Hitachi Integrated Report 2022

CEO Message

Whatʼs Hitachi

Introduction

The Story of Collaborative Value Creation with Stakeholders

Mid-term Management Plan 2024

Value CreationMateriality

Business Strategies

The Value Creation Process

Sustainability

Mid-term Management Plan 2024

Corporate Governance
Human Resources Strategies

Data22Financial Strategies

CFO Message

Mode Change for GrowthWith a corporate philosophy focused on “contributing to society through the development of superior, original technology and products,” Hitachi aims to evolve even further through the provision ofcompetitive products and services that provide customers with even higher value. Our basic management policy is to enhance shareholder value through strengthened competitiveness, achieve growthin global markets and meet the expectations of our stakeholders, including customers, shareholders and employees, by maximizing the use of various management resources within the Hitachi Group,
as well as reviewing and reorganizing businesses.

Ideal Positioning in the Mid-term Management Plan 2024
With the three growth drivers of digital, green and innovation,
the Mid-term Management Plan 2024 Plan aims to realize
global growth. Under this plan, Hitachi will protect the global
environment so as not to exceed planetary boundaries
and contribute to the realization of a sustainable society
where wellbeing (human happiness) is maintained so that all
members of society can be comfortable and active.

DigitalGreenWith an understanding of management issues faced bycustomers, Hitachi will contribute to the enhancement ofcustomer business value through a cycle of co-creation
with customers, which involves designing, implementing,managing and maintaining solutions, while working to resolve
subsequent issues.
We will expand earnings and achieve global growth byleveraging digital technologies to drive the value co-creation
cycle.

Hitachi will lead global GX (Green Transformation) by switching
to renewable energy, electrification, energy conservation
and automation, and contribute to the realization of asustainable society. We will proactively invest in the green
field to contribute to an annual reduction in CO2 emissionsof approximately 100 million metric tons by fiscal 2024.
Additionally, we will promote decarbonization in order torealize Hitachi Environmental Innovation 2050, which aims toachieve carbon neutrality throughout the value chain by fiscal
2050. Leveraging knowledge gained through this process
and providing environmental value tailored to each businessdomain and region, we aim to realize both a sustainable
society and growth of the Hitachi Group.

Supporting people’s quality of life with data and technology that foster a sustainable society

Protect the earth
while maintaining
social infrastructure

ation for Soc
iet
creo

Innovation

yPlanetary
Boundaries

CGrowthWellbeing

GreenDigital
Innovation

A society where
every individual is
comfortable and activePeople

Society

Customers (Power, Transport)

Customers (Financial, Public Services)

Customers (Industry, Urban)

Customers (Vehicle)

Green Energy & Mobility

Digital Systems & Services

Connective Industries

Hitachi Astemo

Focusing on its vision for the world in 2050, Hitachi will identify
areas where R&D is required while striving to create innovativetechnologies and products contributing to the resolution ofsocial issues. At the same time, we will increase the speedof innovation by further accelerating collaborations withpromising startups, government and academia.
In April 2022, Hitachi simplified its structure, grouping together
businesses with similar characteristics organized into threesectors: Digital Systems & Services (DSS), Green Energy &Mobility (GEM) and Connective Industries (CI) to streamline andspeed up its management function. With the addition of theAutomotive Systems Business (Hitachi Astemo), we will execute
these three growth strategies and provide value to customers.

Hitachi Integrated Report 2022

CEO Message

Whatʼs Hitachi

Introduction

The Story of Collaborative Value Creation with Stakeholders

Value Creation

Materiality

Business Strategies

The Value Creation Process

Sustainability

Human Resources Strategies

Mid-term Management Plan 2024

Data23Financial Strategies

CFO Message

Corporate Governance

Performance Targets
Adjusted EBITA
Margin*1

Revenue growth

5%–7%

12%

FY2021–FY2024
CAGR

EPS*2 growthCore FCF*3(3-year cumulative)

ROIC

10%–14% 1.4 trillion yen
FY2021–FY2024
CAGR

10%

Of which about half isreturned to shareholders*1 Adjusted EBITA = Adjusted operating income − acquisition-related amortization + equity in earnings (losses) of affiliates*2 Includes share buybacks. *3 Core FCF: Cash flows from operating activities – CAPEX

Under the Mid-term Management Plan 2024, in addition to top-line and bottom-line growth,
we will focus on generating cash to be used for growth and shareholder returns. In terms ofmanagement indicators, we have introduced new indicators comprising adjusted EBITA, whichindicates primary business profitability; EPS, which indicates growth potential; and core FCF,
which indicates the ability to organically generate cash. We will increase shareholder valueby allocating approximately half of the core free cash flows generated to shareholder returns.

Business Portfolio Enhancements
Groupwide growth will be driven by increased revenue and profit from the Lumada business.
During the Mid-term Management Plan 2024, we will double Lumada business revenue and increaseadjusted EBITA to one-third of the whole. At the same time, with regard to business other than
Lumada, we will maintain stable growth in the IT, OT and product businesses while working to further
enhance profitability.
To achieve growth through Lumada business expansion, we will accelerate digital transformations,expanding Lumada digital technologies to existing businesses. We will also utilize large-scale assets
acquired through M&A in an effort to increase the service recurring ratio.

Hitachi Growth driven by the Lumada Business
Revenues
HitachiGroupLumada
business
IT/OT/Productsbusiness(trillion yen)

Adjusted EBITA / Margin

10

1.2

CAGR 6%

8.3
1.4

CAGR
24%

2.7

trillionyen
3.5

0.4

3.0

0.7

2.5

/ 9% ＋4%

2.0

0.2

6.9

CAGR
2%

7.3

/ 12%+3%/ 11%/ 8%

FY2021

FY2024FY2021

Adjusted EBITA
Margin 15%

2.2
0.6

CAGR
７%

ROIC
10%

2.6
1.2

1.5

0.8

0.5

Mid-term Management Plan 2024 Performance Targets by Sector
RevenuesLumada revenue
Digital Systems & Services
Green Energy & Mobility
Connective Industries/ 12%/ 16%

1.0

0.6

0.5

FY2024For example, Hitachi Energy can achieve maintenance advances and develop energy digital solutions
in various fields such as control by leveraging GlobalLogic and Lumada. Similarly, in the Railway
Systems Business Unit, we will further accelerate digital transformations through M&A and transform
our business model by incorporating Thales’ railway signal–related business, scheduled for acquisition
during fiscal 2022, and expanding the MaaS business.
In addition to the transition to a highly profitable business model, we will continue to implement
structural reforms aimed at achieving adjusted EBITA margins above 10% and ROIC of 10% or higher
across all businesses.
For details on the growth strategies of other business divisions, refer to the section starting on page 51.

0

FY2021

FY2024

Adjusted EBITA
trillion
Margin 10%
yen
3.5
3.0
2.5
2.0

CAGR
8%

2.1
0.2

ROIC
8%

2.6
0.34

trillion
yen
3.5
3.0
2.5

Adjusted EBITA
Margin 13%

2.8
0.5

CAGR５%

ROIC
13%

3.2

Hitachi Astemo
Adjusted EBITA
trillion
Margin 9%
yen
3.5
3.0

1.1

2.5

2.0

2.0

1.5

1.5

1.5

1.0

1.0

1.0

0.5

0.5

0.50

FY2021

FY20240

FY2021ROIC
11%

FY2024

0CAGR
8%

2.0

1.6

FY2021

FY2024