments into capacity expansion, looking for M&A and partnerships going forward.

Accelerate strategic growth means, yes, we want to become #1 in service growth. We want to play a role in areas which have extreme growth like data centers going forward. And leveraging AI and digitalization means how we can improve our operations and our internal processes and leverage AI in that thing. And of course, looking at SMRs, which is a booming business. Coming to the market environment. The market environment is very favorable. If you're looking at the energy consumption worldwide, the primary energy usage is continuing to grow with the GDP. But the underlying electricity consumption is growing much more. You see it's more than doubling up to 2050.

This drive for electricity and for electrification is, of course, based up by figures of investments. If you look at the investment climate in the last 10 years, you see that investments in fossil like gas, natural gas, especially in coal, et cetera, are going down and investments in renewables, electrification and grid expenditure are going up significantly. You see the numbers, Renewables have doubled. Nuclear has started to grow as well, 1.7x, electrification, 2.4x. And of course, the economic and political environment we have on our planet at the moment, which is quite volatile, I would say, is driving that the space of renewables and nuclear is even growing more than we have assumed.

You see on the right upper part that the participation in the electrification of renewables and nuclear is growing extremely. And that's good for our business because the components we are delivering, which are needed for this electrification is that what we are doing, and they are growing exceptionally well. You see transformers will triple in the next couple of years from 2020 to 2050, HB switchgear, 3 to 5x. HVDC links quadruple, battery electric storages more than 10x. STATCOM 5 to 10x because power quality problems are going hand-in-hand with renewables, power electronics, 6 to 8x. Software solutions will become more important to balance the grid and maintain the volatile generations. service, more than 6x because we have aging infrastructure. We have less and less people for our clients to work and SMRs will grow 5 to 7x. And that's, of course, reflected in our market projections.

If you look at the left side, Hitachi Energy market, USD 1 billion. From 2017 to 2020, '21, it was rather flattish in an area of $100 billion, and now it's growing significantly. It has reached in 2030 around 350 billion, so more than triple, and nuclear is just at the brink for these investments, the lowest values you have seen in 2005 with EUR 11 billion investments into nuclear technology. Now it's at 90 billion in 2030. And of course, we have seen already the first FID for an SMR in Canada. So this business will definitely take off.

So what are our strategic priorities? We are #1 with our installed base. We have installed more than 500,000 assets in the electrical area over the last decades, USD 240 billion, but we are not #1 in the service area. It's our goal to be that, and that's why we have founded the service business unit last year, and we will report what our first successes. In nuclear, we are strong #2 in the Japanese market. 2/3 of the boiling water reactors are in our portfolio and all of the Generation 3 of the advanced boiling water reactors have involvement from Hitachi.

In the other areas, transformers, high-voltage grid integration and grid automation, we are clearly #1 in the industry, clearly from a number of volumes. In some of the areas, we have nearly the double installed capacity of the next competition. And of course, we have grown from 2021 to 2025, around 20% CAGR, far beyond the market. So we have definitely a very good global footprint, and we are in some of the technologies, a clear technology leader.

If you look at our performance from a monetary point of view, in 2020, we have USD 9 billion revenue. We closed the books last year 2025 with USD 20 billion, mainly based on capacity expansion and better services. And we are projecting now or we have upgraded our projections for the year of 2030 to USD 36 billion revenue.

Of course, if you talk about the revenue growth, that's one thing. But if you look at the backlog below that, you see a slight different and interesting picture. In 2020, the backlog ratio to revenue was around 1, 1.1, EUR 11 billion order backlog, EUR 9 billion revenue. In the last years, we have recorded record order backlogs. Last year, we have closed the book with EUR 20 million revenues, but with EUR 60 billion order backlog. In 2030, we expect on a revenue level of USD 36 billion, more than EUR 100 billion order backlog. And this does not include capacity reservations and framework agreements. That means the order backlog has changed in its nature. It's more complex. It's more forward-looking.

So we have clearly a visible line now for 2, 3 years or sometimes 6 years based that our customers are now ordering equipment way ahead of time because they know that supply and demand is not in balance, and they want to select their slot for their products and services. But that means that if you're looking ahead to a fiscal year, the majority of our revenues are coming from order backlog. So we know needed for the complete year what we have to produce for whom we have to produce it, where we have to produce it and how we have to produce it. And only a small part is book-to-bill. So we have to continue in our strategy to deliver the order backlog and focus on capacity expansion and other things.

So coming to capacity expansion, we have already invested EUR 3 billion from 2020 to 2023. We are in the process to invest another EUR 6 billion until 2027. And you see on the map, it's a global investment. We're investing globally in all places where we have a footprint. At the moment, we are investing currently in more than 40 brownfield and greenfield factories. So brownfield means we're expanding an existing factory to the maximum capacity while we are producing. So we are producing and building, and we started some greenfield factories. I think it's clearly to say we follow a clear strategy here. We only sell to our customers what we have and what we can produce. We are not canceling orders for our customers. And we are only investing into new factories that we have a bankable business case. If we have enough backlog to justify an investment and make it bankable.

If I'm telling you that the order backlog conversion into revenue is the key to success, then, of course, operational efficiency is our internal key to deliver revenue. And we follow here a single approach. We started already years ago to organize all our activities based on one single ERP system called Reiwa. Reiwa is online since 2 years. And the last we have focused very much on drive synergies and cost improvements out of Reiwa. What means one single ERP. It means that every factory, every country, every project, every customer, every supplier is in one big database where we have access to the data.

So we know what is happening. And we have used this for improving our internal processes. That has driven results of USD 150 million last year as productivity gains, which has hit the bottom line and will continue to hit the bottom line. The next phase was to using that system to derisk our supply chain. We all know that the world is very volatile. Every day is something happening. And we started to connect the system called Resi Link product, which makes -- put us on notice for every natural disaster, tsunami, Volcano, for every closage of any transport way like a Suez Channel or Strait of Hormuz and directly informs us. And we know what kind of logistic chain is impacted. We know which customer, which factory, which route we can optimize or we can act before we really see the impact.

That flexible rerouting and supply has generated, of course, more revenues because we could deliver faster. And that has hit the bottom line with $200 million bottom line effect last year, and that will continue. And now we are starting the first level, process optimization. We're changing our manufacturing approach from managing to order to managing to stock to cut actually the delivery times, reducing lead times and optimizing our portfolio. We started a company-wide end-to-end process digitalization using Celonis and AI to look which processes can be improved. And we are using embedded AI agents to make our internal processes more efficient.

Why is it important? If we are growing around 10% to 15%, of course, we don't want to grow our general and admin expenses at the same magnitude. We want to keep them rather flattish, and that will have a bottom line effect of around EUR 250 million going forward until 2030. So overall, if you make the numbers, operational efficiency and AI will drive a cumulative profit impact of more than EUR 2 billion by 2030. With the remaining impact on our revenue generation, what is not coming from backlog book and bill, we are focusing on high-growth segments, like in service, where we have grown our business 20% last year, focusing on data center, fast growing, fast execution, 150% growth last year, selling innovative products like EconiQ with more than 1,000 products sold and focusing on SMRs.

We're talking about service. Service is important for us because we have the huge installed base in the industry, and our ambition is and was to double our service impact and the service revenue until 2035 to more than 30%, which means that in 2030, we have to drive around EUR 6 billion to EUR 8 billion revenues in service organically and inorganically. Last year, we established the business unit, more than 6,000 colleagues joined the new organization. The business unit is up and running. The processes are working. And we have grown the business last year organically around 15%. And if you add the Shermco investment with equity accounting, 20% growth. So fully in line with our business plan expectation. And of course, we have announced HMAX last year in March on the CERAWeek.

Why HMAX is important? HMAX is an enabler for service revenue recognition and enablement in Hitachi Energy. We can help to plan, predict and prevent, and that's the base for customer intimacy and customer retention. Just to give you one example or 2 examples. Tata in Thailand, we have sold a or monitoring system, which reduced the failure rate of 60% by just knowing what is going on. Second example, ERG in Italy, a digital-enabled service agreement where we can reduce the time on site by 35% or digital twin for HVDC link between Germany and Sweden, where we can react much, much faster to bring any line back online and saving money for our customers.

The other high-growth area is data center, driven by a high demand for AI data center worldwide in Americas and in Asia, we were able to nearly double our revenues in data center, and we're projecting a growth in the area to 4 to 5x. We are uniquely positioned due to fast delivery times. So we have started to standardize our offerings to containerize it, that we can fast be delivered and produced. We are very flexible with that. And of course, we have started to look into solid-state transformers, 800 volts DC or other voltages required to really fast and space-consuming solutions to be deployed.

We have a global footprint and capacity expansion is helping for that. If we talk about numbers, we have started in 2025 with a profitability of 13.4% EBITA. And of course, the volume leverage, significant capacity expansion, high-growth markets, they will lead us to our margin bracket in 2030 between 16% and 20%. Even if we spend a little bit more on R&D to keep our leadership in technologies, we will be in that margin bracket. And our assumption at the moment is that in 2030, we will hit the upper end of this profit corridor as announced.

Coming to the conclusion on that slide, you see the overview of the figures as presented just for your information. The energy sector at all is projecting a CAGR of 14% going forward, so being in line with the updated Inspire 2027 and an outlook for 2030. Our EBITA and percent will go into an area of 14% plus as forecasted and grow further, and we're striving to reach an ROIC of 25% or more. With that, we have significant market tailwinds. We have a very favorable environment, which is driving our profitable and sustainable growth and profitability. We have high capital returns and definitely value creating.

Thank you very much. I think I'd like to announce 2 things before my next speaker. If you're interested in the Hitachi Energy business, there will be a Capital Market Day in autumn this year. We will let you know when and where. And with that, thank you for your attention, and I hand over to Giuseppe.

Thank you, Andreas, and thank you for your introduction. Good day, everyone. I'm pleased to present our mobility strategy today. We are starting with the highlights in actual 2025. Then we're going to talk about the mobility market. Most important part will be point #3, the business update, then medium-term plan with the financial for Inspire 2027 and the long-term outlook 2030.

So going to the highlights 2025, we see on the left, our achievement. We delivered to expectation. We did our budget. And if we look at the right, we see the main financial performance highlights. Revenue growth, plus 13% year-over-year. Profitability improvement, 0.4 point percentage and book-to-bill, 1.2x to the revenue. We have some key important achievement on key project deliveries across London, high-speed trains, Baltimore, Sing, but also major order intake like Kurin, like Pittsburgh, like U.K. or Taiwan signaling.

And also going in the next page, when we're talking about digital HMAX, we see contracts signed with Tobo Railway in Japan, Turin Metro Line 2 or Copenhagen. You can see there that last year, the same presentation, we declared 2,000 trains already having our HMAX platform. This year, we can have 2,500, of which 35% plus are with not Hitachi fleet. We've been investing on digital growth. On the left, the acquisition announced back in summer last year. It's Omnicom. It's a very high-tech company for sensor technology. They have laser sensor, LiDAR sensors. We want to create a strong foundation for our HMAX platform. So we want to have digital proprietary technology to support good quality of data.

On the right, it's Hagerstown plant. It's the footprint in the United States. It's a combination of the expertise of One Hitachi. It's Hitachi Digital, Hitachi Connective Industry, Hitachi Energy, altogether to have a state-of-the-art plant. If you give me a couple of minutes, I would like to show you a quick video. Please, the video.

[Presentation]

Thank you. Two years ago, we also announced the acquisition of Clever Devices. It's a company based in the United States, $220 million-plus revenue, over 600 employees. It's a leading provider of software and technology solution for intelligent transportation systems serving mass transit agencies across North America and globally. It's a very important step into expanding HMAX because we do HMAX on rail. Clever Devices is doing HMAX on other kind of mobility like buses. So it's an expansion of HMAX but it's also our firm step into multimodality. And combining the data of rail with other mass transit transportation, we can also have access to much wider range of data and go really into the multimodality and explore different stream of revenues.

Now let's go to the market overview. We believe that the future of mobility is at the intersection of 3 powerful trends that are transforming the mobility market. There is more volume, which is driven by population growth, but also the energy cost that's increasing. There is a wider sustainability concept, which is not only reduction of carbon footprint, but it's also more affordable mobility solution and the digitalization is driving multimodality. So if you look at our market here, we see that the market, it's expected to grow at 4% a year across all line of business. We see in blue our domestic market in which we are building and growing on our normal presence, but we are also investing in the green area, especially Germany and East Europe, where we are leveraging the GTS presence as well as the Middle East where we're increasing the mobilization.

So going to the business update. We have seen we have 3 micro trend, and now we are a sustainable digital global mobility player. We're delivering sustainability. We're driving scalable digital solution, and we're expanding to global mobility. And to do that, we have 3 key business drivers. On the left, signaling. After the acquisition now 2 years ago of Thales' Ground Transportation System, we are a global full range provider of signaling system. In the middle, we have our rolling stock. We are also a global full range provider of rolling stock. And on the right, it's our new leg, our business stream, it's digital, where digital products and services based on HMAX or new solution like autonomous driving or revenue collection are creating a new area for our business unit.

By going a little bit more in detail with this business portfolio, and we can have a look at the revenue mix. Signaling now with the acquisition, it's at 52% of our revenues. Rolling stock is 37% and digital, it's already at 11%. But looking at the lower side of the slide, we can combine the revenues that are recurring or software base that are now at 76%. Last year, at the Investor Day, we said 74%. So it's 2 points more. But also, if we see on the top right corner of the ball, we see how strong we are on positioning. So we are strong on signaling. We are strong on rolling stock, but less, and we definitely are strong in digital.

So our projection for next year, keep on investing and growing in signaling, growing in rolling stock in a selective way with more high speed in which we have a strong positioning, keep investing in getting more orders on service and of course, digital, which is a very important part of our strategy. For sure, in order to support this business direction, we have key action pillar for sustainable growth. We have geopolitical tension, we have market penetration, operational transformation, but I would like to concentrate on what is very important. On one side, the backlog execution because we have a strong backlog. On the other side, the big change that Agentic AI is bringing to our processes or what we can offer in terms of digital mobility.

So in terms of backlog, we have a record backlog at EUR 7.1 trillion. You see the dark part of the signaling, which is increasing compared to last year. But also, we have a 40% of a well-balanced backlog, which is service backlog. On the right is the timing of the revenue recognition. We can see that 90% of the revenues for 2026 are already in our backlog, but also 2027, it's almost there. And from 2028 onwards, 50% is already coming from service. Profitability as well it's growing. We achieved a 20.3% profitability.

We have a plan for this year at 21.4% and 22% in 2027. We are implementing Agentic. We have already 90 AI agents. That's only related to some part of engineering. We can get not only productivity, but faster time to market and also an improved product performance. There are some examples I would like to stop on how we're doing the bidding documentation and preparation, how we do diagram generation or software coding. This is a big help in our processes. But also, we are offering and our value proposition to customers, it's really important when talking about digital mobility. We've seen before the free area of rolling stock signaling multimodality. We have data, we have domain knowledge. And on the right, we have a big expertise coming from Hitachi Digital and digital service.

Now OT and IT are becoming really strong because HMAX turns many of data points into actionable insight that reduce cost and enhance passenger experience. But we have an advantage here. So the same slide, it's telling us why we are different from other industries or other players. We have a physical layer, which is the OT part with proprietary sensor technology. I told you about Omnicom. We have operational integration, domain knowledge. On the right, we have the digital layer like digital expertise, language model, visual language model coming from Hitachi Digital. But at the bottom, we also have the architectural layer.

So we are not the AI provider. We have much more. We own the data, we own the competence. We don't own the physical layer and architectural layer with cloud architecture, cyber capability or even internal data center. This is a big advantage and a differentiating factor. Of course, AI is bringing a very big benefit on our products. That's an example of physical AI. From legacy traditional tram, you see on the right what's new, an autonomous tram. So we are implementing physical AI to bring a full driverless operation. And I want to show you a few seconds of what we can see from inside the driver cockpit. You see how our cameras and sensor are digitalizing the reality in order to be able to be fully autonomous with a full implementation of physical AI.

Let me say also that we can stay at the edge of the technology, thanks to our expertise in vehicle in signaling, but also thanks to one Hitachi capability and large framework agreement coming with NVIDIA for edge computing and deep learning, with Google Cloud for AI training, data generation, cybersecurity management or with Microsoft with GenAI, Agentic AI or digital engineering. The market, it's growing. The total accessible market is about JPY 3 trillion.

As Tokunaga-san said, half of it, it's maintenance optimization, but also energy efficiency or as I said before, advanced mobility like autonomous driving. And the pipeline of opportunity is growing. You can see that we have over 100 identified opportunities in 20 countries. And last year, we had a pipeline of JPY 200 billion. This year, we are working on a pipeline of JPY 600 billion. So this is a momentum we are building this year. Last year was the first year. Now we're really getting into the sales pipeline of HMAX.

Now let's have a look at the figures. We've been growing steady in both revenues and profitability. At the bottom, we have our profitability. We were 5.5% in 2022. We closed 2025 at 9.2%. We have a plan for the year at 9.9% and 11% plus in 2027. To achieve the 11%, we have, as we have seen margins coming from a better backlog -- we are synergies and other efficiencies. We are completing the acquisition of Thales GTS. There are JPY 50 billion coming from the synergies of GTS. We are investing on new platform and a big part is coming by improvement driven by digital and the mix of revenue that we have seen at the beginning with the free business line.

I want to talk also about investment, cash conversion cycle and return of invested capital. We're growing our investment. We are preparing the next-generation platform. Still, we want to contain investment. We don't want to go over 3.5%, 3.6%, but it's important we maintain the edge in technology. In the middle, we have a strong cash management. We were 60 days last year. We reduced 10% at 54.3 days this year. We have the target at 37. And the ROIC, it's also growing. I have 2 lines here. The blue one, it's without the PPA coming from acquisition and the thin one it's with the PPA. Of course, the 2 lines are converging in 2 years' time, they will be almost the same. What is important is to see the run rate.

In 2025, we closed at 12.5%, which is higher than our expectation. This is the run rate. And that's why in the dotted line, we are changing our outlook because we are improving our projection of the ROIC due to the good performance of the last year. Going to the outlook of 2030. We have a 10-year strategy, and now we are going beyond. We started at EUR 353 billion. We grew 3.5x in 2025. We have the target at EUR 1.6 trillion for 2027 and EUR 2 trillion as said last year for 2030. We have been growing organically, but also through acquisition, radar, STS, GTS and in green, what we said before, Omnicom and Clever devices. We're quite proud about what we were. We were traditional domestic grade OEM. Now we are a global player in digital mobility, and we are planning the next step, which is most likely an acquisition that we are working on.

Of course, profitability is important. And to achieve an ambitious target, we have 2 important steps. One, our cumulative saving of over JPY 60 billion by 2030 coming from AI implementation, but also with a strong cost containment plan that already started this year and that we are implementing, and we expect the full benefit after 2027, but also growth through investment in new digital capability.

So as a conclusion, we have a strong foundation. We are a sustainable digital global mobility player with proven execution and global scale. We have a market with long-term tailwinds supported by transformation in structural mobility. As a strategy, we're accelerating portfolio shift to signaling, high-speed train and digital service and recurring revenues. We have execution, which is very important. We have key strategic action pillar underway to drive sustainable growth in a fast-changing market and transform record high backlog. Innovation, it's so important. We want to be at the edge. We're driving the next generation of mobility through digitalization, multimodality, autonomy, agentic AI and our outlook is a trajectory to sustainable profitable growth through 2027 and beyond.

Thank you very much. I leave the stage to my colleague, Amiya-san, for the Connective Industry. Thank you very much.

[Interpreted] Thank you, Giuseppe. Hello, everyone. I am Noriharu Amiya, CEO of Connective Industry Sector. I will explain the progress of INSPIRE 2027 in the CI sector as well as our business strategy. Before getting into the main topic, let me briefly introduce my background. I started my career in the railway business. After serving as COO of the Rail business unit, Head of Corporate Strategy at Headquarters and CEO of the Building Systems business unit, I've been leading the expansion of digitalized assets and HMAX as COO of the CI sector since last fiscal year. Starting this fiscal year as CEO, I will drive business transformation globally through physical AI. I look forward to your continued support.

I will talk based on the following agenda. I will begin with a review of our performance. In FY '25, the Lumada revenue ratio increased by 9 percentage points last year-on-year to 43% and strong Lumada growth driven by AI demand enabled us to achieve an adjusted EBITDA margin of 11%. Three business areas showed particularly strong growth. The first was the facility business. In addition to the expansion of service businesses such as building systems and industrial equipment, growing data center demand provided further momentum, resulting in revenue growth of 23% year-on-year.

The second was semiconductor business. Supported by expanding AI demand, revenue increased 26% year-on-year. Diversification of our semiconductor customer base also contributed significantly to performance, enabling the business to evolve into a more resilient and stable growth platform. The third is Life Science business. AI-driven innovation in diagnostic and pharmaceutical processes advanced significantly. Shipments of diagnostic instruments reached a record high and the biopharmaceutical maintenance business nearly doubled compared to FY '23, delivering steady growth.

Based on this progress, I will now explain the vision we have for the CI sector. The CI sector aims to become the leading company in physical AI businesses for industrial domains. Our products are evolving from connected products into digitalized assets, generating data that has never existed before through advanced, highly reliable control technologies and sophisticated measurement technologies. By combining the operational data generated in the field with deep domain knowledge gained through hands-on experience and applying AI through our digital service platform, HMAX, we will autonomously optimize operations and deliver customer value through physical AI, including shorter time to market.

I will now explain why physical AI serves as the growth model for the CI sector. For example, on the right-hand side, in semiconductors, validation time from development to manufacturing has increased by 50%, showing a more complex structure. And while the number of genetic tests and diagnostic methods have expanded nearly 189-fold, the complexity and sophistication of technology are accelerating dramatically. This means that shortening time to market and maximizing ROI have become challenges that customers can no longer solve on their own, making collaboration with partners increasingly essential. To address these challenges, strong products generate highly accurate data. Data from multiple products is integrated and analyzed and insights are fed back into operations. By continuously enhancing and evolving this physical AI capability to maximize efficiency, Hitachi is uniquely positioned to deliver this customer value.

I will now explain in greater detail the CI sector's business strategy based on this physical AI-driven growth model. We will concentrate our management resources on 4 areas where AI investment is particularly strong, facilities, semiconductors, medical diagnostics and pharmaceutical manufacturing and drive growth through our physical AI businesses. This slide shows market growth rates through FY 2030 on the left and the CI sector's growth rates on the right. We intend to outperform the market in all 4 focus areas.

Starting with the next slide, I will introduce our specific physical AI initiatives in each of these priority business domains. The first focus area is facilities. In this domain, we are targeting a revenue CAGR of 16% through FY 2030. Our strength lies in our powerful digitalized assets, including elevators and HVAC equipment, supported by one of the world's largest connected installed bases of approximately 650,000 elevators. Building on these assets, HMAX for Buildings, which is already deployed in Japan, China and across Asia, will optimize building facility operations by improving not only operational and maintenance efficiency, but also overall building energy efficiency. Through HMAX for Buildings, we will continue delivering a wide range of value to customers such as Mitsui Hudosan and Nomura Real Estate.

In addition, as announced yesterday, we will connect HMAX 4 buildings with approximately 3 million HVAC units owned by our co-creation partner, Bosch, and provide energy optimization services on a broader scale. The second focus area, semiconductor manufacturing. In this field, we are targeting a revenue CAGR of 15% through FY 2030. Hitachi CDSM commands approximately 76% of global market share and offers world-leading 2-nanometer measurement technology, making it the industry standard for leading-edge semiconductor processes. Centered on CDSM and complemented by X-ray inspection systems, we are working with manufacturing equipment partners to build a physical AI platform that integrates deposition, lithography and etching, the core processes that account for roughly 80% of front-end semiconductor manufacturing.

