Hitachi (OTC:HTHIY) Limited (TSE: 6501) announced a significant increase in revenues and profitability during its Q1 fiscal year 2024 earnings call. The company reported a 21% revenue growth and a 55% increase in adjusted EBITA, reflecting strong performance in its Three Sectors, particularly in the Digital Systems & Service (DSS) and Green Energy & Mobility (GEM) segments.
Hitachi's net income attributable to stockholders reached JPY175.3 billion, marking a JPY100 billion increase year-on-year. The company also shared optimistic forecasts for the fiscal year, expecting to meet targets with further revenue and profit increases.
Key Takeaways
- Hitachi Limited reported a 21% increase in revenues and a 55% increase in adjusted EBITA in Q1 FY2024.
- Net income attributable to Hitachi stockholders rose by JPY100 billion to JPY175.3 billion.
- The company forecasts continued revenue and profit growth for FY2024.
- Strong performance in the Digital Systems & Service and Green Energy & Mobility segments.
- Strategic partnerships with Microsoft (NASDAQ:MSFT) and Google (NASDAQ:GOOGL) Cloud in Generative AI were highlighted.
- Hitachi Energy's transformer and HVDC orders contributed to a 45% growth in the GEM segment.
Company Outlook
- Hitachi projects an 8% revenue growth and a 15% growth in the GEM segment for FY'24.
- Lumada business is expected to see a 14% revenue increase in FY'24.
- The company anticipates a 16% profit margin for Lumada business and an 11.4% margin for Hitachi Energy.
- Forecast adjustments may occur based on Q2 performance.
Bearish Highlights
- GlobalLogic's revenue growth has not yet returned to pre-pandemic levels.
- Domestic white goods demand is declining, and investment in semiconductor manufacturing equipment is delayed.
- Resource constraints in Japan could impact future performance.
- Major projects in DSS and GEM segments face risks.
Bullish Highlights
- Lumada business grew by 19% due to strong demand for digital transformation.
- Hitachi Energy and Railway Systems BU achieved double-digit growth.
- Hitachi Energy's revenue increased by 49% in Q1, with strong performance in HVDC, transformers, and switchgear.
- The company is passing on inflation in selling prices, expecting profitability improvements.
Misses
- The company's overall growth has not fully recovered to pre-pandemic levels.
- Smart Life & Ecofriendly Systems segment saw a decline.
- No major inquiries received yet for the internalized commercial air conditioning business.
Q&A Highlights
- Hitachi discussed market conditions affecting power grid equipment prices.
- Hitachi iQ, developed with NVIDIA (NASDAQ:NVDA), is expected to boost revenue from storage and software services.
- The company's borrowing strategy is focused on long-term loans, anticipating rising interest rates but not a significant impact on borrowing costs.
- Hitachi is utilizing cash pooling and cash companies to decrease borrowing costs.
- Business portfolio rebalancing is ongoing, with a focus on Lumada core business and areas with a strong presence.
During the earnings call, Hitachi Limited expressed confidence in their ability to navigate market conditions and continue their growth trajectory. The company's strategic focus on digital transformation, green energy, and mobility, along with their partnerships in Generative AI, positions them favorably for the fiscal year ahead. Despite facing some headwinds in certain segments and the broader economy, Hitachi's proactive measures in managing costs and leveraging strategic partnerships underscore their commitment to sustained profitability and shareholder value.
InvestingPro Insights
Hitachi Limited (HTHIY) has demonstrated a robust financial performance in Q1 2024, complemented by a strategic focus on high-growth sectors. To provide further insights, InvestingPro has identified several key metrics and tips that may be relevant for investors considering Hitachi's stock.
InvestingPro Data highlights that Hitachi's market capitalization stands at a solid $97.5 billion, indicating its significant presence in the market. However, the company is trading at a high P/E ratio of 29.83, suggesting that its stock price may be rich relative to near-term earnings growth. Meanwhile, the adjusted P/E ratio for the last twelve months as of Q1 2025 is lower at 19.82, which might reflect a more favorable valuation when considering the company's earnings over the past year.
The revenue for the last twelve months as of Q1 2025 is reported at approximately $59.79 billion, with a noticeable decline in revenue growth of -9.56% during the same period. This contraction in revenue growth may warrant attention from investors, as it could signal challenges in the company's operations or competitive landscape.
Among the InvestingPro Tips, it is noteworthy that Hitachi has raised its dividend for six consecutive years and has maintained dividend payments for 33 consecutive years, underlining the company's commitment to returning value to shareholders. Additionally, Hitachi is a prominent player in the Industrial Conglomerates industry, which may offer diversified revenue streams and resilience in varying economic conditions.
Investors seeking a more comprehensive analysis of Hitachi Limited can find an additional 11 InvestingPro Tips on the InvestingPro platform, providing a deeper dive into the company's financial health and market position. These insights could be crucial for making informed investment decisions in the context of Hitachi's current performance and future prospects.
