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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
The time has come to start the meeting for institutional investors and financial analysts on our Q1 fiscal year 2018 earnings for Hitachi Limited. I would like to first of all introduce the speakers to you. Mitsuaki Nishiyama, Senior Vice President and Executive officer, CFO; Mr. Tomomi Kato, General Manager, Financial Strategy division; Yasuo Hirano, Executive General Manager, Corporate Brand and Communications division. The outline will be explained by Mr. Nishiyama.
Please refer to the PowerPoint presentation for my explanation. Starting off with Page 5 or 1-2. This is the summary, profit and loss statement. On the top, we have revenues. From April to June is the first quarter at JPY 2,165.8 billion. This is an increase of 4% year-over-year. Social infrastructure as well as high functional materials and Information & Telecommunication Systems have improved. Now [ EBITDA ] was JPY 180.4 billion, increase by JPY 37.1 billion or 12% increase year-on-year. Information & Telecommunication as well as Social Infrastructure & Industrial Systems, and Construction Machinery contributed.
EBIT ratio was 6.8%, and it is an improvement of 0.5 percentage points. EBIT was JPY 180.4 billion, increase by JPY 37.1 billion. Hitachi Kokusai Electric has included in terms of JPY 32 billion. At the very bottom is net income attributable to Hitachi, Ltd., JPY 1.52 billion, increased by 30.1% or increase by 40% year-on-year.
Now in terms of operating income, EBIT and operating income, EBIT and net income was the highest ever for the first quarter.
1-3 is the waterfall chart for factors affecting changes in revenues and adjusted operating income. Left-hand side is revenues.
Hitachi Kokusai Electric reorganization impact was minus JPY 20 billion. Foreign exchange impact was a positive JPY 9 billion. So against the dollar, yen was weaker. But for renminbi, was -- yen was stronger. So as a result, the foreign exchange impact was positive JPY 9 billion. And business scale expansion was positive JPY 8.2 billion.
Adjusted operating income impact of reorganization and Hitachi Kokusai Electric was impact of minus JPY 3 billion. Foreign exchange impact was positive JPY 1 billion. Profitability improvement was JPY 17.3 billion. 1-4, is the revenues by market. The right-hand side is year-over-year comparison. Japan was increased by 1%. Outside Japan, increased by 6%.
Now looking at the ratio for outside Japan was 55%. By region, China, 5%; ASEAN, India and other areas, 7%; North America, 4%; Europe, 14%.
Year-over-year increase was recorded for all regions. Main factors from China was Construction Machinery, buildings and Sullair acquisition. And China business had increase in industrial products. And ASEAN India, Hitachi High-tech as well as Hitachi Chemicals and Construction Machinery improved.
North America acquisition of Sullair made the Construction Machinery as well as railways system increase. North America -- Europe railway systems as well as Construction Machinery increased.
1-5 is the balance sheet and cash flow summary. Very top is total assets, JPY 9,934.5 billion. Compared to previous term, minus JPY 172 billion.
CCC, cash conversion cycle, was 60.4 days, decreased by 9.3 days from the previous term. Receivables as well as prepayment has improved. As a result, stockholders equity ratio was 33.8%. D/E ratio was 0.27x.
Lower table is the cash flows. Cash flows from operating activities, JPY 134.3 billion. Cash flows from investing activities, minus JPY 103.9 billion. Free cash flow at JPY 30.4 billion, which is an increase of JPY 8.1 billion year-over-year. Next, 1-6 and onward. For 3 pages, this shows the revenues adjusted operating income and EBIT by business segment. First, Information & Telecommunication Systems, the communication network, equipment, subsidiary, ALAXALA network stocks was transferred. So that was one impact that pushed down the revenue. But the system integration business in Japan expanded, so the revenue overall was up 1% year-over-year.
Adjusted operating income was JPY 7.4 billion increase year-over-year. The system integration business, profitability improved in Japan, and IT Platform & Products business profitability improved. So income improved.
