Progress of 2015 Mid-term Management Plan

Progress until end of Fiscal 2014

Measures for Fiscal 2015

GLOBAL
Global business expanded steadily,
especially in the North American market

Acceleration of global business development
initiatives through the use of IT• Expanded financial solution services- Payment services, ATM (India, China)•	Gained first contract to provide “AT-200”commuter train (Europe)•	Launched demonstration of “CrystEna“ energy storage system(North America)•	Expanded business in growing North American auto market- Expanded customer base for automotive cast products byacquiring Waupaca Foundry, Inc. (Hitachi Metals)• Business rollout in IoT market-A cquire Pentaho Corporation, which has advanced data analytics
software technologies and an extensive customer base (North America)• Expand solutions using IT (analytics)
Overseas revenue ratio (U.S. GAAP)FY2013 Result

FY2014 Result

FY201545%

47%

Forecast
50%

Initial target
Over 50%INNOVATION
O&M services revenue expanded

Strengthen profitable service businesses•	Strengthened maintenance service by cloud remote monitoringsystem•	Expanded operation services of information business including BPO•	Expand long-term fee service business (Train and Energy)•	Utilize telecommunication technology in social infrastructure field➞ Expand IoT service business• Create new service business utilizing IT (analytics)
Provide comprehensive services to customers combining
the Hitachi Group’s assets and capabilities through IT
China Smart
Logistics

Procurement Service: VMI Operation / Factoring
Procurement EDI Service: e-commerce for
procurement business
Logistics Service: 3PL, JIT delivery

TRANSFORMATION
Achieved cost reductions exceeding targets inFiscal 2014

Strengthen measures aimed at increasing cash•	Achieved cost reduction of 320 billion yen as a cumulative total

Reduction of Cost of Sales
Further cost reduction throughout the entire value chain / Improve
operational efficiency; e.g., design and manufacturing operationsfor FY2014•	CCC (Manufacturing, Services and Others) is on par with theprevious year, due to increased inventory resulting from changes in
the market environment and concentration of sales at the end of
the fiscal year
(81.3 days in FY2013 ➞ 81.5 days in FY2014)

Reduction of cost of sales and SG&A* (+100 billion yen)

Reduction of SG&A
Review all aspects of fixed costs in Japan / Reduce indirect materials
Improvement of CCC (Manufacturing, Services and Others)(5-day reduction, +130 billion yen)
Review inventory assets / Improve cash flow / Improve cash management /Business process reforms* SG&A: Selling, General & Administrative expenses

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Hitachi, Ltd. | Annual Report 2015

Overseas revenue (Billion yen)

* CAGR: Compound Annual Growth Rate

Europe

China

Asia

North America

CAGR*: 6.4%

CAGR: 7.5%

CAGR: 5.4%

CAGR: 16.2%

1,073.6759.7

FY2013Result844.7

860.0

FY2014
ResultFY2015
Forecast

1,157.2

FY2013Result1,240.0
989.9

FY2014
Result

FY2015
Forecast

FY2013ResultService revenues / Service revenues ratio(U.S. GAAP)¥3,100 billion
32%¥3,400 billion
35%¥3,800 billion
38%

1,230.0

1,059.4 1,100.0

1,060.4
910.2

FY2014
Result

FY2015
Forecast

FY2013ResultCost reduction effects(U.S. GAAP)FY2014
Result

FY2015
Forecast

Single-year benefit (billion yen)
Cumulative benefit (billion yen)Over
¥4,000 billion
Over 40%

420.0

400.0

320.0
100.0
220.0
110.0
110.0
75.035.0

FY2013ResultFY2014
ResultFY2015
Forecast

FY2015InitialTarget

FY2011ResultFY2012
ResultFY2013
ResultFY2014
ResultFY2015
ForecastFY2015
InitialTargetFuture plans of cost structure reform
Reap benefits to achieve the targets of the 2015 Mid-term Management Plan and commence initiatives in anticipation ofthe next mid-term plan
FY2014FY2015FY2016

Cost structure reform
CCC reforms
Establish business base
Cost structure reform

Productioncosts
DirectMaterials costs

Global SCM reforms
Modular design and globally decentralized design
Accelerate centralized purchasing
Strengthen engineered sourcing
Global logistics reforms

Indirectcosts

Centralize common operating expenses
Expand introduction of shared services in Japan and overseas

Process-focused reforms

Headquarters reforms / Group structure reforms
Reforms focused on cost areas and functions
CCC reforms

