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It is time. So we would now like to start Hitachi, Ltd. outline of consolidated financial results for the third quarter of fiscal 2019. The participants are Senior Vice President and Executive Officer, CFO, Mitsuaki Nishiyama; General Manager of Financial Strategy Division; Tomomi Kato; Executive General Manager of Corporate Brand and Communications division, Yasuo Hirano. So Mr. Nishiyama will explain the financial results.
If you could please take a look at the presentation material comprised of slides. Page 5, Slide 1-2. This is the summary of the consolidated statement of profit or loss, third quarter cumulative. First line, revenues, JPY 3,344.1 billion, (sic) [ JPY 6,344.1 billion ] down 6% year-on-year. Adjusted operating income, JPY 445.6 billion, down by 17% JPY 88.9 billion reduction. EBIT JPY 54.9 billion, reduction by JPY 250 billion. This was because of loss from South Africa project settlement. And net income attributable to Hitachi stockholders, JPY 55.1 billion, a reduction of JPY 27.4 billion down 33%. IT industry was quite robust. There was an increase. Smart Life, Energy, Mobility sectors, these saw a decline; and for listed subsidiaries, saw also a decline in revenue. As a result, adjusted operating income, IT industry structural reform and cost reduction were beneficial for IT which saw an increase. But Energy, Mobility and 4 listed subsidiaries saw a decline in adjusted operating income. Slide 1-3 shows the 5 sectors and listed subsidiaries total. 5 sectors plus others and corporate elimination are all combined. If you could take a look at adjusted operating income, JPY 299.3 billion. That's a decline of JPY 12.8 billion year-on-year. And income ratio 7.5%. This is a record high that's been kept. EBIT is in the red, South Africa project settlement and losses thereof are posted as part of this. Conversely, net income attributable to Hitachi stockholders, JPY 40.6 billion. There was a review of the tax cost and losses from the South Africa project and proceeds from the sale of Hitachi Chemical were one-off special factors. A review of the tax cost and in the fourth quarter, Hitachi Chemical was sold. And inclusive of that, the full year tax burden -- tax rate was reviewed. As a result, it led to JPY 33.8 billion increase in net income. Listed subsidiaries adjusted operating income was JPY 146.2 billion, down JPY 76 billion or 2.3%. EBIT, JPY 78.1 billion, a reduction of JPY 128.7 billion. Hitachi Metals, magnetic material loss was posted as part of this. As a result, net income was JPY 14.4 billion down by JPY 61.2 billion year-on-year. Moving on to the next page, Slide 1-4, which is factors affecting changes in revenues and adjusted operating income. This is a waterfall chart. If you could take a look on the revenues on the left, there was portfolio review impact of that was JPY 168 billion. Automotive systems business was sold, and Hitachi Kokusai Electric was also divested. These are included. And foreign exchange had a negative impact of JPY 128 billion. Excluding these, there was others, JPY 142.8 billion negative impact. Lumada business grew, but other businesses saw a decline in revenue, Hitachi Metal, Hitachi Construction Machinery, Hitachi Chemical saw substantial decline. On the right-hand side, adjusted operating income is given a JPY 5 billion negative impact from reorganization, divestiture. Foreign exchange had a negative impact of JPY 21 billion. Even excluding these, others came to a negative JPY 42.9 billion. Cost reduction on the order of JPY 100 billion was implemented but revenue decline had a severe impact. On top of that, investments for growth, JPY 20 billion was posted, and as a result, JPY 445.6 billion, a 7% decline year-on-year. On the next slide given is the revenue by market or region. Japan, if you could take a look at the year-on-year number on the far right, Japan was 98% of the previous year. And for outside Japan, 90% of the previous year. Excluding reorganization and foreign exchange impact, 100% for Japan; outside Japan, 95%. Asia saw a greater decline. As you can see, China was 90% of the previous year down 10% year-on-year. And ex-China, ASEAN and so forth, 87%. Hitachi Construction Machinery, building systems, automotive systems, Hitachi Metal, these were the businesses that experienced decline in revenue in China. In ASEAN India, Hitachi High-Technologies, Hitachi Metal, Hitachi Chemistry, (sic) [ Chemical ] Hitachi