By progressively deploying solutions such as our already developed ExTOPE IoT integration platform, we aim to reduce development time by approximately 50%, while achieving high equipment utilization and improved yield. Through the expansion of HMAX, we will accelerate collaboration with Samsung and Intel, which we recently announced and expand our physical AI business across global semiconductor manufacturers. The third focus area is diagnostics. In this domain, we are targeting a revenue CAGR of 11% through FY 2030. Through collaboration with Roche, Hitachi's clinical chemistry and immunoassay systems hold the #1 global market position.

Likewise, through collaboration with Thermofisher, our genetic testing systems also hold the global #1 market position. Leveraging these world-leading digitalized assets, we will further accelerate collaboration with partners in molecular cancer diagnostics. Through HMAX for Healthcare, which integrates data from clinical chemistry and immunodiagnostics, genetic diagnostics and molecular cancer diagnostics, the 3 categories that account for roughly 80% of the in vitro diagnostic market, we will enable more accurate treatment selection and optimize health care delivery.

We will expand the delivery of this value to customers, including Se Gene Medical Foundation in Korea as well as testing laboratories and hospitals around the world. The fourth focus area, pharmaceutical manufacturing. We position this as our next major growth engine and are targeting the highest revenue CAGR among our focus areas at 17% through FY 2030. By combining AI-driven analytics and simulation with bioreactors and line building capabilities, Hitachi enables faster scale-up from process development in step 1 and stable operations through AI-based maintenance planning in step 2. As a result, we have made it possible to shorten the scale-up period from process development to mass production by more than 30%. We are now further expanding our digitalized assets by leveraging spectroscopic analysis systems capable for detecting abnormalities in cells and DNA at an early stage.

Through physical AI, we improve quality and yield across the entire manufacturing process. HMAX for biopharma provides seamless support from lab to fab, breaking down silos between processes and delivering transformative value. Through collaboration with Daiichi Sankyo, Fujifilm and other customer base of approximately 350 pharmaceutical companies, we will expand our physical AI business across the pharmaceutical industry. The key to accelerating the growth of our physical AI business is the Edge AI semiconductor developed by Hitachi. Compared with state-of-the-art GPUs, it delivers more than 10x greater power efficiency, eliminates the need for dedicated servers and enables the intelligent operation of a wide range of industrial machines and robots.

We will leverage this edge AI semiconductor through 3 approaches to expand our physical AI business. First, we will incorporate it into our world-class products, further strengthening them as next-generation edge AI products. Second, we will implement the semiconductor in our partners' products as well, deepening co-creation and expanding customer value through physical AI-enabled collaboration among multiple products. Third, we will accelerate our customer Zero initiative by using the semiconductor to transform our own manufacturing processes and then deploying the validated results to customers.

To further strengthen and add intelligence to the products that will drive the expansion of our physical AI business, we will advance R&D through 3 strategic pillars and significantly increase R&D investments to JPY 370 billion over the 3 years through FY '27. The first pillar is the advancement of measurement technologies. We will develop X-ray metrology for semiconductors and advanced materials and new laser spectroscopy technologies for pharmaceutical manufacturing, thereby strengthening our digitalized assets in measurement, analysis and diagnostics.

The second pillar is strengthening the enablers of physical AI. We will expand the lineup of edge AI semiconductors that bring intelligence to products while accelerating collaboration with robot manufacturers to enable autonomous robotics. The third pillar, evolution of digitalized assets in the facilities domain. For data centers, we will strengthen high-efficiency UPS systems and air-cooled chillers while promoting circular economy initiatives through the expansion of green products. By FY 2030, the CI sector aims to generate all of its revenue from physical AI businesses, achieving both sustained high growth and high profitability while realizing Lumada 80-20 portfolio.

To firmly establish the expansion of the physical AI businesses centered on the global top products discussed today, we will make focused investments, including M&A in expanding our measurement portfolio and strengthening OT capabilities. We will also invest in creating the next generation of global top products in growth areas such as data centers, robotics, advanced materials and the circular economy. At the same time, as part of our portfolio transformation centered on physical AI businesses, we announced in April this year the transfer of our home appliance business to Nojima. We will continue to sharpen our business focus and maximize business value through selective investment and portfolio optimization.

Finally, I'll conclude with a summary. By accelerating the 4 initiatives shown here, including portfolio transformation centered on physical AI businesses and the expansion of our global operations, we aim to achieve revenue growth of 6% to 8% and adjusted EBITDA margin above 13%, a ROIC of 11% to 13% and the Lumada revenue ratio of approximately 50% by FY '27.

Thank you very much for your attention. Next, Mr. Abe will present the strategy for the Digital Systems and Service sector. Abe-san, the floor is yours.

[Interpreted] Hello, everyone. I am from DSS Digital System Service. I'll explain the strategy of this sector. The DS sector achieved record high profits in FY '25. As President Tokunaga emphasized at the beginning, AI is the greatest opportunity for Hitachi. Today, I will explain the specific strategies and the road map for how the DSS sector will achieve highly profitable and sustainable growth as we enter the full-fledged AI era.

I will explain according to the following content. First, progress of INSPIRE 2027 and current performance. Next, changes in the business environment and growth market due to AI. And then from Chapter 3 onwards, I will explain specific strategies and investments. In FY 2025, the strong domestic business drove the overall performance of the sector, setting a new record high of the profits. The adjusted EBITDA margin was 15.5%, an improvement of 1.3 points from the previous year. Furthermore, the Lumada revenue ratio also achieved a double-digit growth for both this sector and the entire company. This indicates that the business is transforming into a high value-added model, further improving profitability. In addition, the backlog has accumulated to JPY 1.8 trillion, serving as a positive factor for future growth.

Regarding the domestic business, this is the pillar operability of the DSS sector and a stable foundation for growth. In FY 2025, we achieved an adjusted EBITDA margin of 18.4%, a top level profit margin among domestic IT service vendors. In particular, large-scale projects of JPY 3 billion or more expanded significantly, increasing by 87% year-on-year. And our customer base in the mission-critical domain supports revenue growth. In addition, the social sector is driving growth with the defense sector expanding significantly in addition to public power and railway sectors. These mission-critical domains with high entry barriers are further strengthening our competitive advantage.

Next is the GlobalLogic, which drives Hitachi growth globally. Currently, GlobalLogic is shifting its business portfolio towards the rapidly growing AI field. The synergy created by combining their outstanding digital engineering capabilities with Hitachi's OTM products has expanded significantly, increasing by 73% year-on-year. In addition to IT consulting, examples of solving issues in the social infrastructure domain digitally are expanding, including in the energy, railway and building equipment maintenance sectors. GlobalLogic is maximizing its value as a core engine, accelerating digital transformation or DX across the entire Hitachi Group.

From here on, I will explain the growth strategy of the DSS sector. First, the challenges in the business environment driven by AI. AI is bringing about major changes in the state of the IT services industry. It is a fact that automation is progressing through the use of AI in some operations. However, that is not the. The essence of AI is that it is creating new markets. In other words, it is bringing growth opportunities. The area of modernization of AI services where AI is implemented in complex corporate systems to lead to business innovation or the area of so-called physical AI, which utilizes AI while ensuring reliability and safety in systems that cannot be stopped, such as social infrastructure. In these fields, new value creation in markets driven by the impact of AI are rapidly expanding.

The important thing is who can realize value and convert it into profit in this market. It is said that a new market worth JPY 100 trillion will be created by 2030. Hitachi is in a position to demonstrate its strength in this field, and we believe so as well. We consider this not a mere change, but a clear growth opportunity for our company.

In the sector, we are focusing on 2 growth markets created by AI. One is modernization and AI services. We will leverage our existing customer base to capture steady growth. The other area is social infrastructure times AI, namely physical AI. This is an area where significant growth is expected in the future. By capturing these 2 markets at the same time, we will achieve both growth certainty and high growth.

We will build a sustainable competitive advantage by leveraging Hitachi's unique strength in these markets. In the following section, I will explain these 2 growth strategies. First, regarding modernization and AI service market. The DSS sector has a massive installed base of about 15,000 customer system operation in Japan alone. This is our solid customer base. In addition, customers have a strong need to realize their own AI transformations among aiming for sustainable growth in the AI era. By revamping these existing IT assets to be AI-ready and embedding AI into them, we will reliably convert the growth market into profits.

Going forward, we believe the key to success is how to increase the speed of service provision while incorporating the evolution of AI. we will raise domestic sales to JPY 3 trillion to JPY 5 trillion by 2030. The key to this success is the FTE team. FTEs are engineers who step into the customers' frontline and handle everything from problem definition to implementation, operation and improvement in a comprehensive manner. Rather than just making proposal documents, as in the past, once customer issues and business values are identified, we propose them immediately with mockups in prototypes. This speed becomes a major competitive edge. As an execution unit that connects business challenges to AI solutions, we will expand this team to a scale of 5,000 people, drastically enhancing our delivery capabilities. The Frontier AI development center announced in May this year supports the activities of the FD team and will accelerate its expansion.

Furthermore, the foundation that realized this continuous business transformation of our customers swiftly and with high quality is agent integration. This is a new development methodology where AI agents handle development processes, such as design, coding, testing and operation. By incorporating Hitachi's know-how and assets, we will dramatically increase the speed of development while improving productivity and scale. FTE defines the challenges and agent integration implement solutions quickly so that our client ongoing business transformation can be supported. This is not limited to mere efficiency improvement. It realizes a shift to high value-added business structure where sales growth leads to profit expansion.

Next is the growth strategy in the social infrastructure times AI market, that is the fiscal AI market growth. Power grids, railways and giant plants. In these domains that supports society, the AI utilization is not yet sufficient. We are deploying our unique digital service called HMAX in this domain. It analyzes operational data using AI and autonomously optimizes the infrastructure. This simultaneously elevates efficiency and reliability at the same time. This market will expand to a scale of several trillion yen to over JPY 10 trillion in the future. There are no established players yet. So we will mobilize all the assets of Hitachi Group and aim for the top. There are no established players yet. So we will mobilize all the assets of Hitachi Group and aim for the top.

Our competitive edge in this social infrastructure times AI market lies in our ability to provide full strength in unintegrated manner. The first is physical AI based on domain knowledge. Second is a physical AI FTE team. The third is mission-critical security. The fourth is data fabric. To implement AI in social infrastructure, general IT knowledge alone is insufficient. So domain knowledge to understand the front lines is essential. By providing this strength as a single entity, we will achieve high ability and efficiency at the same time.

Furthermore, I will explain the physical AI FD team and data fabric in detail later. HMAX, which integrates these elements will evolve not just as a mere solution, but as an OS that supports the operation of social infrastructure as Tokunaga explained in the CEO remarks. The core of socially implementing this physical AI is the physical AI FDE team. Our competitive advantage, which translates the difficult strategy of physical AI into actual value creation lies in our human resources. Traditionally, the IT world, which handles AI and data and the OT world, which handles products and control technology have been divided. However, integrating these 2 fields into essential is essential for implementing AI in social infrastructure.

The physical AID team is a uniquely Hitachi organization that fuses the AI, data security technologies of GlobalLogic and Hitachi's Security Services with the OT domain knowledge and control technologies that Hitachi has cultivated over many years. They will enter the customers' frontline and convert AI into business value while bridging the knowledge of AT and OT. Thanks to this team, it becomes possible to balance the AI utilization with a high reliability and safety even in social infrastructure. The TS sector will accelerate the scaling and monetization of HMAX with this physical AI FTE team at its core. What is essential for the social implementation of fiscal AI is that data fabric, which is a data foundation. In the social infrastructure domain, IT and OT data are scattered and as they are, they cannot be fully utilized for value creation by AI.

So Data Fabric integrates and structures this data, preparing it into a form that can be safely utilized by AI. Furthermore, it goes beyond a single system to enable data linkage across industries and business types. For example, by linking renewable energy power generation with factory production plans in real time, it achieves optimization of energy cost and CO2 emissions. By realizing such cross-industry optimization on Hitachi's platform, we will lead to new data-driven value creation and continuous profit expansion.

Now from here on, I will explain the investments, partnering and structural reforms that support growth. First is investment. In order to realize the growth strategy I explained so far, we will dynamically invest capital while maintaining financial discipline. In FY 2026, we will increase organic investment by JPY 30 billion and accelerate investment in human resources and technology such as training, FTEs and strengthening privately IT -- excuse me, AI technologies. Furthermore, we have secured an inorganic investment quota of up to JPY 1 trillion during the INSPIRE 2027 period, and we will effectively execute M&A of companies that possesses necessary technologies and customer bases. This will enable us to effectively capture growth markets and further enhance the scale and competitiveness of our business.

The partner ecosystem for such growth, that this sector is already advancing collaborations with many partners as shown here. And as a hub, we are also expanding the collaboration between these partners and OT sector. For example, most recently in May, we concluded a strategic partnership with Anthropic and announced that we will strengthen the cyber resilience of social infrastructure, such as power and transportation. Also yesterday, together with Group Cloud, we announced strengthening the FTE by combining the capability of the 2 companies and acceleration of the global rollout of physical AI.

In this way, as a global leader that continues to digitally innovate social infrastructure, we will continue to leverage this ecosystem of partners to rapidly expand the value we provide to our customers. Regarding structural reform, we are promoting IT primarily in the IT product business, advancing the selection and consideration business from the prospect of the capital efficiency, especially in the storage business, we are concentrating the resources on the globally competitive high-end domain. And for the ATM businesses, we will transition to an optimal structure tailored to the market environment through business integration with OKI. Through these initiatives, we will further improve the profitability of the product business and aim to maximize capital efficiency.

Finally, the summary. The target financial indicators are shown here. By reliably harvesting monetization and capturing AI growth opportunities, including fiscal AI, we aim for sales growth rate of 7% to 9% and adjusted EBITDA margin of 16% to 18% in FY 2027, that this sector will certainly execute strategies explained today and aim for further improvement, particularly regarding profitability.

That is from my side. Thank you very much for your attention. Next, CFO, Kato, will explain the financial strategy. Mr. Kato, please.

[Interpreted]

Hello. I am Kato, CFO. Today, I will explain how Hitachi intends to enhance corporate value while balancing sustainable growth with disciplined management, focusing on our financial strategy and risk management. Specifically, I will discuss the 4 pillars that support the enhancement of corporate value, cash generation capability, capital allocation, capital efficiency and risk management. First, I will explain how we are strengthening our cash generation capability, which serves as the foundation for both growth investments and shareholder returns.

Driven by the Lumada business, we are continuously expanding core free cash flow through revenue growth and margin improvement. Over the 2-year period from FY 2025 to 2026, both revenue and margins are expected to improve steadily. EPS is also expected to grow at a CAGR of 19% over these 2 years, and we intend to continue increasing it going forward. Furthermore, through improvements in CCC and other initiatives, we continue to maintain a conversion rate from net income to core free cash flow that exceeds our target of 90%. As a result, core free cash flow is expected to grow at a CAGR of 28% over the 2-year period, even excluding the impact of large advanced payments, and we will continue to expand it going forward. The second pillar is balanced capital allocation between growth investments and shareholder returns.

Our capital allocation policy has remained unchanged since last year. While emphasizing returns, we will continue to allocate cash flexibly and in a balanced manner between growth investments and shareholder returns. First, let me discuss inorganic investments that support sustainable growth. As discussed today, we will focus on strengthening digital capabilities and expanding services with the majority of transactions expected to be bolt-on acquisitions that reinforce our existing businesses. Investment decisions will be made based on alignment with Hitachi's growth strategy as well as careful assessment of risks and returns.

Regarding financing, we will utilize leverage when appropriate while maintaining financial discipline. For shareholder returns, our policy is to continue increasingly the level of returns over the medium to long term. At a minimum, we intend to return more than half of core free cash flow and net income to shareholders. For dividends, we prioritize stable growth in line with business performance, while share repurchases will be conducted flexibly as needed.

In summary, our approach of cash allocation is illustrated on the right-hand side. First, core free cash flow will be allocated between growth investments and shareholder returns in accordance with the principles I just outlined. Next, proceeds from asset sales will be used for growth investments if suitable opportunities meeting our strategic and return criteria are available. If not, those proceeds will be returned to shareholders primarily through share repurchases. Leverage will be utilized for growth investments while maintaining financial discipline.

Here, let me explain how we have advanced growth investments within our capital allocation framework. Since launching INSPIRE 2027, we have steadily accelerated portfolio transformation aimed at expanding the Lumada business. Growth investments are evaluated through a disciplined decision-making process that considers both strategic fit and hurdle rates. As a result, the number of internal reviews related to portfolio transformation tripled year-over-year, significantly accelerating our efforts. Specifically, we advanced portfolio transformation through the divestiture of our ownership interest in these asset sale transactions. We also successfully executed inorganic growth investments that contribute to the expansion of Lumada, particularly in the digital service business.

Next, I would like to explain the progression of our expanding shareholder returns. Supported by growth in core free cash flow, dividends have increased steadily in line with our policy, marking 10 consecutive years of dividend increases. Share repurchases are conducted flexibly, taking into account cash generation capability, financial condition and progress in asset sales. On cash payment basis, dividends per share are expected to increase from JPY 41 in FY '24 to JPY 55 in this fiscal year. Share repurchases are expected to increase significantly from JPY 200 billion in FY '24 to JPY 550 billion this fiscal year.

As a result, the total payout ratio is expected to rise to 94% this fiscal year, while total shareholder returns are projected to increase from approximately JPY 390 billion in FY '24 to JPY 800 billion in this fiscal year. The third pillar is improving capital efficiency, which supports the enhancement of corporate value. Through the expansion of the Lumada business, we have increased returns and optimized invested capital, enabling us to improve ROIC again in FY '25. Inorganic growth investments are essential for sustaining business growth. However, even if ROIC temporarily declines following an investment, we will work toward a shift recovery -- swift recovery by improving ROIC and reducing WACC, thereby expanding the ROIC spread. For FY '27, even after factoring in future inorganic investments, our target is to maintain the current level of ROIC.

Let me now introduce the key initiatives for improving ROIC. On the numerator side, we are driving higher returns by strengthening the growth and profitability of our 4 core sectors with the Lumada business at the center. In addition, we will further expand the use of AI to improve productivity. On the denominator side, we will optimize invested capital through measures such as portfolio transformation, asset-light management and optimization of shareholders' equity. In addition, to expand the ROIC spread, we will work to lower WACC, including through the appropriate use of leverage.

The fourth pillar is strengthening risk management to protect and enhance corporate value. As Chief Risk Management Officer or CRMO, I currently oversee risk management activities across the entire Hitachi Group under the leadership of the CEO. In today's rapidly changing business environment, we are advancing our enterprise risk management framework, enabling our business regions and corporate functions to work together in identifying and addressing key risks across Hitachi in an integrated manner.

Our approach to risk management focuses not only on mitigating losses from threats, but also on capturing growth opportunities. In enhancing our ERM framework, we are focusing on 3 key areas. From a comprehensiveness perspective, we have established common risk categories across the Hitachi Group and identified our key risks.

From a timeliness perspective, additional countermeasures for key risks are discussed at monthly management meetings, enabling us to respond quickly to changing conditions. To strengthen organizational responsiveness, we have assigned risk management officers, RMOs across business units, regions and corporate functions to drive risk management activities.

Within our ERM framework, key risks are organized into a company-wide risk heat map to help minimize risk exposure. Examples include procurement, which is affected by development in the Middle East, talent, which is critical for growth and productivity and technological advancement, including opportunities arising from AI. In response to developments in the Middle East, our business regions and corporate functions are working together to accelerate mitigation measures. With respect to AI, we believe the growth opportunities for Hitachi far outweigh the associated risks. As discussed today, we will pursue growth opportunities by applying physical AI to mission-critical social infrastructure and by supporting our customers' AI transformation initiatives.

Finally, I will summarize the key messages I would like to take away from today's presentation. Even amid a rapidly changing business environment, Hitachi remains committed to balancing an unwavering pursuit of growth with disciplined management while striving to become a global leader in digitally transforming social infrastructure. By steadfastly adhering to the 4 principles I have discussed today and continuing our dialogue with investors, we will achieve the sustainable enhancement of corporate value. We sincerely hope for your continued confidence in Hitachi's future. Thank you for your attention.

[Interpreted] So after this, we will be having a Q&A session that will be starting 10 minutes later. So please wait for another 10 minutes.

[Break]

[Interpreted] Thank you for waiting. So now I'd like to start Q&A session. So let's have an active discussion. So we appreciate your participation. So let me explain the flow of the Q&A session. For Q&A session, we are going to have 1 hour. So you are going to make a -- we received the questions from both the participant in venue and online. So please raise your hand if you are on the venue, and if you are online participants, please put the hand raise button. So we will nominate the participant who are going to ask questions.

For those who are on the venue, we are going to bring you a microphone. So for I want you to limit to 2 questions per person, and we want to answer a question. Please state your name and the company you belong to and share your question. From the venue, Hirakawa-san, please.

[Interpreted] I am Hirakawa from BofA Securities. My first question, I have a question on FTE. While scaling HMAX horizontally, HDE will assume a very important role. And FTE came from Palantir -- from the stickiness of the customer point of view, I hope HMAX will be like that. But from scale perspective, I think the challenge is scaling this. But what you explained today, FTE, you said was in the -- plays a central role when scaling. So what is the difference between Palantir's FTE and Hitachi's FTE? What is the difference so that Hitachi's FTE can scale? And how is it different from field engineering FTE?

[Interpreted] Thank you for the question, Hirakawa-san. I think you touched on a very important point. Digital FTE and physical AI FTE, I would like to separate. starting from the digital FTE, Palantir FTE is a model. And as Abe-san mentioned in his presentation, the domestic Ses, we have about 335,000 SEs domestically. And they have been certified with levels in each technological field, bronze, silver and gold. And we also have levels for project management. So each SE has his or her own technology, and they are dispatched to the customer site. So this is our traditional way of working. And AI has been added as one of the technologies to offer value at the customer site. We already have a foundation for scaling in the digital domain.

On the other hand, for physical AI, the situation is, for physical AI, the situation is a little bit different. For it to scale, we are now practicing and acquiring experience through customer zero. One important example is in the mobility sector, the AI team has been established 2 years ago. And there are members dispatched from DSS and also OT members who are from the rail. And they form one team to apply physical AI to customer zero. And we will be making use of this insight so that we can deploy this to other customers.

For example, Tobu is one customer, which we already announced. So we will move on to the phase where we introduce it to multiple customers. HMAX is becoming a solution where we have sufficient insight. So we are going into a phase where the FTE team will deploy that horizontally. Is that like Hitachi FTE?

[Interpreted] My second question. In today's presentation, what impressed me the most is Hitachi will be implementing social infrastructure operating system. And in the slide, I found HMAX Energy, HMAX Mobility, HMAX Industry, there were the 3 circle shown in the DSS presentation, and I felt that these are intended to be connected. this HMAX energy, mobility and industry. For example, in industry, just-in-time synchronization of production and logistics is something you can do. And in this industry, HMAX, you have semiconductor facilities and health care. I feel that you don't have enough parts to get this cycle running. through -- to realize this big social infrastructure pictures, please tell me how you will be developing this HMAX industry. This might be beyond 2030.

[Interpreted] Thank you for the question. I would like to comment, and then Amiya-san will respond. You are right in saying that HMAX industry will connect to other areas. And for it to work as social OS, it needs more work to do. There are missing parts. Where we are starting in HMAX industry is facility areas, escalators and elevators and semiconductor, where the demand is surging. For facilities, it's building for semiconductor manufacturing, it will be the factory. The data will be accumulated from these places, and we will connect that to energy system to achieve optimum energy consumption. I think we can offer value like that. But as you mentioned, Hirakawa-san, by the field of physical AI expanding, it is true that we can offer a broader customer value. And that will be expanded under the lead of CEO, Mr. Amiya. Do you have any comments, Mr. Amiya?

[Interpreted] Thank you for the question. So where we intend to start and expand to accelerate. -- we have strong products and data is generated there, and physical AI will be developing there. So this is the vertical part where you build physical AI for multiple domains. For example, we have etchers and coating. And by building physical AI for each of these domains, they will be connected to become agentic AI to really offer value. So we will be taking these steps. And this will be the 3 domains or facilities. This step is extremely important, and I think this will be a big differentiating factor and value for us. And how we can realize social implementation.

