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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 Hitachi Ltd. Web Conference on Fiscal Year 2022 Second Quarter Earnings. Thank you very much for attending this conference despite your busy schedules.
I would like to talk about the materials. Please refer to the IR side of Hitachi, Ltd. website.
I would like to introduce the speakers to you. Yoshihiko Kawamura, Executive Vice President and Executive Officer, CFO; Tomomi Kato, Vice President and Executive Officer, Deputy CFO; Masao Yoshikawa, Executive General Manager of the Investor Relations Division. CFO Kawamura will explain the highlight of the results. Please refer to the screen.
Mr. Kawamura, please?
Thank you very much, everyone. Thank you very much for attending this meeting despite your busy schedules today. I would like to give you the result of the first half of fiscal year 2022 inclusive of the Q2. And also talk about the forecast for the full year. These are the key messages. And also, I will be talking about the first half results fiscal 2022 forecast and appendix. Please now refer to Page 3, which are the key messages. So number 1 to number 4 are the key messages. First of all, number one, the first half of fiscal year '22, consolidated total revenues was JPY 5,416.7 billion, which is an increase of 12% year-on-year. Adjusted EBITDA was JPY 393 billion, a year-on-year increase of JPY 20.6 billion. Net income for the first half was JPY 172.5 billion. On a year-on-year basis, increase -- a decline of JPY 149.9 billion. The reasons are shown below. Now as we have already mentioned in the past, we have shifted to the risk-sharing corporate pension plan. JPY 50 billion has been incurred as an impact. Also WACC increase has occurred, which stands for the weighted average cost of capital has been impacted. Because of the interest rate rise, WACC has increased. And as a result, goodwill impairment loss of the Hitachi Energy has been impacted to the tune of JPY 38.3 billion. And the gains of the selling of overseas home appliance business has been subject to reaction in decline, and that is the reason why we have the decline of JPY 149.9 billion.
Let's look at the orders next. Digital Systems & Services as well as Green Energy & Mobility had firm orders, as mentioned here. Orders in Digital Systems & Services remained firm due to strong DX demand. In Q2, orders was JPY 582.8 billion year-on-year, increase of 17%. Hitachi Energy orders continued to show solid growth. Green Energy investments are being implemented on a worldwide basis. And currently, we have JPY 2.5 trillion of order backlog. Hitachi Energy had sales of JPY 1 trillion. So we have 2 years worth of order backlog for this entity. On the part of the Hitachi Energy, further discussions will take based on Page 7. Germany, Canada and in the United States venture projects have been won for Hitachi Energy. Third key point is the implementing of portfolio reforms, as mentioned here, selling a part of the Hitachi Construction Machinery of 25%. And with Hitoshi and the group, we have been able to sell this. And therefore, it will become an equity method appealing it for us going forward. Tender offer for Hitachi Metals has been completed in October 25. And tender offer for Hitachi Transport System will commence today. Hitachi Energy was 20% held by ABB. But from December of this year, it will become 100% [indiscernible] for us. And therefore, we are making steadfast improvements in terms of portfolio forms. Now let's look at #4, which is the forecast for fiscal 2022. Revised upward in terms of revenues of JPY 10.4 trillion increase from 6% from the previous forecast. Adjusted EBITDA is JPY 877 billion, increased by JPY 32 billion from the previous forecast of free cash flows. This is the most important KPI for the mid-term management plan, and forecast is JPY 250 billion, which is an increase of JPY 50 billion from the previous forecast. Net income is expected to achieve a record high of JPY 600 billion. This remains intact. Now let me talk about the details with the following pages. Please refer to Page 4. This is a review of the macroeconomic outlook. The upper table is showing the Hitachi forecast as of September. Global and the current in -- globally, the -- you might be surprised, euro was 2.7%, and now it's 3% here. And other reasons have declined as well. But in the recent past, the European outlook has deteriorated. That is reflecting 3.0. The European Central Bank has decided to rate hike. Therefore, the business sentiment is declining. But for the time being, these are the assumptions for September. China is also declining. Therefore, the macroeconomic outlook looks unfavorable globally.
