Financial Section

Operating and Financial Review

Operating Results
The Company’s consolidated financial statements have been preparedin conformity with IFRS since the year ended March 31, 2015. The
figures in the year ended March 31, 2014 are also based on IFRS.

Summary
Billions of yen

Years ended March 31:
Revenues

2014

2015

Percentchange¥9,666.4¥9,774.9

1%

EBIT*

691.2

534.0

–23%

Income fromcontinuing operations,
before income taxes

678.4

518.9

–24%

Net income attributable
to Hitachi, Ltd.
stockholders

413.8

217.4

–47%

* EBIT represents earnings before interest and taxes, which is presented asincome from continuing operations, before income taxes less interest income
plus interest charges.

Analysis of Statement of Operations
Revenues increased 1% to ¥9,774.9 billion, as compared with theyear ended March 31, 2014. This increase was attributable toincreased revenues in every segment, particularly the Information &Telecommunication Systems, Social Infrastructure & Industrial Systems
and High Functional Materials & Component segments, except for thePower Systems and Others (Logistics and Other services) segments.
Selling, general and administrative expenses increased 3% to¥1,935.3 billion, as compared with the year ended March 31, 2014,
and the ratio of selling, general and administrative expenses to revenues was 20%, which was the same level as the year ended March
31, 2014.
Other income decreased ¥199.1 billion to ¥9.4 billion and otherexpenses increased ¥3.2 billion to ¥167.7 billion, as compared withthe year ended March 31, 2014. The details are as follows.
Net loss on sales and disposal of fixed assets increased ¥9.7 billion
to ¥16.8 billion, as compared with the year ended March 31, 2014.
This increase was due mainly to loss on disposal of fixed assets related
to software in the Information & Telecommunication Systems segment.

36

Impairment losses decreased ¥1.0 billion to ¥42.1 billion, as
compared with the year ended March 31, 2014. The Power Systems
segment recognized impairment losses for the transmission &distribution equipment business.
Net loss on business reorganization and others in the year ended
March 31, 2015 was ¥55.0 billion, as compared with net gain of¥198.0 billion in the year ended March 31, 2014 owing to the effectsof the integration of the thermal power generation systems business
into MITSUBISHI HITACHI POWER SYSTEMS, LTD.
Restructuring charges was ¥26.6 billion, which was almost thesame as the year ended March 31, 2014. This mainly consisted of
special termination benefits expensed for the voluntary early retirement
program to rationalize the domestic workforce at Hitachi Chemical
Company, Ltd. in the High Functional Materials & Components segment.
Expenses related to competition law and others decreased ¥50.9
billion to ¥25.8 billion, as compared with the year ended March 31,
2014, despite posting expenses in relation to settlements of certain
losses involving dispute with customers. This decrease was due mainly
to the absence of expenses related to a plea agreement with theUnited States Department of Justice regarding alleged violations of
U.S. antitrust laws in the Automotive Systems segment in the year
ended March 31, 2014.
Financial income (excluding interest income) decreased ¥25.7
billion to ¥7.7 billion and financial expenses (excluding interest
charges) increased ¥1.3 billion to ¥3.2 billion, as compared with theyear ended March 31, 2014, respectively. This was due mainly to theloss on financial instruments measured at fair value through profit orloss (“FVTPL financial instruments”) and exchange loss in the year
ended March 31, 2015, while net gain on FVTPL financial instruments
and currency exchange gain were recorded in the year ended March
31, 2014, respectively.
Share of profits of investments accounted for using the equity
method increased ¥35.7 billion to ¥46.6 billion due mainly to profits
of investments in MITSUBISHI HITACHI POWER SYSTEMS, LTD.,as compared with the year ended March 31, 2014.
EBIT decreased ¥157.1 billion to ¥534.0 billion, as compared withthe year ended March 31, 2014.
Interest income decreased ¥1.6 billion to ¥12.5 billion and interest
charges increased ¥0.6 billion to ¥27.5 billion, as compared with theyear ended March 31, 2014, respectively.