So there are areas where we start from our facility domain and AI semiconductors by combining that, we have AGB automatic carry or robotics. By working together with partners, we can really build vertical systems and then connect that and link that to society. So there are areas where we can do it by ourselves and what partners do. By combining that, we will be building more and more HVAC so that they can be connected together.

[Interpreted] Any other questions? So Yasui from the venue, please.

[Interpreted] Yasui from UBS Securities. The question. Number one is about Energy segment. This is the first time AI-related $1 billion revenue was achieved this time. So this growth starting from 2024 to 25, you show the big growth having the diagram. So the products which led. So normally, transformer will be the leading product to grow that growth. But last year, Tokunaga-san had a collaboration with us some Atom from OpenAI and electricity is in shortage. So that there is a possibility coming from a digital world.

The other day, the digital infrastructure will be established. That is whatever was announced. So the future, the business related to data center, not only transformer in energy, any other products like data center infrastructure, including differentiator as well, if you share the growth.

[Interpreted] Yasui-san, thank you for your question. So as you pointed out, the data center demand is expanding so rapidly. So the last month, when I met with the U.S. investors, the data center area was their interest. What kind of revenue you are generating, what kind of products and services you can provide? Those questions were received a lot. And actually, Andreas prepared this slide and only talking about data center as well. So this is the slide we are talking about. So beyond this, so behind this, so I'd like Andreas to comment on this.

Thank you for your question. I think if you talk about data center, it's not only transformers, it's actually the grid connection what we are providing, what means transformer and the substation and partly even the distribution, the solid-state transformer on a medium voltage level. So why we are thinking that we can be successful there because we started with containerized solution. Data center customers are in difference to utilities completely different. They normally don't know exactly what they need. So they are more going for kind of specification where the function is specified. So we have that show me a technical solution. So they are much more flexible. So we can provide standardized solutions, which are fulfilling their need in a fast way if we can supply like with containers. And that's why we believe that we can grow in that area with our portfolio quite significantly.

And toward the 2030, you are thinking about the Energy as a Service type of solution?

These are different things what we are exploring. For our data center customers, of course, there's a ratio between CapEx and OpEx is essential as well. If you build a data center, you are spending CapEx. So what we are offering as well in the discussion with customers is that we are able to do leasing or renting our equipment. So it means that you pay by the hour, like in the gas turbine business for jets, power by the hour, you can actually lease and rent the equipment from us as well and you pay as you go. That's a possibility as well. But that's the financial optimization, which gives us just more edge in our customer relations.

So the Energy as a Service looks really interesting new business to sometime in the future, you're going to disclose the potential markets like a business side of this business because you were just launching this business. I'm personally very interested in the kind of new initiative.

It could be a new business line. We will see how big is the demand and how big is the volume and how much we want to afford of that because it's a kind of financial service coupled with the technical service. And of course, we will definitely balance our portfolio. But if the demand is big enough, definitely, why not?

[Interpreted] My second question is to Abe-san and Tokunaga-san on IT services in-sourcing. So what -- how do you take in-sourcing? This might be a nasty question because when you, I think, software can be developed very quickly by using AI. Some customers might start in-sourcing. For example, the other day, the CEO of Fujitsu was saying, he takes for granted that in-source the companies will start in-sourcing -- but as you say, mission-critical is extremely important, and you need the data fabric. But so that is about 60% to 70% of the customers However, about 30% of the customers will start developing by themselves. So how do you see this risk? .

[Interpreted] Thank you for the question. This is the answer. So the customers starting in-sourcing, I think that will happen. But when you say in-sourcing, it might not be the customers developing by themselves by hand. But the AI will be developing the system on their behalf, or on our behalf, I don't think this can be avoided. So before the customer did something and vendor did another thing. But going forward, the insights of both parties come together or agentic AIs from both sides from Hitachi and the customers working together. So that is the vision we hold.

What Amiya-san mentioned in the presentation, that is what we mean by agentic integration. Hitachi has project management knowledge and testing knowledge, and we will have AIs who have that knowledge, and the customers have now the details of their operations and their business and they will have the AI with the knowledge of their own operations and business. And by these 2 AIs working together, and we will also be working as 1 with the customer. So it's no more like who does what? It will be more an integrated process. That is why we are proposing this agentic integration.

When we have that, there will be no longer a side, which places orders, the other side receives the order, it will be probably more like a joint venture or something else. So rather than thinking about whether the work is done within the customer or externally, it would be more like doing it together. And in a sense, it will be like more service or outcome-based business. Amiya-san, do you have any additional comments?

[Interpreted] Actually, I don't. Domestic and overseas, I think the situation is a little bit a bit different. In Japan, we have customers and system integrators. There is this share of roles and responsibilities, especially in the mission-critical area and Hitachi has been delivering our development based on the deadline, and we have been doing that. So there's not much impact there. Here, we are improving our efficiency, productivity using agents. However, overseas GlobalLogic, there are customers who are starting to develop on their own. So there is pressure on the pricing.

Hitachi Group's OT sectors. and DSS sector transformation. So GlobalLogic is really being very useful to transform the OT sectors and DSS, and we would be using them more and more in FY '26 and beyond. And also stand-alone business, we would like to move on to value-based business rather than time and material. There is a company called Hitachi Digital Services outside Japan. And they already -- they are already doing value-based business. We will be moving more and more to businesses which charges based on value. And also, we will be converting people to FTEs. Thank you.

[Interpreted] So I'd like to take another question. Harada-san from venue, please.

[Interpreted] I'm Harada from Goldman Sachs Securities. So I have 2 questions. At first question, Tokunaga said in the beginning, like AI, whether it's a threat or opportunity. So it is an opportunity that was clearly said by Mr. Tokunaga. So would you elaborate on that a little bit more? I mean you have Lumada and you are utilizing digital for long years. So the discussion about AI has been changing in the past 1 year alone. So the change about AI discussion it is something shifting your pathway about Lumada business in the future? Like by AI in 10 years' time, you wanted to realize such and such, but you will be able to do it within 5 years, whether you can accelerate that time or type may be much expanding 10 years' time?

[Interpreted] Harada-san, thank you very much for your question. As you just explained, AI is really a good opportunity for us. So when it comes to Lumada perspective, so what it means to Lumada is as follows. As you explained some examples, like we have HMAX has been established. But to be honest, if we hope we want to do something like HMAX, that has been our aspiration several years ago, but suddenly, it has been realized with speed. This is due to AI evolution. So how much acceleration we achieved is not easy to be calculated when we started to see ChatGPT in 2022, starting from that timing, like 3 to 5 years we were able to be shortened for initiatives. That's what I feel.

On top of that, in the past, what's totally different from past Lumada is when we see Lumada, of course, we accumulate our knowledge and experience to make a solution under Lumada. But human being, we're not aware of something -- so by having the use cases where people are not aware of or knowledge can be accumulated that humans are not aware of, so that new values were taught by AI to us. So we can provide such new values learned from AI to our customers. That is my understanding. So we will have to promote this flow. We started from mobility for HMAX, and we want to expand it for the other areas. And also you earlier, the HMAX, which is across the several industry, and we want to link horizontally so that we can create OS for social infrastructure. Second question.

[Interpreted] On the Page 16 in energy presentation, the solid-state transformer. And overseas, I think this is talked about with great enthusiasm. I would like to hear Hitachi's strength in this area because you have been handling transformers for many years. And I think you also -- you might be able to convert what you already have in the industry to apply to this area. And when will this start contributing to revenue? And are you already talking to customers about this?

[Interpreted] Specific question, solid-state transformer. So...

Yes. Thank you for the question. So the solid-state transformer is actually a new solution, which is actually reducing the space for data center customers. It's not a complete new concept or technology. You're still going with a medium voltage transformer from one end of the voltage to a DC voltage used in data center. Normally, you're doing it with a normal medium voltage distribution transformer and then you add an inverter to generate the DC. Data centers in this space, we are seeing it today with 1 gigawatt, 2 gigawatt, 3 gigawatts, they are huge. They are enormous. So space is becoming a constraint.

And in a solid-state transformer, you're combining the inverter together with the transformer in one piece, which is saving space. It's a little bit more expensive. It's a little bit more efficient eventually if we're doing it right, but it's in the mean point of economics, it's space consuming. And we are long enough in the transformer business how to do that. So we deal with that. We are developing these special type of dry transformers for rail as well, for instance, because they are very sought after there. So we are quite confident that we can make a difference here.

[Interpreted] So any other questions? Yamasaki-san, please.

[Interpreted] I'm Yamasaki from Nomura Securities. I have 2 questions as well. The first question is about the strategy to expand HVAC. You explained already, but in particular, for digital assets of the other parties, how you can expand your sale to their digital assets owned by other customers. So mobility selling 35% for non-Hitachi fleet. That has been successful for mobility. But how -- why it was successful? And for the other 3 sectors as well, how you're going to expand your installed base and customer base through digital service. Do you have any specific digital service scenario to expand customer base? So by acquisition, if you acquire service companies or a company who has customers' assets could be -- if you have any easy or difficult to purchase such a company by sector, could you share that with us?

[Interpreted] Yes, Yamasaki-san thank you very much. So to scale the HMAX, this is an important point. So we have one important model, which is HMAX Mobility. So after I comment on this, and then Giuseppe is going to answer how we are able to apply our HMAX to other parties or stocks. So we have a track record, which is very important. source to expand for the other companies' rolling stocks, but that will be commented later. But the other important point is that in Mr. Amiya's presentation, the horizontally rollout had some key components, whether we have the key components or not to expand horizontally. This is one more point, which is important. So we are preparing AI semiconductor. So that will be deployed to other party products so that we can collect the data and also equipment of other parties can be operated. And then HMAX can increase the scale. That will be explained by Mr. Amiya later.

Yes. Thank you, Yamasaki-san. Of course, we can build up on our experience. We started almost 7 years ago in the U.K. by utilizing our technology. And we have a unique technology in the sensors. So already 6 years ago, we bought a company for vibration sensor last year, Omnicom. So we can bring our own sensor technology, which is a big differentiator as well as our platform combined with domain competence is giving us a big advantage. Now we are moving, as you said, in the 35% with other customers. And through Clever Devices, which is the acquisition we said before, we are also moving into other areas like buses, or other way of transportation. So we are moving horizontally and vertically creating a large data set and possibility to do, as we said, improve reliability, improve energy efficiency or even combining having traffic data. Compared to other model, we do own the data. And also, we do own synthetic data because as Abe-san said, we get a lot of expertise from Hitachi Digital, so we can also do a lot of simulation.

[Interpreted] Thank you very much. So as Tokunaga-san explained earlier, there has been the evolution of AI. So the players who produce their products and how they can make intelligence of their products so that they can be a physical AI flow. This is the common challenge for every player here. We developed edge semiconductor, which is exactly a collaboration with such customers. And then we can add OT, which possessed by us. So we together can consider how we can do together, and we have similar products. So we can utilize AI if we utilize such and such. We can simulate it right away to customers so that we want to expand it.

So one more addition is that in the connected industry and to King component, yesterday, we announced the air conditioning of the Bosch. So we have a King components. On top of that, HMAX for building can be utilized as it is in the collaboration. So this is one of the approach to expand HMAX under CI. In the -- let me add from the digital field. So we have many fields, including factories and plants within factoring plant. Of course, they use our own products, but other products are introduced for the production facilities.

So from a user's perspective, if we -- such as such, we can reduce this energy consumption or energy efficiency can be improved. If we provide it, they would like to do it with us. The partners who partner who provides such facility are using our product as well. So that ecosystem, it's not the IT field ecosystem that IT can contribute to that as well. These are additional information from our side.

[Interpreted] The next question, the effect of internal use of AI. In INSPIRE 2027, you mentioned about you expect an impact of about JPY 100 billion. So what is the progress? And do you see more potential benefits of applying AI, your internal productivity increase?

[Interpreted] Thank you for the question. So I would like to first comment and then Kato-san will talk about the numbers. the internal use is extremely important. To achieve more than the plan, we have Hatakiyama-san as Deputy CFO; and Fujimori-san, who is responsible for IT. So these are 2 Vice Presidents, we are leading this. So JPY 100 billion in FY '27, we will not change the target, but we are trying to achieve even more than that, and we are trying to accelerate that. Kato-san, do you have any addition?

[Interpreted] Just a little bit. Originally, applying AI to customers' operations, we have already started 2 years ago. For example, as Abe-san mentioned in his presentation, GlobalLogic is providing the tools, and these are getting ready. So we are trying to use that internally. And we have started this organization to utilize AI internally this April. And we need technology, and we just announced our partnership with Anthropic. So we have not yet updated this number of JPY 100 billion, but I think this will expand further.

[Interpreted] Any other questions? Okay. From Fukuhara-san, please, from the venue.

[Interpreted] Any other questions? Okay. From Fukuhara-san, please, from the venue. I'm Fukuhara from Jefferies. My first question is this time in DSS revenue margin in FY '27, so the growth for revenue has not changed, but profitability was upgraded. So you have fierce competition for the overseas and IT investment is being constrained. That's why -- so what is the probability to achieve your target? I just wanted to confirm it again with you.

[Interpreted] Yes, Fukuhara-san, thank you very much for your question. So this is exactly the plan for DSS. So I'd like Mr. Abe to answer to your question.

[Interpreted] So the answer is -- thank you very much. As I said in the presentation as well, -- so in Japan, the business -- we have the strong business demand in Japan. So it means there are many legacy systems operated in Japan. So customers will utilize AI to improve their competitiveness and agility as well. So modernization and AI implementation needs are quite high in Japan. So how much confident I'm confident. So we should be able to achieve it. On top of that, as I said, so the collaboration with OT sector has been progressed. So we utilize GlobalLogic in FTE to be trained so that we can generate profit so that in INSPIRE 2027, we would like to make a foundation toward 2030.

[Interpreted] So let me add to this. So as was mentioned, AI is evolving. And in Japan, in particular, modernization needs is quite high, which is the source of the driving profitability. And as I said in the presentation, Mr. Abe, portfolio reform is really continuing without any discontinuation. So the higher profitability, we would like to focus on the business where we can expect high profitability. That's why based upon that, we are focusing on high growth and high profit business.

[Interpreted] Second question, HMAX and physical AI. you have shown the revenue projections, but how do you see the contribution to profitability? If the profitability is high, I think competitors will come up. If you look at 5 years down the road, what is your current business strategy?

[Interpreted] Thank you for your question. As you said, HMAX has high growth. In Abe-san's presentation, it said 50% to 60% growth. HMAX is expected to continue to grow at a very high rate. And profitability we believe we will be able to maintain the profitability of more than 20%. Why we can do that? IT/OT product. So we are able to converge all the insights for IT/OTM product, and that is a big differentiator on implementing physical AI.

Needless to say, many parties talk about physical AI. But companies which can apply internally and then scale externally, I don't think there are many players in the market who can do that. When we bring HMAX to the customers, we actually don't see much competitors on HMAX when we bring this to customers. And by really improving this HMAX, as we go along, I think we will run into competitors, but we would like to continue increasing our competitiveness, and that would lead to maintenance and expansion of growth and profitability.

So any other questions? Fujiwara from the venue.

[Interpreted] I'm Fujiwara from Citigroup Securities. I have 2 questions. The first question is, this time, HMAX, in particular for the industry area, I have some questions. Each company started to talk about physical AI. So in the future, I believe the AI you want to utilize AI to optimize the total factory of plant, I believe. So hardware companies are promoting physical AI recently. So with this AI system, is it something Hitachi is going to manage? Or you would like to replace the existing one with your own AIs? Or are you going to have the combining your own AI and other companies' hardware AIs together so that you can provide optimal solution as a total. I just want to know how you want to establish the plant and factories in the future? This is my first question.

[Interpreted] Fujiwara-san, thank you very much. So the important point and you are looking forward in the future. So I don't think there is an answer to this. So in the future, I don't know whether one company -- I don't think one company can manage everything. I don't think one company can control everything, hetero perspective. So the customer should like to choose the best product, the best service in one environment, but key is data. In knowledge-based model, which is AI model based upon knowledge, how we can manage and control those data and knowledge model AI is important for the future growth. So that's why I said OS in my presentation.

So the data and AI should be possessed by us. And then on top of that, apps application can be combined between ours and the third parties' applications based upon customers' request. That will be the future factories, not only factories, but also the other field domain that will be the case, I believe.

[Interpreted] So do you have anything about industry?

[Interpreted] Fujiwara-san, thank you very much for your question. Yes, that is really an important point. So in the past, customers are not really disclosing data to us. That was difficult for us to receive data. And then as I explained today, and I explained the growing area today with AI evaluation, but also customer technology has been developing so fast, and they have to reach payback period earlier with having faster investment decision. So instead of customers doing it by themselves alone, partnering with a company like us, they can have the earlier payback period so that they can realize their aspiration earlier. That is the loop they want to achieve.

So when we look at the factory, which combination can deliver best results should be our focus. And if we want to focus totally, but if we want to focus on something, we alone cannot do some areas. We have products and data that we can provide and that should be combined with the partner's asset so that we can create combined values. that is fiscal AI value creation that is satisfied by customers. Of course, we want to strengthen what we are strong at and the value we want to provide to customers, we want to partner with our people, partners.

So we don't believe we can do everything by ourselves. So we want to have a good collaboration with the stronger partners so that we can create customers' value in the ecosystem and the processes and functions of the core part of the customers is something that we want to deliver based upon our technology and data.

[Interpreted] Second question about mobility. Mobility towards FY '27, in the revenue target, the other sectors have clearly stated the M&A targets. So in real, what are you -- what are your thoughts on M&A? What do you try -- what do you intend to acquire?

[Interpreted] Giuseppe is now considering this very deeply. So I would like Giuseppe to comment on possible M&As.

Thank you for the question. We have 3 different kind of M&As. The first one is HMAX related on competencies. We have seen Clever devices or Omnicom. Second one, it's more related to the specific growth in multimodality, and we are looking at having a larger database like traffic or similar areas. So we're doing a detailed valuation on the possibilities, the market, the profitability of this area. And the third part, it's expansion into new markets.

So the world is growing. A number of countries are growing, and we expect the growth in some markets that's seen in some chart. We expect some big growth in the southern part of the world. So we're looking at these 3 different possibilities. And it's, of course, it's a very detailed analysis, and we are moving now that we completed successfully quite a number of acquisitions. So we know how to proceed quickly -- and now that GTS especially is completed, we can concentrate our energies on the next big one.

[Interpreted] I would like to add, Giuseppe just mentioned the various types of M&As. So it's not a pie in the sky. We have specific targets in mind, but we cannot give you any clear indications or company names, but we can assure you that we have clear targets in our minds.

So any other questions? So Yoshikawa-san from the venue.

[Interpreted] Yoshikawa from Morgan Stanley. So I have 2 questions. My first question is to Tokunaga-san. In the past 1 year, expanding HMAX you have hyperscaler, global AI enablers, you are announcing the collaborations. And you've discussed with them in that activities as a steady strength, it's IT OT products combination was mentioned in various occasions. On the other hand, while you have your dialogues with -- how do you see the challenges that you have at Hitachi? And to overcome such challenges, how do you think that you can promote such [indiscernible].

[Interpreted] Yoshikawa-san, thank you for your question. The answer. As you mentioned, HMAX and Lumada expansion topic, In the past 1 year, actually, in order for us to expand AI ecosystem, I have met with various CEOs to date. So through the dialogues with those CEOs, but at first, let me talk about our basic idea while we started to discuss with these CEOs, people are talking about monetization of AI so loudly, but the model area, in particular AM field is becoming more public domain in the future. So instead of deciding who to partner with, each company has its strength and weaknesses. So ecosystem should be evolved by partnering various partners.

So while we discuss IT/OT products was mentioned by yourself. And every player, like recently, OpenAI and Anthropic are some examples when we talk to them, Hitachi has a 5-layer kick, the energy at the bottom, application at the top. Hitachi can provide every layer. That's why the people who are dealing with the models, of course, they will discuss application with Hitachi. The energy area to operate up can be discussed with Hitachi. That's why as a partner, it's really rewarding. That was mentioned by Sam Altman. So beyond it, to expand this business, what can challenge I see is -- so this is something that I'm telling this to you about Hitachi since I took this.

In the past, we only talk about apps. That was the end of the discussions and transformation, energy. We discussed only the transformer and energy, but how we can connect that to Hitachi other businesses. That has been the area that I was paying attention to. So by gathering those elements, we can have more number of opportunities that is identified by our people. When we talk with [indiscernible] from Intel, we are not only talking about Hitachi H-Tech CDSM, digital solution and energy optimization to operate plant is part of the discussions. So all the Hitachi capabilities should be able to be delivered to customers for their help. So that is a really important challenge that I have.

[Interpreted] Second question is about CI. In the business portfolio transformation, you are -- have mentioned the expansion of your sensing portfolio. Looking at it from external perspective, the -- I think you have very strong CDSM,ESM and sensing portfolio. but that has not really broadened. So what will change? Do you think the scale of M&A will increase? So is there anything else?

[Interpreted] Thank you very much for the very important question. So this is what I have been talking all this time with the sector. Amiya-san will be happy to respond.

[Interpreted] I think that's a very important point. Up till now, why this area did not expand? I think there are 2 reasons. Before, we were shipping products, and we just shipped it, and that was the end. And then we shifted to maintenance. So that was the business model. As I said earlier, things are getting very complex even for only semiconductors. So we want to shorten the time to market. So we need data. For example, one process only completes by combining various sensing.

So combining this data and the sensors, detectors, which generate these data. So the business is really now shifting to service. So that really underpins the future expansion. And depending on what is coming, we need to enhance or change the combination of what we have. So we already have CDSAM technology with lasers, but we need to think about what material combination we need for X-ray. And for health care, how can we use optical for health care. So we need to really think about what to combine with each other, generating data by combining multiple detectors and optimizing the process and shortening the time to market. So we need to draw a clear road map and do whatever we need to do step by step.

And wherever we need to collaborate, we will collaborate. So we need to have this overall picture, and this we have as a result of this extensive discussion with Tokunaga-san. And I would just like to add one thing. When we think about CI sector business model, mobility and energy is our model. They start with strong products, and they made that digital to generate services. I think that is the winning model available to Hitachi now, and now we are realizing that. What is CI sector's #1 product? There's quite a lot where CI sectors product is #1. But as Yoshikawa-san mentioned, we were not able to capitalize on that fully. We should have this #1 product and attach some supplementary products onto that #1 products and then offer that with services. I think that is the winning strategy for CI.

[Interpreted] The next question, Ayada-san, please, from the venue.

[Interpreted] I'm Ayada from JPMorgan Securities. I have 2 questions. My first question is about energy. So short-term and long-term perspectives. So for the short-term perspective at first, in the last fiscal year, you made upward revision for the performance, and you actually did upgrade forecast provision and you did it every 6 months to upgrade in particular, margin forecast. So I want to know which is a factor to change your margin forecast. And I think projects are already fixed. So the profitability should be able to be available when you have the fixed project. But on top of that, for the shorter term, you upgraded your margin. Is it because operation efficiency is the factor so that you can improve that margin or you took a conservative look at first to generating margin forecast?

And for the long-term perspective, so the backlog of 2030 is $100 billion. This is visibility and investment amount, so you said JPY 6 billion up to JPY 6.6 billion up until '27. So would it be expanding in 2030 for the investment? So for the short term, the margin forecast has been upwardly upgraded. So what kind of initiatives to support this upward revision of the margins? So this is the first question. The second question is about 2030, JPY 100 billion visibility.

[Interpreted] You want to have more answers. So I want Andreas to answer to your question.

Thank you for the questions. I think in regards to the short term and the question of the upgrading, of course, we are constantly looking at our figures and our projects and our performance where we are standing and if we have to make some adjustments. You are right. Some of the projects are fixed if we have booked them, but some of them not, especially more complex projects like HVDC are covering normally 3 to 4 years in execution. And they have, of course, risk buffers in it and of course, things you cannot control. Some of these contracts have as well some additional bonuses if you energize the lines ahead of line or on time or maybe later than you have [indiscernible].