And the qualitative matters are shown on the right-hand side -- or below. There are positive factors such as DX demand increasing and Green investment increasing. EV system demand is increasing. And more recently, infrastructure investment and economic measures are underway. In Japan, investment in building a national resilience is usually in the power network. And in the United States, Infrastructure Investment Act, CHIPS and Science Act, Inflation Reduction Act. And in China, policy to promote the infrastructure construction for economic growth. These are positive factors, but there are negative factors that are greater than the positive factor on the right-hand side. For example, the Ukraine issue; and soaring resource and food prices; inflation is expanding globally; ECB rate hike; and Germany and the European economic deterioration; U.S. FRB rate hikes that is taking place; a Chinese zero COVID policy restricting mobility; and the real estate market deterioration; and continued price hikes for material and logistics costs. Semiconductors shortage is having a significant impact for our business. Negative factors outweighing the positive factors. Page 5, please. This is looking at the business environment in more detail. Horizontal axis shows the semiconductor shortage, soaring material prices and transportation costs. Electricity price is shown here. Electricity prices causing issue in Japan. It is considered to be the highest in Japan. This is a real problem. And there is also the situation in Ukraine and Russia. [ Vertical ] shows our business. Digital Systems & Services, Green Energy & Mobility, Connective Industries as well as Hitachi Astemo. As you can see, the most significant impact is Astemo. Impact is significant in the semiconductor shortage. In particular in copper, it's also being impacted as well. Electricity prices is having an impact. There has been a significant negative impact for Hitachi Astemo. But for a situation in Ukraine and Russia, in the beginning, we were very concerned but it seems that the impact is very limited so far. There is no decremental damage for the company from the situation in Ukraine and Russia. Please look at the next page. This is the second quarter. The first half will be shown later, but this is for the different sector business highlights. At the very top is Digital Systems & Services. In the second quarter, JPY 594.5 billion, and adjusted EBITDA was JPY 68.1 billion. Our ratio was 111%. Y-o-Y basis should be referred to. And adjusted EBIT -- for the second half -- for the first half, I will give you a different explanation. But if you look at the second quarter, this is the result for the Digital Systems & Services for Green Energy & Mobility. The revenues was JPY 559.1 billion, adjusted EBITDA was 27.3% and the ratio was 4.9%. To the right, Y-o-Y, 118%, plus JPY 7.2 billion increase in revenues and earnings. Below Hitachi Energy should be referred to and -- JPY 328 billion and 19.6%, and you -- and 129% in terms of year-on-year. This is very similar to the first half, which is also 6%. So if you go to Page 21, the full year forecast will be provided. And this will increase to 8% -- recovered to 8% for the full year. Connective Industries is next. JPY 756.9 billion; adjusted EBITDA, JPY 88.1 million; and [ 11.6% ] is the ratio. And year-on-year basis, increase of 130% as well. Hitachi High-Tech is doing very well, 175 -- JPY 179.5 billion for the Hitachi High-Tech. And the ratio is increasing to 16.9% at JPY 30.3 billion. Astemo is JPY 495.8 billion, JPY 16.5 billion and the ratio is 3.3% increase in revenues as well as earnings. But the full year forecast will look significantly different. Consolidated [ total ], JPY 2,046.9 billion, adjusted EBITDA to 38.1% at 8.4%. So that's it for the second quarter. Please refer to Page 7. This is only for the second quarter. Looking at the orders results highlight is shown here. Y-o-Y should be referred to, and comparing the second quarter as well as the first half. Looking at the Digital System & Services. For the second quarter, 117%. For the first half, 114%. Therefore, orders are proceeding very strongly.
And specific deals are shown on the right-hand side. Hitachi Energy Y-o-Y, 207%. And the first half, 205%. As I mentioned at the outset, as mentioned here, the [indiscernible] HVDC link for Germany and Quebec coming to LaGuardia airport of New York. These 2 projects that have been won and making significant contribution building system, 106% and 112%; High-Tech, 81% and 92%. It looks like a decline. But last year, orders was very significant and Semiconductor was in shortage. So we could not fully deliver. Last year's orders increased, and this is a reactionary decline. As a result of that, the industrial digital is 103%, 104%. Orders are very strong in both areas. Please refer to Page 8. Lumada business is explained on this page. Bar graph at the top left-hand side is the first half comparing last year and this year. And 13% is shown here. This is adjusted EBITDA ratio, 13% is shown here. And the revenue is JPY 879 billion. And there are 4 categories, and the breakdown is shown below. From the light color, Industrial Engineering, System Integration, Connected Products and Managed Services, respectively. Right-hand side, it should now be referred from last year to this in terms of revenues. Last year was JPY 1.393 trillion, and the forecast for this year is JPY 1.9 trillion. The ratio is increase of 36%. And within the bar, the second from the bottom above the gray, JPY 660 billion is noteworthy, increasing by 60%. A very significant increase is shown here. Details are shown below for global Logic belonging to distal engineering. They have made a significant contribution. Please refer to the topics. GlobalLogic is contributing to many areas driving the growth of the Lumada business. So, so far, I have talked about the second quarter. Next page, I went from Page 9. I would like to talk about the first half. For the second quarter, more detailed information is provided from Page 28. So here on when I'm going to be focus on the first half results. So please refer to Page 10. This is the highlight for the first half. Left-hand side is the revenue increase of 12% has been achieved. And looking at the bar graph below, the dark gray is the 3 sectors and Astemo. And the light gray on the other hand is listed subsidiaries. You can see both have increased revenues. The right-hand side is the adjusted EBITDA. And this has also increased as, one, the breakdown is [ assuming ] as for the revenues. On the right-hand side, the individual items are provided here. Overseas revenues was -- increased by 20% year-on-year. Lumada business is JPY 879 billion, increased by 54%. And net income, JPY 172.5 billion. This is a decline of JPY 149 billion. This is because of the pension plan that have shifted as well as the goodwill impairment. EBITDA