Social Infrastructure & Industrial Systems' revenue was up by 8% year-over-year, and the big factor was the increase in the revenues of Railway system business for Europe and the increase in revenue of Industrial Products business due to the acquisition of Sullair. And with that, adjusted operating income increased by JPY 7.5 billion.
The sales price in elevators and escalators business in China decreased, so this was a negative factor, but the other power and energy business and industry and distribution field profitability improved. So the adjusted operating income increased. Next slide, 1-7. Electronic Systems & Equipment. Hitachi High-Technologies, clinical analyzers sales increased and the diagnostic imaging equipments in healthcare business sales increased. Those were the positive factors. But Hitachi Kokusai Electric was deconsolidated and this was an impact of JPY 20 billion, so the revenue went down by 2%. Adjusted operating income is down by JPY 200 million. This is because of the JPY 2 billion impact from the deconsolidation of Hitachi Kokusai Electric. Other than that, Hitachi High-Technologies and healthcare business, both increased in revenues. Next is Construction Machinery. In all regions, revenues increased, especially in Asia, Australia, North America and China, the sales increased. The sales in Australia, the ratio breakdown is 17%. And so this is higher than U.S. or Japan or China. And adjusted operating income is up by JPY 10.7 billion with the increase in revenues. Next page, please, 1-8. High Functional Materials & Components. Revenues is up by 9% year-over-year. This is thanks to Thai storage battery acquisition by Hitachi Chemical and Santoku, rare earth metal manufacturer by Hitachi Metals. And the increase in sales price linked to higher raw material costs at Hitachi Metals. So all in all, 9% increase in revenues.
Adjusted operating income was down by JPY 3.6 billion, and the reasons were the change in product mix at Hitachi Chemical and the effects of changes in raw material costs at Hitachi Metals. Next is Automotive Systems. The sales decreased in North America and Japan and the Clarion car information systems sales decreased. And therefore, revenues were down by 2% year-over-year. Adjusted operating income due to the decrease in revenues and due to the deterioration in profitability in North America and the delay in the profitability improvement and the increase of development investment, it was down by JPY 5.1 billion.
Next, 1-9, Smart Life & Ecofriendly Systems. Revenues is down 87% year-over-year. One is due to the change of the accounting to net basis revenue for a part of procured products in Japan and the sales decreased in home appliances in Asia. On the other hand, the adjusted operating income, thanks to the cost reduction and the structural reform, we were able to achieve JPY 500 million increase year-over-year. And lastly, corporate items and eliminations, EBIT is plus JPY 35.5 billion year-on-year. Hitachi Kokusai Electric gained by selling Hitachi Kokusai Electric stock that was 32 billion.
Automotive Systems and the High Functional Materials & Components. These products segment revenues were down year-over-year, but Information & Telecommunication Systems and Social Infrastructure & Industrial Systems, profitability continue improving and the Construction Machinery demand is strong. So overall, we were able to achieve higher profit.
Next, 1-10 is topics. First is the progress of Lumada business. Lumada business first quarter revenues was JPY 223 billion, and this was 9% increase year-over-year. In Lumada core business, Lumada core business increased.
In the Information & Telecommunication Systems segment and the Social Infrastructure Industrial Systems, with the growth there, we were able to see 47% increase, and we will expand this further.
The first quarter trends are as follows: In the industrial area, we are expanding the Lumada solution core in industrial business field. There are 2 examples listed here. One is the utilization of the high-efficiency production model. We established this in Omika Works in 2016 and have been providing it as Lumada solution core since last year. High-efficiency production model. We started a collaborative creation with AMADA, a company manufacturing sheet metal processing machines to optimize the value chain, and we are also developing our maintenance and repairing service using AI. We are developing the service platform to automatically propose optimal repairs for industrial machinery. We are conducting a demonstrative test at U.S. subsidiary, Sullair, aiming to develop as a solution core and then provide this to our clients as well going forward.
