Hitachi Integrated Report 2018Year ended March 31, 2018

Hitachi Group
Identity

Hitachi Group Identity
Originally set by Hitachi founder Namihei Odaira, the Mission has been carefully passed on to generations of
employees and stakeholders throughout the company’s 100-year history. The Values reflect the Hitachi Founding
Spirit, which was shaped by the achievements of our company predecessors as they worked hard to fulfill Hitachi’s
Mission. The Vision has been created based on the Mission and Values. It is an expression of what the Hitachi Groupaims to become in the future as it advances to its next stage of growth. The Mission, Values, and Vision are made to
be shared in a simple concept: Hitachi Group Identity.

The more than century-long history of Hitachi since its founding is built atop the Mission expressedby founder Namihei Odaira— “Contribute to society through the development of superior, originaltechnology and products.” Based on continually honing its proprietary technologies, Hitachi hassought to fulfill this Mission by providing products and services that address societal issues as
they have changed over time.
Hitachi’s philosophy of contributing to society and helping efforts to address societal issues isfully aligned with the Sustainable Development Goals (SDGs) adopted by the United Nations andthe Society 5.0* concept promoted by the Japanese government. Today and for the future, Hitachi
aims through its wide-ranging business activities to resolve the issues of its customers and society
in the quest to build a more dynamic world.
* Society 5.0 expresses a new idea of society and related efforts to achieve this, as advocated by the Japanese government. The aim is to develop the economy while
addressing societal issues by deploying AI, IoT, robots and other forms of advanced science and technology to make use of various data creating an affluent,human-centered society. The name refers to the evolution of a fifth form of society, continuing from the hunter-gatherer, agrarian, industrial, and information societies.

MISSION
In 1910, Hitachi was founded as a mining machinery
repair shop in Ibaraki Prefecture, Japan.
At a time when Japan was relying on imported products
and technology, Hitachi founder Namihei Odaira formed
a team that chose to rely on a different resource—themselves. With perseverance and enduring passion,
the team created, developed, and delivered original
products and technologies.
The driving force behind the team was Odaira’s
noble belief: “Contribute to society through thedevelopment of superior, original technology
and products.” This belief was the starting point for the
Hitachi Group. Today, it forms Hitachi’s Mission, which is
the overarching concept of the Hitachi Group Identity.

VALUES

Hitachi Founding Spirit

Harmony
The willingness to respect the opinions of others anddiscuss matters in a manner that is thorough and frank,
but fair and impartial, and once a conclusion has beenreached, to cooperate and work together to achieve a
common goal.

Sincerity
To act with a sense of ownership and honesty at all
times and never pass the buck.
The spirit to meet society’s expectations and generatecredibility for Hitachi.

Pioneering Spirit

Hitachi Founder, Namihei Odaira

Repair shop when Hitachi was founded

The power station at the Hitachi mine (1916)

To work creatively, using novel approaches to enter
new areas.
To always act as a pioneer within our areas of expertiseand to have the passion to pursue higher goals beyond
our capabilities.
1Our Innovation
History
In every era, Hitachi has brought innovation to the issues society faces, in step with the economic,
social and environmental changes of the times. Beginning with product development and manufacturing driven by independently developed technology, Hitachi has honed Operational Technology(OT) that moves production site equipment and systems throughout the manufacturing process.
During periods of high growth, Hitachi engaged in the development of large-scale systems to support
infrastructure, and was vigorously involved in the development of Information Technology (IT). What
has emerged since is Hitachi’s transformation into one of the world’s most unique companies,
defined by sophisticated OT and manufacturing technology, cutting-edge IT, and products known
for high quality and reliability.
Digital technology is fundamentally changing the way the modern world is structured. Based on
its strengths in OT, IT, and products, Hitachi aims to help address the issues faced by today’s society
through its Social Innovation Business, which supplies advanced social infrastructure systems.
In this way, Hitachi is contributing to gains in people’s quality of life, while helping to realize asustainable society.

1910sOriginal manufacturing technology
supports Japan’s industrial base1960sControl technology and information
systems to support social
infrastructure in period of rapid
economic growth

2010sDigital solutions using theInternet of Things (IoT) andartificial intelligence (AI)contribute to realization of asustainable society
1974
HITAC M-series computers developed forlarge-scale information systems
In the 1970s, Hitachi developed and supplied thehigh-powered computers needed to satisfy thesocial demands of the time for new ticket reservationand online banking systems. The IBM-compatible
M-180 computer launched in 1974 was wellreceived due to its combination of advanced
power and functionality, enabling total systems tosatisfy modern requirements.

Shinkansen high-speed railway technology

1910
Five-horsepower induction motor,
Hitachi’s first product
1933
Steel mill motor operates safely for 32 years
The 7,000-kW DC mill motor with an Ilgner
control system to power rolled steel productionthat Hitachi supplied to the state-owned Yawata
Steel Works in 1933 was the most advanced
motor of its kind in the world at the time. It set a
record of 32 years ofaccident-free operation.

2

In 1959, construction began on the Tokaido
Shinkansen with the aim of creating the world’s
first high-speed railway capable of speeds up to
200 km/h. In 1962, based on the results fromtesting a prototype train on a model section of
track, Hitachi produced the first 0-series rollingstock for the Shinkansen. A total of 212 cars were
supplied by 1970. Hitachi was responsible fordeveloping and designing the varied control
equipment to support Shinkansen safety. On thepassenger service side, in partnership with Japan
National Railways, Hitachi also developed the
MARS-1 ticketing and reservation systems,
Japan’s first online system. The system began
operating in Tokyo from 1960. The MARS-101
system was later developed for full-scale online
operation in 1964. The
Midori no Madoguchi
ticketing and reservation
service started in 1965.

2004
Virtual storage technology for the Internet age
Rising Internet adoption led to rapid growth in thevolume of data transmitted worldwide, in turnstimulating demand for safe and efficient technology
to store vast amounts of data. Using world-first
virtualization technology developed in-house,
Hitachi created a way to integrate the capacity ofmultiple data storage units. This innovation
improved the efficiency of data utilization andmanagement significantly.

Integration of OT and IT at the Omika Works
From its inception, Hitachi began developing
electric motor control systems, switchboards
and other OT equipment, and refining thesetechnologies with customers in industries such as
steel. In 1969, when Japan was experiencing
years of fast economic growth, Hitachi set up the
Omika Plant (now the Omika Works) as a specialist
factory for the control systems business. With thedevelopment of IT, Hitachi integrated IT with theadvanced OT cultivated over decades to drive
the evolution of information control systems forsupporting social infrastructure operations suchas railways and electric power. In recent years,
Hitachi has begun applying IoT to reform production
processes, incorporating its acquired know-how
into a range of digital solutions that mainly target
customers in the manufacturing sector.

3

Contents

Hitachi Integrated Report 2018
Editorial Policy
Editorial Policy

Strategy for Value Creation5

Hitachi’s Value Creation Model

6

CEO Message

8

Progress of the 2018 Mid-term Management Plan

14

Expanding the Supply of Lumada Digital Solutions

18

Feature: Four Focus Business Domains

21

Power/Energy

22

Industry/Distribution/Water

24

During the preparation of the 2018 edition of this Report,
Hitachi focused on presenting our stance of enhancing
corporate value while addressing the challenges faced byour customers and society as our “Value Creation Model.”Moreover, we prioritized conveying this concept and its
background in the clearest manner possible through themessages from the directors and executive officers, andsuch. Likewise, we identified six goals from among theUN’s Sustainable Development Goals (SDGs) to which we
contribute through our business operations in general andfive goals to which we contribute to the achievement ofthrough our business strategies, thereby disclosing our
initiatives for contributing to achieving the SDGs.
In preparing this Report, we relied on the International
Integrated Reporting Framework established by the International Integrated Reporting Council (IIRC) as a reference.

Urban

26

About the Cover Page

Finance/Social/Healthcare

28

The cover page is designed in a way thatcombines Hitachi’s focus business domains
and colors that represent the five goals fromamong the 17 SDGs that Hitachi feels it canmost significantly contribute to achieving
through our business strategy.

Foundation for Value Creation

30

Message from the Chief Human Resources Officer

31

Human Capital Development

33

Message from the Chief Technology Officer

35

Engaging in Responsible Procurement

37

Environment

39

Risk Management

41

Compliance48

Companies:

Management System

50

Independent Outside Director Dialogue

53

Messages from Newly Appointed Independent
Outside Directors

59

Corporate Governance

61

Results of Value Creation

68

Boundary of Data:
Social data:
Boundary of data indicated under each indicator
Environmental data: 880 companies, namely Hitachi, Ltd. and 879
consolidated subsidiaries
However, for environmental performance dataassociated with Hitachi’s business operations,
Hitachi, Ltd. and consolidated subsidiaries
whose environmental load comprises 90% of
the total (based on Hitachi calculations)
are included.
Accounting Standard: Unless otherwise noted, this report is preparedin accordance with U.S. GAAP through fiscal
2013 and with the International Financial
Reporting Standards (IFRS) from fiscal 2014.

Segment Information

69

Financial and Non-Financial Information76

Corporate Data / Stock Information

88

Strategy for Value Creation
Hitachi’s Value Creation Model

p.6

CEO Message

p.8

Progress of the 2018 Mid-term Management Plan

p.14

Expanding the Supply of Lumada Digital Solutions

p.18

Boundary of Reporting
Period:April 1, 2017 to March 31, 2018(some activities detailed herein occurred
after April 2018)
Hitachi, Ltd. and its domestic
consolidated subsidiaries

Inquiries Regarding Integrated Report
JAPAN
Hitachi, Ltd.
6-6, Marunouchi 1-chome, Chiyoda-ku, Tokyo 100-8280
TEL: +81-3-3258-1111 E-mail: ir.info.hq@hitachi.com
U.S.A.
Hitachi America, Ltd.
50 Prospect Avenue, Tarrytown, NY 10591
TEL: +1-914-333-2987 E-mail: investor.info@hal.hitachi.com
U.K.
Hitachi Europe Ltd.
Whitebrook Park, Lower Cookham Road, Maidenhead, Berkshire SL6 8YA
TEL: +44-1628-585384
Investor Relations
http://www.hitachi.co.jp/IR/ (Japanese)
http://www.hitachi.com/IR-e/ (English)
Sustainability
http://www.hitachi.co.jp/sustainability/ (Japanese)
http://www.hitachi.com/sustainability/ (English)

Disclaimer Regarding Forward-looking Statements
Certain statements regarding the future of the Company set forth in this Report may constitute “forward-looking statements,” such as “plan,” “outlook,” and “strategy.”
Although forward-looking statements contained in this report are based upon what the Company has determined to be reasonable assumptions at the time of
disclosure, actual performance and other results may differ materially from those anticipated in such statements.
For the major factors regarding these differences, please see “Risk Factors” on Page 41 of this Report.

45Realize a sustainable
society and enhance
the Company’s value

Hitachi creates economic, social, and environmental value and contributes to the realization of asustainable society by tackling a variety of social issues through its Social Innovation Business.

Customers
Power and Energy
Renewable energy
Highly efficient energy
management

Global Trends

Industry, Distribution,and Water
Providing a safe
water environment
Support forsustainable industry

Finance, Social, andHealthcare

Urban
Making cities more safeand resilient
Comfortable andenvironment-friendly mobility

Support for advanced socialand financial services
Ensure healthy lives

Contribute to society through the Business Strategy

Economic Value (FY2017 results)
Revenue:

9,368.6 billion yen
Adjusted operating income:Acceleration ofdigitalization

714.6 billion yen

Era of uncertainty
Paradigm shift
ObjectThing

Possession
ClosedShareHelp address various social issues and contribute to society via Social Innovation BusinessOpen

Specific
optimization

Safety and security, Zero accidents,
Trusted products and services,
Decent work and economic growth,
Healthy and prosperous lives

Front-line

Total
optimization

Platform
Products

Social Issues
Energy andenvironmental issues
Water scarcity
Rapid urbanization
Aging society
Lack of infrastructure

Social ValueContribute to society through Corporate Commitment
Human Development &Intellectual Property
Invest in people/Education/
Intellectual property
Human rights/Diversity
Brand strategy

Supply Chain Management
Sustainable procurement

Security

Environmental
Strategy“HitachiEnvironmental
Innovation 2050”

Co-creation

Compliance, etc.

Promotion ofvarious
partnerships
Collaborative
R&D with
stakeholders

Risk management
Fair transactions
Quality assurance
Information security

Environmental Value (FY2017 results)
Reduction in CO2 emissions:33%(base: FY2010)

Reduction in water usage per unit:

Hitachi Group Identity and Hitachi Group Codes of Conduct,

32%(base: FY2005)

based on the corporate mission that has been passed on since the Company’s establishment** The guidelines for ethical behavior and decision-making shared by all executives and employees of the Hitachi Group.
(revised in April 2018)
http://www.hitachi.com/corporate/about/conduct/

6

7Strategy for Value Creation

Hitachi’s Value Creation ModelAddressing emerging trends head on

A truly global company helping torealize a sustainable society

In my CEO Message in last year’s Integrated Report,
I made a commitment that Hitachi would accelerate future
growth and I invited all stakeholders to “keep watching
Hitachi as we shift into high gear to leap ahead” as “anInnovation Partner for the IoT era.” Over the past year, wehave made progress toward realizing our goals. We havedownsized or exited unprofitable businesses while revising
our business portfolio. At the same time, we have focusedon globally developing the Social Innovation Business,based on digital technologies that utilize Lumada in waysthat harness the strengths of Hitachi. We have also taken
steps to accelerate the pace of collaborative creation in
partnership with customers.
Our performance in fiscal 2017 set new records in profit
terms, with adjusted operating income, EBIT, and net

income attributable to Hitachi, Ltd. stockholders all posting
new highs. We made further progress in globalizing thebusiness, with the ratio of revenues from overseas operations
increasing to 50%. In addition, we achieved several of the2018 Mid-term Management Plan targets for KPIs such as
return on assets and cash conversion cycle (CCC) a fullyear ahead of target. These achievements demonstrate
our efforts to satisfy market expectations.
However, we cannot be satisfied with these figures if wewant Hitachi to be globally competitive. Having positioned
fiscal 2018 as a year of evolution towards becoming a truly
global enterprise, we are working to improve profitability
and strengthen our business foundation so that we canestablish a strong presence as an innovation partner for
the IoT era.

Results (FY2016, FY2017)
Revenues

9.2 trillion yen(8.8 trillion yen*1)

Adjusted operating
income ratio (amount)

9.4 trillion yen

6.4%

EBIT Ratio (amount)

7.6%

6.9%

(714.6 billion yen)(644.2 billion yen)

ROA

CCC

5.0%

72.2 days*2

69.7 days

5.2%(587.3 billion yen)(475.1 billion yen)

3.3%*

2

FY2016FY2017106%

FY2016FY2017FY2016FY2017

+1.2%

+1.7%

(122%)(136%)FY2016FY2017+1.7%

FY2016FY2017

Many people are aware of the changes that are currently
transforming our world. For example, while accelerated
digitalization brings greater convenience and affluence to
our lives, threats relating to cyberattacks and information
security are gradually increasing. Progressive globalizationin fields such as economics and politics is causing the
emergence of geopolitical risk and greater uncertainty inboth these areas. In addition, we face multiple social
challenges due to issues ranging from global environmental
destruction and climate change to demographic aging in
advanced economies and the rapid urbanization ofdeveloping countries. The global community faces asignificant new challenge as these issues become
increasingly complex and more deeply ingrained.
Against this backdrop of global transformation, theUnited Nations developed the Sustainable Development

Goals (SDGs) and the Japanese government has
advocated the Society 5.0 concept. Acknowledging thefuture development of humanity will entail major change
on a global scale. Hitachi views these trends as anopportunity to take the next leap forward through sincere
efforts to achieve such goals. The reason we want to be apart of creating the affluent and sustainable society as
envisioned in the SDGs and Society 5.0 concept, is that italigns with the mission Hitachi has pursued since its
foundation to “contribute to society through thedevelopment of superior, original technology and products.”
At a time of growing uncertainty, we believe Hitachi’s origins
in terms of contributing to society are imbued with greater
significance, and this reaffirms our commitment to work
closely with customers and other partners in utilizing
technology to address societal issues.

Harnessing Hitachi’s strengths in the Social Innovation Business
True to Hitachi’s origins and taking advantage of our best
strengths and characteristics, the Social Innovation
Business can expand our operations while helping torealize a sustainable society. One of Hitachi’s mainstrengths is the MONOZUKURI (manufacturing expertise)
we have cultivated in a wide variety of fields through morethan a century spent on continually developing suchcapabilities. Besides the breadth of our product range, thisis seen in Hitachi’s abundant Operational Technology (OT)knowledge regarding the operation and maintenance ofvarious products in different operational settings. The
demands of today’s customers are becoming more
complex and advanced: beyond simply purchasing a
product, they are interested in, for example, globallydeveloping the know-how their skilled engineers in Japanpossess or boosting productivity at manufacturing sites
engaged in high-mix, low-volume production. To develop
the high value-added solutions for addressing suchmanagement issues, we need a deep understanding—as a partner—of what happens across a range of sites
and the related issues. It is in such situations where I
believe Hitachi’s OT capabilities can play an extremely
valuable role.
With more than 50 years’ involvement in the field,
Hitachi also has extensive IT and front line knowledge.
Applying the IT-related knowledge we have developed overthis period we are creating optimized solutions using AI
and other digital technologies to analyze all kinds of data.
This is what we call “Lumada.” As new possibilities
emerge with digital technology, our presence in OT, IT, andproducts, puts Hitachi in a superior position to utilize these
digital capabilities to address a variety of real-world issues.
In this way, Hitachi can be an innovation partner for the
IoT era for customers. By utilizing the strengths of Hitachi,
our aim is to avoid the threat of product commoditization by
expanding into both solution- and service-based businesses
to generate higher margins and steady earnings.

Advancing sustainability management
In April 2017, in a move to ensure our business reflects
global trends, we created the Executive Sustainability
Committee to debate and make decisions on sustainability
management for the Hitachi Group. I chair this committee,
and its members include senior executives and Business
Unit heads. By addressing the issues affecting global
society as summarized in the SDGs, the Social Innovation

Business that Hitachi is promoting aims to realize asustainable society and improve people’s quality of life.
In line with this rationale, the Committee has lively
discussions on creating and expanding opportunities for
the Social Innovation Business within global markets,and on identifying related operational risks andmitigation measures.

2.5

-day
improvement*1 Figures including YoY growth are adjusted to reflect continuing operations (for FY2016, revenues exclude Hitachi Transport System, Hitachi Capital, andHitachi Koki (now Koki Holdings)).
*2 Manufacturing, Services and Others

89Strategy for Value Creation

CEO Message

Strategy for Value Creation

Sustainability Strategy Promotion Structure
Chair: President & CEO

Executive Sustainability Committee

Members: Senior Executive Committee members, business unit CEOs,
Hitachi, Ltd. department heads
Objective: Discuss and define sustainability strategy at management/
business unit/department levels

Secretariat: Sustainability
Promotion Division
Overseas CSR/environment officers

Sustainability Promotion Meetings

In April 2018, as core sustainability themes, thecommittee identified five goals from the 17 SDGs where
Hitachi could make a major contribution through businessactivities, along with a further six goals where we could
contribute based on all our activities as an enterprise.
Hitachi’s involvement in a wide range of business fields
means we can make a substantial contribution to achieving
the SDGs, and we are accelerating specific initiatives toachieve targets in the 11 areas we have identified.
For example, one of the goals where we plan to contribute
through our business activities as an enterprise relates toclimate change. With the Paris Agreement now in force,
many countries and regions are working to realize a

Eco-Management Meetings

low-carbon society. In Hitachi Environmental Innovation
2050, adopted in 2016, we have set quantitative goals
for medium-term CO2 emissions-reduction as part oflong-term environmental targets. The Executive
Sustainability Committee is examining deeply the issue of
how to achieve these targets from the perspective of theCO2 emissions caused by our own business activities, aswell as those due to the products that we deliver.
In this way, through SDG-focused sustainability
management practices across Hitachi, we hope to contributeon a global scale to realizing a more affluent society andimproving quality of life for all.

Corporate Commitment

Business Strategy

Hitachi contributes tothe achievement of all SDGs both
directly and indirectly throughits business activities.

Long-term Environmental Targets
Hitachi’s resolution looking toward 2050 and 2030

Hitachi Environmental Innovation 2050
For a low-carbon society

For a resource efficient society

For a harmonized society with nature

Through the value chain CO2 emissions

Build a society that uses water andother resources efficiently
with customers and society

Impact on natural capital

FY 2050

80% reduction
FY 2030

50% reduction(compared to FY 2010)

Efficiency in use ofwater/resources FY 2050

50% improvement(compared to FY 2010 in the Hitachi Group)

An example of Hitachi’s technology for the future, this communication robot helps to improve quality of life.

Developing stronger competitivenessSince it was established, Hitachi has focused on developing
human capital based on a recognition that people are amajor source of competitiveness. This has included setting
up internal educational institutions to help employees
acquire skills. Today, as Hitachi seeks to evolve into a
truly global enterprise, we are focusing through our HR
management on promoting diversity. People with detailed
knowledge of the industrial structures and commercial
customs used in different countries and markets are
essential to the global development of our operations.
To foster innovation, we also see the need to have adiverse range of talented people with differing values
and perspectives working toward common goals.
Personally, I am determined that Hitachi makes tangible
progress promoting diversity. In line with this, in November
2017 we set and publicly disclosed numerical targets forthe ratios for both female and non-Japanese Executive
Officers and Corporate Officers and the number of female
managers in Hitachi, Ltd. One of the initiatives to achievethese targets with which I am personally involved is the
Global Women’s Summit, a series of events that bring
together around 100 female employees from around the
Hitachi Group worldwide for each event. These events aim
to deepen awareness of leadership and career planning
among female employees, while boosting motivation via

Minimized
Sustainability Strategy Promotion Structure
End-FY2017 (actual)

FY2020 (target)

Executive and Corporate Officers
Female2.5%

10%Non-Japanese

6.4%

10%

577

800

Number of female managers

10

global networking opportunities. Since 2016, we have held
events of this kind in various regions around the world.
My discussions with female employees from countries
around the world through these events spur my efforts topromote the globalization of Hitachi’s business andcultivate greater diversity within our workforce.
We are also undertaking leadership development programs aimed at identifying and cultivating a diverse teamof next-generation business leaders for the Hitachi Group.
Besides senior executives, our independent outside
directors are also actively involved in this HR development
process aimed at building layers of leadership potential
throughout the company.
R&D is another important source of competitivenessfor Hitachi.
The mission to develop “superior, original technology”
has made research and development a major focus of
our activities from Hitachi’s earliest days. In 2018, wecelebrated the centenary of the establishment of the R&D
Division. As we work to develop the Social Innovation
Business globally, our R&D activities are focused on creatingworld-class technologies to support the business and on
fostering innovation based on a collaborative creation
approach with customers worldwide. We are looking toaccelerate our collaborative creation efforts with customers
by establishing Global Center for Social Innovation (CSI)
facilities in North America, Europe, China, and the AsiaPacific region. Our R&D operations are also actively involvedin the development of new and upgraded Lumada-based
digital solutions to drive the future growth of Hitachi.
Developing better products is another aspect of creatingworld-class technologies. In 2017, the ultra-high-speed
elevators that we installed in a high-rise building in
Guangzhou, China achieved the fastest speed ever11the Hitachi Group Codes of Conduct to make it clear that
all officers and employees of Hitachi Group companies
bear the responsibility as global citizens to conductbusiness with higher aspirations. Guided by this principle,
we are formulating and implementing rules and undertaking
internal education programs across a range of corporate
activities, including product safety and quality assurance
programs; the construction of responsible supply chainsthat pay attention to human rights and environmental
concerns; and our comprehensive compliance programs.
In fiscal 2018, we welcomed two new independent
outside directors to the Board of Directors. Mr. Katsumi
Ihara recorded various achievements in his former careerat Sony. Mr. Joe Harlan has previously worked at seniorlevels for Dow Chemical, and has experience working inJapan as well. Utilizing the diverse wealth of experienceand knowledge of our directors, we will look to entrench
the growth of Hitachi by reflecting their helpful advice into
our management.

Achieving global growth through a focus on digital solutions
Through recent discussions with customers andgovernment representatives, I have sensed a positive
response toward realizing our 2018 Mid-term Management
Plan goal of being an innovation partner for the IoT era.
To instill confidence in this notion, we are focusing in thefirst instance on training more front-line personnel and data
scientists to help strengthen the Social Innovation Businessglobally. To expand our digital solutions business, we aretraining people to work in expert roles relating to interaction
and negotiation with customers such as consulting,front-end or systems engineering, contract negotiation,and project finance. At the same time, we are investing
to train and develop a global pool of data scientists.
Specifically, we have set up training programs and establishedthe Professional Community for researchers and practitioners
from various fields. Our target is to increase the number ofdata scientists working in the Hitachi Group to 3,000 by
fiscal 2021.
In April 2018, we also set up a new internal structure tofacilitate the global supply of solutions developed fornational markets. Executive Vice President and Executive
Officer Keiichi Shiotsuka, who leads the Systems & Services
Business, was appointed Head of the Social Innovation
Business that utilizes Hitachi’s digital technology. Hicham
Abdessamad was appointed the CEO of Hitachi Global
Digital Holdings Corporation, the holding company for
Hitachi Vantara Corporation and Hitachi Consulting
Corporation. Under this new structure, we will formulate
and implement a strategy to strengthen our Lumada
digital solutions by applying the cutting-edge technologies

12

being developed primarily for the Americas, along with ourexisting digital solutions-related expertise to drive theglobal expansion of the Social Innovation Business.
The adoption of this structure should also help to accelerate
Hitachi’s global expansion by entrenching the shift from a
product-centric business model to a new style ofoperations based on integrating digital technology solutions
with services.
Lumada is the foundation of our rapidly expanding
digital solutions business. Many customers have utilized it
since we first introduced Lumada-based services in 2016.
Revenues generated by Lumada operations exceeded 1
trillion yen for the first time in fiscal 2017 as it has grownsteadily to become a central pillar of Hitachi’s operations.
One example of this is the Maintenance & Repair Service
that we now offer industrial equipment manufacturers andother customers as a total support solution. This service
began life as a collaborative creation with an overseas
corporate customer, in which we developed a system toautomatically propose optimized repair schedules forequipment based on the analysis of varied data. Goingforward, we plan to develop this Lumada solution on a
global basis.
In September 2018, we established the Lumada Center
Southeast Asia in Thailand as part of strengthening ourglobal set-up. In line with the Thai government’s Thailand
4.0 vision that aims to establish the foundations for anadvanced economy while promoting further economic
growth, this center will be a base for the development ofdigital solutions based on collaborative creation withcustomers across the Asia Pacific region. Going forward,
Hitachi will accelerate the development of digital solutions
using Lumada within ASEAN, with this center supporting
our collaborative creation projects with customers andother partners.

Reflecting on the success of such initiatives, we are
steadily expanding Hitachi’s presence in digital solutions
through collaborative creation with customers. I am
confident this will be a major driver of the future growth of
Hitachi’s business.

Reinforcing our business foundation to become a truly global enterpriseThe 2018 Mid-term Management Plan contains clear
commitments to improving profitability and strengthening
cash flow generation. In fiscal 2017, we continued
downsizing or exiting unprofitable businesses with an
adjusted operating margin of less than 5%. Alongside this,we revised Hitachi’s business portfolio by selling part of ourequity stake in Hitachi Kokusai Electric Inc. and removing
remaining operations from the scope of consolidation. In
addition, we sold Hitachi’s interests in ALAXALA Networks
Corporation and the forged steel roll business.
In fiscal 2018, we are working to establish a more
efficient business foundation by continuing to restructure
operations, through reforms to indirect business processes,
and by reducing the number of companies within the
Hitachi Group. We are also promoting digital transformationfrom enhanced operational transparency, based on thecollation or integration of management information.

We are also maintaining a clear focus on future growthby prioritizing investment in growth areas to drive theexpansion of the business and targeting increased returns
from asset allocation. Specific policies included sales ofshares in publicly listed subsidiaries and measures toimprove CCC. These steps helped us make incrementalbalance-sheet improvements. Going forward, we will focus
on further strengthening cash generation, optimizing asset
management, and selectively focusing investments ingrowth sectors. We are analyzing all our businesses
closely based on their potential for expansion in global
markets and return on assets. While focusing ourinvestments on markets with growth potential andhigher-margin businesses, we will seek to reallocate assets
generating poor returns or reduce Hitachi’s exposure tosuch businesses. Our aim is to accelerate our investmentsin the Social Innovation Business, having secured a stronger
balance sheet and greater investment freedom.

Hitachi Group forms 300,000-strong united team
It is no simple matter for Hitachi to become a truly global
enterprise or to achieve a double-digit adjusted operating
margin. However, we are making steady progress towards
these goals and trying to speed up the actions needed torealize these ambitions.
More than anything, what gives me hope for the futureis the changes being made by employees of Hitachi tosupport growth. My conviction is employee awarenesswithin Hitachi and the attitude towards business processes
have both changed significantly over the past few years.
Since my appointment as CEO, we have undertaken avariety of policies. For example, introducing the Business
Unit system has made employees more aware of theperformance of their division and its cash-generation
capabilities, which in turn has translated into improved
divisional performance and greater individual pride in theseachievements. We also have recruited many new
employees, especially overseas, who are attracted to
Hitachi by virtue both of our philosophy of contributing tosociety and by the prospects of our Social Innovation
Business, which combines growth with efforts to create asustainable society. These many new colleagues point toour success in communicating Hitachi’s corporate

philosophy and culture to the world. I continue to holdtown hall meetings so that I can communicate mythoughts about Hitachi’s direction and goals directly to ouremployees around the world. I believe we can become
even more powerful as a unified team working towards
common goals if we can harness the diversity of over
300,000 individuals.
Looking ahead, I am confident we will continue to growsteadily and help realize a sustainable society based on
multiple partnerships. Please keep watching Hitachi as wemove in this direction.
September 2018

Toshiaki Higashihara
President & CEO
Hitachi, Ltd.

13

Strategy for Value Creation

recorded for an elevator. This product makes use of fluid
analysis technology that we originally developed for rollingstock used on high-speed railways, the common aim
being to transport passengers in comfort at world-beating
speeds by minimizing noise and vibration. This example
also illustrates how intra-Group synergies can help ushone a technical edge as part of developing and supplying
products with an outstanding global reputation.
Elsewhere, we are actively partnering with universities,
research institutions, and start-ups from around the world.
Guided by our vision to address social issues as part of
supporting the realization of the Society 5.0 concept, weare accelerating open innovation activities with institutions
such as the University of Tokyo, Kyoto University, andHokkaido University.
At the same time, as part of our global approach tosustainability management, we must revisit a range ofcorporate activities from the perspective of trying to realize
a sustainable society. To this end, in April 2018 we revisedIn fiscal 2017, Hitachi posted record earnings* in terms of adjusted operating income, EBIT, and net
income attributable to Hitachi, Ltd. stockholders.
In fiscal 2018, through global expansion and other initiatives, Hitachi is targeting adjusted operating
income and EBIT ratios of over 8%, respectively, and net income attributable to Hitachi, Ltd. stockholders of more than ¥400 billion.