is also very similar. It is declining JPY 575.4 billion. Cash flow from activities, JPY 233.6 billion, which is increase JPY 72.1 billion. Cash flow is very important, increase by JPY 68.2 billion to JPY 24.6 billion. For interim dividend, increased by JPY 10 from last year at JPY 70 per share. At today's Board meeting, this has been approved. Next page, please. Results by 3 sectors, Astemo and listed subsidiaries are shown here. Looking at the caption above, the 3 sectors had revenues and profit increase, as you can see, being low 111% for 3 sectors and increased by 22.4% for adjusted EBITDA. And for Astemo, it was -- you can see increase in revenues, but a decline by JPY 12.3 billion. This is -- shown on the right-hand side, total consolidated basis is shown on the right-hand side for the first half. Page 12, please. This is the first half results by business segments. The very top is Digital Systems & Services, JPY 1,099.8 billion in terms of revenue, adjusted EBITDA was 117.4% and 10.7% in terms of ratio. And for the -- some of the -- it look so different compared to the second quarter. It is positive in terms of adjusted EBITDA. And front business is minus 6.7%. IT Services was plus 2.1%. And service and platform, plus 2.3%, the business swap. So it looks mixed. And -- but because of one-off factors, we have this result. Looking at the Green Energy & Mobility next, JPY 1,071.5 trillion. EBITDA was [ 45.8 ] on an adjusted basis. And below, Hitachi Energy, JPY 630 billion, JPY 36.9 billion or ratio of 5.9%. As I mentioned, in the first half, it's 5.9%. On a full year basis, it will increase to 8%. Below, railway systems. Adjusted EBITDA is 4.8% ratio. And on Page 21, I'll give you more details. It is going to increase to 6.3% showing recovery. So the second quarter, first half and the full year basis will look very different. Page 13, Connective Industries. So details are given here, JPY 1,427.7 billion, JPY 149.1 billion and 10.4%. This has been a very strong business for us. Looking at the Building System, adjusted EBITDA was 10% ratio. Smart Life and other home appliances China, so lockdown has impacted in terms of the second quarter to 8.9%. High-Tech was 16%. Industrial Digital, 8.1%. Environment is 6.4%. And last year, there was a major order, but there was a reaction decline this year. Industrial product, 8.3%. In a full year basis, it will look different. But this is the result for the first half. So overall, 10.4% is the -- our total ratio. Page 14. Here, let me give you the information regarding our subsidiaries. Astemo revenues was JPY 884 billion. Adjusted EBITDA was JPY 11.8 billion, 1.3% very low. Y-o-Y basis is shown on the right-hand side. Adjusted EBITDA is negative. This is for the first half, but we'll have a strong recovery in the second half. On a full year basis, the situation will be very different. Down below, total is provided to JPY 5,416.7 billion, JPY 393 billion and 7.3%. And year-on-year basis increased by JPY 20.6 billion. This is adjusted EBITDA, so this is the underlying strength of our company for the first half. In that sense, we have achieved increased revenues and earnings. And then the JPY 140 billion in terms of nonoperating basis, this is because of the sales as well as consumer. The home appliance business being sold, reaction in decline as well as the goodwill as well as shift to risk-sharing corporate pension plan has had an impact. Please refer to Page 15. The top revenue and below adjusted EBITDA, from the first half of last fiscal year to the first half of this fiscal year, the flow is shown. Please have a look at revenues at the top. On the far left, the first half revenue, JPY 4.832 trillion. There was impact from acquisition of GlobalLogic. And Hitachi Construction Machinery is divested, there's a negative impact from that. On the other hand, and as I will talk about this later, Yen is cheap. Therefore, this has had an impact of pushing up by revenue, and we arrived at JPY 5.416 trillion. The same with adjusted EBITDA, JPY 372.4 billion. On the left, acquisition of Global Logic divestiture of HC and foreign exchange, JPY 46.5 billion. So revenue and adjusted EBITDA. The impact of ForEx is declining year-after-year. These are the numbers for this year. But as I will elaborate later, the impact of ForEx with our structural reform, we're trying to neutralize that. So ForEx impact is declining. And then we arrive at JPY 393 billion in adjusted EBITDA for this year. Please have a look at the next page, financial position and cash flows briefly. At the top, total assets. On the left, as of end of last fiscal year, in the middle column shown this total assets at the end of September this year and change. You can see that assets have come down, JPY 13.617 trillion. That's because of divestiture of affiliates. And interest-bearing debt in the middle has also come down in association with that. And ratios, please have a look at the bottom, D/E ratio. It has slightly improved. So we have come close to 0.5, which we have been talking about, the ratio 0.51. And core free cash flow, which is the most important KPI, JPY 24.6 billion, an improvement of JPY 68.2 million. Revenue by market, so clockwise, North America, Europe, China, Japan, ASEAN, India, other areas. Now what I would like to look at is, in North America, year-on-year in the first half, well, up 35%. And in the bracket, 15%. As is in the footnote, 15% is the net increase, excluding ForEx impact. As you can see, in North America, a net increase of 15%, there's increase in Europe as well. However, in China, if we -- net ForEx impact negative 9%. And Japan has been flat, no growth in either. And ASEAN, India, 21%; other areas, 20%. So overseas revenues totaled JPY 3.513 trillion, which is 65% of the total. So that is where we are at the end of the first half. Next page, I would like to offer the forecast for the full year. Please have a look at Page 19. So revenue, we are expecting an increase year-on-year. And on the right-hand side, adjusted EBITDA, we're expecting an increase in EBITDA as well. So increase in both revenue and EBITDA. That is what we're expecting for the full year. On the right-hand side, adjusted EBITDA. There's a decline in subsidiaries. That is because of divestiture. On the right-hand side, you can see the profit items. Lumada, as I said, on a full year basis, JPY 1.9 trillion; net income, JPY 600 billion, which remains unchanged. EBITDA, JPY 1.377 trillion. Cash flow from operating activities, JPY 690 billion. That's down by roughly JPY 40 billion or JPY 39.9 billion. Because of divestiture of listed subsidiaries, there's a decline. And core free cash flow, JPY 250 billion; and ROIC, 7.2%. It's down slightly. As a denominator, the capital has increased because of the cheap yen. So with the impact of GPN and impact in profit because of diversion between the two, there's a slight decline, 7.2%.
