Hitachi Integrated Report 2016

Hitachi Integrated Report 2016
Year ended March 31, 2016

Contents2	Hitachi‘s History of Transformation(From Fiscal 2006)
4

To Our Shareholders

6

Our Strategy

			7	Results of the 2015 Mid-termManagement Plan
			8	Outline of the 2018 Mid-termManagement Plan
			
12

18

About Us
Segment Information

			
54

Financial & Non-Financial Highlights			
56

10-Year Financial Data			58

Operating and Financial Review

			64	Consolidated Statements ofFinancial Position
			
66	Consolidated Statements ofInterview with the President & CEO

Our Value Creation

			
19	Creating Value for Society
Through Railways
			
23

50

			
52

Profit or Loss			
67	Consolidated Statements ofComprehensive Income			68	Consolidated Statements of
Changes in Equity

Hitachi’s AI Opening a New Era			
26

Board of Directors			69	Consolidated Statements of			
28

Executive Officers

Cash Flows29

Our ESG Approach			
70	Summarized Consolidated
Statements of Financial Position			
30

Message from Outside Directors

by Manufacturing, Services and			
32

Corporate Governance

Others and Financial Services

			
38

Risk Management			40Compliance			
71	Summarized Consolidated
Statements of Profit or Loss by			42	Achieving a Fair and Equitable
Work Environment / A Strategy for
Growing Together with Our Global
Human Capital

Manufacturing, Services and			44Statements of Cash Flows by

Others and Financial Services /Summarized Consolidated

Promoting Diversity and Inclusion

Manufacturing, Services and			
45	Promoting Occupational Healthand Safety			
46	Respect for Human Rights
Throughout the Value Chain

Others and Financial Services
			72

Corporate Data / Stock Information

			47	Engaging in Responsible Procurement			
48	Helping Resolve Environmental
Issues Toward 2050

Cautionary Statement
Certain statements found in this document may constitute “forward-looking statements” as defined in the U.S. Private Securities Litigation Reform Act of 1995. Such “forward-looking
statements” reflect management’s current views with respect to certain future events and financial performance and include any statement that does not directly relate to any historical or
current fact. Words such as “anticipate,” “believe,” “expect,” “estimate,” “forecast,” “intend,” “plan,” “project” and similar expressions which indicate future events and trends may identify“forward-looking statements.” Such statements are based on currently available information and are subject to various risks and uncertainties that could cause actual results to differ materiallyfrom those projected or implied in the “forward-looking statements” and from historical trends. Certain “forward-looking statements” are based upon current assumptions of future events
which may not prove to be accurate. Undue reliance should not be placed on “forward-looking statements,” as such statements speak only as of the date of this document.
Factors that could cause actual results to differ materially from those projected or implied in any “forward-looking statement” and from historical trends include, but are not limited to:• 	economic conditions, including consumer spending and plant and equipment investment
in Hitachi’s major markets, particularly Japan, Asia, the United States and Europe, as wellas levels of demand in the major industrial sectors Hitachi serves;• 	exchange rate fluctuations of the yen against other currencies in which Hitachi makes
significant sales or in which Hitachi’s assets and liabilities are denominated, particularly
against the U.S. dollar and the euro;• 	uncertainty as to Hitachi’s ability to access, or access on favorable terms, liquidity or
long-term financing;• 	uncertainty as to general market price levels for equity securities, declines in which may
require Hitachi to write down equity securities that it holds;• 	fluctuations in the price of raw materials including, without limitation, petroleum andother materials, such as copper, steel, aluminum, synthetic resins, rare metals andrare-earth minerals, or shortages of materials, parts and components;• 	the possibility of cost fluctuations during the lifetime of, or cancellation of, long-term
contracts for which Hitachi uses the percentage-of-completion method to recognize
revenue from sales;• 	credit conditions of Hitachi’s customers and suppliers;• 	fluctuations in product demand and industry capacity;• 	uncertainty as to Hitachi’s ability to implement measures to reduce the potential
negative impact of fluctuations in product demand, exchange rates and/or price of raw
materials or shortages of materials, parts and components;• 	uncertainty as to Hitachi’s ability to continue to develop and market products thatincorporate new technologies on a timely and cost-effective basis and to achieve market
acceptance for such products;• 	increased commoditization of and intensifying price competition for products;• 	uncertainty as to Hitachi’s ability to achieve the anticipated benefits of its strategy tostrengthen its Social Innovation Business;• 	uncertainty as to the success of acquisitions of other companies, joint ventures andstrategic alliances and the possibility of incurring related expenses;• 	uncertainty as to the success of restructuring efforts to improve management efficiency bydivesting or otherwise exiting underperforming businesses and to strengthen competitiveness;• 	the potential for significant losses on Hitachi’s investments in equity-method associates
and joint ventures;• 	general socioeconomic and political conditions and the regulatory and tradeenvironment of countries where Hitachi conducts business, particularly Japan, Asia, theUnited States and Europe, including, without limitation, direct or indirect restrictions byother nations on imports and differences in commercial and business customs including,
without limitation, contract terms and conditions and labor relations;• 	uncertainty as to the success of cost structure overhaul;• 	uncertainty as to Hitachi’s ability to attract and retain skilled personnel;• 	uncertainty as to Hitachi’s access to, or ability to protect, certain intellectual property rights;• 	uncertainty as to the outcome of litigation, regulatory investigations and other legal
proceedings of which the Company, its subsidiaries or its equity-method associates andjoint ventures have become or may become parties;• 	the possibility of incurring expenses resulting from any defects in products or services of Hitachi;• 	the possibility of disruption of Hitachi’s operations by natural disasters such as
earthquakes and tsunamis, the spread of infectious diseases, and geopolitical and social
instability such as terrorism and conflict;• 	uncertainty as to Hitachi’s ability to maintain the integrity of its information systems, aswell as Hitachi’s ability to protect its confidential information or that of its customers; and• 	uncertainty as to the accuracy of key assumptions Hitachi uses to evaluate its employee
benefit-related costs.
The factors listed above are not all-inclusive and are in addition to other factors containedin other materials published by Hitachi.

1Hitachi’s History of Transformation (From Fiscal 2006)

Targeting the achievement of the goals outlined in the 2018 Mid-term Management Plan as well as further growth in theyears ahead, Hitachi will work to accelerate its transformation into a company that is a leader in global markets andstrive to increase corporate value.
Transformation of Business Portfolio

Fiscal 2006 – Fiscal 2009

Fiscal 2010 – Fiscal 2012: 2012 Mid-term Management Plan

Strengthening Initiatives

Strengthening Initiatives

Advancing Partnerships / Rebuilding Initiatives• Made Clarion a consolidated subsidiary• Acquired BlueArc, a network storage
solution business in the United States•	Transferred plasma display panel plant to Solar Frontier K.K.

• Established joint venture with GE in nuclear power
generation systems business• Acquired a nuclear energy company
in the United Kingdom• Made Hitachi Kokusai Electric a consolidated subsidiary• Made Hitachi Koki a consolidated subsidiary•	Integrated Renesas Technology, an equity method company
in the semiconductor business, with NEC Electronics Corporation•	Transferred business in large LCD panels for TVs to Panasonic
Corporation•	Casio Hitachi Mobile Communications, an equity method company
in the mobile phone business, integrated mobile phone operations
with NEC Corporation• Made five listed companies* wholly owned consolidated
subsidiaries* Hitachi Information Systems, Hitachi Software Engineering, Hitachi Systems& Services, Hitachi Plant Technologies, and Hitachi Maxell

Advancing Partnerships / Rebuilding Initiatives•	Established joint venture in the hydroelectric power generation
systems business with Mitsubishi Electric Corporation and
Mitsubishi Heavy Industries, Ltd.

• Sold precision small motor business to Nidec Corporation•	Transferred hard disk drive business to Western Digital Corporation•W ithdrew from consumer PC business•	Integrated small and medium-sized LCD businesswith Japan Display Inc.

• Transferred semiconductor manufacturing subsidiary in
Singapore to a semiconductor foundry•	Stopped in-house production of flat-panel TVs(Millions of yen)
800,000

22.9%
20.6%
Stockholders’ equity ratio

21.2%
Fiscal 2008

18.8%

• F inancial crisis caused by Lehman Shock•O ne-off write-down of deferred tax assets

600,000

15.7%(Adjusted) Operating income(left scale)
400,000

14.3%

11.2%

EBIT (earnings before
interest and taxes)*1(left scale)

200,000

0
Net income (loss) attributable to
Hitachi, Ltd. stockholders per share(right scale)‒200,000‒400,000

2

Fiscal 2007
• Implemented one-off write-down of deferred
tax assets due to worsening of conditions indigital media field

2006

2007

2008

Fiscal 2009

Fiscal 2010

Fiscal 2011

Fiscal 2012

• Raised funds through theissuance of new shares• Introduced in-house company system•C elebrated 100th
anniversary offounding•A chieved new record
high in net income• Transferred hard disk
drive business• S tarted cost structurereform project• Introduced Groupsystem• Increased number of
non-Japanese directors,
outside directors
became majority

2009*1 EBIT is presented as income before income taxes less interest income plus interest charges.
*2 Manufacturing, Services and Others
Note: Figures are U.S. GAAP, IFRS was introduced from fiscal 2014.

2010

2011

2012

Hitachi, Ltd. | Integrated Report 2016

Fiscal 2013 – Fiscal 2015: 2015 Mid-term Management Plan

Fiscal 2016 – Fiscal 2018:2018 Mid-term Management Plan

Strengthening Initiatives

Advancing Partnerships / Rebuilding Initiatives• Absorbed Hitachi Plant Technologies• T ransferred printed circuit board production
equipment business to an investment fund

Advancing Partnerships /Rebuilding Initiatives•H itachi Metals and Hitachi Cable were merged• E stablished joint venture with Mitsubishi Heavy Industries, Ltd.
in thermal power generation systems business•M ade Hitachi Medical a wholly owned subsidiary•A cquired Prizm Payment Services, a provider ofpayment services to financial institutions in India• R elisted Hitachi Maxell shares• Built a strategic partnership with ABB in the high-voltage
direct current power transmission business in Japan• Discontinued production of semiconductors for information &telecommunications equipment• HitachiData Systems acquired Pentaho Corporation,a big-data analytics software company in the United States• Establisheda joint venture with Johnson Controls, Inc.
in the air-conditioning systems business• T ransfer of a portion of stockholding in Hitachi
Transport System to SG Holdings•A greement to transfer a portion of stockholding in
Hitachi Capital to Mitsubishi UFJ Financial Groupand Mitsubishi UFJ Lease & Finance•A cquired the signaling and rolling stock operations ofFinmeccanica S.p.A.

24.1%

23.7%

24.0%

23.6%

(Yen)

IFRS

120

21.8%

90

60

30

IFRS

IFRS

0

IFRS

〜
〜
Fiscal 2013

Fiscal 2014

Fiscal 2015

Fiscal 2016•A
 chieved newrecord high in EBIT

• Achieved new record
high in operating income•A chieved new record high inoperating cash flow margin*2• Introduction of business structuresby market with strengthened frontline capabilities

2013

2014

2015

2016

‒210

‒240

(FY)

3

To Our Shareholders

Toshiaki Higashihara
President & CEO

In fiscal 2015, the final year of the 2015 Mid-term Management

Today, global competition is intensifying. Moreover, the trends

Plan, Hitachi recorded revenues of ¥10,034.3 billion (3% up YoY),

toward the Internet of Things (IoT) and digitalization are starting

adjusted operating income of ¥634.8 billion (1% down YoY), EBIT

to generate significant changes, not only in the way businesses(earnings before interest and taxes) of ¥531.0 billion (1%, down

operate but also in the way people live.

YoY), and net income attributable to Hitachi, Ltd. stockholders of¥172.1 billion (21% down YoY).
During the 2015 Mid-term Management Plan, Hitachi“An Innovation Partner for the IoT Era,” we formulated the 2018
Mid-term Management Plan in May 2016. With the focusedachieved a stable adjusted operating income ratio above 6% andbusiness domains of Power / Energy; Industry / Distribution / Water;

recorded steady improvement in its earning power. In addition,

Urban; and Finance / Public / Healthcare, Hitachi will expand its

we have been increasing our cash-generating capability throughglobal business by developing an advanced Social Innovation

the Hitachi Smart Transformation Project. Hitachi continues toBusiness utilizing digital technologies.

concentrate investments in the Social Innovation Business, andAccordingly, beginning this fiscal year, we launched a

has acquired businesses with annual sales of ¥600.0 billion tomarket-driven business structure comprised of three layers.

strengthen its position in key focus areas. In addition, we reorga-

The layers include the front, which consists of primarily the 12

nized our portfolio by deconsolidating businesses with annual

business units that work to develop and provide services close tosales of ¥900.0 billion. With these measures, we aggressively

customers; the platform, which enables the Company to provide

restructured our business portfolio and further increased ourservices quickly and efficiently; and the products, which are

earning power, while also creating a pathway for future growth.

4

Anticipating these changes and aiming to become

Hitachi, Ltd. | Integrated Report 2016globally competitive. Lumada, our newly built IoT platform, is an

creation with its customers and contribute to enhancing the qual-

open, highly flexible common platform that incorporates theity of life for people. We also aim to achieve sustainable growth.

artificial intelligence (AI), analytics, and operational technology

We would like to ask for your continued support and understand-that are indispensable in service development. With Lumada,ing in the years ahead.

Hitachi is accelerating collaborative creation with its customers.
Under the new Hitachi business structure, our front will draw
upon the products and platform to drive innovation and deliver

August 2016

new value to society.

President & CEO

In fiscal 2018, we will strive to achieve revenues of¥10,000.0 billion, adjusted operating income and EBIT ratios ofmore than 8% each, and net income attributable to Hitachi, Ltd.
stockholders of more than ¥400.0 billion through these
initiatives. These are milestones for Hitachi’s global growth andthe minimum targets we must achieve.
Through the advanced Social Innovation Business, which
utilizes digital technologies, Hitachi will accelerate collaborative

5

Our Strategy
Throughout its 100 year history, the Hitachi Group has passed on its Mission and its Values to generations of
employees and external stakeholders.
The Vision has been created based on the Mission and the Values.
It is an expression of what the Hitachi Group aims to become in the future.

6

Hitachi, Ltd. | Integrated Report 2016

Results of the 2015 Mid-term Management Plan

Achieving Growth and Hitachi’s Transformation
INNOVATIONGLOBAL

Strengthen service businesses
that maximize the utilization of ITand bring about innovation

TRANSFORMATION

Deliver innovation to customers andsociety globally

Transform to deliver innovation bystandardized and speedy operation

Results of the 2015 Mid-term Management Plan
Billions of yen
FY2012(US GAAP)

Revenues

FY2013(IFRS)FY2014(IFRS)(IFRS)FY2015Initial Target*1 (US GAAP)

9,041.0

9,666.4

9,774.9

10,034.3(ratio)(4.7%)(6.3%)(6.6%)(6.3%)

Adjusted operating income*2

422.0

604.7

641.3

634.8

(ratio)(4.0%)(7.2%)(5.5%)(5.3%)

EBIT*3

358.0

691.2

534.0

531.0

Net income attributable to Hitachi, Ltd. stockholders

175.3

413.8

217.4

172.1

(5.7%)(4.8%)(6.1%)(8.6%)

503.4

460.8

586.4

843.1

25.0

73.1

137.2

324.4

(margin)Net cash provided by operating activities(Manufacturing, Services and Others)

Free cash flows (Manufacturing, Services and Others)

10,000.0
Over 7%
Over 7%
Over 350.0——*1 Announced on May 16, 2013
*2 Adjusted operating income = Revenues – Cost of sales – Selling, general and administrative expenses*3 EBIT (Earnings before interest and taxes) is presented as income from continuing operations, before income taxes less interest income plus interest charges.

Principal Achievements and Future Challenges
Achievements(1) Improved profitability(2) Strengthened cash-generating capability• Improved cash conversion cycle (Manufacturing, Services and Others)
81.8 days (as of March 31, 2015)

71.6 days (as of March 31, 2016)(3) Implemented growth strategies•R atio of overseas revenues: FY2012 41%•R atio of service revenues: FY2012 30%

FY2015 48%
FY2015 38%(4) Executed reform of the business portfolio
FY2013 - FY2015

As of May 2016

M&As

Sales increase: 600.0 billion yen per year
- Acquired Pentaho Corporation, Ansaldo STS S.p.A., AnsaldoBreda S.p.A.,
Waupaca Foundry Holdings, Inc., etc.

—

Reorganization

Sales decrease: 900.0 billion yen per year
- Established joint ventures in the thermal power generation systems businessand the air-conditioning systems business and relisted Hitachi Maxell, Ltd.

Sales decrease:
1.1 trillion yen per year
- Logistics, financial services, etc.

Challenges(1)	Speedy response to changes in market environment and thorough project management(2)	Accelerating business portfolio reform7

Outline of the 2018 Mid-term Management Plan

Under the 2018 Mid-term Management Plan, Hitachi will accelerate collaborative creation with customers and partners through the advanced Social Innovation Business, with a focus on the trend toward
digitalization that is significantly changing society and industry. Leveraging three strengths—operational
technology, IT, and products/systems—we deliver innovations to society and customers.

Hitachi in 2018

An Innovation Partner for the IoT Era
Power / Energy

Industry / Distribution / Water

Urban

Finance / Public / Healthcare

Four focused business domains

Accelerating the Social Innovation Business
The front delivers Hitachi’s technologies and expertise to customers as services
BeforeFrom FY2016

CUSTOMERSCUSTOMERSFRONTDevelop and

Sales

Regional bases
Sales
Customer segments (12 business units)provide services
close to thecustomers

SI*1
EPC*2

PLATFORM

Use platform toprovide services

Business
Division

Business
DivisionCore of Social Innovation

efficiently

PRODUCTS
PlantsPlants*1 SI: System Integration*2 EPC: Engineering, Procurement and Construction

8

quickly andIndustrial products, automotive parts, materials, etc.

Provide value
through products

Hitachi, Ltd. | Integrated Report 2016

Strengthening the Front and the R&D That Supports It
The front delivers Hitachi’s technologies and expertise to customers as services

Increase front workforce by 20,000
110,000 (FY2015)

R&D structure

130,000 (FY2018)

CUSTOMERS

Including an increase of 2,000 in platform staff(component ratio: 34%

37%)

FRONT

Japan:+3,000Internal shift & new recruits
Overseas: +17,000* Number of sales, SE, consultants and platform developers

PLATFORM• Expand overseas hiring• Roll out the Social Innovation Business, targeting the

PRODUCTS

customers of acquired overseas companies• Foster workforce through special training programs• Global Center for Social Innovation
Developing services in keeping with the needsof customers in each region
North America: 100 Europe: 70 China: 115
Asia: 65 Japan: 200 (Total: 550 people)• Center for Technology Innovation
Establishing global No.1 technologies(Japan: 2,050 people)• Center for Exploratory Research
Resolving future social issues (Japan: 100 people)

19,000 employees in 3 years (started March 2016)

Core of Social Innovation IoT Platform “Lumada”
Means for customers to enjoy digitalized innovation quickly and easily
Customers

Characteristics of Lumada
Lumada = Illuminate data

Front of Hitachi
Customers’ andpartners’ platforms

IoT Platform Lumada

1Single Platform, Multiple Solutions
Realize solutions in various business fields“Cross Domain Business Ecosystem”

2

Open
Open architecture available for partners

3

Adaptable
Easily connected to customers’ assets
Graduated dilatation is possible(Symbiotic Autonomous Decentralization)

4

Verified and Secure
Reliable technologies based on experiencesin Social Innovation

Solution functions
Power / Energy

Industry / Distribution / Water

Urban

Finance / Public / Healthcare

Society 5.0
Industrie 4.0
Industrial Internet

Basic functions
Analytics

Artificial Intelligence Hitachi AI Technology/H

Symbiotic Autonomous Decentralization

IT, OT, IoT

Security

Made in China 2025
Etc.

Strengthening Products
Expanding digitalized products that support innovation / Focusing on investing in globally competitive products

Strengthening digitallyconnected products

Communication terminals

Equipment and facilities

IoT controllers

Motors / Inverters /Automation

Feedback to the front lines
Creating measures

OT × IT
expertise
Analysis
Data-gathering and storage

9

Outline of the 2018 Mid-term Management Plan

Moving Forward to 2018 (Key Initiatives)(1) Strengthening focused areas for expansion of the Social Innovation Business(2) Front develops and provides services to drive expansion of revenues and profits

FRONT

Revenues: FY2015 3,596.9 billion yen FY2018 4,000.0 billion yen
Adjusted operating income ratio: FY2015 5.6% FY2018 8.0%

Power / Energy– Transition to distributed power
supply utilizing IT• Microgrid, regional energy management

Industry / Distribution / Water– Use “Lumada” IoT platform
to optimize value chains forindustry and distribution• Renewable energy

Urban

Finance / Public / Healthcare– Improvement of quality of life
in communities– From rail as a service tooutcome delivery

Investment focus• Strengthening engineering• Strengthening grid and engineering• Predictive maintenance

2.2
550.0

FY2015FY2018• Development of urban solutions• Expansion of the rail business area

Revenues (billion yen) Adjusted Operating Income Ratio (%)

Revenues (billion yen) Adjusted Operating Income Ratio (%)

7.5

9.0

8.7

Revenues (billion yen) Adjusted Operating Income Ratio (%)
11.0

8.1

840.0

790.7

519.5

Investment focus

Investment focus• Optimized factory

7.1– Healthcare service (platform)• Strengthening healthcare informatics

Investment focus

Revenues (billion yen) Adjusted Operating Income Ratio (%)– FinTech / My Number

0.0
FY2015FY20181,056.5

1,400.0

1,230.2

1,380.0

FY2015FY2018FY2015FY2018

PLATFORM

Investment focus: Strengthening Lumada
Revenues: FY2015 278.6 billion yen FY2018 330.0 billion yen
Adjusted operating income ratio: FY2015 8.4% FY2018 11.0%

PRODUCTSInvestment focus: Expanding industrial products and materials businesses
Revenues: FY2015 7,389.3 billion yen FY2018 6,820.0 billion yen*
Adjusted operating income ratio: FY2015 5.5% FY2018 7.0%* Figures for FY2018 reflect the conversion of Hitachi Transport System, Ltd. and Hitachi Capital Corporation into equity-method associates and joint ventures.