Full transcript - Hitachi Ltd (HTHIY) Q1 2024:
Operator: It is now time to start the Hitachi Limited Web Conference on Q1 Fiscal Year 2024 Earnings. Thank you very much for attending this conference despite your busy schedules. I would like to first of all, inform you that explanation materials will be available on the Hitachi Limited IR site as well as the News Release site. I will now introduce the speakers for today. Tomomi Kato, Senior Vice President and Executive Officer, CFO; Masao Yoshikawa, Corporate Officer, Executive General Manager, Investor Relations Division; Hiroaki Ono, Deputy General Manager of the Finance Division. Now we will shorten the presentation time from this conference onward. There is no change in the Q&A period. Now I would like to ask Mr. Kato to start the explanation. We will be switching over the screen. Mr. Kato, please.
Tomomi Kato: First of all, I would like to explain to you the contents for today's presentation, the key messages, and Q1 fiscal year 2024 results as well as the forecast and performance by business segment and appendix. Let me explain the key messages. For the first quarter results of 2024, DX and GX market has been captured, driving the growth in revenues as well as profitability improvement in Three Sectors, we have achieved increase in revenues as well as in profit. Cash flow management has led to the free cash flow improvement. So we are off to a very good start in terms of the fiscal year 2024. These are the five KPIs. For the Three Sectors, revenues increased by 21%. Green Energy & Mobility and Digital Systems & Service grew and excluding the foreign exchange impact, grew by 14%. Adjusted EBITA grew in terms of Green as well as Digital increased by 55% year-on-year. Adjusted EBITA margin was 11%, increase by 2.4 points year-on-year. Hitachi consolidated numbers are presented below. Net income attributable to Hitachi Limited stockholders achieved JPY175.3 billion, increased by JPY100 billion year-on-year. For core free cash flow increased by JPY40 billion at JPY70.9 billion. Next, I'd like to talk about the forecast for fiscal year 2024. It is likely that we will achieve the target for '24. GX, DX demand and Generative AI, the new business opportunities will be captured to increase revenues in profit for the Three Sectors. Core free cash flow is at likely to is forecast for JPY1.5 trillion, which is JPY300 billion greater than target mix KPIs. Regarding this revenues, excluding ForEx is 6% increase. Adjusted EBITA increased by 20%. Therefore, growth rate is similar to fiscal year 2023. Adjusted EBITA margin improvement over the previous year 11.5%. Hitachi consolidated numbers represent for net income increased by JPY600 billion. Core free cash flow of JPY480 billion is forecast. From the previous year, there is increase in CapEx leading to a decrease, but exceeding the Mid-Term Management Plan. And in terms of net income, we will aim for 80% as per Mid-Term Management Plan in terms of conversion rate. ROIC adjusted EBITA improvement by 9.5% year-on-year for the forecast. For fiscal year 2024, there is no change for what we have announced previously. The first quarter, the orders are shown here. Digital Systems & Service, DSS segment grew by 20%, especially in domestic energy and public area, a major project as well as storage. Domestic as well as overseas made a contribution. For the GEM segment increased by 10% year-on-year. Railway Systems and Hitachi Energy is subject to a rationally decline, however and also the Nuclear Power Project as a segment increased. And for the -- because of the foreign exchange impact, as well. First quarter major projects has been concluded for JPY4.5 billion European contract for HVDC converter station for wind power generation. GEM sector, Railway System, the GTS of Thales has been acquired in May and the first quarter remains very strong. Next, I'd like to talk about the Connective Industries, CI sector, Smart Life & Ecofriendly System joint venture company, Johnson Controls-Hitachi Air Conditioning has share transfer has been agreed to. The closing is expected for fiscal year 2025. Therefore, there is no impact for the forecast of this year. And at the same time, we have acquired the commercial air conditioning business to expand offering to the data center market. And next I would like to extend the highlight for the first quarter of 2024. In terms of revenues, on a consolidated basis, because of the business reorganization of Astemo of last year, and there was a decrease, but for the Three Sectors increased by 21% excluding foreign exchange income, the increase of 14%, the DX demand, GX demand was very strong. The demand of this business increased as well. And there were projects that have been front-loaded due to the first quarter and a business relating to the new bank [indiscernible] in Japan also was significant. Adjusted EBITA was impacted in terms of operating income because of the business reorganization, Three Sectors increase was also shown. In terms of net income, adjusted EBITA increase as well as foreign exchange has led to increase. Core free cash flow was because of the DSS improvement as well as Hitachi Energy increasing revenues, improvement of working capital has led to increase. And next, I'd like to talk about the adjusted EBITA. The waterfall chart above explained upper is revenues. And I would like to explain from the left to right, because of the stake has been sold, some revenues decreased. But Thales GTS business was acquired. And foreign exchange was -- in terms of foreign exchange weaken has led to higher revenues. Organic growth wasn't changed, especially in GX-related Hitachi Energy as well as GX-related DSS, Front Business and IT Business grew. Lower part is adjusted EBITA. Similar to revenues for others, there was increase by JPY70 billion. Organic revenue increase included scale increase as well as the selling price change. These are positive and this exceeded the negative impact of soaring procurement costs as well as increase in investment. Adjusted EBITA increased. Next, I'd like to talk about the financial position as well as the cash flow. At the top is the asset, as of in the first quarter, JPY13.4 trillion, that