And ForEx Rate that I've been talking about. In the first half, we have looked at the actual rate. And in the second half, JPY 130 is the rate that we set, and sensitivity is explained below. In the second half, if the rate is JPY 150 to the dollar, then what would be the impact on revenue? Revenue will increase by JPY 170 billion. Adjusted EBITDA increase by JPY 10 billion. Next page, please. These are the details of the full year forecast. Page 20, 3 sectors are semi-listed subsidiaries. On a full year basis, on the left-hand side, three sectors, we'll see both increase in revenue as well as adjusted EBITDA. Astemo as well increase in revenue and adjusted EBITDA. Well, in the first half, Astemo also a decline in income. But Y-o-Y, 103%. Adjusted EBITDA, JPY 29.6 billion. This subsidiaries will be divested to decline. The total on a consolidated basis, JPY 600 billion remains unchanged. Page 21 and onward. This shows the sectors and be used. There are overlaps with the first half, just not increases and decreases. Digital Systems & Services Y-o-Y, 106%. JPY 18.5 billion increase in revenue and income. Adjusted EBITDA ratio will go up to 13.1%; and below upfront, 17%; IT services, 12%; services and platform, 9% plus 9.5%; and Green Energy & Mobility, 113%, JPY 66.6 billion increase in both revenue and income. So 6.9%, JPY 2.310 trillion; Hitachi Energy, JPY 1.31 trillion, 104.98% on a full year basis. There is going to be a recovery. And railway, 6.3%. There will be recovery on a full year basis. Page 22, please, Connective Industries. So this is on a full year basis, JPY 2.84 trillion. Adjusted EBITDA ratio, 10.7%. And going all the way down, Building Systems, 8.9% adjusted EBITDA ratio. Domestic business is somewhat behind, so it's down to 8.9%. But for all the others, so home appliance, 10.2%; High-Tech, 13.3%; Industrial Digital, 11.2%; water and environment, 10.4%; Industrial products, 10.2%. Very, very strong. Page 23, subsidiaries. Astemo at the top. On a full year basis, revenues, JPY 1.85 trillion; adjusted EBITDA, JPY 92 billion. So it's back to 5% adjusted EBITDA ratio. Page 24. Just like the first half, revenue and adjusted EBITDA is shown in trajectory comparing year-on-year. Have a look at revenues. So the number last year and right next to the acquisition of GlobalLogic impact thereof and divestiture of HCM and Hitachi Metals, foreign exchange and then the end result. Adjusted EBITDA below shows the same evolution. So acquisition of GlobalLogic divestiture of HCM and Hitachi Metal, ForEx and others. And there are some other costs, JPY 877 billion is the number for this year. Next, factors affecting changes in net income attributable to the parent. Starting from adjusted EBITDA to net income, the trajectory between the two is shown on the left-hand side, JPY 177 billion and net gain of business reorganization, JPY 297 billion. And you can see structural reform and so forth, HCM, Hitachi Energy and so forth. And business reform, structural reform impairment is shown on the far right, the number remains the same at JPY 600 billion. Page 26. This was requested from before. So on the left-hand side, second quarter only. In the middle, first half. On the right-hand side, full year. How has income evolved? Adjusted EBITDA in the middle, Q2, JPY 238 billion; and H1, JPY 393 billion. On a full year basis, JPY 877 billion. And you can see divestiture as well as structural reform impact, and you will find the total number. And all the other is for reference. Second quarter only numbers are on Page 28, Astemo subsidiaries. Pages 30 and 31, numbers by BU and segment for the second quarter only. I'm sorry for being lengthy, but that concludes my presentation. For now, thank you very much for your attention.
Thank you very much. We'd like to take questions.
[Operator Instructions] We will not show the video on the person asking a question. We will take questions first from the media and then take questions on institutional investors, financial analysts and take questions from the English channel as well. So let's take the questions from the media channel in Japanese first. [indiscernible], please unmute and ask your question.
Question, I hope you can hear me. I have 2 questions. First question is what you mentioned in the beginning. You said that there will be negative impact just becoming more prevalent. The [ dock ] of the negative impact as well. If we go into recession, what is going to be the impact on your business? Furthermore, out of the negative factors, you have been able to nevertheless increase revenues and earnings. How do you evaluate your performance? That's the first question. And second question, just following. In China, the lockdown as well as political risk exist. How do you assess the geopolitical risk, especially in the context of the supply chain. It is likely that similar is likely to occur. How do you assess the risk? And how are you going to respond?
So regarding the macroeconomic outlook going forward will be addressed first. The rate hike peak is not yet reached. In Frankfurt, announcement was made, U.S. is likely to have another rate hike. Therefore, from the end of year to next year, the interest rate will be reaching a peak. And therefore, there is likely an impact for the full year in fiscal year 2023. Macroeconomic will be in a declining period. We don't know if it is going to be in recession, but it's going to be negative. That is likely to continue in fiscal year 2023.
So we are going to have to be very careful in managing our business. This is the prevailing discussion within the management. This is likely to continue. The declining trend is likely to continue throughout the year in fiscal year 2023. And semiconductor shortage is likely to run its course. And for fiscal year '24, hopefully, we hope that the economy will recover. But we still believe that fiscal '23 is going to be very difficult.
Now how do we assess the increase in revenues as well as earnings? We have implemented various measures. That is the reason why we have the increase in revenues and earnings, and the environment is very difficult. But we don't want to praise ourselves to much, but I think we are quite satisfied with the result. As a CFO, I have a positive evaluation. Now regarding geopolitical risk, this is indeed very significant. Astemo, Semiconductor and the PC port of the home appliance, this has been impacted because we are relying on China. Near Shanghai, there were 2 significant lockdowns having an impact in these materials. Very significant opportunity cost was incurred. If this is likely going to occur again, we are going to deal with this with a continuous decline. We will try to find alternative routes in Japan in the short term. In the mid- to long term, we have been engaged in discussions on how to deal with this in the future. China, Taiwan risk will be taken into consideration as U.S. is missing fund sharing for the supply chain. Fund sourcing will be considered. That will be included in our funding process going forward. Specifically, globalization was cheaper than better, procuring at low-cost locations. But the direction is changing now. Price is important, but supply chain stability is important. If not, it could be more important. Therefore, with the allies, is where we should have a basis and also return to Japan. ASEAN could be very promising, but they have strong relations with China. So we can't have everything situation in ASEAN. So domestic as well as low-risk regions, it will be considered. We are now contemplating the overall plan. We have returned some to Japan. This is what we'll have to implement. But general purpose products, we believe that we can still produce in China for the time being. Supply chain will be monitored very carefully. We will have design, and fund sourcing will be important thing for the second half and next year. That's all.
