Operating and Financial Review

Operating Results
Effective from April 1, 2016, the Company changed thename of the Others (Logistics and Other services)segment to the Others segment.

Summary
Billions of yen
Years ended March 31:

Revenues

2016

2017

Percentchange¥10,034.3¥9,162.2

–9%

EBIT

531.0

475.1

–11%

Income fromcontinuing operations,
before income taxes

517.0

469.0

–9%

Net income attributable
to Hitachi, Ltd.
stockholders

172.1

231.2

34%

Analysis of Statement of Operations
Revenues decreased 9% to ¥9,162.2 billion, as comparedwith the year ended March 31, 2016. This was due mainly
to lower revenues in the Information & Telecommunication
Systems, High Functional Materials & Components, Smart
Life & Ecofriendly Systems, Others and Financial Services
segments. This decrease was partially offset by higher
revenues in the Electronic Systems & Equipment segment.
Cost of sales decreased 9% to ¥6,782.6 billion, as
compared with the year ended March 31, 2016, and theratio of cost of sales to revenues was 74%, which was thesame level as the year ended March 31, 2016. Gross profit
decreased 8% to ¥2,379.5 billion, as compared with theyear ended March 31, 2016.
Selling, general and administrative expenses decreased¥148.0 billion to ¥1,792.2 billion, as compared with the year
ended March 31, 2016, and the ratio of selling, general andadministrative expenses to revenues was 20%, ascompared with 19% for the year ended March 31, 2016.

54

Hitachi, Ltd. Integrated Report 2017

Other income increased ¥43.2 billion to ¥100.7 billion andother expenses increased ¥4.6 billion to ¥146.5 billion, as
compared with the year ended March 31, 2016. The details
are as follows.
Net gain on sales and disposal of fixed assets improvedby ¥19.5 billion, as compared with the year ended March
31, 2016, to a gain of ¥15.0 billion.
Impairment losses increased ¥23.8 billion to ¥68.5 billion,
as compared with the year ended March 31, 2016. This
mainly reflected impairment losses on software for sale andother intangible assets in the Information &Telecommunication Systems segment.
Net gain on business reorganization and others increased¥26.1 billion to ¥81.3 billion, as compared with the year
ended March 31, 2016, reflecting the partial sale of theshares of Hitachi Transport System, Ltd. in the Others
segment and the sale of Hitachi Koki Co., Ltd. shares in theElectronic Systems & Equipment segment.
Special termination benefits decreased ¥20.8 billion to¥24.6 billion, as compared with the year ended March
31, 2016.
Expenses related to competition law and others
decreased ¥15.5 billion to ¥6.7 billion, as compared with theyear ended March 31, 2016.
Financial income (excluding interest income)decreased ¥3.5 billion to ¥7.0 billion and financial
expenses (excluding interest charges) decreased ¥4.0
billion to ¥26.2 billion, as compared with the year ended
March 31, 2016.
Share of loss of investments accounted for using theequity method was ¥47.1 billion, a deterioration of ¥47.3
billion as compared with the year ended March 31, 2016,
mainly reflecting the posting of an impairment loss inconnection with the uranium enrichment business at an U.S.
equity-method associate in the Social Infrastructure &Industrial Systems segment.
EBIT decreased ¥55.8 billion to ¥475.1 billion, as
compared with the year ended March 31, 2016.

Our Business Model

Operations by Segment
The following is an overview of results of operations bysegment. Revenues for each segment include intersegment
transactions. Segment profit is measured by EBIT.

Strategic Focus

CEO Message(Information & Telecommunication Systems)
Revenues decreased 6% to ¥1,982.8 billion, as comparedwith the year ended March 31, 2016, due mainly to thenegative impact of foreign currency translation causing
lower sales from overseas subsidiaries and to lower sales
from ATMs for overseas markets.
Segment profit decreased ¥32.6 billion to ¥76.4 billion, as
compared with the year ended March 31, 2016, due mainly
to the posting of business structural reform expenses,
despite the effect of business structural reform centered on
the telecommunications & network business, improvementin profitability of the social infrastructure-related information
systems, among other positives.