Making Steady Progress
Revenues*1

Adjusted Operating Income Ratio(trillion yen)

9.2

10.0

9.4

Net Income Attributable to
Hitachi, Ltd. Stockholders

EBIT Ratio

(%)

9.4

7.6

* Since introduction of consolidated accounting in fiscal year ended March 1987

(billion yen)

(%)

8.0

Over 8.0

Over 8.0

8.0

362.9

6.9

6.4
5.2

Over 400.0 400.0

231.2

Overview of 2018 Mid-term Management Plan Initiatives
Designating fiscal 2017, the second year of the 2018 Mid-term Management Plan, as the year to “change gears toward growth,”
Hitachi targeted global expansion through M&A while strengthening the Lumada business by increasing collaborative creation withcustomers. Business restructuring also continued through efforts to improve the earnings of unprofitable operations, including
downsizing and withdrawal. In addition, over the two-year period ended March 31, 2018, Hitachi reorganized businesses generating
revenues of around ¥1.5 trillion, focusing mainly on publicly listed subsidiaries. These efforts led to significant year-on-year
improvements in earnings in fiscal 2017, of ¥127.3 billion for adjusted operating income, ¥169.0 billion for EBIT, and ¥131.7 billion
for net income attributable to Hitachi, Ltd. stockholders. Other profitability and cash generation metrics improved, also, with theoperating cash-flow margin rising to 7.8% and ROA increasing to 5.0%.
Fiscal 2018 is the final year of the plan. Positioned as the year of achieving the plan targets and becoming a globally integrated
enterprise, it features measures to achieve specific targets and create further growth.

FY2016

Prepare for growth

3-level structure(Front, Platform, Products)

Introduced Business
Unit system
Activated Lumada

FY2017FY2018Change gears
toward growth

Achieve Mid-termManagement Plan
to be a globally
integrated enterprise

Expanded global businessthrough M&As
Enhanced Lumada

Expand global business

2016

2017

2018
(FY)
(forecast)Global Business Expansion(Overseas Revenue Ratio)
48

2016

2017

2018
(target)2018(FY)(forecast)

7.1

Improvement (YoY) of ¥38.0 billion in adjusted
operating income via downsizing and withdrawal from
unprofitable businesses
Withdrawal from large-scale industrial EPC* business
Gains from restructuring in FY2017: ¥15.0 billion (YoY)* EPC: Engineering, Procurement and Construction

14

2 Selection and concentration of businesses

Reorganization of businesses generating revenues ofapprox. ¥1.5 trillion over FY2016-2017
FY2016FY20172018(target)2018(FY)(forecast)

2016

CCC
(Cash Conversion Cycle)

2017

2018
(target)2018(FY)(forecast)

Asset Profitability
Improvement (ROA)*2 *3(days)

7.8

72.2

69.7

(%)
5.0

Over 5.0

2017

2018
(target)

70.0
3.3

2016

2017

2018
(target)

(FY)

2016

2017

Average FX Rate

(FY)

2018
(target)

2016

2017

(FY)

2018
(target)

2016

2016

2017

2018 (forecast)

JPY/USD

108

111

105

JPY/EUR

119

130

130

(FY)

(FY)

*1 Rounded to the nearest hundred billion.
*2 Figures for Manufacturing, Services and Others.
*3 Return on assets (ROA) = Net income / Total Assets (Average between the end of current fiscal year and the end of previous fiscal year) x 100.

Global Business Expansion
YoY:

113 %

Overall global revenues in FY2017

YoY:

114 %

YoY:

113%
YoY:

108 %

FY2016 Revenues*

FY2017 Revenues

FY2016 Revenues*

FY2017 Revenues

FY2016 Revenues*

FY2017 Revenues

0.85 trillion yen

0.96 trillion yen

0.91 trillion yen

1.04 trillion yen

1.09 trillion yen

1.18 trillion yen

Elevators/Escalators
Automotive products
Construction machinery
High functional materials &components

China

Continued business restructuring
Structural reforms

2017

(%)

Over 9.0

Europe1

2016

Stronger Cash-generating(Operating Cash-Flow Margin)*2(%)

Over 55

50

Expand digital businessusing Lumada

Expanded collaborative
creation

2018(target)Railway
Construction machinery
High functional
materials & components

Semiconductor manufacturing
equipment, etc.
(Hitachi Kokusai Electric)

Financial service(Hitachi Capital)

Passenger transportation service(Hitachi Dentetsu)

Electric tools(Hitachi Koki
(now Koki Holdings Co., Ltd.))

Network devices(ALAXALA Networks)

FY2016 Revenues*

FY2017 Revenues

5.04 trillion yen

5.15 trillion yen

Others(LCD Panel manufacturing
equipment, etc.)

Forged steel roll business* Figures reflecting adjustments based on currently existing businesses.
(Revenues of Hitachi Transport System, Hitachi Capital, and Hitachi Koki were
excluded from the actual result in FY2016)

Regions except for thoselisted above (including Japan):Railway
Industrial equipment/solutions
IT products
Construction machinery
High functional
materials & components

Asia

Logistics service(Hitachi Transport System)

North
America

YoY:

114 %

FY2016 Revenues*

FY2017 Revenues

0.91 trillion yen

1.04 trillion yen
Elevators/Escalators
Automotive products
Construction machinery
15

Strategy for Value Creation

Progress of the 2018 Mid-term Management Plan

Strategy for Value Creation

Toward Future Global Growth Using Digital Technology

Directly provide
platform tocustomer

Front-line
Consulting

Pre-engineering

SI

Engineering

In-house use of
LumadaPlatformPowerproducts

Elevators
Escalators

Railway

Automotive
products

Maintainassets scale(Prioritizedinvestment)

Prioritization of investments
Prioritized investment in high growthand profitable (ROA) business domains
Railway turnkey/signaling business, industrial
equipment, etc.

(Investment withincash flows)

Effective use of capital

Reductionof assets

Financing by utilizing external capital
Hiring investment and funding
specialists

Low
MiddleHigh
Growth potential of global market

Growing the Social Innovation Business Using Digital Technology

Products
Providecompetitive
products

Reduction of low-profit assets
Network devices, overseas industrial EPC
business, etc.
Sale of holding shares
Maxell Holdings, Ltd. (Dec. 2017), etc.

Low

Provide services
by collecting
products

Reduction of existing assets
ROA

Finance/
Social/Healthcare

Urban

Expansionof profitableassetsMiddleIndustry/
Distribution/
Water

Power/
EnergyCustomer

Direction of Assets HoldingsHigh

The targeted model for Hitachi’s future growth involves Front and Platform business divisions selecting products and supplying
services in line with the changing needs of customers.
Product business divisions will focus on supplying globally competitive products.

Home
appliances

Industrial
equipmentIT
products

Directly
provideproducts tocustomer

Productsof othercompanies

Hitachi’s aim is to realize better quality of lives for people through the global supply of advanced social infrastructure using
digital technology. In fiscal 2017, we laid the foundation to expand businesses that utilize digital technologies such as Lumada.
Specific measures included construction of a global support set-up, front-line HR foundation, and the development of Lumada
software to enable rapid, simple systems deployment. In fiscal 2018, we plan to accelerate the global supply of solutions throughHitachi Global Digital Holdings Corporation, which was established in April 2018.
Please see “Expanding the Supply of Lumada Digital Solutions” (p. 18) for more details.

Policies for Growth

Human Resources for Growth

Investments in Focused Business Fields
Our investments across all global regions (North America, Asia, China, and Europe) are targeted towards four business fields withthe aim of expanding global operations, expanding digital service businesses, and responding to a sustainable society.

Investment Direction
Expand global business: Enhancement of regional sales channel, etc.
Expand digital service business: Financial payment system, e-Government, etc.
Respond to sustainable society: Carbon free (e.g. renewable energy, energy management, electric vehicles), etc.

Industry/
Distribution/
Water

Power/
EnergyInvestment fields

Renewable energy
Distributed power solution

Manufacturing solutions
Industrial equipment(North America/Asia)

Urban
Railway
Turnkey/signaling system
Elevators/Escalators
New installations/maintenance(China/other countries & regionsof Asia)

Finance/
Social/Healthcare
Japan and global
Financial payment system (Asia)
e-Government (Asia)

Automotive
Electric power trains,
autonomous driving products
Mobility as a Service

Hitachi is investing to strengthen human resources to realize growth through digital technology on a global scale. These efforts areunderpinned by the appointment of three talented global executives to head up the relevant business units and group companies,
along with our Chief Commercial Officers to provide specialized management expertise in North America, Europe, and Asia. In addition,
we have recruited around 30 top-level managers from global firms in the IoT sector to manage operations in each field. We arealso looking to strengthen Hitachi’s capacity to create innovations through the recruitment of a diverse array of talent. As of April
1, 2018, the ratios of women and non-Japanese in executive and corporate officers within Hitachi, Ltd. were 2.5% and 6.4%,
respectively. By fiscal 2020, we aim to increase each of these figures to 10%.
Please see “Message from the Chief Human Resources Officer” (p. 31) for more details.

R&D and New Business Creation
As part of originating world-leading products and services, Hitachi is focused on the development of innovative technologies andthe creation of new businesses. Specific areas of focus where we are increasing our investments in technical development include
blockchain, autonomous driving, smart manufacturing, AI, and robotics. In March 2018, as part of a program aimed at creating
disruptive technologies based on an open innovation approach, we invested in funds managed by the venture capital firm
Geodesic Capital.
Please see “Message from the Chief Technology Officer” (p. 35) for more details.

Accelerate Management Speed, Improve Operational Efficiency
As part of measures aimed further at improving profitability by strengthening the business foundation and reforming businessprocesses, we are promoting measures for (1) increased efficiency of indirect operations, (2) reduced number of subsidiaries,and (3) digital transformation through increased visibility of management data. Through such measures, we aim to reduce costsby more than ¥100 billion by fiscal 2021.
Management issues

Improvement themes
Increased efficiency
of indirect operations

Improvement of Asset Profitability
Led by the Investment Strategy Division established in April 2017, Hitachi is working to generate higher profits from assets byprioritizing investment in markets with growth potential and businesses that can generate higher ROA, and by downsizing or
substituting existing assets through reduction of exposure to low-margin assets or the sale of equity holdings. In addition,
Hitachi is working to make more effective use of capital, including financing efforts that utilize external capital.

Reduced number ofsubsidiaries

Increased visibilityof management data

Simplify organizational structures
Increase speed

Reorganize system and rules
Reorganize work processes

Increase
operational
efficiency

16

Reform projects

Enhancement of complianceCentralize management information

17

Strategy for Value Creation

Expanding the Supply of Lumada Digital Solutions

2. Global Development Initiatives
To help realize a sustainable society, Hitachi is promoting global upscaling of the Social Innovation
Business by increasing the supply of solutions that utilize digital technology based on collaborative
creation with customers.

1. Digital Solution Supply Initiatives to Date
Hitachi’s stated aim in the 2018 Mid-term Management Plan
is to be “an Innovation Partner for the IoT Era” by embracing
the digital revolution that is transforming society and industry.
Since April 2016, Hitachi’s operations have been divided
along organizational lines into the three levels of “Front,”“Platform,” and “Product.”
The rationale behind this move is to adopt a customer-centricbusiness model to identify new markets for applications,rather than the conventional focus on supplying products.
The aim of “Front” operations is to identify customer issues
and to put in place a “Platform” that makes full use of OT and IT
in a bid to efficiently provide relevant solutions, while the aim of“Product” operations is to supply highly competitive products.
In May 2016, Hitachi began supplying Lumada-based
digital solutions to help address management issues linked tocustomer value chains.
Condensing the OT and IT expertise that Hitachi has
accumulated over many years into a rich array of solutions,
Lumada is a way of supplying customers with digitaltechnology-derived innovations in a speedy and efficient manner.
In practical terms, Hitachi is amassing Lumada customer cases
through collaborative creation with customers as well as internal
development of Lumada solutions within the Hitachi Group.

In both instances, a digital solution is created using Lumada
to support the analysis of multiple types of variable datausing AI or other big data analytical methods.
Based on existing customer cases, Hitachi is accelerating
global upscaling of the supply of Lumada digital solutions
by seeking to develop solution cores with generalized
applicability to the needs of various customers.
In fiscal 2015, to expand collaborative creation throughassignment of researchers to centers based close to customers
while reinforcing innovative capabilities aimed at creating
original technologies to satisfy market requirements, Hitachi
established the Global Center for Social Innovation (CSI) as
part of reforms to the Group’s global R&D structure. The CSI
focuses on collaborative creation in which researchers,
designers and other Hitachi personnel work with customers
on the development of digital solutions. Currently, there are
CSI facilities in five key regions, with bases in Tokyo, North
America, China, Europe, and Asia-Pacific (APAC). The
collaborative creation process at these bases with customers,
business partners, and other stakeholders is called“NEXPERIENCE.” It involves finding multifaceted ways to visualize
knowledge to facilitate smooth solution development, the utilization of IT tools, and a systematized co-creation methodology.

FY2016 (result)
Billions of yen

FY2017 (result)
Initial target*1

FY2018 (forecast)
Initial target*1

Revenues of Lumada business

900.0

950.0

1,006.0

1,050.0

1,070.0

Lumada core business*2

120.0

190.0

230.0

290.0

310.0

Lumada SI business*3

780.0

760.0

776.0

760.0

760.0

*1 As released on Hitachi IR Day 2017 in June 2017
*2 Service businesses where AI and analytics are utilized to convert customer data into valuable insights to help improve management indicators or offer solutions to business-related issues*3 Lumada core business-driven SI operations within the IoT field (industry/social infrastructure-related)18

To support the development of the Social Innovation Business from a global perspective, Hitachi is looking to expand
the provision of digital solutions by focusing on social issues that are specific to certain markets or regions.

North America

EuropeIn North America, Hitachi is focusing mainly on the businessdomains of Industry, Urban (including railways), and Finance.
In the Industry domain, the July 2017 acquisition of US aircompressor manufacturer Sullair not only strengthened
Hitachi’s industrial equipment business, but also created
opportunities to expand into digital solutions tailored to
sectors such as manufacturing and mobility. For example,
Hitachi has developed a service platform to automatically
propose optimal repair work for various types of industrial
machinery, based on combining Hitachi’s strong track recordand related know-how in the manufacture and maintenance ofindustrial machinery (OT) with AI or other digital technologies(IT). Hitachi plans to use this platform to expand sales of its
Maintenance & Repair Service to various industrial
machinery manufacturers.
In the Urban domain, Hitachi is supplying a wide range ofrailway products/systems and solutions, from rolling stock tosignaling systems. This includes major metro projects in cities
such as Miami and Baltimore. Going forward, in addition to
supplying railway systems, Hitachi is working to secureorders for turnkey projects that include local construction andengineering as part of expanding the business in North
America. Supplying digital solutions utilizing Lumada is anotherelement of regional growth plans.
In the Finance domain, Hitachi established the Financial
Innovation Laboratory in 2016 in Santa Clara, California,
USA to undertake R&D into FinTech solutions using blockchain and other technologies. Through its involvement in joint
research with Stanford University and in the Hyperledger
project hosted by the Linux Foundation, Hitachi is working todevelop and test practical FinTech solutions using
cutting-edge analytical tools for credit scoring, while also
contributing to the blockchain community and the development of commercial applications.

In Europe, the key focus is on the Urban domain,
primarily railways.
Hitachi is working to expand operations from product/system businesses such as rolling stock and signaling systems
to include railway-related digital solutions. For example,
dynamic headway solutions optimize train frequency in line withpassenger demand, using predictions of passenger numbers
based on people flow analysis. Hitachi is developing a solutionof this type for the driverless Copenhagen Metro in Denmark.

China
In China, the key focus is also on the Urban domain.
Hitachi plans to develop its Chinese operations by focusing
on data-centric building service business where it has apresence in Japan, including round-the-clock remote monitoringof elevators and other building equipment and predictive
maintenance based on the use of operational data to forecast
breakdown probabilities.

Asia
In Asia, Hitachi is focusing mainly on the Industry and Social
Infrastructure domain.
In the Industry domain, Hitachi established the Lumada
Center Southeast Asia in Thailand in September 2018 as abase for the development of the digital solutions businesswithin the ASEAN region.
In the Social Infrastructure domain, in a collaborative creation project with Thailand Post, Hitachi is developing andtesting a digital post service to enable users to receive
notifications from public-sector institutions via a PC,
smartphone or other device as part of creating a new service
to provide information using the postal network. Elsewhere in
the region, in April 2018, Hitachi formed Hitachi MGRM Net
Ltd. following the acquisition of shares in Indian IT services
provider MGRM Net Ltd. The new company will lead Hitachi’sefforts to support the Indian government’s “Digital India”
initiatives including “e-Governance” and “e-Education” basedon the digitalization of government services.
19

HitachiSocial Innovation
Business

3. Systemic Investments to Support Global Expansion
Besides combining the digital solutions expertise cultivated todate with advanced technology to develop services withapplications across a wide range of sectors, Hitachi is
expanding the provision of digital solutions through Hitachi
Global Digital Holdings Corporation, which was established in
April 2018.
Interoperability with various systems and Lumada will be an
important part of the global expansion of digital solutions.
To this end, including participation in the Edgecross Consortium*1,
Hitachi is actively promoting collaborative creation projects
with various stakeholders ranging from other companies touniversities and other academic or research institutions.
As part of developing the human capital necessary forcreating digital solutions, Hitachi has instituted a training
program to cultivate data scientists with the required skills.
To help foster conditions needed to create original expertise,
Hitachi has also established the Professional Community for
top-class researchers and practitioners from every field toshare relevant knowledge.

Hitachi’s target through these initiatives is to increase thenumber of data scientists working in the Hitachi Group worldwide from around 700 at present to 3,000 by fiscal 2021 tosupport further expansion of the digital solutions business.
*1 A body established on November 29, 2017 with the aim of going beyond thebasic framework of companies and industries to create new value in the fieldof edge computing through involvement in activities to support the IoT
conversion of the manufacturing industry, the “Society 5.0” *2 plan advocatedby the Cabinet Office, and the “Connected Industries” *3 concept promotedby the Ministry of Economy, Trade and Industry (METI)*2 A series of initiatives aimed at sharing and realizing the future vision of a“super smart society” in which there is high-level merging of cyberspace withthe real world, as outlined by the Cabinet Office in the 5th Science andTechnology Basic Plan
*3 A conceptual vision for Japanese industry announced by METI in March 2017

To achieve the goal of being “an Innovation Partner for the
IoT Era,” Hitachi is working to upgrade its service businesswith the aim of evolving global supply capabilities forend-to-end solutions.

Feature: Four Focus Business Domains

An Innovation Partner for
the IoT Era
Accelerating the Pace of Collaborative Creation with Customers in theEver-Evolving Social Innovation Business
Four Focus Business Domains

Copenhagen Metro Project
Hitachi is working with Metroselskabet, the public-sector infrastructure owner of the metro in the Danish capital
Copenhagen, to test a dynamic headway solution to adjust the frequency of trains to real-time passenger demand.
The solution will combine Hitachi’s digital and IoT technologies with the train control systems of Ansaldo STS, a Hitachi
subsidiary operating in the railway systems business.
Passenger demand on the Copenhagen Metro varies significantly depending on the time of day and any eventsoccurring near the network. Moreover, the opening of a new line in 2019 is expected to result in a substantial increase inpassenger numbers on the existing lines. The elimination of overcrowding in trains is a major issue.
Having used rolling stock and signaling systems supplied by the Hitachi Group for many years, Metroselskabet is an
important Hitachi long-term partner. The advanced service provided by Hitachi for the Copenhagen Metro includes
driverless trains that run 24 hours a day.
The dynamic headway solution automatically adjusts train frequency using the results of an analysis of changes inpassenger numbers, visualizing congestion data collected from sensors located in each station. By easing congestion
before it occurs, this provides a more satisfying transport experience for passengers. The system also helps the metro
operator to reduce costs by adjusting train frequency to real-time changes in demand, contributing to energy savings
along with higher efficiency.

Power/Energy

Industry/Distribution/Water

Urban

Finance/Social/Healthcare

Main Products and Services

Main Products and Services

Main Products and Services

Main Products and Services

Nuclear power
generation systems

Manufacturing andlogistics systems

Elevators/Escalators

Renewable energy power
generation systems

Water treatment systems

Automotive parts

Industrial machinery

Air-conditioning equipment/
Consumer electronics

Transmission &distribution systems

Railway systems

Systems forfinancial institutions
IT systems for social
infrastructure operators (power,transportation, other)
Systems for public authorities
Medical equipment
and systems

20

21

Power/Energy
In the Power/Energy domain, leveraging Hitachi’s strengths in operational technology (OT), IT, and products,
we provide power generation systems, transmission & distribution systems, and other solutions to a diverse
range of customers across the energy value chain spanning production, distribution, and consumption.
We are achieving social innovation by tackling issues in the constantly changing energy market, based on
applying our extensive knowledge and advanced technology.
Kamisu Offshore Wind Farm No. 1
Wind Power Ibaraki Co., Ltd.

Future Growth Drivers of the BusinessWind Turbines
Wind turbines are an excellent source of renewable energy that provide a solution toresource depletion and global warming, while also supplying energy to local or regional
areas in ways that meet community needs and help realize a recycling-basedsustainable society. Hitachi’s downwind turbines are designed for harsh weather
conditions with frequent bouts of high wind. They capture upward-blowing winds
efficiently, and can also operate safely if a typhoon or storm causes a local blackout by
switching to a free-yaw mode of operation to reduce wind load. Hitachi has supplied
many turbines for wind farms in Japan. In 2018, based on this track record, we
received an order to supply wind turbines for an offshore wind farm in Taiwan.
Going forward, we will strive to meet customer needs by developing total solutions
that use grid interconnection technology to distribute wind power in combination withhigh value-added maintenance services utilizing IoT.

Fukashiba Wind Power
Station in Kashima Port
Hitachi Wind Power Ltd.

Nuclear Power Plants (ABWR*)
The major advantage of nuclear power systems is lower environmental
impact. Compared with fossil fuels, they can generate huge quantities ofpower safely from limited resources with substantially lower emissions ofcarbon dioxide, a significant factor in global warming. Hitachi was the main
contractor in the construction of Chugoku Electric Power’s Shimane Nuclear
Power Station Unit 1, which began operating in 1974. It was the firstcommercial nuclear power system built entirely in Japan. As one of the world’s
Shimane Nuclear Power Station
leading manufacturers of nuclear power equipment, today we are involved in(Unit 3, under construction)
The Chugoku Electric Power Co., Inc.
efforts to restart nuclear power plants in Japan based on new safety standards
and in the reactor decommissioning program in Fukushima Prefecture.
Overseas, we are involved in a project to build a new nuclear power station in the UK. Hitachi aims to make a broad
contribution to realizing a safe and sustainable society through the maintenance and development of nuclear technology.

Market-related Issues
As we work towards realizing a sustainable society, global
markets for power and energy are undergoing a majortransformation due to the “three Ds” of decarbonization,
decentralization, and digitalization. For widespread
adoption of wind power and other renewables as sourcesof base load power, we not only require systems thatcan cope with harsh natural conditions, but it is alsoessential to develop resilient power transmission anddistribution infrastructure so that power generated fromrenewable sources can be delivered efficiently andreliably to residential and corporate users. Nuclear energy
can generate large quantities of power with minimal
environmental impact, irrespective of the weather.
Provided we pay more attention to the safety aspects,
we believe it has the potential to be a major futuresource of base load power in many parts of the world.
Recently, we have also seen moves to apply
cutting-edge digital technology to facilitate moreadvanced maintenance and management of power
generation systems. Decentralization is an important
emerging trend, with regions taking advantage of local
characteristics to develop distributed energy resourcesthat generate power efficiently for local consumption aspart of creating a recycling-based sustainable society.
Where Hitachi Is Focusing
With over a century of experience in delivering
world-class products, services, and solutions, Hitachi
is contributing to industrial development and therealization of a sustainable society through the supplyof low-emission and zero-emission power generation
systems. To this end, we are looking to generatehigh returns as market leader by investing aggressively
in growth sectors such as the non-carbon energy
solutions business.
In the renewable energy sector, we aim to expand
our wind turbines business globally, while also developing
total solutions to deliver reliable power from the bulk
power network to residential and other users at the edgeof the grid. We are also applying IoT, data analytics, andother digital technology to develop innovative systems,
including virtual power plants* to support state-of-theart power generation as well as more advanced facilities
maintenance systems. Mixed energy distribution solutions that can integrate decentralized power sources
with a large-scale power grid are another major focus
for us.
In the nuclear energy sector, our primary emphasis
is on fulfilling our social responsibility as a manufacturerof nuclear power equipment through our engagement indomestic initiatives. These include efforts to modify
existing nuclear power plants to meet new safety
standards ahead of restarts, and an active role in thedecommissioning of reactors at the Fukushima Daiichi

Feature: Four Focus Business Domains

Executive Vice President’s Message

Toshikazu Nishino
Executive Vice President and Executive Officer

Nuclear Power Station for Tokyo Electric Power
Company Holdings, based on the lessons learned fromthe Great East Japan Earthquake. Overseas, in the UK,
we are assessing the economic rationality as a privatecompany for a project that involves the construction ofa new nuclear power station, amid ongoing discussions
with the British government.

Our Future Mission and Role
A reliable supply of uninterrupted power is essential to
the lifestyles and safety of consumers living in our
modern, highly urbanized society. At Hitachi, we arecommitted to promoting collaborative creation with arange of customers across the energy value chain thatcan support reliable supplies of eco-friendly energy forthe safety and peace of mind of users. We are also
striving to provide new value through the utilization ofdigital technology.
The Creation of Social Value
Finding ways to ensure the reliable and efficient supply ofthe energy essential to modern society while minimizing
environmental impact is vital to an affluent andsustainable future. We aim to contribute to industrial
development and the realization of a sustainable society
by developing power generation systems to exploit
renewables and other zero-emission energy sources,
along with innovative solutions to support efficient
on-demand supplies of energy.
* A virtual power plant (VPP) is a technical solution for balancing power supply
and demand. It uses energy management technology utilizing IoT to aggregate
distributed energy resources such as storage batteries or power generation
systems operated by households or factories, controlling the energy generated
from these sources remotely to integrate them in a way that functionallyemulates a power plant.

SDG Focus* ABWR: Advanced Boiling Water Reactor

22

23Industry/Distribution/Water
In this domain covering the Social Infrastructure & Industrial Systems segment, Hitachi develops products
and services such as industry/distribution solutions, water solutions, and industrial equipment. With a 108-year
manufacturing history since Hitachi was founded in 1910, we can supply everything from products for the
manufacturing workplace to control systems for facilities and business support IT systems. Our goal is to be
the best solution partner for customers throughout industries worldwide.

Future Growth Drivers of the Business
Smart Manufacturing Solutions
Utilizing Lumada, our smart manufacturing solutions help customers invarious manufacturing industries to increase production efficiency, automate
production, develop more reliable quality, transfer skills, or address otherproduction-related issues. Solution development often utilizes the high-efficiency
production model established at the Omika Works, or systems are developed in collaborative creation with customers. We offer a wide range ofsolutions, from manufacturing site visualization and predictive equipment
failure detection systems to debottlenecking support and production planning optimization. Reforming the manufacturing workplace using digitaltechnology helps our customers become more competitive.

Generating Post-acquisition Synergies with Sullair
In 2017, Hitachi acquired Sullair, a manufacturer of air compressors with
operations in North America, China, and other countries. This movestrengthened Hitachi’s global air compressor business. Air compressors are
an important source of power for various types of equipment used in factories,
and this market is expected to grow in the future. The combination of the
Sullair sales network with a range of products that incorporate Hitachi’s
high-level technical expertise in this field promises to help us expand thisbusiness globally. The acquisition will also support global expansion of
Hitachi’s overall business in the Industry/Distribution/Water domain byaffording opportunities to supply Sullair customers with marking systems andother industrial equipment, as well as air compressors and digital solutions.
24

Monitoring System for the Progress andOperational Status developed in collaborative
creation with Okuma Corporation

Town hall meeting at US factory of SullairMarket-related Issues
In the Industry/Distribution/Water domain, we supply
products, systems, and services to a wide range ofcustomers, mostly manufacturers but also firms in theretail and transport sectors.
Today, to tackle challenges such as declining
working-age populations, increased workforce diversity,and supply chain globalization, manufacturers in Japanand other countries are looking to address urgent issues
such as making operations more efficient or labor-saving,or ensuring the transfer of technical know-how. Facedwith climate change, water shortages and other issues,
reducing the environmental impact of operations is alsoof increasing concern. These structural shifts within
industry and social issues are leading customers tofocus not only on our tangible products, but also on
intangible aspects such as the value that Hitachi can
add to their business.
Where Hitachi Is Focusing
In this domain, Hitachi can supply everything fromindustrial equipment for the manufacturing workplace(Products) to facility control systems (Operational
Technology, OT) and IT systems to manage operations.
Our aim is to be the best solution partner for customers
based on our ability to supply the total package of
products, OT, and IT.
We have begun offering smart manufacturingsolutions that use Lumada, based on systems we havedeveloped in collaborative creation with Daicel
Corporation, Okuma Corporation, Daikin Industries andother customers for tackling manufacturing challenges
such as increasing production efficiency or transferring
technical know-how. We are reinforcing our lineup by
developing unique products that incorporate amorphous
motors with world-class efficiency. Our vision is to offer
the best solutions to customers by understanding
their issues based on Hitachi’s more than a century of
manufacturing heritage, and by developing value-added
combinations of products, OT, and IT.
Our Future Mission and Role
My objective is to scale up the business significantly
through closer links between the various divisions that I
lead. Including Group companies, the Industry/Distribution/
Water domain spans different industrial sectors andcustomer bases of differing size. Starting from thesystems and products offered by each of thesecompanies, we are expanding the business by providing

Feature: Four Focus Business Domains

Executive Vice President’s Message

Masakazu Aoki
Executive Vice President and Executive Officer

fully integrated Hitachi total solutions and services
aimed at raising production efficiency or developing
more sophisticated operations. Hitachi’s acquisition in2017 of the Sullair-branded air compressor businesshas also secured us new customer channels in North
America and China. Our customers in the industry
domain face the same issues worldwide. Leveraging
our experience in Japan and Hitachi’s strengths inproducts (manufacturing and production technology),
OT (control/operational technology), and IT (technologies
for data analysis and processing), we will develop theSocial Innovation Business using our digital technology
through approaches to a broad range of customers
around the world.

The Creation of Social Value
Solving issues for customers also helps to achieve
the SDGs. We will contribute to realizing a sustainable
society in which people can enjoy dynamic andcomfortable lives worldwide through the supply
of systems with low environmental impact andenergy-saving products.

