Time has come, so we would now like to start the briefing for the consolidated financial results for the second quarter ended September 30, 2017, for Hitachi, Ltd. First, let me introduce the presenters.

Hitachi, Ltd., Mitsuaki Nishiyama, Senior Vice President and Executive Officer, CFO; Tomomi Kato, Deputy General Manager, Financial Strategy division; Yasuo Hirano, Executive General Manager and Corporate Brand and Communications division. So the outline will be explained by Nishiyama.

Yes. If you could please take a look at the slide presentation material: title Outline of Consolidated Financial Results for the Second Quarter ended September 30, 2017.

Slide 1-2 is a summary of the profit and loss. In the middle, the 6 month between April to September, the second quarter cumulative, revenue of JPY 4,376.4 billion, up 1% year-on-year.

And portfolio reorganization, foreign currency fluctuation, they have had impact. So excluding them, it was up 4% in terms of revenue.

Next, adjusted operating income, JPY 303.2 billion. The margin is 6.9%, increased by JPY 70.4 billion year-on-year.

EBIT, JPY 296.4 billion, increased by JPY 77.9 billion year-on-year. At the bottom, net income attributable to shareholders, JPY 160.6 billion, increased by JPY 47.1 billion, so net income, 42% increase.

Operating income, 30% increase.

Moving on to Slide 1-3. The waterfall chart of factors affecting changes in revenue and operating income.

Macroeconomic analysis is given. On the revenue side on the left, impact of portfolio reorganization.

Hitachi Transport, Hitachi Koki, these were deconsolidated. So negative impact of JPY 262 billion.

And foreign exchange fluctuation, a positive JPY 100 billion impact. Other than that, business scale expansion, JPY 184.6 billion, a positive factor of this.

M&As, Hitachi Construction, Hitachi Chemical and Sullair acquisition. So with these large M&As combined, their contribution was JPY 85 billion out of JPY 184.6 billion.

Other than that, pure organic growth, JPY 99.6 billion.

On the right-hand side, adjusted operating income waterfall. Impact of reorganization, JPY 27 billion of negative impact.

Foreign exchange had a positive impact of JPY 15 billion, and profitability improvement, the large arrow there, indicates JPY 82.4 billion. M&A, out of this, JPY 4.4 billion.

Organic growth, JPY 78.4 billion. Cost competitiveness improvement and with structural reform of low profitability through such initiatives, we are now able to securely generate cash flow.

That's the kind of structure that's in place right now. Second quarter cumulative, for the first half, operating income, EBIT, net profit, all of them for the first half performance were record highs.

Moving on to the next slide, Slide 1-4. This is the revenue by market here in Japan and overseas.

If you could look at the first half, the breakdown, 48% comes from Japan, 52% from overseas or outside Japan. So outside Japan overseas, last fiscal year was 49%.

It's now 52%, an increase has seen. And year-over-year on the far right, Japan is 95%.

Outside Japan overseas, 106%. Although not stated here, impact of portfolio reorganization and ForEx fluctuation, excluding them, Japan 100%, outside Japan, 109%.

So up 9% for overseas. And Europe is 92%, that's a reduction.

That's because of Hitachi Koki's sale. So adjusting for that, instead of 92%, it's 105% for Europe.

Construction Machinery, Automotive Systems, Hitachi Chemical, these are the areas that grew. And ASEAN, India and other Asia, Asia ex China, Hitachi High-Tech, Hitachi Kokusai Electric and Hitachi Construction Machinery, these businesses grew in ASEAN, India and others.

Hitachi Koki's sale impact was there. Hitachi Construction Machinery and Railway business, these 2 increased.

And in other regions, Construction Machinery did grow quite substantially.

The next slide, 1-5, is a summary of balance sheet and cash flow. The balance sheet summary at the top, our total assets stood at JPY 10,042.3 billion, so an increase of JPY 378.4 billion year-on-year.

The project's sales in the second half, the inventory thereof has increased and that is one of the reasons behind.

Now CCC at the bottom, 72 days at the moment, cash conversion cycle. For September, we planned it to be 77 days internally, while RP -- inventory is still increasing, but other divisions or units, the cycle improved.

And so it was down to 72 days.

Now equity ratio, 31.3%. It was an improvement by 0.6 points.

D/E ratio, 0.29x, so flat year-on-year.

Now cash flow from operating activities, JPY 278.4 billion, and cash flow from investing activities, JPY 234.4 billion. Included in this, Sullair acquisition, Hitachi Chemicals M&A, so outflow of fund is included in this.

