Introduction
Materiality

Mid-term Management Plan 2024

Value Creation

Transformation

Corporate Initiatives for Sustainability GrowthBusiness Strategies

Human Resources Strategy

Financial Strategy

Governance
CFO Message

DataHitachi Integrated Report 2023

Sector Strategies

CFO Message
The Solid Financial Foundation and Risk Management
That Support Sustainable Growth
Realize Increasing Shareholder Returns
by Optimal Cash Allocation
In fiscal 2022, I took the initiative as the Chief Financial Officer (CFO) and the Chief Risk Management
Officer (CRMO). This enabled comprehensive monitoring of financial and non-financial risk, and timelydecision-making during the year. We showed the progress in solid financial results.
To achieve growth during and beyond the Mid-term Management Plan 2024, I will continue to acceleratemanagement with a focus on cash flows and increase the ratio of Lumada as a driver of Hitachi’ssustainable growth.

Progress and challenges after finishing the firstfiscal year of the Mid-term Management Plan 2024
In fiscal 2022, the first fiscal year of the Mid-term ManagementPlan 2024, we recorded revenues of 10,881.1 billion yen,adjusted EBITA of 884.6 billion yen, and net income attributable
to Hitachi, Ltd. shareholders of 649.1 billion yen, which is arecord-high figure. With supply chain issues and abrupt changes
in interest rates and foreign exchange rates, the businessenvironment remained difficult. Despite this, we managed toachieve results as planned throughout the year. I think that risk
management and other efforts supported these results.
Operating cash flows marked record highs and core free cash
flows (FCF) reached 416.4 billion yen. Steady progress wasmade toward the 1.2 trillion yen target for the three-year total
set in the Mid-term Management Plan 2024. On the basis of
the cash generated, we conducted share buybacks totaling
200 billion yen in fiscal 2022 and steadily increased shareholder
returns, paying an annual dividend of 145 yen per share.

For fiscal 2023, major changes in the business environment areanticipated, such as continuing fluctuation of foreign exchange
rates, the increase of interest rates, increasing mediumand long-term geopolitical risks and the destabilization ofinternational circumstances. In these adverse businessconditions, achieving growth in four businesses with largescale assets, specifically Hitachi Energy, the railway systems
business, Hitachi High-Tech and GlobalLogic, is a bigchallenge. Among them, Hitachi Energy and the railwaysystems business have huge order backlogs. In fiscal 2023,
we will pave the way for the achievement of the targets in theMid-term Management Plan 2024 by recognizing revenues
at the appropriate timing, addressing temporary investment
costs, and implementing profitability improvement measures
such as price and cost control. Return on invested capital(ROIC) was 7.6% for fiscal 2022. We are aiming to increase
ROIC by optimizing invested capital in consideration of risk
factors, such as future interest rate increases, and improving
profitability to increase asset efficiency.

Yoshihiko Kawamura
Executive Vice President and Executive Officer, CFO, CRMO
Joined Hitachi in 2015 after serving as an executive officer at
Mitsubishi Corporation and as an economist at the World Bank.
Leveraging the experience he gained at Harvard Business School,
he has driven structural reforms as CSO (Chief Strategy Officer) since
2018 and as CFO (Chief Financial Officer) since April 2020. Current
position from April 2022.