SDG Focus

25

The Urban domain is composed of the four businesses of: Building systems (elevators and escalators) and
Railway systems from the Social Infrastructure & Industrial Systems segment, Automotive systems(automotive products and car information systems), and Smart Life & Ecofriendly systems (home applianceand air-conditioning equipment). In this domain, our aim is to improve the Quality of Life for people worldwide by providing products and services that are essential for daily living.

Feature: Four Focus Business Domains

Urban

First, we are seeing a significant move away fromproduct ownership to usage models based on sharing.
Second, there is a shift to autonomous operation—not
only in automobiles, but also in many other products—that also places significant emphasis on the use ofelectronics as manufacturers focus on energy-efficient,
low-carbon products. In addition, these products are
increasingly connected using digital technology, whichis enabling the development of new solutions for solving
customer issues. While engaging with these trends
directly, we are working to address various lifestylerelated issues in collaborative creation with customers.
*CASE: Connected, Autonomous, Shared, Electric

Future Growth Drivers of the Business
Building Services for Advanced Lifestyle Support
Hitachi provides building services including round-the-clock remote monitoring of elevators and other equipment. We
offer advanced IoT-based services that use collected operational data to formulate plans for parts replacement andother maintenance, and to predict when a breakdown might occur without
needing an inspection by a service engineer. Going forward, in addition toaccelerating the global development of the high-quality maintenance services
that we have developed over many years, we plan to fine-tune building
services by utilizing Lumada to collect and analyze a range of data, including
operational data from building equipment and data on the flow of people
inside buildings. These services include providing buildings guidance support
using service robots, and enhancing the value of building facilities based on
Building equipment is monitored remotely from acall center
the analysis of those entering the building.

Railway Systems/Solutions for High Quality and Reliability
Hitachi is developing systems and solutions globally to support rail services of high quality and reliability as a providerof rolling stock and traffic management systems, along with fully integrated solutions that include project management.
In the UK, we are applying advanced IoT-based maintenance services for the rolling stock of the Intercity Express
Programme. With the Copenhagen Metro, we are testing a Dynamic Headway solution to adjust the frequency of train
services automatically to the degree of crowding inside stations. Going forward, we will leverage Lumada technology
to develop railway systems/solutions that deliver added value to our customers in innovative ways.

Executive Vice President’s Message
Market-related Issues
In the Urban domain over which I preside, Hitachi isdeveloping global businesses based on products thatare highly familiar in daily life, including elevators, railways,
automobiles, and home appliances. For consumers,
these businesses form the public face of Hitachi.
Given the continued advance of urbanization
around the world today, notably in Asia, we expect
markets to continue expanding within the Urban domain.
26

Greater urbanization also brings with it a set of emerging
issues that we will need to address proactively, including
the demographic aging, energy supplies, and ensuring
the safety and security of people in the face of growing
threats from disasters and crime.
The common trends affecting the four major
businesses within the Urban domain of elevators andescalators, railway systems, automotive products, andhome appliances are captured in the acronym CASE*.

Where Hitachi Is Focusing
It goes without saying that digital technologies such as
AI and IoT will hold the key to our addressing customer
issues through the Social Innovation Business. At thesame time, to expand the business globally in a
cost-competitive way, we will also need to utilize digitaltechnology to improve the efficiency of processes suchas design and maintenance. For these reasons, I think
digital technologies will be the most important growth
driver in the Urban domain. Monitoring whatever istroubling customers in real time and providing appropriate
solutions will require always-on connections to digitaltechnology platforms. By collecting and analyzing thedata from monitoring operations, we can determine
where any problems exist in products and systems, andwork out how to make improvements. For example, we
are undertaking round-the-clock remote monitoring ofelevators and other building equipment to collectoperational data. Analysis of these data not only
facilitates smart maintenance, but also allows us toprovide services to help customers achieve goals suchas optimizing the building power consumption.
Hitachi can also provide one-stop solutions toaddress customer challenges because we not only handle
product design and manufacture as well as systems
operation and control, but also build IT systems. For
example, in the Railway systems business, Hitachi byitself can supply a fully integrated solution, from the
manufacture of rolling stock and building traffic management and signaling systems, to maintenance services
and the construction of ticketing systems. This can offer
customers major advantages in terms of simplicity andefficiency compared with the complicated process ofengaging multiple suppliers to build the system. In thisway, our ability to combine OT (Operational Technology),
IT, and products to connect customers to digital technology means we can create solutions that were neverpossible before. This is the original value Hitachi can

Keiji Kojima
Executive Vice President and Executive Officer

provide as an Innovation Partner for the IoT Era via
collaborative creation with customers.

Our Future Mission and RoleThe Urban domain enables us to evolve into a well-known
global enterprise as a leader in the development of bold
new technologies that are a fine testament to Pioneering
Spirit, one part of the Hitachi Founding Spirit. With ahigh proportion of overseas revenues and an array of
global talent in positions of leadership, ours is the domain
spearheading Hitachi’s globalization. My mission is toutilize Lumada and other digital technologies to radicallyreinforce the competitiveness of our product range,
while also further developing global markets that are
expanding as urbanization progresses. Another criticalpart of my mission is to optimize our investment in the
Urban domain and ensure that we make timely investments to generate synergies at the consolidated level.
The Creation of Social Value
The Corporate Credo of Hitachi since its inception has
been “Contribute to society through the development ofsuperior, original technology and products.” As a company,
we pursue not only financial targets, but also social
contributions. In the Urban domain, based on our vision
for next-generation urbanization, we will leverage digitaltechnology to help achieve the SDG11 goal of sustainable
cities and communities.

SDG Focus

27

Finance/Social/Healthcare
In the Finance/Social domain, targeting customers in social infrastructure fields such as finance, electric
power, and transport as well as customers in varied areas including the public sector, we develop andsupply a broad range of IT services from consulting to systems integration, operation, maintenance, andsupport. In the Healthcare domain, there are three core businesses that we are developing by leveraging
Hitachi’s strengths in digital technology: Diagnostics and Clinical (including diagnostic imaging equipment
and particle therapy systems), Testing and Reagents (including analytical systems), and Informatics(based on big data utilization). We are contributing to the growth of medical institutions and related healthprofessionals as well as the realization of healthy, enriched lifestyles for people.
This domain also plays a central role in developing and promoting the use of platforms that provide
across-the-board support to Hitachi’s front operations, in the process driving the growth of the overall Lumada-based
digital solutions business.

Future Growth Drivers of the Business
Solutions Group Utilizing AI, Big Data Analysis and Other Cutting-edge Digital Technologies
By combining the extensive business experience and know-how that Hitachi has acquired to date with cutting-edge
digital technologies such as AI and Big Data analysis, we are offering Lumada-based solutions to customers acrossa variety of fields.
In the Finance domain, we support more advanced and efficient investigative screening of trading in equities byapplying AI to analyze illicit transaction probabilities. Elsewhere, Hitachi analyzed medical big data by leveraging theanalytical know-how we have cultivated in technology for forecasting healthcare expenditures, and we havedeveloped a quantitative model to predict the possibility and length of hospitalization due to lifestyle-related diseases.
This model can assist life insurers in reviewing broadening the scope of their customers who can take out insurance.
In the Social Infrastructure domain, we are supplying solutions to help deliver improved services for passengers
and other end-users. We have been involved in the development of a service that distributes images of visualized
people flows and related crowding phenomena inside stations in a timely manner, with people flow analysis technology
utilizing images from monitoring cameras. We have also helped public transport operators optimize timetables in linewith demand, based on analyzing and visualizing traffic volumes and transportation demand. In other initiatives todevelop and build safe, secure, and comfortable urban
infrastructure, we are supporting the development ofadvanced analytical tools for analyzing and predicting
power demand and pricing trends in electricity retailmarkets with AI.
Going forward, Hitachi aims to engineer further
evolution in the Social Innovation Business by supplying
innovative Lumada-based digital solutions throughcollaborative creation with various stakeholders. In
doing so, we hope to contribute to the realization of asociety in which people around the world can live insafety, security, and comfort.
28

Keiichi Shiotsuka
Executive Vice President and Executive Officer

Market-related Issues
In the Finance/Social/Healthcare domain, we aresupplying innovative solutions to address various social
issues, based on maximizing the strengths of Hitachi indigital technology. Examples include digital payments inthe finance field and informatics in healthcare fields.
In this domain, efforts are also directed toward
undertaking the development of IoT platforms, and as adigital-centric business entity, we are playing a central
role in promoting the expansion of Hitachi’s overall
digital solutions operations by encouraging thecross-sectoral utilization of Lumada.
Today, the connection of a wide range of things to
the Internet enables access to knowledge gleaned fromthe analysis of vast quantities of data. This is causing awave of digitalization to generate new value for society
and businesses. Hitachi is required to create new
business models and service models, and support
dramatic improvements in productivity by leveraging ourstrengths in digital technology.
Where Hitachi Is Focusing
Beyond the domains of Finance and Social Infrastructure,in both of which Hitachi has been supplying IT services
for many years, we are also expanding our digitaltechnology-based operations into the Healthcare
domain. In these areas, working beyond Business Unit
structures, we are helping a variety of customers toundertake digital transformations.
As well as developing new finance and insurance
products based on the utilization of AI and big data, weare also assisting customers with solutions to help easecongestion or improve the efficiency of logistics operations,and developing services aimed at improving the qualityof healthcare or its operational efficiency. We also aim tocreate new value across industrial sectors by using
digital technologies. For example, we facilitate smarter
contracts or transactions via linkage of settlement
systems with various commercial and logistical flows
using blockchain technology.
Today’s rapid pace of technological innovation means
it is essential for us to hone solutions in partnership withcustomers based on identifying issues, formulating
hypotheses, and testing solutions in a continuous,fast-paced cycle. We aim to help customers reinforce
competitiveness and realize an affluent society, we
generalize the Lumada customer case in various fields
and utilize it throughout the whole of Hitachi for rapid
development and supply of solutions.

Our Future Mission and RoleMy role is to take the lead in driving the growth of theSocial Innovation Business and to generate growth inglobal markets by developing a mechanism for applying
state-of-the-art digital technology across the entire
Hitachi Group. I view our mission as the creation andtimely market introduction of high value-added digitalsolutions using Hitachi’s operational technology (OT), IT,
and products. To this end, we recognize the importanceof dynamically optimized HR assignments for our digitalspecialists so that we can strengthen the global deliveryof these solutions.
The Creation of Social Value
Even as digital technology has evolved these days, it ispeople who are originating ideas and creating value.
Technology is merely a tool, and the aim of Hitachi’s
Social Innovation Business is to pursue improvementsin the quality of life for people, focusing on people wholive there. We hope to contribute not only to the growthof advanced countries, but also to the development of
nations and regions where residents find it hard toaccess safe drinking water, food, or healthcare. And wecreate solutions that use digital technology to make theworld a better place.
SDG Focus

29

Feature: Four Focus Business Domains

Executive Vice President’s Message

Foundation for Value Creation

Message from the
Chief Human Resources Officer
We are promoting our HR strategy to expand theSocial Innovation Business, based on the strategic
promotion of diversity and inclusion policies.
We are also upgrading management systems tobecome a truly global enterprise, including building
an integrated HR platform.

Hidenobu Nakahata

Foundation for Value Creation

Senior Vice President
Chief Human Resources Officer (CHRO)

Message from the Chief Human Resources Officer

p.31

Human Capital Development

p.33

Message from the Chief Technology Officer

p.35

Engaging in Responsible Procurement

p.37

Environment

p.39

Risk Management

p.41

Compliance

p.48

Management System

p.50

Independent Outside Director Dialogue

p.53

In 1910, the same year that he founded Hitachi, Namihei
Odaira set up the Apprenticeship Training School. Thissymbolic act illustrates our belief in human capital being
one of the most critical assets in business. We benchmark
Hitachi’s human capital strategy and policies against thoseof a variety of global enterprises. I am exchanging opinions
directly with my counterparts at such companies. Basedon these discussions, I think that Hitachi is close to thelevel of major global players regarding our humanresources strategy and personnel management framework.
If I were asked about the strengths of Hitachi in trying togrow in an increasingly commoditized world, my unwavering
reply would be that we aim to realize sustainable growthby utilizing our human capital to create original value andinnovation. In accelerating our management strategy ofdeveloping the Social Innovation Business globally using
digital technology, two of the vital elements are developing
the people who can understand customer and social
issues precisely, and creating teams of people with diverse
viewpoints, backgrounds, and abilities to work together
towards common goals. For these reasons, my focus ison developing our human resources, including the next
generation of leaders, through promotion of diversity andinclusion. We have also been focusing efforts on building a
global personnel management system to support ourhuman capital utilization.

Initiatives to Promote Diversity and Inclusion

Messages from
Newly Appointed Independent Outside Directors

p.59

Corporate Governance

p.61

30

Human Capital Is a Critically Important Asset

Diversity and inclusion are the wellspring of innovation for
Hitachi. We are building HR systems so we can evaluate
the performance of each position and role using acommon global standard. With the appointments of Mr.
Alistair Dormer as Global CEO of our railway systems
business and Dr. Brice Koch as the President of Hitachi
Automotive Systems, Ltd., a diversity of viewpoints isreflected in decision-making processes at the senior
management level. The ability to recognize diverse values
and express different opinions is critical to the provision of
optimal solutions that fully address the issues faced by ourcustomers within an increasingly complex society. We willcontinue to promote diversity within management ranks.
Our global “Work Life Innovation” campaign, which
includes work-style reforms in Japan, aims not merely to

reduce total working hours, but to create more flexible
approaches to work to respect and cater to the values
and differing lifestyles of our varied individual employees.
We are creating work environments to enable individuals
to maximize their abilities, based on practices such as
telecommuting or working from a satellite office.
Diversity Targets for Hitachi, Ltd. (FY2020)
End-FY2017 (actual)

FY2020 (target)

Executive and Corporate Officers
Female2.5%

10%Non-Japanese

6.4%

10%

577

800

Number of female managers

31Reinforcing Efforts to Develop Next Generation of Leaders to Realize Sustainable Growth
In addition to Hitachi University, the Group’s global e-learning
management system, we have developed a variety ofeducational programs tailored to different jobs and positions.
We are also focusing resources on selective training
courses aimed at developing future managerial candidates
at an early stage. In these courses, participants discuss
what is necessary for the growth of Hitachi. The opportunity
to generate ideas to present to senior management helps
to cultivate the next generation of leaders— people withunique perspective and determination. In addition, we
have identified a group of about 50 employees from aroundthe Hitachi Group with next-generation development
potential. People in this “Future 50” group are selected on
merit, regardless of age, gender, or nationality. They are
given challenges to help expand their horizons and build
their perspective, including tough assignments, different
types of work, and internal and external training
opportunities. The Future 50 group members receive
one-on-one mentoring opportunities with outside directors
to benefit directly from their extensive business experienceand global perspective. Our aim is to change mindsets so
we can develop people for important positions in the future.

Creation of Integrated Personnel Management Platform
We have introduced systems since fiscal 2012 to help
optimize the allocation of personnel to important positions
within the Hitachi Group, including the Global Human
Capital Database and Group-wide systems for grading
personnel and managing performance. Since fiscal 2013,
we have also conducted an annual survey of our global
employees called “Hitachi Insights” to cultivate dynamic
and supportive workplace conditions across the Group.
With a response rate of more than 80%, the survey
generates valuable feedback for business unit CEOs andother Hitachi Group managers. We also reflect the resultsin our personnel management to help promote greater
employee engagement.
In January 2018, we began full-scale operation of our
new HR Integrated Platform that brings together HR-related
information and processes. I expect three benefits from theintroduction of this platform. First, it will boost transparency.

Previously, we had no way of making timely assessmentsof the skills and capacities of the people working for
Hitachi Group companies throughout countries andregions. Being able to see these things will upgrade ourability to assign personnel to appropriate work and tocreate individualized development programs. Second, byenabling all employees to input experience or skills into thesystem and access HR-related information online, the newplatform reinforces the cultural shift within Hitachi toward
greater individual empowerment. It should translate directly
into greater development of those who are self-motivatedto broaden their horizons by taking on new challenges atwork. Finally, the new platform will boost speed andefficiency. For example, enhanced access to global data
will help us assign the necessary personnel for new
projects more quickly and efficiently, thus contributing tomore timely project start-ups.

Strategic Contribution of HR to the Realization of Society 5.0 and SDGs
Ever since it was founded, Hitachi’s corporate philosophyof “contributing to society through development ofsuperior, original technology and products” has embodied
the values that are expressed in the SDGs.
Our strategy for human capital development is in linewith the aim of the Social Innovation Business to addresssocial issues. Its promotion can make a significant
contribution to realizing the Japanese government’s“Society 5.0” vision and achieving the SDGs. Most notably,in our personnel development and the promotion of diversity
and inclusion policies, we are actively working to achieve
Goals 4, 5, and 8.

SDG focus

Hence, by reforming and developing our HR management
platform and systems, and creating conditions to makeeffective use of them, Hitachi’s diverse workforce will help
realize sustainable growth while also contributing to therealization of the “Society 5.0” vision and the SDGs.

Diversity and Inclusion
Diversity and Inclusion as the Wellspring of
Our Innovation
Diversity is the wellspring of our innovation and our growthengine. Hitachi regards personal differences—gender,
nationality, work history, age, sexual orientation, andphilosophy—as facets of people’s individuality. By respecting
our employees’ individualities and positioning them as anadvantage, Hitachi frames its diversity and inclusion as
conducive to both the individual’s and the company’ssustainable growth.
We have currently positioned and are promoting
diversity management as a management strategy under
the initiative slogan “Diversity for the Next 100.” Specifically,
this means promoting the creation of environments inwhich women and other members of our diverse human
workforce are able to demonstrate their skills to the fullest
extent in leadership and business management positions.
Hitachi, Ltd. and 17 Group companies jointly operate theAdvisory Committee and the Diversity Development Council
to accelerate awareness across Hitachi as a whole,including support for diverse human resources andwork-life management.

efforts demonstrate our commitment both internally and to
the world to further advance women in the workplace andimprove our diversity management.
* As another goal, Hitachi aims to achieve a 10% ratio of non-Japanese
executive and corporate officers by fiscal 2020

SDG focus

Finding solutions to customer and social issues, which arebecoming more diverse and complex, requires the bringing
together of human capital that possesses diverse values.
Hitachi is engaged in maintaining working environments thatenable the diverse members of its workforce to demonstrate
their abilities.
Number and Ratio of Female Managers(people)(people)

3,727

800

474
400

3,459

6.3%

577 6.4%

6.4%

600

Developing Women’s Careers
Hitachi, Ltd. has created two key performance indicators(KPIs) to enable as many female employees as possible totake up leadership positions and to participate inmanagement decision making. In fiscal 2013, Hitachi set a
goal of promoting women to executive positions by fiscal
2015. In April 2015, the company appointed its first female
corporate officer, a position equivalent to the executive
level. Aiming to create diverse views and values to bereflected in our management, in fiscal 2017 we publicly
announced our commitment to increasing the rate offemale executive and corporate officers to 10% by fiscal
2020.* With regard to the ongoing promotion of women to
managerial positions, we are aiming to double, comparedwith fiscal 2012, the number of female managers to 800
by fiscal 2020.
In addition to reinforcing existing programs, we are
introducing the Hitachi Group Women’s Career Success
Survey to visually highlight the level of progress made with
the initiatives and any outstanding issues in each business
unit while setting numerical targets for each unit. These

3,365

4.0%

509

4.1%

4,000

3,000

4.2%

2,000

200

0

1,000

2015

2016

2017

0

(FY)

Female managers, Hitachi, Ltd.*1 (left scale)
Female managers, Hitachi Group*2 (right scale)
Percentage of total, Hitachi, Ltd.*1
Percentage of total, Hitachi Group*2
Note: Figures include section chiefs and above.
*1 “Female managers” in fiscal 2017 include managerial employees dispatched from Hitachi,Ltd. to non-Group companies and those accepted from non-Group companies by Hitachi,Ltd. Earlier figures include regular managerial employees dispatched to non-Group
companies but exclude those accepted from non-Group companies.
*2 All full-time, regular female managers excluding those dispatched to non-Group companies.
Figures for fiscal 2016 were restated following a reexamination of HR data.

Ratios for Female and Non-Japanese Executive and Corporate
Officers (Hitachi, Ltd.)
June 2017 June 2018

Number of female executive and corporate officers
Ratio of female executive and corporate officers
Number of non-Japanese executive andcorporate officers
Ratio of non-Japanese executive and corporate officers

2

2

2.4%

2.6%

3

5

3.7%

6.4%

Global Human Capital and New Generation Development
Advancing Global Human Capital
Our Group-wide global human capital management
strategy optimizes both human resources and organizational performance in pursuit of our goal of becoming an
Innovation Partner for the IoT Era.
One part of that strategy has involved the building of a
Global Human Capital Database, which enables us to fully
ascertain the status of worldwide Group human capital32

and to assess macro management data, such as the
allocation of human resources. We have also introduced the
Hitachi Global Grade system that applies to all managers
in the Hitachi Group worldwide, using it as a common
platform for job applications throughout the Group and as
a common standard for assessing the value of management
duties. In addition, we introduced Global Performance
Management at Hitachi, Ltd. and at some Group companies
33

Foundation for Value Creation

Human Capital Development

worldwide to link the individual and operational businessgoals, with the aim of promoting mutual sustained
improvement and the growth of both individuals
and businesses.
We are also working on talent development initiatives todrive global business growth. For example, in fiscal 2015
we implemented “Hitachi University,” a Group global
common learning management system.
With regard to Hitachi Insights, the global employee
survey that Hitachi conducts every year, we were able toreceive roughly 170,000 responses from the around
200,000 employees who were sent the fifth survey in
September 2017, and the overall evaluation resulted in an
improvement for the fourth consecutive year.

New Generation Development
Applying science and technology, the Hitachi Group andthe Hitachi Global Foundation carry out science, technology, engineering, and mathematics (STEM) education,
depending on the issues in local communities, to develop
a new generation of human capital capable of addressing
social challenges.

34

The R&D Division celebrated its 100th anniversary
in 2018. Inheriting Hitachi’s corporate credo andfounding spirit, our R&D operations support thegoal of Hitachi being “an Innovation Partner for the
IoT Era,” while also driving the future growth of thecompany by addressing societal issues.

SDG focus

Norihiro Suzuki
Vice President & Executive Officer
Chief Technology Officer (CTO)

For Hitachi, employees are an important entity underpinning
the Company’s future and, at the same time, a driving force
contributing to the achievement of the SDGs and realizing
social change.

R&D Initiatives Targeting Social Innovation Business Expansion

and human resource departments to improve workplaceenvironments. In combination, these efforts are expected
to help prevent mental health issues and revitalize workplaces. Hitachi’s efforts in this area were recognized underthe 2018 Certified Health and Productivity Management
Organization Recognition Program, conducted by Japan’s
Ministry of Economy, Trade and Industry, in the large
enterprise category (White 500).

In fiscal 2015, to promote global R&D centered oncollaborative creation with our customers, we establishedthe Global Center for Social Innovation (CSI) in five key
regions, setting up bases in Tokyo, North America, China,
Europe, and Asia-Pacific (APAC). Using a systematizedcollaborative creation methodology called “NEXPERIENCE,”
CSI researchers share their vision directly with customers
as part of a process of original value creation that ranges
from identifying issues to testing solutions and creating
practical business models. At the same time, positive

Hitachi Group Health and Safety Policy:

R&D Investments for Enhanced Efficiency

https://www.hitachi.com/sustainability/download/pdf/en_sustainability2018_19.pdf

Hitachi invests approximately 4% of revenues into R&D on
the four focus business domains that drive the Social
Innovation Business, as well as open innovation and otherprojects. I would emphasize the fact that our investment inopen innovation in fiscal 2018 was over 60% higher than in
fiscal 2015. The establishment of the CSI enables us to work

Occupational Health and Safety
Framework for Promoting Health and Safety
Ensuring the health and safety of all employees is the basic
principle underlining the Hitachi Group Health and Safety
Policy. This policy is shared by all Hitachi Group companies
around the world. Employees work together to create safe,
secure work environments that aim to be accident-free.
Manufacturing and maintenance, the areas of business
in which Hitachi is engaged, are particularly accident-pronelines of work, and we have around 34,000 employees
performing work of this type in Japan. We promote a rangeof Group-wide occupational health and safety activities
that include preventing workplace accidents by setting andapplying minimum safety standards to be observed byGroup manufacturers around the globe.
In Japan, a health and safety commission—composedof company representatives, labor-union officials, andemployees—is convened every month. We have introduced
the Hitachi Group Key Safety Management Designation
System, under which initiative Group companies andbusiness sites where serious work accidents have occurred
are designated as priority safety management companies
and business sites. Here, the potential for accidents is
reduced by reviewing risk assessments, including theinvestigations of accident causes, and third parties areengaged to conduct safety issue diagnoses. In fiscal 2017,
we recorded zero fatal workplace accidents in Japan andfive in the rest of Asia.
In December 2015, revisions to Japan’s Industrial Safety
and Health Act took effect, requiring businesses of 50 ormore employees to put in place a stress-check system.
We are proactively implementing stress checks at all
business sites in Japan—even those employing fewer than
50 employees, are required to make efforts toward
compliance—to promote awareness of stress among all
employees. Group analysis results from these stresschecks will also be used by workplace health and safetycommittee members, occupational healthcare workers,

Foundation for Value Creation

Message from the
Chief Technology Officer

SDG focus

Becoming a Global Innovation Leader to Drive Evolution Towards a Global Company
Objectives

Occupational Accident Rates

1.66

Enhancing collaborative creation of global solutions
From individual solutions to connected industries
Focus on growth domains and regions

Increase world-leading products and services

Creating and focusing on world-leading technology
Create world-leading technology to support the Social
Innovation BusinessAccelerate open innovation

Participate and engage with global community

Promoting basic research to resolve societal issues
Accelerate creation of disruptive technology
Create vision to lead “Society 5.0”

1.5

1.06

1.15

Policy Directives

Strengthen monetization capabilities to expand the Social
Innovation Business

2.0

1.63

with customers from the research stage to develop the technology for products and services that address societal
issues, thus boosting the efficiency of our R&D. Moreover,
we are looking to make R&D even more efficient by shortening development time by leveraging AI and other digital technologies for our research work itself.

Fiscal 2018 R&D Policies

We are primarily addressing SDGs in the recognition that it
is indispensable for business management to develop
environments in which the people working in the HitachiGroup can work safely and without anxiety about physicaland mental health.

1.61

steps are being taken to help upgrade and expand digitalsolutions that employ Lumada.
I believe this process is creating positive feedback cycles,in which resolving customer issues helps us to reinforce
Hitachi’s core technologies while at the same time generatingknowledge to support new business development based on
accumulated customer cases. We are upgrading our focus onopen innovation approaches as a way of expanding suchinitiatives globally, for example by building ecosystems thatspan industry, academia, and the government sector.

1.02

1.0

0.5

0

0.54

0.51

0.22

0.18

2015

2016

0.45
0.25

2017

(FY)

All industries
Manufacturing industries
Electrical machinery sector
Hitachi Group** Occupational accidents are defined as those involving fatality or work-time loss of one day ormore. Hitachi Group figures for Japan, including Hitachi, Ltd., are for 240 Group companies infiscal 2015; for 200 Group companies in fiscal 2016; and for 201 Group companies in fiscal 2017.

35

Enhancing Collaborative Creation of Global Solutions
To drive the evolution of our collaborative creation efforts withcustomers, we are looking to develop new “Connected
Industries” solutions that can generate greater value thanthose for individual solutions, and those that can connect avariety of solutions in different industries for multiple customers.
One practical example of this is an initiative where small- andmedium-sized customers in industrial sectors and financial
institutions manage and share global supply chain information.

Utilization of a blockchain platform to digitize order-related
information from customers to suppliers can improve theoperational efficiency of procurement and inventory
management, while also facilitating faster decisions by thefinancial institutions relating to aspects such as settlement andfunding. By focusing on growth domains and societal issues
across global regions, we are helping to expand the Social
Innovation Business-related collaborative creation.

Creating and Focusing on World-leading Technology
The R&D Group is also actively trying to create world-leading
technology to support the Social Innovation Business. For
example, our development of high-speed rolling stock andtraffic management systems to enhance railway safety,
comfort, and convenience is helping Hitachi’s business growthin Europe. Elsewhere, we are applying fluid analysis technology
developed in the railway field to improve compartment design
to help achieve the world’s fastest elevator. In the industrial
sector, Hitachi has secured a world-first with the development
and commercialization of a compact and energy-efficient
amorphous motor-integrated oil-free scroll compressor.
Going forward, we aim to develop world-leading technologies
in fields such as blockchain, autonomous vehicles, smart
manufacturing, AI, and robotics.
For the creation of world-leading technology, it is necessary
to enhance the value offered by Hitachi’s OT, IT, and productswith the utilization of digital technologies. For that, it is also
important for us to strengthen our human capital. Aiming toincrease the number of data scientists working throughout the
Hitachi Group to at least 3,000 by fiscal 2021, we haveinstituted a training program and established the Professional
Community to support top-class researchers and practitioners
from every field. In this online community initiative, the R&D
Group plays a major role in driving the continued evolution ofcore technology development and value creation.
In addition to internal efforts to strengthen human capital,
we are investing in the development of technology platforms
through an open innovation R&D consortium, based oncollaboration with research institutions, academia, open
community partners, and start-ups both in Japan and overseas.
Through our open community initiatives, we are actively
involved in open-source projects and a consortium in fields
such as blockchain and edge computing, and have also joined
Hyperledger, a project sponsored by the Linux Foundation as
well as the Edgecross consortium. Through Geodesic Capital,a venture capital firm in which Hitachi owns an equity stake, we
are also promoting collaboration with start-up ventures. We
are accelerating the creation of world-leading technologies
through such activities and initiatives.

Promoting Basic Research to Resolve Societal Issues
Communicating a vision for the future and creating disruptive
technologies are both essential to resolving societal issues.
Hitachi has established joint R&D centers with the Universityof Tokyo, Kyoto University, and Hokkaido University to develop
visions to support realization of the “Society 5.0” concept.
The laboratories established with these three institutions arefocusing on different topics, namely urban planning andenergy (Hitachi University of Tokyo Lab), issues facing society
in 2050 (Hitachi Kyoto University Lab), and regional issues
and food/health (Hitachi Hokkaido University Lab). Each lab isalso responsible for related global communications. We areworking to identify practical research topics within these
initiatives, and converting research findings as a major sourceof potential business opportunities. Efforts to create disruptive
technologies include a project to develop quantum computing
with UK-based Cambridge University, and a regenerative
medicine project based at the Kobe Biomedical Innovation
Cluster. I see these initiatives helping to lay the foundation for
Hitachi’s new businesses of the future.
Besides patent activities to reinforce product businesses,
we are promoting novel intellectual property (IP) activities tosupport ecosystem construction. Our IP programs areincorporating data and other information assets to help
36

accelerate the development of digital solution businesses
based on AI, analytics, and other digital platform technologies.
Through these R&D activities, I am confident that we willcontribute to the growth of Hitachi and the SDG No.17 target“Partnership for the goals.”
SDG Focus

In seeking to be a company that continually fulfills its social responsibility throughout the value
chain, Hitachi strictly adheres to laws and regulations and acts in a moral and fair manner with all its
business partners.