Our free cash flow stood at JPY 44 billion. It's a positive number that we have been able to secure.

Moving on to Slide 1-6. This is revenue and operating income by business segment.

Just to give you the highlights. Information & Telecom Systems at the top, ATM sales were down but system integration business in Japan continued to be robust, and ForEx fluctuation worked positively, so up 1%.

And operating income, IT Platform & Products continued with structural reform and the impact of that was seen, and high-end flash storage sales increased. And system integration business in Japan saw improvement in profitability.

So with that, operating income grew by JPY 20.5 billion year-on-year. On top of that, EBIT has grown by JPY 50.7 billion year-on-year.

On top of the increase in adjusted operating income, business structural reform expenses decreased. And those were the factors behind.

Next, Social Infrastructure & Industrial Systems. We withdrew from low-profitable business in industry and distribution field.

So revenue was down partly for that, but there was increase in railway systems. And with the acquisition of Sullair, industrial products business grew.

As a result of these factors, it was up 1% year-on-year. Adjusted operating income, because of industrial products business, profitability improvement, and power and energy business, profitability improvement.

And on top of that, elevator and escalator business in China struggled. But this was compensated for and covered by other positive factors, increase of JPY 17.3 billion year-on-year.

Next 1-7, Electronic Systems & Equipment. This -- revenue is 96% year-on-year, but this is because of the deconsolidation of Hitachi Koki.

Sales increase in semiconductor production equipment at Hitachi High-Technologies and Hitachi Kokusai Electric was the positive factor. And therefore, the operating income, there was a negative deconsolidation of Hitachi Koki, but this was covered by sales increase in semiconductor production equipment.

This positive factor was stronger, so the operating income grew by JPY 9.1 billion.

Next, Construction Machinery. Overseas sales centering on China increased.

In addition, we acquired Bradken and H-E Parts. So 31% increase in revenues year-on-year.

Operating income had increase in revenues and foreign exchange impact. So from these 2 positive factors, it was up by JPY 31.6 billion.

Next, Slide 1-8, High Functional Materials & Components. The electronics- and automotive-related products, sales increased, and Hitachi Chemical acquired FIAMM Energy Technology.

So the revenue grew by 14% year-on-year. And with that, operating income grew by JPY 5.5 billion.

Next is Automotive Systems. Sales in China, Japan and Europe increased and revenue grew by 4% year-on-year.

And with that, operating income grew by JPY 3.7 billion.

Next slide, 1-9, Smart Life & Ecofriendly Systems. Revenue was 96% year-on-year, 4% down.

But this was because of the change of the accounting to net base (sic)[ basis ] revenue for part of our procured products such as TV in overseas market.

Operating income had the effect of cost reduction and the effect of structural reform. Operating income grew by JPY 4.8 billion.

And Others segment, this had the impact of the reorganization of Hitachi Transport System. So both revenue and operating income declined.

Now corporate items & eliminations, EBIT is minus JPY 32.1 billion, because Hitachi Transport System's sales proceeds is not included this year. That's the reason of the drop.

Overall, Hitachi Transport Systems transfer of -- so in Others, there is no revenue and operating income. But in the other 7 segments, we enjoyed increase in profit.

Next, 1-10, topics for the first half. First is the progress of Lumada business.

Revenue is shown at the top. In second quarter, so for the first half, the revenues is JPY 452 billion.

This is for -- the plan of the progress was 44% against the annual plan. But now, it is 48% progress against our forecast of JPY 950 billion.

So we are exceeding the progress -- forecasted progress. We are taking various measures to enhance the Lumada business.

As you can see here, we expanded -- launched Hitachi Vantara which leads the global expansion of digital solutions business, and we expanded the collaborative creation with Daikin Industries and Toyota Motors using Lumada in the industrial sector.

We are also strengthening our business toward growth. We completed the acquisition of the air compressor business, Sullair business of Accudyne Industries on July 12.

And Hitachi Chemical acquired a thermal insulation manufacturer in Germany and lead storage battery company in Thailand.

In addition, in business portfolio transformation, we commenced the tender offer for the common share of Hitachi Kokusai Electric on October, and we are also concluding an agreement to transfer its forged steel roll business and the facility management business.

Next, in Slide 2-1, I would like to explain the outlook for fiscal year 2017. First, at the top, you can see the projections, the foreign exchange assumption.

JPY 110 to U.S. dollar and JPY 120 to the euro.

And this has not changed from the previous forecast.

Now fiscal year 2017 revenues, JPY 9,300,000,000,000. This is up by JPY 250 billion, and adjusted operating income, JPY 660 billion, JPY 30 billion up.