is an increase of JPY1.1 trillion from the previous year, especially in terms of the Thales GTS acquisition as well has weaken. Interest-bearing debt increased because of the Thales GTS business increased by JPY400 billion. The ratio increased to 0.26 times. Cash flow, our core free cash flow has been explained. Cash flow from investing activities has increased because of GTS of Thales acquisition. Next, I'd like to talk about the different divisions. Starting with Japan, a 14% increase was achieved. We saw growth in DSS where DX orders was very strong. From business, such as finance, social as well as public increased. In terms of IT service, an 18% increase was achieved. For North America, Three Sectors, 34% increase was achieved. Hitachi Energy's transformer, HVDC was very strong. Green Energy & Mobility or the part of GEM increased by 58%. For DSS, GlobalLogic grew, especially Vantara storage business grew, increased by 90% was achieved. In terms of Europe, then for Three Sectors increased by 31%. Mainly, this is Hitachi Energy. HVDC orders received increase and GEM increased by 45% as a result. Other regions, Three Sector growth was 50%. This is driven by GEM, 57% increase. Hitachi Energy's Middle East project showed progress. And this is also reflecting foreign exchange impact. Overseas business accounted for 64%. Now let me talk about the segment-based orders results. GEM, Hitachi Energy and Railway Systems as well as CI Water & Environment looks lower in terms of growth because of their reaction rate decline from the previous year. Forecast for 2024. Let me give you the highlights, and as explained at the offset before, the KPI of the Mid-Term Management Plan has almost been achieved. I will give you more details later about for DSS and GEM segment, in terms of revenues as well as adjusted EBITA, were revised upward. For Hitachi consolidated basis, we have only finished the first quarter. Therefore, the forecast has not changed. Furthermore, for adjusted EBITA, additional improvement was incorporated as well. In terms of revenues for fiscal '23, Astemo has an impact, leading to a minus 7% for Three Sectors. Excluding foreign exchange was 6% growth adjusted EBITA, because Astemo became equity method affiliate. Nevertheless, we have been able to increase the revenues. This is despite of the absence of JPY120 billion, a non-operating proceeds of Astemo will be coming an equity method affiliate in fiscal year 2023. In summary, Three Sectors are forecasting revenue and profit increase. Lastly, FX assumption from Q2 onward, initial rate of JPY140 to a $1 is kept unchanged. Next, factors affecting year-on-year changes in revenue and adjusted EBITA for FY'24, the upper half revenue decrease from divestiture of Hitachi Astemo, an increase from acquisition of Thales, GTS and FX was a negative factor year-on-year. And in others, increase in Hitachi Energy, GX-related and DX-related service and platform, and in CI segment, Hitachi High-Tech, High-Tech will increase the revenue and adjusted EBITA on the lower half. Similar trend as the revenue. The others will increase by JPY150 billion. Increase in the business scale and selling price change included an organic growth over -- are positive factors. This more than offsets soaring procurement costs and increase in investment and resulting in higher adjusted EBITA year-on-year on a consolidated basis. Next, performance by business segment. First is Digital Systems & Service. Revenue increased by 16% in Q4 and 11% increase excluding FX. Adjusted EBITA margin is 12.4%, which is up in revenue and profit of year-on-year. Revenue in Front Business and IT Services increased. And Service & Platform also increased. GlobalLogic grew by over double-digits, and storage grew in Japan and abroad. I will explain this later. Backed by strong DX demand, Lumada business increased by 19%, drove overall growth. Next, right side, FY'24. This time, we revised upward. In FY'23, excluding FX, the revenue grew by 6%, but in FY'24, we expect 8% revenue growth. Next, Green Energy & Mobility, GEM. For GEM overall, revenue in Q1 increased by 41%, and excluding FX, 28% growth. So sales, revenue and profit grew year-on-year. In revenue, Hitachi Energy and Railway Systems BU, and all segments grew by double-digits and achieved revenue and profit growth. In Hitachi Energy, in addition to equipment growth, including transformers, HVDC, system integration, and maintenance managed service, all these Lumada business also grew. And for FY'24, we revised upward. And for GEM, the revenue is 15% growth, when we expect similar level growth as FY'23. Next, Connective Industries, CI. The revenue grew by 3% in Q1. Adjusted EBITA margin is 11.1%. So both revenue and profit grew. Revenue in Smart Life & Ecofriendly System declined, but all other BUs increased, especially in Water & Environment BU and Industrial Products. Next, FY'24, for CI overall, revenue grew by 33%, excluding FX, 4% growth, which is up from 1% in FY'23. This time, Smart Life & Ecofriendly Systems revenue and profit were revised downward and decline from sales of domestic home appliance business. On the other hand, we expect room for improvement in other BUs and kept full year forecast unchanged. Next, Lumada business. Left side, Q1 revenue will increase by 17% year-on-year. FY'24, revenue grew by 14% and profit margin is 16%. So it will be up by 1% point year-on-year. This remains unchanged from last time. Now this time, quarterly revenue by sector is disclosed from this time. In DSS, DX-related system integration grew and Front Business and IT Service increased and GlobalLogic, Digital Engineering also grew. So total 19% growth. In GEM, Hitachi Energy Managed Service and System Integration grew and Railway Systems Managed Service also grew. So overall growth was 29%. Now as topics, we signed strategic partnership with Microsoft and Google Cloud on Generative AI, and we also jointly developed a Generative AI solution called Hitachi iQ with NVIDIA and started the sales. This Lumada business growth and profitability improvement will contribute to higher revenue and profit of Hitachi overall. That concludes my explanation on first quarter results and FY'24 forecast.