Construction Machinery, these were the entities or units that had a slower business. On the next page given is the summary of consolidated financial position and statements of cash flows. Total assets in the first line, JPY 10,281.3 billion increased by more than JPY 600 billion. That's because of a JPY 220 billion increase due to changes in the accounting system for leasing. Chassis Brakes International, and other M&A brought JPY 360 billion. CCC third line from the bottom, cash conversion cycle was 75.3 days. Compared to March end last fiscal year, there was an increase. By the end of the fiscal year, we should bring this down to 70 or less days. And total Hitachi shareholders' equity ratio, 31.4%. D/E ratio, 0.36x. Now below cash flow statement is given. Cash flow from operating activities, JPY 307.8 billion, year-on-year, an improvement of JPY 105.4 billion, but cash flows from investing activities, because of JR Automation, Chassis Brakes International acquisitions had an impact, therefore, negative JPY 492 billion. There were large outflows and that brought cash -- free cash flow to a negative JPY 184.1 billion. 1-7 gives the numbers by business segment. For the IT sector, storage for overseas markets was sluggish but systems integration business expanded therefore, an increase of 1% in revenue year-on-year and JPY 9 billion increase in operating income. Growth investment. In order to expand the digital business, that was increased. And even absorbing that, an increase in adjusted operating income was posted. And in the Energy sector, year-on-year, there was new regulation that had to be responded to and projects related to new regulation in nuclear energy BU saw a decrease. And there was also a decrease in revenue due to business transfer of power receiving and transforming facilities business for the industry field, and also JPY 11.8 billion reduction year-on-year in adjusted operating income and revenue 90%. 1-8, the next page. At top of the table is the industry sector. Air conditioning systems for Industry saw an increase in sales. As a result of that, operating income improved by JPY 2.1 billion year-on-year. Mobility sector was impacted by foreign exchange, building systems and railway systems, both businesses were impacted by foreign exchange and Railway BU in the U.K. The IP project in 2018 contributed greatly to revenues but this has peaked out. Therefore, revenue was 92% of the previous year in Mobility. In line with that, adjusted operating income in Mobility was down by JPY 3.8 billion. And there was improved profitability in the building systems BU for the operating income, but revenues did suffer nonetheless, 1-9, Smart Life. In automotive systems, divestiture was conducted, that had a major impact, bringing the number to 89% of revenue year-on-year. But adjusted operating income saw an improvement of JPY 16.5 billion. electric appliances, automotive systems, healthcare BU, all 3 BUs benefited from cost reduction and improved profitability. Thus, an increase in adjusted operating income. Hitachi High-Technologies. Semiconductor production business increased, but industrial materials, liquid crystal display exposure decreased, so 96%. As a result, adjusted operating income down by JPY 3.2 billion year-on-year. Next slide, 1-10. First is Hitachi Construction Machinery. Due to the foreign exchange factor and sales decrease in China and India, it was 92% year-over-year revenue. In addition, there was a production suspension or impact by the typhoon damage. The impact by typhoon damage will be recovered in the fourth quarter. We will see a normalization in the fourth quarter. But in China and India, sales decreased and this will still continue to be difficult. As a result, adjusted operating income is down JPY 26.3 billion year-over-year. Hitachi Metals. A decrease in demand for automobile, semiconductor and FA and the impact of business transfer of aluminum wheels business, so 87% revenue year-over-year. And with that the adjusted operating income is down by JPY 30.9 billion. Hitachi Chemical. Decrease in demand for semiconductor and automobile led to 92% revenue year-over-year, and adjusted operating income is down by JPY 10.9 billion. Slide 1-11, please. Others. Adjusted operating income is down JPY 9.7 billion year-over-year. This is the impact of deconsolidation of Hitachi Kokusai Electric. In Corporate Items & Eliminations, this is JPY 19.5 billion down year-over-year. It seems that this has deteriorated from last