Hitachi Management Discusses F4Q12 Results - Earnings Call Transcript

| About: Hitachi Ltd. (HTHIY)
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Hitachi, Ltd. (HIT) F4Q12 Earnings Call May 11, 2012 ET


Toyoaki Nakamura – Representative Executive Officer, EVP and Executive Officer

Unidentified Company Representative

Now we would like to move to the meeting of Financial Results for the year ended March 31, 2012. First let us introduce members who are present here today: Mr. Toyoaki Nakamura, Executive Vice President and Executive Officer, Mr. Toshiaki Kuzuoka, Senior Vice President and Executive Officer, Mr. Yoshihito Kitamatsu, General Manager-Finance Department One.

So in accordance to this PowerPoint presentation, I’d like to have Mr. Nakamura to make presentation.

Toyoaki Nakamura

So let me explain the consolidated financial results for fiscal 2011 using the PowerPoint presentation. If you can turn the page to 1-2, consolidated statement of operations. Revenues were ¥9.665.8 billion. This was 104% year-on-year and we came up with the revised forecast on March 15, and it was 102% compared to that forecast. And operating income, ¥412.2 billion and this was up ¥33.2 billion and there was a drop in profits because of the earthquake and flooding in Thailand. But compared to the forecast, there was an improvement of ¥12.2 billion.

For net other income, we had this dry business and small and mid-sized display business was transferred and there was a gain. So ¥145.4 billion and ¥157.7 billion year-on-year and ¥55.4 billion compared to the forecast. And net income attributable to Hitachi Ltd. was ¥347.1 billon, up ¥108.3 billion year-on-year an improvement of ¥67.1 billion compared to the forecast. And two consecutive years, we posted record high net income. And there were great impacts on the great East Japan earthquake and floods in Thailand in fiscal year 2011 and revenues minus ¥320 billion, operating income, ¥95 billion, and net income or bottom line, ¥80 billion in negative impacts were posted.

And let’s turn to the next page. You can see the graphical representation of major factors with changes in operating income year-over-year. There was a great impacts from lower sales prices and effects of foreign exchange movements. But this was somewhat offset by material procurement cost cutting and improved capacity utilization. But there was an impact of the earthquake and flooding of ¥20 billion. So as a result, we ended up with operating income of ¥412.2 billion.

And let’s turn to 1-6, major factors year-on-year change in net income attributable to Hitachi Limited. Excluding impacts from the earthquake, there was a drop of operating income of ¥12.2 billion. And there was gain on securities and others of ¥143.1 billion and there was an improvement in equity in net earnings of affiliated companies. And there was also negative impacts from continued structural reforms and tax rate revision impact of minus ¥8 billion. And so there was an increased burden of income taxes. So, we ended up with the net income attributable to Hitachi Limited of ¥347.1 billion.

And 1-7, revenues by market. Japan, ¥5.5344 billion or 105% year-over-year, outside Japan, it was 102% year-over-year which is not that much growth as compared to the domestic market, and this was mainly because of the 90% year-over-year in China, so the overseas ratio was 43% which was the same as fiscal year 2010.

Let me now talk about consolidated balance sheets in 1-8 and 1-9. Total assets, ¥9.4185 billion up ¥232.8 billion year-on-year and there was a recovery from Great East Japan Earthquake and demand of reconstruction was captured and there was a recovery in demand for automotive systems and storage solutions were growing, and as a result, accounts receivable increased.

And then interest bearing debts, because of the gain on Hard Disk Drive business transfer, the borrowings were repaid so interest bearing debt was reduced by ¥125 billion. So, total Hitachi Limited stockholders’ equity was ¥1.7717 billion up ¥331.9 billion because of the record high net income and total Hitachi Limited stockholders’ equity ratio was 18.8%, or 3.1 points improvement and D/E ratio 0.865 times so 0.17 points improvement.

As for consolidated statements of cash flow, the cash flow from operating activities was ¥447.1 billion surplus. But because of the accounts receivable increase, it was dropped year-on-year and free cash flow was ¥251.5 billion and we were able to exceed the target of ¥100 billion substantially.

