Hitachi Integrated Report 2019Year ended March 31, 2019

Hitachi
SocialInnovation

The challenges we face as a society are unprecedented,
but so are the opportunities.
Together, let’s start powering good.
Let’s call on our heritage, our spirit of collaborationand our technology to do better for generations to come.
Contents
About the Hitachi Group

Hitachi Integrated Report 2019 Editorial Policy
1

Editorial Policy

Value Creation Process

While preparing the 2019 edition of the Report, we concentrated on explaining Hitachi’s vision
moving forward, as well as the competitive advantages, strategies and business foundation we will
utilize to achieve this vision, while also looking back on Hitachi’s progress up until fiscal 2018 anddiscussing the results and challenges of related measures.
We placed a particular emphasis on including easily understandable explanations regarding
Hitachi’s goals of co-creation with customers and society to raise social, environmental andeconomic value, as well as achieve a sustainable society. These objectives are primarily aimed ataccomplishing Hitachi’s vision of becoming a global leader in the Social Innovation Business, one of
the central themes of its 2021 Mid-term Management Plan, which began in fiscal 2019.
When editing this Report, we ensured that it conforms to the International Integrated Reporting
Council’s (IIRC’s) International Integrated Reporting Framework and the Ministry of Economy, Tradeand Industry’s Guidance for Collaborative Value Creation.

Capital Utilization and Value Creation

About Cover Page

Value Creation Story

Hitachi is working to improve the quality of people’s lives by utilizing its many
strengths, including some of the latest digital technology, within a wide rangeof business domains, primarily including social infrastructure, e.g., IT
services, energy-related businesses, industrial systems and railway systems.
The cover of this report portrays several examples of Hitachi businesses that
contribute to people’s lives.

Business of the Hitachi GroupThe Hitachi Group Identity and Social Innovation Business
Growth History

The Hitachi Group Value Creation Story

10

CEO Message
Independent Director Dialogue

The Hitachi Group’s Growth Strategy

29

History of Management Reforms and Hitachi’s Mid-term Management Plans
Outline of the 2021 Mid-term Management Plan
Capital Allocation Strategy

Boundary of Reporting

Financial and Capital Strategy

Period: 						Companies: 		Boundary of Data:
Social data:
Environmental data:				

Accelerate Innovation
Environmental Vision and the Decarbonization Business
Strengthen Lumada
Story of Value Creation by Sector

A Business Foundation that Supports Sustainable Growth64

Addressing Risks and Opportunities

Accounting Standard:
				
				

Promoting Information Security
Occupational Health and Safety, Employee Health

April 1, 2018 to March 31, 2019(some activities detailed herein occurred after April 2019)
Hitachi, Ltd., and its domestic consolidated subsidiaries
Boundary of data indicated under each indicator
804 companies, namely Hitachi, Ltd.,and 803 consolidated subsidiaries
However, for environmental performance data associated with
Hitachi’s business operations, Hitachi, Ltd., and consolidated
subsidiaries whose environmental load comprises 90% of the total(based on Hitachi calculations) are included.
Unless otherwise noted, this report is prepared in accordance with
U.S. GAAP through fiscal 2013 and with the International Financial
Reporting Standards (IFRS) from fiscal 2014.

Value Chain Responsibilities

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

Quality Assurance
Climate-Related Information Disclosure
Corporate GovernanceManagement System

Data Section
10-Year Financial Data
Segment Highlights
Operating and Financial Review
Consolidated Statement of Financial Position
Consolidated Statement of Profit or Loss
Consolidated Statement of Comprehensive Income
Consolidated Statement of Changes in Equity
Consolidated Statement of Cash Flows
5-Year Non-Financial Data
Hitachi Group Business Operation Framework
Keywords to Understand Hitachi Value Creation
Corporate Data /Stock Information

87

U.S.A.
Hitachi America, Ltd.
50 Prospect Avenue, Tarrytown, NY 10591
TEL: +1-914-333-2994
U.K.
Hitachi Europe Ltd.
Whitebrook Park, Lower Cookham Road, Maidenhead, Berkshire SL6 8YA
TEL: +44-1628-585384
Investor Relations
https://www.hitachi.co.jp/IR/ (Japanese)
https://www.hitachi.com/IR-e/ (English)
Sustainability
https://www.hitachi.co.jp/sustainability/ (Japanese)
https://www.hitachi.com/sustainability/ (English)
Disclaimer Regarding Forward-looking Statements
Certain statements regarding the future of the Company set forth in this Report may constitute“forward-looking statements,” such as “plan,” “forecast,” “target,” and “strategy.” Although forwardlooking statements contained in this report are based upon what the Company has determined to bereasonable assumptions at the time of disclosure, actual performance and other results may differ
materially from those anticipated in such statements. For the major factors regarding thesedifferences, please see “Addressing Risks and Opportunities” on page 65 of this Report.

About the Hitachi GroupIT solutions
Along with Vietnam Post, we are

Business of the Hitachi Group2

Revenues

expanding electronic services

Adjusted Operating Income

related to the distribution of

Revenues by Market

public funds. Starting in 2020,

Revenues/Adjusted Operating Income Ratio/Net Income

we will contribute to improved

Revenues of Lumada Businessconvenience for six million

The Hitachi Group Identity and Social Innovation Business4

subsidy recipients.

Growth History

6

About the Hitachi Group

Business of the Hitachi GroupIn April 2019, Hitachi announced its three-year 2021 Mid-term Management Plan, positioning IT, Energy, Industry,
Mobility and Smart Life as growth sectors, assigning relevant business units to each of them. Hitachi is characterized by
two strengths: The first is our ability to provide solutions that use digital technology to resolve issues facing customers
and society through our cutting-edge IT and our operational technology (OT), which moves social infrastructure such as
equipment and systems at production sites, railways and power plants. The second is our highly reliable and superior
products. In these five sectors, Lumada will function as a platform that creates value from customers' data and supports the
rapid delivery of solutions.

Revenues

Adjusted Operating Income

Composition ratio (%)

Adjusted operating income ratio (%)

OthersOthersHitachi Chemical
Hitachi Metals
HitachiConstruction
Machinery

5%

7%
10%

IT

20%

Revenues
by segment¥9,480.6 billion 9%(FY2018)

7%
HitachiHigh-Technologies

5.6%

10.8%

Hitachi Chemical
7.1%

Energy

4%

10%

IT

12%

Industry

Hitachi Metals

5.0%

HitachiConstruction
Machinery

Adjusted operating
incomeby segment¥754.9 billion

7.6%

Mobility

16%

Smart Life

2.3%

(FY2018)

11.2%

HitachiHigh-Technologies

Energy7.5%

Industry
Mobility

3.9%

9.1%

Smart Life

Note: Figures for each subsegment include intersegment transactions.

Revenues by Region

Revenues/Adjusted Operating Income Ratio/
Net Income

Composition ratio (%)
Europe1,018.5Asia

11%2,019.5

1,205.6

ASEAN, India
and others
1,009.7

North America

13%

10%

21%
11%

Adjusted operating income ratio (%)

Net income attributable to
Hitachi, Ltd. stockholders (¥ billion)
9,774.9

10,034.3
9,162.2

Japan¥4,664.5 billion
Outside Japan

China

Revenues (¥ billion)

6.6¥4,816.0 billion

7.6
6.3

6.4

Total

¥9,480.6

1,009.8

6%(FY2018)

billion49%

Japan4,664.5

217.4

9,368.6

172.1

9,480.6
8.0

362.9

231.2

222.5

Other Areas
572.3

FY20142

Hitachi Integrated Report 2019

FY2015FY2016FY2017FY2018

IT

EnergyConsulting

IT products

Systems integration(storage, servers)

Cloud services

Control systems

SoftwareATMs

Industry

Energy solutions
Power grid system

Industry & distribution system
Water & environment system
Industrial products

Mobility

Smart Life

Building services

Medical equipment
Smart life & eco-friendly system(Refrigerator, washing machine, air conditioner,
commercial air conditioning system)
Automotive systems(Powertrain, chassis parts, advanced driving
assistance system)(Elevators, escalators)

Revenues ofLumada Business

Railway system¥1,127.0 billion(FY2018)

P.48 Strengthen Lumada

Hitachi High-Technologies
Ownership percentage ofvoting rights:

51.8%

Main products and services

Hitachi Construction Machinery
Ownership percentage ofvoting rights:

51.5%

Main products and services

Hitachi Metals
Ownership percentage ofvoting rights:

53.5%

Main products and services

Hitachi Chemical
Ownership percentage ofvoting rights:

51.4 %

Main products and services

Medical and Life Science Products

Hydraulic Excavators

Specialty Steel Products

Functional materials

Analytical Equipment

Wheel LoadersFunctional Components and Equipment(Electronics materials, printed wiring board

Semiconductor Processing Equipment

Mining Machinery

Magnetic Materials and Applications

materials, electronic components)

Manufacturing and Inspection Equipment

Maintenance and Services

Power Electronics

Advanced components and systems

Advanced Industrial Products

Construction Solutions

Wires, Cables, and Related Materials(Mobility components, energy storage

Mine Management Systems

devices and systems, life science related
products)

3

About the Hitachi GroupThe Hitachi Group Identity andSocial Innovation Business
Grounded in the Hitachi Group Identity, we will raise the social, environmental and economic
value we provide to customers and aim to achieve a sustainable society by focusing on ourSocial Innovation Business.
The present world is said to be an era of volatility, uncertainty, complexity and ambiguity (VUCA), in which the future is difficult
to predict. Looking around the world, we can see a wide variety of steadily approaching change that will have an impact on
people's lives, including climate change, resource shortages, demographic changes due to aging and problems related tourbanization.
Since its establishment, Hitachi has operated under the Mission expressed by its founder: “Contribute to society throughthe development of superior, original technology and products.” In accordance with this Mission, we have solved challenges
facing society during each era through the development of social infrastructure technologies while raising people's quality oflife (QoL) and, in recent years, contributing to the achievement of a sustainable society.
Originally set by Hitachi founder Namihei Odaira, the Mission has been carefully passed on to generations of employees andstakeholders throughout the Company's 100-year history. The Values reflect the Hitachi Founding Spirit, which was shapedby the achievements of our company predecessors as they worked hard to fulfill Hitachi's Mission. The Vision has beencreated based on the Mission and Values. It is an expression of what the Hitachi Group aims to become in the future as it
advances to its next stage of growth. The Mission, Values and Vision are made to be shared in a simple concept: HitachiGroup Identity.

Our Social Innovation Business accelerates collaborative creation with customers using the latest digital technologies in a wide range of fields, including social
infrastructure. It also solves various issues faced by society and customers by taking advantage of the Hitachi Group's business bases; its total solutions, which combine
the operational technology (OT), IT, products and systems it has cultivated over many years; digital solutions such as Lumada; and open innovation achieved throughpartnerships with operators worldwide.

4

Hitachi Integrated Report 2019

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

VALUES

Harmony

Sincerity

Pioneering
Spirit

The willingness to respect the

To act with a sense of ownership andTo work creatively, using novel

opinions of others and discusshonesty at all times and never pass

approaches to enter new areas. To

matters in a manner that is thoroughthe buck. The spirit to meet society's

always act as a pioneer within ourand frank, but fair and impartial, andexpectations and generate credibility

areas of expertise and to have theonce a conclusion has been reached,for Hitachi.

passion to pursue higher goals
beyond our capabilities.

to cooperate and work together toachieve a common goal.

The power station at the Hitachi mine (1916)
Six years after its establishment, Hitachi employees proudly sit in front of agenerator and a water turbine installed at the power station of the Hitachi mine.
From this photo, we can distinctly feel their senses of accomplishment andfulfillment, as well as their hopes for the future.
However, shortly after the station started operating, the generator broke down
due to defective parts, which had a serious impact on the operation of themine, leading our founder, Namihei Odaira, to prepare an unofficial resignation.
The employees worked tirelessly to restore the generator and investigate thecause of the breakdown. In addition to problems involving the generator, ouremployees faced difficult issues every time they set about making products.
They raised quality, cultivated technology and gained trust through their
devoted and resolute work on solving each and every one of these issues.
These efforts crystallized into Hitachi's Founding Spirit, which remains alive
and well to this very day.

5

About the Hitachi Group

Growth History
1910 1945 (founding period)

Major events

Challenges faced by Hitachi's pioneers
1910
1920
1934

Founded as a repairing yard attached to Kuhara Mining Co., Ltd.'s Hitachi mine
Split off independently as Hitachi, Ltd.
Listed on the Tokyo Stock Exchange and established Hitachi Research Laboratory

Together with society
6

Namihei Odaira, the founder of Hitachi, Ltd., wanted to utilize his own abilities to contribute to society by producing electric machinesand developing Japan's machinery industry. In accordance with these desires, he founded our company after constructing a power
station at Hitachi mine and directing the production of mining equipment.
At the time of our founding, our mistakes were as numerous as the number of products we produced, but we improved our technicalcapabilities by focusing on our own technologies and strengthening our testing and research. In 1918, we launched a technicaljournal and appointed a full-time patent authority in 1921. Later, in 1934, we established a research laboratory.
Mr. Odaira placed an emphasis on cost accounting since our founding and created a system allowing for regular cost estimation
meetings employees working in sales and in factories. Through this system, we secured orders based on careful cost accounting.
Overcoming many failures and difficulties since its establishment, Hitachi has grown into a technological powerhouse that has gained
the trust of its customers; in 1937, we had more than 10,000 stockholders. At that time, we produced a wide variety of major
products, including power generation equipment, large industrial machines, railway cars, elevators, escalators, electric fans,ventilating fans, well pumps, electric refrigerators, air conditioners and diesel buses.

1910
A five-horsepower
induction motor, one ofthe products we offeredduring our founding
period (motor)

1924
The ED15, the first large
electric locomotive
manufactured in Japan1932
Our first electric
refrigerator

1933
The world's largest mill motor at the time
(DC motor for metal rolling)

1942
Electron microscope (first forcommercial use produced inJapan)

School-based education that began with our founding
At the time of our founding, we were experiencing difficulty in securing orders due to the recession that occurred following the RussoJapanese War. Working to acquire promising human resources and educate employees, we established the Apprenticeship Training
School in 1910. This institution recruited human resources from all over Japanand trained them for two years. We often lost graduates from the school tocompetitors due to their high levels of education. Despite this, Mr. Odaira
always stated that “Our goal should be to train talented technicians andindustrialists.” The Apprenticeship Training School was renamed “Hitachi
Industrial College” in 1928 and continues to operate under this name today.
Each year, this institution produces human resources that handle
manufacturing for the Hitachi Group.
Class being conducted at the Apprenticeship Training School (1917)

Hitachi Integrated Report 2019

OT, IT and product development

OT and product development

Changes in management

Founding

1946 1960 (postwar reconstruction period)

1961 1970 (rapid growth period)

Path to reconstruction

Fostering comprehensive strength

1947
1958
1959
1960

Chikara Kurata becomes our 2nd president
Won the grand prize at the World Exposition
HITAC 301 computer is completed
MARS-1 seat reservation system is completed

1961
1964
1966

Kenichiro Komai becomes our 3rd president
The Tokaido Shinkansen and Tokyo Monorail cars are completed
Development of metal oxide semiconductor (MOS) transistors

Achievements produced through our originaltechnologies and our adoption of new technologies

Rapid progress toward becoming a comprehensive electricalmachinery manufacturer

Hitachi lost 40% of its production capacity due to war damage, andthe war's impact on the Hitachi factory, which lost 80% of its
capacity, was particularly strong. Despite these setbacks, under Mr.
Kurata, our second president, we grew into a company not only
involved in energy businesses, such as hydroelectric and thermal
power generation, but also in railways systems, social infrastructure,such as elevators and escalators, and consumer electronics. In
particular, we created a mass production system and sales network
using our “three sacred treasures,” TVs, refrigerators and washingmachines, becoming a major player in the industry.
At the Brussels World's Fair in 1958 (in Belgium), Hitachi's electron
microscope won the grand prize, while its portable analog computer
received first prize. By winning these awards, these products became
symbolic of our capacity for developing original technologies and our ability
to keep up with cutting-edge advancements by adopting new technologies.

Kenichiro Komai, who became our president in 1961, worked to strengthen ourinternational competitiveness by proactively raising funds overseas. Under his
direction, we focused on priority goals of strengthening our financial structure,raising production efficiency, enhancing sales and export systems, promoting
technological development and improving training. In terms of operations, wemade bold investments in growth sectors, including electronics and information
devices, such as semiconductors and computers, nuclear power plants andcontrol devices, while increasing our international competitiveness throughproactive efforts to adopt new technologies.
It was at this time that the “3C (color TVs, coolers [air conditioners], cars)
Boom” occurred, spurring substantial growth for Hitachi in terms of home
appliances and automotive parts. Thanks to this growth, Hitachi developed into
a comprehensive manufacturer of electrical machinery.

1964
The world's first Shinkansen (bullet train) cars toreach 200 km/h

1969
Developed and massproduced all-transistor
color televisions

1949
Escalators that became vertical metropolitan pathways

The “Hitachi Car,” the world's first vehicle for mass
stomach screenings
In 1960, we launched the “Hitachi Car,”the world's first vehicle for mass stomach
screenings targeting the early detection of
stomach cancer. Since then, Hitachi hasdeveloped medical equipment that hashelped improve people's health, including
ultrasound system reflectoscopes, X-ray
CT scanners and magnetic resonanceimaging (MRI) systems.

1965
Hitac 5020 system (produced in Japan)

1968
The fastest elevators in Japan at the time (in thehigh-rise Kasumigaseki Building)

For the development of electrical machinery industry
Since its founding, Hitachi has emphasized patents as an important indicator of
a company's technological capabilities. In September 1970, we had decided tomake our patents publicly available for sale to contribute to technologicalimprovement throughout the industry. Newspapers throughout Japan reported
this move as “the nation's first full-scale public opening of patents,” making
Hitachi a pioneer of technical exchange in the electrical machinery industry.

The “Hitachi Car,” the world's firstvehicle for mass stomach screenings(1960)

7

About the Hitachi Group

Growth History
1971 1985 (transitional period)

Together with society

OT, IT and product development

Changes in management

Major events

Focus on growth sectors

8

1971
1974
1975
1981
1982

1986 2008

Strengthening of

Hirokichi Yoshiyama becomes our 4th president
COMTRAC, Computer Aided Traffic Control System for Shinkansen, is completed
Operation begins at Chugoku Electric Power Company's Shimane Nuclear
Power Station, Japan's first domestic nuclear power plant
HITAC M-series, large-scale computer is completed
Katsushige Mita becomes our 5th president
We become a listed company on the New York Stock Exchange

1991

1995
1999
2006

Hitachi's restructuring

Reorganization initiatives

In the 1970s, the entire industry was forced to undergo major structural changes
due to events that shock the Japanese economy, such as the Nixon shock, thetransition to a free-floating exchange rate system and the oil crises of 1973 and1979. Hirokichi Yoshiyama, who became president of Hitachi in 1971, launched apolicy of “lightweight management” in anticipation of changes in the industrial
structure and a period of slow growth. Under his direction, Hitachi strengthened its
business structure by restructuring factories and reducing overhead costs while
focusing on the electronics-related business, which was an important growth sector
at the time. Katsushige Mita, who was appointed president in 1981, promoted
product planning based on market needs, rejecting policies aimed at pleasing every
single individual. During his tenure, he emphasized the importance of expanding
growth products designed to meet future needs.
As a result of this period of restructuring, we became a comprehensive electricalmachinery manufacturer with well-balanced electrical equipment and machinery andelectronics businesses.

In an era of global competition, the Japanese
economy was hit by trade friction and a highyen rate and, suffering from the aftereffects ofthe collapse of the bubble economy, entered along period of sluggish performance. During
this period, Hitachi focused on restructuring its
b u s i n e s s . U n d e r Ts u t o m u K a n a i , w h oassumed the position of president in 1991,
Hitachi implemented a Groupwide system
aimed at speeding up management andintegrating development, manufacturing andsales processes. During the tenure of Etsuhiko
Shoyama, who took office as president in 1999,
we formulated two Mid-term Management
Plans: i.e. HITACHI Plan and i.e. HITACHI Plan II.
Under these plans, we reviewed our business

1974
Shimane Nuclear Power Station, Japan's firstcommercial-use nuclear power station

1999
Super technical server (world's fastest at the time)
1972
COMTRAC, Computer Aided Traffic Control System for
Shinkansen, operations launched

1975
HITAC M-series, large-scale computer

Contribution to social living and industry in China

Social Contribution as a corporate citizen

The year 1978 marked the signing of the Japan-China Peace and Friendship Treaty.
As part of this agreement, a steel mill construction project was launched in
Shanghai. Hitachi also participated in the project and established a high level of trustwith the Chinese authorities. Since then, Hitachi has gradually built a system ofcooperation in China that ranges from plant construction to the establishment ofjoint ventures. Over the years, we have contributed to industry development,enhanced technological capabilities and improved lifestyles in China through ourbusiness.

Hitachi's social contribution activities were
inspired by the sentiments of its founder,
Namihei Odaira. Mr. Odaira dedicated himself
to his employees and to the development of theCity of Hitachi, where we were founded. His
spirit of social contribution was adopted by all
successive management teams, leading to theestablishment of seven charitable corporate
foundations in Japan and overseas (nowmerged into the Hitachi Global Foundation).

Hitachi Integrated Report 2019(reform period)

Group management
Tsutomu Kanai becomes our sixth president
Environmental Division is established.
Enacted the Hitachi Environmental Protection Principles.
Implemented a Group system
Etsuhiko Shoyama becomes our 7th president
Kazuo Furukawa becomes our 8th president

2009 2018 (regeneration period)

Toward a global Hitachi
2009 Takashi Kawamura becomes our 9th president
Implemented a Company system
2010 Hiroaki Nakanishi becomes our 10th president
2014 Toshiaki Higashihara becomes our 11th president
2016 Implemented a Business Unit system
Launched Lumada

Evolution of our Social Innovation Businessfrom the perspectives of consolidated management
and global expansion while actively engaging in M&A
and business collaboration. Later, Kazuo Furukawa, who
was appointed president in 2006, further implemented
these reforms under his policy of “collaboration and profit
management.” Hitachi became a company with morethan 1,000 consolidated subsidiaries, and its Group
companies expanded business through independentand creative management. However, Hitachi recorded
its largest loss ever in fiscal 2008, due to rising crude
oil and raw material prices and global financial
instability.

Takashi Kawamura was appointed chairman and president in 2009, as global economic
growth further slowed. In 2010, which marked the 100th anniversary of our founding,Hiroaki Nakanishi took over as president while Mr. Kawamura remained in the position ofchairman. Under this leadership structure, we launched initiatives aimed at reviving the
Hitachi Group and developing the Social Innovation Business. Further reforms were
implemented and we introduced a Company system under the 2012 Mid-termManagement Plan (FY2010 -FY2012) in an effort to clarify responsibilities and authorities.
In 2012, we started a Group system that consolidated strongly related businesses into fivegroups (later six). We have also promoted business reforms, severing non-corebusinesses and performing restructuring. Through the 2018 Mid-term Management Plan
(FY2016 -FY2018), we have determined our business areas of focus and, with primary
support from our Social Innovation Business, are aiming to become a leading global
innovation partner for the IoT era and to transform into a comprehensive digital solutions
company.

2001
Proton therapy system(University of Tsukuba
Hospital)

2004
The World's first storage system equipped with virtualization functions

2017
Class 800 train for the Intercity Express Programme (IEP)

Omika Works ▶︎ P.51

Promoting STEM education*1 as One Hitachi
The Hitachi Global Foundation complements Hitachi's social
contribution activities by conducting initiatives with a wide
range of aims, including the promotion of academic research,science and technology, the development of next-generation
human resources and building multicultural symbiotic &diversity societies. In 2002, Hitachi developed the principles
and policies that govern its social contribution activities andhas since focused on activities that take advantage of its
unique characteristics, concentrating primarily on humandevelopment, the environment and community support.

With the rapid development of information technology using artificial intelligence (AI) and big data,
the development of IT personnel has become a major issue. Under these circumstances, STEM
education is being regarded as important around the world as an education method that aims tonurture human resources who are capable of using cutting-edge technologies, primarily including
IT, to demonstrate their creativity, power of expression andproblem-solving skills. Hitachi is conducting a variety ofsocial contribution activities involving STEM education todevelop next-generation human resources who will provide
leadership in the future.
*1 STEM education is education in Science, Technology, Engineering and Mathematics.

Children learning through STEM education

9

The Hitachi Group
Value Creation Story
CEO Message

11

Independent Director Dialogue

18

Value Creation Process22

Capital Utilization and Value Creation

24

Value Creation Story

26

Energy solutions
We manage 25% of the world’s substations andsupply stable energy to 1.8 billion people

CEO Message

Becoming a Global Leader in theSocial Innovation Business
Hitachi will transform rapidly to achieve the innovations required by the times.
Reaching a record high for the second consecutive year, fiscal 2018 adjusted operating income* at Hitachi came in at ¥754.9
billion, with the adjusted operating income ratio for the year meeting the Mid-term Management Plan target of 8%. Total Hitachi,Ltd. stockholders’ equity on the balance sheet during the period covered by the plan was up approximately ¥500 billion, backed
by the Company improving its ability to generate cash. Having achieved a V-shaped recovery after recording losses of ¥787.3
billion in fiscal 2008, Hitachi is now moving into a new stage of development.
* Adjusted operating income is defined as total revenues less cost of sales and selling,
general, and administrative (SG&A) expenses.

Toshiaki Higashihara
President & CEO

Returning to Our Roots

Reaffirming Our Strengths Based on the Lessons of the Past
In 2020, Hitachi will celebrate the 110th anniversary of its founding

loss ever for a Japanese manufacturer, with stockholders’ equity of

as a manufacturer of electrical machinery.

about ¥2–¥3 trillion being adversely impacted to fall at about ¥1

In all that time, one of the biggest turning points was thetrillion. Hitachi had been called an “unsinkable giant” in the past, somanagement crisis. The Company at the time posted the largest

how did things become so bad that it found itself being ridiculed as

11

The Hitachi Group Value Creation Story“a sinking giant”? I believe this situation came about due to there

So the question is how best to create a growth strategy. Facedbeing no real sense of crisis at the Company. That said, afterwith truly dire conditions, we decided to “return to our roots.” Since

posting this huge loss, management did move to rebuild itself andits founding, Hitachi has focused on contributing to the improvement

spur an earnings recovery through a major reshuffling of theof people's lives by following a corporate philosophy based on the

Company’s businesses and reforms to Hitachi’s corporate

desire to “contribute to society through the development of superior,

governance structure.

original technology and products.” Established as a manufacturer ofHaving witnessed the Company’s struggles, I learned thefive-horsepower induction motors, Hitachi has not only developed its

importance of simultaneously implementing “peacetime structuralability to create products, but has honed its abilities in control andreforms” and a “sustainable growth strategy.” Crafting bold andoperational technologies (OT) in the more than 100 years it has

decisive strategies when an emergency arises is one thing, but if, inoperated as a manufacturer, as well as its knowledge in information

periods of relative calm, a company is not looking likely to become atechnologies (IT) over the past 50 years. Hitachi's strengths lie in its

world-class competitor, its leadership needs to take steps, including

ability to combine OT, IT, and its products to create new value andshrinking or withdrawing from struggling businesses. I have taken toprovide solutions that meet the needs of its customers and society.

heart the lesson that if a business fails to act boldly and with speed,

I believe the creation of an organization that makes full use of this

there is a very real risk of it not being able to survive, especially instrength allows us to contribute to the resolution of various social

these uncertain times.

issues, which in turn contributes to sustainable growth at Hitachi.

Completing the V-Shaped Recovery

Initiatives to Improve Profitability and Achieve Our Mid-term Management Plan Targets
I became Hitachi’s president and COO in 2014 and president andto see issues that were previously difficult to see, and with the ability to

CEO in fiscal 2016, when we launched the 2018 Mid-term

make quick management decisions, I soon began to see results.

Management Plan. Hitachi was unable to achieve the income ratio

In terms of our growth strategy, we launched Lumada, whichtargets in its 2015 Mid-term Management Plan, and we wereincorporates the sum of our technological knowhow, in May 2016,

determined not to let that happen again during the period covered byand established a system providing digital solutions throughout thethe new plan. So what was the best way to achieve our minimumgroup. Lumada is Hitachi's advanced digital solutions, services, andadjusted operating income ratio target of 8% and the creation of atechnologies for turning customers' data into insights to drive digitalstructure supporting margins in the double digits?

innovation. Lumada-based revenues have already expanded to

Our first move, launched in April 2016, was to overhaul our

12exceed ¥1 trillion.

organizational structure. This involved dividing up our large in-house

While promoting the reshuffling of our businesses, including the salecompany system into small business units, allowing us to clearlyof listed subsidiaries, we are also actively working to incorporate

identify the challenges and issues in each business. While enacting

businesses within the group that could be expected to generatemeasures aimed at spurring improvements in low-profit businesses,

synergies with Lumada. As examples of this, in 2017 we acquired air-

we also shrunk or withdrew from businesses where these measurescompressor firm Sullair, which has a global footprint especially inappeared unlikely to work. Our efforts to tighten project management

North America, and we aim to complete the acquisition of ABB’s

and review fixed costs on a companywide basis contributed to a

power grid business in the first half of 2020. The intent of the ABB

reduction in unnecessary costs, and we lifted on-site awareness of

power grid business acquisition is the greater provision of innovative

cash flow by making the cash conversion cycle (CCC) a key

energy solutions through an expansion in global sales channels. And

management indicator. I believe the organizational overhaul allowed us

to take it one step further, we also aim to incorporate the philosophy

Hitachi Integrated Report 2019

CEO Message

and know-how of this globally successful company into Hitachi increating greater value on a global scale as it moves into its nextorder to spur further positive changes. I believe acquisitions of thisgrowth stage.

type can provide Hitachi with a stepping-stone toward its goal of

The View after Rebirth

Exploring the Purpose of Our Business
If I were to summarize the 2018 Mid-term Management Plan, I would

A look around the world shows an unending series of changes

say its biggest achievements included instilling a shared sense of

impacting people’s lives. These include resource shortages andcrisis in employees throughout the Company and fostering a growing

climate change, demographic changes brought on by the aging of

focus on income and cash. These changes resulted in Hitachisociety, and the issues accompanying urbanization. Amid such an

achieving its Mid-term Management Plan target for an adjusted

environment, there are growing efforts around the world, including

operating income ratio of 8%, as well as a growing perception that

the Society 5.0*1 initiative in Japan, to resolve through innovation the

Hitachi as a global company should naturally produce incomesocial issues outlined in the United Nations Sustainable Development

margins in the double digits, and that the Company should be a

Goals (SDGs). Hitachi’s corporate philosophy for the past 109 years

global leader in the Social Innovation Business.

has been to “contribute to society through the development of

After having achieved a V-shaped recovery, is it really necessary

superior, original technology and products” and if each of its 300,000

for the Company to push income ratios to 10% or higher? I have for

employees around the world can find satisfaction in resolving social

some time been saying, “Show me the cash!” to our employees, inand environmental issues through advancing the Social Innovation

part as I feel it is necessary to focus on what comes before profit.

Business and broadening the field of related activities, I believe it

In this sense, I will never forget the first factory manager at Omika

would surely contribute to continued growth for Hitachi. Of course, it

Works with whom I worked after joining the Company quoting fromis important to improve economic value, but I also believe it is

Yuzo Yamamoto’s novel, A stone by the Roadside. A line in theimportant at the same time to improve social and environmental

novel essentially says, “There is only one you and you have only one

value. We aim to pursue this goal based not only on leadership fromlife, so if you don’t really use it, are you really human? Have yourthe top, but also through bottom-up participation from employees

really lived?” To apply that to today, if you spend more than half yourwho find real purpose in their work. If we can accomplish this, I

life at work, then it is through that work that you have the opportunity

believe Hitachi will be all the stronger for it.

to feel the happiness of people and society. It is through the job infront of you that you can help people and society. In other words, I
think contributing to building social and environmental value is amajor driver behind our personal growth and our job satisfaction.

*1 Society 5.0 expresses a new idea of society and related efforts to achieve this, as advocated by the Japanese
government. The aim is to develop the economy while addressing societal issues by deploying AI, IoT, robots
and other forms of advanced science and technology to make use of various data creating an affluent,human-centered society. The name refers to the evolution of a fifth form of society, continuing from the huntergatherer, agrarian, industrial, and information societies.

A Vision for a New Leap Forward

Aiming to be a Global Leader in the Social Innovation Business
The modern age has been called the era of VUCA (Volatility,

we value, and on the standards we use when making decisions. With

Uncertainty, Complexity, Ambiguity), where it is increasingly difficult to

Hitachi, these are grounded in our corporate mission and our values,

predict the future. This is why it is important to maintain focus on what

which are based on the concepts of “harmony, sincerity, and a

13

The Hitachi Group Value Creation Story

pioneering spirit.” For historical perspective, Namihei Odaira, who

I also believe employees should do more than just fulfill the goals offounded Hitachi at age 36, noted that the motors and generators heleadership and that they should also focus on how their work can

repaired at the copper mines in what is now Hitachi City, Ibaraki

contribute to improving social and environmental value. Whenever I

Prefecture were all imported from abroad, and that Japanese industry

engage in direct communication, I am continually pushing for this

could never develop if people in the country didn’t learn to make thesekind of shift in the mind-set of our employees. The approach is notdevices on their own. With that idea, he founded Hitachi alongside a

based on instilling a sense of crisis, but rather on raisingnumber of fellow engineers. I believe the founding of the Company

awareness of the importance of social and environmental

was largely the result of Mr. Odaira’s desire to change Japan andcontribution.

contribute to the development of society and the country as a whole.

Expressing sentiments such as “today we were able to supply

That kind of drive still exists in Hitachi today. Our focus is not only on

safe water to people in the area” and “we contributed to theeconomic value, revenues and income, but also on using innovation totreatment of cancer patients,” our 300,000 employees worldwide

resolve the many challenges facing society. We believe that Hitachi

are well aware of their contributions to the environment andshould be synonymous with Social Innovation Business, and withsociety, as well as their connection to society in their daily work. I

that kind of presence, we hope to widely contribute to society as

believe that this builds motivation in our employees, and througha global leader. Even though times have changed, I believe thethe combined efforts of all, it contributes to the creation of higher

founder’s spirit continues to guide our management as part ofsocial and environmental value, and ultimately economic value for

Hitachi’s unchanging values.

the Company.

I believe global leaders must have a clear vision of what theyshould be and that they should take the lead in creating history.

Charting a Path to Growth: Launching the 2021 Mid-term Management Plan

Realizing Our Three Values and Establishing Goals for the Future
Our 2021 Mid-term Management Plan, launched in April 2019,

blocks coming together to form a unique structure, we can provide

focuses on simultaneously improving social value, environmental

a variety of solutions, such as energy management, human flow

value, and economic value, and establishes five business sectors

simulations, and autonomous driving solutions, in a unique(IT, energy, industry, mobility and smart life) for the creation of social

customized package to meet the specific needs each customer.

innovation. To put it differently, these are areas in which Hitachi can

14

An example of this is the Copenhagen Metro project, for whichmake use of the technological know-how it has built up through its

Hitachi is supplying 24-hour driverless trains and related systems.

many years of developing social infrastructure. Moreover, in each of

The Dynamic Headway solution used in testing these systems

these business sectors, Lumada can be used as a common

focuses on train station congestion, using data from mounted

platform to achieve the goals of improving people’s quality of life

sensors to measure fluctuations in the number of passengers(QoL) as well as corporate value at our client companies.

arriving. Based on this information, the system then optimizes theStrengthening Lumada, which can accelerate innovation, is key tonumber of trains in operation. Hitachi’s efforts are focused on

growth moving forward. Indeed, the creation of multiple reusable

solving customer issues by combining solutions such as humansolutions in each of the key business fields can lead to theflow simulations, automated timetable generation, and operational

resolution of issues that cross industry and geographic boundaries.

management optimization as customizable blocks. Amid the trend

The image of toy blocks provides a good analogy for better

toward growing urbanization, better public transportation isunderstanding. As with the variety of colors and shapes of a child’s

increasingly required to prevent traffic congestion and create

Hitachi Integrated Report 2019

CEO Message

comfortable public spaces, and given that the Copenhagen Metro

it is contributing to improvements in social, environmental andproject also optimizes operational efficiency and conserves energy,

economic value.

Accelerating Innovation to Spur Growth

Building an Innovation Ecosystem with Lumada at Its Core
So the question now is how to strengthen and evolve Lumada. I

all over the world to create new ideas alongside Hitachi

believe this requires the building of an “innovation ecosystem” that

researchers and designers.

accelerates collaboration with business partners, universities,
research institutes, and customers around the world.

We are also actively working on initiatives designed to contributeto the acceleration of innovation around the world. These efforts

The Company is already working with research institutions andinclude acting as a supporting partner to start-ups as they create

domestic universities such as the University of Tokyo to create

new innovations, and establishing a corporate venture capital fund.

solutions to social issues. As example is the “Hitachi The University

We will continue to work toward improving the social,of Tokyo Laboratory.” We are also focused on expanding theseenvironmental, and economic value of our customers by creating

kinds of collaborative relationships to include overseas universities,

an ecosystem for co-creation and establishing Lumada as theresearch institutions, and customers. In April 2019, Hitachi

driving force behind the accelerated development of the Social

launched the collaborative creation project Kyoso-no-Mori at its

Innovation Business.

Central Research Laboratory, inviting customers and partners from

Building a Global “Delivery” System

Front-Line Personnel with the Hitachi DNA Hold the Key to Success
After focusing on solutions to customer issues and assessing“sincere” efforts for our customers and partners, and even should

feasibility and profitability, the framework for building on

they fail, they will never give up on their “pioneering spirit.” I believe

Lumada’s foundation is now complete. There are already about

securing and fostering frontline personnel exhibiting these650 Lumada customer cases, and we believe this shared basequalities is a key to our success.

will assist us in providing solutions that truly satisfy our

By combining the common solutions accumulated throughcustomers. However, for the sake of our customers, I believe it

Lumada, we can customize solutions for customers in different

is vital to develop front-line personnel who can provide evenparts of the world. Moreover, to strengthen our front-line humanhigher-added-value solutions. Hitachi’s collaborative efforts with its

resources so that we can realize this kind of “innovation

customers are not based on a vertical relationship, with one party

ecosystem,” we are not only training in-house employees, but

acting above the other, but instead are based on side-by-side

also actively recruiting personnel from outside the Company.

cooperation with the aim of improving social value. It’s

Given that cultures and business practices vary according toimportant for those involved to always think with a sense ofregion and country, we are working to cultivate humanownership and be at the forefront of discussions. If the direction of

resources in each of those areas. As an example, we havethe organization or team is different, our employees will work together

been able to secure human resources in areas such as

in line with the final decision in the spirit of “harmony”, leaving aside

California’s Silicon Valley who are not only talented andtheir previous opinions. Moreover, they will put forth their mostexperienced, but share a deep commitment to harmony,

15

The Hitachi Group Value Creation Story

sincerity, and the pioneering spirit that make up the Hitachi

more background diversity there is, the better. I believe humanfounding spirit.

resources recruited from around the world will be instrumental in

I worked at the Omika Works in Ibaraki Prefecture for aboutsharing Hitachi’s values and resolving the social issues impacting our

29 years after joining the Company in 1977. The plant wascustomers. I have high expectations as well as great confidence

created in 1969 to house the combined control departmentsin this effort.

that were split off from the Hitachi and Kokubu plants, and forsome time after I was assigned to the facility, there was still alot of talk about from which of the original plants you came.
That said, my time there allowed me to experience the creationof a shared culture, as gradual integration brought with it thespirit of building a “Greater Omika” plant. In my opinion, theTotal Growth Investment of ¥2.5 Trillion

Aggressively Pursuing Growth Opportunities While Maintaining an Eye on
Capital Costs
Hitachi will invest more aggressively in growth, including M&A, overI believe an acceleration in the Social Innovation Businessthe next three years from fiscal 2019 to fiscal 2021 as part of its

requires Hitachi to further improve the level of trust it enjoys from

effort to become a true global leader. More specifically, we target asociety. With this in mind, we will promote compliance, quality

total investment of ¥2.5 trillion during the period, including about

assurance, and safety by utilizing digitalization and Lumada to¥1 trillion for the already announced acquisition of ABB’s power

reduce manual tasks.

grid business. Growth investment will be focused on the IT and

Based on these efforts, our fiscal 2021 earnings targets include

industry sectors, where we will enact unprecedented investment inaverage annual revenues rising organically by more than 3%, an

both human resources and R&D. To carry out large-scale

adjusted operating income ratio above 10%, and cumulative

investment, we will use financial leverage to reduce capital costs

operating cash flow for the three years greater than ¥2.5 trillion.

(WACC) and improve ROE, while at the same time fostering

Moreover, we target ROIC of above 10%, with the overseas

management awareness of capital efficiency by establishing return

revenue ratio climbing from 51% at present to better than 60%.

on invested capital (ROIC) as a new KPI.
Hitachi will also strengthen its business foundation to accelerate
development of the Social Innovation Business. In addition tooperational reforms based on data accumulated thanks toadvancements in production systems and business processes, aswell as the promotion of digital transformation by expanding thescope of Lumada’s in-house use, we are working to reduce fixed
costs and improve efficiency in sales and indirect operations.
Maintaining an awareness of what is appropriate for a global
company, we will continue to work toward improving profitability,with a gross profit margin*2 target of 30% or higher and an SG&A
ratio*3 target of under 20%.