Operator: We will now proceed to the Q&A session. [Operator Instructions] We will first take questions on the Japanese channel and then take questions from the English channel. So we will take questions altogether for the media institutional investors as well as the financial analysts. We will now invite questions on the Japanese channel. [Operator Instructions] Yasui-san, please unmute and state your question.
Kenji Yasui: I have two questions. Regarding Digital, in terms of orders is prevailing very high levels. And you see, Fujitsu have been very strong as well, but it seems that your orders are very strong. Is your share increasing? And what is your relative competitiveness, inclusive of the IT service market today? Power grid orders received was very strong. In terms of regions, it seems that GEM is increasing. But in terms of power grid, Europe, US as well as the Middle East, what is the market trend as well as the orders environment?
Tomomi Kato: Thank you for your question. First of all, regarding DSS, in terms of orders received. In the presentation material, we have given you a breakdown by BU. As we have shown, in terms of the DSS overall, increase by 20% was achieved. For three business units, we have been able to grow across the board. Front Business increased by 24%; IT, 19% increase; Service & Platform increased by 16%. In terms of the Front Business, in particular, in finance as well as social. In terms of finance, there was a major project last year, and there was a decline because of a reactionary decline. But social is very strong. Public system and social system, there have been major orders received. For IT service on the other hand, HISOL and HISYS we have two companies. We have seen growth in both areas. For HISOL, there have been major domestic projects remaining very strong. You've seen an increase for HISYS in the public area, there have been major projects won. Basically, the front office as well as IT service characteristic is that our Lumada business, data utilization to create value has been very strong. In the terms of cloud as well as generative AI have businesses that are increasing. Servicing platform is such that the GlobalLogic has been growing from the past. Now storage has seen growth in this time in domestic as well as overseas, especially with the foreign exchange impact. And cloud has been growing very significantly domestically. But on to your second question, Hitachi Energy. In this area, the trend has been maintained from the past, HVDC major projects, orders have been captured and projects are underway in various regions. As I mentioned earlier, in terms of revenues in North America as well as Europe and the Middle East. In these regions, sales have been achieved. Beyond the HVDC, transformers as well as switchgear have been growing very strongly as well. In terms of transformers, there is projects relating to data centers. We are receiving inquiries in this area. In terms of the trend, the prevailing trend, there is no change in globally all over the world, HVDC major system as well as transformers as well as switchgear equipment are growing.
Kenji Yasui: A follow-up question. In terms of power grid, for quarterly revenues is JPY600 billion, very high. Is that after inventory has been released? So if we multiply this by four, can we get the number for the full year? And I would also like to ask you regarding relative competitiveness in the area of IT.
Tomomi Kato: Regarding power grid, revenues for the first quarter increased by 49%, inclusive of the operating exchange 31% increase has been achieved even on a dollar basis. For fiscal 2023, 20% increase, excluding foreign exchange. So it seems it is one level higher in terms of inventory. The last year, human resources as well as capacity was maximum in terms of manufacturing. Therefore, we were not able to fully respond to the orders from our customers. It isn't as if it has been resolved. But we have made capital expenditures. Therefore, there has been improvement recently. For the first quarter, revenue growth is driven by the relieving of the bottlenecks that existed in the previous year. On the other hand, 30% revenue increase for the quarter is very high. Weather and for the full year, 15% yen basis and excluding foreign exchange is 16%. We have to evaluate the forecast going forward. Now in terms of IT, from the past, we have been making efforts in cloud business, especially for the use of Generative AI, not just open, but also on-premise usage of the cloud is increasing in terms of demand. Hybrid cloud is what we are offering. The combination thereof is the service and response that we've been providing to our customers. This is our strength characteristics. And especially in the area of security, there is a heightened need for better security. We are also making efforts in this area. Centering in this area for DX-related demand is leading to increasing orders. That's all.