As for the summary of financial statements by Financial and Non-Financial Services, in terms of balance sheet, Manufacturing Services and others was 20.5%. In total, it was 18.8%. But in Manufacturing Services and others, the stockholders’ equity ratio was more than 20%, and D/E ratio, debt equity ratio was 0.56 times which is a significant improvement year-on-year. And free cash flow was ¥213.1 billion in surplus. And in 1-11, talking about capital expenditures for internal use assets, ¥377.2 billion or 38% increase year-over-year. And this was the investment that was started for expanded production.

And as for R&D expenditures, ¥412.5 billion or a 4% increase year-over-year and the percentage of revenues was 4.3% which was slightly up from the year before.

With regard to revenues by business segment, in terms of revenues, the Information and Telecommunication Systems, 107% year-over-year. Construction Machinery, 106%; Automotive Systems, 110% and all the way down, Others, because of the effects from the acquisition of Vantec Corporation. It was 124%. So in eight segments, we have seen growth in revenues.

But in Component and Devices and Digital Media and Consumer Products and Financial Services, we have seen a decrease in revenues. But compared to the revised forecast announced on March 15, in all segments, we have seen increase in revenues.

With regard to operating income by business segment, Information and Telecommunication systems, Social Infrastructure and Industrial Systems, Electronic Systems and Equipment, Construction Machinery, Automotive Systems, Financial Services and Others. In those seven segments, we have seen increase but in Power Systems, High Functional Materials and Components, Components and Devices and Digital Media and Consumer Products, we have seen decrease especially we have posted minus ¥33.9 billion in Power Systems and ¥10.9 billion Digital Media and Consumer Products.

So in two segments, we have seen losses. But in total, there was an increase of ¥12.2 billion compared to the forecast. So in most of the segments, we have seen improvements in operating income.

In 1-14, we’re trying to establish highly profitable structure, generating stable profit. And as for fixed cost cutting in fiscal year 2011, we are able to achieve ¥35 billion as scheduled by reducing indirect material costs and in material procurement cost cutting, although there was a jump in material costs, we were able to achieve ¥200 billion in reduction as scheduled. And we have been continuously promoting business structure reforms at Hitachi Group and we have Downsize Flat Panel TV business and also have conducted structural reforms in Hitachi Cable and Hitachi Kokusai Electric. And in business model reform we have transferred HDD business and small and medium-sized display business.

Please take a look at 2-2, outlook for fiscal 2012 as described in consolidated financial segments, revenues were ¥9.100 billion which is 94% year-on-year, which is expected to be the decline in revenues. But in the last fiscal year Hard Disk Drive and Display business were included. So if you exclude the impact from the transfer of these businesses, the revenues would be 100% or plus, so practically it is going to be the growth in revenues.

Operating income, ¥480 billion or up ¥67.7 billion year-over-year, and this is going to be 5.3% in operating margin. So we can achieve the midterm management plan of 5% target. And if you exclude the Thailand flooding and earthquake impact then the theoretical value for operating margin would be 5.1%. So we have been able to build the financial structure to be able to stably produce 5% operating margin. As for the bottom line, ¥200 billion is the forecast.

And in fiscal year 2011 the net income was ¥347.1 billion but excluding the Thailand flooding and earthquake impact. And again on business transfer of the Hard Disk Drive and Display which is one-time effect. Then if we compensate for that, we would see ¥204 billion in net income so we have been able to transform our business structure so that we can produce ¥200 billion stably in net income for three consecutive years.

And let’s turn to 2.4, outlook for fiscal 2012, revenues by business segment. In fiscal year 2011, Hard Disk Drive business and Other business were transferred so from April 1 this year, Components & Devices segment was abolished. And there were some reclassification between Component & Devices and Other segments so for the fiscal year 2011 forecast, a new classification is applied and the past the numbers are also restated.

And in Automotive Systems, Digital Media and Financial Services and Others, in those four segments, we have seen decline in revenues, but in the remaining six segments, we are expecting increasing revenues. And if we compensate for the business transfer of Hard Disk Drive and Display, then, we are expecting an increase in revenues about 100%-plus, year-over-year.

