Outline of the 2018 Mid-term Management Plan

Under the 2018 Mid-term Management Plan, Hitachi will accelerate collaborative creation with customers and partners through the advanced Social Innovation Business, with a focus on the trend toward
digitalization that is significantly changing society and industry. Leveraging three strengths—operational
technology, IT, and products/systems—we deliver innovations to society and customers.

Hitachi in 2018

An Innovation Partner for the IoT Era
Power / Energy

Industry / Distribution / WaterUrban

Finance / Public / Healthcare

Four focused business domains

Accelerating the Social Innovation Business
The front delivers Hitachi’s technologies and expertise to customers as services
BeforeFrom FY2016

CUSTOMERSCUSTOMERSFRONTDevelop andSales

Regional bases
Sales
Customer segments (12 business units)provide services
close to thecustomers

SI*1
EPC*2

PLATFORM

Use platform toprovide services

Business
Division

Business
DivisionCore of Social Innovation

efficiently

PRODUCTS
PlantsPlants*1 SI: System Integration*2 EPC: Engineering, Procurement and Construction

8

quickly andIndustrial products, automotive parts, materials, etc.

Provide value
through products

Hitachi, Ltd. | Integrated Report 2016

Strengthening the Front and the R&D That Supports It
The front delivers Hitachi’s technologies and expertise to customers as services

Increase front workforce by 20,000
110,000 (FY2015)

R&D structure

130,000 (FY2018)

CUSTOMERS

Including an increase of 2,000 in platform staff(component ratio: 34%37%)

FRONT

Japan:+3,000Internal shift & new recruits
Overseas: +17,000* Number of sales, SE, consultants and platform developers

PLATFORM• Expand overseas hiring• Roll out the Social Innovation Business, targeting thePRODUCTS

customers of acquired overseas companies• Foster workforce through special training programs• Global Center for Social Innovation
Developing services in keeping with the needsof customers in each region
North America: 100 Europe: 70 China: 115
Asia: 65 Japan: 200 (Total: 550 people)• Center for Technology Innovation
Establishing global No.1 technologies(Japan: 2,050 people)• Center for Exploratory Research
Resolving future social issues (Japan: 100 people)

19,000 employees in 3 years (started March 2016)

Core of Social Innovation IoT Platform “Lumada”
Means for customers to enjoy digitalized innovation quickly and easily
Customers

Characteristics of Lumada
Lumada = Illuminate data

Front of Hitachi
Customers’ andpartners’ platforms

IoT Platform Lumada

1Single Platform, Multiple Solutions
Realize solutions in various business fields“Cross Domain Business Ecosystem”

2

Open
Open architecture available for partners

3

Adaptable
Easily connected to customers’ assets
Graduated dilatation is possible(Symbiotic Autonomous Decentralization)

4

Verified and Secure
Reliable technologies based on experiencesin Social Innovation

Solution functions
Power / Energy

Industry / Distribution / Water

Urban

Finance / Public / Healthcare

Society 5.0
Industrie 4.0
Industrial Internet

Basic functions
Analytics

Artificial Intelligence Hitachi AI Technology/H

Symbiotic Autonomous Decentralization

IT, OT, IoT

Security

Made in China 2025
Etc.

Strengthening Products
Expanding digitalized products that support innovation / Focusing on investing in globally competitive products

Strengthening digitallyconnected products

Communication terminals

Equipment and facilities

IoT controllers

Motors / Inverters /Automation

Feedback to the front lines
Creating measures

OT × IT
expertise
Analysis
Data-gathering and storage

9Outline of the 2018 Mid-term Management Plan

Moving Forward to 2018 (Key Initiatives)(1) Strengthening focused areas for expansion of the Social Innovation Business(2) Front develops and provides services to drive expansion of revenues and profits

FRONTRevenues: FY2015 3,596.9 billion yen FY2018 4,000.0 billion yen
Adjusted operating income ratio: FY2015 5.6% FY2018 8.0%

Power / Energy– Transition to distributed power
supply utilizing IT• Microgrid, regional energy management

Industry / Distribution / Water– Use “Lumada” IoT platform
to optimize value chains forindustry and distribution• Renewable energy

UrbanFinance / Public / Healthcare– Improvement of quality of life
in communities– From rail as a service tooutcome delivery

Investment focus• Strengthening engineering• Strengthening grid and engineering• Predictive maintenance

2.2
550.0

FY2015FY2018• Development of urban solutions• Expansion of the rail business area

Revenues (billion yen) Adjusted Operating Income Ratio (%)

Revenues (billion yen) Adjusted Operating Income Ratio (%)