We also started strengthening IoT communication platform to create new values such as remote monitoring. KDDI's global communication platform and Lumada are now collaborating and as part 1, we are conducting trial implementation of KDDI's global communication platform to industrial inkjet printers manufactured by Hitachi industrial equipment systems. So industrial business field and remote monitoring, in these areas, we will continue offering value-added services.
Next page, global business expansion. Two examples here. One is the reinforcement of cloud business. Hitachi Vantara announced the acquisition of U.S. company called REAN Cloud, and this was signed in June, and we will complete this acquisition by December this year. Cloud service and migration service are provided by this company. It's a public cloud service provider. AWS, Azure certified and Big Data analysis, IoT, machine learnings are utilized in their solutions. By acquiring this company, we are able to add public cloud to our private cloud and hybrid cloud and offer a broad base cloud service going forward. Next, our expansion of IT solutions business in Europe. Hitachi Solutions Europe acquired Implexis, a German company, and the acquisition was completed on July 2. [ LS Dynamics ] business will be reinforced with this acquisition. Both cases are smaller scale. REAN Cloud sales revenue is around JPY 5 billion a year, and Implexis around JPY 3 billion to JPY 4 billion a year. So the size is not large, but the cloud service and solution business, they serve as the important component and they will complement our business. And they will contribute to the growth of Lumada business going forward.
Lumada business and Social Innovation Business, global front capability and delivery capability measures will continue going forward.
Next is progress of important projects, 2 case examples here. One is the deconsolidation of Hitachi Kokusai Electric. This is completed. And the Horizon Project in the U.K. -- and this is the nuclear project. From the U.K. government, they announced on June 5 that we will start the formal negotiation. This final -- this investment decision -- discussion will continue. And Slide 2-1, which is the outlook for the full year, and first quarter was strong. But in terms of the forecast for the full year will remain unchanged. In terms of segment, we have not changed the previous forecast. Second quarter, foreign exchange assumption is JPY 105 for the yen -- for the dollar and JPY 130 for the euro. This will remain unchanged, and that is all in terms of my explanation.
We would now like to go into the Q&A session. May you please state your name and affiliation and wait for the microphone to be brought to you. The floor is now open for questions.
Now first quarter, results have been explained. The actual has remained very strong. Compared to the internal plan, how did it compare for the first quarter? And Page 9, [ indiscernible ], you have talked about the segments and details were presented. But what was -- how did it compare against the plan?
Now compared to plan, the quarter-by-quarter comparison is difficult to do because there are projects and percentage of completion basis and must be considered, cost incurred and timing will differ from transaction to transaction. And therefore, it is difficult to have a clear-cut comparison in that regard. But in terms of macroeconomic basis, revenues was better than the plan by JPY 30 billion of [ ordinary ] income and better by JPY 5 billion. Deterioration against plan was seen in the Automotive Systems around JPY 3 billion deterioration, was the actual. But other than that, it's JPY 8 billion. So total is JPY 5 billion on a net basis. Improvement was made against plan for Information & Telecommunication Systems, Social Infrastructure and Industrial System as well as Construction Machinery.
If possible, please talk about the domestic nuclear power plant. There seems to be a decline. What is the outlook going forward? Also, talk about the update on the Horizon Project as well, please?
Regarding the Horizon Project will not have impact on revenues or profit here. But the project-related expenses remains unchanged on a monthly basis. And in terms of Horizon Project, there is nothing having a significant impact on the P&L. Last fiscal year, project that existed disappeared for this fiscal year. So overall, it is proceeding according to plan.
Horizon will depend on the discussions with the U.K. government. Compared to the past, it seems that you are going to make your decision based on the price. But in terms of Horizon Project in the mid- to long term, what is your current strategy? Please update us on the Horizon Project.
Now in terms of the Horizon Project, we are in discussions with the U.K. government. The -- it has been announced that we will go into formal discussions. So the discussions are underway today. Our stance remains unchanged. We will have to make a decision on whether we will proceed with the project. We need to come up with the decision. However, I cannot give you details. But as we have mentioned in the past, we have to make sure that the requirements are met. There are many factors to be considered, and we shall evaluate them in detail. But regarding the progress made and discussions to date cannot be divulged. Any other question?