2-5, outlook for fiscal 2012, operating income by business segment. In total, we’re expecting increase of ¥67.7 billion. And in the last fiscal year, Hard Disk Drive and Display business were divested so if we save this to the same condition as fiscal year 2012, then we’re expecting ¥100 billion-plus increase. So we would like to continue to build the financial structure to stably produce profits.

Three is overview by business segment. I will focus on operating income outlook for fiscal 2012. Please turn to 3-1, Information and Telecommunication Systems. We are forecasting higher earnings, thanks to rigorous project management in services and improved profitability in Hardware and higher sales in Storage Solutions. Operating income, ¥120 billion, up ¥18.2 billion year-on-year.

In Power Systems, operating income is ¥22 billion, up ¥55.9 billion year-on-year. We expect to see a marked improvement due to the absence of one-time expenses incurred in fiscal 2011, stronger project management and cost-cutting programs and plan to generate profit.

Social Infrastructure and Industrial Systems. Operating income will be up ¥5.8 billion year-on-year. We forecast higher earnings in line with expected higher revenues from the Elevator and Escalator business, particularly in China and from plant-related equipment and construction received. Out outlook is ¥55 billion, up ¥5.8 billion year-on-year.

Electronic Systems and Equipment. We forecast higher revenues on expected growth in semiconductor manufacturing equipment at Hitachi High Technologies and power tools at Hitachi Koki and therefore forecast an increase in operating income accordingly, a ¥2 billion increase in operating income.

Next is Construction Machinery. Our revenue outlook is ¥850 billion, 106% year-on-year, thanks to an expected recovery in the Chinese market from around fall. In addition to expected growth in hydraulic excavators in emerging countries and the U.S., accordingly we forecast higher earnings on growth in sales of services, parts and components in mining machinery.

High functional materials and components. Operating income, thanks to the benefit of the business structure reforms at Hitachi Cable and higher revenues mainly from automotive-related products at Hitachi Metals and Hitachi Chemical. We forecast approximately ¥20 billion increase in earning.

Next is Automotive Systems. We are forecasting flat revenues, 99% year-on-year since the number has been rounded with emerging countries expected to continue performing strongly. And earnings on par, ¥37 billion to the previous fiscal year. Components & Devices will be abolished, so I will skip and move on to Digital Media & Consumer Products, 3-9.

We forecast lower revenues, 97% year-on-year due to an expected sharp decline in flat-panel TV revenues although home appliances and commercial packaged air conditioner sales should remain firm. In operating income, we project a marked improvement, ¥10.9 billion year-on-year, thanks to the benefits of business structure reforms in flat-panel TVs and an expected improvement in home appliances and commercial packaged air conditioner profitability. That is all.

As always, we will hold Hitachi IR Day 2012 on June 14, here. Please refer to the notice distributed today for details and attend the meeting for an active discussion. Thank you very much.

Now, let us move on to Q&A session. The gentleman in the front row please?

Question-and-Answer Session

Unidentified Analyst

There are three questions. Firstly, with regard to the philosophy of the plan of fiscal year 2012. This is the final year of midterm management plan. So this is going to be the minimum level that you must achieve and you are going to strive for upside, is that correct? And in eliminations of corporate items, you incorporate various risks, and if – when time passes by, if those risks do not materialize and the profits will be posted, and if those risks are actually materialized, then those will be incorporated in each segment. Is that what you’re going to do?

Toyoaki Nakamura

Yes. The fiscal year 2012 plan is something that we have to achieve definitely. And is there any upside that we can expect? Well, we just started out on this term and European market is becoming increasingly uncertain. So if we’re asked whether there is going to be upside, we can’t promise that there is going to be upside at this moment. We just would like achieve this plan. With regard to incorporating risks, as usual we are doing that to some extent. But as we go through quarter one, two, three and four, you will see that in the actual results.

Unidentified Analyst

If there are any risk factors that you can explain, what sort of risk factors are incorporated in elimination and corporate items? If you can explain that, that will be appreciated even if it is qualitative basis.