You only know that if you approach the end of that project. And at the moment, we are performing there very well. That's why we were able to upgrade this particular part. But it's not completely true that you know in the moment you book it. This is a dynamic process, especially in the projects which we have. And then, of course, we have uncertainties like supply chains. If you're doing HVDC things in Saudi Arabia, for instance, then of course, supply chains can be impacted. So we have a rather conservative approach in looking forward on projects. On efficiency levels, of course, if we know that efficiency is kicking in, as I have shown it in my presentation, then of course, we are applying that to our forecast and updating our results as we see these efficiencies are kicking in.

For the long term, I think you're right. We are forecasting for 2030, a backlog of around EUR 100 billion plus framework agreement and capacity reservations. And as I've told you, we are only investing if we have a bankable business case. So the backlog is developing in that direction, we are not excluding that we are investing more CapEx if we have the orders on our hands, and it is a very conservative business case. So I would expect, yes, you could see more CapEx investments in our sector going forward. in a very conservative approach. We are not building overcapacity. So we are not building anything which is not sold or which is not realistic. So we're not changing our risk profile there.

[Interpreted] Second question, data sovereignty. Last year, in this Investor Day, in the energy sector, the service revenue was low because there are customers who did not want to connect to the cloud. So that's why service revenue does not grow. I think you mentioned that last year. This data sovereignty, as mentioned in industry, but energy and mobility is more mission-critical. So is there a risk of this data sovereignty being a roadblock to increase service revenue? Maybe not cloud-based AI or would there be a demand for edge AI model going forward?

[Interpreted] Thank you for the question. About sovereignty, many people have their opinions. As I mentioned in a previous answer, in the long term, AI model would become a public good. I think that is the long-term direction. But having said that, data is an area which will be the competitive factor between the customers. How much of that data will the customer be willing to disclose to the partners? I think the customers are very sensitive about that. The -- so one is handling of the data. And how much of the data, to what extent the data will be visible to the partner. That is another thing. And since this data is a competitive area, we won't be able to fully share this data.

If we are to really work deeply with the customer, one way is to establish a JV and share the data within this joint venture or we -- or maybe we can have a service where we will only return the result and not -- well, not see the content of the data. We have a deep understanding that data will be a competitive factor, and we would like to adjust the business model according to that. As of this moment, there is a discussion on having a Japanese AI. And I talked about AI becoming a public good. So there are areas where this sharing cannot happen. Together with other companies, we would like to be involved in the development so that we can make use of such AI. That's all. Thank you.

Any other questions? So Okawa-san from online participation, the Japanese channel, please.

[Interpreted] I'm Okawa from Daiwa Securities. I have 2 questions. My question is on Page 9 of the SS presentation. I have a question. This shows a target for revenue, JPY 3 trillion to JPY 5 trillion in 2030. It's a range compared to JPY 2 trillion in 2025. What scenario will make you achieve this JPY 5 trillion? What kind of risks you see here so that you have the JPY 3 trillion as a bottom side. And the IT service of domestic is 18%. So if you have more AI services, it will be going to the next level of the business. Do you -- if you think so, could you share that perspective?

[Interpreted] Thank you very much for your questions. So Mr. Abe is countering this area. So Mr. Abe is going to answer to your questions.

[Interpreted] Thank you for your question. So as a background, when we talk about situation 5 years' time in digital world, there will be technology development, market run so fast. So it's difficult to mention it. However, for the market total, we'll be growing 6% to 7% and we say JPY 3 trillion, we are at JPY 2.2 trillion in Japan. So JPY 3 trillion 8% growth, which is JPY 2 trillion out of JPY 3 trillion should be able to be achieved. And I said I was confident earlier the SSD, the risks about materials, engineers having high-end skills can be scaled or not. This is one of the risks. and whether customer continue to invest is one of the risks, but the people frontline are working very hard.

So I'd like to really achieve JPY 3 trillion, whether that is enough or not from the management. So nonlinear higher growth should be able to be achieved through this JPY 4 trillion, JPY 5 trillion perspectives. For instance, this time starting from April, from CI sector, we have the digital department coming from industry. Hitachi Solutions, Hitachi Systems where we have industry capability and DS to be infused to industry area, sector capability and also their customer base can be utilized by this team. So how we can scale is one of the cases. And as I said in FEs, FDE prepared domain knowledge, I was also in the front line as well. So the OD knowledge brought up by that can be accumulated as agent or data so that we can scale, not only SI know-how of DSS, but also OT sector domain knowledge will be accumulated as knowledge and data so that nonlinear model can be reached by scaling. So inorganic M&As are one of the challenges. That was shown in this JPY 3 trillion to JPY 5 trillion from management perspective.

[Interpreted] About profitability, scaling using assets that would lead to increased profitability. Our target is to secure profitability of over 20%. So how can we really increase the turnaround using assets? The second question, so the receptivity of customers to digitalization AI. So Hitachi's HMAC revenue is JPY 300 billion, and CAGR is very important. But you need to scale this further. this infrastructure, so -- but applying AI in the infrastructure industry is taking time. So would it be after 2027 or even after 2030? Or is this adoption accelerating? And I think you are using -- doing things like developing easy-to-use AI. So would the customer be more accepting to digitalization AI so that HMAX will grow further?

[Interpreted] That is a very important point. If this question came 1 or 2 years ago, I would have said it would take some more time because the receptiveness of the customers might not be that high. I might have answered this way. But now the scene has totally changed. There are 2 reasons. The customers themselves started to witness what is happening in the AI, they have started to use it themselves. So now they are more knowledgeable about what AI can do.

And also, we have Customer Zero in Hitachi. And when we explain about what benefits the customer Zero received and what HMAX can do, the customers are more interested and they also want to receive such benefits. Infrastructure, which is very complex, HMAX, Energy is showing concrete results. And as Giuseppe explained, not only global but domestic customers are also starting to adopt HMAX. Customers using digital and AI, I think this acceptance or receptivity is increasing very quickly.

[Interpreted] So time has come. So I would like to hear from Tokunaga-san, about closing remarks.

[Interpreted] So again, thank you very much for participating in Hitachi Investor Day today. So it was a 3-hour session. And I'm sure you might be tired of this. However, I received constructive opinions and question, to which we are so appreciative. So if I can summarize it to 1 important message. So whether AI is risk or threat. So there are many investors who think AI is a threat or risk. But if you look at our facial expressions from our side, if you -- we are excited to face this AI opportunity. So we have this great business opportunity in front of us, which have never experienced by Hitachi in the past long history. So how we can capture this growth opportunity to improve our corporate value. So we are actually trying to capture it through our Hitachi activities, but society is uncertain to this level. So it's not something we can go whatever we want. We understand it. So with the discipline, and we want to increase the speed of the management where we can capture AI growth opportunities.

And down the road, while situation will change -- what kind of worries, concerns that people in the market have should be understood by us so that we can respond to such questions. The communication is really important. So we will continue to create this kind of opportunity for dialogue so that we can listen to your voices so that, that will use it to our management itself. Hitachi will continue to evolve toward becoming a global leader that continuously innovate social infrastructure through digital technologies.

So to our shareholders and investors, please continue to hold high expectations at Hitachi's execution capabilities and sustainable enhancement of our corporate value. We humbly ask for your continued support and guidance. Thank you very much for today. Thank you.

[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]

[Foreign Language] The scheduled time has come. We will now begin the briefing session on the progress of Inspire 2027 management plan and consolidated financial results for the year ended March 31, 2026. First, President and CEO, Tokunaga, will say a few words. Mr. Tokunaga, please.

This is Tokunaga speaking. Thank you very much for joining us in such a busy schedule today. At this moment, Mr. Kato, the CFO, will talk about the earnings for FY 2025 and the 3-year management plan from 2026 to 2028. Inspire 2027, I will explain. Although we operated our business in a highly uncertain environment in fiscal year 2025, we think we were able to get off to a good start toward sustainable growth that Inspire 2027 aims for.

Now, let me turn it over to Mr. Kato for a presentation. First, Kato will now explain the consolidated financial results for fiscal year 2025 and the outlook for fiscal year 2026.

First, I will outline the key performance highlights of this earnings announcement. Regarding the results for fiscal year 2025, in addition to continued strong performance of the Power Grid business in the Energy segment, Domestic IT business in DSS and Railway business in Mobility served as key drivers, resulting in year-on-year increases in both revenue and profit for Hitachi's consolidated results. Adjusted EBITDA, net income and free cash flow all reached new record highs.

In addition to improved earnings in Energy and DSS, the expansion of the Lumada business led to a 1.3 improvement in the adjusted EBITDA margin. Furthermore, on top of the increase in profit, core free cash flow also rose due to advances received. We were able to achieve results that exceeded our initial plans for the fiscal year, moving us closer to achieving the goals of Inspire 2027.

Key financial KPIs to note include 8% year-on-year increase in revenue and a 21% rise in adjusted EBITDA. Furthermore, net income attributable to owners of the parent exceeded JPY 800 billion for the first time. All 6 KPIs have improved compared to the outlook announced at the end of January.

Next, the outlook for FY 2026. With the energy sector performing well in the Power Grid business and the DSS also showing a solid growth outlook, all 4 sectors are projected to see increased revenue and profit. Even after factoring in increased strategic investments and the risks associated with the Middle East in quarter 1, we expect profits to grow further from the significant increase in the consolidated results for FY '25.

Meanwhile, risks related to the situation in the Middle East could significantly impact our earnings outlook for the current year. So we will continue to monitor the situation closely. In terms of the financial KPIs to note, revenue is projected to grow by 5% year-on-year, while core FCF is expected to decline. Excluding the impact of large advance payments, it's projected to exceed the previous year's level. Additionally, regarding ROIC, the forecast incorporates the impact of growth in investments as an assumption and is expected to largely be in line with the previous fiscal year.

Next, highlights by segment for FY '25. In the DSS segment, domestic sales for Front and IT services grew by 7% due to the expansion of domestic DX and modernization businesses centered on Lumada business. In the storage business, although annual sales decreased due to restrained customer investment in overseas markets and the focus on block storage, profitability improved thanks to a focus on core products and cost-cutting measures.

In the Energy segment, the Power Grid business saw increased revenue and profit. Due to continued strong demand for power grid equipment and favorable foreign exchange fluctuations by region, sales expanded across all regions, particularly in Europe, North America and the Middle East.

In the Mobility segment, the Lumada business, including Railway Signaling Systems performed steadily and combined with favorable ForEx fluctuations, revenue and profit both increased.

In the CI segment, while overall revenue declined due to reduced demand for new elevators and escalators business in China's building systems market, revenue in the Measurement and Analysis Systems business grew by 9% year-on-year. Additionally, profitability for the CI segment as a whole improved due to increased sales of semiconductor manufacturing equipment and expansion of the Building Systems' digital services business. Finally, regarding the Corporate Items and Elimination, these results were achieved through the strengthening of corporate strategic investments.

Next, here are the highlights by segment for fiscal year 2026. In the DSS segment, domestic operations are expected to expand led by the Lumada business. Additionally, in the Storage business, we will continue to expand sales of our core block storage products and prioritize project governance focused on profitability to further improve earnings. For the DSS segment as a whole, we expect both revenue and profit to increase further from the growth seen in fiscal year '25.

In the Energy segment, the Power Grid business is expected to see increased revenue and profit as demand for power transmission equipment remains strong. In Mobility, Lumada businesses, such as railway signaling systems, are performing well and revenue and profits are expected to increase. The order backlog increased in FY '25, and we anticipate long-term growth.

In the CI segment, while revenue is expected to decline due to the capital restructuring of Hitachi's GLS home appliance business, revenue and profit are projected to increase, driven by expansion of Lumada businesses across various sectors, including measurement and analysis systems and building systems.

Finally, regarding Corporate Item and Elimination, this outlook incorporates an increase of JPY 30 billion in corporate strategic investment and a JPY 20 billion risk impact related to the situation in the Middle East in the first quarter.

Next, I will explain the impact of the situation in the Middle East. In the Middle East, delays in some production processes have occurred since March. But as of today, the impact remains limited. In this FY 2026 forecast, we have estimated the direct impact on our company for the first quarter based on current assumptions and incorporated this as a Middle East risk. The situation in the Middle East is highly fluid, and we have not been able to incorporate the direct impact on earnings from the second quarter onward nor the indirect impact on our company resulting from effects on our customers.

We have incorporated a risk of a JPY 40 billion decline in revenue and a JPY 20 billion decline in adjusted EBITDA into the Corporate Item and Elimination as direct impacts on the first quarter. This primarily reflects potential delays in major projects in the Middle East as well as shortages and cost increases for certain raw materials. We expect this to potentially affect sectors such as energy, CI and mobility. The risk factored in here reflect our outlook as of today, but we believe the impact of the situation in the Middle East could fluctuate significantly in the future. So we will continue to closely monitor the situation.

Here, I will explain the progress of DSS's growth strategy. Looking back at the major achievements of FY 2025, we further improved profitability across the entire DSS, achieving an adjusted EBITDA margin in the 15% range for the first time. Regarding our Domestic Front and IT Services businesses, DX and Modernization businesses grew steadily, and we promoted the application of AI and system development for domestic SI projects, achieving an average 10% improvement in production efficiency.

In the Services and Platforms segment, we strengthened our high-value-added service business, leveraging AI. GlobalLogic is expanding synergies through initiatives such as HMAX solution development for other internal sectors. And in quarter 4, revenue, including synergies, grew 44% year-on-year. Furthermore, AI and IT services in North America are performing well. In Q4, Hitachi Digital Services revenue grew by 10%. Meanwhile, in the Storage business, as a result of cost optimization and business restructuring, the U.S. dollar-based profit margin improved by 2.6 percentage points year-on-year in Q4. Additionally, driven by launch of new products in our high-end block storage segment, revenue also increased compared to the same period last year.

Regarding our future growth strategy, we will drive the digital transformation of the OT and product domains within the Hitachi Group through initiatives such as the development of HMAX solutions. We will support this effort through an integrated delivery effort led by GlobalLogic and Hitachi Digital Services. Furthermore, we will thoroughly implement AI to further improve productivity in system integration, development and operations and continue to expand sales and profits in the DSS segment.

Next, I will explain the progress of Hitachi Energy's growth strategy. Sales revenue have grown steadily, thanks to measures to expand production capacity and improve productivity in response to long-term upward trend in order backlog. We will continue to aim for long-term sales growth. We will also actively expand our service business. Last year, we acquired a minority stake in Shermco, an electricity services company in North America and are working to strengthen our service delivery capabilities.

Regarding HMAX, the core of Lumada Digital Services business, we are expanding sales of HMAX Energy, a next-generation AI service solution for energy infrastructure that we began offering in March. Furthermore, through collaboration with Microsoft, we have enhanced our AI-powered Lumada facility management solutions. In FY '25, we accelerated measures aimed at improving corporate value.

Let me explain the situation. First, we continued the restructuring of our business portfolio following on from Q3. As announced last week, we reached an agreement with Nojima to establish a new company based on strategic partnership for our Home Appliance business. Furthermore, as announced in March, we reached an agreement with Oki to integrate our ATM business. Going forward, the ATM business will be subject to equity method accounting. Meanwhile, to expand HMAX Mobility, we announced the acquisition of Clever Devices, a U.S. company specializing in intelligent transportation systems for public transport.

Regarding capital allocation, we plan to increase the total amount of shareholder returns for FY '26 to approximately JPY 800 billion on cash basis. In line with our previous policy, aiming for stable growth, we will increase the year-end dividend for FY '25 to JPY 27 per share, a JPY 4 increase from FY '25 interim dividend. Furthermore, including the projected interim dividend for FY '26, total expenditures for this fiscal year will be approximately JPY 250 billion, an increase of JPY 50 billion year-on-year.

Regarding share buybacks, in line with our previous policy and taking into account cash flow forecast, asset sales trends, growth investment prospects and financial condition, we have decided to buy back approximately JPY 550 billion on a cash basis. This includes a portion of the amount resolved in FY '25. So on FY '26 resolution basis, the total will be JPY 500 billion, an increase of JPY 100 billion year-on-year.

Now, let me explain the results for FY '25. The actual figures are as explained in the points at the beginning. I will now explain the breakdown of year-on-year changes in FY '25. Revenue increased by 7%, even excluding the impact of foreign exchange due to increases in energy, DSS front-end business services and mobility. Adjusted EBITDA followed a similar trend to revenue with increased profits in energy, DSS, front-end services and IT services, resulting in 1.3 percentage point improvement in the adjusted EBITDA ratio, even including the impact of U.S. tariffs and increased strategic investments.

Net income improved by over JPY 200 billion in operating profit. While there were impacts from the sale of the air conditioning joint venture, increased costs related to structural reforms and increased income taxes related with share transfer, we were generally able to translate this improvement in operating profit into an increase in net income. Core free cash flow, excluding the impact of advances received effect from large projects, increased by approximately JPY 300 billion year-on-year, mainly due to an increase in adjusted EBITDA.

Next, I will explain our financial position. Total assets at the end of FY '25 is approximately JPY 15 trillion, an increase of approximately JPY 1.7 trillion from the end of FY '24 due to increased sales in energy and other sectors as well as FX fluctuations. Cash conversion cycle decreased compared to the end of FY '24, mainly due to an increase in advanced payments.

Next is regional revenues. Overseas regions expanded primarily in Europe. Energy expanded across all regions, mainly in other regions, including Europe, North America and the Middle East, resulting in a 24% growth overseas. Mobility expanded in Europe, North America and other regions, including the Middle East and Africa, driven by rail control systems, resulting in a 15% growth overseas.

Next, I will explain the order results by segment. In DSS, Front business increased by 7% annually, driving the overall increase in DSS for FY '25. In Energy, although there was a decrease in nuclear energy due to high base effect from previous year's large-scale projects, power grid's business increased by 17% year-on-year due to strong demand for transmission equipment and data center-related demand. And the order backlog also increased compared to the end of last fiscal year.

In Mobility, there was a decrease in year-on-year due to high base effect from large-scale projects in the previous fiscal year. But in Q4, orders for rail vehicles and rail control systems increased. The order backlog, including the impact of foreign exchange, increased compared to the end of FY '24. CI as a whole grew 10% annually. In particular, the Measurement and Analysis Systems business, which saw an increase in Healthcare and the Industrial Digital business, which saw growth in Robotics SI, both increased.

Next is highlights for FY '26 forecast. The main points are as explained in topics section at the beginning. Regarding exchange rate assumptions, we've used JPY 150 to U.S. dollar and JPY 175 to the euro this time. I will now explain the breakdown of year-on-year changes. Excluding the FX impact, business restructuring and Middle East risk, revenue is projected to grow by 7% year-on-year, driven by increases in energy, DSS, CI and others. Adjusted EBITDA shows a similar trend, excluding increases in corporate strategic investments and the Middle East risk, EBITDA margin is projected to be 13.1%.

Net income for the current period will be affected by fluctuations in nonoperating income and expenses and business structural reform expenses resulting from business reorganization, reflecting the business portfolio reforms implemented in FY '25, but operating profit is expected to increase, resulting in an expected year-on-year increase.

Core free cash flow, excluding the impact of large advanced payments, is expected to increase year-on-year despite increased CapEx such as capital investments for production increase due to increased adjusted EBITDA and improved net working capital.

Next, regarding the performance by segment, the overview is as explained on the segment highlights page at the beginning. Here, I will explain the changes to the reporting segments. This mainly reflects changes to subsegments within DSS and CI and the transfer of a portion of Industrial Digital business from CI to DSS.

Finally, I will explain the Lumada business, which is a pillar of our growth business on Page [ 30 ]. I will now explain the performance of the Lumada business and the HMAX solutions within the Lumada Digital Service business. In FY '25, Lumada accounted for 40% of Hitachi's consolidated revenue and 16% of adjusted EBITDA. For FY '26, we plan for revenue to reach approximately JPY 4.8 trillion, a 16% increase year-on-year with revenue ratio of 44% and adjusted EBITDA of 17%.

Regarding HMAX business, revenues in FY '25 were approximately JPY 300 billion with an adjusted EBITDA of 22%. We aim for JPY 480 billion in FY '26. Regarding HMAX Solution, which is the core of Lumada's Digital Services business, the various OT sectors in DSS collaborated to develop new solutions as described here from Q3 onwards.

This concludes my explanation of the FY '25 results and FY '26 outlook.

Kato-san, thank you very much. Our next step from my side, I would like to explain about our progress in our management plan, Inspire 2027. First, if you could please turn to Page 2. Here is an executive summary. Fiscal year 2025, the first year of Inspire 2027 saw an increasingly uncertain business environment due to factors such as the imposition of U.S. tariffs and the outbreak of conflicts around the world. Amid these challenges, we believe Hitachi was able to achieve both revenue and profitability growth through the expansion of our Lumada business. In particular, the rapidly expanding AI market, including the full-scale launch of HMAX accelerated Hitachi's growth.

At the same time, even amid strong business performance, we continue to prioritize enhancing corporate value through disciplined management in accordance with our capital allocation policy. Furthermore, we are further deepening our sustainable management practices and continuing to build the foundation for sustainable growth. As a result, our performance for fiscal year 2025 is as shown below, making a solid start toward achieving the sustainable growth envisioned in Inspire 2027.

I will now explain the details of our progress. If you could please turn to Page 4. As explained last April, under Inspire 2027, we aim to achieve sustainable growth by leveraging a True One Hitachi approach to deliver value unique to Hitachi, thereby contributing to the realization of a harmonized society where the environment well-being and economic growth are in harmony or in balance. Accordingly, in addition to the Inspire 2027 financial KPIs shown at the bottom of the slide, as indicated in the upper right corner, we have set Lumada 80/20. That is an 80% Lumada revenue ratio and a 20% adjusted EBITDA margin as our target levels for long-term management goals.

Please turn to the next page. Lumada is the engine driving Hitachi's sustainable growth. Today, I would like to provide a detailed explanation of Lumada and HMAX in the next few minutes. Launched in 2016, Lumada has evolved into Lumada 3.0 through the utilization of AI and domain knowledge. So what exactly is Lumada 3.0? Lumada 3.0 illustrates the business areas where Hitachi is focusing its efforts on and the fundamental business models for those areas.

Hitachi is focusing on 4 business areas: energy, mobility, industry and digital. The installed base of products and IT systems that we deploy globally within these businesses constitutes our digitalized assets. We collect operational data in real time from these digitalized assets, analyze it using AI enhanced by domain knowledge to provide our unique digital services that solve business and societal challenges. Furthermore, these valuable digital services lead to expanded sales of our products and data collection and analysis that even includes products from other companies, accelerating further expansion of digitalized assets. This is the fundamental business model that Lumada 3.0 aims to achieve.

A prime example of Lumada 3.0's digital service is HMAX. HMAX is a suite of next-generation solutions that uses AI to revolutionize social infrastructure, and it's characterized as a recurring service. Through Lumada 3.0, we aim to become a global leader that continues to digitally transform social infrastructure.

Based on our results for fiscal year 2025, I will now explain Hitachi Group's progress towards sustainable growth, if you could turn to Page 7. Fiscal year 2025 was the first year of Inspire 2027, and the entire company worked together to demonstrate Hitachi's strong growth momentum. As a result, as shown on the left-hand side of the slide, we achieved a significant growth across all financial KPIs compared to fiscal year 2024. In particular, the adjusted EBITDA margin increased by 1.3 percentage points to reach 12.4%, demonstrating our enhanced earning power, while ROIC rose by 1.5 percentage points, giving us a tangible sense of progress in improving capital efficiency.

Furthermore, Lumada business continues to show strong growth with revenue up 11 percentage points year-on-year and adjusted EBITDA margin up 1 point year-on-year. Meanwhile, to embody disciplined management, we implemented our largest ever shareholder return of JPY 600 billion by combining stable dividend growth with flexible share buybacks in accordance with our capital allocation policy. Furthermore, we put continuous business portfolio reforms into action, proceeding with the sale of minority interest shares and the restructuring of our home appliance and ATM businesses.

