Time has come. We would now like to start Hitachi, Ltd.

outline for the consolidated financial results for second quarter ending 30th 2016. Mitsuaki Nishiyama, Senior Vice President and Executive Officer, CFO; Mr.

Mitsuyoshi Toyoshima, General Manager of Financial Strategy division; Ken Mizoguchi, Executive General Manager of Corporate Brand and Communications division. So the outline will be explained by Mr.

Nishiyama.

I think you have the package, including the performance materials. And if you could please turn to the proper slides that's titled Outline of Consolidated Financial Results for the Second Quarter ended September 30, 2016.

Page 5, please. Slide 1-2.

Here are the highlights and the comments. Our revenues, year-on-year, were down 9%, so down JPY 453.1 billion.

That's because of impact of foreign exchange fluctuation and conversion of Hitachi Transport System into an equity method affiliate and reorganization of air-conditioning business. These were the factors behind the decline.

However, on the other hand, now, net income attributable to Hitachi's stockholders was JPY 113.5 billion, up 16% year-on-year. So that was an increase in net income.

The second from the top, adjusted operating income, down 15% year-on-year because of a ForEx impact and lower revenues. But then, net income secured was JPY 113.5 billion.

And profit and loss summary is shown in detail on Slide 1-3.

Now to the right, on the right-hand side column, between April and September, the 6-month period for our fiscal 2016 is shown on the far right. Revenues, at the very top, JPY 4,353.7 billion, year-on-year down by JPY 453.1 billion.

So that was down 9% year-on-year. Adjusted operating income was JPY 232.8 billion, down by JPY 41.1 billion year-on-year.

EBIT was JPY 218.5 billion, down by JPY 44 billion year-on-year. However, on the other hand, in the middle, income taxes were JPY 53.5 billion compared to the previous year.

This was a reduction of burden of income taxes by JPY 23.5 billion. And then, from the bottom, our income from discontinued operations, that was a negative JPY 11.7 billion the previous this year, but it was eliminated to 0.

So as a result, our net income attributable to Hitachi stockholders was JPY 113.5 billion year-on-year, an increase by JPY 15.9 billion.

Now as to revenues, 9% reduction year-on-year, as I said. Impact from ForEx fluctuation as well as restructuring is included.

As air-conditioning business as well as Hitachi Transport System, if we exclude the factors for those, actually, the revenue would have increased by 4% year-on-year. And if we exclude such special factors, adjusted operating income would have been flat.

So export-related ForEx impact, I think, was more or less compensated or covered. That's our assessment.

Going to the next slide, jumping one page. So Slide 1-5.

These are the factors affecting changes in revenues and adjusted operating income year-on-year for the first half. On the left-hand side, a macro view in terms of revenues, JPY 320 billion of negative impact from exchange fluctuations; an impact of reorganization of Hitachi Transport System, JPY 216 billion; an impact of reorganization of air-conditioning business, JPY 100 billion.

So altogether, JPY 316 billion. And the remainder, over JPY 280 billion organic growth and growth in Automotive Systems and Railway business.

Aside from Ansaldo -- other than Ansaldo, there has been organic growth, so there were positive contributors.

And on the right-hand side, adjusted operating income. Exchange loss, JPY 45 billion; and reorganization of Hitachi transport, JPY 10 billion; reorganization of air-conditioning business, JPY 8 billion.

And so, altogether, JPY 18 billion -- or JPY 118 billion. And organic growth, JPY 21.8 billion.

Now moving on to the next slide. This is revenue by market, both in Japan as well as overseas.

On the right-hand side, second quarter on a cumulative basis, in other words, the first half. Japan was 92% over the previous year.

The second line, Outside Japan, that's overseas revenue, JPY 2,130.6 billion. That accounts for 49% of the total.

If I exclude impact from ForEx, it's 52%. And on the far right, year-on-year change, that's 89% of last year.

If we exclude ForEx impact, 103%. So, actually, overseas businesses are growing than Japan.

In particular, third from the bottom, Europe, 113% (sic) [ 115% ]. So outside acquisition and volume increasing of the overall business, so these were the positive factors.

Skipping one page, moving on to cash flow, Page 11, 1-8 in terms of the slide number. So in the bottom half, a summary of consolidated statements of cash flows is given.

On the left-hand side, cash flow from Manufacturing Services, JPY 237 billion. That was for the first half.

And cash from operating activities, JPY 294.1 billion. And free cash flow was JPY 203.7 billion, up year-on-year by JPY 125 billion.

Now 1-9. This is a summary of the balance sheet, all explained in the Manufacturing, Services and Others column.

Third from the bottom, cash conversion cycle, 64.5 days. CCC compared to the previous year, as of end of March, it was reduced by 7 days.

So CCC is below 70 days and this is a record best level.

Second from the bottom, total Hitachi stockholders' equity ratio, 26.9%, so 1.3 point increase or improvement. And debt-to-equity ratio, 0.4x.

That was the level that was maintained.

Next slide is 1-10 and 1-11. By segment first half results.

Second from the right column is the first half results. Now on a year-on-year basis, on year-over-year basis, the increase in operating income was Information & Telecommunication Systems.

Other segments all suffered from loss in operating income, but foreign exchange and the reorganization impact or the air-conditioning and the reorganization of the Hitachi Transport System are incorporated. However, if we exclude the foreign exchange factor, on a year-on-year basis, the 6 segments, revenue increased excluding foreign exchange factor.