year, but we have the increase of growth investment from last year and strategic investment and the size-based business tax from the sales of Hitachi Chemicals increased. So this reflects all these factors. And in Corporate Items & Eliminations, EBIT is down JPY 48.4 billion. This is because of the absence of gains from selling Hitachi Kokusai Electric stock recorded in the previous fiscal year. Next page, please, 1-12 topics. This shows the progress of Lumada business. The revenues of Lumada business 3 quarters cumulative is JPY 839 billion. This is 111% year-over-year. IT, industries, Mobility are growing robustly. And the lower half of the page shows some topics. We completed the integration of Hitachi Vantara Corporation and Hitachi Consulting Corporation in January this year. Lumada -- this newly Hitachi Vantara will lead the global expansion of the Lumada business. Next, Omika Works was identified by the World Economic Forum as a lighthouse, an advanced factory for the first time as a Japanese company. This is -- we are recognized for total optimization and sophistication in the entire value chain, utilizing Lumada solutions. Next, we started the proof-of-concept to optimize the portfolio of insurance using CMOS annealing, a new type of computer through a co-creation with Sompo Japan Nipponkoa Insurance and Sompo Risk Management. Next, Page 16, 1-13, business strengthening and financial strategy towards growth. First, the announcement today. We decided to commence a tender offer for shares of Hitachi High-Technologies Corporation. And we completed the acquisition of the robotic system integration business mainly operated by JR Automation Technologies in the U.S. in December 2019 and decided to issue unsecured straight bonds up to JPY 200 billion. And this is to raise funds for M&A investments in fiscal 2020. Next, a structuring reform as already informed. We decided to tender all shares of Hitachi Chemical Company in response to a tender offer to be carried out by Showa Denko. This will start around February 2020. And we decided to transfer the diagnostic imaging-related business to FUJIFILM Corporation and the closing is slated for July 2020. And lastly, regarding -- as we informed in December, the settlement on projects in the Republic of South Africa. We reached a settlement with Mitsubishi Heavy Industries on the projects in South Africa in December. And so JPY 375.9 billion is posted as loss in the third quarter. Next, Slide 2-1. This is the full year outlook for fiscal 2019. Hitachi Construction Machinery deteriorated in the third quarter. And including -- the dip in the fourth quarter is included. So the adjusted operating income is down by JPY 16 billion. Revenue remains unchanged to JPY 8.7 billion -- JPY 8.7 trillion. But adjusted operating income will be revised downward from the previous forecast by JPY 16 billion. However, the net income attributable to Hitachi Limited stakeholders will remain at JPY 170 billion. The tax expense review is included. So this JPY 170 billion remains unchanged. Next, Slide 2-2 shows the 5 sectors and listed subsidiaries. Adjusted operating income, 5 sectors total is JPY 472.5 billion. And the operating income ratio was 8.6%. These 2, ratio and the absolute number is the record high. And the net income attributable to Hitachi Limited stakeholders is JPY 146 billion, and that's 5 sectors total. This is up JPY 5 billion. The interest rate burden is reviewed. Listed subsidiaries total adjusted operating income JPY 196.5 billion. So this is revised downward [ from ] JPY 16 billion. This is because of the revised forecast for Hitachi Construction Machinery. And net income attributable to Hitachi, Ltd. stockholders is down by JPY 5 billion. So on a consolidated basis adjusted operating income goes down by JPY 16 billion. And the net income remains unchanged. Next, Slide 2-3. This is the breakdown. IT is -- revenue was up by JPY 11 billion compared to the previous forecast. In life -- Smart Life, JPY 6 billion down; but automotive systems, China, North America sales decline is expected. It's factored in. However, we can expect on IT that can more than offset that. So as 5-sector total, we can cover, make up for the shortfall. Hitachi Construction Machinery is Slide 2-4. Hitachi Construction Machinery is JPY 16 billion down from the previous forecast. As I said earlier, sales and operating income are expected to go down especially a decline in China. In Hitachi Chemical EBITDA -- EBIT is down