I have 2 questions. First is Information & Telecommunication Systems. So this was an upside from your internal target. Now adjusted operating income, positive factor is the improvement in the system integration profitability in Japan and IT platform. Could you elaborate on this, which part improved in particular? And is this a one-off or is this something that is more continuous on a full year basis? That's my first question.
System integration project management, we have a -- making effort to do a thorough project management to avoid cost increase. So big loss-making or project cost deterioration that deviates from the plan were avoided, and we've been making this effort. Our effort for project management has been seeing -- bearing fruit. And that is leading to this improved profitability in our SI business. In platform and products, we've done drastic structural reform. And this positive impact is continuing. Thank you very much.
So platform, the flash storage, it's not just this area but you're seeing a strength overall?
IT Platform & Products. A big factor is the domestic system integration profitability improvement. IT Platform & Products, we've done a structural reform and starting to see positive impact from that too.
My second question is about Horizon Project. So I have 3 small questions. The detailed negotiation cannot be disclosed, and I understand that, but our concern is as you see in the media coverage, and Japanese government, and U.K. government, and Hitachi will be the main party, and we are -- have still some concerns. Is the negotiation with the private sector companies underway? Is it progressing, and are there any negotiations with the potential participation from other companies? And in 2019, you will make the final investment decision. So I want to confirm the schedule again. And third point, if, for some reason, this project is canceled or discontinued, the withdrawal cost, what will the withdrawal cost look like?
Regarding Horizon Project, the important business continuity decision has not changed. So this will be based on Hitachi's -- the model of taking this off balance. So that's one big factor. And second, the return, the optimal or appropriate return as the private sector company. And the investments scope that is acceptable for us. So these 3 are the points that we have raised from the past. We will see from these perspectives, 3 perspectives and judge the -- make our decision. Now how much impact will there be? If we stop today, hypothetically, it will be JPY 270 billion Horizon-related asset. So that is the level of asset we have, but this is only hypothetical. So our first priority is to have this negotiation and conduct the work necessary for the decision. And the timing will be 2019, fiscal year 2019. So we will make a decision by then.
So make your decision in fiscal year 2019?
Yes.
I have many questions. Actually, I have 4. First of all, regarding the trade war implications for automobile and foreign exchange as well as Sullair and others could be impacted. I'm sure you are conducting simulations. What reasons will lead to impact? Can you extract the factors you are contemplating? The second question is regarding the Automotive System business. For 2 years, profit has been declining. The first quarter is also, profit declined. Revenues is flat. This is the same for Mitsubishi as well. So what is occurring in this area? And the next one is regarding South Africa. [ JPY 770 billion ] invoice has been presented. What is the progress made so far? Fourth, the point is regarding nuclear power, in the beginning of June, MHI Miyanaga, President said PWR and BWR are different, but he said that consultation is difficult in Japan because of the difference. MHI and Hitachi, is there a possibility -- and Toshiba, is there a possibility of a partnership? Can you talk about this possibility?