Promoting CSR Procurement
Creating and Sharing Procurement Policies
We base our procurement activities on the Hitachi Guidelines
for Procurement Activities, while sharing global supply chain
issues within the Group. All Group companies follow theseguidelines. The guidelines were created in line with the United
Nations Global Compact and include the elimination of
discrimination in employment and occupation, the rejection of
all forms of child and forced labor, and environmental protection
activities. Suppliers are selected strictly in accordance with
the Hitachi Guidelines for Procurement Activities.
A fully revised version of the Hitachi Group CSR Procurement
Guidelines was released in fiscal 2016. This revision incorporates
the provisions of the Hitachi Group Codes of Conduct andalso makes references to version 5.1 of the Responsible
Business Alliance (RBA, formerly called EICC) Code of Conduct,
promulgated in January 2016. To ensure that the guidelines’
provisions are strictly followed, we distribute the Guidelines

to the approximately 30,000 suppliers of Hitachi business
units and Group companies, from whom we request
acknowledgment of suppliers’ understanding in writing. Tier 1
suppliers are further asked to confirm that tier 2 suppliers also
follow the provisions in the guidelines.
We plan to revise these guidelines regularly in the future toensure that they always reflect the demands of global society
regarding corporate supply chain management.
Guidelines for Procurement Activities:
http://www.hitachi.com/procurement/policy/__icsFiles/afieldfile/2018/06/07/
guidelines.pdf
CSR/Green Procurement:
http://www.hitachi.com/procurement/csr/green/index.html

Implementation of CSR Monitoring and Audits
To monitor how well Hitachi’s CSR supply chain management
philosophy has been adopted by our suppliers, since fiscal
2007 we have asked key suppliers to conduct CSR Monitoring(self-checks) using the JEITA Supply Chain CSR Deployment
Guidebook and detailed checklists. After collecting and analyzing
the results, we provide feedback for the business operations
related to the suppliers, and then work with those involved in
the operations to resolve issues related to the suppliers.
In fiscal 2017, we asked 131 suppliers inside and outside
Japan to conduct CSR Monitoring and received survey replies
from them. From fiscal 2017, all checklists were fully updated inaccordance with the revisions made to the Hitachi Group CSR
Procurement Guidelines. Based on the results of the survey, we
have identified problematic labor-related trends, and we will
promote measures to address such issues going forward.
Since July 2012, Hitachi, Ltd. has been auditing the
manufacturing bases of its and Group companies’ suppliers in
China and the rest of Asia. In fiscal 2017, we conducted CSR
audits of 18 suppliers. Our audits are based on the international
SA8000 certification standard developed by Social

Accountability International (SAI), an American CSR evaluation
institution. An RBA-recognized auditor checks suppliers’ CSR
initiatives from the perspectives of labor and human rights,
health and safety, the environment, and ethics. No major
infringements were found at the 18 suppliers audited in fiscal
2017, but some small areas needing improvement werenoted, such as overtime work exceeding stipulated rules(14 suppliers), failure to conduct periodic inspections ofmachinery and equipment (12), and insufficient managementof hazardous waste (7). The relevant suppliers were requested
to submit improvement action plans, and Hitachi, Ltd.,
together with Group companies, will work with and advise thesuppliers until they complete the planned improvements.
We hope to contribute to the development ofsustainable consumption and production
patterns within society by addressing societal
issues within our value chain.

Historical/Projected R&D Expenditure(Billions of yen)

Number of CSR Audits

500.0

Fiscal 2015
450.0

3.4%

3.3%

3.5%

3.6%

3.7%

20

400.0

350.0

334.8

333.7

20

companies

Fiscal 201718

companies(total of 106 companies since fiscal 2012)

350.0
323.9

companies

Fiscal 2016

332.9

300.0

0

2014

R&D expenditure

2015

2016

2017

R&D expenditure relative to revenues

2018(Forecast)

(FY)

37

Foundation for Value Creation

Engaging in Responsible Procurement

In order to achieve its Environmental Vision, the Hitachi Group is actively working to reduce its overall
environmental burden. To reduce its CO2 emissions across its entire value chain, Hitachi aims to lower
emissions not just at the production stage but also during use of sold products and services, which
accounts for the vast majority of total emissions, by promoting low-carbon businesses.

Respect for Human Rights
Human Rights Due Diligence in Procurement
Our pledge under the Hitachi Group Human Rights Policy is todevelop human rights due diligence mechanisms andimplement them on an ongoing basis. Based on the results ofthe pilot programs undertaken with certain entities in fiscal
2014 across six countries in the ASEAN region under thispolicy, we have formulated a set of written guidelines for
implementing human rights due diligence in collaboration with
the US-based NPO Shift*.
In fiscal 2015, we initiated human rights due diligence inthe procurement divisions, whose activities are at risk ofnegatively impacting the human rights of workers in the supply
chain and local communities. In fiscal 2017, we completely
revised the questions on the check sheet used in supplier
CSR monitoring (self-checks) to better grasp the issues
related to workers’ rights at suppliers, as well as health andsafety and the environment. We also visited one of our
suppliers in Malaysia with members of the US nonprofit
organization BSR (Business for Social Responsibility) to conduct
an assessment on migrant workers, who are socially vulnerable
and often said to be exploited by forced labor. The assessment
was based on interviews with managers of human resources
and production divisions, recruitment agencies, and migrant
workers, along with inspection of the factories and dormitories.

Fiscal 2016 also saw the launch of human rights due
diligence for human resources divisions at Hitachi. The
operations in those divisions touch on many issues connected
to human rights for employees, including working hours,
employee treatment, and health and safety. Human rights
risks for employees were assessed and prioritized, andmitigation strategies were explored. They also investigatedgrievance mechanisms, analyzing existing procedures andexploring ideas for improvement. Going forward, Hitachi willfurther promote human resources initiatives by its business
units and Group companies.
Since fiscal 2014, Representative Executive Officer,
President, and CEO Toshiaki Higashihara has sent an annual
human rights message on Human Rights Day (December 10).
In fiscal 2017, this was distributed via email to executives andemployees at Hitachi, Ltd. and Group companies worldwide.
* John Ruggie, former Special Representative of the Secretary-General on
business and human rights, founded this NPO with the team that drafted the
UN Guiding Principles on Business and Human Rights.
Hitachi Group Human Rights Policy:
http://www.hitachi.com/sustainability/renew/pdf/human_rights_policy.pdf

Response to the Conflict Minerals Issue
The policy for procurement departments of Hitachi has always
been and will continue to be to ensure that procurement
activities do not result or aid in conflicts within the same
region and that the armed groups described above do notbenefit from those activities, while continuing responsible
procurement activities of minerals that are not related to theconflicts in the region based on local laws. At the same time,
we will continue to support the practice of due diligencebased on the “OECD Due Diligence Guidance for Responsible
Supply Chains of Minerals from Conflict-Affected and High-Risk
Areas” among companies. With these in mind, Hitachi Groupwould like to request all of our suppliers to utilize the Conflict

Minerals Reporting Template developed by RBA/GeSI tocontinue checking the country of origin and supply chain ofminerals, and also to procure from the CFS (Conflict Free
Smelter)* listed within.
* A list of smelters who have been identified as “not being involved in the conflictwithin the same region” by the Responsible Minerals Initiative (RMI), an organization that was founded by the RBA/GeSI, which is a group that aims to solve
the conflict minerals problem.
Hitachi Group Conflict Minerals Procurement Policy:
http://www.hitachi.co.jp/procurement/csr/__icsFiles/afieldfile/2018/06/07/
CM_PP_RE_E.pdf

Respect for human rights is the foundation of all 17 SDGs. In working toachieve such goals, it is important that we mitigate any negative impacts
related to human rights caused by our business activities throughout thevalue chain.

Distributed CEO’s human rights message to
Fiscal 2015

Approx.
38

148,000 people

Fiscal 2016

Approx.

156,000 people

Fiscal 2017

Approx.

178,000 people

The Environmental Vision and Hitachi Environmental Innovation 2050
As climate change, resource depletion, ecosystem destruction,and other environmental issues grow more serious, companies
face increasing demands and expectations to reduce theenvironmental burden of their business activities. The Paris
Agreement, which came into force in 2016, sets ambitious
targets, including a global long-term target of keeping global
warming to below 2°C and efforts to limit the increase to
1.5°C. These targets are based on the Fifth Assessment
Report of the Intergovernmental Panel on Climate Change(IPCC). Environmental targets have also been set in the
Sustainable Development Goals (SDGs)—the centerpiece ofthe 2030 Agenda for Sustainable Development, adopted by
the United Nations in 2015—whose Goal 13 reads: “Takeurgent action to combat climate change and its impacts.”
In the light of these global demands and our own management policy, we created an Environmental Vision clearlystating our aim to both improve the quality of life and achievea sustainable society from a long-term perspective, as well as
to achieve a low-carbon society, a resource efficient society,and a harmonized society with nature by promoting environmental management. Looking toward 2030 and 2050, we
also established long-term environmental targets called
Hitachi Environmental Innovation 2050 that demonstrates
our resolve to achieve the kinds of societies outlined in ourEnvironmental Vision.
Our environmental strategy, centered on the Environmental
Vision and our long-term environmental targets, is deliberated
by the Executive Sustainability Committee, chaired by the
President & CEO, and advanced by the Hitachi Group asa whole.

The aim of Hitachi’s environmental management

Achieving a Low-Carbon Society
Hitachi has established a goal of reducing CO2 emissions
throughout its value chain by 50% by fiscal 2030 and 80% by
fiscal 2050 (compared to fiscal 2010 levels).
A significant share of the CO2 emissions from our value
chain arises from the use of our products and services by ourcustomers. To reduce these emissions and combat climatechange, we are expanding our low-carbon businesses as
outlined below.
We are also improving the environmental performance of
products and services across the entire Hitachi Group to help
address environmental challenges through the development
and popularization of products and services with high environmental value. To track our progress, we use the reduction rate
per product and service function of CO2 emissions during usage
as our index. At the same time, we continue to promote

environmentally conscious design of products and services atthe design and development stage.
In addition, we remain focused on cutting direct emissions
by the Hitachi Group during production by enhancing theefficiency of our factories and offices, advancing energy-saving
measures, and introducing the use of renewable energy.
Please refer to the Hitachi Sustainability Report 2018 for further details.

Ratio of CO2 Emissions at Each Stage of Hitachi Value Chain
Production
Transportation

Disposal/Recycling

Use
Procurement of raw materials/Parts

39

Foundation for Value Creation

Environment

Responding to Climate Change Through Growth in “Low-Carbon Businesses”
As part of its efforts to address challenges posed by climatechange, Hitachi is combining the strengths of its business
units and Group companies through digital solutions built
on the Lumada platform, and expanding its low-carbon
businesses through co-creation with customers and partners.
To help achieve low-carbon energy supplies, we offer windand other non-fossil energy systems. We also promote
improvements in power distribution efficiency via the use ofsmart grids and related technology. To realize low-carbon
spaces, we are striving to make buildings more efficientthrough total solutions and reduce the energy requirements offactories via smart manufacturing. Through the developmentof more efficient railway systems and the promotion ofincreased adoption of automotive electric powertrains, we areproviding highly efficient transportation methods in order toachieve low-carbon mobility. Our amorphous transformers andother low-carbon products contribute to increasing efficiency
and reducing emissions throughout society. In these andmany other ways, we are helping to realize a low-carbon
society and promoting measures to address climate change.

Low-Carbon Businesses: A Hitachi Focus
Achieving Low-Carbon
Energy Supplies

Non-fossil energy systems• Wind energy systems
Smart grids• Distributed power supply
solutions• Energy management

Achieving Low-Carbon Spaces

Achieving Low-Carbon Mobility

Low-Carbon Products

Offices• Total solutions for buildings• Elevators• Escalators

Railways• Operation management/railway
information systems• Rolling stock

Industrial equipment• Amorphous transformers• Air compressors• Motors

Factories• Smart manufacturing

Automobiles• Electric powertrain systems(Storage batteries, motors,
inverters, etc.)• Automobile components

High functional materials &components• Amorphous metal materials fortransformers• Rare earth magnets

Smart life & ecofriendly systems• Smart life business• Home appliances

Advancing Risk Management on Multiple Fronts

Risk Factors

Changes to our operating environment from such factors as
the globalization of the economy and advances in and spreadof information and communications technology (ICT) lead not
only to the expansion of business opportunities but also to thediversification of risks to our operations.
We have built a diverse risk management system underwhich we carry out risk analysis to accurately gauge ongoing
economic and social changes and use the insights gained totake preventive measures and ensure a rapid response toissues that may arise unexpectedly. Particularly in recent
years, as a company deeply involved in infrastructure projects
in countries and regions around the world, we take note of the
discussions at meetings like the World Economic Forum onsuch international risks as the unending series of terrorist
attacks, the increasing severity of abnormal weather conditions,
global-scale climate change, and the growing scale andsophistication of cyberattacks. We are reinforcing business
continuity plans (BCPs) and further tightening our information
security to ensure the stable supply of our products andservices and to prevent threats to our networks that could
severely disrupt business operations. We will continue toreinforce our risk management on a Group-wide basis andmake thoroughgoing efforts to minimize risks to society fromour operations.

We conduct business on a global scale across a broad rangeof business areas and utilize sophisticated, specialized
technologies to carry out our operations. Therefore, we areexposed to risks attributable to the economic environment,risks inherent in individual industrial sectors and businesslines, and risks related to our operations. Investment in our
securities also involves risks. The following risks are based on
the assumptions we consider reasonable as of the date thisreport was issued.

Reinforcement of Risk Management System

Wind energy systems

Elevators

Escalators

Rolling stock

The entire Hitachi Group is reinforcing its risk management
system to address increasingly globalized and complex risks.
Under the head of risk management at Hitachi, Ltd.,
each business operation assigns an executive as its risk
management officer to manage risks mainly concerned withcompliance, export control, disasters, and crime, and torespond adequately in coordination among the entire Group.
Furthermore, Hitachi is building a comprehensive risk
management system that contains standards and procedures
to objectively evaluate different risks that may affect business.

Amorphous transformers

Digital Solutions Built on Lumada Platform

SDG Focus

Hitachi promotes initiatives to minimize environment-related risks, principally climate change, andcontribute to resolving environmental issues.

• Economic Trends• Currency Exchange Rates Fluctuations• Access to Liquidity and Long-term Financing• Marketable Securities Risks• Material and Component Procurement• Estimates, Fluctuations in Cost and Cancellation ofLong-term Contracts• Credit Risks Arising from Business Transactions• Supply and Demand Balance• Rapid Technological Innovation• Dependence on Specially Skilled Personnel• Intense Competition• Our Strategy to Strengthen Our Social Innovation Business• Acquisitions, Joint Ventures, and Strategic Alliances• Restructuring of Our Business• Worsening of Business Performance of Equity-method
Associates and Joint Ventures,• Our Overseas Growth Strategies• Overhaul of Cost Structure• Intellectual Property• Litigation and Regulatory Investigations• Product Quality and Liability• Significant Disasters and Similar Events• Dependence on Information Systems• Management of Confidential Information• Employee Retirement Benefits• Dilution of Your Shares by Issuances of Additional Shares
Please refer to the Company’s annual securities report for the fiscal year
ended March 31, 2018 for details of business and other risks.

Rate of Reduction in CO2 Emissions from Use of Products
and Services (Hitachi Group)

Reduction in Per-Unit Energy Use by Factories and Offices(Hitachi Group)

From base year

From base year%
reduction%
reduction

33

14

FY2010 (base year)

FY2017CO2 emissions

CO2 emissions

Function size*

100%

Function size

* Major functions of products correlated to CO2 emissions.

40

http://www.hitachi.com/IR-e/library/stock/index.html

67%

FY2005 (base year)

FY2017

Energy used 2.06 GL*1

Energy used 2.00 GL

Activity amount*2

100%

Activity amount86%*1 Energy volume used both in and outside the organization (Scope 1 and 2).
*2 A value closely related to energy use at each business site (for example,
production quantity, output, building floor space, and number of employees).

41

Foundation for Value Creation

Risk Management

Stable Provision of Products and Services

Creation of Procurement BCPs

Information Security Policies

Creating BCPs in Key Operations Worldwide

We have a deep involvement in social infrastructures in places
where the suppliers who are our business partners can beaffected by major earthquakes and other natural disasters.
These disasters can heavily impact not only our business
operations and those of our suppliers but also society as awhole. To minimize this impact, the procurement divisions inbusiness units and key Group companies in Japan havecreated procurement BCPs that (1) standardize and use
generic parts to make procurement as flexible as possible;(2) cultivate multiple suppliers; (3) distribute production acrossseveral locations; (4) budget inventory strategically; and(5) consider substitute products. To see whether or notprocurement BCPs would be effective, we held desktop
exercises to discuss in a group what should be done during
and after a disaster, making further improvements as a result.
In fiscal 2017, all major Group business sites withproduction lines (approximately 208 sites in total) took steps
to maintain and strengthen the procurement BCPs they had
created by the previous fiscal year, thereby contributing to thecontinuation of Hitachi’s global operations.

The increased connections between things due to development of IoT are creating new value. At the same time,increasingly creative cyberattacks are widening their focus
from traditional IT to include the IoT/OT field. Managing
information security risks is one of the most critical issues forcompanies to minimize the risk of business disruption due tofactors such as leaks of information or operational stoppages.
The development of the Social Innovation Business has
highlighted for Hitachi the vital importance of information
security governance as a key management issue. The Japan
Business Federation’s Declaration of Cyber Security Management that was published in March 2018 also placed emphasis
on cyber security measures as a critical management challenge
from the aspects of both value creation and risk management.
Hitachi approaches the issue of information security
governance based on the same concept.

Given the close relation of our business to social infrastructure,
we are enhancing our business continuity plans (BCPs) toensure that the impact of risks does not disrupt our businessand thereby significantly affect society. In December 2006,
we issued the Hitachi Group Guidelines for Developing
Business Continuity Plans (Overview) in Japanese. In fiscal
2010 this was translated into English and Chinese for
distribution to all Hitachi Group companies worldwide to ensure
our response readiness for large disasters and other risks.
When the Great East Japan Earthquake struck in March
2011, our BCPs enabled quick responses and swift decision
making. However, issues emerged, including identificationof secondary and other suppliers, cloud storage andmultiplexing of production information, and the need tosecure alternate transportation and fuel sources. Based on
the lessons learned from this disaster, in October 2011 wereleased and distributed new versions of the Hitachi Group
Guidelines for Developing Business Continuity Plans forindividual departments to further improve our BCPs.
By the end of fiscal 2011, Hitachi Group operations inJapan had completed their preparation and review of BCPs
for both large earthquakes and novel strains of influenza as
appropriate to their operations.
On top of these efforts, Hitachi, Ltd. has held annual
earthquake drills simulating a major seismic event at key
operations in Japan since fiscal 1998. In March 2018, we held
initial response drills at our headquarters under the directionof our head office general manager simulating a large
earthquake in the Tokyo area, striving to promote understandingof each department’s role and strengthen cooperation
among departments.
As part of countermeasures against large earthquakes
striking the Tokyo metropolitan area, in December 2017 wedeveloped action plans including setting up substituteheadquarters in the Kansai region in case our Tokyo headquarters
cease to function temporarily due to such earthquakes.
Hitachi appointed personnel with responsibility forrisk-response policies at its main overseas bases in fiscal 2013.
By the end of that year, approximately 300 companies
prepared BCPs with the goal of completing them for key
operations. These BCPs are aimed at strengthening our ability
to respond to business risks, including large disasters, novel
strains of influenza, political instability, and social disruption,
as well as acts of terrorism. Moving forward, we intend tofurther expand the scope of our BCPs.

42

Improving Safety for Employees Sent toDangerous Regions
Responding to the hostage incident in Algeria in January
2013, then President Hiroaki Nakanishi reinforced his policy in
February 2013 of ensuring the safety of employees sent tocountries and areas at higher risk. Survey missions of in-houseand outside experts are now sent beforehand to areas at highrisk of war, terrorism, and other threats. Even after employees
are dispatched to such areas, we conduct additional local
surveys every six months as a means of confirming theeffectiveness of our safety policies. In fiscal 2017, with thethreat of terrorism expanding around the world and infectious
diseases spreading regionally, we introduced a range of safetymeasures, including providing timely alerts to employees. This
underscores our commitment to ensuring the safety of ouremployees working around the globe.
Hitachi is also contributing to safety measures at otherJapanese corporations operating outside Japan. To help
enhance collaboration between the private and public sectors
in this area, Hitachi executives participated in the Council for
Public-Private Cooperation for Overseas Safety organized by
Japan’s Ministry of Foreign Affairs. Since 2014 Hitachi hastaken part in public-private kidnap incident preparatory
training exercises.

Information Security Set-up
At Hitachi, Ltd. the senior executive with ultimate authority
and responsibility regarding the handling of information security
and personal privacy issues is appointed by the President &CEO. Previously, the CIO*1 oversaw information security.
In October 2017, in a move aimed at upgrading thegovernance of information security for the Group and to
centralize the promotion of related measures, Hitachi establisheda new position of CISO*2 to oversee promotion of information
security for all Hitachi products and internal facilities. In fiscal 2017,
the CISO role was performed by an executive vice president.

Chaired by the CISO, the Information Security Committee
determines all policies and procedures for information security
and personal information protection. These decisions areconveyed to all Hitachi Group business sites and companies,
and are implemented by the relevant information security officers.
*1 CIO: Chief Information Officer*2 CISO: Chief Information Security Officer

Information Security Management
Global Information Security Management
Hitachi Group companies worldwide reinforce their information
security in line with our Global Information Security Administration
Rules, which conform to the international ISO/IEC 27001
standard. These rules are globally distributed from the parent
company in Japan to Group companies worldwide. Other
measures include the provision of shared security services
and related support for information security by the regional
headquarters in the Americas, Europe, Southeast Asia, China,
and India.

Security Monitoring
In Hitachi, the SOC*1 monitors security on a 24/7 basis socyberattacks can be detected and countermeasures initiatedright away. The IRT*2 collects and develops security-related
data and manages the response to any security incidents.
*1 SOC: Security Operation Center*2 IRT: Incident Response Team

Information Security Promotion Set-up

President & CEO

Information Security
Chief Auditor

Chief Information
Security Officer

Overseen by CIO until September 2017
CISO position created in October 2017

Information Security
Committee

43Foundation for Value Creation

Promoting Information Security

Information Security Audits

Hitachi, Ltd. has formulated the Three Principles forPreventing Leakage of Confidential Information to ensure theutmost care is taken with such information and to prevent any
leaks or other related incidents.

The Hitachi Group has developed its approach to security
based on the “plan-do-check-act” (PDCA) cycle for its
information security management system. We conduct annual
information security and personal information protection
audits at all Group companies and business units.
Information security audits are carried out by the Information
Security Chief Auditor, an independent appointee by thepresident of Hitachi, Ltd. There are 221 Hitachi Group
companies in Japan that conduct audits in the same way as
Hitachi, Ltd., and all results are subject to review. For HitachiGroup companies outside Japan, we use a “common global
self-check” approach.
An annual review of Personal Information Protection andInformation Security Management is conducted as part of thevoluntary inspection of business unit workplaces. We conduct
monthly Confirmation of Personal Information Protection andInformation Security Management assessments at 693
operations (as of March 2018) that handle important personal
information. This regular control mechanism ensures ample
safety management and implementation.

Three Principles for Preventing Leakage ofConfidential Information
Principle 1 In principal, no Confidential Information shall be takenout of the Company’s premises.
Principle 2 Any person taking Confidential Information out of
the Company’s premises due to business necessity
shall obtain prior approval from the Information
Assets Manager.
Principle 3 Any person taking Confidential Information out of
the Company’s premises due to business necessity
shall put in place relevant and appropriate measuresagainst information leakage.

Hitachi Group companies take the following IT steps toprevent information leaks: using encryption software and securePCs; employing electronic document access control andexpiration processing software; maintaining ID management
and access control by building an authentication infrastructure;and filtering e-mail and visited websites. In response to cyberattacks, we are creating multilayered controls to prevent leaksof information, including both entry and exit countermeasures.
We also review and investigate the information security
status of suppliers based on our internal standards.

Protecting Personal Information
Hitachi, Ltd. has established a personal information protection
management system based on the Company’s own Personal
Information Protection Policy. Hitachi, Ltd. and 44 other
Hitachi Group companies* in Japan have received Privacy
Mark accreditation.
No customer complaints or claims were received by Hitachi
during fiscal 2017 relating to a breach of privacy or loss of data.
As shown by the EU’s enforcement of the General Data
Protection Regulation (GDPR) in May 2018, consumer privacy
laws and regulations are evolving on a global basis. Hitachi
is committed to monitoring these trends and taking any
appropriate related measures.
* As of May 31, 201844

Education on Information Security
Annual e-learning programs are held on information security
and personal information protection for all directors, employees,
and temporary employees. Nearly all of the roughly 40,000
employees of Hitachi, Ltd. participate in these programs.
We also offer varied educational courses on information
security with different goals tailored to specific target audiences.
In 2012, we began simulation training to educate employees
about e-mail phishing and other targeted malicious
cyberattacks. In the exercise, employees are sent actual
examples of malicious e-mails to heighten their awareness of
security through direct experience.

Foundation for Value Creation

Preventing Confidential Information Leaks

Cybersecurity: A Key Management Issue
Damage was caused to some Hitachi systems in May 2017 following an infection with WannaCry ransomware*1. Treating
this as a management issue, Hitachi is reinforcing cybersecurity measures based on the lessons learned from this incident.

Initial Response to Ransomware Infection
The incident originated around 10 PM JST on May 12, 2017, when systems inside a datacenter began operating unreliably. An investigation for suspected systems failure proceeded, but it was not known at this initial stage that the cause was
infection due to a software virus. Once ransomware infection was confirmed about an hour later, the information wasreported promptly to the internal Incident Response Team (IRT) and work began to characterize the attack and assess
related damage.
Shortly after 1 AM JST on May 13, the IRT concluded from its initial assessment that the incident was due to infection
by WannaCry ransomware. This was reported to management, and countermeasures were initiated to prevent morewidespread damage. Instructions for urgent countermeasures were developed for the entire Hitachi Group by around 5 AM
JST. An Emergency Response Center was set up at Hitachi’s head office at 9 AM JST. Work began to assess and repair
the damage to systems, and to analyze the route of infection.

Lessons from the Incident
Hitachi drew four lessons from the response to this ransomware infection incident.
First was the threat from cyberattacks that diffuse rapidly within a network. Equipment connected to the company
intranet includes not only PCs, servers, and other office equipment, but also equipment used in product development,
production facilities, and other OT equipment. In this case, damage spread due to rapid diffusion over the intranet after thevirus had infected weak links in the security chain, including office equipment not automatically updated with security
patches*2 as well as OT equipment that would not ordinarily be updated in this way.
The second lesson was the importance of thorough security measures for servers and other office equipment. The
systems that were damaged by the infection were ones where security patches had not been installed in a timely manner
because system operation precluded their necessary shutdown.
The third lesson related to the difficulties involved in security measures for OT equipment, which in many cases had
been designed without considering the need to install security patches or undertake post-installation system updates.
The fourth lesson concerned the need to upgrade business continuity planning to combat the threat from cyberattacks.
As with a natural disaster, the assumption with ransomware and other cyberattacks must be that there is no absolutesafety, and the approach in an emergency should be to contain the damage and focus on how quickly operations can berestored. The BCPs must envision worst-case scenarios and stipulate related procedures and training so that frontline
personnel are better prepared.
Besides the various technical aspects, the management response to this kind of issue must include a comprehensive
risk assessment and related decision-making from a business continuity perspective.
The threats in the information security sphere continue to grow year after year, with increasingly sophisticated cyberattacks supplementing problems due to human error, internal misconduct, and changing business conditions, among
other factors. The business impact when these incidents occur is significant. Going forward, viewing information security
as a critical management issue, Hitachi will seek to reinforce cybersecurity measures and improve systems durability while
maintaining an appropriate balance with organizational, misconduct, and system-related factors.
*1 Ransomware is a type of software virus that places restrictions on an infected computer before demanding monetary compensation in exchange for liftingthese restrictions.
*2 Security patches are programs designed to rectify any faults or weaknesses that are discovered in computing software.

45

Hitachi sees climate change risks and opportunities as important management issues. One governancemechanism that we established to address such risks and opportunities is the Executive Sustainability
Committee, chaired by Hitachi’s President & CEO, with other top executives serving as committee
members. The committee develops business strategies to minimize risks and maximize opportunities
from climate change in line with relevant global regulations and policy trends.
In 2017, the Task Force on Climate-related Financial Disclosures (TCFD), established by the Financial
Stability Board in response to a request from the G20 Meeting of Finance Ministers and Central Bank
Governors, published its recommendations seeking corporate disclosures of information aboutclimate-related risks and opportunities. In June 2018, Hitachi announced its endorsement of the TCFD
and is preparing its information disclosure based on its recommendations. As regards climate-relatedrisks and opportunities, Hitachi is reviewing its risks in two categories, namely, (1) risks related to thetransition to a low-carbon economy, and (2) risks related to the physical impact of climate change inaccordance with the categories outlined in the new global TCFD recommendations. In terms ofopportunities, we are positioning our contributions to the creation of a low-carbon society throughenhanced energy-saving features of our products and services as a major opportunity, and are
discussing how we can further expand it.

Risks in Transitioning to a Low-Carbon Economy

Market and Reputation

Policy and Legal

A company’s approach to climate change issues
influences stakeholders’ evaluations, and changes tomarket values, such as placing great importance on
climate change countermeasures, affects customers’
choices of products and services. This may pose arisk to business continuity. Hitachi upholds long-term
environmental targets of reducing CO 2 emissions
throughout its value chain by 50% in fiscal 2030 and 80%
in fiscal 2050 compared to fiscal 2010 levels. Measures toattain these goals include investing in new facilities andequipment with higher energy efficiency and targeting greater
efficiency in production through digitalization.

Carbon taxes, energy consumption taxes, emissions trading
systems, and other measures may be newly introduced or
further strengthened, representing risks impacting directly on
management costs in addition to those incurred in complying
with the environmental regulations and policies of countries
and regions around the world.
To mitigate such risks, we have been reducing or minimizing
cost burdens by enhancing production efficiency andintroducing energy-saving measures. In fiscal 2017, ourenergy-saving investments totaled approximately 5.4 billion
yen. Should our products fail to meet energy-efficiency
standards and regulations, we will risk losing sales
opportunities. In addition to strictly complying with existing
standards and regulations, we will always endeavor to keep
abreast of trends in laws and regulations and participate in theplanning of new policies.

