Hitachi, Ltd. (6501) Earnings Call Transcript & Summary

It is time. So we would now like to start Hitachi Limited Environmental and R&D Strategies Web Conference. Thank you very much for taking time out of your busy schedule to attend this web conference. The presentation materials used today are posted Hitachi Limited IR website and News Release site. Environmental strategy will be explained in English, and R&D and intellectual property strategy will be in Japanese. They will be interpreted simultaneously and distributed on English and Japanese channels. On the Japanese channel, you can listen to English presentation, too, with language selection function. Please select the language you like from the interpretation button at the bottom of the Zoom screen. The location of the display may differ between devices. On PC, you can find the interpretation button at the bottom of the Zoom screen. Now let me introduce the presenters: Alistair Dormer, Executive Vice President and Executive Officer; Norihiro Suzuki, Vice President and Executive Officer, CTO; Yuji Toda, General Manager of Intellectual Property Division. 3 presenters will present today. Today, environmental strategy will be explained by Mr. Dormer, R&D by Mr. Suzuki and IP strategy by Mr. Toda, followed by Q&A session at the end. First, our environmental strategy will be explained by Mr. Dormer. Please wait for a moment until we switch the screen. Mr. Dormer, please.

Thank you very much. Well, good afternoon, ladies and gentlemen. My name is Alistair Dormer, and I am delighted to have this opportunity today to talk to you about Hitachi's environmental strategy. To briefly introduce myself to you all, I have been working for Hitachi for close to 18 years. So time certainly flies when you're having fun. My previous roles included Vice President and CEO of Hitachi's rail business located in London, and I moved to Tokyo 2 years ago to take responsibility for the mobility sector, which includes Hitachi's railway and elevator businesses, and I've recently been appointed Chief Environmental Officer for Hitachi Limited. I'm super excited about this new role. It is a huge challenge and that's because Hitachi has a major role to play in decarbonization. And I see this as a great value-creating opportunity for the company working across our 5 key verticals. Please turn to the agenda. So in today's presentation, I would like to briefly cover Hitachi's commitment to carbon neutral. We are serious and aiming for world-class ESG performance. I will talk about the macro trends, which will create the opportunities for Hitachi to help governments, cities and companies to cut carbon emissions and, finally, how we see this global challenge of carbon reduction, combined with the requirement for further digitization to be the engine for growth in the energy, mobility, industry and IT sectors. So let's move on to Hitachi's commitments on the next slide. Hitachi is committed to carbon neutrality by 2030 for our global operations. Now we have a comprehensive plan, driven by my old friend, Masai-san, Head of Hitachi's monozukuri. His team of highly experienced manufacturing professionals are working right across Hitachi's extensive manufacturing operations to minimize energy consumption and will invest around JPY 84 billion to reduce our energy consumption by at least 22% on a like-for-like basis over the next 10 years and reduce carbon emissions by 24%. Our procurement organization is negotiating group-wide deals to switch to renewable energy, to fully utilize Hitachi's buying power, starting first in Europe. The objective of this big effort is that because we want to demonstrate leadership in this important area, and we want to negate the risk of needing to buy carbon credits by 2030. Our plan is detailed, comprehensive and has been recently endorsed by science-based targets, which is the real gold standard for accreditation. The slide shows a number of Hitachi's sites, which are now carbon neutral, so we are delivering on our commitments. And this includes our Central Research Laboratory, so thank you, Dr. Suzuki. And finally, our executive pay will be linked to environmental performance as well as financial performance from April 2021, initially, for objectives, but we will continue to develop our internal carbon pricing system over time. Can we go to the next slide, please? Now looking further out to 2050, 86% of Hitachi's carbon emissions are through the life of our products. We have committed to reduce these emissions by 50% by 2030 and 80% by 2050. Now we see this journey of co-creation with our customers, our key partners, suppliers, governments, cities, and we're working with all of the organizations shown on this slide to reach our goals. And I'll talk a little bit about that later. Next slide, please, Slide 2. Now there have been a multitude of government announcements to tackle climate change, and we see that as a real positive for Hitachi. The last 12 months has been a very difficult time for many with the pandemic. However, one real positive to come out of this is that governments around the world have committed to carbon neutrality. Prime Minister Suga has committed Japan to carbon neutrality in 2050. China is committed to carbon neutrality by 2060. And Europe and the U.K. have announced huge investments in renewable energy and policies to move away from fossil fuel usage. And now Joe Biden is moving fast, recommitting the U.S. to the Paris Accord and committing over $2 trillion to clean energy. Now this will dramatically change energy generation and distribution with huge increases in demand for electricity forecasted. With renewable energy becoming the dominant source of energy, this introduces additional complexity of less stable supply and demand balancing. So we need smarter systems to manage. This is a really dramatic change in a very short space of time, and the world has finally got serious about reversing climate change, and Hitachi is uniquely placed to help. I see this change as the next great opportunity for Hitachi. In our history, we have changed from a product-out business to a customer-centric business, and now we have this opportunity to transition to a value-based business to anticipate the needs of society and bring added value. Turning to the next slide, please. Now through the acquisition of Hitachi ABB Power Grids last year, we are in the forefront of the challenge to electrify. Multiple studies have concluded that demand for energy and electricity will double by 2050. I was talking to the Power Grids' CEO, Claudio Facchin, the other day, he told me, in 2020, Power Grid's business was approximately 95% about moving electrons and 5% about moving data. Now we know that the electrons will double by 2050, which will require extensive expansion of the grid, but the expansion of data will increase exponentially, which is why Hitachi's combination of Power Grids and Lumada is so important for the