16

Hitachi Integrated Report 2019

*2 Gross profit margin: The percentage of gross profit to revenues.
		[(revenue – cost of sales)/ revenues] x 100*3 The SG&A ratio:
The ratio of the sum of all direct and indirect selling expenses and all general andadministrative expenses to revenues. SG&A expenses/revenues

CEO Message

Keywords for Survival in the Age of Data Capitalism:

Speed, Trust, Transparency and Customer Perspective
There is a paradigm shift taking place as we move from the age ofvalue and resolve social issues.

products to the age of digitalization and the importance of speedy

Of course, an opportunity is only an opportunity if we are properly

management continues to grow. Conversation at both the World

prepared to take advantage of it. With a venturing spirit backed byEconomic Forum in Davos at the beginning of the year and the G20

the Company’s “contribute to society” mission and its corporate

Summit in June centered on Data Free Flow with Trust (DFFT), withphilosophy grounded in “Harmony, Sincerity, and a Pioneering Spirit,”

the expectation of improvements in private information banks andeach of our employees is committed to building a relationship of trust

national databases. While the free trade of cross-border datawith our customers and the wider society. Moreover, with the higher

requires trust, I believe there can be no trust without transparency.

goal of contributing to a better world, Hitachi and its employees willIn this age of data, Hitachi, with its sensors and analysis

continue to work tirelessly to quickly provide solutions tailored to thetechnologies essential for data collection, will likely find morecustomer’s needs. I believe these efforts will lead to more

opportunities to promptly provide customers with solutions, andopportunities for Hitachi to become a global leader in the Social

should encounter more opportunities to both improve economic

Innovation Business.

Pursuing Dialogue with Stakeholders to Further Their Understanding of
Hitachi’s True Value
Communication is essential in building relationships of trust withIn regard to shareholder returns, Hitachi targeted a low

external parties. It has been said by some that Hitachi’s share price andconsolidated payout ratio of 20%–30% during the period covered bymarket capitalization are rather low, and when looking back, it certainly

the 2018 Mid-term Management Plan, and it paid dividends at thisappears that shareholder returns have for a long time not been at alevel except in fiscal 2018, when after-tax net income waslevel of which we could be proud. Given these circumstances, I

particularly low due to transitory factors. Our goal moving forward isstrongly believe it necessary to bolster communication with those in

to increase dividends paid to our shareholders to a higher level.

the capital markets to deepen trust. There are likely a substantial

Based on the “Hitachi Social Innovation is Powering Good”

number of stakeholders who still have the impression of Hitachi as a

campaign tagline that launched this year, we will strive to provide

manufacturer of heavy electrical machinery, something carried oversocial, environmental, and economic value in line with our efforts tofrom many years ago. However, the Company is undergoing rapid

contribute to enhanced value for our corporate customers and anchange, and that change is likely to accelerate moving forward. With

improved quality of life for people in general. We thank you and look

the goal of improving stakeholder understanding of Hitachi as it

forward to your continued support as we move forward.

stands now, as well as its future course, we will continue to work toincrease opportunities for communication while simultaneously

September 2019improving transparency, including in the disclosure of ROIC,
adjusted operating income, and revenues by sector.

Toshiaki Higashihara
President & CEO
Hitachi, Ltd.

17

The Hitachi Group Value Creation Story

Independent Director* Dialogue

Harufumi Mochizuki
Chairman of the Board
Chair of the Nominating Committee
Chair of the Compensation Committee

Hiroaki Yoshihara
Chair of the Audit Committee

Board of Directors' Activities that Make Us a

Global Leader
Board of Directors
In what ways is the Board of Directors at Hitachi, a company with nominating committee, etc., conducting
managerial oversight?
Director Mochizuki: Hitachi’s directors may have richly diverse backgrounds,

key elements of the mid-term management plan, which include global

but they all are united in their focus on world-class governance. Based on myleadership; social, environmental and economic value; capital allocation; andpersonal perception, if the executive officers were swords, the directors would

capital cost. All related parties, including the Executive Vice Presidents,

function like a whetstone. We hold extensive discussions as if we wereattended the meeting of the Board of Directors held on the day we announced

grinding swords against this whetstone until it wore down, thereby creating

the mid-term management plan, during which we discussed how we should

shimmering swords. I think it is an important vision for us as directors.

inform individuals both inside and outside of the Company regarding the plan.

The Board of Directors narrows topics of discussions down to matters of key
importance, including budgets, financial results, the Mid-term Management

Director Yoshihara: Additionally, in fiscal 2018, we made business

Plan, M&A and high-risk investments. Our discussions are focused, but

judgements on important matters impacting the entire Company after holding

almost every member of the Board has something to say about each matter

active discussions within the Board of Directors and Audit Committee andon the agenda, which frequently results in discussion regarding a single topic

hearing additional explanations from individual executive officers on an

lasting more than an hour. This may be unique to Hitachi, but we sometimes

as-needed basis. These important matters included decisions regarding thehear explanations regarding important matters in advance at Audit Committee

acquisition of ABB’s Power Grids business and the suspension of the Horizon

meetings, where we proactively make inquiries concerning matters we hold in

Project, a nuclear power plant construction project in the U.K. Every time itquestion. Depending on the situation, we sometimes also ask for executive

faces decisions like these, the Board of Directors conducts analyses andofficers to make preparations at Board of Director meetings.

discussions concerning issues such as market trends, business strategies,

We also considered proposals from executive officers when forming theacquisition prices, post-merger integration (PMI) processes and potential risk

three-year 2021 Mid-term Management Plan that we announced in this May.

from a variety of perspectives. In the past, we have encouraged

We discussed these proposals on five occasions spanning an entire year, firstreconsideration of the projects that are inconsistent with our overall strategy or

focusing on their aims and then moving on to their main points before working

lack accountability in terms of economic rationality.

on formulating drafts. This process gave depth to discussions regarding the18

Hitachi Integrated Report 2019

* The “Independent Directors” are the directors who fulfill the qualification requirements to be outside directors
as provided for the Companies Act of Japan and also meet the independence criteria defined by the Company
and those provided by Japanese stock exchanges where the Company is listed.

How was the Board of Directors involved in profitability
improvement and business portfolio revision, two major
themes of the 2018 Mid-term Management Plan?
Director Yoshihara: In fiscal 2018, the final year of the 2018 Mid-termManagement Plan, we achieved both an adjusted operating income ratio of 8%
and record-high profit. When excluding impact from the suspension of the
Horizon Project, we also exceeded the plan’s targets for net income attributable
to Hitachi, Ltd. stockholders and ROA. Looking back on the three years coveredby the plan, I realize that we achieved the targets we set for each year of the plan(“Prepare for growth” in fiscal 2016, “Change gears toward growth” in fiscal 2017means that analyzing Hitachi takes time, which reduces the amount ofopportunity for people to become interested. It would be a waste for us toreduce our own level of opportunity to be positively evaluated by capital
markets and would also be undesirable from a governance point of view. We
have repeatedly discussed and asked executive officers what kind of company
we would like to become and why we engage in the businesses we do. As aresult, revisions to our portfolio have picked up speed over the past few years.

What is the background or the system that allows forfrank and effective discussions?

and “Achieve mid-term management plan to be a globally integrated enterprise”

Director Yoshihara: One reason cited for our ability to conduct frank and effective

in fiscal 2018) and sense a very strong momentum.

discussions is the management team’s wonderful Tone at the Top approach. In

However, these are just results. The Board of Directors holds discussions

particular, I feel that Executive Chairman Nakanishi and CEO Higashihara’s Tone atconcerning topics such as whether the direction the Company is taking is in

the Top approaches are providing us with an environment that encourages frankline with its vision of becoming a global leader or what is necessary to achieveand sincere discussions and enable quick access to information and people within

this vision. When investment, including R&D expenditure, decreases, we

Hitachi. Our top management’s attitude of sincerely working together to create a

conduct intense reviews to make sure that appropriate mid- to long-termbright future based on our fundamental principles regularly appears in their words

growth strategies, including R&D strategies, are not being neglected, even forand conduct. This attitude is what forms the cornerstone of good governance at

departments that are meeting their short-term targets. We also demand that

Hitachi and encourages our independent directors to adopt attitudes that will spareeven departments with particularly high results, such as adjusted operating

no opportunity to support Hitachi’s proper success.

income ratios of 8% or 10%, raise and meet their goals when they are being
outperformed by global competitors. As for less profitable businesses, weDirector Mochizuki: Hitachi’s system of holding annual Board of Director

routinely confirm their progress in terms of improving profitability. Whenmeetings overseas in line with its goal of becoming a global leader may also bebusinesses are continued despite not meeting targets for improved

unique. The goals of these overseas meetings are for all directors to visit locations

profitability, we conduct ongoing follow-ups concerning the reasons for theirimportant to our global businesses together, provide local residents with a deeper

continuation, as well as future countermeasures.

understanding concerning our businesses and raise the awareness of local
employees. During the previous fiscal year, we held this meeting in San Francisco,

Director Mochizuki: Even if we establish plans and implement them perfectly,

where we met with senior management from Hitachi Vantara and other Group

external environments never conform to our expectations exactly. When faced

companies to discuss overseas business strategies related to IT. We also invitedwith changes in business environment, how quickly we can react and how

experts on local circumstances and lecturers from organizations such as thehard we work to meet our initial targets are important factors. Evaluations

World Economic Forum Center for the Fourth Industrial Revolution Japan (C4IR),

concerning this speed, time frames and results are primarily conducted by ourwho provided us with the opportunity to understand front-line trends.

independent directors, who have experience in managing global companies.

Furthermore, we ensure that annual evaluations of the effectiveness of the

Our Board of Directors is characterized by strictness that is unprecedented

Board’s activities are done to completion by holding meetings in which

when it comes to Japanese companies, and I believe that this toughness had

independent directors discuss their results with the goal of improving them.

a significant impact on the improvement of our results.

Although the opinions of individual directors may vary, we feel a strong sense of

Hitachi manages multiple large-scale businesses, so it can be extremely
difficult from the outside to figure out what what kind of company it is. This

unity in that we all share the desire to contribute to the success of Hitachi. I believethat this sense of unity is an essential component of the Board of Directors.

Three Committees
Next, please tell us about the activities of eachcommittee. First, how does the Nominating
Committee select director candidates?

regarding this list. After narrowing down the number of potential candidates, 4members of the Nominating Committee then hold interviews individually witheach of them. The committee then discusses these results before finallyDirector Mochizuki: After thoroughly discussing the ideal composition for thedrafting a list of final candidates, which is submitted at the General Meeting ofBoard of Directors based on considerations of management issues, we try to

Shareholders. Each member of the committee takes pride in Hitachi’s Board

compose images of the individual candidates we believe to be necessary.

of Directors and participates in the establishment of its ideal vision. For theseWe then request that external consulting companies compile a list of
potential candidates based on these images and then hold discussions

reasons, committee members sometimes have different opinions, regarding
which they hold active and frank discussions.

19

The Hitachi Group Value Creation Story

Independent Director Dialogue
What about the selection and training of CEO candidates?
Director Mochizuki: The selection of the next CEO is the Board of Directors’
largest mission. The Nominating Committee deliberates concerning the
succession plan after hearing reports from executive officers. First, while
maintaining a common awareness regarding the qualifications that Hitachirequires from a CEO, the Nominating Committee first discusses what kind of
human resources will be needed and at what time. Through discussions andWe are continuously conducting reviews aimed at optimizing our systems as
our management team becomes more diverse, with a growing number offoreign members, and faces changing management issues.

Please tell us about Hitachi’s tripartite audit approach, which
involves close collaboration among the Audit Committee, theinternal audit section and external third-party auditing firm.

individual coaching, the committee narrows down candidates for leadership

Director Yoshihara: The establishment and maintenance of appropriate audit

positions, including CEO, from an unfixed pool of human resources that it

systems are extremely important matters for companies like Hitachi that areattempts to revise at the conclusion of each fiscal year for a period of several

expanding businesses globally. The Audit Committee primarily identifies, assesses

years. This process enables members of the Nominating Committee toand deals with the various risks that face the entire Hitachi Group, which includes

understand the candidates while providing candidates with the opportunity toabout 800 consolidated subsidiaries worldwide. To perform these activities, thelearn a lot from the Nominating Committee. We do not limit our consideration to

Audit Committee, the internal audit section and external third-party auditing firm

the next CEO but also consider subsequent CEOs in the near and more distantcooperate closely to perform their tripartite audit function. This cooperation isfuture. Accordingly, we work to train management from a mid- to long-termbased on mutual trust, transparency and a shared sense of vigilance.

perspective as well, which we do through a variety of efforts, including

Moving forward, Hitachi will aim for further growth overseas. An increase inawareness-raising activities. These activities include lectures conducted by

global growth opportunities also means a simultaneous related increase in

independent directors targeting young employees referred to as the “Future 50.”

potential risk. For this reason, we must be more prepared than ever to verify
and cautiously consider this varied range of risks. Accordingly, it will become

Director Yoshihara: For sure, members of the Nominating Committee areimportant for us to further intensify our tripartite audit approach on a global

deeply involved in Hitachi’s leader development program. Committee

scale. To enable all members of the Audit Committee to more accurately

members hold discussions with candidates for leadership positions regarding

understand global risks, we will provide instructions concerning matters ofactual management issues and contribute to concrete training plans thatpriority to the internal audit section while gathering information from related

involve the creation of opportunities for candidates to acquire actual workbusiness departments and proactively visiting important sites both in Japan

experience through overseas assignments and involvement with various

and overseas, including those of acquired companies, to conduct inspections.

business units. Hitachi promotes diversity as a driver of growth, and thediversification of all levels of its management, in terms of nationality, genderand age, has picked up speed, particularly since Director Cynthia Carroll
joined the Nominating Committee, bringing proactive initiatives along with her.

How does the Compensation Committee makedecisions regarding remuneration?
Director Mochizuki: Our executive compensation comprises basic
remuneration, short-term incentive compensation and medium- and long-term
incentive compensation. We decide payment levels based on considerationsof economic environment, market trends and levels at other companies.
When deciding upon executive compensation that will objectively satisfy the
corporate officers who receive it, we make every possible effort to avoid being
arbitrary, as we believe that it is important for this compensation to lead to thedesire to work toward maximizing Hitachi’s corporate value. Based on thispoint of view, we have been promoting reforms for several years. In fiscal 2019,
we increased the ratio of variable compensation to overall compensation. A
distinguishing feature of this change is the reflection of personal target
evaluations in short-term incentive compensation. Additionally, we adopted a

Director Yoshihara: Members of the committee also request that executive
officers provide explanations regarding other projects that are deemed to carrya high degree of risk. In fiscal 2018, the committee requested explanations
concerning scandals and information security, confirming the validity of
response measures as well as progress on improvement efforts. Whenconsidering projects that have resulted in comparatively large-scale monetarylosses, the committee receives explanations regarding the cause of theselosses and recurrence prevention measures.
As original measures, Audit Committee members hold audit reporting sessions
targeting all corporate divisions and verify the status of initiatives aimed at raising
the corporate value of back-office sections. At least once per year, responsible
parties from about 20 divisions, including human resources, procurement, IT andbrands, provide explanations concerning the execution of these initiatives to thecommittee, which, having gained an understanding of the issues these divisions
face, provides operational advice as well as other support.

growth in corporate value from a medium- to long-term point of view while

How does Hitachi’s tripartite audit approach differ fromsimilar approaches employed at other companies withnominating committees, etc.?

sharing a common perspective with our shareholders. Eligibility for mid-term

Director Yoshihara: I cannot speak for what other companies are doing but,stock-based compensation incentives may be partially reduced depending on

generally, I can say that no matter how magnificent the organizations andhow total shareholder return measures up compared to the TOPIX growth rate.

structures you build happen to be, when it comes to practical implementation, theirrestricted stock compensation system for executive officers with the goal ofproviding an incentive for our management team to work toward continuous

20

Other than through on-site inspections, how do you identify risks?

Hitachi Integrated Report 2019abilities to perform tasks and the amount of enthusiasm they put into them often
determine their actual efficacy. The three parties that help Hitachi implement its
tripartite audit approach continuously work earnestly to achieve ideal auditing that ismore effective and efficient. All members of the tripartite audit team work to planand implement audits in a manner that is respectful and disciplined while remaining
keenly aware of each other’s roles. Before, we mentioned our top management’s
Tone at the Top approach; our management team, our finance department andother organizations that receive audits have high levels of understanding andawareness regarding governance, which creates a very cooperative environment.
Each year, the Audit Committee receives feedback from the internal audit section,
the finance department and external auditing firm. It then holds discussions
regarding this feedback and earnestly engages in initiatives aimed at further
strengthening and improving Hitachi’s tripartite audit system and framework.

Could you explain your thoughts regarding future
improvements to the Audit Committee?
Director Yoshihara: We are conducting a variety of ongoing initiatives
aimed at enhancing the effectiveness and efficiency of the committee’s
oversight function. For example, starting from the current fiscal year, we areappointing sector auditors who provide support by constructing tripartite
audit frameworks for their individual sectors of responsibility. This support
contributes to the further enhancement of our governance. We are also
discussing the use of digital technology to raise the efficiency of ourauditing operations, which require a great deal of time. Furthermore, weare continuously aiming to enhance our auditing function by working to
uncover human resources with audit capabilities within the Hitachi Group.
At the same time, we hold training and brainstorming sessions targeting
personnel throughout the Group who are involved with audits.

Looking Ahead
Finally, could you explain the key points of Hitachi’s governance? Also, please tell us about the challenges
you will tackle and the points on which you will focus to meet targets in the 2021 Mid-term Management Plan.
Director Mochizuki: The executive officers and directors that make up our

directors provide is essential toward making sure Hitachi is on track toward

management share common targets and work together to refine their abilities

success.

and maximize their performance as managers. I believe that this sharing ofgoals and teamwork define governance at Hitachi.

In our 2021 Mid-term Management Plan, we have identified three key
challenges we must face to achieve our goal of becoming a true global leader.

To become a global leader, we must always think about what is necessaryFirst, we must further strengthen our hiring and development processes to secureand continue to develop our governance sustainably. In terms of meeting

diverse human resources capable of performing globally. Second, we must build atargets in the 2021 Mid-term Management Plan, the most important task

global ecosystem that will support our digital solutions business, which is primarily

facing the Board of Directors is to reliably follow-up on and support thebased in Lumada. Third, the Hitachi Group must continuously revise andimplementation and progress of the plan.

accelerate the development of its business portfolio so that it will enable the

The Nominating Committee will aim to continuously adjust the composition of theGroup to maximize its synergies on a global scale and function as One Hitachi.

Board of Directors in accordance with our management issues. As for our CEO

We are currently experiencing an era of volatility, uncertainty, complexity andsuccession plan, all members of the committee are focusing their full efforts toward

ambiguity (VUCA) in which changes occur daily and quickly and many

selecting our next CEO. However, starting from this year, we have decided toopportunities and risks exist alongside each other. The Audit Committee isstrengthen the involvement of the entire Board of Directors by including directors

prioritizing further enhancement of our global risk management. For example,

who are not Nominating Committee members in the process. As the Compensation

it is extremely important for us to work to reduce risk by strengthening our

Committee has just implemented new compensations structures, we will continue

monitoring of overseas acquisitions. As an independent director, I will continue

to verify whether they have truly increased effectiveness and whether they

to support and supervise the management team in the execution of its duties

contribute to our goal of becoming a global leader.

in accordance with Hitachi’s founding corporate philosophy of contributing tosociety. These efforts will serve to assist Hitachi as it aims to raise the three

Director Yoshihara: Generally, when people talk about governance, we tend

values (social, environmental, economic) targeted in its 2021 Mid-term

to pay attention to the compliance aspect (e.g., legal compliance). However,Management Plan and become a global leader of social innovation.

the essential purpose of compliance is to fulfill the expectations of theshareholders who have placed their trust in us and to raise our corporate

Director Mochizuki: Both the management environment and the issues facing

value by practicing good management. Therefore, it goes without saying that

our management are continuously changing at a dizzying pace. Under these

Hitachi's governance strategy must involve compliance countermeasuresconditions, ideal governance for Hitachi is continuously changing, presenting a

aimed at preventing issues such as anomalous transactions and legal

perpetual challenge for its management. Moving forward, I will continue toviolations. However, from the perspective of true governance, our directors

support Hitachi in its goal of becoming a global leader by continuously

must hold timely discussions with our management team when they makeworking to improve the management of its Board of Directors and all of its

important decisions aimed at raising corporate value and participate in thecommittees, as well as the systems they decide upon, while maintaining aprocess of implementing these decisions. The support and supervision our

trial-and-error approach.

21

The Hitachi Group Value Creation Story

Value Creation Process
Comprehension of Issues and Trends
Global trends

Social issues
Climate change
Issues concerning energy, water andother natural resources
Population growth and urbanization
Aging infrastructure
Cybersecurity

Input

P.24

Customer issues

Accelerating digitalization
Appearance of geopolitical risks due to the globalization ofpolitics and the economy
Paradigm shifts (shifting from possession to sharing, fromobjects to things and from closed to open strategies)

Safety and security
Reduction of energy consumption
Response to diversifying consumer
needs
Improvement of productivity

Comprehend social issues and global trends while identifying
customer issues through collaboration with those same customers

Human capital• Strengthen front-line and digital talents• Promote diversity• Establish a globally unified evaluation standard
and training system for the development of
human resources• Consolidated number of employees (numberof overseas employees):
295,000 (133,000)

Intellectual capital• An IoT platform (Lumada) with morethan 100 years’ worth of operational
technology (OT) and more than 50 years’
worth of information technology (IT), andaccumulated know-how• Open innovation industry-academia-government
cooperation• R&D investment: ¥323.1 billion

Manufacturing capital• Lead time reduction by enhancement of
supply chain management

Diverse partners(open innovation)

Extract widely applicable industrial andAccumulation of Lumada
OT

IT

Operational technology with a trackrecord of more than 100 years

Information technology withmore than 50 years of history

Source of value (competitive ad
Social capital• Establishment of NEXPERIENCE, acollaborative creation process• Enhance disclosure of information to investors• CSR audits of suppliers• Improve dialogue between management andemployees

Natural capital

Lumada platform (system for converting data into value)

Capital Allocation Strategy

Financial and Capital
Strategy

P.34

Accelerate Innovation

P.36• Total energy input (crude oil equivalent): 2.27 GL• Raw material input: 4,403 kt• Total water input: 37.02 million m3

P.38

Sustainable growth strate

Financial capitalAt the start of the 2018 Mid-term Management
Plan (April 1, 2016)• Total Hitachi, Ltd., stockholders’ equity:¥2,735.0 billion• Total Hitachi, Ltd. stockholders’ equity ratio:
21.8%• Free cash flows: ¥81.4 billion

22

Hitachi Integrated Report 2019

Risk and Opportunity Management

P.65

Information Security

P.68

Standards on
Occupational Safety

P.70

Foundations supporting sustainableVision: Improving the Quality of People’s Lives,
Raising Customers’ Corporate Value and Achieving a Sustainable Society
Social value

Environmental value
Healthy lives and a safe,
secure, comfortable andefficient society

Economic value
Redistribution of added
economic value tostakeholders

High-quality andenvironmentallyconscious manufacturing
Reduction ofenvironmental burden
through the value chain

Simultaneously improve three types of customer value through five solutions

Output/ OutcomesP.24(as of end-FY2018)

Human capital• Ratio of female executive and corporate
officers: 5%• Ratio of non-Japanese executive andcorporate officers: 8.8%
• Number of female managers: 635(Hitachi, Ltd.)Intellectual capital• Number of Lumada customer cases:
over 650

Platform expansion

Manufacturing capitalbusiness expertise• Lead time reduction 20% from order
receiving to shipment for large industrial
products. (Compared with FY2016)

customer cases
Products

Social capital

We have developed andmanufactured products with ourown technology since our founding

vantage)

Value Creation Story• Number of meetings with institutional
investors and analysts: 550• Number of town hall meetings: 20• Number of suppliers who received CSR
audits: 24

P.26

Innovation ecosystems that constantly
create groundbreaking new value

Accumulation ofdiverse industrial andbusiness expertise
Environmental Vision and the
Decarbonization Business

P.46

Strengthen Lumada

P.48

gies

Natural capital• Reduction in CO2 emissions through improved
environmental performance of products andservices: 34% compared with FY2010• Reduction in energy use per unit: 14%compared with FY2005• Reduction in water use per unit: 34%
compared with FY2005• Reduction in waste and valuables generation
per unit: 16% compared with FY2005

Goals to which we contribute through our business strategies

Financial capital
Engaging in Responsible
Procurement

P.71

Compliance

P.73

Corporate
Governance

P.18 P.78

growthGoals to which we contribute through all of our corporate activities• Total Hitachi, Ltd. stockholders’ equity:¥3,262.6 billion• Total Hitachi, Ltd. stockholders’ equity ratio:
33.9%• Free cash flows: ¥447.1 billion• TSR* over past 10 years: 209.6%* Total Shareholder Return: Return obtained from stock investments over a certain period oftime; calculated as dividends+capital gains÷share price

23

The Hitachi Group Value Creation Story

Capital Utilization and Value Creation
Human capitalIntellectual capital

Manufacturing
capitalContribution to
Value Creation

Working as a team, a diverse andglobal workforce contributes toglobal growth of the Social Innovation
Business.

Creating new innovations byfusing ecosystems that stimulate
open innovation with cutting-edge
technologies.

In addition to the manufacturing
capabilities gained so far, manufacturing
capital contributes to improved
customer productivity and operational
efficiency by making full use ofadvanced technologies such as IoT, bigdata, and AI.

Targets

Creating a Workplace That Supports theActive Participation of a Diverse Workforce

Building New Technologies and Business
Models through Collaborative Creation

A Global Leader in Production
Efficiency and Quality(1) Attract, retain, and develop diverse talent
to lead business growth(1) Accelerating innovation<Manufacturing>(For fiscal 2021, in
principle)• Strengthening the front-line and digital talents• Developing mindset and skills to become global
leaders• Promoting diversity: Targeting 10% for both female
and non-Japanese in executive and corporate
officer positions, and 800 female managers by fiscal
2020 (Hitachi, Ltd.)(2) Transforming organizational culture
and employee mindset to encourage
proactivity and individual growth• Building Hitachi culture globally• Fostering a culture of career ownership(3) Reform organization and transform
employment policies to adapt toenvironmental changes; take action onorganizational reshuffling• Strengthening collaborative creation on a global basis• Creating new values through open initiatives suchas "Kyōsō-no-Mori" and corporate venturing• Creating innovations by strengthening solution
inventions(2) Creating the world’s No. 1 technologies

Improving the efficiency of global manufacturing
operations 30% through enhancement of the ECM*1 andSCM*2 systems.
*1 Engineering chain management*2 Supply chain management<Quality Assurance>• Focusing investment in the five key sectors andLumada• Further strengthening the framework for quality
assurance• Creating intellectual properties that support theworld’s No. 1 technologies• Strengthening global quality assurance operations(3) Promoting R&D and intellectual property
activities to resolve social issues• Explore new business opportunities and disruptive
technologies through open innovation• Promoting digitization of product certificates• Strengthening quality assurance in services, software,and security• Training quality assurance personnel• Drive activities to achieve “IP for Society,” an IP
strategy for the new era

P.38 Accelerate Innovation• Ensuring safety, health, and compliance• Shifting to job and role-based human resourcesmanagement

Major Initiatives
in Fiscal 2018

• Improved visibility of human resources-related
information by introducing “HR Management Integrated
Platform”
https://www.hitachi.com/New/cnews/
month/2017/11/171128.html• Started Hitachi Academy in April 2019 to foster humanresources that drives digital transformation• Promoted diversity among executives (diversifying thedecision-making level)• Held events such as the Global Women’s Summit tomotivate female workers
http://www.hitachi.com/New/cnews/
month/2018/10/181003.html• Globalizing our management training programs• Established Safety Management Division in April 2019

Fiscal 2018
Results• Investment in R&D: ¥323.1 billion<Manufacturing>• Promoted collaborative creation activities withcustomers and open co-evolution activities (openforums, Ideathons, Hackathons, etc.)

Lead time reduction for Large Industrial products byenhancing SCM• Expanded the field for open innovation globally• Build our global patent portfolio• Implement appropriate IP strategies according tobusiness domains - competitive strategy (productbusiness) and collaborative strategy (digital solution
businesses)• Promoted industry and academia collaboration (Hitachi
Cambridge Lab., Hitachi Kobe Lab.,Hitachi The
University of Tokyo Lab., Hitachi Kyoto University Lab.,
Hitachi Hokkaido University Lab.)• Participating in the setting on international standards
and rules.

• Trained IE*3 engineers• Trained Skilled workers
Placed three participants in the 45th WorldSkills
Competition, with one silver medal, one bronze medal,
and one medallion for excellence.
*3 Industrial Engineering<Quality Assurance>• Revised the framework for quality assurance• Strengthened quality assurance in embedded software• Strengthened global quality assurance• Training quality assurance personnel• Number of female managers (Hitachi, Ltd.): 635• Lumada customer cases: more than 650<Manufacturing>• Ratio for female executive and corporate officers (Hitachi,Ltd.) : 5.0%

• Patent application ratio outside Japan: 58%• Lead Time Reduction 20% for Large Industrial products
at Japan sites (vs. FY2016)• Ratio for non-Japanese executive and corporate officers(Hitachi, Ltd.): 8.8%
• Number of participants in global management training
programs: 3,844• Average educational investment per employee:¥127,800
Number of fatal accidents: 0 *1
Global occurrence rate: 4.20% *1, *2*1 Calendar year 2018
*2 Occurrence rate is the rate of workplace accidents per 1,000
directly contracted employees resulting in fatality or worktime loss of one day or more.

• Recognized as the Clarivate Analytics Top 100 Global
Innovators Award for eight consecutive years• Awarded the National Commendation for Invention"Japan Patent Attorneys Association President's Prize"by the Japan Institute of Invention and Innovation for the
Hitachi X-ray fluoroscopy system.
* Hitachi in fiscal 2019 was awarded the National Commendation
for Invention "Imperial Invention Prize" for the design of theClass 800 high-speed train for the UK.

• Lead Time Reduction 20% for Large Industrial products
at China sites (vs. FY2016)• Started the qualification program of IE engineers<Quality Assurance>• Strengthened governance by revising framework for
quality assurance• Enhanced system development methods within the
Hitachi Group by strengthening the software quality
assurance system• Developed Quality Assurance Standards within the
Hitachi Group• Implemented quality and reliability training

24

Hitachi Integrated Report 2019

Social capital

Natural capital

Financial capital

Building strong relationships with stakeholders,
including tie-ups between industry, academia
and government, as well as collaborative
creation with customers, maximizes business
opportunities on a global scale and reduces risk.

Guided by our Environmental Vision, we strive
to create value while also contributing to theresolution of environmental issues to realize a
low-carbon society, a resource efficient society
and a harmonized society with nature.

Hitachi can realize growth, centered on theSocial Innovation Business, through flexibility
in its operations thanks to a solid financialbase and appropriate financial strategies.

Earning the Trust of Stakeholders

Achieve the targets set forth in theEnvironmental Action Plan for 2021 looking
toward the Hitachi Environmental Innovation
2050 long-term environmental targets.

Building the Financial Base Necessary to
Achieve Value Creation(1) Enhance feedback to management based on
dialog with stakeholders (government, investors,
shareholders, customers, employees, local
communities)(2) Strengthen human rights due diligence (HRDD) and
CSR, green procurement• Promote HRDD
• Strengthen supplier compliance(3) Promote social contribution activities• Training, including STEM (see p. 9) training for those in theyounger global generation likely to be the future leaders(4) Proactive engagement and disclosure of information(1) Reduce CO2 emissions from the use of our products
and services, expand Hitachi’s decarbonization
business• Reduction rate of CO2 emissions compared to FY 2010:
more than 20%(2) Reduce CO emissions of factories and offices byintroducing renewable energy and high-efficiency
equipment
2(1) Enhanced profitability and generation of cash
• Promotion of business restructuring(2) Improving capital efficiency• Restructuring or selling off unprofitable assets• Acquiring highly profitable assets• Promoting financial strategies with an eye toward capitalcosts• Reduction rate of CO2 emissions per unit compared to
FY2010: 9%(3) Enhance efficiency in the use of water• Reduction rate in water use per unit compared to FY 2010: 9%(4) Enhance efficiency in the use of resources, reduceand recycle waste materials• Reduction rate in waste and valuables generation per unit
compared to FY 2010: 12%<Customer Competition Events>• Held the Hitachi Social Innovation Forum, an event creating
opportunities for collaborative creation with customers that
includes lectures and exhibitions on the results of social innovation
businesses around the world as well as future prospects• Held the Hitachi IR Day, which included business briefings forshareholders, investors, and analysts• Held town hall meetings for executives and employees to interact
and exchange views

Implemented environmental activities aimed at achieving a lowcarbon society, a resource efficient society, and a harmonized society
with nature outlined in our Environmental Vision and the Hitachi
Environmental Innovation 2050

Fiscal 2018 Targets• Reduced CO2 emissions from the use of our products and services,
expanded Hitachi’s decarbonization business• Operating cash flow margin: above 9%• ROA: above 5%• D/E ratio: under 0.5 times• CCC (Cash Conversion Cycle): 70.0 days

• Reduced CO2 emissions of factories and offices by introducing
renewable energy and high-efficiency equipment• Promoted HRDD

• Clarified climate-related risks and opportunities based on the TCFD
recommendations• Conducted audits during visits to suppliers• Enhanced efficiency in the use of water in factories and offices• Hosted 6 participants in the Hitachi-DST Scholarship Program forSouth African Engineers• Enhanced efficiency in the use of resources, reduced and recycled
waste materials in factories and offices• Hitachi Social Innovation Forum 2018 TOKYO, etc.

• Improve environmental performance of products and services
Reduction rate in CO2 emissions compared to FY 2010: 34%

Total Hitachi, Ltd. stockholders’ equity: ¥3.262.6 billion• Reduce energy use of factories and offices
Reduction rate in energy use per unit compared to FY 2005: 14%• ROA: 3.3% (6.2%)

https://hsiftokyo.hitachi/en/• Institutional investor and analyst meetings: 550• Executive town hall meetings: 20• Human rights for employees at each BU and group company
division were assessed and prioritized, with consideration given to
the formulation of medium-term action plans• Conducted CSR audits at 24 suppliers (130 suppliers in the fiscal
2012–2018 period)• Spending on social contribution activities: ¥1,888 million• Reduced waste generation
Reduction rate in waste and valuables generation per unit
compared to FY 2005: 16%• Enhance efficiency of water usage
Reduction rate in water use per unit compared to FY 2005: 34 %Total Hitachi, Ltd. stockholders’ equity ratio: 33.9% (35.9%)• D/E ratio: 0.23x (0.21x)
Free cash flow: ¥447.1 billion• Operating cash flow margin: 6.4%
• CCC: 69.3 days
• ROIC: 8.5% (10.1%)* Figures in parentheses exclude the effects from the Horizon Project
consolidation

25

The Hitachi Group Value Creation Story

Value Creation Story
Hitachi offers a host of solutions to the problems society faces. To develop these solutions, we maximize our strengths, OT,
IT, products we have accumulated over the years, along with the technological capabilities, knowledge and know-how wehave amassed through projects. Here, we introduce a global co-creation project in which Hitachi reduces CO2 emissions andhelps resolve the issues customers face.

“AI Captain” to Curtail Fuel Costs andOptimize Travel Routes
Co-Creation with Stena Line, One of Europe's Leading Shipping Lines,
to Optimize Fuel Efficiency and Voyage Planning
Here, we introduce a flagship project that demonstrates how Hitachi is cultivating social innovation. For this project,
Hitachi has partnered with ferry operator Stena Line to reduce ships' fuel consumption costs and minimize
environmental impact by introducing artificial intelligence (AI) technology.

Integrating Digital Technologies and Hitachi’s Products

planning are two of the highest priorities. While shepherding

Hitachi has created value by capitalizing on its three core

ships from a voyage’s start to finish, crews are tasked withcompetencies: operating technologies (OT), which the Company

minimizing fuel consumption and respecting the expected time

has built up over more than a century of manufacturing; cutting-of arrival (ETA).

edge information technologies (IT), which have a solid track

Fuel represents a major cost for shipping companies, sorecord dating back more than half a century; and products,

controlling consumption is a vital concern. Also, less fuel usedwhich the Company has developed and manufactured since themeans lower emissions. Stena Line is at the forefront of thetime of establishment based on its own technologies.

shipping industry’s efforts to reduce its environmental footprint.

On top of these value sources, Hitachi has developed theAccordingly, pursuing fuel efficiency and optimized shipping

Lumada IoT platform as a system for deriving value from data.

serves the dual purpose of improving financial performance andMaking use of its cutting-edge AI technology, the Company isenvironmental impact. This is well in line with Stena Line's vision

providing various solutions even in new fields and industriesof “Connecting Europe for a Sustainable Future”.

where it does not play a direct role.

In 2017, Hitachi and Stena Line started discussing ways to

In June 2018, Hitachi partnered with Stena Line, one of

improve operational performance through advances in artificial

Europe’s largest ferry operators, to introduce AI and machine-

intelligence and machine learning. This collaborative project

learning in shipping.

involved three Hitachi entities. The Social Innovation BusinessIn this project, although Hitachi does not manufacture theUnit, which has data scientists experienced in marine analytics,

vessels themselves, it is developing an effective solution for

initiated discussion with the customer. Hitachi Consulting acted

Stena Line based on its solid understanding of IT requirements

as a project management partner, providing data scientists with(such as edge-processing capabilities), its AI and machine-

experience in data analytics and visualization. The Center forlearning capabilities, and operating technologies developed andSocial Innovation Europe’s Automotive and Industry Lab

accumulated through the manufacture of other Hitachi

developed the core AI model for the project based on its vast

products.

experience in AI, deep/machine learning and general data
analytics.

Delivering Global Solutions through Collaboration

26

To develop a practical, feasible solution, Hitachi’s team haswith Customers

conducted multiple rounds of workshops to better understand

Stena Line, which transports 7.6 million passengers, 1.7 million

the customer, potential problem areas and the operatingcars and 2 million cargo units each year, has taken on the hugeenvironment. The team accessed historical shipping data,

challenge of becoming the world’s leading cognitive shipping

applying machine learning algorithms to generate insights oncompany by 2021. To this end, optimizing fuel and voyage

how to reduce fuel consumption. In these ways, the teamHitachi Integrated Report 2019sought to identify common characteristics of fuel-efficient

Values Hitachi Delivers

operations and extrapolate these findings across the fleet.

Moder n-day society faces major changes and a host of

The team discovered that weather conditions and the action ofchallenges, from energy and environmental issues to water

captains were major contributors to fuel consumption.

scarcity, rapid urbanization, an aging society, insufficient

Collaborating closely with Stena Line, Hitachi inspired Stenainfrastructure and security needs. Amid these circumstances,

Line to create an AI-based technology that learns captains’

Hitachi is committed to providing value to stakeholders bypractices, such as operating parameters corresponding to low

improving quality of life (QoL) and realizing a sustainable

fuel consumption, and then recommends fuel-efficient operating

environment.

parameters for upcoming trips.

With the Stena Line Project, Hitachi has inspired Stena Line toWith the help of AI, Stena Line’s captains can simultaneously

create a cross-functional team that combines seamanship,consider several variables, such as currents, weather conditions,mathematics and technology and to deliver social, environmental

shallow water, and speed through water, all of which would be

and economic value through AI and machine-learning.

impossible to do manually. Once installed in a vessel, the crew
monitors the ship and AI system, intervening only when necessary—

Optimizing shipping reduces fuel consumption, loweringsuch as reducing vessel speed due to traffic. The technology, dubbed

emissions of CO 2, NOx, and SOx. Rather than replacing the

AI Captain recommends fuel-efficient voyage plans in terms of

captain and crew, the AI technologies aimed at extending their

propulsion power and speed for given weather and environmental

expertise to allow for better decision-making and execution.

conditions (such as winds, sea current, waves and sea depth), as well

In addition to social and environmental value, considering theas vessel characteristics (such as loading conditions and hull

success of AI Captain, Hitachi is developing a core solution thatroughness). Initial trials of the AI-based model have been very

can be scaled across the industry, which could drive revenues

successful and Stena Line’s current goal is to roll out AI across theand profit for Hitachi. The solution could also help Hitachi gain

entire fleet by 2021.

market recognition in a new business segment and to develop
cutting-edge AI technology.
Going forward, Hitachi will keep providing innovative solutions
and creating social, environmental and economic value.

27

The Hitachi Group Value Creation Story

Value Creation Story

Ride a Train or a Bus,
Using Only Your Smartphone
Hitachi Rail STA Starts Proof of Concept of a Digital Ticketing Solution
for a Public Transportation Operator in Italy

In May 2019, Hitachi Rail STS S.p.A, a Hitachi subsidiary

The solution allows passengers to ride multiple types of publico p e r a t i n g i n t h e r a i l w a y s y s t e m s b u s i n e s s , e n t e re d a ntransportation without the need for paper tickets or IC cards,

agreement with Trentino Trasporti S.p.A to carry out proof of

making movement seamless and more convenient. For

concept (PoC) of a new digital ticketing solution for the public

operators of public transportation systems, the system reducestransportation operated by Trentino Trasporti, including Trento-

the need for ticket machines, ticket wickets and other

Malé-Mezzana Railway and buses in the vicinity of Trento, Italy.

equipment, lowering equipment investment and maintenanceThe digital ticketing, which uses smartphones as tickets,

costs. With this proof of concept, we are making travel moreleverages the Hitachi Group’s experience in ticketing and digitalconvenient for passengers by allowing them to seamlessly taketechnology.

multiple modes of public transportation in comfort.

W ith this solution, passengers install an app on theirOnce the digital ticketing solution is approved by Trentino

smartphones that allows position information to be read by

Trasporti and the service launches officially, Hitachi Rail STS will

vehicles (such as train cars and buses) and at waypoints (train

start selling tickets for the public transportation system,

stations and buses). The ticketing solution then determines

receiving a share of the revenues from ticket sales.

when a person is using public transportation, automaticallycalculates the fare, and charges that fare to the passenger in a
cashless transaction.

28

Hitachi Integrated Report 2019

Industry solutions
We provide safe and secure water environments to
70 million people per day worldwide through water,
sewage and seawater desalination technologies.