Toyoaki Nakamura

Well, we can’t really explain in specific terms. But in some group affiliates, the foreign exchange assumption is somewhat skewed to a weaker yen as compared to our internal rate of ¥75 to the dollar and ¥100 to euro. So there are such factors that are incorporated. But you never know what is going to happen down the road and something unexpected could happen. So there are things that we can specify and things that we cannot and this is as far as we can disclose for the moment. Thank you

Unidentified Analyst

On page 7 of the PowerPoint, you have indicated major factors, the change in operating income. Likewise, do you have any comparison between fiscal year 2012 plan and fiscal year 2011 especially, how much have you incorporated procurement cost reduction in your plan?

Toyoaki Nakamura

We haven’t reconciled any overall total numbers. But with regard to material procurement cost reduction, including the smart transformation project benefits. We’re striving for ¥160 billion in fiscal year 2012. Conventionally, we used to see a reduction of about ¥200 billion. But now that Hard Disk Drive business and small and medium-sized Display business were gone. In those businesses, sales prices were low. But product lifecycle was short. So there was a significant benefit in terms of reduction in cost of goods sold. But this is now gone, so ¥150 to ¥160 billion in reduction. But be comparable to the conventional level in terms of reduction of cost.

Unidentified Analyst

In Power Systems, there were special costs incurred in last fiscal year and this is going to be gone this fiscal year, including the issues of the boiler materials in Europe, if you can elaborate more on that, that will be appreciated.

Toyoaki Nakamura

It all started with the new material code T24. And with regard to this issue, by the end of last year we have identified the cause and came up with the solutions. So as we negotiated with the customers, we have just started the construction work again. And with regard to investigation and past expenses, we have paid for that so those were paid for by Hitachi. And going forward, we are going to make further improvements and we would consult with our customers so that we can start operation as soon as possible.

But from January 2012, those negative factors have been going away and construction work has started. And Hitachi Power Europe closed the book in December. So the performance between January and December is expected in the March 2012 earnings of Hitachi.

So the performance in January through March of 2012, Hitachi Power Europe will be reflected in first quarter of Hitachi Limited. And because of the issue of T24 being resolved, we have seen slight surplus and so we will not see the kind of loses in fiscal year 2012 that we suffered in fiscal year 2011.

Unidentified Analyst

I’m sure you have accounted for some allowances, is there any prospect for getting some provision?

Toyoaki Nakamura

There are maybe some but the probability is not that high. Therefore, we believe that the numbers that we have come up with for the forecast are reasonable, so we do not anticipate any major change.

Unidentified Analyst

I have two questions, first is on TV business, Mr. Nakanishi said that profit is possible. How much improvement did you see in revenue and operating income in fiscal 2011 and what is your outlook for fiscal 2012? My second question is on China business, what you said was difficult. What is the reason and your outlook for fiscal 2012?

Toyoaki Nakamura

TV business generated loss in fiscal 2011. We closed the domestic production and started utilizing EMS. We will not discontinue our TV business, but we are pursuing business restructuring. This year, we will restructure our manufacturing basis and revenue will decline due to the maintenance costs borne by us. Fixed costs cannot be reduced to zero and therefore, negative figures will remain but it will not be surprisingly large down swing like we saw in the past. Revenue and number of the units will be explained later.

Now, responding to your second question on elevator business in China, Eastern region in China is declining but the orders in Central and Western region is not dropping, thanks to the government’s aggressive plan to build China’s affordable housing. The decline is seen in construction machineries such as mining machineries and hydraulic excavators and Hitachi construction machinery. In addition, PC could not be manufactured last year due to the flood in Thailand, so although hard disk drive price rose, the price of optic disk drive is declining as a trend. And therefore we are being impacted in China.

In railways, we expected a bigger increase but the investment is dropping due to the problems in government, accidents and the increasing debt in railroad ministry. The investments should resume in the second half of the year but we see an impact in China. The market will now grow by double digit like in the past.

Let me make some supplementary comments on TV. Fiscal 2011 was 1.5 million units globally, 76% year-on year, and fiscal 2010 was 1.97 million with an operating loss. Revenue is not disclosed.