Furthermore, as measures to drive sustainable growth, we made growth investments after carefully assessing the strategic fit and returns to expand the Energy Service business and strengthen DSS' AI development capabilities. Although not shown here, in terms of organic growth investment, for HMAX investment and energy business, we have made an investment of roughly JPY 500 billion.

Please turn to the next page. Here is the current status of Lumada business. As shown in the graph on the left, Lumada's revenue ratio reached 40%, and its adjusted EBITDA margin ratio reached 16% in fiscal year 2025. We are making steady progress toward achieving the Inspire 2027 targets of a 50% revenue ratio for Lumada and 18% adjusted EBITDA margin ratio. Driving this growth is HMAX, the recurring digital service at the core of Lumada 3.0.

By the end of fiscal year 2025, HMAX will have reached JPY 300 billion in revenue with an adjusted EBITDA margin exceeding 20%. As shown in the slides, we are steadily building a track record of successful implementation across all sectors, and we aim for further growth in the future.

Next, I would like to talk about initiatives and our expected growth going forward. First, energy grid aging response and investment in new equipment from that, the demand continues to be very strong, backlog reaching JPY 10 trillion. And as a result, a notable highlight for fiscal year 2025 is that thanks to initiatives to improve productivity, profit margin rose by 3.3 percentage points year-on-year, reaching 12.9%. Additionally, we executed inorganic investments in North America to further expand our Service business. Based on strong performance in FY '25, we have revised upward both the revenue growth rate and adjusted EBITDA margin for the energy sector's Inspire 2027 targets.

Next, the mobility sector. Demand remains robust in mobility sector as well, in particular, Rail Signaling business, which was strengthened through the acquisition of Thales saw growth. As a result, the backlog increased by more than 15% year-on-year, exceeding JPY 7 trillion. We also continued growth investments to strengthen and expand HMAX, proceeding with the acquisitions of Omnicom and Clever Devices. Going forward, we will continue to work steadily towards achieving Inspire 2027 by responding to robust demand and expanding HMAX.

Please turn to Page 10. This is about Connective Industries sector. In fiscal year 2025, driven by growing demand for AI, our Semiconductor Measurement and Inspection Equipment business, a key strength, performed well. Furthermore, Lumada business grew following the launch of HMAX industry. As a result, despite a slowdown in elevator and escalator business in the Chinese market, the backlog increased by more than 13% year-on-year, reaching JPY 2.5 trillion.

Furthermore, under the new leadership of Executive Officer, Mr. Amiya, we are accelerating the reform of our business portfolio, including the execution of a new growth strategy for the Home Appliance business through our strategic partnership with Nojima. Going forward, we will further accelerate efforts to solidify the foundation for sustainable growth and move toward achieving Inspire 2027.

Next is the Digital Systems and Services sector. In fiscal year 2025, in addition to growth in mission-critical large-scale system development, including modernization and migration, we proceeded with a review of pricing for IT services and operations. We also actively worked to streamline system development by leveraging AI. As a result, the DSS sector profit margin reached a record high of 15.5%. As a result, the DSS sector's profit margin reached -- furthermore, through our strategic partnership with Oki Electric, we restructured our ATM business and established a foundation for providing stable services to our domestic financial institution clients.

Through the expansion of our backlog and increase in the proportion of Lumada revenue and margin improvements, driven by pricing revisions and the use of AI, we're steadily building the foundation for sustainable growth and vision by Inspire 2027. We plan to provide further details regarding the business overview of these 4 sectors and our future growth strategies at the Investor Day scheduled for June.

Next, please turn to Page 11 on global business status. Inspire 2027, we are further promoting global autonomous decentralized management. Our 6 regions are autonomously exploring business opportunities and achieving growth. Overseas revenue exceeded the growth rate of company-wide revenue, increasing by more than 11% year-on-year. As shown on the right side of the slide, we are making progress in securing large-scale projects in each region that serve as examples of Hitachi's innovation of social infrastructure.

The HVDC project in the U.K. is expected to have a total customer investment of over JPY 600 billion, and the railway project in Germany is expected to be a project with total order value of approximately JPY 300 billion. We are also exploring new business opportunities and are making proposals to secure projects such as the introduction of power transmission and distribution equipment for AI data centers in North America and EV battery life cycle solutions in Europe.

Please turn to Page 12. Core free cash flow grew significantly by 50% year-on-year due to robust business performance and a firmly established cash flow focused management approach. We are also proceeding with the sale of minority stakes. Meanwhile, we steadily advanced disciplined management based on our capital allocation policy. In FY '25, while cash flow expanded, there were few growth investment opportunities commensurate with strategic suitability and return. And, therefore, from January to April 2026, we flexibly implemented an additional JPY 100 billion in share buybacks midyear.

Please turn to Page 13. This shows the EPS performance for FY '25. As shown on the left side of the graph, supported by steady profit growth and the creation of stable bottom line, EPS also grew by 32% year-on-year, as shown on the right side. We aim for continued sustainable growth in EPS in the future.

Next is on enhancing sustainable management that supports sustainable growth. Please turn to Page 15. Amidst rapidly changing business environment, we are working to enhance risk management through the deepening of global autonomous decentralized management. Regarding the U.S. reciprocal tariff that began at the start of FY '25, we strengthened enterprise risk management to quickly assess the impact on our business and minimize the impact by taking measures such as price pass-through measures.

In addition, we are continuing to expand the local procurement rate by continuously reviewing our supply chain. Furthermore, regarding the Middle East crisis, we are currently working to visualize and minimize the impact on our business. And at this point, we have incorporated an impact of JPY 20 billion on profits into this year's forecast.

And as shown on the right side, in order to minimize geopolitical risks through local production for local consumption, we have made large investments in both the energy and mobility sectors in North America, which is a growth market.

Please turn to Slide 16. We believe that strengthening human capital is the foundation for sustainable growth, and we are continuously working on talent development and engagement improvement. We are steadily expanding our talent pool of next-generation leaders and AI professionals to achieve the numerical targets of Inspire 2027.

Furthermore, in order to create value as True One Hitachi, we are focusing on the continuous improvement of employee engagement scores. In FY '25, we reached 73.3 points, bringing us within reach of the Inspire 2027 target. As shown on the right, these initiatives have received a certain level of recognition from outside the company.

On Slide 17, you can see in FY '25, we continued to implement management reforms to enhance corporate value. We are continuing to strengthen the independence and diversity of the Board of Directors, which is the core of our governance. We nominated Ms. Ilham Kadri, who has a proven track record as CEO of a global chemical manufacturer as new Director from June. We also nominated Mr. Masahiko Chino, who has been active as Co-Chairman of a global accounting firm.

Hitachi will continue to improve the independence and diversity of its Board of Directors and strengthen governance, taking into account the changes in the business operations. Meanwhile, we are also advancing reforms to our compensation system from the perspective of further strengthening our commitment to the capital markets. For executive officers, we adopted a compensation system linked to the enhancement of corporate value and the achievement of management plans. Furthermore, from FY '26, we will also introduce equity compensation for 1,800 global top managers aiming to improve compensation levels in addition to promoting a more capital market conscious approach to work performance.

Now, let us look at new growth opportunities for Hitachi's sustainable growth. Please turn to Slide 19. Needless to say, AI is currently creating a new massive growth market. Both Agentic AI, which makes autonomous decisions and executes actions and physical AI, which interacts with the physical world are continuing to evolve. And the market size is expected to exceed JPY 100 trillion by 2030.

We believe this market presents an unprecedented opportunity for Hitachi. This is because Hitachi is a company with highly reliable products cultivated over 110 years of building social infrastructure, control and operation technologies based on field expertise spread across 190 countries and cutting-edge AI technology backed by 80 years of IT business and partnerships.

With these 3 elements, Hitachi is a rare player that can continue to innovate social infrastructure that supports human society with AI. And we are confident that we can achieve sustainable growth through social infrastructure and AI, backed by the enormous market size.

Please turn to Slide 20. The rapid expansion of HMAX demonstrates Hitachi's ability to grow through social infrastructure and AI. HMAX Energy provides value in the form of power grid stabilization to multiple utility customers. HMAX Mobility continues to evolve, utilizing data from other manufacturers' vehicles to bring value to railway company customers in the form of improved operational efficiency. HMAX Industry has demonstrated that productivity can be continuously improved, not only by replicating skilled techniques, but also by autonomous evolution. Hitachi will further accelerate its growth in social infrastructure and AI with HMAX at its core.

Next slide, please. We are also developing new businesses and technologies that will drive our next growth, and working with NVIDIA to develop technologies for establishing a DC power supply architecture to realize efficient power utilization in data centers. We are also developing the world's first technology to collect data on social infrastructure in real time from space and transform operation and maintenance.

Furthermore, quantum computing is a key technology for accelerating innovation in social infrastructure. Hitachi is working on the development of silicon quantum computing technology with the aim of scaling up qubits. We are beginning to see results that will lead to scaling up such as the world's first demonstration of 2-qubit operation in 2 dimensions.

Please turn to Page 22. This is a summary. As I explained today, we believe that in FY 2025, we were able to demonstrate that Hitachi can grow strongly even in an uncertain business environment. We will continue to pursue disciplined management and work towards achieving Inspire 2027 as a True One Hitachi.

Let me introduce Hitachi Investor Day 2026. Please turn to Page 24. Hitachi Investor Day 2026 will be held on June 10 at 3:00 p.m. Four sector CEOs will explain the growth strategies of their respective businesses, and CFO will explain Hitachi's financial strategy. We also hope to have a frank exchange of views with everyone in the capital markets. I ask you for your participation.

That concludes my explanation.

[Operator Instructions] Takizawa-san.

Takizawa from Fidelity Investment. I have 3 questions. Question number one, Inspire 2027, under that, the plan for the new fiscal year, how is that positioned? I would like to ask. Looking at the numbers, apparently, top line number and 0.4 percentage point EBITDA improvement. Looking at the numbers alone, compared to what is to be achieved, it seems rather modest. But Middle East situation as well as JPY 30 billion acceleration. So the year is going to be a year for preparation to achieve the targets under Inspire 2027, if you could please explain the position of this fiscal year?

Takizawa-san, thank you very much. I would like to answer. And if necessary, Kato-san will supplement. So Inspire 2027, this is the plan. What is the position? As Kato-san earlier said, the impact from Middle East and impact of strategic investment, if we exclude them, we are having a plan that even exceeds the record highs we saw in FY 2025. If we look at the growth rates, on surface, in terms of factoring in the impact, you may not think that the growth rates are as robust as you pointed out earlier. However, strategic investment for growth has been our focus, as Takizawa-san pointed out.

In order to achieve targets for 2027, we would like to make sure that targets are definitely met. And, therefore, the numbers are planned as such. So we would like to achieve all the targets steadily in FY '26 so that we can achieve what we must achieve for '27.

My second question, IT service in North America is strong. Hitachi Digital Service on a dollar basis is growing more than 10%, you said. So it seems that your business is stronger than the average trend in the North America. What are the drivers behind this?

So Kato will answer your question.

So Hitachi Digital Services for long, in terms of the ERP, it has provided a broad range of solutions to its customers. What was particularly strong in Q4 is that the manufacturers who have global operations, including some Japanese manufacturers, they have made a lot of inquiries and have placed orders, and profitability is gradually improving as well. So Q4 momentum is expected to continue for some time to come.

If I may add to that, Kato-san just explained the background to the strong performance. I understand that there's another positive factor. Hitachi Digital Services business model is such that what DSS is doing here in Japan, mainly it does outcome-based contract. So it's not time and material. It's outcome-based contract that it has with customers. Through that, it has been able to grow its business considerably.

In North America as well, with outcome-based contracts, there is still ample room for growth. So transforming the business model. I think that's one of the reasons for that. And this is something that we would like to continue to work on going forward.

My last question. This may somewhat overlap well with my earlier question, but the margin improvement in Energy, the last term, 3.3 points. This time, you're expecting 0.6 points. So improved profitability in backlog and expanded sales in Energy. Given those factors, you seem to be conservative. So, because of the timing or any other factors that are affecting this, if you could please explain?

Yes, Kato will respond.

The numbers for FY 2025, we have taken a number of initiatives. And I think those initiatives did bear out quite well. And sales revenue has grown considerably. It's not just because of capacity increase, but productivity enhancement. So resource allocation, efficiency and positive impact from introduction of systems as well as pricing efforts. Because of those factors, we were able to drive revenue. And at the same time, we enhanced the productivity and thus improvement in profitability.

Going forward, we will continue to look to improve FY 2025, however, saw a very large improvement. So what's for '26 may small appear. But if you look at the absolute number, you will see that it's still a remarkable improvement. And for productivity enhancement, we will continue to invest in IP and others. And because of that, the numbers for fiscal year 2026.

[indiscernible]

I have 3 questions. First is on Energy, Power Grid. So backlog on a dollar basis is up by 33%, and it's strong. On the other hand, your competitors' GV is up by 70%. So comparing with them, it seems relatively lower. Size is different, but relatively speaking, are you growing in relative to the industry growth? That is my first question.

Could I ask my second question or -- second question is GlobalLogic. Including synergy, it's 44% up, you said. So what did the organic growth look like? And if there's a big gap, where did you grow in terms of synergy? In organic area, disruption is being mentioned. So are you seeing that impact? I'm a bit concerned about that.

My third question is on the financial area. You will work on ROE improvement and D/E ratio. There's still a gap from your targeted number. You are doing record high share buyback. But from your financial position, that alone will not improve the ROE. So in the remaining years of the medium-term plan, including organic investment, what's your plan on cash allocation?

Thank you for the question. First and third question will be Kato-san and GlobalLogic. Your second question will be answered by myself.

So to your first question, order, varies from project-to-project, especially as we mentioned earlier, there are large projects too. So depending on the timing, this may cause a change. What I would like you to look at is FY '25 growth rate. Hitachi Energy on a dollar basis was up by 26%. In terms of the dollar value, it was $4.1 billion. The growth is comparable to our peers, but we are the top position. We have the largest scale. So the increase of $4 billion, this increment is bigger because we have larger scale than our competitors. So we are comparable, not inferior by any means to our peers. We are also doing investment, capital expenditure and other types of investments to keep this top position. So we are committed to growing continuously.

Next, second question.

GlobalLogic stand-alone growth. FY '25 Page 36 of the financial results material shows the synergy and stand-alone revenue trend. Synergy is growing largely. On the other hand, stand-alone -- GlobalLogic stand-alone is growth -- 3% growth in Q4. This -- let me also touch on the market-wide environment to answer your question.

The market situation differs quite significantly between Japan and overseas. Starting with Japan, the demand is extremely strong, and we are shorthanded. And we have labor shortage. So with the AI improvement, its efficiency improvement, we realized this growth. And this strong robust environment will continue going forward.

On the other hand, GlobalLogic is focusing on the overseas global market. As you see in stand-alone, the time and material pressure -- price pressure is becoming stronger. And therefore, the stand-alone is a bit weak. On the other hand, OT sector, Energy, Mobility and Industry, Digitalization and AI Transformation, GlobalLogic's capability is extremely important. This time, HMAX is launched very strongly, thanks to GlobalLogic's capability. And therefore, the synergy grew, thanks to that. So in June Investor Day, we will talk about the DSS status and the growth strategy and growth outlook in more detail. Thank you.

To your third question, at the end of FY '25, as you rightly said, D/E ratio is slightly down. We did bolt-on type M&A, multiple deals, but hundreds of billions or JPY 1 trillion, those size bolt-on was not done in FY '25. One year ago, when we started Inspire 2027, we mentioned this. In this management period, we want a JPY 1 trillion-plus M&A if there was an opportunity, and that is what we are trying to do. So based on that, the capital efficiency and capital allocation measures are being taken.

And of course, as I said earlier, we will be deliberate, look at risk and return cautiously and in Lumada and HMAX, the digital services, we want something that will lead to Lumada and HMAX. So we will be committed to doing that in a disciplined manner.

Based on this growth investment, in the medium to long term, we want the ratio to be 0.5, around 0.5. And that is the basis of our policy that we are conducting right now.

Energy margin, a follow-up question. Adjusted EBITDA margin target is over 14%. You changed your target. It was originally 13% to 15%. So you are aiming for higher than midpoint. What kind of message is this? If you could give us a color?

In Power Grid, there is order backlog. So in the medium term, the margin can be expected to a certain extent. But as I mentioned earlier, FY '25, we worked on the productivity improvement. And productivity improved more than we anticipated. So compared to 1 year ago, we were raising one notch. And so we can now aim for higher profit margin now.

Fukuhara-san, please unmute.

Jefferies Securities, Sho Fukuhara speaking. I would like to ask 2 questions at this moment. Question number one, DSS storage business, I have a question. Specifically, it's about Hitachi Vantara. Up until Q3, I think sales went down, but profitability up until Q3. But did Q4 continue to see improved profitability?

Page 24, project discipline management and cost reduction, you're talking about that. But more specifically, what is it that you're going to do? And in line with that, the update for the competitive landscape, if you could also provide that as well, that is appreciated. That's my first question.

Fukuhara-san, thank you very much for your question. So regarding the storage business, as Kato-san explained earlier, Hitachi has strength in market for block storage. That is what Hitachi is focusing on. For the first time in a while, we launched a new product. There were customers who were waiting for the new product, and they are making very robust inquiries. And as a result, we have been able to improve profitability.

So going forward, we will continue to focus on block storage products and the actual operation of the business. We will continue with the cost reduction in our business operation at the same time. So we would like to improve profitability over the short term.

On the other hand, over the medium to long term, as we have been saying since before, through strategic partnerships, we would like to provide a growth narrative and implement that. So first and foremost, we're making haste in transforming this business into one that is profitable.

My second question about the progress of the medium-term management plan. Page 9 of Tokunaga-san's presentation in the Energy sector, FY '27 target was revised upward. However, company-wide targets remain the same. That means that outside of Energy, you are expecting some downside risks. Do you think that we should be aware of that?

Thank you for your question. Inspire 2027 targets overall, whether to revise them overall upward or not, we had internal discussions on that. But at this moment, we are not able to predict how the Middle East risks will unravel. Given such uncertainties, it's very difficult to make upward revisions to the overall targets. If the business continues to perform strongly, at the timing of earnings announcement, we will make an update or revision as we have been. At this moment, it's not that we're seeing major downside risks. I hope that is understood.

I see. That is understood. Just to clarify, so Middle East risk up until Q1, JPY 20 billion, you have said, it's uncertain. But on an annual basis, JPY 20 billion times 4, is there a rough number that you can give on an annual basis?

To answer your question about the Middle East risks, what we factored in, in Q1 is what is directly impacting our business. We call it direct impact, and that's JPY 20 billion. However, this is based on a very rough estimation. So this could fluctuate going forward. And Q2 and onward, we have not factored in risks and indirect impact, especially on our customers. The timing of order placement may be delayed and there could be indirect impact from customers on our business. It's not possible to predict. So we would like to refrain from giving you an annualized number at this moment.

Next, Yasui-san.

Yasui from UBS. I have 3 questions. First is on the domestic IT service. SaaS -- Death of SaaS is a big theme and is being a hot topic in the stock market. There are positives and negatives. Various factors come into play here. It was strong until now. So the in-sourcing, the in-house, shift to in-housing on the customer side or the shift-to-cloud, I'm sure there are various changes taking place. At this point in time, Tokunaga-san and Kato-san, in this domestic IT service under the theme of Death of SaaS, the concerns on the negative side, what are the negative elements that you're concerned about?

Thank you for your question. So Death of SaaS is being discussed for a while now. The market that we are facing in Japan is still strong. It remains robust until now. And there are a few factors behind this. There is this Japan market-specific element, which is customers and SIers, roles and division of roles and Hitachi's large-scale system development capability that we have cultivated over the years. These 2 factors are playing positively, and that is realizing the strong favorable condition.

Now what are the risks that we need to take into account? AI agent is evolving rapidly. So the people-based work will gradually be replaced by AI agent. It may be replaced by AI agents. We cannot rule out that possibility. That said, the replacement by AI, the scope will be coding and testing where it is labor intensive, but entry and mid-level engineers are engaged in.

In addition, people can work with AI agents, which means the additional work will be generated. For example, AI, when it modifies the system, it has to avoid the impact on the overall system and have AI play their role. And for example, the customers, not in the form of AI, but as a service, maybe the business model will change to the customers. So this new business, new task leads us to think that our business will not disappear, but the content may change. So DSS is now rapidly working on this transformation.

So to repeat my message, in the Investor Day, we will elaborate on our thinking.

Second question is the same theme. In the U.S., there are large changes occurring. Your U.S. software person in charge is saying that the companies are now taking the business in-house. So agile development software, software that was done by people may be replaced by agents. So in the U.S. Hitachi, what do you -- what changes do you think are occurring?

Thank you for the question. As I said earlier, in the U.S., the AI introduction is causing a large change. And as a result, GlobalLogic's time and material model is not being accepted as much and is now under price pressure. This trend is becoming clearer.

Now as I mentioned in Hitachi Digital Services, there is outcome-based business, not time and material, but outcome-based. We are offering value to our customers through outcome-based. So we will hone this approach going forward.

On the other hand, for the time and material, it's difficult for GlobalLogic to push this forward. So in that case, we will use certain amount of resource to OT sector's AI transformation thoroughly. We're thinking of that resource allocation. And as a result, HMAX is now launching very quickly. And so this is a positive result.

Regarding this North America change, we will watch carefully. And for the business transformation and GlobalLogic's change in its role, we will take appropriate steps accordingly.

My third question is about data center. The power shortage is very serious. We want the demand to become stronger. So in the past 1 year, so you formed partnership with OpenAI last October. And I think the demand is rising in the past 6 months. So in the next 3 to next 5 years, what kind of growth are you expecting?

Data center demand is extremely strong. And after we partnered with OpenAI, of course, the case and other business opportunities are also increasing. On the other hand, data center demand from Hitachi Energy as a whole is still small, accounts for a small portion of our revenue. So demand is growing, but Hitachi Energy can drive -- can serve as an engine of Hitachi Energy going forward. So we will increase our production capability, production capacity and meet the strong demand going forward.

And then next, Ryosuke-san.

Ryosuke-san from Nikkei Newspaper. I have 2 questions. The first question regards HMAX. For FY '25, you gave explanation for the earnings. So 80-20, what is the midterm, long-term outlook in terms of revenue and profitability?

And secondly, about physical AI. In this area, Siemens and other existing rivals are leveraging data from the ground to offer solutions. So such existing rivals or other tech companies, compared to them, what would be your strength?

To answer first regarding HMAX. Lumada 3.0, FY '27 target is set. Lumada 50, 18. In order to achieve that, we will continue to grow HMAX. So that is the plan. We do not have a specific target for HMAX alone on a stand-alone basis. But if you look at the targets for FY 2026, the growth expected is very high. So we would like to continuously maintain this high target. And with respect to physical AI, inclusive of our peers in the industry with respect to physical AI, there's a lot of focus made in physical AI, as I understand it.

But other companies' physical AI as opposed to Hitachi's physical AI, I think there are 2 major differences between us and our peers. First, difference is such that other companies' physical AI is centering around robotics. So they are built mainly on robotics. They're mainly talking about physical AI in factories and plants.

On the other hand, Hitachi's physical AI is such that Hitachi's social infrastructure business overall, Energy, Mobility, Industry for all these 3 factors, we're having impact on the physical aspect of all these 3 sectors in terms of physical AI. As we build that customer zero, meaning we have a large market within Hitachi. And based on the track record that we built within our group, we are able to build and offer solutions to our customers. That is the difference, and that difference needs to be translated into strength so that we can continue to grow physical AI and HMAX.

Next, Nakane-san.

Nakane-san from Nikkei BP. I have 2 main questions. Question number one, about strategic SIB business investment, I have a question. What you announced last year on the order of JPY 500 billion investment, what is the progress? What is the current status? What is the breakdown of the investment as well as the thinking going forward? That's my first question.

Nakane-san, thank you very much for your question. First, to answer your question regarding strategic SIB, strategic investment is being made steadily at this moment. That's where we are. In terms of progress, of the 3 years, 1 year has already passed. So I think we have been able to make a progress a little under 1/3 of the target.

