Hitachi Ltd ((HTHIY)) has held its Q4 earnings call. Read on for the main highlights of the call.
Hitachi Ltd’s recent earnings call presented a balanced outlook, showcasing strong financial performance and strategic growth plans under the Inspire 2027 initiative. However, the discussion also highlighted significant challenges, such as profitability gaps, the impact of U.S. tariffs, and a decline in the Chinese market.
Inspire 2027 Management Plan
Hitachi unveiled its Inspire 2027 management plan, which focuses on strengthening cash flow, optimizing capital allocation, and transforming its portfolio. The company aims for the Lumada business to represent 80% of its revenues and achieve an EBITA margin exceeding 20%.
Record Financial Performance
In FY 2024, Hitachi achieved record-high key performance indicators, with a 14% year-on-year revenue increase and adjusted EBITA surpassing JPY 1.1 trillion, marking an improvement to an 11.7% margin.
Lumada Business Growth
The Lumada business is expected to grow by 30% from FY 2024 to 2025, with a 1 percentage point increase in EBITA margin. Long-term goals include a Lumada revenue ratio of over 50% and an EBITA margin exceeding 18%.
Dividend and Share Buyback
Reflecting its commitment to shareholder returns, Hitachi announced a dividend increase and a JPY 300 billion share buyback.
Strong Demand in Energy and Digital Systems
There is continued strong demand for renewable energy projects and digital system services, with projected growth in these sectors despite global uncertainties.
Challenges in Profitability and Capital Efficiency
Hitachi is facing challenges in profitability and capital efficiency compared to global peers, with investments not executed as planned in the 2024 MMP.
Impact of U.S. Tariffs
The U.S. tariffs pose a significant risk, with an estimated direct impact of JPY 350 billion in the current period, necessitating supply chain restructuring and cost adjustments.
Decline in Chinese Market
A projected 2% decrease in overall revenue for Connective Industries is anticipated due to a decline in the Chinese real estate market, affecting building systems.
Forward-Looking Guidance
Hitachi’s forward-looking guidance emphasizes the Inspire 2027 plan, targeting a Lumada business revenue ratio of over 50% and an adjusted EBITA margin of over 18% by 2027. The company aims for revenue growth of 7% to 9% and an adjusted EBITA margin of 13% to 15%, while maintaining a cash flow conversion rate of over 90% and a ROIC between 12% and 13%. Strategic investments, particularly in the Lumada business and digital transformation, are prioritized to drive growth.
In summary, Hitachi’s earnings call reflected a balanced sentiment, highlighting both robust financial performance and strategic growth plans, alongside challenges such as profitability gaps and market impacts. The company’s commitment to shareholder returns and strategic investments in the Lumada business and digital transformation are central to its future growth strategy.