future. Let's turn to the next slide, please. Now this shows just some of the exciting projects Hitachi ABB Power Grids is managing. And these are just so impressive. From distributing solar energy in Africa to connecting offshore wind in the North Sea and the China sea; linking the grids of Norway and Germany, the U.K. and France; providing intelligent infrastructure to Britain's railways, e-bus networks in India; and serving industry providing high-voltage substations for data centers and secure energy for Dubai, Hitachi ABB Power Grids are at the forefront of this opportunity, and we have a strong track record as the major player in this growth sector and are well placed to catch this wave of investments. So let's move to the next slide on mobility. Now I talked about the investment in energy, which is truly significant. But the transition from predominantly fossil-based fuels in the mobility sector to electric will require perhaps 4x the level of investment required for the energy sector. It's absolutely huge. Transportation is a significant contributor to global warming, responsible for 20% of the world's CO2 emissions. The trends of population growth and urbanization will continue, and this will drive huge demand for green public transport, green logistics, and private electric vehicles will grow enormously. Let's have a look at the next slide and look at rails opportunities. Now Hitachi Rail business is at the forefront of this challenge. We are busy delivering 43 hybrid trains in Italy to replace older diesel trains, which will reduce emissions by 50% on a like-for-like basis. And at the end of last year, we unveiled our zero-emission battery tram in Florence, and the trial is going really, really well and will help with the decarbonization of this historic city. And in the U.K., we are replacing diesel engines with batteries on one of our intercity express trains to demonstrate the feasibility. Now this is a huge fleet, and we are really excited about this opportunity. And here in Japan, we are working with JR East and Toyota on the hydrogen-hybrid advanced rail vehicle, which is a really exciting development for the future. So in the short term, in the next 5 to 10 years, we see a combination of electric and battery trains to be the main technology to remove the need for diesel trains. But we believe that the rail industry will benefit from the automotive industry's rapid transformation to EV and rapid advances in battery technology. And this will continue. And really, due to the size of the automotive market and the massive scale, this is a big advantage for our rail business. But hydrogen will have an important role to play in the future, perhaps 5 to 10 years' time, and we will continue to work with Toyota on this exciting development. Let's turn to the next page, please. Now let's talk about electric vehicles. I have mentioned the transition to EV, and these charts show the projections, with Hitachi Astemo predicting 27% compound annual growth rate for EVs over the next 5 years. Astemo is aiming for market leadership in motors and inverters by 2025 and a competitive position in the future of eAxle drive units. This market is really exploding, particularly in Europe and in China. Even my wife's father is now driving an EV and he was always committed to conventional cars, and they are very impressive, I have to say. Let's please turn to the next slide to further the EV story. Now one of the big challenges for fleet and bus operators in the transition to electric fleets is how to manage the many constraints introduced by battery operation. We are working in the U.K. on a program called Optimise Prime with a number of delivery companies, service companies and taxi companies. Now previously, these companies just really needed to worry about drivers and where is the nearest gas station. But in this new world, we need to fully understand how to manage and optimize within the constraints of battery range, optimum vehicle operation and, ultimately, battery life because this affects the vehicle residual value. So it's quite a complex challenge. Now for Hitachi, this is a fantastic harvest of data. And coupled with the experience Hitachi has gained from our renewable energy management and battery energy storage projects in the Isles of Scilly in the U.K. and Hawaii over the last 5 to 10 years, we have a real advantage in this sector. We see exciting revenue opportunities through digital asset management services, covering both vehicles and charging infrastructure through as-a-service, commission and subscription-based business models. We are currently engaged in discussions with both municipalities and bus owners in Europe as well as vehicle leasing companies to develop compelling business propositions to help with the transition to EV bus. These cities and bus companies want to transition quickly to EV, and Hitachi has the know-how of how to make this happen. In short, we see this business model being similar to our experience with agility trains in the U.K. So now let's turn to see how Hitachi can help industry with the challenge to decarbonize. Next slide, please. The manufacturing represents 54% of the world's energy consumption and 20% of emissions. We believe that the experience we are gaining applying Lumada technology to reduce our own emissions is extremely valuable. We are working with customers to help them address their challenge to reduce CO2. Next slide, please. I'm sorry, this is a little bit complicated slide, but this diagram indicates the various engagement points where Hitachi is supporting our customers, from helping customers to understand their energy consumption drivers, providing sustainable technology and all the way through X as a Service to help the transition to renewable energy. Can we go to the next slide, please? Now as part of our research, Hitachi has developed an energy monitoring system and installed this in our Central Research Laboratory. As companies look to demonstrate their commitment to decarbonize, it is important that they can easily demonstrate compliance with their commitments to renewable energy. Using blockchain technology and visualization technology, we can show both consumption and the source of energy within a facility and thereby certify compliance. We think this is a really useful service for our customers. Now Dr. Suzuki will talk a little bit more about this in his presentation and also a little bit more about the sustainable technology that we are developing. Can we go to the final slide, please? So in summary, green technology x digital is a real engine for growth for Hitachi. You can see on this chart Hitachi's 5 sectors and how the majority of these sectors and regions are positively impacted by the growth in green technology and digital. This is a really exciting time for Hitachi to help cities, to help governments and companies cut carbon and accelerate our potential as a climate change innovator. Thank you.