EBIT, JPY 580 billion. This is no change because up to the last forecast, we included Hitachi Kokusai Electric share transfer schedule in the third quarter of fiscal year 2017, but this is changed to fiscal year '18, and therefore, our EBIT, JPY 580 billion and the EBIT, JPY 300 billion will remain unchanged.

Now Slide 2.2 onward. The Electronic Systems & Equipment is a big change, JPY 25 billion, and Construction Machinery, JPY 11 billion.

And Information & Telecommunication Systems and High Functional Materials & Components, Smart Life & Ecofriendly Systems are strong. Reflecting the strength, we have increased these 3 segments by JPY 1 billion each in operating income.

And in corporate items & eliminations, EBIT is down by JPY 37 billion. This is because Hitachi Kokusai Electric share transfer schedule has been extended from fiscal year '17 to fiscal year '18.

Because of the timing change, we have incorporated that factor. And as a result, the operating income is up by JPY 30 billion, and EBIT and net income will remain unchanged.

That's all. Thank you very much.

We will like to move on to questions and answers. Our staff will bring their microphone to you, so please make sure to state your name and affiliation before asking a question.

Those of you with questions, please raise your hand.

I have 3 questions I would like to ask. My first question is as follows.

As always, the Q2 performance by business segment whether operating income was good or not. Pages 30 and 31, we have been given some data.

Well, just the segments with certain features. Compared to the internal plan, which ones were good, which ones were not?

If you could give us an overview.

Vis–à–vis our internal plan in the first half on a cumulative basis, sales increased by JPY 160 billion revenue and operating income up by JPY 40 billion compared to the internal plan. And the breakdown will be given by Kato-san.

So you're asking for the first half cumulative. For the 3 months of second Q2 as well, JPY 90 billion increase.

So JPY 40 billion for Q2 cumulative for the first half, JPY 20 billion in the second quarter only. JPY 8 billion for electronic parts, Construction Machinery, JPY 8 billion.

So these are the major factors. And Information & Telecom, JPY 3 billion.

The remainder is JPY 1 billion from Smart Life & Ecofriendly Systems.

The second question is as follows. Corporate items & eliminations, I think it was plus JPY 10 billion in the first half.

Page 17, you have given us annual forecast with a comparison with last year. And corporate items & eliminations, JPY 9 billion down this time.

So minus JPY 27 billion adjusted operating income. So second half minus JPY 37.2 billion.

So I think the buffer you mentioned was JPY 30 billion for the second half. So negative JPY 37 billion.

If there are any items that can justify or explain this, please.

In terms of operating income, the factors behind expense increase is business investment. We will like to be active in making business investment in the second half.

SIB incubation, that is something that we will like to be proactive on. And other than that, overall, the risk of adjusted operating income from corporate items & eliminations, JPY 30 billion.

So operating income, JPY 30 billion and nonoperating income on profit, JPY 30 billion. On an EBIT basis, JPY 60 billion of risk is reflected in this forecast.

My third question is as follows. Well, this is related to the answer that you've just given.

On Page 15, you have given us profit and loss guidance. Well, Hitachi Kokusai Electric sale is to be deferred at the next fiscal year.

So operating income up JPY 30 billion, but EBIT is going to be the same?

Well, sales proceeds, JPY 45 billion expected and other nonoperating items were reviewed in total, JPY 30 billion of operating loss increase was reflected.

So sales proceeds of JPY 45 billion to be expected. Well, to the extent I can share.

Well, on an annual basis, negative JPY 80 billion for nonoperating loss. What are the major factors behind this, 1 or 2 of them?

So negative JPY 80 billion, excluding interest cost. What are the items excluding interest cost?

On a cumulative basis for FY '17, structural reform cost, negative JPY 50 billion and equity affiliate loss, a plus of JPY 40 billion. Other than that, a ForEx fluctuation loss and others, negative JPY 70 billion.

So if you total them, JPY 80 billion negative.

First question is about the raw material cost, the impact from the higher raw material cost. How was the impact in the second quarter?

And how do you incorporate this in your full year forecast?

The first half was JPY 17 billion negative impact. And on a full year basis, JPY 35 billion is forecasted.

Originally, the metal, raw materials and flash all together was expected at around JPY 30 billion on a annual basis, but now we forecast JPY 35 billion. We are trying to offset this with our cost-reduction measures.

First half is JPY 14 billion. On a full year basis, JPY 35 billion.