So the Information & Telecommunications and the High Functional Materials and one more, 3 segments declined revenue. But other than that, excluding foreign exchange factors, 6 segments increased revenue.

Now on the operating income side, excluding foreign exchange factor, operating income increased in 8 segments, excluding Others. So the overall trend is in Information Telecommunications Systems, ATM, China market declined, and so ATM declined.

So the revenue was 93%. Revenue was down year-on-year.

But information network and structural reform showed impact, and project management is well established now. So the profitability is improving.

So the operating income is 6%, so it is an improvement of JPY 5.6 billion. In 2015, Information Telecommunications Systems operating income margin was 5%.

And so in the first half of this year, it is a 1% improvement, 6%.

Now Social Infrastructure & Industrial Systems. Elevator, escalators business and industrial plants declined, but Ansaldo impact from acquisition was positive, and so we increased revenue.

The operating income was down by JPY 1.7 billion, but this is because of foreign exchange factor.

Electronic Systems & Equipment. Hitachi Koki M&A impact was 105%, and High-Tech declined, and Kokusai declined -- Kokusai Denki declined, but overall, 105%.

Operating income. Hitachi High-Technologies was strong.

But in the first half, Kokusai Denki, Kokusai Electric declined, and there was foreign exchange factors, so it is down by JPY 1.2 billion.

Construction Machinery, Asia, U.S. declined, so 92% revenue year-on-year.

Because of foreign exchange, the operating income was down by JPY 10.5 billion. High Functional Materials & Components, Hitachi Metals and Hitachi Chemicals, both was down, and the operating income was also down because of the foreign exchange factor.

Next page, please. 1-11, Automotive Systems.

North America, China are strong. But overall, the foreign exchange factor was large.

So revenue was 96% year-over-year and operating income was JPY 6.4 billion down year-on-year.

Smart Life & Ecofriendly Systems. This was impact of the reorganization of air-conditioning business, so the profit and size declined.

But in other segment, Hitachi Transport System was included. But because of the reorganization, the size was reduced.

Financial Services, because of foreign exchange, the revenue was down slightly and operating income was like down slightly.

Now let me explain EBIT. 1-10, top, Information Telecommunication Systems EBIT.

There is a big number, a big negative number on a year-on-year basis. In the first half, structural reform expense was larger than fiscal year 2015.

So in the first half of 2016, JPY 27 billion structural reform expense was posted. And in the High Functional Materials & Components, on a year-on-year basis, you see a big decline in EBIT.

This is because, last year, Hitachi Metals sold the interest -- equity interest in Hitachi Tool. There was a gain on sales last year.

But this year, there is an absence of this gain, so that is why there is a decline. Now EBIT, a big decline.

Hitachi Transport Systems gain on sales of the stock is included in Others.

Next, Segment 2, second section. This is the full year consolidated results forecast.

2-1, this is the forecast outlook for the full year. Third quarter and beyond, the foreign exchange rate assumption will be revised.

Last time, we said JPY 110 to the U.S. dollar and JPY 120 to the euro.

But this time, we are revising this to, from third quarter onward, JPY 100 to the U.S. dollar and JPY 110 to the euro.

With the change of this exchange rate, third and fourth quarter combined, impact on revenue is negative JPY 180 billion; for adjusted operating income, JPY 27 billion negative impact. But first half exceeded the plan, and cost reductions, structural reform bear positive interest.

So considering that, the full year fiscal year 2016 outlook will remain unchanged. The number is on Page 2-1.

The outlook for this year, revenue, JPY 9 trillion; operating income, JPY 540 billion and 6% margin; EBIT, JPY 450 billion; and JPY 200 billion net income attributable to Hitachi, Ltd. stockholders.

We will keep this number and aim for the achievement of this number. However, as I will explain later, the segments have different degrees of impact on different segments, so we have changed some numbers on a segment-by-segment basis.

Next slide, please, 2-2 and 2-3, by segment outlook for fiscal year 2016. The changes are Electronic Systems & Equipment revenue, JPY 1,150,000,000,000, so it is down from JPY 1,180,000,000,000.

This is because of the -- and our semiconductor is strong, and we have revised it upward, and so the operating income is up by JPY 6 billion. EBIT.

Health care and other structural reform continues. So including the structural reform expense, EBIT remains unchanged.

High Functional Materials & Components. Hitachi Metals, Hitachi Chemical, revised -- revision is incorporated.

So revenue is down by 7% and adjusted operating income is down by JPY 14 billion.

Automotive Systems. Foreign exchange impact is large.

North America, Europe, China sales volume is strong, but there's a big impact from foreign exchange, so the revenues is JPY 970 billion and adjusted operating income is down by JPY 5 billion.

Smart Life & Ecofriendly Systems. This is also impacted by foreign exchange.

And the market is slightly declining, so JPY 580 billion, down from JPY 610 billion. However, adjusted operating income, thanks to the cost reduction and the production in overseas factories are brought back to Japan, so there's a yen -- advantage from the strong yen, so the adjusted operating income remains unchanged.

Next, Financial Services. Hitachi Capital reorganization, closing timing until last term was November, but the closing timing is changed.

It closed in October 3, and so the 1 month worth of revenue and operating income is reduced. So JPY 5 billion down in operating income.

Corporate items and eliminations, plus JPY 18 billion, so we did some adjustment here. In total, JPY 9 trillion revenue and adjusted operating income of JPY 540 billion.