Thank you very much, Mr. Dormer. Please wait for a moment until we switch the screen. Next, Dr. Suzuki, please.

[Interpreted] Yes. This is Suzuki. Let me talk about research and development strategy. Next slide, please. There are 3 points I wanted to communicate to you today: first, expand R&D investment for carbon neutrality; two, create innovation in the environment area with the new Hitachi Group companies, Hitachi ABB Power Grids and Hitachi Astemo; three, accelerate R&D to expand Lumada business. Next slide, please. I will follow this table of contents. Next, please. First, direction of the R&D group. This shows our R&D group's direction. In fiscal year 2015, we changed our R&D structure significantly, and we shifted gears from the R&D for SI to customer co-creation. We are now facing the global social issues, COVID-19. So we are shifting towards the value-based innovation for a carbon-neutral society and human-centric society. Next, please. First, this is the research and development group policy. In this fiscal year, we focus on value-based innovation and contribute to Lumada business expansion. On the right side, you can see the global R&D organization. We promote R&D under CSI, CTI and CER, the 3 centers with 2,600 staff like we had last year. The business units and group unit and R&D and sectors will collaborate to promote the innovation. Next, please. This shows Hitachi Group investment in R&D. Left side shows our annual trend of R&D investment. In fiscal year 2019 and 2020, the investment decreased with the business portfolio reshuffle temporarily, but towards fiscal year 2021, we will reinforce R&D to grow in environment and digital field. On the right side, you can see our R&D efficiency, where profit is divided by R&D expenditure. Up to 2019 and first quarter of fiscal year 2020, it decreased with COVID-19, but trended upward in the second half of fiscal year 2020. In fiscal year 2021, we want to improve the efficiency even further. Next slide, please. Right side shows the R&D investment portfolio by sector. IT is the highest at 20%. With IT and Hitachi ABB Power Grids and Hitachi Astemo, the proportion of energy and automotive parts is increasing. Next, please. Next is our corporate R&D portfolio. R&D group is roughly blue part, the BU funding, and the green part, corporate funding. And the ratio is, as you see in the center, roughly 70:30. So business unit funding, this is sponsored research and advanced sponsored research. There is R&D for existing business and next-generation business. And frontier and platform research aims to generate innovation in the medium to long term. As you see on the right side, the value-based innovation, including environment, resilience and safety and security are reinforced. And starting last fiscal year, we started the corporate venturing. We already invested in 7 start-ups and accelerating new value creation through collaboration. Now as one example, Hitachi's first inside-out case is the establishment of Happiness Planet in July 2020. We are supporting the work style reform to improve the happiness under COVID-19. So this outside-in and inside-out activities will be expanded going forward. Next, please. These are the major external recognitions in fiscal year 2020. In Public Biometric Infrastructure, PBI, we received Masuda prize, the highest in best 10 new products awards. We are encouraged to expand our empty-handed authentication platform business even further. And the adsorbent for nuclear power plant, inspection equipment for RoHS2, amorphous motor, immuno-analyzer, superconductivity wire and 11 other good design awards were received. These are the awards for offering environment resilience and safety and security values. Next slide, please. Next is the contribution to Lumada business growth. This shows the annual trend of Lumada business revenue and R&D group contribution. The contribution is rising year after year. Going forward, we will strengthen through Lumada alliance program and deploy Lumada from other research assets, including material development and expand Lumada to energy/mobility field through collaboration with Hitachi ABB Power Grids. Next, please. Now let me talk about the innovation for value creation. Next, please. We are working to capture changes in society and customers, form visions with industry, government and academia and disseminate globally. More specifically, in Hitachi University Tokyo Lab, we formulated scenario for 2050 carbon neutrality and Hitachi Kyoto University Lab new vision for societal system. And in China, Future Innovation Linkage Program with Tsinghua University. And in Europe, we participate in decarbonization community. And in Digital City, we are collaborating in Thailand and Australia. We promote creating innovation through back-testing from future vision. Next, please. Based on these visions that we develop, we generate value-based innovation and expand technology platform. As you see in the center, for these innovation themes, we will fully leverage our technology platform under project