The Hitachi Group’s
Growth Strategy
History of Management Reforms andHitachi’s Mid-term Management Plans

30

Outline of the 2021 Mid-term Management Plan

32

Capital Allocation Strategy

34

Financial and Capital Strategy

36

Accelerate Innovation

38

Environmental Vision and the Decarbonization Business46

Strengthen Lumada

48

Story of Value Creation by Sector

54

The Hitachi Group’s Growth Strategy

History of Management Reforms and Hitachi’s Mid-term
2015 Mid-term Management Plan
2013-20152012 Mid-term Management Plan
2010-2012

Building a Foundation for Growth

The Swapping Out of Businesses

Rebuilding Management

RecoveryInitiatives and Results(1) Promoting the Social Innovation Business on a global basis bystrengthening front-line functions• Expanded service businesses using digital technologies(1) Creating a product-specific system with clear lines of responsibility and authority• Clarified responsibility and authority through introduction of an in-housecompany system• Strengthened digital capabilities through the acquisition of Pentaho• Consolidated businesses into six groups, focused on growth fields under an
integrated system of operations, and accelerated management(2) Reviewing non-core businesses• Thermal power business: Established joint-venture firm with Mitsubishi
Heavy Industries(2) Rebuilding or withdrawing from unprofitable businesses• Automotive systems business: Rebuilt through structural reform• Air conditioning business: Established joint-venture firm with Johnson
Controls• Flat-panel TV business: Ceased in-house production• HDD business: Sold off after rebuilding• Batteries business: Hitachi Maxell relisted, with Hitachi drawing down its
stake in the company(3) Strengthening cost competitiveness• Launched Hitachi Smart Transformation Project(3) Promoting the globalization of Hitachi• Shifted rail business headquarters to the UK• Expanded centralized purchasing and global procurement• Consolidated and optimized production base placement• Launched Global Performance Management to more effectively utilize global
human resources

Looking Back and the Challenges Ahead
Looking Back

Looking Back

After booking its largest losses ever in fiscal 2008, Hitachi during the period covered by the

Hitachi during the period covered by the 2015 Mid-term Management Plan substantially revised its business2012 Mid-term Management Plan advanced the rebuilding of its business. The rebuilding of theportfolio as if sought to build a foundation for growth. The Company acquired Pentaho, which develops andautomotive systems business, the withdrawal from the internal manufacturing of flat-panel TVmarkets big data analytics software, as part of its aim to strengthen and expand the global value chain in

business, and the transfer of the HDD business all served to improve profitability, allowing Hitachi

big data utilization, while also removing from consolidation its thermal power, air-conditioning, and batteries

to concentrate on the Social Innovation Business that so effectively leverages the Company’sbusinesses. In addition, Hitachi moved its rail business headquarters to the UK as part of its effort to promotestrengths. In fiscal 2012, Hitachi consolidated operations into six strong groups and worked to

the globalization of the Company, appointing Alistair Dormer, currently serving as executive vice president,

speed up management through an integration of operations.

as the global CEO of the Company’s rail business. In personnel evaluation systems, Hitachi introduced

Hitachi’s operating income ratio in fiscal 2012, the final year of the Mid-term Management Plan,“Global Performance Management” as a mechanism under which compensation directly reflects personal

fell short of the 5% target due to write-off associated with a sharp drop in material prices, as well as

performance assessments as well as the global common standards for job roles.

the booking of structural reform costs and reduced capacity utilization amid economic slowdown

In fiscal 2015, the last year in the mid-term plan, the target was not achieved due to a delayed response toin China and Europe. However, it improved to 4.7% thanks to cost structure reforms, Hitachi Smartchanging market conditions, including in the telecommunication and networks business, as well as losses

Transformation Project, in line with the Smart Transformation Project. In addition, after dropping to

due to insufficient management at a large overseas project. Another factor contributing to underperformance

11.2% in fiscal 2008, the stockholders’ equity ratio recovered to 21.2% in fiscal 2012, while the D/

was the greater-than-expected increase in structural reform costs due to an acceleration in structural reforms

E ratio narrowed to 0.75x over the same period, indicating a clear improvement in Hitachi’s financial

following a deterioration in the market environment for the infrastructure systems, power distribution, andposition as the company worked toward the establishment of a stable earnings base.

construction machinery businesses. However, operating income reached ¥600 billion, with the operating
income ratio at 6%, signaling stability in the profitability and an improved ability to generate cash.

Challenges Ahead

Challenges Ahead• Further improvements in business profitability• Accelerate management’s speed to more quickly respond to changes in the market environment• Strengthening the service businesses• Strengthen project management• Global business development and establishing a management base that makes that possible• Take action regarding unprofitable businesses

2012 Mid-term Management Plan*1

2015 Mid-term Management Plan*1

2010

2011

2012

2012 (target)

2013

2014

2015

9,315.8

9,665.8

9,041.0

10,000.0

9,563.7

9,774.9

10,034.3

43

43

41

—

45

47

48

Adjusted operating income (¥ billion)

444.5

412.2

422.0

—

538.2

641.3

634.8

—

Adjusted operating income ratio (%)

4.8

4.3

4.7

More than 5%

5.6

6.6

6.3

More than 7%

EBIT (¥ billion)

443.8

573.2

358.0

—

585.6

534.0

531.0

—

EBIT margin (%)

4.8

5.9

4.0

—

6.1

5.5

5.3

More than 7%

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

238.8

347.1

175.3

200.0 level

264.9

217.4

172.1

More than 350.0

Total Hitachi, Ltd. stockholders’ equity (%)

15.7

18.8

21.2

20

24.1

23.7

21.8

More than 30%*2

Revenues (¥ billion)
Overseas revenue ratio (%)

10,000.0
More than 50%

Return on assets (%)

3.3

4.4

2.5

—

3.5

2.9

2.4

—

Return on equity (%)

17.5

21.6

9.1

—

11.2

7.8

6.1

—

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

1.03

0.86

0.75

Less than 0.8 times

0.73

0.83

0.87

—

Operating cash-flow margin (%)

9.0

4.6

6.5

—

4.6

4.6

8.1

—

*1 The above figures are prepared in accordance with U.S. GAAP through fiscal 2013 and with the International Financial Reporting Standards (IFRS) from fiscal 2014.
*2 Manufacturing and services, etc.

302015 (target)

Hitachi Integrated Report 2019

Management Plans
2018 Mid-term Management Plan

2016-2018
Achieving Growth in Social Innovation

Utilizing Digital Technologies(1) Transforming into a three-level structure, composed offront-line, platform, and product tiers(4) Conducting an ongoing review of company businesses• Logistics business: Partial sell-off of Hitachi Transport
System stock• Introduced business unit system(2) Strengthening of global front-line functions• Bolstered global front-line operations through acquisitions(Ansaldo STS, Sullair)(3) Launching Lumada to expand the digital solutions business• Financial services business: Partial sell-off of Hitachi
Capital stock• Power tools business: Sell-off of Hitachi Koki

• Launched Lumada• SPE business: Partial sell-off of Hitachi Kokusai Electricstock• Established Hitachi Vantara to deliver digital solutions• Automotive systems business: Sell-off of Clarion• Lumada business revenues grew to about ¥1 trillion

Looking Back
With the goal of strengthening front-line functions, including the number of sales,
system engineers, and consultants, and creating a system of collaborative
cooperation with our customers, Hitachi from fiscal 2016 moved from a productspecific company system to a three-level system, composed of front-line, platform,
and product tiers. With the three-level system, Hitachi bolstered the management
speed. Specifically, business units (BUs), which had been subdivided fromthe former in-house companies to develop and provide services closely to thecustomer, and group companies, including listed subsidiaries, were positioned toeach level. We also strengthened project management and worked to improve
profitability at individual businesses. With the aim of enhancing on a global basis
the front-line functions central to the Social Innovation Business, we acquired
100% stakes in Ansaldo STS, which supplies signal equipment and control
systems to 30 or more countries and regions, and Sullair, which manufactures,
sells, and services air compressors to about 4,000 customers, mainly in North
America. In December 2018, we signed an agreement for the acquisition of ABB’s
power grid business. The goal of each of these is the acquisition of a robust global
sales network and the expansion of the Social Innovation Business.
To add to this, we launched Lumada in May 2016. Lumada takes the essential

technologies for delivering advanced solutions, including AI, analytics, security,
robotics and control technologies distributed across the company and applies
them to a common platform, creating a system that comprehensively andorganically leverages the resources of the entire Hitachi Group to quickly andflexibly create new innovations. Thanks to a steady increase in customer
collaborations, Lumada business revenues are trending as planned and havealready exceeded ¥1 trillion. Moreover, in addition to reorganizing our businessportfolio, including selling off listed subsidiaries with little connection to thecore Social Innovation Business, we continued to reform our cost structure,
which contributed to the adjusted operating income ratio meeting our Midterm
Management Plan target and reaching a record level.

Challenges Ahead• Aggressive investment in key areas of focus• Improved capital efficiency• Accelerated innovation and active use of digital technologies with a focus on
Lumada2018 Mid-term Management Plan*1
2016

2017

2018

9,162.2

9,368.6

9,480.6

48

50

51

Adjusted operating income (¥ billion)

587.3

714.6

754.9

—

Adjusted operating income ratio (%)

6.4

7.6

8.0

More than 8%

EBIT (¥ billion)

475.1

644.2

513.9

—

EBIT margin (%)

5.2

6.9

5.4

More than 8%More than 400.0

Revenues (¥ billion)
Overseas revenue ratio (%)

2018 (target)
10,000.0
More than 55%

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

231.2

362.9

222.5

Total Hitachi, Ltd. stockholders’ equity (%)

30.7

32.4

33.9

—

Return on assets (%)

3.0

5.0

3.3

More than 5%

Return on equity (%)

8.1

11.6

6.8

—

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

0.29

0.23

0.23

Less than 0.5 times

Operating cash-flow margin (%)

6.9

7.8

6.4

More than 9%31

The Hitachi Group’s Growth Strategy

Outline of the 2021 Mid-term Management Plan
In May 2019, Hitachi announced its new Mid-term Management Plan, covering the three years from April 2019.

Key Points in Hitachi’s New Mid-term Management Plan
We believe there are three factors that could accelerate growth.

Aiming to be a global leader in the Social Innovation Business, Hitachi

The first of these is aggressive investment, including in M&A. We areis focused on moving into a “growth mode” during the period covered

increasing investment 4x–5x from the previous Mid-term Managementby the 2021 Mid-term Management Plan.
Hitachi since its founding has contributed to improvements inPlan to ¥2.0–¥2.5 trillion. Second, to ensure implementation of thispeople’s quality of life by focusing on the social innovation business tokind of large-scale investment, we will, while maintaining financial

resolve issues confronting society.

discipline, utilize financial leverage, and improve management

During the period covered by the 2021 Mid-term Management Plan,awareness of capital costs by introducing ROIC as a management

Hitachi will continue to advance the Social Innovation Business,

indicator. Finally, we will expand our digital solutions offerings on aplacing an emphasis on improving social, environmental, andglobal scale, centered on Lumada, and accelerate innovation througheconomic value for its customers.

enhanced collaboration with our customers.

Goals

Improve the quality of people's lives, raise customers' corporate value and achieve a sustainable society

Social Value
Accelerate customer’s innovation withadvanced IT solutions
Provide stable, high-efficiency energy and its
management systems
Increase the efficiency of customer’s
production and processing systems, andprovide the supply of safe, secure city water,and sewage water systems

Environmental Value

Economic Value

Reduce CO2 emissions through the value
chain

Reallocate of economic value added to
stakeholders

Enhance efficiency in the use of water

Improve profits at customer companies

Enhance efficiency in the use ofresources

Enhance employee compensation
Share earnings with partners, others

Design smart cities to be more convenientand environmentally-friendly
Provide with safe, comfortable transportation
systems and services

Increasing the three values of social, environmental and economic by five-sector business and technology solutions

IT solutions

Energy solutions

Industry solutions

Mobility solutions

Smart Life solutions

Solutions

Solutions

Solutions

Solutions

Solutions

Accumulation of customer cases

Lumada platform (system for converting data into value)
OT

IT

Products

Source of value (competitive advantage)

Lumada-Based Model for Providing Solutions

32

Focused on Five BusinessDomains

Providing and Enhancing Solution Cores

Global Development of Solution Cores

Lumada provides solutions as a cyber-physical system

Hitachi is improving social, environmental, and economic

We have established five business sectors

connecting the digital to the real by leveraging Hitachi’s years

value for customers by creating and providing rapid

where we can simultaneously improve theof experience in OT, IT, and products. The accumulation ofsolutions through the combination of solution cores

three types of value: IT, Energy, Industry,

customer cases allows us to develop and build up solution

based on customer needs and issues as clarified throughSmart Life, and Mobility.

cores that can be used throughout the Company.

collaborative creation efforts.

Hitachi Integrated Report 2019

Aggressively Invest in
Key Areas of Focus
Targeting investment

Introduce ROIC
to Boost Capital
Efficiency

Expand Our
Decarbonization
BusinessStrengthen Lumada

Including for M&A, of

The 2021 Mid-term¥2.0–¥2.5 trillion over theManagement Plan

Hitachi is supporting

We are promoting

We will use collaborative

and accelerating open

the expansion of ournext three years. (vs. ¥0.5

creation with ourintroduces ROIC as ainnovation throughdecarbonization businesscustomers to expand

trillion over the three years

KPI as part of our effort

collaboration with start-in line with our long-term

the provision of digitalin the 2018 mid-term Plan)

to improve management

up firms, universities, andenvironmental targets

solutions, centered on

In addition to acquiring theawareness of capital

activities at “Kyōsō-no-

ABB power grid business,

efficiency.

Mori.”

we intend to invest in the

In order to enable

Based on our 2021

IT and Industry sectors.

largescale investment,

human resources

Hitachi will further

Hitachi will utilize financial

strategy, we areleverage to reduce thepromoting the hiring,weighted average cost of

training of diverse humancapital (WACC).

resources and the creation

strengthen to an
unprecedented degree
R&D and human

P.34

Lumada.

of diverse organizations.

resources development.

Capital Allocation
Strategy

Accelerate
Innovation

Financial andCapital Strategy

P.36

Accelerate Innovation

P.38

Environmental Vision and the
Decarbonization
P.46
BusinessStrengthen Lumada

P.48

Performance targets (consolidated)
FY2018 results
Revenues¥9,480.6 billion

FY2019 forecast¥9 trillion

Adjusted operating income (Adjusted operating income ratio)¥754.9 billion (8.0%)¥765.0 billion (8.5%)

EBIT (EBIT margin)¥513.9 billion (5.4%)¥750.0 billion (8.3%)*1

Operating cash flows (3-year cumulative)¥1,966.7 billion

FY2021 targets
CAGR more than 3%
More than 10%——

More than ¥2.5 trillion
More than 10%

ROIC

8.5%

10.3%

ROA

3.3%

—

Overseas revenue ratio

51%—

FY2018 results

FY2019 forecast

FY2021 targets¥2,121.6 billion¥2,060.0 billion¥2,600.0 billion—
More than 60%

Performance targets by sector
SectorItem
Revenues

IT

Energy *1 *3

Adjusted operating income(Adjusted operating income ratio)¥230.1 billion (10.8%)¥220.0 billion (10.7%)¥338.0 billion (13.0%)

ROIC

19.6%

15.9%

15.0%

Revenues¥456.6 billion¥384.9 billion

Adjusted operating income(Adjusted operating income ratio)¥35.9 billion (7.9%)¥24.9 billion (6.5%)

5.8%

ROIC

Industry *1 *3

7.5%¥843.6 billion

Adjusted operating income(Adjusted operating income ratio)¥58.2 billion (6.9%)¥58.4 billion (7.0%)¥91.0 billion (9.1%)

ROIC

9.0%

10.1%

10.8%

¥1,238.1 billion¥1,155.0 billion

Adjusted operating income(Adjusted operating income ratio)¥100.2 billion (8.1%)¥96.2 billion (8.3%)

ROIC

13.6%

11.6%

¥1,816.0 billion

Revenues

Smart-life *2

More than ¥170.0 billion(More than 10%)

Revenues

Revenues

Mobility *1

6.0%¥839.6 billion

More than ¥1,700.0 billion

Adjusted operating income(Adjusted operating income ratio)¥93.4 billion (5%)

ROIC

10.0%

*1 It includes the control system business reported on IT sector.

*2 It includes the healthcare business of Hitachi High Technologies.

¥1,723.2 billion¥119.0 billion (7%)
10.0%

¥1,000.0 billion¥1,270.0 billion¥124.8 billion (9.8%)
13.1%
More than ¥2,100.0 billion
More than ¥210.0 billion(More than 10%)More than 15%*3 Figures for FY2018 except one-time expenses.

33

The Hitachi Group’s Growth Strategy

Capital Allocation Strategy
2018 Mid-term Management Plan
Achievements and Issues 2018
Profitability Improves, Leading Toward Further
Growth in Corporate Value

Promoting ROIC Management with a Higher
Awareness of Capital Costs

Under the 2018 Mid-term Management Plan, Hitachi promoted

Under the 2021 Mid-term Management Plan, Hitachi Group will

structural reforms in unprofitable businesses, enhanced project

introduce Return on Invested Capital (ROIC) as a management

management and engaged in other efforts aimed at improving

indicator and promote the improvement of capital efficiency and the

profitability. The Company also disposed of assets with earnings not

growth of highly profitable businesses through our management. ROIC

expected to generate a return on equity or invested capital andis an indicator that evaluates returns generated by invested capital

implemented measures aimed at improving the Cash Conversion

calculated by dividing business profit after taxes by invested capital. To

Cycle (CCC). These efforts resulted in ROA, a financial indicator,

increase returns, ROIC needs to exceed the weighted average cost ofreaching 6.2% (excluding the temporary impact of a nuclear power

capital (WACC), which is the cost of raising invested capital.

station project in UK), which exceeded the 5.0% target set for fiscal

Going forward, aiming for ROIC above 10%, we will strive to increase

2018. In addition, the D/E ratio, a measure of financial discipline, wasthe difference between ROIC and WACC (ROIC spread) and increase

maintained at a level well below 0.5 times. However, we recognize

shareholder value by strengthening profitability and reducing WACC

that there are further challenges to maximize corporate value.

through the use of financial leverage. To achieve this, we will improve

Retained earnings increased, while the dividend payout ratio andadjusted operating income, while at the same time continuing tolabor’s share of income remained at the same level. To achieve

promote the disposition and sales of owning shares as well as real

further growth going forward, we must strategically allocate capital inestate and other idle assets aimed at improving business asset

investment areas.

efficiency with the aim of appropriately structural reforms of

To increase capital efficiency, we will further reduce assets notexpected to meet investment capital, promote utilization of external
capital markets using financial leverage, make an effort tounprofitable businesses and countermeasures to businesses withchallenges.

understand risks according to changes in the business environment

Proactive Investment in Growth Areasand attempt to strike a balance between efficiency and risk

While promoting management with an awareness of capital costs, wemanagement.

will make large-scale growth investments of approximately ¥2.0 toFurthermore, we will promote management that is more aware¥2.5 trillion over the next three years using financial leverage thatthan ever of capital costs, engage in a financial strategy aimed attargets an optimal capital structure. Of this amount, we have alreadyfurther reductions in capital costs and monitor stock risk and return

announced the investment of ¥1 trillion in the ABB power gridindicators represented by the β-value and manage them with thebusiness, and positioning IT and industry as priority investment areas,

goal of optimizing them.

we will attempt to expand our digital solutions business focused on

Corporate Governance Code revisions have been in effect since

Lumada, while at the same time targeting growth by strengthening

June 2018 and the way of dialogues with capital markets has

services and products required for the provision of solutions. In terms

changed, thus we recognize the necessity of innovation inof regional strategies, we will make the necessary investments

conventional management methods. In addition to our basic

focusing on the North American and Asia-Pacific regions, making

approach to earnings plans and capital policies, we will indicate

bigger investments than ever before in an attempt to strengthen R&D

targets related to profitability and capital efficiency and explain how

and human resource development.

much shareholder returns in excess of capital costs we will generateover the medium to long term in light of business portfolio
reorganization and the strategic allocation of management resources
based on precise ascertainment of capital cost.

34

Measures Under the 2021 Mid-termManagement Plan

Hitachi Integrated Report 2019

Improve profitability(Increased NOPAT + equity in earnings of affiliated companies)
ROIC increase drivers

Examples of major action items (to be further broken down and assigned to each division)
Expand orders, determine appropriate orders received
Optimize customer portfolio

Expand profitablerevenues

Expand overseas revenues
Expand Lumada revenues

Increase adjusted operating
income ratio

Reduce materials cost, outsourcing expenses
Improve production efficiency
Improve business efficiency

2021 Mid-termManagement Plan
Targets
Adjusted operating
income ratio
more than

Reduce costs(3 reforms PJ, etc.)

Implement structural reforms
Strengthen project management

Increase NOPATReduce loss costs
Withdraw/replace unprofitable business

10%

Reduce tax expenses

Implement Appropriate tax management

Increase equity in earnings ofaffiliated companies

Realize joint venture/alliance synergies

Improve asset efficiency(Improved invested capital ≒ business asset efficiency)

Increase ROIC

ROIC increase drivers

Examples of major action items (to be further broken down and assigned to each division)
Early collection of trade receivables
Reduce inventories

Increase working capital turnover

CCC improvement
Trade payables: Set appropriate payment dates
Acquire advance payments
Implement pre-investment checks and post-investment monitoring

Improve business asset efficiency(Increase asset turnover ratio)

Review held real estate, sell idle real estate assets

Increase fixed asset
turnover ratio

Manage goodwill
Review cross-shareholdings and equity-method investments

Reduce cash on hand andinterest-bearing debt

2018 Mid-termManagement Plan

2021 Mid-termManagement Plan

¥4.0～4.5 trillion
Strategic investments area
• Sector- IT (including Lumada)- Energy- Industry• Region- North America- APAC

Investment for
further growth¥2～2.5 trillion*¥0.5 trillion

OperatingCash FlowsCAPEX/
Shareholder
return, etc.

CAPEX/
Shareholder
return, etc.

R&D ¥1.0 trillion

More than¥2.5 trillion¥1.8 trillion¥1.6 trillion

ExpandInvestment

Expand pooling

Basic investment policy
M&A• Expand the digital solutions businesswhile strengthening products andservices and securing human resource
development, which are efforts essential
to providing solutions
R&D*Including theacquisition of
ABB's power grids
business, etc.

Investment
for growth

Investment

Debt/
Asset sale, etc.

Improve accuracy of cash flow forecasts

Resources

R&D ¥1.2 trillion scale• Strengthen development focused on AI(image analysis, voice recognition,
machine lear ning, etc.), robotics,
electrification and security to establish a
Cyber Physical System (CPS)
Human resources• Produce and strengthen human resources
who can create new innovation using
digital technology and provide optimal
digital solutions to customers throughexternal recruitment and internal humanresource development

35

The Hitachi Group’s Growth Strategy

Financial and Capital Strategy
Financial Analysis of Past Five Years
The following is a summarized financial analysis of the Hitachi Group over the past five years.
• In addition to the adoption of CCC as a management indicator, the strategic reorganization of Group companies has led to the realization of streamlined assets overthe past five years.
• Specifically, this includes an approximately ¥2.55 trillion reduction in interest-bearing debt and an improvement in the D/E ratio from 0.83 to 0.23.
• Although the cumulative dividend payout ratio was below 30%, the total amount of dividends paid increased. Most of operating cash flow was used to repay debt.
(¥ billion)

Revenues

FY2014FY2015FY2016FY2017FY20189,774.9

10,034.3

9,162.2

9,368.6

9,480.6

Adjusted operating income

641.3

634.8

587.3

714.6

754.9

EBIT

534.0

531.0

475.1

644.2

513.9

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

217.4

172.1

231.2

362.9

222.5

12,433.7

12,551.0

9,663.9

10,106.6

9,626.5

701.7

699.3

765.2

697.9

807.5

8,137.3

8,425.4

5,566.9

5,594.9

5,212.1
1,004.7

Total assets
Cash and cash equivalents
Total Liabilities
Interest-bearing debt

3,557.3

3,604.4

1,176.6

1,050.2

4,296.3

4,125.5

4,096.9

4,511.6

4,414.4

Non-controlling interests

1,354.0

1,390.4

1,129.9

1,233.6

1,151.8

Total Hitachi, Ltd. stockholders’ equity

2,942.2

2,735.0

2,967.0

3,278.0

3,262.6

Total Hitachi, Ltd. stockholders’ equity ratio

23.7%

21.8%

30.7%

32.4%

33.9%

0.83

0.87

0.29

0.23

0.23

Capital expenditures (Completion basis)

431.2

528.5

377.5

374.9

414.7

Depreciation

350.7

366.5

302.7

265.4

271.6

R&D expenditures

334.8

333.7

323.9

332.9

323.1

3.4%

3.3%

3.5%

3.6%

3.4%

Total Equity

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

Ratio to revenues
Net cash provided by operating activities

451.8

812.2

629.5

727.1

610.0

Net cash used in investing activities(612.5)(730.7)(337.9)(474.3)(162.8)

Free cash flows(160.7)

81.4

291.6

252.8

447.1

Net cash provided by (used in) financing activities

233.2(26.4)(209.5)(321.4)(320.4)
77.2

Dividends to Hitachi, Ltd. stockholders*

55.5

57.9

57.9

67.5

Dividends to non-controlling interests*

32.5

39.5

38.2

34.3

42.9

Total cash dividends paid

88.1

97.4

96.2

101.9

120.2

* Those figures are reported in the Consolidated Statement of Changes in Equity presented on P.100.

As a result of the above, in terms of formulating strategy going forward, Hitachi will maintain an awareness of three issues:(1) Further improvements to profitability and capital efficiency through ROIC management, (2) lowering WACC using moderate
leverage within appropriate financial discipline and (3) reducing capital costs and increasing Total Shareholder Returns (TSR)
through the execution of rational shareholder return measures with consideration for share buybacks in addition to dividends.

Ensuring Financial Stability
Hitachi recognizes that ensuring the stability of our financial base is an importantmanagement issue in terms of realizing the growth investments (approximately¥2.0 –¥2.5 trillion over three years) and continuous return of profits targeted in
the 2021 Mid-term Management Plan. To this end, we must maintain an

Rating Company

Long term

Short termStandard & Poor’s
Ratings Japan (S&P)

A

A–1

Moody’s Japan K.K.
(Moody’s)

A3

P–2

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

AA-

a–1+

A-rating on our corporate bonds and a D/E ratio of about 0.5 times.
The Hitachi Group’s ability to generate cash has increased steadily over the
past five years with improvements in our financial structure leading to ratings
improvements as shown in the table on the right, with S&P upgrading its ratingsfrom A- to A and from A-2 to A-1 in August 2018, and Moody's maintaining its
rating of A3 and P-2, while R&I changed its ratings from A+ to AA- and a-1 to
a-1+ in August 2019.
As of August 31, 201936

Hitachi Integrated Report 2019

Financial and Capital Strategies and Shareholder
Returns Going Forward

Basic Approach to Shareholder Returns

Basic Approach to Funding Procurement

Returning profits to shareholders through the medium- to long-term

Funding procurement is conducted by the most appropriate means inenhancement of corporate value and ongoing dividends is anlight of a variety of conditions, including the timing and funding required

important management priority for Hitachi. With regard to dividends,

for business. When procuring funds through borrowing, our financial

our policy is to attempt to provide stable dividend growth, while

discipline policy is to maintain a D/E ratio of less than 0.5 times and an

ensuring funding necessary for investments. Under this policy, weinterest bearing debt/EBITDA ratio of less than 2.0 times.

make decisions based on overall consideration for performance

Furthermore, over the next three years leading up to fiscal 2021, we

trends, financial conditions, dividend payout ratios and other factors.

plan to make large-scale growth investments of around ¥2.0–¥2.5

Share buybacks are conducted flexibly to supplement dividends intrillion, which will be procured through our own capital, borrowings andaccordance with funding demand and the business environment.

asset sales amounting to approximately ¥4.0–¥4.5 trillion.

Internal reserves are used for M&A, R&D, capital investments and otheractivities to ensure Hitachi’s competitiveness and growth as a global
company based on medium- to long-term strategies.

Basic Approach to Capital Costs

The total amount of shareholder returns over the next three years up

Regarding the cost of capital (hurdle rate) used for individual

to fiscal 2021 is planned to exceed levels in the previous three years.

investment decisions, calculations are made on a case-by-case basis
in light of interest rates, country risks and the expected stock market
returns in the country where the investment will be made.

Total Shareholder Returns (TSR) for Hitachi, Ltd., Over the Past 10 Years
400
350
300
250

Hitachi share price
TOPIX including dividends
TOPIX Electrical Equipment
including dividends

200
150
100
50

Past 1 Year

Past 3 Years
Cumulative

Annual rate

Hitachi share price

-4.6%

44.9%

TOPIX

-5.0%

26.2%

TOPIX Electrical Equipment-10.8%

40.9%

3
/0

3

19
20

18
20

17
20

Past 5 Years

Cumulative/annual
rate

/0

3
/0

3
20
16
/0

3
/0
15
20

03
20
14
/

3
/0
13
20

3
20

12

/0

3
20
11
/0

/0
10
20

20
09
/

03

3

0

Past 10 Years

Cumulative

Annual rate

Cumulative

Annual rate

13.2%

3.3%

0.6%

209.6%

12.0%

8.1%

47.1%

8.0%

153.3%

9.7%

12.1%

51.3%

8.6%

170.6%

10.5%

Note: The graph and table above show return on investment for investments made from the fiscal year ended March 31, 2009, taking into account dividends and stock prices as of the fiscal year ended March 31, 2019. Hitachi, Ltd.,
investment performance, including stock prices and dividends, is indexed using 100 as investment amount as of March 31, 2009. The TSE Stock Price Index (TOPIX), which is a comparative indicator, is similarly indexed using data
including dividends for electrical equipment.

Total shareholder returns (TSR), including dividends and stock price, are shown above.
Looking at the past 10 years, the annual rate of return is 12.0%, which is higher than the market average (Tokyo Stock Price Index and Tokyo Stock
Price Electrical Equipment Index). In the most recent fiscal year 2018, the market share price fell, resulting in almost the same negative return as the
TOPIX. Also, although the stock price has entered an adjustment phase due to declines in business performance over the past five years in the fiscal
years ended March 31, 2016, and March 31, 2017, the stock price recovered in line with stronger performance and TSR has exceeded the market
average over the past three years.
Hitachi will continue efforts to improve shareholder value with management and financial strategies enabling us to realize a TSR that exceeds thecost of shareholders’ equity.

37

The Hitachi Group’s Growth Strategy

Accelerate Innovation
An R&D Strategy to Accelerate the Global Creation of Value
For more than 100 years since the Company’s foundation, Hitachi’s

technologies to expand Lumada business during the three years

R&D has been putting the Hitachi Mission – “Contribute to society

covered by the Plan.

though the development of superior, original technology and products”

The strength of Hitachi’s R&D lies in its centralized ownership of theinto practice, developing the most cutting-edge technologies andtechnology platforms and knowhow integral to the Hitachi Group’s

fostering innovations that ushered in the future. As part of our 2021

operational technology (OT), IT, and products, as well as the fiveMid-term Management Plan, Hitachi aims to become a global

Hitachi sectors, allowing the Company to establish a value creation

innovation leader advancing the realization of the United Nations’cycle that extends from collaborative creation to development, andSustainable Development Goals (SDGs) and Society 5.0. Moreover, tofurther accumulation. Moreover, as Hitachi creates solutions that

contribute to enhancing social, environmental, and economic value forprovide value to our customers, R&D efficiency continues to improve

our customers, the Hitachi Group will invest ¥1.2 trillion in R&D tothrough the value creation cycle.

establish an ecosystem for driving innovation and enhance our core
To become a global innovation leader advancing the realization of SDGs and Society 5.0
Research & Development Group

Raise peoples' QoL and customers' corporate value
Improvesocial value

Improveenvironmental value

Improveeconomic value

Collaborative
Creation

Value, Solutions

Simultaneously improve the three customer values through our five solutions
Societal andcustomer issues
IT solutions

Energy solutions

Industry solutions

Mobility solutions

Smart Life solutions

Products

Products

Products

Products

Products

Wide range
businesses
issuesValue Creation
Cycle
Accumulation

Development“OT x IT x Products”
Technology platforms, Knowhow

1. The Evolution of Collaborative Creation to Accelerate Innovation
The Evolution of Collaborative Creation Accelerating Innovation
Building an Innovation Ecosystem
In the 2021 Mid-term Management Plan, we will accelerate open

Evolving Collaborative Creation through Open Innovation with
Stakeholders

innovation where we will grow together with partners by using

Further Evolution of Open Innovation

Hitachi’s technology platforms and knowhow, and bringing in external
knowledge, as we work to create the three values of social,environmental, and economic value by raise peoples’ quality of life andcustomers’ corporate value.
To accomplish this, we are developing NEXPERIENCE, Hitachi’s
original customer collaborative creation methodology to promote

Setting up“Kyoso-no-Mori”

Vision creation
and rule building

Fusion of collaborative creationand technology development
Foster an ecosystem for industryacademia-university collaboration
Conduct ideathons*1 andhackathons*2

Creation ofservice ideasdelivery of Lumada solutions. We expect to realize this throughKyōsō-no-Mori, the new research initiative launched from the Central
Research Laboratory, and through stronger collaboration withindustry-academia-government initiative and startups.
In April 2019, we established a new Corporate Venturing Office topromote collaboration with external startups, and in June establisheda corporate venture capital fund. By promoting investment in andcollaborative creation with startups, especially in Europe and the US,
we are bringing in disruptive technologies and business models.

38

Hitachi Integrated Report 2019

Industry-academia-government ecosystem(WED-C41R, joint research with universities)
Open forums / Ideathons

Solutiondevelopment andverification

Hackathons / startup collaboration

Business model/ testing

Lumada ecosystem / joint businessprogramKyōsō-no-Mori

Evolution of NEXPERIENCE*1 Ideathon: A competitive event to generate ideas*2 Hackathon: A competitive event to develop commodities such as services, systems, and applications

Creating Visions through Industry–Academia- Government Collaboration
Joint laboratories were established with the University of Tokyo,

Prefecture. The Hitachi-Hokkaido University Laboratory is also

Kyoto University, and Hokkaido University in 2016 for the purpose ofworking on themes such as “regional issues” and “food and health.”

creating value to resolve future societal issues.

Further, in 2018, we also signed a collaboration agreement withThe Hitachi The University of Tokyo Laboratory holds open forums

Tsinghua University to resolve future societal challenges in China.

under the themes covering societal issues such as “urban planning”

Through such efforts, we hope to gain insight into future societaland “energy” to publish books and policy proposals to share visions,issues, and by innovation, we will communicate to the world new

as well as conducting verification trials in Matsuyama City, Ehime

visions to achieve both the resolution of those challenges and while

Prefecture, to resolve regional challenges. The Hitachi-Kyoto

realizing economic development.

University Laboratory developed a “policy-proposing AI” focusing on
issues in society in the year 2050m and is verification trials in Nagano

Launching Kyōsō-no-Mori to Accelerate Collaborative Creation with Partners and Customers
To foster an innovation ecosystem, Hitachi launched a new researchoutside of Japan in areas such as FinTech and blockchain

and development initiative, Kyōsō-no-Mori, from the Central

applications. In parallel, Hitachi is cooperating with Kokubunji City to

Research Laboratory in Kokubunji, Tokyo. The Company

evaluate local digital currencies, while in North America, theconsolidated the customer collaboration functions of the Akasaka

Company has started developing technology such as remotefacility in Kokubunji, to facilitate agile development of value bycontrol for 5G solutions, and will continue to expand open

deepening the fusion with cutting-edge research.

innovation globally from Kyōsō-no-Mori.

At the Kyōsō-no-Mori Opening Ceremony, a panel discussion washeld on “smart city initiatives” with the ambassadors from Thailand
and Australia participating in dialog on the value and significance ofsmart city initiatives. Further, to generate ideas and accelerateinnovation, ideathons*1 and hackathons*2 are being held both in and

2. Enhancing Core Technologies to Expand the Lumada Business
Strengthening Core Technologies Supporting Lumada
In addition to promoting innovation through collaborative creation, we

successes that we are achieving through OT X IT X Products. In theare focusing investment on the “5 sectors x Lumada,” Lumada coremobility sector, “Dynamic Headway” which is currently undergoing

technologies and strengthening products, to expand Lumada

field tests will be further advanced so that it can be provided to notbusiness.

only trains but also as an facility planning optimization solution for

Lumada is being deployed in each sector. For the IT sector, we arebuilding facilities such as elevators. In the smart life sector, we arefocusing on data utilization solutions for financial, social, and public

focusing on smart therapies, smart cities, and connected cars,

systems. In the financial area, we are working with state-owned

including autonomous driving and software updates via Over the Airbanks in India for next-generation digital payment platforms and(OTA).

developing solutions based on next generation blockchain
technology in North America. In the energy sector, we are aiming for a
low-carbon or decarbonized society through system stabilization
solutions suitable for introducing renewable energy. Meanwhile, in theindustry sector, to realize the “smartification” of priority areas such as
manufacturing, maintenance and logistics, we are working tomaximize customer KPIs through the seamless connection of on-site
operations with management. Notably, we have achieved practicalpredictive maintenance technologies to improve the operating
efficiency of industrial and medical equipment, which represents

39

The Hitachi Group’s Growth Strategy

Accelerate Innovation

SectorIT

Solutionexamples• Financial solutions• Predictive maintenancesimulations

Lumada(core technologies)

Products

Energy• System stabilization• Automated power
distribution• Energy management• P2P Electric power
trading

Mobility

Smart Life

• Next-generation
manufacturing• Next-generation
maintenance• Next-generation logistics• Building/facility solutions• Smart ticketing• Connected cars
• Smart therapies• Smart cities

Cyber Space

AI, Video analysis
Sensing
Electrification• Storage

Industry

Data

5G
Robotics
Security

OT for Real

Physical Space• High voltage transmission
systems• HVDC• Circuit breakers,transformers• Large centralized powersources• Global railway vehicles• Railway vehicle inverters• High-speed elevators• Service robots• Air compressors• Marking• 3D printing• EV components• Diagnostic and treatment
systems• Home electronics and airconditioning equipment

HVDC: High Voltage Direct Current

To strengthen Lumada core technologies, our efforts are directed
towards realizing Lumada CPS (Cyber Physical System) whichconnects cyberspace with the real world, focusing on AI andaudiovisual analytics, sensing, electrification, 5G, robotics and security.
The strength of Hitachi's AI is that its development is based on

Sensing
Ultrasensitive vibration sensor that can measure very small
status changes in large spaces exceeding 100 meters.
Digital city monitoring/Ultrasensitive sensors

equipment control technology, product design, and maintenancetechnology that the Hitachi Group has built-up over the years. For

Roads

Commercial facilities
Water andsewage systems

example, in predictive maintenance technology for industrial

Undergroundareas

equipment, the AI visualizes the difference between a normal state oran abnormal state which could lead to material degradation or failure,from real-world operational data. This helps to determine whether there
is a high probability of industrial equipment failure. This technology
already has a good track record in Hitachi’s medical equipment and is

DetectingcircuitControl
circuitMEMS• Damage to underground piping(leak detection)• Construction status• Crowd movement
Understanding conditions
during a disaster• World’s highest sensitivity* (15ng/√Hz)• Wide detection range (>100m)

being used in regions such as North America.
In the area of audiovisual analytics, video images from stations and* MEMS sensor

Data analysis, AI technology

Semiconductor device technology

buildings are analyzed in real time, allowing specific people to be searchedor tracked, as well as human flow analysis. In sensing, we have realized an
extremely sensitive vibration sensor that can detect and measure verysmall signals even in large spaces exceeding 100 meters by applying

Solving societal issues also requires the creation of disruptive

MEMS technology based on semiconductor device technology fostered

technologies. In collaboration with the University of Cambridge in theat the Central Research Laboratory. We are currently proceeding with

UK and CEA-LETI in France, Hitachi has successfully demonstrated

water leakage detection field tests using this device. Such technologies

the world’s first silicon quantum bit *2 system which promising

will be key in realizing safety and security in smart cities.

advantages for system integration for quantum computers. In the near

*1

With regard to products, we are aiming to deliver world No. 1

future, we believe this will contribute to resolving complex societal

technology. For example, with inverter technology which is central toissues. In 2017, the Hitachi established the Hitachi Kobe Laboratory inelectrification, we have created and commercialized the world’s mostthe Kobe Biomedical Innovation Cluster to achieve practical

efficient full SiC inverters for use in railway cars. For diagnostic andapplications in regenerative medicine. The Laboratory has alreadytreatment systems, Hitachi has developed the world’s smallest particle

created technologies contributing to a healthy society, including theaccelerator for the treatment of cancer, and it is currently in operationworld’s first successful automated culture of retinal cells derived fromat a heavy ion therapy center in Japan. Furthermore, we have realized

human iPS cells.

wear- and corrosion-resistant material which was unachievable with

Globally, we are promoting joint research with many universities

existing alloys, and have started applying it in the 3D printing of

based on their respective strengths to create disruptive technology andindustrial machinery parts.

enhance technology platforms. For example, in the area Fintech, we

By accelerating such efforts, we hope to contribute to the global
expansion of Lumada business based on OT x IT x Products.
*1 MEMS : Micro Electro Mechanical Systems

40

Creating Disruptive Technologies

Hitachi Integrated Report 2019are working with Stanford University and in the smart manufacturingarea, with a research institute in Germany.

We are also actively participating in the open communities, contributing

deployment of Lumada solutions. We aim to move ahead of otherto open projects and consortiums in areas such as blockchain andcompanies to acquire intellectual property rights for coreedge computing. Also, through participation in organizations such astechnologies supporting Lumada, centering on Lumada CPS. We will

WEF-C4IR,*3 we are also actively involved in forming rules.

also promote an open policy for intellectual property related to public*2 Quantum bit: the smallest unit of encoded quantum information, including in the direction of the electron spin
*3 WEF C4IR: World Economic Forum, Center for the Fourth Industrial Revolution Network

matters to contribute to the design of future societies, and themaintenance and progress of societal norms. Further, we will aim toestablish an intellectual property strategy for a new era, “IP forSociety,” by working with international organizations.