Thank you very much. So let's continue. [ Yamabata-san ], please unmute and ask your questions.
Question, can you hear me?
Yes, I can.
I'm sorry for asking a detailed question, but Digital Systems & Services. In some projects, there were cost overruns happening. Specifically, what kind of projects are they? And what's been the impact from the cost overruns?
So I would like to turn to Kato-san, my colleague for an answer.
Yes. We have a customer, so we cannot really disclose the specifics. But this is a project with new technology applied, a very difficult project. And so timeline was delayed. And because of that, cost overrun has occurred. There are some things have settled, so this is something that is temporary. And since before, we have been focusing on project management. But inclusive of resourcing, we would like to be thorough in containing the cost.
Thank you very much. [ Hayakawa-san ], please unmute and ask your questions.
Question, can you hear me?
Well, your volume -- your voice seems rather small. I'm sorry.
Can you hear me better now?
Yes, we can.
Apologies. So question, in terms of the effect of cheap yen, JPY 440 billion increase in revenue for the first half. Through structural reform, the impact from ForEx is declining. If you could please elaborate on that. On the other hand, there are soaring material prices that continue. So what is the good side and the bad side of the cheap yen, if you could please elaborate.
So Kawamura wishes to answer, and the specific numbers will be followed up on by Kato-san, if necessary.
In the case of Japan, automobile OEM manufacturers, half is still produced here in Japan. And so they can benefit from the cheap yen. But in our case, that's no longer the structure. The kind of operation where products are made in Japan exported overseas. That's not the case anymore for us. Most of our products are manufactured overseas and sold overseas. Sourcing is done mostly overseas. I know 3 country relationships. So in terms of ForEx, I think we're more or less neutral. For the past 10 years, we have been working to achieve that status. With yen appreciation, the reverse impact could happen, but we have been working hard to make the impact from ForEx neutral. Well, this time, well, 60% of our business comes from overseas. So -- and income generated overseas, of course, has to be translated into yen. And so because of cheap yen, the number appears large. But as you said, we source mostly overseas. JPY 4 trillion of sourcing is done in total, not everything is overseas, but a lot. So semiconductor prices, material prices are up. And if we look at the current status, so on a short basis, on a consolidated basis, accounting impact and importation impact, the two are even against each other.
And how is the ForEx rate going to fare? It's related to the interest rate. And ForEx rate is determined by 2 factors economically, what is domestic and overseas interest rate differential.
And the second factor is prices. Prices are up in Japan of late. But compared to other countries, that's so low. In deflationary economy, the currency strengthens. Compared to the U.S. here in Japan, prices are not as up. There is still deflationary pressure that exists in Japan. And the interest rate differential is very large, and yet yen is cheap.
[indiscernible][indiscernible]
Answer, we don't really know what's going to happen with the interest rate policy, but that will impact the Forex rate between the yen and the dollar, and that is something that we need to think about and watch. So impact on the cheap yen and our outlook, that is what I've just explained. If you would like to hear more specific numbers, I would like to turn to Kato-san. Would you like to hear this?
Well, yes, then.
Well, that was good. Thank you.
[ Kaneko-san ], please unmute and ask your question.
question, I hope you can hear me.
Yes.
Now regarding prices, it's a related topic that I'd like to raise. First of all, for this half -- first half, the resource prices is increasing, materials are increasing in terms of price, cost is increasing. Are you able to pass on the price increase? Are you going to continue to do this going forward? For next year, how do you -- what is your take on the prices going forward? BOJ has also given a forecast today. As a private company, how do you view the prices inflation next year? Do you think that it will continue to increase? Or do you think it's going to run its course?
First of all, to your first question. Regarding passing on the impact on the price. This is very important. We are now collecting data on this matter. So with the imports are becoming higher and the supply is very tight, and therefore, procurement cost is increasing. So there are ups and downs, but depending on the product, about 10% to 12% price is increasing in terms of procurement side. And how can we pass on? This increase is being tracked looking at statistics. About half is being passed on. 5% to 6% is being passed on to the customers. And part of half is yet to be done. For the overseas customers, we are able to pass on the price increase, but it's just more difficult domestically in Japan. But in the second half as well as for next year, we will make sure that we provide explanation to the customers. Because of external cost, we hope that this burden can be shared with the customers. We will continue to provide explanation to our customers. So that's the response to the first question. And to your second question regarding the outlook going forward. In terms of purchasing and procurement, there are 3 products that are having a significant impact. First is semiconductor. Second is the steel plates. And third is copper and other metals. For semiconductors, we cannot be rest assured. And around the time last year, we thought that it was going to run its course. But the semiconductors for automotive systems is still very difficult. For high-end smartphones and for AI semiconductors, supply and demand is now stabilizing, but not for them we see. It is recovering somewhat, but it is likely to be difficult for the second half as well as the first half for next year, especially for automotive semiconductors. It isn't as if we can pay more and procure the product, there is -- it's a problem about availability. It's very difficult for Astemo from Texas Instruments and SE Micron products are having a very difficult semiconductor supply policy. So the situation is likely to continue to be difficult. For steel plates as well as aluminum and copper, price is increasing, but there is availability therefore. And so already mentioned, we will try to pass on the increase in cost and procure [indiscernible]. But inflation for nonmetal -- nonferrous metals is being impacted significantly. But the approach is different compared to semiconductors. That is what we are doing.
This is Kato speaking. I would like to give you some more information on the topic. Regarding the impact on the first half, in terms of procurement for materials, cost is increasing first half. JPY 55 billion for the first half. About JPY 60 billion in terms of market basis, but we have been able to negotiate better to JPY 55 billion. So that has been the impact for the first half.
I hope you are satisfied with the response.
What -- next fiscal year, do you think it is going to continue? Or do you think it's going to stabilize next year?