structure and promote customer co-creation and technology development. We think there are only 2 or 3 companies in the world that have this technology platform of this level. We can also utilize it across business sectors to improve investment efficiency significantly. Now with Hitachi ABB Power Grids and Hitachi Astemo, we enhanced our technology platform dramatically. I will talk about the synergy with these 2 companies going forward. Next, please. First, Hitachi ABB Power Grids. Hitachi ABB Power Grids has world's #1 business in grid automation, HVDC and T&D products. By exerting synergy with Hitachi's technology platform, we will develop core business in environment by leveraging technologies, including security, 5G, AI and Lumada. We will create the innovation in the demand-side system, including RE100 supply, EV, hydrogen and data center. Next, please. Next is Hitachi Astemo. Hitachi Astemo aims to acquire global leader position in AD, ADAS, xEV and advanced chassis. By exerting synergy with cybersecurity, AI analysis and upgrade with OTA and other strengths Hitachi has in software, we are confident that we can be a global leader driving CASE. This is how we plan to realize synergy with Hitachi ABB Power Grids and Hitachi Astemo. Next, please. Now let me talk about our initiatives on 3 values, starting from environment. Next, please. First, initiative on electrification. Hitachi, as mentioned earlier, newly announced the carbon neutral in our production, own production in fiscal year 2030. In particular, we will maximize drive efficiency of the electrified system to realize carbon neutrality. In the industrial motor, we utilized amorphous magnetic alloy foil and achieved IEC's highest standard value of IE5 with rare-earth-free magnets. In EV inverter, we realized world's highest-level high output with dual-side cooling module. We received Ichimura prize in industry against global warming and best 10 new product awards. And in SiC power device, we realized lowest level loss in industry with Hitachi's new proprietary structure. We plan to deploy this for EV, rail, power system and data center. Next, please. In energy field, we will provide grid control and demand-side energy management system for expanded introduction of renewable energy. With grid control, we have track record in introducing it to customers with world's first risk prediction type online grid control. In order to expand function for expanded introduction of renewable energy, simulation, verification is ongoing to achieve both renewable energy mass series and stable operation. In the energy management, Hitachi ABB Power Grids has e-mesh EMS that realizes distributed energy and renewables. By adding function to integrate analysis of real-time prediction data and past data, we will improve the operational efficiencies in office buildings and production facilities. Next, please. We've reached -- realized the visualization of renewable energy usage for each facility and service. As you see on the right side, we attached smart meters in each facility in consumer sites, utilized the blockchain and managed power origin on per-facility basis and digitally certified 100% renewable energy usage for each product and service. The system operations started in Kyoso-to in Kyoso-no-Mori and verification is underway. We plan to expand the scope from green procurement to the entire supply chain going forward. Next, please. This shows the initiatives for hydrogen energy. In the hydrogen coal-firing power generation system, by dynamically responding to a combination of wide variety of fuels and compositions and optimizing the operating condition with AI control, we realized high efficiency. This power generation system demonstration was conducted in Fukushima prefecture with Denyo Kosan and AIST. In blue hydrogen production system, Hitachi's proprietary shift catalyst with atomic level structural control is used to aim for 30% reduction in water resource usage. Now Osaki CoolGen project's Stage 2 verification is ongoing. Through these efforts, we will strive to realize sustainable hydrogen value chain. Next, please. Next is resilience. Next, please. For resiliency improvement in industry field, we are working to realize value chain optimization to flexibly respond to changes in the business environment. Last year, Hitachi's Omika Works became first in Japan to be chosen as the advanced world-leading factory lighthouse that leads the fourth industrial revolution. The high-efficiency production model won high acclaim. Various systems utilized here are being deployed to automotive and chemical manufacturers through customer collaboration. The work site visualization and planning optimization on the right side are some examples. In the work site visualization, we realized the integrated management and analysis of plant, process, human, product and equipment data in customer sites. And in planning optimization with Hitachi's proprietary mathematical optimization AI, total optimization from procurement to sales is applied through customer