Unidentified Analyst

My first question is on balance sheet. What is the impact of the transfer of Hard Disk drive business on your balance sheet? Along with gain on sales or cash in, liabilities may have decreased too. So, please give us the figures.

Second question, looking at the balance sheet excluding financial services, net debt is dropping to ¥800 billion level. When do you think you can turn to net cash? Please explain your free cash flow plan for this year and whether this level is sustainable going forward?

Third question, please give us the Storage Solution revenue result and plan on local currency base. You forecast a small growth this year, probably due to the strong yen, so if you could give us the local currency base please. And also, what is the operating income forecast for this business including the possible impact of the shortage in hard disk drive procurement?

Toyoaki Nakamura

The positive impact of the transfer of Hitachi GST on our balance sheet. We received ¥287 billion in cash, which was used to repay our debt. The gain on sales was ¥191 billion. So, debt decreased and equity capital increased. In foreign exchange adjustment, the negative portion in other comprehensive loss is gone with the disappearance of Hitachi GSD another positive factor in equity capital. Stockholders’ equity ratio is now 18.8% and approximately 3 percentage points come from the transaction this time. So debt decreased, equity capital increased, and total asset decreased. So it was favorable for our balance sheet.

Now responding to your second question on when net debt in Manufacturing will be zero, we do not plan to go for zero debt management again. D/E ratio in this field is 0.56 times in fiscal 2011 and we plan to aim for 0.5 times in fiscal 2012. We will pursue global growth strategy going forward and increase cash flows from operating activities, which means cash flow from investing activities will increase accordingly. Investment cash flow will increase in Manufacturing sector rather than the Financial Services sector, so we will have debt. And therefore debt-free management in the Manufacturing sector is unlikely.

Storage solutions in foreign currency basis is 115% year-on-year or $444.3 billion. It is difficult to calculate the negative impact of hard disk drive price increase on storage solution. But our competitors are procuring hard disk drive as well so we are in a level playing field. We are strengthening soft services and increasing revenue including the acquisition of BlueArc. Therefore, despite the negative impact we are promoting reform so profit margin will not decline.

Unidentified Analyst

Is 15% increase this year’s plan?

Toyoaki Nakamura

No, fiscal 2011 result.

Unidentified Analyst

What about this year’s plan?

Toyoaki Nakamura

We do not disclose dollar base figures.

Unidentified Analyst

What is your – this year’s free cash flow?

Toyoaki Nakamura

We hope to achieve at least ¥100 billion positive.

Unidentified Analyst

I have three questions. Firstly, about profitability of the Digital Media & Consumer Products segment. If you can’t disclose specific amount of losses in TV businesses then can you explain more on the quantitative basis? In the last fiscal year, one major factor of losses may have been disposable of – disposal of inventories, is that correct to understand that? And what would it take to recover the level of profitability that you achieved in fiscal year 2010 in TV business and other businesses, including the timing of those measures that could be taken

Toyoaki Nakamura

Are you talking about fiscal year 2011?

Unidentified Analyst

No. I’m talking about ¥15 billion profit that you have achieved in fiscal year 2010. And my second question is about the Information and Telecommunication Systems segment forecast for this fiscal year. I’m not sure if this is intentional but you mentioned the word project management. So that would make people wonder if there was any losses incurred in the last fiscal year. If there is any such losses to some extent then can you explain more about those losses?

And thirdly I have a question about the Power Systems segment. The nuclear power stations have not been restarted and this must have impact in the last fiscal year as well as in this fiscal year. So have you assumed the restarting of nuclear power stations in this fiscal year? And if there is no restarting of the nuclear power stations, are there any cases where you haven’t been able to recognize profit because there are no acceptance tests that were performed by customers? And how have you incorporated this prospecting your forecast for this fiscal year?

Toyoaki Nakamura

With regard to Digital Media and Consumer Products segment profitability as compared to the fiscal year 2010. With regard to profits in TV business, quantitatively or rather qualitatively, there was a sudden drop in demand and price fall in fiscal year 2011. So there was disposal of inventories so what you said is in that sense right. And we’re taking measures for just discontinuing of domestic production and reduction of headcounts. So there will be still some negative impacts in fiscal year 2012.

