The Hitachi Group’s Growth Strategy

Financial and Capital Strategy
Financial Analysis of Past Five Years
The following is a summarized financial analysis of the Hitachi Group over the past five years.
• In addition to the adoption of CCC as a management indicator, the strategic reorganization of Group companies has led to the realization of streamlined assets overthe past five years.
• Specifically, this includes an approximately ¥2.55 trillion reduction in interest-bearing debt and an improvement in the D/E ratio from 0.83 to 0.23.
• Although the cumulative dividend payout ratio was below 30%, the total amount of dividends paid increased. Most of operating cash flow was used to repay debt.
(¥ billion)

Revenues

FY2014FY2015FY2016FY2017FY20189,774.9

10,034.3

9,162.2

9,368.6

9,480.6

Adjusted operating income

641.3

634.8

587.3

714.6

754.9

EBIT

534.0

531.0

475.1

644.2

513.9

Net income (loss) attributable to Hitachi, Ltd. stockholders

217.4

172.1

231.2

362.9

222.5

12,433.7

12,551.0

9,663.9

10,106.6

9,626.5

701.7

699.3

765.2

697.9

807.5

8,137.3

8,425.4

5,566.9

5,594.9

5,212.1
1,004.7

Total assets
Cash and cash equivalents
Total Liabilities
Interest-bearing debt

3,557.3

3,604.4

1,176.6

1,050.2

4,296.3

4,125.5

4,096.9

4,511.6

4,414.4

Non-controlling interests

1,354.0

1,390.4

1,129.9

1,233.6

1,151.8

Total Hitachi, Ltd. stockholders’ equity

2,942.2

2,735.0

2,967.0

3,278.0

3,262.6

Total Hitachi, Ltd. stockholders’ equity ratio

23.7%

21.8%

30.7%

32.4%

33.9%

0.83

0.87

0.29

0.23

0.23

Capital expenditures (Completion basis)

431.2

528.5

377.5

374.9

414.7

Depreciation

350.7

366.5

302.7

265.4

271.6

R&D expenditures

334.8

333.7

323.9

332.9

323.1

3.4%

3.3%

3.5%

3.6%

3.4%

Total Equity

D/E ratio (Including non-controlling interests) (times)

Ratio to revenues
Net cash provided by operating activities

451.8

812.2

629.5

727.1

610.0

Net cash used in investing activities(612.5)(730.7)(337.9)(474.3)(162.8)

Free cash flows(160.7)

81.4

291.6

252.8

447.1

Net cash provided by (used in) financing activities

233.2(26.4)(209.5)(321.4)(320.4)
77.2

Dividends to Hitachi, Ltd. stockholders*

55.5

57.9

57.9

67.5

Dividends to non-controlling interests*

32.5

39.5

38.2

34.3

42.9

Total cash dividends paid

88.1

97.4

96.2

101.9

120.2

* Those figures are reported in the Consolidated Statement of Changes in Equity presented on P.100.

As a result of the above, in terms of formulating strategy going forward, Hitachi will maintain an awareness of three issues:(1) Further improvements to profitability and capital efficiency through ROIC management, (2) lowering WACC using moderate
leverage within appropriate financial discipline and (3) reducing capital costs and increasing Total Shareholder Returns (TSR)
through the execution of rational shareholder return measures with consideration for share buybacks in addition to dividends.

Ensuring Financial Stability
Hitachi recognizes that ensuring the stability of our financial base is an importantmanagement issue in terms of realizing the growth investments (approximately¥2.0 –¥2.5 trillion over three years) and continuous return of profits targeted in
the 2021 Mid-term Management Plan. To this end, we must maintain an

Rating CompanyLong term

Short termStandard & Poor’sRatings Japan (S&P)

A

A–1

Moody’s Japan K.K.
(Moody’s)

A3

P–2

Rating and Investment
Information, Inc. (R&I)

