The Hitachi Group’s Growth Strategy

History of Management Reforms and Hitachi’s Mid-term
2015 Mid-term Management Plan
2013-20152012 Mid-term Management Plan
2010-2012

Building a Foundation for Growth

The Swapping Out of Businesses

Rebuilding Management

RecoveryInitiatives and Results(1) Promoting the Social Innovation Business on a global basis bystrengthening front-line functions• Expanded service businesses using digital technologies(1) Creating a product-specific system with clear lines of responsibility and authority• Clarified responsibility and authority through introduction of an in-housecompany system• Strengthened digital capabilities through the acquisition of Pentaho• Consolidated businesses into six groups, focused on growth fields under an
integrated system of operations, and accelerated management(2) Reviewing non-core businesses• Thermal power business: Established joint-venture firm with Mitsubishi
Heavy Industries(2) Rebuilding or withdrawing from unprofitable businesses• Automotive systems business: Rebuilt through structural reform• Air conditioning business: Established joint-venture firm with JohnsonControls• Flat-panel TV business: Ceased in-house production• HDD business: Sold off after rebuilding• Batteries business: Hitachi Maxell relisted, with Hitachi drawing down its
stake in the company(3) Strengthening cost competitiveness• Launched Hitachi Smart Transformation Project(3) Promoting the globalization of Hitachi• Shifted rail business headquarters to the UK• Expanded centralized purchasing and global procurement• Consolidated and optimized production base placement• Launched Global Performance Management to more effectively utilize global
human resources

Looking Back and the Challenges Ahead
Looking Back

Looking Back

After booking its largest losses ever in fiscal 2008, Hitachi during the period covered by theHitachi during the period covered by the 2015 Mid-term Management Plan substantially revised its business2012 Mid-term Management Plan advanced the rebuilding of its business. The rebuilding of theportfolio as if sought to build a foundation for growth. The Company acquired Pentaho, which develops andautomotive systems business, the withdrawal from the internal manufacturing of flat-panel TVmarkets big data analytics software, as part of its aim to strengthen and expand the global value chain inbusiness, and the transfer of the HDD business all served to improve profitability, allowing Hitachi

big data utilization, while also removing from consolidation its thermal power, air-conditioning, and batteries

to concentrate on the Social Innovation Business that so effectively leverages the Company’sbusinesses. In addition, Hitachi moved its rail business headquarters to the UK as part of its effort to promotestrengths. In fiscal 2012, Hitachi consolidated operations into six strong groups and worked to

the globalization of the Company, appointing Alistair Dormer, currently serving as executive vice president,

speed up management through an integration of operations.

as the global CEO of the Company’s rail business. In personnel evaluation systems, Hitachi introduced

Hitachi’s operating income ratio in fiscal 2012, the final year of the Mid-term Management Plan,“Global Performance Management” as a mechanism under which compensation directly reflects personal

fell short of the 5% target due to write-off associated with a sharp drop in material prices, as well as

performance assessments as well as the global common standards for job roles.

the booking of structural reform costs and reduced capacity utilization amid economic slowdown

In fiscal 2015, the last year in the mid-term plan, the target was not achieved due to a delayed response toin China and Europe. However, it improved to 4.7% thanks to cost structure reforms, Hitachi Smartchanging market conditions, including in the telecommunication and networks business, as well as losses

Transformation Project, in line with the Smart Transformation Project. In addition, after dropping todue to insufficient management at a large overseas project. Another factor contributing to underperformance

11.2% in fiscal 2008, the stockholders’ equity ratio recovered to 21.2% in fiscal 2012, while the D/

was the greater-than-expected increase in structural reform costs due to an acceleration in structural reforms

E ratio narrowed to 0.75x over the same period, indicating a clear improvement in Hitachi’s financial

following a deterioration in the market environment for the infrastructure systems, power distribution, andposition as the company worked toward the establishment of a stable earnings base.

construction machinery businesses. However, operating income reached ¥600 billion, with the operating
income ratio at 6%, signaling stability in the profitability and an improved ability to generate cash.

Challenges Ahead

Challenges Ahead• Further improvements in business profitability• Accelerate management’s speed to more quickly respond to changes in the market environment• Strengthening the service businesses• Strengthen project management• Global business development and establishing a management base that makes that possible• Take action regarding unprofitable businesses

2012 Mid-term Management Plan*1

2015 Mid-term Management Plan*1

2010

2011

2012

2012 (target)

2013

2014

2015

9,315.8

9,665.8

9,041.0

10,000.0

9,563.7

9,774.9

10,034.3

434341—454748

Adjusted operating income (¥ billion)

444.5

412.2

422.0

—

538.2

641.3

634.8

—

Adjusted operating income ratio (%)

4.8

4.3

4.7

More than 5%

5.6

6.6

6.3

More than 7%

EBIT (¥ billion)

443.8

573.2

358.0

—

585.6

534.0

531.0

—

EBIT margin (%)