This plan remains unchanged.

Now 3-1, we have some topics. The upper half shows the business portfolio reform.

As I said earlier, Hitachi Capital will reinforce its business. So Hitachi Capital Corporation owned by Hitachi are transferred to Mitsubishi UFJ Financial Group, Inc.

and Mitsubishi UFJ Lease & Finance company, and this completed on October 3. And next point is not large, but we plan to transfer the Information System business of Hitachi Metals on December 1.

And in the Healthcare Business, we reached an agreement with Mitsubishi Heavy Industries on the acquisition of its radiation therapy equipment and after service business.

Lower half, you can see our IoT platform, Lumada, progress. Last time, we mentioned that number of use case was 160.

But as of now, it is up to 170. We increased 10 in the second quarter.

And by the end of 2016, fiscal 2016, we are targeting 200 cases. Competition with our customers, not just service that we provide to our customers, we are using IoT technology by ourselves to improve our business.

We are doing that in parallel and focusing on this. So as you see, 2 examples here.

In factories, we are trying to improve. We have incorporated work improvement support system.

And by visualizing our data, we are trying to reduce the lead time and understand the data on the product shipment so that we can capture the first sign of excessive inventory. This is how we plan to promote our improvement internally, including our factories.

And this, we announced last -- the cloud-type collaborative creation environment, the Lumada Competency Center was announced the other day, and we again providing services.

Now you can see the Appendix, the supplementary information on the back.

Page 23, please. You can see the capital expenditure by business segment.

The second quarter result is shown here. The full year forecast is revised slightly.

The Manufacturing, Services and Others depreciation, full year forecast, 300 -- 3,500 -- JPY 350 billion. It was JPY 380 billion last time.

This time, we are reducing this by JPY 30 billion. And Financial Services combined, JPY 67.5 billion, so down by JPY 67.5 billion.

Last time, it was JPY 450 billion, now it's JPY 417.5 billion.

In order to deal with the business changes, we are trying to select more stringently, careful selection, and find the right timing. There are some difficult businesses, a tough market situation.

And the way we use the factories and the equipment, we are trying to review from overall optimization point of view. So we are trying to select our investment more carefully.

And the second reason is, overall, the way we use our investment, where we invest, not just capital investment, but we are trying to carefully select the capital expenditure to prepare ourselves for M&A. So that is why we are doing careful selection in capital expenditures so that we can focus more on the important priority areas.

And therefore, we are reducing the figure here. As a result, as you see on the next page, Page 24, the depreciation full year forecast.

JPY 280 billion in Manufacturing, Services and Others. In total, JPY 319.1 billion.

Last time, Manufacturing, Services and Others depreciation forecast was JPY 300 billion. And the completion basis, we reduced depreciation by JPY 20 billion.

Depreciation total was JPY 350 billion last time. But now it is JPY 319.1 billion.

And towards the end of the presentation, if you could please turn to Page 27. We have a reference.

On the right-hand side, top right, foreign exchange sensitivity is described, in terms of revenues, what's the impact of ForEx fluctuation. In terms of the U.S.

dollar and yen exchange, changing by JPY 1, JPY 10 billion in revenue and JPY 2 billion in adjusted operating income. These are the impacts.

And if JPY 1 is changed vis-à-vis the euro, in terms of revenues, the impact is JPY 3 billion. Adjusted operating income, JPY 0.5 billion.

So these are the foreign exchange sensitivities for the remainder of the term. That concludes my presentation.

Let us move on to Q&A. Because of the proceedings, in the first half of the Q&A, are time for the press.

And for the latter half, we would like to take questions from the investors and analysts. I look forward to your kind cooperation.

We will be separating the time.

So first, we would like to questions from the press. I see a hand from a gentleman.

In the fourth row from the front, in the middle.

First, foreign exchange rate assumptions were changed, and yet, you're keeping the full year forecast. So there must have been upside in the first half and there must have been progress from business structural reform and other factors, cost reduction.

And in which segments did you see an upside and cost reduction effects or business structural reform effects? If you can give us numbers, please?

So JPY 30 billion. Well, compared to the internal first half plan, we're able to have an overachievement by JPY 30 billion.

Operating income total of JPY 30 billion. For Information Systems, our revenue was on plan, but operating income in the front service division was able to do better than planned by JPY 10 billion.

And Social Infrastructure & Industrial Systems, compared to the plan for Power Industrial Systems and others, compared to the plan, revenue was better by JPY 10 billion, and operating income, JPY 5 billion in excess of the plan. Electronic Systems & Equipment, revenue was on plan and operating income better by plan, especially in High-Tech business, JPY 10 billion.

JPY 10 billion in excess of the plan. Now High Functional Materials & Components, compared to our plan, in terms of revenue, it was down by JPY 20 billion compared to the plan.

But operating income was more or less on plan. And Automotive Systems, our revenues was up by JPY 5 billion compared to the plan, but we were affected by ForEx fluctuation as well.

So in terms of operating income, it was on plan or flat vis–à–vis the budget or the plan. Now Others.

In the Others segment, revenue better by JPY 5 billion. Operating income, JPY 5 billion better.

So for the first half, total revenue on plan and operating income was better by JPY 30 billion compared to our internal first half plan. What are the factors?

For one thing. In the second half, projects are going to be concentrated, especially in the fourth quarter.

As you well know, projects tend to be concentrated in the fourth quarter and there have been acceleration in timing. Timing has been brought up from fourth quarter to third quarter, third to second.