In terms of the outcome, so new architectures for data centers or our initiative with MSK or Material as a Service with Mitsubishi, we are seeing results in those areas. So with respect to the progress for strategic SIB, early into this fiscal year, specifically, individually, we would like to have an opportunity to explain specific business to you. We're seeing that with Taniguchi-san. So once we decide on the schedule, we would like to let you know.

So details will be provided on a separate occasion. But to the extent that you can answer, I would like to ask about the overall outlook. I think you cited 4 strategic areas for investment. Is there a particular area that you would like to focus your allocation on 4 business areas.

To answer your question, the time lines for the 4 areas would be different. For example, among the 4 for data centers over the short term. So the so-called Horizon 1 commercialization is possible in that area. When it comes to batteries and health care, these are areas where midterm, 3 to 5 years commercialization is envisioned. I think we can call it Horizon 2. And Smart City, we need to take a little more time there to commercialize. So we refer to it as Horizon 3. So over the long term, we will continue to create pillars of our businesses. So that is the important position of strategic SIB. We started off with 4 areas, but market changes and strengthening of capabilities within Hitachi. With those in mind, other than these 4 areas, we would like to increase the number of candidate areas. So once we're able to provide you with an update, we would like to do so at that point in time.

There's one other main question, which is about investments into data center-related business. Globally, huge investments are being made for the data centers. And through your announcement of your energy business, I think you're being active on that front. But I suppose supply-demand tips and collapses, the market could go down. There's that risk. So how do you see such potential risks? Are you hedging against such risks? So what is the policy based on which you're making your investments and investment decisions?

Thank you for your question. To answer, at a company for business for data centers, well, one example is Hitachi Energy's Power Grid business. As our CEO, Tokunaga-san explained earlier, of late, orders are increasing, especially for FY '25. We have received quite a number of orders for that. But overall, the demand for transmission business is increasing. And given that the proportion of data center-related business is less than 10% at this moment. So although the ratio is expected to rise in the future, even if this changes, Power Grid business will not be affected too much. The impact will be limited. But with increased business, depending on the level of volatility, the amount will rise, but we would like to closely examine the trends and respond properly.

We have many hands still, but we will switch to English channel for now. [Operator Instructions] We don't see the question from the English channel, so we'll come back to Japan -- Japanese channel. Fujiwara-san, please unmute yourself and ask your question.

Fujiwara from Citigroup Securities. I have 2 questions. First, Inspire 2027, Page 10, CI and DSS. Top line growth will be a bit limited in FY '25. Now you are selective in the growth investment, and it was only JPY 0.2 trillion. It was not large. But growth investment is small. In CI and DSS, what kind of impact can this growth investment have on the top line growth? Can you achieve this target simply from the organic growth? Or are there any downside risks? So that's my first question.

Thank you for your question. FY '25, growth investment was JPY 0.2 trillion only. We think this is a challenge that we need to address. On the other hand, as Kato-san said earlier, in FY '26, our growth investment amount is set, and we will select the deals, be aggressive in getting deals that will contribute to ROE improvement. To execute this plan, you may think many M&As are included -- incorporated in this plan. But this number does not include large M&A prospects. But not only in the next 3 years, if we -- to continue sustainability, we need the investment and divestment. We need to rebalance and reshuffle our business portfolio. So going from FY '26 and onward, we will be selective. We will watch the return closely, but also be active and aggressive in the investment opportunities.

My second question is on the Middle East impact. In Q1, adjusted EBITDA base JPY 20 billion is factored in. So this is entirely direct impact. And you said it's hard to foresee. What about the indirect impact from March onward, are you starting to see some indirect impact? And what are some possible impacts as much as you know at this point?

So Q1, you are right. This JPY 20 billion is just direct impact. And next, the indirect impact. As far as we know, indirect impact has not occurred at this point. What we anticipate is the procurement may run short or cost impact, not those direct impact, but the impact that will be on our customers and this leads to delay in their orders to us. Those are what we think as indirect impact. We have 2 more months in Q1, and that may occur. So we have to watch closely.

One follow-up question. You procure a large amount of material and the prices are likely to rise. In the past few years, inflation has progressed. And so I think your contract includes the pricing pass-through clause. How are you managing your risks at this point?

You're right. In the past few years, we've seen inflation. So large contracts or long time frame, long-time contracts, we have contracts that include the pricing pass-through clause, but short-term contracts or smaller scale contracts do not necessarily have such clauses. And what we are concerned is the energy costs or the logistics costs or the crude oil-related raw materials. They are rising now. So we will explain, consult with our customers on pricing pass-through going forward.

We have many hands still raised. Because of the time constraint, however, we would like to limit the questions to 2 more people. Takuya Maeda-san.

Maeda-san from Nikkei BP. AI-driven development, what is the impact on human work? I would like to ask a question. With AI-driven development, you were able to drive efficiencies quite a bit, you said. They could have a direct impact on the tasks done by human. So compared -- and manpower. So compared to Lumada, what is the difference in the impact on manpower?

So development, applying AI. In domestic projects, we are incorporating it quite substantially. Kato-san earlier said in his earnings presentation for FY 2025, depending on the projects, we were able to drive development efficiency by more than 10% through use of AI. Most of the domestic projects are contracts, not necessarily based on manpower or by month. But over a certain period of time, we set outcome and deliver outcome based on that. So if efficiency can be enhanced for month, that's a positive for Hitachi's profitability.

And as I said earlier, human resources are very constrained at this moment. So with utilization of AI, human resource constraint can be covered or alleviated as a result. So for the domestic market, development, leveraging AI is having a positive impact on our business.

On the other hand, GlobalLogic business overseas, as we have been explaining before, time and material approach accounts for the majority of their business. So price pressure and some customers in-sourcing, such impacts are starting to be felt. Therefore, GlobalLogic's resource allocation should be changed. So AI transformation in the OT business more for that and transform business model away from time and material. That's what they're making efforts on. That would be all.

Maeda-san, did that answer your question? Okay. Let us move on to the last set of questions. Hirakawa-san.

BofA Securities, Hirakawa. I have 3 questions. First question is related to the earlier one. Overseas time and material business model is becoming difficult. But in Japan, business model is different from overseas. I know that. But because of difference in time line, in 3 to 5 years' time, maybe we will see the same in Japan. What do you think about that risk or that concern? If you could enlighten us. That's my first question.

Thank you for the question. You're right. In 3 to 5 years' time, Hitachi's SI business that we do now will remain unchanged? No, it will likely to change in its form. On the other hand, in the Japanese market, the portion Hitachi is in charge of, which is system-wide architecture design and the project management. This business will be done in collaboration with AI, we think, but it will not go away. In addition, with AI coming in, by working with AI, we will have additional work. In other words, we need to define the area where AI conduct this business and think of a process where AI need to -- will do the job.

So as you rightly said, Hirakawa-san, the format form will change, but the task required of SIer will remain. It will not go away. So we are trying to transform ourselves quickly to this new format.

My second question is on your growth investment. You will be disciplined. You had some impressive ones last year. To realize Lumada 3.0, what are the missing pieces in thinking of growth investment? I think it has to do with your strategy, but as much as you can tell us, what will ensure or improve the possibility of achieving Lumada 3.0? Any areas you could share with us?

If we -- if we are too specific, it may hinder our M&A activities, but -- and more detail will be explained in the Investor Day. Our plan for now are mainly twofold. Lumada 3.0 basic model is Energy, Mobility, will function with Energy and Mobility. This is already clear from our past track record.

So CI sector, we want to be global #1 or #1 in regional -- certain regions. We want to enhance the product that is #1 in particular region. And that will serve to transform CI and push the Lumada 3.0 forward. In addition, in pursuing Lumada 3.0, what Hitachi is different from our peers is that we have same business model in multiple business segments. And by doing so, we combine data and offer new value to our customers.

For example, in Mobility sector, we have HMAX Mobility. We are using Energy sector data to come up with the optimal energy consumption to run the train vehicles, and we are proposing this to our customers now. So this data collaboration across sectors is a very important point we need to enhance going forward. Including such point, to repeat myself, we will talk more on the Investor Day.

And my last question is -- HMAX is my question. I want to understand this deeper. So 2 questions here. One is, so revenue will grow from JPY 300 billion to JPY 480 billion and the EBITDA margin is rising to 22%. It is rising strongly. So I'm sure there are different sizes, but in recurring business size, what is the roundabout amount per deal per project?

And Tokunaga-san, you said Rail and Energy, you are starting to establish the business model, and that's our understanding, too. This JPY 480 billion, when we break this down, Energy, Mobility, Connective Industries, what does the breakdown look like? So if you could touch on that, please.

Thank you for your question. HMAX project size, -- this is -- has to do with what value we offer to our customers and what pain points customers have. Depending on that, the project size differs. So it is difficult to generalize the size of the project. So I'm sorry, I cannot be more specific. But one point is management challenges or social challenges. Our service can help resolve the societal challenges. So unless the EBITDA margin is 20%, we cannot call it HMAX. So we are aligned on that point. So this profit margin will be maintained. That is the underlying assumption.

And the HMAX breakdown by sector. We would like to refrain from disclosing the numbers. But for now, it's Mobility and CI sector. Revenue is growing in Mobility and CI.

And with that we would like to conclude the earnings briefing session. Thank you very much for joining us for a number of hours.

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

The scheduled time has come, so we will now begin Hitachi Limited financial results briefing for Q3 FY 2025. Thank you very much for taking time out of your busy schedule to attend today. The presentation materials are available on Hitachi Limited IR website and news release website. So please take a look.

Let me now introduce the 3 speakers: Tomomi Kato, Senior Vice President and Executive Officer, CFO; Hiroaki Ono, Deputy General Manager, Finance Division; Shinichiro Tamai, Executive General Manager, Investor Relations Division.

Mr. Kato will first explain the overview of the financial results. Please wait for a moment while we switch screens. Mr. Kato, the floor is yours.

First, let me explain the content of the presentation material. It includes the key points of the earnings announcement this time, which is FY '25 Q3 performance, the full year forecast for FY 2025 and performance by segment, Lumada business.

First on the key points of the earnings this time, starting from the highlights of Hitachi Group's performance. During Q3 FY 2025, on top of continued robust performance of our Energy business, Mobility and DSS, backed by solid domestic IT business grew firmly, resulting in both Hitachi's consolidated total revenue and profit to increase.

Core free cash flow also rose year-on-year with all of our revenue, adjusted EBITDA and core cash flow to post record highs.

Allow me to explain about the 5 KPIs. First, revenue grew by 10% year-on-year. Adjusted EBITDA was up by JPY 60 billion year-on-year and adjusted EBITDA margin increased as well.

Quarterly net income attributable to Hitachi Inc. also increased year-on-year. Core cash flow on a consolidated basis, driven mainly by CI, Connective Industries and Energy, increased by JPY 80 billion year-on-year. Compared to our internal plan, on a consolidated basis, revenue, adjusted EBITDA and also [ CFC ] overachieved our internal plan.

Next, on the full year forecast for FY 2025. In addition to Energy, whose Power Grid business is performing very well, we made upward revisions to our forecast for CI and Mobility as well. For Hitachi Group overall, forecast for revenue, profit, cash flow and ROIC were all revised upward. So for the 6 KPIs described here, we're projecting to see improvement growth in all of them compared to the previous fiscal year.

Next, highlights by sector. DSS following Q2, in Q3 as well saw an increase in both revenue and profit driven by Japan's Front and IT Services businesses. Although Storage Business revenue declined due to harsh competitive landscape in overseas markets, its profit rose because of our cost-reduction efforts.

The forecast for the year is such that with upward revisions to the Front and IT Services businesses, despite a downward revision to Services & Platforms due to drop in revenue in the Storage Business, we are maintaining our forecast the same as before for DSS.

In Energy, our Power Grid business continues to be brisk with demand for renewing and replacing transmission facilities. In Q3, both revenue and profit increased in Energy, prompting us to revise its full year revenue and profit forecast upward.

In Mobility as well, Mobility increased its revenue and profit in Q3 with Railway Signaling Systems and Lumada business performing steadily and also the positive effect from FX, we made an upward revision to the full year forecast.

In Energy, or rather in CI in Q3, Industrial Equipment grew, but because of the high base effect from a large-scale project done last fiscal year in Industrial Digital, revenue was down year-on-year. Profit in CI overall rose, however, driven by our Lumada business, including buildings and semiconductor equipment on top of Industrial Equipment, so this time, the full year forecast was revised upward.

Lastly, on Corporate Items & Eliminations, the risk of impact from U.S. tariffs that were included here are now allocated to business segment numbers now. The profit increasing opportunities we have included before were all allocated to each segment's numbers as well. Given the circumstance described above, I have revised Hitachi's consolidated full year forecast upward.

Allow me to discuss DSS growth strategy and the status of progress. First, as a basic strategy, we are driving Hitachi Group's overall digitization and roll out globally the solutions that we have brushed up through internal use, which we call Customer Zero. We will also further strengthen our AI technology, assist our customers boost their mission-critical capabilities to expand synergies in our effort to achieve Inspire 2027.

Looking back on the main initiatives we have undertaken during FY '25. For Japan's Front and IT services businesses, DX and modernization progressed and grew steadily more so than we initially planned. The Front business Q3 orders were up by 10% year-on-year.

In Services & Platforms, we reinforced high value-added services business, leveraging AI. GlobalLogic is expanding synergies with other departments internally developing HVAC solutions amongst other initiatives and grew by 21% in Q3 year-on-year.

In storage, on the other hand, business structure reform, including cost optimization was implemented. Although sales in overseas markets are declining, it's working to improve its profitability, resulting in a 2.4 percent point improvement in profit margin in Q3 compared to the year before.

Next, on our growth strategy going forward. For the Front business, front engineering functions for SIs will be consolidated into DSS and strengthened. As part of the measures to shore up the structure, DX unit for industry that's been under the CI sector will be moved over to DSS starting next fiscal year.

For the Services business, we are looking to strengthen our capabilities to offer AI services and expand the development and offering of HMAX solution. To reinforce the business structure, GlobalLogic and Hitachi Digital Solutions will be integrated. Customer Zero approach will also be advanced.

For the Storage Business and IT products, business structure reforms are ongoing for the time being. In addition to the improvements we can make on our own, we will promote partnering and other measures to fundamentally strengthen the business' market competitiveness.

To give you a breakdown of DSS based on the growth strategy I have just discussed, it will look like the lower right-hand side table. The profit margin for the Front and Services business combined will be 16% because domestic SI business sales within the group will be netted on a consolidated basis for DSS. This number, however, is for reference.

I would like to now discuss the main initiatives to enhance our corporate value. We were able to advance business portfolio reform during the quarter following Q2. Our stake in Hitachi Construction Machinery now stands on the order of 18%, and the company is now outside the scope of the equity method as a result of selling part of the holdings in November last year.

In December last year, we agreed with Honda to transfer part of our stake in Astemo, a manufacturer of automotive components to them. We expect the transfer to be completed in next fiscal year, but this will decrease our stake to 19%, taking Astemo outside the scope of the equity method. Business portfolio reform will continue going forward.

Regarding capital allocation, shareholder return for this fiscal year of about JPY 500 billion was completed as planned in December. On top of that, in view of increases in cash due to additional asset sales we conducted during this fiscal year, we have made a decision to carry out an additional share buyback. The scope is JPY 100 billion. Including this, the total shareholder return this fiscal year will amount to JPY 600 billion, up by JPY 200 billion from last fiscal year.

From this point onward, I will discuss the Q3 actual performance. The actuals are as I have explained at the beginning.

Next, to explain the breakdown of changes year-on-year for Q3. For revenue, even excluding the positive ForEx impact with increases in DSS, Front business and Mobility, revenue was up by 7%. Adjusted EBITDA saw a similar trend as the revenue. Growth in sales, enhanced productivity, improvements in project management increased the adjusted EBITDA margin by 1.4 points year-on-year.

Core free cash flow, even excluding the effect of large advance payments received, increased because of larger adjusted EBITDA and reduction in working capital.

Next, on our financial position. Total assets at the end of Q3 FY '25 stood at roughly JPY 14,600 billion, up by JPY 1.4 trillion compared to the end of last fiscal year because of sales expansion in energy and positive ForEx impact.

We were able to bring down CCC, or cash conversion cycle, to a lower level than the end of last fiscal year due to increased advances received.

Next on the status of Q3 sales by region. With Energy's Power Grid business and Mobility's Railway Signaling System leading the performance, we saw growth in Europe, which was up 21%; North America, up 12%; ASEAN, India and other areas, up 17% year-on-year, respectively. Europe, in particular, grew substantially year-on-year, driven by large projects in Power Grid business.

Next is Q3 orders results by business segment. In DSS, overseas orders in the Services & Platforms decreased due to Storage Business, but orders in Japan remained solid in the Front Business, resulting in overall DSS growth for both Q3 and 9-month year-to-date basis.

In Energy, Q3 orders increased year-on-year, thanks to strong orders in the Power Grids business and increase in data center-related projects. The order backlog has also increased compared to the end of FY '24.

Mobility orders declined, reflecting a high base effect from large-scale railway vehicle projects in FY '24, but the order backlog increased compared to the end of FY '24 due to FX impacts and others.

CI segment as a whole showed solid growth in both Q3 and year-to-date. In particular, Measurement & Analysis System driven by Healthcare and Industrial Digital driven by robotics SI business increased.

Next is the highlights of FY '25 outlooks. The main contents were explained in the topic slide at the beginning. Revenue, income, cash flow and ROIC are all revised upward from the previous forecast. We also revised the assumed FX rate to JPY 150 to the U.S. dollar and JPY 175 to euro.

Next is the breakdown of year-on-year changes. Excluding the FX impact, revenue is expected to grow by 7% year-on-year, driven by increases in Energy, DSS and other segments. Similar trend for adjusted EBITDA, which is expected to increase year-on-year despite the impact of U.S. tariffs and strategic investments.

Net income is expected to increase year-on-year, primarily driven by higher operating income despite variable factors related to asset rebalance such as the sale of air conditioning joint venture, share transfer of Hitachi Construction Machinery and Astemo and associated income taxes.

Core free cash flow, excluding the impact of large advance payments, is expected to increase year-on-year. This is primarily due to the increase in adjusted EBITDA despite higher CapEx for production increase. The upward revision to the full year outlook is mainly due to the impact of increased advance received effect from large projects.

Next is performance by business segment. I explained Digital Systems & Services earlier. Regarding the full year outlook, Services & Platforms was revised downward due to revenue decline in the Storage Business, while Front and IT Services were revised upward. Therefore, the overall full year outlook for DSS remains unchanged.

Next is Energy. Hitachi Energy, our Power Grid business, saw a significant revenue growth in Q3 due to solid execution of strong order backlog and favorable life cycle mix of large-scale projects. Profit also improved, thanks to revenue growth, improved revenue profile and operational excellence.

We revised our full year outlook upward this time and expect annual revenue growth of 26% on a U.S. dollar basis. Nuclear Energy is expected to see a decline in annual revenue due to a high base effect from large-scale project in FY '24.

In Mobility, both revenue and profit increased year-on-year, driven by solid growth in Lumada business, including the Railway Signaling Systems. Reflecting the review of the FX impact, we revised our full year forecast upward.

Next is Connective Industries. In Q3, revenue declined in Industrial AI and others, but overall CI profit increased due to improved profitability in Urban Systems and Industrial Products. Our full year outlook of CI sector is that revenue will stay flat, but profit will increase year-on-year, driven by improved profitability in Industrial AI and Industrial Products and Services. This time, CI's full year outlook was revised upward, thanks to increased profits in Urban Systems and Industrial AI.

Finally, Lumada business. Revenues for Q3 of FY '25 increased by 51% year-on-year and revenue ratio on Hitachi consolidated basis reached 41%. We revised the classification of Lumada business to 2 simple categories starting from FY '25.

As a result of examining the target businesses, we identified businesses that should have been included in the Lumada business, such as managed services and software businesses included in digital services and SI business using products and AI included in digitalized assets, therefore, decided to include these in Lumada businesses from FY '25. Even by adjusting to last year's standard, Lumada revenue in Q3 grew by approximately 20% year-on-year, driving Hitachi's consolidated CAGR of 10%.

Furthermore, next, let me touch on the deployment status of HMAX as part of our initiatives to expand our Lumada business. We define HMAX as digital services we deliver to customers, leveraging data collected from Lumada digitalized assets and AI enhanced by domain knowledge accumulated by Hitachi.

Regarding specific solution development, we have expanded the HMAX solution for Mobility first announced 2 years ago into Energy and CI domains. In Energy, we provided an AI-powered power grid monitoring solutions for an Italian energy operator, contributing to a significant reduction in on-site inspection time. In CI, we provided a factory equipment failure diagnosis AI agent to Daikin in Japan, contributing to shorter fault diagnosis time.

As part of our initiatives to expand our Lumada business, I will share the progress on partner collaboration in Q3 and the development status of new HMAX solutions. This morning, we announced with Microsoft that Hitachi Energy will reinvent its enterprise asset management solution with Microsoft's AI-enabled technology. This builds on the strategic partnership announced in June 2024 to integrate Microsoft Technologies into Hitachi's Lumada solutions.

Regarding our collaboration with Google Cloud, we announced a partnership to accelerate railway DX, by combining GlobalLogic's advanced digital engineering capabilities with Google Cloud's cybersecurity and AI technologies.

Next, new HMAX development status. For internal HMAX development and implementation by Customer Zero, we developed a solution that analyzes video footage at construction sites for building systems, including elevators and generates alerts and began applying this solution at domestic sites from Q3. Additionally, in HMAX development by customer collaboration, we began developing a solution with Mitsubishi Chemical that verifies troubleshooting assistance using AI agents at chemical plants.

This concludes my explanation of the results for Q3 and the outlook for FY 2025. We expect to steadily improve revenue, profitability, cash flow and capital efficiency in FY '25. We will continue to implement management measures to achieve the long-term and medium-term goals of our management plan Inspire 2027. We appreciate your continued understanding and support.

Kato-san, thank you very much. The live image was disrupted. We're very sorry for that. So let us move on to questions and answers at this moment. [Operator Instructions]

The Japanese channel, English channel, we will move from the Japanese to English channels to take questions. We would like to take questions from all the different groups, the press, institutional investors, analysts and so forth. Starting from the Japanese channel, those of you with questions, please raise your hand. Hirakawa-san.

So there was improvement from Q2. It seems that you are performing well, but EBITDA ratio is 4.4%. Compared to Hitachi's standard, the number is rather low. So as you pursue business structure reform, what is it that you need to achieve in order for business to survive? Next year, memory and other businesses are expected to grow. So regarding the sales in March '26 or March '27, what would be your outlook? So that's my question regarding the Storage Business.

Thank you very much for the question. As you pointed out, this fiscal year, the competitive landscape was very harsh and some customers refrained from making investments. And sales in the Storage Business were down year-on-year compared to last year. However, on the other hand, for this fiscal year, we're looking to prioritize profitability improvement. Therefore, we would like to optimize cost -- fixed cost pursuing structural reform. When we look at orders that we may take, we will prioritize profitability. So we're managing projects from that perspective, and that is why we are where we are right now.

And with respect to profitability, given the DSS overall profitability, Storage Business profitability is very low. So next fiscal year, not that we have a specific target or number in mind, but naturally, we would like to bring it up to the average of the DSS overall, and through various business structure reform, and we would also like to consider having partnering with external parties to strengthen sales through such efforts, I think we will be able to bring the profitability of Storage Business up to the average of DSS. It is possible. But rather than doing it all on our own, we would like to leverage partnerships with external parties to try to improve profitability. The tailwind is that, as you know, demand from data centers is rising and sales with data centers are increasing. So we would like to capture such opportunities to drive profitability up.

And the second point, cost. The cost of components is rising. And that is not a problem not just for us, it is a problem for the whole of the industry. And there is high demand in data centers, for example, and passing on the cost increase to prices is understood by customers in such growing areas. So we do not foresee our profitability to suffer in such areas. But on the other hand, as I said, competitive landscape is intense. So we would like to continue to monitor this business closely going forward.

Just to clarify your second point regarding data centers, those customers understand costs passed through. But what about profitability in other areas?