by JPY 4 billion. This is because of the posting of impairment loss on fixed assets and advisory fee of a tender offer. So these nonoperating expenses increased. So we adjusted the figures. Corporate items and eliminations. Adjusted operating income down by JPY 5 billion. Hitachi Chemicals, this is size-based taxation from the sales of Hitachi Chemical in the fourth quarter. And in EBIT for corporate items and eliminations, plus JPY 15 billion. This is the structural reform-related costs in each sector, in each BU. The portion that was not quantified is incorporated here. So this is what was realized in each sector. Now South Africa settlement related loss, and Hitachi Chemical gain on sales in the fourth quarter is shown on Page 35, please. As I alluded to earlier, left half is the settlement on South Africa project loss thereof. EBIT impact is JPY 375.9 billion in the third quarter. And on the right side, is sales of Hitachi Chemical sales -- shares. EBIT, JPY 279 billion. This is the expected gain on sales. And cash flow impact for South Africa project settlement JPY 130 billion in the fourth quarter to be cashed out. And Hitachi Chemical sales in March, JPY 422 billion cash-in is expected. That concludes my remarks. Thank you.
Let us move on to questions and answers. Myself will bring a microphone to you if you have questions. Please state your name and affiliation before asking questions. Are there questions? I see a hand in the front.
Thank you for the presentation. These are earnings meeting. I would like to ask 2 questions related to the numbers. Page 19 and onward, you have given us details as to what has changed from the previous forecast. If possible, as usual, up until the third quarter, a parent related and the subsidiaries for both JPY 16 billion of downward revision for subsidiaries you mentioned up until the third quarter. What's been the situation against the plan?
Against the plan, vis-à-vis the plan. In total, JPY 20 billion down in revenue. And in terms of operating income, reduction of JPY 10 billion. So 5 sectors and listed subsidiaries, if we divide between the 2, for 5 sectors increase of revenue by JPY 14 billion, increase of operating income by JPY 5 billion. For listed subsidiaries against the planned decline of JPY 34 billion in revenues and adjusted operating income against the previous plan down JPY 15 billion.
So in terms of the trend, the revision is in line with the overall trend?
Yes. Hitachi Construction Machinery saw a greater deterioration compared to the plan. Other listed subsidiaries are more or less on plan, but Hitachi Construction Machinery compared to the previous forecast has seen a greater deterioration and greater downward revision. And that is why we made adjustments to the full year forecast accordingly.
My second question, regarding IT segment, Page 30 gives the details, the breakdown. This is a simple question, actually. Adjusted operating income increase of JPY 11 billion. So JPY 6 billion in the front business, and others will come from others. Why have you mentioned others? And now if you subtract the Q4 operating income from the number for the full year from the third quarter number, it seems that there is a reduction of 11%. So what affects Q4? I'm sure there are buffers and risk factors. And there must be some declines expected. So for the Q4, it seems that the number is quite a bit of reduction. Why?
The front business, plus JPY 6 billion. Services & platforms has 0 and JPY 11 billion in total, why the gap. We continue with our efforts to reduce fixed cost and costs overall. For the overall IT sector, that is what we continue to do. And we have not been able to identify the tangible effect from that. And therefore, it's reflected in total only. And service & platforms, overseas midrange storage business, in particular, is sluggish in terms of sales. Sales have not yet met the plan. And so that risk is also considered. And so as it turns out, the profitability in the front business appears low because of those risk factors. And so these are the risk factors that are reflected. Our business overall is not expecting a deterioration in the front business. I don't think there are factors negatively affecting that.
For the fourth quarter, just to add to the answer. In the fourth quarter, we're trying to bring revenues earlier than planned and projects as well. So you may think that there is quite a bit of reduction in the fourth quarter, but then you shifted revenue from 4Q to 3Q.