So overall, some have been accelerated, but there has been improvement. And cost-reduction measures are also paying off and generating positive factors as well.

Now vis–à–vis the plan, it's very difficult to discuss all the details, but if we look at our cost-reduction progress year-on-year, if you could turn to Slide 1-5. Once again, I explained the factors in a waterfall chart.

In Others, JPY 21.8 billion. Other than restructuring and ForEx fluctuation, I said that there was a positive factors of JPY 21.8 billion.

If we look at the breakdown, the investment in business, HR cost increased, totaled JPY 30 billion, these are negative factors; and the reduction in our sales products, that was JPY 50 billion negative factor; and increasing business scale, JPY 15 billion; and cost reduction, JPY 90 billion, so cost reduction of JPY 90 billion. If you are to break that down, JPY 72 billion in COGS reduction.

And this covers reduction in sales price, and JPY 18 billion is business structural reform impact. So we have been able to see a better result than initially planned, I think, on those fronts.

One other question. So you have seen quite a bit of progress, and yet, because of restructuring efforts, compared to last year's numbers, revenues as well as operating income are going to worsen.

But you have to do what you need to do now, so that in the next year, you will be able to see a recovery in the next year. Is that going to be the case?

Is that how you see your business? What's your outlook?

And what is the intention behind that, if you could share that with us?

Well, impact from ForEx fluctuation is weighing heavy, and I think there are 2 factors behind that, actually. One has to do with exports.

In terms of exports, ForEx fluctuation can have a negative factor, reducing revenue. And another components has to do with our overseas subsidiaries.

And they have to convert from local currency to the yen. They may keep their budget in local currency, but when converted into the Japanese yen, there could be fluctuations.

So there are 2 components or 2 factors behind this. And export transactions and export trade-related fluctuation, because of strong yen, we believe that we can cover that.

But when it comes to overseas subsidiaries business, the conversion effect is very difficult to deal with and minimize. So in the mid-term plan, fiscal year '17 and '18, we are assuming JPY 110 to the dollar, that is the rate that we are assuming.

Any rate, however, by fiscal year '18, ForEx fluctuation and restructuring impact. And of course, restructuring impact is already partially factored in.

But our ForEx fluctuation assumptions have changed somewhat, that's true. But the overall aim is increased profitability as well as asset efficiencies.

That remains unchanged. So starting from this fiscal year-end, we will look at our mid-term plan and our plan for fiscal year '17.

We will review our plans going forward. What we will like to aim for in fiscal '18, however, will not change.

We will continue to work on profitability improvement and take measures for that. Thank you.

Any other questions?

In your full year forecast, revenues will be slightly below -- down by JPY 1 trillion and operating income down by JPY 94.8 billion, so JPY 180 billion and JPY 27 billion, respectively. Including the first half portion, on a full year basis, revenue FX factor is JPY 500 billion negative, and operating income, negative JPY 72 billion.

Am I correct?

No, that's not correct. Let me put things in perspective.

Foreign exchange factor. On a year-on-year basis, foreign exchange factor on a year-on-year basis, in the first half of fiscal year '16, revenue, JPY 320 billion negative operating income, JPY 45 billion impact, negative.

On the second half, revenue, negative JPY 340 billion. Operating income, negative JPY 55 billion.

So on a full year basis, year-on-year basis, revenue, negative JPY 660 billion. Operating income, negative JPY 100 billion.

Thank you.

In the Diet, the deliberation is underway on TPP. And this will be related to the U.S.

presidential race. But when this becomes effective, what is your projection?

And if it does, what is the impact in your business?

Regarding TPP, the economic partnership agreement will become effective and serve as a basis. The global trade investment and rule-making will be established.

So we hope that this discussion will move forward towards effectuation. Regarding timing, I haven't -- I'm not in the position to talk about the timing, but the policies to support the sustainable development of the economy is something we would like to aim for or ask for.

Have you calculated the customs and the impact on your business, on your numbers?

It is difficult. We are -- we have the local production, local consumption model.

And so whatever outcome, we try to minimize the impact, be it FX, be it the import duty, be it the trade agreement. We try to be resilient to the risks.

And throughout the world, we try to produce and provide service close to our clients, to our customers. And therefore, we will continue working to minimize the risks and the impact.

But whether -- it is difficult to quantify this number, the impact. Thank you very much.

Any other questions, please?

I see a hand. The gentleman next to the earlier questioner.

There was a question about TPP just a moment ago. And along the same lines, in the Japanese Diet, the bill for temporary -- or rather, the bill for Paris agreement passed the upper house.

And once it passes, what will be the impact of CO2 emissions reduction on your business? How do you view that?

With respect to CO2 emissions reduction, we are addressing that issue as a company, and our products and services, all are used by our customers. And on the customers' side as well and on the societies' side, CO2 emissions reductions are being pursued, and we will continue our business to help our clients as well as the society reduce emissions.

And will there be a negative impact from the Paris agreement? I do not think so.

We do not view so. On a worldwide basis, CO2 emissions reductions is an issue and a challenge.

So in order to address the challenge, we need to provide the necessary products and services in our production activities, so we need to make sure to cut down on our CO2 emissions reductions as well. That's what we would like to continue to pursue.

To add to the answer, Hitachi environmental action 2015, we announced that plan the other day, and CO2 emissions reduction of 80% by 2050. So in line with the progress made under the Paris agreement, we're going to move.

