Management Strategy

Hitachi’s History of Transformation(Fiscal 2004 – Fiscal 2013)
Recovery from management crisis and on to a new growth stage.
In fiscal 2013, Hitachi achieved new record highs in operating income and EBIT (earnings before interest and taxes).
However, for a company such as Hitachi that aims to be a leader in global markets, we are still just at the starting line.
Going forward, Hitachi will accurately track changes in society, accelerate the process of transformation to achieve new growth,and strive to increase corporate value.
Transformation of Business Portfolio

Fiscal 2004 – Fiscal 2005Fiscal 2006 – Fiscal 2008

Strengthening Initiatives• Established joint venture with OMRON Corporationin the ATM business• Merged with automotive systems equity method company
TOKICO and subsidiary Hitachi Unisia Automotive throughabsorption-type mergers• Established joint venture with NEC Corporation in backbone router/switch business• Acquired plasma display business and related patents from
Fujitsu Limited

Strengthening Initiatives• Made Clarion a consolidated subsidiary• Established joint venture with GE, of the United States,in nuclear power generation systems business• Made Hitachi Kokusai Electric a consolidated subsidiary• Made Hitachi Koki a consolidated subsidiary
Rebuilding Initiatives• Sold precision small motor business to Nidec Corporation• Withdrew from consumer PC business• Transferred semiconductor manufacturing subsidiary in Singapore
to a semiconductor foundry

Rebuilding Initiatives• Established joint venture with Casio Computer Co., Ltd.
in mobile phone business• Transferred printer business to Ricoh Company, Ltd.

(Millions of yen)

600,000

23.7%

25.0%
22.9%
20.6%

500,000
Stockholders’ equity ratio

400,000
EBIT (earnings before interest and taxes)* (left scale)
300,000

Fiscal 2006
• Recorded additional costs due to turbine damage at
a nuclear power station in Japan and to thermal power
plant construction overseas• Falling sales prices for hard disk drives and digital media

11.2%

Fiscal 2008
• Financial crisis causedby Lehman Shock• One-off write-downof deferred tax assets

200,000

100,0000
Net income (loss) attributable to Hitachi, Ltd. stockholders per share(right scale)Fiscal 2007
• Implemented one-off
write-down of deferred tax
assets due to worsening ofconditions in digital media field–100,000–200,000–300,000

2004

2005

* EBIT is presented as income before income taxes less interest income plus interest charges.

22006

2007

2008

Hitachi, Ltd. | Annual Report 2014

Fiscal 2009 – Fiscal 2012

Fiscal 2013

Strengthening Initiatives• Made five listed companies* wholly owned consolidated subsidiaries* Hitachi Information Systems; Hitachi Software Engineering; Hitachi Systems & Services;
Hitachi Plant Technologies; and Hitachi Maxell• Established joint venture in the hydroelectric power generation businesswith Mitsubishi Electric Corporation and Mitsubishi Heavy Industries, Ltd.
• Acquired BlueArc, a network storage solution business in the United States• Dissolved joint venture in the transmission and distribution business• Acquired a nuclear energy company in the United Kingdom

Rebuilding Initiatives• Integrated Renesas Technology, an equity method company
in the semiconductor business, with NEC Electronics• Transferred business in large LCD panels for TVs to Panasonic Corporation• Transferred plasma display panel plant to Solar Frontier K.K.
• Transferred hard disk drive business to Western Digital Corporation, of the United States• Integrated small and medium-sized LCD business with Japan Display Inc.
• Stopped in-house production of flat-panel TVs

Strengthening Initiatives• Hitachi Metals and Hitachi Cable were merged• Established joint venture with Mitsubishi Heavy
Industries, Ltd. in thermal power generation
systems business• Made Hitachi Medical a wholly owned subsidiary• Absorbed Hitachi Plant Technologies
Rebuilding Initiatives• Transferred printed circuit board production
equipment business to an investment fund
• Relisted Hitachi Maxell shares(Yen)

Fiscal 2010
• Celebrated 100th anniversary of founding• Introduced in-house company system12021.2%

24.1%

18.8%

100

15.7%
14.3%

8060

Fiscal 2009
• Raised funds throughthe issuance of new shares

40200Fiscal 2011
• Achieved new record high in net income• Transferred hard disk drive business• Started cost structure reform project

2009

2010

2011

Fiscal 2012
• Introduced Group system• Increased number of
non-Japanese directors,
outside directors became
majority2012

Fiscal 2013
• Achieved new record
highs in operating income
and EBIT〜〜–260

–280

2013
(FY)

–300

3

Management Strategy

2015 Mid-term Management Plan –Achieving Growth and Hitachi’s TransformationRecovering from the Management Crisis

Management Focus

Results under 2012 Mid-termManagement Plan(Fiscal 2010 – Fiscal 2012)INNOVATION
Strengthen service businesses that maximize
the utilization of IT and bring about innovation

Revenues• Grow the Social Innovation Business by working with

3-year average¥9,340.9

customers to identify their challenges and by providing

billioninnovative solutions• Strengthen and expand services businesses by providing
solutions for customers’ issues and product services