Technology
To reduce CO 2 emissions caused by the use of our
products and services by our customers, which make up asignificant share of emissions in the value chain, we need newtechnology to achieve further energy-saving in our products
and services.
Therefore, by applying Environmentally Conscious Design
Assessments in the design and development stages of Hitachi
products and services, we assess various environmental
aspects at each stage of the product life cycle and strive tominimize environmental impact. In addition, by combining
Hitachi’s longstanding expertise in a wide range of social
infrastructure technologies with OT (operational technology)
and IT, we can provide optimal solutions that lead to thecreation of new business opportunities.
46

Risks Related to the Physical Impacts of
Climate Change

Climate-Related Opportunities

Products, Services, and Markets

Resource Efficiency

Products and services featuring innovative, energy-saving
technology that can contribute to the mitigation andadaptation of climate change are viewed as having thepotential to increase market value and revenue. Many of our
products use energy, so we must enhance the efficiency ofour products and services and facilitate low carbonization inorder to contribute to resolving the issue of climate change.
To this end, we are developing ultra-efficient products andlow-carbon energy, as well as encouraging their use. We arealso promoting the development of innovative devices andmaterials that contribute to reducing the environmental
burden. In fiscal 2017, Hitachi’s total investment in R&D was
332.9 billion yen, including sizable spending to reduce theenvironmental burden.
A company’s approach to climate change issues influences
stakeholders’ evaluations and affects customers’ choice of
products and services. Hitachi not only meets the required
standards and regulations for the energy efficiency of its
products, but also develops and provides energy-saving
products and services that go beyond the prescribedstandards, thereby increasing opportunities to be chosen
by customers.

Hitachi is promoting the efficient use of resources by reducing
waste, recycling, and undertaking other measures. Also, forthe efficient and sustainable use of natural resources, we arepromoting efforts to minimize the amount of natural resources
we use through improvements in production processes andresource-conserving designs.

Energy Source
Hitachi proactively uses renewable energy for ourfactories and offices. In our factories, we are able toefficiently use the electricity supplied from photovoltaic
power generation facilities, despite fluctuations in theamount of power generated, by monitoring and controllingenergy usage on production lines and by using storage
batteries. Also, we are promoting the adoption of renewableenergy credits and the expanded deployment of internalcarbon pricing and the self-consumption solar power
generation. In our offices, too, we are enhancing the efficiencyof lighting and air conditioning, as well as visualizing energy
usage and optimizing the amount of energy used in thebuilding as a whole through Building and Energy Management
Systems (BEMS).* In our business operations, we create new
business opportunities, such as by actively providing
renewable energy from wind power generation systems.
* BEMS aim to optimize the internal environment of a building and its
energy efficiency.

Resilience
We have devised a plan for vital functions to be maintained
through the use of renewable energy and storage batteries if
a power outage occurs in any of Hitachi’s main factories.
In our business operations, we are providing disasterprevention solutions to help various countries and regions deal
with the rise in natural disasters. Hitachi uses sophisticated
IT developed over the years to analyze and evaluate data
pertaining to people’s daily lives, meteorological and othernatural trends, and the operation of social infrastructure, in
promoting the provision of solutions conducive to responding
to climate change.

Acute and Chronic
Climate-related physical risks include acute risks, such asincreased severity of typhoons and floods, and chronic risks,
including climate patterns that may cause the sea level to riseand chronic heat waves. Hitachi has a worldwide businesspresence and believes that disasters due to weather
phenomena attributed to climate change, such as increasingly
bigger typhoons and torrential rainfall, pose a risk tobusiness continuity.
In order to minimize these risks, we take into considerationsuch factors as location and the possibility of damage
from flooding when setting up a new plant or deciding on
the deployment of equipment. We also use the HitachiGroup Guidelines for Developing Business Continuity Plans
that outline measures to be taken in times of disaster tomitigate risks.

47

Foundation for Value Creation

Engaging with Climate-Related Risks and Opportunities

We carry out our business not only in full compliance with legal requirements but also in ways that
ensure socially responsible conduct. Spreading understanding of this among all Hitachi employees is afundamental management issue. As economic activity becomes increasingly borderless, there is a
growing need for steps to eradicate bribery, corruption, and other illegal behavior while taking into
consideration the characteristics of the countries and regions where we operate.
As a global company, we have put in place and expanded a coherent compliance structure acrossthe entire Hitachi Group.

Sharing Codes of Conduct and ComplianceApproaches Throughout the Group
Ensuring Awareness of the Hitachi Group Codesof Conduct
Hitachi, Ltd. is a pioneer in developing business ethics. The
company formulated the Hitachi, Ltd. Standards of Corporate
Conduct in 1983, followed by the Hitachi Group Codes ofConduct in 2010 that the entire Group pledges to uphold.
The Hitachi Group Codes of Conduct are available in 21
languages and shared among Hitachi Group employees
throughout the world. In addition, an e-learning tool has been
made available in Japanese and nine other languages, suchas English and Chinese, showing appropriate behavior andpresenting specific examples for use.
In April 2018, we revised the Hitachi Group Codes ofConduct based on our philosophy that corporate activities
should meet the needs of the times, such as the SDGs,
toward a sustainable society, human rights and building awork environment, and various types of crisis management.
Hitachi Group Codes of Conduct
http://www.hitachi.com/corporate/about/conduct/index.html

Enhancing Our Compliance Framework
In 2016, Hitachi reviewed compliance regulations andguidelines that had been set independently relating to such
issues as competition law and the prevention of transactions
with antisocial groups as well as bribery and corruption.
These compliance regulations and guidelines have beenreorganized into the Hitachi Global Compliance Program as a
newly integrated system of rules under the Hitachi Group
Codes of Conduct.
To implement this program, we have appointed a senior
executive as the head of risk management for the entire
Hitachi Group, to supervise management-level risk management
executives from business units and key Group companies.
Under this system, policies and measures are shared throughthe Compliance Management Conference, composed ofthese risk management executives. Each executive is
assisted by a compliance manager who implements practicalsupport measures.

48

Compliance heads have been appointed in 11 regions to
support Group companies outside Japan, with responsibility
for implementing education and sharing information as well as
arranging consultation services with outside attorneys andother experts.
The internal audit section regularly conducts Group-wide
reviews to verify compliance status across Group operations.
Composed of outside experts, the Advisory Committee
has also been created to provide new compliance insights forproactive implementation within the Group.

Compliance Whistleblowing System
Hitachi has instituted a Group-wide whistleblowing system
under which reports go directly to the Company’s ComplianceDepartment or to an outside attorney. This system can beused not only by Hitachi employees, but also by temporary
staff and business partners. Fiscal 2017 saw 360 reports
throughout the Group. In each case, the relevant facts were
investigated thoroughly and the results were provided towhoever made the initial report. Appropriate measures weretaken, including remedial action where necessary. Goingforward, we will continue to maintain and review the system,
prioritizing the protection of whistleblowers.
In addition, we have implemented the Channel to theBoard of Directors system to allow employees to directly
report problems anonymously to Hitachi directors in cases
where they see any illegality or extreme inappropriateness inbusiness conduct by management.

Prevention of Antisocial Transactions
To prevent any such relationships, our commitment never toengage in any kind of transactions with organized crimegroups and other antisocial forces is laid out clearly in the
Hitachi Group Codes of Conduct. As part of this policy
stance, we insert antisocial force rejection clauses in ourcontracts with suppliers and business partners and conduct
regular compliance checks. In addition, we try to eliminate any
approaches from antisocial forces in partnership with thepolice and other external specialist institutions.

Thorough Export Controls
The basis of our export control policy is the statement in the
Hitachi Group Codes of Conduct that: “We will help maintaininternational peace and security through compliance with allapplicable laws and regulations concerning import and export,
and will operate appropriately based on internal rules andprocedures.” We instituted the Corporate Regulations
concerning Security Export Controls based on this policy
to ensure strict export controls are maintained throughout
the Hitachi Group, including all domestic and overseas
Group companies.
At present, we host training sessions and workshops onexport controls for all domestic and overseas Group companies,in addition to the annual implementation of an e-learning
program in Japanese, English, and Chinese.

Measures to Prevent Bribery and Corrupt Practices
In 2008, Hitachi established rules against bribery and corruption
for the Hitachi Global Compliance Program, along with guidelines
delineating specific spending thresholds for entertainment,
gifts, and other arrangements. In 2016, we introduced arevised policy to explicitly forbid any facilitation payments forroutine governmental action, and to clarify due diligenceprocedures for business partners. To ensure awareness ofthese rules and policies, we developed a global e-learning
program on preventing bribery and corrupt practices, making it
available in nine languages—including Japanese, English, andChinese—for use by Group companies worldwide.
As the risks of bribery and corruption vary according to
the nature of the business, the industry sector, the region ofbusiness, the counterparty, and other conditions, since fiscal
2013 Hitachi has conducted surveys of Group companies
outside Japan (about 500 companies in fiscal 2017) concerningpotential risk scenarios relating to bribery and corruption.
In fiscal 2017, there were no incidents in which Hitachi
violated or was penalized under laws or regulations regarding
bribery or corrupt practices.

in 2016 and earlier. To prevent any recurrence, the Group
company involved has already appointed a compliance headin each unit to conduct regular reviews of participating businessassociations and to promote education through sharing casesof violations within and outside Japan.
Eliminating competition law violations is among our top
priorities for regaining trust. Going forward, we will continue
our efforts to prevent such incidents recurring.

Quality Assurance Initiatives
Based on the Corporate Mission of ‘contributing to society
through the development of superior, original technology andproducts,’ Hitachi’s manufacturing ethos (monozukuri) places
top priority on quality and reliability. To achieve this, we areworking to strengthen quality assurance from the standpointsof organization and management, technology, and humanresources in every process—from planning and development
to design, manufacturing, delivery, and maintenance.
From fiscal 2016, to achieve the goals of our 2018 Mid-termManagement Plan, we have been steadily working to improve
service quality and product reliability, and to reduce losses
arising from quality issues based on better quality management.

Intensive Risk Assessment
Hitachi is committed to the delivery of safe products andservices. We verify safety at every step, from development
and production to sales and maintenance, and conduct risk
assessments from a wide perspective in collaboration withrelated business units and research laboratories.

Handling Product Accidents
When a product accident occurs, the division responsible acts
swiftly to resolve the problem. For a severe accident, we report togovernment agencies in line with legal requirements and publish
the incident information on our website and through otherchannels. Our systems are designed to ensure that appropriate
action is taken swiftly at all companies throughout the Group.

Preventing Violations of Fair Competition Laws

Global Quality Assurance Personnel Training in Asia

Hitachi engages in business based on the principles ofconformance with the law and business ethics, and fair andopen competition. For this reason, the Hitachi Global
Compliance Program incorporates rules concerning competition
law as well as related business standards and guidelines. In
2017, to enhance awareness of ethical principles and practices
globally, we created a global version of our standards regarding
contact with competitors based on the standards originallyprepared for use in Japan.
Fiscal 2017 saw one incident where one of our Group
companies was sanctioned and fined by the European
Commission. This related to a cartel in the capacitor businessthat had already been identified by Japanese and US authorities

We undertake personnel training as part of maintaining
Hitachi’s global quality standards. In China and Thailand,
where many of the Group’s manufacturing sites areconcentrated, we organize educational seminars aimed at
improving our quality management technology. We also hostconferences for quality assurance managers to raise quality
awareness regarding Hitachi’s monozukuri craftsmanship, andto share information and best practices.

49

Foundation for Value Creation

ComplianceFoundation for Value Creation

Management System

03

05

09

07

04

01

11

06

Independent Outside Directors* As of June 30, 2018

08

02

10

Directors As of June 30, 201801 Katsumi Ihara

02 Cynthia Carroll

03 Joe Harlan

09 Kazuyuki Tanaka

10 Hiroaki Nakanishi

2005 Executive Deputy President, Representative Corporate Executive
Officer, Member of the Board, Sony Corporation2009 Executive Deputy President, Corporate Executive,
Sony Corporation
Executive Vice President, Representative Director,
Sony Financial Holdings Inc.
2010 President, Representative Director, Sony Financial Holdings Inc.
2011 President, Representative Director, Sony Life Insurance Co., Ltd.
2015 Chairman, Director, Sony Life Insurance Co., Ltd.
(Retired in June 2017)2016 Chairman, Director, Sony Financial Holdings Inc.
(Retired in June 2017)2018 Director, Hitachi, Ltd.

1991 General Manager, Foil Products, Alcan Inc.
1996 Managing Director, Aughinish Alumina Ltd.,
Alcan Inc.
1998 President, Bauxite, Alumina and Speciality
Chemicals, Alcan Inc.
2002 President & CEO, Primary Metal Group, Alcan Inc.
2007 CEO, Anglo American plc. (Retired in April 2013)2013 Director, Hitachi, Ltd.

1999 Vice President and Chief Financial Officer, Lighting Business,
General Electric Company (USA)2001 Vice President, Corporate Financial Planning and Analysis,
3M Company (USA)2002 President and Chief Executive Officer, Sumitomo 3M Ltd.
2004 Executive Vice President, Electro and Communications Business,
3M Company (USA)2009 Executive Vice President, Consumer and Office Business,
3M Company (USA)2011 Executive Vice President, Performance Materials,
The Dow Chemical Company (USA)2012 Executive Vice President, Chemicals, Energy and Performance
Materials, The Dow Chemical Company (USA)2014 Chief Commercial Officer and Vice Chairman, Market Business,
The Dow Chemical Company (USA)2015 Vice Chairman and Chief Commercial Officer, The Dow Chemical
Company (USA) (Retired in August 2017)2018 Director, Hitachi, Ltd.

1977 Joined Hitachi Chemical Company, Ltd.
2005 Executive Officer, Hitachi Chemical Company, Ltd.
2006 Senior Executive Director, Hitachi Media Electronics Co., Ltd.
Representative Director and President,
Hitachi Media Electronics Co., Ltd.
2008 Vice President and Executive Officer,
Hitachi Chemical Company, Ltd.
2009 Representative Executive Officer, President & Chief Executive Officer,
Hitachi Chemical Company, Ltd.
Director, Representative Executive Officer, President & Chief
Executive Officer, Hitachi Chemical Company, Ltd.
2016 Chairman of the Board, Hitachi Chemical Company, Ltd.
(Currently in office)Director, Hitachi, Ltd.

1970 Joined Hitachi, Ltd.
2003 Vice President and Executive Officer
2004 Senior Vice President and Executive Officer
2005 Chairman and Chief Executive Officer,
Hitachi Global Storage Technologies, Inc.
(Retired as CEO in March 2009)2006 Executive Vice President and Executive Officer, Hitachi, Ltd.
(Retired in December 2006)
2009 Executive Vice President and Executive Officer, Hitachi, Ltd.
Chairman of the Board, Hitachi Global Storage Technologies, Inc.
(Retired in March 2010)2010 President, Hitachi, Ltd., President and Director, Hitachi, Ltd.
2014 Chairman & CEO and Director, Hitachi, Ltd.
2016 Chairman of the Board and Representative Executive Officer,
Hitachi, Ltd.
2018 Chairman of the Board and Executive Officer, Hitachi, Ltd.

04 George Buckley

05 Louise Pentland

06 Harufumi Mochizuki

11 Toyoaki Nakamura

12 Toshiaki Higashihara

1993 Chief Technology Officer, Motors, Drives and Appliances,
Emerson Electric Company
1994 President, US Electrical Motors, Emerson Electric Company
1997 President, Mercury Marine Division andCorporate Vice President, Brunswick Corporation
2000 President and Chief Operating Officer,
Brunswick Corporation, Chairman andChief Executive Officer, Brunswick Corporation2005 Chairman of the Board, President andChief Executive Officer, 3M Company
2012 Executive Chairman of the Board,
3M Company (Retired in May 2012)
Chairman, Arle Capital Partners Limited(Retired in December 2015)
Director, Hitachi, Ltd.

1997 Admitted as a Solicitor (UK)2001 Senior Legal Counsel, Nokia Networks,
Nokia Corporation2007 Vice President, Acting Chief Legal Officer andHead of IP Legal, Nokia Corporation
2008 Senior Vice President and Chief Legal Officer,
Nokia Corporation2009 Admitted to New York State Bar Association2011 Executive Vice President and Chief Legal Officer,
Nokia Corporation (Retired in May 2014)2015 General Counsel, PayPal, eBay Inc.
Director, Hitachi, Ltd.
Senior Vice President and Chief Legal Officer,
PayPal Holdings, Inc.
2016 Executive Vice President,
Chief Business Affairs and Legal Officer,
PayPal Holdings, Inc. (currently in office)1975 Joined Hitachi, Ltd.
2006 General Manager, Finance Department
2007 Senior Vice President and Executive Officer
Senior Vice President, Executive Officer and Director
2009 Senior Vice President and Executive Officer
2012 Executive Vice President and Executive Officer(Retired in March 2016)2016 Director

1977 Joined Hitachi, Ltd.
2007 Vice President and Executive Officer (Retired in March 2008)
2008 President, Hitachi Power Europe GmbH2010 President and Chief Executive Officer,
Hitachi Plant Technologies, Ltd.
President and Representative Director,
Hitachi Plant Technologies, Ltd.
2011 Vice President and Executive Officer, Hitachi, Ltd.
2013 Senior Vice President and Executive Officer, Hitachi, Ltd.
2014 President & COO, Hitachi, Ltd.
President & COO and Director, Hitachi, Ltd.
2016 President & CEO and Director, Hitachi, Ltd.

07 Takatoshi Yamamoto

08 Hiroaki Yoshihara

1995 Managing Director, Morgan Stanley Japan Limited
1999 Managing Director and Vice Chairman,
Tokyo Branch, Morgan Stanley Japan Limited
2005 Managing Director and Vice Chairman,
UBS Securities Japan Co., Ltd.
2009 Managing Director, CASIO COMPUTER CO., LTD.
2011 Advisor, CASIO COMPUTER CO., LTD. (Retired in June 2012)2016 Director, Hitachi, Ltd.

50

12Chair of the Nominating Committee
Chair of the Compensation Committee
2002 Director-General for Commerce and Distribution Policy,
Minister’s Secretariat,
Ministry of Economy, Trade and Industry of Japan (“METI”)
2003 Director-General, Small and Medium Enterprise Agency, METI
2006 Director-General, Agency for Natural Resources and Energy, METI
2008 Vice-Minister of Economy, Trade and Industry of Japan
2010 Special Advisor to the Cabinet of Japan(Retired in September 2011)
Senior Advisor to the Board, Nippon Life Insurance Company(Retired in April 2013)2012 Director, Hitachi, Ltd.
2013 President and Representative Director,
Tokyo Small and Medium Business Investment &Consultation Co., Ltd. (Currently in office)Nominating Committee
Audit Committee
Compensation Committee
Representative Executive Officer

Each Committee is composed of the following
members (chair names underlined)
Nominating Committee:
Harufumi Mochizuki, Cynthia Carroll, Hiroaki Yoshihara,
Hiroaki Nakanishi
Audit Committee:
Hiroaki Yoshihara, Katsumi Ihara, Harufumi Mochizuki,
Takatoshi Yamamoto, Kazuyuki Tanaka,
Toyoaki Nakamura
Compensation Committee:
Harufumi Mochizuki, Katsumi Ihara,
Takatoshi Yamamoto, Toshiaki Higashihara

Chair of the Audit Committee
1978 Joined Peat Marwick Mitchell & Co.
1996 National Managing Partner, the Pacific Rim Practice,
KPMG LLP
1997 Board Member, KPMG LLP
2003 Vice Chairman and Global Managing Partner,
KPMG International (Retired in April 2007)2014 Director, Hitachi, Ltd.

* As all of the outside directors meet the independence
criteria defined by the Company and those provided by
Japanese stock exchanges where the Company islisted, they are referred to as independent outside
directors in this report.

51

Foundation for Value Creation

Independent Outside Director Dialogue

Executive Officers
As of June 30, 2018

President & CEO

Executive Vice Presidents and Executive Officers

Toshiaki Higashihara*

Masakazu Aoki*

Keiji Kojima*

Keiichi Shiotsuka*

Hideaki Takahashi*

Overall management

Assistant to the President (businessfor industry and distribution sectors,
water business and industrial
products business)

Assistant to the President (building
systems business, railway systems
business, smart life & ecofriendly
systems business and automotive
systems business) and information
security management

Assistant to the President (systems& services business, healthcare
business and defense systems
business), systems & services
business and social innovation
business promotion

Assistant to the President (coststructure reform and supply chain
management), cost structurereform and supply chain
management (MONOZUKURI and
quality assurance)

Senior Vice Presidents and Executive Officers

Toshikazu Nishino*

Shinichiro Omori

Yoshihiko Kawamura

Kenichi Kokubo

Setsuo Shibahara

Assistant to the President(nuclear energy business andpower business)

Cost structure reform andinformation technology strategies

Management strategies, investment
strategies, and strategies fornext-generation business

Regional strategies (China)

Services & platforms business

Hideaki Seki

Yoshitaka Tsuda*

Alistair Dormer

Hidenobu Nakahata*

Mitsuaki Nishiyama*

Building systems business

Marketing & sales, regional
strategies, and social innovation
business promotion

Railway systems businessCorporate communications,
legal matters, risk management,
corporate auditing, andhuman capital

Finance and corporate
pension system

Cynthia Carroll

Hiroaki Yoshihara

Independent Outside Director

Independent Outside Director

Vice Presidents and Executive Officers
Keiichi Akino

Jun AbeHitoshi Ito

Kenji Urase

Ryuichi Otsuki

Marketing & sales(business for financial institutions,
government, public corporationand social infrastructure systems,
healthcare business, and defense
systems business)

Business for industry &distribution sectors

Governments & external relations

Water business

Regional strategies

Atsushi Oda

Kohei Kodama

Keizo Kobayashi

Norihiro Suzuki

Hidetoshi Takehara

Power business

Legal matters, risk management,
and corporate auditing

Industrial products businessResearch & development

Nuclear energy business

Osamu Naito

Katsuya Nagano

Isao Narukawa

Kentaro Masai

Yasushi Manabe

Governments & external relations,
CSR & environmental strategy, andexecutive support

Business for government,
public corporation, and social
infrastructure systems

Marketing & sales (nuclear energy
business and power business)

Supply chain management(MONOZUKURI and quality
assurance)

Marketing & sales(business for industry & distributionsectors, water business, building
systems business, and railway
systems business)

Shinya Mitsudomi

Mamoru Morita

Tsugio Yamamoto

Masaya Watanabe

Railway systems business

Management strategies

Business for financial institutions

Healthcare businessInitiatives in Governance, Diversity andLeadership Development
Hitachi aims to earn the trust of customers and the broader public as a leading global
innovation partner, based on the development of digital solutions and global business.
Working from an objective standpoint, the independent outside directors play animportant role in supporting this process. Outside directors Ms. Cynthia Carroll (“CC”)
and Mr. Hiroaki Yoshihara (“HY”), both of whom are extensively involved in the ongoingtransformation at Hitachi, discuss its unique approach to fostering talent and promoting
good governance as part of realizing this mission.

Executive Officer
Hiroaki Nakanishi
GeneralNote: Executive officers are listed by position and in Japanese alphabetical order within each grouping.
* Denotes executive officers who are representative executive officers.

52

53

Q. What attracted you originally to become an independent outside director at Hitachi?
HY: The two reasons I originallyjoined the Board of Directors ofHitachi four years ago were thecompany s strong leadershipand its positive momentum.
Prior to that, I was a memberof the Board of Hitachi Global
Storage Technologies (HGST)
from 2008 until it was acquired byWestern Digital in 2012. In
common with Hitachi, HGST
faced a financial and operational
crisis during that period. Mr.
Nakanishi, current Chairman anddirector of Hitachi, Ltd. and theCEO of HGST at that time, led an
impressive and rapidtransformation process that I
witnessed first-hand. The

turnaround took HGST from being
the industry s worst performer to
its most profitable player.
Mr. Nakanishi later becamepresident of Hitachi. When I was
asked to join the Board of Hitachi
in 2013, the company wasdemonstrating positive
momentum in its own
transformation process led by him
and his strong executive team.
CC: I was also attracted to thestrong leadership of Hitachi. I
was highly impressed with thevision of the management, theambition to develop a morecompetitive, globalized business,and the strong determination of

top management to leverage thecompany s historical legacy. The
thinking was long-term, but at
the same time, they were looking
for alternative perspectives andexperiences to help Hitachi scale
new heights.
Hitachi is an iconic brand. It
is a phenomenal enterprise,given its global reach and thesheer breadth of its products
and services, which aresupplied by around 850
subsidiaries. The broad scopeof the business made it anespecially attractive proposition
for me.

CC: Businesses today must be

lightning-fast in their response
to social change because of thegreater speed of connecting in

the context of the twin trends ofglobalization and digitalization.
We live in an age where
products can rapidly becomecommoditized, which meansthat we will often struggle tomarket or sell them using purely
traditional approaches.
The core challenges faced by
the business relate to innovationand commercialization. We need
to be working in partnershipwith our customers andsuppliers to develop products,
services, and processes that
represent original value.
In my opinion, we have all thecapabilities to become a global
leader in the industries where wecompete but this takes
collaboration within and acrossbusiness boundaries.

CORPORATE GOVERNANCE REFORMS: DIVERSITY, LEADERSHIP, AND AUDIT INTEGRITY

Q. In your view, what are the strengths of Hitachi and the challenges it faces in
its global business development?
HY: Hitachi is blessed with many

competitive advantages. The
company is filled with many
talented people, and we have arich wealth of technologicalexpertise. Most importantly,
Hitachi s well-establishedcorporate values of Harmony,
Sincerity, and Pioneering Spirit
have stood the test of time.
I think that good strategic
execution has helped Hitachi tocreate strong positive
momentum in recent years as
we work to become a highperforming global enterprise.
CC: I agree that Hitachi has beensuccessful in building
momentum. We are more
effective in ensuring that thedecision-making is focusedsolidly on value creation.
54

To my mind, the fact that somany people spend their entire
careers in this company is oneof its strengths, because it
reflects the tremendous loyalty
and experience associated with
the Hitachi name. In addition,
the engineering and technicalcapabilities are phenomenal.
Hitachi is unique, relative toother companies today, with its
breath and depth of young andlong serving talent, in a position
to build on the core values andestablished trust created overmany decades.
HY: The direction we are taking

is excellent, but speed is also
vital. In that regard, I would liketo see accelerated evolution insome aspects of business,

including faster rationalizationof the business portfolio.
Greater synergy between
different parts of the businessportfolio is another criticalchallenge, based on
stimulating connectivity
between business sectors.
That is partly what theSocial Innovation Business isabout. In my view, we should
accelerate launching Social
Innovation Business initiatives
globally, while also deploying
data and insight-driven
strategies throughout theorganization.

Q. What value is there in promoting diversity? What is Hitachi doing to increase diversity?
CC: In general terms, I think

diversity is critical to our future
success. Diversity within an
organization leads to diversity interms of thinking andperspectives, as we always
consider alternative approaches.
Ultimately, it can lead to smarterbusiness decisions and solutions.
In an area such as Social
Innovation, if our products,
services, and solutions are tomeet the needs of a constantly
evolving global society, we must
understand that society in detail.
For this reason, it is criticallyimportant for Hitachi to have aworkforce that reflects society.
Greater diversity in theworkforce means that we havethe right make-up of people toprovide the necessary

alternative perspectives. Also,
we cannot afford to leave out
half the population if we want todevelop the best global
management talent.
HY: As CEO Higashihara haspointed out, I believe, actively
targeting higher diversity enables
Hitachi to develop better as adiversified global business. The
company has set specificdiversity targets, and we aremaking steady progress towards
achieving them.
CC: To add some figures, women

represent almost 17% of the
Hitachi Group workforce, orroughly 44,000 people. Womenare now about 27% of new hires,
which is approximately double

the level that was being achieved
in fiscal 2000. By these various
indicators, I think we are making
measurable progress.
The current target for Hitachi,Ltd. is to increase the number offemale managers in Japan to800 by fiscal 2020. Similarly,
amongst executive andcorporate officers, we arelooking for 10% to be
represented by both women and
non-Japanese nationals by
fiscal 2020̶another major goal.
This is quite an ambitious
objective, but I think it
demonstrates Hitachi s
commitment to diversity.
HY: We also have measures inplace to support the development
and inclusion of women.

55

Foundation for Value Creation

BUSINESS CONDITIONS AND CHALLENGESWomen s Summit in Las Vegas.
Elsewhere, we hold diversity
workshops such as the World
Café Program, and we have awork-life balance month. Both areinteresting initiatives, I think.
There is a lot of discussion
inside Hitachi around supporting
women who are working andraising children, for example byadopting systems to allow flexible
working hours, or using
teleworking or virtual officearrangements. All these initiatives
are managed within an overarching
work style reform program called
Work Life Innovation.
It s tremendously positivethat we are considering thesetypes of approaches to thesekinds of issues. In addition,

Hitachi recognizes theimportance of inclusion of men
and women in the discussion
about diversity as they together
grow the culture internally.
HY: Cynthia has been addressing

this issue extremely well for along time. As the CEO of aleading global corporation, she isa role model in her own right.

Q. How is Hitachi developing its next generation of leaders?
CC: Within the pipeline of

HY: As directors, we also

management talent, we work to
identify and meet regularly withhigh potential candidates whoare being considered forleadership positions. We try toensure such individuals arechallenged and developed
appropriately. If, for instance,
they have not worked outside ofJapan, we try to place themoverseas. Similarly, opportunities
are created to help them gain
experience of working in morethan one business unit.
A lot of thought goes into
this aspect of human capitaldevelopment and the HR team isdoing a phenomenal job of
ensuring that gaps in experienceof future management talent
within the organization are filled
through redeployment or
redirection of people. It s aboutdeveloping people for future
leadership positions. The HitachiGroup has built a fully integrated
human capital management
platform to provide a global
talent management framework.

contribute to this leadershipdevelopment process directly. It
is important for personal
development to haveprofessional mentors. It is also
vital to create a systematic
process that helps senior
managerial candidates tovisualize where they might want
to be in three or five years.
I remember in my earlier
career benefiting from this kindof mentoring when I wasworking for an organization with
headquarters in New York andLondon. I am always grateful forthe help that I received frommentors to help me direct myefforts appropriately indeveloping my technical andleadership skills. I think theprocesses we have in Hitachi are
helping to foster exciting careerdevelopment pathways within
our management talent pool.

56

CC: The directors serving on the

Nominating Committee take alead in the human capitaldevelopment process. I am also
personally involved in mentoring
management talent.

Having served on multiple
nominating committees withvarious multinationals, my viewis that Hitachi has adopted auniquely valuable approach totalent and executive
development. It is highly
systematic and proactive when
considering executive
development and succession.
For example, I have one-onone discussions with mentees
where we talk about what isgoing on in their work, therelated challenges, and how they
think about their career.
As independent outside
directors, we also take theopportunity to address the
young talent inside Hitachi bygiving speeches to select groups
and hearing personal feedback.
They can communicate theirperceptions about what theymight see as some of theroadblocks within Hitachi, andthis leads into a discussion
about how to confront
challenges in different ways, or
how we see the future. It s an
unusual approach for a big
multinational, but very valuable
in my view.