Hitachi, Ltd. | Annual Report 2015

Income from continuing operations, before income taxes decreased¥159.5 billion to ¥518.9 billion, as compared with the year ended
March 31, 2014.
Income taxes decreased ¥24.4 billion to ¥122.0 billion, as compared with the year ended March 31, 2014, due mainly to deferred
tax assets newly recognized in the year ended March 31, 2015.
Loss from discontinued operations increased ¥46.5 billion to¥53.5 billion, as compared with the year ended March 31, 2014.
Net income decreased ¥181.5 billion to ¥343.4 billion,
as compared with the year ended March 31, 2014.
Net income attributable to non-controlling interests increased¥14.8 billion to ¥125.9 billion, as compared with the year ended
March 31, 2014.
As a result of the foregoing, net income attributable to Hitachi, Ltd.
stockholders decreased ¥196.3 billion to ¥217.4 billion, as comparedwith the year ended March 31, 2014.

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 5% to ¥2,034.0 billion, as compared with theyear ended March 31, 2014, due mainly to solid performances bysystem solutions business centered on public systems and financial
systems and higher revenues from storage solutions business as aresult of the effects of foreign exchange rate fluctuations. This
increase was also attributable to the positive impact of the consolidation of Prizm Payment Services Pvt. Ltd. in India and the establishmentof Hitachi Systems Power Services, Ltd., both of which were implemented in March 2014. However, the increase in revenues waspartially offset by decreased revenues in the telecommunications &network business owing to lower demand.
Segment profit decreased ¥8.9 billion to ¥106.0 billion, as comparedwith the year ended March 31, 2014. This decrease was due mainly
to significantly lower profits in the telecommunications & network
business and posting of loss on sales and disposal of fixed assets andimpairment loss, which was partially offset by the effect of terminationof unprofitable projects in the system solutions business.
(Power Systems)
Revenues decreased 36% to ¥466.7 billion, as compared with theyear ended March 31, 2014, due mainly to the effect of the transferof the thermal power generation systems business. This decrease waspartially offset by an increase in preventive maintenance services fornuclear power generation systems business.
Segment profit decreased ¥174.7 billion to ¥3.8 billion, as
compared with the year ended March 31, 2014, due mainly to lower
revenues. This decrease was also attributable to increased losses andposting impairment losses on property, plant and equipment in thetransmission & distribution business, and the absence of net gain on
business reorganization and others associated with the transfer ofthermal power generation systems business in the year ended March
31, 2014. However, the decreased profit was partially offset byposting of share of profits of investments accounted for using theequity method for MITSUBISHI HITACHI POWER SYSTEMS, LTD.

37

Financial Section(Social Infrastructure & Industrial Systems)
Revenues increased 6% to ¥1,599.5 billion, as compared with theyear ended March 31, 2014. This was due mainly to higher sales inthe elevators and escalators business mainly in China, the industrial
equipment business, and the railway systems business in the U.K.
Segment profit increased ¥28.5 billion to ¥106.5 billion, as
compared with the year ended March 31, 2014. This increase wasdue mainly to higher profits in the elevators and escalators businessand the industrial equipment business associated with higher revenues,
reduced effect of unprofitable overseas infrastructure projects that
occurred in the year ended March 31, 2014 and posting of net gain
on business reorganization and others related to Mitsubishi-Hitachi
Metals Machinery, Inc.
(Electronic Systems & Equipment)
Revenues increased 1% to ¥1,131.6 billion, as compared with theyear ended March 31, 2014. This increase was attributable to higher
revenues at Hitachi Kokusai Electric Inc., resulting primarily fromhigher sales of semiconductor manufacturing equipment, and higher
revenues at Hitachi Koki Co., Ltd., resulting from higher sales in Asia
and North America and the effect of foreign exchange rate fluctuations. On the other hand, revenues at Hitachi High-Technologies
Corporation decreased due mainly to winding down the LCDs manufacturing equipment business and lower sales of advanced industrial
products and of mobile phones in the U.S., which was partially offset
by higher sales of medical analysis systems and semiconductor
manufacturing equipment.
Segment profit increased ¥11.4 billion to ¥63.7 billion, as comparedwith the year ended March 31, 2014. This increase was due mainly toincreased revenues and the effects of business restructuring.
(Construction Machinery)
Revenues increased 2% to ¥815.7 billion, as compared with the year
ended March 31, 2014. This increase was due mainly to the positive
impact of foreign exchange rate fluctuations and higher sales ofhydraulic excavators and other items in North America and Europe,
partially offset by lower demand in China and Southeast Asia.
Segment profit decreased ¥2.5 billion to ¥60.5 billion, as comparedwith the year ended March 31, 2014. This decrease was due mainly
to substantially lower sales in China and decline in profitability owing
to changes in product mix.