Hitachi, Ltd. Integrated Report 2017Management & GovernanceValue Creation(Social Infrastructure & Industrial Systems)
Revenues were ¥2,331.9 billion, which was the same level
as the year ended March 31, 2016. This mainly reflected
decreases in revenues in the elevators and escalators
business due to the negative impact of foreign currencytranslation, and in the power and energy business becauseof the absence of a large project posted for the year ended
March 31, 2016, despite substantial revenue growth in therailway systems business due to the acquisition of thebusinesses of AnsaldoBreda S.p.A. (excluding a part of its
operations), the acquisition of Ansaldo STS S.p.A. (both ofwhich are in Italy), and an increase in revenues for the U.K.
Segment loss was ¥19.9 billion, a deterioration of ¥49.1
billion from the year ended March 31, 2016, due mainly tothe posting of an impairment loss regarding the uranium
enrichment business of an equity-method associate in the
U.S. and lower earnings in the elevators and escalators
business because of the negative impact of foreign
currency translation.

55

Performance

Interest income increased ¥0.8 billion to ¥12.9 billion
and interest charges decreased ¥6.9 billion to ¥19.0
billion, as compared with the year ended March 31,
2016.
Income from continuing operations, before income taxes
decreased ¥47.9 billion to ¥469.0 billion, as compared withthe year ended March 31, 2016.
Income taxes decreased ¥40.0 billion to ¥125.1 billion,
as compared with the year ended March 31, 2016, due
mainly to recording tax expenses in the year ended
March 31, 2016 in connection with the partial transfer ofshares of Hitachi Transport System, Ltd. and Hitachi
Capital Corporation.
Loss from discontinued operations decreased ¥51.1
billion to ¥5.9 billion, as compared with the year ended
March 31, 2016.
Net income increased ¥43.2 billion to ¥338.0 billion, as
compared with the year ended March 31, 2016.
Net income attributable to non-controlling interests
decreased ¥15.8 billion to ¥106.7 billion, as compared withthe year ended March 31, 2016.
As a result of the foregoing, net income attributable to
Hitachi, Ltd. stockholders increased ¥59.1 billion to ¥231.2
billion, as compared with the year ended March 31, 2016.

(Electronic Systems & Equipment)
Revenues increased 4% to ¥1,170.3 billion, as comparedwith the year ended March 31, 2016, due mainly toincreased revenues at Hitachi Koki Co., Ltd. because of theacquisition of Germany-based metabo Aktiengesellschaft,despite a decrease in revenues at Hitachi Kokusai ElectricInc. mainly owing to lower sales of telecommunicationequipment and video surveillance systems in Japan.
Segment profit increased ¥2.4 billion to ¥66.7 billion, as
compared with the year ended March 31, 2016, due
mainly to higher earnings at Hitachi High-Technologies
Corporation due to firm sales of semiconductor production
equipment and higher earnings at Hitachi Koki Co., Ltd.
because of the increased revenues, despite a decrease inearnings at Hitachi Kokusai Electric Inc. mainly because ofa decline in revenues and the posting of businessstructural reform expenses.
(Construction Machinery)
Revenues decreased 1% to ¥753.9 billion, as comparedwith the year ended March 31, 2016, due mainly to thenegative impact of foreign currency translation caused byappreciation of the yen, despite the recovery of demand forhydraulic excavators in China and India.
Segment profit decreased ¥3.1 billion to ¥22.7 billion, as
compared with the year ended March 31, 2016, due mainly
to the absence of a gain on business reorganization andothers related to the sale of shares of UniCarriers Holdings
Corporation recorded for the year ended March 31, 2016,
despite the effect of business structural reforms, decreases
in business structural reform expenses and an improvement
in exchange gain or loss.
(High Functional Materials & Components)
Revenues decreased 6% to ¥1,464.6 billion, as comparedwith the year ended March 31, 2016, due mainly to a fall inrevenues at Hitachi Metals, Ltd. due to the negative impactof foreign currency translation causing a fall in sales fromoverseas subsidiaries and a decline in demand associatedwith the slower economies in China and emerging countries
in Asia.
Segment profit decreased ¥30.2 billion to ¥123.3 billion,
as compared with the year ended March 31, 2016, due
mainly to the decrease in revenues and the absence ofgains on business reorganization and others related to thesales of equity interest in Hitachi Tool Engineering, Ltd. by
Hitachi Metals, Ltd. in the year ended March 31, 2016.

