Hitachi, Ltd. (HTHIY) Q2 2022 Earnings Call Transcript

A – Masao Yoshikawa

[Operator Instructions] 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.

Unidentified Analyst

I hope you can hear me. I have two 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?

Yoshihiko Kawamura

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 two 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 will 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.

Masao Yoshikawa

Thank you very much. So let’s continue. Yamabata-san, please unmute and ask your questions.

Unidentified Analyst

Can you hear me?

Tomomi Kato

Yes, we can.

Unidentified Analyst

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?

Masao Yoshikawa

So I would like to turn to Kato-san, my colleague for an answer.

Tomomi Kato

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.

Masao Yoshikawa

Thank you very much. Hayakawa-san [ph], please unmute and ask your questions.

Unidentified Analyst

Can you hear me?

Masao Yoshikawa

Well, your volume – your voice seems rather small.

Unidentified Analyst

I’m sorry. Can you hear me better now?

Masao Yoshikawa

Yes, we can.

Unidentified Analyst

Apologies. Thank you very much for the presentation. So question, in terms of the effect of cheap yen, ¥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.

Masao Yoshikawa

So Kawamura wishes to answer, and the specific numbers will be followed up on by Kato-san, if necessary.

Yoshihiko Kawamura

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 three 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. ¥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 two 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. And so, 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?

Unidentified Analyst

Well, yes, then.

Tomomi Kato

Well, that was good. Thank you.

Masao Yoshikawa

Kaneko-san, please unmute and ask your question.

Unidentified Analyst

I hope you can hear me.

Masao Yoshikawa

Yes.

Unidentified Analyst

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? Thank you.

Yoshihiko Kawamura

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 three 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 non-metal – non-ferrous metals is being impacted significantly. But the approach is different compared to semiconductors. That is what we are doing.

Tomomi Kato

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, ¥55 billion for the first half. About ¥60 billion in terms of market basis, but we have been able to negotiate better to ¥55 billion. So that has been the impact for the first half.

Masao Yoshikawa

I hope you are satisfied with the response.

Unidentified Analyst

What – next fiscal year, do you think it is going to continue? Or do you think it’s going to stabilize next year?

Yoshihiko Kawamura

We’re having difficulty in hearing you. Can you repeat your question?

Unidentified Analyst

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?

Yoshihiko Kawamura

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.

Masao Yoshikawa

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.

Junya Ayada

Hello. Can you hear me?

Masao Yoshikawa

Yes, we can. Thank you.

Junya Ayada

I would like to ask two 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, ¥14.8 billion against ¥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 ¥102 billion?

Yoshihiko Kawamura

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 two 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.

Tomomi Kato

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 ¥100 billion, two-thirds of that come from ForEx and ¥35 billion, the remainder is organic growth. In terms of profit, ¥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 is been organic growth as well as increase in operating income. So basically, it’s on plan. That is our assessment.

Junya Ayada

Thank you. 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 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?

Masao Yoshikawa

Well, thank you for the question. So, Kato-san will give you the numbers and comments on Hitachi High-Tech orders.

Tomomi Kato

In the first half, as you pointed out, so analytical solutions, orders were 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 is 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.

Yoshihiko Kawamura

Thank you. 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 Arçelik [ph] also in the second half. We are not worried.

Tomomi Kato

Kato speaking. I forgot to mention this. Full year outlook for Hitachi High-Tech, on a full year basis software analyzer on an annual basis. So, there is 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 is likely to be a decline according to our outlook.

Masao Yoshikawa

Thank you. Next, Yasui-san. Please un-mute and ask your question.

Kenji Yasui

I have three 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.

Yoshihiko Kawamura

I am also the Chairman of Astemo. So, I am 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, ¥90 billion is the full year forecast for the first half. We only did the ¥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 two 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 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 will 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.

Kenji Yasui

¥966 billion, so that’s about ¥480 billion if we divide by two. 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?

Yoshihiko Kawamura

Yes. That is correct.

Kenji Yasui

Question number two, regarding the new target. In 2019, with TEPCO and Chubu and Toshiba, together, you have announced that you are 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 are not going to do major projects. But has there been any change or progress made?

Yoshihiko Kawamura

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, Unit 2 and beyond that to number seven 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 said, 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 will be coordinating and discussing the way forward.

Kenji Yasui

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 this power business – the energy business is very strong for you. But do you think that project will be impacted going forward?

Yoshihiko Kawamura

Answer, for Hitachi Energy, the Board and the project review meetings are discussing that point. And according to what I have heard, the projects are emerging in Europe in a certain 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’s 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.

Kenji Yasui

Thank you.

Masao Yoshikawa

Thank you for the questions. Ezawa-san. Please un-mute and ask your questions, please.

Kota Ezawa

Yes. I would like to ask two 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 GlobalLogic 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 dulling, 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 is something happening in those specific areas. So, what is the trend in North America with respect to your digital business?

Masao Yoshikawa

If you could also state your second question as well.

Kota Ezawa

Yes. Page 15, so factors behind the increases and decreases. And on the far right, others, negative ¥28.1 billion. In the first half, ¥34 billion. And the second quarter only, it seems that there is 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.

Tomomi Kato

Thank you for the questions. So, regarding the digital business in North America, I would like to turn to Yoshikawa-san for an answer.

Yoshihiko Kawamura

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] 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 the mining companies and others. Overseas, we are getting orders for that. But synergies as such, have just begun. And as we showed in our medium-term business plan, GlobalLogic, working with Hitachi’s other OT and domain expertise, a ¥58 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 are 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.

Masao Yoshikawa

Well, just to add, Yoshikawa 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 are going to seek recovery. We are 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 are trying to reinforce our staffing, and we are considering a number of measures for that. For Japan and others, I would like to turn to Kato-san for an explanation.

Tomomi Kato

So, waterfall chart on Page 15, others. So, in the first quarter and the second quarter, there has 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 ¥200 billion, income of ¥55 billion, that’s the difference, and that impact is very large in the others segment. Thank you.

Masao Yoshikawa

Ishino-san, please un-mute and ask your question.

Masahiko Ishino

My question, I have two 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 ¥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 quarter 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.

Yoshihiko Kawamura

Answer, I would like to respond to Astemo and Kato-san will respond to China. For Astemo, if we look at the breakdown, there are three 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, four-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 four-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.

Tomomi Kato

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 is 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 is 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 shortage 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, ¥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 are 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 number one position. And now we are able to increase the price. That is not the case for our 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 ¥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.

Masao Yoshikawa

[Operator Instructions] There seems to be no hand. We still have some time left, so let’s get back to the Japanese channel once again. [Operator Instructions] [indiscernible] san, please un-mute and ask your questions.

Unidentified Analyst

Hello. Can you hear me?

Masao Yoshikawa

Yes, we can.

Unidentified Analyst

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 two 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 are having to achieve optimal capital structure. So, with respect to Hitachi Astemo, what is the status of that discussion?

Yoshihiko Kawamura

So, answer, 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 are increasing local investment overseas, but then we are trying to procure from Japan more sometimes. And so this is the kind of initiative that would not be complete within 1 year to 2 years. It will take 5 years or 10 years perhaps. But we are talking about ForEx. Well, at the current pace – well, I cannot definitively say whether the yen will be cheaper. I am not the currency authority. But then sometimes it could be reversed, and we will 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 years to 10 years. And regarding the capital structure, we are still discussing that. Nothing that we can share with you at this moment, but we are taking into account 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?

Unidentified Analyst

Yes. Thank you.

End of Q&A

Masao Yoshikawa

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.