First of all, regarding the question on trade war. Direct impact will be in the area of tariff. It is being receiving much attention. The additional tariff from the United States and retaliatory action by China, the direct impact from these are limited, because in China, we have a company established and exporting to U.S., and there's also U.S. produced product for export into China. But the scale thereof is not large. U.S. entity procuring from China in terms of materials. Even if we include this scope, I don't think that the impact will be large because we are promoting local production for local consumption, so direct impact is limited. However, it could have a negative impact on the overall economy. This is something that is difficult to quantify. At any rate, the direct impact and wide area impact will be avoided through local consumption of local production for local consumption. And we will continue our policy of providing best solutions for our customers. This will remain unchanged. Regarding foreign exchange, this is also difficult to talk about. But for fiscal year 2018, the assumption is JPY 105 to the dollar. So there is a certain hedge in place. The most significant impact on revenues from trade war is dampening the overall economy. That is the most significant. Now for the Automotive Systems. Let me explain what is occurring in this business. North America -- in North America, for our customers, the demand is declining, having an impact on revenue. For the Automotive Systems as well as for Clarion from the -- there is a year-on-year decline, revenue is deteriorating. This is having an impact. On the other hand, productivity improvement is being delayed. From last year, we have started to implement measures to improve productivity. A special team has been established to improve productivity. However, the improvement has not been brought to bear according to plan. These are the major factors behind the Automotive System business. Now regarding the discussions regarding South Africa, we are following the arbitration procedures. Some time has passed since this has transpired. However, I cannot disclose information on these discussion, so I shall refrain from making comments.
What about Eskom? The consolidation of the nuclear power business domestically was also raised is the question.
The nuclear power business cannot -- is not a business that you can enter or exit easily. And inclusive of decommissioning of the nuclear power plants that have been suspended is an area that is very difficult for one company to manage on its own. So working with other partners is one option open to us. However, I shall refrain from making any detailed comments on this.
Now according to the Eskom material, South Africa project is being frontloaded somewhat. Are there any progress made for the projects that you are contemplating? What are the risks?
In terms of progress, it's about 80% to 90%. Overall, there are 12 units -- power generation plant. And in terms of a progress made, in terms of construction is to the level of 80% to 90%. So it is nearing completion. However, more time will be required for completion. This will continue to be discussed in the process of arbitration, so I shall refrain from making detailed comments on this matter. Now I would like to supplement some information as well. U.K., nuclear power plant FID was made. We are considering calendar year of 2019 for FID to be made. So it's within calendar year 2019 that FID will be made.
I have 3 questions. First, overseas sales -- overseas revenue, Information & Telecommunications is 90%. And what is the breakdown? What is the detail here? And on the same page, Asia was weak in Smart Life & Ecofriendly Systems. So if you could elaborate on the reasons, please? That's my first question. Second question is -- very detailed numbers in the Social Infrastructure & Industrial Systems the adjusted operating income and EBIT. Between these 2 as we saw in the newspaper, these 2 are now becoming very close. So foreign exchange impact and others. So are there any large factors in others, so if you could elaborate, please? Third question is in automotive. So you said there is a delay. How much can you recover? What is the timeline for your recovery? So it's -- will you be able to recover based on what you are doing now or could you elaborate?
First question is the overseas revenue. Yes, 90% in information and telecommunications. So information and telecommunications in overseas, one is high-end storage -- a decrease in high-end storage. On year-on-year basis, high-end storage decreased. From mid-range storage that we launched in May will help us recover the scale. And in Hitachi Vantara, they are promoting transformation not just solution, not just storage sales but will also promote solutions. And this will help us improve fixed cost. The reason the revenue declined was the decline in high-end storage. So this hardware side in the Information & Telecommunication System, we have this factor, but the mid-range will be launched, and the overall system solutions will also be a contributing factor. So we think we can recover. Now on the nonoperating items. Yes, nonoperating factors. Roughly speaking, the business reorganization. So this is overall a positive JPY 32.3 billion. So business reorganization profit and loss, that's JPY 37.4 billion-plus and business restructuring, minus JPY 3.8 billion and equity method, JPY 11 billion, and others. And third question, Automotive Systems. Our outlook going forward is as follows: Revenue decline and the delay in the improvement and productivity are still underway, and we think this will continue in the second quarter. Similar trend will continue in the second quarter. However, the gap is large, so we need to scrutinize and see if we can recover in the second half. And on the full year basis, the situation is weak -- weakening. And the electrification and autonomous driving investment and R&D are also promoted aggressively. And that is also generating this gap from last year. So in the second quarter, we will watch again and see how much we've achieved.
Smart Life and eco-friendly. Thailand is decreasing.