4.8

5.9

4.0

—

6.1

5.5

5.3

More than 7%

Net income (loss) attributable to Hitachi, Ltd. stockholders (¥ billion)

238.8

347.1

175.3

200.0 level

264.9

217.4

172.1

More than 350.0

Total Hitachi, Ltd. stockholders’ equity (%)

15.7

18.8

21.2

2024.1

23.7

21.8

More than 30%*2Revenues (¥ billion)
Overseas revenue ratio (%)

10,000.0
More than 50%

Return on assets (%)

3.3

4.4

2.5

—

3.5

2.9

2.4

—

Return on equity (%)

17.5

21.6

9.1

—

11.2

7.8

6.1

—

D/E ratio (Including non-controlling interests) (times)

1.03

0.86

0.75

Less than 0.8 times

0.73

0.83

0.87

—

Operating cash-flow margin (%)

9.0

4.6

6.5

—

4.6

4.6

8.1

—

*1 The above figures are prepared in accordance with U.S. GAAP through fiscal 2013 and with the International Financial Reporting Standards (IFRS) from fiscal 2014.
*2 Manufacturing and services, etc.

302015 (target)

Hitachi Integrated Report 2019

Management Plans
2018 Mid-term Management Plan

2016-2018
Achieving Growth in Social Innovation

Utilizing Digital Technologies(1) Transforming into a three-level structure, composed offront-line, platform, and product tiers(4) Conducting an ongoing review of company businesses• Logistics business: Partial sell-off of Hitachi TransportSystem stock• Introduced business unit system(2) Strengthening of global front-line functions• Bolstered global front-line operations through acquisitions(Ansaldo STS, Sullair)(3) Launching Lumada to expand the digital solutions business• Financial services business: Partial sell-off of Hitachi
Capital stock• Power tools business: Sell-off of Hitachi Koki

• Launched Lumada• SPE business: Partial sell-off of Hitachi Kokusai Electricstock• Established Hitachi Vantara to deliver digital solutions• Automotive systems business: Sell-off of Clarion• Lumada business revenues grew to about ¥1 trillion

Looking Back
With the goal of strengthening front-line functions, including the number of sales,system engineers, and consultants, and creating a system of collaborative
cooperation with our customers, Hitachi from fiscal 2016 moved from a productspecific company system to a three-level system, composed of front-line, platform,
and product tiers. With the three-level system, Hitachi bolstered the management
speed. Specifically, business units (BUs), which had been subdivided fromthe former in-house companies to develop and provide services closely to thecustomer, and group companies, including listed subsidiaries, were positioned toeach level. We also strengthened project management and worked to improve
profitability at individual businesses. With the aim of enhancing on a global basis
the front-line functions central to the Social Innovation Business, we acquired
100% stakes in Ansaldo STS, which supplies signal equipment and control
systems to 30 or more countries and regions, and Sullair, which manufactures,sells, and services air compressors to about 4,000 customers, mainly in North
America. In December 2018, we signed an agreement for the acquisition of ABB’spower grid business. The goal of each of these is the acquisition of a robust global
sales network and the expansion of the Social Innovation Business.
To add to this, we launched Lumada in May 2016. Lumada takes the essential

technologies for delivering advanced solutions, including AI, analytics, security,
robotics and control technologies distributed across the company and applies
them to a common platform, creating a system that comprehensively andorganically leverages the resources of the entire Hitachi Group to quickly andflexibly create new innovations. Thanks to a steady increase in customer
collaborations, Lumada business revenues are trending as planned and havealready exceeded ¥1 trillion. Moreover, in addition to reorganizing our businessportfolio, including selling off listed subsidiaries with little connection to thecore Social Innovation Business, we continued to reform our cost structure,
which contributed to the adjusted operating income ratio meeting our Midterm
Management Plan target and reaching a record level.

Challenges Ahead• Aggressive investment in key areas of focus• Improved capital efficiency• Accelerated innovation and active use of digital technologies with a focus onLumada

2018 Mid-term Management Plan*1201620172018

9,162.2

9,368.6

9,480.6

4850

51

Adjusted operating income (¥ billion)

587.3

714.6

754.9

—

Adjusted operating income ratio (%)

6.4

7.6

8.0

More than 8%

EBIT (¥ billion)

475.1

644.2

513.9

—

EBIT margin (%)

5.2

6.9

5.4

More than 8%More than 400.0

Revenues (¥ billion)
Overseas revenue ratio (%)

2018 (target)
10,000.0
More than 55%

Net income (loss) attributable to Hitachi, Ltd. stockholders (¥ billion)

231.2

362.9

222.5

Total Hitachi, Ltd. stockholders’ equity (%)

30.7

32.4

33.9—

Return on assets (%)

3.0

5.0

3.3

More than 5%

Return on equity (%)

8.1

11.6

6.8

—

D/E ratio (Including non-controlling interests) (times)

0.29

0.23

0.23

Less than 0.5 times

Operating cash-flow margin (%)

6.9

7.8

6.4

More than 9%31