The revenue scale is expected to decline and losses will obviously be reduced as compared to fiscal year 2011 but there’ll be some that we’ll see in the fiscal year. And what is necessary to recover the fiscal year 2010 level profitability.

In the global market, the commercial packaged air conditioners and home appliances will have to be produced in emerging countries and sold in those countries. We are already reducing exports from Japan but we have to shift our approach from exports to local production and local consumption.

In TV business, we’re not expecting major surplus but because of these measures, we’re expecting more sales in home appliances. So without any major losses in TV business, we can expect surplus in the segment as a whole.

With regard to the emphasis on project management and the Information and Telecommunication systems, people may have wondered that there were some losses. Well, in the project management, there are always some projects that suffer losses and how to manage this is the most important in terms of system integration business. In order to avoid those losses, you have to enhance the quality of project managements and the management structure of the projects should be segmented clearly, and we always have to share information closely with the customers so that the project will not deviate from the original plan.

And so we are working on project management currently. And there is a screening process to decide whether we take a particular order, and we have lowered the threshold about which project will be subject to such screening from, for instance, ¥1 billion, so that there won’t be any deviation from the original plan. The project team may say that there will be surplus but the project may end up with losses in the end. So it’s not the case that things are totally out of control, but in domestic market, the system integration business is not the kind of business that we can expect major growth so we have to avoid any lost opportunities so we are continuing to reinforce project management.

With regard to restarting of nuclear power stations, in fiscal year 2012, we are not assuming any starting of nuclear power stations. The unit 3 and 4 of GE nuclear power station is irrelevant because we’re not involved, but for those units that are relevant for us, we are not assuming any restarting of those plants in this fiscal year.

With regard to the failure to recognize profits, it is true that Higashidori and other plants have not been restarted so we wish we could recognize profits, but if there’s no progress in work, we would not be able to do so. So we’re not assuming any liquidation in profits.

Unidentified Analyst

Dividend in fiscal 2011 increased by ¥2 per share. You mentioned ¥200 billion bottom line target for this year. Please share with us your view on the dividend. What will be the conditions for dividend increase this year?

Toyoaki Nakamura

Regarding dividend, as mentioned in (inaudible), fiscal 2012 is undecided. The amount has not been resolved in the Board of Directors meeting and we cannot touch on that today. But if we achieve the bottom line of ¥200 billion, dividend should be at an appropriate level from the payout ratio. That said the market is unforeseeable so we will see the first half results this year for fiscal 2012 and decide. I cannot mention the amounts today.

Unidentified Analyst

First question is the way to look at ¥400 billion operating income this year. The earthquake and the Thai flood had ¥95 billion negative impact on the earnings. Then, even excluding the Components & Devices segment, the earnings does not seem higher on the operation basis. How can I look at this? Related to that, first half is ¥150 billion which is lower earnings year-on-year. It does not seem to quite add up given the impact from the earthquake. Components and devices in the first half last year was ¥12.7 billion. So flat or lower earrings given, even including that. So please elaborate on that full-year and first half please.

The second question, you are delisting from New York Stock Exchange. So what will be the accounting method going forward?

I believe you will go with SEC method until fiscal 2011. But will you change to J-GAAP or IFRs after delisting from NYSE?

Toyoaki Nakamura

Operating income in fiscal 2012 is ¥480 billion. So, given the earthquake and flood in Thailand impact of ¥95 billion, it is flat. Excluding hard Disk Drive and Display, ¥67.7 billion is up to ¥103 billion, so a slight increase in earnings. That said, exchange rate is projected at ¥75 to the U.S. dollar and ¥100 to the euro so we are under a strong yen impact.

In addition, we forecast this level since Europe and China are not strong in the first half. Our business is such that profit is low in the first half and high in the second half. We want to level it off, but Japan has a high proportion in our revenue and therefore profit tends to concentrate in March. First half profit will improve as overseas revenue ratio increases.