Kenji Yasui: Thank you very much.
Operator: Next. The name is not indicated. From NHK, please go ahead.
Unidentified Analyst: Can you hear me?
Tomomi Kato: Yes.
Unidentified Analyst: Thank you very much. Today, BOJ decided on the rate hike. And you have your forecast, your investment strategy or business will be impacted in any way from this BOJ policy change? And how do you see the impact on the Japanese economy overall? Thank you very much.
Tomomi Kato: Thank you for your question. So today, BOJ made an announcement. Regarding the content, we had been anticipating rate hike this year, and that was our understanding. So this was in line with our expectation. Basically, our performance this year, we were based on the assumption that the rate hike will take place this year. And so no impact there. But until now, the interest rate was negative for a long time. And this time, it's being raised. So the interest cost will increase, which will change the WACC and this may change the clients' investment activity. So this may appear in the medium term. So we have to focus and watch that. But basically, we are now going to enter a world with positive interest rate, which is normal environment. So that is our interpretation. Thank you very much.
Unidentified Analyst: Regarding interest rate, FX, could you also touch on FX as well? Thank you very much.
Tomomi Kato: FX, as shown in the slide, the FX sensitivity on revenue and operating profit, adjusted EBITA, with a weaker yen, the amount will increase. And so this will push up our revenue and profit. So revenue is like that. But on the profit side, there are also costs. So profit will not increase like in the same proportion as revenue. So operating profit margin may decline. That's one impact. With weaker yen, the overseas M&A will become more expensive. So weak yen is not 100% better for us. But basically, as we run our company, we want the stable market. Stable market is very important for us. So basically, if Japanese economy becomes stronger and gradually turn to stronger yen, that is a favorable desirable scenario. Thank you very much.
Operator: Next. There is no name indicated. [indiscernible] Investment Management, please.
Unidentified Analyst: I hope you can hear me. I have three questions. Regarding Lumada business, the profitability there of EBITA, 16%, for the full year forecast is presented. This is only the first quarter, but is there an upside trend, especially digital engineering that is accelerating. Do you think there will be an upside? Is it going to be a positive contribution in terms of mix?
Tomomi Kato: Thank you very much for your question. You're right. For the fiscal year, 16% is the forecast. There is no change from the last time. For the first quarter, in terms of the revenue, overall increase of 17% was achieved, 14% increase for the fiscal year. Therefore, the first quarter actual was very strong. However, in terms of profitability, as I mentioned previously, we had the overall increase in profitability. Profit margin has increased year-on-year. So we are bullish. But regarding the 16%, compared to '23, that's a one point increase. It is a high profitability business. It's different to other businesses. Therefore, we believe that it is within the expected range. But for the first quarter, 70% increase in revenue is stronger than expected. So we have not changed the forecast for 2024, it does remain intact. But in the second quarter, no matter, if there is going to be a continuous trend, we may evaluate. We may further revise.
Unidentified Analyst: Regarding GlobalLogic, it has increased by 12% on a dollar basis. You said that the investment is suppressed. But organic, do you I think, it is improving, was single-digit previously, do you -- are you seeing a recovery in this area? Please comment.
Tomomi Kato: Regarding GlobalLogic, last year as well as from previously, North America as well as European customers, investment in IT has been growing, but it has been slowing down compared to the past. Unfortunately, this trend is still continuing. Depending on the customers, we are seeing some growth. But overall, we have not recovered to the level of fiscal year 2022 in terms of momentum. In the second half of this year, or even after the second half, we are expecting a recovery. But given these circumstances, it is still growing at double-digit.
Unidentified Analyst: Regarding Hitachi Energy, adjusted EBITA, 11.4% is shown. If this is upside to the fiscal full term, do you think this is sustainable? Or is it because of the mix of the major projects, there are one-off factors? Please comment.
Tomomi Kato: Regarding the first quarter, I think we did better than expected. Therefore, for the fiscal year forecast has remained intact, no change. But currently, we are expecting the first full year to be at this level on a standalone basis, 10%. In terms of revenues, the first quarter tends to be strong. Before, at the time of second quarter results, we will revise.
Unidentified Analyst: Thank you.
Operator: Next [indiscernible]. Please unmute yourself and ask your question.
Unidentified Analyst: I have two questions. It may overlap with the previous question, but on Hitachi Energy, the profit margin is now improving significantly. And other companies are enjoying higher profitability as well. So the Hitachi Energy's profitability from your orders that you have captured may be even higher. So current existing orders and the long-term lower profitability ones, what is the breakdown? And in two or three years' time, what will this look like? If you could enlighten us. Thank you.