(3) Accelerating the global rollout of the Social Innovation Business
Europe• Railway

China• Nuclear power• Energy

Asia (except for China)• Elevators / Escalators • Healthcare• Industry / Distribution• Finance• Industrial equipment• Energy • Healthcare• Automotive parts, casting

FY2015FY2018FY2015FY2018FY2015FY2018FY2015FY20180.95
trillion yen

1.15
trillion yen

1.05
trillion yen

1.10
trillion yen

1.05
trillion yen

1.22
trillion yen

1.28
trillion yen

1.46
trillion yen

CAGR 6.5％ (10.2％)

CAGR 1.4％ (3.1％)

CAGR 4.9％ (6.4％)

Overseas revenue ratio
FY2015 48%
FY2018 Over 55%*1 CAGRs (Compound annual growth rates) in brackets are based on figures for FY2015 excluding revenues of Hitachi Transport System, Ltd. and Hitachi Capital Corporation*2 Regions except for those that are listed above (including Japan): FY2015 5.69 trillion yen
FY2018 5.07 trillion yen

10North America

CAGR 4.5％ (5.6％)

Hitachi, Ltd. | Integrated Report 2016

Strengthening the Management BaseManagement Acceleration for Growth and Profits
Reform Hitachi’s management baseStrengthening Capability to Generate Cash
Evolution of Hitachi Smart Transformation
Design target costs and reduce procurement costs/
fixed costs

Reduce the layers of management

Re-examine
cost structures

Expand global
business

Expand global partners and customers

Increase efficiency ofoperating capital

Use IT to reduce production lead times anddecrease inventory

Increase businessprofitability

Judgment on low-profitability businesses
Evolution of Hitachi Smart Transformation

Increase efficiency ofinvestments and assets

Share production facilities among plants

Invest in growthbusinesses

FY2013–FY2015: 510.9 billion yen

Speed upmanagement

Rapid decision making and quick execution

Redefine cost-related KPIs on a revenue basis

Investments totaling 1 trillion yen over three years
Utilization of IoT Platform “Lumada” (AI, analytics and IoT)

Investment Policy
Speedily increase profit through investment in products business
Concentrate investment in front to accelerate the Social Innovation Business

Customers

Concentrated investment in front (Investment for growth and acquisition)

FRONT

Record • Rail signaling systems • ATM services
In-house development (Investment for development and acquisition)

PLATFORM

Record • Data analytics
Investment selection (Combination of growth investment, acquisition and capital alliance)

PRODUCTS

Record • Casting business • Overseas air-conditioning business2018 Mid-term Management Plan Targets
FY2015FY2018 Targets*

10,034.3
billion yen

10,000.0
billion yen

Adjusted operating
income ratio

6.3%

EBIT ratio

Revenues

Net income attributable to
Hitachi, Ltd. stockholders

FY2015FY2018 Targets

Front businessexpansion

Front revenue ratio

Front revenue ratio

36%

40%

Over 8%Global businessexpansion

Overseas revenue ratio

Overseas revenue ratio

48%

Over 55%

5.3%

Over 8%Strengthening cashgenerating capability

172.1
billion yen

Over 400.0
billion yen

Improving asset
profitability* Foreign exchange rate assumption: 110 yen/dollar, 120 yen/euroOperating cash flow margin*1 Operating cash flow margin*1

8.6%

Over 9%

ROA*1,2

ROA*1,2

2.6%

Over 5%*1 Manufacturing, Services and Others*2 ROA (Return on assets) = Net income / Total assets (Average between the end of the current fiscal year andthe end of previous fiscal year) x 100

11Interview with the President & CEO

Toshiaki Higashihara
President & CEO

12

Hitachi, Ltd. | Integrated Report 2016

Hitachi aims to further advancethe Social Innovation Business and become“An Innovation Partner for the IoT Era.”13

Interview with the President & CEO

How do you evaluate the 2015 Mid-term Management Plan?
Under the 2015 Mid-term Management Plan, we were able to

Despite slowing growth in China and in natural resource and oil-achieve a certain degree of results. For example, we reached our

producing countries, it is likely we would have been able totarget for revenues of ¥10,000 billion and significantly strength-achieve our targets if we had rigorously implemented project

ened our cash-generating capability. Over the past three years,

management and structural reforms. Moving forward, it will be

we recorded a stable adjusted operating income ratio at a 6%

my duty as CEO to carry out thorough measures to address theselevel and steadily improved our earnings. However, as with theissues and place Hitachi on a stable growth track in the advanced

EBIT ratio, we did not reach our target for a stable adjusted oper-

Social Innovation Business, which will leverage the use of digitalating income ratio of more than 7%. This was primarily attribut-

technologies.

able to unprofitable projects in the overseas plant business,
centered on the Middle East, and to our slow response to market
changes in the telecommunications and storage businesses.

14

Hitachi, Ltd. | Integrated Report 2016

Hitachi is aiming to be “An Innovation Partner for the IoT Era.”
Would you describe the background and how to achieve this?
By leveraging IT and operational technology (OT), such as control

The key to these initiatives will be Lumada, the IoT platform

and operation technology, Hitachi is rolling out the Socialthat we launched in May 2016. We will collect larger amounts of

Innovation Business globally, where the Company provides

data through the IoT, and Lumada offers a common platform foradvanced social infrastructure systems.

more rapidly converting this data into high-value digital solutions

With IoT and digitalization making ongoing progress, people’s

while promoting collaborative creation with a larger number ofpreferences and values are changing from products to outcomes,

customers and partners. Distinctive features of Lumada include

from owning to sharing, and from closed to open environments.

its ability to provide multiple solutions on a single platform andAgainst the background of these changes, there are new devel-

its open architecture, which means that Lumada can be con-opments in the business world. Companies need to transit from anected to customer systems easily and extended in stages.

“product-out” approach, where they supply the products that

Furthermore, Lumada utilizes secure, high-reliability technologies

they have developed, to a “market-in” approach, where theythat have a proven track record in the Social Innovation Business.

work together with their customers to understand these customers’ issues in order to create solutions and new value.

In April 2016, we launched a new business structure that ismore market-driven. Under this new structure, the front, which

Hitachi accurately anticipated this trend through the Social

consists primarily of 12 business units, works to resolve customer

Innovation Business. Moving forward, we will maximize the lever-issues and provides solutions in four focused business domains.

aging of IT and OT as our strengths and lead the IoT Era throughThe front will utilize Lumada to create a wide range of digital

our advanced Social Innovation Business, which will draw on thesolutions, and by sharing use cases through Lumada, we willlatest digital technologies such as artificial intelligence (AI) andsteadily develop our advanced Social Innovation Business on a

big data analytics. In this way, we will strive to contribute to

global basis.

improvements in people’s quality of life.

What is Hitachi’s approach to the optimal business portfolio?
In fiscal 2016, we will examine our low-profitability businesses

added value. On the other hand, in businesses that require a cer-and clarify which businesses we will reinforce and which we willtain operational scale in global markets, we will move forward

dissolve. In addition, under the 2018 Mid-term Managementwith business restructuring initiatives, including partnerships withPlan, we will focus on the Social Innovation Business, which willother companies. Our transfers of portions of our shares inleverage the use of digital technologies toward the next growth

Hitachi Transport System and Hitachi Capital were examples ofstage. For example, through investments and M&A we will con-this approach. Going forward, we will continue to acceleratetinue to build up businesses that have synergies with digital tech-reform of the business portfolio as we work to strengthen the

nologies such as AI and big data analytics that can generate

Social Innovation Business.

15

Interview with the President & CEO

Please explain the positioning of the 2018 Mid-term Management Planand its targets.
The 2018 Mid-term Management Plan is positioned as a mile-

Over the next three years, we will increase the front workforce bystone for Hitachi’s move up to the next stage, and on that basis

20,000 people, and through special training programs we will

we will implement management strategies with a focus on cash

strive to develop human capital who can work together withand profits. The plan includes ROA and operating cash flow

customers to identify and resolve their issues. In this way, we will

margin as new target indicators. We will increase asset efficiency

aim to have the front contribute 40% of revenues in fiscal 2018.

by examining low-profitability businesses and accelerating busi-

With regard to our cost structure, our SG&A expense ratio will

ness portfolio reforms. In addition, through improvements inincrease slightly due to the strengthening of our front workforce

earnings and working capital, we will generate cash as the source

and increasing R&D expenses. Nonetheless, we will take steps toof investment and link these initiatives to future growth.

improve the gross margin by promoting cost reduction centered

Our starting point for fiscal 2016 revenues is ¥9,000 billion,

on products, carefully examining low-profitability businesses, andprimarily because Hitachi Transport System and Hitachi Capital

expanding service businesses by bolstering the front. In fiscal

have become equity-method affiliates. In fiscal 2018, we will aim

2018, we will aim for adjusted operating income and EBIT ratios

for revenues of ¥10,000 billion through accumulated orders, suchof more than 8% each and net income attributable to Hitachi,as the railway business in Europe and M&A initiatives. Moreover,Ltd. stockholders of more than ¥400.0 billion.

we will strengthen the front, which will be a driver of our growth.

Would you describe cash-generation initiatives andHitachi’s approach to investment?
Under the 2015 Mid-term Management Plan, we further

select growth businesses. In M&A, we will conduct more rigor-

enhanced and expanded the Hitachi Smart Transformationous evaluations of such factors as business synergies, investment

Project, a cost structure reform project, and worked to reinforce

returns, and risk, and after acquisitions we will implement thor-

our cash-generating capability. Consequently, our operating cash

ough monitoring of investment effectiveness. In these ways, weflow margin* improved from 5.7% in fiscal 2012, to 8.6% inwill boost investment returns. Over the next three years, we arefiscal 2015. We have also instituted improvement targets for theplanning a cumulative total of ¥1,000 billion in investment, ofcash conversion cycle (CCC)* at each in-house company, and we

which about 60% will be allocated to the front and platform,

had significant achievement. We largely reduced the CCC by 10.2

and about 40% to products. First, by investing in competitivedays from fiscal 2014 to fiscal 2015. Moving forward, we willproducts, where the CCC is relatively short, we will acceleratereevaluate cost structures and make further progress in optimiza-

our cash-generating capability over a shorter time period. Thetion of accounts receivable collection periods, accounts payable

cash obtained will subsequently be used to invest in the front

payment periods, and inventory levels. Through these initiatives,and platform areas, which will lead to increased earnings growth

we will strive to achieve an operating cash flow margin of more

over the medium-to-long term. We will implement cash manage-

than 9%* in fiscal 2018.

ment to achieve an optimal mix by carefully combining short-

In addition to increasing the operating cash flow margin, we
will restructure the business portfolio and sell assets to secure
cash for investment. For capital expenditure, we will carefully

16

term and medium-to-long-term revenue sources.
* Manufacturing, Services and Others

Hitachi, Ltd. | Integrated Report 2016

Finally, what is Hitachi’s approach to strengthening corporate governance, andwhat is the shareholder return policy?
Since we adopted the committee system in 2003, we have taken

Going forward, we will continue taking steps to strengthen

steps to continually strengthen the oversight function. In addi-

corporate governance, such as complying with all the principles

tion, we have worked to establish a framework for reflecting afor companies under the Corporate Governance Code that took

global, diverse viewpoint in management. Since June 2012, out-

effect in Japan in June 2015.

side directors have been a majority of the Company’s Board ofRegarding the shareholder return policy, we are now in a

Directors, and in June 2016, the number of non-Japanese outsidephase of investing for future growth, and we need to continue to

directors was increased by one. Currently, 9 of the 13 directors

implement aggressive investments to succeed in global competi-

are outside directors. Moreover, 5 of the outside directors aretion. We will strive to achieve stable growth in dividends by

non-Japanese.

increasing net income attributable to Hitachi, Ltd. stockholders

Hitachi’s Board of Directors is composed of professionals who
are active in various fields with experience at the CEO level.

and cash flow.
In addition, we have introduced stock options as stock-based

Meetings of the Board of Directors include vigorous exchanges ofcompensation, thereby having management leaders share theopinions on such matters as the strategies that Hitachi should

benefits and risks of stock price fluctuations with shareholders. In

implement and points of differentiation from competitors, as welldoing so, we aim to advance management based on a medium-as advice based on the directors’ philosophies as management

to-long-term perspective and achieve sustainable improvements

leaders and on their past experience. In these ways, the meetingsin corporate value.

foster enhanced awareness and motivation. The courses ofaction that are shared at meetings of the Board of Directors areaggressively reflected in management’s subsequent actions.

17Our Value Creation18

Hitachi, Ltd. | Integrated Report 2016

CREATING VALUEFOR SOCIETY
THROUGH RAILWAYS
Interest is rising in railway infrastructure as a way
to deal with the social issues that accompany global
warming and increasing urbanization. Hitachi is
now expanding its global railway system businessusing the considerable technological expertise it hasdeveloped over many years.

Hitachi’s Newton Aycliffe plant, where the new Class 800 trains arebeing manufactured for the UK’s Intercity Express Programme.

Meeting the Railway Systems Needs of Today’s Society

has an industry-leading track record for safety in operation

There is now great interest in role that railway systems can play inmanagement systems and in rolling stock. Hitachi has placed

dealing with the various social issues caused by global warming andparticular emphasis on environmental considerations, reducing

population growth. As the economies of developing nations rapidly

noise pollution and making increasing use of recycled materials,

grow, their populations concentrate in cities, causing serious

and is a market leader in bimodal and hybrid systems that switch

problems like traffic congestion and air pollution and increasing the

between electric and diesel operation. Hitachi is also developing

need for environmentally friendly railway transport. Meanwhile,

technology for using big data to improve the efficiency andexisting transport infrastructure in developed nations has deteriorated

safety of railway logistics.

and is in urgent need of renovation to meet current requirements.

Hitachi is using these strengths to focus not just on specific

Previously, Hitachi focused mainly on manufacturing rolling

services—like rolling stock systems, signaling, and traffic manage-

stock and electrical products, but in recent years it has expanded

ment—but also a full range of turnkey railway-system solutions

its business to provide a comprehensive range of services forincluding transport systems and Operations and Maintenance (O&M).

running railways, such as operation management systems andIn fiscal 2014, O&M accounted for 1% of railway-related revenue,

maintenance services.

but Hitachi’s aim is to increase O&M and turnkey combined to

The European Rail Industry Association, UNIFE has estimated

24% of the ¥640 billion in revenue targeted for fiscal 2018.

that the global railway-related market will grow from ¥13.2 trillion (2014–16) to ¥14.6 trillion (2017–19). We anticipate significant growth for the railway operations segment of our business.

Revenues for Railway System BusinessIn 2015 Hitachi acquired two Italian companies—AnsaldoBreda,

Billions of yen

a rolling stock manufacturer, and Ansaldo STS, a transportation

800

system technology company—thereby enhancing its signaling
and railway operation businesses, as well as its turnkey solutions,

640.0
600

with an expanded product portfolio.
A Global Company with Comprehensive Offerings

500.0

400

352.6

With the acquisition of the two Italian companies, Hitachi has
become one of only a few players in the global railway industry

200

that offers a full lineup including rolling stock and systems. As
well as various achievements in the global market to date, most
famously demonstrated by the Shinkansen bullet train, Hitachi

0

2015
Result2016
Forecast

2018
Target(FY)

19

Meeting Needs in the Birthplace of Railway

Hitachi’s Pioneering Spirit at Work in the United Kingdom

Much of the United Kingdom’s rail infrastructure dates back to

As part of the IEP, Hitachi received an order for 122 trains andthe nineteenth century. This infrastructure is now deteriorating

866 cars, of which 110 trains will be produced at the Newton

and in urgent need of modernization. Meanwhile, the British

Aycliffe plant. The 43,000 m2 plant has a production capacity of

Department for Transport is currently implementing the Intercity

40 cars a month and, as the company’s European manufacturing

Express Programme (IEP), which will replace aged rolling stock on

operation, plays an important role in the global strategy of Hitachi’s

main lines. Hitachi is using the technology it has built up over the

railway system business. In 2016, it began production of the firstyears to win further IEP orders.

three trains for the Great Western Main Line, ready to enter service

In October 2004, Hitachi was chosen as preferred bidder, andin 2017. Hitachi also plans to manufacture rolling stock for thein the following year received the order for 29 Class 395 trains,

East Coast Main Line and for the Abellio ScotRail (ASR) project atwith a total of 174 carriages, to run on the 109-km high-speed link

the plant.

between London and the Channel Tunnel. The first trains entered

Manufacturing Plant Manager Darren Cumner says that

service in 2009. The successful completion of this project around

Newton Aycliffe was chosen for its transport links, availability ofhalf a year ahead of schedule was a huge boost to Hitachi’s busi-

skilled workers, heritage, local heavy industry, and presence ofness in the United Kingdom. In 2007, Hitachi established theother Japanese companies in the area. The plant has introduced

Ashford Train Maintenance Centre in southeast England.

a state-of-the-art just-in-time (JIT) production system. As well as

In July 2012, Hitachi officially signed a comprehensive contract

fitting the whole production line in a single building, it has beenwith the U.K. Department of Transport, which was moving for-designed to allow rolling stock without production problems toward with the IEP, including maintenance services to be provided

overtake stock that needs extra attention. Thus, even if a problem

for 27.5 years, and began design work. In September 2015,

occurs production can continue to move ahead steadily without

Hitachi opened a train manufacturing and assembly plant inany need to halt the line.

Newton Aycliffe, in northeast England’s Durham County, to pro-

Meanwhile, at the new plant Hitachi places special emphasis on

duce rolling stock for the IEP. The plant is only a few hundred

two things in particular: dedication to the spirit of craftsmanshipmeters from the historic Heighington Station on the Stockton andand the training of staff with solid technical skills.

Darlington Railway, the first publicly operated steam train line in

There has been much interest in the region regarding the local

the world. The revival of railway manufacture in a place with suchrecruitment of staff. The plant received 16,000 job applications

importance to the history of rail has produced great expectations inin 2015, far more than the number of jobs available. To date, thethe United Kingdom.

plant has hired 550 people, selecting them according to the

To date, much of the U.K.’s railway traffic management has

Hitachi founding concepts of harmony, sincerity, and pioneering

been done manually, but in July 2015, as part of a project byspirit and prioritizing values over technical skills. The plant

infrastructure management company Network Rail to introduce

expects to increase its staff to 730 by spring 2017.

automatic systems and improve efficiency, Hitachi won an orderto provide operation management systems for Thameslink, amain London commuter line that suffers particularly serious traffic congestion. Hitachi was highly appraised for its 40-plus yearsof expertise managing routes including commuter lines in theTokyo area and the Shinkansen network.

The Newton Aycliffe plant uses cutting-edge production methods to build its trains.

20

Hitachi, Ltd. | Integrated Report 2016

Back to Basics: Hitachi Training at the Plant
Production Manager Lee Nockels, who is in charge of staff training

Local Staff Who Trained at the Kasado Works

at the plant, joined Hitachi in January 2015 after spending 28
years in the army, rising to the rank of major. He notes that, likehimself, most of the locally recruited employees are not from therailway industry.
“Some people would see that as a negative,” he says. “But I
see it as a positive. We have got very little baggage and very few
bad habits.”
The training for the plant’s production employees is an abbreviated version of that implemented at the Kasado Works training
manufacturing plant in Yamaguchi Prefecture, Japan. The U.K.

Andy Crowe

program takes a minimum of five weeks, both in the classroom

Manufacturing Specialist

and working on a real train, and covers the basic skills of piping,rigging, and wiring.
Many employees have existing technical skills but are strongly
encouraged to go back to the basics. “I always tell people: don’t
forget what you have learned before, but don’t be afraid to learnsomething new,” says Nockels.
As well as running this basic training, the Newton Aycliffe
plant is actively engaged in an exchange of technical skills with
Kasado Works in Japan. As Hitachi strives to transfer skills to its
U.K. operations, many of the plant’s staff have visited Japan for
training, and there are currently 20 staff from Japan working at
the plant. Hitachi’s policy is to expand such opportunities forskills transfer in the future.

Before joining Hitachi in August 2015, Andy Crowe spent 21 years
fitting kitchens into camper vans. He now leads a team of five
employees who install catering units into the trains. Soon after
joining Hitachi, he traveled to Japan for 12 days of training at
the Kasado Works. In addition to learning the procedures, herecorded photos and videos of them along with detailed
descriptions. The aim was to produce detailed standard operatingprocedures (SOPs) to be used by staff back in the United Kingdom.
Crowe says that he was particularly impressed by the accuracy of
the work in Japan. “Door gaps have got to be a certain measurement, and sometimes you are working to a precision of 0.5 millimeter,” he says. “It would be 3 or 4 millimeters for a camper van.”Andy Dick
Section Leader for the ASR Project

Andy Dick joined Hitachi in March 2015 and left for Japan after
just 21 days. Much of the training at the Kasado Works focusedon quality, he says, giving the example of a multicoil wire. The
wire might have 1,000 strands or more; if a scratch were foundon just one of those, the entire multicoil would be rejected. “It
was unbelievable,” he says. Dick spent three months in Japanand observed about 900 different operations. “It was a difficult
job,” he says, “but made easier by the way we were welcomedby the Kasado staff.”
The Newton Aycliffe plant, pictured here, carries out ongoing technology exchange with
Hitachi’s flagship Kasado Works in Japan.

21

New Systems to Ensure Japanese Quality

CSR Activities at the Newton Aycliffe Plant

in the United Kingdom

Senior HR Advisor Jacquie Smith was one of the first people hired

In Japan, employees often build up experience at the sameat the plant, where she has been deeply involved in its CSR activities.

company over many years, learning many different processes andAn early and key CSR project for the plant, she says, wasskills. But U.K. employees are much more likely to change jobs inbecoming a founding member of the South Durham University

search of promotion. It is also relatively rare for technical staff toTechnical College (UTC), together with the University of Sunderland

hone their skills in a single factory, and staff from a variety of

and Gestamp Tallent Ltd. The UTC is located just a short walk fromtechnical backgrounds tend to work together. In order to manu-

the Newton Aycliffe plant. Classes are due to start in September

facture rolling stock in the United Kingdom with the same assur-

2016 for students aged 14 to 19 specializing in manufacturing,ance of quality as in Japan, and to make that process easily

technology, and engineering. While some students may eventu-

comprehensible to U.K. staff, Hitachi is systemizing procedures

ally work for Hitachi, others will be employed by other companies

and the technical skills of experienced employees in Japan andin the business park or fill skill shortages in the wider northeast

recording those skills in use. In this way, Hitachi aims to increase

England region.

product quality even further.

The plant is also working with the Durham Education Business

For the IEP rolling stock alone, some 700 SOPs have beenPartnership to offer career education in schools. A number ofdefined and recorded. At the Kasado Works in Japan, hundreds ofstaff members volunteer as “business ambassadors” visiting

hours of video and thousands of photos have been taken thenschools and explaining the plant’s work.

turned into manuals that are easily understandable by employees

The plant is also working hard to encourage as many job

in the United Kingdom. Staff in the manufacturing area at theapplications from local people as possible. As part of that, it is

Newton Aycliffe plant can consult them whenever they wish

cooperating with a social rented accommodation company calledusing tablets available throughout the plant.

Livin that helps its tenants find good quality employment. The

Manufacturing Engineer Fumio Fujinaga was transferred to the
Newton Aycliffe plant in August 2015. An expert in rolling stock

plant has also helped run workshops on writing CVs and fillingout online applications.

manufacture, he honed his skills at the Kasado Works in Japan.