56

Hitachi, Ltd. Integrated Report 2017

(Automotive Systems)
Revenues decreased 1% to ¥992.2 billion, as comparedwith the year ended March 31, 2016, due mainly to negative
impact of foreign currency translation, despite sales growthparticularly in North America and China, where demand forautomobiles was firm.
Segment profit increased ¥11.8 billion to ¥65.8 billion, as
compared with the year ended March 31, 2016, due mainly
to posting of gain on sales and disposals of fixed assets
despite the decline in revenues.
(Smart Life & Ecofriendly Systems)
Revenues decreased 18% to ¥557.3 billion, as comparedwith the year ended March 31, 2016, due mainly to theeffect of reorganization of the air-conditioning systems
business with an equity-method associate that is a joint
venture with Johnson Controls Inc.
Segment profit decreased ¥10.1 billion to ¥31.8 billion, as
compared with the year ended March 31, 2016, due mainly
to the effect of a decline in revenues from the reorganizationof the air-conditioning systems business and the absence ofa gain on business reorganization and others in association
with the reorganization of the air-conditioning systems
business recorded in the year ended March 31, 2016.
(Others)
Revenues decreased 48% to ¥653.7 billion, and segment
profit decreased ¥19.9 billion to ¥20.6 billion, as comparedwith the year ended March 31, 2016, respectively. This wasdue mainly to the conversion of Hitachi Transport System,
Ltd. to an equity-method associate.
(Financial Services)
As Hitachi Capital Corporation was converted to an
equity-method associate as of October 2016, there is nocompany which belongs to the Financial Services
segment. Accordingly, only the results for the period inwhich said company was a consolidated subsidiary arerecorded. As a result, revenues decreased 51% to¥179.2 billion, and segment profit decreased ¥23.8
billion to ¥22.8 billion, as compared with the year ended
March 31, 2016, respectively.

2017

Percentchange¥ 5,231.5¥4,757.6–9%4,802.7

4,404.5–8%

Asia2,112.3

1,860.7–12%

North America

1,280.3

1,144.0–11%

Europe

951.1

972.6

2%

Other Areas

459.0

427.1

–7%

Total Revenues¥10,034.3¥9,162.2

–9%

Japan
Overseas Revenues
SubtotalJapan
Revenues in Japan decreased 9% to ¥4,757.6 billion, as
compared with the year ended March 31, 2016. This wasdue to lower revenues across all segments, particularly in
the Others segment, reflecting the conversion of Hitachi
Transport System, Ltd. to an equity-method associate andin the Financial Services segment in which Hitachi Capital
Corporation was converted to an equity-method associate.
Overseas
Overseas revenues decreased 8% to ¥4,404.5 billion, as
compared with the year ended March 31, 2016, and theratio to total revenues was 48%, which was the same level
as the year ended March 31, 2016.

Our Business Model
CEO Message

2016

Years ended March 31:(Europe)
Revenues in Europe increased 2% to ¥972.6 billion, as
compared with the year ended March 31, 2016. This wasdue mainly to higher revenues in the Social Infrastructure &Industrial Systems segment, reflecting substantial growth in
the railway systems business, and the Electronic Systems &Equipment segment, in which Hitachi Koki Co., Ltd.
recorded increased revenues due to the acquisition of
metabo Aktiengesellschaft, despite lower revenues in the
Others and the Financial Services segments, etc.

Strategic Focus

Billions of yen(Other Areas)
Revenues in other areas decreased 7% to ¥427.1 billion, as
compared with the year ended March 31, 2016. This wasdue mainly to lower revenues in the Smart Life & Ecofriendly
Systems and the Others segments, despite higher revenues
in the Social Infrastructure & Industrial Systems segment,
reflecting increased revenues in the railway systems
business, and the Electronic Systems & Equipment
segment, reflecting increased revenues by Hitachi HighTechnologies Corporation.

Value Creation

The following is an overview of revenues attributed togeographic areas based on customer location.

(North America)
Revenues in North America decreased 11% to ¥1,144.0
billion, as compared with the year ended March 31,
2016. This was due mainly to lower revenues in the
Information & Telecommunication Systems, High
Functional Materials & Components and Others
segments, despite higher revenues in the Social
Infrastructure & Industrial Systems segment.