My second question is on the Information & Telecommunication business segment. If you could break down which one's strong, which one's not so strong?

Big improvement in profit was seen in platform hardware business. We have continued our structural reform for a long time.

The domestic hard business, we have conducted our structural reform, and we're starting to see some results from that. So it is improving.

And the front business, SI business, SI solution business is also solid and strong. The project loss is being well controlled and is contributing positively.

So this business is strong. The numbers are on Page 23.

The Front and IT Platform Products breakdown is listed here. So please take a look.

Yes, Page 23. This does not show the profit -- profitability.

But for fiscal year 2016, our Front Business was 7.4%. In the first half, it's 7.8%, first half.

And IT Platform, 1.5% is now up to 6.8%. So we have made a turnaround.

This may be a bit too early but about next year, this JPY 30 billion. If nothing happens, then JPY 690 billion.

And with the current foreign exchange assumption, you may enjoy some benefits. So the operating income may reach JPY 700 billion.

So if you use that as a starting point for next fiscal year, which business segment can expect profit increase? Which business would you, Nishiyama-san, like to expect?

Yes, the structure is as you just explained. We are starting to enjoy the benefit of our structural reform in each segment.

We're starting to see some benefits in cost, and operational cost reduction is progressing better than we anticipated. So gross margin is -- in the first half 2016, it was 26.1%.

But in the first half 2017, it is 26.8%. So we're seeing an improvement.

And SG&A was 20.7%, is now 19.8% this year. So we are well controlling this.

So this 8% structure. Gross margin, 28%, SG&A, 20%, 8% with SG&A of 20% is not so down on the future.

We think this can be achieved in the near future. On a segment basis, IT and OT centered on Lumada, but the centerpiece will be the Information & Telecommunication.

And the structural reform is done on the low profitability business. We've been eliminating the low-profitable digital solution business, for example, but we will take this further.

So the structural reform we've done so far and the loss and cost reduction will continue. And in addition to that, we will expand the Lumada business and expect this business to grow going forward.

Until now, Products business had been enhanced, strengthened, Railway and the Industrial Equipment through M&A. For fiscal year 2017, the profit from M&A will be small.

There is an one-off initial cost, so the contribution is still small. But we expect the contribution to profit will expand in fiscal year '18 and onwards.

Just for clarification. So for the upward revision, the Information & Telecommunications and the Social Infrastructure & Industrial Systems has little contribution, but this will be bigger next year?

Yes, that's what we expect.

Any other questions? Please go ahead.

I have 2 questions I would like to ask. Question number one.

This overlaps with the earlier question, but on Information & Telecom, IT Platform profitability improved substantially in the first half. Looking at Page 23 of the material, in the -- JPY 24.2 billion in the first half, JPY 16 billion in the second half.

It seems that profitability is going to go down in the second half. Is there a special factor behind that?

Or are you just being conservative? So about the sustainability of profitability in this area, I would like to ask.

We're being cautious somewhat. Yes, certainly.

And another factor is that in the first half, high-end flash storage business performed better than expected. Sales were stronger than expected.

So in the second half, we're being cautious about that.

To the extent you can share in the first half high-end flash storage business, well, how much exactly was that? Just to give us a rough idea in billions.

We have not reported that -- included that in the material. I can't say.

And so you're being pretty cautious with respect to high-end flash storage?

Yes.

Second question has to do with Lumada. It seems that the progress rate is gradually going up in the second quarter.

Lumada core, JPY 86 billion, against the plan. What was your assessment of this number?

And in Industrial Systems, you're trying to leverage Lumada to improve competitiveness. You have given us quite interesting examples.

Are they really contributing to this fiscal year's performance? So that's my second question.

So these competitive projects have just begun. So at the moment, we cannot quantify them and discuss them in quantitative terms yet.

But these initiatives or projects or inquiries we're receiving from customers are increasing. There's a very strong need on the part of the customer to utilize Lumada.

On Lumada core business?

Well, although we do not have numbers that we can share. For the first half, 48% progress rate.

It's better than planned. And so for Lumada core as well, pretty much the same.

I have a few questions myself. I will go one by one.

In the Information & Telecommunication, you said that the structural reform is progressing well. But in the Social Infrastructure, in Industrial Systems, you may have problems.

I think you have reserves but the business has continued. So oil and gas and all those businesses inclusive.

Social Infrastructure, Industrial Systems, update on the structural reform. Could you update us?

And what is your future plan? What is your forecast?

Including the closure of a few companies, EPC, overseas EPC, large construction deals will end. We will withdraw from those deals, and we are trying to take the steps to withdraw from them.