Smith, who also has responsibility for recruitment, says that

While at Kasado, he was involved in the training of staff from theunfortunately the plant has received relatively few applications

United Kingdom, and since his transfer he has also had responsi-

from women seeking technical jobs. “The reason may be thatbility for staff development in the U.K. facility. At times, he has

while many women have applied for office-based jobs at the

faced challenges in the form of communication difficulties, differ-

plant, train manufacturing seems to be seen as work for men,”ences in technical background, and contrasting cultural attitudes

she says. “Even women already working in manufacturing

to work. Nevertheless, he says that the skills transfer successfully

excluded themselves from working here,” says Smith. To help

achieved to date is thanks to the “pride of local staff in train

redress that balance the plant has held two women-only open

manufacture” and their “keenness to learn.”days to give females a taste of the working environment and thetype of work done. The team is also working closely with the
UTC by holding events to encourage more girls to study STEM
and become the engineers of the future.

Yusuke Oyama (left) and Fumio Fujinaga, dispatched to Newton Aycliffe from the Kasado Works.

22

Jacquie Smith, who is in charge of CSR at the Newton Aycliffe plant

Hitachi, Ltd. | Integrated Report 2016

HITACHI’S AI
OPENING A NEW ERA
Hitachi AI Technology/H
Hitachi’s artificial intelligence technology, Hitachi AI
Technology/H, is generating new economic growth withAn experiment in which Hitachi-developed
AI learns to make a swing go higher. Whilelearning itself how to pump to make theversatility that makes it applicable to diverse indus-

height increase, the AI came up withtries even in a rapidly changing, unpredictable age.

techniques that a human on the swing

AI for Continuing Economic Growth

Hitachi AI Helping People Work Together

Recent years have seen an increase and diversification of data

The major characteristic of H is its versatility. Most new technology

types and formats, thanks to the rapid spread of cloud computing,has a history of being invented first for a specific purpose, later

mobile devices, and social media, along with the development of

spreading throughout more of industry and society as it is gener-

new sensor technologies to capture this data.

alized. At Hitachi, our prediction that AI will certainly reach an

In previous analyses conducted by human specialists, it was

would not have invented.

age of generalization has led us to pursue a more versatile AI

becoming increasingly difficult to test hypotheses through exhaustive

implementation from the very beginning.

sifting of this vast amount of data. As these data-driven results

H has three further characteristics.

became more inaccessible, it gave rise to social problems, such asa digital divide that was directly linked to an income divide.
In response to these changes, Hitachi developed technology(1) Human users define and input the outcome to be achieved.
(2) There is no need to define a specific method to solve theto use and apply this “big data,” and in 2012 launched a full-scale

problem or application in question.

big data analysis service. We have relationships with a wide range(3) H can be applied to existing systems.

of customers in the electric power, manufacturing, distribution,
finance, transportation, and water industries, and are making

For example, when the goal of “increasing sales” is input into

efforts to link infrastructure and products using the Internet ofH, it analyzes enormous quantities of past data and “thinks” onThings (IoT) and other means. In 2016, we began providing theits own to derive the best method to achieve this. Since it can be

Lumada IoT platform, developed as a core for social innovation.

added to existing systems, installation costs are also kept down.

One of its basic functions is Hitachi AI Technology/H, or simply

It is still humans, however, that define the goal for H and imple-“H” hereafter.

ment the measures it recommends. Hitachi H is a system in which

Now that Hitachi’s H has been put to practical use in various

humans and AI learn together through data to raise productivity.

industrial fields, we are building on our findings to improve thefuture, based on past data, and successfully deriving methods todeal with unknown problems.

Hitachi’s Approach to AI Systems
Monitoring ¦¥ Monitoring

Control ¥¦ Control

Point 1:
Learn from data and grow while adapting tocircumstances to produce results

Existing systems
IT/equipment

Artificial intelligence
Hitachi AI Technology/H

HumansCustomers/
employees

Point 2:
Optimize the system as a whole, including its human users
23

Example of AI Development
Versatile Hitachi AI Technology/H can respond to a wide range of work content, and is already producing resultsin many different industrial sectors.

Versatile Technology for Application in Diverse Fields

Contributing to Energy Savings in Railway Operation

Hitachi provides a wide range of services, from construction ofWith the goal of reducing CO2 to counter global warming,

electric power facilities, railroads, and other large-scale social

improved energy efficiency is needed in railway systems in Japan

infrastructure to manufacture of general household products.

and other countries. Railway systems consume 60% to 80% of

The accumulation of business data in these diverse fields worked

their total energy during rolling stock operation, and Hitachi has

to our advantage in the development of H. With the same AI

developed rolling stock and related systems to achieve energy

software, H provides comprehensive improvement strategies forsavings. H was introduced to verify these energy-saving effects.

businesses in completely different industries. Our record to date

Railway systems collect many different types of sensor infor-

includes 57 cases in 14 fields, including distribution, logistics,

mation, including through remote monitoring of rolling stockindustrial plants, finance, transportation, and manufacturing.

status. H was applied to this data to derive methods to effectively

Hitachi has since 2004 been researching and developing tech-

reduce energy consumption. After analyzing a year’s worth of

nology to objectively measure human behavior. Through ourdata, the program identified various characteristics related toanalysis of huge volumes of behavioral data, we have found thatenergy consumption from factors including speed, track gradient,

people who work in organizations featuring behavioral diversity

and operating schedule. Based on analysis of the massive data on

have high levels of happiness, and that groups with high levels of

the control of the “notch,” equivalent to the accelerator on anorganizational happiness have high productivity. In other words,

automobile, and its electric power consumption, we reduced

employees’ happiness is closely related to their organization’s

drive system power consumption by shortening the time of train

activity and should be considered to strongly affect productivity.

operation at maximum notch and lengthening the time of notch-

Hitachi has quantified this as a unique index: “organizational

off operation. Even greater effects are predicted if operating

activation.” In June 2016, we kicked off a demonstration experi-

procedures can be further improved.

ment using H to offer advice to 600 sales and marketing division

Future uses of H for railway systems big data are envisioned to

employees in the Hitachi Group in order to effectively increase

include applications to reduce energy consumption in the auxiliary

happiness. The aim is to raise productivity by providing the orga-

circuit systems used in air-conditioned cars and door opening/

nization with fresh energy tied to increased individual happiness.

closing, and to make settings with the purpose of achieving riding

With AI, Hitachi pursues optimization of overall systems,

comfort in terms of noise and vibration. In railway maintenanceincluding the humans that operate them, and is accelerating its

and management work as well, it may be possible to use H toSocial Innovation Business.

analyze employee “happiness” and apply the findings to raising
work efficiency. In raising car utilization, H is promising for deriving
the relationship between car deterioration with age and operating
conditions, and may possibly be applied to prevention and detection of equipment failure.

Employees with name-tag-style wearable sensors, which collect data on their behavior
when interacting with others for analysis by H.

24

Hitachi, Ltd. | Integrated Report 2016

Use in the Field of Finance for a FinTech Age

AI to Link Manufacturing-Sector Facilities

Financial services have expanded together with the progress in IT.

Use of IoT is progressing in the manufacturing sector. In Western

FinTech, a coined term combining the words “finance” andcountries, government-led efforts are under way to construct“technology,” refers to the new financial services that haveand standardize new industrial “ecosystems” integrating theappeared in recent years, bringing together finance and IT to

manufacturing and IT industries.

improve user convenience. Typical examples of FinTech are services

Hitachi has provided control and production management

using the Internet to move capital beyond the scope of traditional

systems to the steel, automobile, pharmaceutical, and various otherservices and business frameworks, as well as crowdfunding, which

industries, and has a proven record in constructing large-scaleprocures capital from multiple individuals using social networks.

control systems in fields from energy and transportation to water

Hitachi has focused on AI in the financial industry as well,and sewage. Building on this experience, we produce value by

conducting a joint experiment with The Bank of Tokyo-Mitsubishi

linking various systems to the manufacturing industry and social

UFJ that puts human behavior measurement and analysis tools to

infrastructure. We have proposed the concept of “symbiotic

use in improving quality and supporting work style reforms. Up

autonomous decentralization” to promote new growth.

to now it has been possible to acquire behavioral data on several

Previously, optimization was limited in scope to analyses onhundred people in units of seconds, but specialist analysis was

the individual system level and site improvements based on thoserequired to judge those people’s level of contribution to organiza-

analyses. Linking factories by symbiotic autonomous decentral-tional activation, and both time and cost were issues. Hitachi

ization, however, makes it possible to carry out optimization overdeveloped name-tag-style wearable sensors to measure people’s

multiple systems and create new value chains.

behavior when in groups. H then analyzed the behavioral data

Other beneficial effects of linking factories include improved

obtained from those sensors, automatically and efficiently produc-energy productivity and coordination with supply chain manage-

ing recommendations on ways of working to raise productivity.

ment across global sites. An impact is also expected in business

The experiment drew on behavioral data from 40 employees

continuity plan (BCP) responses to cyber attacks and other factorycollected over three weeks. It found, for example, that one

operation risks.

employee showed a high level of organizational activation on a

In some manufacturing sites, H has been used to analyze vast

day when there were frequent short conversations, including

amounts of data collected by control systems on manufacturinggreeting others and making brief reports. This demonstrated that

equipment, manufacturing processes, and product quality. We have

while the productivity of specific individuals may decrease withbegun to analyze the relation between equipment or processes

repeated conversations, the productivity of the organizationand quality or yield rate. H can derive statistical characteristics

overall can rise. AI analyses that quantify individual contributions

through big data analysis that would be nearly impossible forto the organization as a whole can be useful for optimizing

humans to perform. In manufacturing sites where conditions areservices and working styles.

inconsistent, due to factors like manufacturing processes thatchange daily and equipment wear and deterioration, H is useful
in defining operating conditions that are appropriate to thechanges and obtaining new hints for improvements.

Application Examples of Hitachi AI Technology/H
Just one AI software package has enabled versatile improvement in fields from distribution, logistics, and industrial plants tofinance, transportation, and manufacturing
Distribution

Logistics

Detailed analysis of customer and employee behavior identified “high sensitivity
spots” to station employees to boost average sales per customer.

Analysis of daily shipment work results led to work instruction improvement
plans for the following day; these were reflected in the picking list
(work instruction chart).

Sales per customer up 15%

Productivity up with 8% reduction in work hours

Call centers

Desalinization plants

Data analysis on employee behavior found relationship between verbal support fromsuperiors and order receipt rate. H identified employees needing priority attention.

Examination of operating history data helped reduce clogging of the reverse
osmosis (RO) membrane, a factor impacting uptime for seawater filtration units.

Order receipt rate up 27%

Operating cost: 3.6% reduction





25

Board of Directors
As of June 30, 2016

Outside Directors

26

Baba Kalyani

Cynthia Carroll

Sadayuki Sakakibara

1983	Joint Managing Director,
Bharat Forge Limited
1994 Managing Director, Bharat Forge Limited
1997	Chairman & Managing Director,
Bharat Forge Limited (Currently in office)2016 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.

2002	President and Representative Member ofthe Board, Toray Industries, Inc.
2010	Chairman of the Board and Representative
Member of the Board, Toray Industries, Inc.
2013 Director, Hitachi, Ltd.
2014	Chairman of the Board, Toray Industries, Inc.
2015	Chief Senior Advisor and Chief SeniorCounselor, Toray Industries, Inc.
(Currently in office)George BuckleyLouise Pentland

Harufumi Mochizuki

1993	Chief Technology Officer, Motors, Drives andAppliances, 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 and Chief 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 Corporation
2004	Vice President and Head of Legal,Enterprise Solutions, Nokia Corporation2007	Vice President, Acting Chief Legal Officer
and Head 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. (Currently in office)2002	Director-General for Commerce andDistribution Policy, Minister’s Secretariat,
Ministry of Economy, Trade and Industry ofJapan (“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 andIndustry of Japan
2010	Special Advisor to the Cabinet of Japan(Retired in September 2011)	Senior Adviser 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)Hitachi, Ltd. | Integrated Report 2016

Takatoshi Yamamoto

Philip Yeo

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.

1970 Joined Ministry of Defense of Singapore
1979	Permanent Secretary, Ministry of Defenseof Singapore
1986	Chairman, Economic Development Boardof Singapore
2001	Chairman, Agency for Science, Technology
and Research of Singapore
2007	Senior Advisor for Science and Technology to
the Ministry of Trade & Industry, Singapore(Retired in September 2008)	Special Advisor in Economic Development,
Prime Minister’s Office, Government ofSingapore (Retired in August 2011)
	Chairman, SPRING Singapore(Currently in office)2012 Director, Hitachi, Ltd.

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

Hiroaki NakanishiToyoaki Nakamura

Directors

Kazuyuki Tanaka

Representative Executive Officer

1977 Joined Hitachi Chemical Company, Ltd.
2005	Executive Officer, Hitachi Chemical
Company, Ltd.
2006	Senior Executive Director, Hitachi MediaElectronics 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
2003

Joined Hitachi, Ltd.
General Manager, Global Business
Vice President and Executive Officer
2004 Senior Vice President and Executive Officer
2005	Senior Vice President and Executive Officer,
Hitachi, Ltd.
	Chairman and Chief Executive Officer,
Hitachi Global Storage Technologies, Inc.
2006	Executive Vice President and Executive
Officer, Hitachi, Ltd.
(Retired in December 2006)
2009	Executive Vice President and Executive
Officer, Hitachi, Ltd.
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.

Toshiaki Higashihara
Representative Executive Officer
President & CEO

1975 Joined Hitachi, Ltd.
2006 General Manager, Finance Department I
2007 Senior Vice President and Executive Officer	Senior Vice President, Executive Officer andDirector
2009 Senior Vice President and Executive Officer
2012	Executive Vice President and Executive
Officer (Retired in March 2016)2016 Director

1977 Joined Hitachi, Ltd.
2006	Chief Operating Officer, Information &Telecommunication Systems
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.

Note: Directors are listed by position and in Japanese alphabetical order within each grouping.

27

Executive Officers
As of August 1, 2016

President & CEO

Executive Vice Presidents and Executive Officers

Toshiaki Higashihara*

Ryuichi Kitayama*

Yutaka Saito*

Koji Tanaka*Toshikazu Nishino*Overall operations

Assistant to the President,
marketing and sales, and social
innovation business promotion

Assistant to the President andopen innovation promotion

Assistant to the President

Assistant to the President andmanagement strategies

Senior Vice Presidents and Executive Officers

Masakazu Aoki

Shinichiro Omori

Toshiaki Kuzuoka*

Keiji Kojima

Hiroshi Sato

Industrial products business

Cost structure reform andinformation technology
strategies

Corporate communications
and CSR, legal matters, risk
management and corporate
auditing

Service & platform business

Building systems businessKeiichi Shiotsuka

Yasuo Tanabe

Alistair Dormer

Mitsuaki Nishiyama*

ICT businessGovernment & external relations

Railway systems business

Finance and corporate pension
systemVice Presidents and Executive Officers
Hiroyuki Ugawa

Ryuichi Otsuki

Atsushi Oda

Kaoru Kawano

Kenichi Kokubo

Manufacturing & commercebusiness

Regional strategies (Americas)
and ICT business(platform business)

Electric power business

Marketing and sales(industrial products business)

Regional strategies (China)

Keizo Kobayashi

Kunizo Sakai

Setsuo Shibahara

Akira Shimizu

Norihiro Suzuki

Urban solutions business

Water business

ICT businessGovernment & external relations

Research & development

Yoshitaka Tsuda

Hidenobu Nakahata

Hiroshi Nakayama

Katsumi Nagasawa

Isao Narukawa

Marketing and sales(ICT business and healthcare
business)

Human capital

Cost structure reform andsupply chain management(MONOZUKURI and quality
assurance)

Nuclear power systems business

Marketing and sales(nuclear power systems business,
electric power business andenergy solutions business)

Masaaki Nomoto

Kentaro Masai

Mamoru Morita

Masaya Watanabe

Energy solutions business

Railway systems business

Management strategies

Healthcare business

Representative Executive Officer
Hiroaki Nakanishi*
General management

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

28

Hitachi, Ltd. | Integrated Report 2016

Our ESG Approach29

Message from Outside Directors

Hitachi’s Central Research Laboratory
twice. The majority of its research efforts
have business potential, and I look forward
to seeing the commercialization of these
R&D results at an early stage.

Globalization of Management
Hitachi has strengths in advanced technologies and in the broad scope of its businessfields, and the Company is rolling out initiatives in the Social Innovation Business ona global scale. The members of the Boardof Directors have visited major offices andPhilip Yeo

facilities in India, the United States, andthe United Kingdom. In addition, we
participated in the Hitachi Social Innovation
Forum 2015, which was held in Las Vegas,
Nevada. Working together with customers

Impressions of Hitachi’s Corporate

value through sustainable growth and to be

and partners, Hitachi provides a wide range

Governancea corporation in which all employees canof technologies and solutions globally.

work in a comfortable, secure environment.

Based on my experience at these events, it

In my view, Hitachi’s corporate governanceis clear that Hitachi enjoys a wide range ofis excellent. I joined the Board of Directors

business opportunities.

of Hitachi as an outside director in 2012.

Changes for Hitachi

Currently, outside directors account for 9 of
the 13 directors. In addition, 5 directors are

To accelerate the Social Innovation

goal is to derive more than 55% of its rev-from outside of Japan. I am most impressed

Business, from fiscal 2016 Hitachi made aenue from overseas markets in fiscal 2018.

that Hitachi is one of the few leading

major shift to a new system that emphasizes

Here the diversity of its human capital talent

corporations in Japan in the promotion offront businesses, which will implement

pool is key. It will be necessary to enhancediversity. In terms of their experience andmarketing while maintaining close contact

the capabilities of individual employees

cultures, the directors have a wide range ofwith customers. In addition, the Company

while effectively utilizing human resource

backgrounds and offer diverse opinions.

has clarified its market-in approach. For

rotations across Japan and overseas markets.

There have been many opportunities forexample, the President & CEO and other

These efforts should include the active

me to learn, and I believe that meetings ofexecutives will take a lead role in stepping

utilization of overseas global talent in

the Board of Directors are conducted in a

up sales and marketing initiatives. That

postings at Hitachi headquarters in Japan.

manner that is highly meaningful.

approach is also clear at meetings of theMoreover, global markets are currently

Board of Directors. Outside directors havecharacterized by increasing uncertainty. In

the close communication between the

been included in opportunities to meet withaddition to strengthening services anddirectors and the executive officers, who

local customers and partners. These haveproducts, Hitachi must take additional

communicate freely and openly. At meetings

included meetings of the Board of Directors

steps to improve profitability, such asof the Board of Directors, there are detailedin Delhi, India, in 2012; Washington, D.C.,

reducing costs through further diversifica-business briefings by each Business Unit

United States, in 2013; and London,tion of its procurement of parts and com-

CEO and executive officers. In response,

United Kingdom, in 2015. These meetings

ponents. Customers are managing theiroutside directors offer a broad range ofwere highly significant opportunities.

operating expenditures within limited bud-

Another distinctive feature of Hitachi is30

Hitachi is accelerating reforms to promote
globalization of management. The Company’s

opinions and views from their independent

Hitachi also implements a market-in

viewpoints. The President & CEO openly

approach in regard to R&D, which will beup the global provision of solutions andwelcomes the comments of the outside

the source of sustainable growth in theservices that help customers resolve these

directors and works to reflect those com-future. A new organizational system thatchallenges. I believe that this will provide

ments in management. The executives of

supports front operations has already been

opportunities to create new businesses andHitachi are aiming to increase shareholder

placed into operation. I have visitedlead to future growth.

gets, and accordingly Hitachi needs to step

Hitachi, Ltd. | Integrated Report 2016

But with great strengths like these, thechallenges can also seem not a few.
Maintaining margin growth with a
340,000-person workforce is no small feat.
Hitachi has a wealth of talented, innovative
human resources around the world, but it
will be necessary for each individual to further enhance and leverage his or her skills.
No matter how a company reduces waste
and increases efficiency, it is a continuous
theme that the company must keep constantits efforts to overcome the competition. In
this difficult environment, Hitachi needs tolearn how to make quicker management
decisions or completely change if theCompany wants to lead rather than follow.

Louise Pentland

Expectations for Hitachi
Hitachi’s Meeting of the Board

the Board itself has broadened to become

Hitachi needs to focus on steadily deliveringof Directors

more diverse in culture and experience.

on goals in the 2018 Mid-term Management

One example is the increase in the number

Plan while increasing the speed of decision

I became an outside director of Hitachi inof outside directors who are not Japanese.

making and changing risks and challenges

June 2015, and my overall evaluation of

There is a good degree of debate and mul-into opportunities.

our corporate governance is that it is very

tiple points of views from the diversity on

good. At Hitachi, executive officers aggres-the Board, which includes these directors

continue to occur and could sometimes

sively incorporate the opinions of thewith different backgrounds.

affect the business of Hitachi. It will be

Board of Directors into management activi-

Maintaining a focus on the next three toAlso, there are geopolitical changes thatnecessary to focus not only on geopolitical

ties. Hitachi has demonstrated a consistent,

five years and seeking to ensure Hitachirisks but also on cultural risks. In preparation

forward-looking approach that aims forremains competitive are the most important

for these risks, Hitachi needs to further

further progress. Many Japanese compa-

themes that the Company is dealing with.

strengthen its cost competitiveness. To

nies have problems with rapid decision

If the management policies and organiza-

expand operations while reducing risk, itmaking, but one of Hitachi’s distinctive

tional reforms that have been discussed inwill be necessary to utilize overseas humanstrengths is the extremely fast pace of its

meetings of the Board of Directors over the

resources, who have abundant knowledge ofmanagement. For example, when I ask apast few years take firm hold, and Hitachi

local markets, for top management positions,question about a particular issue at a meet-moves forward on that basis, then I believe

as in the case of British executive Mr.

ing, the answer to that question is always

that the Company is certain to be successful.

Alistair Dormer, who was appointed as theprovided at the next meeting. The

CEO of the Railway Systems Business Unit.

Company does not simply listen to theopinions of outside directors. They have a

As a legal specialist with experience in
Hitachi’s Strengths and Challenges

clear focus on actually incorporating thosethe management of global corporations, I
will do my utmost to contribute to Hitachi.

opinions into actions and drawing on them

Hitachi has numerous strengths and thoseThrough meetings of the Board of Directors,

in management activities.

that are always top of mind for me are the

I would like to utilize my knowledge in a

global reach of the Company, the diversifi-

wide range of fields, such as corporate

many diverse industries. This means thecation of industries, the highly talented

culture, organizational reform, and cost

Company needs a board with a diverseand skilled workforce, and the longevity of

reductions, in Hitachi’s management.

makeup to enable both the skills andthe talent pool within Hitachi as well as the

specialized focus that are needed to govern

leadership, including the Chairman of theover a company like Hitachi. In that regard,

Board and the President & CEO.