collaboration. We are aiming to expand this as Lumada solution. Next, please. Third is safety and security. Next, please. In the initiatives in medical pharma for safety and security, we are aiming to raise the QoL with measurement x digital and bio x IT. Our chemical immunoassay has the highest share in the global market. By applying machine learning-based image processing technology, accuracy and throughput of testing improved. It also has antibody testing capability for novel coronavirus. In regenerative medicine, clinical application of iPS cell produced from automated cell culturing equipment started last month through co-creation with Sumitomo Dainippon Pharma and Kyoto University last month. And integrated management platform that manages traceability of the entire value chain for regenerative medicine products is now being offered. Through these initiatives, we will promote the penetration of regenerative medicine. Next, please. In the security field, we will offer safety and security to people in both cyber and physical space. In the empty-handed authentication, world's first safe and secure PBI technology, eliminating the need to store biometric data enabled empty-handed identification. Service offering started in October last year. In addition to application with customers and in Hitachi, verification is ongoing in Turkey as well. In human flow and behavior visualization, we provide safety and security in public areas, such as train stations and airports using AI image analysis of people and luggage. We began the sales of high-speed people detection and tracking solutions and are conducting the COVID countermeasure verification in Tokyo Dome for commercial applications. Next, please. Next is technology development for Lumada business expansion. Next, please. In April last year, Lumada Data Science Lab integrating business divisions and R&D was established. Top data scientists are gathered in Kyoso-no-Mori to expand Lumada business using Hitachi's unique customer co-creation structure and experience. By combining the business units consulting skills, application skills and AI technology capability of R&D, we have already received a few business orders. Now regarding the evolution of Lumada, real-time data collection and feedback will be the key to realizing value creation across business domains. To realize this, let me talk about the initiative on 5G edge computing, edge processing, AI, ultra-big data processing and quantum computing. So let me give you some examples. Next, please. First is AI initiatives. AI ethical principles was developed for the progress in AI technology supporting a human-centric society. Standards for conduct and practices common in planning, social implementation and maintenance and management for Hitachi in charge of social infrastructures are stipulated. We actively participate in AI -- this AI principle is already being operated in Lumada data science, and we are actively participating in international AI competition to enhance the AI technology. We won in the first place in the international AI competition in video and language. This is a great achievement that demonstrates Hitachi's capability. World's #1 AI technology cultivated here are being deployed in Lumada solution, including high-speed people detection and tracking solutions and improved efficiency of corporate disclosure document analysis. Next, please. Next is the initiatives in 5G solutions. We developed 5G verification environment for the real-time control use case and are promoting co-creation. In telepresence remote operation support, for example, AR glass advanced sensing technology and low latency video transmission and technology allows realistic presence, real-time 360-degree comprehension of on-site situation and remote operation support. To accelerate 5G solution development, we developed 5G verification environment in Silicon Valley site in the U.S. and Kyoso-no-Mori. Using this verification environment, we will accelerate the collaboration in 5G real-time control in mobility and energy field. Next, please. Lastly, initiatives in quantum computing. In Hitachi, we promote R&D for a scalable silicon quantum computer with industry-government-academia collaboration. Quantum research has a long history and track record. We have pursued basic physics research in Hitachi Cambridge Lab established in Cambridge University in 1989. And in 2005, Silicon quantum bit was verified. CMOS annealing, the pseudo -- simulated quantum computer was structured with semiconductor integrated circuit as the first in the world in 2015. And we have accumulated track record in non-life insurance portfolio optimization. JST Moonshot R&D program is promoted through industry-government-academia collaboration to realize silicon quantum computing. We will accelerate R&D to realize quantum computing soon. Now last is my summary. So as I mentioned today, we will strengthen R&D in environmental and digital fields to become a global innovation leader driving carbon neutral in the R&D group. Thank you for your attention.