In principle, and it's not just for us, it's an industry-wide problem, cost is going up and cost increase pass-through should be accepted and understood by customers, and I do hope that they will understand. But as I said, competition is very intense. So that could be a risk that is our recognition.

Understood. And secondly, as you explained toward the end, you made a press release today. Physical AI for growth 3.0 to strengthen business structure for Lumada 3.0. So overhauling the business structure of CI, Connective Industries, that is what is discussed in the press release. So what are the measures? And what is the aim or objective of changing the business structure? In the press release, Industrial Product, Industrial Solutions, Urban Solutions, they're included as part of CI. What about the other businesses as a result of the organizational change? What's going to happen? If you could also elucidate on that?

So what we have released, if you could please have a look at the chart that's included in the press release we issued today. I would like to use this to explain. I hope you're looking at it. So the CI structure is going to be strengthened. To summarize, Lumada business, digital business, HMAX solution to be expanded. And for that to happen, we have optimized the structure.

The 3 BUs, in line with the focus of the Lumada strategy, we have reorganized the 3. There are 3 things: One, Industrial Products BU. Under Lumada 3.0 to strengthen digitalized assets, UPS product, industrial equipment business that includes UPS is consolidated into this.

Secondly, Industrial Solution BU, capturing progress of physical AI in order to promote HMAX, so Hitachi High-Tech and Engineering in water and environment and industrial automation. These are all consolidated into this BU.

And thirdly, Urban Solutions Service BU. This includes data center business and semiconductor manufacturing equipment, in order to go after these opportunities, build systems and air conditioning BU in GlobalLogic and Hitachi Solutions Power business, that's all included here.

And as Head of Sector, in urban business, HMAX solution, building facility management, BuilMirai development and market launch. CI sector COO, Amiya-san, will be the Head of the sector, leveraging his experience, CI sector Lumada business toward Inspire 2027, he's going to be the best person to lead this sector, and that is why he is assigned.

Next, [indiscernible], please unmute yourself and ask your question.

Semiconductor-related business and data center-related business are my questions. NVIDIA, so H200 was approved by the China side. So for your business and for your supply chain, any impacts you anticipate? Are you thinking of alternatives?

Thank you for the question. So you mentioned NVIDIA. We have an MOU with NVIDIA to offer a solution for digital data centers, Hitachi IQ is the name. And so we are offering this together. And NVIDIA's AI factory is utilized. We have 3 AI factories in the world. And this environment is suited to what we are trying to do, agentic AI and physical AI. This environment will be the accelerator for the agentic and physical AI. So direct impact, I don't know. But at any rate, NVIDIA's GPU -- chip GPU is winning high acclaimed around the world and is selling more and will lead to NVIDIA's R&D and become stronger. This is exactly Lumada 3.0 and physical and agentic AI. This will directly lead to what we are trying to grow. So we think this is positive to us.

Next, [indiscernible], please unmute and ask your questions.

My name is [indiscernible]. I have a question regarding energy sector's order management. Compared to 3 months ago, how has it changed? And there may be overlap with the earlier question, but Services & Platforms, customers are refraining from making investments. I think that continues to this quarter. What is your expectation of the timing of recovery?

First, regarding the energy sector. This time, energy orders in Q3 were up 15% year-on-year. Overall, what we refer to as base orders. So orders other than the ones from large customers, they are very brisk. By region, North America and other areas, Middle East as well as Europe, these regions led the performance. And what's related to data centers, we received orders related to data centers as well.

And in terms of data centers, within Hitachi Energy's sales, sales from data centers is still limited at less than 10%. But in terms of orders, we're receiving increasing orders in Q3 and order growth was double digit. So that was rather striking. It left a strong impression. So going forward, basically, orders are quite firm. And with orders from data centers added on top of it, I think we will see more solid growth.

And secondly, what you asked about storage, as I said, business pertaining to data centers is growing and our business there is growing, which we expect to continue. For other areas, the market overall is not bad. But as I said, competition is very harsh. So from our perspective, as I said earlier, we need to increase our fundamental competitiveness and launching new products and pursuing business structural reform, they will continue, but partnering -- partnerships with external parties. And through that, including sales capabilities, we would like to raise our competitiveness.

And regarding profitability, as I explained, Q2 to Q3, the trend is that we are improving in profitability. And we would also like to see improvement in top line as well. We're not in a position to say exactly when, but this year into next and next year into the year after, we would like to continue to make improvements.

Next, [indiscernible], please unmute yourself and ask your question.

Can you hear me?

Yes.

I have 2 questions. First, China rare earth export restriction. Are there any direct or indirect impact on your business? If there is impact, what kind of impact are they, if you could elaborate? And are you taking any countermeasures? And how are you factoring it in, in the outlook -- financial outlook this year?

I cannot talk about numbers. But to answer your question, in terms of business unit, it's mainly CI and Mobility sector. We have magnet and motors using rare earth. Some delivery delays are happening, but the supplier partners were using the strategic inventory and using alternative suppliers. So for now, the impact is limited. On the other hand, in the medium to long term, we have to take measures. So the heavy magnet-free or recycling. So we want to take measures going forward.

The other is about the tariff agreement. The first deal for the investment in the U.S. So there is the transmission project that you may participate in. What is the current status or the size of the project?

Both Japan and U.S. government are doing various discussions. So I cannot go into detail. But Hitachi for the areas we can contribute, we will be involved by controlling the risks. And as we announced in CES in January, HMAX will be provided and be active, so that it will connect to our business. We will continue gathering information in Japan and the U.S. and work to contribute to U.S., our important market and find the business opportunity. U.S. market is one of the most important market for Hitachi. We have continuously invested and employed people. We have shown commitment. Continuing on, we will continue in the U.S. U.S. continues to be the medium- to long-term pillar for our growth strategy. So we want to continue contributing by committing to this market.

We would like to start taking questions from the English channel at this moment. [Operator Instructions] It seems that there are no one who's wishing to ask questions. So we would like to get back to the Japanese channel once again. [ Suzuki-san ], please unmute and ask your questions.

I'm Suzuki from [indiscernible]. Am I being heard?

Yes.

I'd like to ask 2 questions. Question number one, DSS Front business of late is performing very well, it seems. In Q3, orders grew by 10%. So is it because of the financial services customers or social systems customers? So which industry are you doing well in?

In terms of orders received in Q3, in the Front business, orders went up by 10%. And as far as orders in Q3 are concerned, it was the financial services customers who grew financial services customers, 13% increase in orders. There were large projects and in overseas electronic payment, mobile banking. So we received such orders from overseas as well.

In social systems, orders were up 5% in Q3, which was higher than last fiscal year with large projects. And on a cumulative basis -- well, Q3 on a cumulative basis was 9%. Social systems were up 11% on a cumulative basis, they're the leader. And so overall, there is tailwind for both, but orders are about timing. So depending on the timing, it's either the financial services customers or social systems customers who are leading in placing orders with us.

Understood. Another question. I would like to ask about wage increase. Jinbo is talking about placing a request to the management of an increase by JPY 18,000 in the spring wage negotiation. If you could please comment on wage increases.

Expectation for wage increase continues strongly. We are very much aware of that. However, that is to be discussed in the upcoming spring wage negotiation. I cannot give you the details at this moment. But over the medium to long term, wage increase momentum should be continued. So growth and distribution should be combined in a virtuous cycle. We want to create that. And as a premise for that, we have to have a sustainable growth and make earnings. It is necessary to raise wages, including basic salaries. But for employees to have increased engagement, we would like to think about making improvements to overall compensations and benefits.

The next person is the only person raising the hand right now. So we will have this last questionnaire. So [indiscernible], please unmute yourself and ask your question. I can hear you just a bit, but -- now I can hear you.

First question is on Trump tariff. Compared to last quarter, there are some changes in your numbers. Comparing the 2 quarters, what are the differences, if you could briefly explain.

In the last financial results briefing, the full year adjusted EBITDA impact was minus JPY 20 billion. This time, the impact is about the same, maybe slightly over JPY 20 billion this time.

Can you elaborate on the background, AI?

So Kato will explain.

Direct impact, customers have -- because of this tariff, the customers are understanding the pricing pass-through. So the direct impact is becoming smaller on us. But in storage, customers are now refraining or restraining their investment. So these indirect impact is slightly increasing. But as Ono-san just said, large areas in totality have not changed much.

Next question is in DSS, your customers are utilizing AI and taking the -- starting the in-house development of the system. If this trend continues in the U.S., Hitachi Group's position as system integrator, I think GlobalLogic is also involved, so customers' in-sourcing or in-house capability using AI, how are you looking at this? How would you impact your business?

In our SI business, we are using AI, pursuing the AI usage. And for the projects we agree on with customers, for all SI projects, we utilize AI. And with that, we are raising productivity.

In this world, customers may think of doing this by themselves, doing this in-house. But compared to overseas markets, Japan still has a long way to go. It has not progressed much. We -- our task is to support customers use AI. But if customers take this in-house significantly, even then AI, people need to utilize AI. AI can't take care of themselves. And so the AI-enabled staffs we have can take a -- play a big role. So I think our business will grow in this area. I would not say there's no impact, but the impact is still minimal at this point in time. Thank you. I hope this answers your question.

My last question, you talked about the top management structure. Lumada 3.0 will be promoted. On a sector basis, Mr. Koch will step down next year, and Amiya-san will become the CEO of CI sector. Could you elaborate on the background to this change? From this fiscal year, you started the new structure. So I want to know a little more about the background.

Mr. Koch stepping down is he mentioned he wanted to step down. I don't know more than that. But on the other hand, Mr. Amiya, who will head the CI, have been COO for the past 1 year and have been looking at the CI sector as a whole. And in CI, he -- the HMAX solution, building Mirai, he developed and led the market introduction of this solution. So as CI sector moves towards Lumada 3.0 using physical AI, he is the best person, most suited person.

There were -- those who were raising hand additionally, there are 2 remaining people. So let's take questions from them before we end. Harada-san, Hirakawa-san in that order, we will take questions. So Harada-san, please unmute and ask your questions please.

Harada from Goldman Sachs Securities. I joined in the middle of the conference call, if it was asked already, I'm sorry. But my first question is orders by segment, Services & Platforms. I think it's the Storage Business that was a drag causing negative number. Excluding Storage Business, how much growth or decrease was there? I think it's mainly about GlobalLogic. So what is the status of orders? If you could please elucidate on that?

And the second question, JPY 100 billion of additional share buyback was announced. So this is because of asset sales. So I think the amount is around half of the proceeds of asset sales, it seems. Overall, you have a very strong balance sheet, and there could be acquisitions in the future. But D/E ratio to hit the target with respect to your balance sheet, what is the time line? What is your thinking on that? You have just made an announcement regarding JPY 100 billion share buyback, but what is your thinking regarding these balance sheet-related ratios and targets?

First orders, Q3 Services & Platforms, unfortunately, was down 5% year-on-year. And basically, that's because of Hitachi Vantara's business. So customers refraining from making investments. And because we focus on profitability, having project management, it was down year-on-year.

As far as Q3 is concerned, GlobalLogic as well, so Western customers refraining from investment, and we're having stringent management control over projects, and therefore, it's down year-on-year. But basically, order reduction at Vantara is the main factor behind.

And secondly, about share buyback, as you pointed out, since before, based on our capital allocation policy, when we sell assets, we will look for growth investment opportunity and shareholder return opportunity, we would decide between the 2. And so based on that policy, we made a decision for share buyback and growth opportunity investment in growth, that always exists. But in Q3, we have received proceeds from partial sales of Hitachi Construction Machinery.

And in Q4, we're not planning to have a major growth investment, investment for growth. And given the financial position, we decided to make the decision on share buyback opportunistically or agilely. And so what is going to be the target over the long term, D/E ratio of 0.5. That is the threshold, and we will consider capital allocation status, funding environment as well as business environment. These factors will be considered. And we would like to take time to optimize the ratio. That's our thinking at this moment.

So just to follow up on GlobalLogic question. So Western customers are refraining from investments since 3 months ago, 6 months ago, do you think that their investment is deteriorating? Or are you seeing signs of improvement? Suppose investment is not recovering, you may have to consider cutting staffing perhaps. So where are you? With respect to Vantara, you are having stricter control over projects. And is it correct to understand that profitability is positive? Or are you closer to breakeven? If you could please elaborate on that.

Let me address the Vantara question. Yes, we are controlling projects and higher-margin projects are pursued. And so that is positive for our profitability. And regarding GlobalLogic, earlier, as far as orders in the Q3 are concerned, they are down year-on-year. But for revenue or sales, sales are trending up and increasing year-on-year in Q3. So it's not that we have surplus of resources for growth, it's lower single digit, but it's still growing and expanding.

And as I explained on the slides, in terms of synergies, Mobility, Energy within Hitachi, inclusive of the initiative to develop HMAX solutions leveraging AI. And it seems that there's a very strong demand for GlobalLogic and so forth. And so inclusive of that, there's 20% growth. So centering around those areas, we are expecting to see further growth going forward.

So Hirakawa-san, please unmute yourself and ask your question.

One question. At the beginning, Kato-san said, you exceeded all internal target in Q3. For EBITDA, how much did you exceed the internal target? And how is it like by segment?

For Q3, revenue and profit, so adjusted EBITDA, about JPY 40 billion overachievement against our internal target. About half is FX impact and the remaining half is organic growth, revenue growth. Biggest is Energy, followed by CI. CI, Hitachi High-Tech and Building Systems profit improved more than we thought. So those 2 were the leaders accounted for about half of JPY 40 billion.

Thank you very much. Thank you for your cooperation. It's now time to close the consolidated financial results earnings announcement for the third quarter ended December 31, 2025. Thank you very much for your attendance.

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

The scheduled time has come, so we will now begin Hitachi Limited web conference on Q2 FY 2025 earnings. Thank you very much for taking time out of your busy schedule to attend today's briefing. The presentation materials are available on Hitachi Limited IR website and news release website. So please take a look.

Let me introduce the 3 speakers. Tomomi Kato, Senior Vice President and Executive Officer, CFO; Hiroaki Ono, Deputy General Manager, Finance Division; Shinichiro Tamai, Executive General Manager, Investor Relations division. Mr. Kato will first explain the overview of the financial results. Please wait for a moment while we switch screens. Mr. Kato, please.

First, I would like to explain the content. I will cover the key messages followed by the results for the second quarter of fiscal year 2025, the outlook for fiscal year 2025 business segment performance and the Lumada business in that order.

First, the key points of this earnings announcement, I will begin by explaining the performance highlights. Regarding fiscal year 2025 Q2 results, in addition to consistently strong performance of the Energy's power grid business, the domestic IT business also grew steadily due to expanding DX demand. This led to increased revenue and profit for Hitachi's consolidated total adjusted EBITDA and quarterly profit achieved record highs. Furthermore, core free cash flows increased significantly due to increased profits.

Now I will explain the 5 KPIs. First, excluding foreign exchange effects, revenues increased 8% year-on-year and adjusted EBITDA increased by approximately JPY 90 billion year-on-year, the adjusted EBITDA margin also improved. Quarterly net profit attributable to Hitachi shareholders increased year-on-year, driven by the improvement of adjusted EBITDA and the completion of the capital reorganization of the HVAC joint venture.

Furthermore, core free cash flows increased year-on-year, even excluding the temporary impact related to the completion of capital reorganization. Consolidated revenue, adjusted EBITDA and core free cash flow exceeded our internal targets.

Next, the outlook for fiscal year 2025. We revised our forecast for revenues, profit, cash flow and ROIC across the entire Hitachi Group. The revision reflects a stronger performance in the Energy segment, driven by the power grid business, Mobility and Connective Industries, even factoring in increasing strategic investments and the impact of U.S. tariffs growth in Energy, DSS, Mobility is expected to drive year-on-year increases in both revenues and profits.

Next, segment highlights. DSS recorded increased revenue and profits in Q2. Domestic IT business grew steadily, while overseas business saw a decline in storage sales due to customer investment restraint. However, profitability improved due to cost reduction efforts. For the full year outlook, while revenues were revised downward, the initial profit forecast is maintained due to overall cost reductions.

Energy. The power grid business continues to see strong demand for transmission upgrades and renewable energy connections. Q2 recorded increased revenues and profit, leading to an upward revision of the full year outlook.

Mobility. The Lumada business, including railway signaling systems performed well. Despite acquisition-related expenses, profits were maintained at the previous year's level, partly due to the effect of exchange rate revisions, the full year outlook has been revised upward.

In CI, although new installation demand for elevators and escalators in China decreased, profitability improved due to strong performance in semiconductor manufacturing equipment. We have revised our full year forecast upward.

Finally, regarding the Corporate Items & Eliminations, we have reassessed the business deterioration risk and the risk of impact from U.S. tariffs that were previously factored in. Specifically, business risks and tariff impacts previously factored in; and conversely, revised the forecast upward to reflect the expectations of the overall improvement. Based on the above, we have revised upward full year forecast for Hitachi Limited.

Next, progress on DSS Growth Strategy. Overall, the orders received for DSS increased in Q2 and both revenues and profits grew, achieving new record highs. The Front Business saw a robust domestic DX and modernization projects, achieving growth across all areas and realizing record high Q2 revenues and profits. The reactionary decline is seen in Q1 due to ATM renewals for new banknotes was resolved. Going forward, further growth is expected backed by increased orders and by pursuing productivity improvements through the utilization of AI.

Storage Business saw reduced revenue due to continued investment restrained by European and American customers; however, profitability is beginning to recover through rigorous project management and cost reduction. By focusing on high growth block storage and accelerating structural reforms such as operational improvements, the business outlook of the fiscal year is a decline in revenues, but increase in profit year-on-year.

As for GlobalLogic, profitability improved through increased capacity utilization. despite continued investment restraint. Furthermore, synergies with other Hitachi sectors are expanding. For the full year, we will strengthen our high-value service business driven by AI, grow revenues and maintain profit margins close to the previous year's level.

In addition to these measures, we revised downward the full year revenues forecast for DSS as a whole due to cost reductions across the entire organization, including headquarters. However, we were able to maintain the initial forecast for adjusted EBITDA. Progress in DSS GlobalLogic's growth strategy. Key initiatives focus on strengthening its technical capabilities in providing AI services, supporting AI implementation for customers and internal sectors and contributing to the expansion of the Lumada business.

As one measure to enhance AI technologies, we decided in September to acquire synvert, a German AI services company. synvert excels primarily in data advisory and the design and construction of data platforms. Integration with GlobalLogic will enhance our capabilities across the data value chain.

Going forward, we will strengthen solution development for Agentic AI and Physical AI contributing to the initiatives such as HMAX rollout. Additionally, GlobalLogic supports the expansion of Lumada business in other sectors by leveraging AI, combining Lumada revenues across each sector.

From the synergy creating activities with GlobalLogic, we achieved 17% year-on-year growth in Q2. We are currently advancing initiatives in Energy, Mobility and CI. Going forward, we will further expand and expand measures as one Hitachi to achieve our Lumada 80-20 long-term goal.

Progress on initiatives to enhance enterprise value will be explained. First, to expand Lumada digital services and accelerate Physical AI implementation, we executed growth investments in Mobility, DSS and Energy. We strengthened key capabilities related to digital and services, which are our M&A focus areas. Regarding portfolio restructuring, we completed the capital reorganization of HVAC joint venture in August.

While transferring our stake in the joint venture, we acquired a commercial air conditioning base to expand the Lumada business. Regarding capital allocation, we are proceeding as planned with this fiscal year's total shareholder returns of JPY 500 billion. The interim dividend for this period will be increased by 10% compared to the previous year's interim dividend.

Next, I will explain the results for the second quarter for fiscal year 2025. The actual figures were already explained at the beginning of this presentation. I will explain the breakdown of year-on-year changes in revenue, adjusted EBITDA and core free cash flows. Revenues increased driven by growth in Energy and DSS, even excluding foreign exchange impacts.

Adjusted EBITDA followed a similar trend to revenues. Adjusted EBITDA margin also improved year-on-year due to increased revenues, productivity gains and improved project management. Core free cash flows increased year-on-year, driven by the factors such as growth in adjusted EBITDA.

Next, our financial position. Total assets at the end of Q2 fiscal year 2025 was approximately JPY 13.9 trillion, an increase of approximately JPY 600 billion from the end of the previous fiscal year, driven by increased revenues and profits. Cash conversion cycle reduced compared to the end of the previous year due to an increase in advanced payments.

Next, regional revenues in Q2 of fiscal year 2025, driven by the Energy power grid business and Mobility's railway signaling system, Europe grew 17% and North America grew 10% year-on-year. In Europe, the large-scale power grid projects progressed, leading to significant year-on-year growth. Other regions recorded growth primarily in the Middle East power grid business. Meanwhile, in China, new demand for CI building systems continues to decline.

Next, I will explain the order results by business segment in Q2. In DSS, Services and Platforms decreased overseas, but orders in Japan, such as Front Business expanded steadily, resulting in an overall increase of 6% in both Q2 and the first half of the year.

In Energy, orders decreased year-on-year in Q1 due to large order received in FY 2024, but increased in Q2 and approached last year's levels in the first half.

In Mobility, orders declined, reflecting the absence of last year's large overseas project, but the order backlog has increased steadily since the end of last year.

In CI, orders grew steadily in both Q2 and the first half. Industrial Digital, in particular, performed well in Q2, thanks to the acquisition of a robotics SIer.

Next is the highlights of FY 2025 outlooks. The main contents were explained in the topics slide at the beginning. Revenue, income, cash flow and ROIC are all revised upward from the previous forecast. Regarding the assumed FX rate, the euro is revised to JPY 170 from the previous JPY 155 and dollar yen remains unchanged at JPY 145.

Next is the breakdown of year-on-year changes. Excluding the FX impact, revenue is expected to grow 7% year-on-year, driven by increases in Energy and DSS. Similar trend for adjusted EBITDA, and it is expected to increase year-on-year despite the impact of strategic investments, FX and U.S. tariffs.

Next, net income is expected to increase year-on-year, thanks to an increase in operating income despite fluctuations in factors such as the impact of the sale of air conditioning joint venture and nonoperating income and expenses. Excluding the impact of large advance received in FY 2024, core free cash flow is expected to increase year-on-year, thanks to higher adjusted EBITDA and improved net working capital, while CapEx for production increase will rise.

Next is performance by business segment. Digital Systems & Services, DSS revenue and profit increased, as I explained at the outset, thanks to solid growth in IT services business in Japan as well as Front Business. DSS revised its full year revenue forecast downwards, but our initial adjusted EBITDA forecast remains unchanged, thanks to the headquarter and other cost reductions.

Next is Energy. In Hitachi Energy, which operates the power grid business, revenue increased, thanks to favorable life cycle mix of large-scale projects in Q2 and solid execution of strong order backlog. Profits also increased driven by revenue growth, improved revenue profile and operational excellence. FY 2025 outlook was revised upward this time.

Hitachi Energy's Q2 revenue increased 31% on a U.S. dollar basis. But excluding the one-off impact of FY 2024, the increase is around 21% in the first half. We expect the full year growth at the same level as the first half. Nuclear Energy's revenue is expected to decrease this fiscal year due to the absence of a large project recorded in FY 2024.

In Mobility, both revenue and profit increased year-on-year, driven by solid growth in the Lumada business, including the Signaling System business. Reflecting the review of FX impact, we revised our full year forecast upward.

Next is Connective Industries, CI. For CI Sector total, demand for elevator and escalator weakened in China in Q2, resulting in a decline in Building Systems revenue. While new installations in China declined, Building Services business increased, including renovations. Meanwhile, most businesses other than Building Systems performed strongly.

In particular, revenue of measurement and analysis systems increased by 17%, thanks to the front-loading of semiconductor manufacturing equipment from the first second half. Regarding the full year outlook of CI sector, revenues will remain flat year-on-year, excluding the FX impact, but we will grow Lumada business, maintaining operating income at FY 2024 level and improve profit margin. We revised the full year forecast upward.