Initiatives in Intellectual Property
Amid an ongoing international pro-patent shift, Hitachi isstrengthening its intellectual property activities in products andsolutions. To demonstrate our OT x IT x Products strengths, we havedrafted an intellectual property masterplan that defines areas of focus
and bolsters our patent creation activities. This has resulted in Hitachi
being awarded the National Invention Award three years in a row,
including for railway cars and particle beam cancer treatment
equipment. Under the 2021 Mid-term Management Plan, we will be
accelerating the creation of solutions to further drive the global

3. R&D Investment, Portfolio and R&D structureWith the goal of enhancing competitiveness in the five core Social

The R&D structure to achieve these goals includes the Global Center

Innovation Business sectors, the Hitachi Group’s R&D investment

for Social Innovation (CSI) that will lead through ideation and solution

amounts to about 4% of total revenue. Approximately ¥1 trillion wasdevelopment, the Center for Technology Innovation (CTI), responsible

invested in R&D during the period covered by the 2018 Medium-term

for building world No. 1 technology platforms, and the Center forManagement Plan and the aim is to increase this to ¥1.2 trillion during

Exploratory Research (CER), addressing the challenge of resolving

the 2021 Mid-term Management Plan. This includes corporate-led

challenges faced by future societies, together with the research bases

R&D investment focused on collaborative creation with our customers,in North America, Europe, China, and Asia. In FY2019, a North

global No. 1 technology, and exploratory research, as well as

American employee was appointed to be head of CSI to further

investment to accelerate the global development of Lumada businessaccelerate the global deployment of Social Innovation Business.

which is our engine for growth. To realize this, we are establishing a

Through such measures, Hitachi will aim to simultaneously realize

common digital platform for efficient global development, as well as

improvements in social, environmental, and economic value.

enhancing our research resources worldwide.

Trends in R&D Spending
FY2014FY2015FY2016FY2017FY2018FY2019 (forecasts)

R&D expenditures (¥ billion)

334.8

333.7

323.9

332.9

323.1

335.0

Share of revenues (%)

3.4%

3.3%

3.5%

3.6%

3.4%

3.7%

R&D spending has remained generally flat due to portfolio restructuring, including the sell-off of listed subsidiaries, and the fact that investment has been carefully focused in targeted areas.
Moving forward, we will continue to focus investment in the field of digital solutions, including Lumada.

[Recognition for Outstanding Technology and Design]
Hitachi was bestowed the Imperial Invention Prize in the National Commendations for Inventions for its global railway vehicles, which was highly
evaluated for design and technologies focused on analyzing comfort and safety. In addition, Hitachi has been granted prestigious awards forsemiconductor measuring equipment, X-ray fluoroscopy equipment, open MRI equipment, and storage equipment, with Kazuo Hiramoto
receiving the Medal with Purple Ribbon award for his development of an innovative particle therapy system.

41

The Hitachi Group’s Growth Strategy

Accelerate Innovation
Human Resource Strategies Supporting Innovation Creation
With the goal of creating innovation and new value in the global and digital era, Hitachi is focused on securing and fostering a diverse workforce andthe organizations capable of driving sustainable growth. We have established a firm relationship between employees and the Company by providing
places of employment that offer a favorable work-life balance, focusing on worker safety and health, and respecting the basic rights of employees
and ensuring equal opportunities. Hitachi is also proactively engaged with all its employees regarding compensation and career advancement.

Transforming Human Resources Management

Global Human Resources Management

The development of the Social Innovation Business requires us toTo create a global common platform for HR management, Hitachi has

actively investigate social and customer issues, and then cooperate

introduced a Global HR Database, as well as Hitachi Global Grade andwith customers to create all new solutions.

Global Performance Management since 2012.

Hitachi is working to transform human resources management with

Hitachi launched in full human capital management integrated

the aim of placing the right person in the right position anywhere in theplatform in January 2018, centralizing processes and measures

world. Clarifying through a global standard the role, responsibilities,

enacted to date. The three main benefits of this platform are as

and reporting lines of each position, and embracing a common

follows.

understanding serves to accelerate the creation of a solid global
structure for Hitachi. In addition, it fosters an organizational culture that

(1) Improving Talent visibility

recognizes and makes best use of its diverse and self-motivatedUntil very recently, it was quite difficult to quickly get a handle on theindividual workers.

skills and abilities of employees in a given country, region, or company.
Improved visibility in this respect allows us to make appropriate

The Transformation in Human Resources Management

placements and provide training suited to a particular individual, to findand develop future leaders, and facilitate better communication

Previously

Current direction

Providing high-quality products andsystems mainly to meet the needs ofdomestic clients in Japan

Identifying worldwide client needs and global
issues of social concern, then providing
problem-solving services to meet theseneeds・Homogeneous organization centered onJapanese and male full-time employees
・Work styles sharing same locations andtomes
・Domestic/individual companies

・Proactive organization with diversity oftraits, including nationality and gender・Work styles unconstrained by location ortimes
・Group/global concerns

・Tendency to rely only on training/job
placements designed for long-term
employment
・Job placements designed for extensive
overtime
・Imprecise division of job duties

・Employees plan their careers
proactively, and retention by managers
becomes important・Creation of environments enabling
efficient and engaged work
・Taking on challenges and making
reforms are promoted

Optimally tailored HR programs andinitiatives for individual companies andcountries

Introduction of groupwide and global
HR Management initiatives

between managers and employees.
(2) Strengthening the “I will” culture
The platform allows employees to enter their own experiences andskills, with all employees having access to that information at all times.
This expands the likelihood of employees taking on challenges in work
areas of interest, resulting in the creation of a workforce of proactive
employees able to think and act for themselves.
(3) Improving Speed and Efficiency
The use of global common data allows us to quickly and smoothly
launch a new project by rapidly and efficiently placing the human

Launched global HR management

Throughout
Japan
Pensions, hiring,
travel, expenses,
etc.

Throughout
CountryA

Throughout
Country
B

Groupwide and global HR
management initiatives• Global HR Database• Hitachi Global Grade• Global Performance Management• Global Leadership Development• Other42

Hitachi Integrated Report 2019

Company G

Company F

Company E

Company D

Company C

Outside Japan

Company B

Company A

Japan

Hitachi, Ltd.

Company E

Company D

Outside Japan

Company C

Company B

Company A

Hitachi, Ltd.

Japan

resources necessary to that project.

Ensuring Fair Evaluations and Compensation

Human Resources Management Initiatives
Fiscal 2012
Global Human Resources Database

Amid the ongoing globalization of business, there is an increased need

Goal: Create a database of human resources information
Global Leadership Development

to establish a global human resources system that ensures fairevaluations and compensation. In order to attract a diverse and highly

Goal: Create a pool of leading global talent and foster theirdevelopment

engaged workforce, Hitachi is focused on building a consistentFiscal 2013
Hitachi Global Grade

Compensation Philosophy” based on “maintaining market

management system and accordingly follows a common “Global
competitiveness,” “pay for performance,” and “ensuring transparency.”

Goal: Use of a uniform Group standard to assess position weightings
for managers and those in higher job positions

We are developing a compensation system that is fair andHitachi Insights (Employee survey)

competitive in the context of each country or region’s labor market,

Goal: Improve employee engagementwith an individual’s compensation determined after an evaluation of
their performance. Individual assessments are conducted annually to

Fiscal 2014
Global Performance Management

set each employees compensation, and feedback on theirGoal: Promote growth and sustained improvement in both thebusiness and the individual by linking the goals of the two
Fiscal 2015–2018
Hitachi University (educational platform for Hitachi Group employees
all over the world)
Goal: Use HR development to contribute to sustainable global growth

performance results is provided to inspire them to develop and groweven further.
We ensure compliance with the laws and regulations of each country
in which we operate when determining compensation. Starting pay for
new graduates in Japan—representing about half of all new graduates

Global Hiring Support System

recruited each year across the Group’s global operations—was

Goal: Ensure hiring of the best individuals as business expands,
improve efficiency in hiring, lower costs

roughly 20% higher than the weighted average of Japan’s regional

Human capital management integrated platform

minimum wages.

Goal: Improve HR visibility, strengthen the “I will” culture, improve
speed and efficiency

2021 Human Resources Strategy

Fostering the Next Generation of Leaders

The mission of the human resources division is “contributing to the

In addition to Hitachi University, the Group’s global learningbusiness through talent and the organization.” The division formulated

management system, we have developed a variety of educationalits 2021 HR Strategy based on the goals of the 2021 Mid-term

programs tailored to different jobs and positions. We are also focusing

Management Plan announced in May 2019. The HR Strategy focusesresources on selective training courses aimed at developing futureon achieving growth throughout the world through a diverse workforce

managerial candidates at an early stage. In these courses, participantsthat is happy and proud to work at Hitachi and creating for all

discuss what is necessary for the growth of Hitachi. The opportunity toemployees a safe and vibrant workplace that respects a wide range ofgenerate ideas to present to senior management helps to cultivate thediverse values.

next generation of leaders—people with a unique perspective andHitachi is committed to building a company where employees withdetermination.

different cultural backgrounds, as well as experiences and ways ofIn addition, we have identified a group of about 50 employees fromthinking can work together. We aim to instill in all our employees

around the Hitachi Group with next-generation development potential.

around the world a shared sense of values, including the “Harmony,

People in this “Future 50” group are selected on merit, regardless ofSincerity, and Pioneering Spirit” values central to the Hitachi Groupage, gender, or nationality.

identity, with the “One Hitachi” idea crossing national, regional, andThey are given challenges to help expand their horizons and build theirdepartmental borders and contributing to the betterment of society.

perspective, including tough assignments, different types of work, andWe are also promoting measures aimed at the optimal placement ofinternal and external training opportunities. The Future 50 grouppersonnel through the visualization of HR data, the use of analytics

members receive one-on-one mentoring opportunities with independent

based on accumulated data and HR technologies, and improved

directors to benefit directly from their extensive business experience andefficiency. Finally, we are focused on advancing initiatives for fiscal

global perspective. Our aim is to change mind-sets so that we can

2021 based on the four key concepts of Talent, Culture, Organization,

develop people for important positions in the future.

*1

and HR Transformation.
*1 HR technology refers to technologies using new forms of IT, including big data and AI in human resources tocreate new value.

43

The Hitachi Group’s Growth Strategy

Accelerate Innovation
Strengthening Front-Line HR and Establishing a
Digital HR Training Policy

Diversity & Inclusion
Diversity is the wellspring of innovation at Hitachi and our growth

Hitachi in April 2016 shifted to a business structure with strengthened

engine. Hitachi regards personal differences—gender, nationality, race,

front-line functions to accelerate collaborative creation with ourreligion, background, age, and sexual orientation—as facets ofcustomers as part of the drive to advance the Social Innovation

people’s individuality. By respecting our employees’ individualities andBusiness. Hitachi’s technologies and know-how must be developed so

positioning them as an advantage, Hitachi frames its diversity andthat they can be provided as a service by front-line personnel, who areinclusion as conducive to both the individual’s and the Company’s

closest to our customers. With this in mind, we have strengthened thesustainable growth. We will adapt to the diverse needs of ourfront-line talents we expect to drive the Social Innovation Businesscustomers by using our diverse capabilities, our outstanding

moving forward.

teamwork, and our extensive experience in the global market.

While there are a number of companies focused on achieving a digital

We are promoting diversity management as a key managementtransformation through digital technologies such as AI, IoT, and big

strategy under the initiative slogan “Diversity for the Next 100.” We

data, one key challenge throughout the world is the shortage of data

believe it important to share opinions and recognize diverse values ifscientists specializing in data analysis. In addition to its digital solutions

we are to provide optimal solutions based on an accurate

focusing on the fusion of OT (operational technology) and IT, Hitachi

understanding of the complex issues confronting society and ourhas launched measures to foster a digital workforce that can becustomers. With the goal of having members with different values on

expected to drive digital transformations.

the same team sharing the same goals, we are working not only toWith a target of increasing the number of data scientists to 3,000 by

secure and train a diverse workforce, but also to create an

fiscal 2021, Hitachi’s strengthening of its data scientist workforce atenvironment where each of these individuals can work to the best ofgroup companies in Japan and overseas will allow us to further

their abilities.

support our customers and drive the expansion in digital solutions.

Hitachi, Ltd., and 15 major group companies jointly operate theAdvisory Committee and the Diversity Development Council, which
focus on accelerating the promotion of diversity across the Hitachi

Strengthening Front-Line HR and the Digital HR
Training System

resources and providing work-life management. The Advisory
Committee implements to the fullest the Company’s diversity

Before the 2016 start of the new front-line structure, discussions on

management policies, while the Diversity Development Council sharesbolstering front-line talents were initiated by a preparatory committee,

best practices and discusses specific diversity-related activities. Each

which includes officers and business unit managers and was createdcommittee meets every six months. Group companies and businessin 2015. The committee defined front-line functions, roles, andgroups/sites have also set up their own diversity-promotion

personnel qualifications necessary to bolster the front-line workforce.

organizations and projects, such as those to help develop women’s

Based on these discussions, the Company also identified the need tocareers, to enhance initiatives geared to the challenges faced bydevelop human resources, from leaders to practitioners, to promoteindividual workplaces. Hitachi from fiscal 2018 has broadened thethe Social Innovation Business, and in 2016 created the Social

sharing of diversity promotion policies across the entire group, with

Innovation Business Front Talent Development Program, consisting ofGroup companies around the world working together to accelerate

four phases, as well as action learning, group training, and e-learnings

implementation.

programs. Phase 1 and Phase 2 focused on action learning using realworld projects for leaders expected to drive the collaborative creation
business, with Phase 3 and Phase 4 focusing on employees in the
Hitachi Group as a whole based on the results of the first two phases.
Integrating its training institutions to further strengthen and foster its
digital workforce, including front-line workers, Hitachi newly launched
Hitachi Academy in April 2019, which will now be charged with training
the human resources expected to drive digital transformations. The
new entity will combine measures designed to foster digital humanresources with on-the-job-training as it seeks to build a new digitaltransformation training system and accelerate the Social Innovation
Business.

44

Group as a whole, including in regard to supporting diverse human

Hitachi Integrated Report 2019

Diversity Activities and Developing Women’s Careers

fiscal 2020 compared with fiscal 2012. These efforts demonstrate ourWith the goal of promoting participation in management decision-commitment both internally and to the world to improve our diversity

making by people with differing backgrounds and enabling as many

management.

female employees as possible to take up leadership positions, Hitachi,

As part of our efforts in this area, we have been hosting since 2016

Ltd., has created two key performance indicators (KPIs) for the

the Global Women’s Summit, inviting 100 or more female employees

appointment of women in executive and managerial positions.

from Hitachi Group companies around the world. The event is held in

In fiscal 2013, Hitachi set a goal of promoting women to executive

different areas of the world and is focused on improving awareness inpositions by fiscal 2015. In April 2015, the Company appointed its firstleadership and career planning, and to enhance motivation through thefemale corporate officer, a position equivalent to the executive level.

formation of a global support network. The day the summit is held

We will continue to promote this goal to ensure that diverse views andfeatures a message from President and CEO Toshiaki Higashihara, thevalues will be reflected in our management. In November 2017, weparticipation of executives, and the exchange of opinions among the

publicly announced our commitment to increasing the rate of female

many female employees attending.

executive and corporate officers to 10% by fiscal 2020. We are also
working to promote more female employees to managerial positions,aiming to double the number of female managers to 800 by the end of

Number and Ratio of Female Managers(persons)(persons)
3,727

3,670

800

3,459

3,365
577
600

6.4%

6.0%
474

509

635
6.8%

6.4%

6.3%

434

4,000

3,638

3,000
4.8%

400

4.0%

3.7%

4.1%

4.2%

2,000

1,000

200
73

0

2000

2014

Female managers, Hitachi, Ltd.*1 (left scale)
Percentage of total, Hitachi, Ltd.*1

2015

2016

2017

2018

(FY)

0

Female managers, Hitachi Group*2 (right scale)

Percentage of total, Hitachi Group*2

Note: Figures include section chiefs and above.
*1 “Female managers” in fiscal 2017 include managerial employees dispatched from Hitachi, Ltd. to non-Group companies and those accepted from non-Group
companies by Hitachi, Ltd. Figures prior for fiscal 2016 and earlier include regular managerial employees dispatched to non-Group companies but exclude those
accepted from non-Group companies.
*2 All full-time, regular female managers excluding those dispatched to non-Group companies.

Ratios for Female and Non-Japanese Executives and Corporate Officers (Hitachi, Ltd.)

Number of female executive and corporate officers (persons)Ratio of female executive and corporate officers
Number of non-Japanese executive and corporate officers (persons)Ratio of non-Japanese executive and corporate officers

June 2017

June 2018

June 2019

2

2

4

2.4%

2.6%

5.0%

3

5

7

3.7%

6.4%

8.8%

45

The Hitachi Group’s Growth Strategy

Environmental Vision and the Decarbonization Business
The Environmental Vision and Hitachi
Environmental Innovation 2050
As climate change, resource depletion, ecosystem destruction, andother environmental issues grow more serious, the responsibilities and

The aim of Hitachi’s environmental management

contributions of companies are growing, given the increasing demands
and expectations for reductions in the environmental burden of theirbusiness activities.
In response to global demands for a reduced environmental burden,
we created a management strategy called the Environmental Vision,
which declares, “Hitachi will resolve environmental issues and achieveboth a higher quality of life and a sustainable society through its Social
Innovation Business in collaborative creation with its stakeholders.” We
aim to achieve a low-carbon society, a resource efficient society, and aharmonized society with nature in accordance with this Vision. To
guide our efforts toward 2030 and 2050, in September 2016 weestablished long-term environmental targets called Hitachi
Environmental Innovation 2050. To achieve these long-term goals, wehave been updating our Environmental Action Plan every three years.
We are strengthening and promoting our environmental activities under
the Environmental Action Plan for 2021 (covering fiscal 2019–21),
created in line with the 2021 Mid-term Management Plan.
Hitachi’s Environmental Vision
http://www.hitachi.com/environment/vision/index.html

Efforts to Achieve a Low-Carbon Society
Hitachi Environmental Innovation 2050 sets targets for reducing CO2

Carbon Pricing (HICP) framework in fiscal 2018 to provide incentives

emissions to help the world meet the challenge of climate change. In

for raising production efficiency at factories and offices and making

line with a scenario to keep the increase in global temperatures below

energy-saving investments. And we are taking a variety of steps to

2°C, we have established reduction targets of 50% by fiscal 2030 and

accelerate the shift to renewable energy sources at our business sites

80% by fiscal 2050 (compared to fiscal 2010 levels) throughout theboth in and outside Japan.

value chain.
Approximately 90% of the value-chain emissions of our products andchange on corporate operations, in June 2018 we announced ourservices—from the procurement of raw materials and parts to

support for the recommendations of the Task Force on Climate-related

production, transportation, use, disposal, and recycling—result from

Financial Disclosures (TCFD). We are actively disclosing climate-related

the use of our products and services after they were sold. For thisinformation in accordance with these recommendations and conducting

reason, reducing CO2 emissions during the stage of use is crucial todialogues with investors.

reducing emissions across the value chain.
We will further enhance the energy efficiency of our products andservices to reduce CO2 emissions during their use. We will also seek toexpand our decarbonization business, utilizing IT and other innovativetechnologies to offer system solutions that collectively contribute todecarbonization.
We are advancing reduction measures for CO2 emissions during
production and other stages as well, introducing the Hitachi Internal

46

In light of heightening investor interest in the financial impact of climate

Hitachi Integrated Report 2019

Expanding the Decarbonization Business to Address Climate Change
To help build a sustainable society through the Social Innovation

In the industry sector, along with improving the overall efficiency ofBusiness, the 2021 Mid-term Management Plan cites the goal ofclients’ factories through the provision of high-efficiency industrial

simultaneously increasing social, environmental, and economic value

products, we are using IoT and AI to optimize entire factory operations

for our customers by supplying solutions in the five sectors of IT,

and helping our customers reduce their CO2 emissions.

energy, industry, mobility, and smart life. It also sets a reduction target

In the mobility sector, we are promoting energy savings by making

of more than 20% for our value-chain CO2 emissions by fiscal 2021

trains lighter and introducing operating systems that use cutting-edge

compared to fiscal 2010.

IT technologies to improve overall efficiency.

We are utilizing Lumada to expand our decarbonization business.

For smart life solutions, we are providing clean-energy vehicles,

Through collaborative creation, we will help the world mitigate andsmart home appliances, and other highly efficient, energy-saving

adapt to climate change.

products and services to make people’s lives safer, more convenient,In the IT sector, we are contributing to building a low-carbon society

and comfortable by improving connectivity through the use of IT. In

by transforming social systems and lifestyles by providing innovative

addition, we are working with our business partners to build smart

digital solutions.

cities and smart mobility systems that bring those technologies

With regard to energy, we are contributing to CO 2 emission
reductions through the provision of power generation systems using

together, thereby helping to create decarbonized cities that improve
the lives of all residents.

non-fossil energy, such as renewable energy and nuclear power, andcreating smart grids that transmit and distribute power efficiently andstably and can optimize local supply and demand.

Decarbonization Business: A Hitachi Focus

IT
solutions
Finance and publicoriented solutions• Promoting digital solutions

Data center• Developing smart data
centers

Servers/storage• Enhancing energy-savingfeatures of servers andstorage

EnergysolutionsPower grid solutions• Enhancing efficiency of
power transmission/
distribution

Industrysolutions
Smart logistics• Improving energy-savingfeatures through fully ITenhanced logistics

Energy management

Factory automation• Advancing smart energy
management to reduce
peak electricity demand• Enhancing energy
efficiency through shorter
lead times

Power generation

Water business• Promoting power
generation systems using
wind and other non-fossil
energy sources• Enhancing efficiency ofwater and sewage systems

Industrial products• Enhancing efficiency ofindustrial products

Mobility
solutions
Railways• Enhancing energy-savingfeatures of rolling stock• Developing smart operating
systems

Elevators• Enhancing energy-savingfeatures of elevatorsand escalators throughreplacement• Enhancing energy
efficiency through totalbuilding solutions

Smart Lifesolutions
Smart cities• Reducing CO2 throughcomprehensive urban
energy management
solutions

Vehicle electrification• Promoting electrification
through electric powertrainsystems

Home appliances• Enhancing energy
efficiency of home
appliances• Promoting connected
home appliances

Smart therapies• Enhancing energy-savingfeatures of medical devices

47

The Hitachi Group’s Growth Strategy

Strengthen Lumada
As society and business continue to generate more data, Hitachi’s Lumada acts as an engine that creates new value fromthese data and accelerates innovation. We launched the Lumada business in 2016, and its revenue has grown rapidly inthree years, from ¥900.0 billion in fiscal 2016 to ¥1,127.0 billion in fiscal 2018. Under the 2021 Mid-term Management Plan,
we are promoting measures aimed at expanding our business with the goal of achieving revenue of ¥1,600.0 billion.

What is Lumada?
Lumada creates value from customers' data and drives digital innovation
Hitachi will develop a global Social Innovation Business that will improve thecultivated within Hitachi. Along with the development of information

quality of people's lives, raise corporate value for our customers andtechnology (IT) and the Internet of things (IoT), social and business

contribute to resolve social issues. We will accelerate innovation in each ofactivities continue to generate data at an increasing rate of speed.

the five business sectors, creating solutions that provide new value.

Hitachi has focused on these data as a new source of value in future

Lumada is a general term for the solutions, services and technologies
that utilize Hitachi’s advanced digital technologies to create value fromsociety and launched the Lumada business in 2016 with the goal ofusing large volumes of data to create innovation for the world.

customers' data and drive digital innovation. It is derived from the words

With Lumada as a common platform, we will create new value and“illuminate” and “data” and was created based on the idea of combining

establish an advanced cyber-physical system that links digital and real

the strengths of the operational technology (OT), IT and products

spaces (actual physical things) in real time.

Lumada business model
The Lumada business provides value by analyzing business issues andof solutions, such as income from fees. To this end, Hitachi will

combining Hitachi’s digital technologies to solve customer problems

leverage its strengths in OT x IT x Products to commoditize its

with the lowest amount of customization as possible. In fiscal 2018,

expertise in various industries and operations. At the same time, werevenue in the Lumada business was ¥1,127.0 billion, and its adjusted

will make the shift to digital solutions that can be provided to a number

operating income ratio had already exceeded 8%, the level of theof customers, thereby expanding the Lumada business. Furthermore,entire Hitachi Group. Rather than relying merely on product sales, we

we will intensify our collaborate efforts to build new ecosystems withwill build a profit model based on value created through the provision

our customers and partners.

Lumada Revenues
FY2016FY2017FY2018FY2019 (Forecast)

FY2021 (Target)

Revenues (¥ billion)

9,162.2

9,368.6

9,480.6——

Lumada revenues (¥ billion)

900.0

1,006.0

1,127.0

1,170.01,600.0

Share of total revenues (%)

10%

11%

12%

—

—

* Lumada revenue is included within Hitachi’s consolidated revenue.
The IT sector comprises about 80% of Lumada revenue while the Industry sector accounts for about 20%.

Strengthening our overseas business structure
Currently, about 90% of Lumada business revenue comes from Japan.

2019, we established a joint venture with India’s largest state-owned

We are strengthening our overseas business structure, primarily incommercial bank, State Bank of India (SBI). Through this venture, weNorth America and Asia, with the goal of accelerating the global

aim to build a digital payment service platform for the next generation.

expansion of the Lumada business moving forward. In the future, we

By collaborating with SBI, which has about 400 million customers

will continue to recruit new personnel while acquiring companies(equivalent to roughly one third of India’s population), we are analyzing

capable of collaborating with customers to produce digital solutions

and utilizing vast amounts of digital payment data obtained from point-

and investing in partners. These efforts will contribute to our goal ofof-sale (POS) systems, e-commerce and transportation fare payment

nearly doubling our number of relevant overseas personnel from its

systems in an effort to provide high value-added services in India.

current level of 23,000 to 40,000.
As an example of collaboration with overseas partners, in January

48

Hitachi Integrated Report 2019Collaborative creation processes and customer cases in the Lumada business
Here, we will introduce collaborative creation processes of the Lumada business, as well as customer cases that are models of the digital solutions
that we have cultivated thus far.
Concept of Lumada

Customers
Solutions and services

Co-creation

Issue analysis

Prototyping andvalue verification

Hypothesis building

Provision tocustomers, operation

Customer OT assets
Field data

Customer IT assets
Co-creation with customers and partners(NEXPERIENCE, etc.)
Domain expertise(Solutions, customer cases)

Business data

P.49
Collaborative
creationprocesses andcustomer casesin the Lumada
business

P.53
Lumada platform

Platform products and technologies(IoT platforms)

Lumada ecosystem

Methodology and services aimed at accelerating collaboration with customers and partners
Support ranging from the discovery of potential issues and strategic planning to value verification(1) Issue analysis and hypothesis building through
NEXPERIENCE, a collaborative creation process

Overview and Process of NEXPERIENCE

Before creating innovation, one must first discover potential issues.
However, corporate issues are becoming more complex as society
globalizes and diversifies. When collaborating using Lumada,
Hitachi uses NEXPERIENCE, its unique collaborative creation

Collaborative
creationprocess

process, discover issues, propose solutions and verify value.

Sharing our vision
with customers

New concept creation/prototype
development and demonstration

Environmental analysis

Customer analysis

Discovery of
future business
opportunities

Analysis ofmanagement
issuesPlanning

Plan implementation

Verification

Evaluation ofbusiness feasibility

To solve a variety of issues through collaboration withcustomers, NEXPERIENCE combines the perspectives ofservice engineering researchers and designers andsystematizes methods and IT tools that support the entire

Creation of Business model
service ideas
designService profitability
assessment

Techniques
and tools

collaborative creation process. Specifically, NEXPERIENCE

Business value simulation

involves analyzing issues related to management and business
operations through workshops with customers and partners
and designing measures, such as new services and business,that solve these issues.

Collaborative
creation
space

49

The Hitachi Group’s Growth Strategy

Strengthen Lumada(2) Prototyping and value verification conducted through the Lumada Competency Center
If we can clarify issues facing customers and society, as well as

necessary for PoC*1 that follows hypothesis planning by offering ahypothesized solutions, through NEXPERIENCE, we can use

variety of services, including Pentaho, a data integration and analysis

resources including the Lumada Competency Center to determine

platform that is also Lumada’s core software; services withwhether we are capable of solving these issues by using them to build

development and management tool environments that support agile

solution prototypes that help us analyze whether proposed solutions

development *2; and Hitachi AI Technology/H, our own artificial

will produce their intended results.

intelligence technology.

The Lumada Competency Center provides system testing
environment services that support rapid prototyping conducted*1 Proof of concept*2 A group of development methods employed in software engineering with the goal of achieving rapid andadaptive software development.

through the use and application of data and hypothesis verification. We
support the speedy establishment of the system environments

Accumulation of industrial and operational expertise
Quickly providing reliable digital solutions to customers’ management issues by utilizing our abundantcache of customer cases(1) Customer cases(2) Customer cases that support the entire value chain

Hitachi has accumulated a wide range of industry and business

As of the end of March 2019, we have established more than 650

expertise and knowledge in the form of Lumada customer cases withcustomer cases and are continuing to steadily expand this number. We

the goal of rapidly utilizing them to collaborate with customers in a

are also pushing forward with our establishment of customer cases

variety of fields. Lumada customer cases are models of digitalthat can be used by customers to support efforts common to a wide

solutions that have created new value through collaborative creation

variety of industries, such as predictive maintenance for equipmentwith customers. Each customer case organizes elements such as how

and devices. Examples include cases related to medical devices,value was created using data and which technologies were applied in

power generating equipment and other machinery equipment.

terms of artificial intelligence and analytics.

In the future, we will continue to conduct investment aimed at further

When promoting new collaborative creation with customers, Hitachi

strengthening our lineup of reusable solutions while working to solve

makes use of Lumada customer cases that fit customers’

customer problems throughout the value chain, including inmanagement issues, as well as Lumada solutions based on an

management, sales, planning, design, procurement, manufacturing,abundance of expertise, to establish appropriate mechanisms for eachlogistics and maintenance.

customer and swiftly achieve digital solutions that create true value.

Customer Case Examples
Customer Case

Industries

Goals and issues

Manufacturing industry

Manufacturing plan, inventory management

Common across industries

Security enhancement

digitalization of refined skills

Manufacturing industry

Improvement of product quality

Customer-centered marketing

Retail industry

Marketing

Improve credit analysis

Financial industry

Decision-making support

Inventory optimization

Wholesale, retail and manufacturing industries

Manufacturing plan, inventory management

Service industry

Marketing

Crop growth analysis

Agriculture

Productivity improvement

Predictive maintenanceCommon across industries

Preventive maintenanceElectricity, gas, heat and water supply industry

Facility management

Transportation industry

Delivery and transformation management

Revenue/Loss simulation
Streamlining of cybersecurity monitoring operations

Analysis of fan club member information

Improvement of operating rates and fault diagnosis
Delivery optimization50

Hitachi Integrated Report 2019

(3) Lumada customer cases
CASE
1

Overall optimization of production sites used for high-mix, low-volume production in the manufacturing industry­
Collect and analyze various data on people and other elements of the production process to improve its efficiency

Customer needs are diversifying and digitalization is progressing at a

production model using IoT technology and succeeded in reducing the

rapid rate while global competition intensifies. These trends have resulted

production lead times of its flagship products by 50%.

in demand for high-mix, low-volume production that reaches the same

Overall optimization of production sites using Lumada

level of productivity as mass production through mass customization.

Think

Hitachi’s Omika Works handles controls systems manufactured for social
infrastructure such as electric power, railways and water and sewage
systems through high-mix, low-volume production, and, under thesecircumstances, faces the need to monitor the progress of production
processes in real time. In response, the Omika Works installed about
80,000 RFID tags and approximately 450 RFID readers, collecting

Monitoring systems
for progress andoperation

Operational
improvement
support system

Monitoring for the movementof people and goods
Visualization of on-site logistics

Bottlenecked operations
Analysis andcountermeasures

Modular design
Quick design
Feedback system

Factory
Simulator
Countermeasure andprocess planningOn-site logistical
forecastingdetailed data concerning the progress of work conducted by employees
and the flow of goods. Furthermore, the Omika Works combined and

MD methodshared a variety of information gathered by existing systems, including

Built-in tag

process and production management systems, and analyzed the

Database
accumulation

Bottlenecked operations

movement of people and goods throughout its production site. This
enabled the establishment of a more precise production plan.

Production lines at the Omika Works

Sense

Act

Furthermore, the Omika Works improved the efficiency of its design
process through the effective use of design assets and improved theprecision of its production plans using a factory simulator. Throughthese efforts, the Omika Works established a high-efficiency

CASE
2

Image
depictingoperations

Image
depictingoperations

Image
depictingoperations

Predictive maintenance for machinery and equipment­Collecting data from sensors installed in machinery and equipment to diagnose and detect issues, thereby avoiding failure and reducing maintenance costs

Failures and unplanned downtime at facilities that compose ourdata collected from sensors attached to equipment and detect signs ofindustrial and social infrastructures have a major impact not only on ourabnormalities. We also color code and display various information,businesses but also on society. Accordingly, we recognize the need toincluding equipment operation statuses, relevant changes andensure the continuous and stable operation of these facilities, whichindications of possible defects, making it easier to view and identify.

requires proper equipment maintenance and quality control.

This will enable the customer to detect situations in which equipment

However, many operators do not have analysis methods despite

statuses or product quality differ from the norm at an early stage, thereby

having gathered data indicating the status of their equipment andpreventing breakdowns and unplanned downtime. As a result, we canresort to conducting analysis manually. This results in a large workload

expect to be able to reduce maintenance costs by raising equipmentthat prevents the proper use of valuable data.

operation rates and ensuring the suitability of replacement parts.

With this customer case, we examine and analyze large volumes ofNote: P. 39-41 "Strengthening core technologies supporting Lumada."

Machanical equipment

Predictive Diagnostics Solution
Collect operational data measured by sensors

Customer value
By addressing anomalies before a failure occurs,
the company was able to gain various benefits

Detect anomalies, examine the cause, and address
anomalies at an early stage

Register countermeasures (identify probable causes)(1) Use automatic diagnosis technology to diagnose the status of the facility (detect
warning signs of impending failures).
(2) Visualize the diagnosis results on screen(3) Identify possible causes based on past events.

!

What is an anomaly?
An anomaly is a warning sign of an impending failure.

OperatingstatusSensorvaluesRunning (normal)

Running?

Facility status view

StoppedChanges in operating status(status is different fromnormal)Affected sensor view

Anomaly

FailureBreakdownTime

Sensor status view

51

The Hitachi Group’s Growth Strategy

Strengthen Lumada
CASE
3

Raising credit analysis accuracy through the use of AI­
Improve the accuracy of personal loan screenings through AI-based data analysis

Upon understanding customer income and financial conditions, it

we expect will allow loans to be granted to more customers than was

becomes necessary for financial institutions to predict future credit

previously possible.

losses based on factors such as global economic trends. This requires

One developmental effort involving this customer case is Hitachi’s

high-level expertise. Mortgages have been particularly difficult to

May 2019 establishment of Dayta Consulting Co., Ltd., a joint venture

predict using conventional data analysis methods due to their long

formed through collaboration with SBI Sumishin Net Bank, Ltd., that

payback periods.

provides screening services using artificial intelligence. The Company

With this customer case, Hitachi utilizes internal data from financial

plans to provide screening services for various types of lending,institutions (e.g., card loans, mortgages), as well as external data (e.g.,

including mortgages and card loans, to financial institutions including

economic indicators, GIS information) using “Hitachi AI Technology/

regional financial institutions.

Prediction of Rare Case,” an artificial intelligence it developed in-houseto predict the occurrence of rare events, thereby ensuring highly
accurate screenings. This allows for more detailed screenings, which

Data
Internal data
• Card loans• Mortgages, etc.

AI equipped with new algorithms from Hitachi
Improvement of credit analysis systems for personal loans using artificial intelligence

Data compilation andprocessing

External data

Probability of default (PD)estimation model

Customer value• More detailed loan
screenings become
possible• We expect to be granted
to more customers• Economic indicators• GIS information, etc.
GIS: Geographic Information System

Development of an AI-based production planning system through collaborative creation with
Suntory Beverage & Food Ltd.
In recent years, beverage manufacturers have faced the need for

Under these circumstances, Suntory and Hitachi have begun

prompt and flexible product supply in response to diversifying

collaborative creation based on the concept of “Harmony between

consumer requirements and fluctuations in demand caused byPeople and AI,” combining the former’s expertise regarding planningchanges in weather and climate. In addition to fulfilling theseand the latter’s AI technology to develop a system that enables theneeds, it is necessary for these manufacturers to formulate optimal

creation of optimal production plans in the face of changing

production plans that account for complex constraints, such as

demand and complex constraints. We applied this system todelivery times, production capacity and production andproduction planning conducted at Suntory’s actual manufacturingtransportation costs. Suntory Beverage & Food Ltd. (“Suntory”)

bases and verified that it was possible to reduce the amount ofhas been basing its production plans on the experience ofwork time put into planning from its previous average of

responsible staff. However, creating plans that account for

approximately 40 hours per week to approximately 1 hour. Aiming

complicated restraints requires a high level of planning ability and ato optimize its production plans throughout Japan, Suntory

huge amount of time. Furthermore, production plans are drawn up

launched full-scale operation of this system in January 2019 and isfor each area, which means that the most optimal conditions will

currently working to build a stable supply system that can provide

differ for each location. For these reasons, Suntory has been

immediate response to fluctuating demand and to improve

unable to formulate an optimal plan that effectively utilizes all of its

productivity by raising operational efficiency.

production resources.

52

Hitachi Integrated Report 2019

Lumada platform
Quickly build appropriate systems by utilizing open and secure IoT platforms(1) IoT platform architecture
Lumada has established an open and secure IoT platform that can

The platform's structure for flexibility combining technologies isquickly provide digital solutions by swiftly combining advanced

defined by six elements. These elements make the achievement of an

products and technologies from both inside and outside Hitachi Group.

open and flexible platform possible with architectural specifications andThis platform enables us to comprehensively provide a variety ofconnection methods that meet global and industrial standards.

mechanisms, such as advanced analytics technology and asset
management functions, thereby allowing for the prompt realization ofThanks to these attributes, digital solutions utilizing Lumada’s IoT
platform are intelligent, composable, secure and flexible.

appropriate digital solutions.
Features of Lumada’s digital solutions
Intelligent

Composable

IoT platform architecture

Analytics technology such as machine learning and artificial intelligence allow
for deep insight and awareness that leads to action.
Hitachi’s core technologies can be widely combined with OSS* and thirdparty technologies to maximize outcomes (results).
* Open Source Software

SecureFlexible

Users can ensure high levels of security by confirming the appropriatenessof connecting equipment, managing the security of stored data andcontrolling access.

StudioDisplay results

Analytics

Analyze data through AI andanalytics technology

Data management

Gather and process data

Edge

Core

Relay device data to
IoT systems

Prepare a data lake andaccumulate data

Foundry

We can provide flexible solutions that fit equipment, devices and IT
environments currently in operation both through the cloud and on-site*.

Provide infrastructure, such as servers andnetworks, for IoT systems* Involves installing equipment inside company facilities and implementing and operating systems from within.

(2) Lumada Solution Hub, a mechanism enabling the speedy composition of solutions

packages Lumada solutions and application development
environments in forms that are easy to implement and then registers
combine business solutions and application development
environments are registered and stored in the Lumada Solution Hub

sin
Bu

tion
s

catalog. This system enables smooth transitions from the speedy
verifications of solutions, which are conducted through collaboration
with customers, to production environments. Furthermore, it allows for
efficient rollout to multiple locations, including those that are situatedoverseas.

Consulting
services

Partnersolutions

LumadaSolution Hub

s
ion
m
he
rt

and provides them on cloud platforms. Easy-to-reuse packages that

customers’ dig
ed up
ital
tran
spe
o
t
new solutions
sfo
e
s
t
a
n
a
e
r
n
o
rm
c
i
o
S
l
d
u
tion Htadalyatub regiolu tive he Lum
s
a
t
te
r in
o
b
ess soluUs
Co e slla

Launched in 2019, the Lumada Solution Hub is a system that

Application
development
environments

Operationaltools

In the future, the Lumada Solution Hub will be opened up to partners
and register solutions that they have developed, in addition to the
Hitachi solutions that are already a part of the Hub’s catalog. With
these solutions, Hitachi will accelerate the creation, distribution andutilization of digital solutions while speeding up the construction of
Lumada ecosystems.

Partner cloudservices

Analysistools
Hitachi cloudservices

Center of
Excellence• Assemble human resources who aredigitally savvy in terms of OT and IT• Promote the use of solutions and facilitate
the registration cycle• Develop human resources
who employ these solutions

53

The Hitachi Group’s Growth Strategy

Story of Value Creation in the IT Sector
The use of digital technologies such as 5G, AI, IoT and robots is essential for companies aiming to continuously raise their corporate
value amid dramatic environmental changes and a focus on digital transformation, or the revolutionization of corporate management
through digital technology, is rising even further. In Japan, where the birthrate is rapidly declining and the population is aging at an
alarming rate, IT-related market is expected to be necessary for improvement in productivity and work-style reforms.

Results and Targets
Revenues (¥ billion)/
Overseas revenue ratio (%)

Principal Products and Services
Adjusted operating income (¥ billion)/
Adjusted operating income ratio (%)

42%

FY2018 Revenues
Services & Platforms

29%

2,600.0

10.8%

338.0

2,121.6

35 %IoT platform

230.1

Data analytics
AI
Cloud service
Security
IT products (storage server)
Control systems

FY2018 (Results)

FY2021 (Target)

FY2018 (Results)

EBIT (¥ billion)/EBIT ratio (%)
12.5%

325.0

FY2021 (Target)

ROIC
Maintaining high level despite the investment
to expand global digital business10.0%

billionFront Business

65%

Financial systems
IT for banking, insurance andsecurities
Public systems
IT for public offices, municipalities
and educational institutions
Systems for social infrastructure
IT for power generation/energy,transport and communication carriers
Defense systems
IT functions commonly used for allcompanies
Application development,
engineering, operation andmaintenance, project management
and quality assurance* Defense systems are included in"others" for accounting

19.6%
15.0%

212.6

FY2018 (Results)

FY2018 (Results)¥2,121.6

13.0%

FY2021 (Target)

FY2021 (Target)

Note: Figures for each subsegment include intersegment transactions.