Tomomi Kato: So this will just be an outline, but of the backlog, FY'24, the ones that will convert into revenue in FY'24 is around a little less than one-third. The remainder are medium to long-term. Now by business grid automation, software business, grid integration, high-voltage, transformer, the ones that are short-term, relatively short-term, which we can realize revenue within fiscal '24. And the grid integration, which is where we have to improve our profitability are longer term, medium to long-term. So this structure remains unchanged. But gradually after the order quality after Hitachi acquired the business is improving and the margin profile is also improving. So this trajectory remains unchanged and the overall structure remains unchanged, but we are improving profitability gradually. Thank you. So this will continue.
Unidentified Analyst: My second question is digital. So you revised your plan and so this now is different from your initial plan. But what is the biggest difference from the initial plan? And when you made the upward revision in digital revenue and how do you see Q2 and onward? Will it decelerate or accelerate or at the same pace? What is your current forecast?
Tomomi Kato: Thank you very much. Q1 was good. For example, revenue in public sector and energy grew and project management was thoroughly implemented. And the service menu that we provide is more higher value, added value. And so we are getting the sales price accordingly. And inflation is passed through to the end price. So those were the good points. So in Q1, Front was good. Likewise, Service & Platform. Storage was better than we thought. Since last year, we've changed our organization, and we are now enhancing our sales and marketing structure since last year. So in Q1, we got new customers in North America and also large projects in Europe. So we are seeing some fruit from these changes. So the strong Q1 and also backed by the FX, we made an upward revision. But Q1 revenue grew significantly. And we are not sure if this momentum can be maintained for the whole year. There is resource constraints in Japan. So it's not going to be easy. And therefore, this time, excluding FX, Q1 grew by 11%, and upward revision will be 8% on a full year basis. But Lumada related customer inquiry is very strong. So towards Q2, we will try to ascertain the actual situation.
Unidentified Analyst: Thank you very much.
Operator: Next is [indiscernible] please. Please unmute and ask your question.
Unidentified Analyst: I have two questions. First question is regarding the first quarter adjusted EBITA. The increase and decrease, the waterfall chart was shown. You also mentioned the selling price change. What was the contribution to increase in profit? And also please give the segment-based breakdown. That's my first question. Second question. First quarter in your main business, the performance is very good. But if you want to identify risk, what would that be? Has there been any downside in the recent past in terms of certain domain? Or what are the risks that you are considering going forward?
Tomomi Kato: Slide 7 is the first question. Adjusted EBITA is shown here. And in others, JPY71.7 billion, breakdown is shown here. Regarding your business scale, the JPY70 billion was the increase in profit. In terms of selling price change, that's about JPY23 billion increase was shown. In terms of the selling price, there have been discounting as well. So it's a net change. And within this, by segment, DSS related and PG-related have made a significant contribution in this area. The second question is regarding the first quarter risks. For the first quarter, decrease in revenue as well as forecast decline was seen in CI in the area of Smart Life & Ecofriendly Systems or Home Appliances. Air Conditioning has been very strong. But the domestic white goods demand is declining. Revenue is declining. That is the result for the first quarter. We are hoping to make a recovery in the second half, but we believe in the first half, it will continue, therefore, we have changed the forecast for the full year. Now we don't -- there could be variation depending on how much recovery is achieved in the second half. For the CI sector, the measurement and analysis of Hitachi High-Tech, overall revenue and profit increase. And the clinical chemistry, immunochemistry analyzer, new product that was introduced leading to increase in revenues. But in terms of semiconductor manufacturing equipment, the investment on the part of customers is being delayed compared to what we have expected. Therefore, a decrease in revenues as well as profit, but we believe that this will recover in the second half. Orders are not declining. But depending on the changes made by the customers, it could be subject to variation. Not specifically for any sector, but especially for DSS as well as for GEM, major projects are being taken on. Project management is conducted in a steadfast manner, but the major projects are subject to this. Therefore, we have to watch this area very carefully.
Unidentified Analyst: Regarding DSS and PG, there have been significant changes in terms of selling price. Has this been expected from the beginning because of many inquiries, do you feel that the selling price must be increased?
Tomomi Kato: Now this is also included in the full year forecast. And so from about two years ago, inflation is having a significant impact. Therefore, we are reflecting that in the selling price. And in the same continuum for the first quarter numbers are within our expectations. That is our understanding. Thank you very much.
Operator: Thank you very much. Next [indiscernible]. Please ask your question.
Unidentified Analyst: First of all, Page 16, Nuclear Power business, large projects. Which regions are they? Is there any additional information you could give us? Second question is the corporate cost, headquarter cost, JPY20 billion. Is this a buffer for you? Or is there a specific reason that you have recorded this if you have any more details, please? And lastly, Air Conditioning, the business sales. The proceeds, how will you deal with the proceeds? I think the timing will be next fiscal year. If you could give us some more information on your impact on your P&L? And how do you plan to use the proceeds? Maybe this will relate to your medium-term plan? Thank you very much.
