Strategy for Value Creation
Hitachi’s Value Creation Model

p.6

CEO Message

p.8

Progress of the 2018 Mid-term Management Plan

p.14

Expanding the Supply of Lumada Digital Solutions

p.18

5

Realize a sustainable
society and enhance
the Company’s value

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

Customers
Power and Energy
Renewable energy
Highly efficient energy
management

Global Trends

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

Finance, Social, andHealthcare

Urban
Making cities more safeand resilient
Comfortable andenvironment-friendly mobility

Support for advanced socialand financial services
Ensure healthy lives

Contribute to society through the Business Strategy

Economic Value (FY2017 results)
Revenue:

9,368.6 billion yen
Adjusted operating income:Acceleration ofdigitalization

714.6 billion yen

Era of uncertainty
Paradigm shift
ObjectThing

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

Specific
optimization

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

Front-line

Total
optimization

Platform
Products

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

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

Supply Chain Management
Sustainable procurement

Security

Environmental
Strategy“HitachiEnvironmental
Innovation 2050”

Co-creation

Compliance, etc.

Promotion ofvarious
partnerships
Collaborative
R&D with
stakeholders

Risk management
Fair transactions
Quality assurance
Information security

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

Reduction in water usage per unit:

Hitachi Group Identity and Hitachi Group Codes of Conduct,

32%(base: FY2005)

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

6

7Strategy for Value Creation

Hitachi’s Value Creation Model

CEO Message

A truly global company helping torealize a sustainable society

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

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

Results (FY2016, FY2017)
Revenues

9.2 trillion yen(8.8 trillion yen*1)

Adjusted operating
income ratio (amount)

9.4 trillion yen

6.4%

EBIT Ratio (amount)

7.6%

6.9%

(714.6 billion yen)(644.2 billion yen)

ROA

CCC

5.0%

72.2 days*2

FY2017FY201669.7 days

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

3.3%*2FY2016FY2017106%

FY2016FY2017FY2016FY2017

+1.2%

+1.7%

(122%)(136%)FY2016

+1.7%

2.5

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

8

FY2017

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

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

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

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

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

9

Strategy for Value Creation

Addressing emerging trends head on

Sustainability Strategy Promotion Structure
Chair: President & CEO

Executive Sustainability Committee

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

Secretariat: Sustainability
Promotion Division
Overseas CSR/environment officers

Sustainability Promotion Meetings

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

Eco-Management Meetings

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

Corporate Commitment

Business Strategy

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

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

Hitachi Environmental Innovation 2050
For a low-carbon society

For a resource efficient society

For a harmonized society with nature

Through the value chain CO2 emissions

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

Impact on natural capital

FY 2050

80% reduction
FY 2030

50% reduction(compared to FY 2010)10

Efficiency in use ofwater/resources FY 2050

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

Minimized

Strategy for Value Creation

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

Developing stronger competitivenessSince it was established, Hitachi has focused on developing
human capital based on a recognition that people are amajor source of competitiveness. This has included setting
up internal educational institutions to help employees
acquire skills. Today, as Hitachi seeks to evolve into a
truly global enterprise, we are focusing through our HR
management on promoting diversity. People with detailed
knowledge of the industrial structures and commercial
customs used in different countries and markets are
essential to the global development of our operations.
To foster innovation, we also see the need to have adiverse range of talented people with differing values
and perspectives working toward common goals.
Personally, I am determined that Hitachi makes tangible
progress promoting diversity. In line with this, in November
2017 we set and publicly disclosed numerical targets forthe ratios for both female and non-Japanese Executive
Officers and Corporate Officers and the number of female
managers in Hitachi, Ltd. One of the initiatives to achievethese targets with which I am personally involved is the
Global Women’s Summit, a series of events that bring
together around 100 female employees from around the
Hitachi Group worldwide for each event. These events aim
to deepen awareness of leadership and career planning
among female employees, while boosting motivation via
Sustainability Strategy Promotion Structure
End-FY2017 (actual)

FY2020 (target)

Executive and Corporate Officers
Female2.5%

10%Non-Japanese

6.4%

10%

577

800

Number of female managers

global networking opportunities. Since 2016, we have held
events of this kind in various regions around the world.
My discussions with female employees from countries
around the world through these events spur my efforts topromote the globalization of Hitachi’s business andcultivate greater diversity within our workforce.
We are also undertaking leadership development programs aimed at identifying and cultivating a diverse teamof next-generation business leaders for the Hitachi Group.
Besides senior executives, our independent outside
directors are also actively involved in this HR development
process aimed at building layers of leadership potential
throughout the company.
R&D is another important source of competitivenessfor Hitachi.
The mission to develop “superior, original technology”
has made research and development a major focus of
our activities from Hitachi’s earliest days. In 2018, wecelebrated the centenary of the establishment of the R&D
Division. As we work to develop the Social Innovation
Business globally, our R&D activities are focused on creatingworld-class technologies to support the business and on
fostering innovation based on a collaborative creation
approach with customers worldwide. We are looking toaccelerate our collaborative creation efforts with customers
by establishing Global Center for Social Innovation (CSI)
facilities in North America, Europe, China, and the AsiaPacific region. Our R&D operations are also actively involvedin the development of new and upgraded Lumada-based
digital solutions to drive the future growth of Hitachi.
Developing better products is another aspect of creatingworld-class technologies. In 2017, the ultra-high-speed
elevators that we installed in a high-rise building in
Guangzhou, China achieved the fastest speed ever11