Vision and Targets under the 2021 Mid-term Management Plan

Growth Strategies under the 2021 Mid-term Management Plan

Accelerate customer innovation with advanced IT

Digital transformation, which involves attempting to produce

In the IT Sector, we will meet the expectations of customers in Japanreforms in corporate management and business models, isand overseas with the power of digital technology, achieve a

receiving an increasing amount of attention. Under these conditions,sustainable society and aim to become a top-class global solution

mobile payment systems utilized in mobile phone networks, which

provider. Moving forward, we will aim to improve social value throughhave a global penetration rate of more than 100%, are becoming

advanced digital solutions operations in the financial and social

commonplace in people’s lives and are becoming gigantic

infrastructure fields. At the same time, we will strive to create

infrastructures that generate large amounts of data every day. In

environmental value by raising environmental efficiency throughout theaddition, new discoveries and expansion are expected in a wide

lifecycle of our products and services.

range of domains within the X-Tech (crosstech) market, where
FinTech, HR Tech and other digital technologies are used todevelop new services in various fields and industries and transform
industry structure itself. Furthermore, we anticipate growth in theinformation and communication technology-related market moving

54

Hitachi Integrated Report 2019

forward. Under these circumstances, we have steadily improved
profitability and created the cash necessary for growth investmentin the IT Sector by reinforcing front functions and manufacturing
capabilities through reorganization of SI businesses; withdrawing
f ro m o r c o n c l u d i n g l o w - p ro f i t b u s i n e s s e s s u c h a s t h ecommunication network equipment business; and reducing loss
cost through thorough and enhanced project management. Moving
forward, we will continue to expand the Lumada business, whichacts as the core of growth, and invest one trillion yen over the three
years covered by the 2021 Mid-term Management Plan toaccelerate global expansion.

Acceleration of Global Expansion
Previously, in the IT Sector, we established Hitachi Vantara in 2017,
followed by Hitachi Global Digital Holdings in 2018. Also, in 2018,
we acquired REAN Cloud, a cloud-related service provider in the
United States, and, in 2019, we started collaboration in the digitalbusiness with Virtusa, a global IT service company in the UnitedStates. We have also established a joint venture with State Bank ofIndia, the largest state-owned commercial bank in India, and areworking to develop platforms for cutting-edge next-generation
digital payment services. Over the three years covered by the 2021
Mid-term Management Plan, we will invest approximately ¥830
billion into efforts aimed at further strengthening our overseas

Expansion of the Lumada Business
The Lumada business will serve as a growth engine for all of Hitachi

business and will target further business expansion through M&A
and other initiatives.

through the utilization of data and co-creation with customers andpartners. The digital tools and wide-ranging industry and business

Collaborative Creation of Value within the IT Sector

expertise used to make this possible are being condensed into
customer cases adjusted so they can be reused by many

Lumada plays a core role in our efforts to provide social, environmental

customers.

and economic value and to achieve social innovation. On the other

Lumada’s customer cases have been accumulated as “workplace

hand, Hitachi cannot achieve objectives related to the SDGs andknowledge” of “OT × IT × Products,” which Hitachi has refinedSociety 5.0 on its own. We believe that these objectives can only bethrough its customer-centered policies. By using Lumada as aachieved through co-creation with a wide range of customers andstarting point, we can minimize customization and develop andpartners.

implement speedy solutions. Furthermore, the ability to expand

For example, since 2017, we have been supporting the digitization

Lumada into a wide range of areas, such as mobility, smart life,of subsidy payment operations and other financial services offered

energy and industry, is a major factor that distinguishes Hitachi fromby the state-owned Vietnam Post. In fiscal 2018, we expanded theits competitors.

scope of this digitization to include social security subsidy andWe worked to expand digital solutions using Lumada during thepension payment operations and are currently promoting further

three years covered by the 2018 Mid-term Management Plan,

expansion on a nationwide scale. Through this co-creation, Hitachi

launching the business globally in 2016 and investing about ¥100

will combine its technologies with Vietnam Post’s services to improvebillion into the launch of related businesses. Currently, we havethe quality of people’s lives. We aim to help improve convenience foramassed more than 650 customer cases (as of the end of fiscal

6 million subsidy recipients starting in 2020.

2018), which are examples of co-creation with users. On the other

Together with our customers and partners, we will form a Lumada-hand, we must refine Lumada’s customer cases and the solutions

centered ecosystem that enables expertise, resources and skills tothat embody them on an ongoing basis as the management andbe shared while further accelerating social innovation.

business issues facing our customers continue to change
constantly. As we move forward, we will strive to expand theLumada business by accumulating new customer cases andsolutions through co-creation with customers and partners.
Over the three years covered by the 2021 Mid-term Management
Plan, we will continue to invest ¥150 billion in the Lumada businessand related projects, aiming to expand the use of Lumada in othersectors and to develop and expand the digital specialists/humancapital essential to the acceleration of the Lumada business. In
fiscal 2021, we will increase our number of digital specialists to
30,000.

55

The Hitachi Group’s Growth Strategy

Story of Value Creation in the Energy Sector
The world’s energy demand continues to expand against a backdrop of population growth and economic development, as well
as social innovation such as the recent expansion in the scale of data centers and the spread of electric vehicles. On the other
hand, serious power shortages in developing countries remain a problem and one billion or more people are forced to live without
electricity. Furthermore, movements to reduce CO2 emissions and decarbonize are picking up speed throughout the world in the
midst of response to global climate change. Hitachi will respond to these issues with energy solutions that leverage the strengths of“OT × IT × Products” in business fields such as renewable energy and power grids.

Results and Targets
Revenues (¥ billion)/
Overseas revenue ratio (%)

Principal Products and Services
Adjusted operating income (¥ billion)/
Adjusted operating income ratio (%)

More than
1,700
1,700.011%

456.6

More than
1,520

304.2
171.6

More than 180

FY2018 (Results)

FY2021 (Target)

FY2018 Revenues

More than10%80%¥456.6billion*1
Energy BU

More than
170.0
7.9％

Nuclear
Energy BU

62%Power grid (14%)

38%

Substation, breakers, transformer

Nuclear power plant (ABWR)
Remotely operated vehicle*2

35.9Services (24%)

Fuel transport and storage

Control system maintenanceservices

casks

FY2018 (Results)

EBIT (¥ billion)/EBIT ratio (%)

ROIC

FY2021 (Target)

Renewable Energy Solutions (16%)
Mega solar*3

More than
170.0

Others (8%)

7.5%
5.8%

More than
10％
FY2018 (Results)(254.8)(55.8%)FY2018 (Results)

FY2021 (Target)

FY2021 (Target)

Energy BU
Nuclear Energy BU*1 Includes the control systems business, which is posted in IT Sector*2 Developed as operations of International Research Institute for Nuclear Decommissioning. This development
was conducted using business expense subsidies provided by the Agency for Natural Resources and Energy
in connection with decommissioning efforts and water pollution countermeasures.
*3 FY2018 figures except one-time expenses.

Vision and Targets under the 2021 Mid-term Management Plan
Providing energy solutions that contribute to a stable energy
supply and efficient facility management
The energy business forms the core of the Social Innovation Businessand contributes to the achievement of the SDGs. In the Energy Sector,
we will provide energy solutions that make use of the strengths of “OT× IT × Products,” such as nuclear power generation systems,
renewable power generation systems, power grid systems forreceiving and transforming, transmitting and distributing electricity,

The Chugoku Electric Power Company, Inc.’s Shimane Nuclear Power Station
Unit 3, under construction

predictive diagnostics for equipment and remote monitoring services.
Providing these solutions will enable us to contribute to a stable energy
supply for customers, efficient facility management and the cutting of
CO2 emissions, as we work toward a low carbon or decarbonizedsociety.

Ultra-high voltage gas insulated switchgear (UHV GIS)

56

Hitachi Integrated Report 2019

Growth Strategies under the 2021 Mid-term Management Plan

In the renewable energy business, Hitachi will strengthen its

Previously, in the Energy Sector, we have been converting our

combining its services and Enercon’s wind turbines to develop windbusiness portfolio in response to changes in the market environment

power solution business, which will stabilize operation and reducesurrounding energy while promoting the launch of high-value-added

maintenance costs.

partnership with Germany-based wind turbine manufacturer Enercon,

service businesses and the enhancement of the solution business. In
the future, the power transmission and distribution market is expected

Power grid businessto expand significantly both in Japan and globally against a backdrop

In the power grid business, we will promote the expansion ofof the spread of renewable energy and the expansion of distributed

businesses in industrial fields, including the expanding data centers

power supply. In response to these projections, we plan to acquireand electrification of factories and the provision of solutions related to

ABB’s power grid business during the first half of 2020. Digitalelectric vehicles. In the HVDC (High Voltage Direct Current)

technology is indispensable for the achievement of advanced energy

transmission business, we will conduct active development related to

management, and power grids are an area in which Hitachi can fully

the offshore wind power market and interregional and international

utilize its digital technology. Hitachi’s energy business had been

DC power transmission. In addition, we will work on the development

primarily concentrated in Japan. However, we will accelerate global

and deployment of new solutions that fuse DC transmission andbusiness expansion by utilizing the expertise and resources of thedigital technologies.

power grid business of ABB which has the largest share of the global
power grid market. At the same time, we will also focus on
strengthening and expanding our solution and service businesses

Further Demonstration of Our Competitive
Advantageusing Lumada. In addition, Hitachi will continue to engage in initiatives

Taking advantage of its “OT × IT × Products” strengths, Hitachi will

aimed at providing a stable energy source through its nuclear energy

provide solutions, including power generation and power gridbusiness while using its advanced technological capabilities andsystems, to all customers involved in energy production, distribution

abundant knowledge to contribute to the decommissioning of theand consumption. Furthermore, following the acquisition of ABB’s

Fukushima Daiichi Nuclear Power Plant. Furthermore, we will use thesepower grid business, which has the largest share in the global

same attributes to promote construction that is compliant with newmarket, we will accelerate new innovation by combining its products

regulatory standards and aims to support the early resumption ofand software with Lumada.

operations at domestic nuclear power plants.

Enhancement and Expansion of the Solution andService Businesses Using Lumada

Collaborative Creation of Value within the Energy Sector

In the energy solution business, we received orders for a management

Promotion of open innovation

platform for high-temperature parts for gas turbines used in privately

Hitachi is promoting industry-academia collaboration in pursuit of new

owned industrial power generation equipment in 2019. This platform

value creation in the Energy Sector. Targeting the realization of Society

uses Lumada to improve the efficiency of inspection and maintenance5.0, we are working to create a new vision and produce newwork while raising the maintenance capabilities of operators. Following

innovation at the "Hitachi the University of Tokyo Laboratory", which wethe acquisition of ABB’s power grid business, we will aim to develop

established with the University of Tokyo in 2015. In the Energy Sector,

solutions on a global scale by utilizing its customer base, engineering,

we are building a platform with the goal of simulating long-term energy

technologies and systems.

supply and demand. These simulations will allow different renewableenergy implementation methods to be evaluated and verified, enabling

Service businessauthorities to determine which method is most effective in terms of

In 2017, we concluded contracts in the service business withachieving the goals of the Paris Agreement.

customers. Through these agreements, we will provide solutions that

Hitachi will contribute to social, environmental and economic values bycombine power generation systems with integrated energy andexpanding its provision of energy solutions that utilize Lumada,equipment management services to provide total solutions for energy

including grid and renewable energy solutions, energy management

conservation issues. Moving forward, we will combine Lumada withsolutions and energy conservation and decarbonization solutions.

our on-site capabilities and digital technologies to develop a variety ofFurthermore, we will aim to contribute to the management of 25% ofservice solutions that improve the efficiency of inspection planning

the world’s substations and the supply of stable energy to about 1.8

upgrade and accelerate maintenance and provide predictive

billion people.

diagnostics aimed at preventing failure, as well as remote monitoring.

57

The Hitachi Group’s Growth Strategy

Story of Value Creation in the Industry Sector
In the world of industry, the speed and complexity of market changes caused by factors such as climate change and resource shortages
are increasing along with the working-age population decreases and global competition intensifies. Under these circumstances, thecreation of new services and innovations using advanced digital technologies, such as AI, IoT and big data analysis technologies, is indemand in a variety of different fields. As a result of this demand, the global IoT market is expected to experience a high rate of growth.

Results and Targets*1
Revenues (¥ billion)/
Overseas revenue ratio (%)

Principal Products and Services
Adjusted operating income (¥ billion)/
Adjusted operating income ratio (%)

30%
22%

843.6
251.8
169.1
419.8
FY2018 (Results)

1,000.0
348.0
181.5
470.5
FY2021(Target)

FY2018 Revenues¥843.6

Industrial
Products Business

50 %

9.1%

91.0
6.9％

30.5

58.2

16.0

12.7
12.7

billionIndustry &Distribution BU

Mass-production business (32%)
Air compressors

45.1

32.9

Drive systems

Water &
Environment BU

Marking systems

FY2018 (Results)

FY2021(Target)

Power distribution equipment, etc.

ROIC

Drive systems
Pumps

86.0
56.6
9.4
14.5
32.9
FY2018 (Results)

31.9
16.0
39.3
FY2021(Target)

solution business*2

Radial compressors

8.6%
6.7%

10.8%

Transport systems, etc.

9.0%
FY2018 (Results)

FY2021(Target)

Industry & Distribution BU
Water & Environment BU
Industrial Products Business*1 The impact of a large-scale overseas Engineering, Procurement, Construction (EPC) project of the Industry& Distribution BU has been excluded. Figures for Hitachi Plant Services and Hitachi Plant Mechanics, whichwere transferred in FY2019 from the Industry & Distribution BU to the Water & Environment BU and Hitachi
Industrial Products, respectively, were revised retroactively. Figures for each subsegment include intersegment
transactions. Figures for each BU include the control systems business, which is posted in the IT Sector.
*2 Air conditioning and water treatment facilities for factories, social infrastructure, etc.

Vision and Targets under the 2021 Mid-term Management Plan

seamless solutions that achieve overall optimization. The keys to achieving“Increasing the efficiency of customers’ production and processing

simultaneously possesses products, OT and IT; the use of Lumada andsystems,” “providing safe and secure water environments” androbotic SI, which drives digital innovation; and the construction of value“reducing CO2 emissions”

chains that range from management to workplace and from procurement toIn the Industry Sector, we aim to become the best solution partner for

manufacturing while spanning across fields such as logistics, sales, services

customers in the industrial field by utilizing our strengths in “Products ×and maintenance. With these keys in place, we will aim to become the best

OT × IT.” Furthermore, we will create social and environmental value by

solution partner for customers in the field of industry.

these goals are the Industry Sector, which is a business entity that

“increasing the efficiency of customers’ production and processing
Improving the Overall Value of Customer Businesses

systems” through the provision of solutions that contribute to

Maximize environmental value Maximize social value

distribution fields; “providing safe and secure water environments” to
70 million people per day worldwide using water and sewage
infrastructure and seawater desalination technology; and “reducing
CO2 emissions” through energy-saving products.

Growth Strategies under the 2021 Mid-term Management PlanAs the world changes and customer needs diversify and become morehigh-level, we face various issues that arise between the workplace,

Total seamless solutions

productivity and quality improvements in the manufacturing andCyber space

Management

Manage data
mentManagement

Manage data
ment

Workplace

WorkplaceManagement
data

huMan
Method Material
MachineWorkplace 4M data

huMan
Method Material
MachineWorkplace 4M*4 data

Management

Manage data
ment

Total seamlesssolutions

WorkplaceManagement
data
huMan
Method Material
MachineWorkplace 4M data

Managementthese issues as “boundaries.” By connecting cyber spaces and real spaces

WorkplacehuMan
Method Material
MachineWorkplace 4M data

Real space

using digital technology, we will solve “boundary” issues and provide total

Hitachi Integrated Report 2019

Vision of the Industry Sector*3 Supply Chain Management (SCM)*4 4M: huMan, Machine, Material and Method

huMan
Method Material
MachineWorkplace 4M data

management and the supply chain. In the Industry Sector, we recognize

58

20 %

Water supply and sewage, utility

Built-to-order business (18%)

EBIT (¥ billion)/EBIT ratio (%)

30 %Digital solution business

Global SCM*3
network

Management

WorkplaceCollaborative Creation of Value within the Industry Sector
Total Seamless Solutions that Solve “Boundary” Issues
In the Industry Sector, we will provide total seamless solutions while
focusing on four next-generation solutions (manufacturing, logistics,
maintenance and utility) and connected products, thereby helping to
improve the overall value of our customers’ businesses.
One Lumada solution contributing to the achievement of these goals
is the digital twin solution, which was launched in November 2018. The
solution facilitates AI analysis and simulation by using an advanced
data model to link manufacturing workplace OT and IT data in cyber
space, supporting the optimization of the entire production process.
Data Modeling of Business Operations and 4M and the
Optimization of Production Processes through Digital Twin

Strengthening of OT Area through the Acquisitionof the Robotic SI BusinessIn the Industry Sector, we believe that the manufacturing industry will
evolve from “manufacturing through people and machines” to“manufacturing through people and robots” before progressing to“manufacturing that connects management with the workplace.”
Under these circumstances, we have decided that OT areas related to
the Robotic SI business, which accumulates field data, will become
increasingly important in addition to rising needs for advanced andoptimized manufacturing conducted using robots. In accordance withthis judgment, we reached acquisition agreements in 2019 with JR
Automation, a United States-based robotic SI business operator, andJapan-based KEC.
The industrial world is facing a growing need for automation due tolabor shortages and rising labor costs, and the robotic SI market is
expected to grow rapidly as a result. In the Industry Sector, we will
work to expand the Robotic SI business on a global scale by mutually
utilizing the resources of JR Automation, KEC and Hitachi Industrial
Equipment Systems and the research and development capabilities ofHitachi.
In the Industry Sector, we will globally develop Lumada solutions thatutilize digital technology based on 4M data obtained workplace from
customers by acquiring technology, expertise and customer bases
from these two companies in the robotic SI market. This will enable us

Production
plan

Parts

to contribute to the improvement of our customers' management andProduction

Products

Conceptual diagram of the digital twin solution

to help raise the overall values of their businesses through seamlesscollaboration between workplace and management.

One example of the application of Lumada at manufacturing workplaceis our collaboration with the AMADA Group, a major metalworking
machinery manufacturer. After delivering servo motors used in pressing
machines, we constructed a tooling IoT production line by applying
robotics in 2017. We also contributed to the improvement of productivity
and operational efficiency in 2019, when we built Assembly Navigation
System with the goal of upgrading manufacturing workplaces.

KEC’s Robotic SI business

In Pursuit of Further Growth in the Industry Sector
In the Industry Sector, we will strengthen and expand total seamlesssolutions that leverage the strengths of “Products × OT × IT” andaccelerate and enhance global expansion in pursuit of further growth.
Assembly Navigation System at the AMADA Group’s Fujinomiya Works

Furthermore, we will aim to become a business entity that provides
high added value by expanding recurring business*5 and improving

Furthermore, because of the importance of connected products in
the Industry Sector, in 2017, we worked to increase our global strength
in terms of connected products by acquiring Sullair, an air compressor

capital efficiency.
*5 Cycling business that exists after sale service market and continual replace demand such as replacement
parts.

manufacturer in the United States.

59

The Hitachi Group’s Growth Strategy

Story of Value Creation in the Mobility Sector
Global population is growing and urbanization is advancing rapidly, so that the proportion of people living in urban areas is
expected to rise to 68% by 2050, from around 55% today. In addition, the negative impact from climate change is causing
environmental, economic and social damages. Against this backdrop, in the mobility realm, the demand for clean and highly
efficient mobility solutions such as one for faster and more environmentally friendly intercity transportation and alleviation of
dependency on car use within city centers, and smart solution to manage the people flow in high-rise buildings.

Results and Targets
Revenues (¥ billion)/
Overseas revenue ratio (%)
82%

80%

Building Systems

616.5*1

9.8%

8.1%

55%

1,270.0
650.0*1

124.8
100.2

61.8

46.3*1

*1

620.0

54.0

63.0

FY2018 (Results)

FY2021 (Target)

FY2018 (Results)

FY2021 (Target)

142.6

80.8*1

78.5

13.6%

13.1%

Building Systems BU
Railway Systems BU*1 Figures for Railway Systems BU include the control systems business, which is posted in the IT segment.

Our Ideal under the 2021 Mid-term Management Plan

51.1%

billionericasAm9.9%

37.9%

Interlocking

ETCS*

Satellite Train Control

Driverless

CBTC*

Facility Control

Components
TMS** CBTC：Communications-Based Train Control
TMS：Traffic Management System
ETCS：European Train Control System

Elevators

Rolling Stock

Jap
an

A

Railway Systems
Business Unit
M

EA

62.

%
27.8

FY2021 (Target)

FY2021 (Target)

57.7%

Moving walkways

E

FY2018 (Results)¥616.5

Sale / Manufactureof E&E

Escalators

Building equipment management services

Signalling& Turnkey
FY2018 (Results)

64.1

E&E Modernization

Building Systems
Business Unit

FY2018 Revenues

*1

54.3

42.3%

C
PA

135.1

Building
Servicesbillion

ROIC

11.2%

10.9%

¥621.6
E&E maintenance services

621.6

EBIT (¥ billion)/EBIT ratio (%)

APAC/Others 4.4%

FY2018 Revenues

China 52.5%

1,238.1

Adjusted operating income (¥ billion)/
Adjusted operating income ratio (%)

J a p a 4 3.1 %n

57%

Railway Systems

Principal Products and Services

Very High Speed
Shinkansen
CommuterIntercity
LRV
Metro
Monorail
Components

3%Service &Maintenance11.0 %RS Maintenance
RS Refurbishing
Signalling Operation &Management
Asset Management

Growth Strategies under the 2021 Mid-term Management Plan

Providing People with Safe, Secure and Comfortable

In the Building Systems Business Unit, we expand technologicallyTransportation Services

advanced and competitive products and services, which include theIn the Mobility Sector, we deliver social value by providing people withworld’s fastest elevator (according to our research as of September

safe, secure and comfortable transportation services, and products2019) with the speed of 1,260 meters per minute, and Lumada

and services for urban spaces such as buildings. At the same time, wesolutions leveraging Hitachi Group’s robust resources on digitalcreate environmental value by realizing transportation services thattechnologies such as Internet of Things (IoT) and artificial intelligence.

have a low environmental impact and contribute to, for example,

Meanwhile, in the Railway Systems Business Unit, we realize thereducing CO2 emissions.

differentiation from other competitors by providing total solutions
spanning the manufacture of rolling stock to operational control, IC
ticketing and seat reservation system, and solutions utilizing IoT anddigital technologies for operation optimization, driverless operationand digital ticketing.

60

Hitachi Integrated Report 2019

Building Systems Business Unit

operation, and digital ticketing utilizing location information and other

The market for elevators and escalators (E&E) is expected to continue

data to realize automatic payments via smartphones. In addition to

expanding steadily. Particularly high rates of growth are expected in thefurther reinforcing services and solutions such as these, we will

Asian market, especially in India, which has the world’s second largest

augment the value for customers and provide safe, secure andmarket scale. In the largest market, China, the expected growth area

comfortable transportation services.

has been shifted from new installation to maintenance andIn January 2019, we acquired Ansaldo STS (now Hitachi Rail STS),

modernization of E&E. In Japan, the demand for E&E modernization is

an Italian leader in railway signaling systems, converting the company

expanding and the expectation for new solutions leveraging digitalto a wholly owned subsidiary and delisting it. In addition to further

technologies for workers and tenants in buildings is increasing.

enhancing our strength in the signaling and turnkey businesses, we

Against this backdrop, the Building Systems Business Unit has

expect this move to generate synergies through organizational

achieved growth globally based on its sophisticated products andoptimization and increased production efficiency, allowing us to further

technologies, which are exemplified by the top share (Hitachi research)

expand our global operations.

of order received in fiscal 2018 by unit in China, the world’s largest
market for new installation of E&E, accounting for more than 50% of
the total. Going forward, we plan to combine manufacturing and salesof E&E with building services to realize business growth and increased
profitability. To this end, we are stepping up investment centering on
digitalization. Specifically, we are accelerating investment in a global
control center that functions as a basement for providing leading-edgebuilding services, such as a sophisticated remote monitoring service
which utilizes digital technologies and a solution which realizes efficientand comfortable movement by using sensors in buildings andanalyzing the flow of people.
In addition, in Asia and Middle East, where demand for new

Value Co-Creation in the Mobility Sector

installation of E&E is surging, we are deploying our sales and service
bases, and expanding our business through maximizing the capacity

In the Building Systems Business Unit, we are working on enhancing ourutilization of factories in China and utilizing sophisticated maintenanceproducts and services through the analysis of the data gathered fromand modernization technologies which we have developed in Japan.

elevators, escalators and building equipment, increasing added value ofmaintenance services such as sophisticated remote monitoring andcontrol, providing data to building owners and managers, and creating
new businesses leveraging Lumada.
By positioning the global control center as a core competence anddeploying new solutions leveraging Lumada to the customer base wehave built in E&E business, we aim to develop our business further andrealize the expansion of building service business other than E&E anddifferentiation from manufacturers specializing in E&E.
In the Railway Systems Business Unit, for Denmark’s Copenhagen

Railway Systems Business Unit

Metro we are working on the maximization of transportation capability,

Demand in the railway market is expected to expand throughout thecongestion alleviation and cost reduction through detecting demand

world thanks to economic development. Growth, mainly for rollingbased on the number of people waiting at station platforms and realizing

stock, signaling system and control system, is expected in Europe,

autonomous and flexible operation. With core products such as this, we

Middle East, Africa and Americas.

aim to expand business in the urban transport market in Europe, where

In fiscal 2018, the Railway Systems Business Unit set records forbusiness volume is the highest in the world. Demand is also expected torolling stock deliveries and orders, revenue and adjusted operating

flourish in Americas. There, we aim to secure growth opportunities byincome ratio, highlighting our efforts to build a firm global business

utilizing existing manufacturing bases and leveraging our market

platform. In the future, we intend to move forward with rolling stock,presence in services and maintenance.

signaling system and turnkey business as core businesses. We willIn the Mobility Sector, through social innovation businesses such asalso concentrate investment in digital technologies and IoT to enhancethese, we will provide people around the world with products andour competitiveness further. We are encouraging our Dynamic

services that are safe, secure, comfortable and environmentally friendly.

Headway, which optimizes operations based on demand, autonomous

61

The Hitachi Group’s Growth Strategy

Story of Value Creation in the Smart Life Sector
While global economic development continues, societal issues such as global warming, traffic jams and accidents, aging and nursing
care have become more prominent. Progress is being made on the development of technologies aimed at resolving these issues,
including electrification, autonomous driving, AI, robotics and personalized medicine. This progress is giving rise to a variety of business
opportunities. We are confident that IoT solutions related to daily life will be integrated within smart cities and will comprehensively
support the lives of people living in urban areas. In fact, the global smart city market is expected to reach $2 trillion or more in 2025.

Results and Targets
Revenues (¥ billion)/
Overseas revenue ratio (%)

Principal Products and Services
Adjusted operating income (¥ billion)/
Adjusted operating income ratio (%)
More than 10%

More than 60%
42%1,816.0

More than 2,100.0

More than 210.0
5％

971.0

1,200.01,700.0

485.0More than 500.0
More than 400.0

38.0
22.4
33.0

More than 40.0

360.0
FY2018 (Results)

FY2021 (Target)

FY2018 (Results)

FY2021 (Target)

85.3

More than 44.0

ROIC
More than 15%

More than 10%

145.5

More than
120.0

93.4

EBIT (¥ billion)/EBIT ratio (%)
8%

FY2018 Revenues

Healthcare¥1.8

trillion
Automotive
Systems

20%

Diagnostic systems
Treatment systems

Smart Life &Eco-friendly Systems

53 %Powertrain
Chassis parts
Safety systems

27%

Home appliances
Air-conditioning systems

More than 210.0
10.0%More than
120

29.5
30.7

More than 50.0
More than 44.0

FY2018 (Results)

FY2021 (Target)

FY2018 (Results)

FY2021 (Target)

Healthcare
Smart Life & Eco-friendly Systems
Automotive Systems* The healthcare and related business includes revenues of healthcare-related businesses ofHitachi High-Technologies Corporation ("Hitachi High-Tech")

Vision and Targets under the 2021 Mid-term Management Planbusinesses, establishing the powertrain, chassis and safety systems

Accomplishing business structural reform in support of our next

navigation, automotive lithium-ion battery and cargo handling materials

stage of growth through digital technology

businesses were sold as non-core businesses.

businesses as core businesses. Meanwhile, the energy station, car

We have promoted business structural reforms in the Smart Life Sector

In terms of core business products, we will form strategic alliances andover the past several years, including the deconsolidation of the air-conduct M&A with the goal of achieving one of the world’s top three

conditioning systems business and the sale of the car navigation andmarket shares and improve profitability by pursuing economies of scale inautomotive battery businesses. During the period covered by the 2021

both procurement and manufacturing. As a first step toward these goals,

Mid-term Management Plan, we will accomplish business structural

we decided to acquire Chassis Brakes International in June 2019 in an

reform by improving profitability through business replacement andeffort to strengthen the competitiveness of the chassis and safety systems

operational restructuring. At the same time, we will establish abusinesses. We will expand the safety systems business, which integrates

business model for Lumada and develop our digital service business,

electric steering and suspensions, while giving due consideration to theleading us into our next stage of growth.

market environment, where the shift to electric brakes is under way.
Competition in product development utilizing electrification and automation
technologies is intensifying both in the automotive system business and

Growth Strategies under the 2021 Mid-term Management Plan

throughout the industry. For this reason, rising research and development
costs are proving to be a primary cause of reduced profitability. As a

Significant Improvement in Profitability throughBusiness Replacement and Operational
Restructuring
Automotive Systems businessas a common foundation for research and development, reducing investment
overlap between businesses and improving efficiency.
In addition, we are promoting the use of Lumada customer cases with theChief Executive Officer Koch assumed his position at Hitachigoal of streamlining operations such as marketing, design, procurement,

Automotive Systems, Ltd., during fiscal 2018, ushering in structural

production and quality improvement using digital technologies.

reforms. He promoted the classification of core and non-core

62

corporate organization, the Research & Development Group of Hitachi acts

Hitachi Integrated Report 2019

We will achieve our target adjusted operating income ratio of more than 10%

by boosting business efficiency through scale expansion, raising research andcreated from these technologies. Our basic strategy is to create

development efficiency and improving operations through the use of Lumada.

innovative healthcare solutions by combining AI with ourmeasurement and analysis technologies. Hitachi will develop

Smart Life & Eco-friendly Systems businesshealthcare business on the basis of a measurement and analysis

The Smart Life & Eco-friendly Systems business, which has a longtechnology portfolio, which the Research and Development Group of

history of developing products from consumer perspectives, is a core

Hitachi and Hitachi High-Technologies have built.

business aiming to improve the quality of people’s lives in the Smart

Hitachi’s top priority in the healthcare business is to minimize theLife Sector. We will create solution businesses using “design thinking,”

invasiveness (generally, invasiveness refers to stimuli that can disrupt

which involves coming up with methods for improving our lives without

the homeostasis of the body’s internal environment) of diagnosis andbeing shackled by preconceptions.

treatment. In the medical treatment field, we are focusing on cancer

In April 2019, Hitachi Consumer Marketing, Inc., which had been intreatment solutions using less invasive radiation. In accordance withcharge of home appliance sales, merged with Hitachi Appliances, Inc.,

this focus, we integrated Mitsubishi Electric Corporation’s particle

which had been handling design and manufacturing. This merger led

therapy systems business in June 2018. Moving forward, we willto the establishment of Hitachi Global Life Solutions, Inc., which iscontinue to strengthen investment related to this business, including

venturing into challenging new fields.

the development of technologies that greatly reduce equipment

We are already launching a lineup of new connected products,
including robotic vacuum cleaners and refrigerators that can becontrolled and managed using smartphones. Furthermore, we areaccelerating efforts aimed at creating solution businesses, launching
services such as “Doshiteru,” a monitoring service for elderly
individuals who live alone, and “Peloridge,” a smartphone app forsharing experiences and emotions related to food.
In addition to expanding solution businesses, it is essential that we
improve business efficiency. In October 2015, Hitachi’s air-conditioning
systems business was merged with the air-conditioning systems
business of Johnson Controls in the United States, creating Johnson
Controls–Hitachi Air Conditioning, an unconsolidated subsidiary of the
Hitachi. By combining the sales channels, technical capabilities andresearch and development of these two businesses, we strengthened
the global competitiveness of our air-conditioning systems business.
Additionally, in the home appliances business, we will promotecosts, with the goal of expanding the use of particle therapy.

Establishment of a Lumada Business Model
Machine data is collected via the Internet from Smart Life Sector
products, including connected cars, connected home appliances andhealthcare equipment. Using Lumada’s analytics and AI to process thisbig data, we can create new economic value by automating productoperation, as has been done in the case of autonomous driving
systems.
Once devices that support our daily lives are automated and various
solutions are provided, subsequently these devices are integrated into
smart cities and a new data economy is created. Under the 2021 Midterm Management Plan, we will invest approximately ¥30 billion in the
Smart Life Sector, focusing on the smart city market in Asia, a region
that continues to urbanize. Furthermore, we will aim to secure ¥100
billion in orders of the Lumada business.

collaboration with strategic partners overseas under a flexible capital
policy and conduct business operations with an emphasis on
investment efficiency.

Collaborative Creation of Value within the Energy Sector
Focusing on the three themes of health, safety and comfort, the Smart

Healthcare businessLife Sector creates social, environmental and economic values by

Many hidden and unmet needs exist within the healthcare businesscreating communities that are easy to live in, which helps improve thefield, and high rates of growth are expected to continue in the future.

quality of people’s lives. We also provide particle therapy systems,

On the other hand, technology in the existing diagnostic imaging

allowing people to live normally while receiving cancer treatment, andsystems business has matured, and the business has entered acontribute to the elimination of fatal traffic accidents throughstage of competing for business scale expansion. Accordingly,

autonomous driving technologies. Furthermore, we will contribute to

selection and concentration are becoming increasingly important.
The strength of the Hitachi Group in this field lies in its measurement

the prevention of global warming by reducing the CO2 emissions of our
products through electrification and IoT technology.

and analysis technologies, which originated from research anddevelopment concerning electron microscopes that was continuously
conducted from 1942, when the Group’s Central ResearchLaboratory was initially established. All of the major healthcare
products that we have developed so far, including products related to
X-ray and ultrasonic diagnostics, MRI, CT, mass spectrometry, DNA
sequencing, bioimmune analysis and optical topography, were all63

A Business Foundation that
Supports Sustainable Growth

Mobility solutions
Each year, we provide safe, secure, comfortableand environmentally friendly railway services to a

Addressing Risks and Opportunities

65

Climate-Related

Promoting Information Security

68

Information Disclosure

76

Occupational Health and Safety, Employee Health70

Corporate Governance78

Value Chain Responsibilities

71

Management System

84

Compliance73

Quality Assurance

74

total of 18.5 billion people throughout the world.

Addressing Risks and Opportunities
Risks and Opportunities
Hitachi’s 2021 Mid-term Management Plan, beginning in fiscal 2019, focuses on expanding our business while making the best use of theCompany’s competitive advantages. In particular, we target investment for growth in select, focused areas over the three years through fiscal
2021 of ¥2.0–¥2.5 trillion, compared to investment of about ¥500 billion in the three years through fiscal 2018. We believe taking advantage of
growth business opportunities and implementing aggressive management requires a solid risk management system.
Hitachi established the Investment Strategy Committee to strengthen investment risk management in 2017 and continues to work to better understandrisk and take appropriate action. The Company in the same year established the Executive Sustainability Committee to focus on the company’s policies
in regard to social and environmental issues. Our efforts in this area also included a move to identify issues that could be seen as business opportunities,
as well as the negative effects on society and the environment from our business activities and the measures Hitachi is taking to address them.

Risk Management System
The business environment is changing day by day, impacted by the continued advance of information and communications technology, as
exemplified by IoT, and geopolitical risks arising from complex shifts in political and economic conditions around the world. Hitachi aims to create
new revenue opportunities while controlling risk. To do this, we maintain a clear understanding and analysis of the operating environment, taking into
account social issues as well as our competitive advantages and management resources, and conduct risk management with an eye toward themany risks the Company should be prepared for as well as opportunities for growth.
Decision by Board of Directors, President

Senior Executive Committee
Offering of opinions

Understanding of risks andopportunities

Major risk factors

External risks

Risk management aimed atstrengthening business

Political

Internal risks• Investment Strategy Committee
reviews investments and large-scaleorders• Quantitative understanding of risk
assets and related initiatives• Qualitative understanding of
geopolitical risks and related
initiatives

Economic

Risk management aimed
at ensuring sustainability

Changes toindustrial
structure• Technological innovation• Portfolio• Quality, compliance
Operating• Project management
environment• Securing humanresources, etc.

• The Executive Sustainability
Committee, the Sustainability
Promotion Meeting, and the
Eco-Management Meeting focus onunderstanding and responding torisks impacting society and theenvironment, including climatechange and issues related tohuman rights.

Legal

Risk management to ensure business continuity
Information security

Occupational
health and safety

Business Continuity Plan
(BCP)

• Promoting information security
governance*• Promoting collaborative creation
by fostering a security ecosystem• Rebuilding a culture of safety,
establishing a safe workplace• Prevention and countermeasures
for work-related accidents• Establish and maintain BCP system
as a disaster/hazard countermeasure

P.68

P.70

P.71 Procurement BCPs
• Formulate BCPs at major Hitachi
facilities

Compliance

Quality Assurance• Entrench awareness ofregulations related to businesspractices through the Hitachi
Global Compliance Program• Implementation of quality assurance
activities from the perspectives oforganization and management,
technology, and human resources inevery process—from planning anddevelopment to design,
manufacturing, delivery, andmaintenance.

P.73

See Sustainability Report 2019https://www.hitachi.com/sustainability/
download/index.html

P.74* Information security governance works in support of corporate governance by building and maintaining an organization’s internal control mechanisms related to information security.

65

A Business Foundation that Supports Sustainable Growth

Understanding and Responding to Quantitative Risk

The Flow of Quantitative Risk Assessment

In regard to quantitative risk, assumed maximum risk (value at risk) isManagement strategy

calculated using statistical methods based on the type of asset held.
More specifically, value at risk measures the maximum expected loss

Reflected inbased on price movements over a specified period of time
Executive level(observation period) at a given confidence level for a defined period oftime moving forward. Visualizing the strength of a company’s balance

Periodic reporting

sheet and whether that company has the potential for growth,
including by focusing on whether the maximum expected loss isGroup risk capacity

within the range of net assets or whether there is room to invest in
growth, limits the likelihood that opportunities for growth will beComparison with risk tolerance

missed, while continued monitoring ensures that risks do not exceed
Amount of risk in the groupmanagement capabilities.
Moreover, analyzing risk by country and sector, while also taking

Quantify using statistical methods

into account future trends, allows a quantitative understanding of theconcentration of risks in a given country or sector relative to
profitability.

Credit risk

Business
investment risk

Country risk

Risks, including
business assets

Risk identification and analysis
Financial and non-financial data from within the group and informationfrom outside organizations

Understanding and Responding to Qualitative Risk

Amid such a drastic change in the business environment, companies

In regard to qualitative risk, including geopolitical risk, we maintain amust have a clear understanding of opportunities and risks and takefocus on the global political and economic situation by taking

appropriate measures if they are to achieve sustainable growth overadvantage of research from external organizations, and use thisthe long term.

information to analyze the potential risks and opportunities for Hitachi

Hitachi is able to gain a clear understanding of sustainability-related

so that we may take action to improve our corporate value. In addition,risks, and accordingly take appropriate action, thanks to the efforts of

the Investment Strategy Committee examines investment projects andthe Executive Sustainability Committee and other related committees.

large orders, taking into account qualitative factors in addition to

We remain actively engaged in promoting our own sustainable growthquantitative factors such as those listed below.

while contributing to the realization of a sustainable society by seeking

・Related technological innovations and competitive conditions

out business opportunities contributing to the resolution of important

・Hitachi’s past performance in the business
・Trends and market conditions, including prices and costs
・Business performance from ordering parties and their transaction

domestic and overseas issues, including those relevant to the UN
Sustainable Development Goals (SDGs) and Society 5.0.
https://www.hitachi.com/sustainability/

history with Hitachi, etc.
・Contractual rights and obligations (transaction terms, reasons anddetails for damages and penalties)
・Local laws and labor practices in countries in which the business
operates

Understanding and Responding to Risks andOpportunities Related to Sustainability
Social and environmental issues, including climate change, resource
depletion, the curtailment of business activity due to significant
disasters, and social instability due to growing inequality, are having asubstantial impact on corporate value creation and business models.

66

Hitachi Integrated Report 2019

Risk Factors
We conduct business on a global scale across a broad range ofbusiness areas and utilize sophisticated, specialized technologies tocarry out our operations. Therefore, we are exposed to a wide range ofrisks related to our operations. The following risks are based on theassumptions we consider reasonable as of the date this report wasissued.
For more information on business risks and other risks, please refer
to our 150th Annual Securities Reporthttps://www.hitachi.com/IR-e/library/stock/index.html

Major Risks and Opportunities
Major risk factors
Fluctuations in productsupply and demand,exchange rates andresource prices;
insufficient raw materials,
components
Rapid technologicalinnovation

Details on risks and opportunities

Company actions• Price fluctuations, including for products, exchange rate impact andexcess inventory• Exchange rate impact and price fluctuations, including for raw materials
and components• Impact from significant disasters on supply chain• Building close relationships with multiple suppliers• Ensuring an appropriate response to changes in demand in each region bypromoting a local production and local consumption model for products andservices• Heightening resistance to business interruption risks by formulating BCPs atdomestic and major overseas facilities

Risks

Risks
• Decreased competitiveness if development of cutting-edge technology,
or application to product/service does not progress as expected• Reduction or elimination of existing market due to technological innovation
Opportunities• Development of advanced technology leads to new business opportunities

Securing humanresources

Risks• Impact on new hires and worker retention due to increased competition
to hire and retain the highly skilled workers
Opportunities• Growth opportunities on the recruitment and retention of highly skilledworkers that share the Hitachi vision

Occupational healthand safety

M&A, investment in
new projects, etc.