Which products? Air conditioner? Sorry, I would like to refrain from that. Thailand refrigerator, washing machine. Japan is hot but Thailand is cool this summer. So sales is down on a year-on-year basis.
I have 3 questions. Now first question is a simple one. Regarding equity method, profitability is low. How is this making a contribution overall? That's my first question. Second question regarding the industry distribution business unit. For the period that ended, orders was increasing by 10% or so, 10% plus year-on-year, but this is not leading to increase in revenues. Why is this the case? Now from orders received to posting sales, is that the issue? Or is there a negative order received having unfavorable impact? With Lumada in terms of Industry & Distribution, the IT business numbers do not -- seem not to be aligned. So please clarify. Then third question is regarding buildings. In the explanation, you said that there is price competition and therefore profit is declining. But looking at revenues, there is an increase. How do -- can you align those numbers for China, the first quarter orders in terms of number of units, as well as in terms of value? Please elaborate further.
Regarding the equity method, the profitability, the overseas subsidiaries are taking out foreign currency denominated loans. And this is having a negative impact on the equity method profitability. Now in terms of the Industry & Distribution, the most significant impact, why there is a nonalignment in terms of the orders and sales is mainly in the area of railway systems because revenues are posted for IEP. That is very significant. And this order was received a significant time ago. And on the other hand, what -- and that was based on a longer delivery. Building is also increasing. So the Industry & Distribution business, Sullair acquisition has been made, so this is likely to have an impact as well. And this is likely to increase. Now in terms of Industry & Distribution business unit. For this business unit, facility business, that was acquired in the past are being narrowed down. On the other hand, a short delivery for the Hitachi industrial equipment. And that is more in alignment for the Hitachi Industrial Equipment Systems. But for plants, there is narrowing down and there is also a lag in terms of posting. Digital solution area, revenues are small. But it's mixed in terms of long delivery and short delivery. So orders received in the previous term, for the industrial products, it is likely that sales will be posted in the second half. Buildings, revenues are increasing, and it is increasing in terms of volumes as well as value, but the unit price of the orders is declining. In terms of structure, the whole industry is similar. The high-story elevators and high-end products are decreasing, and mid-range is our focus. We have reduced cost in some products which is similar for competitors. However, the price, the unit price is declining in this zone. Profit is declining, even the revenues increasing in areas where that is impacted by the high raw material cost as well as steel products. But the most significant impact is the average unit price declining. That is causing the mismatch between the revenues and earnings.
My first question is on the automotive business. Your forecast, there may be a downward revision risk but you made up-front investment. In the next-generation automobile, many companies are making up-front investment. So when the forecast declines, the company's profit, profit margin of those companies providing the next-generation vehicle components, do you think we need to think about the risk of the downward revision or is this just a one-off increase in the up-front investment and you will be able to recover the investment? Second question is Lumada. The first quarter progress does not seem bad. But against your full year forecast, second, third and fourth quarter, if you update, do you expect an upside or do you still think this full year forecast is appropriate? And third question is nuclear. So the total construction cost is JPY 3 trillion, and the power -- purchase price is 1.6x the market level. So who will shoulder the construction cost? And this purchasing price, is this the key point that you need to watch or manage or are there any other important points, please?