We're having difficulty in hearing you. Can you repeat your question?
Question, for next fiscal year, do you think more than this fiscal year? Or do you think the price is going to increase further? Is that your outlook? Or do you think it's going to run its course and stabilize?
This is a company operation that we have to bear in mind. So we are looking at product by product. And for the steel plates, for example, JFE and Nippon Steel are making investment significantly. And therefore, when there is more availability, price is likely to recover. And for the copper as well as other products supply increase will mean that there will be a stabilization. Therefore, for the second half for steel plates as well as Hitachi Metal materials, metals is likely to the pin. But for semiconductor, we don't know yet, especially for the legacy type of the semiconductors. It is difficult to evaluate. So the like scenario that will continue high. But together, it is going to go one step further. It's not easy to foresee. But based on this outlook, we are making preparations for full fiscal year 2023.
Thank you for the questions. Next, the institutional investors and analysts on the Japanese channel, if you have questions. [Operator Instructions] Ayada-san, please unmute and start your questions.
Can you hear me?
Yes, we can. Thank you.
I would like to ask 2 questions. Question number one, Green Energy & Mobility segment. In the first half, what's been the progress? What is your assessment of the progress made in this segment? You talked about order intake. But in terms of profit and loss, based on the adjusted OP basis, JPY 14.8 billion against JPY 102 billion. So there seems to be a lot of focus in the second half. So is this in line with the plan? And this segment, I think, be it railway or transmission or distribution of electricity has a large business in European operations as energy costs go up, but HR cost goes up. So what is the visibility against JPY 102 billion?
Let me answer. As you rightly pointed out, so Green Energy & Mobility, this centers around European operations, Hitachi Energy's power grid and railway. These are the 2 pillars of our business for this segment. For both, this -- we have to develop infrastructure. Well, I'm the Chairman of Hitachi Energy myself, and I'm closely involved with Railway business. Just to give you the conclusion, the second half will go as planned. This is about infrastructure demand. Funding is solid. And investors are public entities, local authorities, very solid. And so it's not subjected to market volatility, it proceeds as planned, more or less. So for both Hitachi Energy and Railway, I'm sure the numbers that we have put out will be fulfilled on track, in line with the plan.
Kato speaking, let me add some comments. In the second half, this is assessment based on our internal plan. But for Hitachi overall, revenue upside of JPY 100 billion, 2/3 of that come from ForEx and JPY 35 billion, the remainder is organic growth. In terms of profit, JPY 20 billion upside, half of that comes from ForEx. The remainder comes from organic growth. In the first half, upside, mainly from listed subsidiaries. But Green Energy & Mobility segment, there's been organic growth as well as increase in operating income. So basically, it's on plan. That is our assessment.
So let me move on to my second question. Connective Industries segment. In the first half, the second quarter numbers were quite good. So likewise, in the second half, what is the sustainability of your business? Can business be sustained? In the second quarter, I think Hitachi High-Tech performed very well. But order intake was the negative -- declined quite substantially year-on-year, although it was true that the business was good last year. So what is the outlook of order intake? And Building Systems and Smart Life. In the second quarter, it was good. But Building Systems business in China and given consumer demand trend, do you think that profitability can continue to increase into the second half?
Well, thank you for the question. So Kato-san will give you the numbers and comments on Hitachi High-Tech orders.
In the first half, as you pointed out, so analytical solutions, orders -- so we're up Y-o-Y. So for analyzers sequences, they continue to benefit from recovery. So year-on-year increase was seen. Nanotechnology solutions, on the other hand, are semiconductor manufacturing equipment and inspection systems. In FY '21, semiconductor manufacturers have placed long-term orders to us. So of late, there's increase in revenue and income. But in terms of orders compared to last year, it's down. So that is something that is relative compared to last fiscal year.
So what you said toward the end, Smart Life home appliances, as mentioned, the problems in Shanghai. In the second quarter, there was a major recovery. In the first quarter, we were heavily affected by lockdown in Shanghai. Well, in the second quarter, we brought manufacturing back to Japan partly. So recovery was made. So with other factors, we believe that we will be able to be on plan. And we have a JV overseas with [indiscernible] also in the second half. We're not worried.
Kato speaking. I forgot to mention this. Full year outlook for Hitachi Hi-Tech on a full year basis, software analyzer on an annual basis. So there's a recovery trend. So I think on a full year basis, it will be flat. And nanotechnology business, the trend will continue from the first half. So year-on-year, there's likely to be a decline according to our outlook.
Thank you. Next, Yasui-san, please unmute and ask your question.
I have 3 questions. The first question is regarding automated decisions. From the first quarter, there was a significant improvement. Similar to the previous question, good performance is likely to continue in the third quarter and fourth quarter. What is your take on that? That's my first question.
I am also the Chairman of Astemo, so I'm very much involved assessing the numbers and performance. In the third quarter and fourth quarter, we hope that there is going to be a significant improvement. Operating profit, JPY 90 billion is the full year forecast for the first half. We only did the JPY 10 billion. So the remainder will be achieved in the second half according to our plan. But this is based on various assumptions. Semiconductor situation will have an impact. And from the OEM manufacturers, the orders coming in will have an impact as well. These are 2 variables that we have to deal with. And assuming these are fulfilled, we can achieve our numbers. We think this is seeming difficult, not for us to achieve this. There might be an impact, but we have not changed the plan so far. Let me give you some numbers as well. For the first half, Astemo compared to previous year, 170% in terms of revenues increased. And for the second half, 115%. Therefore, we should see a similar growth in terms of revenues. In terms of profit and the -- we have a significant weight on the second half, and there should be increased revenue in the second half. Material cost increase has not been passed on to the price of our product. But in the second half, we hope that we'll be able to offset that. Otherwise, fixed cost reduction is underway as well. Inclusive of this, we hope that profit ratio can be improved for the second half.