Foundation for Value Creation

CC: Yes, I spoke at the Global

Q. What is special about Hitachi’s audit processes?
HY: Hitachi uses a tripartite

audit approach that demands
strong, cohesive coordination
between the Audit Committee,
the Internal Auditing Office, andthe outside auditing firm.
Basically, the Audit
Committee leads a team whose
goal is to identify and address thevarious risks. The three groups
share and update the identified
risk data. We also spend
significant time on collaborative
audit planning, audit progress
updates, and final reporting for
financial, operational, andmanagement audits. It s a fully
integrated approach.
We make sure we havecomplete access to necessary
information and people toaccomplish the audit objectives.
With the Hitachi Group extending
to around 850 subsidiaries
operating worldwide, there are a
multitude of risks to consider, both
domestic and overseas. We are
fortunate that the people in Hitachi
are generally receptive and openminded, so we only need to ask
once to be provided withwhatever information we need.
With such a complex picture
to manage, the commitment ofAudit Committee members toeach other is that we maintain
open and honest
communication in all committee
discussions. The members arealso extremely active on a global
basis so that we can better
understand the global risks
faced by the Hitachi Group. Thismeans getting involved in onsite
audits across different
operational sites worldwide.

CC: The approach is rigorous, but
at the same time, it is extremely
open and transparent. I thinkpeople are relaxed and feel
comfortable to come forwardwith issues, which is the best
way to help mitigate risk on acontinuous basis. Having served
on several audit committees, I
believe Hitachi s approach is topof the class.
HY: Before I joined the Hitachi

Audit Committee, it was alreadyregarded as one of the best inJapan. Collectively, though, weare determined to improve andrefine every aspect of theauditing function to reinforce
oversight on a continuous basis.
As part of continuous
improvement, our finance andinternal audit departments
evaluate the performance of theoutside auditor each year. In
turn, the independent auditors
evaluate the performance ofHitachi s finance and internal
audit departments. We makesure everything is fair and open
so that the evaluation feedback
is beneficial for facilitating
improvements by all parties

involved in audit processes.
We are also considering theimplementation of AI/IT-based
audit tools to improve audit
effectiveness and efficiency byenabling people to focus on the
judgment and assessment side,rather than just collecting
information.
Moreover, we seek tostrengthen the Audit Committee
and the internal audit functions,both central and in business units
and subsidiaries, by identifying
and developing talented people
for relevant positions.
Naturally, all these efforts aretime-consuming. We spend a lotof time monitoring the progress ofaudits to guard against surprises.
If points of difference arise inaudits, which is something you
cannot avoid proactively, we
address issues or implement any
necessary controls for risk
mitigation straight away.
Together with the final
reporting, all this means that wemeet on many occasions
through the year with people
from the internal and external
audit teams and from finance.
57

FUTURE INITIATIVES

Q. In what areas should Hitachi strengthen to be a leading global enterprise?
HY: As I mentioned earlier, I think

Hitachi has built up momentum
in becoming a leading global
innovation partner for the IoT era
in the markets where we choose
to compete. Yet there is stillsome way to go in terms ofglobalization because aroundhalf of Hitachi Group s revenue isstill in Japan and there are still
tremendous opportunities
overseas.
I think the key is to continue
to execute the strategy ofbusiness portfolio rationalization,
while working to shift the internal
mindset from product-centric tomore customer-centric andsociety-centric. We also need todevelop global management
talent based on continuing topromote greater diversity.
CC: As I have already mentioned,
the changing landscapes inmarkets mean that technologies
are changing every minute. We
need to continually update ourfact bases and refresh ourstrategies, focusing on thosebusinesses that are going tosubstantially add value over thelong term. We need to be truly
disciplined about spending
money where value will becreated. Everyone has a role toplay in contributing to thebottom line. The market

dynamics necessitate being
flexible, responsive, creative,
efficient, and relentless in drivingfor performance. In addition,effectively marrying innovationand commercialization with theSocial Innovation Business will
be fundamental to Hitachi svalue creation and ability toleapfrog our competitors. We
are unique in our ability to
combine infrastructuretechnologies with OT and IT
applications and capitalize on
the Hitachi brand, synonymouswith leading edge technologies
and engineering solutions.

Q. Looking ahead, what is your main aim as an independent outside director?
HY: Our primary role is tocontinue providing strong
management oversight to ensure
all corporate objectives areachieved for the benefit of all
Hitachi stakeholders.
Management is about making
the tough decisions, and that is
why oversight is so crucial.
Considering the volatility anduncertainty inherent in global
business conditions, I think wemust pay special attention to
global risks. At the same time,
we need to exert a positive
influence on management tosupport the execution of highquality global growth strategies.
Practicing open and honest
communication during theBoard and Committee
discussions is another importantelement. Diversity and open
58

exchanges of ideas are essential
for fostering a better
environment to help manage thehighly diversified business that isthe Hitachi Group.
CC: I agree. As independent

outside directors with anindependent voice, our role is tolend support to the CEO and theexecutive team, to stimulate
debate, to challenge, and to
discuss opportunities, with theultimate aim to enhanceshareholder value in delivering on
our performance commitments.
We are also working to support
One Hitachi, building a culture ofinnovation with partnerships
across businesses and withcustomers to capture synergies
and expertise globally.

I will continue to work toembed the global leadershipmindset through myinteractions with young talentand executive candidates, both
men and women.
Hitachi has sound moral andgood governance structures.
With the right systems in place,
we need to execute the correctbusiness strategy whiledeveloping talent for today andthe future so that we can deliveron our promises to ourstakeholders with the ambitionof becoming a global leader in
our industries.

Contributing to Hitachi
In a career that has spanned 40 years to date, I worked
for Sony developing a range of businesses acrossglobal markets. Most of this time was spent in
consumer electronics and financial services. Change isfierce in consumer electronics markets, and I gained abroad range of experience. For example, in the mobile
phone sector where Sony had a joint venture with amajor European communications handset maker, I was
directly involved in the integration process. In the TV
business, during the technology shift from cathode ray
tubes to LCD, we had to restructure assets scattered inevery region worldwide in a relatively short time. The
experiences taught me about the need to anticipate
paradigm shifts and major technological changes;
about how to set management priorities; and how vital
it is to make fast, timely decisions when companies arefacing a period of necessary reform.
I am honored to receive the opportunity to serve as
an independent outside director for Hitachi, a leader ofAn enterprise that creates new value
Hitachi is a unique global enterprise in its goal to be aleading innovation partner for the IoT era. The internalGroup strengths in OT, IT, and Products enable Hitachi
to develop integrated digital solutions. The global
development of businesses across a wide range ofsectors means it can create new value for manycustomers worldwide by helping to address a range ofsocial or corporate management issues.
The strong leadership displayed by top
management has driven transformation at Hitachi
across different business sectors, producing noteworthy
results. The Group as a whole is working diligently toachieve the goals of the 2018 Mid-term Management
Plan. A sustained transformation will probably berequired to turn Hitachi into a global force. Continuously
My aspirations as a director
Hitachi clearly has the potential to be a leading
company known worldwide for its excellence.
The Mid-term Management Plan to fiscal 2021 will
guide evolution towards this goal. I am extremely happy
to become an independent outside director of Hitachi at
a time when the discussion on how to achieve this ishappening in earnest.
To realize further growth for Hitachi, as members of
the Board of Directors, our role is to support theFoundation for Value Creation

Messages from Newly Appointed Independent Outside Directors

Katsumi Ihara

corporate Japan. I am extremely sympathetic to
Hitachi’s business vision of applying technology andinnovation to the solution of a variety of social issues.
Hitachi is currently pursuing additional reforms to evolve
into a major player in global markets. Using myexperience and knowledge, I hope to provide Hitachiwith useful management advice to target global growth.

revising the business portfolio while reinforcing overseas
operations are needed so that Hitachi can generate theprofits that are consistent with the success of attaining
global enterprise status.
The Hitachi Group’s highly diversified operations
make it no easy task to grasp Hitachi’s entire business.
In my opinion, this increases the importance of
explaining the corporate philosophy and businessstrategy to varied stakeholders clearly to gain theirunderstanding and empathy. In this global environment,
I believe that maintaining communication with manydifferent stakeholders will help Hitachi to build greater
enterprise value.

executive officers in our supervisory capacity. I will also
be serving on the Audit Committee and theCompensation Committee. While serving on the Boardor working in other roles, I hope to utilize my experienceto provide various opinions and advice. As a member ofa highly diverse and knowledgeable Board, my sincere
wish is to contribute to Hitachi’s continued growth andto further gains in enterprise value.

59Why I joined the Board of Directors of a trusted
and iconic company
It was most gratifying to be asked to be a directorof such a prestigious company as Hitachi with its
long and successful history. The cultural power ofJapan s processes and organization have helped
produce one of the world s largest and mostsophisticated economies. Having worked in Japanas an executive for GE and then for the former
Sumitomo 3M venture, I was naturally aware that
Hitachi is regarded as one of Japan s leading
companies. I have immense respect for Japan sachievement in setting the de facto standard for
quality and innovation.
My business background is in finance andcommerce. I hope I can use my experience ofworking in Europe and Asia in various roles to help
contribute to Hitachi s global development.
While corporate governance has evolved quite a
bit over the past decade in Japan, I think the

Joe Harlan

increased presence of independent voices at Board
level shows Hitachi is a company with an excellent
governance structure. I have also been extremely
impressed by the quality of the people who serve on
Hitachi s Board of Directors. Naturally, I jumped at
the opportunity to contribute to the company s
continued growth as an outside director.

In aspiring to global leadership, innovation and marketing are the keys to growth for HitachiEnterprises must grow to survive in the modern
marketplace. Growth is essential because it leads tomore business opportunities, more R&D investment, andbetter products, services, and solutions. Growth is also
vital to provide investors with a return, because trying toshrink your way to success is not a good option.
Innovation in new applications and markets is the
key to growing while also keeping the core businesshealthy. Hitachi has a culture and history ofdeveloping unique, differentiated products, services,and solutions that help their customers succeed.
One of the reasons I am so excited to be at Hitachi
is the potential to combine its great product trackrecord with the IoT platform Lumada to become aleading innovation partner of integrated products,
services, and solutions that help link up customers
value chains. It often benefits the customer when one
company provides a total solution, rather than having
to deal with multiple vendors.
For example, it benefits a city if you can help
provide a complete end-to-end transportation
solution̶not just the trains or rolling stock, but thecontrols, signaling, ticketing machines, and related
services as well.
Supported by its manufacturing and productdevelopment culture, Hitachi has a strong track recordin serving customers in this way. And this approach isjust as valid across different markets, from energy orwater to railway, finance, and healthcare.
Marketing this great story to stakeholders̶who
include investors, shareholders, customers, andemployees̶is another vital element in generating
continuous growth.
Over time, the success cultivated by great
products and services, backed by an organization
dedicated to innovative product development anddelivered through high-quality sales and marketing,creates its own appeal. I think the aspiration tocontribute to society through the development ofsuperior, original technology and products, thereby
fulfilling Hitachi s Mission, is also part of Hitachi s
appeal. This is a story we need to tell repeatedly topotential customers in cities and countries around theworld as we perpetuate our brand awareness.

A strong desire to contribute to the growth of the enterprise
Growth is a challenge, and meeting that challengemeans cultivating change within the organization. In myview, adding more independent voices to the discussion
in the executive suite can only help to support
constructive change for the benefit of all stakeholders.
Hitachi is undergoing a transformation. Having left acompany that did transform, I see great potential for thebusiness to grow using Hitachi s strengths in the
integration of OT, IT, and products.
60

In my time as an independent outside director, I
want to look at what Hitachi does commercially andprovide insights into where we can move faster, bemore agile, or have a better relationship with customers
by focusing on core competencies. In this way, I hopethat I can help Hitachi to develop and sell total solutions
that are truly competitive in the marketplace.
I look forward to contributing to the development of
Hitachi as a member of its Board of Directors.

Hitachi and its listed subsidiaries are “Companies with
Nominating Committee, etc.” defined under the Companies
Act of Japan. By demarcating responsibilities for management
oversight and those for the execution of business operations,
Hitachi is working to create a framework for nimble operations,while making management highly transparent.
In addition, Hitachi is executing business strategies
formulated to enable the Group to demonstrate its collective
strengths. Moreover, some of Hitachi’s directors and executive
officers serve concurrently as directors or executive officers at
Group companies, thereby strengthening integrated
management of the Group and improving management

oversight of Group companies. In these ways, Hitachi isworking to increase corporate value.
Starting in June 2015, Japan’s Corporate Governance
Code applies to companies listed on stock exchanges in Japan.
Hitachi agrees with the basic approach of the Code, which isthat the Code’s appropriate implementation will contribute to
the development and success of companies, investors, and theJapanese economy as a whole through individual companies’
self-motivated actions so as to achieve sustainable growthand increase corporate value over the medium to long term.
Moving forward, Hitachi will work to further strengthen
corporate governance.

Initiatives to Strengthen Corporate Governance
1 Realizing quick, highly transparent management

2 Accelerating global management and strengthening

oversight function

Hitachi transitioned to a Company with
Committee System (now called a Company
with Nominating Committee, etc.) in June 2003.

Increased number of independent outside
directors including non-Japanese directors;
independent outside directors became
majority in June 2012.

Major Aims

Major Aims

Make management highly transparent by demarcating
responsibilities for management oversight and those for the
execution of business operations

Composition of Each Committee (June 2018)

Reflect global, diverse viewpoints in management, further
strengthen oversight function

Composition of Board of Directors
June 2011 (13 elected)

June 2018 (12 elected)

Nominating Committee: Determines director candidates

Independent outside
directors         4           8Audit Committee: Audits execution of
directors and executive officers

Directors(non-executive)      7           2Compensation Committee: Determines
remuneration for directors and executive officers

Directors(serving concurrently as
executive officers)     2           2Chairman (Independent outside director)

Independent outside director

Director

Non-Japanese directors

Female directors

3 Appropriate implementation of the Corporate Governance Code

Implementing all of the principles of the Corporate Governance Code (based on form prior to June 2018 revision)
Analysis and Evaluation of the Effectiveness of theBoard of Directors
The Company implements an evaluation of the effectivenessof the Board as a whole each year, in a continuous effort tomaintain and improve the Board’s function.

Evaluation process
In evaluating the effectiveness of the Board of Directors in thefiscal year ended March 31, 2018, questionnaires were
distributed to all Board members. Each member carried out aself-assessment of the Board regarding its composition,
61

Foundation for Value Creation

Corporate GovernanceResults of evaluation and future initiatives
The Board assessed that its members are diverse and makeuse of their knowledge and expertise to speak out, having
vigorous discussions especially on matters related to businessstrategies such as the mid-term management plan toward
mid/long-term corporate value growth. The Board, therefore,
concluded that the effectiveness of the Board as a whole wasbeing maintained.
With the aim to maintain and improve its functions, the Board
confirmed that it will make efforts to further contribute to thedetermination of Hitachi’s mid/long-term strategic direction andsuccession planning for the CEO, etc. It was also confirmedthat the Company will make efforts to strengthen support for
the Board’s operations including the enhancement of information provision to make Board discussions more effective.

Corporate Governance Framework
Accounting Auditors

Report

Audit

General Meeting of
Shareholders

Senior Executive
Committee
ReportPresident & CEO

Appointment
Appointment/
Oversight

Attendance at meetings of the Board of Directors byindependent outside directors in the fiscal year ended
March 31, 2018

Executive Vice Presidents andExecutive Officers/Senior Vice
Presidents and Executive
Officers/Vice Presidents andExecutive Officers

Board of Directors

Name

Nominating Committee
Audit

Compensation
Committee

Executive
OfficerInternal
Auditing
OfficeAudit Committee

Department
in charge

Executive
Officer
Department
in charge

Department
in charge

Department
in charge

ReportAudit

Board of Directors
Summary
Independent outside directors comprise 8 of the 12 Board members.
Each of the Nominating, Audit, and Compensation Committees has been established with independent outside directors in the majority.
The extensive experience and insight of the independent outside directors in international business management and administration
serve to strengthen the Board’s supervisory function.

The Board of Directors approves basic management policy for
the Hitachi Group and supervises the execution of the duties
of executive officers and directors in order to sustainably
enhance corporate value and shareholders’ common interests.
The basic management policy includes the Mid-term
62

Board of Directors was made up of 12 directors, two of whom
concurrently serve as executive officers. Hitachi aims toreinforce the oversight function of the Board of Directors, ofwhich eight independent outside directors, including nonJapanese, account for the majority, reflecting their global anddiverse viewpoints. The term of office for directors is one year.
Within the Board of Directors, there are three statutory
committees—the Nominating Committee, the Audit Committee,
and the Compensation Committee—with independent outside
directors accounting for the majority of members of eachcommittee. The Board of Directors meetings were held on 9 days
during the fiscal year ended March 31, 2018, and the attendance
rate of directors at these meetings was 97%. The attendance
rates for each independent outside director were as shown in
the table below. To assist with the duties of the Board of
Directors and each committee, staff who are not subject toorders and instructions from executive officers are assigned.
The Board of Directors continuously supervises succession
planning for the CEO. The CEO is appointed or dismissed inline with the proposal of the Nominating Committee inconsideration of the matters: (1) that the candidate has thehighest personal and professional ethics, integrity, insight, andleadership, and (2) that the candidate is believed to be theone most qualified to realize sustainable enhancement of theCompany’s corporate value and shareholders’ common
interests, with rich experience and a distinguished record in
the area of corporate management.

Management Plan and annual budget compilation. The Boardof Directors focuses on strategic issues related to the basic
management policy as well as other items to be resolved thatare provided in laws, regulations, the Articles of Incorporation,
and Board of Directors Regulations. As of June 29, 2018, theAttendance* Attendance rate

Baba Kalyani

7 out of 9 days

78%

Cynthia Carroll

9 out of 9 days

100%

Sadayuki Sakakibara

8 out of 9 days

89%

George Buckley

9 out of 9 days

100%

Louise Pentland

9 out of 9 days

100%

Harufumi Mochizuki

9 out of 9 days

100%

Takatoshi Yamamoto

9 out of 9 days

100%

Philip Yeo

9 out of 9 days

100%

Hiroaki Yoshihara

9 out of 9 days

100%

* Based on the number of days Board meetings were held during each independent outside
director’s term of office.

Furthermore, Hitachi formulated and published Corporate
Governance Guidelines outlining the framework of corporate
governance, such as the function and composition of the Boardof Directors, qualifications for directors, criteria for assessing
the independence of independent outside directors, and ruleson those serving concurrently as officers at other companies.

Qualification for Independent Outside Directors andCriteria for Independence
In regard to the election of an independent outside director,
Hitachi’s Nominating Committee considers the following
criteria for independence. In addition, the Committee also
considers whether the independent outside director has
outstanding character and insight and whether he or she has
worked in a leadership position in such fields as business,law, administration, accounting, or education, or has experience at policy-making levels.
In regard to the independence of an independent outside
director, the Company considers an independent outside
director to be independent unless:
His or her immediate family member is, or has been within
the last three years, a director or an executive officer of theCompany or any of its subsidiaries;
He or she is currently an executive director, an executive
officer, or an employee of a company that has made payments
to, or received payments from, the Company for property orservices in an amount that, in any of the last three fiscal
years, exceeds 2% of any of the companies’ consolidated
gross revenues;
He or she has received during any of the last three fiscal
years more than ¥10 million in direct compensation for hisor her service as a specialist in law, accounting, or tax, or
as a consultant from the Company, other than director
compensation; or
He or she serves as an executive officer or director of a
not-for-profit organization, and the Company’s discretionary
charitable contributions to the organization in any of the last
three fiscal years are more than ¥10 million and 2% of thatorganization’s annual gross revenues.

Concurrent Officer Positions at Other Companies
In order for directors to secure the time necessary to understand the Company’s business and prepare for and attend
Board of Directors meetings, the Company considers it
desirable for its directors not to hold concurrent officer
positions (director, corporate auditor, or executive officer) in
more than four other listed companies.

(1) Nominating Committee
The Nominating Committee has the authority to determine
proposals submitted to the general meeting of shareholders
for the election and dismissal of directors. The Nominating
Committee consists of four directors, three of whom are
independent outside directors.
The Nominating Committee meetings were held on 8 days
during the fiscal year ended March 31, 2018.

Corporate Governance Guidelines of Hitachi, Ltd.
http://www.hitachi.com/IR-e/corporate/governance/guidelines.html

63Foundation for Value Creation

operation, contribution to the Company, activities of the threecommittees, support systems for the Board, etc. In addition,
the Board’s effectiveness was discussed at a meeting by
independent outside directors. Based on the results of theseevaluations and discussions, the Board analyzed and evaluatedits effectiveness as a whole while considering a comparison
with results for the fiscal year ended March 31, 2017 andmeasures taken for improvement and confirmed the policy on
approaches to further improvement of the Board’s effectiveness.

Composition of the Board of Directors and each committee

The Audit Committee has the authority to audit the executionof duties of directors and executive officers and to decide on
proposals submitted to the general meeting of shareholders
for the election and dismissal of accounting auditors. The
Audit Committee consists of six directors, including four
independent outside directors and one standing Audit
Committee member.
The Audit Committee meetings were held on 14 days
during the fiscal year ended March 31, 2018.

(as of June 29, 2018)(3) Compensation Committee
The Compensation Committee has the authority to determine
remuneration policies for directors and executive officers
and remuneration for individuals (including amounts ofremuneration) based on them. The Compensation Committee
consists of four directors, three of whom are independent
outside directors.
The Compensation Committee meetings were held on 4days during the fiscal year ended March 31, 2018.

Independent
outsidedirectors*

Directors

Board of Directors

12

8*

4

Independent
outside director

Nominating
Committee

431

Independent
outside director

Audit Committee

6

4

2

Independent
outside director

Compensation
Committee

431

Independent
outside director

Chair* Hitachi has issued notifications identifying all outside directors as independent outside
directors to each of the stock exchanges in Japan where the Company is listed.

Committee members

Harufumi Mochizuki (Chair), Cynthia Carroll,
Hiroaki Yoshihara, Hiroaki Nakanishi

Audit Committee Hiroaki Yoshihara (Chair), Katsumi Ihara,
Harufumi Mochizuki, Takatoshi Yamamoto,Kazuyuki Tanaka, Toyoaki Nakamura
Compensation
Committee

Senior Executive Committee

Executive officers decide on matters delegated to them by
the Board of Directors and execute Hitachi’s businessaffairs within the scope of assignments determined by the
Board of Directors. As of June 29, 2018, Hitachi has 35
executive officers.

The Senior Executive Committee is a council to ensure that
the President deliberately decides on important managerial
matters, which may affect the business of Hitachi or the
Hitachi Group, through discussion from diverse viewpoints.
This committee consists of 12 members as of June 29,
2018: the President & CEO, five executive officers serving
as executive vice presidents, five executive officers serving
as senior vice presidents, and one executive officer serving
as a vice president.

Director and Executive Officer Compensation
Basic Policy
Compensation shall be sufficiently attractive to retain the personnel required to realize improvements in enterprise value throughglobal business growth.
Compensation shall be commensurate with the roles and responsibilities of directors and executive officers.
Compensation for directors shall contribute to effective supervision of management.
Compensation for executive officers shall provide incentives to contribute to sustained improvement in enterprise value throughbusiness execution, while striking an appropriate balance between short-term results and performance over the longer term.
Compensation levels shall take into account remuneration at other companies, along with economic conditions and market trends.
In considering the terms and amounts of compensation, the Compensation Committee shall seek objective advice as necessary fromoutside experts.

64Compensation for directors consists of basic remuneration and a year-end allowance.
1 Basic remuneration
Basic remuneration is decided by adjusting a basic amount to reflect full- or part-time status, committee membership andposition, travel from place of residence, etc.
2 Year-end allowance
Year-end allowance is a predetermined amount equivalent to about 20% of the director’s annual basic remuneration, but may
be reduced depending on financial results.
A director concurrently serving as an executive officer does not receive any compensation as a director.

(2) Executive officers
Compensation for executive officers consists of basic remuneration, performance-linked compensation, and medium- andlong-term incentive compensation. The higher the position the executive officer holds, the higher the proportion of variable
pay is as a portion of total annual compensation.
Fixed remuneration
1 Basic remuneration

Variable pay (basic amount)+pursuant to applicable provisions of the Companies Act.
Since fiscal 2008, the compensation structures for directors
and executive officers have been revised to eliminate
severance payments.

2 Performance-linked

compensation
25–35% of
total remuneration

Harufumi Mochizuki (Chair), Katsumi Ihara,
Takatoshi Yamamoto, Toshiaki Higashihara

Executive Officers

The Compensation Committee, of whose members more thanhalf are independent outside directors, sets forth the policy on
the determination of compensation details for directors andexecutive officers and, based on this policy, the amount ofcompensation, etc., of each director and executive officer,

Compensation Structure(1) Directors

Numberofpersons

Nominating
Committee

Foundation for Value Creation(2) Audit Committee+ 3 Medium/long-term=

Total remuneration

incentives

10–40% of
total remuneration

1 Basic remuneration
Basic remuneration is decided by adjusting a basic amount to reflect the results of an assessment. The basic amount is set inaccordance with the relevant position.
2 Performance-linked compensation
The performance-linked compensation is decided within the range of 0%–200% of the basic amount based on financial
results and individual performance. The basic amount is set within the range of about 25%–35% of the total annualcompensation of each executive officer in accordance with the relevant position.

Position-related(basic amount)×

Assessment 0
Performance assessment

200%
Individual performance=

Performance-linked compensation(payments)

3 Medium- and long-term incentive compensation
Medium- and long-term incentive compensation is stock options as stock-based compensation, with share price conditions(stock acquisition rights with the strike price of ¥1). The number of stock acquisition rights to be granted is determined within
the range of about 10%–40% of the total annual compensation of each executive officer in accordance with the relevant
position. The number of stock acquisition rights that may be exercised will be determined within the range of 0%–100% of
the stock acquisition rights granted in accordance with the conditions. The proportion of the assessment (0–100%) is determined by comparing the total shareholder return*1 for Hitachi stock against the rate of growth in the TOPIX benchmark. Thisis set to 0% if the TSR is less than 80% of the TOPIX growth rate, and reaches 100% once the TSR rises to at least 120% of
the TOPIX growth rate, with intermediate results for figures in the 80%–120% range.

Position-related stock options granted(basic amount)×

Assessment 0100%

TSR relative to TOPIX growth rate=

Exercisable stock options(fully vested)*2*1 Total Shareholder Return (TSR) includes capital gains (due to share price movements) and income (dividends).
*2 Stock options can no longer be exercised if fraud or other serious misconduct occurs during the term of office. Under a clawback provision, the Company can demand repayment of
economic gains made from any options that have already been exercised if fraud or other serious misconduct is discovered during the term of office.

65

Foundation for Value Creation

Internal Control over Financial Reporting

Accountability

Summary
Under guidelines determined by the J-SOX Committee, internal controls ranging from those at the company level to businessprocesses are all documented.

Summary
The “Hitachi IR Day” event has been held for eight years in a row.
A total of around 600 meetings have been held with institutional investors and analysts in Japan and overseas.

Systems to enable objective assessments are also in place at Hitachi business units and major Group companies.

developed mechanisms to objectively perform assessments.
The J-SOX Committee office collects the results of theassessments performed by each business unit and company,
and assesses the effectiveness of internal control throughout
the entire Group.

To ensure the reliability of consolidated financial reporting,
the Group develops and uses control documents ranging
from company-level to business process controls based on
the guidelines determined by our J-SOX Committee. Business
units within Hitachi, Ltd. and major Group companies have
Hitachi Group Internal Control Assessment Framework
Financial Services
AgencyInternal
ControlReportHitachi, Ltd. President and CEO
CFO
ReportReportAudit Committee

J-SOX Committee

ReportCollaboration

J-SOX Committee’s OfficeInternal Auditing
OfficeReportBusiness Units and Major
Group Companies

External
Audit

Independent
Auditors

ReportSubsidiary Companies

In accordance with its disclosure policy, Hitachi is implementing
the fair and appropriate disclosure of such information as
management strategies and financial information. In addition,
Hitachi is aggressively conducting dialogues through suchmeans as meetings with shareholders and investors, investor
relations (IR) events, and the general meeting of shareholders.
In fiscal 2017, in addition to quarterly financial results
briefings and presentations on the progress made with the2018 Mid-term Management Plan, we hosted the eighthconsecutive “Hitachi IR Day” event, in which senior managers
from each business presented business strategies andmanagement policies under the plan.
Other IR events included a briefing on the original value
being created in R&D divisions and a tour of the Omika Works
as part of promoting better understanding of the Lumada
business. Members of senior management also continued tovisit institutional investors and analysts in North America,
Europe, and Asia to explain their business strategies forrealizing medium- to long-term growth. During the year, a totalof around 600 such meetings with institutional investors andanalysts were held in Japan and overseas. Hitachi alsoorganized briefings to help individual investors gain a better

understanding of the company. The feedback gained fromthese IR events is reflected in management and business
operations as part of efforts to build enterprise value.
We also post briefing materials and business performanceas well as stock price trend charts in a timely manner on our
IR website. Aiming to continuously enhance our information
disclosure, we introduced a new responsive design on our
website for improved browsing convenience from smartphones
and tablets.
Information for shareholders and investors
http://www.hitachi.com/IR-e/

Disclosure Policy
http://www.hitachi.com/IR-e/corporate/disclosure/index.html

Major information disclosure publications
Financial results/Quarterly financial results
Annual securities reports/Quarterly reports
Business reports/Interim business reports
Hitachi Group Integrated Report
Hitachi Group sustainability reports

Toward a More Integrated “Tripartite Audit” Function
Summary
We are working to strengthen the “tripartite audit” function, which comprises the Audit Committee, the internal audit section, and theexternal auditing firm.

communication, the three functions share information aboutrisks and evaluation of risk responses; ensure the audit
process is transparent with appropriate checks and balances;and improve the effectiveness of internal control systems.

We are working to further enhance the effectiveness of theinternal control exerted through the integrated work of a“tripartite audit” function comprising the Audit Committee;
our internal audit sections, principally, the Internal
Auditing Office; and external auditing firm. Through close
Improving Internal Control through a “Tripartite Audit” Function
Goals

Audit Committee audit on
risk-based approach 1 Leveling of audit methods
2 Improving efficiency andtransparency in audit
processes witha risk-based approach

Evaluation ofaudit content

Status report oninternal audit

Audit Committee

Evaluation of audit content

Sharing of risk information

Request for detailed internal
audit of issues identified byAudit Committee

Status report on accounting audit

Exchange of opinions
regarding audit plans, fee,risk evaluation, etc.