38

(High Functional Materials & Components)
Revenues increased 10% to ¥1,529.4 billion, as compared with theyear ended March 31, 2014. This increase was due mainly to theeffects of the consolidation of Waupaca Foundry Holdings, Inc. byHitachi Metals, Ltd. and solid performances for automobile products foroverseas including North America and China and certain electronicsrelated materials.
Segment profit increased ¥19.7 billion to ¥123.9 billion, as
compared with the year ended March 31, 2014. This increase wasdue mainly to higher revenues, posting gain on sale of shares ofa consolidated subsidiary by Hitachi Metals, Ltd., the effect of cost
reduction and an increase in exchange gain, partially offset by postingof restructuring charges associated with the voluntarily early retirement
program implemented by Hitachi Chemical Company, Ltd.
(Automotive Systems)
Revenues increased 5% to ¥936.9 billion, as compared with theyear ended March 31, 2014. This increase was attributable to robust
demand in overseas automobile markets, such as North America
and China.
Segment profit increased ¥31.5 billion to ¥35.0 billion, as comparedwith the year ended March 31, 2014, due mainly to the increased revenues and a decrease in expenses related to competition law and others.
(Smart Life & Ecofriendly Systems)
Revenues increased 1% to ¥754.2 billion, as compared with the year
ended March 31, 2014. This increase was attributable to higher sales
in overseas markets for the air-conditioning business and the home
appliance business, partially offset by the decreased sales due to theeffects of the consumption tax rate increase.
Segment profit increased ¥6.4 billion to ¥34.5 billion, as comparedwith the year ended March 31, 2014, due mainly to the increase inrevenues.

Hitachi, Ltd. | Annual Report 2015

(Others (Logistics and Other services))
Revenues decreased 12% to ¥1,274.2 billion, as compared with theyear ended March 31, 2014. This decrease was attributable to theconversion of Hitachi Maxell, Ltd., which had been a consolidated
subsidiary, into an equity-method affiliate, which was partially offset
by increased revenues at Hitachi Transport System, Ltd. due mainly tolaunch of large-scale projects and the consolidation of domestic andoverseas companies in the year ended March 31, 2014.
Segment profit increased ¥28.2 billion to ¥51.0 billion, as comparedwith the year ended March 31, 2014, despite lower revenues. This
increase was due mainly to a decrease in expenses related to businessrestructuring and posting of gain on sales and disposal of fixed assets.
(Financial Services)
Revenues increased 4% to ¥356.2 billion, as compared with the year
ended March 31, 2014. This increase was due mainly to strong performance in the overseas business, particularly in Europe.
Segment profit increased ¥2.6 billion to ¥35.4 billion, as comparedwith the year ended March 31, 2014, due mainly to the increase inrevenues.

Revenues by Geographic Area
The following is an overview of revenues attributed to geographic
areas based on customer location.
Billions of yen

2014

2015

PercentchangeJapan¥5,310.3¥5,220.3−2%

Overseas Revenues
Subtotal

4,356.1

4,554.5

5%

Years ended March 31:

Asia2,127.4

2,178.2

2%

North America

914.5

1,064.1

16%

Europe

772.6

841.9

9%

Other Areas

541.3

470.2

−13%

¥9,666.4¥9,774.9

1%

Total Revenues

Japan
Revenues in Japan were ¥5,220.3 billion, a decrease of 2% comparedwith the year ended March 31, 2014. This decrease was due mainly
to the decrease in revenues in the Power Systems segment owing to
the effects of the integration of the thermal power generation systems
business, and the decrease in revenues in the Others (Logistics andOther services) segment owing to the conversion of Hitachi Maxell,
Ltd. into an equity-method affiliate, partially offset by the increases inrevenues in the Information & Telecommunication Systems segment.