So the gentleman in the center, please.
Thank you for the explanation. I have 3 questions. So growth investment expenses, in the presentation, it's JPY 20 billion for 3 quarters. In the first half it's JPY 13 billion. So on a full year basis, we originally planned for JPY 50 billion. Does this remain unchanged? And JPY 7 billion you used in the third quarter. So what is the breakdown for segment and what is the breakdown for the fourth quarter, please?
Kato would like to give you the breakdown.
When we announced this last time, we said it will increase by JPY 50 billion. This time, we say JPY 45 billion. So it is a slight decline. Roughly speaking, the listed subsidiaries and 5 sectors, half and half. So the decline is split half and half between the 2. Now third and fourth quarter, I don't have the detailed breakdown, but for the year-to-date 3 quarters, JPY 20 billion increase from last year. And majority is for the 5 sectors. Large one is IT, around JPY 9 billion; Industry, life -- Smart Life, JPY 2 billion each; and Mobility, JPY 2.5 billion and group JPY 2.5 billion and the listed subsidiaries, JPY 2 billion. So IT, which is the center of Lumada business is the centerpiece. So JPY 45 billion increase for the full year, and the increase in the breakdown is the same, about half is IT.
So JPY 50 billion is now JPY 45 billion.
Yes, we revised it this time.
Second question, IT order. In the first half, you said the order was up 8%. Now what about third quarter, 3 months? And if you could give a split down for hardware and the front services -- front end services. So first, second and third quarter, looking at your peers. The increase rate is changing. And so I wanted to know if there is any changes in the business sentiment.
IT, for 3 quarters cumulative year-to-date compared to last year, order is 106% year-on-year. And what we always show you is by BU. So finance -- financial is 105%. And social is 122%. So social side is growing strongly.
Now if you could -- you mentioned that the social side business is increasing. Any changes in the economy?
The public services and power are very strong. For 9 months cumulative, I mentioned the numbers. Third quarter order, financials, 106%. So 3 months is 106% and social is 141%. So those 2 are growing very strongly. So we are very busy there, financial and social infrastructure.
Third question, Power Grids business that you are planning to consolidate this year. What is the status of due diligence? How far along are you? If you could share with us anything. And if there is some price adjustment themes, could you hedge it?
We are continuing the negotiation. But I would like to refrain from giving you the details. What we are doing now is the negotiation is progressing steadily and the price competition law, we are promoting a clearance. And this is also progressing steadily on plan. ABB side, the Power Grids business is now being carved out in each country from the headquarter, and this is also progressing steadily according to the information I got. And the latest information is that ABB's financial results briefing for the fourth quarter is on February 5. So if you could check that, please. Now any events coming out of due diligence and our hedging thereof, the details, our anti-monopoly law clearance has not been done. So I would like to refrain from talking about the details of this negotiation.
Any other questions, please? I see a hand in the front.
I have 3 questions. My first question is as follows. If I'm correct, in Industry, I think a EPC is still outstanding. That needs to be settled. And what is the status of that? And how is that factored in, in the forecast at this time? That's my first question.
There is still work to be done, but most of the work is already completed, but then there is some remaining work to be done. The cost that needs to be factored in is already considered and reflected. So will this lead to a major cost increase? We do not expect that to happen.
Just to supplement the answer, as to the work that Hitachi is responsible for, we are to complete it by the end of fiscal year '19.
My second question is about the details, about corporate items and eliminations. Before, in terms of corporate items and eliminations, they usually were close to 0 because of additions and subtractions. But this year it's negative JPY 24 billion-or-so. Why the change? I would like to ask. And for next fiscal year and onward, what would be the idea behind corporate items and eliminations? If you could give me some hints or heads up.