recorded for an elevator. This product makes use of fluid
analysis technology that we originally developed for rollingstock used on high-speed railways, the common aim
being to transport passengers in comfort at world-beating
speeds by minimizing noise and vibration. This example
also illustrates how intra-Group synergies can help ushone a technical edge as part of developing and supplying
products with an outstanding global reputation.
Elsewhere, we are actively partnering with universities,
research institutions, and start-ups from around the world.
Guided by our vision to address social issues as part of
supporting the realization of the Society 5.0 concept, weare accelerating open innovation activities with institutions
such as the University of Tokyo, Kyoto University, andHokkaido University.
At the same time, as part of our global approach tosustainability management, we must revisit a range ofcorporate activities from the perspective of trying to realize
a sustainable society. To this end, in April 2018 we revised

the Hitachi Group Codes of Conduct to make it clear that
all officers and employees of Hitachi Group companies
bear the responsibility as global citizens to conductbusiness with higher aspirations. Guided by this principle,
we are formulating and implementing rules and undertaking
internal education programs across a range of corporate
activities, including product safety and quality assurance
programs; the construction of responsible supply chainsthat pay attention to human rights and environmental
concerns; and our comprehensive compliance programs.
In fiscal 2018, we welcomed two new independent
outside directors to the Board of Directors. Mr. Katsumi
Ihara recorded various achievements in his former careerat Sony. Mr. Joe Harlan has previously worked at seniorlevels for Dow Chemical, and has experience working inJapan as well. Utilizing the diverse wealth of experienceand knowledge of our directors, we will look to entrench
the growth of Hitachi by reflecting their helpful advice into
our management.

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

12

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

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

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

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

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

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

Toshiaki Higashihara
President & CEO
Hitachi, Ltd.

13

Strategy for Value Creation

customers across the Asia Pacific region. Going forward,
Hitachi will accelerate the development of digital solutions
using Lumada within ASEAN, with this center supporting
our collaborative creation projects with customers andother partners.

Progress of the 2018 Mid-term Management Plan
In fiscal 2017, Hitachi posted record earnings* in terms of adjusted operating income, EBIT, and net
income attributable to Hitachi, Ltd. stockholders.
In fiscal 2018, through global expansion and other initiatives, Hitachi is targeting adjusted operating
income and EBIT ratios of over 8%, respectively, and net income attributable to Hitachi, Ltd. stockholders of more than ¥400 billion.
* Since introduction of consolidated accounting in fiscal year ended March 1987

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

FY2016FY2017FY2018Prepare for growth

Change gears
toward growth

Achieve Mid-termManagement Plan
to be a globally
integrated enterprise3-level structure

Expanded global businessthrough M&As

Expand global business(Front, Platform, Products)

Introduced Business
Unit system
Activated Lumada

Enhanced Lumada

Expand digital businessusing Lumada

Expanded collaborative
creation

Continued business restructuring
1

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

14

2 Selection and concentration of businesses

Reorganization of businesses generating revenues ofapprox. ¥1.5 trillion over FY2016-2017
FY2016FY2017

Logistics service(Hitachi Transport System)

Semiconductor manufacturing
equipment, etc.
(Hitachi Kokusai Electric)

Financial service(Hitachi Capital)

Passenger transportation service(Hitachi Dentetsu)

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

Network devices(ALAXALA Networks)

Others(LCD Panel manufacturing
equipment, etc.)

Forged steel roll business

Revenues*1

Adjusted Operating Income Ratio(trillion yen)

9.2

10.0

9.4

Net Income Attributable to
Hitachi, Ltd. Stockholders

EBIT Ratio

(%)

9.4

7.6

(billion yen)

(%)

8.0

Over 8.0

Over 8.0

8.0

362.9

6.9

6.4
5.2

2016

2017

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

2017

2018
(target)2018(FY)(forecast)

2016

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

Over 55

50

2016

7.1

231.2

2017

2018
(target)2018(FY)(forecast)

2016

CCC
(Cash Conversion Cycle)(%)

Over 9.0

Over 400.0 400.0

2017

2018
(target)2018(FY)(forecast)

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

7.8

72.2

69.7

(%)
5.0

Over 5.0

2017

2018
(target)

70.0
3.3

2016

2017

2018
(target)

(FY)

2016

2017

Average FX Rate

(FY)

2018
(target)

2016

2017

(FY)

2018
(target)

2016

2016

2017

2018 (forecast)

JPY/USD

108

111

105

JPY/EUR

119

130

130

(FY)