Question, JPY 966 billion. So that's about JPY 480 billion if we divide by 2. So the second quarter, business environment will continue. But in terms of passing on the cost increase and cost reduction, you are saying that you are able to turn around this business.
Yes. That is correct.
Question number two, regarding the new target. In 2019, with TEPCO and Chubu and Toshiba, together, you have announced that you're going to discuss the reorganization. What is the progress made in this negotiation regarding nuclear power generation. The government policy is changing. You said that you're not going to do major projects. But has there been any change or progress made?
Answer to your question regarding TEPCO and our suppliers of Toshiba. And for the Higashidori issue, we have been negotiating amongst the parties. There is no significant progress regarding the restart. As mentioned, [indiscernible] unit 2 and beyond that to [indiscernible] #7 are being discussed for restart. Investigation is underway for restart. So we can't do this immediately. We need human resources. And the standards will have to be evaluated once again. So we are in that phase. So it is as restart is going to be made, and we are going to be involved immediately. Human resources as well as regulations and government policy will have an impact as well. And the Chubu Electric Power intention will have an impact as well. So overall, we'll be coordinating and discussing the way forward.
Question three, similar to the previous question. For this year, I can understand that Europe is not a problem. But if there is interest rate increasing and the material cost increasing, foreign exchange having an impact, if that is the case in terms of the power business in the long term, the conditions could change significantly for your business. Are there any problems in terms of contractual terms? And I think our business -- Energy business is very strong for you. But do you think that project will be impacted going forward?
For Hitachi Energy, the Board and the project review meetings are discussing that point. And according to what I've heard, the projects are emerging in Europe in a [indiscernible] manner. There is interesting client, and we are providing our proposal. With the macroeconomic environment, the impact could be held with the interest rate increasing, net present value will have an impact. Therefore, the profitability of the project will be undermined. So it depends on how much we can make a commitment to such a project, interest rate going up. And if it continues to have an increase, then -- if net of clients are interested in terms of request of proposal, we have to think about our criteria for investment as well as allocation of resources. We may have to decline. So the interest rate environment from next year onwards is going to be very important in Europe, especially for Germany. According to recent media report energy issues, it's occurring, and they could go into a negative territory in terms of the economic growth, Europe -- because German economy will have an impact on overall European economy. It's part and parcel. Therefore, the interest rate as well as the Germany economy, the real economy will have to be monitored very carefully. But for the time being, the -- we are receiving request of proposals and -- from our customers. So we will consider how much we can respond to that, depending on the resource allocation as well as the hurdle rate. In terms of investment, comprehensive evaluation will be made.
Thank you for the questions. Ezawa-san, please unmute and ask your questions, please.
Yes. I would like to ask 2 questions. So somewhat detailed questions perhaps. But one question has to do with the digital business. And second has to do with Page 15, factors affecting increase and decrease of the performance. On the digital front, looking at supplementary material, I have this question. So revenue overseas or digital business centers around global [indiscernible], and growth in the U.S. is the major driver behind this business.
Between the first quarter to the second quarter, high growth has been enjoyed, but the growth rate seems to be doing coming down, it appears. So increased revenue in digital business in the U.S., is it correct to understand that the growth rate is coming down for that business? If that is true, then the impact from recession is starting to become manifest in your U.S. business. Is that the case? Or in Lumada or GlobalLogic business areas, there's something happening in those specific areas. So what is the trend in North America with respect to your digital business?
If you could also state your second question as well.
Yes. Page 15, so factors behind the increases and decreases. And on the far right, others, negative JPY 28.1 billion. In the first half, JPY 34 billion. And the second quarter only, it seems that there's going to be some positive number. But in the second quarter, all the other factors are trending positive. Why? If you could please explain the breakdown.
Thank you for the questions. So regarding the digital business in North America, I would like to turn to Yoshikawa-san for an answer.
This is Yoshikawa speaking, let me answer. So as part of GlobalLogic-PMI effort, Hitachi Vantara -- collaboration with Hitachi Vantara and other sectors, that is steadily underway. Synergies are steadily underway. With Hitachi Vantara, with respect to European financial institutions, digital marketing companies in the U.S., [indiscernible] change, GlobalLogic has been acquiring orders from those companies, and they are recognizing revenue from that. On the energy front, Lumada's enterprise asset management. So the direction at the time of acquisition -- well, software to be offered to mining companies and others. Overseas, we're getting orders for that. But synergies as such, have just begun. And as we showed in the medium-term business plan, GlobalLogic, working with Hitachi's other OT and domain expertise, a JPY 50 billion of synergies through M&A, well -- and that just begun. Synergies have just started. But actually, it's already steadily underway. That is something that I would like to note here. And the storage business. In overseas, maintenance services are down. There are some difficulties that we are experiencing. So GlobalLogic business in North America, how can it be best commercialized? We're trying to renew the business and so forth. And if the numbers appear in the way that you have understood, then perhaps that may be partly right.
Well, just to add, [indiscernible] speaking. We can't disclose everything, but DX growth rate is a function of the number of engineers that we have. So globally, DX engineers are in shortage. So against that background, how can we strengthen our DX capability? We are actually discussing various ways of strengthening this. There seems to be a dip. But next year and the year later, we're going to seek recovery. We're planning for that. There are strong demands from our customers. So the question is how many DX engineers can we allocate to those projects? That's the management challenge. And outside of the U.S. as well, we're trying to reinforce our staffing, and we're considering a number of measures for that. For Japan and others, I would like to turn to Kato-san for an explanation.
So waterfall chart on Page 15, Others. So in the first quarter and the second quarter, there's been a great change. And the scale of the business organically grew, and that is why that pushed up revenue and EBITDA to -- so revenue of JPY 200 billion income of JPY 55 billion, that's the difference, and that impact is very large in the Others segment.