In order to achieve a highly recyclable society, we're going to work on water use efficiency by 50% by 2050 as well. So we have environmental measures of ours, and they're going to be useful for our business.

That's our thinking.

Just to clarify. So you have a positive attitude toward Japan passing the Paris agreement.

Is that correct?

Of course, yes.

Any other questions?

Just briefly, if you could answer my 3 questions, please. First, you have the Lumada which you exhibited in the virtual space, is this already incorporated?

How much impact does it have on the outlook? If you could share me some numbers, great, or if you could just share us the forecast outlook for next year.

When will Lumada be big enough to contribute to the results that you could share with us? Second question, you mentioned source of M&A, source of fund for M&A.

What is the target? If you have any target numbers, please share that with us.

Third question, M&A-related spinoffs. Hitachi Kokusai was mentioned in the media.

So M&A spin-off, your view, Nishiyama-san, and as a group, please?

Lumada. Sales profit, Lumada-related business is not big enough to mention the sales and profit numbers.

The service and platform BU in charge of Lumada, these BUs' sales is around JPY 280 billion. And by 2018, we aim for JPY 330 billion.

But this is still limited. So going forward, we will work on SI utilizing Lumada and Service Business utilizing Lumada and utilization of Lumada in our product and services.

We still need more time to see some concrete numbers, so it is difficult to quantify at this point. So we will first report by showing you the use case using Lumada.

Lumada has consulting services to receive revenue. And system integration business, product business can be led by Lumada.

So we hope we can grow this business as soon as possible to be able to show to you, but now is not the time yet. But we are confident that not just service and platform, but all areas, all BUs can share this and utilize this.

So once it becomes a certain size, we would like to explain, show this to you.

And the next question is source of fund for M&A. In the medium-term plan, capital expenditure from 2016 to 2018, 3 years, is anticipated, forecasted at JPY 2 trillion, of which JPY 1 trillion is CapEx and JPY 1 trillion for M&A.

As I -- as we do explain in the Lumada-related business, our focus areas will be the center, Lumada-related, IoT-related business and other service and solution businesses. In front business, about 60%.

And 40% will be Components and Products businesses. So that is the breakdown of our investment, and we are discussing how we can work this out.

We have not -- we cannot explain this in more concrete terms, where and how much we will invest. As soon as we make the decision, we will report and disclose to you.

And the last, Hitachi Kokusai Denki, Kokusai Electric, we constantly review our portfolio and we are considering various options to strengthen our business and improve the overall profitability and asset efficiency. We are always studying ways to achieve that.

For individual business and individual projects, I would like to refrain from mentioning the individual projects. Thank you.

Lumada, if my understanding is correct, the impact, the effect is difficult to see. Is it like taking vitamins in the human body?

This will contribute to all activities, so maybe it this difficult to quantify even in the future. But according to what you said, it seems like this can be quantified after a while?

Yes, it is like vitamin, you are correct in a way. This will drive various businesses.

So the way you put it is correct. However, we can still quantify it.

Businesses utilizing Lumada and projects or services that are realized by using Lumada, this will be quantified internally. But we are still on the PoC phase in many cases.

So for now, we will show you the number of use cases as an indicator. So this is the KPI we would like to report for now.

But as this grows, we would like to quantify this Lumada-related business.

In the earlier question, the ForEx assumption for our fiscal year '18, we might have said JPY 100, but actually the assumption that we have is JPY 110 to the currency. That is my corrections.

Any other questions, please?

I have 2 points I'd like to ask about. Point number one, which is about the business environment and the risks that may exist.

Now ForEx impact is larger than expected. Through cost reduction and internal measures, you're tackling that and you have not changed your numbers.

But considering the impact of ForEx fluctuation, what is it going to be? You said that it's not going to necessarily lead to a decline in business.

And in terms of the business environment, is it worse or is it better? Of course, there are many factors.

But overall, how is your different environment? How do you view that?

And going forward, if you look to the future, what kind of risks do you see, political risks or ForEx risks? Now in terms of ForEx, things are looking up lately.

How do you view that?

Compared to the initial plan, I think the business environment has become tougher. The ForEx rates have become tougher.

And in terms of business recovery or economic recovery, it's still quite slow. Now looking at the business in China, I realize that recovery is somewhat away.

And so in order for the recovery of the business to happen, it will take some more time. The China business, as well as oil and gas sector, seems that it's going to take some more time for these to recover.

So given that, I think the business environment has become tougher. I think we can say so.

And the risks, what are the risks? In terms of ForEx, we will tackle that with cost reduction and accelerate our efforts for business structural reform we've been able to tackle, and replacement of the business portfolio, portfolio reshuffling and conversion of our business model.

And in terms of service solutions, we will be shifting resources to service solutions. So the mid-term plan 2018, these are going to be the important factors, and we will continue to pursue these.

But in terms of risks, the economic instability and political instability are making it difficult for us to see things clearly. These lead to uncertainties.

And in terms of information systems business, in the past, as business integration led to losses, but we now have more stringent project management. And as a result, profitability has improved.

And industrial systems, distribution systems. Because we have a global business around the world, in the past, in the Middle East, what is now being contained, Middle East EPC project that we've had to deal with.

There are risks of doing new businesses in new parts of the world, of course. And these are part of the global risks that we have to manage through project management so that we don't end up having losses, and that is something that we need to respond to strongly.