Hitachi has a global business involved in31Corporate Governance

Hitachi and its listed subsidiaries are companies with
Nominating Committee, etc., under the Companies Act ofJapan. By demarcating responsibilities for management
oversight and those for the execution of business operations, Hitachi is working to create a framework for quick
business operation, 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 andExecutive Officers serve concurrently as Directors andExecutive Officers at Group companies, thereby strengthening integrated management of the Group and improving

management oversight of Group companies. In theseways, Hitachi is working to increase corporate value.
Starting in June 2015, the Japan’s Corporate Governance
Code applies to companies listed on domestic stock
exchanges in Japan. Hitachi agrees with the basic approachof the Code, which is that the Code’s appropriate implementation will contribute to the development and success ofcompanies, investors and the Japanese economy as a wholethrough individual companies’ self-motivated actions so as
to achieve sustainable growth and 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, strengthening oversight function

Transition to a Company with Committee System(currently a Company with Nominating Committee, etc.)

Increased number of outside directors including
non-Japanese directors; outside directors became majority(June 2003~)(June 2012~)

Major Aims

Major Aims

•	Make management highly transparent by demarcating responsi-•	Reflect global, diverse viewpoints in management, further

bilities for management oversight and those for the execution ofbusiness operations

strengthen oversight function
Composition of Board of Directors

Composition of Each Committee (June 2016)

June 2011 (13 elected)

June 2016 (13 elected)

Nominating Committee: Determines director candidates

Audit Committee: Audits execution of Directors and Executive Officers

Compensation Committee: Determines remuneration for Directors and Executive Officers

Outside directors

49Inside directors(non-executive)

7

2

Inside directors(serving concurrently as
executive officers)22

Non-Japanese directors

Chairman (Outside Director)

Outside Director

Female directors

Inside Director

3. Appropriate implementation of the Corporate Governance Code

Implementing all of the principles of the Corporate Governance CodeAnalysis and Evaluation of the Effectiveness of the Board of Directors•	The Board of Directors analyzed and evaluated its effectiveness in fiscal year ended March 31, 2016, based on each director’s evaluations in regard
to such matters as the composition of the Board of Directors, the decision-making process, contributions, and operational and support systems.
•	The results of the evaluation were that the Board of Directors has diversity in its composition and, targeting growth in corporate value over the
medium-to-long term, conducts active discussions, centered on matters related to management strategies, such as mid-term management plans.
The evaluation concluded that the Board of Directors is functioning effectively overall.

32

Hitachi, Ltd. | Integrated Report 2016

Corporate Government Framework
Accounting Auditors

Report

Audit

General Meeting of
Shareholders
Appointment

Senior Executive Committee
Appointment /Oversight

ReportPresident & CEO

Board of Directors
Executive Vice Presidents andExecutive Officers / Senior Vice
Presidents and Executive Officers

Nominating Committee
Audit

Compensation Committee
Internal
Auditing
OfficeAudit Committee

Executive
Department
in charge

Executive
Department
in charge

Department
in charge

Department
in charge

ReportAudit

Board of Directors
The Board of Directors approves basic management policy for the

March 31, 2016, and the attendance rate of Directors at these

Hitachi Group and supervises the execution of the duties ofmeetings was 100%. To assist with the duties of the Board of

executive officers and directors in order to sustainably enhance

Directors and each committee, staffs who are not subject tocorporate value and shareholders’ common interests. The basic

orders and instructions of Executive Officers are assigned.

management policy includes the medium-term management plan
and annual budget compilation. The Board of Directors focuses

Attendance at meetings of the Board of Directors by eachon strategic issues related to the basic management policy as

outside director in the fiscal year ended March 31, 2016

well as other items to be resolved that are provided in laws,

Name

Attendance

Nobuo Katsumata

8 out of 8 days

Cynthia Carroll

8 out of 8 days

Sadayuki Sakakibara

8 out of 8 days

George Buckley

8 out of 8 days

Louise Pentland

7 out of 7 days

mittees—the Nominating Committee, the Audit Committee, andHarufumi Mochizuki

8 out of 8 days

the Compensation Committee—with outside Directors account-

Philip Yeo

8 out of 8 days

Hiroaki Yoshihara

8 out of 8 days

regulations, the Articles of Incorporation, and Board of Directors
Regulations. As of June 22, 2016, the Board of Directors wasmade up of 13 Directors, and two of them concurrently serve as
Executive Officers. Hitachi aims to reinforce the oversight function of the Board of Directors, of which nine outside Directors,
including non-Japanese, account for the majority, reflecting theirglobal and diverse viewpoints.
Within the Board of Directors, there are three statutory com-

ing for the majority of members of each committee. The Board of
Directors meetings were held 8 days during the fiscal year ended33

Corporate GovernanceFurthermore, Hitachi formulated and published Corporate• His or her immediate family member is, or has been within the

Governance Guidelines outlining the framework of corporate

last three years, an executive director or an executive officer, ofgovernance, such as the function and composition of the Boardof Directors, qualifications for Directors, and criteria for assessing
the independence of outside Directors.

the Company 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 or ser-

Corporate Governance Guidelines of Hitachi, Ltd.

vices in an amount which, in any of the last three fiscal years,

http://www.hitachi.com/IR-e/corporate/governance/guidelines.html

exceeds 2% of any of the companies’ consolidated grossrevenues;

Qualification for the outside Directors and• He or she has received during any of the last three fiscal years

criteria for the independency

more than ¥10 million in direct compensation for his or her ser-In regard to the election of an outside Director, the Company’s

vice as a specialist in law, accounting or tax, or as a consultant

Nominating Committee considers the following criteria for inde-from the Company, other than director compensations; orpendence. In addition, the Committee also considers whether the• He or she serves as an executive officer or director of a not-for-outside Director has outstanding character and insight andprofit organization, and the Company’s discretionary

whether the Outside Director has worked in a leadership position

charitable contributions to the organization in any of the lastin such fields as business, law, administration, accounting or edu-

three fiscal years are more than ¥10 million and 2% of thatcation or has experience at policy-making levels.

organization’s annual gross revenues.

In regard to the independence of an outside Director, theCompany considers an outside director to be independent if
none of the following items are applicable.

34

Name

Reasons for appointment

Baba Kalyani

Mr. Kalyani was selected as an outside director, since he was expected to reinforce the functional aspects of the Company’s Board of Directors by supervising theexecution of duties by Executive Officers and others from an independent perspective as well as reflecting his global viewpoint to the Company’s Board of
Directors based on his rich experience and insight as the top executive of a major global company.

Cynthia Carroll

Ms. Carroll was selected as an outside director, since she was expected to reinforce the functional aspects of the Company’s Board of Directors by supervising theexecution of duties by Executive Officers and others from an independent perspective as well as reflecting her global viewpoint to the Company’s Board of
Directors based on her rich experience and insight as the top executive of major global companies.

Sadayuki Sakakibara

Mr. Sakakibara was selected as an outside director, since he was expected to reinforce the functional aspects of the Company’s Board of Directors by supervising
the execution of duties by Executive Officers and others from an independent perspective based on his rich experience and insight as the top executive of a major
global company.

George Buckley

Mr. Buckley was selected as an outside director, since he was expected to reinforce the functional aspects of the Company’s Board of Directors by supervising theexecution of duties by Executive Officers and others from an independent perspective as well as reflecting his global viewpoint to the Company’s Board of
Directors based on his rich experience and insight as the top executive of major global companies.

Louise Pentland

Ms. Pentland was selected as an outside director, since she was expected to reinforce the functional aspects of the Company’s Board of Directors by supervising
the execution of duties by Executive Officers and others from an independent perspective as well as reflecting her global viewpoint to the Company’s Board of
Directors based on deep insight into corporate legal matters and corporate governance gained through her rich experience as the chief legal officer of major
global companies.

Harufumi Mochizuki

Mr. Mochizuki was selected as an outside director, since he was expected to reinforce the functional aspects of the Company’s Board of Directors by supervising
the execution of duties by Executive Officers and others from an independent perspective based on his rich experience and insight in the area of public administration, etc.

Takatoshi Yamamoto

Mr. Yamamoto was selected as an outside director, since he was expected to reinforce the functional aspects of the Company’s Board of Directors by supervising
the execution of duties by Executive Officers and others from an independent perspective based on a broad range of insight in business and management gained
through his experience in the area of corporate analysis and global corporate management.

Philip Yeo

Mr. Yeo was selected as an outside director, since he was expected to reinforce the functional aspects of the Company’s Board of Directors by supervising the execution of duties by Executive Officers and others from an independent perspective as well as reflecting his global viewpoint to the Company’s Board of Directors
based on his broad experience and insight in such areas as public administration.

Hiroaki Yoshihara

Mr. Yoshihara was selected as an outside director, since he was expected to reinforce the functional aspects of the Company’s Board of Directors by supervising
the execution of duties by Executive Officers and others from an independent perspective as well as reflecting his global viewpoint to the Company’s Board of
Directors based on his rich experience and insight in the area of global corporate management and accounting.

Hitachi, Ltd. | Integrated Report 2016

(1) Nominating Committee

Director and Executive Officer Compensation

The Nominating Committee has the authority to determine par-The Company’s Compensation Committee sets forth the policy

ticular proposals submitted to the general meeting of sharehold-on the determination of the amount of compensation, etc. ofers for the election and dismissal of Directors. The Nominatingeach Director and Executive Officer pursuant to applicable provi-

Committee consists of four Directors, three of whom are outside

sions of the Companies Act. Compensation will be commensu-

Directors.

rate with the ability required of, and the responsibilities to be

The Nominating Committee meetings were held 6 days during

borne by, the Company’s Directors and Executive Officers,

the fiscal year ended March 31, 2016.

taking into consideration compensation packages at other(2) Audit Committee

companies.

The Audit Committee has the authority to audit the execution ofCompensation for Directors will consist of a monthly remuner-

duties of Directors and Executive Officers and to determine on

ation and a year-end allowance. Monthly remuneration will be

proposals submitted to the general meeting of shareholders for

decided by adjusting basic remuneration that reflect full-time or

the election and dismissal of accounting auditors. The Audit

part-time status, committee membership and position, travel

Committee consists of five Directors, including three outsidefrom place of residence, etc. Year-end allowance will be a pre-Directors and one standing Audit Committee members.

determined amount equivalent to about 20% of the Director’s

The Audit Committee meetings were held 16 days during theannual income based on monthly remuneration, although thisfiscal year ended March 31, 2016.

amount may be reduced depending on financial results. A(3) Compensation Committee

Director concurrently serving as an Executive Officer will not be

The Compensation Committee has the authority to determine

paid compensation as a Director.

remuneration policies for Directors and Executive Officers andCompensation for Executive Officers will consist of a monthly

remuneration for individuals based on them. The Compensation

remuneration, a performance-linked component and a medium

Committee consists of four Directors, three of whom are outside

and long-term incentive compensation. The higher position

Directors.

Executive Officers hold, the higher proportion of variable pay

The Compensation Committee meetings were held 9 days
during the fiscal year ended March 31, 2016.

(the sum of performance-linked component and medium andlong-term incentive compensation, except monthly remuneration as fixed pay) will be set to the total annual compensation.

Composition of the Board of Directors and Each Committee
NumberOutsideof persons Directors Directors Chairman

Monthly remuneration will be decided by adjusting a basic
amount to reflect the results of an assessment. The basic
amount is set in accordance with the relevant position.

Board of Directors

13

9*

4 Inside Director

Nominating Committee

43

1 Outside Director

basic amount to reflect financial results and individual perfor-

Audit Committee

5

3

2 Outside Director

mance. The basic amount is set within the range of about 25 toCompensation Committee

43

1 Outside Director

35% of the total annual compensation of each Executive Officer* In regard to the outside directors, Hitachi has notified all outside Directors as independent directors to each of the stock exchanges in Japan where the Company is listed.

Executive Officers

Performance-linked component will be decided by adjusting a

in accordance with the relevant position. Medium and long-term
incentive compensation* will be stock options as stock-based
compensation with share price conditions (stock acquisitionrights with the strike price of ¥1), the number of which to be

Executive Officers decide on matters delegated to them by the

granted will be determined within the range of about 10 to 40%

Board of Directors and execute Hitachi’s business affairs withinof the total annual compensation of each Executive Officer inthe scope of assignments determined by the Board of Directors.

accordance with the relevant position. As for expatriates, cash

As of August 1, 2016, Hitachi had 34 Executive Officers.

award based on the value of the Company’s share price with the

Senior Executive Committee
The Senior Executive Committee is a council to ensure thatPresident deliberately decides on important managerial matters,
which may affect the business of Hitachi or the Hitachi Group,
through discussing from diverse viewpoints. This committee consists of eight members as of June 22, 2016: President & CEO, four
Executive Vice President and Executive Officers and three SeniorVice President and Executive Officers.

similar conditions will be substituted for the stock options.
* It was decided at the Compensation Committee meeting held on May 13, 2016 thatmedium and long-term incentive compensation will be introduced as a component of
the compensation from the fiscal year commencing on April 1, 2016.

The compensation structure for Directors and Executive
Officers was re-examined starting with compensation for the
fiscal year ended March 31, 2009, and the retirement allowance
was abolished.
35

Corporate GovernanceCompensation for Directors and Executive Officers for the fiscal year ended March 31, 2016, is as follows:
Amount of compensation
Total amount of each type (Millions of yen)
Total amount of compensation,etc. (Millions of yen)

CategoryMonthly
remuneration

Year-end allowance andperformance-linked component

Number of persons

Directors (excluding outside Directors)

117*1

105*1

12

3*2

Outside Directors

280

265

14

8

Executive Officers

1,763

1,275

487

28

Total

2,161

1,647

514

39

*1 The amount of compensation to Directors (excluding outside Directors) includes the monthly remuneration for one Director, who retired due to expiration of his term of office at theclose of the 146th Annual General Meeting of Shareholders held on June 25, 2015.
*2 The number of Directors indicated excludes two Directors who concurrently serve as Executive Officers.

In addition, Directors or Executive Officers whose compensation from Hitachi and its subsidiaries is not less than ¥100 million andthe amount of their compensation are as follows:
Total amount of each type (Millions of yen)
Total amount ofcompensation, etc.
(Millions of yen)Monthly
remuneration

Performance-linked
component

Basicremuneration

Short-termLong-term

Incentive

Name

Company

Category

Hiroaki Nakanishi

Hitachi, Ltd. (The Company)

Executive Officer*3

161

115

46

—

—

—

—

Toshiaki Higashihara

Hitachi, Ltd. (The Company)

Executive Officer*

136

97

39

—

—

—

—

Alistair Dormer*4

Hitachi Rail Europe Ltd.
(Consolidated subsidiary)*5

Executive Chairman
and CEO

161

—

—

70

61

28

—

John Domme*

Hitachi Information &Telecommunication Systems
Global Holding Corporation(Consolidated subsidiary)*5

Chairman of
the Board and CEO

900

—

—

144

185

558

12

4

3

Others*6*3 Although concurrently serving as Director, Messrs. Hiroaki Nakanishi and Toshiaki Higashihara do not receive compensation as Director.
*4 Although concurrently served as Executive Officer of the Company for the fiscal year ended March 31, 2016, Messrs. Alistair Dormer and John Domme did not receive compensation as
Executive Officer of the Company.
*5 The basic remuneration paid in Sterling pounds and US dollars is converted into yen using average exchange rate for each quarter of the fiscal year ended March 31, 2016. The othercompensations paid in Sterling pounds and US dollars are converted into yen using average exchange rate for the fiscal year ended March 31, 2016.
*6 The “Others” column represents the amount of fringe benefits.

Internal Control over Financial Reporting36

To ensure the reliability of the financial reporting for the Group

reporting, Hitachi is advancing the establishment of systems for

as a whole, the Hitachi Group has documented control proce-objective assessment at each business unit and major Groupdures, from company-level controls to process-level controls, incompany. The J-SOX Committee’s office summarizes the assess-accordance with policies determined by the J-SOX Committee. In

ment results of each company to confirm the effectiveness ofregard to assessment of the internal control over financial

internal control on a Group-wide, consolidated basis.

Hitachi, Ltd. | Integrated Report 2016

Hitachi Group Internal Control Assessment Framework (As of April 1, 2016)
Financial Services
AgencyHitachi, Ltd. President and CFO
Internal
ControlReportReportReportReportJ-SOX Committee
J-SOX Committee’s Office

Audit Committee
Collaboration

Independent
Auditors

ReportBusiness Units andMajor Group Companies

Internal Auditing
OfficeReportExternal
Audit

Subsidiary Companies

Accountability
In accordance with its disclosure policy, Hitachi is implementing

Information for shareholders and investors

the fair and appropriate disclosure of such information as man-

http://www.hitachi.com/IR-e/agement strategies and financial information. In addition, Hitachi
is aggressively conducting dialogues through such means as
meetings with shareholders and investors, investor relations (IR)events, and the general meeting of shareholders.

Major information disclosure publications

Financial results / Quarterly financial results

In the fiscal year ended March 31, 2016, we held quarterly

Annual securities reports / Quarterly reports

financial results briefings and corporate strategy meetings on our

Business reports / Interim business reports

progress with the 2015 Mid-term Management Plan. Following on
from the fiscal year ended March 31, 2015, we hosted Hitachi IR
Day 2015, where senior management explained their businessAnnual report
Hitachi Group sustainability reports

strategies and management policies under the Plan. Feedback frominstitutional investors and analysts was positive. Their comments
included, “I was struck by the Company-wide efforts to generatecash flows,” and “This was a valuable once-a-year opportunity to
update our understanding of the Company’s various businesses—
one that I very much hope will continue.”
We also conducted tours of the Nakajo Division of Hitachi
Industrial Equipment Systems and Hitachi Consumer Products(Thailand), a consumer electronics production site, to deepen
understanding of our product businesses, in addition to conducting about 740 one-on-one meetings with institutional investors
and analysts worldwide. Members of senior management visit
institutional investors in North America, Europe, and Asia twicea year to explain corporate management policies and businessdirections. We are doing our best to share IR feedback in-houseand reflect this in management and operations.
We also post briefing materials and business performance aswell as stock price trend charts in a timely manner on our IR
website. We aim to continuously enhance our information disclosure. In the fiscal year ended March 31, 2016, we introduced a
new responsive design on our website for improved browsing
convenience from smartphones and tablets.
37

Risk Management

Changes to our operating environment from such factors as the globalization of the economy and advances in andspread of information and communications technology (ICT) not only lead to the expansion of business opportunities
but also to the diversification of risks to our operations.
We have built a diverse risk management system under which we carry out risk analysis to accurately gauge ongoing
economic and social changes and use the insights gained to take preventive measures and ensure a rapid response toissues that may arise unexpectedly.

Reinforcement of Risk Management System

Creating BCPs* in Key Operations Worldwide

The entire Hitachi Group is reinforcing its risk management

Given the close relation of our business to social infrastructure,system to address increasingly globalized and complexed risks.

we are enhancing our BCPs to ensure that the impact of risks

Under Hitachi, Ltd.’s head of risk management, each businessdoes not disrupt our business and thereby significantly affectoperation assigns an executive handling risk management tosociety. In December 2006, we issued the Hitachi Groupmanage risks mainly concerned with compliance, export control,

Guidelines for Developing Business Continuity Plans in Japanese.

disasters, and crime, and to respond adequately in coordination

In fiscal 2010 these were translated into English and Chinese foramong the entire Group. Furthermore, Hitachi is building a

distribution to all Hitachi Group companies worldwide to ensurecomprehensive risk management system that contains standards

our response readiness for large disasters and other risks.

and procedures to objectively evaluate different risks that may
affect business.

When the Great East Japan Earthquake struck in March 2011,
our BCPs enabled quick responses and swift decision making.
However, issues emerged including identification of secondary

Risk Management System
Risk Management Groupand other suppliers, cloud storage and multiplexing of production information, and the need to secure alternate transportationand fuel sources.

• Compliance

Based on the lessons learned from this disaster, in October• Export Control

2011 we released and distributed new BCP guidelines for depart-• Crisis Management and BCP

mental implementation to further improve our BCPs. Hitachi• Internal Audits, etc.

Group operations in Japan completed their preparation andreview of BCPs, based on applicability to their operations, by theend of fiscal 2011. BCPs for large earthquakes and novel strains
of influenza have been prepared for 49 Hitachi, Ltd. businessStandards and systems for evaluating business and other risks

sites and 96 Group companies.
On top of these efforts, since fiscal 1998, Hitachi, Ltd. has
held annual earthquake drills simulating a major seismic event at

Comprehensive risk management system at the management level

key operations in Japan. In November 2015, Hitachi Automotive
Systems held coordinated drills at its head office and businesssites in the cities of Sawa, Atsugi, and Fukushima, where managers in charge of their divisions confirmed the action plans inemergency situations based on BCPs.
In fiscal 2013, Hitachi appointed personnel in charge of riskresponse policies at its main overseas bases and around 300
companies prepared BCPs with the goal of completing them for
key operations by the end of fiscal 2013. These BCPs are aimed atstrengthening our ability to respond to business risks, including
large disasters, novel strains of influenza, political instability, andsocial disruption, as well as acts of terrorism. Moving forward,
we intend to further expand the scope of our BCPs.
* BCP: Business Continuity Plan

38

Hitachi, Ltd. | Integrated Report 2016

Improving Safety for Employees Sent toDangerous Regions(1)	Precautionary measures and prompt security responses

Responding to the hostage incident in Algeria in January 2013,

measures based on vulnerability and risk analyses. We alsothen President Hiroaki Nakanishi reinforced his policy in February

have an emergency manual for security breaches, based on

2013 of ensuring the safety of employees sent outside Japan.

the assumption that these are inevitable, and not just possible.

We classify assets to be secured and take safeguarding

Survey missions of in-house and outside experts are now sent
beforehand to areas at high risk of war, terrorism, and other threats.
Even after employees are dispatched to such areas, we conduct(2)	Promoting stronger ethical and security awareness among
data users

additional local surveys every six months as a means of confirming

We have prepared a program tailored to Hitachi’s various

the effectiveness of our safety policies. In fiscal 2014, survey

personnel levels and are working to raise the prevailing sense of

missions were sent to several countries in Africa and the Middle

ethics and security awareness through Group-wide e-learning.

East. In addition, we have introduced a range of safety measures

We are also conducting audits to identify and address problems

in the light of recent terrorist incidents involving Japanese andearly on.

other nationals, including providing timely alerts to employees.
These and other steps underscore our commitment to ensuring
the safety of our employees working around the globe.
Hitachi is also contributing to safety measures at otherJapanese corporations operating outside Japan. To help enhance

Basic Approach to Information Security Governance
Clearly designate assets to be protected• Evaluate information assets and conduct risk analysis

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

Improve user literacy

Foreign Affairs, and in June 2014 Hitachi took part in a public-• Supply security
education materials• Educate managers
and staff

private kidnap incident preparatory training exercise.
* Incident in January 2013 in which an armed terrorist group attacked a natural gas
refining plant in Algeria. There were more than 30 victims, including 10 Japanese.