First, regarding the up-front investment in automobile components. The trend is, especially in the electrification and the autonomous driving, we are trying to focus in this area and trying to increase the ratio not just conventional but this new area as well. So our investment is increasing. In both electrification and autonomous driving, software and large CapEx is required in both areas. So we think the up-front investment will be heavy in this business. Will we do this all by ourselves? No. We will collaborate if we think we need to. And one example is our collaboration with Honda in motor. So we will collaborate if we think that is appropriate instead of developing everything by ourselves. So we will collaborate if necessary or apply necessary technology. If we try to do everything by ourselves, we will continue -- need to continue making heavy investment for a long time, so we will think carefully. Now the full year plan of Lumada. Our current trend, given the trend, the use cases will not be large-scale in the short period of time, but we are accumulating good use cases at a good pace. As of the end of June, as of the end of first quarter, the number of use cases is 565. So we will demonstrate these with our clients, conduct PoC and provide the solutions to other clients as well. So we are plowing the seeds right now to lay the foundation. And this foundation is being established as we speak. And we think the pace exceeds the full year plan. It's difficult to quantify. But against our full year plan, our first quarter progress was -- our forecast was 20% but the result is 21%. So 1% overachievement. At this pace, Lumada's full year revenue may be slightly higher than our plan. Next, nuclear. The criteria for our decision is for a cost, project cost and the strike price. Those will determine the return on investment. So they are important. Right now, we are scrutinizing the estimated cost, and this is one important factor of strike price. Deciding strike price is one important matter that we are negotiating with the U.K. government. But before that, one more thing we need to decide is we cannot just hold Horizon for 100% forever. So the financial structure needs to be considered. We cannot own utility company for 100% forever. So off-balancing is going to be a very important judgment.
JPY 3 trillion is not the number that we disclosed. One more additional comment about automobile.
The question I wanted to ask you is with the OEMs and the upstream device manufacturers, the power balance between them. Can you exert the capability as much as you think or not and you end up shouldering so much development cost and the price will remain unchanged, and the profit that you enjoy will be smaller? Is there a change in the power balance like that? That was the background to my question. Are there any changes in power balance or you're not worried about that?
I'm always worried about that. Software spec is not decided. Same with IT software, spec is not decided. If we progress without deciding the specification, then in the end, as we experienced in various projects, we may suffer from that. So the way software is structured, the format need to be built thoroughly as we move forward. But unlike parts and components, we utilize our technology and deal with the areas that customers cannot deal with. So we need to have firm commitment and manage these specifications. So in other words, software management, project management and the decision of the spec with our clients are very important.
So we are approaching the time to close the meeting. So I'd like to take our last question before we close.
I have 3 questions. First question is regarding the Horizon Project. I understand that you are negotiating the various conditions. But the 3 conditions, off balance sheet, the strike price as well as financial scheme -- financing scheme. Out of that, in terms of off balance sheet aspect, as you reach the consensus amongst the board members that you will not proceed unless it can be taken off the balance sheet. Now second point is also regarding the Horizon Project. In terms of the asset, when the investment was made in '12, it was [ GBP 670 million ]. But why is it now 27 billion [ GBP 270 billion ]? Now regarding Automotive System. The profitability has been struggling in the past. But now with a new CEO, I understand that the strategy is being formulated today. What will be the policy presented? There was no automotive presentation in the IR Day. When will the strategy be disclosed to us?
Now regarding Horizon making this an equity method entity. I cannot give you details about what we are discussing on the board, but we will not go into construction having 100% stake. That is not the case. And based on this condition, we will consider the financial structure accordingly. Now in terms of the breakdown of asset, we are not providing details. There is a development as well as engineering work underway. The asset in Horizon and also there is a design where conducted in Japan for DTA. This is intangible asset. Inclusive of everything altogether, consolidated asset is 270 billion.
Regarding the U.K. project, if you decide to stop this, will this 270 billion be a loss? Or is it technology that can be reused? So does that mean that that will not be posted as loss?
Well, the hypothetical question which is difficult to answer. But if we were to stop today, it will be impairment of 270 billion. However, will we stop this without using? We may consider a transfer or it could be noncash-based transaction. So there are various options available to us. But it is after all a hypothetical question. But there is a possibility something of that nature can occur. Now regarding the strategy of the automotive system, [indiscernible] is now considering this business in detail. And during the summer, the strategy should be formulated. Unless we have the strategy in place, we will make the information available to you although we don't know how it will be presented. And we did not do this in the IR Day. So [ CEO, Mr. Clark ], is now analyzing the business. so he is in the process of formulating strategy as we speak.
Thank you very much. With this, we'd like to bring this meeting to a close. Thank you very much for your attendance today.