Well, we are making investments for growth, more specifically, we're making investments into Lumada, and that is reflected in corporate items and eliminations. And that's the number. That's the biggest factor behind this. And year-on-year, compared to the previous year, business-sized taxes imposed on the divestiture of Hitachi Chemicals. So that's the second factor. Corporate items and eliminations. Well, the group companies are charging a brand-related royalties and revenues from listed companies have gone down. So this is down, but the biggest factor is the strategic investment.
So business size tax, JPY 5 billion. Which is larger, that or the impact from M&A?
We will look into that answer, we will look into that and get back to you.
My third question is as follows. And perhaps I should not ask this in the earnings meeting, but Mr. Nishiyama, he will be retiring as CFO, for now. And as you served as CFO, what achievements have you been able to make [ with just us? ] And considering the financials for Hitachi going forward, what still needs to be done from your perspective going forward?
Well, before answering that question about the collection of brand-related revenue being down -- sorry, the comparison between brand royalties and business tax, the amounts of the 2 are roughly the same, equal to each other. Now to address your question, what achievements have I been able to make, I think I have been able to eliminate major concerns, in particular, risk related to EPC projects. So overseas industry business projects. I have been able to successfully address them. And I don't mean that we posted losses or [ reserves ] for that. But rather I say that because we have been able to make a decision to withdraw from such markets. And another is the decision regarding the Horizon project. And another decision related to the South Africa project. We have been able to make such decisions. And the South Africa project has come to a settlement. So those are some of the achievements. And another aspect is, overall, we have tried hard to improve profitability and project management to be carried out more rigorously. And it was the IT sector which led this effort. Previous 2015 medium-term management plan, we have been doing this. And in the 2018 medium-term management plan, we continued the effort. And as a result of these continuous efforts, we have been able to stabilize our profitability better. And major risks were removed as well and that was a major achievement as well. And this is something that I worked with Kawamura-san who will be my successor. And that is to focus on capital efficiency, so that we can engage in a better dialogue with you to improve ROIC. And for many years, I've been responsible for these earnings meetings, and I have been reprimanded by many of your colleagues. The segments are so confusing, everything is included as part of social. It's confusing, very difficult to understand, you complained. And I think we have been able to reorganize the segments in a manner that is easier to follow today. So reorganization of business segments is another achievement. What is still in progress is in terms of business. We want to be among the global top 5 leaders. And that's what we're aiming at. And we have to lay the foundation for that so that we can aim at a global top leader, HR, financials, IT, procurement. We have to create a global operating model for all these different departments, global shared service to be utilized, AI, big data analytics to be applied to our businesses. We set up projects to achieve all of those, but they're still work in progress. This time, Murayama-san, who's CPO, who's CPO who's to become CTrO; Levent Arabaci is responsible for overseas, looking after all corporate shared services, and projects are already underway for these and these need to be followed through.
Any other questions? Gentleman in the center, please.
I have 3 questions. First is this may be a bit too early, but for fiscal 2020, the way you will issue the guidance is my question. So ABB and automotive are the deals that are currently moving forward. So will you give the image as you go or at the end point when it's concluded? So how will you issue the guidance?
For now, what we decide on will be factored in. But at the time of the guidance, the clearance, anti-monopoly law clearance, we don't know if it's done or not. So it may be difficult to incorporate accurate factors. But even if it's a bit rough, we will incorporate it. And this will also be to update our medium-term management plan, and it may be a rough outlook for the 2020. So that is our current plan.
When you do that, will you incorporate the impact on your balance sheet?
Yes.
My second question is about the integration of the automotive business. So the stock market is now backward-looking for the automotive-related business. Many of them are. So when you meet many investors, the integrated company will take majority. So after the integration and when things settle, will this 65% become 100% or will you carve out again? So is it 0% or 100%? Which direction will you move into? If you have any strategy you could share with us at this point.
The 3 subsidiaries of Honda. We will first complete the integration with the 3 companies. Yes, the automotive-related business is now in a difficult environment. But first, we will focus on reinforcing the business with the current ratio. And rather than talking about further down the road, we want to first focus on improving the cost structure in this difficult environment. So this will be our first priority.