Report on important financial and accounting findingsInternal audit section(Internal Auditing Office)Evaluation of audit content

Regular business site-level internal audits

66

Identification of issues
through internal control
audit and evaluation ofseverity of fraud risk, etc.

Auditing firm
Accounting audit centered on accuracy
and reliability of financial statements

67

Results of Value Creation

Information & Telecommunication Systems
Hitachi provides IT services that address customers’ diverse needs by combining
Hitachi’s extensive expertise in a diverse range of business fields, including financial
services, with advanced information technology. Our services cover the entire life cycleof systems, ranging from consulting to system integration, operation, maintenance,
Flash Storageand other support.
Share of Revenues

Results of Value Creation

Overseas Revenue Ratio

p.69

Social Infrastructure & Industrial Systems

p.70

Electronic Systems & Equipment

p.71

Construction Machinery

p.72

High Functional Materials & Components

p.73

Automotive Systems

p.74

Smart Life & Ecofriendly Systems

p.75

Financial and Non-Financial Information

p.76

10-Year Financial Data

p.76

5-Year Non-Financial Data

p.78

Operating and Financial Review

p.79

Consolidated Statement of Financial Position

p.82

Consolidated Statement of Profit or Loss

p.84

Consolidated Statement of Comprehensive Income

p.85

Consolidated Statement of Changes in Equity

p.86

Consolidated Statement of Cash Flows

p.87

68

%

p.69

Information & Telecommunication Systems

Corporate Data / Stock Information

Revenues and Profit(Billions of yen)(Completion basis)

20
Segment Information

Capital Expenditure by
Business Segment

p.88

30

%

Depreciation by
Business Segment

44.7

35.5

9.4%
7.7%
2,109.3

billion yen

48.0

6.9%

3.9%

15

billion yen

2,008.9

5.2%

R&D Expenditure by
Business Segment

billion yen

1,982.8

6.7%

Revenues

16

17

(FY)

Adjusted operating income ratio

EBIT ratio

Main Products and Services
Systems integration, consulting, cloud services, servers, storage, software, telecommunications & networks, ATMs

Segment Performance
Revenues increased 1% to ¥2,008.9 billion, as compared withthe year ended March 31, 2017, due mainly to higher revenues from system integration business in Japan and theimpact of foreign currency translation.
Adjusted operating income increased ¥36.2 billion to¥189.2 billion, as compared with the year ended March 31,
2017, due mainly to profitability improvement in system

Examples ofDigital Solutions

integration business in Japan and the effect of structuralreform for the IT platform & products business.
EBIT increased ¥62.8 billion to ¥139.2 billion, as comparedwith the year ended March 31, 2017, due mainly to adecrease in business structural reform expenses as well as
the increase in adjusted operating income.

Human Flow Visualization Utilizing CCTV

In a collaborative creation project with Tokyu Corporation,
Hitachi has utilized Lumada technology to develop the“Eki-Shi Vision*” monitoring service for gauging passenger
congestion inside stations in real time based on CCTV
(Closed-Circuit Television) footage.
As of the end of July 2018, the service covers 74 Tokyu
Line stations, with plans to expand it to all stations on the
Tokyu rail network (excluding the Kodomonokuni Line andthe Setagaya Line) by the end of March 2019.
Analysis of images taken from CCTV using Hitachi’s
people flow analysis technology automatically detects
whether people are moving or stopped.
Each human image is replaced with a human-shaped
icon and the analysis results are sent at one-minuteintervals to the Tokyu Line smartphone app and cable TV
feed. By providing information on station congestion level tohelp Tokyu rail network users choose whether to wait totake a train or take an alternative route if there is significant
disruption, the service aims to relieve stress for users andenhance Tokyu rail network safety.
* Eki-Shi Vision is a registered trademark of Tokyu Corporation.

Normal rush hour

Service disruption

69

Results of Value Creation

Social Infrastructure & Industrial Systems

Electronic Systems & Equipment

Hitachi has a long and proven track record of high reliability in supporting people’s

Drawing on the Hitachi Group’s advanced technologies, Hitachi provides systems

daily lives through such products and services as rolling stock and train management

supporting the information society, including semiconductor manufacturingsystems, power generation systems and transmission & distribution systems,

equipment, measurement and analysis equipment, broadcasting and video systems,

elevators and escalators, and water solutions. It also offers industrial solutions andequipment to enhance the sophistication of manufacturing workplaces. Hitachi
utilizes digital technologies to provide optimum solutions in addressing the issues

wireless communications and information systems, and healthcare solutions that
Class 800 train for the Intercity Express
Programme (IEP)

and diversifying needs of customers worldwide.

Particle beam therapy

support healthy lifestyles.
Share of Revenues

Overseas Revenue Ratio

Capital Expenditure by
Business Segment

Revenues and Profit(Billions of yen)
8.2%

(Completion basis)

Overseas Revenue Ratio

Share of Revenues

Capital Expenditure by
Business Segment(Completion basis)

23

%

43

%

Depreciation by
Business Segment

30.0

79.9
56.1

2,331.9%

2,375.0
4.9%

3.5%

billion yen

14.7

1.2%
–0.9%

15
Revenues
EBIT ratio

1617

business for the industry & distribution field, power & energy
business and industrial products business, despite a decreasein average sales price and an increase in procurement cost inelevators and escalators business in China.
EBIT was ¥101.2 billion, an improvement of ¥121.2 billion
from the year ended March 31, 2017, because of the absenceof impairment loss recognized in the preceding fiscal year in
relation to the uranium enrichment business at an equitymethod associate in the U.S.

70

5.7%
1,170.3

1,086.5

R&D Expenditure by
Business Segment

billion yen

52.1

15

billion yen

Revenues

16

17

(FY)

Adjusted operating income ratio

EBIT ratio

Segment Performance
Revenues decreased 7% to ¥1,086.5 billion, as comparedwith the year ended March 31, 2017, due mainly to theimpact of deconsolidation of Hitachi Koki Co., Ltd. (nowKoki Holdings Co., Ltd.) in the preceding fiscal year,
despite higher sales of semiconductor manufacturing
equipment at Hitachi Kokusai Electric Inc. and Hitachi
High-Technologies Corporation.
Adjusted operating income increased ¥5.3 billion to¥86.9 billion, as compared with the year ended March

Examples ofSmart Manufacturing Solutions

In recent years, amid rapidly changing business conditions,manufacturers need to develop greater competitiveness to
respond to trends such as increasingly fierce global
competition, more diverse user requirements, anddigitalization. Hitachi is providing smart manufacturingsolutions based on Lumada to help customers in the
manufacturing sector address these major challenges.
One example is the development of the high-efficiency
production model established at Omika Works into Lumada
solutions. Hitachi offers innovative solutions that contributeto higher manufacturing productivity through IoT-enabledvisualization of manufacturing workplace and related

billion yen

8.0%

Main Products and Services
Semiconductor manufacturing equipment, measurement and analysis equipment, advanced industrial products, medical equipment

Digital Solutions
Examples of

19.4

5.9%
5.7%
1,127.6

Adjusted operating income ratio

Segment Performance

Digital Solutions

%

7.0%

(FY)

Main Products and Services
Manufacturing and logistics systems, water treatment systems, industrial machinery, elevators, escalators, railway systems, nuclear and renewableenergy power generation systems, transmission & distribution systems

Revenues increased 2% to ¥2,375.0 billion, as compared withthe year ended March 31, 2017, despite lower revenues fromthe power & energy business and shrink of less profitablebusiness in industry & distribution field. This mainly reflected
increased revenues from the railway systems business for the
U.K. and that in the industrial products business due to theacquisition of Sullair brand air compressor business.
Adjusted operating income increased ¥38.5 billion to¥115.5 billion, as compared with the year ended March 31,
2017, due mainly to an improvement in profitability of59
Depreciation by
Business Segment

3.3%
4.3%

R&D Expenditure by
Business Segment

billion yen(Billions of yen)
2,333.1

billion yen

11Revenues and Profit

workflow, or the adoption of simulator to optimize production planning.
Hitachi is also developing solutions in collaborative
creation with customers, such as initiatives to reinforce
quality by building systems for detecting abnormal operator
actions or facility operations at production sites using
image-analysis technology. For customers focusing on skills
transfer within the workforce, Hitachi is also building
systems that use cameras and sensors to capture theexpertise of veteran technicians in digital form as part ofefforts to develop personnel and improve quality assurance.

31, 2017, due mainly to an increase in profit of Hitachi Kokusai
Electric Inc. as a result of higher sales of semiconductor
manufacturing equipment.
EBIT increased ¥22.0 billion to ¥88.8 billion, as
compared with the year ended March 31, 2017, due
mainly to the increased adjusted operating income aswell as a decrease in business structural reform
expenses of Hitachi Kokusai Electric Inc.

Predictive Maintenance Service for Superconducting MRI Systems

Superconducting MRI systems use powerful superconducting magnets to image the brain or other internalorgans. Costs can quickly mount up if these machines
unexpectedly break down, due to the need to reschedulescans and undertake emergency repairs. Hitachi hasdeveloped AI technology to predict potential breakdowns
months in advance by analyzing vast amounts of sensor
data acquired from superconducting MRI systems. Thispredictive maintenance service can help to reduce machine
downtime, improving the efficiency of diagnostic procedures within the hospital and ensuring that patients canreceive MRI scans with peace of mind. Going forward,
Hitachi plans to expand predictive maintenance services
to further improve the degree of machine utilization andhospital management by promoting greater utilization ofdigital data.

* The Company transferred all shares of Hitachi Kokusai Electric Inc. stock owned by the Company on May 31, 2018, and then, the Company partially re-acquired
shares of Hitachi Kokusai Electric Inc. stock on June 4, 2018. As a result, Hitachi Kokusai Electric Inc. turned into an equity-method associate of the Company.

71

High Functional Materials & Components

Leveraging decades of technological expertise and know-how, Hitachi offers solutions

Hitachi draws on its wealth of technological expertise and know-how to provide athat address the needs of a broad range of industries, including civil engineering andvariety of materials and components—such as semiconductor- and display-related

construction, building and structural demolition, and mining and excavation. Hitachi

materials, synthetic resin products, specialty steels, magnetic materials, castingalso handles the sale, servicing, and maintenance of hydraulic excavators and other

Share of Revenues

Overseas Revenue Ratio

components, and wires and cables—that enable advanced functions in products for
Hitachi Construction Machinery’s ultralarge hydraulic excavator and mining
dump truck

construction machinery to provide integrated solutions globally.
Capital Expenditure by
Business Segment

%

80

%

Depreciation by
Business Segment

18.5(Billions of yen)

24.0

753.9

billion yen

3.4%

Revenues

16

9.6%

Examples of

72

59

%

Depreciation by
Business Segment

16

17

(FY)

72.7

Adjusted operating income ratio

EBIT ratio

131.3

Revenues and Profit(Billions of yen)
1,657.5
1,464.6

9.8%
8.4%

billion yen
8.1%

8.2%

R&D Expenditure by
Business Segment

billion yen

48.5

6.0%

15

billion yen

7.4%

Revenues
EBIT ratio

16

17

(FY)

Adjusted operating income ratio

Main Products and Services
Semiconductor and display-related materials, circuit boards and materials, automotive parts, energy storage devices, specialty steel products, magnetic
materials and applications, functional components and equipment, wires, cables, and related products

billion, as compared with the year ended March 31, 2017, due
mainly to the increased revenues because of higher sales andthe effect of the corporate acquisitions.
EBIT increased ¥74.3 billion to ¥97.0 billion, as comparedwith the year ended March 31, 2017, due mainly to theincreased adjusted operating income as well as an increase inprofit of an equity-method associate.

Introduction of Integrated Energy/Facilities Data Management Service EMilia

In the Construction Machinery segment, Hitachi has
deployed EMilia, an integrated management service forenergy/facilities data management, at five production plants
in Japan making hydraulic excavators and wheel loaders.
EMilia is a Lumada solution that can realize benefits such asenergy savings, improved operational efficiency andenhanced business continuity planning (BCP) through thecentralized management of energy and facilities data frommultiple sites. The EMilia system collects and visualizes
power-related data from monitoring points on around
14,000 breakers installed on the roughly 1,000 pieces ofcapital equipment located in Hitachi Construction Machinery’s
domestic production plants. The analysis and managementof power data at this level enables finer control, cutting
peak power and realizing other savings through reductions
in standby power consumption. In the future, Hitachi aims
to develop EMilia to realize even smarter factories, basedon the collection and analysis of production management

%

3.0%

Segment Performance

Digital Solutions

Hitachi Metals’ Nd-Fe-B“NEOMAX ®” magnets

1,564.0

3.5%

15

billion yen

Capital Expenditure by
Business Segment(Completion basis)

Main Products and Services
Hydraulic excavators, wheel loaders, mining machinery

Revenues increased 27% to ¥959.1 billion, as compared withthe year ended March 31, 2017, due mainly to increased
sales in China and other overseas countries, the effect ofcorporate acquisitions in Australia and the U.S. conducted by
Hitachi Construction Machinery Co., Ltd. in the preceding
fiscal year, and the impact of foreign currency translation.
Adjusted operating income increased ¥66.2 billion to ¥92.5

Overseas Revenue Ratio

10.1%
758.3

R&D Expenditure by
Business Segment

billion yen

infrastructure. Business operations are focused in Asia, North America, and Europe.

Share of Revenues

959.1

3.0%

32.2

such sectors as autos, IT and consumer electronics, and industrial and social

Revenues and Profit(Completion basis)

9

Results of Value Creation

Construction Machinery

data relating to areas such as product manufacturinghistory and facilities maintenance. This promises not only
to realize energy savings, but also to enable shorterproduction lead-times and predictive maintenance of
onsite facilities, based on real-time understanding of theenergy requirements of each machine, process andproduction line; the cost of production; and the incidence of
emergency repairs.

Segment Performance
Revenues increased 13% to ¥1,657.5 billion, as comparedwith the year ended March 31, 2017, due mainly to increased
sales of electronics- and automotive-related products at
Hitachi Metals, Ltd. and Hitachi Chemical Company, Ltd., theeffect of acquisitions in Italy, etc. by Hitachi Chemical Company,
Ltd., and the increase in sales price linked to higher raw
material costs for Hitachi Metals, Ltd.
Adjusted operating income increased ¥1.9 billion to ¥121.8
billion, as compared with the year ended March 31, 2017,
due mainly to increased revenues, despite of Hitachi Metals,
Ltd. having a drop in profitability of heat-resistant exhaust

Examples ofDigital Solutions

casting components business and aluminum wheels business,and rise in raw materials prices.
EBIT decreased ¥24.6 billion to ¥98.6 billion, as comparedwith the year ended March 31, 2017, due mainly to recognitionof impairment loss at Hitachi Metals, Ltd. in relation todeteriorated profitability of the aluminum wheel business aswell as absence of gain on business reorganization and others
recorded in the previous fiscal year, and due to posting
expenses related to competition law and others at Hitachi
Chemical Company, Ltd.

Data-Visualization Solution to Prevent Inventory Shortfalls in Businesses with Short
Delivery Lead-Times and Seasonal Demand Patterns

To help prevent product lines running out of stock within a
rapidly changing business environment, characterized byshort delivery lead-times and seasonal demand volatility,
Hitachi Chemical developed its own data-visualization
solution. This case was registered as a Lumada customer
case in October 2017. Collecting real-time data on orders,inventories, and shipments from every site, the solution
integrates information across sites by using businessintelligence tools to show changes in volumes for every
product in dashboard format. To ensure full transparency,
the dashboard information is also continually displayedon monitors inside offices to promote early measures tomitigate the risk of product lines running out of stock. By
supporting more appropriate production planning andinventory management, the solution is helping to eliminate
such occurrences.

The Tsuchiura Plant has installed EMilia

73

Smart Life & Ecofriendly Systems

To contribute to the realization of an affluent society by creating new value-added

Hitachi provides solutions and services aimed at resolving lifestyle issues through its

systems, products, and services through the harmonization of people, vehicles, andhome appliances, lighting and housing equipment, refrigeration and air-conditioning

society, Hitachi is accelerating its technological development in the fields ofproducts. Hitachi also contributes to the resolution of societal issues by helping

environment and safety. We will further develop our Advanced Vehicle Control

reduce environmental impact and making an ongoing effort to improve products’

System, integrating our safety and information technologies with the Hitachi Group’ssocial infrastructure services to meet society’s needs for environmental conservation,

Hitachi Automotive Systems’ motor for a
hybrid vehicle

accident elimination, and traffic congestion reduction.

Hitachi Appliances’ large-capacity refrigerator

energy efficiency.

Overseas Revenue Ratio

Share of Revenues

Capital Expenditure by
Business Segment

Revenues and Profit(Billions of yen)(Completion basis)

Share of Revenues

Overseas Revenue Ratio

Capital Expenditure by
Business Segment

5

Revenues and Profit(Billions of yen)(Completion basis)

10

%

58

%

Depreciation by
Business Segment

43.6

66.1

1,001.1

billion yen

R&D Expenditure by
Business Segment

billion yen

69.2

6.2%
5.4%

992.2

1,001.0

6.6%
5.7%

Revenues
EBIT ratio

16

17

Examples ofcar information systems business and sales decrease in
North America of Clarion Co., Ltd.
EBIT decreased ¥23.4 billion to ¥42.4 billion, as comparedwith the year ended March 31, 2017, due mainly to thedecrease in adjusted operating income as well as absence ofgain on sales and disposals of fixed assets in the preceding
fiscal year.

Wireless Update Solution for Automotive Software

Software penetration in automobiles has increased in recent
years with the greater use of electronics. Timely postmanufacture updates to ECU*1 automotive control softwareare increasingly needed, too, either for security purposes oradding new functionality to vehicles connected to infrastructure enhancements. The Hitachi Group offers awireless solution for OTA*2 software updates.
This solution involves the distribution of automotive software updates from a datacenter known as the OTA center.

The updated software is received by an onboard wirelessreceiver and transmitted to the ECU via a gateway board
fitted with chips that have OTA software update control andsecurity functions. In addition to this OTA software update
solution, the Hitachi Group is actively developing otherequipment and solutions to support wider commercializationof connected cars and other types of autonomous vehicles.
*1 ECU: Electronic Control Unit

6.2%

billion yen

Depreciation by
Business Segment

R&D Expenditure by
Business Segment

8.7

7.2

3.5%

557.3

540.1

5.7%

4.0%

6.2%
4.6%

billion yen

15billion yen

Revenues

16

17

(FY)

Adjusted operating income ratio

EBIT ratio(FY)

Adjusted operating income ratio

Segment Performance

Digital Solutions

8.5

%

681.0

5.0%

Main Products and Services
Engine management systems, electric powertrain systems, drive control systems, car information systems

Revenues increased 1% to ¥1,001.0 billion, as comparedwith the year ended March 31, 2017, due mainly toincreased sales in China, despite of sales decrease of
car information systems business and demand decreasein North America.
Adjusted operating income decreased ¥6.7 billion to¥49.5 billion, due mainly to profitability deterioration of

19

%

4.2%

15

billion yen

Results of Value Creation

Automotive Systems

Main Products and Services
Refrigerator, washing machine, vacuum cleaner, residential air conditioner, air-conditioning equipment

Segment Performance
Revenues decreased 3% to ¥540.1 billion, as comparedwith the year ended March 31, 2017.
Adjusted operating income increased ¥2.6 billion to¥25.1 billion, due mainly to effects of cost reduction andstructural reform, despite the decline in revenues.
EBIT increased ¥1.5 billion to ¥33.3 billion, as compared
Examples ofDigital Solutions

with the year ended March 31, 2017, due mainly to theincrease in adjusted operating income and an increase inprofit of an equity-method associate on air compressor
business, despite the absence of gain on sales anddisposals of fixed assets posted in previous fiscal year.

Exiida Remote Monitoring Service Provides IoT Solution for Air-Conditioning

Since April 2018, Hitachi has been developing Exiida*1 as aservice business for creating new value and broadening thepossibilities for air-conditioning, based on the utilization ofvarious data and know-how relating to air-conditioning,heating, and cooling systems. This remote monitoring
service for commercial refrigeration and scroll & screw
chillers (including equipment for creating the chilled waterused in office or factory air-conditioning systems) can
enable predictive maintenance of such equipment bydetecting reliable indicators of pending malfunctions, basedon the application of machine learning over a certain period tonormal operating data collected from similar equipment.
The aim of the service is to curtail opportunity losses forcustomers due to unexpected breakdowns in air-conditioning or other heating and cooling systems. Building on theequipment maintenance expertise amassed by Hitachi todate, Exiida data analysis is based on patented Hitachitechnology that utilizes the LSC*2 classification approach.
*1 The name “Exiida” incorporates the elements of Expansion (as a prefix),Internet, Individuality and Data to express the concept of addressing thechallenge of creating new value through the connection of Hitachi
air-conditioning or other heating and cooling systems to the Internet.
*2 LSC: Local Subspace Classifier (a type of classification protocol)

Exiida Remote Monitoring Service (With Predictive Maintenance Function)
Customer equipment
Monitored equipment

Exiida remote monitoring service
Remote monitoring system

Predictive maintenance function (optional)*2 OTA: Over-the-Air
Learning data
Operational data
Refrigerator

Scroll & screw chiller

Data analysis
Evaluation data

Fault occurs (notification)

Customer-managed

74

Fault predicted (notification)

75

Millions of yen

U.S. GAAPFor the year:

FY2008FY2009FY2010FY2011FY2012FY2013

FY2014

Revenues

Millions of yen

IFRS
For the year:

FY2013

Revenues¥9,666,446

FY2014FY2015FY2016FY2017¥9,774,930 ¥10,034,305¥9,162,264¥9,368,614¥10,000,369¥8,968,546¥9,315,807¥9,665,883¥9,041,071¥9,563,791¥9,761,970

Operating income

127,146

202,159444,508

412,280

422,028

538,288

600,479

Adjusted operating income

604,798

641,325

634,869

587,309714,630

EBIT (Earnings before interest and taxes)(275,239)

77,815443,812573,218

358,015585,662551,018

EBIT

691,230

534,059

531,003475,182644,257

Net income (loss) attributable to
Hitachi, Ltd. stockholders(787,337)(106,961)

238,869

347,179

175,326

264,975

241,301

Net income attributable to
Hitachi, Ltd. stockholders

413,877

217,482

172,155

231,261

362,988

Cash flows from operating activities

558,947

798,299

841,554447,155

583,508

439,406

447,348

Net cash provided by operating activities

306,777

451,825

812,226

629,582

727,168

Cash flows from investing activities(550,008)(530,595)(260,346)(195,584)(553,457)(491,363)(610,255)

Net cash used in investing activities(550,179)(612,545)(730,799)(337,955)(474,328)

Free cash flows
Cash flows from financing activities
Cash dividends declared
Capital expenditures(Property, plant and equipment)

8,939

267,704

581,208

251,571

30,051(51,957)(162,907)

Free cash flows(243,402)(160,720)

81,427

291,627

252,840

284,388(502,344)(584,176)(167,838)(180,445)

32,968250,335

Net cash provided by (used in) financing activities

228,840

233,206(26,467)(209,536)(321,454)

9,971

‒

36,13336,727

47,69050,711

57,944

Cash dividends declared

50,711

57,94457,93962,76472,417788,466

546,326

556,873649,234

742,537

849,877

848,716

Capital expenditures(Property, plant and equipment)

491,170

431,201

528,551

377,545374,901

331,228

350,783

366,547

302,757

265,413354,487

334,814

333,730

323,963

332,920

Depreciation(Property, plant and equipment)

478,759441,697382,732

360,358

300,664

329,833

349,614

Depreciation(Property, plant and equipment)

R&D expenditures

416,517372,470

395,180

412,514341,310351,426

335,515

R&D expenditures

Total assets

9,403,709

8,964,464

9,185,629

9,418,526

9,809,230

11,016,899

12,395,379

Total assets

11,098,191

12,433,727

12,551,005

9,663,917

10,106,603

Property, plant and equipment

2,393,946

2,219,804

2,111,270

2,025,538

2,279,964

2,342,091

2,564,105

Property, plant and equipment

2,258,933

2,472,497

2,500,226

1,998,411

2,124,827

Total Hitachi, Ltd. stockholders equity

1,049,951

1,284,658

1,439,865

1,771,782

2,082,560

2,651,241

2,930,309

Total Hitachi, Ltd. stockholders equity

2,668,657

2,942,281

2,735,078

2,967,085

3,278,024

Interest-bearing debt

2,820,109

2,367,143

2,521,551

2,396,454

2,370,079

2,823,049

3,354,616

Interest-bearing debt

3,033,985

3,557,356

3,604,455

1,176,603

1,050,294

At year-end:

At year-end:

Yen

Per share data:

Yen

Per share data:

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

Earnings per share attributable to
Hitachi, Ltd. stockholders:Basic¥(236.86)¥(29.20)¥52.89¥76.81¥37.28¥54.86¥49.97

Basic¥85.69¥45.04¥35.65¥47.90¥75.19Diluted(236.87)(29.20)

49.38

71.86

36.29

54.85

49.93

Diluted

85.66

45.00

35.62

47.88

75.12

Cash dividends declared
Total Hitachi, Ltd. stockholders equity

3.0

‒

8.0

8.0

10.0

10.5

12.0

315.86287.13318.73382.26431.13549.02606.87

Cash dividends declared
Total Hitachi, Ltd. stockholders equity

10.5

12.0

12.0

13.0

15.0

552.62609.35566.48614.56679.00%Financial ratios:%

Financial ratios:

Operating income ratio

1.3

2.3

4.8

4.3

4.7

5.6

6.2

Adjusted operating income ratio

6.3

6.6

6.3

6.4

7.6

EBIT ratio

‒2.8

0.9

4.8

5.9

4.0

6.1

5.6

EBIT ratio

7.2

5.5

5.3

5.2

6.9

Return on revenues

‒7.9

‒1.2

2.6

3.6

1.9

2.8

2.5

Return on revenues

4.3

2.2

1.7

2.5

3.9

Return on equity (ROE)

‒48.9

‒9.2

17.5

21.6

9.1

11.2

8.6

Return on equity (ROE)

17.5

7.8

6.1

8.1

11.6

Return on assets (ROA)

‒8.0

‒0.9

3.3

4.4

2.5

3.5

3.1

Return on assets (ROA)

5.0

2.9

2.4

3.0

5.0

0.78

0.83

0.87

0.29

0.23

24.0

23.7

21.8

30.7

32.4

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

1.29

1.04

1.03

0.86

0.75

0.73

0.78

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

Total Hitachi, Ltd. stockholders equity ratio

11.2

14.3

15.7

18.8

21.2

24.1

23.6

Total Hitachi, Ltd. stockholders equity ratio

Notes: 1 In order to be consistent with financial reporting principles and practices generally accepted in Japan, operating income is presented as total revenues lesscost of sales and selling, general and administrative expenses. The Company believes that this is useful to investors in comparing the Company s financial
results with those of other Japanese companies. Under accounting principles generally accepted in the United States of America, restructuring charges, net
gain or loss on sales and disposal of rental assets and other property and impairment losses for long-lived assets are included as part of operating income.
2 The restructuring charges mainly represent special termination benefits incurred with the reorganization of our business structures and as the result of theCompany and its subsidiaries reviewing and reshaping the business portfolio.
3 EBIT is presented as income before income taxes less interest income plus interest charges.
4 Effective from fiscal 2014, a part of the thermal power generation systems business is classified as a discontinued operation in accordance with the provisionof ASC 205-20, Presentation of Financial Statements̶Discontinued Operations, which was not transferred to MITSUBISHI HITACHI POWER SYSTEMS,
LTD. for the business integration in the thermal power generation systems with Mitsubishi Heavy Industries, Ltd. The results of the discontinued operation arereported separately from continuing operations. In line with this classification, “Revenues” and Operating income for fiscal 2013 are reclassified.
5 ROA (Return on Assets) = Net income / Total Assets (Average between the end of current fiscal year and the end of previous fiscal year) x 100

76

Results of Value Creation

10-Year Financial Data

Notes: 1 In order to be consistent with financial reporting principles and practices generally accepted in Japan, adjusted operating income is presented as total
revenues less cost of sales and selling, general and administrative expenses. The Company believes that this is useful to investors in comparing theCompany s financial results with those of other Japanese companies.
2 A part of the thermal power generation systems business is classified as a discontinued operation in accordance with the provision of IFRS 5,
Non-current Assets Held for Sale and Discontinued Operations, which was not transferred to MITSUBISHI HITACHI POWER SYSTEMS, LTD. forthe business integration in the thermal power generation systems with Mitsubishi Heavy Industries, Ltd. The results of the discontinued operation
are reported separately from continuing operations.
3 From fiscal 2013, capital investment is stated exclusive of investment in lease assets classified as finance leases.
4 ROA (Return on Assets) = Net income / Total Assets (Average between the end of current fiscal year and the end of previous fiscal year) x 100

77

Human Capital Development
Number of employees

Consolidated
Non-consolidated

Average service (years)*1
Turnover ratio (%)*1*2

FY2014FY2015FY2016FY2017

336,670
31,37518.4
1.4

335,244
37,35318.4
1.3

303,887
35,631
18.6
1.5

307,275
34,92518.8
1.5

Ratio (number) of female managers*4
5

16.6
5.6
(3,415)
3.8
(418)
2.02
64.7
13.5

16.3
6.0
(3,670)
3.7
(434)
2.03
64.3
12.2

16.5
6.4
(3,727)
4.0
(474)
2.08
65.3
11.9

16.8
6.3
(3,365)
4.1
(509)
2.11
68.1
12.8

17.2
6.4
(3,459)
4.2
(577)
2.15
72.0
10.9

Summary
Billions of yen

340

446

509

638

708

Occupational Health and Safety*7
Number of fatal accidents*1
Occupational accident rate*1
Occupational accident rate*8

1
0.10
0.14

1
0.09
0.27

2
0.07
0.22

1
0.18
0.18

0
0.17
0.25

Scope of Data
*1 Hitachi, Ltd.
*2 Includes only voluntary resignations.
*3 All full-time, regular female managers excluding those dispatched to non-Group companies.
*4 “Female managers” in fiscal 2017 include managerial employees dispatched from Hitachi, Ltd. to non-Group companies and those accepted from non-Group
companies by Hitachi, Ltd. Earlier figures include regular managerial employees dispatched to non-Group companies but exclude those accepted from nonGroup companies.
*5 Including Hitachi, Ltd. and 17 special subsidiaries and related Group companies. Data compiled on June 1 of each fiscal year (2.23 in fiscal 2018).
*6 Employees at Hitachi, Ltd. as of the end of each fiscal year.
*7 January to December each year.
*8 195 Hitachi Group companies in Japan including Hitachi, Ltd. for 2013; 251 Hitachi Group companies in Japan including Hitachi, Ltd. for 2014; 240 HitachiGroup companies in Japan including Hitachi, Ltd. for 2015; 200 Hitachi Group companies in Japan including Hitachi, Ltd. for 2016; 201 Hitachi Group
companies in Japan including Hitachi, Ltd. for 2017.