My second question. So given the current circumstances, the environment has not improved for you.

Given that, because Hitachi has become stronger as a manufacturer, you're doing all right. And in terms of M&A, and given the tough environment, in considering mergers and acquisitions, do you think that this is an environment which would give you better opportunity for M&A?

Other peers are struggling as well.

Well, in terms of M&A, there may be sectors where there may be opportunities for us. But that is not to say that we're going to purchase every potential target.

Of course, if there are viable opportunities, we would like to respond to them. Thank you.

Any other questions?

I have 2 questions related to the earlier question in terms of the environment. The business environment by country, by region, China, North America, ASEAN, India in the fourth quarter from -- in the first half, April, September, I understand China.

But North America, ASEAN and India, why are they dipping right now? And what is your forecast?

There's the U.S. presidential elections, maybe things are unforeseeable, but could you share with us your outlook for each region?

By region. So please turn to Page 9, the first half, 1-6.

Revenues by market. By region, China, 82%.

So this is a big decline. But foreign exchange factor -- excluding foreign exchange, it is 99% year-on-year.

So it is the same, unchanged from last year. ASEAN, India and others, 80%, a big decline.

But excluding foreign exchange, the volume, excluding foreign exchange, is 91% year-on-year. In Asia, 95%.

It says 81%, but excluding foreign impact, foreign exchange, it is 95%. North America, 88% but excluding foreign exchange, 100%, which -- so year-on-year flat.

We hoped for more, but information and telecommunication storage, server, hardware business is down year-on-year. And Hitachi Metals, North American business, volume is declining.

Europe, this Railway business is increasing, so an increase. Excluding foreign exchange, it is now 115% year-on-year.

But excluding foreign exchange, 127%, a big increase. Other areas, 84%, a decline.

Excluding foreign exchange factor, 100% year-on-year. So overseas revenue and operating income, total 89%, you see here.

But excluding foreign exchange, it is 103%. China is still not -- has not recovered yet.

But overall, it is not a catastrophic decline, but we are not growing year-on-year. So in Asia, our presence in each country is still low, so we will set up our sales bases.

Elevator is the typical example. We will try to expand our business, enter markets where we still don't have business yet.

In China, it is 99% year-on-year, but the sluggish environment will continue. So we will try to reduce costs to enhance our product competitiveness.

What about North America?

North America, storage, server. We are shifting our resource to services and solutions.

This resource shift is underway. North America IoT-related business, North America is important in IoT business.

This is the most advanced country in the world. So Insight Group base is established in the U.S.

to start this business. Hitachi Data Systems, the U.S.

storage solution company and Hitachi Consulting will work together to explore customers to provide solutions. And North America is also an important area to compete with our other competitors, so we will focus in this area.

Lumada. Lumada-related investment, how much will it be?

How much was it in the first half, and what is your plan for the full year?

We do not disclose Lumada figures alone, so I would like to refrain from mentioning that number.

Let us continue and move on to the questions of analysts and investors. Any questions from analysts or investors?

I have 3 questions that I would like to ask. Question number one, which has to do with foreign exchange fluctuations.

In the 3 months in the second quarter, net impact of JPY 30 billion on operating income. And in the second half year-on-year, you are expecting JPY 55 billion.

Now in terms of the yen change, in the second quarter and the second half, dollar and euro have changed by 16% vis-à-vis the yen. And in the second half, the business is going to be larger than the second quarter.

So JPY 30 billion in the first quarter, JPY 55 billion and the second half seems small. So if you perform the calculations in the second half, I would assume as much as JPY 60 billion to JPY 70 billion impact.

And if you could share your views on that, please?

I'm not sure if this serves as an answer, but I think the yen-dollar rate has been JPY 120 or JPY 121 to the dollar. Now in the second quarter, in 2016, the average has been JPY 102.5.

And based on that, we have calculated the impact. So I think we have the calculations right.

But if we look at the main currencies, the dollar, euro, yuan and the sterling pound, we calculated sensitivities. And the number was JPY 27 billion in the second half -- that will be the impact on our income, as was said.

And these are based on results. And if we include all the other currencies, including Southeast Asian currencies, these are the numbers.

We have not been able to give you a breakdown, we're sorry, but we have done our calculations. So for other currencies, what will be the impact and how will it rise?

It may partially depend on that. But in principle, the dollar -- based on the dollar, we have come out with the assumption for the second half.

Sorry for not giving you all the breakdown.

Just to clarify. On a full year basis, a negative factor of JPY 60 billion.

Now that's grown to JPY 100 billion, you're saying, today. And you were talking about this second half number, an increase in negative JPY 13 billion in the first half.

And so an increase of negative number by JPY 40 billion to JPY 100 billion. Is that correct?

Yes.

So perhaps not all the impact has been calculated fully because of the Asian currencies. Is that correct?

Yes.

Second point has to do with the numbers once again, so Ansaldo and smaller business, Hitachi Machinery, Metabo. So there must have been some increasing factors or positive factors.

And I would like to see the organic numbers. So for the first half overall, through mergers and acquisitions, what was the upside that you've been able to enjoy in revenue and operating income?

I cannot give you specific numbers for each. But Nishiyama, earlier, talked on pages 13 and 14, the first half results.

And by segment, he discussed the numbers without the impact from ForEx fluctuations. And of course, we won't have apple-to-apple comparison to the examples above, so ForEx fluctuation impact and air-conditioning and transport, as well as Metabo and Ansaldo.