Implement preventive
techniques
Information
assets to beprotected• Widely implementadministrative
measures• Deploy technologicalprocesses

Promoting Information Security
The Information Security Committee, chaired by the Chief
Information Security Officer, determines our information security
policies and procedures. The Information Security Promotion
Council and other bodies convey decisions internally and to othercompanies in the Hitachi Group. Information security officers at
business sites and companies ensure that these decisions are

Establish information security system• Develop rules (security policy)• Create managerial framework• Establish audit and follow-up system• Ensure solid feedback through extensive PDCA
cycles for prevention and accident response

implemented in the workplace.
The Hitachi Group emphasizes two points in information
security and personal information protection:

39

Compliance

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 a fundamental management issue.
As economic activity becomes increasingly borderless, there is a growing need for steps to eradicate bribery, corruption,and other illegal behavior in accordance with conditions in the countries and regions where we have operations. As a
global company, we are implementing a consistent compliance structure across the entire Hitachi Group.

Enhancing Our Compliance Framework

Compliance Reporting System

To comprehensively implement our compliance framework, we

Hitachi has instituted a Group-wide whistleblowing system tohave appointed a senior executive as the head of risk manage-

prevent illegal and unethical behavior, to promptly address infrac-ment for the entire Hitachi Group. Every in-house company andtions, and to enhance our ability to self-regulate. In this system,

key Group company also has an executive handling risk manage-reports go directly to the Compliance Department at Hitachi orment, assisted by a compliance manager (CM). We are also sup-to an outside attorney. This system can be used not only byporting regional Group companies and have appointed

employees within the Hitachi Group, who are able to reportcompliance heads in 11 regions globally.

issues through in-house channels, but also by former employees,

Under this system, policies and measures are shared throughthe Compliance Management Conference, composed of risk

temporary staff, and suppliers.
In addition, we have implemented the Channel to the Board ofmanagement executives from in-house companies and key

Directors system to allow employees to directly report problems

Group companies. In addition, all CMs meet regularly at theanonymously to Hitachi directors. The facts related to all reports

Hitachi Group Compliance Conference to provide information on

are subject to thorough investigation and checking, and people

compliance and to confirm implementation of required actions.

who have identified themselves in the reports are informed of

The Advisory Committee, consisting of outside experts, con-the investigation results. We make every effort to appropriately

venes regularly to exchange views on the state of compliance ini-deal with situations, including taking remedial action wheretiatives. The insights provided by committee members are utilized

necessary.

to improve policies and actions.
The internal audit section regularly conducts Group-wide

Thorough Export Controls

reviews to verify that each area of compliance is being appropri-

For basic export control policies, we adopt the Hitachi Standards

ately operated. In cases where the reviews identify necessaryof Corporate Conduct, which state: “We shall help maintainimprovements, corrective measures are swiftly implemented.

international peace and security through compliance with traderelated laws and regulations.” We established the Corporate
Regulations concerning Security Export Control based on thispolicy in 1987. We carry out strict export control practices in linewith relevant laws and regulations, screening all goods and technologies intended for export against such factors as destination
countries and regions as well as intended end use and end users.
We provide guidance and educational support to Hitachi Group
companies to ensure that all Group companies follow the same
export control policies. In fiscal 2015, we held workshops forGroup companies in the United States, South Korea, and India
providing practical training on export control. During this periodan e-learning program in Japanese, English, and Chinese—Export
Controls of the Hitachi Group (Introductory Course)—was introduced and taken by around 113,000 employees at Group companies worldwide.

40

Hitachi, Ltd. | Integrated Report 2016

Measures to Prevent Bribery andCorrupt Practices

awareness of compliance issues, including publicizing messages

To deal with global bribery and corruption risks, in fiscal 2013 wefrom top executives, developing company regulations, conduct-referred to the US Foreign Corrupt Practices Act Resource Guide*

ing regular audits, and providing education and training toand other documents to develop various corruption risk scenarios.

employees based on a compliance manual. In fiscal 2015, we

These were used as the basis for a survey conducted at Hitachi

held group education sessions on the Antimonopoly Law forGroup companies outside Japan. By analyzing the survey results,

1,263 participants, including all Hitachi sales managers. We also

we identified several companies at risk from corruption. We arereleased an e-learning program on the fundamentals for compli-

monitoring and working with those companies with the goal ofance with competition laws and implemented it at Hitachi Group

reducing corruption worldwide.

companies globally.

In 2015 we also created a set of revised rules regarding
prevention of bribery and corrupt practices, which were globally
adopted by Hitachi Group companies.
That same year we released a global version of an e-learning

We are working to prevent further violations and to broaden

Through these initiatives we will continue working to improveand enhance our compliance framework.

Implementing Thorough Tax Complianceprogram regarding the fundamentals of preventing bribery andIn January 2016, we established a set of tax-related regulations

corrupt practices to be utilized among Group companies

with which the entire Group must comply. In connection withworldwide.

the globalization of our business, we are implementing risk

* The US Foreign Corrupt Practices Act consists of antibribery provisions regarding foreign
government officials and transparent accounting provisions within the Securities
Exchange Act. Enforced by the Department of Justice, it prohibits bribes to foreign
government officials. Transparent accounting, enforced by the Securities and Exchange
Commission, requires companies to show transactions fairly and accurately in theiraccounting records and to maintain effective internal control over accounting.

Preventing Violations of Fair Competition Laws
Hitachi engages in business based on the principles of conformance with the law and business ethics and fair and disciplinedcompetition.
However, Hitachi, Ltd. was found to have impaired the fairnessof a public bid in fiscal 2002 and was penalized in September 2006,
October 2008, and March 2009 for violating the Japanese
Antimonopoly Law. In November 2012, a subsidiary dealing in
automotive components was penalized by the Japan Fair Trade
Commission for violating the Antimonopoly Law. In September
2013, the same company was prosecuted by the US Departmentof Justice for violating American antitrust laws, resulting in a plea
bargain, and in January 2016 the company reached a settlement with
the European Commission for a violation of EU competition laws.

­management for taxation that focuses in particular on the points
listed below.
(1) G roup companies strictly comply with all relevant laws andimplement tax management when pursuing their businessactivities, bearing in mind such international tax-compliancestandards as the Transfer Pricing Guidelines for Multinational
Enterprises and Tax Administrations of the Organisation for
Economic Co-operation and Development (OECD), as well asthat body’s Action Plan on Base Erosion and Profit Shifting(BEPS).
(2) Group companies effectively, continually, and proactively
manage tax-related issues as socially responsible organizations, while maintaining Hitachi brand value and seeking tomaximize shareholder value.
(3) G roup companies build sincere and positive relations of trustwith the tax authorities in the regions where the companies
do business, and strive to maintain and develop thoserelations.

41

Achieving a Fair and Equitable
Work Environment

A Strategy for Growing Together
with Our Global Human Capital

Hitachi has a human resource strategy that emphasizes theconcept of “decent work.” This concept has taken on
increased importance globally as a standard for labor
practices, with the International Labour Organization, forexample, positioning the concept as an important objectiveof its activities. Companies are expected to ensure decent
work through policies appropriate to their businesses.

The Hitachi Group, with a combined workforce of around
340,000 people engaged together in business activities incountries and regions around the world, is promoting a
global human capital management strategy. We are fostering human capital through a diverse array of initiatives, suchas hiring and promoting to management positions nonJapanese personnel, drafting measures to share values andpromote mutual understanding, and formulating programs
to develop human capital capable of meeting the needs ofglobal operations.

Hitachi’s Thinking on Decent Work

Advancing Global Human Capital

Human resources are key to Hitachi’s ability to adapt to rapid

Our Group-wide global human capital management strategysocial and environmental change and continue providing new

optimizes both human resources and organizational performancevalue to customers. Diversity and inclusion are crucial to ourin pursuit of Hitachi’s goal of becoming a major global player.

strategy, and throughout the Hitachi Group we promote HR

One example of our initiatives is the Global Human Capitalmanagement practices that maximize the strength we can draw

Database covering all Hitachi Group employees, excluding factoryfrom a diverse, highly engaged workforce transcending national

workers outside Japan. This database enables us to fully ascertain

and corporate boundaries. Our globally shared leadership devel-

the status of worldwide Group human capital and to assess

opment program fosters leaders who champion our Social

macro management data, such as the allocation of human

Innovation Business around the world, while a range of otherresources. We have also built a global grading system that applies

training programs help employees obtain the knowledge andto all managers in the Hitachi Group worldwide, using it as askills they need to provide innovative solutions to our customers.

common platform for job evaluations throughout the entire

Hitachi also views it as crucial to create a work environment inGroup and as a common standard for assessing the value of

which each employee can engage meaningfully in productive

management duties.

work. As part of efforts in this area, we have unified perfor-

In addition, we introduced a performance management

mance review standards worldwide in a highly transparent andsystem at Hitachi, Ltd. and at some Group companies worldwide

fair system for evaluating each employee’s achievements. We

to link the operational business goals and individual skills, withhave also enacted safety policies that apply across the entire

the aim of mutual sustained improvement and growth of both

Hitachi Group, and continue striving globally to create work-businesses and individuals. This system will be expanded toplaces that offer safety and peace of mind to those who work

include more companies. With an eye to supporting the advance-

there. Other initiatives aim to make it easier to achieve work-life

ment of employees as our global operations expand, we arebalance, reduce work hours, and promote healthy lifestyles

introducing common global hiring systems to secure talented

among employees. Additionally, we conduct an annual survey of

personnel, boost efficiency, and reduce hiring costs.

employee engagement levels across the Group, using the results
as the basis for further improvement in management practices.

Non-Japanese Employees (Hitachi, Ltd.)
People

509

500

446

400

340
300

239

257

200

100

0

42

2011

2012

2013

2014

2015

(FY)

Hitachi, Ltd. | Integrated Report 2016

Global Recruiting and Globalizing
Human Capital

Future Initiatives for Career Development

As a means of opening up global markets, we have been acceler-

individual and organizational performance. We create value built

ating the globalization of human capital in Japan through three

on employees’ individuality and personal aspirations by imple-

initiatives: (1) recruiting personnel in Japan who can promote

menting Hitachi’s Global Performance Management (GPM)

global operations, (2) providing more young Japanese employees

grounded in diversity and the individual. We are also committedwith experience outside Japan, and (3) comprehensively imple-

to supporting career development by fostering communication

menting globally unified management training.

and mutual understanding between employees and their organi-In pursuit of becoming a major global player, we are prioritizing

With an eye on the globalization of our business, we are com-zations based on programs encouraging individual employees tomitted to hiring activities that secure the right personnel. In prin-take greater control of developing their own careers. In these

ciple, we categorize all employees graduating from universities

ways, we provide the resources and tools that enable a wide

and technical colleges as global business personnel who can con-range of people to work together with enthusiasm.

tribute to driving our global operations. Our priority for employing global business personnel is to attract people who are eager

Conducting a Global Employee Survey

to build their foreign language skills and relish the challenge ofSince fiscal 2013, we have been conducting the annual global

working in different cultures, social settings, and work

employee survey, Hitachi Insights, as a way of measuring

environments.

employee engagement.* In September 2015, the survey wasadministered for the third time. Around 210,000 employees

Career Development Support

worldwide were sent the survey in one of 13 different languages,

There are differences among individual employees with regard toand roughly 170,000 responses were received. For the second

what they find fulfilling in their lives and careers. Bearing this inconsecutive year, the results in all 13 categories improved com-mind, Hitachi has developed a broad range of career develop-

pared to the previous fiscal year’s results. The year-on-year

ment support that focuses on employees’“internal careers,”

improvements were the outcome of the in-house departments

namely, their individual values and views on the significance andand organizations examining the results and implementing

meaning of their work. In addition to ensuring that these individ-

improvements, in line with the PDCA (plan, do, check, act)uals can fulfill their potential and maximize their creativity, ourapproach. We intend to continue making improvements.

aim is also to link that individual growth to the positive outcomes

Overall, among the 13 categories, Hitachi scored well as inand growth of the organization, thereby enhancing our corpo-

previous surveys in “pride in your company” and “your supervi-

rate value. Along with promoting self-understanding and foster-

sor’s management,” but less well for the category “resources anding strong individuals with the independence and autonomy

support.” This suggests that employees are proud to be part of aneeded to think and act for themselves, we also are providing

company that is aiming to grow along with society through its

support to create a framework for the organization to benefit

Social Innovation Business, but that many employees felt thatfrom the engagement and motivation of individual employees

Hitachi can do better on the level of staffing as well as informa-and to enhance mutual understanding as a way of fostering thetion and resource tools. In addition, in fiscal 2015 we expanded

teamwork needed to enhance organizational strength andthe range of an initiative begun in the previous fiscal year to

performance.

directly send the survey results to section and department heads
so that they can confirm the survey results and communicate
with their team members, with the aim of promoting concrete
initiatives. In fiscal 2016, in line with our Mid-term Management
Plan, the content of the survey will be revised, along with providing support to in-house workplaces to continually implement the
PDCA cycle, as a way to further enhance the level of engagement
within Hitachi as a whole.
* Hitachi uses the term “engagement” to refer to employees’ understanding of theCompany’s strategies and policies, as well as their job satisfaction and desire to takeactions on their own initiative to bring about results.

43

Promoting Diversity and Inclusion

Hitachi believes that building a corporate culture that fully draws on the diversity of human capital, in terms of gender,
age, and values, not only offers employees an opportunity to approach their work with enthusiasm but also contributes
to enhancing competitiveness through the provision of solutions that incorporate diverse perspectives. In recent years,
with the growing interest among stakeholders for personnel policies enabling flexible work styles, we are taking a proactive stance toward implementing this approach. We are also establishing key performance indicators to help expand
career options for female employees.
With the strong commitment of top management, we aim to promote diversity as part of our management strategy
and become a company that makes full use of our diverse human capital.

Diversity and Inclusion

Hitachi and 20 Group companies jointly operate the Advisory

Diversity is the wellspring of our innovation and our growth engine.

Committee and the Diversity Development Council to accelerate

Hitachi regards personal differences—gender, nationality, work

awareness across Hitachi as a whole, including support for diverse

history, age, sexual orientation, and philosophy—as facets of peo-

human resources and work-life management. The Advisory

ple’s individuality. By respecting our employees’ individualities andCommittee ensures follow-through on our diversity management

positioning them as an advantage, Hitachi frames its diversity andpolicy, while the Diversity Development Council discusses specificinclusion as conducive to both the individual’s and the Company’s

activities and shares best practices. Both meet every six months.

sustainable growth. With strong teamwork and broad experience

Group companies and business groups/sites have also set up
their own diversity-promotion organizations and projects, such as

in the global market, we will meet our customers’ needs.
Since the 1990s, we have been at the social forefront, support-

those to help develop women’s careers, in order to enhance ini-

ing women and other members of our multifaceted workforce.

tiatives geared to the challenges faced by individual workplaces.

This includes setting up systems to help balance work with child

We also hold regular meetings to exchange opinions on diversity

and nursing care. Entering Phase 3 of our diversity managementwith labor unions.

roadmap, we are embracing diversity as a management strategy

In Europe, too, we are accelerating the pace of our diversity

under the initiative slogan “Diversity for the Next 100.” This means

and inclusion initiatives on the basis of establishing the D&I

creating an environment where women and other members ofSteering Committee in January 2016. The committee, which con-our varied workforce can use their skills in leadership and busi-

venes every quarter, is made up of executives from the sevenness management.

main Hitachi Group companies in Europe, including Hitachi
Europe Ltd., Hitachi Rail Europe Ltd., and Hitachi Data Systems

Development Structure of Diversity Management

Corporation. The three main areas addressed are “the creation of

The Diversity Development Project, launched in fiscal 2006 undera diversity and inclusion framework,” “career development,” andthe president’s direct control, was replaced in fiscal 2009 with the“communication.” Members are assigned to each area and lively

Diversity & Inclusion Development Center, which currently operates

discussions are held in order to formulate and implement plans tounder the direct supervision of the Human Capital Group.

promote diversity and inclusion.

Roadmap for Developing Diversity Management

Phase 3: Diversity promoted as a management strategy

2012Phase 2: From “women” to “diversity”“Diversity for the Next 100” launched2009

Phase 1: Support for Women’s Career Advancement

Diversity & Inclusion Development Center set up

2000
FF Plan*

2006
Diversity Promotion Project FF Plan II

Support balance between work and nursing care, etc.

Enhance Hitachi Group partnerships

Strengthen senior management commitment

Reduce overtime/Review work styles

Promote time- and location-free work

Promote diversity awareness/Reform work environment
Support work-life balance; support women’s career advancement

Strengthen women’s career development

Introduce, expand support systems for work-life management

1990

2000

2006

2009

2012

2015

* The Gender-Free and Family-Friendly (FF) Plan is an initiative to create a better work environment by supporting efforts to balance work and family life and supporting women in the workplace.

44

Hitachi, Ltd. | Integrated Report 2016

Promoting Occupational Health and Safety

As a corporate group that engages in multinational business activities, building safe, healthy, and hygienic workplaceenvironments at business sites around the world is a Group-wide management task for Hitachi. This means that we mustbe sure to take into careful consideration the social conditions and workplace environment of each country and region.
Hitachi has thoroughly implemented measures for occupational health and safety since its founding. Currently, we
are advancing a global occupational health and safety system based on the concept of decent work while also drawing
on the lessons and knowledge gained at workplaces in Japan.

Fundamental Idea for Occupational
Health and Safety

Framework for Promoting Health and Safety

Ensuring the health and safety of all employees is the basic prin-

tions for advancing our Social Innovation business. We promote a

ciple underlining the Hitachi Group Health and Safety Policy. This

range of Group-wide occupational health and safety activities

policy is shared by all Hitachi Group companies around thethat include preventing workplace accidents by setting andworld. Employees work together to create safe, secure work envi-

applying minimum safety standards to be observed by Groupronments that aim to be accident free.

manufacturers around the globe and by taking into consideration

Hitachi views occupational health and safety as vital precondi-

the specific conditions at each company. We respond quickly
when an accident occurs, using incidents to make improvements

Hitachi Group Health and Safety Policy

and boost our levels of health and safety management.
In accordance with Japanese law, a health and safety

Principle­commission—composed of company representatives, labor union“Health and Safety Comes First.”

officials, and employees—is organized at each business site andPolicies

is convened every month to discuss and share information related

In accordance with our mission, “Contribute to society

to such issues as workplace accident causes and countermea-

through the development of superior, original technology

sures, the situation regarding employees who have taken sickand products,” the Hitachi Group will endeavor to ensure

leave, and other points of concern.

safe and healthy workplaces under the principle of “Healthand Safety Always Comes First.”

In fiscal 2011, we introduced the Hitachi Group Key Safety
Management Designation System. This initiative tracks key safety
management improvements at Hitachi Group companies andTo accomplish this, we will:business sites in Japan that have experienced serious work acci-

1. Continually be involved in health and safety activities indents. Under the leadership of top executives, these companies

order to prevent work-related injuries and sickness by des-and business sites take on management-driven and bottom-up

ignating the health and safety of employees as manage-

initiatives to formulate and promote specific improvement plans.

ment’s top priority.

We are also reshaping the Group’s safety management frame-

2. Comply with the local laws and regulations in each company regarding health and safety.

work and introducing targeted safety measures, including extensive investigations of the cause of serious accidents, reviews of

3. Develop a safe and comfortable work environment byrisks to reduce potential accidents, and engagement of third par-encouraging employees to maintain their own health andties with a high level of health and safety expertise to diagnosetaking a proactive stance on health and safety activities insafety issues.

the workplace.

In fiscal 2015, we became able to grasp our safety manage-

4. Require an understanding of Hitachi’s principle and thement level overseas through the application of safety statistics

promotion of health and safety awareness from all busi-

and minimum standards. Moving forward, we aim to continually

ness partners of the Hitachi Group.

make improvements to further raise the level of safety.

5. Contribute to the creation of a safe and pleasant society
by emphasizing activities that make health and safety a
top priority in all of Hitachi’s business activities.
Revised November 201345

Respect for Human Rights Throughout the Value Chain

Hitachi respects international human rights norms in every country and region and strives to continuously and thoroughly
implement those norms. Along with putting into practice the Hitachi Group Human Rights Policy and other guiding
principles, we are implementing educational activities targeting company executives and employees at each Group
company on an ongoing basis. At the same time, company executives are taking the lead in analyzing potential risks
within the business process and creating an organization in which human rights infringements do not occur.
We also have been putting in place a system for implementing human rights due diligence from the perspective ofpreventing any involvement with human rights violations, and in fiscal 2015 we expanded the system to include our
supply chain.

Human Rights Initiatives

officer in charge of human capital chairs this body, whose members

In May 2013, we adopted the Hitachi Group Human Rights Policy

include representatives from sales, procurement, human capital,

to supplement the Hitachi Group Codes of Conduct, drawn up in

CSR, and other corporate units. Hitachi is improving its Group-wide

fiscal 2010. In this policy, we clarify our understanding of human

human rights awareness based on the guidelines discussed andrights as being, at a minimum, those outlined in the International

written by the Corporate Human Rights Promotion Committee.

Bill of Human Rights and the International Labour Organization’s

Information from deliverations is shared with all employees

Declaration on Fundamental Principles and Rights at Work. This

through business units and business site committees, led by busi-

policy shapes Hitachi’s approach to meeting the responsibility toness unit presidents and division heads. Business units provide con-respect human rights, including implementing human rights due

sultation services through which employees can seek consultation

diligence*1 in line with the UN Guiding Principles on Business andon issues such as sexual harassment and are working to ensure

Human Rights,*2 providing appropriate education to employees,that those coming forward are treated with respect and dignity.

adhering to national laws and regulations in all the regions andIn a practice launched in fiscal 2014, we distribute a humancountries where we operate, and seeking ways to honor therights message by Representative Executive Officer, President, andprinciples of international human rights when faced with conflicts

CEO Toshiaki Higashihara every year on December 10, Humanbetween internationally recognized human rights standards andRights Day. In fiscal 2015, approximately 148,000 executives andnational laws.

employees at Hitachi, Ltd. and Group companies in and outside

In fiscal 2014, Hitachi added the perspective of Business andJapan received an e-mail message regarding global trends in

Human Rights to its existing structures and policies and developed

human rights, Hitachi’s human rights policy and activities, anda guidance on human rights due diligence that explains proce-the importance of individual employees respecting human rights

dures for everyday business practices. Based on this guidance, inin their work.

fiscal 2015 we initiated human rights due diligence in procurement, assessing and prioritizing human rights risks in the supply
chain and considering measures to reduce these risks.
*1 Human rights due diligence: An ongoing process to identify and assess potential andactual human rights impacts, integrate findings, and take appropriate action to preventor mitigate potential impacts or to provide for or cooperate in remediation of actual
impacts. The processes also cover tracking the effectiveness of actions to address
impacts and communicating externally.
*2 UN Guiding Principles on Business and Human Rights: Included in the March 2011
Report of the Special Representative of the Secretary-General on the issue of humanrights and transnational corporations and other business enterprises, John Ruggie(A/HRC/17/31).