Overseas
Overseas revenues increased 5% to ¥4,554.5 billion, as comparedwith the year ended March 31, 2014, and the ratio to total revenues
was 47%, compared with 45% for the year ended March 31, 2014.
(Asia)
Revenues in Asia were ¥2,178.2 billion, an increase of 2% comparedwith the year ended March 31, 2014. This increase was due mainly tothe increases in revenues in the Social Infrastructure & Industrial
Systems segment, which reported higher sales of elevators and escalators in China, and in the Information & Telecommunication Systems,
High Functional Materials & Components and Smart Life & Ecofriendly
Systems segment, partially offset by the decreases in revenues in thePower Systems, Construction Machinery and Others (Logistics andOther services) segments.
(North America)
Revenues in North America were ¥1,064.1 billion, an increase of
16% compared with the year ended March 31, 2014. This increase
was due mainly to the increase in revenues in the High Functional
Materials & Components segment as a result of the effects of theconsolidation of Waupaca Foundry Holdings, Inc. by Hitachi Metals,Ltd., and in the Information & Telecommunication Systems,
Construction Machinery and Automotive Systems segments, partially
offset by the decreases in revenues in the Power Systems and Others(Logistics and Other services) segments.
(Europe)
Revenues in Europe were ¥841.9 billion, an increase of 9% comparedwith the year ended March 31, 2014. This increase was due mainly tothe increases in revenues in the Social Infrastructure & Industrial
Systems segment, which reported increased revenues from the railway
systems business in the U.K., in the Electronic Systems & Equipment
segment, which reported higher sales of semiconductor manufacturing
equipment and medical analysis systems at Hitachi High-Technologies
Corporation, and in the Financial Services segment, which reported
increased revenues in the U.K.
(Other Areas)
Revenues in other areas were ¥470.2 billion, a decrease of 13%
compared with the year ended March 31, 2014. This decrease wasdue mainly to the decrease in revenues in the Power Systems segmentowing to the effects of the integration of the thermal power generation systems business, partially offset by the increase in revenues in
the Construction Machinery segment due to increased sales of mining
machinery in Africa and Australia, etc.

39

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 efficientmanagement of working capital and selective investment in newplants 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 suchmanagement among us and our overseas financial subsidiaries. Ourinternal sources of funds include cash flows generated by operating
activities and cash on hand. Our management also considers shortterm investments to be an immediately available source of funds. In
addition, we raise funds both in the capital markets and fromJapanese and international commercial banks in response to ourcapital requirements. Our management’s policy is to finance capital
expenditures primarily by internally generated funds and to a lesser
extent by funds raised through the issuance of debt and equity
securities in domestic and foreign capital markets. In order to flexibly
access funding, we maintain our shelf registration with the maximum
outstanding balance of ¥300.0 billion and issued the straight bondsof ¥60.0 billion on December 13, 2013 for the purpose of repaying
short-term debts (commercial paper) and meeting demand for funds
for growth of the Social Innovation Business.
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, as well as anothercommitment line agreement with a contract term of three years andtwo months ending in July 2016. These committed credit arrangements are, in general, subject to financial and other covenants andconditions both prior to and after drawdown, the most restrictive of
which require maintenance of minimum issuer rating or long-term
debt ratings from Rating and Investment Information, Inc. (R&I) of
BBB-. As of March 31, 2015, our unused commitment lines totaled¥524.7 billion, including these of ¥400.0 billion which the Company
maintained.

40

We receive debt ratings from Moody’s Japan K.K. (Moody’s),Standard & Poor’s Rating Japan (S&P), as well as R&I. Our debt ratings
as of March 31, 2015 were as follows.
Rating Company

Long-term

Short-term

Moody’s

A3

P-2

S&P

A–

A-2

R&I

A+

a-1

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

Cash Flows
Billions of yen

2014

2015

Net cash provided by operating activities¥ 306.7¥ 451.8Net cash used in investing activities(550.1)(612.5)Net cash provided by financing activities

228.8

233.2

Effect of exchange rate changes
on cash and cash equivalents

51.8

68.5

Net increase in cash and cash equivalents

37.3

141.0

Years ended March 31:

Cash and cash equivalents at
beginning of yearCash and cash equivalents at end of year

523.3

560.6

¥ 560.6¥ 701.7(Cash Flows from Operating Activities)
Net income in the year ended March 31, 2015 decreased ¥181.5
billion to ¥343.4 billion, as compared with the year ended March 31,
2014. Increase in trade receivables in the year ended March 31, 2015
decreased ¥199.1 billion to ¥201.4 billion, as compared with the year
ended March 31, 2014, due mainly to promoting collection. Increase
in inventories in the year ended March 31, 2015 increased ¥74.0
billion to ¥116.3 billion, as compared with the year ended March 31,
2014. Decrease in trade payables was ¥18.0 billion in the year ended
March 31, 2015, compared with the increase in trade payables of¥33.7 billion in the year ended March 31, 2014. As a result of theforegoing, the net cash provided by operating activities was ¥451.8
billion in the year ended March 31, 2015, an increase of ¥145.0
billion compared with the year ended March 31, 2014.