Risks
• Impact on business due to inability to create healthy, safe and secure
work environments

Risks• M&A aimed at strengthening the Social Innovation Business, investment
in new projects, R&D investment/capex, failure related to insufficient
project management in large-scale orders
Opportunities• Building a foundation for growth through the acquisition of new
management resources

Geopolitical risks

Risks• Impact on Hitachi’s overseas businesses due to global political, economic
and social trends

Tighter laws andregulations

Compliance

Risks• Tighter laws and regulations in regard to investment, exports, and customs
dutiesExample: The effects on business activities from the introduction of newlaws and regulations related to the protection of personal data, such as
the General Data Protection Regulation (GDPR) in Europe
Risks• Reduced trust and a decline in corporate value as a result of corporate
behavior that deviates from social norms and violates laws, including
relating to bribery and anti-competitive activities

Product quality andresponsibility

Risks• Reduced trust and claims for damages due to defects or a deteriorationin product and service quality as a result of the increased complexity/
sophistication of products or services, or the diversification of production
sites or suppliers

P.71 Engaging in Responsible Procurement• Promoting open innovation through industry-academia-government cooperation• Bolstering the digital workforce• Strengthen Lumada• Fostering an innovation ecosystem through the above
P.38 Accelerate Innovation
P.48 Strengthen Lumada• Securing the highly skilled global workers using a global common standard for
personnel• Securing and training the highly skilled workers through in-house educational
systems, include Hitachi Academy, and Hitachi University, the group’s global
common learning management system
P.42 Accelerate Innovation• Establishing a global occupational health and safety system that includes
lessons learned from global operations, entrenchment of global norms, andthe sharing of success stories
P.70 Occupational health and safety, worker health• Implementing phase-gate management in each business unit (BU), analysis
and discussion of market trends, strategies, acquisition prices, and the postmerger integration process at Investment Strategy Committee, Senior
Executive Committee, Board of Directors, and Audit Committee
P.18 Independent Director Dialogue
P.78 Corporate Governance• Regularly updating our understanding of global political and economic trends,
analyzing the impact on our business, and swiftly implementing countermeasures
on a groupwide basis• Operating of personal information protection systems in line with Hitachi’s
personal information protection policy• Identifying businesses subject to GDPR, assessing risk, implementing
appropriate safety management measures in line with those risks,
implementing worker training
P.68 Promoting Information Security• Implementing groupwide compliance programs and establishing the highest
values in the Codes of Conduct• Strengthening measures to prevent bribery and violation of competition laws
P.73 Compliance• Strengthening the quality assurance system• Activities aimed at preventing accidents• Activities aimed at ensuring compliance with laws and regulations related totechnology• Intensive risk assessment• Implementing measures to handle product accidents• Conducting quality and reliability-related training
P.74 Quality Assurance

Climate change/
significant disasters

Risks• Impact on business activities due to measures in line with the tighteningof international regulations to curb greenhouse gas emissions and thedepletion of energy and resources• Impact on business activities, from production to sales, due to significant
disaster affecting major Hitachi facilities in Japan or overseas
Opportunities• Expansion in the decarbonization business through offering climatechange-related solutions

Information security

Risks• Computer viruses or other factors adversely impacting information systems
Opportunities• Expansion in revenue opportunities through increased demand for
information security measures• Strengthening measures aimed at achieving the CO2 reduction targets in the
Hitachi Environmental Innovation 2050
• Enacting measures in line with an analysis of Hitachi risks and opportunities
based on climate-related scenarios• Formulating BCPs to strengthen our ability to respond to business disruption risks
P.71 Responsibilities in the Value Chain
P.46 Environmental Vision and the Decarbonization Business
P.76 Climate-Related Information Disclosure (based on TCFD recommendations)• Promoting cybersecurity strategies through risk management and value
creation
P.68 Promoting Information Security
P.54 Story of Value Creation in the IT Sector

67

A Business Foundation that Supports Sustainable Growth

Promoting Information Security
Information Security Policies
Connectivity is increasing as internet of things (IoT) technology develops, giving rise to new value. At the same time, increasingly intricate
cyberattacks that previously targeted IT systems are widening their target range to include IoT and operational technology (OT). Managing
information security risks is one of the most critical issues for companies that aim to minimize the risk of business disruption caused by factors
such as leaks of information or operational stoppages.
Under these conditions, Hitachi is expanding its Social Innovation Business while practicing information security governance from thestandpoint that efforts aimed at strengthening cyber security measures are a key management issue in terms of both value creation and risk
management.

Information Security Framework

Specific measures aimed at preventing information leaks include PC

Previously at Hitachi, Ltd., the CIO , assumed responsibility for, andencryption, access control and ID management through theauthority over, the implementation and application of information

establishment of an authentication infrastructure and the creation of

security and personal privacy protection measures. The CIO was also

multi-layered (entrance and exit) cyberattack defense measures.

*1

responsible for the formulation of information tactics in line withmanagement strategies, as well as IT investment policy. However, we

We also review and investigate the information security status of
suppliers based on our internal standards.

appointed a new CISO*2 in October 2017 in an effort to strengthen andconsolidate information security governance throughout the Hitachi

Protecting Personal Information

Group. The CISO promotes information security for all of Hitachi’s

Hitachi, Ltd., has established a personal information protection

products and internal facilities. The CISO also serves as chairperson ofmanagement system based on its own Personal Information

the Information Security Committee, which determines policies andProtection Policy. Furthermore, Hitachi, Ltd. and 42 other Hitachimeasures related to information security and informs all Hitachi Group

Group companies* in Japan have received Privacy Mark accreditation

business sites and companies. Subsequently, these policies andand are working to safeguard personal information.

measures are implemented in the workplace by information security

As shown by the EU’s enforcement of the General Data Protection

officers.

Regulation (GDPR) in May 2018, consumer privacy laws and*1 CIO: Chief information officer*2 CISO: Chief information security officer

regulations are evolving on a global basis. Hitachi’s GDPR initiatives
include identifying which operations are impacted by GDPR, evaluating
risks, implementing safety management in response to these risks andInformation Security Management

providing relevant training to all employees.

Information Security Management*As of March 31, 2019

We have established Global Information Security Administration Rules
that conform to the international ISO/IEC 27001 standard and areglobally promoting an ongoing information security management

Information Security Audits

system to strengthen our information security management.

Information security audits are independently carried out by thePreviously, these relevant policies had been distributed from the parent

information security chief auditor, who is appointed by the president

company in Japan to Group companies worldwide. However, starting

and CEO of Hitachi, Ltd. Hitachi Group companies in Japan conduct

in fiscal 2019, we have begun to further augment our security globally

audits in the same way as Hitachi, Ltd., which reviews all results. For

by stationing information security experts in the Americas, Europe,

Hitachi Group companies outside Japan, we use a “common global

Southeast Asia and China.

self-check” approach. These audits and self-checks are conductedannually at all departments and Group companies.

Security Monitoring
At Hitachi, the SOC*1 monitors security 24/7, so cyberattacks can be

Information Security Education

detected and countermeasures initiated right away. The CSIRT*2

Hitachi holds annual e-learning programs concerning informationcollects and develops security-related data and manages response to

security and personal information protection for all directors,

any security incidents.

employees and temporary employees. We also offer varied educational*1 SOC: Security Operation Center*2 CSIRT: Computer Security Incident Response Teamcourses on information security with different goals tailored to specifictarget audiences. In 2012, we began simulation training to educate

Preventing Leaks of Confidential Information

employees about e-mail phishing and other targeted malicious

Hitachi, Ltd., pays careful attention to the handling of confidential

cyberattacks.

information to prevent leaks and other related incidents.

68

Hitachi Integrated Report 2019

Fostering a Security Ecosystem aimed at Raising Cyber Security Resilience
Fostering a Security Ecosystem as a New Security Strategy
Recently, cyberattack techniques are becoming more sophisticated than ever before. Cyberattacks are also increasing in number and their range of targets
is steadily expanding. Hitachi has launched a new strategy for responding these threats. This strategy involves the construction of a security ecosystem.
The word “ecosystem” describes a state in which plants, animals and the environments in which they live depend on each other to maintainand preserve their own ecologies. As we applied this way of thinking to security, we came to the conclusion that mutual cooperation between
departments, even if their operations do not appear to be related, with the common goal of conducting security activities will ultimately enable
the maintenance and expansion of business activities throughout all of our organizations.

"Connection" [ Tsu-Na-Ga-Ru] within the Security Ecosystem
1. Between Things
In Japan, Society 5.0*1 has been established as an ideal future society for which we should all aim. Once attained, this society will create newvalue and resolve social issues through a variety of connections. To make Society 5.0 and these connections a reality, our environment will
become one in which things such as devices and systems connect with each other, as represented by the IoT.
In May 2017, Hitachi was infected by WannaCry ransomware*2. This infection was the result of testing equipment that was not maintainedwith an “awareness regarding the necessity of security countermeasures” and had an impact on all Hitachi locations worldwide. Although we
had already been applying security countermeasures to internal IT environments, this incident taught us about the additional need for security
countermeasures in production and manufacturing areas that had previously been insular.
Under these conditions, Hitachi has launched comprehensive global cybersecurity countermeasures (formulated principles and guidelines
specific to each environment, etc.) that will cover all types of environments as a wide range of things develop interconnectivity.
2. Between People and Organizations
Moving forward, all corporate business units must mutually cooperate to connect things that had previously been separate while also ensuring
security. To support this goal, we are regulating adherence to countermeasures and are holding seminars and workshops targeting communicationthat transcends organizational and positional barriers. These efforts help us promote activities that connect people and organizations by reignitingawareness regarding individual roles and intensifying cooperation between employees working in the same environments.
3. Within Society
These connections will not be confined to Hitachi. We believe in the

Foster a security ecosystem throughout society

necessity of forming communities in which industry, academia andgovernment working to promote cybersecurity transcend established

Within companies andacross industries

frameworks to share important data, such as information regarding

Foster a security ecosystemthat encompasses all ofsociety

Graduate schools,
universities, technicalschools, etc.

threats and issues faced when implementing countermeasures.
Accordingly, Hitachi has proactively launched activities aimed at

Industry

Academia

relating society. Examples of these activities include companies andorganizations applying the expertise they acquire from theaforementioned communities to their own security management
cycles and further expansion of data sharing.

Government

Aiming to Raise Security Resilience throughout Society
In pursuit of Society 5.0 and to raise cybersecurity resilience*3, Hitachi

Ministries and agencies, ISAC and CSIRT communities, etc.

will promote to foster a security ecosystem that encompasses society in
its entirety, enabling people to live more safely and securely. We will
construct this ecosystem through cooperation within the corporate
world, as well as collaboration with industry, academia and government.

Aiming to raise cybersecurity resilience*1 Society 5.0: According to the Cabinet Office website, Society 5.0 is a society centered on people that simultaneously supports economic development and the resolution of social issues through the high-level merging of cyber space (virtual space) with the real world (real space).
*2 Ransomware: A type of computer virus that places certain limits on computer systems following infection and demands monetary or other compensation in exchange for their removal*3 Resilience: The ability of organizations to adapt to complex and changing environments (from JIS Q 22300, an industrial standard released by the Japanese Standards Association)

69

A Business Foundation that Supports Sustainable Growth

Occupational Health and Safety, Employee HealthCreating Safe and Secure Work Environments
As a corporate group with a globally developing business, we must deal with the management issue of creating healthy, safe and secure work
environments at each and every work site. Hitachi believes that its organizational culture, which prioritizes safety, is an important foundation for
creating corporate value and is working to establish a global health and safety system.

Our Basic Policy and Promotion Framework

We had already introduced the Hitachi Group Key Safety

underlining the Hitachi Group Health and Safety Policy, which is shared

Management Designation System, which promotes the improvementby all Hitachi Group companies around the world. Employees workof safety measures and reinforcement of safety activities at Hitachi

together to create safe, secure work environments that aim to beGroup companies and business sites that have experienced serious

accident-free.

work-related accidents. Under the leadership of top executives, theseIn April 2019, aiming to become an organization whose employees

companies and business sites take on both management-driven andspontaneously promote safety activities with the direct participation ofbottom-up initiatives to formulate specific plans, and the progress ofmanagement, Hitachi, Ltd. established the Safety Management

these plans is monitored by safety officers, who also lead initiatives to

Division, which reports directly to the president on matters of safety

prevent recurrence.

management. This division will hold an annual Safety Strategy

Additionally, because the risk of accident is higher for workers not yet

Congress, attended by safety officers from each Group company andaccustomed to their work or environment, employees and temporary

representatives from each division. The congress will set budgets andworkers receive individual health and safety training and on-the-job

objectives for company-wide safety strategy and review the structuraltraining before work begins, to help prevent accidents by ensuring thatsituation of the Hitachi Group’s safety management systems, making

they understand work procedures and dangers. At the same time, onthem an opportunity for top management to share its own

occasions of business restructuring, we share the details of the healthcommitment to safety as the highest priority.

and safety management frameworks and initiatives of the organizations

Furthermore, we hold a monthly “The Safety Strategy Promotion

to be merged in advance, and, paying all due respect for the safety

Council”, attended by safety department managers from each

cultures on both sides, ensure that safety is always preserved duringbusiness unit and Group company. This meeting provides an

the execution of a smooth business launch.

opportunity for us to examine the promotional frameworks for safety

In Japan, a health and safety commission—composed of businessactivities and education in each division alongside standards to beowners, labor union officials, and employees—is convened atshared across the Group.

each business site every month to discuss and share information

Since 2012, the Hitachi Group Health and Safety Portal System has

related to such issues as work-related accident cause analysis andallowed every Hitachi Group company in Japan to track thecountermeasures and health and safety activities in light of the situation

occupational health and safety performance of the entire Hitachi

regarding employees who have taken sick leave.

Group. When a work-related accident occurs in Japan, depending on

This initiative allowed us to achieve zero fatal work-related accidents

its level, the results of analysis on its causes and examples ofworldwide in 2018, but we have not yet eliminated accidentscountermeasures are registered in the system and shared with thealtogether. Taking an honest view of our present situation, we areentire Group as part of the knowledge base. Know-how gained in thiscontinuously striving to improve our safety management system,

way is used globally. By analyzing from many angles the detailed

making use of external consultants to bring in objective, third-party

information about accidents gathered in the system, similar accidents

perspectives, improving our ability to determine the cause of

can be prevented.

accidents, and reviewing our risk assessments.

Initiatives for Preventing Work-related Accidents
Based on the policy above, to prevent work-related accidents among
our roughly 300,000 Group employees worldwide, we set and apply
our own safety standards to be observed at manufacturing sitesaround the globe, where the risks of work-related accidents are high,as well as advancing health and safety measures tailored to theoperations of individual companies. In particular, since theestablishment in April 2019 of the Safety Management Division, we
have worked to improve our safety measures in terms of both policy,
by examining and improving our risk assessment frameworks, and70

technology, by using IT and digital technology to prevent accidents.

Ensuring the health and safety of all employees is the basic principle

Hitachi Integrated Report 2019

Hitachi Group’s Global Safety Figures (Occurrence rate*2)
Region
North America
South and Central America
EuropeIndia
China
Asia (excluding India and China)
Oceania
AfricaOverseas total
Japan
Global total

2016
27.65
2.33
10.70
2.07
1.59
5.43
39.07
17.26
7.76
1.57
3.95

2017
24.33
1.62
10.82
1.44
1.53
4.41
24.41
9.93
7.42
1.85
4.22

2018
27.96
0.44
6.08
1.44
1.46
3.34
21.94
11.76
7.43
1.64
4.20

* Occurrence rate is the rate of workplace accidents per 1,000 directly contracted employees resulting in fatality
or work-time loss of one day or more.

Value Chain Responsibilities
Achieving a Sustainable Value Chain
We are deeply involved in social infrastructures in areas where risks can affect society as a whole. We acknowledge our responsibility tominimize the impact of such risks. Also, the global expansion of our value chain means that we come into direct contact with diverse work
environments, business customs and practices in a variety of countries and regions. Accordingly, we need to make a conscious effort toconduct business in a manner that respects the human rights of all people involved. Furthermore, we are reinforcing business continuity plans(BCPs) and tightening our information security to ensure a stable supply of our products and services and to prevent threats to our networks
that could severely disrupt business operations.
We also recognize that human rights are an important management priority. We work to ensure respect for the human rights of all of our
stakeholders, including employees and individuals throughout our supply chain, in all countries and regions in which we conduct business. At
the same time, we are quickly implementing and promoting detailed CSR production policies at all Group companies, as we procure
products and services from suppliers and partners in a variety of countries and regions around the globe.

Procurement BCPs Policies and Framework

Framework

To minimize heavily impact from disasters, the procurement divisions

CSR supply chain management and green procurement policies andin business units and key Group companies have createdinitiatives are discussed within Hitachi’s Value Chain Integration Division,

procurement BCPs that (1) standardize and use generic parts to makewhich is headed by the chief procurement officer (CPO) and reports

procurement as flexible as possible; (2) cultivate multiple suppliers;

directly to the president of Hitachi, Ltd. Policies and initiatives adopted(3) distribute production across several locations; (4) budget inventory

after this discussion are shared throughout the Group through the Hitachi

strategically; and (5) consider substitute products.

Group CSR/BCP Procurement Committee, which includes members

To see whether or not procurement BCPs would be effective, we
held desktop exercises to discuss in a group what should be done

from business units and CSR/BCP Procurement Committees at key
Group companies.

during and after a disaster, making further improvements as a result.
In fiscal 2018, all major Group business sites with production lines

Implementation of CSR Monitoring (Self-Checks)(approximately 210 sites in total) took steps to maintain andTo monitor how well Hitachi’s CSR supply chain management

strengthen the procurement BCPs they had created by the previous

philosophy has been adopted by our suppliers, since fiscal 2007 we

fiscal year, thereby contributing to the continuation of Hitachi’s global

have asked key suppliers to conduct CSR Monitoring (self-checks)

operations.

using the JEITA Supply Chain CSR Deployment Guidebook anddetailed checklists. After collecting and analyzing the results, we

CSR Procurement Policies and Framework
Creating and Sharing Procurement Policies
We base our procurement activities on the Hitachi Guidelines for
Procurement Activities, while sharing global supply chain issues within theGroup. All Group companies follow these guidelines. The guidelines werecreated in line with the United Nations Global Compact and include theelimination of discrimination in employment and occupation, the rejectionof all forms of child and forced labor, and environmental protection
activities.To ensure that the Hitachi Group CSR Procurement Guidelines’
provisions are strictly followed, we distribute to the approximately 30,000
suppliers of Hitachi business units and Group companies, from whom werequest acknowledgment of suppliers’ understanding in writing. Tier 1
suppliers are further asked to confirm that tier 2 suppliers also follow theprovisions in the guidelines. To procure parts and materials manufactured
with reduced environmental impact, so that suppliers help to protect theenvironment, we led the industry in developing Green Procurement
Guidelines. These define our basic position on procuring parts andproducts that do not have a negative impact on the global environment,
as well as our requirements of suppliers, so that we can work together topromote green procurement.

provide feedback for the business operations related to the suppliers,
and then work with those involved in the operations to resolve issues
related to the suppliers. In fiscal 2018 we asked 345 suppliers insideand outside Japan to conduct CSR monitoring (self-checks) andreceived survey replies from them.

Implementation of CSR Audits
Since July 2012, Hitachi, Ltd. has been auditing the manufacturingbases of its and Group companies’ suppliers in China and the restof Asia.
In fiscal 2018, we conducted CSR and environment audits of 24
suppliers in China. For these audits, we engaged external evaluatorssuch as the experienced CSR auditing company Intertek Certification.*
No major infringements were found at the suppliers audited, butsome small areas needing improvement were noted. The relevant
suppliers were requested to submit improvement action plans, andHitachi, Ltd., together with Group companies, will work with andadvise the suppliers until they complete the planned improvements.
* Intertek Certification: With a presence in over 100 countries across the globe, the Intertek Group provides awide array of certification services in every industrial field.

71

A Business Foundation that Supports Sustainable Growth

Human Rights Due Diligence in Procurement

Response to the Conflict Minerals Issue

Basic Policy

Hitachi released a Conflict Minerals Procurement Policy in September

Hitachi believes that respecting human rights is our responsibility as a2013. Our Request to Our Suppliers, based on this policy, is publishedglobal company and indispensable in conducting business. To thison our website as a clear statement of our position.

end, in May 2013 we formulated the Hitachi Group Human Rights

Based on these policies, each Hitachi business unit and Group

Policy. In this policy, we clarify our understanding of human rights ascompany investigate its use of conflict minerals and reports the results

being, at a minimum, those outlined in the International Bill of Humanto customers when requested.

Rights and the International Labour Organization’s Declaration on
Fundamental Principles and Rights at Work. This policy shapes

Hitachi Group Conflict Minerals Procurement Policy:

Hitachi’s approach to meeting the responsibility to respect human

https://www.hitachi.com/procurement/csr/csr/index.html

rights, including implementing human rights due diligence * in line with
the UN Guiding Principles on Business and Human Rights, providing
appropriate education to employees, adhering to laws and regulations
in all the regions and countries where we operate, and seeking ways tohonor the principles of international human rights when faced withconflicts between internationally recognized human rights standards
and national laws.
* Human rights due diligence: An ongoing process to identify and assess potential and actual human rights
negative impacts, take appropriate action to prevent or mitigate potential impacts, track the effectiveness ofactions to address impacts and communicating externally.

Hitachi Group Codes of Conduct
https://www.hitachi.com/about/corporate/conduct/index.html
Hitachi Group Human Rights Policy
https://www.hitachi.com/sustainability/renew/pdf/human_rights_
policy.pdf

Starting in fiscal 2015, the Hitachi Group Procurement Division began
implementing human rights due diligence based on the Hitachi Group
Human Rights Policy. In fiscal 2017, we incorporated the results ofhuman rights due diligence into the revision of our CSR procurement
guidelines for suppliers while also thoroughly revising the questions on
the check sheet used in supplier CSR monitoring (self-checks), tobetter grasp the issues.
Addressing the Risks of Child and Forced Labor
The Hitachi Group Codes of Conduct clearly express Hitachi’s firm
stance against the use of child labor or forced labor along our supply
chain. Hitachi’s CSR procurement guidelines for suppliers also clearly
forbid the use of child labor or forced labor, as part of our efforts toraise awareness all along the supply chain.
In fiscal 2018 we assessed the risks of forced labor at about 100
offices of Hitachi Group companies located in seven Southeast Asian
countries (Indonesia, Malaysia, Myanmar, the Philippines, Singapore,
Thailand, and Vietnam). The assessment was conducted with thecooperation of Verité Southeast Asia (VSEA), an internationally active
nonprofit organization, using a checklist for suppliers revised in fiscal
2017 based on the Responsible Business Alliance (RBA) Code of
Conduct, formerly the Electronic Industry Citizenship Coalition (EICC).

72

Hitachi Integrated Report 2019

Compliance
Thorough Compliance
As the economy becomes more global and corporate activities become more borderless, business activities spanning across countries and regions withdifferent administrative and economic systems, trading practices and values are picking up. Globally shared initiatives and guidance are increasingly
important in terms of conducting proper international business and preparing for all types of risks that could potentially hinder business activities.
Hitachi promotes business globalization in accordance with "Basics and Ethics," and has established its own set of rules concerning important business practices,such as preventing bribery, ensuring fair competition and establishing tax compliance, that are compliant with widely recognized and approved international
standards. We are also working to ensure thorough awareness and practice of these rules throughout the entire Group. We will respond appropriately to thedemands of society while reviewing and updating these rules as needed based on an awareness that required corporate behavior and interpretations of standards
and regulations continue to evolve due to ongoing global discussion concerning compliance.

Our Basic Policy and Promotion System

Compliance Reporting System

We established the Hitachi Group Codes of Conduct as a standard of

Hitachi, Ltd. has instituted a Compliance Reporting System allowing

behavior for the entire Group and have translated them from Japanese

reports to be made to the compliance section or directly to external

into 13 different languages, including English and Chinese, sharing

lawyers to prevent illegal and unethical behavior, to promptly address

them with employees throughout the world. Hitachi also works to

infractions, and to enhance our ability to self-regulate. This system canfoster a sound corporate culture in terms of awareness of corporate

be used not only by employees within the Hitachi Group but also by

ethics and compliance and conducts related employee surveys

temporary staff and business partners, such as suppliers andthroughout the Group annually.

distributors. In fiscal 2018, we received 462 reports from all GroupIn 2016, Hitachi reconstituted its rules and guidelines related tocompanies in Japan and around the world. In addition, we havematters such as compliance with competition law and the prevention of

implemented the Channel to the Board of Directors system to allow alltransactions with antisocial groups, corruption and bribery, repackaging

Hitachi, Ltd. employees to directly report problems anonymously orthem into the Hitachi Global Compliance Program (HGCP), a system ofunder their real names to Hitachi directors in cases where they see any

regulations falling under the Hitachi Group Codes of Conduct. We areillegality or extreme inappropriateness in business conduct by division

seamlessly implementing these rules at all business sites within Japan.

heads, executive officers, or other management personnel.

Strengthening Our Global Compliance Framework

Response to Technical Intern Training Program Issues

To implement the HGCP, we have appointed a senior executive as the

In 2018, the Organization for Technical Intern Training conductedhead of risk management for the entire Hitachi Group, to supervise

on-site inspections at Hitachi, Ltd. and 10 Group companies. These

management-level risk management executives from business units andinspections identified violations of the Act on Proper Technical Intern

key Group companies. Under this system, policies and measures are

Training and Protection of Technical Intern Trainees, and the relevant

shared through the Compliance Management Conference, composed ofcompanies were provided with recommendations for improvement

these risk management executives. Each executive is assisted by aregarding intern training. Additionally, in September 2019, Hitachi, Ltd.

compliance manager who implements practical support measures.

received an order for improvement from Immigration Services Agency

We also support Group companies outside Japan and have appointedof Japan and Ministry of Health, Labour and Welfare, regarding thecompliance heads in 11 regions, responsible for implementing education

construction of its systems for carrying out proper technical internand sharing information as well as arranging consultation services withtraining according to authorized plans. Companies that received

outside attorneys.

recommendations or orders for improvement have already taken

Issues in the promotion of compliance measures are clarified throughcorrective measures. We have taken strict measures to ensure that noindividual dialogue with business units and key Group companies, whilefurther violations will take place throughout the entire Group, such as

the internal audit section regularly conducts Group-wide reviews to verify

constructing Group-wide policies, guidelines, and check systems forthat each area of compliance is being appropriately operated. In cases

technical intern training, and we continue to strive to carry out

where these reviews identify necessary improvements, corrective

appropriate technical intern training in accordance with relevant lawsmeasures are swiftly implemented.

and the aims of the Technical Intern Training Program.

Hitachi, Ltd. also convenes an Advisory Committee of outside experts togain new insights into compliance and apply them proactively in its own
efforts.

73

A Business Foundation that Supports Sustainable Growth

Primary Initiatives

Eliminating violations of competition laws is among our top priorities

Policies for Preventing Bribery and Corrupt Practices

for regaining trust, and so Hitachi will continue its efforts to prevent thePreventing bribery and corrupt practices is a big challenge for arecurrence of any such incident.

company today. In 2008 Hitachi established rules against bribery andcorruption for the HGCP along with guidelines indicating specificTax Compliance Initiatives

spending thresholds for entertainment, gifts, and other arrangements

To ensure risk management for taxation in response to globalization,

provided to public officials. We have striven to ensure strict compliance

Hitachi follows relevant tax-related regulations applicable to the Group

with these rules. In 2016 we introduced a policy banning facilitation

as a whole as well as rules for transfer pricing management. We also

payments, which had not been explicitly regulated, along with revisions

manage transfer pricing in accordance with the OECD Transfer Pricing

including clarification of due diligence procedures for business

Guidelines and the laws and regulations on transfer pricing in eachpartners.

country or region where Group companies are located.

Preventing Violations of Competition Law

Violations of Laws and Regulations

Hitachi engages in business based on the principles of conformance

In fiscal 2018, there were no incidents in which Hitachi violated or waswith the law and business ethics and fair and open competition, while

penalized under laws or regulations regarding bribery or corrupt

at the same time ensuring that we comply with the HGCP’s rules

practices and competition.

concerning competition law and other related business standards andguidelines. In 2017, to enhance awareness of ethical principles andpractices globally, we created a global version of our standards
regarding contact with competitors based on the standards originallyprepared for use in Japan. We have been providing a collection of casestudies for workplace discussion to Group companies since 2012, andin 2018 we added case studies about competition law in threelanguages, Japanese, English, and Chinese, to raise employee
awareness.

Quality Assurance
Thorough Implementation of Quality Assurance
Providing products and services that our customers can use with confidence, along with meeting the requirements and quality standards of our customers inorder to achieve this, are important values shared by all our employees and codified in the Hitachi Group Codes of Conduct. To ensure that quality andreliability are maintained, we are strengthening our quality assurance activities from the perspectives of organization and management, technology, andhuman resources in every process—from planning and development to design, manufacturing, delivery, and maintenance.

Quality Assurance Initiatives
Maintaining the values of “Harmony”, “Sincerity”, and “Pioneering Spirit“that comprise the Hitachi Founding Spirit, as well as adhering to“Basics and Ethics” and “Putting Right and Wrong before Profits andbut also thoroughly discussing the process, framework, and motivating
factors leading up to occurrence, along with ways to prevent
reoccurrence, in order to improve our product reliability and customer
satisfaction.

Losses”, we place great emphasis on “Sincerity” in quality assurance
activities as part of earning trust in our products.

74

Framework for Quality Assurance

One integral aspect of this is our unique and longstanding practice of

To ensure full control over quality governance, we have separated theochibo hiroi which means “gleaning” in English and involves learning

quality assurance division from the manufacturing division in every

from failure to further develop our technologies. When an incident

business unit (BU) and Group company, creating a framework foroccurs, our executive officers take the lead in examining things from

activity in which our customers’ safety and trust are the top priorities.

the customer’s perspective, not only investigating the technical causes

Since fiscal 2018, in order to strengthen this framework further, we

Hitachi Integrated Report 2019

have reinforced the report lines from BU and Group company quality

Quality and Reliability Education

assurance divisions to the quality assurance division at our head office,

We conduct field-specific technical lectures for engineers engaged in

independent from all business divisions, establishing systems for closemonozukuri craftsmanship at a range of levels from beginner toinformation sharing between the two. We have also strengthened

expert.

governance by giving greater authority to the quality assurance divisionat our head office.

Each business unit also conducts specialized technical courses
regarding manufacturing, quality assurance, and maintenance attheir quality assurance training centers.

Accident Prevention Activities
Under our approach of making prevention the duty of quality

Global Quality Assurance Personnel Training in Asia

assurance, we are working beyond recurrence prevention and striving

We undertake personnel training as part of maintaining Hitachi’s

towards preventing accidents from occurring in the first place.

global quality standards. In China and Thailand, where many of the

Closely following the changes in a range of business activities, weGroup’s manufacturing sites are concentrated, we organize

anticipate quality issues on the horizon across the entire Group andeducational seminars aimed at improving our quality management

plan our quality activities accordingly.

technology. We also host conferences for quality assurance

As a part of these activities, we aim to increase trust in our embedded
software even further by bringing the software development

managers to raise quality awareness regarding Hitachi’s monozukuri
craftsmanship, and to share information and best practices.

capabilities and expertise in strengthening trust of our solutions
divisions to our product divisions (embedded software development
divisions).
Furthermore, we are promoting the digitalization of test andinspection data and working to construct processes for acquiring,assessing and reporting on this data without manual intervention.
Complying with Technical Laws
We have created guidelines for assessment of technical laws andquality assurance systems, sharing them throughout the Group. The
guidelines include information on the two themes of (1) clarifying
product-specific laws (the product-specific laws map) and(2) regulatory compliance activities and continuous improvement ofprocesses, based on our product compliance management system.
Thorough Risk Assessment
We conduct product safety risk assessment as well as testing worstcase scenarios—for example, deliberately setting a fire inside a
consumer appliance to confirm that the fire will not spread outside it.
Handling Product Accidents
When a product accident occurs, the division responsible acts swiftly
to resolve the problem and ensure absolute safety from thecustomer’s perspective. For an especially severe accident, we reportto government agencies in line with legal requirements and publish theincident information on our website and through other channels. At
the same time, we promptly submit a status report to top
management, ensuring fast and appropriate action at all companies
across the Group.
When we determine that retroactive action is necessary, we notify
customers via newspaper advertising and websites in order to carryout the necessary repair or replacement program.

75

A Business Foundation that Supports Sustainable Growth

Climate-Related Information Disclosure (based on TCFD
In June 2018, Hitachi announced its endorsement of the Task Force on

medium term (through fiscal 2030), and long term (through fiscal

Climate-related Financial Disclosures (TCFD). The TCFD, established2050), according to when the risks may materialize.

by the Financial Stability Board (FSB), published its final report on
information disclosure in June 2017 noting that investors needed moreclarity in corporate disclosures on climate-related risks and(1) Risks related to the transition to a low-carbon economy (mainly 2°C scenario)
Category

Major risks

Policy andlegal

Increased businesscosts from theintroduction ofcarbon taxes, fuel/Short to longenergy consumption term
taxes, emissions
trading systems, andother measures

Avoid or mitigate
increases in businesscosts, such as fromcarbon taxes, by further
enhancing production
and transport efficiency
and promoting the useof non- or low-carbon
energy sources

Technology

Loss of sales
opportunities due todelays in technology
development for
products andservices

Contribute to reducing CO2
emissions by developing
and marketing innovative
products and services thatlead to the achievement oflong-term environmental
targets and expanding thedecarbonization business

opportunities and governance measures. The following contains key
climate-related information in line with the TCFD’s recommendations.

Governance
Hitachi sees climate change and other environmental issues as

Time span

important management issues. In September 2016, after discussions
at the Board of Directors, we established and announced long-term
environmental targets called Hitachi Environmental Innovation 2050
containing CO2 reduction targets for 2030 and 2050 that are in linewith our Environmental Vision defining the goals of environmental

Medium tolong term

Main initiatives

management from a broader perspective.
In April 2017, we established the Executive Sustainability Committee,
chaired by the president and CEO and staffed by other top executives,as the highest-ranking body to discuss and reach decisions on the(2) Risks related to the physical impacts of climate change (4°C scenario)
Category

Major risks

Acute andchronic

Climate-relatedrisks to business
continuity, including
increased severityof typhoons, floods, Short to longand droughts (acute termrisks) as well as rising
sea level and chronicheat waves (chronicrisks)

Group’s sustainability strategy in accordance with our management andbusiness strategies. Members meet twice a year to discuss material
environment-related policies and measures, including those in response
to climate change, to share progress reports and achievements, and to
set the course for further improvements and new initiatives.
We have adopted a committee system to separate theresponsibilities for management oversight from the execution ofTime span

Main initiatives
Take into account thepossibility of flood damage
when deciding on thelocation or equipmentlayout of a new plant.
Measures tailored to
the water risks of eachmanufacturing site will bestrengthened in the future
based on the results ofa water risk assessment
now being conducted.

business operations. Under this system, the Audit Committee of
independent directors conducts an audit of sustainability-related

CO2 emissions during the use of our products and services by ouroperations once a year. Reports on climate-related material issues arecustomers account for 90% of total emissions in our value chain. This

made to the committee by Hitachi executive officers.

represents a business opportunity for us in the short, medium, andlong-term, since developing and providing products and services that

Strategy
Wishing to fulfill our responsibilities as a global company in achieving aemit zero or very little CO2 during their use can satisfy customer needs
and also help address social issues.

low-carbon society and taking note of the total CO2 reductions
required globally, we have set in our long-term environmental targets
called Hitachi Environmental Innovation 2050 CO2 reduction targets for

Climate-related opportunities
Category

Major opportunities

Main initiatives

Products/
services andmarkets

Increased market
value and revenue
from expanded salesof products andservices with innovativetechnology that cancontribute to themitigation and adaptationof climate change

Expand the decarbonization business,develop and market products andservices that contribute to a lowcarbon society, and promote thedevelopment of innovative devices andmaterials that contribute to reducing
the environmental burden

the entire value chain of 50% by fiscal 2030 and 80% by fiscal 2050,
compared to fiscal 2010.
Our 2021 Mid-term Management Plan, meanwhile, calls for reducing
CO2 emissions throughout the value chain by more than 20% by fiscal
2021, compared to fiscal 2010.

Climate-Related Risks and Opportunities
As for climate-related risks, we have followed TCFD classification inconsidering (1) risks related to the transition to a low-carbon economy
in the 2°C scenario and (2) risks related to the physical impacts ofclimate change in the 4°C scenario, which assumes that efforts to
reduce global CO2 emissions have failed. Risks are categorized into
short term (over the next three years from fiscal 2019 to 2021),

76

Hitachi Integrated Report 2019recommendations)
Responding to the Business Risks and Opportunities of Climate Scenarios
We are examining the impact of the 2°C and 4°C scenarios for five businesses that have a relatively high likelihood of being affected by climate change.
Strategies for 2°C/4°C Scenarios Based on TCFD Recommendations (abridged)
Target businesses

Responses to futurebusiness risks andopportunities

Railway systems

Automotive systems

Enhance response to
new markets, such as forContinue to strengthen
electric vehicles, under thethe railway business, as
2°C scenario, and also
global demand for railways
to existing technologies
will increase under either
like internal combustion
scenarioengines under the 4°C
scenario

Our Social Innovation Business contributes to improving people’s

Water systems

Power generation andpower grids

IT systems

Strengthen provision ofseawater desalination
facilities and other water
generation systems in
response to increased
water demand fromglobal economic growth,urbanization, andpopulation growth undereither scenarioContinue to enhance
responses to relevantmarkets in view of
expected higher demand
for non-fossil energy
under either scenarioContinue to develop
innovative digitaltechnologies and enhance
digital service solutions
that generate new value inview of expected market
expansion under either
scenario

Sustainability Report since fiscal 2013.

quality of life and enhancing the value of our business customers.

Total CO2 emissions can fluctuate greatly due to the restructuring of

Utilizing our strengths in OT and IT as well as in energy technologies,

our operations, but given the nature of our business, some 90% of ourwe seek to help users of our products and services to reduce their CO2

emissions come from the use of sold products in Scope 3. Among ouremissions. Because we pay close attention to market trends andproducts and services featuring equivalent value, therefore, we give

develop our business flexibly and strategically, we believe we have highpriority to providing customers and society with those that emit lessclimate resilience in the medium to long term under either the 2°C or

CO2. At the same time, we will seek to further reduce CO2 emissions

4°C scenario.

during production.

Risk Management
The Hitachi Group is engaged in many different businesses, with eachhaving its own set of risks and opportunities. The impact of thosepertaining to climate change is evaluated for each business unit andGroup company in accordance with the Environmental Action Plan,
updated every three years. The results are tabulated by the
Sustainability Promotion Division of Hitachi, Ltd., and their importanceis checked at Sustainability Promotion Meetings. Those risks andopportunities perceived as being particularly important for the Group
as a whole are deliberated by the Executive Sustainability Committee,
chaired by the president and CEO of Hitachi, Ltd.

Metrics and Targets
Our environmental activities are managed through the Environmental
Action Plan, for which the indicators and targets are updated every
three years, including those to measure and manage climate-relatedrisks and opportunities.
The 2021 Mid-term Management Plan cites a reduction target of atleast 20% for CO2 emissions across our value chain by fiscal 2021
compared to fiscal 2010. To achieve this goal, targets for eachbusiness unit and Group company were established in line with the2021 Environmental Action Plan, and progress is being monitored on aGroup wide basis. Total greenhouse gas emissions (Scope 1, Scope 2,
and Scope 3) across the value chain are calculated based on GHG
Protocol standards and have been published in the HitachiThis section on “Climate-Related Information Disclosure (based on
TCFD recommendations)” has been abridged due to spaceconsiderations. For a full discussion of our initiatives, refer to the
Hitachi Sustainability Report 2019.
https://www.hitachi.com/sustainability/download/index.html

77

A Business Foundation that Supports Sustainable Growth

Corporate Governance
Hitachi is a company with nominating committee, etc. under theGovernance Guidelines as a set of enhancing principles and as a

Companies Act of Japan. In June 2003, we changed our organizationalframework for corporate governance that includes criteria fordesign, separating the oversight of management from execution ofdetermining the roles and composition of the Board of Directors,

management. By demarcating responsibilities for management oversightdirector appropriateness and the independence of independentand those for the execution of business operations, Hitachi is working

directors.
Hitachi agrees with the basic approach of the Code, which is that theto create a framework for nimble operations, while making

Code's appropriate implementation will contribute to the development

management highly transparent.
In June 2012, we ensured that 7 of the 13 members of our Board ofand success of companies, investors and the Japanese economy as a

Directors were independent directors*, and that some of thesewhole through individual companies' self-motivated actions, so as toindependent directors were non-Japanese. These changes will help us

achieve sustainable growth and increase corporate value over theto establish management that reflects diverse global perspectives andmedium- to long-term. Moving forward, Hitachi will work to further

strengthen our supervisory functions.

strengthen corporate governance.

Starting in June 2015, Corporate Governance Code of Japan (the“Code”) was applied to companies listed on Japanese stock
exchanges. In 2012, Hitachi formulated and published Corporate* The “Independent Directors” are the directors who fulfill the qualification requirements to be outside directors
as provided for the Companies Act of Japan and also meet the independence criteria defined by the Company
and those provided by Japanese stock exchanges where the Company is listed.