Hitachi Group Codes of Conduct

Hitachi, Ltd. Framework for Promoting Respect for
Human Rights
Corporate Human Rights Promotion Committee
Chairperson
Members

Executive officer in charge of human capital
Personnel in charge of corporate divisions such as
sales, procurement, human capital, and CSR

Business Unit and Business Site Committee
Chairperson

Business unit presidents anddivision heads

Members

Division managers

http://www.hitachi.com/corporate/about/conduct/index.html
Business Unit and Business Site Committee

Hitachi Group Human Rights Policy
http://www.hitachi.com/csr/renew/pdf/human_rights_policy.pdf

Framework for Human Rights
Hitachi, Ltd. established the Corporate Human Rights Promotion
Committee in fiscal 1981 to gauge the impact of business activities
on stakeholders’ human rights and to deliberate on mechanisms
and policies for preventing human rights violations. The executive
46

Chairperson

Business unit presidents anddivision heads

Members

Division managers

Business Unit and Business Site Committee
Chairperson

Business unit presidents anddivision heads

Members

Division managers

Hitachi, Ltd. | Integrated Report 2016Engaging in Responsible
Procurement
As a company that procures products and services from suppliers in regions and countries around the world, Hitachi wasquick to introduce policies on CSR and green procurement.
Moreover, Hitachi has taken the lead in responding to theissue of conflict minerals, which has been the focus of public
interest in recent years, by scrutinizing the countries where
raw materials are mined in order to prevent the infringements on human rights by countries engaged in conflict.

Raising Human Rights Awareness Among
Executives and Employees

CSR Supply Chain Management Framework

Hitachi conducts regular group training and seminars and uses

likelihood of supply chain risks creating management problems, andvideos to educate employees in each business unit and Group

we are working hard to identify and mitigate these risks beforehand

company. The target is for each employee to attend these sessions

as much as possible. We established a CSR/Ecological Procurement

at least once every three years (equivalent to a yearly participation

Promotion Center within the Hitachi headquarters in fiscal 2011.

rate of 33.3%). In fiscal 2015, the participation rate came to 71.8%

We have also established the Hitachi Group CSR Green Procurementat Hitachi, Ltd. and 46.0% among Group companies. We also

Committee, which includes committee members from in-houseoffer an e-learning program on business and human rights,

and key Group companies. This completes a framework that will

launched in June 2013; as of March 2015, approximately 187,000

enable our CSR supply chain management and green procurement

Group employees in Japan and elsewhere had taken the pro-philosophy and initiatives to be shared throughout the Group.

gram. Using educational materials developed in line with theGiven the global reach of Hitachi’s business, there is a growing

In order to share the philosophy of Hitachi among our suppliers,

Hitachi Group Human Rights Policy, adopted in May 2013, thein fiscal 2015 we also introduced a new initiative to provide sup-program aims to ensure that employees understand Hitachi’spliers directly with information in a face-to-face format, in addi-

human rights policy and act accordingly. The training is provided

tion to the information shared on the Hitachi website as well as

to all employees once every three years on average, taking into

our CSR monitoring, CSR audits, and other measures. The first ofaccount human rights trends worldwide.

these face-to-face events was held in January 2016 at a CSR and

In July 2015, moreover, 25 Hitachi, Ltd. executive officers

green procurement seminar held in Shanghai for Hitachi Groupparticipated in an officer training session on the theme of humanpartners in China. The event was attended by 15 people from 12

rights in global businesses, led by Takaji Hishiyama of the Centercompanies, primarily suppliers in eastern China. At the seminar,

for Corporate Behavior. Touching on several cases, Hishiyama dis-

Hitachi explained topics including its fundamental CSR philosophy,

cussed what the international community expects of corporations

the CSR audit situation, regulatory trends under Chinese environ-

regarding respect for human rights and how human rights risks

mental laws, and Hitachi’s related policies. Feedback from partici-translate into business risks, among other topics.

pants included a comment from one person who was “impressedby the emphasis the Company places on not only monozukuri
craftsmanship but also on fulfilling its social responsibility in arange of areas.” Another participant “gained a sense that profitability is not the sole aim and that it is important to adhere toenvironmental laws.” As reflected in the comments, the seminarserved to deepen the understanding of Hitachi initiatives related
to CSR and green procurement.
Guidelines for Procurement Activities
http://www.hitachi.com/procurement/policy/__icsFiles/afieldfile/2010/08/30/
guidelines.pdf
Procurement Policy
http://www.hitachi.com/procurement/policy/index.html

A scene from the officer training session.

CSR/Green Procurement
http://www.hitachi.com/procurement/csr/index.html
47Helping Resolve Environmental Issues Toward 2050

The world’s population, which was 7.3 billion in 2015, is projected to grow to 9.7 billion by 2050 and to 11.2 billion by 2100.*1
Global GDP is also continuing to expand—led by emerging economies—aggravating a host of environmental problems,
including global warming caused by higher CO2 emissions from fossil fuel consumption, the depletion of resources due
to increased demand, and ecosystem destruction. Global-scale efforts are being made to develop approaches that lighten
the burden on the environment so that a prosperous planet can be passed on to future generations.
Hitachi strives to achieve a more sustainable society by addressing environmental problems, which pose a major challenge for society, based on its corporate mission of contributing to society through the development of superior, originaltechnology and products.
*1 According to World Population Prospects: The 2015 Revision, published by the United Nations.

Hitachi’s Environmental Vision
As global warming, resource depletion, ecosystem destruction,and other environmental issues grow more serious, the international community is working together to tackle these problems,

Environmental Vision
Hitachi will resolve environmental issues andsuch as by adopting the Paris Agreement that includes a target

achieve both a higher quality of life and a sustainable

to keep global warming to below 2°C. From an environmental-

society through its Social Innovation Business inmanagement perspective, Hitachi, which promotes the Social

collaborative creation with its stakeholders.

Innovation Business, has established the Environmental Visionand defined the kind of society we envision in the long term incontributing to the resolution of global environmental issues.

Long-Term Environmental Targets:
Hitachi Environmental Innovation 2050
Our Environmental Vision envisions a low-carbon society; aresource efficient society; a harmonized society with nature. To
achieve such a sustainable society, we have newly established aset of long-term environmental targets called Hitachi
Environmental Innovation 2050.
To create a low-carbon society, we aim to achieve 80% reduc-Hitachi Environmental Innovation 2050
Low-Carbon Society• Achieve 50% reductions
in CO2 emissions by fiscal 2030
and 80% reductions by fiscal 2050
across the value chain(compared to fiscal 2010)

tions in CO2 emissions by fiscal 2050 across the value chain in linewith ambitious targets set in the Paris Agreement. Toward that
end, we will enhance the efficiency of our products and services,supply low-carbon energy, and develop innovative technologies
and solutions.
To achieve a resource efficient society, we will do our utmost
through our business operations, together with our customers
and society, to help build a society that uses water and other

Resource Efficient Society• Build a society that uses waterand other resources efficiently• Achieve 50% improvement in usage efficiency ofwater and other resources by fiscal 2050
(compared to fiscal 2010 in the Hitachi Group)

resources efficiently. We will also improve our usage efficiency ofwater and other resources in our business operations by 50% by
fiscal 2050.
To achieve a harmonized society with nature, we will strive tominimize Hitachi’s impact on natural capital, which bestows thebenefits of nature on humankind.

48

Harmonized Society with Nature• Minimize the impact
on natural capitalHitachi, Ltd. | Integrated Report 2016

Reducing the Environmental Burden of Our Business Operations (Fiscal 2015 Results)
The Environmental Action Plan for 2013 to 2015 encompassed many themes, such as promoting Eco-Products, reducing CO2 emissions,and using resources efficiently. Three years of improvement activities were concluded in fiscal 2015 with many positive results.
Environmental Action Plan for 2013 to 2015: Achievements
Category
Establish Environmental
Management Systems

Items
Raise the level of environmental
activities

Indicators
GPs (green points) in GREEN 21 Environmental
Activity Evaluation System

Fiscal 2015 targets
640 GPs

Fiscal 2015 results
646 GPs

Ecosystem (biodiversity)preservation

Implementation of ecosystem preservationassessment

Completion of ecosystempreservation assessment

Completed ecosystempreservation assessment

Expand Hitachi Eco-Productlineup

Percentage of Hitachi Eco-Product sales

90%

95%

Number of models in Eco-Products Select program 340 models

409 models

Build Industry’s Most
Advanced Factories andOffices

Promote Eco-Factories & Offices
Select certification

Eco-Factories & Offices Select certification

Average of at least 1 certification per in-house or Group
company

New certifications: 15
Renewed certifications: 58
Total: 73

Prevent Global Warming

Reduce energy use per unit

Reduction in energy use per unit (base: FY 2005,
global)15%

16%

Promote Eco-Products

For details about initiatives to address major indicators other than those above, please refer to the CSR section of our website.

Calculation of GHG Emissions Throughout
the Value Chain

Global Warming Countermeasuresin Factories and Offices

We calculate greenhouse gas (GHG) emissions throughout the

We are promoting ways to use energy more efficiently andentire value chain to more effectively reduce these emissions. As

reduce GHG emissions during production and transportation, inover 90% of emissions come from use of the products we haveboth manufacturing and nonmanufacturing divisions, to help

sold, we are working to reduce emissions by developing Eco-prevent global warming.

Products that meet environmentally conscious criteria throughout
their life cycle.

We are working to reduce the energy use per unit as one way
to use energy more efficiently. In fiscal 2015, we achieved a
reduction of 16% (from fiscal 2005, the base year), surpassing

GHG Emissions Throughout the Hitachi Value Chain

the target of 15%. We are systematically working to improve theProcurement of Raw Materials and Parts 3.2%

energy efficiency of individual lighting equipment and facilities by
installing high-efficiency equipment and devices, from LED light-

Use 94.6%
Transportation 0.1%
Production 2.0%

Disposal and Recycling 0.1%

ing to inverter air conditioners. In pursuit of more efficientenergy use, moreover, we are actively harnessing the control
technologies and IT systems that are our forte to conserve energy

Increasing the Ratio of Eco-Products

at our factories and offices.

We promote the development of environmentally conscious products

Reduction in Energy Use per Unit

called Eco-Products as part of our initiative to reduce the environmental burden of our products and services as much as possible.
Eco-Products must meet criteria used in the design and devel-

From base year

opment stages, when we evaluate the extent to which their envi-

16%reductionronmental burden can be reduced. Until fiscal 2015, we promoted
the development of Eco-Products by setting targets for raising the
Eco-Product sales ratio, a figure measuring Eco-Product sales
against total product sales. In fiscal 2016, we will launch new• FY2005 (base year)• FY2015

initiatives with the aim of helping to resolve environmental issues

Energy used 1,746 ML

Energy used 1,581 ML

by developing and expanding the use of products and services

Activity amount*with high environmental value.
[Key Indicators] Eco-Product Sales Ratio (Please refer to page 55.)

=100%

Activity amount= 84%* A value closely related to the emission factor numerators (environmental burden) ofenergy use from business activities (for example, production quantity, output, building
floor space, and number of employees).

[Key Indicators] CO2 Emissions (Please refer to page 55.)

49

About Us

50

Hitachi, Ltd. | Integrated Report 2016

52

Segment Information

54

Financial & Non-Financial Highlights

56

10-Year Financial Data

58

Operating and Financial Review

64	Consolidated Statements of Financial Position
66

Consolidated Statements of Profit or Loss

67	Consolidated Statements of Comprehensive Income
68	Consolidated Statements of Changes in Equity
69

Consolidated Statements of Cash Flows70	Summarized Consolidated Statements of Financial
Position by Manufacturing, Services and Others andFinancial Services

71	Summarized Consolidated Statements of Profit or Lossby Manufacturing, Services and Others and Financial
Services / Summarized Consolidated Statements ofCash Flows by Manufacturing, Services and Others andFinancial Services

72

Corporate Data / Stock Information

51

Segment Information

Revenues (left scale)

Information & Telecommunication Systems

Main Products and Services

Revenues and Profit

Systems Integration,
Consulting,
Cloud Services,
Servers,
Storage,
Software,Telecommunications & Network,
ATMs(Billions of yen)

Class800 train for the UK Intercity Express
Programme (IEP)Electronic Systems & Equipment

6.6%

6.7%

2,034.0

2,109.3

6.8%
1,943.9

2,000

7

6

5.9%
5.2%

1,000

13

14

15
(FY)

0

Revenues and Profit

Industrial Machinery and Plants,
Elevators,
Escalators,
Railway Systems,
Thermal, Nuclear and Renewable
Energy Power Generation
Systems,
Transmission & Distribution
Systems(Billions of yen)

(%)

3,000

12

11.5%
2,333.1
2,066.2

8

2,000
5.3%

4.5%

3.5%

13

14

15
(FY)

0

Revenues and Profit

Semiconductor Processing
Equipment,
Test and Measurement
Equipment,
Advanced Industrial Products,
Medical Electronics Equipment,
Power Tools(Billions of yen)

(%)

1,500

8
1,117.6

1,000

1,131.6

1,127.6
5.9%

6.4%

6

5.7%

5.6%

13

14

15
(FY)

0

Revenues and Profit(Billions of yen)

(%)

900

815.7

802.9

12

758.3

9.2%
7.9%

7.4%

7.3%

8

Main Products and Services

Revenues and Profit

Semiconductor and
Display Related Materials,
Circuit Boards and Materials,
Automotive Parts(Molded Plastics, etc.),
Energy Storage Devices,
Specialty Steels,
Magnetic Materials andComponents,
High Grade Casting Components
and Materials,
Wires and Cables(Billions of yen)

14

1,385.1

15(FY)

1,529.4

1,564.0

9.8%

8.1%
7.5%

12

10

14%

8
〜
〜

14

FY2015

Overseas Revenue Ratio

8.1%
7.9%

7.1%

13

69%
Share of Revenues

1,200

600

7%
FY2015

0

(%)

1,800

FY2015

4

3.0%

13

57%
Overseas Revenue Ratio

3.4%

0

FY2015

Share of Revenues

300

52

10%

4

0

0

FY2015

Overseas Revenue Ratio

4.7%
500

Hitachi Construction Machinery’s Ultra Large
Hydraulic Excavator and Mining Dump Truck

37%
Share of Revenues

5.5%

600

Hitachi Metals’ Amorphous Metals

21%
FY2015

1.2%

Proton Beam Therapy System

High Functional Materials & Components

FY2015

4Main Products and Services

Hydraulic Excavators,
Wheel Loaders,Mining Machinery

33%
Overseas Revenue Ratio

4.3%

1,000

0

Main Products and Services

FY2015

Share of Revenues〜〜

Construction Machinery

19%

5

Main Products and Services

2,234.0

FY2015

Overseas Revenue Ratio

5.2%

〜
〜
0

EBIT ratio (right scale)

Share of Revenues
(%)

3,000

Storage System

Social Infrastructure & Industrial Systems*1

Adjusted operating income ratio (right scale)

15
(FY)

0

FY201557%

Hitachi, Ltd. | Integrated Report 2016

Revenues (left scale)

Automotive Systems

Main Products and Services

Revenues and Profit

Engine Management Systems,
Electric Powertrain Systems,
Drive Control Systems,
Car Information Systems(Billions of yen)

Adjusted operating income ratio (right scale)

Share of Revenues
(%)

1,200

1,001.1

936.9

892.4

9

6.2%

5.1%
4.9%

800

6
5.4%

3.7%

FY201513

0Main Products and Services

Revenues and Profit

Air-Conditioning Equipment,
Room Air Conditioners,
Refrigerators,
Washing Machines(Billions of yen)

14

15
(FY)

0

(%)

900

8

754.2

744.0

681.0

600

6.2%

6

3.5%

4

Others (Logistics*2 and Other Services)

3.8%

3.3%

〜
〜

13

Main Products and Services

Revenues and Profit

Logistics,
Optical Disk Drives,
Property Management,
Others(Billions of yen)

FY2015

6%
Overseas Revenue Ratio

3.8%
300

0

58%
Share of Revenues

4.6%

Hitachi Appliances’ Large
Capacity Refrigerator “Vacuum
Compartment” X Series

9%

3
0.4%

Smart Life & Ecofriendly Systems

FY2015

Overseas Revenue Ratio

400

Hitachi Automotive
Systems’ Inverter

EBIT ratio (right scale)

14

15
(FY)

0

FY201534%
Share of Revenues

(%)

1,800

6
1,454.9
1,274.2
4.0%

1,200

4.2%
1,252.7
3.2%

4

3.3%

2.9%

FY2015

11%
Overseas Revenue Ratio

600

Hitachi Transport System’s Truck andMetropolitan East Distribution Center

Financial Services*2

FY201513

0Main Products and Services

Revenues and Profit

Leasing,(Billions of yen)

Loan Guarantees

2

1.6%

14

15
(FY)

0

Share of Revenues
(%)

600

14
12.8%
12.4%
356.2

342.6

400

28%

365.3

10.9%

12

FY2015

3%
Overseas Revenue Ratio

200

9.7%

9.6%

10

9.9%

〜
〜
0

Hitachi Capital’s Hitachi Corporate Card

13

14

15
(FY)

0

FY201538%*1 Effective on April 1, 2015, “Power Systems” became part of “Social Infrastructure & Industrial Systems.” Figures for each segment, including figures for the previous fiscal year,
reflect the new segmentation.
*2 Conversion into equity-method affiliates: Hitachi Transport System, Ltd., in May 2016 and Hitachi Capital Corporation in October 2016 or after53

Financial and Non-Financial Highlights

Revenues / Overseas sales ratio

Operating income (Adjusted operating income) /Operating income (Adjusted operating income) ratio / EBIT / EBIT ratio

Millions of yen%

12,000,000

60

800,000

8

10,000,000

50

600,000

6

8,000,000

40

400,000

46,000,000

30

200,000

2

4,000,000

20

0

0

2,000,000

10–200,000–20– 400,000

0

06

07

08

09
10
11
U.S. GAAP

Revenues ( Japan
Asia
North America
Overseas sales ratio (right scale)

12
Europe

13

14

13

14
IFRS

15

Millions of yen

06

%

07

08

(FY)

Other Areas) (left scale)

09
10
11
U.S. GAAP

12

13

14

13

14
IFRS

–4

15

(FY)

Operating income (Adjusted operating income) (left scale)
EBIT (left scale)Operating income ratio (Adjusted operating income) (right scale)
EBIT ratio (right scale)

Return on equity (ROE) / Return on assets (ROA)

Cash flows%Millions of yen
900,000

30

20

10

450,000

0

0

–10

–20

–450,000

–30

–40

–50

ROE

06

07

08

09
10
11
U.S. GAAP

12

13

14

13

14
IFRS

15

(FY)

ROA

–900,000

06

07

08

09
10
11
U.S. GAAP

Cash flows from operating activities

12

13

14

13

Cash flows from investing activities

14
IFRS

15

Free cash flows

Capital expenditures*1 / Depreciation

R&D expenditures / R&D expenditures as a percentage ofconsolidated revenues

Millions of yen

Millions of yen

1,200,000(FY)%

500,000

5.0

400,000

4.0

300,000

3.0

200,000

2.0

100,000

1.0

800,000

400,000

0

06

07

Capital expenditures

54

08

09
10
11
U.S. GAAP

Depreciation

12

13

14

13

14
IFRS

15

0

(FY)

06

07

08

09
10
11
U.S. GAAP

12

13

14

R&D expenditures (left scale)R&D expenditures as a percentage of consolidated revenues (right scale)

13

14
IFRS

0

15

(FY)

Hitachi, Ltd. | Integrated Report 2016

Eco-product sales ratio (sales revenues)

CO2 emissions%

kt-CO2e
100

5,000

80

4,000

60

3,000

40

2,000

20

1,000

0

10

11

12

13

14

15

0

(FY)

10

11

Number of employees*2*3

Average service (years)*3

PeopleYears

40,00020

30,00015

20,00010

10,000

5

0

Male

10

11

12

13

14

15

0

(FY)

FemaleMale

Number and ratio of female managers*3

10Female

11

12

13

14

15

(FY)

12

13

14

15

(FY)

12

13

14

15

(FY)

Average service (years)

Number of registrations

People%
500

10

400

8

300

6

200

4

15,00010,000

5,000

100

0

2

10

11

12

13

14

0

15

0

10

11

(FY)
Section chief
Section chief

General manager or above
General manager or above

Female managers (number/left scale)
Female managers (ratio/right scale)

Domestic

Overseas*4*1 From fiscal 2013, capital investment is stated exclusive of investment in lease assets classified as finance leases.
*2 Number of full-time employees*3 Hitachi, Ltd.
*4 Total number of patents registered in the United States, Europe, and China. The number of patents registered in Europe is based on European patent applications
under European Patent Convention (EPC).