Tomomi Kato: Thank you for your question. First, Nuclear Power. We're not doing this overseas. It's only in Japan. So this is a domestic project. And this is front-loaded than we originally planned. And so that is why we have this result in Q1. We do not disclose the details on the project, so I hope you could understand. Second question, so in corporate item, it is JPY20 billion negative. In the slide, I briefly touched on this. In the past, the segment deterioration risk was included in the corporate item as a buffer. But this year, we're not doing it. When we got the forecast in April, we thought that there will be more room for improvement on the segment side. And so we included additional improvement. This time in DSS and GEM. In Q1, we already had the upward revision. And so this portion was used. So for this year, the corporate item does not include the risk buffer. And Air Conditioning, as you rightly said, this will be Q1 of FY'25. That's the closing time. At that point, with our current calculation, JPY125 billion gain on sales and also JPY195 billion proceeds. And I touched on this in June Investor Day. For the asset disposal, we are thinking of using it in two ways. One is the growth investment like M&A, and the other is shareholder return buyback. So these two will first be the target, the main use of proceeds. And on the same return scale, we will compare and use it for the one that is better. That is our basic thinking. But it's one year from now, and so once we become closer, we will study further. Thank you.
Unidentified Analyst: Thank you very much.
Operator: Now at this point in time, we would like to take questions on the English channel. [Operator Instructions] Any questions on the English channel? There seem not. So we will revert back to the Japanese channel. Harada-san, please unmute and ask your question.
Ryo Harada: I have three questions. First question is regarding energy. Now question was raised regarding the price change, especially in terms of energy for transformers in particular, for the short-term, overseas manufacturers as well as Shanghai, Korean makers are increasing their price significantly. But you also have a short-term, you also have mid-term long-term projects as well. Therefore, it isn't as if you are following suit. But in terms of price change, how much is impacted by the market conditions? Please elaborate.
Tomomi Kato: Thank you for your question. It isn't as if we can give a clear answer. As you have rightly mentioned, for the power grid equipment, depending on the product, supply and demand is very tight. And the market price is increasing for some equipment. So depending on the market conditions, we are proposing price. So we have been benefiting from this. But we cannot -- I cannot give you a specific answer in terms of scale. For this fiscal year, it is within our expectations.
Ryo Harada: Regarding the price increase, is it higher than the original expectation?
Tomomi Kato: For this fiscal year, compared to the original forecast, it is within expectations.
Ryo Harada: Second question, regarding the hybrid cloud that you mentioned. From June or July, Hitachi iQ has started service. Is this additional inquiries to be received in the second half? Is this going to push up the expectations? Or do you think that it is already incorporated into the original forecast?
Tomomi Kato: Now with NVIDIA, GPO has been incorporated into service and related equipment as well as software, and our storage as well as related software have been combined into a solution. And if the revenues go up, in terms of storage as well as software-related service will increase in terms of revenue. Therefore, we have the high expectations for Hitachi iQ. But in terms of storage, we believe there will be an increase, but we have to look at the orders to be received in the second quarter in order to have the better understand of the full year.
Ryo Harada: Regarding Air Conditioning, with the commercial Air Conditioning will be internalized. Is this only for the domestic market? Google, Amazon (NASDAQ:AMZN) and the hyperscalers are making more investments in Japan in terms of data centers? Is this related to this area? Are you already receiving orders in this area? Do you think that more orders will be received in the second half and onwards?
Tomomi Kato: Hitachi brand and commercial Air Conditioning have been provided to the domestic market. JCH has been a manufacturing, developing and also sold through the Hitachi GLS. And in terms of the sales and maintenance, inclusive of the development and manufacturing of Hitachi GLS. So we'll be in charge of all the business in Japan. But in terms of revenues, it is being already posted, therefore, there is no change. But with the integration poised for next year, we will have manufacturing as well as sales combined, therefore, we can bring to bear our strength in this area. We hope that this will lead to increase in business. Now regarding the commercial Air Conditioning reorganization, as you have rightly mentioned, the calling mechanism is required in data centers as well as buildings. There is increased demand in this area. Therefore, going forward, it is our intention to grow this business. But currently, we have not received any major inquiries yet. This is what we are going to promote going forward.
Ryo Harada: That's all. Thank you.
Tomomi Kato: Thank you very much.
Operator: Time is coming up, but we have, we want to take all the questions of those who are raising their hand. Hirakawa-san, [indiscernible], Takahashi-san, Ezawa-san. In that order, we want to take the questions. So first Hirakawa-san. Please go ahead.
Mikio Hirakawa: Thank you very much. So this may overlap with the previous question, but in the Air Conditioning business, you said you want to grow the data center field. Are you thinking of investment in Japan? Do you have that already in place? And overall the net profit has grown quite significantly. Is there some one-off that pushed up your net profit?