My third, last question is there are many standards, but roughly speaking, what is your view on the macro economy? Right now, it's not that strong. In fiscal 2020, do you think there are elements, factors that will turn this around that are specific to your company or for this industry? Any image that this industry will structurally grow in 2020?
Products-related business and materials-related business will still be difficult in the automotive sector. And semiconductor environment is improving now, even in the material-related business. The business environment seems to be improving. But the automotive-related business, is still far from recovery. And recently, China has the coronavirus. We don't know how long this impact will last. So the macroeconomy in products and materials business will remain difficult. And on that basis, we are formulating our budget. However, Lumada business is now promoted strongly. Our overseas ratio is still low. But in order to reinforce our delivery and formulate the software solution and in order to reinforce the delivery resource, we -- Hitachi Vantara in the U.S. and HCC are now being integrated. We are promoting this kind of transformation. So Lumada business, the number of use cases around 750. So we want to commercialize this solidly. So with that in mind, we are reinforcing our structure in order to expand Lumada in the overseas market. Lumada's CEO, Tokunaga-san, will serve concurrently as the leader of service and platform. And the Social Innovation Business will be rolled out in the overseas market. So to establish that structure, we are taking measures. And for the weak environment, we will improve our cost structure further. So transformation, centering on cost will be led by CTrO and we will reinforce that CTrO function. So this is the changes we are making in the personnel reshufflement this time. So there are macroeconomic changes. But 10% or above profit ratio is being targeted in the medium-term management plan and becoming a global leader. This basic stance has not changed. So we will move towards that target.
Railway and elevators business environment. Elevator China may be difficult, but in railways, I hear that Europe is promising. So what is the business environment now?
Elevators, we are focusing on cost reduction and we will continue this going forward. So sales price is declining. So we need to do -- make up for that. And we are currently keeping the profit level, so we will continue doing that. In railways, the overall demand is strong but the timing of the posting of sales is different. So we don't know how up -- the ups and downs will turn out because there are many projects. But the overall backlog as of the end of December, on a global basis, is now reaching JPY 3 trillion. So given this backlog, in the medium to long term, this railway business will remain robust, strong.
Any other questions, please?
Regarding Hitachi High-Technologies TOB, I have a question of CFO. JPY 530 billion, which is disclosed today, inclusive of that, the total M&A amount is going to be around JPY 800 billion -- or rather JPY 700 billion in total. What you mentioned earlier, overseas deployment of Lumada, inclusive of that, in the IT sector, M&As in the last 3 years budget, they have not been performed. JPY 800 billion worth of M&A, you said. And considering what you've mentioned, I think you will be able to meet the upper limit to JPY 2.5 trillion. So what's the thinking behind that? 5 -- JPY 2 trillion to JPY 2.5 trillion, you said. If it's going to be in excess of JPY 2.5 trillion as part of capital allocation, shareholder return could suffer and return could be reduced. Could that happen?
June 4, Higashihara, in the sector IR meeting, he mentioned this at the beginning. As he said then, in terms of cash allocation, in terms of the use of funds of JPY 4 trillion to JPY 4.5 trillion, that's going to be the amount. Of that amount JPY 2 trillion to JPY 2.5 trillion will be spent on M&A and the rest on CapEx and shareholder return. CapEx and shareholder return will be around JPY 1.8 trillion. That structure remains unchanged, that breakdown remains unchanged. And in terms of what to spend on or the sources of funding, JPY 4.5 trillion. The sources for that will be operating cash flow, JPY 2.5 trillion. And sales on assets and borrowings, JPY 1.5 trillion to JPY 2 trillion. That breakdown has remained unchanged as well. So the sales, divestitures and acquisitions that we have performed -- we will perform, will be in line with this thinking. So because of the investments we are making, are we reducing shareholder return. We do not believe so. That's not going to happen.
Any other questions? The gentleman sitting next.