AA-a–1+

A-rating on our corporate bonds and a D/E ratio of about 0.5 times.
The Hitachi Group’s ability to generate cash has increased steadily over thepast five years with improvements in our financial structure leading to ratings
improvements as shown in the table on the right, with S&P upgrading its ratingsfrom A- to A and from A-2 to A-1 in August 2018, and Moody's maintaining its
rating of A3 and P-2, while R&I changed its ratings from A+ to AA- and a-1 toa-1+ in August 2019.
As of August 31, 201936

Hitachi Integrated Report 2019

Financial and Capital Strategies and Shareholder
Returns Going Forward

Basic Approach to Shareholder Returns

Basic Approach to Funding Procurement

Returning profits to shareholders through the medium- to long-term

Funding procurement is conducted by the most appropriate means inenhancement of corporate value and ongoing dividends is anlight of a variety of conditions, including the timing and funding required

important management priority for Hitachi. With regard to dividends,for business. When procuring funds through borrowing, our financial

our policy is to attempt to provide stable dividend growth, while

discipline policy is to maintain a D/E ratio of less than 0.5 times and an

ensuring funding necessary for investments. Under this policy, weinterest bearing debt/EBITDA ratio of less than 2.0 times.

make decisions based on overall consideration for performanceFurthermore, over the next three years leading up to fiscal 2021, wetrends, financial conditions, dividend payout ratios and other factors.

plan to make large-scale growth investments of around ¥2.0–¥2.5

Share buybacks are conducted flexibly to supplement dividends intrillion, which will be procured through our own capital, borrowings andaccordance with funding demand and the business environment.

asset sales amounting to approximately ¥4.0–¥4.5 trillion.

Internal reserves are used for M&A, R&D, capital investments and otheractivities to ensure Hitachi’s competitiveness and growth as a global
company based on medium- to long-term strategies.

Basic Approach to Capital Costs

The total amount of shareholder returns over the next three years up

Regarding the cost of capital (hurdle rate) used for individual

to fiscal 2021 is planned to exceed levels in the previous three years.

investment decisions, calculations are made on a case-by-case basis
in light of interest rates, country risks and the expected stock market
returns in the country where the investment will be made.

Total Shareholder Returns (TSR) for Hitachi, Ltd., Over the Past 10 Years
400350300250

Hitachi share price
TOPIX including dividends
TOPIX Electrical Equipment
including dividends

20015010050

Past 1 Year

Past 3 Years
Cumulative

Annual rate

Hitachi share price

-4.6%

44.9%

TOPIX

-5.0%

26.2%

TOPIX Electrical Equipment-10.8%

40.9%

3/0

31920

1820

1720

Past 5 Years

Cumulative/annualrate

/0

3/0

320
16/0

3/015
20

03
20
14/3/01320

320

12/0320
11/0/01020

2009/03

30

Past 10 Years

Cumulative

Annual rate

Cumulative

Annual rate

13.2%

3.3%

0.6%

209.6%

12.0%

8.1%

47.1%

8.0%

153.3%

9.7%

12.1%

51.3%

8.6%

170.6%

10.5%

Note: The graph and table above show return on investment for investments made from the fiscal year ended March 31, 2009, taking into account dividends and stock prices as of the fiscal year ended March 31, 2019. Hitachi, Ltd.,
investment performance, including stock prices and dividends, is indexed using 100 as investment amount as of March 31, 2009. The TSE Stock Price Index (TOPIX), which is a comparative indicator, is similarly indexed using data
including dividends for electrical equipment.

Total shareholder returns (TSR), including dividends and stock price, are shown above.
Looking at the past 10 years, the annual rate of return is 12.0%, which is higher than the market average (Tokyo Stock Price Index and Tokyo Stock
Price Electrical Equipment Index). In the most recent fiscal year 2018, the market share price fell, resulting in almost the same negative return as theTOPIX. Also, although the stock price has entered an adjustment phase due to declines in business performance over the past five years in the fiscal
years ended March 31, 2016, and March 31, 2017, the stock price recovered in line with stronger performance and TSR has exceeded the market
average over the past three years.
Hitachi will continue efforts to improve shareholder value with management and financial strategies enabling us to realize a TSR that exceeds thecost of shareholders’ equity.

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