(FY)

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

Global Business Expansion
YoY:

113 %

Overall global revenues in FY2017

YoY:

114 %

YoY:

113%
YoY:

108 %

FY2016 Revenues*

FY2017 Revenues

FY2016 Revenues*

FY2017 Revenues

FY2016 Revenues*

FY2017 Revenues

0.85 trillion yen

0.96 trillion yen

0.91 trillion yen

1.04 trillion yen

1.09 trillion yen

1.18 trillion yen

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

China

Railway
Construction machinery
High functional
materials & components

Regions except for thoselisted above (including Japan):
FY2016 Revenues*

FY2017 Revenues

5.04 trillion yen

5.15 trillion yen

Railway
Industrial equipment/solutions
IT products
Construction machinery
High functional
materials & components

Asia
YoY:

114 %

FY2016 Revenues*

FY2017 Revenues

0.91 trillion yen

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

North
America

Elevators/Escalators
Automotive products
Construction machinery
15

Strategy for Value Creation

Making Steady ProgressToward Future Global Growth Using Digital Technology
The targeted model for Hitachi’s future growth involves Front and Platform business divisions selecting products and supplying
services in line with the changing needs of customers.
Product business divisions will focus on supplying globally competitive products.
Industry/
Distribution/
Water

Power/
EnergyCustomer

Finance/
Social/Healthcare

Urban
Directly provide
platform tocustomer

Provide services
by collecting
products

Front-line
Consulting

Pre-engineering

SI

Engineering

In-house use of
LumadaPlatform

Products
Providecompetitive
products

Powerproducts

Elevators
Escalators

Railway

Automotive
products

Home
appliances

Industrial
equipmentIT
products

Directly
provideproducts tocustomer

Productsof othercompanies

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

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

Industry/
Distribution/
Water

Power/
EnergyInvestment fields

Renewable energy
Distributed power solution

Manufacturing solutions
Industrial equipment(North America/Asia)

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

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

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

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

16

Strategy for Value Creation

Direction of Assets Holdings
High

Expansionof profitableassetsReduction of existing assets
ROA

Maintainassets scale

MiddlePrioritized investment in high growthand profitable (ROA) business domains
Railway turnkey/signaling business, industrial
equipment, etc.

(Investment withincash flows)

Effective use of capital

Reductionof assets

Low

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

(Prioritizedinvestment)

Prioritization of investments

Financing by utilizing external capital
Hiring investment and funding
specialists

Low
MiddleHigh
Growth potential of global market

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

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

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

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

Improvement themes

Reform projects
Increased efficiency
of indirect operations

Reduced number ofsubsidiaries

Increased visibilityof management data

Simplify organizational structures
Increase speed

Reorganize system and rules
Reorganize work processes

Increase
operational
efficiency

Enhancement of complianceCentralize management information

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Expanding the Supply of Lumada Digital Solutions

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

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

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

FY2016 (result)
Billions of yen

FY2017 (result)
Initial target*1

FY2018 (forecast)
Initial target*1

Revenues of Lumada business

900.0

950.0

1,006.0

1,050.0

1,070.0

Lumada core business*2

120.0

190.0

230.0

290.0

310.0

Lumada SI business*3

780.0

760.0

776.0

760.0

760.0

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

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Strategy for Value Creation

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

North America

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

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

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

Asia
In Asia, Hitachi is focusing mainly on the Industry and Social
Infrastructure domain.
In the Industry domain, Hitachi established the Lumada
Center Southeast Asia in Thailand in September 2018 as abase for the development of the digital solutions businesswithin the ASEAN region.
In the Social Infrastructure domain, in a collaborative creation project with Thailand Post, Hitachi is developing andtesting a digital post service to enable users to receive
notifications from public-sector institutions via a PC,
smartphone or other device as part of creating a new service
to provide information using the postal network. Elsewhere in
the region, in April 2018, Hitachi formed Hitachi MGRM Net
Ltd. following the acquisition of shares in Indian IT services
provider MGRM Net Ltd. The new company will lead Hitachi’sefforts to support the Indian government’s “Digital India”
initiatives including “e-Governance” and “e-Education” basedon the digitalization of government services.
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3. Systemic Investments to Support Global Expansion
Besides combining the digital solutions expertise cultivated todate with advanced technology to develop services withapplications across a wide range of sectors, Hitachi is
expanding the provision of digital solutions through Hitachi
Global Digital Holdings Corporation, which was established in
April 2018.
Interoperability with various systems and Lumada will be an
important part of the global expansion of digital solutions.
To this end, including participation in the Edgecross Consortium*1,
Hitachi is actively promoting collaborative creation projects
with various stakeholders ranging from other companies touniversities and other academic or research institutions.
As part of developing the human capital necessary forcreating digital solutions, Hitachi has instituted a training
program to cultivate data scientists with the required skills.
To help foster conditions needed to create original expertise,
Hitachi has also established the Professional Community for
top-class researchers and practitioners from every field toshare relevant knowledge.

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

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

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

20