7.5

9.0

8.7

Revenues (billion yen) Adjusted Operating Income Ratio (%)
11.0

8.1

840.0

790.7

519.5Investment focus

Investment focus• Optimized factory

7.1– Healthcare service (platform)• Strengthening healthcare informatics

Investment focus

Revenues (billion yen) Adjusted Operating Income Ratio (%)– FinTech / My Number

0.0
FY2015FY20181,056.5

1,400.0

1,230.2

1,380.0

FY2015FY2018FY2015FY2018

PLATFORM

Investment focus: Strengthening Lumada
Revenues: FY2015 278.6 billion yen FY2018 330.0 billion yen
Adjusted operating income ratio: FY2015 8.4% FY2018 11.0%

PRODUCTS

Investment focus: Expanding industrial products and materials businesses
Revenues: FY2015 7,389.3 billion yen FY2018 6,820.0 billion yen*
Adjusted operating income ratio: FY2015 5.5% FY2018 7.0%* Figures for FY2018 reflect the conversion of Hitachi Transport System, Ltd. and Hitachi Capital Corporation into equity-method associates and joint ventures.

(3) Accelerating the global rollout of the Social Innovation BusinessEurope• RailwayChina• Nuclear power• Energy

Asia (except for China)• Elevators / Escalators • Healthcare• Industry / Distribution• Finance• Industrial equipment• Energy • Healthcare• Automotive parts, casting

FY2015FY2018FY2015FY2018FY2015FY2018FY2015FY20180.95
trillion yen

1.15
trillion yen

1.05
trillion yen

1.10
trillion yen

1.05
trillion yen

1.22
trillion yen

1.28
trillion yen

1.46
trillion yen

CAGR 6.5％ (10.2％)

CAGR 1.4％ (3.1％)

CAGR 4.9％ (6.4％)

Overseas revenue ratio
FY2015 48%
FY2018 Over 55%*1 CAGRs (Compound annual growth rates) in brackets are based on figures for FY2015 excluding revenues of Hitachi Transport System, Ltd. and Hitachi Capital Corporation*2 Regions except for those that are listed above (including Japan): FY2015 5.69 trillion yen
FY2018 5.07 trillion yen

10North America

CAGR 4.5％ (5.6％)

Hitachi, Ltd. | Integrated Report 2016

Strengthening the Management BaseManagement Acceleration for Growth and Profits
Reform Hitachi’s management baseStrengthening Capability to Generate Cash
Evolution of Hitachi Smart Transformation
Design target costs and reduce procurement costs/
fixed costs

Reduce the layers of management

Re-examine
cost structures

Expand global
business

Expand global partners and customers

Increase efficiency ofoperating capital

Use IT to reduce production lead times anddecrease inventory

Increase businessprofitability

Judgment on low-profitability businesses
Evolution of Hitachi Smart Transformation

Increase efficiency ofinvestments and assets

Share production facilities among plants

Invest in growthbusinesses

Investments totaling 1 trillion yen over three years

Speed upmanagement

Rapid decision making and quick execution

FY2013–FY2015: 510.9 billion yen

Redefine cost-related KPIs on a revenue basis

Utilization of IoT Platform “Lumada” (AI, analytics and IoT)

Investment Policy
Speedily increase profit through investment in products business
Concentrate investment in front to accelerate the Social Innovation Business

Customers

Concentrated investment in front (Investment for growth and acquisition)

FRONT

Record • Rail signaling systems • ATM services
In-house development (Investment for development and acquisition)

PLATFORM

Record • Data analytics
Investment selection (Combination of growth investment, acquisition and capital alliance)

PRODUCTS

Record • Casting business • Overseas air-conditioning business2018 Mid-term Management Plan Targets
FY2015FY2018 Targets*

10,034.3
billion yen

10,000.0
billion yen

Adjusted operating
income ratio

6.3%

EBIT ratio

Revenues

Net income attributable toHitachi, Ltd. stockholders

FY2015FY2018 Targets

Front businessexpansion

Front revenue ratio

Front revenue ratio

36%

40%

Over 8%Global businessexpansion

Overseas revenue ratio

Overseas revenue ratio

48%

Over 55%

5.3%

Over 8%Strengthening cashgenerating capability

172.1
billion yen

Over 400.0
billion yen

Improving asset
profitability* Foreign exchange rate assumption: 110 yen/dollar, 120 yen/euroOperating cash flow margin*1 Operating cash flow margin*1

8.6%

Over 9%

ROA*1,2

ROA*1,2

2.6%

Over 5%*1 Manufacturing, Services and Others*2 ROA (Return on assets) = Net income / Total assets (Average between the end of the current fiscal year andthe end of previous fiscal year) x 10011