Hitachi, Ltd. ( HIT)

Q2 2012 Earnings Call

November 01, 2011 08:00 am ET

Executives

Takashi Miyoshi – Representative Executive Officer, Executive Vice President and Executive Officer

Toshiaki Kuzuoka – Senior Vice President and Executive Officer

Yoshihito Kitamatsu – General Manager of Finance Department

Presentation

Operator

Ladies and gentlemen, thank you very much for attending the presentation for the Consolidated Financial Results for the second quarter ended September 30, 2011 for Hitachi Limited. We will be ending today’s meeting at 6 o'clock this evening. Now, I would like to introduce the speakers for today. In your middle is Takashi Miyoshi, Executive Vice President and Executive Officer; to your left, Toshiaki Kuzuoka, Senior Vice President and Executive Officer; to your right, Yoshihito Kitamatsu, General Manager of Finance Department 1.

I would like to ask Mr. Miyoshi to start the information.

Takashi Miyoshi

Now, I would like to give you the results for the first half of the fiscal year ending March 2012. Please refer to page 5. This is the consolidated statement of operations. For the first half, revenues were 4,572.7 billion Yen, 102% year-over-year. Operating income 170.6 billion Yen, an increase; income before income taxes, 133 billion Yen; and net income attributable to Hitachi was 50.9 billion Yen.

In the first quarter, the earthquake impact was significant and therefore, on a year-on-year basis, we recorded increase in revenue, but decrease in earnings. Please refer to the right-hand column; previous forecast comparison is presented. Revenues was 104%; operating income was 70 billion Yen increase.

Net other deductions was negative because of the foreign exchange impact; income before incomes taxes 58 billion Yen; and net income attributable to Hitachi was 40.9 billion Yen increase. 1-3, which is the impact of the great East Japan earthquake. For the first half, revenues was impacted by 190 billion Yen; operating loss is 70 billion Yen, and other deductions 20 billion Yen.

Although not stipulated here, I'd like to talk about the second quarter impact. Revenues was impacted by 60 billion Yen; operating loss impacted by 20 billion Yen; and other deductions, 5 billion Yen. We have seen some recovery in the second quarter, but there is still impact of the earthquake, with respect to the supply chain, as well as the customers' situation. But all-in-all, we believe that we have normalized our operations in the second quarter.

Next, please refer to 1-7 on page 10, and this is the revenues by market. I have already given you the total previously. Japan was 102% year-over-year. Outside Japan, 101%; as a result, outside Japan accounts for 44%.

In terms of the regional breakdown, China was at 92% year-on-year. It has continued to grow over the years. However, in the first half, because of the tightening of the monetary policy, we recorded a decrease in revenue. But Asia, ex-China, as well as North America and Europe, we recorded increase in revenues. Now, for other areas, we have recorded 109%. This is the significant increase in Africa, as well as Europe.

Next, page 11 and the consolidated balance sheet. Total assets was flat compared to the previous year. On the other hand, the interest bearing debt was 2,641.1 trillion Yen, this increased from the June end, which was 2.860 trillion Yen. But this has decreased from the level of June end. But this is because of the fact that inventories is high and decline in account receivables in the first half. As a result, the stockholders’ equity ratio was 15.8% and D/E ratio was 1.08 times deterioration from the previous year-end.

Next, I would like to move onto 1-9, consolidated statements of cash flows. Cash flows from other new activities were 93.1 billion Yen, decreased significant because of the increase in inventory and a decrease in the account receivable receipts.

Last year, we posted proceeds from the sales of business, which we did not have this fiscal year. Because of M&A, there was increase in expenditure; that is the reason why it deteriorated. Therefore, the negative free cash flow was 128.6 billion Yen. However, for the fiscal year, we have set an objective; we will improve in the second half, and we would like to end the fiscal year with a positive cash flow.

1-10 on page 13. This is the balance sheet breakdown by Manufacturing, Services & Others, and Financial Services. Please refer to the stockholders' equity ratio and the D/E ratio. In particular D/E ration for Manufacturing, Services & Others was 0.76 times and deteriorated some 0.68 at the end of last fiscal year.

1-11, page 14; this is the capital investment and research and development expenditure. I would like to highlight the internal use assets, 154.6 billion Yen. And this is increase of 30% year-on-year and this is in the area of Hitachi Construction Machinery as well as the automotive plants, so we have made investment to increase the production in these areas. And also we have made investment for restoration after the earthquake, causing this increase. The consolidated research and development expenditures was 199.1%, percentage of revenues were 4.24%.

Next, I would like to talk about the segment information and first of all starting with revenue. I’m pleased to note the year-over-year numbers, which shows the characteristics. Information & Telecommunication Systems, the storage solution was strong globally showing a significant growth. And also there was a steady improvement seen in Japan, for the Solutions business, showing a steady recovery we ended with 103%.

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