55

10-Year Financial Data
Hitachi, Ltd. and Subsidiaries

U.S. GAAPFor the year:
Revenues

FY2006

FY2007

FY2008FY2009FY2010FY2011FY2012¥10,247,903¥11,226,735¥10,000,369¥8,968,546¥9,315,807¥9,665,883¥9,041,071

Operating income

182,512345,516

127,146

202,159444,508

412,280

422,028

EBIT (Earnings before interest and taxes)

214,218

335,729(275,239)

77,815443,812573,218

358,015(32,799)(58,125)(787,337)(106,961)

238,869

347,179

175,326 Net income (loss) attributable to
Hitachi, Ltd. stockholders
Cash flows from operating activities

615,042

791,837

558,947

798,299

841,554447,155

583,508

Cash flows from investing activities(786,170)(637,618)(550,008)(530,595)(260,346)(195,584)(553,457)

Free cash flows(171,128)

154,219

8,939

267,704

581,208

251,571

30,051

Cash flows from financing activities

121,259(185,556)

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

Cash dividends declared

19,974

19,947

9,971—

36,13336,727

47,690 Capital expenditures(Property, plant and equipment)

1,048,572

969,087

788,466

546,326

556,873649,234

742,537

Depreciation (Property, plant and equipment)

472,175

541,470

478,759441,697382,732

360,358

300,664

R&D expenditures

412,534

428,171416,517372,470

395,180

412,514341,310

Total assets

10,644,259

10,530,847

9,403,709

8,964,464

9,185,629

9,418,526

9,809,230

Property, plant and equipment

2,688,977

2,653,918

2,393,946

2,219,804

2,111,270

2,025,538

2,279,964

Total Hitachi, Ltd. stockholders’ equity

2,442,797

2,170,612

1,049,951

1,284,658

1,439,865

1,771,782

2,082,560

Interest-bearing debt

2,687,450

2,531,506

2,820,109

2,367,143

2,521,551

2,396,454

2,370,079

Number of employees

349,996

347,810

361,796359,746

361,745

323,540

326,240  Basic¥(9.84)¥(17.48)¥(236.86)¥(29.20)¥52.89¥76.81¥37.28  Diluted(9.87)(17.77)(236.87)(29.20)

49.38

71.86

36.29

6.0

6.0

3.0

­—

8.0

8.0

10.0

734.66652.95315.86287.13318.73382.26431.13Operating income ratio

1.8

3.1

1.3

2.3

4.8

4.3

4.7

EBIT ratio

2.1

3.0

–2.8

0.9

4.8

5.9

4.0

Return on revenues

–0.3

–0.5

–7.9

–1.2

2.6

3.6

1.9

Return on equity (ROE)

–1.3

–2.5

–48.9

–9.2

17.5

21.6

9.1

Return on assets (ROA)

0.4

0.5

–8.0

–0.9

3.3

4.4

2.5

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

0.76

0.76

1.29

1.04

1.03

0.86

0.75

Total Hitachi, Ltd. stockholders’ equity ratio

22.9

20.6

11.2

14.3

15.7

18.8

21.2

At year-end:

Per share data: Net income (loss) attributable to
Hitachi, Ltd. stockholders:Cash dividends declared
Total Hitachi, Ltd. stockholders’ equity

Financial ratios:

Notes: 1	In order to be consistent with financial reporting principles and practices generally accepted in Japan, 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 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 the Company andits ­subsidiaries reviewing and reshaping the business portfolio.
3	EBIT is presented as income before income taxes less interest income plus interest charges.
4	The Company has changed the number of employees to exclude temporary employees starting from the year ended March 31, 2010. The figures for the prior years have been
restated to reflect the current year’s presentation.
5	Effective from FY2014, a part of the thermal power generation systems business is classified as a discontinued operation in accordance with the provision of ASC 205-20,“Presentation of Financial Statements - Discontinued Operations,” which was not transferred to MITSUBISHI HITACHI POWER SYSTEMS, LTD. for the business integrationin the thermal power generation systems with Mitsubishi Heavy Industries, Ltd. The results of the discontinued operation are reported separately from continuing operations.
In line with this classification, “Revenues” and “Operating income” for FY2013 are reclassified.
6 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

56

Hitachi, Ltd. | Integrated Report 2016

Millions of yen

Millions of yen

FY2013

FY2014IFRS
For the year:¥9,563,791¥9,761,970

Revenues¥9,666,446¥9,774,930¥10,034,305

538,288

600,479

Adjusted operating income

604,798

641,325

634,869

585,662551,018

EBIT

691,230

534,059

531,003413,877

217,482

172,155

264,975

241,301 Net income attributable to
Hitachi, Ltd. stockholders

FY2013

FY2014FY2015439,406

447,348

Net cash provided by operating activities

306,777

451,825

812,226(491,363)(610,255)

Net cash used in investing activities(550,179)(612,545)(730,799)(51,957)(162,907)

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

81,42732,968250,335

Net cash provided by (used in) financing activities

228,840

233,206(26,467)

50,711

57,944

Cash dividends declared

50,711

57,94457,939 Capital expenditures(Property, plant and equipment)

849,877

848,716

491,170

431,201

528,551

329,833

349,614

Depreciation (Property, plant and equipment)

331,228

350,783

366,547

351,426

335,515

R&D expenditures

354,487

334,814

333,730

11,016,899

12,395,379

Total assets

11,098,191

12,433,727

12,551,005

2,342,091

2,564,105

Property, plant and equipment

2,258,933

2,472,497

2,500,226

2,651,241

2,930,309

Total Hitachi, Ltd. stockholders’ equity

2,668,657

2,942,281

2,735,078

2,823,049

3,354,616

Interest-bearing debt

3,033,985

3,557,356

3,604,455

320,725

333,150

Number of employees

323,919

336,670

335,244

At year-end:

Yen

Yen

Per share data: Earnings per share attributable to
Hitachi, Ltd. stockholders:¥54.86¥49.97  Basic¥85.69¥45.04¥35.65

54.85

49.93

  Diluted

85.66

45.00

35.62

10.5

12.0

10.5

12.0

12.0

549.02606.87552.62609.35566.48Cash dividends declared
Total Hitachi, Ltd. stockholders’ equity%%

Financial ratios:
5.6

6.2

Adjusted operating income ratio

6.3

6.6

6.3

6.1

5.6

EBIT ratio

7.2

5.5

5.3

2.8

2.5

Return on revenues

4.3

2.2

1.7

11.2

8.6

Return on equity (ROE)

17.5

7.8

6.1

3.5

3.1

Return on assets (ROA)

5.0

2.9

2.4

0.78

0.83

0.87

24.0

23.7

21.8

0.73

0.78

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

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, adjusted
operating income is presented as total revenues less cost of sales and selling, general administrative expenses.
The Company believes that this is useful to investors in comparing the Company’s financial results with those ofother Japanese companies.
2	A part of the thermal power generation systems business is classified as a discontinued operation in accordancewith the provision of IFRS 5, “Non-current Assets Held for Sale and Discontinued Operations,” which was nottransferred to MITSUBISHI HITACHI POWER SYSTEMS, LTD. for the business integration in the thermal power­generation 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 endof previous fiscal year) x 100

57

Financial Section

Operating and Financial Review

Operating Results

Other income increased ¥48.1 billion to ¥57.5 billion andother expenses decreased ¥25.9 billion to ¥141.8 billion, as com-

Effective from April 1, 2015, the Power Systems segment has
been integrated to the Social Infrastructure & Industrial Systems
segment. Figures for the Social Infrastructure & Industrial Systems
segment, including figures for the year ended March 31, 2015,reflect the new segmentation.

compared with the year ended March 31, 2015. This mainly consisted of impairment losses recognized for certain assets as a

2015

2016

Percentchange¥9,774.9¥10,034.3

3%

534.0

531.0

–1%

Years ended March 31

Income fromcontinuing operations,
before income taxes
Net income attributable
to Hitachi, Ltd.
stockholders

Net loss on sales and disposal of fixed assets decreased ¥12.3
billion to ¥4.4 billion, as compared with the year ended March
Impairment losses increased ¥2.6 billion to ¥44.7 billion, as

Billions of yen

EBITdetails are as follows.

31, 2015.

Summary

Revenues

pared with the year ended March 31, 2015, respectively. The

result of business portfolio restructuring in the Information &Telecommunication Systems segment.
Net gain on business reorganization and others was ¥55.2 billion, as compared with net loss of ¥55.0 billion in the year ended
March 31, 2015. The net gain in the year ended March 31, 2016

518.9

517.0

0%

was due mainly to posting a gain on sales of shares of UniCarriers
Holdings Corporation by Hitachi Construction Machinery Co., Ltd.

217.4

172.1

–21%

in the Construction Machinery segment and sales of shares ofHitachi Tool Engineering, Ltd. by Hitachi Metals, Ltd. in the High
Functional Materials & Components segment as well as the reor-

Analysis of Statement of Operations
Revenues increased 3% to ¥10,034.3 billion, as compared withthe year ended March 31, 2015. This was due mainly to higher
revenues in the Information & Telecommunication Systems, Social
Infrastructure & Industrial Systems, High Functional Materials &Components and Automotive Systems segments, etc. This
increase was partially offset by lower revenues in the Construction
Machinery, Smart Life & Ecofriendly Systems and Others (Logistics
and Other services) segments, etc.
Cost of sales increased 4% to ¥7,459.0 billion, as comparedwith the year ended March 31, 2015, and the ratio of cost of
sales to revenues was 74%, which was the same level as the year
ended March 31, 2015. Gross profit was ¥2,575.2 billion, which
was the same level as the year ended March 31, 2015.
Selling, general and administrative expenses were ¥1,940.3
billion, which was the same level as the year ended March 31,
2015, and the ratio of selling, general and administrative
expenses to revenues was 19%, as compared with 20% for theyear ended March 31, 2015.

ganization of the air-conditioning systems business in the Smart
Life & Ecofriendly Systems segment.
Restructuring charges increased ¥10.1 billion to ¥36.8 billion,
as compared with the year ended March 31, 2015. This mainly
consisted of expenses for business restructuring in the
Information & Telecommunication Systems segment.
Expenses related to competition law and others decreased¥3.5 billion to ¥22.3 billion, as compared with the year ended
March 31, 2015.
Financial income (excluding interest income) increased ¥2.8
billion to ¥10.6 billion and financial expenses (excluding interest
charges) increased ¥27.0 billion to ¥30.2 billion, as comparedwith the year ended March 31, 2015, respectively. This was due
mainly to an increase in exchange loss from ¥23.9 billion to ¥26.5
billion, as compared with the year ended March 31, 2015.
Share of profits of investments accounted for using the equity
method decreased ¥46.5 billion to ¥0.1 billion due mainly todeterioration of profitability of overseas equity-method associates,
as compared with the year ended March 31, 2015.
EBIT decreased ¥3.0 billion to ¥531.0 billion, as compared withthe year ended March 31, 2015.

58

Hitachi, Ltd. | Integrated Report 2016

Interest income decreased ¥0.5 billion to ¥12.0 billion andinterest charges decreased ¥1.6 billion to ¥25.9 billion, as
compared with the year ended March 31, 2015, respectively.
Income from continuing operations, before income taxes
decreased ¥1.9 billion to ¥517.0 billion, as compared with theyear ended March 31, 2015.
Income taxes increased ¥43.1 billion to ¥165.2 billion, as compared with the year ended March 31, 2015, due mainly to tax
expense recognized for partial transfer of shares of Hitachi
Transport System, Ltd. and Hitachi Capital Corporation.
Loss from discontinued operations increased ¥3.5 billion to¥57.0 billion, as compared with the year ended March 31, 2015.
Net income decreased ¥48.6 billion to ¥294.7 billion, as
compared with the year ended March 31, 2015.
Net income attributable to non-controlling interests decreased¥3.3 billion to ¥122.5 billion, as compared with the year ended
March 31, 2015.
As a result of the foregoing, net income attributable to
Hitachi, Ltd. stockholders decreased ¥45.3 billion to ¥172.1 billion,
as compared with the year ended March 31, 2015.

Operations by Segment
The following is an overview of results of operations by segment.
Revenues for each segment include intersegment transactions.
Segment profit is measured by EBIT.
(Information & Telecommunication Systems)
Revenues increased 4% to ¥2,109.3 billion, as compared with theyear ended March 31, 2015, due mainly to solid performances by
the system solutions business centered on financial systems andhigher revenues from the storage solutions business as a result of
the effects of foreign exchange rate fluctuations.
Segment profit increased ¥3.0 billion to ¥109.1 billion, as
compared with the year ended March 31, 2015, due mainly tohigher profits in the system solutions business resulting fromincreased revenues. This increase was partially offset by lower
profits in the platform business owing to the effect of reduction
in capital investment by Japanese telecommunications carriers in
the telecommunications & network business, to decreased
demand for high-end storage in North America and to posting
expenses related to business restructuring.
(Social Infrastructure & Industrial Systems)
Revenues increased 13% to ¥2,333.1 billion, as compared withthe year ended March 31, 2015, due mainly to significantly
increased revenues from the railway systems business resulting
from the acquisition of relevant businesses from Finmeccanica
S.p.A. and to solid performances by the power generation systems
business and the elevators and escalators business.
Segment profit decreased ¥81.2 billion to ¥29.1 billion, as
compared with the year ended March 31, 2015. This decrease
was due mainly to increased losses from Middle Eastern projects
in the infrastructure systems business, to a decrease in share of
profits of investments accounted for using the equity method, toposting expenses related to business restructuring and currency
exchange loss, and to the absence of net gain on business reorganization and others relating to Mitsubishi-Hitachi Metals
Machinery, Inc. posted in the year ended March 31, 2015.

59

Financial Section(Electronic Systems & Equipment)

Segment profit increased ¥29.6 billion to ¥153.5 billion, as

Revenues were ¥1,127.6 billion, which was the same level as thecompared with the year ended March 31, 2015. This increase wasyear ended March 31, 2015. Hitachi High-Technologies

due mainly to higher revenues, the effects of business restructur-

Corporation posted higher revenues due mainly to higher sales ofing and posting net gain on business reorganization and others

electron microscopes and clinical analyzers, and Hitachi Koki Co.,

related to the sale of a part of equity interest in Hitachi Tool

Ltd. also posted higher revenues due mainly to higher sales ofEngineering, Ltd. by Hitachi Metals, Ltd.

power tools in North America. These results were offset by lower
revenues at Hitachi Kokusai Electric Inc., which was affected by a(Automotive Systems)

drop in post-earthquake reconstruction demand following Great

Revenues increased 7% to ¥1,001.1 billion, as compared with theEast Japan Earthquake.

year ended March 31, 2015, due mainly to growth in sales driven

Segment profit increased ¥0.5 billion to ¥64.3 billion, as com-by robust demand for automobiles in North America and China.

pared with the year ended March 31, 2015. This increase was due

Segment profit increased ¥18.9 billion to ¥53.9 billion, as

mainly to non-recurring gain posted for the shift to defined con-compared with the year ended March 31, 2015, due mainly totribution pension plan at Hitachi High-Technologies Corporation,higher revenues, a decrease in expenses related to competition

and to improved profit in the healthcare business resulting fromlaw and others, and a decrease in exchange loss.

the effect of business restructuring. Hitachi Kokusai Electric Inc.
posted decreased profit owing to lower revenue, and Hitachi Koki

(Smart Life & Ecofriendly Systems)

Co., Ltd. also posted decreased profit owing to the effect of the

Revenues decreased 10% to ¥681.0 billion, as compared withforeign exchange rate fluctuations and economic slowdown inthe year ended March 31, 2015, due mainly to the effect of reor-

emerging countries and resource-producing countries.

ganization of the air-conditioning systems business. This decrease
was partially offset by solid performance in the home appliances(Construction Machinery)
Revenues decreased 7% to ¥758.3 billion, as compared with thebusiness such as refrigerators and washing machines.
Segment profit increased ¥7.4 billion to ¥41.9 billion, as com-

year ended March 31, 2015, due mainly to sluggish market con-pared with the year ended March 31, 2015, due mainly to theditions in Asia, in particular China, as well as Oceania and Russia.

net gain on business reorganization and others related to the

Segment profit decreased ¥34.7 billion to ¥25.8 billion, as

reorganization of the air-conditioning systems business, despitecompared with the year ended March 31, 2015, due mainly to

lower revenues.

lower revenues and to a higher proportion of compact models
with lower profitability in the product mix owing to exhaust emis-(Others (Logistics and Other services))sion regulations in Japan and changes in product mix for China

Revenues decreased 2% to ¥1,252.7 billion, as compared withmarket. This decrease was also attributable to disposal of invento-

the year ended March 31, 2015, due mainly to lower revenues ofries, foreign exchange losses owing to the depreciation of emerg-

optical disk drives business owing to weaker demand.

ing-market currencies, and posting expenses for business

Segment profit decreased ¥10.4 billion to ¥40.6 billion, as

restructuring. This decrease was partially offset by net gain on

compared with the year ended March 31, 2015, due mainly tobusiness reorganization and others related to the sale of shares of

expenses related to business restructuring in optical disk drives

UniCarriers Holdings Corporation.

business, despite increased profits at Hitachi Transport System, Ltd
resulting from improved profitability.

(High Functional Materials & Components)
Revenues increased 2% to ¥1,564.0 billion, as compared with the(Financial Services)year ended March 31, 2015. This increase was due mainly to the

Revenues increased 3% to ¥365.3 billion, as compared with theeffects of the consolidation of Waupaca Foundry Holdings, Inc. by

year ended March 31, 2015, due mainly to solid performance in

Hitachi Metals, Ltd. in November 2014 and of CSB Battery Co.,

Japan and strong performance in overseas business, particularly inLtd. by Hitachi Chemical Company, Ltd. in January 2015, and to

North America.

solid performances for automobile-related products. This increase

Segment profit increased ¥11.2 billion to ¥46.6 billion, as

was partially offset by the impact of slowdown in Chinese market

compared with the year ended March 31, 2015, due mainly toand decreased demand for electronics-related products.

higher revenues, the absence of expenses related to businessrestructuring posted in the year ended March 31, 2015, and theeffects of such business restructuring.

60

Hitachi, Ltd. | Integrated Report 2016

Revenues by Geographic Area

(North America)
Revenues in North America increased 20% to ¥1,280.3 billion, as

The following is an overview of revenues attributed tocompared with the year ended March 31, 2015. This increase wasgeographic areas based on customer location.

due mainly to higher revenues in the High Functional Materials &Billions of yen

2015

2016

PercentchangeJapan¥5,220.3¥5,231.50%Overseas Revenues
Subtotal

4,554.5

4,802.75%

Asia2,178.2

2,112.3–3%

North America

Years ended March 31:

Components segment as a result of the effects of the consolidation of Waupaca Foundry Holdings, Inc. by Hitachi Metals, Ltd.,and in the Automotive Systems segment, despite lower revenues
in the Construction Machinery and Others (Logistics and Other

1,064.1

1,280.3

20%

Europe

841.9

951.1

13%

Other Areas

470.2

459.0

–2%

Total Revenues¥9,774.9¥10,034.3

3%

Japan
Revenues in Japan were ¥5,231.5 billion, which was the samelevel as the year ended March 31, 2015. This was due mainly tohigher revenues from the system solutions business centered on
financial systems in the Information & Telecommunication
Systems segment, and higher revenues from the power generation systems business and the infrastructure systems business in
the Social Infrastructure & Industrial Systems segment, despite
lower revenues in the High Functional Materials & Components
and Automotive Systems segments, etc.
Overseas

services) segments.
(Europe)
Revenues in Europe increased 13% to ¥951.1 billion, as comparedwith the year ended March 31, 2015. This increase was due mainly
to higher revenues in the Social Infrastructure & Industrial Systems
segment which reported increased revenues from the railway systems business, and in the Information & Telecommunication
Systems segment, despite lower revenues in the Construction
Machinery and Smart Life & Ecofriendly Systems segments.
(Other Areas)
Revenues in other areas decreased 2% to ¥459.0 billion, as compared with the year ended March 31, 2015. This decrease wasdue mainly to lower revenues in the Construction Machinery andSmart Life & Ecofriendly Systems segments, despite higher revenues
in the Social Infrastructure & Industrial Systems segment which
reported increased revenues from the railway systems business.

Overseas revenues increased 5% to ¥4,802.7 billion, as comparedwith the year ended March 31, 2015, and the ratio to total revenues was 48%, compared with 47% for the year ended March
31, 2015.
(Asia)
Revenues in Asia decreased 3% to ¥2,112.3 billion, as comparedwith the year ended March 31, 2015. This was due mainly to
lower revenues in the Smart Life & Ecofriendly Systems segment,
which was affected by the reorganization of the air-conditioning
systems business, and in the Construction Machinery segment
mainly because of decreased sales particularly in China, despite
higher revenues in the Automotive Systems and Social
Infrastructure & Industrial Systems segments, etc.

61

Financial Section

Liquidity and Capital Resources
Our management considers maintaining an appropriate level ofliquidity and securing adequate funds for current and future business operations to be important financial objectives. Through efficient management of working capital and selective investment in
new plants and equipment, we are working to optimize the efficiency of capital utilization throughout our business operations.
We endeavor to improve our group cash management by centralizing such management among us and our overseas financial subsidiaries. Our internal sources of funds include cash flows

We receive debt ratings from Moody’s Japan K.K. (Moody’s),Standard & Poor’s Rating Japan (S&P), as well as Rating andInvestment Information, Inc. (R&I). Our debt ratings as ofMarch 31, 2016 were as follows.
Rating Company

Long-term

Short-term

A3

P-2

S&P

A–

A-2

R&I

A+

a-1

Moody’sWith our current ratings, we believe that our access to thegenerated by operating activities and cash on hand. Our manage-

global capital markets will remain sufficient for our financing

ment also considers short-term investments to be an immediately

needs. We seek to improve our credit ratings in order to ensure

available source of funds. In addition, we raise funds both in thefinancial flexibility for liquidity and capital management, and tocapital markets and from Japanese and international commercial

continue to maintain access to sufficient funding resources

banks in response to our capital requirements. Our management’s

through the capital markets.

policy is to finance capital expenditures primarily by internallygenerated funds and to a lesser extent by funds raised throughCash Flows

the issuance of debt and equity securities in domestic and foreign
capital markets. In order to flexibly access funding, we maintainour shelf registration with the maximum outstanding balance of¥300.0 billion.
We maintain commitment line agreements with a number ofdomestic banks under which we may borrow in order to ensure
efficient access to necessary funds. These commitment line agreements generally provide for a one-year term, renewable upon
mutual agreement between us and each of the lending banks, aswell as another commitment line agreement with a contract termof three years ending in July 2019. As of March 31, 2016, ourunused commitment lines totaled ¥553.0 billion, including theseof ¥400.0 billion which the Company maintained.

Billions of yen

2015

2016

Net cash provided by operating activities¥ 451.8¥ 812.2

Net cash used in investing activities(612.5)(730.7)

Net cash provided by (used in)financing activities

233.2(26.4)

Effect of exchange rate changes
on cash and cash equivalents

68.5(57.3)Net increase (decrease) incash and cash equivalents

141.0

(2.3)

Years ended March 31:

Cash and cash equivalents at
beginning of year
Cash and cash equivalents at end of year

560.6

701.7

¥ 701.7¥ 699.3(Cash Flows from Operating Activities)
Net income in the year ended March 31, 2016 decreased ¥48.6
billion, as compared with the year ended March 31, 2015.
Changes in working capital in the year ended March 31, 2016
from collection of receivables, a decrease in inventories andchanges in trade payables improved net cash flow by ¥148.3 billion, ¥160.6 billion and ¥16.4 billion, respectively. As a result of
the foregoing, net cash provided by operating activities was¥812.2 billion in the year ended March 31, 2016, an increase of¥360.4 billion compared with the year ended March 31, 2015.

62

Hitachi, Ltd. | Integrated Report 2016

(Cash Flows from Investing Activities)
Proceeds from sales of investments in securities and other financial assets (including investments in subsidiaries and investments
accounted for using the equity method) increased by ¥16.2 billion
as compared with the year ended March 31, 2015. Net amountof investments related to property, plant and equipment*1 was¥652.3 billion in the year ended March 31, 2016, an increase of¥83.7 billion as compared with the year ended March 31, 2015.
Purchase of investments in securities and other financial assets(including investments in subsidiaries and investments accounted
for using the equity method) in the year ended March 31, 2016was ¥196.6 billion, an increase of ¥43.7 billion as compared withthe year ended March 31, 2015, due mainly to the acquisition of
relevant businesses from Finmeccanica S.p.A. and the acquisitionof Pentaho Corporation by Hitachi Data Systems Corporation. As
a result of the foregoing, net cash used in investing activities was¥730.7 billion in the year ended March 31, 2016, an increase of¥118.2 billion compared with the year ended March 31, 2015.
*1 The sum of the purchase of property, plant and equipment, the purchase ofintangible assets and the purchase of leased assets, less the proceeds fromsale of property, plant, equipment and intangible assets, the proceeds fromsale of leased assets and the collection of lease receivables(Cash Flows from Financing Activities)
Net cash outflow from a decrease in short-term debt increased by¥206.7 billion as compared with the year ended March 31, 2015.
Proceeds related to long-term debt*2 in the year ended March 31,
2016 was ¥180.6 billion, a decrease of ¥25.4 billion as comparedwith the year ended March 31, 2015. As a result of the foregoing, net cash used in financing activities was ¥26.4 billion in theyear ended March 31, 2016, an increase in net cash outflow of¥259.6 billion compared with the year ended March 31, 2015.
*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, 2016, cash andcash equivalents amounted to ¥699.3 billion, net decrease of¥2.3 billion from March 31, 2015. Free cash flows, the sum of
cash flows from operating and investing activities, represented an
inflow of ¥81.4 billion in the year ended March 31, 2016, anincrease in net cash inflow of ¥242.1 billion from the year ended
March 31, 2015.