Thank you very much. Please wait for a moment because we have to switch the screen. Lastly is Mr. Toda.

[Interpreted] I'm Yuji Toda from Intellectual Property Division. I would like to talk about intellectual property strategy. Next slide, please. These are the 3 points that I want to deliver today: number one, to strengthen global IP together with Hitachi ABB Power Grids and Hitachi Astemo, who joined Hitachi Group; number two, to strengthen environment-related inventions, visualize IP library and expand business opportunities; number three, the IP knowledge accumulated throughout our IP activities over a century aiming at our next 100 years will be used for social contribution and business growth for environment and digital. Next slide. I will follow these contents. Slide 1-1. Under the 2021 IP midterm management plan, we will aim at becoming global leader that increase value by utilizing IP. Hitachi aims at society, environment, economic values improvement. For this purpose, IP knowledge will be used to strengthen global IP ability and contribute to solution for social challenges with IP. Next is Slide 1-2. Hitachi is promoting 3 IP activities: competitive strategy, collaboration and co-creation strategy and IP for society. Number one, competitive strategies will strengthen product competitiveness by protecting IPs of patented products, such as industrial energy-saving air compressor. In co-creation strategy, it will secure IPs, such as human-flow visualization solutions, [ essentially ] Lumada. These will be used to promote IP partnership. These activities were recognized, and for the first time in this fiscal year, we won the Minister of Economy, Trade and Industry awards at FY 2020 IP Achievement awards. IP Society is a new IP activity proposed by Hitachi. For example, the Hitachi Hokkaido University Lab. This covers both co-creation IP for society, aiming at improving health of as many mothers and children as possible with declared license-free patent. Also, participation under the partnership of WIPO GREEN, which is an international environmental technology transfer platform or international standardization activities of environment would fall under the category of IP for Society. Next, Slide 1-3. In the last few years, because of M&A and business restructuring, the number of patent applications declined, but we will now be strengthening global IP. The left graph shows international patent applications or PCT applications compared with the competitors of OT companies. Together with the companies that joined Hitachi Group will be strengthening those efforts. There was an announcement yesterday that for 10 consecutive years, we won the top 100 Global Innovators Award by Clarivate, which is a global authority. Number of patents of global nature and international power was evaluated. Right-hand side graph shows the inventions of digital solution related to Lumada compared to the competitors. In terms of quantity and quality, we are aiming at becoming global number one. Next Slide, 1-4. From this year, Hitachi ABB Power Grids and Hitachi Astemo joined Hitachi group, so IP will be further strengthened. Hitachi ABB Power Grids digital solutions will be integrated with Lumada. And there will be a strong IP platform for digital and energy platform joining Hitachi. From Hitachi Astemo, xEV, AD/ADAS, advanced chassis patents are joining -- by joining with existing Hitachi [ assessor ] synergy, we believe we can expect the energy management system with low environmental load. Next slide is about strengthening environmental-related inventions and expansion of business opportunities, Slide 2-1. The upper part graph shows the size of patent portfolio of environmental-related inventions for the last 20 years. Hitachi from old days was aware of circular economy and was engaged in IP activities for environmental-related solutions. Left-hand side shows that even before the enactment of home appliance recycling law from 1990s, we have been trying to control the release of CFCs, including the insulators through hand disassembly, and we're making technical developments considering the global environment, and we're active in filing patent applications. It is now implemented in Tokyo Eco Recycle. Technology is transferred to Taiwan. And we have been a pioneer of circular economy. Even now, we are trying to create solution inventions with high-quality based on value. The right-hand side shows invention that simultaneously evaluates impact on environment and energy consumption and also invention of controlling charge and discharge of EV concerning the CO2 emission of the power grid. By using Lumada, through environments x digital, we will create solutions and contribute to the circular society and decarbonization. Next, Slide 2-2. In response to Scope 1, 2, 3, those are examples of inventions as we contribute to carbon neutral. For CO2 reduction, highly efficient industrial air compressors are developed and a patent is held on this. Low-temperature shift catalyst is developed to reduce the use of valuable water resources to realize sustainable hydrogen production, as was introduced by Mr. Dormer and Dr. Suzuki. To prove the use of renewables, we filed the patent application on visualization of green energy. And lastly, visualization and verification of investment effects like ESG and sustainable finance platform, patent application was filed on these, and we want to use this effectively to support the business. Next, we are thinking of expanding business opportunities by using IP, which is our next slide. Hitachi has set environmental vision and environmental innovation 2050. We have created inventions, such as rapid diagnostics of battery degradation. We'll establish an IP library by linking these solutions with environmental values. And these IPs will be used to scale directly and indirectly externally to expand business opportunities. In addition to realize SDGs, Society 5.0 and circular economy, through these, we will contribute to the society. Next, Slide 2-4. Under the concept of IP for Society, we will create an ecosystem with IPs as a catalyst. To be specific, we will partner with various stakeholders, such as OIN, Open Invention Network and OSS community and international standardization organizations such as ISO and United Nations organizations like WIPO and also start-ups and academia to improve environmental value and create such an ecosystem. Next to Slide 3-1. This slide shows the history of our business domains. At first, we started as an OT that manufacturers high horsepower motors, but ITs were added and now business area has been expanded to digital solution by using IoT. For IP, in 1921, a patent section was established. So this year is the 100th anniversary. Meanwhile, OT, by IT, by product, a broad range of business areas and diverse business challenges were handled, and we experienced creation of a variety of values and solutions using IP. This IP knowledge will be utilized for the future 100 years. Last slide, Slide 3-2. Towards the next 100 years, through IP activities that will increase the value of environment, resilience, and safety and security, we will contribute to realization of sustainable society and business growth. Thank you very much for your kind attention.