EBIT ratio (operating income ratio)
3-year average

4.9

GLOBAL% (4.6%)

Net income attributable to Hitachi, Ltd.
stockholders

Deliver innovation to customers
and society globally• Enhance engineering teams to strengthen solutions-provisionsystem and accelerate global business initiatives

3-year average¥253.7• Sales growth in North America and China in addition to Asiabillion• Globalization of management and use of global resources in R&D

Net income attributable to Hitachi, Ltd.
stockholders per share

TRANSFORMATION

3-year average¥55

Transform to deliver innovation by standardized
and speedy operation
Total Hitachi, Ltd. stockholders’ equity ratio(manufacturing, services & others)• Advancing the Hitachi Smart Transformation Project,a cost structure reform project (reevaluating operations tostrengthen competitiveness and generate cash)• Leverage global talent to lead businesses

Fiscal 2012

23.2
4%

Hitachi, Ltd. | Annual Report 2014

Hitachi’s Vision
Hitachi delivers innovations
that answer society’s challenges.
With our talented team and proven experiencein global markets, we can inspire the world.

Society’s Challenges• Securing water resources, energy and food
• Replacement of aging infrastructure systems• Reduction of CO2 emissions• Improving transportation systems• Responding to lower birthrate and aging• Promoting material recycling

Macro trends• The shale gas revolution is making
the energy-supply portfolio change andoil and gas prices are fluctuating• Japanese market:
Finance sector: Increased IT investment
Public sector: National resilience
Power sector: Deregulation and separation ofgeneration from transmission and distribution• Conventional markets such as healthcare,agriculture, etc., are growing by employing
innovation• Shift from “concentration, ownership, andconsumption” to “distribution, sharing, andrecycling”–a trend that is accelerating5Cases of Service Business

Water business solutions
Addressing global demand for water through intelligent
water systems using recycled water and IT

U.K. rail
Resolving issues by increasing rolling stock operating
ratio and implementing measures for aging rail cars

Elevator and escalator business
Product services supporting the entire product life
cycle, such as operation and maintenance.

Global Strategy

Hitachi has reconfirmed the position of China andNorth America as priority regions and is now
aiming for further growth.
Europe• Railways • Nuclear power • HealthcareChina• Buildings • Governments• Construction • Finance • Healthcare
FY2013

FY2015¥1,073.6 billion¥1,220.0billion[13.6%]FY2013

FY2015¥812.1 billion¥860.0billion

Asia• Energy • Water • Buildings • Railways• Manufacturing • Automobiles[5.9%]

North America• Automobiles • Finance • Oil and gas• Power • Healthcare
FY2013

FY2015¥910.2 billion¥1,000.0[9.9%]FY2013

FY2015¥989.9 billion¥1,290.0billion[30.3%][growth rate]

Cost Structure Reform

Hitachi Smart Transformation Project: Shift to an enterprise that generates cash to achieve growth〜FY2012

FY2013FY2014

FY2015

Reforms focused on cost areas and functions
Accelerate centralized purchasing of
direct and indirect materials

Full-scale development of
global SCM reforms and modular design

Production
costs

Concept formulation

Global SCM reforms

Concept formulation

Expand applications of modular design

Directmaterials
costs

Accelerate centralized purchasing(in Japan)
Indirect costs

Concept formulation(Globally)

Expand introduction of shared services in Japan and overseas

Headquarters reforms

6

Promote process reforms

Global logistics reforms

Centralize common operating expenses

Concept formulation

Accelerate global usage of shared services
and indirect operation reform

Expand specific reforms into area reforms

Strengthen engineered sourcing (increase procurement engineers)
Concept formulation

FY2016〜

Process-focused reforms

Group structure reforms• Advance, standardize, and centralize businesses andwork processes– Supply chain– Project management– Indirect operations in Japan, etc.
• Operational reforms• Shift to a global business process

billionHitachi, Ltd. | Annual Report 2014

Target Performance

Revenues

oService revenue ratio

Fiscal 2015 Target¥10FY2015

Overtrillion

Fiscal 2013 Result40%¥9,616.2

billion

EBIT ratio (operating income ratio)
FY2013Fiscal 2015 Target

32%

Over 7%(Over 7%)

Fiscal 2013 Result

6.0% (5.5%)

Overseas revenue ratio
attioatiooNet income attributable to Hitachi, Ltd.
stockholders
FY2015

Fiscal 2015 Target

OverOver ¥350.0

50%billion

Fiscal 2013 Result¥264.9FY2013

45%billion

Net income attributable to Hitachi, Ltd.
stockholders per share
Fiscal 2015 Target

Cost reduction benefi
efi
fitss
Single year (Billions of yen)

Cumulative (Billions of yen)
400.0
90.0

Over ¥70
Fiscal 2013 Result¥54.86

310.0

Hitachi, Ltd. stockholders’ equity ratio(manufacturing, services & others)

90.0
220.0

Fiscal 2015 Target

110.0

Over 30%

110.0
75.0

35.0

FY2011Result

FY2012
Result

FY2013Result

FY2014
Forecast

FY2015
TargetFiscal 2013 Result

27.4 %7