Hitachi, Ltd. | Annual Report 2015

(Cash Flows from Investing Activities)
A net sum of ¥568.6 billion in the year ended March 31, 2015 wasrecorded as investments related to property, plant and equipment,
where the proceeds from sale of property, plant, equipment andintangible assets, the proceeds from sale of leased assets and thecollection of lease receivables were subtracted from the amount of
the purchase of property, plant and equipment, the purchase of intangible assets and the purchase of leased assets, a decrease of ¥39.0
billion from the year ended March 31, 2014. Purchase of investments
in securities and other financial assets (including investments in
subsidiaries and investments accounted for using the equity method)
increased by ¥57.3 billion and amounted to ¥152.8 billion, due
mainly to the acquisition related to Waupaca Foundry Holdings, Inc.
in the year ended March 31, 2015. Proceeds from sale of investments
in securities and other financial assets (including investments in
subsidiaries and investments accounted for using the equity method)
decreased by ¥8.0 billion and amounted to ¥121.6 billion in the year
ended March 31, 2015. As a result of the foregoing, the net cashused in investing activities was ¥612.5 billion in the year ended March
31, 2015, an increase of ¥62.3 billion compared with the year ended
March 31, 2014.
(Cash Flows from Financing Activities)
Net increase in short-term debt in the year ended March 31, 2015was ¥136.9 billion, whereas net decrease of ¥66.2 billion was recordedin the year ended March 31, 2014. A net sum of ¥206.0 billion wasrecorded as proceeds related to long-term debt, where the payments
on long-term debt were subtracted from the proceeds from long-term
debt, a decrease of ¥192.2 billion from the year ended March 31,
2014. As a result of the foregoing, the net cash provided by financing
activities was ¥233.2 billion in the year ended March 31, 2015, anincrease of ¥4.3 billion from the year ended March 31, 2014.
As a result of the above items, as of March 31, 2015, cash andcash equivalents amounted to ¥701.7 billion, net increase of ¥141.0
billion from March 31, 2014. Free cash flows, the sum of cash flows
from operating and investing activities, represented an outflow of¥160.7 billion in the year ended March 31, 2015, a decrease of ¥82.6
billion from the year ended March 31, 2014.

Assets, Liabilities and Equity
As of March 31, 2015, total assets amounted to ¥12,433.7 billion,
an increase of ¥1,335.5 billion from March 31, 2014. This increase
was due primarily to increases in the value of assets denominated inforeign currency owing to the depreciation of yen, the acquisition of
Waupaca Foundry Holdings, Inc. and increases in trade receivables
resulting from increased revenues. Cash and cash equivalents as ofMarch 31, 2015 amounted to ¥701.7 billion, an increase of ¥141.0
billion from the amount as of March 31, 2014.
As of March 31, 2015, total interest-bearing debt, the sum ofshort-term debt and long-term debt, amounted to ¥3,557.3 billion,
an increase of ¥523.3 billion from March 31, 2014. As of March 31,
2015, short-term debt, consisting mainly of borrowings from banks
and commercial paper, amounted to ¥977.7 billion, an increase of¥202.1 billion from March 31, 2014, due mainly to the issuance ofcommercial paper by the Company. As of March 31, 2015, long-term
debt (excluding current portion), consisting mainly of debentures,
debentures with stock acquisition rights, medium-term notes andloans principally from banks and insurance companies, amounted to¥2,096.1 billion, an increase of ¥379.1 billion from March 31, 2014,
due mainly to increased demand for investment funds to achieve
growth in the Social Innovation Business, funding for the acquisitionof Waupaca Foundry Holdings Inc., and higher demand for funds inline with business expansion in the Financial Services segment.
As of March 31, 2015, total Hitachi, Ltd. stockholders’ equity
amounted to ¥2,942.2 billion, an increase of ¥273.6 billion fromMarch 31, 2014, due primarily to posting of net income attributable
to Hitachi, Ltd. stockholders and an increase in the accumulated othercomprehensive income owing primarily to the depreciation of yen. As
a result, the ratio of total Hitachi, Ltd. stockholders’ equity to total
assets as of March 31, 2015 was 23.7%, compared with 24.0% as ofMarch 31, 2014.
Non-controlling interests as of March 31, 2015 was ¥1,354.0 billion,
an increase of ¥153.8 billion from March 31, 2014.
Total equity (the sum of total Hitachi, Ltd. stockholders’ equity andnon-controlling interests) as of March 31, 2015 was ¥4,296.3 billion,
an increase of ¥427.5 billion from March 31, 2014. The ratio of interestbearing debt to total equity increased to 0.83, compared with 0.78 asof March 31, 2014.

41