Thank you, Mr. Toda. Now we would like to move on to Q&A session. [Operator Instructions] The question will first be from the media on the Japanese channel; next, institutional investors and financial analysts; followed by the participants on the English channel. So we will take questions from the media on the Japanese channel. [Operator Instructions] Any questions?

[Interpreted] [ Auki ] From Yomiuri Shimbun. Can you hear me?

Yes, we can hear you.

[Interpreted] Earlier, Mr. Dormer, in your first slide, JPY 84 billion investment into environment. Could you give me the breakdown?

Thank you for your question, you're asking about the breakdown of environmental investment. Mr. Dormer, please.

Okay. Thank you very much for your question. In terms of the breakdown, I don't want to go into huge amounts of detail. But of the JPY 84 billion, JPY 60 billion of that is in reducing our energy efficiency or is in improving our energy efficiency and JPY 24 billion of that is in purchasing of renewable energy. Since 2010, we have already invested around JPY 50 billion. So this JPY 84 billion, I think, will make a big contribution towards our reduction of CO2. Thank you very much for your question.

Next, Mr. [ Hanada ], please unmute and ask your question in Japanese, please.

[Interpreted] I'm [ Hanada ] from Nippon Keizai Newspaper. Can you hear me?

Yes.

[Interpreted] I have a question to Mr. Dormer. So you will contribute to the society and environment. So the types of business will be important. Do you plan for M&A and business realignment? Will this environment be a very important theme in your plan? And which indices, which KPIs do you focus on in environment? So that's my first question. Next question, in R&D and IP, you said you will focus on the environment. Specifically, which indices metrics will you use to select your R&D and themes?

Thank you. So the first -- your view on M&A will be answered by Mr. Dormer. And the second question, R&D, metrics and indices will be answered by Dr. Suzuki.