Strengthen pipeline and phase gate management processes
Improve payment conditions
Strengthen coordination between divisions, increase operational efficiency and improve accuracy
Build a management visualization platform

Establish business base

Establish a business base to support the Social Innovation Business9

Progress of 2015 Mid-term Management Plan

Hitachi toward Social Innovation Business
Hitachi is accelerating global business development initiatives in the Social Innovation Business, which
identifies and resolves the problems faced by society and customers. These problems are growing moreadvanced and complex, and to address them Hitachi places high priority on front-line capabilities, whichenable us to work side-by-side with customers in each industry and region to create solutions. Moreover,
we believe that the realization of our future vision will require the establishment and reinforcement of
three levels of capabilities. In addition to front-line function, these include analytics / control function(common platforms), which enables the realization of higher-value-added solutions through the use of big
data and other initiatives, and product function, which supports solutions.

Basic ApproachesCustomer• Create innovation with customer-orientedapproach“Front-line” Function•	Concentrate and strengthen front-line
resources, including sales, consulting, andengineering•	Deliver solutions under regional autonomous management(Sales, Engineering, SI, Consulting)

Healthcare

EnergyFinanceRegion(North America,China, etc.)• Unified development of IT / OT platforms
to deliver Innovation as a Service“Platform” Function(Analytics, OT*)

• Acquire technology base for innovation(Acquisition of Pentaho, etc.)(Common Platform)
IT Platform Business
OT Platform Business* Operation Technology• Provide cutting-edge products, softwareand service that bring about innovation“Product / Software /Service” Function• Provide globally-competitive products(Globally-Competitive Business)
Industrial Products Business
IT Products / Software Business
O&M Service Business

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Hitachi, Ltd. | Annual Report 2015

Front-line capabilities by industry•	Establishing business entities for the provision of solutions — established healthcare and energy solutions companies and consolidated front-line capabilities•	Consolidating systems integration capabilities in the financial, public sector, and social fields — strengthened systems integration capabilities, such as byabsorbing businesses in the financial, public sector, and social fields into Hitachi Solutions

Global Management•	Appointment of Chief Executives in four regions: the Americas, China, Asia-Pacific, and EMEA-CIS (Europe, Russia, Middle East, and others)•	Transition to system of “autonomous distributed global management” under which each region autonomously takes the lead in the Social Innovation
Business and works to create value
Global Region

Countries / Regions covered

Chief Executive

Business areas

The Americas

North, Central, and South America

John Domme

Energy, Communications, Healthcare, Connected cars, Security

Europe / Russia / Middle Eastand other areas (“EMEA･CIS”)

Europe, Russia･CIS,
Middle East, Turkey, Africa

Klaus Dieter Rennert

Production / SCM, Energy, Healthcare

China

China

Kenichi Kokubo

Urban planning / development and building facility management,
Finance, Healthcare, Smart logistics

Asia / Pacific

ASEAN, India, Oceania, Korea

Ichiro Iino

Healthcare, Finance, Developers and conglomerates

Global R&D•	Reorganized R&D structure in April 2015 to promote R&D from the customer’s perspective•	Established Global Center for Social Innovation to lead from the front with new solutions, working together with customers to visualize issues

Hitachi’s New R&D Structure
R&D GroupTechnology Strategy OfficeCentral Research Laboratory

R&D GroupTechnology Strategy Office
Global Center for Social Innovation
Global Center for Social Innovation(Tokyo, North America, China, Europe) (Approx. 500 people)

Hitachi Research Laboratory
Yokohama Research Laboratory

Center for Technology Innovation
Center for Technology Innovation (Information & Telecommunications,

Design Division
Overseas research centers

Mechanical engineering, Energy, etc.) (Approx. 2,000 people)

Center for Exploratory Research (Approx. 100 people)

Supply core products that support the Social Innovation Business

Consolidate our industrial
products business

Strengthen and Optimization• Strengthen product competitiveness• Optimize sales, service, and production
structures• Invest in priority areas, etc.

Industrial
Products
CompanyInfrastructure
SystemsCompany• Compressors (large)• Pumps (large-medium)• Inverters (high and medium voltage)• Power electronics products (UPSs, etc.)

Power Systems • Motor (high-medium voltage)
Company• Substation control devices

Hitachi Industrial
Equipment Systems• Compressors (medium-small)• Motors and inverters (low voltage)• Transformers (low voltage), etc.

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