There are some where the construction has been completed and some where the construction is underway, and they are progressing on schedule. There's one project which will continue -- 2 projects rather that will continue 'til fiscal year 2018.

But other than that, we will wind down the construction. However, there are some pricing or payment that we are negotiating with our customers on the additional specifications.

But in terms of costs, we have provisioned the reserve, and so the cost has been taken care of.

So you don't anticipate any additional cost?

No. There are some undecided portion that should be negotiated with our customers, but this is already set as risk buffer.

So part of the JPY 30 billion will be apportioned.

I understand. Now the U.K.

railway business and the Sullair update, which is going well, could you update us on that?

IEP start on day 1. We had some troubles.

There are 2 points. One is the delay in the railway, delay which caused some inconvenience.

The reason of the delay was this -- the wrong system setting -- setup and the water leakage. The water leaked because of the deficiency in the pipes -- piping.

But we have cleared this problem. It's completely solved.

We will take solid measures so that these problem will not happen again. Sullair, PMI of Sullair needs to be promoted, so that we can enjoy synergy effect as soon as possible.

So first, we will focus on PMI, and we have formed various working groups to promote our PMI. We are expecting in the sales side synergy we had in Las Vegas.

There was Sullair Agency Conference in Las Vegas. Sullair exhibited not only Sullair products but also Hitachi Industrial Equipment products and exhibited together as One Hitachi.

So they are very energetic in moving this forward. So in fiscal year '18 -- in fiscal year '17, there will still be one-off costs.

But from fiscal year '18 onwards, operating income, JPY 50 billion and even after the amortization of intangible assets, we will be able to enjoy 10% profitability. So that is our target for the PMI.

My second question is the basis of your plan for the second half. This JPY 9 billion for the corporate eliminations, I don't understand that well.

But if you add the first half, the second half, the operating income has not changed much. But LDPE1, for good or for bad, now operating income, how is your view on the operating income downside and upside in Japan and abroad?

Because you had this upside in the first half. Please share with us your view how much more than JPY 700 billion can you go?

How much upside do you expect or not backed by the business environment?

Now economic situation. We think this strong economy will continue, but we have to watch closely and ascertain whether this will actually be the case.

And the raw material, as I said earlier, is rising. Materials' price is rising.

We are taking measures to deal with that. But whether we can minimize the impact or whether we can offset this with cost reduction is something we have to work on.

We still have some concerns. Railway, steel, rare metal, copper, flash, the raw material cost is rising.

So we have to absorb this with our cost-reduction measures. So this impact has to be ascertained.

We have front-loaded the project from second to first quarter. We have deals in Information & Telecommunications and Social Infrastructure Industrial business where the projects will complete in fourth quarter.

So we will minimize a loss as much as possible, so that we have the risk buffer of JPY 30 billion. But we hope we can avoid that risk and achieve this close to JPY 700 billion and 8% operating profit.

Your business has been shifted to Johnson Controls, [indiscernible] so that's not a problem?

Metal and flash are the biggest factors.

My last question is, as I always ask you, maybe there's no new newsflow but the South African deal and the nuclear power business starting in fiscal year 2019. If you had any updates?

First, South Africa project. Our negotiation with MHI, it has reached the arbitration, and so this will be within the scope of confidentiality.

So I would like to refrain from giving you the details. However, in the arbitration, we will assert our own position.

On the other hand, we will also try to make efforts, as always, to come to a settlement through negotiation. That's all for South Africa.

What is the progress of construction in South Africa? Is it progressing well?

Yes. For Horizon, the latest update is, overall, it is on schedule.

First, ABWR. The GDA, Generic Design Assessment for U.K.

ABWR is now in the final stage, fourth step. And it will complete within -- by the end of December as scheduled.

And with that, with a new read site license which we applied in March 2017, which is the installation license. This will be acquired by 2018.

For EPC, the FID, Final Investment Decision, scheduled for 2019 will be the milestone. So we will start the construction after that, after FID.

And the additional subscription for Horizon which will be the basis for FID is now being discussed with various investors. That is all we can say at this point.

The most important point is the investment by the investors. Compared to previous timings, do you feel the traction?

Or is the situation changing? What is your image?

We are negotiating with various investors, and some investors are interested. So we continue our negotiation.

And about overseas, our planned projects, we said 2 projects, but actually it's 1.

So if you can manage that project, there will be not much of a loss?

Yes, that's correct.

Any other questions? It seems that there are no further questions.

So with that, we would like to conclude this meeting. Thank you once again for your attendance.