2019
Acceleration of Social Innovation Businessacross 5 Growth Fields

Start of application of
Corporate Governance CodeDevelopment of Stewardship Code

2016

2015

Representative vice presidents were placed in
5 sectors

Enhancement of Dissemination of Information
about Medium- to Long-term Sustainable Growth2014

Publication of an integrated report

Development of Guidelines forStrengthening Governance2012

Development of Corporate Governance
Guidelines

Acceleration of Global Management
Enforcementof revisedCompanies Act

2006

2010

• Independent directors including foreign directors wereincreased• Independent directors comprised the majority of directors

Enhancement of Interactions with
Capital Markets

2003

Hitachi IR Day (briefing on business strategy by division) was
launched• Clarification of commitment of top management of thebusiness units to the capital markets

Demarcation of Management Oversightand Execution

1999

Shifted to a company with committees(currently a company
with nominating committee, etc.)• To increase management speed and improve managementtransparency

Introduction of Objective Perspective
Management Advisory Committees• Practical advice from experts in Japan and overseas

78

Hitachi Integrated Report 2019

History of Hitachi’s corporate governance reformImplementing All of the Principles of the Corporate Governance CodeWe are implementing all of the principles of the Corporate Governance Code.

Analysis and Evaluation of the Effectiveness of the Board of Directors
The Company evaluates the effectiveness of its Board of Directors as a whole each year, in a continuous effort to maintain and improve its functions.

Fiscal 2018 Evaluation Process
Points of evaluation· Composition of Board of Directors: Member diversity, numbers and ratios of independent directors and insidedirectors, etc.
1. Questionnaire-based self-assessment for each · Operation of Board of Directors: Meeting frequency, discussion time, proposal selection, role of chairperson, etc.
director (February–March 2019)· Contribution: Contribution to management strategy formulation and other matters, member demonstration ofexperience and knowledge, etc.
· Status of committee activities: Composition, responsibilities and roles, collaboration with Board of Directors, etc.
· Operation supporting system: delivery of information e.g., provision of documents for the Board
2. Discussions held by independent directors(March 2019)· Independent directors held an exclusive meeting to discuss the effectiveness of the Board of Directors.

3. Discussion and review within the Board of
Directors (May 2019)· The Board of Directors holds a discussion based on the results of the questionnaire-based self-assessment anddiscussions conducted in the exclusive meeting attended by independent directors, comparing these results to thoseof the previous year and considering the statuses of related initiatives. Through this discussion the Board of Directors
analyzes and evaluates its overall effectiveness and identifies policies through which it can increase this effectiveness.

Evaluation Results and Future Initiatives
Overall evaluation in fiscal 2018

Overall evaluation in fiscal 2018

Fiscal 2018 evaluations determined that membership in our Board of Directors was sufficiently diverse. They also indicated theBoard of Directors’ overall effectiveness was satisfactory due in part to its active discussions aimed at medium- to long-term
growth in corporate value. Each director was found to have contributed his or her own knowledge to these discussions, whichwere primarily focused on points related to management strategy, including the Mid-term Management Plan.

Maintenance and improvement ofBoard of Director functions· Determine the Company’s medium- to long-term strategic direction and further contribute to the formulation of businessstrategies· Raise contribution to CEO succession planning· Conduct thorough and continuous monitoring of important matters

Future initiatives

Enhancement of support to operation of · Continue to create opportunities to share information, including independent directors visit to Group locations
the Board of Director· Apply ingenuity to improve the design and content of documents and work to consistently provide them in advance

Corporate Governance Framework
Senior Executive
Committee
General Meeting of
Shareholders

ReportAppointment

Appointment/
Oversight

President & CEO

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

Board of Directors

Nominating Committee
Audit
Compensation
Committee

Audit Committee

ReportInternal
Auditing
OfficeExecutive
Officer
Department
in charge

Executive
Officer
Department
in charge

Department
in charge

Department
in charge

Audit
Audit
ReportAccounting Auditors

79

A Business Foundation that Supports Sustainable Growth

Corporate Governance
Board of Directors(3) Compensation Committee
Summary· Independent directors comprise 8 of the 11 Board members.
· Each of the Nominating, Audit, and Compensation Committees
has been established with independent directors in the majority.
· Independent directors have extensive experience and insight ininternational business management and administration serve tostrengthen the Board’s supervisory function.

The Compensation Committee has the authority to determine
remuneration policies for directors and executive officers andremuneration for individuals (including amounts of remuneration) based onthem. The Compensation Committee consists of 4 directors, 3 of whom
are independent directors. The Compensation Committee meetings were
held on 6 days during the fiscal year ended March 31, 2019.
The Board of Directors continuously supervises succession planning for
the CEO. The CEO is appointed or dismissed in line with the proposal of
the Nominating Committee in consideration of the matters: 1) that the

The Board of Directors approves basic management policy for Hitachi

candidate has the highest personal and professional ethics, integrity,

Group and supervises the execution of the duties of executive officers andinsight, and leadership, and 2) that the candidate is believed to be the one

directors in order to sustainably enhance corporate value andmost qualified to realize sustainable enhancement of the Company’s

shareholders’ common interests. The basic management policy includes

corporate value and shareholders’ common interests, with rich experience

the Mid-term Management Plan and annual budget compilation. The

and a distinguished record in the area of corporate management.

Board of Directors focuses on strategic issues related to the basic

Furthermore, Hitachi formulated and published Corporate

management policy as well as other items to be resolved that are provided

Governance Guidelines outlining the framework of corporate

in laws, regulations, the Articles of Incorporation, and Board of Directors

governance, such as the function and composition of the Board ofRegulations. The Board of Directors was made up of 11 directors, 2 ofDirectors, qualifications for directors, criteria for assessing thewhom concurrently serve as executive officers. Hitachi aims to reinforce theindependence of independent directors, and rules on those serving

oversight function of the Board of Directors, of which 8 independent

concurrently as officers at other companies.

directors, including non-Japanese, account for the majority, reflecting theirglobal and diverse viewpoints. The term of office for directors is 1 year.
Within the Board of Directors, there are 3 statutory committees—the

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

Nominating Committee, the Audit Committee, and the Compensation
Committee—with independent directors accounting for the majority ofmembers of each committee. The Board of Directors meetings were
held on 12 days during the fiscal year ended March 31, 2019, and theattendance rate of directors at these meetings was 96%. The
attendance rates for each independent director were as shown in the

Attendance at meetings of the Board of Directors by independent
directors in the fiscal year ended March 31, 2019
Attendance / Number of days on which the meetings were held*

Name

Board ofDirectors

Nominating
Committee

Audit
Compensation
Committee Committee

table on the right. To assist with the duties of the Board of Directors

Katsumi Ihara

100%

—

100%

100%

and each committee, staff who are not subject to orders andCynthia Carroll

100%

100%

—

—

instructions from executive officers are assigned.

Joe Harlan

100%

—

—

—

George Buckley

100%

—

—

—

Louise Pentland

100%

—

—

—

(1) Nominating Committee
The Nominating Committee has the authority to determine proposals

Harufumi Mochizuki

100%

100%

100%

100%

submitted to the general meeting of shareholders for the election and

Takatoshi Yamamoto

100%

—

100%

100%

dismissal of directors. The Nominating Committee consists of 4 directors, 3Hiroaki Yoshihara

92%

100%

100%

—

of whom are independent directors. The Nominating Committee meetings* Number of days during term of office during on which Board of Director meetings were held: 12 (9 in the casesof Mr. Ihara and Harlan)
Number of days during term of office on which Nominating Committee meetings were held: 9 (7 in the case of Mr.
Yoshihara)
Number of days during term of office on which Audit Committee meetings were held: 17 (11 in the case of Mr. Ihara)
Number of days during term of office on which Compensation Committee meetings were held: 6 (5 in the case of Mr. Ihara)
Indicates role as board or committee chairperson

were held on 9 days during the fiscal year ended March 31, 2019.
(2) Audit Committee
The Audit Committee has the authority to audit the execution of duties
of directors and executive officers and to decide on proposals
submitted to the general meeting of shareholders for the election and

80

Executive Officers

dismissal of accounting auditors. The Audit Committee consists of 5

Executive officers decide on matters delegated to them by the Board

directors, including 4 independent directors and 1 standing Audit

of Directors and execute Hitachi’s business affairs within the scope ofCommittee member. The Audit Committee meetings were held on 17

assignments determined by the Board of Directors. As of the end ofdays during the fiscal year ended March 31, 2019.

June, 2019, Hitachi has 39 executive officers.

Hitachi Integrated Report 2019

Compensation Structure

Senior Executive Committee
The Senior Executive Committee is a council to ensure that the
President deliberately decides on important managerial matters, which
may affect the business of Hitachi or the Hitachi Group, throughdiscussion from diverse viewpoints. This committee consists of 12
members as of the end of June, 2019: the President & CEO, 6
Executive Vice President and Executive Officers, 4 Senior Vice President
and Executive Officers, and 1 Vice President and Executive Officer.

(1) Directors
Compensation for Directors is basic remuneration as fixed pay. The
amount of basic remuneration is decided by adjusting a basic amount toreflect full-time or part-time status, committee membership and position,and travel from place of residence, etc. A Director concurrently serving
as an Executive Officer is not paid compensation as a Director.
(2) Executive Officers
Compensation for Executive Officers consists of basic remuneration as

Director and Executive Officer Compensation

fixed pay, and short-term incentive compensation and medium- and longterm incentive compensation as variable pay. The basic amount of each

Basic Policy

type of compensations is set based on the ratio of 1:1:1 as the standard

Compensation shall be such that it enables the Company to attract
necessary personnel to achieve an improvement in corporate value
through global business growth.

from compensation for the fiscal 2019, taking into account theCompensation shall be commensurate with roles and responsibilities of each
Directors and Executive Officers.

order to improve corporate value through the growth of global

Compensation for Directors shall be such that it enables them to exercise
functions of supervision of management effectively.

proportion of variable pay is set to the total annual compensation.

Compensation for Executive Officers shall be such that it enables them tocontribute to sustained improvement in corporate value through theexecution of business and employs an appropriate balance between shortterm performance and medium- and long-term performance.

composition of executive compensation for major global companies, inbusinesses. The higher position of Executive Officers holds, the higher
If it is found that an executive officer has been engaged in misconduct
during his/her term of office, compensation for Executive Officers that has
been already paid shall be returned to the Company (clawback provision).

The level of compensation shall be determined taking into account compensationlevels at other companies as well as economic and market trends.

Please refer to Compensation to Directors and Executive Officers

The Compensation Committee utilizes external experts to gain expert
advice and an objective viewpoint, if necessary, for considering the details
and amounts of compensation.

on P.75-80 of Annual Securities Report.
https://www.hitachi.com/IR-e/library/stock/hit_sr_fy2018_4_en.pdf

Compensation to Executive Officers (FY2019)
Total remuneration
Variable pay

Fixed pay
(Basicremuneration)

Short-term incentive compensation

Medium- and Long-term incentive compensation

The amount of short-term incentive compensation is decided within
the range of 0 to 200% of a basic amount set according to therelevant position by adjusting that amount to reflect financial results
and individual performance.

The shares of restricted stock are granted in order to propel
management from a medium- and longterm perspective and to provide
incentives to bring about a sustainable increase in enterprise value by
further promoting senior management’s shared values with shareholders
through the holding of shares during their term of office.

Individual
target-linked
component
Set according to therelevant position byadjusting that amountt o re f l e c t f i n a n c i a lresults and individual
performance.

Varies according to theevaluation of the level ofachievement of
individual target for each
Executive Officer
determined based on
his/her responsibility.

Performance-linked component
Company
performance

Division
performance

Evaluated referring toconsolidated revenues,
adjusted operating
income, EBIT, and net
income attributable to
Hitachi, Ltd. stockholders
in order to measure thelevel of achievement ofconsolidated financial
forecasts disclosed to
stakeholders, including
shareholders andinvestors.

Evaluated referring toadjusted operating
income and operating
cash flows for eachdivision, among otherindicators, to measure
the level of achievementof targets under the
Midterm Management
Plan and the annual
budgets for divisions.

The shares of restricted stock· The restriction on transfer shall be lifted if executive officers resign from all of thepositions of the Company’s executive officer, director, and corporate officer.
· With regard to one-half of granted shares of restricted stock, the number ofshares whose transfer restriction is lifted shall be determined after ex-post
evaluation in which the total shareholder return of Hitachi stock is compared to
growth rate of TOPIX. Lifting of transfer restrictions shall apply to all granted
shares if the TSR/TOPIX Growth Rate Ratio is 120% or more. Lifting of transfer
restrictions shall apply to part of granted shares if the TSR/TOPIX Growth Rate
Ratio is between 80% or more but less than 120% (*). Transfer restrictions shallnot be lifted for any shares if the TSR/TOPIX Growth Rate Ratio is less than 80%.
Shares whose transfer restrictions are not lifted shall be acquired by theCompany without consideration.
* Number of shares whose transfer restrictions are lifted= Number of granted shares × {(TSR/TOPIX Growth Rate Ratio × 1.25) - 0.5

81

A Business Foundation that Supports Sustainable Growth

Corporate GovernanceInternal Control over Financial Reporting
To ensure the reliability of its consolidated financial reporting, the Hitachi Group is establishing and implementing relevant internal controls.
We evaluate their effectiveness by adhering to standards for the evaluation of internal controls related to financial reporting that are generally
accepted as fair and reasonable.
Furthermore, we have established the J-SOX Committee with the goal of raising the effectiveness of these internal controls. This committee
evaluates internal control effectiveness and establishes frameworks designed to improve and strengthen them.
Internal Control Assessment Framework

Financial Services
AgencyHitachi, Ltd. President & CEO
Chief Financial Officer

Internal
ControlReportReportReportAudit
Committee

ReportJ-SOX Committee
J-SOX Committee Office

Cooperation

Internal Auditing
OfficeReportBusiness Units and Major Group Companies

Accounting
Auditors
External
AuditsReportSubsidiary Companies

Enhanced Collaboration through Tripartite Audits
In pursuit of sustainable growth in corporate value, Hitachi’s Audit Committee and internal audit section collaborate with third-party accounting
auditors to strengthen its “tripartite auditing,” which aims to increase the effectiveness of internal controls. Our Audit Committee takes the lead in thisregard, as the three parties communicate closely to share risk information and assessments concerning risk response while securing transparency
and ensuring appropriate checks and balances.
Improving Internal Control through a "Tripartite Audit" FunctionGoals

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

Audit by the Audit Committee
based on the risk approach

Audit Committee

Assessment of content of audit

Report status of internal audit

Sharing of risk information andassessment of responses to risk

Request that internal auditors undertake
detailed audit of problems found as aresult of audit by Audit Committee

Assessment of content of audit

Report status of financial audit

Exchange opinions about audit
plans, auditors’ remuneration, risk
assessment, etc.

Report important indications related to financing

Internal audit section(Internal Audit Office)
Periodic internal audit
by office and base82

Hitachi Integrated Report 2019

Assess content
of audit

Extract problems based on
results of internal audits
and assess significance of riskof improper accounting

Accounting Auditors
Accounting audit centered on accuracy
and reliability of financial statements

Building a More Effective and Efficient Auditing Systemapproach in response to the Group’s overall financial status. Applying thisOur Audit Committee formulates audit plans in accordance with its risk-

approach, they then determine the scope and methods of the audit,

based approaches and conducts audits for each consolidated business
unit. Audit Committee members meet directly with business unit heads
before the internal audit section’s audits are carried out. Then, thesemembers inform the internal audit section about concerns and issues
related to the implementation of business strategies aimed at achieving
sustainable growth that require attention. At this time, Hitachi also verifies
matters that carry high levels of risk in terms of quality, measuring theserisks through employee awareness surveys and thorough implementationof business strategies.
Hitachi’s internal audit section performs regular internal audits at eachbusiness site and location. This section reports directly to the CEO and isindependent from organizations that are subject to its audits. The internal
audit section also formulates audit plans based on past audit records
and the most recent business circumstances. Additionally, this section
performs audits upon receiving direction from the Audit Committee,
ensuring their effectiveness.

formulate an audit plan and share opinions with the Audit Committee.
Next, based on the audit plan, they perform audits on each of the 5
growth sectors and the business units that comprise them, enabling
effective and efficient understanding of data related to Hitachi’s financedepartment and each of its business segments. If, during the auditing
process, our accounting auditors discover a degree of risk that could
impact future financial statements significantly or issues that, even ifmonetarily small, could have a large qualitative effect, they share related
information regarding these risks and issues and progress on response
from related divisions with the Audit Committee and internal audit
section. They also work to improve and raise the effectiveness of audits
by submitting “management letters” containing points of concern andimprovement suggestions through the accounting department. Recently,
they have also been working to raise the efficiency of checks on theaccuracy of numerical figures by using IT systems to investigate allcases, rather than performing test-checking through sampling.

The internal audit section at Hitachi is responsible for confirming the legality
and appropriateness of all business operations, including those related to

Dialogue with Shareholders and Investors

accounting, production management, sales, purchasing, IT systems,

Hitachi, Ltd., believes in the importance of dialogue with a wide range

compliance and personnel labor. Furthermore, employees are well versed inof stakeholders, including institutional investors and analysts, andthe ideas and policies of our management and, acting on behalf of ourconducts extensive IR activities.

management team, confirm whether operations are being carried out based

In fiscal 2018, we held quarterly results briefing sessions and aon these ideas and policies and if business strategies are being

briefing on the progress of our 2018 Mid-term Management Plan. In

implemented in a way that will efficiently lead to sustainable growth.

addition, we held the Hitachi IR Day for the ninth consecutive year. At

To further raise audit effectiveness, we implemented a “executive auditor”

this IR event, the people in charge of individual businesses explained

system in each of our 5 growth sectors (IT, Energy, Industry, Mobility, Smart

principal business strategies and management measures in line with

Life) in April 2019. We also established internal control systems which are

the Mid-term Management Plan.

headed by executive auditors who report to the vice presidents who

We also held a briefing by the R&D Division, which is the source of ourmanage each sector. Although these executive auditors do not act as legal

value creation, and members of our management team visited institutional

agents under the Companies Act, they still assume responsibility forinvestors in North America, Europe and Asia, explaining our management

governance in each sector. They also function as a reporting line forstrategies for achieving medium- to long-term growth. Including thesestatutory auditors at Hitachi subsidiaries who are legal agents under thevisits, we held some 550 one-on-one meetings for institutional investors

Companies Act and are working to improve the efficiency of our internal

and analysts in Japan and overseas. We reflect the opinions we obtain

control systems.

through these IR activities into our management and business operation

When conducting business audits, we use IT systems to expeditiously

as we strive to enhance corporate value.

search for reference information contained within materials submitted

On our website that provides information for shareholders andprior to audit in an attempt to improve efficiency. We are currently

investors, in a timely manner we post materials used in briefingbuilding a system that will allow our internal audit section to sharesessions, as well as videos of these briefings, plus graphs showing

information with professional accounting auditors using the Lumada

operating performance and our share price. We are improving theplatform’s data lake and expect it to be complete sometime in fiscal

responsiveness of our website (making browsing from smartphones

2020. When reading audit reports submitted by the internal audit section,and tablets more convenient) as part of an ongoing effort to enhance

our CEO must be able to quickly understand the issues identified bydisclosure.

these reports and make prompt judgments concerning whether
immediate action is required. In the future, our internal audit section will

Information for shareholders and investors:

continue to maintain its transparency and independence while working tohttps://www.hitachi.com/IR-e/index.html

improve audit efficiency as one member of our tripartite audit system.
Our accounting auditors perform audits that focus on the accuracy andreliability of our financial statements. First, they adopt a risk-based

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

83

A Business Foundation that Supports Sustainable GrowthManagement System
Independent Directors* At the end of the Annual General Meeting of Shareholder held in June 2019

Katsumi Ihara

Cynthia Carroll

Joe Harlan

Share ownership: 300 shares

Share ownership: 1,000 shares

Share ownership: 300 shares

Term of office as Independent Director: 1 year

Term of office as Independent Director: 6 years

Term of office as Independent Director: 1 year

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

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

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

George BuckleyLouise Pentland

Harufumi Mochizuki

Share ownership: 5,300 shares

Share ownership: 700 shares

Share ownership: 2,900 shares

Term of office as Independent Director: 7 years

Term of office as Independent Director: 4 years

Term of office as Independent Director: 7 years

1993 Chief Technology Officer, Motors, Drives and Appliances,
Emerson Electric Company
1994 President, US Electrical Motors, Emerson Electric Company
1997 President, Mercury Marine Division andCorporate Vice President, Brunswick Corporation
2000 President and Chief Operating Officer, Brunswick Corporation,
Chairman 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 Corporation2007 Vice President, Acting Chief Legal Officer andHead of IP Legal, Nokia Corporation
2008 Senior Vice President and Chief Legal Officer,
Nokia Corporation2009 Admitted to New York State Bar Association2011 Executive Vice President and Chief Legal Officer,
Nokia Corporation (Retired in May 2014)2015 General Counsel, PayPal, eBay Inc.
Director, Hitachi, Ltd.
Senior Vice President and Chief Legal Officer,
PayPal Holdings, Inc.
2016 Executive Vice President,
Chief Business Affairs and Legal Officer,
PayPal Holdings, Inc. (currently in office)

Chairman of the Board
Chair of the Nominating Committee
Chair of the Compensation Committee
2002 Director-General for Commerce and Distribution Policy,
Minister’s Secretariat,
Ministry of Economy, Trade and Industry of Japan (“METI”)
2003 Director-General, Small and Medium Enterprise Agency, METI
2006 Director-General, Agency for Natural Resources and Energy, METI
2008 Vice-Minister of Economy, Trade and Industry of Japan
2010 Special Advisor to the Cabinet of Japan(Retired in September 2011)
Senior Advisor to the Board, Nippon Life Insurance Company(Retired in April 2013)2012 Director, Hitachi, Ltd.
2013 President and Representative Director,
Tokyo Small and Medium Business Investment &Consultation Co., Ltd. (Currently in office)* The "independent directors" are the directors who fulfill the qualification requirements to be outside directors as provided for the Companies Act of Japan and also meet the independence criteria defined by the Company and those
provided by Japanese stock exchanges where the Company is listed.

84

Hitachi Integrated Report 2019

Nominating Committee
Audit Committee
Compensation Committee
Representative Executive Officer

Takatoshi Yamamoto

Hiroaki Yoshihara

Share ownership: 7,700 shares

Share ownership: 1,800 shares

Term of office as Independent Director: 3 years

Term of office as Independent Director: 5 years

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.

Chair of the Audit Committee
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.

Directors At the end of the Annual General Meeting of Shareholder held in June 2019

Hiroaki NakanishiToyoaki Nakamura

Toshiaki Higashihara

Share ownership: 70,600 shares

Share ownership: 16,200 shares

Share ownership: 69,900 shares1970 Joined Hitachi, Ltd.
2003 Vice President and Executive Officer
2004 Senior Vice President and Executive Officer
2005 Chairman and Chief Executive Officer,
Hitachi Global Storage Technologies, Inc.
(Retired as CEO in March 2009)2006 Executive Vice President and Executive Officer, Hitachi, Ltd.
(Retired in December 2006)
2009 Executive Vice President and Executive Officer, Hitachi, Ltd.
Chairman of the Board, Hitachi Global Storage Technologies, Inc.
(Retired in March 2010)2010 President, Hitachi, Ltd., President and Director, Hitachi, Ltd.
2014 Chairman & CEO and Director, Hitachi, Ltd.
2016 Executive Chairman and Representative Executive Officer,
Hitachi, Ltd.
2018 Executive Chairman and Executive Officer, Hitachi, Ltd.

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

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

Each Committee is composed of the following members (chair names underlined)
Nominating Committee: Harufumi Mochizuki, Cynthia Carroll, Hiroaki Yoshihara, Hiroaki Nakanishi
Audit Committee: Hiroaki Yoshihara, Katsumi Ihara, Harufumi Mochizuki, Takatoshi Yamamoto, Toyoaki Nakamura
Compensation Committee: Harufumi Mochizuki, Katsumi Ihara, Takatoshi Yamamoto, Toshiaki Higashihara85

A Business Foundation that Supports Sustainable Growth

Executive Officers As of June 30, 2019

President & CEO

Executive Vice Presidents and Executive Officers

Toshiaki Higashihara*

Masakazu Aoki*

Keiji Kojima*

Keiichi Shiotsuka*

Hideaki Takahashi*

Overall management

Assistant to the President (businessfor industry & distribution sectors,
water & environment business, andindustrial products business)

Assistant to the President (smart life &
ecofriendly systems business, automotive
systems business, and healthcare
business) and smart life & ecofriendly
systems business

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

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

Senior Vice Presidents and Executive Officers

Alistair Dormer*

Toshikazu Nishino*Atsushi Oda

Yoshihiko Kawamura

Kenichi Kokubo

Assistant to the President (building
systems business, and railway systems
business)

Assistant to the President(nuclear energy business andenergy business)

Nuclear energy business andenergy business

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

Regional strategies (China)

Setsuo Shibahara

Hideaki Seki

Yoshitaka Tsuda*

Hidenobu Nakahata*

Mitsuaki Nishiyama*Services & platforms business

Building systems business

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

Corporate communications,
legal matters, risk management,
corporate auditing, and human capital

Finance and corporate
pension system

Vice Presidents and Executive Officers
Keiichi Akino

Jun AbeHitoshi Ito

Kenji Urase

Ryuichi Otsuki

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

Business for industry & distribution sectors

Governments & external relations

Energy business

Investment strategies

Kohei Kodama

Norihiro Suzuki

Yoji Takeuchi

Hidetoshi Takehara

Toshiaki Tokunaga

Legal matters, risk management,
and corporate auditing

Research & development

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

Nuclear energy business

Services & platforms business

Osamu Naito

Kojin Nakakita

Katsuya Nagano

Seiichiro Nukui

Yasushi Nomura

Governments & external relations,
CSR & environmental strategy andexecutive support

Regional strategies (APAC)

Business for government,
public corporation, and social
infrastructure systems

Business for industry &distribution sectors

Information technology strategies

Andrew Barr

Kentaro Masai

Shinya Mitsudomi

Masashi Murayama

Mamoru Morita

Railway systems businessSupply chain management(MONOZUKURI and quality assurance)

Railway systems businessSupply chain management(procurement)

Management strategies

Tsugio Yamamoto

Takashi Yoda

Masaya WatanabeBusiness for financial institutions

Marketing & sales (nuclear energy
business and energy business)

Information security management and cost
structure reform

Executive Officer
Hiroaki Nakanishi
General86

Hitachi Integrated Report 2019

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

Data Section
Smart life solutions
10-Year Financial Data

88

Consolidated Statement of Financial Position

98

Segment Highlights

90

Consolidated Statement of Profit or Loss99

patients worldwide by providing our particle beam

Reclassification of Segment

90

cancer treatment system.

Information & Telecommunication Systems 91

Consolidated Statement ofComprehensive Income

99

Social Infrastructure & Industrial Systems

91

Consolidated Statement of Changes in Equity

100

Electronic Systems & Equipment

92

Consolidated Statement of Cash Flows

101

Construction Machinery

92

5-Year Non-Financial Data

102

High Functional Materials & Components

93

Hitachi Group Business Operation Framework

103

Automotive Systems

93

Keywords to Understand Hitachi Value Creation 103

Smart Life & Ecofriendly Systems

94

Corporate Data / Stock Information

Operating and Financial Review

95

We contribute to treatment for 80,000 cancer

104Data Section

10-Year Financial Data
U.S. GAAP

Millions of yen

For the year:

FY2009FY2010FY2011FY2012FY2013

FY2014

Revenues¥8,968,546¥9,315,807¥9,665,883¥9,041,071¥9,563,791¥9,761,970

202,159444,508

412,280

422,028

538,288

600,479

Operating income

77,815443,812573,218

358,015585,662551,018

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

238,869

347,179

175,326

264,975

241,301

Cash flows from operating activities

798,299

841,554447,155

583,508

439,406

447,348

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

Free cash flows

267,704

581,208

251,571

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

Cash flows from financing activities(502,344)(584,176)(167,838)(180,445)

32,968250,335

EBIT (Earnings before interest and taxes)—

36,13336,727

47,69050,711

57,944

Capital expenditures (Property, plant and equipment)

546,326

556,873649,234

742,537

849,877

848,716

Depreciation (Property, plant and equipment)

441,697382,732

360,358

300,664

329,833

349,614

R&D expenditures

372,470

395,180

412,514341,310351,426

335,515

8,964,464

9,185,629

9,418,526

9,809,230

11,016,899

12,395,379

Cash dividends declared

At year-end:
Total assets
Property, plant and equipment

2,219,804

2,111,270

2,025,538

2,279,964

2,342,091

2,564,105

Total Hitachi, Ltd. stockholders’ equity

1,284,658

1,439,865

1,771,782

2,082,560

2,651,241

2,930,309

Interest-bearing debt

2,367,143

2,521,551

2,396,454

2,370,079

2,823,049

3,354,616
Yen

Per share data:
Net income (loss) attributable to Hitachi, Ltd. stockholders:Basic¥(29.20)¥52.89¥76.81¥37.28¥54.86¥49.97

Diluted(29.20)

49.38

71.86

36.29

54.85

49.93

—

8.0

8.0

10.0

10.5

12.0

287.13318.73382.26431.13549.02606.87

Cash dividends declared
Total Hitachi, Ltd. stockholders’ equity%
Financial ratios:
Operating income ratio

2.3

4.8

4.3

4.7

5.6

6.2

EBIT ratio

0.9

4.8

5.9

4.0

6.1

5.6

Return on revenues

‒1.2

2.6

3.6

1.9

2.8

2.5

Return on equity (ROE)

‒9.2

17.5

21.6

9.1

11.2

8.6

Return on assets (ROA)

‒0.9

3.3

4.4

2.5

3.5

3.1

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

1.04

1.03

0.86

0.75

0.73

0.78

Total Hitachi, Ltd. stockholders’ equity ratio

14.3

15.7

18.8

21.2

24.1

23.6

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 andadministrative 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 areincluded 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 and its subsidiaries reviewing andreshaping the business portfolio.
3 EBIT is presented as income before income taxes less interest income plus interest charges.
4 Effective from fiscal 2014, a part of the thermal power generation systems business is classified as a discontinued operation in accordance with the provision of ASC 205-20, “Presentation of Financial
Statements—Discontinued Operations,” which was not transferred to MITSUBISHI HITACHI POWER SYSTEMS, LTD. for the business integration in the thermal power generation systems with
Mitsubishi Heavy Industries, Ltd. The results of the discontinued operation are reported separately from continuing operations. In line with this classification, “Revenues” and “Operating income” forfiscal 2013 are reclassified.
5 ROA (Return on Assets) = Net income / Total Assets (Average between the end of current fiscal year and the end of previous fiscal year) x 100

88

Hitachi Integrated Report 2019

IFRS

Millions of yen

For the year:

FY2013

FY2014FY2015FY2016FY2017FY2018

Revenues¥9,666,446

9,774,930¥10,034,305¥9,162,264¥9,368,614¥9,480,619

Adjusted operating income

604,798

641,325

634,869

587,309714,630

754,976EBIT

691,230

534,059

531,003475,182644,257

513,906

Net income attributable to Hitachi, Ltd. stockholders

413,877

217,482

172,155

231,261

362,988

222,546

Net cash provided by operating activities

306,777

451,825

812,226

629,582

727,168

610,025

Net cash used in investing activities(550,179)(612,545)(730,799)(337,955)(474,328)(162,872)

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

81,427

291,627

252,840

447,153

Net cash provided by (used in) financing activities

228,840

233,206(26,467)(209,536)(321,454)(320,426)

Cash dividends declared

50,711

57,94457,93962,76472,41786,905

Capital expenditures (Property, plant and equipment)

491,170

431,201

528,551

377,545374,901

414,798

Depreciation (Property, plant and equipment)

331,228

350,783

366,547

302,757

265,413271,682

R&D expenditures

354,487

334,814

333,730

323,963

332,920

323,145

Total assets

11,098,191

12,433,727

12,551,005

9,663,917

10,106,603

9,626,592

Property, plant and equipment

2,258,933

2,472,497

2,500,226

1,998,411

2,124,827

1,956,685

Total Hitachi, Ltd. stockholders’ equity

2,668,657

2,942,281

2,735,078

2,967,085

3,278,024

3,262,603

Interest-bearing debt

3,033,985

3,557,356

3,604,455

1,176,603

1,050,294

1,004,771

At year-end:

Yen
Per share data:
Earnings per share attributable to Hitachi, Ltd. stockholders:
Basic
DilutedCash dividends declared
Total Hitachi, Ltd. stockholders’ equity¥85.6985.66
10.5
552.62¥45.0445.00
12.0
609.35¥35.6535.62
12.0
566.48¥47.9047.88
13.0614.56¥75.19¥375.93¥230.4775.12
375.60230.25

15.0
75.0

90.0

679.003,395.00

3,378.81%

Financial ratios:
Adjusted operating income ratio

6.3

6.6

6.3

6.4

7.6

8.0

EBIT ratio

7.2

5.5

5.3

5.2

6.9

5.4

Return on revenues

4.3

2.2

1.7

2.5

3.9

2.3

Return on equity (ROE)

17.5

7.8

6.1

8.1

11.6

6.8

Return on assets (ROA)

5.0

2.9

2.4

3.0

5.0

3.3

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

0.78

0.83

0.87

0.29

0.23

0.23

Total Hitachi, Ltd. stockholders’ equity ratio

24.0

23.7

21.8

30.7

32.4

33.9

Notes: 1 In order to be consistent with financial reporting principles and practices generally accepted in Japan, adjusted operating income is presented as total revenues less cost of sales and selling,
general and administrative expenses. The Company believes that this is useful to investors in comparing the Company’s financial results with those of other Japanese companies.
2 A part of the thermal power generation systems business is classified as a discontinued operation in accordance with the provision of IFRS 5, “Non-current Assets Held for Sale andDiscontinued Operations,” which was not transferred to MITSUBISHI HITACHI POWER SYSTEMS, LTD. for the business integration in the thermal power generation systems with Mitsubishi
Heavy Industries, Ltd. The results of the discontinued operation 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 On October 1, 2018, the Company completed the share consolidation of every five shares into one share for its common stock. The figures for basic and diluted earnings per share attributable
to Hitachi, Ltd. stockholders are calculated on the assumption that the Company conducted this consolidation at the beginning of the previous fiscal year.
5 ROA (Return on Assets) = Net income / Total Assets (Average between the end of current fiscal year and the end of previous fiscal year) x 100

89

Data Section

Segment Highlights
Revenues, Adjusted Operating Income and EBIT by Business Segment¥ billion
Revenues

Business Segment

Adjusted operating income

EBIT

FY2017FY2018FY2017FY2018FY2017FY2018

Information & Telecommunication Systems

2,008.9

2,065.9

189.2

225.2

139.2

210.9

Social Infrastructure & Industrial Systems

2,375.0

2,539.8

115.5

151.3

101.2

(151.9)

Electronic Systems & Equipment

1,086.5

951.2

86.9

75.6

88.8

70.8

959.1

1,033.7

92.5

115.7

97.0

104.5

High Functional Materials & Components

1,657.5

1,704.4

121.8

99.9

98.6

86.4

Automotive Systems

1,001.0

971.0

49.5

38.0

42.4

85.3

Smart Life & Ecofriendly Systems

540.1

485.0

25.1

22.4

33.3

29.5

Others

557.7

534.4

21.4

26.8

21.8

25.6

10,186.1

10,285.6

702.3

755.3

622.8

461.3

Corporate items & Eliminations(817.5)(805.0)

12.3

(0.3)

21.4

52.5

Total

9,368.6

9,480.6

714.6

754.9

644.2

513.9

Construction Machinery

Subtotal

Reclassification of Segment
BU: Business Unit

■ Previous Business Segment■ New Business Segment from FY2019

Financial Institutions BU
Information & Telecommunication
Systems

Financial Institutions BU

Social Infrastructure Systems BU
Services & Platforms BU

Social Infrastructure Systems BU
IT
Services & Platforms BU

Nuclear Energy BU

Defense Systems BU

Power BU
Nuclear Energy BU
Industry & Distribution BU
Social Infrastructure & Industrial
Systems

EnergyEnergy BU*1

Water BU

Industry & Distribution BU

Industrial Products BU
Building Systems BU

Industry

Industrial Products Business*3

Railway Systems BU
Defense Systems BU
Healthcare BU

Building Systems BU
Mobility
Railway Systems BU

Electronic Systems & Equipment
Hitachi High-Technologies
Construction Machinery
High Functional Materials &Components

Hitachi Construction Machinery

Water & Environment BU*2

Healthcare BU
Smart Life

Smart Life & Ecofriendly Systems Business*4

Hitachi Metals
Automotive Systems Business*5
Hitachi Chemical
Hitachi Automotive Systems

Automotive Systems
Clarion

Hitachi High-Technologies
Hitachi Construction Machinery

Hitachi Appliances

Hitachi Metals

Hitachi Consumer Marketing

Hitachi Chemical

Smart Life & Ecofriendly Systems*1 As of April 1, 2019, Power BU changed its name to Energy BU.
*2 As of April 1, 2019, Water BU changed its name to Water & Environment BU.
*3 Industrial Products Business includes Hitachi Industrial Products, Ltd., which took over Industrial Products BU as of April 1 2019, and Hitachi Industrial Equipment Systems Co., Ltd.
*4 Smart Life & Ecofriendly Systems Business includes Hitachi Global Life Solutions, Inc., which was formed through a merger of Hitachi Appliances, Inc., and Hitachi Consumer Marketing, Inc.
*5 Automotive Systems Business includes Hitachi Automotive Systems, Ltd.

90

Hitachi Integrated Report 2019

Information & Telecommunication Systems
Share of Revenues

20

Overseas Revenue Ratio

29%

CAPEX by Business Segment

¥34.2

%

Depreciation by Business
Segment¥45.6

Revenues and Profit (¥ billion)(Completion basis)

10.9%
9.4%

billionR&D Expenditure by Business
Segment¥46.9

billionbillion

7.7%
1,982.8

2,008.9

10.2%
2,065.9

6.9%

3.9%

16
Revenues

17

18

Adjusted operating
income ratio(FY)
EBIT ratio

Main products and services
Systems Integration, Consulting, Cloud Services, Servers, Storage, Software, Telecommunications & Network, ATMs

Segment Performance
Revenues increased 3% to ¥2,065.9 billion, as compared with the year

improved profitability in system integration business and IT platform &ended March 31, 2018, due mainly to higher revenues from systemproducts business.

integration business, despite the effect of transfer of a subsidiary
operating communication network equipment business.

EBIT increased ¥71.6 billion to ¥210.9 billion, as compared with theyear ended March 31, 2018, due mainly to the increased adjusted

Adjusted operating income increased ¥36.0 billion to ¥225.2 billion,
as compared with the year ended March 31, 2018, due mainly tooperating income and posting of gains on sales of land formerly usedas production site for telecommunication network products.

Social Infrastructure & Industrial Systems
Share of Revenues

25

Overseas Revenue Ratio

46%

CAPEX by Business Segment(Completion basis)

Depreciation by Business
Segment

¥30.0

¥73.4

%

2,331.9billionR&D Expenditure by Business
Segment

billion¥55.7

Revenues and Profit (¥ billion)

billion2,375.0
4.9%

3.3%

2,539.8
6.0%

4.3%

–0.9%
-6.0%
16
Revenues

17

18

Adjusted operating
income ratio(FY)
EBIT ratio

Main products and services
Industrial Machinery and Plants, Elevators, Escalators, Railway Systems, Thermal, Nuclear and Renewable Energy Power Generation Systems,
Transmission & Distribution Systems

Segment Performance
Revenues increased 7% to ¥2,539.8 billion, as compared with the year

and an improvement in profitability of the industrial products business.

ended March 31, 2018, due mainly to revenue increase in railway

EBIT was worsened by ¥253.2 billion to the loss of ¥151.9 billion, as

systems business for Europe and revenues recognized for overseas

compared with the profit of ¥101.2 billion for the year ended March 31,

EPC project for industry and distribution field.

2018, despite posting of gains on partial sales of shares of Agility Trains

Adjusted operating income increased ¥35.7 billion to ¥151.3 billion,

West (Holdings) Limited stock. The decrease was due mainly to

as compared with the year ended March 31, 2018, due mainly to

impairment losses recognized as the result of the suspension of the UKrevenue increase in the railway systems business, and a higher revenue

nuclear power stations construction project.

91

Data Section

Electronic Systems & Equipment
Share of Revenues

Overseas Revenue Ratio

9

59

%

CAPEX by Business Segment

¥21.5

%

Depreciation by Business
Segment¥12.4

Revenues and Profit (¥ billion)(Completion basis)

8.2%

billionR&D Expenditure by Business
Segment¥46.1

billion

7.0%

7.9%

8.0%

5.7%
1,170.3

7.4%

1,086.5

951.2

billion16
Revenues

17

18

(FY)

Adjusted operating
income ratio

EBIT ratio

Main products and services
Semiconductor Processing Equipment, Test and Measurement Equipment, Advanced Industrial Products, Medical Electronics Equipment

Segment Performance
Revenues decreased 12% to ¥951.2 billion, as compared with the year

Adjusted operating income decreased ¥11.3 billion to ¥75.6 billion,

ended March 31, 2018, due mainly to the effect of reorganization ofas compared with the year ended March 31, 2018, due mainly to the

Hitachi Kokusai Electric Inc., despite increased revenues at Hitachi High-effect of reorganization of Hitachi Kokusai Electric Inc.

Technologies Corporation owing to higher sales of clinical analyzers and

EBIT decreased ¥18.0 billion to ¥70.8 billion, as compared with thesemi-conductor processing equipment and increased revenues inyear ended March 31, 2018, due mainly to decreased adjusted

healthcare business owing to higher sales of radiation therapy systems.

operating income.

Construction Machinery
Share of Revenues

10

Overseas Revenue Ratio

80%

CAPEX by Business Segment

¥30.3

%

Depreciation by Business
Segment¥32.3

Revenues and Profit (¥ billion)(Completion basis)billionR&D Expenditure by Business
Segment

billion

¥24.7

753.9

959.1
10.1%
9.6%

1,033.7
11.2%
10.1%

3.5%
3.0%

billion16
Revenues

17

18

(FY)

Adjusted operating
income ratio

EBIT ratio

Main products and services
Hydraulic Excavators, Wheel Loaders, Mining Machinery

Segment Performance

92

Revenues increased 8% to ¥1,033.7 billion, as compared with the year

EBIT increased ¥7.4 billion to ¥104.5 billion, as compared with theended March 31, 2018, due mainly to increased sales in overseas

year ended March 31, 2018, due mainly to the increased adjusted

countries mainly in North America and Asia-Pacific.

operating income, despite of making a provision for concerns of

Adjusted operating income increased ¥23.2 billion to ¥115.7 billion,

collectability of VAT receivables which were overpaid by the subsidiaryas compared with the year ended March 31, 2018, due mainly to theof Hitachi Construction Machinery Co., Ltd. in China in the year ended

increased revenues.