Research and Development
Ratio of R&D expenditure to revenue (%)
Patent application ratio outside Japan (%)

FY2013

FY2014FY2015FY2016FY2017

3.7
59

3.4
59

3.3
59

3.5
57

3.6
56

FY2013

FY2014FY2015FY2016FY2017

16

20

20

20

18

FY2013

FY2014FY2015FY2016FY2017

̶

̶

̶

35

33

4,165
49.55
677
4,216

4,128
46.86
692
4,415

3,895
43.91
618
3,615

4,577*2
41.34*2
1,336*2
4,380*2*3

4,663*2
38.54*2
1,356*2
4,223*2*3

Scope of Data
Hitachi, Ltd. and consolidated subsidiaries (including variable interest entities).
Number of companies: FY2013: 948; FY2014: 996; FY2015: 1,057; FY2016: 865; FY2017 880.

Engaging in Responsible Procurement
Number of audits by external auditing organizations

Environment
Rate of reduction in CO2 emissions from use of products and services(base: FY2010)*1 (%)
CO2 emissions from factories and offices (kt-CO2)
Water use (million m3)
Waste and valuables generation (kt)Atmospheric emissions of chemical substances (t)Revenues
EBIT
Income fromcontinuing operations,
before income taxes
Net income attributable
to Hitachi, Ltd.
stockholders

2017

2018

Percentchange¥9,162.2
475.1¥9,368.6
644.2

2%
36%

469.0

638.6

36%

231.2

362.9

57%

Analysis of Statement of Operations

Global Human Capital
Number of non-Japanese employees*6

Scope of Data
Hitachi, Ltd. and consolidated subsidiaries.
Number of companies: FY2013: 948; FY2014: 996; FY2015: 1,057; FY2016: 865; FY2017: 880.
Environmental performance data associated with Hitachi s business operations: Hitachi Group companies whose environmental load comprises 90% of the total(based on Hitachi calculations); data for each fiscal year indicates performance within the given scope for the fiscal year.
*1 New indicator established in fiscal 2016.
*2 Figures include a materials company that has become a consolidated member of the Hitachi Group since fiscal 2016.
*3 The management scope of chemical substances has been expanded from 41 to 50 substances since fiscal 2016.

Independent Assurance of Environmental and Social Data
To enhance the reliability of the data disclosed in the Hitachi Sustainability Report 2018, we have received independent assurance of key
environmental and social performance indicators by KPMG AZSA Sustainability Co., Ltd.
Please refer to the Third-Party Assurance Report on page 135 of the Hitachi Sustainability Report 2018 .
http://www.hitachi.com/sustainability/download/index.html

78

Operating Results

Years ended March 31:

Diversity and Inclusion
Ratio of female employees (%)*1
Global ratio (number) of female managers*3

Employment ratio of people with disabilities (%)*
Paid leave ratio (%)*1
Average overtime hours/month*1

FY2013323,919
33,50018.3
1.4

Revenues increased 2% to ¥9,368.6 billion, as comparedwith the year ended March 31, 2017, despite the effect ofthe move to transform the business portfolio such as
conversion of Hitachi Capital Corporation and Hitachi
Transport System, Ltd., into equity-method affiliates anddeconsolidation of Hitachi Koki Co., Ltd. (now Koki Holdings
Co., Ltd.) in the year ended March 31, 2017. This increase
was due mainly to higher revenues in the Construction
Machinery segment, in which overseas sales increased
mainly in China, and in the High Functional Materials &Components segment, in which sales of electronics- andautomotive-related products increased.
Cost of sales increased 1% to ¥6,866.5 billion, as
compared with the year ended March 31, 2017, and theratio of cost of sales to revenues was 73%, a decrease of
1% from the year ended March 31, 2017. Gross profit
increased 5% to ¥2,502.0 billion, as compared with theyear ended March 31, 2017.
Selling, general and administrative expenses were
¥1,787.4 billion, which was the same level as for the year
ended March 31, 2017, and the ratio of selling, generaland administrative expenses to revenues was 19%, ascompared with 20% for the year ended March 31, 2017.
Adjusted operating income increased by ¥127.3 billion to¥714.6 billion yen, as compared with the year ended March
31, 2017. The increase was due mainly to higher profits
owing to increased revenues in the Construction Machinery
segment, profitability improvement for the industry &distribution field, the power and energy business, and theindustrial equipment business in the Social Infrastructure &Industrial Systems segment. The increase was also
attributable to higher profits in the Information &Telecommunication Systems segment owing to an
improvement in the profitability of the system integration
business in Japan and the effect of the structural reform
implemented in the year ended March 31, 2017.
Other income decreased ¥88.6 billion to ¥12.0 billion
and other expenses decreased ¥5.8 billion to ¥140.6 billion,
as compared with the year ended March 31, 2017,
respectively. The details are as follows. Net gain on sales
and disposal of fixed assets worsened by ¥17.6 billion andturned to a loss of ¥2.5 billion, as compared with the year
ended March 31, 2017. Impairment losses decreased¥19.9 billion to ¥48.6 billion, as compared with the year
ended March 31, 2017. This mainly reflected impairment
losses on intangible assets, etc., in the Information &Telecommunication Systems segment. Net gain on
business reorganization and others decreased ¥71.5 billion
to ¥9.7 billion, as compared with the year ended March
31, 2017, due mainly to the absence of the partial sale ofthe shares of Hitachi Transport System, Ltd. and the saleof Hitachi Koki Co., Ltd. shares recorded in the year ended
March 31, 2017. Special termination benefits decreased¥8.9 billion to ¥15.7 billion, as compared with the year
ended March 31, 2017. Expenses related to competition
law and others increased ¥7.5 billion to ¥14.2 billion, as
compared with the year ended March 31, 2017.
Financial income (excluding interest income) was ¥7.0
billion, the same level as for the year ended March 31,
2017, and financial expenses (excluding interest charges)
decreased ¥14.9 billion to ¥11.2 billion, as compared withthe year ended March 31, 2017.
Share of profits of investments accounted for using theequity method was ¥62.4 billion, an improvement of ¥109.6
billion from the year ended March 31, 2017, for which an
impairment loss for the uranium enrichment business at aU.S. equity-method associate was posted in the Social
Infrastructure & Industrial Systems segment.
As a result of the foregoing, EBIT increased ¥169.0
billion to ¥644.2 billion, as compared with the year ended
March 31, 2017.
Interest income increased ¥2.0 billion to ¥14.9 billion andinterest charges increased ¥1.5 billion to ¥20.5 billion, as
compared with the year ended March 31, 2017, respectively.
Income from continuing operations, before income taxes
increased ¥169.5 billion to ¥638.6 billion, as compared withthe year ended March 31, 2017.
Income taxes increased ¥6.5 billion to ¥131.7 billion, as
compared with the year ended March 31, 2017, due mainly
to increased income from continuing operations, before
income taxes.
Loss from discontinued operations increased ¥10.0
billion to ¥16.0 billion, as compared with the year ended
March 31, 2017.
Net income increased ¥152.8 billion to ¥490.9 billion, as
compared with the year ended March 31, 2017.
Net income attributable to non-controlling interests
increased ¥21.1 billion to ¥127.9 billion, as compared withthe year ended March 31, 2017.
As a result of the foregoing, net income attributable to
Hitachi, Ltd. stockholders increased ¥131.7 billion to ¥362.9
billion, as compared with the year ended March 31, 2017.

Revenues by Geographic Area

The following is an overview of revenues attributed togeographic areas based on customer location.
Billions of yen
Years ended March 31:

2017

2018

PercentchangeJapan
Overseas Revenues
Subtotal
Asia
North America
EuropeOther Areas
Total Revenues¥4,757.6¥4,643.0-2%4,404.5
1,860.7
1,144.0
972.6
427.1¥9,162.2

4,725.5
2,081.1
1,177.5
964.4
502.3¥9,368.6

7%
12%
3%
-1%
18%
2%

79

Results of Value Creation

Operating and Financial Review

5-Year Non-Financial Data

Overseas(Asia)
Revenues in Asia increased 12% to ¥2,081.1 billion, as
compared with the year ended March 31, 2017. This wasdue mainly to higher revenues in the Electronic Systems &Equipment segment, Construction Machinery segment,
and High Functional Materials & Components segment,
etc., despite reduced revenues as a result of theconversion of Hitachi Transport System, Ltd. and Hitachi
Capital Corporation to equity-method associates.
(North America)
Revenues in North America increased 3% to ¥1,177.5
billion, as compared with the year ended March 31, 2017.
This was due mainly to the higher revenues in the Social
Infrastructure & Industrial Systems segment gained by theindustrial products business expansion by acquisition andhigher revenues in the Construction Machinery segment,
despite reduced revenues in the Electronic Systems &Equipment segment due to the impact of thedeconsolidation of Hitachi Koki Co., Ltd.
(Europe)
Revenues in Europe decreased 1% to ¥964.4 billion, as
compared with the year ended March 31, 2017. This wasdue mainly to the impact of deconsolidation of Hitachi Koki
Co., Ltd. and the conversion of Hitachi Capital Corporation
to an equity-method associate. This decrease was almost
partially offset by higher revenues in the Social Infrastructure& Industrial Systems segment, reflecting substantial sales
growth in the railway systems business, and higher
revenues in the High Functional Materials & Components
segment due mainly to acquisitions.
(Other Areas)
Revenues in other areas increased 18% to ¥502.3 billion,
as compared with the year ended March 31, 2017.
This was due mainly to higher revenues in Construction
Machinery segment owing to acquisitions, etc.
As a result of the foregoing, overseas revenues increased
7% to ¥4,725.5 billion, as compared with the year ended
March 31, 2017, and the ratio to total revenues was 50%,
which was 2% increase as compared with the year ended
March 31, 2017.

80

Summary of Financial Condition, etc.

Cash Flows

Liquidity and Capital Resources

Billions of yen

Our management considers maintaining an appropriate levelof liquidity and securing adequate funds for current and futurebusiness operations to be important financial objectives.
Through efficient management of working capital andselective investment in new plants and equipment, we areworking to optimize the efficiency of capital utilization
throughout our business operations. We endeavor to
improve our group cash management by centralizing suchmanagement among us and our overseas financial
subsidiaries. Our internal sources of funds include cash
flows generated by operating activities and cash on hand.
Our management also considers short-term investments
to be an immediately available source of funds. In addition,
we raise funds both in the capital markets and fromJapanese and international commercial banks in response
to our capital requirements. Our management policy is tofinance capital expenditures primarily by internally generated
funds and to a lesser extent by funds raised through theissuance of debt and equity securities in domestic andforeign capital markets. In order to flexibly access funding,we maintain our shelf registration with the maximum
outstanding balance of ¥300.0 billion.
We maintain commitment line agreements with anumber of domestic banks under which we may borrow inorder to ensure efficient access to necessary funds.
These commitment line agreements generally provide fora one-year term, renewable upon mutual agreement between
us and each of the lending banks, as well as anothercommitment line agreement with a contract term of three
years ending on July 29, 2019. As of March 31, 2018, ourunused commitment lines totaled ¥503.2 billion, including
those of ¥400.0 billion which the Company maintained.
We receive debt ratings from Moody s Japan K.K.
(Moody s), Standard & Poor s Rating Japan (S&P), as wellas Rating and Investment Information, Inc. (R&I). Our debt
ratings as of March 31, 2018 were as follows:
Long-term

Short-term

Moody sRating Company

A3

P–2

S&P

A–

A–2

R&I

A+

a–1

With our current ratings, we believe that our access to
the global capital markets will remain sufficient for our
financing needs. We seek to improve our credit ratings inorder to ensure financial flexibility for liquidity and capitalmanagement, and to continue to maintain access to
sufficient funding resources through the capital markets.

Years ended March 31:

2017

2018

Net cash provided by operating activities¥ 629.5¥ 727.1

Net cash used in investing activities(337.9)(474.3)

Net cash used in financing activities(209.5)(321.4)

Effect of exchange rate changes
on cash and cash equivalents(16.1)

1.3

Change in cash and cash equivalents

65.9(67.2)Cash and cash equivalents at
beginning of year
Cash and cash equivalents at end of year

699.3

765.2

¥ 765.2¥ 697.9(Cash Flows from Operating Activities)
Net income in the year ended March 31, 2018 increased by¥152.8 billion, as compared with the year ended March 31,
2017. Net cash outflow from a change in inventories
increased by ¥158.4 billion, as compared with the year
ended March 31, 2017. Net cash flow from a change intrade payables deteriorated by ¥13.6 billion. Net cash flowfrom a change in trade receivables improved by ¥244.0
billion. As a result, net cash outflow from changes inworking capital decreased. As a result of the foregoing, net
cash provided by operating activities was ¥727.1 billion in
the year ended March 31, 2018, an increase of ¥97.5 billion
compared with the year ended March 31, 2017.
(Cash Flows from Investing Activities)
Net amount of investments related to property, plant andequipment*1 was ¥406.4 billion, a decrease of ¥56.1 billion
as compared with the year ended March 31, 2017.
Proceeds from sales of investments in securities and otherfinancial assets (including investments in subsidiaries andinvestments accounted for using the equity method)
decreased by ¥70.7 billion compared with the year ended
March 31, 2017 for which partial sales of the shares ofHitachi Transport System, Ltd. and Hitachi Capital
Corporation, and the sale of all shares of Hitachi Koki Co.,
Ltd. were conducted. Purchase of investments in securities
and other financial assets (including investments in
subsidiaries and investments accounted for using the equity
method) increased ¥65.8 billion, compared with the year
ended March 31, 2017, due mainly to payment for theacquisition of “Sullair" air compressor business. As a resultof the foregoing, net cash used in investing activities was¥474.3 billion in the year ended March 31, 2018, an
increase of ¥136.3 billion compared with the year ended
March 31, 2017.
*1 The sum of the purchase of property, plant and equipment, thepurchase of intangible assets and the purchase of leased assets,less the proceeds from sale of property, plant, equipment andintangible assets, the proceeds from sale of leased assets and thecollection of lease receivables(Cash Flows from Financing Activities)
The net cash outflow from a change in short-term debt
decreased by ¥128.9 billion compared with the year ended
March 31, 2017. Payments related to long-term debt*2 inthe year ended March 31, 2018 were ¥113.5 billion, as
compared with ¥115.5 billion of proceeds related to longterm debt in the year ended March 31, 2017. As a result of
the foregoing, net cash used in financing activities was¥321.4 billion in the year ended March 31, 2018, an
increase of ¥111.9 billion compared with the year ended
March 31, 2017.
*2 The proceeds from long-term debt, less the payments on
long-term debt

As a result of the above items, as of March 31, 2018,
cash and cash equivalents amounted to ¥697.9 billion,a decrease of ¥67.2 billion from March 31, 2017. Free cash
flows, the sum of cash flows from operating and investing
activities, were an inflow of ¥252.8 billion in the year ended
March 31, 2018, a decrease of ¥38.7 billion from the year
ended March 31, 2017.

Assets, Liabilities, and Equity

As of March 31, 2018, total assets amounted to ¥10,106.6
billion, an increase of ¥442.6 billion from March 31, 2017.
This was due mainly to the acquisition of “Sullair" aircompressor business in the Social Infrastructure & Industrial
Systems segment and corporate acquisitions undertaken by
Hitachi Chemical Company, Ltd. in the High Functional
Materials & Components segment. Cash and cash
equivalents as of March 31, 2018 amounted to ¥697.9
billion, a decrease of ¥67.2 billion from the amount as ofMarch 31, 2017.
As of March 31, 2018, total interest-bearing debt, thesum of short-term debt and long-term debt, amounted to¥1,050.2 billion, a decrease of ¥126.3 billion from March 31,2017 as a result of bond redemption and repayment ofborrowings. As of March 31, 2018, short-term debt,
consisting mainly of borrowings from banks and commercial
paper, amounted to ¥121.4 billion, a decrease of ¥74.9
billion from March 31, 2017. As of March 31, 2018, current
portion of long-term debt amounted to ¥117.1 billion,a decrease of ¥73.0 billion from March 31, 2017. As of
March 31, 2018, long-term debt (excluding current portion),
consisting mainly of debentures, and loans principally frombanks and insurance companies, amounted to ¥811.6
billion, an increase of ¥21.6 billion from March 31, 2017.
As of March 31, 2018, total Hitachi, Ltd. stockholders
equity amounted to ¥3,278.0 billion, an increase of ¥310.9
billion from March 31, 2017. This is due mainly to postingnet income attributable to Hitachi, Ltd. stockholders.
As a result, the ratio of total Hitachi, Ltd. stockholders
equity to total assets as of March 31, 2018 was 32.4%,
compared with 30.7% as of March 31, 2017.
Non-controlling interests as of March 31, 2018 were¥1,233.6 billion, an increase of ¥103.7 billion fromMarch 31, 2017.
Total equity as of March 31, 2018 was ¥4,511.6 billion,
an increase of ¥414.6 billion from March 31, 2017. The ratio
of interest-bearing debt to total equity was 0.23, comparedwith 0.29 as of March 31, 2017.
81

Results of Value Creation

Japan
Revenues in Japan decreased 2% to ¥4,643.0 billion, as
compared with the year ended March 31, 2017. This wasdue mainly to reduced revenues in the Social Infrastructure& Industrial Systems segment, etc. and due to theconversion of Hitachi Transport System, Ltd. and Hitachi
Capital Corporation to equity-method associates in theprevious fiscal year, despite increased revenues in the High
Functional Materials & Components segment.

March 31, 2018 and 2017

Millions of yen

Assets2017

2018

Current assets

Millions of yen

Liabilities

2017

2018

Current liabilities

Cash and cash equivalents¥ 765,242

Trade receivables

2,433,149

2,501,414

Current portion of long-term debt

190,233

117,191

Inventories

1,225,907

1,375,232

Other financial liabilities

274,270

254,735

Investments in securities and other financial assets

388,792

373,324

Trade payables

1,402,233

1,536,983

Other current assets

189,516

203,866

Other current liabilities

1,657,766

1,765,046

Total current assets

5,002,606

5,151,800

Total current liabilities

3,720,859

3,795,394

Investments accounted for using the equity method

691,251

743,407

Non-current liabilities

Investments in securities and other financial assets

758,350

716,431

Long-term debt

790,013811,664¥

697,964

Short-term debt

¥ 196,357¥

121,439

Non-current assets

Property, plant and equipment

1,998,411

2,124,827

Retirement and severance benefits

635,684

575,156

Intangible assets

919,201

1,054,370

Other non-current liabilities

420,366

412,718

Other non-current assets

294,098

315,768

Total non-current liabilities

1,846,063

1,799,538

Total non-current assets

4,661,311

4,954,803

5,566,922

5,594,932

Common stock

458,790458,790

Capital surplus

577,573575,809

1,793,570

2,105,395

141,068

142,167

Total Liabilities
EquityHitachi, Ltd. stockholders equity

Retained earnings
Accumulated other comprehensive income
Treasury stock, at cost
Total Hitachi, Ltd. stockholders equity
Non-controlling interests
Total Equity
Total Assets¥9,663,917¥10,106,603

Total Liabilities and Equity(3,916)(4,137)

2,967,085

3,278,024

1,129,910

1,233,647

4,096,995

4,511,671¥9,663,917¥10,106,603

Note: Changes in presentation have been made due to materiality of some accounts balances as a result of business reorganization and others. ‘Investments insecurities and other financial assets,’ which were included in ‘Other current assets’ as of March 31, 2017, have been reclassified and presented separately.
‘Lease receivables,’ which were separately presented under current and non-current assets, have been included in ‘Investments in securities and otherfinancial assets’ under current and non-current assets, respectively. ‘Other financial liabilities,’ which were separately presented under non-current liabilities,
have been included in ‘Other non-current liabilities.’ The consolidated statement of financial position as of March 31, 2017 has been reclassified in order toreflect these changes in presentation.

82

83

Results of Value Creation

Consolidated Statement of Financial Position

Consolidated Statement of Comprehensive Income

Years ended March 31, 2018 and 2017

Years ended March 31, 2018 and 2017

Millions of yen

Millions of yen

2017

2018

Revenues¥ 9,162,264¥ 9,368,614

Net income

Cost of sales(6,782,677)(6,866,522)

Other comprehensive income (OCI)

Gross profit

2,379,587

2,502,092

Items not to be reclassified into net income(1,792,278)(1,787,462)

Selling, general and administrative expenses
Adjusted operating income

2017

2018

¥338,029¥490,918

Net changes in financial assets measured at fair value through OCI

59,934

1,530

587,309714,630

Remeasurements of defined benefit plans

46,08622,753

Other income

100,742

12,068

Share of OCI of investments accounted for using the equity method(1,887)

3,302

Other expenses(146,568)(140,686)

104,133

27,585

Financial income

7,091

7,005

Financial expenses(26,206)(11,243)

Share of profits (losses) of investments accounted
for using the equity method(47,186)

Foreign currency translation adjustments(64,761)(8,042)

62,483475,182

Net changes in cash flow hedges

21,303

5,703

644,257

Interest income

12,923

1,166

(45)

14,928

Share of OCI of investments accounted for using the equity method

Interest charges(19,014)

Total items that can be reclassified into net income(42,292)(2,384)(20,539)

469,091

638,646(125,112)

Other comprehensive income (OCI)

61,841

25,201(131,708)

343,979¥399,870¥516,119506,938(5,950)(16,020)

Hitachi, Ltd. stockholders

299,397382,341

Non-controlling interests

100,473

133,778

EBIT (Earnings before interest and taxes)

Income from continuing operations, before income taxes
Income taxes
Income from continuing operations
Loss from discontinued operations
Net income¥

338,029¥

490,918

Net income attributable to:84

Hitachi, Ltd. stockholders

231,261

362,988

Non-controlling interests

106,768

127,930

Total items not to be reclassified into net income
Items that can be reclassified into net income

Comprehensive income
Comprehensive income attributable to:85

Results of Value Creation

Consolidated Statement of Profit or Loss

Consolidated Statement of Cash Flows

Years ended March 31, 2018 and 2017

Years ended March 31, 2018 and 2017

Millions of yen

Millions of yen

2017

2018

¥ 338,029¥ 490,918

Depreciation and amortization

415,183

364,432

Change in trade receivables(196,824)

47,216

Change in inventories(22,731)(181,207)

Change in trade payables

111,589

97,923Other(15,664)(92,114)629,582

727,168

Purchase of property, plant and equipment(316,116)(349,388)

Purchase of intangible assets(101,034)(90,924)

Purchase of leased assets(292,943)(3,263)

Proceeds from sale of property, plant and equipment,
and intangible assets

52,20827,448Proceeds from sale of leased assets

14,5399,628Collection of lease receivables

180,726‒

Proceeds from sale (purchase) of investments in securities andother financial assets (including investments in subsidiaries andinvestments accounted for using the equity method), net

71,653(64,936)

Other

53,012(2,893)(337,955)(474,328)

291,627

252,840

Change in interest-bearing debt

(118,314)(218,409)

Dividends paid to stockholders(57,935)(67,568)

Dividends paid to non-controlling interests(36,508)(32,066)2017

As of March 31, 2016

Commonstock

CapitalsurplusRetainedearnings

Accumulated
otherTotal Hitachi, Ltd.
comprehensive Treasury stock, stockholders
Non-controllingincomeat costequityinterests

Cash flows from operating activities
Total equity

Net income
Adjustments to reconcile net income to net cash provided by operating activities¥458,790¥586,790¥1,609,761¥ 83,543¥(3,806)¥2,735,078¥1,390,492¥4,125,570

Reclassified into
retained earnings‒‒

10,486(10,486)

‒

‒

‒

‒

Net income‒‒

231,261‒‒

231,261

106,768

338,029

Other comprehensive
income (loss)

‒

‒

‒

68,136‒

68,136(6,295)61,841

Cash dividends‒‒(57,938)‒‒(57,938)(38,283)(96,221)

Changes in treasury stock

‒

(15)

‒

‒

(110)

(125)

‒

(125)

Equity transactions and
other

‒

(9,202)

‒

(125)

‒

(9,327)(322,772)(332,099)

Total changes in equity‒(9,217)

183,80957,525(110)

232,007(260,582)(28,575)

As of March 31, 2017

¥458,790¥577,573¥1,793,570¥141,068¥(3,916)¥2,967,085¥1,129,910¥4,096,995

Millions of yen

2018

As of March 31, 2017

Accumulated
otherTotal Hitachi, Ltd.
comprehensive Treasury stock, stockholders
Non-controllingincomeat costequityinterests

Commonstock

CapitalsurplusRetainedearnings¥458,790¥577,573¥1,793,570¥141,068¥(3,916)¥2,967,085¥1,129,910

Total equity¥4,096,995

Reclassified into
retained earnings‒‒

16,428(16,428)

‒

‒

‒

‒

Net income‒‒

362,988‒‒362,988

127,930

490,918

Other comprehensive
income‒‒‒19,353‒

19,353

5,848

25,201

Cash dividends‒‒(67,591)‒‒(67,591)(34,395)(101,986)

Changes in treasury stock

‒

(27)

‒

‒

(221)

(248)

‒

(248)

Equity transactions and
other

‒

(1,737)‒(1,826)‒(3,563)

4,354

791

Total changes in equity‒(1,764)

311,825

1,099

(221)

310,939

103,737

414,676

As of March 31, 2018

¥458,790¥575,809¥2,105,395¥142,167¥(4,137)¥3,278,024¥1,233,647¥4,511,671

Net cash provided by (used in) operating activities
Cash flows from investing activities

Net cash provided by (used in) investing activities
Free cash flows
Cash flows from financing activities

Other

3,221

(3,411)(209,536)(321,454)

Effect of exchange rate changes on cash and cash equivalents(16,164)

1,336

Change in cash and cash equivalents

65,927(67,278)

Net cash provided by (used in) financing activities

Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year86699,315765,242¥ 765,242¥ 697,964

87

Results of Value Creation

Consolidated Statement of Changes in Equity

Results of Value Creation

Corporate Data / Stock Information
As of March 31, 2018

Corporate Name
Hitachi, Ltd. (Kabushiki Kaisha
Hitachi Seisakusho)
URL
http://www.hitachi.com/
Principal Ofﬁce
6-6, Marunouchi 1-chome,
Chiyoda-ku, Tokyo 100-8280, Japan

Number of Employees
307,275
Number of Shares Issued
Common Stock(including treasury stock)
4,833,463,387 shares
Number of Shareholders
335,411

Accounting Auditor
Ernst & Young ShinNihon LLC
Investor Relations Contacts
JAPAN

Capital Stock458,790 million yen

Administrator of Shareholders
Register
Tokyo Securities Transfer AgentCo., Ltd.
6th Floor, NMF Takebashi Building,
3-11, Kanda Nishiki-cho,
Chiyoda-ku, Tokyo 101-0054, Japan
Stock Exchange Listings
Tokyo, Nagoya

Hitachi Europe Ltd.
Whitebrook Park,
Lower Cookham Road,
Maidenhead, Berkshire SL6 8YA
TEL: +44-1628-585384

330,471

971,762,712

Foreign Investor

1,474

2,166,160,307

Other

3,099

81,931,281

4

46,568335,411

4,833,463,387

Total

Other

Financial Institution
and Securities Firm

1.70%

33.38%

Shareholder
Composition

4,833,463,387* Treasury stock is included in Other.

ForeignInvestor

Individual

20.10%

44.82%

Hitachi Stock Price

Percentage ofTotal (%)

The Master Trust Bank of Japan, Ltd. (Trust Account)

315,175,000

6.53Japan Trustee Services Bank, Ltd. (Trust Account)

289,061,315

5.99

Hitachi Employees Shareholding Association

99,765,384

2.07

Nippon Life Insurance Company

93,264,995

1.93Japan Trustee Services Bank, Ltd. (Trust Account 9)92,858,000

1.92State Street Bank West Client-Treaty 505234

92,679,162

1.92

Japan Trustee Services Bank, Ltd. (Trust Account 5)

91,756,000

1.90

The Dai-ichi Life Insurance Company, Limited*

71,361,222

1.48Japan Trustee Services Bank, Ltd. (Trust Account 7)

70,797,000

1.47Japan Trustee Services Bank, Ltd. (Trust Account 1)

68,201,000

1.41* The number of shares held by The Dai-ichi Life Insurance Company, Limited includes its contribution of 6,560,000 shares to the retirement
allowance trust (the holder of said shares, as listed in the Shareholders Register, is Dai-ichi Life Insurance Account, Retirement Allowance Trust,
Mizuho Trust & Banking Co., Ltd. ).

Nikkei Stock Average (225)

Trading Volume (1,000 shares)

200

2,400,000

150

1,800,000

100

1,200,000

50

600,00000Year ended
March 31,2009

Year ended
March 31,2010

Year ended
March 31,2011

Year ended
March 31,2012

Year ended
March 31,2013

Year ended
March 31,2014

Year ended
March 31,2015

Year ended
March 31,2016

Year ended
March 31,2017

Year ended
March 31,2018High (Yen)

843

404

523

547

578

877

939.9

858

679.5

944.2

Low (Yen)
Price at endof March

230

227

313

360

401

508

660

431

400

566.3

266

349

433

531

543

762

823.2

526.6

602.5

770.8

*1 The closing price on March 31, 2008 equals 100.
*2 Hitachi, Ltd. undertook a 1-for-5 reverse-split of the Company s common stock on October 1, 2018. The stock information in this report relates
to data prior to the reverse stock split.

Website Information

Ratings

Detailed information is available on the Company s website.
Long-term

Short-term

Moody s Japan K.K. (Moody s)

A3

P–2

Standard & Poor s Ratings Japan (S&P) *

A–

A–2

Rating and Investment Information, Inc. (R&I)

A+

a–1

* On August 7, 2018, S&P raised Hitachi s long-term and short-term corporate debt ratings
by a single notch, to A and A-1, respectively.

88

1,613,562,519

Stock Price and Trading Volume

Number of Shares(shares)

Rating Company

363

0.00%

U.K.

10 Largest Shareholders
Name

Financial Institution and Securities Firm

Government and Municipality

Hitachi America, Ltd.
50 Prospect Avenue,
Tarrytown, NY 10591
TEL: +1-914-333-2987
E-mail: investor.info@hal.hitachi.com

Government andMunicipality

Number of Share Ownership
Shareholders(shares)Class of Shareholders

Individual

Hitachi, Ltd.
6-6, Marunouchi 1-chome,
Chiyoda-ku, Tokyo 100-8280
TEL: +81-3-3258-1111
E-mail: ir.info.hq@hitachi.com

U.S.A.

Founded1910 (Incorporated in 1920)

Shareholder Composition

About Hitachi Group

Investor Relations

Sustainability

http://www.hitachi.co.jp/about/corporate/

http://www.hitachi.co.jp/IR/

http://www.hitachi.co.jp/sustainability/(Japanese)(Japanese)(Japanese)

http://www.hitachi.com/IR-e/

http://www.hitachi.com/sustainability/(English)(English)http://www.hitachi.com/corporate/about/(English)89