If we look at these factors, what's the organic number? Now Information & Telecommunication Systems revenue are 98% year-on-year without factors and adjusted operating income plus JPY 6 billion.

And Social Infrastructure & Industrial Systems as opposed to 108%, it's 102%. And adjusted operating income of 43%.

And Electronics Systems & Equipment, 108%. And minus 12% is 18%.

And Construction Machinery, JPY 25 billion. And 95% for High Functional Materials.

And adjusted operating income, plus JPY 6 billion. And the Automotive Systems, 105%; and AOI, plus 6%.

And Smart Life & Ecofriendly revenue, 103%. And AOI, that's 103%.

So 91% in total; on an organic basis, 101%. And adjusted operating income, without these factors, JPY 18 billion.

So these are the numbers for organic growth. So you can calculate that if you do reverse calculation.

If you add everything up, how much, in terms of operating income?

Well, we have to consider fixed assets and goodwill, so Metabo and Ansaldo, for the 2 combined, JPY 5 billion is the additional operating income. That's been added because of that in terms of organic growth.

Last but not least. In the full year forecast, you talked about depreciation being smaller than the plan by JPY 20 billion.

So you would like to offset the ForEx fluctuation impact. And of course, JPY 20 billion is pretty large.

And so is that going to have a lot of impact? You're pursuing structural reform and others, cost reduction as well.

So you want to compensate for ForEx fluctuation impact, what's going to be the biggest factor? As you said for the first half and for the full year as well vis-à-vis ForEx impact of JPY 100 billion.

In order to overcome that, what's going to be the positive factors? Can you give us the breakdown?

It's not easy. It's difficult.

But just to give a macroeconomic picture. Fiscal year '16, year-on-year change factors.

So ForEx fluctuation and operating income, as was said, JPY 100 billion. Review of business portfolio, the impact from that, JPY 55 billion.

Reduction in sales price, JPY 110 billion. In the first half, I said JPY 50 billion year-on-year in the first half.

So on a full year basis, JPY 110 billion. And business development investment and HR cost increase, roughly JPY 80 billion.

Reduction in cost of production, JPY 210 billion. It's a positive factor.

Well, I didn't give you whether it's a negative or positive. Negative factor for business investment, HR class as well as sales price reduction.

And cost reduction, JPY 210 billion, which is a positive factor. So JPY 110 billion of sales price reduction versus the cost reduction number.

If you net the 2 off, we've called it Smart Transformation effect. But the impact is JPY 110 billion.

So I think that's the effect from cost reduction and other effect. And the remainder has to do with the change in the business scale or the size of the business.

So cost reduction of JPY 210 billion and business structural reform. I think earlier, you said JPY 35 billion.

How much is the number today?

JPY 35 billion has not changed as a number. However, we have bought out the timing, and there are may be some changes down the road.

But at the moment, the figure remains unchanged at JPY 35 billion.

I have 2 questions. First, South Africa.

The deal with MHI, you said that the cost is increasing. Eskom in July said they will increase the cost further.

And you said that this project is still under negotiation. You may not be able to explain this, but the amount is large.

So MHI is saying JPY 379 billion, and you said that this will be divided by the ratio of equity holding of JV. If you could elaborate, please?

What Eskom announced was the overall project cost, the increase of the project cost. That does not mean that our loss will increase accordingly.

The amount that Eskom pays will increase. That's what it means.

And it includes what we will receive. So what -- the number they announced is not equal to our loss, the increase of our loss.

Now the rest is still under negotiation. So I would like to refrain from saying anything else.

MHI said Eskom started disclosing their delay from around 2014, and they also continued the training of the local people. The project was supposed to be completed in 2016 or 2017, but now its -- latest is 2021.

So including project management, other than loss factor, I would like you to explain how you see this project overall.

This project is being delayed from various reasons. Now we are focusing on completing this as soon as possible.

When do you think this negotiation will be completed? If you could touch on when, the rough timing?

I would like to refrain from mentioning the timing.

My second question is on the mass media, they talked about the consolidation of the consolidated subsidiary, about the semiconductor subsidiaries. I have 2 questions there.

Whether it is arbitrary or not, why does this kind of information go outside because this only happens in Japan? Maybe this is an information leakage that you did not anticipate, but could you explain why this information leakage occurs?

And second, the semiconductor business is the Social Innovation Business. But I think there is little synergy there, so including your subsidiary strategy, aside from the individual projects, how do you view this business?

Could you explain?

First question on why this information leakage occurs. This is what I would like to ask you.

We try to do timely disclosure and fair disclosure. We are controlling our information very solidly, thoroughly.

So group companies' articles, such as the articles on such deals, this is something that we are troubled with, too. However, in our group, we are managing our information internally.

Whatever information it is, we have thorough information, timely disclosure and information management. Now the individual company position in the portfolio review.

This portfolio review is part of the medium-term plan, 2018. It is one of the priority points, not only the listed subsidiaries but also BUs and subsegments in BUs and individual products.

We always look at the profitability and asset efficiency and turn around the low profitable businesses and products, try to identify the unprofitable items and find the right partner to reinforce the businesses. And not just the asset or the profitability, but we also consider the long-term asset efficiency and turnaround.

Another perspective is core or noncore. Whether it's a -- whether it's our strong suit or not, we review from that perspective and think of consolidating some businesses or increasing the interest, equity interest of certain business or reducing this in some businesses.