I have 2 main questions. First, you alluded to this earlier, the impact of coronavirus, especially in building business, it's about half and it seems like the [ client ] operation is not that easy. So how have you incorporated this? Have you revised your forecast? In not just building, but also in other businesses, including your China business, if you could put things in perspective on the impact? That's my first question.
The impact of coronavirus, the magnitude, it's difficult to quantify at this point. The infection may expand further. And if the supply chain is cut then it will have an impact. We are concerned about this impact but we cannot quantify or incorporate this in our forecast yet. In fiscal 2019, the financial forecast may face some fluctuation. But we are accumulating the short-term delivery and cost reduction and trying to accelerate the impact or the result, fruit of that, so that we can finish our forecast for this fiscal year. In the mid to long term, Lumada business structure is reinforced around the world. So with that, we want to be resilient to the environmental changes, have a robust profit structure. So far, our China operation, where it's directly related to coronavirus, in Wuhan, we have 700 employees, elevator, escalator, repair, maintenance and installation business and automotive components, factories, mainly. So in Wuhan and in other provinces in China, we have many Chinese employees. And many plants in operation. And there are sites which is in the scope of the extension of the Chinese New Year. So we want to know how the impact will be after the holiday, lunar holiday.
Omron does not have an operation in Wuhan, but Shenzhen, Dalian and Shanghai, the authority is changing their stance very rapidly. So it's not a voluntary decision, but they're asking to stop the operation. Is that where you are? Or according to them, Omron and other companies are saying the workers not coming back even if the plant operation is resumed. So do you have any other information?
Wuhan is now a blocked area. Other main operation sites are in Guangdong, we have the elevator plant. And automotive parts is in Suzhou. And the Construction Machinery is in Anhui and [ ATM, ] Shenzhen, Guangdong. And materials, Hitachi Metals has Suzhou plant and Guangdong -- Dongguan. And semiconductor Hitachi Chemicals has Suzhou plant and Dongguan. So those are the main plants. For China, overall, we extended to February 3, and in some other provinces, the extension for the Chinese new year is extended to September 9. And in Hubei province, it is extended to the 13th of February. And the regions that are saying Shanghai, Chongqing and Fujian and Anhui, Shandong, Hunan, Beijing, those are saying up to 9th of September -- 9th of February. So after this Chinese New Year holiday we don't know if there will be further extension or a normal resumption of operations. There were employees who are coming from other regions to our plants. So we need to watch the information closely and take appropriate measures. Beijing City is just the construction side of the business.
This is not related to the financial results, but Mr. Nishiyama will move to Hitachi Metals. So according to my understanding, Mr. Nishiyama, you are the professional in finance. But I don't know if this will be done eventually, but I think you need to first organize. What is your thoughts that you have in mind? So you mentioned -- first, you mentioned that when we acquired Sullair first, that was disorganized. This time, I don't want it to be a disorganized business.
Yes, my profession is finance, but I do everything in my job. Hitachi Metal was a merger of Hitachi Cable and Hitachi Chemicals. First, Hitachi Chemical -- I was the CFO of Hitachi Cable. And after the Metal and Cable merged, I was the head of the Cable business in Hitachi Metal. So using that experience, the environment is now very difficult. There are 4 businesses. All 4 businesses are facing difficulty. And the automotive ratio direct and indirect is 50%. So the environment is difficult. And as you mentioned, the financial results, yes, it is rather disorganized. So President Sato is now starting the management reform. We need to accelerate this to recover our financial results, reinforce our management base and think of the next strategic initiative. But our emergent -- urgent initiative is recovering our financial results. So I wanted to collaborate with President Sato to realize that.
In your case, this often happens. You come to Limited and then come back to the subsidiary and recover the business. So I hope you could organize and recover Hitachi Metals and come back to Limited again.
Any other questions? If not, we would like to bring the earnings meeting to a close. Thank you for your attendance.
Thank you. [Statements in English on this transcript were spoken by an interpreter present on the live call.]