Unidentified Analyst

Could you tell us the foreign exchange sensitivity and the impact on this year?

Toyoaki Nakamura

In U.S. dollars, ¥1 fluctuation has ¥6 billion impact and in euro, ¥1 has ¥1.1 billion impact.

Unidentified Analyst

And your accounting method, please?

Toyoaki Nakamura

We delisted from New York Stock Exchange. But there is FSA special treatment. Once we are registered with SEC, delisting does not change the accounting method. So we will keep the SEC standard. A possible shift to IFRS in the future is currently being explored.

Unidentified Analyst

So, the current accounting method will continue after delisting from New York Stock Exchange?

Toyoaki Nakamura

Accounting treatment will not change the prior year results.

Unidentified Analyst

I would like to know more about the re-classification of segments, that’s my first question. In operating income, in eliminations and corporate items, in the last fiscal year, minus ¥23.8 billion and in this fiscal year, minus ¥52 billion in others, ¥72.7 billion for last fiscal year and ¥48 billion for this fiscal year. For others, the component and devices reclassification is the major factor, is that correct? And as for elimination and corporate items, is it mostly the buffer or has there been any impact from reclassification?

And second question is about net income. In your explanation earlier, you said that without special factors in the last fiscal year, net income would have been ¥204.1 billion. There was a gain on sale of Hitachi GST and Display business. And you have excluded only those factors or about ¥80 billion from the impact of Thailand flooding and earthquake has it been also included. And in fiscal year 2012 of ¥200 billion, is there any evaluation gains of shares of Hitachi GST? So I like to know more about the philosophy behind net income.

The third question is about Automotive Systems. In this fiscal year, you’re forecasting flat income – net income in Automotive Systems. There were Thailand flooding and earthquake in last fiscal year, so you would expect growth in profits in this fiscal year. Is this the result of a reclassification of, say, battery business or Hitachi Maxco being shifted from one segment to another? Because Automotive System is generally strong so it doesn’t make sense if you’re expecting just flat growth.

Toyoaki Nakamura

As for operating income, the segments were reclassified into 10 and when we did that, remaining part of component and devices segments have been shifted to other segments. So there is no impact from other segments’ reclassification. And with regard to minus ¥23.8 billion in elimination of corporate items, the number has not been changed from when we had 11 segments.

And with regard to minus ¥52 billion in fiscal year 2012, how much risks are involved. Well, we have incorporated risks to some extent. We are starting out on positive investments and there are some risk factors involved. But we have to wait and see until the settlement of accounts because some expenses could be postponed in some cases. And we are fixed, we are checking fixed expenses and reducing fixed expenses as part of the Smart Transformation Project. So, if we can reap the benefits then these numbers could be reduced further.

And as for ¥204 billion in net income, we have excluded the negative impacts from flooding in Thailand and earthquake last year and the gain on the business transfer of Hitachi GST and Display business, which is also a one-time effect. So, we have changed the conditions to match that of fiscal year 2012. This would have been the net income.

And with regard to ¥200 billion in fiscal year 2012, you talked about possibility of evaluation gain of shares. We did acquire 25 million shares of Western Digital as part of the consternation for the deal. And there have been unrealized profits but we haven’t realized the evaluation gains.

And as for Automotive Systems, you’re asking why the profitability is flat. Of course, I wish there could be more profits, but as Mr. Nakanishi said, going forward the automotive component business should be developed into one of the core businesses. So we hope that there’ll be more profits to be produced in this business. But in the Chinese market, up until April, we have seen some positive statistics, so if this continues then we may be able to expect a better numbers but we have to wait and see until these accounts are being settled.

With regard to batches for vehicles, there has not been any reclassification because it has always been in Automotive Systems segment. Question, with regard to net income, there was minus ¥80 billion from Thailand and earthquake. ¥227.1 billion in profits from Hitachi GST and Display business, so there was a gain of ¥220 billion to ¥230 billion from the gain of this business transfer. Yes, but for display, there was ¥30 billion plus profits. So that concludes our presentation meeting for fiscal year 2012.

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