Tomomi Kato: Thank you for the question, Air Conditioning, the investment plan in Japan. We will be closing this next year, so we will prepare towards next year. As of now, we do not have a plan yet. In Q1, net profit was good. This was because in the non-operating profit, there were two main items, three main items. One, is the business divestiture. Hitachi's Power Electronics, HPSD. This company was transferred to MinebeaMitsumi. So that's JPY17 billion gain on sales. And others, foreign exchange gain, and UK Horizon project, land was sold. So those three combined are all one-time one-off impact and this pushed up our net profit in Q1. Thank you.
Mikio Hirakawa: Thank you very much.
Operator: Thank you very much. [indiscernible] please. Please ask your question.
Unidentified Analyst: I have also a question regarding the Air Conditioning. What is your positioning going forward in terms of home appliances?
Tomomi Kato: Thank you for your question. Regarding Air Conditioning for the household. Hitachi Brand Air Conditioning equipment will be provided by Hitachi Global Life Solutions, 100% sub. Therefore, there is a change from the perspective of our customers. So we will continue this business.
Unidentified Analyst: Regarding the refrigerators as well as home appliance solutions.
Tomomi Kato: Regarding home appliances, whitewoods. Within Hitachi, we have a social infrastructure business. And home appliance is an important touch point with the consumers. As we pursue social innovation business, it has an important positioning. There is no change. Does this answer your question?
Unidentified Analyst: Thank you.
Operator: Thank you. Next Takahashi-san. Please ask your question.
Mariko Takahashi: Thank you very much. I have two questions. One is, now we are entering the world with positive interest rate. And so you said this is within your expectation, but do you finance? Are you financing beforehand in terms of the financial policy strategy?
Tomomi Kato: Of our borrowings, long-term accounts for more than 50%, about 70% are long-term in nature. So that part is not impacted by the interest rate. And the remainder are short-term, so that will be impacted. But as I mentioned at the outset, this fiscal year, we expected that the interest rate will rise and are planned accordingly. So no impact there.
Mariko Takahashi: My second question is, has been mentioned. So the home use Air Conditioning. A similar kind of selection and concentration, prioritization will continue going forward. And one is affinity with Lumada, I think. So if you could elaborate on that point.
Tomomi Kato: Thank you for that question. So no change from what we've been saying in the past. We think of core business Lumada, the high growth and high added value business under Lumada. So we can expect value under Lumada. And where we have a certain level of presence in the domain that we are active in. So that is our judgment criteria and no change there. Now for the business portfolio rebalancing, we will continue doing what we've done. In other words, how can we maximize the corporate value and business value. So no change there. But we're not targeting any particular business. This is the business for Hitachi overall.
Mariko Takahashi: Thank you very much.
Operator: Thank you. We will now take the last question. Ezawa-san please unmute and ask your question.
Kota Ezawa: I just have one major question regarding balance sheet and the debt borrowing that you have. With the rate increase, this is not related to what happened today, but the securities board was presented in the second quarter and third quarter and fourth quarter, the interest paid has increased significantly on the profit and loss statement. It seems that the borrowing rate is becoming higher. Can you elaborate on this? Why is this the case? And for this fiscal year onward, the rate in terms of borrowing, is it going to be 6% or 7% at high levels? Please give us your take on this as well as GlobalLogic as well as the Hitachi Energy and Thales, the assets overseas is increasing significantly. And you have many non-Japanese employees globally. And therefore, in terms of borrowing, how your borrowing is going to be, what is most important in terms of the group financial management. So please elaborate on this matter.
Tomomi Kato: Thank you for your question. Regarding the previous fiscal year, I don't have the materials with me, so we will get back to you. But as I mentioned earlier, for this fiscal year, for Japan, the rate increase has been expected for overseas market in the US, Europe, we believe there's going to be a rate cut, but it's not going to be a sudden. And we don't see that the Japan's rate is going to increase significantly suddenly. So in terms of interest repayment, the borrowing burden is likely not to increase significantly. As I mentioned in the Investor Day, we will make investment for growth going forward. For leverage day ratio has gone down to 0.2%. With Thales JTS acquisition, there has been an increase. But we are still below 0.3%. Therefore, we are considering further leverage going forward. There is no change in this outlook. As we mentioned, the interest rate outlook, but there is going to be more borrowings. There will be new borrowings as well. So we will manage this very carefully. Furthermore, in terms of the debt borrowing policy, the lowest interest rate will be prioritized in Japan, the interest rate was overwhelmingly low. So there was more debt in Japan. About going forward with the narrowing of the interest rate gap, we may consider otherwise, but it is not going to change suddenly. So the foreign exchange as well as interest rate trends will be taken into consideration to get favorable conditions within the group. We are conducting cash pulling as well. Within the cash companies, we are utilizing this process for overseas acquired entities as well. So borrowing cost will be decreased by utilizing this process.
Operator: With that, we would like to bring the Hitachi Limited web conference on Q1 fiscal year 2024 earnings to a close. Thank you very much for your attendance despite your busy schedules.
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