Finally, Lumada business revenues for Q2 of FY 2025 increased by 47% year-on-year and revenue ratio on Hitachi consolidated basis reached 41%. We revised the classification of Lumada business to 2 simple categories, starting from FY '25.

As a result of examining the target businesses, we identified businesses that should have been included in the Lumada business, such as managed services and software business included in digital services and SI business using products and AI included in digitalized assets. Therefore, decided to include these in Lumada business from FY 2025. Even by adjusting to last year's standard, Lumada sales in Q2 grew by approximately 20% year-on-year, driving Hitachi's consolidated CAGR of 8%.

Finally, let me introduce our initiatives to expand the Lumada business. First, to expand the AI ecosystem, we are strengthening our collaboration with partners, including NVIDIA, Google Cloud and OpenAI. Furthermore, regarding the status of solution development, we are taking a customer zero approach where we first treat our own company as customer #0, utilize AI and then provide it externally. We developed solutions using AI described here and released them externally.

In addition, this week, we signed an MOU with the U.S. Department of Commerce regarding the power grid business and the SMR we are jointly developing with GE Vernova is included in the scope of strategic investment between Japan and the U.S. We expect that this will lead to further growth in the future.

This concludes my explanation of the results for Q2 and the outlook for FY 2025. We will continue to implement management measures to achieve the long-term and medium-term goals of our management plan, Inspire 2027. We appreciate your continued understanding and support.

Thank you very much, Mr. Kato. We would now like to proceed to the Q&A session.

[Operator Instructions]

We will take questions first on the Japanese channel and then on the English channel. And we will take questions from the media, institutional investors and financial analysts together. And we are expected to close at half past 5.

We will take the questions from the Japanese channels first. The floor is now open.

[indiscernible].

First point is regarding the Switzerland railway major contract was announced. Thales GTS acquisition, HMAX evolution have led to the transactions that you are able to obtain as well as the profitability. I would like to ask if this is the case. What has been the impact? And what are the trends in terms of orders received, although there seem to have been a slight decline recently. That's my first question.

I would like to respond to your question one by one answer. Regarding railways, in the second quarter, orders received was as explained for railways as well as for Hitachi Energy. These are types of business that are major projects. And that will have a significant impact whether we are able to obtain these projects, and there could be differences from quarter-to-quarter. In the first half for railway, there have been major contract projects, but there's a reaction decline in this quarter.

But in terms of the backlog, we are continuing to increase. Therefore, demand has remained very strong. For railways as well as for power grid, major projects when we participate in the bid, there is investment committee where I am the Chair that will be assessing the projects from all over the world. From the Americas, from Asia, from Europe as well as from the Middle East as well as other regions, we are receiving many orders from all over the world.

Basically, globally, when we receive orders for rolling stock for trains, depending on the project, we are also receiving orders for maintenance as well as operations and services. Therefore, the profitability of this business has remained strong in a steadfast manner, we are seeing improvements. In the mid- to long term, this backlog will be absorbed, and we believe that the profitability will be improved.

In addition, last year, we announced the Railway HMAX. This solution is an area we are seeing increased orders. As the ratio of services increase, and as you have mentioned, GTS has been acquired last year. And the train to the signaling system has changed in terms of ratio from 4:6 to 6:4. Therefore, we believe that profitability can be improved accordingly.

In the midterm as well as in the long term for railway system on the Investor Day as well as in individual IRs, we have been mentioning that we have a target we are aiming for and steadfast improvement is being made.

Second question is regarding Energy backlog. You are saying that profitability is improving in that regard. What is the momentum of improvement? Is it at the same pace? On a Y-o-Y basis, is it accelerating or slowing down as well as the reasons?

Regarding the profitability of the backlog, it's very important as we look towards the future, we are always checking this. In that regard, we are seeing a steady improvement. There are no special significant difference. We believe that the backlog will be converted to the revenues. That means that profitability will be improving for us.

Third question. Regarding storage, block storage is now your focus, which is high growth. With that from next fiscal year, is there going to be a top line growth in area of storage on a stand-alone basis? What is your view?

Regarding next fiscal year, the detailed business plan will be formulated toward the end of this fiscal year and the revision will be made. But for the time being, block storage, especially in the mid area, there is possibility of high growth, and this is going to be our focus.

Unfortunately, customers are restraining investment at the moment for the first quarter, second quarter. Therefore, compared to previous year, there have been a decline. But it is on a trajectory towards improvement. And I believe that next fiscal year, we can do better than this fiscal year.

Next, [ Toshi-san. ] Can you hear me?

Yes. I have 2 questions. I will go one by one. First, U.S. reciprocal tariff matter. So in your results announcement on the full year basis, adjusted EBITDA and net income both improved. The external environment and Hitachi's own efforts, if we -- I think we can break this down into 2 components. So the customers are still restraining on investments, I believe. But what changes have you seen from when you announced your first quarter results and own efforts, energy, pricing pass-through? What was impactful positively to compress the negative impact from tariffs?

So your question on tariffs. On Slide 29, you have some information. Not much change. So I did not explain today, but if I could add some comments here. As you rightly mentioned, the full year forecast. As of Q1, compared to Q1 forecast, the risk is smaller. So last time, adjusted EBITDA, JPY 30 billion negative impact was forecasted. This time, we reduced that by JPY 10 billion. So negative JPY 20 billion is the impact. It's been 6 months. That is the big factor.

And so the impact are mainly twofold. Page 29, lower left, you can see the diagram. This is just an image diagram. Originally, the direct and indirect impact were anticipated. First, we understood the direct impact. With the tariff impact, cost increased. And if we cannot fully pass through the price, the loss, we incur the loss, that was the majority. That was what we captured accurately.

Now the tariff impact, this is the impact on our customers. Customers' behavior change and our sales opportunity reduce. We could not clearly see that. But now the direct impact because of the sales impact reducing, this impact is declining, but not a big decline from Q1, but it is on the decline. On the other hand, the indirect impact compared to our projection in April or at Q1, it is not emerging. The risk is not emerging. So both are declining.

This time, we reviewed the indirect impact, which did not materialize as much as we thought at Q1. And for the pricing pass-through, customers are understanding the situation. And by explaining this carefully, customers are willing to bear the cost. So they are understanding much, which we are thankful of.

My second question is about the business update. OpenAI, and you signed an alliance agreement. And the other day, the Department of Commerce MOU was also signed. So the top summit meeting between Japan and the U.S. was held and the T&D and SMR investment may lead to your profit opportunity in the future. So this may directly impact this year's performance or next year's performance, but your alliance with OpenAI and your investment in the U.S., how -- what is your take? How much impact do you anticipate?

Your last part broke off. So could you repeat your question again? Hello? The very last part of your question, if you could repeat once again. Okay. So maybe the connection was a bit weak. He may not be able to hear me. So I understand that the question was about the investment in the U.S. Can you hear me?

OpenAI and the investment in the U.S., our forecast this year and next year. I think that is the gist of the question. Can you hear me?

Okay. So I take it that, that is the question. Yes. So first of all, the U.S. investment, I will answer and also about OpenAI. First of all, about Japan-U.S. relationship. As we already press released and has been covered by mass media, I think you understand quite extensively. This year, the Department of Commerce, we signed an MOU, this power grid business. Hitachi Energy is our group company. So Hitachi Energy, the transformer production and for the T&D equipment, local production, we will continue examining additional investment in the U.S. That is the content. The specifics will be fleshed out going forward.

We have not decided on all the specifics, but the background is, in September this year, over $1 billion investment was announced in the U.S., we will do investment to build our capacity in the plant. And this one is separate from that. Because the demand is so strong, apart from this $1 billion, we will study the possibility of additional investment. Please understand it like that. So we have not decided on all the concrete matters.

But if we invest -- after we invest and build the capacity, we take orders and ship out the products, it will have some time lag, a few year time lag. So this will not have a positive impact next year, probably during the Inspire 2027 period or the next medium-term plan period.

For the power grid business, up to 2030, we say this will continue growing. But recently, we're saying not 2030, but 2035. For the next 10 years, we expect a growth. So this is a long-term perspective. But in terms of our business opportunity, this is a tailwind. We appreciate it. So we want to utilize this opportunity. So next is OpenAI.

Page 25, Lumada business expansion measures. You can see some information there. On October 21, we had a news release. Next-generation AI infrastructure will be built. OpenAI will be leveraged. So we signed a strategic partnership. Next-generation AI infrastructure is mainly in utilizing AI, this will be the base infrastructure.

Data center. So for data center, we need to efficiently supply power and in transmission mainly. Hitachi will work with OpenAI and more broadly to penetrate AI, we will supply the necessary power. That is how we want to contribute. And inside data center, Hitachi Group has been contributing in the cooling technology, storage technology and data center construction.

So we will accelerate the AI infrastructure building. So that is the content of this partnership. We have come to an agreement. And as you see on this slide this time, OpenAI's cutting-edge technology will be leveraged so that we, Hitachi Group, can use AI, utilize AI, Hitachi Solutions and HMAX.

We will leverage AI and offer a higher value to our customers. That is another possible collaboration. So mainly 3 points under this agreement. This is more medium- to long-term partnership. So this may not have a positive impact this year, but we have high expectation as a growth opportunity.

Ezawa-san, please.

I have a question on power grid DSS and investment for growth. Regarding the power grid, first of all, data center-related power grid business in the near term has been announced by the company. There have been much reporting about this business. Hitachi's high power grid business is the upstream high voltage is the main area. But data center is closer to the downstream, the consumption side according to my understanding, is that the case? What is occurring now is that for Hitachi Energy, mid-voltage as well as low-voltage areas could be poised for growth going forward?

Or for the data center, is it mainly the high-voltage substation business will continue to grow, is that the case? What is the new aspect of this business? Please elaborate further.

Regarding data center and voltage, the relationship between the 2 will be explained. Basically, as we set up new data centers, the power generation can be created together in some cases and it could be separate in other cases. So that will have a difference on the voltage, and it will also differ according to scale.

So we cannot say whether it is more high voltage or low voltage. That is not the case. For the time being, for data centers, we are receiving various orders. However, so far, Hitachi Energy's scale of receiving orders are mainly the renewal as well as connectivity for renewable energies as well as grid strengthening the main business.

And in addition to that, we have HVDC. But it isn't as if the impact is so strong that it will change the mix of the Hitachi Energy business overall. The conventional demand is growing and data center is added on top of that. Therefore, going forward, we have high expectations for this business.

Second question is regarding DSS. In U.S., AI is becoming more prevalent and SaaS business is receding negative impact in terms of performance. This is occurring in the overall industry. For GlobalLogic, what about the U.S. business? Is there a similar impact? With the implementation of AI, are you seeing reduction in work or subject to price competition? Is this a phenomenon that is occurring in the U.S.?

In the recent past, there is a decline in performance. You said that this is because of the customer is restraining the investment. But what is the structural change occurring in the industry? Is there a deterioration -- unfavorable deterioration?

Regarding GlobalLogic, in terms of pressure for price has been occurring in the past 1 year. We believe the main reason is restraint in investment. But as you have mentioned, with AI, there is higher expectations of customers to increase productivity. Therefore, the factors are mixed. We cannot differentiate one from the other.

In that regard, against this backdrop, we have to try to increase the price so that profitability can be improved. As mentioned in the materials, AI is growing. Therefore, technological power must be enhanced for our side and provide more AI services dealing with data increasingly with higher capabilities so that we can seek growth and also increase profitability.

That is the reason why in September, as I mentioned earlier, we have acquired a German company. But this is a bolt-on type acquisition. It's not very significant. But by continuing on this direction, we hope that the capability of GlobalLogic to provide solutions to customers can be enhanced so that this will lead to further profitability of our business.

Question regarding the investment for growth. Many of the companies with earnings results are saying that they have made investment for acquisition. So it seems that this is being welcomed overall. But what is the basic stance of Hitachi in terms of making investment?

Kato-san, you are the Head of the Investment Committee. What is the discipline that you are applying? Is it being more relaxed? Or is it becoming more stringent? Please elaborate further. And JPY 500 billion in terms of shareholder return was also announced. Do you think this is sufficient for this fiscal year? Because you're making a strategic investment, is this going to have an impact on shareholder return? Please elaborate.

Regarding our stance for investment for growth, I would say that according to the Inspire 2027, we need to seek growth in a steadfast manner, not just in M&A, but also we must make investment of growth organically as well. We have made this decision. This is the direction we are pursuing. But we will also seek M&A opportunities.

As I mentioned today, Lumada's digital service are the focus areas for M&A, basically bolt-on type M&A. But if there is opportunity before us, we will also consider major M&A as well. As we mentioned in April as well as in June, our discipline in investment is to seek returns. And also ROIC is very important. It has to have a positive impact. And even if it takes time, it has to become positive. This is a discipline that is unwavering for us.

On the part of the CFO, we are trying to seek investment for growth. But on the part of the Investment Committee, the discipline remains unwavering. It remains unchanged. A balanced approach is being taken according to my personal view. And similar question is received from Board members, and I'm responding in the same way.

To your second question, regarding the JPY 500 billion for shareholder return, according to the current pace, JPY 300 billion share buyback will be completed without fail within this fiscal year. So we have to consider what to do thereafter. We will take the financial position into consideration at that time. We are also reshuffling our portfolio as well. So proceeds will have an impact as well.

We will also look for opportunities for growth. All these factors will be taken into consideration. If there is no such case, we will consider shareholder return. Regarding share buyback, we will do that in an agile manner. Agile thinking will be applied.

Next, Yasui-san.

So Tamai-san talked about OpenAI. If I could go one step deeper, other -- outside of data center, is it transmission distribution or the transformer and inside data center, 800-volt HVDC, and you said that this will be from 2027 onwards. So in the rack, where can you contribute in HVDC, 800-volt HVDC?

What is the size of the business? Could you be more specific where you can do your business? OpenAI has a big Stargate project. So in the next 2, 3 years, can this be opportunity that you can capture?

Thank you for the question. Kato-san mentioned earlier, outside of data center, first of all, it is the transmission. As Kato-san said, the location of power generation and the data center, how close or how distant they are. The equipment differs depending on the distance. In any case, the power generated cannot be brought into data center as is. It has to go through our switchgear and the T&D equipment. And right now, this is a strong growing area, which will accelerate even further.

So they asked us to work together, and that is why we signed this MOU. So our main business, power grid. This will be a big opportunity for our business. And 800-volt VDC. Recently, 800-volt, it's not that we have anything that is commercialized in this area. We need to do more development. But Hitachi Energy, as you know, has core competence, which is the conversion of voltage and the DC/AC. And the key expertise is power electronics, power semiconductor. We have in-house R&D.

And this -- using this key device, power controller, PCS and battery energy storage control and EV charger, we have these broad-based product offering. So PCS and EV chargers are close the spectrum to 800-volt DC. And as use case, we have the transformer for data center, the power quality. The voltage and the power quality is guaranteed, and we are now the top class track record in this area. So Hitachi Energy has a big opportunity, we think.

My second question is the Japan IT services. Yesterday, Fujitsu and today, NEC also announced the order is now the low single digit or negative. So year-on-year, there may be large deals that impact the changes, but in U.S., SaaS may be a bit slowing down. So what is the IT projects in Japan? It has been strong. Going forward in the second half and last -- next year, is it a comfortable market environment or not, including AI, which is larger risks or opportunities?

Ono-san will answer.

So Japan front businesses in Q2, 13% growth, 13% growth in our business. And IT is 3% growth. So Japan DX modernization projects are trending strongly. So in the second half and FY 2026, we expect more growth. So a little more comment. IT services. In orders, we showed you some numbers.

In IT service, the overseas projects are also conducted. On the overseas side, customers are restraining their investment. So that is a decline. But in Japan, we are seeing strong movement. So Q2 and in the first half, overseas portion is slightly down, may seem a little down. But in Japan, as Ono-san just said, DX and cloud-related projects are strong. That said, we need to watch closely, including the overseas market.

Tanaka-san, please.

Regarding energy, power grid business is what I would like to ask a question about. As mentioned by Kato-san, for it, this is a business that will continue to grow into 2030 and even to 2035. I would like to ask the reason why this is the case? What is the response you're receiving in the recent past in terms of demand?

And recently, MOU has been concluded with the Commerce Department of the U.S. AI and data centers, outlook of demand, is it related? What is your outlook for the U.S. market going forward in this area?

In the long term, you're asking what we -- how we are evaluating the response. Regarding the major orders received, the bid or the business will be evaluated at the headquarters. And for railway, demand is strong globally. But we are only looking at the major transactions at the headquarters. This is also the same for power grid.

HVDC are the main projects when the scale is large for North America as well as Asia. And in Europe, we are seeing demand is very strong. We are looking at various transactions, and we are feeling that the demand is very strong. I am saying that growth should last to 2035. I believe this is feasible.

The background is driven by EV, the electrification as well as replacement because of old facilities. And with the renewable energies, there is a need for stability. Data center is also a new demand that is emerging, which is added to the conventional. Therefore, we believe that this will continue to grow in the long term.

Now regarding the MOU we have concluded with the commerce department, specifics are to be discussed going forward. With respect to the American market for the power grid business, we are evaluating that the demand is very strong. We have intention of producing in the United States, and we are increasing local production.

Demand is very strong. And it isn't as if we can respond to the strong demand totally in the United States. Therefore, going forward, we hope that production capability will be enhanced in the United States. This expectation is also reflected in this project.

We will move to the English channel now. Any questions from the English channel? [Operator Instructions]

We do not see any questioner so coming back to the Japanese channel.

We are coming close to the closing time, and we have many hands raised, but we will take 2 more questions. I hope you could understand. And the other questions will be followed up from the IR department. I hope you could understand.

So Hirakawa-san and Harada-san, we will take 2 more questions. Starting from Hirakawa-san, please.

I have 2 questions. First is Hitachi Vantara, structural reform, storage structural reform. The cost reduction was mentioned. What kind of structural reform are you pursuing? And in the second half of this year and next year, what do you plan to do? And in Hitachi, so EBITDA ratio of 15% or above is aimed in Hitachi. Storage business in Hitachi may fall short of this level. So what is the positioning of storage business? Can you continue the storage business? What is your take? That is my first question.

My second question is, today, Hitachi Energy Investor Day will be held, so it's a bit early, but if you could give us a message. You mentioned the demand will continue growing until 2035. And so EBITDA rate, 16% to 20%. This is a very encouraging target. So what kind of message does the Hitachi headquarter have? Two questions.

First, Hitachi Vantara. The structural reform are mainly threefold. First, the key focus areas in -- so block storage, midrange is the strongest growing area. So we will focus on that area. It's not that we will not do other areas, but we need to focus our management resource there. So we will focus on this area.

And fixed costs, will be rightsized and reduced, including the personnel costs. And the rightsizing of the organization, we will rightsize the base, the sites. So those are the structural reform that is ongoing. And as mentioned in the material, we have various types of alliances and partnerships to enhance our capability. And in storage, you mentioned that we may not reach the target EBITDA.

Right now, yes, we are struggling. But this market is promising. Data center that we mentioned a few times today, data is included in the storage. So how to leverage this data is crucial in introducing AI. So this is a very important solution. So we want to somehow make our own efforts. And as mentioned today, form alliance. We have alliances. So we want to utilize alliances to be more competitive. So that was my answer for storage.

Next, Hitachi Energy. Because of the time, from my view, I think there are 3 main points. One is the medium-term -- medium- to long-term goal. Compared to the past, we are raising our long-term goal. So compared to the past, we are having a good traction for the demand, good view for the demand. So our target is raised. And as mentioned a few times today, we were talking about up to 2030, but now it is 2035, 10 years down the road. We can expect continuous growth up to 2035.

And third point, service business. Products are growing and the next growth pillar is service. As we news released, $1 billion investment will be made and the people, headcount, including 5,000 people. So we are trying to enhance our service businesses. So those are the 3 main pillars. Anything else?

Yes. Thank you. Growing our service business. Hitachi's capability will be utilized as one Hitachi. HMAX rail, it is developed in rail. So the key technology insight will be utilized to offer digital-based service, enhance our digital-based service. And the speed of development will be raised by utilizing the entire Hitachi capability, and we are stressing that point.

Harada-san.

I have 2 questions. The first question is regarding Hitachi Energy. You have been discussing this point today in terms of OpenAI. Now it seems that the business with the U.S. as well as OpenAI are long-term initiatives. And it seems that there is going to be a backup from the Japanese government as well according to what we have heard yesterday.

So if business risk is limited, in the past, you had overcapacity and you were quite prudent in terms of the capacity increase. But for Hitachi, is it easier now to increase capacity? And in terms of investment decision, risk is mitigated. Is that your understanding? Please elaborate.

Now regarding service business, it seems that hardware is growing, which will be followed by service business. I think it will take a longer time. But when will the service business contribute to the overall business in a full-fledged manner. On the part of GE and Siemens Energy are also focused on service business. Do you have a competitive edge against your competitors? Where is the value that can be created by -- uniquely by Hitachi?

Regarding Hitachi Energy, as we have explained today, in the mid- to long term, demand is expected to grow. But when we make capital investment, we are more disciplined. For example, most likely case growth scenario will be evaluated. And we want to make sure that even in the worst case, we have to be able to recoup our investment. That is the reason why we are very stringent, rigorous.

In the past, there was a period of low growth. Hitachi Energy members fully realize this. Therefore, risk management is always emphasized, but not losing the opportunity for growth. Striking the right balance is of utmost importance in making capital investment and planning. As we have been emphasizing from the past, framework agreement can be concluded with customers so that we can have surety in terms of future investment.

Regarding hardware, after order is received and the -- when we deliver, we can post revenues, but service business is not the case. It is not similar to the hardware business. Therefore, it will -- it is a type of business that will grow gradually. So we have to sow seeds for the service business. Andreas is a new CEO in this area.

And service unit has been established for this purpose. New company will receive an investment in this area. We are implementing various measures. And it is likely that within the next Inspire 2027, next medium-term plan, when numerical impact will be brought to bear. But this is very important. The competitiveness of Hitachi Energy will be explained.

And we are going to mention this in the Investor Day, we have been maintaining the #1 position. Therefore, footprint is most significant for us. This is our first and foremost strength. In this industry, we have a track record and products and solutions are areas of our strength. And we have the largest footprint in the industry in rolling out our service business, this is going to be a major weapon and advantage for us.

Second question is regarding a strategic issue for the whole industry. Regarding providing service business related to hardware, as conducted by your company, Mitsubishi is also trying to do the same. The SoftBank Group, ABB robot business has been acquired recently. Therefore, software companies are now making inroads into hardware. This is epoch-making, I believe.

You said that the footprint is very large. What about hardware companies going into software and software companies coming to hardware? Both are occurring, and there could be somewhere in the middle as well. What is your understanding of the changes taking place in the industry as a big picture?

In AI, we are increasingly moving to physical AI. Therefore, robotics are likely to increase significantly. That is our understanding as well. The stance we have for robotics is that in CI, we have what used to be JR Automation company. They have a robot line building business. Therefore, they are a system integrator, and they can construct lines for robots in factories.

So we are trying to strengthen this business as well. But we are not going to manufacture robots per se. But in terms of physical AI, we are very much focused. We provided explanation recently. As we have outlined in that meeting, within our business, physical AI is likely to generate added value in certain areas. Obviously, Hitachi Energy and Railway are area we have hardware.

CI sectors on a relative basis, each business scale is not that large. But by utilizing physical AI, we can provide higher value for the customers, we can expect that to occur. This is not just about products. We can also provide maintenance and other services as well. And we can provide better productivity for maintenance people and better safety for the workers. There are many applications. This is our strength. We have both IoT and products -- and we have products. So this is the strength of our company, and this is our significant position.

Thank you very much. With that, we will close this web conference. Mr. Tamai, IR Head would like to say a few words.

One piece of announcement. As mentioned earlier, today, October 30, U.K. Time 1700, Hitachi Energy Investor Day will be held in the U.K. Japan time, it will be midnight, and I'm sorry for the late time. And with this briefing, the material will be on the IR website in News Release column. So please take a look. Thank you very much.

So with that, we will end Hitachi Limited web conference on Q2 FY 2025 earnings. Thank you very much for taking time to attend today's briefing.