Management & Governance(Asia)
Revenues in Asia decreased 12% to ¥1,860.7 billion, as
compared with the year ended March 31, 2016. This wasdue mainly to lower revenues in the Social Infrastructure &Industrial Systems segment, reflecting reduced revenues inthe elevators and escalators business, particularly in China,
the Others segment in which Hitachi Transport System, Ltd.
was converted to an equity-method associate, and the
Smart Life & Ecofriendly Systems segment due to thereorganization of the air-conditioning systems business,despite higher revenues in the Electronic Systems &Equipment and the Construction Machinery segments.

Hitachi, Ltd. Integrated Report 201757

Performance

Revenues by Geographic Area

Summary of Financial Condition, etc.
Liquidity and Capital Resources
Our management considers maintaining an appropriate levelof liquidity and securing adequate funds for current andfuture business operations to be important financial
objectives. Through efficient management of working capitaland selective investment in new plants and equipment, we
are working to optimize the efficiency of capital utilization
throughout our business operations. We endeavor to
improve our group cash management by centralizing suchmanagement among us and our overseas financial
subsidiaries. Our internal sources of funds include cash
flows generated by operating activities and cash on hand.
Our management also considers short-term investments tobe an immediately available source of funds. In addition, weraise funds both in the capital markets and from Japaneseand international commercial banks in response to ourcapital requirements. Our management s policy is to financecapital expenditures primarily by internally generated funds
and to a lesser extent by funds raised through the issuanceof debt and equity securities in domestic and foreign capital
markets. In order to flexibly access funding, we maintain ourshelf registration with the maximum outstanding balance of¥300.0 billion.
We maintain commitment line agreements with a numberof domestic banks under which we may borrow in order toensure efficient access to necessary funds. These
commitment line agreements generally provide for a oneyear term, renewable upon mutual agreement between us
and each of the lending banks, as well as anothercommitment line agreement with a contract term of three
years ending on July 29, 2019. As of March 31, 2017, ourunused commitment lines totaled ¥599.0 billion, includingthese of ¥400.0 billion which the Company maintained.

58

Hitachi, Ltd. Integrated Report 2017

We receive debt ratings from Moody s Japan K.K.
(Moody s), Standard & Poor s Rating Japan (S&P), as wellas Rating and Investment Information, Inc. (R&I). Our debt
ratings as of March 31, 2017 were as follows.
Long-term

Short-term

Moody sRating Company

A3

P–2

S&P

A–

A–2

R&I

A+

a–1

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

Cash Flows
Billions of yen
Years ended March 31:

2016

2017

Net cash provided by operating activities¥ 812.2¥ 629.5

Net cash used in investing activities(730.7)(337.9)Net cash used in financing activities(26.4)(209.5)

Effect of exchange rate changes
on cash and cash equivalents(57.3)(16.1)

Change in cash and cash equivalents

(2.3)

65.9

701.7

699.3

¥ 699.3¥ 765.2

Cash and cash equivalents at
beginning of year
Cash and cash equivalents at end of year

(Cash Flows from Operating Activities)
Net income in the year ended March 31, 2017 increased by¥43.2 billion, as compared with the year ended March 31,
2016. Trade payables increased by ¥111.5 billion in the year
ended March 31, 2017, as compared with the decrease of¥1.6 billion in the year ended March 31, 2016. However,change in trade receivables and change in inventories
decreased net cash flow by ¥143.7 billion and ¥67.0 billion,
respectively. As a result of the foregoing, net cash provided
by operating activities was ¥629.5 billion in the year ended
March 31, 2017, a decrease of ¥182.6 billion comparedwith the year ended March 31, 2016.