March 31, 2018 and the increased structural reform expenses.

Hitachi Integrated Report 2019

High Functional Materials & Components
Share of Revenues

Overseas Revenue Ratio

17

CAPEX by Business Segment

Revenues and Profit (¥ billion)(Completion basis)59 ¥143.3%%

Depreciation by Business
Segment¥79.0

billion

8.4%

R&D Expenditure by Business
Segment¥51.1

billion1,464.6

8.2%

1,657.5

1,704.4

7.4%
5.9%
6.0%

5.1%

billion16
Revenues

17

18

Adjusted operating
income ratio(FY)
EBIT ratio

Main products and services
Semiconductor and Display Related Materials, Circuit Boards and Materials, Automotive Parts , Energy Storage Devices, Specialty Steel Products,
Magnetic Materials and Applications, Functional Components and Equipment, Wires, Cables and Related Products

Segment Performance
Revenues increased 3% to ¥1,704.4 billion, as compared with the year

materials for semiconductors and electronics products at Hitachi

ended March 31, 2018, due mainly to the effect of corporate

Metals, Ltd. and effects of changes in product mix at Hitachi Chemicalacquisition by Hitachi Chemical Company, Ltd. and Hitachi Metals,

Company, Ltd.

Ltd., and sales price rise linked to higher raw material costs at Hitachi
Metals, Ltd.

EBIT decreased ¥12.2 billion to ¥86.4 billion, as compared with theyear ended March 31, 2018, due mainly to posting gain on business

Adjusted operating income decreased ¥21.8 billion to ¥99.9 billion,

reorganization and others at Hitachi Metals, Ltd. and a decrease in

as compared with the year ended March 31, 2018, due mainly to

expenses related to competition law and others at Hitachi Chemical

decrease in demand for factory automation-related materials andCompany, Ltd.

Automotive Systems
Share of Revenues

Overseas Revenue Ratio

9

%

56

CAPEX by Business Segment

Revenues and Profit (¥ billion)(Completion basis)

¥73.5

%

992.2

1,001.0

billion

971.0
8.8%

6.6%

Depreciation by Business
Segment¥44.8

R&D Expenditure by Business
Segment

billion

¥64.1

5.7%

5.0%
4.2%

3.9%

17

18

billion16
Revenues

Adjusted operating
income ratio(FY)
EBIT ratio

Main products and services
Engine Powertrain Systems, Electric Powertrain Systems, Integrated Vehicle Control Systems

Segment Performance
Revenues decreased 3% to ¥971.0 billion, as compared with the year

deteriorated operational productivity of the production bases in North

ended March 31, 2018, due mainly to sales decrease in China and North

America.

America and lower revenues from car information systems business.
Adjusted operating income decreased ¥11.5 billion to ¥38.0 billion, due
mainly to the decrease in revenues, changes in product mix and

EBIT increased ¥42.9 billion to ¥85.3 billion, as compared with theyear ended March 31, 2018, due mainly to posting gain on sales of theshares of Clarion Co., Ltd. and others.

93

Data Section

Smart Life & Ecofriendly Systems
Share of Revenues

Overseas Revenue Ratio

5

%

20

CAPEX by Business Segment

¥12.1

%

Depreciation by Business
Segment¥9.2

Revenues and Profit (¥ billion)(Completion basis)

R&D Expenditure by Business
Segment

billion

¥7.9

557.3

540.1

5.7%

6.2%

6.1%

4.6%

4.6%

17

18

billion

4.0%

485.0

billion16
Revenues

Adjusted operating
income ratio(FY)
EBIT ratio

Main products and services
Air-Conditioning Equipment, Room Air Conditioners, Refrigerators, Washing Machines

Segment Performance
Revenues decreased 10% to ¥485.0 billion, as compared with the year
ended March 31, 2018, due mainly to decreased revenues both inJapan and overseas market.
Adjusted operating income decreased ¥2.6 billion to ¥22.4 billion,

94

Hitachi Integrated Report 2019

due mainly to the decline in revenues.
EBIT decreased ¥3.7 billion to ¥29.5 billion, as compared with theyear ended March 31, 2018, due mainly to the decrease in adjusted
operating income.

Operating and Financial Review
1

Operating Results

the year ended March 31, 2018. Impairment losses increased ¥296.3
billion to ¥344.9 billion, as compared with the year ended March 31,
2018. This mainly reflected impairment losses recognized as the result

Summaryof the suspension of the UK nuclear power stations construction¥billion
2018

2019

Percentchange¥9,368.6¥9,480.6

1%

Adjusted operating income

714.6

754.9

6%

EBIT

644.2

513.9

-20%

Income from continuing operations,
before income taxes

638.6

516.5

-19%

Net income attributable to
Hitachi, Ltd. stockholders

362.9

222.5

-39%

Years ended March 31:

Revenues

project in power and energy business. Net gain on businessreorganization and others increased ¥174.8 billion to ¥184.6 billion, as
compared with the year ended March 31, 2018, due mainly to net gain
by selling shares of Hitachi Kokusai Electric Inc. stock, shares ofClarion Co., Ltd. stock in the Automotive Systems segment and a partof shares of Agility Trains West (Holdings) Limited stock in the Social
Infrastructure & Industrial Systems segment. Special termination
benefits increased ¥6.6 billion to ¥22.3 billion, as compared with theyear ended March 31, 2018. Expenses related to competition law andothers decreased ¥12.5 billion to ¥1.7 billion, as compared with theAnalysis of Statement of Operations

year ended March 31, 2018.
Financial income (excluding interest income) increased by 6.6 billion

Revenues increased 1% to ¥9,480.6 billion, as compared with the yearto ¥13.6 billion and financial expenses (excluding interest charges)

ended March 31, 2018, despite the effect of conversion of Hitachi

decreased ¥7.7 billion to ¥3.4 billion, as compared with the year ended

Kokusai Electric Inc. into an equity-method associate. This increase

March 31, 2018, respectively.

was due mainly to an increase in revenues in the Social Infrastructure &Share of loss of investments accounted for using the equity method

Industrial Systems segment owing to an increased revenues from thewas ¥15.0 billion, a deterioration of ¥77.4 billion from the year ended

railway systems business for Europe, in the Construction Machinery

March 31, 2018, due to an exchange loss at a foreign equity-method

segment where sales rose mainly in North America and Asia-Pacific, inassociate and impairment losses for investment on equity-method

the Information & Telecommunications Systems segment where theassociates.

system integration business remained firm and in the High Functional
Materials & Components segment owing to corporate acquisitions by
Hitachi Chemical Company, Ltd. and Hitachi Metals, Ltd.

As a result of the foregoing, EBIT decreased ¥130.3 billion to ¥513.9
billion, as compared with the year ended March 31, 2018.
Interest income increased ¥8.1 billion to ¥23.1 billion, as compared

Cost of sales increased 1% to ¥6,964.6 billion, as compared with thewith the year ended March 31, 2018 and interest charges was ¥20.5

year ended March 31, 2018, and the ratio of cost of sales to revenues

billion, which was the same level as for the year ended March 31,

was 73%, which was the same level as for the year ended March 31,

2018.

2018. Gross profit increased 1% to ¥2,515.9 billion, as compared withthe year ended March 31, 2018.
Selling, general and administrative expenses decreased 1% toIncome from continuing operations, before income taxes decreased¥122.1 billion to ¥516.5 billion, as compared with the year ended
March 31, 2018.

¥1,761.0 billion, as compared with the year ended March 31, 2018,

Income taxes increased ¥54.6 billion to ¥186.3 billion, as comparedand the ratio of selling, general and administrative expenses towith the year ended March 31, 2018, despite of decreased income

revenues was 19%, which was the same level as for the year ended

from continuing operations, before income taxes owing mainly to

March 31, 2018.

impairment losses recognized as the result of the suspension of the UK

Adjusted operating income increased by ¥40.3 billion to ¥754.9

nuclear power stations construction project. This increase was due

billion, as compared with the year ended March 31, 2018. The

mainly to increased taxable income due to such impairment losses

increase was due mainly to higher profits owing to increased revenues

being non-deductible.

and profitability improvement in the Information & Telecommunication
Systems segment, the Social Infrastructure & Industrial Systems
segment and the Construction Machinery segment. The increase waspartially offset by decreased profits in the High Functional Materials &Components segment and the Automotive Systems segment.
Other income increased ¥194.3 billion to ¥206.3 billion and otherexpenses increased ¥301.9 billion to ¥442.6 billion, as compared with

Loss from discontinued operations decreased ¥6.8 billion to ¥9.1
billion, as compared with the year ended March 31, 2018.
Net income decreased ¥169.8 billion to ¥321.0 billion, as comparedwith the year ended March 31, 2018.
Net income attributable to non-controlling interests decreased ¥29.4
billion to ¥98.4 billion, as compared with the year ended March 31,
2018.

the year ended March 31, 2018, respectively. The details are as

As a result of the foregoing, net income attributable to Hitachi, Ltd.

follows. Net gain on sales and disposal of fixed assets was improved

stockholders decreased ¥140.4 billion to ¥222.5 billion, as comparedby ¥20.9 billion and turned to gain of ¥18.4 billion, as compared with

with the year ended March 31, 2018.

95

Data Section

Revenues by Geographic Area

(Other Areas)

The following is an overview of revenues attributed to geographic areas

Revenues in other areas increased 14% to ¥572.3 billion, as comparedbased on customer location.

with the year ended March 31, 2018. This was due mainly to higher
revenues in the Social Infrastructure & Industrial Systems segment¥billionowing to revenues recognized for overseas EPC project for industry

2018

2019

PercentchangeJapan¥4,643.0¥4,664.50%Overseas Revenues Subtotal

4,725.5

4,816.02%

As a result of the foregoing, overseas revenues increased 2% toAsia

2,081.1

2,019.5-3%¥4,816.0 billion, as compared with the year ended March 31, 2018,

North America

1,177.5

1,205.62%

Europe964.4

1,018.5

6%

Other Areas

502.3

572.3

14%

¥9,368.6¥9,480.6

1%Years ended March 31:

Total Revenues

and distribution field.

and the ratio to total revenues was 51%, which was 1% increase ascompared with the year ended March 31, 2018.

2

Summary of Financial Condition, etc.

Japan
Revenues in Japan was ¥4,664.5 billion, which was the same level as

Liquidity and Capital Resources

the year ended March 31, 2018. This was due mainly to increased

Our management considers maintaining an appropriate level ofrevenues in the Information & Systems segment, the High Functionalliquidity and securing adequate funds for current and future

Materials & Components segment and the Construction Machinery

business operations to be important financial objectives. Throughsegment, which offset decreased revenues in the Electronic Systems &efficient management of working capital and selective investment inEquipment owing to the effect of business reorganization of Hitachi

new plants and equipment, we are working to optimize the

Kokusai Electric Inc.

efficiency of capital utilization throughout our business operations.
We endeavor to improve our group cash management by

Overseas

centralizing such management among us and our overseas financial(Asia)

subsidiaries. Our internal sources of funds include cash flows

Revenues in Asia decreased 3% to ¥2,019.5 billion, as compared withgenerated by operating activities and cash on hand. Our

the year ended March 31, 2018. This was due mainly to reduced

management also considers short-term investments to be anrevenues in the Electronic Systems & Equipment segment owing to theimmediately available source of funds. In addition, we raise funds

effect of business reorganization of Hitachi Kokusai Electric Inc. and inboth in the capital markets and from Japanese and international

the Automotive Systems segment, despite higher revenues in thecommercial banks in response to our capital requirements. Our

Social Infrastructure & Industrial Systems segment owing to sales

management’s policy is to finance capital expenditures primarily by

growth in the building systems business in China and in theinternally generated funds and to a lesser extent by funds raised

Construction Machinery segment.

through the issuance of debt and equity securities in domestic andforeign capital markets. In order to flexibly access funding, we(North America)

maintain our shelf registration with the maximum outstanding

Revenues in North America increased 2% to ¥1,205.6 billion, asbalance of ¥300.0 billion.

compared with the year ended March 31, 2018. This was due mainly

We maintain commitment line agreements with a number ofto the higher revenues in the Construction Machinery segment, thedomestic banks under which we may borrow in order to ensure

Social Infrastructure & Industrial Systems segment and the Highefficient access to necessary funds. These commitment line

Functional Materials & Components segment, despite reduced

agreements generally provide for a one-year term, renewable upon

revenues in the Information & Systems segment and the Automotive

mutual agreement between us and each of the lending banks, as well

Systems segment, etc.

as another commitment line agreement with a contract term of three
years ending on July 29, 2019. As of March 31, 2019, our unused

96(Europe)commitment lines totaled ¥465.0 billion, most of which is the balance

Revenues in Europe increased 6% to ¥1,018.5 billion, as compared withof unused loans.

the year ended March 31, 2018. This was due mainly to higher revenues

We receive debt ratings from Moody’s Japan K.K. (Moody’s), S&P

in the Social Infrastructure & Industrial Systems segment, reflecting sales

Global Rating Japan Inc. (S&P), as well as Rating and Investment

growth in the railway systems business, the Construction Machinery

Information, Inc. (R&I). Our debt ratings as of March 31, 2019 were as

segment and the Information & Systems segment.

follows.

Hitachi Integrated Report 2019

Long-term

Short-term

year ended March 31, 2019 were ¥3.7 billion, as compared with

S&P

A

A-1

¥104.8 billion of payments related to short-term debt in the year

Moody’sA3

P–2

ended March 31, 2018. Net cash outflow related to long-term debt*

R&I

A+*

a–1*

Rating Company*R&I changed its rating from A+ to AA- and a-1 to a-1+ in August 2019.

in the year ended March 31, 2019 decreased by ¥67.6 billion, as
compared with the year ended March 31, 2018.
As a result of the foregoing, net cash used in financing activities wasWith our current ratings, we believe that our access to the global¥320.4 billion in the year ended March 31, 2019, a decrease of ¥1.0

capital markets will remain sufficient for our financing needs. We seek

billion compared with the year ended March 31, 2019.

to improve our credit ratings in order to ensure financial flexibility for* The proceeds from long-term debt, less the payments on long-term debt.

liquidity and capital management, and to continue to maintain accessto sufficient funding resources through the capital markets.

As a result of the foregoing, as of March 31, 2019, cash and cash
equivalents were ¥807.5 billion, an increase of ¥109.6 billion from

Cash Flows(Cash Flows from Operating Activities)
Net cash outflow from a change in trade payables increased by ¥114.0
billion, as compared with the year ended March 31, 2018. Net cash

March 31, 2018. Free cash flows, the sum of cash flows fromoperating and investing activities, were an inflow of ¥447.1 billion in theyear ended March 31, 2019, an increase of ¥194.3 billion from the year
ended March 31, 2018.

inflow from a change in trade receivables and contract assets*
decreased by ¥45.4 billion, as compared with the year ended March
31, 2018. Net cash outflow from a change in inventories decreased by¥31.7 billion, as compared with the year ended March 31, 2018.
As a result of the foregoing, net cash provided by operating activitieswas ¥610.0 billion in the year ended March 31, 2019, a decrease of¥117.1 billion compared with the year ended March 31, 2018.
* Due to the implementation of IFRS 15, "change in trade receivables" is presented as "change in tradereceivables and contract assets" from the year ended March 31, 2019.

(Cash Flows from Investing Activities)
Net amount of investments related to property, plant and equipment*was ¥410.6 billion in the year ended March 31, 2019. This net sum
increased by ¥4.1 billion compared with the year ended March 31,
2018. Proceeds from sale of investments in securities and otherfinancial assets (including investments in subsidiaries and investments
accounted for using the equity method) in the year ended March 31,
2019 increased by ¥128.7 billion, as compared with the year ended
March 31, 2018, due mainly to the sale of shares of Clarion Co., Ltd.
Purchase of investments in securities and other financial assets(including investments in subsidiaries and investments accounted forusing the equity method) in the year ended March 31, 2019 decreasedby ¥170.7 billion, as compared with the year ended March 31, 2018,
in which expenses related to acquiring Sullair business were paid.
As a result of the foregoing, net cash used in investing activities was¥162.8 billion in the year ended March 31, 2019, a decrease of ¥311.4
billion compared with the year ended March 31, 2018.

Assets, Liabilities and Equity
As of March 31, 2019, total assets amounted to ¥9,626.5 billion, adecrease of ¥480.0 billion from March 31, 2018. This was due mainly
to impairment losses recognized for the suspension of the UK nuclear
power stations construction project, the conversion of Hitachi Kokusai
Electric Inc. to an equity-method associate, and sales of shares ofClarion Co., Ltd. stock. Cash and cash equivalents as of March 31,
2019 amounted to ¥807.5 billion, an increase of ¥109.6 billion from theamount as of March 31, 2018.
As of March 31, 2019, total interest-bearing debt, the sum of shortterm debt and long-term debt, amounted to ¥1,004.7 billion, adecrease of ¥45.5 billion from March 31, 2018 as a result of repaymentof borrowings. As of March 31, 2019, short-term debt, consisting
mainly of borrowings from banks and commercial paper, amounted to¥111.0 billion, a decrease of ¥10.4 billion from March 31, 2018. As of
March 31, 2019, current portion of long-term debt amounted to¥185.2 billion, an increase of ¥68.0 billion from March 31, 2018. As of
March 31, 2019, long-term debt (excluding current portion), consisting
mainly of debentures, and loans principally from banks and insurancecompanies, amounted to ¥708.4 billion, a decrease of ¥103.1 billion
from March 31, 2018.
As of March 31, 2019, total Hitachi, Ltd. stockholders’ equity
amounted to ¥3,262.6 billion, a decrease of ¥15.4 billion from March
31, 2018. As a result, the ratio of total Hitachi, Ltd. stockholders’equity
to total assets as of March 31, 2019 was 33.9%, compared with* The sum of the purchase of property, plant and equipment and the purchase of intangible assets, less theproceeds from sale of property, plant and equipment, and intangible assets.

32.4% as of March 31, 2018.

(Cash Flows from Financing Activities)

a decrease of ¥81.8 billion from March 31, 2018.

Non-controlling interests as of March 31, 2019 was ¥1,151.8 billion,
Net cash outflow related to purchase of shares of consolidated

Total equity as of March 31, 2019 was ¥4,414.4 billion, a decrease of

subsidiaries from non-controlling interests increased by ¥155.7¥97.2 billion from March 31, 2018. The ratio of interest-bearing debt tobillion, due mainly to the additional acquisition of shares of

total equity was 0.23 times, which was the same level as that as ofAnsaldo STS S.p.A. Proceeds related to short-term debt in the

March 31, 2018.

97

Data Section

Consolidated Statement of Financial Position
March 31, 2019 and 2018

Millions of yen

Assets2018

2019

Cash and cash equivalents¥ 697,964¥ 807,593

Trade receivables

2,501,414—

Current assets

Trade receivables and contract assets
Inventories
Investments in securities and other financial assets—

2,399,933

1,375,232

1,356,762

373,324

284,267

203,866

187,238

5,151,800

5,035,793

Investments accounted for using the equity method

743,407724,461

Investments in securities and other financial assets

716,431568,349

Property, plant and equipment

2,124,827

1,956,685

Intangible assets

1,054,370

960,016

Other current assets
Total current assets
Non-current assets

Other non-current assets
Total non-current assets
Total Assets

315,768

381,288

4,954,803

4,590,799¥10,106,603¥9,626,592¥ 121,439¥ 111,031

117,191

185,250

Liabilities
Current liabilities
Short-term debt
Current portion of long-term debt

254,735

257,792

1,536,983

1,406,012

Accrued expenses

697,185

653,676

Advances received

551,182—

Contract liabilities—

553,510516,679

438,289

3,795,394

3,605,560

Long-term debt

811,664

708,490

Retirement and severance benefits

575,156

526,688

Other non-current liabilities

412,718

371,451

Other financial liabilities
Trade payables

Other current liabilities
Total current liabilities

Non-current liabilities

1,799,538

1,606,629

5,594,932

5,212,189

Common stock

458,790458,790

Capital surplus

575,809463,786

2,105,395

2,287,587

142,167

56,360(4,137)(3,920)Total non-current liabilities
Total Liabilities

EquityHitachi, Ltd. stockholders' equity

Retained earnings
Accumulated other comprehensive income
Treasury stock, at cost
Total Hitachi, Ltd. stockholders' equity
Non-controlling interests
Total Equity
Total Liabilities and Equity

3,278,024

3,262,603

1,233,647

1,151,800

4,511,671

4,414,403¥10,106,603¥9,626,592

Notes: 1 From the fiscal year ended March 31, 2019, the consolidated statement accounts were presented in detail.
2 In adoption of IFRS 15, "Trade receivables" which were included in "Current assets" have been changed to "Trade receivables and contract assets" and "Advances received" which were included in"Current liabilities" have been changed to "Contract liabilities".

98

Hitachi Integrated Report 2019

Consolidated Statement of Profit or Loss
Years ended March 31, 2019 and 2018

Millions of yen
2018

2019

Revenues¥ 9,368,614¥ 9,480,619

Cost of sales(6,866,522)(6,964,635)

Gross profit

2,502,092

2,515,984(1,787,462)(1,761,008)

Selling, general and administrative expenses

714,630

754,976

Other income

12,068206,371

Other expenses(140,686)(442,659)

Financial income

7,005

13,693Financial expenses(11,243)(3,459)

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

62,483(15,016)644,257

513,906

Adjusted operating income

EBIT (Earnings before interest and taxes)
Interest income

14,92823,122

Interest charges(20,539)(20,526)

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

638,646

516,502(131,708)(186,344)

506,938

330,158(16,020)¥

490,918(9,136)¥

321,022

Net income attributable to:
Hitachi, Ltd. stockholders

362,988

222,546

Non-controlling interests

127,930

98,476
Yen

Earnings per share from continuing operations, attributable to Hitachi, Ltd. stockholders
Basic¥392.52¥239.93

Diluted392.17239.70Basic

375.93230.47

Diluted375.60230.25

Earnings per share attributable to Hitachi, Ltd. stockholders

Notes: On October 1, 2018, the Company completed the share consolidation of every five shares into one share for its common stock. The figures for basic and diluted earnings per share attributable to Hitachi,Ltd. stockholders are calculated on the assumption that the Company conducted this consolidation at the beginning of the previous fiscal year.

Consolidated Statement of Comprehensive Income
Years ended March 31, 2019 and 2018

Millions of yen

Net income

2018

2019

¥490,918¥321,022

Other comprehensive income (OCI)
Items not to be reclassified into net income
Net changes in financial assets measured at fair value through OCI

1,530(45,356)

Remeasurements of defined benefit plans

22,753(11,881)

Share of OCI of investments accounted for using the equity method
Total items not to be reclassified into net income

3,302(1,964)

27,585(59,201)

Items that can be reclassified into net income
Foreign currency translation adjustments(8,042)(4,175)

Net changes in cash flow hedges

5,703(6,274)(45)

12,009

Share of OCI of investments accounted for using the equity method(2,384)

1,560

25,201(57,641)¥516,119¥263,381

Hitachi, Ltd. stockholders

382,341

171,140

Non-controlling interests

133,778

92,241

Total items that can be reclassified into net income
Other comprehensive income (OCI)
Comprehensive income
Comprehensive income attributable to:99

Data Section

Consolidated Statement of Changes in Equity
Years ended March 31, 2019 and 2018

Millions of yen
2018

Commonstock

CapitalsurplusRetainedearnings

Accumulated
othercomprehensive
income¥458,790¥577,573¥1,793,570¥141,068

Reclassified into
retained earnings——

16,428Net income——

Other comprehensive income—

Dividends to Hitachi, Ltd.
stockholders

Treasurystock,
at costTotal Hitachi, Ltd.
stockholders’equityNoncontrollinginterests

Total equity¥(3,916)¥2,967,085¥1,129,910¥4,096,995(16,428)

—

—

—

—

362,988——362,988

127,930

490,918——

19,353—

19,353

5,848

25,201——(67,591)——(67,591)—(67,591)

Dividends to non-controllinginterests

—

—

—

—

—

—

(34,395)(34,395)

Acquisition of treasury stock

—

—

—

—

(292)

(292)

—

(292)

Sales of treasury stock

—

(27)

—

—

71

44

—

44

Changes in non-controllinginterests—(1,737)—(1,826)—(3,563)

4,354

791

Total changes in equity—(1,764)

311,825

1,099

(221)

310,939

103,737

414,676

As of March 31, 2018

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

As of March 31, 2017
Changes in equity

Millions of yen
2019

Commonstock

CapitalsurplusRetainedearnings

Accumulated
othercomprehensive
income¥458,790¥575,809¥2,105,395¥142,167

—

—

3,209

458,790575,809

Reclassified into
retained earnings—

Net income

Treasurystock,
at costTotal Hitachi, Ltd.
stockholders’equityNoncontrollinginterests

Total equity¥(4,137)¥3,278,024¥1,233,647¥4,511,671

—

—

3,209

(1,406)

1,803

2,108,604

142,167(4,137)

3,281,233

1,232,241

4,513,474—

33,683(33,683)

—

—

—

—

—

—

222,546——

222,546

98,476

321,022

Other comprehensive loss

—

—

—

(51,406)—(51,406)(6,235)(57,641)

Dividends to Hitachi, Ltd.
stockholders——(77,246)——(77,246)—(77,246)

Dividends to non-controllinginterests

—

—

—

—

—

—

(42,968)(42,968)

Acquisition of treasury stock

—

—

—

—

(231)

(231)

—

(231)

Sales of treasury stock

—

(237)

—

—

448

211

—

211

Changes in non-controllinginterests—(111,786)

—

(718)

—

(112,504)(129,714)(242,218)

Total changes in equity—(112,023)

178,983(85,807)217(18,630)(80,441)(99,071)

As of March 31, 2019

¥458,790¥463,786¥2,287,587¥56,360¥(3,920)¥3,262,603¥1,151,800¥4,414,403

As of March 31, 2018
Cumulative effects ofchanges in accounting policies
Restated balance
Changes in equity

Notes: From the fiscal year ended March 31, 2019, the consolidated statement items were presented in detail.

100

Hitachi Integrated Report 2019

Consolidated Statement of Cash Flows
Years ended March 31, 2019 and 2018

Millions of yen
2018

2019

¥ 490,918¥ 321,022

Cash flows from operating activities
Net income
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation and amortization

364,432

368,044

Impairment losses

48,656344,997

Income taxes

131,659

183,699

Share of (profits) losses of investments accounted for using the equity method(62,483)

15,016(862)(6,387)

Net (gain) loss on business reorganization and others(9,774)(184,630)(Gain) loss on sale of property, plant and equipment

2,395(18,966)

Change in trade receivables

47,216

—

—

1,793

Change in inventories(181,207)(149,500)

Change in other assets(17,321)(13,419)

Change in trade payables

97,923(16,107)

Change in retirement and severance benefits(40,137)(38,461)

Change in other liabilities

44,320(35,257)

Other(7,743)

3,925

907,992

775,769

9,767

22,343Financial income and expenses

Change in trade receivables and contract assets

SubtotalInterest received
Dividends received

17,902

22,710Interest paid

(21,582)(22,530)

Income taxes paid

(186,911)(188,267)

727,168

610,025

Purchase of property, plant and equipment(352,047)(382,351)

Purchase of intangible assets(91,528)(89,898)

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

37,076

61,623Purchase of investments in securities and other financial assets (including investments in subsidiaries andinvestments accounted for using the equity method)(243,124)(72,422)

Proceeds from sale of investments in securities and other financial assets (including investments in subsidiaries
and investments accounted for using the equity method)

178,188306,971(2,893)

13,205(474,328)(162,872)

252,840

447,153

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

Other
Net cash provided by (used in) investing activities
Free cash flows
Cash flows from financing activities
Change in short-term debt, net(104,819)

3,706

Proceeds from long-term debt

143,354

87,636

Payments on long-term debt

(256,944)(133,581)

3,953

5,149

Dividends paid to Hitachi, Ltd. stockholders(67,568)(77,194)

Dividends paid to non-controlling interests(32,066)(43,375)

Acquisition of common stock for treasury

(292)

(231)

Proceeds from payments from non-controlling interests

Proceeds from sales of treasury stock
Purchase of shares of consolidated subsidiaries from non-controlling interests

49

211

(6,982)(162,692)

Proceeds from partial sales of shares of consolidated subsidiaries to non-controlling interests

205

—

Other

(344)

(55)

Net cash provided by (used in) financing activities(321,454)(320,426)

Effect of exchange rate changes on cash and cash equivalents

1,336(17,098)(67,278)

109,629

Change in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year

765,242

697,964¥ 697,964¥ 807,593

Notes: 1 From the fiscal year ended March 31, 2019, the consolidated statement items were presented in detail.
2 Changes in presentation have been made due to materiality of some cash-flow items as a result of business reorganization and others. “Purchase of leased assets”, which was separately presented, hasbeen included in “Purchase of property, plant and equipment” or “Purchase of intangible assets”. “Proceeds from sale of leased assets”, which were separately presented, have been included in“Proceeds from sale of property, plant and equipment, and intangible assets”.
The consolidated statement of cash flows for the year ended March 31, 2018 has been reclassified in order to reflect these changes in presentation.

101

Data Section

5-Year Non-Financial Data
Human Capital Development
Number of employees

FY2014FY2015FY2016FY2017FY2018

Consolidated

336,670

335,244

303,887

307,275

295,941

Non-consolidated

31,37518.4
1.4

37,35318.4
1.3

35,63118.6
1.5

34,92518.8
1.5

33,490
19.0
1.6

16.3
6.0
(3,670)
3.7
(434)

16.5
6.4
(3,727)
4.0
(474)

16.8
6.3
(3,365)
4.1
(509)

17.2
6.4
(3,459)
4.2
(577)

17.8
6.8
(3,638)
4.8
(635)

—
—
—
—
—
—
—
—
—
—
—

—
—
—
—
—
—
—
—
—
—
—

27.65
2.33
10.70
2.07
1.59
5.43
39.07
17.26
7.76
1.57
3.95

24.33
1.62
10.82
1.44
1.53
4.41
24.41
9.93
7.42
1.85
4.22

27.96
0.44
6.08
1.44
1.46
3.34
21.94
11.76
7.43
1.64
4.20

3

4

3

5

0

Average service (years)*1
Turnover ratio (%)*1*2
Diversity and Inclusion

Ratio of female employees (%)*1
Global ratio (number) of female managers*3
Ratio (number) of female managers*1*4

Hitachi Group’s Global Safety Figures (Occurrence rate*5)

Americas
Latin America
EuropeIndia
China
Asia (excluding India and China)
Oceania
AfricaSubtotalJapan
Global total
Occupational Health and Safety

Number of fatal accidents*6

Scope of Data
*1 Hitachi, Ltd. *2 Includes only voluntary resignations. *3 All full-time, regular female managers excluding those dispatched to non-Group companies.
*4 Since fiscal 2017, “Female managers” has included managerial employees dispatched from Hitachi, Ltd. to other companies and those accepted from other companies by Hitachi, Ltd. Earlier figures include regular managerial
employees dispatched to other companies but exclude those accepted from other companies.
*5 Occurrence rate is the rate of workplace accidents per 1,000 directly contracted employees resulting in fatality or work-time loss of one day or more. *6 January to December each year.

June 2017

June 2018

June 2019

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

2
2.4%
3

2
2.6%
5

4
5.0%
7

Ratio of non-Japanese executive and corporate officers

3.7%

6.4%

8.8%

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

Research and Development

FY2014FY2015FY2016FY2017FY2018

Ratio of R&D expenditure to revenue (%)

3.4

3.3

3.5

3.6

3.4

Patent application ratio outside Japan (%)

59

59

57

56

58

Scope of Data
Hitachi, Ltd. and consolidated subsidiaries (including variable interest entities).
Number of companies: FY2014: 996; FY2015: 1,057; FY2016: 865; FY2017: 880; FY2018: 804.

FY2018 Cumulative total

Responsible Procurement, Status of CSR Procurement Policies
CSR monitoring (self-check)
CSR audits
Supplier briefings

345 companies

1,510*1

24 companies
126 companies

130*2
235*3

*1 Total number of companies during FY2012-2018 *2 Total number of companies during FY2012-2018 *3 Total number of companies during FY2015-2018

Environment
Rate of reduction in CO2 emissions from use of products and services (base: FY2010)*1 (%)
CO2 emissions from factories and offices (kt-CO2)
Water use (million m3)
Waste and valuables generation (kt)Atmospheric emissions of chemical substances (t)FY2014FY2015FY2016FY2017FY2018

—
4,128
4,686
692
4,415

—
3,895
4,391
618
3,615

35
4,577*2
4,134*2
1,336*2
4,380*2*3

33
4,663*2
3,854*2
1,356*2
4,223*2*3

34
4,470*2
3,702*2
1,384*2
4,392 *2 *3

Scope of Data
Hitachi, Ltd. and consolidated subsidiaries.
Number of companies: FY2014: 996; FY2015: 1,057; FY2016: 865; FY2017: 880; FY2018: 804.
Environmental performance data associated with Hitachi’s business operations: Hitachi Group companies for which the environmental load accounts for 90% of the total(based on Hitachi calculations); data for each fiscal year indicates performance within the given scope for the fiscal year.
*1 New indicator established in fiscal 2016.
*2 Figures include a materials company that has become a consolidated member of the Hitachi Group since fiscal 2016.
*3 The management scope of chemical substances has been expanded from 41 to 50 substances since fiscal 2016.
Independent Assurance of Environmental and Social Data
To enhance the reliability of the data disclosed in the Hitachi Sustainability Report 2018, we have received independent assurance of key
environmental and social performance indicators by KPMG AZSA Sustainability Co., Ltd.
Please refer to the Third-Party Assurance Report of the Hitachi Sustainability Report 2019.
https://www.hitachi.com/sustainability/download/index.html

102

Hitachi Integrated Report 2019

Hitachi Group Business Operation Framework

IT

EnergyMobility

Industry

Smart Life

Hitachi, Ltd.

Five Sectors

Financial Institutions Business Unit

SubsidiarySocial Infrastructure Systems Business Unit

Subsidiary

Services & Platforms Business Unit

Subsidiary

Defense Systems Business Unit

Subsidiary

Nuclear Energy Business Unit

Subsidiary

Energy Business Unit

Subsidiary

Building Systems Business Unit

Subsidiary

Railway Systems Business Unit

Subsidiary

Industry & Distribution Business Unit

Subsidiary

Water & Environment Business Unit

Subsidiary

Hitachi Industrial Products, Ltd.

Subsidiary

Hitachi Industrial Equipment Systems Co., Ltd.

Subsidiary

Hitachi Automotive Systems, Ltd.

Subsidiary

Hitachi Global Life Solutions, Inc.

Subsidiary

Healthcare Business Unit

Subsidiary

Hitachi High-Technologies

Subsidiary

Hitachi Construction Machinery

Subsidiary

Hitachi Metals

Subsidiary

Hitachi Chemical

Subsidiary

Regional Headquarters

Subsidiary

Shared Service Companies, etc.

SubsidiaryBusiness Units

Other

Listed Companies

Keywords to Understand Hitachi Value Creation
Society 5.0
Society 5.0 expresses a new idea of society and related efforts toachieve this, as advocated by the Japanese government. The aim is todevelop the economy while addressing societal issues by deploying AI,
IoT, robots and other forms of advanced science and technology tomake use of various data creating an affluent, human-centered society.
The name refers to the evolution of a fifth form of society, continuingfrom the hunter-gatherer, agrarian, industrial, and information societies.
Social Innovation Business
Our Social Innovation Business accelerates collaborative creation withcustomers using the latest digital technologies in a wide range of fields,
including social infrastructure. It also solves various issues faced by society andcustomers by taking advantage of the Hitachi Group's business bases; its totalsolutions, which combine the operational technology (OT), IT, products andsystems it has cultivated over many years; digital solutions such as Lumada;and open innovation achieved through partnerships with operators worldwide.
Hitachi strengths: OT x IT x Products
Hitachi works to provide solutions that utilize digital technology toresolve issues facing customers and society by applying its operational
technology (OT), which boasts a track record of more than 100 years;
its information technology (IT), which has continued to develop for morethan 50 years; and its products, which it has developed andmanufactured using its own technology since its founding.
Lumada Business
Lumada is Hitachi's advanced digital solutions, services, and technologies
for turning customers' data into insights to drive digital innovation. It isderived from the words “illuminate” and “data.” Customer cases refer tocollaborative creation processes of the Lumada business, as well as thoseof which are models for the digital solutions that we have cultivated thus
far. Lumada Solution Hub is a system that packages Lumada solutions
and application development environments in forms that are easy to
implement and provides them on cloud platforms.
NEXPERIENCEThis is a methodology for collaborative creation with customers
advocated by Hitachi. It develops new businesses while visualizing
various insight from multiple perspectives through workshops withcustomers. The approach comprises of "methods" for creating new
businesses, "IT tools" that support the methods and "collaborative
creation spaces for customers" that support discussions at workshops.

103

Data Section

Corporate Data / Stock Information
As of March 31, 2019

Corporate Name
Hitachi, Ltd. (Kabushiki Kaisha
Hitachi Seisakusho)

Number of Shares Issued 		
Common Stock(including treasury stock)

Investor Relations Contacts

966,692,677 shares

6-6, Marunouchi 1-chome,

JAPAN
Hitachi, Ltd.

URL
https://www.hitachi.com/

Chiyoda-ku, Tokyo 100-8280

Number of Shareholders

TEL: +81-3-3258-1111
E-mail: ir.info.hq@hitachi.com

327,497

Principal Office
6-6, Marunouchi 1-chome,
Chiyoda-ku, Tokyo 100-8280, Japan

U.S.A.

Administrator of
Shareholders’ Register

Hitachi America, Ltd.
50 Prospect Avenue,

Tokyo Securities Transfer Agent Co., Ltd.

Founded1910 (Incorporated in 1920)

Capital Stock458,790 million yen

Number of Employees
295,941

Tarrytown, NY 10591

6th Floor, NMF Takebashi Building,

TEL: +1-914-333-2994

3-11, Kanda Nishiki-cho,
Chiyoda-ku, Tokyo 101-0054, Japan

U.K.
Hitachi Europe Ltd.

Stock Exchange Listings

Whitebrook Park,Tokyo, Nagoya

Lower Cookham Road,
Maidenhead, Berkshire SL6 8YA

Accounting Auditor

TEL: +44-1628-585384

Ernst & Young ShinNihon LLC

10 Largest Shareholders
Number of Shares(shares)

Percentage of Total(%)

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

71,017,400

7.35Japan Trustee Services Bank, Ltd. (Trust Account)

61,402,500

6.36

Hitachi Employees’ Shareholding Association

20,694,676

2.14Japan Trustee Services Bank, Ltd. (Trust Account 9)

20,016,500

2.07

Nippon Life Insurance Company

18,652,999

1.93Japan Trustee Services Bank, Ltd. (Trust Account 5)

17,676,200

1.83

STATE STREET BANK WEST CLIENT-TREATY 505234

16,620,287

1.72

STATE STREET BANK AND TRUST COMPANY 505001

15,466,269

1.60

JP MORGAN CHASE BANK 385151

15,016,920

1.56

STATE STREET BANK AND TRUST COMPANY 505223

14,728,535

1.53

Name

Note: Treasury stock (1,086,667 shares) is not included in the calculation of "Shareholding Ratio."

Ratings
Rating Company

Long-term

Short-termStandard & Poor's Ratings Japan (S&P)

A

A–1

Moody's Japan K.K. (Moody's)

A3

P–2

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

A+*

a–1*

* R&I changed its outlooks from A+ to AA- and a-1 to a-1+ in August 2019.

104

Hitachi Integrated Report 2019

Government and Municipality

Shareholder Composition
Class of Shareholders
Financial Institution and Securities Firm

Number of
Shareholders
338

339,660,799

322,738

192,695,071

Foreign Investor

1,423

417,931,258

Other

2,993

16,390,237

5

15,312

327,497

966,692,677

Individual

Government and Municipality
Total

0.00%

Share Ownership(shares)

Financial Institution
and Securities Firm

Other

35.14%

1.70%

Shareholder
Composition

966,692,677

ForeignInvestor* Treasury stock is included in “Other.”

43.23%

Individual

19.93%

Publication of the Hitachi Integrated Report 2019
Please allow me the opportunity to share a few words as the

I hope that this integrated report will help stakeholders,

supervisor overseeing the publication of Hitachi Integrated

including customers, shareholders and investors, to better

Report 2019.

understand the Hitachi Group and provide an opportunity for

Since fiscal 2016, Hitachi has been publishing an integrated

constructive discussion. Furthermore, we plan to enhance ourreport with the goal of creating deeper understanding

disclosure and raise transparency moving forward, so please

concerning how the Hitachi Group will create value over the

feel free to share any opinions you may have without reserve.

medium to long term.
In the 2019 edition, our fourth edition, we introduce thevisions and goals outlined in our new 2021 Mid-termManagement Plan, which was announced in May 2019, as well

September 2019
Hidenobu Nakahata

as initiatives that aim to raise corporate value by achieving theRepresentative Executive Officer,

plan’s goals. Our CEO has also included a signed message at

Senior Vice President and Executive Officer,

the top of the report on behalf of our management team.

Head of Legal, Risk Management and Corporate Communications,
CHRO, General Manager of Human Capital Group, and Deputy
Manager of Safety Management Division

Website Information
Detailed information is available on the Company’s website.

About Hitachi Group

Investor Relations

Sustainability

https://www.hitachi.co.jp/about/corporate/(Japanese)

https://www.hitachi.co.jp/IR/(Japanese)

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

https://www.hitachi.com/corporate/about/(English)https://www.hitachi.com/IR-e/(English)https://www.hitachi.com/sustainability/(English)105