31Introduction
Materiality

Mid-term Management Plan 2024

Value Creation

Transformation

Corporate Initiatives for Sustainability Growth

Endeavoring to meet the targets in theMid-term Management Plan 2024
The Mid-term Management Plan 2024 set targets of 5-7%
for the revenues growth rate and 12% or more for adjusted
EBITA. The expansion of the Lumada business, which isa revenue growth driver, and the enlargement of greenrelated businesses including Hitachi Energy and the railway
systems business by capturing GX demand will lead to theimprovement of the top line.
From fiscal 2023, the focus of our management strategy has
shifted to a phase of stable growth from a phase of businessportfolio reform. Specifically, we aim for stable growth of
the bottom line. We continue to take steps to increase
profitability, such as the continuous review of low-profitability
businesses, aiming to achieve earnings per share (EPS) of
600 yen or more and core free cash flow per share (CFPS) of
500 yen or more in fiscal 2024. Another major challenge is tokeep the conversion rate, calculated by dividing net income
by adjusted EBITA, at 60% or above by making stricter
investment decisions and by minimizing loss costs to control
the bottom line.
The strengthening of cash management is another priority
issue. To increase our cash generation capabilities, we ensure
basic actions including profitability improvement throughcost reduction, reduction of loss costs by risk management,
reduction of working capital, and the careful selection ofcapital investments. To increase CFPS, we will work to boost
the conversion rate, calculated by dividing core FCF by net
income, to the over 80% level in and after fiscal 2024.

Business Strategies

Human Resources StrategyFinancial Strategy

Governance
CFO Message

DataHitachi Integrated Report 2023

Sector Strategies

Capital allocation
The Mid-term Management Plan 2024 sets a target ofgenerating a three-year total core FCF of 1.2 trillion yen.
Based on total funds of 2.3 trillion yen, including 1.1 trillion
yen from gain on sale of assets, including the partial sale ofshares of Hitachi Astemo, we plan to allocate these funds
in a well-balanced manner, specifically, 0.8-0.9 trillion yen toshareholder returns and at least 1.4 trillion yen to investments
for growth. Regarding shareholder returns, we aim toincrease dividends in fiscal 2023 as we did in fiscal 2022.
We are also working on share buybacks up to 100 billion
yen. As for total shareholder returns, consisting of dividends
and share buybacks, we plan to offer substantial returns toshareholders on the basis of our income gained from thegrowth of businesses, considering 50% of core FCF and
50% of net income for total shareholder return in accordancewith our medium- and long-term business plan.
Regarding investments for growth, we will consider thepossibility of flexibly using financial leverage if there are any
M&A opportunities that are matched to Hitachi’s strategy.
In the future, however, we will consider strategic bolt-on
acquisitions rather than large-scale acquisitions for which
the scale would be around 1 trillion yen. (The term “bolt-on”
was originally used in a factory meaning to use somethingthat can be attached without cutting or welding.) We makedecisions from the viewpoint that the net present value(NPV) of an investment is positive as well as the period forrecovering the invested capital and the contribution to ROIC.

Actions for non-financial capital andenvironmental targets
It is challenging to quantitatively evaluate human, intellectualand other non-financial capital, and activities for meeting
environmental targets in terms of enterprise value. Hitachi
investigated the financial impact of measures related tohuman capital and the environment in collaboration with
Kyoto University. This study found that social value andenvironmental value are correlated to the increase of ROIC
(Kyoto University-Hitachi joint project).
Possible approaches for enriching our disclosures in thefuture include the presentation of how helpful Hitachi’sproducts and technologies can contribute to the resolution ofspecific social issues such as the reduction of CO2 emissions
and to the realization of a sustainable society. I believe that
we need to actively show how Hitachi is taking advantage ofhuman capital in consideration of DEI (diversity, equity andinclusion).

Endeavors after the Mid-term Management
Plan 2024 and message for stakeholders
After the Mid-term Management Plan 2024, Lumada willplay a greater role in leading the increase in the revenue
and income of the Hitachi Group as a whole. To increase
enterprise value after the Mid-term Management Plan
2024, in addition to expanding the Lumada business, wewill take six actions in parallel, which are realizing top-line
growth, increasing profitability, ensuring bottom-line stability,
strengthening cash generation capability, returning profits toshareholders and creating non-financial value.
I recognize that steady progress and disclosure on the Midterm Management Plan 2024 and shareholder returns areimportant for strengthening the trust that we enjoy from ourstakeholders. I always prioritize meeting shareholders andinvestors in person to frankly exchange opinions with them.
We will continue to seriously listen to the stakeholders in
the market and discuss Hitachi’s future and management
strategy together with you.

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