*1 The sum of the purchase of property, plant and equipment, thepurchase of intangible assets and the purchase of leased assets, lessthe proceeds from sale of property, plant, equipment and intangible
assets, the proceeds from sale of leased assets and the collection oflease receivables

equity amounted to ¥2,967.0 billion, an increase of ¥232.0
billion from March 31, 2016. This is due mainly to theposting of net income attributable to Hitachi, Ltd.
stockholders, despite the impact of converting Hitachi
Capital Corporation into an equity-method associate. As aresult, the ratio of total Hitachi, Ltd. stockholders equity tototal assets as of March 31, 2017 was 30.7%, comparedwith 21.8% as of March 31, 2016.
Non-controlling interests as of March 31, 2017 was¥1,129.9 billion, a decrease of ¥260.5 billion from March
31, 2016.
Total equity as of March 31, 2017 was ¥4,096.9 billion, adecrease of ¥28.5 billion from March 31, 2016. The ratio ofinterest-bearing debt to total equity was 0.29, comparedwith 0.87 as of March 31, 2016.

Value Creation

Strategic Focus

CEO Message

As of March 31, 2017, total assets amounted to ¥9,663.9
billion, a decrease of ¥2,887.0 billion from March 31, 2016.
This was due mainly to the conversion of Hitachi Capital
Corporation and Hitachi Transport System, Ltd. into equitymethod associates and the sale of Hitachi Koki Co., Ltd.
Cash and cash equivalents as of March 31, 2017 amounted
to ¥765.2 billion, an increase of ¥65.9 billion from theamount as of March 31, 2016.
As of March 31, 2017, total interest-bearing debt, thesum of short-term debt and long-term debt, amounted to¥1,176.6 billion, a decrease of ¥2,427.8 billion from March
31, 2016. As of March 31, 2017, short-term debt,
consisting mainly of borrowings from banks and commercial
paper, amounted to ¥196.3 billion, a decrease of ¥675.0
billion from March 31, 2016. As of March 31, 2017, current
portion of long-term debt amounted to ¥190.2 billion, adecrease of ¥461.2 billion from March 31, 2016. As of
March 31, 2017, long-term debt (excluding current portion),
consisting mainly of debentures, and loans principally frombanks and insurance companies, amounted to ¥790.0
billion, a decrease of ¥1,291.5 billion from March 31, 2016.
As of March 31, 2017, total Hitachi, Ltd. stockholders

Management & Governance(Cash Flows from Financing Activities)
The net cash outflow from a change in short-term debt
increased by ¥164.0 billion compared with the year ended
March 31, 2016. Proceeds related to long-term debt*2
were ¥115.5 billion, a decrease of ¥65.1 billion comparedwith the year ended March 31, 2016. As a result of theforegoing, net cash used in financing activities was ¥209.5
billion in the year ended March 31, 2017, an increase in net
cash outflow of ¥183.0 billion compared with the year
ended March 31, 2016.

Our Business Model

Assets, Liabilities and Equity*2 The proceeds from long-term debt, less the payments on
long-term debt

As a result of the above items, as of March 31, 2017,
cash and cash equivalents amounted to ¥765.2 billion, net
increase of ¥65.9 billion from March 31, 2016. Free cash
flows, the sum of cash flows from operating and investing
activities, represented an inflow of ¥291.6 billion in the year
ended March 31, 2017, an increase in net cash inflow of¥210.2 billion from the year ended March 31, 2016.

Hitachi, Ltd. Integrated Report 201759

Performance(Cash Flows from Investing Activities)
Net amount of investments related to property, plant andequipment*1 was ¥462.6 billion, a decrease of ¥189.7 billion
as compared with the year ended March 31, 2016.
Proceeds from sale of investments in securities and otherfinancial assets (including investments in subsidiaries andinvestments accounted for using the equity method)
increased by ¥111.1 billion compared with the year ended
March 31, 2016, reflecting partial sales of the shares ofHitachi Transport System, Ltd. and Hitachi Capital
Corporation, and the sale of all shares of Hitachi Koki Co.,
Ltd. Purchase of investments in securities and otherfinancial assets (including investments in subsidiaries andinvestments accounted for using the equity method) was¥177.3 billion, a decrease of ¥19.3 billion compared with theyear ended March 31, 2016, in which the acquisition of thebusinesses of AnsaldoBreda S.p.A. (excluding a part of its
operations), the acquisition of Ansaldo STS S.p.A., and theacquisition of Pentaho Corporation were conducted. As aresult of the foregoing, net cash used in investing activitieswas ¥337.9 billion in the year ended March 31, 2017, adecrease of ¥392.8 billion compared with the year ended
March 31, 2016.