Thank you very much for your question. I mean regarding Hitachi, our President, Higashihara-san mentioned over a year ago that Hitachi is looking at economic performance and environmental performance and sustainability or our contribution to society. So all of those 3 are very important considerations. So the environment is important, but I would not say that, that is the sole basis. What is very important is businesses that have good market potential, good potential growth and good returns for our investors but which businesses that positively contribute towards the society. In terms of how we measure that, we have our internal KPIs. The first thing is regarding our credibility as an organization that is committed to reducing CO2 and being environmentally responsible, which is why I showed on my slides the various organizations that we are working with for ESG rating. FTSE4Good, FTSE Blossom, all of these external organizations are actively auditing our efforts. And I was particularly pleased in December that our CO2 reduction plan was accredited by science-based targets because that is really the gold standard for accreditation in this developing area. In terms of looking at how we grow our business in the environmental area, we are developing our own internal KPIs, but really, because our businesses are focused on growing in the energy sector, in the mobility sector, the industry sector and IT sector, we see the environment as really a following wind for our businesses, very positive development because we are operating in these businesses, which can positively affect CO2 reduction and can benefit from the massive investment that is being pledged throughout the world by governments and by cities as they seek to decarbonize. Dr. Suzuki?

[Interpreted] So R&D KPI, let me respond to your question. As I mentioned at the outset, customer co-creation shifting to value-based stance. So our stance has changed. Our customer co-creation had focused on efficiency solved by digitalization, digital means. But this value-based approach means carbon neutral, which is becoming a more central theme and carbon economy central theme for our customers. We are trying to solve these. So our environmental strategy exists in the company and, based on that, we conduct our R&D. So that is our value-based R&D and innovation. So as Mr. Dormer mentioned, what we are doing is very much in alignment. And in order to meet the KPIs, R&D will work together hand-in-hand. So that is the value-based innovation that I see is desirable. So that is how we plan to pursue R&D.

Before moving to the next question, in the earlier question, Mr. Dormer answered about the breakdown in investment. There were some errors in the figures in Japanese. Out of JPY 84 billion investment, energy saving investment is JPY 60 billion and renewable energy investment is JPY 24 billion investment. Next question, [ Koide-san ] please unmute yourself and ask your question in Japanese.

[Interpreted] Koide from Asahi Shimbun. Can you hear me?

Yes.

[Interpreted] So one question. Anyone can answer the question. As regards to JPY 84 billion in the first question, at the moment, Hitachi's CO2 emission volume or out of that emission, how much is emitted out of factories? What is the breakdown of current emissions at Hitachi? What is the present situation?

Mr. Dormer, please.

Thank you very much for your question. As you rightly said, our businesses that have a significant manufacturing footprint have a higher level of CO2 emission than our businesses which have a lower level of manufacturing. Across Hitachi, we have individual plants for all of our individual businesses, but also all of our factories. Looking across the complete portfolio of Hitachi, just to give you an indication, something like IT is relatively low in terms of CO2 emissions. Our industry sector is higher than IT. And then our listed companies, such as Hitachi Metals and Hitachi Construction Machinery are different again in that metal manufacturing is a higher CO2 emitter in terms of Scope 1 and Scope 2, which is the production element of CO2 emissions. And Hitachi Construction Machinery, because it has many vehicles, which are using conventional engines, has higher levels of CO2 emissions in Scope 3, which is in the service element of operation. So that's probably about as detailed as we should go for now.

[Interpreted] So may I ask the next question? Do you know what is the current emission volume? And by 2030 to achieve carbon neutral, does it mean that the emission volume and collection, for example, of carbon to make net zero? I think that is the purpose. So what would be the portfolio in 2030?

Thank you for your question. It's a very difficult question to answer because 2030 is a long way away. What I can talk about is our portfolio as we stand at the moment, as I mentioned, we have detailed plans for reduction. What I can say is that the CO2 emissions of our operations are fundamentally coming from our energy consumption during production, which is -- where our focus is until 2030. So the 2 strategies that we have to reduce that CO2 emissions is the reduction of our energy usage, that's both electricity and other forms of energy; and switching our energy supplies to nonfossil fuel supply. So switching to renewable energy. So those are the 2 areas that we focus on. We believe we can continue our reduction in energy consumption, which is quite significant -- has been quite significant already, and we can move over to renewable energy. In terms of the detail of how many tonnes of CO2 that Hitachi produces, I think our Investor Relations staff or communication staff can supply with that information, if necessary, later. But I'm very focused on how we reduce energy and how -- where do we buy our energy from in the future.

We will move on to the next question.

[Interpreted] And to achieve 2030 carbon-neutral, what are areas that will become major challenges to achieve 2030 carbon neutrality?