Ishino-san, please unmute and ask your question.
I have 2 questions, which is a follow-up question to the previous one regarding Astemo business. For the full year profit, you have outlined your thinking behind it. But in terms of visibility, can you elaborate further? It's about JPY 100 billion has gone down, but you have not revised. But in the recent past, it is stabilizing. But it seems that -- do you have better visibility? Or revenue is increasing, but profit is not following and -- for OEM manufacturers and other manufacturers in this area. But Astemo for the third and fourth quarter, you have not looked of recovering. How can you convince us that can be achieved? Building system, real estate market in China is slowing down for new construction. But considering next year, it would become more difficult. What is your outlook? Please elaborate.
I would like to respond to Astemo and Kato-san will respond to China. For Astemo, if we look at the breakdown, there are 3 profit pillars. One is the automobile, oil, the gasoline engine type of product. And with Honda, there is also the motorbike business. And the third is the EV. And regarding the motorbike, it's accounting for about half of the profitability of Astemo in Southeast Asia. Business is very strong. It is likely to continue in the third quarter and fourth quarter. The problem is the automobile, 4-wheel. And the OEMs are in difficulty. And for October and November, they cannot produce the vehicles. This is going to have an impact on Astemo business, obviously. For EV, electrification are this very small inverter and other areas are being invested in. We hope that this will continue to grow. Several years down the road, electrification, the specification is where Astemo will be the strongest player. So the 4-wheel vehicles will have an impact on the third quarter and fourth quarter recovery of the Astemo business. With Honda and Nissan, we are trying to discuss how can we recover this business in the second half. Regarding the building system, Kato-san, please.
First of all, in the first half, as you have rightly mentioned, in China, for overall, increase in revenues and earnings have been achieved. But on a local basis, there's a decline in revenues and earnings. It is too for new construction, it is declining for renewal and maintenance. This is increase in revenues and earnings, which is very strong. But overall, it's very difficult for the first half. Now for the full year, the trend is similar for China. On end basis, there's increase in revenues. But according to local business, local currency, it is declining. But service business or buildings is very strong. That is the reason why it is pushing up the earnings. Now regarding Astemo, your first question, let me also add the following. Not just limited to Astemo, about inflation as well as geopolitical risk and short of semiconductors are risks that are very prevalent. As you can see on Page 24, the full year forecast is included in the other global business risk, adjusted EBITDA, JPY 10 billion is the buffer that we have included for this purpose. Regarding building, I would like to add the following. The European and U.S. companies are making announcements to performance. Market is quite difficult. However, overall, it's resilient plus offer. If anything, I think we're winning in this difficult environment. So the decline in profit is not inferior compared to competitors. In terms of margins as well, mix is improving. In China, we have established #our 1 position. And now we are able to increase the price. That is not the case for competition. Recently, European company came out with results. And compared to their results, I think we are stronger in terms of pricing capability. Therefore, it is a reduction in revenues. First of all, the foreign exchange. But in terms of profitability, we are strong. Now to a previous question, I talked about the supply chain in China. But I would like to emphasize that China remains a very important business base for us. We have a business of JPY 1 trillion plus. So we will take appropriate measures and make sure that we can generate the current revenues as well as profitability not just because of not being impacted by short-term real estate market decline. We will take appropriate measures in China. So please do not misunderstand our outlook and business for China.
[Operator Instructions] Any questions for those of you on the English channel? There seems to be no hand. We still have some time left, so let's get back to the Japanese channel once again. Members of the press, institutional investors, analysts, anyone on the Japanese channel? [Operator Instructions]
[indiscernible], please unmute and ask your questions.
Can you hear me?
Yes, we can. Thank you.
So question. Because of my technical problem, I was not able to hear part of the questions and answers. So I may be repeating some of the questions already asked. But there are 2 questions that I would like to ask. Kawamura-san said that you have been working to make ForEx impact neutral over time. And when do you think you will be able to completely neutralize the impact of ForEx? And specifically, what kind of measures are you taking or will you take? So that's my first question. And second, in the last earnings announcement, you talked about the discussion you're having to achieve optimal capital structure. So with respect to Hitachi Astemo, what is the status of that discussion?
So thank you very much for the questions. So by what time do you think -- do we think that we can achieve neutrality in terms of ForEx impact? The answer is going to be very difficult. Well, business is ongoing. So investment overseas, investment done here in Japan, sourcing done overseas and so forth, we have to look at all the factors as we look to contain the macroeconomic impact as each business continues to be operated. It's very difficult to say when exactly. But 65% of business now comes from overseas. That has happened over the past decade, and ForEx impact has been diminishing. And so I think it does require 10 years or so to contain the impact of ForEx. And we're increasing local investment overseas, but then trying to procure from Japan more sometimes. And so this is the kind of initiative that would not be complete within 1 to 2 years. It will take 5 years or 10 years perhaps. But we're talking about ForEx.
Well, at the current pace -- well, I cannot definitively say whether the yen will be cheaper. I'm not the currency authority. But then sometimes it could be reversed, and we'll have to be prepared for that. So we need to take a comprehensive view. And this is the game that we need to be in for the next 5 to 10 years. And regarding the capital structure, we're still discussing that. Nothing that we can share with you at this moment, but we're taking into account a variety of factors. Automobile industry is having difficulty. Astemo is facing difficulty, but we have to see recovery in performance. And it also depends on the appetite of the investor community. So from those points of views, we are discussing what to do with Astemo's capital structure. That would be all. So did that answer your questions?
Yes, thank you.
The time has come to bring this meeting to a close. Thank you very much for attending the web conference for the results of fiscal year 2022. [Statements in English on this transcript were spoken by an interpreter present on the live call.]