Assets, Liabilities and Equity
As of March 31, 2016, total assets amounted to ¥12,551.0 billion,
an increase of ¥117.2 billion from March 31, 2015. This was due
mainly to the effect of the acquisition of the signaling systems
and railway businesses of Finmeccanica S.p.A. and the acquisitionof Pentaho Corporation by Hitachi Data Systems Corporation,
and an increase in trade receivables associated with businessexpansion, especially for foreign markets, in the Financial Services
segment. This increase was partially offset by the effect of reorganization of the air-conditioning systems business, decreases in thevalue of assets denominated in foreign currency owing to theappreciation of yen, the effect of lower stock price and the effectof inventory reduction. Cash and cash equivalents as of March 31,
2016 amounted to ¥699.3 billion, a decrease of ¥2.3 billion fromthe amount as of March 31, 2015.
As of March 31, 2016, total interest-bearing debt, the sum ofshort-term debt and long-term debt, amounted to ¥3,604.4 billion, an increase of ¥47.0 billion from March 31, 2015. As of
March 31, 2016, short-term debt, consisting mainly of borrowings from banks and commercial paper, amounted to ¥871.4 billion, a decrease of ¥106.2 billion from March 31, 2015, due
mainly to the repayment of commercial paper by the Company.
As of March 31, 2016, current portion of long-term debt
amounted to ¥651.5 billion, an increase of ¥167.9 billion fromMarch 31, 2015. As of March 31, 2016, long-term debt (excluding current portion), consisting mainly of debentures, debentureswith stock acquisition rights, medium-term notes and loans principally from banks and insurance companies, amounted to¥2,081.5 billion, a decrease of ¥14.6 billion from March 31,
2015, due mainly to increased amount of debt maturing in theyear ending March 31, 2017, despite higher demand for funds inline with business expansion in the Financial Services segment.
As of March 31, 2016, total Hitachi, Ltd. stockholders’ equity
amounted to ¥2,735.0 billion, a decrease of ¥207.2 billion fromMarch 31, 2015, due mainly to a decrease in the accumulated
other comprehensive income owing primarily to the appreciationof yen, lower stock prices, and lower interest rates, despite posting of net income attributable to Hitachi, Ltd. stockholders. As aresult, the ratio of total Hitachi, Ltd. stockholders’ equity to total
assets as of March 31, 2016 was 21.8%, compared with 23.7%
as of March 31, 2015.
Non-controlling interests as of March 31, 2016 was ¥1,390.4
billion, an increase of ¥36.4 billion from March 31, 2015.
Total equity as of March 31, 2016 was ¥4,125.5 billion, adecrease of ¥170.7 billion from March 31, 2015. The ratio ofinterest-bearing debt to total equity increased to 0.87, comparedwith 0.83 as of March 31, 2015.
63Financial Section

Consolidated Statements of Financial Position
Hitachi, Ltd. and Subsidiaries
March 31, 2016 and 2015

Millions of yen

AssetsCurrent assets
Cash and cash equivalents

2015

2016

¥   701,703¥   699,315

Trade receivables

2,870,042

2,992,770

Lease receivables

337,353

338,758

1,458,119

1,299,855

Other current assets

Inventories

515,195

541,857   Total current assets

5,882,412

5,872,555

Investments accounted for using the equity method

681,623

676,960

Investments in securities and other financial assets

1,449,734

1,329,974

680,620

727,485

2,472,497

2,500,226

Intangible assets

933,582

1,070,403

Other non-current assets

333,259

373,402   Total non-current assets

6,551,315

6,678,450¥12,433,727¥12,551,005

Non-current assets

Lease receivables
Property, plant and equipment    Total Assets

64

Hitachi, Ltd. | Integrated Report 2016

Millions of yen

Liabilities
Current liabilities
Short-term debt

2015

2016

¥   977,701¥   871,417

Current portion of long-term debt

483,521651,518

Other financial liabilities

296,425

280,048

Trade payables

1,426,523

1,451,918

Other current liabilities

1,595,308

1,739,315   Total current liabilities

4,779,478

4,994,216

Non-current liabilities
Long-term debt

2,096,134

2,081,520

Other financial liabilities

117,535

115,155

Retirement and severance benefits

724,223

783,670

Other non-current liabilities

420,015450,874   Total non-current liabilities

3,357,907

3,431,219   Total Liabilities

8,137,385

8,425,435

Common stock

458,790458,790

Capital surplus

608,416

586,790

1,477,517

1,609,761

401,100

83,543(3,542)(3,806)EquityHitachi, Ltd. stockholders’ equity

Retained earnings
Accumulated other comprehensive income
Treasury stock, at cost   Total Hitachi, Ltd. stockholders’ equity

2,942,281

2,735,078

Non-controlling interests

1,354,061

1,390,492  Total Equity

4,296,342

4,125,570¥12,433,727¥12,551,005    Total Liabilities and Equity

65Financial Section

Consolidated Statements of Profit or Loss
Hitachi, Ltd. and Subsidiaries
Years ended March 31, 2016 and 2015

Millions of yen

2015

2016

Revenues¥ 9,774,930¥10,034,305

Cost of sales(7,198,232)(7,459,073)

2,576,698

2,575,232(1,935,373)(1,940,363)

Gross profit
Selling, general and administrative expenses

641,325

634,869

Other income

Adjusted operating income

9,415

57,539Other expenses(167,781)(141,881)

Financial income

7,727

10,615

Financial expenses(3,284)(30,295)

Share of profits of investments accounted for using the equity method
EBIT (Earnings before interest and taxes)
Interest income
Interest charges

46,657156

534,059

531,003

12,52912,028(27,594)(25,991)

518,994

517,040(122,075)(165,206)

396,919

351,834(53,501)(57,081)¥  343,418¥   294,753

Hitachi, Ltd. stockholders

217,482

172,155

Non-controlling interests

125,936

122,598

Income from continuing operations, before income taxes
Income taxes
Income from continuing operations
Loss from discontinued operations
Net income
Net income attributable to:66

Hitachi, Ltd. | Integrated Report 2016

Consolidated Statements of Comprehensive Income
Hitachi, Ltd. and Subsidiaries
Years ended March 31, 2016 and 2015

Millions of yen

2015

2016

¥343,418¥   294,753

Net changes in financial assets measured at fair value through OCI

57,957(50,323)

Remeasurements of defined benefit plans

27,039(140,844)

Share of OCI of investments accounted for using the equity method

5,633(4,275)90,629(195,442)

Foreign currency translation adjustments

188,619(190,099)

Net changes in cash flow hedges(16,850)

32,785

Share of OCI of investments accounted for using the equity method(74,604)(26,239)   Total items that can be reclassified into net income

97,165(183,553)   Other comprehensive income [OCI] (loss)

187,794(378,995)¥531,212¥ (84,242)

Hitachi, Ltd. stockholders

337,578(127,557)

Non-controlling interests

193,634

43,315

Net income
Other comprehensive income (OCI)
Items not to be reclassified into net income   Total items not to be reclassified into net income
Items that can be reclassified into net income

Comprehensive income (loss)
Comprehensive income (loss) attributable to:67

Financial Section

Consolidated Statements of Changes in Equity
Hitachi, Ltd. and Subsidiaries
Years ended March 31, 2016 and 2015

Millions of yen

2015

Balance at beginning of year
 Reclassified into
retained earnings

Commonstock

CapitalsurplusRetainedearnings

Accumulated
othercomprehensive
income¥458,790¥617,496¥1,277,970¥317,547

Treasury stock,at cost¥(3,146)

Total Hitachi, Ltd.
stockholders’Non-controlling
equityinterests¥2,668,657¥1,200,174

Total
equity¥3,868,831——

37,597(37,597)

—

—

—

—

Net income——

217,482——

217,482

125,936

343,418

Other comprehensive income

—

—

—

120,096—

120,096

67,698

187,794

Cash dividends——(55,532)——(55,532)(32,578)(88,110)

Changes in treasury stock

—

3

—

—

(396)

(393)

—

(393)

 Changes in non-controllinginterests—(9,083)

—

1,054

—

(8,029)(7,169)(15,198)

Total changes in equity—(9,080)199,547

83,553(396)

273,624

153,887

427,511

Balance at end of year

¥458,790¥608,416¥1,477,517¥401,100¥(3,542)¥2,942,281¥1,354,061¥4,296,342

Millions of yen

2016

Balance at beginning of year
 Reclassified into
retained earnings

68

Commonstock

CapitalsurplusRetainedearnings

Accumulated
othercomprehensive
income¥458,790¥608,416¥1,477,517¥ 401,100

Treasury stock,at cost¥(3,542)

Total Hitachi, Ltd.
stockholders’Non-controlling
equityinterests¥2,942,281¥1,354,061

Total
equity¥4,296,342——

18,030(18,030)

—

—

—

—

Net income——

172,155——

172,155

122,598

294,753

Other comprehensive loss

—

—

—

(299,712)—(299,712)(79,283)(378,995)

Cash dividends——(57,941)——(57,941)(39,502)(97,443)

Changes in treasury stock

—

(4)

—

—

(264)

(268)

—

(268)

 Changes in non-controllinginterests—(21,622)

—

185

—

(21,437)

32,618

11,181

Total changes in equity—(21,626)

132,244(317,557)(264)(207,203)

36,431(170,772)

Balance at end of year

¥458,790¥586,790¥1,609,761¥  83,543¥(3,806)¥2,735,078¥1,390,492¥4,125,570

Hitachi, Ltd. | Integrated Report 2016

Consolidated Statements of Cash Flows
Hitachi, Ltd. and Subsidiaries
Years ended March 31, 2016 and 2015

Millions of yen

2015

2016

¥ 343,418¥ 294,753

Depreciation and amortization

481,021507,790

Change in trade receivables(201,423)(53,092)

Change in inventories(116,328)

44,342

Change in trade payables(18,041)(1,602)Other(36,822)

20,035451,825

812,226

Purchase of property, plant and equipment(358,141)(369,494)

Purchase of intangible assets(128,808)(116,438)

Purchase of leased assets(444,223)(539,420)

32,52822,632

Cash flows from operating activities
Net income
Adjustments to reconcile net income to
net cash provided by operating activities

Net cash provided by (used in) operating activities
Cash flows from investing activities Proceeds from sale of property, plant, equipment,
and intangible assets
Proceeds from sale of leased assets

27,122

23,834

Collection of lease receivables

302,899

326,497(31,226)(58,756)(12,696)(19,654)

Net cash provided by (used in) investing activities(612,545)(730,799)

Free cash flows(160,720)

81,427

Change in interest-bearing debt

343,050

110,821

Dividends paid to stockholders(55,443)(57,907)

Dividends paid to non-controlling interests(32,143)(41,671)

Other(22,258)(37,710)

Net cash provided by (used in) financing activities

233,206(26,467)

Effect of exchange rate changes on cash and cash equivalents

68,560(57,348)

Change in cash and cash equivalents

141,046(2,388)Cash and cash equivalents at beginning of year

560,657

701,703¥ 701,703¥ 699,315 Proceeds from sale (purchase) of investments in securities and other financial assets (including investments in subsidiaries
and investments accounted for using the equity method), net
Other

Cash flows from financing activities

Cash and cash equivalents at end of year

69

Financial Section

Summarized Consolidated Statements of Financial Position
by Manufacturing, Services and Others and Financial Services
Hitachi, Ltd. and Subsidiaries
March 31, 2016 and 2015
Billions of yen

2015
Manufacturing,Servicesand Others

Financial
Services¥5,115.2
654.7

2016

Total*

Manufacturing,Servicesand Others

Financial
Services

Total*¥1,184.8¥ 5,882.4¥4,995.6¥1,256.8¥ 5,872.5

119.7

701.7

660.9

157.0

699.3
2,992.7

AssetsCurrent assets   Cash and cash equivalents  Trade receivables

2,448.9695.2

2,870.0

2,472.0

710.7  Lease receivables

55.9

299.5

337.3

45.6

311.9

338.7

1,447.8

3.3

1,458.1

1,291.5

3.7

1,299.8  Inventories   Other current assets

507.7

66.9

515.1

525.3

73.3

541.8

Non-current assets

4,869.2

1,768.8

6,551.3

4,922.3

1,834.6

6,678.4  Investments accounted for using
the equity method

682.2

19.4

681.6

676.3

20.4

676.9

  Investments in securities andother financial assets

772.6

709.8

1,449.7

681.6

675.9

1,329.9  Lease receivables   Property, plant and equipment  Intangible assets   Other non-current assets

47.3

669.7

680.6

38.2

729.8

727.4

2,204.7

268.0

2,472.4

2,193.6307.5

2,500.2

873.7

59.8

933.5

1,007.7

62.6

1,070.4

288.4

41.8

333.2

324.6

38.1

373.4

¥9,984.4¥2,953.6¥12,433.7¥9,917.9¥3,091.4¥12,551.0

Current liabilities¥3,962.9¥1,270.5¥ 4,779.4¥4,095.5¥1,323.2¥ 4,994.2  Short-term debt

574.4

514.3

977.7

529.8

497.6

871.4

   Current portion of long-term debt

193.0

357.9

483.5

234.9

485.6

651.5

   Other financial liabilities

262.8

58.5

296.4

265.5

40.1

280.0

   Total Assets
Liabilities and Equity  Trade payables

1,388.5

273.0

1,426.5

1,379.0228.9

1,451.9   Other current liabilities

1,544.0

66.7

1,595.3

1,686.1

70.8

1,739.3

Non-current liabilities

2,049.6

1,346.2

3,357.9

2,038.0

1,421.1

3,431.2  Long-term debt

860.2

1,266.3

2,096.1

750.3

1,356.2

2,081.5   Other financial liabilities

77.7

42.2

117.5

85.0

28.7

115.1

   Retirement and severance benefits

717.9

6.2

724.2

774.1

9.5

783.6

   Other non-current liabilities

393.7

31.3

420.0

428.5

26.6

450.8

6,012.5

2,616.8

8,137.3

6,133.5

2,744.4

8,425.4

2,760.3

195.3

2,942.2

2,540.8

201.3

2,735.0   Total Liabilities
Hitachi, Ltd. stockholders’ equity

1,211.5

141.4

1,354.0

1,243.5

145.7

1,390.4   Total Equity

Non-controlling interests

3,971.9336.8

4,296.3

3,784.3

347.0

4,125.5    Total Liabilities and Equity¥9,984.4¥2,953.6¥12,433.7¥9,917.9¥3,091.4¥12,551.0

Interest-bearing debt

¥1,627.7¥2,138.6¥3,557.3¥1,515.0¥2,339.5¥3,604.4

27.6%

6.6%

23.7%

25.6%

6.5%

21.8%

0.41

6.35

0.83

0.40

6.74

0.87

Total Hitachi, Ltd. stockholders’equity ratio
D/E ratio (including non-controllinginterests) (times)* Total figures exclude inter-segment transactions.

70Hitachi, Ltd. | Integrated Report 2016

Summarized Consolidated Statements of Profit or Lossby Manufacturing, Services and Others and Financial Services
Hitachi, Ltd. and Subsidiaries
March 31, 2016 and 2015
Billions of yen

2015

Revenues
Adjusted operating income
EBIT
Income from continuing operations,
before income taxes
Net income attributable
to Hitachi, Ltd. stockholders

Manufacturing,Servicesand Others

Financial
Services¥9,569.8
598.5
499.9

2016

Total*

Manufacturing,Servicesand Others

Financial
Services

Total*¥356.238.9
35.4¥9,774.9
641.3
534.0

¥9,833.9
586.8
490.2

¥365.345.2
46.6¥10,034.3
634.8
531.0

485.5

35.4

518.9

476.9

46.6

517.0

206.0

14.3

217.4

152.1

19.7

172.1

* Total figures exclude inter-segment transactions.

Summarized Consolidated Statements of Cash Flowsby Manufacturing, Services and Others and Financial Services
Hitachi, Ltd. and Subsidiaries
March 31, 2016 and 2015
Billions of yen

2015

Cash flows from operating activities
Cash flows from investing activities
Free cash flows
Cash flows from financing activities
Effect of exchange rate changes
on cash and cash equivalents
Change in cash and cash equivalents
Cash and cash equivalents
at beginning of year
Cash and cash equivalents
at end of of year
Core free cash flows*2

Manufacturing,Servicesand Others

Financial
Services¥ 586.4(449.1)
137.2(69.1)

2016

Total*1

Manufacturing,Servicesand Others

Financial
Services

Total*1¥ (85.9)(191.3)(277.3)236.8¥ 451.8(612.5)(160.7)233.2¥ 843.1(518.7)324.4(262.7)¥   (7.4)(218.8)(226.2)265.4¥ 812.2(730.7)81.4(26.4)

65.1
133.2

3.4
(37.0)

68.5
141.0(55.5)
6.1

(1.8)
37.3

(57.3)
(2.3)

521.4

156.7

560.6

654.7

119.7

701.7

¥ 654.7
138.1¥ 119.7(292.1)¥ 701.7(176.4)¥ 660.9363.5¥      157.0(264.8)¥ 699.3
113.3*1 Total figures exclude inter-segment transactions.
*2 Operating cash flows plus collection of investments in leases less cash outflows for the purchase of property, plant and equipment, intangible assets, software, andthe assets to be leased.
Note: Consolidated financial statements by Manufacturing, Services and Others and Financial Services represent unaudited financial information ­prepared by theCompany for the purpose of this supplementary information.

Role of the Financial Services Segment
Hitachi’s Manufacturing, Services and Others segments and its Financial Services segment are each clearly positioned and managed as
distinct businesses with different characteristics. The Manufacturing, Services and Others segments work in coordination with the
Financial Services segment to expand the Social Innovation Business.
Increasing the financing receivables owned by Hitachi Capital Corporation, which constitutes the Financial Services segment, is thebasis for growth in the financing business and regarded as investment to generate higher returns on equity. Credit rating agencies
typically permit a higher level of interest-bearing debt and D/E ratio for financial services companies than for manufacturing and services
companies. The credit ratings of Hitachi, Ltd. are assigned by credit rating agencies on the basis of key financial indicators that exclude
Hitachi’s financial services business.
71

Corporate Data / Stock Information
As of March 31, 2016

Corporate Name

Number of Employees

Accounting Auditor

Hitachi, Ltd. (Kabushiki Kaisha Hitachi

335,244

Ernst & Young ShinNihon LLC

Number of Shares Issued
Common Stock:

Investor Relations Contacts

URL
http://www.hitachi.com/

4,833,463,387 shares

Hitachi, Ltd.

Principal Office

Number of Shareholders

Chiyoda-ku, Tokyo 100-8280

6-6, Marunouchi 1-chome,399,597

TEL: +81-3-3258-1111

Seisakusho)JAPAN6-6, Marunouchi 1-chome,

Chiyoda-ku, Tokyo 100-8280, Japan

E-mail: IR@hdq.hitachi.co.jp
U.S.A.

FoundedAdministrator of Shareholders’Register

1910 (Incorporated in 1920)

Tokyo Securities Transfer Agent

50 Prospect Avenue,

Co., Ltd.

Capital Stock

Tarrytown, NY 10591

6th Floor, Kanda Nishiki-cho Building,

458,790 million yen

TEL: +1-914-333-2987

3-11, Kanda Nishiki-cho 3-chome,

E-mail: investor.info@hal.hitachi.com

Chiyoda-ku, Tokyo 101-0054, Japan

U.K.

Hitachi America, Ltd.

Hitachi Europe Ltd.

Stock Exchange Listings

Whitebrook Park,Tokyo, Nagoya

Lower Cookham Road,
Maidenhead, Berkshire SL6 8YA
TEL: +44-1628-585714

10 Largest Shareholders
Number of Shares(shares)

Percentage of Total(%)

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

294,474,000

6.09

Japan Trustee Services Bank, Ltd. (Trust Account)282,694,415

5.85

Hitachi Employees’ Shareholding Association

99,633,384

2.06

Nippon Life Insurance Company

93,265,195

1.93Japan Trustee Services Bank, Ltd. (Trust Account 9)76,826,000

1.59

THE BANK OF NEW YORK MELLON SA/NV 10

73,447,113

1.52

STATE STREET BANK WEST CLIENT-TREATY 505234

71,729,327

1.48

The Dai-ichi Life Insurance Company, Limited*

71,361,222

1.48

STATE STREET BANK AND TRUST COMPANY 505225

68,111,932

1.41Japan Trustee Services Bank, Ltd. (Trust Account 7)

67,288,000

1.39

Name

* 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.”).

Ratings
Rating Company

72

Long-term

Short-term

Moody’s Japan K.K. (Moody‘s)

A3

P-2

Standard & Poor’s Rating Japan (S&P)

A-

A-2

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

A+

a-1

Hitachi, Ltd. | Integrated Report 2016

Government andMunicipality
0.00%

Shareholder Composition
Number of
Shareholders

Share Ownership(shares)409

1,606,323,857

394,280

1,204,843,496

Foreign Investor

1,259

1,923,591,176

Other

3,645

98,658,290

446,568399,597

4,833,463,387

Class of Shareholders

Financial Institution and Securities Firm
IndividualGovernment and Municipality
Total

Other
2.04%

Financial Institution
and Securities Firm
33.23%

Shareholder
Composition

4,833,463,387
ForeignInvestor
39.80%

Individual
24.93%* Treasury stock is included in “Other.”

Stock Price and Trading Volume
Hitachi Stock Price

Nikkei Stock Average (225)

Trading Volume (1,000 shares)

150

2,400,000

125

2,000,000

100

1,600,000

75

1,200,000

50

800,000

25

400,00000Year ended
March 31, 2007

Year ended
March 31, 2008

Year 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

858

High (Yen)

936

947

843

404

523

547

578

877

939.9

Low (Yen)

644

569

230

227

313

360

401

508

660

431

Price at endof March

914

591

266

349

433

531

543

762

823.2

526.6

* The closing price on March 31, 2006 equals 100.

Website Information
Detailed information is available on the Company’s website.
About Hitachi Group

Investor Relations

CSR (Corporate Social Responsibility)

http://www.hitachi.co.jp/about/corporate/index.
html#hitachi_corporate(Japanese)

http://www.hitachi.co.jp/IR/index.html#hitachi_ir(Japanese)

http://www.hitachi.co.jp/csr/index.html#hitachi_csr(Japanese)

http://www.hitachi.com/IR-e/index.html(English)http://www.hitachi.com/csr/(English)http://www.hitachi.com/corporate/about/index.html(English)73

Hitachi Integrated Report 2016

Hitachi Integrated Report 2016
Year ended March 31, 2016