This is one of the business -- or important component of 2018 plan. So we will continue doing that, accelerate and implement these measures.

For each deal, for each business, as things materialize, we would like to announce them at the right timing.

Any other questions?

First, regarding Information & Telecommunication Systems. In the first half, I think there was an upside of JPY 10 billion.

So once again, if you could explain the reason as to why you had an upside of JPY 10 billion. Was it because of the market conditions or the business environment?

So that's one of the things I would like to ask. And on the other hand, you have not changed your full year forecast.

So perhaps, you're being affected by ForEx fluctuations. But on the one hand, you had upside of JPY 10 billion in the first half and yet you're not changing your full year forecast, why?

In the first half, what was good was that finance and public sector business, centering around those sectors, service solutions, SI businesses were very robust. On the other hand, we are pushing for structural reform in the hardware business, centering around Information & Telecom Systems, so we are starting to see the positive effects of structural reform.

And so overall, I think we have been able to have a robust result. So -- however, on the other hand, we have not changed the full year forecast and that's because of the hardware business, including service.

Overall, the market for such businesses is shrinking. So the products that we are going to focus on must be identified, and we must concentrate our development resources and the products that we're going to focus on.

That's the kind of move that we are making. And so there are certain level of uncertainties there.

On top of that, in finance and public sector business, back in fiscal year '15, in terms of finance, megabanks projects were received. And public sector, My Number program, there were a lot of SI businesses, but they're gone now.

But now that they're finished, there's a high level of demand in those sectors. And so we would like to offset the tough business conditions in the hardware business.

Without having losses in the hardware business, we would like to continue acceptable business. And whether it's a demand in finance and public sector business, we -- if we can do what we should be doing, we will be able to have an upside vis-à-vis the plan.

But because of the uncertainties, we have not changed the full year forecast.

Well, for Social Infrastructure & Industry Systems, there was an upside of JPY 5 billion, but you have not changed your full year forecast. And you have also talked about a timing change from fourth quarter to third quarter and so forth.

So which kind of projects were brought up in timing and what was the background behind that? What were the reasons, please?

The timing change. That has to do with projects in Japan for nuclear power and the business in China as well as in Japan.

There was an upside vis-à-vis the plan. Thank you.

Any other questions?

Just one question, please. As you touched on earlier, in the first half, you had the structural reform expense in the Information & Telecommunication.

So in the Social & Industrial and Information & Telecommunication, you said that you're enjoying the impact from the reform expense. Could you elaborate?

So in Information & Telecommunication IT platform and products, the progress of the structural reform, from 2015, information network business and other IT platform and products, structural reform has been promoted. This fiscal year, information network, equipment and storage business are the center of our structural reform.

In the information network business are factories; plants consolidation; selling lands, where we consolidated plants; and demolishing the building and impairing our equipment and devices facilities. And on the full year, the related cost is already anticipated and incorporated.

In storage business, in overseas countries, we are trying to work on the HR portfolio, a revised HR portfolio to adapt to the changes. This has been continuing from 2015, and structural reform expense is being posted when necessary.

And the positive impact in terms of amount in Information & Telecommunication Systems, first half of 2016, the positive impact from the structural reform is around JPY 25 billion, of which about half is Information & Telecommunication Systems in the first half. This first half of this fiscal year.

So based on the established policy, we are thoroughly promoting our structural reform.

What about the structural reform for the Social Infrastructure & Industrial Systems? What I would like to hear from you is this fiscal year, you are seeing this expense.

I'm sure this reform will continue, but this structural reform, will this come to an end this year?

The biggest portion of the Social Infrastructure & Industrial System is the closure of this Middle East project. There are 3 big Middle East projects, of which 2 will complete this year.

So we are working on the completion. The construction is almost over, but we still have some negotiations with our customers and legal steps to be taken.

We already have provisioned for that. There is some cost for that in the first half, but the is not a big impact, and we can complete this by the end of this fiscal year.

And the remaining one project is in Saudi Arabia. It's a big construction project.

This is completing in 2017. We will continue thorough project management to contain the cost.

And the other Asian companies, some companies that are mainly doing construction, but we are liquidating -- starting to liquidate the companies that have already done their job. So they will be closing.

Information & Telecommunications, the network?

Network will be completed this year, but U.S. and global storage shifting of human resources will continue this year and next year.

My second question is simple. In the first half, you had big free cash flow.

What is your forecast for this fiscal year? And you have adjusted with corporate items and eliminations, but you still have JPY 20 billion, is this a buffer?

I will answer the easier question first. So this corporate items and eliminations, operating income JPY 10 billion.

Risk is anticipated. And nonoperating, JPY 20 billion.

And so on EBIT basis, JPY 30 billion. So this is the risk buffer.

Now the full year free cash flow. First half, JPY 200 billion in total, M&A is included.

And this free cash flow is JPY 200 billion for the full year. The initial plan was a little over JPY 100 billion.

But in the first half, working capital was an improvement of JPY 100 billion. So it is JPY 200 billion now.

We want to increase this further to JPY 250 billion. But in the second half, IEP, the rail-related work will increase.

And the receipt of the Middle East project will be 2017. So apart from a large M&A in the future, with the current investment basis, we think we can maintain this JPY 200 billion in the first half for the rest of the year.

So on the operating income basis, without any events, you can have this JPY 100 billion?

Yes, if there's no problem.

It's now time to close the meeting. So let us bring the meeting to a close.

Thank you very much.